The Aerospace and Defense Industry
By
Matthew O’Malley
Michael Mulhearn
Bianca Thon
Dina Pappas
EDO Corporation
EDO Corporation
• Industry – Aerospace and Defense
• Supplier of highly engineered products for
government and industry worldwide
• Advanced electronic, electromechanical and
information systems are products which are
critical to the mission success of its
customers
3 Reportable Segments:
1. Defense
2. Space and Communication Products
3. Engineered Materials
The Defense segment
• Provides integrated defense systems and
components
• Information technology and support
systems
• Services for military forces and
governments worldwide
Space and Communication Products
• Addresses the remote sensing,
communication, and navigation industries
• Produces ultra-miniature electronics and a
broad line of antennas
Engineered Materials Segment
• Supplies piezoelectric ceramics and
advanced composites for the
communication, navigation, chemical,
paper, and oil industries
Valuation Ratios
• Price/Book (mrq)
=
• Price/Earnings(ttm) =
• Price/Sales(ttm)
=
2.00
33.84
0.56
Financial Strength
• Current Ratio(mrq)
• Debt/Equity(mrq)
• Total Cash(mrq)
=
=
=
1.70
0.88
$17.0M
Financial Strength (cont)
• Quick Ratio (mrq) = 1.3
• Total Debt / Equity = 0.9
• Return on Assets = 0.47%
• Return on Equity = -0.39%
MD & A
• Sales from continuing operations for the second
quarter of 2000 increased to $56.6M from $23.7M
reported from the second quarter of 1999
• Operating earnings from continuing operations in
the second quarter increased to $5.3M or 9.3% of
sales from $2.1M or 8.8% of sales
• EDO believes it has adequate liquidity and
sufficient capital to fund its current operating plan
Chart – EDO Corp
Lockheed-Martin Corporation
Some Big Numbers
• Systems Integration
$9.7 billion
• Space Systems $7.1
billion
• Aeronautical Systems
$5.5 billion
• Technology Services
$2.3 billion
News
• Successful first flight of the JSF X-35A
• Selected by the U.S. Army to update the
systems on the Apache helicopters.
• Lockheed’s COO leaves after only 6 months
of service
• Posted sales of $5,825,000,000 for the fiscal
year ended 12/31/99.
Ratios
Quick Ratio
Current Ratio
Total Debt
Price/Earnings
Price/Sales
Earnings (Per Share)
Return on Equity
Return on Assets
0.59
1.29
1.67
NM
0.51
-0.73
-4.85
-1.04
What is Primex?
• Primex Technologies is an independent and
innovative industrial corporation combining
proven management and production capabilities
with advanced research and development strengths
in key technological areas. The company's
flexibility allows it to capitalize on the synergy
created by more than 100 years of proven success
and expertise in supporting the defense,
electronics and aerospace industries. Primex
Technologies is made up of two divisions: the
Ordnance and Tactical Systems (OTS) Division
and the Aerospace and Electronics (AE) Division.
Primex Technologies
• 1999 was another successful year for
Primex. Gross margins as a percentage of
sales, which is a good measure of
operating performance, increased from
21% in 1998 to 24% in 1999. This,
combined with a 10% increase in sales,
resulted in a 76% improvement in
operating income and an increase in
earnings per share (excluding one time
gains in 1998) of 41%. The Company also
experienced strong cash flow growth.
Earnings before interest, taxes,
depreciation and amortization grew 46%
during 1999 to $71 million.
Primex technologies
• Early in 2000, we announced a
restructuring of the Aerospace
segment, which includes reviewing
strategic alternatives for the
electronic products business unit.
This restructuring will reduce costs,
improve competitiveness, and better
focus this segment on the bottom
line. To accomplish this, a
restructuring charge of
approximately $4 million will be
recorded in the first quarter of 2000,
but management expects that the
benefits realized in 2000 will exceed
the amount of the charge.
Primex Technologies
Primex technologies
Valuation Ratios
Financial Strength
Price/Earnings (TTM)>15.45
Price/Sales (TTM)>.58
Price/Book (MRQ)>1.63
Price/Cash Flow (TTM)>15.43
Quick Ratio (MRQ)>1.31
Current Ratio (MRQ)>2.29
LT Debt/Equity (MRQ) >.92
Total Debt/Equity (MRQ) >.95
Mgmt Effectiveness
Return on Equity (TTM)>11.13
Return on Assets (TTM) >4.33
Return on Investment (TTM)>5.41
Profitability
Gross Margin (TTM) % >24.68
Operating Margin (TTM) % >8.01
Profit Margin (TTM) % >3.77
Ratio Comparisons
EDO
Hawker Lockheed Primex
Quick
1.3
0.20
0.59
1.31
Current
1.7
0.57
1.29
2.29
Debt/Eq
.88
3.94
1.67
.95
Return
on Assets
.47
-0.35
-1.04
4.33
Why the potential investor
should choose Primex?
Current Ratio
• The high current ratio is very attractive to the
potential investor. This gives us confidence in the
firm’s ability to compensate for debts arising from
operating, investing, and financing activities.
• We have great confidence in Primex’s ability to
generate cash to meet its short-term obligations.
Quick Ratio
• To further examine Primex’s working capital, we
also investigated the acid test. This would give us
a more reliable picture of liquidity.
• Again, the most attractive of 1.31 exceeded the
general test-level of 1:1. This strongly implies that
quick current assets can cover their current
liabilities.