-----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, GmecdhDnGZipfTGNY2mFF7tjOLBonAxMdyjdcQBuDchCK7zrpqgn08v1laFS/6yO Wr8kDLyK33oPhJLvnjB7iw== 0000897069-99-000454.txt : 19990903 0000897069-99-000454.hdr.sgml : 19990903 ACCESSION NUMBER: 0000897069-99-000454 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDISON CONTROLS CORP CENTRAL INDEX KEY: 0000795968 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 222716367 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14812 FILM NUMBER: 99705043 BUSINESS ADDRESS: STREET 1: W60 N151 CARDINAL AVENUE STREET 2: PO BOX 326 CITY: CEDARBURG STATE: WI ZIP: 53012 BUSINESS PHONE: (414) 377- MAIL ADDRESS: STREET 1: W60 N151 CARDINAL AVE. STREET 2: PO BOX 326 CITY: CEDARBURG STATE: WI ZIP: 53012 10-Q 1 EDISON CONTROL CORPORATION 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, 1999 ------------- 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) (414) 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: 2,346,933 as of July 31, 1999 - ----------------------------------------------------------- EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Form 10-Q Page Number ----------- Part I Financial Information ---------------------------- Item 1 Financial Statements - --------------------------- Consolidated Balance Sheets Pages 2-3 July 31, 1999 (Unaudited) and January 31, 1999 Consolidated Statements of Operations Page 4 Three and six months ended July 31, 1999 and 1998 (Unaudited) Consolidated Statements of Cash Flows Pages 5-6 Six months ended July 31, 1999 and 1998 (Unaudited) Notes to Consolidated Financial Statements Pages 7-9 (Unaudited) Item 2 Management's Discussion and Analysis of Pages 10-13 - ---------------------------------------------- Operations and Financial Condition ---------------------------------- Item 3 Quantitative and Qualitative Disclosures - ----------------------------------------------- About Risk Page 13 ---------- Part II Other Information ------------------------- Item 4 Submission of Matters to a Vote of - ----------------------------------------- Security Holders Pages 13-14 ---------------- Item 6 Exhibits Page 14 and - --------------- Exhibit Index 1 PART I. Item 1 Financial Statements - -------------------- EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS July 31, 1999 and January 31, 1999 July 31, January 31, 1999 1999 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 548,109 $ 468,072 Investments 95,000 190,000 Trading securities 1,135,213 3,616,314 Trade accounts receivable, net 4,138,579 3,513,342 Receivable from affiliate 118,836 93,575 Inventories, net 6,661,584 7,619,746 Prepaid expenses and other assets 317,650 193,650 Refundable income taxes 0 120,505 Deferred income taxes 77,000 2,000 Assets held for sale 922,200 1,032,200 Deferred financing costs 0 389,236 ----------- ----------- Total current assets 14,014,171 17,238,640 Investment in and advances to affiliate 456,263 421,263 Other Assets: Prepaid pension 93,499 151,477 Deferred income taxes 279,000 129,000 ----------- ----------- Total other assets 372,499 280,477 Property, plant and equipment, net 7,910,045 8,187,899 Goodwill (net of amortization) 8,574,187 8,690,318 Organizational/finance costs (net of amortization) 48,081 84,400 ----------- ----------- TOTAL ASSETS $31,375,246 $34,902,997 =========== =========== (Continued) See Accompanying Notes. 2 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS July 31, 1999 and January 31, 1999 (Continued) July 31, January 31, 1999 1999 ---- ---- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,092,014 $ 1,939,917 Accrued compensation 572,519 739,938 Taxes other than income taxes 62,369 21,325 Other accrued expenses 520,106 522,694 Income taxes payable 132,058 0 Deferred compensation 754,250 754,250 Current maturities on long-term debt 933,439 530,423 ---------- ---------- Total current liabilities 4,066,755 4,508,547 Long-term debt, less current maturities 10,333,965 14,211,178 ---------- ---------- Total Liabilities 14,400,720 18,719,725 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, 2,346,933 shares issued and outstanding 23,469 23,469 Additional paid-in capital 10,323,225 10,323,225 Retained earnings 6,571,065 5,760,823 Accumulated other comprehensive income 56,767 75,755 ---------- ---------- Total Shareholders' Equity 16,974,526 16,183,272 ---------- ---------- TOTAL LIABILITIES AND EQUITY $31,375,246 $34,902,997 =========== =========== See Accompanying Notes. 3 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED JULY 31, 1999 AND 1998 (Unaudited)
