UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission File Number 0-16319
LUND INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1568618
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
911 LUND BOULEVARD
ANOKA, MINNESOTA 55303
Registrant's telephone number, including area code: (612) 576-4200
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
As of May 15, 1999, 6,310,782 shares of the registrant's common stock, $.10 par
value, 1,493,398 shares of the Company's Class B-1 common stock, $.01 par value,
and 323,830.3 shares of Series B Preferred Stock, $.01 par value, were issued
and outstanding.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1-2
March 31, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Operations (Unaudited) 3
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows (Unaudited) 4
Three Months Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited) 5-7
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of Financial 9-16
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibits 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 1,264 $ 1,191
Restricted cash 3,911 --
Accounts receivable, net 35,353 33,389
Inventories 23,556 21,771
Deferred income taxes 4,473 4,300
Other current assets 2,441 2,553
------------ ------------
Total current assets 70,998 63,204
Property and equipment, net 32,310 29,568
Intangibles, net 129,166 119,834
Restricted cash -- 3,911
Other assets 4,278 4,840
------------ ------------
Total assets $ 236,752 $ 221,357
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
1
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
($ in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 8,355 $ 6,466
Accrued expenses 14,011 17,750
Long-term debt, current portion 9,093 4,251
------------ ------------
Total current liabilities 31,459 28,467
Long-term debt, less current portion 106,782 99,796
Deferred income taxes 6,362 6,600
Other liabilities 593 607
------------ ------------
Total liabilities 145,196 135,470
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock-Series B, $.01 par value;
authorized 363 shares; 324 issued and outstanding at March 31,
1999, 252 issued and outstanding at December 31, 1998 3 2
Common stock, $.10 par value;
authorized 25,000 shares; 6,311 issued and outstanding
at March 31, 1999 and December 31, 1998 631 631
Class B-1 common stock, $.01 par value;
authorized 3,000 shares; 1,493 issued and outstanding
at March 31, 1999 and December 31, 1998 15 15
Additional paid-in capital 64,432 58,164
Retained earnings 26,475 27,075
------------ ------------
Total stockholders' equity 91,556 85,887
------------ ------------
Total liabilities and stockholders' equity $ 236,752 $ 221,357
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except per share data)
Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
Net sales $ 44,402 $ 27,185
Cost of goods sold 31,950 19,221
------------ ------------
Gross profit 12,452 7,964
Operating expenses:
General and administrative 3,707 2,567
Selling and marketing 4,763 3,276
Research and development 898 756
Amortization of intangibles 1,297 581
------------ ------------
Total operating expenses 10,665 7,180
------------ ------------
Income from operations 1,787 784
Other (expense) income, net:
Interest expense (3,063) (1,348)
Other, net 26 57
------------ ------------
Other (expense) income, net (3,037) (1,291)
------------ ------------
Loss before income taxes (1,250) (507)
Income tax benefit (650) (246)
------------ ------------
Net loss $ (600) $ (261)
============ ============
Basic net loss per share $ (0.08) $ (0.05)
============ ============
Diluted net loss per share $ (0.08) $ (0.05)
============ ============
Weighted average common shares 7,804 5,263
============ ============
Weighted average common and
common equivalent shares 7,804 5,263
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (600) $ (261)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 1,451 870
Amortization 1,595 683
Deferred income taxes (471) 87
Provision for doubtful account reserves 102 51
Provision for inventory reserves 69
Other (32) (2)
Changes in operating assets and liabilities:
Accounts receivable 193 155
Inventories 1,754 (161)
Other assets 1,077 (287)
Accounts payable, trade 61 (2,029)
Accrued expenses (2,901) (6,783)
Other liabilities (14) (17)
------------ ------------
Net cash provided by (used in) operating activities 2,284 (7,694)
------------ ------------
Cash flows from investing activities:
Purchase of Deflecta-Shield common stock -- (2,840)
