##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 June 30, 2004     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 000-24802 EDELBROCK CORPORATION  Delaware
    
    33-0627520(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 2700 California Street
Torrance, California 90503
(Address of principal executive offices, including Zip Code)
Registrants telephone number, including area code: (310) 781-2222 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
(Title and Class) 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.  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 II of this Form 10-K or any
amendments to this Form 10-K.   [   ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of September 23, 2004 was approximately $30,518,000 (based
upon the closing price for shares of the Registrants Common Stock as
reported by the NASDAQ Stock Market for that date). For purposes of the
foregoing calculation only, all directors and executive officers of the
registrant and each person who may be deemed to beneficially own more than
5% of the registrants Common Stock have been deemed affiliates. On September 23, 2004, 5,485,392 shares of the Registrants Common Stock,
$.01 par value, were outstanding of which were held by non-affiliates. DOCUMENT INCORPORATED BY REFERENCE




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ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS PagePART IItem 1.
    
    Business
    
    
    3Item 2.
    
    Properties
    
    
    6Item 3.
    
    Legal Proceedings
    
    
    7Item 4.
    
    Submission of Matters To a Vote of Security Holders
    
    
    7PART IIItem 5.
    
    Market for the Companys Common Stock and Related Shareholder Matters
    
    
    7Item 6.
    
    Selected Consolidated Financial Data
    
    
    8Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    19Item 8.
    
    Financial Statements and Supplementary Data
    
    
    19Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    19Item 9A.
    
    Controls and Procedures
    
    
    19Item 9B.
    
    Other information
    
    
    19PART IIIItem 10.
    
    Directors and Executive Officers of the Company
    
    
    20Item 11.
    
    Executive Compensation
    
    
    21Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Shareholder Matters
    
    
    22Item 13.
    
    Certain Relationships and Related Transactions
    
    
    24PART IVItem 14.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    24Signatures
    
    
    27Exhibit 10.19Exhibit 10.20Exhibit 10.21EXHIBIT 23.1EXHIBIT 24.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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Part I 
 Item 1. Business General Edelbrock Corporation (the Company) is one of Americas leading
manufacturers and marketers of specialty performance automotive and
motorcycle aftermarket parts. The Company designs, manufactures,
distributes and markets a wide range of high quality performance products,
including intake manifolds, carburetors, cylinder heads, camshafts, exhaust
systems, and other components designed for most domestic V8 and selected V6
engines and sport compact 4 cylinder engines. The Company also manufactures
shock absorbers utilizing the RICOR patented Inertia Active System that
offers both a comfortable ride and superior handling. The Company
additionally manufactures shock absorbers under private label brands that
utilize its own shock-valve technology. In addition to the above, the
Companys product line includes motorcycle brake rotors and plumbing type
products such as fuel filters, fuel lines, and brake lines for both
automotive and motorcycle applications. These products are designed to
enhance street, off-road, recreational and competition vehicle performance
through increased horsepower, torque and or drivability. The Company also
designs and markets products to enhance engine and vehicle appearance, such
as chrome and polished aluminum air cleaners, valve covers and breathers.
In 1994, the Company introduced performance aluminum cylinder heads and
intake manifolds for the Harley-Davidson Evolution engine. In 1995, the
Company acquired substantially all of the assets of QwikSilver II, Inc. (now
referred to as Edelbrock Motorcycle Carburetor) of Apple Valley, California,
a manufacturer of aftermarket Harley-Davidson and other motorcycle
carburetors and air cleaners. In 1998, the Company entered the performance shock absorber market for
a range of all aftermarket applications with certain restrictions utilizing
RICOR Racing and Development, L.P.s (RICOR) patented inertia active
system. In connection therewith, the Company entered into a licensing and
royalty agreement with RICOR and issued warrants to purchase common stock of
the Company. In September 2001, the Company converted its license agreement
with RICOR from exclusive to non-exclusive and as of that date, the Company
no longer pays RICOR a minimum royalty of $62,500 a month but instead pays
6% of net sales for the products that utilize the RICOR patent. In November 1999, the Company paid its first cash dividend since going
public in October 1994. The amount of the cash dividend was $105,000. The
Company also paid cash dividends of $102,000, $105,000, $98,000, and
$101,000 in June 2000, November 2000, June 2001, and November 2001,
respectively. In June 2002, the Company paid a 10% stock dividend in lieu
of a cash dividend. In June 2003, the Company paid a cash dividend of
$109,000 and in December 2003, the Company paid a cash dividend of $163,000. In June 2000, the Company acquired the exclusive rights to manufacture
and sell internal engine, exhaust, and suspension components to the import
aftermarket pursuant to a license agreement with JG Engine Dynamics, Inc.
and Automotive Systems Group, Inc. In September 2003, the Company
determined that its relationship with JG Engine Dynamics, Inc. and
Automotive Systems Group, Inc. (the Licensor) had changed because the
parties are no longer jointly developing import aftermarket products. The
Company continues to utilize the License Agreement and pay royalties to the
Licensor on existing co-developed products. In late December 2000, the Company purchased certain assets of Russell
Performance Products, Inc. (Russell), a leading manufacturer of
performance plumbing and brake lines located in Daytona Beach, Florida. In
May 2001, the Company moved the Russell operations to Torrance, California.
Russells current product offering of close to 4,000 parts includes
street-legal brake lines, oil lines, fuel lines, and filters for both
automotive and motorcycle use. In January 2002, the Company had its first broad product line price
increase to its customers in approximately seven years. The price increase
ranged from 0% to 5% which resulted in an effective price increase of
approximately 3.5% overall. In January 2003 and 2004, the Company had small
price increases that averaged approximately 2% for each respective year. On April 12, 2004, the Company announced that O. Victor Edelbrock, the
Companys Chairman, President, and Chief Executive Officer, had presented a
proposal to the Companys Board of Directors to acquire the outstanding
shares of the Companys common stock not already beneficially owned or
controlled by Mr. Edelbrock. Following receipt of the proposal, the
Companys Board of Directors formed a Special Committee consisting of
disinterested members of the Board. The Special Committee retained
independent legal counsel and an independent financial advisor to assist
the Special Committee in evaluating the proposed transaction. On June
25, 2004, the Company entered into a definitive merger agreement with two
corporations controlled by Mr. Edelbrock. Under the terms of the merger
agreement, if the transaction is consummated, all of the outstanding shares
of common stock, par value $0.01 per share, of Edelbrock not already owned
by Mr. Edelbrock or certain family trusts for which he serves as trustee,
will be converted into the right to receive $16.75 per share in cash
without interest. 3




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The Companys business strategy is to capitalize on recognition of the
Edelbrock brand name and strong distribution network to expand its leading
position in the specialty performance automotive and motorcycle aftermarket
parts market. The Company plans to achieve its business objective by
pursuing the following business strategies:  
    
    Broaden application of core products
    
    Expand market share in compatible product lines
    
    Expand presence in chain stores
    
    Introduce new products
    
    Expand production capacity
    
    Reduce manufacturing costs through automation and process improvements
    
    Make strategic acquisitions of other companies or product lines
which will complement the Companys existing product offering and
make use of its management and infrastructure
    
    Reduce costs through a going-private transaction History The Company was founded in 1938 in Los Angeles by O. Victor Edelbrock,
Sr. Mr. Edelbrock utilized his experience as a mechanic and a winning car
racer to design and produce manifolds and cylinder heads. Upon his fathers
death in 1962, O. Victor Edelbrock, Jr., also a racing enthusiast who began
designing manifolds in the 1960s, assumed his fathers position as President
and Chief Executive Officer of the Company. In 1967, the Company moved its operations to El Segundo, California.
The Company continued designing and marketing new generations of manifolds
throughout the 1960s and 1970s. In the 1980s, the Company expanded its
product line to include camshaft kits, valvetrain parts, exhaust systems and
other performance components, thus developing the Total Power Package line.
In 1987, the Company moved to its present location in Torrance, California
and in 1990 built its own sand-cast aluminum foundry in San Jacinto,
California. In the 1990s, the Company continued to expand its product lines
to include carburetors, aluminum cylinder heads, aluminum water pumps,
fuel-injected manifolds and aftermarket performance parts for Harley-Davidson
motorcycles. In October 1994, the Company completed its initial public offering. In
1995, the Company completed the construction of a 37,000 square foot building
in Torrance, California to house its exhaust products division and a 15,000
square foot facility to expand the Companys Foundry warehouse space in San
Jacinto, California. In late 1996, the Company completed construction of a
45,000 square foot facility adjacent to its existing exhaust facility, which
is being utilized primarily for the manufacture of shock absorbers, as well
as to accommodate its Russell Performance division which was relocated from
Daytona Beach, Florida in May 2001. In May 1997, the Company began producing a new line of performance
aftermarket shock absorbers utilizing the patented RICOR inertia active
system. In July 1997, the Company completed construction of two facilities
on Company-owned property at its Foundry location in San Jacinto, California.
A 12,000 square foot facility is being utilized for additional Foundry
warehouse space and a 15,000 square foot facility houses the Companys
motorcycle carburetor parts division, which was relocated from Apple Valley,
California. In October 1999, the Company completed construction of a 65,950
square foot distribution facility on Company-owned property adjacent to its
exhaust products division and shock absorber/Russell production facility in
Torrance, California. The Company is utilizing the 30,000 square foot
former distribution area at its Company headquarters in Torrance for
additional manufacturing capacity. In June 2000, the Company acquired the exclusive rights to manufacture
and sell internal engine, exhaust, and suspension components to the import
aftermarket pursuant to a license agreement with JG Engine Dynamics, Inc.
and Automotive Systems Group, Inc. In December 2000, the Company purchased
certain assets of the aforementioned Russell Performance Products, Inc., a
manufacturer of performance plumbing and brake lines. In July 2001, the Company purchased approximately 4 acres of improved
land for $552,000. This property is adjacent to its aluminum foundry in San
Jacinto, California and may be utilized for future corporate expansion. 4




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In 2003, the Company introduced its first turbo charger (forced
induction) system for the Honda Civic EX. This complete kit is street legal
and represents the Companys first entry into the forced induction market for
sport compact vehicles. In September 2003, the Company determined that its
relationship with JG Engine Dynamics, Inc. and Automotive Systems Group, Inc.
(the Licensor) had changed because the parties are no longer jointly
developing import aftermarket products. The Company continues to utilize the
License Agreement and pay royalties to the Licensor on existing co-developed
products. On April 12, 2004, the Company announced that O. Victor Edelbrock, the
Companys Chairman, President, and Chief Executive Officer, had presented a
proposal to the Companys Board of Directors to acquire the outstanding
shares of the Companys common stock not already beneficially owned or
controlled by Mr. Edelbrock. On June 25, 2004, the Company entered into a
definitive merger agreement with two companies controlled by Mr. Edelbrock.
Under the terms of the merger agreement, if the transaction is consummated,
all of the outstanding shares of common stock, par value $0.01 per share, of
Edelbrock not already owned by Mr. Edelbrock or certain family trusts for
which he serves as trustee, will be converted into the right to receive
$16.75 per share, net to the seller in cash, without interest. Research and Development The Company seeks to develop new products to respond to consumer demand,
to increase performance characteristics of existing product lines and to
offer new product lines. For the fiscal years ended June 30, 2002, 2003, and
2004 research and development expenditures totaled $3,852,000, $3,827,000,
and $3,913,000, respectively. Products The Company offers approximately 8,000 performance automotive and
motorcycle aftermarket parts for street, off-road, recreational and
competition use. The Companys products are designed to enhance the engines
performance through increased horsepower, torque and drivability primarily by
improving induction of fuel and air into and exhaust out of the engine. The
Company also designs and markets products to improve appearance or
drivability of the vehicle. The Companys present lines include, among other items, aluminum
automotive intake manifolds, which accounted for 23.5% of the Companys
revenues for fiscal year 2002, 22.4% for fiscal year 2003, and 22.0% for
fiscal year 2004; and automotive carburetors, which accounted for 37.8%,
36.7%, and 34.0% of the Companys revenues for fiscal years 2002, 2003, and
2004, respectively. Distribution, Sales and Marketing The Company utilizes a balanced nationwide distribution network, which
encompasses most major channels of distribution. The Companys policy is to
offer its products at the same price and under the same terms and conditions
in each of its channels of distribution. The Companys products are sold in
all 50 states and Canada, as well as to a lesser degree in Mexico, Australia,
Europe, New Zealand and the Pacific Rim, and primarily distributed through
the following channels:  
    
    Retail Automotive Chain Stores
    
    Mail Order Catalog Houses
    
    Warehouse Distributors and Performance Specialty Dealers In addition to the foregoing channels of distribution, the Company
supplies select component parts to original equipment manufacturers,
including Ford Motor Company, Volvo-Penta of the Americas, Inc., General
Motors Corporation, and Mercruiser, Inc., a division of Brunswick
Corporation. In addition, the Companys aluminum foundry, located in San
Jacinto, California, casts components for select third-party manufacturers
including New York Air Brake Corporation. The Company has one of the oldest affiliations with NASCAR and is
recognized as having the only officially licensed manifold of NASCAR. In
addition, Edelbrock was the first manufacturer to enter into a long term
sponsorship agreement with NASCARs contingency money decal program. The
long term sponsorship program commenced in January 2004. The Company is also
a strong supporter of the automotive racing industry with contingency
sponsorship programs with such organizations as NASCAR, NHRA, IHRA, NMRA,
PRO, NMCA, PSCA, ARCA, UDTRA, NCRA, USAR, NOPI, IMCA and Fun Ford. The Company has four display trailers that support the Companys
distribution and dealer network, interact with the end consumer, and promote
product at over 100 automotive and motorcycle events per year. 5




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The Company maintains its corporate website to provide consumers with
a range of information including an online product catalog, installation
tips, technical support database, and FAQs. Edelbrock maintains a highly trained technical service department to
support the Companys end consumer. The technical service department
assists consumers with technical issues, post sales support, and add-on
sales. One customer, Auto Sales, Inc., accounted for 15.5%, 15.8%, and 16.9%
of the Companys revenues for fiscal years 2002, 2003, and 2004
respectively. Another customer, AutoZone, Inc. accounted for 10.6%, 8.7%,
and 7.8% of the Companys revenues for fiscal year 2002, 2003, and 2004. Manufacturing The Companys manufacturing operations are housed in its Torrance
facilities and casting operations at its aluminum foundry in San Jacinto.
The Company manufactures products such as manifolds, cylinder heads, water
pumps, shock absorbers and exhaust systems. Approximately 46.4% of the
Companys revenues for fiscal year 2004 were attributable to products which
were manufactured by third-party suppliers. Magneti Marelli, U.S.A., Inc.,
pursuant to an agreement with the Company, supplied the Company with all of
the carburetors which it marketed in fiscal year 2004, representing
approximately 34.0% of the Companys revenue for that fiscal year. The
agreement extends through calendar year 2009 and is renewable at the option
of the parties. See Note 9 Dependence on Key Supplier within the Notes
to Consolidated Financial Statements. Competition There is significant competition in the manufacturing and sale of
performance automotive and motorcycle parts for both the domestic and
import aftermarkets. The Company competes with other companies and
individuals in the manufacture and sale of performance automotive and
motorcycle parts. The Company competes with, among others, Holley
Performance Products, Inc. (Holley) in the manifold market, Holley and
Barry Grant, Inc. in the automotive carburetor market, Rancho Industries
and Bilstein in the shock absorber market, Crane Cams and Competition Cams
in the camshaft market, World Products and Trick Flow Specialties in the
cylinder head market, Earls Performance Products, Goodridge, and Aeroquip
Inc. in the performance plumbing lines, and Mr. Gasket, TransDapt and
Moroso in the specialty automotive accessories market. The Company
competes primarily with Harley-Davidson, Inc., S&S Cycle, Incorporated, and
Mikuni of America in the motorcycle aftermarket. The Company competes
primarily on the basis of product quality, brand name recognition, service
and price. Some of the Companys competitors are substantially larger and
have greater financial resources than the Company. Trademarks and Patents The Company owns over 38 trademarks and patents used in connection
with the marketing of the Companys products, including Edelbrock®,
Russell®, Torker®, Torker II®, Tunnel Ram®, Signature Series®, Performer
Series®, QwikSilver II®, Performer IAS® and Edelbrock Total Power Package®.
The Company believes that its trademarks and patents and the associated
recognition, reputation and customer loyalty contribute to the success of
the Companys business operations. The Companys patents expire between
2005 and 2024. Employees As of June 30, 2004, the Company employed 722 persons in the operation
of its business. The Company believes that its ability to attract and
retain qualified management personnel, skilled production technicians, and
marketing and administrative employees will be a key determinant of the
Companys continued success. The Company has not entered into any
collective bargaining agreements with any unions and believes that its
overall relations with its employees are good. 
 Item 2. Properties The Company owns its headquarters, distribution and manufacturing
facilities located in four buildings totaling approximately 290,000 square
feet in Torrance, California, and three buildings for its foundry
operations totaling approximately 100,000 square feet as well as a 15,000
square foot facility for its motorcycle carburetor parts division in San
Jacinto, California. The Company also has 4 acres of improved land
adjacent to its foundry facility in San Jacinto, California that may be
utilized for future corporate expansion. The Company believes that its existing facilities are adequate to meet
its current production requirements. 6




