1
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 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number. 333-64745
----------------
PENHALL INTERNATIONAL CORP.
(Exact Name of registrant as specified in its charter)
ARIZONA 86-0634394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1801 PENHALL WAY, ANAHEIM, CA 92803
(Address of principal executive offices) (Zip Code)
(714) 772-6450
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS AND TITLE OF SHARES OUTSTANDING AS OF
CAPITAL STOCK MAY 12, 2000
Common Stock, $.01 Par Value 1,010,937
2
PENHALL INTERNATIONAL CORP.
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 and March 31, 2000..................... 3
Condensed Consolidated Statements of Operations for the three and nine month periods ended
March 31, 1999 and 2000................................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine month periods ended
March 31, 1999 and 2000.................................................................... 5
Notes to Condensed Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 21
Part II - Other Information
Items 1-5 are not applicable
Item 6. Exhibits and Reports on Form 8-K................................................................. 22
a) Exhibits
27.1 Financial Data Schedule..................................................... 24
b) Reports on Form 8-K
None
2
3
ITEM 1. FINANCIAL INFORMATION
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, MARCH 31,
1999 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,085,000 $ 1,635,000
Receivables:
Contract and trade receivables 27,808,000 27,682,000
Contract retentions 4,957,000 5,133,000
------------- -------------
32,765,000 32,815,000
Less allowance for doubtful receivables 1,277,000 2,266,000
------------- -------------
Net receivables 31,488,000 30,549,000
Costs and estimated earnings in excess of billings on uncompleted contracts 3,154,000 2,595,000
Deferred tax assets 3,663,000 3,663,000
Inventories 1,316,000 2,252,000
Prepaid expenses and other current assets 580,000 847,000
------------- -------------
Total current assets 43,286,000 41,541,000
Property, plant and equipment, at cost:
Land 5,229,000 5,229,000
Buildings and leasehold improvements 7,472,000 7,728,000
Construction and other equipment 85,931,000 98,976,000
------------- -------------
98,632,000 111,933,000
Less accumulated depreciation and amortization 43,035,000 51,046,000
------------- -------------
Net property, plant and equipment 55,597,000 60,887,000
Goodwill, net of accumulated amortization 8,255,000 7,739,000
Debt issuance costs, net of accumulated amortization 5,824,000 5,168,000
Other assets, net 1,201,000 871,000
------------- -------------
$ 114,163,000 $ 116,206,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt $ 3,274,000 $ 6,101,000
Trade accounts payable 8,908,000 9,085,000
Accrued liabilities 12,735,000 11,606,000
Income taxes payable -- 2,745,000
Billings in excess of costs and estimated earnings on uncompleted contracts 1,050,000 596,000
------------- -------------
Total current liabilities 25,967,000 30,133,000
Long-term debt, excluding current installments 27,437,000 20,220,000
Senior notes 100,000,000 100,000,000
Deferred tax liabilities 4,993,000 4,993,000
Senior Exchangeable Preferred Stock, redemption value $11,904,000 at March 31,
2000. Authorized, issued and outstanding 10,000 shares at June 30, 1999 and 10,999,000 11,904,000
March 31, 2000
Series A Preferred Stock, redemption value $12,939,000 at March 31, 2000
Authorized 25,000 shares; issued and outstanding 10,428 shares at June 30, 1999 11,732,000 12,939,000
and March 31, 2000
Stockholders' deficit:
Series B Preferred Stock, par value $.01 per share. Authorized 50,000 shares;
issued and outstanding 18,556 at June 30, 1999 and 19,006 shares at March 31, 20,880,000 23,557,000
2000
Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding
994,477 at June 30, 1999 and 1,010,937 shares at March 31, 2000, including 6,014 10,000 10,000
shares held in treasury
Additional paid-in capital 985,000 1,473,000
Treasury common stock, at cost, 6,014 shares -- (14,000)
Accumulated deficit (88,840,000) (89,009,000)
------------- -------------
Total stockholders' deficit (66,965,000) (63,983,000)
Commitments and contingencies
------------- -------------
$ 114,163,000 $ 116,206,000
============= =============
See accompanying notes to condensed consolidated financial statements.
3
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PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTH PERIODS NINE MONTH PERIODS
ENDED MARCH 31, ENDED MARCH 31,
------------------------------ ----------------------------------
1999 2000 1999 2000
---- ---- ---- ----
Revenues .......................................... $ 30,899,000 $ 37,643,000 $ 102,896,000 $ 128,268,000
Cost of revenues .................................. 21,670,000 27,275,000 72,266,000 88,674,000
------------- ------------- ------------- -------------
Gross profit .................................... 9,229,000 10,368,000 30,630,000 39,594,000
General and administrative expenses ............... 6,468,000 6,118,000 29,964,000 21,750,000
Other operating income, net ....................... 427,000 323,000 867,000 891,000
------------- ------------- ------------- -------------
Earnings before interest expense and income taxes 3,188,000 4,573,000 1,533,000 18,735,000
Interest expense .................................. 3,954,000 3,853,000 10,486,000 11,765,000
------------- ------------- ------------- -------------
Earnings (loss) before income taxes ............. (766,000) 720,000 (8,953,000) 6,970,000
Income tax expense (benefit) ...................... (138,000) 294,000 (1,791,000) 2,857,000
------------- ------------- ------------- -------------
Net earnings (loss) ............................... (628,000) 426,000 (7,162,000) 4,113,000
------------- ------------- ------------- -------------
Accretion of preferred stock to redemption value .. (632,000) (719,000) (1,645,000) (2,112,000)
Accrual of cumulative dividends on preferred stock (638,000) (750,000) (1,657,000) (2,170,000)
------------- ------------- ------------- -------------
Net loss available to common stockholders ......... $ (1,898,000) $ (1,043,000) $ (10,464,000) $ (169,000)
============= ============= ============= =============
Loss per share:
Basic and diluted ............................... $ (1.91) $ (1.04) $ (7.35) $ (.17)
Weighted average number of shares outstanding:
Basic and diluted ............................... 995,000 1,004,923 1,424,004 999,554
See accompanying notes to condensed consolidated financial statements.
