1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 3, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
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Commission file number: 0-14275
Edac Technologies Corporation
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1515599
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1806 New Britain Avenue, Farmington, CT 06032
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(Address of principal executive offices)
(860) 677-2603
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(Registrant's telephone number, including area code)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
On November 13, 1998 there were outstanding 4,261,580 shares of the
Registrant's Common Stock, $0.0025 par value per share.
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PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
October 3 December 31
1998 1997
(Unaudited) (Note)
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ASSETS
CURRENT ASSETS:
Cash $ 23,987 $ 137,620
Trade accounts receivable 6,509,169 3,903,329
Inventories 12,681,432 10,186,211
Prepaid expenses and other 439,188 44,138
Deferred income taxes 924,469 924,469
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TOTAL CURRENT ASSETS 20,578,245 15,195,767
PROPERTY, PLANT, AND EQUIPMENT 27,066,757 15,229,285
less-accumulated depreciation 8,270,788 7,644,959
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18,795,969 7,584,326
OTHER ASSETS
Cost in excess of net assets
Of business acquired 11,430,077 --
Other 1,252,347 1,069,483
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TOTAL OTHER ASSETS 12,682,424 1,069,483
$52,056,638 $23,849,576
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Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these financial statements.
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EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
October 3 December 31
1998 1997
(Unaudited) (Note)
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 8,238,651 $ 4,107,482
Current portion of long-term debt 1,758,780 1,018,928
Trade accounts payable 3,745,407 3,342,721
Employee compensation and
amounts withheld 1,938,811 1,380,272
Customer deposits 397,082 --
Accrued expenses 2,098,348 845,528
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TOTAL CURRENT LIABILITIES 18,177,079 10,694,931
LONG-TERM DEBT,
less current portion 24,371,778 5,368,882
OTHER LIABILITIES 9,000 9,000
DEFERRED INCOME TAXES 891,000 891,000
SHAREHOLDERS' EQUITY:
Common stock, par value $.0025 per
share; 10,000,000 shares authorized;
issued and outstanding--4,261,580
in 1998 and 3,834,550 in 1997 10,654 9,586
Additional paid-in-capital 8,828,840 8,768,504
Retained earnings(deficit) 307,070 (1,295,210)
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9,146,564 7,482,880
Less deferred ESOP compensation
expense (58,333) (116,667)
Less unfunded accrued pension costs (480,450) (480,450)
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8,607,781 6,885,763
$ 52,056,638 $ 23,849,576
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Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these financial statements.
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EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the quarter ended For the nine months ended
October 3 September 30 October 3 September
1998 1997 1998 1997
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Sales $ 14,163,423 $ 9,402,761 $ 37,495,437 $ 28,254,482
Cost of sales 11,709,987 7,867,770 30,360,166 24,474,966
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2,453,436 1,534,991 7,135,271 3,779,516
Selling, general and
and administrative
expenses 1,365,635 860,388 3,628,077 2,231,040
INCOME FROM OPERATIONS 1,087,801 674,603 3,507,194 1,548,476
Non-operating income
(expense):
Interest expense (686,451) (185,965) (1,190,802) (561,608)
Other 20,275 23,063 48,888 43,212
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(666,176) (162,902) (1,141,914) (518,396)
INCOME BEFORE
INCOME TAXES 421,625 511,701 2,365,280 1,030,080
Provision for
income taxes 142,000 0 763,000 0
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NET INCOME $ 279,625 $ 511,701 $ 1,602,280 $ 1,030,080
============ ============ ============ ============
Basic earnings per
common share $ 0.07 $ 0.12 $ 0.38 $ 0.25
============ ============ ============ ============
Diluted earnings per
common share $ 0.06 $ 0.12 $ 0.36 $ 0.24
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
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October 3 September 30
1998 1997
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Operating Activities:
Net income $ 1,602,280 $ 1,030,080
Depreciation and amortization 1,156,288 736,703
Changes in working capital items (540,486) (316,561)
Other (32,951) (22,549)
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Net cash provided by
operating activities 2,185,131 1,427,673
Investing Activities:
Additions to property, plant
and equipment (5,904,267) (2,327,423)
Proceeds from sales of property,
plant and equipment 58,358 64,541
Acquisition of
Apex Machine Tool Co. (19,853,700)
Other 122,872 (163,597)
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Net cash used in investing
activities (25,576,737) (2,426,479)
Financing Activities:
Increase in revolving
line of credit 4,131,169 535,164
Payment of equipment lines -- (541,153)
Issuance of long term debt 20,916,954 1,243,153
Payments of long term debt (1,174,206) (386,058)
Financing fees (657,348)
Proceeds from exercise of options
for common stock 61,404 48,438
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Net cash provided by
investing activities 23,277,973 899,544
Decrease in cash (113,633) (99,262)
Cash at the beginning of year 137,620 195,382
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Cash at end of period $ 23,987 $ 96,120
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The accompanying notes are an integral part of these financial statements.
