Attached files
file | filename |
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EX-31.1 - EX-31.1 - EDAC TECHNOLOGIES CORP | c60909exv31w1.htm |
EX-31.2 - EX-31.2 - EDAC TECHNOLOGIES CORP | c60909exv31w2.htm |
EX-32.1 - EX-32.1 - EDAC TECHNOLOGIES CORP | c60909exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 2, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-33507
EDAC Technologies Corporation
(Exact name of registrant as specified in its charter)
Wisconsin | 39-1515599 | |
(State or other jurisdiction of | (I.R.S. employer | |
incorporation or organization) | Identification No.) |
1806 New Britain Avenue, Farmington, CT 06032
(Address of principal executive offices)
(Address of principal executive offices)
(860) 677-2603
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ.
Yes o No þ.
On October 22, 2010 there were outstanding 4,869,469 shares of the registrants Common Stock,
$0.0025 par value per share.
TABLE OF CONTENTS
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED BALANCE SHEETS
October 2, | January 2, | |||||||
2010 | 2010 | |||||||
(in thousands) | (Unaudited) | (Audited) | ||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash |
$ | 1,051 | $ | 1,100 | ||||
Accounts receivable (net of allowance
for doubtful accounts of $113 as of
October 2, 2010 and $249 as of
January 2, 2010) |
15,506 | 10,862 | ||||||
Inventories, net |
20,760 | 19,990 | ||||||
Prepaid expenses and other current
assets |
300 | 306 | ||||||
Refundable income taxes |
32 | 112 | ||||||
Deferred income taxes |
1,098 | 1,098 | ||||||
Equipment held for sale |
43 | | ||||||
Total current assets |
38,790 | 33,468 | ||||||
PROPERTY, PLANT AND EQUIPMENT, at cost |
50,141 | 48,431 | ||||||
Less: accumulated depreciation |
27,946 | 25,974 | ||||||
22,195 | 22,457 | |||||||
OTHER ASSETS |
167 | 202 | ||||||
TOTAL ASSETS |
$ | 61,152 | $ | 56,127 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED BALANCE SHEETS
October 2, | January 2, | |||||||
2010 | 2010 | |||||||
(in thousands) | (Unaudited) | (Audited) | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Lines of credit |
$ | 4,100 | $ | 1,591 | ||||
Current portion of long-term debt |
4,502 | 1,833 | ||||||
Trade accounts payable |
7,536 | 6,828 | ||||||
Employee compensation and amounts
withheld |
1,698 | 1,185 | ||||||
Accrued expenses |
1,751 | 1,819 | ||||||
Customer advances |
677 | 1,028 | ||||||
Total current liabilities |
20,264 | 14,284 | ||||||
LONG-TERM DEBT, less current portion |
10,273 | 12,154 | ||||||
PENSION LIABILITIES |
1,448 | 1,448 | ||||||
DEFERRED INCOME TAXES |
4,423 | 4,475 | ||||||
SHAREHOLDERS EQUITY: |
||||||||
Common stock, par value $.0025 per
share; issued and outstanding: |
||||||||
4,869,469 on October 2, 2010 and
4,840,803 on January 2, 2010 |
12 | 12 | ||||||
Additional paid-in capital |
11,583 | 11,225 | ||||||
Retained earnings |
15,573 | 14,785 | ||||||
27,168 | 26,022 | |||||||
Less: accumulated other comprehensive loss |
2,424 | 2,256 | ||||||
Total shareholders equity |
24,744 | 23,766 | ||||||
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY |
$ | 61,152 | $ | 56,127 | ||||
The accompanying notes are an integral part of these condensed consolidated financial
statements.
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EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended | For the nine months ended | |||||||||||||||
October 2, | October 3, | October 2, | October 3, | |||||||||||||
(in thousands except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Sales |
$ | 18,528 | $ | 15,132 | $ | 55,156 | $ | 38,345 | ||||||||
Cost of Sales |
16,760 | 13,370 | 48,989 | 33,807 | ||||||||||||
Gross Profit |
1,768 | 1,762 | 6,167 | 4,538 | ||||||||||||
Selling, General and Administrative Expenses |
1,393 | 1,306 | 4,653 | 3,348 | ||||||||||||
Income from Operations |
375 | 456 | 1,514 | 1,190 | ||||||||||||
Non-Operating Income (Expense): |
||||||||||||||||
Interest Expense |
(259 | ) | (262 | ) | (711 | ) | (593 | ) | ||||||||
Other (Note A) |
2 | (74 | ) | 362 | 11,673 | |||||||||||
Income before Provision For Income Taxes |
118 | 120 | 1,165 | 12,270 | ||||||||||||
Provision for Income Taxes |
34 | 40 | 377 | 4,757 | ||||||||||||
Net Income |
$ | 84 | $ | 80 | $ | 788 | $ | 7,513 | ||||||||
Income per share data (Note A): |
||||||||||||||||
Basic Income Per Common Share |
$ | 0.02 | $ | 0.02 | $ | 0.16 | $ | 1.56 | ||||||||
Diluted Income Per Common Share |
$ | 0.02 | $ | 0.02 | $ | 0.16 | $ | 1.53 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial
statements.
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EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended | ||||||||
October 2, | October 3, | |||||||
(in thousands) | 2010 | 2009 | ||||||
Operating Activities: |
||||||||
Net income |
$ | 788 | $ | 7,513 | ||||
Adjustments to reconcile net income
to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
2,008 | 1,547 | ||||||
Deferred income taxes |
(52 | ) | 4,583 | |||||
Gain on acquisition of business |
(350 | ) | (11,874 | ) | ||||
Gain on sale of property, plant and equipment |
| (31 | ) | |||||
Compensation expense pursuant to stock options |
324 | 166 | ||||||
Excess tax benefit from share-based compensation |
(42 | ) | | |||||
Changes in working capital items |
(4,557 | ) | 211 | |||||
Net cash (used in) provided by
operating activities |
(1,881 | ) | 2,115 | |||||
Investing Activities: |
||||||||
Additions to property, plant and equipment |
(1,241 | ) | (872 | ) | ||||
Equipment deposits |
| 981 | ||||||
Acquisition of business |
(300 | ) | (10,275 | ) | ||||
Proceeds from sales of property, plant and equipment |
| 31 | ||||||
Deferred financing costs |
| (206 | ) | |||||
Net cash used in investing activities |
(1,541 | ) | (10,341 | ) | ||||
Financing Activities: |
||||||||
Increase in lines of credit |
2,509 | 216 | ||||||
Repayments of long-term debt |
(1,455 | ) | (1,968 | ) | ||||
Issuance of long-term debt |
2,243 | 9,500 | ||||||
Proceeds from exercise of stock options |
34 | 18 | ||||||
Excess tax benefit from share-based compensation |
42 | | ||||||
Net cash provided by financing activities |
3,373 | 7,766 | ||||||
Decrease in cash |
(49 | ) | (460 | ) | ||||
Cash at beginning of period |
1,100 | 1,311 | ||||||
Cash at end of period |
$ | 1,051 | $ | 851 | ||||
Supplemental Disclosure of
Cash Flow Information: |
||||||||
Interest paid |
$ | 711 | $ | 586 | ||||
Income taxes paid (refunded) |
600 | (361 | ) |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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EDAC TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 2, 2010
(in thousands except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 2, 2010
(in thousands except per share amounts)
NOTE A ACQUISITION AND BASIS OF PRESENTATION
ACQUISITION
On May 27, 2009, the Company acquired substantially all of the assets and certain liabilities of
MTU Aero Engines North America, Inc.s Manufacturing Business Unit (AENA). This business is
hereinafter referred to as AERO. The acquisition was accounted for under the purchase method of
accounting with the assets and liabilities acquired recorded at their fair values at the date of
acquisition. The accounting resulted in a gain of $11,643, net of expenses, at October 3, 2009.
