Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to .
Commission file number 0-14275
-------------------------------
Edac Technologies Corporation
-----------------------------
(Exact Name of Registrant as Specified in Its Charter)
Wisconsin 39-1515599
- ------------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Identification No.)
Organization)
1806 New Britain Avenue, Farmington, Connecticut 06032
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (860)-677-2603
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
N/A N/A
- ------------------------------ ----------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0025 par value
- -------------------------------------------------------
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
2
As of March 3, 1999, 4,269,080 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock (based upon the $4 7/8 closing
price on that date on the Nasdaq National Market) held by nonaffiliates
(excludes shares reported as beneficially owned by directors and officers - does
not constitute an admission as to affiliate status) was approximately
$15,691,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Into Which Portions of
DOCUMENT Document are Incorporated
-------- -------------------------
Annual Report to Shareholders for the
fiscal year ended January 2, 1999 Part II
Proxy Statement relating to
1999 Annual Meeting of Shareholders Part III
All statements other than historical statements contained in this report on Form
10-K or deemed to be contained herein due to incorporation by reference to a
different document constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Without limitation, these
forward looking statements include statements regarding the Company's business
strategy and plans, statements about the adequacy of the Company's working
capital and other financial resources, statements about the Company's Year 2000
compliance and other statements herein that are not of a historical nature.
These forward-looking statements rely on a number of assumptions concerning
future events and are subject to a number of uncertainties and other factors,
many of which are outside of the Company's control, that could cause actual
results to differ materially from such statements. These include, but are not
limited to factors which could affect demand for the Company's products and
services such as general economic conditions and economic conditions in the
aerospace industry and the other industries in which the Company competes;
competition from the Company's competitors; the integration of the Company's
Apex operations; the ability of the Company's customers and suppliers to
adequately address their Year 2000 issues; and the Company's continued ability
to attract and retain qualified employees. The Company disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
3
PART I
ITEM 1. BUSINESS.
General
Edac Technologies Corporation ("Edac" or the "Company") was formed in 1985
for the purpose of acquiring Gros-Ite Industries, Incorporated (which had three
operating divisions: Time Engineering, Gros-Ite and Spectrum). In 1988 and 1989,
Edac sold the assets of the Time Engineering and Spectrum operations. On June
29, 1998 Edac purchased certain assets and liabilities of the Apex Machine Tool
Company, Inc.
Products
Edac currently offers design and manufacturing services for the aerospace
industry in areas such as special tooling, equipment and gauges, and components
used in the manufacture, assembly and inspection of jet engines. Edac also
specializes in the design and repair of precision spindles. Spindles are an
integral part of numerous machine tools which are found in virtually any type of
manufacturing environment.
Edac maintains manufacturing facilities with computerized, numerically
controlled machining centers, grinding, welding, and sheet metal fabrication,
painting and assembly capabilities. Items manufactured by Edac include precision
rings, and other components for jet engines, industrial spindles and specialized
machinery designed by Edac or others and other assemblies requiring close
tolerances.
Patents and Trademarks
Edac currently holds no patents or registered trademarks, tradenames or
similar intellectual property. The Company believes that the nature of its
business presently does not require the development of patentable products or
registered tradenames or trademarks to maintain market growth.
Marketing and Competition
Edac has numerous competitors both in design and manufacturing. Many of the
independent design firms with which it competes are smaller than Edac and do not
provide the variety of services that Edac provides. Edac also competes with its
customers' in-house design and technical services capabilities. Edac believes
that it is able to compete effectively with independent design firms and
in-house design staffs because of its experience and the timeliness and
competitive pricing of its services.
Many companies also compete with Edac's manufacturing operations. However,
Edac believes that it will be able to compete effectively with these firms on
price, ability to meet customer deadlines and the stringent quality control
standards it employs. Edac also believes that its integration of design and
manufacturing capabilities offers a competitive advantage.
Edac's manufactured products are sold primarily through
4
individual purchase orders on a quotation or bid basis. Its sales personnel and
management maintain contacts with purchasing sources to keep informed as to
manufacturing projects available for quotation. Edac occasionally enters into
annual manufacturing contracts on specific components.
For its fiscal years ended January 2, 1999, December 31, 1997 and 1996,
approximately 51%, 68% and 67%, respectively, of Edac's sales were sales to
United Technologies Corporation.
Approximately 6% of Edac's business is done on a time and material basis based
on hourly rates established annually. Most of Edac's manufacturing is done on a
firm quotation basis. Less than 10% of Edac's sales are attributable to
government contracts subject to termination or re-negotiation at the option of
the U.S. Government. United Technologies Corporation annually negotiates hourly
billing rates for design work and is free to audit costs actually charged.