Purchase of Smittybilt common stock (16,749) --
Purchases of property and equipment (1,152) (946)
Change in cash and marketable securities -- 919
Proceeds from sales of property and equipment 64 --
Other investing activities, net 938 --
------------ ------------
Net cash used in investing activities (16,899) (2,867)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (4,853) (48,315)
Proceeds from long-term debt 15,871 53,107
Checks issued in excess of bank balances (1,015) 708
Proceeds from issuance of preferred stock 5,000 --
Payment of other liabilities -- (16)
Debt issuance costs (315) (738)
------------ ------------
Net cash provided by financing activities 14,688 4,746
------------ ------------
Net increase (decrease) in cash and
temporary cash investments 73 (5,815)
Cash and temporary cash investments:
Beginning of period 1,191 6,790
------------ ------------
End of period $ 1,264 $ 975
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
A - Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Lund
International Holdings, Inc. and its subsidiaries, Lund Industries,
Incorporated, Deflecta-Shield Corporation (and its subsidiaries), Ventshade
Holdings, Inc. (and its subsidiary), and Smittybilt, Inc. (collectively referred
to as the "Company"). The condensed consolidated balance sheet as of March 31,
1999, the consolidated statements of operations for the three months ended March
31, 1999 and 1998, and the consolidated statements of cash flows for the three
months ended March 31, 1999 and 1998 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. The results of operations for any interim period are not
necessarily indicative of results for the full year.
The December 31, 1998 condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and related notes for the year ended December 31, 1998, which were included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
The financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the Company's annual financial
statements and notes.
B - Acquisitions
On December 23, 1998, the Company, through a wholly-owned subsidiary, acquired
all of the issued and outstanding capital stock of Ventshade Holdings, Inc.
("Ventshade"), a manufacturer and supplier to the automotive aftermarket of
shades, visors, deflectors, and light covers for pick-up trucks, sport utility
vehicles, minivans, and passenger cars. The aggregate purchase price of
approximately $69.4 million consisted of an initial purchase price of $66.9
million, direct transaction costs of $1.8 million, and a working capital
adjustment of $.7 million. The funds for the acquisition were obtained from (i)
the issuance of common and preferred stock for aggregate gross proceeds of $25.0
million, (ii) proceeds from a new term loan to the Company of $25.0 million,
(iii) $20.0 million gross proceeds from the issuance of 12.5% senior
subordinated notes, and (iv) seller financing of approximately $.9 million.
On January 29, 1999, the Company, through a wholly-owned subsidiary, acquired
all of the issued and outstanding common stock of Smittybilt, Inc.
("Smittybilt"), a manufacturer and supplier of tubular accessory products for
light trucks, including tubular steps, brush guards, bumpers and nerf bars. The
aggregate purchase price of approximately $19.0 million consisted of an initial
purchase price of $16.0 million, assumed debt of $2.0 million and direct
transactions costs of $1.0 million. The acquisition was financed by (i) the
issuance of preferred stock for $5.0 million, (ii) senior lender financing of
$9.5 million, and (iii) and $5.0 million from the Company's senior subordinated
note holder.
5
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
In conjunction with the debt financing from the senior subordinated note
holders, the Company issued warrants to purchase 704,839 shares of the Company's
Common Stock at $.11 per share, or 70,483.9 shares of Series B Preferred Stock,
at $1.10 per share. These warrants were valued at $3,868 at the date of issuance
and are reflected as a component of additional paid-in capital. The amount is
also presented as a note discount and is being amortized to interest expense
using the straight-line method, which approximates the effective interest
method.
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of the Company as if the Ventshade and
Smittybilt acquisitions had occurred as of January 1, 1998, 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 the
Company had the acquired businesses operated as part of the Company for the
period presented.
