<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Act of 1934
For the fiscal Period Ended September 30, 1996 or
[ ] Transition Report to Section 13 or 15(d) of the Securities
Act of 1934 For the Transition Period From ___________ to ___________
Commission file number: 33-56256
PCC Flow Technologies, Inc.
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3115884
- -----------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer ID No.)
of incorporation or organization)
301 Camp Craft Road, Suite 100, West Lake Hills, Austin, Texas 78746
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
512-314-8500
- -----------------------------------------------------------------------
(Registrant's telephone number, including area code)
NEWFLO Corporation
- --------------------------------------------------------------------------
(Former name, former address and former year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
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. [ X ] Yes [ ] No
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
and Exchange act of 1934 subsequent to the distribution of securities under
a plan confirmed by a court. [ ] Yes [ ] No
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Effective August 1, 1996, all Common Stock, Class A, was retired
Effective August 1, 1996, all Common Stock, Class B, was retired
</PAGE>
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PCC FLOW TECHNOLOGIES, INC.
INDEX Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- December 31,
1995, September 30, 1996 and July 31, 1996. 2-3
Condensed Consolidated Statements of Operations-
three months ended September 30, 1995, one month
ended July 31, 1996 and two months ended September
30, 1996; and nine months ended September 30, 1995,
seven months ended July 31, 1996 and two months
ended September 30, 1995. 4-5
Condensed Consolidated Statements of Cash Flows-nine
months ended September 30, 1995, seven months ended
July 31, 1996 and two months ended September 30, 1996. 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2.Changes in Securities 13
Item 3.Defaults upon Senior Securities 13
Item 4.Submission of Matters to a Vote of Security Holders 13
Item 5.Other Information 13
Item 6.Exhibits and Reports on Form 8-K 13-14
Signatures
</PAGE>
<PAGE>
Part I. Financial Information
<TABLE>
<CAPTION>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets (Unaudited - See Notes)
Predecessor Successor
----------------------- -----------
December July 31, September
31, 1995 1996 30, 1996
----------------------- -----------
(000s omitted, except per share data)
<S> <C> <C> <C>
Assets
Current Assets:
Cash $ 736 $ 3,912 $ 5,733
Accounts receivable 33,637 33,772 36,095
Less allowance for doubtful
accounts 905 1,155 1,289
-------- -------- --------
Net accounts receivable 32,732 32,617 34,806
Inventories, at cost:
Raw materials 13,603 15,864 15,951
Work-in-process 6,104 7,098 6,327
Finished goods 30,394 36,977 38,777
-------- -------- --------
Total inventories 50,101 59,939 61,055
Deferred tax asset-current 2,116 2,116 8,230
Other current assets 1,857 1,447 1,364
-------- -------- --------
Total current assets 87,542 100,031 111,188
Property, plant and equipment 49,439 56,489 31,297
Less accumulated depreciation 20,716 25,389 723
-------- -------- --------
Net property, plant and equipment 28,723 31,100 30,574
Excess of purchase price over net
assets of acquired businesses, net
of $6,953 amortization
(1995 - $6,119) 34,009 33,905 ---
Excess of purchase price over net
assets of acquired NEWFLO Corporation,
net of $1,015 amortization
(1995 - $0) --- --- 226,840
Noncompete agreements, net of $17,347
amortization (1995 -$16,221) 2,279 1,153 ---
Loan fees, net of $3,634 amortization
(1995 - $3,142) 4,466 3,974 ---
Deferred tax asset-long term --- --- 10,799
Other assets 2,023 2,098 1,291
-------- -------- --------
Total assets $159,042 $172,261 $380,692
============ ======== ======== ========
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
</TABLE>
2
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets (Unaudited - See Notes)
Predecessor Successor
----------------------- -----------
December July 31, September
31, 1995 1996 30, 1996
----------------------- -----------
(000s omitted, except per share data)
<S> <C> <C> <C>
Liabilities
Current Liabilities:
Accounts payable $ 11,973 $ 12,983 $ 13,975
