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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, 1998
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)
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FLORIDA 65-0463658
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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2344 W. WISCONSIN STREET
PORTAGE, WISCONSIN
53901-0449
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(Address of principal executive offices)
(Zip Code)
(608) 742-5301
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(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
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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 March 1, 1999, the registrant had 1,016,624.2679 shares of $0.01 par value
common stock outstanding.
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INDEX TO ITEMS
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ITEM 1. BUSINESS.............................................................................................1
ITEM 2. PROPERTIES...........................................................................................7
ITEM 3. LEGAL PROCEEDINGS....................................................................................7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................8
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..............................................................................................9
ITEM 6. SELECTED FINANCIAL DATA..............................................................................9
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................................................10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................................................15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................................................34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................................35
ITEM 11. EXECUTIVE COMPENSATION..............................................................................38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................42
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K.....................................44
SIGNATURES.....................................................................................................47
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PART I
This Annual Report on Form 10-K 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 commodity 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 Annual Report, particularly in Item 1. Business,
Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Item 7A Quantitative and
Qualitative Disclosures About Market Risk 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.
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, van converters, specialty automotive
stores, other retailers, and OEMs. Other truck accessories including bed mats,
tailgate liners, hard tonneau covers, soft tonneau covers, cargo tie-downs,
toolboxes, truck bed trays, cargo organizers and liners for passenger cars and
sport-utility vehicles are also distributed through the Company's OEM and
aftermarket distribution systems.
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The Company was formed in connection with 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").
On October 23, 1998, the Company acquired certain assets of Custom Form
Manufacturing, Inc.
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 market benefited by consumers' general preference to purchase significant
add-ons at the time they purchase their vehicle. Such purchases allow
installation of accessories prior to delivery and before damage to the vehicle
occurs. It also permits the buyer to finance accessories with the purchase of
the vehicle. Aftermarket sales are generally purchased by consumers as an
alternative to the perceived higher cost of OEM accessories, to engage in
"do-it-yourself" installation, to protect their vehicles after they see pickup
truck bed damage, to "customize" the appearance of their vehicle, or prior to a
planned sale of a used vehicle.
Various OEM's have been working on plastic composite substitutes for
steel pickup truck boxes for more than 10 years. There are plans to put
composite pickup truck boxes into limited production in the next few years.
Composite pickup truck boxes are expected to be less than 10% of pickup truck
production through 2003. Composite pickup truck bed boxes may or may not be
painted. The Company believes that composite pickup truck boxes will continue to
require protection in order to retain the resale value of the vehicle.
The Company also distributes pickup truck bedliners outside of North
America. These sales represented 3.2%, 3.0% and 1.8% of the Company's net sales
in 1998, 1997, and 1996, respectively.
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) SR(TM) and PENDALINER(R)" brand
names, while OEM liners are stamped with the truck manufacturer's name, such as
GM, Toyota, or Dodge or the manufacturer's logo, such as the Chevrolet bowtie or
the Dodge ramshead, in the headwall of the bedliner. The Company manufactures
approximately 500 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. For marketing reasons, the Company may make more than one
bedliner model for each individual pickup truck. The Company's bedliner sales
represented 80% and 75% of the Company's net sales for 1998 and 1997,
respectively.
Pickup Truck Caps
Pickup truck caps are manufactured primarily for aftermarket customers
and sold under the Tri-Glas(R) brand name. 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 reinforced resin and chopped
fiberglass, and include a one-piece reinforced fiberglass base rail.
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Pickup Truck Hard 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. Aftermarket tonneau covers are sold under the Tri-Glas(R) and
Pendacover(TM) brand names. 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 sides of the truck bed. The
Company's tonneau covers are also manufactured from reinforced resin and chopped
fiberglass and are custom-finished with automotive paint.
Pickup Truck Soft Tonneau Covers
Pickup truck soft tonneau covers are manufactured for both OEM and
aftermarket customers and are flat, vinyl covers supported by an aluminum frame
that protects the bed of the pickup truck. Aftermarket soft tonneau covers are
sold under the Pendacover(TM) PRO(TM) and Custom Form(R) brand names. The soft
tonneau cover, like a hard tonneau, enhances the appearance and aerodynamics of
the truck.
Running Boards
Running boards are manufactured primarily for aftermarket customers and
are sold under the Tri-Glas(R) brand name. 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 user.
Other Light Truck Accessory Products
Light truck accessories currently being distributed by the Company
include the following:
- Hide-A-Hook(R) tie-downs, which utilize a patented design that
allows a hook or loop to rotate out of sight when not in use. The
Hide-A-Hook(R) tie-down reduces the likelihood of pickup truck
cargo movement in the bed of the pickup.
- Penda(R) Elite(TM) Tool Boxes, which can hold tools and other
items, fit in the bed of a pickup truck, have metal framing for
strength and durability, and are available with accessories to
increase utility.
- Penda(R) Tri-Step(TM) boards which are a small running board and
make it easier to get into and out of a sport utility vehicle or
pickup truck.
- Pendatray(TM)SR(TM) truck bed trays which are thermoformed
high-density polyethylene plastic trays designed to fit the bottom
of a pickup truck bed and protect the bed of the truck, with a
rolled raised lip that provides spill containment.
- Cargo organizers and liners which are designed for passenger cars
and sport-utility vehicles (SUV's), maximize useful vehicle
storage space, and help secure and organize loose items in the
vehicle, as well as protect interior vehicle trucks and storage
areas.
- Pickup truck bedmats that are rubber mats designed to protect the
floor of pickup truck beds.
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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 meet Federal Motor
Vehicle Safety Standards for either Roof Crush Resistance (FMVSS 216) or School
Bus Rollover Protection (FMVSS 220).
Class 8 Trucks
The Company manufactures fiberglass sleeper shells and other truck
parts for certain OEMs of heavy duty trucks.
SIGNIFICANT CUSTOMERS
Sales to DaimlerChrysler and General Motors Corporation were
approximately 25% and 10% of consolidated net sales in 1998, respectively. No
other customer accounted for more than 10% of consolidated net sales in 1998 and
the Company is not otherwise dependent upon a single or a few customers, the
loss of which would have a materially adverse effect on the Company.
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 75% of the
total bedliner market, with other known competitors accounting for the balance.
Competition in the industry is based primarily on brand name recognition,
delivery, price, quality, and service.
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 and conceptualizing product ideas through regular
meetings among members of the Company's design engineering and senior management
teams. The Company's engineering staff develops product concepts and prototypes
assessed feasibility, manufacturing cost parameters, and lead times and use a
computer assisted design system to preview aspects of design and performance
prior to production. New products developed in 1998 include the
Pendatray(TM)SR(TM) pickup truck bed tray and cargo organizers and liners for
passenger cars and sport-utility vehicles (SUV's).
BACKLOG ORDERS
A sales backlog is maintained, however, sales orders are generally
filled in less than one week.
MANUFACTURING
The Company's bedliner manufacturing operations include the in-house
extrusion of plastic resins into high-density polyethylene heavy gauge sheets.
The Company then molds the polyethylene sheets into the shape of a pickup truck
bed through the use of a 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. Pellets and
regrind materials are heated and, after melting and extrusion, 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.
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The Company's fiberglass manufacturing operations use production molds
to laminate fiberglass into the various product shells. 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 product quality meets the Company's and its
customers' requirements.
MARKETING
The Company has recently received a commitment from NASCAR for the use
of their NASCAR(R) Truck(TM) brand name and logo on the new PENDALINER(R)SR
PRO(TM) bedliner line and the new Pendacover(TM)PRO(TM) soft tonneau cover
product line. The Company plans to support these new aftermarket premium product
lines with an aggressive marketing and advertising campaign to capitalize on
consumer and trade recognition of the NASCAR(R) brand name.
In 1998, the Company's Penda Protection PRO program - a new retailer
marketing program - was very successful. The Program provides customer training,
point-of-sale materials, a dealer locator `1-800-22-PENDA', a premium point
program - PendaPoints, and other advertising support. In June 1998, the Company
launched its new website that contains a dealer locator and product information.
As part of the Company's marketing program to assist OEM truck dealers
and aftermarket distributors, the Company (i) advertises on national cable
television (beginning in 1999); (ii) advertises on national network radio; (iii)
advertises in light truck enthusiast magazines and general consumer interest
magazines; (iv) provides dealers and distributors with product pamphlets, sample
materials, sales and installation training videos, point-of-sale-displays, and
special promotional brochures; (v) attends trade shows and places advertisements
in key trade journals; (vi) sponsors a NASCAR Craftsman Series Truck racing
team; (vii) conducts periodic promotional campaigns to provide additional
incentives to dealer and distributor sales personnel as well as end consumers;
(viii) maintains a customer service/telemarketing department to promptly respond
to customer needs and orders; (ix) 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 (x) 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.
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 32 distribution locations located throughout the United States and
Canada to receive, store, and deliver products to OEM dealers.
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The Company's bedliners and other automobile accessory products are
distributed to the aftermarket through approximately 100 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 and Elkhart, Indiana facilities.
Pickup Truck Caps, Tonneau Covers and Running Boards
These fiberglass 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 the Company's facility in Daleville, Alabama. Truck caps and
running boards are distributed predominately to aftermarket customers in the
south central and southeastern regions of the United States. Hard tonneau covers
are also manufactured for OEM customers.
Van Tops and Class 8 Truck Parts
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. The Company's
staff works 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 it's commitment to quality, the Company has 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.
