SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from July 1, 1997 to December 31, 1997
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
911 Lund Boulevard, Anoka Minnesota 55303
(Address of principal executives offices including Zip Code)
Registrant's telephone number, including area code: (612) 576-4200
Common Stock, $.10 par value
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 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. [ X ]
At the close of business on March 17, 1998, 5,268,370 shares of the Company's
Common Stock and 1,493,398 shares of the Company's Series A Preferred Stock were
issued and outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 17, 1998 was approximately
$36,970,684 based upon the last sale price of the registrant's Common Stock on
such date.
Documents incorporated by reference:
Portions of the registrant's Proxy Statement are incorporated by reference into
Part III.
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PART I.
Item 1. BUSINESS
General
Lund International Holdings, Inc. ("Holdings" or "the Company") was incorporated
on November 10, 1986, pursuant to the Delaware General Corporation Law. Lund
Industries, Incorporated ("Lund") was incorporated as a Minnesota corporation in
1965 and first engaged in its present business in 1974. In October 1987,
Holdings acquired Lund as a wholly-owned operating subsidiary. In July 1992,
Lund FSC, Inc., formerly Lund International FSC, Inc. ("FSC"), was incorporated
as a wholly-owned foreign sales corporation of Holdings. In April 1996, Lund
Acquisition Corp. ("Acquisition") was incorporated as a Minnesota corporation.
In June 1996, Acquisition acquired certain assets of Innovative Accessories,
Inc., an Oklahoma corporation.
In November 1997, Holdings, through a newly-formed subsidiary, Zephyros
Acquisition Corporation ("Zephyros"), commenced a tender offer for all of the
outstanding shares of Deflecta-Shield Corporation ("Deflecta-Shield") for $16.00
per share in cash. In December 1997, Holdings successfully completed the tender
offer by acquiring approximately 98.8% of the outstanding shares of
Deflecta-Shield. On February 27, 1998, Holdings completed the acquisition of
Deflecta-Shield through the merger of Zephyros into Deflecta-Shield.
Deflecta-Shield was founded in 1961 as a partnership and was reorganized as a
corporation in 1994. Deflecta-Shield conducts its business through wholly-owned
direct and indirect subsidiaries which it has acquired. The direct subsidiaries
are Belmor Autotron Corp. ("Belmor"), acquired in 1988, and DFM Corp. ("DFM"),
acquired in 1990.
The indirect subsidiaries, wholly-owned by DFM, are BAC Acquisition Co.
("Fibernetics"), acquired in 1993, and Trailmaster Products, Inc.
("Trailmaster") and Delta III, Inc. ("Delta III"), both acquired in 1994.
Holdings, Lund, FSC, Acquisition, Deflecta-Shield and its subsidiaries will
hereinafter be referred to collectively as the "Company".
Holdings is a leading designer, manufacturer and marketer of a broad line of
appearance accessories for new and used light trucks, including pickup trucks,
sport utility vehicles, minivans and other vans. With the acquisition of
Deflecta-Shield, Holdings is also a leading manufacturer of aftermarket and
original equipment manufacturer ("OEM") accessories for the heavy truck market.
Recent Corporate Developments
On September 9, 1997, Allan W. Lund, the founder of Lund and the Chairman of the
Board and principal shareholder of Holdings, together with the Lund Family
Limited Partnership, the Lois and Allan Lund Family Foundation and certain
members of Mr. Lund's family (collectively, the "Lund Interests") sold their
aggregate 38% interest in Holdings, or an aggregate of 1,686,893 shares of
Holdings' Common Stock, to LIH Holdings, LLC, a Delaware limited liability
company ("LIH"), a company affiliated with Harvest Partners, Inc., a private
investment firm ("Harvest Partners"), for a price of $11.50 per share plus
additional contingent payments on 1,426,501 of the shares.
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In addition, Holdings entered into a Governance Agreement with LIH and a
Services Agreement with Harvest Partners (see "Business - Relationship with
Harvest Partners") and a Severance Agreement with Mr. Lund.
The Severance Agreement provides that, for a period of 12 months, Mr. Lund may
not, directly or indirectly, compete with the Company, and may not solicit or
recruit any individual employed by the Company or influence or attempt to
influence customers, suppliers or vendors of the Company or parties with which
the Company does business, or divert their business away from the Company. In
connection with the execution of the Severance Agreement, the Company paid Mr.
Lund the following amounts: (i) $100,000 as and for severance; (ii) $450,000 as
and for Mr. Lund's agreement not to compete with the Company as well as for his
agreement to keep certain Company information confidential; and (iii) $50,000
for Mr. Lund's release of claims that he either now has, or in the future may
have, against the Company. The Company also released Mr. Lund from any such
claims.
In November 1997, Holdings and Zephyros entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Deflecta-Shield, pursuant to which Zephyros
agreed to commence a tender offer (the "Tender Offer") for all of the
outstanding shares of Deflecta-Shield and, if more than 50% of the outstanding
shares of Deflecta-Shield were tendered, to purchase such shares and to
consummate a merger with Deflecta-Shield in which Zephyros would merge into
Deflecta-Shield and Deflecta-Shield would become a wholly-owned subsidiary of
Holdings (the "Merger"). On December 30, 1997, Holdings closed the Tender Offer
and acquired 98.8% of the outstanding shares of Deflecta-Shield. On February 27,
1998, Zephyros consummated the Merger with Deflecta-Shield and Deflecta-Shield
became a wholly-owned subsidiary of Holdings. In both the Tender Offer and the
Merger, the Company paid $16.00 per share for each of the 4,800,000 outstanding
shares of Deflecta-Shield, for an aggregate purchase price of approximately
$76,800,000, not including the repayment of $9,400,000 of Deflecta-Shield debt
and the costs and expenses related to the acquisition and acquisition financing
of approximately $2,119,000. In addition, Deflecta-Shield paid approximately
$3,500,000 in consideration for the settlement of outstanding Deflecta-Shield
options.
In order to finance the Acquisition, the Company used several financing sources:
approximately $10,000,000 of its own cash reserves; bank borrowings of
approximately $42,000,000; and $30,000,000 through the sale of equity to LIH II,
a second entity affiliated with Harvest Partners. The sale of equity to LIH II
is hereinafter referred to as the "LIH II Financing".
On November 25, 1997, Holdings entered into an Investment Agreement with LIH II,
pursuant to which LIH II agreed to purchase 874,400 shares of the Company's
Common Stock and 1,493,398 shares of the Company's non-voting Series A Preferred
Stock (convertible into shares of non-voting Class B-1 Common Stock, in the
circumstance described herein), at a price of $12.67 per share, equal to the
average of the closing prices for the Common Stock on the preceding 20 trading
days. The closing price of a share of Common Stock on November 24, 1997 was
$12.50. Holdings, LIH and LIH II also agreed that, upon the closing of the LIH
II Financing, they would execute an Amended and Restated Governance Agreement
(see "Business Relationship with Harvest Partners"). The Investment Agreement
was recommended unanimously by the independent directors of the Board of
Directors and approved unanimously by the Board, with Ira Kleinman and Harvey
Wertheim, LIH representatives on the Board, not participating in the vote. On
November 25, 1997, Piper Jaffray, Inc. issued its opinion with respect to the
LIH II Financing that the terms were fair to the Company from a financial point
of view.
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On December 30, 1997, the LIH II Financing was closed. As a result of such
purchases, LIH and LIH II currently own in the aggregate 2,561,293 shares of
voting Common Stock, or 48.6% of the voting Common Stock of the Company and
1,493,398 shares of non-voting Series A Preferred Stock which, if converted into
shares of non-voting Class B-1 Common Stock, would represent an additional 22%
of all shares of voting and non-voting Common Stock, or approximately 60% of the
Company's total equity. In connection with the closing, the Company filed a
Certificate of Designation of the Series A Preferred Stock, which includes a
provision that such stock will automatically convert into non-voting Class B-1
Common Stock on a one-for-one basis upon shareholder approval, provided that the
terms of the Class B-1 Common Stock are also approved by the shareholders. The
Company also filed a Certificate of Designation of the Class B-1 Common Stock
and is seeking shareholder approval of the conversion of the Series A Preferred
Stock into non-voting Class B-1 Common Stock and approval of the terms of the
Class B-1 Common Stock at its 1998 Annual Meeting of Stockholders.
The Series A Preferred Stock is non-voting and converts on a one-for-one basis
to Class B-1 Common Stock only upon the approval of the Company's shareholders
at a duly constituted meeting. In the event that shareholder approval is not
obtained by April 30, 1998, quarterly dividends on the Preferred Stock, at the
annual rate of 15%, will begin to accrue, with the initial quarterly dividend
payment duly July 31, 1998. The Company may redeem the Series A Preferred Stock
for the purchase price plus accrued but unpaid dividends commencing seven years
from the date of purchase. The Company has received the indication of Harvest
Partners that it expects LIH and LIH II to vote their shares of Common Stock to
approve the conversion of the Series A Preferred Stock into Class B-1 Common
Stock. Although the Preferred Stock has no voting rights, it may vote as
required by law and in certain limited instances in connection with a merger or
similar transaction.
The Company has agreed not to issue any series or class of preferred stock
senior to the Series A Preferred Stock.
The Class B-1 Common Stock, which is also non-voting, automatically converts on
a one-for-one basis into shares of voting Common Stock (assuming the
shareholders approve the Certificate of Designation of the Class B-1 Common
Stock, which approval will be sought at the 1998 Annual Meeting) on September 9,
2000 (the termination date of the Restated and Amended Governance Agreement) or,
if earlier, the first to occur of the following:
a. the affirmative vote of a majority of Independent Directors;
b. any transfer of shares of Class B-1 Common Stock, other than any such
transfer (i) by LIH, LIH II, or any of their respective affiliates or
associates to any person or entity, if, immediately after giving effect
to such transfer and conversion, the transferee and its affiliates and
associates would hold more that 49% of the voting Common Stock or (ii)
to LIH, LIH II, or any of their respective affiliates or associates; or
c. the first date as of which LIH, LIH II and their respective affiliates
and associates own, in the aggregate, more than 50% of the outstanding
shares of voting Common Stock in a transaction that is permitted by, or
is effected in accordance with the terms of, the Restated and Amended
Governance Agreement.
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Products
The Company currently has over 60 product lines which allow consumers to
customize the relatively uniform look of light trucks with stylish and
functional accessories and are engineered and designed to give an original
equipment look and fit. The Company's products are designed to fit a wide range
of makes, models and years of light trucks. The Company also has over 15 product
lines for heavy trucks. The heavy truck market consists of over-the-road trucks
in the Class 8 weight category (trucks with a gross vehicle weight over 33,000
pounds). Its major product categories are:
EXTERNAL VISORS, which give light trucks an aerodynamically-styled look
while reducing glare;
HOOD SHIELDS/BUG DEFLECTORS, which provide a distinctive look and
protect hoods and windshields from insects, stones, and road debris;
RUNNING BOARDS AND STEP BOARDS, which provide an original equipment
look, protect the rocker panels of a vehicle and assist in passenger
entry and exit;
TONNEAU COVERS, which protect the bed of a pickup truck with a smooth
stylish look;
HEAVY TRUCK PRODUCTS, which include bug deflectors, winterfronts, bug
screens and rock guards for the heavy truck market;
OTHER EXTERNAL APPEARANCE ACCESSORIES, which include cab extenders,
styling covers for taillights and headlights, tailgate protectors,
fender extensions, custom grille inserts, rear window air deflectors,
side window covers, wiper cowls, rear valances, cargo trays, floor mats
and bumper covers; and
SUSPENSION PRODUCTS, which are used as an appearance enhancing product
to lift and/or lower a vehicle;
These products are generally manufactured from fiberglass, vinyl or plastic
sheets composed of polyester, ABS plastic, acrylic or polycarbonate, or
reinforced vinyl. Virtually all of the Company's products are custom molded for
an exact fit to each vehicle.
EXTERNAL VISORS
In 1977, Lund entered the light truck accessory market by introducing the Lund
SunVisor(R). Since then, Lund has been designing, manufacturing and selling
external visors and believes it is the largest supplier of external visors in
the industry. In 1995, Lund introduced and began shipping the Solar(TM) and
Lunar(TM) visors. Through the acquisition of Deflecta-Shield, the Company
increased its visor offering and currently has eight product lines, which
include:
LUND SUNVISOR(R) The Lund SunVisor extends forward from the roofline of the
light truck's cab, enhancing its appearance with an aerodynamically-styled look
while reducing glare for passengers. A distinctive hawk-like silhouette is
incorporated into a majority of the Lund SunVisors.
MOONVISOR(R) The MoonVisor is similar to the Lund SunVisor, with the addition of
recessed amber running lights for additional style and lighting.
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The SunVisors and MoonVisors are sold unpainted to allow a customer to match the
paint of the visor to that of the vehicle. The visors are easy to install and
are mounted to the cab of the vehicle using self-tapping screws which are capped
with custom finishing covers.
SOLAR(TM) VISOR The SolarVisor is manufactured using a UV stable, ABS polymer
and is designed with the unique feature of attaching in the door mount of the
vehicle rather than into the roof. This visor is available in the color black
and can be painted to match the exterior of the vehicle.
LUNAR(TM) VISOR The LunarVisor is similar to the SolarVisor, with the addition
of Department of Transportation approved recessed amber lights.
SUNCAP(R) VISOR The SunCap Visor is a fiberglass accessory designed and marketed
by Deflecta-Shield, to complement the older model vehicles and reduce glare on
the windshields of the light truck. The SunCap finish is primed for ease of
painting to match the vehicle.
LIGHTED SUNCAP(R) VISOR In 1990, Deflecta-Shield introduced the lighted
SunCapVisor, the industry's first lighted cab visor, providing a stylish
nighttime look.
VISION VISOR(R) In 1994, Deflecta-Shield introduced its Vision Visor(R), the
first two piece visor specifically designed to complement and blend with the
aerodynamic look of current models of pick-up trucks, mini-vans and sport
utility vehicles. Vision Visor's lighted and unlighted versions provide a unique
contour design featuring a smoke-tint Lexan(R) insert, which allows filtered
light through the visor, helping to eliminate the tunnel effect associated with
certain other visor designs.
HOOD SHIELDS/BUG DEFLECTORS
Lund entered the hood shield/bug deflector market in 1989 and now offers four
styles of shields. Through the acquisition of Deflecta-Shield, the Company
significantly increased its hood shield product category. The product lines
currently are:
INTERCEPTOR(TM) The Interceptor has a wrap-around design that is consistent with
today's sleek looking vehicles. The Interceptor's design protects the leading
edge of each fender as well as the hood from bugs, stones and other road debris.
This product line is available in smoke, red, blue and clear. The clear shield
can be painted for a more customized look.
FRONTRUNNER(TM) The FrontRunner, which is also available for certain cars,
follows the contour of the hood for a "second skin" look and mounts easily
without tools or drilling. The FrontRunner protects the hood as well as the
leading edge of each fender and is available in a black satin finish which can
be painted to match the color of the vehicle.
DEFENDER(TM) The Defender is a low-profile hood shield that is contoured to
match the lines of the hood for maximum aerodynamics. The Defender can be
installed using screws or tape. This product line is available in a smoke color.
AVENGER(TM) The Avenger is similar to the Defender but has the added feature of
wrap-around design for hood and fender protection. This product line is also
available in a smoke color.
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CUSTOM FIT(TM) The original line of bug deflectors, introduced by
Deflecta-Shield in 1961. Custom Fit is made with a cut, acrylic, plastic sheet
mounted vertically in an aluminum channel which is fastened to the underside of
the hood.
CONCEPT II(TM) In the late 1980's, a new line of bug deflectors was developed by
Deflecta-Shield under the Concept II(TM) name, which combined the new contoured,
aerodynamic style with the toughness of General Electric Plastics(TM) Lexan(R),
a highly impact-resistant polycarbonate plastic. Like Custom Fit, the Concept II
product line is manufactured in a variety of colors and to individual model year
specifications.
MIRAGE(R) In 1991, Deflecta-Shield introduced a new top-of-the-line bug
deflector under the Mirage name, which featured wrap-around design and Quad
Airflow Vents(TM). The wrap-around design feature helps protect painted fenders
from chipping, while the Quad Airflow Vents are designed to reduce the back
pressure created by air deflection while maintaining aerodynamics and permitting
windshield sprayers to function properly.
MAGNUM(TM) In 1994, the Magnum line of wrap-around bug deflectors was
introduced. The Magnum bug deflectors feature a flowing aerodynamic appearance
combined with the toughness and durability of Lexan.
LX2000(TM) WRAP AROUND SHIELD AND THE LX1000(TM) CONTOUR SHIELD In 1995,
Deflecta-Shield introduced several new bug deflector products for
dealer-expediter customers. These new products include the LX2000 Wrap Around
Shield and the LX1000 Contour Shield, which are premium, high quality bug
deflectors made from Lexan. These products are designed to satisfy the needs of
truck dealers and consumers seeking high quality and modern aerodynamic styling.
Other Deflecta-Shield lines, the AC200(TM) Wrap Around Shield and the AC100(TM)
Contour Shield, were designed and priced to meet the needs of more value
conscious customers.
RUNNING BOARDS AND STEP BOARDS
In 1991, Lund entered this market when it developed its line of fiberglass
running boards. Lund currently offers five lines of boards, which provide an OEM
look, protect the rocker panels of a vehicle and assist in passenger entry and
exit. These lines currently are:
RUNNINGMATES(TM) RunningMates are full-length fiberglass running boards that
come with a non-skid rubber tread, gravel guard and splash guard. RunningMates
are offered in a two-piece design for pickups and large sport utility vehicles.
This product line is available in ready-to-paint white gel-coat or, for the Ford
Explorer, in mocha.
STEPMATES (TM) StepMates are single step boards that are similar to RunningMates
in style and function. StepMates are available in a white gel-coat finish to
allow a customer to match the exterior of the vehicle.
SUPERSTEPS(TM) SuperSteps are step boards designed to be a multi-application
product with limited part numbers that fit a broad array of vehicles. SuperSteps
are molded from an ABS black polymer plastic which can be painted to match the
vehicle or installed without painting.
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SIDETRACKER(TM) SideTracker running boards are designed to allow four
applications to fit most extended cab pickups and sport utility vehicles. These
running boards are manufactured from ABS plastic polymer which can be installed
without painting or painted to match the vehicle.
X-STEP(TM) In 1997, Lund introduced the X-Step, a fiberglass custom truck step
designed with a smooth, sculpted finish to blend with current vehicle styles.
The X-Step is manufactured with a white, gel coat finish that can be easily
painted to match the color of the vehicle.
SPORTBOARD(R) AND SPORTSTEP(R) In 1993, Deflecta-Shield entered the market for
light truck running boards with its acquisition of the Fibernetics product line,
a line of premium molded fiberglass running boards for pick-up trucks, mini-vans
and sport utility vehicles. Manufactured of reinforced fiberglass and available
in a variety of original factory colors, Deflecta-Shield markets its full length
running board products under the SportBoard name and its pick-up truck step
boards under the SportStep name.
The 1994 acquisition by Deflecta-Shield of Delta III provided a complement to
the existing line of fiberglass running boards. Delta III manufactures an
extensive line of treadplate aluminum and extruded aluminum running boards. In
addition to running boards, Delta III manufactures a full line of treadplate
aluminum and extruded aluminum pick-up bed protection products.
SPORTREND(TM) In 1996, Deflecta-Shield introduced an ABS running board with an
exclusive body-mount attachment system. The paintable thermoformed polymer shell
is reinforced with an extruded aluminum sub-frame that provides enough rigidity
to permit a person to stand anywhere along the length of the board. Also in 1996
Deflecta-Shield introduced paintable fender flares that are molded from ABS
material. These products are marketed under the Sportrend name and can be
combined to complete an integrated styling package. With its fiberglass,
aluminum and ABS running boards, the Company believes it offers the most
complete running board program in the industry.
TONNEAU COVERS
The Company entered into the tonneau cover market in 1994 with the acquisition
of certain assets of Innovative Accessories, Inc. It currently markets five
styles of tonneau covers, which are each designed to protect the bed of a pickup
truck. These product lines currently are:
HATCHBACK(TM) The Hatchback is a uniquely designed cab-extending tonneau cover
that incorporates the features and functions of an automobile trunk with the
benefits of a hard tonneau cover. The Hatchback is constructed of three
individually molded pieces of fiberglass, assembled to make the smooth inner and
outer surfaces. The Hatchback comes in a white gel-coat finish which can be
painted to match the vehicle.
