UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number 0-14812
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EDISON CONTROL CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-2716367
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
777 Maritime Drive
PO Box 308
Port Washington, WI 53074-0308
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(Address of principal executive offices)
(Zip Code)
(262) 268-6800
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 2,351,308 as of April 30, 2000
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EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Form 10-Q
Page Number
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Part I Financial Information
Item 1 Financial Statements
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Consolidated Balance Sheets Pages 2 & 3
April 30, 2000 (Unaudited) and
January 31, 2000
Consolidated Statements of Income Page 4
Three months ended April 30,
2000 and 1999 (Unaudited)
Consolidated Statements of Cash Flows Pages 5 & 6
Three months ended April 30,
2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements Pages 7 - 8
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 9 - 11
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Operations and Financial Condition
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Item 3 Quantitative and Qualitative Disclosures
-----------------------------------------------
About Risk Pages 11-12
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Part II Other Information
-------------------------
Item 6 Exhibits Page 12 and
--------------- Exhibit Index
1
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PART I.
Item 1
Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2000 and January 31, 2000
April 30, January 31,
2000 2000
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $795,189 $539,586
Investments 95,000 95,000
Trading securities 1,150,863 1,405,650
Trade accounts receivable, net 4,281,527 3,522,867
Receivable from affiliate 68,017 61,606
Inventories, net 6,822,322 7,110,888
Prepaid expenses and other assets 113,581 193,886
Deferred income taxes 180,000 190,000
------- -------
Total current assets 13,506,499 13,119,483
Investment in and advances to affiliate 494,359 478,108
Other Assets:
Prepaid pension 0 25,193
Deferred income taxes 535,000 535,000
------- -------
Total other assets 535,000 560,193
Property, plant and equipment, net 7,795,983 7,968,785
Goodwill (net of amortization) 8,399,994 8,458,059
Organizational/finance costs (net of
amortization) 44,998 46,036
------ ------
TOTAL ASSETS $30,776,833 $30,630,664
=========== ===========
(Continued)
See Accompanying Notes.
2
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EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2000 and January 31, 2000
(Continued)
April 30, January 31,
2000 2000
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,416,649 $ 989,595
Accrued compensation 469,074 791,528
Taxes other than income taxes 40,622 24,780
Other accrued expenses 765,477 653,077
Income taxes payable 450,565 151,104
Deferred compensation 754,250 754,250
Current maturities on long-term debt 933,784 933,784
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Total current liabilities 4,830,421 4,298,118
Accrued pension expenses 10,801 0
Long-term debt, less current maturities 7,051,469 8,029,358
--------- ----------
Total Liabilities 11,892,691 12,327,476
Shareholders' Equity:
Preferred stock, $.01 par value: 1,000,000 shares
authorized, none issued 0 0
Common stock, $.01 par value: 20,000,000 shares
authorized, 2,351,308 shares issued
and outstanding 23,513 23,513
Additional paid-in capital 10,344,868 10,344,868
Retained earnings 8,569,205 7,917,695
Accumulated other comprehensive (loss) income (53,444) 17,112
-------- ------
Total Shareholders' Equity 18,884,142 18,303,188
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TOTAL LIABILITIES AND EQUITY $30,776,833 $30,630,664
=========== ===========
See Accompanying Notes.
3
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EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
NET SALES $6,954,152 $6,117,533
COST OF GOODS SOLD 4,278,216 3,997,597
--------- ---------
GROSS PROFIT 2,675,936 2,119,936
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative expenses 1,500,456 1,204,640
Goodwill and organizational/
finance cost amortization 59,103 79,650
------ ------
Total other operating expenses 1,559,559 1,284,290
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OPERATING INCOME 1,116,377 835,646
OTHER EXPENSE (INCOME):
Interest expense 176,682 251,409
Realized gains on trading securities (124,522) (260,953)
Unrealized (gains) losses on trading securities (19,986) 192,817
Stock warrant amortization 0 389,236
Miscellaneous income (21,332) (28,886)
-------- --------
Total other expense 10,842 543,623
------ -------
INCOME BEFORE INCOME TAXES 1,105,535 292,023
INCOME TAXES 454,025 131,176
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NET INCOME 651,510 160,847
OTHER COMPREHENSIVE LOSS -
Foreign currency translation adjustment (70,556) (22,914)
-------- --------
COMPREHENSIVE INCOME $580,954 $137,933
======== ========
Net income per share - basic $.28 $.07
Net income per share - diluted $.22 $.06
See Accompanying Notes.
