<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
CHEMPOWER, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO
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(State of Incorporation)
0-17575 34-1481970
- -------------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
807 EAST TURKEYFOOT LAKE ROAD, AKRON, OHIO 44319
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 896-4202
----------------------------
The named registrant hereby amends the following items, financial statements,
exhibits or other portions of its FORM 8-K CURRENT REPORT DATED AS OF MAY 4,
1995 as set forth in the pages attached hereto;
Item 7 is amended to add the financial statements of the business
acquired and the related pro forma financial information.
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS.
On May 3, 1995, Chempower, Inc., an Ohio corporation (the
"Registrant") through its wholly-owned subsidiaries, Southwick Corp.,
an Ohio corporation, and Brookfield Corp., an Ohio corporation
(collectively, "Buyers"), purchased all of the issued and outstanding
partnership units ("Units"), representing all of the partnership
interests of Controlled Power Limited Partnership, an Illinois
limited partnership ("CPC"). CPC is in the business of designing,
manufacturing and selling electrical metalclad switchgear, power
distribution systems, bus duct systems and replacement parts for mass
transit authorities, utilities, and chemical and other industrial
facilities throughout the country. The purchase was effected pursuant
to a Partnership Unit Purchase and Sale Agreement (the "Purchase
Agreement"), dated as of April 13, 1995. All of the outstanding Units
were sold by Canton Power Corporation, an Illinois corporation, Henry
Crown and Company (Not Incorporated), an Illinois limited
partnership, and The Second Venture, an Illinois general partnership
(collectively, "Sellers"). Through the purchase of the Units, the
Buyers took control of CPC's inventory, accounts receivable, patents,
real estate, plant and equipment. Pursuant to the terms of the
Purchase Agreement, the Buyers made a cash payment of $4,900,000 to
the Sellers at closing. The purchase price was paid from the cash
reserves of the Buyers. The consideration paid by the Buyers in
connection with the purchase was determined on the basis of (i)
discussions between the management of the Registrant and
representatives of the Sellers regarding the business and prospects
of CPC. Contemporaneous with the closing of the purchase, the Buyers
offered employment to all remaining employees of CPC as of the
closing date. At the present time, it is the intention of the Buyers
to continue the current business of CPC and to expand the business to
offer sheet metal fabrication services.
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<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired:
The financial statements of Controlled Power Limited Partnership
(A Partnership) are included on pages 5 through 16 herein.
(b) Pro Forma financial information:
The pro forma financial information required by this Current Report
is included on pages 17 through 21 herein.
(c) Exhibits:
Number
------
2.1 Partnership Unit Purchase and Sale Agreement by and among
Canton Power Company, Henry Crown and Company (not
incorporated), The Second Venture, Southwick Corp., and
Brookfield Corp. dated as of April 13, 1995. (incorporated
by reference to Exhibit 2.1 to the Company's 8-K of May 4,
1995)
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<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly causesd this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHEMPOWER, INC.
(Registrant)
Date November 10, 1995 /s/ Robert E. Rohr
-------------------- -------------------------------
Robert E. Rohr
Vice President of Finance and
Treasurer
(on behalf of the Registrant and
as Principal Financial Officer)
<PAGE> 5
CONTROLLED POWER
LIMITED PARTNERSHIP
(A PARTNERSHIP)
Financial Statements
for the Years Ended
December 31, 1994, 1993, 1992
and Independent Auditors' Report
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
To the Partners
Controlled Power Limited Partnership
We have audited the accompanying balance sheets of Controlled Power Limited
Partnership (A Partnership) as of December 31, 1994 and 1993, and the related
statements of operations, partners' capital (deficit) and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Controlled Power Limited Partnership (A
Partnership) as of December 31, 1994 and 1993 and the results of its
operations, and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
March 17, 1995
(May 3, 1995 as to Note 12)
<PAGE> 7
CONTROLLED POWER LIMITED PARTNERSHIP
(A PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS (Note 7) 1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash $ 616,197 $ 1,066,967
Accounts receivable, including retention of
$3,093,000 in 1994 and $2,982,000 in 1993 9,878,619 11,656,519
Inventories 1,647,221 2,645,572
Costs and estimated earnings in excess of billings (Note 4) 7,124,246 7,580,996
Prepaid expenses 884 9,123
-------------- --------------
Total current assets 19,267,167 22,959,177
PROPERTY AND EQUIPMENT - NET (Note 5) 6,228,350 6,511,704
INTANGIBLE ASSETS - NET (Note 6) 4,863,141
OTHER ASSETS 3,901 52,865
-------------- --------------
TOTAL $ 25,499,418 $ 34,386,887
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 6,078,991 $ 10,432,585
Accrued expenses and other 2,215,769 2,656,703
Billings in excess of costs and estimated earnings (Note 4) 1,059,578 786,975
Current portion of long-term debt (Note 7) 282,187 172,740
--------------- --------------
Total current liabilities 9,636,525 14,049,003
NOTE TO LIMITED PARTNER (Note 7) 27,500,000 17,500,000
LONG-TERM DEBT (Note 7) 2,766,935 1,893,124
PARTNERS' CAPITAL (DEFICIT):
General partner (13,748,848) (10,163,726)
Limited partners (655,194) 11,108,486
--------------- --------------
(14,404,042) 944,760
--------------- --------------
TOTAL $ 25,499,418 $ 34,386,887
=============== ==============
</TABLE>
See notes to financial statements.
