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, 1998
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: 2,346,933 as of July 31, 1998
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Exhibit Reference
or Form 10-Q
Page Number
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets Pages 2-3
July 31, 1998 (Unaudited) and
January 31, 1998
Consolidated Statements of Income Page 4
Three and six months ended July 31,
1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows Pages 5-6
Six months ended July 31,
1998 and 1997 (Unaudited)
Notes to Consolidated Financial Statements Pages 7-9
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 9-12
Operations and Financial Condition
Part II Other Information
Item 4 Submission of Matters to a Vote of
Security Holders Page 12
Item 6 Exhibits and Reports on Form 8-K Page 12 and
Exhibit Index
PART I.
Item 1. Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1998 and January 31, 1998
July 31, January 31,
1998 1998
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 603,334 $ 1,037,288
Investments 190,000 190,000
Trading securities 4,293,755 3,653,763
Trade accounts receivable, net 3,725,227 2,995,637
Receivable from affiliates 97,580 103,482
Inventories, net 6,391,454 5,974,302
Prepaid expenses and other assets 166,151 193,099
Refundable income taxes 0 81,182
Deferred financing costs 880,903 983,333
---------- ----------
Total current assets 16,348,404 15,212,086
Investment in and advances to affiliate 458,150 433,150
Other Assets:
Prepaid pension 229,134 283,134
Deferred financing costs 0 389,236
---------- ----------
Total other assets 229,134 672,370
Property, plant and equipment, net 7,198,923 6,945,103
Goodwill (net of amortization) 8,806,446 8,922,576
Organizational/finance costs (net of
amortization) 127,509 170,672
---------- ----------
TOTAL ASSETS $33,168,566 $32,355,957
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,545,927 $ 1,261,244
Accrued compensation 588,667 781,566
Taxes other than income taxes 58,532 29,985
Other accrued expenses 492,553 555,045
Income taxes payable 242,266 0
Deferred income tax 110,000 115,000
Deferred compensation 754,250 754,250
Current maturities on long-term debt 841,664 841,664
---------- ----------
Total current liabilities 4,633,859 4,338,754
Long-term debt, less current maturities 12,686,718 13,181,678
Deferred income taxes 60,000 245,000
---------- ----------
TOTAL LIABILITIES 17,380,577 17,765,432
Shareholders' Equity:
Preferred stock, $.01 par value: 1,000,000 shares
authorized, none issued 0 0
Common stock, $.01 par value: 20,000,000 and
10,000,000 shares authorized, respectively,
issued and outstanding 2,346,933 and
2,275,933 shares, respectively 23,469 22,759
Additional paid-in capital 10,193,225 10,016,435
Retained earnings 5,570,390 4,558,493
Accumulated other comprehensive income 905 (7,162)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 15,787,989 14,590,525
---------- ----------
TOTAL LIABILITIES AND EQUITY $33,168,566 $32,355,957
=========== ===========
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
1998 1997 1998 1997
NET SALES $6,881,676 $5,370,762 $13,607,290 $11,077,993
COST OF GOODS SOLD 4,228,026 3,373,648 8,681,459 7,056,400
--------- --------- ---------- ---------
GROSS PROFIT 2,653,650 1,997,114 4,925,831 4,021,593
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative expenses 1,133,747 1,085,678 2,326,296 2,168,449
Stock option amortization 0 109,995 0 298,558
Goodwill and organizational/
finance cost amortization 79,646 79,635 159,292 159,270
--------- --------- ---------- ---------
Total other operating
expenses 1,213,393 1,275,308 2,485,588 2,626,277
--------- --------- ---------- ---------
OPERATING INCOME 1,440,257 721,806 2,440,243 1,395,316
OTHER EXPENSE (INCOME):
Interest expense 237,882 281,895 506,085 592,879
Realized gains on
trading securities (238,321) (418,829) (226,071) (223,141)
Unrealized losses (gains)
on trading securities 642,526 (792,959) 19,746 (356,059)
Stock warrant amortization 245,834 245,832 491,667 491,667
Miscellaneous income (62,386) (16,405) (101,557) (38,577)
--------- --------- ---------- ---------
Total other expense
(income) 825,535 (700,466) 689,870 466,769
--------- --------- ---------- ---------
INCOME BEFORE INCOME TAXES 614,722 1,422,272 1,750,373 928,547
INCOME TAXES 257,570 572,788 738,476 392,828
--------- --------- ---------- ---------
NET INCOME $357,152 $849,484 $1,011,897 $535,719
========= ========= ========== =========
Net income per share-basic $.15 $.37 $.44 $.24
Net income per share-diluted $.12 $.32 $.35 $.20
See Accompanying Notes.