Accrued compensation
and related benefits 4,118 4,432 4,601
Accrued taxes payable 1,238 1,229 2,178
Accrued interest 1,716 2,827 11,009
Accrued other liabilities 5,299 3,559 12,408
Deferred taxes-current --- --- 7,247
Current portion of long term debt 8,782 9,004 270
-------- -------- --------
Total current liabilities 33,126 34,034 51,688
Long term debt 115,452 124,305 100,321
Deferred taxes-long term 5,948 5,945 ---
Other liabilities 7,947 8,397 22,276
Minority interest 1,330 1,470 1,547
Redeemable preferred stock
Preferred stock, Class A, $.01 par
value, 450 shares authorized, 113
shares issued and outstanding;
liquidation preference of $113
in 1996 (1995 - $113) 113 113 ---
Preferred stock, Class B $.01 par
value, 7,000 shares authorized,
issued and outstanding;
liquidation preference of $7,000 9,356 9,683 ---
Common stockholders' equity (deficit):
Common stock, Class A, $.01 par value,
285,000 shares authorized; 196,638
shares issued and outstanding 2 2 ---
Additional paid-in-capital 732 732 ---
Contributed capital from parent --- --- 203,267
Accumulated foreign currency
translation adjustment (1,390) (1,360) 134
Retained earnings (13,574) (11,060) 1,459
-------- -------- --------
Total common stockholders'
equity (deficit) (14,230) (11,686) 204,860
-------- -------- --------
Total liabilities and stockholders'
equity $159,042 $172,261 $380,692
================================== ======== ======== ========
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements
</TABLE>
3
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations (Unaudited)
Predecessor Successor
---------------------------- -------------
Three Months One Month Two Months
ended ended ended
September 30 July 31 September 30
1995 1996 1996
---------------------------- -------------
(000s omitted, except per share data)
<S> <C> <C> <C>
Product sales, net $ 50,557 $ 18,122 $ 39,588
Cost of sales:
Cost of sales-product 32,191 11,664 24,775
Engineering --- --- 753
Amortization of intangible
assets 524 257 2,238
-------- -------- --------
Total cost of sales 32,715 11,921 27,766
-------- -------- --------
Gross profit 17,842 6,201 11,822
Operating expenses:
Sales and marketing 6,882 2,583 5,144
Engineering 944 335 ---
General and administrative 3,089 1,496 2,301
Amortization of intangible assets 886 299 ---
-------- -------- --------
Total operating expense 11,801 4,713 7,445
-------- -------- --------
Income from operations 6,041 1,488 4,377
Interest expense (4,478) (1,243) (1,002)
Other income (expense) 24 --- ---
Income before income taxes and -------- -------- --------
minority interest 1,587 245 3,375
Income tax expense (527) (419) (1,839)
-------- -------- -------
Income (loss) before
minority interest 1,060 (174) 1,536
Minority interest 42 24 77
-------- -------- --------
Net income (loss) $ 1,018 $ (198) $ 1,459
======== ======== ========
Net income (loss) attributable
to common shares $ 1,011 $ (201) $ n/a
======== ======== ========
Net income (loss) per
common share $ 3.98 $ (1.02) $ n/a
======== ======== ========
Shares used in calculation
of net income (loss) per
common share 253,938 196,638 n/a
======== ======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
4
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<PAGE>
<TABLE>
<CAPTION>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations (Unaudited)
Predecessor Successor
---------------------------- -------------
Nine Months Seven Month Two Months
ended ended ended
September 30 July 31 September 30
1995 1996 1996
---------------------------- -------------
(000s omitted, except per share data)
<S> <C> <C> <C>
Product sales, net $146,193 $138,320 $ 39,588
Cost of sales:
Cost of sales-product 91,807 88,077 24,775
Engineering --- --- 753
Amortization of intangible
assets 1,520 1,268 2,238
-------- -------- --------
Total cost of sales 93,327 89,345 27,766
-------- -------- --------
Gross profit 52,866 48,975 11,822
Operating expenses:
Sales and marketing 20,212 17,793 5,144
Engineering 2,761 2,534 ---
General and administrative 9,589 9,580 2,301
Amortization of intangible
assets 2,928 2,084 ---
-------- -------- --------
Total operating expense 35,490 31,991 7,445
-------- -------- --------
Income from operations 17,376 16,984 4,377
Interest expense (13,749) (10,938) (1,002)
Other income (expense) (33) (337) ---