March 31, March 31,
1999 1998
------------ ------------
Net sales $ 45,582 $ 43,150
Net loss (877) (804)
Basic and diluted net loss per share (.11) (.10)
C - Inventories
Inventories consisted of the following:
March 31, December 31,
1999 1998
------------ ------------
Raw materials $ 9,634 $ 11,084
Finished goods and work in process 13,922 10,687
------------ ------------
$ 23,556 $ 21,771
============ ============
D - Segment Reporting
The Company's business activities are organized around three (3) primary
business units: light truck, suspension, and heavy truck. Internal reporting
conforms to this organizational structure with no significant differences in
accounting policies applied. The Company allocates resources to each business
unit based on net sales and net employed capital which is defined as current
assets; property, plant and equipment, net; other assets excluding deferred
taxes and goodwill and other intangibles; less current liabilities and other
liabilities excluding deferred taxes and debt. The Company's business is the
design, manufacture, marketing, and distribution of automotive accessories. In
so doing, the Company's business units are divided into automotive appearance
accessories for light trucks, sport utility vehicles and vans; appearance
accessories for heavy trucks; and suspension systems for light trucks and sport
utility vehicles. A summary of the Company's business activities reported by its
three business segments for the three month periods ended March 31, 1999 and
1998 is as follows:
6
<PAGE>
Three Months Ended March 31,
------------------------------
1999 1998
------------ ------------
NET SALES:
Light truck $ 37,171 $ 20,771
Heavy truck 4,556 3,962
Suspension 2,675 2,452
------------ ------------
Total 44,402 27,185
------------ ------------
INCOME (LOSS) FROM OPERATIONS:
Light truck 285 (661)
Heavy truck 1,253 1,173
Suspension 249 272
------------ ------------
Total 1,787 784
Other income (expense):
Interest expense (3,063) (1,348)
Other, net 26 57
------------ ------------
LOSS BEFORE INCOME TAXES (1,250) (507)
Income tax benefit (650) (246)
------------ ------------
NET LOSS $ (600) $ (261)
============ ============
E - Earnings per share
Basic EPS is calculated as net (loss) income divided by weighted average common
shares outstanding. The Company's dilutive securities are primarily issuable
under the Incentive Stock Option Plans, the Non-Employee Director Stock Option
Plan, stock warrants and preferred 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 calculation would be
anti-dilutive.
F - Comprehensive income
There was no other comprehensive income in the three months ended March 31, 1998
or 1999.
* * * * *
PricewaterhouseCoopers LLP, the Company's independent accountants, have
performed a review of the unaudited interim consolidated financial statements
included herein and their report thereon accompanies this filing.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lund International Holdings, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Lund
International Holdings, Inc. (the Company) as of March 31, 1999, and the related
consolidated statements of operations and cash flows for the three months ended
March 31, 1999 and 1998. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for the financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended (not presented herein); and in our report
dated February 19, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1998,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
April 27, 1999
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
($ in thousands except per share amounts)
GENERAL OVERVIEW:
Lund International Holdings, Inc. (the "Company"), through its wholly-owned
subsidiaries, Lund Industries, Incorporated ("Lund"), Deflecta-Shield
Corporation and its subsidiaries ("Deflecta-Shield"), Ventshade Holdings, Inc.
and its subsidiary ("Ventshade"), and Smittybilt, Inc. ("Smittybilt") designs,
manufactures, markets and distributes appearance automotive aftermarket
accessories and other products for light trucks, sport utility vehicles and vans
("light trucks"), for passenger cars, and for heavy trucks. The products
directed at the light truck and automobile market include window vent visors,
external visors, hood shields/bug deflectors, running boards, tonneau covers,
aluminum storage boxes, tubular products, and other appearance accessories. In
addition, the Company is a leading original equipment manufacturer ("OEM") of
accessories for the light truck and heavy truck markets and also supplies
suspension systems for light trucks.
