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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 25, 2004
    
    Commission File Number 000-24802
 EDELBROCK CORPORATION 
  Delaware
    
    33-0627520(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)2700 California Street, Torrance, California
    
    90503(Address of principal executive offices)
    
    (Zip Code)
 (310) 781-2222 
  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 As of November 9, 2004, the Company had 5,485,392 shares of Common Stock
outstanding. 1




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EDELBROCK CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 25, 2004
INDEX PagePart I FINANCIAL STATEMENTSItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 25, 2004 and June 30, 2004
    
    3Consolidated Statements of Income for the Three Months Ended September 25, 2004 and 2003
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 25, 2004 and 2003
    
    5Notes to Condensed Consolidated Interim Financial Statements
    
    6-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13-16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    17Item 4. Controls and Procedures
    
    17Part II OTHER INFORMATION
    
    18SIGNATURES
    
    19CERTIFICATIONS
    
    20-23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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EDELBROCK CORPORATION 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 25,
    
    June 30,2004
    
    2004(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    11,868,000
    
    
    $
    12,540,000Accounts receivable, net
    
    
    21,700,000
    
    
    
    27,825,000Inventories
    
    
    31,295,000
    
    
    
    28,399,000Prepaid expenses and other
    
    
    3,316,000
    
    
    
    3,246,000Total current assets
    
    
    68,179,000
    
    
    
    72,010,000Property, plant and equipment, net
    
    
    36,178,000
    
    
    
    36,588,000Goodwill, net of accumulated amortization of $56,000 at
September 25, 2004 and June 30, 2004
    
    
    1,172,000
    
    
    
    1,172,000License agreement, net of accumulated amortization of
$140,000 at September 25, 2004 and $126,000 at June 30, 2004
    
    
    666,000
    
    
    
    680,000Other
    
    
    842,000
    
    
    
    834,000Total assets
    
    $
    107,037,000
    
    
    $
    111,284,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    7,262,000
    
    
    $
    10,345,000Accrued expenses
    
    
    4,484,000
    
    
    
    5,992,000Current portion of long-term debt
    
    
    25,000
    
    
    
    35,000Total current liabilities
    
    
    11,771,000
    
    
    
    16,372,000Long-term debt and capital lease obligations
    
    
    177,000
    
    
    
    179,000Deferred income taxes
    
    
    3,990,000
    
    
    
    3,984,000Shareholders equity
    
    
    91,099,000
    
    
    
    90,749,000Total liabilities and shareholders equity
    
    $
    107,037,000
    
    
    $
    111,284,000
 The accompanying notes are an integral part of these condensed consolidated
interim financial statements. 3




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EDELBROCK CORPORATION 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three months endedSeptember 25,2004
    
    2003Revenues
    
    $
    26,032,000
    
    
    $
    27,658,000Cost of sales
    
    
    16,603,000
    
    
    
    17,804,000Gross profit
    
    
    9,429,000
    
    
    
    9,854,000Operating expensesSelling, general and administrative
    
    
    8,033,000
    
    
    
    8,344,000Research and development
    
    
    837,000
    
    
    
    894,000Total operating expenses
    
    
    8,870,000
    
    
    
    9,238,000Operating income
    
    
    559,000
    
    
    
    616,000Interest expense
    
    
    (1,000
    )
    
    
    (4,000
    )Interest income
    
    
    25,000
    
    
    
    11,000Gain on sale of assets and other income
    
    
    1,000
    
    
    
    118,000Income before taxes on income
    
    
    584,000
    
    
    
    741,000Taxes on income
    
    
    234,000
    
    
    
    274,000Net income
    
    $
    350,000
    
    
    $
    467,000Basic net income per share
    
    $
    0.06
    
    
    $
    0.09Diluted net income per share
    
    $
    0.06
    
    
    $
    0.09Basic weighted average number of shares outstanding
    
    
    5,485,000
    
    
    
    5,454,000Effect of dilutive stock options and warrants
    
    
    152,000
    
    
    
    11,000Diluted weighted average number of shares outstanding
    
    
    5,637,000
    
    
    
    5,465,000
 The accompanying notes are an integral part of these condensed consolidated
interim financial statements. 4