ADVANTAGE(TM) The Advantage tonneau cover is a black vinyl cover that is
attached to the bed of a pickup truck to protect the cargo from the elements and
to add a smooth look to the pickup. The cover attaches to the bed of the truck
with the use of anodized aluminum rails that are clamped onto the bed.
Rust-proof Insulsnaps(R) are used to attach the vinyl to the rail.
PREMIER(TM) The Premier tonneau cover is similar to the Advantage cover but has
an upgraded bow design system that allows for easy removal of the bows. The
Premier is available in a variety of colors to complement the color of the
pickup.
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ELITE(TM) The Elite tonneau cover is similar to the Advantage and Premier
tonneau covers; however, it incorporates a unique zip closure which eliminates
time consuming snap assembly.
SPORT COVER(TM) The Sport Cover, a fiberglass tonneau cover which can be painted
to match the color of the pickup, was part of the Deflecta-Shield product line.
HEAVY DUTY TRUCK ACCESSORIES.
Through the acquisition of Deflecta-Shield, Lund acquired a line of products for
heavy trucks, which are developed, manufactured and marketed at the Belmor
facility in Chicago, Illinois. Management believes Belmor is the largest
supplier of winterfronts, bug screens, bug deflectors and rock guards for heavy
trucks in the United States. Each of these product lines is (i) designed and
developed in cooperation with major heavy truck manufacturers, (ii) built to
individual model year specifications, and (iii) with few exceptions, the
exclusive OEM-approved accessory sold to the OEM in that product category. These
products are sold for substantially all makes and models of U.S.-made heavy
trucks. Function is emphasized to a greater degree in the manufacturing of
Belmor's heavy truck products than its light truck accessories.
HEAVY TRUCK BUG DEFLECTORS. Heavy truck bug deflectors are designed to provide
air deflection to keep truck windshields cleaner, reduce driver fatigue, and
prevent chipping of paint on truck fenders.
Belmor's heavy truck bug deflectors are manufactured and marketed primarily
under the Aeroshield(TM) name. The Aeroshield I is a traditionally-styled flat
vertical deflector manufactured from Lexan, mounted in an aluminum channel and
available in five colors. The Aeroshield II is an aerodynamically designed bug
deflector manufactured from Lexan and mounted in a bright-dipped, anodized
aluminum base that attaches on top of the truck hood to provide a sleek,
original equipment look. The Aeroshield III is a high-end stylish deflector made
of molded, UV-fade resistant acrylic mounted in a black ABS plastic base. In
addition, the Aeroshield III has an accessory, the Aero Mask(R), a black ABS
plastic mask which attaches using existing holes and hardware and which provides
front end protection against rocks, chips and scratches. In 1994, Belmor
introduced Aeroshield-Plus, an aerodynamically designed shield for heavy trucks.
To satisfy the market need for a mid-priced aerodynamic shield, Belmor
introduced the Aeroshield Wave in early 1996.
A Mustache Shield(R) is a contoured bug deflector designed to fit the sloping
hood of certain model trucks. Belmor also manufactures heavy truck Universal
Sider Shields, a pair of 19" one-sized Lexan deflectors, which mount vertically
on the truck front.
BUG SCREENS AND ROCK GUARDS. Bug screens are used primarily during the warmer
months of the year to keep bugs and road debris from reaching the radiator of a
truck. Bug screens are constructed of light weight aluminum or fiberglass screen
mesh and are often included in a new truck package. They are snapped on the
front of the truck and are generally replaced about every other year at a heavy
truck dealer. Rock guards are heavy fabricated metal screens installed inside
the truck engine compartment in front of the radiator and designed to protect
the radiator and engine against damage from rocks and other road debris. Rock
guards are installed on many truck models as a standard part. Belmor is the
largest supplier of bug screens and rock guards in the United States.
Two types of bug screens are offered: aluminum mesh and fiberglass mesh bug
screens. Aluminum bug screens are constructed of light weight aluminum screen
mesh material with vinyl binding. Fiberglass bug screens are lower-priced
products, manufactured of black fiberglass mesh with flexible vinyl
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binding and can be easily folded and stored when not in use. Belmor also offers
a designer series of fiberglass bug screens with designs such as the American
Flag, Confederate Flag, Canadian Flag, company names, fleet logos or truck
manufacturers' logos in various color schemes.
Rigid frame rock guards are premium-priced grille protectors constructed of
heavy gauge aluminum screen mesh with a rigid metal frame.
WINTERFRONTS. Winterfronts are snap-on vinyl covers for the radiator grille on
the front of a truck and are used to regulate the air intake of the truck's
engine during cold weather. By installing a winterfront, a driver can maintain
proper engine operating temperature in cold weather and increase the amount of
heat available to warm the cab of the truck. Belmor is the largest supplier of
winterfronts in the United States.
Three basic styles of winterfronts are offered by Belmor: fixed opening
winterfronts, adjustable opening winterfronts and "V" opening winterfronts. The
styles of winterfront selected for a heavy truck depends on the manufacturer,
model and engine type of the truck. The Company has a United States patent on
its center opening winterfront, an innovative product developed to reduce engine
wear. Fixed center opening winterfronts were developed in response to
technological changes in heavy truck engines. In some cases, hardware to attach
the winterfronts to the truck is sold separately. Winterfronts are sold in
standard white vinyl or can be custom silk screened with company names, fleet
logos or with truck manufacturers' logos.
INTERIOR TRIM PARTS. Belmor also manufactures and sells interior panels and trim
items to certain manufacturers of heavy trucks, and replacement trim kits for
certain models to heavy truck dealers. Replacement trim kits are offered for
certain Ford, Navistar and Mack heavy truck models. Interior trim products sold
to heavy truck manufacturers include door panels, roof panels, side panels,
sleeping curtains, door pockets, dash boards, headliners, carpets and floor
mats. A dielectric heat sealing process is utilized in manufacturing interior
trim products with sheet vinyl, foam and fiberboard as primary raw materials.
Interior trim products sold directly to OEM customers are installed on the truck
during assembly. Replacement trim kits are sold through heavy truck dealers, are
designed for the do-it-yourself market and are sold as an affordable method to
upgrade a worn interior and increase the resale value of a truck.
OTHER EXTERNAL APPEARANCE ACCESSORIES
The Company also designs, manufactures and sells other external appearance
accessories. The Company's other external appearance accessories currently are:
CAB EXTENDERS AND BODY ACCESSORIES Lund designed and began selling cab extenders
in the 1980s, and other body accessories in the 1990s.
FASTBACK(R) The Fastback is a cab spoiler designed to enhance the appearance of
a pickup truck by extending the lines of the cab. It also acts like a visor for
the back of the cab and provides a bar on which accessory lights may be mounted.
This product line is available with solid or cutout side panels and has a white
gel-coat finish which can be painted to match the vehicle.
RACERBACK(TM) The Racerback cab fairing is similar to the Fastback except that
it raises above the cab line with a streamlined spoiler effect and fastens to
the truck cab and roof. The Racerback also allows for the use of a tonneau
cover. The Racerback comes in a white gel-coat finish which can be painted to
match the vehicle.
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WINDJAMMER(TM) The WindJammer is a stylish rear window air deflector that helps
prevent the build-up of dirt on the rear window of vans, minivans and sport
utility vehicles. The WindJammer is available in smoke acrylic or paintable
plastic.
TAILMATE(TM) The TailMate is a fiberglass rear valance that is mounted below a
pickup truck's tailgate, providing a smooth look to the back of the vehicle. The
TailMate comes in a white gel coat finish which can be painted to match the
vehicle.
WIDESIDES(TM) WideSides are fiberglass fender extensions which attach to the
rear wheel wells of a pickup truck, giving a vehicle a "dual-tire" look.
WideSides extend the body panel by approximately four inches and are offered in
a nine inch super-wide size for Chevrolet(R) pickup trucks. WideSides come in a
white gel-coat finish which can be painted to match the vehicle.
GATEKEEPER(TM) The GateKeeper tailgate protector adheres to the top edge of a
pickup truck's tailgate, protecting it from scratches and dents. The GateKeeper
is made from flexible PVC and is sold in black.
SHADOW(TM) WIPER COWL The Shadow Wiper Cowl hides the windshield wipers and
creates the appearance of a lowered cab, known as a "chopped look." The Shadow
is available in smoke or a paintable clear finish.
RUNNINGMATE(TM) REAR EXTENDER The RunningMate Rear Extender is used to
complement the Company's running board line by extending the look of the running
boards to the rear portion of the fender. The RunningMate Extender is made of
ABS black polymer plastic and can be painted to match the vehicle.
BACKDRAFT(TM) TAILGATE SPOILER The BackDraft tailgate spoiler is a designed
black ABS polymer spoiler that can be attached to the tailgate of a pickup using
3M(R) tape.
GRILLE INSERTS Lund entered the market for grille inserts when it acquired the
Cold Front(R) product line in 1990. Lund developed the Screen Front(TM) product
line in 1991.
COLD FRONT(R) The Cold Front custom grille insert snaps into the grille of a
light truck to give a stylish "backed-out look" and to provide it with fast
engine warm-up and even engine temperature in cold weather. The Cold Front
consists of solid Lexan panels which come in a smoke color.
SCREEN FRONT(TM) The Screen Front custom grille insert is similar to the Cold
Front except that it consists of perforated Lexan panels that are used to screen
bugs and road debris from the grille. The Screen Front is sold in a smoke color
and can be painted to match the vehicle.
HEADLIGHT, TAILLIGHT AND SIDE WINDOW STYLING COVERS In 1992, Lund introduced its
Eclipse(TM) line of styling covers for headlights and taillights and the Eclipse
Side Window Styling Covers in 1993. The Eclipse product lines are:
ECLIPSE HEADLIGHT AND TAILLIGHT STYLING COVERS The Eclipse headlight and
taillight styling covers are solid in design and can be easily mounted without
tools or drilling, either by snapping in place or by using a patented mounting
system offered by the Company. The Eclipse headlight styling covers are
available in smoke and paintable clear, and the Eclipse taillight styling covers
are available in smoke.
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ECLIPSE SLOTTED TAILLIGHT STYLING COVERS The Eclipse slotted taillight styling
covers provide a distinctive look and can be easily mounted using double-sided
industrial tape. This product comes in a paintable black finish.
ECLIPSE SIDE WINDOW STYLING COVERS The Eclipse side window styling covers
provide a distinctive look for many domestic and imported extended cab pickup
trucks. These covers attach to the side window using double-sided industrial
tape. The Eclipse side window styling covers come in smoke or a paintable black
finish.
CRUISER(TM) In 1995, Deflecta-Shield introduced a line of light truck
vent-shields and Lexan Cruiser Headlight Covers. These products complement the
existing line of slotted Cruiser Taillight Covers.
CARGO TRAYS AND FLOOR MATS Lund entered the market for cargo trays and floor
mats with the introduction of two new products in 1994. These products are used
to protect the interior floor of vehicles. Lund's cargo trays and floor mats are
manufactured using a special blend of polymers and recycled rubber.
SPORTLINER(TM) CARGO TRAY The SportLiner cargo trays are used to protect the
storage areas of sport utility vehicles and minivans and are manufactured on the
Company's vacuum-forming machine. This product is available in a variety of
colors to match the interior of the vehicle.
SPORTMAT(TM) FLOOR TRAY SportMats are designed to protect the interior floor
space of a light truck and are also manufactured on a vacuum-forming machine.
This product is available to match the SportLiner Cargo Trays.
Deflecta-Shield also markets at a cargo mat, a formed rubber mat to protect the
floor space in the cargo area of sport utility vehicles.
MISCELLANEOUS Through Deflecta-Shield's acquisition of Fibernetics,
Deflecta-Shield acquired a line of body styling accessories, including full
flare van running boards, van tops, ground effects, rear wings and air dams.
Delta III manufactures a complete line of high quality treadplate aluminum
pick-up truck tool boxes under the trade name Challenger(TM).
In 1996, Deflecta-Shield introduced Sports Caps(TM), an ABS bed rail protector;
Sports Shades(TM), an ABS window shade for the rear side windows of extended cap
pickups; and Scorcher(TM), two tailgate spoilers manufactured from either
modified acrylic or aluminum. Deflecta-Shield also offers other light truck
product accessories such as fiberglass cab extenders, aluminum side rails,
chrome tie downs and rear air deflectors.
LIGHT TRUCK SUSPENSION PRODUCTS The 1994 acquisition of Trailmaster by
Deflecta-Shield resulted in the addition of a full line of products for lifting
or lowering vehicles. Trailmaster is best known for its Matched Systems
Technology approach, under which each Streetmaster brand lift kit is engineered
to include all the system's components. In 1996, Trailmaster introduced the
SSV(TM) self-adjusting shock absorber that provides "on-the-fly" ride
adjustability.
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Manufacturing Process
The Company's products are generally manufactured from fiberglass, vinyl or
plastic sheets composed of polyester, ABS plastic, acrylic, polycarbonate or
reinforced vinyl. Product lines representing a majority of the Lund's sales are
manufactured from laminated fiberglass and polyester resin, making these the
predominant raw materials currently used by the Lund. Deflecta-Shield is one of
the largest purchasers of General Electric Plastics Lexan branded polycarbonate
sheet plastic in the United States and uses the General Electric Plastics Lexan
brand name in its advertising and packaging. The raw materials used by the
Company are available from a number of suppliers, except for Lexan, which is
only available from General Electric Plastics. The Company believes that in the
event of a shortage or significant delay in the delivery of any raw materials
used in its manufacturing processes, alternative vendors could be found to
supply such materials or alternative materials (including alternatives for Lexan
plastic), and that the shortage or delay would not be expected to have a
significant impact on the Company's financial condition or results of
operations.
Fiberglass products, such as Lund SunVisors, Fastbacks and RunningMates, are
manufactured largely by hand using production molds to form a 1/8" fiberglass
laminate into product shapes. The edges are then machine trimmed and hand sanded
for a smooth finish.
Plastic products, including the Solar and Lunar visors, FrontRunner, WindJammer
and the Eclipse product lines, are manufactured from plastic sheets utilizing
drape-forming and vacuum-forming processes. In the drape-forming process, a
plastic sheet is cut into custom flat shapes, known as blanks. These blanks are
heated in a computerized conveyor oven and formed into products by draping the
heated blanks over molds. In the vacuum-forming process, a plastic sheet is
heated and formed over a mold using vacuum pressure in a thermo-forming machine.
Tonneau covers, including the Premium and Advantage lines, are manufactured from
a reinforced vinyl tonneau cover material and aluminum extrusion. The cover
material is cut and sewn to fit each application and the aluminum is cut to size
to match.
To supplement its internal manufacturing at its Anoka, Minnesota, facility, Lund
relies on independent contract manufacturers. The Company qualifies each
manufacturer and works closely with it to assure the timely delivery of products
that meet the Company's specifications. The Company generally retains ownership
of the tooling used to produce a product line, with the understanding that it
will remove the tooling from the manufacturer's plant at the termination of the
manufacturing relationship. The Company expects that, with the added
manufacturing capability provided by Deflecta-Shield, the Company will be able
to decrease its reliance on contract manufacturers.
Deflecta-Shield's products are manufactured in five different locations, each of
which utilizes a variety of manufacturing processes. In addition, the Indianola,
Iowa facility is used as corporate headquarters and distribution and warehouse.
Longmont, Colorado The Longmont, Colorado plant is the principal manufacturing
facility for molded bug deflectors. The principal manufacturing activity in this
plant is thermoforming of Lexan, modified acrylic plastic, and acrylic plastic
in a process that combines computer controlled ovens and an automated conveyor
system. The facility also serves as a principal moldmaking operation for
Deflecta-Shield. The Longmont facility has been awarded a Q1 quality rating from
Ford and a Gold Pentastar award from Chrysler.
<PAGE>
Compton, California The principal manufacturing activities at the Compton,
California plant are fiberglass molding, thermoplastic vacuum forming and
moldmaking. A variety of Fibernetics brand products are manufactured here,
including fiberglass molded full flare running boards and van tops which are
sold to van converters in the western United States and certain custom
fiberglass and vacuum-formed parts for other vehicle manufacturers. In December
1997, Deflecta-Shield moved its Corydon, Iowa plant operations to the Compton
facility. Manufacturing operations in this facility included the manufacture of
fiberglass products, routing of plastic sheet, cutting of extruded aluminum
channels for bug deflectors, assembly and thermoforming of bug deflectors and
other accessories, and packaging of products. The primary fiberglass products
manufactured in the Compton facility are the SportBoard running boards,
SportStep step boards and SportVisors. The Compton facility also includes a
painting facility and tool shop.
Chicago, Illinois The Chicago, Illinois plant houses the heavy truck products
business. Manufacturing processes in the Chicago plant include (i) vinyl and
fiberglass screen cut and sew and silk screening operations for the manufacture
of winterfronts and bug screens; (ii) metal fabrication for heavy truck bug
deflectors and rock guards; (iii) kits and components; and (iv) vacuum forming
of various accessories and components. The Chicago plant was awarded a Q1
quality rating from Ford in July 1993. Since that time, the facility has added
Freightliner's Masters of Quality, Volvo's ISO-9000 and Military Spec.
MIL-I-145208 to its quality awards.
Coldwater, Michigan The Coldwater, Michigan facility houses the Trailmaster and
Streetmaster brand product lines. This facility serves as the assembly and
distribution center as well as the research and development center for
Trailmaster.
Sturgis, Michigan The primary products manufactured at the Sturgis, Michigan
facility include Challenger aluminum brand tool boxes and aluminum running
boards as well as extruded products.
Marketing and Sales
The Company sells its light truck accessories through a national distribution
system utilizing an in-house sales staff and independent manufacturer's
representatives. Lund has three in-house regional sales managers who oversee 13
independent manufacturer's representative organizations employing approximately
60 sales representatives. Deflecta-Shield's Autotron Products ("Autotron"), a
division of DFM, Trailmaster, and Fibernetics are primarily responsible for
their own sales and marketing activities. The balance of the sales and marketing
programs are developed and coordinated from its corporate headquarters which
includes three sales directors, who in turn oversee 20 independent
representative organizations. The Company's staff and the independent
manufacturer's representatives sell the Company's products to warehouse
distributors, dealer expediters, automotive specialty chain stores, converters
and catalog companies.
While the light truck accessory market is highly fragmented, the Company
believes that there is a trend among distributors and retailers to prefer
suppliers who provide well-recognized brand names, customer service and a broad
product line that accommodates "one-stop shopping." In addition, the Company
believes there is a trend toward computerized ordering and therefore offers its
customers access to ordering through Electronic Data Interchange (EDI).
Virtually all of the Company's sales are from product lines sold in the United
States and Canada. The Company delivers a majority of its light truck
accessories to warehouse distributors and retailers by truck from its
manufacturing and warehouse facilities in Anoka, Minnesota, Indianola, Iowa,
Coldwater,
<PAGE>
Michigan, Sturgis, Michigan and Oklahoma City, Oklahoma, as well as from
independent warehouses in Toronto, Ontario and Los Angeles, California.
In the light truck accessory market, warehouse distributors and performance
warehouse distributors have traditionally been the primary channels for high
quality aftermarket accessories. Warehouse distributors often stock a broad line
of aftermarket products in multiple warehouse locations, and sell to independent
auto parts stores, auto repair stores and service stations. Performance
warehouse distributors specialize in aftermarket products designed to improve
the performance of a vehicle and sell to similar retailers and installers.
Additionally, the Company sells its product to a variety of other customers,
including: (i) dealer expediters, who provide aftermarket accessories and
installation services to automotive dealers; (ii) automotive specialty chain
stores, which are larger multi-location retail auto parts stores that frequently
purchase aftermarket products on a direct basis from manufacturers; (iii)
catalog companies, which purchase aftermarket products directly from
manufacturers and sell through catalogs distributed to a variety of customers,
including consumers and automotive dealers; and (iv) automobile and light truck
OEMs, including customers such as Ford, Chrysler and Toyota, who purchase
specialized aftermarket accessories directly from accessory manufacturers and
sell these products through their parts distribution divisions to their dealer
networks.
Consumers purchase light truck accessories through a variety of distribution
channels. The majority of the Company's light truck accessories are purchased by
consumers at retail auto parts stores. These stores may be independent or part
of automotive specialty chains. In most retail stores, the consumer has a choice
of only one or two manufacturers' product lines in the categories in which the
Company competes. Some retailers offer installation services for accessories. In
other instances, the retailer may refer the consumer to a service garage or the
consumer will install the accessory himself. Consumers may also purchase light
truck accessories through mail order catalogs, at automotive dealers' parts
departments or at automotive dealers as an add-on accessory installed at the
time of a new truck purchase.
The Company believes that an increasing percentage of sales of light truck
accessories are being made by automotive parts retail chains, and that the
Company needs to intensify direct marketing efforts to such chains. The Company
intends to focus significant marketing efforts to such chains, while maintaining
its traditional strong relationships with warehouse distributors. While Lund's
sales to OEMs and retailers have not been significant to date, the Company
expects that sales to such customers will increase, as the Company focuses
marketing efforts on such channels. In addition, the acquisition of
Deflecta-Shield gives the Company increased OEM sales and improved access to
retail chains.
The Company's marketing program is focused on developing high profile new
products, creating excitement around its broad product offering and building
brand name equity.
The Company employs an integrated communications strategy that utilizes consumer
and trade advertising, public relations, promotions, point-of-purchase and
packaging to communicate a specific message to each level of the selling
process. That message is centered on industry leadership, innovation, high
quality, breadth of line and Company integrity.
Other steps in pulling the product through the distribution system involve trade
advertising, direct communication with businesses that come in contact with the
consumer and a cooperative advertising
<PAGE>
program to help them reach the consumer. The Company uses various trade
magazines to create excitement at the jobber and retail level.
Consumer advertising for Lund product is focused on building brand name equity
through getting the "Lund Look". The program utilizes consumer magazines
targeted to the street truck enthusiasts, off-road enthusiasts, sportsmen, tow
vehicle owners and family vehicle markets.
Promotion plays a critical role in exposing the "Lund Look" to the consuming
public. An example is Lund's sponsorship of the nationally televised "Lund Look
275" NASCAR(R) Craftsman Super Truck Series Race. In addition, Lund participates
in other enthusiast events through team sponsorships in racing, off-roading and
fishing and through the use of "Lundmobiles". Lundmobiles consist of various
light trucks that have been customized with Lund products to illustrate the
ultimate extent of the "Lund Look". Lundmobiles appear at numerous consumer and
trade shows, are used in all Lund advertisements, are featured in consumer
magazine editorials and are utilized by retailers and distributors to create
consumer excitement.
In addition, Lund has developed a network of Authorized Dealers that currently
consists of over 9,000 retail businesses and a certified dealer program that
consists of 3,000 car dealerships. Lund communicates directly with these dealers
regarding new product introductions, promotions, selling tools and selling
techniques.
The Company also communicates directly to the consumer through the use of its
high quality consumer packaging and point-of-purchase displays. The packaging
depicts the product in use on standard vehicles as well as "Lundmobiles" and
conveys the features and benefits of the specific product.
Lund produces all of its printed selling tools internally. These tools include
product catalogs, application lists and other product literature, which it
distributes to the warehouse distributors, retailers and independent sales
representatives.
Deflecta-Shield's in-house marketing and sales department, which is located at
the Indianola, Iowa, facility manages the light truck aftermarket accessory
marketing and sales efforts for all locations except Autotron, Trailmaster and
Fibernetics. This department's responsibilities include: (1) managing and
supporting the 20 manufacturers' representative organizations; (2) creating and
implementing marketing plans; (3) developing, purchasing and monitoring
advertising, including cooperative advertising and promotional campaigns; (4)
developing and implementing sales programs; (5) designing and creating product
catalogs, price lists and other marketing materials; (6) managing trade show
scheduling and other marketing materials; (6) managing trade show scheduling and
exhibits; (7) designing and coordinating retail packaging materials; and (8)
providing market research and input into new product development plans.
A variety of marketing tools are utilized to increase awareness of
Deflecta-Shield's products and promote its brands and sales of its light truck
accessories at the retail level. Deflecta-Shield designs and develops product
catalogs, price/application lists and other product literature which it
distributes directly and through its independent manufacturers' representatives.
In addition, point-of-purchase displays are developed and provided to retailers
of Deflecta-Shield's products. These displays feature miniature versions of
various products and highlight their respective features and benefits.
Advertising campaigns are also conducted by Deflecta-Shield in light truck
enthusiast magazines such as FOUR WHEELER, FOUR WHEEL AND OFFROAD and SPORT
TRUCK. Cooperative advertising programs are offered to retailers which feature
accessory products in their advertising.
<PAGE>
Belmor's heavy truck products are sold in the United States primarily (i)
through OEM direct ship programs involving approximately 2,800 heavy truck
dealers, (ii) directly to the heavy truck manufacturers and (iii) directly to
heavy truck OEM parts distribution centers. The heavy truck products customers
include every major heavy truck manufacturer in the United States, including
Freightliner, Navistar, Paccar (including both Kenworth and Peterbilt),
Volvo-White-GMC, Ford, Mack, Marmon and Western Star.
Participation in OEM direct ship programs allows telephone sales representatives
to speak directly to heavy truck dealers on a frequent basis. Heavy truck
dealers order accessories directly from Belmor and the product is shipped
directly to dealers. Invoices for the orders are sent to the aftermarket parts
divisions of the heavy truck OEMs which pay for their dealers' orders and bill
the dealers separately. An outbound telemarketing program and an inbound
customer service staff are located in Chicago, Illinois to service Belmor's
heavy truck dealer customer base.
Belmor ships its accessory products directly to heavy truck dealers that include
the products in new truck accessory packages and sell the products as
replacement parts. Products are sold to heavy truck OEM parts distribution
centers which stock accessories and in turn supply the OEMs' dealers. Belmor
also sells and ships its heavy truck products directly to heavy truck OEMs which
install these products on or include them with new trucks. A manufacturer's
representative is engaged in connection with sales to Paccar and Freightliner.
CUSTOMER SERVICE
Lund's customer service department is located in the Anoka, Minnesota facility.
Lund's customer service department manages inbound orders and order processing
for both customers and consumers of Lund product.
Deflecta-Shield has three customer service departments. The light truck
accessory customers are serviced by an inbound customer service department
located in Indianola, Iowa and a combination inbound-outbound customer service
and telemarketing department in the Sturgis, Michigan facility. These
departments process all light truck customer orders. The heavy truck products
are serviced by a telemarketing and customer service department located in the
Chicago, Illinois facility.
PRODUCT DEVELOPMENT
Enhancement of its existing products and the development of new products are
essential for the Company's long-term growth and success in the light truck and
heavy truck product markets. New products ideas are generated by senior
management, the marketing and product development staffs, manufacturers'
representatives and through suggestions from customers and outside consultants.
Development of new products is managed by a team of engineers located in the
Anoka, Minnesota and Longmont, Colorado facility. The product development team
is responsible for the design, engineering and development of new products,
including assessing feasibility, manufacturing cost parameters and lead times.
Moldmakers are employed at the manufacturing facilities in Anoka, Minnesota,
Longmont, Colorado, and Compton, California. The moldmaking staff is responsible
for the manufacture, repair and maintenance of the tooling used in the
manufacture of the thermoformed, vacuum formed and fiberglass
<PAGE>
products. The Company believes that the size and capabilities of its moldmaking
staff contribute significantly to the ability to quickly bring new product ideas
to market. The length of the new product development cycle for the Company's
products (from concept to initial production) varies, but is typically between
nine and 18 months.
Certain of these functions and facilities may be consolidated in the future, as
the Company intends to create efficiencies through integration and consolidation
of Deflecta-Shield's operations and facilities.
RETURNS AND WARRANTY CLAIMS
Lund has a return to stock policy which generally limits returns to three
percent of prior year's sales. For returns above this percentage, customers are
typically required to pay a fifteen percent restocking fee or place significant
offsetting orders. Lund provides limited lifetime warranties against
manufacturing defects on its products. In fiscal 1997, 1996, and 1995, Lund had
warranty expense of $1,110,440, $778,239, and $510,624, respectively, which
represented 2.6%, 1.7% and 1.1% of net sales, respectively. For the six months
ended December 31, 1997 and 1996, Lund had warranty expense of $514,665 and
$427,355, respectively, which represented 2.6% and 2.1% of net sales,
respectively. The warranty expenses have been higher on certain product lines
such as the Solar and Lunar Visors and Interceptors. Management believes it has
addressed issues with these product lines.
SEASONALITY AND BACKLOG
The Company's sales and earnings pattern is seasonal, with approximately 55% of
the sales historically taking place during the first and second calendar
quarters. Typically, the second quarter is the larger of the two. During the
fiscal years ended June 30, 1997, 1996 and 1995, approximately 52.1%, 55.4% and
53.2% of its net sales and approximately 57.9%, 60.8% and 51.1% of its net
income was realized during the first and second calendar quarters, respectively.
The Company anticipates that, in future years, the Company will again experience
the historical pattern of 55% of sales in the first two calendar quarters. Lund
addresses its seasonally slower periods in the fall and winter by offering
extended terms, typically ranging from an extra thirty to ninety days to allow
the customer to carry higher levels of inventory.
The Company does not consider its backlog as of any given date as a meaningful
measure of future business, because its customers generally require rapid
shipment of orders. Lund's backlog as of December 31, 1997 was $1,397,741,
compared to $1,102,975 on December 31, 1996.
COMPETITION
The Company's industry is highly competitive. The Company believes that
competition in the industry is based on brand name recognition, quality, design,
breadth of product line, price, service and packaging. Certain of the Company's
competitors and potential competitors, including manufacturers of light trucks,
have greater financial or other resources than the Company. There are no
significant technological or manufacturing barriers to entry into the Company's
business. While the Company has many competitors for most of its product lines,
it believes that in the United States it has one of the broadest offerings of
appearance accessories in the light truck market along with the strongest brand
names and that it occupies a leading position in its major product categories.
<PAGE>
INTELLECTUAL PROPERTY
The Company generally seeks to obtain patent protection, shape/design trademarks
and brand trademarks for its products. Lund holds more than 20 patents, expiring
at various dates from 1998 to 2010, generally related to product design or
mounting procedures. In addition, the Company owns various federally registered
and common law trademarks, including the LUND SUNVISOR and a shape/design mark,
respectively, in the distinctive "hawk-like" design, incorporated in a majority
of the Company's visor products.
Deflecta-Shield owns numerous domestic and foreign trademarks and trade names
used in its business, including Deflecta-Shield(R), SportBoard(R), SportStep(R),
Sport Shield(R), Sport Cap(R), Mirage(R), Ultima(R), Vision Visor(R),
Trailmaster(R), 4-Way(R), Aero Mask(R) and Mustache Shield(R). There are pending
applications for federal regulation of certain trademarks including Magnum(TM),
Sportrail(TM) and Thermofront(TM). Deflecta-Shield believes that the reputation
attached to such trademarks and trade names as a whole is of material importance
to the businesses in which they are used. Deflecta-Shield also has several
domestic and foreign patents which, in the aggregate, are not of material
importance to the business. These patents will expire by the year 2006.
The Company has aggressively enforced its patents and trademarks and intends to
do so in the future. The Company believes that by aggressively enforcing its
patents and trademarks it deters other manufacturers from attempting to copy its
products or selling lesser quality products at lower prices.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company is not subject to the jurisdiction of any major regulatory agency in
the United States on a regular basis. However, like all manufacturers of
consumer products, the Company is subject to federal, state and local
regulations concerning consumer products, the environment, and occupational
safety and health. The Company believes that its operations currently comply in
all material respects with these laws and regulations. In general, the Company
has not experienced any difficulty complying with such regulations, and
compliance has not had a material effect on the Company's business.
The Company is subject to various federal, state and local environmental laws
and regulations. The Company believes that its operations currently comply in
all material respects with applicable laws and regulations. The Company believes
that the trend in environmental litigation and regulation is toward stricter
standards that may result in higher costs for the Company and its competitors.
Such changes in the law and regulations may require additional capital
expenditures which, while not presently estimable with certainty, are not
presently expected to be of material amounts. Costs for environmental compliance
and waste disposal have not been material to the Company in the past.
EMPLOYEES
As of March 2, 1998, the Company employed 865 people, none of whom are
represented by a labor union. The Company believes its employee relations are
good and that its future success will depend in large part upon the continued
service of its key production, sales, marketing and management personnel, and
its ability to identify and hire additional appropriately skilled, highly
qualified technical, marketing and managerial personnel. The Company has not
suffered a work stoppage or slowdown in the last ten years.
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RELATIONSHIP WITH HARVEST PARTNERS, INC.
The Company is party to an Amended and Restated Governance Agreement (the
"Governance Agreement") with LIH and LIH II, affiliates of Harvest Partners, and
is party to a Services Agreement with Harvest Partners (the "Services
Agreement").
The Governance Agreement provides that LIH and LIH II (collectively, the "LIH
Entities") shall not, and will not permit any of their Associates or Affiliates
(as defined in the Governance Agreement) to, beneficially own collectively more
than 2,561,293 shares (the "Permitted Shares") of the Company's voting Common
Stock; provided, however, that this restriction shall not apply in the event of
a tender or exchange offer for 50% or more of the total outstanding voting
securities of the Company that is initiated by a party other than the Company,
the LIH Entities, any of their Affiliates or Associates, or any person acting in
concert with the LIH Entities or any of their Affiliates or Associates. The
number of Permitted Shares shall be increased to include the number of shares of
Common Stock into which the shares of Class B-1 Common Stock are converted. The
Agreement also provides that the Company can issue shares of its Common Stock
directly to the LIH Entities or their Affiliates or Associates with the approval
of a majority of the Company's Independent Directors. In addition, the Agreement
provides that, prior to its termination, the LIH Entities, and each Affiliate or
Associate thereof which acquire shares of the Company's Common Stock pursuant to
the terms of the Agreement, will not transfer beneficial ownership of such
shares to any other Affiliate or Associate unless such third party becomes a
signatory to the Agreement.
The Governance Agreement further provides that the number of directors
comprising the Company's Board of Directors shall be seven, including one
individual nominated by LIH (Harvey Wertheim); one individual nominated by LIH
II (Ira Kleinman); the Company's Chief Executive Officer; and four independent
directors.
The Governance Agreement provides that the Company and the LIH Entities shall
use their best efforts to cause the composition of the Company's Board of
Directors to continue to reflect the same proportion of directors selected by
the LIH Entities, independent directors and management set forth above. The
Agreement also provides that in the event that the aggregate number of shares of
the Company's Common Stock owned by the LIH Entities and any of their Affiliates
or Associates falls below 50% of the number of shares of such stock originally
acquired by LIH, LIH's right to nominate an individual to the Company's Board of
Directors terminates. If the holdings of the LIH Entities in the Company fall
below 5% of the number of shares of the Company's Common Stock, LIH II's right
to nominate an individual to the Company's Board of Directors terminates.
Finally, the Governance Agreement provides that approval by the Company's Board
of Directors of certain corporate transactions requires the affirmative vote of
a majority of the directors, which majority includes the LIH II Director. Such
matters include, but are not limited to, the following: (i) any amendment to the
Certificate of Incorporation or Bylaws of the Company; (ii) any acquisition of
another business; (iii) any extraordinary sale, lease, transfer or other
disposition of the Company's assets, the book value of which exceeds 2% of the
consolidated assets of the Company; (iv) any reclassification, combination,
split or similar event involving any debt or equity securities of the Company;
(v) any declaration or payment of dividends or distribution with respect to
shares of the Company's capital stock; and (vi) any incurrance of indebtedness
not in the ordinary course of the Company's business if the aggregate amount of
such indebtedness, on a consolidated basis, exceeds $5,000,000. The Governance
Agreement terminates on September 9, 2000.
<PAGE>
The Services Agreement provides that Harvest Partners will provide the Company
with services from time to time as requested by the Company's Board of
Directors. Such services shall include, but not be limited to, (i) generally
assisting the Company with respect to financial and business matters as the
Company's financial advisor; (ii) recommending and assisting the Company in
implementing a general strategy in connection with the Company's accomplishing
its business plan and anticipated growth; (iii) assisting the Company in its
efforts to structure and negotiate acquisition and dispositions of assets or
business units; (iv) if necessary, locating equity partners and structuring the
terms of any such equity investment; (v) communicating with the Company's
lenders and stockholders, including assisting the Company in the coordination of
its investor relations services; (vi) structuring and negotiating refinancings
and other lending or borrowing transactions relating to the Company financial
services as Harvest Partners and the Company shall deem necessary and
appropriate. The term of the Services Agreement is three years, subject to
certain contingencies.
As full payment for all services provided by Harvest Partners to the Company
pursuant to the terms of the Services Agreement, the Company has agreed to pay
to Harvest Partners a quarterly fee based on achievement of cumulative earnings
before interest, taxes, depreciation, and amortization ("EBITDA"), as follows:
Year Annual Payment Annualized EBITDA Target
---- -------------- ------------------------
1 $150,000 $4.0 million
2 $250,000 $5.5 million
3 $400,000 $7.0 million
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers and key employees of the Company are as follows:
WILLIAM J. MCMAHON, 51, rejoined the Company in September 1994 as President and
Chief Executive Officer. From May 1991 to September 1994, Mr. McMahon served as
Chief Operating Officer for Anagram International, Inc., a manufacturer and
distributor of consumer products and industrial packaging. From 1988 to 1991,
Mr. McMahon was Chief Executive Officer and President of Lund International
Holdings, Inc.
JAY M. ALLSUP, 40, joined the Company in October 1993 as the Director of Finance
and was appointed Chief Financial Officer in June 1994, and Treasurer in
November 1997. From April 1989 to October 1993, he was the Chief Financial
Officer and Treasurer of Standun, Inc., a manufacturing holding company.
BRADLEY W. ANDRESS, 43, joined the Company in October 1995 as Vice President of
Marketing. From August 1985 to October 1995, Mr. Andress held various positions,
including Vice President of Marketing and Vice President of Sales, at Plastics,
Inc. and Anchor-Hocking Plastics, a manufacturer of household storage containers
and microwave cookware accessories and a division of the Newell Companies.
KENNETH L. HOLBROOK, 42, joined the Company in March 1998 as Vice President of
Sales. From February 1992 to February 1998, Mr. Holbrook was the Vice President
of OEM and Aftermarket Sales for Bestop, Inc., a manufacturer of sport utility
vehicle soft and hard top systems, associated accessories and seating systems,
where he oversaw sales of over $126 million worldwide. From February 1987 to
February 1992, he was an OEM Sales Representative for Bestop, Inc.
<PAGE>
KATHY R. SMITH, 36, joined the Company in May 1989 and since April 1990 has
served as Executive Assistant to the Chief Executive Officer. Ms. Smith was
named Corporate Secretary and Investor Relations Officer of the Company in
February 1994.
WILLIAM H. TOMS, 52, joined the Company in April 1995 as Vice President of
Operations. From 1983 to April 1995, Mr. Toms was the Vice President of
Operations for Anchor-Hocking Plastics, a manufacturer of household storage
containers and microwave cookware accessories and a division of the Newell
Companies.
STEPHEN S. TREICHEL, 54, joined the Company in October 1995 as Vice President of
Strategic and Human Information Systems. From 1993 to October 1995, Mr. Treichel
was the President of Process Management International, a management consulting
firm. From 1990 to 1993, he was a senior manager of strategic services at
McGladrey & Pullen, a CPA and consulting firm.
Item 2. PROPERTIES
The Company manufacturers its products in a mix of owned and leased facilities.
