Page 1 of 11 Pages
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For Quarter Ended June 29, 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 Employer
of incorporation or organization) Identification No.)
14-04 111th Street, College Point, New York 11356-1434
(Address of principal executive offices) (Zip Code)
Telephone Number (718) 321-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at June 29, 1996
Common shares, par value $1 per share 6,018,285
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EDO CORPORATION
INDEX
Page No.
Face Sheet 1
Index 2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 29, 1996 and
December 31, 1995 3
Consolidated Statements of
Earnings - Three Months Ended
June 29, 1996 and
June 30, 1995 4
Consolidated Statements of
Earnings - Six Months Ended
June 29, 1996 and
June 30, 1995 5
Consolidated Statements of Cash Flows -
Six Months Ended
June 29, 1996 and
June 30, 1995 6
Other Financial Information 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8-9
Part II Other Information 10
Signature 11
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Assets June 29, 1996 Dec. 31, 1995
(unaudited)
Current assets:
Cash and cash equivalents $ 23,112 $ 25,609
Accounts receivable 28,454 26,786
Inventories 10,973 10,330
Prepayments 3,298 1,381
---------- ----------
Total current assets 65,837 64,106
Property, plant and equipment, net 14,667 14,133
Assets held for sale, net - 8,700
Cost in excess of fair value of net
assets acquired, net 9,970 10,258
Other assets 9,587 6,302
---------- ----------
$100,061 $103,499
========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 18,318 $ 20,581
Contract advances and deposits 3,635 5,853
---------- ----------
Total current liabilities 21,953 26,434
Long-term debt 29,317 29,317
ESOT loan obligation 12,281 12,887
Postretirement obligation 12,058 12,348
Environmental Obligation 3,769 3,769
Minority interest 4,319 4,582
Shareholders' Equity
- --------------------
Preferred shares, par value $1 per share,
(liquidation preference $213.71 per share),
authorized 500,000 shares (68,413 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 35,729 37,847
Retained earnings 20,516 19,116
---------- ----------
64,767 65,488
Less: Treasury shares at cost
2,435,617 shares in 1996 and
2,645,863 shares in 1995 <34,617> <37,604>
Translation adjustment <842> <835>
ESOT loan obligation <12,281> <12,887>
Deferral under long-term
incentive plan <663> -
---------- ----------
Total shareholders' equity 16,364 14,162
---------- ----------
$100,061 $103,499
========== ==========
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
June 29, 1996 June 30, 1995
(unaudited)
Income
Net sales $28,556 $24,879
Other 144 129
---------- ----------
28,700 25,008
Costs and Expenses
Cost of Sales 22,511 19,670
Selling, general and administrative 4,781 4,049
Research and development 292 336
---------- ----------
27,584 24,055
Operating Earnings 1,116 953
---------- ----------
Non-Operating Income (Expense)
Interest income 389 248
Interest expense <555> <568>
Other, net <25> <25>
---------- ----------
<191> <345>
Earnings before Federal income taxes 925 608
Provision for Federal income taxes - -
---------- ----------
Net earnings before minority interest 925 608
Minority interest 118 <18>
---------- ----------
Net earnings 1,043 590
Dividends on preferred shares 293 307
---------- ----------
Net earnings available for Common Shares $ 750 $ 283
========== ==========
Net earnings per Common Share $ 0.12 $ 0.05
========== ==========
Average shares outstanding 6,118 5,708
========== ==========
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(In thousands except per share amounts)
For the six months ended
June 29, 1996 June 30, 1995
(unaudited)
Income
Net sales $ 54,837 $ 45,797
Other 185 293
---------- ----------
55,022 46,090
Costs and Expenses
Costs of sales 43,260 35,406
Selling, general and administrative 9,118 8,440
Research and development 558 658
---------- ----------
52,936 44,504
Operating Earnings 2,086 1,586
---------- ----------
Non-Operating Income (Expense)
Interest income 807 510
Interest expense <1,107> <1,136>
Other, net <50> <50>
---------- ----------
<350> <676>
---------- ----------
Earnings before Federal income taxes 1,736 910
Provision for Federal income taxes - -
---------- ----------
Net earnings before minority interest 1,736 910
Minority interest 260 111
---------- ----------
Net earnings 1,996 1,021
Dividends on preferred shares 596 629
---------- ----------
Net earnings available for Common Shares $ 1,400 $ 392
========== ==========
Net earnings per Common Share $ 0.23 $ 0.07
========== ==========
Average shares outstanding 6,019 5,676
========== ==========
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EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the six months ended
June 29, 1996 June 30,1995
(unaudited)
Operating Activities:
Net earnings $ 1,996 $ 1,021
Adjustments to net earnings to arrive
at cash from operations:
Depreciation and amortization 3,204 2,990
Treasury shares used for employee benefits
and payment of Directors' fees 206 -
Changes in:
Accounts receivable <1,668> 530
Inventories <643> 2,118
Prepayments, other assets and other 269 <667>
Accounts payable and accrued liabilities <2,263> <1,210>
Contract advances and deposits <2,218> 59
---------- ----------
Cash provided (used) by operations <1,117> 4,841
Investing Activities:
Purchase of property, plant and equipment <2,784> <1,250>
Net proceeds from sale of assets 2,000 -
---------- ----------
Cash used by investing activities <784> <1,250>
Financing Activities:
Payment of preferred share cash dividends <596> <629>
---------- ----------
Cash used by financing activities <596> <629>
Net increase (decrease) in cash and cash
equivalents <2,497> 2,962
Cash and cash equivalents at beginning
of period 25,609 18,076
---------- ----------
Cash and cash equivalents at end of period $23,112 $21,038
========== ==========
Supplemental disclosures:
Cash paid for: Interest $ 1,055 $ 1,076
Income taxes 102 209
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Other Financial Information
Unaudited Financial Statements
The accompanying unaudited financial statements and other related financial
information furnished reflect all adjustments which are, in the opinion of
management, necessary to present a fair statement of the operating results for
the six months ended June 29, 1996 and June 30, 1995.
