<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number. 333-64745
----------------
PENHALL INTERNATIONAL CORP.
(Exact Name of registrant as specified in its charter)
ARIZONA 86-0634394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1801 PENHALL WAY, ANAHEIM, CA 92803
(Address of principal executive offices) (Zip Code)
(714) 772-6450
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS AND TITLE OF SHARES OUTSTANDING AS OF
CAPITAL STOCK NOVEMBER 10, 2000
------------------ ------------------------
Common Stock, $.01 Par Value 1,012,513
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<PAGE> 2
PENHALL INTERNATIONAL CORP.
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and September 30, 2000....................................... 3
Condensed Consolidated Statements of Operations for the three
month periods ended September 30, 1999 and 2000.............. 4
Condensed Consolidated Statements of Cash Flows for the three
month periods ended September 30, 1999 and 2000.............. 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 19
Part II - Other Information
Items 1-5 are not applicable
Item 6. Exhibits and Reports on Form 8-K................................ 20
(a) Exhibits
27.1 -- Financial Data Schedule............................ 22
(b) Reports on Form 8-K
None
2
<PAGE> 3
ITEM 1. FINANCIAL INFORMATION
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 2,109,000 $ 2,798,000
Receivables:
Contract and trade receivables ................ 31,834,000 37,325,000
Contract retentions ........................... 5,724,000 6,290,000
------------- -------------
37,558,000 43,615,000
Less allowance for doubtful receivables ....... 1,617,000 1,942,000
------------- -------------
Net receivables ...................... 35,941,000 41,673,000
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................. 4,126,000 1,641,000
Deferred tax assets ...................................... 2,318,000 2,318,000
Inventories .............................................. 1,741,000 1,566,000
Prepaid expenses and other current assets ................ 916,000 889,000
------------- -------------
Total current assets ................. 47,151,000 50,885,000
Property, plant and equipment, at cost:
Land ..................................................... 5,229,000 5,229,000
Buildings and leasehold improvements ..................... 8,135,000 9,321,000
Construction and other equipment ......................... 102,284,000 104,541,000
------------- -------------
115,648,000 119,091,000
Less accumulated depreciation and amortization ........... 53,924,000 56,630,000
------------- -------------
Net property, plant and equipment .... 61,724,000 62,461,000
Goodwill, net of accumulated amortization .................. 7,566,000 7,778,000
Debt issuance costs, net of accumulated amortization ....... 4,946,000 4,725,000
Other assets, net .......................................... 775,000 728,000
------------- -------------
$ 122,162,000 $ 126,577,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt ................... $ 4,649,000 $ 5,379,000
Trade accounts payable ................................... 10,953,000 12,865,000
Accrued liabilities ...................................... 14,045,000 12,280,000
Income taxes payable ..................................... 451,000 2,260,000
Billings in excess of costs and estimated earnings
on uncompleted contracts ............................... 2,635,000 997,000
------------- -------------
Total current liabilities ............ 32,733,000 33,781,000
Long-term debt, excluding current installments ............. 20,586,000 20,694,000
Senior notes ............................................... 100,000,000 100,000,000
Deferred tax liabilities ................................... 6,045,000 6,045,000
Senior Exchangeable Preferred Stock, redemption value
$12,547,000 at September 30, 2000. Authorized, issued
and outstanding 10,000 shares at June 30, 2000 and
September 30, 2000 ....................................... 12,220,000 12,547,000
Series A Preferred Stock, redemption value $13,811,000
at September 30, 2000. Authorized 25,000 shares; issued
and outstanding 10,428 shares at June 30, 2000
and September 30, 2000 ................................... 13,365,000 13,811,000
Stockholders' deficit:
Series B Preferred Stock, par value $.01 per share
Authorized 50,000 shares; issued and outstanding
19,052 at June 30, 2000 and September 30, 2000 ......... 24,385,000 25,197,000
Common stock, $.01 par value. Authorized 5,000,000
shares; issued and outstanding 1,012,513 at June 30,
2000 and September 30, 2000, including 6,014 shares held
in treasury ............................................ 10,000 10,000
Additional paid-in capital ............................... 1,522,000 1,522,000
Treasury stock, at cost, 6,014 common shares at June 30,
2000 and September 30, 2000 ............................ (14,000) (14,000)
Accumulated deficit ...................................... (88,690,000) (87,016,000)
------------- -------------
Total stockholders' deficit .......... (62,787,000) (60,301,000)
Commitments and contingencies ............................
