<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -----------------------
Commission File Number: 0-23335
MPW INDUSTRIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1567260
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9711 Lancaster Road, S.E., Hebron, Ohio 43025
(Address of principal executive offices) (Zip code)
(740) 927-8790
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 1998, 10,445,431 shares of the issuer's common stock,
without par value, were outstanding.
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MPW INDUSTRIAL SERVICES GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and March 31, 1998 (unaudited)...............3
Consolidated Statements of Operations for the three and nine months ended March 31,
1997 and 1998 (unaudited)....................................................................4
Consolidated Statements of Cash Flows for the nine months ended March 31, 1997 and
1998 (unaudited).............................................................................5
Notes to Consolidated Financial Statements (unaudited).......................................6
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations...................................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................15
Item 2. Changes in Securities and Use of Proceeds...................................................15
Item 3. Defaults Upon Senior Securities.............................................................15
Item 4. Submission of Matters to a Vote of Security Holders.........................................15
Item 5. Other Information...........................................................................15
Item 6. Exhibits and Reports on Form 8-K............................................................16
SIGNATURES....................................................................................................17
EXHIBIT INDEX.................................................................................................18
</TABLE>
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PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MPW INDUSTRIAL SERVICES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
------- -------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 489 $ 2,804
Accounts receivable, net of allowances 13,560 15,507
Inventories 3,361 3,926
Deferred income taxes -- 1,645
Prepaid expenses 960 955
Other current assets 596 313
------- -------
18,966 25,150
Property and equipment, net 23,400 21,646
Noncurrent assets:
Costs in excess of net assets of acquired businesses, net 2,518 7,126
Other assets 401 468
------- -------
Total assets $45,285 $54,390
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,414 $ 4,147
Accrued compensation and related taxes 3,052 2,337
Current maturities of noncurrent liabilities 965 4,504
Other accrued liabilities 4,466 4,783
------- -------
11,897 15,771
Noncurrent liabilities:
Long-term debt 11,719 1,475
Capital leases 2,048 --
Deferred income taxes -- 738
Deferred stock option compensation 2,764 --
------- -------
16,531 2,213
Minority interest 379 --
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and
outstanding -- --
Common stock, no par value; 30,000,000 shares authorized; 6,200,000 and 10,325,167
shares issued and outstanding at June 30, 1997 and March 31, 1998, respectively 62 103
Additional paid-in capital 837 35,859
Retained earnings 15,579 444
------- -------
16,478 36,406
------- -------
Total liabilities and shareholders' equity $45,285 $54,390
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MPW INDUSTRIAL SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- --------------------
1997 1998 1997 1998
-------- ------- ------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $15,994 $21,126 $53,573 $67,190
Costs and expenses:
Cost of services 10,900 14,864 35,466 45,602
Selling, general and administrative expenses 3,411 4,024 9,915 11,785
Depreciation and amortization 914 831 2,729 2,561
Deferred stock option compensation 120 -- 2,530 3,415
------- ------- ------- -------
Total costs and expenses 15,345 19,719 50,640 63,363
------- ------- ------- -------
Income from operations 649 1,407 2,933 3,827
Interest expense, net 263 86 813 637
Minority earnings (losses) (26) -- 187 119
------- ------- ------- -------
Income before taxes 412 1,321 1,933 3,071
Provision (benefit) for income taxes 284 528 677 (741)
------- ------- ------- -------
Net income $ 128 $ 793 $ 1,256 $ 3,812
======= ======= ======= =======
Pro forma information:
Historical income before taxes $ 412 $ 1,321 $ 1,933 $ 3,071
Pro forma taxes on income 165 528 773 1,228
------- ------- ------- -------
Pro forma net income $ 247 $ 793 $ 1,160 $ 1,843
------- ------- ------- -------
Pro forma net income per share $ 0.04 $ 0.08 $ 0.19 $ 0.23
======= ======= ======= =======
Pro forma net income per share, assuming dilution $ 0.04 $ 0.07 $ 0.17 $ 0.21
======= ======= ======= =======
Weighted average common shares outstanding 6,200 10,308 6,200 7,996
Weighted average common shares outstanding, assuming dilution 6,811 10,996 6,749 8,680
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 5
MPW INDUSTRIAL SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,256 $ 3,812
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 2,149 2,338
Amortization 580 223
Gain on disposals of assets 135 (224)
Minority interest 187 119
Deferred stock option compensation 2,530 3,415
Cumulative deferred taxes -- (702)
Changes in operating assets and liabilities:
Accounts receivable (636) (1,265)
Inventories (445) 25
Prepaid expenses and other assets (339) 245
Accounts payable (680) (80)
Deferred income taxes -- (205)
Other accrued liabilities 495 (2,256)
-------- --------
Net cash provided by operating activities 5,232 5,445
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,864) (4,855)
Purchase of business, net of acquired cash -- (2,738)
Purchase of minority interests -- (339)
Proceeds from disposal of property and equipment 151 79
-------- --------
Net cash used in investing activities (3,713) (7,853)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 32,109
Proceeds from revolving credit facility 20,554 17,955
Payments on revolving credit facility (19,502) (24,484)
Proceeds from notes payable -- 3,000
Payments on notes payable (585) (9,421)
Payments on AAA Notes -- (13,400)
Payments on capital lease obligations (566) (27)
Proceeds from capital contributions 773 233
Distributions to shareholders (2,103) (1,242)
-------- --------
Net cash provided by (used in) financing activities (1,429) 4,723
-------- --------
Increase in cash and cash equivalents 90 2,315
Cash and cash equivalents at beginning of year 508 489
-------- --------
Cash and cash equivalents at end of period $ 598 $ 2,804
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MPW INDUSTRIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
MPW Industrial Services Group, Inc. (the "Company") is an industrial
services firm that provides industrial cleaning and facility support services,
industrial process water purification, industrial air filtration services and
other specialized services. Such services are typically provided at customer
facilities. The Company also operates a process facility for industrial
container cleaning. The Company's principal customers are large industrial
facilities in the automotive, electric power, chemical, pulp and paper, steel,
transportation, aerospace and other heavy manufacturing industries. The Company
provides services primarily in the Midwestern and Southeastern United States.
The unaudited consolidated financial statements include the accounts of
the Company including, but not limited to, (i) MPW Industrial Services, Inc.
("MPW"), (ii) Weston Engineering, Inc. ("Weston"), (iii) ESI International, Inc.
and ESI North, Limited (collectively "ESI International") from the effective
date of acquisition, October 1, 1997 and (iv) Aquatech Environmental, Inc.
("Aquatech"), which was 70% owned by the Company until December 5, 1997, at
which time the Company purchased the remaining minority shareholders' interests
of Aquatech, and it became wholly-owned. The minority shareholders' interests in
the equity and net income of Aquatech are presented separately in the
accompanying unaudited consolidated financial statements for the period through
December 4, 1997. All material intercompany transactions and balances have been
eliminated in consolidation.
The accompanying unaudited consolidated financial statements presented
herein have been prepared by the Company and reflect all adjustments of a normal
recurring nature that are, in the opinion of management, necessary for a fair
presentation of financial results for the three and nine months ended March 31,
1997 and 1998, in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to Article 10 of Regulation S-X.
Certain footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements contained in the Company's Registration Statement on Form
S-1 (File No. 333-36887) (the "Registration Statement"). The results of
operations for the three and nine months ended March 31, 1997 and 1998 are not
necessarily indicative of the results for the full year (see Note 10 for further
information regarding fluctuations in quarterly results).
