<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, 1999
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)
<TABLE>
<CAPTION>
<S> <C>
FLORIDA 65-0463658
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2344 WEST WISCONSIN STREET, PORTAGE, WISCONSIN 53901-0449
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 September 30, 1999, the Registrant had 1,019,974.7661 shares of $0.01 par
value common stock outstanding.
<PAGE> 2
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.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
-------------------- ------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,359 $ 6,336
Accounts receivable, net 12,222 10,667
Inventories, net 6,316 5,701
Deferred income taxes 833 833
Other 770 844
-------------------- ------------------
Total current assets 31,500 24,381
Property, plant and equipment
Land and improvements 755 744
Buildings and improvements 7,601 7,388
Machinery and equipment 24,806 21,278
Furniture and fixtures 660 600
Construction in progress 978 1,817
-------------------- ------------------
34,800 31,827
Less accumulated depreciation 14,656 11,885
-------------------- ------------------
Net property, plant and equipment 20,144 19,942
Goodwill and other intangible assets, net 92,665 94,836
-------------------- ------------------
Total assets $ 144,309 $ 139,159
==================== ==================
</TABLE>
3
<PAGE> 4
PENDA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
-------------------- ------------------
(in thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,760 $ 3,612
Accrued interest 721 2,841
Employee compensation 1,738 1,174
Current maturities of long-term debt 644 651
Other accrued liabilities 2,362 2,388
------------------ ------------------
Total current liabilities 8,225 10,666
Long-term debt, less current portion 79,124 78,699
Deferred income taxes 10,917 9,547
------------------ ------------------
Total liabilities 98,266 98,912
Shareholders' equity:
Common stock 10 10
Additional paid-in capital 25,140 24,990
Retained earnings 20,893 15,247
------------------ ------------------
Total shareholders' equity 46,043 40,247
------------------ ------------------
Total liabilities and shareholders' equity $ 144,309 $ 139,159
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
PENDA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
----------------------------- ----------------------------
(in thousands)
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
Net sales $ 22,768 $ 18,309 $ 70,130 $ 59,437
Cost of sales 13,291 10,970 40,272 36,593
---------- ---------- ---------- ----------
Gross profit 9,477 7,339 29,858 22,844
Selling expenses 2,157 1,618 7,653 5,100
General and administrative expenses 1,254 1,537 3,881 4,048
Amortization 850 773 2,585 2,320
---------- ---------- ---------- ----------
Operating income 5,216 3,411 15,739 11,376
Interest expense 1,994 2,241 6,086 6,732
Other expense, net 207 107 582 334
---------- ---------- ---------- ----------
Income before income taxes 3,015 1,063 9,071 4,310
Provision (benefit) for income taxes 1,146 410 3,425 1,587
---------- ---------- ---------- ----------
Net income $ 1,869 $ 653 $ 5,646 $ 2,723
---------- ---------- ---------- ----------
Earnings per share of common stock
Basic $ 1.83 $ 0.64 $ 5.54 $ 2.68
---------- ---------- ---------- ----------
Diluted $ 1.83 $ 0.64 $ 5.54 $ 2.68
---------- ---------- ---------- ----------
Weighted average common shares outstanding
Basic 1,020 1,017 1,020 1,017
---------- ---------- ---------- ----------
Diluted 1,020 1,017 1,020 1,017
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
PENDA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
------------------------------------------------
1999 1998
--------------------- --------------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,646 $ 2,723
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,771 2,412
Amortization 2,171 2,320
Deferred income taxes 1,370 635
Changes in operating assets and liabilities:
Accounts receivable (1,555) (2,203)
Inventories (615) 7
Refundable income taxes - 3,173
Accounts payable (852) (616)
Accrued interest (2,120) (2,174)
Other 612 1,232
--------------------- --------------------
Net cash provided by operating activities 7,428 7,509
--------------------- --------------------
INVESTING ACTIVITIES:
Capital expenditures (2,005) (1,589)
--------------------- --------------------
Net cash used in investing activities (2,005) (1,589)
--------------------- --------------------
FINANCING ACTIVITIES:
Payments on notes payable (550) (400)
