Attached files
file | filename |
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8-K/A - FORM 8-K/A - EDAC TECHNOLOGIES CORP | c54811e8vkza.htm |
EX-99.2 - EX-99.2 - EDAC TECHNOLOGIES CORP | c54811exv99w2.htm |
EX-23.1 - EX-23.1 - EDAC TECHNOLOGIES CORP | c54811exv23w1.htm |
Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
MTU Aero Engines North America, Inc.
MTU Aero Engines North America, Inc.
We have audited the accompanying balance sheets of MTU Aero Engines North America, Inc.s
Manufacturing Business Unit (the Company) as of December 31, 2008 and 2007, and the related
statements of operations for the years then ended. The Companys management is responsible for
these financial statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 financial statements referred to above present fairly, in all material
respects, the financial position of MTU Aero Engines North America, Inc.s Manufacturing
Business Unit as of December 31, 2008 and 2007, and the results
of its operations for the years
then ended in conformity with accounting principles generally accepted in the United States of
America.
/s/ CCR LLP
Glastonbury, Connecticut
August 12, 2009
Glastonbury, Connecticut
August 12, 2009
MTU Aero Engines North America, Inc.
Manufacturing Business Unit
Statements of Operations
Manufacturing Business Unit
Statements of Operations
Year ended December 31 | ||||||||
2008 | 2007 | |||||||
Sales |
$ | 20,617,257 | $ | 26,623,080 | ||||
Cost of Sales |
22,991,503 | 25,765,513 | ||||||
Gross Profit (Loss) |
(2,374,246 | ) | 857,567 | |||||
Selling, general, and administrative expenses |
3,156,301 | 2,416,543 | ||||||
Loss from Operations |
(5,530,547 | ) | (1,558,976 | ) | ||||
Non-Operating Income/(Expense): |
||||||||
Interest expense |
(525,389 | ) | (785,225 | ) | ||||
Other |
334,620 | (224,030 | ) | |||||
Loss Before Taxes |
(5,721,316 | ) | (2,568,231 | ) | ||||
Provision for Income Taxes |
| | ||||||
Net Loss |
$ | (5,721,316 | ) | $ | (2,568,231 | ) | ||
MTU Aero Engines North America, Inc.
Manufacturing Business Unit
Balance Sheets
Manufacturing Business Unit
Balance Sheets
As of December 31, | ||||||||
2008 | 2007 | |||||||
Assets |
||||||||
Current Assets |
||||||||
Cash |
$ | 325,951 | $ | 1,515,266 | ||||
Accounts receivable (net of allowance
for doubtful accounts of $67,383 and $49,733, at December 31, 2008 and
2007, respectively) |
2,726,521 | 4,831,898 | ||||||
Inventories,
net |
9,257,334 | 7,416,376 | ||||||
Prepaid expenses and other current assets |
416,228 | 176,986 | ||||||
Total Current Assets |
12,726,034 | 13,940,526 | ||||||
Plant, Property and Equipment, at Cost |
||||||||
Land |
450,000 | 450,000 | ||||||
Buildings and improvements |
4,827,777 | 4,793,269 | ||||||
Machinery & equipment |
23,658,503 | 22,309,532 | ||||||
28,936,280 | 27,552,801 | |||||||
Less: accumulated depreciation |
(19,320,912 | ) | (17,634,893 | ) | ||||
Net Plant, Property, & Equipment |
9,615,369 | 9,917,908 | ||||||
Total Assets |
$ | 22,341,403 | $ | 23,858,434 | ||||
Liabilities and Equity (Defecit) |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 1,846,977 | $ | 2,924,972 | ||||
Accrued expenses |
2,423,146 | 2,671,762 | ||||||
Customer advances |
371,578 | 688,342 | ||||||
Due to MTU Munich |
17,957,577 | 12,109,915 | ||||||
Total Current Liabilities |
22,599,278 | 18,394,991 | ||||||
Commitments and contingencies |
| | ||||||
Equity (deficit) |
(257,875 | ) | 5,463,443 | |||||
Total Liabilities and Equity (Deficit) |
$ | 22,341,403 | $ | 23,858,434 | ||||
MTU Aero Engines North America, Inc.