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EDELBROCK CORPORATION 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months endedIncrease (Decrease) in Cash and Cash Equivalents
    
    September 25,2004
    
    2003Operating activitiesNet income
    
    $
    350,000
    
    
    $
    467,000Depreciation and amortization
    
    
    1,337,000
    
    
    
    1,396,000Gain on sale of assets
    
    
    (1,000
    )
    
    
    (118,000
    )Impairment on license agreement
    
    
    
    
    
    
    36,000Net change in operating assets and liabilities
    
    
    (1,443,000
    )
    
    
    (2,221,000
    )Net cash provided by (used in) operating activities
    
    
    243,000
    
    
    
    (440,000
    )Investing activitiesAcquisition of property, plant and equipment
    
    
    (904,000
    )
    
    
    (582,000
    )Proceeds from sale of assets
    
    
    1,000
    
    
    
    414,000Net cash used in investing activities
    
    
    (903,000
    )
    
    
    (168,000
    )Financing activitiesProceeds from issuance of common stock
    
    
    
    
    
    
    77,000Debt repayments
    
    
    (12,000
    )
    
    
    (314,000
    )Net cash used in financing activities
    
    
    (12,000
    )
    
    
    (237,000
    )Net decrease in cash and cash equivalents
    
    
    (672,000
    )
    
    
    (845,000
    )Cash and cash equivalents at beginning of period
    
    
    12,540,000
    
    
    
    8,707,000Cash and cash equivalents at end of period
    
    $
    11,868,000
    
    
    $
    7,862,000Supplemental disclosure of cash flow informationCash paid during the period forInterest
    
    $
    1,000
    
    
    $
    4,000Income taxes
    
    $
    130,000
    
    
    $
    
 The accompanying notes are an integral part of these condensed consolidated
interim financial statements. 5




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EDELBROCK CORPORATION 
 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 Note 1  Business and Summary of Significant Accounting Policies Business Edelbrock Corporation and its wholly-owned subsidiaries, Edelbrock Foundry
Corp. and Edelbrock II, Inc. (collectively the Company) are engaged in the
design, manufacture, distribution and marketing of performance automotive and
motorcycle aftermarket parts. The Company currently offers approximately
8,000 performance automotive and motorcycle aftermarket parts for street,
off-road, recreational and competition use. The Companys products are
designed to enhance the engines performance through increased horsepower,
torque and drivability primarily by improving induction of fuel and air into
and exhaust out of the engine. The Company also designs and markets products
to improve appearance or drivability of the vehicle. The Companys manufacturing operations are housed in its Torrance facilities
and casting operations at its aluminum foundry in San Jacinto and its
business strategy is to capitalize on recognition of the Edelbrock brand
name and strong distribution network to expand its leading position in the
specialty performance automotive and motorcycle aftermarket parts market. Basis of Presentation The condensed consolidated interim financial statements of Edelbrock
Corporation at September 25, 2004 and for the three month periods ended
September 25, 2004 and 2003 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation. The June 30, 2004 balance sheet was derived
from the balance sheet included in the Companys audited consolidated financial
statements as included in the Companys Form 10-K for its fiscal year ended
June 30, 2004 (File No. 000-24802). These unaudited 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, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements, and should be read in conjunction with the
Companys audited consolidated financial statements included in the Form 10-K
indicated above. Operating results for the three-month period ended September
25, 2004 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 2005. Accounts Receivable and Accounts Receivable Reserves The Company maintains reserves for cash and other discounts, returns and
potential credit losses. Accounts receivable reserves are based on (i) the
Companys estimate of the rate at which customers take credit discounts allowed
and (ii) the Companys specific assessment of the collectibility of all past
due accounts. Inventories Inventories, which consist of raw materials, work in process, and finished
goods, are stated at the lower of cost (first-in, first-out method) or market
value and have been reduced by an allowance for excess and obsolete
inventories. The estimated allowance is based on managements review of
inventories on hand compared to estimated future usage and sales. 6




