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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 33-77728
PENDA CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0463658
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2344 W. WISCONSIN STREET
PORTAGE, WISCONSIN
53901-0449
(Address of principal executive offices)
(Zip Code)
(608) 742-5301
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K[ ].
At February 28, 1997, the registrant had 996,206 shares of $0.01 par value
common stock outstanding.
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<TABLE>
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INDEX TO ITEMS
PART I PAGE
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Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-7
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II
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Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . 13-32
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PART III
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Item 10. Directors and Executive Officers of
The Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-34
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-37
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-38
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
PART IV
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Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-40
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 42-53
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PART I
ITEM 1. BUSINESS
General
Penda Corporation (the "Company" or "Penda"), is one of the world's
largest manufacturers and suppliers of pickup truck accessories serving
original equipment manufacturers ("OEMs") and the automotive aftermarket (the
"Aftermarket"). The Company manufacturers thermoformed high-density
polyethylene plastic pickup truck bedliners that are designed to both enhance
the vehicle's appearance and help protect truck beds from damage, thereby
extending the useful life and increasing the resale value of the pickup truck.
The Company also manufactures fiberglass accessory products for pickup trucks,
vans, and Class 8 trucks that are sold by truck dealers, specialty automotive
stores, other retailers and OEMs. Other truck accessories including bed mats,
tailgate liners, hood protectors and cargo liners designed for sport utility
vehicles and other light trucks are also distributed through the Company's OEM
and Aftermarket distribution systems.
The Company was formed by the acquisition of substantially all of the
assets of the Proprietary Products Division of TriEnda Corporation on March 18,
1994. Effective July 14, 1995, the Company's wholly-owned subsidiary, Tri-Glas
Corporation ("Tri-Glas") acquired certain of the assets and assumed certain
liabilities of VMC Fiberglass Products, Inc. ("VMC").
The light truck accessory industry, like the North American automotive
parts industry, generally is composed of two distinct sectors - the original
equipment market and the automotive aftermarket. Management believes that the
OEM segment of the industry is benefited by consumers' general preference to
purchase significant add-ons at the time they purchase their vehicle. Such
purchases allow installation of the accessories prior to delivery and before
damage to the vehicle occurs. It also permits the buyer to finance the
accessories with the purchase of the vehicle. Aftermarket sales are generally
directed to consumers who purchase in the Aftermarket because of the perceived
higher cost of OEM accessories, their desire to engage in "do-it-yourself"
installation, they do not realize the protective value of bedliners until they
see pickup truck bed damage, they decide to "customize" the appearance of their
vehicle after original purchase, or they purchase accessories prior to a
planned sale of a used vehicle.
The Company also distributes pickup truck bedliners in Latin America and
Australia through its subsidiaries Penda SA de C.V. and Penda Australia,
Limited. These sales represent 1.8% of the Company's net sales.
Products and Markets
The Company's major product lines are:
Pickup Truck Bedliners
Pickup truck bedliners are manufactured for OEMs and the Aftermarket.
Aftermarket liners carry the "PENDALINER(R)" brand name, while OEM liners are
stamped with the truck manufacturer's name, such as Ford, Toyota, or Dodge, in
the headwall of the bedliner. The Company manufactures approximately 90
different bedliner models, custom engineered and molded to fit the exact
specifications of the truck bed of most models of domestic and foreign pickup
trucks. The Company's bedliner sales represented 78% and 86% of the Company's
net sales for 1996 and 1995, respectively.
Pickup Truck Caps
Pickup truck caps are manufactured primarily for Aftermarket customers.
Pickup truck caps are fiberglass shells affixed to the truck's bed rail and are
designed to enhance the appearance and aerodynamics of the truck, and provide
for a secure storage area that protects the truck bed's contents from damage
caused by precipitation, sun and wind. The Company's caps are manufactured
from 100% pure polyester reinforced resin and chopped fiberglass, and include a
one piece reinforced fiberglass base rail.
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Pickup Truck Tonneau Covers
Pickup truck tonneau covers are manufactured for both OEM and Aftermarket
customers and are a flat, rigid cover that protects the bed of the pickup
truck. The tonneau cover, like a cap, enhances the appearance and aerodynamics
of the truck and provides for a secure, protected storage area. Unlike a cap,
which extends up to or above the pickup truck's cab, tonneau covers extend only
a few inches above the truck bed. The Company's tonneau covers are also
manufactured from 100% pure reinforced resin and chopped fiberglass for
superior structural strength, and are custom-finished with automotive paint.
Running Boards
Running boards are manufactured primarily for Aftermarket customers.
Running boards are manufactured from 100% pure polyester reinforced resin and
chopped fiberglass and provide pickup trucks, vans and sport utility vehicles
with an original equipment look and ground effect styling. The boards are
typically sold unpainted to a retailer or vehicle converter who paints and
installs the boards for the end customer.
Other Light Truck Accessory Products
Light truck accessories currently being distributed by the Company include
the following:
-Pick-up truck bedmats, which are rubber mats designed to protect the
floor of pickup truck beds.
-The Hide-A-Hook(TM), is a tie-down system that utilizes a patented
design that allows a hook or loop to rotate out of sight when not in use. The
Hide-A-Hook reduces the likelihood of pick-up truck cargo movement in the bed
of the pick-up.
-The Kargo Keeper Tray and Kargo Bay(R) Tray, are versatile,
lightweight trays designed for sport utility vehicles which protect the cargo
area and reduce cargo movement.
-Hood protectors which deflect insects, gravel and other debris away
from the vehicle and protects the hood and windshield of pickup trucks and
sport utility vehicles from nicks and chips.
Van Tops
The Company manufactures fiberglass van top shells which are sold to
custom van converters. These van tops are made from 100% pure polyester
reinforced resin and chopped fiberglass and are designed to exceed all National
Highway Safety Traffic Administration roll-over requirements and Federal Motor
Vehicle Industry Standards for school bus roll-over testing.
Class 8 Trucks
The Company manufactures fiberglass sleeper shells and other truck parts
for certain OEMs of heavy duty trucks.
Significant Customers
Sales to Ford Motor Company and Chrysler Motor Corporation were
approximately 21.2% and 19.5%, respectively, of consolidated net sales in 1996.
No other customer accounts for more than 10% of consolidated net sales and the
Company is not dependent upon a single or a few customers, the loss of which
would have a materially adverse effect on the Company. In February 1997, the
Company's contract to supply bedliners and other accessory products to a
significant customer was terminated. See Part II, Item 7, "Recent Events".
Competition
While the light truck accessories industry is highly fragmented,
competition within specific product categories, such as bedliners, is
frequently concentrated among a small number of suppliers. For example,
management believes that the Company and its principal competitor share
approximately 80% of the total bedliner
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market, with other known competitors accounting for the balance. Competition
in the industry is based primarily on brand name recognition, price, quality
and service. While the Company's average selling price per unit remained flat
in 1996 versus 1995, pricing has become more competitive as the Company's
competition has been generally reducing their prices to obtain market share.
Product Design and Development
Development of product enhancements and new products is managed by design
engineering teams who generally begin the product development process by
identifying marketing needs to be fulfilled and conceptualizing product ideas
through regular meetings among members of the Company's design engineering and
senior management teams. The Company's engineering staff assesses feasibility,
manufacturing cost parameters and lead times and uses a computer assisted
design system to preview aspects of design and performance prior to production.
Backlog Orders
A sales backlog is maintained, however, sales orders are generally filled
in under one month.
Manufacturing
The Company's bedliner manufacturing operations include the in-house
extrusion of plastic resins into high-density polyethylene into heavy-gauge
sheets. The Company then molds the polyethylene sheets into the shape of a
pickup truck bed through the use of the vacuum-forming process. High-quality
material is required to assure the fit and durability of the Company's
bedliners. The Company uses virgin resin pellets mixed with regrind materials
that are gathered by a closed-loop material recovery system. Pellets and
regrind materials are heated and, after melted, are squeezed between a series
of rolls. The resulting sheets of plastic are cooled before thermoforming and
a computer scans the materials for gauge uniformity.
The Company's fiberglass manufacturing operations are done by using
production molds to laminate fiberglass into the various product shells. Only
100% pure polyester reinforced resin and fiberglass materials are used to
provide superior structural strength versus competitors' products who use less
resin and add a filler material. After initial lamination, cardboard honeycomb
material, wood or steel reinforcements are added for structural strength. The
product is then laminated a second time to stiffen and strengthen the
reinforcement material. The edges are trimmed and the product is hand sanded to
a smooth finish. Finally, if applicable, the product is given an automotive
paint finish.
In addition to manufactured items, the Company also purchases certain
accessory products from independent manufacturers. The Company works closely
with each supplier to ensure that the products' quality
meet the Company's and its customers' requirements.
Marketing
As part of the Company's marketing program to assist OEM truck dealers and
Aftermarket distributors, the Company (i) provides dealers and distributors
with product pamphlets, sample materials, sales and installation training
videos, point-of-sale displays and special promotional brochures; (ii) attends
trade shows and places advertisements in key trade journals; (iii) conducts
advertising campaigns in light truck enthusiast magazines and on cable
television networks such as TNN; (iv) sponsors a NASCAR Craftsman Series Truck
racing team; (v) is a Ducks Unlimited Corporate sponsor; (vi) conducts periodic
promotional campaigns to provide additional incentives to dealer and
distributor sales personnel; (vii) maintains a customer service/telemarketing
department to promptly respond to customers' needs and orders; (viii) holds
periodic training sessions and sales meetings, attended by senior management
and manufacturing personnel, in order to better educate its distributors and
dealers with respect to the design, manufacture and quality of the Company's
products; and (ix) conducts ongoing surveys to determine customer satisfaction.
The Company's sales representatives are also extensively trained on quality
issues and the manufacture, distribution, features, benefits and installation
of the Company's products.
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Distribution
Bedliners and Light Truck Accessory Products
The Company's OEM distribution systems provide direct access to over
10,000 light truck dealers located throughout the United States and Canada.
The Company's OEM sales representatives and dedicated telemarketing personnel
maintain regular contact with the Company's dealer customer base and use
computerized on-line inventory management systems to ensure quick, accurate
price quotes and on-time shipments. Once a sale has been completed, the
Company's management information systems are used to provide billing
information to the OEM, which is in turn responsible for actual dealer billing
and collection. This direct OEM billing reduces the credit risks to the
Company that would result from having numerous dealer accounts receivable. The
Company uses a network of 45 distribution locations located throughout the
United States and Canada to receive, store and deliver products to OEM dealers.
The Company's bedliners and other automobile accessory products are
distributed to the Aftermarket through approximately 90 distributors in the
United States and Canada. These distributors are called upon by the Company's
regional sales representatives, each of whom is responsible for assisting the
Company's distributors in increasing sales. Aftermarket bedliners and other
products are stored in the Company's manufacturing and warehouse facilities
pending shipment to the distributor, which is made by common carrier generally
within 48 hours of order receipt. International shipments are made from the
Company's Portage, Wisconsin, Toluca, Mexico and Victoria, Australia facilities
to distributors in South America, Mexico and Australia.
Pickup Truck Caps, Tonneau Covers and Running Boards
These products are sold through the Company's sales representatives and
telemarketing staff. These sales representatives and telemarketers call upon
current and potential customers and are responsible for assisting the Company's
customers in increasing their sales. These products are manufactured at
Tri-Glas's manufacturing facility in Daleville, Alabama. Truck caps and
running boards are distributed predominately to Aftermarket customers in the
south central and south eastern regions of the United States. Tonneau covers
are also manufactured for OEM customers.
Van Tops and Class 8 Truck Parts
After being manufactured at Tri-Glas, van tops are distributed to custom
van converters located throughout the United States. The Class 8 truck parts
are delivered to the OEM's freight carrier who ships them to the OEM's
manufacturing locations. Tri-Glas' staff work closely with these customers to
ensure on-time delivery of these products, which is critical to the customer's
success.