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<PAGE> 8
CONTROLLED POWER LIMITED PARTNERSHIP
(A PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CONTRACT REVENUES $ 40,499,888 $ 38,649,738 $ 36,049,132
CONTRACT COSTS, (Including $383,915,
$384,635 and $132,310 to affiliates) 42,133,241 39,359,687 33,178,623
-------------- -------------- --------------
GROSS PROFIT (LOSS) (1,633,353) (709,949) 2,870,509
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,378,964 7,976,554 5,826,802
OTHER COSTS AND EXPENSES:
Interest expense 1,857,850 1,475,324 2,546,002
Depreciation and amortization expense 2,923,369 2,845,691 3,095,951
Writedown of intangible assets (Note 6) 3,320,821
Indemnification fees to affiliates (Note 3) 123,168 174,061 381,047
Provision for closing of operations (Note 11) 2,303,000
Other expense 111,277 269,163 60,342
-------------- -------------- --------------
NET LOSS $ (15,348,802) $ (13,450,742) $ (11,342,635)
============== ============== ==============
</TABLE>
See notes to financial statements.
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<PAGE> 9
CONTROLLED POWER LIMITED PARTNERSHIP
(A PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS CAPITAL
<S> <C> <C> <C>
PARTNERS' DEFICIT, DECEMBER 31, 1991 $ (4,372,572) $ (5,491,410) $ (9,863,982)
CONVERSION OF DEBT TO EQUITY (Note 7) 35,602,119 35,602,119
NET LOSS, YEAR ENDED DECEMBER 31, 1992 (2,649,375) (8,693,260) (11,342,635)
-------------- -------------- --------------
PARTNERS' CAPITAL (DEFICIT),
DECEMBER 31, 1992 (7,021,947) 21,417,449 14,395,502
NET LOSS, YEAR ENDED DECEMBER 31, 1993 (3,141,779) (10,308,963) (13,450,742)
-------------- -------------- --------------
PARTNERS' CAPITAL (DEFICIT),
DECEMBER 31, 1993 (10,163,726) 11,108,486 944,760
NET LOSS, YEAR ENDED DECEMBER 31, 1994 (3,585,122) (11,763,680) (15,348,802)
-------------- -------------- --------------
PARTNERS' DEFICIT, DECEMBER 31, 1994 $ (13,748,848) $ (655,194) $ (14,404,042)
============== ============== ==============
</TABLE>
See notes to financial statements.