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the accompanying
consolidated financial statements. Actual results could differ from those
estimates.
NOTE 2. ACQUISITION OF ESI INTERNATIONAL
Effective October 1, 1997, the Company acquired all of the outstanding
stock of ESI International, Inc., a Tennessee corporation and purchased all of
the members' interests in ESI North, Limited, an Ohio limited liability company,
for an aggregate purchase price of $4,903,000 and $1,043,000 of assumed
liabilities. The purchase price was paid as follows: (i) $2,824,000 in cash;
(ii) unsecured promissory notes in the aggregate of $1,119,000, bearing interest
at 6.5%, due in twenty equal, consecutive, quarterly installments, with the
first such installment due on January 31, 1998; and (iii) 110,029 shares of
common stock of the Company. The purchase price may be increased by a maximum of
$600,000 contingent upon the achievement of certain revenue and operating
objectives over the three-year period following the date of acquisition. The
acquisition has been accounted for using the purchase method of accounting and,
accordingly, the acquired assets and assumed liabilities have been recorded at
their estimated fair values as of October 1, 1997. The accompanying unaudited
consolidated financial statements include the results of operations of ESI
International from the effective acquisition date.
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NOTE 3. INITIAL PUBLIC OFFERING OF COMMON STOCK
On December 1, 1997, the Registration Statement related to the
Company's initial public offering of its common stock (the "Offering") was
declared effective by the Securities and Exchange Commission and its stock began
trading on the NASDAQ national market system on December 2, 1997. Pursuant to
the terms of the Offering, on December 5, 1997, the Company issued 3,750,000
shares of its common stock that were sold at $9.00 per share.
On January 2, 1998, the over-allotment option in connection with the
Offering was partially exercised and on January 6, 1998, the Company issued
237,500 shares of its common stock at $9.00 per share. The total net proceeds to
the Company in connection with the Offering, including the partial exercise of
the over-allotment option, were $33,375,000 before deducting expenses of
$1,282,000.
NOTE 4. OFFERING RELATED TRANSACTIONS
Restructuring of the Company and Termination of MPW's S Corporation
Status
In connection with the Offering, effective October 30, 1997, the
Company was restructured resulting in the creation of a new holding company, MPW
Industrial Services Group, Inc., an Ohio corporation. In connection with this
reorganization, MPW's S Corporation status was terminated. Prior to this
termination, MPW made a distribution to the S Corporation shareholders in the
amount of $21,200,000 for undistributed earnings associated with MPW's S
Corporation status. These distributions were made through the Company's issuance
of promissory notes to such shareholders (the "AAA Notes"), of which $13,400,000
was subsequently paid off with the Offering proceeds. The remaining $7,800,000
was paid as follows: (i) $4,200,000 in cash on April 15, 1998 and (ii)
$3,600,000 redeemed in connection with the sale of a corporate aircraft to a
holder of the AAA Notes.
Deferred Stock Option Compensation Expense
In connection with the Offering, the Company recorded a non-cash,
non-recurring charge of $1,869,000, net of tax, associated with certain of its
stock option plans. This charge resulted in a concurrent increase in paid-in
capital. The Company also eliminated the related deferred stock option
compensation liabilities previously recorded because, effective with the
Offering, the Company's repurchase obligations for stock options exercised under
these stock option plans were eliminated.
Related Party Lease Agreements
In connection with the Offering, the Company restructured certain lease
agreements with its principal shareholder for facilities that the Company uses
in its business operations. Additionally, the Company subsequently redeemed
$3,600,000 of the AAA Notes as consideration for the sale of a corporate
aircraft at its fair market value to an entity controlled by the Company's
principal shareholder. In connection with this transaction, the Company entered
into a lease agreement with this entity for the lease of this corporate
aircraft.
Purchase of Remaining Minority Shareholders' Interests
In connection with the Offering, on December 5, 1997, the Company
purchased the remaining minority shareholders' interests in the equity and net
income of Aquatech for an aggregate purchase price of $678,000, at which time
Aquatech became a wholly-owned subsidiary of the Company. The purchase price was
paid as follows: (i) $339,000 in cash and (ii) 37,667 shares of common stock of
the Company.
NOTE 5. LONG-TERM DEBT
Prior to the Offering, the Company had various credit arrangements with
its principal banks, including term notes and a revolving credit line with
outstanding balances totaling $8,948,000 and $6,935,000, respectively, of which
$3,000,000 was associated with the Company's acquisition of ESI International.
On December 5, 1997, the entire outstanding balance under these arrangements,
$15,883,000, was repaid.
Effective December 10, 1997, the Company entered into a new credit
agreement with its principal banks (the "Credit Facility") to replace the
existing agreement. The Credit Facility, as amended, provides the Company with
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<PAGE> 8
$50,000,000 of unsecured credit availability for a three-year period. Under the
Credit Facility, $15,000,000 is available for working capital needs, of which
$5,000,000 may be used for letters of credit, and the remaining $35,000,000 is
available for the Company's growth initiatives, including acquisitions.
Borrowing under the Credit Facility currently bears interest at the prime rate
less 0.75% or, at the Company's option, the Eurodollar market rate plus 0.75%.
The interest rate is subject to change based on interest rate formulas tied to
financial performance as measured by debt service coverage and by the ratio of
funded debt to equity. The Credit Facility also provides covenants that impose
minimum levels for interest coverage and tangible net worth and ceiling levels
for funded debt to equity. As of March 31, 1998, no balances had been drawn on
the Credit Facility. The Company pays a commitment fee for unused portions of
the Credit Facility of 0.25%.
NOTE 6. INCOME TAXES
Prior to October 31, 1997, MPW's income was taxed under the provisions
of Subchapter S of the Internal Revenue Code of 1986, as amended, which provides
that in lieu of corporate income taxes, the shareholders of the S Corporation
are taxed on their proportionate share of MPW's taxable income. Therefore, no
provision or liability for federal income tax has been included in historical
financial statements related to MPW prior to October 31, 1997. The accompanying
financial statements do, however, include provisions for income taxes for
federal, state, provincial and local tax purposes for the other subsidiaries of
the Company that are subject to corporate income taxes.
Effective October 30, 1997, MPW terminated its S Corporation status and
became subject to corporate income taxes. The Company recorded a current
deferred tax asset and a noncurrent deferred tax liability of $2,111,000 and
$1,409,000, respectively, to recognize the cumulative deferred income taxes
attributable to MPW's change in tax status (from an S Corporation to a C
Corporation). Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax asset and liability as of March 31,
1998 are related to the use of accelerated depreciation rates on property and
equipment for tax purposes and the carryforward of tax adjustments related to
the termination of MPW's S Corporation status.
The pro forma income taxes presented in the Consolidated Statements of
Operations for the three and nine months ended March 31, 1997 and 1998 represent
the estimated income taxes that would have been reported had MPW been subject to
federal and state income taxes for each of the periods presented.
NOTE 7. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings per Share,
effective for periods ending after December 15, 1997. SFAS No. 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for all periods
have been presented to conform to the SFAS No. 128 requirements.