TRADEMARKS AND PATENTS
The Company has registered its Penda(R), PENDALINER(R), Tri-Glas(R),
and other trademarks with the United States Patent and Trademark Office. In
addition, the Company holds several patents covering truck bedliners, pickup
truck caps, pickup truck sleepers, running boards, van tops, soft tonneaus and
other accessories, none of which expire earlier than 2003. Since 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.
RAW MATERIALS
The primary raw materials used in the manufacture of the Company's
products are polyethylene and polyester plastic resins and chopped fiberglass.
The raw materials required by the Company are obtained from regular commercial
sources of supply and, in most cases, multiple sources. The capacity, supply,
and demand for polyethylene, plastic resins, and fiberglass are subject to
cyclical and other market factors. Under normal conditions, there is no
difficulty in obtaining requirements at competitive prices. In addition, no
shortages have been experienced by the Company in obtaining its required raw
materials.
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However, future shortages of raw materials could have a material adverse effect
on the Company's business.
EMPLOYEES
At December 31, 1998, the Company had approximately 607 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
The Company owns a 240,000 square-foot manufacturing, warehouse, and
corporate administrative office facility located on 19 acres in Portage,
Wisconsin and a 11-acre manufacturing facility in Daleville, Alabama. The
Company leases 4.4 acres for administrative offices and maintenance facilities
in Daleville, Alabama, a 65,000 square-foot warehouse and manufacturing facility
in Elkhart, Indiana, and an unused 52,000 square-foot building on 8.9 acres in
Platteville, Wisconsin. 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 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, 1996 and Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997.
CLASS ACTION LAWSUITS
The Company, along with various other manufacturers of pickup truck
bedliners, is a defendant in certain class action lawsuits. 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. 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.
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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
There is no established trading market for the Company's common stock.
As of March 1, 1999, 34 persons held the Company's 1,016,624 outstanding shares
of common stock. The Company has not paid dividends since its inception and has
no intention to pay dividends for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected income statement data for the years ended December 31,
1998, 1997, 1996 and 1995 and for the period from March 18, 1994 through
December 31, 1994, and the selected balance sheet data for the same periods 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 derived from the audited financial statements of the
Company's predecessor - the Proprietary Products Division of TriEnda Corporation
(" Predecessor"). The following data should be read in conjunction with the
audited financial statements and related notes thereto of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
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INCOME STATEMENT DATA
(IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
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COMPANY PREDECESSOR
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YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/18/94- 1/1/94-
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 3/17/94
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Net Sales............. $77,962 $69,961 $89,353 $74,822 $56,160 $12,434
Income/(Loss) Before Income
Taxes (1)............. 5,279 (6,218) 11,969 6,923 9,585 2,857
Net Income/(Loss) (1) 3,215 (4,888) 7,214 3,848 5,858 N/A
Net Income/(Loss) Per
Common Share
Basic $3.16 $(4.89) $7.22 $3.85 $5.86 N/A
Diluted $3.16 $(4.89) $7.20 $3.85 N/A N/A
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BALANCE SHEET DATA
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COMPANY PREDECESSOR
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DECEMBER 31, MARCH 17
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1998 1997 1996 1995 1994 1994
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Total Assets............. $139,160 $136,382 $142,029 $139,137 $122,431 $18,881
Long-Term Debt........... $ 79,350 $ 83,129 $ 83,743 $ 92,140 $ 80,000 --
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(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.
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, 1998, should be read in conjunction with the selected financial
data, the Company's consolidated financial statements, and related notes:
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
OVERVIEW: In 1998, the Company experienced a significant turnaround in
both its financial and operational positions. It was a year in which all
operating measurables exceeded prior years for productivity, efficiency, and
profitability. Superior quarter over quarter volume and profitability growth was
achieved in the past four quarters. In 1998, the sales force was fully staffed
and trained, while a world class promotional and marketing program was rolled
out to the aftermarket customers. The growth in aftermarket sales and the
addition of General Motors as an OEM customer more than offset the loss of the
Ford business in 1997. The company acquired certain assets of Custom Form
Manufacturing, Inc. (Custom Form) late in 1998, which provides the Company
access to foreign markets and new product classes.
NET SALES: Net sales increased $8.0 million, or 11.4%, from $70.0
million in 1997 to $78.0 million in 1998. The increase resulted from the start
up of General Motors sales activities in 1998 and improved aftermarket sales
generated by aggressive advertising and promotional campaigns. In the fourth
quarter, sales were augmented by the acquisition of Custom Form in late October.
COST OF GOODS SOLD AND GROSS PROFIT: Cost of sales decreased $2.2
million, or 4.4%, from $50.8 million in 1997 to $48.6 million in 1998. Gross
profit increased $10.2 million, or 53.5%, from $19.2 million in 1997 to $29.4
million in 1998. Gross profit margins increased from 27.4% in 1997 to 37.7% for
1998. This improvement resulted from the Company's continued cost reduction
efforts, lower resin pricing, and the stabilization of pricing due to expanded
sales and marketing efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling costs increased
$1.9 million, or 38.2% from $5.0 million in 1997 to $6.9 million in 1998. As a
percentage of sales, selling expenses increased from 7.1% in 1997 to 8.8% in
1998. This increase was attributable to a larger sales force and expanded
promotional and advertising campaigns. General and administrative expenses
decreased $1.9 million, or 25.6%, from $7.4 million in 1997 to $5.5 million in
1998. This decrease was primarily due to reduced litigation costs in 1998.
OPERATING INCOME: As a result of the items noted above, operating
income increased $10.7 million, or 357.4%, from $3.0 million in 1997 to $13.7
million in 1998.
INTEREST EXPENSE: Interest expense decreased from $9.1 million in 1997
to $8.9 million in 1998, or 2.2%, due primarily to reduced short-term borrowings
and Senior Note repurchases in October 1998.
OTHER (INCOME) EXPENSE, NET: Other net was income of $421,370 in 1998
compared to a net expense of $133,823 in 1997. Key reasons for the increase in
income had to do with insurance recovery and year-end translation adjustments.
10
<PAGE> 13
INCOME TAX EXPENSE: The effective income tax rates for 1998 and 1997
were 39.2% and (21.4%), respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
OVERVIEW: During 1997, the Company, experienced significant changes in
sales, personnel and direction precipitated by the February 1997 loss of the
Ford OEM contract. The Company incurred $4.7 million of one-time expenses
including legal/litigation expenses of $1.7 million, Mexican/Australian write
downs of $1.1 million, settlement with a former chief executive of $655,000, and
consulting and executive search fees of $755,000. Management believes that these
one time expenses, in conjunction with aggressive cost reduction actions and
market programs, position the Company to achieve improved operating results in
1998.
NET SALES: Net sales decreased $19.4 million, or 21.7%, from $89.4
million in 1996 to $70.0 million in 1997. The decrease resulted from lower OEM
bedliner unit sales (down 28.6%), lower fiberglass accessory and aftermarket
sales (down 21.3%), and continued erosion in overall OEM and aftermarket
bedliner pricing (down 2.6%). Fiberglass running board production was curtailed
due to the 1996 fire at the Tri-Glas manufacturing facility and was not fully
restored until late in the third quarter of 1997. New management has pursued
marketing strategies to recover the lost Ford volume through dealer-direct
programs and new aftermarket customer conquests. In addition, in December 1997,
the Company secured a General Motors supply agreement.
COST OF GOODS SOLD AND GROSS PROFIT: Cost of sales decreased $5.7
million, or 10.1% from $56.5 million in 1996 to $50.8 million in 1997. Gross
profit decreased $13.7 million, or 41.7% from $32.9 million in 1996 to $19.2
million in 1997. Gross profit margins declined from 36.8% in 1996 to 27.4% for
1997. These declines were primarily due to the decrease in the Company's sales.
The decline in gross profit margin can be partially attributed to higher fixed
costs as a percent of sales due to lower production and shipping volumes and
asset write downs in Mexico and Australia. Partially offsetting the decline in
gross profit margin was lower resin prices and reduced head count. In an effort
to improve gross profit margin, prior management's capital, operational, and
business commitments were significantly curtailed and in the fourth quarter 1997
management instituted comprehensive cost improvement programs in its offices and
manufacturing plants.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling costs increased
$900,000, or 21.1% from $4.1 million in 1996 to $5.0 million in 1997, primarily
due to increased advertising and hiring of additional sales associates in the
fourth quarter 1997 in preparation for a new aftermarket program launch in
December. As a percentage of sales, selling expenses increased from 4.6% in 1996
to 7.1% in 1997 due both to the increase in selling expenses and the decrease in
sales volume. General and administrative expenses increased $3.2 million, or
77.8% from $4.2 million in 1996 to $7.4 million in 1997. This increase reflected
$1.7 million of legal expenses associated with the Company's class action
litigation, a successful patent infringement suit with a competitor. The Company
also changed its independent auditors, conducted a strategic marketing study,
conducted two executive searches and retained business process consultants to
improve operational efficiencies ($755,000).
LEGAL SETTLEMENT: The Company's 1997 results also reflect a one-time
charge of $655,000 associated with its legal settlement with its former chief
executive officer.
OPERATING INCOME: As a result of the foregoing items, operating income
decreased $18.6 million or 86.1% from $21.6 million in 1996 to $3.0 million in
1997.
INTEREST EXPENSE: Interest expense decreased from $9.5 million in 1996
to $9.1 million in 1997, or 4.5% due primarily to lower average outstanding
borrowings.