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<PAGE> 10
CONTROLLED POWER LIMITED PARTNERSHIP
(A PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (15,348,802) $ (13,450,742) $ (11,342,635)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,923,369 2,845,691 3,095,951
Writedown of intangible assets 3,320,821
Provision for closing of operations 83,799
Loss on sale of equipment 4,056 13,429 30,003
Changes in operating assets and liabilities:
Accounts receivable 1,777,900 (3,062,051) (450,256)
Costs and estimated earnings in excess of billings, net 729,353 441,031 (2,973,968)
Inventories 998,351 (1,280,115) 908,705
Prepaid expenses 8,239 27,534 56,278
Other assets 48,964 99,283 (72,059)
Accounts payable (4,353,594) 3,952,846 1,223,563
Accrued expenses and other (440,934) 637,702 (567,359)
------------- -------------- -------------
Total adjustments 5,016,525 3,675,350 1,334,657
------------- -------------- -------------
Net cash used in operating activities (10,332,277) (9,775,392) (10,007,978)
------------- -------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,124,409) (2,373,497) (631,695)
Proceeds from sale of property and equipment 22,658 23,900
Reduction in other assets 54,000
------------- -------------- -------------
Net cash used in investing activities (1,101,751) (2,349,597) (577,695)
------------- -------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 11,455,973 12,500,000 72,055,782
Payments of long-term debt (472,715) (157,928) (61,436,692)
Payment of financing fees (55,000)
------------- -------------- -------------
Net cash provided by financing activities 10,983,258 12,287,072 10,619,090
------------- -------------- -------------
NET CHANGE IN CASH (450,770) 162,083 33,417
CASH, BEGINNING OF YEAR 1,066,967 904,884 871,467
------------- -------------- --------------
CASH, END OF YEAR $ 616,197 $ 1,066,967 $ 904,884
============= ============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the year for interest $ 1,990,248 $ 1,104,981 $ 2,620,775
============= ============== =============
</TABLE>
See notes to financial statements.
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<PAGE> 11
CONTROLLED POWER LIMITED PARTNERSHIP
(A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION AND BASIS OF PRESENTATION
Controlled Power Limited Partnership (the Partnership), was organized on
March 14, 1989, under the Illinois Uniform Limited Partnership Act. The
Partnership was formed to purchase certain assets and assume certain
liabilities of Controlled Power Corporation (CPC). The Partnership
shall expire on December 31, 2035, or sooner, in accordance with the
provisions of the Amended and Restated Limited Partnership Agreement.
The managing general partner of the Partnership is Canton Power
Corporation.
As shown in the financial statements, the Partnership has incurred
significant losses and negative cash flow in the past three years,
however, in management's opinion, recent changes in cost structure,
declining backlog, available working capital and additional loans
received in January 1995 will provide sufficient funding for the
business in 1995.
The financial statements include only those assets, liabilities,
revenues and expenses which relate to the Partnership. The financial
statements do not include any assets, liabilities, revenues or expenses
attributable to the partners' individual activities.
2. SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS - The Partnership is
engaged in the manufacture of electrical switchgear and DC power
substations under long-term contracts. The accompanying financial
statements have been prepared using the percentage-of-completion method
of accounting and, therefore, take into account the cost, estimated
earnings and revenue to date on contracts not yet completed.
The amount of revenue recognized is the portion of the total contract
price that the cost expended to date bears to the anticipated final
total cost, based on current estimates of cost to complete. It is not
related to the progress billings to customers. Contract costs include
all direct labor and benefits, materials unique to or installed in the
project, subcontract costs and allocations of indirect manufacturing
costs.
As long-term contracts extend over one or more years, revisions in
estimates of costs and earnings or losses during the course of the work
are reflected in the accounting period in which the facts which require
the revision become known.
Contracts which are substantially complete are considered closed for
financial statement purposes. Revenue earned on contracts in progress
in excess of billings is classified as a current asset. Amounts billed
in excess of revenue earned are classified as a current liability.
OPERATING CYCLE - Assets and liabilities related to long-term contracts
are included in current assets and current liabilities in the
accompanying balance sheet as they will be liquidated in the normal
course of contract completion, although this may require more than one
year.
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<PAGE> 12
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - These expenses are
charged to operations as incurred and are not allocated to contract
costs.
ALLOCATION OF INDIRECT MANUFACTURING COSTS - Indirect costs are
allocated to individual contracts based upon direct labor hours
incurred. The difference between actual expenditures for indirect
manufacturing costs and the amount allocated is charged or credited to
operations for the current year.
INVENTORIES - Inventories are valued at the lower of cost, first-in,
first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided using primarily accelerated methods over
periods of five to thirty-two years. Maintenance and repairs are
charged to expense as incurred, and renewals and improvements are
capitalized.
