<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, 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 943115884
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer ID No.)
16801 GREENSPOINT PARK DR., 355, HOUSTON, TEXAS 77060
(Address of principal executive offices) (Zip Code)
281-873-2055
(Registrant's telephone number, including area code)
301 CAMP CRAFT RD., SUITE 100, WEST LAKE HILLS, AUSTIN, TEXAS
78746
(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 November 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 -
September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations -
Nine months and three months ended September 30, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings
12
Item 2. Changes in Securities
12
Item 3. Defaults upon Senior Securities
12
Item 4. Submission of Matters to a Vote of
Security Holders
12
Item 5. Other Information
12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
Page 1
</Page>
<PAGE>
Part I. Financial Information
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets (Unaudited - see note)
_____________________________________________________________
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(In thousands)
<S> <C> <C>
Assets
______
Current assets:
Cash $ 4,278 $ 3,960
Accounts receivable 42,293 38,934
Less allowance for doubtful
accounts (1,467) (1,331)
____________ ____________
Accounts receivable (net) 40,826 37,603
Inventories, at cost:
Raw materials 15,359 18,025
Work-in-process 8,181 6,296
Finished goods 40,027 41,620
____________ ____________
Total inventories 63,567 65,941
Deferred taxes - current 10,886 9,637
Other current assets 2,176 391
____________ ____________
Total current assets 121,733 117,532
Property, plant and equipment 35,097 32,235
Less accumulated depreciation (4,874) (1,936)
____________ ____________
Net property, plant and equipment 30,223 30,299
Goodwill net of $6,678 amortization
(1996-$2,373) 224,757 235,050
Deferred taxes - long term 699 12,195
Other assets 1,267 1,317
_____________ _____________
Total assets $ 378,679 $ 396,393
=========== ==============
</TABLE>
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.
Page 2
</Page>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets (Unaudited-see note)
___________________________________________________________
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
_____________ _____________
(In thousands, except per share data)
<S> <C> <C>
Liabilities
___________
Current liabilities:
Accounts payable $ 15,672 $14,958
Accrued liabilities 27,832 32,105
Accrued taxes payable 13,486 11,745
Current portion of long term debt 163 274
_____________ _____________
Total current liabilities 57,153 59,082
Payable to affiliate 1,046 6,369
Long term debt 100,000 100,163
Deferred taxes - long term --- 8,615
Other liabilities 8,339 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 (189) 4
Retained earnings 10,667 4,002
_____________ _____________
Total common stockholders' equity 212,141 205,669
Total liabilities and
stockholders' equity $ 378,679 $ 396,393
=========== ==============
</TABLE>
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.
Page 3
</Page>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations (Unaudited)
___________________________________________________________
<TABLE>
<CAPTION>
Successor Predecessor
____________________________ ______________
Three Months Two Months One Month
ended ended ended
September 30, September 30, July 31,
1997 1996 1996
____________________________ ______________
(In Thousands, except per share data)
<S> <C> <C> <C><C> <C> <C>
Product sales, net $ 64,054 $ 39,588 $ 18,122
Cost of sales 44,108 27,766 12,555
_____________ _____________ _____________
Gross profit 19,946 11,822 5,567
Operating expenses:
Sales and marketing 8,133 5,144 2,583
General and administrative 3,951 2,301 1,496
_____________ _____________ _____________
Total operating expense 12,084 7,445 4,079
_____________ _____________ _____________
Income from operations 7,862 4,377 1,488
Interest expense (1,512) (1,002) (1,243)
_____________ _____________ _____________
Income before income taxes
and minority interest 6,350 3,375 245
Income tax expense (3,461) (1,839) (419)
_____________ _____________ _____________
Income (loss) before minority
interest 2,889 1,536 (174)
Minority interest --- (77) (24)
_____________ _____________ _____________
Net income (loss) $ 2,889 $ 1,459 $ (198)
============= ============= =============
Net income (loss) attributable
to common shares $ 2,889 $ 1,459 $ (201)
