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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 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.)
777 Maritime Drive 53074-0308
PO Box 308 (Zip Code)
Port Washington, Wisconsin
(Address of principal executive offices)
Registrant's telephone number, including area code:
262-268-6800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Common stock, par value $.01 per share
(Title of class)
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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of Edison Control Corporation common stock,
held by non-affiliates as of March 31, 2000 was $10,910,396.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of March 31, 2000: 2,351,308 shares of common stock,
par value $.01 per share.
Documents Incorporated by Reference
1. Portions of Edison Control Corporation's 1999 Annual Report to
Shareholders are incorporated by reference into Parts I, II and IV of this Form
10-K.
2. Portions of Edison Control Corporation's Notice of Annual Meeting
and Proxy Statement for the Registrant's 2000 Annual Meeting scheduled to be
held on June 29, 2000 are incorporated by reference into Part III of this Form
10-K.
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PART I
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K 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 and economic factors affecting the
Company's security trading portfolio. 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.
Item 1. Business
Edison Control Corporation (the "Company") was incorporated under the laws of
the State of New Jersey on June 18, 1986 to succeed a limited partnership
organized on October 31, 1979. Until June 21, 1996, the principal operating
business was involved in the design, development, manufacture and sale of
electronic fault indicators. On June 21, 1996, the Company purchased, from
unaffiliated persons, all of the issued and outstanding stock of Construction
Forms, Inc. ("ConForms"), CF Ultra Tech, Inc. ("Ultra Tech") and CF Gilco, Inc.
("Gilco") and all of the issued and outstanding units of another affiliate,
JABCO, LLC. On October 31, 1996, the Company sold certain net assets of the
electronic fault indicators business to the manager of that operation. On
February 1, 1998, Ultra Tech and Gilco were merged into ConForms.
The Company conducts its business through its ConForms' divisions. ConForms, the
Company's principal operating unit, designs, manufactures and distributes
concrete pumping systems and accessories. Ultra Tech is engaged in the
manufacturing and marketing of abrasion resistant piping systems. Abrasion
resistant piping systems are used extensively in mining, pulp and paper mills,
wastewater treatment plants and coal-fired electric utility plants, as well as
in concrete pumping applications. Gilco is engaged in the manufacturing and
marketing of a broad line of concrete and mortar/plaster mixers for a broad
segment of industries.
ConForms
Most of ConForms' manufacturing operations and all of its administrative
functions are located at the Company's headquarters in Port Washington,
Wisconsin, which is approximately 25 miles north of Milwaukee. ConForms operates
three branch warehouses for light manufacturing and distribution of its
products. The warehouses are located in Gardena, California; Newport, Wales,
United Kingdom; and Johor Bahru, Malaysia. ConForms also owns a 50% interest in
South Houston Hose Company, a Houston,
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Texas based distributor of concrete pumping accessories, industrial hoses and a
variety of fittings for other markets.
ConForms produces a standardized line of concrete pumping components and
accessories compatible with many different types of concrete pumps in order to
be in a position to provide concrete pumpers and distributors with a complete,
high quality line of components and accessories priced lower than if each
component were purchased individually. ConForms believes that a pumping system
designed as a package helps improve the reliability and output of the pump.
In the 1970s, as concrete pumps became more reliable, available and acceptable
in the United States as the most efficient method of placing concrete, ConForms
worked closely with pump manufacturers and contractors to develop better
engineered products for the rapidly changing industry. The Company believes that
industry standards were largely established based on ConForms' designs.
ConForms' objective was, and continues to be, to provide high quality components
and a superior level of service to stay at the forefront of the concrete pumping
market. As ConForms continued to grow utilizing quality engineering, patent
protection, tooling and fixtures, manufacturing methods and distribution, it
became difficult for smaller manufacturers to match ConForms' total service
level. The Company believes this strategy has allowed ConForms to increase its
market share to over 50% of the North American market.
ConForms manufactures concrete pumping systems and accessories for many
applications, including use in high rise construction, airport and parking
structures, and bridge and tunnel construction. In addition, ConForms' products
are used extensively on mobile, truck-mounted concrete pumps equipped with
articulating booms. Because of the inherent abrasiveness of concrete being
conveyed under pressure, ConForms' products need to be replaced periodically and
the end-user usually contacts ConForms or a distributor for high-quality,
in-stock replacement components.
ConForms manufactures over 7,000 finished products, although approximately 500
products constitute approximately 80% of ConForms' sales. To its knowledge,
ConForms is the only complete source of piping system components and accessories
needed to pump and place concrete. ConForms' products include straight pipe
sections in a variety of lengths, diameters, wall thicknesses, degrees of
hardness, and fittings. In addition, ConForms' products include couplings,
reducers, bends, elbows and valves in various sizes and styles. Specially made
rubber hose in a variety of sizes and configurations is included in ConForms'
product base. The line also includes equipment, which is tailor-made for
particular applications, such as bridge-deck spreaders, krete-placers, hydraulic
diversion discharge valves, and customized equipment used in tunnel
construction.
Marketing
ConForms' products, which account for approximately 79% of the Company's sales,
are marketed principally through its own sales personnel and distributors.
Besides contact from sales personnel, ConForms also attempts to maintain a
prominent level of market visibility through active membership in the American
Concrete Pumping Association, exhibits at industry trade shows, direct mail
publications to end users and conducting industry safety seminars. Approximately
95% of all orders are received over the telephone.
Export sales accounted for approximately 20.3% of ConForms' business for the
year ended January 31, 2000, compared to 19.7% in the prior year. International
markets are expected to be an increasing part of the business in future years.
Customers
ConForms' customer base consists of concrete pump manufacturers (17%),
pumper/dealers (organizations which run a concrete pumping operation but also
act as dealers of concrete pumps and systems) (39%),
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dealers (26%), pumping contractors (11%) and various other businesses such as
rental yards, general contractors, pool contractors, ready mix operations,
mines, fireproofers and precast companies (7%).
No customer exceeded 10% of the Company's consolidated net sales for the year
ended January 31, 2000.
Competition
ConForms competes with a number of manufacturers in the concrete pumping
components and accessories industry. However, the Company believes that this
competition is very fragmented, with most competitors offering a limited
selection of concrete pumping components and mainly selling against ConForms on
price. ConForms competes by providing a complete line of products, quality,
first class service and engineering assistance. Moreover, the Company believes
that ConForms' patents, manufacturing methods and inventory stocking strategy
provide it with a competitive advantage. Pump manufacturers also compete by
actively promoting their internal wear parts and piping systems. Also, some
customers develop their own in-house capability to produce some of the products.
Miscellaneous Data
Principal manufacturing operations include machining, welding, burning, bending,
heat-treating, painting, sawing, hose coupling, assembly and fixture and tool
making.
Raw materials principally include steel pipe and tubing, rubber hose and
castings. ConForms has long-term relationships with a select group of suppliers
to control costs and ensure material quality and availability. ConForms does not
have any written contractual agreements with any of its suppliers.
The business has marginally lower sales volume in the fourth quarter; however
working capital requirements are not significantly impacted. Terms of sale are
generally net 30 days.
ConForms has several patents and trademarks; only one, the method of
heat-treating pipe with a wall thickness of under .200 inches, is considered of
significant importance to the Company.
ConForms order backlog on March 31, 2000 and 1999 was approximately $970,000 and
$965,000, respectively; all of which should be completed prior to the end of the
current fiscal year.
Ultra Tech
Ultra Tech was formed in 1989 to help assure ConForms an in-house supply of the
highest quality, induction-hardened pipe for its concrete pumping systems. The
Company believes its induction-hardened pipe will typically last 3 to 8 or more
times longer than non-hardened pipe. Since its formation, Ultra Tech has
attempted to establish its own identity in many other markets, primarily
throughout the United States, including the mining industry to carry phosphate
and coal slurries, the pulp and paper industry for various slurry mixes, the
power industry to convey fly ash and coal and the waste treatment industry to
convey sludge.
Ultra Tech has developed a line of hardened and overlay pipe products available
in varying diameters, lengths and configurations which prolong the life of a
piping system, regardless of particular wear characteristics found in the
pumping system. The Company uses low alloy steel pipe, advanced heat-treating
technology and metallurgical principles to produce both UT600 and UT500
induction-hardened pipe. Both of these products have a hard, abrasion resistant
inner wall and a more ductile outer layer. For pure abrasion applications, UT600
provides outstanding wear resistance. UT600 induction-hardened pipe is made from
a raw steel pipe of a proprietary chemistry. The pipe is induction heated, then
water quenched on the inner wall. In applications involving impact or shock
loading, UT500 offers more ductility while maintaining a hard innerwear surface.
For applications where abrasion from shear and
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erosion are extreme, UltraWeld Overlay is considered for superior wear
resistance. The result is a surface possessing an excellent combination of high
resistance to erosion, severe abrasion and moderate impact strength. Recently,
Ultra Tech has broadened its line of abrasion resistant products to include
ceramic, chrome carbide and basalt products.
Marketing
Ultra Tech products, which account for approximately 13% of the Company's net
sales, are marketed through Company sales and marketing personnel and
distributors. Ultra Tech advertises regularly in various trade journals.
Ultra Tech's export sales for the year ended January 31, 2000 and 1999 accounted
for approximately 27.8% and 3.3% of Ultra Tech's net sales, respectively.
Customers
The market for Ultra Tech's products is primarily resource-based industries such
as mining, paper and energy. Ultra Tech's products are also used in the
processing industries such as dredging, foundries, steel, cement, sludge and
grain handling. In addition, any pneumatic or hydraulic pipeline transporting
solids is a potential customer for Ultra Tech.
No customer exceeded 10% of the Company's consolidated net sales for the year
ended January 31, 2000.
Competition
There are a number of competitors in the piping industry, including mild steel,
duplex steel, plastic pipe, rubber lined pipe, basalt lined pipe, ceramic lined
pipe and cast alloy pipe. Ultra Tech is one of only two North American
competitors that manufactures induction hardened pipe. Ultra Tech relies on its
efficient manufacturing processes, superior value, quality and engineering
assistance to compete.
Miscellaneous Data
Principal manufacturing operations include machining, welding, burning, bending,
heat-treating and sawing.
Raw materials principally include steel pipe in lengths up to 50 feet and
diameters from 2 1/2 to 40 inches. Ultra Tech does not have any written
contractual agreements with any of its suppliers. Raw materials are readily
available from various sources.