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Item 3. Legal Proceedings Three purported class action lawsuits relating to the merger proposal
and going-private transaction described above have been served again the
Company and its board of directors. Each of these actions purport to be
brought on behalf of the Companys public shareholders. The complaints seek
a preliminary and permanent injunction to enjoin the merger and, if the
merger is consummated, rescission and damages. The three actions have been
consolidated into a single action. On July 30, 2004, the parties to the
consolidated action entered into a memorandum of understanding with respect
to a proposed settlement of these actions. Under the terms of the proposed
settlement, the plaintiffs counsel will be entitled to $425,000 in fees
and expenses in the aggregate and is subject to court approval. The
Company maintains a $5,000,000 Directors & Officers insurance policy with a
$150,000 deductible that will cover this settlement and related costs of
defending the claim above the deductible. 
 Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted, during the fourth quarter of the fiscal year
covered by this report, to a vote of shareholders. 
 Part II 
 Item 5. Market for Companys Common Stock and Related Shareholder Matters. The Companys Common Stock is traded over-the-counter on the Nasdaq
Stock Market under the symbol EDEL. The following table sets forth the
range of high and low closing sales prices, as reported on the Nasdaq Stock
Market for fiscal years 2003 and 2004. On September 23, 2004, the Company
had 100 holders of record of its Common Stock with 5,485,392 shares
outstanding and a closing price of $16.55. Price Range of Common StockYear Ended June 30, 2003
    
    High
    
    LowFirst Quarter
    
    $
    12.45
    
    
    $
    9.90Second Quarter
    
    $
    11.00
    
    
    $
    9.65Third Quarter
    
    $
    12.00
    
    
    $
    9.95Fourth Quarter
    
    $
    10.42
    
    
    $
    9.60
 Year Ended June 30, 2004
    
    High
    
    LowFirst Quarter
    
    $
    12.50
    
    
    $
    10.35Second Quarter
    
    $
    12.58
    
    
    $
    11.00Third Quarter
    
    $
    14.00
    
    
    $
    11.95Fourth Quarter
    
    $
    16.42
    
    
    $
    13.26
 During fiscal year ended June 30, 2004, the Company paid a cash
dividend in the amount of $.03 per share on December 9, 2003. During
fiscal year ended June 30, 2003, the Company paid a cash dividend in the
amount of $.02 per share on June 13, 2003. During fiscal year ended June
30, 2002, the Company paid a cash dividend in the amount of $.02 per share
on November 11, 2001 and a 10% stock dividend on June 7, 2002. See Note 10
of Notes to Consolidated Financial Statements of the Company. 7




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Item 6. Selected Consolidated Financial Data. The following Selected Consolidated Financial Data is qualified in
its entirety by, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and the notes thereto and with
Managements Discussion and Analysis of Financial Condition and Results
of Operations contained elsewhere in this Form 10-K. The Balance Sheet
Data at June 30, 2003 and 2004 and the Income Statement Data and the Other
Data for each of the three fiscal years in the period ended June 30, 2004
have been derived from the audited Consolidated Financial Statements of
the Company included elsewhere in this Form 10-K. The Balance Sheet Data
at June 30, 2000, 2001, and 2002 and the Income Statement Data and the
Other Data for each of the two fiscal years in the period ended June 30,
2001 have been derived from audited financial statements not included
herein. Year Ended June 30,2000
    
    2001
    
    2002
    
    2003
    
    2004Income Statement Data:Revenues
    
    $
    121,173,000
    
    
    $
    115,630,000
    
    
    $
    123,579,000
    
    
    $
    115,225,000
    
    
    $
    125,980,000Cost of sales
    
    
    74,315,000
    
    
    
    72,734,000
    
    
    
    78,074,000
    
    
    
    73,409,000
    
    
    
    80,850,000Gross profit
    
    
    46,858,000
    
    
    
    42,896,000
    
    
    
    45,505,000
    
    
    
    41,816,000
    
    
    
    45,130,000Operating expenses:Selling, general and
administrative
    
    
    30,623,000
    
    
    
    31,614,000
    
    
    
    33,128,000
    
    
    
    33,671,000
    
    
    
    35,813,000Research and development
    
    
    3,688,000
    
    
    
    3,651,000
    
    
    
    3,852,000
    
    
    
    3,827,000
    
    
    
    3,913,000Total operating
expenses
    
    
    34,311,000
    
    
    
    35,265,000
    
    
    
    36,980,000
    
    
    
    37,498,000
    
    
    
    39,726,000Operating income
    
    
    12,547,000
    
    
    
    7,631,000
    
    
    
    8,525,000
    
    
    
    4,318,000
    
    
    
    5,404,000Interest expense
    
    
    (196,000
    )
    
    
    (283,000
    )
    
    
    (96,000
    )
    
    
    (48,000
    )
    
    
    (6,000
    )Interest income
    
    
    385,000
    
    
    
    227,000
    
    
    
    53,000
    
    
    
    54,000
    
    
    
    31,000Gain (loss) on sale of
assets and other income (loss)
    
    
    (139,000
    )
    
    
    7,000
    
    
    
    (23,000
    )
    
    
    23,000
    
    
    
    453,000Income before taxes
    
    
    12,597,000
    
    
    
    7,582,000
    
    
    
    8,459,000
    
    
    
    4,347,000
    
    
    
    5,882,000Taxes on income
    
    
    4,549,000
    
    
    
    2,790,000
    
    
    
    3,099,000
    
    
    
    1,377,000
    
    
    
    2,388,000Net income
    
    $
    8,048,000
    
    
    $
    4,792,000
    
    
    $
    5,360,000
    
    
    $
    2,970,000
    
    
    $
    3,494,000
 8




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Year Ended June 30,2000
    
    2001
    
    2002
    
    2003
    
    2004Per Share Data:Basic net income per share *
    
    $
    1.41
    
    
    $
    0.86
    
    
    $
    0.98
    
    
    $
    0.54
    
    
    $
    0.64Diluted net
income per share *
    
    $
    1.41
    
    
    $
    0.86
    
    
    $
    0.98
    
    
    $
    0.54
    
    
    $
    0.63Basic weighted average shares
outstanding *
    
    
    5,697,000
    
    
    
    5,585,000
    
    
    
    5,492,000
    
    
    
    5,452,000
    
    
    
    5,465,000Effect of dilutive stock
options
and warrants *
    
    
    7,000
    
    
    
    
    
    
    
    1,000
    
    
    
    6,000
    
    
    
    52,000Diluted weighted average
shares outstanding *
    
    
    5,704,000
    
    
    
    5,585,000
    
    
    
    5,493,000
    
    
    
    5,458,000
    
    
    
    5,517,000Other Data:Capital expenditures
    
    $
    1,285,000
    
    
    $
    7,595,000
    **
    
    $
    3,998,000
    
    
    $
    5,715,000
    
    
    $
    4,294,000Cash dividends
    
    $
    207,000
    
    
    $
    203,000
    
    
    $
    101,000
    
    
    $
    109,000
    
    
    $
    163,000June 30,2000
    
    2001
    
    2002
    
    2003
    
    2004Balance
Sheet Data:(In thousands)Working capital
    
    $
    34,273
    
    
    $
    39,581
    
    
    $
    46,262
    
    
    $
    49,020
    
    
    $
    55,638Total assets
    
    
    100,247
    
    
    
    101,918
    
    
    
    107,862
    
    
    
    107,400
    
    
    
    111,284Total long-term debt
    
    
    148
    
    
    
    563
    
    
    
    527
    
    
    
    494
    
    
    
    179Shareholders equity
    
    
    75,443
    
    
    
    80,024
    
    
    
    84,177
    
    
    
    87,038
    
    
    
    90,749
  *
    
    Earnings per share and share amounts for the years 2000 through 2002
have been retroactively adjusted to account for the Companys 10%
stock dividend distributed in June 2002. See Note 10 of Notes to
Consolidated Financial Statements.  **
    
    Includes approximately $3.3 million for the purchase of certain assets of
Russell Performance Products, Inc. 9




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operation. The following is a discussion and analysis of the consolidated
financial condition and results of operations of the Company for the
fiscal years ended June 30, 2002, 2003, and 2004. The following should be
read in conjunction with the Consolidated Financial Statements and related
notes appearing elsewhere herein. Overview The Company was founded in 1938, and the Company is now one of
Americas leading manufacturers and marketers of specialty performance
automotive and motorcycle aftermarket parts. The Company designs,
manufactures, packages and markets performance automotive and motorcycle
aftermarket parts, including intake manifolds, carburetors, shock
absorbers, camshafts, cylinder heads, exhaust systems and other
performance components for most domestic V8, selected V6, and selected
four-cylinder domestic and import engines. In addition, the Company offers
performance aftermarket manifolds, cylinder heads, camshafts, air
cleaners, and carburetors for Harley-Davidson and off road motorcycles.
The Company currently offers approximately 8,000 performance automotive
and motorcycle aftermarket parts for street, off-road, recreational and
competition use. Product Mix The Company manufactures its own products and purchases other
products designed to the Companys specifications from third-party
manufacturers for subsequent packaging and distribution to the Companys
customers. Generally, the Company can achieve a higher margin on those
products which it manufactures, as compared to those purchased from
third-party manufacturers. Accordingly, the Companys results of
operations in any given period are affected by product mix. Product Concentration Historically, the Company has derived a substantial portion of its
revenues from the sale of automotive aluminum intake manifolds and
automotive carburetors. For the fiscal years ended June 30, 2002, 2003,
and 2004 approximately 23.5%, 22.4%, and 22.0% of revenues were derived
from the sales of intake manifolds and 37.8%, 36.7%, and 34.0% from the
sales of carburetors, respectively. The Company sells automotive
carburetors which are purchased from a sole supplier (See Note 9
Dependence on Key Supplier within the Notes to Consolidated Financial
Statements). Seasonality The Companys sales are subject to seasonal variations. Customer
orders and sales are greatest in the second, third and fourth quarters of
the Companys fiscal year in anticipation of and during the spring and
summer months. Accordingly, revenues and operating income tend to be
relatively higher in these quarters. This seasonality typically results
in reduced earnings for the Companys first quarter because a significant
portion of operating expenses is fixed throughout the fiscal year. 10




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##### Table of Contents



Results of Operations The following table sets forth, for the periods indicated, the percentage
of revenues of certain items in the Companys consolidated statements of income
and the percentage change in each item from the prior period. Year Ended
    
    
    
    Year EndedPercentage of
    
    June 30, 2003
    
    Percentage of
    
    June 30, 2004Revenues for Year
    
    As Compared
    
    Revenues for Year
    
    As ComparedEnded June 30,
    
    To Year
    
    Ended June 30,
    
    To YearEnded
    
    
    
    Ended2002
    
    2003
    
    June 30, 2002
    
    2003
    
    2004
    
    June 30, 2003Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    (6.8
    )%
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    9.3
    %Cost of sales
    
    
    63.2
    
    
    
    63.7
    
    
    
    (6.0
    )
    
    
    63.7
    
    
    
    64.2
    
    
    
    10.1Gross profit
    
    
    36.8
    
    
    
    36.3
    
    
    
    (8.1
    )
    
    
    36.3
    
    
    
    35.8
    
    
    
    7.9Operating expensesSelling, general and administrative
    
    
    26.8
    
    
    
    29.2
    
    
    
    1.6
    
    
    
    29.2
    
    
    
    28.4
    
    
    
    6.4Research and development
    
    
    3.1
    
    
    
    3.3
    
    
    
    (0.6
    )
    
    
    3.3
    
    
    
    3.1
    
    
    

    2.2Total operating expenses
    
    
    29.9
    
    
    
    32.5
    
    
    
    1.4
    
    
    
    32.5
    
    
    
    31.5
    
    
    
    5.9Operating income
    
    
    6.9
    
    
    
    3.8
    
    
    
    (49.3
    )
    
    
    3.8
    
    
    
    4.3
    
    
    
    25.2Interest expense
    
    
    0.1
    
    
    
    0.0
    
    
    
    (50.0
    )
    
    
    0.0
    
    
    
    0.0
    
    
    
    (87.5
    )Interest income
    
    
    0.0
    
    
    
    0.0
    
    
    
    1.9
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    (42.6
    )Gain on sale of assets and other
income
    
    
    0.0
    
    
    
    0.0
    
    
    
    (200.0
    )
    
    
    0.0
    
    
    
    0.4
    
    
    
    1,869.6Income before taxes on income
    
    
    6.8
    
    
    
    3.8
    
    
    
    (48.6
    )
    
    
    3.8
    
    
    
    4.7
    
    
    
    35.3Taxes on income
    
    
    2.5
    
    
    
    1.2
    
    
    
    (55.6
    )
    
    
    1.2
    
    
    
    1.9
    
    
    
    73.4Net Income
    
    
    4.3
    %
    
    
    2.6
    %
    
    
    (44.6
    )%
    
    
    2.6
    %
    
    
    2.8
    %
    
    
    17.6
    %
 11




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##### Table of Contents



Fiscal Year 2004 Compared to Fiscal Year 2003 Revenues Revenues increased 9.3% to $126.0 million in fiscal year 2004 from
$115.2 million in fiscal year 2003. The increase was primarily the result of
an increase of $1.9 million, or 7.3%, in the sale of aluminum automotive
intake manifolds; an increase of $1.8 million, or 11.3%, in the sale of
automotive aluminum cylinder heads; an increase of $1.6 million, or 57.8%,
from sales by its aluminum foundry to third party customers; an increase of
$1.0 million, or 16.0%, in the sale of products from its Russell division; an
increase of approximately $887,000, or 2.4%, in the sale of Edelbrock
automotive carburetors; and an increase of $610,000, or 20.4%, in the sale
of shock absorbers. Edelbrock attributed its improved sales to improvements
in the national economy, favorable weather conditions that enabled consumers
to perform desired upgrades, and continued strong customer acceptance of the
Edelbrock brand and products. Cost of Sales Cost of sales increased 10.1% to $80.9 million in fiscal year 2004 from
$73.4 million in fiscal year 2003. As a percent of revenues, cost of sales
increased to 64.2% in fiscal year 2004 from 63.7% in fiscal year 2003. The
increase in cost of sales was primarily due to higher revenues. The increase
in cost of sales as a percentage of revenues was primarily due to increases
in labor costs and workers compensation insurance. Selling, General and Administrative Expense Selling, general and administrative expenses (S,G&A) increased 6.4% to
$35.8 million in fiscal year 2004 from $33.7 million in fiscal year 2003.
The overall increase was primarily due to higher commissions based on
increased revenues, higher overall insurance costs, and professional fees
associated with the proposed going-private transaction. As a percentage of
revenues, S,G&A expenses decreased to 28.4% in fiscal year 2004 from 29.2% in
fiscal year 2003. The decrease as a percentage of sales was mainly
attributed to slightly higher costs spread over the 9.3% increase in
revenues. Research and Development Expense Research and development expense remained relatively unchanged at $3.9
million for fiscal 2004 compared to $3.8 million for fiscal year 2003. As a
percent of revenue, research and development expense decreased to 3.1% in
fiscal year 2004 versus 3.3% in fiscal year 2003. Operating Income Operating income increased 25.2% to $5.4 million in fiscal year 2004
from $4.3 million in fiscal year 2003. This increase was mainly a result of
increased revenues and lower operating expenses as a percentage of revenues. Interest Expense Interest expense decreased 87.5% to $6,000 in fiscal year 2004 from
$48,000 in fiscal year 2003. This decrease was primarily due to a decrease
in the principal amount of average debt outstanding. Interest Income Interest income decreased 42.6% to $31,000 in fiscal year 2004 from
$54,000 in fiscal year 2003. This decrease was the result of a decrease in
interest earned on invested cash due to lower interest rates during the year. Gain on sales of assets and other income The Company recognized a gain of $445,000 in the fiscal year 2004
related to sales of real property. 12