11
<PAGE> 14
OTHER (INCOME) EXPENSE, NET: Other expense, net was $133,823 in 1997
compared to $83,504 in 1996 due primarily to the receipt of the final Tri-Glas
fire insurance reimbursement of $292,000.
INCOME TAX EXPENSE: The effective income tax rates for 1997 and 1996
were (21.4%) and 39.7%, respectively. The reduction in tax rates for 1997
resulted from an increase in the valuation allowance of $1.2 million due to
uncertainties related to the realization of foreign and certain state operating
loss carry-forwards.
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 availability per the borrowing
base report at December 31, 1998 was $14.3 million compared to $13.5 million at
December 31, 1997.
The Company's revolving credit facility ("Credit Facility") with Banque
Nationale de Paris provides for borrowings of up to $16.5 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 $3.5 million. 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. As of January 31, 1999, the Company had no
outstanding borrowings and $14.4 million borrowing ability available under the
Credit Facility. The Company is currently in the process of renegotiating it's
short-term revolving credit facility, and management expects to reach an
agreement prior to the termination of the current facility.
Pursuant to the Credit Facility, the Company pays an unused facility
fee equal to 0.5% 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. During 1998, the Company
sought and obtained an Amendment to and a Waiver of the terms and conditions of
the Credit Facility for 1998.
Net cash provided by operating activities in 1998 was approximately
$13.5 million compared to $5.1 million in 1997. The difference between the
Company's 1998 operating cash flow and its net income of $3.2 million was
primarily attributable to $6.6 million of depreciation and amortization, $3.2
million of collected income tax refunds, and a $1.6 million provision for
deferred income taxes, partially offset by $1.0 million increase in accounts
receivable.
Net cash used in investing activities was $7.8 million in 1998,
compared to $2.1 million in 1997. The Company's 1998 investing cash flow
reflected $4.1 million of purchase of business assets related to the Custom Form
acquisition and $3.8 million of capital expenditures (principally associated
with internal and external tooling costs for molds development, and plastics and
fiberglass production equipment.
Net cash used in financing activities was $3.8 million in 1998 compared
to $500,000 in 1997, reflecting $600,000 of indebtedness payments and $3.2
million of bond repurchase of Senior Notes.
12
<PAGE> 15
Although the Company has no capital commitments for 1999, the Company
is currently budgeting approximately $3.5 million primarily for production
machinery, equipment and tooling. Management believes that funds generated from
operations and funds which management expects will be available when it's
short-term facility agreement is reached will be sufficient to satisfy the
Company's debt service obligations, working capital requirements and 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 inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year after 1999 is commonly referred to as the Year 2000 problem. The
Year 2000 problem is rooted in the way dates are recorded and computed in most
applications, operating systems, hardware, and embedded chips. If not corrected,
this problem may cause systems to fail or produce erroneous results on or before
the year 2000.
As in the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000 problem.
The Company has used internal and external resources to reprogram or replace and
test its information systems for Year 2000 compliance. The Company considers the
following areas as critical in addressing the Year 2000 problem: 1.) Business
Systems, 2.) Manufacturing and Warehousing, 3.) Technical Infrastructure, and
4.) Service Provider Interfaces. The Year 2000 program has been organized into
five phases: (i) Year 2000 Planning, (ii.) Inventories, (iii) Risk Evaluation,
(iv) Remediation, and (v) Acceptance Testing. The Company's has completed the
first three phases of work required to achieve Year 2000 compliance. The Company
is 100% complete in the first three phases and over 50% compliant in the final
two phases, remediation and acceptance testing, and expects to be 100% compliant
by the end of the second quarter 1999.
The plan developed to address vendor and customer issues includes
system integration, testing and communication strategies. The Company has
initiated formal communications with critical vendors and customers to determine
the extent to which the Company may be vulnerable to a failure by any of these
third parties to remediate their own Year 2000 Issues. The Company is currently
testing electronic data transmissions to and from its major vendors and
customers to ensure Year 2000 compliance. The Company does not at present
anticipate any material business disruptions due to the Year 2000 problem that
would be associated with the Company's systems, products or services. The
Company believes the most significant risks associated with the Year 2000
problem are external to its operations. In addition to vendors and customers,
the Company also relies upon governmental agencies, utility companies,
telecommunication service companies and other service providers outside the
Company's control. There can be no assurance that the Company's vendors or
customers, governmental agencies or other third parties will not suffer a Year
2000 business disruption that could have a material adverse effect on the
Company's results of operations or financial position.
Cost to Address the Year 2000 Issue: The Company has incurred costs of
approximately $200,000 which have been expensed, and expects to incur additional
costs of $50,000, which the combined total represents about 25% of the
management information systems department's annual budget. The Company does not
expect expenditures relating to the Year 2000 Issue to be material or to have
significant impact on the Company's financial position.
Risks Presented by Year 2000 Issues: The Company presently believes
that with planned upgrades and implementation of new software, the Year 2000
Issue will not pose significant operational problems for its computer systems.
Minor risks have been identified in the areas of telephone/PBX systems, personal
computer data collection systems, and LAN based personal computer operating and
application systems. However, if any third parties who provide goods or services
essential
13
<PAGE> 16
to the Company's business activities fail to address appropriately their Year
2000 issues, such failure could have a material adverse effect on the Company's
results of operations or financial position.
CONTINGENCY PLANS: The Company's Year 2000 plan includes the
development of contingency plans in the event that the Company has not completed
all of its remediation plans in timely manner or any third parties who provide
goods or services essential to the Company's business activities have failed to
appropriately address their Year 2000 issues. Presently, the Company is
developing contingency plans, which would provide a reasonable period of time to
bridge support from alternative suppliers, cover banking issues, payroll
processing, and purchased raw material.
ITEM 7A. 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 and, to a lesser extent, foreign exchange
rates. The Company does not engage in financial transactions for trading or
speculative purposes.
INTEREST RATE RISK. The interest payable on the Company's Credit
Facility is affected by changes in market interest rates. As of December 31,
1998, the Company had no outstanding debt under the Credit Facility. Based on
borrowings during 1996 through 1998, 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.
FOREIGN CURRENCY RISKS. The Company has minimal sales outside of the
United States and, therefore, has only minimal exposure to foreign currency
exchange risks. The Company does not hedge against foreign currency risks and
believes that foreign currency exchange risk is immaterial.
14
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PENDA CORPORATION
Report of Ernst & Young, LLP, independent auditors 16
Reports of PricewaterhouseCoopers, LLP, independent accountants 17-18
Consolidated Balance Sheets as of December 31, 1998 and 1997 19-20
Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996 21
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 22
1997, and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996 23
Notes to Consolidated Financial Statements 24-32
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 33
</TABLE>
15
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Penda Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Penda Corporation
and Subsidiaries (the Company) as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the years then ended. Our audits also included the financial statement
schedule for the years ended December 31, 1998 and 1997, listed in the Index as
Item 14(a)2. These financial statements and schedule are the responsibility of
the Company'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, consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the years ended December 31, 1998 and 1997,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Ernst & Young, LLP
Milwaukee, Wisconsin
February 19, 1999
16
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Penda Corporation and Subsidiaries
Portage, Wisconsin
We have audited the accompanying consolidated statements of operations, changes
in shareholders' equity and cash flows of Penda Corporation and Subsidiaries for
the year ended December 31,1996. 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 results of operations and
cash flows of Penda Corporation and subsidiaries for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 27, 1997
17
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Penda Corporation and Subsidiaries
Our report on the consolidated statements of operations, changes in
shareholders' equity and cash flows of Penda Corporation and Subsidiaries for
the year ended December 31, 1996 is included in the Form 10-K. In connection
with our audit of such financial statements, we have also audited the related
consolidated financial statement Schedule II - Valuation and Qualification
Accounts for the year ended December 31, 1996, as listed in the index 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.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 27, 1997
18
<PAGE> 21
Penda Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,336,206 $ 4,459,578
Accounts receivable, less allowance for doubtful accounts of 10,667,192 9,536,514
$380,000 in 1998 and $470,000 in 1997
Inventories 5,701,194 4,941,257
Refundable income taxes - 3,173,000
Deferred income taxes 833,000 539,000
Other 844,202 151,527
------------------------------------
Total current assets 24,381,794 22,800,876
Property, plant and equipment:
Land and improvements 743,872 734,872
Buildings and improvements 7,387,815 7,078,930
Machinery and equipment 21,278,237 18,597,878
Furniture and Fixtures 600,273 1,242,134
Construction in progress 1,816,898 537,904
------------------------------------
31,827,095 28,191,718
Less accumulated depreciation 11,884,805 8,959,614
------------------------------------
Net property, plant and equipment 19,942,290 19,232,104
Goodwill and other intangible assets, net 94,835,684 94,349,174
------------------------------------
Total assets $ 139,159,768 $ 136,382,154
====================================
</TABLE>
19
<PAGE> 22
Penda Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,611,565 $ 2,890,610
Accrued interest 2,841,318 2,926,667
Employee compensation 1,174,382 880,862
Current maturities of long-term debt 650,529 631,327
Other accrued liabilities 2,388,318 1,635,974
------------------------------------
Total current liabilities 10,666,112 8,965,440
Long-term debt 78,699,324 82,497,852
Deferred income taxes 9,547,000 7,639,000
------------------------------------
Total liabilities 98,912,436 99,102,292
Commitments and contingencies (Notes 6 and 14)
Shareholders' equity:
Common stock, $.01 par value, 5,000,000 shares authorized, 10,166 10,166
1,016,624 shares issued and outstanding.
