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United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________to____________________
Commission file number 1-9276
PRECISION AEROTECH, INC.
(Exact name of registrant as specified in its charter)
A DELAWARE CORPORATION 33-0171440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7777 FAY AVENUE, SUITE 200, LA JOLLA, CALIFORNIA 92037
(Address of principal executive offices)
(619) 456-2992
(Telephone No.)
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of exchange on which registered
-------------- ------------------------------------
None None
Securities registered pursuant to section 12(g) of the Act:
Common stock $.01 par value
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. X Yes 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. [_]
At June 30, 1995, the aggregate market value of the Registrant's voting stock
held by non-affiliates was $10,000. The calculation of such market value should
not be construed as an admission or conclusion by the Registrant that any person
is in fact an affiliate of the Registrant.
The Registrant has one outstanding class of Common Stock. 789,250 shares were
outstanding at June 30, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which Definitive Proxy Statement is anticipated to be
filed within 120 days after the end of Registrant's fiscal year ended April 30,
1995 is incorporated by reference in Part III hereof.
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TABLE OF CONTENTS
ITEM DESCRIPTION
---- -----------
PART I 1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of
Shareholders
PART II 5. Market for the Registrant's Common Equity
and Related Shareholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III 10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
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PART I
ITEM 1. BUSINESS
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The Registrant is a leading producer of precision assemblies, components
and sub-systems used in the aerospace, defense, communications, reprographics
and other varied industry applications.
The Registrant has three operating manufacturing subsidiaries: L&S
Aerotech, Inc. ("L&S") located in Wichita, Kansas; Speedring, Inc. ("Speedring")
located in Cullman, Alabama and Speedring Systems, Inc. ("Systems") located in
Rochester Hills, Michigan. The Registrant's corporate offices are located in La
Jolla, California. Operations of a fourth subsidiary, Coast Aerotech, Inc.
("Coast") were halted during the fiscal year ended April 30, 1993, and all asset
transfers and liquidations were completed during 1994. In 1991, all operations
of Aero Technologies, Inc. ("Aero") were halted and all assets except land and
buildings were transferred or liquidated.
In its manufacturing facilities, the Registrant manufactures and in some
cases designs a wide range of assemblies, components and subsystems for a
variety of both commercial and government applications and programs in the
United States and, to a limited extent, internationally. The Registrant's
technical and manufacturing capabilities allow it to offer a broader and more
complex scope of supply in parts, assemblies and sub-systems than most of its
individual industry counterparts and competitors.
As of June 30, 1995, the Registrant employed 309 people company-wide.
Business Segments
- -----------------
The Registrant's business is classified into two major segments.
The Precision Machining and Assembly segment includes the operations of L&S
and Speedring. This segment includes precision machining, assembly, metal
forming and joining and repair for a wide variety of precision parts for
government, commercial and institutional customers. These parts and assemblies
are used in the manufacture and support of a wide variety of military and
commercial aircraft, strategic nuclear weapons, tactical missiles, satellites,
space structures and institutional R&D facilities.
The Optical Systems segment includes the activities of Systems. This
segment is engaged in the design and manufacture of optical scanners and mirror
systems for use in printing, image projection, precision measurement and space
exploration applications. See Note 16 to the Registrant's consolidated financial
statements for a more detailed discussion on the Registrant's business segments.
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Raw Material
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The Registrant is dependent on outside suppliers and subcontractors to meet
performance specifications, quality standards and delivery schedules. Most raw
materials and purchased parts used by the Registrant in its operations are
available from numerous sources at competitive prices. However, beryllium, a
material used extensively at Speedring and Systems is almost exclusively
available from Brush Wellman, located in Ohio. Historically, the Registrant has
had an excellent relationship with this key supplier and has not encountered
problems in obtaining its beryllium requirements.
Working Capital
- ---------------
Generally, the Registrant accumulates inventory in support of firm orders
and is not required to carry excess quantities of raw materials or purchased
parts because of availability or allocation.
The Registrant's standard policy does not provide for extended payment
terms to its customers.
Environmental Compliance
- ------------------------
The Registrant's subsidiaries are subject to federal, state and local
authorities' environmental control regulations. The Registrant believes it is in
compliance with these numerous regulations and that it is not exposed to any
material liability as it relates to contamination of the environment. To date,
compliance with these environmental regulations has not had a material effect on
the Registrant's earnings nor has it required the Registrant to expend
significant capital expenditures. The Registrant is not aware of any regulations
that will have a significant effect on earnings or capital expenditures in the
future or would place the Registrant at a competitive disadvantage compared to
other companies in the same industries.
The Registrant has been previously notified of two instances of suspected
environmental contamination. Preliminary evaluations by the Registrant do not
indicate any material liability on the Registrant's part as to these sites. See
Note 15 to Consolidated Financial Statements for further discussion.
The Registrant was identified as one of many potentially responsible
parties ("PRPs") for cleanup at a Government licensed, third-party waste
disposal site. It has also been made aware of a potential claim at a plant site
sold by one of its subsidiaries 12 years prior to the Registrant's acquisition
of the subsidiary.
In the first matter, the Environmental Protection Agency (EPA) has notified
the Registrant, along with many other parties, that it is potentially liable for
costs related to removal of materials and remediation of damage that may have
been caused by hazardous substances at a licensed third-party waste disposal
site. Management intends to respond by cooperating with all EPA requests. The
EPA has completed the clean-up of the site at a cost of $4,720,727 and has made
a demand seeking payment. The EPA is currently negotiating a potential global
settlement agreement with the PRPs. However, if a global
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settlement is not achieved, the EPA reserves the right to determine an
allocation formula and tender prorated settlement offers on a take-it or leave-
it basis. Based on information provided orally by the EPA, Management has
estimated the future liability for the Registrant's portion of the clean-up to
be no more than approximately $75,000. The estimate is based on the current EPA
calculation of the Registrant's proportional share of responsibility based on
the ratio of the Registrant's gallonage at the site compared to the total
gallonage of all PRPs. Joint and several liabilities among the PRPs can be
imposed. Joint and several liability means that any one party could
theoretically be liable for the entire cleanup. In light of the large number of
PRPs, the Registrant believes this is highly unlikely. However, the large number
of PRPs does not change the maximum theoretical exposure of joint and several
liabilities. It was also hoped that the site insurance carrier would be
obligated to contribute to the cleanup costs. To date there has been no
contribution by the insurance carrier and it is unlikely that any such
contribution will occur. Management's estimate of the future liability does not
include any assumed amounts to be recovered from the insurance carrier.
In the second matter, during the process of selling the property, the
current owner of the plant site has made various assertions regarding
environmental contamination at the site and that it potentially may incur
significant remediation costs. No litigation has been brought against the
Registrant. No governmental action has yet been taken, though no assurances can
be given that there will not be any governmental action in the future.
Management denies that it is liable for any potential contamination at the site,
which was never occupied or used during the Registrant's ownership, and intends
to vigorously contest any claims related thereto. The Registrant has received no
further correspondence regarding this matter since December 1992.
Significant Customers
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During 1995, sales to the largest customers, the Boeing Company and AGFA,
accounted for 17% and 15% of net sales respectively. The Registrant's other
significant customers include the U. S. Government, Martin Marietta, Litton,
Magnavox, McDonnell Douglas, Loral and Hughes.
Backlog
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The approximate dollar amount of backlog orders believed to be firm was
$21.7 million and $8.8 million for the Precision Machining and Assembly and the
Optical Systems segments, respectively, as of June 30, 1995 and $22.2 million
and $6.4 million for the Precision Machining and Assembly and the Optical
Systems segments, respectively, as of June 30, 1994. Contracts undertaken by the
Registrant may extend beyond one year, and accordingly, portions of contracts
are carried forward as backlog from one year to the next. The approximate amount
of the backlog at June 30, 1995 not reasonably expected to be shipped during the
fiscal year ended April 30, 1996 was $5.1 million and $0 for the Precision
Machining and Assembly segment and the Optical Systems segment, respectively.
The amount of backlog is not necessarily indicative of future contract
revenue. Backlog is typically subject to large variations from time to time as
contracts are completed, major existing contracts are renewed or major new
contracts are awarded. In addition,
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although backlog represents only business which is considered to be firm, there
can be no assurance that cancellations or adjustments will not occur. The
majority of backlog consists of contracts under the terms of which cancellation
by the customer would entitle the Registrant to all of its costs incurred and
related profit.
Government Contracts
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The Registrant's U.S. Government business generally is performed under
fixed-price contracts. Under fixed-price contracts, the Registrant agrees to
perform certain work for a fixed price and, accordingly, realizes the benefit or
detriment occasioned by decreased or increased costs of performing the contract.
