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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For quarterly period ended SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- ---------------------
Commission File Number: 0-23335
MPW INDUSTRIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1567260
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9711 Lancaster Road, S.E., Hebron, Ohio 43025
(Address of principal executive offices) (Zip code)
(740) 927-8790
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
As of October 31, 2002, 10,939,957 shares of the issuer's common stock, without
par value, were outstanding.
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MPW INDUSTRIAL SERVICES GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002 (unaudited) and June 30, 2002 3
Consolidated Statements of Operations for the three months ended September 30, 2002 and
2001 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended September 30, 2002 and
2001 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
CERTIFICATIONS 14
EXHIBIT INDEX 16
2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30,
------------- --------
2002 2002
-------- --------
(UNAUDITED)
ASSETS
Cash $ 292 $ 164
Accounts receivable, net 16,932 16,390
Inventories 2,464 2,290
Deferred income taxes 1,832 1,912
Prepaid expenses 662 776
Other current assets 325 672
-------- --------
Total current assets 22,507 22,204
-------- --------
Property and equipment, net 37,407 37,672
Goodwill 11,508 11,508
Other intangibles, net 7,399 7,569
Investment in affiliate 7,122 6,792
Other assets 106 144
-------- --------
Total assets $ 86,049 $ 85,889
======== ========
LIABILITIES
Accounts payable $ 4,300 $ 4,910
Accrued compensation and related taxes 1,937 2,665
Current maturities of long-term debt 1,358 1,382
Other accrued liabilities 5,513 5,775
-------- --------
Total current liabilities 13,108 14,732
-------- --------
Long-term debt 27,974 25,972
Deferred income taxes 5,388 5,424
-------- --------
Total liabilities 46,470 46,128
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued
and outstanding -- --
Common stock, no par value; 30,000,000 shares authorized; 10,939,957 shares issued
and outstanding at September 30, 2002 and June 30, 2002 109 109
Additional paid-in capital 41,507 41,507
Accumulated deficit (1,619) (1,416)
Accumulated other comprehensive loss (418) (439)
-------- --------
Total shareholders' equity 39,579 39,761
-------- --------
Total liabilities and shareholders' equity $ 86,049 $ 85,889
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2002 2001
-------- --------
(UNAUDITED)
Revenues $ 24,306 $ 23,673
Cost of services (including depreciation) 19,167 17,385
-------- --------
Gross profit 5,139 6,288
Selling, general and administrative expenses 4,928 4,712
-------- --------
Income from operations 211 1,576
Interest expense, net 501 728
-------- --------
Income (loss) from operations before income taxes
and equity in loss of affiliate (290) 848
Provision (benefit) for income taxes (122) 373
-------- --------
Income (loss) from operations before equity
in loss of affiliate (168) 475
Equity in loss of affiliate, net of tax (35) (52)
-------- --------
Net income (loss) $ (203) $ 423
======== ========
Net income (loss) per share $ (0.02) $ 0.04
======== ========
Net income (loss) per share, assuming dilution $ (0.02) $ 0.04
======== ========
Weighted average shares outstanding 10,940 10,940
Weighted average shares outstanding, assuming dilution 10,940 10,940
The accompanying notes are an integral part of these consolidated financial
statements.
4
MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2002 2001
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (203) $ 423
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 2,239 1,817
Amortization 170 313
Equity in loss of affiliate 35 52
Loss on disposal of assets 1 37
Change in deferred income taxes 24 119
Changes in operating assets and liabilities:
Accounts receivable (542) (1,981)
Inventories (174) (8)
Prepaid expenses and other assets 499 228
Accounts payable (619) 722
Other accrued liabilities (940) (1,501)
-------- --------
Net cash provided by operating activities 490 221
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,982) (1,834)
Investment in affiliate (365) --
Proceeds from the disposal of property and equipment 7 --
-------- --------
Net cash (used in) investing activities (2,340) (1,834)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility 10,649 9,550
Payments on revolving credit facility (8,685) (7,843)
Issuance of notes payable 85 --
Payments on notes payable (71) (61)
-------- --------
Net cash provided by financing activities 1,978 1,646
-------- --------
Increase in cash 128 33
Cash at beginning of year 164 129
-------- --------
Cash at end of year $ 292 $ 162
======== ========
The accompanying notes are an integral part of these consolidated financial
statements
5
MPW INDUSTRIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS MPW Industrial
Services Group, Inc. and its subsidiaries (the "Company") provide
technically-based services, including industrial cleaning and facility
maintenance, industrial container cleaning and industrial process water
purification. Such services are primarily provided at customer facilities. The
Company serves customers in numerous industries including automotive, utility,
chemical, pulp and paper, manufacturing and steel primarily throughout the
United States and Canada.
