Page 1 of 13 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 28, 1997
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 June 28, 1997
Common shares, par value $1 per share 6,285,368
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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 28, 1997 and
December 31, 1996 3
Consolidated Statements of
Operations - Three Months Ended
June 28, 1997 and
June 29, 1996 4
Consolidated Statements of
Operations - Six Months Ended
June 28, 1997 and
June 29, 1996 5
Consolidated Statements of Cash Flows -
Six Months Ended
June 28, 1997 and
June 29, 1996 6
Other Financial Information 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8-10
Part II Other Information 11
Signature 12
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Assets June 28, 1997 Dec. 31, 1996
(unaudited)
Current assets:
Cash and cash equivalents $ 32,422 $ 20,745
Accounts receivable 32,639 32,518
Inventories 7,220 7,994
Prepayments 3,908 2,678
-------- --------
Total current assets 76,189 63,935
Property, plant and equipment, net 13,128 12,968
Notes Receivable 3,450 3,900
Cost in excess of fair value of net
assets acquired, net 6,976 7,159
Other assets 6,811 6,261
-------- --------
$106,554 $ 94,223
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 22,840 $ 21,517
Contract advances and deposits 13,236 4,809
Net liabilities of discontinued
operations - 227
-------- --------
Total current liabilities 36,076 26,553
Long-term debt 29,317 29,317
ESOT loan obligation 11,022 11,676
Postretirement obligation 3,995 3,995
Environmental Obligation 2,459 2,859
Shareholders' Equity
ESOP Convertible Cumulative Preferred
Shares Series A, par value $1 per share,
(liquidation preference $213.71 per share),
authorized 500,000 shares (issued 65,725
in 1997, 67,832 in 1996) 66 68
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 33,342 35,438
Retained earnings 24,752 22,368
-------- --------
66,614 66,328
Less: Treasury shares at cost
2,168,534 shares in 1997 and
2,409,136 shares in 1996 (30,761) (34,240)
ESOT loan obligation (11,022) (11,676)
Deferral under long-term
incentive plan (1,146) (589)
-------- --------
Total shareholders' equity 23,685 19,823
-------- --------
$106,554 $ 94,223
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share amounts)
For the three months ended
June 28, 1997 June 29, 1996
(unaudited)
Continuing operations:
Income
Net Sales $ 23,193 $ 24,771
Other 45 211
-------- --------
23,238 24,982
Costs and expenses
Cost of sales 17,264 18,707
Selling, general and administrative 3,650 4,364
Research and development 489 173
-------- --------
21,403 23,244
Earnings from continuing operations 1,835 1,738
Non-operating income (expense)
Interest income 436 376
Interest expense (543) (555)
Other, net (25) (25)
-------- --------
(132) (204)
-------- --------
Earnings from continuing operations
before Federal income taxes 1,703 1,534
Provision for Federal income taxes - -
-------- --------
Earnings from continuing operations 1,703 1,534
Loss from discontinued operations - (491)
-------- --------
Net earnings 1,703 1,043
Dividends on preferred shares 281 293
-------- --------
Net earnings available for Common Shares $ 1,422 $ 750
======== ========
Earnings (Loss) per Common Share:
Primary:
Continuing operations $ 0.23 $ 0.20
Discontinued operations 0 (0.08)
-------- --------
$ 0.23 $ 0.12
======== ========
Fully Diluted:
Continuing operations $ 0.20 $ 0.18
Discontinued operation 0 (0.07)
-------- --------
$ 0.20 $ 0.11
======== ========
Average shares outstanding (Primary) 6,295 6,118
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share amounts)
For the six months ended
June 28, 1997 June 29, 1996
(unaudited)
Continuing operations:
Income
Net Sales $ 46,897 $ 48,440
Other 53 291
-------- --------
46,950 48,731
Costs and expenses
Cost of sales 35,179 37,185
Selling, general and administrative 7,350 7,794
Research and development 802 342
-------- --------
43,331 45,321
Earnings from continuing operations 3,619 3,410
Non-operating income (expense)
Interest income 761 761
Interest expense (1,086) (1,107)
Other, net (30) (50)
-------- --------
(355) (396)
-------- --------
Earnings from continuing operations
before Federal income taxes 3,264 3,014
Provision for Federal income taxes - -
-------- --------
Earnings from continuing operations 3,264 3,014
Loss from discontinued operations 0 (1,018)
-------- --------
Net earnings 3,264 1 996
Dividends on preferred shares 571 596
-------- --------
Net earnings available for Common Shares $ 2,693 $ 1,400
======== ========
Earnings (Loss) per Common Share:
Primary:
Continuing operations $ 0.43 $ 0.40
Discontinued operations 0 (0.17)
-------- --------
$ 0.43 $ 0.23
======== ========
Fully Diluted:
