UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to ________
Commission File Number 0-16319
LUND INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1568618
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
911 LUND BOULEVARD
ANOKA, MINNESOTA 55303
Registrant's telephone number, including area code: (612) 576-4200
- ---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 for 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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
At October 28, 1997, 4,393,970 shares of the registrant's common stock, $.10 par
value, were outstanding.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of
September 30, 1997 (Unaudited)
and June 30, 1997 1-2
Consolidated Statement of Operations (Unaudited)
for the three months ended September 30, 1997 and 1996 3
Consolidated Statement of Cash Flows (Unaudited)
for the three months ended September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements (Unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
September 30, June 30,
1997 1997
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and temporary cash investments $ 360,820 $ 277,740
Restricted cash 994,359 1,393,146
Marketable securities 11,328,851 12,273,163
Accounts receivable, net 8,527,263 8,325,739
Inventories 6,735,151 6,611,761
Deferred income taxes 743,900 743,900
Other current assets 1,008,320 713,617
------------ ------------
Total current assets 29,698,664 30,339,066
Property and equipment, net 7,333,677 7,310,357
Intangibles, net 2,183,512 2,223,420
Restricted cash and marketable securities 587,556 580,242
Other assets 1,037,698 991,621
------------ ------------
Total assets $ 40,841,107 $ 41,444,706
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET, CONTINUED
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,166,822 $ 1,861,446
Accrued expenses 1,897,928 1,698,815
Income taxes payable -- 176,345
Long-term debt, current portion 500,000 460,000
------------- -------------
Total current liabilities 4,564,750 4,196,606
Long-term debt, less current portion 3,630,000 4,130,000
Other liabilities 254,936 265,178
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 2,000,000 shares;
none issued -- --
Common stock, $.10 par value;
authorized 25,000,000 shares;
issued and outstanding 4,393,970
at September 30, 1997 and
June 30, 1997, respectively 439,397 439,397
Class B common stock, $.01 par value;
authorized 3,000,000 shares;
none issued -- --
Additional paid-in capital 986,675 986,675
Unrealized holding gains on marketable securities 50,109 9,957
Unearned deferred compensation (74,222) (91,352)
Retained earnings 30,989,462 31,508,245
------------- -------------
Total stockholders' equity 32,391,421 32,852,922
------------- -------------
Total liabilities and stockholders' equity $ 40,841,107 $ 41,444,706
============= =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1997 1996
------------- -------------
Net sales $ 10,027,911 $ 10,406,421
Cost of goods sold 6,623,982 7,060,604
------------- -------------
Gross profit 3,403,929 3,345,817
Operating expenses
General and administrative 1,172,680 939,398
Selling and marketing 1,549,787 1,508,683
Research and development 347,788 312,004
Non-recurring transaction 1,174,299 --
------------- -------------
Total operating expenses 4,244,554 2,760,085
------------- -------------
(Loss) income from operations (840,625) 585,732
Other income (expense)
Interest expense (71,930) (75,516)
Interest income 162,487 169,075
Other, net (16,948) 26,085
------------- -------------
Other income, net 73,609 119,644
------------- -------------
(Loss) income before income taxes (767,016) 705,376
Income tax (benefit) expense (248,233) 243,354
------------- -------------
Net (loss) income $ (518,783) $ 462,022
============= =============
Net (loss) income per share $ (0.12) $ 0.11
============= =============
Common and common
equivalent shares 4,393,970 4,393,437
============= =============
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (518,783) $ 462,022
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Depreciation 299,590 225,843
Amortization 60,962 80,387
Gain on disposal of property and equipment (11,984) (38,590)
Provision for (reduction in) doubtful accounts 32,716 (16,839)
Provision for inventory reserves 170,757 24,000
Changes in operating assets and liabilities:
Accounts receivable (234,240) 2,590,962
Inventories (294,147) 135,781
Other current and other assets (410,853) 204,624
Accounts payable, trade 305,376 (863,146)
Accrued expenses 199,113 (75,128)
Income taxes payable (110,196) (53,209)
------------ ------------
Net cash (used in) provided by operating activities (511,689) 2,676,707
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (322,910) (451,125)
Proceeds from sales of property and equipment 11,984 55,184
Purchase of marketable securities (2,496,978) (4,291,950)
Proceeds from sales and redemptions of marketable securities 3,481,442 1,340,812
Change in restricted cash and marketable securities 391,473 398,823
Other investing activities -- (89,937)
------------ ------------
Net cash provided by (used in) investing activities 1,065,011 (3,038,193)
------------ ------------
Cash flows from financing activities:
Payment of long-term debt (460,000) (440,000)
Payment of other liabilities (10,242) (3,622)
------------ ------------
Net cash used in financing activities (470,242) (443,622)
------------ ------------
Net increase (decrease) in cash and
temporary cash investments 83,080 (805,108)
Cash and temporary cash investments:
Beginning of period 277,740 1,643,416
------------ ------------
End of period $ 360,820 $ 838,308
============ ============
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 19,515 $ 296,600
============ ============
Cash paid for interest $ 143,083 $ 154,977
============ ============
Supplemental disclosure of significant non-cash
investing and financing activities:
Change in unrealized holding gains on marketable securities $ 40,152 $ 48,549
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A - Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Lund International Holdings, Inc. and its wholly-owned subsidiaries,
Lund Industries, Incorporated, Lund Acquisition Corp., and Lund FSC, Inc.
