<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 SEPTEMBER 30, 1998
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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 October 15, 1998, the Registrant had 1,016,624.2679 shares of $0.01 par value
common stock outstanding.
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This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of that term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Additional written or oral
forward-looking statements may be made by the Company from time to time, in
filings with the Securities Exchange Commission or otherwise. Statements
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions referenced above.
Forward-looking statements may include, but are not limited to,
projections of revenues, income or losses, capital expenditures, plans for
future operations, financing needs or plans, compliance with financial covenants
in loan agreements, plans for liquidation or sale of assets or businesses, plans
relating to products or services of the Company, assessments of materiality,
predictions of future events, the ability to obtain additional financing, the
Company's ability to meet obligations as they become due, the impact of pending
and possible litigation, as well as assumptions relating to the foregoing. In
addition, when used in this discussion, the words "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and similar expressions are intended
to identify forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties, including, but not limited to,
the impact of leverage, dependence on major customers, reliance on sales of new
trucks, fluctuating demand for passenger cars and light trucks, ability to
develop complementary products, risks in product and technology development,
fluctuating resin prices, competition, litigation, labor disputes, capital
requirements, and other risk factors detailed in the Company's Securities and
Exchange Commission filings, some of which cannot be predicted or quantified
based on current expectations.
Consequently, future events and actual results could differ materially
from those set forth in, contemplated by, or underlying the forward-looking
statements. Statements in this Quarterly Report, particularly "Part 1 Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Part 2, Item 1 Legal Proceedings" describe factors, among
others, that could contribute to or cause such differences.
Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------- ------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,808 $ 4,460
Accounts receivable, net 11,739 9,536
Inventories, net 4,934 4,941
Refundable income taxes -- 3,173
Deferred income taxes 539 539
Other 136 145
-------- --------
Total current assets 27,156 22,794
Property, plant and equipment
Land and improvements 735 735
Buildings and improvements 7,004 7,079
Machinery and equipment 18,586 18,598
Furniture and Fixtures 1,132 1,242
Construction in progress 2,050 538
-------- --------
29,507 28,192
Less accumulated depreciation 11,098 8,960
-------- --------
Net property, plant and equipment 18,409 19,232
Goodwill and other intangible assets, net 92,029 94,349
Other 45 7
-------- --------
Total assets $137,639 $136,382
======== ========
</TABLE>
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PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------- ------------
(in thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,274 $ 2,890
Accrued interest 753 2,927
Employee compensation 1,475 881
Current maturities of long-term debt 645 631
Other accrued liabilities 2,363 1,636
-------- --------
Total current liabilities 7,510 8,965
Long-term debt, less current portion 81,912 82,498
Deferred income taxes 8,274 7,639
-------- --------
Total liabilities 97,696 99,102
-------- --------
Shareholders' equity:
Common stock 10 10
Additional paid-in capital 24,990 24,990
Retained earnings 14,755 12,032
Foreign currency translation adjustment 188 248
-------- --------
Total shareholders' equity 39,943 37,280
-------- --------
Total liabilities and shareholders' equity $137,639 $136,382
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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PENDA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
-------------------------------- -----------------------------
1998 1997 1998 1997
-------------- ------------- ------------- -----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Net sales $ 18,309 $ 16,124 $ 59,437 $ 54,062
Cost of sales 10,970 11,288 36,593 37,611
-------------- ------------- ------------- -----------
Gross profit 7,339 4,836 22,844 16,451
Selling expenses 1,618 1,032 5,100 3,774
General and administrative expenses 1,537 1,819 4,048 4,402
Amortization 773 776 2,320 2,320
-------------- ------------- ------------- -----------
Operating income 3,411 1,209 11,376 5,955
Interest expense 2,241 2,228 6,732 6,847
Other expense, net 107 177 334 114
-------------- ------------- ------------- -----------
Income (loss) before income taxes 1,063 (1,196) 4,310 (1,006)
Provision (benefit) for income taxes 410 (451) 1,587 (330)
-------------- ------------- ------------- -----------
Net income (loss) $ 653 (745) $ 2,723 $ (676)
============== ============= ============= ===========
Earnings (loss) per share of common stock
Basic $ 0.64 $ (0.75) $ 2.68 $ (0.68)
============== ============= ============= ===========
Diluted $ 0.64 $ (0.75) $ 2.68 $ (0.68)
============== ============= ============= ===========
Weighted average common shares outstanding
Basic 1,017 996 1,017 996
============== ============= ============= ===========
Diluted 1,017 996 1,017 996
============== ============= ============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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PENDA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
--------------------------------------------------
1998 1997
--------------------- ----------------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,723 $ (676)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 2,412 2,294
Amortization 2,320 2,320
Deferred income taxes 635 45
Changes in operating assets and liabilities, net of
effects from purchase of business assets:
Accounts receivable (2,203) 4,759
Inventories 7 30
Refundable income taxes - net 3,173 351
Accounts payable (616) (2,369)
Accrued interest (2,174) (2,295)
Other 1,232 (1,102)
--------------------- --------------------
Net cash provided by operating activities 7,509 3,357
--------------------- --------------------
INVESTING ACTIVITIES:
Purchase of business assets - (2,000)
Capital expenditures (1,589) (255)
Proceeds from insurance claims - 298
--------------------- --------------------
Net cash used in investing activities (1,589) (1,957)
--------------------- --------------------
FINANCING ACTIVITIES:
Payments on notes payable (400) (400)
Payments on capital leases (172) (159)
Purchase of common stock - (141)
--------------------- --------------------
Net cash used in financing activities (572) (700)
--------------------- --------------------
Net increase in cash and cash equivalents 5,348 700
Cash and cash equivalents at beginning of period: 4,460 1,970
===================== ====================
Cash and cash equivalents at end of period: $ 9,808 $ 2,670
===================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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, side window air deflectors, cargo tie-downs, toolboxes,
and cargo liners designed for sport utility vehicles and other light trucks are
also distributed through the Company's OEM and aftermarket distribution systems.
