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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 


FORM 10-Q
 


(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended July 2, 2011                                                                                                                   
 
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 x 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 x  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  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x
 
On July 27, 2011 there were outstanding 4,944,800 shares of the registrants Common Stock, $0.0025 par value per share.
 
 
TABLE OF CONTENTS
 
PART I FINANCIAL INFORMATION
 
   
ITEM 1
3
     
ITEM 2.
10
     
ITEM 3.
14
     
ITEM 4.
14
     
PART II OTHER INFORMATION
 
   
ITEM 5.
15
     
ITEM 6.
15
     
16
     
17
 
 
PART I  FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS


EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of July 2, 2011 and January 1, 2011
 
   
July 2,
   
January 1,
 
   
2011
   
2011
 
(in thousands)
 
(Unaudited)
   
(Audited)
 
             
ASSETS
           
             
CURRENT ASSETS:
           
    Cash
  $ 1,247     $ 975  
    Accounts receivable (net of allowance for doubtful accounts of $219 as of July 2, 2011 and $121 as of January 1, 2011)
    17,820       14,955  
    Inventories, net
    21,526       20,219  
    Prepaid expenses and other current assets
    411       184  
    Refundable income taxes
    80       80  
    Deferred income taxes
    1,613       1,613  
Total current assets
    42,697       38,026  
                 
PROPERTY, PLANT AND EQUIPMENT, at cost
    53,818       51,818  
    Less: accumulated depreciation
    29,939       28,595  
      23,879       23,223  
                 
OTHER ASSETS
    131       155  
                 
TOTAL ASSETS
  $ 66,707     $ 61,404  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of July 2, 2011 and January 1, 2011
 
   
July 2,
   
January 1,
 
   
2011
   
2011
 
(in thousands)
 
(Unaudited)
   
(Audited)
 
             
LIABILITIES AND SHAREHOLDERS' EQUITY
           
             
CURRENT LIABILITIES:
           
    Lines of credit
  $ 5,722     $ 4,793  
    Current portion of long-term debt
    2,628       4,370  
    Trade accounts payable
    8,049       7,336  
    Employee compensation and amounts withheld
    1,785       1,212  
    Accrued expenses
    2,226       2,136  
    Customer advances
    648       857  
Total current liabilities
    21,058       20,704  
                 
LONG-TERM DEBT, less current portion
    13,244       9,858  
                 
PENSION LIABILITIES
    1,526       1,526  
                 
DEFERRED INCOME TAXES
    4,437       4,473  
                 
                 
SHAREHOLDERS' EQUITY:
               
    Common stock, par value $.0025 per share; issued and outstanding:
       4,924,469 on  July 2, 2011 and 4,869,469 on January 1, 2011
    12       12  
    Additional paid-in capital
    11,897       11,690  
    Retained earnings
    17,015       15,630  
      28,924       27,332  
    Less: accumulated other comprehensive loss
    2,482       2,489  
                Total shareholders' equity
    26,442       24,843  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 66,707     $ 61,404  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 

EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the three and six months ended July 2, 2011 and July 3, 2010
 
   
For the three months ended
 
For the six months ended
 
   
July 2,
 
July 3,
 
July 2,
 
July 3,
 
(in thousands except per share amounts)
 
2011
   
2010
   
2011
   
2010
 
                         
Sales
  $ 21,880     $ 18,841     $ 42,079     $ 36,628  
                                 
Cost of Sales
    18,249       16,583       35,639       32,229  
                                 
    Gross Profit
    3,631       2,258       6,440       4,399  
                                 
Selling, General and Administrative Expenses
    1,903       1,529       3,848       3,260  
                                 
    Income from Operations
    1,728       729       2,592       1,139  
                                 
Non-Operating Income (Expense):
 
    Interest Expense
    (273 )     (226 )     (533 )     (452 )
    Other
    3       -       8       360  
                                 
    Income before Provision For Income Taxes
    1,458       503       2,067       1,047  
                                 
Provision for Income Taxes
    481       158       682       343  
                                 
                                 
    Net Income
  $ 977     $ 345     $ 1,385     $ 704  
                                 
Income per share data (Note A):
 
