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 July 2, 2000
------------
[ ] 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: (763) 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 the 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 registrant's classes of
common stock, as of the close of the latest practicable date.
As of July 28, 2000, 7,874,381 shares of the registrant's common stock, $.10 par
value, and 1,493,398 shares of the registrant's Class B-1 common 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
July 2, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Operations (Unaudited) 3
Three Months Ended July 2, 2000 and June 30, 1999
Consolidated Statements of Operations (Unaudited) 4
Six Months Ended July 2, 2000 and June 30, 1999
Consolidated Statements of Cash Flows (Unaudited) 5
Six Months Ended July 2, 2000 and June 30, 1999
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-9
Report of Independent Accountants 10
Item 2. Management's Discussion and Analysis of Financial 11-19
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matter to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20-21
Signatures 22
Exhibits 23-24
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
July 2, December 31,
2000 1999
---------- ----------
(unaudited)
ASSETS
Current assets:
Cash $ 696 $ 448
Restricted cash - 3,387
Accounts receivable, net 39,486 32,836
Inventories 22,345 24,214
Deferred income taxes 5,231 5,301
Other current assets 1,218 902
---------- -----------
Total current assets 68,976 67,088
Property and equipment, net 30,152 31,331
Intangibles, net 121,848 124,502
Other assets 3,385 3,748
---------- -----------
Total assets $ 224,361 $ 226,669
========== ===========
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>
July 2, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 11,828 $ 10,995
Accrued expenses 14,502 16,055
Long-term debt, current portion 7,686 9,591
------------ ------------
Total current liabilities 34,016 36,641
Long-term debt, less current portion 95,535 95,118
Deferred income taxes 5,877 5,931
Other liabilities 628 656
------------ ------------
Total liabilities 136,056 138,346
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock-Series B, $.01 stated value;
authorized 363 shares; 167 issued and outstanding
at July 2, 2000 and December 31, 1999 2 2
Common stock, $.10 par value;
authorized 25,000 shares; 7,874 issued and
outstanding at July 2, 2000 and December 31, 1999 787 787
Class B-1 Common Stock, $.01 par value;
authorized 3,000 shares; 1,493 issued and
outstanding at July 2, 2000 and December 31, 1999 15 15
Additional paid-in capital 64,277 64,277
Retained earnings 23,224 23,242
------------ -----------
Total stockholders' equity 88,305 88,323
------------ -----------
Total liabilities and stockholders' equity $ 224,361 $ 226,669
============ ============
</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
------------------
July 2, June 30,
2000 1999
----------- ------------
Net sales $ 51,048 $ 54,239
Cost of goods sold 36,575 38,413
----------- ------------
Gross profit 14,473 15,826
Operating expenses
General and administrative 3,588 4,226
Selling and marketing 5,024 5,673
Research and development 557 915
Amortization of intangibles 1,336 1,337
----------- ------------
Total operating expenses 10,505 12,151
Income from operations 3,968 3,675
Interest expense (3,247) (3,161)
Interest income and other, net (38) 7
----------- ------------
Income before income taxes 683 521
Income tax expense (benefit) 398 (19)
----------- ------------
Net income $ 285 $ 540
=========== ============
Basic net income per share $ 0.03 $ 0.07
=========== ===========
Diluted net income per share $ 0.03 $ 0.06
=========== ===========
Weighted average common shares 9,368 7,804
=========== ===========
Weighted average common and common equivalent shares 10,078 8,496
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Six Months Ended
----------------
July 2, June 30,
2000 1999
-------- --------
Net sales $ 98,113 $ 98,641
Cost of goods sold 70,232 70,363
-------- --------
Gross profit 27,881 28,278
Operating expenses
General and administrative 7,398 7,933
Selling and marketing 9,518 10,436
Research and development 1,282 1,813
Amortization of intangibles 2,653 2,634
-------- --------
Total operating expenses 20,851 22,816
Income from operations 7,030 5,462
Interest expense (6,509) (6,224)
Interest income and other, net (24) 33
-------- --------
Income (loss) before income taxes 497 (729)
Income tax expense (benefit) 290 (669)
-------- --------
Income (loss) before extraordinary item 207 (60)
Extraordinary item, less income tax benefit of $130 (225) --
-------- --------
Net loss $ (18) $ (60)
======== ========
Basic and diluted net loss per share:
Income (loss) before extraordinary item $ 0.02 $ (0.01)
Extraordinary item (0.02) --
-------- --------
Net loss $ (0.00) $ (0.01)
======== ========
Weighted average common shares 9,368 7,804
======== ========
Weighted average common and common
equivalent shares 9,368 7,804
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 2, June 30,
2000 1999
------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (18) $ (60)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,909 3,083
Amortization 3,226 3,228
Deferred income taxes 16 (2,132)
(Recovery of) provision for doubtful accounts (172) 150
Provision for inventory reserves 1,526 191
Gain on disposal of property and equipment (7) (87)
Changes in operating assets and liabilities, net of
impact of acquisition in 1999:
Accounts receivable (6,478) (8,118)
Inventories 342 742
Other assets (282) 1,814
Accounts payable, trade 833 3,714
Accrued expenses (551) (1,702)
Other liabilities (28) 39
-------- --------
Net cash provided by operating activities 1,316 862
-------- --------
Cash flows from investing activities:
Purchase of Smittybilt, net of cash acquired -- (16,749)
Purchases of property and equipment (1,934) (3,634)
