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 July 31, 1997
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.)
W60 N151 Cardinal Avenue
PO Box 326
Cedarburg, WI 53012-0326
(Address of principal executive offices)
(Zip Code)
(414) 377-6565
(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: 2,275,933 as of July 31, 1997
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Page Number
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets Pages 2 & 3
July 31, 1997 (Unaudited) and
January 31, 1997
Consolidated Statements of Operations Page 4
Three and six months ended July 31,
1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows Pages 5 & 6
Six months ended July 31,
1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements Pages 7 & 8
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 8, 9 & 10
Operations and Financial Condition
Part II Other Information
Item 4 Submission of Matters to a Vote of
Security Holders Pages 10 & 11
Item 6 Exhibits and Reports on Form 8-K Page 11 and
Exhibit Index
PART I.
Item 1
Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1997 and January 31, 1997
July 31, January 31,
1997 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 664,554 $ 772,008
Investments 190,000 284,000
Trading securities 4,880,013 4,751,688
Trade accounts receivable, net 2,839,007 2,713,308
Receivable from affiliates 69,118 156,035
Inventories, net 5,467,042 5,316,948
Prepaid expenses and other assets 175,504 197,576
Deferred compensation 0 298,558
Refundable income taxes 19,251 0
Deferred financing costs 983,333 983,333
Total current assets 15,287,822 15,473,454
Investment in and advances to affiliate 360,054 340,054
Other Assets:
Prepaid pension 331,015 385,021
Deferred financing costs 880,903 1,372,570
Total other assets 1,211,918 1,757,591
Property, plant and equipment, net 6,956,465 7,077,228
Goodwill (net of amortization) 9,038,705 9,154,833
Organizational/finance costs (net of
amortization) 213,805 256,945
TOTAL ASSETS $33,068,769 $34,060,105
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,011,557 $ 868,088
Accrued compensation 561,241 606,010
Taxes other than income taxes 49,000 38,119
Other accrued expenses 592,344 529,896
Income taxes payable 0 9,077
Deferred income tax 280,000 245,000
Deferred compensation 754,250 754,250
Current maturities on long-term debt 868,844 868,844
Total current liabilities 4,117,236 3,919,284
Long-term debt, less current maturities 14,480,143 16,038,580
Deferred income taxes 272,000 501,000
TOTAL LIABILITIES 18,869,379 20,458,864
Stockholders' Equity:
Preferred stock, $.01 par value: 1,000,000 shares
authorized, none issued 0 0
Common stock, $.01 par value: 10,000,000 shares
authorized, issued and outstanding 2,275,933
shares 22,759 22,759
Additional paid-in capital 10,016,435 10,016,435
Retained earnings 3,989,050 3,453,331
Foreign currency translation adjustments 171,146 108,716
TOTAL STOCKHOLDERS' EQUITY 14,199,390 13,601,241
TOTAL LIABILITIES AND EQUITY $33,068,769 $34,060,105
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 31, 1997 AND 1996
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
1997 1996 1997 1996
NET SALES $5,370,762 $2,952,444 $11,077,993 $3,213,555
COST OF GOODS SOLD 3,325,648 2,193,437 6,960,400 2,386,777
GROSS PROFIT 2,045,114 759,007 4,117,593 826,778
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative
expenses 1,133,678 543,084 2,264,449 729,095
Stock option
amortization 109,995 78,567 298,558 78,567
Goodwill and organizational/
finance cost
amortization 79,635 21,192 159,270 21,192
Total other
operating expenses 1,323,308 642,843 2,722,277 828,854
OPERATING
EARNINGS(LOSS) 721,806 116,164 1,395,316 (2,076)
OTHER EXPENSE (INCOME):
Interest expense 316,381 146,345 592,879 146,345
Realized gains on
trading securities (418,829) (1,765,029) (223,141) (2,747,079)
Unrealized (gains) losses on
trading securities (792,959) 2,266,714 (356,059) 2,747,409
Stock warrant
amortization 245,832 102,427 491,667 102,427
Miscellaneous (income)
expense (50,891) 6,503 (38,577) 18,136
Total other
(income)expense (700,466) 756,960 466,769 267,238
EARNINGS(LOSS) BEFORE
INCOME TAXES
(CREDIT) 1,422,272 (640,796) 928,547 (269,314)
INCOME TAXES
(CREDIT) 572,788 (242,000) 392,828 (93,000)
NET EARNINGS(LOSS) $849,484 $(398,796) $535,719 $(176,314)
Net earnings(loss)
per share $.31 $(.18) $.19 $(.08)
Weighted average common shares and
common share
equivalents 2,773,627 2,187,081 2,771,127 2,161,541
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1997 AND 1996
(Unaudited)
1997 1996
Net earnings(loss) $ 535,719 $ (176,314)
Adjustments to reconcile net earnings(loss) to net cash
provided by operating activities:
Depreciation and amortization 1,286,894 282,123
Provision for doubtful accounts 57,546 0
Realized (gain) on sales of trading
securities (223,141) (2,747,079)
Unrealized (gain)loss on trading securities(356,059) 2,747,409
Purchases of trading securities (2,416,312) (5,745,906)
Proceeds from the sale of trading
securities 2,867,187 11,566,767
Proceeds from the sale of investments 94,000 0
Equity in earnings of affiliate (20,000) 0
Changes in assets and liabilities:
Accounts receivable (183,245) (403,273)
Receivable from affiliate 86,917 43,263
Inventories (150,094) 462,296
Prepaid expenses and other assets 76,078 (12,481)
Trade accounts payable 143,469 120,213
Accrued compensation (44,769) 76,606
Taxes other than income taxes 10,881 14,228