Quality Control
As a result of the Company's commitment to quality, both Penda and
Tri-Glas have received a number of OEM supplier awards. The criteria for these
awards generally include quality, cost control, reliability of delivery, new
technology implementation and overall management excellence. Management
attributes the quality of the Company's products to its strict adherence to
comprehensive statistical process control systems that streamline the Company's
ability to regularly inspect product runs for manufacturing defects, as well as
its implementation of a Total Quality Management ("TQM") philosophy that
emphasizes the prevention, rather than detection, of non-conforming materials.
The Company offers a limited lifetime warranty on all products. Warranty
claims to date have been minimal.
On August 23, 1996, the Company's bedliner manufacturing operation received
"QS9000" certification. This certification is the automotive industry's
quality standard. This standard is identical to ISO9000 except that it
requires that approximately 100 additional quality standards be met. All of
the OEM's have required QS9000 certification as a condition to being an OEM
supplier after 1997. Management believes that only approximately 500 of the
estimated 15,000 automotive suppliers have received QS9000 certification.
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Trademarks and Patents
The Company has registered its "Penda(R)" and "PENDALINER(R)" trademarks
with the United States Patent and Trademark Office and believes that its
trademark position is adequately protected.
In addition, the Company holds several patents covering truck bedliners,
pickup truck caps, pickup truck sleepers, running boards, van tops and other
accessories, none of which expire earlier than 2003. Because the Company
believes that it is an innovator of designs, it is the Company's policy to
apply for design and utility patents on those product designs which management
believes may be of significance to the Company. Management believes that the
Company's success also depends on its skills in marketing, distribution and
manufacturing in addition to the patented features of its bedliners and other
light truck accessory products.
Raw Materials
The primary raw materials used in the manufacture of the Company's
products are polyethylene and polyester plastic resins and chopped fiberglass.
These materials are available from several suppliers. The capacity, supply and
demand for plastic resins and fiberglass are subject to cyclical and other
market factors, but management believes that its current sources and
replacement sources will be available to meet the Company's needs.
Employees
At December 31, 1996, the Company had approximately 600 full-time
personnel. None of the Company's employees are subject to collective
bargaining agreements. The Company has not experienced any work stoppages and
management considers its employee relations to be good.
Environmental Regulation
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes. To the Company's knowledge, the
Company's operations are in substantial compliance with the terms of all
applicable environmental laws and regulations as currently interpreted. In
addition, to the Company's knowledge, there are no existing or potential
environmental claims against the Company, nor has the Company received any
notification or knowledge of any allegation of any actual, or potential
responsibility for, or any inquiry or investigation regarding, any disposal,
release, or threatened release at any location of any hazardous substance
generated or transported by the Company.
ITEM 2. PROPERTIES
Penda owns a 240,000 square-foot manufacturing, warehouse and corporate
administrative office facility located on 19 acres in Portage, Wisconsin.
Tri-Glas owns a 14 acre manufacturing facility in Daleville, Alabama. Tri-Glas
leases its administrative offices and maintenance facilities which are located
across the street from the manufacturing facility. Management believes that
these facilities are sufficient to support future expansion that may be
required to meet increases in sales volume for the near term.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against claims in an amount which it believes to be
adequate. The Company believes that it is not presently a party to any
litigation, the outcome of which would have a material adverse effect on its
financial condition or results of operations. The Company is a party to the
following non-ordinary course legal proceedings:
Houska Lawsuit
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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. The complaint alleges that the plaintiff suffered personal injuries
from a fire which occurred while he was fueling a portable kerosene container in
the bed of his pickup truck. The plaintiff has alleged that the Company's
predecessor, TriEnda Corporation, designed, manufactured and sold the bedliner
which was installed in his truck at the time of the fire, and that the Company
is liable as the successor of TriEnda. The complaint alleges that both the
plaintiff's truck and the bedliner were dangerous and detective and that the
plaintiffs injuries were the direct result of such dangerous and defective
condition. The complaint alleges that the Company is liable to the plaintiff
under the legal theories of strict product liability, negligence and breach of
warranty. The complaint seeks compensatory damages in an unspecified amount, an
unspecified amount of punitive damages, attorneys' fees and costs and
pre-judgment interest. The case is in the early stages of discovery.
The Company believes that it has adequate insurance coverage for any
potential adverse judgment in the Houska lawsuit and the Company's liability
and excess insurer has assumed the defense of the lawsuit without reservation
of rights. Although insurance proceeds would not be available to satisfy a
judgment on the punitive damages claim, the Company believes that the punitive
damages claim is without merit and intends to vigorously defend against such
claim.
The Company has made a demand against TriEnda Corporation for
indemnification in connection with the Houska lawsuit. TriEnda has responded
to this demand, denying liability. The Company's insurer is continuing to
pursue this demand on behalf of the Company.
Class Action Lawsuits
In the fourth quarter of 1996 and the first quarter of 1997, seven class
action lawsuits were filed in state and federal courts against the Company and
various other manufacturers of pickup truck bedliners. The cases are Jude
Vanderhoff, et al. v. Durakon Industries, Inc., et al., filed in the Circuit
Court of Jefferson County, Kentucky on February 6, 1997; James S. Sherman et
al. v. Durakon Industries, Inc., et al., filed in the Common Pleas Court of
Montgomery County, Ohio on January 23, 1997; Tennyson Smith, et al. v. Durakon
Industries, Inc., et al., filed in the Circuit Court of Greene County, Alabama
on November 7, 1997; Mary Ann Boyer, et al. v. Durakon Industries, Inc., et
al., filed in the United States District Court for the Southern District of
Florida on January 9, 1997; Susan Stricklett, et al. v. Durakon Industries,
Inc., et al., filed in Champaign County, Illinois on November 7, 1997; Joseph
Jetton, et al. v. Durakon Industries, Inc., et al., filed in the United States
District Court for the Eastern District of Missouri, Eastern Division on
November 8, 1996; and Jimmy E. Brown, et al. v. Durakon Industries, Inc.. et
al., filed in the United States District Court for the Southern District of
Mississippi, Hattiesburg Division on November 8, 1996.
The foregoing cases are purportedly brought on behalf of all owners of
pickup truck bedliners made by the defendant manufacturers. None of these
cases seek damages for personal injuries. The complaints allege that the
bedliners manufactured by the defendants are defective and unreasonably
dangerous because the bedliners supposedly prevent the discharge of static
electricity which can accumulate on or in portable fuel containers and thereby
create the potential for an explosion. The complaints allege that the
defendants were aware of the alleged danger but failed to provide a proper
warning. The complaints filed in these cases, while not identical, raise
substantially similar legal theories, primarily claims of breach of warranty,
fraudulent misrepresentation, negligent misrepresentation, negligence and
strict liability in tort. The plaintiffs seek damages in unspecified amounts
and equitable relief, including a recall and replacement of all bedliners, or a
refund, and notification to all bedliner owners of the purported danger. The
complaints either request punitive damages or reserve the right to seek
punitive damages at a later date. The complaints all seek an award of
attorney's fees and costs.
On March 21, 1997, the United States District Court for the Southern
District of Mississippi, Hattiesburg Division, entered an Order Conditionally
Certifying Class for Settlement Purposes, Designating Class Counsel, Staying
Discovery and Pending Motions and Issuing Injunction in the Jimmy E. Brown case
(the "Order"). Pursuant to the Order, the court has (i) conditionally
certified the class for settlement purposes only and has stayed all pending
discovery and motions in the Jimmy E. Brown case, (ii) enjoined all members of
the class and their attorneys from filing, commencing, continuing or otherwise
participating in any lawsuit based on or relating to the facts and
circumstances underlying the claims and causes of action set forth in the Jimmy
E. Brown lawsuit. In
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connection with the entry of the Order, the Vanderhoff, Crabtree, Sherman and
Jon Brown cases have been dismissed without prejudice and the parties to the
Smith, Boyer, Stricklett and Jetton cases have agreed to jointly
request the courts in those cases to stay all discovery, except for certain
limited discovery activities, and motion practice pending the completion of
settlement negotiations among the parties.
The Company believes the claims in these lawsuits are without merit and it
has specifically denied any fault or omission or any liability or violation of
law in connection with the claims asserted therein. However, due to the
uncertainties of litigation, especially where jury trials are involved, and the
cost and distraction of defending multiple lawsuits in various jurisdictions,
the Company has determined that it would be in its best interest to explore the
possibility of settlement. The court's reason for entering the Order was for
the limited purpose of allowing the parties to enter into settlement
negotiations. The Order will remain effective for 90 days from the date it was
entered or for such longer time as the parties, in the discretion of the court,
are engaged in meaningful settlement discussions. If a settlement is reached,
it will be subject to approval by the court. Any defendant may withdraw from
the conditional certification after obtaining leave of the court, which may be
granted without a showing of cause. The withdrawal of any defendant will not
affect the conditional certification with respect to the remaining parties.
Settlement discussions are in the preliminary stages. There can be no
assurance that a settlement will be reached. In the event that settlement
discussions should terminate, the Company intends to vigorously defend these
lawsuits.
Patent Infringement Lawsuits
On October 16, 1996, the Company filed a lawsuit in the United States
District Court for the Western District of Wisconsin against The Colonel's,
Inc. and The Colonel's International, Inc. (collectively, "The Colonel's"),
alleging that the defendants have infringed a United States patent owned by the
Company relating to its under-the-rail bedliner product. The defendants filed
an answer and a first counterclaim seeking a declaratory judgment that the
patent at issue is invalid and/or not infringed, and a second counterclaim
alleging that the Company's patent infringement claim against The Colonel's
constituted unfair competition by the Company under the laws of the State of
Wisconsin. The Company has answered the defendant's' counterclaims denying any
liability to The Colonel's. The Company believes that the defendants'
counterclaims are without merit and intends to vigorously defend against them.
Discovery has commenced in this case and a trial has been set for November 10,
1997.
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 alleging that the Company has infringed a United States patent owned
by The Colonel's relating to a bedliner for the 1997 Ford F150 pickup truck.
The complaint seeks injunctive relief, treble damages, costs and attorney's
fees. The Company intends to file 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The selected income statement data for the years ended December 31, 1996
and 1995 and for the period from March 18, 1994 through December 31, 1994, and
the selected balance sheet data as of December 31, 1996 and 1995 were derived
from the audited consolidated financial statements of the Company. The
selected historical income statement data for the period from January 1, 1994
through March 17, 1994 and for the years ended December 31, 1993, and 1992, and
the selected historical balance sheet data as of March 17, 1994 and December
31, 1993 and 1992, were derived from the audited financial statements of the
Company's predecessor - the Proprietary Products Division of TriEnda
Corporation ("Division"). The following data should be read in conjunction
with the audited financial statements and related notes thereto of the Company
and the Division, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and other financial information included elsewhere
or incorporated by reference herein.
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INCOME STATEMENT DATA
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(In thousands except per share and ratio data)
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Company Division
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Year Ended Year Ended 3/18/94 - 1/1/94 - Year Year
12/31/96 12/31/95 12/31/94 3/17/94 Ended 12/31/93 Ended 12/31/92
---------------- ----------------- ----------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 89,353 $ 74,822 $ 56,160 $12,434 $52,438 $45,743
Income Before
Income Taxes (1) 11,969 6,923 9,585 2,857 13,169 12,409
Net Income (1) 7,214 3,848 5,858 N/A N/A N/A
Net Income Per
Common Share $ 7.22 $ 3.85 $ 5.86 N/A N/A N/A
Ratio of Earnings
to Fixed
Charges (2) 2.3 1.7 2.4 21.6 11.0 12.4
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
--------------------------------------------------------------------------------------------------------
(in thousands)
Company Division
------------------------------------------------------ ------------------------------------------------
December 31, March 17, December 31, December 31,
------------------------------------------------------
1996 1995 1994 1994 1993 1992
---------------- ----------------- ----------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets $142,029 $139,137 $122,431 $18,881 $17,649 $16,090
Long-term Debt 83,743 92,140 80,000 - - -
</TABLE>
(1) The Company's predecessor was a division of an S corporation for federal and
state income tax purposes. As a result, historical earnings prior to March
18, 1994 were taxed directly to the shareholders of the S corporation rather
than to the predecessor division.
