Page 1 of 14 Pages
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For Quarter Ended September 28, 1996
Commission File Number 1-3985
EDO CORPORATION
(Exact name of registrant as specified in its charter)
New York No. 11-0707740
(State or other jurisdiction (I.R.S Employee
of incorporation or organization) Identification No.)
14-04 111th Street, College Point, New York 11356-1434
(Address of principal executive offices) (Zip Code)
Telephone Number (718) 321-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at Sept. 28, 1996
Common shares, par value $1 per share 6,036,263
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Page 2
EDO CORPORATION
INDEX
Page No.
Face Sheet 1
Index 2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 28, 1996 and
December 31, 1995 3
Consolidated Statements of
Earnings - Three Months Ended
September 28, 1996 and
September 30, 1995 4
Consolidated Statements of
Earnings - Nine Months Ended
September 28, 1996 and
September 30, 1995 5
Consolidated Statements of Cash Flows -
Nine Months Ended
September 28, 1996 and
September 30, 1995 6
Other Financial Information 7-8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-12
Part II Other Information 13
Signature 14
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Assets Sept. 28, 1996 Dec. 31, 1995*
(unaudited)
Current assets:
Cash and cash equivalents $ 20,398 $ 22,918
Accounts receivable 31,330 23,605
Inventories 8,447 8,087
Prepayments 2,957 1,180
---------- ----------
Total current assets 63,132 55,790
Property, plant and equipment, net 12,191 12,212
Assets held for sale, net - 8,700
Net assets of discontinued operations - 5,341
Cost in excess of fair value of net
assets acquired, net 7,251 7,526
Other assets 9,251 5,957
---------- ----------
$ 91,825 $95,526
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 17,462 $ 16,566
Contract advances and deposits 3,949 5,642
---------- ----------
Total current liabilities 21,411 22,208
Net liabilities relating to discontinued
operations 2,756 -
Long-term debt 29,317 29,317
ESOT loan obligation 11,978 12,887
Postretirement obligation 4,335 12,348
Environmental Obligation 3,600 3,769
Shareholders' Equity
Preferred shares, par value $1 per share,
(liquidation preference $213.71 per share),
authorized 500,000 shares (67,896 issued
in 1996 and 71,001 issued in 1995) 68 71
Common shares, par value $1 per share,
authorized 25,000,000 shares, (issued
8,453,902 in both periods) 8,454 8,454
Additional paid-in capital 35,513 37,847
Retained earnings 21,358 19,116
---------- ----------
65,393 65,488
Less: Treasury shares at cost
2,417,639 shares in 1996 and
2,645,863 shares in 1995 <34,361> <37,604>
ESOT loan obligation <11,978> <12,887>
Deferral under long-term
incentive plan <626> -
---------- ----------
Total shareholders' equity 18,428 14,997
---------- ----------
$ 91,825 $ 95,526
========== ==========
*Reclassified for Discontinued Operations (See Page 7)
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
Sept. 28, 1996 Sept. 30, 1995
(unaudited)
Continuing operations:
Income
Net Sales $23,107 $18,634
Other 70 83
---------- ----------
23,177 18,717
Costs and expenses
Cost of sales 18,180 14,382
Selling, general and administrative 2,914 2,670
Research and development 216 170
Postretirement health care curtailment
gain <7,120> 0
---------- ----------
14,190 17,222
Earnings from continuing operations 8,987 1,495
Non-operating income (expense)
Interest income 331 246
Interest expense <539> <548>
Other, net <25> <25>
---------- ----------
<233> <327>
---------- ----------
Earnings from continuing operations
before Federal income taxes 8,754 1,168
Provision for Federal income taxes - -
---------- ----------
Earnings from continuing operations 8,754 1,168
Discontinued operations:
Loss from operations <619> <384>
Loss on discontinuance, including
provision for operating losses during
phase-out period <7,000> -
---------- ----------
Loss from discontinued operations <7,619> <384>
---------- ----------
Net earnings 1,135 784
Dividends on Preferred Shares 293 307
---------- ----------
Net earnings available for Common Shares $ 842 $ 477
========== ==========
Earnings (Loss) per Common Share:
Primary:
Continuing operations $ 1.38 $ 0.15
Discontinued operations <1.24> <0.07>
---------- ----------
$ 0.14 $ 0.08
========== ==========
Fully Diluted:
Continuing operations $ 1.18 $ 0.13
Discontinued operation <1.06> <0.06>
---------- ----------
$ 0.12 $ 0.07
========== ==========
Average shares outstanding (Primary) 6,141 5,845
========== ==========
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(In thousands except per share amounts)
For the six months ended
Sept. 28, 1996 Sept. 30, 1995
(unaudited)
Continuing operations:
Income