On December 23, 1998 and January 28, 1999, the Company acquired 100% of the
outstanding capital stock of Ventshade and Smittybilt, respectively (the
"Acquisitions"). The Acquisitions were accounted for under the purchase method
of accounting, which required the Company to recognize an $880 increase in cost
of goods sold in the first quarter of 1999 to reflect the write-up of the
Acquisitions' finished goods and work-in-process acquired by the Company. The
purchase method of accounting for the Acquisitions also resulted in recording
fair value adjustments to molds and dies, goodwill and other intangible assets
of approximately $56.2 million with depreciation and amortization periods
ranging from 4 to 40 years. For the three months ending March 31, 1999, the
Company's consolidated results of operations and consolidated statement of cash
flows include Ventshade for the entire period and Smittybilt from its date of
acquisition of January 28, 1999 to March 31, 1999.
In order to finance the Acquisitions, the Company sold shares of common and
preferred stock for $30.0 million and received financing of $34.5 million from
its primary senior lender, seller financing of approximately $.9 million and
financing of $25.0 million from senior subordinated lenders with warrants to
purchase 704,839 shares of Common Stock, or 70,483.9 shares of Series B
Preferred Stock.
On January 31, 1999, the Company sold the assets of its specialty fiberglass and
plastics division in Compton, California for approximately $1.0 million. The
loss on sale of these assets was not material.
RESULTS OF OPERATIONS:
Certain 1998 pro forma information is included for comparative purposes to
provide information comparable to the first quarter 1999 actual information. To
provide comparable 1998 information, the pro forma information assumes the
acquisition of Ventshade was completed on January 1, 1998 and the acquisition of
Smittybilt and sale of Fibernetics were completed on February 1, 1998.
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------
1999 1998 1998
Actual Actual Pro forma
------ ------ ---------
<S> <C> <C> <C>
NET SALES:
Light truck $ 37,171 $ 20,771 $ 34,188
Heavy truck 4,556 3,962 3,962
Suspension 2,675 2,452 2,452
------------ ------------ ------------
Total 44,402 27,185 40,602
============ ============ ============
INCOME (LOSS) FROM OPERATIONS:
Light truck 285 (661) 331
Heavy truck 1,253 1,173 1,131
Suspension 249 272 254
------------ ------------ ------------
Total 1,787 784 1,716
Other income (expense):
Interest expense (3,063) (1,348) (2,958)
Other, net 26 57 58
------------ ------------ ------------
LOSS BEFORE INCOME TAXES $ (1,250) $ (507) $ (1,184)
============ ============ ============
</TABLE>
The following tables set forth the percentage relationship to net sales of
certain items in the Company's consolidated statements of operations for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------------------------------------------------
1999 1998 1998
Actual Actual Pro forma
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $44,402 100.0 % $27,185 100.0 % $40,602 100.0 %
Gross profit 12,452 28.0 7,964 29.3 11,599 28.6
General and administrative 3,707 8.4 2,567 9.4 3,530 8.7
Selling and marketing 4,763 10.7 3,276 12.1 4,267 10.5
Research and development 898 2.0 756 2.8 792 2.0
Amortization of intangibles 1,297 2.9 581 2.1 1,294 3.2
Income from operations 1,787 4.0 784 2.9 1,716 4.2
Other (expense) income, net (3,037) (6.8) (1,291) (4.7) (2,900) (7.1)
Income tax benefit (650) (1.5) (246) (.9) (336) (.8)
Net loss $ (600) (1.3)% $ (261) (.9)% $ (848) (2.1)%
</TABLE>
10
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
(ACTUAL AND PRO FORMA)
NET SALES: Net sales for the three months ended March 31, 1999 were $44,402, an
increase of $17,217 over net sales of $27,185 for the three months ended March
31, 1998, primarily reflecting the consolidation of Ventshade and Smittybilt in
1999. Compared to 1998 pro forma, consolidated net sales increased $3,800, or
9.4%, with the increased net sales broken down by business unit: (i) light truck
at $2,983, or 8.7%, (ii) heavy truck at $594, or 15.0%, and (iii) suspension at
$223, or 9.1%. In the light truck category, increases were recorded in hood
shields and bug deflectors, ventvisors, headlight and taillight covers, aluminum
tool boxes, tubular products, and other appearance accessories while net sales
decreased in external visors, running boards, and tonneau covers. The
aftermarket demand for external visors and running boards for light trucks is
declining due to factory installation.