Change in restricted cash 3,387 --
Proceeds from sales of property and equipment 166 1,078
-------- --------
Net cash provided by (used in) investing activities 1,619 (19,305)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (17,440) (10,103)
Proceeds from long-term debt 15,709 23,681
Change in checks issued in excess of bank balances (956) (328)
Proceeds from issuance of preferred stock -- 5,000
Debt issuance costs -- (315)
-------- --------
Net cash (used in) provided by financing activities (2,687) 17,935
-------- --------
Net increase (decrease) in cash 248 (508)
Cash:
Beginning of period 448 1,191
-------- --------
End of period $ 696 $ 683
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
A - The Company and Basis of Presentation
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
Company and Smittybilt, Inc. (collectively referred to as the "Company"). The
condensed consolidated balance sheet as of July 2, 2000, and the consolidated
statements of operations and of cash flows for the three months and six months
ended July 2, 2000, and June 30, 1999, 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, 1999 condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States. 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, 1999,
which were included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
The consolidated financial statements and accompanying notes are presented as
permitted by the instructions to Form 10-Q, and do not contain certain
information included in the Company's annual financial statements and notes.
Effective January 1, 2000, the Company adopted a 52-53 week fiscal year.
B - Acquisition
On January 28, 1999, the Company, through a wholly-owned subsidiary, acquired
all of the issued and outstanding capital 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 $16,887 consisted of an initial
purchase price of $15,898 and direct transactions costs of $989. The Company
also assumed certain liabilities of $2.0 million in capital lease obligations
and notes payable. The acquisition was financed by issuance of common and
preferred stock of $5.0 million, proceeds from a new term loan of $9.5 million
and $5.0 million gross proceeds from issuance of 12.5% senior subordinated
notes.
6
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
Upon the funding of $5,000 of senior subordinated notes in connection with the
purchase of Smittybilt, Inc. in January 1999, the Company issued a warrant
giving the subordinated lenders the right to purchase 184,090 shares of the
Company's Common Stock at $.11 per share, or 18,409 shares of Series B Preferred
Stock at $1.10 per share under certain circumstances. The warrant was valued at
$1,268. The value of the warrant is reflected as a component of additional
paid-in capital. The amount is also presented as a discount on the senior
subordinated notes and is being amortized to interest expense through December
31, 2006, 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 for the six months
ended June 30, 1999, as if the Smittybilt acquisition had occurred as of January
1, 1999, 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.
Six Months Ended
June 30,1999
----------------
Net sales $99,821
Net loss (106)
Basic and diluted
net income (loss) per share ($0.01)
C - Inventories
Inventories consisted of the following:
July 2, December 31,
2000 1999
------------- -------------
Raw materials $ 10,376 $ 12,285
Finished goods and work in process 11,969 11,929
------------- -------------
$ 22,345 $ 24,214
============= =============
D - Segment Reporting
The Company's business activities are organized around three 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 that 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 and heavy truck accessories.
7
<PAGE>
A summary of the Company's business activities reported by its three business
segments (including the Smittybilt Acquisition only subsequent to January 28,
1999) for the three-month and six month periods ended July 2, 2000 and June 30,
1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -----------------
July 2, June 30, July 2, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES:
Light truck $42,838 $45,104 $82,130 $82,276
Heavy truck 4,505 5,127 8,758 9,682
Suspension 3,705 4,008 7,225 6,683
------- ------- ------- -------
Total $51,048 $54,239 $98,113 $98,641
------- ------- ------- -------
INCOME FROM OPERATIONS:
Light truck $ 2,029 $ 1,973 $ 3,734 $ 2,258
Heavy truck 1,289 1,117 2,169 2,370
Suspension 650 585 1,127 834
------- ------- ------- -------
Total $ 3,968 $ 3,675 $ 7,030 $ 5,462
======= ======= ======= =======
</TABLE>
E - Earnings per share (EPS)
Basic EPS is calculated as net (loss) income divided by weighted average common
shares outstanding. Diluted EPS is calculated as net income divided by weighted
average common shares outstanding, increased to include the assumed conversion
of dilutive securities. The Company's dilutive securities are primarily issuable
under the Company's Stock Option Incentive Plans, the Non-Employee Director
Stock Option Plan, stock warrants and preferred stock. 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. Net loss per share does not include common stock options and
warrants ultimately exercisable for the purchase of approximately 2,776 shares
for the three months ended July 2, 2000, and 3,486 for the six months ended July
2, 2000. A summary of the Company's common and common equivalent shares is as
follows:
Three Months Ended Six Months Ended
July 2, 2000 July 2, 2000
------------------ ----------------
Weighted Average Common Shares 9,368 9,368
Dilutive Securities 710 -
------------------ ----------------
Weighted Average Common and Common
Equivalent Shares 10,078 9,368
================== ================
F - Comprehensive income (loss)
There were no other comprehensive income (loss) items in the three months and
six months ended July 2, 2000 or June 30, 1999.
