UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended October 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 0-14812
-------
EDISON CONTROL CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2716367
---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
777 Maritime Drive
PO Box 308
Port Washington, WI 53074-0308
------------------------------
(Address of principal executive offices)
(Zip Code)
(262) 268-6800
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 2,351,308 as of October 31, 2000
------------------------------------------------------------
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Form 10-Q
Page Number
Part I Financial Information
----------------------------
Item 1 Financial Statements
---------------------------
Consolidated Balance Sheets Pages 2-3
October 31, 2000 (Unaudited) and
January 31, 2000
Consolidated Statements of Income Pages 4-5
Three and nine months ended October 31,
2000 and 1999 (Unaudited)
Consolidated Statements of Cash Flows Pages 6-7
Nine months ended October 31,
2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements Pages 8-10
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 10-13
----------------------------------------------
Operations and Financial Condition
----------------------------------
Item 3 Quantitative and Qualitative Disclosures
About Risk Pages 13-14
----------
Part II Other Information
-------------------------
Item 6 Exhibits Page 14 and
---------------
Exhibit Index
1
<PAGE>
PART I.
Item 1
Financial Statements
--------------------
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2000 and January 31, 2000
October 31, January 31,
2000 2000
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $812,589 $539,586
Investments 95,000 95,000
Trading securities 750,067 1,405,650
Trade accounts receivable, net 3,247,782 3,522,867
Receivable from affiliate 155,512 61,606
Inventories, net 6,335,148 7,110,888
Prepaid expenses and other assets 173,427 193,886
Refundable income taxes 113,063 0
Note receivable 164,155 0
Deferred income taxes 305,000 190,000
------- -------
Total current assets 12,151,743 13,119,483
Investment in and advances to affiliate 523,108 478,108
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 7,483,087 7,968,785
Goodwill (net of amortization) 8,283,864 8,458,059
Organizational/finance costs (net of
amortization) 42,922 46,036
------ ------
TOTAL ASSETS $29,019,724 $30,630,664
=========== ===========
(Continued)
See Accompanying Notes.
2
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2000 and January 31, 2000
(Continued)
October 31, January 31,
2000 2000
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,097,967 $ 989,595
Accrued compensation 835,496 791,528
Taxes other than income taxes 6,304 24,780
Other accrued expenses 520,079 653,077
Income taxes payable 0 151,104
Deferred compensation 754,250 754,250
Current maturities on long-term debt 133,784 933,784
------- -------
Total current liabilities 3,347,880 4,298,118
Accrued pension 82,717 0
Long-term debt, less current maturities 5,747,063 8,029,358
--------- ---------
Total Liabilities 9,177,660 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 9,660,208 7,917,695
Accumulated other comprehensive income (186,525) 17,112
--------- ------
Total Shareholders' Equity 19,842,064 18,303,188
---------- ----------
TOTAL LIABILITIES AND EQUITY $29,019,724 $30,630,664
=========== ===========
See Accompanying Notes.
3
<PAGE>
<TABLE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 31, October 31,
---------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $5,705,539 $6,145,451 $18,895,533 $18,081,340
Cost of goods sold 3,597,541 3,779,806 11,507,861 10,956,227
--------- --------- ---------- ----------
Gross profit 2,107,998 2,365,645 7,387,672 7,125,113
Other operating expenses:
Selling, engineering and
administrative expenses 1,075,278 1,024,035 3,628,562 3,293,640
Goodwill and organizational/
finance cost amortization 59,103 59,115 177,309 211,565
------ ------ ------- -------
Total other operating expenses 1,134,381 1,083,150 3,805,871 3,505,205
--------- --------- --------- ---------
Operating income 973,617 1,282,495 3,581,801 3,619,909
Other expense (income):
Interest expense 120,037 176,388 438,055 635,215
Realized (gains) on
trading securities (23,379) (286,147) (145,750) (542,600)
Unrealized losses on
trading securities 170,149 378,297 296,624 559,938
Stock warrant amortization 0 0 0 389,236
Loss on sale of assets 0 18,543 0 128,543
Miscellaneous income (12,355) (9,429) (68,449) (55,247)
-------- ------- -------- --------
Total other expense 254,452 277,652 520,840 1,115,085
------- ------- ------- ---------
Income from continuing operations
before income taxes 719,165 1,004,843 3,061,321 2,504,824
Provision for income taxes 288,020 394,479 1,213,731 1,003,075
------- ------- --------- ---------
Net income from
continuing operations 431,145 610,364 1,847,590 1,501,749
</TABLE>
(Continued)
See Accompanying Notes
4
<PAGE>
<TABLE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(Unaudited)
(Continued)
Three Months Ended Nine Months Ended
------------------ -----------------
October 31, October 31,
---------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discontinued operations (Note 3):
(Loss) from operations of
discontinued Gilco division
net of income taxes (credit) of
$(46,000), $(15,000), $(60,000)
and $(67,000), respectively $ (71,141) $ (24,503) $ (92,698) $ (105,646)
Loss on disposal of Gilco
division, net of income
taxes (credit) of $(7,000), $0,
$(7,000) and $0, respectively (12,379) 0 (12,379) 0
-------- - -------- -
Net Income 347,625 585,861 1,742,513 1,396,103
Other comprehensive (loss) income
- Foreign currency
translation adjustment (34,713) 26,469 (203,637) 7,481
-------- ------ --------- -----
Comprehensive income $ 312,912 $ 612,330 $1,538,876 $1,403,584
========= ========== ========== ==========
Net income (loss) per share:
Basic:
Income from
continuing operations $.18 $.26 $.79 $.64
Loss from
discontinued operations (.03) (.01) (.05) (.04)
Loss on disposal of
discontinued operations .00 .00 .00 .00
--- --- --- ---
Net income $.15 $.25 $.74 $.60
Diluted:
Income from
continuing operations $.15 $.21 $.63 $.51
Loss from
discontinued operations (.03) (.01) (.03) (.03)
Loss on disposal of
discontinued operations .00 .00 .00 .00
--- --- --- ---
Net income $.12 $.20 $.60 $.48
</TABLE>
See Accompanying Notes.
5
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
Net income $1,742,513 $1,396,103
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 848,739 1,287,167
Provision for doubtful accounts 116,472 102,896
Loss on sale of assets 0 128,543
Loss on sale of Gilco division 19,378 0
Realized gain on sales of trading securities (145,750) (542,600)
Unrealized loss on trading securities 296,624 559,938
Purchases of trading securities (80,782) (417,875)
Proceeds from the sale of trading securities 585,491 3,002,326
Equity in earnings of affiliate (45,000) (45,000)
Changes in assets and liabilities:
Accounts receivable 158,613 (573,152)
Receivable from affiliate (93,906) 42,959
Inventories 221,517 757,272
Prepaid expenses and other assets 45,652 46,728
Trade accounts payable 108,372 (863,594)
Accrued compensation 43,968 11,988
Taxes other than income taxes (18,476) (15,489)
Other accrued expenses (50,281) 15,828
Deferred income taxes (115,000) (370,000)
Income taxes payable (264,167) 255,995
--------- -------
Total adjustments 1,631,464 3,383,930
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,373,977 4,780,033
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment (215,042) (522,690)
Proceeds from sale of Gilco division 400,000
Maturity of certificate of deposit 0 95,000
Proceeds from sale of assets 0 903,657
- -------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 184,958 475,967
------- -------
(Continued)
See Accompanying Notes.
6
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(Unaudited)
(Continued)
2000 1999
---- ----
Cash flows from financing activities:
Proceeds from issuance of long-term debt $ 600,000 $ 5,457,183
Principal payments on long-term debt (3,682,295) (10,733,500)
Payments received from affiliates 0 0
Stock options exercised 0 0
- -
NET CASH USED IN
FINANCING ACTIVITIES (3,082,295) (5,276,317)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (203,637) 7,481
------- -----
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 273,003 (12,836)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 539,586 468,072
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 812,589 $ 455,236
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $1,525,898 $1,050,080
Cash paid during the period for interest 441,101 655,907
Supplemental disclosure of non-cash investing activities:
Note receivable received
from sale of Gilco division $ 164,155 $ 0
See Accompanying Notes.
7
<PAGE>
EDISON CONTROL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
-------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America 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 accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting of normal,
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ending October 31, 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. 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
accounting principles generally accepted in the United States of America
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.
