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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 September 30, 2000
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 October 31, 2000, 10,939,957 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>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (unaudited) and June 30, 2000...........3
Consolidated Statements of Income for the three months ended September 30,
2000 and 1999 (unaudited)....................................................................4
Consolidated Statements of Cash Flows for the three months ended September 30,
2000 and 1999 (unaudited)....................................................................5
Notes to Consolidated Financial Statements (unaudited).......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................13
Item 2. Changes in Securities and Use of Proceeds...................................................13
Item 3. Defaults Upon Senior Securities.............................................................13
Item 4. Submission of Matters to a Vote of Security Holders.........................................13
Item 5. Other Information...........................................................................13
Item 6. Exhibits and Reports on Form 8-K............................................................13
SIGNATURES ............................................................................................14
EXHIBIT INDEX ............................................................................................15
</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>
SEPTEMBER 30, JUNE 30,
2000 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 160 $ 236
Accounts receivable, net 14,822 21,969
Inventories 2,253 3,179
Prepaid expenses 1,449 1,853
Deferred income taxes 3,619 4,104
Other current assets 1,604 1,268
-------- --------
23,907 32,609
Property and equipment, net 40,935 46,643
Noncurrent assets:
Intangibles, net 21,992 49,250
Investment in affiliate 7,060 ---
Other assets 2,351 537
Net assets of discontinued operations 33,304 33,656
-------- --------
Total assets $129,549 $162,695
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,047 $ 4,128
Accrued compensation and related taxes 481 843
Current maturities of noncurrent liabilities 224 250
Accrued loss on sale of subsidiary --- 7,247
Other accrued liabilities 3,889 6,023
-------- --------
7,641 18,491
Noncurrent liabilities:
Long-term debt 63,338 83,792
Deferred income taxes 5,461 6,143
-------- --------
68,799 89,935
Minority interest --- 1,200
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; 10,939,957 and 10,929,257 shares
issued and outstanding at September 30, 2000 and June 30, 2000, respectively 109 109
Additional paid-in capital 41,507 41,461
Retained earnings 11,493 11,499
-------- --------
53,109 53,069
Total liabilities and shareholders' equity $129,549 $162,695
======== ========
</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 INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues $ 20,557 $ 29,279
Costs and expenses:
Cost of services 13,816 18,261
Selling, general and administrative expenses 4,688 6,426
Depreciation and amortization 1,915 1,992
-------- --------
Total costs and expenses 20,419 26,679
-------- --------
Income from operations 138 2,600
Interest expense, net 940 945
-------- --------
Income (loss) from continuing operations before
income taxes and equity in earnings of affiliate (802) 1,655
Provision (benefit) for income taxes (335) 662
-------- --------
Income (loss) from continuing operations before equity
in earnings of affiliate (467) 993
Equity in earnings of affiliate, net of tax 95 ----
-------- --------
Income (loss) from continuing operations (372) 993
Discontinued operations, net of tax 380 1,035
-------- --------
Net income $ 8 $ 2,028
======== ========
Net income (loss) per share:
Continuing operations $ (.03) $ .09
Discontinued operations .03 .10
-------- --------
Net income per share $ .00 $ .19
======== ========
Net income (loss) per share, assuming dilution
Continuing operations $ (.03) $ .08
Discontinued operations .03 .09
-------- --------
Net income per share, assuming dilution $ .00 $ .17
======== ========
Weighted average common shares outstanding 10,935 10,845
Weighted average common shares outstanding, assuming dilution 11,478 11,695
</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 CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 8 $ 2,028
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 1,808 1,565
Amortization 415 665
Equity in earnings of affiliate (95) ----
Loss on disposals of assets ---- 104
Change in deferred income taxes 311 102
Changes in operating assets and liabilities:
Accounts receivable 966 (2,798)
Inventories (825) (235)
Prepaid expenses and other assets (2,048) (722)
Accounts payable (2,184) (122)
Other accrued liabilities (1,821) (1,077)
-------- --------
Net cash used in operating activities (3,465) (490)
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from recapitalization of Pentagon 22,631 ----
Purchases of property and equipment (1,717) (5,682)
Purchase of businesses, net of acquired cash ---- (4,518)
Proceeds from the disposal of property and equipment ---- 29
-------- --------
Net cash provided by (used in) investing activities 20,914 (10,171)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net ---- 29
Proceeds from revolving credit facility 22,024 20,690
Payments on revolving credit facility (38,450) (9,928)
Payments on notes payable (1,085) (104)
Payments on capital lease obligations (14) (19)
-------- --------
Net cash provided by (used in) financing activities (17,525) 10,668
-------- --------
Increase (decrease) in cash and cash equivalents (76) 7
Cash and cash equivalents at beginning of year 236 318
======== ========
Cash and cash equivalents at end of period $ 160 $ 325
======== ========
</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
SEPTEMBER 30, 2000
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS MPW Industrial
Services Group, Inc. and its subsidiaries (the "Company") provide
technically-based services, including industrial cleaning and facility
maintenance, industrial filtration management, industrial container cleaning and
industrial process water purification. Such services are primarily provided at
customer facilities. The Company serves customers in numerous industries
including automotive, electric power, pulp and paper, chemical, steel and
transportation. The Company provides services primarily throughout the United
States, Mexico and Canada.
