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, 1999
----------------
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
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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.)
777 Maritime Drive
PO Box 308
Port Washington, WI 53074-0308
------------------------------
(Address of principal executive offices)
(Zip Code)
(414) 268-6800
--------------
(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: 2,346,933 as of October 31, 1999
- --------------------------------------------------------------
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Form 10-Q
Page Number
-----------
Part I Financial Information
----------------------------
Item 1 Financial Statements
- ---------------------------
Consolidated Balance Sheets Pages 2-3
October 31, 1999 (Unaudited) and
January 31, 1999
Consolidated Statements of Income Page 4
Three and nine months ended October 31,
1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows Pages 5-6
Nine months ended October 31,
1999 and 1998 (Unaudited)
Notes to Consolidated Financial Statements Pages 7-9
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 10-13
- ----------------------------------------------
Operations and Financial Condition
----------------------------------
Item 3 Quantitative and Qualitative Disclosures
- -----------------------------------------------
About Risk Page 13
----------
Part II Other Information
-------------------------
Item 6 Exhibits Page 14 and
- --------------- Exhibit Index
1
<PAGE>
PART I.
Item 1
Financial Statements
- --------------------
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1999 and January 31, 1999
October 31, January 31,
1999 1999
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $455,236 $468,072
Investments 95,000 190,000
Trading securities 1,014,525 3,616,314
Trade accounts receivable, net 3,983,598 3,513,342
Receivable from affiliate 50,616 93,575
Inventories, net 6,862,474 7,619,746
Prepaid expenses and other assets 233,889 193,650
Refundable income taxes 0 120,505
Deferred income taxes 222,000 2,000
Assets held for sale 0 1,032,200
Deferred financing costs 0 389,236
- -------
Total current assets 12,917,338 17,238,640
Investment in and advances to affiliate 466,263 421,263
Other Assets:
Prepaid pension 64,510 151,477
Deferred income taxes 279,000 129,000
------- -------
Total other assets 343,510 280,477
Property, plant and equipment, net 8,024,223 8,187,899
Goodwill (net of amortization) 8,516,122 8,690,318
Organizational/finance costs (net of
amortization) 47,031 84,400
------ ------
TOTAL ASSETS $30,314,487 $34,902,997
=========== ===========
(Continued)
See Accompanying Notes.
2
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1999 and January 31, 1999
(Continued)
October 31, January 31,
1999 1999
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,076,323 $ 1,939,917
Accrued compensation 751,926 739,938
Taxes other than income taxes 5,836 21,325
Other accrued expenses 538,522 522,694
Income taxes payable 135,490 0
Deferred compensation 754,250 754,250
Current maturities on long-term debt 933,439 530,423
------- ---------
Total current liabilities 4,195,786 4,508,547
Long-term debt, less current maturities 8,531,845 14,211,178
--------- ----------
Total Liabilities 12,727,631 18,719,725
Shareholders' Equity:
Preferred stock, $.01 par value: 1,000,000 shares
authorized, none issued 0 0
Common stock, $.01 par value: 20,000,000 shares
authorized, 2,346,933 shares issued
and outstanding 23,469 23,469
Additional paid-in capital 10,323,225 10,323,225
Retained earnings 7,156,926 5,760,823
Accumulated other comprehensive income 83,236 75,755
------ ------
Total Shareholders' Equity 17,586,856 16,183,272
---------- ----------
TOTAL LIABILITIES AND EQUITY $30,314,487 $34,902,997
=========== ===========
See Accompanying Notes.