Government contracts are, by their terms, subject to termination by the
Government either for its convenience or for default of the contractor. Fixed-
price contracts provide for payment upon termination for items delivered to and
accepted by the Government, and, if the termination is for convenience, for
payment of the contractor's costs incurred plus the costs of settling and paying
claims by terminated subcontractors, other settlement expenses and a reasonable
profit on its costs incurred. If such termination is for default, the contractor
is paid such amount as may be agreed upon for completed and partially completed
products and services accepted by the Government. The Government is not liable
for the contractor's costs with respect to unaccepted items, and is entitled to
repayment of advance payments and progress payments, if any, related to the
terminated portions of the contracts. The contractor may be liable for excess
costs incurred by the Government in procuring undelivered items from another
source.
Competitive Conditions
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Securing customer orders is predicated on a combination of factors. Most
important among these are pricing levels, existence of specific capabilities
required in the performance of work, existence of systems and disciplines
required to meet quality requirements and acceptability of past performance. The
degree to which each of these play a part in the customer decision process
varies greatly by subsidiary and further by the type of work performed. It is
becoming an increasingly common requirement for suppliers in this industry to
meet extremely stringent "preferred supplier" criteria to be considered for
future awards. All the Registrant's businesses have achieved this status with
virtually all key customers recently. A limited number of competitors exist for
micro-precision and beryllium machining. Conversely, an extensive number of
potential competitors exist for certain less unique machining work.
Competitors vary greatly in size. None of the direct competitors with the
Registrant's business are dominant in the market segments served. However,
increased competition has been experienced in selected areas of the Registrant's
business, as defense industry activity has declined and commercial aerospace
prime contractors are narrowing their supplier bases and reacting to stretchouts
of new aircraft deliveries.
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ITEM 2. PROPERTIES
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The following table sets forth information concerning the Registrant's
facilities which are production facilities.
<TABLE>
<CAPTION>
Location Approximate Ownership Interest Square Feet
- -------- ------------------------------ -----------
<S> <C> <C>
Wichita, Kansas Owned 45,000
Wichita, Kansas Owned 54,000
Wichita, Kansas (1) Lease (Expiring 1996) 40,000
Rochester Hills, Michigan (2) Lease (Expiring 1999) 29,000
Cullman, Alabama Owned 100,000
-------
Total 268,000
=======
</TABLE>
(1) Leased at $3,736 per month through October 1996 plus annual CPI
adjustments beginning in the second option year, which includes CPI
adjustment. The lease contains three five-year renewal options at
fair market rental value.
(2) Leased at $18,004 per month through October 1996 and thereafter at
$20,792 per month through October 1999. The Registrant has four five-
year renewal options with increases in monthly rent of 20% per option
period.
Management estimates that the current facilities are sufficient for the
Registrant's projected growth in the near term and believes that additional
facilities will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
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See Item 1 (Page 2) and Footnote 15 to the Consolidated Financial
Statements for information regarding environmental compliance.
The Alabama Department of Revenue has proposed additional franchise taxes
for the years 1989 through 1994 in the amount of $388,000 (plus penalties and
interest). The Registrant's returns for 1989 through 1992 had previously been
examined and an agreement was reached regarding the tax due and an acceptable
method of calculating the franchise tax base. The additional tax was paid and
returns were prepared for subsequent years based on the agreed upon calculation
method.
The Department of Revenue is now proposing a different method of
calculating the tax base retroactively to 1989. Management intends to contest
the Department of Revenue's positions and believes that the contested additional
taxes will be substantially reduced.
No accrual has been made in the financial statements (Note 10) for the
proposed taxes since the ultimate liability, if any, cannot be reasonably
estimated. Any ultimate liability is not expected to be material in relation to
the consolidated financial position of the Registrant, but could be material in
relation to the earnings of the period in which a final determination occurs.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
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None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
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SHAREHOLDER MATTERS
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The Registrant's common stock is traded on the NASDAQ "Bulletin Board". On
June 30, 1995, there were approximately 1,000 record holders of the common stock
of the Registrant.
The table below sets forth for each quarter the high and low market values
of the Registrant's Common Stock in the two most recent fiscal years. The
amounts have been retroactively adjusted for the effect of the 1 for 100 reverse
stock split completed during fiscal 1994. Market values for the first quarter of
fiscal 1994 are based on reported high and low closing sales prices. Market
values for the remaining periods are based on reported high and low bid prices.
Bid prices represent prices between dealers and do not include any retail
markup, markdown or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Year 1995 Fiscal Year 1994
- -------------- ---------------- ----------------
High Low High Low
------ ----- ------ -----
<S> <C> <C> <C> <C>
First $ .50 $.125 $25.00 $12.50
Second .125 .125 25.00 3.13
Third .25 .25 3.13 0.10
Fourth .25 .25 5.00 0.10
</TABLE>
The Registrant intends to retain its earnings to finance development of its
business and does not intend to declare dividends on its Common Stock in the
foreseeable future. Further, the agreements with the Registrant's two primary
lenders contain restrictions on the payment of dividends.
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ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
SELECTED FINANCIAL DATA
(In thousands of dollars except per share data)
<TABLE>
<CAPTION>
For the Years Ended April 30
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Statement of Income Data: 1995 1994 1993 1992(1) 1991(1)
- -------------------------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $35,806 $36,528 $ 47,602 $51,015 $64,434
Cost of sales 27,007 28,305 37,746 39,329 49,831
------- ------- -------- ------- -------
Gross profit 8,799 8,223 9,856 11,686 14,603
------- ------- -------- ------- -------
Selling, general, and
administrative expenses 7,098 6,353 8,628 7,663 8,138
Amortization 1 527 9,477 490 491
Debt restructuring
expenses - - 2,529 188 209
(Income) loss on
disposal of
subsidiaries (97) (378) 2,165 - -
------- ------- -------- ------- -------
Operating income (loss)
from continuing operations 1,797 1,721 (12,943) 3,345 5,765
Interest expense, net (1,686) (5,794) (4,978) (5,388) (6,176)
Other income (expense), net 45 31 (48) (158) (306)
------- ------- -------- ------- -------
Income (loss) from
continuing operations before
income taxes 156 (4,042) (17,969) (2,201) (717)
Income taxes 93 43 149 9 225
------- ------- -------- ------- -------
Income (loss) from
continuing operations $ 63 $(4,085) $(18,118) $(2,210) $ (942)
Discontinued operations:
(Loss) from operations:
Aero - 175 (75) - (884)
(Loss) on disposal of:
Aero - - - - (1,256)
Micronics - - - - (136)
------- ------- -------- ------- -------
Income (loss) before
extraordinary item $ 63 $(3,910) $(18,193) $(2,210) $(3,218)
Extraordinary item, gain
on troubled debt
restructuring - 23,669 - - -
------- ------- -------- ------- -------
Net Income (loss) $ 63 $19,759 $(18,193) $(2,210) $(3,218)
======= ======= ======== ======= =======
</TABLE>
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SELECTED FINANCIAL DATA
(In thousands of dollars except per share data)
<TABLE>
<CAPTION>
For the Years Ended April 30
---------------------------------------------------------
Statement of Income Data: 1995 1994 1993(1) 1992(1) 1991(1)
- ------------------------- ------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) per share:
From continuing operations $ .08 $(106.33) $(532.44) $(71.05) $ (34.00)
From discontinued operations - 4.56 (2.17) - (66.00)
From extraordinary item - 616.05 - - -
------- -------- -------- ------- --------
Net income (loss) per share $ .08 $ 514.28 $(534.61) $(71.05) $(100.00)
======= ======== ======== ======= ========
Total assets $23,278 $ 21,352 $ 36,204 $47,422 $ 55,638
Long-term debt 13,690 15,427 1,485(2) 38,618 43,186
</TABLE>
(1) Amounts were restated to reflect Aero and Micronics as discontinued
operations and to reflect 1 for 100 reverse stock split completed on
April 28, 1994.
Per share data in remainder of this document has been restated for the
1 for 100 reverse stock split completed on April 28, 1994.
(2) Includes capital leases only. Other long-term debt was in default and
therefore recorded as "current indebtedness."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Percentages of Certain Income Statement Items as They Relate to Net Sales:
The following table sets forth the percentages of certain income statement items
as they relate to net sales in the consolidated statements of income for the
years ended April 30, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
FOR YEARS ENDED APRIL 30
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 75.4 77.5 79.3
----- ----- -----
Gross profit 24.6 22.5 20.7
----- ----- -----
Selling, general and administrative expenses 19.9 17.4 18.1
Amortization - 1.4 19.9
Debt restructuring expenses - - 5.3
(Income) loss on disposal of subsidiaries (.3) (1.0) 4.6
----- ----- -----
Total selling, general and
administrative expenses 19.6 17.8 47.9
----- ----- -----
Income (loss) from operations 5.0 4.7 (27.2)
Interest expense, net 4.7 15.9 10.6
Other (income) expense, net .1 (.1) .1
----- ----- -----
Income (loss) before income taxes .4 (11.1) (37.9)
Income taxes .2 (.1) .3
----- ----- -----
Income (loss) from continuing operations .2 (11.2) (38.2)
===== ===== =====
</TABLE>
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FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
- ---------------------------------------------
Net sales in 1995 of $35.8 million were $0.7 less than the $36.5 million in
1994. Sales by business segment, including intercompany sales, for the two years
are as follows:
($ millions)
Precision Machining
and Assembly Optical Systems
------------------- ---------------
1994 $28.6 $ 9.4
1995 25.7 11.8
Sales increases in the Optical Systems segment were due in a large part to
expanded new customer programs in image setting market segments ($1.1 million)
and new laser-based optical sub-systems for new market segments ($0.7 million).
