<PAGE>
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 March 30, 1997
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
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET, NEW YORK, NEW YORK 10021
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
212-572-8600
- -----------------------------------------------------------------------------
(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 [ ]
As of May 5, 1997, the Registrant had 20,656,502 outstanding shares of
common stock of which 5,939,400 shares were held by Mafco Consolidated Group
Inc.
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
---------------------------
MARCH 30, MARCH 31,
1997 1996
----------- ------------
<S> <C> <C>
Net sales $ 27.2 $ --
Cost of sales (15.7) --
-------- --------
Gross profit 11.5 --
Selling, general and administrative expenses (2.4) 0.3
Amortization of intangibles (1.1) --
-------- --------
Operating income 8.0 0.3
Interest expense, net (1.7) --
-------- --------
Income from continuing operations before income taxes 6.3 0.3
Provision for income taxes (0.8) --
-------- --------
Income from continuing operations 5.5 0.3
Discontinued operations:
Income from operations of discontinued aerospace business, net of taxes -- 4.4
-------- --------
Net income 5.5 4.7
Preferred stock dividend (0.4) (0.4)
-------- --------
Net income available to common stockholders $ 5.1 $ 4.3
======== ========
Income per common share and common share equivalent:
Continuing operations $ 0.25 $ --
Discontinued operations -- 0.21
-------- --------
Net income $ 0.25 $ 0.21
======== ========
Fully diluted income per common share:
Continuing operations $ 0.24 $ --
Discontinued operations -- 0.20
-------- --------
Net income $ 0.24 $ 0.20
======== ========
Weighted average shares outstanding 20,656,502 20,821,746
========== ==========
Fully diluted weighted average shares outstanding 23,156,502 23,321,746
========== ==========
</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>
MARCH 30, DECEMBER 31,
1997 1996
--------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6.5 $ 5.7
Trade accounts receivable, net 13.4 11.3
Inventories 42.4 46.0
Prepaid expenses and other 1.2 3.3
-------- --------
Total current assets 63.5 66.3
Property, plant and equipment, net 26.2 26.3
Deferred tax asset, net 38.4 38.4
Intangibles assets related to business acquired, net 171.6 172.7
Other assets 16.7 14.4
-------- --------
$ 316.4 $ 318.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4.7 $ 5.2
Accrued interest 3.8 1.3
Accrued compensation and benefits 2.7 3.1
Taxes payable 2.1 1.4
Deferred cash payments due to Mafco 7.2 7.2
Other accrued expenses 5.4 5.5
-------- --------
Total current liabilities 25.9 23.7
Long-term debt 92.0 100.1
Other liabilities 8.3 8.3
Redeemable 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 in 1997 and 1996 0.2 0.2
Additional paid-in capital 26.7 26.7
Retained earnings 144.4 139.3
Currency translation adjustment (1.1) (0.2)
-------- --------
Total stockholders' equity 170.2 166.0
-------- --------
$ 316.4 $ 318.1
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
--------------------------
MARCH 30, MARCH 31,
1997 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5.5 $ 4.7
Adjustments to reconcile net income to total cash provided by
operating activities:
Income from operations of discontinued businesses -- (4.4)
Depreciation and amortization 1.9 --
Changes in assets and liabilities:
Increase in trade accounts receivable (2.3) --
Decrease in net assets held for sale -- 0.6
Decrease in inventories 3.2 --
Decrease in accounts payable (0.4) --
Other, net 2.9 (0.5)
------- ------
Cash provided by operating activities 10.8 0.4
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (0.7) --
Investment in joint venture (1.4) --
------- ------
Cash used in investing activities (2.1) --
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings (7.3) --
Preferred dividends (0.4) (0.4)
------- ------
Cash used in financing activities (7.7) (0.4)
------- ------
Effect of exchange rate changes on cash (0.2) --
------- ------
Net increase in cash and cash equivalents 0.8 --
Cash and cash equivalents at beginning of period 5.7 --
------- ------
Cash and cash equivalents at end of period $ 6.5 $ --
======= ======
</TABLE>
See Notes Consolidated Financial Statements.
4
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
Power Control Technologies Inc. ( "PCT" or the "Company") was
incorporated in Delaware on June 1, 1988 and is a holding company which
conducts its operations through its indirect wholly-owned subsidiary Pneumo
Abex Corporation ("Pneumo Abex").
As a result of the sale of the Company's aerospace business in 1996,
the Company has classified those operations as discontinued in the consolidated
financial statements.
On November 25, 1996, PCT acquired (the "Flavors Acquisition") all the
issued and outstanding shares of capital stock of Flavors Holdings Inc.
("Flavors"), the direct parent of Mafco Worldwide Corporation ("Mafco
Worldwide"). Subsequently, Mafco Worldwide merged into Pneumo Abex.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. 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. Operating results for the interim
periods are not necessarily indicative of the results that may be expected for
a full year.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's 1996 Form 10-K. All terms used but not defined
elsewhere herein have the meanings ascribed to them in the Company's 1996 Form
10-K.
2. INVENTORIES
Inventories are valued at the lower of cost or market and consist of
the following:
March 30, December 31,
1997 1996
------- -------
Raw materials and supplies $29.9 $32.2
Work-in-progress 0.4 0.4
Finished goods 12.1 13.4
----- -----
$42.4 $46.0
===== =====
3. INCOME PER COMMON SHARE
Income per common share has been computed based on 20,656,502 and
20,821,746 weighted average shares outstanding in the 1997 and 1996 periods,
respectively, including the dilutive effect of stock options in the 1996
period. Fully diluted income per share is computed assuming the conversion of
the Preferred Stock for all periods presented.
5
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS:
GENERAL
As a result of the sale of the Company's aerospace business in 1996,
the Company has classified those operations as discontinued in the consolidated
financial statements. Accordingly, the results of operations below do not
reflect the sales, cost of sales or selling, general and administration
("SG&A") expenses from the discontinued aerospace business for the three month
period ended March 31, 1996.
The discussion of historical results reflects the results of
operations of Flavors' licorice extract and other flavoring agents' business
since November 25, 1996, the date of the Flavors Acquisition. The historical
results of operations data presented below reflects the application of the
purchase method of accounting for the Flavors Acquisition based on the purchase
price allocation.
Certain results of operations data of Flavors prior to the Flavors
Acquisition, which exclude purchase accounting adjustments, are also presented
below for comparative purposes.
Three Months Ended March 30, 1997 Compared to the Three Months Ended March 31,
1996
Net sales were $27.2 in the first quarter of 1997, which reflect the
business of Flavors acquired in November 1996. Net sales of Flavors, prior to
the Flavors Acquisition, were $26.0 in the first quarter of 1996. The increase
of $1.2 or 4.6% was due to higher shipment volume primarily to the Company's
U.S. tobacco customers.
Cost of sales were $15.7 in the first quarter of 1997. Cost of sales
in 1997 reflect the business of Flavors acquired in November 1996, including
$1.5 of amortization and depreciation of the purchase price allocation related
to inventories and property, plant and equipment. Cost of sales of Flavors in
the first quarter of 1996, prior to the Flavors Acquisition, was $15.0. The
increase was primarily due to the purchase accounting amortization and
depreciation in 1997, partially offset by a decrease in raw material costs. As
a percentage of net sales, the Company's cost of sales was 57.7% in 1997 and
Flavors' cost of sales, prior to the Flavors Acquisition, was 57.7% in 1996.
SG&A expenses were $2.4 in the first quarter of 1997. The 1997
expenses reflect ongoing corporate costs, SG&A expenses of the business of
Flavors acquired in November 1996, partially offset by income recognized on the
Company's overfunded pension plan. SG&A expenses of the Company in 1996 reflect
income recognized on the Company's overfunded pension plan partially offset by
ongoing corporate costs.
Interest expense, net was $1.7 in the first quarter of 1997 which
primarily relates to the debt assumed in connection with the Flavors
Acquisition.
The provision for income taxes as a percentage of earnings before
income taxes was 12.7% in 1997. The tax provision in the first quarter of 1997
reflects a benefit of approximately 27% of income from continuing operations
before taxes relating primarily to net deferred tax assets which have been
6
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
recorded by way of a reduction in the valuation allowance. The net deferred tax
assets recorded represent a portion of the Company's net operating loss
carryforwards expected to be utilized. Based upon the historical results of
Flavors projected for a period which takes into consideration the current
operating environment in the tobacco industry, the Company believes that it is
more likely than not that it will be able to utilize these benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $10.8 and
$0.4 for the three month periods ended March 30, 1997 and March 31, 1996,
respectively. The increase in cash flow from operating activities primarily
reflects operating cash flows of the Flavors business acquired in November
1996. The Company's working capital requirements, especially for accounts
receivables and inventory are affected by customer demand by current and
prospective supplies of raw material prices. Management believes the current
inventory of $42.4 is adequate to meet customer requirements. Inventory levels
may fluctuate in the future as the Company takes advantage of opportunities to
purchase quality raw materials at favorable prices while maintaining its policy
of purchasing licorice root from all available sources to maintain
relationships with its suppliers. Capital expenditures for the three month
period ended March 30, 1997 were $0.7.
Under the Senior Credit agreement as amended, Pneumo Abex may borrow
up to $12.5 under a revolving credit facility. At March 30, 1997, there were no
borrowings under the facility and approximately $3.7 of this facility had been
reserved to support lender guarantees for outstanding letters of credit.
Management believes the remaining availability of approximately $8.8 under
Pneumo Abex's revolving credit facility, cash on hand and cash flow from
operations will be sufficient to meet the Company's working capital, capital
expenditure and debt service needs through the end of 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share", which established new standards for computing and presenting
earnings per share. SFAS No. 128 will be effective for interim and annual
financial statements after December 15, 1997. The Company believes that the
adoption of SFAS No. 128 will not have a material impact on the Company's
reported earnings per share.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27* Financial Data Schedule
* filed herein
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the period
covered by this report.
8
<PAGE>
SIGNATURES
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: May 6, 1997 By:/s/Irwin Engelman
--------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: May 6, 1997 By:/s/Laurence Winoker
--------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 13
<ALLOWANCES> 0
<INVENTORY> 42
<CURRENT-ASSETS> 64
<PP&E> 26
<DEPRECIATION> 0
<TOTAL-ASSETS> 316
<CURRENT-LIABILITIES> 26
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 170
<TOTAL-LIABILITY-AND-EQUITY> 316
<SALES> 27
<TOTAL-REVENUES> 27
<CGS> 16
<TOTAL-COSTS> 16
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 6
<INCOME-TAX> 1
<INCOME-CONTINUING> 5
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