4
5
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTH PERIODS
ENDED MARCH 31,
----------------------------------
1999 2000
-------------- -------------
Cash flows from operating activities:
Net earnings (loss) ............................................................ $ (7,162,000) $ 4,113,000
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................................... 8,374,000 10,744,000
Amortization of debt issuance costs ......................................... 592,000 663,000
Provision for doubtful accounts ............................................. 264,000 989,000
Provision for deferred taxes ................................................ 511,000 --
Gain on sale of assets ...................................................... (335,000) (215,000)
Changes in assets and liabilities, net of effects of acquisitions:
Receivables ................................................................ (3,704,000) (50,000)
Inventories, prepaid expenses and other assets ............................. (68,000) (1,216,000)
Costs and estimated earnings in excess of billings on uncompleted contracts 798,000 559,000
Trade accounts payable, accrued liabilities and income taxes payable ....... (1,450,000) (739,000)
Billings in excess of costs and estimated earnings on uncompleted contracts (441,000) (454,000)
Accrued compensation ....................................................... (5,233,000) --
------------- -------------
Net cash provided by (used in) operating activities .................... (7,854,000) 14,394,000
------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets ................................................... 723,000 691,000
Capital expenditures ........................................................... (10,421,000) (13,985,000)
Acquisitions of companies, net of cash acquired ................................ (6,724,000) --
------------- -------------
Net cash used in investing activities .................................. (16,422,000) (13,294,000)
------------- -------------
Cash flows from financing activities:
Borrowings under long-term debt ................................................ 38,795,000 18,500,000
Repayments of long-term debt ................................................... (25,447,000) (24,634,000)
Paydown on notes payable to stockholders ....................................... (405,000) --
Book overdraft ................................................................. 1,912,000 2,609,000
Borrowings on Senior Notes ..................................................... 100,000,000 --
Debt issuance costs ............................................................ (5,935,000) (7,000)
Proceeds from issuance of common stock ......................................... 399,000 488,000
Repurchase of common stock and Series B preferred stock ........................ (93,050,000) (29,000)
Issuance of Series A preferred stock ........................................... 10,428,000 --
Issuance of Series B preferred stock ........................................... 236,000 523,000
------------- -------------
Net cash provided by (used in) financing activities .................... 26,933,000 (2,550,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents ................... 2,657,000 (1,450,000)
Cash and cash equivalents at beginning of period ................................. 234,000 3,085,000
------------- -------------
Cash and cash equivalents at end of period ....................................... $ 2,891,000 $ 1,635,000
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ............................................................... $ -- $ 215,000
============= =============
Interest ................................................................... $ 7,564,000 $ 14,196,000
============= =============
Supplemental disclosure of noncash investing and financing activities:
Borrowings related to the acquisition of assets ............................... $ 876,000 $ --
============= =============
Borrowings related to capital leases and equipment financing agreements ....... $ -- $ 1,667,000
============= =============
Issuance of Senior Exchangeable Preferred Stock in connection with
the Recapitalization Mergers ................................................ $ 10,000,000 $ --
============= =============
Accretion of preferred stock to redemption value .............................. $ 1,645,000 $ 2,112,000
============= =============
Accrual of cumulative dividends on preferred stock ............................ $ 1,657,000 $ 2,170,000
============= =============
Issuance of Series B preferred stock .......................................... $ 18,335,000 $ --
============= =============
The fair value of the Daley Concrete Cutting and Lipscomb Concrete Cutting net
assets at their dates of acquisition in 1999 was $3.4 million and $3.4 million,
respectively. Goodwill of $300,000 was recorded in connection with the
acquisitions.
See accompanying notes to condensed consolidated financial statements.
5
6
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
Penhall International, Inc. ("PII") was founded in 1957 and was incorporated
in the state of California on April 19, 1988. On August 4, 1998, $100,000,000 of
12% Senior Notes (the Senior Notes) were sold by Penhall Acquisition Corp., an
Arizona corporation formed by an unrelated third party (the Third Party) to
effect the recapitalization of PII. As part of the recapitalization, a series of
mergers (the Recapitalization Mergers) were consummated pursuant to which
Phoenix Concrete Cutting, Inc., a wholly-owned subsidiary of PII, became the
corporate parent of PII, the Third Party acquired a 62.5% interest in Phoenix
Concrete Cutting, Inc. and Phoenix Concrete Cutting, Inc. became the successor
obligor of the Senior Notes. Following the consummation of the Recapitalization
Mergers, Phoenix Concrete Cutting, Inc. changed its name to Penhall
International Corp., and PII changed its name to Penhall Rental Corp.
Under generally accepted accounting principles, the Recapitalization Mergers
were accounted for as a leveraged recapitalization transaction in a manner
similar to a pooling-of-interests. Under this method, the transfer of
controlling interest in PII to the Third-Party did not change the accounting
basis of the assets and liabilities in PII's separate stand-alone financial
statements.
On October 1, 1998 all of the operating assets and liabilities of Penhall
International Corp. were transferred to Penhall Company. As a result, all of the
operating divisions of the Company are owned by Penhall Company.
The accompanying unaudited condensed consolidated financial statements of
Penhall International Corp. ("Penhall" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. 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 of operations for the nine month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2000. The unaudited condensed consolidated financial statements
included herein should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto included in the Form
10-K for the year ended June 30, 1999.
LOSS PER SHARE
Basic loss per share is computed by dividing adjusted net loss available to
common stockholders by the weighted average number of common shares outstanding
during the period.
6
7
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(2) SENIOR NOTES AND LONG-TERM DEBT
SENIOR NOTES
On August 4, 1998, in connection with the Recapitalization Mergers, the
Company issued $100,000,000 of Senior Notes guaranteed by the wholly-owned
subsidiaries of Penhall International Corp. Interest at 12% is payable
semiannually in arrears beginning February 1, 1999; all unpaid principal and
interest is due August 1, 2006. In addition, the Senior Notes are redeemable at
the Company's option, in whole at any time or in part from time to time, on or
after August 1, 2003, at certain redemption rates ranging from 106% to 102%. The
Senior Notes contain certain financial and non-financial covenants. As of March
31, 2000 the Company was in compliance with all such covenants.
LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, MARCH 31,
1999 2000
---- ----
Note payable secured by certain equipment, bearing interest at 5.51%; payable on
April 29, 2000 ................................................................. $ 1,896,000 $ 1,896,000
Note payable secured by certain equipment, stated interest of 0%, imputed interest
at 9.25% which resulted in a discount of $200,000; payable $400,000 due June 1,
2000 and 2001, and $428,000 due June 1, 2002 ................................... 1,028,000 1,105,000
Revolving Loan in the maximum credit amount of $30,000,000 secured by certain
assets of the Company. The Company may elect to maintain the Revolving Loan
as a Base Rate Loan, which accrues interest quarterly at .75% plus the higher
of the Federal Funds Effective Rate (as defined) or the then current prime
rate and is payable quarterly, and/or convert into a Eurodollar Loan, which
accrues interest at 1.75% plus the Eurodollar Rate (as defined) and is
payable on the last day of each elected interest period, which shall range
from one to six months, as elected by the Company. All unpaid principal and
interest is due June 15, 2004 The effective interest rate at March 31, 2000
was 7.92% ...................................................................... 6,500,000 1,150,000
$20,000,000 Term Loan secured by certain assets of the Company; quarterly
principal payments of $750,000 per quarter commencing September 15, 2000
through June 15, 2001, $1,250,000 per quarter through June 15, 2002, and
$1,500,000 per quarter through June 15, 2004. The Company may elect to
maintain the Term Loan as a Base Rate Loan, which accrues interest quarterly
at .75% plus the higher of the Federal Funds Effective Rate (as defined) or
the current prime rate and is payable quarterly, and/or convert into a
Eurodollar Loan, which accrues interest at 1.75% plus the Eurodollar Rate (as
defined) and is payable on the last day of each elected interest period,
which shall range from one to six months, as elected by the Company. All
unpaid principal and interest is due June 15, 2004. The effective interest
rate at March 31, 2000 was 7.91% .............................................. 20,000,000 20,000,000
Various capital leases and equipment financing agreements due through November 2001
with interest rates ranging from 0% to .12% annually ........................... -- 1,667,000
Other ............................................................................. 1,287,000 503,000
----------- -----------
30,711,000 26,321,000
Less current installments of long-term debt ....................................... 3,274,000 6,101,000
----------- -----------
Long-term debt, excluding current installments .................................... $27,437,000 $20,220,000
=========== ===========
7
8
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(3) STOCK INCENTIVE PLAN
On October 7, 1999, the Company's Board of Directors approved a Stock
Incentive Plan (the "Plan") under which employees, officers, directors or
consultants ("Eligible Participants") may be granted stock options and
restricted stock awards. The Board authorized the sale of up to 50,000 shares of
common stock and 2,500 shares of Series B Preferred Stock under the Plan. The
exercise price for stock options or restricted stock awards shall not be less
than the Fair Market Value (as defined) of the stock on the grant date subject
to restrictions and conditions, including the Company's option to repurchase, as
determined by the administrator at the time of the grant. The term of each stock
option shall be fixed, and not exceeding 10 years from the grant date of the
stock option. In addition, stock options may be subject to specific vesting and
acceleration provisions as determined by the administrator at or after the grant
date. On November 12, 1999, the Company issued 15,937 shares of common stock for
a purchase price of $488,000 and 464 shares of Series B Preferred Stock for a
purchase price of $523,000 to Eligible Participants under the Plan. No stock
options were granted, issued or outstanding as of the same date.
(4) COMMITMENTS AND CONTINGENCIES
LITIGATION
There are various lawsuits and claims pending against and claims being
pursued by the Company and its subsidiaries arising out of the normal course of
business. It is management's present opinion that the outcome of these
proceedings will not have a material effect on the Company's consolidated
financial statements taken as a whole.
(5) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following consolidating financial information is presented for purposes
of complying with the reporting requirements of the Guarantor Subsidiaries,
(Penhall Rental Corp. and Penhall Company). Separate financial statements and
other disclosures with respect to the Guarantor Subsidiaries are not presented
because the Company believes that such financial statements and other
information would not provide additional information that is material to
investors.
The condensed consolidating financial information presents condensed
financial statements as of June 30, 1999 and March 31, 2000 and for the three
and nine month periods ended March 31, 1999 and 2000 of:
a) Penhall International Corp. on a parent company only basis
("Parent") (carrying its investments in the subsidiaries under
the equity method),
b) the Guarantor Subsidiaries (Penhall Rental Corp. and Penhall
Company)
c) elimination entries necessary to consolidate the parent
company and its subsidiaries, and
d) the Company on a consolidated basis.
