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EX-32.1 - EX-32.1 - EDAC TECHNOLOGIES CORPc60909exv32w1.htm
Table of Contents

 
 
UNITED STATES
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)
(860) 677-2603
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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.
     On October 22, 2010 there were outstanding 4,869,469 shares of the registrant’s Common Stock, $0.0025 par value per share.
 
 

 


TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
ITEM 6. EXHIBITS
SIGNATURES
EXHIBIT INDEX
EX-31.1
EX-31.2
EX-32.1


Table of Contents

PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EDAC TECHNOLOGIES CORPORATION
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
                 
    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)
                                 
    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)
                 
    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)
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 Company’s 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 Company’s 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 Company’s 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 anti—dilutive
    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 Company’s 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 Company’s 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 vendor’s 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 Company’s 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 Company’s 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. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales.
The Company’s 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 Company’s May 27, 2009 acquisition of AERO which contributed $6,415 and $19,626 for the three and nine month periods ended October 2, 2010. AERO’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s acquisition of AERO and net borrowings on the lines of credit totaling $216, partially offset by payments of $1,968 against term debt.
The Company’s 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 Company’s 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 Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management’s Discussion and Analysis and Note A to the Consolidated Financial Statements in the Company’s Annual Report, incorporated by reference in Form 10-K for the Company’s fiscal year 2009, describe the significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s 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 customer’s 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 employee’s 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 Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s 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 Company’s 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 Plan’s measurement date. A change in either of these assumptions would have an effect on the Company’s 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 Company’s business strategy and plans, statements about the adequacy of the Company’s working capital and other financial resources, statements about the Company’s bank agreements, statements about the Company’s backlog, statements about the Company’s 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 Company’s 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 Company’s 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 Company’s competitors; the adequacy of the Company’s revolving credit facility and other sources of capital; and other factors discussed in the Company’s 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 Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s 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 Company’s 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 SEC’s rules and forms.
Changes in internal control over financial reporting
No changes in the Company’s 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 Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 6. EXHIBITS
  3.1*   EDAC’s Amended and Restated Articles of Incorporation
 
  3.2*   Articles of Amendment to EDAC’s Amended and Restated Articles of Incorporation.
 
  3.3*   EDAC’s 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
 
EDAC’s Amended and Restated Articles of Incorporation (1)
 
 
 
3.2
 
Articles of Amendment to EDAC’s Amended and Restated Articles of Incorporation. (2)
 
 
 
3.3
 
EDAC’s 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 Company’s registration statement on Form S-1 dated August 6, 1985, commission file No. 2-99491, Amendment No.1.
 
(2)   Exhibit incorporated by reference to the Company’s Report on Form 10-Q dated July 30, 2008.
 
(3)   Exhibit incorporated by reference to the Company’s Report on Form 8-K dated February 19, 2002.
 
*   Filed herewith.

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