ITEM 1. BUSINESS.
General
Edac Technologies Corporation ("Edac") 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 its other operations and now operates only the Gros-Ite division ("Gros-Ite").
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 offers design and manufacturing services for the medical instrument's industry in such areas as components used in the manufacture of medical instruments and special tooling. Edac also designs and manufactures specialized machines for a variety of other applications.
Edac maintains manufacturing facilities with computerized numerically controlled machining centers, and grinding, welding, and sheet metal fabrication, painting and assembly capabilities. Items manufactured by Edac include precision rings, and other components for jet engines, components for medical instruments, as well as industrial spindles, environmental test chambers 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 firms 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 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 year ended December 31, 1996, approximately 67% and 8% of Edac's net sales were derived from sales to United Technologies Corporation and Zapata Technologies Inc., respectively.
Approximately 7% of Edac's design 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 net sales are attributed to government contracts subject to termination or renegotiation 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 December 31, 1996, was approximately $22,000,000 compared to $24,677,000 as of December 31, 1995. 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 two or three years. Edac presently expects to complete approximately $14,000,000 of its December 31, 1996 backlog within the next 12 months.
Employees
As of March 26, 1997 Edac had approximately 193 employees.
ITEM 2.
ITEM 2. PROPERTIES.
Square Owned or Principal Address Feet Leased Activity
1790 New Britain Ave. 47,000 Owned Manufacturing Farmington, Ct. 06032 Design engineering (1) services
1798 New Britain Ave. 20,800 Owned Design and manu- Farmington, Ct. 06032 (1) facture of spindles and specialized machines
1806 New Britain Ave. 19,200 Owned Manufacturing Farmington, Ct. 60632 (1)
1838 New Britain Ave. 10,000 Leased Design and manufacture Farmington, Ct. 06032 of environmental test equipment
(1) Property subject to mortgage securing certain corporate indebtedness.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None
ITEM 4.
ITEM 4. SUBMISSION 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 December 31, 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
Information in response to this item is incorporated herein by reference to "Market Information" on page 4 of the Registrant's 1996 Annual Report to Shareholders.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item is incorporated herein by reference to "Selected Financial Information" on page 4 of the Registrant's 1996 Annual Report to Shareholders.
ITEM 7.
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 5 through 7 of the Registrant's 1996 Annual Report to Shareholders.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item is incorporated herein by reference to pages 8 through 22 of the Registrant's 1996 Annual Report to Shareholders.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
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 the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders, which will be filed within 120 days after the end of the Registrant's fiscal year ended December 31, 1996.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item is incorporated herein by reference to "Executive Compensation" in the 1997 Proxy Statement.
ITEM 12.
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 the 1997 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated herein by reference to "Certain Transactions" in the 1997 Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) Documents filed:
1. Financial Statements.
The financial statements required to be filed by Item 8 hereof have been incorporated by reference to the Registrant's 1996 Annual Report to Shareholders and consist of the following:
Report of Independent Public Accountants
Consolidated Statements of Operations--Years ended December 31, 1996, 1995 and 1994.
Consolidated Balance Sheets--December 31, 1996 and 1995.
` Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Shareholders' Equity--Years ended December 31, 1996, 1995 and 1994.
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
None.
(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.
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 March 20, 1997, except with respect to certain matters as to which the date was March 27, 1997. 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.
ARTHUR ANDERSEN LLP
Hartford, Connecticut March 20, 1997
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS EDAC TECHNOLOGIES CORPORATION AND SUBSIDIARIES
(1) Represents write-off of specific accounts receivable.
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 by the undersigned, thereunto duly authorized.
EDAC TECHNOLOGIES CORPORATION
BY /s/ Edward J. McNerney. Edward J. McNerney, Chief Executive Officer
BY /s/ Ronald G. Popolizio. Ronald G. Popolizio Vice President-Finance (Principal Financial and Accounting 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 27, 1997 ------------------------ John J. DiFrancesco
/s/Edward J. McNerney . Chief Executive Officer March 27, 1997 ------------------------ President and Director Edward J. McNerney
/s/Francis W. Moskey . Vice-President March 27, 1997 ------------------------ and Director Francis W. Moskey
EXHIBIT INDEX
Exhibit Sequential Number Page Number
3.1 Edac's Amended and Restated (1) Articles of incorporation
3.2 Edac's By-Laws (6)
10.1 Consulting Agreement between (1) Gros-Ite and William Giannone
10.2 Gros-Ite division Pension Plan (1)
10.3 Gros-Ite division Self-Insured (1) Medical Reimbursement Plan
10.4 Edac Technologies Corporation (2) Employee Stock Ownership Trust, effective May 1, 1989
10.5 Amended Employment Agreement dated (2) May 12, 1989 between Edac and Robert P. Luzzi
10.6 $700,000 Limited Recourse Term (2) Promissory Note dated May 12, 1989 between the Plan and CNB
10.7 Edac Technologies Corporation (3) 1991 Stock Option Plan
10.8 $4,000,000 Term Promissory Note (4) dated March 22, 1993 between Edac and Shawmut
10.9 Employment Agreement dated (4) January 1,1994 between Edac and Robert Whitty
10.10 Stock Option Agreement dated (4) January 1, 1994 between Edac and Robert Whitty
10.11 Amendment dated December 19, 1994 (5) to Employment Agreement dated October 1, 1990 between Edac and Robert P. Luzzi
10.12 Construction to Permanent Loan (6) Promissory Note
10.13 Open-End Construction to Permanent (6) Mortgage Deed
10.14 Sixth Amendment to Revolving Loan, (6) Term Loan, Equipment Loan and Security Agreement
10.15 Modification of Construction to (6) Permanent Loan Promissory Note and Open-End Construction to Permanent Mortgage Deed
10.16 Seventh Amendment to Revolving Loan, (6) Term Loan, Equipment Loan and Security Agreement and Reaffirmation of Guarantees
10.17 Eighth Amendment to Revolving Loan, (6) Term Loan, Equipment Loan and Security Agreement and Reaffirmation of Guarantees, Modification of Notes and Reaffirmation of Guarantees
10.18 Seventh Modification Agreement to (6) Open-End Mortgage Deed
10.19 Second Modification of Construction (6) to Permanent Loan Promissory Note and Open-End Construction to Permanent Mortgage Deed
10.20 Edac Technologies Corporation 1996 Stock Option Plan
10.21 Letter Agreement between Edac and Edward J. McNerney
11 Statement regarding computation of earnings per share
13 The Registrant's 1996 Annual Report to Shareholders
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, as amended.
(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, 1994.
(6) Exhibit incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.