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1998 AND 1997
(Unaudited)
1998 1997
Net income $1,011,897 $ 535,719
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,014,702 1,286,894
Provision for doubtful accounts 20,669 57,546
Loss on sale of equipment 3,592 -
Realized gain on sales of trading securities (226,071) (223,141)
Unrealized loss (gain) on trading securities 19,746 (356,059)
Purchases of trading securities (2,013,187) (2,416,312)
Proceeds from the sale of trading securities 1,579,520 2,867,187
Equity in earnings of affiliate (55,000) (20,000)
Changes in assets and liabilities:
Accounts receivable (750,259) (183,245)
Receivable from affiliate 5,902 86,917
Inventories (417,152) (150,094)
Prepaid expenses and other assets 80,948 76,078
Trade accounts payable 284,683 143,469
Accrued compensation (192,899) (44,769)
Taxes other than income taxes 28,547 10,881
Accrued expenses (62,491) 62,448
Deferred income taxes (190,000) (194,000)
Income taxes payable 323,448 (28,328)
---------- ----------
Total adjustments (545,302) 975,472
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 466,595 1,511,191
---------- ----------
Cash flows from investing activities:
Additions to plant and equipment (632,422) (216,638)
Maturity of certificate of deposit 0 94,000
Proceeds from sale of equipment 11,267 0
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (621,155) (122,638)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt $ 600,000 $ 0
Principal payments on long-term debt (1,094,960) (1,558,437)
Payments received from affiliates 30,000
Stock options exercised 177,500 0
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (287,460) (1,558,437)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 8,066 62,430
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (433,954) (107,454)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,037,288 772,008
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 603,334 $ 664,554
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 605,028 $ 615,156
Cash paid during the period for interest 504,044 567,866
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 six-month period ending July 31, 1998 are not
necessarily indicative of the results that may be expected for other
interim periods or the year ending January 31, 1999. 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, 1998.
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 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. 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 accumulated other comprehensive income
in the equity section of the accompanying consolidated balance sheets.
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 June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." The Statement is effective for fiscal 1998. The Company is
in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will not have an impact on the Company's consolidated
financial statements.
Net income per share - Effective for 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share,"
which established new standards for the calculation of net income per
share effective for interim and annual periods ending after December 1997.
Net income per share for the three and six month periods ended July 31,
1997 has been restated to comply with SFAS No. 128. Reconciliation of the
numerator and denominator of the basic and diluted per share computations
for the three and six-month periods ended July 31, 1998 and 1997 are
summarized as follows:
Three Months Ended Six Months Ended
July 31, July 31,
1998 1997 1998 1997
Net income per share basic:
Net income (numerator) $ 357,152 $ 849,484 $1,011,897 $ 535,719
Weighted average shares
outstanding
(denominator) 2,326,283 2,275,933 2,301,373 2,275,933
Net income per
share-basic $ .15 $ .37 $ .44 $ .24
Net income per
share-diluted:
Net income (numerator) $ 357,152 $ 849,484 $1,011,897 $ 535,719
Weighted average shares
outstanding
(denominator) 2,326,283 2,275,933 2,301,373 2,275,933
Effect of dilutive
securities:
Stock options 188,020 52,387 179,510 85,114
Stock warrants 382,118 290,521 385,346 308,245
Weighted average shares
outstanding
(denominator) 2,896,421 2,618,841 2,866,229 2,669,292
Net income per
share-diluted $ .12 $ .32 $ .35 $ .20
Comprehensive Income- Effective February 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income." Statement 130 establishes new
rules for the reporting and display of comprehensive income and its
components. The adoption of this Statement had no impact on the Company's
net income or shareholders' equity. Statement 130 requires the Company's
foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform with the requirements of Statement 130. Total
comprehensive income, which was comprised of net income and foreign
currency translation adjustments, amounted to approximately $277,000 and
$876,000 for the three month periods ending July 31, 1998 and 1997,
respectively, and approximately $1,020,000 and $598,000 for the six-month
periods ended July 31, 1998 and 1997, respectively.
Reclassifications - Certain reclassifications have been made to the prior
periods' financial statements to conform with the current year
presentation.
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.
Net sales for the quarter ended July 31, 1998 increased $1,510,914
(28.1%) to $6,881,676 compared with the same period of the prior year.
For the first six months of the year, net sales increased $2,529,297
(22.8%) to $13,607,290. Strong domestic sales at ConForms, large project
sales at Ultra Tech and the inclusion of sales from the Company's
Malaysian operation, which started in October 1997, accounted for the
increase.
As a percentage of net sales, gross margin for the quarter increased to
38.6% from 37.2% due to improved pricing on Ultra Tech sales and improved
fixed cost coverage from the increased sales volume at ConForms. Gross
margin for the six months ended July 31, 1998 was 36.2% compared to 36.3%
for the six months ended July 31, 1997. Selling, engineering and
administrative expenses as a percentage of sales improved to 16.5% and
17.1% for the three and six-month periods ended July 31, 1998 compared to
20.2% and 19.6% for the same periods last year. This improvement was
primarily due to leveraging higher sales volumes with minimal increases in
selling, engineering and administrative expenses.
Interest expense decreased to $237,882 and $506,085 for the three and six-
month periods ended July 31, 1998 compared to $281,895 and $592,879 for
the similar periods ended July 31, 1997. This change resulted from a
reduction of outstanding debt from the same period last year.
