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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 March 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 May 7, 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 MARCH 25, 2004
INDEX PagePart I
    FINANCIAL STATEMENTSItem 1.
    Interim Financial StatementsCondensed Consolidated Balance Sheets as of March 25, 2004
and June 30, 2003
    
    
    
    3Consolidated Statements of Income for the Three Months
and Nine Months Ended March 25, 2004 and 2003
    
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 25, 2004 and 2003
    
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-11Item 2.
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    12-18Item 3.
    Quantitative and Qualitative Disclosure About Market Risk
    
    19Item 4.
    Controls and Procedures
    
    19Part II
    OTHER INFORMATION
    
    
    20SIGNATURES
    
    
    
    21CERTIFICATIONS
    
    
    
    
    22-25EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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EDELBROCK CORPORATION 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 25,
    
    June 30,2004
    
    2003(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    5,929,000
    
    
    $
    8,707,000Accounts receivable, net
    
    
    31,693,000
    
    
    
    26,858,000Inventories
    
    
    28,192,000
    
    
    
    26,398,000Prepaid expenses and other
    
    
    3,421,000
    
    
    
    3,835,000Total current assets
    
    
    69,235,000
    
    
    
    65,798,000Property, plant and equipment, net
    
    
    37,384,000
    
    
    
    38,421,000Goodwill
    
    
    1,172,000
    
    
    
    1,172,000License agreement
    
    
    694,000
    
    
    
    758,000Other
    
    
    1,017,000
    
    
    
    1,251,000Total assets
    
    $
    109,502,000
    
    
    $
    107,400,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    11,256,000
    
    
    $
    12,038,000Accrued expenses
    
    
    4,640,000
    
    
    
    4,692,000Current portion of long-term debt
    
    
    40,000
    
    
    
    48,000Total current liabilities
    
    
    15,936,000
    
    
    
    16,778,000Long-term debt
    
    
    179,000
    
    
    
    494,000Deferred income taxes
    
    
    3,621,000
    
    
    
    3,090,000Shareholders equity
    
    
    89,766,000
    
    
    
    87,038,000Total liabilities and shareholders equity
    
    $
    109,502,000
    
    
    $
    107,400,000
 The accompanying notes are an integral part of the interim financial statements. 3




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EDELBROCK CORPORATION 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 Three months ended
    
    Nine months endedMarch 25,
    
    March 25,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    28,551,000
    
    
    $
    25,658,000
    
    
    $
    87,950,000
    
    
    $
    82,547,000Cost of sales
    
    
    18,230,000
    
    
    
    16,404,000
    
    
    
    56,486,000
    
    
    
    52,161,000Gross profit
    
    
    10,321,000
    
    
    
    9,254,000
    
    
    
    31,464,000
    
    
    
    30,386,000Operating expensesSelling, general and administrative
    
    
    8,276,000
    
    
    
    8,068,000
    
    
    
    25,079,000
    
    
    
    24,179,000Research and development
    
    
    938,000
    
    
    
    865,000
    
    
    
    2,645,000
    
    
    
    2,642,000Total operating expenses
    
    
    9,214,000
    
    
    
    8,933,000
    
    
    
    27,724,000
    
    
    
    26,821,000Operating income
    
    
    1,107,000
    
    
    
    321,000
    
    
    
    3,740,000
    
    
    
    3,565,000Interest expense
    
    
    1,000
    
    
    
    7,000
    
    
    
    6,000
    
    
    
    38,000Interest income
    
    
    9,000
    
    
    
    8,000
    
    
    
    30,000
    
    
    
    46,000Gain on sale of assets and other income
    
    
    322,000
    
    
    
    12,000
    
    
    
    457,000
    
    
    
    16,000Income before taxes on income
    
    
    1,437,000
    
    
    
    334,000
    
    
    
    4,221,000
    
    
    
    3,589,000Taxes on income
    
    
    532,000
    
    
    
    124,000
    
    
    
    1,562,000
    
    
    
    1,328,000Net income
    
    $
    905,000
    
    
    $
    210,000
    
    
    $
    2,659,000
    
    
    $
    2,261,000Basic net income per share
    
    $
    0.17
    
    
    $
    0.04
    
    
    $
    0.49
    
    
    $
    0.41Diluted net income per share
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.48
    