Manufacturing Business Unit
For the Years Ended December 31, 2008 and 2007
Manufacturing Business Unit
For the Years Ended December 31, 2008 and 2007
NOTE A Organization and Business and Significant Accounting Policies
ORGANIZATION AND BUSINESS
The accompanying financial statements for MTU Aero Engines North America, Inc.s Manufacturing Business Unit (AERO) have been carved out from the financial statements of the
MTU Aero Engines North America, Inc. (MTU) financial statements. The internal statement of
operations was segregated by business unit. The balance sheet
historically was not segregated by
business unit. The below noted estimates were used to separate by business unit
those accounts that could not be identified specifically by business unit, including
cash, certain vendors in accounts payable, and certain accruals.
AERO produces blisks, hubs, disks and other complex, close tolerance components for all major
aircraft engine and ground turbine manufacturers. AERO specializes in turning, milling, broaching
and 4 and 5 axis milling of difficult-to-machine alloys such as waspalloy, hastalloy, inconnel,
titanium, high nickel alloys, aluminum, and stainless steel. Geographic markets include North
America and Europe.
SIGNIFICANT ACCOUNTING POLICIES
Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect certain of the amounts and disclosures reflected in the consolidated
financial statements. Actual results could differ from those estimates. Since AERO is one of two
units within MTU Aero Engines North America, Inc. (MTU), certain balance sheet items of MTU were
not directly associated with one of the two units and were therefore, allocated. Balance sheet
items related to payroll and intercompany loans were allocated based on the relative payroll
expense and the net sales, respectively, of the two business units in relation to the total payroll
expense and net sales for MTU. Selling, general and administrative expenses, interest expense and
foreign exchange gains and losses have been allocated based on the relative net sales of the two
MTU business units in relation to the total net sales for MTU.
Intercompany sales were treated as third party, arms length
transactions. Management believes that these
methods of allocation are reasonable. Management also believes that the historical statements, as
adjusted, reflect all of the costs of doing business and estimates that the expenses would be the
same if Aero had operated as an unaffiliated entity.
Cash and Cash Equivalents: AERO considers financial instruments with a maturity of three
months or less from the date of purchase to be cash equivalents. AERO had no cash equivalents
at December 31, 2008 and 2007.
Accounts Receivable: Accounts receivable represent amounts due from customers, net of
applicable reserves for doubtful accounts. In determining the need
for an allowance and based on historic performance,
AERO utilizes a policy of establishing a reserve
of 1% of the outstanding accounts receivable to cover any potential disputed balance.
Additionally, AERO uses objective evidence that any single balance may be uncollectable and
adds that amount to the calculated reserve. AERO performs credit checks before extending
customers credit and does not typically require collateral.
Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or
market. Provisions for slow moving and obsolete inventory are provided based on historical
experience and product demand. As of December 31, 2008 and December 31, 2007, inventories
consist of the following:
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Raw materials |
$ | 727,645 | $ | 1,422,767 | ||||
Work-in-progress |
8,729,337 | 6,655,057 | ||||||
Finished goods |
1,346,216 | 617,640 | ||||||
$ | 10,803,198 | $ | 8,695,464 | |||||
Less: reserve for excess and obsolete |
(1,545,864 | ) | (1,279,088 | ) | ||||
Inventories, net |
$ | 9,257,334 | $ | 7,416,376 | ||||
Long-Lived Assets: Property, plant and equipment are stated at cost. Provisions for
depreciation and amortization for financial reporting purposes are computed using the
straight-line method over 3 to 12 years for machinery and equipment and 25 years for
buildings. Depreciation expense was $2,124,049 and $2,622,643 for 2008 and 2007,
respectively.
