<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, 1996
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>
<S> <C>
Part I. Financial Information Page
Item 1. Financial Statements (unaudited):
Condensed Balance Sheet
March 31, 1996 and December 31, 1995 2
Condensed Income Statement
For the three months ended March 31, 1996 and 1995 3
Condensed Statement of Cash Flows
For the three months ended March 31, 1996 and 1995 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
-1-
<PAGE> 3
PRIMECO INC.
CONDENSED BALANCE SHEET
(In Thousands Except for Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
--------- -----------
<S> <C> <C>
A S S E T S
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 471 $ 174
Accounts receivable, net. . . . . . . . . . . . . . . . 45,709 36,467
Inventories. . . . . . . . . . . . . . . . . . . . . . . 24,409 17,399
Rental equipment, net. . . . . . . . . . . . . . . . . . 243,428 181,798
Property, plant and equipment, net . . . . . . . . . . . 28,354 22,334
Cost in excess of fair value of net assets acquired, net 131,040 115,084
Other assets. . . . . . . . . . . . . . . . . . . . . . 17,388 17,682
--------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . $ 490,799 $ 390,938
========= ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 20,879 $ 14,968
Accrued expenses . . . . . . . . . . . . . . . . . . . . 30,068 27,737
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 326,500 255,000
Deferred income taxes. . . . . . . . . . . . . . . . . . 29,587 21,897
Other liabilities. . . . . . . . . . . . . . . . . . . . 3,052 1,552
Redeemable convertible preferred stock
$.01 par value, $2,000 per share
liquidation value, 5,000 shares
authorized and outstanding. . . . . . . . . . . . . 9,530 9,150
Common shareholder's equity:
Common stock, $.01 par value, 10,000
shares authorized and 5,000 shares
outstanding. . . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . 77,341 68,336
Accumulated deficit. . . . . . . . . . . . . . . . . . . (6,159) (7,703)
--------- -----------
Common shareholder's equity. . . . . . . . . . . . . 71,183 60,634
--------- -----------
Total liabilities and shareholder's equity . . . . . $ 490,799 $ 390,938
========= ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statement.
-2-
<PAGE> 4
PRIMECO INC.
CONDENSED STATEMENT OF OPERATIONS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31
-----------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Revenues:
Rental revenue . . . . . . . . . . . . . . . . . . . . . $ 40,461 $ 30,564
New equipment sales . . . . . . . . . . . . . . . . . . . 10,497 7,942
Rental equipment sales . . . . . . . . . . . . . . . . 6,905 6,635
Parts and merchandise sales. . . . . . . . . . . . . . . 9,126 7,608
Service and other income . . . . . . . . . . . . . . . . 3,941 3,140
---------------- ---------------
70,930 55,889
---------------- ---------------
Cost of Sales:
Depreciation - rental equipment . . . . . . . . . . . . 7,904 7,802
Cost of new equipment sales . . . . . . . . . . . . . . 8,803 6,692
Cost of rental equipment sales, net of
accumulated depreciation . . . . . . . . . . . . . . 6,604 6,558
Cost of parts and merchandise sales. . . . . . . . . . . 6,718 5,806
Direct operating expenses . . . . . . . . . . . . . . . 17,541 14,187
---------------- ---------------
47,570 41,045
---------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 23,360 14,844
---------------- ---------------
Selling, general and administrative expenses 10,815 8,602
Depreciation and amortization:
Noncompete agreements . . . . . . . . . . . . . . . . . 0 375
Cost in excess of fair value of assets acquired 774 737
Property, plant and equipment . . . .. . . . . . . . . . 687 574
Interest expense, net of interest income 8,089 6,705
---------------- ---------------
20,365 16,993
---------------- ---------------
Income(loss) before income taxes and extraordinary
item . . . . . . . . . . . . . . . . . . . . . . . . 2,995 (2,149)
Income tax expense (benefit). . . . . . . . . . . . . . . . . 1,451 (505)
---------------- ---------------
Net income(loss) before extraordinary item 1,544 (1,644)
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . 0 (1,268)
---------------- ---------------
Net income(loss) . . . . . . . . . . . . . . . . . . . . . . 1,544 (2,912)
Dividend requirement and accretion on redeemable
preferred stock. . . . . . . . . . . . . . . . . . . . . 381 377
---------------- ---------------
Net income(loss) applicable to common shareholder. . . . . . $ 1,163 $ (3,289)
================ ===============
</TABLE>
The accompanying notes are an integral part of the condensed financial
statement.
-3-
<PAGE> 5
PRIMECO INC.