The accompanying unaudited consolidated financial statements presented
herein have been prepared by the Company and reflect all adjustments of a normal
recurring nature that are, in the opinion of management, necessary for a fair
presentation of financial results for the three months ended September 30, 2002
and 2001, respectively, in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to Article 10 of
Regulation S-X. Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
interim consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 2002 ("Annual
Report"). The results of operations for the three months ended September 30,
2002 and 2001, respectively, are not necessarily indicative of the results for
the full year.
COMPREHENSIVE INCOME (LOSS) Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income, requires that an enterprise
report the change in its equity during the period from non-owner sources as
other comprehensive income (loss). The Company has evaluated the statement and
determined that the only items in addition to net income (loss) that would be
included in comprehensive income (loss) are the foreign currency translation
adjustment and the mark-to-market adjustment on interest rate swaps.
Comprehensive income (loss) for the three months ended September 30, 2002 and
2001 was $(0.2) million and $0.2 million, respectively.
GOODWILL AND OTHER INTANGIBLES, Effective July 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142,
goodwill and intangible assets deemed to have indefinite lives are no longer
amortized but are subject to annual impairment tests. Other intangible assets
with identifiable definite lives continue to be amortized over their useful
lives. The Company is required to complete the initial step of the transitional
impairment test within six months of adopting SFAS No. 142 and is required to
complete the final step of the transitional impairment test by the end of the
current fiscal year. Going forward, these assets will be tested for impairment
on an annual basis or upon the occurrence of certain triggering events as
defined by SFAS No. 142. Any impairment loss resulting from the transitional
impairment test will be recorded retroactively as a cumulative effect of a
change in accounting principle during the quarter ended September 30, 2002. The
Company has not yet determined the impact, if any, of performing the
transitional impairment tests on goodwill and indefinite-lived intangible
assets. Goodwill by segment at September 30, 2002 and June 30, 2002 is as
follows: Industrial Cleaning and Facility Maintenance - $6.0 million; Industrial
Container Cleaning - $3.9 million; and Industrial Process Water Purification -
$1.6 million.
The following table provides a reconciliation of previously reported
net income and the per share amounts to net income adjusted for the exclusion of
goodwill amortization net of the related income tax effect.
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2002 2001
-------- --------
Net income (loss):
As reported $ (203) $ 423
Goodwill amortization -- 110
-------- --------
As adjusted $ (203) $ 533
======== ========
Net income (loss) per share, basic and diluted:
As reported $ (0.02) $ 0.04
Goodwill amortization -- 0.01
-------- --------
As adjusted $ (0.02) $ 0.05
======== ========
6
MPW INDUSTRIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
USE OF ESTIMATES The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the accompanying consolidated financial statements. Actual results
could differ from those estimates.
NOTE 2. OTHER INTANGIBLES, NET
Intangibles are summarized as follows (in thousands):
AS OF SEPTEMBER 30, 2002 AS OF JUNE 30, 2002
------------------------------------------- -------------------------------------------
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------------------- -------------------- -------------------- --------------------
Amortized intangible assets:
Customer lists $ 8,295 $ (1,817) $ 8,295 $ (1,699)
Patents 1,393 (580) 1,393 (545)
Non-compete agreements 410 (302) 410 (285)
-------- -------- -------- --------
$ 10,098 $ (2,699) $ 10,098 $ (2,529)
======== ======== ======== ========
Amortization expense was $0.2 million for the three months ended
September 30, 2002. Estimated amortization expense for the current and next five
fiscal years is as follows:
ESTIMATED
AMORTIZATION
EXPENSE
------------
For the year ended June 30, 2003 $ 680
For the year ended June 30, 2004 605
For the year ended June 30, 2005 542
For the year ended June 30, 2006 534
For the year ended June 30, 2007 534
For the year ended June 30, 2008 534
NOTE 3. INVESTMENT IN AFFILIATE
During the first quarter of fiscal 2002, the Company invested
approximately $365,000 in Pentagon Technologies Group, Inc. ("Pentagon") and has
a remaining investment commitment of approximately $73,000.