COST OF GOODS SOLD AND GROSS PROFIT: The gross profit margin for the three
months ended March 31, 1999 was 28.0% compared to 29.3% for the three months
ended March 31, 1998. The gross profit margin for the three months ended March
31, 1998 on a pro forma basis was 28.6%. The slight decrease in gross profit
margin in 1999 compared to pro forma 1998 is primarily attributable to a sales
shift in product mix to lower margin products, duplicate warehouse costs as the
Company transitions from its Iowa distribution facility to its new Minnesota
distribution facility, and increased promotional discounts. In addition, cost of
goods sold for the three months ended March 31, 1999 includes $880 related to a
fair value adjustment of inventories related to the Acquisitions. The comparable
1998 quarter included a $572 increase in cost of goods sold related to a fair
value adjustment of inventories for the Deflecta-Shield acquisition.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$3,707, or 8.4% of net sales for the three months ended March 31, 1999, compared
to $2,567, or 9.4% of net sales for the comparable three month period ended
March 31, 1998. On a pro forma basis for 1998, general and administrative
expenses were $3,530, or 8.7% of net sales. The increase of $177 for the three
months ended March 31, 1999 over the 1998 comparable pro forma period is due to
higher bonus accruals in business units that are out-performing their 1999
operating plan, added headcount in corporate human resources, and the
incremental cost of converting all Deflecta-Shield locations to one data
processing platform and information system.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $4,763, or
10.7% of net sales for the three months ended March 31, 1999, compared to
$3,276, or 12.1% of net sales for the three months ended March 31, 1998. Selling
and marketing expenses were $4,267, or 10.5% of net sales for the 1998
comparable pro forma period. The increase of $496 in 1999 from the 1998 pro
forma period is the result of promotional costs in new retail accounts and
volume-related expenses such as commissions and coop advertising.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $898,
or 2.0% of net sales for the three months ended March 31, 1999, compared to
$756, or 2.8% of net sales for the three months ended March 31, 1998. On a pro
forma basis, research and development expenses were $792, or 2.0% of net sales
for the three months ended March 31, 1998. The increase of $106 in 1999 over the
comparable 1998 pro forma period is the result of enhancements in product
development capabilities related to the Acquisitions.
11
<PAGE>
AMORTIZATION OF INTANGIBLES: Amortization expense was $1,297 for the three
months ended March 31, 1999, compared to $581 for the three months ended March
31, 1998. The increase in amortization in 1999 reflects the allocation of the
Acquisitions' purchase price to goodwill, customer lists, work force in place,
and non-compete agreements.
INCOME FROM OPERATIONS: Income from operations for the three months ended March
31, 1999 has increased $1,003 over the three months ended March 31, 1998,
primarily as a result of new Acquisitions in the light truck business unit.
Compared to the same 1998 pro forma period, income from operations has increased
$71, or 4.1%, due to gains in the heavy truck division.
OTHER INCOME (EXPENSE), NET: Other (expense) income, net, was $3,037 of expense
for the three months ended March 31, 1999, compared to $1,291 of expense for the
three months ended March 31, 1998. On a pro forma basis for the comparable
period of 1998, other (expense) income, net, was $2,900 of expense. The increase
in expense in 1999 and pro forma 1998 over actual 1998 reflects the increased
interest on borrowings to finance the Acquisitions.
INCOME TAX BENEFIT: For the three months ended March 31, 1999, the Company
recorded a tax benefit of $650 resulting in an effective income tax rate of 52%.
The Company's effective tax rate is substantially higher than the statutory
federal tax rate of 34% due to the amortization of non-tax deductible goodwill
recorded in connection with the Acquisitions and the 1997 acquisition of
Deflecta-Shield.
