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, 2002
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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
- ---------- ----------
(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
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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: 1,769,126 as of April 30, 2002
- ------------------------------------------------------------
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Form 10-Q
Page Number
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets Pages 2 & 3
April 30, 2002 and January 31,
2002 (Unaudited)
Condensed Consolidated Statements of Income and Page 4
Comprehensive Income
Three months ended April 30,
2002 and 2001 (Unaudited)
Condensed Consolidated Statements of Cash Flows Pages 5 & 6
Three months ended April 30,
2002 and 2001 (Unaudited)
Notes to Condensed Consolidated Financial Statements Pages 7 - 10
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 10 - 12
Operations and Financial Condition
Item 3 Quantitative and Qualitative Disclosures Page 12 - 13
About Risk
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K Page 13
1
PART I.
Item 1
Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2002 and January 31, 2002
(Unaudited)
April 30, January 31,
2002 2002
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 342,470 $ 472,352
Trading securities 54,901 60,698
Accounts receivable, net 5,064,081 4,660,141
Inventories, net 7,108,081 7,250,891
Prepaid expenses and other assets 179,217 223,273
Deferred income taxes 205,000 200,000
----------- -----------
Total current assets 12,953,750 12,867,355
Deferred income taxes 570,000 570,000
Property, plant and equipment, net 6,784,662 6,790,839
Goodwill, net 8,130,000 8,130,000
----------- -----------
TOTAL ASSETS $28,438,412 $28,358,194
=========== ===========
(Continued)
See Accompanying Notes.
2
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2002 and January 31, 2002
(Unaudited)
(Continued)
April 30, January 31,
2002 2002
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,084,726 $ 1,286,190
Accrued compensation 488,052 1,186,972
Taxes other than income taxes 67,149 69,639
Other accrued expenses 445,947 398,739
Income taxes payable 357,314 78,352
Deferred compensation 666,752 666,752
Current maturities on long-term debt 259,514 259,514
------------ ------------
Total current liabilities 3,369,454 3,946,158
Long-term debt, less current maturities 5,508,360 5,260,703
------------ ------------
Total Liabilities 8,877,814 9,206,861
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, 2,365,223 shares
issued 23,652 23,652
Additional paid-in capital 10,444,217 10,444,217
Retained earnings 13,416,995 12,839,181
Accumulated other comprehensive (loss) (151,587) (237,446)
------------ ------------
23,733,277 23,069,604
Less treasury stock at cost: 596,097 and
559,753 shares, respectively (4,172,679) (3,918,271)
------------ ------------
Total Shareholders' Equity 19,560,598 19,151,333
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 28,438,412 $ 28,358,194
============ ============
See Accompanying Notes.
3
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED APRIL 30, 2002 AND 2001
(Unaudited)
2002 2001
---- ----
NET SALES $ 6,855,369 $ 6,693,359
COST OF GOODS SOLD 4,424,547 4,061,060
----------- -----------
GROSS PROFIT 2,430,822 2,632,299
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative expenses 1,483,089 1,225,927
Amortization 0 59,115
----------- -----------
Total other operating expenses 1,483,089 1,285,042
----------- -----------
OPERATING INCOME 947,733 1,347,257
OTHER EXPENSE (INCOME):
Interest expense 44,239 84,196
Realized losses on trading securities 0 77,907
Unrealized losses on trading securities 5,797 47,941
Miscellaneous income (3,447) (13,910)
----------- -----------
Total other expense 46,589 196,134
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INCOME BEFORE INCOME TAXES 901,144 1,151,123
PROVISION FOR INCOME TAXES 323,330 453,470
----------- -----------
NET INCOME 577,814 697,653
OTHER COMPREHENSIVE INCOME (LOSS) -
Foreign currency translation adjustment 85,859 (56,715)
----------- -----------
COMPREHENSIVE INCOME $ 663,673 $ 640,938
=========== ===========
NET INCOME PER SHARE:
Net income per share - basic $ .32 $ .30
Net income per share - diluted $ .25 $ .25
See Accompanying Notes
4
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2002 AND 2001
(Unaudited)
2002 2001
---- ----
OPERATING ACTIVITIES:
Net income $ 577,814 $ 697,653
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 251,217 304,893
Provision for doubtful accounts 128,828 73,752
Realized loss on sales of trading securities 0 77,907
Unrealized loss on trading securities 5,797 47,941
Proceeds from the sale of trading securities 0 59,349
Equity in earnings of affiliate 0 (17,889)
Changes in assets and liabilities:
Accounts receivable (532,768) 189,263
Receivable from affiliate 0 (50,068)
Inventories 142,810 (65,041)
Prepaid expenses and other assets 44,056 46,183
Trade accounts payable (201,464) 70,335
Accrued compensation (698,920) (459,109)
Taxes other than income taxes (2,490) 10,249
Other accrued expenses 47,208 (14,560)
Deferred income taxes (5,000) (54,124)
Income taxes payable 278,962 477,911
----------- -----------
Total adjustments (541,764) 696,992
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 36,050 1,394,645
----------- -----------
INVESTING ACTIVITIES:
Payments received from note receivable 0 164,155
Additions to plant and equipment (245,040) (81,426)
----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (245,040) 82,729
----------- -----------
(Continued)
See Accompanying Notes.