    
    $
    0.41Basic weighted average number of shares
outstanding
    
    
    5,464,000
    
    
    
    5,452,000
    
    
    
    5,459,000
    
    
    
    5,452,000Effect of dilutive stock options and
warrants
    
    
    51,000
    
    
    
    9,000
    
    
    
    32,000
    
    
    
    9,000Diluted weighted average number of
shares outstanding
    
    
    5,515,000
    
    
    
    5,461,000
    
    
    
    5,491,000
    
    
    
    5,461,000
 The accompanying notes are an integral part of the interim financial statements. 4




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EDELBROCK CORPORATION 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine months endedMarch 25,Increase (Decrease) in Cash and Cash Equivalents
    
    2004
    
    2003Operating activitiesNet income
    
    $
    2,659,000
    
    
    $
    2,261,000Impairment on license agreement
    
    
    36,000
    
    
    
    Depreciation and amortization
    
    
    4,399,000
    
    
    
    4,297,000(Gain) loss on sale of assets
    
    
    (453,000
    )
    
    
    21,000Net change in operating assets and liabilities
    
    
    (6,374,000
    )
    
    
    (9,869,000
    )Net cash provided by (used in) operating activities
    
    
    267,000
    
    
    
    (3,290,000
    )Investing activitiesCapital expenditures
    
    
    (3,613,000
    )
    
    
    (4,453,000
    )Proceeds from sale of assets
    
    
    812,000
    
    
    
    70,000Other
    
    
    10,000
    
    
    
    10,000Net cash used in investing activities
    
    
    (2,791,000
    )
    
    
    (4,373,000
    )Financing activitiesProceeds from issuance of common stock
from exercise of stock options
    
    
    232,000
    
    
    
    Dividends paid on common stock
    
    
    (163,000
    )
    
    
    Debt repayments and principal payments under
capital lease obligation
    
    
    (323,000
    )
    
    
    (19,000
    )Net cash used in financing activities
    
    
    (254,000

    )
    
    
    (19,000
    )Net decrease in cash and cash equivalents
    
    
    (2,778,000
    )
    
    
    (7,682,000
    )Cash and cash equivalents at beginning of period
    
    
    8,707,000
    
    
    
    7,682,000Cash and cash equivalents at end of period
    
    $
    5,929,000
    
    
    $
    Supplemental disclosure of cash flow information:Cash paid during the period forInterest
    
    $
    6,000
    
    
    $
    38,000Income taxes
    
    $
    719,000
    
    
    $
    2,927,000
 The accompanying notes are an integral part of the interim financial statements. 5




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EDELBROCK CORPORATION 
 NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 (Unaudited)
 Note 1  Summary of Significant Accounting Policies Basis of Presentation The consolidated interim financial statements of Edelbrock Corporation (the
Company or Edelbrock) at March 25, 2004 and for the three and nine month
periods ended March 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, 2003 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, 2003 (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 for a complete presentation, 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 and
nine month periods ended March 25, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2004. 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. The actual cash and other discounts, returns and credit losses
have not differed materially from accrued estimated amounts for the nine months
ended March 25, 2004. 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. 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. 6




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Note 1  Summary of Significant Accounting Policies (continued) 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. 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 Ended
    
    Nine Months EndedMarch 25,
    
    March 25,2004
    
    2003
    
    2004
    
    2003Net income:As reported
    
    $
    905,000
    
    
    $
    210,000
    
    
    $
    2,659,000
    
    
    $
    2,261,000Add: 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
    
    
    (3,000
    )
    
    
    (7,000
    )
    
    
    (9,000
    )
    
    
    (22,000
    )Pro forma
    
    $
    902,000
    
    
    $
    203,000
    
    
    $
    2,650,000
    
    
    $
    2,239,000Basic Earnings Per Share:As reported
    
    $
    0.17
    
    
    $
    0.04
    
    
    $
    0.49
    
    
    $
    0.41Add: 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
    
    $
    0.17
    
    
    $
    0.04
    
    
    $
    0.49
    
    
    $
    0.41Diluted Earnings Per Share:As reported
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.48
    