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<PAGE> 9
The following table sets forth the computation of pro forma basic and
diluted earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -----------------
1997 1998 1997 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per
share:
Pro forma net income $ 247 $ 793 $1,160 $1,843
------- ------- ------ ------
Denominator for basic earnings per share -
weighted average common shares 6,200 10,308 6,200 7,996
Effect of dilutive employee stock options 611 688 549 684
------- ------- ------ ------
Denominator for diluted earnings per share -
adjusted weighted average common shares and
assumed conversions 6,811 10,996 6,749 8,680
------- ------- ------ ------
Pro forma net income per share $ 0.04 $ 0.08 $ 0.19 $ 0.23
------- ------- ------ ------
Pro forma net income per share, assuming
dilution $ 0.04 $ 0.07 $ 0.17 $ 0.21
------- ------- ------ ------
</TABLE>
NOTE 8. 1997 STOCK OPTION PLAN
On November 15, 1997, the Company adopted a new stock option plan (the
"1997 Plan") and subsequently granted 362,500 stock options to certain
employees. The purpose of the 1997 Plan is to attract and retain directors,
officers and key employees of the Company, to enhance their interest in the
Company's continued success and to allow associates an opportunity to have an
ownership in the Company through stock options, stock awards and a stock
purchase plan. The maximum number of common shares available to be issued under
the 1997 Plan is 700,000 shares of common stock.
NOTE 9. SUBSEQUENT EVENTS
On April 7, 1998, the Company acquired substantially all of the assets
of Vinewood Corp., Vinewood of Ohio, Inc., D.R.C. Enterprises, Inc. and R.C.R.
Leasing Company (collectively the "Vinewood Companies") for a combination of
cash, deferred payments and common stock of the Company for aggregate
consideration of $8,600,000.
Also, on April 21, 1998, the Company acquired substantially all of the
assets of Straightline Optical Service, Inc. for a combination of cash and
common stock of the Company for aggregate consideration of $1,110,000 and
approximately $120,000 of assumed liabilities.
NOTE 10. FLUCTUATIONS IN QUARTERLY RESULTS
The Company's revenues and results of operations tend to vary
seasonally as a result of a number of factors over which the Company has no
control, including its customers' budgetary constraints, the timing and duration
of its customers' planned maintenance activities and shutdowns, changes in its
competitors' pricing policies and general economic conditions. Also, certain
operating and fixed costs remain relatively constant throughout the fiscal year,
which when offset by differing levels of revenues may result in fluctuations in
quarterly operating results. Because of these factors, the Company typically
generates the least amount of revenues in the third quarter, higher revenues in
the second quarter and the greatest amount of revenues in the first and fourth
quarters. Although the Company believes that the historical trend in quarterly
revenue for the first and fourth quarters are generally higher than the second
and third quarters, there can be no assurance that this will occur in future
periods. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any quarter or for the full
year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Except for historical information, certain statements in this
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations are forward looking. These forward looking statements are
based on current expectations that are subject to a number of uncertainties and
risks, and actual results may differ materially. The uncertainties and risks
include, but are not limited to, competitive and other market factors, customer
purchasing behavior, general economic conditions and other facets of the
Company's business operations as well as other risk factors identified in the
Company's Registration Statement. The Company undertakes no obligation and does
not intend to update, revise or otherwise publicly release the result of any
revisions to these forward looking statements that may be made to reflect future
events or circumstances.
The following information should be read in conjunction with the
Unaudited Consolidated Financial Statements and Notes included in Part I, Item
1. The following information should also be read in conjunction with the Audited
Consolidated Financial Statements and Notes, and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
June 30, 1997 as contained in the Company's Registration Statement.
OVERVIEW
On December 1, 1997, the Registration Statement related to the Offering
was declared effective by the Securities and Exchange Commission and its stock
began trading on the NASDAQ national market system on December 2, 1997. Pursuant
to the terms of the Offering, on December 5, 1997, the Company issued 3,750,000
shares of its common stock that were sold at $9.00 per share. On January 2,
1998, the over-allotment option in connection with the Offering was partially
exercised and on January 6, 1998, the Company issued an additional 237,500
shares of its common stock at $9.00 per share. The net proceeds to the Company
in connection with the Offering, including the partial exercise of the
over-allotment option, were $33.4 million before deducting expenses of $1.3
million.
During the three month period ended December 31, 1997, numerous events
occurred and certain transactions were recorded that were directly related to
the Offering and affect the comparability of the results of operations for the
Company for the three and nine month periods ended March 31, 1998 to the same
periods in the prior year. These events and transactions were:
1. Effective October 30, 1997, MPW terminated its S Corporation
election under subchapter S of the Internal Revenue Code of 1986,
as amended, for federal income tax purposes and under comparable
state tax laws. In connection therewith, MPW declared a dividend
of $21.2 million evidenced by the AAA Notes and the Company
recorded a net non-recurring tax benefit of $702,000 and a related
current deferred tax asset and noncurrent deferred tax liability
of $2.1 million and $1.4 million, respectively.
2. In connection with the Offering, the Company recorded a non-cash,
non-recurring charge associated with certain of its stock option
plans. This charge resulted in a concurrent increase in paid-in
capital. The Company also eliminated the related deferred stock
option compensation liabilities previously recorded because,
effective with the Offering, the Company's repurchase obligations
for stock options exercised under these stock option plans were
eliminated.
3. Effective with the Offering, the Company adjusted the historical
lease costs for certain facilities leased by the Company from
related parties and recharacterized such leases from capital to
operating as a result of restructured lease agreements.
4. On December 5, 1997, the Company purchased certain minority stock
ownership interests with cash in the amount of $339,000 and the
issuance of 37,667 shares of the Company's common stock.
5. On December 5, 1997 the Company used a portion of the net proceeds
from the offering to repay $15.9 million of outstanding
liabilities to its principal banks, including $3.0 million of
long-term liabilities associated with the Company's acquisition of
ESI International during the three months ended December 31, 1997.
6. During December 1997, the Company used a portion of the net
proceeds from the Offering to repay $13.4 million of the
outstanding balance of the AAA Notes.
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For purposes of this Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations, the following
adjusted pro forma information is being presented as supplemental information to
the Consolidated Financial Statements contained in Part I, Item 1. Since none of
the events discussed above affected the three month period ended March 31, 1998,
no adjusted pro forma information is presented for that period. Management's
analysis under the heading of Results of Operations below utilizes this
supplemental information.
ADJUSTED PRO FORMA INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -------------------
1997 1998 1997 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Income before taxes as reported $ 412 $ 1,321 $ 1,933 $ 3,071
Adjustments other than income taxes:
Reduction of historical lease costs for certain facilities
leased by the Company from related parties pursuant to
restructured lease agreements which took effect in
connection with the Offering 60 -- 190 90
Elimination of interest expense, net related to
repayment of existing debt from the proceeds of the 176 -- 580 438
Offering
Elimination of minority earnings (losses) as a result of
the Company's purchase of certain minority
shareholders' interests effective with the Offering (26) -- 187 119
Elimination of deferred stock option compensation expense
120 -- 2,530 3,415
-------- ------- ------- -------
Adjusted pro forma income before income taxes 742 1,321 5,420 7,133
Provision for income taxes (1) 297 528 2,168 2,853
-------- ------- ------- -------
Adjusted pro forma net income $ 445 $ 793 $ 3,252 $ 4,280
-------- ------- ------- -------
Adjusted pro forma net income per share $ 0.04 $ 0.08 $ 0.33 $ 0.42
-------- ------- ------- -------
Adjusted pro forma net income per share, assuming dilution $ 0.04 $ 0.07 $ 0.30 $ 0.40
-------- ------- ------- -------
Weighted average common shares outstanding (2) 9,988 10,308 9,988 10,125
Weighted average common shares outstanding, assuming
dilution (2) 10,669 10,996 10,669 10,813
</TABLE>
------------------
(1) Based on an effective rate of 40%.