Sales in the Precision Machining and Assembly segment were adversely impacted by
a continued reduction and, in some cases, cancellation of mature defense
programs. Reductions in this segment were partially offset by increased military
spare parts sales for critical aircraft repair programs ($0.7 million) and an
improvement ($0.7 million) in commercial aircraft parts and assembly sales.
New business development initiatives at all three subsidiaries are ongoing.
These initiatives are designed to locate and develop customers that are in the
Registrant's current markets as well as markets in industries that may be able
to utilize the Registrant's specific expertise. Management expects these
initiatives to lessen the impact of continued reductions in defense spending.
Consolidated profit of $8.8 million was $0.6 million higher than the $8.2
million reported for 1994. Gross margin percent increased from 22.5% in 1994 to
24.5% in 1995. The improved performance is largely related to two items. First,
margins on sales of spare parts to the Government improved in 1995 compared to
1994. Margins on sales to the Government are dependent on many factors such as
the level of defense spending, specific repair programs undertaken by the
Government and competition in the industry. Margins for this portion of the
Registrant's business have been inconsistent in the past. Improved margins in
the current year do not assure that margins in this category will continue at
the current levels. Second, there was a substantial reduction in the program
development and start-up costs in the Optical Systems segment during 1995. The
current year reflects a more expected level of expenses in this area and
management considers the amounts spent in 1994 to be unusually high.
Improvements in these two areas were partially offset by reductions in certain
mature defense programs and higher than usual new program development in the
Precision Machining and Assembly segment.
Selling, general and administrative expenses increased by $0.7 million in
1995. The increase was due to increased commissions associated with increased
sales and change in customer mix at the L&S subsidiary and increased performance
based incentive payments in areas where planned performance improvements were
realized or exceeded.
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As a result of the debt restructuring completed in April 1994, interest
expense of $1.7 million for 1995 was $4.1 million less than the $5.8 million
reported in 1994. This supported the achievement of a positive net income before
taxes from continuing operations for 1995 of $0.2 million compared with a net
loss of $4.0 million in 1994.
Because of the change in ownership under the debt restructuring in 1994, no
net operating loss carryovers are available to offset taxable income in the
current or future years. Income taxes payable for 1995 are $0.2 million. A net
increase of $0.1 million in deferred tax assets over deferred tax liabilities in
1995 resulted in a current year income tax expense of $0.1 million. Note 10 to
the Financial Statements provides additional information regarding income taxes.
Net income for 1995 of $0.1 million was substantially lower than the $19.8
million reported for 1994. The 1994 results were favorably impacted by a $23.7
million extraordinary item related to the troubled debt restructuring.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
- ---------------------------------------------
Net sales in 1994 were $36.5 million compared to $47.6 million in 1993.
Sales were down in the Precision Machining and Assembly segment due to:
. Reductions in Boeing commercial aircraft production schedules and
lower military spare parts funding impacting L&S sales by $2.3
million.
. A reduction of $5.8 million in sales at Coast related to its
discontinuance at the end of 1993 and ultimate disposition.
. A $2.2 million reduction in sales at Speedring associated with
cancellation of a large classified program and the anticipated
continuation of strategic nuclear weapon hardware phase-out.
These reductions are net of increases in sales from new customers and
programs at both L&S and Speedring associated with aggressive new business
development initiatives. Approximately one third of the Speedring customers, in
1994, were new additions during the previous 24 months.
Consolidated gross profit from operations was $8.2 million compared with
$9.9 million the prior year. The decrease was largely attributed to the reduced
sales volume. However, in spite of reduced volume, gross margin percent
increased 1.8% to 22.5% from 20.7% during the prior fiscal year, in part
resulting from continued close cost management and a higher than average margin
on a terminated program.
Selling, general and administrative expenses were again reduced by nearly
$2.2 million to $6.3 million from $8.6 million in 1993. Again, continued
aggressive cost reductions at L&S and Speedring and the discontinuance of Coast
explain the significant decrease. Amortization of $0.5 million, included in 1994
results, of previously capitalized goodwill is eliminated going forward as the
result of the "quasi-reorganization".
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Positive operating income was achieved at all three subsidiaries during
fiscal 1994. Consolidated operating income of $1.7 million for 1994 compares
with an operating loss of $12.9 million in 1993. Excluding the non-recurring
adjustments for goodwill, debt restructuring expenses and loss on disposal of
subsidiaries, operating income for 1994 was $1.2 million compared with the $0.7
million for 1993.
The 1994 interest expense accrued and reported was $5.8 million as
specified in the original senior and subordinated loan agreements. This compares
with $5.0 million in 1993. The actual amount paid in fiscal 1994 was $1.8
million. The difference was forgiven by the lenders in the restructuring and is
shown as part of the gain on debt restructuring.
Net income of $19.8 million or $514.28 per common share for 1994 compares
with a net loss of $18.2 million or $534.61 per common share for 1993. The net
income reported for 1994 is related in its entirety to the $23.7 million gain on
the troubled debt restructuring concluded late in the 1994 fiscal year. Without
the extraordinary gain the Registrant would have reported a loss of $3.9 million
or $101.77 per common share.
In connection with the Restructuring, the Registrant implemented, for
accounting purposes, a "quasi-reorganization", an elective accounting procedure
that permits a company that has emerged from financial difficulty to restate its
accounts and establish a fresh start in an accounting sense. Through
implementation of the "quasi-reorganization", the Registrant's assets and
liabilities were revalued and its accumulated deficit was charged to additional
paid-in capital. The Registrant effected the "quasi-reorganization" as of April
30, 1994.
The Registrant recorded no Federal tax expense for fiscal 1994 due to the
non-taxable treatment of the gain from the "troubled debt restructuring". Due to
the change in ownership of the Registrant under the Restructuring, the net
operating loss carry-forwards from prior years will not be available to offset
future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Fiscal 1995 represents the first full fiscal year the Registrant operated
under its restructured debt agreements.
Cash from operations improved significantly from prior years. The
improvement is due to improvements in earnings and noncash adjustments to
reconcile net income to net cash provided by operations. Operating assets
increased primarily due to increases in accounts receivable based on increased
shipments in the final month of the year and increases in inventories at the L&S
subsidiary due to short-term delivery delays on selected contracts. These
increases were more than offset by increases in accounts payable and accrued
expenses.
The Registrant utilizes vendor credit as a source of short-term funding.
Two of the Registrant's larger vendors have informally agreed to payment terms
in excess of the industry norm of 30 days. While these agreements are informal,
the Registrant expects them to continue in the future.
12
<PAGE>
The increase in accrued expenses is primarily employee compensation and a
significant portion of the expenses will be paid within 90 days of the end of
the fiscal year. Cash will be provided by operations and borrowing against the
revolving credit agreement.
Investing activities returned to a level comparable to the years prior to
the restructuring year. Capital expenditures will likely continue at
approximately at this level in the near future. Capital expenditures during
fiscal 1995 were $2,239,000 compared to $697,000 in fiscal year 1994. Of these
amounts, $1,239,000 and $246,000 were funded by capital leases for fiscal 1995
and 1994 respectively. The Registrant expects leasing to continue to be a
significant source of funds for capital expenditures in the future. At June 30,
1995, the Registrant had firm purchase commitments for capital equipment of
$210,000, of which approximately $70,000 will be funded by a capital lease.
Cash used in financing activities increased in the current year. This was a
result of utilizing cash to repay amounts against the Foothill revolving line of
credit. Of the amount used, $1,386,000 represents the amount required to be paid
under the loan and capitalized lease agreements and $1,640,000 represents the
amount repaid against the line of credit. Cash generated by operations was
$2,127,000 in excess of the required debt payments.
The Registrant has available, a maximum revolving credit agreement of
$4,000,000. Availability of this line of credit is based on a calculation
utilizing a percentage of accounts receivable and a percentage of certain
components of inventory. As of April 30, 1995, $3,640,000 was available, with
$360,000 having been drawn against the $4,000,000 calculated borrowing base.
Management plans to fund working capital requirements from a combination of
cash generated from operations, short-term vendor financing and borrowings from
its revolving credit agreement. Management believes this will provide adequate
working capital to meet its needs in the foreseeable future. Cash generated from
operations for both fiscal 1995 and 1994 were in excess of amounts required to
service the restructured debt obligations.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
Index to Consolidated Financial Statements and Supplementary Data
Reports of Independent Auditors
Consolidated Balance Sheets - April 30, 1995 and 1994
Consolidated Statements of Operations
for the years ended April 30, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flow
for the years ended April 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Precision Aerotech, Inc.