Ultra Tech's business is not seasonal. Working capital requirements may be
significant depending on the size of the order. Terms of sale are generally net
30 days.
Ultra Tech does not depend on patents and trademarks.
Ultra Tech's order backlog on March 31, 2000 and 1999 was approximately $270,000
and $705,000, respectively; all of which should be completed prior to the end of
the current fiscal year.
Gilco
In 1989, ConForms acquired the assets of the mixer division of the Gilson
Brothers Company, a well-known manufacturer of construction and utility mixers.
This acquisition allowed ConForms to diversify and expand its product line and
market base in the concrete construction equipment industry. Gilco is engaged in
designing, manufacturing and marketing concrete and mortar/plaster mixers.
Gilco's product
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lines include mortar/plaster mixers with capacities of six to sixteen cubic
feet, concrete mixers with capacities of one and one-half to nine cubic feet,
and non-tilt mixers with capacities of six to sixteen cubic feet.
Gilco's mixers are built to maintain high production with the densest mixes in
the toughest conditions. The mixers feature a square paddle shaft, steel
blades/adjustable wipers and a reinforced tubular steel frame. They also feature
a dual-belt drive and a completely enclosed extra heavy-duty gear drive with
either an automotive style clutch or a fully automatic hydraulic transmission.
Gilco's new polyurethane liners can be ordered across several mixer lines.
Mixers are driven by gas-powered engines or electric motors.
Gilco occupies a 50,000 square foot factory owned by the Company in Grafton,
Wisconsin. Grafton is approximately 20 miles north of Milwaukee.
Marketing
Gilco markets its products, which account for approximately 8% of the Company's
sales, through inside sales personnel, direct mail, trade magazine
advertisements and referrals. This is in addition to its existing distributor
and retail channels. Gilson mixers are positioned at the high quality, high
price end of the market.
Gilco's export sales accounted for less than 1% of Gilco's net sales volume
during the years ended January 31, 2000 and 1999.
Customers
Approximately 47% of Gilco's sales are to construction equipment dealers.
Another 17% are sold directly to masons, plasterers, general contractors and
other end users. Retail outlets account for about 22% of Gilco's business. The
remaining 14% are sold to government agencies, rental yards, and other equipment
manufacturers.
No customer exceeded 10% of the Company's consolidated net sales for the year
ended January 31, 2000.
Competition
Gilco has a few large competitors along with several competitors of similar
size. While a few are only involved with mixers, most have a line of additional
and related construction equipment products. Gilco competes on the basis of its
high quality.
Miscellaneous Data
Principal manufacturing operations include metal fabricating, welding, burning,
bending, assembly and painting.
Raw materials principally include sheet metal, steel, castings, tires and
engines. Gilco does not have any written contractual agreements with any of its
suppliers. All raw materials are readily available.
The business is seasonal with slightly lower sales volume in the fourth quarter;
however, working capital requirements are not significantly affected. Terms of
sale are generally net 30 days.
Gilco's patents and trademarks are not material to Gilco's business.
Gilco's order backlog on March 31, 2000 and 1999 was approximately $55,000 and
$85,000, respectively; all of which should be shipped during the current fiscal
year.
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General Matters
Research and development expenditures are a part of the engineering department's
budget and are expensed as incurred. The estimated total amount spent on
research and development during the years ended January 31, 2000, 1999 and 1998
totaled approximately $223,000, $212,000 and $190,000, respectively.
The Company believes that compliance with Federal, state and local environmental
regulations will not require significant capital expenditures or materially
affect future earnings in fiscal 2000.
No portion of the business is subject to renegotiation of profits or termination
of contracts at the election of the United States government.
Industry Segments
Information on industry segments is incorporated by reference to footnote 15 of
the consolidated financial statements contained in the Company's 1999 Annual
Report to Shareholders.
Foreign Operations
Information on foreign operations is incorporated by reference to footnote 14 of
the consolidated financial statements contained in the Company's 1999 Annual
Report to Shareholders.
Employees
As of January 31, 2000, the Company had 122 active full-time employees.
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Item 2. Properties
The following table sets forth certain information with respect to the Company's
principal facilities as of January 31, 2000:
Square Feet
of
Location Floor Space Description and Principal Use
- -------- ----------- ------------------------------------
Port Washington, WI(1) 95,000 One-story and partial mezzanine,
masonry and metal clad, steel frame
office and manufacturing facility on
15 acres used mainly for
manufacturing of ConForms and Ultra
Tech products and headquarters for
all office personnel.
Grafton, WI (1) 42,000 One and part two-story, masonry and
metal clad, steel and wood framed
office and manufacturing facility on
2.2 acres used mainly for
manufacturing Gilco and Ultra Tech
products.
Gardena, CA(2) 10,000 One-story office and manufacturing
facility used for the distribution
and light manufacturing of ConForms
products.
Newport, Wales, 10,000 One-story office and manufacturing
United Kingdom(3) facility used for the distribution
and light manufacturing of ConForms
products.
Johor Bahru, 10,000 One-story office and manufacturing
Malaysia(4) facility used for the distribution
and light manufacturing of ConForms
products.
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(1) The Company owns these facilities, all of which are mortgaged under debt
agreements.
(2) The Company leases this facility. The lease expires November 30, 2003.
(3) The Company leases this facility. The lease expires October 31, 2000.
(4) The Company leases this facility. The lease expires January 31, 2001.
The Company believes that all of its facilities are in good condition and are
adequate for their intended uses.
Item 3. Legal Proceedings
The Company is party to routine legal proceedings, involving product liability
and environmental matters, incidental to its business. There are currently no
material legal proceedings pending to which the Company is a party nor were any
material legal proceedings concluded during the fourth quarter of fiscal 1999.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
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Part II
Item 5. Market for the Company's Stock and Related Stockholder Matters
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
EDCO. The following table sets forth the high and low bid quotation for the
fiscal quarter shown. The prices quoted represent prices between dealers in
securities without adjustments for mark-ups, mark-downs or commissions and do
not necessarily reflect actual transactions.
Fiscal 1998
Quarter High Low
------- ---- ---
1st 6 1/2 4
2nd 11 1/2 6 3/4
3rd 9 1/8 6 3/4
4th 7 1/2 6 1/8
Fiscal 1999
Quarter High Low
------- ---- ---
1st 10 6.578
2nd 9 5/8 8 5/16
3rd 8 3/8 5
4th 14 5 5/8
The approximate number of shareholders of record and beneficial shareholders of
the Company's $.01 par value common stock as of January 31, 2000 were 35 and
600, respectively.
The Company has not previously paid any dividends on its Common Stock. The
Company intends to follow a policy of retaining all of its earnings to finance
its business and any future acquisitions.
The following information for this Part II is incorporated by reference to the
Company's 1999 Annual Report to Shareholders, as follows:
Information Incorporated
Item Caption by Reference to:
- ---- ------- ------------------------
6. Summary of Selected Financial Data Annual Report, page 7
7. Management's Discussion and Annual Report, pages 3 - 6
Analysis of Financial Condition
and Results of Operations
7A. Quantitative and Qualitative Disclosures Annual Report, pages 5 - 6
About Market Risk
8. Audited Financial Statements and Annual Report, pages 8 - 31
Supplemental Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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Part III
Item 10. Directors and Executive Officers of the Registrant
At March 31, 2000, the names and ages of all executive officers and directors of
the Company and all positions and offices held with the Company are listed
below. There are no family relationships between such persons. All officers are
elected annually by the Board of Directors at the first Board meeting following
each annual meeting of the shareholders. There are no agreements between any of
the officers and any other person pursuant to election as an officer.
First
Name Office Elected Age
---- ------ ------- ---
William B. Finneran Chairman of the Board and Director 1991 59
John J. Delucca Director 1991 56
Mary E. McCormack Director 1995 46
Alan J. Kastelic President and Chief Executive 1996 56
Officer of Edison Control
Corporation and Director
Jay R. Hanamann Secretary, Treasurer and Chief 1996 40
Financial Officer
Robert L. Cooney Director 1997 66
William C. Scott Director 1997 65
Norman Eig Director 1999 59
William B. Finneran is a Managing Director of First Union Securities, an
investment-banking firm. Prior to joining First Union, Mr. Finneran was a
Managing Director at CIBC Oppenheimer Corp. and had been employed with them
since 1972. Mr. Finneran is a Director of National Planning Association, a
non-profit advisory board and Covenant House, a non-profit charitable
institution. Mr. Finneran also serves on the Board of Operation Smile and
Villanova University.
John J. Delucca is Executive Vice President, Finance and Administration, and CFO
of Coty, Inc., a cosmetics and fragrance company. Previously, Mr. Delucca served
as Senior Vice President and Treasurer of RJR Nabisco from September 1993 to
December 1998, Chief Financial Officer of the Hascoe Association, a private
investment company from January 1991 to September 1993, President and Chief
Financial Officer for The Lexington Group from October 1990 to January 1991,
Senior Vice President of Finance and Managing Director of the Trump Group from
May 1988 to October 1990, and Senior Vice President of Finance for International
Controls Corporation from April 1986 to May 1988. In addition, Mr. Delucca is a
director of Enzo Biochem, Inc., a genetic research/testing company and Elliot
Company, a manufacturer of turbines and related equipment.
Mary E. McCormack is Director of Acquisitions of McCann-Erickson Worldwide.
Prior to joining McCann, she was Director of Acquisitions of The Hertz
Corporation. She was President and Chief Executive Officer of the Edison Control
Corporation from February 1995 to February 1998. Prior to working with the
Company, Ms. McCormack was a Managing Director of Beechtree Capital Partners,
Inc., a boutique merchant banking firm which she co-founded in 1989. From 1983
to 1989, she served in a variety of capacities for the investment banking and
brokerage firm of Advest, Inc., most recently as
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Vice President-Corporate Finance. Ms. McCormack is a Director of Star
International Holdings, Inc., a manufacturer of commercial cooking appliances.
Alan J. Kastelic was appointed President and Chief Executive Officer of Edison
Control Corporation in June 1998 and President and Chief Executive Officer of
Construction Forms, Inc. in June 1996 when Construction Forms, Inc. was acquired
by the Company. Mr. Kastelic had previously been Executive Vice President and
Chief Operating Officer of Construction Forms, Inc. which he joined in 1977.
