-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GCk1S+qcZ4WsNz9xeQz8+OTt8PHdeMTG1+ZgzZKZuvfrltMoJqEouwbd9WORYqx5 RA/j9Pwsklvcy6wLxloZwA== 0000897069-03-000656.txt : 20030616 0000897069-03-000656.hdr.sgml : 20030616 20030616172343 ACCESSION NUMBER: 0000897069-03-000656 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDISON CONTROLS CORP CENTRAL INDEX KEY: 0000795968 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 222716367 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14812 FILM NUMBER: 03746188 BUSINESS ADDRESS: STREET 1: 777 MARITIME DRIVE STREET 2: PO BOX 308 CITY: PORT WASHINGTON STATE: WI ZIP: 53074-0308 BUSINESS PHONE: 2622686800 MAIL ADDRESS: STREET 1: W60 N151 CARDINAL AVE. STREET 2: PO BOX 326 CITY: CEDARBURG STATE: WI ZIP: 53012 10-Q 1 sdc446.txt 10-Q QUARTERLY REPORT 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, 2003 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X 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: 1,638,595 as of April 30, 2003 EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Page Number Part I Financial Information ----------- Item 1: Financial Statements -------------------- Condensed Consolidated Balance Sheets April 30, 2003 and January 31, 2003 (Unaudited) 2 - 3 Condensed Consolidated Statements of Income and Comprehensive Income Three months ended April 30, 2003 and 2002 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows Three months ended April 30, 2003 and 2002 (Unaudited) 5 - 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 - 10 Item 2: Management's Discussion and Analysis of Operations -------------------------------------------------- and Financial Condition 10 - 12 ----------------------- Item 3: Quantitative and Qualitative Disclosures About Risk 12 - 13 --------------------------------------------------- Item 4: Controls and Procedures 13 ----------------------- Part II Other Information Item 6: Exhibits and Reports on Form 8-K 13 - 14 Certifications 1 PART I. Item 1 Financial Statements EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, 2003 and January 31, 2003 (Unaudited) April 30, January 31, 2003 2003 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 396,263 $ 586,520 Trading securities 35,411 37,475 Accounts receivable, net 5,298,808 4,249,057 Inventories, net 6,750,741 7,122,512 Prepaid expenses and other assets 283,282 297,017 Deferred income taxes 260,000 260,000 ----------- ----------- Total current assets 13,024,505 12,552,581 Deferred income taxes 685,000 685,000 Property, plant and equipment, net 6,274,746 6,464,602 Goodwill 8,130,000 8,130,000 ----------- ----------- TOTAL ASSETS $28,114,251 $27,832,183 =========== =========== (Continued) See Accompanying Notes. 2 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, 2003 and January 31, 2003 (Unaudited) (Continued) April 30, January 31, 2003 2003 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,029,279 $ 1,001,981 Accrued compensation 669,917 962,812 Taxes other than income taxes 44,695 16,325 Other accrued expenses 491,181 438,822 Income taxes payable 208,227 34,045 Current maturities on long-term debt 159,902 159,902 ----------- ----------- Total current liabilities 2,603,201 2,613,887 Long-term debt, less current maturities 4,948,363 5,100,801 ----------- ----------- Total Liabilities 7,551,564 7,714,688 Shareholders' Equity: Preferred stock, $.01 par value: 1,000,000 shares authorized, none issued Common stock, $.01 par value: 20,000,000 shares authorized, 2,390,223 shares issued 23,902 23,902 Additional paid-in capital 11,363,219 11,363,219 Retained earnings 14,442,326 13,980,740 Accumulated other comprehensive (loss) income (5,364) 11,030 ----------- ----------- 25,824,083 25,378,891 Less treasury stock at cost: 751,628 shares (5,261,396) (5,261,396) ----------- ----------- Total Shareholders' Equity 20,562,687 20,117,495 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,114,251 $27,832,183 =========== =========== See Accompanying Notes. 3 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE MONTHS ENDED APRIL 30, 2003 AND 2002 (Unaudited) 2003 2002 ----------- ----------- NET SALES $ 7,176,743 $ 6,855,369 COST OF GOODS SOLD 4,455,790 4,424,547 ----------- ----------- GROSS PROFIT 2,720,953 2,430,822 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 2,003,247 1,483,089 ----------- ----------- Total other operating expenses 2,003,247 1,483,089 ----------- ----------- OPERATING INCOME 717,706 947,733 OTHER EXPENSE (INCOME): Interest expense 37,517 44,239 Unrealized losses on trading securities 2,064 5,797 Miscellaneous income (74,017) (3,447) ----------- ----------- Total other (income) expense (34,436) 46,589 ----------- ----------- INCOME BEFORE INCOME TAXES 752,142 901,144 PROVISION FOR INCOME TAXES 290,556 323,330 ----------- ----------- NET INCOME 461,586 577,814 OTHER COMPREHENSIVE (LOSS) INCOME - Foreign currency translation adjustment (16,394) 85,859 ----------- ----------- COMPREHENSIVE INCOME $ 445,192 $ 663,673 =========== =========== NET INCOME PER SHARE: Net income per share - basic $ 0.28 $ 0.32 Net income per share - diluted $ 0.22 $ 0.25 See Accompanying Notes. 4 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 2003 AND 2002 (Unaudited) 2003 2002 ----------- ----------- OPERATING ACTIVITIES: Net income $ 461,586 $ 577,814 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 234,137 251,217 Provision for doubtful accounts 72,677 128,828 Unrealized loss on trading securities 2,064 5,797 Changes in assets and liabilities: Accounts receivable (1,122,428) (532,768) Inventories 371,771 142,810 Prepaid expenses and other assets 13,735 44,056 Trade accounts payable 27,298 (201,464) Accrued compensation (292,895) (698,920) Taxes other than income taxes 28,370 (2,490) Other accrued expenses 52,359 47,208 Deferred income taxes 0 (5,000) Income taxes payable 174,182 278,962 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 22,856 36,050 ----------- ----------- INVESTING ACTIVITIES: Additions to plant and equipment (44,281) (245,040) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (44,281) (245,040) ----------- ----------- (Continued) See Accompanying Notes. 5 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 2003 AND 2002 (Unaudited) (Continued) 2003 2002 ----------- ----------- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $ 0 $ 900,000 Purchases of treasury stock 0 (254,408) Payments on long-term debt (152,438) (652,343) ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES (152,438) (6,751) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (16,394) 85,859 ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (190,257) (129,882) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 586,520 472,352 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 396,263 $ 342,470 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 116,374 $ 64,007 Cash paid during the period for interest 33,056 33,928 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, 2003 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ended January 31, 2004. 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, 2003. Note 2 - Nature of Business Principles of Consolidation - The consolidated financial statements include the accounts of Edison Control Corporation ("Edison") and subsidiaries, both 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 ("SHH") 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. New Accounting Standards - In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure, an amendment of FASB Statement No. 123." SFAS No. 148 provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation and also amends the disclosure provisions of SFAS No. 123. The Company adopted only the disclosure portion of SFAS No. 148. Thus, such statement 7 will not have an impact on the Company's consolidated financial statements. There was no stock based compensation expense included in net income for the three months ended April 30, 2003 or 2002, respectively. There would have been no stock based compensation expense determined under the fair value based method for the three months ended April 30, 2003 or 2002. In November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires that a guarantor must recognize, at the inception of a guarantee, a liability for the fair value of the obligation that it has undertaken in issuing a guarantee. FIN No. 45 also addresses the disclosure requirements that a guarantor must include in its financial statements ending after December 15, 2002. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN No. 45 also requires disclosure regarding the Company's product warranty liability (see Note 5). Adoption of FIN No. 45 did not have an impact on the Company's consolidated 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, 2003 and 2002 are summarized as follows: 2003 2002 Basic: ---------- ---------- Net income (numerator) $ 461,586 $ 577,814 Weighted average shares outstanding (denominator) 1,638,595 1,786,064 Net income per share - basic $ 0.28 $ 0.32 Diluted: Net income (numerator) $ 461,586 $ 577,814 Weighted average shares outstanding 1,638,595 1,786,064 Effect of dilutive securities: Stock options 57,803 136,727 Stock warrants 370,711 374,549 ---------- ---------- Weighted average shares outstanding (denominator) 2,067,109 2,297,340 Net income per share - diluted $ 0.22 $ 0.25 Note 3 - 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 segments' operations and their accounting policies is contained in Note 2. Segment information for the three months ended April 30, 2003 and 2002 follows: 2003 2002 --------------------------- --------------------------- Net Operating Net Operating Sales Income (Loss) Sales Income (Loss) ----------- ------------- ----------- ------------- ConForms $ 5,810,388 $ 1,214,060 $ 5,281,535 $ 1,020,382 Ultra Tech 795,869 137,262 927,466 27,147 SHH 570,486 (26,544) 646,368 1,701 Edison (607,072) (101,497) ----------- ----------- ----------- ----------- Total $ 7,176,743 $ 717,706 $ 6,855,369 $ 947,733 8 Note 4 - Inventories Inventories consisted of the following: April 30, January 31, 2003 2003 ----------- ----------- Raw Materials $ 3,493,826 $ 3,639,169 Work-in-process 1,239,462 1,391,795 Finished Goods 2,147,453 2,206,548 ----------- ----------- 6,880,741 7,237,512 Less-reserve to reduce carrying value to LIFO cost (130,000) (115,000) ----------- ----------- Net inventories $ 6,750,741 $ 7,122,512 =========== =========== Note 5 - Warranty Accrual The Company provides warranties for specific product lines and accrues for estimated future warranty cost in the period in which the sale is recorded. The Company calculates its reserve requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience. The following is an analysis of the Company's product warranty reserve for the three months ended April 30, 2003 and 2002: Three Months Ended April 30, ---------------------------- 2003 2002 Warranty Reserve: ---------- ---------- Beginning of year balance $ 65,000 $ 120,000 Additions 27,000 30,000 Usage (6,337) (10,071) End of Period Balance $ 85,663 $ 139,929 Note 6 - Going Private Transaction On April 1, 2003, the Company filed a Form 8-K disclosing that its Board of Directors approved a proposal from its majority shareholder and Chairman of the Board and its Chief Executive Officer to engage in a going-private transaction. Such transaction is to be structured as a one-for-66,666 reverse stock split in which shareholders owning less than one share as a result of the reverse stock split will receive cash in an amount equal to $7.00 per pre-split share in lieu