Summarized operating data for Pentagon is presented in the following
table (in thousands):
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2002 2001
------- -------
Revenues $ 9,732 $ 9,939
======= =======
Income (loss) from operations $ 74 $ (269)
======= =======
Net loss $ (160) $ (262)
======= =======
Summarized balance sheet data for Pentagon is presented in the
following table (in thousands):
SEPTEMBER 30, JUNE 30,
2002 2002
-------- --------
Current assets $ 10,239 $ 11,636
Noncurrent assets 47,238 46,869
Current liabilities (7,420) (9,078)
Noncurrent liabilities (19,283) (18,374)
-------- --------
Equity $ 30,774 $ 31,053
======== ========
7
MPW INDUSTRIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
NOTE 4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
2002 2001
------- ------
Numerator for basic and diluted net income (loss) per share $ (203) 423
======= ======
Denominator for basic net income (loss) per share-weighted average
common shares 10,940 10,940
Effect of dilutive securities:
Dilutive employee stock options -- --
------- ------
Dilutive potential common shares -- --
Denominator for diluted net income (loss) per share-adjusted weighted
average common shares and assumed conversions 10,940 10,940
======= ======
Net income (loss) per share $ (0.02) $ 0.04
======= ======
Net income (loss) per share, assuming dilution $ (0.02) $ 0.04
======= ======
Options to purchase 1,751,050 shares of common stock at a weighted
average price of $4.71 per share were outstanding during the three months ended
September 30, 2002 but were not included in the computation of diluted earnings
per share because the Company reported a net loss for the three months ended
September 30, 2002 and, therefore, the effect would be antidilutive. Options to
purchase 1,454,050 shares of common stock at a weighted average price of $5.91
per share, respectively, were outstanding during the three months ended
September 30, 2001 but were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common shares, therefore, the effect would be antidilutive.
NOTE 5. SEGMENT REPORTING
Summarized financial information for the Company's reportable segments
is set forth below (in thousands). Corporate expenses are fully allocated to the
segments. Corporate support services that are attributable to the operating
segments are allocated based on each segment's percentage of total revenues.
General corporate expenses are allocated to each segment equally.
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2002 2001
-------- --------
REVENUE
Industrial Cleaning and Facility Maintenance $ 18,947 $ 18,493
Industrial Container Cleaning 2,761 2,574
Industrial Water Process Purification 2,598 2,606
-------- --------
Total $ 24,306 $ 23,673
======== ========
INCOME (LOSS) FROM OPERATIONS
Industrial Cleaning and Facility Maintenance $ (141) $ 914
Industrial Container Cleaning (23) 25
Industrial Water Process Purification 375 637
-------- --------
Total $ 211 $ 1,576
======== ========
Identifiable assets have not changed significantly at September 30,
2002, compared to June 30, 2002.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information, certain statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") are forward-looking. These forward-looking statements are
based on current expectations that are subject to a number of uncertainties and
risks and actual results may differ materially. The uncertainties and risks
include, but are not limited to, competitive and other market factors, customer
purchasing behavior, general economic conditions and other facets of business
operations as well as other risk factors identified in "Investment
Considerations" in the Company's Annual Report. The Company undertakes no
obligation and does not intend to update, revise or otherwise publicly release
the result of any revisions to these forward-looking statements that may be made
to reflect future events or circumstances.
The following information should be read in conjunction with the
Unaudited Consolidated Financial Statements and related notes included elsewhere
in this Form 10-Q. The following information should also be read in conjunction
with the Audited Consolidated Financial Statements and related notes and MD&A
for the year ended June 30, 2002 as contained in the Company's Annual Report.
RESULTS OF OPERATIONS
The following table sets forth revenue and income (loss) from
operations by segment for the three months ended September 30, 2002 and 2001.
Corporate expenses are fully allocated to the segments. Corporate support
services that are attributable to the operating segments are allocated based on
each segment's percentage of total revenues. General corporate expenses are
allocated to each segment equally.