8
<PAGE>
G - Credit Agreement and Securities Purchase Agreement
On January 28, 2000, the Company entered into a Waiver and Third Amendment
("Amendment") to its consolidated $106.5 million loan facility which waived the
Company's defaults that existed up through and including December, 31, 1999,
under financial covenants established in the original agreements. In addition,
the Amendment changed the Company's financial performance covenants contained in
these agreements for the year 2000. The Amendment also provided for a
one-quarter percent increase to the Base Rate Pricing and LIBOR Margin Pricing
Tables used to calculate the Company's floating interest rates as a part of its
senior credit facility. In the event the ratio of the Company's indebtedness to
earnings before interest, taxes, depreciation and amortization ("EBITDA") is
greater than 5.50:1.00, the Company's interest rates will increase by
one-quarter percent across all of its outstanding term and revolver loans. The
Company incurred a fee of $250 in connection with the Amendment, which was
expensed in the fourth quarter of 1999.
Also, on January 28, 2000, the Company entered into a Waiver and First Amendment
to its Security Purchase Agreement with its subordinated lenders which waived
the Company's defaults that existed up through and including December 31, 1999,
under financial covenants established in the original agreement. In addition,
the Waiver and First Amendment changed the Company's financial performance
covenants contained in the original agreement for the year 2000. The Company
incurred a fee of $50 in connection with the Waiver and First Amendment, which
was expensed in the fourth quarter of 1999.
H - Extraordinary Item - Defeasance of Industrial Development Revenue Bonds
On December 29, 1998, the Company defeased its Industrial Development Revenue
Bonds (Bonds) by placing its restricted cash and marketable securities held
pursuant to the Bond agreement as of that date in escrow sufficient to meet the
remaining principal and interest payments of the Bonds. The funds held in escrow
could be used only for the purpose of satisfying the debt service requirements
of the Bonds. Under the terms of the Bond agreement, the Company guaranteed the
repayment of the Bonds through January 2000. Accordingly, the Bonds and the
related restricted cash and marketable securities continued to be presented as
assets and obligations of the Company until such guarantee expired in January
2000. In January 2000, the Bonds (in the amount of $3,106) and the related
restricted cash and marketable securities (in the amount of $3,387) were removed
from the Company's balance sheet.
As a result of the early extinguishment of the bonds, an extraordinary loss of
$225 was incurred in January 2000 ($355, net of $130 deferred income tax
benefit).
* * * *
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. This report is
not a "report" within the meaning of Sections 7 and 11 of the 1933 Act and the
independent accountant's liability under Section 11 does not extend to it.
9
<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 July 2, 2000, and the related
consolidated statements of operations for the three months and six months ended
July 2, 2000, and June 30, 1999, and consolidated statements of cash flows for
the six months ended July 2, 2000, and June 30, 1999. 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 accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States.
We previously audited in accordance with auditing standards generally accepted
in the United States, the consolidated balance sheet as of December 31, 1999,
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 March 3, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet information as of December
31, 1999, 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
July 28, 2000
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
($ in thousands, except share and per share data)
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 Company
("Ventshade"), and Smittybilt, Inc. ("Smittybilt"), designs, manufactures and
distributes aftermarket automotive accessories and other products for light
trucks, sport utility vehicles and vans ("light trucks"), passenger cars and
heavy trucks. Products directed at the light truck and automobile market include
side window ventvisors, windshield 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 supplies suspension systems for light trucks.
On December 23, 1998 and January 28, 1999, the Company acquired 100% of the
outstanding common 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 a $1,150 increase in cost
of goods sold in the first six months of 1999 to reflect the write-up of the
Acquisitions' finished goods and work-in-process inventories 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 $56,200 with depreciation and amortization
periods ranging from 4 to 40 years. The Company's consolidated results of
operations and consolidated statement of cash flows include Ventshade for all of
1999 and Smittybilt from its date of acquisition on January 28, 1999.