Additional paid-in capital 24,989,952 24,989,952
Retained earnings 15,247,214 12,031,890
Cumulative foreign currency translation adjustments - 247,854
------------------------------------
Total shareholders' equity 40,247,332 37,279,862
------------------------------------
Total liabilities and shareholders' equity $ 139,159,768 $ 136,382,154
====================================
</TABLE>
See accompanying notes.
20
<PAGE> 23
Penda Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Net sales $77,962,168 $69,961,096 $89,353,487
Cost of sales 48,551,794 50,800,234 56,515,239
----------------------------------------------------
Gross profit 29,410,374 19,160,862 32,838,248
Selling expenses 6,890,761 4,986,343 4,117,664
General and administrative expenses 5,474,469 7,359,640 4,139,091
Legal settlement with former executive officer - 655,195 -
Amortization of intangible assets 3,291,606 3,152,840 3,011,948
----------------------------------------------------
Operating income 13,753,538 3,006,844 21,569,545
Interest expense 8,895,584 9,091,343 9,516,862
Other (income) expense, net (421,370) 133,823 83,504
----------------------------------------------------
Income (loss) before income taxes 5,279,324 (6,218,322) 11,969,179
Provision (benefit) for income taxes 2,064,000 (1,330,000) 4,755,000
====================================================
Net income (loss) $ 3,215,324 $ (4,888,322) $ 7,214,179
====================================================
Earnings (loss) per share of common stock:
Basic $3.16 $(4.89) $7.22
Diluted $3.16 $(4.89) $7.20
</TABLE>
See accompanying notes.
21
<PAGE> 24
Penda Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------------- Paid-in
Shares Amount Capital
-------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1995 999,708 $9,997 $24,969,556
Net income - - -
Foreign currency translation adjustments - - -
Comprehensive Income
Purchase and retirement of common stock (1,666) (17) (118,262)
-------------------------------------------------------
Balances at December 31, 1996 998,042 9,980 24,851,294
Net loss - - -
Foreign currency translation adjustments - - -
Comprehensive Loss
Purchase and retirement of common stock (20,448) (204) (335,946)
Issuance of common stock 39,030 390 474,604
-------------------------------------------------------
Balances at December 31, 1997 1,016,624 10,166 24,989,952
Net income - - -
Foreign currency translation adjustments - - -
Comprehensive Income
-------------------------------------------------------
Balance at December 31, 1998 1,016,624 $10,166 $24,989,952
=======================================================
<CAPTION>
Cumulative
Foreign
Currency
Retained Translation
Earnings Adjustments Total
------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1995 $9,706,033 $53,283 $34,738,869
Net income 7,214,179 - 7,214,179
Foreign currency translation adjustments - 114,536 114,536
----------------
Comprehensive Income 7,328,715
Purchase and retirement of common stock - - (118,279)
-------------------------------------------------------
Balances at December 31, 1996 16,920,212 167,819 41,949,305
Net loss (4,888,322) - (4,888,322)
Foreign currency translation adjustments - 80,035 80,035
----------------
Comprehensive Loss (4,808,287)
Purchase and retirement of common stock - - (336,150)
Issuance of common stock - - 474,994
-------------------------------------------------------
Balances at December 31, 1997 12,031,890 247,854 37,279,862
Net income 3,215,324 - 3,215,324
Foreign currency translation adjustments - (247,854) (247,854)
----------------
Comprehensive Income 2,967,470
------------------------------------------------------
Balance at December 31, 1998 $15,247,214 $ - $40,247,332
=======================================================
</TABLE>
See accompanying notes.
22
<PAGE> 25
Penda Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 3,215,324 $ (4,888,322) $ 7,214,179
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,261,761 3,494,807 3,059,949
Amortization of intangible assets 3,291,606 3,152,840 3,011,948
Loss on sale of property, plant and equipment 313,279 40,991 80,599
Gain on insurance claims received - (298,440) (485,853)
Deferred income taxes 1,614,000 1,652,000 2,216,000
Provision (reversal of provision) for doubtful accounts (90,000) 395,000 (46,000)
Changes in operating assets and liabilities, net of
effects from purchase of business assets:
Accounts receivable (1,040,678) 3,345,215 (4,716,500)
Inventories (759,937) 1,288,958 (55,266)
Refundable income taxes 3,173,000 (3,162,000) 832,000
Accounts payable 720,955 (1,292,704) 743,076
Accrued interest (85,349) (25,270) (85,403)
Other (108,894) 1,398,803 548,844
--------------------------------------------------
Net cash provided by operating activities 13,505,068 5,101,878 12,317,573
INVESTING ACTIVITIES
Purchase of business assets (4,112,065) (2,000,000) (1,000,000)
Capital expenditures (3,753,539) (501,192) (2,056,300)
Proceeds from sale of property, plant and equipment 16,490 65,387 200,892
Proceeds from insurance claims - 298,440 556,353
--------------------------------------------------
Net cash used in investing activities (7,849,114) (2,137,365) (2,299,055)
FINANCING ACTIVITIES
Net payments, revolving credit borrowings - - (9,900,000)
Repurchase of bonds (3,148,000) - -
Payments on note payable (400,000) (400,000) (240,000)
Proceeds from sale/leaseback - - 1,940,000
Payments on capital leases (231,326) (213,597) (197,224)
Purchase of common stock - (336,150) (118,279)
Issuance of common stock - 474,994 -
--------------------------------------------------
Net cash used in financing activities (3,779,326) (474,753) (8,515,503)
--------------------------------------------------
Net increase in cash and cash equivalents 1,876,628 2,489,760 1,503,015
Cash and cash equivalents at beginning of year 4,459,578 1,969,818 466,803
--------------------------------------------------
Cash and cash equivalents at end of year $ 6,336,206 $ 4,459,578 $ 1,969,818
==================================================
</TABLE>
See accompanying notes.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Penda Corporation (the Company) is one of the world's largest manufacturers and
suppliers of pickup truck accessories serving original equipment manufacturers
(OEMs) and the automotive aftermarket, principally in the United States and
Canada. The Company manufactures 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, van converters, specialty automotive
stores, other retailers and OEMs. Other truck accessories designed for sport
utility vehicles and other light trucks are also distributed through the
Company's OEM and aftermarket distribution systems. The Company, which operates
as one segment, has manufacturing facilities in Portage, Wisconsin and
Daleville, Alabama.
CONSOLIDATION AND BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Significant estimates have been made by management with respect to the
collectability of accounts receivable, inventory obsolescence, product warranty,
medical cases incurred but not reported, and the possible outcome of outstanding
litigation and inventory obsolescence. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments, generally with a maturity of three months or less
when purchased, are considered to be cash equivalents. Cash equivalents,
consisting principally of money market funds, are considered to be
"available-for-sale" for financial reporting purposes.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market with cost determined using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
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.
GOODWILL AND OTHER INTANGIBLE ASSETS
The cost of goodwill and other intangible assets is amortized on a straight-line
basis over the estimated periods ranging from 5 to 40 years.
24
<PAGE> 27
IMPAIRMENT OF LONG-LIVED ASSETS
Goodwill, other intangible assets, and property, plant and equipment are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss will be recognized for the difference between the fair
value and carrying value of the asset or group of assets. Such analyses
necessarily involve judgement.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product to the customer.
ADVERTISING COSTS
Advertising costs are expensed when the initial advertisement occurs. Total
advertising expense was approximately $2,949,000, $2,066,000, and $1,102,000 in
1998, 1997, and 1996, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred and were
$707,000, $591,000 and $728,000 in 1998, 1997, and 1996, respectively.
FOREIGN CURRENCY TRANSLATION
In 1998, the Company effectively ceased operations at its Australia and Mexico
subsidiaries and removed the accumulated translation adjustments which had been
recorded as a separate component of shareholders', equity. Prior to 1998, the
Australian dollar was used as the functional currency for the Australian
subsidiary; 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 with translation adjustments
recorded as a separate component of shareholders' equity. Subsequent to December
31, 1996, the U.S. dollar was used as the functional currency for the Mexican
subsidiary.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
The numerator for the calculation of basic and diluted earnings (loss) per
share of common stock is net income (loss). The denominator is computed as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Denominator for basic earnings (loss) per share - weighted average
shares 1,016,624 1,000,436 998,614
Employee stock options (treasury stock method) - - 3,402
------------------------------------------
Denominator for diluted earnings (loss) per share 1,016,624 1,000,436 1,002,016
==========================================
</TABLE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (the Statement),
which is required to be adopted for fiscal years beginning
25
<PAGE> 28
after June 15, 1999. The Statement will require the Company to recognize all
derivatives in the balance sheet at fair value. As of December 31, 1998, the
Company has no derivative instruments. The Company will adopt the Statement no
later than January 1, 2000, and estimates that its effect will not be material
to its results of operations, financial position, or cash flows.