4
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EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income $ 651,510 $ 160,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 308,071 693,589
Provision for doubtful accounts 78,091 66,044
Realized gain on sales of trading securities (124,522) (260,953)
Unrealized (gain) loss on trading securities (19,986) 192,817
Purchases of trading securities (80,783) 0
Proceeds from the sale of trading securities 480,078 2,631,337
Equity in earnings of affiliate (16,251) (15,000)
Changes in assets and liabilities:
Accounts receivable (836,751) (117,719)
Receivable from affiliate (6,411) 18,992
Inventories 288,566 126,356
Prepaid expenses and other assets 105,498 (27,412)
Trade accounts payable 427,054 (928,128)
Accrued compensation (322,454) (279,262)
Taxes other than income taxes 15,842 19,628
Other accrued expenses 123,201 (13,923)
Deferred income taxes 10,000 (148,000)
Income taxes payable 299,461 279,785
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Total adjustments 728,704 2,238,151
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,380,214 2,398,998
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INVESTING ACTIVITIES:
Additions to plant and equipment (76,166) (75,607)
Maturity of certificate of deposit 0 95,000
- ------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (76,166) 19,393
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(Continued)
See Accompanying Notes.
5
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EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(Unaudited)
(Continued)
2000 1999
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ 600,000 $ 5,157,183
Payments on long-term debt (1,577,889) (7,106,756)
NET CASH USED IN
FINANCING ACTIVITIES (977,889) (1,949,573)
-------- ----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (70,556) (22,914)
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 255,603 445,904
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 539,586 468,072
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 795,189 $ 913,976
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 144,564 $ 0
Cash paid during the period for interest 183,937 257,374
See Accompanying Notes.
6
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EDISON CONTROL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
-------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, these statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal, recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ending April 30, 2000 are not necessarily indicative of the results that may be
expected for other interim periods or the year ended January 31, 2001. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended January
31, 2000.
Note 2 - Nature of Business and Accounting Policies
----------------------------------------------------
Principles of Consolidation - The consolidated financial statements include the
accounts of Edison Control Corporation ("Edison") and subsidiaries, all of which
subsidiaries are wholly owned by Edison (collectively, the "Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
Nature of Operations - The Company is currently comprised of the following
operations. Construction Forms ("ConForms") is a leading manufacturer and
distributor of systems of pipes, couplings and hoses and other equipment used
for the pumping of concrete. ConForms manufactures a wide variety of finished
products which are used to create appropriate configurations of systems for
various concrete pumps. Ultra Tech manufactures abrasion resistant piping
systems for use in industries such as mining, pulp and paper, power and waste
treatment. Gilco produces a line of concrete and plaster/mortar mixers. JABCO
primarily leases property and equipment to the Company.
Trading Securities - Debt and equity securities purchased and held principally
for the purpose of sale in the near term are classified as "trading securities"
and reported at fair value with unrealized gains and losses included in
earnings. The cost of individual securities sold is based on the first-in,
first-out method.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
7
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Translation of Foreign Currencies - Assets and liabilities of foreign operations
are translated into United States dollars at current exchange rates. Income and
expense accounts are translated into United States dollars at average rates of
exchange prevailing during the year. Adjustments resulting from the translation
of financial statements of the foreign operations are included as foreign
currency translation adjustments in other comprehensive income.
Net income per share - Reconciliation of the numerator and denominator of the
basic and diluted per share computations for the three months ended April 30,
2000 and 1999 are summarized as follows:
2000 1999
---- ----
Net income per share - basic:
Net income (numerator) $651,510 $160,847
Weighted average shares outstanding (denominator) 2,351,308 2,346,933
Net income per share - basic $.28 $ .07
Net income per share - diluted:
Net income (numerator) $651,510 $160,847
Weighted average shares outstanding 2,351,308 2,346,933
Effect of dilutive securities:
Stock options 184,755 177,949
Stock warrants 378,749 392,025
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Weighted average shares outstanding (denominator) 2,914,812 2,916,907
Net income per share - diluted $.22 $ .06
Note 3 - Segment Information
----------------------------
The Company's operating segments are organized based on the nature of products
and services provided. A description of the nature of the segment's operations
and their accounting policies is contained in Note 2. Segment information for
the quarters ended April 30, 2000 and 1999 follows:
2000 1999
---- ----
Net Operating Net Operating
Sales Income (Loss) Sales Income (Loss)
----- ------------ ----- ------------
ConForms $5,801,838 $1,455,796 $5,082,901 $953,762
Ultra Tech 667,105 76,201 466,689 91,999
Gilco 485,209 (60,153) 567,943 (115,789)
Edison (355,467) (94,326)
------- --------- --------- --------
Total $6,954,152 $1,116,377 $6,117,533 $835,646
8
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Item 2.
Management's Discussion and Analysis of Operations and Financial Condition
--------------------------------------------------------------------------
Certain matters discussed in this Quarterly Report on Form 10-Q are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to, new product
advancements by competition, significant changes in industry technology,
economic or political conditions in the countries in which the Company does
business, the continued availability of sources of supply, the availability and
consummation of favorable acquisition opportunities, increasing competitive
pressures on pricing and other contract terms, economic factors affecting the
Company's customers 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.
Net sales for the quarter ended April 30, 2000 increased $836,619 (13.7%) to
$6,954,152 when compared with the same period of the prior year. The principal
reasons for the change were increases in ConForms' foreign and domestic sales
and Ultra Tech project sales. Ultra Tech's sales volume will continue to
fluctuate based on its ability to attain large project sales in the industries
it serves.