Order
Backlog Reserve: Based on managements estimate of total
production costs for items not currently in inventory an order
backlog reserve is calculated and is included in accrued expense on
the balance sheet. It is a provision for potential production costs
exceeding revenues for all current or expected loss making contracts
that are part of AEROs order backlog. This reserve excludes any
provision for loss that is accounted for in the Allowance for Lost
Sales. The Order Backlog Reserve amounted to $672,799 and $638,064
at December 31, 2008 and 2007, respectively.
Allowance
for Lost Sales: Based on managements estimate of selling price
an allowance for lost sales reserve is calculated and applied against
inventory. It is a provision for production costs exceeding
anticipated revenues
for all parts that are currently in inventory. This allowance was $1,347,557 and $1,024,877
at December 31, 2008 and 2007, respectively.
Revenue Recognition: Sales are recorded when all criteria for revenue recognition have been
satisfied, which is generally when goods are shipped to the customers.
Shipping and Handling Costs: These costs are charged to cost of goods sold.
Income Taxes: Income taxes have been accounted for under Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. Under this standard, deferred tax
assets or liabilities are computed based on the difference between the financial statement and
income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred
income tax expenses or benefits are based on the changes in the deferred tax assets and
liabilities from period-to-period.
Deferred tax assets have been recognized only when, based upon available evidence, realization
is more likely than not. In making this determination, both available positive and negative
evidence have been considered including, but not limited to, cumulative losses in recent
years, future taxable income and prudent and feasible tax planning strategies. At present,
AERO has concluded that it is more likely than not that it will not realize all of its deferred
tax assets and accordingly, established a valuation allowance for the
remaining net deferred tax asset. Valuation allowances related to deferred tax assets can also be impacted by
changes to tax laws, changes to statutory tax rates and future taxable income levels. In the
event AERO were to change its determination with regards to utilizing all or a portion of its
deferred
tax assets in the future, it would record a
change to the valuation allowance through income in
the period in which that determination is made.
Subsequent events: AERO management has considered subsequent events through August 12, 2009
in evaluating the potential for financial statement adjustment and footnote disclosure, as
required under Financial Accounting Standards Board Statement No. 165, Subsequent Events.
New
Accounting Pronouncements: These carve out financial statements reflect all accounting
pronouncements that would result in a potentially material impact.
NOTE B FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
AEROs financial instruments that are subject to concentrations of credit risk consist of cash
and accounts receivable.
AERO places its cash deposits with a high credit quality financial institution. Bank deposits
may at times be in excess of the federal depository insurance limit.
The sales concentration for AEROs two largest customers are as follows for 2008 and 2007:
2008 | 2007 | |
30% |
39% | |
23% | 29% |
AEROs international sales for 2008 and 2007 amounted to 32% and 25%, respectively, of
total sales. At December 31, 2008, AERO had
$734,000 or 24% and $735,000 or 24% of its accounts receivable due from its two largest
customers. AERO reviews a customers credit history before extending credit and
typically does not require collateral. AERO establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers, historical
trends and other information. Such losses have been within managements expectations.
NOTE C
Cash Flows
Given the
nature of these carve-out financial statements and the assumptions used by management to determine certain balances and amounts described earlier in Note A,
specific identification of operating, investing and financing cash flows was not deemed practical.
Further, to the extent AEROs historical operating cash flows
have not been sufficient to fund operating and working capital
requirements, MTU Munich has provided the necessary cash
flows to do so, and these amounts have been reflect in the Due to
Munich account balance, as further discussed in Note E.
Cash flows relating to investing and financing activities
for AERO have also been directly influenced by MTU - Munich.
AEROs investing cash flows have primarily been related to
capital expenditures necessary to maintain manufacturing
operations and all financing activity, to the extent operating cash flows
are not sufficient, has been handled through MTU - Munich, as
AERO has no third party debt or other financing arrangements.
