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 June 30, 1996.
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange 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 (I.R.S. Employer
incorporation or organization) Identification No.)
140 Ethel Road West
Piscataway, N.J. 08854
(Address of principal offices) (Zip Code)
(908) 819-8800
(Registrant's telephone number, including area code)
Not applicable
(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 periods 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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date.
Common Stock, $.01 par value: 2,250,933 as of July 31, 1996.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
June 30, 1996 and December 31, 1995
1996 1995
ASSETS --------- ---------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,382,331 $ 2,020,996
Investments 284,000 284,000
Trading securities 5,590,680 9,838,998
Accounts receivable-trade 3,071,627 55,398
Inventories 6,793,616 230,318
Prepaid expenses and other assets 633,218 47,739
Prepaid income taxes 93,000 0
Deferred compensation 738,537 0
Deferred financing costs 400,000 0
---------- ----------
Total current assets 18,987,009 12,477,449
Property, plant and equipment at cost, net 6,228,270 65,687
Goodwill 10,172,068 0
Deferred financing costs 791,667 0
Pension asset 433,662 0
Investment in South Houston Hose 367,861 0
Other assets 70,895 10,350
---------- ----------
$ 37,051,432 $12,553,486
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,412,795 $ 924
Accrued liabilities 1,068,560 51,701
Income taxes payable 340,828 518,728
Deferred income tax 1,059,221 1,606,221
Current maturities on long-term debt 862,844 0
---------- ----------
Total current liabilities 4,744,248 2,177,574
Long-term debt 18,731,516 0
Deferred income taxes 456,000 0
Stockholders' equity:
Preferred Stock, $.01 par value: 1,000,000 shares
authorized, none issued
Common Stock, $.01 par value: 10,000,000 shares
authorized, 2,250,933 and 2,136,000 shares issued
and outstanding, respectively 22,509 21,360
Additional paid-in capital 8,958,435 6,143,334
Translation adjustments 7,557 0
Retained earnings 4,131,167 4,211,218
---------- ----------
Total stockholders' equity 13,119,668 10,375,912
---------- ----------
$ 37,051,432 $12,553,486
========== ==========
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
------------------ ----------------
Net sales 762,963 $ 160,662 $ 1,000,813 $ 430,850
Cost and expenses:
Cost of sales 546,813 153,658 726,180 355,577
Selling, general and
administrative 309,414 175,790 517,736 369,874
------------ ----------- ----------- -----------
856,227 329,448 1,243,916 725,451
----------- ----------- ----------- -----------
Operating (loss) ( 93,264) ( 168,786) ( 243,103) ( 294,601)
Interest expense ( 38,333) 0 ( 38,333) 0
Interest and dividends 65,686 37,707 94,287 63,860
Security fees and
commission ( 11,739) ( 25,994) ( 57,058) ( 49,107)
Realized gains on
trading securities 1,346,908 1,152,147 2,988,204 2,160,744
Unrealized gains and
(losses) on trading
securities ( 964,621) 301,389 (2,879,048) 488,617
----------- ----------- ----------- -----------
Income (loss) before
income tax 304,637 1,296,463 ( 135,051) 2,369,513
Provision for income
taxes ( 120,875) ( 518,585) 55,000 ( 947,805)
---------- ----------- ---------- ----------
Net income $ 183,762 $ 777,878 $( 80,051) $ 1,421,708
=========== =========== =========== ===========
Net income $ .08 $ .36 $( .03) $ .65
=========== =========== =========== ===========
Average common shares
and common share
equivalents 2,338,366 2,172,800 2,309,418 2,171,200
=========== =========== =========== ===========
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
Net income $( 80,051) $ 1,421,708
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation and amortization 38,533 20,202
Realized (gain) on sales of
trading securities ( 2,988,204) ( 2,160,744)
Unrealized (gain) loss on
trading securities 2,879,048 ( 488,617)
Purchases of trading securities ( 8,491,506) (10,652,250)
Proceeds from the sale of
trading securities 12,848,980 10,392,100
Changes in assets and liabilities:
Accounts receivable ( 205,992) 120,181
Inventories 16,958 14,700
Prepaid expenses and other
current assets ( 294,269) ( 114,994)
Accounts payable 54,265 ( 61,181)
Accrued liabilities 16,193 ( 218)
Deferred income taxes ( 1,155,000) 195,447
Income taxes payable 585,475 584,684
--------- ----------
Total adjustments 3,304,481 ( 2,150,690)
---------- ----------
Net cash provided by (used in)
operating activities $ 3,224,430 $( 728,982)
---------- ----------
Cash flows from investing activities:
Payment for the purchase of acquired
companies, net of cash acquired (18,651,428) 0
Capital expenditures ( 2,391) ( 23,051)
---------- ----------
Net cash used in investing
activities (18,653,819) ( 23,051)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt 16,540,000 0
Principal payments on long-term debt ( 1,845,000) 0
Proceeds from issuance of Common
Stock 95,724 0
Stock options exercised 0 117,000
---------- ----------
Net cash provided by financing
activities 14,790,724 117,000
---------- ----------
EDISON CONTROL CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited) (cont'd)
1996 1995
---------- ----------
Net increase (decrease) in cash
and cash equivalents ( 638,665) ( 635,033)
Cash and cash equivalents, beginning
of period 2,020,996 821,901
---------- ----------
Cash and cash equivalents, end of
period $ 1,382,331 186,868
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for
income taxes. $ 797,525 $ 305,204
Supplemental schedule of non-cash investing and financing activities:
Stock in the amount of $766,276 was issued as part of the
purchase price.
