-----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, UMppmQ2n4zbOAmZwWnV62m3QdBh0QBE0BxNprTaLNCvjb0NsLcFuJ1BOR85YcFSE zmYr8hB/WZjxqyFF4BYJ0A== 0001095811-01-502197.txt : 20010515 0001095811-01-502197.hdr.sgml : 20010515 ACCESSION NUMBER: 0001095811-01-502197 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: 1633702 BUSINESS ADDRESS: STREET 1: 1801 PENHALL WAY CITY: ANAHEIM STATE: CA ZIP: 92803 BUSINESS PHONE: 7147726450 10-Q 1 a72739e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED MARCH 31, 2001 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, 2001 [ ] 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 13, 2001 ------------------ ------------------------ Common Stock, $.01 Par Value 1,017,480 ================================================================================ 2 PENHALL INTERNATIONAL CORP. INDEX
Page No. -------- Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 and March 31, 2001.......... 3 Consolidated Statements of Operations for the three and nine month periods ended March 31, 2000 and 2001..................................... 4 Consolidated Statements of Cash Flows for the nine month periods ended March 31, 2000 and 2001................................................... 5 Notes to Consolidated Financial Statements..................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk..................... 19 Part II - Other Information Items 1-5 are not applicable Item 6. Exhibits and Reports on Form 8-K............................................... 19
a) Exhibits None b) Reports on Form 8-K None 2 3 ITEM 1. FINANCIAL INFORMATION PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30, 2001 2000 (UNAUDITED) ------------- ------------- ASSETS Current assets: Cash and cash equivalents .......................................................... $ 2,109,000 $ 1,273,000 Receivables: Contract and trade receivables .......................................... 31,834,000 27,151,000 Contract retentions ..................................................... 5,724,000 4,800,000 ------------- ------------- 37,558,000 31,951,000 Less allowance for doubtful receivables ................................. 1,617,000 1,631,000 ------------- ------------- Net receivables ................................................ 35,941,000 30,320,000 Income taxes receivable ............................................................ -- 753,000 Costs and estimated earnings in excess of billings on uncompleted contracts ........ 4,126,000 1,544,000 Deferred tax assets ................................................................ 2,318,000 2,318,000 Inventories ........................................................................ 1,741,000 1,747,000 Prepaid expenses and other current assets .......................................... 916,000 1,393,000 ------------- ------------- Total current assets ........................................... 47,151,000 39,348,000 Property, plant and equipment, at cost: Land ............................................................................... 5,229,000 5,229,000 Buildings and leasehold improvements ............................................... 8,135,000 9,347,000 Construction and other equipment ................................................... 102,284,000 112,014,000 ------------- ------------- 115,648,000 126,590,000 Less accumulated depreciation and amortization ..................................... 53,924,000 61,089,000 ------------- ------------- Net property, plant and equipment .............................. 61,724,000 65,501,000 Goodwill, net of accumulated amortization ............................................ 7,566,000 7,420,000 Debt issuance costs, net of accumulated amortization ................................. 4,946,000 4,283,000 Other assets, net .................................................................... 775,000 753,000 ------------- ------------- $ 122,162,000 $ 117,305,000 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current installments of long-term debt ............................................. $ 4,649,000 $ 5,578,000 Current installments of notes payable to stockholders .............................. -- 163,000 Trade accounts payable ............................................................. 10,953,000 5,964,000 Accrued liabilities ................................................................ 14,045,000 11,426,000 Income taxes payable ............................................................... 451,000 -- Billings in excess of costs and estimated earnings on uncompleted contracts ........ 2,635,000 1,204,000 ------------- ------------- Total current liabilities ...................................... 32,733,000 24,335,000 Long-term debt, excluding current installments ....................................... 20,586,000 20,532,000 Notes payable to stockholders, excluding current installments ........................ -- 111,000 Senior notes ......................................................................... 100,000,000 100,000,000 Deferred tax liabilities ............................................................. 6,045,000 6,045,000 Senior Exchangeable Preferred Stock, redemption value $12,220,000 and $13,222,000 at June 30, 2000 and March 31, 2001, respectively. Authorized, issued and outstanding 10,000 shares at June 30, 2000 and March 31, 2001 ........... 12,220,000 13,222,000 Series A Preferred Stock, redemption value $13,365,000 and $14,735,000 at June 30, 2000 and March 31, 2001, respectively. Authorized 25,000 shares; issued and outstanding 10,428 shares at June 30, 2000 and March 31, 2001 .................. 13,365,000 14,735,000 Stockholders' deficit: Series B Preferred Stock, par value $.01 per share. Authorized 50,000 shares; issued and outstanding 19,052 at June 30, 2000 and 18,711 shares at March 31, 2001 24,385,000 26,415,000 Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,012,513 at June 30, 2000 and 989,637 shares at March 31, 2001 ...... 10,000 10,000 Additional paid-in capital ......................................................... 1,522,000 1,831,000 Treasury stock, at cost, 6,014 common shares at June 30, 2000 and 33,857 at March 31, 2001 ......................................................... (14,000) (278,000) Accumulated deficit ................................................................ (88,690,000) (89,653,000) ------------- ------------- Total stockholders' deficit .................................... (62,787,000) (61,675,000) Commitments and contingencies ...................................................... -- -- ------------- ------------- $ 122,162,000 $ 117,305,000 ============= =============
See accompanying notes to consolidated financial statements. 3 4 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTH PERIODS NINE MONTH PERIODS ENDED MARCH 31, ENDED MARCH 31, ----------------------------- ------------------------------- 2000 2001 2000 2001 ------------ ------------ ------------- ------------- Revenues ................................................. $ 37,643,000 $ 33,619,000 $ 128,268,000 $ 128,530,000 Cost of revenues ......................................... 27,275,000 24,904,000 88,674,000 90,818,000 ------------ ------------ ------------- ------------- Gross profit ........................................... 10,368,000 8,715,000 39,594,000 37,712,000 General and administrative expenses ...................... 6,118,000 6,013,000 21,750,000 20,887,000 Other operating income, net .............................. 323,000 213,000 891,000 1,000,000 ------------ ------------ ------------- ------------- Earnings before interest expense and income taxes ...... 4,573,000 2,915,000 18,735,000 17,825,000 Interest expense ......................................... 3,853,000 3,700,000 11,765,000 11,378,000 ------------ ------------ ------------- ------------- Earnings(loss) before income taxes ..................... 720,000 (785,000) 6,970,000 6,447,000 Income tax expense (benefit) ............................. 294,000 (322,000) 2,857,000 2,644,000 ------------ ------------ ------------- ------------- Net earnings (loss) ...................................... 426,000 (463,000) 4,113,000 3,803,000 ------------ ------------ ------------- ------------- Accretion of preferred stock to redemption value ......... (719,000) (803,000) (2,112,000) (2,373,000) Accrual of cumulative dividends on preferred stock ....... (750,000) (739,000) (2,170,000) (2,395,000) ------------ ------------ ------------- ------------- Net loss available to common stockholders ................ $ (1,043,000) $ (2,005,000) $ (169,000) $ (965,000) ============ ============ ============= ============= Loss per share: Basic and diluted ...................................... $ (1.04) $ (1.97) $ (.17) $ (.95) Weighted average number of shares outstanding: Basic and diluted ...................................... 1,004,923 1,017,480 999,554 1,015,450
See accompanying notes to consolidated financial statements 4 5 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTH PERIODS ENDED MARCH 31, ----------------------------- 2000 2001 ------------ ------------ Cash flows from operating activities: Net earnings ................................................................... $ 4,113,000 $ 3,803,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ................................................ 10,744,000 12,046,000 Amortization of debt issuance costs .......................................... 663,000 663,000 Provision for doubtful accounts .............................................. 989,000 14,000 Gain on sale of assets ....................................................... (215,000) (282,000) Changes in assets and liabilities, net of effects of acquisitions: Receivables ................................................................ (50,000) 5,607,000 Inventories, prepaid expenses and other assets ............................. (1,216,000) (358,000) Costs and estimated earnings in excess of billings on uncompleted contracts 559,000 2,582,000 Trade accounts payable, accrued liabilities and income taxes payable ....... (739,000) (10,933,000) Billings in excess of costs and estimated earnings on uncompleted contracts (454,000) (1,431,000) ------------ ------------ Net cash provided by operating activities .............................. 14,394,000 11,711,000 ------------ ------------ Cash flows from investing activities: Proceeds from sale of assets ................................................... 691,000 795,000 Capital expenditures ........................................................... (13,985,000) (13,298,000) Cash paid for acquisitions, representing assets ................................ -- (520,000) ------------ ------------ Net cash used in investing activities .................................. (13,294,000) (13,023,000) ------------ ------------ Cash flows from financing activities: Borrowings under long-term debt ................................................ 18,500,000 45,961,000 Repayments of long-term debt ................................................... (24,634,000) (46,924,000) Book overdraft ................................................................. 2,609,000 1,444,000 Debt issuance costs ............................................................ (7,000) -- Proceeds from issuance of common stock ......................................... 488,000 309,000 Repurchase of common stock and Series B preferred stock ........................ (29,000) (501,000) Issuance of Series B preferred stock ........................................... 523,000 187,000 ------------ ------------ Net cash provided by (used in) financing activities .................... (2,550,000) 476,000 ------------ ------------ Net decrease in cash and cash equivalents .............................. (1,450,000) (836,000) Cash and cash equivalents at beginning of period ................................. 3,085,000 2,109,000 ------------ ------------ Cash and cash equivalents at end of period ....................................... $ 1,635,000 $ 1,273,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes ................................................................. $ 215,000 $ 3,847,000 ============ ============ Interest ..................................................................... $ 14,196,000 $ 13,586,000 ============ ============ Supplemental disclosure of noncash investing and financing activities: Accrued liabilities related to the purchase of assets .......................... $ -- $ 480,000 ============ ============ Borrowings related to the purchase of assets ................................... $ -- $ 675,000 ============ ============ Borrowings related to capital leases and equipment financing agreements ........ $ 1,667,000 $ 1,130,000 ============ ============ Accretion of preferred stock to redemption value ............................... $ 2,112,000 $ 2,373,000 ============ ============ Accrual of cumulative dividends on preferred stock ............................. $ 2,170,000 $ 2,395,000 ============ ============
See accompanying notes to consolidated financial statements. 5 6 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (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. The accompanying unaudited 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, 2001 are not necessarily indicative of the results that may be expected for the year ending June 30, 2001. 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, 2000. 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. Diluted loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period plus the impact of assumed potential dilutive securities. There were no potential dilutive securities for the periods presented. NEW ACCOUNTING PRONOUNCEMENT During the quarter ended March 31, 2001, the Company adopted Financial Accounting Standards Board ("FASB) Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS 138"). SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The adoption of SFAS 133, as amended, had no effect on the Company's results of operations and financial position because the Company does not have any derivative instruments nor has the Company engaged in hedging activities. 