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##### Table of Contents



Fiscal Year 2004 Compared to Fiscal Year 2003 (continued) Taxes on Income The provision for income taxes increased 73.3% to $2.4 million in
fiscal year 2004 from $1.4 million in fiscal year 2003. The effective tax
rates were 40.6% and 31.7% for fiscal years 2004 and 2003, respectively.
The tax rate for fiscal year 2004 resulted primarily from the certain
going-private expenses that were not deductible and state of California
repealing the manufacturers tax credit on December 31, 2003. Accordingly,
the Company only took allowable credits for 6 months of the fiscal year
compared to an entire year in previous fiscal years. The tax rate for
fiscal year 2003 resulted primarily from the Companys continued investment
in research and development and capital improvements which resulted in
increases in research and development tax credits and California
manufacturers tax credit despite the lower taxable income. Net Income The Companys net income increased 17.6% for fiscal year 2004 to $3.5
million in fiscal 2004 from $3.0 million in fiscal year 2003. This increase
was primarily due to the items mentioned above. 13




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##### Table of Contents



Fiscal Year 2003 Compared to Fiscal Year 2002 Revenues Revenues decreased 6.8% to $115.2 million in fiscal year 2003 from
$123.6 million in fiscal year 2002. The decrease was primarily the result
of a decrease of approximately $4.4 million, or 9.5%, in the sale of
automotive carburetors; a decrease of $1.5 million, or 19.9%, in the sale
of automotive air cleaners and valve covers; and a decrease of
approximately $3.2 million, or 11.0%, in the sale of automotive aluminum
intake manifolds. Edelbrock attributed the overall decrease in revenues to
a prolonged period of unseasonable inclement weather during the spring and
summer months, consumer concerns related to the war in Iraq, and the
sluggish national economy. Cost of Sales Cost of sales decreased 6.0% to $73.4 million in fiscal year 2003 from
$78.1 million in fiscal year 2002. As a percent of revenues, cost of sales
increased to 63.7% in fiscal year 2003 from 63.2% in fiscal year 2002. The
decrease in cost of sales was primarily due to lower revenues. The increase
in cost of sales as a percentage of revenues was primarily due to increased
labor rates and higher workers compensation expenses. Selling, General and Administrative Expense Selling, general and administrative expenses (S,G&A) increased 1.6%
to $33.7 million in fiscal year 2003 from $33.2 million in fiscal year 2002.
This increase resulted primarily from an increase in salaries and higher
insurance costs offset by lower commissions and other variable expenses
associated with lower revenues. As a percentage of revenues, S,G&A expenses
increased to 29.2% in fiscal year 2003 from 26.8% in fiscal year 2002. The
increase in S,G&A expenses as a percentage of revenues resulted primarily
from increases in advertising, general insurance, and salaries spread over
lower revenues. Research and Development Expense Research and development expense decreased 0.6% to $3.8 million in
fiscal 2003 from $3.9 million in fiscal year 2002. As a percent of revenue,
research and development expense increased slightly to 3.3% in fiscal year
2003 versus 3.1% in fiscal year 2002. Operating Income Operating income decreased 49.3% to $4.3 million in fiscal year 2003
from $8.5 million in fiscal year 2002. This decrease was mainly a result
of decreased revenues and higher operating expenses as a percentage of
revenues. Interest Expense Interest expense decreased 50.0% to $48,000 in fiscal year 2003 from
$96,000 in fiscal year 2002. This decrease was primarily due to a decrease
in the principal amount of average debt outstanding combined with a decrease
in interest rates. Interest Income Interest income increased 1.9% to $54,000 in fiscal year 2003 from
$53,000 in fiscal year 2002. This increase was the result of an increase
in interest earned on invested cash due to higher amounts of invested
excess working capital offset by lower interest rates during the year. Taxes on Income The provision for income taxes decreased 55.6% to $1.4 million in
fiscal year 2003 from $3.1 million in fiscal year 2002. The effective tax
rates were 31.7% and 36.6% for fiscal years 2003 and 2002, respectively.
The decrease in the effective tax rate resulted primarily from the
Companys continued investment in research and development and capital
improvements which resulted in increases in research and development tax
credits and California manufacturers tax credit despite the decrease in
taxable income. Net Income The Companys net income decreased 44.6% for fiscal year 2003 to $3.0
million in fiscal 2003 from $5.4 million in fiscal year 2002. This
decrease was primarily due to the items mentioned above. 14




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##### Table of Contents



Quarterly Results The following table sets forth unaudited operating data for each of
the specified quarters of fiscal years 2003 and 2004. This quarterly
information has been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of management, contains all
adjustments necessary to state fairly the information set forth herein.
The sum of the four quarters earnings per share may not agree to the
fiscal year earnings per share due to rounding. For the Fiscal Year Ended
    
    For the Fiscal Year EndedJune 30, 2003
    
    June 30, 2004(In thousands except per
    
    First
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    Fourthshare data)
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterRevenues
    
    $
    25,874
    
    
    $
    31,015
    
    
    $
    25,658
    
    
    $
    32,678
    
    
    $
    27,658
    
    
    $
    31,741
    
    
    $
    28,551
    
    
    $
    38,030Cost of sales
    
    
    15,839
    
    
    
    19,918
    
    
    
    16,404
    
    
    
    21,248
    
    
    
    17,804
    
    
    
    20,452
    
    
    
    18,230
    
    
    
    24,364Gross profit
    
    
    10,035
    
    
    
    11,097
    
    
    
    9,254
    
    
    
    11,430
    
    
    
    9,854
    
    
    
    11,289
    
    
    
    10,321
    
    
    
    13,666Operating expenses:Selling, general and
administrative
    
    
    7,846
    
    
    
    8,265
    
    
    
    8,068
    
    
    
    9,492
    
    
    
    8,344
    
    
    
    8,459
    
    
    
    8,276
    
    
    
    10,734Research and
development
    
    
    835
    
    
    
    942
    
    
    
    865
    
    
    
    1,185
    
    
    
    894
    
    
    
    813
    
    
    
    938
    
    
    
    1,268Total operating expenses
    
    
    8,681
    
    
    
    9,207
    
    
    
    8,933
    
    
    
    10,677
    
    
    
    9,238
    
    
    
    9,272
    
    
    
    9,214
    
    
    
    12,002Operating income
    
    
    1,354
    
    
    
    1,890
    
    
    
    321
    
    
    
    753
    
    
    
    616
    
    
    
    2,017
    
    
    
    1,107
    
    
    
    1,664Interest expense
    
    
    (20
    )
    
    
    (11
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    Interest income
    
    
    20
    
    
    
    18
    
    
    
    8
    
    
    
    8
    
    
    
    11
    
    
    
    10
    
    
    
    9
    
    
    
    1Gain on sale of assets and
other income (loss)
    
    
    2
    
    
    
    2
    
    
    
    12
    
    
    
    7
    
    
    
    118
    
    
    
    17
    
    
    
    322
    
    
    
    (4
    )Income before taxes on
income
    
    
    1,356
    
    
    
    1,899
    
    
    
    334
    
    
    
    758
    
    
    
    741
    
    
    
    2,043
    
    
    
    1,437
    
    
    
    1,661Taxes on income
    
    
    502
    
    
    
    702
    
    
    
    124
    
    
    
    49
    
    
    
    274
    
    
    
    756
    
    
    
    532
    
    
    
    826Net income
    
    $
    854
    
    
    $
    1,197
    
    
    $
    210
    
    
    $
    709
    
    
    $
    467
    
    
    $
    1,287
    
    
    $
    905
    
    
    $
    835Basic net income
per share
    
    $
    0.16
    
    
    $
    0.22
    
    
    $
    0.04
    
    
    $
    0.13
    
    
    $
    0.09
    
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.15Diluted net income
per share
    
    $
    0.16
    
    
    $
    0.22
    
    
    $
    0.04
    
    
    $
    0.13
    
    
    $
    0.09
    
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.15Basic weighted
average number of
shares outstanding
    
    
    5,452
    
    
    
    5,452
    
    
    
    5,452
    
    
    
    5,452
    
    
    
    5,454
    
    
    
    5,459
    
    
    
    5,464
    
    
    
    5,484Effect of dilutive stock
options and warrants
    
    
    12
    
    
    
    5
    
    
    
    9
    
    
    
    1
    
    
    
    11
    
    
    
    27
    
    
    
    51
    
    
    
    109Diluted weighted average
number of shares
outstanding
    
    
    5,464
    
    
    
    5,457
    
    
    
    5,461
    
    
    
    5,453
    
    
    
    5,465
    
    
    
    5,486
    
    
    
    5,515
    
    
    
    5,593
 15




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##### Table of Contents



Critical Accounting Policies The Companys financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States
of America. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are
affected by managements application of accounting policies. The following
paragraphs include a discussion of accounting policies critical to the
Company: Cash and Cash Equivalents Cash and cash equivalents include money market instruments and other highly
liquid short-term investments that are stated at cost which approximates
market value. Such investments are considered to be cash equivalents for
purposes of the Consolidated Statements of Cash Flows and Consolidated
Balance Sheets. The balance of such short-term investments was $8,707,000
and $12,540,000 at June 30, 2003 and 2004, respectively. Such investments
were not insured by the Federal Deposit Insurance Corporation (FDIC). The Company maintains its cash balances in two financial institutions. These
balances may, at times, exceed federal insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk relating to cash and cash equivalents. Accounts Receivable and Accounts Receivable Reserves The Company maintains reserves for cash and other discounts, returns and
potential credit losses. Accounts receivable reserves are based on (i) the
Companys estimate of the rate at which customers take credit discounts
allowed and (ii) the Companys specific assessment of the collectibility of
all past due accounts. Inventories Inventories, which consist of raw materials, work in process, and finished
goods, are stated at the lower of cost (first-in, first-out method) or market
value and have been reduced by an allowance for excess and obsolete
inventories. The estimated allowance is based on managements review of
inventories on hand compared to estimated future usage and sales and may be
adjusted from time to time based on managements continuing review of the
allowance. Long-Lived Assets The Company evaluates the recoverability of the carrying amount of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Company evaluates the
recoverability of goodwill and other intangible assets with indefinite useful
lives annually or more frequently if events or circumstances indicate that an
asset might be impaired. The Company uses judgment when applying the
impairment rules to determine when an impairment test is necessary. Factors
the Company considers which could trigger an impairment review include
significant underperformance relative to historical or forecasted operating
results, a significant decrease in the market value of an asset, a significant
change in the extent or manner in which an asset is used, and significant
negative industry or economic trends. Impairment losses are measured as the
amount by which the carrying value of an asset exceeds its estimated fair
value. The Company is required to make estimates of its future cash flows
related to the asset subject to review. These estimates require assumptions
about demand for the Companys products and services, future market conditions
and technological developments. Other assumptions include determining the
discount rate and future growth rates. Product Warranties The Company records a liability for an estimate of costs that it expects to
incur under its basic limited warranty when product revenue is recognized.
Factors affecting the Companys product warranty liability include the number
of units sold and historical and anticipated rates of claims and costs per
claim. Companys management periodically assesses the adequacy of its product
warranty liability based on changes in these factors. Self-Insurance Liabilities The Companys obligation for employee-health care benefits is self-insured
for which the Company uses a third party administrator to process all claims
and benefits. Employee health care insurance liabilities are accrued based
on historical claims experience and risk exposure levels. Eligible losses on
a per claim basis and in the aggregate for all eligible claims in excess of
self-insurance levels and up to stated limits of liability are covered by
insurance policies purchased from third-party insurers. 16




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##### Table of Contents



Critical Accounting Policies (concluded) Revenue Recognition Revenue is recognized upon shipment of products by the Company. All shipments
are made only upon written or electronic contractual agreements with the
Companys customers. Liquidity and Capital Resources The Companys liquidity requirements arise primarily from the funding of
its seasonal working capital needs and capital expenditures. Historically,
the Company has met these liquidity requirements through cash flow generated
from operating activities and with borrowed funds under the Companys $8.0
million revolving credit facility (Revolving Credit Facility). Due to the
seasonal demand for the Companys products, the Company builds inventory
during the Companys first fiscal quarter in advance of the typically
stronger selling periods during the Companys second, third and fourth fiscal
quarters. The Revolving Credit Facility consists of an unsecured line of credit
agreement with one bank, which provides a total loan commitment not to exceed
$8.0 million, all of which was available to the Company as of September 23,
2004. The line of credit borrowings are at the banks prime rate (4.00% at
June 30, 2004 and 4.75% as of September 23, 2004). The line of credit
agreement expires on February 1, 2005. If the Company does not pursue
alternative financing arrangements, the Company may seek to extend the
existing line of credit agreement. Under the Revolving Credit Facility, the
Company is subject to certain customary restrictive financial requirements.
For all periods presented and as of September 23, 2004, the Company is in
compliance with all such financial covenants. Net cash provided by operating activities was $6.7 million, $6.8 million
and $7.4 million in fiscal years 2002, 2003, and 2004, respectively. Due to
the seasonality of the Companys business, more funds from operating
activities are generated in its third and fourth fiscal quarters. Accounts payable decreased $1.7 million for fiscal year 2004 compared to
fiscal year 2003 primarily as a result of timing of receipt of goods from a
principal supplier. Accounts receivable increased by $967,000 for fiscal year 2004 compared
to fiscal year 2003, while sales increased $10.8 million for fiscal year 2004
compared to fiscal year 2003. The increase in accounts receivable in fiscal
year 2004 was primarily due to the increased sales and timing of payments
from customers. Inventories increased by $2.0 million for fiscal year 2004 compared to
fiscal year 2003 while cost of sales increased $7.4 million for fiscal year
2004 compared to fiscal year 2003. The increase in inventories from fiscal
year 2004 versus fiscal year 2003 was primarily due to an increase in raw
materials inventories offset by a decrease in finished goods inventories.
The Companys total capital expenditures were $4.0 million in fiscal year
2002; $5.7 million in fiscal year 2003; and $4.3 million in fiscal year 2004.
The Company anticipates making capital expenditures of $3.0  $4.0 million
within the next year for additional capital equipment to increase the
Companys production capacity. Contractual Obligations The Company has an agreement with Magneti Marelli Powertrain, USA, Inc.,
who is the key supplier of automotive carburetors for the Company. The
agreement expires in December of 2009 and requires, among other things, that
(i) the Company sell only carburetors manufactured by the supplier, (ii) the
Company purchase a minimum number of carburetors from the supplier each
calendar year and (iii) the Company price the carburetors so as to remain
market competitive. Any material failure of the supplier to supply carburetors to the
Company would have a material adverse effect on the Companys results of
operations because alternative sources for obtaining the types of automotive
carburetors marketed by the Company are not readily available. The Companys
inability to source supply with other manufacturers, the Companys failure to
sell automotive carburetors in excess of the minimum purchase requirement, or
the contractual limitations on the Companys pricing of automotive
carburetors also could have a material adverse effect on the Company. The
Company has met all minimum purchase obligations to date. 17




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##### Table of Contents



Contractual Obligations (continued) The Company has a license agreement with Ricor Racing and Development
L.P. (Ricor), under which the Company has licensed rights to intellectual
property relating to manufacturing techniques and design specifications for
shock absorbers. The Company has been manufacturing and selling shock
absorbers manufactured using technology licensed under this agreement since
1997. Ricor recently filed for bankruptcy protection on April 6, 2004. To
date, the Ricor bankruptcy has not affected performance of the parties under
the license agreement, and the Company has not received notice of any pending
threat of a detrimental impact on the relationship. However, any materially
adverse effect as a result of the bankruptcy on the Companys continued
access to the intellectual property licensed under this agreement could have
a detrimental impact on the Companys business and financial condition. The table below summarizes the Companys contractual obligations as of June 30,
2004: Payments Due By Period End June 30,Contractual Obligations
    
    2005
    
    2006 to 2007
    
    2008 to 2009
    
    2010 and Thereafter
    
    TotalPurchase
commitments 1
    
    $
    20,819,000
    
    
    $
    37,288,000
    
    
    $
    37,288,000
    
    
    $
    9,322,000
    
    
    $
    104,717,000Employee contracts 2
    
    
    929,000
    
    
    
    1,859,000
    
    
    
    1,859,000
    
    
    
    
    
    
    
    4,647,000Long-term debt
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    177,000
    
    
    
