Mail Stop 0510
March 22, 2005
Via U.S. mail and facsimile
Mr. John T. Sawyer
President and Chief Executive Officer, Penhall International Corp.
1801 Penhall Way
Anaheim, CA 92803
RE: Form 10-K/A for the fiscal year ended June 30, 2004
Form 10-Q for the period ended December 31, 2004
File No. 333-64745
Dear Mr. Sawyer:
We have reviewed these filings and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-K/A FOR THE YEAR ENDED JUNE 30, 2004
General
1. Where a comment below requests additional disclosures or other
revisions to be made, please provide to us your intended
disclosure.
These revisions should be included in your future filings.
Selected Financial Data, pages 11 - 12
2. We note your presentation of the non-GAAP measure Adjusted
EBITDA
and Adjusted EBITDA Margin. Your current disclosures do not
comply
with Item 10(e) of Regulation S-K. In this regard, please expand
your statement explaining you believe these non-GAAP measures
provide
useful information regarding your ability to incur and/or service
debt. Also, since your presentation of Adjusted EBITDA appears
related to your loan covenants, please expand your discussion with
respect to those loan covenants. See Question 10 of the FAQ and
expand your disclosures to encompass the disclosures required by
the
1st and 3rd bullet points.
Management`s Discussion and Analysis
Goodwill, page 15
3. Expand your discussion of your reporting units and give more
specific information with respect to the reporting unit relating
to
the remaining goodwill such as profitability trends and whether
impairment is likely in the near term.
Contractual Obligations, page 17
4. Please consider revising your table of contractual cash
obligations to include the following:
* Estimated interest payments on your debt; and
* Planned funding of pension and other postretirement benefit
obligations.
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. Please
also disclose any assumptions you made to derive these amounts.
If
you choose not to include these payments, a footnote to the table
should clearly identify the excluded items and provide any
additional
information that is material to an understanding of your cash
requirements. See Regulation S-K, Item 303(a)(5) for guidance.
Liquidity and Capital Resources, pages 17 - 19
5. Liquidity generally should be discussed on both a long-term and
short-term basis. Accordingly, the discussion of the sufficiency
of
your resources to satisfy ongoing cash requirements for the next
twelve months should be expanded to discuss liquidity on a long-
term
basis. See Regulation S-K, Item 303(a), Instruction #5.
6. We note you received $11.3 million from the sale and leaseback
of
11 sites in 2003. If you own other properties that you could sell
and lease back, please disclose these as possible sources of
liquidity. If not, include disclosure regarding the lack of
additional properties that could be used to generate additional
liquidity through sale/leaseback transactions. See Regulation S-
K,
Item 303(a)(1).
7. As discussed in comment 2, we believe you should expand your
disclosure with respect to your loan covenants. In this regard,
disclose in MD&A information on your material covenants and any
trends indicating potential compliance or noncompliance with those
covenants.
8. When discussing your cash provided by operating activities, you
should explain why there were material changes in your working
capital items. Your current disclosure simply states that your
working capital items have increased or decreased.
9. We note in the last paragraph of the liquidity section that
your
inability to obtain surety bonds in the future would significantly
impact your ability to obtain new contracts. Please describe and
quantify the impact if you were to lose the ability to obtain
surety
bonds in the future. In this regard, disclose what percentage of
current contracts involves surety bonds.
Financial Statements
Statements of Cash Flows, page 26
10. We note that you combine a number of items within changes in
operating assets and liabilities, net of effects of acquisitions.
If
any single change is material, please show it separately in your
statements of cash flows. See SFAS 95, paragraph 29.
11. Supplementally clarify the nature of "book overdraft" and
where
this item is presented in your balance sheet. Address the
appropriateness of including this item as a financing item rather
than an operating item.
Note 1 - Summary of Significant Accounting Policies - Inventories,
page 28
12. Expand your disclosure to clarify what you mean by "expensed
based on usage". What is the useful life of the diamond cutting
blades? Do you amortize their cost over their useful life? If
not,
why not.
Note 1 - Summary of Significant Accounting Policies - Impairment
of
Long-Lived Assets, page 29
13. It would appear to us that the continued decline in the market
conditions within your industry would require you to test your
long-
lived assets for recoverability in accordance with paragraph 8 of
SFAS 144. Expand your disclosures to clarify whether you
performed
such a test. If not, expand your discussion within your critical
accounting policies to address why you do not believe such a test
was
necessary.
Note 1 - Summary of Significant Accounting Policies - Segment
Information, page 30
14. You indicate that your only line of business is the rental of
operator assisted equipment for use in infrastructure projects.
We
note however, that you serve customers in the industrial,
construction, governmental and residential markets and that you
have
identified certain reporting units for the purposes of applying
the
goodwill impairment tests of SFAS 142. In light of the definition
set forth in paragraph 10 of SFAS 131, address how you have
complied
with the disclosure requirements set forth in paragraph 16 of SFAS
131. Provide us a representative copy of the financial reports
prepared for and regularly reviewed by your chief operating
decision
maker (CODM).