INCOME TAXES - The Partnership is not a taxable entity for federal and
state income tax purposes. Any taxable income or loss and certain other
items are reported by the partners on their own tax returns in
accordance with the Partnership Agreement.
PARTNERS' CAPITAL - Partners share net income and loss in accordance
with allocations specified in the Partnership Agreement.
RECLASSIFICATIONS - Certain amounts from the prior years have been
reclassified to conform with the current year presentation.
3. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1994, 1993 and 1992, the Partnership
paid $97,000, $209,000 and $92,000, respectively to certain family
members of a limited partner for products used in manufacturing.
During the years ended December 31, 1994, 1993 and 1992, the Partnership
incurred $383,915, $384,635 and $132,310, respectively, in
indemnification fees for performance bonds on certain contracts. The
fees were charged by an affiliate of the general partner.
In addition, the Partnership incurred $123,168, $174,061 and $381,047 in
1994, 1993 and 1992 for indemnification fees for guarantees made by two
affiliates of the general partner on certain loan balances and
commitments with the bank and with the previous owners.
During 1992, the Partnership sold equipment valued at $275,000 to a
limited partner under a long-term note agreement which was interest
bearing at 9-1/2%. As of December 31, 1993, the Partnership had
$145,888 outstanding under this note agreement which was repaid in
1994.
As discussed in Note 7, the Partnership also has notes payable to a
limited partner.
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<PAGE> 13
4. CONTRACTS IN PROGRESS
Accumulated costs, estimated earnings and the related billings to date
on contracts in progress at December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Costs and estimated earnings $ 29,883,384 $ 33,335,746
Progress billings 22,759,138 25,754,750
-------------- --------------
Costs and estimated earnings in excess of billings $ 7,124,246 $ 7,580,996
============== ==============
Progress billings $ 20,745,058 $ 16,188,021
Costs and estimated earnings 19,685,480 15,401,046
-------------- --------------
Billings in excess of costs and estimated earnings $ 1,059,578 $ 786,975
============== ==============
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 482,500 $ 482,500
Buildings and improvements 2,923,546 2,923,546
Machinery and equipment 8,518,124 6,547,459
Construction in progress -- 926,188
-------------- --------------
Total 11,924,170 10,879,693
Accumulated depreciation (5,695,820) (4,367,989)
-------------- -------------
Total $ 6,228,350 $ 6,511,704
============== ==============
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1993
<TABLE>
<S> <C>
Goodwill $ 1,447,723
Organization costs 698,376
Financing costs 55,000
License agreement 1,000,000
Computer software 273,000
Employment contract 277,000
Technology 4,300,000
Non-competition agreements 6,000,000
--------------
Total 14,051,099
Accumulated amortization (9,187,958)
--------------
Total $ 4,863,141
==============
</TABLE>
At December 31, 1994 the remaining carrying value of intangible assets
was written off based on the continuing losses of the Partnership.
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<PAGE> 14
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Note to limited partner $ 27,500,000 $ 17,500,000
Subordinated notes 1,644,177 1,644,177
Loan agreement 1,322,310
Other installment notes 82,635 421,687
-------------- --------------
Total 30,549,122 19,565,864
Less current maturities (282,187) (172,740)
-------------- -------------
Total $ 30,266,935 $ 19,393,124
============== ==============
</TABLE>
NOTE TO LIMITED PARTNER:
The Partnership has a secured revolving note payable to a limited
partner. The agreement provided for a credit line not to exceed
$10,000,000 at a fixed interest rate of 4.75% per annum compounded
quarterly through July 19, 1993, at which time the note was amended to
increase the revolving loan to $15,000,000 at a rate of 3.89% per annum
compounded quarterly. Another amendment on December 6, 1993 increased
the loan to $17,500,000. On January 1, 1994, the note was replaced by a
secured revolving loan of $25,500,000 at a fixed interest rate of 3.77%
compounded quarterly, which was then increased to $28,000,000 on
November 1, 1994. In January, 1995, the loan was increased to
$29,500,000, which was fully borrowed by the Partnership. The debt is
secured by substantially all of the Partnership's assets and is due
January 1, 1996.
SUBORDINATED NOTES:
In connection with the acquisition of CPC described in Note 1,
subordinated notes were issued to the sellers. The notes bear interest
at the rate of 9%. Beginning on March 31, 1994, the Partnership is
required to make quarterly payments of $75,000 for ten years, which are
guaranteed by an affiliate of the general partner.