6 7 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) (2) 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, based in part upon the advice of legal counsel, that the outcome of these proceedings will not have a material effect on the Company's consolidated financial statements taken as a whole. (3) ACQUISITIONS In September 2000, the Company purchased certain assets of Advanced Concrete Sawing & Drilling for $1,096,000. The purchase price included a cash payment of $317,000, $40,000 of covenants not to compete payable in equal installments through September 2004, $400,000 of additional consideration payable in equal installments in October 2000 and September 2001, and a seller unsecured carryback note of $339,000 at 10.0% interest, payable in installments of $100,000 due in September 2001 and $300,000 due in September 2002. The excess of the purchase price over the fair value of the net identifiable assets acquired of $384,000 has been recorded as goodwill and is being amortized on a straight-line basis over 15 years. In March 2001, the Company purchased certain assets of H&P Sawing & Drilling for $579,000. The purchase price included $50,000 of covenants not to compete payable in equal installments through March 2006 and a seller unsecured carryback note of $529,000 at 9.0% interest, payable in annual installments of $193,000 through March 2003. (4) RELATED PARTY In connection with the repurchase of 27,843 shares of common stock and 487 shares of Series B Preferred stock in January 2001, the Company has a note payable with a balance of $274,000 due to a former officer. The note bears interest at 8.0% per annum and is payable in monthly principal and interest payments of $15,000 ending in October 2002. (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). The condensed consolidating financial information presents condensed financial statements as of June 30, 2000 and March 31, 2001 and for the three and nine month periods ended March 31, 2000 and 2001 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. 7 8 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000 ------------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Assets Current assets: Receivables, net ............. $ -- $ -- $ 35,941,000 $ -- $ 35,941,000 Inventories .................. -- -- 1,741,000 -- 1,741,000 Costs and estimated earnings in excess of billings on uncompleted contracts ...... -- -- 4,126,000 -- 4,126,000 Intercompany assets .......... 41,702,000 -- -- (41,702,000) -- Other current assets ......... 217,000 1,394,000 3,732,000 -- 5,343,000 ------------- ------------- ------------- ------------- ------------- Total current assets ....... 41,919,000 1,394,000 45,540,000 (41,702,000) 47,151,000 Intercompany assets ............. 10,000,000 -- -- (10,000,000) -- Net property, plant and equipment -- 8,882,000 52,842,000 -- 61,724,000 Other assets, net ............... 4,946,000 -- 8,341,000 -- 13,287,000 Investment in parent ............ -- 4,001,000 -- (4,001,000) -- Investment in subsidiaries ...... 41,222,000 -- -- (41,222,000) -- ------------- ------------- ------------- ------------- ------------- $ 98,087,000 $ 14,277,000 $ 106,723,000 $ (96,925,000) $ 122,162,000 ============= ============= ============= ============= ============= Liabilities and Stockholders' Equity (Deficit): Current installments of long-term debt ......................... $ 3,000,000 $ 3,000 $ 1,646,000 $ -- $ 4,649,000 Trade accounts payable .......... -- 103,000 10,850,000 -- 10,953,000 Accrued liabilities ............. 5,066,000 -- 8,979,000 -- 14,045,000 Income taxes payable ............ 451,000 -- -- -- 451,000 Billings in excess of costs and estimated earnings on uncompleted contracts ........ -- -- 2,635,000 -- 2,635,000 Intercompany liabilities ........ 2,922,000 35,586,000 3,194,000 (41,702,000) -- ------------- ------------- ------------- ------------- ------------- Total current liabilities .. 11,439,000 35,692,000 27,304,000 (41,702,000) 32,733,000 Intercompany liabilities ........ -- -- 10,000,000 (10,000,000) -- Long-term debt, excluding current installments ................. 19,850,000 203,000 533,000 -- 20,586,000 Senior notes .................... 100,000,000 -- -- -- 100,000,000 Deferred tax liabilities ........ -- (540,000) 6,585,000 -- 6,045,000 Senior Exchangeable Preferred stock ......................... 12,220,000 -- -- -- 12,220,000 Series A Preferred stock ........ 13,365,000 -- -- -- 13,365,000 Stockholders' equity (deficit) .. (58,787,000) (21,078,000) 62,301,000 (45,223,000) (62,787,000) ------------- ------------- ------------- ------------- ------------- $ 98,087,000 $ 14,277,000 $ 106,723,000 $ (96,925,000) $ 122,162,000 ============= ============= ============= ============= =============
8 9 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2001 ------------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Assets Current assets: Receivables, net ..................... $ 752,000 $ -- $ 30,321,000 $ -- $ 31,073,000 Inventories .......................... -- -- 1,747,000 -- 1,747,000 Costs and estimated earnings in excess of billings on uncompleted contracts -- -- 1,544,000 -- 1,544,000 Intercompany assets .................. 39,062,000 -- -- (39,062,000) -- Other current assets ................. 59,000 1,171,000 3,754,000 -- 4,984,000 ------------- ------------- ------------- ------------- ------------- Total current assets .............. 39,873,000 1,171,000 37,366,000 (39,062,000) 39,348,000 Intercompany assets ..................... -- -- -- -- -- Net property, plant and equipment ....... -- 9,741,000 55,760,000 -- 65,501,000 Other assets, net ....................... 