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Note 1  Business and Summary of Significant Accounting Policies (continued) Long-Lived Assets The Company evaluates the recoverability of the carrying amount of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Company evaluates the
recoverability of goodwill and other intangible assets with indefinite useful
lives annually or more frequently if events or circumstances indicate that an
asset might be impaired. The Company uses judgment when applying the impairment
rules to determine when an impairment test is necessary. Factors the Company
considers which could trigger an impairment review include significant
underperformance relative to historical or forecasted operating results, a
significant decrease in the market value of an asset, a significant change in
the extent or manner in which an asset is used, a change in relationship
between licensee and licensor, and significant negative industry or economic
trends. Impairment losses are measured as the amount by which the carrying
value of an asset exceeds its estimated fair value. The Company is required to
make estimates of its future cash flows related to the asset subject to review.
These estimates require assumptions about demand for the Companys products and
services, future market conditions and technological developments. Other
assumptions include determining the discount rate and future growth rates. Stock-Based Compensation Statement of Financial Accounting Standards No. 148 Accounting for Stock-Based
Compensation Transition and Disclosure an amendment of SFAS 123 (SFAS No.
148) requires the Company to provide pro forma information regarding net
income and income per share as if compensation expensed for the Companys stock
option plans had been determined in accordance with the fair value based method
prescribed in SFAS No.148. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants for the three months
ended 2004 and 2003: dividend yield of zero percent, risk-free interest rate of
6 percent, expected lives of ten years, and expected volatility of 35%. Under
the accounting provisions of SFAS No. 148, the Companys net income and income
per share for 2004 and 2003 would have been reduced to the pro forma amounts
indicated below: Three Months EndedSeptember 25,2004
    
    2003Net income:As reported
    
    $
    350,000
    
    
    $
    467,000Add: Stock based compensation expense included in
reported net income, net of related tax effect
    
    
    
    
    
    
    Deduct: Stock-based compensation expense determined under
the fair value-based method
    
    
    (1,000
    )
    
    
    (3,000
    )Pro forma
    
    $
    349,000
    
    
    $
    464,000Basic Earnings Per Share:As reported
    
    $
    0.06
    
    
    $
    0.09Add: Stock based compensation expense included in
reported net income, net of related tax effect
    
    
    
    
    
    
    Deduct: Stock-based compensation expense determined under
the fair value-based method
    
    
    
    
    
    
    Pro forma
    
    $
    0.06
    
    
    $
    0.09Diluted Earnings Per Share:As reported
    
    $
    0.06
    
    
    $
    0.09Add: Stock based compensation expense included in
reported net income, net of related tax effect
    
    
    
    
    
    
    Deduct: Stock-based compensation expensed determined
under the fair value-based method
    
    
    
    
    
    
    Pro forma
    
    $
    0.06
    
    
    $
    0.09
 7




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Note 1  Business and Summary of Significant Accounting Policies (continued) Basic and Diluted Net Income Per Share Information Basic net income per share is based upon the weighted average number of common
shares outstanding. Diluted net income per share is based on the assumption
that options and warrants are included in the calculation of diluted net income
per share, except when their effect would be anti-dilutive. Dilution is
computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or at
the time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the period. The following options and warrants were excluded from the computation of
diluted net income per share as a result of the exercise price exceeding the
average market price of the shares of common stock: Three Months EndedSeptember 25,2004
    
    2003Options and warrants to purchase shares of
common stock
    
    
    11,000
    
    
    
    444,139Exercise prices
    
    $
    16.71 - $17.73
    
    
    $
    11.36 - $20.00
 See Note 8 Subsequent Events related to stock options and warrants. Product Warranties The Company records a liability for an estimate of costs that it expects to
incur under its basic limited warranty when product revenue is recognized.
Factors affecting the Companys product warranty liability include the number
of units sold and historical and anticipated rates of claims and costs per
claim. Companys management periodically assesses the adequacy of its product
warranty liability based on changes in these factors. The changes in the Companys product warranty liability are as follows: Three Months EndedSeptember 25,2004
    

    2003Balance at July 1,
    
    $
    598,000
    
    
    $
    607,000Accrual for current year claims
    
    
    127,000
    
    
    
    207,000Warranty claims settled
    
    
    (252,000
    )
    
    
    (291,000
    )Balance at September 25,
    
    $
    473,000
    
    
    $
    523,000
 Segment Reporting The Company is centrally managed and operates in one business segment:
specialty automotive and motorcycle aftermarket parts. 8




