UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-13780
POWER CONTROL TECHNOLOGIES INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 02-0423416
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET, NEW YORK, NEW YORK 10021
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(Address of principal executive offices) (Zip Code)
212-572-8600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
The number of shares of Common Stock outstanding at November 5, 1996 was
20,656,502.
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
General and administrative expense $ (0.6) $ (0.6) $ (1.2) $ (11.5)
-------- -------- ---------- ---------
Operating expense (0.6) (0.6) (1.2) (11.5)
Interest expense -- -- -- (0.4)
Other income, net 4.1 0.4 7.9 8.1
-------- -------- ---------- ---------
Income (loss) from continuing operations 3.5 (0.2) 6.7 (3.8)
Discontinued operations
Income from operations of discontinued aerospace
business, net of foreign income taxes -- 3.9 4.4 11.9
Gain on sale of discontinued aerospace business -- -- 153.7 --
-------- -------- ---------- ---------
Income before extraordinary loss 3.5 3.7 164.8 8.1
Extraordinary loss -- -- -- (1.6)
-------- -------- ---------- ---------
Net income 3.5 3.7 164.8 6.5
-------- -------- ---------- ---------
Preferred stock dividend (0.4) (0.4) (1.2) (0.5)
-------- -------- ---------- ---------
Net income available to common shareholders $ 3.1 $ 3.3 $ 163.6 $ 6.0
======== ======== ========== =========
Income (loss) per common share and common equivalent share:
Continuing operations $ 0.15 $ (0.03) $ 0.27 $ (0.21)
Discontinued operations -- 0.19 7.63 0.59
-------- -------- ---------- ---------
0.15 0.16 7.90 0.38
Extraordinary loss -- -- -- (0.08)
-------- -------- ---------- ---------
Net income $ 0.15 $ 0.16 $ 7.90 $ 0.30
======== ======== ========== =========
Fully diluted income (loss) per common share:
Continuing operations $ 0.15 $ (0.01) $ 0.29 $ (0.18)
Discontinued operations -- 0.17 6.81 0.56
-------- -------- ---------- ---------
0.15 0.16 7.10 0.38
Extraordinary loss -- -- -- (0.08)
-------- -------- ---------- ---------
Net income $ 0.15 $ 0.16 $ 7.10 $ 0.30
======== ======== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1.3 $ --
Marketable securities 196.5 --
Prepaid expenses and other 0.7 1.2
----------- ---------
Total current assets 198.5 1.2
Restricted cash 2.1 --
Net assets held for sale -- 38.8
Other assets 13.8 11.3
----------- ---------
$ 214.4 $ 51.3
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 4.0 $ 4.4
Long-term liabilities 4.3 4.4
----------- ---------
Total liabilities 8.3 8.8
Convertible preferred stock 20.0 20.0
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 250,000,000 shares authorized;
20,656,502 shares issued and outstanding 0.2 0.2
Additional paid-in capital 26.7 26.7
Retained earnings (accumulated deficit) 159.2 (4.4)
----------- ---------
Total stockholders' equity 186.1 22.5
----------- ---------
$ 214.4 $ 51.3
=========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 164.8 $ 6.5
Adjustments to reconcile net income to total cash provided by (used in)
operating activities:
Income from discontinued aerospace business (4.4) (11.9)
Gain on discontinued aerospace business (153.7) --
Extraordinary loss -- 1.6
Depreciation -- 1.1
Changes in assets and liabilities:
Assets held for sale -- 1.6
Other current assets 0.5 1.9
Other assets (2.5) (2.4)
Accrued liabilities (0.4) (25.1)
Other long-term liabilities -- 9.5
-------- --------
Cash provided by (used in) operating activities 4.3 (17.2)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of aerospace business, net of transaction costs 196.8 --
Net increase in marketable securities (196.5) --
Transfer of cash in Abex Merger -- (181.2)
-------- --------
Cash provided by (used in) investing activities 0.3 (181.2)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt payments, net -- (31.1)
Increase in restricted cash (2.1) --
Preferred dividends (1.2) (0.5)
-------- --------
Cash used in financing activities (3.3) (31.6)
-------- --------
Net increase (decrease) in cash and cash equivalents 1.3 (230.0)
Cash and cash equivalents at beginning of period -- 230.0
-------- --------
Cash and cash equivalents at end of period $ 1.3 $ 0.0
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Power
Control Technologies Inc. (the "Company" or "PCT") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Results for interim periods are not necessarily indicative of
the results which might be expected for a full year. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1995 annual
report on Form 10-K and proxy statement for the Company's 1996 Annual Meeting
of Stockholders. All terms used but not defined elsewhere herein have the
meanings ascribed to them in the Company's 1995 annual report on Form 10-K.
