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 April 30, 1998
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 April 30, 1998
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Exhibit Reference
or Form 10-Q
Page Number
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 10-Q, Pages 2 & 3
April 30, 1998 (Unaudited) and
January 31, 1998
Consolidated Statements of Operations 10-Q, Page 4
Three months ended April 30,
1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows 10-Q, Pages 5 & 6
Three months ended April 30,
1998 and 1997 (Unaudited)
Notes to Consolidated Financial Statements 10-Q, Pages 7 - 9
(Unaudited)
Item 2 Management's Discussion and Analysis of 10-Q, Pages 9 - 11
Operations and Financial Condition
Part II Other Information
Item 6 Exhibits 10-Q, Page 12 and
Exhibit Index
<PAGE>
PART I.
Item 1
Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and January 31, 1998
April 30, January 31,
1998 1998
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 743,516 $1,037,288
Investments 190,000 190,000
Trading securities 4,766,981 3,653,763
Trade accounts receivable, net 3,693,570 2,995,637
Receivable from affiliates 130,074 103,482
Inventories, net 6,275,489 5,974,302
Prepaid expenses and current other assets 136,409 193,099
Refundable income taxes 37,771 81,182
Deferred financing costs 983,333 983,333
---------- ----------
Total current assets 16,957,143 15,212,086
Investment in and advances to affiliate 423,150 433,150
Other Assets:
Prepaid pension 256,134 283,134
Deferred financing costs 143,404 389,236
---------- ----------
Total other assets 399,538 672,370
Property, plant and equipment, net 6,820,543 6,945,103
Goodwill (net of amortization) 8,864,511 8,922,576
Organizational/finance costs (net of
amortization) 149,091 170,672
---------- ----------
TOTAL ASSETS $33,613,976 $32,355,957
========== ==========
(Continued)
See Accompanying Notes.
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and January 31, 1998
(Continued)
April 30, January 31,
1998 1998
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,441,450 $ 1,261,244
Accrued compensation 441,249 781,566
Taxes other than income taxes 72,286 29,985
Other accrued expenses 584,085 555,045
Deferred income taxes 360,000 115,000
Deferred compensation 754,250 754,250
Current maturities on long-term debt 841,664 841,664
--------- ---------
Total current liabilities 4,494,984 4,338,754
Long-term debt, less current maturities 13,365,885 13,181,678
Deferred income taxes 420,000 245,000
--------- ---------
TOTAL LIABILITIES 18,280,869 17,765,432
Shareholders' 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, 2,275,933 shares issued
and outstanding 22,759 22,759
Additional paid-in-capital 10,016,435 10,016,435
Retained earnings 5,213,238 4,558,493
Accumulated other comprehensive income 80,675 (7,162)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 15,333,107 14,590,525
---------- ----------
TOTAL LIABILITIES AND EQUITY $33,613,976 $32,355,957
========== ==========
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
1998 1997
NET SALES $6,725,614 $5,707,231
COST OF GOODS SOLD 4,453,433 3,682,752
--------- ----------
GROSS PROFIT 2,272,181 2,024,479
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative expenses 1,192,549 1,082,771
Stock option amortization 0 188,563
Goodwill and organizational/
finance cost amortization 79,646 79,635
---------- ----------
Total other operating expenses 1,272,195 1,350,969
---------- ----------
OPERATING INCOME 999,986 673,510
OTHER EXPENSE (INCOME):
Interest expense 268,203 310,984
Realized losses on trading securities 12,250 195,688
Unrealized (gains) losses on trading securities(622,780) 436,900
Stock warrant amortization 245,833 245,835
Miscellaneous (income) expense (39,171) (22,172)
---------- ----------
Total other (income) expense (135,665) 1,167,235
---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (CREDIT) 1,135,651 (493,725)
INCOME TAXES (CREDIT) 480,906 (179,960)
---------- ----------
NET INCOME (LOSS) $654,745 $(313,765)
========== ==========
Net income (loss) per share - basic $.29 $(.14)
Net income (loss) per share - diluted $.23 $(.14)
See Accompanying Notes.