8
9
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
---------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------- ------- ------------ ------------
Assets
Current assets:
Receivables, net ........... $ -- $ -- $ 31,488,000 $ -- $ 31,488,000
Inventories ................ -- -- 1,316,000 -- 1,316,000
Costs and estimated earnings
in excess of billings on
uncompleted contracts .... -- -- 3,154,000 -- 3,154,000
Intercompany assets ........ 58,069,000 -- -- (58,069,000) --
Other current assets ....... 3,481,000 1,877,000 3,103,000 (1,133,000) 7,328,000
------------- ------------- ------------- ------------- -------------
Total current assets ..... 61,550,000 1,877,000 39,061,000 (59,202,000) 43,286,000
Net property, plant and
equipment..................... -- 9,171,000 46,426,000 -- 55,597,000
Other assets, net ............. 5,824,000 -- 9,456,000 -- 15,280,000
Investment in parent .......... -- 4,001,000 -- (4,001,000) --
Investment in subsidiaries .... 25,989,000 -- -- (25,989,000) --
------------- ------------- ------------- ------------- -------------
$ 93,363,000 $ 15,049,000 $ 94,943,000 $ (89,192,000) $ 114,163,000
============= ============= ============= ============= =============
Liabilities and Stockholders'
Equity (Deficit):
Current installments of
long-term debt............... $ -- $ 2,000 $ 3,272,000 $ -- $ 3,274,000
Trade accounts payable ........ -- 165,000 8,743,000 -- 8,908,000
Accrued liabilities ........... 5,158,000 -- 7,577,000 -- 12,735,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts ...... -- -- 1,050,000 -- 1,050,000
Intercompany liabilities ...... 1,939,000 41,679,000 20,893,000 (64,511,000) --
------------- ------------- ------------- ------------- -------------
Total current liabilities 7,097,000 41,846,000 41,535,000 (64,511,000) 25,967,000
Long-term debt, excluding
current installments.......... 26,500,000 213,000 724,000 -- 27,437,000
Senior notes .................. 100,000,000 -- -- -- 100,000,000
Deferred tax liabilities ...... -- (5,406,000) 5,090,000 5,309,000 4,993,000
Accrued compensation .......... -- -- -- -- --
Senior Exchangeable Preferred
stock ....................... 10,999,000 -- -- -- 10,999,000
Series A Preferred stock ...... 11,732,000 -- -- -- 11,732,000
Stockholders' equity (deficit) (62,965,000) (21,604,000) 47,594,000 (29,990,000) (66,965,000)
------------- ------------- ------------- ------------- -------------
$ 93,363,000 $ 15,049,000 $ 94,943,000 $ (89,192,000) $ 114,163,000
============= ============= ============= ============= =============
9
10
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2000
--------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------ ------------
Assets
Current assets:
Receivables, net ................ $ -- $ -- $ 30,549,000 $ -- $ 30,549,000
Inventories ..................... -- -- 2,252,000 -- 2,252,000
Costs and estimated earnings in
excess of billings on
uncompleted contracts.......... -- -- 2,595,000 -- 2,595,000
Intercompany assets ............. 51,431,000 -- -- (51,431,000) --
Other current assets ............ 3,676,000 1,247,000 2,356,000 (1,134,000) 6,145,000
------------- ------------- ------------- ------------- -------------
Total current assets ......... 55,107,000 1,247,000 37,752,000 (52,565,000) 41,541,000
------------- ------------- ------------- ------------- -------------
Net property, plant and equipment .. -- 8,879,000 52,008,000 -- 60,887,000
Other assets, net .................. 5,168,000 -- 8,610,000 -- 13,778,000
Investment in parent ............... -- 4,001,000 -- (4,001,000) --
Investment in subsidiaries ......... 36,976,000 -- -- (36,976,000) --
------------- ------------- ------------- ------------- -------------
$ 97,251,000 $ 14,127,000 $ 98,370,000 $ (93,542,000) $ 116,206,000
============= ============= ============= ============= =============
Liabilities and Stockholders'
Equity (Deficit)
Current installments of long-term
debt............................... $ 2,250,000 $ 3,000 $ 3,848,000 $ -- $ 6,101,000
Trade accounts payable ............. -- -- 9,085,000 -- 9,085,000
Accrued liabilities ................ 2,053,000 -- 9,553,000 -- 11,606,000
Income taxes payable ............... 9,187,000 -- -- (6,442,000) 2,745,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts............. -- -- 596,000 -- 596,000
Intercompany liabilities ........... -- 40,581,000 10,850,000 (51,431,000) --
------------- ------------- ------------- ------------- -------------
Total current liabilities ....... 13,490,000 40,584,000 33,932,000 (57,873,000) 30,133,000
------------- ------------- ------------- ------------- -------------
Long-term debt, excluding
current installments ............ 18,900,000 204,000 1,116,000 -- 20,220,000
Senior notes ....................... 100,000,000 -- -- -- 100,000,000
Deferred tax liabilities ........... -- (5,405,000) 5,090,000 5,308,000 4,993,000
Senior Exchangeable Preferred stock 11,904,000 -- -- -- 11,904,000
Series A Preferred stock ........... 12,939,000 -- -- -- 12,939,000
Stockholders' equity (deficit) ....... (59,982,000) (21,256,000) 58,232,000 (40,977,000) (63,983,000)
------------- ------------- ------------- ------------- -------------
$ 97,251,000 $ 14,127,000 $ 98,370,000 $ (93,542,000) $ 116,206,000
============= ============= ============= ============= =============
10
11
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1999
-------------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------ ------------
Revenues ....................... $ -- $ 316,000 $ 30,899,000 $ (316,000) $ 30,899,000
Cost of revenues ............... (2,000) -- 21,672,000 -- 21,670,000
------------ ------------ ------------ ------------ ------------
Gross profit ................. 2,000 316,000 9,227,000 (316,000) 9,229,000
General and administrative
expenses .................... 274,000 (32,000) 6,543,000 (317,000) 6,468,000
Other operating income, net -- 216,000 211,000 -- 427,000
Equity earnings in subsidiaries. 1,616,000 -- -- (1,616,000) --
------------ ------------ ------------ ------------ ------------
Earnings before interest
expense and income taxes 1,344,000 564,000 2,895,000 (1,615,000) 3,188,000
Interest expense ............... 3,782,000 2,000 170,000 -- 3,954,000
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
income taxes ............... (2,438,000) 562,000 2,725,000 (1,615,000) (766,000)
Income tax expense (benefit).... (1,810,000) 159,000 1,513,000 -- (138,000)
------------ ------------ ------------ ------------ ------------
Net earnings (loss) ............ $ (628,000) $ 403,000 $ 1,212,000 $ (1,615,000) $ (628,000)
============ ============ ============ ============ ============
11
12
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000
---------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
----- ----- ------- ------------ ------------