Prior to joining Construction Forms, Mr. Kastelic was Manufacturing Manager at
Badger Dynamics and Chief Cost Accountant, Material Control Manager and Manager
of Manufacturing at the PCM division of Koehring Corporation.
Jay R. Hanamann was appointed Treasurer and Chief Financial Officer on July 1,
1996. Mr. Hanamann is the Chief Financial Officer of Construction Forms, Inc. He
has served in various financial and management functions with ConForms since
July 1990. From 1981 to 1990 he was employed by the international accounting
firm of Deloitte & Touche LLP.
Robert L. Cooney is a Partner of Cooney, Schroeder & Co., a consulting firm
which he co-founded in February 1997. Mr. Cooney was a Managing Director-Equity
Capital Markets at Credit Suisse First Boston from 1977 to January 1997. Mr.
Cooney also serves as a director of Hoenig Group Inc., a Nasdaq-listed global
securities brokerage firm located in Rye Brook, New York and Equity One, Inc., a
NYSE-listed real estate investment trust located in Miami, Florida.
William C. Scott was the Chairman and Chief Executive Officer of Panavision Inc.
from 1988 to 1999, the leading designer and manufacturer of high-precision film
camera systems for the motion picture and television industries. From 1972 until
1987, Mr. Scott was President and Chief Operating Officer of Western Pacific
Industries Inc., a manufacturer of industrial products. Prior to 1972 Mr. Scott
was a Group Vice President of Cordura Corporation (a business information
company) for three years and Vice President of Booz, Allen & Hamilton (a
management-consulting firm) for five years. He is currently a director of
Panavision Inc. and of Four Media Company.
Norman Eig is Vice-Chairman of Lazard Freres & Co. LLC and has over 32 years of
investment experience. Prior to joining Lazard in 1982, Mr. Eig served as a
General Partner of Oppenheimer & Company and as a Managing Director and Chief
Operating Officer of Oppenheimer Capital Corp. Mr. Eig has a M.B.A. from
Columbia University and a B.S. from Ohio State University.
Certain other information is incorporated by reference to "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
Item 11. Executive Compensation
All information is incorporated by reference to "Executive Compensation" in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
All information is incorporated by reference to "Share Ownership of Directors,
Officers and Certain Beneficial Owners" in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
There were no reportable transactions during the year.
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Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
The consolidated financial statements of the Company, together with the report
thereon of Deloitte & Touche, LLP appear on pages 8 through 31 of the Company's
1999 Annual Report to Shareholders, and are incorporated herein by reference.
(a)(2) Financial Statement Schedules:
Schedules not included have been omitted because they are either not applicable
or the information is presented in the consolidated financial statements or
notes thereto.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the fourth quarter.
(c) Exhibits:
The Exhibits filed or incorporated by reference herein are as specified in the
Exhibit Index.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
By: /s/ Alan J. Kastelic
-------------------------------------------------
Alan J. Kastelic
President and Chief Executive Officer
(Principal Executive Officer)
April 14, 2000
By: /s/ Jay R. Hanamann
-------------------------------------------------
Jay R. Hanamann
Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K has been signed below by the following persons on behalf of Edison Control
Corporation and in the capacities and on the dates indicated:
/s/ William B. Finneran
- ----------------------------------------
William B. Finneran
Chairman of the Board and Director
April 14, 2000
/s/ Mary E. McCormack
- ----------------------------------------
Mary E. McCormack
Director
April 14, 2000
/s/ Norman Eig
- ----------------------------------------
Norman Eig
Director
April 14, 2000
/s/ John J. Delucca
- ----------------------------------------
John J. Delucca
Director
April 14, 2000
/s/ Alan J. Kastelic
- ----------------------------------------
Alan J. Kastelic
Director and President and Chief Executive
Officer of Construction Forms, Inc.
April 14, 2000
/s/ Robert L. Cooney
- ----------------------------------------
Robert L. Cooney
Director
April 14, 2000
/s/ William C. Scott
- ----------------------------------------
William C. Scott
Director
April 14, 2000
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation (incorporated by reference to the
Company's Form 10-Q for the quarter ended July 31, 1998).
3.2 By-laws of the Company (incorporated by reference to the Company's
Registration Statements on Form S-18 (File No. 33-6736-NY) filed on
June 24, 1986).
4.1 Master Credit Agreement dated June 21, 1996 between Construction
Forms, Inc., CF Ultra Tech, Inc., CF Gilco, Inc., and LaSalle
National Bank (incorporated by reference to the Company's Form 8-K
dated July 8, 1996).
4.2 Loan Agreement dated June 21, 1996 between Construction Forms,
Inc., CF Ultra Tech, Inc., CF Gilco, Inc., and Bank Audi USA
(incorporated by reference to the Company's Form 8-K dated July 8,
1996).
10.1 * 1986 Stock Option Plan of Company (incorporated by reference to the
Company's Registration Statement on Form S-18 (File No. 33-6736-NY)
filed June 24, 1986).
10.2 * Stock Warrant issued to William Finneran (incorporated by reference
to the Company's 1997 Proxy Statement Exhibit 2).
10.3 * Edison Control Corporation 1999 Equity Incentive Plan,
(incorporated by reference to the Company's 1999 Proxy Statement
Appendix A).
10.4 Stock and Unit Purchase Agreement dated June 21, 1996 by and among
Registrant, Construction Forms Acquisition Inc. and the
Shareholders of Construction Forms, Inc., CF Gilco, Inc., and
JABCO, LLC (incorporated by reference to Form 8-K dated July 8,
1996).
10.5 * Employment Agreement dated June 21, 1996 between the Company and
Alan J. Kastelic (incorporated by reference to the Company's Form
10-K dated April 25, 1997).
10.6 * Employment Agreement dated June 21, 1996 between the Company and
Jay R. Hanamann (incorporated by reference to the Company's Form
10-K dated April 25, 1997).
10.7 * Stock Option Plan dated June 21, 1996 between the Company and Alan
J. Kastelic (incorporated by reference to the Company's Form 10-K
dated April 25, 1997).
10.8 * Stock Option Plan dated June 21, 1996 between the Company and Jay
R. Hanamann. (incorporated by reference to the Company's Form 10-K
dated April 25, 1997).
10.9 * Nonqualified Stock Option Agreement dated May 29, 1997, between the
Company and Robert Cooney (incorporated by reference to the
Company's Registration Statement on Form S-8 (File No. 333-41483)
filed December 4, 1997).
10.10* Nonqualified Stock Option Agreement dated October 15, 1997, between
the Company and William Scott (incorporated by reference to the
Company's Registration Statement on Form S-8 (File No. 333-41483)
filed December 4, 1997).
14
<PAGE>
13. Pages from 1999 Annual Report to shareholders which are
incorporated by reference to Form 10-K.
21. Subsidiaries of Edison Control Corporation.
23. Consent and Report of Independent Auditors.
27. Financial Data Schedule for the twelve-month period ended January
31, 2000.
99. Definitive Proxy Statement for 2000 Annual Meeting of Shareholders
(to be filed within 120 days of January 31, 2000).
* Represents a management compensation plan.
15
EDISON CONTROL CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Letter to Shareholders 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations 3-6
Summary of Selected Financial Data 7
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report 8
Consolidated Balance Sheets, January 31, 2000 and 1999 9-10
Consolidated Statements of Income, Years Ended January 31,
2000, 1999 and 1998. 11
Consolidated Statements of Shareholders' Equity, Years Ended
January 31, 2000, 1999 and 1998 12
Consolidated Statements of Cash Flows, Years Ended January 31,
2000, 1999 and 1998 13-14
Notes to Consolidated Financial Statements, Years Ended
January 31, 2000, 1999 and 1998 15-31
1
<PAGE>
LETTER TO SHAREHOLDERS
Fiscal 1999, which ended January 31, 2000, was one of our most successful years
on record. Edison Control Corporation ("the Company") increased net sales by
4.3% from $25,050,116 to $26,136,445 and increased net income 79.3% from
$1,202,330, or $0.42 per diluted share, to $2,156,872, or $0.74 per diluted
share. Also, since the acquisition of Construction Forms, Inc. on June 21, 1996,
we have reduced our debt by approximately $10,631,000. We are proud of these
accomplishments.
Negotiations were conducted with potential acquisition candidates throughout the
year, but nothing ensued. Edison will continue to look for acquisitions that
compliment the Company's existing range of products and services and create
value for our shareholders.
As we proceed forward, the Company will continue to focus on its key competitive
advantages:
Market Leader. As the worldwide leader in the manufacture and distribution of
concrete pumping systems and accessories, ConForms provides customers the
advantage of purchasing all concrete pumping system components from one vendor
with the assurance of parts compatibility. ConForms' leading market share is the
result of its extensive distribution channels and commitment to quality products
and customer service.
Customer Service. ConForms' primary strength is to provide superior customer
service to the entire spectrum of the concrete pumping industry with high
quality products.
International Expansion. Although several of the world's regional economies are
stagnant, ConForms' expansion into the United Kingdom and Malaysia and its sales
presence in South America have opened new markets for its products.
Ultra Tech Products. Our Ultra Tech division was started as a means of providing
ConForms with a captive supply of abrasion resistant piping for concrete pumping
systems. Today, Ultra Tech continues to establish its new identity as a leading
provider of abrasion resistant products. Wherever abrasive solid materials are
transported, Ultra Tech's growing line of products and services will provide
customers value and enhance profitability.
Facilities and People. Our employees' talent and dedication have made this
another profitable year. Our management personnel are committed to the Company's
profitability and we have the facilities and resources in place to continue the
trend.
With the continued support of our customers, employees, suppliers and
shareholders, we look forward to building on our record of success in the coming
year!
Sincerely,
/s/ William B. Finneran
William B. Finneran
Chairman of the Board
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this Annual Report to Shareholders 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 customer base and stock price variations affecting the Company's
securities trading portfolio. 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.
RESULTS OF OPERATIONS
Fiscal 1999 versus Fiscal 1998
Net sales for the year ended January 31, 2000 ("fiscal 1999") increased 4.3% to
$26,136,445 compared with $25,050,116 for the year ended January 31, 1999
("fiscal 1998"). Domestic sales for Construction Forms ("ConForms") increased
6.8% due largely to increased sales of the ConForms' Ultra Plus products.
ConForms Europe sales increased 7.4% due to increased sales in the United
Kingdom and the Middle East. These increases were offset by a 3.7% and 4.0%
decrease in Ultra Tech and Gilco sales volume, respectively.
