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
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.
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.
* Property subject to mortgage securing certain corporate indebtedness.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Edac is not a party to any material pending legal proceedings.
ITEM 4.
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.
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.
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.
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.
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.
ITEM 8.
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.
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 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.
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.
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.
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.
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 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.
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
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS EDAC TECHNOLOGIES CORPORATION AND SUBSIDIARIES
(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.
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
/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
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)
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.
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.
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
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.