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
2002 2001
----------------------- ----------------------
ACTUAL % OF REVENUE ACTUAL % OF REVENUE
------ ------------ ------ ------------
(UNAUDITED)
Revenue
Industrial Cleaning and Facility Maintenance $ 18,947 78.0 % $ 18,493 78.1 %
Industrial Container Cleaning 2,761 11.3 2,574 10.9
Industrial Water Process Purification 2,598 10.7 2,606 11.0
-------- ----- -------- -----
Total revenue 24,306 100.0 23,673 100.0
Cost of services (including depreciation) 19,167 78.9 17,385 73.4
-------- ----- -------- -----
Gross profit 5,139 21.1 6,288 26.6
Selling, general and administrative expenses 4,928 20.2 4,712 19.9
-------- ----- -------- -----
Income (loss) from operations
Industrial Cleaning and Facility Maintenance (141) (0.7) 914 4.9
Industrial Container Cleaning (23) (0.8) 25 1.0
Industrial Water Process Purification 375 14.4 637 24.4
-------- ----- -------- -----
Total income (loss) from operations $ 211 0.9 % $ 1,576 6.7 %
======== ===== ======== =====
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
Revenues. Revenues increased to $24.3 million in the first quarter of
fiscal 2002 from $23.7 million in the prior year period. The increase was
primarily the result of increased project type work with paper, auto and steel
customers, primarily in the Industrial Cleaning and Facility Maintenance
segment.
Cost of Services. Total cost of services was $19.2 million for the
three months ended September 30, 2002 compared to $17.4 million for the three
months ended September 30, 2001. Cost of services as a percentage of revenue
increased to
9
78.9% in the first quarter of fiscal 2003 from 73.4% in the prior year period.
This increase was primarily driven by additional investments in the business
related to the start up of new branches and additional staffing, heavier
reliance on sub-contract services and additional depreciation expense in the
current year period as a result of a change in estimate related to salvage
value. Effective in the third quarter of fiscal 2002, the Company began
depreciating salvage value for all property and equipment, except for land and
buildings, over the remaining useful life of each respective asset. These items
accounted for approximately 5.0% of the increase in cost of services as a
percentage of revenue.
Selling, General and Administrative Expenses. Total selling, general
and administrative expenses were $4.9 million and $4.7 million for the three
months ended September 30, 2002 and 2001, respectively. As a percentage of
revenue, selling, general and administrative expenses increased to 20.2% in the
first quarter of fiscal 2003 from 19.9% in the prior year period. The increase
was primarily due to the creation of a business development group and an
increase in the sales force of the Industrial Water Process Purification
segment, partially offset by a decrease in amortization expense as a result of
the Company's adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
Income from Operations. Income from operations was $0.2 million for the
three months ended September 30, 2002 compared to $1.6 million for the three
months ended September 30, 2001. As a percentage of revenue, income from
operations decreased to 0.9% in the first quarter of fiscal 2003 from 6.7% in
the prior year period. In addition to the factors discussed above, operating
margins in the Industrial Cleaning and Facility Maintenance segment continue to
be impacted by the highly competitive environment in which the Company operates
as well as the Company's continued commitment to not chase unreasonably priced
business.
Interest Expense. Interest expense decreased to $0.5 million in the
first quarter of fiscal 2003 from $0.7 million in the prior year period. The
decrease was primarily due to lower average outstanding borrowings and lower
interest rates.
Provision (Benefit) for Income Taxes. The provision (benefit) for
income taxes for the three months ended September 30, 2002 and 2001 reflects an
effective rate of 42% and 44%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, the Company had cash of $0.3 million and
working capital of $9.4 million. Cash provided by operating activities was $0.5
million for the three months ended September 30, 2002, while cash used for
investing activities was $2.3 million. The cash used for investing activities
included an additional investment of approximately $365,000 in Pentagon,
Technologies Group, Inc. The Company has a remaining investment commitment to
Pentagon of approximately $73,000.
In June 2002, the Company entered into a new credit agreement with its
principal banks (the "Credit Facility"). The Credit Facility provides the
Company with $35.0 million of revolving credit availability for a three-year
period and a $6.0 million three-year term loan to be repaid in quarterly
installments of $0.3 million. The Credit Facility is subject to two one-year
extensions by the banks at the request of the Company.
