<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-77728
PENDA CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0463658
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2344 WEST WISCONSIN STREET, PORTAGE, WISCONSIN 53901-0449
(Address of principal executive offices) (Zip Code)
(608) 742-5301
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
At August 1, 1997, the Registrant had 996,206 shares of $0.01 par value common
stock outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,202 $ 1,970
Accounts receivable, net 11,961 13,277
Inventories, net 6,604 6,230
Other 920 726
------------- ------------
Total current assets 21,687 22,203
Property, plant and equipment, net 20,968 22,332
Intangible assets, net 95,865 96,889
Other 274 605
------------- ------------
Total assets $ 138,794 $ 142,029
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,295 $ 4,183
Accrued liabilities 3,879 6,378
Current portion of long-term debt 583 614
------------- ------------
Total current liabilities 6,757 11,175
Long-term debt 84,055 83,129
Deferred income taxes 6,042 5,776
------------- ------------
Total liabilities 96,854 100,080
------------- ------------
Shareholders' equity:
Common stock 10 10
Additional paid-in capital 24,742 24,851
Retained earnings 16,989 16,920
Foreign currency translation adjustment 199 168
------------- ------------
Total shareholders' equity 41,940 41,949
------------- ------------
Total liabilities and shareholders' equity $ 138,794 $ 142,029
</TABLE> ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 3
PENDA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(In thousands, except for per share data)
<S> <C> <C> <C> <C>
Net sales $ 20,111 $ 25,728 $ 39,929 $ 47,822
Cost of sales 13,915 14,745 28,314 28,330
----------- ----------- ----------- -----------
Gross profit 6,196 10,983 11,615 19,492
Selling, general and
administrative expenses 3,029 2,880 5,634 5,111
Amortization 773 749 1,544 1,498
----------- ----------- ----------- -----------
Operating income 2,394 7,354 4,437 12,883
Other income (expenses):
Interest expense (2,355) (2,460) (4,619) (4,887)
Other income 372 309 372 364
----------- ----------- ----------- -----------
Income before provision for
income taxes 411 5,203 190 8,360
Provision for income taxes 176 2,027 121 3,280
----------- ----------- ----------- -----------
Net income $ 235 $ 3,176 $ 69 $ 5,080
=========== =========== =========== ===========
Net income per common share $ 0.24 $ 3.18 $ 0.07 $ 5.08
=========== =========== =========== ===========
Weighted average common
shares outstanding 996 1,000 997 1,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 4
PENDA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
----------------------------------
1997 1996
---------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 69 $ 5,080
Non-cash adjustments to net income:
Depreciation 1,530 1,522
Amortization 1,544 1,498
Deferred income tax provision 266 1,312
Net change in other assets and liabilities (2,095) (3,212)
---------- -----------
Net cash provided by operating activities 1,314 6,200
---------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (166) (870)
Proceeds from insurance settlement 298 364
Payment of contingent acquisition consideration (2,000) (1,000)
---------- -----------
Net cash used in investing activities (1,868) (1,506)
---------- -----------
Cash flows from financing activities:
Payments on notes payable (105) (222)
Net changes in revolving credit borrowings 1,000 (5,000)
Purchase of common stock (109) (198)
Proceeds from sale-lease back of equipment - 1,940
---------- -----------
Net cash provided by (used in) financing activities 786 (3,480)
---------- -----------
Net change in cash 232 1,214
Cash and cash equivalents:
Beginning of period 1,970 467
---------- -----------
End of period $ 2,202 $ 1,681
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Penda Corporation (the "Company"), manufactures and distributes plastic
bedliners and other accessories for pickup trucks, sport utility vehicles, vans
and heavy duty trucks. The Company also distributes pickup truck accessories
manufactured by other companies. Plastic pickup truck bedliners account for
approximately 80% of the Company's sales. The Company's sales are principally
in the United States and Canada. The Company operates primarily in one
business segment, light truck accessory products.
These financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC")
and, in the opinion of the Company, include all adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial
position, results of operations and cash flows of the Company for the interim
periods presented. These financial statements include the accounts of the
Company's wholly-owned subsidiaries, and all significant intercompany
transactions have been eliminated. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These unaudited consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 as filed with the SEC.
2. INVENTORIES
Inventories at June 30, 1997 consist of the following (in thousands):
Finished goods $ 4,110
Work in process 254
Raw materials and supplies 2,240
---------
$ 6,604
=========
3. FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's non-U.S. subsidiaries are
translated using the current exchange rate for assets and liabilities and the
weighted average exchange rate for the year for income statement items.
Resulting translation adjustments for non-highly inflationary economies are
recorded directly to a separate component of shareholders' equity. Effective
January 1, 1997, Mexico was designated as a highly inflationary economy and all
translation adjustments after that date are included in the current period's
results of operations.
