Mail Stop 7010
July 19, 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 March 31, 2005
File No. 333-64745
Dear Mr. Sawyer:
We have reviewed these filings and your responses to our
letter dated March 22, 2005 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
Selected Financial Data, pages 11-12
1. We note your proposed disclosures and response to prior comment
2
in our letter dated March 22, 2005 as well as your proposed
disclosure. We note that you have modified the calculation of
Adjusted EBITDA as well as expanded your disclosure to indicate
that
management believes that Adjusted EBITDA is a meaningful measure
and
represents and alternative view of our operating performance and
have
the following comments.
* We note that Adjusted EBITDA excludes goodwill impairment.
Confirm
that you do not believe that it is reasonably likely that you will
incur goodwill impairment charges within two years as required by
Item 10(e)(ii)(B) of Regulation S-K.
* You must revise your disclosures to provide all the disclosures
required by Question 8 of the Frequently Asked Questions Regarding
the Use of Non-GAAP Financial Measures. Ensure that your
discussion
of the material limitations associated with the use of your non-
GAAP
financial measure addresses the material limitations caused by the
elimination of each recurring item.
* Reconcile this non-GAAP financial performance measure to your
most
directly comparable GAAP measure, net income.
Note 1 - Summary of Significant Accounting Policies - Segment
Information, page 30
2. We note your response to our prior comment 14 in our letter
dated
March 22, 2005 and have the following additional comments
regarding
your segment presentation.
* You indicate that your 44 division are operating segments that
have
been aggregated into one reportable segment. You have not address
how you have determined that these operating segments have similar
economic characteristics. Provide us with a comprehensive
analysis
of the sales and gross margin trends of these 44 divisions over
the
last five years. Address any discrepancies in these trends.
Refer
to paragraphs 17 and 19 of SFAS 131 as well as EITF 04-10 --
Determining Whether to Aggregate Operating Segments That Do Not
Meet
the Quantitative Thresholds.
* Provide a more comprehensive analysis of how you have concluded
that your customers are similar in each of your 44 divisions.
Specifically address whether you serve customers in the
industrial,
construction, governmental and residential markets in each
division
or if certain divisions focus on certain markets. Address how
similar or different your customer base is in each of these four
markets you serve.
* Your response indicates that you produce a variety of profit and
loss statements. It appears that you have provided us with only
one
such report - Sales & EBITDA Comparison for the nine months ended
March 31, 2004 and 2005. Provide us with a representative copy
of
each report prepared for your CODM.
Form 10-K/A: Note 15 - Guarantors and Financial Information, page
43
Form 10-Q: Note 7 - Condensed Consolidating Financial Information,
page 8
3. We note your response to our prior comment 18 in our letter
dated
March 22, 2005 and the change made to your Form 10-Q for the
period
ended March 31, 2005. It remains unclear whether the Senior Notes
are guaranteed by your 100% owned subsidiaries on a full and
unconditional basis. Please revise accordingly.
Item 9A. Controls and Procedures, page 55
4. We note your response to our prior comments 19 and 20 and have
the
following additional comments.
* It appears to us that you have taken an overly narrow
interpretation of disclosure controls and procedures. It would
appear to us that in order to have effective disclosure controls
and
procedures, you must have had controls in place to ensure that
information received by management was not misinterpreted. In
light
of this expanded view of disclosure controls and procedures,
please
reassess whether this error constitutes a material weakness. If a
material weakness existed, please disclose this fact in your
amendment.
* If you continue to believe your disclosure controls and
procedures
were effective in light of the fact that an error was made in your
financial statements that lead to a restatement of your financial
statements, you must expand your disclosure to provide a
comprehensive discussion that sets forth the basis for your
president
and chief executive officer and chief financial officer`s
conclusions.
* Expand your disclosure to clarify what steps you are taking, or
will take, to correct the cited problem. Do not limit your
discussion only to those steps that you have already taken.
Form 10-Q for the quarter ended March 31, 2005
5. In response to our prior comment 22 in our letter dated March
22,
2005, we note your disclosures under Item 4 in Form 1Q-Q for the
quarterly period ended March 31, 2005 that state "...disclosure
controls and procedures were effective as of the end of the period
covered by this report in that they were reasonably designed..."
These revised disclosures don`t comply with the requirements of
Item
4 or our prior comment in that you must conclude that your
disclosure
controls and procedures are effective or ineffective, not whether
they are reasonably designed. Please revise your disclosures
accordingly.
6. In addition, the conclusion reached by your Chief Executive
Officer and Chief Financial Officer in the second paragraph
continues
to refer to an incomplete definition of disclosure controls and
procedures per Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
As
previously requested, 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. Amend your Form 10-Q
to
comply with Item 307 of Regulation S-K.
* * * *
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.
If you have any questions regarding these comments, please
direct them to Marie Trimeloni, Staff Accountant, at (202) 551-
3734,
or Jeanne Baker, Assistant Chief Accountant, at (202) 551-3691.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. John T. Sawyer
July 19, 2005
Page 4 of 4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE