Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
EDAC > SEC Filings for EDAC > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for EDAC TECHNOLOGIES CORP

Form 10-Q for EDAC TECHNOLOGIES CORP


2-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)

Sales.

The Company's sales increased $5,614 or 25.7% and $14,109 or 22.1%, for the
three and nine month periods ended September 29, 2012, respectively, as compared
to the three and nine month periods ended October 1, 2011.  Sales increases by
product line for the three and nine month periods ended September 29, 2012
compared to the three and nine month periods ended October 1, 2011 were as
follows:

                                       For the three months ended
                               September 29,       October 1,
                Segments           2012               2011         Change

                 Aerospace    $        19,192     $     14,761     $ 4,431
                 Industrial             8,263            7,080       1,183

                  Total       $        27,455     $     21,841     $ 5,614



                                       For the nine months ended
                              September 29,       October 1,
               Segments           2012               2011          Change

                Aerospace    $        54,692     $     42,741     $ 11,951
                Industrial            23,337           21,179        2,158

                 Total       $        78,029     $     63,920     $ 14,109


Table of Contents

Segment sales. Sales for the Aerospace segment (EDAC Aero product line) increased $4,431 or 30.0% and $11,951 or 28.0%, respectively, for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The increase was due to the increased shipments of fan cases and stators and to the contributions in the amounts of $3,175 and $4,312, for the three and nine month periods ended September 29, 2012, from the Company's June 1, 2012 acquisition of EBTEC. EDAC Aerospace's sales backlog was approximately $301,761 at September 29, 2012.

Sales for the Industrial segment (Apex Machine Tool and EDAC Machinery product lines) increased $1,183 or 16.7% and $2,158 or 10.2%, respectively, for the three and nine month periods ended September 29, 2012. The Apex Machine Tool product line increased $1,215, or 24.4% and $2,984, or 19.9%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three month and nine month periods ended October 1, 2011, due to­ new customers and increased business with current customers. The EDAC Machinery product line decreased $32, or 1.5% and $826 or 13.3%, respectively, for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011 due to decreased demand of spindle and precision grinder products from aerospace and automotive customers. The Industrial Segment's sales backlog was approximately $11,908 at September 29, 2012.

As of September 29, 2012, the Company's total sales backlog was approximately $313,669 compared to $304,253 as of June 30, 2012, and compared to $­­­­252,100, as of December 31, 2011. 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 $25,000 of its September 29, 2012 backlog during the remainder of the 2012 fiscal year. The remaining $288,669 of backlog is deliverable in fiscal year 2013 and beyond.

The increase in backlog since June 30, 2012, is due to the previously announced receipt of a multi-year agreement with an OEM customer to produce a major case assembly over a five-year period.

Sales by Market. Sales to the Company's principal markets are as follows:

                          For the three months ended             For the nine months ended
                      September 29,         October 1,       September 29,         October 1,
                           2012                2011               2012                2011
Aerospace customers   $       19,088       $      15,497     $       56,189       $      46,778
Other                          8,367               6,344             21,840              17,142
Total                 $       27,455       $      21,841     $       78,029       $      63,920

Sales to aerospace customers increased $3,591, or 23.2%,and $9,411, or 20.1%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011, due primarily to increased shipments of jet engine parts to our aerospace customers.

Sales to non-aerospace customers increased $2,023, or 31.9%, and $4,698, or 27.4%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The increases were due to new customers and to increased non-aerospace sales in the Apex Machine Tool product line.


Table of Contents

Cost of Sales. Cost of sales as a percentage of sales decreased to 78.8% and 80.2% from 82.2% and 83.9%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The decreases for the periods were primarily due to sales levels increasing in the EDAC Aero and Apex Machine Tool product lines significantly more than manufacturing costs due to the fixed element or semi-variable element of certain manufacturing costs.