During 1998, the Accounting Standards Executive Committee of the American
Institute of Certified public Accounts issued two Statements of Position (SOP)
that are applicable to the Company, SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, and SOP 98-5,
Reporting on the Costs of Start-up Activities. SOP 98-1 requires that certain
computer software costs be capitalized and SOP 98-5 requires costs of start-up
activities to be expensed as incurred. Since the Company's accounting policies
were in conformity with those of SOP 98-1 and SOP 98-5, these pronouncements
will have no impact.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------- -----------------
<S> <C> <C>
Finished goods $3,030,878 $2,921,836
Work-in-process 680,310 534,594
Raw materials and supplies 2,245,006 2,012,827
Less allowance for inventory obsolescence (255,000) (528,000)
============== =================
$5,701,194 $4,941,257
============== =================
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------- -----------------
<S> <C> <C>
Goodwill $ 95,871,423 $ 94,374,078
Trademarks 6,178,982 5,408,982
Deferred financing costs 3,265,932 3,378,146
Other 3,614,399 1,879,178
-------------- -----------------
108,930,736 105,040,384
Less accumulated amortization 14,095,052 10,691,210
-------------- -----------------
$ 94,835,684 $ 94,349,174
============== =================
</TABLE>
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------- -----------------
<S> <C> <C>
10 3/4% Series B Senior Notes, due 2004 $76,852,000 $80,000,000
Promissory note payable 1,200,000 1,600,000
Capital lease obligation 1,297,853 1,529,179
-------------- -----------------
79,349,853 83,129,179
Less amount due within one year 650,529 631,327
============== =================
$78,699,324 $82,497,852
============== =================
</TABLE>
26
<PAGE> 29
The 10 3/4% Series B Senior Notes (Senior Notes) are unsecured with interest due
semiannually. 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. In October 1998, the Company repurchased $3,148,000 of the outstanding
Senior Notes on the open market, recognizing a net gain of $66,000. Due to the
immaterial nature of the gain, this transaction is not presented in the
consolidated statement of operations as an extraordinary item.
The Company also has a revolving credit agreement with a bank which provides for
maximum borrowings of $16,500,000 at either 1.0% above the lender's base rate,
or 2.5% above the lender's eurodollar rate. The revolving credit agreement is
collateralized by substantially all of the Company's accounts receivable and
inventories. Annual commitment fees under the revolving credit agreement are
1/2% of the unused portion of the available credit. At December 31, 1998 and
1997, there were no amounts outstanding on the revolving credit agreement. The
current credit facility matures and all borrowings are due March 31, 1999. The
Company is currently negotiating a new credit agreement that is expected to be
in place before the existing agreement terminates.
The Company's Senior Notes and revolving credit agreement contain covenants that
restrict the payment of cash dividends and 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 may 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, 1998 and 1997.
Interest on the promissory note payable is due semiannually. Annual principal
payments of $400,000 are due August 15th through 2001. Payment of this
promissory note is subordinated to the borrowings under the revolving credit
agreement.
The Company has obligations on manufacturing equipment under a capital lease
that 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%.
Scheduled aggregate maturities on long-term debt are as follows: 1999-$650,529
2000-$1,447,323 and 2001-$400,000, 2002-$0, 2003-$0, and thereafter -
$76,852,000.
The fair value of the long-term debt, other than the capital lease obligation,
approximates $77,900,000 at December 31, 1998 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 8.75% on the Company's revolving credit
facility.
5. INCOME TAXES
Income (loss) before the provision (benefit) for income taxes for domestic and
foreign operations was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------- ------------------ ----------------
<S> <C> <C> <C>
Domestic $5,113,944 $(4,492,191) $12,295,264
Foreign 165,380 (1,726,131) (326,085)
--------------- ------------------ ----------------
Income (loss) before income taxes $5,279,324 $(6,218,322) $11,969,179
=============== ================== ================
</TABLE>
27
<PAGE> 30
The components of the provision (benefit) for income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------- ------------------ ----------------
<S> <C> <C> <C>
Current:
Federal $ 429,000 $(3,001,000) $2,081,000
State 21,000 18,000 458,000
--------------- ------------------ ----------------
450,000 (2,983,000) 2,539,000
Deferred:
Federal 1,221,000 1,405,000 1,977,000
State 393,000 248,000 239,000
--------------- ------------------ ----------------
1,614,000 1,653,000 2,216,000
--------------- ------------------ ----------------
Provision (benefit) for income taxes $ 2,064,000 $(1,330,000) $4,755,000
=============== ================== ================
</TABLE>
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Federal statutory income taxes 34.0% (34.0)% 34.0%
Foreign (income) loss for which no tax benefit (expense) recorded (1.1) 9.4 1.0
State income taxes, net of federal income tax benefit 5.2 2.8 3.8
Other 1.1 0.4 0.9
============ ============ ===========
39.2% (21.4)% 39.7%
============ ============ ===========
</TABLE>
The components of the net deferred income tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable $ 118,000 $ 87,000
Inventories 143,000 209,000
Accrued liabilities 596,000 258,000
Intangible assets 104,000 80,000
Foreign net operating losses 1,028,000 1,089,000
Federal AMT credit carryforwards 315,000 383,000
State net operating loss carryforwards 487,000 656,000
------------------ -----------------
2,791,000 2,762,000
Valuation allowance (1,313,000) (1,368,000)
------------------ -----------------
1,478,000 1,394,000
------------------ -----------------
Deferred income tax liabilities:
Intangible assets 8,214,000 6,483,000
Property, plant and equipment 1,978,000 2,011,000
------------------ -----------------
10,192,000 8,494,000
================== =================
Net deferred income tax liability $8,714,000 $ 7,100,000
================== =================
</TABLE>
28
<PAGE> 31
Deferred taxes are classified in the accompanying balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Current asset $ 833,000 $ 539,000
Noncurrent liability (9,547,000) (7,639,000)
================== =================
$(8,714,000) $(7,100,000)
================== =================
</TABLE>
The Company recorded a valuation allowance of $1,313,000 and $1,368,000 at
December 31, 1998 and 1997, respectively, to provide for uncertainties relating
to the realization of foreign and certain state net operating loss
carryforwards. Certain foreign net operating losses expire beginning in 2005,
and the state net operating loss carryforwards expire in 2011.
6. LEASE COMMITMENTS
The Company has entered into operating lease agreements for equipment,
computers, vehicles and warehouses used in its operations. Rent expense under
such leases approximated $683,000, $446,000 and $2,380,000 in 1998, 1997, and
1996, respectively. Future minimum lease payments under noncancelable operating
leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 808,388
2000 439,338
2001 227,191
2002 79,077
------------------
$1,553,994
==================
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company sponsors defined contribution employee benefits plan in which
substantially all employees are participants. 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. Contributions expense approximated $124,000,
$115,000, and $217,000 in 1998, 1997, and 1996, respectively.
8. MAJOR CUSTOMERS AND FOREIGN SALES
Net sales to the Company's two largest automotive industry customers
approximated 25% and 10% in 1998, 25% and 12% in 1997, and 21% and 20% in 1996,
respectively, of consolidated net sales.
Net sales to customers in foreign countries, principally Canada, approximated
$7,955,000, $7,086,000, and $8,902,000 in 1998, 1997, and 1996, respectively.
9. 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 with such customers is considered by management to be
limited due to the general creditworthiness of its customers and its broad
customer base, procedures to monitor customers' payment history, and adequate
provision for uncollectable accounts.
29
<PAGE> 32
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.
The Company currently purchases the majority of its virgin plastic from two
suppliers. Management believes that numerous alternative sources of supply are
readily available on comparable terms. The supply and demand for plastic resins
and fiberglass are subject to cyclical and other factors. Under normal
conditions, there is no difficulty in obtaining these raw material requirements
at competitive prices. Management exercises available market and business
opportunities to moderate price and delivery risk and does not foresee
conditions which would lead to a shortage of supply or a drastic price increase
in the near term.
10. STOCK OPTIONS
The Company has entered into Management Stock Option Plans And Agreements (1997
Plan) which provide incentives to certain employees through encouragement of
stock ownership in the Company. In addition, the Company has a Management Stock
Option Plan, as amended (1994 Plan), which was suspended in 1997 except as to
outstanding options. Options under the 1997 Plan are granted provided that the
executive is employed by the Company on the last day of the fiscal year. Twenty
percent of the options become exercisable on each anniversary date of the option
grant. During 1998, there were 11,500 options granted under the 1997 plan.
Options under the 1994 Plan have a term of ten years and are contingent upon the
attainment of certain annual financial results. The options become exercisable
as to 25% of the shares on each anniversary date of the option grant on a per
share exercise price equal to the book value per share on the first day of the
year that required financial results were attained.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has elected to continue applying Accounting Principles Board (APB) No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for stock options granted to employees. Total compensation expense
recorded approximated $28,000, $114,000 and $114,000 in 1998, 1997 and 1996,
respectively. Had compensation cost been determined under the method set forth
in SFAS No. 123, the effect on 1998, 1997 and 1996 net income (loss) and
earnings per share would not have been significant.. Stock option transactions
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Options Price Options Price Options Price
- ------------------------ ---------- ------------ ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 16,405 $27.87 24,684 $30.92 10,526 $25.00
Granted 11,500 25.00 38,813 14.81 15,800 34.74
Exercised - - (30,813) 12.17 - -
Canceled - - (16,279) 31.08 (1,642) 29.87
---------- ----------- ----------
Outstanding at end of
year 27,905 $26.89 16,405 $27.87 24,684 $30.92
========== ============ =========== ============== ========== ============
</TABLE>
The outstanding stock options at December 31, 1998 have a range of exercise
prices between $25.00 and $34.74 per option. Options under the 1994 Plan have a
weighted average contractual life of approximately 6.2 years. At December 31,
1998, 7,587 options are currently exercisable. The fair value at date of grant
for options granted
30
<PAGE> 33
during 1998 was $25.44 per option using the minimum value method. The fair value
of options at date of grant was estimated by subtracting the exercise price from
the fair value of the stock. In performing this calculation, an estimated option
life of seven years and an estimated risk-free interest rate of 6.00% were
assumed.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ---------------- ----------------
<S> <C> <C> <C>
Interest $8,973,333 $9,106,363 $9,602,265
============= ================ ================
Income taxes $ 401,500 $ 60,440 $2,125,000
============= ================ ================
</TABLE>
12. RELATED-PARTY TRANSACTIONS
Effective March 18, 1994, the Company has entered into a 10-year consulting
agreement (the Agreement) with Trivest Inc. (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), payable quarterly in
advance. 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 charged by Trivest totaled $417,000, $481,000 and
$434,000 in 1998, 1997 and 1996, respectively.