3
<PAGE>
<TABLE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 31, October 31,
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $6,709,216 $6,498,890 $19,759,315 $20,106,180
COST OF GOODS SOLD 4,287,645 4,134,410 12,668,699 12,815,869
--------- --------- ---------- ----------
GROSS PROFIT 2,421,571 2,364,480 7,090,616 7,290,311
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative expenses 1,119,464 1,137,889 3,431,788 3,464,185
Goodwill and organizational/
finance cost amortization 59,115 79,646 211,565 238,938
------ ------ ------- -------
Total other operating expenses 1,178,579 1,217,535 3,643,353 3,703,123
--------- --------- --------- ---------
OPERATING INCOME 1,242,992 1,146,945 3,447,263 3,587,188
OTHER EXPENSE (INCOME):
Interest expense 176,388 219,798 635,215 725,883
Realized (gains) losses on
trading securities (286,147) 91,219 (542,600) (134,852)
Unrealized losses on
trading securities 378,297 803,614 559,938 823,360
Stock warrant amortization 0 245,833 389,236 737,500
Loss on sale of assets 18,543 0 128,543 0
Miscellaneous income (9,429) (38,883) (55,247) (140,440)
------- -------- -------- ---------
Total other expense 277,652 1,321,581 1,115,085 2,011,451
------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 965,340 (174,636) 2,332,178 1,575,737
INCOME TAXES (CREDIT) 379,479 (52,138) 936,075 686,338
------- -------- ------- -------
NET INCOME (LOSS) 585,861 (122,498) 1,396,103 889,399
OTHER COMPREHENSIVE INCOME
- Foreign currency
translation adjustment 26,469 103,309 7,481 111,376
------ ------- ----- -------
COMPREHENSIVE INCOME
(LOSS) $612,360 ($ 19,189) $1,403,584 $1,000,775
======== ========== ========== ==========
Net income (loss) per share-basic $.25 ($.05) $.59 $.38
Net income (loss) per share-diluted $.20 ($.05) $.48 $.31
See Accompanying Notes.
</TABLE>
4
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(Unaudited)
1999 1998
---- ----
Net income $1,396,103 $889,399
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,287,167 1,503,921
Provision for doubtful accounts 102,896 54,375
Loss on sale of assets 128,543 3,592
Realized gain on sales of trading securities (542,600) (134,852)
Unrealized loss on trading securities 559,938 823,360
Purchases of trading securities (417,875) (2,013,188)
Proceeds from the sale of trading securities 3,002,326 2,207,626
Equity in earnings of affiliate (45,000) (80,000)
Changes in assets and liabilities:
Accounts receivable (573,152) (646,379)
Receivable from affiliate 42,959 (26,895)
Inventories 757,272 (933,375)
Prepaid expenses and other assets 46,728 195,968
Trade accounts payable (863,594) 175,096
Accrued compensation 11,988 (49,516)
Taxes other than income taxes (15,489) 12,298
Other accrued expenses 15,828 (71,244)
Deferred income taxes (370,000) (605,000)
Income taxes payable 255,995 71,393
------- ------
Total adjustments 3,383,930 487,180
--------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,780,033 1,376,579
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment (522,690) (2,141,913)
Maturity of certificate of deposit 95,000 0
Proceeds from sale of assets 903,657 11,267
------- ------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 475,967 (2,130,646)
------- ---------
(Continued)
See Accompanying Notes.
5
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(Unaudited)
(Continued)
1999 1998
---- ----
Cash flows from financing activities:
Proceeds from issuance of long-term debt $5,457,183 $1,775,000
Principal payments on long-term debt (10,733,500) (1,274,816)
Payments received from affiliates 0 90,723
Stock options exercised 0 177,500
- -------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (5,276,317) 768,407
--------- -------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 7,481 111,376
----- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (12,836) 125,716
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 468,072 1,037,288
------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 455,236 $1,163,004
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $1,050,080 $1,219,945
Cash paid during the period for interest 655,907 718,379
See Accompanying Notes.
6
<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, 1999 are not necessarily indicative of the results that may
be expected for other interim periods or the year ended January 31, 2000. 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, 1999.
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 the Company.
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.
7
<PAGE>
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.
Net Income Per Share - Reconciliation of the numerator and denominator of the
basic and diluted per share computations for the three and nine-month periods
ended October 31, 1999 and 1998 are summarized below. The stock options and
warrants were antidilutive for the three months ended October 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 31, October 31,
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income per share-basic:
Net income (loss) (numerator) $ 585,861 ($122,498) $1,396,103 $ 889,399
Weighted average shares
outstanding (denominator) 2,346,933 2,346,933 2,346,933 2,310,913
Net income (loss) per share-basic $ .25 ($.05) $ .59 $ .38
Net income per share-diluted:
Net income (loss) (numerator) $ 585,861 ($122,498) $1,396,103 $ 889,399
Weighted average shares
outstanding 2,346,933 2,346,933 2,346,933 2,310,913
Effect of dilutive securities:
Stock options 147,758 0 177,815 183,401
Stock warrants 372,888 0 392,173 391,270
Weighted average shares
outstanding (denominator) 2,867,579 2,346,933 2,916,921 2,885,584
Net income (loss) per share-diluted $ .20 ($.05) $ .48 $ .31
</TABLE>
Reclassifications - Certain reclassifications have been made to the prior
periods' financial statements to conform with the current year presentation.