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 months ended September 30, 2000
and 1999, 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 Company's Annual
Report on Form 10-K for the year ended June 30, 2000 ("Annual Report"). The
results of operations for the three months ended September 30, 2000 and 1999 are
not necessarily indicative of the results for the full year.
USE OF ESTIMATES The preparation of 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. PRIVATIZATION OF COMPANY
On August 22, 2000, the Company announced that a Special Committee of
its Board of Directors had reached an agreement in principle with the Company's
Chairman and Chief Executive Officer, Monte R. Black, to acquire the Company in
a cash merger at $8.25 per share plus an additional amount if the sale of the
Company's facility services group generated proceeds in excess of targeted
amounts. The Company's facility services group is comprised of its Industrial
Filtration Products and Services segment along with the labor support business
of its Industrial Cleaning and Facility Maintenance service line (collectively
"Facility Services"). On September 27, 2000, the Company announced that Mr.
Black had withdrawn his previously announced proposal to acquire the Company.
Mr. Black advised the Company's Special Committee, which had been evaluating the
proposal, that he withdrew the proposal primarily because he perceived
uncertainty in the Company's core business due to sluggish customer demand from
certain industries. Mr. Black also expected that the higher than anticipated
level of current Company indebtedness, when added to the debt to be incurred to
finance the privatization transaction, would adversely impact the Company if the
privatization transaction were completed. In addition, Mr. Black advised the
Special Committee that he is not considering a new proposal to acquire the
Company.
NOTE 3. DISCONTINUED OPERATIONS
In connection with the proposed privatization transaction described in
Note 2, the Company announced its plan to sell Facility Services. Even though
Mr. Black's proposal to acquire the Company has been withdrawn, the Company
still intends to sell Facility Services. Facility Services provides air and
liquid filtration devices, media, consumable products, engineering and technical
services, and industrial cleaning and facility maintenance primarily to the
automotive industry. The Consolidated Financial Statements have been restated to
account for Facility Services as a discontinued operation for all periods
presented therein. The Company expects the sale of Facility Services to be
completed in the third quarter of fiscal 2001.
Discontinued operations include Facility Services' net sales that
totaled $17,117,000 and $20,125,000 for the three months ended September 30,
1999 and 2000, respectively. Interest expense is charged to discontinued
operations based on intercompany account balances at the Company's effective
external borrowing rate. Interest expense included in discontinued operations
was $365,000 and $558,000 for the three months ended September 30, 1999 and
2000, respectively.
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Net income from discontinued operations is net of income tax expense of $690,000
and $273,000 for the three months ended September 30, 1999 and 2000,
respectively.
NOTE 4. RECAPITALIZATION OF PENTAGON
On July 18, 2000, the Company closed a transaction related to its then
subsidiary, Pentagon Technologies Group, Inc. ("Pentagon"), pursuant to a
Recapitalization Agreement, dated as of April 25, 2000, by and among Pentagon,
the Company, MPW Management Services Corp., Pentagon Merger Sub, Inc., Baird
Capital Partners III Limited Partnership, BCP III Special Affiliates Limited
Partnership and BCP III Affiliates Fund Limited Partnership, as amended (the
"Recapitalization Agreement"). Pursuant to the Recapitalization Agreement, Baird
Capital Partners and certain of its affiliates ("BCP") invested in Pentagon, the
Company sold a majority of its equity interest in Pentagon to BCP and Pentagon's
indebtedness to the Company was repaid. The Company retained a 22.3% interest in
the capital stock of Pentagon.