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Note 1  Business and Summary of Significant Accounting Policies (concluded) Seasonality The Companys sales are subject to seasonal variations. Customer orders and
sales are greatest in the second, third and fourth quarters of the Companys
fiscal year in anticipation of and during the spring and summer months.
Accordingly, revenues and operating income tend to be relatively higher in
these quarters. This seasonality typically results in reduced earnings for
the Companys first quarter because a significant portion of operating
expenses are fixed throughout the fiscal year. Controlling Shareholder As of September 25, 2004, O. Victor Edelbrock, the Companys Chairman,
President, and Chief Executive Officer, has beneficial ownership of 51.2% of
the Companys common shares. As a result, Mr. Edelbrock has the ability to
control the Companys operations. See Note 7 Going-Private Proposal. Note 2  New Accounting Pronouncements In December 2003, the FASB issued FASB Interpretation No. 46R (FIN 46R),
Consolidation of Variable Interest Entities, which is a revised Interpretation
clarifying some of the provisions of the original Interpretation No. 46 issued
in January 2003. FIN 46R requires the consolidation of variable interest
entities (VIEs), as defined, based upon an assessment of a companys
investment interests in the VIE as it relates to the interests of other
investors in the VIE. FIN 46R also includes certain disclosure requirements
related to any VIEs. The application of FIN 46R is required for any VIEs or
potential VIEs commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application for all other types of VIEs is
required in financial statements for periods ending after March 15, 2004. The
adoption of FIN 46R did not have a material impact on the Companys
consolidated financial statements. Note 3  Inventories Inventories at September 25, 2004 and June 30, 2004 consisted of the following: September 25,
    
    June 30,2004
    
    2004(Unaudited)Raw materials
    
    $
    17,842,000
    
    
    $
    16,000,000Work in process
    
    
    1,705,000
    
    
    
    1,635,000Finished goods
    
    
    12,048,000
    
    
    
    11,064,000Reserve
    
    
    (300,000
    )
    
    
    (300,000
    )$
    31,295,000
    
    
    $
    28,399,000
 9




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Note 4  Goodwill and Intangible Assets In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Intangible Assets which superseded APB Opinion No. 17,
Intangible Assets. SFAS 142 eliminated the requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addressed the impairment testing and recognition
for goodwill and intangible assets. SFAS 142 applies to goodwill and intangible
assets arising from transactions completed before and after the Statements
effective date. SFAS 142 was effective for fiscal year 2003; however, early
adoption was allowed in fiscal year 2002. The Company elected to early adopt
this Standard as of July 1, 2001. In applying SFAS 142, the Company had
performed the transitional reassessment and impairment tests required as of
July 1, 2001, and determined the goodwill and license agreement had indefinite
lives and that there were no impairment on these assets at that time. The
Company discontinued amortization on these assets on July 1, 2001. At the time
of adoption, the Company had accumulated amortization pertaining to goodwill
and license agreement of $140,000. The Company currently has a License Agreement with JG Engine Dynamics, Inc. and
Automotive Systems Group, Inc. (the Licensor). In September 2003, the
Company determined that its relationship with the Licensor had changed because
the parties are no longer jointly developing future import aftermarket
products. The Company continues to utilize the License Agreement and pay
royalties to the Licensor on existing co-developed products. Based on this change in relationship, the Company has determined that the
useful life of the License Agreement has changed from an indefinite life to a
finite life of 15 years. The Company has also evaluated the recoverability of
the carrying amount of this long-lived asset through an impairment test by
estimating future net cash flows over the remaining life of this License
Agreement. Accordingly, based on this impairment test, the Company recorded an
impairment charge of $36,000 for the three months ended September 25, 2003 and
is amortizing the License Agreement over a 15 year period utilizing a units
method as a basis for amortization. The changes in the Companys license agreement are as follows: Balance at July 1, 2003
    
    $
    758,000Impairment on license agreement
    
    
    (36,000
    )Amortization expense
    
    
    (42,000
    )Balance at
June 30, 2004
    
    
    680,000Amortization expense
    
    
    (14,000
    )Balance at
September 25, 2004
    
    $
    666,000
 The expected remaining amortization expense for the license agreement for
the next 5 years is $48,000 per year. 10