Lund utilizes two facilities for all of its manufacturing and distribution,
while Deflecta-Shield utilizes several facilities which manufacture a particular
product line. Both Lund's and Deflecta-Shield's primary light truck
manufacturing facilities are located in new space. The Company believes that the
existing facilities have more than sufficient capacity to meet its needs and
intends to investigate the consolidation of certain facilities. In that regard,
the Company expects to close its Oklahoma City facilities. The following chart
details the facilities of the Company:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Size Leased/
Principal Use of Facilities Location (Sq. Ft.) Owned Lease Expires
- ------------------------------------------- --------------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Manufacturing, Executive Offices and
Warehouse Anoka, MN 228,000 Own
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing Oklahoma City, OK 32,000 Lease February 28, 2003
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Warehouse Oklahoma City, OK 10,000 Lease June 30, 1998
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Distribution and Offices Indianola, IA 129,200 Own
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing Corydon, IA 68,000 Own
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing and Distribution Longmont, CO 42,900 Lease November 1, 2000
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing Longmont, CO 5,200 Lease May 1, 1999
- ------------------------------------------- ---------------------- ----------- ----------- --------------------
Manufacturing Longmont, CO 12,600 Lease Monthly
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Offices and Engineering Longmont, CO 10,000 Lease Monthly
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing, Distribution and Offices Chicago, IL 92,800 Own
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing Chicago, IL 48,000 Own
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing, Distribution and Offices Compton, CA 77,200 Lease June 30, 2001
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing Compton, CA 10,000 Lease June 15, 1998
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Assembly, Distribution and Offices Coldwater, MI 44,400 Lease April 30, 1998
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Distribution and Offices Sturgis, MI 47,000 Lease August 31, 1999
- ------------------------------------------- --------------------- ----------- ---------- ------------------
Manufacturing, Distribution and Offices Howe, IN 95,100 Own
- ------------------------------------------- --------------------- ----------- ---------- ------------------
</TABLE>
<PAGE>
The Company anticipates no difficulty in retaining occupancy of any of its
leased facilities through lease renewals prior to expiration or through
month-to-month occupancy or in replacing them with equivalent facilities.
Item 3. LEGAL PROCEEDINGS
The Company is involved in several legal proceedings in which Trailmaster is a
defendant.
Scott Ford v. Trailmaster et. al. is a negligence/products liability lawsuit
pending in Allegheny County, Pennsylvania. The suit arises from an accident
which occurred on February 12, 1994. The plaintiff is paralyzed and alleged that
this resulted from a broken neck suffered as a result of the accident. The
Company believes it has valid defenses and that insurance coverage is adequate
to cover any adverse judgment.
Olney v. Trailmaster et al. is a product liability suit filed in Superior Court
of King County, Washington. The case arose out of a high speed intersection
collision, in which plaintiff's Toyota rolled as a result of the impact. The
plaintiff was not wearing a seat belt, was ejected and severely injured and
remains in a persistent vegetative state. Plaintiff is in the course of taking
depositions. The Company believes it has valid defenses, but the law of the
State of Washington provides a risk of joint and several liability.
Consequently, there is no assurance that the Company will not suffer an adverse
verdict which will exceed insurance coverage limits.
Nyilos v. Trailmaster is a negligence/products liability lawsuit pending in the
Circuit Court of Macomb County, Michigan. The suit arises from a single vehicle
roll-over accident on October 1, 1994. The complaint states that the plaintiff's
vehicle was equipped with a suspension lift system manufactured by Trailmaster
that failed while the plaintiff was operating his vehicle in a careful and
prudent manner. Plaintiff has failed to comply with certain court orders and the
Company believes that it has no material exposure under this action.
Schmidt v. General Motors Corporation, et. al. is a wrongful death suit in the
District Court of Starr County, Texas. Trailmaster is a defendant. The suit
arises from a single vehicle roll-over accident which occurred on January 1,
1995. The complaint alleges that the equipment was unreasonably dangerous as it
was designed and marketed. There has been little activity on this case in 1997
and, although the ultimate outcome cannot yet be determined, the Company
believes that it has valid defenses and intends to vigorously defend the suit.
The Company is also subject to additional litigation in the ordinary course of
its business, but the Company believes that none of such matters are likely to
have a material impact on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 13, 1997, the Company held its 1997 Annual Meeting of Stockholders
(the "Meeting"). At the Meeting, the number of directors was set at seven and
the following persons were elected directors of the Company: David E. Dovenberg,
Ira D. Kleinman, William J. McMahon, Robert R. Schoeberl, Dennis W.
Vollmershausen and Harvey J. Wertheim. Lawrence C. Day, whose name was not
submitted to the stockholders for election, was appointed to the director
vacancy by the Board of Directors.
<PAGE>
In addition, stockholders were asked to amend the Company's 1992 Non-Employee
Director Stock Option Plan. The vote on such matter was as follows: 3,806,847 in
favor, 204,100 opposed; 182,333 abstained. There were 200,690 broker
"Non-Votes."
Finally, stockholders were asked to ratify the selection by the Board of
Directors of Coopers & Lybrand L.L.P. as the Company's independent accountants
for 1998. The vote on such matter was as follows: 4,190,927 in favor; 5,785
against; 5,533 abstained. There were 191,725 broker "Non-Votes."
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Holdings' Common stock is traded on the national-over-the-counter market and
quoted on the Nasdaq Stock Market's National Market ("NASDAQ/NM") under the
symbol ("LUND"). The following table sets forth, for the periods indicated, the
range of bid prices per share for Holdings as reported on the NASDAQ/NM.
<TABLE>
<CAPTION>
Six months ended Years ended June 30,
December 31, 1997 ------------------------------------------------------------------------
Bid Prices 1997 1996 1995
---------- ---- ---- ----
Bid Prices Bid Prices Bid Prices
---------- ---------- ----------
High Low High Low High Low High Low
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter -- -- $14.25 $10.50 $21.00 $16.00 $19.25 $16.00
Second Quarter -- -- 13.00 10.75 18.50 10.25 20.75 15.75
Third Quarter 14.625 9.50 13.75 11.25 14.00 11.50 23.25 16.00
Fourth Quarter 14.25 11.50 13.25 9.50 15.75 11.75 23.00 19.00
</TABLE>
As of December 31, 1997, there were 168 Holdings stockholders of record. The
Company estimates that an additional 2,100 stockholders own stock held for their
account at brokerage firms and financial institutions.
Holdings has never paid cash dividends on its common stock. Payment of dividends
is within the discretion of the Company's Board of Directors.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------------------------------------------
Six months
ended
December 31, 1997 1997 1996 1995 1994 1993
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 19,523,308 $ 43,304,927 $ 46,423,208 $ 47,383,663 $ 36,395,124 $ 26,125,011
Income (loss) before
income taxes (484,513) 3,129,520 7,054,916 10,656,750 8,120,822 6,025,674
Income tax
(benefit) expense (120,928) 933,786 2,432,754 3,676,579 2,842,289 2,094,928
Net income (loss) (363,585) 2,195,734 4,622,162 6,980,171 5,278,533 3,930,746
Basic and diluted net
income (loss) per
share (.08) .50 1.05 1.58 1.20 .90
Total assets 144,027,462 41,444,706 40,319,605 36,706,198 21,127,377 15,203,422
Long-term liabilities 56,506,169 4,395,178 4,942,225 5,030,000 -- --
Total stockholders'
equity 62,513,640 32,852,922 30,507,269 25,504,025 18,068,750 13,019,752
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the six month periods ended December 31, 1997 and 1996
and for the years ended June 30, 1997, 1996 and 1995
(dollars in thousands, except per share amounts)
GENERAL OVERVIEW:
Lund International Holdings, Inc. ("Holdings" or the "Company"), through its
wholly-owned subsidiary, Lund Industries, Incorporated ("Lund"), designs,
manufactures, markets and distributes appearance automotive aftermarket
accessories for light duty trucks, sport utility vehicles and vans. Lund is the
world's leading supplier of automotive sunvisors, with an estimated 70% market
share in this category. Lund currently has 34 product lines, classified as
Visors, Bug Shields/Hood Protectors, Running Boards, Tonneau Covers, and Other
Appearance Accessories.
On December 30, 1997, Holdings, through a wholly-owned subsidiary, acquired
98.8% of the outstanding common stock of Deflecta-Shield Corporation
("Deflecta-Shield") and acquired the balance of the outstanding common stock on
February 27, 1998. With annual sales of over $70 million, Deflecta-Shield
manufactures fiberglass, plastic and aluminum appearance accessories and also
supplies suspension systems for light trucks and heavy trucks. Holdings paid
$76.8 million for 100% of the outstanding shares of Deflecta-Shield at $16 per
share, approximately $2.1 million for direct transaction costs, plus $9.4
million to retire Deflecta-Shield's long-term debt outstanding on December 30,
1997. The acquisition was accounted for under the purchase method of accounting.
The acquisition of Deflecta-Shield had no impact on Holdings' results of
operations for the six month period ended December 31, 1997 because the initial
closing of the transaction occurred on December 30, 1997.
In September 1997, Holdings' Board of Directors approved a change in its fiscal
year end from June 30, to December 31, with a six month transition period ending
on December 31, 1997.
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship to net revenue of
certain items in the Company's consolidated statement of operations for the
periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
Six months ended December Years ended June
----------------------------------- ---------------------------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 33.7 33.9 34.1 37.9 42.3
General and administrative 11.0 10.2 10.1 8.5 8.3
Selling and marketing 15.9 14.8 14.6 12.4 10.3
Research and development 3.7 3.0 3.0 2.4 2.0
Non-recurring transaction
expenses 6.0
Income (loss) from operations (2.9) 5.9 6.4 14.6 21.7
Other income, net .4 .9 .8 .6 .8
Income tax expense (benefit) (.6) 2.3 2.1 5.2 7.8
Net income (loss) (1.9) 4.5 5.1 10.0 14.7
</TABLE>
<PAGE>
The following table sets forth Lund's product line net sales as a percentage of
net sales for the product lines indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
Six months ended December Years ended June
----------------------------------- -----------------------------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Visors 33.7% 32.6% 30.8% 36.2% 43.4%
Bug shields/hood
protectors 23.1 23.7 23.8 24.1 23.9
Running boards 14.4 19.6 20.0 18.0 14.4
Tonneau covers 10.1 5.9 6.5 2.3 --
Other appearance
accessories 18.7 18.2 18.9 19.4 18.3
--------------- --------------- -------------- --------------- ---------------
Total net sales 100.0% 100.0% 100.0% 100.0% 100.0%
=============== =============== ============== =============== ===============
</TABLE>
NET SALES: Net sales decreased 5.9% for the six month period ended December 31,
1997 to $19,523, compared to $20,752 for the six month period ended December 31,
1996. The decrease in net sales resulted primarily from lower unit sales of
31.9% for the running board product category and 24.2% for Lund's
Interceptor(TM) hood shield product line. Sales of running boards were
negatively impacted by industry trends toward changes in both styling and
attachment. In response to these trends, Lund began shipping its newly designed
X-Step(TM) running board in the first quarter of 1998. In addition, competitive
pricing pressure over the past year reduced sales on the Interceptor hood shield
line. Lund has recently introduced two low-end shields which were designed to
compete in this price-sensitive market; however, the new product lines are in
the early stages of release and did not have a significant impact on net
revenues for the six month period ended December 31, 1997.
Net sales decreased 7.0% to $43,305 for the fiscal year ended June 30, 1997,
compared to $46,423 for the fiscal year ended June 30, 1996. Net sales decreased
2.0% for the fiscal year ended June 30, 1996 compared to net sales of $47,384
for the fiscal year ended June 30, 1995. The net sales decreases resulted
primarily from lower sales of visor lines, which decreased by 20.7% and 17.9%,
for the fiscal years ended June 30, 1997 and 1996, respectively, compared to the
previous fiscal years. Management believes decreased sales in the visor category
resulted principally from Lund's customers delaying visor orders in anticipation
of new visor lines and design, production and shipping delays in these new
lines.
As prices for Lund's products remained relatively stable or, in some cases,
increased, the decreases in net sales resulted only from lower unit sales, and
not from any price reductions.
COST OF GOODS SOLD AND GROSS PROFIT: Gross profit for the six month period ended
December 31, 1997 was 33.7%, compared to 33.9% for the six month period ended
December 31, 1996. The decrease in gross profit reflected the continued pricing
pressure related to the Interceptor hood shield line, lower volume and higher
freight costs, which were offset by operating efficiencies realized with the
internalization of outside production, principally in the fiberglass area, and a
product mix favoring higher margin products.
Gross profit for the fiscal years ended June 30, 1997, 1996 and 1995 were 34.1%,
37.9% and 42.3%, respectively. The decreasing gross profit during these periods
primarily resulted from an increased percentage of sales of lower gross profit
products, higher raw material plastic prices, warranty claims, principally on
acrylic products, higher facility and lease costs, and higher fixed costs as a
percentage of net sales due to lower production and shipping volumes. Gross
profit during the fiscal year ended June
<PAGE>
30, 1997 were also impacted by production and material inefficiencies caused by
the introduction of a new quality program.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$2,146, or 11.0% of net sales, for the six month period ended December 31, 1997,
compared to $2,117, or 10.2% of net sales, for the six month period ended
December 31, 1996. The slight increase in general and administrative expenses
resulted primarily from higher salary expenses and third party consulting
expenses incurred related to the implementation of Lund's new computer system.
General and administrative expenses were $4,386, or 10.1% of net sales, for the
fiscal year ended June 30, 1997, $3,943, or 8.5% of net sales, for the fiscal
year ended June 30, 1996 and $3,933, or 8.3% of net sales, for the fiscal year
ended June 30, 1995. The increase in general and administrative expenses during
the fiscal year ended June 30, 1997 was primarily caused by administrative
expenses for the Oklahoma tonneau cover facility and expenses associated with
evaluating the Company's strategic alternatives. These increases were offset by
lower bad debt expense. The lower net sales amounts during these periods added
to the increase as a percentage of net sales.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $3,103, or
15.9% of net sales, for the six month period ended December 31, 1997 compared to
$3,065, or 14.8% of net sales, for the six month period ended December 31, 1996.
The increase primarily resulted from increased customer advertising costs and
display expenses offset by lower new product support and promotional sponsorship
costs.
Selling and marketing expenses were $6,332, or 14.6% of net sales, for the
fiscal year ended June 30, 1997, $5,750, or 12.4% of net sales, for the fiscal
year ended June 30, 1996 and $4,888, or 10.3% of net sales, for the fiscal year
ended June 30, 1995. Increases in these costs were due to higher customer
advertising and display expenses, general advertising and printing costs, new
product support costs, promotional sponsorship costs and salary expenses. The
lower net sales amounts during these periods added to the increase as a
percentage of net sales.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $722,
or 3.7% of net sales, for the six month period ended December 31, 1997, compared
to $631, or 3.0% of net sales, for the six month period ended December 31, 1996.
Higher costs were due to increased personnel and new product support and
application development.
Research and development expenses were $1,290, or 3.0% of net sales, for the
fiscal year ended June 30, 1997, $1,109, or 2.4% of net sales, for the fiscal
year ended June 30, 1996 and $934, or 2.0% of net sales, for the fiscal year
ended June 30, 1995. The increases during these periods were due to increased
product support and application development.
NON-RECURRING TRANSACTION EXPENSES: On September 19, 1997, Harvest Partners,
Inc. a private investment firm, purchased 38% of Holdings' outstanding shares of
common stock from the former Chairman of the Board and his family. In connection
with the transaction, the Company recorded a pre-tax non-recurring charge of
$1,174. This charge includes $600 paid to the former Chairman of the Board for a
covenant not to compete and severance and $574 for investment banking, legal,
accounting and other related expenses.
OTHER INCOME, NET: Other income, net, was $84, or .4% of net sales, for the six
month period ended December 31, 1997 compared to $195, or .9% percent of net
sales, for the six month period ended
<PAGE>
December 31, 1996. With the acquisition of Deflecta-Shield, which resulted in
Holdings incurring substantial new long-term debt and using its entire balance
of unrestricted marketable securities to finance the acquisition, the Company
expects to incur substantially higher interest expense and generate minimal
interest income in 1998.
Other income, net, was $364, or .8% of net sales, for the fiscal year ended June
30, 1997, $258, or .6% of net sales, for the fiscal year ended June 30, 1996 and
$379, or .8% of net sales, for the fiscal year ended June 30, 1995, with
fluctuations primarily due to interest expense on debt.
INCOME TAX EXPENSE (BENEFIT): The Company recorded a tax benefit of $121 for the
six month period ended December 31, 1997 resulting in an effective income tax
rate of 25.0%. For the six month period ended December 31, 1996, the Company's
effective tax rate was 34.5%. The effective tax rate for the six months ended
December 31, 1997 was less than effective tax rates experienced in prior periods
due to the non-deductibility for tax purposes of certain of the costs incurred
related to the non-recurring transaction described previously. The Company
expects that its effective tax rate in 1998 will be substantially higher than
prior years and higher than the statutory federal income tax rate of 34.0% due
to the amortization of the non-tax-deductible goodwill recorded in connection
with the acquisition of Deflecta-Shield and the elimination of tax exempt
interest generated from marketable securities used to finance the acquisition.
The Company's effective income tax rates for the fiscal years ended June 30,
1997, 1996 and 1995 were 29.8%, 34.5% and 34.5%, respectively.
OUTLOOK: The acquisition of Deflecta-Shield brings to Holdings significant
capabilities with new product lines and operational strengths to address new
market channels. Historically, Lund distributed its products principally through
warehouse distributors. With increased sales of light duty trucks over the past
few years, both the national automotive retailers and the original equipment
manufacturers ("OEM") are participating in the distribution of automotive
appearance accessories. The consolidation of Lund and Deflecta-Shield provides
the ability to integrate Lund's design and marketing strengths with
Deflecta-Shield's operational and engineering strengths, allowing the Company to
effectively participate in the traditional warehouse distributor as well as the
automotive retail and OEM channels.
The impact of increased channel competition is shifting a portion of sales away
from warehouse distributors to retail and OEM channels. This has resulted in
increased competition within the warehouse distributor channel and created
pricing pressures, especially as it relates to the plastic product lines. Lund
currently has a strong presence with the majority of the warehouse distributors.
In addition, the Deflecta-Shield acquisition brings an increased OEM presence in
both the light truck and heavy truck markets, especially in key product lines
such as bug shields/hood protectors. Lund is currently rolling out a retail
sales program to the major retail automotive chains, which are integrating
accessories into their product lines. Management believes future growth will
come from both OEM and retail channels and through maintaining a leadership
position with the warehouse distributors.
The automotive accessory market is currently going through significant
consolidation in both the manufacturing and distribution areas. The Company
expects to take advantage of this consolidation with both new product
development and acquisitions to become the market leader in all product
categories in which it competes. The long-term goal of the Company is to become
the low cost producer by increasing product line sales volume through
acquisition, product line rationalization and facility consolidation to improve
capacity utilization. This effort will be enhanced by improved plant
<PAGE>
efficiencies, consolidation of purchasing and quality improvements through
improved engineering and QS9000 initiatives.
While the Company remains committed to continued growth through acquisitions,
the Company currently is not actively engaged in negotiations regarding any
acquisitions.
During 1998, Holdings will incur expenditures to maximize the synergistic
benefits it hopes to obtain from the Deflecta-Shield acquisition by
consolidating and internalizing bug shield production, consolidating operations
with Deflecta-Shield's existing cut and sew operations, integrating information
systems into a single platform, centralizing accounting and combining the
aftermarket marketing and sales functions. The full potential of the
Deflecta-Shield acquisition savings will not be realized until 1999 at the
earliest.
EFFECTS OF INFLATION: Although increases in costs of certain materials and labor
could adversely affect the Company's operations, Lund generally has been able to
increase its selling prices to offset increased costs. Price competition,
however, particularly in the plastic product lines, could affect the ability of
Lund to increase its selling prices to reflect such increased costs. In general,
management believes that the relatively moderate inflation over the last few
years has not had a significant impact on Lund's net sales, but that increasing
raw material prices and labor costs have had an impact on gross profit.
FINANCIAL CONDITION: Holdings' consolidated balance sheet at December 31, 1997
reflects the Company's initial acquisition of 98.8% of the outstanding common
stock of Deflecta-Shield.
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997 June 30, 1996
-----------------------------------------------------------------
<S> <C> <C> <C>
Cash and marketable securities
(including restricted cash) $ 7,913 $ 13,944 $ 11,371
Total current assets 52,466 30,339 29,519
Total assets 144,027 41,445 40,320
Total current liabilities 25,008 4,197 4,870
Total long-term debt
(excluding current maturities) 52,927 4,130 4,590
Working capital 27,458 26,142 24,649
Current ratio 2.1 to 1 7.2 to 1 6.1 to 1
Stockholders' equity 62,514 32,853 30,507
Stockholders' equity to total liabilities .8 to 1 3.8 to 1 3.1 to 1
</TABLE>
LIQUIDITY: Prior to the acquisition of Deflecta-Shield, Holdings' net cash
provided by operating activities provided sufficient cash to meet working
capital and investment needs. Net cash provided by operating activities was $363
and $2,210 for the six month period ended December 31, 1997 and 1996,
respectively, and was $4,528 and $3,010 for the fiscal years ended June 30, 1997
and 1996, respectively.