------------- -------------
$ 122,162,000 $ 126,577,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS
ENDED SEPTEMBER 30,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenues .......................................... $ 49,857,000 $ 53,346,000
Cost of revenues .................................. 33,843,000 36,795,000
------------ ------------
Gross profit .................................... 16,014,000 16,551,000
General and administrative expenses ............... 8,577,000 7,601,000
Other operating income, net ....................... 301,000 431,000
------------ ------------
Earnings before interest expense and income taxes 7,738,000 9,381,000
Interest expense .................................. 3,952,000 3,857,000
------------ ------------
Earnings before income taxes .................... 3,786,000 5,524,000
Income tax expense ................................ 1,634,000 2,265,000
------------ ------------
Net earnings ...................................... 2,152,000 3,259,000
------------ ------------
Accretion of preferred stock to redemption value .. (686,000) (773,000)
Accrual of cumulative dividends on preferred stock (693,000) (812,000)
------------ ------------
Net income available to common stockholders ....... $ 773,000 $ 1,674,000
============ ============
Earnings per share:
Basic and diluted ............................... $ .78 $ 1.65
Weighted average number of shares outstanding:
Basic and diluted ............................... 994,477 1,012,513
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS
ENDED SEPTEMBER 30,
1999 2000
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................... $ 2,152,000 $ 3,259,000
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization .......................... 3,468,000 3,887,000
Amortization of debt issuance costs .................... 221,000 221,000
Provision for doubtful accounts ........................ 619,000 325,000
Gain on sale of assets ................................. (43,000) (110,000)
Changes in assets and liabilities, net of effects
of acquisition:
Receivables .......................................... (7,997,000) (6,057,000)
Inventories, prepaid expenses and other assets ....... (822,000) 255,000
Costs and estimated earnings in excess of billings on
uncompleted contracts .............................. 892,000 2,485,000
Trade accounts payable, accrued liabilities and income
taxes payable ...................................... 1,202,000 (3,292,000)
Billings in excess of costs and estimated earnings on
uncompleted contracts .............................. (376,000) (1,638,000)
----------- ------------
Net cash used in operating activities ............ (684,000) (665,000)
----------- ------------
Cash flows from investing activities:
Proceeds from sale of assets ............................... 156,000 325,000
Capital expenditures ....................................... (3,394,000) (3,622,000)
Acquisition of assets ...................................... -- (317,000)
----------- ------------
Net cash used in investing activities .............. (3,238,000) (3,614,000)
----------- ------------
Cash flows from financing activities:
Borrowings under long-term debt ............................ 5,000,000 11,050,000
Repayments of long-term debt ............................... (2,204,000) (10,890,000)
Book overdraft ............................................. 3,033,000 4,808,000
----------- ------------
Net cash provided by financing activities .......... 5,829,000 4,968,000
----------- ------------
Net increase in cash and cash equivalents .......... 1,907,000 689,000
Cash and cash equivalents at beginning of period ............. 3,085,000 2,109,000
----------- ------------
Cash and cash equivalents at end of period ................... $ 4,992,000 $ 2,798,000
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ............................................. $ 123,000 $ 456,000
=========== ============
Interest ................................................. $ 6,876,000 $ 6,526,000
=========== ============
Supplemental disclosure of noncash investing and
financing activities:
Accrued liabilities related to the acquisition of assets . $ -- $ 440,000
=========== ============
Borrowings related to the acquisition of assets .......... $ -- $ 339,000
=========== ============
Borrowings related to capital leases and equipment
financing agreements ................................... $ 2,262,000 $ 339,000
=========== ============
Accretion of preferred stock to redemption value ......... $ 686,000 $ 773,000
=========== ============
Accrual of cumulative dividends on preferred stock ....... $ 693,000 $ 812,000
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
Penhall International, Inc. ("PII") was founded in 1957 and was
incorporated in the state of California on April 19, 1988. On August 4, 1998,
$100,000,000 of 12% Senior Notes (the Senior Notes) were sold by Penhall
Acquisition Corp., an Arizona corporation formed by an unrelated third party
(the Third Party) to effect the recapitalization of PII. As part of the
recapitalization, a series of mergers (the Recapitalization Mergers) were
consummated pursuant to which Phoenix Concrete Cutting, Inc., a wholly-owned
subsidiary of PII, became the corporate parent of PII, the Third Party acquired
a 62.5% interest in Phoenix Concrete Cutting, Inc. and Phoenix Concrete Cutting,
Inc. became the successor obligor of the Senior Notes. Following the
consummation of the Recapitalization Mergers, Phoenix Concrete Cutting, Inc.
changed its name to Penhall International Corp., and PII changed its name to
Penhall Rental Corp.
Under generally accepted accounting principles, the Recapitalization
Mergers were accounted for as a leveraged recapitalization transaction in a
manner similar to a pooling-of-interests. Under this method, the transfer of
controlling interest in PII to the Third-Party did not change the accounting
basis of the assets and liabilities in PII's separate stand-alone financial
statements.
The accompanying unaudited condensed consolidated financial statements
of Penhall International Corp. ("Penhall" or the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Results of operations for the three month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2001. The unaudited condensed consolidated financial
statements included herein should be read in conjunction with the Company's
audited consolidated financial statements and footnotes thereto included in the
Form 10-K for the year ended June 30, 2000.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing adjusted net income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding during the period plus the impact of assumed
potential dilutive securities. There were no potential dilutive securities for
the periods presented.
6
<PAGE> 7
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2000
(UNAUDITED)
(2) SENIOR NOTES AND LONG-TERM DEBT
SENIOR NOTES
On August 4, 1998, in connection with the Recapitalization Mergers, the
Company issued $100,000,000 of Senior Notes guaranteed by the wholly-owned
subsidiaries of Penhall International Corp. Interest at 12% is payable
semiannually in arrears; all unpaid principal and interest is due August 1,
2006. In addition, the Senior Notes are redeemable at the Company's option, in
whole at any time or in part from time to time, on or after August 1, 2003, at
certain redemption rates ranging from 106% to 102%. The Senior Notes contain
certain financial and non-financial covenants. As of September 30, 2000 the
Company was in compliance with all such covenants.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 2000
----------- -----------
<S> <C> <C>
Note payable secured by certain equipment, stated interest
of 0%, imputed interest at 9.25% which resulted in a discount
of $200,000; payable $400,000 due June 1, 2001, and $428,000
due June 1, 2002 ............................................ $ 728,000 $ 753,000
Note payable secured by certain equipment bearing interest at
6.0%,per annum; principal and interest due either November 1,
1999 or upon collection of specified accounts receivable in
accordance with the Lipscomb purchase ....................... 100,000 100,000
Note payable secured by certain equipment, stated interest of
0%, imputed interest at 10.0% which resulted in a discount
of $61,000; payable $100,000 due September 30, 2001 and
$300,000 due September 30, 2002 ............................. -- 339,000
Revolving Loan in the maximum credit amount of $30,000,000
secured by certain assets of the Company. The Company may
elect to maintain the Revolving Loan as a Base Rate Loan,
which accrues interest quarterly at .75% to 1.5% (as defined)
plus the higher of the Federal Funds Effective Rate (as
defined) or the then current prime rate and is payable
quarterly, and/or convert into a Eurodollar Loan, which
accrues interest at 1.75% to 2.25% (as defined) plus the
Eurodollar Rate (as defined) and is payable on the last
day of each elected interest period, which shall range from
one to six months, as elected by the Company. All unpaid
principal and interest is due June 15, 2004. The effective
interest rate at June 30, 2000 and September 30, 2000 was
8.51% and 8.42%, respectively ............................... 2,850,000 4,000,000
$20,000,000 Term Loan secured by certain assets of the
Company; principal payments of $750,000 per quarter
commencing September 15, 2000 through June 15, 2001,
$1,250,000 per quarter through June 15, 2002, and
$1,500,000 per quarter through June 15, 2004. The
Company may elect to maintain the Term Loan as a Base
Rate Loan, which accrues interest quarterly at .75% to
1.5% (as defined) plus the higher of the Federal Funds
Effective Rate (as defined) or the current prime rate
and is payable quarterly, and/or convert into a Eurodollar
Loan, which accrues interest at 1.75% to 2.25% (as
defined) plus the Eurodollar Rate (as defined) and is
payable on the last day of each elected interest period,
which shall range from one to six months, as elected by
the Company. All unpaid principal and interest is due
June 15, 2004. The effective interest rate at June 30,
2000 and September 30, 2000 was 8.44% and 8.41%, respectively 20,000,000 19,250,000
Various capital leases and equipment financing agreements
due through November 2001 with interest rates ranging
from 0% to .12% annually .................................... 1,351,000 1,426,000
Other ......................................................... 206,000 205,000
----------- -----------
25,235,000 26,073,000
Less current installments of long-term debt ................... 4,649,000 5,379,000
----------- -----------
Long-term debt, excluding current installments ................ $20,586,000 $20,694,000
=========== ===========
</TABLE>
7
<PAGE> 8
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2000
(UNAUDITED)
As part of the Revolving Loan, the Company has a Swingline Loan in the
maximum credit amount of $2,500,000 secured by certain assets of the Company;
interest accrues quarterly at 1.25% plus the higher of the Federal Funds
Effective Rate (as defined) or then current prime rate and is payable in
quarterly installments. All unpaid principal and interest is due June 10, 2004.
The Term Loan, Revolving Loan, and Swingline Loan (the "Credit
Facility") contain certain financial and non-financial covenants, including
working capital, net worth, and debt to equity ratios. The Company is also
required to make defined prepayments in the event cash flows from operations
exceed specified amounts, as defined. The Company was in compliance with all
covenants and ratios at September 30, 2000. No prepayments were required as of
September 30, 2000. Additionally, under the terms of the Credit Facility, the
Company had pledged all of the assets of its wholly owned subsidiaries.
The Company had unused and available amounts under its Credit Facility
in the amount of $28,500,000 at September 30, 2000.
(3) COMMITMENTS AND CONTINGENCIES
LITIGATION
There are various lawsuits and claims pending against and claims being
pursued by the Company and its subsidiaries arising out of the normal course of
business. It is management's present opinion, based in part upon the advise of
legal counsel, that the outcome of these proceedings will not have a material
effect on the Company's consolidated financial statements taken as a whole.
(4) ACQUISITION
In September 2000, the Company purchased certain assets of Advanced
Concrete Sawing & Drilling for $1,096,000. The purchase price included a cash
payment of $317,000, $40,000 of covenants not to compete payable in equal
installments through September 2004, $400,000 of additional consideration
payable in equal installments in October 2000 and September 2001, and a seller
unsecured carryback note of $339,000 at 10.0% interest, payable in installments
of $100,000 due in September 2001 and $300,000 due in September 2002. The excess
of the purchase price over the fair value of the net identifiable assets
acquired of $384,000 has been recorded as goodwill and is being amortized on a
straight-line basis over 15 years.
8
<PAGE> 9
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2000
(UNAUDITED)
(5) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following consolidating financial information is presented for
purposes of complying with the reporting requirements of the Guarantor
Subsidiaries, (Penhall Rental Corp. and Penhall Company). Separate financial
statements and other disclosures with respect to the Guarantor Subsidiaries are
not presented because the Company believes that such financial statements and
other information would not provide additional information that is material to
investors.
The condensed consolidating financial information presents condensed
financial statements as of June 30, 2000 and September 30, 2000 and for the
three month periods ended September 30, 1999 and 2000 of:
(a) Penhall International Corp. on a parent company only basis
("Parent") (carrying its investments in the subsidiaries under the
equity method),
(b) the Guarantor Subsidiaries (Penhall Rental Corp. and Penhall
Company)
(c) elimination entries necessary to consolidate the parent company and
its subsidiaries, and
(d) the Company on a consolidated basis.
9
<PAGE> 10
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Receivables, net .................. $ -- $ -- $ 35,941,000 $ -- $ 35,941,000
Inventories ....................... -- -- 1,741,000 -- 1,741,000
Costs and estimated earnings
in excess of billings on
uncompleted contracts ........... -- -- 4,126,000 -- 4,126,000
Intercompany assets ............... 41,702,000 -- -- (41,702,000) --
Other current assets .............. 217,000 1,394,000 3,732,000 -- 5,343,000
------------- ------------- ------------- ------------- -------------
Total current assets ............ 41,919,000 1,394,000 45,540,000 (41,702,000) 47,151,000
Intercompany assets .................. 10,000,000 -- -- (10,000,000) --
Net property, plant and equipment .... -- 8,882,000 52,842,000 -- 61,724,000
Other assets, net .................... 4,946,000 -- 8,341,000 -- 13,287,000
Investment in parent ................. -- 4,001,000 -- (4,001,000) --
Investment in subsidiaries ........... 41,222,000 -- -- (41,222,000) --
------------- ------------- ------------- ------------- -------------
$ 98,087,000 $ 14,277,000 $ 106,723,000 $ (96,925,000) $ 122,162,000
============= ============= ============= ============= =============
Liabilities and Stockholders' Equity
(Deficit):
Current installments of long-term debt $ 3,000,000 $ 3,000 $ 1,646,000 $ -- $ 4,649,000
Trade accounts payable ............... -- 103,000 10,850,000 -- 10,953,000
Accrued liabilities .................. 5,066,000 -- 8,979,000 -- 14,045,000
Income taxes payable ................. 451,000 -- -- -- 451,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts ............. -- -- 2,635,000 -- 2,635,000
Intercompany liabilities ............. 2,922,000 35,586,000 3,194,000 (41,702,000) --
------------- ------------- ------------- ------------- -------------
Total current liabilities ....... 11,439,000 35,692,000 27,304,000 (41,702,000) 32,733,000
Intercompany liabilities ............. -- -- 10,000,000 (10,000,000) --
Long-term debt, excluding
current installments ............... 19,850,000 203,000 533,000 -- 20,586,000
Senior notes ......................... 100,000,000 -- -- -- 100,000,000
Deferred tax liabilities ............. -- (540,000) 6,585,000 -- 6,045,000
Senior Exchangeable Preferred
stock .............................. 12,220,000 -- -- -- 12,220,000
Series A Preferred stock ............. 13,365,000 -- -- -- 13,365,000
Stockholders' equity (deficit) ....... (58,787,000) (21,078,000) 62,301,000 (45,223,000) (62,787,000)
------------- ------------- ------------- ------------- -------------
$ 98,087,000 $ 14,277,000 $ 106,723,000 $ (96,925,000) $ 122,162,000
============= ============= ============= ============= =============
</TABLE>
10
<PAGE> 11
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-------------------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Receivables, net .................. $ -- $ -- $ 41,673,000 $ -- $ 41,673,000
Inventories ....................... -- -- 1,566,000 -- 1,566,000
Costs and estimated earnings in
excess of billings on
uncompleted contracts ........... -- -- 1,641,000 -- 1,641,000
Intercompany assets ............... 37,155,000 -- -- (37,155,000) --
Other current assets .............. 77,000 2,004,000 3,924,000 -- 6,005,000