(2) Based on the assumption that the sale of 3,750,000 shares of the Company's
common stock in the Offering and the issuance of 37,667 shares of the
Company's common stock in exchange for certain minority shareholders'
interests occurred at the beginning of each period presented.
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<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
adjusted pro forma consolidated statement of income data as a percentage of
revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------- ----------------
1997 1998 1997 1998
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of services 68.2 70.4 66.2 67.9
Adjusted pro forma selling, general and administrative
expenses 22.4 19.0 19.5 17.6
Adjusted pro forma depreciation and amortization 4.8 3.9 4.2 3.8
---- ---- ---- ----
Adjusted pro forma total costs and expenses 95.4 93.3 89.9 89.3
---- ---- ---- ----
Adjusted pro forma income from operations 4.6 6.7 10.1 10.7
Interest expense, net -- 0.4 -- 0.1
---- ---- ---- ----
Adjusted pro forma income before taxes 4.6 6.3 10.1 10.6
Adjusted pro forma provision for income taxes 1.8 2.5 4.0 4.2
---- ---- ---- ----
Adjusted pro forma net income 2.8% 3.8% 6.1% 6.4%
=== === === ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Basis of Presentation. Management's analysis of the three months ended
March 31, 1998 ("fiscal 1998 quarter") compared to the three months ended March
31, 1997 ("fiscal 1997 quarter") utilizes the supplemental adjusted pro forma
information as provided in the tables on pages 11 and 12 herein.
Revenues. Revenues increased by $5.1 million, or 32.1%, to $21.1
million for the fiscal 1998 quarter from $16.0 million for the fiscal 1997
quarter. The internal rate of growth in revenues in the fiscal 1998 quarter was
21.6% as a result of growth in each of the Company's principal services lines.
Internal growth in revenues in the Company's industrial air filtration service
line for the fiscal 1998 quarter was 54.8%. Revenues also increased in the
fiscal 1998 quarter as a result of the acquisition of ESI International, which
contributed $1.7 million of revenues.
Cost of Services. Cost of services increased by $4.0 million, or 36.4%,
to $14.9 million for the fiscal 1998 quarter from $10.9 million for the fiscal
1997 quarter. Cost of services as a percentage of revenues increased to 70.4%
for the fiscal 1998 quarter from 68.2% for the fiscal 1997 quarter. The increase
in cost of services as a percentage of revenues is the result of a greater
percentage of revenues being derived in the fiscal 1998 quarter from the
Company's industrial air filtration customers and from certain of the Company's
industrial cleaning and facility support customers from which the Company
experienced lower margins as compared to the fiscal 1997 quarter. The increase
in cost of services as a percentage of revenues in the fiscal 1998 quarter was
also the result of increased costs incurred to support future revenue growth.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $436,000, or 12.2%, to $4.0 million for the
fiscal 1998 quarter from $3.6 million for the fiscal 1997 quarter. This increase
is primarily due to the acquisition of ESI International, infrastructure
investments to support growth in Weston since its acquisition in April 1996 and
other investments in the Company's infrastructure to support overall growth.
Selling, general and administrative expenses decreased as a percentage of
revenues to 19.0% for the fiscal 1998 quarter from 22.4% for the fiscal 1997
quarter.
Depreciation and Amortization. Depreciation and amortization increased
by $67,000, or 8.8%, to $831,000 for the fiscal 1998 quarter from $764,000 for
the fiscal 1997 quarter. This increase is a result of additional capital
expenditures and additional goodwill arising out of the purchase of ESI
International during the current fiscal year. Depreciation and amortization
decreased as a percentage of revenues to 3.9% for the fiscal 1998 quarter from
4.8% for the fiscal 1997 quarter. This decrease as a percentage of revenues is
primarily due to revenue growth in the industrial container cleaning and
Page 12
<PAGE> 13
industrial water service lines for which capital investments were made in prior
years and to growth in revenues in industrial air filtration that requires less
capital investment than the Company's other service lines.
Income from Operations. Income from operations increased $665,000, or
89.6%, to $1.4 million for the fiscal 1998 quarter from $742,000 for the fiscal
1997 quarter. Income from operations also increased as a percentage of revenues
to 6.7% for the fiscal 1998 quarter from 4.6% for the fiscal 1997 quarter. The
increase in income from operations and the improved operating margin are due to
the factors discussed above.
Interest Expense, net. Immediately following the Offering, the Company
had no borrowing under the Credit Facility with its banks. For this reason,
interest expense has been eliminated in the adjusted pro forma information for
the fiscal 1997 quarter to give effect as if the repayment of the Company's debt
obligations from the proceeds of the Offering had occurred as of the beginning
of the period. Reported interest expense in the fiscal 1998 quarter is the
result of new borrowing subsequent to the repayment. Actual interest expense
declined to $86,000 for the fiscal 1998 quarter from $263,000 for the fiscal
1997 quarter due primarily to the repayment discussed above.
Provision for Income Taxes. Prior to October 31, 1997, MPW was an S
Corporation for income tax purposes and did not record a provision for federal
and certain state income taxes. The provision for income taxes in the adjusted
pro forma information has been assumed to be at an effective rate of 40.0% for
each of the periods presented.
Net Income and Net Income per Share. Net income increased $348,000, or
78.2%, to $793,000 for the fiscal 1998 quarter from $445,000 for the fiscal 1997
quarter. Assuming dilution, net income per share increased to $0.07 for the
fiscal 1998 quarter from $0.04 for the fiscal 1997 quarter. These increases are
due to the factors discussed above. Weighted average common shares outstanding
used in the calculation of net income per share for the fiscal 1997 quarter
assumes that the Offering and repurchase of minority interests had occurred at
the beginning of the period.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Basis of Presentation. Management's analysis of the nine months ended
March 31, 1998 ("nine month fiscal 1998 period") compared to the nine months
ended March 31, 1997 ("nine month fiscal 1997 period") utilizes the supplemental
adjusted pro forma information as provided in the tables on pages 11 and 12
herein.
Revenues. Revenues increased by $13.6 million, or 25.4%, to $67.2
million for the nine month fiscal 1998 period from $53.6 million for the nine
month fiscal 1997 period. The internal rate of growth in revenues in the nine
month fiscal 1998 period was 18.9% as a result of growth of more than 12.5% in
industrial cleaning and facility support along with significant growth in each
of the Company's complementary services lines. Internal growth in revenues in
the Company's industrial air filtration service line for the nine month fiscal
1998 period was 43.2%. Revenues also increased in the nine month fiscal 1998
period as a result of the acquisition of ESI International, which contributed
$3.5 million of revenues.
Cost of Services. Cost of services increased by $10.1 million, or
28.6%, to $45.6 million for the nine month fiscal 1998 period from $35.5 million
for the nine month fiscal 1997 period. Cost of services as a percentage of
revenues increased to 67.9% for the nine month fiscal 1998 period from 66.2% for
the nine month fiscal 1997 period. The increase in cost of services as a
percentage of revenues is the result of a greater percentage of revenues being
derived in the nine month fiscal 1998 period from the Company's industrial air
filtration customers and from certain of the Company's industrial cleaning and
facility support customers from which the Company experienced lower margins as
compared to the nine month fiscal 1997 period. Improved margins in the Company's
other service lines partially offset the lower margins discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.4 million, or 13.4%, to $11.8 million
for the nine month fiscal 1998 period from $10.4 million for the nine month
fiscal 1997 period. This increase is primarily due to the acquisition of ESI
International and investments in the Company's infrastructure to support its
overall growth. Selling, general and administrative expenses decreased as a
percentage of revenues to 17.6% for the nine month fiscal 1998 period from 19.5%
for the nine month fiscal 1997 period.