Note 4 - Goodwill Impairment, page 32
15. We have the following comments regarding the goodwill
impairment
charges you recorded during fiscal year 2004.
* Identify your reporting units and tell us how you determined
your
reporting units in accordance with paragraph 30 of SFAS 142.
* Tell us supplementally and expand your critical accounting
policy
to address how you assigned goodwill to your reporting units.
Refer
to paragraphs 34 and 35 of SFAS 142.
* Clarify whether you evaluated the recoverability of goodwill
each
of your reporting units. If not, address why not. In this
regard,
we note that substantially all of your remaining goodwill resides
in
one reporting unit. Identify the reporting unit and clarify why
the
continued decline in market conditions did not cause an impairment
of
this goodwill.
* We note that for your annual impairment test you assigned a
value
to assembled workforce to determine the remaining fair value of
goodwill. Tell us how much was assigned to assembled workforce
and
why you believe your allocation to assembled workforce is
appropriate
given the guidance in paragraph 21 of SFAS 142 and paragraphs 35-
38
of SFAS 141.
* Clarify whether you assigned a value to assembled workforce when
you determined the remaining fair value for goodwill. If so,
address
our comment in the above bullet.
Note 7 - Income Taxes, page 34
16. We note your assessment that it is more likely than not that
you
will realize your deferred tax assets. Given the continued
decline
in the market conditions within your industry, it appears to us
that
your assessment of the whether it is more likely than not that you
will realize your deferred tax assets requires significant
management
judgments and estimates and therefore should be addressed within
your
critical accounting policies. In this regard, tell us
supplementally
and revise your disclosures to identify the significant
assumptions
on which you relied.
Note 12 - Costs and Estimated Earnings on Uncompleted Contracts,
page
41
17. We have the following comments on your costs and estimated
earnings on uncompleted contracts.
* Supplementally explain and expand your critical accounting
policies
or Management`s Discussion and Analysis to address why your
estimated
earnings to date has increased significantly from June 30, 2003 to
June 30, 2004 on both an absolute dollar basis and as a percentage
of
costs incurred on uncompleted contracts.
* Supplementally explain and expand your critical accounting
policies
or Management`s Discussion and Analysis to address why your costs
and
estimated earnings in excess of billings on uncompleted contracts
as
well as your billings in excess of costs and estimated earnings on
uncompleted contracts have increased even in light of decreasing
revenues.
Note 15 - Guarantors and Financial Information, page 43
18. Disclose in the introduction paragraph to Note 15 whether the
Senior Notes are guaranteed by your 100% owned subsidiaries on a
full
and unconditional basis and the guarantees are joint and several.
See Regulation S-X, Article 3-10 (f).
Item 9A. Controls and Procedures, page 55
19. In light of the fact that you were required to restate your
consolidated balance sheets and statements of stockholders equity
contained in your Form 10-K/A, tell us how you were able to
provide
true and accurate Item 9 disclosures regarding Controls and
Procedures. The nature of the restatements disclosed in your Form
10-K/A appear to indicate you may lack the necessary disclosure
controls and procedures, as well as internal controls necessary to
provide true and accurate Item 9 disclosures. Please advise.
20. Notwithstanding the above comment, you must revise your
disclosures to state in detail the steps you have taken (or plan
to
take) and procedures you implemented (or plan to implement) "for
the
enhancement of" your control processes and procedures, including a
time frame for these corrective measures. In addition, we
assume
your reference to "control processes and procedures refers to
"disclosure controls and procedures". Please revise to clarify.
FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 2004
General
21. Please address the comments above in your interim filings as
well.
Item 4. Controls and Procedures
22. We note that your chief executive officer and chief financial
officer concluded your disclosure controls and procedures "...were
effective as of the end of the period covered by this report in
that
they were reasonably designed to ensure that information required
to
be disclosed by our company in the reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified n the rules and forms of the
SEC."
This is an incomplete definition of disclosure controls and
procedures per Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
In
future filings, please revise your disclosure to clarify, if true,
that your officers concluded that your disclosure controls and
procedures are effective to ensure that information required to be
disclosed by you in the reports that you file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within
the time periods specified in the Commission`s rules and forms and
to
ensure that information required to be disclosed by an issuer in
the
reports that it files or submits under the Exchange Act is
accumulated and communicated to your management, including its
principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Otherwise, please simply
conclude that your disclosure controls and procedures are
effective
or ineffective, whichever the case may be.
* * * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a supplemental response letter that keys your responses to
our comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Marie Trimeloni, Staff Accountant, at (202) 942-
1860,
Jeanne Baker, Assistant Chief Accountant, at (202) 942-1835 or, in
their absence, to the undersigned at (202) 942-1774.
Sincerely,
Rufus Decker
Accounting Branch Chief
??
??
??
??
Mr. John T. Sawyer
March 22, 2005
Page 7 of 7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE