UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended October 31, 1997
OR
[ ] 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 0-14812
EDISON CONTROL CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2716367
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
W60 N151 Cardinal Avenue
PO Box 326
Cedarburg, WI 53012-0326
(Address of principal executive offices)
(Zip Code)
(414) 377-6565
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 2,275,933 as of October 31, 1997
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Page Number
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets Pages 2 & 3
October 31, 1997 (Unaudited) and
January 31, 1997
Consolidated Statements of Operations Page 4
Three and nine months ended October 31,
1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows Pages 5 & 6
Nine months ended October 31,
1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements Pages 7 & 8
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 8, 9 & 10
Operations and Financial Condition
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K Page 11 and
Exhibit Index
<PAGE>
PART I.
Item 1
Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1997 and January 31, 1997
October 31, January 31,
1997 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 968,958 $ 772,008
Investments 190,000 284,000
Trading securities 4,629,762 4,751,688
Trade accounts receivable, net 4,072,913 2,713,308
Receivable from affiliates 41,018 156,035
Inventories, net 5,790,634 5,316,948
Prepaid expenses and other assets 150,199 197,576
Deferred compensation 0 298,558
Refundable income taxes 0 0
Deferred financing costs 983,333 983,333
---------- ----------
Total current assets 16,826,817 15,473,454
Investment in and advances to affiliate 394,054 340,054
Other Assets:
Prepaid pension 304,012 385,021
Deferred financing costs 635,070 1,372,570
---------- ----------
Total other assets 939,082 1,757,591
Property, plant and equipment, net 6,917,670 7,077,228
Goodwill (net of amortization) 8,980,641 9,154,833
Organizational/finance costs (net of
amortization) 192,232 256,945
---------- ----------
TOTAL ASSETS $34,250,496 $34,060,105
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,158,466 $ 868,088
Accrued compensation 665,940 606,010
Taxes other than income taxes 96,283 38,119
Other accrued expenses 729,897 529,896
Income taxes payable 315,717 9,077
Deferred income taxes 121,000 245,000
Deferred compensation 754,250 754,250
Current maturities on long-term debt 841,664 868,844
---------- ----------
Total current liabilities 4,683,217 3,919,284
Long-term debt, less current maturities 14,700,929 16,038,580
Deferred income taxes 176,000 501,000
---------- ----------
TOTAL LIABILITIES 19,560,146 20,458,864
Stockholders' Equity:
Preferred stock, $.01 par value:
1,000,000 shares authorized,
none issued 0 0
Common stock, $.01 par value:
10,000,000 shares authorized,
issued and outstanding 2,275,933
shares 22,759 22,759
Additional paid-in capital 10,016,435 10,016,435
Retained earnings 4,499,266 3,453,331
Foreign currency translation adjustments 151,890 108,716
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 14,690,350 13,601,241
---------- ----------
TOTAL LIABILITIES AND EQUITY $34,250,496 $34,060,105
========== ==========
See Accompanying Notes.
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(Unaudited)
Three Months Ended
Nine Months Ended
October 31, October 31,
1997 1996 1997 1996
NET SALES $7,048,009 $5,612,326 $18,126,002 $8,825,881
COST OF GOODS SOLD 4,360,589 3,972,260 11,320,989 6,359,037
--------- --------- ---------- ---------
GROSS PROFIT 2,687,420 1,640,066 6,805,013 2,466,844
OTHER OPERATING EXPENSES:
Selling, engineering
and administrative
expenses 949,597 1,114,706 3,214,046 1,843,801
Stock option amortization 0 188,562 298,558 267,129
Goodwill and
organizational/finance
cost amortization 79,635 63,576 238,905 84,768
--------- --------- --------- ---------
Total other operating
expenses 1,029,232 1,366,844 3,751,509 2,195,698
--------- --------- --------- ---------
OPERATING EARNINGS 1,658,188 273,222 3,053,504 271,146
OTHER EXPENSE (INCOME):
Interest expense 274,859 327,094 867,738 473,439
Realized gains on
trading securities (96,022) (208,263) (319,163) (2,955,342)
Unrealized losses on
trading securities 407,178 104,007 51,119 2,851,416
Stock warrant amortization 245,833 245,835 737,500 348,262
Miscellaneous income (76,273) (75,670) (114,850) (57,534)
--------- --------- --------- ---------
Total other expense 755,575 393,003 1,222,344 660,241
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE
INCOME TAXES (CREDIT) 902,613 (119,781) 1,831,160 (389,095)
INCOME TAXES (CREDIT) 392,397 (48,639) 785,225 (141,639)
-------- ------- --------- --------
NET EARNINGS (LOSS) $510,216 $(71,142) $1,045,935 $(247,456)
======== ======= ========= ========
Net earnings (loss) per
share $.19 $(.03) $.39 $(.11)
Weighted average common
shares and common share
equivalents 2,739,173 2,250,933 2,707,730 2,191,168
See Accompanying Notes.
