EDO Corporation (NYSE: EDO) recorded revenue of $246.0 million in
the second quarter of 2007, an increase of 61.4 percent from the
$152.4 million recorded in the second quarter of 2006. The revenue
increase was due primarily to the acquisitions of CAS Inc and
Impact Science & Technology Inc in September of 2006, as well
as strong sales of battlefield-communications equipment. Net
earnings for the quarter were $5.7 million, versus $6.3 million in
the prior year�s quarter. On a diluted per-share basis, earnings
were $0.27 for the second quarter of 2007, versus $0.30 in the
second quarter of 2006. The second quarter of both years included
tax benefits related to the reversal of income-tax reserves. These
benefits were $0.5 in the second quarter of 2007 versus $3.7
million in the second quarter of 2006. Because of a change in the
timing of director awards, the second quarter of 2007 also included
a $0.8 million option expense that was not included in the prior
year�s quarter. Excluding these adjustments, net earnings were $5.7
million or $0.27 per diluted share in the second quarter of 2007,
versus $2.6 million, or $0.14 per share in the prior year�s
quarter. For the six-month period ended June 30, 2007, revenue was
$501.4 million, an increase of 84.3 percent from the $272.1 million
recorded in the first half of 2006. Net earnings for the first half
of 2007 were $11.7 million, more than double the $5.3 million
earned in the same period last year. On a diluted per-share basis,
earnings were $0.56, versus $0.29 in the first half of 2006. �We
have continued to execute on our fundamental strategy, and that
strategy is generating superior results,� said Chief Executive
Officer James M. Smith. �Even during the challenging year in 2006,
we invested in our counter-IED and other promising technology, and
we successfully pursued high-quality acquisitions. As a result, we
are accelerating our record of revenue growth that has averaged
more than 30 percent annually since 1999. �We expect continued
strong revenue growth in the second half of 2007, as we begin
production under our recently-awarded CREW 2.1 contracts. And as
capacity utilization improves, we expect corresponding margin
improvement for the remainder of 2007 and into 2008.� Organic
Revenue Growth Organic revenue, which excludes revenue from
acquisitions owned less than one year, increased by $38.5 million,
or 25.3 percent, during the second quarter. This is due primarily
to increased revenue from TSM (Transition Switch Module)
battlefield-communications equipment and flight-line test systems,
partially offset by a decline in electronic-support-measures
systems. For the six-month period, organic revenue grew by $115.9
million, or 42.6 percent, over the prior year. Increased Revenue
Guidance On May 3, we raised revenue guidance by $90 million to a
range of $1,050 million to $1,100 million for 2007, following the
competitive award in April of 2,200 �CREW 2.1� counter-IED systems.
(CREW is an acronym for electronic equipment that counters
radio-controlled IEDs.) On July 16, we received orders for an
additional 3,000 CREW 2.1 systems, a portion of which are expected
to be delivered in 2007. As a result, EDO is now forecasting
revenue of $1,100 million to $1,150 million for 2007. Earnings
Operating earnings in the second quarter of 2007 were $14.5
million, an increase of $8.7 million, or 149 percent over the $5.8
million recorded in the prior year�s quarter. The improvement was
driven primarily by higher revenue, resulting in better absorption
of overhead costs, as well as a corporate-wide effort to reduce
controllable expenses. As expected, operating earnings are being
negatively impacted by unabsorbed overhead costs in two facilities
as we prepare for production of CREW devices. This impact will be
reversed when CREW-related revenue begins late in the third
quarter. Operating earnings in the second quarter were also reduced
by acquisition-related retention expense and the timing of
stock-option expense. The retention expense was approximately $2.2
million, of which $0.9 million was non-cash expense. As mentioned
above, non-cash stock-option expense of $0.8 million was related to
options awarded under the 2004 Non-Employee Director Stock Plan.