-------- -------- --------
Income before income taxes and
minority interest 3,594 5,709 3,375
Income tax expense (1,100) (2,719) (1,839)
-------- -------- --------
Income before minority
interest 2,494 2,990 1,536
Minority interest 166 140 77
-------- -------- --------
Net income $ 2,328 $ 2,850 $ 1,459
======== ======== ========
Net income attributable to
common shares $ 1,886 $ 2,840 $ n/a
======== ======== ========
Net income per common share $ 7.43 $ 11.18 $ n/a
======== ======== ========
Shares used in calculation of
net income per common share 253,938 253,938 n/a
======== ======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
5
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Predecessor Successor
---------------------------- -------------
Nine Months Seven Month Two Months
ended ended ended
September 30 July 31 September 30
1995 1996 1996
---------------------------- -------------
(000s omitted)
<S> <C> <C> <C>
Operating activities
Net income $ 2,328 $ 2,850 $ 1,459
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 7,011 5,449 2,629
Minority interest 166 140 77
Other operating adjustments (87) (196) 25
Changes in operating assets
and liabilities:
Accounts receivable (3,757) 2,648 (2,281)
Inventories (2,711) (5,079) (1,385)
Other current assets (659) 473 82
Accounts payable 1,891 542 992
Income taxes payable 394 (9) 949
Accrued compensation 93 314 169
Accrued interest 3,295 1,111 (1,066)
Other accrued liabilities (1,774) (3,299) 2,989
-------- -------- --------
Cash provided by operating
activities 6,190 4,944 4,639
Investing activities
Acquisition, net of cash
acquired, NEWFLO --- --- (173,281)
Acquisition, net of cash
acquired, Barber --- (9,774) ---
Purchase of property and
equipment (1,620) (1,844) (366)
Proceeds from sale of
equipment 153 311 ---
Other assets (968) 444 110
-------- -------- --------
Cash used in investing
activities (2,435) (10,863) (173,537)
Financing activities
Borrowings (repayments)-
bank line of credit 1,612 13,421 (20,781)
Repayments of notes payable (5,561) (4,347) (11,901)
Contributed Capital - Parent --- --- 206,067
Payment of preferred stock
dividends (22) (8) ---
Payment of dividend to Parent --- --- (2,800)
-------- -------- --------
Cash provided by (used in)
financing activities (3,971) 9,066 170,585
Effect of foreign exchange
rate changes on cash 218 29 134
-------- -------- --------
Net increase in cash 2 3,176 1,821
Cash, beginning of period 638 736 3,912
Cash, end of period $ 640 $ 3,912 $ 5,733
======== ======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
6
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1996
1. Basis of Presentation
The accompanying condensed consolidated financial statements of PCC Flow
Technologies, Inc. (the "Company") are unaudited, but are prepared in
accordance with generally accepted accounting principles for interim
financial information and include all adjustments (consisting only of
normal recurring entries) which, in the opinion of management, are
necessary for a fair presentation of financial position, results of
operations and cash flows. PCC Flow Technologies, Inc., previously known
as NEWFLO Corporation, was acquired on July 31, 1996, by Precision Castparts
Corp. ("Precision"), a world wide manufacturer of complex metal structural
investment castings and is a leading manufacturer of airfoils castings used
in jet aircraft engines. Precision is traded on the New York Stock Exchange.
The accompanying condensed consolidated financial statements consist
of one month and seven months ended July 31, 1996 ("Predecessor"), and the
two months ended September 30, 1996 ("Successor"). In conjunction with the
acquisition of PCC Flow Technologies, Inc., by Precision Castparts Corp.,
the condensed consolidated financial statements have been presented in a
manner to reflect the change of ownership and a difference in classification
policies. Classification differences impact cost of sales and operating
expense discussions. All other items are directly comparable for the
Predecessor and Successor. The results of operations for the three-month
period ended September 30, 1996, and the nine-month period ended September
30, 1996, are not necessarily indicative of the results to be expected for
the full year. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements as of and for the year ended December 31, 1995.