On April 15, 1996, the Company sold substantially all of its operating
assets and related liabilities (see Note 4). Accordingly, the consolidated
financial statements for all periods presented reflect such assets and
liabilities and related results of operations as discontinued operations.
NOTE 2. INCOME PER COMMON SHARE
Income per common share for the three-month and nine-month periods
ended September 30, 1995 is based on 20.7 million and 20.1 million shares of
common stock, respectively. Income per common share for the three-month and
nine-month periods ended September 30, 1996 is based on 20.7 million
outstanding shares of common stock. In connection with the Aerospace Sale (see
Note 4), all of the outstanding stock options were canceled in April 1996.
Fully diluted income per common share assumes the conversion of
preferred stock into 2.5 million common shares from June 15, 1995.
NOTE 3. INCOME TAXES
At December 31, 1995 the Company had available federal net operating
loss carryforwards of approximately $172.0 and therefore the Company has not
provided for federal income taxes for the three-month and nine-month periods
ended September 30, 1996.
NOTE 4. SALES AND DISPOSITIONS OF ASSETS AND LIABILITIES
On April 15, 1996, the Company received the necessary approval from
its stockholders and consummated the Aerospace Sale pursuant to the terms of
the Master Asset Purchase Agreement for aggregate cash consideration of $201.1,
before estimated transaction costs of approximately $4.3 million. The Company
recorded a gain of $153.7 related to this sale, net of estimated transaction
costs. In connection with the Aerospace Sale, Parker-Hannifin assumed the
operating liabilities of the Aerospace Business, including the existing debt of
the Company. For additional information regarding
5
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
the Aerospace Sale, readers are referred to the proxy statement for the
Company's 1996 Annual Meeting of Stockholders.
NOTE 5. SALE OF MAFCO WORLDWIDE TO PCT
On October 23, 1996, MC Group entered into a Stock and VSR Purchase
Agreement (the "Purchase Agreement"), dated as of October 23, 1996, with PCT
and PCT International Holdings Inc., a Delaware corporation and wholly owned
subsidiary of PCT ("Purchaser"), pursuant to which Purchaser has agreed to
purchase from MC Group , and MC Group has agreed to sell and issue to
Purchaser, all the issued and outstanding shares (the "Shares") of capital
stock of Flavors Holdings Inc., a Delaware corporation and wholly owned
subsidiary of MC Group ("Flavors"), and 23,156,502 Value Support Rights (each a
"VSR" and collectively, the "VSRs") to be issued pursuant to the Value Support
Rights Agreement (the "VSR Agreement") to be entered into between MC Group and
American Stock Transfer & Trust Company, as trustee. Flavors, through its
wholly owned subsidiary Mafco Worldwide Corporation, operates MC Group's
licorice extract and other flavoring agents manufacturing and distributing
business. The agreement was unanimously approved by the Boards of Directors of
MC Group and PCT and, in the case of PCT, upon the recommendation of a Special
Committee of directors who are not officers or employees of PCT or its
affiliates including MC Group, formed to consider the transaction. The
transaction is expected to close in the fourth quarter of 1996.
In consideration for the Shares and VSRs, Purchaser has agreed to pay
MC Group cash in the amount of $180. In addition, Purchaser shall pay MC Group
deferred cash payments of $3.7 on June 30, 1997 and $3.5 on December 31, 1997.