Depreciation and Amortization. Depreciation and amortization increased
by $287,000, or 12.8%, to $2.5 million for the nine month fiscal 1998 period
from $2.2 million for the nine month fiscal 1997 period. This increase is
primarily a result of additional capital expenditures and additional goodwill
arising out of the purchase of ESI International during the current fiscal year.
Depreciation and amortization decreased as a percentage of revenues to 3.8% for
the nine month fiscal 1998 period from 4.2% for the nine month fiscal
Page 13
<PAGE> 14
1997 period. This decrease as a percentage of revenues is primarily due to
revenue growth in service lines for which less capital investment is required.
Income from Operations. Income from operations increased $1.8 million,
or 33.2%, to $7.2 million for the nine month fiscal 1998 period from $5.4
million for the nine month fiscal 1997 period. Income from operations also
increased as a percentage of revenues to 10.7% for the nine month fiscal 1998
period from 10.1% for the nine month fiscal 1997 period. The increase in income
from operations and the improved operating margin are due to the factors
discussed above.
Interest Expense, net. Immediately following the Offering, the Company
had no borrowing under the Credit Facility with its banks. For this reason,
interest expense has been eliminated in the adjusted pro forma information to
give effect as if the repayment of the Company's debt obligations from the
proceeds of the Offering had occurred as of the beginning of each of the periods
presented. Actual interest expense before the adjusted pro forma elimination
declined to $637,000 for the nine month fiscal 1998 period from $813,000 for the
nine month fiscal 1997 period primarily due to the repayment discussed above.
Provision for Income Taxes. Prior to October 31, 1997, MPW was an S
Corporation for income tax purposes and did not record a provision for federal
and certain state income taxes. The provision for income taxes in the adjusted
pro forma information has been assumed to be at an effective rate of 40.0% for
each of the periods presented.
Net Income and Net Income per Share. Net income increased $1.0 million,
or 31.6%, to $4.3 million for the nine month fiscal 1998 period from $3.3
million for the nine month fiscal 1997 period. Assuming dilution, net income per
share increased to $0.40 for the nine month fiscal 1998 period from $0.30 for
the nine month fiscal 1997 period. These increases are due to the factors
discussed above. Weighted average common shares outstanding used in the
calculation of net income per share assumes that the Offering and repurchase of
minority interests had occurred at the beginning of each of the periods
presented.
QUARTERLY RESULTS AND SEASONALITY
The Company's results of operations tend to vary seasonally, with the
least amount of revenues generated in the third quarter, higher revenues in the
second quarter and the greatest amount of revenues in the first and fourth
quarters. The Company's quarterly results of operations may fluctuate
significantly as a result of a number of factors over which the Company has no
control, including its customers' budgetary constraints, the timing and duration
of its customers' planned maintenance activities and shutdowns, changes in its
competitors pricing policies and general economic conditions. Also, certain
operating and fixed costs remain relatively constant throughout the fiscal year
that, when offset by differing levels of revenues, may result in fluctuations in
quarterly results.
LIQUIDITY AND CAPITAL RESOURCES
The proceeds of the Offering received by the Company on December 5,
1997 were $30.1 million, net of underwriting discounts and other costs
associated with the Offering of $3.6 million. Of the proceeds, the Company used
$15.9 million to repay all of the outstanding debt under the Company's various
credit arrangements with its principal banks. The amount repaid included $3.0
million relating to the acquisition of ESI International that occurred during
the three month period ended December 31, 1997. Additionally, $13.4 million was
used to satisfy a portion of the AAA Notes. As a result of these payments, and
as of December 31, 1997, the Company had no borrowing from its principal banks.
On January 6, 1998, the Company received an additional $2.0 million,
net of underwriting discounts of $150,000 from the partial exercise of the
underwriters' over-allotment option for 237,500 shares.
On February 11, 1998, $3.6 million of AAA Notes that were outstanding
as of December 31, 1997 were redeemed by an entity controlled by the Company's
principal shareholder for the sale of a corporate aircraft.
The Company's total debt as of March 31, 1998, including current
maturities, was $6.0 million. Of this amount, $4.2 million is the amount of AAA
Notes that was due and paid on April 15, 1998. The Company satisfied this
obligation primarily with its cash on hand, including the proceeds from the
partial exercise of the over-allotment option. The remaining amount of the
Company's debt of $1.8 million is related to the acquisition of ESI
International.
Page 14
<PAGE> 15
As of March 31, 1998, the Company had cash and cash equivalents of $2.8
million and working capital of $9.4 million. During the nine month fiscal 1998
period, the Company had net cash provided by operating activities of $5.4
million, made capital investments of $4.9 million and made cash payments for the
acquisition of ESI International of $2.7 million, net of cash received.
Effective December 10, 1997, the Company entered into the Credit
Facility with its principal banks. This Credit Facility, as amended, provides
the Company with $50.0 million of credit availability for a three-year period.
Under the Credit Facility, $15.0 million is available for working capital needs,
of which $5.0 million may be used for letters of credit. The remaining $35.0
million is available for use by the Company in growth initiatives such as
capital expenditure programs and acquisitions. Borrowing under the Credit
Facility is at rates, based on the prime rate or LIBOR, that the Company
believes to be very favorable. Availability of borrowing is subject to the
maintenance of a minimum level of tangible net worth, certain levels of debt
service coverage and maintenance of a certain ratio of funded debt to equity
that the Company believes are achievable. As of March 31, 1998, no amounts had
been drawn on the Credit Facility. In April 1998, $7.3 million in term notes was
drawn against the Credit Facility for the purchase of the Vinewood Companies.
The Company believes that cash on hand as of March 31, 1998, cash
received from the partial exercise of the over-allotment option, cash flow from
operations and available borrowing under the Credit Facility will be sufficient
to fund its currently planned capital projects and operations for at least the
next 24 months. The Company actively seeks opportunities to expand its business
operations. If acquisition opportunities develop, the Company believes that it
has adequate financing capacity in the Credit Facility. If acquisition
opportunities of significant size develop that would extend the Company's
borrowing beyond the capacity of the Credit Facility, the Company may be
required to seek additional financing.
INFLATION
The effects of inflation on the Company's operations were not
significant during the periods presented in the Consolidated Financial
Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
Page 15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(a) Amended and Restated Articles of
Incorporation of the Company effective
October 30, 1997 (filed as Exhibit 3(a) to
the Company's Registration Statement on Form
S-1 (File No. 333-36887), and incorporated
herein by reference)
3(b) Amended and Restated Code of Regulations of
the Company effective October 30, 1997
(filed as Exhibit 3(b) to the Company's
Registration Statement on Form S-1 (File No.
333-36887), and incorporated herein by
reference)
4(a) Revolving Credit and Term Loan Agreement
among the Company and its subsidiaries and
affiliates, Bank One, NA, and National City
Bank of Columbus (filed as Exhibit 4(a) to
the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997, and
incorporated herein by reference)
4(b) First Amendment to Revolving Credit and Term
Loan Agreement among the Company and its
subsidiaries and affiliates, Bank One, NA,
and National City Bank of Columbus (filed as
Exhibit 4(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
December 31, 1997, and incorporated herein
by reference)
4(c) Second Amendment to Revolving Credit and
Term Loan Agreement among the Company and
its subsidiaries and affiliates, Bank One,
NA, and National City Bank of Columbus
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the period.