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(Unaudited)
1997 1996
Net earnings (loss) $1,045,935 $(247,456)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,782,027 963,468
Provision for doubtful accounts 80,353 (2,350)
Realized gain on sales of trading
securities (319,163) (2,955,342)
Unrealized loss on trading securities 51,119 2,851,416
Purchases of trading securities (3,608,474) (7,095,906)
Proceeds from the sale of trading
securities 3,998,444 13,077,081
Proceeds from the sale of investments 94,000 0
Equity in earnings of affiliate (54,000) (6,000)
Changes in assets and liabilities:
Accounts receivable (1,439,958) (434,473)
Receivable from affiliate 115,017 85,390
Inventories (473,686) 881,756
Prepaid expenses and other assets 128,386 81,908
Trade accounts payable 290,378 98,998
Accrued compensation 59,930 204,036
Taxes other than income taxes 58,164 (21,026)
Accrued expenses 200,001 63,956
Deferred income taxes (449,000) (1,170,593)
Income taxes payable 306,640 70,114
--------- ---------
Total adjustments 820,178 6,692,433
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,866,113 6,444,977
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment (347,506) (164,399)
Proceeds from sale of equipment 0 0
Payments received on advances to affiliates 0 20,000
Payment for purchase of acquired
company, net of cash acquired 0 (18,914,093)
--------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (347,506) (19,058,492)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt $400,000 $16,540,000
Principal payments on long-term debt (1,764,831) (3,761,069)
Proceeds from issuance of Common Stock 0 95,727
Stock options exercised 0 0
--------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,364,831) 12,874,658
--------- ----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 43,174 157,420
--------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 196,350 418,563
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 772,008 598,931
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $968,958 $1,017,494
========= ==========
Supplemental disclosure of cash
flow information:
Cash paid during the period for income taxes $927,585 $970,224
Cash paid during the period for interest 845,655 491,390
Supplemental schedule of non-cash
investing and financing activities:
Stock issued under separate agreement
which offset a portion of purchase
price of acquired companies $ 0 $ 766,274
Note receivable offset against purchase
price of acquired companies $ 0 $ 332,400
Fair value of warrants issued in
connection with financing of
acquisition $ 0 $ 2,950,000
See Accompanying Notes.
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, these statements do not
include all of the information and footnotes required by generally
accepted accounting principles 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 nine-month period ending October 31, 1997 are
not necessarily indicative of the results that may be expected for other
interim periods or the year ended January 31, 1998. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
January 31, 1997.
Note 2 - Nature of Business and Accounting Policies
Principles of Consolidation - The consolidated financial statements
include the accounts of Edison Control Corporation ("Edison") and
subsidiaries, all of which subsidiaries are wholly owned by Edison
(collectively, the "Company"). All material intercompany accounts and
transactions have been eliminated in consolidation.
Nature of Operations - The Company is currently comprised of four
operating units. Construction Forms ("ConForms") is a leading
manufacturer and distributor of systems of pipes, couplings and hoses and
other equipment used for the pumping of concrete. ConForms manufactures a
wide variety of finished products which are used to create appropriate
configurations of systems for various concrete pumps. Ultra Tech
manufactures abrasion resistant piping systems for use in industries such
as mining, pulp and paper, power and waste treatment. Gilco produces a
line of concrete and plaster/mortar mixers. JABCO primarily leases
property and equipment to Ultra Tech.
Trading Securities - Debt and equity securities purchased and held
principally for the purpose of sale in the near term are classified as
"trading securities" and reported at fair value with unrealized gains and
losses included in earnings. The cost of individual securities sold is
based on the first-in, first-out method.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from
those estimates.
Translation of Foreign Currencies - Assets and liabilities of foreign
operations are translated into United States dollars at current exchange
rates. Income and expense accounts are translated into United States
dollars at average rates of exchange prevailing during the year.
Adjustments resulting from the translation of financial statements of the
foreign operations are included as foreign currency translation
adjustments in the equity section of the accompanying consolidated balance
sheets.