It is anticipated that the VSRs will be distributed to all holders of
PCT Common Stock and PCT Preferred Stock promptly following the effectiveness
of a registration statement to be filed by MC Group with the Securities and
Exchange Commission. Each VSR, subject to certain limitations, entitles its
holder to receive a payment, if any, of up to $3.25 per VSR if the 30-Day
Average Market Price (as defined in the VSR Agreement) of PCT Common Stock is
below $11.00 per share on January 1, 1999; provided, however, MC Group has an
optional right to call the VSRs each April 1, July 1, October 1 and January 1
from and including April 1, 1997 to and including October 1, 1998 (each, an
"Optional Call Date"). If MC Group calls the VSRs on or before January 1, 1998,
holders will be entitled to receive a payment of at least $0.50 and up to $3.25
per VSR if the 30-Day Average Market Price is below $10.25 per share as of such
Optional Call Date. If MC Group calls the VSRs after January 1, 1998, each VSR
will entitle its holder to a payment, if any, of up to $3.25 per VSR if the
30-Day Average Market Price is below $11.00 per share on such Optional Call
Date.
The Purchase Agreement contains a number of representations,
warranties and covenants by the parties.
6
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
GENERAL
As a result of the April 15, 1996 sale of the Aerospace Business to
Parker-Hannifin, the Company has classified those operations as discontinued in
the accompanying consolidated financial statements.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to the Three Months Ended
September 30, 1995
General and administrative expenses from continuing operations in 1996
and 1995 were $0.6 for the three months ended September 30, 1996 and 1995. The
expenses primarily relate to on-going corporate costs.
Other income, net was $4.1 for the three months ended September 30,
1996, compared to $0.4 for the three months ended September 30, 1995. Other
income during the 1996 period represents interest income on cash proceeds
received from the Aerospace Sale and income recognized on the Company's
overfunded pension plan. Other income during the 1995 period reflects income
recognized on the Company's overfunded pension plan.
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995
General and administrative expenses from continuing operations were
$1.2 for the nine months ended September 30, 1996, compared to $11.5 for the
nine months ended September 30, 1995. The 1996 expenses primarily relate to
on-going corporate costs. The 1995 expenses primarily relate to costs
associated with the former Hampton, NH office of Abex before the Abex Transfer
and the Merger and on-going corporate costs of the Company after the Abex
Transfer and Merger.
Other income, net was $7.9 for the nine months ended September 30,
1996, compared to $8.1 for the nine months ended September 30, 1995. Other
income during the 1996 period reflects interest income on cash proceeds
received from the Aerospace Sale and income recognized on the Company's
overfunded pension plan. Other income during the 1995 period relates primarily
to interest income on cash held by Abex before the Abex Transfer and Merger and
income recognized on overfunded pension plan.
Income from operations of discontinued aerospace business was $4.4 in
the nine months ended September 30, 1996 and $11.9 in the nine months ended
September 30, 1995. The 1996 period represents aerospace operations through the
date of sale while the 1995 period represents aerospace operations for the full
period.
The Company recorded a gain of $153.7 related to the Aerospace Sale in
the nine months ended September 30, 1996. There were no income taxes provided
in connection with the sale as the tax bases of the assets and liabilities sold
approximated the net proceeds.
7
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $1.3 and marketable
securities of $196.5 at September 30, 1996.
In connection with the Aerospace Sale, on April 15, 1996, the Company
terminated its existing Credit Agreement with Chemical Bank and Bank of America
(the "Credit Agreement") and entered into an agreement with Chemical Bank
pursuant to which certain letters of credit granted by Chemical Bank on behalf
of the Company pursuant to the Credit Agreement will remain outstanding.
On February 5, 1996, the Company, through Pneumo Abex, entered into a
Reimbursement Agreement with Chemical Bank and MC Group. The Reimbursement
Agreement provides for letters of credit totaling $20.8 million covering
certain environmental issues not related to the Company's former Aerospace
Business. In connection with the Abex Transfer, MC Group has agreed to
indemnify the Company for these contingent liabilities, which are generally
paid by third party indemnitors and insurers, including the cost of the letters
of credit.
At December 31, 1995, the Company had available federal net operating
loss carryforwards of approximately $172.0.