(collectively, the "Company"). The consolidated balance sheet as of September
30, 1997, and the related consolidated statements of operations and cash flows
for the three months period ended September 30, 1997 and 1996 are unaudited. In
the opinion of management, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments consisted only of
normal recurring items. The results of operations for any interim period are not
necessarily indicative of results for the full year.
The June 30, 1997 consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
The unaudited interim consolidated financial statements and notes are presented
as permitted by Form 10-Q, and do not contain certain information included in
the Company's annual consolidated financial statements and notes.
B - Inventories
Inventories consisted of the following:
September 30, June 30,
1997 1997
------------ ------------
Raw materials $ 3,247,309 $ 3,309,440
Finished goods and work in process 3,487,842 3,302,321
------------ ------------
Total $ 6,735,151 $ 6,611,761
============= ============
C - Net Income (Loss)
Net income (loss) per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Dilutive
options and warrants are considered common stock equivalents for the purposes of
this computation.
D - Stockholders' Equity
On October 15, 1997, the Company's board of directors approved the repricing to
the then current fair market value of $13.875 of 12,000 of the total 34,000
non-employee director stock options outstanding and 396,000 of the total 436,000
employee incentive stock options outstanding. Such options had exercise prices
ranging from $16.00 to $21.25.
<PAGE>
E - Non-Recurring Transaction
On September 9, 1997, Harvest Partners, Inc., a private investment firm,
purchased 38% of the Company's outstanding shares of common stock from the
Company's former Chairman of the Board and his family. In conjunction with this
transaction, the Company recorded a pre-tax non-recurring charge of $1,174,299.
This charge included $600,000 paid to the former Chairman of the Board for a
covenant not to compete and severance and $574,299 for investment banking,
legal, accounting and other related expenses.
F - Reclassifications
Certain reclassifications have been made to September 30, 1996 amounts to
conform to the September 30, 1997 presentation with no effect on previously
reported net income and stockholders' equity.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
INTRODUCTION
Lund International Holdings, Inc. (the "Company") designs, manufactures, markets
and distributes appearance automotive aftermarket accessories for light duty
trucks, sport utility vehicles and vans. The Company has 34 product lines,
classified in the following categories: Visors, Bug Shields/Hood Protectors,
Running Boards, Tonneau Covers, and Other Appearance Accessories.
In September 1997 the Company's Board of Directors approved a change in the
Company's fiscal year end from June 30 to December 31, with a transition period
ending on December 31, 1997.
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1997 decreased 3.6% to
$10,027,911 from $10,406,421 for the same period last year. The net sales
decrease was primarily due to lower unit sales in the visor, hood protector and
runningboard lines, which were partially offset by higher sales in tonneau and
grille covers. The decrease in unit sales of these three product categories were
a result of the Company's customers reducing orders of the maturing product
lines in anticipation of the introduction of new lines during fiscal 1998.
Gross profit margins for the three months ended September 30, 1997 were 33.9%
compared to 32.2% for the same period last year. The increase in gross profit
margins primarily resulted from operating efficiencies realized with the
internalization of outside production, principally in the fiberglass area, and a
product mix favoring higher margin products. These increases were partially
offset by higher freight costs.