NET LOSS PER SHARE: The Company's net loss for the three months ended March 31,
1999 increased $339 to a net loss of $600, or $.08 per share, from a net loss of
$261, or $.05 per share, for the three months ended March 31, 1998. On a pro
forma basis, the net loss was $848, or $.11 per share, for the comparable period
of 1998.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operating activities was $2,284 for the quarter ended March
31,1999, compared to cash used in operating activities of $7,694 for the quarter
ended March 31, 1998. The significant use of cash from operating activities in
1998 was the payment of Deflecta-Shield's acquisition-related liabilities in
1998 for settlement of stock options and acquisition fees.
Cash used in investing activities was $16,899 and $2,867 for the quarters ended
March 31, 1999 and 1998, respectively. The 1999 investing activity reflects the
acquisition of Smittybilt while the 1998 investing activity reflects the
purchase of the remaining 1.2% of Deflecta-Shield's common stock.
Cash provided by financing activities of $14,688 for the quarter ended March 31,
1999 reflects proceeds from sale of the Company's preferred stock and borrowings
under the Company's credit facilities to purchase all the outstanding shares of
Smittybilt. In 1998, cash provided by financing activities of $4,746 reflects
the increased borrowings to pay off the Company's interim tender loan facility
and Deflecta-Shield's revolving credit loan and related acquisition costs and
expenses.
12
<PAGE>
The Company believes that its revolving credit facility of $30 million and
operating cash flows will be sufficient to satisfy its working capital
requirements, required debt principal payments and operating capital
expenditures. The Company's availability of funds under its revolving credit
line is based on a percentage of eligible inventories and receivables. As of
March 31, 1999, the Company had borrowed $14,638 under its revolving credit line
and had availability of $15,362.
The consolidated balance sheets indicate that total assets have increased
$15,395 from $221,357 at December 31, 1998 to $236,752 at March 31, 1999. The
increase in assets predominately reflects the acquisition and consolidation of
Smittybilt in 1999.
OUTLOOK:
The acquisitions of Ventshade in 1998 and Smittybilt in 1999 brought to the
Company significant new product lines, outstanding customer service levels,
operational strengths to address new production methods, enhanced design and
engineering capabilities, and new market channels. Historically, the Company
distributed its products principally through warehouse distributors. With
increased sales of light trucks over the past few years, mass merchandisers,
national automotive retailers and original equipment manufacturers ("OEMs") are
participating more and more in the distribution of automotive appearance
accessories.
The impact of increased channel competition is shifting a portion of sales away
from warehouse distributors to national automotive retailers, mass
merchandisers, and OEM channels. This shift has resulted in increased
competition within the warehouse distributor channel and created pricing
pressures, especially as it relates to the Company's plastic and fiberglass
product lines. The Company has a strong presence with the majority of the
warehouse distributors and an OEM presence in both the light truck and heavy
truck markets, especially in key product lines such as bug shields/hood
protectors and aluminum products. Ventshade strengthened the Company's presence
the light truck markets with its key product lines such as bugflectors,
ventshades, and ventvisors. In addition, Ventshade contributed an increased
presence in the mass merchandiser and retail specialty markets. Smittybilt
enhanced the Company's product line with its chromed and painted tubular
accessory products.
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
efficiencies, consolidation of purchasing and quality improvements through
improved engineering and QS9000 initiatives.
In the quarter ended March 31, 1999, the Company continued with (i) integration
of its information systems into a single platform for Lund and Deflecta-Shield,
with expected completion in mid-1999, (ii) consolidation of Deflecta-Shield's
Iowa warehouse into Minnesota, which was completed in April 1999, and (iii)
divestiture of an unprofitable custom fiberglass and plastic operation which was
completed January 31, 1999. While the Company anticipates that each of the
aforementioned events will result in future benefits to the Company in 1999,
such benefits did not occur in the quarter ending March 31,
13
<PAGE>
1999. However, the negative impact on earnings for the three months ending March
31, 1999 was anticipated in the Company's 1999 operating plan.
While the Company remains committed to continued growth through acquisitions,
the Company currently is not actively engaged in negotiations regarding any
additional acquisitions.