Net cash used in investing activities during the six month period ended December
31, 1997 was $63,945 reflecting the impact of the acquisition of
Deflecta-Shield. Cash used to finance the acquisition was $76,079, net of cash
acquired.
Net cash provided by financing activities for the six month period ended
December 31, 1997 was $70,094. The financing activities reflect the $40,879
proceeds from Holdings' tender loan facility with Heller financial and $30,000
of proceeds from the issuance of common and preferred stock to an affiliate of
Harvest Partners, Inc. to finance the acquisition of Deflecta-Shield.
<PAGE>
The Company's cash and temporary cash investments at December 31, 1997 were
substantially used to settle Deflecta-Shield's stock options outstanding on
December 30, 1997, and to pay direct acquisition costs accrued at December 31,
1997.
CAPITAL:
With respect to financing related to the acquisition of Deflecta-Shield, see
Note 4 to the Notes to the Consolidated Financial Statements.
During fiscal 1995, Holdings entered into a long-term financing agreement for
the first time in its history. On September 1, 1994, the City of Anoka,
Minnesota offered a $5,450 series of Industrial Development Revenue Bonds on
behalf of Lund, with sequential annual maturities which began on September 1,
1995 and will continue through 2004, bearing interest rates between 6.0% and
6.5%, depending upon maturity. The proceeds were used to build Lund's new
facility and acquire production machinery and equipment. The agreement contains
certain covenants which, among other things, require Holdings to maintain a
minimum level of interest coverage, fixed charge coverage and maximum ratio of
debt to capitalization. The bonds also contain limitations related to mergers or
acquisitions. Management expects Lund will be able to meet such covenants, based
solely on Lund's financial statements.
Management believes that cash generated from operations and amounts available
under its revolving credit facilities will be sufficient to fund working capital
growth, anticipated capital expenditures not financed through operating leases
and required debt repayments for the foreseeable future. Acquisitions less than
$5,000 can be financed under the Acquisition Line. Larger acquisitions would
require re-negotiation of the current facility or a new credit facility. No
assurance can be given that such financing would be available.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company will adopt Statement of Financial Accounting Standards (SFAS) No.
130 REPORTING COMPREHENSIVE INCOME, in 1998. SFAS No. 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive income is
defined as the change in equity during the period of a business enterprise
resulting from non-owner sources. The only adjustment to Holdings' net (loss)
income to arrive at comprehensive income in recent years has been unrealized
holding gains (losses) on marketable securities.
The Financial Accounting Standards Board issued SFAS No. 131 DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for reporting operating segment information in both annual reports and
interim financial reports issued to shareholders. The Company is reviewing the
requirements of SFAS No. 131, but has not determined if it will present segment
information beyond the one segment currently presented. SFAS No. 131 is required
to be adopted effective with year-end 1998 reporting.
YEAR 2000 COMPLIANCE
The Company has already begun the necessary software conversion and programming
modifications necessary to comply with the Year 2000 computer software issues
for significant portions of its software and computer systems. Lund does not
expect these activities to materially impact earnings.
<PAGE>
Costs to be incurred related to the conversion of Deflecta-Shield systems to the
Lund Year 2000 compliant systems are estimated to be approximately $700,000, of
which a portion will be capitalized and the remainder will be charged to
earnings over the next eighteen months.
FORWARD LOOKING STATEMENTS
Statements made herein relating to future financial results, the effects of the
acquisition, company 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
anticipated results of the acquisition to differ materially are the following:
inability to obtain expected efficiencies, or to obtain them in a timely manner;
inability to effectively manage a larger enterprise, to integrate the two
companies or to control costs associated with such integration; and the
representations, warranties and covenants made in the merger agreement proving
to be materially untrue. In addition, both Lund's and Deflecta-Shield's business
and operations (and anticipated results) include the following risk factors:
consumer preference changes; risk of expansion into new distribution channels;
delays in designing, developing, testing or shipping of products; increased
competition; general economic developments and trends; developments and trends
in the light truck and automotive accessory market; sales of heavy trucks, which
are cyclical; the timely development and introduction of competitive new
products by the Company and acceptance of those products; 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>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current assets:
Cash and temporary cash investments $ 6,790,130 $ 277,740 $ 1,643,416
Restricted cash 1,123,354 1,393,146 1,096,709
Marketable securities -- 12,273,163 8,630,649
Accounts receivable, net 21,450,255 8,325,739 9,933,366
Inventories 17,993,562 6,611,761 6,351,279
Deferred income taxes 3,517,253 743,900 815,600
Other current assets 1,591,465 713,617 1,047,776
-------------- -------------- --------------
Total current assets 52,466,019 30,339,066 29,518,795
Property and equipment, net 20,621,004 7,310,357 6,906,446
Intangibles, net 68,777,920 2,223,420 2,355,424
Restricted cash and marketable securities 594,902 580,242 777,919
Other assets 1,567,617 991,621 761,021
-------------- -------------- --------------
Total assets $ 144,027,462 $ 41,444,706 $ 40,319,605
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 7,521,318 $ 1,861,446 $ 2,289,763
Accrued expenses 15,786,335 1,698,815 1,723,902
Income taxes payable -- 176,345 416,446
Long-term debt, current portion 1,700,000 460,000 440,000
-------------- -------------- --------------
Total current liabilities 25,007,653 4,196,606 4,870,111
Long-term debt, less current portion 52,927,067 4,130,000 4,590,000
Deferred income taxes 2,352,239 -- --
Other liabilities 1,226,863 265,178 352,225
Commitments (Note 6)
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 2,000,000 shares;
1,493,398 issued and outstanding 14,934 -- --
Common stock, $.10 par value;
authorized 25,000,000 shares; issued and
outstanding 5,268,370 at December 31, 1997,
4,393,970 at June 30, 1997 and
4,391,970 at June 30, 1996, respectively 526,837 439,397 439,197
Class B common stock, $.01 par value;
authorized 3,000,000 shares;
none issued -- -- --
Additional paid-in capital 30,884,301 986,675 975,875
Unrealized holding gains (losses) on marketable securities -- 9,957 (60,442)
Unearned deferred compensation (57,092) (91,352) (159,872)
Retained earnings 31,144,660 31,508,245 29,312,511
-------------- -------------- --------------
Total stockholders' equity 62,513,640 32,852,922 30,507,269
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 144,027,462 $ 41,444,706 $ 40,319,605
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS ENDED -------------------------------------------------
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1997 1997 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 19,523,308 $ 43,304,927 $ 46,423,208 $ 47,383,663
Cost of goods sold 12,946,258 28,531,370 28,824,792 27,351,277
------------- ------------- ------------- -------------
Gross profit 6,577,050 14,773,557 17,598,416 20,032,386
Operating expenses
General and administrative 2,145,820 4,386,304 3,942,855 3,932,559
Selling and marketing 3,103,005 6,332,003 5,749,668 4,888,045
Research and development 722,234 1,289,655 1,108,750 934,076
Non-recurring transaction 1,174,299 -- -- --
------------- ------------- ------------- -------------
Total operating expenses 7,145,358 12,007,962 10,801,273 9,754,680
------------- ------------- ------------- -------------
(Loss) income from operations (568,308) 2,765,595 6,797,143 10,277,706
Other income (expense)
Interest expense (159,511) (293,289) (324,792) (133,566)
Interest income 306,433 694,857 601,362 613,359
Other, net (63,127) (37,643) (18,797) (100,749)
------------- ------------- ------------- -------------
Other income, net 83,795 363,925 257,773 379,044
------------- ------------- ------------- -------------
(Loss) income before income taxes (484,513) 3,129,520 7,054,916 10,656,750
Income tax (benefit) expense (120,928) 933,786 2,432,754 3,676,579
------------- ------------- ------------- -------------
Net (loss) income $ (363,585) $ 2,195,734 $ 4,622,162 $ 6,980,171
============= ============= ============= =============
Basic and diluted (loss) earnings per share $ (0.08) $ 0.50 $ 1.05 $ 1.58
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended December 31, 1997 and years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK UNREALIZED HOLDING
---------------------- --------------------- ADDITIONAL GAINS (LOSSES) UNEARNED
NUMBER OF DOLLAR NUMBER OF DOLLAR PAID-IN ON MARKETABLE DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES COMPENSATION
---------- ---------- ---------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 -- -- 4,344,052 $ 434,405 $ 306,858 $ (382,691) --
Restricted shares issued -- -- 42,500 4,250 456,475 -- $ (332,799)
Options exercised -- -- 1,350 135 4,084 -- --
Net income -- -- -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- -- 232,335 --
Amortization of deferred
compensation -- -- -- -- -- -- 90,624
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance, June 30, 1995 -- -- 4,387,902 438,790 767,417 (150,356) (242,175)
Restricted shares canceled -- -- (15,000) (1,500) (10,423) -- 11,923
Options exercised -- -- 19,068 1,907 218,881 -- --
Net income -- -- -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- -- 89,914 --
Amortization of deferred
compensation -- -- -- -- -- -- 70,380
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance, June 30, 1996 -- -- 4,391,970 439,197 975,875 (60,442) (159,872)
Options exercised -- -- 2,000 200 10,800 -- --
Net income -- -- -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- -- 70,399 --
Amortization of deferred
compensation -- -- -- -- -- -- 68,520
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance, June 30, 1997 -- -- 4,393,970 439,397 986,675 9,957 (91,352)
Issuance of preferred stock 1,493,398 $ 14,934 -- -- 18,906,418 -- --
Issuance of common stock -- -- 874,400 87,440 10,991,208 -- --
Net loss -- -- -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- -- (9,957) --
Amortization of deferred
compensation -- -- -- -- -- -- 34,260
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance, December 31, 1997 1,493,398 $ 14,934 5,268,370 $ 526,837 $30,884,301 $ -- $ (57,092)
========== ========== ========== ========= =========== =========== ===========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
----------- -----------
<S> <C> <C>
Balance, June 30, 1994 $17,710,178 $18,068,750
Restricted shares issued -- 127,926
Options exercised -- 4,219
Net income 6,980,171 6,980,171
Change in unrealized holding gains
(losses) on marketable securities -- 232,335
Amortization of deferred
compensation -- 90,624
----------- -----------
Balance, June 30, 1995 24,690,349 25,504,025
Restricted shares canceled -- --
Options exercised -- 220,788
Net income 4,622,162 4,622,162
Change in unrealized holding gains
(losses) on marketable securities -- 89,914
Amortization of deferred
compensation -- 70,380
----------- -----------
Balance, June 30, 1996 29,312,511 30,507,269
Options exercised -- 11,000
Net income 2,195,734 2,195,734
Change in unrealized holding gains
(losses) on marketable securities -- 70,399
Amortization of deferred
compensation -- 68,520
----------- -----------
Balance, June 30, 1997 31,508,245 32,852,922
Issuance of preferred stock -- 18,921,352
Issuance of common stock -- 11,078,648
Net loss (363,585) (363,585)
Change in unrealized holding gains
(losses) on marketable securities -- (9,957)
Amortization of deferred
compensation -- 34,260
----------- -----------
Balance, December 31, 1997 $31,144,660 $62,513,640
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS ENDED ---------------------------------------
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1997 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (363,585) $ 2,195,734 $ 4,622,162 $ 6,980,171
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 624,352 1,039,887 779,388 556,024
Amortization 122,120 284,164 128,813 116,159
Deferred income taxes 77,850 71,700 (136,800) (106,700)
Gain on disposal of property and equipment (11,984) (38,000) (17,065) (43,529)
Provision for (reduction in) doubtful accounts reserves 78,447 (43,248) 228,200 29,190
Provision for (reduction in) inventory reserves 190,479 150,077 52,895 (32,019)
Changes in operating assets and liabilities, net of impact of aquisitions
in the periods ended December 31, 1997 and June 30, 1996:
Accounts receivable (1,284,618) 1,650,875 (407,852) (3,347,851)
Inventories (382,708) (410,559) (1,123,971) (2,836,781)
Other current and other assets (645,970) 321,329 (158,391) (355,476)
Accounts payable, trade 925,424 (428,317) (836,466) 1,661,665
Accrued expenses 1,209,514 (25,087) (146,034) 412,506
Income taxes payable and receivable (176,345) (240,101) 25,320 (162,579)
----------- ----------- ----------- -----------
Net cash provided by operating activities 362,976 4,528,454 3,010,199 2,870,780
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Deflecta-Shield common stock, net of cash acquired (76,078,599) -- -- --
Purchase of marketable securities (2,496,978) (12,365,349) (7,880,519) (7,316,913)
Proceeds from sales of marketable securities 13,761,900 4,963,330 7,861,812 3,016,600
Proceeds from redemptions of marketable securities 998,284 3,829,904 2,504,006 370,951
Purchases of property and equipment (866,888) (1,487,432) (814,959) (5,751,634)
Proceeds from sales of property and equipment 11,984 81,634 76,822 59,094
Change in restricted cash and marketable securities 255,132 (98,760) 245,729 (2,120,357)
Increase in note receivable to Innovative Accessories, Inc. -- -- (2,230,089) --
Innovative Accessories, Inc. acquisition costs -- -- (114,341) --
Other investing activities 470,336 (301,410) (175,320) (123,631)
----------- ----------- ----------- -----------
Net cash used in investing activities (63,944,829) (5,378,083) (526,859) (11,865,890)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from tender loan facility 40,878,576 -- -- --
Proceeds from issuance of common and preferred stock 30,000,000 11,000 220,788 4,219
Payment of long-term debt (460,000) (440,000) (420,000) --
Checks issued in excess of cash balances -- -- (909,880) 909,880
Proceeds from bond offering -- -- -- 5,450,000
Payment of other liabilities (24,333) (87,047) -- --
Debt issuance costs (300,000) -- -- (151,682)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 70,094,243 (516,047) (1,109,092) 6,212,417
----------- ----------- ----------- -----------
Net increase (decrease) in cash and temporary cash investments 6,512,390 (1,365,676) 1,374,248 (2,782,693)
CASH AND TEMPORARY CASH INVESTMENTS:
Beginning of period 277,740 1,643,416 269,168 3,051,861
----------- ----------- ----------- -----------
End of period $ 6,790,130 $ 277,740 $ 1,643,416 $ 269,168
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Lund International Holdings, Inc. ("Holdings" or the "Company"), through its
wholly-owned subsidiary, Lund Industries, Incorporated ("Lund"), designs,
manufactures and distributes aftermarket automotive accessories for light and
heavy duty trucks, sport utility vehicles and vans. The following is a summary
of the significant accounting policies used in the preparation of Holdings'
consolidated financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holdings and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
TEMPORARY CASH INVESTMENTS
Temporary cash investments consist of money market funds and certificates of
deposit, which are stated at cost which approximates market. The Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be temporary cash investments.
RESTRICTED CASH
Restricted cash consists of cash held by a trustee, to which access by the
Company is restricted in accordance with the Industrial Development Revenue
Bonds loan agreement (Note 4).
MARKETABLE SECURITIES
Marketable securities consist of debt securities. Marketable securities are
classified as available-for-sale securities and are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary results in a charge to
earnings resulting in the establishment of a new cost basis for the security.
Cost is determined on a specific identification basis.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method. Lund has established a reserve to record inventories
at estimated net realized value. Inventory reserves are determined based on
Lund's continuing analysis of inventory levels in excess of current requirements
or considered to be obsolete.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product. Lund estimates and records
provisions for sales returns and allowances based on its historical experience.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line or accelerated methods over
their estimated useful lives. The useful lives of
<PAGE>
buildings, machinery and equipment and furniture and fixtures are 25-32 years,
5-7 years and 3 years, respectively. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in operations for the
period. The cost of maintenance and repairs is charged to operations as
incurred. Significant renewals and betterments are capitalized.
Costs for internally manufactured molds, tooling and dies relating to the
hand-laid fiberglass product lines are expensed when incurred as their estimated
useful life is less than one year. Purchases of externally manufactured molds,
tooling and dies, and internally manufactured molds, tooling and dies related to
the plastics and automated close mold fiberglass product lines are capitalized
and amortized over the estimated life of the asset.
Long-lived assets are analyzed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the undiscounted expected future cash flows is less
than the carrying amount of the asset, an impairment loss is recognized.
AMORTIZATION OF INTANGIBLES
Intangibles, consisting mainly of goodwill, customer lists, patents and
non-compete agreements, are amortized on a straight-line basis over their
estimated lives. Costs incurred in applications for new patents and purchases of
patents are capitalized and amortized over the life of the patent. Costs of
defending and protecting company patents are expensed when incurred. Goodwill is
amortized over twenty to forty years.
Quarterly, Holdings evaluates the recoverability of intangibles based on
analyses of estimated future undiscounted cash flows. If the sum of the
undiscounted expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Income tax expense
(benefit) is the tax payable (receivable) for the period and the change in
deferred income tax assets and liabilities during the period.
PRODUCT WARRANTY
Lund warrants its products that have been properly installed according to the
instructions provided by Lund with a limited lifetime warranty which covers
actual product failure. Lund accrues a liability for estimated warranty claims
associated with products sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, payables, and accrued expenses approximate
their fair value. The estimated fair value of long-term debt, which approximates
the carrying value, was determined using current rates offered to Lund of issues
with the same remaining maturity.
USE OF ESTIMATES
The preparation of Holdings' consolidated financial statements requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
<PAGE>
The most significant areas which require the use of management's estimates
relate to allocation of purchase price of acquisitions to fair values of assets
and liabilities, provision for doubtful accounts reserves, reserves for
inventory obsolescence and accruals for warranty claims, customer rebates and
advertising.
RECLASSIFICATIONS
Certain reclassifications have been made to the June 30, 1996 and 1995 amounts
to conform to the June 30, 1997 presentation with no effect on previously
reported net income or stockholders' equity.
2. ACQUISITIONS
- --------------------------------------------------------------------------------
DEFLECTA-SHIELD CORPORATION
Effective December 30, 1997, Holdings, through a wholly-owned subsidiary,
acquired 98.8% of the outstanding shares of Deflecta-Shield Corporation
("Deflecta-Shield"). The remaining 1.2% of outstanding shares were acquired on
February 27, 1998. Deflecta-Shield, headquartered in Indianola, Iowa,
manufactures fiberglass, plastic and aluminum appearance accessories and also
supplies suspension systems for light trucks and heavy trucks.
The aggregate purchase price of $78,919,000 represents cash paid of $76,800,000
for 100% of the outstanding shares of Deflecta-Shield at $16 per share and
direct transaction costs of $2,119,000. The acquisition was financed using
Holdings' available unrestricted cash and investments, borrowings under
Holdings' tender loan facility and new consolidated loan facility and proceeds
from the issuance of common and preferred stock. The aggregate purchase price
excludes Deflecta-Shield's outstanding long-term debt on the date of acquisition
of $9,354,000 which was paid off on February 27, 1998 using proceeds from
Holdings' new consolidated loan facility.
As of December 31, 1997, the Company had paid $75,879,000 in cash to acquire
98.8% of the outstanding shares of Deflecta-Shield and incurred direct
transaction costs of $2,119,000. On February 27, 1998, Holdings acquired the
remaining 1.2% of outstanding shares for $921,000. The remaining amount of the
payment of $921,000 for the outstanding shares is included as a component of
other liabilities at December 31, 1997.
The acquisition has been accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed and additional purchase liabilities based on the
estimated fair values at the date of acquisition. Additional purchase
liabilities recorded include $1,917,000 for severance and other restructuring
costs associated with the shut down and consolidation of certain acquired
facilities.
The severance accrual covers the termination of approximately 70 Deflecta-Shield
employees who had duplicate positions in warehouse, manufacturing, sales,
marketing and administrative functions. It is anticipated that restructuring
activities related to the acquisition will be finalized during 1998. Any
material differences between estimated accruals for restructuring activities and
actual costs will be recorded as an adjustment to goodwill.
<PAGE>
The estimated fair values of assets and liabilities acquired are summarized as
follows (in thousands):
Cash $ 392
Inventories 11,190
Accounts receivable and other current
assets 16,026
Property and equipment 12,966
Customer lists and patents 5,126
Goodwill 61,508
Accounts payable (6,109)
Accrued settlement of stock options (3,463)
Accrued severance and restructuring costs (1,917)
Long-term debt (9,354)
Other liabilities (7,445)
----------------
$78,919
================
Customer lists and patents valued at an aggregate amount of $5,126,000 will be
amortized over ten years for customer lists and six years for patents. Goodwill,
representing the excess of the purchase price over the net identifiable tangible
and other intangible assets of $61,508,000, will be amortized over 40 years.