4. COMMON STOCK
In February 1997, pursuant to the termination of employment of a
shareholder of the Company, the Company was required to purchase 1,835 shares
of common stock (which were cancelled) from the terminated employee at an
aggregate cost of $110,000.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included as Item 7 of Part II of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
RESULTS OF OPERATIONS
Comparison of Quarters Ended June 30, 1997 and 1996
Net sales decreased $5.6 million or 21.8% as compared to the first
quarter of 1996. The decline is primarily attributable to the termination of
Company's supply contract with Ford Motor Company in February 1997 and, to a
lessor extent lower pricing in the aftermarket and lower fiberglass accessory
sales. These sales declines were offset by an increase in bedliner sales to
other OEM accounts, including distribution revenues.
Gross profit margin declined from 42.7% in the second quarter of 1996
to 30.8% in 1997. The decline in gross profit margin was due primarily to
losses from the Company's fiberglass manufacturing subsidiary ("Tri-Glas"),
lower absorption of fixed costs due to lower bedliner volumes, higher bedliner
raw material costs, and lower average bedliner selling prices. Tri-Glas's
losses resulted from a decline in sales of certain higher margin fiberglass
accessories and certain manufacturing inefficiencies, in part due to a new
product line. Among other actions, the Company has instituted cost reductions
in April 1997 and raised the selling prices of certain lower margin products
during May 1997. Management will be implementing a more comprehensive cost
reduction and sales enhancement plan during the balance of the year.
Second quarter 1997 selling, general and administrative expenses
increased $149,000 or 5.2%. As a percentage of sales, these expenses were
15.1% of sales in 1997, compared to 11.2% of sales in 1996. Selling, general
and administrative expenses were higher in 1997 due to legal costs associated
with the various legal actions discussed in the Company's 1996 Form 10-K and in
Part II, Item 1 herein, and additional sales staff added in the second half of
1996.
Amortization was higher due to contingent acquisition consideration
paid in 1997, while interest expense was lower as average revolving credit
borrowings outstanding were lower.
Comparison of Six Months Ended June 30, 1997 and 1996
Net sales decreased $7.9 million or 16.5% as compared to the six months
ended June 30, 1996. The decline is primarily attributable to the termination
of Company's supply contract with Ford Motor Company in February 1997, lower
aftermarket bedliner sales and lower fiberglass accessory sales. These sales
declines were offset by an increase in bedliner sales to other OEM accounts,
including distribution revenues.
Gross profit margin declined from 40.8% for the six months ended June
30, 1996 to 29.1% for the six months ended June 30, 1997. The decline in gross
profit margin was due primarily to losses from the Company's fiberglass
manufacturing subsidiary ("Tri-Glas"), lower absorption of fixed costs due to
lower bedliner volumes, along with higher bedliner raw material costs, and
lower average bedliner selling prices. Tri-Glas's losses resulted from a
decline in sales of certain higher margin fiberglass accessories and certain
manufacturing inefficiencies, in part due to a new product line. Among other
actions, the Company has instituted cost reductions in April 1997 and raised
the selling prices of certain lower margin products during May 1997. Management
will be instituting a more comprehensive cost reduction and sales enhancement
plan during the balance of the year.
6
<PAGE> 7
Selling, general and administrative expenses were $523,000 higher for
the six months ended June 30, 1997 versus the same period in 1996. As a
percentage of sales, these expenses were 14.1% of sales in 1997 compared to
10.7% of sales in 1996. Selling, general and administrative expenses were
higher in 1997 due to legal costs associated with the various legal actions
discussed in the Company's 1996 Form 10-K and in Part II, Item 1 herein,
additional sales staff added in the second half of 1996, and marketing costs
associated with launching a new aftermarket bedliner brand.
Amortization was higher due to contingent acquisition consideration
paid in 1997, while interest expense was lower as average revolving credit
borrowings outstanding were lower.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements for its operations are
working capital (principally accounts receivable and inventories) and capital
expenditures. The Company's capital needs have historically been provided by
internally generated cash and through utilization of the Company's revolving
credit facility. The Company's net working capital at June 30, 1997 was $14.9
million compared to $11.0 million at December 31, 1996
At June 30, 1997, the Company had approximately $84.6 million of
outstanding debt, including $80.0 million of senior notes payable, $1.0 million
under its revolving credit facility and $3.6 million in various notes payable.
During the second quarter of 1997, the Company repaid $3.0 million of
outstanding borrowings under its revolving credit facility. The $1.0 million
of borrowings outstanding at June 30, 1997 was repaid in July 1997.
The Company's consolidated debt-to-equity ratio was 2.02:1 at June 30,
1997 versus 2.00:1 at December 31, 1996. As of June 30, 1997, the Company had
approximately $17.3 million of availability under its revolving credit
facility.
Management believes that funds generated from operations and funds
available under the revolving credit facility will be sufficient to satisfy the
Company's debt service obligations, working capital requirements and
commitments for capital expenditures through the end of 1997. To the extent
available, excess funds will be used to reduce any outstanding borrowings under
the revolving credit facility.
