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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-77728
PENDA CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
FLORIDA 65-0463658
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
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2344 WEST WISCONSIN STREET, PORTAGE, WISCONSIN 53901-0449
(Address of principal executive offices) (Zip Code)
(608) 742-5301
(Registrant's telephone number, including area code)
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 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
--- ---
At May 1, 1997, the Registrant had 996,206 shares of $0.01 par value common
stock outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
MARCH 31, 1997 DECEMBER 31,
(UNAUDITED) 1996
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,634 $ 1,970
Accounts receivable, net 13,209 13,277
Inventories, net 6,664 6,230
Other 943 726
-------- --------
Total current assets 22,450 22,203
Property, plant and equipment, net 21,617 22,332
Intangible assets, net 96,038 96,889
Other 796 605
-------- --------
Total assets $140,901 $142,029
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,298 $ 4,183
Accrued liabilities 999 6,378
Current portion of long-term debt 562 614
-------- --------
Total current liabilities 5,859 11,175
Long-term debt 87,129 83,129
Deferred income taxes 6,239 5,776
-------- --------
Total liabilities 99,227 100,080
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Shareholders' equity:
Common stock 10 10
Additional paid-in capital 24,742 24,851
Retained earnings 16,754 16,920
Foreign currency translation adjustment 168 168
-------- --------
Total shareholders' equity 41,674 41,949
-------- --------
Total liabilities and shareholders' equity $140,901 $142,029
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The accompanying notes are an integral part of the consolidated financial
statements.
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PENDA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------------------------
1997 1996
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(In thousands, except for share and per share data)
<S> <C> <C>
Net sales $19,818 $22,094
Cost of sales 14,399 13,585
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Gross profit 5,419 8,509
Selling, general and administrative expenses 2,605 2,175
Amortization 771 750
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Operating income 2,043 5,584
Interest expense 2,264 2,427
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Income (loss) before provision for income taxes (221) 3,157
Provision for income taxes (55) 1,253
------- -------
Net income (loss) $ (166) $ 1,904
======= =======
Net income (loss) per common share $ (0.17) $ 1.90
======= =======
Weighted average common shares outstanding 997 1,000
======= =======
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The accompanying notes are an integral part of the consolidated financial
statements.
3
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PENDA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
----------------------------
1997 1996
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(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (166) $ 1,904
Non-cash adjustments to net income:
Depreciation 766 756
Amortization 771 750
Deferred income tax provision 468 590
Net change in other assets and liabilities (3,963) (4,088)
------- -------
Net cash used in operating activities (2,124) (88)
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Cash flows from investing activities:
Purchases of property, plant and equipment (51) (611)
Payment of contingent acquisition consideration (2,000) (1,000)
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Net cash used in investing activities (2,051) (1,611)
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Cash flows from financing activities:
Payments on notes payable (52) (125)
Purchase of common stock (109) -
Net changes in revolving credit borrowings 4,000 -
Proceeds from sale lease back of equipment - 1,940
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Net cash provided by financing activities 3,839 1,815
------- -------
Net change in cash (336) 116
Cash and cash equivalents:
Beginning of period 1,970 467
End of period $ 1,634 $ 583
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The accompanying notes are an integral part of the consolidated financial
statements.
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Penda Corporation (the "Company"), manufactures and distributes plastic
bedliners and other accessories for pickup trucks, sport utility vehicles, vans
and heavy duty trucks. The Company also distributes pickup truck accessories
manufactured by other companies. Plastic pickup truck bedliners account for
approximately 80% of the Company's sales. The Company's sales are principally
in the United States and Canada. The Company operates primarily in one
business segment, light truck accessory products.
These financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC")
and, in the opinion of the Company, include all adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial
position, results of operations and cash flows of the Company for the interim
periods presented. These financial statements include the accounts of the
Company's wholly-owned subsidiaries, and all significant intercompany
transactions have been eliminated. Certain information and 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 unaudited consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 as filed with the SEC.
2. INVENTORIES
Inventories at March 31, 1997 consist of the following (in thousands):
Finished goods $4,164
Work in process 393
Raw materials and supplies 2,107
------
$6,664
======
3. FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's non-U.S. subsidiaries are
translated using the current exchange rate for assets and liabilities and the
weighted average exchange rate for the year for income statement items.
Resulting translation adjustments for non-highly inflationary economies are
recorded directly to a separate component of shareholders' equity. Effective
January 1, 1997, Mexico was designated as a highly inflationary economy and all
translation adjustments after that date are included in the current period's
results of operations.
4. COMMON STOCK
In February 1997, pursuant to the termination of employment of a
shareholder of the Company, the Company was required to purchase 1,835 shares
of common stock from the terminated employee at an aggregate cost of $110,000.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included as Item 7 of Part II of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
RESULTS OF OPERATIONS
Net sales decreased $2.3 million or 10.3% as compared to the first quarter
of 1996. The decline is primarily attributable to the termination of
Company's supply contract with Ford Motor Company in February 1997 and lower
aftermarket sales, partially offset by an increase in revenues from other OEM
accounts, including distribution revenues.
Gross profit margin declined from 38.5% in the first quarter of 1996 to
27.3% in 1997. The decline in gross profit margin was due primarily to losses
from the Company's fiberglass manufacturing subsidiary ("Tri-Glas"), lower
absorption of fixed costs due to lower bedliner volumes, along with higher
bedliner raw material costs, and slightly lower average bedliner selling
prices. Tri-Glas's losses resulted from a decline in sales of certain higher
margin non-pickup truck fiberglass accessories and certain inefficiencies, in
part due to a new product line. The Company has taken a preliminary review of
this situation and, among other actions, instituted cost reductions in April
1997.
First quarter 1997 selling, general and administrative expenses increased
$400,000 to $2.6 million. As a percentage of sales, selling, general and
administrative expenses were 13.1% of sales, compared to 9.8% of sales in 1996.
Selling, general and administrative expenses were higher in 1997 due to legal
costs associated with the class action lawsuits discussed in the Company's 1996
Form 10-K, marketing costs associated with launching a new aftermarket bedliner
brand made specifically for Ford dealers and additional sales staff.
Amortization was higher due to contingent acquisition consideration paid
in 1997, while interest expense was lower as average revolving credit
borrowings outstanding were lower.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements for its operations are working
capital (principally accounts receivable and inventories) and capital
expenditures. The Company's capital needs have historically been provided by
internally generated cash and through utilization of the Company's revolving
credit facility. The Company's net working capital at March 31, 1997 was $16.6
million compared to $11.0 million at December 31, 1996
At March 31, 1997, the Company had approximately $87.7 million of
outstanding debt, including $80.0 million of senior notes payable, $4.0 million
under its revolving credit facility and $3.7 million in various notes payable.
During the first quarter of 1997, the Company borrowed $4.0 million under its
revolving credit facility to partially fund the payment of the $2.0 million of
contingent acquisition consideration and $4.3 million of semi-annual interest
payments due on its senior notes payable.
The Company's consolidated debt-to-equity ratio declined slightly to
2.10:1 at March 31, 1997 versus 2.00:1 at December 31, 1996. As of March 31,
1997, the Company had approximately $14.1 million of availability under its
revolving credit facility which is based on eligible collateral.
Management believes that funds generated from operations and funds
available under the revolving credit facility will be sufficient to satisfy the
Company's debt service obligations, working capital requirements and
commitments for capital expenditures through the end of 1997. To the extent
available, excess funds will be used to reduce outstanding borrowings under the
revolving credit facility.
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On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations and to secure
adequate capital resources in the future are dependent on its ability to
generate adequate cash flows. Although the Company expects that its cash flows
from operations, available borrowings and access to the capital markets will be
sufficient to fund future debt service, this will be dependent on its overall
operating performance and be subject to general business, financial and other
factors affecting the Company and the light truck industry, certain of which
are beyond the control of the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
HOUSKA LAWSUIT
On June 5, 1996, a lawsuit, Christopher G. Houska v. Citgo Petroleum
Corporation, et al., was filed against the Company and various other defendants
in the Missouri Circuit Court, Twenty-Second Judicial District, St. Louis,
Missouri. See Part I, Item 3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, incorporated herein by reference. A trial
date has not been set in this case.
PATENT INFRINGEMENT LAWSUITS
On January 2, 1997, The Colonel's, Inc. filed a lawsuit against the
Company in the United States District Court for the Eastern District of
Michigan. See Part 1, Item 3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, incorporated herein by reference. The
Company has filed an answer and a first counterclaim seeking a declaratory
judgment that the patent at issue is invalid and/or not infringed. The Company
believes that the lawsuit is without merit and intends to vigorously defend
against it.
LITIGATION WITH FORMER EXECUTIVE OFFICER
The Company's former President and Chief Executive Officer, Daniel E.
Braun, resigned on March 26, 1997. On April 21,1997, the Company filed a
lawsuit against Mr. Braun in the Circuit Court of the 11th Judicial Circuit for
Dade County, Florida, seeking (i) a declaratory judgment that Mr. Braun is not
entitled to severance pay under his employment agreement with the Company,
which would be payable only in the event Mr. Braun's employment was terminated
by the Company (or deemed to be terminated) without cause, (ii) specific
performance of Mr. Braun's obligation to tender his shares of the Company's
common stock to the Company, for a purchase price equal to the book value of
such shares, pursuant to a Subscription and Shareholders' Agreement among the
Company, Mr. Braun and the Company's other shareholders, and (iii) an
injunction enjoining Mr. Braun from violating covenants contained in his
employment agreement which restrict him from competing with the Company for one
year following his termination, divulging or using any of the Company's
confidential information and soliciting for employment or employing any current
or former employee of the Company for two years following his termination. The
Company's lawsuit also seeks an award of attorneys' fees and costs incurred in
the litigation. A responsive pleading has not yet been filed by Mr. Braun.
On April 25, 1997, Mr. Braun filed a lawsuit against the Company in the
Circuit Court for Columbia County, Wisconsin alleging that the Company (i)
breached its employment agreement with Mr. Braun by failing to pay him
severance pay and (ii) breached the Subscription and Shareholders' Agreement by
failing to repurchase Mr. Braun' a shares for an amount equal to their fair
market value and by failing to pay him the difference between the fair market
value of shares underlying certain stock options and the exercise price of such
stock options. Mr. Braun's complaint asks the court to order the Company to
pay Mr. Braun severance pay, repurchase his shares of Company stock for their
fair market value and pay him for his stock options. The lawsuit also seeks
statutory severance payments for Mr. Braun under Wisconsin law
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and a declaratory judgment that the noncompetition and confidentiality covenants
contained in Mr. Braun's employment agreement are void and unenforceable. The
lawsuit also seeks an award of attorneys' fees and costs incurred in the
litigation. The Company has not yet filed an answer in this litigation,
however, it has denied that it has any liability to Mr. Braun and believes that
the lawsuit is entirely without merit. The Company intends to vigorously pursue
the Florida lawsuit and to vigorously defend the Wisconsin lawsuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
8
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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.
PENDA CORPORATION
Date: May 14, 1997 By: Peter C. Brockway
---------------------------------
Peter C. Brockway, Acting President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 By: Mark J. Blume
---------------------------------
Mark J. Blume, Vice President -
Chief Financial Officer
(Principal Financial and Accounting
Officer)
9
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,634
<SECURITIES> 0
<RECEIVABLES> 13,334
<ALLOWANCES> 125
<INVENTORY> 6,664
<CURRENT-ASSETS> 22,450
<PP&E> 27,924
<DEPRECIATION> 6,307
<TOTAL-ASSETS> 140,901
<CURRENT-LIABILITIES> 5,859
<BONDS> 87,129
0
0
<COMMON> 10
<OTHER-SE> 41,664
<TOTAL-LIABILITY-AND-EQUITY> 140,901
<SALES> 19,818
<TOTAL-REVENUES> 19,818
<CGS> 14,399
<TOTAL-COSTS> 14,399
<OTHER-EXPENSES> 3,326
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 2,264
<INCOME-PRETAX> (221)
<INCOME-TAX> (55)
<INCOME-CONTINUING> (166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (166)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
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