Accrued expenses 62,448 106,869
Deferred income taxes (194,000) (2,006,508)
Income taxes payable (28,328) 1,122,585
Total adjustments 1,069,472 5,627,112
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,605,191 5,450,798
Cash flows from investing activities:
Additions to plant and equipment (216,638) (44,460)
Proceeds from sale of equipment 0 0
Payment for purchase of acquired
company, net of cash acquired 0 (18,914,093)
NET CASH (USED IN) INVESTING
ACTIVITIES (216,638) (18,958,553)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 16,540,000
Principal payments on long-term debt (1,558,437) (2,644,722)
Proceeds from issuance of Common Stock 0 95,727
Stock options exercised 0 0
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,558,437) 13,991,005
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 62,430 14,389
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (107,454) 497,639
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 772,008 598,931
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 664,554 $ 1,096,570
Supplemental disclosure of cash flow information:
Cash paid during the period
for income taxes $ 615,156 $ 800,224
Cash paid during the period
for interest 567,866 106,014
Supplemental schedule of non-cash
investing and financing activities:
Stock issued under separate agreement which
offset a portion of purchase price of
acquired companies $ 0 $ 766,274
Note receivable offset against purchase price
of acquired companies $ 0 $ 332,400
Fair value of warrants issued in connection
with financing of acquisition $ 0 $ 2,950,000
See Accompanying Notes.
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 fair presentation have been included. Operating
results for the six-month period ending July 31, 1997 are not necessarily
indicative of the results that may be expected for other interim periods
or the year ended January 31, 1998. 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, 1997.
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 four operating
units. 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 Ultra Tech.
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.
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.
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 the equity section of the accompanying
consolidated balance sheets.
Net Earnings(Loss) Per Common Share and Common Share Equivalents - Net
earnings (loss) per common share and common share equivalents is computed
based upon the weighted average number of common shares and common share
equivalents (stock options and warrants) outstanding during the year.
Common share equivalents from dilutive stock options and warrants were
calculated using the treasury stock method. Common share equivalents
(stock options and warrants) are antidilutive for the 1996 periods ended.
Accounting Pronouncements - Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" was issued
in 1995. The Company has elected to continue to account for stock-based
compensation under Accounting Principles Board Opinion No. 25 as allowed
by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board(FASB) issued
SFAS No. 128, "Earnings Per Share" and SFAS No. 129, "Disclosure of
Information about Capital Structure". In June 1997, FASB issued SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company is
currently in the process of evaluating the accounting and disclosure
effects of these Statements. SFAS No. 128 and 129 are required to be
adopted in the fourth quarter of this year. SFAS No. 130 and 131 are
required to be adopted in the first quarter of the year beginning
February 1, 1998.
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 which are described in close proximity to
such statements and which would 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 data of this report and
the Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
On June 21, 1996, the Company purchased all of the issued and outstanding
stock of Construction Forms, Inc. and its subsidiaries for an aggregate
cash consideration of approximately $20,550,000. The acquistion 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 the acquisition. Resultant goodwill is being amortized over 40 years.
Net sales for the quarter ended July 31, 1997 increased $2,418,318(81.9%)
to $5,370,762 compared with the same period of the prior year. For the first
six months of the year, net sales increased $7,864,438(244.7%) to
$11,077,993. The increase was attributable to the inclusion of the results
of operations of the acquired companies. Construction Forms, Inc. and
subsidiaries' net sales for the six months ended July 31, 1997 remained
flat compared to fiscal 1996; however, backlogs remain strong at ConForms
and Ultra Tech and the Company's annual net sales for the year is expected
to increase 11%.
As a percentage of net sales, gross profit margin increased to 38.1% for the
quarter ended, and to 37.2% for the six-month period ended July 31, 1997,
as compared to 25.7% in both the prior year's periods. Selling, general
and administrative expenses for the quarter were $1,133,678 compared to
$543,084 for the prior year. Selling, general and administrative expenses
represent 20.4% and 22.7% of net sales for the six-month periods ended July
31, 1997 and 1996, respectively. These increases are primarily attributable
to the inclusion of the results of operations of the acquired companies.
