-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TsUuyddwPY26XcMaRRDuuN2vr9AUGBGqotuS1+HYLmxBVaDB362bW/mVNwX1scG+ zGgWjQDyxqKYLBw8PTDHRQ== 0000892569-99-003107.txt : 19991117 0000892569-99-003107.hdr.sgml : 19991117 ACCESSION NUMBER: 0000892569-99-003107 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENHALL INTERNATIONAL CORP CENTRAL INDEX KEY: 0001070772 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 860634394 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-64745 FILM NUMBER: 99756900 BUSINESS ADDRESS: STREET 1: 1801 PENHALL WAY CITY: ANAHEIM STATE: CA ZIP: 92803 BUSINESS PHONE: 7147726450 10-Q 1 FORM 10-Q PERIOD END SEPTEMBER 30, 1999 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 September 30, 1999 [ ] 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 NOVEMBER 10, 1999 Common Stock, $.01 Par Value 994,477 ================================================================================ 2 PENHALL INTERNATIONAL CORP. Index
Part I - Financial Information Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1999 and September 30, 1999 3 Condensed Consolidated Statements of Operations for the three month periods ended September 30, 1998 and 1999 4 Condensed Consolidated Statements of Cash Flows for the three month periods ended September 30, 1998 and 1999 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 20 Part II - Other Information Items 1-5 are not applicable Item 6. Exhibits and Reports on Form 8-K. 21 a) Exhibits. 27. Financial Data Schedule 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, SEPTEMBER 30, 1999 1999 ------------- -------------- ASSETS Current assets: Cash................................................................ $ 3,085,000 $ 4,992,000 Receivables: Contract and trade receivables........................... 27,808,000 35,374,000 Contract retentions...................................... 4,957,000 5,388,000 Income taxes receivable.................................. -- -- ------------- -------------- 32,765,000 40,762,000 Less allowance for doubtful receivables.................. 1,277,000 1,896,000 ------------- -------------- Net receivables................................. 31.488,000 38,866,000 Costs and estimated earnings in excess of billings on uncompleted contracts.......................................................... 3,154,000 2,262,000 Deferred tax assets................................................. 3,663,000 3,663,000 Inventories......................................................... 1,316,000 1,926,000 Prepaid expenses and other current assets........................... 580,000 788,000 ------------- -------------- Total current assets............................ 43,286,000 52,497,000 Property, plant and equipment, at cost: Land................................................................ 5,229,000 5,229,000 Buildings and leasehold improvements................................ 7,472,000 7,553,000 Construction and other equipment.................................... 85,931,000 90,862,000 ------------- -------------- 98,632,000 103,644,000 Less accumulated depreciation and amortization...................... 43,035,000 45,686,000 ------------- -------------- Net property, plant and equipment............... 55,597,000 57,958,000 Goodwill, net of accumulated amortization............................. 8,255,000 8,083,000 Debt issuance costs, net of accumulated amortization.................. 5,824,000 5,603,000 Other assets, net..................................................... 1,201,000 1,091,000 ------------- -------------- $ 114,163,000 $ 125,232,000 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt.............................. $ 3,274,000 $ 4,407,000 Trade accounts payable.............................................. 8,908,000 11,399,000 Accrued liabilities................................................. 12,735,000 14,479,000 Billings in excess of costs and estimated earnings on uncompleted contracts.......................................................... 1,050,000 674,000 ------------- -------------- Total current liabilities....................... 25,967,000 30,959,000 Long-term debt, excluding current installments........................ 27,437,000 31,362,000 Senior notes.......................................................... 100,000,000 100,000,000 Deferred tax liabilities.............................................. 4,993,000 4,993,000 Senior Exchangeable Preferred Stock, redemption value $11,294,000 at September 30, 1999. Authorized, issued and outstanding 10,000 shares at June 30, 1999 and September 30, 1999...................... 10,999,000 11,294,000 Series A Preferred Stock, redemption value $12,123,000 at September 30, 1999. Authorized 25,000 shares; issued and outstanding 10,428 shares at June 30, 1999 and September 30, 1999............. 11,732,000 12,123,000 Stockholders' equity (deficit): Series B Preferred Stock, par value $.01 per share. Authorized 50,000 shares; issued and outstanding 18,556 shares at June 30, 1999 and September 30, 1999.............................. 20,880,000 21,573,000 Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 994,477 shares at June 30, 1999 and September 30, 1999................................................ 10,000 10,000 Additional paid-in capital.......................................... 985,000 985,000 Accumulated deficit................................................. (88,840,000) (88,067,000) ------------- -------------- Total stockholders' equity (deficit)............ (66,965,000) (65,499,000) Commitments and contingencies....................................... $ 114,163,000 $ 125,232,000 ============= =============
See accompanying notes to condensed consolidated financial statements. 3 4 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTH PERIODS ENDED SEPTEMBER 30, ------------------------------- 1998 1999 ------------ ------------ Revenues......................................... $ 38,913,000 $ 49,857,000 Cost of revenues................................. 27,868,000 33,843,000 ------------ ------------ Gross profit................................... 11,045,000 16,014,000 General and administrative expenses.............. 17,211,000 8,577,000 Other operating income net....................... 260,000 301,000 ------------ ------------ Earnings (loss) before interest expense and income taxes................................. (5,906,000) 7,738,000 Interest expense................................. 2,616,000 3,952,000 ------------ ------------ Earnings (loss) before income taxes............ (8,522,000) 3,786,000 Income tax expense (benefit)..................... (1,721,000) 1,634,000 ------------ ------------ Net earnings (loss).............................. (6,801,000 2,152,000 ------------ ------------ Accretion of preferred stock to redemption value........................................... (395,000) (686,000) Accrual of cumulative dividends on preferred stock........................................... (388,000) (693,000) ------------ ------------ Net earnings (loss) available to common stockholders................................... $ (7,584,000) $ 773,000 ============ =========== Earnings (loss) per share: Basic and diluted.............................. $ (3.32) $ .78 Weighted average number of shares outstanding: Basic and diluted.............................. 2,286,725 994,477
See accompanying notes to condensed consolidated financial statements. 4 5 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTH PERIODS ENDED SEPTEMBER 30, --------------------------------- 1998 1999 ------------- ------------- Cash flows from operating activities: Net earnings (loss).................................................... $ (6,801,000) $ 2,152,000 Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Depreciation and amortization....................................... 2,488,000 3,468,000 Amortization of debt issuance costs................................. 123,000 221,000 Provision for doubtful accounts..................................... 38,000 619,000 Provision for deferred taxes........................................ 511,000 -- (Gain) loss on sale of assets....................................... 4,000 (43,000) Changes in assets and liabilities: Receivables...................................................... (5,743,000) (7,997,000) Inventories, prepaid expenses and other assets................... (203,000) (822,000) Costs and estimated earnings in excess of billings on uncompleted contracts.......................................... 306,000 892,000 Trade accounts payable and accrued liabilities................... (431,000) 1,202,000 Billings in excess of costs and estimated earnings on uncompleted contracts.......................................... 266,000 (376,000) Accrued compensation............................................. (5,233,000) -- ------------- ------------- Net cash used in operating activities........................ (14,675,000) (684,000) ------------- ------------- Cash flows from investing activities: Proceeds from sale of assets........................................... 121,000 156,000 Capital expenditures................................................... (3,337,000) (3,394,000) ------------- ------------- Net cash used in investing activities........................ (3,216,000) (3,238,000) ------------- ------------- Cash flows from financing activities: Borrowings under long-term debt........................................ 23,495,000 5,000,000 Repayments of long-term debt........................................... (16,606,000) (2,204,000) Paydown on notes payable to stockholders............................... (48,000) -- Book overdraft......................................................... -- 3,033,000 Borrowings on Senior Notes............................................. 100,000,000 -- Debt issuance costs.................................................... (5,205,000) -- Proceeds from issuance of common stock................................. 399,000 -- Repurchase of common stock............................................. (93,050,000) -- Issuance of Series A Preferred Stock................................... 10,427,000 -- Issuance of Series B Preferred Stock................................... 237,000 -- ------------- ------------- Net cash provided by financing activities.................... 19,649,000 5,829,000 ------------- ------------- Net increase in cash......................................... 1,758,000 1,907,000 Cash at beginning of period.............................................. 234,000 3,085,000 ------------- ------------- Cash at end of period.................................................... $ 1,992,000 $ 4,992,000 ============= ============= Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes........................................................... $ -- $ 123,000 Interest............................................................... $ 478,000 $ 6,876,000 ============= ============= Supplemental disclosure of noncash investing and financing activities: Borrowings related to capital leases and equipment financing agreements.. $ -- $ 2,262,000 ============= ============= Issuance of Senior Exchangeable Preferred Stock in connection with the Recapitalization Mergers......................................... $ 10,000,000 $ -- ============= ============= Accretion of Preferred Stock to redemption value....................... $ 395,000 $ 686,000 ============= ============= Accrual of cumulative dividends on preferred stock..................... $ 388,000 $ 693,000 ============= ============= Issuance of Series B Preferred Stock................................... $ 18,335,000 $ -- ============= =============
See accompanying notes to condensed consolidated financial statements. 5 6 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (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 three month period ended September 30, 1999 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. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing adjusted net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. All common shares included in the condensed consolidated financial statements and earnings (loss) per share calculations for three month period ended September 30, 1998 have been restated to reflect a 10.56 to one common stock split effected as part of the Recapitalization Mergers. 6 7 RECLASSIFICATIONS Certain reclassifications have been made to prior years' balances to conform to the current presentation. (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 September 30, 1999 the Company was in compliance with all such covenants. 7 8 LONG-TERM DEBT Long-term debt consists of the following:
JUNE 30, SEPTEMBER 30, 1999 1999 ------------ ------------- 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 1,028,000 Note payable secured by certain equipment bearing interest at 6.0%; all unpaid principal and interest due November 1, 1999..................... 876,000 876,000 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 1.25% 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 2.25% 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 September 30, 1999 was 7.38%.............................................................. 6,500,000 9,500,000 $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 1.25% 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 2.25% 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 September 30, 1999 was 7.44%........................................... 20,000,000 20,000,000 Various capital leases and equipment financing agreements due through October 2001 with interest rates ranging from 0% to .12% annually...... -- 2,058,000 Other..................................................................... 411,000 411,000 ------------ ------------- 30,711,000 35,769,000 Less current installments of long-term debt............................... 3,274,000 4,407,000 ------------ ------------- Long-term debt, excluding current installments............................ $ 27,437,000 $ 31,362,000 ============ =============
8 9 (3) 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. (4) 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. 9 10 The condensed consolidating financial information presents condensed financial statements as of June 30, 1999 and September 30, 1999 and for the three month periods ended September 30, 1998 and 1999 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. 10 11 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
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 Intercompany assets............ 58,069,000 -- -- (58,069,000) 3,154,000 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 ============= ============ ============ ============= =============
11 12 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------- ------------ Assets Current assets: Receivables, net............. $ -- $ -- $38,866,000 $ 38,866,000 Inventories.................. -- -- 1,926,000 1,926,000 Costs and estimated earnings in excess of billings on uncompleted contracts................... -- -- 2,262,000 2,262,000 Intercompany assets.......... 62,522,000 -- -- (62,522,000) -- Other current assets......... 3,550,000 4,164,000 2,863,000 (1,134,000) 9,443,000 ------------ ------------ ------------ -------------- ------------ Total current assets...... 66,072,000 4,164,000 45,917,000 (63,656,000) 52,497,000 ------------ ------------ ------------ ------------- ------------ Net property, plant and equipment................... -- 9,060,000 48,898,000 57,958,000 Other assets, net............ 5,603,000 -- 9,174,000 14,777,000 Investment in parent......... -- 4,001,000 -- (4,001,000) -- Investment in subsidiaries... 