The results of operations of the acquired business have been included in the Companys operating
results beginning as of the effective date of the acquisition.
The unaudited pro forma consolidated financial information for the nine months ended October 3,
2009, as though the acquisition had been completed at the beginning of that period, and excluding
the gain on acquisition are as follows (all amounts in thousands except per share amounts):
Nine Months Ended | ||||
October 3, 2009 | ||||
Sales |
$ | 46,997 | ||
Net income |
$ | 642 | ||
Basic income per share |
$ | 0.13 | ||
Diluted income per share |
$ | 0.13 |
On May 14, 2010, the Company acquired certain assets of Accura Technics, LLC (Accura). The $300
purchase price of Accura has been allocated as follows: accounts receivable $19, inventories $118
and machinery and equipment $163. The acquisition was funded through the Companys normal working
capital and line of credit with TD Bank NA.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally accepted accounting
principles (GAAP) for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended October 2, 2010
are not necessarily indicative of the results that may be expected for the year ending January 1, 2011.
For further information, refer to the consolidated financial statements and footnotes thereto
included in the Companys annual report on Form 10-K for the fiscal year ended January 2, 2010.
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Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market.
The Company has specifically identified certain inventory as obsolete or slow-moving and has
provided a full reserve for these parts. As of October 2, 2010 and January 2, 2010, inventories
consisted of the following (all amounts in thousands):
October 2, 2010 | January 2, 2010 | |||||||
Raw materials |
$ | 3,261 | $ | 2,519 | ||||
Work-in-progress |
15,754 | 15,890 | ||||||
Finished goods |
2,182 | 2,236 | ||||||
21,197 | 20,645 | |||||||
Less: reserve for
excess and obsolete |
(437 | ) | (655 | ) | ||||
Inventories, net |
$ | 20,760 | $ | 19,990 | ||||
Income per share: The number of shares used in the income per common share computations for
the three and nine month periods ended October 2, 2010 and October 3, 2009 are as follows:
For the three months ended | For the nine months ended | |||||||||||||||
October 2, | October 3, | October 2, | October 3, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic: |
||||||||||||||||
Weighted average common
shares outstanding |
4,869 | 4,838 | 4,856 | 4,831 | ||||||||||||
Diluted: |
||||||||||||||||
Dilutive effect of
stock options |
186 | 173 | 176 | 84 | ||||||||||||
Weighted average
shares diluted |
5,055 | 5,011 | 5,032 | 4,915 | ||||||||||||
Options excluded since antidilutive |
182 | 184 | 182 | 297 | ||||||||||||
Comprehensive Income (Loss): Comprehensive income (loss) for the three and nine month periods
ended October 2, 2010 and October 3, 2009 consisted of unrealized losses on established cash
flow hedges. Any comprehensive income (loss) related to the Companys defined benefit pension
plan is recorded at the end of the year, since the valuation used in connection with
determining the amount of the change in the Companys unfunded pension liability is determined
only at the end of the year.
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Recently
Adopted Accounting Standards: In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition. This ASU
allows entities to make a
policy election to use the milestone method of revenue recognition and provides guidance on
defining a milestone and guidance on the criteria
that should be met for applying the milestone method. The scope of this ASU is limited to the
transactions involving milestones relating to
research and development deliverables. The guidance includes enhanced disclosure requirements about
each arrangement, individual
milestones and related contingent consideration, information about substantive milestones and
factors considered in the determination. The
amendments in this ASU are effective prospectively to milestones achieved in fiscal years, and
interim periods within those years, beginning after June 15, 2010. Early application and
retrospective application are permitted. We have evaluated this new ASU and have determined that it
will not have a significant impact on the determination or reporting of our financial results.
Accounting Pronouncements Not Yet Adopted: In October 2009, the FASB issued ASU No. 2009-13,
Multiple-Deliverable Revenue Arrangements. This ASU establishes the accounting and reporting
guidance for arrangements including multiple revenue-generating activities. This ASU provides
amendments to the criteria for separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in this ASU also establish a
selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced
disclosures are also required to provide information about a vendors multiple-deliverable revenue
arrangements, including information about the nature and terms, significant deliverables, and its
performance within arrangements. The amendments also require providing information about the
significant judgments made and changes to those judgments and about how the application of the
relative selling-price method affects the timing or amount of revenue recognition. The amendments
in this ASU are effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early application is permitted. The
Company is currently evaluating this new ASU.