(2) The ratio of earnings to fixed charges is computed as income before taxes
and interest expense, divided by interest expense.
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion which relates to the three years ended December
31, 1996 should be read in conjunction with the selected financial data, the
Company's consolidated financial statements and the Division's financial
statements and the related notes of each. For the purposes of these
comparisons, the amounts for the year ended December 31, 1994 include the
results of the Company for the period from March 18, 1994 to December 31, 1994,
plus the results of the Division for the period January 1, 1994 to March 17,
1994:
Comparison of Years Ended December 31, 1995 and 1996
Net sales increased $14.5 million or 19.4%. Contributing to the increase
in sales was a full year of Tri-Glas' results (acquired July 14, 1995) which
represented $8.0 million of the increase. Bedliner sales increased 9.6% due to
a 3% increase in market penetration, higher OEM bedliner sales relating to new
pick-up truck introductions by and a 0.3% increase in average selling prices.
Cost of sales increased $8.8 million or 18.5% and gross profit increased
$5.7 million or 21.0%. Gross profit margin was 36.8% in 1996 versus 36.3% in
1995. Raw material costs in bedliner manufacturing were lower due to favorable
resin prices in the first two quarters of 1996 and the Company's continuous
effort to achieve manufacturing efficiencies. Offsetting these gains in gross
profit margin is the impact of a full year of Tri-Glas sales. Tri-Glas' gross
profit is significantly less than Penda's as the fiberglass truck accessories
market is very price sensitive.
Selling, general and administrative expenses were 9.2% of sales in 1996
versus 10.4% of sales in 1995. This decrease was due to general and
administrative costs being flat despite the 19.4% increase in sales. Selling
costs increased due to additional sales associates being added in 1996,
although as a percentage of sales, selling expenses declined from 4.8 to 4.6%.
Interest expense was lower in 1996 as average debt outstanding was
slightly lower.
On June 3, 1996, Tri-Glas suffered a fire in one of its two main
production buildings. The building, along with equipment and inventory inside
the building, was completely destroyed. During 1996, the company received
insurance proceeds in excess of the net book value of the assets lost in the
fire of approximately $464,000. These insurance proceeds were used by the
Company to replace the building and equipment lost in the fire.
Comparison of Years Ended December 31, 1994 and 1995
Net sales increased $6.2 million, or 9.1% from 1994 to 1995. The Tri-Glas
acquisition contributed $5.5 million of new sales in 1995 subsequent to the
acquisition on July 14, 1995. Bedliner sales decreased 0.7% due to lower
pickup truck sales in 1995.
Cost of sales increased $8.1 million, or 20.6% and gross profit decreased
$1.9 million or 6.6% from 1995 to 1994. Raw material costs in both the
bedliner and fiberglass groups were higher in 1995 versus 1994 due to temporary
shortages of available materials. At the same time, extremely competitive
pricing pressure in the bedliner market, forced margins down. In addition,
Tri-Glas' gross profit is significantly less than Penda's as the fiberglass
truck accessories business is very competitive.
Selling expenses decreased $0.3 million, or 7.4% as
advertising/promotional campaigns were reduced. General and administrative
expenses increased $0.5 million, or 14.1% due to increased staffing in the
first half of 1995.
Interest expense was higher as the Company borrowed $7.5 million under its
bank revolving credit facility in July 1995 to finance the Tri-Glas
acquisition.
Also during 1995, the Company's start-up operation in Mexico incurred a
loss of approximately $0.9 million. This loss occurred primarily due to
non-performance by the lessor under a building lease agreement. As a result,
the Company's start-up production schedule had to be delayed. The Company has
since moved to a new
11
<PAGE> 12
location where it is currently distributing products only and is reviewing the
potential for manufacturing in the future.
Liquidity and Capital Resources
The Company's primary capital requirements for its operations are for
working capital (principally inventory and accounts receivable) and capital
expenditures. In addition, the Company has semi-annual interest (only)
payments due on its unsecured 10.75% Senior Notes ("Notes"). These interest
payments may be funded through operating cash flows, borrowings or a
combination of both.
The Company's current assets exceeded current liabilities by $ 11.0
million and $8.1 million at December 31, 1996 and 1995, respectively. Net cash
provided by operating activities for the year ended December 31, 1996 was
approximately $12.3 million compared to $5.8 million for the year ended
December 31, 1995.
The Company's revolving credit facility ("Credit Facility") with a
commercial lender provides for borrowings of up to $19.5 million, consisting of
(i) a $13.0 million revolving credit facility with available borrowings based
on the Company's eligible accounts receivable and inventory, and (ii) an
over-advance facility of $6.5 million, which will decrease by $1.5 million on
each July 14 of 1997 and 1998. Borrowings under the Credit Facility (i) bear
interest at either 2.5% above the lender's eurodollar rate or 1.0% above the
lender's base rate, (ii) are secured by a first priority lien on all inventory,
accounts receivable and other current assets of the Company, and (iii) mature
on March 31, 1999. During 1996, the Company repaid the entire balance
outstanding ($9.9 million) under the Credit Facility. With no borrowings
outstanding at December 31, 1996, and considering the Company's eligible
borrowing base at that date, $17.8 million was available under the Credit
Facility.
Pursuant to the Credit Facility, the Company will pay an unused facility
fee equal to .5% per annum on the average daily amount of the unused portion of
the facility, payable quarterly, during the revolving period. The Credit
Facility also contains (i) customary financial covenants, (ii) limitations on
indebtedness, liabilities and liens, (iii) limitations on distributions,
dividends, redemptions, prepayments of other indebtedness and other restricted
payments, (iv) limitations on mergers and purchases and sales of assets, (v)
limitations on payments to and transactions with affiliates, (vi) limitations
on loans, investments and guarantees, (vii) prohibitions of any "Change of
Control" or change in the Company's business, and (viii) limitations on
amendments to the Company's articles of incorporation, bylaws and Notes.
The Company's anticipated capital needs through 1997 consist primarily of
(i) interest payments due on the Company's borrowings, (ii) financing any
required growth in working capital, particularly inventories and accounts
receivable, and (iii) financing certain capital expenditures. Aggregate
capital expenditures are budgeted at approximately $4.0 million in 1997 and
will consist primarily of production machinery, equipment and tooling. To the
extent available, excess funds will be used to reduce outstanding borrowings
under the Credit Facility. Management believes that funds generated from
operations and funds available under the Credit Facility will be sufficient to
satisfy the Company's debt service obligations, working capital requirements
and commitments for capital expenditures through at least 1997, but that any
significant acquisitions by the Company would generally require additional
financing. There can be no assurance that such acquisition financing will be
available to the Company on satisfactory terms.
Recent Events
Effective in February 1997, the Company's contract to supply bedliners and
other accessory products to Ford Motor Company was terminated. The Company's
sales to Ford Motor Company represented 21%, 17% and 19% of net sales for the
years ended December 31, 1996 and 1995, and the period from March 18, 1994 to
December 31, 1994, respectively. Management believes that the termination of
this contract will have an adverse effect on the Company's operating results in
the near term. However, because of the reliability of the Company's products
and the strength of the Company's market share, management believes the Company
can obtain additional customers, offsetting the impact of the contract
termination in the future.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PENDA CORPORATION: Page
<S> <C>
Report of Independent Accountants ............................................................. 14
Consolidated Balance Sheets as of December 31, 1996 and 1995 .................................. 15
Consolidated Statements of Income for the years ended
December 31, 1996 and 1995 and for the period from
March 18, 1994 through December 31, 1994 ....................................................... 16
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1996 and 1995 and for the period from
March 18, 1994 through December 31, 1994........................................................ 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and for the period from
March 18, 1994 through December 31, 1994 ...................................................... 18
Notes to Consolidated Financial Statements ..................................................... 19-29
FINANCIAL STATEMENT SCHEDULES:
Report of Independent Accountants .............................................................. 31
Schedule II - Valuation and Qualifying Accounts ................................................ 32
</TABLE>
13
<PAGE> 14
Report of Independent Accountants
To the Shareholders and Board of Directors
Penda Corporation and Subsidiaries
Portage, Wisconsin
We have audited the accompanying consolidated balance sheets of Penda
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 1996 and 1995 and the period from March
18, 1994 through December 31, 1994. These financial statements are the
responsibility of Penda Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Penda
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 and the period from March 18, 1994 through
December 31, 1994, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
February 24, 1997
14
<PAGE> 15
Penda Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995 LIABILITIES AND SHAREHOLDERS EQUITY 1996 1995
---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current assets: Current liabilities:
Cash and cash equivalents $ 1,969,818 $ 466,803 Accounts payable $ 4,183,314 $ 3,440,238
Accounts receivable, less
allowance for doubtful Accrued interest 2,951,937 3,037,238
accounts of $75,000 in 1996 Acquisition earnout payable 2,000,000 1,000,000
and $121,000 in 1995 13,276,729 8,514,229 Employee compensation 1,316,542 996,670
Inventories 6,230,215 6,174,949 Current portion of long-term debt 613,600 125,000
Refundable income taxes 11,000 843,000 Other 109,582 192,800
-------- ---------
Deferred income taxes 328,000 359,000
Other 387,144 545,724 Total current liabilities 11,174,975 8,792,048
---------- ----------
Total current assets 22,202,906 16,903,705 Long-term debt, less 92,015,000
current portion 83,129,176
Deferred income taxes 5,776,000 3,591,000
--------- ---------
Property, plant and equipment: Total liabilities 100,080,151 104,398,048
Land and improvements 731,782 620,881
Buildings and improvements 6,958,971 6,851,572 Shareholders' equity:
Machinery and equipment 17,920,550 17,035,008 Common stock, $.01 par value,
Furniture and fixtures 1,337,695 1,021,902 5,000,000 shares authorized,
Construction in progress 924,404 771,818 998,042 and 999,708 shares
----------- ------------ issued and outstanding,
27,873,402 26,301,181 respectively 9,980 9,997
Additional paid-in-capital 24,851,294 24,969,556
Less accumulated depreciation 5,541,305 2,613,444 Retained earnings 16,920,212 9,706,033
----------- ------------
22,332,097 23,687,737 Foreign currency translation 167,819 53,283
adjustment ----------- ---------
Intangible assets, net 96,888,690 97,884,749 Total shareholders' equity 41,949,305 34,738,869
----------- ---------
Other 605,763 660,726
----------- ------------
Total liabilities and
Total assets $ 142,029,456 $139,136,917 shareholders' equity $142,029,456 $139,136,917
============= ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
15
<PAGE> 16
Penda Corporation and Subsidiaries
Consolidated Statements of Income
for the years ended December 31, 1996 and 1995 and
for the period from March 18, 1994 through December 31, 1994
<TABLE>
<CAPTION>
March 18, 1994 -
1996 1995 December 31, 1994
----------- ----------- ------------------
<S> <C> <C> <C>
Net Sales $89,353,487 $74,821,818 $56,160,153
Cost of sales 56,515,239 47,675,318 31,982,406
----------- ----------- -----------
Gross profit 32,838,248 27,146,500 24,177,747
Selling expenses 4,117,664 3,536,641 2,862,519
General and administrative expenses 4,139,091 4,203,890 2,727,209
Amortization 3,011,948 2,803,061 1,861,479
----------- ---------- -----------
Operating income 21,569,545 16,602,908 16,726,540
Interest expense 9,516,862 9,606,971 6,866,531
Other expense, net 83,504 72,997 274,916
----------- ---------- -----------
Income before income taxes 11,969,179 6,922,940 9,585,093
Income taxes 4,755,000 3,075,000 3,727,000
----------- ----------- -----------
Net income $ 7,214,179 $ 3,847,940 $ 5,858,093
=========== =========== ===========
Net income per share $ 7.22 $ 3.85 $ 5.86
=========== =========== ===========