2. Net Income Per Common Share
Net income (loss) per common share is computed using the net income (loss)
after deducting preferred stock Series A dividends. The weighted average
number of shares consists of the common stock outstanding and the common
stock equivalents outstanding. The inclusion of warrants as common stock
equivalents are valued at the latest stock transaction price. For the
one-month ended July 31, 1996, the common equivalent shares from stock
warrants and preferred stock, Series B, are excluded from the computation
of net loss per common share as their effect would be anti-dilutive.
However, for the three month period ended September 30, 1995, and the seven
month period ended July 31, 1996 and the nine month period ended September
30, 1995, the common equivalent shares from stock warrants and preferred
stock, Series B, are included in the computation of net income per common
share. See Exhibit 11, for further reference.
3. Acquisitions
On July 31, 1996, the Company was acquired by Precision Castparts Corp.
Precision acquired 100% of the stock of NEWFLO Corporation, which is now
operating as "PCC Flow Technologies, Inc." Precision acquired NEWFLO for
$300.0 million, including assummed debt of approximately $100.6 million.
Purchase accounting yielded goodwill of approximately $227.8 million,
which will be amortizated or a life of 40 years.
In January 1996, the Company acquired certain assets and assumed liabilities
of Barber Industries Ltd. (Barber) for a cash payment of approximately $9.3
million anf acquisition costs of approximately $0.5 million. Barber
manufactures wellhead equipment and emergency shut down
safety systems. The acquisition has been accounted for using the asset
purchase method, and, accordingly, the purchase price and liabilities
assumed ($1.7 million) have been allocated to the assets acquired based
on their respective fair values at the date of acquisition.
7
</PAGE>
<PAGE>
4. Adoption of New Accounting Standards
In the three months ended March 31,1996, the Company adopted the
provisions of FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets carrying amount. The adoption had no impact on the Company's
results of operations or financial position.
5. Contingencies
The Company is involved in various litigation arising in the ordinary
course of business. In management's opinion, the resolution of these
matters will not have a material effect on the Company's financial
position or results of operations.
The Company utilizes and has utilized property containing hazardous
materials which may require remediation. The Company has made accruals in
the accompanying condensed consolidated financial statements for all known
environmental issues based upon investigations conducted by the Company, its
environmental consultants and federal regulatory agencies. Management
believes the ultimate resolution of these matters will not be significant to
the financial position or results of operations of the Company.
6. Common Stockholders' Equity
For the period through July 31, 1996, the Class B common stock (none issued
or outstanding) is non-voting and is convertible at any time, at the option
of the holder, into Class A common stock on a one-for-one basis. The Company
had reserved 68,630 shares of Class A common stock for the conversion of
Class B preferred stock and Class B common stock.
Prior to acquisition by Precision, the Company had the right to repurchase
13,371 shares of Class A common stock held by certain stockholders at $.01
per share. The repurchase rights lapse at the earlier of conversion of the
Class B preferred stock or January 2003.
Prior to acquisition by Precision, the Company had warrants outstanding to
its term loan holders to purchase 12,157 shares of Class B common stock at
$5.91 per share and 4,677 shares Class B common stock at $10.80 per share.
At the time of acquisition of PCC Flow Technologies, Inc., formerly NEWFLO
Corporation, by Precision Castparts Corp., all outstanding stock was retired,
warrants redeemed and all dividends were paid.
8
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
(Previously known as NEWFLO Corporation)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the consolidated
audited financial statements contained in the Form 10-K filed with the
Securities Exchange Commission for the fiscal year ended December 31, 1995,
and the condensed consolidated financial statements which are included
elsewhere in this quarterly report. PCC Flow Technologies, Inc. (the
"Successor"), previously known as NEWFLO Corporation (the "Predecessor") was
acquired on July 31, 1996 by Precision Castparts Corp. ("Precision"), a world
wide manufacturer of complex metal structural investment castings and is a
leading manufacturer of airfoils castings used in jet aircraft engines.