    
    $
    0.41Add: 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
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.48
    
    
    $
    0.41
 7




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Note 1  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 prices exceeding the
average market prices of the underlying shares of common stock: Three Months Ended
    
    Nine Months EndedMarch 25,
    
    March 25,2004
    
    2003
    
    2004
    
    2003Options and warrants
to
purchase shares of
common stock
    
    
    151,801
    
    
    
    463,690
    
    
    
    152,901
    
    
    
    463,690Exercise prices
    
    $
    13.41 - $20.00
    
    
    $
    11.36 - $20.00
    
    
    $
    12.27 - $20.00
    
    
    $
    11.36 - $20.00
 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: Nine Months EndedMarch 25,2004
    
    2003Balance at July 1,
    
    $
    607,000
    
    
    $
    300,000Accrual for current year claims
    
    
    814,000
    
    
    
    1,079,000Warranty claims settled
    
    
    (918,000
    )
    
    
    (1,073,000
    )Balance at March 25,
    
    $
    503,000
    
    
    $
    306,000
 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  Summary of Significant Accounting Policies (concluded) Controlling Shareholder As of March 25, 2004, O. Victor Edelbrock, the Companys Chairman, President,
and Chief Executive Officer, has beneficial ownership of 51.3% of the Companys
common shares. As a result, Mr. Edelbrock has the ability to control the
Companys operations. See also Note 9. Reclassifications Certain prior period amounts have been reclassified for comparison with the
2004 presentation. Note 2  New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No.46 (FIN No. 46), Consolidation of Variable Interest
Entities. This is and interpretation of Accounting Research Bulletin No. 51,
and revises the requirements for consolidation by business enterprises of
variable interest entities. FIN No. 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entitles in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise hold a variable
interest that it acquired before February 1, 2003. FIN No. 46 applies to
public enterprises as of the beginning of the applicable interim or annual
period, and it applies to nonpublic enterprises as of the end of the applicable
annual period. FIN No. 46 may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied or by
restating previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated. In December 2003, FASB issued a revised Interpretation No. 46 (FIN 46R),
Consolidation of Variable Interest Entities.FIN 46R addresses consolidation
by business enterprises of variable interest entities and significantly changes
the consolidation application of consolidation policies to variable interest
entities and, thus improves comparability between enterprises engaged in
similar activities when those activities are conducted through variable
interest entities. As of March 25, 2004, the Company is not a party to any
variable interest entity. The Company does not expect that adoption of FIN No.
46 or FIN 46R will have a material effect on its financial position or results
of operations. On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS 150), which improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity or
mezzanineequity, by now requiring those instruments to be classified as
liabilities in the statement of financial position. SFAS 150 requires
disclosure regarding the terms of those instruments and settlement
alternatives. SFAS 150 affects an entitys classification of the following
freestanding instruments: a) mandatorily redeemable instruments, b) financial
instruments to repurchase an entitys own equity instruments, c) financial
instruments embodying obligations that the issuer must or could choose to
settle by issuing a variable number of its shares or other equity instruments
based solely on (i) a fixed monetary amount known at inception or (ii)
something other than changes in its own equity instruments, d) SFAS 150 does
not apply to features embedded in a financial instrument that is not a
derivative in its entirety. The Company does not expect that adoption of this
statement will have any material effect on its results of operations or
financial position. 9




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Note 3  Inventories Inventories at March 25, 2004 and June 30, 2003 consisted of the following: March 25,
    
    June 30,(Unaudited)Raw materials
    
    $
    14,972,000
    
    
    $
    12,542,000Work in process
    
    
    1,597,000
    
    
    
    1,780,000Finished goods
    
    
    11,623,000
    
    
    
    12,076,000$
    28,192,000
    
    
    $
    26,398,000
 Note 4  License Agreement 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. License agreement activity: Balance at July 1, 2003
    