As a percentage of net sales, gross profit margin increased to 36.1% for fiscal
1999 as compared to 35.6% in fiscal 1998. The increase was due mainly to
increased margins at ConForms from production efficiencies obtained from last
year's plant consolidation, purchasing savings, and product mix variations. This
increase was offset by low margin large-project business at Ultra Tech and lower
margins on Gilco products. Selling, engineering and administrative expenses
represented 17.7% of net sales for fiscal 1999 compared to 18.2% in fiscal 1998.
Selling, engineering and administrative expenses increased $73,979 or 1.6% in
fiscal 1999 to $4,634,236. Salary and wage increases were offset by decreases in
telephone, employee training, forms and printing, and selling expenses.
Interest expense was $791,840 and $955,818 for fiscal 1999 and 1998,
respectively. The decrease resulted from a reduction of the average outstanding
debt from the previous year. Assuming rates remain stable, interest expense is
expected to decrease in fiscal 2000 as further debt reduction is anticipated.
The Company had a net trading gain (realized and unrealized) of $441,944 in
fiscal 1999 compared to a net trading loss of $214,265 in fiscal 1998. A major
reason for the $656,209 change was the increase in the market value of the
Company's holdings in Glenayre Technologies, Inc. and significant realized gains
on the sale of US Trust Corporation stock which were offset by realized losses
in VIVUS, Inc. stock. 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
3
<PAGE>
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. See "Quantitative and Qualitative
Disclosures about Market Risk".
The amortization of goodwill, financing costs, stock options and stock warrants
created a total non-cash charge of $659,859 for fiscal 1999 compared to
$1,301,863 for fiscal 1998. Goodwill from the June 1996 acquisition of ConForms
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 was completed during the year. Excluding these items, the Company
would have reported net income after income taxes of approximately $2,546,000,
or $.88 per diluted share, in fiscal 1999. The total amortization of all these
non-cash charges for the year ended January 31, 2001 is expected to approximate
$237,000.
The Company recorded tax expense of $1,550,000 for fiscal 1999, which
represented the estimated annual effective rate of 41.8% 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 $2,156,872, or $.92 and $.74 per share, basic and diluted,
respectively, for fiscal 1999 represented an increase of $954,542 from net
income of $1,202,330, or $.52 and $.42 per share, basic and diluted,
respectively, for fiscal 1998. The change was principally due to a $478,428, or
11.8%, increase in operating income and a $656,209 increase in net trading
gains.
Fiscal 1998 versus Fiscal 1997
Net sales for fiscal 1998 increased 4.9% to $25,050,116 compared with
$23,875,214 in fiscal 1997. Strong domestic sales at Construction Forms
("ConForms"), the inclusion of sales from the Company's Malaysian operation and
increased mortar-plaster mixer sales in the Florida market accounted for the
increase. The lower percentage increase in fiscal 1998 compared to fiscal 1997
was due to decreases in sales volume at the Company's Ultra Tech and ConForms
Europe divisions. Fewer sales to mining industry customers and the slowing of
the construction economies in Europe accounted for the decrease at Ultra Tech
and ConForms Europe, respectively.
As a percentage of net sales, gross profit margin decreased to 35.6% for fiscal
1998 as compared to 38.4% in fiscal 1998. The decrease was due mainly to product
mix variations, the increase of lower margin foreign sales and costs associated
with the move from Cedarburg to Port Washington. Selling, engineering and
administrative expenses represented 18.2% of net sales for both fiscal 1998 and
fiscal 1997. Selling, engineering and administrative expenses increased $209,984
in fiscal 1998 to $4,560,257 due to increased personnel in engineering,
increased sales costs related to foreign sales, moving costs and training, and
other costs incurred in relation to the implementation of the new enterprise
resource planning system.
Interest expense was $955,818 and $1,133,382 for fiscal 1998 and 1997,
respectively. The decrease resulted from a reduction of the average outstanding
debt from the previous year.
Net investment loss, which includes interest, dividends and realized and
unrealized gains or losses on trading securities, was $152,947 for fiscal 1998
compared to fiscal 1997's net loss of $173,366. A major reason for the net loss
was the decrease in the market value of the Company's holdings in Glenayre
Technologies, Inc. and VIVUS Inc.
4
<PAGE>
The amortization of goodwill, financing costs, stock options and stock warrants
created a total non-cash charge of $1,301,863 for fiscal 1998 compared to
$1,600,421 for fiscal 1997. Goodwill from the June 1996 acquisition of ConForms
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. Excluding these
items, the Company would have reported net income after income taxes of
approximately $1,983,000, or $.69 per diluted share, in fiscal 1998.
The Company recorded tax expense of $850,000 for fiscal 1998, which represented
the estimated annual effective rate of 41.4% 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 $1,202,330, or $.52 and $.42 per share, basic and diluted,
respectively, for fiscal 1998 represented an increase of $97,168 from net income
of $1,105,162, or $.49 and $.41 per share, basic and diluted, respectively, for
fiscal 1997.
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 revolving credit borrowings and variable rate term loans, which
total $8,963,142 as of January 31, 2000, are subject to interest rate risk. Most
of the borrowings float at either the prime rate or LIBOR plus a certain number
of basis points. Based on the fiscal 1999 year end balance, an increase of one
percent in the interest rate on the Company's loans would cause an increase in
interest expense of approximately $90,000, or $.02 per diluted share, net of
taxes, 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 5% of the Company's total assets as of January 31, 2000 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 ($1,405,650 at January 31,
2000), 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 $141,000, or $.03 per diluted share, net of taxes.
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
5
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $5,534,471 for fiscal 1999, compared to
$1,480,894 for fiscal 1998. In fiscal 1999, the net sale of trading securities
accounted for approximately $2,653,000 of the operating cash flow. Excluding the
net trading securities activity from operating cash flow, the significant
increase in operating cash flow was due to the changes in accounts receivable
and the increase in purchases of raw materials in the last few months of fiscal
1998 compared to the same period in fiscal 1999.
Net working capital of $8,821,365 at January 31, 2000 decreased $3,908,728, or
30.7%, from the fiscal 1998 year-end level of $12,730,093. The current ratio at
January 31, 2000 was 3.1:1 compared to 3.8:1 at January 31, 1999. The change was
mainly due to the decrease in trading securities, inventories and in assets held
for sale.
Cash provided by investing activities in fiscal 1999 was $328,580 compared to
cash of $2,962,272 used in investing activities in fiscal 1998. This change was
principally due to the reduction in capital expenditures for the year and the
proceeds received from the sale of the Cedarburg facility. During fiscal 1998,
the Company constructed an addition to its Port Washington facility and
implemented a new enterprise resource planning system.
Due to the increase in operating income, the sale of the trading securities and
the sale of the Cedarburg facility, the Company reduced its debt by $5,778,459
in fiscal 1999, which accounted for most of the cash used in financing
activities. Cash provided by financing activities in fiscal 1998 of $895,759 was
due to the increase in capital expenditures. The Company has reduced its debt by
$10,631,218 since the June 21, 1996 acquisition date. The Company's debt to
capitalization ratio at January 31, 2000 and 1999 was 39.2% and 47.7%,
respectively. The Company maintains various debt agreements, which are described
in more detail in the footnotes to the consolidated financial statements.
Required principal payments in fiscal 2000 are expected to be approximately
$934,000.
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, 2001 are
expected to total approximately $1,000,000 compared to $675,245 for fiscal 1999.
The significant increase is due principally to the expected installation of a
heat-treating facility in Germany.
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, additional borrowings or the issuance of the Company's stock.
6
<PAGE>
<TABLE>
SUMMARY OF SELECTED FINANCIAL DATA
EDISON CONTROL CORPORATION
<CAPTION>
Year Ended
Year Ended January 31, December 31,
--------------------------------------------------------- --------------
2000 1999 1998 1997 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $26,136,445 $25,050,116 $23,875,214 $13,604,340 $ 791,502
Cost of sales $16,707,430 $16,125,601 $14,717,711 $ 9,191,243 $ 660,857
Gross profit $ 9,429,015 $ 8,924,515 $ 9,157,503 $ 4,413,097 $ 130,645
Selling, engineering & administrative $ 4,634,236 $ 4,560,257 $ 4,350,273 $ 3,238,168 $ 729,267
Operating income (loss) $ 4,524,156 $ 4,045,728 $ 4,190,142 $ 531,702 $ (598,622)
Realized gains (losses) on trading securities $ 960,210 $ 161,598 $ (54,837) $ 2,802,490 $ 2,214,145
Unrealized (losses) gains on trading securities $ (518,266) $ (375,863) $ (205,618) $(2,854,059) $ 1,842,902
Interest and miscellaneous income $ 19,045 $ 101,776 $ 83,249 $ 84,848 $ 39,598
Net income (loss) $ 2,156,872 $ 1,202,330 $ 1,105,162 $ (731,028) $ 2,082,582
Per Share Information
Net income (loss) per share - basic $ 0.92 $ 0.52 $ 0.49 $ (0.33) $ 0.98
Net income (loss) per share - diluted $ 0.74 $ 0.42 $ 0.41 $ (0.33) $ 0.94
Book value at year end $ 7.78 $ 6.90 $ 6.41 $ 5.98 $ 4.86
At Year End
Working capital $ 8,821,365 $12,730,093 $10,873,332 $11,554,170 $ 10,299,875
Property, plant and equipment-net $ 7,968,785 $ 8,187,899 $ 6,945,103 $ 7,077,228 $ 65,687
Total assets $30,630,664 $34,902,997 $32,355,957 $34,060,105 $ 12,553,486
Long-term debt $ 8,963,142 $14,741,601 $14,023,342 $16,907,424 $ -
Shareholders' equity $18,303,188 $16,183,272 $14,590,525 $13,601,241 $ 10,375,912
Weighted average shares outstanding
-assuming dilution 2,907,251 2,883,133 2,686,951 2,558,232 2,209,117
Common stock outstanding
2,351,308 2,346,933 2,275,933 2,275,933 2,136,000
Note: OnJune 21, 1996, the Company purchased all of the issued and outstanding stock of Construction Forms, Inc. and
subsidiaries and JABCO, LLC for an 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 acquisition.