Net Earnings(Loss) Per Common Share and Common Share Equivalents - Net
earnings (loss) per common share and common share equivalents is computed
based upon the weighted average number of common shares and common share
equivalents (stock options and warrants) outstanding during the period.
Common share equivalents from dilutive stock options and warrants were
calculated using the treasury stock method. Common share equivalents
(stock options and warrants) were antidilutive for the 1996 periods ended.
Accounting Pronouncements - Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" was issued in
1995. The Company has elected to continue to account for stock-based
compensation under Accounting Principles Board Opinion No. 25 as allowed
by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share" and SFAS No. 129, "Disclosure of
Information about Capital Structure". In June 1997, FASB issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company is
currently in the process of evaluating the accounting and disclosure
effects of these Statements. SFAS No. 128 and 129 are required to be
adopted in the fourth quarter of this year. SFAS No. 130 and 131 are
required to be adopted in the first quarter of the year beginning February
1, 1998.
Item 2.
Management's Discussion and Analysis of Operations and Financial Condition
Certain matters discussed in this Quarterly Report on Form 10-Q are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as
such because the context of the statement will include words such as the
Company "believes", "anticipates", "expects", or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which are
described in close proximity to such statements and which would cause
actual results to differ materially from those anticipated as of the date
of this report. Shareholders, potential investors and other readers are
urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-
looking statements. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
On June 21, 1996, the Company purchased all of the issued and outstanding
stock of Construction Forms, Inc. and its subsidiaries for aggregate cash
consideration of approximately $20,550,000. The acquisition was accounted
for as a purchase transaction with the purchase price allocated to the
fair value of specific assets acquired and liabilities assumed.
Accordingly, the results of operations have been included since the date
of the acquisition. Resultant goodwill is being amortized over 40 years.
Net sales for the quarter ended October 31, 1997 increased $1,435,683
(25.6%) to $7,048,009 compared with the same period of the prior year.
Strong domestic sales at ConForms and large project sales to power and
phosphate industry customers at Ultra Tech accounted for the increase.
For the first nine months of the year, net sales increased $9,300,121
(105.4%) to $18,126,002. The increase was mainly attributable to the
inclusion of the results of operations of the acquired companies for the
full period. Construction Forms, Inc. and subsidiaries' net sales for the
nine months ended October 31, 1997 increased $1,683,125 (10.2%) compared
to fiscal 1996. As explained above, increased volumes at ConForms and
Ultra Tech accounted for the increase.
As a percentage of net sales, gross profit margin increased to 38.1% for
the quarter ended, and to 37.5% for the nine-month period ended October
31, 1997, as compared to 29.2% and 28.0% in the prior year periods,
respectively. Gross margin for Construction Forms, Inc. and subsidiaries
for the nine-month period ended October 31, 1997 increased to 37.0% from
28.8%. The increase for the quarter was due to better pricing on Ultra
Tech sales and better fixed cost coverage from the increased volume at
ConForms and Ultra Tech. The increase in the nine month gross profit
percentages was due to the inclusion of the acquired companies for the
full period, the pricing and fixed cost coverage previously discussed, and
the sale of the Edison electronic fault indicator business in late 1996.
Selling, engineering and administrative expenses for the third quarter of
1997 were $949,597 compared to $1,114,706 for the prior year's quarter.
The decrease was mainly due to decreases in general insurance and
ConForms' sales and marketing expenses. Selling, engineering and
administrative expenses represent 17.7% and 20.9% of net sales for the
nine- month periods ended October 31, 1997 and 1996, respectively. The
percentage decrease for the 1997 nine month period was primarily
attributable to the inclusion of the results of operations of the acquired
companies. Selling, engineering and administrative expenses of the
acquired companies for the nine month periods ended October 31 decreased
17.2% to $2,783,457 in 1997 compared to $3,360,852 for the same period
last year. This was mainly due to the decrease in personnel wages and
benefits from the previous year.
Interest expense was $274,859 and $867,738 for the three-and nine-month
periods ended October 31, 1997 compared to $327,094 and $473,439 for the
similar periods ended October 31, 1996. Debt was incurred to finance the
acquisition on June 21, 1996. Since the acquisition, the Company has
made over $4,000,000 in principal payments.
The net loss on trading securities was $311,156 for the quarter ended
October 31, 1997 compared to last year's net gain of $104,256. For the
nine months ended October 31, 1997, the net gain was $268,044, compared to
a net gain of $103,926 for the same period last year. A major reason for
the decrease for the quarter was related to the decrease in the market
value of the Company's holdings in Glenayre Technologies, Inc. Although
the Company has no established formal investment policies or practices for
its trading securities portfolio, the Company generally pursues an
aggressive trading strategy, focusing primarily on generating near-term
capital appreciation from its investment in common equity securities.