Backlog
Edac's backlog as of January 2, 1999, was approximately $36,000,000 compared
to $45,000,000 as of December 31, 1997. Backlog consists of accepted purchase
orders that are cancelable by the customer without penalty, except for payment
of costs incurred, and may involve delivery times that extend over periods as
long as three years. Edac presently expects to complete approximately
$22,000,000 of its January 2, 1999 backlog during the 1999 fiscal year.
Employees
As of March 1, 1999, Edac had approximately 387 employees.
ITEM 2. PROPERTIES.
The properties at 1790 and 1798 New Britain Avenue were renovated in
1997 to improve production, increase capacity and improve the appearance of both
the interior and exterior. The building at 1806 New Britain Avenue was
constructed in 1995 for the Company's developing Large Machining operation.
Square Owned or Principal
Address Feet Leased Activity
- ------- ---- ------ --------
1790 New Britain Ave. 47,000 Owned Manufacturing
Farmington, CT. 06032 * Design engineering
services
1798 New Britain Ave. 20,800 Owned Design and manu-
Farmington, CT. 06032 * facture of spindles
and specialized
machines
1806 New Britain Ave. 19,200 Owned Manufacturing
Farmington, CT. 06032 *
5
21 Spring Lane 44,000 Owned Manufacturing
Farmington, CT 06032 * Design engineering
services
1838 New Britain Ave. 3,000 Leased Warehouse
Farmington, CT. 06032
17 Spring Lane 7,500 Owned Rental income
Farmington, CT 06032 *
* Property subject to mortgage securing certain corporate
indebtedness.
ITEM 3. LEGAL PROCEEDINGS.
Edac is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 2, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information in response to this item is incorporated herein by
reference to "Market Information" on page 13 of Edac's 1998 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item is incorporated herein by
reference to "Selected Financial Information" on page 13 of Edac's 1998 Annual
Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Information in response to this item is incorporated herein by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 14 through 15 of Edac's 1998 Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not invest in derivative financial instruments, other
financial instruments or derivative commodity instruments.
6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item is incorporated herein by
reference to pages 16 through 30 of Edac's 1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by
reference to "Election of Directors" in Edac's definitive
Proxy Statement for its 1999 Annual Meeting of Shareholders ("Edac's 1999 Proxy
Statement"), which will be filed within 120 days after the end of Edac's fiscal
year ended January 2, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item is incorporated herein by reference to
"Executive Compensation" in the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information in response to this item is incorporated herein by reference to
"Principal Security Holders and Security Holdings of Management" in Edac's 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated herein by reference to
"Certain Transactions" in Edac's 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K.
(a) Documents filed:
1. Financial Statements.
7
The financial statements required to be filed by Item 8 hereof
have been incorporated by reference to Edac's 1998 Annual
Report to Shareholders and consist of the following:
Report of Independent Public Accountants
Consolidated Statements of Operations--Years ended January 2,
1999 and December 31, 1997 and 1996.
Consolidated Balance Sheets--January 2, 1999 and
December 31, 1997.
Consolidated Statements of Cash Flows--Years ended January 2,
1999 and December 31, 1997 and 1996.
Consolidated Statements of Changes in Shareholders'
Equity--Years ended January 2, 1999 and December
31, 1997 and 1996.
Notes to Consolidated Financial Statements.
2. Financial statement schedule.
The following financial statement schedule of Edac is included
in Item 14(d) hereof:
Report of Independent Public Accountants on Schedule
Schedule II: Valuation and qualifying accounts
All other schedules for which provisions are made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(b) Reports on Form 8-K
Edac did not file any reports on Form 8-K during the last quarter of
the period covered by this Form 10-K.
(c) Exhibits:
See Exhibit Index included as the last part of this Report, which Index
is incorporated herein by this reference.
(d) Financial Statements and Schedules
Refer to Item 14(a) above for listing of financial statements and
schedule.
8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders and Board of Directors of
Edac Technologies Corporation:
We have audited in accordance with generally accepted auditing standards the
financial statements included in Edac Technologies Corporation's annual report
to shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 12, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule presented
on Schedule II of this Form 10-K is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 12, 1999
9
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
EDAC TECHNOLOGIES CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
Balance at Beginning Charged to Costs Charged to Other Deductions Balance at End
DESCRIPTION of Year and Expenses Accounts-Describe Describe of Year
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 2, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts $ 125,000 $ 55,657 (1) $60,000 (2) $ 80,657 $ 160,000
Allowance for excess and obsolete
inventory and loss contracts 300,000 109,000 0 0 409,000
YEAR ENDED DECEMBER 31, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts 116,087 47,287 0 (2) 38,374 125,000
Allowance for excess and obsolete
inventory and loss contracts 1,278,804 0 0 (3) 978,804 300,000
YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts 40,000 76,087 0 0 116,087
Allowance for excess and obsolete
inventory and loss contracts 1,786,212 0 0 (3) 507,408 1,278,804
(1) Result of Apex Machine Tool Company Inc. acquisition on June 30, 1998.