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Note 5  Commitments and Contingencies Legal Proceedings On April 13, 2004, an action styled as Robert Garfield v. O. Victor Edelbrock,
et al., No. 374-N was filed in the Court of Chancery for New Castle County,
Delaware. The named plaintiff in the case purports to bring claims on behalf
of a class of all the Companys shareholders (other than the defendants)
against the Company and its directors. The plaintiff alleges that terms of
the proposal to acquire the shares of the Company not already owned by him
presented by Mr. Edelbrock are unfair and inadequate and that the defendants
other than Mr. Edelbrock have responded to that proposal in a manner that
violates their fiduciary duties to the plaintiff class. The action seeks to
enjoin consummation of the transaction contemplated by the proposal or, if it
has been consummated, rescission of the transaction and/or damages. On April
13 and 15, 2004, respectively, two other purported class actions making
similar allegations and seeking substantially similar relief were filed in the
same Court and styled as William Steiner v. Edelbrock Corporation, et
al., No. 377-N; and Roger Delgado v. Edelbrock Corporation, et al., No. 388-N. The
three actions have been consolidated into a single action. On July 30, 2004,
the parties to the consolidated action entered into a memorandum of
understanding (MoU) with respect to a proposed settlement of these actions. The parties have been negotiating the final forms of settlement documents to implement the terms of the MoU.
Plaintiffs counsel has also reviewed documents they deemed relevant and taken three depositions to confirm their understandings with respect to the transaction and related factual matters. Under
the terms of the proposed settlement, which is subject to court approval, the
plaintiffs counsel will be entitled to $425,000 in fees and expenses in the
aggregate. The Company maintains a $5,000,000 Directors & Officers insurance
policy with a $150,000 deductible that is expected to cover this settlement
and related costs of defending the claim above the deductible. See
Note 7
Going-Private Proposal within the Notes to the Consolidated Financial
Statements. Note 6  Dependence on Key Supplier The Company has an agreement with Magneti Marelli, USA, Inc., who is the key
supplier of automotive carburetors for the Company. The agreement expires in
December of 2009 and requires, among other things, that (i) the Company sell
only carburetors manufactured by the supplier, (ii) the Company purchase a
minimum number of carburetors from the supplier each calendar year and (iii)
the Company price the carburetors so as to remain market competitive. Any material failure of the supplier to supply carburetors to the Company would
have a material adverse effect on the Companys results of operations because
alternative sources for obtaining the types of automotive carburetors marketed
by the Company are not readily available. The Companys inability to source
supply with other manufacturers, the Companys failure to sell automotive
carburetors in excess of the minimum purchase requirement, or the contractual
limitations on the Companys pricing of automotive carburetors also could have
a material adverse effect on the Company. The Company has met all minimum
purchase obligations to date. Note 7  Going-Private Proposal On April 12, 2004, the Company announced that Mr. Edelbrock had presented a
proposal to the Companys Board of Directors to acquire the outstanding shares
of the Companys common stock not already beneficially owned or controlled by
Mr. Edelbrock. On June 25, 2004, the Company entered into a definitive merger
agreement with two companies controlled by Mr. Edelbrock. Under the terms of
the merger agreement, if the transaction is consummated, all of the
outstanding shares of common stock, par value $0.01 per share, of Edelbrock
not already owned by Mr. Edelbrock or certain family trusts for which he
serves as trustee, will be converted into the right to receive $16.75 per
share, net to the seller in cash, without interest. During the first quarter
ended September 25, 2004, the Company incurred $179,000 related to
professional fees associated with the proposed going-private transaction.
Total professional fees associated with the proposed going-private transaction
since inception amounted to $675,000 through September 25, 2004. 11




