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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For Quarter Ended June 27, 1998
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.)
60 East 42nd Street, Suite 5010, New York, NY 10165
(Address of principal executive offices) (Zip Code)
Telephone Number (212) 716-2000
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 27, 1998
Common shares, par value $1 per share 6,576,649
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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 27, 1998 and
December 31, 1997 3
Consolidated Statements of
Earnings - Three Months Ended
June 27, 1998 and
June 28, 1997 4
Consolidated Statements of
Earnings - Six Months Ended
June 27, 1998 and
June 28, 1997 5
Consolidated Statements of Cash Flows -
Six Months Ended
June 27, 1998 and
June 28, 1997 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8-11
Part II Other Information 12
Signature 13
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
Assets June 27, 1998 Dec. 31, 1997
(unaudited)
Current assets:
Cash and cash equivalents $ 23,576 $ 20,351
Marketable securities 5,004 13,851
Accounts receivable 37,161 32,421
Inventories 9,471 6,816
Prepayments and other 2,476 5,564
---------- ----------
Total current assets 77,688 79,003
Property, plant and equipment, net 13,306 12,865
Notes receivable 3,000 3,000
Cost in excess of fair value of net
assets acquired, net 6,608 6,792
Other assets 8,116 7,141
---------- ----------
$ 108,718 $ 108,801
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 20,383 $ 21,773
Contract advances and deposits 10,292 12,753
---------- ----------
Total current liabilities 30,675 34,526
Long-term debt 29,317 29,317
ESOT loan obligation 9,662 10,368
Postretirement benefits obligation 3,526 3,526
Environmental obligation 2,929 2,929
Shareholders' Equity:
8% convertible preferred shares,
par value $1 per share(liquidation
preference $213.71 per share or $13,159
in the aggregate in 1998)authorized
500,000 shares, 61,573 issued(64,843 in
1997) 62 65
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 30,900 32,546
Retained earnings 30,925 27,641
---------- ----------
70,341 68,706
Less: Treasury shares at cost
1,877,253 shares in 1998 and
2,054,474 shares in 1997 (26,700) (29,201)
ESOT loan obligation (9,662) (10,368)
Deferred compensation under
Long-Term Incentive Plan (1,370) (1,002)
---------- ----------
Total shareholders' equity 32,609 28,135
---------- ----------
$ 108,718 $ 108,801
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
June 27, 1998 June 28, 1997
(unaudited)
Income
Net sales $ 23,397 $ 23,193
Other 7 45
---------- ----------
23,404 23,238
Costs and expenses
Cost of sales 16,608 17,264
Selling, general and administrative 3,603 3,650
Research and development 824 489
---------- ----------
21,035 21,403
Operating earnings 2,369 1,835
Non-operating income (expense)
Interest income 482 436
Interest expense (548) (543)
Other, net (25) ( 25)
---------- ----------
( 91) (132)
---------- ----------
Earnings before Federal income taxes 2,278 1,703
Federal income tax expense - -
---------- ----------
Net earnings 2,278 1,703
Dividends on preferred shares 263 281
---------- ----------
Net earnings available for common shares $ 2,015 $ 1,422
========== ==========
Earnings per common share:
Basic $ 0.31 $ 0.23
========== ==========
Diluted $ 0.27 $ 0.20
========== ==========
Average shares outstanding:
Basic 6,527 6,187
========== ==========
Diluted 7,644 7,214
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the six months ended
June 27, 1998 June 28, 1997
(unaudited)
Income
Net sales $ 46,698 $ 46,897
Other 28 53
---------- ----------
46,726 46,950
Costs and expenses
Cost of sales 33,664 35,179
Selling, general and administrative 7,204 7,350
Research and development 1,546 802
---------- ----------
42,414 43,331
Operating earnings 4,312 3,619
Non-operating income (expense)
Interest income 1,027 761
Interest expense (1,106) (1,086)
Other, net (50) ( 30)
---------- ----------
( 129) (355)
---------- ----------
Earnings before Federal income taxes 4,183 3,264
Federal income tax expense - -
---------- ----------
Net earnings 4,183 3,264
Dividends on preferred shares 540 571
---------- ----------
Net earnings available for common shares $ 3,643 $ 2,693
========== ==========
Earnings per common share:
Basic $ 0.56 $ 0.44
========== ==========
Diluted $ 0.49 $ 0.38
========== ==========
Average shares outstanding:
Basic 6,488 6,159
========== ==========
Diluted 7,608 7,191
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the six months ended
June 27, 1998 June 28, 1997
(unaudited)
Operating activities:
Net earnings $ 4,183 $ 3,264
Adjustments to net earnings to arrive at
cash (used) provided by operations:
Depreciation and amortization 2,135 3,149
Common shares issued for employee
benefits and directors' fees 487 826
Changes in:
Accounts receivable (4,740) (121)
Inventories (2,655) 774
Prepayments, other current assets
and other assets 1,808 (2,219)
Accounts payable and accrued
liabilities (1,390) 696
Contract advances and deposits (2,461) 8,427
---------- ----------
Cash (used) provided by operations (2,633) 14,796
Investing activities:
Purchase of property, plant and equipment (2,312) (2,400)
Sale of marketable securities 8,847 -
---------- ----------
Cash provided (used) investing activities 6,535 (2,400)
Financing activities:
Payments received on notes receivable 222 161
Payment of common share cash dividends (359) (309)
Payment of preferred share cash dividends (540) (571)
---------- ----------
Cash used by financing activities (677) (719)
Net increase in cash and cash equivalents 3,225 11,677
Cash and cash equivalents at beginning
of year 20,351 20,745
Cash and cash equivalents at end of period $ 23,576 $ 32,422
========== ==========
Supplemental disclosures:
Cash paid for: Interest $ 1,057 $ 1,026
Income taxes 1,278 767
(Federal, state and local)
See accompanying Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
Unaudited Financial Statements
The accompanying unaudited, consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the consolidated financial statements of EDO
Corporation (the "Company") for the fiscal year ended December 31, 1997, filed
by the Company on Form 10-K with the Securities and Exchange Commission on
March 20, 1998.
The accompanying financial statements are unaudited and include all adjustments
(consisting of normal recurring adjustments and accruals) that management
considers necessary for a fair presentation of its financial position and
results of operations for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the
results that may be expected for the entire year.
Backlog Data
The dollar amount of backlog of firm orders at June 27, 1998 was $139,018,000
compared to $124,797,000 at June 28, 1997.
Inventories
Inventories are summarized by major classification as follows:
June 27, 1998 Dec. 31, 1997
(in thousands)
Raw material and supplies $ 4,192 $ 3,471
Work in process 5,154 3,120
Finished goods 125 225
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$ 9,471 $ 6,816
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Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
Three Months Ended Six Months Ended
6/27/98 6/28/97 6/27/98 6/28/97
Numerator:
Net earnings available
for common shares, basic $2,015 $1,422 $3,643 $2,693
Impact of assumed conversion
of preferred shares 28 23 51 51
------ ------ ------ ------
Numerator for diluted
calculation $2,043 $1,445 $3,694 $2,744
====== ====== ====== ======
Denominator:
Weighted average common
shares outstanding, basic 6,527 6,187 6,488 6,159
Dilutive effect of stock
options 187 108 190 113
Dilutive effect of conversion
of preferred shares 930 919 930 919
------ ------ ------ ------
Denominator for diluted
calculation 7,644 7,214 7,608 7,191
====== ====== ====== ======
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
First Six Months of 1998 compared with First Six Months of 1997
Net sales for the first six months of 1998 were $46.7 million compared with
$46.9 million reported in the same period in 1997. Sales increases from mine
countermeasures systems, command and control and sonar systems were offset
primarily by decreased satellite system sales as a result of delays in expected
orders.
Earnings from operations in the first six months of 1998 were $4.3 million
compared with $3.6 million in the same period in 1997. The 1998 earnings
included approximately $0.4 million representing an increase in pension income
over that of the prior year related to the over-funding of the Company's
pension plan. The balance of the increased operating earnings resulted from
modest improvements in operating margins in substantially all of the Company's
principal product lines, except for satellite systems where decreased sales
continue to adversely affect operating results. Such improvements were further
offset by increased research and development expenditures.
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Selling, general and administrative expenses in the first six months of 1998
were comparable to the first six months of 1997.
Company-sponsored research and development expenditures increased 93% to $1.5
million during the first six months of 1998 from the corresponding period in
1997. This increase is consistent with the Company's strategy of increased
investment in product development.
Non-operating expense, net, was $0.1 million in the first six months of 1998,
compared with $0.3 million in the corresponding period of 1997. This reduction
was due to increased interest income as a result of higher levels of average
invested cash.
In the first six months of 1998 and 1997 the Company did not have a provision
for Federal income taxes due to the utilization of tax loss carryforwards.