30,448,000 -- -- (30,448,000) -- ------------ ------------ ------------ ------------- ------------ $102,123,000 $ 17,225,000 $103,989,000 $ (98,105,000) $125,232,000 ============ ============ ============ ============= ============ Liabilities and Stockholders' Equity (Deficit) Current installments of long-term debt ............. $ -- $ 2,000 $ 4,405,000 $ 4,407,000 Trade accounts payable....... -- 162,000 11,237,000 11,399,000 Accrued liabilities.......... 10,704,000 (123,000) 10,340,000 (6,442,000) 14,479,000 Billings in excess of costs and estimated earnings on uncompleted contracts................. -- -- 674,000 674,000 Intercompany liabilities. -- 43,863,000 18,659,000 (62,522,000) -- ------------ ------------ ------------ ------------- ------------ Total current liabilities 10,704,000 43,904,000 45,315,000 (68,964,000) 30,959,000 ------------ ------------ ------------ ------------- ------------ Long-term debt, excluding current installments........ 29,500,000 213,000 1,649,000 31,362,000 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............. 11,294,000 -- -- 11,294,000 Series A Preferred stock..... 12,123,000 -- -- 12,123,000 Stockholders' equity (deficit)................... (61,498,000) (21,487,000) 51,935,000 (34,449,000) (65,499,000) ------------ ------------ ------------ ------------- ------------ $102,123,000 $ 17,225,000 $103,989,000 $ (98,105,000) $125,232,000 ============ ============ ============ ============= ============
12 13 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998 -------------------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------ ------------ ----------- ------------ ------------ Revenues.......................... $ 5,905,000 $ 294,000 $ 33,008,000 $ (294,000) $ 38,913,000 Cost of revenues.................. 3,569,000 5,000 24,294,000 27,868,000 ------------ ------------ ----------- ----------- ------------ Gross profit..................... 2,336,000 289,000 8,714,000 (294,000) 11,045,000 General and administrative expenses........................ 1,099,000 12,142,000 4,287,000 (317,000) 17,211,000 Other operating income, net........ 29,000 801,000 130,000 (700,000) 260,000 Equity earnings in subsidiaries... (5,224,000) -- -- 5,224,000 -- ------------ ------------ ----------- ----------- ------------ Earnings (loss) before interest expense and income taxes. (3,958,000) (11,052,000) 4,557,000 4,547,000 (5,906,000) Interest expense................... 2,331,000 155,000 107,000 23,000 2,616,000 ------------ ------------ ----------- ----------- ------------ Earnings (loss) before income taxes..................... (6,289,000) (11,207,000) 4,450,000 4,524,000 (8,522,000) Income taxes....................... (188,000) (3,030,000) 1,497,000 - 0 - (1,721,000) ------------ ------------ ----------- ----------- ------------ Net earnings (loss)................ $ (6,101,000) $ (8,177,000) $ 2,953,000 $ 4,524,000 $ (6,801,000) ============ ============ =========== =========== ===========
13 14 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ---------- -------- ----------- ----------- ----------- Revenues......................... $ -- $319,000 $49,857,000 $ (319,000) $49,857,000 Cost of revenues................. -- -- 33,843,000 33,843,000 ---------- -------- ----------- ----------- ----------- Gross profit................... -- 319,000 16,014,000 (319,000) 16,014,000 General and administrative expenses....................... 122,000 121,000 8,653,000 (319,000) 8,577,000 Other operating income, net...... 17,000 -- 284,000 301,000 Equity earnings in subsidiaries.. 4,459,000 -- -- (4,459,000) -- ---------- -------- ----------- ----------- ----------- Earnings before interest expense and income taxes...... 4,354,000 198,000 7,645,000 (4,459,000) 7,738,000 Interest expense................. 3,806,000 -- 146,000 -- 3,952,000 ---------- -------- ----------- ----------- ----------- Earnings before income taxes... 548,000 198,000 7,499,000 (4,459,000) 3,786,000 Income taxes..................... (1,604,000) 81,000 3,157,000 1,634,000 ---------- -------- ----------- ----------- ----------- Net earnings..................... $2,152,000 $117,000 $ 4,342,000 $(4,459,000) $ 2,152,000 ========== ======== =========== =========== ===========
14 15 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW (Unaudited)
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998 ----------------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------- ------------ ----------- ------------ ------------ Net cash provided by (used in) operating activities................ $ (3,452,000) $(14,326,000) $ 3,803,000 $(700,000) $(14,675,000) ------------ ------------ ----------- --------- ------------ Cash flows from investing activities: Proceeds from sale of assets... 9,000 59,000 53,000 121,000 Capital expenditures.............. (762,000) (800,000) (1,775,000) (3,337,000) ------------ ------------ ----------- --------- ------------ Net cash used in investing activities............. (753,000) (741,000) (1,722,000) (3,216,000) ------------ ------------ ----------- --------- ------------ Cash flows from financing activities: Due to (from) affiliates.......... (28,228,000) 29,096,000 (868,000) -- Borrowings under long-term debt... 20,000,000 3,495,000 23,495,000 Repayments of long-term debt...... -- (16,603,000) (3,000) (16,606,000) Paydown on notes payable to stockholders..................... -- (48,000) -- (48,000) Borrowings on Senior Notes........ 