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NOTE B FINANCING ARRANGEMENTS
Notes payable and long-term debt consist of the
following (all amounts in thousands):
October 2, 2010 | January 2, 2010 | |||||||
Lines of credit |
$ | 4,100 | $ | 1,591 | ||||
Term notes |
9,460 | 8,420 | ||||||
Mortgage loans |
5,315 | 5,475 | ||||||
Capital lease obligations |
| 92 | ||||||
18,875 | 15,578 | |||||||
Less equipment line of credit |
| 1,391 | ||||||
Less revolving line of credit |
4,100 | 200 | ||||||
Less current portion of long-term debt |
4,502 | 1,833 | ||||||
$ | 10,273 | $ | 12,154 | |||||
The Companys credit facility with TD Bank, N.A. includes a revolving line of credit, which
provides for borrowing up to $7,500 ($5,000 after reserving $2,500 for the scheduled payment in
full on May 27, 2011, of a term note with AENA associated with the AERO acquisition). Borrowing is
limited to an amount determined by a formula based on percentages of receivables and
inventory. The revolving line of credit is reviewed annually by the
bank and renewed at its discretion.
As of October 2, 2010, $4,100 was outstanding on the revolving line of credit with $900 available
for additional borrowings.
On July 20, 2010, the Companys equipment line of credit with TD Bank N.A. was amended to provide
up to $4,700 for eligible equipment purchases during the period July 21, 2010 through July 31,
2011. Amounts advanced on the equipment line of credit will convert to a term note on July 31,
2011, unless converted earlier at the option of the Company, with monthly payments of principal and
interest in an amount to amortize the then existing principal balance in 60 equal monthly payments
including interest at the then Federal Home Loan Bank of Boston 5 year Regular Amortizing Advance
Rate plus 3%. On July 20, 2010, advances on the equipment line of credit in the amount of $2,243
were converted to a term note due in 60 monthly installments of $42 including interest at 4.88%.
NOTE C INTEREST RATE SWAPS
Simultaneous with the AERO acquisition, the Company entered into two pay-fixed, receive-variable
interest rate swaps to reduce exposure to changes in interest rates on certain senior long-term
notes payable that
were entered into on the date of the AERO acquisition. Both relationships are designated as cash
flow hedges and meet the criteria
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for the shortcut method for assessing hedge effectiveness; therefore, the hedge is considered to be
100% effective and all changes in the fair value of the interest rate swaps are recorded in
consolidated accumulated other comprehensive income. These changes in fair value must be
reclassified in whole or in part from consolidated accumulated other comprehensive income into
earnings if, and when, a comparison of the swaps and the related hedged cash flows demonstrates
that the shortcut method is no longer applicable. The Company expects these hedges to meet the
criteria of the shortcut method for the duration of the hedging relationship and therefore, it does
not expect to reclassify any portion of any unrealized income from consolidated accumulated other
comprehensive income to earnings during the hedge terms.
NOTE D DEFINED BENEFIT PENSION PLAN
The following table sets forth the components of net periodic benefit cost (all amounts in
thousands):
For the three months ended | For the nine months ended | |||||||||||||||
October 2, | October 3, | October 2, | October 3, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Components of net periodic benefit cost: |
||||||||||||||||
Interest cost |
$ | 79 | $ | 82 | $ | 237 | $ | 246 | ||||||||
Expected return on plan assets |
(71 | ) | (62 | ) | (213 | ) | (186 | ) | ||||||||
Amortization of acturial loss |
30 | 33 | 90 | 99 | ||||||||||||
Net periodic pension expense |
$ | 38 | $ | 53 | $ | 114 | $ | 159 | ||||||||
Company contributions paid to the plan for the nine month period ended October 2, 2010 totaled
$20.