5
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2002 AND 2001
(Unaudited)
(Continued)
2002 2001
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ 900,000 $ 0
Purchases of treasury stock (254,408) 0
Payments on long-term debt (652,343) (1,152,251)
Stock options exercised 0 30,000
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NET CASH USED IN
FINANCING ACTIVITIES (6,751) (1,122,251)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 85,859 (56,715)
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (129,882) 298,408
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 472,352 305,337
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 342,470 $ 603,745
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 64,007 $ 0
Cash paid during the period for interest 33,928 90,865
See Accompanying Notes.
6
EDISON CONTROL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed 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 three-month period
ending April 30, 2002 are not necessarily indicative of the results that may be
expected for other interim periods or for the fiscal year ended January 31,
2003. 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, 2002.
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, 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. South Houston Hose is a distributor of industrial hose and fittings.
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.
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 for
the periods and capital accounts have been translated using historical rates.
The resulting translation adjustments are recorded as other comprehensive income
or loss.
7
New Accounting Standards -In June 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 eliminates the use of the pooling-of-interests method of accounting
for business combinations and requires that all such transactions be accounted
for by the purchase method. In addition SFAS No. 141 requires that intangible
assets be recognized as assets apart from goodwill and that they meet specific
criteria in the Standard. This standard is applicable to all business
combinations initiated after June 30, 2001 and accordingly, the Company adopted
this standard with the acquisition of South Houston Hose Company, Inc. and for
all future business combinations. SFAS No. 142 is effective for the Company
beginning February 1, 2002, and applies to goodwill and other intangible assets
recognized in the Company's consolidated balance sheet as of that date,
regardless of when those assets were initially recognized. SFAS No. 142 requires
that upon adoption, amortization of goodwill will cease and instead, the
carrying value of goodwill will be evaluated for impairment on an annual basis.
Accordingly, the Company discontinued amortization of goodwill effective
February 1, 2002. The Company is currently evaluating the impairment provisions
of SFAS No. 142 and will complete the transitional impairment test during the
quarter ended July 31, 2002. A reconciliation of previously reported net income
and net income per share to the amounts adjusted for the exclusion of goodwill
amortization, net of related income tax effect, follows:
Quarter Ended April 30,
2002 2001
Reported net income $577,814 $697,653
Add goodwill amortization, net
of income tax effect 35,800
-------- --------
Adjusted net income $577,814 $733,453
======== ========
Net income per share-Basic:
Reported net income $.32 $.30
Add goodwill amortization, net
of income tax .02
-------- --------
Adjusted net income $.32 $.32
======== ========
Net income per share-Diluted:
Reported net income $.25 $.25
Add goodwill amortization, net
of income tax .01
-------- --------
Adjusted net income $.25 $.26
======== ========
8
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses the financial accounting for and
reporting of the impairment of long-lived assets and long-lived assets to be
disposed of. This statement supersedes SFAS No. 121, among other items. The
Company was required to adopt SFAS No. 144 on February 1, 2002. The adoption of
SFAS No. 144 had no impact on the Company's financial statements.
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,
2002 and 2001 are summarized as follows:
2002 2001
---- ----
Basic:
Net income (numerator) $577,814 $697,653
Weighted average shares outstanding (denominator) 1,786,064 2,362,857
Net income per share - basic $.32 $ .30
Diluted:
Net income (numerator) $577,814 $697,653
Weighted average shares outstanding 1,786,064 2,362,857
Effect of dilutive securities:
Stock options 136,727 78,342
Stock warrants 374,549 328,265
------- -------
Weighted average shares outstanding (denominator) 2,297,340 2,769,464
Net income per share - diluted $.25 $ .25
Note 3 - Acquisitions
On November 1, 2001 the Company purchased the remaining 50% of the outstanding
common stock of South Houston Hose Company, Inc. ("South Houston Hose") from the
seller for $800,000, which consisted of a cash payment of $300,000 and a note
payable in the principal amount of $500,000. Prior to November 1, 2001, the
Company owned 50% of the outstanding common stock of South Houston Hose and
accounted for the investment by the equity method. South Houston Hose is a
distributor of industrial hose and fittings. The acquisition was accounted for
as a purchase transaction with the purchase price allocated to the fair value of
specific assets acquired and liabilities assumed. Accordingly, the results of
operations have been included since the date of acquisition.