On October 23, 1996, MC Group entered into a Stock and VSR Purchase
Agreement (the "Purchase Agreement"), dated as of October 23, 1996, with PCT
and PCT International Holdings Inc., a Delaware corporation and wholly owned
subsidiary of PCT ("Purchaser"), pursuant to which Purchaser has agreed to
purchase from MC Group , and MC Group has agreed to sell and issue to
Purchaser, all the issued and outstanding shares (the "Shares") of capital
stock of Flavors Holdings Inc., a Delaware corporation and wholly owned
subsidiary of MC Group ("Flavors"), and 23,156,502 Value Support Rights (each a
"VSR" and collectively, the "VSRs") to be issued pursuant to the Value Support
Rights Agreement (the "VSR Agreement") to be entered into between MC Group and
American Stock Transfer & Trust Company, as trustee. Flavors, through its
wholly owned subsidiary Mafco Worldwide Corporation, operates MC Group's
licorice extract and other flavoring agents manufacturing and distributing
business. The agreement was unanimously approved by the Boards of Directors of
MC Group and PCT and, in the case of PCT, upon the recommendation of a Special
Committee of directors who are not officers or employees of PCT or its
affiliates including MC Group, formed to consider the transaction. The
transaction is expected to close in the fourth quarter of 1996.
In consideration for the Shares and VSRs, Purchaser has agreed to pay
MC Group cash in the amount of $180. In addition, Purchaser shall pay MC Group
deferred cash payments of $3.7 on June 30, 1997 and $3.5 on December 31, 1997.
It is anticipated that the VSRs will be distributed to all holders of
PCT Common Stock and PCT Preferred Stock promptly following the effectiveness
of a registration statement to be filed by MC Group with the Securities and
Exchange Commission. Each VSR, subject to certain limitations, entitles its
holder to receive a payment, if any, of up to $3.25 per VSR if the 30-Day
Average Market Price (as defined in the VSR Agreement) of PCT Common Stock is
below $11.00 per share on January
8
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
1, 1999; provided, however, MC Group has an optional right to call the VSRs
each April 1, July 1, October 1 and January 1 from and including April 1, 1997
to and including October 1, 1998 (each, an "Optional Call Date"). If MC Group
calls the VSRs on or before January 1, 1998, holders will be entitled to
receive a payment of at least $0.50 and up to $3.25 per VSR if the 30-Day
Average Market Price is below $10.25 per share as of such Optional Call Date.
If MC Group calls the VSRs after January 1, 1998, each VSR will entitle its
holder to a payment, if any, of up to $3.25 per VSR if the 30-Day Average
Market Price is below $11.00 per share on such Optional Call Date.
9
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Description
10.1 Stock and VSR Purchase Agreement, dated as of October 23,
1996, by and between Mafco Consolidated Group Inc. and Power
Control Technologies Inc. and PCT International Holdings Inc.
(incorporated by reference to Exhibit 7 of the Mafco
Consolidated Group Inc. Schedule 13D, dated October 25, 1996
filed with respect to Power Control Technologies, Inc.)
10.2 Form of Value Support Rights Agreement between Mafco
Consolidated Group Inc. and American Stock Transfer & Trust
Company, as the trustee (included as Exhibit A to the Stock
and VSR Purchase Agreement incorporated by reference in
Exhibit 10.1).
27* Financial Data Schedule.
*filed herein
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWER CONTROL TECHNOLOGIES INC.
(Registrant)
Date: November 12, 1996 By:/s/Irwin Engelman
------------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: November 12, 1996 By:/s/Laurence Winoker
-----------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Power Control Technologies Inc. Consolidated Balance Sheet and Statement
of Income and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<EXCHANGE-RATE> 1
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1
<SECURITIES> 197
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 214
<CURRENT-LIABILITIES> 4
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 186
<TOTAL-LIABILITY-AND-EQUITY> 214
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (1)
<OTHER-EXPENSES> (8)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7
<INCOME-TAX> 0
<INCOME-CONTINUING> 7
<DISCONTINUED> 158
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 7.90
<EPS-DILUTED> 7.10
</TABLE>