NOTE E INCOME TAXES
The provision for income taxes is as follows (all amounts in thousands):
For the three months ended | For the nine months ended | |||||||||||||||
October 2, | October 3, | October 2, | October 3, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Current provision |
$ | 65 | $ | 40 | $ | 342 | $ | 132 | ||||||||
Deferred provision (benefit) |
(31 | ) | | 35 | 4,625 | |||||||||||
Total provision |
$ | 34 | $ | 40 | $ | 377 | $ | 4,757 | ||||||||
The income tax provisions for the three and nine month periods ended October 2, 2010 were
calculated using an effective tax rate of 28.8% and 32.4%, respectively, on ordinary income. The
income tax provisions for the three and nine month periods ended October 3, 2009, were calculated
using effective rates of 33.1% applied to ordinary income, excluding the gain on acquisition, and
38.95% applied to the gain on acquisition.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Sales.
The Companys sales increased $3,396 or 22.4% and 16,811 or 43.8%, for the three and nine month
periods ended October 2, 2010, respectively, as compared to the three and nine month periods ended
October 3, 2009. Sales increases by product line for the three and nine month periods ended
October 2, 2010 compared to the three and nine month periods ended October 3, 2009 were as follows
(in thousands):
For the three months ended | ||||||||||||
October 2, | October 3, | |||||||||||
Product Line | 2010 | 2009 | Change | |||||||||
EDAC Aero |
$ | 13,362 | $ | 11,174 | $ | 2,188 | ||||||
Apex Machine Tool |
3,947 | 3,368 | 579 | |||||||||
EDAC Machinery |
1,219 | 590 | 629 | |||||||||
Total |
$ | 18,528 | $ | 15,132 | $ | 3,396 | ||||||
For the nine months ended | ||||||||||||||
October 2, | October 3, | |||||||||||||
Product Line | 2010 | 2009 | Change | |||||||||||
EDAC Aero |
$ | 38,500 | $ | 24,551 | $ | 13,949 | ||||||||
Apex Machine Tool |
12,777 | 11,940 | 837 | |||||||||||
EDAC Machinery |
3,879 | 1,854 | 2,025 | |||||||||||
Total |
$ | 55,156 | $ | 38,345 | $ | 16,811 | ||||||||
Sales for the EDAC Aero product line increased $2,188 or 19.6%, and $13,949 or 56.8% for the three
and nine month periods ended October 2, 2010, respectively, as compared to the three and nine month
periods ended October 3, 2009. The increase for the nine month period was primarily due to the
Companys May 27, 2009 acquisition of AERO which contributed $6,415 and $19,626 for the three and
nine month periods ended October 2, 2010. AEROs contribution for both the three and nine
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month periods ended October 3, 2009 was $5,386 and $7,755, respectively. The increase for the three
month period was due to the shipment of parts for applications on new programs such as rotor
aircraft and the geared turbofan engine.
Sales for the Apex Machine Tool product line increased $579, or 17.2% and $837,or 7.0% for the
three and nine month periods ended October 2, 2010, respectively, as compared to the three and nine
month periods ended October 3, 2009, due to new customers and increased business with current
customers.
Sales for the EDAC Machinery product line increased $629, or 106.6%, and $2,025, or 109.2% for the
three and nine month periods ended October 2, 2010 as compared to the three and nine month periods
ended October 3, 2009 due to the Companys August 10, 2009 acquisition of certain assets
of Service Network Incorporated (SNI), which contributed $197 and $1,051, respectively, for the
three and nine month periods ended October 2, 2010 and due to
increases in the Spindle product line. The Company has recently received orders
totaling $1,800 for SNI machines which the company expects to deliver in the fourth quarter of 2010
and the first quarter of 2011.