Precision is traded on the New York Stock Exchange. The following discussion
of operations are for the one month period ended July 31, 1996 (Predecessor)
and the two month period ended September 30, 1996 (Successor), and the
seven-month period ended July 31, 1996 (Predecessor) and the two month period
ended September 30, 1996 (Successor). The results of operations discussed
are not necessarily indicative of the results to be expected for the full
year. In addition, the financial statements herein are presented in a format
to reflect the change in ownership, and thus a difference in classification
policies, in regard to engineering expense and amortization ofintangibles
related purchase accounting. Cost of sales and operating expenses are the
two items that are not directly comparable for Predecessor and Successor
results.
RESULT OF OPERATIONS
- --------------------
One month ended July 31, 1996 (Predecessor) and two months ended September
30, 1996 (Successor) compared with three months ended September 30, 1995
(Predecessor).
Net combined Predecessor and Successor sales increased for the one month
ended July 31, 1996 and the two months ended September 30, 1996, to $57.7
million, up $7.1 million, or 14.0% from sales of $50.6 million for the three
months ended September 30, 1995. This increase of $7.1 million includes $3.1
million generated by the acquisition of certain assets and liabilities of
Barber Industries Ltd. in January 1996. For the third quarter of 1996, as
compared with the third quarter of 1995, sales strongly increased in the pump
and valve product groups by $3.5 million and $3.5 million, respectively, and
the instrument group reported a slight increase of $0.1 million.
Gross profit, as a percentage of net sales for the one month period ended
July 31, 1996 (Predecessor) was 34.2%, or $6.2 million.
Gross profit, as a percentage of net sales for the two month period ended
September 30, 1996 (Successor) was 29.9%, or $11.8 million.
Combined Predecessor and Successor gross profit of $18.0 million for the
three months ended September 30, 1996 represents an increase in performance
$0.2 million from the $17.8 million for the same period for 1995. Excluding
the results of the Barber acquisition of $1.0 million, the reclassification
for the two months ended September 30, 1996 of additional amortization of
intangibles of $1.0 million and engineering expense of $0.8 million, the
increase in performance was $1.0 million with the strongest performance in
the pump group with a $1.8 million increase in gross profit from the same
period in 1995. The valve and instrument groups both reported decreases in
gross profit primarily related to marketplace competition.
Income from operations, as a percentage of net sales for the one month period
ended July 31, 1996 (Predecessor) was 8.2%, or $1.5 million.
Income from operations, as a percentage of net sales for the two month period
ended September 30, 1996 (Successor) was 11.1%, or $4.4 million.
Combined predecessor and successor income from operations of $5.9 million for
the quarter ended September 30, 1996, represented a decrease of $0.1 million
from $6.0 million for the same period in 1995. Excluding the $0.3 million
impact on income from operations by the acquisition of Barber Industries, the
$0.4 million decrease in income from operations was primarily the result of
the increase in gross profit performance as discussed above and an increase
in other operating expenses for the third quarter of 1996 of $1.4 million.
The $1.4 million increase of expense for the three months ended September 30,
1996, when compared to the same period for 1995 was the result of an increase
in marketing and sales efforts of $0.3 million and an increase of $0.6
million in general and administrative expense primarily related to bonus
expense and $0.5 million increase in amortization of intangibles related to
purchase accounting for the acquisition of NEWFLO by Precision.
Interest expense decreased to $2.2 million during the quarter ended September
30, 1996, from $4.5 million for the same period in 1995 because of a decrease
in debt balances and lower interest rates in 1996. In connection with the
acquisition of NEWFLO by Precision, $32.7 million in senior debt was retired.
Net combined Predecessor and Successor income before tax and minority
interest of $3.6 million for the third quarter of 1996 was improved from of
$1.6 million for the comparable period in 1995. The increase of $2.0 million
was contributed primarily by the pump product group with increases of $1.2
million. The valve product group also reported an increase in net income
before tax and minority interest of $1.8 million that includes the $0.1
million in net income before tax and minority interest for Barber Industries,
which was acquired in January, 1996.
9
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<PAGE>
Seven months ended July 31, 1996 (Predecessor) and Two months ended September
30, 1996 (Successor), compared with nine months ended September 30, 1995
(Predecessor).