INTEREST RATE SWAP AGREEMENTS:
In prior years, the Partnership entered into interest rate swap
agreements in connection with $15,000,000 of its previously outstanding
bank debt. These agreements expire in 1995 and 1998 and require the
Partnership to pay the difference if the contractual fixed interest
rates exceed the floating rates as computed under the agreements. The
Partnership incurred $650,452 and $794,522 of interest expense in 1994
and 1993, respectively, under these agreements.
The estimated fair values of the swap agreements have been determined by
the Partnership using available market information and appropriate
valuation methodologies. At December 31, 1994, management estimates
that the cost of the swap agreements exceeded their fair value by
$232,000.
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<PAGE> 15
LOAN AGREEMENT:
On December 28, 1993, the Partnership entered into a loan agreement with
the Director of Development of the State of Ohio for $1,322,310 which is
secured by a bank. No borrowings occurred under this agreement until
1994. The loan is repayable in monthly installments with increasing
principal payments through 2001. The loan bears interest at 3% plus a
service fee of .25% on the outstanding principal.
CONVERSION OF DEBT TO EQUITY
During 1992, the Partnership was refinanced and recapitalized by a
limited partner contributing as additional capital all of its right,
title and interest in certain loans, including accrued interest of
$35,602,119. All previous revolving credit and mortgage loans with a
bank and all loans from the partners (other than the note to limited
partner described above) were repaid.
Approximate aggregate annual principal payments applicable to the
Partnership's long-term debt for the next five years are as follows:
<TABLE>
<S> <C>
1995 $ 282,187
1996 27,808,062
1997 379,074
1998 401,580
1999 425,757
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Partnership has a defined benefit pension plan, which covers
substantially all of the Partnership's employees and provides benefits
at stated amounts for each year of service. The Partnership's funding
policy is to make the annual contributions required by applicable
federal income tax regulations. Contributions made to the plan were
$209,156, $352,805 and $142,099 for the years December 31, 1994, 1993
and 1992, respectively. Pension expense was calculated as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost - benefit obligation earned
during the year $ 205,664 $ 154,562 $ 189,727
Interest cost on projected benefit obligation 140,973 120,999 103,236
Return on plan assets (119,113) (80,482) (71,609)
Amortization of unrecognized obligation 12,693 3,175 15,601
------------- -------------- ------------
Total $ 240,217 $ 198,254 $ 236,955
============= ============== ============
</TABLE>
The funded status of the plan was as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Projected benefit obligation $ (2,199,518) $ (1,954,052)
Plan assets at fair value 1,666,131 1,420,794
Unrecognized net obligation (41,480) (46,089)
Unrecognized net loss 221,250 239,654
Unrecognized prior service cost 219,965 236,885
-------------- --------------
Accrued pension cost recognized in the balance sheets $ (133,652) $ (102,808)
============== ==============
</TABLE>
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<PAGE> 16
The projected benefit obligations were determined using an assumed
discount rate of 7.5% in 1994 and 1993 and 8% in 1992, a long-term rate
of return of 8% and a 5% rate of compensation increase. The
accumulated benefit obligation at November 30, 1994 of $1,564,369
includes vested benefits of $1,473,737.
The Partnership maintains a profit-sharing and savings plan for eligible
employees. Employees who participate may contribute up to 10% of their
earnings to the plan, on which the Partnership contributes 20% as an
employee match. The Partnership contributed $82,849, $44,797 and
$32,105 to the plan in 1994, 1993 and 1992, respectively.
9. LEASE COMMITMENTS
The Partnership leases certain property and equipment under
noncancelable operating leases expiring on various dates through 1999.
The following is a schedule by year of minimum rental payments due under
these leases as of December 31, 1994:
<TABLE>
<S> <C>
1995 $ 82,300
1996 44,021
1997 20,615
1998 11,872
1999 176
</TABLE>
Rental expense was $197,060, $162,418 and $169,716 for the years ended
December 31, 1994, 1993 and 1992, respectively.
10. CONTINGENCIES
The Partnership is involved in various claims and lawsuits incidental to
its business. In the opinion of management, those claims and suits in
which the Partnership is a defendant in the aggregate will not have a
material adverse effect on the Partnership's financial position or
results of operations.