General and administrative expenses were $1,172,680 for the three months ended
September 30, 1997, compared to $939,398 for the same period last year, which
represented an increase of 24.8%. As a percentage of net sales, general and
administrative expenses were 11.7% for the three months ended September 30,
1997, compared to 9.0% for the same period last year. The increase in general
and administrative expenses resulted primarily from higher salary expense, an
increased provision for inventory reserves and third party consulting expenses
in the implementation of Lund's new computer system. The increase in general and
administrative expenses as a percentage of net sales is also related to the net
sales decrease.
On September 9, 1997, Harvest Partners, Inc., a private investment firm,
purchased 38% of the Company's outstanding shares of common stock from the
Company's former Chairman of the Board and his family. In conjunction with this
transaction, the Company recorded a pre-tax non-recurring charge of $1,174,299.
This charge included $600,000 paid to the former Chairman of the Board for a
<PAGE>
covenant not to compete and severance and $574,299 for investment banking,
legal, accounting and other related expenses.
Selling and marketing expenses were $1,549,787 for the three months ended
September 30, 1997, compared to $1,508,683 for the same period last year, which
represented an increase of 2.7%. As a percentage of net sales, selling and
marketing expenses were 15.5% for the three months ended September 30, 1997, as
compared to 14.5% for the same period last year. The increase primarily resulted
from increases in customer advertising costs and display expense offset by lower
new product support and promotional sponsorship costs. The increase in selling
and marketing expenses as a percentage of net sales is primarily related to the
net sales decrease.
Research and development expenses were $347,788 for the three months ended
September 30, 1997, compared to $312,004 for the same period last year. As a
percentage of net sales, research and development expenses were 3.5% for the
three months ended September 30, 1997, compared to 3.0% for the same period last
year. The increase in expenses primarily resulted from increased personnel and
product material to support both new product and application development,
increased operating lease expenses and higher computer system costs as the
Company is incorporating CAD/CAM design capabilities in its product development
process.
Primarily as a result of the loss for the three months ended September 30, 1997,
due primarily to the non-recurring transaction charge recorded during the three
months ended September 30, 1997, the Company recorded an income tax benefit
during the current quarter. This tax benefit was negatively affected by certain
non-deductible transaction costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally funded its operations to date from operating cash
flow. The Company had working capital of $25,133,914 including cash and
marketable securities of $12,684,030 as of September 30, 1997, compared to
$26,142,460, including cash and marketable securities of $13,944,049 as of June
30, 1997. The decrease of $1,260,019 in cash and marketable securities and the
decrease of $1,008,546 in working capital was principally due to cash payments
for non-recurring transaction fees and Industrial Revenue Bond interest and
principal payments during the quarter.
The Company believes that its existing cash and internally generated funds will
be sufficient to meet the Company's working capital and capital expenditure
requirements for the foreseeable future. If the Company makes significant future
acquisitions, however, it may be required to raise funds through bank financing
or the issuance of debt or equity securities. There is no guarantee that these
funds will be available.
OUTLOOK
A larger portion of automotive aftermarket accessory sales are going through the
large automotive retail chains. In response to these market changes, the Company
launched its new retail distribution program. The initial retail program
roll-out, which began in the third quarter of fiscal 1997 with retail store
testing, will continue for the next eighteen months to two years as the major
retail automotive chains review and integrate light truck accessory sales into
their current product offerings. The Company expects the retail segment will
account for a larger percentage of sales in the future.
<PAGE>
The delays in designing, producing and shipping the visor and tonneau cover
product lines resulted in reductions of sales in the three months ended
September 30, 1997. The Company completed re-engineering and testing of the
visors and began shipping the Solar and Lunar visor lines for the full size
light duty trucks in the latter part of this quarter. Market penetration of the
new visor may be slower than originally anticipated due to customer concerns
caused by original product design problems. As a result of decreasing sales in
its primary hood protector line, Lund introduced the Avenger and Defender
product line to broaden its product offerings. The new hood protectors began
shipping during the fourth quarter of fiscal 1997 and will begin to impact sales
numbers with increased market penetration during the second calendar quarter of
1998. The Company began shipping its new hard tonneau cover line during the
three months ended September 30, 1997 and is completing tooling on its
re-engineered snapless tonneau, which is expected to begin shipping early in the
last calendar quarter of 1997.