13. 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 and recorded a
gain of approximately $486,000 equal to the excess of the insurance proceeds
over the net book value of the assets lost in the fire. The gain is recorded as
other income in the consolidated statements of operations. The insurance
proceeds were used by the Company to replace the building and equipment lost in
the fire. In 1997, the Company received insurance proceeds related to business
interruption insurance and recorded a gain as other income of $298,000.
14. LEGAL SETTLEMENT AND CONTINGENCIES
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. Other
than as discussed below, 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 on the results of operations.
On December 23, 1997, the Company settled certain litigation with the Company's
former executive officer (officer). Under the terms of the settlement, the
Company agreed to purchase 16,007.5 shares of Penda Corporation's common stock
from the officer, the Company and the officer agreed that options held by the
officer, if any, were canceled and various other aspects of the employment
agreement between the Company and the officer were modified. The officer
received $850,000 in consideration for this settlement. The estimated value of
the shares purchased was $195,000. The difference between the settlement and the
estimated value of shares purchased of $655,000 was expensed.
31
<PAGE> 34
The Company, along with various other manufacturers of pickup truck bedliners,
has been identified and served as a defendant in four pending 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. 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 settlement discussions are
continuing in connection with this lawsuit and the Company has accrued for its
estimated portion of the settlement amount. In the event that settlement
discussions terminate, the Company intends to vigorously defend these lawsuits.
32
<PAGE> 35
PENDA CORPORATION
SCHEDULE II
VALUATION AND QUALIFICATION ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning Cost and To Other at End of
Period Description of Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1998 Allowance for Doubtful Accounts $470,000 $289,294 $ -- $379,294 (1) $380,000
Inventory Obsolescence Reserve $528,000 $ -- $ -- $273,000 $255,000
Year ended
December 31, 1997 Allowance for Doubtful Accounts $75,000 $465,611 $ -- $70,611 (1) $470,000
Inventory Obsolescence Reserve $180,000 $348,000 $ -- $ -- $528,000
Year ended
December 31, 1996 Allowance for Doubtful Accounts $121,000 $ (18,332) $ -- $27,668 (1) $75,000
Inventory Obsolescence Reserve $55,000 $125,000 $ -- $ -- $180,000
</TABLE>
(1) Bad debts written off, net of recoveries.
33
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NOT APPLICABLE
34
<PAGE> 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- --------
<S> <C> <C>
Earl W. Powell 60 Chairman of the Board
Jack L. Thompson 60 President, Chief Executive Officer and Director
Leo E. Waner 43 Vice President -- Chief Financial Officer
Jeffrey G. Rastocan 37 Vice President -- Sales & Marketing
Scot D. Harvey 42 Vice President -- Operations
Gary L. Witt 37 Vice President -- Administration
Troy D. Templeton 38 Director
Phillip T. George, M.D. 59 Director
David S. Timson 46 Director
L. J. (Jim) Schoenwetter 60 Director
Thomas J. Smith 46 Director
</TABLE>
Mr. Powell, a director of the Company since its 1994 organization, has
served as Chairman of the Board since January 1, 1998. Mr. Powell also served as
Chairman of the Board from the date of the Company's organization until March
27, 1997. Mr. Powell serves as Chairman of the Board 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 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
has served as Chairman of the Board of Biscayne Apparel, Inc., a company whose
principal subsidiaries are engaged in the apparel industry ("Biscayne"), since
October 1985 and presently serves as Chief Executive Officer of Biscayne. The
common stock of Biscayne is quoted on the NASD OTC Bulletin Board. Biscayne
filed a voluntary Chapter 11 bankruptcy petition in February 1999. 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 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.
Mr. Thompson has served as President, Chief Executive Officer, and as a
Director since joining the Company in July 1997. From October 1993 to February
1997, Mr. Thompson was Senior Vice President of Tenneco Automotive and President
of Monroe Auto Equipment Company, a $1.3 billion division of Tenneco Automotive
that manufactures the Monroe Brand of motor vehicle ride control products. From
April 1990 to October 1993, Mr. Thompson was Vice President Operations and
Engineering for Walker Manufacturing Company a division of Tenneco Automotive
that manufactures motor vehicle exhaust systems. From October 1987 to April
1990, Mr. Thompson was Managing Director of Walker Australia. From January 1975
to October 1987, Mr. Thompson was Executive Director of Production and Process
Engineering for Monroe. Prior to joining Monroe Auto Equipment Company, Mr.
Thompson worked for Chrysler Corporation, General Motors Corporation, and Ford
Motor Company.
Mr. Waner has served as Vice President and Chief Financial Officer of
the Company since joining the Company in July 1997. From June 1995 to March
1997, Mr. Waner was Vice President of Acquisition and Integration for Monroe
Auto Equipment Company, a subsidiary of Tenneco Automotive. From January 1993 to
May 1995, Mr. Waner was Vice President of Finance for Monroe. From 1989 to 1993,
Mr. Waner was Executive Director - Internal Audit for Tenneco Inc. From 1983 to
1989 Mr. Waner held a series of positions of increasing
35
<PAGE> 38
responsibility with Tenneco Gas including Manager - EDP Audit, Manager Strategy,
Assistant Controller and Controller.
Mr. Rastocan has served as Vice President Sales and Marketing for the
Company since joining the Company in October 1997. From 1993 to 1997, Mr.
Rastocan was Retail Market Manager for Monroe Auto Equipment Company. From 1984
to 1993, Mr. Rastocan held various sales positions with Monroe. Mr. Rastocan's
background includes managing various sales and key accounts as well as designing
consumer promotions and sales incentive programs.
Mr. Harvey served as the Division's Director of Operations from March
1990 through March 1994 at which time he became Vice President -- Operations.
Mr. Harvey is primarily responsible for the Company's operations and
distribution systems. 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 1994 at which time he became Vice President --
Administration. Mr. Witt is responsible for the Company's Quality, Human
Resources, and Purchasing functions, as well as the Company's Cost Reduction
Program. 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. Templeton joined the Board as a director in November 1998. Mr.
Templeton joined Trivest in 1989 and has led the origination, structuring,
financing and ultimate disposition of numerous stand-alone and add on
acquisitions. He has also been extensively involved in the management oversight
of portfolio companies. Mr. Templeton is currently a Senior Managing Director at
Trivest. Prior to joining Trivest, Mr. Templeton spend six years serving in
various capacities with Southeast Bank, NA in Miami.
Dr. George, a Director of the Company since its organization, is the
Vice-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. Dr. George also serves as a
Director of Biscayne. Biscayne filed a voluntary Chapter 11 bankruptcy petition
in February 1999. Dr. George's executive position with Trivest has been his
principal occupation since retiring from the private practice of plastic and
reconstructive surgery in February 1986.
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, Corporate Vice President, Logistics,
in July 1993.
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.
Mr. Timson joined the Board as a director in August 1998. Mr. Timson is
an Executive Director/Partner in the Private Markets Group of Brinson Partners,
Inc. and joined the firm in 1985. Mr. Timson focuses primarily on private equity
investments in general manufacturing, financial services, and other
service-based businesses. During his tenure at Brinson, Mr. Timson has invested
in 26 different companies.
36
<PAGE> 39
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, (as amended, 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.
37
<PAGE> 40
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 four other executive officers whose total annual salary and
bonus, determined as of December 31, 1998, exceeded $100,000 ("Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER AWARDS(#)
- ------------------------------------------ ---- ------ -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Jack L. Thompson (2)(3) 1998 $259,615 $150,000 $28,961 4,000.00
President and Chief Executive Officer 1997 $125,000 $100,300 $22,157 22,542.00
Leo E. Waner (4)(5) 1998 $144,808 $58,000 $5,419 1,500.00
Vice President and Chief Financial 1997 $60,096 $60,300 $43,587 11,021.00
Officer
Jeffrey G. Rastocan (6)(7) 1998 $116,274 $31,226 $24,148 1,500.00
Vice President-Sales & Marketing 1997 $19,846 $10,800 $3,810 750.00
1998 $114,262 $35,000 $3,611 1,500.00
Scot D. Harvey (8)(9) 1997 $100,616 $28,546 $2,960 1,500.00
Vice President-Operations 1996 $ 93,591 $ 19,200 - 1,988.27
1998 $114,467 $35,000 $4,309 1,500.00
Gary L. Witt (9) 1997 $102,781 $18,300 $3,768 1,500.00
Vice President-Administration 1996 $ 92,733 $ 29,239 - 1,810.49
</TABLE>
- ---------------
(1) Except as set forth in footnotes (5), (8), and (9), represents bonus earned
in the respective year regardless of when paid by the Company.
(2) Mr. Thompson joined the Company on July 7, 1997.