La Jolla, California
We have audited the accompanying consolidated balance sheets of Precision
Aerotech, Inc. and subsidiaries as of April 30, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended April 30, 1995 listed in
the accompanying index to financial statements (Item 14(a)). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the financial position of Precision Aerotech, Inc. and subsidiaries as
of April 30, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended April 30, 1995, in
conformity with generally accepted accounting principles.
San Diego, California
July 19, 1995
15
<PAGE>
To the Board of Directors and Stockholders
Precision Aerotech, Inc.
La Jolla, California
Our audit of the consolidated financial statements of Precision Aerotech, Inc.
and subsidiaries included schedule II contained herein, for each of the three
years in the period ended April 30, 1995.
In our opinion, such schedule presents fairly the information required to be set
forth therein in conformity with generally accepted accounting principles.
San Diego, California
July 19, 1995
16
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1995 AND 1994
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS (NOTE 6) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 240 $ 711
Accounts receivable, net (Notes 2 and 12) 4,664 3,967
Inventories (Note 3) 7,700 6,852
Prepaid expenses and other current assets 103 84
Deferred tax assets (Note 10) 961 --
-------------------
TOTAL CURRENT ASSETS 13,668 11,614
-------------------
Property, Plant and Equipment, net (Notes 4 and 8) 9,535 9,709
-------------------
Other assets 75 29
-------------------
$23,278 $21,352
===================
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
-------------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 3,130 $ 1,208
Income taxes payable 235 --
Accrued expenses and other current liabilities
(Note 9) 3,370 2,698
Current portion of long-term debt and capital lease
obligations (Notes 6 and 8) 1,227 1,276
-------------------
Total current liabilities 7,962 5,182
-------------------
Long-term debt and capital lease obligations, less
current portion (Notes 6 and 8) 13,690 15,427
-------------------
Deferred tax liabilities (Note 10) 820 --
-------------------
Commitments and contingencies (Notes 8 and 15)
Shareholders' Equity (Notes 6, 7 and 11)
Common stock, $.01 par value authorized 15,000,000
shares, issued and outstanding 789,250 shares 8 8
Additional paid-in capital 735 735
Retained earnings since May 1, 1994 ($15,927
accumulated deficit eliminated in
quasi-reorganization on April 30, 1994) 63 --
-------------------
TOTAL SHAREHOLDERS' EQUITY 806 743
-------------------
$23,278 $21,352
===================
</TABLE>
18
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Note 12) $ 35,806 $ 36,528 $ 47,602
Cost of sales 27,007 28,305 37,746
----------------------------------------------
GROSS PROFIT 8,799 8,223 9,856
----------------------------------------------
Selling, general, and administrative expenses 7,098 6,353 8,628
Amortization (Note 5) 1 527 9,477
Debt restructuring expenses -- -- 2,529
(Income) loss on disposal of subsidiaries
(Note 14) (97) (378) 2,165
----------------------------------------------
7,002 6,502 22,799
----------------------------------------------
OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS 1,797 1,721 (12,943)
Interest income (expense), net (1,686) (5,794) (4,978)
Other income (expense), net 45 31 (48)
----------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 156 (4,042) (17,969)
Income taxes (Note 10) 93 43 149
----------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 63 (4,085) (18,118)
----------------------------------------------
Discontinued operations (Note 14)
Gain (loss) from Aero operations -- 175 (75)
----------------------------------------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 63 (3,910) (18,193)
Extraordinary item, gain on troubled
debt restructuring (Note 6) -- 23,669 --
----------------------------------------------
NET INCOME (LOSS) $ 63 $ 19,759 $ (18,193)
==============================================
Earnings per share:
Income (loss) from continuing operations $ 0.08 $(106.33) $ * (532.44)
Gain (loss) from discontinued operations -- 4.56 * (2.17)
Extraordinary item, gain on troubled
debt restructuring -- 616.05 --
----------------------------------------------
NET INCOME (LOSS) $ 0.08 $ 514.28 $ * (534.61)
==============================================
Weighted average number of
shares outstanding (Note 11) 789,250 38,419 * 34,483
==============================================
</TABLE>
*Restated for effect of stock split
See Notes to Consolidated Financial Statements.
19
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1992 4,980 $ 1 45,188 $ 4 79,080 $ 8
Net (loss) -- -- -- -- -- --
---------------------------------------------------------------------
Balance, April 30, 1993 4,980 1 45,188 4 79,080 8
Reclassification/conversion
of stock in troubled debt
restructuring (Notes 6
and 11) (4,980) (1) (45,188) (4) (79,080) (8)
Reverse stock split common
stock (Note 11) -- -- -- -- -- --
Change in common stock
par value -- -- -- -- -- --
Net income -- -- -- -- -- --
Adjustment for quasi-
reorganization as of
April 30, 1994 (Note 7) -- -- -- -- -- --
---------------------------------------------------------------------
Balance, April 30, 1994
Net income -- -- -- -- -- --
---------------------------------------------------------------------
Balance, April 30, 1995 -- $ -- -- $ -- -- $ --
=====================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3,448,253 $ 345 $ 14,064 $(17,493) $ (3,071)
-- -- -- (18,193) (18,193)
- -----------------------------------------------------------------------------
3,448,253 345 14,064 (35,686) (21,264)
754,968 8 2,253 -- 2,248
(3,413,971) -- -- -- --
-- (345) 345 -- --
-- -- -- 19,759 19,759
-- -- (15,927) 15,927 --
- -----------------------------------------------------------------------------
789,250 8 735 -- 743
-- -- -- 63 63
- -----------------------------------------------------------------------------
789,250 $ 8 $ 735 $ 63 $ 806
=============================================================================
</TABLE>
21
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow from Operating Activities
Net income (loss) $ 63 $ 19,759 $(18,193)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization of
property, plant and equipment 2,370 2,265 2,538
Other amortization 1 527 9,972
Gain on troubled debt restructuring -- (23,669) --
Provision for losses on accounts
receivable -- 35 51
Provision for losses on inventory 222 (330) 32
(Gain) loss on sale of assets -- 3 (78)
Deferred income taxes (141) -- --
Noncash (income) loss on disposal of
subsidiaries or discontinued operations -- (553) 1,986
Accrued interest added to long-term
debt -- 3,522 1,441
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (697) 593 1,345
Inventories (1,070) 3,789 1,142
Prepaid expenses and other current
assets (19) (3) 187
Other noncurrent assets (45) 25 90
Increase (decrease) in:
Accounts payable 1,922 (1,221) (1,648)
Income taxes payable 235 -- --
Accrued expenses and other current
liabilities 672 (3,412) 2,750
---------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 3,513 $ 1,330 $ 1,615
=================================
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Investing Activities
Capital expenditures $(1,000) $ (451) $ (1,144)
Proceeds from disposal of assets 42 490 139
---------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (958) 39 (1,005)
---------------------------------------
Cash Flows from Financing Activities
Borrowings on long-term debt 6,060 -- 40,042
Principal payments on long-term debt
and capital lease obligations (9,086) (2,858) (38,452)
---------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,026) (2,858) 1,590
---------------------------------------
NET INCREASE (DECREASE) IN CASH (471) (1,489) 2,200
Cash
Beginning 711 2,200 --
---------------------------------------
Ending $ 240 $ 711 $ 2,200
=======================================
Supplemental Disclosures of Cash Flow
Cash paid for:
Interest $ 1,575 $ 2,155 $ 2,423
Income tax payments $ -- $ 284 $ 139
Supplemental Schedule of Noncash Investing
and Financing Activities
Equipment acquired under capital
leases $ 1,239 $ 246 $ 794
Accrued interest added to long-term debt $ -- $ 3,522 $ 1,441
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company manufactures precision assemblies and components used primarily in
the aerospace, defense, communication and reprographics industries generally
under long-term contracts, which are typically less than three years in
duration. The Company's accounts receivable are due primarily from companies in
these industries located throughout the United States. Credit is extended based
on an evaluation of the customer's financial condition and collateral is not
required.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Precision
Aerotech, Inc. and its subsidiaries (the Company). All significant intercompany
accounts and transactions have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market, net
of progress payments received. Under the contractual arrangements by which
progress payments are received, the customer has a security interest in the
inventory identified with related contracts.
REVENUE RECOGNITION
Revenue is generally recognized on the units-of-delivery method. Sales and
costs of sales are generally recognized when inventory manufactured pursuant to
a contract is shipped. Provisions are made on a current basis to fully
recognize any anticipated losses on contracts.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation
and amortization. Leasehold improvements are amortized on the straight-line
method over the shorter of the term of the related lease or the estimated useful
life of the improvement. Depreciation of plant and equipment is provided over
the estimated useful lives of the respective assets using the straight-line
method, typically five to eight years. Amortization of equipment acquired
under capital leases is included in depreciation of plant and equipment.
