<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 MARCH 31, 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 (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 April 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 in "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.
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
--------------- -----------------------
<S> <C> <C>
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 1,285 $ 4,460
Accounts receivable, net 11,179 9,536
Inventories, net 4,617 4,941
Other 4,094 3,857
--------------- -----------------------
Total current assets 21,175 22,794
Property, plant and equipment, net 18,725 19,232
Intangible assets, net 93,084 93,834
Other 568 522
--------------- -----------------------
Total assets $ 133,552 $ 136,382
=============== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,008 $ 2,891
Accrued liabilities 2,984 5,443
Current portion of long-term debt 575 631
--------------- -----------------------
Total current liabilities 5,567 8,965
Long-term debt, less current portion 82,529 82,498
Deferred income taxes 7,712 7,639
--------------- -----------------------
Total liabilities 95,808 99,102
--------------- -----------------------
Shareholders' equity:
Common stock 10 10
Additional paid-in capital 24,990 24,990
Retained earnings 12,513 12,032
Foreign currency translation adjustment 231 248
--------------- -----------------------
Total shareholders' equity 37,744 37,280
--------------- -----------------------
Total liabilities and shareholders' equity $ 133,552 136,382
=============== =======================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
PENDA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
-------------------------------------------
1998 1997
(in thousands, except for per share data)
<S> <C> <C>
Net sales $ 18,391 $ 18,878
Cost of sales 12,166 13,459
--------------------- ------------------
Gross profit 6,225 5,419
Selling, general and administrative expenses 2,538 2,605
Amortization 774 771
--------------------- ------------------
Operating income 2,913 2,043
Interest expense 2,247 2,264
--------------------- ------------------
Income (loss) before income taxes 666 (221)
Provision (benefit) for income taxes 185 (55)
--------------------- ------------------
Net income (loss) $ 481 $ (166)
===================== ==================
Earnings (loss) per share of common stock
Basic $ 0.47 $ (0.17)
===================== ==================
Diluted $ 0.47 $ (0.17)
===================== ==================
Weighted average common shares outstanding
Basic 1,017 997
===================== ==================
Diluted 1,017 997
===================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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PENDA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
--------------------------------------------
1998 1997
----------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES: (in thousands)
Net income (loss) $ 481 $ (166)
Non-cash adjustments to net income (loss)
Depreciation 795 766
Amortization 774 771
Deferred income tax provision 171 468
Net change in other assets and liabilities
Accounts receivable - net (1,643) 68
Inventories - net 324 (443)
Accounts payable (883) 115
Accrued interest (2,459) (3,379)
Other (375) (324)
----------------- ---------------------
Net cash (used in) provided by operating activities (2,815) (2,124)
----------------- ---------------------
INVESTING ACTIVITIES:
Payment of contingent acquisition consideration (2,000)
Capital expenditures (304) (51)
----------------- ---------------------
Net cash (used in) provided by investing activities (304) (2,051)
----------------- ---------------------
FINANCING ACTIVITIES:
Net proceeds (payments), revolving credit borrowings 4,000
Payments on capital leases (56) (52)
Purchase of common stock (109)
----------------- ---------------------
Net cash (used in) provided by financing activities (56) 3,839
----------------- ---------------------
Net increase (decrease) in cash and cash equivalents (3,175) (336)
Cash and cash equivalents at beginning of period: 4,460 1,970
----------------- ---------------------
Cash and cash equivalents at end of period: $ 1,285 $ 1,634
================= =====================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
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.
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 presentation.
2. INVENTORIES
Inventories at March 31, 1998 consist of the following (in thousands):
<TABLE>
<S> <C>
Finished goods $ 2,518
Work in process 289
Raw materials and supplies 2,328
Less allowance for inventory obsolescence (518)
-----------
$ 4,617
===========
</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.
6
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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. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities and
foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
The components of comprehensive income, net of related tax, for the
three-month periods ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net Income $ 481 $ (166)
Unrealized gains on securities 0 0
Foreign currency translation adjustments (35) 64
------------ ------------
Comprehensive income $ 446 $ (102)
============ ============
</TABLE>
The only component of accumulated comprehensive income is foreign
currency translation adjustments.
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 March 31, 1998 and 1997
NET SALES: Net sales decreased $0.5 million, or 2.6%, from $18.9 million
in the first quarter of 1997 to $18.4 million in the first quarter of 1998.
This decrease is due to the loss of the Ford business in February 1997, which
has been partially offset by new and increased aftermarket sales as well as the
start of sales to General Motors.
COST OF GOODS SOLD AND GROSS PROFIT: Cost of sales decreased $1.3 million,
or 5.1% of net sales, from $13.5 million in the first quarter of 1997 to $12.2
million in the first quarter of 1998. The decrease is related to the reduction
in volume and the impact of the Company's cost reduction program. Gross profit
increased $0.8 million, and 5.1% of net sales, from $5.4 million in the first
quarter of 1997 to $6.2 million in the first quarter of 1998. Gross profit
margins increased from 28.7% in the first quarter of 1997 to 33.8% the first
quarter of 1998. This improvement resulted from the Company's cost reduction
efforts plus a stabilization of pricing as a result of the Company's sales and
marketing efforts.
7
<PAGE> 8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expense costs decreased $0.1 million, from $2.6 million in the
first quarter of 1997 to $2.5 million in the first quarter of 1998. As a
percentage of sales, selling, general and administrative expenses remained
constant at 13.8% of net sales for both first quarters of 1997 and 1998.
OPERATING INCOME: Operating income increased $0.9 million, or 5.0% of net
sales, from $2.0 million in the first quarter of 1997 to $2.9 million in the
first quarter of 1998.
INTEREST EXPENSE: Interest expense remained constant at $2.2 million and
12% of net sales for both first quarters.
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 March 31, 1998 was
$15.8 million compared to $13.8 million at December 31, 1997.
The Company's consolidated debt-to-equity ratio declined to 2.20:1 at
March 31, 1998 from 2.23:1 at December 31, 1997. At March 31, 1998, the
Company had $83.0 million of outstanding debt, including $80.0 million of
senior notes payable, $1.6 million in various notes payable, and $1.4 million
in capital lease obligations. During the first quarter of 1998, the Company
borrowed and repaid $1.0 million under its revolving credit facility. As of
March 31, 1998, the Company had $15.8 million 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
8
<PAGE> 9
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 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, 1997,
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
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
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 March 31, 1998.
27 Financial Data Schedule (for SEC use only)
9
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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: April 30, 1998 By: /s/ Jack L. Thompson
--------------------------------------------
Jack L. Thompson
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 30, 1998 By: /s/ Leo. E. Waner
--------------------------------------------
Leo E. Waner
Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,285
<SECURITIES> 0
<RECEIVABLES> 11,660
<ALLOWANCES> 481
<INVENTORY> 4,617
<CURRENT-ASSETS> 21,175
<PP&E> 28,250
<DEPRECIATION> 9,525
<TOTAL-ASSETS> 133,552
<CURRENT-LIABILITIES> 5,567
<BONDS> 82,529
0
0
<COMMON> 10
<OTHER-SE> 37,744
<TOTAL-LIABILITY-AND-EQUITY> 133,552
<SALES> 18,391
<TOTAL-REVENUES> 18,391
<CGS> 12,166
<TOTAL-COSTS> 12,166
<OTHER-EXPENSES> 3,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,247
<INCOME-PRETAX> 666
<INCOME-TAX> 185
<INCOME-CONTINUING> 481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