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EDAC TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 3, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments to previously established loss
provisions) considered necessary for a fair presentation have been included.
Operating results for the nine month period ending October 3, 1998 are not
necessarily indicative of the results that may be expected for the year ending
January 2, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997.
The Company has changed its quarter end dates beginning with the first quarter
of 1998. Quarter end dates for 1998 are April 4, 1998, July 4, 1998, October 3,
1998 and January 2, 1999. This change did not result in a material difference
for the three or nine month periods ended October 3, 1998.
New Accounting Standard: In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income". This statement
established standards for separately reporting comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Components of comprehensive income represent
changes in equity resulting from transactions and other events and circumstances
from nonowner sources. The Company adopted the standard on January 1, 1998. The
adoption of this standard did not require additional disclosure for the three or
nine month periods ended October 3, 1998.
Earnings per Share: On July 1, 1998 the Company paid a ten percent stock
dividend to all shareholders of record as of June 16, 1998. In accordance with
SFAS No.128, "Earnings Per Share", earnings per share calculations for prior
periods presented on the accompanying financial statements and on Exhibit 11
have been restated based on the new number of shares.
NOTE B -- ACQUISITION OF APEX MACHINE TOOL COMPANY, INC.
On June 29, 1998, the Company completed its acquisition of certain assets and
liabilities of Apex Machine Tool Company, Inc.(Apex). In connection with this
acquisition, the Company purchased two buildings from certain shareholders of
Apex. This transaction was recorded as required under purchase accounting;
accordingly the purchase price was allocated to assets acquired and liabilities
assumed based upon their estimated fair values at the date of acquisition as
follows:
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Accounts receivable 2,669,637
Inventories 1,473,293
Receivable from former
Apex shareholders 262,231
Prepaid expense and other 27,353
Property plant & equipment 6,315,700
Covenant not to compete 100,000
Cost in excess of net assets
of business acquired 11,093,502
Accounts payable and
Accrued expenses (2,088,016)
Total purchase price 19,853,700
The receivable from the former shareholders of Apex represents the adjustment to
the purchase price for the difference in adjusted net book value of Apex Machine
Tool Company from November 30, 1997 to June 29, 1998. A contingent purchase
option was also executed calling for the purchase of 55 Spring Lane in
Farmington, CT for $1,135,600 which was not closed as of October 3, 1998. The
acquisition was principally funded through borrowings under the Company's
revolving credit facility and borrowing under a $14,000,000 term promissory note
with the Company's principal lender due as follows: (a) monthly principal
payments of $83,333 commencing July 1, 1999 and continuing through June 1, 2002,
(b) monthly payments of $250,000 commencing on July 1, 2002 and continuing
through June 1, 2003 and (c) monthly payments of $333,333 commencing July 1,
2003 and continuing through June 1, 2005. Interest is charged monthly at LIBOR
plus 1 1/2. The seller also provided a seller note totaling $2,710,687 relating
to the purchase of the two buildings used in the operation of Apex. This note
requires interest at the rate of 10.12% and is payable on January 1, 2000.
Proforma financial statements relating to the acquisition of Apex were filed
with the Securities and Exchange Commission on September 14, 1998 under the Form
8-K/A.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As mentioned in the 1997 Annual Report, towards the end of the 4th quarter 1997,
the Company had been successful in obtaining new business from new aerospace
customers. We are pleased to say that while we have continued to grow in our
aerospace markets, we have also grown in new non aerospace markets. During 1997
our largest aerospace customer represented 66% of our sales. Through the third
quarter while our sales with this customer have grown, they now represent only
55% of Gros-Ite's sales. We expect this trend to continue through 1999 as we
grow at a faster rate with our new customers.
With the acquisition of Apex, our largest aerospace customer now accounts for
only 44% of Edac's overall sales.
Sales. The Company's sales increased $4,760,661 or 50.6% for the three months
and $9,240,954 or 32.7% for the nine months ended October 3, 1998 compared to
the comparable periods of 1997. These increases are mainly due to increased
sales in the Large Turning and Precision Engineered Solutions areas. In
addition, we acquired the Apex Machine Tool Company, Inc. on June 29, 1998.