    180,000Capital leases
    
    
    32,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    34,000Total
    
    $
    21,783,000
    
    
    $
    39,149,000
    
    
    $
    39,147,000
    
    
    $
    9,499,000
    
    
    $
    109,578,000
  1 -
    The Companys minimum obligation under this agreement with Magneti
Marelli Powertrain, USA, Inc. is based on a calendar year basis.
However, as the above table is presented on a fiscal year basis, each
respective period reflects six months of the previous years commitment
(July  December) and six months of the current respective calendar
year (January  June).2 -
    The Company has employment agreements with its President and two
other officers expiring on June 30, 2009. The agreements provide for
base salaries of $929,322 in the aggregate, with an annual raise and
bonus to be determined by the Compensation Committee of the Board of
Directors based on such factors as the performance of the officer and
the financial results of the Company. Upon termination of any
officers employment during the term of the agreement for any reason
other than cause, death or voluntary termination, the Company will be
obligated to make a lump sum severance payment in an amount equal to
the then current annual base compensation plus an amount equal to the
bonus paid the year prior to such termination. Inflation General inflation over the last three years has not had a material
effect on the Companys cost of doing business and it is not expected to
have a material effect in the foreseeable future. Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995: Any statements set forth above which are not historical facts,
including statements relating to future economic and climatic conditions,
are forward-looking statements that involve known and unknown risks and
uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. Potential risks and uncertainties
include such factors as the financial strength and competitive pricing
environment of the automotive and motorcycle aftermarket industries,
product demand, sales growth and activity levels, cash flows, dependence on
key suppliers, market acceptance, manufacturing efficiencies, new product
development, the success of planned advertising, marketing and promotional
campaigns, and other risks identified herein and in other documents filed
by the Company with the Securities and Exchange Commission. Other
potential risks and uncertainties that may affect the Companys business
and financial condition include the potential effects of the proposal by
Mr. Edelbrock to acquire the outstanding shares of the Companys common
stock not already beneficially owned or controlled by him such as (i) the
distraction of the Companys management from the operation of the Companys
business caused by the pendency of the proposed transaction and related
litigation, required filings with the Securities and Exchange Commission,
and any subsequent developments; and (ii) material increases in the
Companys expenses for professional services and other transaction and
litigation related costs and expenses which are expected to be incurred
whether or not the proposed transaction is consummated. 18




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosure about Market Risk. The Companys exposure to interest rate changes is primarily related to
its variable rate debt which may be outstanding from time to time under the
Companys Revolving Credit Facility with Bank of America, NT&SA. The
Companys Revolving Credit Facility is an $8 million line of credit with an
interest rate based on the banks prime rate (currently 4.75%). It expires on
February 1, 2005. Because the interest rate on the Revolving Credit Facility
is variable, the Companys cash flow may be affected by increases in the
prime rate. Management does not, however, believe that any risk inherent in
the variable-rate nature of the loan is likely to have a material effect on
the Company. As of fiscal year ended June 30, 2004 and as of September 23,
2004, the Companys outstanding balance on the Revolving Credit Facility was
zero. Even if the Company was to draw down on the line prior to its
expiration and an unpredicted increase in the prime rate occurred, it would
not be likely to have a material effect. 
 Item 8. Financial Statements and Supplementary Data. See Item 14 for an index to the consolidated financial statements and
supplementary financial information which are included herewith. 
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. 
 Item 9A. Controls and Procedures. The Companys President, Chief Executive Officer, and Chairman of the
Board, O. Victor Edelbrock, Jr., and the Companys Vice-President of Finance
and Chief Financial Officer, Aristedes T. Feles, have evaluated the
Companys disclosure controls and procedures as of June 30, 2004. These
controls and procedures are designed to ensure that all of the information
required to be disclosed by the Company in its periodic reports filed with
the Securities and Exchange Commission (the Commission) is recorded,
processed, summarized and reported within the time periods specified by the
Commission and that the information is communicated to Messrs. Edelbrock and
Feles on a timely basis. Based on their evaluation, Messrs. Edelbrock and Feles concluded that
the Companys disclosure controls and procedures are suitable and effective
for the Company, taking into consideration the size and nature of the
Companys business and operations. Subsequent to the date of their
evaluation, there have been no significant changes in the Companys
disclosure controls and procedures, or in other factors that would
reasonably be likely to affect the Companys internal controls over
financial reporting and related procedures. 
 Item 9B. Other information. Not applicable. 19




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##### Table of Contents



Part III 
 Item 10. Directors and Executive Officers of the Company. The following sets forth the name, age and business experience of
the executive officers and directors of the Company as of June 30, 2004: Name
    
    Age
    
    PositionO. Victor Edelbrock
    
    
    67
    
    
    Chairman, President and Chief Executive OfficerJeffrey L. Thompson
    
    
    51
    
    
    Executive Vice-President, Chief Operating Officer and DirectorAristedes T. Feles
    
    
    36
    
    
    Vice-President of Finance, Chief Financial Officer, and DirectorCathleen Edelbrock
    
    
    44
    
    
    Vice-President of Advertising, Secretary and DirectorSteve Whipple
    
    
    46
    
    
    Vice-President of SalesWayne P. Murray
    
    
    52
    
    
    Vice-President of ManufacturingJack B. Mayberry
    
    
    57
    
    
    Vice-President of Research & DevelopmentChristina Edelbrock
    
    
    43
    
    
    Vice-President of PurchasingNancy Edelbrock
    
    
    67
    
    
    TreasurerRonald L. Webb
    
    
    70
    
    
    Executive Vice-President of Edelbrock Foundry Corp.Rodney T. Teraishi
    
    
    38
    
    
    Corporate ControllerJerry Herbst
    
    
    66
    
    
    DirectorDr. Cornelius J. Pings
    
    
    75
    
    
    DirectorRalph O. Hellmold
    
    
    64
    
    
    DirectorTimothy D. Pettit
    
    
    47
    
    
    Director
 O. Victor Edelbrockhas been Chairman, President and Chief Executive Officer
of Edelbrock since 1962. He was president of the Specialty Equipment Market
Association (SEMA) from 1970 to 1974 and served on the SEMA board of
directors from 1967 to 1989. Jeffrey L. Thompsonhas been the Executive Vice-President/General Manager
and Chief Operating Officer of Edelbrock since December 1988. He was also a
six year member of the board of directors of the Specialty Equipment Market
Association from 1993 to 1999. Mr. Thompson has been a director of Edelbrock
since 1994. Aristedes T. Feleshas been the Vice-President of Finance and Chief
Financial Officer since July 1996 and was previously Controller for
Edelbrock since 1992. Prior to 1992, Mr. Feles was employed as a senior
accountant at BDO Seidman, LLP. Mr. Feles is a Certified Public Accountant
and has been a director of Edelbrock since July 1996. Cathleen Edelbrockhas been Vice-President of Advertising for Edelbrock
since 1993 and Secretary since July 1996. Prior to 1993, Ms. Edelbrock was
Director of Advertising, and has served in various other capacities with the
Company since 1978. Ms. Edelbrock has been a director of Edelbrock since
1994. Steve Whipplehas served as Vice-President of Sales for Edelbrock since
September 2000. Mr. Whipple was previously the National Sales Manager for
Edelbrock since 1999. Wayne P. Murrayhas been employed in various positions by Edelbrock since
1969 and has been Vice-President of Manufacturing for Edelbrock since 1984. Jack B. Mayberryhas been the Vice President of Research & Development for
Edelbrock since 1995. Christina Edelbrockhas been Vice-President of Purchasing for Edelbrock
since 2001. From 1998 to 2001, Ms. Edelbrock was Director of Purchasing, and
worked at Edelbrocks foundry prior to that time. Nancy Edelbrockhas been Treasurer of Edelbrock since 1968 and has been
involved in all facets of the business since 1962. Rodney T. Teraishihas been the Corporate Controller of Edelbrock since
August 1998. Mr. Teraishi is a Certified Public Accountant and was
previously employed at BDO Seidman, LLP and Deloitte & Touche, LLP in
various capacities. Ronald L. Webb had
been Executive Vice-President of Edelbrock Foundry Corp. since 1989.
Prior to 1989, Mr. Webb served as Vice-President, Operations and
in various other capacities for Buddy Bar Castings (since 1958).
Mr. Webb retired on June 30, 2004. Jerry Herbsthas served as a director of Edelbrock since 1994. Mr. Herbst
has been the Chief Executive Officer of Terrible Herbst, Inc. and Herbst
Supply Co., Inc. since 1959. He has served as a director of Bank of America
Nevada (formerly Valley Bank) since 1977 and a director of Nevada Power
Company since 1990. 20




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##### Table of Contents



Dr. Cornelius J. Pingshas served as a director of Edelbrock since December
2000. Dr. Pings is president emeritus of the Association of American
Universities (AAU). He served as president of the AAU from 1993 to 1998 and
as provost of the University of Southern California from 1981 to 1993. Ralph O. Hellmoldhas served as a director of Edelbrock since October
2003. He is the Chairman of the Private Investment Banking Company, LLC
and President of Hellmold Associates, Inc., both boutique investment
banking firms. Prior to forming Hellmold Associates in 1990, Mr. Hellmold
was a Managing Director at Prudential-Bache Capital Funding. Mr. Hellmold
is also a director of Core Molding Technologies. Timothy D. Pettithas served as a director of Edelbrock since 1998. Mr.
Pettit is a Vice President of Big Sky Distributors, LLC and Big Sky
Holdings, LLC. He is a Certified Public Accountant and currently the
Managing Partner of Raimondo Pettit Group, and was a former Managing
Partner at BDO Seidman, LLP. 
 Item 11. Executive Compensation. The information required by Item 11 will be set forth in the Companys
2004 Annual Proxy Statement, as the case may be, or shall be included in an
amendment to the Companys Annual Report on Form 10-K to be filed prior to
120 days following fiscal year end and is incorporated herein by reference. 21




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The following table sets forth certain information regarding the
beneficial ownership of Edelbrock as of July 29, 2004 by (i) all those known
to Edelbrock to be beneficial owners of more than 5% of its common stock,
(ii) each executive officer and director of Edelbrock and (iii) all
executive officers and directors of Edelbrock as a group. Edelbrock Holdings
and Edelbrock Merger Sub currently do not beneficially own any Edelbrock
common stock. Unless otherwise indicated, the address for each of the
shareholders listed below is c/o Edelbrock Corporation, 2700 California
Street, Torrance, California 90503. Shares BeneficiallyOwned (1)Percent ofNumber
    
    ClassShareholders Owning in Excess of Five PercentO. Victor Edelbrock, Jr. (2)
    
    
    2,837,020
    
    
    
    51.4
    (3)Nancy Edelbrock (4)
    
    
    860,957
    
    
    
    15.7Vic and Nancy Edelbrock Inter Vivos Trust,
dated December 19, 1980 (5)
    
    
    860,957
    
    
    
    15.7Edelbrock Corporation 401(k) Plan (6)
    
    
    547,549
    
    
    
    10.0Wayne P. Murray (7)
    
    
    566,915
    
    
    
    10.3Christina Edelbrock (8)
    
    
    635,559
    
    
    
    11.6Timothy D. Pettit (9)
    
    
    551,399
    
    
    
    10.0Vic Edelbrock, Sr. Will Marital
Deduction Fund (10)
    
    
    721,402
    
    
    
    12.8Vic Edelbrock, Sr. Will Residuary Fund (10)
    
    
    618,750
    
    
    
    11.3Dalton, Greiner, Hartman, Maher & Co. (11)
    
    
    414,080
    
    
    
    7.2Dimensional Fund Advisors (12)
    
    
    343,300
    
    
    
    6.3Directors other than Mr. Edelbrock and Mr. PettitCathleen Edelbrock (13)
    
    
    71,513
    
    
    
    1.3Aristedes T. Feles (14)
    
    
    16,138
    
    
    
    *Jerry Herbst
    
    
    4,950
    
    
    
    *Jeffrey L. Thompson (15)
    
    
    69,634
    
    
    
    1.3Dr. Cornelius J. Pings
    
    
    1,100
    
    
    
    *Ralph O. Hellmold (16)
    
    
    3,850
    
    
    
    *Named Officers Other Than Director or
Shareholders Owning in Excess of Five PercentRonald L. Webb
    
    
    0
    
    
    
    *All Directors and Officers as a group
(14 persons) (2)(3)(6)(7)(8)(9)(13)(14)(15)(16)(17)
    
    
    3,081,916
    
    
    
    54.4
  *
    
    Less than one percent.  (1)
    
    Beneficial ownership is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of
1934, as amended. 22




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##### Table of Contents



(2)
    
    Includes 860,557 shares owned by the Vic and Nancy Edelbrock Inter
Vivos Trust, 177,553 shares attributable to Mr. Edelbrocks beneficial
interest in the Edelbrock Corp. 401(k) Retirement Plan (401(k)
Plan), 30,938 shares that Mr. Edelbrock has the right to acquire
pursuant to options, 400 shares attributable to Mr. Edelbrocks
spouses, Nancy Edelbrock, beneficial interest in the 401(k) Plan,
700,282 shares owned by the Vic Edelbrock, Sr. Will Marital Deduction
Fund, 618,750 shares owned by the Vic Edelbrock, Sr. Will Residuary
Fund, 73,521 shares owned by the Sean Michael Robb Trust, 73,521
shares owned by the Alexander Edelbrock Wilson Trust, 73,521 shares
owned by the Courtney Isom Trust, 43,510 shares owned by the Carey
Edelbrock Robb Trust, 43,521 shares owned by the Cathleen Edelbrock
Trust, 73,510 shares owned by the Christina Edelbrock Trust, 16,959
shares owned by the Troy Frederick Robb Trust, 16,959 shares owned by
the Grant Douglas Robb Trust, 16,959 shares owned by the Brooke
Elizabeth Robb Trust, and 16,959 shares owned by the Kyle Patrick Robb
Trust. Mr. Edelbrock is the trustee of the above trusts. Mr. Edelbrock
disclaims beneficial ownership of such shares relating to Nancy
Edelbrocks beneficial interest in the 401(k) Plan, the Vic Edelbrock,
Sr. Will Marital Deduction Fund, the Sean Michael Robb Trust, the
Alexander Edelbrock Wilson Trust, the Courtney Isom Trust, the Carey
Edelbrock Robb Trust, the Cathleen Edelbrock Trust, the Christina
Edelbrock Trust, the Troy Frederick Robb Trust, the Grant Douglas Robb
Trust, the Brooke Elizabeth Robb Trust, and the Kyle Patrick Robb
Trust.(3)
    
    Excluding options, Mr. Edelbrocks percentage ownership is 51.2% of
the outstanding voting securities of Edelbrock.(4)
    
    Includes 860,557 shares owned by the Vic and Nancy Edelbrock Inter
Vivos Trust.(5)
    
    O. Victor Edelbrock and Nancy Edelbrock are trustees of, and
beneficiaries under, such trust.(6)
    
    Mr. Murray, Ms. Edelbrock and Mr. Pettit are trustees of the 401(k)
Plan. The trustees disclaim beneficial ownership of such shares held
by the 401(k) Plan except to the extent of 45,807 and 4,036 shares
attributable to Mr. Murrays and Ms. Edelbrocks respective beneficial
interests in the 401(k) Plan.(7)
    
    Includes 547,549 shares held by the 401(k) Plan of which Mr. Murray
is a trustee. Mr. Murray disclaims beneficial ownership of such shares
except to the extent of 65,173 shares of which 45,807 shares are
attributable to Mr. Murrays beneficial interest in the 401(k) Plan,
and 19,146 shares that Mr. Murray has the right to acquire pursuant to
options.(8)
    
    Includes 547,549 shares held by the 401(k) Plan of which Ms.
Edelbrock is a trustee. Ms. Edelbrock disclaims beneficial ownership
of such shares except to the extent of 92,046 shares, of which 4,036
shares are attributable to Ms. Edelbrocks beneficial interest in the
401(k) Plan, 73,510 shares are attributable to Ms. Edelbrocks
interest in the Christina Edelbrock Trust and 9,943 shares that Mr.
Edelbrock has the right to acquire pursuant to options.(9)
    
    Includes 547,549 shares held by the 401(k) Plan of which Mr. Pettit
is a trustee. Mr. Pettit, who is a member of the board of directors
and not an employee of the Company, disclaims beneficial ownership of
such shares, except to the extent of 3,850 shares that Mr. Pettit has
the right to acquire pursuant to options.(10)
    
    O. Victor Edelbrock is trustee of the trust. He disclaims
beneficial ownership of such shares.(11)
    
    Information regarding the amount of shares is as of December 31,
2003 and was obtained from a Schedule 13G filed on behalf of Dalton,
Greiner, Hartman, Maher & Co. on February 17, 2004. The 13G states
that Dalton, Greiner, Hartman, Maher & Co. has sole voting and
dispositive power over such shares. Its principal office is located at
565 Fifth Avenue, Suite 2101, New York, New York 10017.(12)
    
    Information regarding the amount of shares is as of December 31,
2003 and was obtained from a Schedule 13G filed on behalf of
Dimensional Fund Advisors Inc. (Dimensional) on February 6, 2004.
The 13G states that Dimensional serves as investment manager in
certain funds and, in such role, possesses sole voting and dispositive
power over the 343,300 shares owned by such funds. Dimensional
disclaims beneficial ownership of such shares. Its principal office is
located at 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401. 23