8
<PAGE>
Translation of Foreign Currencies - Assets and liabilities of foreign operations
are translated into United States dollars at current exchange rates. Income and
expense accounts are translated into United States dollars at average rates of
exchange prevailing during the period. 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 From Continuing Operations Per Share - Reconciliation of the
numerator and denominator of the basic and diluted per share computations for
the three and nine-month periods ended October 31, 2000 and 1999 are summarized
below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -----------------
October 31, October 31,
---------- --------
2000 1999 2000 1999
---- ---- ---- ----
Net income from continuing operations per share-basic:
<S> <C> <C> <C> <C>
Net income (numerator) $ 431,145 $610,364 $1,847,590 $1,501,749
Weighted average shares
outstanding (denominator) 2,351,308 2,346,933 2,351,308 2,346,933
Net income per share-basic $ .18 $.26 $ .79 $ .64
Net income from continuing operations per share-diluted:
Net income (numerator) $ 431,145 $610,364 $1,847,590 $1,501,749
Weighted average shares
outstanding 2,351,308 2,346,933 2,351,308 2,346,933
Effect of dilutive securities:
Stock options 145,440 147,758 174,225 177,815
Stock warrants 373,384 372,888 391,349 392,173
Weighted average shares
outstanding (denominator) 2,870,132 2,867,579 2,916,882 2,916,921
Net income per share-diluted $ .15 $.21 $ .63 $ .51
</TABLE>
Note 3 - Discontinued Operations
--------------------------------
On September 29, 2000, the Company sold the inventory, tooling and intangible
assets of its Gilco division to a third party for $400,000 cash and a
non-interest bearing note receivable for $164,155 which is due on March 29,
2001. Gilco had supplied portable concrete and mortar/plaster mixers to various
customers. The sale resulted in a loss of $12,379, net of income taxes.
The results of operations of the Gilco division have been presented as
discontinued operations. Accordingly, previously reported statement of earnings
information has been restated to reflect this presentation. Net sales of the
Gilco division for the three
9
<PAGE>
and nine-month periods ended October 31, 2000 and 1999 were $253,580 and
$1,227,760, and $563,765 and $1,677,975, respectively.
Note 4 - Segment Information
----------------------------
The Company's operating segments are organized based on the nature of products
and services provided by each segment. A description of the nature of the
segments' operations and their accounting policies are contained in Note 2.
Segment information for the three and nine-month periods ended October 31, 2000
and 1999 follows:
Three Months Ended October 31,
------------------------------
2000 1999
---- ----
Operating Operating
Net Income Net Income
Sales (Loss) Sales (Loss)
----- ------ ----- ------
ConForms $ 5,100,200 $ 1,035,352 $ 5,302,538 $ 1,227,940
Ultra Tech 605,339 33,073 842,913 126,597
Edison (94,808) (72,042)
-------- -------- -------- ------
Total $ 5,705,539 $ 973,617 $ 6,145,451 $ 1,282,495
Nine Months Ended October 31,
-----------------------------
2000 1999
---- ----
Operating Operating
Net Income Net Income
Sales (Loss) Sales (Loss)
----- ------ ----- -----
ConForms $17,100,066 $ 4,065,395 $15,744,637 $3,528,369
Ultra Tech 1,795,467 28,282 2,336,703 354,223
Edison (511,876) (262,683)
-------- --------- -------- -------
Total $18,895,533 $ 3,581,801 $18,081,340 $3,619,909
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
10
<PAGE>
on such forward-looking statements. The forward-looking statements included
herein are only made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Net sales for the quarter ended October 31, 2000 decreased $439,912 (7.2%) to
$5,705,539 compared with net sales for the same period of the prior year. The
decrease was due largely to decreases in ConForms' foreign and Ultra Tech
project sales. The Conforms' foreign sales decreased primarily due to decreased
sales in the Middle East and the United Kingdom. For the first nine months of
this year, net sales increased $814,193 (4.5%) to $18,895,533 compared with net
sales for the same period of the prior year. Increases in ConForms' domestic
sales were partially offset by decreases in 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 decreased to 36.9%
from 38.5%. The lower margins were due largely to lower margins on ConForms'
foreign sales. This was caused by lower sales to cover fixed overhead costs and
costs incurred to move the United Kingdom facility to a new location. Gross
margin for the nine months ended October 31, 2000 was 39.1% compared to 39.4%
for the nine months ended October 31, 1999. Selling, engineering and
administrative expenses for the three and nine-month periods ended October 31,
2000 increased by $51,243 (5.0%) and $334,922 (10.2%) from the same period last
year. The nine-month increase was largely due to legal and professional expenses
during the quarter ended April 30, 2000 which related to discussions held with
various parties interested in acquiring all of Edison's common stock.
Interest expense decreased to $120,037 and $438,055 for the three and nine-month
periods ended October 31, 2000 compared to $176,388 and $635,215 for the same
periods ended October 31, 1999. Interest expense is expected to continue to
decrease due to anticipated future principal reductions resulting from excess
operating cash flow.