Net combined Predecessor and Successor sales increased for the seven months
ended July 31, 1996 and the two months ended September 30, 1996, to $177.9
million, up $31.7 million, or 21.7% from sales of $146.2 million for the nine
months ended September 30, 1995. This increase of $31.7 million includes
$10.3 million generated by the acquisition of certain assets and liabilities
of Barber Industries Ltd. in January 1996. For the first nine months of
1996, as compared with the first nine months of 1995, sales strongly
increased in the pump and valve product groups by $16.4 million and $15.5
million, respectively, and the instrument group reported a slight decrease of
$0.2 million.
The customer order backlog increased by $5.0 million, or 12.5% during the
first nine months of 1996 to $44.9 million from $39.9 million at December 31,
1995, since new customer orders received exceeded shipments. New customer
orders for all product groups contributed to this increase in backlog. Pump
products contributed more than half of the backlog increase with $2.8
million, or 56%. Valve and instrument product lines contributed $1.7 million
and $.05 million, respectively.
Gross profit, as a percentage of net sales for the seven month period ended
July 31, 1996 (Predecessor), was 35.4%, or $49.0 million.
Gross profit, as a percentage of net sales for the two month period ended
September 30, 1996 (Successor), was 29.9%, or $11.8 million.
Combined Predecessor and Successor gross profit of $60.8 million for the nine
months ended September 30, 1996, represents an increase in performance of
$7.9 million from the $52.9 million for the same period for 1995. Excluding
the results of Barber Industries, acquired in January 1996 of $2.6 million,
the reclassification for the two months ended September 30, 1996 of
additional amortization of intangibles of $1.0 million and engineering
expense of $0.8 million, the increase in performance was $7.1 million with
the strongest performance in the pump group with a $6.1 million increase in
gross profit from the same period in 1995.
Income from operations, as a percentage of net sales for the seven month
period ended July 31, 1996 (Predecessor), was 12.3% or $17.0 million.
Income from operations, as a percentage of net sales for the two month
period ended September 30, 1996 (Successor), was 11.1% or $4.4 million.
10
</PAGE>
<PAGE>
Combined Predecessor and Successor income from operations of $21.4 million
for the period ended September 30, 1996, represented an increase of $4.0
million, or 22.9% from $17.4 million for the same period in 1995. Excluding
the $0.7 million impact on income from operations by the acquisition of
Barber Industries, the $3.3 million increase in income from operations was
primarily the result of the $7.1 million increase in gross profit performance
as discussed above, offset by an increase of operating expenses of $3.8
million for the first nine months ended September 30, 1996. The $3.8 million
increase of operating expense for the nine months ended September 30, 1996,
when compared to the same period for 1995, was the result of a increase in
marketing and sales effort of $1.4 million, an increase in engineering
expense of $0.4 million, amortization of intangibles related to the
acquisition of NEWFLO by Precision of $0.2 million and the increase in
general and administrative expense of $1.8 million, related primarily to
bonus expense.
Interest expense decreased to $11.9 million during the period ended
September 30, 1996, from $13.7 million for the same period in 1995 because
of a decrease in debt balances and lower interest rates in 1996. In
connection with the acquisition of PCC Flow Technologies, Inc. by Precision
Castparts Corp., $32.7 million in senior debt was retired.
Net combined Predecessor and Successor income before tax and minority
interest of $9.1 million for the first nine months of 1996 was an
improvement of $5.5 million over the comparable period in 1995. The increase
of $5.5 million was contributed primarily by the pump product group with an
increase of $4.0 million. The valve product group reported an increase of
$1.6 million, as compared to the instrument product group with a reported
slight decrease of $0.1 million in net income before tax and minority
interest.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by combined Predecessor and Successor operating activities
was $9.5 million for the nine months ended September 30, 1996, compared with
cash provided by operating activities of $6.2 million for the same period in
1995. Noncash charges to income for depreciation and amortization of
intangibles were $8.0 million during the first nine months of 1996, compared
with $7.0 million for the same period in 1995. Bank debt levels decreased
by $23.6 million during the nine months ended September 30, 1996 compared
with the same period of 1995. In addition, the 1996 decrease included the
final payoff of senior debt of $32.7 million on July 31, 1996 as part of the
acquisition of the Company by Precision. Excluding the acquisition of Barber
Industries of $9.3 million and related acquisition costs of $0.5 million and
the final payoff of debt of $32.7 million, the debt level for the first nine
months of 1996 decreased $0.7 million.