Weighted average common shares outstanding 998,799 999,875 1,000,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
16
<PAGE> 17
Penda Corporation and Subsidiaries
Consolidate Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996 and 1995 and
for the period from March 18, 1994 through December 31, 1994
<TABLE>
<CAPTION>
Additional Foreign Currency
Common Stock Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment Total
------------------------- -------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization to
acquire net business assets 1,000,000 $10,000 $ 24,990,000 $ - $ - $ 25,000,000
Net income - - - 5,858,093 - 5,858,093
--------- ------- ----------- --------- ---------- ----------
Balances at December 31. 1994 1,000,000 10,000 24,990,000 5,858,093 - 30,858,093
Purchase and retirement of
common stock (292) (3) (20,444) - - (20,447)
Foreign currency translation
adjustment - - - - 53,283 53,283
Net income - - - 3,847,940 - 3,847,940
--------- ------ ---------- --------- -------- ----------
Balances at December 31, 1995 999,708 9,997 24,969,556 9,706,033 53,283 34,738,869
Purchase and retirement of
common stock (1,666) (17) (118,262) - - (118,279)
Foreign currency translation
adjustment - - - - 114,536 114,536
Net income - - - 7,214,179 - 7,214,179
--------- ------ ---------- ---------- ------- ----------
Balances at December 31, 1996 998,042 $9,980 $ 24,851,294 $ 16,920,212 $ 167,819 $ 41,949,305
========= ====== ========== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 18
Penda Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1996 and 1995 and
for the period from March 18, 1994 through December 31, 1994
<TABLE>
<CAPTION>
March 18, 1994 -
1996 1995 December 31, 1994
--------- ---------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,214,179 $ 3,847,940 $ 5,858,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,059,949 1,880,900 962,131
Amortization 3,011,948 2,803,061 1,861,479
(Gain) loss on sale of assets 80,599 (204,485) -
Gain on insurance claims received (485,853) - -
Assets written-off - 200,538 -
Deferred income taxes 2,216,000 2,048,000 1,184,000
Provision for doubtful accounts (46,421) (13,238) 134,250
Changes in assets and liabilities, net of effects from
purchase of business assets:
Accounts receivable (4,716,079) (686,097) (230,670)
Inventories (55,266) (1,268,290) (1,798,096)
Refundable income taxes 832,000 (843,000) -
Accounts payable 743,076 (1,912,507) 1,421,777
Accrued Interest (85,403) 166,866 2,870,474
Other 548,844 (213,876) 126,108
-------------- ------------ --------------
Net cash provided by operating activities 12,317,573 5,805,812 12,389,546
-------------- ------------ --------------
Cash flows from investing activities:
Purchase of business assets (1,000,000) (8,353,261) (110,795,931)
Purchases of property, plant and equipment (2,056,300) (7,753,808) (6,604,587)
Proceeds from sale of property, plant and equipment 200,892 946,350 131,218
Proceeds from insurance claims 556,353 - -
Purchase of patent - (178,089) -
-------------- ------------- -------------
Net cash used in investing activities (2,299,055) (15,338,808) (117,269,300)
-------------- ------------- -------------
Cash flows from financing activities:
Net proceeds (payments), revolving credit borrowings (9,900,000) 9,900,000 -
Payments on note payable (240,000) - -
Proceeds from sale/leaseback 1,940,000 - -
Payments on capital leases (197,224) - -
Purchase of common stock (118,279) (20,447) -
Issuance of senior notes - - 80,000,000
Issuance of common stock - - 25,000,000
-------------- --------- ------------
Net cash (used in) provided by financing activities (8,515,503) 9,879,553 105,000,000
-------------- --------- ------------
Net increase in cash and cash equivalents
Cash and cash equivalents: 1,503,015 346,557 120,246
Beginning of period 466,803 120,246 -
------------- --------- ------------
End of period $ 1,969,818 $ 466,803 $ 120,246
============== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 19
Penda Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. General:
Penda Corporation (the "Company"), formerly known as Penda Industries,
Inc., a Florida corporation, was formed on February 14, 1994 by an
investor group organized by Trivest, Inc. The Company had no operations
during the period February 14, 1994 through March 17, 1994. On March 18,
1994, the Company purchased substantially all of the business assets of
the Proprietary Products Division of TriEnda Corporation, f/k/a Penda
Corporation, for a cash purchase price of approximately $110,796,000,
which includes direct acquisition costs of $5,227,000, plus the
assumption of liabilities in the amount of $4,735,000. The purchase
price was financed through the issuance of common stock for $25,000,000,
Senior Notes for $80,000,000 (See Note 6) and the proceeds of borrowings
under a revolving line of credit.
In addition, the Company is required to pay TriEnda up to $5,000,000 if
certain annual minimum operating profit targets, as defined in the asset
purchase agreement, are exceeded, subject to maximum annual earnouts of
$1,000,000 in 1994 and 1995, and $2,000,000 in 1996, 1997 and 1998,
respectively. Since 1996, 1995 and 1994 minimum operating profit targets
were exceeded, the annual earnout was accrued and goodwill increased by
$2,000,000, $1,000,000 and $1,000,000 during 1996, 1995, and the period
from March 18, 1994 to December 31, 1994, respectively.
The Company, with manufacturing facilities in Portage, Wisconsin and
Daleville, Alabama, manufactures and distributes plastic bedliners and
other accessories for pickup trucks for sale to a variety of automotive
manufacturers and automobile after-market dealers and retailers
principally in the United States and Canada. The Company also
distributes truck accessories manufactured by other companies through its
original equipment manufacturer and after-market distribution systems.
2. Significant Accounting Policies:
The Company prepares its financial statements in conformity with
generally accepted accounting principles, which require management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, and expenses during the periods presented.
They also affect the disclosures of contingencies. Actual results could
differ from those estimates.
The following is a summary of significant accounting policies followed by
the Company in the preparation of its financial statements.
a. Consolidation: The Company's consolidated financial
statements include the accounts of its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated.
b. Cash and Cash Equivalents: Cash in banks and short-term
investments with maturities of three months or less are considered
cash and cash equivalents.
19
<PAGE> 20
2. Significant Accounting Policies, Continued:
c. Inventories: Inventories are stated at the lower of cost or
market with cost determined utilizing the first-in, first-out
method.
d. Property, Plant and Equipment and Depreciation: Property,
plant and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of
the assets which range from 3 to 10 years for machinery and
equipment and furniture and fixtures, and 8 to 40 years for
buildings and improvements. Major renewals and betterments are
capitalized. Maintenance, repairs and minor renewals are expensed
as incurred. Upon sale or retirement, the asset cost and related
accumulated depreciation are removed from the respective accounts
and any resulting gain or loss is reflected in results of
operations.
e. Intangible Assets: Intangible assets include goodwill,
deferred financing costs, trademarks, patents and a non-compete
agreement. Goodwill represents the excess of cost over fair value
of net assets acquired and is being amortized over 40 years using
the straight-line method. Amortization of other intangibles is
provided using the straight-line method over the estimated lives of
the assets which are: the term of the underlying debt agreements for
deferred financing costs of 5-10 years; 40 years for trademarks;
10-17 years for patents; and 5 years for non-compete agreements (the
term of the agreement). The Company continually evaluates the
recoverability of its intangible assets by assessing future
operating profits and cash flows.
f. Revenue Recognition: Revenue is recognized upon shipment of
product to the customer.
g. Advertising Costs: Advertising costs are expensed the first
time the advertising takes place. Amounts charged to advertising
expense totaled $1,102,000 and $871,000 for the years ended December
31, 1996 and 1995, respectively, and $672,000 for the period from
March 18, 1994 through December 31, 1994.
h. 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 are recorded directly to a separate
component of shareholders' equity.
i. Income Taxes: The Company recognizes deferred income taxes
to reflect the tax consequences of temporary differences between the
bases of assets and liabilities recognized for financial reporting
and income tax purposes
20
<PAGE> 21
2. Significant Accounting Policies, Continued:
j. Net Income Per Share: Net income per share is based on the
weighted average number of shares of common stock and common stock
equivalents outstanding.
The Company is required to adopt Statement of Financial Accounting
Standard ("SFAS") No. 128, "Earnings Per Share", in 1997. SFAS 128
specifies the computation, presentation, and disclosure requirements
for earnings per share. The adoption of this statement is not expected
to have a material impact on the earnings per share reported in the
financial statements. Upon adoption of this statement, all
prior-period earnings per share amounts will be restated to conform
to the provisions of SFAS 128.
3. Acquisition:
On July 14, 1995, the Company's wholly-owned subsidiary, Tri-Glas
Corporation ("Tri-Glas"), acquired certain assets and assumed certain
liabilities of VMC Fiberglas Products, Inc. (D.b.a. Tri-Glas Industries)
("VMC"). Tri-Glas, with manufacturing facilities in Daleville, Alabama,
manufactures pickup truck, van and sport utility vehicle accessories,
including pickup truck caps, running boards, visors and van conversion
tops, and also manufactures sleeper cabs for heavy duty trucks. These
products are sold primarily to automobile after-market dealers and
retailers in the United States. The acquired assets consisted of
substantially all of the assets of VMC except for certain real property.
The aggregate consideration paid for the VMC assets was $10,903,000,
which included cash payments to seller totaling $7,562,000, a $2,000,000
note due to the former owner of VMC, direct acquisition costs of $791,000
and assumption of liabilities in the amount of $550,000. The transaction
was financed through proceeds from the Company's revolving credit
facility.
The acquisition has been accounted for using the purchase method of
accounting. The cost of the acquisition has been allocated to the assets
acquired and the liabilities assumed on the basis of their underlying
fair value. The excess of the cost over the fair value of the net assets
acquired is $7,821,000, and is being amortized over 40 years. The
operating results subsequent to the acquisition of Tri-Glas have been
included in the Company's consolidated operating results.
21
<PAGE> 22
3. Acquisition, Continued:
The following unaudited information presents, on a pro forma basis, the
Company's results for the year ended December 31, 1995 and for the period
from March 18, 1994 through December 31, 1994, giving effect to the
acquisition, as if it had occurred at the beginning of the periods
presented:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Net sales $81,521,000 $ 68,288,000
=========== ============
Net income $ 3,837,000 $ 6,145,000
=========== ============
Net income per common share $ 3.84 $ 6.15
=========== ============
</TABLE>
4. Inventories:
Inventories at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Finished goods $3,454,547 $3,358,088
Work-in-process 353,829 749,021
Raw materials and supplies 2,421,839 2,067,840
--------------- ---------------
$6,230,215 $6,174,949
=============== ===============
</TABLE>
5. Intangible Assets:
Intangible assets at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Goodwill $ 94,478,026 $ 92,478,026
Trademarks 5,400,000 5,400,000
Deferred financing costs 3,378,146 3,378,146
Other 1,269,070 1,269,070
------------- -------------
104,525,242 102,525,242
Less accumulated amortization 7,636,552 4,640,493
------------- -------------
$ 96,888,690 $ 97,884,749
============= =============
</TABLE>
22
<PAGE> 23
6. Debt:
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Senior notes $80,000,000 $80,000,000
Revolving credit - 9,900,000
Notes payable 2,000,000 2,240,000
Capital lease obligation 1,742,776 -
------------- -------------
83,742,776 92,140,000
Less current portion 613,600 125,000
------------- -------------
$83,129,176 $92,015,000
============= =============
</TABLE>
The Company has outstanding $80,000,000 of 10 3/4% Series B Senior Notes
Due 2004 (Senior Notes). Interest is due semiannually and the notes are
unsecured. The Senior Notes have certain early redemption provisions
whereby the Company, at its option, can retire up to $25,000,000 in
aggregate principal amount, at a redemption price equal to 110% of par,
from the proceeds of an initial public offering and any subsequent public
offering of common stock. In addition, the Company can redeem all or any
portion of the Senior Notes on March 1, 1999 at a redemption price of
105.375% of par. Subsequent to March 1, 1999, the redemption price will
decline to par at maturity based upon a predetermined schedule.