Revenues ...................... $ -- $ 320,000 $37,643,000 $ (320,000) $37,643,000
Cost of revenues .............. -- -- 27,275,000 -- 27,275,000
----------- ----------- ----------- ----------- -----------
Gross profit ................ -- 320,000 10,368,000 (320,000) 10,368,000
General and administrative
expenses .................. 74,000 109,000 6,255,000 (320,000) 6,118,000
Other operating income, net ... 17,000 -- 306,000 -- 323,000
Equity earnings in subsidiaries 2,669,000 -- -- (2,669,000) --
----------- ----------- ----------- ----------- -----------
Earnings before interest
expense and income taxes . 2,612,000 211,000 4,419,000 (2,669,000) 4,573,000
Interest expense .............. 3,747,000 1,000 105,000 -- 3,853,000
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes .............. (1,135,000) 210,000 4,314,000 (2,669,000) 720,000
Income tax expense (benefit) .. (1,561,000) 86,000 1,769,000 -- 294,000
----------- ----------- ----------- ----------- -----------
Net earnings .................. $ 426,000 $ 124,000 $ 2,545,000 $(2,669,000) $ 426,000
=========== =========== =========== =========== ===========
12
13
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED MARCH 31, 1999
----------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ----------- ----------- ------------ ------------
Revenues.................... $ 5,905,000 $ 927,000 $96,991,000 $(927,000) $102,896,000
Cost of revenues............ 3,569,000 5,000 68,692,000 -- 72,266,000
----------- ------------ ----------- --------- ------------
Gross profit.............. 2,336,000 922,000 28,299,000 (927,000) 30,630,000
General and administrative
expenses................ 1,408,000 12,330,000 17,177,000 (951,000) 29,964,000
Other operating income, net. 29,000 959,000 579,000 (700,000) 867,000
Equity loss in subsidiaries (322,000) -- -- 322,000 --
------------ ------------ ----------- --------- -----------
Earnings (loss) before
interest expense and
income taxes............ 635,000 (10,449,000) 11,701,000 (354,000) 1,533,000
Interest expense............ 9,848,000 166,000 449,000 23,000 10,486,000
----------- ------------ ----------- --------- ------------
Earnings (loss) before
income taxes............ (9,213,000) (10,615,000) 11,252,000 (377,000) (8,953,000)
Income tax expense (benefit) (2,751,000) (2,865,000) 3,825,000 -- (1,791,000)
----------- ------------ ----------- --------- -------------
Net earnings (loss)......... $(6,462,000) $ (7,750,000) $ 7,427,000 $(377,000) $ (7,162,000)
=========== ============ =========== ========= =============
13
14
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED MARCH 31, 2000
----------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------ ------------
Revenues ...................... $ -- $ 958,000 $128,268,000 $ (958,000) $128,268,000
Cost of revenues .............. -- -- 88,674,000 -- 88,674,000
------------ ------------ ------------ ------------ ------------
Gross profit ................ -- 958,000 39,594,000 (958,000) 39,594,000
General and administrative
expenses .................. 345,000 340,000 22,023,000 (958,000) 21,750,000
Other operating income, net ... 61,000 -- 830,000 -- 891,000
Equity earnings in subsidiaries 10,987,000 -- -- (10,987,000) --
------------ ------------ ------------ ------------ ------------
Earnings before interest
expense and income taxes . 10,703,000 618,000 18,401,000 (10,987,000) 18,735,000
Interest expense .............. 11,368,000 28,000 369,000 -- 11,765,000
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
income taxes .............. (665,000) 590,000 18,032,000 (10,987,000) 6,970,000
Income tax expense (benefit) .. (4,778,000) 242,000 7,393,000 -- 2,857,000
------------ ------------ ------------ ------------ ------------
Net earnings .................. $ 4,113,000 $ 348,000 $ 10,639,000 $(10,987,000) $ 4,113,000
============ ============ ============ ============ ============
14
15
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
NINE MONTH PERIOD ENDED MARCH 31, 1999
------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------ ------------
Net cash provided by (used in)
operating activities ............... $ (12,023,000) $ (13,830,000) $ 18,699,000 $ (700,000) $ (7,854,000)
------------- ------------- ------------- ------------- -------------
Cash flows from investing
activities:
Proceeds from sale of assets ....... 82,000 360,000 281,000 -- 723,000
Capital expenditures ............... (848,000) (923,000) (8,650,000) -- (10,421,000)
Acquisitions of companies, net
of cash acquired ................. -- -- (6,724,000) -- (6,724,000)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities....................... (766,000) (563,000) (15,093,000) -- (16,422,000)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Due to (from) affiliates ........... (26,210,000) 31,113,000 (4,903,000) -- --
Borrowings under long-term debt .... 36,050,000 2,745,000 -- -- 38,795,000
Repayments of long-term debt ....... (8,550,000) (16,611,000) (286,000) -- (25,447,000)
Paydown on notes payable to
stockholders ..................... -- (405,000) -- -- (405,000)
Borrowings on Senior Notes ......... 100,000,000 -- -- -- 100,000,000
Book overdraft ..................... -- (346,000) 2,258,000 -- 1,912,000
Debt issuance costs ................ (5,714,000) -- (221,000) -- (5,935,000)
Dividends paid ..................... (700,000) -- -- 700,000 --
Proceeds from issuance of common
stock ............................ 399,000 -- -- -- 399,000
Repurchase of common stock ......... (93,050,000) -- -- -- (93,050,000)
Issuance of Series A Preferred
Stock ............................ 10,428,000 -- -- -- 10,428,000
Issuance of Series B Preferred
Stock ............................ 236,000 -- -- -- 236,000
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities ............ 12,889,000 16,496,000 (3,152,000) 700,000 26,933,000
------------- ------------- ------------- ------------- -------------
Net increase in cash and cash
equivalents ..................... 100,000 2,103,000 454,000 -- 2,657,000
Cash and cash equivalents at
beginning of period ................ (100,000) 542,000 (208,000) -- 234,000
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at
end of period ...................... $ -- $ 2,645,000 $ 246,000 $ -- $ 2,891,000
============= ============= ============= ============= =============
15
16
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
NINE MONTH PERIOD ENDED MARCH 31, 2000
--------------------------------------------------------------------------------
PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities .............. $ (6,766,000) $ 469,000 $ 20,691,000 $ -- $ 14,394,000
------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Proceeds from sale of assets ..... -- -- 691,000 -- 691,000
Capital expenditures ............. -- -- (13,985,000) -- (13,985,000)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities .... -- -- (13,294,000) -- (13,294,000)