</TABLE>
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Of Edison Control Corporation:
We have audited the accompanying consolidated balance sheets of Edison Control
Corporation and subsidiaries (the "Corporation") as of January 31, 2000 and
1999, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended January 31, 2000.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Edison Control Corporation and
subsidiaries as of January 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
March 31, 2000
8
<PAGE>
EDISON CONTROL CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
ASSETS (Note 8) 2000 1999
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 539,586 $ 468,072
Investments (Note 1) 95,000 190,000
Trading securities (Notes 1 and 3) 1,405,650 3,616,314
Accounts receivable, less allowance of
$227,000 and $268,000, respectively (Note 1) 3,522,867 3,513,342
Receivable from affiliate (Note 5) 61,606 93,575
Inventories (Notes 1 and 4) 7,110,888 7,619,746
Prepaid expenses and other current assets 193,886 193,650
Deferred income taxes (Note 7) 190,000 2,000
Refundable income taxes (Note 7) 120,505
Assets held for sale (Note 1) 1,032,200
Deferred financing costs (Note 10) 389,236
----------- -----------
Total current assets 13,119,483 17,238,640
INVESTMENT IN AND ADVANCES TO AFFILIATE (Note 5) 478,108 421,263
OTHER ASSETS:
Prepaid pension (Note 9) 25,193 151,477
Deferred income taxes (Note 7) 535,000 129,000
----------- -----------
Total other assets 560,193 280,477
PROPERTY, PLANT AND EQUIPMENT (Note 1):
Cost:
Land 302,902 302,902
Buildings and improvements 3,634,795 3,603,659
Machinery and equipment 6,414,492 5,869,300
Construction in progress 7,843 10,908
----------- -----------
10,360,032 9,786,769
Less - accumulated depreciation (2,391,247) (1,598,870)
----------- -----------
7,968,785 8,187,899
GOODWILL (net of amortization of $832,259 and 8,458,059 8,690,318
$600,000, respectively) (Note 1)
ORGANIZATIONAL/FINANCE COSTS (net of
amortization of $265,034 and $226,670,
respectively) (Note 1) 46,036 84,400
----------- -----------
TOTAL $30,630,664 $34,902,997
=========== ===========
9
<PAGE>
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
CURRENT LIABILITIES:
Trade accounts payable $ 989,595 $ 1,939,917
Accrued compensation 791,528 739,938
Taxes other than income taxes
24,780 21,325
Other accrued expenses (Note 6) 653,077 522,694
Income taxes payable 151,104
Deferred compensation (Notes 1 and 10) 754,250 754,250
Current maturities on long-term debt (Note 8) 933,784 530,423
----------- -----------
Total current liabilities 4,298,118 4,508,547
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 8) 8,029,358 14,211,178
----------- -----------
Total liabilities 12,327,476 18,719,725
SHAREHOLDERS' EQUITY (Note 10):
Preferred Stock, $.01 par value; 1,000,000
shares authorized, none issued
Common Stock, $.01 par value; 20,000,000
shares authorized, 2,351,308 and 2,346,933
shares issued and outstanding, respectively 23,513 23,469
Additional paid-in capital 10,344,868 10,323,225
Retained earnings 7,917,695 5,760,823
Accumulated other comprehensive income
17,112 75,755
----------- -----------
Total shareholders' equity 18,303,188 16,183,272
----------- -----------
TOTAL $30,630,664 $34,902,997
=========== ===========
See notes to consolidated financial statements.
10
<PAGE>
EDISON CONTROL CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JANUARY 31, 2000, 1999 and 1998
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended January 31,
-----------------------------------------
2000 1999 1998
<S> <C> <C> <C>
NET SALES $26,136,445 $25,050,116 $23,875,214
COST OF GOODS SOLD 16,707,430 16,125,601 14,717,711
----------- ----------- -----------
GROSS PROFIT 9,429,015 8,924,515 9,157,503
OTHER OPERATING EXPENSES:
Selling, engineering and administrative expenses 4,634,236 4,560,257 4,350,273
Stock option amortization (Note 10) 298,558
Goodwill and organizational/finance cost
amortization (Note 1) 270,623 318,530 318,530
----------- ----------- -----------
Total other operating expenses 4,904,859 4,878,787 4,967,361
----------- ----------- -----------
OPERATING INCOME 4,524,156 4,045,728 4,190,142
OTHER EXPENSE (INCOME):
Interest expense 791,840 955,818 1,133,382
Realized (gains) losses on trading securities (960,210) (161,598) 54,837
Unrealized losses on trading securities 518,266 375,863 205,618
Interest and miscellaneous income (19,045) (101,776) (83,249)
Loss on sale of assets, net 143,267 26,202 19,973
Stock warrant amortization (Note 10) 389,236 983,333 983,333
Equity in earnings of affiliate (Note 5) (46,070) (84,444) (78,914)
----------- ----------- -----------
Total other expense 817,284 1,993,398 2,234,980
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,706,872 2,052,330 1,955,162
INCOME TAXES (Note 7) 1,550,000 850,000 850,000
----------- ----------- -----------
NET INCOME 2,156,872 1,202,330 1,105,162
OTHER COMPREHENSIVE (LOSS) INCOME-
Foreign currency translation
adjustments (Note 1) (58,643) 82,917 (115,878)
----------- ----------- -----------
COMPREHENSIVE INCOME $ 2,098,229 $ 1,285,247 $ 989,284
=========== =========== ===========
NET INCOME PER SHARE (Note 1):
Net Income Per Share - Basic $ 0.92 $ 0.52 $ 0.49
=========== =========== ===========
Net Income Per Share - Diluted $ 0.74 $ 0.42 $ 0.41
=========== =========== ===========
See notes to consolidated financial statements.
See notes to consolidated financial statements.
</TABLE>
11
<PAGE>
EDISON CONTROL CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2000, 1999 and 1998
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Common Stock Additional Other
-------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 31, 1997 2,275,933 $ 22,759 $10,016,435 $3,453,331 $ 108,716 $13,601,241
Foreign currency translation adjustment $(115,878) (115,878)
Net income 1,105,162 1,105,162
--------- -------- ----------- ---------- --------- -----------
BALANCES, JANUARY 31, 1998 2,275,933 22,759 10,016,435 4,558,493 (7,162) 14,590,525
Foreign currency translation adjustment 82,917 82,917
Stock options exercised (Note 10) 71,000 710 306,790 307,500
Net income 1,202,330 1,202,330
--------- -------- ----------- ---------- --------- -----------
BALANCES, JANUARY 31, 1999 2,346,933 23,469 10,323,225 5,760,823 75,755 16,183,272
Foreign currency translation adjustment (58,643) (58,643)
Stock options exercised (Note 10) 4,375 44 21,643 21,687
Net income 2,156,872 2,156,872
--------- -------- ----------- ---------- --------- -----------
BALANCES, JANUARY 31, 2000 2,351,308 $ 23,513 $10,344,868 $7,917,695 $ 17,112 $18,303,188
========= ======== =========== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
EDISON CONTROL CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000, 1999 and 1998
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended January 31,
----------------------------------------
2000 1999 1998
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,156,872 $ 1,202,330 $ 1,105,162
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of plant and equipment 860,442 766,497 653,089
Amortization 659,859 1,301,863 1,600,421
Provision for doubtful accounts (9,165) (39,931) 76,780
Realized (gain) loss on trading securities sales (960,210) (161,598) 54,837
Unrealized loss on trading securities 518,266 375,863 205,618
Purchases of trading securities (1,189,718) (2,530,113) (3,768,475)
Proceeds from the sales of trading securities 3,842,326 2,353,297 4,605,945
Loss on sale of assets 143,267 26,202 19,973
Equity in earnings of affiliate (46,070) (84,444) (78,914)
Changes in assets and liabilities:
Accounts receivable (5,871) (456,077) (377,314)
Receivable from affiliate 31,969 9,907 52,553
Inventories 491,372 (1,611,616) (679,253)
Prepaid expenses and other current assets (571) 1,356 1,395
Prepaid pension 126,284 131,657 101,887
Trade accounts payable (949,518) 676,489 388,713
Accrued compensation 51,866 (41,965) 175,254
Taxes other than income taxes 7,348 724 (2,223)
Other accrued expenses 195,357 (43,183) 19,550
Income taxes payable 204,366 94,636 (97,324)
Deferred income taxes (594,000) (491,000) (386,000)
------------ ----------- -----------
Net cash provided by operating activities 5,534,471 1,480,894 3,671,674
------------ ----------- -----------
INVESTING ACTIVITIES:
Additions to plant and equipment (675,245) (3,082,725) (554,923)
Maturity of certificate of deposit 95,000 94,000
(Advances to) payments received from affiliate (10,775) 96,331 (14,182)
Proceeds from sale of assets 919,600 24,122 4,741
------------ ----------- -----------
Net cash provided by (used) in 328,580 (2,962,272) (470,364)
investing activities ------------ ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 6,057,182 2,175,000 600,000
Payments on long-term debt (11,835,641) (1,456,741) (3,484,082)
Stock options exercised 19,687 177,500
------------ ----------- -----------
Net cash (used in) provided by (5,758,772) 895,759 (2,884,082)
financing activities ------------ ----------- -----------
(Continued)
13
<PAGE>
EDISON CONTROL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000, 1999 and 1998
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended January 31,
----------------------------------------
2000 1999 1998
<S> <C> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (32,765) $ 16,403 $ (51,948)
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 71,514 (569,216) 265,280
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 468,072 1,037,288 772,008
------------ ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 539,586 $ 468,072 $ 1,037,288
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 809,391 $ 946,210 $ 1,111,901
Income taxes, net of refunds $ 1,870,454 $ 1,246,200 $ 1,336,130
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
EDISON CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Edison Control Corporation ("Edison") and subsidiaries, all
of which are wholly owned (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.
The Company's principal market is in North America with limited sales
activity in Europe, South America, the Middle East and Asia.
Cash Equivalents - The Company considers all temporary investments with
maturities of three months or less when acquired to be cash equivalents.
Investments - Investments consist of certificates of deposit with
maturities in excess of three months and are recorded at cost which
approximates market. The Company intends to hold the certificates until
maturity.
Trading Securities - Debt and equity securities purchased and held
principally for the purpose of selling them 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 securities sold is based on
the first-in, first-out method.
Accounts Receivable - Accounts receivable are stated net of an allowance
for doubtful accounts and finance charges.
Inventories - Inventories are stated at the lower of cost (principally
last-in, first-out method) or market.