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##### Table of Contents



(13)
    
    Includes 11,051 shares attributable to Ms. Edelbrocks interest in the
401(k) Plan, 43,521 shares attributable to Ms. Edelbrocks interest in
the Cathleen Edelbrock Trust, and 12,761 shares that Mr. Edelbrock has
the right to acquire pursuant to options.(14)
    
    Includes 33 shares attributable to Mr. Feles beneficial interest in
the 401(k) Plan and 16,105 shares that Mr. Feles has the right to
acquire pursuant to options.(15)
    
    Includes 22,334 shares attributable to Mr. Thompsons beneficial
interest in the 401(k) Plan and 46,750 shares that Mr. Thompson has
the right to acquire pursuant to options.(16)
    
    Represents options that, pursuant to the proposed going-private
transaction, will accelerate and fully vest.(17)
    
    Includes 261,487 shares attributable to the directors and officers
beneficial interests in the 401(k) Plan, and 12,650 shares subject to
options that will accelerate and fully vest pursuant to the
transaction. 
 Item 13. Certain Relationships and Related Transactions. The information required by Item 13 will be set forth in the
Companys 2004 Annual Proxy Statement or shall be included in an amendment
to the Companys Annual Report on Form 10-K to be filed prior to 120 days
following fiscal year end and is incorporated herein by reference. 
 Part IV 
 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Financial Statements and Schedules.See Index to Financial
Statements which appears on page 26 hereof. Other Financial Data.See Summary of Selected Financial Data, which
appears in Item 6. Selected Financial Data. Reports onForm 8-K. The Company filed a report on Form 8-K on April 12, 2004 related to Mr.
Edelbrocks going private proposal and also on June 28, 2004 upon
execution of the merger agreement. The Company also filed a report on
Form 8-K on May 4, 2004 related to its earnings release for its third
quarter and nine months ended period ended March 25, 2004, and on
September 10, 2004 related to its earnings release for its fourth
quarter and fiscal year ended June 30, 2004. Exhibits. The exhibits listed on the Exhibit Index following the signature page
hereof are filed herewith in response to this Item. 24




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##### Table of Contents



EDELBROCK CORPORATION
EXHIBIT INDEX Number and
    
    
    
    SequentialDescription of
    
    
    
    PageExhibit
    
    
    
    Number3(i).1
    
    Form of Amended and Restated Certificate of Incorporation of
the Company (filed as Exhibit 3(i).1 to the Companys
Registration Statement on Form S-1 (File No. 33-83258) and
incorporated herein by reference)3(ii).1
    
    Form of Amended and Restated Bylaws of the Company (filed as
Exhibit 3(ii).1 to the Companys Registration Statement on Form
S-1 (File No. 33-83258) and incorporated herein by reference)4.1
    
    Specimen Common Stock Certificate (filed as Exhibit 4.1 to the
Companys Registration Statement on Form S-1 (File No.
33-83258) and incorporated herein by reference)4.2
    
    Form of Edelbrock Corporation 401 (k) Plan (filed as Exhibit 4.1
(to the Companys Registration Statement on Form S-8 (File No.
33-83258) and incorporated herein by reference)10.1
    
    Form of Indemnification Agreement entered into with officers
and directors of the Company (filed as Exhibit 10.1 to the
Companys Registration Statement on Form S-1 (File No.
33-83258) and incorporated herein by reference)10.2
    
    Amendment to Employment Agreement with O. Victor Edelbrock, Jr.
(filed as Exhibit 10.18 to the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 1999 (File No.
33-83258) and incorporated herein by reference)*10.3
    
    Amendment to Employment Agreement with Jeffrey L. Thompson
(filed as Exhibit 10.18 to the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 1999 (File No.
33-83258) and incorporated herein by reference)*10.4
    
    Amendment to Employment Agreement with Ronald L. Webb (filed as
Exhibit 10.18 to the Companys Annual Report on Form 10-K for
the fiscal year ended June 30, 1999 (File No. 33-83258) and
incorporated herein by reference)*10.5
    
    Form of Benefit Plans
- 1994 Incentive Equity Plan
- 1994 Stock Option Plan for Non-Employee Directors (filed as
Exhibit 10.7 to the Companys Registration Statement on Form
S-1 (File No. 33-83258) and incorporated herein by reference)10.6
    
    Business Loan Agreement between Edelbrock Corporation and Bank
of America, NT&SA (filed as Exhibit 10.9 to the Companys
Registration Statement on Form S-1 (File No. 33-83258) and
incorporated herein by reference)10.7
    
    Business Loan Agreement between Edelbrock Foundry Corp. and
Bank of America NT&SA (filed as Exhibit 10.10 to the Companys
Registration Statement on Form S-1 (File No. 33-83258) and
incorporated herein by reference)10.8
    
    License Agreement dated February 2, 1997 between Edelbrock
Corporation and RICOR Racing and Development, L.P. (filed as
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for
the Quarter Ended December 25, 1995 and incorporated herein by
reference).10.9
    
    Warrant Agreement dated February 2, 1997 between Edelbrock
Corporation and RICOR Racing and Development L.P. (filed as
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for
the Quarter Ended December 25, 1995 and incorporated herein by
reference).
 25




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##### Table of Contents



EDELBROCK CORPORATION
EXHIBIT INDEX Number and
    
    
    
    SequentialDescription of
    
    
    
    PageExhibit
    
    
    
    Number10.10
    
    Amendment No. 1 to License Agreement, dated February 21, 1998 by and between
Edelbrock Corporation and RICOR Racing and Development, L.P. (filed as Exhibit 10.1
to the Companys Quarterly Report on Form 10-Q for the Quarter Ended March 25,
1998).10.11
    
    Purchasing Agreement between Edelbrock Corporation and Magneti Marelli, USA, Inc.
(filed as Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the
Quarter ended December 25, 1998)10.12
    
    Amendment No. 4 to License Agreement between Edelbrock Corporation, RICOR Racing
and Development L.P., Ricor, Inc. and Mr. Don Richardson
and Amendment to Warrant Agreement dated February 2, 1996 between Edelbrock
Corporation and RICOR Racing and Development L.P. (filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the Quarter ended March 25, 1999 and
incorporated herein by reference)10.13
    
    Product Development and Distribution Agreement dated June 1, 2000 between Edelbrock
Corporation, JG Engine Dynamics, Inc., and Automotive Systems Group Inc. (filed as
Exhibit 10.19 to the Companys Annual Report on Form 10-K for the fiscal year ended
June 30, 2000 and incorporated herein by reference)10.14
    
    Warrant Agreement dated June 1, 2000 between Edelbrock Corporation, JG Engine
Dynamics, Inc. and Automotive Systems Group Inc. (filed as Exhibit 10.20 to the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2000 and
incorporated herein by reference)10.15
    
    Amendment to Product and Distribution Agreement dated June 26, 2000 between
Edelbrock Corporation, JG Engine Dynamics, Inc., and Automotive Systems Group Inc.
(filed as Exhibit 10.21 to the Companys Annual Report on Form 10-K for the fiscal
year ended June 30, 2000 and incorporated herein by reference)10.16
    
    Form of Employment Agreement with Aristedes T. Feles (filed as Exhibit 10.6 to the
Companys Quarterly Report on Form 10-Q for the Quarter ended December 25, 2000 and
incorporated herein by reference) *10.17
    
    Letter to RICOR Racing LLP dated August 20, 2001 stating Edelbrock informed RICOR
its intention to convert its license to a non-exclusive nature (filed as Exhibit
10.22 to the Companys Annual Report on Form 10-K for the fiscal year ended June
30, 2001 and incorporated herein by reference)10.18
    
    Amendment to Purchasing Agreement between Edelbrock Corporation and Magneti
Marelli, USA, Inc. dated May 20, 2002 (filed as Exhibit 10.18 to the Companys
Annual Report on Form 10-K for the fiscal year ended June 30, 2002 and incorporated
herein by reference)10.19
    
    Amendment to Employment Agreement with O. Victor Edelbrock, Jr.10.20
    
    Amendment to Employment Agreement with Jeffrey L. Thompson.10.21
    
    Amendment to Employment Agreement with Aristedes T. Feles.21.1
    
    Subsidiaries of the Company (filed as Exhibit 21.1 to the Companys Registration
Statement on Form S-1 (File No. 33-83258) and incorporated herein by reference)23.1
    
    Consent of Grant Thornton LLP24.1
    
    Powers of Attorney31.1
    
    Certifications of principal executive officer required by Rules 13a-14 and 15d-14
of the Securities and Exchange Act of 1934.31.2
    
    Certifications of principal financial officer required by Rules 13a-14 and 15d-14
of the Securities and Exchange Act of 1934.32.1
    
    Certifications of principal executive officer pursuant to 18 U.S.C. 1350 (furnished)32.2
    
    Certifications of principal financial officer pursuant to 18 U.S.C. 1350 (furnished)
  *
    
    - Management Contract or compensatory plan or arrangement which is
separately identified in accordance with Item 14(a)(3) of Form 10-K. 26




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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 it behalf by the undersigned, thereunto duly authorized. September 28, 2004
    
    EDELBROCK CORPORATIONBy:
    
    /s/ARISTEDES T.FELESAristedes T. FelesVice President Finance, Chief Financial Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date*O. Victor Edelbrock, Jr.
    
    President, Chief Executive
Officer and Chairman of the
Board (Principal Executive Officer)
    
    September 28, 2004*Jeffrey L. Thompson
    
    Executive Vice President, Chief
Operating Officer and Director
    
    September 28, 2004/s/ARISTEDES T. FELESAristedes T. Feles
    
    Vice-President, Finance and Director
(Principal Financial Officer and
Principal Accounting Officer)
    
    September 28, 2004*Cathleen Edelbrock
    
    Vice President of Advertising,
and Director
    
    September 28, 2004*Timothy D. Pettit
    
    Director
    
    September 28, 2004*Dr. Cornelius J. Pings
    
    Director
    
    September 28, 2004*Jerry Herbst
    
    Director
    
    September 28, 2004*Ralph O. Hellmold
    
    Director
    
    September 28, 2004/s/ARISTEDES T. FELES*By: Aristedes T. Feles
    
    
    
    September 28, 2004Attorney-in-fact
 27




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EDELBROCK CORPORATION INDEX TO FINANCIAL STATEMENTS PageReport of independent registered public accounting firm
    
    
    29Consolidated financial statementsBalance sheets
    
    
    30Statements of income
    
    
    32Statements of shareholders equity
    
    
    33Statements of cash flows
    
    
    34Notes to consolidated financial statements
    
    
    36Schedule II  Valuation and qualifying accounts
    
    
    52
 28




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and
Shareholders of Edelbrock Corporation We have audited the accompanying balance sheets of Edelbrock Corporation as
of June 30, 2004 and 2003, and the consolidated related statements of
income, shareholders equity, and cash flows for each of the three years in
the period ended June 30, 2004. 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 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. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Edelbrock Corporation as
of June 30, 2004 and 2003, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 2004 in
conformity with accounting principles generally accepted in the United
States of America. We have also audited Schedule II for each of the three years in the period
ended June 30, 2004. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP Los Angeles, California
September 8, 2004, except for Notes 7(f) and 13,
as to which the date is September 27, 2004 29




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EDELBROCK CORPORATION CONSOLIDATED BALANCE SHEETS June 30,2003
    
    2004AssetsCash and cash equivalents
    
    $
    8,707,000
    
    
    $
    12,540,000Accounts receivable, net of reserves of $500,000
at 2003 and $797,000 at 2004
    
    
    26,858,000
    
    
    
    27,825,000Inventories (Note 3)
    
    
    26,398,000
    
    
    
    28,399,000Deferred income taxes (Note 6)
    
    
    1,567,000
    
    
    
    1,852,000Prepaid expenses and other
    
    
    2,268,000
    
    
    
    1,394,000Total current assets
    
    
    65,798,000
    
    
    
    72,010,000Property, plant and equipment (Note 5)Land
    
    
    6,794,000
    
    
    
    6,794,000Buildings and improvements
    
    
    17,527,000
    
    
    
    17,443,000Machinery and equipment
    
    
    46,925,000
    
    
    
    50,206,000Office equipment
    
    
    5,967,000
    
    
    
    6,163,000Furniture and fixtures
    
    
    1,960,000
    
    
    
    2,088,000Transportation equipment
    
    
    7,104,000
    
    
    
    7,791,00086,277,000
    
    
    
    90,485,000Less accumulated depreciation and amortization
    
    
    48,312,000
    
    
    
    53,897,000Property, plant and equipment, net
    
    
    37,965,000
    
    
    
    36,588,000Real estate properties and partnerships
    
    
    266,000
    
    
    
    229,000Goodwill, net of accumulated amortization of
$56,000 at 2003 and 2004 (Note 4)
    
    
    1,172,000
    
    
    
    1,172,000License agreement, net of accumulated amortization of
$84,000 at 2003 and $126,000 at 2004 (Notes 4, 7, and 10)
    
    
    758,000
    
    
    
    680,000Other
    
    
    1,441,000
    
    
    
    605,000Total assets
    
    $
    107,400,000
    
    
    $
    111,284,000
 See accompanying notes to consolidated financial statements. 30




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EDELBROCK CORPORATION CONSOLIDATED BALANCE SHEETS June 30,2003
    
    2004Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    12,038,000
    
    
    $
    10,345,000Accrued expensesPayroll and bonuses
    
    
    2,340,000
    
    
    
    3,054,000Retirement plans (Note 7)
    
    
    628,000
    
    
    
    662,000Commissions
    
    
    979,000
    
    
    
    1,040,000Product warranty liability
    
    
    607,000
    
    
    
    598,000Other
    
    
    138,000
    
    
    
    638,000Current portion of long-term debt and capital lease
obligation (Note 5)
    
    
    48,000
    
    
    
    35,000Total current liabilities
    
    
    16,778,000
    
    
    
    16,372,000Long-term debt, less current portion (Note 5)
    
    
    466,000
    
    
    
    177,000Capital lease obligation (Note 5)
    
    
    28,000
    
    
    
    2,000Deferred income taxes (Note 6)
    
    
    3,090,000
    
    
    
    3,984,000Total liabilities
    
    
    20,362,000
    
    
    
    20,535,000Commitments and contingencies (Notes 7 and 9)Shareholders equity (Note 10)Common stock, par value $.01 per share;
15,000,000 shares authorized; 5,804,800 shares issued;
5,451,915 outstanding, and 352,886 treasury shares in
2003; 5,838,278 issued; 5,485,392 outstanding, and 352,886 treasury shares
in 2004
    
    
    54,470
    
    
    
    54,800Paid-in capital
    
    
    21,239,530
    
    
    
    21,619,200Retained earnings
    
    
    65,744,000
    
    
    
    69,075,000Total shareholders equity
    
    
    87,038,000
    
    
    
    90,749,000Total liabilities and shareholders equity
    
    $
    107,400,000
    
    
    $
    111,284,000
 See accompanying notes to consolidated financial statements. 31




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EDELBROCK CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended June 30,2002
    
    2003
    
    2004Revenues (Note 8)
    
    $
    123,579,000
    
    
    $
    115,225,000
    
    
    $
    125,980,000Cost of sales
    
    
    78,074,000
    
    
    
    73,409,000
    
    
    
    80,850,000Gross profit
    
    
    45,505,000
    
    
    
    41,816,000
    
    
    
    45,130,000Operating expensesSelling, general and administrative
    
    
    33,151,000
    
    
    
    33,671,000
    
    
    
    35,813,000Research and development
    
    
    3,852,000
    
    
    
    3,827,000
    
    
    
    3,913,000Total operating expenses
    
    
    37,003,000
    
    
    
    37,498,000
    
    
    
    39,726,000Operating income
    
    
    8,502,000
    
    
    
    4,318,000
    
    
    
    5,404,000Interest expense
    
    
    (96,000
    )
    
    
    (48,000
    )
    
    
    (6,000
    )Interest income
    
    
    53,000
    
    
    
    54,000
    
    
    
    31,000Gain on sale of assets and other income (Note
12)
    
    
    
    
    
    
    23,000
    
    
    
    453,000Income before taxes on income
    
    
    8,459,000
    
    
    
    4,347,000
    
    
    
    5,882,000Taxes on income (Note 6)
    
    
    3,099,000
    
    
    
    1,377,000
    
    
    
    2,388,000Net income
    
    $
    5,360,000
    
    
    $
    2,970,000
    
    
    $
    3,494,000Net income per share (Note 10):Basic net income per share *
    
    $
    0.98
    
    
    $
    0.54
    
    
    $
    0.64Diluted net income per share *
    
    $
    0.98
    
    
    $
    0.54
    
    
    $
    0.63Basic weighted average number of shares
outstanding *
    
    
    5,492,000
    
    
    
