10-Q 1 pdm122a.txt FORM 10-Q 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, 2001 ------------- 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.) 777 Maritime Drive PO Box 308 Port Washington, WI 53074-0308 ------------------------------ (Address of principal executive offices) (Zip Code) (262) 268-6800 -------------- (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: 2,365,223 as of July 31, 2001 ----------------------------------------------------------- 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 July 31, 2001 and January 31, 2001 (Unaudited) Condensed Consolidated Statements of Income Pages 4-5 Three and six months ended July 31, 2001 and 2000 (Unaudited) Condensed Consolidated Statements of Cash Flows Pages 6-7 Six months ended July 31, 2001 and 2000 (Unaudited) Notes to Condensed Consolidated Financial Statements Pages 8-11 (Unaudited) Item 2 Management's Discussion and Analysis of Pages 11-13 ---------------------------------------------- Operations and Financial Condition ---------------------------------- Item 3 Quantitative and Qualitative Disclosures ----------------------------------------------- About Market Risk Page 13 ----------------- Part II Other Information ------------------------- Item 4 Submission of Matters to a Vote of Security Holders Page 13 ---------------- Item 6 Exhibits Page 14 --------------- 1 PART I. Item 1 Financial Statements -------------------- EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS July 31, 2001 and January 31, 2001 (Unaudited) July 31, January 31, 2001 2001 ---- ---- ASSETS Current Assets: Cash and cash equivalents $385,315 $305,337 Investments 0 95,000 Trading securities 180,540 420,797 Trade accounts receivable, net 4,290,511 4,233,754 Receivable from affiliate 111,494 136,657 Inventories, net 6,184,836 6,545,187 Prepaid expenses and other assets 245,451 261,025 Deferred income taxes 245,000 240,000 Refundable income taxes 1,388 62,150 Note receivable 0 164,155 - ------- Total current assets 11,644,535 12,464,062 Investment in and advances to affiliate 586,082 524,919 Deferred income taxes 565,000 565,000 Property, plant and equipment, net 7,017,334 7,359,953 Goodwill, net 8,109,671 8,225,801 Finance costs, net 40,398 42,498 ------ ------ TOTAL ASSETS $27,963,020 $29,182,233 =========== =========== (Continued) See Accompanying Notes. 2 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS July 31, 2001 and January 31, 2001 (Unaudited) (Continued) July 31, January 31, 2001 2001 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 837,274 $ 1,056,501 Accrued compensation 771,365 984,011 Taxes other than income taxes 66,882 23,061 Other accrued expenses 504,521 451,737 Deferred compensation 666,752 754,250 Current maturities on long-term debt 159,141 159,141 ------- ------- Total current liabilities 3,005,935 3,428,701 Long-term debt, less current maturities 3,165,692 5,420,217 --------- --------- Total Liabilities 6,171,627 8,848,918 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 and 2,351,308 shares issued and outstanding, respectively 23,652 23,513 Additional paid-in capital 10,444,217 10,344,868 Retained earnings 11,538,046 10,120,873 Accumulated other comprehensive (loss) (214,522) (155,939) -------- --------- Total Shareholders' Equity 21,791,393 20,333,315 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $27,963,020 $29,182,233 =========== =========== See Accompanying Notes. 3 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED JULY 31, 2001 AND 2000 (Unaudited)

(Continued) See Accompanying Notes 4 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED JULY 31, 2001 AND 2000 (Unaudited) (Continued)

See Accompanying Notes. 5 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JULY 31, 2001 AND 2000 (Unaudited) 2001 2000 ---- ---- Net income $1,417,173 $1,394,888 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 562,539 585,845 Provision for doubtful accounts 130,177 114,636 Realized loss (gain) on sales of trading securities 64,994 (122,371) Unrealized loss on trading securities 103,001 126,475 Purchases of trading securities 0 (80,783) Proceeds from the sale of trading securities 72,262 513,841 Equity in earnings of affiliate (61,163) (40,000) Changes in assets and liabilities: Accounts receivable (186,934) (745,064) Receivable from affiliate 25,163 1,488 Inventories 360,351 519,436 Prepaid expenses and other assets 15,574 (13,329) Trade accounts payable (219,227) 300,309 Accrued compensation (212,646) (133,368) Taxes other than income taxes 43,821 (37,473) Other accrued expenses 52,784 (30,629) Deferred income taxes (39,124) (50,000) Income taxes payable 76,876 (169,207) ------ --------- Total adjustments 788,448 739,806 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,205,621 2,134,694 --------- --------- Cash flows from investing activities: Payments received from note receivable 164,155 0 Additions to plant and equipment (101,690) (194,949) Maturity of certificate of deposit 95,000 0 ------ - NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 157,465 (194,949) ------- -------- (Continued) See Accompanying Notes. 