<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-87404
PRIMECO INC.
Texas 74-1951774
------------------------------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16225 Park Ten Place, Suite 200
Houston, Texas 77084
---------------------------------------
(Address of principal executive offices)
(713) 578-5600
---------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports 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 _________
<PAGE> 2
PRIMECO INC.
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 2
Condensed Consolidated Income Statements
For the three months ended March 31, 1995 and 1994 3
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1995 and 1994 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 5. Other Information
Issuance of Senior Subordinated Debt 11
Signatures 12
</TABLE>
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<PAGE> 3
PRIMECO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 1,732 $ 12,090
Accounts receivable, net................................... 29,883 30,175
Inventories................................................ 15,056 13,187
Rental equipment, net...................................... 162,404 153,818
Property, plant and equipment, net......................... 20,760 20,768
Cost in excess of fair value of net assets acquired, net... 117,033 117,713
Other assets............................................... 25,578 21,009
-------- --------
Total assets...................................... $372,446 $368,760
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable........................................... $ 6,224 $ 12,122
Accrued expenses........................................... 21,995 23,465
Debt....................................................... 240,000 225,000
Deferred income taxes...................................... 26,414 27,594
Other liabilities.......................................... 2,120 1,974
Redeemable convertible preferred stock $.01 par value,
$2,000 per share liquidation value, 5,000 shares
authorized and outstanding............................ 9,352 8,975
Common shareholder's equity:
Common stock, $.01 par value, 10,000 shares
authorized and 5,000 shares outstanding............... 1 1
Paid-in capital............................................ 69,497 69,874
Accumulated deficit........................................ (3,157) (245)
-------- --------
Common shareholder's equity........................... 66,341 69,630
-------- --------
Total liabilities and shareholder's equity............ $372,446 $368,760
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 4
PRIMECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Successor Predecessor
For The For The
Three Months Ended Three Months Ended
March 31 March 31
------------------ -----------------
1995 1994
------------------ -----------------
<S> <C> <C>
Revenues:
Rental revenue....................................... $ 30,564 $ 26,140
New equipment sales.................................. 7,942 7,309
Rental equipment sales............................... 6,635 4,607
Parts and merchandise sales.......................... 7,608 6,542
Service and other income............................. 3,140 2,599
------- -------
55,889 47,197
------- -------
Cost of Sales:
Depreciation - rental equipment...................... 7,802 4,112
Cost of new equipment sales.......................... 6,692 6,291
Cost of rental equipment sales, net of
accumulated depreciation........................... 6,558 2,871
Cost of parts and merchandise sales.................. 5,806 4,955
Direct operating expenses............................ 14,187 12,434
------- -------
41,045 30,663
------- -------
Gross profit......................................... 14,844 16,534
------- -------
Selling, general and administrative expenses........... 8,602 7,270
Depreciation and amortization:
Non-compete agreements............................... 375 1,825
Cost in excess of fair value of assets acquired...... 737 813
Property, plant and equipment........................ 574 504
Interest expense, net of interest income............... 6,705 3,096
------- -------
16,993 13,508
------- -------
Income/(Loss) before income taxes and extraordinary
item............................................... (2,149) 3,026
Income tax expense / (benefit)......................... (505) 1,386
------- -------
Net income/(loss) before extraordinary item.......... (1,644) 1,640
------- =======
Extraordinary loss .................................... (1,268)
Net loss............................................... (2,912)
Dividend requirement and accretion on redeemable
preferred stock...................................... 377
-------
Net loss applicable to common shareholder.............. ($3,289)
=======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 5
PRIMCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Successor Predecessor
For The For The
Three Months Ended Three Months Ended
March 31 March 31
------------------ -----------------
1995 1994
------------------ -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................................ $ (2,912) $ 1,640
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization.......................... 9,488 7,254