4,283,000 -- 8,173,000 -- 12,456,000 Investment in parent .................... -- 4,001,000 -- (4,001,000) -- Investment in subsidiaries .............. 51,841,000 -- -- (51,841,000) -- ------------- ------------- ------------- ------------- ------------- $ 95,997,000 $ 14,913,000 $ 101,299,000 $ (94,904,000) $ 117,305,000 ============= ============= ============= ============= ============= Liabilities and Stockholders' Equity (Deficit) Current installments of long-term debt .. $ 4,663,000 $ -- $ 1,078,000 $ -- $ 5,741,000 Trade accounts payable .................. -- 34,000 5,930,000 -- 5,964,000 Accrued liabilities ..................... 2,130,000 (338,000) 9,634,000 -- 11,426,000 Income taxes payable .................... -- -- -- -- -- Billings in excess of costs and estimated earnings on uncompleted contracts .... -- -- 1,204,000 -- 1,204,000 Intercompany liabilities ................ -- 36,179,000 2,883,000 (39,062,000) -- ------------- ------------- ------------- ------------- ------------- Total current liabilities ............ 6,793,000 35,875,000 20,729,000 (39,062,000) 24,335,000 Long-term debt, excluding current installments ................. 18,921,000 197,000 1,525,000 -- 20,643,000 Senior notes ............................ 100,000,000 -- -- -- 100,000,000 Deferred tax liabilities ................ -- (540,000) 6,585,000 -- 6,045,000 Senior Exchangeable Preferred stock ..... 13,222,000 -- -- -- 13,222,000 Series A Preferred stock ................ 14,735,000 -- -- -- 14,735,000 Stockholders' equity (deficit) .......... (57,674,000) (20,619,000) 72,460,000 (55,842,000) (61,675,000) ------------- ------------- ------------- ------------- ------------- $ 95,997,000 $ 14,913,000 $ 101,299,000 $ (94,904,000) $ 117,305,000 ============= ============= ============= ============= =============
9 10 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (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 =========== ======== =========== =========== ===========
10 11 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2001 ----------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------- -------- ----------- ------------ ------------ Revenues ......................... $ -- $371,000 $33,619,000 $ (371,000) $ 33,619,000 Cost of revenues ................. -- -- 24,904,000 -- 24,904,000 ----------- -------- ----------- ----------- ------------ Gross profit .................. -- 371,000 8,715,000 (371,000) 8,715,000 General and administrative expenses ..................... 94,000 120,000 6,170,000 (371,000) 6,013,000 Other operating income, net ...... 2,000 -- 211,000 -- 213,000 Equity earnings in subsidiaries .. 1,765,000 -- -- (1,765,000) -- ----------- -------- ----------- ----------- ------------ Earnings before interest expense and income taxes .... 1,673,000 251,000 2,756,000 (1,765,000) 2,915,000 Interest expense ................. 3,685,000 1,000 14,000 -- 3,700,000 ----------- -------- ----------- ----------- ------------ Earnings (loss) before income taxes ................ (2,012,000) 250,000 2,742,000 (1,765,000) (785,000) Income tax expense (benefit) ..... (1,549,000) 103,000 1,124,000 -- (322,000) ----------- -------- ----------- ----------- ------------ Net earnings (loss) .............. $ (463,000) $147,000 $ 1,618,000 $(1,765,000) $ (463,000) =========== ======== =========== =========== ============
11 12 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (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 ============ ======== ============ ============ ============
12 13 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED MARCH 31, 2001 ----------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------- -------- ----------- ------------ ------------ Revenues ......................... $ -- $1,138,000 $128,530,000 $ (1,138,000) $128,530,000 Cost of revenues ................. -- -- 90,818,000 -- 90,818,000 ------------ ---------- ------------ ------------ ------------ Gross profit .................. -- 1,138,000 37,712,000 (1,138,000) 37,712,000 General and administrative expenses .................... 303,000 358,000 21,364,000 (1,138,000) 20,887,000 Other operating income, net ...... 7,000 -- 993,000 -- 1,000,000 Equity earnings in subsidiaries .. 10,618,000 -- -- (10,618,000) -- ------------ ---------- ------------ ------------ ------------ Earnings before interest expense and income taxes ... 10,322,000 780,000 17,341,000 (10,618,000) 17,825,000 Interest expense ................. 11,255,000 1,000 122,000 -- 11,378,000 ------------ ---------- ------------ ------------ ------------ Earnings (loss) before income taxes ................ (933,000) 779,000 17,219,000 (10,618,000) 6,447,000 Income tax expense (benefit) ..... (4,736,000) 320,000 7,060,000 -- 2,644,000 ------------ ---------- ------------ ------------ ------------ Net earnings ..................... $ 3,803,000 $ 459,000 $ 10,159,000 $(10,618,000) $ 3,803,000 ============ ========== ============ ============ ============