Page 16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
MPW INDUSTRIAL SERVICES GROUP, INC.,
an Ohio corporation
Dated: May 14, 1998 By: /s/ DANIEL P. BUETTIN
------------------------------ ---------------------------
Daniel P. Buettin
Vice President, Chief Financial
Officer and Secretary
(on behalf of the Registrant
and as Principal Financial
Officer)
Page 17
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
3(a) Amended and Restated Articles of Incorporation of the Company
effective October 30, 1997 (filed as Exhibit 3(a) to the
Company's Registration Statement on Form S-1 (File No.
333-36887) ("Registration Statement"), and incorporated herein
by reference)
3(b) Amended and Restated Code of Regulations of the Company
effective October 30, 1997 (filed as Exhibit 3(b) to the
Company's Registration Statement and incorporated herein by
reference)
4(a) Revolving Credit and Term Loan Agreement among the Company and
its subsidiaries and affiliates, Bank One, NA, and National
City Bank of Columbus (filed as exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1997, and incorporated herein by reference)
4(b) First Amendment to Revolving Credit and Term Loan Agreement
among the Company and its subsidiaries and affiliates, Bank
One, NA, and National City Bank of Columbus (filed as exhibit
4(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997, and incorporated herein by
reference)
4(c) Second Amendment to Revolving Credit and Term Loan Agreement
among the Company and its subsidiaries and affiliates, Bank
One, NA, and National City Bank of Columbus
27 Financial Data Schedule
Page 18
<PAGE> 1
Exhibit 4(c)
SECOND AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT (the
"Amendment"), dated as of April 7, 1998, is made and entered into by and among
MPW Industrial Services Group, Inc. ("MPW Group"), MPW Industrial Services, Inc.
("MPW, Inc."), MPW Industrial Services, Ltd. ("MPW, Ltd."), MPW Management
Services Corp. ("MPW Corp."), Weston Engineering, Inc. ("Weston"), Aquatech
Environmental, Inc. ("Aquatech), ESI International, Inc. ("ESII"), and ESI-North
Limited ("ESI", which, together the foregoing entities, shall be referred to
herein collectively as the "Borrowers" and individually as a "Borrower"), Bank
One, NA, a national banking association ("Bank One"), National City Bank
(successor by merger to National City Bank of Columbus), a national banking
association ("NCB"), and Bank One, NA, as Agent, acting in the manner and to the
extent described in the Agreement described herein.
BACKGROUND INFORMATION
A. The Borrowers and the Banks entered into a certain Revolving Credit
and Term Loan Agreement dated as of December 10, 1997, as amended by a First
Amendment to Revolving Credit and Term Loan Agreement, dated as of February 11,
1998 (such agreement, as so amended, being referred to herein as the
"Agreement").
B. The Banks and the Borrowers desire to amend certain provisions of
the Agreement and to make a new Subsidiary a party to the Agreement and other
applicable Facility Documents, upon the terms and conditions set forth herein.
PROVISIONS
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements hereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers, the
Banks and the Agent hereby agree as follows:
SECTION 1. Capitalized Terms. Except as otherwise provided for herein,
the capitalized terms used herein shall have the same meanings as set forth in
the Agreement.
SECTION 2. Amendment to Agreement.
(a) Section 7.6(a) of the Agreement is hereby amended in its
entirety to provide as follows:
(a) Consolidated Tangible Net Worth. Permit Consolidated
Tangible Net Worth to be less than (i) $26,500,000 prior to April 6,
1998, (ii) $25,000,000 as and after April 7, 1998 through and
including June 29, 1998, and (iii) $27,000,000 as and after June 30,
1998, provided such amount shall increase
<PAGE> 2
(but not decrease by any losses) quarterly on the last day of each
Fiscal Quarter by 50% of Consolidated Net Income (determined at the end
of each Fiscal Quarter for such Fiscal Quarter), commencing with the
Fiscal Quarter ending September 30, 1998.
SECTION 3. Adjustment in Applicable Margins. As of April 7, 1998, the
Applicable Margins with respect to the determination of the Interest Rates with
respect to the Loans shall be adjusted as follows:
(a) the Applicable Margin for Revolving Credit Loans bearing
interest based on the Base Rate shall be -50 basis points;
(b) the Applicable Margin for Revolving Credit Loans bearing
interest based on the Eurodollar Rate shall be +100 basis points;
(c) the Applicable Margin for Term Loans bearing interest
based on the Base Rate shall be -25 basis points; and
(d) the Applicable Margin for Term Loans bearing interest
based on the Eurodollar Rate shall be +125 basis points.
Such adjusted Applicable Margins shall remain in effect until otherwise changed
in accordance with the terms of the Agreement.
SECTION 4. Truth of Representations and Warranties; No Defaults. The
Borrowers hereby represent and warrant that the following are true and correct
as of the date of this Amendment:
(a) The representations and warranties of the Borrowers
contained in Article V of the Agreement are true and correct on and as
of the date of this Amendment as if made on and as of such date unless
stated to relate to a specific earlier date;
(b) No Default nor Event of Default has occurred; and
(c) All financial information heretofore provided to the Banks
and the Agent is true, accurate and complete in all material respects.
SECTION 5. Reaffirmation of Liability; Furnishing of Information. The
Borrowers hereby reaffirm their liability to the Banks and Agent under the
Agreement and all other Facility Documents. In addition, (i) the Borrowers agree
that the Banks and the Agent have performed all of their respective obligations
under the Facility Documents and that neither Bank nor the Agent is in default
under any obligation any of them has or ever did have to the Borrowers under the
Facility Documents or any other agreement; and (ii) the Banks and the Agent have
received all information and documentation required to be delivered to them by
the Borrowers pursuant to the Facility Documents.
-2-
<PAGE> 3
SECTION 6. Effectiveness of Amendment. All of the terms, covenants and
conditions of, and the obligations of the Borrowers under, the Agreement and the
Facility Documents shall remain in full force and effect as amended hereby.
SECTION 7. Consent to Acquisition. The Banks hereby consent to the
purchase by the Borrowers of the assets of Vinewood Corporation and its
affiliates pursuant to, and in accordance with, the documentation and
information previously furnished to the Banks. Such consent shall include,
without limitation, the consent required of the Banks pursuant Section 2.11 of
the Agreement.
SECTION 8. Conditions to Banks' Obligations. The obligations of the
Banks to enter into this Amendment and be bound by the terms hereof, including
without limitation the giving of the consent set forth in Section 7 hereof, are
subject to the satisfaction of the following conditions precedent:
(a) Additional Borrower. MPW Container Management Corp.,
an Ohio corporation, shall execute this Amendment to acknowledge and evidence
(i) its becoming a party to the Agreement as a "Borrower", and (ii) its
liability to the Banks under the Agreement and all other agreements and
instruments executed by the Borrower for the benefit of the Banks and/or the
Agent in connection with the Agreement, including the Facility Documents.