As a percentage of net sales, gross margin for the quarter increased to 38.5%
from 34.7% due to improved ConForms domestic and foreign results and fewer lower
margin Gilco sales. Selling, engineering and administrative expenses increased
by $295,816 (24.6%) due largely to increased legal and professional expenses
related to the possible acquisition of all of Edison's common stock.
Interest expense decreased to $176,682 for the quarter ended April 30, 2000
compared to $251,409 for the quarter ended April 30, 1999 due to lower debt
balances.
9
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The Company had a net gain on trading securities of $144,508 for the quarter
ended April 30, 2000 compared to a net gain of $68,136 for the quarter ended
April 30, 1999. Trading securities at April 30, 2000 consisted of the following:
Number of Market
Name of Issuer/Title of Issue Shares Value
----------------------------- ------ -----
Common Stocks:
Allied Capital Corp., New. 3,000 $ 56,063
Compaq Computers Corp. 5,000 145,938
Creative Biomolecules, Inc. 3,000 23,156
Entremed Inc. 1,500 78,656
Glenayre Technologies, Inc. 40,000 527,500
Intel Corp. 2,000 253,625
Liberty Digital, Inc. 2,000 64,000
Sun International Hotels 100 1,925
Total $ 1,150,863
===========
Although the Company has no established formal investment policies or practices
for its trading securities portfolio, the Company generally pursues an
aggressive trading strategy, focusing primarily on generating near-term capital
appreciation from its investments in common equity securities. Securities held
in the Company's portfolio at the end of each period are reported at fair value,
with unrealized gains and losses included in earnings for that period. These
factors, combined with the relative size of the Company's trading portfolio, has
led, and will likely continue to lead, to significant period-to-period earnings
volatility depending upon the capital appreciation or depreciation of the
Company's trading securities portfolio as of the end of each reporting period.
The Company does not use or buy derivative securities.
The amortization of goodwill, financing costs and stock warrants created a total
non-cash charge of $59,103 for the first quarter compared to $468,886 for the
prior year first quarter. The amortization decrease was due to the expensing in
the quarter ended April 30, 1999 of all remaining deferred financing costs that
related to the warrant issued to the principal shareholder. 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 $454,025 for the three months ended April
30, 2000, which represents the estimated annual effective rate of 41.1% 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 $651,510, or $.28 and $.22 per share, basic and diluted,
respectively, for the first quarter of 2000 was an increase of $490,663
(305.0%), from net income of $160,847, or $.07 and $.06 per share, basic and
diluted, for the comparable period of the prior year. This change was
principally due to improved sales and margins and the decrease in amortization
of the non-cash charges described above.
10
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Liquidity and Capital Resources
-------------------------------
The Company generated $1,380,214 in cash from operations during the first three
months of 2000, compared to cash generated from operations of $2,398,998 for the
same period last year. This decrease was due largely to the net proceeds of
$2,631,337 received from sales of trading securities during the first three
months of 1999. The Company used $76,166 in cash to acquire capital equipment
and used $977,889 for net payments on long-term debt. The result was a net
increase in cash and cash equivalents of $255,603 for the first quarter of
fiscal 2000 compared to a net increase of $445,904 in the prior year first
quarter.
The Company believes that it can fund proposed capital expenditures and
operational requirements from operations and currently available cash and cash
equivalents, investments, trading securities and existing bank credit lines.
Proposed capital expenditures for the fiscal year ending January 31, 2001 are
expected to total approximately $1,000,000, compared to $675,245 for fiscal
1999. The expected 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
or additional borrowings or the issuance of the Company's stock.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to interest rate risk, foreign currency risk and equity
price risk. These risks include changes in U.S interest rates, changes in
foreign currency exchange rates as measured against the U.S. dollar and changes
in the prices of stocks traded on the U.S. markets.
Interest Rate Risk
------------------
The Company's revolving credit borrowings and variable rate term loans, which
total $7,985,253 as of April 30, 2000, are subject to interest rate risk. Most
of the borrowings float at either the prime rate or LIBOR plus a certain amount
of basis points. Based on the April 30, 2000 balance, an increase of one percent
in the interest rate on the Company's loans would cause interest expense to
increase by approximately $80,000 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
11
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will be successful, especially in the event of a significant and sudden decline
in the value of a currency.
Equity Price Risk
-----------------
Approximately 4% of the Company's total assets as of April 30, 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 ($1,150,863 at April 30, 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 $115,000, or $0.02 per diluted share, net of taxes.
PART II.
Item 6.
Exhibits
--------
The Exhibits filed or incorporated by reference herein are as specified in the
Exhibit Index.
Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter to which the report
relates.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDISON CONTROL CORPORATION
--------------------------
(Registrant)
Date: June 1, 2000 /s/ Jay R. Hanamann
-----------------------
Jay R. Hanamann
(Chief Financial Officer)
13
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Edison Control Corporation
Exhibit Index
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Exhibit No. Description
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27. Financial Data Schedule.
14