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Note 8  Subsequent Events In connection with the proposed going-private transaction, the special
committee and the audit committee of the Companys board of directors approved
the payment by the Company to all holders of options expiring by their terms
on October 19, 2004, of the difference between $16.75 per share and the
respective exercise price of the option, provided, however, that Mr. Edelbrock
would not receive such a payment for his options held expiring October 19,
2004. The total number of option shares equaled 2,623,527 and the total
dollar amount of approximately $1.25 million was expensed and paid on October
18, 2004. Pursuant to the terms of the merger agreement, all other holders of
stock options, which consisted of 29,900 shares, will be paid out at the
closing of the going private transaction, if consummated, at the difference of
$16.75 and their respective exercise prices which totaled approximately
$227,000. 12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company for the quarter ended
September 25, 2004. The following should be read in conjunction with the
Condensed Consolidated Interim Financial Statements and related notes appearing
elsewhere herein. Overview The Company was founded in 1938, and is one of Americas leading manufacturers
and marketers of specialty performance automotive and motorcycle aftermarket
parts. The Company designs, manufactures, packages and markets performance
automotive and motorcycle aftermarket parts, including intake manifolds,
carburetors, camshafts, cylinder heads, exhaust systems, shock absorbers and
other performance components for most domestic V8 and selected V6 engines; and
sport compact four cylinder domestic and import engines. In addition, the
Company offers performance aftermarket manifolds, camshafts, cylinder heads,
air cleaners, and carburetors for Harley-Davidson and other selected brand
motorcycles. Also, through its Russell division, the Company offers performance
plumbing and brake lines which include street-legal brake lines, oil lines,
fuel lines, and filters for both automotive and motorcycle use. The Company
currently offers approximately 8,000 performance automotive and motorcycle
aftermarket parts for street, off-road, recreational and competition vehicle
use. Product Mix The Company manufactures its own products and purchases other products designed
to the Companys specifications from third-party manufacturers for subsequent
packaging and distribution to the Companys customers. Generally, the Company
can achieve a higher margin on those products which it manufactures as compared
to those purchased from third-party manufacturers. Accordingly, the Companys
results of operations in any given period are affected by the product mix of
the Companys sales during the period. Seasonality The Companys sales are subject to seasonal variations. Customer orders and
sales are greatest in the second, third and fourth quarters of the Companys
fiscal year in anticipation of and during the spring and summer months.
Accordingly, revenues and operating income tend to be relatively higher in
these quarters. This seasonality typically results in reduced earnings for the
Companys first quarter because a significant portion of operating expenses are
fixed throughout the fiscal year. 13




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Three Months Ended September 25, 2004, Compared to Three Months Ended Revenues Revenues decreased 5.9% to $26.0 million for the three months ended
September 25, 2004 from $27.7 million for the same period of 2003. This
decrease was primarily the result of a decrease of $678,000, or 11.1%, in
the sale of aluminum automotive intake manifolds; a decrease of $630,000,
or 6.9% in the sale of automotive carburetors; a decrease of $271,000, or
22.6% from sales by its aluminum foundry to third party customers; and a
decrease of $190,000, or 24.0%, in the sale of exhaust products. The
Company primarily attributed the decrease in revenues to the timing of
sales orders in connection with its VIP dating program whereby certain
customers are offered orders that ship by the end of its second quarter
with extended credit terms. In addition, revenues were impacted by the
stagnant economy, the higher price of gasoline, and uncertainty related to
the national election. Cost of Sales Cost of sales decreased 6.7% to $16.6 million for the three months ended
September 25, 2004 from $17.8 million for the same period of 2003. As a
percentage of revenues, cost of sales decreased to 63.8% for the three months
ended September 25, 2004 from 64.4% for the same period of 2003. The decrease
in cost of sales as a percent of revenues was primarily due to prior period cost overruns at the Companys aluminum
foundry. Selling, General and Administrative Expense Selling, general and administrative expenses decreased 3.7% to $8.0 million for
the three months ended September 25, 2004 from $8.3 million for the same period
of 2003. The decrease was mainly attributed to a decrease in commissions and
other variable selling expenses associated with decreased revenues. As a
percentage of revenues, selling, general and administrative expense increased
to 30.9% for the three months ended September 25, 2004 from 30.2% for the same
period of 2003. The increase in expenses as a percentage of revenues was
mainly due to lower revenues spread over relatively fixed costs. Research and Development Expense Research and development (R&D) expense decreased 6.4% to $837,000 for the
three months ended September 25, 2004 from $894,000 for the same period of
2003. As a percentage of revenues, R&D expense remained unchanged at 3.2% for
the three months ended September 25, 2004 and for the same period of 2003. Interest Expense Interest expense decreased to $1,000 for the three months ended September 25,
2004 from $4,000 for the same period of 2003. The decrease was primarily due
to a lower balance of long-term debt. Interest Income Interest income increased to $25,000 for the three months ended September 25,
2004 from $11,000 for the same period in 2003. The increase was primarily due
to higher balance of invested cash. Gain on Sale of Assets Gain on sale of assets was $1,000 and $118,000 for the three months ended
September 25, 2004 and 2003, respectively. The gain for the three months ended
September 25, 2003 can be primarily attributed to the sale of a real estate
asset. 14