Gross Profit. Gross profit as a percentage of sales increased to 21.2% and 19.8% from 17.8% and 16.1%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The increases are due to higher volumes and increased efficiencies in the manufacturing process.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $724, or 34.2%, and $1,886, or 31.6%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011, due primarily to $450 of one-time expenses related to the acquisition of EBTEC along with additional costs associated with EBTEC.

Income from Operations. Income from operations for the Aerospace segment (EDAC Aero product line) increased $835, or 81.3%, and $2,165, or 80.5%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The increase was driven primarily by the profit impact of higher sales volumes and the addition of EBTEC.

Operating income for the Industrial segment (Apex Machine Tool and EDAC Machinery product lines) increased $378, or 51.5%, and $1,049, or 63.1%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The increase was primarily due to increased sales volumes as well as an ongoing effort towards the production of more complex parts in the Apex Machine Tool product line.

Interest Expense. Interest expense increased approximately $149, or 59.1%, and $131, or 16.9%, respectively for the three and nine month periods ended September 29, 2012, as compared to the three and nine month periods ended October 1, 2011. The increases were due to increased borrowing levels associated with the EBTEC acquisition and the purchase of the Plainville and Cheshire facilities.

Income Taxes. The income tax provisions for the three and nine month periods ended September 29, 2012, were calculated using an annual tax rate of 35.3% and 34.5%, respectively. The income tax provisions for the three and nine month periods ended October 1, 2011, were calculated using an effective rate of 33%.


Table of Contents

Liquidity and Capital Resources.

                        Cash Flow used in Operating Activities

                                                Nine Months Ended
                                         September 29,         October 1,
                                             2012                 2011
           Net cash flows provided by
             operating activities:      $           389       $      3,058

Impacting cash flow for the first nine months of 2012 was cash used by working capital items in the amount of $6,919, which consisted primarily of increases in accounts receivable and inventories of $2,600 and $3,261, respectively, partially offset by increases in accounts payable and accrued expenses. The increases in receivables and inventory were due to the increases in the Company's sales and backlog.

Impacting cash flow for the first nine months of 2011 was cash used by working capital items in the amount of $1,584 and consisted primarily of increases in accounts receivable and inventory of $2,109 and $645, respectively, partially offset by increases in accrued expenses and employee compensation.

                         Cash Flow used in Investing Activities

                                               Nine Months Ended
                                         September 29,       October 1,
                                             2012               2011
              Net cash flows used in
                investing activities:   $       (23,700 )   $     (2,194 )

Cash used in investing activities reflects the Company's purchase of the Cheshire Facility, a 293,000 square foot manufacturing facility on June 29, 2012, for $8,175. Four EDAC operations currently housed in separate locations in nearby Farmington and Newington, Conn., including its aerospace product lines as well as its APEX Machine Tool product line, will be consolidated and integrated into the new facility. The facility is located on a 50-acre site and formerly housed an aerospace engine repair facility of United Technologies Corporation's Pratt and Whitney Aircraft division. Upon the move into the Cheshire facility, the Company expects to then put up for sale its Newington location and two of its four Farmington buildings. The Company also has facilities in Auburn and Agawam, Mass., that will not be part of the relocation.

Cash used in investing activities also reflects the Company's June 1, 2012 acquisition of all of the outstanding stock of EBTEC. The purchase price, less $1,650 paid by the issuance of shares of the Company's common stock, less $217 cash acquired, was paid in cash in the amount of $9,045.

Prior to the purchase of the Cheshire Facility, the Company had purchased the Plainville Facility.


Table of Contents

Cash used in investing activities also reflects capital expenditures of $3,831 primarily for machinery and equipment to increase machining capacity. Total expected capital expenditures for the remainder of the current fiscal year are approximately $2,300, primarily for machinery and equipment.

                           Cash Flow from Financing Activities

                                                      Nine Months Ended
                                                September 29,      October 1,
                                                    2012              2011
        Net cash flows provided by (used in)
          financing activities:                $        24,255     $      (159 )

During the nine months ended September 29, 2012, payments of $2,120 against term debt were offset by borrowings on the Company's revolving and equipment lines of credit in the amounts of $8,831 and $4,095, respectively.