Net sales $ 71,547 $ 58,461
Other 361 178
---------- ----------
71,908 58,639
Costs and expenses
Cost of sales 55,365 44,643
Selling, general and administrative 10,708 9,621
Research and development 558 564
Postretirement health care
curtailment gain <7,120> 0
---------- ----------
59,511 54,828
Earnings from continuing operations 12,397 3,811
Non-operating income (expense)
Interest income 1,092 746
Interest expense <1,646> <1,657>
Other, net <75> <75>
---------- ----------
<629> <986>
---------- ----------
Earnings from continuing operations
before Federal income taxes 11,768 2,825
Provision for Federal income taxes - -
---------- ----------
Earnings from continuing operations 11,768 2,825
Discontinued operations:
Loss from operations <1,637> <1,020>
Loss on discontinuance, including
provision for operating losses during
phase-out period <7,000> -
---------- ----------
Loss from discontinued operations <8,637> <1,020>
---------- ----------
Net earnings 3,131 1,805
Dividends on Preferred Shares 889 936
---------- ----------
Net earnings available for Common Shares $ 2,242 $ 869
========== ==========
Earnings (Loss) per Common Share:
Primary:
Continuing operations $ 1.80 $ 0.33
Discontinued operations <1.43> <0.18>
---------- ----------
$ 0.37 $ 0.15
========== ==========
Fully Diluted:
Continuing operations $ 1.53 $ 0.28
Discontinued operation <1.21> <0.15>
---------- ----------
$ 0.32 $ 0.13
========== ==========
Average shares outstanding (Primary) 6,060 5,733
========== ==========
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Page 6
EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the six months ended
Sept. 28, 1996 Sept. 30, 1995
(unaudited)
Operating activities:
Earnings from continuing operations $ 11,768 $ 2,825
Adjustments to arrive
at cash flows from operating activities
of continuing operations:
Post retirement health care
curtailment gain <7,120> -
Depreciation and amortization 4,245 3,813
Treasury shares used for employee benefits
and payment of Directors' fees 283 43
Changes in:
Accounts receivable <7,725> <4,585>
Inventories <360> 1,720
Prepayments, other assets and other <108> <492>
Decrease in recoverable and deferred
income taxes - 3,385
Accounts payable and accrued liabilities 1,124 <4,423>
Contract advances and deposits <1,693> 2,825
---------- ----------
Cash provided by operating activities
of continuing operations: 414 5,111
Net cash used by discontinued operations <1,095> <1,288>
Investing activities:
Purchase of property, plant and equipment <2,950> <1,444>
Net proceeds from sale of assets 2,000 -
---------- ----------
Cash used by investing activities <950> <1,444>
Financing activities:
Payment of preferred share cash dividends <889> <936>
---------- ----------
Net increase (decrease) in cash and cash
equivalents <2,520> 1,443
Cash and cash equivalents at beginning
of period 22,918 17,837
---------- ----------
Cash and cash equivalents at end of period $20,398 $19,280
========== ==========
Supplemental disclosures:
Cash paid for: Interest $ 1,055 $ 1,117
Income taxes 150 275
<PAGE>
Page 7
Other Financial Information
Discontinued Operations
On October 23, 1996, the Company announced its decision to discontinue its
energy related businesses. Those businesses affected include the Company's
50.3% interest in EDO (Canada) Limited, a manufacturer of Compressed Natural
Gas (CNG) fuel cylinders, EDO Automotive Natural Gas Inc., a designer and
manufacturer of CNG refueling stations and related equipment and a wholly owned
subsidiary of EDO Energy Corporation, and EDO Energy Corporation, a wholly
owned subsidiary of the Company involved in program management activities in
CNG and other alternative fuel projects. All businesses will continue to
operate as before while the Company seeks investors interested in the
continuation of the businesses.
Pursuant to Accounting Principles Board Opinion No. 30, the consolidated
financial statements of the Company have been restated to reflect the effects
of the Company's decision to discontinue its energy related businesses.
Accordingly, the revenues, costs and expenses, assets and liabilities, and cash
flows associated with EDO (Canada) Limited, EDO Automotive Natural Gas
Incorporated, and EDO Energy Corporation have been excluded from the respective
captions in the Consolidated Statements of Earnings, Consolidated Balance
Sheets and Consolidated Statements of Cash Flows. The net operating results of
these entities have been reported as "Loss from discontinued operations"; the
net assets (liabilities) of these entities have been reported as "Net assets
(liabilities) of discontinued operations"; and the cash flows of these entities
have been reported as "Net cash used by discontinued operations."