CONDENSED STATEMENT OF CASH FLOWS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months End March 31,
----------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
Operating Activities:
Net income(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,544 $ ($2,912)
Adjustments to reconcile net (loss)income to net cash
(used in)provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 9,365 9,488
Deferred income tax provision. . . . . . . . . . . . . . . . 396 (386)
Net (gain)loss on sale of rental equipment and
property, plant and equipment . . . . . . . . . . . . . . (158) 35
Extraordinary loss. . . . . . . . . . . . . . . . . . . . . 0 1,268
Effect of changes in operating assets and liabilities,
net of effects from purchase of AHL Inc.:
Decrease (increase) in accounts receivable . . . . . . . . . (2,511) 292
Increase in inventories. . . . . . . . . . . . . . . . . . . (3,661) (1,869)
(Increase)decrease in other assets . . . . . . . . . . . . . 675 (3,388)
Increase(decrease) in accounts payable, accrued
expense, and other liabilities . . . . . . . . . . . . . 3,893 (7,222)
--------------- -------------
Net cash (used in)provided by operating activities . . . . . 9,543 (4,694)
--------------- -------------
Investing Activities:
Additions to rental equipment . . . . . . . . . . . . . . . . . (29,482) (23,066)
Additions to property, plant and equipment . . . . . . . . . . . (1,071) (538)
Payments of acquisition costs . . . . . . . . . . . . . . . . . 0 (57)
Purchase of AHL Inc. net of cash acquired . . . . . . . . . . . (66,503) 0
Proceeds from sales of rental equipment . . . . . . . . . . . . 6,881 6,580
Proceeds from disposal of property, plant and equipment. . . . . 29 35
--------------- -------------
Net cash used in investing activities. . . . . . . . . . . . . . . . (90,146) (17,046)
--------------- -------------
Financing Activities:
Net (payments)proceeds from revolving line of credit . . . . . . 71,500 (10,000)
Payment of Subordinated Loan Facility . . . . . . . . . . . . . 0 (75,000)
Proceeds from issuance of Senior Subordinated Debt . . . . . . . 0 100,000
Proceeds from Capital Contribution.. . . . . . . . . . . . . . . 9,400 0
Payment of financing costs . . . . . . . . . . . . . . . . . . . 0 (3,618)
--------------- -------------
Net cash provided by financing activities . . . . . . . . . 80,900 11,382
--------------- -------------
Net increase (decrease) in cash and cash equivalents . . . . 297 (10,358)
Cash and cash equivalents at beginning of period . . . . . . 174 12,090
--------------- -------------
Cash and cash equivalents at end of period . . . . . . . . . $ 471 $ 1,732
--------------- -------------
</TABLE>
The accompanying notes are an integral part of the condensed financial
statement.
-4-
<PAGE> 6
PRIMECO INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying 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. During interim periods, Primeco follows the accounting
policies set forth in its Annual Report to Stockholders on Form 10-K filed
with the Securities and Exchange Commission. Users of financial information
produced for interim periods are encouraged to refer to the footnotes
contained in the Annual Report to Stockholders when reviewing interim
financial results. 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, 1996.
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.
On February 26, 1996, Primeco acquired Vibroplant U.S. (also known as
American Hi-Lift Corporation), a company specializing in renting and selling
aerial lift equipment. The purchase price of Vibroplant U.S. Inc. was cash of
approximately $66.5 million. The Acquisition was accounted for under the
purchase method of accounting; accordingly, the total purchase price was
allocated to net assets based on estimated fair values. The results of
Vibroplant U.S., Inc.'s operations have been included in the financial
statements commencing February 26, 1996. In conjunction with this transaction,
certain existing stockholders of Holdings invested in additional common equity
of Holdings. Holdings then made a capital contribution of approximately $9.4
million to Primeco. Primeco used these funds, as well as approximately
$57 million borrowings under its Senior Credit Facility, to fund the
transaction. The purchase price was allocated as follows: Current Assets $14.2
million; Rental Equipment $51.5 million; Other Assets $.5 million; Goodwill
$16.3 million; Current Liabilities $9.4 million; Deferred Tax $6.6 million;
Debt $57.1 million and Additional Paid-in Capital $9.4 million.
-5-
<PAGE> 7
PRIMECO INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
The following unaudited pro forma statements of operations presents the
results of operations for the three month periods ended March 31, 1996 and
1995 as though the controlling ownership of Vibroplant U.S., Inc. ("American
Hi-Lift") had been acquired on January 1, 1996 and 1995, and assumes that
there were no other changes in the operations of Primeco. The pro forma results
are not necessarily indicative of the financial results that might have
occurred had the transaction included in the pro forma statements actually
taken place on January 1, 1996 and 1995, or of future results of operations.