The results of operations of Deflecta-Shield are included in the accounts of
Holdings commencing as of December 30, 1997, the date of acquisition.
Deflecta-Shield's results of operations from the date of acquisition to December
31, 1997, were not material.
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of Lund and Deflecta-Shield as if the
acquisition had occurred as of July 1, 1996, giving effect to purchase
accounting adjustments. The pro forma data is for informational purposes only
and may not necessarily reflect the results of operations of Holdings had the
acquired business operated as part of the Company for the periods presented.
(in thousands, except per-share amounts)
Six months ended Year ended
December 31, 1997 June 30, 1997
------------------- ---------------
Net sales $ 55,987 $ 114,682
Net (loss) income (1,628) 1,494
Basic and diluted (loss) earnings per share (.24) .22
INNOVATIVE ACCESSORIES, INC.
During November 1995, Lund entered into an agreement to provide working capital
funds and to market products for Innovative Accessories, Inc. ("Innovative"). In
connection with this agreement, Lund provided a working capital note of
$2,230,089.
During June 1996, Holdings acquired the assets and assumed certain liabilities
of Innovative for a purchase price equal to the outstanding working capital note
of $2,230,089, additional consideration and transaction costs, and future
royalty payments to the former Innovative shareholders based upon future sales
of Innovative.
<PAGE>
The cost in excess of net tangible and identifiable intangible assets acquired,
which consists principally of goodwill, was approximately $2,238,975. Goodwill
is being amortized over 20 years. The acquisition has been recorded using the
purchase method of accounting. Innovative's operating results have been included
in Holding's consolidated operating results from the date of acquisition. The
acquisition is not significant to Holding's overall results.
3. OTHER FINANCIAL STATEMENT DATA
- --------------------------------------------------------------------------------
ADVERTISING
Lund expenses the production and space costs of advertising the first time the
advertising takes place, except for costs of direct response advertising,
product catalogs and brochures, which are capitalized and amortized over the
expected period of future benefits.
At December 31, 1997, June 30, 1997 and June 30, 1996, $124,676, $159,659 and
$257,153, respectively, of direct response advertising costs, product catalogs,
and brochures were reported as other current assets, net of accumulated
amortization. Advertising expense was $1,518,260, $2,738,285, $2,577,981, and
$1,991,976 for the six-month period ended December 31, 1997 and the fiscal years
ended June 30, 1997, 1996 and 1995, respectively.
SELECTED BALANCE SHEET INFORMATION
June 30, June 30,
1997 1996
---------------- ----------------
MARKETABLE SECURITIES
Amortized cost $ 12,263,206 $ 8,691,091
Gross unrealized holding gains (losses) 9,957 (60,442)
---------------- ----------------
Fair value $ 12,273,163 $ 8,630,649
================ ================
Net realized (losses) gains included in net income (loss) for the six-month
period ended December 31, 1997 and the fiscal years ended June 30, 1997, 1996
and 1995 were ($28,815), $11,125, ($1,628), and $(160,108), respectively.
December 31, June 30, June 30,
1997 1997 1996
------------ ------------ -------------
ACCOUNTS RECEIVABLE
Trade accounts receivable $22,989,229 $ 8,914,739 $10,653,366
Less allowance for doubtful accounts (1,538,974) (589,000) (720,000)
------------ ------------ ------------
$21,450,255 $ 8,325,739 $ 9,933,366
============ ============ ============
INVENTORIES
Raw materials $ 9,948,940 $ 3,309,440 $ 3,329,323
Work-in-process 2,893,072 230,573 149,365
Finished goods 5,151,550 3,071,748 2,872,591
------------ ------------ ------------
$17,993,562 $ 6,611,761 $ 6,351,279
============ ============ ============
PROPERTY AND EQUIPMENT
Land $ 119,683 $ 1,983 $ 1,983
Building 12,511,782 5,468,517 5,433,605
Machinery and equipment 10,312,066 3,941,882 2,730,718
Furniture and fixtures 1,478,585 1,107,231 883,136
------------ ------------ ------------
24,422,116 10,519,613 9,049,442
Less accumulated depreciation (3,801,112) (3,209,256) (2,142,996)
------------ ------------ ------------
$20,621,004 $ 7,310,357 $ 6,906,446
============ ============ ============
<PAGE>
INTANGIBLES
Goodwill $63,377,200 $ 1,903,866 $ 1,835,916
Customer lists, patents and other 5,800,736 639,556 639,556
------------ ------------ ------------
69,177,936 2,543,422 2,475,472
Less accumulated amortization (400,016) (320,002) (120,048)
------------ ------------ ------------
$68,777,920 $ 2,223,420 $ 2,355,424
============ ============ ============
ACCRUED EXPENSES
Settlement of Deflecta-Shield stock
options $ 3,463,243
Acquisition transaction costs 3,509,736
Severance and other restructuring costs 1,916,507
Payroll and payroll related costs 2,120,131 $ 360,323 $ 320,266
Customer rebates 1,044,400 397,016 422,783
Warranty 1,344,732 324,189 196,578
Advertising 612,085 245,792 77,739
Other, principally property taxes and
accrued interest 1,775,501 371,495 706,536
------------ ------------ ------------
$15,786,335 $ 1,698,815 $ 1,723,902
============ ============ ============
The following provides supplemental disclosures of cash flow activity:
<TABLE>
<CAPTION>
Six months
ended Years ended June 30,
December 31, -----------------------------------------
1997 1997 1996 1995
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Income taxes $ 19,515 $ 1,102,187 $2,544,234 $3,947,415
Interest 143,471 301,209 333,843 23,817
</TABLE>
Significant non-cash investing and financing activities include the following:
Six months ended December 31, 1997:
* In connection with the acquisition of Deflecta-Shield (Note 2), Holdings
assumed liabilities of $28,288,000.
* Accrued acquisition transaction costs of Holdings included in the purchase
price of Deflecta-Shield were $1,526,233.
* The change in unrealized holding gains on marketable securities was $9,957.
Year ended June 30, 1997:
* The change in unrealized holding gains on marketable securities was
$70,399.
Year ended June 30, 1996:
* In connection with the acquisition of Innovative Accessories, Inc.(Note 2),
a note receivable of $2,230,089 was converted to consideration for the
purchase.
* The change in unrealized holding gains on marketable securities was
$89,914.
<PAGE>
Year ended June 30, 1995:
* The change in unrealized holding gains on marketable securities was
$232,335.
* Restricted shares were issued for $460,725 less unearned deferred
compensation of $332,799.
4. LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Tender loan facility $ 40,878,576
Deflecta-Shield revolving credit loan 9,353,818
Industrial Development Revenue Bonds,
interest ranging from 6.0% to 6.50%
due in annual installments through 2004 4,130,000 $ 4,590,000 $ 5,030,000
Other 264,673
------------- ------------- -------------
54,627,067 4,590,000 5,030,000
Less current maturities (1,700,000) (460,000) (440,000)
------------- ------------- -------------
Long-term debt $ 52,927,067 $ 4,130,000 $ 4,590,000
============= ============= =============
</TABLE>
Long-term debt maturities, which reflect the terms of the new consolidated loan
facility described below, are as follows:
1998 $ 1,700,000
1999 3,720,000
2000 4,745,000
2001 5,680,000
2002 15,892,067
Thereafter 22,890,000
-------------
$ 54,627,067
=============
In connection with Holdings' December 30, 1997 acquisition of Deflecta-Shield,
the Company obtained $42,000,000 in bridge financing in the form of a tender
loan facility to acquire the majority of the outstanding shares of
Deflecta-Shield. Holdings drew down $40,878,576 against this facility on
December 30, 1997 to acquire 98.8% of the total outstanding shares of
Deflecta-Shield.
On February 27, 1998, Holdings refinanced its tender loan facility with a new
consolidated $87,000,000 loan facility. The consolidated loan facility includes
two long-term notes ("Term A" and "Term B"), totaling $42,000,000, a revolving
credit facility of $30,000,000 and an acquisition facility of $15,000,000. The
$42,000,000 long-term notes require principal repayments as follows: 1998 -
$1,200,000; 1999 - $3,200,000; 2000 - $4,200,000; 2001 - $5,100,000; 2002 -
$6,775,000; 2003 - $10,500,000; and 2004 - $11,025,000. The Company may
voluntarily prepay Term A, Term B or the acquisition facility within one to
three days' notice to the lender. The Company must prepay the consolidated loan
facility in an amount equal to 75% of excess cash flow, as defined by the debt
agreement, within one hundred (100) days of each fiscal year end.
The revolving credit facility ("Revolver") is subject to limitations based on
the lesser of $30,000,000 less the principal balance of the Industrial
Development Revenue Bonds (the "Bonds") and any issued letters of credit, net of
restricted cash, or a percentage of eligible receivables and inventories also
<PAGE>
adjusted for the principal balance of the Bonds and any issued letters of
credit, net of restricted cash. Holdings drew down $12,138,052 against this
facility on February 27, 1998. The Revolver terminates on December 31, 2002.
Borrowings under the $15,000,000 acquisition facility ("Acquisition Line") are
subject to limitations of $5,000,000 per acquisition or a total of $7,500,000
per fiscal year. In addition, the consolidated total indebtedness to earnings
before income taxes, depreciation and amortization ("EBITDA") ratio, as defined,
considering both the Company and the acquiree has to be less than a ratio
ranging from 4.0 to 1.0 through 2.75 to 1.0, depending on the date of
acquisition. The acquisition facility loan commitment expires on December 31,
2000 and the loan terminates on December 31, 2004. The repayments of the loan
are to be made in equal quarterly installments beginning on March 31, 2001 with
termination and repayment of all principal on December 31, 2004. As of March 17,
1998, there were no borrowings on the Acquisition Line.
The consolidated loan facility's interest rates are locked between February 27
and August 31, 1998 at prime plus 1.25% and 1.5% for Term A and the Revolver,
and Term B and the Acquisition Line, respectively. The LIBOR borrowing rates are
also locked for the same time period at 2.5% and 2.75% for Term A and the
Revolver, and Term B and the Acquisition Line, respectively. Thereafter,
interest rates float between prime plus .5% to 1.5% for Term A and the Revolver,
and prime plus 1% to 1.75% for Term B and Acquisition Line, with the interest
rates based on a grid determined by the ratio of total indebtedness to pro forma
EBITDA, as defined by the consolidated loan facility. The consolidated loan
facility also allows for borrowings bearing interest at LIBOR rates plus 1.75%
to 2.75% for Term A and the Revolver and LIBOR plus 2.25% to 3.25% for Term B
and the Acquisition Line with pricing based on the ratio of total indebtedness
to pro forma EBITDA. The prime rate and LIBOR rate at December 31, 1997 were
8.5% and 5.69%, respectively.
The Revolver and Acquisition Line require a commitment fee at the rate of .375%
to .5% annually based on the total indebtedness to pro forma EBITDA ratio.
The consolidated loan facility contains certain restrictive financial covenants,
including limitations on incurring debt, capital expenditures, merger or
consolidation, acquisitions and transactions with affiliates. In addition,
Holdings must maintain minimum EBITDA levels and meet certain fixed charge,
interest and indebtedness to EBITDA ratios.
The consolidated loan facility is collateralized by all of the consolidated
assets of Holdings, excluding those assets which collateralize the Bonds.
Additionally, the consolidated loan facility is collateralized by all of the
capital stock of the subsidiaries of Holdings.
The Deflecta-Shield revolving credit loan is outstanding under a former facility
which was repaid on February 27, 1998, as part of new borrowings under the
consolidated loan facility, discussed above.
As of December 31, 1997, Lund had $4,130,000 of debt outstanding related to the
Bonds. The Bonds contain certain covenants which, among other things, require
Lund to maintain a minimum level of interest coverage, fixed charge coverage and
maximum ratio of debt to capitalization. The Bonds also contain limitations
related to mergers or acquisitions. The Bonds were issued to provide Lund with
funding to finance the constructing and equipping of its new manufacturing
facility, completed in 1995. The loan agreement restricts certain cash and
marketable securities in accordance with the terms of the agreement.
<PAGE>
Total restricted cash and marketable securities held pursuant to the Bond
agreement at December 31, 1997 and June 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
1997 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Restricted cash - current $ 1,123,354 $ 1,393,146 $ 1,096,709
Restricted cash and marketable securities
long-term 594,902 580,242 777,919
------------ ------------ ------------
Total restricted cash and marketable
securities $ 1,718,256 $ 1,973,388 $ 1,874,628
============ ============ ============
</TABLE>
5. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Certain members of the Company's Board of Directors during the six-month period
ended December 31, 1997, and the fiscal years ended June 30, 1996 and 1995 had
an ownership interest in another entity from which Lund purchases products and
previously rented facilities. A summary of these items is as follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30, June 30,
1997 1997 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rents - facilities -- -- -- $ 351,447
Purchase of components $ 1,030,768 $ 1,460,998 $ 1,667,982 1,336,268
</TABLE>
In addition, during 1995, Lund leased some of its facilities and equipment from
certain employees and/or stockholders of Lund under noncancelable operating
leases. Total lease expense for these facilities, including real estate taxes
and equipment rental in the fiscal year ended June 30, 1995 was $498,397.
6. COMMITMENTS
- --------------------------------------------------------------------------------
OPERATING LEASE COMMITMENTS
The Company has various noncancelable operating leases for certain facilities
and certain equipment related to Lund's manufacturing facility and computer
system. Total lease expense in the six-month period ended December 31, 1997, and
for the fiscal years ended June 30, 1997, 1996 and 1995 was $404,903, $886,919,
$422,639, and $26,739, respectively.
Future minimum lease payments required under noncancelable operating leases are
as follows:
1998 $ 1,060,543
1999 732,764
2000 418,856
2001 139,191
2002 76,800
Thereafter 12,800
------------
$ 2,440,954
============
<PAGE>
LITIGATION
Certain legal claims, suits and complaints have been filed or are pending
against the Company arising out of the normal course of business. These claims
are in the early stages of discovery and the ultimate outcome cannot be
determined; however, the maximum amount of the claims are generally considered
to be within the Company's insurance limits. While the results of litigation
cannot be predicted with certainty, management believes the final outcome of
such litigation will not have a material adverse effect on Holdings'
consolidated financial position.
7. SIGNIFICANT CUSTOMERS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1997, and fiscal years ended June
30, 1997 and 1995, one of Lund's customers represented approximately 13.4%,
15.1% and 14.6%, respectively, of net sales. During the fiscal year ended June
30, 1996, none of Lund's customers represented over 10% of net sales.
At December 31, 1997, and at June 30, 1997 and 1996, one of Lund's customers
represented approximately 11.3%, 35.6% and 17.6% respectively, of Lund's
accounts receivable.
8. INCOME TAXES
- --------------------------------------------------------------------------------
The income tax (benefit) expense is summarized as follows:
<TABLE>
<CAPTION>
Six months
ended Years ended June 30,
December 31, ----------------------------------------------
1997 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal $ (183,778) $ 734,186 $ 2,326,754 $ 3,365,279
Foreign -- 26,900 21,800 24,000
State (15,000) 101,000 221,000 394,000
------------ ------------ ------------ ------------
(198,778) 862,086 2,569,554 3,783,279
Deferred:
Federal 70,550 65,300 (125,900) (97,700)
State 7,300 6,400 (10,900) (9,000)
------------ ------------ ------------ ------------
77,850 71,700 (136,800) (106,700)
------------ ------------ ------------ ------------
$ (120,928) $ 933,786 $ 2,432,754 $ 3,676,579
============ ============ ============ ============
</TABLE>
The effective tax rate differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Statutory federal income
tax rate (34.0)% 34.0% 34.0% 34.0%
State income taxes,
net of federal tax effect (1.2) 2.3 2.1 2.4
Foreign Sales Corporation -- (1.7) (.6) (.4)
Tax exempt interest 15.8 (6.3) (2.1) (1.2)
Non-recurring transaction (15.7)
expenses
Other, net 10.1 1.5 1.1 (.3)
-------------- ----------- ------------ -----------
(25.0)% 29.8% 34.5% 34.5%
============== =========== ============ ===========
</TABLE>
<PAGE>
Deferred taxes result from temporary differences in the recognition of revenue
and expense for income tax and financial statement purposes. The sources of
these differences and the related income tax effect are as follows:
<TABLE>
<CAPTION>
Six months Years ended
ended June 30,
December 31, -------------------------------------------
1997 1997 1996 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $ (20,100) $ 45,400 $ (69,600) $ 17,700
Inventory capitalization -- 70,300 (59,200) (4,400)
Accruals not currently
deductible for tax purposes (32,500) (17,900) (34,300) (75,200)
Other, net 130,450 (26,100) 26,300 (44,800)
---------- ---------- ------------ ------------
$ 77,850 $ 71,700 $ (136,800) $ (106,700)
========== ========== ============ ============
</TABLE>
The tax effects of temporary differences that give rise to current and
noncurrent deferred income tax assets and liabilities are as follows:
December 31, June 30, June 30,
1997 1997 1996
------------ ---------- ----------
Allowance for doubtful
accounts $ 578,295 $ 220,900 $ 266,300
Inventory capitalization 247,854 -- 70,300
Accruals not currently
deductible for tax purposes 2,561,788 492,500 474,600
Other, net 129,316 30,500 4,400
------------ ---------- ----------
Current deferred income
tax asset $ 3,517,253 $ 743,900 $ 815,600
============ ========== ==========
Depreciation $ (466,293)
Amortization of intangibles (2,707,383)
Other, net 821,437
------------
Noncurrent deferred income
tax liability $(2,352,239)
============
There is no valuation allowance related to the deferred tax asset as of December
31, 1997, June 30, 1997 or June 30, 1996.
9. STOCK OPTIONS
- --------------------------------------------------------------------------------
EMPLOYEE STOCK OPTIONS
Holdings adopted Incentive Stock Option Plans (the "Plans") during 1995 and
1989. The Plans authorize grants of options to purchase up to 400,000 and
250,000 shares of Holdings' common stock, respectively. The option prices may
not be less than the fair market value of the common stock at the time the
option is granted. Options expire ten years after the date granted or on a prior
date as fixed by the Board of Directors or appropriate committee. Under the
Plans, the option may become exercisable at the date of grant or as determined
by the Board of Directors or appropriate committee.
<PAGE>
On October 15, 1997, the Company's Board of Directors approved the repricing to
the then current fair market value of $13.875 of 396,000 of the total 436,000
employee incentive stock options outstanding as of that date. Such repriced
options had original exercise prices ranging from $16.00 to $21.25.
Stock option activity is summarized as follows:
Weighted Average
Number Exercise Price
of Shares Per Share
--------------- ----------------
Balance, June 30, 1994 149,018 $ 15.41
Granted 250,000 18.29
Canceled (7,500) 16.125
Exercised (1,350) 3.125
--------------- ----------------
Balance, June 30, 1995 390,168 17.29
Granted 120,000 15.67
Canceled (45,600) 16.125
Exercised (19,068) 11.58
--------------- ----------------
Balance, June 30, 1996 445,500 17.22
Canceled (9,500) 16.125
--------------- ----------------
Balance, June 30, 1997 436,000 17.24
Granted 32,500 12.625
Canceled (7,500) 13.875
--------------- ----------------
Balance, December 31, 1997 461,000 13.75
=============== ================
At December 31, 1997, the weighted average exercise price and remaining life of
the stock options are as follows:
Range of exercise price $12.625 - $13.875
- ----------------------------------- -------------------
Total options outstanding 461,000
Weighted average exercise price $ 13.75
Weighted average remaining life
in years 7.4
Options exercisable 190,100
Weighted average price of
exercisable options $ 13.86
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
The Company has a Non-Employee Director Stock Option Plan, as amended, which
authorizes grants of options to purchase up to 100,000 shares of Holdings'
common stock.
The option price must be 100% of the fair market value of the common stock at
the time the option is granted. Options expire five years from the date of
grant. Options become exercisable at the date of grant or as determined by the
Board of Directors or appropriate committee. During the six month period ended
December 31, 1997, 2,000 options were issued and no options were exercised.