------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Due to (from) affiliates ......... 11,141,000 (1,101,000) (10,040,000) -- --
Borrowings under long-term debt... 18,500,000 -- -- -- 18,500,000
Repayments of long-term debt ..... (23,850,000) (8,000) (776,000) -- (24,634,000)
Book overdraft ................... -- -- 2,609,000 -- 2,609,000
Debt issuance costs .............. (7,000) -- -- -- (7,000)
Proceeds from issuance of
common stock ................... 488,000 -- -- -- 488,000
Repurchase of common stock and
Series B preferred stock ....... (29,000) -- -- -- (29,000)
Issuance of Series B preferred
stock .......................... 523,000 -- -- -- 523,000
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities ............... 6,766,000 (1,109,000) (8,207,000) -- (2,550,000)
------------ ------------ ------------ ------------ ------------
Net decrease in cash and
cash equivalents ......... -- (640,000) (810,000) -- (1,450,000)
Cash and cash equivalents at
beginning of period .............. -- 1,853,000 1,232,000 -- 3,085,000
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of period .................... $ -- $ 1,213,000 $ 422,000 $ -- $ 1,635,000
============ ============ ============ ============ ============
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the results of operations and financial
condition of Penhall International Corp. (Penhall) should be read in conjunction
with the unaudited condensed consolidated financial statements and footnotes
thereto included in this quarterly report on Form 10-Q and the Company's audited
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K, filed with the Securities and Exchange Commission.
GENERAL
Penhall was founded in 1957 in Anaheim, California with one piece of
equipment, and today is one of the largest Operated Equipment Rental Services
companies in the United States. Penhall differentiates itself from other
equipment rental companies by providing specialized services in connection with
infrastructure projects through renting equipment along with skilled operators
to serve customers in the construction, industrial, manufacturing, governmental
and residential markets. In addition, Penhall complements its Operated Equipment
Rental Services with fixed-price contracts, which serve to market its operated
equipment rental services business and increase utilization of its operated
equipment rental fleet. Penhall provides its services from 33 locations in
twelve states, with a presence in some of the fastest growing states in terms of
construction spending and population growth.
The operated equipment rental industry is a specialized niche of the highly
fragmented United States equipment rental industry, in which there are
approximately 17,000 companies. Penhall has taken advantage of consolidation
opportunities by acquiring small companies in targeted markets as well as by
establishing new offices in those markets. Since 1994, Penhall has effected
eight strategic acquisitions, including Concrete Coring Company, an Austin-based
company acquired in 1995, Zig Zag Company, a Denver-based company acquired in
1996, Metro Concrete Cutting, an Atlanta-based company acquired in 1996, Highway
Services, a Minnesota-based company acquired in April 1998, Daley Concrete
Cutting, a South Carolina-based division of U.S. Rentals acquired in October
1998, Lipscomb Concrete Cutting, a North Carolina-based company acquired in
November 1998, Diamond Concrete Services, an Alabama-based company acquired in
April 1999, and Prospect Drilling and Sawing, a Minneapolis-based company
acquired in June 1999. During the same period, Penhall established operations in
four new markets by opening offices in Las Vegas, Salt Lake City, Portland and
Dallas.
Penhall derives its revenues primarily from services provided for
infrastructure related jobs. Penhall's Operated Equipment Rental Services are
complemented by long-term fixed-price contracts. Penhall's revenues are derived
from highway-related projects, building-related projects, airport, residential
and other projects. The following table shows the breakdown of the components of
revenue for the periods indicated:
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
----------------------------------------------- -----------------------------------------------
1999 2000 1999 2000
---------------------- ---------------------- ---------------------- ----------------------
$ % OF TOTAL $ % OF TOTAL $ % OF TOTAL $ % OF TOTAL
-------- ---------- -------- ---------- -------- ----------- -------- ----------
Operated Equipment
Rental Services ....... $ 21,205 68.6% $ 27,088 72.0% $ 71,134 69.1% $ 89,013 69.4%
Contract Services (1) ..... 9,694 31.4% 10,555 28.0% 31,762 30.9% 39,255 30.6%
-------- ----- -------- ----- -------- ----- -------- -----
Total Revenues ........ $ 30,899 100.0% $ 37,643 100.0% $102,896 100.0% $128,268 100.0%
======== ===== ======== ===== ======== ===== ======== =====
(1) Contract services revenues exclude services performed by the operated
equipment rental divisions on long-term contracts.
Revenue growth is influenced by infrastructure change, including new
construction, modification and natural disasters, such as the 1989 and 1994
earthquakes in Northern and Southern California. Other factors that influence
Penhall's operations are demand for operated rental equipment, the amount and
quality of equipment available for rent, rental rates and general economic
conditions. Historically, revenues have been seasonal, as weather conditions in
the spring and summer months result in stronger performance in the first and
fourth fiscal quarters than in the second and third fiscal quarters.
17
18
The principal components of Penhall's operating costs include the cost of
labor, equipment rental fleet maintenance costs including parts and service,
equipment rental fleet depreciation, insurance and other direct operating costs.
Given the varied, and in some cases specialized, nature of its rental equipment,
Penhall utilizes a range of periods over which it depreciates its equipment on a
straight-line basis. On average, Penhall depreciates its equipment over an
estimated useful life of six years with a 10% residual value.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Revenues. Revenues for the three months ended March 31, 2000 ("Interim
2000") were $37.6 million, an increase of $6.7 million or 21.8% over the three
months ended March 31, 1999 ("Interim 1999"). The increase was due primarily to
the acquisitions of Daley Concrete Cutting, Lipscomb Concrete Cutting, Diamond
Concrete Services and Prospect Drilling and Sawing, which added $5.1 million of
revenues in Interim 2000 compared to $3.2 million in Interim 1999. In addition,
construction markets remained very strong in Interim 2000 in the areas the
Company serves.