(3) Other annual compensation shown for Mr. Thompson includes payments for
housing in Portage, Wisconsin of $16,489 in 1998 and $8,202 in 1997 and
travel between Portage, Wisconsin and Monroe, Michigan for Mr. Thompson and
his spouse $8,517 in 1998 and $6,268 in 1997, and tax gross up of $5,366 in
1997.
(4) Mr. Waner joined the Company on July 7, 1997.
(5) Bonus shown for 1997 for Mr. Waner includes a $25,000 signing bonus. In
1997, other annual compensation for Mr. Waner includes relocation costs of
$36,648.
(6) Mr. Rastocan joined the Company on October 20, 1997.
(7) Other annual compensation for Mr. Rastocan in 1998 includes relocation
costs of $21,291.
(8) Bonus shown for 1997 for Mr. Harvey includes an adjustment to the 1996
bonus paid after March 1997 of $10,246.
(9) Bonus shown for 1997 for Mr. Harvey and Mr. Witt includes a special payment
of $18,000 to each for acting as General Managers of the Company from April
through June 1997.
38
<PAGE> 41
STOCK OPTION GRANTS
The following table sets forth information concerning the grant of
stock options to the Named Executive Officers in 1998 (all options were granted
under Management Stock Option Plans and Agreements entered into between the
Company and the Named Executive Officers). The Company did not grant any stock
appreciation rights in 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
------------------------------------------------------- --------------------------
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#)(1) YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ------ ------- ------ --------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Jack L. Thompson 4,000 34.78% $25.00 (1) $65,756.32 $163,393.23
Leo E. Waner 1,500 13.04% $25.00 (1) $24,658.62 $61,477.21
Jeffrey G. Rastocan 1,500 13.04% $25.00 (1) $24,658.62 $61,477.21
Gary L. Witt 1,500 13.04% $25.00 (1) $24,658.62 $61,477.21
Scot D. Harvey 1,500 13.04% $25.00 (1) $24,658.62 $61,477.21
</TABLE>
- ----------------------
(1) (1) A total of 10,000 in time vested options were granted to the named
Executive Officers in 1998. The time vested options become exercisable as
to 20% of the shares on each anniversary of the date of grant (beginning
December 31, 1999) over a five year period, so long as employment with the
Company continued without any expiration date. 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.
(2) Options to purchase a total of 11,500 shares were granted in 1998. 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 1998.
(3) 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"). Since the 1998 time vested options do not
have a termination date, 10 years was used for these calculations.
STOCK OPTIONS EXERCISES AND FISCAL YEAR-END HOLDINGS
The following table sets forth information, with respect to the Named
Executive Officers, concerning exercised and unexercised options held by them as
of the end of such fiscal year:
39
<PAGE> 42
OPTIONS EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS EXERCISED OPTIONS AT DECEMBER 31, MONEY OPTIONS AT DECEMBER
DURING 1998 1998(#) 31, 1998($)(1)
----------- ----------------------- ----------------------------
($)VALUE
NAME SHARES(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack L. Thompson 0 $0 400.000 5,600.000 $176.00 $2,664.00
Leo E. Waner 0 $0 150.000 2,100.000 $66.00 $924.00
Jeffrey G. Rastocan 0 $0 150.000 2,100.000 $66.00 $924.00
Gary L. Witt 0 $0 2,412.235 3,605.245 $663.08 $1,188.00
Scot D. Harvey 0 $0 2,619.645 3,694.135 $715.22 $1,118.00
</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's calculated the
fair market value of the Company's common stock on December 31, 1998 was
$25.44. Options with an exercise price higher than fair value were
considered to have a value of zero for purposes of this calculation. The
Company is not registered under Section 12 of the Exchange Act.
EMPLOYMENT AGREEMENTS
Effective on June 23, 1997, the Company entered into a four year
employment agreement with Mr. Thompson providing for his employment as President
and Chief Executive Officer for an annual base salary of $250,000 (at June 23,
1997), subject to cost-of-living adjustments, as well as an incentive bonus
based on the Company's operating profit. In addition, the Company pays for Mr.
Thompson's living accommodations in Portage Wisconsin and for certain travel
expenses for Mr. Thompson and his spouse. The employment agreement also provides
that Mr. Thompson 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. Thompson 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. Thompson
receives his last Severance Payment installment).
Effective on July 1, 1997, the Company entered into a four year
employment agreement with Mr. Waner providing for his employment as Vice
President and Chief Financial Officer for an annual base salary of $125,000,
subject to cost-of-living adjustments, as well as $25,000 signing bonus and an
incentive bonus based on the Company's operating profit. The employment
agreement also provides that Mr. Waner 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. Waner 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. Waner receives his last Severance Payment installment).
40
<PAGE> 43
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 had 1,016,624.2679 shares of Common Stock issued and
outstanding at March 15, 1999. The following table sets forth information with
respect to the beneficial ownership of the Common Stock as of such date 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 and Named Executive
Officer who owns any shares, 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 49.1824%
Trivest Group, Inc. (4)(5) .......................................... 412,871 40.6120%
Blue Sky Partners (5)(6) ............................................ 32,000 3.1477%
Earl W. Powell (5)(7) ............................................... 444,871 43.7596%
Phillip T. George, M.D. (5)(7) ...................................... 444,871 43.7596%
Thomas J. Smith (11) ................................................ 4,000 *
Troy D. Templeton (5) ............................................... 1,000 *
Jack L. Thompson (8) ................................................ 20,942 2.0600%
Leo E. Waner (8) .................................................... 10,421 1.0251%
Jeffrey G. Rastocan (8) ............................................. 8,366.9269 *
Scot D. Harvey (8) .................................................. 6,441.1600 *
Gary L. Witt (8) .................................................... 5,409.3050 *
All directors and executive officers as a group (persons) (9)(10) ... 501,451.39 48.6455%
</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
41
<PAGE> 44
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. David S.
Timson, a director of the Company, is a Partner of Brinson and an
officer of Brinson Trust Company. Both Brinson and Mr. Timson 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 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 400.000, 150.000, 150.000, 3,116.713 and 2,864.858 shares for
Messrs. Thompson, Waner, Rastocan, Harvey and Witt, respectively, of
common stock issuable upon exercise of the options presently
exercisable as of March 15, 1999.
(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 4431.880 shares of common stock issuable upon exercise of the
exercisable executive officer's options as of March 15, 1998.
(11) The beneficial owner's address is 4365 Steiner Street, St. Bonafius,
Minnesota 55375.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective March 18, 1994, the Company entered into a ten-year agreement
(the "Consulting Agreement") with Trivest, Inc., 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 1998, the
Company paid management fees to Trivest of approximately $417,000 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 0.25% of the sales
price up to $150.0 million and 0.5% of the sales price in excess of $150.0
million.
42
<PAGE> 45
TRIVEST LEGAL DEPARTMENT
Trivest maintains an internal legal department. The Trivest legal
department accounts for its time on an hourly basis and bills Trivest and its
affiliates, including the Company, for services rendered at prevailing rates. In
1998, the Company paid Trivest $13,285 for services rendered by the Trivest
legal department. The Company believes that the fees charged by the Trivest
legal department in 1998 were no less favorable to the Company than fees charged
to unaffiliated third parties for similar services.
43
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(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 15.
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 33.
3. Exhibits
(b) No reports on Form 8-K have been filed for the year ended December 31,
1998.
(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 (4.1)(1)
4.2 Registration Rights Agreement dated as of March 18, 1994, between the
Registrant and Bear, Stearns & Co. Inc. (4.2)(1)
44
<PAGE> 47
4.3 Indenture, dated as of March 18, 1994, between the Registrant and
American Stock Transfer & Trust Company (4.3)(1)
4.4 Supplemental Indenture, dated as of July 14, 1995, between Tri-Glas
Corporation and American Stock Transfer & Trust Company, as Trustee
(4.4)(2)
10.1* Registrant's First Amended and Restated Management Stock Option Plan
adopted March 14, 1994(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 Subscription and Shareholders' Agreement, dated March 15, 1994, among
the Registrant and its Shareholders (10.3)(1)
10.4 First Amendment to Subscription and Shareholders' Agreement, dated
March 31, 1995, among the Registrant and its Shareholders (10.4)(8)
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 (10.5)(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 adopted August 2, 1996(10.7)(4)
10.8* Employment Agreement between the Registrant and Jack L. Thompson dated
June 23, 1997. (10.8)(8)
10.9* Employment Agreement between the Registrant and Leo E. Waner dated July
1, 1997. (10.9)(8)
10.10 Settlement Agreement, dated December 23, 1997, between the Registrant
and Daniel E. Braun (10.10)(8)
10.11 Stock Transfer and Option Termination Agreement dated December 23, 1997
between the Registrant and Daniel E Braun (10.11)(8)
10.12 Form of Shareholder's Agreement between Registrant and certain
executive officers and certain employees. (10.12)(8)
10.13* Form of Management Stock Option Plan and Agreement between Registrant
and certain executive officers (10.13)(8)
10.14 Amendment No. 1 to the Amended and Restated Credit Agreement dated as
of October 16, 1997, between the Registrant and Banque Nationale de
Paris. (10.14)(6)
10.15 Letter Waiver dated as of February 24, 1998 to the Amended and Restated
Credit Agreement between the Registrant and Banque Nationale de Paris.