9
Note 4 - 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 three months ended April 30, 2002 and 2001 follows:
2002 2001
---- ----
Net Operating Net Operating (1)
Sales Income (Loss) Sales Income (Loss)
----- ------------- ------ -------------
ConForms $5,281,535 $1,020,382 $5,825,326 $1,307,746
Ultra Tech 927,466 27,147 868,033 127,684
South Houston Hose 646,368 1,701
Edison (101,497) (88,173)
---------- ---------- ---------- ----------
Total $6,855,369 $ 947,733 $6,693,359 $1,347,257
(1) All goodwill amortization for the three months ended April 30, 2001 is
included in ConForms' operating income.
Note 5 - Inventories
Inventories consisted of the following:
April 30, January 31,
2002 2002
---- ----
Raw Materials $ 3,549,159 $ 3,713,552
Work-in-process 1,383,972 1,412,263
Finished Goods 2,212,950 2,148,076
--------- ---------
7,146,081 7,273,891
Less-reserve to reduce carrying value to LIFO cost (38,000) (23,000)
------------ ------------
Net inventories $ 7,108,081 $ 7,250,891
============ ============
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
10
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 three months ended April 30, 2002 increased $162,010 (2.4%) to
$6,855,369 when compared with the same period of the prior year. The acquisition
of South Houston Hose on November 1, 2001 accounted for increased sales of
$646,368. This increase was partially offset by lower sales for both ConForms
U.S. and Europe due to a softer concrete pumping accessories market for the
first three months of 2002 compared to the previous year.
As a percentage of net sales, gross profit margin for the three months ended
April 30, 2002 was 35.5% compared to 39.3% for the same period last year. This
was due largely to lower margins for Ultra Tech due to a higher mix of lower
margin project sales for the first three months of 2002 compared to the same
period of the prior year and the inclusion of South Houston Hose sales which are
typically lower margin than ConForms or Ultra Tech. Selling, engineering and
administrative expenses increased by $257,162 or 21.0% for the first three
months of 2002. This is due principally to the inclusion of approximately
$220,000 of selling, engineering and administrative expenses for South Houston
Hose for the first three months ended April 30, 2002.
Interest expense decreased to $44,239 for the three months ended April 30, 2002
compared to $84,196 for the three months ended April 30, 2001 due primarily to
lower interest rates.
The Company recorded tax expense of $323,330 for the three months ended April
30, 2002, which represents the estimated annual effective rate of 35.9% 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 $577,814, or $.32 and $.25 per share, basic and diluted,
respectively, for the first three months of 2002 was a decrease of $119,839
(17.2%), from net income of $697,653, or $.30 and $.25 per share, basic and
diluted, for the comparable period last year. Excluding goodwill amortization in
the prior year first quarter, net income would have been $733,453, or $.32 and
$.26 per share, basic and diluted, respectively, for the quarter ended April 30,
2001. The decrease in net income is due largely to lower ConForms' sales
combined with lower margins on Ultra Tech sales for the three month period ended
April 30, 2002 compared to the same period from the previous year.
Liquidity and Capital Resources
The Company generated $36,050 in cash from operations during the first three
months of 2002, compared to cash generated from operations of $1,394,645 for the
same period
11
last year. This is due largely to a decrease in the change in accounts
receivable of $722,031 combined with a decrease in the change in accounts
payable of $271,799. The Company used $245,040 in cash to acquire capital
equipment and $254,408 to repurchase its common stock and received $247,657 in
net proceeds from the issuance of long-term debt during the three months ended
April 30, 2002. The result was a net decrease in cash and cash equivalents of
$129,882 for the three months ended April 30, 2002 compared to a net increase of
$298,408 for the same period of the prior year.
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, 2003 are
expected to total approximately $700,000, compared to $233,602 for fiscal 2001.
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.
Accounting Policies and Estimates
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Company to make estimates, assumptions and judgments that affect
amounts of assets and liabilities reported in the consolidated financial
statements, the disclosure of contingent assets and liabilities as of the date
of the financial statements and reported amounts or revenues and expenses during
the year. The Company believes its estimates and assumptions are reasonable;
however, future results could differ from those estimates under different
assumptions or conditions. A discussion of certain accounting policies and
estimates deemed to be critical to an understanding of the Company's financial
condition and results of operations is contained in the Company's annual report
on Form 10-K for the fiscal year ended January 31, 2002.
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
totaled $5,200,000 as of April 30, 2002, are subject to interest rate risk. Most
of the borrowings float at the prime rate or LIBOR plus a certain number of
basis points. Based on the April 30, 2002 balance, an increase of one percent in
the interest rate on the Company's loans would cause interest expense to
increase by approximately $52,000 or $.01 per diluted share, net of taxes, on an
annual basis. The Company currently does not use derivatives to fix variable
rate interest obligations.
12
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.
PART II.
Item 6.
Exhibits
There are no exhibits filed or incorporated by reference herein.
Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter to which the report
relates.
13
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 7, 2002 /s/ Jay R. Hanamann
--------------------------
Jay R. Hanamann
(Chief Financial Officer)
14
Edison Control Corporation
Exhibit Index
Exhibit No. Description
None
15