The net loss on trading securities of $404,205 for the quarter ended
July 31, 1998 compared to last year's net gain of $1,211,788 accounted for
the major change in the Company's pre-tax income for the quarter ended
July 31, 1998. For the six months ended July 31, 1998, the net gain was
$206,325 compared to a net gain on trading securities of $579,200 for the
same period last year. The principal reason for the decrease was related
to the decrease in the market values of Cendant, Glenayre Technologies,
Inc. and VIVUS, which was offset by an increase in market value of US
Trust Corporation. Trading securities at July 31, 1998 consisted of the
following:
Number of Market
Name of Issuer/Title of Issue Shares Value
Common Stocks:
Cendant Corp. 30,000 $ 519,375
Comsat Corp.-Series 1 500 15,375
Equity One Inc. 10,000 91,250
General Motors Corp. 5,000 213,125
Glenayre Technologies, Inc. 40,000 327,500
NCR Corp. 10,000 338,750
Panavision, Inc. (New) 304 7,068
Raytheon (spin-off from GM) 2,812 152,375
Sun International Hotels 10,100 441,875
Talbots, Inc. 2,000 46,750
US Trust Corporation 25,000 2,007,812
VIVUS 20,000 132,500
----------
Total $4,293,755
==========
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 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, stock options and stock
warrants created a total non-cash charge of $650,959 for the six months
ended July 31, 1998 compared to $949,495 for the prior year. This
reduction was due to the deferred compensation for stock options granted
in connection with the ConForms' acquisition being fully amortized as of
June 21, 1997. The total amortization of these non-cash charges for the
year ended January 31, 1999 is expected to approximate $1,300,000.
The Company recorded tax expense of $738,476 for the six months ended
July 31, 1998, which represents an estimated annual effective rate of
42.2% 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 for the quarter ended July 31, 1998 of $357,152, or $.15 and
$.12 per basic and diluted share, respectively, was a decrease of $492,332
compared to net income of $849,484, or $.37 and $.32 per basic and diluted
share, respectively, for the comparable period of the prior year. This
change was principally due to the net loss on trading securities for the
quarter compared to last year's net gain for the quarter. For the six
months ended July 31, 1998, net income was $1,011,897, or $.44 and $.35
per basic and diluted share, respectively, compared to net income of
$535,719, or $.24 and $.20 per basic and diluted share, respectively, in
the comparable period of the prior year. This change was the result of a
74.9% increase in operating income that was offset by a 64.4% decrease on
the net gain on trading securities.
Liquidity and Capital Resources
The Company generated $466,595 in cash from operations during the first
six months of 1998. The Company used $632,422 in cash to acquire capital
equipment and $494,960 in cash to pay back long-term debt. The Company
also received $177,500 from the exercise of stock options during May 1998.
The result was a net decrease in cash and cash equivalents of $433,953 for
the six months compared to a net decrease of $107,454 in the prior year's
first six months. The difference between the two periods was attributable
to the increased capital spending and increases in accounts receivable and
inventories caused by the significant increase in sales activity.
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, 1999 are expected to total approximately $2,500,000 compared
to $554,923 for fiscal 1997. The significant increase is due principally
to the construction of an addition at the Company's Port Washington
facility and the implementation of a new enterprise resource planning
system. The Company also intends to sell its Cedarburg facility. The
Company's asking price for the facility is $1,350,000, although there can
be no assurance as to when or if this facility may be sold.
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.
Year 2000 Issues
As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000
problem. The Company is currently engaged in a comprehensive project to
select and implement a new enterprise resource planning ("ERP") system
that will properly recognize the Year 2000 problem. This project involves
replacing certain hardware and software maintained by the Company.
Management expects to complete this project in early 1999. The Company
estimates that the total cumulative cost of the project will be
approximately $500,000 and will be funded through the Company's operating
cash flows or the existing bank line of credit. Purchased ERP system
hardware and software, approximately $350,000 of the total estimated cost,
will be capitalized in accordance with normal policy. Personnel and all
other costs related to the project are currently, and will continue to be,
expensed as incurred.
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
On June 9, 1998, the Company held its 1998 Annual Meeting of Shareholders.
Of the 2,275,933 shares issued and outstanding, holders of 2,007,276
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, Jay J.
Miller, and William C. Scott were elected to the Board of Directors
(2,003,776 votes for each and 3,500 votes withheld for each). The other
matter requiring a vote related to the approval of a proposed amendment to
the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock, $.01 par value, of the Company from
10,000,000 to 20,000,000. A majority of the votes cast by shareholders
were voted in favor of the amendment (1,991,526 votes for, 15,750 votes
against). 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 4, 1998 /s/ Jay R. Hanamann
Jay R. Hanamann
(Chief Financial Officer)
Edison Control Corporation
Exhibit Index
Exhibit No. Description
3.(i)(a) Amendment to the Company's Certificate of Incorporation.
3.(i)(b) Certificate of Incorporation of the Company, effective
June 15, 1998.
27. Financial Data Schedule.