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
1998 1997
Net income (loss) $ 654,745 $ (313,765)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization 510,955 682,885
Provision for doubtful accounts 36,929 34,958
Realized loss on sales of trading
securities 12,250 195,688
Unrealized (gain) loss on trading
securities (622,780) 436,900
Purchases of trading securities (650,438) (1,006,875)
Proceeds from the sale of trading
securities 147,750 1,179,312
Equity in earnings of affiliates (20,000) 0
Changes in assets and liabilities:
Accounts receivable (734,862) (664,145)
Receivable from affiliate (26,592) 81,209
Inventories (301,187) 163,336
Prepaid expenses and other assets 83,690 28,727
Trade accounts payable 180,206 466,962
Accrued compensation (340,317) (206,213)
Taxes other than income taxes 42,301 12,560
Accrued expenses 29,040 47,485
Deferred income taxes 420,000 (297,000)
Income taxes payable 43,411 (735)
--------- --------
Total adjustments (1,189,644) 1,155,054
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (534,899) 841,289
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment (60,917) (100,493)
Payments received from affiliates 30,000 0
--------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (30,917) (100,493)
--------- ---------
(Continued)
See Accompanying Notes.
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
(Continued)
1998 1997
Cash flows from financing activities:
Proceeds from issuance of long-term debt $500,000 $0
Principal payments on long-term debt (315,793) (779,217)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 184,207 (779,217)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 87,837 35,655
--------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (293,772) (2,766)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,037,288 772,008
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 743,516 $ 769,242
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 17,495 $117,775
Cash paid during the period for interest 249,740 261,601
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 instruction to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they 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 three month period ending April 30, 1998 are not
necessarily indicative of the results that may be expected for other
interim periods or the year ended January 31, 1999. 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, 1998.
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 the following
operations. 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 other comprehensive income.
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 June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." The Statement is effective for fiscal 1998. The Company is
in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will not have an impact on the Company's consolidated
financial statements.
Net income (loss) per share - Effective for 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share," which established new standards for the calculation of net
income per share effective for interim and annual periods ending after
December 1997. Income per share for the three-month period ended April
30, 1997 has been restated to comply with SFAS No. 128. Reconciliation of
the numerator and denominator of the basic and diluted per share
computations for the three month periods ended April 30, 1998 and 1997 are
summarized as follows:
1998 1997
Net income (loss) per share basic:
Net income (loss) (numerator) $654,745 $(313,765)
Weighted average shares outstanding
(denominator) 2,275,933 2,275,933
Net income (loss) per share - basic $ .29 $(.14)
Net income (loss) per share diluted:
Net income (loss) (numerator) $654,745 $(313,765)
Weighted average shares outstanding
(denominator) 2,275,933 2,275,933
Effect of dilutive securities:
Stock options 186,778 0
Stock warrants 352,679 0
---------- ----------
Weighted average shares outstanding
(denominator) 2,815,391 2,275,933
Net income (loss) per share - diluted $ .23 $(.14)
Stock options and warrants were antidilutive for the three-month period
ended April 30, 1997 under the treasury stock method.
Reclassifications - Certain reclassifications have been made to the prior
periods' financial statements to conform with the current year
presentation.
Comprehensive Income- Effective February 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income." Statement 130 establishes new
rules for the reporting and display of comprehensive income and its
components. The adoption of this Statement had no impact on the Company's
net income or shareholders' equity. Statement 130 requires the Company's
foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform with the requirements of Statement 130. During
the three months ended April 30, 1998 and 1997, total comprehensive income
(loss), which was comprised of net income (loss) and foreign currency
translation adjustments, amounted to approximately $743,000 and
($278,000), respectively.
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.
Net sales for the quarter ended April 30, 1998 increased $1,018,383
(17.8%) to $6,725,614 when compared with the same period of the prior
year. Strong domestic sales at ConForms, large project sales at Ultra Tech
and the inclusion of sales from the Company's Malaysian operation which
started in October 1997, accounted for the increase.
As a percentage of net sales, gross margin for the quarter decreased to
33.8% from 35.5% due to the strength of the United States dollar abroad
and lower margins on large project sales for Ultra Tech. Selling,
engineering and administrative expenses as a percentage of sales improved
to 17.7% compared to 19.0% for the same period last year. This
improvement was mainly due to leveraging higher sales volume with minimal
increases in selling, engineering and administrative expenses.
Interest expense decreased to $268,203 for the quarter ended April 30,
1998 compared to $310,984 for the quarter ended April 30, 1997. This
change resulted from a reduction of outstanding debt from the same period
last year.
The $610,530 net gain on trading securities compared to last year's net
loss of $632,588 accounted for the Company's major change in pre-tax
income. The principal reason for the increase was an increase in the
market value of US Trust and other trading securities compared to the
decline in the market value of Glenayre Technologies, Inc. during the same
period last year. Trading securities at April 30, 1998 consisted of the
following:
Number of Market
Name of Issuer/Title of Issue Shares Value
Common Stocks:
Cendant Corp. 20,000 $ 501,250
General Motors Corp. 5,000 276,250
Glenayre Technologies, Inc. 40,000 627,500
NCR Corp. 10,000 366,875
Panavision Inc. 6,400 167,200
Raytheon 2,812 155,187
Sonat Inc. 5,000 221,250
Sun International Hotels 10,100 463,969
US Trust Corporation 25,000 1,775,000
VIVUS 20,000 212,500
--------- ---------
Total $ 4,766,981
===========
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 investments in common equity
securities. Securities held in the Company's portfolio at the end of each
period 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 led, 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
Company does not use or buy derivative securities.
