<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 June 30, 1997
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 incorporation or organization) (I.R.S. Employer ID No.)
301 Camp Craft Road, Suite 100, Austin, Texas 78746
(Address of principal executive offices) (Zip Code)
512-314-8500
(Registrant's telephone number, including area code)
Not Applicable
(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.
Common Stock, par value $.01, 1,000 shares authorized, 100 shares issued and
outstanding as of August 1, 1997.
This Form 10-Q is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q.
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations-Three
months ended June 30, 1997 and 1996; Six months ended
June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows-Six
months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures
</PAGE>
<PAGE>
Part I. Financial Information
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheets (Unaudited - see note)
June 30, December 31,
1997 1996
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash $ 2,631 $ 3,960
Accounts receivable 44,331 38,934
Less allowance for doubtful
accounts (1,466) (1,331)
---------- ----------
Accounts receivable (net) 42,865 37,603
Inventories, at cost:
Raw materials 15,919 18,025
Work-in-process 7,269 6,296
Finished goods 41,430 41,620
---------- ----------
Total inventories 64,618 65,941
Deferred taxes - current 10,979 9,637
Other current assets 1,666 391
---------- ----------
Total current assets 122,759 117,532
Property, plant and equipment 34,241 32,235
Less accumulated depreciation (3,872) (1,936)
---------- ----------
Net property, plant and equipment 30,369 30,299
Goodwill net of $5,299 amortization
(1996-$2,373) 229,622 235,050
Deferred taxes - long term 7,340 12,195
Other assets 1,375 1,317
---------- ----------
Total assets $ 391,465 $ 396,393
========== ==========
</TABLE>
[FN]
Note: The balance sheet at December 31, 1996 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.
The accompanying notes are an integral part of these financial statements.
2
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheets (Unaudited-see note)
June 30, December 31,
1997 1996
(In thousands, except per share data)
<S> <C> <C>
Liabilities
Current liabilities:
Accounts payable $ 13,026 $ 14,958
Accrued liabilities 24,361 32,105
Accrued taxes payable 14,894 11,745
Current portion of long term debt 158 274
---------- ----------
Total current liabilities 52,439 59,082
Payable to affiliate 12,515 6,369
Long term debt 100,163 100,163
Deferred taxes - long term --- 8,615
Other liabilities 15,073 14,848
Minority interest --- 1,647
Redeemable preferred stock
Preferred stock, Class A, $.01 par
value, 450 shares authorized, 113
shares issued and outstanding;
liquidation preference of $113 in
1996; redeemed July 31, 1996 --- ---
Preferred stock Class B, $.01 par value,
7,000 shares authorized, issued and
outstanding in 1996; liquidation
preference of $7,000; redeemed
July 31, 1996 --- ---
Common stockholders' equity:
Common stock, par value $.01, 1,000
shares authorized, 100 shares issued
and outstanding --- ---
Contributed capital from parent 201,663 201,663
Accumulated translation adjustment (166) 4
Retained earnings 9,778 4,002
---------- ----------
Total common stockholders' equity 211,275 205,669
Total liabilities and stockholders'
equity $ 391,465 $ 396,393
========== ==========
</TABLE>
[FN]
Note: The balance sheet at December 31, 1996 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.
The accompanying notes are an integral part of these financial statements.
3
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations (Unaudited)
Three Months ended Six Months ended
June 30, June 30,
1997 1996 1997 1996
Successor Predecessor Successor Predecessor
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
Product sales, net $ 68,769 $ 63,393 $132,610 $120,198
Cost of sales 47,519 43,407 92,137 81,408
-------- --------- --------- ---------
Gross profit 21,250 19,986 40,473 38,790
Operating expenses:
Sales and marketing 8,446 7,937 17,021 15,210
General and
administrative 4,517 4,062 7,953 8,084
-------- --------- --------- ---------
Total operating expense 12,963 11,999 24,974 23,294
-------- --------- --------- ---------
Income from operations 8,287 7,987 15,499 15,496
Interest expense (1,509) (5,031) (3,026) (9,695)
Other expense --- (4) --- (337)
-------- --------- --------- ---------
Income before income taxes
and minority interest 6,778 2,952 12,473 5,464
Income tax expense (3,694) (1,345) (6,697) (2,300)
-------- --------- --------- ---------
Income before minority
interest 3,084 1,607 5,776 3,164
Minority interest --- 76 --- 116
-------- --------- -------- ---------
Net income $ 3,084 $ 1,531 $ 5,776 $ 3,048
========== ======== ========== =========
Net income attributable to
common shares $ 3,084 $ 1,528 $ 5,776 $ 3,041
========== ======== ========== =========
Net income per common
share $30,840.00 $ 6.02 $57,760.00 $ 11.98
========== ======== ========== =========
Shares used in calculation
of net income per common
share 100 253,938 100 253,938
========== ======== ========== =========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
4
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows (Unaudited)
Successor Predecessor
Six months ended Six months ended
June 30, 1997 June 30, 1996