============= ============= =============
Net income (loss) per
common share $ 28,890.00 $ 14,590.00 $ (1.02)
============= ============= =============
Shares used in calculation
of net income (loss)
per common share 100 100 196,638
_____________ _____________ _____________
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
</Page>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations (Unaudited)
___________________________________________________________
<TABLE>
<CAPTION>
Successor Predecessor
____________________________ ______________
Nine Months Two Months Seven Months
ended ended ended
September 30, September 30, July 31,
1997 1996 1996
____________________________ ______________
(In Thousands, except per share data)
<S> <C> <C> <C><C> <C> <C>
Product sales, net $ 196,664 $ 39,588 $ 138,320
Cost of sales 136,245 27,766 93,963
_____________ _____________ _____________
Gross profit 60,419 11,822 44,357
Operating expenses:
Sales and marketing 25,154 5,144 17,793
General and administrative 11,904 2,301 9,580
_____________ _____________ _____________
Total operating expense 37,058 7,445 27,373
_____________ _____________ _____________
Income from operations 23,361 4,377 16,984
Interest expense (4,538) (1,002) (10,938)
Other income (expense) --- --- (337)
_____________ _____________ _____________
Income before income taxes
and minority interest 18,823 3,375 5,709
Income tax expense (10,158) (1,839) (2,719)
_____________ _____________ _____________
Income before minority
interest 8,665 1,536 2,990
Minority interest --- (77) (140)
_____________ _____________ _____________
Net income $ 8,665 $ 1,459 $ 2,850
============= ============= =============
Net income attributable to
common shares $ 8,665 $ 1,459 $ 2,840
============= ============= =============
Net income per common
share $ 86,650.00 $ 14,590.00 $ 11.18
============= ============= =============
Shares used in calculation
of net income per
common share 100 100 253,938
============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
</Page>
PCC FLOW TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
___________________________________________________________
<TABLE>
<CAPTION>
Successor Predecessor
____________________________ ______________
Nine Months Two Months Seven Months
ended ended ended
September 30, September 30, July 31,
1997 1996 1996
____________________________ ______________
(In Thousands, except per share data)
<S> <C> <C> <C><C> <C> <C>
Operating activities
____________________
Net income $ 8,665 $ 1,459 $ 2,850
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 7,422 2,629 5,449
Minority interest (1,647) 77 140
Deferred income taxes 2 --- ---
Changes in operating assets
and liabilities:
Accounts receivable (2,174) (2,281) 2,648
Inventories 4,019 (1,385) (5,079)
Other current assets (1,354) 82
473
Accounts payable 670 992 542
Income taxes payable 3,049 949
(9)
Accrued compensation (822) 169
314
Accrued interest (2,068) (1,066) 1,111
Other accrued liabilities (747) 2,989 (3,299)
_____________ _____________ _____________
Cash provided by
operating activities 15,015 4,614 5,140
Investing activities
____________________
Acquisition, net of cash
acquired, NEWFLO --- (173,281) ---
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 (3,579) (366) (1,844)
Proceeds from sale
of equipment --- --- 311
Advances from parent 1,593 --- ---
Other investing activities 135 135
248
_____________ _____________ _____________
Cash used in investing
activities (12,230) (173,512) (11,059)
Financing activities
____________________
Borrowings (repayments)
- bank line of credit --- (20,781) 13,421
Repayments of notes payable (274) (11,901) (4,347)
Contributed Capital - Parent -- 206,067 ---
Payment of preferred stock
dividends --- --- (8)
Payment of dividend to Parent (2,000) (2,800) ---
_____________ _____________ _____________
Cash provided by (used in)
financing activities (2,274) 170,585 9,066
Effect of foreign exchange
rate changes on cash (193) 134 29
_____________ _____________ _____________
Net increase in cash $ 318 $ 1,821 $ 3,176
Cash, beginning of period $ 3,960 $ 3,912 $ 736
Cash, end of period $ 4,278 $ 5,733 $ 3,912
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
Page 6
</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., formerly known as
NEWFLO Corporation, 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 nine
month periods ended September 30, 1996 and the three and nine
month periods ended September 30, 1997. 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.