Payments on capital leases - (172)
Issuance of common stock 150 -
--------------------- --------------------
Net cash (used in) provided by financing activities (400) (572)
--------------------- --------------------
Net increase in cash and cash equivalents 5,023 5,348
Cash and cash equivalents at beginning of period: 6,336 4,460
===================== ====================
Cash and cash equivalents at end of period: $ 11,359 $ 9,808
===================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
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, 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, 1998 as filed with the SEC.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Finished goods $ 3,131 $ 3,031
Work in process 878 680
Raw materials and supplies 2,659 2,245
Less allowance for inventory obsolescence (351) (255)
---------------- ----------------
$ 6,317 $ 5,701
================ ================
</TABLE>
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as
follows:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Net income $ 5,646 $ 2,723
Foreign currency translation adjustments - 54
---------------- ----------------
Comprehensive income $ 5,646 $ 2,777
================ ================
</TABLE>
7
<PAGE> 8
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, 1998.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1999 and 1998
NET SALES: Net sales increased $4.5 million, or 24.4%, from $18.3
million in the third quarter of 1998 to $22.8 million in the third quarter of
1999. This increase is due to improved aftermarket sales and increased market
penetration with General Motors, DaimlerChrysler and Toyota.
COST OF GOODS SOLD AND GROSS PROFIT: Cost of sales increased $2.3
million, or 21.2% from $11.0 million in the third quarter of 1998 to $13.3
million in the third quarter of 1999. This increase is due to a favorable cost
reduction program and continued improvement in distribution efficiency with full
truckload, multiple shipments. Gross profit increased $2.1 million, or 29.1%
from $7.4 million in the third quarter of 1998 to $9.5 million in the third
quarter of 1999. Gross profit margins at 41.6% in the third quarter of 1999,
up 1.5% from prior year. This improvement is due to the Company's continued
cost reduction efforts and improved plant utilization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased $0.3 million, or 8.1% from $3.1 million in the
third quarter of 1998 to $3.4 million in the third quarter of 1999. As a
percentage of sales, selling, general and administrative expenses decreased from
17.2% in the third quarter of 1998 to 15.0% in the third quarter of 1999. This
increased expense is due to continued implementation of several aggressive
marketing initiatives such as: a consumer cross-promotion with Sears Craftsman
Tools, national television and trade advertising campaigns, and website
enhancement, which resulted in a better than planned final two months of the
third quarter 1999.
OPERATING INCOME: As a result, operating income increased $1.8 million
or 52.9% from $3.4 million in he third quarter of 1998 to $5.2 million in the
third quarter of 1999.
INTEREST EXPENSE: Interest expense decreased $0.2 million or 11.0% from
$2.2 million in the third quarter of 1998 to $2.0 million in the third quarter
of 1999 due to senior note repurchases.
Comparison of Nine Months Ended September 30, 1999 and 1998
NET SALES: Net sales increased $10.7 million, or 18.0%, from $59.4
million in the first nine months of 1998 to $70.1 million in the first nine
months of 1999. This increase is due to improved aftermarket sales and increased
market penetration with General Motors, DaimlerChrysler and Toyota.
COST OF GOODS SOLD AND GROSS PROFIT: Cost of sales increased $3.7
million, or 10.1% from $36.6 million in the first nine months of 1998 to $40.3
million in the first nine months of 1999. This increase is due to a favorable
cost reduction program and continued improvement in distribution efficiency with
full truckload, multiple shipments. Gross profit increased $7.0 million, or 30.7
% from $22.9 million in the first nine months of 1998 to $29.9 million in the
first nine months of 1999. Gross profit margins at 42.6% in the first nine
months of 1999, up 4.2% from prior year. This improvement is due to the
Company's continued cost reduction efforts and improved plant utilization.
8
<PAGE> 9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased $2.4 million, or 26.1% from $9.1 million in
the first nine months of 1998 to $11.5 million in the first nine months of 1999.