(In thousands)
<S> <C> <C>
Operating activities:
Net income $ 5,776 $ 3,048
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 4,987 4,543
Minority interest (1,647) 116
Deferred income taxes 710 ---
Changes in operating assets and liabilities:
Accounts receivable (4,293) (1857)
Inventories 3,698 (3,975)
Other current asset (844) 596
Accounts payable (1,976) 2,091
Income taxes payable 2,577 (438)
Accrued compensation (1,952) (365)
Accrued interest (3,574) 4
Other accrued liabilities (2,210) (2,599)
--------- ---------
Cash provided by operating activities 1,252 1,164
Investing activities:
Acquisition, net of cash acquired,
OIC Valve (6,379) ---
Acquisition, net of cash acquired, Barber --- (9,774)
Purchase of minority interest,
Water Specialties (4,000) ---
Purchase of property and equipment (2,263) (1,535)
Proceeds from sale of equipment --- 230
Advances from parent 10,197 ---
Other investing activities 150 305
--------- ---------
Cash used in investing activities (2,295) (10,774)
Financing activities:
Borrowings - bank line of credit --- 13,786
Repayments of notes payable (116) (4,347)
Payment of preferred stock dividends --- (7)
---------- ---------
Cash (used in) provided by financing
activities (116) 9,432
Effect of foreign exchange rate
changes on cash (170) 134
---------- ---------
Net decrease in cash $ (1,329) $ (44)
Cash, beginning of period $ 3,960 $ 736
Cash, end of period $ 2,631 $ 692
========== =========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
5
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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. (the "Successor"), formerly known as NEWFLO
Corporation (the "Predecessor") was acquired on July 31, 1996, by Precision
Castparts Corp. ("PCC"). These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K as of and for the year ended December 31, 1996. The
accompanying condensed consolidated financial statements consist of the three
and six month periods ended June 30, 1996 (Predecessor) and the three and six
month periods ended June 30, 1997 (Successor). As a result of the
acquisition of the Company by PCC, the condensed consolidated financial
statements have been presented in a manner to reflect the change of ownership
and the effect of the purchase price adjustments that resulted from the
recognition of fair values in conjunction with the Company's acquisition by
PCC. Certain reclassifications have been made in the prior periods to
conform to presentations for the current period. Such reclassifications have
had no impact on the previously reported financial position or results of
operations.
2. Acquisitions
On March 28, 1997, the Company acquired 100% of the capital stock of OIC
Valve, Inc. ("OIC") for a cash payment of approximately $6.4 million, net of
related acquisition costs. The acquisition has been recorded pursuant to the
purchase method of accounting. Accordingly, the purchase price plus direct
costs of the acquisition have been allocated to the assets acquired and
liabilities assumed based on their estimated fair market values.
On January 23, 1997, the Company acquired the 20% minority interest of its
subsidiary, Water Specialties Corporation, for $4.0 million resulting in 100%
ownership.
On December 23, 1996, the Company acquired 100% of the capital stock of
Crown Pump, Inc. ("Crown") for a cash payment of approximately $6.2 million,
net of related acquisition costs. The acquisition has been recorded pursuant
to the purchase method of accounting. Accordingly, the purchase price plus
direct costs of the acquisition have been allocated to the assets acquired
and liabilities assumed based on their estimated fair market values.
On July 31,1996, Precision Castparts Corp. ("PCC") acquired 100% of the
capital stock of NEWFLO Corporation and renamed the acquired Company "PCC Flow
Technologies, Inc." The acquisition has been recorded pursuant to the
purchase method of accounting. Accordingly, the purchase price plus direct
costs of the acquisition have been allocated to the assets acquired and
liabilities assumed based on their estimated fair market values.
6
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
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 and footnotes thereto included in the Company's
annual Form 10-K filed with the Securities Exchange Commission for the fiscal
year ended December 31, 1996, 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. ("PCC"), a world wide manufacturer of complex metal structural
investment castings and the leading manufacturer of airfoils castings used in
jet aircraft engines. The following discussion of operations are for the
results of the six month period ended June 30, 1997 (Successor) and the six
month period ended June 30, 1996 (Predecessor).
PCC Flow Technologies, Inc., (the "Company"), designs, manufactures, markets
and services a broad range of specialty and general purpose valves, pumps,
meters and related products for a variety of industrial, commercial,
utilities and municipal customers. The Company sells its products worldwide
through direct sales, distributors and manufacturers' representatives
primarily to chemical, petrochemical, construction contractors, municipalities
and other industrial companies. The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly owned
and majority owned subsidiaries.