13 14 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
NINE MONTH PERIOD ENDED MARCH 31, 2000 --------------------------------------------------------------------------------- PENHALL 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 ============ ============ ============ ============ ============
14 15 PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
NINE MONTH PERIOD ENDED MARCH 31, 2001 ------------------------------------------------------------------------------- PENHALL PENHALL INTERNATIONAL RENTAL PENHALL CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED ------------- ----------- ------------ ------------ ------------ Net cash provided by (used in) operating activities ................... $(9,030,000) $ 385,000 $ 20,356,000 $ -- $ 11,711,000 ------------ ----------- ------------ ----------- ------------ Cash flows from investing activities: Proceeds from sale of assets ............ -- -- 795,000 -- 795,000 Capital expenditures .................... -- (1,175,000) (12,123,000) -- (13,298,000) Acquisition of assets ................... -- -- (520,000) -- (520,000) ------------ ----------- ------------ ----------- ------------ Net cash used in investing activities .......... -- (1,175,000) (11,848,000) -- (13,023,000) ------------ ----------- ------------ ----------- ------------ Cash flows from financing activities: Due to (from) affiliates ................ 8,514,000 594,000 (9,108,000) -- -- Borrowings under long-term debt ......... 45,961,000 -- -- -- 45,961,000 Repayments of long-term debt ............ (45,540,000) (9,000) (1,375,000) -- (46,924,000) Book overdraft .......................... -- -- 1,444,000 -- 1,444,000 Proceeds from issuance of common stock .. 309,000 -- -- -- 309,000 Repurchase of common stock and Series B preferred stock ..................... (501,000) -- -- -- (501,000) Issuance of Series B preferred stock .... 187,000 -- -- -- 187,000 ------------ ----------- ------------ ----------- ------------ Net cash provided by (used in) financing activities .......... 8,930,000 585,000 (9,039,000) -- 476,000 ------------ ----------- ------------ ----------- ------------ Net decrease in cash and cash equivalents .......... (100,000) (205,000) (531,000) -- (836,000) Cash and cash equivalents at beginning of period ................... 100,000 1,370,000 639,000 -- 2,109,000 ------------ ----------- ------------ ----------- ------------ Cash and cash equivalents at end of period ......................... $ -- $ 1,165,000 $ 108,000 $ -- $ 1,273,000 ============ =========== ============ =========== ============
15 16 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 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 39 locations in fourteen 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 ten 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, Prospect Drilling and Sawing, a Minneapolis-based company acquired in June 1999, Advance Concrete Sawing & Drilling, Inc., a Bakersfield, California-based company purchased in September 2000 and H&P Sawing & Drilling, a Kansas City, Missouri based company acquired in March of 2001. During the same period, Penhall established operations in nine new markets by opening offices in Las Vegas, Salt Lake City, Portland, Dallas, Richmond, Fresno, Buffalo, Reno, and Seattle. 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 MONTH PERIODS ENDED NINE MONTH PERIODS ENDED MARCH 31, MARCH 31, ------------------------------------- --------------------------------------- 2000 2001 2000 2001 ---------------- ---------------- ----------------- ----------------- % OF % OF % OF % OF $ TOTAL $ TOTAL $ TOTAL $ TOTAL ------- ----- ------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) Operated Equipment Rental Services .............. $27,088 72.0% $25,744 76.6% $ 89,013 69.4% $ 93,182 72.5% Contract Services(1) .... 10,555 28.0% 7,875 23.4% 39,255 30.6% 35,348 27.5% ------- ----- ------- ----- -------- ----- -------- ----- Total Revenues ...... $37,643 100.0% $33,619 100.0% $128,268 100.0% $128,530 100.0% ======= ===== ======= ===== ======== ===== ======== =====
- ------------ (1) Contract services revenues exclude services performed by the operated equipment rental divisions on long-term contracts. 16 17 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. 