Summarized financial information for the discontinued operations is as follows:
(Dollars in Thousands)
(unaudited)
For the Three For the Nine
Months Ended Months Ended
September September
1996 1995 1996 1995
Sales $ 2,924 $ 3,265 $ 9,321 $ 9,235
Net after tax loss $ <619> $ <384> $<1,637> $<1,020>
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At September At December
28, 1996 31, 1995
Net Assets $ 1,136 $ 6,520
Liabilities <1,892> <1,179>
Accrual for losses during
phase-out period <2,000> 0
----------- -----------
Net assets (liabilities)
of discontinued operations $ <2,756> $ 5,341
=========== ==========
Unaudited Financial Statements
The accompanying unaudited financial statements and other related financial
information furnished reflect all adjustments which are, in the opinion of
management, necessary to present a fair statement of the operating results for
the nine months ended September 28, 1996 and September 30, 1995.
Backlog Data
The dollar amount of backlog of firm orders at September 28, 1996 was
$81,754,000 compared to $87,345,000 at September 30, 1995.
Inventories
Inventories are summarized by major classification as follows:
Sept. 28, 1996 Dec. 31, 1995
(in thousands)
Raw material and supplies $ 4,734 $ 5,051
Work in process 3,281 2,245
Finished goods 432 791
------- -------
$ 8,447 $ 8,087
======= =======
Reclassifications
Certain reclassifications of 1995 amounts have been made to conform with the
1996 presentation.
<PAGE>
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion relates to the continuing operations of EDO
Corporation in its two business segments: Defense and Space Systems; and
Industrial Products. As discussed in Item 1, the Company is discontinuing its
energy related operations and, therefore, will not include an analysis of such
operations below.
Results of Operations
Sales in the first nine months of 1996 were $71.5 million compared with $58.5
million for the comparable period in 1995. Sales in the Defense and Space
Systems segment increased 24% to $48.4 million. Higher sales were recorded in
the Marine and Aircraft and Electro-Optics business units which were partially
offset by lower sales in the Combat Systems business unit. The Electro-Optics
business unit experienced the greater increase because their sales were lower
in the prior comparable period due primarily to development problems with
several fixed price programs which are now in production. The Industrial
Products segment sales increased 19% to $23.1 million. Higher sales in the
Fiber Science and Ceramics business units were partially offset by lower sales
in the Acoustic Products business unit.
During the third quarter of 1996, the Company announced its decision to
discontinue medical benefits for its Medicare eligible retirees which resulted
in a $7.1 million curtailment gain. This non-cash gain represents the reversal
of a significant portion of the Postretirement obligation established upon the
adoption of Statement of Financial Accounting Standards (SFAS) No. 106,
Employers Accounting for Post-retirement Benefits Other Than Pensions, in 1993.
Earnings from operations, excluding the curtailment gain mentioned above, in
the first nine months of 1996 were $5.3 million, compared with $3.8 million for
the comparable period in 1995. Operating earnings for the first nine months of
1996 include approximately $1.2 million in income relating to the Company's
postretirement health care and pension plans. Included in 1995 operating
earnings was a pension plan curtailment gain of $.6 million resulting from
reductions previously made in the Company's work force. Also included in the
first nine months of 1996 is a provision of approximately $.8 million relating
to the Company's re-evaluation of a product line.
Operating earnings in the Defense and Space Systems segment increased to $2.9
million in the first nine months of 1996 from $1.5 million for the same period
in 1995. Substantially, all of the improvement occurred at the Electro-Optics
business unit where in the comparable period its operating results were
negatively affected by the previously mentioned fixed price development
programs. The Industrial Products segment recorded operating earnings of $2.4
million in the first nine months of 1996, compared with $2.3 million for the
same period in 1995.
<PAGE>
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Item 2. (continued)
Selling, general and administrative expenses in the first nine months of 1996
were $10.7 million, compared with $9.6 million in the first nine months of
1995. The increase is associated with the growth in sales over the comparable
period as well as cost growth for the remediation of a superfund site described
in note 17 of the Company's 1995 Annual Report.
Company sponsored research and development expenditures were the same as the
like 1995 period and totaled $0.6 million. This level of expenditure is
consistent with the Company's current operational plans.
Interest expense, net of interest income, declined to $0.6 million in the first
nine months of 1996, compared with $1.0 million in the like period of 1995,
resulting from higher interest income in 1996.
There was no federal income tax provision due to the utilization of tax loss
carryforwards.
The Company reported net earnings available for common shares of $2,242,000, or
$0.37 per share in the first nine months of 1996, compared to net earnings of
$869,000 or $0.15 per share a year ago. The 1996 results include the net effect
of an $8.6 million loss from discontinuance of its energy related operations,
including a provision for operating losses during the year and the phase out
period, and a $7.1 million gain from the curtailment of postretirement health
care benefits for Medicare eligible retirees, mentioned above. Primary
Earnings per share calculations are based on a weighted average of 6.1 million
shares outstanding for the first nine months of 1996, and 5.7 million shares
for the like period in 1995.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $2.5 million from December
31, 1995 to $20.4 million at September 28, 1996. The reduction results from
cash flow from continuing operations of approximately $.4 million and $2.0
million of proceeds from sale of assets being more than offset by purchases of
capital equipment, payment of preferred share dividends and cash used by
discontinued operations.