Assets held for sale - Assets held for sale consisted of land and building,
which are no longer in use as of January 31, 1999. These assets were
reclassified from property, plant and equipment and are recorded at their
net book value. No depreciation was taken on these assets since they were
taken out of service. These assets were sold at a loss of $128,543 during
the year ended January 31, 2000.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost. Expenditures for major renewals and improvements are capitalized,
while maintenance and repairs, which do not significantly improve the
related asset or extend its useful life, are charged to expense as
incurred.
15
<PAGE>
For financial reporting purposes, plant and equipment is depreciated
primarily by the straight-line method over the estimated useful lives of
the assets. Estimated useful lives of buildings and improvements range from
7 to 40 years and of machinery and equipment from 2 to 12 years.
Depreciation claimed for income tax purposes is computed by accelerated
methods.
Goodwill and Intangible Assets - Goodwill represents the excess of the
purchase price over the fair value of identifiable net assets of acquired
companies and is amortized on a straight-line basis over 40 years. The
Company assesses the carrying value of goodwill at each balance sheet date.
Consistent with Statement of Financial Accounting Standard ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", such assessments include, as appropriate, a
comparison of the estimated future nondiscounted cash flows anticipated to
be generated during the remaining amortization period of the goodwill to
the net carrying value of goodwill. The Company recognizes diminution in
value of goodwill, if any, on a current basis. Organizational/finance costs
are amortized over their economic useful lives ranging from three to twenty
years.
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 reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments - Management believes the carrying
amount of financial instruments is a reasonable estimate of the fair value
of these instruments.
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 exchange rates for the periods and capital accounts have
been translated using historical rates. The resulting translation
adjustments are recorded as other comprehensive income.
Revenue Recognition - The Company recognizes revenue upon shipment of
products.
Research and Development - Amounts expended for research and development
for the years ended January 31, 2000, 1999 and 1998 totaled approximately
$223,000, $212,000 and $190,000, respectively, and are expensed as
incurred.
16
<PAGE>
Net income per share - Reconciliation of the numerator and denominator of
the basic and diluted per share computations are summarized as follows:
Year Ended January 31,
------------------------------------
2000 1999 1998
---- ---- ----
Net Income Per Share - Basic:
Net income (numerator) $2,156,872 $1,202,330 $1,105,162
Weighted average shares
outstanding (denominator) 2,347,633 2,315,503 2,275,933
Net income per share - basic $ 0.92 $ 0.52 $ 0.49
Net Income Per Share - Diluted:
Net income (numerator) $2,156,872 $1,202,330 $1,105,162
Weighted average shares
outstanding 2,347,633 2,315,503 2,275,933
Effect of dilutive securities:
Stock options 170,455 178,257 99,224
Stock warrants 389,163 389,373 311,794
---------- ---------- ----------
Weighted average shares
outstanding (denominator) 2,907,251 2,883,133 2,686,951
Net income per share - diluted $ 0.74 $ 0.42 $ 0.41
Reclassifications - Certain reclassifications have been made to the prior
years' financial statements to conform with the current year presentation.
2. ACQUISITIONS AND DISPOSITIONS
On October 31, 1996, the Company sold certain net assets of its electronic
fault indicator operation. In return, the Company received cash of $10,000,
a $275,000 promissory note bearing interest at an annual rate of 8.25%, and
a five year warrant to purchase 20% of the capital stock of the new
company. It is management's opinion that the possibility of collection of
any future principal or interest on the note receivable is remote and,
accordingly, has reserved the total balance of the note and will not record
any interest income until received.
17
<PAGE>
3. TRADING SECURITIES
Trading securities at January 31, 2000 consisted of the following:
Number of
Name of Issuer/ Shares or
Title of Issue Units Cost Market Value
--------------- --------- ---- ------------
Common Stocks:
Allied Capital Corp. 10,000 $ 196,875 $ 185,000
Compaq Computer Corp. 5,000 148,125 136,875
Entremed, Inc. 1,500 79,094 58,875
Glenayre Technologies, Inc. 40,000 1,029,352 455,000
Intel Corp. 2,000 186,500 197,875
Liberty Digital, Inc. 3,500 105,187 185,500
Newbridge Networks Corp. 5,000 89,688 141,563
Parametric Technology Corp. 2,000 44,250 42,875
Sun International Hotels 100 4,450 2,087
---------- ----------
Total $1,883,521 $1,405,650
========== ==========
Trading securities at January 31, 1999 consisted of the following:
Number of
Name of Issuer/ Shares or
Title of Issue Units Cost Market Value
--------------- --------- ---- ------------
Common Stocks:
Cendant Corp. 20,000 $ 435,438 $ 435,000
Equity One, Inc. 9,500 104,500 85,500
Glenayre Technologies, Inc. 40,000 1,029,352 200,000
Microsoft 2,000 250,050 350,000
Panavision Inc. 304 8,150 3,420
Philip Morris 5,000 266,875 234,375
Sun International Hotels 10,100 448,250 431,144
US Trust Corporation 25,000 411,953 1,825,000
VIVUS, Inc. 20,000 621,350 51,875
---------- ----------
Total $3,575,918 $3,616,314
========== ==========
18
<PAGE>
4. INVENTORIES
Inventories consisted of the following:
January 31, January 31,
2000 1999
----------- -----------
Raw materials $3,469,588 $4,158,860
Work-in-process 1,530,052 992,073
Finished goods 2,276,248 2,631,813
---------- ----------
7,275,888 7,782,746
Less - reserve to reduce carrying (165,000) (163,000)
value to LIFO cost ---------- ----------
Net inventories $7,110,888 $7,619,746
========== ==========
5. INVESTMENT IN AND ADVANCES TO AFFILIATE
The Company owns 50% of the outstanding common stock of South Houston Hose
Company and accounts for the investment by the equity method. The Company
had sales of approximately $841,000, $900,000 and $798,000 to the affiliate
during 2000, 1999 and 1998, respectively. Summary unaudited financial
information as of January 31, 2000, 1999 and 1998, and for the years then
ended is as follows:
2000 1999 1998
---- ---- ----
Current assets $1,210,978 $1,208,819 $1,130,349
Noncurrent assets 72,520 60,439 45,878
Current liabilities 232,758 311,764 388,727
Shareholders' equity 1,050,740 957,494 787,500
Net sales 2,850,497 3,278,014 2,749,253
Net income 97,404 169,994 154,136
19
<PAGE>
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
Year Ended January 31,
---------------------------
2000 1999
Group benefits $ 130,000 $ 130,000
Warranty 173,000 207,500
Legal and professional 107,277 56,758
Interest 37,025 54,577
Selling commissions and rebates 165,659 61,560
Other 40,116 12,299
--------- ---------
Total $ 653,077 $ 522,694
========= =========
7. INCOME TAXES
Deferred income taxes are provided on temporary differences relating to
reporting expenses in different periods for financial statement and income
tax purposes and differences in bases of assets and liabilities. Such
differences relate primarily to unrealized gain (losses) on investments,
depreciation expense, inventory costs, bad debt expense, warranty costs,
insurance, compensation and pension expense.
The provision for income taxes is as follows:
Year Ended January 31,
---------------------------------------
2000 1999 1998
Currently payable:
Federal $1,859,000 $1,144,000 $1,066,000
State 285,000 197,000 170,000
---------- ---------- ----------
2,144,000 1,341,000 1,236,000
Deferred (credit):
Federal (514,000) (416,000) (332,000)
State (80,000) (75,000) (54,000)
---------- ---------- ----------
(594,000) (491,000) (386,000)
---------- ---------- ----------
Total $1,550,000 $ 850,000 $ 850,000
========== ========== ==========
20
<PAGE>
Temporary differences which gave rise to the deferred tax assets
(liabilities) included the following items at January 31, 2000 and 1999:
2000 1999
Deferred tax assets:
Compensation and other employee benefits $ 316,000 $ 313,000
Book reserves and other items 18,000
Unrealized losses 186,000
Deferred financing 1,150,000 999,000
Vacation pay 74,000 73,000
----------- -----------
1,726,000 1,403,000
----------- -----------
Deferred tax liabilities:
Inventory items (624,000) (642,000)
Book reserves and other items (67,000)
Unrealized gains (16,000)
Fixed assets (300,000) (555,000)
Pension benefit (10,000) (59,000)
----------- -----------
(1,001,000) (1,272,000)
----------- -----------
Net deferred tax asset $ 725,000 $ 131,000
=========== ===========
The reconciliation of income tax computed at the U.S. federal statutory
rates to income tax expense is:
Year Ended January 31,
----------------------------
2000 1999 1998
Statutory tax rate 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 5.7 6.0 6.0
Goodwill 2.1 3.8 4.0
Dividends received deduction (0.1) (0.3) (0.3)
Other, net 0.1 (2.1) (0.2)
---- ---- ----
Effective tax rate 41.8% 41.4% 43.5%
==== ==== ====
21
<PAGE>
8. LONG-TERM DEBT
Long-term debt, less current maturities, consisted of the following at
January 31, 2000 and 1999:
2000 1999
---- ----
Industrial revenue bonds $2,625,000 $ 2,750,000
RLF term loan 88,142 96,582
Bank revolving credit loan 2,000,000 4,700,000
Bank overadvance term loan 4,250,000 396,984
Subordinated bank loan 6,798,035
---------- -----------
Total debt 8,963,142 14,741,601
Less current portion (933,784) (530,423)
---------- -----------
Total long-term debt $8,029,358 $14,211,178
========== ===========
The Industrial Revenue Bonds ("IRB") were issued to finance construction of
a new production facility in Port Washington, Wisconsin. A total of
$3,000,000 was issued for the facility and is due in annual installments of
$125,000 from February 1997 through February 2000, $150,000 from February
2001 through February 2005, and $175,000 from February 2006 through
February 2015. The interest rate at January 31, 2000 was 3.65%.
The Revolving Loan Fund (RLF) term loan was a loan issued by the City of
Port Washington to finance the purchase of real estate for the construction
of an addition at the Company's Port Washington facility. A total of
$100,000 was issued for the facility and is due in monthly installments
through September 4, 2008. The interest rate at January 31, 2000 was 4.0%.
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, the subordinated
bank loan holder was paid in full (approximately $6,800,000).
The amended master credit agreement, which expires April 30, 2004, allows
for revolving credit borrowings not to exceed $6,000,000. Borrowings, which
are based on qualified assets, bear interest at either the prime rate or
the LIBOR rate plus 2.00%. The interest rate at January 31, 2000 was 7.82%.
