FASTENER FIRM AIMS TO CUT DEBT.

Byline: Brent Hopkins Staff Writer

CHATSWORTH - Pentacon Inc., a maker and distributor of nuts and bolts, plans to trim its debt by $65 million through an ambitious stock swap, the company said Tuesday.

The trade, known as a debt-for-equity swap, will reduce Pentacon's debt from $160 million to $95 million.

Chief Executive Officer Rob Ruck said this is essential for the firm's economic well being.

``The balance sheet needed some work. Effectively, what the bondholders have said is that they believe in the strategic vision of the company and the executive team,'' he said of the debt restructuring.

This completes the second phase of an aggressive shake-up at the Chatsworth-based company, which has shut several distribution centers, taken a big inventory write-off and relocated corporate headquarters from Houston to the San Fernando Valley.

At the same time it announced the debt restructuring, Pentacon reported drastically weakened earnings and diminished sales for the fourth quarter.

The company lost $48 million in the final three months of 2001, up from a loss of $1.2 million in the final quarter of 2000. On a per-share basis, the loss ballooned to $2.86 from 7 cents in the same period the year before.

Sales also slipped to $53 million from $67 million.

The company blamed the results on weakness in the aerospace sector and the economic uncertainty following the Sept. 11 terrorist attacks.

The lackluster fourth quarter had a big impact on full-year results, as Pentacon reported $52 million, or $3.10 per share, for all of 2001. This compares with a loss of $885,000, or 5 cents a share, in 2000.

Full-year sales totaled $259 million, down from $283.6 million in 2000.

Last year brought other financial woes for Pentacon, as its stock roller- coastered from a high of $1.49 in June to 15 cents in November. The low share price resulted in the stock being delisted late last year by the New York Stock Exchange. It is now trading over the counter under the ticker symbol PTAC.

The majority of the fourth-quarter loss stems from a write-off of more than $33 million in inventory, much in Pentacon's aerospace segment. As has been the case with most companies connected to that industry, Sept. 11 had a dramatic impact upon finances, Ruck said, prompting the distributor to shed the excess supplies.

Though this pulverized profits, the company was able to meet its reforecasted goals and expects the debt reduction to help position itfor long-term operations.

The debt reduction also frees up $12 million annually that would have gone to interest payments, Ruck said, and operational realignments will save $10 million a year.

Ruck is upbeat about the plan's success, although there is still some uncertainty about the overall economic climate.

``We're slightly ahead of schedule,'' he said. ``Everything is performing exactly how we'd expected. With the operating restructuring, we made sure we had the appropriate footprint and costs in the business to position us to grow in '02 and beyond.''

Though the aerospace industry, half of Pentacon's business, remains turbulent, Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., said the firm could expect business to pick up in coming years.

``The commercial carriers are slowing down because of the overall slowdown and the defense updraft hasn't kicked in yet,'' he said. ``With other manufacturing, signs are starting to look up, though, and firms are building their inventories. Manufacturing is starting to make the turn, so it's the best for the near term, then later in the year, aerospace will kick in.''

That's what Ruck is betting on.

``Aerospace is acting the way it always has,'' he said. ``It's been exacerbated by Sept. 11, but it will continue to come back, because it's such an important part of the economy.''