Note 3 - Long-Term Debt
- -----------------------
On April 30, 1999, Edison refinanced its bank debt and amended its master credit
agreement with LaSalle National Bank of Chicago. As part of the refinancing,
Edison liquidated approximately $2,600,000 of its existing trading security
portfolio and utilized $2,500,000 of these funds to reduce its outstanding debt.
Also, as part of the refinancing, LaSalle paid the subordinated bank loan holder
in full (approximately $6,800,000).
8
<PAGE>
The Company's amended master credit agreement expires April 30, 2004 and allows
for revolving credit borrowings not to exceed $6,000,000 ($2,300,000 outstanding
at October 31, 1999). Borrowings, which are based on qualified assets, bear
interest at either the prime rate or the LIBOR rate plus 2%.
The Company also maintains a term loan ($4,450,000 outstanding at October 31,
1999) under the amended master credit agreement. Quarterly principal payments of
$200,000 are required by the agreement. Borrowings bear interest at either the
prime rate or the LIBOR rate plus 2.25%. The agreement calls for an additional
annual principal payment based on excess cash flow as defined in the agreement.
The terms of the amended master credit agreement, among other provisions,
require the Company to maintain a minimum current ratio, tangible net worth, and
debt service coverage ratio, and restricts the Company to a maximum funded debt
to EBITDA ratio. Substantially all of the Company's assets are collateralized
under the amended master credit agreement. The LIBOR spread may be reduced or
increased annually based on the achievement of a certain "funded debt to EBITDA"
ratio.
Note 4 - Segment Information
- ----------------------------
The Company's operating segments are organized based on the nature of products
and services provided. A description of the nature of the segments' operations
and their accounting policies are contained in Note 2. Segment information for
the three and nine-month periods ended October 31, 1999 and 1998 follows:
Three Months Ended October 31,
-----------------------------
1999 1998
---- ----
Net Operating Net Operating
Sales Income Sales Income
----- ------ ----- ------
ConForms $ 5,302,538 $ 1,227,940 $ 5,011,859 $ 1,037,333
Ultra Tech 842,913 126,597 748,718 199,420
Gilco 563,765 (39,503) 738,313 (21,639)
Edison ________ (72,042) ________ (68,169)
-------- --------
Total $ 6,709,216 $ 1,242,992 $ 6,498,890 $ 1,146,945
Nine Months Ended October 31,
----------------------------
1999 1998
---- ----
Net Operating Net Operating
Sales Income Sales Income
----- ------ ----- ------
ConForms $15,744,637 $3,528,369 $15,272,474 $3,082,344
Ultra Tech 2,336,703 354,223 3,063,816 862,634
Gilco 1,677,975 (172,646) 1,769,890 (86,967)
Edison ________ (262,683) ________ (270,823)
--------- ---------
Total $19,759,315 $3,447,263 $20,106,180 $3,587,188
9
<PAGE>
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, including, but not limited to, new product
advancements by competition, significant changes in industry technology,
economic or political conditions in the countries in which the Company does
business, the continued availability of sources of supply, the availability and
consummation of favorable acquisition opportunities, increasing competitive
pressures on pricing and other contract terms, economic factors affecting the
Company's customers, stock price variations affecting the Company's securities
trading portfolio and issues related to Year 2000 problems. These factors could
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 October 31, 1999 increased $210,326 (3.2%) to
$6,709,216 compared with net sales for the same period of the prior year. For
the first nine months of this year, net sales decreased $346,865 (1.7%) to
$19,759,315 compared with net sales for the same period of the prior year. The
principal reason for the change was due to the decrease in large project sales
at Ultra Tech during the first quarter. Ultra Tech's sales volume will continue
to fluctuate based on its ability to attain large project sales in the
industries it serves.