Securities held in the Company's portfolio at the end of each fiscal
quarter and year are reported at fair value, with unrealized gains and
losses included in earnings for that period. These factors, combined with
the relative size of the Company's trading portfolio, has lead, and will
likely continue to lead, to significant period-to-period earnings
volatility depending upon the capital appreciation or depreciation of the
Company's trading securities portfolio as of the end of each reporting
period.
The amortization of goodwill, financing costs, stock options and stock
warrants created a total non-cash charge of $1,274,963 for the nine months
ended October 31, 1997 compared to $700,159 for the prior year. Goodwill
is being amortized over a 40-year period. The stock option amortization
was fully amortized as of June 21, 1997. The amortization of financing
costs and stock warrants will continue principally until June 21, 1999.
The total amortization of all these non-cash charges for the year ended
January 31, 1998 is expected to approximate $1,600,000($.39 per share, net
of tax).
The Company recorded tax expense of $785,225 for the nine months ended
October 31, 1997, which represents the estimated annual effective rate of
42.9% applied to pre-tax book income. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement reporting purposes and the
amounts used for income tax purposes.
Net earnings of $510,216, or $.19 per share, for the quarter ended October
31,1997 represents an increase of $581,358 from a net loss of $71,142, or
$.03 per share, for the comparable period of the prior year. For the nine
months ended October 31, 1997, net earnings were $1,045,935, or $.39 per
share, compared to a net loss of $247,456, or $.11 per share, in the
prior year. This change was principally due to the operating results of
the acquired companies.
Liquidity and Capital Resources
The Company generated $1,866,113 in cash from operations during the first
nine months of 1997. The Company used $347,506 of cash to acquire
capital equipment and $1,364,831 of cash to pay back long-term debt. The
result was a net increase in cash and cash equivalents of $196,350 for the
first nine months of 1997 compared to a net increase of $418,563 in the
prior year's first nine months. The difference between the two periods
was attributable to the change in the balance sheet composition as a
result of the acquisition.
The Company believes that it can fund proposed capital expenditures and
operational requirements from operations and currently available cash,
cash equivalents, investments and existing bank credit lines. Proposed
capital expenditures for the remainder of the fiscal year 1997 are
expected to total approximately $150,000.
Additionally, at October 31, 1997, the Company's current ratio was 3.6:1.
At January 31, 1997, the current ratio was 3.9:1. Required minimum debt
principal payments for the year are approximately $869,000 and are
expected to be funded from operating cash flow.
The Company continues to explore possible acquisition opportunities to
expand its core business. The Company currently anticipates that any
potential acquisitions would be financed by internally generated funds,
additional borrowings, or equity financing.
PART II.
Item 6.
Exhibits
The Exhibits filed or incorporated by reference herein are as specified in
the Exhibit Index.
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter to
which the report relates.
<PAGE>
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.
EDISON CONTROL CORPORATION
(Registrant)
Date: December 9, 1997 /s/ Jay R. Hanamann
Jay R. Hanamann
(Chief Financial Officer)
<PAGE>
Edison Control Corporation
Exhibit Index
Exhibit No. Description
27. Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EDISON CONTROL CORPORATION AS OF AND FOR
THE NINE MONTHS ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 968,958
<SECURITIES> 4,629,762
<RECEIVABLES> 4,072,913
<ALLOWANCES> 372,621
<INVENTORY> 5,790,634
<CURRENT-ASSETS> 16,826,817
<PP&E> 7,753,672
<DEPRECIATION> 836,002
<TOTAL-ASSETS> 34,250,496
<CURRENT-LIABILITIES> 4,683,217
<BONDS> 14,700,929
0
0
<COMMON> 22,759
<OTHER-SE> 14,667,591
<TOTAL-LIABILITY-AND-EQUITY> 34,250,496
<SALES> 18,126,002
<TOTAL-REVENUES> 18,126,002
<CGS> 11,320,989
<TOTAL-COSTS> 11,320,989
<OTHER-EXPENSES> 4,106,115
<LOSS-PROVISION> 80,353
<INTEREST-EXPENSE> 867,738
<INCOME-PRETAX> 1,831,160
<INCOME-TAX> 785,225
<INCOME-CONTINUING> 1,045,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045,935
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