Continuing operations $ 0.37 $ 0.35
Discontinued operation 0 (0.14)
-------- --------
$ 0.37 $ 0.21
======== ========
Average shares outstanding (Primary) 6,273 6,019
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the six months ended
June 28, 1997 June 29, 1996
(unaudited)
Operating activities:
Earnings from continuing operations $ 3,264 $ 1,996
Adjustments to earnings from continuing
operations:
Depreciation and amortization 3,149 3,204
Deferred compensation expense and
Directors' fees 826 206
Changes in:
Accounts receivable (121) (1,226)
Inventories 774 (489)
Prepayments, other assets and other (2,848) 2,625
Accounts payable and accrued liabilities 696 (2,507)
Contract advances and deposits and other 8,427 (2,137)
-------- --------
Cash provided by continuing operations 14,167 1,672
Net cash provided (used) by
discontinued operations 629 (1,025)
Investing activities:
Purchase of property, plant and equipment (2,400) (2,568)
Net proceeds from sale of assets - 2,000
-------- --------
Cash used by investing activities (2,400) (568)
Financing activities:
Payments received on notes receivable 163 -
Payment of common share cash dividends (309) -
Payment of preferred share cash dividends (571) (596)
Other, net (2) (3)
-------- --------
Cash used by financing activities (719) (599)
Increase (decrease) in cash and cash equivalents 11,677 (520)
Cash and cash equivalents at beginning of year 20,745 22,918
-------- --------
Cash and cash equivalents at end of period $ 32,422 $ 22,398
======== ========
Supplemental disclosures:
Cash paid for: Interest $ 1,026 $ 1,055
Income taxes 767 102
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Other Financial Information
Item 1.
Discontinued Operations
In October 1996, the Company announced its decision to discontinue its energy
related businesses, consisting of the Company's 50.4% interest in EDO (Canada)
Limited, EDO Automotive Natural Gas Inc.("EDO ANGI"), and EDO Energy
Corporation.
On April 14, 1997 the Company announced the sale of the EDO ANGI business unit
to Hurricane Compressors, Inc., an established manufacturer and supplier of
natural gas fueling stations.
On April 25, 1997 EDO (Canada) Limited filed for protection from creditors
under the Companies' Creditors Arrangement Act of Canada. Subsequent thereto,
on May 13, 1997, EDO (Canada) Limited made a voluntary assignment in
bankruptcy pursuant to the Bankruptcy and Insolvency Act of Canada. The terms
of the EDO-ANGI sale and the EDO (Canada) Limited filings did not result in a
change to the reserves established in the third quarter of 1996.
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 provided
(used) by discontinued operations."
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 28, 1997 and June 29, 1996.
Backlog Data
The dollar amount of backlog of firm orders at June 28, 1997 was $124,797,000
compared to $83,832,000 at June 29, 1996.
Inventories
Inventories are summarized by major classification as follows:
June 28, 1997 Dec. 31, 1996
(in thousands)
Raw material and supplies $ 3,532 $ 4,226
Work in process 3,144 3,380
Finished goods 544 388
------- -------
$ 7,220 $ 7,994
======= =======
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion relates only to the continuing operations of EDO
Corporation in its two business segments: Defense and Space Systems; and
Industrial Products.
Results of Operations
First Six Months of 1997 compared with First Six Months of 1996
Sales in the first six months of 1997 were $46.9 million, 3% less than the
$48.4 million reported in 1996. Sales in the Defense and Space Systems
segment decreased 2% to $31.8 million. Higher sales in the Marine and
Aircraft Systems and Combat Systems business units were offset by lower sales
in the Electro-Optics business unit. The Industrial Products segment sales
decreased 5% to $15.1 million. Increases in Ceramic business unit sales were
offset by lower sales in the Fiber Science and Acoustics business units.
Earnings from operations (before general corporate expense allocations) in the
first six months of 1997 were $6.1 million, compared with $5.5 million in
1996. Operating earnings in the Defense and Space Systems segment increased
to $3.8 million in the first six months of 1997 from $3.4 million for the same
period in 1996. Increased earnings from both the Marine and Aircraft Systems
and Combat Systems business units were offset partially by a decrease in
earnings at the Electro-Optics business unit. The Industrial Products
segment recorded operating earnings of $2.3 million in the first six months of
1997, compared with $2.0 million for the same period in 1996. Increased
earnings at the Ceramics business unit was partially offset by lower earnings
at the Fiber Science and Acoustics business units.
