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, 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 October 31, 1997 EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Page Number Part I Financial Information Item 1 Financial Statements Consolidated Balance Sheets Pages 2 & 3 October 31, 1997 (Unaudited) and January 31, 1997 Consolidated Statements of Operations Page 4 Three and nine months ended October 31, 1997 and 1996 (Unaudited) Consolidated Statements of Cash Flows Pages 5 & 6 Nine months ended October 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 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 October 31, 1997 and January 31, 1997 October 31, January 31, 1997 1997 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 968,958 $ 772,008 Investments 190,000 284,000 Trading securities 4,629,762 4,751,688 Trade accounts receivable, net 4,072,913 2,713,308 Receivable from affiliates 41,018 156,035 Inventories, net 5,790,634 5,316,948 Prepaid expenses and other assets 150,199 197,576 Deferred compensation 0 298,558 Refundable income taxes 0 0 Deferred financing costs 983,333 983,333 ---------- ---------- Total current assets 16,826,817 15,473,454 Investment in and advances to affiliate 394,054 340,054 Other Assets: Prepaid pension 304,012 385,021 Deferred financing costs 635,070 1,372,570 ---------- ---------- Total other assets 939,082 1,757,591 Property, plant and equipment, net 6,917,670 7,077,228 Goodwill (net of amortization) 8,980,641 9,154,833 Organizational/finance costs (net of amortization) 192,232 256,945 ---------- ---------- TOTAL ASSETS $34,250,496 $34,060,105 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,158,466 $ 868,088 Accrued compensation 665,940 606,010 Taxes other than income taxes 96,283 38,119 Other accrued expenses 729,897 529,896 Income taxes payable 315,717 9,077 Deferred income taxes 121,000 245,000 Deferred compensation 754,250 754,250 Current maturities on long-term debt 841,664 868,844 ---------- ---------- Total current liabilities 4,683,217 3,919,284 Long-term debt, less current maturities 14,700,929 16,038,580 Deferred income taxes 176,000 501,000 ---------- ---------- TOTAL LIABILITIES 19,560,146 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 4,499,266 3,453,331 Foreign currency translation adjustments 151,890 108,716 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 14,690,350 13,601,241 ---------- ---------- TOTAL LIABILITIES AND EQUITY $34,250,496 $34,060,105 ========== ========== See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996 (Unaudited) Three Months Ended Nine Months Ended October 31, October 31, 1997 1996 1997 1996 NET SALES $7,048,009 $5,612,326 $18,126,002 $8,825,881 COST OF GOODS SOLD 4,360,589 3,972,260 11,320,989 6,359,037 --------- --------- ---------- --------- GROSS PROFIT 2,687,420 1,640,066 6,805,013 2,466,844 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 949,597 1,114,706 3,214,046 1,843,801 Stock option amortization 0 188,562 298,558 267,129 Goodwill and organizational/finance cost amortization 79,635 63,576 238,905 84,768 --------- --------- --------- --------- Total other operating expenses 1,029,232 1,366,844 3,751,509 2,195,698 --------- --------- --------- --------- OPERATING EARNINGS 1,658,188 273,222 3,053,504 271,146 OTHER EXPENSE (INCOME): Interest expense 274,859 327,094 867,738 473,439 Realized gains on trading securities (96,022) (208,263) (319,163) (2,955,342) Unrealized losses on trading securities 407,178 104,007 51,119 2,851,416 Stock warrant amortization 245,833 245,835 737,500 348,262 Miscellaneous income (76,273) (75,670) (114,850) (57,534) --------- --------- --------- --------- Total other expense 755,575 393,003 1,222,344 660,241 --------- --------- --------- --------- EARNINGS (LOSS) BEFORE INCOME TAXES (CREDIT) 902,613 (119,781) 1,831,160 (389,095) INCOME TAXES (CREDIT) 392,397 (48,639) 785,225 (141,639) -------- ------- --------- -------- NET EARNINGS (LOSS) $510,216 $(71,142) $1,045,935 $(247,456) ======== ======= ========= ======== Net earnings (loss) per share $.19 $(.03) $.39 $(.11) Weighted average common shares and common share equivalents 2,739,173 2,250,933 2,707,730 2,191,168 See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996 (Unaudited) 1997 1996 Net earnings (loss) $1,045,935 $(247,456) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 1,782,027 963,468 Provision for doubtful accounts 80,353 (2,350) Realized gain on sales of trading securities (319,163) (2,955,342) Unrealized loss on trading securities 51,119 2,851,416 Purchases of trading securities (3,608,474) (7,095,906) Proceeds from the sale of trading securities 3,998,444 13,077,081 Proceeds from the sale of investments 94,000 0 Equity in earnings of affiliate (54,000) (6,000) Changes in assets and liabilities: Accounts receivable (1,439,958) (434,473) Receivable from affiliate 115,017 85,390 Inventories (473,686) 881,756 Prepaid expenses and other assets 128,386 81,908 Trade accounts payable 290,378 98,998 Accrued compensation 59,930 204,036 Taxes other than income taxes 58,164 (21,026) Accrued expenses 200,001 63,956 Deferred income taxes (449,000) (1,170,593) Income taxes payable 306,640 70,114 --------- --------- Total adjustments 820,178 6,692,433 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,866,113 6,444,977 --------- --------- Cash flows from investing activities: Additions to plant and equipment (347,506) (164,399) Proceeds from sale of equipment 0 0 Payments received on advances to affiliates 0 20,000 Payment for purchase of acquired company, net of cash acquired 0 (18,914,093) --------- ---------- NET CASH USED IN INVESTING ACTIVITIES (347,506) (19,058,492) --------- ---------- Cash flows from financing activities: Proceeds from issuance of long-term debt $400,000 $16,540,000 Principal payments on long-term debt (1,764,831) (3,761,069) Proceeds from issuance of Common Stock 0 95,727 Stock options exercised 0 0 --------- ---------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,364,831) 12,874,658 --------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 43,174 157,420 --------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 196,350 418,563 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 772,008 598,931 --------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $968,958 $1,017,494 ========= ========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $927,585 $970,224 Cash paid during the period for interest 845,655 491,390 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 a fair presentation have been included. Operating results for the nine-month period ending October 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 sale in the near term are classified as "trading securities" and reported at fair value with unrealized gains and losses included in earnings. The cost of individual securities sold is based on the first-in, first-out method. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 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 period. Common share equivalents from dilutive stock options and warrants were calculated using the treasury stock method. Common share equivalents (stock options and warrants) were 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 date 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 aggregate cash consideration of approximately $20,550,000. 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 the acquisition. Resultant goodwill is being amortized over 40 years. Net sales for the quarter ended October 31, 1997 increased $1,435,683 (25.6%) to $7,048,009 compared with the same period of the prior year. Strong domestic sales at ConForms and large project sales to power and phosphate industry customers at Ultra Tech accounted for the increase. For the first nine months of the year, net sales increased $9,300,121 (105.4%) to $18,126,002. The increase was mainly attributable to the inclusion of the results of operations of the acquired companies for the full period. Construction Forms, Inc. and subsidiaries' net sales for the nine months ended October 31, 1997 increased $1,683,125 (10.2%) compared to fiscal 1996. As explained above, increased volumes at ConForms and Ultra Tech accounted for the increase. As a percentage of net sales, gross profit margin increased to 38.1% for the quarter ended, and to 37.5% for the nine-month period ended October 31, 1997, as compared to 29.2% and 28.0% in the prior year periods, respectively. Gross margin for Construction Forms, Inc. and subsidiaries for the nine-month period ended October 31, 1997 increased to 37.0% from 28.8%. The increase for the quarter was due to better pricing on Ultra Tech sales and better fixed cost coverage from the increased volume at ConForms and Ultra Tech. The increase in the nine month gross profit percentages was due to the inclusion of the acquired companies for the full period, the pricing and fixed cost coverage previously discussed, and the sale of the Edison electronic fault indicator business in late 1996. Selling, engineering and administrative expenses for the third quarter of 1997 were $949,597 compared to $1,114,706 for the prior year's quarter. The decrease was mainly due to decreases in general insurance and ConForms' sales and marketing expenses. Selling, engineering and administrative expenses represent 17.7% and 20.9% of net sales for the nine- month periods ended October 31, 1997 and 1996, respectively. The percentage decrease for the 1997 nine month period was primarily attributable to the inclusion of the results of operations of the acquired companies. Selling, engineering and administrative expenses of the acquired companies for the nine month periods ended October 31 decreased 17.2% to $2,783,457 in 1997 compared to $3,360,852 for the same period last year. This was mainly due to the decrease in personnel wages and benefits from the previous year. Interest expense was $274,859 and $867,738 for the three-and nine-month periods ended October 31, 1997 compared to $327,094 and $473,439 for the similar periods ended October 31, 1996. Debt was incurred to finance the acquisition on June 21, 1996. Since the acquisition, the Company has made over $4,000,000 in principal payments. The net loss on trading securities was $311,156 for the quarter ended October 31, 1997 compared to last year's net gain of $104,256. For the nine months ended October 31, 1997, the net gain was $268,044, compared to a net gain of $103,926 for the same period last year. A major reason for the decrease for the quarter was related to the decrease in the market value of the Company's holdings in Glenayre Technologies, Inc. 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 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 lead, 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 amortization of goodwill, financing costs, stock options and stock warrants created a total non-cash charge of $1,274,963 for the nine months ended October 31, 1997 compared to $700,159 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 all 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 $785,225 for the nine months ended October 31, 1997, which represents the estimated annual effective rate of 42.9% 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 earnings of $510,216, or $.19 per share, for the quarter ended October 31,1997 represents an increase of $581,358 from a net loss of $71,142, or $.03 per share, for the comparable period of the prior year. For the nine months ended October 31, 1997, net earnings were $1,045,935, or $.39 per share, compared to a net loss of $247,456, or $.11 per share, in the prior year. This change was principally due to the operating results of the acquired companies. Liquidity and Capital Resources The Company generated $1,866,113 in cash from operations during the first nine months of 1997. The Company used $347,506 of cash to acquire capital equipment and $1,364,831 of cash to pay back long-term debt. The result was a net increase in cash and cash equivalents of $196,350 for the first nine months of 1997 compared to a net increase of $418,563 in the prior year's first nine months. The difference between the two periods was attributable to the change in the balance sheet composition as a result 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 $150,000. Additionally, at October 31, 1997, the Company's current ratio was 3.6:1. At January 31, 1997, the current ratio was 3.9:1. Required minimum debt principal payments for the year are approximately $869,000 and are expected to be funded from operating 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 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: December 9, 1997 /s/ Jay R. Hanamann Jay R. Hanamann (Chief Financial Officer) Edison Control Corporation Exhibit Index Exhibit No. Description 27. Financial Data Schedule.