    $
    758,000Impairment on license agreement
    
    
    (36,000
    )Amortization expense
    
    
    (28,000
    )Balance at March 25, 2004
    
    $
    694,000
 Note 5  Tax Contingency The California income taxes of the Company for the fiscal years ended June 30,
1999, 2000, and 2001 are currently under examination by the California
Franchise Tax Board. The examination mainly pertains to the apportionment of
income between states. Management does not believe that the outcome of this
examination will result in a material impact on the Companys consolidated
results of operations or financial position. Note 6  Dependence on Key Supplier The Company has an agreement with Magneti Marelli Powertrain, 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. 10




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Note 6  Dependence on Key Supplier (concluded) On October 31, 2003, the Company amended this agreement, changing the Companys
aggregate minimum purchase obligation from January 1, 2004 to the agreements
expiration in December of 2009. Pursuant to the amended agreement, the
Companys minimum purchase obligation increased by $6,723,000 for the 2004
calendar year only. Each subsequent calendar year through 2009 remained
substantially unchanged, decreasing by $183,000 per year. 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  Gain on Sale of Asset The Company recognized a gain of $315,000 in the quarter ended March 25, 2004
related to the sale of real property. The gain is included in gain on sale of
assets in the consolidated statement of income. Cash proceeds received by the
Company totaled $370,000. Note 8  Shareholders Equity The Company issued 20,389 shares of its common stock from the exercise of
employee stock options. Note 9  Subsequent Event On April 12, 2004, the Company announced that O. Victor Edelbrock, the
Companys Chairman, President, and Chief Executive Officer, 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 for $14.80 per share in cash. Following receipt of the proposal,
the Companys Board of Directors formed a Special Committee consisting of
disinterested members of the Board to consider the proposal. The Special
Committee has retained independent legal counsel and the Company expects the
committee to retain an independent financial advisor to assist the Special
Committee in evaluating the proposed transaction. As stated in Mr. Edelbrocks
proposal, the transaction is subject to conditions including the necessary
corporate and stockholder approvals, the securing by Mr. Edelbrock of
financing, and the negotiation and execution of definitive documentation. No
definitive time frame for consideration of the transaction or completion of the
same, as the case may be, has been determined and the Special Committee has
only recently begun to evaluate the proposal. 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 stockholders (other than the defendants)
against the Company and its directors. The plaintiff alleges that terms of the
proposal 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
Company believes that these three actions are without merit and intends to
defend them vigorously. 11




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Item 2. Managements Discussion and Analysis of Financial Conditions 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 three and nine
months ended March 25, 2004 and 2003. The following should be read in
conjunction with the 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 over 8,200 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 significant portions of operating expenses are
fixed throughout the fiscal year. 12




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Three Months Ended March 25, 2004, Compared to Three Months Ended March 25, 2003: Revenues Revenues increased 11.3% to $28.6 million for the three months ended March 25,
2004 from $25.7 million for the same period of 2003. This increase was
primarily the result of an increase of $454,000, or 12.1%, in the sale of
automotive aluminum cylinder heads; an increase of $451,000, or 7.8%, in the
sale of aluminum automotive intake manifolds; an increase of $409,000, or
37.3%, in the sale of automotive chrome air cleaners and valve covers; an
increase of approximately $279,000, or 3.0%, in the sale of Edelbrock
automotive carburetors; an increase of $194,000, or 37.6%, in the sale of
exhaust systems; an increase of $163,000, or 12.2%, in the sale of products
from its Russell division; and an increase of $158,000, or 24.9%, in the sale
of shock absorbers. Edelbrock attributed its improved sales to improvements in
the national economy, favorable weather conditions that enabled consumers to
perform desired upgrades, and continued strong customer acceptance of the
Edelbrock brand and products. Cost of Sales Cost of sales increased 11.1% to $18.2 million for the three months ended March
25, 2004 from $16.4 million for the same period of 2003. As a percent of
revenues, cost of sales remained relatively unchanged at 63.9% for the three
months ended March 25, 2004 and 2003. The overall increase in cost of sales
was primarily the result of an increase in revenues. Selling, General and Administrative Expense Selling, general and administrative expense increased 2.6% to $8.3 million for
the three months ended March 25, 2004 from $8.1 million for the same period of
2003. As a percent of revenues, selling, general and administrative expense
decreased to 29.0% for the three months ended March 25, 2004 from 31.4% for the
same period of 2003. The overall increase was primarily due to higher
commissions based on increased revenues. The decrease as a percentage of sales
was mainly attributed to slightly higher fixed costs spread over the 11.3%
increase in revenues. Research and Development Expense Research and development (R & D) expense increased 8.4% to $938,000 for the
three months ended March 25, 2004 from $865,000 for the same period of 2003.
The increase was primarily due to an increase in labor and development costs
associated with new products. As a percent of revenues, R & D expense
decreased to 3.3% for the three months ended March 25, 2004 from 3.4% for the
same period of 2003. Interest Expense Interest expense decreased to $1,000 for the three months ended March 25, 2004
from $7,000 for the same period of 2003. The decrease was due to a decrease in
the average principal amount of debt outstanding. Interest Income Interest income increased to $9,000 for the three months ended March 25, 2004
compared to $8,000 in the same period for 2003. The increase was primarily due
to an increase in the balance of invested cash. Gain on Sale of Assets and Other Income Gain on sale of assets and other income were $322,000 and $12,000 for the three
months ended March 25, 2004 and 2003, respectively. The increase for the three
months ended March 25, 2004 can be primarily attributed to a $315,000 gain on
the sale of a real estate asset. 13