(b) Delivery of Documents. The Agent shall have received, for
the benefit of the Banks, the following, each in form and substance satisfactory
to the Agent and its counsel:
(i) Amended and Restated Promissory Notes. Amended
and Restated Revolving Credit Promissory Notes in the form of Exhibit A
attached hereto and incorporated herein by reference, duly executed and
delivered by the Borrowers, including MPW Container Management Corp.;
(ii) Governing Documents of MPW Container Management
Corp. True and complete certified copies of the articles (certificate)
of incorporation (formation), code of regulations (by-laws), operating
agreement or other governing documents of MPW Container Management
Corp., and a copy of the resolutions (in form and substance
satisfactory to the Agent) of the Board of Directors (or other
governing Person) of MPW Container Management Corp. authorizing (i) the
execution, delivery and performance of this Amendment, the Notes and
the other Facility Documents, as applicable, (ii) the consummation of
the transactions contemplated hereby and thereby, (iii) the borrowing
and other financial transactions provided for in the Agreement, and
(iv) the documents provided for in the Agreement, certified by the
secretary or an assistant secretary (or other appropriate
representative) of MPW Container Management Corp. Such certificate
shall state that the resolutions set forth therein have not been
amended, modified, revoked or rescinded as of the date hereof;
-3-
<PAGE> 4
(iii) Good Standing Certificate. A copy of a
certificate dated as of a recent date from the Secretary of State, or
other appropriate authority of such jurisdiction, evidencing the good
standing (or comparable status) of MPW Container Management Corp. in
the jurisdiction of its incorporation (formation) and the State of
Ohio;
(iv) Incumbency Certificate. A certificate of the
secretary or an assistant secretary (or other appropriate
representative) of MPW Container Management Corp. as to the incumbency
and signature of the officer(s) or other representatives of MPW
Container Management Corp. executing this Amendment, the Notes, the
other Facility Documents and any certificate or other documents to be
delivered pursuant hereto or thereto;
(v) Opinion Letter. Opinion letter of the
Borrowers' legal counsel as to MPW Container Management Corp.; and
(vi) Other Requirements. Such other certificates,
documents and other items as the Bank, in its reasonable discretion,
deems necessary or desirable.
(c) Representations and Warranties. The representations and
warranties made by the Borrowers in this Amendment shall be true and correct in
all material respects as of the date of this Amendment.
SECTION 9. Applicable Law. This Amendment shall be deemed to be a
contract made under the laws of the State of Ohio and for all purposes shall be
construed in accordance with the laws of such state.
SECTION 10. Severability. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability,
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION 11. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 12. Headings. The headings of the sections of this Amendment
are for convenience only and shall not affect the construction of this
Amendment.
SECTION 13. Expenses. The Borrowers agree to pay all out-of-pocket
expenses (including reasonable fees and expenses of counsel) of the Agent and
the Banks incurred in connection with this Amendment.
-4-
<PAGE> 5
SECTION 14. Interpretation. This Amendment is to be deemed to have been
prepared jointly by the parties hereto, and any uncertainty or ambiguity
existing herein shall not be interpreted against any party but shall be
interpreted according to the rules for the interpretation of arm's length
agreements.
SECTION 15. WAIVER OF JURY TRIAL. THE BANKS, THE AGENT AND THE
BORROWERS, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THE
AGREEMENT AS AMENDED BY THIS AMENDMENT, THE NOTES, THE OTHER FACILITY DOCUMENTS,
OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTIONS OF ANY OF THEM. NEITHER THE BANKS, THE AGENT NOR THE
BORROWERS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN
WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANKS, THE AGENT OR THE
BORROWERS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
BANKS:
Bank One, NA National City Bank (successor by merger
to National City Bank of Columbus)
By: /s/ Thomas E. Redmond By: /s/ Brian T. Strayton
------------------------------ ------------------------------------
Name: Thomas E. Redmond Name: Brian T. Strayton
---------------------------- ----------------------------------
Title: Vice President Title: Vice President
--------------------------- ---------------------------------
AGENT:
Bank One, NA
By: /s/ Thomas E. Redmond
------------------------------
Name: Thomas E. Redmond
----------------------------
Title: Vice President
---------------------------
-5-
<PAGE> 6
BORROWERS:
MPW Industrial Services Group, Inc. MPW Industrial Services, Inc.
By: /s/ Daniel P. Buettin By: /s/ Daniel P. Buettin
------------------------------ ---------------------------
Name: Daniel P. Buettin Name: Daniel P. Buettin
---------------------------- -------------------------
Title: VP & CFO Title: VP & CFO
--------------------------- ------------------------
MPW Industrial Services, Ltd. MPW Management Services Corp.
By: /s/ Daniel P. Buettin By: /s/ Daniel P. Buettin
------------------------------ ---------------------------
Name: Daniel P. Buettin Name: Daniel P. Buettin
---------------------------- -------------------------
Title: VP & CFO Title: VP & CFO
--------------------------- ------------------------
Weston Engineering, Inc. Aquatech Environmental, Inc.
By: /s/ Daniel P. Buettin By: /s/ Peter G. Schumacher
------------------------------ ---------------------------
Name: Daniel P. Buettin Name: Peter G. Schumacher
---------------------------- -------------------------
Title: VP & CFO Title: VP
--------------------------- ------------------------
ESI International, Inc. ESI-North Limited
By: /s/ Daniel P. Buettin By: /s/ Daniel P. Buettin
------------------------------ ---------------------------
Name: Daniel P. Buettin Name: Daniel P. Buettin
---------------------------- -------------------------
Title: President Title: VP & CFO
--------------------------- ------------------------
-6-
<PAGE> 7
MPW Container Management Corp., an Ohio corporation, enters into this
Amendment to acknowledge and evidence (i) its becoming a party to the Agreement
as a "Borrower", and (ii) its liability to the Banks under the Agreement and all
other agreements and instruments executed by the Borrower for the benefit of the
Banks and/or the Agent in connection with the Agreement, including the Facility
Documents.
MPW Container Management Corp.
By: /s/ Daniel P. Buettin
---------------------------
Name: Daniel P. Buettin
-------------------------
Title: VP & CFO
------------------------
-7-
<PAGE> 8
EXHIBIT A
FORM OF AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTES
<PAGE> 9
AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTE
$10,500,000.00 Columbus, Ohio April 7, 1998
Promise to Pay. Not later than December 31, 2000, for value received,
the undersigned, MPW Industrial Services Group, Inc., MPW Industrial Services,
Inc., MPW Industrial Services, Ltd., MPW Management Services Corp., Weston
Engineering, Inc., Aquatech Environmental, Inc., ESI International, Inc.,
ESI-North Limited and MPW Container Management Corp. (collectively, the
"Borrowers"), jointly and severally, hereby promise to pay to the order of Bank
One, NA (the "Bank") or its assigns, as further provided herein, the principal
amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) or, if such
principal is less, the aggregate unpaid principal amount of all Revolving Credit
Loans made by the Bank to the Borrowers pursuant to the Revolving Credit and
Term Loan Agreement referred to below, together with interest on the unpaid
principal balance from time to time outstanding hereunder until paid in full at
the rates of interest determined in accordance with such Revolving Credit and
Term Loan Agreement. Such interest shall be due and payable on the dates set
forth in such Revolving Credit and Term Loan Agreement. Both principal and
interest are payable in federal funds or other immediately available money of
the United States of America at the main office of the Agent (defined below)
located at 100 East Broad Street, Columbus, Ohio 43215, or such other address as
the Agent may hereafter designate by notice to the Borrowers.