As of October 2, 2010, the Companys total sales backlog was approximately $133,600 compared to
$125,900, as of January 2, 2010. Backlog consists of accepted purchase orders and long-term
contracts that are cancelable by the customer without penalty, except for payment of costs
incurred. The Company presently expects to complete approximately $18,200 of its October 2, 2010
backlog during the remainder of the 2010 fiscal year. The remaining $115,400 of backlog is
deliverable in fiscal year 2011 and beyond. The increase in backlog was mainly due to additional
aerospace orders.
Sales to the Companys principal markets are as follows (in thousands):
Three months ended | Nine months ended | |||||||||||||||
October 2, | October 3, | October 2, | October 3, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Aerospace customers |
$ | 14,889 | $ | 10,728 | $ | 43,433 | $ | 28,736 | ||||||||
Other |
3,639 | 4,404 | 11,723 | 9,609 | ||||||||||||
Total |
$ | 18,528 | $ | 15,132 | $ | 55,156 | $ | 38,345 | ||||||||
Sales to aerospace customers increased $4,161, or 38.8%, and $14,697, or 51.1%, respectively, for
the three and nine month periods ended October 2, 2010, as compared to the three and nine month
periods ended October 3, 2009, due primarily to the Companys AERO acquisition on May 27, 2009.
Additionally, shipments of tooling and fixtures to aerospace customers increased.
Sales to non-aerospace customers decreased $765 or 17.4%, and increased $2,114 or 22.0%, for the
three and nine month periods ended October 2, 2010, as compared to the three and nine month periods
ended October 3, 2009. The decrease for the quarter was primarily due to the Apex product line
selling a greater percentage of its sales to aerospace
customers, while the increase for the nine month period was primarily due to the Companys AERO
acquisition on May 27, 2009.
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Cost of Sales. Cost of sales as a percentage of sales increased to 90.5% from 88.4% for the
three month period ended October 2, 2010 compared to the three
month period ended October 3, 2009. Cost of sales as a percentage of sales increased to
88.8% from 88.2% for the nine month period ended October 2, 2010, compared to the nine
month period ended October 3, 2009. The increase for the periods was due to the development costs
on an emerging program that resulted in a gross loss of $310 on that program for the third quarter.
The Company is currently refining certain production processes for these parts.
The increase was also due to a gross loss of $218 for the third quarter for the resources allocated
to the SNI product line. This was due to the lack of orders in the third quarter, reflected by SNI
sales decreasing from $468 in the second quarter to $197 in the third quarter and to costs
associated with integrating Accura into SNI. SNI recently booked orders totaling $1.8 million
which are due for shipment in the fourth quarter of 2010 and first quarters. The Company expects this product line
to contribute to the Companys gross profit in the fourth quarter of 2010 and the first quarter of
2011.
Additionally, Apex Machine Tool incurred gross losses of $80 on certain one-time projects.
Selling, General & Administrative Expenses. Selling, general and administrative expenses
increased approximately $87 or 6.7% and $1,305, or 39.0%, respectively, for the three and nine
month periods ended October 2, 2010, compared to the three and nine month periods ended October 3,
2009. The increase was mainly the result of additional costs associated with AERO.
Interest Expense. Interest expense decreased approximately $3, or 1.1%, for the three
month period ended October 2, 2010, and increased $118, or 19.9% for the nine month period ended
October 2, 2010 compared to the three month and nine month periods ended October 3, 2009. The
increase was due to increased borrowing levels associated with the acquisition of AERO and
increased borrowing levels associated with increases in accounts receivable and inventories.
Other Income. The Company recognized an additional gain in the nine month period ended
October 2, 2010 in the amount of $350 from the recognition of a deposit on an equipment purchase
made by AERO prior to its acquisition by the Company. The Company was not originally aware of the
deposit as of the acquisition date. For the three and nine month periods ended October 3, 2009 a
net gain on the acquisition of AERO was recognized in the amount of $11,643 net of expenses.
Income Taxes. The income tax provisions for the three and nine month periods ended October
2, 2010, were calculated using an effective tax rate of 28.8% and 32.4%, respectively, on ordinary
income. The income tax provisions for the three and nine month periods ended October 3, 2009, were
calculated using effective rates of 33.1% applied to ordinary
income, excluding the gain on acquisition, and 38.95% applied to the gain on acquisition.