100,000,000 -- -- 100,000,000 Book overdraft.................... -- -- -- -- Debt issuance costs............... (5,205,000) -- -- (5,205,000) 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............................ 10,427,000 -- -- 10,427,000 Issuance of Series B Preferred Stock............................ 237,000 -- -- 237,000 ----------- ------------ ----------- --------- ------------ Net cash provided by (used in) financing activities................. 3,880,000 15,940,000 (871,000) 700,000 19,649,000 ----------- ------------ ----------- --------- ------------ Net increase (decrease) in cash.................... (325,000) 873,000 1,210,000 1,758,000 Cash at beginning of period......... (100,000) 542,000 (208,000) 234,000 ----------- ------------ ----------- --------- ------------ Cash at end of period............... $ (425,000) $ 1,415,000 $ 1,002,000 $ -- $ 1,992,000 =========== ============ =========== ========= ============
15 16 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW (Unaudited)
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------ PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ----------- ---------- ---------- ---------- ------------ Net cash provided by (used in) operating activities........... $(3,050,000) $ 99,000 $2,267,000 $ $ (684,000) ----------- ----------- ---------- ---------- ------------ Cash flows from investing activities: Proceeds from sale of assets.. -- 16,000 140,000 156,000 Capital expenditures.......... -- (3,000) (3,391,000) (3,394,000) ----------- ----------- ---------- ---------- ------------ Net cash used in investing activities... -- 13,000 (3,251,000) (3,238,000) ----------- ----------- ---------- ---------- ------------ Cash flows from financing activities: Due to (from) affiliates...... 50,000 2,184,000 (2,234,000) -- Book overdraft................ -- -- 3,033,000 3,033,000 Borrowings under long-term debt 5,000,000 -- -- 5,000,000 Repayments of long-term debt.. (2,000,000) -- (204,000) (2,204,000) ----------- ----------- ---------- ---------- ------------ Net cash provided by financing activities... 3,050,000 2,184,000 595,000 5,829,000 ----------- ----------- ---------- ---------- ------------ Net increase (decrease) in cash................ -- 2,296,000 (389,000) 1,907,000 Cash at beginning of period..... -- 1,853,000 1,232,000 3,085,000 ----------- ----------- ---------- ---------- ------------ Cash at end of period........... $ -- $ 4,149,000 $ 843,000 $ $ 4,992,000 =========== =========== ========== ========== ============
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. Approximately 51% of Penhall's revenues are derived from highway-related projects, approximately 24% of revenues are generated from building-related projects and the remainder of revenues is generated from airport, residential and other projects. The following table shows the breakdown of the components of revenue for the periods indicated:
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------- 1998 1999 ----------------------------------------------- $ % OF TOTAL $ % OF TOTAL ----------------------------------------------- Operated Equipment Rental Services..... $ 24,331 62.5% $32,652 65.5% Contract Services(1).... 14,582 37.5% 17,205 34.5% -------- ----- ------- ------ Total Revenues...... $ 38,913 100.0% $49,857 100.0% ======== ===== ======= ======
(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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998 Revenues. Revenues for the three months ended September 30, 1999 ("Interim 2000") were $49.9 million, an increase of $10.9 million or 28.1% over the three months ended September 30, 1998 ("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 $6.2 million of revenues in Interim 2000. In addition, construction markets remained strong in Interim 2000 in the areas which the Company serves. The Company operated through 33 locations in twelve states at September 30, 1999, compared to 22 locations in nine states at September 30, 1998. The Company's equipment fleet grew from 513 to 623 or 21.4% during this period. Gross Profit. Gross profit totaled $16.0 million in Interim 2000, an increase of $5.0 million or 45.0% from Interim 1999. Gross profit as a percentage of revenues increased from 28.4% in Interim 1999 to 32.1% 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. General and Administrative Expenses. General and administrative expenses were $8.6 million in Interim 2000 compared to $17.2 million in Interim 1999. As a percent of revenues, general and administrative expenses were 17.2% in Interim 2000 compared to 44.2% 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 $3.1 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 compensation expense and reorganization expenses, general and administrative expenses were $5.2 million, or 13.4% 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 $4.0 million in Interim 2000 compared to interest expense of $2.6 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 $1.6 million, or 43% of earnings before income taxes in Interim 2000, compared to an income tax benefit of $1.7 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. 