                                 
Basic Income Per Common Share
  $ 0.20     $ 0.07     $ 0.28     $ 0.15  
Diluted Income Per Common Share
  $ 0.19     $ 0.07     $ 0.27     $ 0.14  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended July 2, 2011 and July 3, 2010
 
   
For the six months ended
 
   
July 2,
   
July 3,
 
(in thousands)
 
2011
   
2010
 
             
Operating Activities:
           
    Net income
  $ 1,385     $ 704  
     Adjustments to reconcile net income to net cash  used in operating activities:
               
       Depreciation and amortization
    1,394       1,329  
       Deferred income taxes
    (36 )     8  
       Gain on acquisition of business
    -       (350 )
       Gain on sale of property, plant and equipment
    (5 )     -  
       Compensation expense pursuant to stock options
    135       216  
       Excess tax benefit from share-based compensation
    (52 )     (42 )
    Changes in working capital items
    (3,225 )     (3,451 )
                 
         Net cash used in operating activities
    (404 )     (1,586 )
                 
Investing Activities:
               
    Additions to property, plant and equipment
    (2,026 )     (783 )
    Acquisition of business
    -       (300 )
    Proceeds from sales of property, plant and equipment
    5       -  
                 
         Net cash used in investing activities
    (2,021 )     (1,083 )
                 
Financing Activities:
               
    Increase in lines of credit  (Note B)
    6,060       859  
    Repayments of long-term debt  (Note B)
    (3,487 )     (948 )
    Issuance of long-term debt
    -       2,243  
    Proceeds from exercise of stock options
    72       34  
    Excess tax benefit from share-based compensation
    52       42  
                 
         Net cash provided by financing activities
    2,697       2,230  
                 
Increase/(decrease) in cash
    272       (439 )
                 
Cash at beginning of period
    975       1,100  
                 
Cash at end of period
  $ 1,247     $ 661  
                 
                 
Supplemental Disclosure of Cash Flow Information:
               
        Interest paid
  $ 533     $ 452  
        Income taxes paid
    186       225  

The accompanying notes are an integral part of these condensed consolidated financial statements.

EDAC TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 2, 2011
(in thousands)

NOTE A - BASIS OF PRESENTATION
 
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 six month period ended July 2, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 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 1, 2011.

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 July 2, 2011 and January 1, 2011, inventories consisted of the following (all amounts in thousands):

   
July 2, 2011
   
January 1, 2011
 
             
Raw materials
  $ 2,670     $ 2,624  
Work-in-progress
    17,750       16,163  
Finished goods
    1,142       1,468  
      21,562       20,255  
Less: reserve for excess and obsolete
    (36 )     (36  
Inventories, net
  $ 21,526     $ 20,219  
 
Income per share:  The number of shares used in the income per common share computations for the three and six month periods ended July 2, 2011 and July 3, 2010 are as follows:

   
For the three months ended
   
For the six months ended
 
   
July 2,
   
July 3,
   
July 2,
   
July 3,
 
   
2011
   
2010
   
2011
   
2010
 
Basic:                        
Weighted average common shares outstanding
    4,924       4,857       4,917       4,850  
Diluted:
                               
  Dilutive effect of stock options
    153       245       124       179  
  Weighted average shares diluted
    5,077       5,102       5,041       5,029  
  Options excluded since anti-dilutive
    197       179       246       179  
 

Comprehensive Income (Loss):  Comprehensive income (loss) for the six month periods ended July 2, 2011 and July 3, 2010 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.

Accounting Pronouncements Not Yet Adopted:  The Company does not expect any accounting pronouncements not yet adopted to have a significant impact on the Company.
 
NOTE B -- FINANCING ARRANGEMENTS

Subsequent Event - On July 27, 2011, the Company’s revolving and equipment lines of credit with TD Bank N.A. were amended to provide for borrowings on the revolving line of credit up to $12,000 (an increase of $1,500) and up to $4,700 on its equipment line of credit for eligible equipment purchases during the period July 28, 2011 through July 31, 2012.  Amounts advanced on the amended equipment line of credit will convert to a term note on July 31, 2012, 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 Current Classic Advance Rate for Fixed Rate Advances plus 3%.  As of July 27, 2011, advances on the equipment line of credit in the amount of $2,603, along with $2,528 advanced on the revolving line of credit were converted to a $5,131 term note due in 60 monthly installments of $96 including interest at 4.52%.  The classification of long-term debt and lines of credit have been determined in the accompanying July 2, 2011 condensed consolidated balance sheet and in the following table after consideration of the amended credit agreements.
 