The Company also has a revolving credit agreement with a bank which
provides for maximum borrowings of $19,500,000 at either 1.0% above the
lender's base rate, or 2.5% above the lender's eurodollar rate. The
maximum borrowings amount will be reduced by $1,500,000 on July 14 in
each of the years 1997 and 1998. The revolving credit agreement is
collateralized by substantially all of the Company's accounts receivable
and inventories. Borrowings under this agreement are due March 1999.
Annual commitment fees under the revolving credit agreement are 1/2% of
the unused portion of the available credit.
The Company's Senior Notes and revolving credit agreement contain
covenants that restrict the payment of cash dividends, the issuance of
new debt and require the Company to maintain minimum amounts of net worth
and certain financial ratios. Under the most restrictive covenant, cash
dividends paid shall not exceed $1,000,000 plus the sum of 50% of
consolidated net income of the Company. The Company's management
believes it is in compliance with all covenants of these agreements as of
December 31, 1996 and 1995, except that it has received an irrevocable
waiver for covenant violations related to a fixed charge coverage ratio
in 1995.
In connection with the acquisition of Tri-Glas during 1995, the Company
issued the seller a promissory note in the amount of $2,000,000 with
interest at 8% due semiannually. Principal payments of $400,000 are due
August 15 in each of the years 1997 through 2001. Payment of this
promissory note is subordinated to the borrowings under the revolving
credit agreement.
During 1995 the Company purchased certain intellectual property rights
for $418,000; two interest-free notes totaling $240,000 were issued,
plus cash of $178,000. The notes were paid in full during 1996.
23
<PAGE> 24
6. Debt, Continued:
In January 1996, the Company entered into a capital lease agreement for
manufacturing equipment. The lease expires December 2000. The Company
has an option to purchase the equipment at the end of the lease term for
$776,000. Lease payments are due in monthly installments including
interest at 8%.
The fair value of the long-term debt, other than the capital lease
obligations, approximates $79,800,000 at December 31, 1996 based upon
quoted market prices for the senior notes and the present value of future
cash flows for the note payable using the interest rate of 9.75% on the
Company's revolving credit facility at December 31, 1996.
7. Income Taxes:
Income taxes consist of the following for the year ended December 31,
1996 and 1995 and for the period from March 18,1994 through December 31,
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $2,081,000 $ 825,000 $2,101,000
State 458,000 202,000 442,000
---------- ---------- -----------
2,539,000 1,027,000 2,543,000
Deferred:
Federal 1,977,000 1,853,000 1,057,000
State 239,000 195,000 127,000
---------- ---------- -----------
2,216,000 2,048,000 1,184,000
---------- ---------- -----------
$4,755,000 $3,075,000 $3,727,000
========== ========== ===========
</TABLE>
Following is a reconciliation of the Federal statutory income tax rate to
the Company's effective income tax rate for the year ended December 31,
1996 and 1995 and for the period from March 18, 1994 through December 31,
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory income taxes 34.0% 34.0% 34.0%
Foreign losses not deductible for U.S. tax
purposes 1.0 4.7 -
State income taxes, net of Federal income tax
benefit 3.8 3.8 3.9
Other 0.9 1.9 1.0
---- ---- ----
39.7% 44.4% 38.9%
==== ==== ====
</TABLE>
24
<PAGE> 25
7. Income Taxes, Continued:
The components of the net deferred income tax liability as of December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable $29,000 $ 46,000
Inventories 221,000 283,000
Accrued liabilities 183,000 38,000
Intangible assets 98,000 66,000
Foreign net operating losses 116,000 329,000
----------- ----------
647,000 762,000
Valuation allowance (116,000) (329,000)
----------- ----------
531,000 433,000
----------- ----------
Deferred income tax liabilities:
Intangible assets 4,745,000 2,992,000
Property, plant and equipment 1,234,000 673,000
----------- ----------
5,979,000 3,665,000
----------- ----------
Net deferred income tax liability $5,448,000 $3,232,000
=========== ==========
</TABLE>
The Company recorded a valuation allowance of $116,000 for the year ended
December 31, 1996 to provide for uncertainties relating to the
realization of certain foreign net operating loss carryforwards which
expire after ten years.
8. Lease Commitments:
The Company has entered into operating lease agreements for equipment,
computers, vehicles and warehouses used in its operations. These leases
expire through 2001. Rent expense under such leases approximated
$2,380,000 and $1,163,000 for the years ended December 31, 1996 and
1995, respectively, and $712,000 for the period from March 18, 1994
through December 31, 1994. Future minimum lease payments under
noncancelable operating leases at December 31, 1996 are as follows:
1997 $ 436,535
1998 366,946
1999 287,897
2000 195,328
2001 89,065
----------
$1,375,771
==========
25
<PAGE> 26
9. Employee Benefit Plans:
The Company maintains a defined contribution employee benefit plan which
covers all employees. The plan requires the Company to make matching
contributions equal to 25% on the first 6% of each plan participant's
contribution. The plan also allows for the Company to make discretionary
contributions each year. Contributions approximated $217,000 and
$103,000 for the years ended December 31, 1996 and 1995, respectively,
and $284,000 for the period from March 18, 1994 through December 31,
1994.
10. Major Customers and Foreign Sales:
The Company had sales to two major customers in the automotive industry
which approximated 21% and 20% of total sales for the year ended December
31, 1996, 17% and 16% of total sales for the year ended December 31,
1995, and 19% and 14% of total sales for the period from March 18, 1994
through December 31, 1994. See Note 11.
The Company's sales to customers in foreign countries, principally
Canada, approximated $8,920,000 and $7,112,000 for the years ended
December 31, 1996 and 1995, and $5,429,000 for
the period from March 18, 1994 through December 31, 1994.
11. Concentrations of Credit and Other Risks:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables with
a variety of automotive industry original equipment manufacturers and
automobile after-market dealers and retailers. The Company generally
does not require collateral from its customers. Credit risk which such
customers is considered by management to be limited due to the general
creditworthiness of its customers and its broad customer base.
The Company is directly affected by the well-being of the automotive
industry and a total or partial loss of the Company's business
relationship with its major customers could result in a possible loss of
sales, which could have an adverse effect on the Company's operating
results. Effective in February 1997, the Company's contract to supply
bedliners and accessory products to one of its major customers was
terminated. Management believes that the termination of this contract
will have an adverse effect on the Company's operating results in the
near term. However, because of the reliability of the Company's products
and the strength of the Company's market share, management believes the
Company will be able to obtain additional customers offsetting the impact
of the contract termination in the future.
26
<PAGE> 27
11. Concentrations of Credit and Other Risks, Continued:
The Company currently purchases substantially all of its virgin plastic
materials from two suppliers; however, management believes that numerous
alternative sources of supply are readily available on comparable terms.
Despite the Company's reliance on a few primary resources,
management does not foresee conditions in the virgin plastic materials
market which would lead to shortage of supply or drastic price increases
in the near term.
12. Stock Options:
The Penda Corporation Management Stock Option Plan, as amended, (the
"Plan"), provides for the issuance of options to purchase 52,632 shares
of common stock as an incentive to certain key employees. A total of
10,974 options are available to be granted annually through 1998
contingent upon attainment of certain annual financial results. Options
have a term of ten years and are exercisable as to 25% of the shares on
each anniversary date of the option grant at a per share exercise price
equal to the book value per share on the first day of the year that the
required financial results were attained. The Company achieved the
required financial results for the period ending December 31, 1994 and,
as a result, options to acquire 10,526 shares of common stock for $25 per
share were awarded. The Company did not achieve the required financial
results for the year ended December 31, 1995. During 1996, the Company's
board of directors approved the granting of a portion of the options not
earned in 1995. The Company achieved the required financial results for
the year ended December 31, 1996. Also in 1996, 1,642 options were
canceled due to the termination of employment of an option holder. Total
compensation expense approximated $114,000 and $0 for the years ended
December 31, 1996 and 1995, respectively, and $65,000 for the period from
March 18, 1994 through December 31, 1994. Stock option transactions are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ------------------------------
Weighted Average Weighted Average
Options Shares Exercise Price Shares Exercise Price
- ------- --------------------------- ------ -------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 10,526 $ 25.00 10,526 $25.00
Granted 15,800 34.74 - -
Canceled (1,642) (29.87) - -
------ --------
Outstanding, end of year 24,684 30.92 10,526 25.00
====== ========
</TABLE>
27
<PAGE> 28
12. Stock Options, Continued:
The outstanding stock options at December 31, 1996 have a range of
exercise prices between $25.00 and $34.75 per option and have a weighted
average contractual life of approximately 8.2 years. At December 31,
1996, 4,853 options are currently exercisable. The fair value at date of
grant for options granted during 1996 was $39.76 per option. No options
were granted during 1995. The fair value of options at date of grant was
estimated by subtracting the present value of the exercise price from the
fair value of the stock. In order to perform this calculation, an
estimated life of the options of seven years and an estimated risk-free
interest rate of 6.47% were assumed.
The Company applies Accounting Principles Board No. 25, under which
compensation cost has been recognized in the statements of income as the
difference between the fair value of the stock and the exercise price at
the date of grant. Had compensation cost been determined under an
alternate method suggested by the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the effect
on 1996 and 1995 net income and earnings per share would not have been
significant.
13. Supplemental Cash Flow Information:
Cash paid for interest and income taxes for the years ended December 31,
1996 and 1995, and for the period from March 18, 1994 through December
31, 1994 was as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Interest $9,602,265 $9,440,105 $3,996,057
Income taxes $2,125,000 $1,762,000 $2,471,000
============ =========== ===========
</TABLE>
14. Related Party Transactions:
The Company has entered into a 10-year consulting agreement ("the
Agreement") with Trivest, an affiliate of its major shareholders.
Pursuant to the Agreement, Trivest provides corporate finance, strategic
and capital planning and other management advice to the Company for an
annual fee (subject to cost of living adjustments). Additionally,
Trivest's annual fee will be increased for each additional business
operation acquired or sold by the Company, based upon a percentage of the
purchase or sales price and the financial results of the operation
acquired.
Management and other fees paid to Trivest totaled $434,000 and $397,000
for the years ended December 31, 1996 and 1995, respectively, and
$228,000 for the period from March 18, 1994 through December 31, 1994.
Additionally, during 1995, the Company paid Trivest $142,500 in
connection with the acquisition described in Note 3.
28
<PAGE> 29
15. Tri-Glas Fire Loss:
On June 3, 1996, the Company's wholly-owned subsidiary, Tri-Glas
Corporation, suffered a fire in one of its two main production buildings.
The building, along with equipment inside the building at the time of
the fire, was completely destroyed. During 1996, the Company received
insurance proceeds in excess of the net book value of the assets lost in
the fire of approximately $486,000. The gain is recorded as other income
in the consolidated statements of income. The insurance proceeds are
being used by the Company to replace the building and equipment lost in
the fire.
16. Contingencies:
During 1996, a lawsuit, Christopher G. Houska v. Citgo Petroleum
Corporation, et al., was filed against the Company and various other
defendants. The complaint alleges that the plaintiff suffered personal
injuries from a fire which occurred while he was fueling a portable
kerosene container in the bed of his pickup truck. The plaintiff has
alleged that the Company's predecessor, TriEnda Corporation, designed,
manufactured and sold the bedliner which was installed in his truck at
the time of the fire, and that the Company is liable as the successor of
TriEnda. The complaint seeks compensatory damages in an unspecified
amount, an unspecified amount of punitive damages, and court costs. The
case is in the discovery phase. Management believes that the Company has
adequate insurance coverage for any potential adverse judgment in this
case. Although insurance proceeds would not be available to satisfy a
judgment on the punitive damages claim, Management believes that the
punitive damages claim is without merit and intends to vigorously defend
against such claim. The Company has made a demand against TriEnda
Corporation for indemnification in connection with this case.