Deferred income tax provision.......................... (386) 0
Net (gain)/loss on sale of rental equipment and
property, plant and equipment........................ 35 (1,636)
Extraordinary loss ..................................... 1,268 0
Effect of changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.............. 292 (659)
Increase in inventories................................. (1,869) (1,222)
(Increase) decrease in other assets..................... (3,388) 733
Decrease in accounts payable, accrued expense,
and other libilities.................................... (7,222) (1,302)
-------- --------
Net cash (used in) provided by operating activities......... (4,694) 4,808
-------- --------
INVESTING ACTIVITIES:
Additions to rental equipment............................... (23,066) (14,773)
Additions to property, plant and equipment.................. (538) (477)
Payments of acquisition costs............................... (57) 0
Proceeds from sales of rental equipment..................... 6,580 4,687
Proceeds from disposal of property, plant and equipment..... 35 46
-------- --------
Net cash used in investing activities......................... (17,046) (10,517)
-------- --------
FINANCING ACTIVITIES:
Net (Payments)/Proceeds from revolving line of credit....... (10,000) 5,000
Payment of Subordinated Loan Facility....................... (75,000) 0
Proceeds from issuance of Senior Subordinated Debt.......... 100,000 0
Payment of financing costs.................................. (3,618) 0
-------- --------
Net cash provided by financing activities..................... 11,382 5,000
-------- --------
Net decrease in cash and cash equivalents..................... (10,358) (709)
Cash and cash equivalents at begining of period............... 12,090 2,128
-------- --------
Cash and cash equivalents at end of period.................... $ 1,732 $ 1,419
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 6
PRIMECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of Primeco Inc.
("Primeco") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Rule
10-01 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 only normal recurring adjustments) considered
necessary for a fair presentation of Primeco's financial condition, operating
results and cash flows for the interim periods presented have been included.
Operating results and cash flows for the quarter are not necessarily indicative
of the results that may be expected for the year ended December 31, 1995.
These interim financial statements should be read in conjunction with the Form
S-1 dated February 27, 1995, including the financial statements and notes
contained therein, filed with the Securities and Exchange Commission.
2. The Company
The financial statements include the accounts of Primeco, a wholly-owned
subsidiary of Prime Holding, Inc. ("Holdings"). On December 2, 1994, Holdings
acquired Primeco (the "Acquisition") from a subsidiary of Artemis S.A. through
Holdings' subsidiary Prime Acquisition Corp. ("PAC"). Immediately following
the completion of the Acquisition, PAC merged into Primeco, as a result of
which Primeco became a wholly-owned subsidiary of Holdings. For purposes of
identification and description, Primeco is referred to as the "Predecessor" for
the period prior to the Acquisition, the "Successor" for the period subsequent
to the Acquisition and the "Company" for both periods.
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PRIMECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following unaudited pro forma statement of operations presents the
results of operations for the three month period ended March 31, 1994 as though
the controlling ownership of the Predecessor had been acquired on January 1,
1994, and assumes that there were no other changes in the operations of the
Predecessor. The proforma results are not necessarily indicative of the
financial results that might have occurred had the transaction included in the
pro forma statement actually taken place on January 1, 1994, or of future
results of operations (dollars in thousands).
<TABLE>
<CAPTION>
Predecessor
For The Pro Forma for
Three Months the Three
Ended Months Ended
March 31, Pro Forma March 31,
1994 Adjustments 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenue....................................... $ 47,197 $ $ 47,197
-------- --------- --------
Net income/(loss)............................. $ 1,640 (3,402) (1,762)
========
Dividend and accretion on Preferred stock..... (377) (377)
--------- --------
Net loss applicable to common shareholder..... $ (3,779) $ (2,139)
========= ========
</TABLE>
Proforma adjustments follow the same methodology as is
presented in the S-1.
3. Depreciation of Rental Equipment
The Company's cost of rental equipment acquired during the Successor
period, less estimated salvage value, is depreciated over five years using the
straight-line method.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS 121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company will adopt SFAS 121 at the beginning of 1996. It
is anticipated that the impact of adopting this statement will not have a
material effect on the financial statements.