------------- ------------- ------------- ------------- -------------
Total current assets ........... 37,232,000 2,004,000 48,804,000 (37,155,000) 50,885,000
Intercompany assets .................. 9,002,000 -- -- (9,002,000) --
Net property, plant and equipment .... -- 9,905,000 52,556,000 -- 62,461,000
Other assets, net .................... 4,725,000 -- 8,506,000 -- 13,231,000
Investment in parent ................. -- 4,001,000 -- (4,001,000) --
Investment in subsidiaries ........... 46,788,000 -- -- (46,788,000) --
------------- ------------- ------------- ------------- -------------
$ 97,747,000 $ 15,910,000 $ 109,866,000 $ (96,946,000) $ 126,577,000
============= ============= ============= ============= =============
Liabilities and Stockholders' Equity
(Deficit)
Current installments of long-term debt $ 3,500,000 $ 3,000 $ 1,876,000 $ -- $ 5,379,000
Trade accounts payable ............... 4,000 9,000 12,852,000 -- 12,865,000
Accrued liabilities .................. 2,175,000 -- 10,105,000 -- 12,280,000
Income taxes payable ................. 2,260,000 -- -- -- 2,260,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts .............. -- -- 997,000 -- 997,000
Intercompany liabilities ............. -- 37,155,000 -- (37,155,000) --
------------- ------------- ------------- ------------- -------------
Total current liabilities ......... 7,939,000 37,167,000 25,830,000 (37,155,000) 33,781,000
Intercompany liabilities ............. -- -- 9,002,000 (9,002,000) --
Long-term debt, excluding
current installments .............. 19,750,000 203,000 741,000 -- 20,694,000
Senior notes ......................... 100,000,000 -- -- -- 100,000,000
Deferred tax liabilities ............. -- (540,000) 6,585,000 -- 6,045,000
Senior Exchangeable Preferred stock .. 12,547,000 -- -- -- 12,547,000
Series A Preferred stock ............. 13,811,000 -- -- -- 13,811,000
Stockholders' equity (deficit) ....... (56,300,000) (20,920,000) 67,708,000 (50,789,000) (60,301,000)
------------- ------------- ------------- ------------- -------------
$ 97,747,000 $ 15,910,000 $ 109,866,000 $ (96,946,000) $ 126,577,000
============= ============= ============= ============= =============
</TABLE>
11
<PAGE> 12
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ -- $319,000 $49,857,000 $ (319,000) $49,857,000
Cost of revenues .............. -- -- 33,843,000 -- 33,843,000
----------- -------- ----------- ----------- -----------
Gross profit ................ -- 319,000 16,014,000 (319,000) 16,014,000
General and administrative
expenses .................... 122,000 121,000 8,653,000 (319,000) 8,577,000
Other operating income, net ... 17,000 -- 284,000 -- 301,000
Equity earnings in subsidiaries 4,459,000 -- -- (4,459,000) --
----------- -------- ----------- ----------- -----------
Earnings before interest
expense and income taxes .... 4,354,000 198,000 7,645,000 (4,459,000) 7,738,000
Interest expense .............. 3,806,000 -- 146,000 -- 3,952,000
----------- -------- ----------- ----------- -----------
Earnings before income
taxes ..................... 548,000 198,000 7,499,000 (4,459,000) 3,786,000
Income tax expense (benefit) .. (1,604,000) 81,000 3,157,000 -- 1,634,000
----------- -------- ----------- ----------- -----------
Net earnings .................. $ 2,152,000 $117,000 $ 4,342,000 $(4,459,000) $ 2,152,000
=========== ======== =========== =========== ===========
</TABLE>
12
<PAGE> 13
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ -- $387,000 $53,346,000 $ (387,000) $53,346,000
Cost of revenues .............. -- -- 36,795,000 -- 36,795,000
----------- -------- ----------- ----------- -----------
Gross profit ................ -- 387,000 16,551,000 (387,000) 16,551,000
General and administrative
expenses .................... 110,000 118,000 7,760,000 (387,000) 7,601,000
Other operating income, net ... 4,000 -- 427,000 -- 431,000
Equity earnings in subsidiaries 5,566,000 -- -- (5,566,000) --
----------- -------- ----------- ----------- -----------
Earnings before interest
expense and income taxes . 5,460,000 269,000 9,218,000 (5,566,000) 9,381,000
Interest expense .............. 3,804,000 -- 53,000 -- 3,857,000
----------- -------- ----------- ----------- -----------
Earnings before income
taxes ..................... 1,656,000 269,000 9,165,000 (5,566,000) 5,524,000
Income tax expense (benefit) .. (1,603,000) 110,000 3,758,000 -- 2,265,000
----------- -------- ----------- ----------- -----------
Net earnings .................. $ 3,259,000 $159,000 $ 5,407,000 $(5,566,000) $ 3,259,000
=========== ======== =========== =========== ===========
</TABLE>
13
<PAGE> 14
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ............. $(3,050,000) $ 99,000 $ 2,267,000 $ -- $ (684,000)
----------- ----------- ----------- ---------- -----------
Cash flows from investing
activities:
Proceeds from sale of assets ...... -- 16,000 140,000 -- 156,000
Capital expenditures .............. -- (3,000) (3,391,000) -- (3,394,000)
----------- ----------- ----------- ---------- -----------
Net cash provided by (used
in) investing activities ...... -- 13,000 (3,251,000) -- (3,238,000)
----------- ----------- ----------- ---------- -----------