Capital spending for the first nine months of 1996 was $2.2 million
compared to $1.6 million for the first nine months in 1995. Capital
spending for 1996 was primarily for the upgrading of production
equipment, tooling for new products and cost reduction programs.
The Company believes it has sufficient capacity for sales growth in
the future without substantial additional capital expenditure requirements.
With the acquisition of the Company by Precision, in July 1996, the Company
recorded "Contributed Capital" of $203.3 million from its new parent,
Precision Castparts Corp. In addition, the Company paid to its parent a
$2.8 million dividend in September 1996.
11
</PAGE>
<PAGE>
Working capital at July 31, 1996, for the Predecessor, was $66.0 million
compared with $54.4 million at December 31, 1995. The $11.6 million
increase in working capital at July 31, 1996, from December 31, 1995,
includes $4.9 million from the acquisition of Barber Industries and $6.7
million is related to increased levels of accounts payable, partially offset
by increases in inventory and accounts receivable, and a decrease in other
accrued liabilities. The ratio of current assets to current liabilities at
July 31, 1996, was 2.9 when compared with 2.6 at December 31, 1995.
Working capital at September 30, 1996, for the Successor was $59.5 million
compared with $66.0 million at July 31, 1996. The $6.5 million decrease in
working capital at September 30, 1996, from July 31, 1996, includes $8.2
million from the acquisition of PCC Flow Technologies, Inc. by Precision
Castparts Corp. and $8.2 million is related to increased levels of accounts
receivable, partially offset by increases in accounts payable and other
accrued liabilities. The ratio of current assets to current liabilities
at September 30, 1996, was 2.2 when compared with 2.9 at July 31, 1996.
Prior to July 31, 1996, the Company financed its activities principally
through cash provided by operations and borrowings under a Senior Credit
Agreement with a financial institution, which would have expired February 28,
1998. That agreement included a term loan with annual repayment requirements
and a revolving loan credit facility. At July 31, 1996, the Company had
approximately $15.3 million available under the revolving credit facility.
On July 31, 1996, the Senior Credit Agreement was retired as part of the
acquisition of the Company by Precision Castparts Corp. The Company expects
cash provided by operations and additional lines of credit available through
Precision to be sufficient to meet its current obligations and operating
requirements over at least the next twelve months.
12
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Part II. Other Information
Item 1. Legal Proceedings
Prior to the acquisition by Precision Castparts Corp., PCC Flow Technologies,
Inc. (then known as NEWFLO Corporation) and its Canadian Subsidiary, General
Valve, Ltd. were named as defendants in Marello Valve Ltd. v. General Valve,
Brian Warren, NEWFLO Corporation, et al. (Ontario Court of Justice,
Ontario Canada 96-CU-10728CM, filed July 9, 1996). The suit alleges that
General Valve breached the exclusivity terms of a distributor agreement with
Marello Valve Ltd. and terminated the distributor agreement without proper
notice, and that NEWFLO Corporation, Brian Warren (an employee of General
Valve) and the other defendants induced General Valve to commit a breach.
The complaint seeks damages from General Valve, NEWFLO Corporation and Brian
Warren relating to breach of contract in an aggregate amount of $4 million
and punitive damages in an aggregate amount of $50 million. The Company has
filed a Statement of Defense denying the allegations. The Company believes
that the claims asserted by Marello Valve Ltd. can be successfully defended
and that the matter will not have a material adverse effect on the Company
or the results of its operations.
Item 2. Changes in Securities
None
Item 3.Defaults upon Senior Securities
None
Item 4.Submission of Matters to a Vote of Security Holders
None
Item 5.Other Information
None
Item 6.Exhibits and Reports on Form 8-K
Item 6.(a) Exhibits
(Exhibit 11) Statement Re: Computation of Per Share Earnings
(Exhibit 27) Financial Data Schedule
13
</PAGE>
<PAGE>
Item 6.(b) Reports on Form 8-K:
On August 15, 1996, the Company filed a Current Report on Form 8K under
Items 1, 2, 4, 5 and 7(c) relating to the acquisition of NEWFLO Corporation
by Precision Castparts Corp.