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Liquidity and Capital Resources.
Cash Flow from Operating Activities
Nine Months Ended | ||||||||
October 2, | October 3, | |||||||
2010 | 2009 | |||||||
Net cash flows (used in) provided by
operating activities: |
($1,881 | ) | $ | 2,115 |
Impacting cash flow for the first nine months of 2010 was cash used by working capital items in the
amount of $4,557, which consisted primarily of increases in accounts receivable and inventories of
$4,644 and $770, respectively, due to the increases in sales and
backlog. As of October 22, 2010, accounts receivable has decreased
due to collections to $13,026.
Impacting cash flow for the first nine months of 2009 was cash provided by working capital items in
the amount of $211 which consisted of cash provided by accounts payable/accrued expenses,
accounts receivable and income tax refunds in the amounts of $1,742, $1,041, and $525,
respectively, and cash used in inventory in the amount of $3,186.
Cash Flow from Investing Activities
Nine Months Ended | ||||||||
October 2, | October 3, | |||||||
2010 | 2009 | |||||||
Net cash flows used in
investing activities: |
($1,541 | ) | ($10,341 | ) |
Cash used in investing activities for the nine months of 2010 reflects expenditures for machinery
and equipment to increase machining capacity and to purchase Accura. Total capital expenditures
for the remainder of the current fiscal year are primarily for machinery and equipment of
approximately $1 million. Cash used in investing activities for the nine months of 2009 reflects
the Companys business acquisitions.
Cash Flow from Financing Activities
Nine Months Ended | ||||||||
October 2, | October 3, | |||||||
2010 | 2009 | |||||||
Net cash flows provided by
financing activities: |
$ | 3,373 | $ | 7,766 |
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During the nine months ended October 2, 2010, payments of $1,455 against term debt were offset by
borrowings on the revolving line of credit totaling $2,509 and the issuance of long-term debt in
the amount of $2,243. For the nine months ended October 3, 2009, cash flows provided by financing
activities primarily reflect debt of $9,500 to finance the Companys acquisition of AERO and net
borrowings on the lines of credit totaling $216, partially offset by payments of $1,968 against
term debt.
The Companys credit facility with TD Bank, N.A. includes a revolving line of credit, which
provides for borrowing up to $7,500 ($5,000 after reserving $2,500 for the scheduled payment in
full on May 27, 2011, of a term note with AENA associated with the AERO acquisition). Borrowing is
limited to an amount determined by a formula based on percentages of receivables and inventories.
The revolving line of credit is reviewed annually by the bank and renewed at its discretion.
As of October 2, 2010, $4,100 was outstanding on the revolving line of credit with $900 available
for additional borrowings.
On July 20, 2010, the Companys equipment line of credit with TD Bank N.A. was amended to provide
up to $4,700 for eligible equipment purchases during the period July 21, 2010 through July 31,
2011. Amounts advanced on the equipment line of credit will convert to a term note on July 31,
2011, unless converted earlier at the option of the Company, with monthly payments of principal and
interest in an amount to amortize the then existing principal balance in 60 equal monthly payments
including interest at the then Federal Home Loan Bank of Boston 5 year Regular Amortizing Advance
Rate plus 3%. As of July 20, 2010, advances on the equipment line of credit in the amount of
$2,243 were converted to a term note due in 60 monthly installments of $42 including
interest at 4.88%.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of the Companys consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. Managements Discussion and Analysis and Note A to the Consolidated Financial Statements
in the Companys Annual Report, incorporated by reference in Form 10-K for the Companys fiscal
year 2009, describe the significant accounting policies used in preparation of the Consolidated
Financial Statements. Actual results in these areas could differ from managements estimates.
Accounts
receivable The Company evaluates its allowance for doubtful accounts by considering the
age of each invoice, the financial strength of the customer, the customers past payment record and
subsequent payments.