Gross Profit. Gross profit totaled $10.4 million in Interim 2000, an
increase of $1.1 million or 12.3% from Interim 1999. Gross profit as a
percentage of revenues decreased from 29.9% in Interim 1999 to 27.5% in Interim
2000. The increase in gross profit was due primarily to the increase in revenues
in Interim 2000. The decrease in gross profit as a percentage of revenues was
due to contracts that were labor intensive in Interim 2000.
General and Administrative Expenses. General and administrative expenses
were $6.1 million in Interim 2000 compared to $6.5 million in Interim 1999. As a
percent of revenues, general and administrative expenses were 16.3% in Interim
2000 compared to 20.9% in Interim 1999.
The decrease in general and administrative expenses in Interim 2000 and the
decrease in general and administrative expenses as a percent of revenues in
Interim 2000 was attributable to non-recurring expenses resulting from the
Recapitalization Mergers in Interim 1999.
Interest Expense. Interest expense was $3.9 million in Interim 2000 compared
to interest expense of $4.0 million in Interim 1999. The decrease was due to
less borrowing by the Company in Interim 2000.
Income Tax Expense (Benefit). The Company recorded an income tax provision
of $294,000, or 41% of earnings before income taxes in Interim 2000, compared to
an income tax benefit of $138,000, or 18% of loss before income taxes in Interim
1999. The lower effective tax rate in Interim 1999 is attributable to certain
reorganization costs related to the Transactions which are not deductible for
tax purposes.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
Revenues. Revenues for the nine months ended March 31, 2000 ("Interim 2000")
were $128.3 million, an increase of $25.4 million or 24.7% over the nine months
ended March 31, 1999 ("Interim 1999"). The increase was due primarily to the
acquisitions of Daley Concrete Cutting, Lipscomb Concrete Cutting, Diamond
Concrete Services and Prospect Drilling and Sawing which added $16.9 million of
revenues in Interim 2000 compared to $5.7 million in Interim 1999. In addition,
construction markets remained very strong in Interim 2000 in the areas the
Company serves.
The Company operated through 33 locations in twelve states at March 31,
2000, compared to 30 locations in eleven states at March 31, 1999. The Company's
equipment fleet grew from 644 to 660 or 2.5% during this period.
Gross Profit. Gross profit totaled $39.6 million in Interim 2000, an
increase of $9.0 million or 29.3% from Interim 1999. Gross profit as a
percentage of revenues increased from 29.8% in Interim 1999 to 30.9% in Interim
2000. The increase in gross profit was due primarily to the increase in revenues
in Interim 2000. The increase in gross profit as a percentage of revenues was
due to better utilization of the equipment rental fleet in Interim 2000.
18
19
General and Administrative Expenses. General and administrative expenses
were $21.8 million in Interim 2000 compared to $30.0 million in Interim 1999. As
a percent of revenues, general and administrative expenses were 17.0% in Interim
2000 compared to 29.1% in Interim 1999. Included in general and administrative
expenses in Interim 1999 is $8.9 million of stock compensation expense related
to the Company's Employee Stock Purchase Plans, and $3.2 million in
reorganization costs, which consisted primarily of closing fees and legal
expenses. These expenses occurred as a result of the Recapitalization Mergers
and are non-recurring. Without the stock related compensation expense and
reorganization expenses, general and administrative expenses were $17.9 million,
or 17.4% of revenues in Interim 1999.
The increase in general and administrative expenses (net of Interim 1999
stock related compensation expense and reorganization expenses) in Interim 2000
was the result of the increased revenues and number of operating locations
compared to Interim 1999. The remaining increase is attributable to higher bonus
expense, provision for doubtful accounts and accounting and legal fees in
Interim 2000 as compared to Interim 1999.
Interest Expense. Interest expense was $11.8 million in Interim 2000
compared to interest expense of $10.5 million in Interim 1999. The increase was
due to additional debt incurred by the Company as part of the Transactions in
August 1998. This additional debt consists of $100.0 million of Senior Notes and
the New Credit Facility (see Liquidity and Capital Resources below).
Income Tax Expense (Benefit). The Company recorded an income tax provision
of $2.9 million, or 41% of earnings before income taxes in Interim 2000,
compared to an income tax benefit of $1.8 million, or 20% of loss before income
taxes in Interim 1999. The lower effective tax rate in Interim 1999 is
attributable to certain reorganization costs related to the Transactions, which
are not deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
It is anticipated that the Company's principal uses of liquidity will be to
fund working capital, meet debt service requirements and finance the Company's
strategy of pursuing strategic acquisitions and expanding through internal
growth. The Company's principal sources of liquidity are expected to be cash
flow from operations and borrowings under the New Credit Facility. The New
Credit Facility consists of two facilities: (i) a six-year senior secured term
loan facility in an aggregate principal amount equal to $20.0 million (the "Term
Loan Facility"); and (ii) a six-year revolving credit facility in an aggregate
principal amount not to exceed $30.0 million (the "Revolving Credit Facility").
The Company drew $20.0 million of loans under the Term Loan Facility ("Term
Loans") on the closing date of the New Credit Facility in connection with the
Recapitalization. The Term Loans amortize on a quarterly basis commencing in
September 2000 and are payable in installments under a schedule set forth in the
New Credit Facility. Advances made under the Revolving Credit Facility
("Revolving Loans") are due and payable in full on June 15, 2004. The Term Loans
and the Revolving Loans are subject to mandatory prepayments and reductions in
the event of certain extraordinary transactions or issuances of debt and equity
by the Company or any subsidiary of the Company that guarantees amounts under
the New Credit Facility. Such loans are also required to be prepaid with 75% of
the Excess Cash Flow (as such term is defined in the New Credit Facility) of the
Company or, if the Company's Leverage Ratio (as such term is defined in the New
Credit Facility) is less than 5.55 to 1.0, 50% of such Excess Cash Flow.