Legal and professional fees of $428,792 related to the acquisition
were not paid as of June 30, 1996.
Notes receivable of $332,400 were cancelled as part of the purchase
price.
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
Notes to 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, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ending June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. For
further information, refer to the financial statements and footnotes thereto
included in the Registrant's annual report on Form 10-K for the year ended
December 31, 1995.
Note 2- Trading Securities
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", debt and
equity securities that are bought 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.
Item 2.
Management's Discussion and Analysis of Operations and Financial Condition.
Results of Operations.
On June 21, 1996, Registrant through a newly organized, wholly-owned
subsidiary, purchased from unaffiliated persons, all of the issued and
outstanding stock (the "ConForms Stock") of Construction Forms, Inc., a
Wisconsin corporation ("ConForms") and its affiliate C F Gilco, Inc.
("Gilco") and all of the issued and outstanding units of another affiliate,
JABCO, LLC, a Wisconsin limited liability company ("JABCO") for an aggregate
cash consideration of $20,599,487, of which $567,087 were Registrant's
acquisition costs and of which $1,500,000 is held in escrow pending certain
environmental remediation on property held by ConForms. In connection with
the acquisition of ConForms, Registrant also acquired all of the outstanding
stock of CF Ultra Tech, Inc., a wholly-owned Wisconsin subsidiary of ConForms
("Ultra Tech").
ConForms is a leading manufacturer and distributor of systems of pipes,
couplings and hoses and other equipment used for the pumping of concrete. It
manufactures a wide variety of finished products with which it creates
appropriate configurations of systems for various concrete pumps. Ultra Tech
processes steel pipe into abrasion resistant hardened pipe for treatment.
Gilco produces a line of concrete and plaster/mortar mixers.
The transaction was negotiated at arm's length and was based upon
Management's analysis of ConForms' assets and properties, historical
profitability and growth, industry position, business prospects and market
valuations of companies considered to be in related industries and
businesses. Funds utilized in the acquisition included approximately
$4,800,000 of Registrant's operating capital, approximately $9,740,000
available under a Master Credit Agreement between LaSalle National Bank of
Milwaukee, Wisconsin ("LaSalle"), ConForms, Gilco and Ultra Tech
(collectively the "Borrowers") and $6,800,000 under a Loan Agreement between
Bank Audi USA of New York, New York ("Bank Audi") and the Borrowers. JABCO
provided a guarantee in connection with the LaSalle and Bank Audi loans.
The LaSalle facility includes an $8,000,000 working capital line, of
which $5,440,000 was drawn upon at closing, a $4,300,000 term/overadvance
funding line and a $3,000,000 letter of credit to support an Industrial
Revenue Bond issued on the JABCO property. All of such facilities are cross-
collateralized by the corporate assets of ConForms, Ultra Tech and Gilco,
including accounts receivable, inventory and property and equipment as well
as certain marketable securities of Registrant. The Credit Agreement
contains covenants customary in such arrangements, including maintenance of
certain financial ratios and minimum tangible net worth and limitations on
capital expenditures.
The Bank Audi long-term facility is subordinated to LaSalle. In
connection therewith, William Finneran, Chairman of the Board and a principal
shareholder of the Registrant, provided collateral to the Bank to support a
guaranty of repayment by Borrowers of the principal and interest on the loan.
The guaranty is limited to the collateral value. The foregoing arrangement
was made by Mr. Finneran to reduce Registrant's cost of borrowed funds from
that which would have been otherwise obtainable from unaffiliated "mezzanine"
lenders. In consideration of his providing such collateral, Registrant
issued to Mr. Finneran a ten (10) year Warrant to purchase 500,000 shares of
Registrant's Common Stock exercisable at a price of $1.60 per share. At the
time the transaction was negotiated, Registrant's Common Stock was quoted at
approximately $4 per share and, on the date the ConForms acquisition was
consummated, the closing sale price for Registrant's Common Stock in the
over-the counter market was $7 1/2 per share. It is believed that the
transaction with Mr. Finneran was on terms not less favorable to Registrant
than those available from a non-affiliated person.