The Company had a net loss on trading securities of $146,770 and $150,874 for
the three and nine-month periods ended October 31, 2000 compared to a $92,150
and $17,338 net loss for the same periods of the prior year. Trading securities
at October 31, 2000 consisted of the following:
Number of Market
Name of Issuer/Title of Issue Shares Value
----------------------------- ------ -----
Common Stocks:
Allied Capital Corp., New 3,000 $ 61,875
Compaq Computer Corp. 5,000 152,050
Entremed Inc. 1,500 46,688
Glenayre Technologies, Inc. 40,000 330,000
Intel Corp. 3,000 135,000
Liberty Digital, Inc. 2,000 23,250
Sun International Hotels 63 1,204
-----
Total $ 750,067
==========
11
<PAGE>
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 securities
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 resulted in a
total non-cash charge of $177,309 for the nine months ended October 31, 2000
compared to $600,801 for the same period of the prior year. The amortization
decrease was due to the expensing in the nine months ended October 31, 1999 of
all remaining deferred financing costs that related to the warrant issued in
1996 to the Company's principal shareholder. The total amortization of all these
non-cash charges for the year ended January 31, 2001 is expected to approximate
$240,000 compared to $659,859 in fiscal 1999.
During the third quarter of 1999, the Company completed the sale of its land and
building in Cedarburg, Wisconsin to a third party. The sale resulted in a loss
of $128,543. The proceeds from this sale were used to repay debt.
The Company recorded tax expense from continuing operations of $1,213,731 for
the nine months ended October 31, 2000, which represented an estimated annual
effective tax rate of 39.6% applied to pre-tax income. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amount
of assets and liabilities for financial statement reporting purposes and the
amounts used for income tax purposes.
Net income from continuing operations of $431,145, or $.18 and $.15 per share,
basic and diluted, respectively, for the third quarter of fiscal 2000 was
$179,219 (29.4%) less than net income from continuing operations of $610,364, or
$.26 and $.21 per share, basic and diluted, for the comparable period of the
prior year. The change was principally due to the decrease in net sales of
$439,912 for the third quarter of 2000 compared to the same period of the prior
year. For the nine months ended October 31, 2000, net income from continuing
operations was $1,847,590, or $.79 and $.63 per basic and diluted share,
respectively, compared to net income from continuing operations of $1,501,749,
or $.64 and $.51 per basic and diluted share, respectively, in the comparable
period of the prior year. Increases from improved sales in 2000, the loss on the
sale of the Cedarburg building during third quarter of 1999, and the decrease in
amortization of the non-cash charges described above were partially offset by
increased legal and professional expenses described above.
Liquidity and Capital Resources
-------------------------------
The Company generated $3,373,977 in cash from operations during the first nine
months of 2000, compared to cash flow generated by operations of $4,780,033 for
the same period last year. This reduced cash flow was due largely to the net
proceeds of approximately $2,600,000 received from sales of trading securities
during the first nine months of 1999. The Company used $215,042 in cash to
acquire capital equipment
12
<PAGE>
during the nine months ended October 31, 2000 compared to $522,690 for the same
period of the prior year. During the first nine months of fiscal 2000, the
Company received $400,000 from the sale of its Gilco division. During the first
nine months of fiscal 1999, the Company received $903,657 from the sale of the
land and building in Cedarburg, Wisconsin and $95,000 from the maturity of a
certificate of deposit. For the nine months ended October 31, 2000, the Company
used $3,082,295 for net payments on long-term debt compared to net payments on
long-term debt of $5,276,317 for the same period of the prior year. The result
was a net increase in cash and cash equivalents of $273,003 for the first nine
months of fiscal 2000 compared to a net decrease of $12,836 in the prior year's
first nine months.
Proposed capital expenditures for the fiscal year ending January 31, 2001 are
expected to total approximately $600,000, compared to $675,245 for fiscal 1999.
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. The
Company's available credit on its revolving credit line was $2,700,000 as of
October 31, 2000. The Company's current ratio and debt to equity ratios as of
October 31, 2000 were 2.9 and 29.6%, respectively.
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.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to interest rate risk, foreign currency risk and equity
price risk. These risks include changes in U.S interest rates, changes in
foreign currency exchange rates as measured against the U.S. dollar and changes
in the prices of stocks traded on the U.S. markets.
Interest Rate Risk
------------------
The Company's debt obligations, which totaled $5,880,847 as of October 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 October
31, 2000 balance, an increase of one percent in the interest rate on the
Company's loans would cause an increase in interest expense of approximately
$60,000, or $.01 per diluted share, net of taxes, on an annual basis. The
Company currently does not use derivatives to fix its 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.
13
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Equity Price Risk
-----------------
Approximately 2.6% of the Company's total assets as of October 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 securities portfolio ($750,067 at October
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 $75,000, or $.02 per diluted
share, net of taxes, on an annual basis.
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.
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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: December 8, 2000 /s/ Jay R. Hanamann
-------------------------
Jay R. Hanamann
(Chief Financial Officer)
15
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Edison Control Corporation
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for Third Quarter Ended
October 31, 1999.
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