The June 29, 2012 purchase of the Cheshire facility was funded by a $6,540 term loan with TD Bank. Monthly payments of interest only at the prime rate are due through July 28, 2013. Monthly payments of principal and interest are due after July 8, 2013 at an adjustable rate equal to the monthly LIBOR rate plus 3%, however, pursuant to a swap agreement with TD Bank, the Company has effectively fixed its interest rate at 4.63%.

The June 1, 2012 acquisition of EBTEC was funded by a $3,785 term note and a $900 mortgage both with TD Bank. The term loan is payable in monthly installments of principal and interest beginning on July 1, 2012 and will mature on June 30, 2017. Interest accrues on the $3,785 term loan at a per annum fixed rate of 4.05%. The $900 mortgage is payable in monthly installments of principal and interest beginning on July 1, 2012 and will mature on June 30, 2017. Interest will accrue on the $900 mortgage at a per annum fixed rate of 3.86%.

On June 1, 2012, the Company closed on a one-year mortgage with TD Bank on the Plainville Facility in the amount of $2,120. The mortgage is payable in monthly installments of interest only beginning on July 1, 2012 and will mature on the earlier to occur of the sale of the Plainville Facility or July 31, 2013. The mortgage proceeds were used to pay down the revolving line of credit.

The March 30, 2012 purchase of the Plainville Facility in the amount of $2,650 was funded by the company's revolving line of credit.

On July 27, 2012, State of Connecticut Bond Commission approved the State of Connecticut's Department of Economic and Community Development request to provide a 10 year, $6,565 loan for the Company. The loan as approved will assist the Company in the acquisition of machinery and equipment for the Cheshire Facility and bear interest at the rate of 2.5%. The Company may be eligible for loan principal forgiveness of up to $500 for creating 50 jobs or up to $1,000 for creating 100 jobs within five years.


Table of Contents

The Company's revolving line of credit with TD Bank provides for borrowings up to $17,000, as amended on September 19, 2012, and is limited to an amount determined by a formula based on percentages of receivables and inventory. Although payable on demand, the revolving line of credit is reviewed annually by the bank in July and renewed at its discretion. On June 1, 2012, the bank renewed the revolving line of credit through July 2013. As of September 29, 2012, the Company had $10,250 outstanding on its revolving line of credit and $4,700 outstanding on its equipment line of credit and had $4,640 and $0, respectively, available for additional borrowings. As of November 1, 2012, the Company had $9,250 outstanding on its revolving line of credit and $5,640 was available for additional borrowings.

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 2011, describe the significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management's estimates.

Business Combinations- The Company accounts for all business combinations at fair value under the acquisition method of accounting. Acquisition costs are expensed as incurred; noncontrolling interests are valued at fair value at the acquisition date; in-process research and development are recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

During the measurement period of up to one year from the acquisition date, the Company may recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisitions date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The Company may also for a period of up to one year from the acquisition date adjust the fair value of the assets and liabilities previously valued.

Revenue Recognition: Sales are recorded when all criteria for revenue recognition have been satisfied, which is generally when goods are shipped to the Company's customers. The Company defers revenue recognition on certain product shipments until customer acceptance, including inspection and installation requirements, as defined, are achieved. The Company has entered into long term contracts with certain customers. Such contracts do not typically include provisions for fixed quantities or prices. Revenue is generally recorded when goods are shipped. The Company follows all of the requirements of accounting principles generally accepted in the United States of America with regards to bill and hold transactions. Under these bill and hold arrangements, customers asked the Company to retain the product at its facilities until they provided delivery instructions.


Table of Contents

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- Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Provisions for slow moving and obsolete inventory are provided based on historical experience and product demand.

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 plain-vanilla stock options using the Black-Scholes option-pricing 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. Based on historical data, the Company used a 0% forfeiture rate. 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 plain-vanilla 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 frozen 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 as of September 29, 2012.

  Add EDAC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for EDAC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.