On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations and to secure
adequate capital resources in the future are dependent on its ability to
generate adequate cash flows. Although the Company expects that its cash flows
from operations, available borrowings and access to the capital markets will be
sufficient to fund future debt service, this will be dependent on its overall
operating performance and be subject to general business, financial and other
factors affecting the Company and the light truck industry, certain of which
are beyond the control of the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 such
ordinary course litigation the outcome of which would have a material adverse
effect on its financial condition or results of operations. Set forth below is
an update of material developments in certain nonordinary course
7
<PAGE> 8
litigation more fully described in the Company's Annual Report on Form 10-K for
the year ended December 3 1, 1996 and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
CLASS ACTION LAWSUITS
On July 2, 1997, the plaintiff in the lawsuit Jimmy E. Brown, et al. v.
Durakon lndustries, Inc., et al., pending in the United States District Court
for the Southern District of Mississippi, Hattiesburg Division (see Part I,
Item 3 of the Company's Annual Report on Form 10-K for the year ended December
31, 1996, incorporated herein by reference) filed a motion with the court
seeking to add additional defendants, including TriEnda Corporation, the
Company's predecessor. This motion was granted on July 29, 1997. Settlement
discussions are continuing in connection with this lawsuit.
LITIGATION WITH FORMER EXECUTIVE OFFICER
In July 1997, the Company determined to pursue its litigation against
its former President and Chief Executive Officer, Daniel E. Braun, in a single
venue. It therefore dismissed without prejudice Penda Corporation v. Daniel E.
Braun, which it had filed on April 21, 1997 in the Circuit Court of the 11th
Judicial Circuit for Dade County, Florida. See Part II, Item 1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
incorporated herein by reference.
On May 20, 1997, the Company filed an Answer and a Counterclaim in the
lawsuit styled Daniel E. Braun v. Penda Corporation, pending in the Circuit
Court for Columbia County, Wisconsin. See Part II, Item 1 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997,
incorporated herein by reference. The Company has asserted affirmative
defenses which include failure of conditions precedent, waiver, breach of
contract, mistake, fraud, and equitable estoppel/unjust enrichment. In its
Counterclaim, the Company seeks (i) a declaratory judgment that Mr. Braun is
not entitled to severance pay under his employment agreement with the Company
(which would be payable only in the event Mr. Braun's employment was
terminated, or deemed to be terminated, without cause) and that he failed to
properly tender his shares of Company stock for repurchase pursuant to the
provisions of a Subscription and Shareholders' Agreement to which he is a
party, (ii) a declaratory judgment that certain restrictions against
competition and disclosure of trade secrets contained in Mr. Braun's employment
agreement with the Company are valid and enforceable, (iii) a claim for damages
for the breach by Mr. Braun of his obligations to the Company under his
employment agreement, (iv) an injunction enjoining Mr. Braun from violating
covenants contained in his employment agreement which restrict him from
competing with the Company for one year following his termination, divulging or
using any of the Company's confidential information and soliciting for
employment or employing any current or former employee of the Company for two
years following his termination, (v) reformation, cancellation or recession of
the Subscription and Shareholders' Agreement and certain stock option
agreements between the Company and Mr. Braun to provide that he is entitled to
no further compensation or benefits from the Company, and (vi) monetary damages
(including punitive damages) for fraud in the inducement. The Company's
Counterclaim also seeks an award of attorneys' fees and costs incurred in the
litigation. On June 9, 1997, Mr. Braun filed an Answer and Defenses to the
Company's Counterclaim denying liability to the Company and asserting defenses
of failure to state a claim upon which relief can be granted and
unenforceability of the restrictive covenants.
The Company intends to vigorously pursue its claims against Mr. Braun
and to vigorously defend itself against Mr. Braun's claims, which it believes
to be without merit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENDA CORPORATION
Date: August 11, 1997 By: /s/ Jack L. Thompson
---------------------------------------
Jack L. Thompson
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1997 By: /s/ Leo. E. Waner
---------------------------------------
Leo E. Waner
Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,202
<SECURITIES> 0
<RECEIVABLES> 11,961
<ALLOWANCES> 603
<INVENTORY> 6,604
<CURRENT-ASSETS> 21,687
<PP&E> 28,040
<DEPRECIATION> 7,071
<TOTAL-ASSETS> 138,794
<CURRENT-LIABILITIES> 6,757
<BONDS> 84,055
0
0
<COMMON> 10
<OTHER-SE> 41,930
<TOTAL-LIABILITY-AND-EQUITY> 138,794
<SALES> 39,929
<TOTAL-REVENUES> 39,929
<CGS> 28,314
<TOTAL-COSTS> 28,314
<OTHER-EXPENSES> 7,178
<LOSS-PROVISION> 478
<INTEREST-EXPENSE> 4,619
<INCOME-PRETAX> 190
<INCOME-TAX> 121
<INCOME-CONTINUING> 121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