The Company, along with various other manufacturers of pickup truck
bedliners, has been identified as a defendant in seven class action
lawsuits. The complaints allege that the bedliners manufactured by the
defendants are defective and unreasonably dangerous because the bedliners
supposedly prevent the discharge of static electricity which can
accumulate on or in portable fuel containers and thereby create the
potential for an explosion. The plaintiffs seek damages in unspecified
amounts and equitable relief, including a recall and replacement of all
bedliners, or a refund, and notification to all bedliner owners of the
purported danger. The complaints either request punitive damages or
reserve the right to seek punitive damages at a later date. Management
believes that the claims in these lawsuits are without merit and has
specifically denied any fault or omission or any liability or violation
of law in connection with these claims. The Company is in the
preliminary stages of settlement discussions. In the event that
settlement discussions could terminate, the Company intends to vigorously
defend these lawsuits.
The Company filed a lawsuit against The Colonel's Inc. and The Colonel's
International Inc., alleging that the defendants have infringed on a
patent owned by the Company. The defendants have filed a counterclaim
against the Company seeking a declaratory judgment that the patent at
issue is invalid and/or not infringed, and a second counterclaim alleging
that the Company's patent infringement claim constituted unfair
competition by the Company. The Company believes that the defendants'
counterclaims are without merit and intends to vigorously defend against
them. This case is in the discovery phase.
On January 2, 1997, The Colonel's Inc. filed a lawsuit against the
Company alleging that the Company has infringed on a patent owned by The
Colonel's Inc. The complaint seeks injunctive
29
<PAGE> 30
16. Contingencies, Continued:
relief, treble damages, and court costs. The Company believes that this
lawsuit is without merit and intends to vigorously defend against it.
Because of the unspecified damages in the above cases, and because of the
fact that these cases are in their early stages, the Company is unable to
determine at this time, the potential liability, if any.
17. Quarterly Financial Data (Unaudited):
The following presents financial data regarding the Company's quarterly
results of operations for the years ended December 31, 1996 and 1995 (in
thousands, except per share data):
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $22,094 $25,728 $20,435 $21,096
------------ ------------ ------------ -----------
Gross profit $ 8,509 $10,983 $ 6,979 $ 6,367
------------ ------------ ------------ -----------
Net income $ 1,904 $ 3,176 $ 980 $ 1,154
============ ============ ============ ===========
Net income per common share $ 1.90 $ 3.18 $ 0.98 $ 1.16
============ ============ ============ ===========
Weighted average common
shares outstanding 999 999 998 998
=====================================================
<CAPTION>
1995
-----------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $17,789 $18,440 $20,134 $18,369
-----------------------------------------------------
Gross profit 6,983 6,655 7,014 6,495
-----------------------------------------------------
Net income $ 1,112 $ 1,046 $ 020 $ 670
-----------------------------------------------------
Net income per common share $ 1.11 $ 1.05 $ 1.02 $ 0.67
-----------------------------------------------------
Weighted average common
share outstanding 1,000 1,000 1,000 999
=====================================================
</TABLE>
30
<PAGE> 31
Report of Independent Accountants
Board of Directors and Shareholders
Penda Corporation and Subsidiaries
Our report on the consolidated financial statements of Penda Corporation and
Subsidiaries is included on page 14 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related
consolidated financial statement schedule listed in Item 14(a)(2) of this Form
10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
February 24, 1997
31
<PAGE> 32
Penda Corporation
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Cost and Other End of
Period Description of Period Expenses Accounts Deductions Period
- ------ ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1996 Allowance for Doubtful Accounts $121,421 $(18,753) $ - $ 27,668(1) $ 75,000
Inventory Obsolescence Reserve $ 55,000 $125,240 $ - $ - $180,240
Year ended
December 31, 1995 Allowance for Doubtful Accounts $134,250 $ 92,225 $ - $105,054(1) $121,421
Inventory Obsolescence Reserve $ - $ 55,000 $ - $ - $ 55,000
March 18, 1994 to
December 31, 1994 Allowance for Doubtful Accounts $ - $150,000 $ - $ 15,750(1) $ 134,250
</TABLE>
(1) Bad debts written off, net of recoveries.
32
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are as follows:
Name Age Position
------------------------ --- -----------------------------------------------
Peter C. Brockway 40 Chairman of the Board, Acting President and
Chief Executive Officer
Gerard T. Mydlowski 42 Vice President - Sales
Scot D. Harvey 40 Vice President - Operations
Gary L. Witt 35 Vice President - Quality Services
Mark J. Blume 32 Vice President - Chief Financial Officer
Earl W. Powell 58 Chairman of the Board
Phillip T. George, M.D. 57 Director
Robert D. Blank 38 Director
Thomas J. Smith 44 Director
L. J. (Jim) Schoenwetter 58 Director
Mr. Brockway, a director of the Company since its organization, has served
as an executive officer of Trivest since September 1986 and was appointed a
Managing Director of Trivest in January 1991 and Executive Vice President in
January 1993. Mr. Brockway was named Chairman of the Board and Acting President
and Chief Executive Officer of the Company on March 27, 1997. Mr. Brockway has
also served as a Vice President of Atlantis since September 1986 and served as
Vice President of Biscayne from September 1986 until February 1990. Mr.
Brockway also serves as a director of WinsLoew .
Mr. Mydlowski joined the Company in January of 1995 and is responsible for
all of the Company's sales activities and new product development. From 1989
to 1995, Mr. Mydlowski was President and CEO of Moon Roof Corporation/Sun
International, responsible for all operations of the company. Prior to that,
Mr. Mydlowski was employed for 11 years in Ford Motor Company's Procurement and
Distribution Division responsible for the purchase and distribution of all
automotive accessories parts.
Mr. Harvey served as the Division's Director of Operations from March 1990
through March 18, 1994 at which time he became Vice President - Operations.
Mr. Harvey is primarily responsible for the development and implementation of
the Company's operations and distribution. From June 1987 until March 1990, Mr.
Harvey served as Distribution Manager for Tombstone Pizza, Inc., where his
responsibilities included purchasing, scheduling, warehousing and fleet
management.
Mr. Witt served as the Division's Director of New Business Development
from January 1993 through March 18, 1994 at which time he became Vice President
- - Quality Services. Mr. Witt is responsible for the Company's Quality
Services, Human Resources, Purchasing, and Marketing and Advertising groups.
From May 1987 until January 1993, Mr. Witt served as the Division's OEM Sales
Manager, where he managed and developed OEM/dealer programs.
Mr. Blume was appointed Chief Financial Officer of the Company in May
1996. From December 1995 until April 1996, Mr. Blume served as Corporate
Controller. From June 1986 until December 1995, Mr. Blume was with Coopers &
Lybrand L.L.P., most recently, as an Audit Manager.
Mr. Powell served as Chairman of the Board of the Company from the date of
its organization until March 27, 1997. Mr. Powell serves as President and Chief
Executive Officer of Trivest, Inc. ("Trivest"), a private investment firm formed
by Messrs. Powell and George in 1981 that specializes in management services and
acquisitions, dispositions and leveraged buyouts. Since May 1984, Mr. Powell
has served as Chairman of the Board of Atlantis Plastics, Inc., an American
Stock Exchange company whose subsidiaries are engaged in the plastics industry
("Atlantis") and as
33
<PAGE> 34
Chief Executive Officer from May 1984 to February 1995. Mr. Powell also served
as President of Atlantis from November 1993 to February 1995. Mr. Powell also
serves as Chairman of the Board, President and Chief Executive Officer of
Biscayne Apparel, Inc., an American Stock Exchange company whose principal
subsidiaries are engaged in the apparel industry ("Biscayne"). Mr. Powell also
serves as Chairman of the Board of Directors of WinsLoew Furniture Inc., a
NASDAQ National Market company engaged in the manufacture of contract seating
and casual and ready-to-assemble furniture ("WinsLoew"). From 1971 until 1985,
Mr. Powell was a partner with KPMG/Peat Marwick, Certified Public Accountants,
where his positions included serving as managing partner of Peat Marwick's
Miami office.
Dr. George, a director of the Company since its organization, is the
Chairman of the Board of Trivest, Inc. He has served as the Vice Chairman of
the Board of Atlantis since that company's organization and as Chairman of the
Executive Committee of the Atlantis Board of Directors since February 1990.
Dr. George also serves as a director of WinsLoew.
Mr. Blank, a director of the Company since its organization, has served as
a Partner of Brinson Partners, Inc. ("Brinson"), a global investment management
firm, since January 1992. From 1987 until January 1992, Mr. Blank served as a
Senior Investment Manager with Wind Point Partners, a venture capital
partnership. Mr. Blank also serves as director of Chartwell Re Corporation, a
property and casualty reinsurance company.
Mr. Smith, a director of the Company since its organization, has been
employed by Norwesco, Inc. ("Norwesco"), a manufacturer of rotationally molded
polyethylene tanks, since 1979. Mr. Smith has served as President of Norwesco
since February 1992 and was appointed Chief Executive Officer in January 1993.
Prior to his appointment as President, Mr. Smith held several positions with
Norwesco, including Vice President and General Manager. Norwesco was acquired
by certain affiliates of Trivest and certain members of Norwesco management in
1992.
Mr. Schoenwetter, a director of the Company since March 1995, has been
employed since 1960 by 3M, a diversified manufacturer with operations in 34
states and more than 60 foreign countries. Mr. Schoenwetter has had a number
of positions in the financial area of 3M, including Vice President &
Controller, and was appointed to his current position, Vice President,
Logistics, in July 1993.
Investors' Agreement
Each of the Company's shareholders entered into a Subscription and
Shareholders' Agreement in connection with the Company's commencement of
operations in March 1994 (the "Investors' Agreement"). The Investors'
Agreement requires each shareholder to vote in favor of electing, as directors,
two designees of Trivest Institutional Fund, Ltd., two designees of Trivest
Investors Fund, Ltd., one designee of Blue Sky Partners (which Blue Sky
Partners has agreed will be the Company's President) and one designee of
certain entities advised by or affiliated with Brinson.
34
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company, to the Company's Chief Executive
Officer and to three other executive officer whose total annual salary and
bonus, determined at December 31, 1996, exceeded $100,000 for the fiscal years
ended December 31, 1996, 1995 and for the period from March 17, 1994 to
December 31, 1994 ("Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation (3) Compensation
------------------------------------- ------------
Stock Options
Name and Principal Position Year Salary Bonus (1) Awards (#)
- --------------------------- -------- -------- --------- -------------
<S> <C> <C> <C> <C>
Daniel E. Braun(4)
Former President and Chief Executive Officer 1996 $164,160 $240,160 5,730.87
1995 $160,000 $ 6,400 -
1994(2) $116.743 $156,046 3,820.58
Scot D. Harvey
Vice President - Operations 1996 $ 93,591 $ 19,200 1,988.27
1995 $ 86,900 $ 6,476 -
1994(2) $ 60,817 $ 23,718 1,325.510
Gary L. Witt
Vice President - Quality Services 1996 $ 92,733 $ 29,239 1,810.49
1995 $ 82,880 $ 8,815 -
1994(2) $ 56,923 $ 22,202 1,206.990
Gerard T. Mydlowski(5)
Vice-President- Sales 1996 $ 77,575 $ 23,964 682.46
1995 $ 65,529 $ 9,788 -
Mark J. Blume(6)
Vice President - CFO 1996 $ 86,538 $ 18,000 864.91
</TABLE>
(1) Represents bonus earned in the respective year that is paid by the Company
in the subsequent year.