RESULT OF OPERATIONS
Three months ended June 30, 1997, compared with three months ended
June 30, 1996.
Discussion of the three months ended June 30, 1996 compared with three months
ended June 30, 1996 is being omitted in conjunction with the Company filing
this report with the reduced disclosure format pursuant to compliance by the
Registrant with conditions set forth in General Instruction H(1)(a), (b) and
(c) and H(2)(a) of Form 10-Q.
Six months ended June 30, 1997, compared with six months ended June 30, 1996.
Net sales increased for the six month period ended June 30, 1997 to $132.6
million, up $12.4 million, or 10.3% from sales of $120.2 million for the six
months ended June 30, 1996. This increase was primarily the result of
increased market demand in valve products plus the effects of the
acquisitions of Crown Pump at the end of December, 1996 and OIC Valve at the
end of March, 1997.
Gross profit of $40.5 million for the six months ended June 30, 1997
represents an increase of $1.7 million from the $38.8 million for the same
period for 1996. Gross profit as a percentage of sales decreased from
32.3% in the six months of 1996 to 30.5% for the same period in 1997. The
favorable impact of the higher sales was offset by the impact of stronger
marketplace competition, lower margin product mix and additional amortization
of intangibles related to purchase accounting adjustments as a result of the
acquisition of the Company by PCC.
Income from operations of $15.5 million for the first six months of 1997
remained even at $15.5 million versus the same period in 1996. The favorable
impact of higher sales and the inclusion of positive results from the
acquisitions of OIC Valve and Crown Pump were offset by increased
competitiveness in many of the Company's markets.
7
</PAGE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Interest expense on long term debt decreased to $3.0 million during the six
months ended June 30, 1997, from $9.7 million for the same period in 1996.
Approximately, $32.7 million of senior debt was retired July 31, 1996 with
the acquisition of the Company by PCC. In conjunction with the acquisition,
the Company's debt was restated to fair market value and a liability was
established to reflect the difference between the stated interest rate on
the outstanding subordinated notes and a market rate. As a result, the
effective interest rate for the Company was lower for the period ended,
June 30, 1997.
Net income before tax and minority interest of $12.5 million for the six
months ended June 30, 1997 was an improvement from the $5.5 million for the
comparable period in 1996. The improvement of $7.0 million was primarily the
result of the $6.7 million decrease in interest expense. In addition, other
expense for the period ended June 30, 1996 included predecessor costs related
to the sale of the Company.
CHANGES IN FINANCIAL POSITION AND LIQUIDITY
Total assets of $391.5 million at June 30, 1997 represented a $4.9 million
decrease from the $396.4 million balance at December 31, 1996. A decrease in
deferred taxes partially offset by an increase in accounts receivable
accounted for the majority of the decrease.
Cash from earnings for the six months ended June 30, 1997, of $9.8 million
was less than cash requirements which included $10.4 million for acquisitions,
$8.6 million of increased working capital and $2.3 million of capital
expenditures. The cash shortfall was funded from $10.2 million of net
advances from parent and $1.3 million of available cash. At June 30, 1997,
cash and cash equivalents were $2.6 million.
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. On July 31, 1996, the Senior Credit
Agreement was retired as part of the acquisition of the Company by PCC.
The Company expects cash provided by operations and financing provided by PCC
will be sufficient to meet its current obligations and future operating
requirements. The Company continues to evaluate potential acquisitions and
believes acquisition opportunities can be funded from cash and financing from
PCC.
8
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Part II. Other Information
Item 1. Legal Proceedings
None
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
None
9
</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: August 7, 1997
By: /s/ William D. Larsson
-------------------------
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 Balance Sheets at June 30, 1997 (unaudited), and the Condensed
Consolidated Statement of Operations for the six months ended June 30, 1997
(unaudited), and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,631
<SECURITIES> 0
<RECEIVABLES> 44,331
<ALLOWANCES> 1,466
<INVENTORY> 64,618
<CURRENT-ASSETS> 122,759
<PP&E> 34,241
<DEPRECIATION> 3,872
<TOTAL-ASSETS> 391,465
<CURRENT-LIABILITIES> 52,439
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 391,465
<SALES> 132,610
<TOTAL-REVENUES> 132,610
<CGS> 92,137
<TOTAL-COSTS> 92,137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,026
<INCOME-PRETAX> 12,473
<INCOME-TAX> 6,697
<INCOME-CONTINUING> 5,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,776
<EPS-PRIMARY> 31
<EPS-DILUTED> 31
</TABLE>