Cash flows from financing activities:
Due to (from) affiliates .......... 50,000 2,184,000 (2,234,000) -- --
Borrowings under long-term debt ... 5,000,000 -- -- -- 5,000,000
Repayments of long-term debt ...... (2,000,000) -- (204,000) -- (2,204,000)
Book overdraft .................... -- -- 3,033,000 -- 3,033,000
----------- ----------- ----------- ---------- -----------
Net cash provided by
financing activities ..... 3,050,000 2,184,000 595,000 -- 5,829,000
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in
cash and cash equivalents -- 2,296,000 (389,000) -- 1,907,000
Cash and cash equivalents at
beginning of period ............... -- 1,853,000 1,232,000 -- 3,085,000
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at
end of period ..................... $ -- $ 4,149,000 $ 843,000 $ -- $ 4,992,000
=========== =========== =========== ========== ===========
</TABLE>
14
<PAGE> 15
PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------
PENHALL PENHALL
INTERNATIONAL RENTAL PENHALL
CORP. CORP. COMPANY ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ............. $ (3,124,000) $ 179,000 $ 2,280,000 $ -- $ (665,000)
------------ ----------- ----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of assets ...... -- -- 325,000 -- 325,000
Capital expenditures .............. -- (1,129,000) (2,493,000) -- (3,622,000)
Acquisition of assets ............. -- -- (317,000) -- (317,000)
------------ ----------- ----------- ----------- ------------
Net cash used in investing
activities .................... -- (1,129,000) (2,485,000) -- (3,614,000)
------------ ----------- ----------- ----------- ------------
Cash flows from financing
activities:
Due to (from) affiliates .......... 2,623,000 1,570,000 (4,193,000) -- --
Borrowings under long-term debt ... 11,050,000 -- -- -- 11,050,000
Repayments of long-term debt ...... (10,649,000) (1,000) (240,000) -- (10,890,000)
Book overdraft .................... -- -- 4,808,000 -- 4,808,000
------------ ----------- ----------- ----------- ------------
Net cash provided by
financing activities .......... 3,024,000 1,569,000 375,000 -- 4,968,000
------------ ----------- ----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents .......... (100,000) 619,000 170,000 -- 689,000
Cash and cash equivalents at
beginning of period ............... 100,000 1,370,000 639,000 -- 2,109,000
------------ ----------- ----------- ----------- ------------
Cash and cash equivalents at
end of period ..................... $ -- $ 1,989,000 $ 809,000 $ -- $ 2,798,000
============ =========== =========== =========== ============
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Penhall International Corp. (Penhall) should be read in conjunction
with the unaudited condensed consolidated financial statements and footnotes
thereto included in this quarterly report on Form 10-Q and the Company's audited
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K, filed with the Securities and Exchange Commission.
GENERAL
Penhall was founded in 1957 in Anaheim, California with one piece of
equipment, and today is one of the largest Operated Equipment Rental Services
companies in the United States. Penhall differentiates itself from other
equipment rental companies by providing specialized services in connection with
infrastructure projects through renting equipment along with skilled operators
to serve customers in the construction, industrial, manufacturing, governmental
and residential markets. In addition, Penhall complements its Operated Equipment
Rental Services with fixed-price contracts, which serve to market its operated
equipment rental services business and increase utilization of its operated
equipment rental fleet. Penhall provides its services from 34 locations in
fourteen states, with a presence in some of the fastest growing states in terms
of construction spending and population growth.
The operated equipment rental industry is a specialized niche of the
highly fragmented United States equipment rental industry, in which there are
approximately 17,000 companies. Penhall has taken advantage of consolidation
opportunities by acquiring small companies in targeted markets as well as by
establishing new offices in those markets. Since 1994, Penhall has effected nine
strategic acquisitions, including Concrete Coring Company, an Austin-based
company acquired in 1995, Zig Zag Company, a Denver-based company acquired in
1996, Metro Concrete Cutting, an Atlanta-based company acquired in 1996, Highway
Services, a Minnesota-based company acquired in April 1998, Daley Concrete
Cutting, a South Carolina-based division of U.S. Rentals acquired in October
1998, Lipscomb Concrete Cutting, a North Carolina-based company acquired in
November 1998, Diamond Concrete Services, an Alabama-based company acquired in
April 1999, Prospect Drilling and Sawing, a Minneapolis-based company acquired
in June 1999 and Advance Concrete Sawing & Drilling, Inc., a Bakersfield
California-based company purchased in September 2000. During the same period,
Penhall established operations in five new markets by opening offices in Las
Vegas, Salt Lake City, Portland, Dallas and Richmond.