Backlog Data
The dollar amount of backlog of firm orders at June 29, 1996 was $88,979,000
compared to $82,517,000 at June 30, 1995.
Inventories
Inventories are summarized by major classification as follows:
June 29, 1996 Dec. 31, 1995
(in thousands)
Raw material and supplies $ 6,079 $ 6,186
Work in process 3,754 3,023
Finished goods 1,140 1,121
--------- ---------
$ 10,973 $ 10,330
Reclassifications
Certain reclassifications of 1995 amounts have been made to conform with the
1996 presentation.
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion relates to the operations of EDO Corporation in its
two business segments: Defense and Space Systems; and Industrial Products.
Results of Operations
- ---------------------
Sales in the first six months of 1996 were $54.8 million compared with $45.8
million in 1995. Sales in the Defense and Space Systems segment increased 21%
to $32.5 million. Higher sales in the Electro- Optics and Marine and Aircraft
business units were partially offset by lower sales in the Combat Systems
business unit. The Industrial Products segment sales increased 18% to $22.3
million. Higher sales in the Fiber Science and Ceramics business units were
partially offset by lower sales in the Acoustic Products business unit.
Earnings from operations (before general corporate expense allocations) in the
first six months of 1996 were $4.1 million, compared with $3.4 million in 1995,
(included in 1995 earnings was a pension plan curtailment gain of $645,000
resulting from reductions previously made in the Company's work force).
Operating earnings in the Defense and Space Systems segment increased to $3.4
million in the first six months of 1996 from $1.9 million for the same period
in 1995. This increase resulted primarily from an improvement at the
Electro-Optics business unit. The Industrial Products segment recorded
operating earnings of $0.7 million in the first six months of 1996, compared
with $1.5 million for the same period in 1995. The six month results were
negatively affected by losses in the Energy business units which continue to be
hampered by the slow growth of their related markets and increases in selling,
general and administrative expenses noted below. The Energy business units have
adjusted their operations in response to this slower growth rate and the level
of investment in these units continues to be evaluated.
Selling, general and administrative expenses in the first six months of 1996
were $9.1 million, compared with $8.4 million in the first six months of 1995.
The increase is primarily due to cost growth in the remediation of a Superfund
site mentioned in note 17 of the Company's 1995 Annual Report.
Company sponsored research and development expenditures decreased 15% from the
like 1995 period to $0.6 million. This reduction was recorded principally in
the Defense and Space Systems segment where the present lower levels of
research and development are consistent with the Company's current operational
plans.
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Interest expense, net of interest income, declined to $0.3 million in the first
six months of 1996, compared with $0.6 million in the like period of 1995,
resulting from higher interest income in 1996.
The Company reported net earnings available for common shares of $1,400,000, or
$0.23 per share in the first six months of 1996, compared to net earnings of
$392,000 or $0.07 per share a year ago. Earnings per share calculations are
based on a weighted average of 6.0 million shares outstanding for the first six
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 $23.1 million at June 29, 1996. The reduction results from an
increase in accounts receivable and decreases in accounts payable and contract
advances, which were partially offset by the higher net earnings.
The Company has an ESOT loan obligation that is currently $12.3 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 the $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.
Capital expenditures in the first six months of 1996 amounted to $2.8 million
principally to upgrade facilities for satellite related programs. The rate of
expenditure for the next six months is expected to be lower than the rate
expended in the first six 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 June 29, 1996 stood at $89.0 million compared
with $82.5 million a year ago and $89.7 million at December 31, 1995. The
increased backlog, in the comparative six month period, occurred primarily in
the Company's Defense and Space Systems segment.