These stock options were awarded primarily in the second quarter of
2007, whereas in 2006 such options were awarded in the first
quarter. EBITDA, as adjusted, was $23.8 million, or 9.7 percent of
revenue in the second quarter of 2007, versus $12.8 million, or 8.4
percent of revenue in the prior year�s quarter. Margins are
expected to improve further in the fourth quarter, due to increased
capacity utilization from CREW production. As a result, we are
maintaining our guidance of 10.5 to 11.5 percent margins for the
full year. (EBITDA � Earnings Before Interest, Taxes, Depreciation,
and Amortization - is a generally accepted metric employed by our
industry. Our adjustments consist of non-cash ESOP, pension, and
acquisition-related retention expenses. These adjustments are
identified in detail on the attached reconciliation schedule.) Cash
Flow Cash flow provided by operations in the quarter was $65.3
million, versus a negative $4.1 million in the second quarter of
2006. We collected substantial cash from TSM sales during the
second quarter, which was used primarily to reduce short-term debt.
In the prior year, working capital needs were increasing as we
geared up for initial TSM production, resulting in the negative
cash flow during that period. As was the case with TSM, initial
production under the company�s recently awarded CREW 2.1 contracts
may require a similar temporary increase in working-capital needs
during the second half of 2007. We maintain a $300 million bank
line of credit in order to provide for such short-term funding
requirements. As of June 30, the money borrowed under this line of
credit was $120 million, a reduction of $80 million from the $200
million originally borrowed in September to fund the acquisitions
of CAS and IST. We expect to further reduce borrowings under this
line of credit to below $100 million by year end. Backlog The total
funded backlog of unfilled orders as of June 30 was $981.3 million,
up 11.7 percent from $878.2 million on March 31, and up 61.4
percent from $608.0 million at the end of the second quarter of
2006. The funded backlog as of June 30 does not include the $210
million of new CREW 2.1-related orders received on July 16. Funded
backlog does not include portions of contracts for which the U.S.
government has not yet appropriated funds, nor does it include
unexercised options in any contract. Such unfunded contracts and
unexercised options add approximately $2.65 billion of potential
future revenue, for a total backlog of more than $3.6 billion.
Conference Call EDO will conduct a conference call at 10:30 a.m.
EDT on August 2 to review these results in more detail. A live
webcast of the conference call, including presentation slides, will
be available at www.edocorp.com or www.InvestorCalendar.com. For
those who cannot listen to the live webcast, a replay of the call
will be available on these websites. There will also be a telephone
replay available until August 9. To listen to the telephone replay,
dial 1-877-660-6853, account #286, and conference ID #247339
(outside the U.S. dial 1-201-612-7415). About EDO Corporation EDO
designs and manufactures a diverse range of products for aerospace,
defense, intelligence, and commercial markets. Major product groups
include: Defense Electronics, Communications, Aircraft Armament
Systems, Undersea Warfare, Integrated Composite Structures, and
Professional and Engineering Services. EDO (www.edocorp.com) was
founded in 1925, and is headquartered in New York City. The company
employs 4,000 people. Forward-Looking Statements Statements made in
this release, including statements about projected revenues,
long-term organic revenue growth, projected expenses EBITDA
margins, and debt levels, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on current expectations, estimates and
projections about the Company�s business based, in part, on
assumptions made by management. These statements are not guarantees
of future performance and involve risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed
or forecasted in such forward-looking statements due to numerous
factors, including those described above and the following: changes
in demand for the Company�s products and services, product mix, the
timing of customer orders and deliveries, changes in the
government�s funding priorities, the impact of competitive products
and pricing, and other risks discussed from time to time in the
Company�s Securities and Exchange Commission filings and reports.