The Company has an ESOT loan obligation that is currently $12.0 million. The
repayment of this obligation is funded principally through dividends on the
Company's preferred shares. The Company also has outstanding $29.3 million of
7% Convertible Subordinated Debentures Due 2011. In accordance with
authorization from the Board of Directors, the Company has previously acquired
$5.7 million of such debentures. These debentures will be used to satisfy
approximately three years of sinking fund requirements that commence in
December of 1996.
In June 1996, the Company's bank extended the maturity date of its $15 million
line of credit agreement for both short term borrowings and letters of credit
to June 30, 1997 and extended the option to cancel or refinance its ESOT
borrowing to April 1, 2000.
<PAGE>
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Item 2. (continued)
Capital expenditures in the first nine months of 1996 amounted to $3.0 million
principally to upgrade facilities for satellite related programs. The rate of
expenditure for the next three months is expected to be about the same as in
the first nine months.
In August 1994, the Board of Directors of the Company suspended payment of cash
dividends on its common shares to preserve cash and to facilitate funding of
the Company's strategic business plan.
The Company believes it has adequate liquidity and sufficient capital resources
to fund its plans.
Backlog
The backlog of unfilled orders at September 28, 1996 stood at $81.8 million
compared with $87.3 million a year ago and $86.5 million at December 31, 1995.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
The statements in this Quarterly Report on Form 10-Q and in oral statements
which may be made by representatives of the Company relating to plans,
strategies, economic performance and trends and other statements that are not
descriptions of historical facts may be forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1993 and Section 21E of the Securities Exchange Act of
1934. Forward-looking information is inherently subject to risks and
uncertainties, and actual results could differ materially from those currently
anticipated due to a number of factors, which include, but are not limited to
the following for each of the types of information noted.
U.S. and international military program sales, follow-on procurement, contract
continuance, future program awards and upgrades and spares support are subject
to:
U.S. and international military budget constraints and determinations;
U.S. congressional and international legislative body discretion;
U.S. and international government administration policies and priorities;
changing world military threats, strategies and missions;
competition from foreign manufacturers of platforms and equipment;
NATO country determinations regarding participation in common programs;
changes in U.S. and international government procurement timing, strategies
and practices; and
the general state of world military readiness and deployment.
<PAGE>
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Commercial satellite programs and equipment sales, follow-on procurement,
contract continuance and future program awards are subject to:
establishment and continuance of various consortiums for satellite
constellation programs;
delay in launch dates due to equipment, weather, or other factors beyond the
control of the Company;
development of sufficient customer base to support a particular satellite
constellation program;
success and cost of upgraded or new EDO satellite products in current or
future development plans; and
competition from other satellite manufacturers and/or the prime contractors
themselves.
Other commercial product sales are subject to:
success of product development programs currently underway or planned;
competitiveness of current and future product production costs and prices;
market and customer base development for new product programs;
downturn of the economy reducing demand for products;
financial viability of original equipment manufacturer customer base.
Where the Company presents annualized amounts based on partial year results,
such amounts are mere calculations and are not intended to be projections or
expectations of actual results for the year. Achievement of margins on sales
can be affected by unanticipated technical problems, government termination of
contracts for convenience, decline in expected levels of revenues and
underestimation of anticipated costs on specific programs. Availability of
financing and credit lines is subject to discretionary action by lending
institutions and operating results of the Company.
The Company has no obligation to update any forward-looking statements.
<PAGE>
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PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6.(a) Exhibits
27 - Financial Data Schedule
<PAGE>
Page 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDO Corporation
(Registrant)
by: K. A. Paladino
-----------------------------
Vice President-Finance
and Treasurer
(Principal Financial Officer)
Dated: October 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-28-1996
<CASH> 20,398
<SECURITIES> 0
<RECEIVABLES> 31,330
<ALLOWANCES> 362
<INVENTORY> 8,447
<CURRENT-ASSETS> 63,132
<PP&E> 57,784
<DEPRECIATION> 45,593
<TOTAL-ASSETS> 91,825
<CURRENT-LIABILITIES> 21,411
<BONDS> 41,295
<COMMON> 8,454
0
68
<OTHER-SE> 9,906
<TOTAL-LIABILITY-AND-EQUITY> 91,825
<SALES> 71,547
<TOTAL-REVENUES> 71,908
<CGS> 55,365
<TOTAL-COSTS> 59,511
<OTHER-EXPENSES> 75
<LOSS-PROVISION> 70
<INTEREST-EXPENSE> 1,646
<INCOME-PRETAX> 3,131
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,879
<DISCONTINUED> (8,637)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,242
<EPS-PRIMARY> .37
<EPS-DILUTED> .32
</TABLE>
