Pentacon to cut staff and facilities by 14%

Pentacon, Inc., Chatsworth, CA, announced a restructuring plan to reduce annual operating expenses by approximately $4.8 million. The company will close five of 35 distribution facilities throughout the U.S. and reduce its workforce by 14 percent. This workforce reduction is in addition to approximately 175 positions that have been eliminated in the past 15 months. The company also updated its outlook for the fourth quarter and provided preliminary guidance for 2002.


The plan will require a pre-tax restructuring charge of approximately $2.5 million in the fourth quarter of 2001. In addition to the charge, the company estimates that other costs, related to implementing the operational plan and its financial restructuring, will result in added expenses of approximately $1 million in the fourth quarter of 2001 and the first quarter of 2002.


"The objective of our plan is to expeditiously adjust our operating cost structure and improve efficiencies in order to address the slowdown in our business and the economy," said Pentacon CEO Rob Ruck. 'This plan is an important step forward in that regard. We are very focused on improving our operating metrics, capital structure and competitive position, all with the goal of maintaining the highest levels of customer service and market leadership.


"As a result of the decline in revenues late in the third quarter and the continuation of that trend in the fourth quarter, we expect fourth quarter EBITDA of approximately $3.5 million (excluding the restructuring charge and other non-recurring expenses), which will be significantly less than results reported for the third quarter.


"The restructuring is expected to enable the company to deliver 2002 EBITDA which is greater than 2001 EBITDA (excluding the charges taken in the second and fourth quarters of 2001) on a reduced level of revenues. 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. Several senior lenders are currently conducting due diligence with a view to providing a replacement facility. We also are engaged in discussions with several sources to provide approximately $25 million of additional senior debt financing separate from our credit facility. Finally, we are interested in exploring a restructuring of our Senior Subordinated Notes."


The company believes that a successful restructuring will provide increased strategic flexibility, improved financial capability and enhanced operating results. The restructuring, however, is likely to result in substantial dilution to current equity holders.