<TABLE>
<CAPTION>
(in thousands)
Pro Forma For Pro Forma For
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $ 79,418 $ 68,860
Net Income(loss) . . . . . . . . . . . . . . . . . 1,764 (2,572)
------------ ------------
Net income(loss) applicable to common shareholder $ 1,383 $ (2,949)
============ ============
</TABLE>
3. Debt
On March 6, 1995 Primeco issued $100,000,000 of 12.75% Senior
Subordinated Notes due March 1, 2005, the proceeds of which were used
primarily to retire the Subordinated Loan Facility acquired at the
Acquisition. The write-off of debt issuance costs related to the Subordinated
Facility of $2,062,000, net of income tax benefits of $794,000, has been
reflected as an extraordinary loss on the Statement of Operations. With the
acquisition of American Hi-Lift in 1996, Primeco increased its outstanding
debt by approximately $57 million. Bank borrowing includes $124 million of Term
Debt and $102.5 million of Revolving Debt.
Maturities of debt under the bank credit agreement and the Senior Subordinated
Notes are as follows as of March 31, 1996 (in thousands):
Senior Subordinated
March 31, Bank Borrowing Notes
-------- -------------- --------------
1996............................. $ 1,000 --
1997............................. 1,000 --
1998............................. 12,000 --
1999............................. 137,500 --
2000 and thereafter.............. 75,000 $100,000
-------- --------
$226,500 $100,000
======== ========
-6-
<PAGE> 8
PRIMECO INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
4. Income Taxes
The differences between the statutory federal income tax rate on income
(loss) before income taxes and extraordinary item, and Primeco's effective
income tax rate relate primarily to the amortization of cost in excess of
fair value acquired. In connection with the Acquisition of Vibroplant U.S.,
Primeco recorded deferred taxes of $6.6 million.
-7-
<PAGE> 9
PRIMECO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Acquisition of American Hi-Lift Corporation
On February 26, 1996, Primeco acquired American Hi-Lift Corporation, a
company specializing in renting and selling aerial lift equipment. The purchase
price of American Hi-Lift Corporation was cash of approximately $66.5 million.
The Acquisition was accounted for under the purchase method of accounting;
accordingly, the financial statements as of the three months period ended March
31, 1996, are not comparable to the prior period (see Footnote 2 of the
financial statements included in this Form 10-Q and Form 8-K filed with the
Securities and Exchange Commission on March 12, 1996 for a complete discussion
of this acquisition).
Results of Operations
The following discussion compares the three months ended March 31, 1996
to the three months ended March 31, 1995.
Total Revenues for the three months ended March 31, 1996 increased 26.9%
to $70.9 million, when compared to revenues of $55.9 million for the same
period for the prior year. This increase is primarily a result of higher rental
revenues and an increase in the sale of new equipment, parts and merchandise
and the American Hi-Lift Acquisition.
Rental Revenue for the three months ended March 31, 1996 increased 32.4%
to $40.5 million, when compared with the corresponding prior period rental
revenues of $30.6 million. This increase is the result of continued
improvement in economic conditions, an increase in the average amount of
equipment available for rental and continued high utilization of rental
equipment, plus the addition of equipment and rental yards associated with the
American Hi-Lift Acquisition.
New Equipment Sales for the three months ended March 31, 1996 increased
32.2% to $10.5 million, when compared with the corresponding prior period
sales of $7.9 million. This increase is due primarily to improved general
economic conditions and increases associated with the American Hi-Lift
Acquisition.
Rental Equipment Sales for the three months ended March 31, 1996
increased 4.1% to $6.9 million, when compared with the corresponding prior
period sales of $6.6 million, primarily due to a continued strong demand for
used rental equipment.
Parts and Merchandise Sales for the three months ended March 31, 1996
increased 20.0% to $9.1 million, when compared with the corresponding prior
period sales of $7.6 million. This increase correlates to the higher rental
revenues and sales of new and used rental equipment.
-8-
<PAGE> 10
PRIMECO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS - (Continued)
Service and Other Income for the three months ended March 31, 1996
increased 25.5% to $3.9 million when compared with the corresponding prior
period sales of $3.1 million. This increase relates to the increased rental
revenue.