6 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JULY 31, 2001 AND 2000 (Unaudited) (Continued) 2001 2000 ---- ---- Cash flows from financing activities: Proceeds from issuance of long-term debt $ 0 $ 600,000 Principal payments on long-term debt (2,254,525) (2,480,081) Stock options exercised 30,000 0 ------ - NET CASH USED IN FINANCING ACTIVITIES (2,224,525) (1,880,081) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (58,583) (138,350) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79,978 (78,686) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 305,337 539,586 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 385,315 $ 460,900 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $874,728 $ 1,130,918 Cash paid during the period for interest 141,442 319,923 See Accompanying Notes. 7 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- and six-month periods ended July 31, 2001 are not necessarily indicative of the results that may be expected for other interim periods or the year ended January 31, 2002. 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, 2001. Note 2 - Accounting Policies ----------------------------- Principles of Consolidation - The condensed 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. 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 accounting principles generally accepted in the United States of America 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 other comprehensive income. 8 Income From Continuing Operations Per Share - Reconciliation of the numerator and denominator of the basic and diluted per share computations for the three and six-month periods ended July 31, 2001 and 2000 are summarized as follows:

New Accounting Standards - In May 2000, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 provides guidance on the financial reporting of shipping and handling fees and costs in the condensed consolidated statements of income and comprehensive income. Effective February 1, 2000, the Company adopted EITF 00-10 and, as a result, amounts billed to a customer in a sale transaction related to shipping costs are reported as net sales and the related costs incurred for shipping are reported as cost of goods sold. The Company previously reported shipping costs as a reduction of net sales. Prior period condensed consolidated financial statements have been reclassified to conform to the new requirements. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets." 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 balance sheet as of 9 that date, regardless of when those assets were initially recognized. The Company is currently evaluating the provisions of SFAS No. 142 and has not determined the impact that SFAS No. 142 will have on its consolidated financial statements. Reclassifications - Certain amounts previously reported have been reclassed to conform with the current presentation. Note 3 - Discontinued Operations -------------------------------- In September 2000, the Company sold the inventory, tooling and intangible assets of its Gilco division to a third party for $400,000 cash and a non-interest bearing note receivable for $164,155, which was collected in March 2001. Gilco had supplied portable concrete and mortar/plaster mixers to various customers. The sale resulted in a loss of $12,379, net of income taxes. The results of operations of the Gilco division have been presented as discontinued operations. Net sales of the Gilco division for the three and six-month periods ended July 31, 2000 were $503,640 and $1,003,405, respectively. Note 4 - Segment Information ---------------------------- The Company's operating segments are organized based on the nature of products and services provided. The Company is currently comprised of two operating segments. 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. Segment information for the three and six-month periods ended July 31, 2001 and 2000 follows: Three Months Ended July 31, --------------------------- 2001 2000 ---- ---- Net Operating Net Operating Sales Income Sales Income ----- ------ ----- ------ ConForms $ 6,244,771 $ 1,261,195 $ 6,417,438 $ 1,574,247 Ultra Tech 853,153 95,368 541,538 (80,992) Edison (139,490) (61,601) ---------- ---------- ---------- ---------- Total $ 7,097,924 $ 1,217,073 $ 6,958,976 $ 1,431,654 Six Months Ended July 31, ------------------------- 2001 2000 ---- ---- Net Operating Net Operating Sales Income Sales Income ----- ------ ----- ------ ConForms $12,070,097 $2,568,941 $12,424,661 $3,030,043 Ultra Tech 1,721,186 223,052 1,233,412 (4,791) Edison (227,663) (417,068) ---------- ---------- ---------- ---------- Total $13,791,283 $2,564,330 $13,658,073 $2,608,184 10 Note 5 - Inventories -------------------- Inventories consisted of the following: July 31, January 31, 2001 2001 ---- ---- Raw Materials $ 3,082,307 $ 3,455,928 Work-in-process 1,208,652 1,271,956 Finished Goods 2,107,877 2,001,303 --------- --------- 6,398,836 6,729,187 Less-reserve to reduce carrying value to LIFO cost (214,000) (184,000) -------- --------- Net inventories $ 6,184,836 $ 6,545,187 =========== =========== 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 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 July 31, 2001 increased $138,948 (2.0%) to $7,097,924 compared with net sales for the same period of the prior year. For the first six months of this year, net sales increased $133,210 (1.0%) to $13,791,283 compared with net sales for the same period of the prior year. Increases in Ultra Tech project sales were partially offset by decreases in ConForms' foreign sales. Ultra Tech's sales volume will