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<PAGE> 8
PRIMECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Issuance of Senior Subordinated Notes
On March 6, 1995 the Successor issued $100,000,000 of 12.75% Senior
Subordinated Notes due March 1, 2005. The Successor received net proceeds of
approximately $96,000,000, which were used to repay $75,000,000 of indebtedness
under the Successor's Subordinated Loan Facility plus accrued interest and
$20,000,000 of indebtedness under the revolving credit portion of the Senior
Credit Facility. The early repayment of the Subordinated Loan Facility
including the write-off of debt issuance costs of $2,062,000 and net of income
tax benefits of $794,000, has been reflected as an extraordinary loss on the
Statement of Operations.
Maturities of debt under the bank credit agreement and the Senior
Subordinated Notes are as follows as of March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Senior Subordinated
March 31, Bank Borrowing Notes
-------- -------------- -------------------
<S> <C> <C>
1995 . . . . . . . . . . . . . . . . . . . $ 1,000
1996 . . . . . . . . . . . . . . . . . . . 1,000
1997 . . . . . . . . . . . . . . . . . . . 1,000
1998 . . . . . . . . . . . . . . . . . . . 12,000
1999 and thereafter . . . . . . . . . . . . 125,000 $100,000
-------- --------
$140,000 $100,000
======== ========
</TABLE>
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<PAGE> 9
PRIMECO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Results of Operations
Total Revenues for the three months ended March 31, 1995 increased 18.4%
to $55.9 million, when compared with the corresponding prior period revenues of
$47.2 million. This increase is primarily a result of higher rental revenues
and an increase in the sale of parts, merchandise and used rental equipment.
Rental Revenue for the three months ended March 31, 1995 increased 16.9%
to $30.6 million, when compared with the corresponding prior period rental
revenues of $26.1 million. This increase is the result of an overall
improvement in economic conditions, an increase in the average amount of
equipment available for rental and higher utilization of rental equipment.
New Equipment Sales for the three months ended March 31, 1995 increased
8.7% to $7.9 million, when compared with the corresponding prior period sales
of $7.3 million. This increase is due primarily to improved general economic
conditions.
Rental Equipment Sales for the three months ended March 31, 1995 increased
44.0% to $6.6 million, when compared with the corresponding prior period sales
of $4.6 million, primarily due to a strong demand for used rental equipment.
Parts and Merchandise Sales for the three months ended March 31, 1995
increased 16.3% to $7.6 million, when compared with the corresponding prior
period sales of $6.5 million. This increase correlates to the higher rental
revenues and sales of new and used rental equipment.
Service and Other Income for the three months ended March 31, 1995
increased 20.8% to $3.1 million when compared with the corresponding prior
period sales of $2.6 million. This increase relates to the increased rental
revenue.
Gross Profit for the three months ended March 31, 1995 decreased 10.2% to
$14.8 million, when compared with the corresponding prior period gross profit
of $16.5 million. The decrease in gross profit is the result of the
Acquisition on December 2, 1994, which increased the cost of sales due to
higher depreciation expense for rental equipment and the cost of rental
equipment sales resulting from the step-up of rental equipment fleet to its
fair market value. Gross profit was also impacted by direct operating expenses
which increased primarily due to higher compensation costs (reflecting an
increased number of employees) and increased maintenance costs necessary to
support the increased size of the rental fleet and to staff new rental
equipment yards. The increase in direct operating expenses also reflects
start-up costs of opening four new rental equipment yards.
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<PAGE> 10
PRIMECO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS - (Continued)
Selling, General and Administrative Expenses for the three months ended
March 31, 1995 increased 18.3% to $8.6 million, when compared with the
corresponding prior period expenses of $7.3 million. The increase reflects
higher sales commissions due to increased rental and sales revenue and the
reduction in the prior year period relating to an insurance settlement and a
franchise tax refund.
Depreciation and Amortization - Amortization of non-compete agreements for
the three months ended March 31, 1995 decreased 79.5% to $0.4 million, when
compared with the corresponding prior period amortization of $1.8 million.
This is primarily from lower amortization expense associated with the
Successor's noncompete agreement compared to the noncompete agreement the
Predecessor had with its former owner.