24
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCESS OF COST OVER FAIR VALUE OF PURCHASED SUBSIDIARIES
Prior to the implementation of the quasi-reorganization, the excess of cost over
fair value of purchased subsidiaries was amortized over 20 years using the
straight-line method. Annually, management reviewed the unamortized value of
the intangibles using a discounted cash flow method of valuation using a rate of
13.5% for each subsidiary having a material balance and reduced their balances
if the values were permanently impaired. Due to the elimination of the
unamortized balance of the excess of cost over fair value of purchased
subsidiaries effective April 28, 1994, there is no remaining balance reflected
on the accompanying consolidated balance sheets (see Notes 5 and 7).
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when it is
determined to be more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
RESEARCH AND DEVELOPMENT EXPENSE
The Company incurred and expensed $553,000, $426,000 and $305,000 for research
and development during the years ended April 30, 1995, 1994 and 1993,
respectively.
EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average number of
shares outstanding as restated for the effect of the reverse stock split (see
Note 11) after adjusting for dividend requirements of preferred stock in 1994
and 1993.
NOTE 2. ACCOUNTS RECEIVABLE
Following are the components of accounts receivable, substantially all from
long-term contracts, at April 30:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
-----------------
<S> <C> <C>
Amounts billed $4,748 $4,142
Less allowance for doubtful accounts 84 175
-----------------
$4,664 $3,967
=================
</TABLE>
25
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVENTORIES
The components of inventories, substantially all of which relate to long-term
contracts, are as follows at April 30:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------------------
<S> <C> <C>
Work-in-process and finished components $7,528 $6,839
Raw materials 345 233
Less amounts representing progress payments received on
uncompleted contracts 173 220
------------------
$7,700 $6,852
==================
</TABLE>
Inventories are net of reserves of $805,000 and $583,000 at April 30, 1995 and
1994, respectively.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at April 30:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
---------------------
<S> <C> <C>
Land $ 465 $ 465
Building and leasehold improvements 2,417 2,313
Machinery and equipment 4,571 3,369
Machinery and equipment under capital leases 3,510 2,962
Furniture and fixtures 926 600
---------------------
$11,889 $9,709
Less accumulated depreciation and amortization 2,354 --
---------------------
$ 9,535 $9,709
=====================
</TABLE>
Included in accumulated depreciation and amortization are amounts related to
assets acquired under capital leases of $607,000 and $0 at April 30, 1995 and
1994, respectively (see Note 7).
26
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. EXCESS OF COST OVER FAIR VALUE
In its annual evaluation of the unamortized value of the excess of cost over
fair value of purchased subsidiaries at April 30, 1993, management determined
there was an impairment of the value recorded in connection with subsidiaries
purchased in 1988. Based upon changes in the national political and economic
environment it was felt that this impairment was permanent. Loss from
continuing operations reflects a charge of approximately $8,995,000 for the year
ended April 30, 1993 for additional amortization as a result of recording this
impairment. In addition, management reevaluated its estimate of the useful life
of the excess of cost related to this 1988 acquisition from 40 to 20 years.
In connection with the comprehensive restructuring accomplished in 1994, the
Company implemented a quasi-reorganization and as a result recorded a charge of
approximately $7,378,000 to accumulated deficit to eliminate the remaining
unamortized value of the excess of cost over fair value of purchased
subsidiaries (see Note 7). The reduction in the intangible asset was a result
of the implementation of the quasi-reorganization and was not based on an
indication of further impairment using the evaluation method described above.
NOTE 6. DEBT AND CAPITAL LEASE OBLIGATIONS
Following is a summary of long-term debt and capital lease obligations at
April 30:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
--------------------
<S> <C> <C>
$10,500,000 term loan bearing interest at 10%, interest payable
monthly, quarterly principal payments of $100,962 through
September 30, 1998 and the unpaid balance due December 31, 1998
(a)(b) $10,096 $10,500
$2,500,000 term loan bearing interest at 10% interest payable
monthly, quarterly principal payments of $24,038 through
September 30, 1998 and the unpaid balance due December 31, 1998
(a)(b) 2,404 2,500
$4,000,000 revolving credit agreement bearing interest at 10%
interest payable monthly and principal due December 31, 1998
(a)(b)(c) 360 2,000
Obligations under capital leases with interest at 6.7% to 13.4%, due
in monthly installments through December 1998, collateralized
by certain equipment 2,057 1,703
--------------------
14,917 16,703
Less current portion 1,227 1,276
--------------------
$13,690 $15,427
====================
</TABLE>
27
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
(a) On April 28, 1994 the Company entered into a capital Restructuring
agreement with its two primary lending institutions. The Company issued
532,744 shares of common stock to Foothill Capital Corporation (Foothill)
and 217,044 shares of common stock to Teachers Insurance and Annuity
Association (TIAA) in exchange for amendment of the Company's Senior Credit
Agreement to reduce the principal and accrued interest outstanding from
$49,767,000 to $17,000,000 including a $2,500,000 note to TIAA in exchange
for all of its outstanding 14.5% Guaranteed Senior Subordinated Notes and
all of its outstanding Convertible Exchangeable Preferred Stock (Series B)
and Convertible Participating Preferred Stock (Series C). Additionally,
the holders of the Reincorporation Preferred Stock (Series A) agreed to
reclassify their shares into shares of common stock of the Company.
Concurrent with the closing of the Restructuring agreement, all series of
preferred stock were cancelled and the Company is now authorized to only
issue shares of common stock. The value assigned to the common shares
issued to the lending institutions was $2,249,000 as of April 28, 1994
based on a "bid" prices provided by the NASDAQ in the months prior to the
restructuring. There was no significant trading activity between the date
of the proxy and the date of the restructuring. The restructuring required
four representatives of the creditors serve on the Company's five person
Board of Directors. The gain was measured by reducing the recorded
obligation prior to restructuring by the value of the common shares issued
to the lenders, then comparing this amount to the total future principal
and interest payments required under the restructured agreements. The
restructuring with TIAA resulted in an extraordinary gain of $23,669,000 or
$616.05 per share. There was no tax effect of the extraordinary gain
because a portion of the gain was nontaxable and the remaining portion was
offset by utilization of net operating loss carryforwards. This
transaction was accounted for in accordance with the Financial Accounting
Standards Board Statement No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings."
In connection with implementation of the quasi-reorganization (see Note 7),
the Company recorded a credit of approximately $6,849,000 to accumulated
deficit to eliminate the prospective restructuring interest to reduce the
debt to approximate fair market value.
(b) The term loans and revolving credit agreement contain certain restrictive
covenants which included, among other things, restrictions on the payments
of dividends and the incurrence of additional indebtedness. Substantially
all assets of the Company, with the exception of assets acquired and
collateralized pursuant to capital lease obligations and amounts
representing progress payments received on uncompleted contracts, are
pledged as collateral under the term notes and revolving credit agreement.
Under the term loan and revolving credit agreement, the Company is required
to pay the creditor a quarterly commitment fee as long as any amounts are
outstanding.
(c) The revolving credit agreement provides for an amount not to exceed the
Borrowing Base (as defined). Under the terms of the agreement, amounts
borrowed may be repaid and reborrowed at any time prior to the termination
date, December 31, 1998. At April 30, 1995, borrowings of $3,640,000 are
available under the agreement.
28
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Scheduled maturities of long-term debt and capital lease obligations are as
follows:
<TABLE>
<CAPTION>
Years Ending April 30, (In thousands)
- -----------------------------------------------------
<S> <C>
1996 $ 1,227
1997 1,091
1998 821
1999 11,714
2000 64
-------
$14,917
=======
</TABLE>
The Company had issued warrants prior to the fiscal year ended April 30, 1994 to
the senior creditor and senior subordinated note holder, for a total of 457,310
shares (prior to effect of reverse stock split) of its common stock, in
consideration for the terms and conditions in the term loan, revolving note and
senior subordinated note agreements. The warrants were cancelled as part of the
debt restructuring.
Foothill, the holder of the $10,500,000 term note and the $4,000,000 revolving
credit agreement, became the holder of the majority of the Company's common
stock on April 28, 1994. Interest expense on indebtedness to Foothill was
$1,205,000, $1,500,000 and $403,000 for the years ending April 30, 1995, 1994
and 1993, respectively.
TIAA, the holder of the $2,500,000 term note and former holder the senior
subordinated notes and preferred stock, also became a holder of common stock on
April 28, 1994. Interest expense on indebtedness to TIAA amounted to $247,000,
$2,887,000 and $3,185,000 for the years ended April 30, 1995, 1994 and 1993,
respectively.