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Three Months Ended March 25, 2004, Compared to Three Months Ended March 25, 2003 (concluded): Taxes on Income The provision for income taxes was $532,000 for the three months ended March
25, 2004 and $124,000 for the same period of 2003. The effective tax rate for
both periods was approximately 37%. Net Income The Companys net income for the three months ended March 25, 2004 increased to
$905,000 from $210,000 for the same period of 2003. The increase in net income
was primarily the result of the items mentioned above. 14




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Nine Months Ended March 25, 2004, Compared to Nine Months Ended March 25, 2003: Revenues Revenues increased 6.5% to $88.0 million for the nine months ended March 25,
2004 from $82.5 million for the same period of 2003. This increase was
primarily the result of an increase of $1.4 million, or 75.7%, from sales by
its aluminum foundry to third party customers; an increase of $659,000, or
3.5%, in the sale of aluminum automotive intake manifolds; an increase of
approximately $531,000, or 26.8%, in the sale of shock absorbers; an increase
of approximately $404,000, or 31.1%, in the sale of automotive camshafts; an
increase of $398,000, or 3.4%, in the sale of automotive aluminum cylinder
heads; an increase of $340,000, or 8.1%, in the sale of automotive chrome air
cleaners and valve covers; an increase of approximately $327,000, or 17.8%, in
the sale of exhaust systems; and an increase of $226,000, or 4.7%, in the sale
of products from its Russell division. Edelbrock attributed its improved sales
to improvements in the national economy, favorable weather conditions that
enabled consumers to perform desired upgrades, and continued strong customer
acceptance of the Edelbrock brand and products. Cost of Sales Cost of sales increased 8.3% to $56.5 million for the nine months ended March
25, 2004 from $52.2 million for the same period of 2003. As a percent of
revenues, cost of sales increased to 64.2% for the nine months ended March 25,
2004 from 63.2% for the same period of 2003. The increase in cost of sales as
a percentage of revenues was primarily due to increases in labor costs,
workers compensation insurance, and labor cost overruns at its aluminum
foundry during the first six months of the Companys fiscal year. Selling, General and Administrative Expense Selling, general and administrative expense increased 3.7% to $25.1 million for
the nine months ended March 25, 2004 from $24.2 million for the same period of
2003. As a percent of revenues, selling, general and administrative expense
decreased to 28.5% for the nine months ended March 25, 2004 from 29.3% for the
same period of 2003. The overall increase was primarily due to higher
commissions based on increased revenues. The decrease as a percentage of sales
was mainly attributed to slightly higher costs spread over the 6.5% increase in
revenues. Research and Development Expense R & D expense remained relatively unchanged at $2.6 million for the nine months
ended March 25, 2004 and 2003. As a percent of revenues, R & D expense
decreased to 3.0% for the nine months ended March 25, 2004 from 3.2% for the
same period of 2003. Interest Expense Interest expense decreased to $6,000 for the nine months ended March 25, 2004
from $38,000 for the same period of 2003. The decrease was mainly attributed
to a decrease in the average principal amount of debt outstanding. Interest Income Interest income decreased to $30,000 for the nine months ended March 25, 2004
from $46,000 for the same period in 2003. The decrease was primarily due to a
decrease in the balance of invested cash. 15