Penhall derives its revenues primarily from services provided for
infrastructure related jobs. Penhall's Operated Equipment Rental Services are
complemented by long-term fixed-price contracts. Penhall's revenues are derived
from highway-related projects, building-related projects, airport, residential
and other projects. The following table shows the breakdown of the components of
revenue for the periods indicated:
THREE MONTH PERIODS ENDED SEPTEMBER 30,
---------------------------------------
1999 2000
------------------ ----------------
% OF % OF
$ TOTAL $ TOTAL
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
Operated Equipment Rental Services $32,652 65.5% $35,443 66.4%
Contract Services(1) ............. 17,205 34.5% 17,903 33.6%
------- ----- ------- -----
Total Revenues ............... $49,857 100.0% $53,346 100.0%
======= ===== ======= =====
----------
(1) Contract services revenues exclude services performed by the operated
equipment rental divisions on long-term contracts.
Revenue growth is influenced by infrastructure change, including new
construction, modification and natural disasters, such as the 1989 and 1994
earthquakes in Northern and Southern California. Other factors that influence
Penhall's operations are demand for operated rental equipment, the amount and
quality of equipment available for rent, rental rates and general economic
conditions. Historically, revenues have been seasonal, as weather conditions in
the spring and summer months result in stronger performance in the first and
fourth fiscal quarters than in the second and third fiscal quarters.
16
<PAGE> 17
The principal components of Penhall's operating costs include the cost
of labor, equipment rental fleet maintenance costs including parts and service,
equipment rental fleet depreciation, insurance and other direct operating costs.
Given the varied, and in some cases specialized, nature of its rental equipment,
Penhall utilizes a range of periods over which it depreciates its equipment on a
straight-line basis. On average, Penhall depreciates its equipment over an
estimated useful life of six years with a 10% residual value.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Revenues. Revenues for the three months ended September 30, 2000
("Interim 2001") were $53.3 million, an increase of $3.5 million or 7.0% over
the three months ended September 30, 1999 ("Interim 2000"). The increase, due
primarily to the continued strength in construction markets served in the
southwest region of the United States, was partially offset in Interim 2001 by
lower revenues from the Highway Services division. The decrease in revenues for
the Highway Services division is attributable to increased competition in its
traditional markets, delays by various state Department of Transportation
agencies in releasing new contracts, as well as the division performing less
work as a prime contractor which resulted in a reduction of subcontract
revenues.
Gross Profit. Gross profit totaled $16.6 million in Interim 2001, an
increase of $0.5 million or 3.4% from Interim 2000. Gross profit as a percentage
of revenues decreased from 32.1% in Interim 2000 to 31.0% in Interim 2001. The
increase in gross profit from Interim 2000 to Interim 2001 is primarily
attributable to increased revenue. The decrease in gross profit as a percentage
of revenues was due to increased competition in several Company markets during
Interim 2001. The Company divisions most impacted by increased competition were
the markets served by the Highway Services division, and offices located in the
southwest and southern regions of the United States.
General and Administrative Expenses. General and administrative
expenses were $7.6 million in Interim 2001 compared to $8.6 million in Interim
2000. As a percent of revenues, general and administrative expenses were 14.3%
in Interim 2001 compared to 17.2% in Interim 2000.
The decrease in general and administrative expenses in Interim 2001 and
the decrease in general and administrative expenses as a percent of revenues in
Interim 2001 was attributable to a reduction in the provision for doubtful
accounts of $0.6 million and a reduction of legal expense of $0.4 million in
Interim 2001 as compared to Interim 2000.
Interest Expense. Interest expense was $3.9 million in Interim 2001
compared to interest expense of $4.0 million in Interim 2000. The small decrease
in interest expense is attributable to higher interest rates offset by lower
borrowings by the Company in Interim 2001.
Income Tax Expense (Benefit). The Company recorded an income tax
provision of $2.3 million, or 41% of earnings before income taxes in Interim
2001, compared to an income tax provision of $1.6 million, or 43% of earnings
before income taxes in Interim 2000. The decrease in the effective tax rate is
attributable to non-deductible, non-recurring reorganization costs which
occurred in Interim 2000.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
It is anticipated that the Company's principal uses of liquidity will
be to fund working capital, meet debt service requirements and finance the
Company's strategy of pursuing strategic acquisitions and expanding through
internal growth. The Company's principal sources of liquidity are expected to be
cash flow from operations and borrowings under the New Credit Facility. The New
Credit Facility consists of two facilities: (i) a six-year senior secured term
loan facility in an aggregate principal amount equal to $20.0 million (the "Term
Loan Facility"); and (ii) a six-year revolving credit facility in an aggregate
principal amount not to exceed $30.0 million (the "Revolving Credit Facility").