The amortization of goodwill, financing costs, stock options and stock
warrants created a total non-cash charge of $325,479 for the first
quarter compared to $514,033 for the prior year first quarter. The
reduction was due to the deferred compensation for the stock options
granted in connection with the ConForms' acquisition by the Company on
June 21, 1996 being fully amortized as of June 21, 1997. The total
amortization of all these non-cash charges for the year ended January 31,
1999 is expected to approximate $1,300,000.
The Company recorded tax expense of $480,906 for the three months ended
April 30, 1998, which represents the estimated annual effective rate of
42.3% 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 income of $654,745, or $.29 and $.23 per share, basic and diluted,
respectively, for the first quarter of 1998 was an increase of $968,510,
from a net loss of $313,765, or $.14 per share, basic and diluted, for the
comparable period of the prior year. This change is principally due to
the net gain on trading securities, the reduction of amortization of the
non-cash charges described above and leveraging higher sales volume with
minimal increases in selling, engineering and administrative expenses.
Liquidity and Capital Resources
The Company used $534,899 in cash from operations during the first three
months of 1998, compared to cash flow provided from operations of $841,289
for the same period last year. This was due largely to a net purchase of
$502,688 of trading securities during the period and increases in accounts
receivable and inventories caused by the significant increase in sales
activity. The Company used $60,917 in cash to acquire capital equipment
and received $184,207 in cash from net long-term debt activity. The
result was a net decrease in cash and cash equivalents of $293,772 for the
first quarter compared to a net decrease of $2,766 in the prior year first
quarter.
The Company believes that it can fund proposed capital expenditures and
operational requirements from operations and currently available cash and
cash equivalents, investments, trading securities and existing bank credit
lines. Proposed capital expenditures for the fiscal year ending January
31, 1999 are expected to total approximately $2,500,000, compared to
$554,923 for fiscal 1997. The significant increase is due principally to
the construction of an addition at the Company's Port Washington facility
and the implementation of a new enterprise resource planning system. The
Company also intends to sell its Cedarburg facility. The Company's asking
price for the facility is $1,350,000, although there can be no assurance
as to when or if this facility may be resold.
The Company intends to continue to expand its businesses, both internally
and through potential acquisitions. The Company currently anticipates
that any potential acquisitions would be financed primarily by internally
generated funds or additional borrowings or the issuance of the Company's
stock.
Year 2000 Issues
As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000
problem. The Company is currently engaged in a comprehensive project to
select and implement a new enterprise resource planning ("ERP") system
that will properly recognize the Year 2000 problem. This project involves
replacing certain hardware and software maintained by the Company.
Management expects to complete this project in early 1999. The Company
estimates that the total cumulative cost of the project will be
approximately $500,000 and will be funded through the Company's operating
cash flows or the existing bank line of credit. Purchased ERP system
hardware and software, approximately $350,000 of the total estimated cost,
will be capitalized in accordance with normal policy. Personnel and all
other costs related to the project are currently, and will continue to be,
expensed as incurred.
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: May 29, 1998 /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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 743,516
<SECURITIES> 4,956,981
<RECEIVABLES> 4,151,644
<ALLOWANCES> 328,000
<INVENTORY> 6,275,489
<CURRENT-ASSETS> 16,957,143
<PP&E> 7,968,920
<DEPRECIATION> 1,148,377
<TOTAL-ASSETS> 33,613,976
<CURRENT-LIABILITIES> 4,494,984
<BONDS> 13,365,885
0
0
<COMMON> 22,759
<OTHER-SE> 15,310,348
<TOTAL-LIABILITY-AND-EQUITY> 33,613,976
<SALES> 6,725,614
<TOTAL-REVENUES> 6,725,614
<CGS> 4,453,433
<TOTAL-COSTS> 1,272,195
<OTHER-EXPENSES> (135,665)
<LOSS-PROVISION> 36,929
<INTEREST-EXPENSE> 268,203
<INCOME-PRETAX> 1,135,651
<INCOME-TAX> 480,906
<INCOME-CONTINUING> 654,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 654,745
<EPS-PRIMARY> .29
<EPS-DILUTED> .23
</TABLE>