(2) Represents write-off of specific accounts receivable.
(3) Represents disposition of inventory reserved against.
10
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf on March 30, 1999 by the undersigned, thereunto duly authorized.
EDAC TECHNOLOGIES CORPORATION
BY /s/ Edward J. McNerney
-----------------------------
Edward J. McNerney,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title Date
/s/John J. DiFrancesco Chairman of the Board March 30, 1999
- -----------------------------
John J. DiFrancesco
/s/Edward J. McNerney Chief Executive Officer, March 30, 1999
- ----------------------------- President and Director
Edward J. McNerney
/s/Ronald G. Popolizio Executive Vice President March 30, 1999
- ----------------------------- and Chief Financial Officer
Ronald G. Popolizio (Principal Financial and
Accounting Officer)
Director
- -----------------------------
James Biondi
11
/s/William J. Gallagher Director March 30, 1999
- -----------------------------
William J. Gallagher
/s/Robert Gilchrist Director March 30, 1999
- -----------------------------
Robert Gilchrist
Director
- -----------------------------
Lee Morris
/s/Stephen G.W. Walk Director March 30, 1999
- -----------------------------
Stephen G.W. Walk
Director
- -----------------------------
Arnold Sargis
12
EXHIBIT INDEX
Exhibit Sequential
Number Page Number
3.1 Edac's Amended and Restated (1)
Articles of incorporation
3.2 Edac's By-Laws (5)
4.1 Edac's Amended and Restated (1)
Articles of incorporation
4.2 Sections of Edac's By-Laws (5)
10.1 Consulting Agreement between (1)
Gros-Ite and William Giannone
10.2 Gros-Ite division Pension Plan (1)
10.3 Edac Technologies Corporation (2)
Employee Stock Ownership Trust,
effective May 1, 1989
10.4 $700,000 Limited Recourse Term (2)
Promissory Note dated May 12, 1989
between the Plan and CNB
10.5 Edac Technologies Corporation (3)
1991 Stock Option Plan
10.6 $4,000,000 Term Promissory Note (4)
dated March 22, 1993 between
Edac and Shawmut
10.7 Stock Option Agreement dated (4)
January 1, 1994 between Edac and
Robert Whitty
10.8 Construction to Permanent Loan (5)
Promissory Note
10.9 Open-End Construction to Permanent (5)
Mortgage Deed
10.10 Sixth Amendment to Revolving Loan, (5)
Term Loan, Equipment Loan and
Security Agreement
10.11 Modification of Construction to (5)
13
Permanent Loan Promissory Note
and Open-End Construction to
Permanent Mortgage Deed
10.12 Seventh Amendment to Revolving Loan, (5)
Term Loan, Equipment Loan and
Security Agreement and
Reaffirmation of Guarantees
10.13 Eighth Amendment to Revolving Loan, (5)
Term Loan, Equipment Loan and
Security Agreement and
Reaffirmation of Guarantees,
Modification of Notes and
Reaffirmation of Guarantees
10.14 Seventh Modification Agreement to (5)
Open-End Mortgage Deed
10.15 Second Modification of Construction (5)
to Permanent Loan Promissory Note
and Open-End Construction to
Permanent Mortgage Deed
10.16 Edac Technologies Corporation (6)
1996 Stock Option Plan
10.17 Ninth Amendment to Revolving loan, Term (7)
Loan, Equipment Loan and Security Agreement,
Modification of Notes and Reaffirmation of
Guarantees
10.18 Amended and Restated Revolving Promissory (7)
Note
10.19 Equipment Promissory Note III (7)
10.20 Amended and Restated Promissory Note (7)
10.21 Eighth Modification Agreement to Open-End (7)
Mortgage Deed
10.22 Third Modification of Construction to (7)
Permanent Loan Promissory Note and Open-End
Construction to Permanent Mortgage Deed
10.23 Employment letter from Edac to Ronald G. (8)
Popolizio
10.24 Asset Purchase Agreement dated as of May 13, 1998 (9)
by and among Edac Technologies Corporation, Apex
Acquisition Corp., Apex Machine Tool Company,
Inc., Gerald S. Biondi, James G. Biondi and
Michael Biondi.