Cash provided by operating activities during Interim 2000 was $14.4 million
compared to cash used in operating activities of $7.9 million during Interim
1999. In Interim 2000, the Company's higher net earnings, increase in provision
for doubtful accounts, higher depreciation and amortization expense partially
offset by increases in inventories, prepaid expenses and other assets, accounted
for the improved cash from operations compared to Interim 1999. In Interim 1999,
the Company's net loss, increase in accounts receivable and decrease in accounts
payable, accrued liabilities and accrued compensation offset by higher
depreciation and amortization expense resulted in a significant use of cash from
operations during that period.
Management estimates that the Company's annual capital expenditures will be
approximately $21 million for fiscal 2000, including replacement and maintenance
of equipment, purchases of new equipment, and purchases of real property.
19
20
Cash used in investing activities was $13.3 million in Interim 2000 as
compared to $16.4 million in Interim 1999. Such cash was used for capital
expenditures of $14.0 million in Interim 2000 and $10.4 million in Interim 1999.
In addition, cash of $6.7 million was used for the acquisition of Daley Concrete
Cutting and Lipscomb Concrete Cutting in Interim 1999.
Net cash used in financing activities in Interim 2000 was $2.6 million as
compared to net cash provided by financing activities of $26.9 million in
Interim 1999. In Interim 2000, the Company's financing activities are primarily
a result of borrowings and repayments of long-term debt, a book overdraft, and
issuance of additional common stock and Series B preferred stock. In Interim
1999, the Company's financing activities are primarily the result of the
Transactions associated with the Reorganization in August 1998.
Historically, the Company has funded its working capital requirements,
capital expenditures and other needs principally from operating cash flows. As a
result of the Transactions, however, the Company has substantial indebtedness
and debt service obligations. As of March 31, 2000, the Company and its
subsidiaries had approximately $126.3 million of total indebtedness outstanding
(including the Notes) and a stockholders' deficit of approximately $64.0
million. As of March 31, 2000 approximately $28.9 million of additional
borrowing was available under the Company's New Credit Facility.
YEAR 2000
The Year 2000 ("Y2k") issue was the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has established an informal Y2K task force, and developed a plan which
listed the milestones achieved and completed to become Y2K ready. A checklist of
potential failure sources was compiled and included both information technology
and embedded technology systems. The Company completed its assessment of its
information technology and embedded technology systems and identified and took
measures to correct potential failures in those systems.
The Company's basic business is to provide operator assisted equipment for
rental. As such, management believed the Company's main exposure to Y2K issues
were the telephone and radio communication systems needed to take orders for
rental, and certain larger pieces of equipment (excavators, back hoes, etc.)
which have some level of computer operating controls.
The Company's information technology systems include its accounting systems,
billing, accounts payable, and equipment utilization reports. The Company
completed testing of all information technology systems, and believes the
systems are Y2K compliant. In addition, major vendors for the Company's computer
hardware, software and data communications network have informed the Company
that their products are Y2K compliant.
The Company's non-information technology systems include primarily rental
location alarm systems, gasoline pumps, radios, telephones and certain types of
heavy equipment. The Company has completed a review for Y2K compliance for the
major non-information technology systems. This review included determining if
respective vendors of the non-information technology systems are also Y2K
compliant.
The Company spent less than $50,000 as of March 31, 2000, including the cost
of outside consultants, to conduct the Y2K compliance reviews and tests. The
Company does not expect to incur additional substantial costs to complete its
Y2K reviews and remediation, if required.
The primary operational risks to the Company were the communication systems
on which the Company relies will not function properly, or that certain heavy
equipment would not function properly, after December 31, 1999. The primary
information technology risk was that accounting data, including billing
customers and paying vendors, would not function properly via computer after
December 31, 1999. The Company believes it has adequate contingency plans to
mitigate the aforementioned potential Y2K related problems. The Company does not
believe potential Y2K problems would have a significant, long-term negative
effect on its operations or information technology. To date, the Company has not
experienced any Y2K related problems.
20
21
Although Penhall is uncertain as to the extent its customers may be affected
by Y2K issues that require commitment of significant resources and may cause
disruptions in its customers' businesses, Penhall does not believe it has a
material relationship with any one third party that would have a significant
impact on Penhall if that third party was not Y2K ready.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company is exposed to interest rate changes primarily as a result of its
notes payable, including Senior Notes, Term Loan and Revolving Loan used to
maintain liquidity and fund capital expenditures and expansion of the Company's
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower it's
overall borrowing costs. To achieve its objectives the Company borrows primarily
at fixed rates and has the ability to choose interest rates under the Term Loan
and Revolving Loan. The Company does not enter into derivative or interest rate
transactions for speculative purposes.
YEARS ENDED JUNE 30,
--------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
------ ------ ------ ------ ------ ---------- -------- ---------
(IN THOUSANDS)
Fixed rate debt ........... $3,914 $1,094 $ 535 $ 3 $ 4 $100,179 $105,729 $104,729
Average interest rate ..... 12.00%
Variable rate LIBOR
debt (1)................. $ 0 $3,000 $5,000 $6,000 $7,150 $ 0 $ 21,150 $ 21,150
Current interest rate (1).. 7.92%
- -----------
(1) The Company has different interest rate options for its variable rate debt.
See Footnote 2 in the condensed consolidated financial statements for
additional information.
21
22
PART II - OTHER INFORMATION
Items 1-5 are not applicable
Item 6. Exhibits and Reports on Form 8-K.
22
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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.
Penhall International Corp.
Date: May 12, 2000 /s/ John T. Sawyer
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John T. Sawyer
Chairman of the Board, President and
Chief Executive Officer
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EXHIBIT INDEX
Exhibit 27.1 Financial Data Schedule
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