of receiving fractional shares. The Chairman and Chief Executive Officer together currently beneficially own 71% of the Company's common shares. In conjunction with the reverse stock split, the Company intends to enter into individual option cancellation agreements with each person holding options to acquire the Company's common stock (with the exception of the Chief Executive Officer, whose options will remain outstanding). It is anticipated that as a result of these transactions, the Chairman and Chief Executive Officer will remain as the only two shareholders of the Company. The terms and conditions of the reverse stock split and the cash consideration to be received by the Company's minority shareholders were unanimously approved by the Board of Directors (with the Chairman and Chief Executive Officer abstaining), based on the recommendation of a Special Committee composed entirely of disinterested directors. 9 The estimated total cost to cash-out fractional shares and options to acquire shares is expected to be approximately $3.5 million, excluding transaction costs. To fund the transaction, the Company has received a commitment, subject to customary limitations, for a $5 million five-year term loan secured by assets of the Company. 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 April 30, 2003 increased $321,374 (4.7%) to $7,176,743 when compared with the same period of the prior year. ConForms sales increased by $528,853 compared with the same period of the prior year. This was partially offset by decreased Ultra Tech and SHH sales of $131,597 and $75,882, respectively. The ConForms increase was due to a softer concrete pumping accessories market for the three months of 2002 compared to the current year combined with a general 3% price increase for the ConForms division. The Ultra Tech decrease was due to lower project sales during the three months ended April 30, 2003 compared to the same period of the prior year. The decrease in the SHH sales was due to a decrease in large contract orders for the three months ended April 30, 2003 compared to the same period of the prior year. As a percentage of net sales, gross profit margin for the three months ended April 30, 2003 was 37.9% compared to 35.5% for the same period last year. This was due largely to a price increase for ConForms combined with lower margins for Ultra Tech sales for the three months ended April 30, 2002 due to a higher mix of lower margin project sales. Selling, engineering and administrative expenses increased by $520,158 or 35.1% for the first three months of 2003 compared with the same period of the prior year. This is due primarily to legal and professional fees incurred as part of the Company's pending going-private transaction. 10 Interest expense decreased to $37,517 for the three months ended April 30, 2003 compared to $44,239 for the three months ended April 30, 2002 due to slightly lower debt balances combined with lower interest rates. Miscellaneous income increased $70,570 from the prior year due largely to a settlement of $72,847 received by the Company in the first fiscal quarter of 2003 from Cendant Corporation litigation regarding previously recognized trading securities losses relating to Cendant Corporation. The Company recorded tax expense of $290,556 for the three months ended April 30, 2003, which represents an estimated effective rate of 38.6% 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 $461,586, or $0.28 and $0.22 per share, basic and diluted, respectively, for the first three months of 2003 was a decrease of $116,228 (20.1%), from net income of $577,814, or $0.32 and $0.25 per share, basic and diluted, for the comparable period last year. The decrease in net income is due largely to higher selling, engineering and administrative expenses offset by higher ConForms' sales and higher margins on Ultra Tech sales for the three month period ended April 30, 2003 compared to the same period from the previous year. Liquidity and Capital Resources The Company generated $22,856 in cash from operations during the first three months of 2003, compared to cash generated from operations of $36,050 for the same period last year. The Company used $44,281 in cash to acquire capital equipment and $152,438 in payments of long-term debt. The result was a net decrease in cash and cash equivalents of $190,257 for the three months ended April 30, 2003 compared to a net decrease of $129,882 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, and existing bank credit lines. Proposed capital expenditures for the fiscal year ending January 31, 2004 are expected to total approximately $735,000, compared to $569,977 for fiscal 2002. The estimated total cost to cash-out fractional shares and options to acquire shares in the aforementioned going private transaction is expected to be approximately $3.5 million, excluding transaction costs. To fund the transaction, the Company has received a commitment, subject to customary limitations, for a $5 million five-year term loan secured by assets of the Company. Critical Accounting Policies - The consolidated financial statements and related notes contain information that is pertinent to management's discussion and analysis. 