NOTE 7. QUASI-REORGANIZATION
After the debt restructuring accomplished on April 28, 1994, the Company
implemented, for accounting purposes, a "quasi-reorganization", an elective
accounting procedure that permits a company which has emerged from previous
financial difficulty to restate its accounts and establish a fresh start in an
accounting sense. After implementation of the accounting quasi-reorganization,
the Company's assets and liabilities were adjusted to fair value, however these
adjustments were limited so as to not increase net assets. The deficit balance
in retained earnings was charged to additional paid-in capital. The Company
effected the accounting quasi-reorganization as of April 30, 1994.
29
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. QUASI-REORGANIZATION (CONTINUED)
The following represents the effects of the reorganization at April 30, 1994:
<TABLE>
<CAPTION>
Prior to After
Reorganization Reorganization
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 11,614 $11,614
Property, plant and equipment 9,180 9,709
Excess of costs over fair value of purchased subsidiaries 7,378 --
Other assets 29 29
----------------------------
$ 28,201 $21,352
============================
Current liabilities $ 5,182 $ 5,182
Long-term obligations:
Principal 15,427 15,427
Interest 6,849 --
----------------------------
27,458 20,609
----------------------------
Common stock 8 8
Additional paid-in capital 16,662 735
Retained earnings (deficit) (15,927) --
----------------------------
743 743
----------------------------
$ 28,201 $21,352
============================
</TABLE>
NOTE 8. LEASES
The Company leases a facility in Rochester Hills, Michigan at $216,000 annually
through 1996 and $250,000 annually through 1999. The lease contains four five-
year renewal options with increases in the annual rent of 20% per renewal term.
The Company accrues rent expense on a straight-line basis and at April 30, 1995
and 1994, deferred rent was approximately $105,000 and $102,000, respectively.
30
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. LEASES (CONTINUED)
Future minimum payments under the capital leases and noncancellable operating
leases with terms of one year or more consist of the following:
<TABLE>
<CAPTION>
(In thousands)
Capital Operating
Years Ending April 30, Leases Leases
- -----------------------------------------------------------------
<S> <C> <C>
1996 $ 912 $ 301
1997 703 277
1998 389 251
1999 385 251
2000 64 125
Thereafter -- --
------------------------
2,453 $1,205
==========
Less portion relating to interest 396
-------
$2,057
=======
</TABLE>
Total rent expense charged to operations, exclusive of property tax, insurance
and maintenance, was $308,000, $393,000 and $641,000 during the years ended
April 30, 1995, 1994 and 1993, respectively.
In May 1995, the Company entered into a capital lease agreement for equipment.
The lease agreement provides for sixty monthly payments of $11,000 which have
not been included in the future minimum capital lease payments above. The
initial present value of the future rental payments calculated at an implied
rate of 14.1% is $515,000.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at
April 30:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation $2,149 $1,332
Customer advances 213 528
State income taxes payable 103 75
Accrued expenses in connection with disposal of Coast -- 33
Other 905 730
--------------------
$3,370 $2,698
====================
</TABLE>
31
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
Effective May 1, 1993, the Company adopted FASB Statement No. 109, Accounting
for Income Taxes. The adoption of Statement 109 changes the Company's method of
accounting for income taxes from the deferred method to a liability method.
Under the deferred method, the Company deferred the past tax effects of timing
differences between financial reporting and taxable income. As explained in
Note 1, the liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the reported amounts of assets and liabilities and their tax bases.
The adoption of Statement 109 had no effect on the May 1, 1993 balance sheet.
The components giving rise to deferred taxes described above as of April 30,
1995 and 1994 consist of:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowances $ 64 $ 66
Inventory allowances 313 246
Long-term contracts 1,051 1,053
Contribution to employee benefit plan -- 107
State income tax 38 --
Loan restructuring costs 320 488
Deferred rent 36 37
Accrued vacation 234 173
Other 120 196
-----------------------
2,176 2,366
Less valuation allowance 1,026 1,006
-----------------------
1,150 1,360
-----------------------
Deferred tax liabilities:
Property and equipment (1,009) (1,360)
-----------------------
$ 141 $ --
=======================
</TABLE>
The components giving rise to the net deferred tax assets described above have
been included in the accompanying consolidated balance sheet as of April 30,
1995 as follows:
<TABLE>
<S> <C>
Current assets $ 961
Noncurrent (liabilities) (820)
---------
$ 141
=========
</TABLE>
32
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES (CONTINUED)
A valuation allowance was established for the net deferred tax assets for which
the ultimate realization depends on the Company's ability to generate sufficient
taxable income in the future. The Company has undergone substantial
restructuring (see Note 6), however, due to the nature of the deferred tax
assets and historical results of operations, a valuation allowance of $1,026,000
and $1,006,000 was recorded as of April 30, 1995 and 1994, respectively. If the
Company is able to generate sufficient taxable income in the future through
operating results or tax planning opportunities, reductions in the valuation
allowance established as of April 30, 1994 will be recorded by a charge directly
to additional paid-in capital as required after implementation of the quasi-
reorganization (see Note 7).
Because of limitations imposed by the tax laws on the Company due to the
occurrence of an ownership change (see Note 6), all unused net operating loss
carryforwards generated prior to 1994 were eliminated as of April 30, 1994.
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended April 30, 1995, 1994 and 1993 due to the
following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993(a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (credit) $54 $(1,757) $(2,953)
Increase (decrease) in income taxes resulting from:
Losses for which no current benefit is available -- 1,757 2,953
State taxes, net of federal tax benefits, if any 19 43 149
Change in valuation allowance 20 -- --
---------------------------------
$93 $ 43 $ 149
=================================
</TABLE>
(a) As computed in accordance with APB Opinion No. 11.
The provision for income taxes charged to operations for the year ended April
30, 1995 consist of $234,000 of currently payable income taxes and a deferred
tax benefit of $141,000. The income taxes in the consolidated statements of
operations consist of current state income taxes for the years ended April 30,
1994 and 1993.
An examination of the Company's Alabama Franchise Tax returns by the Alabama
Department of Revenue for the years 1989 through 1994 has been completed.
Notices for the years 1989 through 1994 assess additional taxes. The Company is
contesting the proposed additional taxes, which relate primarily to the
inclusion of various liability and equity accounts in the tax base of Alabama
and amount to approximately $388,000 (plus penalties and interest) for the years
1989 through 1994 combined, after giving effect to offsetting adjustments
available to the Company. Management intends to contest the Department of
Revenue's position and believes that the contested additional taxes will be
substantially reduced from those proposed by the agents.
33
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES (CONTINUED)
No accrual has been made in the financial statements for the contested
adjustments since the ultimate liability, if any, cannot be reasonably
estimated. Any ultimate liability is not expected to be material in relation to
the consolidated financial position of the Company, but could be material in
relation to the earnings of the period in which a determination occurs.
NOTE 11. STOCK TRANSACTIONS
On April 28, 1994 the Board of Directors authorized, and the Company executed, a
1-for-100 reverse stock split with respect to the Company's common stock,
thereby decreasing the number of issued and outstanding shares to 789,250.
Additionally, the par value of each share was decreased to $.01. Certain
references in the accompanying consolidated financial statements to the number
of common shares for 1993 have been restated to reflect the reverse stock-split.
Weighted average number of shares outstanding for calculation of earnings per
share have been restated for the year ended April 30, 1993 to reflect the
reverse stock split.
In connection with the Company's capital restructuring agreement, the holders of
Series A preferred stock agreed to reclassify their shares into shares of common
stock of the Company. The Series B and Series C holder exchanged those shares
for debt (see Note 6).
In May 1989, the Company registered 850,000 shares (prior to effect of reverse
stock split) of common stock with the Securities and Exchange Commission
pursuant to the Amended and Restated 1986 Stock Option Plan of Precision
Aerotech, Inc. (the Stock Option Plan) and the Stock Bonus Plan for Key
Employees of Precision Aerotech, Inc. (the Stock Bonus Plan).
The Stock Option Plan provides for the granting of options for up to 350,000
shares (prior to effect of reverse stock split) of its common stock to employees
for a price not less than the fair market value of the stock at the date of
grant. The term of the options cannot exceed ten years and no option may be
exercised during the first year after such option is granted.
34
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. STOCK TRANSACTIONS (CONTINUED)
The following table summarizes stock option activity for the three years ended
April 30, 1995:
<TABLE>
<CAPTION>
Number of Price
Shares Per Share
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at April 30, 1992 344,550 $1.00 to $7.25
Expired or forfeited (16,450) $1.00
-------------------------------------
Outstanding at April 30, 1993 328,100 $1.00 to $7.25
Expired or forfeited (23,350) $1.00 to $7.25
Effects of reverse stock split (301,702) --
-------------------------------------
Outstanding at April 30, 1994 3,048 $100.00 to $725.00
Expired or forfeited (1,092) $100.00 to $725.00
-------------------------------------
Outstanding at April 30, 1995 1,146 $100.00 to $725.00
=====================================
</TABLE>
At April 30, 1995, 1,146 options (after effect of reverse stock split) were
exercisable. Options to purchase 2,354 shares were available for grant at April
30, 1995.