On September 30, 1996, the Company filed a Current Report on Form 8K/A
amending Item 4 of its previously filed Current Report on Form 8K to include
Ernst & Young LLP, the previous Certifying Accountant, statement that there
were no disagreements regarding matters of accounting principles or
practices, financial statement disclosure, or auditing scope for each of the
two fiscal years ended December 31, 1995 and 1994 as well as the subsequent
interim period prior to the acquisition of NEWFLO Corporation by Precision
Castparts Corp.
On October 10, 1996, the Company filed a Current Report on Form 8K/A amending
Item 4 of its previously filed Current Report on Form 8K/A to include Exhibit
16, the previous Certifying Accountants confirmation that there were no
disagreements regarding matters of accounting principles or practices,
financial statement disclosure, or auditing scope for each of the two fiscal
years ended December 31, 1995 and 1994 as well as the subsequent interim
period prior to the acquisition of NEWFLO Corporation by Precision Castparts
Corp.
14
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Exhibit 11
Statement Re: Computation of Per Share Earnings
Computation of Shares Used in Per Share Calculations
<TABLE>
<CAPTION>
Predecessor Successor
------------------- ------------------
One Three Seven Nine
Month Months Months Months
ended ended ended ended
July 31 September July 31 September
1996 30, 1995 1996 30, 1996
------------------- ------------------
Primary: (000s omitted, except per share data)
- -------
<S> <C> <C> <C> <C>
Weighted average shares of
common stock outstanding 196,638 196,638 196,638 196,638
-------- -------- -------- --------
Common stock equivalents
Net effect of dilutive
warrants-based on the
treasury stock method --- 5,504 5,504 5,504
-------- -------- ------- -------
Conversion of preferred stock --- 51,796 51,796 51,796
-------- -------- -------- --------
Total shares used in
calculation of net
income (loss) per share 196,638 253,938 253,938 253,938
-------- -------- -------- --------
Net income (loss) attributable
to common shares $ (201) $ 1,011 $ 2,840 $ 1,886
-------- -------- -------- --------
Net income (loss) per
common share $ (1.02) $ 3.98 $ 11.18 $ 7.43
-------- -------- -------- --------
Fully diluted:
- --------------
Weighted average shares of
common stock outstanding 196,638 196,638 196,638 196,638
-------- -------- -------- --------
Common stock equivalents
Net effect of dilutive
warrants-based on the
treasury stock method --- 5,504 5,504 5,504
-------- -------- -------- -------
Conversion of preferred stock --- 51,796 51,796 51,796
-------- -------- -------- -------
Total shares used in
calculation of net
income (loss) per share 196,638 253,938 253,938 253,938
-------- -------- -------- --------
Net income (loss) attributable
to common shares $ (201) $ 1,011 $ 2,840 $ 1,886
-------- -------- -------- --------
Net income (loss) per
common share $ (1.02) $ 3.98 $ 11.18 $ 7.43
-------- -------- -------- --------
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized
PCC Flow Technologies, Inc.
---------------------------
(Registrant)
Date: November 14, 1996 By:_______________________
William D. Larsson
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Condensed
Consolidated Statement of Financial Condition at September 30, 1996
(Unaudited) and the Condensed Consolidated Statement of Income for the nine
months ended September 30, 1996 (Unaudited) and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,733
<SECURITIES> 0
<RECEIVABLES> 36,095
<ALLOWANCES> 1,289
<INVENTORY> 61,055
<CURRENT-ASSETS> 111,188
<PP&E> 31,297
<DEPRECIATION> 723
<TOTAL-ASSETS> 380,692
<CURRENT-LIABILITIES> 51,688
<BONDS> 100,000
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 380,692
<SALES> 177,908
<TOTAL-REVENUES> 177,908
<CGS> 117,111
<TOTAL-COSTS> 117,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,940
<INCOME-PRETAX> 9,084
<INCOME-TAX> 4,558
<INCOME-CONTINUING> 4,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,309
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