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Three Months Ended September 25, 2004, Compared to Three Months Ended September
25, 2003 (concluded): Taxes on Income The provision for income taxes decreased to $234,000 for the three months ended
September 25, 2004 from $274,000 for the 2003 period. The effective tax rate
for the 2004 period was 40% as compared to 37% for the 2003 period. The
effective tax rate increased mainly due to certain going-private costs which
are not deductible for tax purposes and the elimination of the California
Manufacturers Investment Tax Credit. Net Income The Companys net income for the three months ended September 25, 2004
decreased 25.1% to $350,000 from $467,000 for the same period of 2003. This
decrease was the result of the items mentioned above. Critical Accounting Policies The Companys financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States
of America. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. The Company believes that the estimates, assumptions and judgments involved in
the accounting policies described in the Managements Discussion and Analysis
of Financial Condition and Results of Operations section of its most recent
Annual Report on Form 10-K have the greatest potential impact on its financial
statements, so it considers these to be its critical accounting policies.
Because of the uncertainty inherent in these matters, actual results could
differ from the estimates the Company uses in applying the critical accounting
policies. Certain critical accounting policies affect working capital account
balances, including the policies for revenue recognition, accounts receivable
reserves, inventory reserves, and product warranty and self-insurance
liabilities. These policies require that the Company make estimates in the
preparation of its financial statements as of a given date. Within the context of these critical accounting policies, the Company is not
currently aware of any reasonably likely events or circumstances that would
result in materially different amounts being reported. Liquidity and Capital Resources The Companys liquidity requirements arise primarily from the funding of its
seasonal working capital needs and capital expenditures. Historically, the
Company has met these liquidity requirements through cash flow generated from
operating activities and with borrowed funds under the Companys $8.0 million
revolving credit facility with Bank of America, NT & SA (Revolving Credit
Facility) which expires on February 1, 2005. The Company expects to renew
this credit facility prior to expiration if an alternative financing agreement
has not been established prior to this date. Due to seasonal demand for the
Companys products, the Company normally builds inventory during the first and
second fiscal quarters in advance of the typically stronger selling periods
during the third and fourth fiscal quarters. The Company believes that funds generated from operations and funds available
under the Revolving Credit Facility together with cash balances will be
adequate to meet its working capital, debt service and capital expenditure
requirements through the next twelve months. The Company has made capital
expenditures of $904,000 during the first quarter of fiscal year 2005 mainly
for capital equipment and modification upgrades to its distribution center.
The Company anticipates making additional capital expenditures of approximately
$2.0  $3.0 million for the remainder of fiscal year 2005 primarily for
additional capital equipment to increase production and efficiency. 15