The Stock Bonus Plan provides that any key employee of the Company is eligible
to be granted a stock bonus. The stock bonus will be determined by the stock
bonus committee in its sole discretion. The plan covers 50 shares (after effect
of reverse stock split) of the Company's unissued common stock.
The former Chairman of the Board has a stock appreciation right with respect to
500 shares (after effect of reverse stock split) of common stock under which he
could receive cash equal to the difference between the market value of the stock
on the date of grant ($62.50, as adjusted for effect of reverse stock split) and
on the date the right is exercised. The right became vested in February 1992
and is exercisable for four years thereafter.
Following is a summary of common stock reserved for future issuance at April 30:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
The Amended and Restated 1989 Stock Option Plan 3,500 3,500
The Stock Bonus Plan for Key Employees 3,747 3,747
------------------
7,247 7,247
==================
</TABLE>
35
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. OPERATIONS
MAJOR CUSTOMERS
Sales to a major customer in the Precision Machining and Assembly segment
aggregated 17%, 15% and 22% for the years ended April 30, 1995, 1994 and 1993.
In addition, sales to another customer in the optical systems segment aggregated
15% in 1995. Accounts receivable from these two customers were $623,000 and
$538,000, respectively at April 30, 1995.
TERMINATION PAYMENTS
During the year ended April 30, 1994, the Company recognized $3,540,000 in
settlement revenue including gross profit of $1,989,000 on contracts terminated
by customers for convenience.
NOTE 13. EMPLOYEE BENEFIT PLANS
The Company's subsidiaries maintain various defined contribution employee
benefit plans covering substantially all employees. These plans include
primarily a salary deferred plan under Section 401(k). There are no minimum
funding requirements for any plans and contributions to the plans are
discretionary. Amounts charged to operations pursuant to such plans were
$214,000, $358,000 and $298,000, during the years ended April 30, 1995, 1994 and
1993, respectively.
NOTE 14. DISPOSAL OF SUBSIDIARIES
The Company decided to terminate operations at its Coast Aerotech, Inc. (Coast)
subsidiary effective as of February 1, 1993. Coast was included in the
Precision Machining and Assembly segment and was an assembler of welded tube and
duct assemblies, hose and bellows components and dip brazing. Coast's sales for
the year ended April 30, 1993 were $5,784,000. At April 30, 1993, the Company
recorded a provision for disposition in the amount of $2,165,000 for costs
estimated to be incurred prior to Coast's disposition. During the year ended
April 30, 1994 it was determined that the provision for disposition recorded
April 30, 1994 was in excess of the costs to discontinue the operations of
Coast. As a result, $378,000 is included as income on disposal of subsidiaries
for the year ended April 30, 1994. During 1995 Coast collected an additional
$97,000 from a customer for payment for intellectual property. This amount is
shown as income on disposal of subsidiaries for the year ended April 30, 1995.
36
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. DISPOSAL OF SUBSIDIARIES (CONTINUED)
During 1991, the Company decided to liquidate its Aero Technologies, Inc. (Aero)
subsidiary and all of its machinery and equipment was auctioned with the
proceeds used to pay off existing obligations. The land and building were
offered for sale and a provision for anticipated losses was recorded which
included an amount to reduce the carrying value to an expected net realizable
value of $200,000. During the year ended April 30, 1994, the Company decided to
utilize the Aero land and buildings as a manufacturing facility and, therefore,
were reclassified at April 30, 1994 to property, plant and equipment of the
Precision Machining and Assembly segment. The facility has been revalued at an
economic use amount rather than the net realizable value used at April 30, 1994.
This change in value along with completion of the other phase-out costs resulted
in a gain from discontinued operations in the amount of $175,000 for the year
ended April 30, 1994.
NOTE 15. CONTINGENCIES
The Company has been identified as one of many potentially responsible parties
(PRP's) for cleanup at a Government licensed, third party waste disposal site
and, separately at a plant site sold by one of the subsidiaries 12 years prior
to Precision Aerotech, Inc.'s ownership.
In the first matter, the Environmental Protection Agency (EPA) has notified the
Company, along with many other parties, that it is potentially liable for costs
related to removal of materials and remediation of damage that may have been
caused by hazardous substances at a licensed third-party waste disposal site.
Management intends to respond by cooperating with all EPA requests. The EPA has
notified the Company that it has completed the cleanup of the site at a cost of
$4,720,727 and has made a demand seeking payment. The EPA is currently
negotiating a potential global settlement agreement with the PRP's. However, if
a global settlement is not achieved, the EPA reserves the right to determine an
allocation formula and tender prorated settlement offers on a take-it or leave-
it basis. Based on information provided by the EPA, management has estimated
the future liability for the Company's portion of the cleanup to be no more than
approximately $75,000. The estimate is based on the current EPA calculation of
the Company's proportional share of responsibility based on the ratio of the
Company's gallonage at the site compared to the total gallonage of all PRP's.
Joint and several liabilities among the PRP's can be imposed. Joint and several
liability means that any one party could theoretically be liable for the entire
cleanup. In light of the large number of PRP's, the Company believes this is
highly unlikely. However, the large number of PRP's does not change the maximum
theoretical exposure of joint and several liabilities. It was also hoped that
the site insurance carrier would be obligated to contribute to the cleanup
costs. To date, there has been no contribution by the insurance carrier and it
is unlikely that any such contribution will occur. Management's estimate of the
future liability does not include any assumed amounts to be recovered from the
insurance carrier.
In the second matter, during the process of selling the property, the current
owner of the plant site has made various assertions regarding environmental
contamination at the site and the potential it may incur significant remediation
costs. No litigation has been brought against the Company. Management denies
that it is liable for any potential contamination at the site, which was never
occupied or used during Precision Aerotech, Inc. ownership, and intends to
vigorously contest any claims related thereto. The Company's legal counsel is
unable to assess the extent of the Company's exposure or form a
judgment as to the likelihood of an unfavorable outcome in this matter, if any,
until further documentation and more complete factual allegations are provided.
37
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. CONTINGENCIES (CONTINUED)
The Company is also subject to lawsuits and claims which arise out of the normal
course of business. In the opinion of management, based upon the opinions of
legal counsel, the disposition of such actions of which it is aware will not
have a material effect on the consolidated financial position, results of
operations or liquidity of the Company.
NOTE 16. BUSINESS SEGMENTS
Precision Aerotech, Inc. currently consists of two operating segments. The
Precision Machining and Assembly segment include the following areas of
activity: 1) precision machining, assembly, bending, metal forming, spinning
and joining of military and commercial aircraft parts, integration of parts into
complex mechanical and electrical assemblies for aircraft and 2) ultra precision
machining and the machining of exotic and difficult materials used in static and
dynamic structures in airborne vehicle space systems. The Optical Systems
segment designs, assembles, manufactures and services optical systems which are
used in reprographics, communications and defense applications.
A summary of information about the Company's operations by segment are as
follows:
<TABLE>
<CAPTION>
Years Ended April 30,
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Precision Machining and Assembly
Unaffiliated Customers $24,459 $27,488 $ 38,244
Intersegment 1,213 1,092 624
Optical Systems
Unaffiliated Customers 11,347 9,040 9,358
Intersegment 408 384 417
Less Intersegment Sales (1,621) (1,476) (1,041)
------------------------------------
Total $35,806 $36,528 $ 47,602
====================================
Operating Income (Loss) (a)
Precision Machining and Assembly (b)
Unaffiliated Customers $ 650 $ 1,399 $(13,273)
Intersegment (21) -- 28
Optical Systems
Unaffiliated Customers 1,144 290 226
Intersegment 24 32 76
------------------------------------
Total $ 1,797 $ 1,721 $(12,943)
====================================
</TABLE>
38
<PAGE>
PRECISION AEROTECH, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended April 30,
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets (c)
Precision Machining and Assembly (b) $17,249 $15,417 $24,494
Optical Systems 4,465 4,484 7,861
Corporate Assets 1,564 1,451 3,584
Assets of Discontinued Operations -- -- 265
-----------------------------------
Total $23,278 $21,352 $36,204
===================================
Depreciation and Amortization
Precision Machining and Assembly (b) $ 1,903 $ 2,168 $11,552
Optical Systems 458 634 433
-----------------------------------
Total $ 2,361 $ 2,802 $11,985
===================================
Capital Expenditures
Precision Machining and Assembly $ 1,847 $ 528 $ 1,397
Optical Systems 392 164 531
-----------------------------------
Total $ 2,239 $ 692 $ 1,928
===================================
</TABLE>
(a) Reflected in operating loss for the year ended April 30, 1993 are costs
associated with the Corporate debt restructuring activities. These costs
as allocated amounted to $1,500,000 to the Precision Machining and Assembly
Segment and $400,000 to the Optical Systems Segment.