In addition, such statements could be affected by general industry
and market conditions and growth rates, and general domestic and
international economic conditions. Such forward-looking statements
speak only as of the date on which they are made, and the Company
does not undertake any obligation to update any forward-looking
statement to reflect events or circumstances after the date of this
release. EDO Corporation and Subsidiaries Condensed Consolidated
Statements of Earnings (In thousands, except per share amounts) � �
Three months ended Six months ended June 30, June 24, June 30, June
24, 2007 2006 2007 2006 (unaudited) (unaudited) � Net sales $
246,020 $ 152,398 $ 501,436 $ 272,107 � Costs and expenses: Cost of
sales 191,290 119,657 392,320 210,901 Selling, general and
administrative 35,614 23,903 69,327 49,261 Research and development
2,437 3,006 4,530 6,212 Acquisition-related retention expense �
2,151 � � - � � 4,303 � � - � 231,492 146,566 470,480 266,374 � � �
� Operating earnings 14,528 5,832 30,956 5,733 � Interest income
165 1,101 351 2,122 Interest expense (5,600 ) (2,237 ) (11,776 )
(4,661 ) Other, net � 27 � � (111 ) � (12 ) � (257 ) Non-operating
expense, net (5,408 ) (1,247 ) (11,437 ) (2,796 ) � � � � Earnings
before income taxes 9,120 4,585 19,519 2,937 � Income tax (expense)
benefit (3,408 ) 1,686 (7,819 ) 2,395 � � � � Net earnings $ 5,712
� $ 6,271 � $ 11,700 � $ 5,332 � � Net earnings per common share:
Basic: $ 0.31 $ 0.35 $ 0.63 $ 0.30 Diluted: $ 0.27 � $ 0.30 � $
0.56 � $ 0.29 � � Weighted average shares outstanding Basic 18,661
18,099 18,600 18,055 Diluted (a) � 25,204 � � 24,468 � � 25,049 � �
18,538 � � � Backlog of unfilled orders $ 981,325 � $ 608,034 � � �
(a) Assumes exercise of dilutive stock options. The convertible
notes were dilutive in the second quarter of both years, as well as
the first half of 2007. They were anti-dilutive in the first half
of 2006. EDO Corporation and Subsidiaries Condensed Consolidated
Balance Sheets ($000's omitted) � � June 30, Dec 31, 2007 � 2006 �
Assets � Current Assets: Cash and cash equivalents $ 19,641 $
25,322 Accounts receivable, net 215,868 265,298 Inventories 70,735
56,255 Deferred income tax asset, net 12,448 12,160 Prepayments
& other � 10,945 � � 13,682 Total Current Assets 329,637
372,717 � Property, plant and equipment, net 59,931 59,109 Goodwill
394,879 385,926 Other intangible assets 89,025 103,776 Deferred
income tax asset, net 17,455 8,291 Other assets � 18,737 � � 20,003
Total Assets $ 909,664 � $ 949,822 � Liabilities &
Shareholders' Equity � Current Liabilities: Accounts payable and
accrued liabilities $ 117,369 $ 143,908 Borrowings from bank line
of credit 120,000 180,000 Contract advances and deposits 58,133
44,323 Note payable, current � 7,766 � � 7,766 Total Current
Liabilities 303,268 375,997 � Income taxes payable 19,044 4,154
Note payable, long term 14,533 14,533 Long-term debt 201,250
201,250 Post-retirement benefits obligations 76,982 77,734
Environmental obligation 1,163 1,198 Other long-term liabilities 30
40 Shareholders' equity � 293,394 � � 274,916 Total Liabilities
& Shareholders' Equity $ 909,664 � $ 949,822 EDO Corporation
and Subsidiaries SEGMENT DATA (In thousands) � � Three months ended
Six months ended June 30, June 24, June 30, June 24, � 2007 � �
2006 � 2007 � � 2006 (unaudited) (unaudited) Net sales: Engineered
Systems & Services $ 119,594 $ 63,795 $ 235,980 $ 125,053
Electronic Systems & Communications � 126,426 � � � 88,603 � �
265,456 � � � 147,054 � $ 246,020 � � $ 152,398 � $ 501,436 � � $
272,107 � � Operating earnings: Engineered Systems & Services $