Also under the amended master credit agreement, the Company maintains an
overadvance term loan. Quarterly principal payments of $200,000 are
required by the agreement, with the remaining term balance to be paid on
April 30, 2004. Borrowings bear interest at either the prime or the LIBOR
rate plus 2.25%.
22
<PAGE>
The interest rate at January 31, 2000 was 8.07%. The agreement calls for
additional principal payments based on excess cash flow as defined in the
agreement.
The terms under the amended master credit agreement, among other
provisions, require the Company to maintain a minimum current ratio,
tangible net worth, and debt service ratio, and restricts the Company to a
maximum funded debt to EBITDA ratio. Substantially all of the Company's
assets are collateralized under the above debt agreement. The LIBOR spread
may be reduced or increased annually based on the achievement of a certain
"funded debt to EBITDA" ratio.
Annual principal payments for the next five years on long-term debt are as
follows:
RLF Revolving
Year Ending Term Credit Overadvance
January 31, IRB Loan Loan Term Loan Total
----------- --- ---- --------- ----------- -----
2001 $ 125,000 $ 8,784 $ $ 800,000 $ 933,784
2002 150,000 9,141 800,000 959,141
2003 150,000 9,514 800,000 959,514
2004 150,000 9,902 800,000 959,902
2005 150,000 10,305 2,000,000 1,050,000 3,210,305
Thereafter 1,900,000 40,496 1,940,496
---------- ------- ---------- ---------- ----------
$2,625,000 $88,142 $2,000,000 $4,250,000 $8,963,142
========== ======= ========== ========== ==========
9. EMPLOYEE RETIREMENT PLANS
The Company adopted SFAS No. 132, "Employer's Disclosures about Pensions
and Other Postretirement Benefits," in fiscal 1998. SFAS No. 132 revises
disclosure requirements for such pension and postretirement benefit plans
to, among other things, standardize certain disclosures and eliminate
certain other disclosures no longer deemed useful. SFAS No. 132 does not
change the measurement or recognition criteria for such plans.
The Company has a noncontributory defined benefit pension plan, which
relates to the acquired companies, covering substantially all full-time
employees. The plan provides for benefits based on years of service and
compensation.
The following tables set forth the plan's change in benefit obligation,
change in plan assets and funded status at January 31, 2000 and 1999:
23
<PAGE>
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $3,780,013 $2,884,024
Service cost 168,434 150,302
Interest cost 239,332 223,198
Acturial loss 20,072 335,398
Benefits paid (165,881) (187,124)
Assumption change 374,215
---------- ----------
Benefit obligation at end of year 4,041,970 3,780,013
---------- ----------
Change in plan assets:
Fair value of plan assets at
beginning of year 4,501,831 3,998,045
Actual return on plan assets 150,251 690,910
Benefits paid (165,881) (187,124)
---------- ----------
4,486,201 4,501,831
---------- ----------
Funded Status 444,231 721,818
Unrecognized net acturial gain (419,038) (570,341)
---------- ----------
Prepaid pension expense $ 25,193 $ 151,477
========== ==========
Assumptions for the years ended January 31 were:
2000 1999 1998
---- ---- ----
Discount rate 6.75% 6.75% 7.50%
Expected return on plan assets 8.00 8.00 8.00
Rate of compensation increase 6.00 6.00 6.00
The Company's funding policy is to contribute annually amounts within the
limits that can be deducted for Federal income tax purposes. No
contributions were made to the Plan during the years ended January 31,
2000, 1999 and 1998.
Pension expense consisted of the following components for the years ended
January 31:
2000 1999 1998
---- ---- ----
Service cost-benefits earned
during the year $168,434 $ 150,302 $ 135,824
Interest cost on projected benefit
obligation 239,332 223,198 186,853
Actual return on plan assets
(gain) loss (150,251) (690,910) (606,938)
Net amortization and deferral (131,231) 449,067 386,148
-------- --------- ---------
Net periodic pension expense $126,284 $ 131,657 $ 101,887
======== ========= =========
The Company also has a retirement savings and thrift plan (401(k) plan),
which relates to the acquired companies, covering substantially all of its
employees. Under the 401(k) plan, the Company contributes amounts based on
employee contributions. Amounts charged to earnings for the plan for the
years ended January 31, 2000, 1999 and 1998 were $93,800, $91,059 and
$80,943, respectively.
24
<PAGE>
10. EMPLOYEE STOCK OPTION PLANS
The Company adopted a 1986 Stock Option Plan (the "Plan") for the benefit
of directors, officers and key employees of the Company. Pursuant to the
Plan, as amended, these persons may be granted options to purchase up to an
aggregate of 150,000 shares of Common Stock. The Board of Directors may
authorize the granting of options under the Plan, and may determine to whom
the options may be granted, the number thereof, the option price and the
exercise period. The price for incentive stock options, which may be
granted under the Plan and which meet the requirements of Section 422A of
the Internal Revenue Code, as amended, will not be less than the fair
market value of the Common Stock on the date the option is granted (110% of
such fair market value for an optionee who holds more than 10% of the
outstanding shares of the capital stock of the Company). The price for
non-statutory options shall be fixed at the discretion of the Board of
Directors and in no event will the option price for any non-statutory
option granted be less than 85% of the fair market value of the Common
Stock on the date of grant. The maximum exercise period for any option
under the Plan is ten years from the date the option is granted (five years
for an optionee who holds more than 10% of the outstanding shares of the
capital stock of the Company). In November 1987, the Board of Directors
issued non-statutory options to purchase an aggregate of 90,000 shares at
an exercise price of $2.50 per share ("2.50 options"). In 1989, the Company
issued non-statutory options to purchase an additional 60,000 shares at an
exercise price of $1.22 per share. In November 1996, William Finneran
purchased 25,000 shares of his options.
In June 1993, the Board of Directors granted five-year non-statutory
options to purchase 18,000 shares each to Clark H. Bailey, Gerald B.
Cramer, John J. Delucca and Jay J. Miller, and 35,000 shares to William B.
Finneran, Directors of the Company, at an exercise price of $2.50 per
share, vesting 50% at June 5, 1994 and 50% at June 4, 1995 ("vesting $2.50
options"). In June 1995, Clarke H. Bailey exercised his option and
purchased 18,000 shares. In September 1997, the options for Gerald B.
Cramer expired. In May 1998, John J. Delucca and Jay J. Miller exercised
their options and purchased 18,000 shares each. Also, in May 1998, William
B. Finneran exercised his options and purchased 35,000 shares.
In July 1993, the Board of Directors granted non-statutory options to
purchase 18,000 shares to John M. Sanzo, a Director of the Company, at an
exercise price of $4.00 per share, vesting 50% at July 15, 1994 and 50% at
July 15, 1995 ("vesting $4.00 options"). In October 1994, the Board of
Directors resolved that the stock option, heretofore, granted to Mr. John
M. Sanzo to be fully vested notwithstanding any term of said option to the
contrary and that said option would expire 120 days following the
effectiveness of a Registration Statement on Form S-8 under the Securities
Act of 1993, as amended. In June 1995, John M. Sanzo exercised his option
and purchased 18,000 shares.
In October 1995, the 1986 Stock Option Plan was amended to increase by
200,000 the number of shares of common stock authorized for issuance,
thereunder to a total of 350,000 shares.
In February 1995, the Board of Directors authorized and on October 17,
1995, the shareholders approved a grant to the Company's President and
Chief Executive Officer of a ten-year option to purchase up to 200,000
shares of common stock pursuant to the 1986 Option Plan at an exercise
price of $4.00 per share, vesting 33% each at date of grant, on February 1,
1996, and on February 1, 1997, respectively.
In February 1996, non-qualified options for 17,500 shares were granted to
three individuals for services rendered at an exercise price of $4.50 per
share. In December 1999, options for 4,375 shares were exercised and
options for 13,125 shares expired.
In May 1997, five-year non-qualified options for 25,000 shares were granted
to Robert Cooney, a member of the Board of Directors, at an exercise price
of $3.50 per share, vesting 50% at November 29, 1997 and 50% on May 29,
1998.
25
<PAGE>
In October 1997, five-year non-qualified options for 25,000 shares were
granted to William Scott, a member of the Board of Directors, at an
exercise price of $3.50 per share, vesting 50% at April 15, 1998 and 50% on
October 15, 1998.
In connection with the issuance of the subordinated debt, the principal
shareholder of the Company provided collateral to a bank to support a
guaranty of repayment by the Company of the principal and interest on the
loan. The arrangement was made to reduce the cost of borrowed funds from
that which would have been otherwise obtainable by the Company from
unaffiliated "mezzanine" lenders. In consideration of his providing such
collateral, the Company issued a ten-year Warrant to purchase 500,000
shares of Common Stock exercisable at a price of $1.60 per share. At the
time the transaction was negotiated, Common Stock was quoted at
approximately $4.00 per share. On the date the ConForms acquisition was
consummated, which was the grant date, the closing sale price for the
Common Stock in the over-the-counter market was $7.50 per share. The
difference between the Warrant price and the fair market value at the grant
date was amortized over the three-year term of the subordinated debt.
In connection with the ConForms acquisition, the Company entered into
agreements for the sale for investment of an aggregate of 114,933 shares of
Common Stock for a total purchase price of $862,000 to key management
personnel of ConForms and its affiliates. In addition, the Company granted
ten-year nonqualified options to purchase an aggregate of 167,611 shares of
Common Stock exercisable at $3.00 per share to key personnel. Such options
vest fully on the first anniversary of the closing of the acquisition. On
the date of the grant of the options, the closing sale price for the Common
Stock was $7.50 per share. The difference between the option price and the
fair market value at the time of grant was amortized over the one-year
vesting period.
In January 1999, the Board of Directors authorized and on June 8, 1999, the
shareholders approved the Edison Control Corporation 1999 Equity Incentive
Plan. The Plan provides that up to a total of 200,000 shares of Common
Stock will be available for the granting of stock options, stock
appreciation rights, restricted stock or performance shares. No awards were
granted under this Plan as of January 31, 2000.