Options outstanding at December 31, 1997 were 36,000 shares at $11.25 to $14.00
per share. Total shares exercisable at December 31, 1997 were 36,000 shares,
which have a weighted average exercise price of $13.15 and a weighted average
remaining life of 3.1 years.
<PAGE>
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 as of that date.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
In October 1994, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION,
a standard of accounting and reporting for stock-based compensation plans.
Holdings adopted the standard in the fiscal year ended June 30, 1997. The
Company has continued to measure compensation cost for its stock options plans
using the intrinsic value method of accounting it has historically used and,
therefore, the standard has no effect on the Company's operating results.
Had Holdings used the fair-value-based method of accounting for its stock option
plans beginning in the fiscal year ended June 30, 1996 and charged compensation
cost against income over the vesting period, net (loss) income and basic and
diluted net (loss) income per share for the six-month period ended December 31,
1997 and the fiscal years ended June 30, 1997 and 1996 would have been the
following pro-forma amounts:
<TABLE>
<CAPTION>
Six months
ended Years ended June 30,
December 31, ------------------------------
1997 1997 1996
---------------- ------------- -------------
<S> <C> <C> <C>
Net (loss) income:
As reported $ (363,585) $ 2,195,734 $ 4,622,162
Pro forma (965,447) 2,072,488 4,540,583
Basic and diluted (loss) earnings per share:
As reported (.08) .50 1.05
Pro forma (.22) .47 1.03
</TABLE>
The pro forma information above only includes stock options granted in the
six-month period ended December 31, 1997 and the fiscal years ended June 30,
1997 and 1996. Compensation under the fair-value-based method of accounting will
increase over the next few years as additional stock options grants are
considered.
The weighted-average grant-date fair value of options granted during the
six-month period ended December 31, 1997 and the fiscal years ended June 30,
1997 and 1996 was $6.31, $5.02 and $6.84, respectively. The weighted-average
grant-date fair value of options was determined by using the fair value of each
option grant on the date of grant, utilizing the Black-Scholes option-pricing
model and the following key assumptions:
<TABLE>
<CAPTION>
Six months
ended Years ended June 30,
December 31, ---------------------------------
1997 1997 1996
----------------- --------------- ---------------
<S> <C> <C> <C>
Risk-free interest rates 5.81% - 6.21% 6.21% - 6.29% 5.84% - 6.42%
Expected life 5 years 4 years 4 years
Expected volatility 47.76% 47.47% 47.47%
Expected dividends None None None
</TABLE>
<PAGE>
10. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
CAPITAL STRUCTURE AND PREFERRED STOCK
The authorized stock of Holdings consists of 25,000,000 shares of Common Stock,
par value $0.10 (the "Common Stock"), 3,000,000 shares of Class B Common Stock,
par value $0.01 (the "Class B Common Stock"), and 2,000,000 shares of Preferred
Stock, par value $0.01 (the "Preferred Stock"). Prior to the Harvest Partners,
Inc. equity investment on December 30, 1997, there were 4,393,970 shares of
Common Stock issued and outstanding, and no shares of Class B Common Stock or
Preferred Stock. In connection with the Harvest Partners, Inc. $30,000,000
equity investment, 1,493,398 shares of Class B Common Stock were designated as
non-voting Class B-1 Common Stock and 1,493,398 shares of Preferred Stock were
designated as non-voting Series A Preferred Stock. A Harvest Partners, Inc.
affiliate was issued 874,400 shares of Common Stock and 1,493,398 shares of
Series A Preferred Stock in exchange for a $30,000,000 equity investment. As a
result, Harvest Partners affiliated entities own an aggregate 48.6% of the
voting securities of Holdings. The Common and Series A Preferred Stock were
issued with a share purchase price of $12.67.
The Series A Preferred Stock converts on a one-to-one basis to Class B-1 Common
Stock subject to the approval of Holdings' stockholders at the April 21, 1998
meeting. In the event that shareholder approval is not obtained by April 30,
1998, quarterly dividends at an annual rate of 15% begin to accrue with the
first payment due on July 28, 1998. The Class B-1 Common Stock, if approved by
the shareholders, automatically converts to Common Stock on September 9, 2000,
or earlier if approved by Holdings' non-management members of the Company's
Board of Directors or as a result of a change in the ownership structure.
RESTRICTED STOCK
During 1992, the Company granted 50,000 shares of restricted stock to two key
employees. During 1993 and 1996, 18,000 shares and 15,000 shares, respectively,
were canceled. During 1994, the Company granted 20,000 shares of restricted
stock to a key employee. These restricted shares vest over a five-year period.
During 1995, the Company amended the restricted stock plan which resulted in the
issuance of 42,500 shares of previously granted but unissued shares of
restricted stock. These issued shares resulted in common stock and additional
paid-in capital which was offset by the unearned portion of the deferred
compensation. The deferred compensation is charged to stockholders' equity and
amortized to compensation expense over the remainder of the five-year vesting
period.
Amortization of the restricted stock's value (at the date of award) over the
vesting period resulted in compensation expense of approximately $34,260,
$68,520, $70,380, and $90,624 in the six-month period ended December 31, 1997,
and the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
NET INCOME (LOSS) PER SHARE
Holdings adopted Statement of Financial Accounting Standards ("SFAS") No. 128
EARNINGS PER SHARE during the six-month period ended December 31, 1997. SFAS No.
128 requires disclosure of basic and diluted EPS. Basic EPS is calculated as net
(loss) income divided by weighted average common shares outstanding. Holdings'
dilutive securities are primarily issuable under the Company's Incentive Stock
Option Plans and the Non-Employee Director Stock Option Plan, as well as the
Company's Preferred
<PAGE>
Stock and restricted stock. Diluted EPS is calculated as net income divided by
weighted average common shares outstanding, increased to include the assumed
conversion of dilutive securities. Dilutive securities are excluded from the
calculation of weighted average common and common equivalent shares outstanding
in all loss periods, as their inclusion would be anti-dilutive.
The following provides information related to the calculation of Holdings' basic
and diluted EPS:
<TABLE>
<CAPTION>
Six months Years ended
ended June 30,
December 31, --------------------------------------------
1997 1997 1996 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 4,390,923 4,382,584 4,373,461 4,350,689
Common equivalent shares
assuming conversion of dilutive
securities - 982 3,420 55,875
------------ ------------ ------------ -----------
Weighted average common and
common equivalent shares
outstanding 4,390,923 4,383,566 4,376,881 4,406,564
============ ============ ============ ===========
</TABLE>
11. RETIREMENT SAVINGS PLAN AND 401(K) PLAN
- --------------------------------------------------------------------------------
Lund has a 401(k) Retirement Savings Plan covering substantially all of its
employees. Lund provides matching contributions in accordance with the plan.
Lund's contributions to the plan in the six-month period ended December 31, 1997
and the fiscal years ended June 30, 1997, 1996 and 1995 were $75,761, $93,227,
$80,377, and $71,080, respectively.
Deflecta-Shield sponsors a qualified 401(k) plan ("401(k) plan") available to
substantially all full-time employees. Participants may contribute up to 10% of
their annual compensation to the plan. Deflecta-Shield's contributions to the
401(k) plan are determined on a discretionary basis by management.
12. TRANSITION PERIOD COMPARATIVE DATA
- --------------------------------------------------------------------------------
The following table presents certain financial information for the six-month
period ended December 31, 1997 and 1996, (in thousands, except per share
amounts):
Six months ended
Six months ended December 31, 1996
December 31, 1997 (unaudited)
----------------- -----------
Net sales $ 19,523 $ 20,752
------ ------
Gross profit $ 6,577 $ 7,030
----- -----
(Loss) income before income taxes $ (485) $ 1,412
Income tax (benefit) expense (121) 487
----- ---
Net (loss) income $ (364) $ 925
Basic and diluted (loss) earnings
per share (.08) .21
Weighted average common and
common equivalent shares
outstanding 4,390,923 4,377,671
================ ===============
<PAGE>
13. SALE OF LUND FAMILY INTERESTS
- --------------------------------------------------------------------------------
On September 9, 1997, Harvest Partners, Inc., a private investment firm,
purchased 38% of Holdings' outstanding shares of common stock from the Company's
former Chairman of the Board and his family. In connection with this
transaction, Holdings 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.
14. RECENTLY ISSUED ACCOUNTING STANDARDS
- --------------------------------------------------------------------------------
Holdings will adopt Statement of Financial Accounting Standards (SFAS) No. 130
REPORTING COMPREHENSIVE INCOME, in 1998. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is defined as
the change in equity during the period of a business enterprise resulting from
non-owner sources. The only adjustment to Holdings' net (loss) income to arrive
at comprehensive income in recent years has been unrealized holding gains
(losses) on marketable securities.
The Financial Accounting Standards Board issued SFAS No. 131 DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for reporting operating segment information in both annual reports and
interim financial reports issued to shareholders. Holdings is reviewing the
requirements of SFAS No. 131, but has not determined if it will present segment
information beyond the one segment currently presented. SFAS No. 131 is required
to be adopted effective with year-end 1998 reporting.
<PAGE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period
Sept. 30 Dec. 31 March 31 June 30 ended
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Six months ended December
- -------------------------
31, 1997
- --------
Net sales $ 10,028 $ 9,495 -- -- $ 19,523
Gross profit 3,404 3,173 -- -- 6,577
Net (loss) income (519) 155 -- -- (364)
Basic and diluted
earnings (loss) per
share (.12) .04 -- -- (.08)
Fiscal year ended
- -----------------
June 30, 1997
- -------------
Net sales $ 10,406 $ 10,346 $ 10,441 $ 12,112 $ 43,305
Gross profit 3,346 3,684 3,530 4,214 14,774
Net income 462 463 467 804 2,196
Basic and diluted
earnings (loss) per
share* .11 .11 .11 .18 .50
Fiscal year ended
- -----------------
June 30, 1996
- -------------
Net sales $ 10,436 $ 10,268 $ 11,525 $ 14,194 $ 46,423
Gross profit 3,910 3,899 4,238 5,551 17,598
Net income 995 821 1,218 1,588 4,622
Basic and diluted
earnings (loss) per
share* .22 .19 .28 .36 1.05
</TABLE>
*The summation of quarterly net income per share does not equate to the
calculation for the full fiscal year as quarterly calculations are performed on
a discrete basis.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Lund International Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Lund
International Holdings, Inc. as of December 31, 1997, June 30, 1997 and June 30,
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the six month period ended December 31,
1997, and for the years ended June 30, 1997 and 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The financial statements of Lund International
Holdings, Inc. for the year ended June 30, 1995, were audited by other auditors
whose report dated August 11, 1995, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standard 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 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Lund International Holdings, Inc. as of December 31, 1997, June 30,
1997 and June 30, 1996, and the results of its operations and its cash flows for
the six month period ended December 31, 1997, and for the years ended June 30,
1997 and 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
March 17, 1998
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 9, 1996, the Company dismissed KPMG Peat Marwick LLP as its independent
accountant. KPMG Peat Marwick LLP was the independent accountant who was engaged
as its principal accountant to audit the Company's financial statements for the
year ended June 30, 1995. On April 9, 1996, the Company retained Coopers &
Lybrand L.L.P. as its independent accountant to audit the Company's financial
statements for the year ended June 30, 1996.
The report of KPMG Peat Marwick LLP on the financial statements of the Company
for the year ended June 30, 1995 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
In connection with the audits of the Company's financial statements for the
fiscal year preceding their dismissal, there were no disagreements with KPMG
Peat Marwick LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of KPMG Peat Marwick LLP would have caused it to
make reference to the subject matter of the disagreement in connection with its
reports.
During the Company's two fiscal years ended June 30, 1995 and the subsequent
interim period, there were no "reportable events" as described in Item
304(a)(1)(v) of Regulation S-K.
Prior to the engagement of Coopers & Lybrand L.L.P., the Company had not
consulted with Coopers & Lybrand L.L.P. regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
or any matter described above.
The decision to change accountants was recommended by the audit committee of the
Board of Directors and approved by the entire Board.
The Company has requested, and KPMG Peat Marwick LLP has furnished, a letter
addressed to the Commission stating that it agrees with the above statements. A
copy of that letter was filed by the Company. In addition, Coopers & Lybrand
L.L.P. was provided an opportunity to review the above statements and provide a
letter regarding such statements.
PART III.
Item 10. EXECUTIVE OFFICERS AND DIRECTORS
The information required by Item 10 concerning the executive officers and
directors of the Company is incorporated herein by reference to the Company's
Proxy Statement for its 1998 Annual Meeting of Stockholders ("Proxy") which has
been filed with the Securities and Exchange Commission (the "Commission")
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
Company's Proxy which has been filed with the Commission pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this report is
filed.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to the
Company's Proxy which has been filed with the Commission pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this report is
filed.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to the
Company's Proxy which has been filed with the Commission pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this report is
filed.
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Consolidated Financial Statements.
<TABLE>
<CAPTION>
Pages in this
Form 10-K
---------
<S> <C>
Report of Independent Accountants...........................................................53
Consolidated Balance Sheets as of December 31, 1997, June 30, 1997, and 1996................32
Consolidated Statements of Operations for the six months ended
December 31, 1997, and for the years ended
June 30, 1997, 1996 and 1995.......................................................33
Consolidated Statements of Changes in Stockholders' Equity for the six months
ended December 31, 1997, and for the years ended June 30, 1997, 1996
and 1995...........................................................................34
Consolidated Statements of Cash Flows for the six months ended December 31,
1997, and for the fiscal years ended June 30, 1997, 1996 and
1995...............................................................................35
Notes to Consolidated Financial Statements.................................................36-52
</TABLE>
<PAGE>
(2) Financial Statement Schedules.
<TABLE>
<CAPTION>
Pages in this
Form 10-K
---------
<S> <C>
Report of Independent Accountants on Financial Statement Schedule...........................64
Schedule II: Valuation and Qualifying Accounts
for the six months ended December 31, 1997 and for the
fiscal years ended June 30, 1997, 1996 and 1995....................................66
</TABLE>
All other schedules are omitted because they are not required or not applicable
or the information is otherwise shown in the Consolidated Financial Statements
or notes thereto.
(3) Exhibits. See "Exhibit Index" on the pages following the
signatures.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K, dated September 9, 1997, to report the
sale of shares by Allan W. Lund and his family to LIH Holdings, LLC and to
report the change in the Company's fiscal year end from June 30 to December 31,
commencing December 31, 1997.
The Company filed a Report on Form 8-K, dated November 26, 1997, to report the
execution of an agreement and plan of merger by and among the Company, Zephyros
Acquisition Corporation, a wholly-owned subsidiary of the Company, and
Deflecta-Shield Corporation and to report the execution of an investment
agreement with LIH II, Inc., providing for the sale of 874,400 shares of the
Company's Common Stock and 1,493,398 shares of the Company's Series A Preferred
Stock to LIH II.
The Company filed a Report on Form 8-K, dated December 30, 1997, reporting on
the acquisition of 4,742,411 shares of Common Stock of Deflecta-Shield
Corporation for $16.00 net cash per share pursuant to a tender offer made by the
Company and the entering into by the Company of a loan agreement with Heller
Financial, Inc. for approximately $41,000,000.
<PAGE>
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.
LUND INTERNATIONAL HOLDINGS, INC.
By /s/ William J. McMahon
-------------------------------------
William J. McMahon
Chief Executive Officer and President
March 20, 1998
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 and
in the capacities and on the dates indicated.
/s/ William J. McMahon Chief Executive Officer March 20, 1998
- ------------------------------ President (Principal Executive
William J. McMahon Officer)
/s/ Jay M. Allsup Chief Financial Officer March 20, 1998
- ------------------------------ (Principal Financial Officer)
Jay M. Allsup
/s/ Lawrence C. Day Director March 20, 1998
- ------------------------------
Lawrence C. Day
/s/ David E. Dovenberg Director March 20, 1998
- ------------------------------
David E. Dovenberg
/s/ Ira D. Kleinman Director March 20, 1998
- ------------------------------
Ira D. Kleinman
/s/ Robert R. Schoeberl Director March 20, 1998
- ------------------------------
Robert R. Schoeberl
/s/ Dennis W. Vollmershausen Director March 20, 1998
- ------------------------------
Dennis W. Vollmershausen
/s/ Harvey J. Wertheim Director March 20, 1998
- ------------------------------
Harvey J. Wertheim
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Lund International Holdings, Inc.:
Our report on the consolidated financial statements of Lund International
Holdings, Inc. is included in this Form 10-K. In connection with our audit of
such financial statements, we have also audited the related financial statement
schedule for the six month period ended December 31, 1997 and for the fiscal
years ended June 30, 1997 and 1996 listed in Items 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 17, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lund International Holdings, Inc.:
Under date of August 11, 1995, we reported on the consolidated statements of
earnings, changes in stockholders' equity and cash flows of Lund International
Holdings, Inc. and subsidiaries for the year ended June 30, 1995, as contained
in the December 31, 1997 report on Form 10-K. In connection with our audit of
the aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedule as listed in the accompanying
index as of June 30, 1995 and for the year then ended. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audit.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the 1995 information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 11, 1995
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997 AND
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Balance at Charged to Charged to
beginning of cost and other accounts Balance at
Description year expenses Deductions end of year
- --------------------------- -------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Six months ended
December 31,
1997:
Allowance for
doubtful accounts $ 589,000 $ 78,000 $ 896,000 (2) $ ( 24,000) (1) $ 1,539,000
Year ended June 30, 1997:
Allowance for
doubtful accounts $ 720,000 --- --- $ (131,000) (1) $ 589,000
Year ended June 30, 1996:
Allowance for
doubtful accounts $ 532,000 $ 215,000 --- $ (27,000) (1) $ 720,000
Year ended June 30, 1995:
Allowance for
doubtful accounts $ 580,000 $ 29,000 --- $ (77,000) (1) $ 532,000
</TABLE>
(1) Represents accounts written off against the allowance, net of
recoveries.
(2) Represents the acquisition of Deflecta-Shield Corporation's allowance
for uncollectible accounts.
<PAGE>
EXHIBIT INDEX TO FORM 10-K
<TABLE>
<CAPTION>
FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1997 COMMISSION FILE NO: 0-16319
Exhibit Page Number or Incorporation by
Number Description Reference to
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated July Exhibit 2 of the Registrant's Registration
21, 1987, as amended as of August 20, 1987 and Statement on Form S-4
September 25, 1987, by and between Flex Reg. No. 33-16685
Corporation, Lund Industries, Incorporated and
Flex Acquisition Corp.