(2) Reflects compensation paid by the Company from March 18, 1994 to December
31, 1994.
(3) Aggregate amount of other annual compensation does not exceed the lesser of
$50,000 or 10% of the Named Executive Officer's salary and bonus.
(4) Mr. Braun resigned as an employee of the Company by letter dated March 26,
1997.
(5) Mr. Mydlowski joined the Company on January 30, 1995.
(6) Mr. Blume joined the Company on December 27, 1995.
35
<PAGE> 36
Stock Option Grants
The following table sets forth information concerning the grant of stock
options to the Named Executive Officers in 1996 (all options were granted under
the Company's Management Stock Option Plan). The Company did not grant any
stock appreciation rights in 1996.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (1)
------------------------------------------------------- -----------------------------------
% of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#)(2) Year (3) ($/Sh) Date 5%($) 10%($)
- ---- -------- ---------- ----------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Braun 5,730.87 36.3% $34.75 1/1/06 $125,243 $317,375
Gary L. Witt 1,810.49 11.5% $34.75 1/1/06 $ 39,559 $100,265
Scot D. Harvey 1,988.27 12.6% $34.75 1/1/06 $ 43,444 $110,110
Gerard T. Mydlowski 682.46 4.3% $34.75 1/1/06 $ 14,912 $ 37,795
Mark J. Blume 864.91 5.5% $34.75 1/1/06 $ 18,898 $ 47,899
</TABLE>
(1) Based on assumed annual rates of stock price appreciation from the fair
value of the Company's common stock as of the grant date in accordance
with Statement of Financial Accounting Standard No. 123 "Accounting for
Stock Based Compensation". These amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock options exercises and
common stock holdings are dependent on the future performance of the
Company and the market available for the sale of the Company's common
stock. The Company's common stock is not registered under Section 12 of
the Securities Exchange Act of 1934 (the "Exchange Act").
(2) The options become exercisable as to 25% of the shares on each
anniversary of the date of grant (beginning January 1, 1997) over a four
year period, so long as employment with the Company continues. The Board
of Directors may, in its discretion, accelerate the date on which any
option may be exercised, and may accelerate the vesting of any shares
subject to any option.
(3) Options to purchase a total of 15,799.86 shares were granted in 1996.
The percentage shown in this column represents the percentage arrived at
by dividing the number of options granted to the named Executive Officer
by the total number of options granted in 1996.
Stock Options Exercises and Fiscal Year-end Holdings
No named Executive Officer exercised stock options during 1996. The
following table sets forth information, with respect to the Named Executive
Officers, concerning unexercised options held by them as of the end of such
fiscal year:
<TABLE>
<CAPTION>
Options Exercises And Year-End Value Table
Aggregated Option Exercises in last Fiscal Year, and Fiscal Year-end Option Value
Number of Unexercised Options at Value of Unexercised In-the-Money
December 31, 1996(#) Options at December 31, 1996 ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Daniel E. Braun 1,910.29 7,641.16 $68,178 $296,038
Gary L. Witt 603.50 2,413.98 $21,539 $ 93,524
Scot D. Harvey 662.76 2,651.02 $23,654 $102,707
Gerard T. Mydlowski - 682.46 $ -- $ 27,135
Mark J. Blume - 864.91 $ -- $ 34,389
</TABLE>
(1) Calculated by multiplying (a) the difference between the present value of
the option exercise price per share and the estimated per share fair value
calculated in accordance with Statement of Financial Accounting Standard
No. 123 "Accounting for Stock Based Compensation" by (b) the number of
shares of common stock underlying the option. The Company is not
registered under Section 12 of the Exchange Act.
Employment Agreement
Effective on March 18, 1994, the Company entered into a five-year
employment agreement with Mr. Braun providing for his employment as President
and Chief Executive Officer for an annual base salary of $164,160 (at December
31, 1996), subject to cost-of-living adjustments as well as an incentive bonus
based on the
36
<PAGE> 37
Company's operating profit. The Employment Agreement also provides that Mr.
Braun will receive an amount equal to the sum of his current annual base salary
plus his last incentive bonus if his employment is terminated without "cause"
(as defined), payable in 12 equal monthly installments (the "Severance
Payment"). The employment agreement also prohibits Mr. Braun from directly or
indirectly competing with the Company for one year after termination of his
employment (or, if terminated without "cause," on the date Mr. Braun receives
his last Severance Payment installment). Mr. Braun resigned as an emplyee of the
Company by letter dated March 26, 1997
Compensation of Directors
The Company reimburses directors for all travel-related expenses incurred
in connection with their activities as directors. Mr. Schoenwetter receives
quarterly director's fees totaling $12,000 annually.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has 996,206 shares of Common Stock issued and outstanding at
February 28, 1997. The following table sets forth information with respect to
the beneficial ownership of the Common Stock as of February 28, 1997 by (i)
each person known to the Company to own beneficially more than five percent of
the Company's outstanding Common Stock, (ii) each director who owns any
shares and the Named Executive Officers, and (iii) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned(2)
------------------------
Name(1) Shares Percent
- --------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Brinson Partners, Inc.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 50.19%
Trivest Group, Inc.(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412,871 41.44%
Blue Sky Partners(5)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 3.21%
Earl W. Powell(5)(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,871 44.66%
Phillip T. George, M.D.(5)(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,871 44.66%
Daniel E. Braun(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,305.68 2.04%
Thomas J. Smith(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 *
Peter C. Brockway(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 *
All directors and executive officers as a group (9 persons)(9)(10) . . . . . . . . . . . . . 458,405.06 46.02%
</TABLE>
* Less than 1%
(1) Unless otherwise indicated, the address of each of the identified
beneficial owners is 2344 W. Wisconsin Street, Portage, Wisconsin
53901-0449.
(2) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(3) Consists of 400,000 shares held of record by Virginia Retirement System
("VRS"), 85,978 shares held of record by Brinson Venture Capital Fund
III, L.P. ("BCFIII") and 14,022 shares held of record by Brinson MAP
Venture Capital Fund III Trust ("Brinson MAP Fund"). Brinson has voting
and dispositive power over the shares held of record by VRS pursuant to
agreements between Brinson and VRS. Brinson is the general partner of
BCF III and as a result has voting and dispositive power over the shares
held by BCF III. Brinson MAP Fund is a collective investment trust the
trustee of which (Brinson Trust Company) is a subsidiary of Brinson.
Robert D. Blank, a director of the Company, is a Partner of Brinson and
an officer of Brinson Trust Company. Both Brinson and Mr. Blank disclaim
beneficial ownership of the shares of Common Stock held by VRS, BCF III
and Brinson MAP Fund. Brinson's address is 209 South LaSalle, Chicago,
Illinois 60604.
(4) Trivest Group, Inc. serves as the sole general partner of Trivest 1988
Fund Manager, Ltd., which in turn is the sole general partner of Trivest
Fund I, Ltd. ("Fund I"), a privately held investment partnership that
holds a record 316,469 shares of Common Stock, and Trivest Equity
Partners I, Ltd. ("Equity
37
<PAGE> 38
Partners I"), a privately held investment partnership that holds of record
96,402 shares of Common Stock. Messrs. Powell and George are executive
officers and directors of Trivest Group, Inc. and own a controlling
interest of its outstanding capital stock.
(5) The beneficial owner's address is 2665 South Bayshore Drive, Suite 800,
Miami, Florida 33313-5401.
(6) Blue Sky Partners is a Florida general partnership ("Blue Sky"), whose
partners are Earl W. Powell and Phillip T. George, M.D., both directors
of the Company.
(7) Reflects shares held of record by Fund I, Equity Partners I and Blue Sky.
See footnotes (4) and (6).
(8) Includes 5,730.87 shares of common stock issuable upon exercise of the
options exercisable as of February 28, 1997.
(9) Does not reflect shares held of record by any of VRS, BCF III or Brinson
MAP Fund. Reflects shares held of record by Fund I, Equity Partners I
and Blue Sky. See footnotes (3), (4) and (6).
(10) Includes 7,534.06 shares of common stock issuable upon exercise of the
presently exercisable executive officer's options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Consulting Agreement
Effective March 18, 1994, the Company entered into a ten-year agreement
(the "Consulting Agreement") with Trivest, a corporation owned by Messrs.
Powell and George. Pursuant to the Consulting Agreement, Trivest provides
corporate finance, strategic and capital planning and other management advice
to the Company for an annual fee, payable quarterly in advance. During 1996,
the Company paid management fees to Trivest of approximately $339,000, and
reimbursed Trivest for certain out-of-pocket expenses incurred on behalf of the
Company.
Pursuant to the Consulting Agreement, for each additional business
operation acquired by the Company, Trivest's annual base compensation will
generally be increased by the sum of 5% of the annual earnings before income
taxes, interest expense and amortization of goodwill ("EBITA") of the acquired
business for the fiscal year in which it is acquired up to $1.0 million of
EBITA, plus 2.5% of EBITA between $1.0 million and $3.0 million and 1.75% of
EBITA in excess of $3.0 million. In addition, for each acquisition of any
business operation introduced or negotiated by Trivest, Trivest will generally
receive a fee of equal to the sum of 1.5% of the purchase price up to $100.0
million and 1.25% of purchase price in excess of $100.0 million. Similarly,
for each disposition of any business operation of the Company negotiated by
Trivest, Trivest will generally receive a fee equal to the sum of .25% of the
sales price up to $150.0 million and .5% of the sales price in excess of
$150.0 million.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Financial Statements - included in Item 8. An index to financial
statements appears on Page 13.
2. Financial Statement Schedule - Schedule II - valuation and
qualifying accounts is the only schedule provided because all other
schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
Schedule II appears on Page 31.
3. Exhibits
(b) No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this Report.
(c) Exhibits not incorporated by reference follow the "Signatures" section and
are incorporated herein by reference.
(d) Financial Statement Schedules required by Regulation S-X are included in
item (a)(2) above and are incorporated herein by reference.
Exhibit Description
2.1 Asset Purchase Agreement, dated as of July 14, 1995, between Tri-Glas
Corporation and VMC Fiberglass Products, Inc.(2.1)(2)
2.2 Supplemental Agreement, dated as of July 14, 1995, among Tri-Glas
Corporation, VMC Fiberglass Products, Inc., John H. Watson, Robert E.
Ostendorf, Bob Heinsen, Karl Sheffield and Alfred Saliba(2.2)(2)
2.3 Promissory Note, dated as of July 14, 1995, issued by Tri-Glas
Corporation and Payable to the Order of VMC Fiberglass Products, Inc.
(2.3)(2)
2.4 Guaranty, dated as of July 14, 1995, issued by the registrant in favor
of VMC Fiberglass Products, Inc.(2.4)(2)
2.5 Lease Agreement dated as of July 14, 1995, between Tri-Glas
Corporation and VMC Fiberglass Products, Inc.(2.5)(2)
3.1 Registrant's Articles of Incorporation(3.1)(1)
3.2 Registrant's Bylaws(3.2)(1)
4.1 Specimen Note Certificate for Notes(4.2)(1)
4.2 Registration Rights Agreement, dated as of March 18, 1994, between the
Registrant and Bear, Stearns & Co. Inc.(4.3)(1)
4.3 Indenture, dated as of March 18, 1994, between the Registrant and
American Stock Transfer & Trust Company(4.4)(1)
4.4 Supplemental Indenture, dated as of July 14, 1995, between Tri-Glas
Corporation and American Stock Transfer & Trust Company, as Trustee
(99.1)(2)
39
<PAGE> 40
10.1 Registrant's First Amended and Restated Management Stock Option Plan
Management Stock Option Plan(10.1)(3)
10.2 Form of Indemnification Agreement between the Registrant and each of its
directors and certain executive officers(10.2)(1)
10.3 Employment Agreement between the Registrant and Daniel E. Braun(10.3)(1)
10.4 Subscription and Shareholders' Agreement, dated March 15, 1994, among the
Registrant and its Shareholders(10.4)(1)
10.5 Amended and Restated Credit Agreement, dated as of July 14, 1995, between
the Registrant and Banque Nationale de Paris, as Lender and as Agent
for the Loan Parties Thereunder (99.2)(2)
10.6 Consulting Agreement, dated as of March 18, 1994, between the
Registrant and Trivest, Inc.(10.6)(1)
10.7 First Amendment to Registrant's First Amended and Restated Management
Stock Option Plan (4)
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges(4)
21.1 Subsidiaries of the Registrant(4)
27.1 Financial Data Schedule - For SEC use only (4)
(1) Incorporated by reference to an exhibit shown in the preceding parentheses
and filed with the Company's Registration Statement on Form S-4 (No.