continue to fluctuate based on its ability to attain large project sales in the industries it serves. Gross margin for the three months ended July 31, 2001 was 35.6% compared to 37.2% for the three months ended July 31, 2000. Gross margin for the six months ended July 31, 2001 decreased to 37.4% from 38.7% for the six months ended July 31, 2000 due largely to increased group insurance costs related to increased claim payments. Selling, engineering and administrative expenses for the three and six-month periods ended July 11 31, 2001 increased by $155,760 (14.2%) and decreased by $76,153 (3.0%), respectively. The increase for the three months ended July 31, 2001 was due largely to increased ConForms' sales and marketing expenses. The decrease for the six months ended July 31, 2001 was due largely to legal and professional expenses during the quarter ended April 30, 2000 which related to discussions held with various parties interested in acquiring all of the Company's common stock. Interest expense decreased to $47,107 and $131,303 for the three and six-month periods ended July 31, 2001 compared to $141,336 and $318,018 for the same periods ended July 31, 2000. This was due to lower debt balances. The Company had a $42,147 and $167,995 net loss on trading securities for the three and six-month periods ended July 31, 2001 compared to a net loss of $148,612 and $4,104 for the same periods of the prior year. The amortization of goodwill and financing costs created a total non-cash charge of $118,230 for the six months ended July 31, 2001 compared to $118,206 for the prior year six-month period. The Company recorded tax expense of $912,480 for the six months ended July 31, 2001, which represents the estimated annual effective rate of 39.2% applied to pre-tax 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. Income from continuing operations of $719,520, or $.30 and $.26 per share, basic and diluted, respectively, for the three months ended July 31, 2001 was a decrease of $8,262 (1.1%), from income from continuing operations of $727,782, or $.31 and .25 per share, basic and diluted, respectively, for the comparable period of the prior year. For the six months ended July 31, 2001, income from continuing operations increased .1% to $1,417,173, or $.60 and $.51 per basic and diluted share, respectively, compared to income from continuing operations of $1,416,445, or $.60 and $.49 per basic and diluted share, respectively, in the comparable period of the prior year Liquidity and Capital Resources ------------------------------- The Company generated $2,205,621 in cash from operations during the first six months of 2001, compared to cash flow generated by operations of $2,134,694 for the same period last year. The Company received $164,155 in March, 2001 from a note receivable relating to the sale of the Gilco division and $95,000 in May, 2001 from the maturity of a certificate of deposit. The Company used $101,690 of cash to acquire capital equipment and $2,254,525 for payments on long-term debt. The result was a net increase in cash and cash equivalents of $79,978 for the first six months of fiscal 2001 compared to a net decrease of $78,686 in the prior year's first six months. 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, 2002 are expected to total approximately $500,000, compared to $478,872 for the fiscal year ended January 31, 2001. 12 The Company intends to continue to expand its businesses, both internally and through potential acquisitions and is also exploring other alternatives that would focus its efforts on its core business. 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. 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 debt obligations, which totaled $3,324,833 as of July 31, 2001, are subject to interest rate risk. Most of the borrowings float at either the prime rate or LIBOR plus a certain amount of basis points. Based on the July 31, 2001 balance, an increase of one percent in the interest rate on the Company's loans would cause an increase in interest expense of approximately $30,000, 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. 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, the Euro or the 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. Equity Price Risk ----------------- As of July 31, 2001, the Company held $180,540 in trading securities of various domestic companies. The market value of these investments is subject to fluctuation. PART II. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On May 31, 2001, the Company held its 2001 Annual Meeting of Shareholders. Of the 2,365,223 shares issued and outstanding, holders of 2,113,506 shares were present, represented in person or by proxy. One matter required vote by the security holders. Robert L. Cooney, John J. Delucca, Norman Eig, William B. Finneran, Alan J. Kastelic, Mary E. McCormack, and William C. Scott were elected to the Board of Directors (2,112,206 votes for each and 1,300 votes against). There were no broker non-votes to the Company's knowledge. 13 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. 14 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 6, 2001 /s/ Jay R. Hanamann ------------------- Jay R. Hanamann (Chief Financial Officer) 15 Edison Control Corporation Exhibit Index Exhibit No. Description ----------- ----------- None 16

EDISON CONTROLS CORP 10-Q