In connection with this transaction, the Company received $22,788,000,
($22,631,000 net of pentagon cash) which was used to repay debt. The Company's
June 30, 2000 balance sheet includes a $7,247,000 ($4,348,000 net of tax)
accrued loss on sale of subsidiary to reduce the Company's investment in
Pentagon to 22.3% of Pentagon's equity upon completion of the recapitalization
transaction. As a result of the reduction in the Company's ownership of
Pentagon's capital stock to 22.3%, beginning in the first quarter of fiscal
2001, the Company has accounted for its remaining investment in Pentagon under
the equity method of accounting.
The preferred stock of Pentagon recorded in the Company's balance sheet
as of June 30, 2000 and prior periods as minority interest and common stock
options issued by Pentagon to certain of its executive officers were cancelled
in the recapitalization transaction. The Company's investment and earnings in
Pentagon are classified in the first quarter fiscal 2001 financial statements as
"investment in affiliate" and "equity in earnings of affiliate," respectively.
NOTE 5. INTANGIBLES
Intangibles are summarized as follows (in thousands):
SEPT. 30, JUNE 30,
2000 2000
------------ ------------
Goodwill $ 13,417 $ 40,502
Customer lists 7,208 7,323
Patents 1,091 1,126
Non-compete agreements 276 299
------------ ------------
$ 21,992 $ 49,250
============ ============
Accumulated amortization of intangibles as of September 30, 2000 and
June 30, 2000 was $2,453,000 and $3,737,000, respectively.
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NOTE 6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Numerator for basic and diluted earnings per
share - net income (loss) from
Continuing operations ........................ $ (372) $ 993
Discontinued operations ...................... 380 1,035
-------- --------
Net income .................................... $ 8 $ 2,028
======== ========
Denominator for basic earnings per share -
weighted average common shares ............. 10,935 10,845
Effect of dilutive securities:
Dilutive employee stock options ............ 543 652
Preferred stock of Pentagon ............... ---- 198
-------- --------
Dilutive potential common shares ........... 543 850
Denominator for diluted earnings per share -
adjusted weighted average common shares and
assumed conversions ........................ 11,478 11,695
======== ========
Net income (loss) per share:
Continuing operations ........................ $ (.03) $ .09
Discontinued operations ...................... .03 .10
-------- --------
Net income per share ......................... $ .00 $ .19
======== ========
Net income (loss) per share, assuming dilution:
Continuing operations ....................... $ (.03) $ .08
Discontinued operations ..................... .03 .09
-------- --------
Net income per share, assuming dilution ....... $ .00 $ .17
======== ========
</TABLE>
Options to purchase 773,350 and 433,250 shares of common stock at a
weighted average price of $10.07 and $11.02 per share, respectively, were
outstanding during the three months ended September 30, 2000 and 1999,
respectively but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares and, therefore, the effect would be antidilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for historical information, certain statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") 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 our
business operations as well as other risk factors identified in "Investment
Considerations" in our Annual Report. We undertake no obligation and do 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 our
Unaudited Consolidated Financial Statements and related notes included elsewhere
in this Form 10-Q. The following information should also be read in conjunction
with our Audited Consolidated Financial Statements and related notes and MD&A
for the year ended June 30, 2000 as contained in our Annual Report.
OVERVIEW
CURRENT EVENTS
Privatization of Company. On August 22, 2000, we announced that a
Special Committee of our Board of Directors had reached an agreement in
principle with the Company's Chairman and Chief Executive Officer, Monte R.
Black, to acquire the Company in a cash merger at $8.25 per share plus an
additional amount if the sale of the Company's facility services group generated
proceeds in excess of targeted amounts. The Company's facility services group is
comprised of its Industrial Filtration Products and Services segment along with
the labor support business of its Industrial Cleaning and Facility Maintenance
service line (collectively "Facility Services"). On September 27, 2000, we
announced that Mr. Black had withdrawn his previously announced proposal to
acquire the Company. Mr. Black advised the Company's Special Committee, which
had been evaluating the proposal, that he withdrew the proposal primarily
because he perceived uncertainty in the Company's core business due to sluggish
customer demand from certain industries. Mr. Black also expected that the higher
than anticipated level of current Company indebtedness, when added to the debt
to be incurred to finance the privatization transaction, would adversely impact
the Company if the privatization transaction were completed. In addition, Mr.