Three Months Ended Six Months Ended ------------------ ---------------- July 31, July 31, ------- ------- 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES $6,932,566 $6,881,676 $13,050,099 $13,607,290 COST OF GOODS SOLD 4,383,457 4,228,026 8,381,054 8,681,459 --------- --------- ---------- ---------- GROSS PROFIT 2,549,109 2,653,650 4,669,045 4,925,831 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 1,107,684 1,133,747 2,312,324 2,326,296 Goodwill and organizational/ finance cost amortization 72,800 79,646 152,450 159,292 --------- --------- ---------- ---------- Total other operating expenses 1,180,484 1,213,393 2,464,774 2,485,588 --------- --------- ---------- ---------- OPERATING INCOME 1,368,625 1,440,257 2,204,271 2,440,243 OTHER EXPENSE (INCOME): Interest expense 207,418 237,882 458,827 506,085 Realized losses (gains) on trading securities 4,500 (238,321) (256,453) (226,071) Unrealized (gains) losses on trading securities (11,176) 642,526 181,641 19,746 Stock warrant amortization 245,834 389,236 491,667 Write down of assets held for sale to net realizable value 110,000 110,000 Miscellaneous income (16,932) (62,386) (45,818) (101,557) --------- --------- ---------- ---------- Total other expense 293,810 825,535 837,433 689,870 --------- --------- ---------- ---------- INCOME BEFORE INCOME TAXES 1,074,815 614,722 1,366,838 1,750,373 INCOME TAXES 425,420 257,570 556,596 738,476 --------- --------- ---------- ---------- NET INCOME 649,395 357,152 810,242 1,011,897 OTHER COMPREHENSIVE INCOME (LOSS) - Foreign currency translation adjustment 3,926 (79,770) (18,988) 8,067 --------- --------- ---------- ---------- COMPREHENSIVE INCOME $653,321 $277,382 $791,254 $1,019,964 ======== ======== ======== ========== Net income per share-basic $.28 $.15 $.35 $.44 Net income per share-diluted $.22 $.12 $.28 $.35
See Accompanying Notes. 4 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JULY 31, 1999 AND 1998 (Unaudited) 1999 1998 ---- ---- Net income $810,242 $1,011,897 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 994,458 1,014,702 Provision for doubtful accounts 61,691 20,669 Write down of asset held for sale to net realizable value 110,000 Loss on sale of equipment 3,592 Realized gain on sales of trading securities (256,453) (226,071) Unrealized loss on trading securities 181,641 19,746 Purchases of trading securities (77,875) (2,013,187) Proceeds from the sale of trading securities 2,633,788 1,579,520 Equity in earnings of affiliate (35,000) (55,000) Changes in assets and liabilities: Accounts receivable (686,928) (750,259) Receivable from affiliate (25,261) 5,902 Inventories 958,162 (417,152) Prepaid expenses and other assets (66,022) 80,948 Trade accounts payable (847,903) 284,683 Accrued compensation (167,419) (192,899) Taxes other than income taxes 41,044 28,547 Other accrued expenses (2,587) (62,491) Deferred income taxes (148,000) (190,000) Income taxes payable 175,563 323,448 --------- --------- Total adjustments 2,842,899 (545,302) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,653,141 466,595 --------- --------- Cash flows from investing activities: Additions to plant and equipment (174,919) (632,422) Maturity of certificate of deposit 95,000 0 Proceeds from sale of equipment 0 11,267 --------- --------- NET CASH USED IN INVESTING ACTIVITIES (79,919) (621,155) --------- --------- (Continued) See Accompanying Notes. 5 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JULY 31, 1999 AND 1998 (Unaudited) (Continued) 1999 1998 ---- ---- Cash flows from financing activities: Proceeds from issuance of long-term debt $5,157,183 $600,000 Principal payments on long-term debt (8,631,380) (1,094,960) Payments received from affiliates 30,000 Stock options exercised 0 177,500 --------- --------- NET CASH USED IN FINANCING ACTIVITIES (3,474,197) (287,460) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (18,988) 8,066 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 80,037 (433,954) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 468,072 1,037,288 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 548,109 $ 603,334 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 529,033 $ 605,028 Cash paid during the period for interest 482,156 504,044 See Accompanying Notes. 6 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, 1999 are not necessarily indicative of the results that may be expected for other interim periods or the year ended January 31, 2000. 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, 1999. Note 2 - Nature of Business and Accounting Policies - ---------------------------------------------------- Principles of Consolidation - The consolidated financial statements include the accounts of Edison Control Corporation ("Edison") and subsidiaries, all of which subsidiaries are wholly owned by Edison (collectively, the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Nature of Operations - The Company is currently comprised of the following operations. Construction Forms ("ConForms") is a leading manufacturer and distributor of systems of pipes, couplings 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 the Company. 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. 7 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. Net Income 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, 1999 and 1998 are summarized as follows:
Three Months Ended Six Months Ended July 31, July 31, 1999 1998 1999 1998 ---- ---- ---- ---- Net income per share-basic: Net income (numerator) $ 649,395 $ 357,152 $ 810,242 $1,011,897 Weighted average shares outstanding (denominator) 2,346,933 2,326,283 2,346,933 2,301,373 Net income per share-basic $.28 $.15 $.35 $.44 Net income per share-diluted: Net income (numerator) $ 649,395 $ 357,152 $ 810,242 $1,011,897 Weighted average shares outstanding 2,346,933 2,326,283 2,346,933 2,301,373 Effect of dilutive securities: Stock options 189,873 188,020 184,382 179,510 Stock warrants 378,823 382,118 384,902 385,346 Weighted average shares outstanding (denominator) 2,915,629 2,896,421 2,916,217 2,866,229 Net income per share-diluted $.22 $.12 $.28 $.35
Reclassifications - Certain reclassifications have been made to the prior periods' financial statements to conform with the current year presentation. Note 3 - Long-Term Debt - ----------------------- On April 30, 1999, Edison refinanced its bank debt and amended its master credit agreement with LaSalle National Bank of Chicago. As part of the refinancing, Edison liquidated approximately $2,600,000 of its existing trading security portfolio and utilized $2,500,000 of these funds to reduce its outstanding debt. Also, as part of the refinancing, LaSalle paid the subordinated bank loan holder in full (approximately $6,800,000). 8 The Company's amended master credit agreement expires April 30, 2004 and allows for revolving credit borrowings not to exceed $6,000,000 ($3,000,000 outstanding at July 31, 1999). Borrowings, which are based on qualified assets, bear interest at either the prime rate or the LIBOR rate plus 2%. The Company also maintains a term loan ($5,550,000 outstanding at July 31, 1999) under the amended master credit agreement. Quarterly principal payments of $200,000 are required by the agreement. Borrowings bear interest at either the prime rate or the LIBOR rate plus 2.25%. The agreement calls for an additional annual principal payment based on excess cash flow as defined in the agreement. The terms of the amended master credit agreement, among other provisions, require the Company to maintain a minimum current ratio, tangible net worth, and debt service coverage ratio, and restricts the Company to a maximum funded debt to EBITDA ratio. Substantially all of the Company's assets are collateralized under the amended master credit agreement. The LIBOR spread may be reduced or increased annually based on the achievement of a certain "funded debt to EBITDA" ratio. Note 4 - Segment Information - ---------------------------- The Company's operating segments are organized based on the nature of products and services provided. A description of the nature of the segments' operations and their accounting policies are contained in Note 2. Segment information for the three and six-month periods ended July 31, 1999 and 1998 follows: Three Months Ended July 31, --------------------------- 1999 1998 ---- ---- Net Operating Net Operating Sales Income Sales Income ----- ------ ----- ------ ConForms $ 5,359,198 $ 1,346,667 $ 5,169,057 $ 1,084,772 Ultra Tech 1,027,101 135,627 1,174,944 491,747 Gilco 546,267 (17,354) 537,675 (39,863) Edison (96,315) (96,399) ----------- ----------- ----------- ----------- Total $ 6,932,566 $ 1,368,625 $ 6,881,676 $ 1,440,257 Six Months Ended July 31, ------------------------- 1999 1998 ---- ---- Net Operating Net Operating Sales Income Sales Income ----- ------ ----- ------ ConForms $10,442,099 $ 2,300,429 $10,260,615 $ 2,045,011 Ultra Tech 1,493,790 227,626 2,315,098 663,214 Gilco 1,114,210 (133,143) 1,031,577 (65,328) Edison (190,641) (202,654) ----------- ----------- ----------- ----------- Total $13,050,099 $ 2,204,271 $13,607,290 $ 2,440,243 9 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, stock price variations affecting the Company's securities trading portfolio and issues related to Year 2000 problems. 