In connection with the ConForms acquisition, Registrant entered into
agreements for the sale for investment of an aggregate of 114,933 shares of
Registrant's Common Stock for a total purchase price of $862,000 to the key
management personnel of ConForms and its affiliates. In addition, Registrant
granted ten (10) year options to purchase an aggregate of 167,611 shares of
Common Stock exercisable at $3.00 per share to the key personnel. Such
options vest fully on the first anniversary of the closing of the
acquisition. On the date of grant of the options, the closing sale price was
$7.50 per share.
The acquisition, which was accounted for as a purchase, was completed on
June 21, 1996 and, accordingly, the results of operations of the acquired
companies for the period June 21, 1996 to June 30, 1996 are included with the
Registrant. The following unaudited pro forma results of operations for the
six months ended June 30, 1996 (five months for acquired companies) and the
year ended December 31, 1995 gives the effect to the acquisitions of the
acquired entities as if the acquisitions had occurred at the beginning of
each of the periods:
Six (five) months Year
ended ended
June 30, 1996 December 31, 1995
Pro Forma Net Sales $ 9,504,920 $20,580,694
========== ==========
Pro Forma Net Income $ 606,466 $ 1,795,457
========== ==========
Pro Forma Net Income
per share $ .21 $ .63
========== ==========
Net sales for the second quarter of fiscal year 1996 increased $602,301,
or 375.9%, compared with the comparable period of the prior year. For the
first six months of 1996, net sales increased $569,963, or 132.3%, compared
to the comparable period of 1995. The increase for both periods in 1996 is
attributable to orders received from Mexico Electric, an overall increase in
spending by domestic utilities and the results of operations for the acquired
companies for one week.
As a percentage of net sales, gross profit margin for the 1996 second
quarter increased to 29.3% from 4.4%. The six month period gross profit
margin increased to 27.4% from 17.5% for the comparable period in 1995.
These increases are primarily attributable to increased unit volume and the
allocation of overhead costs over the increased unit volume and the results
of operations of the acquired companies for one week.
Selling, general and administrative expenses for the second quarter and
first six months ended June 30, 1996 were $309,414 and $517,736,
respectively, compared to $175,790 and $369,874, respectively, for the
comparable periods of the prior year. The increase in general and
administrative expenses is due to the related expenses of the New York City
office for the Company's President and related costs incurred in the
acquisition of ConForms.
The operating loss was $243,103 for the first six months compared to an
operating loss of $294,601 for the comparable period of 1995. The Company
recorded operating loss in the three months ended June 30, 1996 of $93,264
compared to $168,786 in 1995.
The Company achieved a $2,988,204 realized gain in trading securities
for the six months ended June 30, 1996. Compared to the prior period gain of
$2,160,744, the difference of $827,460 is primarily due to sales of Glenayre
Inc. stock. Unrealized losses were ($2,879,048) for the first six months
compared to unrealized gains of $488,617 for the comparable period of 1995.
The decrease of $3,367,665 can be attributed to the backing out of prior
unrealized gains upon the sale of the stock.
The Company recorded a tax credit of $55,000 for the six months ended
June 30, 1996 respectively, which represents the estimated annual effective
rate of 40% 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 $183,762 or $.08 per share for the second quarter of 1996
decreased $594,116 compared to net income of $777,878 or $.36 per share for
the comparable period of the prior year. Net loss of $80,051 or $.03 per
share for the first six months of 1996 decreased $1,501,759 compared to net
income of $1,421,708 or $.65 per share for the comparable period of the prior
year.
The Company generated $3,224,430 in cash from operations during the
first six months of 1996 compared to a cash usage of $728,982 during the
first six months of 1995, a difference of $3,953,412 which is attributable to
an increase in sales over purchases of trading securities. The Company's
cash usage from investing activities was $18,653,819 during the first six
months of 1996 compared to $23,051 during the first six months of 1995. The
Company's financing activities provided $14,790,724 during the first six
months of 1996 compared to $117,000 in the first six months of 1995. There
was a net decrease in cash and cash equivalents of $638,665 in 1996 compared
to $635,033 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it can fund its proposed capital expenditures
and its operational requirements from operations and its currently available
cash, cash equivalents, investments and existing bank credit lines. Proposed
capital expenditures for the remainder of fiscal year 1996 are expected to
total approximately $400,000.
Additionally, at June 30, 1996 the working capital ratio (i.e., the
ratio of total current assets to total current liabilities) was 4.0:1. At
December 31, 1995, the working capital ratio was 5.7:1.
Part 11
Other Information
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8K
None.
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
/s/ Mary E. McCormack
August 12, 1996 By:
President and Chief
Executive Officer
/s/ Jay Hanamann
August 12, 1996 By:
Chief Financial Officer
and Treasurer