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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 March 28, 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 March 28, 1998
Common shares, par value $1 per share 6,469,678
Page 2
EDO CORPORATION
INDEX
Page No.
Face Sheet 1
Index 2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
March 28, 1998 and
December 31, 1997 3
Consolidated Statements of
Earnings - Three Months Ended
March 28, 1998 and
March 29, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended
March 28, 1998 and
March 29, 1997 5
Other Financial Information 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-9
Part II Other Information 10
Signature 11
Page 3
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
Assets March 28, 1998 Dec. 31, 1997
(unaudited)
Current assets:
Cash and cash equivalents $ 19,447 $ 20,351
Marketable securities 14,562 13,851
Accounts receivable 34,316 32,421
Inventories 8,371 6,816
Prepayments and other 3,101 5,564
--------- ---------
Total current assets 79,797 79,003
Property, plant and equipment, net 12,996 12,865
Notes receivable 3,000 3,000
Cost in excess of fair value of net
assets acquired, net 6,698 6,792
Other assets 7,223 7,141
--------- ---------
$109,714 $108,801
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 22,586 $ 21,773
Contract advances and deposits 11,258 12,753
--------- ---------
Total current liabilities 33,844 34,526
Long-term debt 29,317 29,317
ESOT loan obligation 10,015 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 $13,858
in the aggregate in 1998)authorized
500,000 shares (64,843 issued in both
periods) 65 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 32,146 32,546
Retained earnings 29,107 27,641
--------- ---------
69,772 68,706
Less: Treasury shares at cost
1,984,224 shares in 1998 and
2,054,474 shares in 1997 (28,203) (29,201)
ESOT loan obligation (10,015) (10,368)
Deferred compensation under
Long-Term Incentive Plan (1,471) (1,002)
--------- ---------
Total shareholders' equity 30,083 28,135
--------- ---------
$109,714 $108,801
========= =========
Page 4
EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
March 28, 1998 March 29, 1997
(unaudited)
Income
Net sales $ 23,301 $ 23,704
Other 21 8
--------- ---------
23,322 23,712
Costs and expenses
Cost of sales 17,056 17,915
Selling, general and administrative 3,601 3,700
Research and development 722 313
--------- ---------
21,379 21,928
Operating earnings 1,943 1,784
Non-operating income (expense)
Interest income 545 325
Interest expense (558) (543)
Other, net (25) ( 5)
--------- ---------
( 38) (223)
--------- ---------
Earnings before Federal income taxes 1,905 1,561
Federal income tax expense - -
--------- ---------
Net earnings 1,905 1,561
Dividends on preferred shares 277 290
--------- ---------
Net earnings available for common shares $ 1,628 $ 1,271
========= =========
Earnings per common share:
Basic $ 0.25 $ 0.21
========= =========
Diluted $ 0.22 $ 0.18
========= =========
Average shares outstanding:
Basic 6,448 6,131
========= =========
Diluted 7,623 7,363
========= =========
Page 5
EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the three months ended
March 28, 1998 March 29, 1997
(unaudited)
Operating activities:
Net earnings $ 1,905 $ 1,561
Adjustments to net earnings to arrive at
cash provided by operations:
Depreciation and amortization 1,124 1,660
Common shares issued for employee
benefits and directors' fees 129 71
Changes in:
Accounts receivable (1,895) 749
Inventories (1,555) 189
Prepayments, other current assets
and other assets 2,336 (2,380)
Accounts payable and accrued
liabilities 813 (503)
Contract advances and deposits (1,495) 5,765
--------- ---------
Cash provided by operations 1,362 7,112
Investing activities:
Purchase of property, plant and equipment (1,116) (1,377)
Purchase of marketable securities (711) -
--------- ---------
Cash used by investing activities (1,827) (1,377)
Financing activities:
Payments received on notes receivable - 88
Payment of common share cash dividends (162) (154)
Payment of preferred share cash dividends (277) (290)
--------- ---------
Cash used by financing activities (439) (356)
Net increase (decrease) in cash and cash
equivalents (904) 5,379
Cash and cash equivalents at beginning
of year 20,351 20,745
--------- ---------
Cash and cash equivalents at end of period $19,447 $26,124
========= =========
Supplemental disclosures:
Cash paid for: Interest $ 0 $ 0
Income taxes 272 226
Page 6
Other Financial Information
Item 1.