    5,452,000
    
    
    
    5,465,000Effect of dilutive stock options and warrants *
    
    
    1,000
    
    
    
    6,000
    
    
    
    52,000Diluted weighted average number of shares
outstanding *
    
    
    5,493,000
    
    
    
    5,458,000
    
    
    
    5,517,000
  *
    
    Earnings per share and share amounts for 2002 have been
retroactively adjusted to account for the Companys 10% stock
dividend distributed in June 2002. See Note 10 Shareholders
Equity within the Notes to Consolidated Financial Statements. See accompanying notes to consolidated financial statements. 32




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EDELBROCK CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Years Ended June 30, 2002, 2003, and 2004 TotalCommon Stock
    
    
    
    
    
    
    
    
    
    ShareholdersShares
    
    Amount
    
    Paid-in Capital
    
    Retained Earnings
    
    EquityBalance July 1, 2001
    
    
    5,076,239
    
    
    $
    50,690
    
    
    $
    15,744,810
    
    
    $
    64,228,500
    
    
    $
    80,024,000Net income for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,360,000
    
    
    
    5,360,000Stock options exercised
    
    
    2,000
    
    
    
    20
    
    
    
    24,980
    
    
    
    
    
    
    
    25,000Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,000
    )
    
    
    (101,000
    )Stock dividend
    
    
    495,582
    
    
    
    4,960
    
    
    
    6,599,540
    
    
    
    (6,604,500
    )
    
    
    Stock repurchase
    
    
    (121,906
    )
    
    
    (1,200
    )
    
    
    (1,129,800
    )
    
    
    
    
    
    
    (1,131,000
    )Balance June 30, 2002
    
    
    5,451,915
    
    
    $
    54,470
    
    
    
    21,239,530
    
    
    
    62,883,000
    
    
    
    84,177,000Net income for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,970,000
    
    
    
    2,970,000Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,000
    )
    
    
    (109,000
    )Balance June 30, 2003
    
    
    5,451,915
    
    
    $
    54,470
    
    
    
    21,239,530
    
    
    
    65,744,000
    
    
    
    87,038,000Net income for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,494,000
    
    
    
    3,494,000Stock options exercised
    
    
    33,477
    
    
    
    330
    
    
    
    379,670
    
    
    
    
    
    
    
    380,000Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163,000
    )
    
    
    (163,000
    )Balance June 30, 2004
    
    
    5,485,392
    
    
    $
    54,800
    
    
    $
    21,619,200
    
    
    $
    69,075,000
    
    
    $
    90,749,000
 See accompanying notes to consolidated financial statements. 33




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EDELBROCK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30,2002
    
    2003
    
    2004Cash flows from operating activitiesNet income
    
    $
    5,360,000
    
    
    $
    2,970,000
    
    
    $
    3,494,000Adjustments to reconcile net income to
net cash provided by operating activitiesAccounts receivable reserve
    
    
    
    
    
    
    
    
    
    
    297,000Inventory reserve
    
    
    (50,000
    )
    
    
    
    
    
    
    Depreciation and amortization of property, plant and equipment
    
    
    6,237,000
    
    
    
    5,769,000
    
    
    
    5,861,000(Gain) loss from sale of property,
plant and equipment and real estate
assets
    
    
    37,000
    
    
    
    (17,000
    )
    
    
    (451,000
    )License
agreement impairment
    
    
    
    
    
    
    
    
    
    
    36,000Depreciation
and amortization of real estate properties
    
    
    32,000
    
    
    
    33,000
    
    
    
    34,000Deferred income taxes
    
    
    (501,000
    )
    
    
    60,000
    
    
    
    609,000Equity in net income of partnerships
    
    
    (91,000
    )
    
    
    (68,000
    )
    
    
    (72,000
    )Changes in assets and liabilities:Accounts receivable
    
    
    (5,264,000
    )
    
    
    5,334,000
    
    
    
    (1,264,000
    )Inventories
    
    
    (410,000
    )
    
    
    (3,039,000
    )
    
    
    (2,001,000
    )Prepaid expenses and other current assets
    
    
    (204,000
    )
    
    
    (1,254,000
    )
    
    
    874,000Other assets
    
    
    (90,000
    )
    
    
    57,000
    
    
    
    380,000Accounts payable
    
    
    538,000
    
    
    
    (2,481,000
    )
    
    
    (1,693,000
    )Accrued expenses
    
    
    1,089,000
    
    
    
    (562,000
    )
    
    
    1,300,000Net cash provided by operating activities
    
    
    6,683,000
    
    
    
    6,802,000
    
    
    
    7,404,000Cash flows from investing activitiesAcquisition of property, plant and equipment
    
    
    (3,998,000
    )
    
    
    (5,715,000
    )
    
    
    (4,294,000
    )Proceeds from sale of property, plant
and equipment and real estate assets
    
    
    73,000
    
    
    
    27,000
    
    
    
    814,000Acquisition of real estate properties
    
    
    (7,000
    )
    
    
    (8,000
    )
    
    
    Distributions from partnerships
    
    
    175,000
    
    
    
    80,000
    
    
    
    20,000Net cash used in investing activities
    
    
    (3,757,000
    )
    
    
    (5,616,000
    )
    
    
    (3,460,000
    )
 See accompanying notes to consolidated financial statements. 34




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EDELBROCK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30,2002
    
    2003
    
    2004Cash flows from financing activitiesNet proceeds from issuance of common stock
    
    $
    25,000
    
    
    $
    
    
    
    $
    380,000Dividends paid
    
    
    (101,000
    )
    
    
    (109,000
    )
    
    
    (163,000
    )Payments to acquire treasury stock
    
    
    (1,131,000
    )
    
    
    
    
    
    
    Principal payments on long-term debt
    
    
    (32,000
    )
    
    
    (52,000
    )
    
    
    (328,000
    )Net cash used in financing activities
    
    
    (1,239,000
    )
    
    
    (161,000
    )
    
    
    (111,000
    )Net increase in cash and cash equivalents
    
    
    1,687,000
    
    
    
    1,025,000
    
    
    
    3,833,000Cash and cash equivalents, beginning of year
    
    
    5,995,000
    
    
    
    7,682,000
    
    
    
    8,707,000Cash and cash equivalents, end of year
    
    $
    7,682,000
    
    
    $
    8,707,000
    
    
    $
    12,540,000Supplemental disclosure of cash flow information:Cash paid during the year for:Interest
    
    $
    94,000
    
    
    $
    48,000
    
    
    $
    4,000Income taxes
    
    $
    3,300,000
    
    
    $
    2,959,000
    
    
    $
    1,254,000
 See accompanying notes to consolidated financial statements. 35




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and Summary of Significant Accounting Policies Business Edelbrock Corporation and its wholly-owned subsidiaries, Edelbrock Foundry
Corp. and Edelbrock II, Inc. (collectively the Company) are engaged in the
design, manufacture, distribution and marketing of performance automotive and
motorcycle aftermarket parts. The Company currently offers approximately
8,000 performance automotive and motorcycle aftermarket parts for street,
off-road, recreational and competition use. The Companys products are
designed to enhance the engines performance through increased horsepower,
torque and drivability primarily by improving induction of fuel and air into
and exhaust out of the engine. The Company also designs and markets products
to improve appearance or drivability of the vehicle. The Companys manufacturing operations are housed in its Torrance facilities
and casting operations at its aluminum foundry in San Jacinto and its
business strategy is to capitalize on recognition of the Edelbrock brand
name and strong distribution network to expand its leading position in the
specialty performance automotive and motorcycle aftermarket parts market. The Company utilizes a balanced nationwide distribution network, which
encompasses most major channels of distribution. The Companys policy is to
offer its products at the same price and under the same terms and conditions
in each of its channels of distribution. The Company has one of the oldest affiliations with NASCAR and is recognized
as having the only officially licensed manifold of NASCAR. In addition,
Edelbrock was the first manufacturer to enter into a long term sponsorship
agreement with NASCARs contingency money decal program. The long term
sponsorship program commenced in January 2004. The Company is also a strong
supporter of the automotive racing industry with contingency sponsorship
programs with such organizations as NASCAR, NHRA, IHRA, NMRA, PRO, NMCA,
PSCA, ARCA, UDTRA, NCRA, USAR, NOPI, IMCA and Fun Ford. Basis of Presentation The consolidated financial statements include the accounts of Edelbrock
Corporation and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The Company also has an
investment in a real estate partnership. The investment is accounted for
using the equity method of accounting. Accounting 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 the reported
amounts of assets, liabilities, contingent liabilities, revenues, and
expenses at the date and for the periods that the financial statements are
prepared. Actual results could differ from those estimates. Significant
estimates include reserves on accounts receivables for discounts, return,
and potential credit losses. In addition, significant estimates are made
for the allowance for excess and obsolete inventories, and the accruals for
product warranty and self-insurance liabilities. 36




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents Cash and cash equivalents include money market instruments and other highly
liquid short-term investments that are stated at cost which approximates
market value. Such investments are considered to be cash equivalents for
purposes of the Consolidated Statements of Cash Flows and Consolidated
Balance Sheets. The balance of such short-term investments was $8,707,000
and $12,540,000 at June 30, 2003 and 2004, respectively. Such investments
were not insured by the Federal Deposit Insurance Corporation (FDIC). The Company maintains its cash balances in several financial institutions.
These balances may, at times, exceed federal insured limits. The Company has
not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk relating to cash and cash equivalents. Accounts Receivable The Company maintains reserves for cash and other discounts, returns and
potential credit losses. Accounts receivable reserves are based on (i) the
Companys estimate of the rate at which customers take credit discounts
allowed and, (ii) the Companys specific assessment of the collectibility of
all past due accounts. Credit losses are charged directly to selling,
general and administrative expenses when determined to be uncollectible. Concentration of Credit Risk Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade accounts receivable. The Company places its temporary cash investments with various financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. The maximum amount in excess of FDIC insurance is
$12,440,000. The Company believes that no significant credit risk exists as
these investments are made with high-credit-quality financial institutions. The Companys business activities and accounts receivable are with customers
in the automotive and motorcycle industries located primarily throughout the
United States. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses, returns and
potential cash and other discounts taken. Inventories Inventories, which consist of raw materials, work in process, and finished
goods, are stated at the lower of cost (first-in, first-out method) or
market value and have been reduced by an allowance for excess and obsolete
inventories. The estimated allowance is based on managements review of
inventories on hand compared to estimated future usage and sales and may be
adjusted from time to time based on managements continuing review of the
allowance. Fair Value The Company has cash and cash equivalents, receivables, accounts payable,
accrued expenses, and short-term borrowings for which the carrying value
approximates fair value due to the short-term nature of these instruments.
The fair value of the Companys long-term debt is estimated based on the
market values of financial instruments with similar terms. Management
believes that the fair value of the long-term debt approximates its carrying
value. 37




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and Summary of Significant Accounting Policies (continued) Long-Lived Assets Long-lived assets primarily include property, plant and equipment, goodwill,
and other intangible assets. The Company evaluates the recoverability of
the carrying amount of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company evaluates the recoverability of goodwill and other
intangible assets with indefinite useful lives annually or more frequently
if events or circumstances indicate that an asset might be impaired. The
Company uses judgment when applying the impairment rules to determine when
an impairment test is necessary. Factors the Company considers which could
trigger an impairment review include significant underperformance relative
to historical or forecasted operating results, a significant decrease in the
market value of an asset, a significant change in the extent or manner in
which an asset is used, a change in relationship between licensee and
licensor, and significant negative industry or economic trends. Impairment
losses are measured as the amount by which the carrying value of an asset
exceeds its estimated fair value. The Company is required to make estimates
of its future discounted cash flows related to the asset subject to review.
These estimates require assumptions about demand for the Companys products
and services, future market conditions and technological developments.
Other assumptions include determining the discount rate and future growth
rates. Property, Plant, Equipment and Depreciation, and License Agreement Property, plant and equipment and License Agreement are stated at cost.
Depreciation and amortization are computed, primarily utilizing the
straight-line method, over the estimated useful lives of the assets as
follows: EstimatedusefulLife (in years)Buildings and improvements
    
    
    7-40Machinery and equipment
    
    
    3-7Office equipment
    
    
    5Furniture and fixtures
    
    
    7Transportation equipment
    
    
    3-10License agreement
    
    
    15
 Self-Insurance Liabilities The Companys obligation for employee-health care benefits is self-insured
for which the Company uses a third party administrator to process all claims
and benefits. Employee health care insurance liabilities are accrued based
on historical claims experience and risk exposure levels. Eligible losses on
a per claim basis and in the aggregate for all eligible claims in excess of
self-insurance levels and up to stated limits of liability are covered by
insurance policies purchased from third-party insurers. 38




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and Summary of Significant Accounting Policies (continued) Stock-Based Compensation Statement of Financial Accounting Standards No. 148 Accounting for
Stock-Based Compensation Transition and Disclosure an amendment of SFAS
123 (SFAS No. 148) requires the Company to provide pro forma information
regarding net income and income per share as if compensation expensed for
the Companys stock option plans had been determined in accordance with the
fair value based method prescribed in SFAS No.148. The Company estimates
the fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2002, 2003, and fiscal 2004: dividend
yield of zero percent, risk-free interest rate of 6 percent, expected lives
of ten years, and expected volatility of 65%, 35%, and 35%, respectively. Under the accounting provisions of SFAS No. 148, the Companys net income
and income per share for 2002, 2003, and 2004 would have been reduced to
the pro forma amounts indicated below: Year Ended June 30,2002
    
    2003
    
    2004Net income:As reported
    
    $
    5,360,000
    
    
    $
    2,970,000
    
    
    $
    3,494,000Add: Stock based compensation
expense included in
reported net
income, net of related tax
effect
    
    
    
    
    
    
    
    
    
    
    Deduct: Stock-based
compensation
expense determined under
the fair value-based method
    
    
    (57,000
    )
    
    
    (23,000
    )
    
    
    (10,000
    )Pro forma
    
    $
    5,303,000
    
    
    $
    2,947,000
    
    
    $
    3,484,000Basic Earnings per share: *As reported
    
    $
    0.98
    
    
    $
    0.54
    
    
    $
    0.64Add: Stock based compensation
expense included in
reported net
income, net of related tax
effect
    
    
    
    
    
    
    
    
    
    
    Deduct: Stock-based
compensation
expense determined under
the fair value-based method
    
    
    (0.01
    )
    
    
    
    
    
    
    Pro forma
    
    $
    0.97
    
    
    $
    0.54
    
    
    $
    0.64Diluted Earnings Per Share: *As reported
    
    $
    0.98
    
    
    $
    0.54
    
    
    $
    0.63Add: Stock based compensation
expense included in
reported net
income, net of related tax
effect
    
    
    
    
    
    
    
    
    
    
    Deduct: Stock-based
compensation
expense determined under
the fair value-based method
    
    
    0.01
    
    
    
    
    
    
    
    Pro forma  Diluted
    
    $
    0.97
    
    
    $
    0.54
    
    
    $
    0.63
  *
    
    - Earnings per share for 2002 has been retroactively adjusted to account for the Companys 10% stock dividend
distributed in June 2002. 39




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and Summary of Significant Accounting Policies (continued) Basic and Diluted Net Income Per Share Information Basic net income per share is based upon the weighted average number of
common shares outstanding which have been retroactively adjusted to
reflect the Companys 10% stock dividend issued in June 2002. Diluted net
income per share is based on the assumption that options and warrants are
included in the calculation of diluted net income per share, except when
their effect would be anti-dilutive. Dilution is computed by applying the
treasury stock method. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of
issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the period. The following options and warrants were excluded from the computation of
diluted net income per share as a result of the exercise price exceeding
the average market price of the common shares. Fiscal Year EndedJune 30, 2002
    
    June 30, 2003
    
    June 30, 2004Options and warrants
to purchase shares
of common stock *
    
    
    504,845
    
    
    
    450,889
    
    
    