As a percentage of net sales, gross margin for the quarter decreased to 36.1%
from 36.4%. Gross margin for the nine months ended October 31, 1999 was 35.9%
compared to 36.3% for the nine months ended October 31, 1998. Improved results
from ConForms were offset by decreased sales of higher margin Ultra Tech
products and lower margins on sales of Gilco products. Selling, engineering and
administrative expenses for the three and nine-month periods ended October 31,
1999 decreased by $18,425 (1.6%) and $32,397 (.9%) from the same period last
year.
Interest expense decreased to $176,388 and $635,215 for the three and nine-month
periods ended October 31, 1999 compared to $219,798 and $725,883 for the same
periods ended October 31, 1998. Interest expense is expected to continue to
decrease due to the debt refinancing described in Note 3 of the Notes to
Consolidated Financial Statements and anticipated future principal reductions.
The Company had a $92,150 and $17,338 net loss on trading securities for the
three and nine-month periods ended October 31, 1999 compared to a $894,833 and
$688,508 net loss for the same periods of the prior year. Trading securities at
October 31, 1999 consisted of the following:
10
<PAGE>
Number of Market
Name of Issuer/Title of Issue Shares Value
- ----------------------------- ------ -----
Common Stocks:
Glenayre Technologies, Inc. 40,000 $ 118,750
Liberty Digital Inc. 3,000 93,750
Pacificare Health Systems Inc. 10,000 394,375
Sun International Hotels 100 2,025
US Trust Corporation 5,000 405,625
----------
Total $ 1,014,525
===========
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 and stock warrants created a total
non-cash charge of $600,801 for the nine months ended October 31, 1999 compared
to $976,438 for the same period of the prior year. Due to the repayment of the
Company's subordinated bank loan, the associated guarantee provided by the
principal shareholder of Edison was canceled. Accordingly, all remaining
deferred financing costs ($143,403), related to the warrant issued to the
principal shareholder for providing the guarantee, were expensed in the first
quarter of fiscal 1999. The total amortization of all these non-cash charges for
the year ended January 31, 2000 is expected to approximate $660,000.
During the third quarter, the Company completed the sale of the land and
building in Cedarburg, Wisconsin to a third party. The sale resulted in a loss
of $128,543.
The Company recorded tax expense of $936,075 for the nine months ended October
31, 1999, which represents the estimated annual effective rate of 40.1% applied
to pre-tax 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 $585,861, or $.25 and $.20 per share, basic and diluted,
respectively, for the third quarter of fiscal 1999 was an increase of $708,359
from a net loss of $122,498, or ($.05) per share, basic and diluted, for the
comparable period of the prior year. The change was principally due to a net
loss on trading securities of $92,150 for the third quarter of 1999 compared to
a net loss on trading securities of $894,833 for the third quarter of 1998. For
the nine months ended October 31, 1999, net income was $1,396,103 or $.59 and
$.48 per basic and diluted share, respectively, compared to net income of
$889,399, or $.38 and $.31 per basic and diluted share, respectively, in the
11
<PAGE>
comparable period of the prior year. The change was principally due to a net
loss on trading securities of $17,338 for the nine months ended October 31, 1999
compared to a net loss on trading securities of $688,508 for the nine months
ended October 31, 1998.
Liquidity and Capital Resources
- -------------------------------
The Company generated $4,780,033 in cash from operations during the first nine
months of 1999, compared to cash flow generated by operations of $1,376,579 for
the same period last year. This change was due largely to the net proceeds of
approximately $2,600,000 received from sales of trading securities during the
period. The Company used $522,690 in cash to acquire capital equipment and
received $95,000 in cash from the maturity of a certificate of deposits and
$903,657 from the sale of the land and building in Cedarburg, Wisconsin. As
described in Note 3 of the Notes to Consolidated Financial Statements, the
Company refinanced its bank debt resulting in a net debt reduction of $5,276,317
for the first nine months compared to a net debt increase of $500,184 in the
prior comparable period. The result was a net decrease in cash and cash
equivalents of $12,836 for the first nine months of fiscal 1999 compared to a
net increase of $125,716 in the prior year's first nine months.
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, 2000 are
expected to total approximately $900,000, compared to $3,082,725 for fiscal
1998. The significant decrease is due principally to the completion in fiscal
year 1998 of construction of an addition at the Company's Port Washington
facility and the implementation of a new enterprise resource planning system
during 1998.