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, 1997 as filed with the SEC.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- -----------------
<S> <C> <C>
Finished goods $ 2,773 $ 2,922
Work in process 608 534
Raw materials and supplies 1,979 2,013
Less allowance for inventory obsolescence (426) (528)
---------------- -----------------
$ 4,934 $ 4,941
================ =================
</TABLE>
3. FOREIGN CURRENCY TRANSLATION
Prior to January 1, 1997, the functional currency of the Company's
Mexican subsidiary was the Mexican peso; accordingly, assets and liabilities
were translated using the current exchange rate and the income statement was
translated using the weighted average exchange rate for the year. Resulting
translation adjustments were recorded directly to a separate component of
shareholders' equity.
As a result of changes in its operations, the Company has determined
that the U.S. dollar is the functional currency of its Mexican subsidiary. The
change in functional currency required the application of the current rate
translation method, wherein all assets and liabilities are translated using the
quoted period-end exchange rate and all revenues are translated at the average
rate of exchange in effect during the period.
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The functional currency of the Company's Australian subsidiary is the
Australian dollar; accordingly, assets and liabilities are translated using the
current exchange rate and the income statement is translated using the weighted
average exchange rate for the year. Resulting translation adjustments are
recorded directly to a separate component of shareholders equity.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components: however, the adoption of
this statement had no impact on the Company's net income or shareholders'
equity.
The components of comprehensive income, net of related tax, are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income (loss) $ 653 (745) $ 2,723 $ (676)
Foreign currency translation (gain)loss 87 (2) 54 (118)
------------ ---------- ----------- -----------
Comprehensive income $ 740 $ (747) $ 2,777 $ (794)
============ ========== =========== ===========
</TABLE>
5. CONTINGENCIES
See Item 1 of Part II.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included as Item 7 of Part II of the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
RESULTS OF OPERATIONS
Comparison of Quarters Ended September 30, 1998 and 1997
NET SALES: Net sales increased $2.2 million or 13.6%, from $16.1
million in the third quarter of 1997 to $18.3 million in the third quarter of
1998. This increase is due to the start up of General Motors sales activity in
1998, and increased aftermarket sales.
COST OF SALES AND GROSS PROFIT: Cost of sales decreased $.3 million or
2.7%, from $11.3 million in the third quarter of 1997 to $11.0 million in the
third quarter of 1998. This decrease is due to the impact of the company's cost
reduction program and favorable original equipment freight recovery in this
quarter. Gross profit increased $2.5 million or 51.8%, from $4.8 million in the
third quarter of 1997 to $7.3 million in the third quarter of 1998. Gross profit
margins increased from 30.0% in the third quarter of 1997 to 40.1% the third
quarter of 1998. This improvement resulted from the Company's cost reduction
efforts and continued stabilization of pricing as a result of the Company's
sales and marketing efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased $.3 million or 10.7%, from $2.9 million in the
third quarter of 1997 to $3.2 million in the third quarter of 1998. As a
percentage of sales, selling, general and administrative expenses decreased from
17.7% in the third quarter of 1997 to 17.2% in the third quarter of 1998. The
increased expense was due to promotional funding for fall programs, and the
lower percentage of sales is the direct result of higher sales volumes.
OPERATING INCOME: Based on the above, operating income increased $2.2
million or 182.1%, from $1.2 million in the third quarter of 1997 to $3.4
million in the third quarter of 1998.
INTEREST EXPENSE: Interest expense remained constant at $2.2 million in
the third quarters for both 1997 and 1998.
Comparison of Nine Months Ended September 30, 1998 and 1997
NET SALES: Net sales increased $5.4 million or 9.9%, from $54.0 million
in the first nine months of 1997 to $59.4 million in the first nine months of
1998. This increase is due to improved aftermarket sales and the start up of
sales activity to General Motors in 1998, partially offset by the loss of the
Ford business in February 1997.