Gross Profit for the three months ended March 31, 1996 increased 57.4%
to $23.4 million, when compared with the corresponding prior period gross
profit of $14.8 million. The increase in gross profit is the result of
increased revenues, as previously discussed, with the most significant
component being the $9.9 million increase in rental revenue. Gross Profit was
also impacted by direct operating expenses which increased by $3.4 million,
or 23.6%, to $17.5 million for the prior period expense level of $14.2 million,
however this increase was less than the revenue growth rate.
Selling, General and Administrative Expenses for the three months ended
March 31, 1996 increased 25.7% to $10.8 million, when compared with the
corresponding prior period expenses of $8.6 million. The increase reflects
higher sales commissions due to increased rental and sales revenue and expenses
associated with the inclusion of the American Hi-Lift Acquisition into
Primeco's operations.
Interest expense (net of interest income) for the three months ended
March 31, 1996 increased 20.6% to $8.1 million, when compared with the
corresponding prior period interest expense of $6.7 million. The increase
primarily reflects higher borrowings outstanding. Primeco's indebtedness, as
of March 31, 1996, totaled $326.5 million, compared to $240 million as of
March 31, 1995, primarily due to the American Hi-Lift Acquisition on February
26, 1996 and borrowings to fund capital expenditures.
Liquidity and Capital Resources
Cash provided from operating activities totaled $9.5 million
(net of the effects from the purchase of American Hi-Lift) during the period
ending March 31, 1996, compared to cash used of $4.7 million for the period
ending March 31, 1995. During the current period, cash flow from operations was
higher than net income primarily as a result of adjustments to net income for
non-cash expenses, such as, depreciation and amortization, as well as an
increase in accounts payable, accrued liabilities and other liabilities.
Netted against these positive adjustments were increases in accounts
receivables and payments associated with increased inventories.
Primeco's primary capital requirements were for the $66.5 million
purchase of American Hi-Lift and the purchase of rental equipment to expand
its business and to replace rental equipment sold. The total purchases of
rental equipment were $29.5 million compared to $23.1 million for the
corresponding period for the prior year. Primeco continually evaluates the
equipment in its rental fleet and periodically sells used equipment based on
that evaluation. Proceeds from the sale of used rental equipment totaled $6.9
million for the three month period ended March 31, 1996 compared to $6.6
million for the corresponding prior year period.
-9-
<PAGE> 11
PRIMECO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS - (Continued)
Primeco believes that its cash flows from operating activities, proceeds
from the sale of used rental equipment and its borrowing capacity under the
revolving credit facility, (as of March 31, 1996 Primeco has $65 million
availability under its $175 million Revolving Credit Facility) will be
sufficient to finance the operations and anticipated capital expenditures
through 1996.
-10-
<PAGE> 12
PRIMECO INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(None)
(b) Reports on Form 8-K
On March 12, 1996, Primeco filed a Current Report on Form 8-K,
pursuant to Items 2 and 7 thereof, regarding its acquisition
of the capital stock of Vibroplant U.S., Inc. (also known as
American Hi-Lift). On May 13, 1996, Primeco filed the audited
financial statements and the pro forma financial information
in connection with the American Hi-Lift acquisition required
by Items 7(a) and (b) of Form 8-K under the cover of a
Form 8-K/A.
-11-
<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.
/s/ Brian Fontana
May , 1996
Brian Fontana
(Executive Vice President, Chief
Financial Officer)
/s/ John D. Latimer
John D. Latimer
(Controller)
-12-
<PAGE> 14
EXHIBIT INDEX
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> FEB-25-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> FEB-25-1996
<CASH> 3,693
<SECURITIES> 0
<RECEIVABLES> 7,611<F1>
<ALLOWANCES> 0
<INVENTORY> 3,718
<CURRENT-ASSETS> 16,067
<PP&E> 57,484<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,715
<CURRENT-LIABILITIES> 26,335
<BONDS> 0
<COMMON> 5
0
0
<OTHER-SE> 20,619
<TOTAL-LIABILITY-AND-EQUITY> 73,715
<SALES> 12,408
<TOTAL-REVENUES> 49,612
<CGS> 7,985
<TOTAL-COSTS> 43,704
<OTHER-EXPENSES> 1,292
<LOSS-PROVISION> 463
<INTEREST-EXPENSE> 1,517
<INCOME-PRETAX> 4,616
<INCOME-TAX> 2,119
<INCOME-CONTINUING> 0
<DISCONTINUED> 2,497<F3>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,497
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Net of Allowance for Doubtful Accounts and Includes Income Tax Receivable
<F2>Includes Equipment for Rent and is Net of Accumulated Depreciation
<F3>American Hi-Lift was Acquired as a Purchase Transaction by Primeco Inc. on
February 26, 1996
</FN>
</TABLE>