NOTE D Income Taxes
The provision for income taxes is as follows (in thousands):
2008 | 2007 | |||||||
Current Provision |
$ | 0 | $ | 0 | ||||
Deferred |
0 | 0 | ||||||
Total provision for income taxes |
$ | 0 | $ | 0 | ||||
The tax effect of temporary differences giving rise to AEROs deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets: |
||||||||
Allowance for uncollectible
accounts receivable |
$ | 17,042 | $ | 38,278 | ||||
Allowance for Lost Sales |
322,713 | 55,842 | ||||||
Accrued Bonuses |
65,259 | (35,276 | ) | |||||
Charitable Contributions |
700 | 7,500 | ||||||
Interest Expense (Sec. 163(j)) |
525,389 | 785,225 | ||||||
U.S tax loss carry forwards |
37,144,784 | 32,857,744 | ||||||
Property, plant, and equipment |
330,992 | 315,375 | ||||||
Valuation Allowance |
(38,356,366 | ) | (33,101,121 | ) | ||||
$ | 50,513 | $ | 923,567 | |||||
Deferred tax liabilities: |
||||||||
Intangible Assets |
(29,313 | ) | (29,313 | ) | ||||
MRB Reserve |
(55,935 | ) | (78,096 | ) | ||||
Order Backlog Reserve |
34,735 | (816,158 | ) | |||||
$ | (50,513 | ) | $ | (923,567 | ) | |||
Net deferred tax asset |
$ | 0 | $ | 0 | ||||
AERO adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007. There was no cumulative
effect of the change in accounting principle on adoption of FIN 48 as
AERO had no uncertain
tax positions before or after implementation.
NOTE E Related Third Party Transactions
AERO routinely conducts business with MTU Munich. AERO produces aircraft engine parts for MTU
Munich on an on-going basis. AERO reflects these sales in revenue and the receivable in the Due to
MTU Munich balance, which is an account through which all activities with MTU Munich are settled.
Sales to MTU accounted for 6% and 4% of total AERO sales in 2008 and 2007, respectively. MTU
Munich also provides services to AERO for which it charges AERO through the due to MTU Munich
account. These services include, but are not limited to, information technology services,
insurance, working capital loans, interest on these loans and foreign exchange gains and losses as
incurred. These expenses were allocated by management to the two MTU business units based upon
relative net sales percentages of the two MTU units in relation to total net sales for MTU for the
respective years. Amounts due between AERO and MTU Munich are settled through the Due to MTU
Munich account rather than an actual transfer of cash.
Interest and foreign exchange gains/(losses) are charged to other income/(expense) in the statement
of operations. All other expenses are reflected in either selling, general and administrative
expenses or cost of goods sold depending on the nature of the charge. An analysis of the
intercompany activity impacting the Due to MTU Munich account for the services and items
discussed for 2008 and 2007 is as follows:
2008 | 2007 | |||||||
Corporate administrative charges |
$ | 702,732 | $ | 649,351 | ||||
Interest expense |
525,389 | 785,225 | ||||||
Foreign exchange gains and (losses) |
(148,963 | ) | 266,876 | |||||
Intercompany purchases |
2,545,217 | (1,342,476 | ) | |||||
Cash transfers |
2,223,287 | (937,668 | ) | |||||
Total |
$ | 5,847,662 | $ | (578,692 | ) | |||
The average monthly balances of the Due to MTU Munich account during 2008 and 2007
were $15,855,191 and $12,969,783, respectively.
NOTE F Commitments and Contingencies: AERO is not currently aware of any pending
or threatened legal proceedings to which it is or would be a party, or any proceedings
contemplated by regulatory or other authorities or others against it.
NOTE G Subsequent Event
On
May 27, 2009, AERO sold substantially all its assets and
certain liabilities to EDAC Technologies Corporation for $9.5
million.