Black advised the Special Committee that he is not considering a new proposal to
acquire the Company. See Note 2 to the Consolidated Financial Statements.
Operating results for first quarter of fiscal 2001 were negatively
impacted by a charge for severance costs of $0.6 million related to the
resignation of certain officers. In addition, results for the first quarter of
fiscal 2000 ended September 30, 1999, included the results of Pentagon.
Proposed Sale of Facility Services. In connection with the proposed
privatization transaction, we also announced our plan to sell Facility Services.
Even though Mr. Black's proposal to acquire the Company has been withdrawn, we
still intend to sell Facility Services. Facility Services provides air and
liquid filtration media, consumable products, engineering and technical
services, and industrial cleaning and facility maintenance primarily to the
automotive industry. The Consolidated Financial Statements have been restated to
account for Facility Services as a discontinued operation for all periods
presented therein. Discontinued operations include Facility Services net sales
that totaled $17.1 million and $20.1 million for the three months ended
September 30, 1999 and 2000, respectively. We expect the sale of Facility
Services to be completed in the third quarter of fiscal 2001. See Note 3 to the
Consolidated Financial Statements.
Recapitalization of Pentagon. On July 18, 2000, we closed a transaction
related to Pentagon pursuant to the Recapitalization Agreement. Pursuant to the
Recapitalization Agreement, BCP invested in Pentagon, we sold a majority of our
equity interest in Pentagon to BCP and Pentagon indebtedness to us was repaid.
We retained a 22.3% interest in the capital stock of Pentagon. See Note 4 to the
Consolidated Financial Statements.
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In connection with this transaction, we received payments totaling
$22.8 million, which were used to repay debt. Our June 30, 2000 balance sheet
includes a $4.3 million accrued loss on sale of subsidiary, net of related tax
benefits, to reduce our investment in Pentagon to 22.3% of Pentagon's equity
upon completion of the recapitalization transaction. As a result of the
reduction in our ownership of Pentagon's capital stock to 22.3%, our remaining
investment in Pentagon has been accounted for using the equity method of
accounting.
GENERAL
We primarily derive our revenues from services under time and
materials, fixed price and unit price contracts. We recognize revenues from time
and materials type contracts based on performance and efforts expended. We
record revenues from non-contract activities as we perform services or sell
goods.
Cost of services includes all direct labor, materials, subcontractor
and other costs related to the performance of our services. Cost of services
also includes all costs associated with our operating equipment, excluding
depreciation and amortization.
Selling, general and administrative expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with marketing and sales efforts and costs associated with our
information systems.
Depreciation and amortization consists of depreciation of operating
equipment and amortization of capital leases and intangibles. Depreciation is
calculated using the straight-line method over the estimated useful lives of
property and equipment. We amortize capital leases on a straight-line basis over
the lease term and goodwill and other intangibles on a straight-line basis over
periods not exceeding 25 years.
RESULTS OF OPERATIONS
The following table sets forth selected statement of income data for
continuing operations as a percentage of revenues adjusted to exclude the
revenues and expenses of Pentagon for the three months ended September 30, 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------------------------
<S> <C> <C>
Revenues 100.0% 100.0%
Costs and expenses:
Cost of services 67.2 63.7
Selling, general and administrative expenses 22.8 21.3
Depreciation and amortization 9.3 7.3
--------------------------
Total costs and expenses 99.3 92.3
--------------------------
Income from operations 0.7 7.7
Interest expense, net 4.6 3.0
--------------------------
Income (loss) from continuing operations before (3.9) 4.7
income taxes and equity in earnings of affiliate
Provision (benefit) for income taxes (1.6) 1.3
--------------------------
Income (loss) from continuing operations
before equity in earnings of affiliate (2.3)% 3.4%
==========================
</TABLE>
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THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Basis of Presentation. Our analysis of the three months ended September
30, 2000 compared to the three months ended September 30, 1999 utilizes actual
information as presented above that has been adjusted to reflect Facility
Services as a discontinued operation. The information presented above with
respect to the three months ended September 30, 1999 includes the operating
results of Pentagon, which has been accounted for under the equity method of
accounting for the three months ended September 30, 2000. Pentagon accounted for
$7.4 million of our revenues and $0.9 million of our income from operations for
the three months ended September 30, 1999.