Page 7
</Page>
<PAGE>
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.
3. Subsequent Event
The Company has issued a redemption notice and will redeem its
subordinated notes as of November 15, 1997 for $105.3 million
including the call premium, which is recorded as a current
liability. Terms and conditions of the subordinated notes
restrict any call transactions by the Company prior to November
15, 1997.
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., previously known as NEWFLO Corporation, 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 nine month period ended September 30,
1997 and the nine month period ended September 30, 1996.
Page 8
</Page>
<PAGE>
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 September 30, 1997, compared with three months
ended September 30, 1996.
Discussion of the three months ended September 30, 1997 compared
with three months ended September 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.
Nine months ended September 30, 1997, compared with nine months
ended September 30, 1996.
Net sales increased for the nine month period ended September 30,
1997 to $196.7 million, up $18.8 million, or 10.5% from sales of
$177.9 million for the nine months ended September 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 $60.4 million for the nine months ended September
30, 1997 represents an increase of $4.2 million from $56.2
million for the same period in 1996. Gross profit as a
percentage of sales decreased from 31.6% in the nine months of
1996 to 30.7% 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 related to purchase accounting adjustments as a
result of the acquisition of the Company by PCC.
Page 9
</Page>
<PAGE>
Income from operations, for the first nine months of 1997
increased $2.0 million to $23.4 million versus $21.4 million for
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.
Interest expense on long term debt decreased to $4.5 million
during the nine months ended September 30, 1997, from $11.9
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 the market rate. As a result, the effective interest rate
for the Company was lower for the period ended, September 30,
1997.
Net income before taxes and minority interest of $18.8 million
for the nine months ended September 30, 1997 was an improvement
from the $9.1 million for the comparable period in 1996. The
improvement of $9.7 million was primarily the result of the $7.4
million decrease in interest expense coupled with the reduction
in other expense for the period ended September 30, 1997.
CHANGES IN FINANCIAL POSITION AND LIQUIDITY
Total assets of $378.7 million at September 30, 1997 represented
a $17.7 million decrease from the $396.4 million balance at
December 31, 1996. Decreases in deferred taxes and goodwill, net
of amortization, partially offset by increases in accounts
receivable and other current assets accounted for the majority of
the decrease.
Cash provided by operating activities for the nine months ended
September 30, 1997, of $15.0 million funded cash requirements
which included $10.4 million for acquisitions, $3.6 million of
capital expenditures and $0.4 million dividend to parent (net of
advances from parent). At September 30, 1997, cash and cash
equivalents were $4.3 million.
Page 10
</Page>
<PAGE>
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.
Page 11
PCC FLOW TECHNOLOGIES, INC.
</Page>
<PAGE>
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
________________________________
Item 6.(a) Exhibits
27 Financial Data Schedule
Item 6.(b) Reports on Form 8-K:
None
Page 12
</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 13, 1997
_________________
By: /s/ WILLIAM D. LARSSON
______________________________
William D. Larsson
Vice President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
Page 13
</Page>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Condensed
Consolidated Balance Sheets at September 30, 1997 (unaudited), and the
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 1997 (unaudited), and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000888740
<NAME> PCC FLOW TECHNOLOGIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4278
<SECURITIES> 0
<RECEIVABLES> 42293
<ALLOWANCES> 1467
<INVENTORY> 63567
<CURRENT-ASSETS> 121733
<PP&E> 35097
<DEPRECIATION> 4874
<TOTAL-ASSETS> 378679
<CURRENT-LIABILITIES> 57153
<BONDS> 100000
0
0
<COMMON> 0
<OTHER-SE> 212141
<TOTAL-LIABILITY-AND-EQUITY> 378679
<SALES> 196664
<TOTAL-REVENUES> 196664
<CGS> 136245
<TOTAL-COSTS> 136245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4538
<INCOME-PRETAX> 18823
<INCOME-TAX> 10158
<INCOME-CONTINUING> 8665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8665
<EPS-PRIMARY> 87
<EPS-DILUTED> 87
</TABLE>