As a percentage of sales, selling, general and administrative expenses increased
from 15.4% in the first nine months of 1998 to 16.4% in the first nine months of
1999. This increased expense is due to continued implementation of several
aggressive marketing initiatives such as: a consumer cross-promotion with Sears
Craftsman Tools, national television and trade advertising campaigns, and
website enhancement, which resulted in a better than planned final two months of
the third quarter 1999.
OPERATING INCOME: As a result, operating income increased $4.4 million
or 38.4% from $11.3 million in the first nine months of 1998 to $15.7 million in
the first nine months of 1999.
INTEREST EXPENSE: Interest expense decreased $0.6 million or 9.6% from
$6.7 million in the first nine months of 1998 to $6.1 million in the first nine
months of 1999 due to senior note repurchases.
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, 1999 was $12.5
million compared to $18.5 million at December 31, 1998.
The Company's consolidated debt-to-equity ratio decreased to 1.73:1 at
September 30, 1999 from 1.97: 1 at December 31, 1998. At September 30, 1999, the
Company had approximately $79.8 million of outstanding debt, including $76.7
million of senior notes payable, $0.8 million in various notes payable, and $2.3
million in capital lease obligations. As of September 30, 1999, the Company had
no outstanding borrowings and $12.5 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 1999, 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
The Company continues to implement the remediation and acceptance
testing phases of its Year 2000 program described in the Company's annual report
on Form 10-K for the year ended December 31, 1998, which is incorporated herein
by reference. The Company as of the end of the third quarter is 99% compliant in
remediation and acceptance testing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S.
interest rates and commodity prices. The Company does not engage in financial
transactions for trading or speculative purposes.
9
<PAGE> 10
INTEREST RATE RISK. The interest payable on the Company's Credit
Facility is affected by changes in market interest rates. As of September 30,
1999, the Company had no outstanding debt under the Credit Facility. Based on
borrowings through September 30, 1999, a 10% increase or decrease in the average
cost of the Company's Credit Facility debt would not be material. In addition,
the Company has fixed income investments consisting of cash equivalents and
short-term investments in marketable debt securities, which are also affected by
changes in market interest rates. The Company does not use derivative financial
instruments in its investment portfolio.
COMMODITY PRICES. The Company is exposed to fluctuation in market
prices for plastic and electricity related to its manufacturing operations. The
Company manages its exposure to changes in those prices primarily through the
terms of its supply and procurement contracts. This exposure is material to 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 non-ordinary course litigation
more fully described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
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 prevent the discharge of static
electricity which can accumulate during the filling of portable fuel containers
creating the potential for fire or explosion and that they did not receive any
warning of this danger. The Company has placed warning labels on its bedliners
since 1996. On October 15, 1999, the Circuit Court for Champaign County,
Illinois, granted final approval of a settlement in which the Company and the
other defendants would fund a public education campaign, use uniform warning
label, and pay the plaintiffs' attorneys' fees. The Company has established
reserves on its financial statements for its portion of the settlement.
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
10
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See below
Exhibit Description
27.1 Financial Data Schedule (for SEC use only)
11
<PAGE> 12
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 27, 1999 By: /s/ Jack L. Thompson
-------------------------------------
Jack L. Thompson
President and Chief Executive Officer
(Principal Executive Officer)
Date: October 27, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,359
<SECURITIES> 0
<RECEIVABLES> 12,576
<ALLOWANCES> 354
<INVENTORY> 6,316
<CURRENT-ASSETS> 31,500
<PP&E> 34,800
<DEPRECIATION> 14,656
<TOTAL-ASSETS> 144,309
<CURRENT-LIABILITIES> 8,225
<BONDS> 79,768
0
0
<COMMON> 10
<OTHER-SE> 46,033
<TOTAL-LIABILITY-AND-EQUITY> 144,309
<SALES> 70,130
<TOTAL-REVENUES> 70,130
<CGS> 40,272
<TOTAL-COSTS> 40,272
<OTHER-EXPENSES> 14,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,086
<INCOME-PRETAX> 9,071
<INCOME-TAX> 3,425
<INCOME-CONTINUING> 5,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,646
<EPS-BASIC> 5.54
<EPS-DILUTED> 5.54
</TABLE>