YEAR 2000 COMPLIANCE:
Many financial information and operational systems in use today may not be able
to interpret dates after December 31, 1999 because such systems allow only two
digits to indicate the year in a date. As a result, such systems are unable to
distinguish January 1, 2000 from January 1, 1900, which could have adverse
consequences on the operations of an entity and the integrity of information
processing. This potential problem is referred to as the "Year 2000" or "Y2K"
issue.
State Of Readiness
In April 1998, the Company upgraded its central processor in its Minnesota
headquarters and by June 1998, the Company had implemented a century-dated
version of its new BPCS software. Consequently, by June 1998, the central
processor and the business operating system of the Company in its Minnesota
headquarters were Y2K compliant for its main information technology ("IT")
system. Simultaneously, in the first quarter of 1998, the Company embarked on
Y2K planning dedicated to systematically integrating the operations that were
acquired with the acquisition of Deflecta-Shield. At the time of the
acquisition, each Deflecta-Shield entity operated its own business system, none
of which were Y2K compliant. To date, four of the five Deflecta-Shield entities
have been converted to the Company's IT systems that are Y2K compliant. The
remaining entity is scheduled for conversion to Y2K compliant technology August
1, 1999. At the same time, with each conversion to the Company's IT system,
network topology and desktop computing is upgraded. All servers and software are
Y2K compliant. Thus, with each conversion and cut over to BPCS, the business
operating system, the WAN/LAN topology, and desktop computing of each operating
entity will be Y2K compliant.
Beyond the activities of conversion and cut over to BPCS, the Y2K plan consists
of a five-step process: inventory, assessment, planning, remediation, and
testing. The Company has virtually completed its inventory of IT and non-IT
systems and is currently assessing and documenting Y2K compliance. Letters to
primary business partners, such as customers, suppliers, and financial
institutions, will be mailed during May of 1999 requesting certain Y2K
information.
The Company has also inventoried non-IT micro-controlled equipment, such as
production equipment and security systems, and is currently assessing any
potential vulnerability. At the present time, the Company believes there are no
significant issues relating to plant production equipment. Plant operations are,
in general, not computer controlled since manufacturing processes are discrete
and based on work center or cell. None of the Company's products include any
microcontrollers.
The two recent acquisitions, Ventshade and Smittybilt, are Y2K compliant in
terms of business operating system and central processors. The Company is
currently inventorying their desktop hardware and software, although it expects
no material issues from any of the equipment.
14
<PAGE>
The Company completed its assessment in April 1999, with any remediation to IT
and non-IT equipment to begin in June 1999. In terms of trading partner
readiness to process in the year 2000, the Company is beginning to assess their
capabilities through responses to questionnaires.
Cost
The Company anticipates a total cost of approximately $1.0 million over 1998 and
1999, of which a portion will be capitalized and the remainder charged to
earnings in the respective years. The Company does not expect these activities
to materially impact earnings.
Risks
Under a hypothetical scenario where unknown elements are not Y2K compliant, the
Company may not be able to perform the following functions, among others:
1. Transact at certain workstations through lack of desktop readiness.
2. Receive phone calls at certain outlying locations (the phone system at the
Company's Minnesota headquarters is Y2K compliant).
3. Conduct the following transactions where third party software is used to
conduct business:
a. Bar code labeling
b. EDI communication
c. Payroll
d. Small package shipments
The above are considered risks because they have not been completely assessed.
However, preliminary data indicates that no significant risks exist within any
of these environments. The Company's assessment is expected to be completed by
September 1999.
Contingency Plans
The Company's contingency plans assume that all unknowns are not Y2K compliant.
Issue Contingency plan
- ----- ----------------
Desktop not compliant Purchase new PC's/software or BIOS upgrades
Phone systems not compliant Purchase new system or change out certain elements
Bar Code labeling Purchase new software or upgrade existing
EDI communication Purchase new software or upgrade existing
Payroll Purchase new software or upgrade existing
Small package shipments Purchase new software or upgrade existing
In each of these cases, the Company prefers to upgrade existing software in
order to minimize additional programming work incurred through the
implementation of different software.