11. PROVISION FOR CLOSING OF OPERATIONS
Management decided to close the Partnership's Canadian subsidiary in the
first quarter of 1992. Costs incurred in 1992 to close the facility,
including results of operations subsequent to the decision to close the
facility were $2,303,000.
12. SUBSEQUENT EVENTS
On May 3, 1995, Chempower, Inc. through two of its wholly-owned
subsidiaries, purchased all of the issued and outstanding partnership
units, representing all of the partnership interests of Controlled Power
Limited Partnership. The purchase price of $4,900,000 was paid in cash
at the closing date, at which time the subordinated notes, loan
agreement, and swap agreements discussed in Note 7 were repaid.
Effective January 1, 1995, a limited partner contributed as additional
capital all of its right, title and interest in the note to limited
partner, as described in Note 7.
* * * * * *
- 11 -
<PAGE> 17
CHEMPOWER, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
- -------------------------------------------------------------------------------
The following unaudited pro forma financial data has been prepared to reflect
the acquisition of Controlled Power Limited Partnership, a partnership, as if
the transaction had been consummated on the dates indicated.
The unaudited Pro Forma Balance Sheet as of March 31, 1995 reflects the payment
to acquire the partnership units of Controlled Power Limited Partnership and
the resulting purchase price adjustments.
The unaudited Pro Forma Statements of Income for the year ended December 31,
1994 and the three months ended March 31, 1995 are based on the two Companies'
historical results of operations adjusted to give effect to (i) the reduction
in depreciation and amortization expense resulting from the new asset basis as
a result of the acquisition, (ii) the reduction in interest expense charged on
related party notes payable which were contributed to capital in March 1995,
(iii) the decrease in interest income associated with the cash required to
purchase the assets, and (iv) the recording of the income tax benefit as a
result of Controlled Power Limited Partnership having been taxed as a
partnership.
The Unaudited Pro Forma Financial Data is not necessarily indicative of the
Companies' financial position or results of the combined operations had the
transaction reflected therein actually been consummated at the assumed dates,
nor are they necessarily indicative of the Companies' financial position or of
results of combined operations for any future period.
<PAGE> 18
CHEMPOWER, INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Historical, As Reported
---------------------------
Controlled
Power Limited Total
Chempower, Partnership Pro Forma Pro Forma
Inc. (A Partnership) Adjustments Combined
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 14,078 $ 604 $ (4,900)(1) $ 9,782
Trade receivables 14,272 6,845 (218)(1) 20,899
Contracts in progress 676 6,823 (1,325)(1) 6,174
Inventories 4,148 1,459 - 5,607
Other 365 - - 365
-----------------------------------------------------
TOTAL CURRENT ASSETS 33,539 15,731 (6,443) 42,827
Property, Plant and Equipment, net 6,415 5,697 (5,697)(1) 6,415
Other Assets 1,631 4 (4)(1) 1,631
-----------------------------------------------------
$ 41,585 $ 21,432 $(12,144) $ 50,873
=====================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Trade payables $ 2,113 $ 3,889 $ - $ 6,002
Other 5,155 3,592 950 (1) 9,697
-----------------------------------------------------
TOTAL CURRENT LIABILITIES 7,268 7,481 950 15,699
-----------------------------------------------------
Deferred Income Taxes 243 - - 243
-----------------------------------------------------
Excess of Net Assets Acquired Over Cost - - 857 (1) 857
-----------------------------------------------------
Partners' Equity - 13,951 (13,951)(1) -
-----------------------------------------------------
Shareholders' Equity
Common stock 741 - - 741
Additional paid-in capital 19,463 - - 19,463
Retained earnings 14,480 - - 14,480
-----------------------------------------------------
34,684 - - 34,684
Less cost of common stock repurchased 610 - - 610
-----------------------------------------------------
34,074 - - 34,074
-----------------------------------------------------
$ 41,585 $ 21,432 $(12,144) $ 50,873
=====================================================
</TABLE>
<PAGE> 19
CHEMPOWER, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Historical, As Reported
-----------------------------
Controlled
Power Limited Total
Chempower, Partnership Pro Forma Pro Forma