The Company has adopted the disclosure-only provisions of SFAS No.123,
"Accounting for Stock-Based Compensation," but continues to apply
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for all of its plans. Compensation expense was $389,236,
$983,333, and $1,281,891 for the years ended January 31, 2000, 1999 and
1998, respectively. If the Company had elected to recognize compensation
costs for the options/warrants issued after December 15, 1994 in accordance
with SFAS No. 123, net income and net income per share would have changed
to the pro-forma amounts as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C> <C>
Net income As reported: $2,156,872 $1,202,330 $1,105,162
Pro-forma: 2,390,414 1,754,989 1,240,831
Net income per share -basic As reported: 0.92 0.52 0.49
Pro-forma: 1.02 0.76 0.55
Net income per share -diluted As reported: 0.74 0.42 0.41
Pro-forma: 0.82 0.61 0.46
</TABLE>
26
<PAGE>
The fair value of stock options/warrants used to compute and disclose
pro-forma net income and pro-forma net income per share is the estimated
present value at grant date using the Black Scholes option pricing model
with the following weighted average assumptions:
Year Ended January 31,
----------------------------------------
2000 1999 1998
Dividend yield 0% 0% 0%
Expected volatility 53% 51% 55%
Risk-free interest rate:
4 year - - 5.41%
3 year - 4.69% -
2 year 6.61% - -
1 year - - 5.35%
Stock option/warrant activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Year Ended Average Year Ended Average
January 31, Exercise January 31, Exercise
2000 Price 1999 Price
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Options/warrant outstanding,
beginning of year 935,111 $ 2.52 1,006,111 $ 2.52
Options/warrant exercised (4,375) 4.50 (71,000) 2.50
Options/warrant expired (13,125) 4.50 - -
------------- ------ ------------- ------
Options/warrant outstanding,
end of year 917,611 $ 2.48 935,111 $ 2.52
============= ====== ============= ======
Options/warrant exercisable,
end of year 917,611 $ 2.48 935,111 $ 2.52
============= ====== ============= ======
Price range per share $1.60 - $4.00 $1.60 - $4.50
============= =============
</TABLE>
27
<PAGE>
Weighted
Year Ended Average
January 31, Exercise
1998 Price
----------- --------
Options/warrant outstanding,
beginning of year 974,111 $ 2.47
Options/warrant granted 50,000 3.50
Options/warrant expired (18,000) 2.50
- -
Options/warrant outstanding,
end of year 1,006,111 $ 2.52
========= ======
Options/warrant exercisable,
end of year 968,611 $ 2.48
========= ======
Price range per share $1.60 - $4.50
=============
The weighted average remaining contractual life of stock options and
warrants outstanding at January 31, 2000 is 5.9 years.
The weighted average fair value of options granted during the year ended
January 31, 1998 was $1.98. No options or warrants were issued during the
years ended January 31, 2000 and 1999.
11. VALUATION ACCOUNTS
Activity related to valuation accounts for the years ended January 31,
2000, 1999 and 1998 is as follows:
28
<PAGE>
<TABLE>
<CAPTION>
Additions Deductions for
charged to bad debts written
Balance, (deductions off, inventory Balance,
Beginning from) costs disposed of or End of
Valuation Accounts of Year and expenses warranty claims Year
------------------ --------- ------------ ----------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
and finance charges: 1/31/2000 $ 268,000 $ (9,165) $ (31,835) $ 227,000
1/31/99 $ 320,000 $ (39,931) $ (12,069) $ 268,000
1/31/98 292,000 76,780 (48,780) 320,000
Excess and obsolete inventory 1/31/2000 516,000 92,000 - 608,000
reserve: 1/31/1999 557,000 (41,000) - 516,000
1/31/98 772,500 (215,500) - 557,000
Notes receivable reserve: 1/31/00 275,000 - - 275,000
1/31/99 275,000 - - 275,000
1/31/98 275,000 - - 275,000
Warranty reserve: 1/31/2000 207,500 39,575 (74,075) 173,000
1/31/99 240,000 188,895 (221,395) 207,500
1/31/98 151,000 164,000 (75,000) 240,000
</TABLE>
12. COMMITMENTS
The Company has employment agreements with two of its executives. Minimum
salaries to be paid to these individuals for the year ended January 31,
2001 are $290,500.
The Company has various warehouse and auto leases expiring at various dates
through January 2004. Future minimum lease payments required under these
noncancelable operating lease agreements are approximately as follows:
Year Ending
January 31,
-----------
2001 $ 160,000
2002 82,000
2003 65,000
2004 49,000
---------
Total $ 356,000
=========
Total rent expense for the years ended January 31, 2000, 1999 and 1998 was
approximately $200,000, $181,000 and $145,000, respectively.
13. RELATED PARTY TRANSACTIONS
In July 2000, Edison sold 304 shares of Panavision Inc., which were
purchased in 1998 at a cost of $8,150, for $2,450 resulting in a loss of
$5,700. A member of the Board of Directors of Panavision Inc. is a member
of the Board of Directors of the Company. In April 1999, Edison sold 9,500
shares of Equity One, which were purchased in 1998 at a cost of $104,500,
for $83,125 resulting in a loss of
29
<PAGE>
$21,375. A member of the Board of Directors of Equity One, Inc. is a member
of the Board of Directors of the Company.
14. FOREIGN OPERATIONS
Foreign operations information for the year ended January 31, 2000 follows:
<TABLE>
<CAPTION>
United United
States Kingdom Malaysia Total
------ ------- -------- -----
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $23,900,577 $ 1,774,718 $ 461,150 $26,136,445
Operating income (loss) 4,482,724 98,200 (56,768) 4,524,156
Identifiable assets 27,899,155 1,880,061 851,448 30,630,664
Depreciation and amortization 1,448,836 56,600 14,865 1,520,301
Capital expenditures 469,390 194,171 11,684 675,245
Foreign operations information for the year ended January 31, 1999 follows:
<CAPTION>
United United
States Kingdom Malaysia Total
------ ------- -------- -----
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $22,942,593 $ 1,652,010 $ 455,513 $25,050,116
Operating income (loss) 4,131,668 280 (86,220) 4,045,728
Identifiable assets 32,373,533 1,682,731 846,733 34,902,997
Depreciation and amortization 2,005,444 49,677 13,239 2,068,360
Capital expenditures 3,054,929 20,090 7,706 3,082,725
Foreign operations information for the year ended January 31, 1998 follows:
<CAPTION>
United United
States Kingdom Malaysia Total
------ ------- -------- -----
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $21,852,948 $ 1,827,477 $ 194,789 $23,875,214
Operating income (loss) 4,328,227 (51,859) (86,226) 4,190,142
Identifiable assets 30,050,025 1,852,144 453,788 32,355,957
Depreciation and amortization 2,196,795 49,737 6,978 2,253,510
Capital expenditures 412,097 54,919 87,907 554,923
</TABLE>
15. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in 1998. The Company's operating
segments are organized based on the nature of products and services
provided. A description of the nature of the segment's operations and their
accounting policies are contained in Note 1. Segment information follows:
30
<PAGE>
<TABLE>
<CAPTION>
Edison
Ultra Holding
ConForms Tech Gilco Company Total
-------- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Year ended January 31, 2000
Net sales to unaffiliated customers $ 20,724,575 $ 3,356,036 $ 2,055,834 $ - $ 26,136,445
Operating income (loss) 4,578,091 596,009 (181,976) (467,968) 4,524,156
Identifiable assets 22,426,283 4,670,088 1,149,430 2,384,863 30,630,664
Depreciation and amortization 794,830 290,719 45,516 389,236 1,520,301
Capital expenditures 632,804 40,391 2,050 - 675,245
Year ended January 31, 1999
Net sales to unaffiliated customers $ 19,424,098 $ 3,484,277 $ 2,141,741 $ - $ 25,050,116
Operating income (loss) 3,469,171 1,059,404 (139,172) (343,675) 4,045,728
Identifiable assets 23,518,902 5,302,383 1,593,897 4,487,815 34,902,997
Depreciation and amortization 722,534 317,691 44,240 983,895 2,068,360
Capital expenditures 2,996,112 72,143 14,470 - 3,082,725
Year ended January 31, 1998
Net sales to unaffiliated customers $ 18,050,120 $ 3,989,750 $ 1,835,344 $ - $ 23,875,214
Operating income (loss) 3,768,062 1,157,834 97,419 (833,173) 4,190,142
Identifiable assets 19,648,193 5,742,341 1,077,870 5,887,553 32,355,957
Depreciation and amortization 653,779 273,123 43,029 1,283,579 2,253,510
Capital expenditures 342,263 209,039 3,621 - 554,923
</TABLE>
31
<PAGE>
16. CONTINGENCIES AND LITIGATION
The Company is involved in various legal proceedings which have arisen in
the normal course of business. Reserves are recorded when the occurrence of
loss is probable and can be reasonably estimated. In the opinion of
management, the resolution of these contingencies will not have a
materially adverse effect on the Company's financial condition or results
of operations.
32
EXHIBIT 21
SUBSIDIARIES OF EDISON CONTROL CORPORATION
STATE OF TRADE
NAME INCORPORATION NAMES
- ---- ------------- -----
Construction Forms, Inc. Wisconsin CF, ConForms, Construction
Forms, CF Pipejoint, ConForms
Europe, UTI, UT, Ultra Tech,
GC, Gilco, Gilson, ConForms Asia
JABCO, LLC Wisconsin JABCO
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-6736-NY, 333-41483 and 333-87575 of Edison Control Corporation on Form S-8 of
our report dated March 31, 2000, incorporated by reference in the Annual Report
on Form 10-K of Edison Control Corporation for the year ended January 31, 2000.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
April 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 539586
<SECURITIES> 1500650
<RECEIVABLES> 3811473
<ALLOWANCES> 227000
<INVENTORY> 7110888
<CURRENT-ASSETS> 13119483
<PP&E> 10360032
<DEPRECIATION> 2391247
<TOTAL-ASSETS> 30630664
<CURRENT-LIABILITIES> 4298118
<BONDS> 8029358
0
0
<COMMON> 23513
<OTHER-SE> 18279675
<TOTAL-LIABILITY-AND-EQUITY> 30630664
<SALES> 26136445
<TOTAL-REVENUES> 26136445
<CGS> 16707430
<TOTAL-COSTS> 4904859
<OTHER-EXPENSES> 817284
<LOSS-PROVISION> (9165)
<INTEREST-EXPENSE> 791840
<INCOME-PRETAX> 3706872
<INCOME-TAX> 1550000
<INCOME-CONTINUING> 2156872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2156872
<EPS-BASIC> .92
<EPS-DILUTED> .74
</TABLE>