Revenues. Revenues decreased from $29.3 million to $20.6 million for
the three months ended September 30, 1999 and 2000, respectively. This decrease
was primarily the result of the sale of Pentagon in July 2000. Excluding the
results of Pentagon, total revenues decreased $1.3 million, or 5.9%, for the
three months ended September 30, 2000. The decline in revenue was largely
attributable to the loss of several key accounts in our industrial cleaning
business and the unseasonably mild weather, which negatively impacted the
emergency work in the water group.
Cost of Services. Total cost of services was $13.8 million for the
three months ended September 30, 2000 compared with $18.3 million for the three
months ended September 30, 1999. Excluding Pentagon, cost of services as a
percent of revenue increased from 63.7% to 67.2% for the three months ended
September 30, 2000. This increase is due primarily to higher fuel and labor
costs, especially subcontract labor.
Selling, General and Administrative Expenses. Total selling, general
and administrative expenses were $4.7 million and $6.4 million for the three
months ended September 30, 2000 and 1999, respectively. Excluding Pentagon,
selling, general and administrative expenses were $4.7 million for the three
months ended September 30, 1999. As a percent of revenue selling, general and
administrative expenses increased to 22.8% in first quarter fiscal 2001 from
21.3% in the prior year period. The increase is due primarily to severance
payments of $0.6 million related to the resignation in August 2000 of certain
officers of the Company.
Income from Operations. Total income from operations was $138,000
and $2.6 million for the three months ended September 30, 2000 and 1999,
respectively. Excluding Pentagon, operating income was $1.7 million for the
three months ended September 30, 1999. As a percent of revenue income from
operations decreased to 0.7% in first quarter fiscal 2001 compared with 7.7% in
the prior year. The decrease in operating income was primarily attributable to a
decline in results in the industrial cleaning and water groups, as well as the
severance payments previously discussed.
Results for the industrial cleaning group declined due primarily to the
loss of several accounts during fiscal 2000. While we were able to redeploy
assets and personel to existing accounts as well as new accounts, margins
declined as a result of higher fuel, insurance and labor costs.
Interest Expense, net. Interest expense remained unchanged at $0.9
million in the three months ended September 30, 2000 and the three months ended
September 30, 1999.
Provision for Income Taxes. The provision for income taxes for the
three months ended September 30, 2000 and 1999 reflects an effective rate of 42%
and 40%, respectively.
QUARTERLY RESULTS AND SEASONALITY
Our quarterly results of operations tend to vary seasonally, and may
fluctuate significantly as a result of a number of factors over which we have no
control, including our customers' budgetary constraints, the timing and duration
of our customers' planned maintenance activities and shutdowns, changes in our
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 results.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had cash and cash equivalents of $160,000
and working capital of $16.3 million. During the three months ended September
30, 2000, operating activities used $3.5 million of cash and we made capital
investments of $1.7 million.
During October 1999, we entered into a $100 million revolving credit
facility with our principal banks and two additional banks. On August 30, 2000,
because of decreased borrowing needs, we reduced the availability under our
revolving credit facility to $70.0 million. The revolving credit facility
terminates in October 2002, subject to extension by the banks each year on the
anniversary of the agreement. Under the terms of our current credit facility,
the entire $70.0 million is available for general corporate purposes, including
working capital, capital expenditures and acquisitions. Borrowing under our
current credit facility is at rates, based on the prime or Eurodollar rate, that
we believe to be very favorable. Availability of borrowing is subject to the
maintenance of a minimum level of net worth, certain levels of interest coverage
and maintenance of a specific ratio of funded debt to earnings before interest,
taxes, depreciation and amortization that we believe will not affect the
availability of borrowings under our current credit facility.