The Company is implementing a new computer system and will complete
implementation during the quarter ending December 31, 1997. The Company believes
the additional features and controls will provide an information platform for
future internal and external growth. In conjunction with the computer system
implementation, the Company is currently implementing a QS9000 quality program
and expects to be certified by December 1998 for both its Oklahoma and Minnesota
locations. The quality certification is critical to original equipment
manufacturing customers such as Ford, Chrysler and General Motors.
The Company plans to leverage its current brand awareness and take advantage of
the fragmented automotive accessory market by executing an aggressive
acquisition program. The acquisition strategy will focus on the light truck
accessory aftermarket by increasing market share of the Company's current
product categories, adding additional product categories, product capabilities,
or distribution capabilities.
Over the last two fiscal years, the demand and prices for raw material products,
including plastic resins, fiberglass and corrugated packaging, have stabilized.
The Company anticipates a small price increase in plastics and packaging, which
are not expected to significantly impact the Company's gross profit margins.
On September 16, 1997, the Company's Board of Directors approved a change in the
Company's fiscal year-end from June 30 to December 31, with a transition period
ending on December 31, 1997.
FORWARD LOOKING STATEMENTS MADE HEREIN RELATING TO FUTURE FINANCIAL RESULTS,
ACQUISITIONS, ONGOING OPERATIONS, TRENDS AND MARKET ANALYSIS, AMONG OTHERS, ARE
FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE RESULTS
TO DIFFER MATERIALLY FROM THOSE ANTICIPATED. AMONG THE FACTORS THAT COULD CAUSE
RESULTS TO DIFFER MATERIALLY ARE THE FOLLOWING: CONSUMER PREFERENCE CHANGES,
ADVERSE MARKET DEVELOPMENTS, INABILITY TO EFFECTIVELY CARRY OUT AN ACQUISITION
STRATEGY, EXPANSION INTO NEW DISTRIBUTION CHANNELS, ADDITIONAL DELAYS IN DESIGN,
DEVELOPMENT, TESTING OR SHIPPING OF PRODUCTS, INCREASED COMPETITION, GENERAL
ECONOMIC DEVELOPMENTS AND TRENDS, DEVELOPMENTS AND TRENDS IN THE LIGHT TRUCK AND
AUTOMOTIVE ACCESSORY MARKET AND INCREASED COSTS. THIS IS NOT AN EXHAUSTIVE LIST
AND THE COMPANY MAY SUPPLEMENT THIS LIST IN FUTURE FILINGS OR RELEASES OR IN
CONNECTION WITH THE MAKING OF FORWARD-LOOKING STATEMENTS.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on September 19, 1997 with respect to
the sale of certain stockholders' 38% ownership of the Company to an
investment vehicle affiliated with Harvest Partners, Inc., and a change
in fiscal year-end to December 31.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUND INTERNATIONAL HOLDINGS, INC.
(Registrant)
By /s/ William J. McMahon
--------------------------------
William J. McMahon
President and Chief Executive Officer
By /s/ Jay M. Allsup
--------------------------------
Jay M. Allsup
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820526
<NAME> Lund International Holdings, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,355,179
<SECURITIES> 11,328,851
<RECEIVABLES> 9,340,840
<ALLOWANCES> 813,576
<INVENTORY> 6,735,151
<CURRENT-ASSETS> 29,698,664
<PP&E> 7,333,677
<DEPRECIATION> 3,476,352
<TOTAL-ASSETS> 40,841,107
<CURRENT-LIABILITIES> 4,564,750
<BONDS> 3,630,000
0
0
<COMMON> 439,397
<OTHER-SE> 31,952,024
<TOTAL-LIABILITY-AND-EQUITY> 40,841,107
<SALES> 10,027,911
<TOTAL-REVENUES> 10,027,911
<CGS> 6,623,982
<TOTAL-COSTS> 10,868,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32,716
<INTEREST-EXPENSE> 71,930
<INCOME-PRETAX> (767,016)
<INCOME-TAX> (248,233)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (518,783)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