Inventories
The Company has specifically identified certain inventory as obsolete or slow-moving
and provided a full reserve for these parts. The assumption is that these parts may not be sold.
The assumptions and the resulting reserve have been accurate in the past, and are not likely to
change materially in the future.
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Share-based compensation Share-based compensation cost is measured at the grant date, based on
the calculated fair value of the award, and is recognized as an expense over the employees
requisite service period (generally the vesting period of the equity grant). The Company
estimates the fair value of stock options using the Black-Scholes valuation model. Key input
assumptions used to estimate the fair value of stock options include the expected option term, the
expected volatility of the Companys stock over the options expected term, the risk-free interest
rate over the options expected term, and the Companys expected annual dividend yield. The
Company believes that the valuation technique and the approach utilized to develop the underlying
assumptions are appropriate in calculating the fair values of the Companys stock options.
Estimates of fair value are not intended to predict actual future events or the value ultimately
realized by persons who receive equity awards.
Pension The Company maintains a defined benefit pension plan. Assumptions used in accounting for
the plan include the discount rate and expected rate of return on plan assets. The assumptions are
determined based on appropriate market indicators and are evaluated each year as of the Plans
measurement date. A change in either of these assumptions would have an effect on the Companys
net periodic benefit cost.
Income Taxes The Company recognizes deferred tax assets when, based upon available evidence,
realization is more likely than not. The Company has no uncertain tax positions at October 2,
2010.
All statements other than historical statements contained in this Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Without limitation, these forward looking statements include statements regarding the
Companys business strategy and plans, statements about the adequacy of the Companys working
capital and other financial resources, statements about the Companys bank agreements, statements
about the Companys backlog, statements about the Companys action to improve operating
performance, and other statements herein that are not of an historical nature. These
forward-looking statements rely on a number of assumptions concerning future events and are subject
to a number of uncertainties and other factors, many of which are outside of the Companys control,
that could cause actual results to differ materially from such statements. These include, but are
not limited to, factors which could affect demand for the Companys products and services such as
changes in customer delivery schedules; general economic conditions and economic conditions in the
aerospace industry and the other industries in which the Company competes; competition from the
Companys competitors; the adequacy of the Companys revolving credit facility and other sources of
capital; and other factors discussed in the Companys annual report on Form 10-K for the fiscal
year ended January 2, 2010. The Company disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required under Regulation S-K for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure and procedures
The Companys management, with the participation of the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of October 2, 2010 and, based on this
evaluation, concluded that the Companys disclosure controls and procedures are functioning in an
effective manner in that they provide reasonable assurance that the information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified in the SECs rules
and forms.
Changes in internal control over financial reporting
No changes in the Companys internal control over financial reporting occurred during the nine
months ended October 2, 2010, that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
3.1* | EDACs Amended and Restated Articles of Incorporation | ||
3.2* | Articles of Amendment to EDACs Amended and Restated Articles of Incorporation. | ||
3.3* | EDACs Amended and Restated By-laws. | ||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. |
* | Incorporated by reference |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
EDAC TECHNOLOGIES CORPORATION |
||||
October 25, 2010 | By | /s/ Glenn L. Purple | ||
Glenn L. Purple, Chief Financial | ||||
Officer and duly authorized officer |
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EXHIBIT INDEX
NUMBER | DESCRIPTION | |
3.1 |
EDACs Amended and Restated Articles of Incorporation (1) |
|
3.2 |
Articles of Amendment to EDACs Amended and Restated Articles of Incorporation.
(2) |
|
3.3 |
EDACs Amended and Restated By-laws (3) |
|
31.1* |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended. |
|
31.2* |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended. |
|
32.1* |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. |
(1) | Exhibit incorporated by reference to the Companys registration statement on Form S-1 dated August 6, 1985, commission file No. 2-99491, Amendment No.1. | |
(2) | Exhibit incorporated by reference to the Companys Report on Form 10-Q dated July 30, 2008. | |
(3) | Exhibit incorporated by reference to the Companys Report on Form 8-K dated February 19, 2002. | |
* | Filed herewith. |
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