Notes payable and long-term debt, after consideration of the aforementioned amendment and conversion, consist of the following (all amounts in thousands):

   
July 2, 2011
   
January 1, 2011
 
Lines of credit
  $ 5,722     $ 4,793  
                 
Term notes
    10,729       8,967  
                 
Mortgage loans
    5,143       5,261  
      21,594       19,021  
Less - equipment line of credit
    -       743  
Less - revolving line of credit
    5,722       4,050  
Less - current portion of long-term debt
    2,628       4,370  
    $ 13,244     $ 9,858  
 
The Company’s revolving line of credit with TD Bank, N.A. as amended on July 27, 2011, provides for borrowing up to $12,000 and is further 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.

As of July 27, 2011, the Company had $5,722 outstanding on its revolving line of credit and $0 outstanding on its equipment line of credit and had $5,861 and $4,700, respectively, available for additional borrowings.
 
 
NOTE C – INTEREST RATE SWAPS

The Company has two pay-fixed, receive-variable interest rate swaps to reduce exposure to changes in interest rates on certain senior long-term notes payable. Both relationships are designated as cash flow hedges and meet the criteria 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 six months ended
 
   
July 2,
   
July 3,
   
July 2,
   
July 3,
 
   
2011
   
2010
   
2011
   
2010
 
Components of net periodic benefit cost:
                       
     Interest cost
  $ 80     $ 79     $ 160     $ 158  
     Expected return on plan assets
    (77 )     (71 )     (154 )     (142 )
     Amortization of actuarial loss
    31       30       63       60  
     Net periodic pension expense
  $ 34     $ 38     $ 69     $ 76  
 
Company contributions paid to the plan for the three and six month periods ended July 2, 2011 totaled $38 and $76, respectively.

The Company contributed $20 to the plan during the three and six month periods ended July 3, 2010.
 
NOTE E – INCOME TAXES

The provision for (benefit from) income taxes is as follows (all amounts in thousands):

   
For the three months ended
   
For the six months ended
 
   
July 2,
   
July 3,
   
July 2,
   
July 3,
 
   
2011
   
2010
   
2011
   
2010
 
Current
  $ 499     $ 195     $ 718     $ 277  
Deferred
    (18 )     (37 )     (36 )     66  
Total
  $ 481     $ 158     $ 682     $ 343  
 
The income tax provisions for the three and six month periods ended July 2, 2011 were calculated using an effective tax rate of 33%.  The income tax provisions for the three and six month periods ended July 3, 2010, were calculated using effective rates of 31% and 33%, respectively.


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

Sales.

The Company’s sales increased $3,039 or 16.1% and $5,451 or 14.9%, for the three and six month periods ended July 2, 2011, respectively, as compared to the three and six month periods ended July 3, 2010.   Sales increases by product line for the three and six month periods ended July 2, 2011 compared to the three and six month periods ended July 3, 2010 were as follows (in thousands):

   
For the three months ended
 
   
July 2,
   
July 3,
       
Product Line 
 
2011
   
2010
   
Change
 
                   
                   
  EDAC Aero
  $ 14,264     $ 12,584     $ 1,680  
  Apex Machine Tool
    5,324       4,843       481  
  EDAC Machinery
    2,292       1,414       878  
                         
    Total
  $ 21,880     $ 18,841     $ 3,039  
                         
   
For the six months ended
 
   
July 2,
   
July 3,
         
Product Line 
  2011     2010    
Change
 
                         
                         
  EDAC Aero
  $ 27,980     $ 25,138     $ 2,842  
  Apex Machine Tool
    9,997       8,830       1,167  
  EDAC Machinery
    4,102       2,660       1,442  
                         
    Total
  $ 42,079     $ 36,628     $ 5,451  

Sales for the EDAC Aero product line increased $1,680 or 13.4%, and $2,842, or 11.3% for the three and six month periods ended July 2, 2011, respectively, as compared to the three and six month periods ended July 3, 2010.  The increase was due to the shipment of parts for applications on new programs such as rotor aircraft and the geared turbofan engine as well as increased shipments of fan cases and stators.  EDAC Aero’s sales backlog was approximately $157,200 at July 2, 2011.

Sales for the Apex Machine Tool product line increased $­­­­481, or 9.9% and $1,167, or 13.2% for the three and six month periods ended July 2, 2011, respectively, as compared to the three and six month periods ended July 3, 2010, due to­ increased demand for fixture, tooling and mold products due to the economic recovery as well as new customers and increased business with current customers.
 
 
Sales for the EDAC Machinery product line increased $878, or 62.1%, and $1,442, or 54.2% for the three and six month periods ended July 2, 2011, as compared to the three and six month periods ended July 3, 2010 due to increased shipments of spindle and precision grinder products to aerospace and automotive customers due to the economic recovery, as well as the Company’s successful efforts to revitalize the acquired SNI and Accura Technics businesses.

As of July 2, 2011, the Company’s total sales backlog was approximately $168,000 compared to $138,300, as of January 1, 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 $36,700 of its July 2, 2011 backlog during the remainder of the 2011 fiscal year.  The remaining $131,300 of backlog is deliverable in fiscal year 2012 and beyond.

The increase in backlog is due to the previously announced receipt of a multi-year agreement to supply additional engine parts to a leading European engine manufacturer, for use on a commercial airliner program.  The agreement has a five-year term and is valued at approximately $42,000 over that period.

Sales to the Company’s principal markets are as follows:

   
Three months ended
   
Six months ended
 
   
July 2,
   
July 3,
   
July 2,
   
July 3,
 
   
2011
   
2010
   
2011
   
2010
 
Aerospace customers
  $ 16,825     $ 14,946     $ 31,281     $ 28,543  
Other
    5,055       3,895       10,798       8,085  
Total
  $ 21,880     $ 18,841     $ 42,079     $ 36,628  

Sales to aerospace customers increased $1,879, or 12.6%, and $2,738, or 9.6%, respectively, for the three and six month periods ended July 2, 2011, as compared to the three and six month periods ended July 3, 2010, due primarily to increased shipments of jet engine parts to aerospace customers.

Sales to non-aerospace customers increased $1,160 or 29.8%, and $2,713 or 33.6%, respectively, for the three and six month periods ended July 2, 2011, as compared to the three and six month periods ended July 3, 2010. The increase for the quarter was primarily due to increased sales in the EDAC Machinery product line and increased non-aerospace sales in the Apex product line.

Cost of Sales.  Cost of sales as a percentage of sales decreased to 84.7% from ­­­88.0% for the six month period ended July 2, 2011, compared to the six month period ended July 3, 2010.  The decrease for the period was primarily due to increasing manufacturing efficiencies and to the sales levels increasing in all product lines more significantly than manufacturing costs due to the fixed element or semi-variable element of certain manufacturing costs.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased approximately $374, or 24.5%, and $588, or 18.0%, respectively, for the three and six month periods ended July 2, 2011, compared to the three and six month periods ended July 3, 2010, due to increased commission and compensation expense.

Interest Expense.  Interest expense increased approximately $47, or 20.8%, and $81, or 17.9%, respectively, for the three and six month periods ended July 2, 2011, compared to the three and six month periods ended July 3, 2010.  The increase was due to increased borrowing levels associated with increases in accounts receivable and inventories.

Other Income.  Other income decreased approximately $352 or 97.8%, due to a gain in the six month period ended July 3, 2010 in the amount of $360 from the recognition of a deposit on an equipment purchase made by AERO prior to its acquisition by the Company.
 

Income Taxes.  The income tax provisions for the three and six month periods ended July 2, 2011, were calculated using an effective tax rate of 33%.  The income tax provisions for the three and six month periods ended July 3, 2010, were calculated using effective rates of 31% and 33%, respectively.

Liquidity and Capital Resources.