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
- ----------------
During fiscal 1998, the Company 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 involved replacing certain
hardware and software maintained by the Company. The Company has received a
representation from the ERP software provider that its software is Year 2000
compliant. On February 1, 1999, the Company started operating with the new ERP
system. Contingency plans have been developed and will be implemented if Year
2000 problems are encountered with the new ERP system.
The total cumulative cost of the project was approximately $530,000. Purchased
ERP system hardware and software, approximately $385,000 of the total estimated
cost, was capitalized in fiscal 1998. Personnel and all other remaining costs
related to the project were expensed as incurred in fiscal 1998.
The Company has not formally communicated with all its customers and suppliers
to determine the extent to which the Company is vulnerable to those third
parties' failure to address Year 2000 issues. The Company's business operations
could be affected by
12
<PAGE>
the Year 2000 readiness of its customers and suppliers in such areas as the
delay in receipt of cash from customers, the interruption of utilities and the
inability of suppliers to deliver in a timely manner. The Company does not
anticipate any materially adverse affect on its business due to Year 2000
problems encountered by its customers or suppliers; however, there can be no
assurance that its business will not be materially adversely affected by such
problems.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company is exposed to interest rate risk, foreign currency risk and equity
price risk. These risks include changes in U.S interest rates, changes in
foreign currency exchange rates as measured against the U.S. dollar and changes
in the prices of stocks traded on the U.S. markets.
Interest Rate Risk
- ------------------
The Company's debt obligations, which totaled $9,465,284 as of October 31, 1999,
are subject to interest rate risk. Most of the borrowings float at either the
prime rate or LIBOR plus a certain amount of basis points. Based on the October
31, 1999 balance, an increase of one percent in the interest rate on the
Company's loans would cause an increase in interest expense of approximately
$95,000, or $.02 per diluted share, on an annual basis. The Company currently
does not use derivatives to fix variable rate interest obligations.
Foreign Currency Risk
- ---------------------
The Company has foreign operations in the United Kingdom and Malaysia. Sales and
purchases are typically denominated in the British pound, Malaysian ringgit,
German mark, Singapore dollar or U.S. dollar, thereby creating exposures to
changes in exchange rates. The changes in exchange rates may positively or
negatively affect the Company's sales, gross margins and retained earnings. The
Company does not enter into foreign exchange contracts but attempts to minimize
currency exposure risk through working capital management. There can be no
assurance that such an approach will be successful, especially in the event of a
significant and sudden decline in the value of a currency.
Equity Price Risk
- -----------------
Approximately 3.4% of the Company's total assets as of October 31, 1999 are
invested in trading securities of various domestic companies. The market value
of these investments is subject to fluctuation. This factor, combined with the
relative size of the Company's trading portfolio ($1,014,525 at October 31,
1999), 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. A 10% decrease in the quoted market
price of these trading securities would decrease the fair market value of these
securities by approximately $101,000, or $.02 per diluted share.
13
<PAGE>
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
- -------------------
The Company filed no reports on Form 8-K during the quarter to which the report
relates.
14
<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 3, 1999 /s/ Jay R. Hanamann
-----------------------
Jay R. Hanamann
(Chief Financial Officer)
15
<PAGE>
Edison Control Corporation
Exhibit Index
-------------
Exhibit No. Description
- ----------- ------------
27. Financial Data Schedule.
16
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 455,236
<SECURITIES> 1,109,525
<RECEIVABLES> 4,405,110
<ALLOWANCES> 370,896
<INVENTORY> 6,862,474
<CURRENT-ASSETS> 12,917,338
<PP&E> 10,309,459
<DEPRECIATION> 2,285,236
<TOTAL-ASSETS> 30,314,487
<CURRENT-LIABILITIES> 4,195,786
<BONDS> 8,531,845
0
0
<COMMON> 23,469
<OTHER-SE> 17,563,387
<TOTAL-LIABILITY-AND-EQUITY> 30,314,487
<SALES> 19,759,315
<TOTAL-REVENUES> 19,759,315
<CGS> 12,668,699
<TOTAL-COSTS> 3,643,353
<OTHER-EXPENSES> 1,115,085
<LOSS-PROVISION> 102,896
<INTEREST-EXPENSE> 635,215
<INCOME-PRETAX> 2,332,178
<INCOME-TAX> 936,075
<INCOME-CONTINUING> 1,396,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,396,103
<EPS-BASIC> .59
<EPS-DILUTED> .48
</TABLE>