INFLATION
The effects of inflation on our operations were not significant during
the periods presented in the Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain market risks from transactions that are
entered into during the normal course of business. We have not entered into
derivative financial instruments for trading purposes. Our primary market risk
exposure relates to interest rate risk. We had a balance of $62.2 million on our
revolving credit facility at September 30, 2000, which is subject to a variable
rate of interest based on the prime or Eurodollar rate. Assuming borrowings at
September 30, 2000, a one hundred basis point change in interest rates would
impact net interest expense by approximately $622,000 per year.
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PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Various legal actions arising in the ordinary course of
business are pending against the Company. None of the
litigation pending against the Company, individually or
collectively, is expected to have a material adverse effect on
the Company.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(a) Amended and Restated Articles of
Incorporation of the Company effective
November 4, 1999 (filed as Exhibit 3(a) to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999,
and incorporated herein by reference).
3(b) Amended and Restated Code of Regulations of
the Company effective November 4, 1999
(filed as Exhibit 3(b) to the Company's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, and
incorporated herein by reference).
4(a) Credit Agreement, dated as of October 20,
1999, among the Company and its
subsidiaries, Bank One, NA, National City
Bank, LaSalle Bank, National Association,
SunTrust Bank, Central Florida, N.A., and
Banc One Capital Markets, Inc. (filed as
Exhibit 4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September
30, 1999, and incorporated herein by
reference).
4(b) First Amendment to Credit Agreement and
Other Loan Documents, dated as of July 17,
2000, among the Company and its
subsidiaries, Bank One, NA, National City
Bank, LaSalle Bank, National Association,
SunTrust Bank, Central Florida, N.A., and
Banc One Capital Markets, Inc. (filed as
Exhibit 4(b) to the Company's Annual Report
on Form 10-K for the year ended June 30,
2000, and incorporated by reference).
4(c) Second Amendment to Credit Agreement, dated
as of November 10, 2000, among the Company
and its subsidiaries, Bank One, NA,
National City Bank, LaSalle Bank, National
Association, and SunTrust Bank.
27 Financial Data Schedule.
99(a) Press Release dated August 22, 2000 (filed
as Exhibit 99(d) to the Company's Annual
Report on Form 10-K for the year ended June
30, 2000, and incorporated herein by
reference).
99(b) Press Release dated September 27, 2000
(filed as Exhibit 99(e) to the Company's
Annual Report on Form 10-K for the year
ended June 30, 2000, and incorporated herein
by reference).
(b) Report on Form 8-K filed August 3, 2000 related to
the recapitalization of Pentagon.
Page 13
<PAGE> 14
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: November 14, 2000 By: /s/ Richard R. Kahle
-------------------- --------------------------
Richard R. Kahle
Vice President and Chief Financial Officer
(on behalf of the Registrant and as
Principal Financial Officer)
Page 14
<PAGE> 15
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
3(a) Amended and Restated Articles of Incorporation of the Company
effective November 4, 1999 (filed as Exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
3(b) Amended and Restated Code of Regulations of the Company
effective November 4, 1999 (filed as Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
4(a) Credit Agreement, dated as of October 20, 1999, among the
Company and its subsidiaries, Bank One, NA, National City
Bank, LaSalle Bank, National Association, SunTrust Bank,
Central Florida, N.A., and Banc One Capital Markets, Inc.
(filed as Exhibit 4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference).
4(b) First Amendment to Credit Agreement and Other Loan Documents,
dated as of July 17, 2000, among the Company and its
subsidiaries, Bank One, NA, National City Bank, LaSalle Bank,
National Association, SunTrust Bank, Central Florida, N.A.,
and Banc One Capital Markets, Inc. (filed as Exhibit 4(b) to
the Company's Annual Report on Form 10-K for the year ended
June 30, 2000, and incorporated by reference).
4(c) Second Amendment to Credit Agreement, dated as of November 10,
2000, among the Company and its subsidiaries, Bank One, NA,
National City Bank, LaSalle Bank, National Association, and
SunTrust Bank.
27 Financial Data Schedule.
99(a) Press Release dated August 22, 2000. (filed as Exhibit 99(d)
to the Company's Annual Report on Form 10-K for the year ended
June 30, 2000, and incorporated herein by reference).
99(b) Press Release dated September 27, 2000. (filed as Exhibit
99(e) to the Company's Annual Report on Form 10-K for the year
ended June 30, 2000, and incorporated herein by reference).
Page 15