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 quarter ended July 31, 1999 increased $50,890 (.7%) to $6,932,566 compared with net sales for the same period of the prior year. For the first six months of this year, net sales decreased $557,191 (4.1%) to $13,050,099 compared with net sales for the same period of the prior year. The principal reason for the change was due to the decrease in large project sales at Ultra Tech during the first quarter. Ultra Tech's sales volume will continue to fluctuate based on its ability to attain large project sales in the industries it serves. As a percentage of net sales, gross margin for the quarter decreased to 36.8% from 38.6%. Gross margin for the six months ended July 31, 1999 was 35.8% compared to 36.2% for the six months ended July 31, 1998. Improved results from foreign operations were offset by decreased sales of higher margin Ultra Tech products and increased sales of lower margin Gilco products. Selling, engineering and administrative expenses for the three and six-month periods ended July 31, 1999 decreased by $26,063 (2.3%) and $13,972 (.6%) from the same period last year. Interest expense decreased to $207,418 and $458,827 for the three and six-month periods ended July 31, 1999 compared to $237,882 and $506,085 for the same periods ended July 31, 1998. Interest expense is expected to continue to decrease due to the debt refinancing described in Note 3 of the Notes to Consolidated Financial Statements and the anticipated future principal reductions. The Company had a $6,676 and $74,812 net gain on trading securities for the three and six-month periods ended July 31, 1999 compared to a net loss of $404,205 and a net gain of $206,325 for the same periods of the prior year. Trading securities at July 31, 1999 consisted of the following: 10 Number of Market Name of Issuer/Title of Issue Shares Value - ----------------------------- ------ ----- Common Stocks: Glenayre Technologies, Inc. 40,000 $ 140,000 Sun International Hotels 100 4,088 TCI Music Inc. 3,000 91,125 US Trust Corporation 10,000 900,000 ----------- Total $ 1,135,213 =========== 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 and stock warrants created a total non-cash charge of $541,686 for the six months ended July 31, 1999 compared to $650,959 for the prior year. Due to the repayment of the Company's subordinated bank loan, the associated guarantee provided by the principal shareholder of Edison was canceled. Accordingly, all remaining deferred financing costs ($143,403), related to the warrant issued to the principal shareholder for providing the guarantee, were expensed in the first quarter of fiscal 1999. The total amortization of all these non-cash charges for the year ended January 31, 2000 is expected to approximate $690,000. During the second quarter, the Company accepted an offer from a third party to purchase the land and building the Company currently owns and has vacated in Cedarburg, Wisconsin. Based on this offer, the Company has written down the value of this asset by $110,000 to an estimated realizable value. Various contingencies still remain on the offer and the sale of this land and building cannot be assured at this time. The Company recorded tax expense of $556,596 for the six months ended July 31, 1999, which represents the estimated annual effective rate of 40.7% 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. Net income of $649,395, or $.28 and $.22 per share, basic and diluted, respectively, for the second quarter of fiscal 1999 was an increase of $292,243 (81.8%), from net income of $357,152, or $.15 and $.12 per share, basic and diluted, respectively, for the comparable period of the prior year. The change was principally due to a net gain on trading securities of $6,676 for the second quarter of 1999 compared to a net loss on trading securities of $404,205 for the second quarter of 1998. For the six months ended July 31, 1999, net income was $810,242, or $.35 and $.28 per basic and diluted share, respectively, compared to net income of $1,011,897, or $.44 and $.35 per basic and diluted share, 11 respectively, in the comparable period of the prior year. The reduction was principally due to the reduction in sales volume and the recording of the write down on the assets held for sale. Liquidity and Capital Resources - ------------------------------- The Company generated $3,653,141 in cash from operations during the first six months of 1999, compared to cash flow generated by operations of $466,595 for the same period last year. This change was due largely to the net proceeds of approximately $2,600,000 received from sales of trading securities during the period. The Company used $174,919 in cash to acquire capital equipment and received $95,000 in cash from the maturity of a certificate of deposit. As described in Note 3 of the Notes to Consolidated Financial Statements, the Company refinanced its bank debt resulting in a net debt reduction of $3,474,197 for the first six months compared to a net debt increase of $494,960 in the prior comparable period. The result was a net increase in cash and cash equivalents of $80,037 for the first six months of fiscal 1999 compared to a net decrease of $433,954 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, 2000 are expected to total approximately $900,000, compared to $3,082,725 for fiscal 1998. The significant decrease is due principally to the completion in fiscal year 1998 of construction of an addition at the Company's Port Washington facility and the implementation of a new enterprise resource planning system during 1998. The Company has an accepted offer to purchase its vacant Cedarburg facility. There can be no assurance as to when or if this transaction may be consumated as various contingencies remain. 