9,278 $ 1,636 $ 18,567 $ 3,344 Electronic Systems &
Communications � 5,250 � � � 4,196 � � 12,389 � � � 2,389 � 14,528
5,832 30,956 5,733 � Net interest expense (5,435 ) (1,136 ) (11,425
) (2,539 ) Other, net � 27 � � � (111 ) � (12 ) � � (257 ) �
Earnings before income taxes $ 9,120 � � $ 4,585 � $ 19,519 � � $
2,937 � EDO Corporation and Subsidiaries Calculation of EBITDA (In
thousands, except per share amounts) � Three months ended Six
months ended June 30, June 24, June 30, June 24, 2007 2006 2007
2006 (unaudited) (unaudited) � Net earnings before income taxes $
9,120 $ 4,585 $ 19,519 $ 2,937 � Interest expense 5,600 2,237
11,776 4,661 Interest (income) � (165 ) � (1,101 ) � (351 ) �
(2,122 ) Net interest expense 5,435 1,136 11,425 2,539 �
Depreciation 3,509 2,958 7,018 5,736 Amortization � 2,586 � � 1,800
� � 5,151 � � 3,414 � Total depreciation & amortization 6,095
4,758 12,169 9,150 � � � � EBITDA 20,650 10,479 43,113 14,626 �
Acquisition-related retention expense (non-cash) 852 - 1,704 - ESOP
compensation expense 1,474 1,149 2,484 2,335 Pension expense � 812
� � 1,194 � � 1,623 � � 2,388 � EBITDA, as adjusted $ 23,788 $
12,822 $ 48,924 $ 19,349 � Diluted shares outstanding * 19,317
18,581 19,162 18,538 � EBITDA, as adjusted, per share * $ 1.23 � $
0.69 � $ 2.55 � $ 1.04 � � � * Excludes potential impact of
subordinated note conversion. � � Summary of Cash Flows (In
thousands) � Three months ended Six months ended June 30, June 24,
June 30, June 24, 2007 2006 2007 2006 (unaudited) (unaudited) �
Cash provided (used) by operations $ 65,335 $ (4,105 ) $ 70,702 $
9,912 � Cash (used) by investing activities $ (5,114 ) $ (4,317 ) $
(17,233 ) $ (9,541 ) � Cash provided (used) by financing activities
$ (40,580 ) $ 27 � $ (59,150 ) $ (10 ) $ 19,641 � $ (8,395 ) $
(5,681 ) $ 361 � EDO Corporation and Subsidiaries GUIDANCE DATA
ESTIMATES � � Fiscal 2007 � Revenue range $1,100 million - $1,150
million � Pension expense $3.2 million � Acquisition-related
retention expense $8.0 million � Effective tax rate (Fed &
State) 40% (excluding adjustments to tax reserves) � EBITDA, as
adjusted, margin 10.5% - 11.5% (see reconciliation table on
previous page) � ESOP shares issued per quarter 55,700 � Average
diluted shares outstanding*: - If Note conversion is NOT dilutive
18.7 million - If Note conversion is dilutive 25.2 million � � � *
"If-converted method" (FAS 128) to determine diluted EPS: (Shares
to be issued if 4.00% Notes are converted at $34.19/share would be
5,886,422.) � - Quarterly Dilution Test Since the after-tax
interest on Notes reduces Net Earnings by $1,187,375 per quarter,
the decision point for the dilution test is $1,187,375 / 5,886,422,
or $0.20 per share. When basic EPS for a quarter are more than
$0.20, the impact of the Notes is dilutive. The Notes were dilutive
to EPS in the second quarter of 2007 and 2006. � - Annual Dilution
Test Since the after-tax interest on Notes reduces Net Earnings by
$4,749,500 per year, the decision point for the dilution test is
$4,749,500 / 5,886,422, or $0.81 per share. When basic EPS for the
year are more than $0.81, the impact of the Notes is dilutive. The
Notes were not dilutive to EPS in the 2006 full year. � Based on
current projections, the Notes are expected to be dilutive for the
2007 full year. If so, the EPS calculation will be based on about
25.2 million shares. � This table contains estimates based on
management's current expectations. This information is
forward-looking, and actual results may differ materially.
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