    139,150Exercise prices *
    
    $
    10.23-$20.00
    
    
    $
    11.36-$20.00
    
    
    $
    11.41-$17.73
  *
    
    - References to share amounts, earnings per share, and exercise prices for June 30, 2002 above retroactively reflect a 10%
stock dividend distributed in June 2002. Revenue Recognition Revenue is recognized upon shipment of products by the Company. All
shipments are made only upon written or electronic contractual agreements
with the Companys customers. Advertising Costs and Customer Sales Incentives In November 2001, the Emerging Issues Task Force (EITF) released EITF 01-9
which codified consensus on Issue 00-14, Accounting for Certain Sales
Incentives and Issue No. 00-25, Vendor Income Statement Characterization
of Consideration Paid to a Reseller of the Vendors Products. These
consensuses provided guidance on the classification of expenses related to
customer rebate, sales discounts and cooperative advertising programs.
The adoption of these consensuses by the Company did not result in any
reclassification of expense or net sales. Sales incentives provided take
the form of sales discounts generally treated as a reduction of net sales.
The Company also maintains a cooperative advertising program with its
customers and provides sales incentives to the extent of the estimated
value of advertising provided by the customer on behalf of the Company.
Costs incurred for advertising include traditional magazine and television
ads, costs under cooperative advertising programs with customers,
contingency money decal programs for racing events, and other advertising
costs. These costs are expensed as incurred and are included in selling,
general and administrative expense. Advertising expenses, as described above, amounted to $10,442,000,
$10,526,000 and $10,605,000 for fiscal years ended June 30, 2002, 2003,
and 2004, respectively. 40




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and Summary of Significant Accounting Policies (concluded) Product Warranties The Company records a liability for an estimate of costs that it expects
to incur under its basic limited warranty when product revenue is
recognized. Factors affecting the Companys product warranty liability
include the number of units sold and historical and anticipated rates of
claims and costs per claim. Companys management periodically assesses
the adequacy of its product warranty liability based on changes in these
factors. The changes in the Companys product warrant liability are as follows: June 30,2003
    
    2004Beginning balance
    
    $
    300,000
    
    
    $
    607,000Accrual for current year claims
    
    
    1,674,000
    
    
    
    1,338,000Warranty claims settled
    
    
    (1,367,000
    )
    
    
    (1,347,000
    )Ending balance
    
    $
    607,000
    
    
    $
    598,000
 Taxes on Income Deferred tax assets and liabilities are recorded for differences between
the financial statement and tax bases of the assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is recorded for the
amount of income tax payable or refundable for the period increased or
decreased by the change in deferred tax assets and liabilities during the
period. Segment Reporting The Company is centrally managed and operates in one business segment:
specialty performance automotive and motorcycle aftermarket parts. Controlling Shareholder As of June 30, 2004, O. Victor Edelbrock, the Companys Chairman, President,
and Chief Executive Officer, has beneficial ownership of 51.4% of the
Companys common shares. As a result, Mr. Edelbrock has the ability to
control the Companys operations. See Note 10. Reclassifications Certain prior period amounts have been reclassified for comparison with the
2004 presentation. Note 2  Recent Accounting Pronouncements In December 2003, the FASB issued FASB Interpretation No. 46R (FIN
46R), Consolidation of Variable Interest Entities, which is a revised
Interpretation clarifying some of the provisions of the original
Interpretation No. 46 issued in January 2003. FIN 46R requires the
consolidation of variable interest entities (VIEs), as defined, based
upon an assessment of a companys investment interests in the VIE as it
relates to the interests of other investors in the VIE. FIN 46R also
includes certain disclosure requirements related to any VIEs. The
application of FIN 46R is required for any VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2003. Application for all other types of VIEs is required in
financial statements for periods ending after March 15, 2004. The
adoption of FIN 46R did not have a material impact on the Companys
consolidated financial statements. 41




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2  Recent Accounting Pronouncements (continued) In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement improves
financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. This Statement is effective for
contracts entered into or modified after June 30, 2003. The adoption of this
statement did not have a material impact on our operating results. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS No. 150 requires companies to classify and measure certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that requires a
transfer of assets and that meets the definition of liabilities in Concepts
Statement 6 and other recognition criteria in SFAS No. 5, Recognition and
Measurement in Financial Statements of Business Enterprises, be reported
as a liability. SFAS No. 150 also requires that certain obligations that
could be settled by issuance of an entitys equity but lack other
characteristics of equity be reported as liabilities even though the
obligation does not meet the definition of liabilities in Concepts
Statement No. 6. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective for
periods beginning after June 15, 2003. The adoption of SFAS No. 150 did not
have a material effect on our consolidated financial position, results of
operations or cash flows. Note 3 - Inventories Inventories consist of the following: June 30,2003
    
    2004Raw materials
    
    $
    12,542,000
    
    
    $
    16,000,000Work in process
    
    
    1,780,000
    
    
    
    1,635,000Finished goods
    
    
    12,376,000
    
    
    
    11,064,000Reserve
    
    
    (300,000
    )
    
    
    (300,000
    )$
    26,398,000
    
    
    $
    28,399,000
 Note 4  Goodwill and Intangible Assets In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Intangible Assets which superseded APB Opinion No. 17, Intangible Assets.
SFAS 142 eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and
recognition for goodwill and intangible assets. SFAS 142 applies to goodwill
and intangible assets arising from transactions completed before and after
the Statements effective date. SFAS 142 was effective for fiscal year 2003;
however, early adoption was allowed in fiscal year 2002. The Company elected
to early adopt this Standard as of July 1, 2001. In applying SFAS 142, the
Company had performed the transitional reassessment and impairment tests
required as of July 1, 2001, and determined the goodwill and license
agreement had indefinite lives and that there were no impairment on these
assets at that time. The Company discontinued amortization on these assets
on July 1, 2001. At the time of adoption, the Company had accumulated
amortization pertaining to goodwill and license agreement of $140,000. The Company had performed the annual impairment tests required under SFAS 142
for fiscal years 2002 and 2003 and there were no impairment of these assets. 42




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4  Goodwill and Intangible Assets (concluded) In September 2003, the Company determined that its relationship with JG
Engine Dynamics, Inc. and Automotive Systems Group, Inc. (the Licensor)
had changed because the parties are no longer jointly developing import
aftermarket products. The Company continues to utilize the License
Agreement and pay royalties to the Licensor on existing co-developed
products. Based on this change in relationship, the Company has determined that the
useful life of the License Agreement has changed from an indefinite life to
a finite life of 15 years. The Company has also evaluated the
recoverability of the carrying amount of this long-lived asset through an
impairment test by estimating future net cash flows over the remaining life
of this License Agreement. Accordingly, based on this impairment test, the
Company recorded an impairment charge of $36,000 for the fiscal year ended
June 30, 2004 and is amortizing the License Agreement over a 15 year period
utilizing a units method as a basis for amortization. The changes in the Companys license agreement are as follows: June 30,2003
    
    2004Beginning balance
    
    $
    758,000
    
    
    $
    758,000Impairment on license agreement
    
    
    
    
    
    
    (36,000
    )Amortization expense
    
    
    
    
    
    
    (42,000
    )Ending balance
    
    $
    758,000
    
    
    $
    680,000
 The expected remaining amortization expense for the license agreement for the
next 5 years is $42,000 per year. The Company has performed the annual impairment test required under SFAS 142
for fiscal year 2004 (using a discounted cash flow method) and there was no impairment on goodwill. Note 5 - Long-Term Debt, Capital Lease Obligation, and Revolving Line of Credit The Companys long-term debt consists of the following: June 30,2003
    
    2004Mortgage note (a)
    
    $
    251,000
    
    
    $
    Mortgage note (b)
    
    
    53,000
    
    
    
    Note payable (c)
    
    
    10,000
    
    
    
    3,000Other
    
    
    163,000
    
    
    
    177,000477,000
    
    
    
    180,000Less current portion
    
    
    11,000
    
    
    
    3,000$
    466,000
    
    
    $
    177,000
  (a)
    
    Mortgage note, collateralized by a trust deed on real estate with a
net book value of $285,000 at June 30, 2003; payable in monthly
principal and interest payments at an interest rate of 7.0% due
March 2031. In August 2003, the Company sold the property for a net
amount that approximated the carrying value of the asset and paid
the note in full.(b)
    
    Mortgage note, collateralized by a second trust deed on real estate
with a net book value of $285,000 at June 30, 2003; payable in
monthly principal and interest payments at an interest rate of 7.5%
due March 2016. In August 2003, the Company sold the property for a
net amount that approximated the carrying value of the asset and
paid the note in full.(c)
    
    Loan, collateralized by an asset with a net book value of $14,000
and $11,000 at June 30, 2003 and 2004, respectively; payable in
monthly principal payments at a zero percent interest rate due
November 2004. 43




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Long-Term Debt, Capital Lease Obligation, and Revolving Line of Credit
(concluded) Principal payments due on long-term debt are as follows: Years ending June 30,
    
    As of June 30, 20042005
    
    $
    3,0002006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    177,000$
    180,000
 The Company has one unsecured line of credit agreement with a bank, which
provides total loan commitment not to exceed $8,000,000. All line of
credit financing is at the banks prime rate (4.00% at June 30, 2004).
This agreement expires in February 2005. There were no borrowings on the
line as of June 30, 2003 and 2004. This obligation contains covenants,
among other items, relating to various financial ratios. The Company was
in compliance with all such covenants at June 30, 2004. The Companys capital lease obligations are summarized as follows: June 30,2003
    
    2004Leases of capital equipment with lease periods expiring
at various dates through 2006; interest at 9.0%
    
    $
    65,000
    
    
    $
    34,000Less current installments
    
    
    37,000
    
    
    
    32,000$
    28,000
    
    
    $
    2,000
 During the fiscal year ended June 30, 2003, the Company paid off two capital
lease obligations early without penalty. Minimum lease payments under capital lease obligations are as follows: Years ending June 30,
    
    Amount2005
    
    $
    35,0002006
    
    
    2,0002007
    
    
    2008
    
    
    2009
    
    
    Total minimum lease payments
    
    
    37,000Less amount representing interest
    
    
    3,000Present value of net minimum lease payments
    
    $
    34,000
 Included in property, plant and equipment in the accompanying consolidated
balance sheets are the following assets held under capital leases: June 30,2003
    
    2004Assets under capital lease
    
    $
    150,000
    
    
    $
    150,000Less accumulated amortization
    
    
    54,000
    
    
    
    75,000$
    96,000
    
    
    $
    75,000
 44




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Taxes on Income The provision for taxes on income consists of the following: Year Ended June 30,2002
    
    2003
    
    2004CurrentFederal
    
    $
    2,965,000
    
    
    $
    1,287,000
    
    
    $
    1,246,000State
    
    
    635,000
    
    
    
    30,000
    
    
    
    533,0003,600,000
    
    
    
    1,317,000
    
    
    
    1,779,000DeferredFederal
    
    
    (429,000
    )
    
    
    30,000
    
    
    
    683,000State
    
    
    (72,000
    )
    
    
    30,000
    
    
    
    (74,000
    )(501,000
    )
    
    
    60,000
    
    
    
    609,000$
    3,099,000
    
    
    $
    1,377,000
    
    
    $
    2,388,000The differences between the U.S. federal statutory tax rate and the Companys
effective rate are as follows:Year Ended June 30,2002
    
    2003
    
    2004U.S. federal statutory tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, net of federal benefits
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0State income tax credits
    
    
    (1.7
    )
    
    
    (5.2
    )
    
    
    (1.5
    )Federal income tax credits
    
    
    (1.8
    )
    
    
    (3.3
    )
    
    
    (1.7
    )Permanent differences
    
    
    0.1
    
    
    
    0.2
    
    
    
    3.8Effective tax rate
    
    
    36.6
    %
    
    
    31.7
    %
    
    
    40.6
    %
 For the fiscal year ended June 30, 2004, the Company was not able to
deduct certain expenses related to the going-private transaction (see
Note 11). The components of deferred taxes at June 30, 2003 and 2004 are as follows: 2003
    
    2004Deferred tax assetsState income taxes
    
    $
    401,000
    
    
    $
    488,000Advertising accrual
    
    
    180,000
    
    
    
    215,000Uniform capitalization rule
    
    
    371,000
    
    
    
    395,000Accrued vacation
    
    
    318,000
    
    
    
    389,000Deferred gains
    
    
    15,000
    
    
    
    Accounts receivable reserve
    
    
    170,000
    
    
    
    271,000Product warranty accrual
    
    
    206,000
    
    
    
    203,000Inventory reserve
    
    
    102,000
    
    
    
    102,000Other
    
    
    
    
    
    
    85,0001,763,000
    
    
    
    2,148,000Deferred tax liabilitiesState income taxes
    
    
    399,000
    
    
    
    411,000Depreciation and amortization
    
    
    1,344,000
    
    
    
    2,301,000Like kind exchange
    
    
    1,543,000
    
    
    
    1,543,000Federal benefit of state tax deferreds
    
    
    
    
    
    
    25,0003,286,000
    
    
    
    4,280,000Net deferred tax liability
    
    $
    1,523,000
    
    
    $
    2,132,000
 45




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Taxes on Income (concluded) The classification of the net deferred tax liability between current and
non-current is as follows: June 30,2003
    
    2004Net current asset
    
    $
    1,567,000
    
    
    $
    1,852,000Net long-term liability
    
    
    3,090,000
    
    
    
    3,984,000Net deferred tax liability
    
    $
    1,523,000
    
    
    $
    2,132,000
 Note 7  Commitments and Contingencies (a)     Royalty and Development Fee Agreements The Company has a Royalty Agreement with RICOR Racing and Development L.P.
(RICOR) whereby the Company pays RICOR a percentage of revenue derived
from the net sale of shock absorbers. The Company pays RICOR a royalty of
6% of net sales in accordance with the non-exclusive license agreement.
Royalty expense under this agreement amounted to $319,000, $154,000, and
$183,000 for fiscal year ended June 30, 2002, 2003, and 2004, respectively. Pursuant to a license agreement with JG Engine Dynamics, Inc. (JG) and
Automotive Systems Group, Inc. (ASG) (collectively the Licensor), the
Company jointly developed certain internal engine, exhaust, and suspension
components for import aftermarket products with the Licensor. The Company
pays the Licensor 5% of net revenues derived from the sale of such
products (see Note 10). (b)     Retirement Plans An employee stock ownership plan (ESOP) was established July 1, 1979
covering substantially all employees of Edelbrock Corporation who have
attained one year of service. The minimum annual contribution is 1% of
the total salaries or wages of plan participants and may be supplemented
with additional amounts at the discretion of the Board of Directors.
During fiscal year 1998, Edelbrock Corporation established a 401(k)
defined contribution plan to enhance the existing ESOP for participating
employees. During fiscal year 2001, the Company combined all of its
retirement plans for Edelbrock Corporation into one all inclusive 401(k)
defined contribution plan. In all previous years, plan expenses were paid
by the respective plans. Beginning in fiscal year 2002, the Company
elected to pay for the plans expenses on a go forward basis. At the
discretion of the Board of Directors, Edelbrock Corporation can match
participant directed contributions and provide discretionary
contributions. Edelbrock Corporation currently matches 50% up to 4% of a
participants contribution to this plan. For the year ended June 30, 2002, Edelbrock Corporation expensed $614,000
which included plan expenses of $88,000 and a contribution of $526,000 to
the 401(k) plan which first funds the match with the remaining balance
utilized as a discretionary contribution. For the year ended June 30,
2003, Edelbrock Corporation expensed $614,000 which included plan expenses
of $36,000 and a contribution of $578,000 to the 401(k) plan which first
funds the match with the remaining balance utilized as a discretionary
contribution. For the year ended June 30, 2004, Edelbrock Corporation
expensed $646,000 which included plan expenses of $36,000 and a
contribution of $610,000 to the 401(k) plan which first funds the match
with the remaining balance utilized as a discretionary contribution. Edelbrock Foundry Corp. maintains a defined contribution profit sharing
plan (the Plan) covering substantially all of its employees who have
attained one year of service. Contributions to the Plan are at the
discretion of the Companys Board of Directors; however, contributions
cannot exceed 15% of the total salaries or wages of the plan participants.
During fiscal year 1998, Edelbrock Foundry Corp. established a 401(k)
defined contribution plan to enhance the existing plan for participating
employees. During fiscal year 2001, the Edelbrock Foundry Corp. combined
all of its retirement plans into one all inclusive 401(k) defined
contribution plan. In all previous years, plan expenses were paid by the
respective plans. In fiscal year 2002, Edelbrock Foundry Corp. elected to
pay for the plans expenses incurred on a go forward basis. At the
discretion of the Board of Directors, Edelbrock Foundry Corp. can match
participant directed contributions and provide discretionary
contributions. Edelbrock Foundry Corp. currently matches 50% up to 4% of
a participants contribution to this plan. 46