18 19 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 4.75 to 1.0, 50% of such Excess Cash Flow. Cash used in operating activities during Interim 2000 was $0.7 million compared to $14.7 million during Interim 1999. In Interim 2000, the Company's higher net earnings, increase in accounts payable and accrued liabilities, higher depreciation and amortization expense offset by increases in accounts receivable, accounted for the improved cash from operations compared to Interim 1999. In Interim 1999, the Company's net loss, increase in accounts receivable and a decrease in accrued compensation, were partially offset by increased depreciation and amortization expense which resulted in the significant use of cash from operations during that period. Management estimates that the Company's annual capital expenditures will be approximately $20.0 million for fiscal 2000, including replacement and maintenance of equipment, purchases of new equipment, and purchases of real property. Cash used in investing activities was $3.2 million in Interim 2000 as compared to $3.2 million in Interim 1999. Such cash was primarily used for capital expenditures of $3.4 million in Interim 2000 and $3.3 in Interim 1999. Net cash provided by financing activities in Interim 2000 was $5.8 million as compared to $19.6 million in Interim 1999. In Interim 2000, the Company's financing activities are primarily a result of borrowings and repayments of long-term debt and a book overdraft. 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 September 30, 1999, the Company and its subsidiaries had approximately $135.8 million of total indebtedness outstanding (including the Notes) and a stockholders' deficit of approximately $65.5 million. As of September 30, 1999 approximately $20.0 million of additional borrowing was available under the Company's New Credit Facility. 19 20 YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The Company has established an informal Year 2000 task force, and has developed a plan which lists the milestones achieved and yet to be completed to become Year 2000 ready. A checklist of potential failure sources has been compiled and includes both information technology and embedded technology systems. The Company has completed its assessment of its information technology and embedded technology systems and has identified and taken measures to correct potential failures in those systems, including a recent upgrade of the hardware and software components of its information technology system. The Company's basic business is to provide operator assisted equipment for rental. As such, management believes the Company's main exposure to Year 2000 (Y2K) issues is to the telephone and radio communication systems needed to take orders for rental, and for certain larger pieces of equipment (excavators, back hoes, etc.) which have some level of computer operating controls. The Company's information technology systems include it's accounting systems, billing, accounts payable, and equipment utilization reports. The Company has 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 is currently conducting a review for Y2K compliance for the major non-information technology systems, which it expects to complete by December 1, 1999. This review includes determining if respective vendors of the non-information technology systems are also Y2K compliant. The Company has spent less than $50,000 as of September 30, 1999, 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 risk to the Company is that communication systems on which the Company relies will not function properly, or that certain heavy equipment will not function properly, after December 31, 1999. The primary information technology risk is that accounting data, including billing customers and paying vendors, will 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. Although Penhall is uncertain as to the extent its customers may be affected by Year 2000 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 Year 2000 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 which are 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 its 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 3,759 960 490 3 4 $100,179 $105,395 $103,395 Average interest rate 12.00% Variable rate LIBOR debt (1) 0 3,000 5,000 6,000 15,500 0 29,500 29,500 Current interest rate (1) 7.42%
- ------------------- (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. 20 21 Part II - Other Information Items 1-5 are not applicable Item 6. Exhibits and Reports on Form 8-K. 21 22 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. /s/ JOHN T. SAWYER ------------------------------ John T. Sawyer Chairman of the Board President and Chief Executive Officer Date: November 15, 1999 22 23 EXHIBIT INDEX Exhibit 27.1 FINANCIAL DATA SCHEDULE EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-2000 SEP-30-1999 4,992 0 40,762 (1,896) 1,926 52,497 103,644 (45,686) 125,232 30,959 131,362 21,573 23,417 10,000 (88,067) 125,232 49,857 49,857 33,843 33,843 8,577 301 3,952 3,786 1,634 2,152 0 0 0 2,152 (.78) (.78)
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