The Credit Facility is secured by substantially all of the Company's
assets. Under the terms of the Credit Facility, the entire $41.0 million is
available for general corporate purposes, including working capital, capital
expenditures and acquisitions. Borrowings under the Credit Facility currently
bear interest at the Eurodollar market rate plus 2.25%. The Company also pays a
commitment fee of .45% for unused portions of the Credit Facility. The interest
rate is subject to change based on interest rate formulas tied to the ratio of
consolidated funded debt to earnings before interest, taxes, depreciation and
amortization. Availability of borrowing is subject to the maintenance of a
minimum level of tangible net worth, certain levels of debt service coverage and
maintenance of a specific ratio of funded debt to earnings before interest,
taxes, depreciation and amortization. As of September 30, 2002, outstanding
borrowings under the credit facility were $29.0 million.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC issued Financial Reporting Release No. 60,
Cautionary Advice Regarding Disclosure About Critical Accounting Policies ("FR
60"), suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. FR 60 considers an accounting
policy to be critical if it is important to the Company's financial condition
and results, and requires significant judgment and estimates on the part of
management in its application. The Company's critical accounting policies are
described in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" within the Annual Report on Form 10-K for
the year ended June 30, 2002. In
10
addition, a summary of all of the Company's significant accounting policies,
including critical accounting policies, is included in Note 1 of the Notes to
Consolidated Financial Statements in the Annual Report on Form 10-K for the year
ended June 30, 2002. No changes were made to the Company's critical accounting
policies during the quarter ended September 30, 2002 except as indicated in the
following section.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets
deemed to have indefinite lives are no longer amortized but are subject to
annual impairment tests. Other intangible assets with identifiable definite
lives continue to be amortized over their useful lives. The Company is required
to complete the initial step of the transitional impairment test within six
months of adopting SFAS No. 142 and is required to complete the final step of
the transitional impairment test by the end of the current fiscal year. Going
forward, these assets will be tested for impairment on an annual basis or upon
the occurrence of certain triggering events as defined by SFAS No. 142. Any
impairment loss resulting from the transitional impairment test will be recorded
retroactively as a cumulative effect of a change in accounting principle during
the quarter ended September 30, 2002. Application of the non-amortization
provision of the Statement resulted in an increase in net income of
approximately $0.1 million, or $0.01 per share, for the three months ended
September 30, 2002. The Company has not yet determined the impact, if any, of
performing the transitional impairment tests on goodwill and indefinite lived
intangible assets.
INFLATION
The effects of inflation on the Company's operations were not
significant during the periods presented in the Consolidated Financial
Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company has not
entered into derivative financial instruments for trading purposes. The
Company's primary market risk exposure relates to interest rate risk. The
Company's revolving credit facility, which is subject to a variable rate of
interest based on the Eurodollar rate, had a balance of $29.0 million at
September 30, 2002. The Company has hedged its exposure to changes in interest
rates by fixing its rate of interest on $20.0 million of its variable rate
revolving credit facility through an interest rate swap agreement. Assuming
borrowings at September 30, 2002, a one hundred basis point change in interest
rates would impact interest expense by approximately $0.1 million per year.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company's chief executive officer and chief financial officer,
after evaluating the effectiveness of the Company's "disclosure
controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation
Date") within 90 days before the filing date of this quarterly
report, have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were effective and designed to
ensure that material information relating to the Company and the
Company's consolidated subsidiaries would be made known to them by
others within those entities.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls
subsequent to the Evaluation Date.
11
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal actions arising in the ordinary course of business are
pending against the Company. None of the litigation pending against the
Company, individually or collectively, is expected to have a material
adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(a) Amended and Restated Articles of Incorporation of the Company
effective November 4, 1999 (filed as Exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
3(b) Amended and Restated Code of Regulations of the Company
effective November 4, 1999 (filed as Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference)
99.1 Certification of Principal Executive Officer, Monte R. Black,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer, Richard R.
Kahle, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the period.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
MPW INDUSTRIAL SERVICES GROUP, INC.,
an Ohio corporation
Dated: November 14, 2002 By: /s/ Richard R. Kahle
-------------------------------------
Richard R. Kahle
Vice President, Chief Financial Officer,
Secretary and Treasurer
13
CERTIFICATIONS
I, Monte R. Black, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MPW Industrial
Services Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 14, 2002
/s/ Monte R. Black
--------------------------------------------
Monte R. Black
Chairman of the Board of Directors and Chief
Executive Officer
14
I, Richard R. Kahle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MPW Industrial
Services Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 14, 2002
/s/ Richard R. Kahle
----------------------------------------
Richard R. Kahle
Vice President, Chief Financial Officer,
Secretary and Treasurer
15
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3(a) Amended and Restated Articles of Incorporation of the Company
effective November 4, 1999 (filed as Exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
3(b) Amended and Restated Code of Regulations of the Company
effective November 4, 1999 (filed as Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
99.1 Certification of Principal Executive Officer, Monte R. Black,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer, Richard R. Kahle,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
16