COST OF SALES AND GROSS PROFIT: Cost of sales decreased $1.0 million or
2.7%, from $37.6 million in the first nine months of 1997 to $36.6 million in
the first nine months of 1998. This decrease is the direct result of the
Company's cost reduction program and improved productivity. Gross profit
increased $6.4 million or 38.9%, from $16.4 million in the first nine months of
1997 to $22.8 million in the first nine months of 1998. Gross profit margins
increased from 30.4% in the first nine months of 1997 to 38.4% the first nine
months of 1998. This improvement was a direct result of the Company's cost
reduction efforts, and the stabilization of pricing as a result of the Company's
sales and marketing efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased $1.0 million or 11.9%, from $8.2 million in
the first nine months of 1997 to $9.2 million in the first nine months of 1998.
As a percentage of sales, selling, general and administrative expenses increased
from
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15.1% in the first nine months of 1997 to 15.4% in the first nine months of
1998. This increase was due to additional marketing expenses related to
promotional campaigns on bedliners, black Hide-a-Hooks, and on Tri-step running
boards and tonneaus.
OPERATING INCOME: Based on the above, operating income increased $5.4
million or 91.0%, from $6.0 million in the first nine months of 1997 to $11.4
million in the first nine months of 1998.
INTEREST EXPENSE: Interest expense decreased $0.1 million or 1.7%, from
$6.8 million in the first nine months of 1997 to $6.7 million in the first nine
months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements for its operations are
working capital (principally inventory and accounts receivable) and capital
expenditures. In addition, the Company has annual note payments of $400,000 and
semi-annual interest (only) payments due on its unsecured 10.75% Senior Notes
due in 2004 ("Notes") and, if used, quarterly payments due on its revolving
Credit Facility. The Company's working capital at September 30, 1998 was $19.6
million compared to $13.8 million at December 31, 1997.
The Company's consolidated debt-to-equity ratio declined to 2.07:1 at
September 30, 1998 from 2.23:1 at December 31, 1997. At September 30, 1998, the
Company had approximately $82.6 million of outstanding debt, including $80.0
million of senior notes payable, $1.2 million in various notes payable, and $1.4
million in capital lease obligations. During the first nine months of 1998, the
Company borrowed and repaid $1.0 million under its revolving credit facility. As
of October 15, 1998, the Company had no outstanding borrowings and $16.5 million
of borrowing ability available 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 1998, 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.
YEAR 2000 COMPLIANCE
In 1998 management has made significant efforts to make the Company's
information systems "Year 2000 Compliant". While the Company's critical systems
are now compliant with the requirements of the Year 2000, continued efforts are
underway to bring user-based, ad-hoc personal computing tools, certain CNC
(Computer Numerical Control) equipment, and other data capture/retrieval systems
into compliance. The company plans to make all of its computer systems "Year
2000 Compliant" by the end of 4th quarter 1998. Penda is approximately 85%
compliant as of September 30, 1998. The phone system and minimum LAN software
upgrades will be completed by December 31, 1998 to make these systems 100%
compliant. The additional expense is expected to be less than $100,000. Efforts
are also in process to confirm that principal vendors, customers, and business
affiliates are also prepared and can confirm their situation to the Company in
an appropriate fashion. All contingency plans are being re-evaluated for
adequacy, but due to the high state of readiness we feel the risk in this area
is minimal.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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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 non-ordinary course litigation
more fully described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, incorporated herein by reference.
CLASS ACTION LAWSUITS
The Company, along with various other manufacturers of pickup truck
bedliners, is a defendant in certain class action lawsuits. The plaintiffs in
these lawsuits allege that the bedliners manufactured by the defendants are
defective and unreasonably dangerous because they allegedly prevent the
discharge of static electricity which can accumulate on or in portable fuel
containers, thereby creating the potential for fire or explosion. Settlement
discussions are continuing in connection with this lawsuit. In the event that
settlement discussions terminate, the Company intends to vigorously defend these
lawsuits.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable {or describe}
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable {or describe}
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable {or describe}
ITEM 5. OTHER INFORMATION
Not Applicable {or describe}
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See below
(b) No reports on Form 8K have been filed for the quarter ended September 30,
1998. {or specify the date and subject of each 8K filed in the first nine
months}
Exhibit Description
27.1 Financial Data Schedule (for SEC use only)
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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: October 20, 1998 By: /s/ Jack L. Thompson
----------------------------------------
Jack L. Thompson
President and Chief Executive Officer
(Principal Executive Officer)
Date: October 20, 1998 By: /s/ Leo. E. Waner
----------------------------------------
Leo E. Waner
Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,808
<SECURITIES> 0
<RECEIVABLES> 12,238
<ALLOWANCES> (499)
<INVENTORY> 4,934
<CURRENT-ASSETS> 27,156
<PP&E> 29,507
<DEPRECIATION> (11,098)
<TOTAL-ASSETS> 137,639
<CURRENT-LIABILITIES> 7,510
<BONDS> 81,600
0
0
<COMMON> 10
<OTHER-SE> 39,933
<TOTAL-LIABILITY-AND-EQUITY> 137,639
<SALES> 59,437
<TOTAL-REVENUES> 59,437
<CGS> 36,593
<TOTAL-COSTS> 36,593
<OTHER-EXPENSES> 11,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,732
<INCOME-PRETAX> 4,310
<INCOME-TAX> 1,587
<INCOME-CONTINUING> 2,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,723
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.68
</TABLE>