The Company reported net earnings available for common shares of $3.6 million
in the first six months of 1998 compared with $2.7 million a year ago. Basic
net earnings per share were $0.56 in the first six months of 1998 compared with
$0.44 in the corresponding period in 1997. Basic net earnings per share
calculations are based on a weighted average of 6.5 million and 6.2 million
common shares outstanding in the first six months of 1998 and 1997,
respectively. Diluted earnings per share were $0.49 in the first six months of
1998 compared with $0.38 a year ago.
Financial Condition
The Company's cash, cash equivalents and marketable securities decreased by
$5.6 million from December 31, 1997 to $28.6 million at June 27, 1998. The
decrease resulted from cash used by operations of $2.6 million, $2.3 million
for purchases of capital equipment and $0.9 million for payment of common and
preferred dividends, offset by a $0.2 million payment received on notes
receivable.
The Company has outstanding $29.3 million of 7% Convertible Subordinated
Debentures Due 2011. Commencing in 1996 and until retirement of these
debentures, the Company is making annual sinking fund payments of $1.8 million
which are due each December 15th. As of June 27, 1998 the Company had $2.2
million of these debentures remaining in treasury to be used for these annual
requirements.
The Company also has an ESOT loan obligation with a balance at June 27, 1998 of
$9.7 million at an interest rate of 82% of the prime lending rate. The ESOT
obligation agreement can be canceled or refinanced by the Company or the lender
on or after April 1, 2000. The repayment of this obligation is funded through
dividends on the Company's preferred shares and cash contributions.
The Company is in negotiations for a new $30 million secured multi-year
revolving credit facility through Mellon Bank which will lead a syndicate of
banks to provide the package. In addition to taking a portion of the revolving
credit facility, Mellon Bank will also finance the remaining $9.7 million
balance of the Company's existing ESOT loan. This new credit facility will
replace the Company's present $15.0 million secured line of credit which
currently expires on August 31, 1998.
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Capital expenditures in the first six months of 1998 totaled $2.3 million
compared with $2.4 million in the same period in 1997. The total expenditures
for 1998 are not expected to be significantly different than the $4.1 million
in 1997.
The Company believes that it has adequate liquidity and sufficient capital to
fund its current operating plans.
The backlog of unfilled orders at June 27, 1998 stood at $139.0 million
compared with $124.8 million a year ago and $111.6 million at December 31,
1997.
On July 31, 1998, the Company closed on its acquisition of the assets of the
Technology Services Group of Global Associates, Ltd., in Falls Church, VA. The
Company paid cash of approximately $4.8 million, which is subject to
post-closing adjustment. The acquired business will operate as EDO Technology
Services and Analysis and will be part of the Company's Combat Systems
business, providing operations and systems analysis to the Department of
Defense and other governmental agencies.
New Accounting Standard
Statement of Financial Accounting Standards No. 131 establishes standards for
reporting information about operating segments, and related disclosures about
products and services, geographic areas and major customers. The Company,
which will adopt this Statement effective January 1, 1998, as required, is
evaluating the impact that the adoption of this new accounting standard will
have on its consolidated financial statement disclosures.
"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;
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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 5. Submissions of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders held on April 28, 1998, the
following actions were taken:
a. Messrs. Mellon C. Baird, George M. Ball, and Joseph F. Engelberger were
elected as directors, each receiving 6,293,949 votes.
b. The appointment of KPMG Peat Marwick LLP as independent auditors for the
Company for the year 1998 was ratified: there were 6,636,391 votes cast
in favor, 73,939 votes cast against, and 74,043 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: August 6, 1998
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-27-1998
<CASH> 23,576
<SECURITIES> 5,004
<RECEIVABLES> 37,161
<ALLOWANCES> 280
<INVENTORY> 9,471
<CURRENT-ASSETS> 77,688
<PP&E> 63,681
<DEPRECIATION> 50,375
<TOTAL-ASSETS> 108,718
<CURRENT-LIABILITIES> 30,675
<BONDS> 38,979
<COMMON> 8,454
0
62
<OTHER-SE> 24,093
<TOTAL-LIABILITY-AND-EQUITY> 108,718
<SALES> 46,698
<TOTAL-REVENUES> 46,726
<CGS> 33,664
<TOTAL-COSTS> 42,414
<OTHER-EXPENSES> 50
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<INTEREST-EXPENSE> 1,106
<INCOME-PRETAX> 4,183
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,643
<EPS-PRIMARY> .56
<EPS-DILUTED> .49
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