Interest expense (net of interest income) for the three months ended March
31, 1995 increased 116.6% to $6.7 million, when compared with the corresponding
prior period interest expense of $3.1 million. The increase primarily reflects
higher borrowings outstanding following the Acquisition which closed on
December 2, 1994. The Successor's indebtedness, as of March 31, 1995, totalled
$240 million, compared to $138 million as of March 31, 1994. Interest expense
excludes the write-off of approximately $2 million of debt issuance costs
associated with the Subordinated Loan Facility.
Liquidity and Capital Resources
The Successor used $4.7 million of cash for operating activities during
the period ending March 31, 1995, compared to net cash of $4.8 million for the
period ending March 31, 1994. During the current period, cash was used to fund
the operating loss, increase certain assets and reduce accounts payable and
accrued expenses.
The Company's primary capital requirements were for the purchases of
rental equipment to expand its business and to replace rental equipment sold.
Total purchases of rental equipment were $23.1 million and proceeds from the
sale of used rental equipment totalled $6.6 million for the three month period
ended March 31, 1995.
On March 6, 1995, the Successor issued $100,000,000 of 12.75% Senior
Subordinated Notes due March 1, 2005. The Successor received net proceeds of
approximately $96,000,000, which were used to repay $75,000,000, of
indebtedness under the Successor's Subordinated Loan Facility plus accrued
interest and; $20,000,000 of indebtedness under the revolving credit portion of
the Senior Credit Facility.
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<PAGE> 11
PRIMECO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS - (Continued)
The Successor believes that its cash flows from operating activities,
proceeds from the sale of used rental equipment and its borrowing capacity
under the Successor's revolving credit facility, (as of March 31, 1995 the
Successor has $160,000,000 availability under its $175,000,000 Revolving Credit
Facility) will be sufficient to finance the Successor's operations and
anticipated capital expenditures through 1995.
Other Matters
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS 121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Successor will adopt SFAS 121 at the beginning of 1996. It
is anticipated that the impact of adopting this statement will not have a
material effect on the financial statements.
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<PAGE> 12
PRIMECO INC.
PART II. OTHER INFORMATION
Item 5. Other Information
Issuance of Senior Subordinated Debt
On March 6, 1995 the Successor issued $100,000,000 of 12.75% Senior
Subordinated Notes due March 1, 2005. The Successor received net
proceeds of approximately $96,000,000, which were used to repay
$75,000,000, of indebtedness under the Successor's Subordinated Loan
Facility plus accrued interest and; $20,000,000 of indebtedness under
the revolving credit portion of the Senior Credit Facility.
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<PAGE> 13
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.
PRIMECO INC.
May 11, 1995 /s/ Kevin L. Loughlin
______________________________
Kevin L. Loughlin
(Executive Vice President,
Chief Financial Officer)
/s/ John D. Latimer
______________________________
John D. Latimer
(Controller)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,732
<SECURITIES> 0
<RECEIVABLES> 29,883<F1>
<ALLOWANCES> 0
<INVENTORY> 15,056
<CURRENT-ASSETS> 46,671
<PP&E> 183,164<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 372,446
<CURRENT-LIABILITIES> 28,219
<BONDS> 240,000
<COMMON> 1
9,352
0
<OTHER-SE> 66,340
<TOTAL-LIABILITY-AND-EQUITY> 372,446
<SALES> 22,185
<TOTAL-REVENUES> 55,889
<CGS> 19,056
<TOTAL-COSTS> 41,045
<OTHER-EXPENSES> 16,993
<LOSS-PROVISION> 193
<INTEREST-EXPENSE> 6,705
<INCOME-PRETAX> (2,149)
<INCOME-TAX> (505)
<INCOME-CONTINUING> (1,644)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,268)
<CHANGES> 0
<NET-INCOME> (2,912)<F3>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Net of Allowance for Doubtful Accounts
<F2>Includes Equipment for Rent and in Net of Accumulated Depreciation
<F3>Before Dividend and accretion on redeemable preferred stock
</FN>
</TABLE>