Selling, general and administrative expenses in the first six months of 1997
were $7.4 million, compared with $7.8 million in the first six months of 1996.
Company sponsored research and development expenditures increased 135% from
the like 1996 period to $0.8 million. This increase was recorded principally
in the Defense and Space Systems segment. The expenditure for Company
sponsored research and development in 1997 is expected to be higher than what
was spent in 1996.
Interest expense, net of interest income was $0.3 million in the first six
months of 1997, the same as in the like period of 1996.
The Company reported net earnings available for common shares of $2,693,000 or
$0.43 per share in the first six months of 1997, compared to net earnings of
$1,400,000, or $0.23 per share a year ago. Prior year results were negatively
impacted by the losses recorded in the discontinued operations. Earnings per
share calculations were based on a weighted average of 6.3 million shares
outstanding for the first six months of 1997 and 6.0 million shares for the
like period in 1996.
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Liquidity and Capital Resources
The Company's cash and cash equivalents increased $11.7 million from December
31, 1996 to $32.4 million at June 28, 1997, due primarly to the receipt of
contract advance payments.
The Company has an ESOT loan obligation that is currently $11.0 million. The
repayment of this obligation is funded principally through dividends on the
Company's ESOP Convertible Cumulative Preferred Shares, Series A. 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 commenced in December of 1996.
The Company maintains a $15.0 million secured line of credit with a bank for
short-term cash borrowing and letters of credit (the "Agreement"). Under the
Agreement, the potential cash borrowings are limited to $5.0 million. There
have been no cash borrowings under the Agreement. The Company and its bank
are currently negotiating a proposed renewal of the line of credit Agreement
which expires on September 30, 1997.
Capital expenditure in the first six months of 1997 amounted to $2.4 million
as compared to $2.6 million in the comparable period. The total expenditure
for 1997 is not expected to be significantly higher than the $4.2 million
spent in 1996.
In the third quarter of 1994, the Board of Directors suspended cash dividends
on the Company's common shares due to the financial circumstances at that
time. In January 1997, the Board of Directors declared a first quarter cash
dividend of $0.025 per common share. In April 1997, the Board of Directors
declared a second quarter cash dividend of $0.025 per common share.
The Company believes it has adequate liquidity and sufficient capital
resources to fund its plans.
Backlog
The backlog of unfilled orders at June 28, 1997 stood at $124.8 million
compared with $83.8 million a year ago and $103.0 million at December 31,
1996. The increased backlog occurred primarily in the Company's Defense and
Space Systems segment.
"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
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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;
changes in U.S. and international government procurement timing, strategies
and practices; and
the general state of world military readiness and deployment.
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;
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;
Achievement of margins on sales, earnings and cash flow 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.
The Company has no obligation to update any forward-looking statements.
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PART II - OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders held on April 22, 1997, the
following actions were taken.
a. Messrs. Robert E. Allen, Robert Alvine and Michael J. Hegarty were elected
as directors each receiving 5,434,409 votes.
b. The Company's 1997 Non-Employee Director Stock Option Plan was approved:
there were 4,917,249 votes cast in favor of the proposal, 858,842 votes cast
against, and 135,996 abstentions.
c. The appointment of KPMG Peat Marwick LLP as independent auditors for the
Company for the year 1997 was ratified: there were 5,739,775 votes cast in
favor, 97,523 votes cast against, and 74,790 abstentions.
Item 6.(a) Exhibits
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
-------------------------
K. A. Paladino - Vice President
Finance and Treasurer
(Principal Financial Officer)
Dated: July 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<CASH> 32,422
<SECURITIES> 0
<RECEIVABLES> 32,639
<ALLOWANCES> 373
<INVENTORY> 7,220
<CURRENT-ASSETS> 76,189
<PP&E> 60,949
<DEPRECIATION> 47,821
<TOTAL-ASSETS> 106,554
<CURRENT-LIABILITIES> 36,076
<BONDS> 40,339
<COMMON> 8,454
0
66
<OTHER-SE> 15,165
<TOTAL-LIABILITY-AND-EQUITY> 106,554
<SALES> 46,897
<TOTAL-REVENUES> 46,950
<CGS> 35,179
<TOTAL-COSTS> 43,331
<OTHER-EXPENSES> 30
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 1,086
<INCOME-PRETAX> 3,264
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,693
<EPS-PRIMARY> .43
<EPS-DILUTED> .37
</TABLE>