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 nine years with a 10% residual value. RESULTS OF OPERATIONS Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 Revenues. Revenues for the three months ended March 31, 2001 ("Interim 2001") were $33.6 million, a decrease of 4.0 million or 10.7% as compared to the three months ended March 31, 2000 ("Interim 2000"). The decrease in revenue resulted primarily from adverse weather conditions in many of the areas the Company operates, particularly the Southwestern region of the United States during Interim 2001. Gross Profit. Gross profit totaled $8.7 million in Interim 2001, a decrease of $1.7 million or 15.9% from Interim 2000. The decrease in gross profit is partially the result of lower revenues in Interim 2001. Additionally, gross profit as a percentage of revenues decreased from 27.5% in Interim 2000 to 25.9% in Interim 2001. The decrease in gross profit as a percentage of revenues was due to increased competition in several of the Company's markets during Interim 2001, an increase in direct labor salaries and an increased use of subcontractors. The increased use of subcontractors resulted from several contracts performed by the Company as the prime contractor. The Company performs as both a prime contractor and a subcontractor. The mix of work performed varies from quarter to quarter based upon opportunities available and is not necessarily indicative of the future mix of revenues. General and Administrative Expenses. General and administrative expenses remained relatively constant, only decreasing 1.7% from $6.1 million in Interim 2000 to $6.0 million in Interim 2001. As a percent of revenues, general and administrative expenses increased from 16.3% in Interim 2000 to 17.9% in Interim 2001. The increase in general and administrative expense as a percentage of revenues in Interim 2001 is due to general and administrative costs over the short run being fixed in nature and do not fluctuate in relationship to revenues. Interest Expense. Interest expense decreased by $0.2 million or 4.0% from Interim 2000 to Interim 2001. The small decrease in interest expense is attributable to a reduction in borrowing offset by higher interest rates in Interim 2001. Income Tax Expense (Benefit). The Company recorded an income tax benefit of $0.3 million, or 41.0% of loss before income taxes in Interim 2001, compared to an income tax provision of $0.3 million, or 41.0% of earnings before income taxes in Interim 2000. Nine Months Ended March 31, 2001 Compared to Nine Months Ended March 31, 2000 Revenues. Revenues for the nine months ended March 31, 2001 ("Interim 2001") were $128.5 million, an increase of $0.3 million or 0.2% over the nine months ended March 31, 2000 ("Interim 2000"). The modest revenue growth was due primarily to growth in operated equipment rental services performed partially offset by reductions in contract services. The decrease in revenues for fixed-price contracts is attributable to increased competition, delays by various state Department of Transportation agencies in releasing new contracts and adverse weather conditions in many of the areas the Company operates, particularly the Southwestern region of the United States. 17 18 Gross Profit. Gross profit totaled $37.7 million in Interim 2001, a decrease of $1.9 million or 4.8% from Interim 2000. Gross profit as a percentage of revenues decreased from 30.9% in Interim 2000 to 29.3% in Interim 2001. The decrease in gross profit as a percentage of revenues was due to increased competition in several Company markets during Interim 2001 resulting in slightly lower revenues and an increase in subcontract costs. The Company divisions most impacted by increased competition were the markets served by Highway Services and offices located in the southwest and southern regions of the United States. General and Administrative Expenses. General and administrative expenses of $20.9 million in Interim 2001 were $0.9 million or 4.0% lower than Interim 2000. As a percent of revenues, general and administrative expenses were 17.0% in Interim 2000 and 16.3% in Interim 2001. The decrease in general and administrative expenses in Interim 2001, both in terms of dollars and as a percentage of revenues, is primarily attributable to decreases in legal and bad debt expenses of $0.2 and $1.4 million, respectively which are offset by an increase in salaries and related expenses of $0.7 million. Interest Expense. Interest expense was $11.4 million in Interim 2001 compared to $11.8 million in Interim 2000. The $0.4 million or 3.3% decrease in interest expense in Interim 2001 is attributable to lower borrowings partially offset by higher interest rates in Interim 2001. Income Tax Expense. The Company recorded an income tax provision of $2.6 million, or 41% of earnings before income taxes, in Interim 2001 compared to an income tax provision of $2.9 million or 41% of earnings before income taxes in Interim 2000. 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 Credit Facility. The 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 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 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 Credit Facility. Such loans are also required to be prepaid with 75% of the Excess Cash Flow (as such term is defined in the Credit Facility) of the Company or, if the Company's Leverage Ratio (as such term is defined in the Credit Facility) is less than 4.95 to 1.0, 50% of such Excess Cash Flow.