14
10.25 Purchase Agreement dated as of May 13, 1998 by (9)
and between Edac Technologies Corporation,
Gerald S. Biondi, James G. Biondi and Michael
Biondi providing for the acquisition of the real
estate located at 17 and 21 Spring Lane,
Farmington, Connecticut.
10.26 Guaranty Agreement dated as of June 30, 1998 by (9)
and among Edac Technologies Corporation, as
guarantor, Apex Acquisition Corporation, Gerald S.
Biondi, James G. Biondi and Michael Biondi pursuant
to which Edac Technologies Corporation has
guaranteed all of the obligations of Apex
Acquisition Corporation under the real estate
purchase agreement.
10.27 Promissory note payable by Apex Acquisition (9)
Corporation to Gerald S. Biondi, James G. Biondi
and Michael Biondi under the real estate purchase
agreement.
10.28 Purchase agreement dated as of May 13, 1998 by and (9)
between Edac Technologies Corporation, Gerald S.
Biondi and James G. Biondi providing for the
acquisition, after the satisfaction of certain
pre-closing conditions, by Edac Technologies
Corporation or its wholly-owned subsidiary
of the property located at 55 Spring Lane,
Farmington, Connecticut.
10.29 Eleventh Amendment to Loans and Security Agreement, (9)
Modification of Notes and Reaffirmation of
Guaranties dated as of June 30, 1998 by and among
Fleet National Bank, Edac Technologies Corporation,
Gros-Ite Industries, Inc. and Apex Acquisition
Corporation.
10.30 Second Amended and Restated Promissory Note dated as (9)
of June 30, 1998 in the original principal amount of
$13 million payable by Edac Technologies Corporation
to Fleet National Bank.
10.31 Term Promissory Note dated June 30, 1998 in the (9)
principal amount of $14 million payable by Edac
Technologies Corporation to Fleet National Bank.
10.32 Fourth Modification of Construction to Permanent Loan (9)
Promissory Note and Open-End Construction to Permanent
Mortgage Deed dated as of June 30, 1998 by and among
Edac Technologies Corporation and Fleet National Bank.
10.33 Ninth Modification Agreement to Open-End Mortgage Deed (9)
dated as of June 30, 1998 by and between Edac
Technologies Corporation and Fleet National Bank.
15
10.34 Guaranty Agreement dated as of June 30, 1998 from each (9)
of Apex Acquisition Corporation and Gros-Ite
Industries, Inc. to Fleet National Bank.
10.35 Open-End Mortgage Deed, Security Agreement, Collateral (9)
Assignment of Rents and Financing Statement dated as of
June 30, 1998 by and between Edac Technologies
Corporation and Fleet National Bank.
10.36 Security Agreement dated as of June 30, 1998 by and (9)
between Apex Acquisition Corporation and Fleet
National Bank.
10.37 Hazardous Substances Indemnity Agreement dated as of (9)
June 30, 1998 by and among Edac Technologies
Corporation, Apex Acquisition Corporation, Gros-Ite
Industries, Inc. and Fleet National Bank.
10.38 Agreement Regarding Purchase Price Adjustments dated (10)
September 24, 1998 by and between Edac Technologies
Corporation, Apex Machine Tool Company, Inc., Biondi
Tool Company, Inc., Gerald S. Biondi, James G. Biondi
and Michael Biondi.
10.39 1998 Stock Option Agreement
10.40 Tenth Amendment to Revolving loan, Term Loan, Equipment
Loan and Security Agreement, Modification of Notes and
Reaffirmation of Guarantees
10.41 Equipment Promissory Note IV
10.42 Twelfth Amendment to Loans and Security
Agreement,Modification of Notes and
Reaffirmation of Guaranties
10.43 Employment contract between Edac and
Edward J. McNerney
11 Earnings per share information has been
incorporated by reference to Edac's 1998
Annual Report to Shareholders
13 Edac's 1998 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Arthur Andersen LLP,
independent public accountants
16
27 Financial Data Schedule
(1) Exhibit incorporated by reference to the Company's
registration statement on Form S-1 dated August 6, 1985,
commission File No. 2-99491, Amendment No. 1.
(2) Exhibit incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1989.
(3) Exhibit incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.
(4) Exhibit incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
(5) Exhibit incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(6) Exhibit incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
(7) Exhibit incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997.
(8) Exhibit incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(9) Exhibit incorporated by reference to the Company's Current Report
on Form 8-K dated June 30, 1998.
(10) Exhibit incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 4, 1998.