The Company drew $20.0 million of loans under the Term Loan Facility ("Term
Loans") on the closing date of the New Credit Facility in connection with the
Recapitalization. The Term Loans amortize on a quarterly basis commencing in
September 2000 and are payable in installments under a schedule set forth in the
New Credit Facility. Advances made under the Revolving Credit Facility
("Revolving Loans") are due and payable in full on June 15, 2004. The Term Loans
and the Revolving Loans are subject to mandatory prepayments and reductions in
the event of certain extraordinary transactions or issuances of debt and equity
by the Company or any subsidiary of the Company that guarantees amounts under
the New Credit Facility. Such loans are also required to be prepaid with 75% of
the Excess Cash Flow (as such term is defined in the New Credit Facility) of the
Company or, if the Company's Leverage Ratio (as such term is defined in the New
Credit Facility) is less than 5.25 to 1.0, 50% of such Excess Cash Flow.
Cash used in operating activities during both Interim 2001 and Interim
2000 was $0.7 million. In Interim 2001, the Company's higher net earnings,
decrease in costs and estimated earnings in excess of billings on uncompleted
contracts, and higher depreciation and amortization expense offset by decreases
in accounts payable and accrued liabilities, and increases in accounts
receivables and decreases in billings in excess of costs and estimated earnings
on uncompleted contracts resulted in a small use of cash from operations. In
Interim 2000, the Company's higher net earnings, increase in accounts payable
and accrued liabilities, higher depreciation and amortization expense offset by
increases in accounts receivable resulted in a small use of cash from operations
during that period.
Management estimates that the Company's annual capital expenditures
will be approximately $22.5 million for fiscal 2001, including replacement and
maintenance of equipment, purchases of new equipment, and purchases of real
property.
Cash used in investing activities was $3.6 million in Interim 2001 as
compared to $3.2 million in Interim 2000. Such cash was primarily used for
capital expenditures of $3.6 million in Interim 2001 and $3.4 million in Interim
2000.
Net cash provided by financing activities in Interim 2001 was $5.0
million as compared to $5.8 million in Interim 2000. In Interim 2001, the
Company's financing activities are primarily a result of borrowings and
repayments of long-term debt and a book overdraft. In Interim 2000, the
Company's financing activities are also primarily the result of borrowings and
repayments of long-term debt and a book overdraft.
Historically, the Company has funded its working capital requirements,
capital expenditures and other needs principally from operating cash flows. As a
result of the Transactions, however, the Company has substantial indebtedness
and debt service obligations. As of September 30, 2000, the Company and its
subsidiaries had approximately $126.1 million of total indebtedness outstanding
(including the Notes) and a stockholders' deficit of approximately $60.3
million. As of September 30, 2000, approximately $26.0 million of additional
borrowing was available under the Company's New Credit Facility.
YEAR 2000
As of September 30, 2000, the Company has not experienced any
disruption to operations due to the Y2K issue.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company is exposed to interest rate changes primarily as a result
of its notes payable, including Senior Notes, Term Loan and Revolving Loan used
to maintain liquidity and fund capital expenditures and expansion of the
Company's operations. The Company's interest rate risk management objective is
to limit the impact of interest rate changes on earnings and cash flows and to
lower it's overall borrowing costs. To achieve its objectives the Company
borrows primarily at fixed rates and has the ability to choose interest rates
under the Term Loan and Revolving Loan. The Company does not enter into
derivative or interest rate transactions for speculative purposes.
The table below presents the principal amounts of debt (excluding
capital lease obligations of $353,000), weighted average interest rates, fair
values and other items required by the year of expected maturity to evaluate
the expected cash flows and sensitivity to interest rate changes as of
September 30, 2000.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------------- FAIR
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
------- ------ ------ ------- ------ ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt .............. $1,246 $ 765 $ 276 $ 4 $4 $100,175 $102,470 $101,970(2)
Average interest rate......... 10.70% 10.31% 10.13% 10.00% 10.00% 12.00% 12.00% 12.00%
Variable rate LIBOR debt (1).. $2,250 $5,000 $6,000 $10,000 $0 $ 0 $ 23,250 $ 23,250
Weighted average current
interest rate (1)........... 8.41%
</TABLE>
-----------
(1) The Company has different interest rate options for its variable rate debt.
See Footnote 2 in the condensed consolidated financial statements for
additional information.
(2) The fair value of fixed rate debt was determined based on current rates
offered for debt instruments with similar risks and maturities.
19
<PAGE> 20
PART II - OTHER INFORMATION
Items 1-5 are not applicable
Item 6. Exhibits and Reports on Form 8-K.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Penhall International Corp.
Date: November 8, 2000 /s/ John T. Sawyer
--------------------------------
John T. Sawyer
Chairman of the Board, President
and Chief Executive Officer
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27.1 Financial Data Schedule