33-77728).
(2) Incorporated by reference to an exhibit shown in the preceding parentheses
and filed with the Company's Current Report on Form 8-K, dated July 25,
1995, as amended.
(3) Incorporated by reference to an exhibit shown in the preceding parentheses
and filed with the Company's Current Report on Form 10-Q, dated May 3,
1996.
(4) Filed herewith
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Annual Report on Form 10-K.
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 27, 1997 By:/s/ PETER C. BROCKWAY
-----------------------------------
Peter C. Brockway
Acting President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ ---------------------------------------- --------------
<S> <C> <C>
/s/ PETER C. BROCKWAY Chairman of the Board; Acting President
- ------------------------------ and Chief Executive Officer March 27, 1997
Peter C. Brockway
/s/ EARL W. POWELL Director March 27, 1997
- ------------------------------
Earl W. Powell
/s/ MARK J. BLUME Vice President - Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting
Mark J. Blume Officer) March 27, 1997
/s/ PHILLIP T. GEORGE, M.D. Director March 27, 1997
- ------------------------------
Phillip T. George, M.D.
/s/ ROBERT D. BLANK Director March 27, 1997
- ------------------------------
Robert D. Blank
/s/ THOMAS J. SMITH Director March 27, 1997
- ------------------------------
Thomas J. Smith
/s/ L. J. SCHOENWETTER Director March 27, 1997
- ------------------------------
L. J. Schoenwetter
</TABLE>
41
<PAGE> 42
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
The Company has not and does not intend to provide to its security holders an
annual report covering the Company's last fiscal year or proxy materials with
respect to any annual or other meeting of security holders to be held during
the current fiscal year.
EXHIBIT INDEX
EXHIBIT INDEX DESCRIPTION PAGE NUMBER
- ------------- ------------------------------------------------- -----------
12.1 Statement Regarding Computation of
Ratio of Earnings to Fixed Charges 42
10.7 First Amendment to Registrant's First Amended and
Restated Management Stock Option Plan 44
21.1 Subsidiaries of the Registrant 50
27.1 Financial Data Schedule (for SEC purposes only) 52
42
<PAGE> 1
EXHIBIT
12.1
43
<PAGE> 2
EXHIBIT 12.1
STATEMENT REGARDING COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES(1)
<TABLE>
<CAPTION>
March 18, Jan. 1,
Year Year 1994 - 1994 - Year Ended Year Ended
Ended Ended December 31, Mar. 17, Dec. 31, Dec. 31,
Dec. 31, 1996 Dec. 31, 1995 1994 1994 1993 1992
------------- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $11,969 $ 6,923 $ 9,585 $2,857 $13,169 $12,409
Interest 9,517 9,607 6,867 115 924 794
Interest portion of rental expense 714 645 237 24 398 296
Amortization of debt expenses 376 376 264 0 0 0
------- ------- ------- ----- ------- -------
Earnings $22,576 $17,551 $16,953 $2,996 $14,491 $13,499
======= ======= ======= ====== ======= =======
Fixed charges $10,607 $10,628 $ 7,368 $ 139 $ 1,322 $ 1,090
======= ======= ======= ====== ======= =======
Ratio 2.1 1.7 2.3 21.6 11.0 12.4
======= ======= ======= ====== ======= =======
</TABLE>
(1) All dollar amounts in thousands.
44
<PAGE> 1
EXHIBIT
10.7
45
<PAGE> 2
FIRST AMENDMENT
TO
PENDA CORPORATION
FIRST AMENDED AND RESTATED MANAGEMENT STOCK OPTION PLAN
WHEREAS, the Company has adopted the Penda Corporation First Amended and
Restated Management Stock Option Plan (the "Plan");
WHEREAS, the employment of Earle Wirth ("Wirth"), the Company's former
Chief Financial Officer, has been terminated by the Company without cause;
WHEREAS, the Company did not achieve the Operating Profit and Return on
Investment targets specified in Section 4(b) of the Plan for the Company's
fiscal year ended December 31, 1995 and, accordingly, Options to purchase, in
the aggregate, 821.05 Shares granted to Wirth as of January 1, 1995 pursuant to
Section 4(b) of the Plan lapsed (the "Lapsed 1995 Options");
WHEREAS, Section 4(e) of the Plan provides that new Options may be granted
covering the Shares subject to the Lapsed 1995 Options to such Employees and on
such terms as the Board of Directors of the Company shall determine in its
absolute discretion;
WHEREAS, Wirth and the Company are parties to an Agreement, dated June 21,
1996, pursuant to which Wirth and the Company agreed inter alia, as between
themselves, that Options to purchase, in the aggregate, 821.05 Shares granted
to Wirth as of January 1, 1996 pursuant to Section 4(b) of the Plan were deemed
canceled (the "Lapsed 1996 Options");
WHEREAS, the Board of Directors wishes to amend the Plan to clarify that
new Options may be granted covering the Shares subject to the Lapsed 1996
Options to such Employees and on such terms as the Board of Directors of the
Company shall determine in its absolute discretion;
WHEREAS, Section 4(g) of the Plan provides that Ungranted Options
attributable to a terminated employee may be awarded within one year to a
Replacement Officer;
WHEREAS, Mark J. Blume has been named Chief Financial Officer of the
Company; and
WHEREAS, in order to provide an additional incentive to Mark J. Blume and
to Gerard T. Mydlowski, the Board of Directors desires to amend the Plan, on
the terms and subject to the conditions contained herein, to provide for the
grant of additional Options to Messrs. Blume and Mydlowski;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Capitalized terms used but not otherwise defined herein shall have the
respective meanings given such terms in the Plan.
2. New Options may be granted covering the Shares subject to the Lapsed
1996 Options to such Employees and on such terms as the Board of Directors of
the Company shall determine in its absolute discretion.
46
<PAGE> 3
3. Section 4(c) of the Plan is redesignated Section 4(c)(i) and each
reference to "Section 4(c)" contained in such Section 4(c) shall be deemed to
refer to "Section 4(c)(i)."
4. The following new Sections 4(c)(ii) and (iii) are added to the Plan:
(c)(ii) Grant of Additional 1996 Options to Blume
and Mydlowski. Subject to the provisions of Section 6
hereof, Options to purchase 547.37 Shares of Common
Stock shall be granted to the Additional Employees
effective as of August 1, 1996, provided, however,
notwithstanding any provision of this Plan which may
be to the contrary, no such Options shall vest (i.e.,
become exercisable in accordance with Section 9(a)
hereof) unless the Company's actual Operating Earnings
and Return on Investment are both equal to or greater
than the target Operating Profit and Return on
Investment for the Company's fiscal year as set forth
in the following table:
Year Target Operating Target Return
Profit on Investment
1996 $24.225 million 65.0%
The following table sets forth the number of
shares subject to the foregoing Options to be granted
to each Additional Employee pursuant to this Section
4(c)(ii):
Number of Shares Subject
Name to Annual Options
Mark J. Blume 364.91
Gerard T. Mydlowski 182.46
Total 547.37
Notwithstanding any provision of the Plan which may be
to the contrary, (A) the per share exercise price for
the Shares to be issued pursuant to the exercise of
the Options granted pursuant to this Section 4(c)(ii)
shall be $34.75, and (B) such Options shall be
evidenced by the delivery of a written Option
agreement dated as of August 1, 1996, and (C) the
vesting and exercisability of such Options shall be
subject in all respects to the Company achieving
the specified Operating Profit and Return on Investment
targets set forth above and the further limitations set
forth in Section 9(a) hereof.
47
<PAGE> 4
(c)(iii) Grant of 1997 and 1998 Options to Blume
and Mydlowski. Subject to the provisions of Section 6
hereof, Options to purchase 1,368.42 Shares of Common
Stock shall be granted to the Additional Employees on
the first day of each of the Company's fiscal years
1997 and 1998; provided, however, notwithstanding any
provision of this Plan which may be to the contrary,
no such Options shall vest (i.e., become exercisable
in accordance with Section 9(a) hereof) unless the
Company's actual Operating Earnings and Return on
Investment are both equal to or greater than the
target Operating Profit and Return on Investment for
such fiscal year as set forth in the following table:
Target Target Return
Year Operating Profit on Investment
1997 $26.500 million 65.0%
1998 $28.925 million 65.0%
The following table sets forth the number of shares
subject to the Options to be granted to each
Additional Employee with respect to each such year
pursuant to this Section 4(c)(iii):
Number of Shares Subject
Name to Annual Options
Mark J. Blume 912.28
Gerard T. Mydlowski 456.14
Total 1,368.42
5. Section 4(d) of the Plan is deleted and the following new Section 4(d)
is substituted in its place:
(d) Evidence of Grant. Any Options granted under
the provisions of Sections 4(b), 4(c)(i) and 4(c)(iii)
shall be evidenced by the delivery of a written
Option agreement within 90 days of the beginning of
each such fiscal year. The date of grant of an Option
shall be the first day of the year to which the Option
relates, with the vesting and exercisability of such
Option to be subject in all respects to the Company
achieving the specified Operating Profit and Return
on Investment targets and the further
limitations set forth in Section 9(a) hereof.
6. Each reference to "Section 4(c)" contained in Sections 4(f) and 4(g) of
the Plan shall be deemed to refer to "Section 4(c)(i) and Section 4(c)(iii)."
48
<PAGE> 5
7. In all other respects, the Plan is affirmed.
### END ###
49
<PAGE> 1
EXHIBIT
21.1
50
<PAGE> 2
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME LOCATION
------------------------------------------ ------------
PENDA ROO HOLDING CORPORATION FLORIDA
PENDA AUSTRALIA PTY. LTD. AUSTRALIA
PENDA INTERNATIONAL HOLDING CORPORATION FLORIDA
PENDA LATINO AMERICANO HOLDING CORPORATION MEXICO
PENDA SA DE C.V. MEXICO
"PEMSA", PROCESOS ESPECIALES
DE MEXICO, SA DE C.V. MEXICO
PENDA FOREIGN SALES CORPORATION BARBADOS
PENDA-MEXICO EMPLOYMENT FLORIDA
TRI-GLAS CORPORATION ALABAMA
51
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,970
<SECURITIES> 0
<RECEIVABLES> 13,277
<ALLOWANCES> 75
<INVENTORY> 6,230
<CURRENT-ASSETS> 22,203
<PP&E> 27,873
<DEPRECIATION> 5,541
<TOTAL-ASSETS> 142,049
<CURRENT-LIABILITIES> 11,175
<BONDS> 83,743
0
0
<COMMON> 10
<OTHER-SE> 41,939
<TOTAL-LIABILITY-AND-EQUITY> 142,029
<SALES> 89,353
<TOTAL-REVENUES> 89,353
<CGS> 56,515
<TOTAL-COSTS> 56,515
<OTHER-EXPENSES> 11,352
<LOSS-PROVISION> (46)
<INTEREST-EXPENSE> 9,517
<INCOME-PRETAX> 11,969
<INCOME-TAX> 4,755
<INCOME-CONTINUING> 7,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,214
<EPS-PRIMARY> 7.22
<EPS-DILUTED> 7.22
</TABLE>
