Global Fastener News

Pentacon Delisted by New York Stock Exchange

John Wolz

Pentacon Inc. announced it will close five of its 35 U.S. distribution centers and layoff 14% of its workforce in a $4.8 million cost-cutting plan.
The restructuring plan follows an announcement that Pentacon�s common stock began trading on the OTC Bulletin Board as of November 1, 2001, after being delisted by the New York Stock Exchange.\
Pentacon�s new symbol is PTAC. Pentacon had been traded as JIT on the Big Board.
Pentacon had already eliminated 175 jobs in the past 15 months.
CEO Rob Ruck said the slowing economy and the events of September 11, 2001, �have set into motion a number of events that have caused a precipitous decline in the value of our common stock.�
�We are working to recapitalize Pentacon in order to meet the listing requirements to trade on a national securities exchange in the most expeditious manner possible. In the interim, investors will be able to buy or sell shares of our common stock on the OTC Bulletin Board.�
Pentacon closed at 42� per share on its last day on the NYSE.
Pentacon went public on March 10, 1998, opening at $13 per share. At the end of 1999 the stock was at $3.13, and at the end of 2000 it was 81�. In the past 12 months on the NYSE Pentacon ranged from 15� to $1.50.
Chatsworth, CA-based Pentacon reported third quarter 2001 earnings rose, despite revenue dropping 4.9% from the same period of 2000.
Net income rose from $500,000 in the third quarter last year to $800,000.
Ruck said third quarter results show the company�s strategy �is on track. Our operating improvements clearly indicate that these plans are having a positive impact in a difficult market.�
Ruck said the late third quarter decline in revenue and continuing slower sales in the fourth quarter will result in a lower than expected EBITDA.
�The restructuring is expected to enable the company to deliver 2002 EBITDA which is greater than 2001 EBITDA on a reduced level of revenues,� Ruck said. �In addition, our increased efficiency will provide significant operating leverage as the economy improves.�
�We expect to refinance our senior credit facility to support our restructuring plan,� Ruck said. �Several senior lenders are currently conducting due diligence with a view to providing a replacement facility.�
Pentacon is discussing another $25 million in senior debt with several lenders and is �interested in exploring a restructuring of our senior subordinated notes,� Ruck said.
Pentacon Makes Interest Payment
Pentacon also announced it made the interest payment due on October 1, 2001, on its 12.25% notes due April 1, 2009, and reached an agreement with lenders on additional borrowing availability.
The interest payment averts default.
Pentacon will continue discussions with note holders on financing.
Ruck said he is �pleased that our senior lenders are continuing to show support for the operational restructuring that we are implementing, and I believe this agreement should give our suppliers, customers and employees comfort that Pentacon is moving in the right direction.�
Ruck added that Pentacon reduced its debt $10.6 million during the third quarter and booked over $3.4 million in annualized revenues in new contracts.
On September 28, 2001, Pentacon�s senior lenders advised the company that the banks were establishing a reserve of $4.9 million against the amount it may borrow, �effectively reducing the company�s availability under that facility to meet its working capital and debt servicing requirements.�
On October 1 Pentacon announced it had decided not to make the interest payment on its 12.25% notes on $100 million principal.
In the event of default the $59.8 million in bank loans are secured by inventory, receivables and other assets.
Pentacon now has $3.5 million of additional borrowing capacity after making the $6.1 million interest payment. The agreement with senior lenders accelerates the termination date to March 31, 2002, establishes minimum availability requirements, and increases the interest rate on the base rate loans by 1%.
According to the company statement, �No assurances can be given that the company will be able to obtain replacement financing for the bank credit facility by March 31, 2002, or that the company will be able to satisfy the covenants under the agreement relating to the bank credit facility. Default under the company�s bank credit facility could result in the maturity of substantially all of the company�s indebtedness being accelerated. Further, no assurances can be made that any equity transaction or debt-related financing would not involve substantial dilution to existing shareholders.�
Revenue for the nine months ended September 30, 2001, was down $10 million to $206.1 million.
Pentacon aerospace group�s third quarter revenue increased 11% to $33.3 million, and operating income was up 55% to $4.3 million.
The aerospace group reduced expenses 6%.
The industrial group�s third quarter revenues declined 17% from the same period of 2000. �The decline was caused by the anticipated reduction in manufacturing activity by the company�s customers, primarily in the heavy-duty truck, telecommunications and office furniture markets. The industrial group cut operating expenses 10% from the same period of a year ago, but operating income dropped 39%.
�2001 FastenerNews.com