Inc. (A Partnership) Adjustments Combined
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 19,039 $ 6,396 $ - $ 25,435
Cost of revenues 16,688 9,152 (446)(2) 25,394
--------------------------------------------------------
GROSS PROFIT (LOSS) 2,351 (2,756) 446 41
Selling, general, and
administrative expenses 2,084 570 - 2,654
--------------------------------------------------------
OPERATING INCOME (LOSS) 267 (3,326) 446 (2,613)
Financial income (expense) 136 (634) 453 (3) (45)
--------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES 403 (3,960) 899 (2,658)
Income tax expense (benefit) 141 - (1,224)(4) (1,083)
--------------------------------------------------------
NET INCOME (LOSS) $ 262 $ (3,960) $ 2,123 $ (1,575)
========================================================
Net income (loss) per common
and common equivalent share $ 0.04 $ (0.21)
=========== ===========
Weighted average number of
common and common
equivalent shares outstanding 7,378,986 7,378,986
=========== ===========
</TABLE>
<PAGE> 20
CHEMPOWER, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Historical, As Reported
---------------------------
Controlled
Power Limited
Chempower, Partnership Pro Forma Pro Forma
Inc. (A Partnership) Adjustments Combined
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 64,329 $ 40,500 $ $ 104,829
Cost of revenues 56,569 48,612 6,723 (2) 98,458
--------------------------------------------------------
GROSS PROFIT (L0SS) 7,760 (8,112) 6,723 6,371
Selling, general, and
administrative expenses 7,080 5,379 - 12,459
--------------------------------------------------------
OPERATING INCOME (LOSS) 680 (13,491) 6,723 (6,088)
Financial income (expense) 432 (1,858) 1,007 (3) (419)
--------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES 1,112 (15,349) 7,730 (6,507)
Income tax expense (benefit) 330 - (3,050)(4) (2,720)
--------------------------------------------------------
NET INCOME (LOSS) $ 782 $(15,349) $ 10,780 $ (3,787)
========================================================
Net income (loss) per common
and common equivalent share $ 0.11 $ (0.51)
=========== ==========
Weighted average number of
common and common
equivalent shares outstanding 7,425,998 7,425,998
=========== ==========
</TABLE>
<PAGE> 21
CHEMPOWER, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
- -------------------------------------------------------------------------------
A - BALANCE SHEET PRO FORMA ADJUSTMENTS
- ---------------------------------------
The pro forma balance sheet assumes that the acquisition occurred on March 31,
1995 to give effect to the adjustments described below:
(1) To adjust the assets acquired and liabilities assumed to their fair
values, determined as follows:
(a) Trade receivables adjustment represents the adjustment to net
present value of amounts expected to be received.
(b) Contracts in progress adjustment represents an adjustment for a
reasonable profit allowance for completing contracts assumed.
(c) The resulting excess of the fair value of net assets acquired over
cost was used to reduce all long-term assets. The remainder of
$860,000 was recorded as excess of net assets acquired over cost
(negative goodwill).
(d) The accrued expenses adjustment represents a $450,000 estimated
cost to fund pension obligations plus $500,000 acquisition costs.
B - STATEMENTS OF INCOME PRO FORMA ADJUSTMENTS
- ----------------------------------------------
The pro forma statements of income give effect to the adjustments described
below:
(2) To eliminate historical depreciation and amortization expense on
long-term assets acquired and to amortize negative goodwill associated
with the purchase.
(3) To eliminate interest expense relating to the related party loans of
the Controlled Power Limited Partnership that were converted to equity
in March 1995 and investment earnings on the $4.9 million purchase
price.
(4) To provide an income tax benefit represents at a 40% effective rate on
the pro forma loss of Controlled Power Limited Partnership.
C - RECONCILIATION OF PARTNERS' EQUITY
- --------------------------------------
The reconciliation of Controlled Power Limited Partnership's partners' equity
from December 31, 1994 through the date of acquisition is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1994 $ (14,404,000)
Additional partner capital investment
including transfer of debt 33,359,000
Net (loss) for quarter ended March 31, 1995 (3,960,000)
Net (loss) for April 1, 1995 through date of
acquisition (1,044,000)
-------------
Balance at acquisition date $ 13,951,000
=============
</TABLE>