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 March 28, 1998 was $98,818,000
compared to $113,320,000 at March 29, 1997.
Inventories
Inventories are summarized by major classification as follows:
Mar. 28, 1998 Dec. 31, 1997
(in thousands)
Raw material and supplies $ 4,347 $ 3,471
Work in process 3,888 3,120
Finished goods 136 225
--------- ---------
$ 8,371 $ 6,816
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
First Quarter
1998 1997
(in thousands)
Numerator:
Net earnings available for common shares, basic $1,628 $1,271
Impact of assumed conversion of preferredshares 25 28
------- -------
Numerator for diluted calculation $1,653 $1,299
======= =======
Denominator:
Weighted average common shares outstanding, basic 6,448 6,131
Dilutive effect of stock options 192 119
Dilutive effect of conversion of preferred shares 983 1,113
------- -------
Denominator for diluted calculation 7,623 7,363
======= =======
Page 7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
First Three Months of 1998 compared with First Three Months of 1997
Net sales for the first three months of 1998 were $23.3 million compared with
$23.7 million reported in the same period in 1997. Sales increases from mine
countermeasures systems, command and control and sonar systems were offset by
decreases in satellite system sales.
Earnings from operations in the first three months of 1998 were $1.9 million
compared with $1.8 million in 1997. The increased operating earnings result
from modest improvements in operating margins in substantially all of the
Company's principal product lines, except for satellite systems.
Selling, general and administrative expenses in the first three months of 1998
were $3.6 million compared with $3.7 million in the first three months of 1997.
Company-sponsored research and development expenditures increased 131% to $0.7
million during the first three months of 1998 from the corresponding period in
1997. This increase is consistent with the Company's strategy of increased
investment in product development that will contribute to future growth.
Non-operating expense, net, was $0.04 million in the first three months of
1998, compared with $0.2 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 three 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 $1.6 million
in the first three months of 1998 compared with $1.3 million a year ago.
Basic net earnings per share were $0.25 in the first three months of 1998
compared with $0.21 in the corresponding period in 1997. Basic net earnings
per share calculations are based on a weighted average of 6.4 million and 6.1
million common shares outstanding in the first three months of 1998 and 1997,
respectively. Diluted earnings per share were $0.22 in the first three months
of 1998 compared with $0.18 a year ago.
Page 8
Financial Condition
The Company's cash, cash equivalents and marketable securities decreased by
$0.2 million during the quarter to $34.0 million at March 28, 1998. The
decrease results from cash flow from operations of $1.4 million offset by $1.1
million for purchases of capital equipment and $0.4 million for payment of
common and preferred dividends.
The Company has outstanding $29.3 million of 7% Convertible Subordinated
Debentures Due 2011. Commencing in 1996 and until their retirement, the
Company is making annual sinking fund payments of $1.8 million. As of March
28, 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 March 28, 1998
of $10.0 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 recently announced that it is in final 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 approximately $10.0 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 expires June 30, 1998.
Capital expenditures in the first three months of 1998 totaled $1.1 million
compared with $1.4 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 March 28, 1998 stood at $98.8 million
compared with $113.3 million a year ago and $111.6 million at December 31,
1997.
Page 9
"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;
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.
Page 10
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6.(a) Exhibits
27 - Financial Data Schedule
Page 11
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: May 12, 1998
Page 12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-28-1998
<CASH> 19,447
<SECURITIES> 14,562
<RECEIVABLES> 34,316
<ALLOWANCES> 361
<INVENTORY> 8,371
<CURRENT-ASSETS> 79,797
<PP&E> 62,489
<DEPRECIATION> 49,493
<TOTAL-ASSETS> 109,714
<CURRENT-LIABILITIES> 33,844
<BONDS> 39,332
<COMMON> 8,454
0
65
<OTHER-SE> 21,564
<TOTAL-LIABILITY-AND-EQUITY> 109,714
<SALES> 23,301
<TOTAL-REVENUES> 23,322
<CGS> 17,056
<TOTAL-COSTS> 21,379
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 558
<INCOME-PRETAX> 1,905
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,628
<EPS-PRIMARY> .25
<EPS-DILUTED> .22
</TABLE>