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7  Commitments and Contingencies (continued) For the years ended June 30, 2002 and 2003, respectively, Edelbrock
Foundry Corp. expensed $59,000 which included plan expenses of $9,000 and
a contribution of $50,000 which first funds the match with the remaining
balance utilized as a discretionary contribution. For the year ended
June 30, 2004, Edelbrock Foundry Corp. expensed $62,000 which included
plan expenses of $9,000 and a contribution of $53,000 which first funds
the match with the remaining balance utilized as a discretionary
contribution. Federal law limits the maximum annual contribution to the lesser of
$35,000 or 25% of the total salaries or wages of a plan participant. The
Company had accrued contributions of $628,000 and $662,000 at June 30,
2003 and 2004, respectively. (c)     California Franchise Tax Board Audits The California income taxes of the Company for the fiscal years ended June
30, 1999, 2000, and 2001 are currently under examination by the Franchise
Tax Board (FTB). The examination mainly pertains to the apportionment
of income between states, research and development credits, and
manufacturers investment tax credit. The Company does not believe that
the ultimate outcome of this examination will result in a material impact
on the Companys consolidated results of operations or financial position. (d)     Employment Agreements The Company has an employment agreement with its President and Chief
Executive Officer for a term expiring on June 30, 2009 (based on an
extension of this agreement on June 23, 2004 amendment). The agreement
provides for a base salary of $455,702 per year, with an annual raise and
bonus to be determined by the Compensation Committee of the Board of
Directors based on such factors as the performance of the officer and the
financial results of the Company. Upon termination of the officers
employment during the term of the agreement for any reason other than
cause, death or voluntary termination, the Company will be obligated to
make a lump sum severance payment in an amount equal to the then current
annual base compensation plus an amount equal to the bonus paid the year
prior to such termination. The Company also has similar employment agreements with two other
officers, which have terms expiring on June 30, 2009 (based on extensions
of each of these agreements on June 23, 2004 amendment). Pursuant to
these employment agreements, these two officers are entitled to an
aggregate base salary of $483,620. Each officer is entitled to an annual
bonus to be determined by the Compensation Committee of the Board of
Directors based on such factors as the performance of the officer and the
financial results of the Company. (e)     Lawsuits On April 13, 2004, an action styled as Robert Garfield v. O. Victor
Edelbrock, et al., No. 374-N was filed in the Court of Chancery for New
Castle County, Delaware. The named plaintiff in the case purports to bring
claims on behalf of a class of all the Companys shareholders (other than
the defendants) against the Company and its directors. The plaintiff
alleges that terms of the proposal to acquire the shares of the Company not
already owned by him presented by Mr. Edelbrock are unfair and inadequate
and that the defendants other than Mr. Edelbrock have responded to that
proposal in a manner that violates their fiduciary duties to the plaintiff
class. The action seeks to enjoin consummation of the transaction
contemplated by the proposal or, if it has been consummated, rescission of
the transaction and/or damages. On April 13 and 15, 2004, respectively, two
other purported class actions making similar allegations and seeking
substantially similar relief were filed in the same Court and styled as
William Steiner v. Edelbrock Corporation, et al., No. 377-N; and Roger
Delgado v. Edelbrock Corporation, et al., No. 388-N. The three actions have
been consolidated into a single action. On July 30, 2004, the parties to
the consolidated action entered into a memorandum of understanding with
respect to a proposed settlement of these actions. Under the terms of the
proposed settlement, which is subject to court approval, the plaintiffs
counsel will be entitled to $425,000 in fees and expenses in the aggregate.
The Company maintains a $5,000,000 Directors & Officers insurance policy
with a $150,000 deductible that will cover this settlement and related costs
of defending the claim above the deductible. See Note 11 Going-Private
Proposal within the Notes to the Consolidated Financial Statements. 47




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7  Commitments and Contingencies (concluded) (f)     Workers Compensation Insurance The Company maintains
workers compensation insurance on a retrospective basis and has
established reserve amounts based upon its evaluation of the status
of claims still open as of June 30, 2004 and loss development
factors used by the insurance industry. In the fourth quarter of
2004, the Company recorded an adjustment to increase
its workers compensation reserve by approximately $490,000. The
effect of this adjustment on an after tax basis was a reduction of
earnings per share in the fourth quarter ended June 30, 2004 of
$.05 per basic and diluted share. The reserve amount is based on
managements best estimate and there can be no assurance that
the eventual workers compensation obligations will not exceed the amount of the reserve. However, the Company believes that any difference between the amount recorded for the estimated liability and the costs of settling the actual claims would not be material to the results of operations. Note 8 - Major Customers During the fiscal years ended June 30, 2002, 2003, and 2004, one customer
accounted for 15.5%, 15.8%, and 16.9% of revenues, respectively; another
customer accounted for 10.6%, 8.7%, and 7.8% of revenues, respectively. Note 9 - Dependence on Key Supplier The Company has an agreement with a key supplier expiring in December 2009
that requires, among other things, that (i) the Company sell only
carburetors manufactured by the supplier, (ii) the Company purchase a
minimum number of carburetors from the supplier and (iii) the Company prices
the carburetors so as to remain market competitive. The Companys minimum
obligation under this calendar year based agreement aggregates $104,717,000
from a fiscal year equivalent stand-point, or $10,582,000 in calendar year
2004 and $18,644,000 in each following calendar year through 2009. Sales of
these automotive carburetors accounted for 37.8%, 36.7%, and 34.0% of the
Companys revenues for the years ended June 30, 2002, 2003, and 2004. Any
failure of the supplier to supply carburetors to the Company would have a
material adverse effect on the Companys results of operations, since
alternative sources for obtaining the types of automotive carburetors
marketed by the Company are not readily available. The Companys inability
to source supply with other manufacturers, the Companys failure to sell
automotive carburetors in excess of the minimum purchase requirement or the
contractual limitations on the Companys pricing of automotive carburetors
could have a material adverse effect on the Company. Note 10  Shareholders Equity Treasury Stock At June 30, 2003 and 2004, the Company held 352,886 shares of its common
stock in treasury. The excess of the purchase price over the par value of
the common stock has been reflected as a reduction of paid-in capital. 48




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10  Shareholders Equity (continued) 1994 Incentive Equity Plan The Company adopted the Edelbrock Corporation 1994 Incentive Equity Plan
(the Plan) that authorizes the granting of options to purchase shares of
Common Stock, stock appreciation rights, restricted shares, deferred shares,
performance shares and performance units. The maximum number of shares of Common Stock transferred, plus the number of shares of Common
Stock covered by outstanding awards granted under the Plan, shall not, in
the aggregate exceed 618,750*. The stock options have been granted at the
current quoted market price at the date of grant. A summary of changes common stock options for employees during 2002, 2003,
and 2004 are as follows: Weighted AverageNumber of
    
    Exercise Price
    
    AggregateShares *
    
    Per Share *
    
    Exercise Price *Outstanding at July 1, 2001
    
    
    370,435
    
    
    
    11.57
    
    
    $
    4,284,862Granted
    
    
    0
    
    
    
    
    
    
    
    0Exercised
    
    
    2,200
    
    
    
    11.36
    
    
    
    25,000Cancelled
    
    
    5,746
    
    
    
    11.37
    
    
    
    65,313Outstanding at June 30, 2002
    
    
    362,489
    
    
    
    11.57
    
    
    
    4,194,549Granted
    
    
    0
    
    
    
    
    
    
    
    0Exercised
    
    
    0
    
    
    
    
    
    
    
    0Cancelled
    
    
    14,451
    
    
    
    10.84
    
    
    
    156,719Outstanding at June 30, 2003
    
    
    348,038
    
    
    
    11.60
    
    
    
    4,037,830Granted
    
    
    0
    
    
    
    
    
    
    
    0Exercised
    
    
    33,477
    
    
    
    11.36
    
    
    
    380,433Cancelled
    
    
    0
    
    
    
    
    
    
    
    0Outstanding at June 30, 2004
    
    
    314,561
    
    
    
    11.63
    
    
    $
    3,657,397Options exercisable (vested) at June 30, 2004
    
    
    304,017
    
    
    $
    11.67
    
    
    $
    3,549,102
  *
    
    - On June 7, 2002, the Company paid a 10% stock dividend;
accordingly, the number of shares, weighted average exercise price
per share, and aggregate exercise price have been retroactively
adjusted. 1994 Stock Option Plan For Non-Employee Directors and Common Stock
Warrants Issued to Third Parties Additionally, the Company adopted the Edelbrock Corporation 1994 Stock
Option Plan for Non-Employee Directors (Director Plan), which
authorizes the granting of non-qualified stock options to certain
non-employee directors of the Company. The maximum number of shares
granted under the Director Plan shall not exceed 25,000 (27,500 post
June 2002 stock dividend) shares of Common Stock. On February 2, 1996, the Company issued warrants to purchase 100,000
(110,000 post June 2002 stock dividend) shares of common stock at $14.75
per share to RICOR Racing and Development L.P. (RICOR). The warrants
were granted at the current quoted market price at the date of grant.
The warrants originally vested 20% on December 31 of each year for a
period of five years with the first 20% vesting on December 31, 1996. On February 19, 1999, for consideration of Amendment No. 4 to the
Licensing Agreement (see Note 6), the Company accelerated the vesting
allowing the Warrants to purchase 100,000 shares to become fully
exercisable at the date of the amendment. These warrants expire on
February 18, 2006. In addition, the Company issued two sets of Warrants
to purchase 11,501 and 22,414 shares of common stock at $22.00 and
$18.00 per share, respectively, to RICOR. The Warrants were granted at
a price higher than the current quoted market price at the date of
grant. The 11,501 warrants vest at 20% on December 31 of each year for a
period of 5 years and expired on February 18, 2004. The 22,414 warrants
expired on February 18, 2002. 49




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10  Shareholders Equity (continued) On June 26, 2000, the Company issued 8,000 (8,800 post June 2002 stock
dividend) shares of common stock at $10.125 per share to Automotive Systems
Group Inc. (ASG) and issued warrants to purchase 80,000 (88,000 post June
2002 stock dividend) shares of the Companys common stock at an exercise
price of $11.00 jointly to JG Engine Dynamics, Inc. (JG) and ASG. The
warrants vested annually on June 1st of each year through a period of 4
years with the first 25% vesting on June 1, 2001. The exercise term started
on June 1, 2001 and expires on May 31, 2010. In September 2003, the Company
determined that its relationship with JG Engine Dynamics, Inc. and
Automotive Systems Group, Inc. (the Licensor) had changed because the
parties are no longer jointly developing import aftermarket products. Based
on mutual agreement, it was determined that the warrants issued would only
be half vested at maximum. The Company continues to utilize the License
Agreement and pay royalties to the Licensor on existing co-developed
products. A summary of changes in options for non-employee directors and common
stock warrants during 2002, 2003, and 2004 are as follows: Weighted AverageNumber of
    
    Exercise Price
    
    AggregateShares *
    
    Per Share *
    
    Exercise Price *Outstanding at July 1, 2001
    
    
    246,856
    
    
    
    12.76
    
    
    $
    3,149,479Granted
    
    
    0
    
    
    
    
    
    
    
    0Exercised
    
    
    0
    
    
    
    
    
    
    
    0Cancelled
    
    
    24,655
    
    
    
    16.36
    
    
    
    403,452Outstanding at June 30, 2002
    
    
    222,201
    
    
    
    12.36
    
    
    
    2,746,027Granted
    
    
    0
    
    
    
    
    
    
    
    0Exercised
    
    
    0
    
    
    
    
    
    
    
    0Cancelled
    
    
    3,850
    
    
    
    11.36
    
    
    
    43,751Outstanding at June 30, 2003
    
    
    218,351
    
    
    
    12.38
    
    
    $
    2,702,276Granted
    
    
    3,850
    
    
    
    11.51
    
    
    
    44,314Exercised
    
    
    0
    
    
    
    
    
    
    
    0Cancelled
    
    
    12,850
    
    
    
    20.00
    
    
    
    253,020Outstanding at June 30, 2004
    
    
    209,550
    
    
    $
    11.90
    
    
    $
    2,493,570Warrants exercisable (vested) at June 30, 2004
    
    
    159,390
    
    
    $
    12.44
    
    
    $
    1,983,003
  *
    
    - On June 7, 2002, the Company paid a 10% stock dividend;
accordingly, the number of shares, weighted average exercise price
per share, and aggregate exercise prices for 2001 and 2002 have
been retroactively adjusted. The following table summarizes information about stock options and warrants
outstanding at June 30, 2004: Employee Stock Options: Weighted-Average
    
    
    
    
    
    ExercisableRange of
    
    Number
    
    Weighted-Average
    
    Exercise Price
    
    Number
    
    Weighted-Exercise
    
    of Shares
    
    Remaining
    
    for Shares
    
    of Shares
    
    AveragePrices
    
    Outstanding
    
    Contractual Life
    
    Outstanding
    
    Exercisable
    
    Exercise Price$10.00 - $11.36
    
    
    288,161
    
    
    
    0.84
    
    
    $
    11.27
    
    
    
    277,617
    
    
    $
    11.30$12.27
    
    
    1,100
    
    
    
    1.86
    
    
    $
    12.27
    
    
    
    1,100
    
    
    $
    12.27$14.55 - $17.50
    
    
    25,300
    
    
    
    3.73
    
    
    $
    15.73
    
    
    
    25,300
    
    
    $
    15.73$10.00 - $17.50
    
    
    314,561
    
    
    
    1.09
    
    
    $
    11.63
    
    
    
    304,017
    
    
    $
    11.67
 No options were granted during the fiscal year ended June 30, 2003 and
2004. 50




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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10  Shareholders Equity (concluded) Non-Employee Options and Warrants: Weighted-Average
    
    
    
    
    
    ExercisableRange of
    
    Number
    
    Weighted-Average
    
    Exercise Price
    
    Number
    
    Weighted-Exercise
    
    of Shares
    
    Remaining
    
    for Shares
    
    of Shares
    
    AveragePrices
    
    Outstanding
    
    Contractual Life
    
    Outstanding
    
    Exercisable
    
    Exercise Price$9.60 - $14.88
    
    
    209,550
    
    
    
    3.73
    
    
    $
    11.90
    
    
    
    168,190
    
    
    $
    12.31
 No warrants were granted during the fiscal year ended June 30, 2003 and
3,850 shares were granted for fiscal year ended June 30, 2004. See Note 13 Subsequent Events within the Notes to the Consolidated Financial
Statements related to stock options and warrants. Note 11  Going-Private Proposal On April 12, 2004, the Company announced that Mr. Edelbrock had presented a
proposal to the Companys Board of Directors to acquire the outstanding
shares of the Companys common stock not already beneficially owned or
controlled by Mr. Edelbrock. On June 25, 2004, the Company
entered into a definitive merger agreement with two companies controlled
by Mr. Edelbrock. Under the terms of the merger agreement, if the
transaction is consummated, all of the outstanding shares of common stock,
par value $0.01 per share, of Edelbrock not already owned by Mr. Edelbrock
or certain family trusts for which he serves as trustee, will be converted
into the right to receive $16.75 per share, net to the seller in cash,
without interest. For the fourth quarter and fiscal year ended
June 30, 2004, the Company incurred $496,000 related to
professional fees associated with the proposed going-private
transaction. Note 12  Gain on Sale of Assets The Company recognized a gain of $445,000 for the fiscal year ended June 30,
2004 related to sales of real property. The gain is included in gain on
sale of assets in the consolidated statement of income. Cash proceeds
received by the Company totaled $814,000. Note 13  Subsequent Events In connection with the
proposed going-private transaction, the special committee and the
audit committee of the Companys board of directors approved the payment by the Company to all
holders of options expiring by their terms on October 19, 2004,
of the difference between $16.75 per share and the respective exercise
price of the option, provided, however, that Mr. Edelbrock would not receive such a payment for his options
held expiring October 19, 2004. The total amount of $1.25 million is expected to
be paid on or before October 19, 2004. All other holders of stock options
will be paid out at the closing of the going private transaction at the
difference of $16.75 and their respective exercise prices. 51




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EDELBROCK CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Charged toBalance at
    
    Costs and
    
    
    
    
    
    Balance atBeginning of Year
    
    Expenses
    
    Deductions
    
    End of YearYear ended June 30, 2004:Accounts receivable reserve
    
    $
    500,000
    
    
    $
    297,000
    
    
    $
    
    
    
    $
    797,000Inventory reserves
    
    $
    300,000
    
    
    $
    
    
    
    $
    
    
    
    $
    300,000Year ended June 30, 2003:Accounts receivable reserve
    
    $
    500,000
    
    
    $
    
    
    
    $
    
    
    
    $
    500,000Inventory reserves
    
    $
    300,000
    
    
    $
    
    
    
    $
    
    
    
    $
    300,000Year ended June 30, 2002:Accounts receivable reserve
    
    $
    500,000
    
    
    $
    
    
    
    $
    
    
    
    $
    500,000Inventory reserves
    
    $
    350,000
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    300,000
 52