Sales for their third quarter are included for that period.
Cost of Sales. Cost of sales as a percent of sales decreased by 1.0% of sales
for the three months and by 5.6% of sales for the nine month period ended
October 3, 1998 compared to the comparable periods of 1997. This was achieved by
increased sales in the higher margin divisions and the spreading of fixed
overhead over higher production levels. Margins in all divisions were enhanced
by continuous improvement techniques such as Kaizen, Lean Thinking, pull systems
and Just in Time.
Selling, General & Administrative. Selling, general and administrative costs
increased $505,247 for the three months and $1,397,037 for the nine month period
ended October 3, 1998 compared to the comparable periods of 1997. The increase
is due to the addition of Apex for the third quarter and increased personnel
related expenses, selling, professional, advertising and promotional expenses.
Interest. Interest expense increased $500,486 or 269.1% for the three months and
$629,194 or 112.0% for the nine months ended October 3, 1998. This increase
reflects the acquisition of Apex Machine Tool Company on June 29, 1998 and
higher bank debt to acquire new machinery.
Liquidity and Capital Expenditures. Working capital as of October 3, 1998 has
decreased by $2,099,670 since December 31, 1997. Capital expenditures of
$5,904,267 have been funded by the Company's bank and an equipment financing
company.
The Apex acquisition was principally funded through borrowings under the
Company's revolving credit facility and borrowing under a $14,000,000 term
promissory note with the Company's principal lender due as follows: (a) monthly
principal payments of $83,333 commencing July 1, 1999 and continuing through
June 1, 2002, (b) monthly payments of $250,000 commencing on July 1, 2002 and
continuing through June 1, 2003 and (c) monthly payments of $333,333 commencing
July 1, 2003 and continuing through June 1, 2005. Interest is charged monthly at
LIBOR plus 1 1/2. The seller also provided a seller note totaling $2,710,687
related to the purchase of the two buildings used in the operation of Apex. This
note bears interest at the rate of 10.12% and is payable on January 1, 2000.
Management believes that the funds generated from operations and its credit
facilities will be sufficient to meet the Company's cash requirements for 1998.
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Other Matters
The "Year 2000" (or "Y2K") issue effects computer and information technology
("IT") systems, as well as non-IT systems which include embedded technology such
as micro-processors and micro-controllers (or micro-chips) that have date
sensitive programs that do not properly recognize the year 2000. Systems that do
not properly recognize such information could generate inaccurate data or cause
a system to fail, resulting in a business interruption.
The Company has completed a comprehensive inventory and assessment of its
existing IT and non-IT systems and those of the Company's suppliers. This
assessment included obtaining written assurances from key vendors and suppliers
if possible. Costs incurred to date have been minimal.
The Company believes, based on preliminary information, that the costs
associated with remediation and verification to become Y2K compliant will not
have a material adverse impact on the Company's financial position, results of
operations or cash flow.
Although the Company has taken steps to address the Y2K problem, there can be no
assurance that the failure of the Company and/or its material third parties to
timely attain Y2K compliance or that the failures and/or impacts of broader
compliance failures by telephone, mail, data transfer or other utility or
general service providers of government or private entities will not have a
material adverse effect on the Company. Further, there can be no assurance that
the costs associated with achieving such compliance or any failure to become Y2K
compliant will not be material to the Company's financial position, its results
of operations, or its cash flows.
All statements other than historical statements contained in this report on Form
10-Q 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,
the risk factors set forth in the Company's annual report on Form 10-K for the
year ended December 31, 1997. 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.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Edac's Amended and Restated Articles of
Incorporation
3.2 Edac's By-laws
11 Statement re: computation of earnings per share
27 Financial Data Schedule
99 Agreement Regarding Purchase Price Adjustments
dated 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.
(b) Reports on Form 8-K
Current report dated June 30, 1998
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SIGNATURES
Pursuant to the requirements 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
November 16, 1998 By /s/ Ronald G. Popolizio
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Ronald G. Popolizio, Chief Financial
Officer and duly authorized officer
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EXHIBIT INDEX
Page Number
in Sequential
NUMBER DESCRIPTION Numbering System
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3.1 Edac's Amended and Restated Articles of (1)
Incorporation
3.2 Edac's By-laws (2)
11 Statement Regarding Computation of
Per Share Earnings
27 Financial Data Schedule
99 Agreement Regarding Purchase Price Adjustments
dated 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.
(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, 1995.