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 - ---------------- During fiscal 1998, the Company 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 involved replacing certain hardware and software maintained by the Company. The Company has received a representation from the ERP software provider that its software is Year 2000 compliant. On February 1, 1999, the Company started operating with the new ERP system. Contingency plans have been developed and will be implemented if Year 2000 problems are encountered with the new ERP system. The total cumulative cost of the project was approximately $530,000. Purchased ERP system hardware and software, approximately $385,000 of the total estimated cost, was capitalized in fiscal 1998. Personnel and all other remaining costs related to the project were expensed as incurred in fiscal 1998. 12 The Company has not formally communicated with all its customers and suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to address Year 2000 issues. The Company's business operations could be affected by the Year 2000 readiness of its customers and suppliers in such areas as the delay in receipt of cash from customers, the interruption of utilities and the inability of suppliers to deliver in a timely manner. The Company does not anticipate any materially adverse affect on its business due to Year 2000 problems encountered by its customers or suppliers; however, there can be no assurance that its business will not be materially adversely affected by such problems. 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 $11,267,404 as of July 31, 1999, 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, 1999 balance, an increase of one percent in the interest rate on the Company's loans would cause an increase in interest expense of approximately $113,000, or $.02 per diluted share, 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 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. Equity Price Risk - ----------------- Approximately 3.6% of the Company's total assets as of April 30, 1999 are invested in trading securities of various domestic companies. The market value of these investments is subject to fluctuation. This factor, combined with the relative size of the Company's trading portfolio ($1,135,213 at July 31, 1999), 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. A 10% decrease in the quoted market price of these trading securities would decrease the fair market value of these securities by approximately $114,000, or $.02 per diluted share. PART II. Item 4. 13 Submission of Matters to a Vote of Security Holders - --------------------------------------------------- On June 8, 1999, the Company held its 1999 Annual Meeting of Shareholders. Of the 2,346,933 shares issued and outstanding, holders of 2,005,988 shares were present, represented in person or by proxy. Two matters required vote by the security holders. First, 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 (1,977,588 votes for each and 28,400 votes withheld for each). The other matter requiring a vote related to the approval of the 1999 Equity Incentive Plan. A majority of the votes cast by shareholders were voted in favor of the amendment (662,990 votes for, 65,595 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 - ------------------- 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 2, 1999 /s/ Jay R. Hanamann ----------------------- Jay R. Hanamann (Chief Financial Officer) 15 Edison Control Corporation Exhibit Index ------------- Exhibit No. Description - ----------- ------------ 27. Financial Data Schedule. 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF EDISON CONTROL CORPORATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JAN-31-2000 JUL-31-1999 548,109 1,230,213 4,587,106 329,691 6,661,584 14,014,171 9,961,688 2,051,643 31,375,246 4,066,755 10,333,965 0 0 23,469 16,951,057 31,375,246 13,050,099 13,050,099 8,381,054 2,464,774 837,433 61,691 458,827 1,366,838 556,596 810,242 0 0 0 810,242 .35 .35
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