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EDO Reports 10 Percent Revenue Growth in 2006.

Backlog Increases by 44 Percent

NEW YORK -- EDO Corporation (NYSE: EDO) recorded revenue of $258.7 million in the fourth quarter of 2006, an increase of 29.4 percent from the $200.0 million recorded in the fourth quarter of 2005. Net earnings for the quarter were $4.2 million, versus $7.4 million in the prior year's quarter. On a diluted per-share basis, earnings were $0.22 for the fourth quarter of 2006, versus $0.37 in the fourth quarter of 2005.

Revenue and earnings were significantly impacted by a decline in electronic-force-protection product sales. In the fourth quarter of 2005, EDO generated $47.7 million in force protection revenue. Corresponding revenue in the fourth quarter of 2006 was $17.0 million. Excluding force protection products, revenue for the quarter was $241.7 million versus $152.3 million in 2005, an increase of 59 percent. Of this $89.4 million increase, $76.4 million was from acquired companies owned for less than one year.

For the full year ended Dec. 31, 2006, revenue was $715.2 million, an increase of 10.3 percent from the $648.5 million recorded in 2005. This included $30.4 million in sales of electronic-force-protection products for the 2006 full year versus $143.6 million in 2005. Excluding this product, revenue for the year was $684.8 million versus $504.9 million in 2005, an increase of 36 percent. Of this increase, $115.2 million was from acquired companies owned for less than one year.

Net earnings for 2006 were $11.6 million, versus $26.3 million in 2005. On a diluted per-share basis, 2006 earnings were $0.62, versus $1.33 in 2005.

"In spite of disappointing earnings, it was a year of significant progress toward our goal of building a major presence in the aerospace and defense industry," said Chief Executive Officer James M. Smith. "We acquired two excellent companies, made technological breakthroughs in developing new products that will lead to long-term production opportunities, opened three new facilities, and strengthened our operational management team. As a result, we have a significantly larger and more diverse customer base than ever in our history.

"We continued to achieve strong revenue growth in 2006, although earnings were below our expectations due partly to externally-driven events but also to operational issues. We have addressed the operational issues, and we look forward to significant improvements in 2007."

Highlights for the Year

* Acquired CAS Inc, a provider of engineering services and weapons-systems analysis to the Department of Defense. This acquisition considerably broadens our customer base, primarily with the Army, and triples the size of our Professional and Engineering Services business.

* Acquired Impact Science & Technology Inc in pursuit of our strategic objective to serve the intelligence community. Over the past two years, EDO has acquired three companies serving this strategically important market, which have now been combined to form the new Intelligence and Information Warfare sector.

* Achieved breakthrough engineering advances in targeted technologies, including pneumatic weapons-release systems for the F-35, P-8A, and UAV platforms; advanced sonar systems; electronic advances in "smart" weapons interfaces and electronic force protection; and miniaturized battlefield-communications systems.

* Opened three new facilities to accommodate business expansion.

* Streamlined our organizational structure into six market-driven business sectors with strengthened management.

* Received strategically important new contracts for advanced composite structures, including "variable-bleed valve" aircraft-engine ducts for the new GEnx[TM] engine and "low-observable" structures for the F-35 Lightning II aircraft.

* Secured significant new contracts for antenna products, including a five-year, $248 million IDIQ (indefinite delivery/indefinite quantity) competitive win for SINGARS (Single-channel, Ground and Airborne Radio System) antennas, as well as anti-jam GPS (Global Positioning System) antennas for the Marine Corps AV-8B Harrier aircraft.

* Received task orders totaling $137 million in 2006 for "Transition Switch Module" battlefield communications equipment under our $240 million umbrella contract. An additional $77 million task order was added in February.

* Received awards for ongoing support services, including programmatic support to the Army's Unmanned Aircraft Systems (UAS) Project Office with a ceiling value of $37 million.

* Received a contract valued at $11.7 million for maritime patrol radar systems on C-130J aircraft under the U.S. Coast Guard's Integrated Deepwater System.

Organic Revenue Growth

For the fourth quarter, organic revenue, which excludes revenue from acquisitions owned less than one year, declined by $17.7 million, or 8.8 percent. This is due primarily to the $30.7 million decline in electronic-force-protection revenue, as discussed above.

Excluding electronic-force-protection revenue, organic growth was approximately 8.5 percent for the quarter and 12.8 percent for the full year. The largest driver of this growth was the company's Transition Switch Module production revenue.


Operating margins in 2006 were substantially lower than the company's historical levels. This is due in part to factors that are not expected to recur in 2007. These include charges for legal matters of $5.0 million; the write-off of intangible assets of $1.5 million; and approximately $12 million in higher-than expected development costs on certain sonar and aircraft-armament projects.

Margins were also impacted by certain facilities that were operating below full capacity, the most significant being related to revenue declines in electronic-force-protection products. While difficult to quantify, the reduction in earnings related to lower electronic-force-protection sales is estimated to be $22 million. The company has implemented a number of steps to mitigate the impact of this volume decline.

In addition, margins were reduced due to acquisition-related retention expense of $3.5 million. This expense is expected to total $8.0 million in 2007.

EBITDA, as adjusted, was $20.4 million, or 7.9 percent of revenue in the fourth quarter of 2006, versus $23.1 million, or 11.6 percent of revenue in the prior year's quarter. For the full year, EBITDA, as adjusted, was $52.4 million, or 7.3 percent of revenue in 2006, versus $78.1 million, or 12.0 percent of revenue in 2005.

EBITDA 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 2006 was $13.2 million, versus $44.8 million in 2005. The decline was due primarily to the timing of certain large payments that are expected in the first quarter of 2007.

Our cash balance at the end of 2006 was $25.3 million, down from $108.7 million at the end of 2005. Cash, as well as short-term borrowing from the company's line of credit, was used in September to fund the acquisitions of CAS and IST. Since that time, the company's short-term bank borrowings have been reduced from $200 million to $180 million. Short-term debt reduction will continue to be a priority for the use of operating cash flow in 2007. This objective will be aided by acquisition-related tax savings of approximately $9 million per year.


The total funded backlog of unfilled orders as of Dec. 31 stood at $804.4 million, up 4.3 percent from $771.6 million at the end of the third quarter, and up 44 percent from $558.7 million at the end of 2005.

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 $1.8 billion in what we view as high-confidence future revenue, for a total of approximately $2.6 billion.

2007 Forecast

Excluding any new acquisitions, EDO estimates that revenue for the full year 2007 will be in the range of $960 million to $1,010 million, as indicated on the attached "Guidance Data Estimates" worksheet. Given the current contract base and internal projections, we are maintaining our forecast of long-term organic revenue growth at a range of 8 to 10 percent annually, and anticipate 2007 adjusted EBITDA margins in the range of 10.5 to 11.5 percent.

Conference Call

EDO will conduct a conference call at 8:30 a.m. EST on Feb. 22 to review these results in more detail. A live webcast of the conference call, including presentation slides, will be available at or 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 March 1. To listen to the telephone replay, dial 1-877-660-6853, account #286, and conference ID #229085 (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 ( 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, tax liabilities and savings, and EBITDA margins, 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.
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Publication:Business Wire
Article Type:Financial report
Date:Feb 22, 2007
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