Cash Flow used in Operating Activities
             
   
Six Months Ended
 
   
July 2,
   
July 3,
 
   
2011
   
2010
 
             
Net cash flows used in operating activities:
  $ (404 )   $ (1,586 )
 
Impacting cash flow for the first six months of 2011 was cash used by working capital items in the amount of $3,225, which consisted primarily of increases in accounts receivable and inventories of $2,865 and $1,307, respectively, due to the increases in sales and backlog.

Impacting cash flow for the first six months of 2010 was cash used by working capital items in the amount of $3,451 and consisted primarily of increases in accounts receivable and inventory of $2,796 and $1,061, respectively.
 
Cash Flow used in Investing Activities
                 
   
Six Months Ended
 
   
July 2,
   
July 3,
 
    2011     2010  
                 
Net cash flows used in investing activities:
  $ 2,021     $ 1,083  
 
Cash used in investing activities reflects expenditures for machinery and equipment to increase machining capacity. Total expected capital expenditures for the remainder of the current fiscal year are primarily for machinery and equipment of approximately $1,400.
 
Cash Flow from Financing Activities
                 
   
Six Months Ended
 
   
July 2,
   
July 3,
 
    2011     2010  
                 
Net cash flows provided by  financing activities:
  $ 2,697     $ 2,230  
 

During the six months ended July 2, 2011, payments of $3,487 (including $2,500 for full payment of a term note due on May 27, 2011) against term debt were offset by borrowings on the revolving line of credit and the equipment line of credit of $4,200 and $1,860, respectively. For the six months ended July 2, 2010, payments of $948 against term debt were offset by borrowings on the revolving line of credit of $859 and the issuance of long-term debt in the amount of $2,243.

On July 27, 2011, the Company’s revolving and equipment lines of credit with TD Bank N.A. were amended to provide for borrowings on the revolving line of credit up to $12,000 (an increase of $1,500) and up to $4,700 on its equipment line of credit for eligible equipment purchases during the period July 28, 2011 through July 31, 2012.  As of July 27, 2011, advances on the equipment line of credit in the amount of $2,603, along with $2,528 advanced on the revolving line of credit were converted to a $5,131 term note.  The classification of long-term debt and lines of credit have been determined in the accompanying July 2, 2011 condensed consolidated balance sheet after consideration of the amended credit agreements.

The Company’s revolving line of credit with TD Bank, N.A. as amended on July 27, 2011, provides for borrowing up to $12,000 and is further 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.

As of July 27, 2011, the Company had $5,722 outstanding on its revolving line of credit and $0 outstanding on its equipment line of credit and had $5,861 and $4,700, respectively, 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 2010, 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.

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 July 2, 2011.
 
 
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.
 
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 July 2, 2011  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 six months ended July 2, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
PART II -- OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

Due to the recent death of Ross C. Towne, a director of the Company, on July 26, 2011 the Board decided to reduce the number of directorships from seven to six, and not fill in the vacancy caused by Mr. Towne’s death.

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
   
       
31.2
   
       
32.1
   
       
101.INS**
 
XBRL Instance Document
 
       
101.SCH**
 
XBRL Taxonomy Extension Schema
 
       
101.CAL**
 
XBRL Taxonomy Extension Calculation Linkbase
 
       
101.DEF**
 
XBRL Taxonomy Extension Definition Linkbase
 
       
101.LAB**
 
XBRL Taxonomy Extension Label Linkbase
 
       
101.PRE**
 
XBRL Taxonomy Extension Presentation Linkbase
 

* Incorporated by reference
 
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.


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
 
       
Date: July 28, 2011  
By:
/s/ Glenn L. Purple  
   
Glenn L. Purple
 
   
Chief Financial Officer and duly authorized officer
 
       
 
                                                          
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*
   
       
31.2*
   
       
32.1*
   
       
101.INS**
 
XBRL Instance Document
 
       
101.SCH**
 
XBRL Taxonomy Extension Schema
 
       
101.CAL**
 
XBRL Taxonomy Extension Calculation Linkbase
 
       
101.DEF**
 
XBRL Taxonomy Extension Definition Linkbase
 
       
101.LAB**
 
XBRL Taxonomy Extension Label Linkbase
 
       
101.PRE**
 
XBRL Taxonomy Extension Presentation Linkbase
 

(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.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.