(b) During the year ended April 30, 1993, an impairment in excess of cost over
fair value of purchased subsidiaries, in the amount of $8,995,000 was
charged to operations (see Note 5).
(c) In connection with the comprehensive restructuring accomplished in 1994,
the Company implemented a quasi-reorganization and as a result recorded a
charge of approximately $7,378,000 to accumulated deficit to eliminate the
remaining unamortized value of the excess of cost over fair value of
purchased subsidiaries (see Note 7).
39
<PAGE>
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 required by this Item 10 with respect to the directors of
Registrant is hereby incorporated by reference to Registrant's definitive proxy
statement to be filed pursuant to Regulation 14A promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, which proxy
statement is anticipated to be filed within 120 days after the end of
Registrant's fiscal year ended April 30, 1995.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information required by this Item 11 is hereby incorporated by reference to
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of Registrant's fiscal year ended April 30, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information required by this Item 12 is hereby incorporated by reference to
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of Registrant's fiscal year ended April 30, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information required by this Item 13 is hereby incorporated by reference to
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of Registrant's fiscal year ended April 30, 1995.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) (1) Financial Statements
The consolidated financial statements of the Registrant together with the
reports of independent accountants are included in Item 8.
(2) The following financial statement schedules are submitted herewith.
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the financial statements
or notes thereto.
(b) Exhibits
Exhibit
Number Description
- ------- -----------
3.0 Restated Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on May 8, 1986 - Exhibit 3.1 to the
Registration Statement numbered 33-9042 is incorporated by reference.
3.1 Certificate of Amendment filed April 28, 1994 - Exhibit 3.0 to the
Registrant's Form 8-K filed May 10, 1994, is incorporated by
reference.
3.2 Bylaws of the Company - Exhibit 3.2 to the Registration Statement
numbered 33-9042 is incorporated by reference.
3.3 Amendment to By-laws dated April 28, 1994 is attached.
4.0 Provisions of the Restated Certificate of Incorporation of the
Company, filed with the Secretary of State of Delaware on May 8, 1986,
which define the rights of the holders of the Common Stock - Exhibit
4.1 to the Registration Statement numbered 33-9042 is incorporated by
reference.
4.1 Provisions of the Company Bylaws which define the rights of the
holders of the Common Stock - Exhibit 4.2 to the Registration
Statement numbered 33-904 is incorporated by reference.
4.2 Specimen Certificate of the Registrant's Common Stock - Exhibit 4.3 to
the Registration Statement numbered 33-9042 is incorporated by
reference.
41
<PAGE>
10.0 Lease, dated as of July 15, 1986, between H. Woodrow and Margaret E.
White and L&S Machine Company, Inc. - Exhibit 10.23 to the
Registration Statement numbered 33-9042 is incorporated by reference.
10.1 Stock Bonus Plan for Key Employees of Precision Aerotech, Inc. -
Exhibit 4.4 to the S-8 Registration Statement numbered 33-28905 is
incorporated by reference.
10.2 Amended and Restated 1986 Stock Option Plan - Exhibit 4.3 to the S-8
Registration Statement numbered 33-28905 is incorporated by reference.
10.3 Loan and Security Agreement dated April 28, 1994 among the Company,
Foothill and TIAA - Exhibit 10.1 to the Registrant's Form 8-K filed
May 10, 1994, is incorporated by reference.
10.4 Restructuring Agreement dated April 28, 1994 among the Company,
Foothill and TIAA - Exhibit 10.2 to the Registrant's Form 8-K filed
May 10, 1994, is incorporated by reference.
10.5 Stockholders' Agreement dated April 28, 1994 among the Company,
Foothill and TIAA - Exhibit 10.3 to the Registrant's Form 8-K filed
May 10, 1994, is incorporated by reference.
11.0 Schedule of Computation of Net Earnings per Share for the Years Ended
April 30, 1995, 1994 and 1993.
21.0 Subsidiaries of the Company.
23.1 Consent of independent certified public accountants to incorporate by
reference the April 30, 1995, 1994 and 1993 audited financial
statements included in this 10-K filing to the S-8 Registration
Statement numbered 33-28905.
42
<PAGE>
SCHEDULE II
PRECISION AEROTECH, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Charged to
Beginning Cost and Ending
Description Balance Acquisition Expenses Other(1) Balance
- ----------- --------- ----------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1995:
Allowance for bad debts $ 175 $0 $ 0 $ (91) $ 84
Allowance for estimated losses on contracts in process 583 0 222 - 805
Allowance for obsolete and slow moving inventory 0 0 0 0 0
YEAR ENDED APRIL 30, 1994:
Allowance for bad debts $ 166 $0 $ 20 $ (11) $175
Allowance for estimated losses on contracts in process 783 0 (230) 30 583
Allowance for obsolete and slow moving inventory 372 0 (372) 0 0
YEAR ENDED APRIL 30, 1993:
Allowance for bad debts $ 236 $0 $ 51 $(121) $166
Allowance for estimated losses on contracts in process 1,068 0 0 (285) 783
Allowance for obsolete and slow moving inventory 340 0 32 0 372
</TABLE>
(1) This category includes deductions and transfers between accounts.
43
<PAGE>
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.
PRECISION AEROTECH, INC.
By Richard W. Detweiler Date 7/28/95
------------------------------------- -------------------
Richard W. Detweiler
Chairman of the Board
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.
Richard W. Detweiler 7/28/95 Chairman, President, Chief Executive
- -------------------------- ------- Officer, Chief Financial Officer and
Richard W. Detweiler Date Director
Arthur G. Craig 7/28/95 Controller, Secretary and
- -------------------------- ------- Principal Accounting Officer
Arthur G. Craig Date
John F. Nickoll 7/28/95 Director
- -------------------------- -------
John F. Nickoll Date
Jeff T. Nikora 7/28/95 Director
- -------------------------- -------
Jeff T. Nikora Date
W. Michael Rosenberg 7/28/95 Director
- -------------------------- -------
W. Michael Rosenberg Date
44
<PAGE>
EXHIBIT 11.0
PRECISION AEROTECH, INC.
Schedule of Computation of Net Earnings Per Share
Years Ended April 30, 1995, 1994 and 1993
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 63 $ (4,085) $(18,118)
Undeclared cumulative preferred dividends - - 242
------- -------- --------
Income (loss) from operations attributable to
common shareholders $ 63 $ (4,085) $(18,360)
Gain (loss) from discontinued operations - 175 (75)
Gain on debt restructuring - 23,669 -
------- -------- --------
Income (loss) attributable to common shareholder $ 63 $ 19,759 $(18,435)
======= ======== ========
Earnings per share: (1)
Income (loss) from continuing operations $ .08 $(106.33) $(532.44)
Gain (loss) from discontinued operations - 4.56 (2.17)
Gain on debt restructuring - 616.05 -
------- -------- --------
Net income (loss) $ .08 $ 514.28 $(534.61)
======= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 789,250 38,419 34,483
======= ======== ========
</TABLE>
(1) Restated to reflect the effects of the Registrant's 1 for 100 reverse
stock split effective April 28, 1994.
<PAGE>
EXHIBIT 21.0
PRECISION AEROTECH, INC.
Subsidiaries of the Company:
L&S Aerotech, Inc. (dba L and S Machine Co., Inc.)
2019 Southwest Boulevard
Wichita, KS 67213
(316) 942-0181
Speedring, Inc.
2000 Highway 157 West
Cullman, AL 35055
(205) 739-1710
Speedring Systems, Inc.
2909 Waterview Drive
Rochester Hills, MI 48309
(313) 853-2540
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration statement (Form
S-8 No. 33-28905) of Precision Aerotech, Inc. and in the related Prospectus of
our report dated July 19, 1995, with respect to the consolidated financial
statements and schedules of Precision Aerotech, Inc. included in this Annual
Report (Form 10-K) for each of the three years in the period ended April 30,
1995.
San Diego, California
July 28, 1995
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF PRECISION
AEROTECH, INC.'S ANNUAL FINANCIAL STATEMENTS AS FILED ON FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<CASH> 240
<SECURITIES> 0
<RECEIVABLES> 4,748
<ALLOWANCES> 84
<INVENTORY> 7,700
<CURRENT-ASSETS> 13,668
<PP&E> 11,889
<DEPRECIATION> 2,354
<TOTAL-ASSETS> 23,278
<CURRENT-LIABILITIES> 7,962
<BONDS> 13,690
<COMMON> 8
0
0
<OTHER-SE> 798
<TOTAL-LIABILITY-AND-EQUITY> 23,278
<SALES> 35,806
<TOTAL-REVENUES> 35,806
<CGS> 27,007
<TOTAL-COSTS> 27,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,686
<INCOME-PRETAX> 156
<INCOME-TAX> 93
<INCOME-CONTINUING> 63
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