Loan Agreement. This Amended and Restated Revolving Credit Loan Note
amends and restates in its entirety the Revolving Credit Loan Note dated
December 10, 1997, in the original principal amount of $10,500,000, executed by
the Borrower and payable to the order of the Bank, and is one of the Revolving
Credit Loan Notes referred to in the Revolving Credit and Term Loan Agreement
among the Borrowers, the Bank, National City Bank (successor by merger to
National City Bank of Columbus) and Bank One, NA, as Agent (the "Agent"), dated
as of December 10, 1997, as the same may be amended, modified, supplemented,
restated or replaced from time to time (the "Agreement"), which Agreement, as so
amended, is incorporated by reference herein. This Amended and Restated
Revolving Credit Loan Note evidences the continuing indebtedness under the
Agreement and is not to be construed as a satisfaction or refinancing of such
indebtedness. All capitalized terms used herein shall have the same meanings as
are assigned to such terms in the Agreement. This Amended and Restated Revolving
Credit Loan Note is entitled to the benefits of and is subject to the terms,
conditions and provisions of the Agreement. The Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events, and also for repayments and reborrowings on account of
the principal hereof prior to maturity upon the terms, conditions and provisions
specified therein.
The Borrowers and each endorser and any other party liable on this
Amended and Restated Revolving Credit Loan Note severally waive demand,
presentment, notice of dishonor and protest, and consent to any extension or
postponement of time of its payment without limit as to the number or period, to
any substitution, exchange or release of all or part of any collateral securing
this Amended and Restated Revolving Credit Loan Note,
<PAGE> 10
to the addition of any party, and to the release or discharge of, or suspension
of any rights and remedies against, any person who may be liable for the payment
of this Amended and Restated Revolving Credit Loan Note.
Setoff. Any and all moneys now or at any time hereafter owing to the
Borrowers from the holder hereof are hereby pledged for the security of this and
all other Debt from the Borrowers to the holder hereof, and may, upon the
occurrence and during the continuation of any Event of Default, be paid and
applied thereon whether such Debt be then due or is to become due, except for
(a) funds necessary to cover checks for the payment of taxes or employee
contributions in which the Borrowers have no beneficial interest issued to third
parties prior to the date any setoff is claimed by the Bank and (b) accounts
maintained, but not substantially overfunded, for the payment of taxes or
employee contributions in which the Borrowers have no beneficial interest.
BORROWERS:
MPW Industrial Services Group, Inc. MPW Industrial Services, Inc.
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
MPW Industrial Services, Ltd. MPW Management Services Corp.
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
Weston Engineering, Inc. Aquatech Environmental, Inc.
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
Page 2 of 3
<PAGE> 11
ESI International, Inc. ESI-North Limited
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
MPW Container Management Corp.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Page 3 of 3
<PAGE> 12
AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTE
$4,500,000.00 Columbus, Ohio April 7, 1998
Promise to Pay. Not later than December 31, 2000, for value received,
the undersigned, MPW Industrial Services Group, Inc., MPW Industrial Services,
Inc., MPW Industrial Services, Ltd., MPW Management Services Corp., Weston
Engineering, Inc., Aquatech Environmental, Inc., ESI International, Inc.,
ESI-North Limited and MPW Container Management Corp. (collectively, the
"Borrowers"), jointly and severally, hereby promise to pay to the order of
National City Bank (successor by merger to National City Bank of Columbus) (the
"Bank") or its assigns, as further provided herein, the principal amount of Four
Million Five Hundred Thousand Dollars ($4,500,000) or, if such principal is
less, the aggregate unpaid principal amount of all Revolving Credit Loans made
by the Bank to the Borrowers pursuant to the Revolving Credit and Term Loan
Agreement referred to below, together with interest on the unpaid principal
balance from time to time outstanding hereunder until paid in full at the rates
of interest determined in accordance with such Revolving Credit and Term Loan
Agreement. Such interest shall be due and payable on the dates set forth in such
Revolving Credit and Term Loan Agreement. Both principal and interest are
payable in federal funds or other immediately available money of the United
States of America at the main office of the Agent (defined below) located at 100
East Broad Street, Columbus, Ohio 43215, or such other address as the Agent may
hereafter designate by notice to the Borrowers.
Loan Agreement. This Amended and Restated Revolving Credit Loan Note
amends and restates in its entirety the Revolving Credit Loan Note dated
December 10, 1997, in the original principal amount of $4,500,000, executed by
the Borrower and payable to the order of the Bank, and is one of the Revolving
Credit Loan Notes referred to in the Revolving Credit and Term Loan Agreement
among the Borrowers, the Bank, Bank One, NA and Bank One, NA, as Agent (the
"Agent"), dated as of December 10, 1997, as the same may be amended, modified,
supplemented, restated or replaced from time to time (the "Agreement"), which
Agreement, as so amended, is incorporated by reference herein. This Amended and
Restated Revolving Credit Loan Note evidences the continuing indebtedness under
the Agreement and is not to be construed as a satisfaction or refinancing of
such indebtedness. All capitalized terms used herein shall have the same
meanings as are assigned to such terms in the Agreement. This Amended and
Restated Revolving Credit Loan Note is entitled to the benefits of and is
subject to the terms, conditions and provisions of the Agreement. The Agreement,
among other things, contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events, and also for repayments and
reborrowings on account of the principal hereof prior to maturity upon the
terms, conditions and provisions specified therein.
The Borrowers and each endorser and any other party liable on this
Amended and Restated Revolving Credit Loan Note severally waive demand,
presentment, notice of dishonor and protest, and consent to any extension or
postponement of time of its payment without limit as to the number or period, to
any substitution, exchange or release of all or part of any collateral securing
this Amended and Restated Revolving Credit Loan Note,
<PAGE> 13
to the addition of any party, and to the release or discharge of, or suspension
of any rights and remedies against, any person who may be liable for the payment
of this Amended and Restated Revolving Credit Loan Note.
Setoff. Any and all moneys now or at any time hereafter owing to the
Borrowers from the holder hereof are hereby pledged for the security of this and
all other Debt from the Borrowers to the holder hereof, and may, upon the
occurrence and during the continuation of any Event of Default, be paid and
applied thereon whether such Debt be then due or is to become due, except for
(a) funds necessary to cover checks for the payment of taxes or employee
contributions in which the Borrowers have no beneficial interest issued to third
parties prior to the date any setoff is claimed by the Bank and (b) accounts
maintained, but not substantially overfunded, for the payment of taxes or
employee contributions in which the Borrowers have no beneficial interest.
BORROWERS:
MPW Industrial Services Group, Inc. MPW Industrial Services, Inc.
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
MPW Industrial Services, Ltd. MPW Management Services Corp.
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
Weston Engineering, Inc. Aquatech Environmental, Inc.
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
Page 2 of 3
<PAGE> 14
ESI International, Inc. ESI-North Limited
By: By:
-------------------------------- ---------------------------
Name: Name:
------------------------------ -------------------------
Title: Title:
----------------------------- ------------------------
MPW Container Management Corp.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Page 3 of 3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MPW
INDUSTRIAL SERVICES GROUP, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,804
<SECURITIES> 0
<RECEIVABLES> 16,241
<ALLOWANCES> 734
<INVENTORY> 3,926
<CURRENT-ASSETS> 25,150
<PP&E> 50,241
<DEPRECIATION> 28,595
<TOTAL-ASSETS> 54,390
<CURRENT-LIABILITIES> 15,771
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 36,303
<TOTAL-LIABILITY-AND-EQUITY> 54,390
<SALES> 67,190
<TOTAL-REVENUES> 67,190
<CGS> 45,602
<TOTAL-COSTS> 63,363
<OTHER-EXPENSES> 119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 637
<INCOME-PRETAX> 3,071
<INCOME-TAX> (741)
<INCOME-CONTINUING> 3,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,812
<EPS-PRIMARY> .23
<EPS-DILUTED> .21
</TABLE>