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Contractual Obligations The Company has an agreement with Magneti Marelli, USA, Inc., who is the key
supplier of automotive carburetors for the Company. The agreement expires in
December of 2009 and requires, among other things, that (i) the Company sell
only carburetors manufactured by the supplier, (ii) the Company purchase a
minimum number of carburetors from the supplier each calendar year and (iii)
the Company price the carburetors so as to remain market competitive. The Company has a license agreement with Ricor Racing and Development L.P.
(Ricor), under which the Company has licensed rights to intellectual property
relating to manufacturing techniques and design specifications for shock
absorbers. The Company has been manufacturing and selling shock absorbers
manufactured using technology licensed under this agreement since 1997. Ricor
recently filed for bankruptcy protection on April 6, 2004. To date, the Ricor
bankruptcy has not affected performance of the parties under the license
agreement, and the Company has not received notice of any pending threat of a
detrimental impact on the relationship. However, any materially adverse effect
as a result of the bankruptcy on the Companys continued access to the
intellectual property licensed under this agreement could have a detrimental
impact on the Companys business and financial condition. Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Any statements set forth above which are not historical facts,
including statements relating to future economic and climatic conditions, are
forward-looking statements that involve known and unknown risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. Potential risks and uncertainties include
such factors as the financial strength and competitive pricing environment of
the automotive and motorcycle aftermarket industries, product demand, sales
growth and activity levels, cash flows, dependence on key suppliers, market
acceptance, manufacturing efficiencies, new product development, the success
of planned advertising, marketing and promotional campaigns, and other risks
identified herein and in other documents filed by the Company with the
Securities and Exchange Commission. Other potential risks and uncertainties
that may affect the Companys business and financial condition include the
potential effects of the proposal by Mr. Edelbrock to acquire the outstanding
shares of the Companys common stock not already beneficially owned or
controlled by him such as (i) the distraction of the Companys management
from the operation of the Companys business caused by the pendency of the
proposed transaction and related litigation, required filings with the
Securities and Exchange Commission, and any subsequent developments; and (ii)
material increases in the Companys expenses for professional services and
other transaction and litigation related costs and expenses which are
expected to be incurred whether or not the proposed transaction is
consummated. 16




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Item 3. Quantitative and Qualitative Disclosures About Market Risk The Companys exposure to interest rate changes is primarily related to its
variable rate debt which may be outstanding from time to time under the
Companys Revolving Credit Facility with Bank of America, NT & SA. The
Companys Revolving Credit Facility is an $8 million line of credit with an
interest rate based on the prime rate (4.75% as of September 25, 2004) and
expires on February 1, 2005. Because the interest rate on the Revolving Credit
Facility is variable, the Companys cash flow may be affected by increases in
the prime rate. Management does not believe that any risk inherent in the
variable rate nature of the loan is likely to have a material effect on the
Company. As of September 25, 2004, the Companys outstanding balance on the
Revolving Credit Facility was zero. 
 Item 4. Controls and Procedures The Companys President, Chief Executive Officer, and Chairman of the Board, O.
Victor Edelbrock, and the Companys Vice-President of Finance and Chief
Financial Officer, Aristedes T. Feles, have evaluated the Companys disclosure
controls and procedures as of September 25, 2004. These controls and
procedures are designed to ensure that all of the information required to be
disclosed by the Company in its periodic reports filed with the Securities and
Exchange Commission (the Commission) is recorded, processed, summarized and
reported within the time periods specified by the Commission and that the
information is communicated to Messrs. Edelbrock and Feles on a timely basis. Based on their evaluation, Messrs. Edelbrock and Feles concluded that the
Companys disclosure controls and procedures are suitable and effective for the
Company, taking into consideration the size and nature of the Companys
business and operations. Subsequent to the date of their evaluation, there
have been no significant changes in the Companys disclosure controls and
procedures, internal controls over financial reporting,, or in other factors
that have materially affected or would reasonably be likely to materially
affect the Companys internal controls over financial reporting and related
procedures. 17




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PART II  OTHER INFORMATION Item 1. Legal Proceedings See information disclosed in the Annual Report on Form 10-K for the Registrant filed
September 28, 2004. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K Exhibits  31.1
    
    Certifications of principal executive officer required by Rules 13a-14
and 15d-14 under the Securities Exchange Act of 193431.2
    
    Certifications of principal financial officer required by Rules 13a-14
and 15d-14 under the Securities Exchange Act of 193432.1
    
    Certifications of principal executive officer pursuant to 18 U.S.C. 1350
(furnished)32.2
    
    Certifications of principal financial officer pursuant to 18 U.S.C. 1350
(furnished) Reports on Form 8-K The Company filed a report on Form 8-K on September 10, 2004 and on September
28, 2004 each as related to its report on earnings for the fourth quarter and
fiscal year ended June 30, 2004. 18




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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. EDELBROCK CORPORATION
RegistrantDate: November 9, 2004
    
    ARISTEDES T. FELES
Aristedes T. Feles
Vice President of Finance
Chief Financial Officer and
Director
 19