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Nine Months Ended March 25, 2004, Compared to Nine Months Ended March 25, 2003 (concluded): Gain on Sale of Assets and Other Income Gain on sale of assets and other income were $457,000 and $16,000 for the nine
months ended March 25, 2004 and 2003, respectively. The increase for the nine
months ended March 25, 2004 can be primarily attributed to a $453,000 gain on
the sale of two real estate assets. Taxes on Income The provision for income taxes increased to $1.6 million for the nine months
ended March 25, 2004 from $1.3 million for the 2003 period. The effective tax
rate for both periods was approximately 37%. Net Income The Companys net income for the nine months ended March 25, 2004 increased
17.6% to
$2.7 million from $2.3 million for the same period of 2003. This increase in
net income was primarily the result of the items mentioned above. Recent Developments: On April 12, 2004, the Company announced that O. Victor Edelbrock, the
Companys Chairman, President, and Chief Executive Officer, 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 for $14.80 per share in cash. Following receipt of the proposal,
the Companys Board of Directors formed a Special Committee consisting of
disinterested members of the Board to consider the proposal. The Special
Committee has retained independent legal counsel and the Company expects the
committee to retain an independent financial advisor to assist the Special
Committee in evaluating the proposed transaction. As stated in Mr. Edelbrocks
proposal, the transaction is subject to conditions including the necessary
corporate and stockholder approvals, the securing by Mr. Edelbrock of
financing, and the negotiation and execution of definitive documentation. No
definitive time frame for consideration of the transaction or completion of the
same, as the case may be, has been determined and the Special Committee has
only recently begun to evaluate the proposal. 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 stockholders (other than the defendants)
against the Company and its directors. The plaintiff alleges that terms of the
proposal 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
Company believes that these three actions are without merit and intends to
defend them vigorously. 16




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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. Due to seasonal demand for the
Companys products, the Company 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 approximately $3.6 million during the first three quarters of
fiscal year 2004 mainly for new machinery and computer equipment and
anticipates making additional capital expenditures of approximately
$1.0 - $2.0
million for the remainder of fiscal year 2004 primarily for additional capital
equipment to increase production capacity and efficiency. 17




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Contractual Obligations The Company has an agreement with Magneti Marelli Powertrain, 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. On October 31, 2003, the Company amended this agreement, changing the Companys
aggregate minimum purchase obligation from January 1, 2004 to the agreements
expiration in December of 2009. Pursuant to the amended agreement, the
Companys minimum purchase obligation increased by $6,723,000 for the 2004
calendar year only. Each subsequent calendar year through 2009 remained
substantially unchanged, decreasing by $183,000 per year. 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. 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 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. 18




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Item 3. Quantitative and Qualitative Disclosure 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. The Companys Revolving Credit Facility
is an $8 million line of credit with an interest rate based on the banks prime
rate (4.00% as of March 25, 2004). It 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 March 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 March 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 internal controls or in other
factors that could significantly affect these controls. 19




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PART II  OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in 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 10.1
    
    Amendment No. 6, dated January 22, 2004, to Business Loan
Agreement Between Edelbrock Corporation and Bank of America, N.A.
dated January 26, 2000.10.2
    
    Amendment No. 7, dated March 26, 2004, to Business Loan
Agreement Between Edelbrock Corporation and Bank of America, N.A.
dated January 26, 2000.31.1
    
    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 furnished a report on Form 8-K:  (i)
    
    on February 6, 2004, under Item 12, related to its
earnings release for the quarter ended December 25, 2003: and(ii)
    
    on April 12, 2004, under Item 5, related to its going
private proposal from the Companys Chairman, President, and Chief
Executive Officer. 20




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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 Date: May 7, 2004
    /s/ARISTEDES T. FELESAristedes T. FelesVice President Finance,
Chief Financial Officer and
Director 21