(10.15)(8)
10.16* Form of Stock Option Substitution Agreement entered into between the
Registrant and certain executives' (10.16)(8)
45
<PAGE> 48
10.17 Master Lease between Penda Corporation and Firstar Equipment Finance
Corporation dated December 26, 1995. (10.17)(9)
10.18 Letter Waiver dated as of October 22, 1998 to the Amended and Restated
Credit Agreement between the Registrant and Banque Nationale de Paris.
(10.18)(5)
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges (5)
21.1 Subsidiaries of the Registrant (5)
27.1 Financial Data Schedule - For SEC use only (5)
(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 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 Report on Form 10-Q, dated May
3, 1996.
(4) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Report on for 10-K, dated
March 31, 1997.
(5) Filed herewith
(6) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q, dated
November 13, 1997.
(7) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q, dated May
8, 1996.
(8) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-K, dated
March 24, 1998.
(9) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q, dated
July 23, 1998.
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Annual Report on Form 10-K.
46
<PAGE> 49
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 9, 1999 By:/s/ JACK L. THOMPSON
--------------------------------
Jack L. Thompson
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/ JACK L. THOMPSON President, Chief Executive Officer March 9, 1999
- ------------------------------------ and Director
Jack L. Thompson
/s/ EARL W. POWELL Chairman of the Board March 9, 1999
- ------------------------------------
Earl W. Powell
/s/ LEO E. WANER Vice President - Chief Financial March 9, 1999
- ------------------------------------ Officer (Principal Financial and
Leo E. Waner Accounting Officer)
/s/ PHILLIP T. GEORGE, M.D. Director March 9, 1999
- ------------------------------------
Phillip T. George, M.D.
/s/ DAVID S.TIMSON Director March 9, 1999
- ---------------------------------------
David S. Timson
/s/ TROY D.TEMPLETON Director March 9, 1999
- ---------------------------------------
Troy D. Templeton
/s/ L.J. SCHOENWETTER Director March 9, 1999
- ---------------------------------------
L.J. Schoenwetter
/s/ THOMAS J. SMITH Director March 9, 1999
- ------------------------------------
Thomas J. Smith
</TABLE>
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.
47
<PAGE> 1
EXHIBIT 10.18
EXECUTION COPY
LETTER WAIVER
Dated as of October 22, 1998
To the banks, financial institutions
and other institutional lenders
(collectively, the "Lenders")
parties to the Credit Agreement
referred to below and to Banque Nationale
de Paris, as agent (the "Agent") for the Lenders
Ladies and Gentlemen:
We refer to the Amended and Restated Credit Agreement dated as of July
14, 1995, (as amended, supplemented or otherwise modified through the date
hereof, the "Credit Agreement") among the undersigned and you. Capitalized terms
not otherwise defined in this Letter Waiver have the same meanings as specified
in the Credit Agreement.
Pursuant to an Asset Purchase Agreement dated as of October 12, 1998
(the "Asset Purchase Agreement") among the Borrower, as purchaser, and Custom
Form Manufacturing, Inc., as seller (the "Seller"), the Borrower intends to
purchase certain of the assets of the Seller ( the "Acquired Assets"), including
those assets relating to the Seller's business of engineering, designing,
manufacturing and selling thermoformed bedliners and soft tonneau covers for
motor vehicle pick up trucks (the "Asset Purchase"). Subject to the purchase
price adjustments provided for in the Asset Purchase Agreement, the Seller will
receive a total consideration for the Acquired Assets of approximately
$3,400,000 to be comprised of (i) a $3,250,000 cash payment to be paid at the
closing of the Asset Purchase, and (ii) a cash payment no greater than $150,000
to be paid within 30 days after the end of the six month period following the
closing of the Asset Purchase (each, individually a "Payment" and collectively,
the "Payments").
We hereby request that you waive each of the provisions of the Credit
Agreement that restrict our ability to complete the Asset Purchase and to make
the Payments, such waiver to be effective solely to the extent necessary to
consummate the Asset Purchase in accordance with the terms of the Asset Purchase
Agreement, including without limitation, the making of the Payments to the
Seller.
48
<PAGE> 2
This Letter Waiver shall become effective as of the date first above
written when, and only when, the Agent shall have received counterparts of this
Letter Waiver executed by us and the Required Lenders or, as to any of the
Lenders, advice satisfactory to the Agent that such Lender has executed this
Letter Waiver, and the consent attached hereto executed by each Guarantor and
each Grantor. The effectiveness of this Letter Waiver is conditioned upon the
accuracy of the factual matters described herein. This Letter Waiver is subject
to the provisions of Section 8.01 of the Credit Agreement.
The Credit Agreement, the Notes and each of the other Loan Documents,
except to the extent of the waiver specifically provided above, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents. The execution, delivery and effectiveness of this Letter Waiver shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
IF YOU AGREE TO THE TERMS AND PROVISIONS OF THIS LETTER WAIVER, PLEASE
EVIDENCE SUCH AGREEMENT BY EXECUTING AND RETURNING A COUNTERPART OF THIS LETTER
WAIVER TO DONALD BENNETT AT TELECOPIER NUMBER (212) 848-7179 AND AT LEAST FOUR
EXECUTED ORIGINALS TO DONALD BENNETT AT SHEARMAN & STERLING, 599 LEXINGTON
AVENUE, NEW YORK, NY 10022.
This Letter Waiver may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Letter Waiver by telecopier shall be effective as
delivery of a manually executed counterpart of this Letter Waiver.
49
<PAGE> 3
This Letter Waiver shall be governed by, and construed in accordance
with, the laws of the State of New York.
Very truly yours,
PENDA CORPORATION
By /s/ Jack L. Thompson
---------------------
Title: CEO/President
Agreed as of the date first above written:
BANQUE NATIONALE DE PARIS,
as Agent, Issuing Bank and as Lender
By /s/ Paul P. Barnes
-------------------
Title: AVP
By /s/ Mark L. Darrell
--------------------
Title:VP
FIRSTAR BANK MILWAUKEE, N.A.
By /s/ Randy D. Olver
-----------------------
Title: Vice President
50
<PAGE> 4
CONSENT
Dated as of October 22, 1998
Each of the undersigned, as a Loan Party party to certain of the Loan
Documents (as defined in the Credit Agreement referred to in the foregoing
Letter Waiver), hereby consents to such Letter Waiver and hereby confirms and
agrees that (a) notwithstanding the effectiveness of such Letter Waiver, each
Loan Document to which it is a party is, and shall continue to be, in full force
and effect and is hereby ratified and confirmed in all respects, except that, on
and after the effectiveness of such Letter Waiver, each reference in such Loan
Document to the "Credit Agreement", "thereunder", "thereof" or words of like
import shall mean and be a reference to the Credit Agreement, as amended by such
Letter Waiver, and (b) the Collateral Documents to which such Loan Party is a
party and all of the Collateral described therein do, and shall continue to,
secure the payment of all of the Secured Obligations (in each case, as defined
therein).
TRI-GLAS CORPORATION
By /s/Jack L. Thompson
-------------------
Title: CEO/President
51
<PAGE> 1
EXHIBIT 12.1
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
<TABLE>
<CAPTION>
Year Year Year Year Mar. 18, Jan. 1, Year
Ended Ended Ended Ended 1994 - 1994 - Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Mar. 17, Dec. 31,
1998 1997 1996 1995 1994 1994 1993
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $ 5,279 $ (6,218) $ 11,969 $ 6,923 $ 9,585 $ 2,857 $ 13,169
Interest
8,896 9,091 9,517 9,607 6,867 115 924
Interest portion of rental expense
673 646 714 645 237 24 398
Amortization of debt expenses
473 456 376 376 264 - -
---------------------------------------------------------------------------------
Earnings $ 15,321 $ 3,975 $ 22,576 $ 17,551 $ 16,953 $ 2,996 $ 14,491
---------------------------------------------------------------------------------
Fixed charges $ 10,042 $ 10,193 $ 10,607 $ 10,628 $ 7,368 $ 139 $ 1,322
---------------------------------------------------------------------------------
Ratio
1.5 0.4 2.1 1.7 2.3 21.6 11.0
---------------------------------------------------------------------------------
</TABLE>
(1) All dollars in thousands.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Penda Foreign Sales Corporation
Penda International Holding Corporation
Penda Latinoamericana Holding SA de CV (Mexico)
Penda SA de CV (Mexico)
Procesos Especiales de Mexico, SA de C (Mexico)
Penda Roo Holding Corporation (Florida)
Penda Australia Pty. Ltd. (Australia)
Penda-Mexico Employment Corporation (Florida)
Tri-Glas Corporation (Alabama)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,336
<SECURITIES> 0
<RECEIVABLES> 10,667
<ALLOWANCES> 380
<INVENTORY> 5,701
<CURRENT-ASSETS> 24,378
<PP&E> 31,827
<DEPRECIATION> 11,885
<TOTAL-ASSETS> 139,160
<CURRENT-LIABILITIES> 10,666
<BONDS> 79,350
0
0
<COMMON> 10
<OTHER-SE> 40,237
<TOTAL-LIABILITY-AND-EQUITY> 139,160
<SALES> 77,962
<TOTAL-REVENUES> 77,962
<CGS> 48,552
<TOTAL-COSTS> 48,552
<OTHER-EXPENSES> 15,657
<LOSS-PROVISION> (0)
<INTEREST-EXPENSE> 8,896
<INCOME-PRETAX> 5,279
<INCOME-TAX> 2,064
<INCOME-CONTINUING> 3,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,215
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 3.16
</TABLE>