2.2 Articles of Merger of Flex Acquisition Corp. into Exhibit 2.2 of the Registrant's Form 10-K for the
Lund Industries, Incorporated fiscal year ended June 30, 1988, Commission File
No. 0-16319
3.1 Certificates of Incorporation of Registrant as Exhibit 19 of the Registrant's Form 10-Q for the
amended to date quarter ended December 31, 1987, Commission File
No. 0-16319
3.2 Bylaws Exhibit 3.2 of the Registrant's Registration
Statement on Form S-4, Reg. No. 33-16685
10.2 Assignment dated July 22, 1987, of certain U.S. Exhibit 10.3 of the Registrant's Registration
patents of Lund Industries, Incorporated by Allan Statement of Form S-4, Reg. No. 33-16685
W. Lund
10.3 Assignment of Certain Canadian Industries Designs Exhibit 10.4 of the Registrant's Registration
to Lund Industries, Incorporated by Allan W. Lund Statement of Form S-4
Reg. No. 33-16685
10.8 Incentive Stock Option Plan Exhibit 10.8 of the Registrant's Form 10-K for the
fiscal year ended June 30, 1989, Commission File
No. 0-16319
10.9 Revised specimen of form of option granted under
the Registrant's Incentive Stock Option Plan
10.18 1992 Non-Employee Director Stock Option Plan Exhibit 10.18 of the Registrant's Form 10-K for
the fiscal year ended June 30, 1992
<PAGE>
10.19 Employment letter with Jay M. Allsup, dated Exhibit 10.19 of the Registrant's Form 10-K for
September 16, 1993 the fiscal year ended June 30, 1994
10.20 Employment Agreement with William J. McMahon, Exhibit 10.20 of the Registrant's Form 10-K for
dated August 30, 1994 the fiscal year ended June 30, 1994
10.28 Bond Purchase Agreement Among Lund Industries, Exhibit 10.28 of the Registrant's Form 10-Q for
Incorporated; Lund International Holdings, Inc.; the quarter ended September 30, 1994
City of Anoka, Minnesota; and Piper Jaffray, Inc.,
dated September 22, 1994
10.29 1994 Incentive Stock Option Plan Exhibit 10.29 of the Registrant's Form 10-Q for
the quarter ended December 31, 1994
10.31 Employment Letter with William H. Toms, dated Exhibit 10.31 of the Registrant's Form 10-Q for
March 7, 1995 the quarter ended March 31, 1995
10.32 Supply agreement between Lund Industries, Exhibit 10.32 of the Registrant's Form 10-K for
Incorporated and GenCorp, Inc., dated June 1, 1995 the fiscal year ended June 30, 1995
10.33 Master Lease Agreement between LMI Funding Exhibit 10.33 of the Registrant's Form 10-Q for
Corporation and Lund Industries, Incorporated, the quarter ended September 30, 1995
dated August 1, 1995
10.34 Employment letter with Bradley W. Andress, dated Exhibit 10.34 of the Registrant's Form 10-Q for
October 11, 1995 the quarter ended September 30, 1995
10.35 Marketing Agreement, dated October 18, 1995, by Exhibit 10.35 of the Registrant's Form 10-Q for
and between Innovative Accessories, Incorporated the quarter ended September 30, 1995
and Lund Industries, Incorporated
10.36 Restated Exclusive Purchase Option Agreement, Exhibit 10.36 of the Registrant's Form 10-Q for
dated October 18, 1995, by and between Lund the quarter ended September 30, 1995
International Holdings, Inc., Innovative
Accessories, Incorporated and shareholders of
Innovative Accessories, Incorporated
<PAGE>
10.37 Employment and Non-Competition Agreement, dated Exhibit 10.37 of the Registrant's Form 10-Q for
October 18, 1995, by and between Innovative the quarter ended September 30, 1995
Accessories, Incorporated and James A. Nett
10.38 Interim Loan Agreement, dated November 7, 1995, by Exhibit 10.38 of the Registrant's Form 10-Q for
and between Innovative Accessories, Incorporated the quarter ended September 30, 1995
and Lund International Holdings, Inc.
10.39 Demand Promissory Note, dated November 7, 1995, Exhibit 10.39 of the Registrant's Form 10-Q for
between Innovative Accessories, Incorporated and the quarter ended September 30, 1995
Lund International Holdings, Inc.
10.40 Assignment of Patents, dated November 7, 1995, Exhibit 10.40 of the Registrant's Form 10-Q for
from James A. Nett to Lund International Holdings, the quarter ended September 30, 1995
Inc.
10.41 Loan Agreement, dated November 29, 1995, by and Exhibit 10.41 of the Registrant's Form 10-Q for
between Innovative Accessories, Incorporated and the quarter ended December 31, 1995
Lund International Holdings, Inc.
10.42 Revolving Promissory Note, dated November 29, Exhibit 10.42 of the Registrant's Form 10-Q for
1995, by and between Innovative Accessories, the quarter ended December 31, 1995
Incorporated and Lund International Holdings, Inc.
10.43 Security Agreement, dated November 29, 1995, by Exhibit 10.43 of the Registrant's Form 10-Q for
and between Innovative Accessories, Incorporated the quarter ended December 31, 1995
and Lund International Holdings, Inc.
10.44 Asset Purchase Agreement by and between Lund Exhibit 10.44 of the Registrant's Form 10-K for
Acquisition Corp., Innovative Accessories, the fiscal year ended June 30, 1996
Incorporated, Lund International Holdings, Inc.,
James A. Nett and Ramona C. Friar, dated March 29,
1996
<PAGE>
10.45 Assignment and Assumption of Real Property Lease Exhibit 10.45 of the Registrant's Form 10-K for
by and between Innovative Accessories, the fiscal year ended June 30, 1996
Incorporated and Lund Acquisition Corp., dated
June 3, 1996
10.46 Assignment of Intellectual Property Rights from Exhibit 10.46 of the Registrant's Form 10-K for
Innovative Accessories, Incorporated and James A. the fiscal year ended June 30, 1996
Nett to Lund Acquisition Corp., dated June 3, 1996
10.47 Stock Purchase Agreement, dated September 9, 1997, Exhibit 10.1 of the Registrant's Form 8-K dated
by and between LIH Holdings, LLC, Allan W. Lund, September 9, 1997
the Lund Family Limited Partnership, Lois and
Allan Lund Family Foundation and Certain Lund
Family Members
10.48 Governance Agreement, dated September 9, 1997, Exhibit 10.2 of the Registrant's Form 8-K dated
between Lund International Holdings, Inc. and LIH September 9, 1997
Holdings, LLC
10.49 Services Agreement, dated September 9, 1997, by Exhibit 10.3 of the Registrant's Form 8-K dated
and between Harvest Partners, Inc. and Lund September 9, 1997
International Holdings, Inc.
10.50 Severance and Noncompetition Agreement, dated Exhibit 10.4 of the Registrant's Form 8-K dated
September 9, 1997, by and between Lund September 9, 1997
International Holdings, Inc. and Allan W. Lund
10.51 Employment Agreement with Ken Holbrook, dated
March 1, 1998
10.52 Investment Agreement, dated November 25, 1997, by Exhibit 10.1 of the Registrant's Form 8-K dated
and between LIH Holdings II, LLC and Lund November 26, 1997
International Holdings, Inc.
10.53 Form of Amended and Restated Governance Agreement, Exhibit 10.2 of the Registrant's Form 8-K dated
dated November 25, 1997, by and between Lund November 26, 1997
International Holdings, Inc., LIH Holdings, LLC
and LIH Holdings II, LLC
<PAGE>
10.54 Agreement and Plan of Merger, dated as of November Exhibit (c)(1) of the Registrant's Schedule 14D-1,
25, 1997, by and between Lund International dated November 28, 1997
Holdings, Inc. Zephyros Acquisition Corporation
and Deflecta-Shield Corporation
10.55 Stockholders Agreement, dated as of November 25, Exhibit (c)(2) of the Registrant's Schedule 14D-1,
1997, by and between Lund International Holdings, dated November 28, 1997
Inc. and Mark C. Mamolen
10.56 Stockholders Agreement, dated as of November 25, Exhibit (c)(3) of the Registrant's Schedule 14D-1,
1997, by and between Lund International Holdings, dated November 28, 1997
Inc. and Charles S. Meyer
10.57 Tender Offer Loan Agreement, dated as of December Exhibit (c)(4) of the Registrant's Form 8-K, dated
30, 1997, by and between Lund International December 30, 1997
Holdings, Inc., Zephyros Acquisition Corp. and
Heller, as agent and as lender
10.58 Guaranty of Payment, dated as of December 30, Exhibit (c)(5) of the Registrant's Form 8-K, dated
1997, by Lund International Holdings, Inc., in December 30, 1997
favor of Heller, as agent for the benefit of the
lender
10.59 Pledge Agreement, dated as of December 30, 1997, Exhibit (c)(6) of the Registrant's Form 8-K, dated
by Lund International Holdings, Inc., in favor of December 30, 1997
Heller, as agent for the benefit of the lenders
10.60 Borrower Pledge Agreement, dated as of December Exhibit (c)(7) of the Registrant's Form 8-K, dated
30, 1997, by Zephyros Acquisition Corp., in favor December 30, 1997
of Heller, as agent for the benefit of the lenders
10.61 Warrant to Purchase Common Stock of Lund Exhibit (c)(8) of the Registrant's Form 8-K, dated
International Holdings, Inc., dated December 30, December 30, 1997
1997
10.62 Tender Offer Note, dated as of December 30, 1997, Exhibit (c)(9) of the Registrant's Form 8-K, dated
by Zephyros Acquisition Corp., for the maximum December 30, 1997
amount of $41 million
<PAGE>
16.1 Letter of KPMG Peat Marwick regarding change in Exhibit 16.1 of the Registrant's Form 10-K for the
Certifying Accountants fiscal year ended June 30, 1996
21 Subsidiaries of the registrant:
Name State or Jurisdiction of Incorporation
---- --------------------------------------
Lund Industries, Incorporated Minnesota
Lund FSC, Inc. Barbados
Lund Acquisition Corp. Minnesota
Deflecta-Shield Corporation Delaware
Belmor Autotron Corp. Delaware
DFM Corporation Iowa
Delta III, Inc. Delaware
Trailmaster Products, Inc. Delaware
BAC Acquisition Company Delaware
23.1 Consent of Independent Accountants - Coopers and
Lybrand L.L.P.
23.2 Independent Auditors' Consent - KPMG Peat Marwick
LLP
27 Financial Data Schedule
99 Independent Auditors' Report - KPMG Peat Marwick
LLP
</TABLE>
Exhibit 10.51
February 10, 1998
Ken Holbrook
6635 Wellesley Terrace
Clarkston MI 48346
RE: POSITION WITH LUND INTERNATIONAL HOLDINGS, INC.
Dear Ken:
As per our recent discussion, Lund International Holdings, Inc. is offering you
the position of Vice President of Sales. This correspondence sets out the terms
of our offer to you, except for the terms of our employee handbook, which
reflect policies and procedures of the Company, are subject to change, and apply
to you.
If the terms offered in this letter are acceptable to you, please sign the
letter at the bottom. We hope that you will accept our offer and look forward to
making you part of our management team.
POSITION: Vice President of Sales, which includes all sales functions for Lund
International Holdings, Inc. and all of its subsidiaries and divisions. Under
the current organizational structure, you will perform duties as directed by,
and report to, the Chief Operating Officer of the Company. The Company reserves
the right to add to or modify the job responsibilities commensurate with the
position of Vice President of Sales.
EFFECTIVE EMPLOYMENT START DATE: March 1, 1998
BASE SALARY: $150,000 on an annual basis
BONUS: You will be eligible for any bonus plan offered by the Company and will
be in the forty percent (40%) bonus bracket for the current Short Term Incentive
Plan for 1998. Lund International Holdings, Inc. reserves the right to change
the bonus plan at the end of any plan year as applied to the following or next
plan year. Also, each bonus plan will be evaluated for any particular year, and
it is understood that future bonus plans have not been adopted and have yet to
be determined or approved. However, you will be eligible for any bonus plan
offered to others senior executives who are in an equivalent position with the
Company.
BENEFITS: You are entitled to all benefits offered to other senior managers who
are in an equivalent position with the Company. In addition, you will receive
the special medical coverage, "Exec-u-care", provided to you as a member of the
Senior Management Team.
<PAGE>
STOCK OPTION PLAN: After you are hired, you are eligible for a total of Forty
Thousand (40,000) stock options of Lund International Holdings, Inc., at the
"fair market value", as defined in the plan, with Eight Thousand (8,000) vesting
on the anniversary date of your first full year of employment, and Eight
Thousand (8,000) vesting on your successive anniversary dates of employment
thereafter, until all options have vested. You must be employed on each
anniversary date with no break in service for the stock options to vest. The
stock options are subject to our employee incentive stock option plan and will
be issued according to its terms. A copy of the Company's employee incentive
stock option plan is included.
VACATIONS: You will be eligible for a three (3) week paid vacation, accruing
according to the Company's vacation benefits.
RELOCATION EXPENSES: You will be eligible for the Company's relocation program,
as modified from time to time by the Company. All reimbursed relocation expenses
will be "grossed up" on your year-end W-2 statement. A copy of the Company's
relocation policy has been provided to you.
AUTOMOBILE: During your term of employment with the Company, you will be
provided with a late model light truck or sport utility vehicle for your use at
Company expense, but the lease reimbursement amount to be made by the Company
will not exceed Six Hundred Dollars ($600.00) per month.
In the position of Vice President of Sales, you will be provided with
confidential, trade secret, and/or proprietary information of Lund International
Holdings, Inc., and its subsidiaries, whether actually merged or not, which
includes Lund Industries, Incorporated and/or any company acquired by Lund
International Holdings, Inc. or its subsidiaries (collectively referred to in
this letter as the "Company"). This includes, but is not limited to, the
following confidential, trade secret and/or proprietary information:
1. Sales activities, sales records, sales histories and/or how
sales have developed or changed in a particular geographical
area or market or for a particular product; customer lists
and/or vendor lists; and
2. The quantity of products purchased from the Company by its
customers and the prices paid, the Company's purchasing
activities, advertising and promotional activities, past and
present, potential sales and/or markets, market strategies;
and
3. Products' specifications, materials, costs; development of new
products; inventions, modifications of current products, and
information pertaining to all aspects of the Company's
research and development; and
4. The quantity of various products purchased from the Company
and/or the product mix as they relate to overall sales of all
products and/or a particular product; and
5. The reasons for the use by the Company of certain methods of
attachment of its products to the vehicles; manufacturing
processes
<PAGE>
and/or costs and/or time and/or labor studies; the products'
designs, dimensions, and tolerances; and
6. The quantity of materials purchased from suppliers and/or the
reason for the use of certain materials; and
7. Shipping methods, pricing, profit margins per products; and
8. The financial information which is not made public in the
Company's press releases, quarterly reports, Securities and
Exchange Filings and/or the Company's annual reports; and
9. Information concerning the Company's management, financial
conditions, financial operations, purchasing activities,
marketing plans, strategic plans, information systems,
communication systems, planning activities, operational
activities and plans, investor relations activities,
interdepartmental communication or operational communication
activities and business plans; and
10. All other types and categories of information which are
generally understood by persons involved in the automotive
industry and any manufacturing operations to be trade secrets,
and/or confidential information and/or proprietary
information.
You agree that you will not disclose or use at any time, only as limited by law,
in any manner any confidential trade secret and/or proprietary information as
defined in this letter, or elsewhere, or subsequently revealed to you to be
confidential, a trade secret or proprietary information.
You agree in the event your employment with the Company is terminated, whether
voluntarily or otherwise, that you, for a period of one (1) year from the date
of termination of your employment, shall not engage or participate in (whether
as an employee, shareholder, owner, officer, director, partner, consultant,
advisor, principal, agent, or in any other capacity) any business which engages
in the invention, design, development, marketing, and/or selling, and/or
manufacturing of products competitive with those which are then listed in the
Company's current catalogs or marketing materials, and/or such products which
the Company has, in the preceding one (1) year before your termination, or at
your termination from employment, under design, development, modification,
alteration, or purchase from another company, or for which conception has
occurred.
You further agree that you will not, for a period of one (1) year from the date
of your termination of employment with the Company, whether voluntarily or
otherwise, engage in or participate in, in any capacity, the solicitation of or
the attempt to solicit any product designer, supplier, customer and/or
manufacturer of the Company's that you have had contact with for the two (2)
years preceding your termination from employment.
You also agree that for a period of one (1) year from your termination from
employment with the Company, whether voluntarily or otherwise, that you will not
hire or offer to hire
<PAGE>
any of the Company's directors, officers, employees, and/or agents, or attempt
to and/or entice them to discontinue their relationship with the Company, and/or
attempt to divert and/or divert any product designer, customer, manufacturer or
supplier of the Company's.
Your obligations under this covenant not to compete shall apply to any
geographical area in which the Company has engaged in business before and during
your employment through production, operations, promotional, sales or marketing
activities, or has otherwise established its good will, business reputation, or
any product designer or customer or supplier relations, during the two (2) years
preceding your termination from employment.
These confidentiality and non-compete terms of this agreement extend beyond the
termination of your employment and shall continue in full force and effect after
the termination of your employment or this agreement. You agree to always keep
confidential and to not use any trade secret and/or proprietary information, as
limited by applicable law.
You agree that at the time of your termination of employment with the Company,
that you will promptly deliver to the Company all confidential, trade secret, or
proprietary information and all Company property, equipment and materials.
This agreement refers to Lund International Holdings, Inc. and its subsidiaries,
because you will be privy to all operations of Lund International Holdings, Inc.
and its subsidiaries' confidential information, operations and trade secret or
proprietary information.
If you accept Lund International Holdings, Inc.'s offer of employment, you
understand that it is not for a particular time period, and that either you or
Lund International Holdings, Inc. may terminate the employment relationship at
any time for any reason or no reason. This agreement is not to be interpreted as
an agreement for continued employment, because either party may terminate it at
any time. In the event you are terminated without cause, you shall be paid,
exclusive of any bonuses or other remuneration, nine (9) months of your base
salary effective on the date of termination, if you sign a full and complete
release of all claims against the Company. However, you will not be entitled in
any way to nine (9) months of your base salary, if you voluntarily terminate
your employment with the Company or you are terminated for cause, or you decline
to execute the full and final release.
It is Lund International Holdings, Inc.'s understanding that you are not subject
to any agreements or restrictions arising out of any prior employment or
consulting relationship, and that by accepting this offer of employment, you
will not be breaching or violating any other obligations. If any breach of a
prior obligation occurs, Lund reserves the right to withdraw this employment
offer.
This agreement may be severed, if any portion is determined to be unenforceable
or void, with the other terms remaining in full force and effect. Also, this
agreement will be interpreted under the laws of the State of Minnesota and the
United States of America, and is binding on the parties, their heirs,
successors, personal representative and assigns. This agreement supersedes and
revokes or voids all other offers, or
<PAGE>
agreements, oral or written made by Lund International Holdings, Inc. regarding
any position with Lund International Holdings, Inc. or any of its subsidiaries.
Please accept our offer for the position of Vice President of Sales by executing
this agreement at the bottom. Thank you for your time and interest in employment
with Lund International Holdings, Inc. Please feel free to call me at your
convenience if you have any questions. I look forward to your response in the
very near future.
Sincerely,
/s/ William J. McMahon
William J. McMahon
Chief Executive Officer
Accepted by: /s/ Kenneth L. Holbrook
Kenneth L. Holbrook
Dated: _______________________
<PAGE>
POLICY/PROCEDURE
Process: Employee Transfer/Relocation Expenses
Policy No.: HR0008
Revision No.: 1
Date 8/20/97
Authorization
1.0 OBJECTIVE
To provide assistance to an employee when transferred.
2.0 SCOPE
The area senior manager secures approval from the CEO prior to any
relocation. The Human Resources Department coordinates activities.
Accounting is provided a budget from the area senior manager and Human
Resources. This policy applies to any transfers when the distance is
greater than 100 miles.
3.0 POLICY
3.1 The company pays a seller's customary closing costs in the
case of a home sale.
3.2 The company pays a customary Realtor's fee in the case of a
home sale.
3.3 The company pays reasonable moving expenses including
packaging and unpackaging of household goods. The moving
company is contracted for by the company.
3.4 The company pays for reasonable temporary housing up to three
months duration.
3.5 The company pays a meal per diem of $25 while the employee is
provided temporary housing.
3.6 The company provides for two visits per month to the
employee's home at the company's expense.
3.7 The company provides for two home buying/rental trips for the
employee and spouse at the company's expense.
3.8 The company provides up to 1% in loan commitment fees when the
employee purchases a home.
3.9 The company provides a bridge loan under certain circumstances
and at current market rates to assist an employee in the
purchase of a home.
3.10 The company provides a flat payment of 2% of base annual
salary for incidental moving and relocation expenses paid at
closing or equivalent time.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Lund International Holdings, Inc. on Forms S-3 and S-8 (File Nos. 33-78140,
333-46263, 33-64083 and 33-37160) of our reports dated March 17, 1998, on our
audits of the consolidated financial statements and financial statement schedule
of Lund International Holdings, Inc. as of December 31, 1997, June 30, 1997 and
June 30, 1996, and for the six-month period ended December 31, 1997, and for the
years ended June 30, 1997 and 1996, which reports are included in this Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 25, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lund International Holdings, Inc.:
We consent to incorporation by reference in the registration statements (File
Nos. 33-78140, 333-46263, 33-64083 and 33-37160) on Forms S-3 and S-8 of Lund
International Holdings, Inc. of our report dated August 11, 1995, relating to
the consolidated statements of earnings, changes in stockholders' equity and
cash flows of Lund International Holdings, Inc. for the year ended June 30, 1995
and related financial statement schedule as of June 30, 1995 and for the year
then ended, which reports appear in the December 31, 1997 report on Form 10-K of
Lund International Holdings, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 20, 1998
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Lund International Holdings, Inc.
We have audited the consolidated statements of earnings, changes in
stockholders' equity and cash flows of Lund International Holdings, Inc. and
subsidiaries for the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Lund International Holdings, Inc. and subsidiaries for the year ended June 30,
1995 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 11, 1995
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