SUMMARY CASH FLOW DATA FOR THE NINE MONTHS ENDED MARCH 31, 2000 2001 ------------------------------ ----------- ----------- Cash and cash equivalents 1,635,000 1,273,000 Net cash provided by (used in): Operating activities 14,394,000 11,711,000 Investing activities (13,294,000) (13,023,000) Financing activities (2,550,000) 476,000 Capital expenditures 13,985,000 13,298,000
Cash provided by operating activities during Interim 2001 decreased by $2.7 million to $11.7 million compared to Interim 2000. Changes in the cash from operating activities primarily reflect net earnings plus seasonal variations in accounts based on the amount, type, and progress of work being performed, as well as timing of receipts and disbursements. 18 19 Cash used in investing activities for Interim 2001 decreased by $0.3 million to $13.0 million as compared to Interim 2000. This is due to a $0.7 million reduction in capital expenditures offset by $0.5 million of acquisitions during Interim 2001. Management estimates that the Company's annual capital expenditures will be approximately $18.0 million for fiscal 2001, including replacement and maintenance of equipment, purchases of new equipment, and purchases of real property. Net cash from financing activities in Interim 2001 increased by $3.0 million to $0.5 million as compared to Interim 2000. In Interim 2001 and 2000, the Company's financing activities are primarily a result of borrowings and repayments of long-term debt and a book overdraft. Historically, the Company has funded its working capital requirements, capital expenditures and other needs principally from operating cash flows. As a result of the Recapitalization Mergers, however, the Company has substantial indebtedness and debt service obligations. As of March 31, 2001, the Company and its subsidiaries had approximately $126.4 million of total indebtedness outstanding and a stockholders' deficit of approximately $61.7 million. As of March 31, 2001, approximately $24.4 million of additional borrowing was available under the Company's Credit Facility. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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. The table below presents the principal amounts of debt (excluding capital lease obligations of $118,000), weighted average interest rates, fair values and other items required by the year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes as of March 31, 2001.
YEARS ENDED JUNE 30, ------------------------------------------------ FAIR 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE ---- ------ ------ ------- ----- ---------- -------- -------- (IN THOUSANDS) Fixed rate debt .............. $748 $1,490 $ 528 $ 4 $ 4 $100,182 $102,956 $101,456(2) Average interest rate ........ 5.63% 5.39% 8.37% 10.00% 10.00% 12.00% 11.84% 12.39% Variable rate LIBOR debt(1) .. $750 $5,000 $6,000 $11,560 $ 0 $ 0 $ 23,310 $ 23,310 Weighted average current interest rate(1)............ 8.47%
- ----------- (1) The Company has different interest rate options for its variable rate debt. (2) The fair value of fixed rate debt was determined based on current rates offered for debt instruments with similar risks and maturities. PART II - OTHER INFORMATION Items 1-5 are not applicable Item 6. Exhibits and Reports on Form 8-K. 19 20 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 13, 2001 /s/ JOHN T. SAWYER ----------------------------------- John T. Sawyer Chairman of the Board, President and Chief Executive Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----