15
<PAGE>
FINANCIAL INSTRUMENTS MARKET RISK:
The Company's financial instruments include cash, accounts receivable, accounts
payable and long-term debt. The Company is exposed to interest rate risk arising
from transactions that are entered into during the normal course of business.
The Company's borrowings and its revolving line of credit are dependent upon the
prime interest and LIBOR rates. The estimated fair value of long-term debt
approximates its carrying value at March 31, 1999. The Company does not enter
into hedging or derivative instruments.
EFFECTS OF INFLATION:
Although increases in costs of certain materials and labor could adversely
affect operations, the Company generally has been able to increase its selling
prices to offset increased costs. Price competition, however, particularly in
the plastic and fiberglass product lines, could affect the ability of the
Company to increase its selling prices to reflect such increased costs. In
general, management believes that the relatively moderate inflation over the
last few years did not have a significant impact on the Company's net sales, but
that increasing raw material prices and labor costs had an impact on gross
profit.
FORWARD LOOKING STATEMENTS:
Statements made herein relating to future financial results, the effects of the
acquisitions, Company operations, trends and market analysis, Year 2000
compliance, among others, and statements which use the words "believe",
"anticipate", "expect", or similar words, are forward-looking statements made
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. With respect to the Company's acquisitions, among the
factors that could cause anticipated results 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
acquired companies or to control costs associated with such integration; and the
representations, warranties and covenants made in the merger and purchase
agreements proving to be materially untrue. In addition, Lund's,
Deflecta-Shield's, Ventshade's, and Smittybilt'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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
15 An awareness letter from the Company's independent accountants
regarding unaudited interim financial statements.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 6, 1999, with respect to
the acquisition of Ventshade Holdings, Inc.
A report on Form 8-K was filed on February 12, 1999, with respect to
the acquisition of Smittybilt, Inc.
A report on Form 8-K/A was filed on March 8, 1999, with respect to
the pro forma financial statements, financial information and
exhibits in connection with a report on Form 8-K, filed on January
6, 1999, with respect to the acquisition of Ventshade Holdings, Inc.
A report on Form 8-K/A was filed on April 13, 1999, with respect to
the pro forma financial statements, financial information and
exhibits in connection with a report on Form 8-K, filed on February
12, 1999, with respect to the acquisition of Smittybilt, Inc.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1999
LUND INTERNATIONAL HOLDINGS, INC.
(Registrant)
By: /s/ Dennis W. Vollmershausen
----------------------------------------
Dennis W. Vollmershausen
President and Chief Executive Officer
By: /s/ Ronald C. Fox
----------------------------------------
Ronald C. Fox
Chief Financial Officer
18
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street N.W.
Washington D.C. 20549
RE: Lund International Holdings, Inc.
Registrations on Form S-8
Commissioners:
We are aware that our report dated April 27, 1999 on our reviews of the interim
consolidated financial information of Lund International Holdings, Inc. (the
"Company") for the three month periods ended March 31, 1999 and 1998, and
included in the Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 1999, is incorporated by reference in the Company's Registration
Statements on Form S-8 (Registration Nos. 33-78140, 333-46263, 33-64083 and
33-37160).
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
May 14, 1999
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,175
<SECURITIES> 0
<RECEIVABLES> 31,477
<ALLOWANCES> 3,876
<INVENTORY> 23,556
<CURRENT-ASSETS> 70,998
<PP&E> 32,310
<DEPRECIATION> 8,273
<TOTAL-ASSETS> 236,752
<CURRENT-LIABILITIES> 31,459
<BONDS> 0
0
3
<COMMON> 646
<OTHER-SE> 90,907
<TOTAL-LIABILITY-AND-EQUITY> 236,752
<SALES> 44,402
<TOTAL-REVENUES> 44,402
<CGS> 31,950
<TOTAL-COSTS> 42,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 3,063
<INCOME-PRETAX> (1,250)
<INCOME-TAX> (650)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (600)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