<PAGE>
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PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6.(a) Exhibits
4(a) Amendment No. 10 to the Guarantee Agreement referred to in Exhibit
4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, effective as of June 30, 1996.
27 - Financial Data Schedule
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDO Corporation
(Registrant)
by: K. A. Paladino
-----------------------------
Vice President-Finance
and Treasurer
(Principal Financial Officer)
Dated: August 12, 1996
AMENDMENT NO. 10 TO GUARANTEE AGREEMENT
AMENDMENT NO. 10 (the "Amendment") dated as of June 30, 1996 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, Waiver
and Amendment No. 8 to Guarantee Agreement dated February 10, 1995 and
Amendment No. 9 to Guarantee Agreement dated as of June 30, 1995 (as so
amended, the "Existing Guarantee") made by EDO CORPORATION, a New York
corporation (the "Guarantor") in favor of FLEET BANK, N.A. (formerly NatWest
Bank N.A. and hereinafter referred to as 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 Guarantee Agreement 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)(x) is deleted in its entirety and there is
substituted therefor the following:
"(x) Limitation on Capital Expenditures. Make any capital expenditures or fixed
asset acquisitions, or, without duplication, incur any obligation so to do or
permit any Subsidiary so to do, with respect to the Guarantor and its
Subsidiaries on a consolidated basis in an amount exceeding (i) $3,500,000 for
the fiscal year ending December 31, 1995, (ii) $4,500,000 for the fiscal year
ending December 31, 1996, and (iii) $4,000,000 in any fiscal year thereafter.
Capital expenditures and fixed asset acquisitions shall be calculated on a
non-cumulative basis so that amounts not expended in any fiscal year may not be
carried over and expended in subsequent fiscal years."
(b) Subsection 10(b)(xiv) is deleted in its entirety and there is
substituted therefor the following:
"(xiv) Limitations on Acquisitions. Acquire all or any substantial portion of
the business, stock or assets of any company or permit any Subsidiary to do any
of the foregoing, except that the Guarantor or any Subsidiary may acquire all
or any substantial portion of the business, stock or assets of any company if
and only if:
(i) after giving effect thereto, no Event of Default under the
Loan Agreement shall have occurred or would exist as a result of such purchase;
(ii) each such acquisition shall be of assets utilized by the
transferor thereof in a line of business related to the Guarantor's business or
of capital stock of a corporation substantially all of whose properties consist
of such assets;
(iii) the Guarantor shall have given the Bank not less than thirty
(30) days prior written notice of such proposed acquisition, such notice to
include the proposed amount, date and form of the proposed transaction, a
reasonable description of the assets or stock to be acquired, a description of
the liabilities to be assumed (if any) and the location of all assets to be
acquired;
(iv) concurrently with the consummation of any such acquisition,
the Guarantor or its Subsidiary, as the case may be, shall, as additional
collateral security for any and all of their respective obligations to the
Bank, grant to the Bank a first lien on all of its right, title and interest in
and to the acquired assets, if any, by the execution and delivery to the Bank
of such agreements, instruments and documents as shall be satisfactory in form
and substance to the Bank; and
(v) the amount of all such acquisitions with respect to the
Guarantor and its Subsidiaries on a consolidated basis shall not exceed
$10,000,000 in the aggregate and no single acquisition shall be in excess of
$5,000,000."
(c) Subsection 12(a) is amended by deleting the clause "At any time on
or after April 1, 1997," and substituting therefor the clause "At any time on
or after April 1, 2000,".
2. In order to induce the Bank to execute and deliver this Amendment No. 10,
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 No. 10.
3. Defined terms used in this Amendment No. 10 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 No. 10 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: K. A. Paladino
-----------------------------
Vice President-Finance
and Treasurer
Title
FLEET BANK, N.A.
By: Phillip H. Sorace
-----------------------------
Vice President
Title
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 23,112
<SECURITIES> 0
<RECEIVABLES> 28,454
<ALLOWANCES> 503
<INVENTORY> 10,973
<CURRENT-ASSETS> 65,837
<PP&E> 63,500
<DEPRECIATION> 48,833
<TOTAL-ASSETS> 100,061
<CURRENT-LIABILITIES> 21,953
<BONDS> 41,598
<COMMON> 8,454
0
68
<OTHER-SE> 7,842
<TOTAL-LIABILITY-AND-EQUITY> 100,061
<SALES> 54,837
<TOTAL-REVENUES> 55,022
<CGS> 43,260
<TOTAL-COSTS> 52,936
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 1,107
<INCOME-PRETAX> 1,736
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,400
<EPS-PRIMARY> .23
<EPS-DILUTED> .20
</TABLE>