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, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Edison Control Corporation considers the following policies to be the most critical in understanding the judgments that are involved in 11 the preparation of the Company's consolidated financial statements and the uncertainties that could impact the Company's financial position, results of operations and cash flows. Revenue Recognition - The Company recognizes revenue, net of expected returns, upon shipment of products, which is when title passes to the customer, the price is fixed, the customer is obligated to pay and the Company has no remaining obligations. Allowance for Doubtful Accounts -The Company's accounts receivable are reported net of bad debt reserves, which are regularly evaluated by management for adequacy. The evaluation includes and is not limited to a review of individual customer accounts that have balances beyond the agreed upon terms of the sale. Reserve values are assigned to individual accounts based on the Company's recent payment experience with the customer and knowledge of the customer's creditworthiness. In addition, a general reserve is established to cover the exposure presented by the remainder of account balances. Excess and Obsolete Inventory - The Company's inventories are reported net of excess and obsolete reserves, which are maintained and evaluated on a regular basis by management. A reserve for excess inventory is calculated by an analysis of items with on-hand quantities in excess of historical usage over a reasonable time frame. Management identifies obsolete inventory on a regular basis and disposes of the quantities through sale to scrap dealers or commercial waste haulers. On rare occasions obsolete inventory may remain in the Company's inventory for a period of time and would be reserved for. Warranties - The Company warrants its products sold to customers to be free from defects in material and workmanship. The warranty does not vary based on customer, product sold or any other factor. The company accrues for future warranty costs in the period in which the sale is recorded, and the estimated reserve is adjusted periodically based on recent actual experience. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate risk and foreign currency risk. These risks include changes in U.S interest rates and changes in foreign currency exchange rates as measured against the U.S. dollar. Interest Rate Risk The Company's revolving credit borrowings and variable rate term loans, which totaled $5,050,000 as of April 30, 2003, 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, 2003 balance, an increase of one percent in the interest rate on the Company's loans would cause interest expense to increase by approximately $50,500 or $0.02 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. Item 4. Controls and Procedures The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and includes controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. PART II. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Written Statement of the President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, dated June 16, 2003 99.2 Written Statement of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, dated June 16, 2003 (b) Reports on Form 8-K The Company filed the following reports on Form 8-K during the quarter to which this report relates: o On March 12, 2003, the Company disclosed under Item 9 preliminary results for 2002 and a press release regarding receipt of a "going private" proposal from its majority shareholder and Chairman of the Board, William B. Finneran, and its Chief Executive Officer, Alan J. Kastelic. 13 o On April 2, 2003, the Company disclosed under Item 9 that its board had approved a "going private" proposal. o On April 9, 2003, the Company disclosed under Item 9 that its board had approved amendments to the "going private" proposal. 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: June 16, 2003 /s/ Gregory L. Skaar -------------------------- Gregory L. Skaar (Chief Financial Officer) 15 CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT I, Alan J. Kastelic, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Edison Control Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Edison Control Corporation as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Edison Control Corporation and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. June 16, 2003 /s/ Alan J. Kastelic ------------------------------------- Alan J. Kastelic President and Chief Executive Officer 16 I, Gregory L. Skaar, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Edison Control Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Edison Control Corporation as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Edison Control Corporation and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. June 16, 2003 /s/ Gregory L. Skaar -------------------------- Gregory L. Skaar Chief Financial Officer 17 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Written Statement of the President and Chief Executive Officer, pursuant to 18 U.S.C. ss.1350, dated June 16, 2003 99.2 Written Statement of the Chief Financial Officer, pursuant to 18 U.S.C. ss.1350, dated June 16, 2003 18 EX-99.1 3 sdc446a.txt WRITTEN STATEMENT OF PRESIDENT AND CEO Exhibit 99.1 CERTIFICATION The undersigned hereby certifies in his capacity as the President and Chief Executive Officer of Edison Control Corporation (the "Company") that the Annual Report on Form 10-K of the Company for the year ended January 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period. EDISON CONTROL CORPORATION (Registrant) Date: June 16, 2003 /s/ Alan J. Kastelic --------------------------------------- Alan J. Kastelic (President and Chief Executive Officer) EX-99.2 4 sdc446b.txt WRITTEN STATEMENT OF CFO Exhibit 99.2 CERTIFICATION The undersigned hereby certifies in his capacity as the Chief Financial Officer of Edison Control Corporation (the "Company") that the Annual Report on Form 10-K of the Company for the year ended January 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period. EDISON CONTROL CORPORATION (Registrant) Date: June 16, 2003 /s/ Gregory L. Skaar --------------------------------------- Gregory L. Skaar (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----