Gross margin for Construction Forms, Inc. and subsidiaries for the six-month
period ended July 31, 1997 increased to 37.2% from 29.4% due to better
pricing on Ultra Tech sales and better fixed cost coverage from increased
volume at ConForms. Selling, engineering and administrative expenses of the
acquired companies for the six-month periods ended July 31 decreased 20.1%
to $1,970,748 in 1997 compared to $2,466,527 for the same period last year.
This was mainly due to the decrease in personnel wages and benefits
from the previous year.
Interest expense increased to $316,381 and $592,879 for the three-
and-six-month periods ended July 31, 1997 compared to $146,345 for the
similar periods ended July 31, 1996. This change related to the debt
incurred to finance the acquisition.
The net gain on trading securities of $1,211,788 for the quarter ended
July 31, 1997 compared to last year's net loss of $501,685 accounts for the
major change in pre-tax income for the quarter ended July 31, 1997. For the
six-months ended July 31, 1997, the net gain was $579,200, compared to a
net loss on trading securities of $330 for the same period last year.
A major reason for the increase was related to the increase in the market
value of the trading porfolio; the principal increase in market values was
to Glenayre Technologies, Inc. and US Trust Corporation. Although the
Company has no established formal investment policies or practices for
its trading securities portfolio, the Company generally pursues an aggresive
trading strategy, focusing primarily on generating near-term capital
appreciation from its investment in common equity securities. Securities
held in the Company's portfolio at the end of each fiscal quarter and year
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 dependent upon the
capital appreciation or depreciation of the Company's trading securities
portfolio as of the end of each reporting period.
The amortization of goodwill, financing costs, stock options and stock
warrants created a total non-cash charge of $949,495 for the six-months
ended July 31, 1997 compared to $202,186 for the prior year. Goodwill 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. The
total amortization of these non-cash charges for the year ended January
31, 1998 is expected to approximate $1,600,000($.39 per share, net of tax).
The Company recorded tax expense of $392,828 for the six-months ended
July 31, 1997, which represents the estimated annual effective rate of 42.3%
applied to pre-tax book income. Deferred income taxes reflect the net tax
effects of temporary differencs between the carrying amount of assets and
liabilities for financial statement reporting purposes and the amounts used
for income tax purposes.
Net earnings of $849,484 or $.31 per share, for the quarter ended July 31,
1997 were and increase of $1,248,280, compared to a net loss of $398,796
or$(.18) per share for the comparable period of the prior year. For the
six months ended July 31, 1997, net earnings were $535,719, or $.19 per
share, compared to a net loss of $176,314 or $(.08) per share in the prior
year. This change is principally due to the operating results of the acquired
companies and the net gain on trading securities.
Liquidity and Capital Resources
The Company generated $1,605,191 in cash from operations during the first
six months of 1997. The Company used $216,638 in cash to acquire capital
equipment and $1,558,437 in cash to pay back long-term debt. The result was
a net decrease in cash and cash equivalents of $107,454 for the six months
compared to a net increase of $497,639 in the prior year's first six months.
The difference between the two periods was attributable to the change in the
balance sheet composition of the acquisition.
The Company believes that it can fund proposed capital expenditures and
operational requirements from operations and currently available cash, cash
equivalents, investments and existing bank credit lines. Proposed capital
expenditures for the remainder of the fiscal year 1997 are expected to total
approximately $300,000.
Additionally, at July 31, 1997, the Company's current ratio was 3.7:1. At
January 31, 1997, the current ratio was 3.9:1. Required minimum debt
principal payments for the year are approximately $869,000 and should be
funded from operational cash flow.
The Company continues to explore possible acquisition opportunities to
expand its core business. The Company currently anticipates that any
potential acquisitions would be financed by internally generated funds,
additional borrowings, or equity financing.
PART II.
Item 4.
Submission of Matters to a Vote of Security Holders
On June 10, 1997, the Company held its 1997 Annual Meeting of Shareholders.
Of the 2,275,933 shares issued and outstanding, holders of 1,833,900
shares were present, represented in person or by proxy. Two matters
required vote by the security holders. First, Robert L. Cooney,
John J. Delucca, William B. Finneran, Alan J. Kastelic, Mary E. McCormack,
and Jay J. Miller were elected to the Board of Directors(1,805,400 votes
for each and 28,500 votes withheld for each). The other matter requiring
a vote related to the ratification of the Company's prior issuance of a
Warrant to purchase 500,000 shares of the Company's common stock to William
B. Finneran. A majority of the votes cast by shareholders other than Mr.
Finneran were voted in favor of the ratification of the issuance of the
Warrant(511,595 votes for, 131,410 votes against, 57,600 abstained). There
were no broker non-votes to the Company's knowledge.
Item 6.
Exhibits
The Exhibits filed or incorporated by reference herein are as specified in
the Exhibit Index.
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter to which
the report relates.
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: September 11, 1997 /s/ Jay R. Hanamann
Jay R. Hanamann
(Chief Financial Officer)
Edison Control Corporation
Exhibit Index
Exhibit No. Description
27. Financial Data Schedule.