To finance the Acquisitions, the Company sold shares of common and preferred
stock for $30,000 and received financing of $34,500 from its primary senior
lender, seller financing of approximately $900 and financing of $25,000 from
senior subordinated lenders, which lenders also received 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, principally property and
equipment, of its Fibernetics specialty fiberglass and plastics division in
Compton, California for approximately $1,000. The loss on the sale of these
assets was not material.
11
<PAGE>
RESULTS OF OPERATIONS:
Three Months Ended
--------------------------
July 2, June 30,
2000 1999
------- ---------
NET SALES:
Light truck $ 42,838 $ 45,104
Heavy truck 4,505 5,127
Suspension 3,705 4,008
-------- --------
Total 51,048 54,239
-------- --------
INCOME FROM OPERATIONS:
Light truck 2,029 1,973
Heavy truck 1,289 1,117
Suspension 650 585
-------- --------
Total 3,968 3,675
Other income (expense), net:
Interest expense (3,247) (3,161)
Other, net (38) 7
-------- --------
INCOME BEFORE INCOME TAXES $ 683 $ 521
======== ========
Six Months Ended
-------------------------
July 2, June 30,
2000 1999
-------- --------
NET SALES:
Light truck $ 82,130 $ 82,276
Heavy truck 8,758 9,682
Suspension 7,225 6,683
-------- --------
Total 98,113 98,641
-------- --------
INCOME FROM OPERATIONS:
Light truck 3,734 2,258
Heavy truck 2,169 2,370
Suspension 1,127 834
-------- --------
Total 7,030 5,462
Other income (expense), net:
Internet expense (6,509) (6,224)
Other, net (24) 33
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES $ 497 $ (729)
======== ========
12
<PAGE>
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:
Three Months Ended July 2, 2000
---------------------------------------------
July 2, 2000 June 30, 1999
------------------- ----------------------
Net sales $ 51,048 100.0% $ 54,239 100.0%
Gross profit 14,473 28.4 15,826 29.2
General and administrative 3,588 7.0 4,226 7.8
Selling and marketing 5,024 9.8 5,673 10.5
Research and development 557 1.1 915 1.7
Amortization of intangibles 1,336 2.6 1,337 2.5
Income from operations 3,968 7.8 3,675 6.8
Other expense, net 3,285 6.4 3,154 5.8
Income tax expense (benefit) 398 0.8 (19) 0.0
Net income $ 285 0.6% $ 540 1.0%
Six Months Ended July 2, 2000
---------------------------------------------
July 2, 2000 June 30, 1999
------------------- --------------------
Net sales $ 98,113 100.0% $ 98,641 100.0%
Gross profit 27,881 28.4 28,278 28.7
General and administrative 7,398 7.5 7,933 8.0
Selling and marketing 9,518 9.7 10,436 10.6
Research and development 1,282 1.3 1,813 1.8
Amortization of intangibles 2,653 2.7 2,634 2.7
Income from operations 7,030 7.2 5,462 5.5
Other expense, net 6,533 6.7 6,191 6.3
Income tax expense (benefit) 290 0.3 (669) (0.7)
Extraordinary loss 225 0.2 - 0.0
Net loss $ (18) 0.0% $ (60) (0.1%)
THREE MONTHS ENDED JULY 2, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES: Consolidated net sales for the three months ended July 2, 2000, were
$51,048, a decrease of $3,191 from consolidated net sales of $54,239 for the
three months ended June 30, 1999. This decrease was primarily attributed to the
following factors: (i) Light Truck net sales declined by $2,266, or 5.0%, (ii)
Heavy Truck sales decreased by $622, or 12.1%, (iii) Suspension sales fell by
$303, or 7.6%. Light Truck sales reflected a decline in the sales of aftermarket
hood shields somewhat offset by a strong performance in the sale of storage
boxes. Heavy truck continued to experience a "softness" in its markets as a
result of the lingering effect of higher fuel prices. Although the Suspension
business recorded a shortfall in the quarter, when compared to the prior year,
there continued to be a strong demand for its products.
13
<PAGE>
COST OF GOODS SOLD AND GROSS PROFIT: The gross profit margin for the three
months ended July 2, 2000, was 28.4% of net sales compared to 29.2% of net sales
for the three months ended June 30, 1999. The three months ended July 2, 2000
reflected a slight margin decline compared to 1999 due to a combination of
inefficiencies experienced in one of the Light Truck manufacturing operations
and higher than anticipated cost of aluminum, offset by product cost reduction
programs.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$3,588, or 7.0% of net sales, for the three months ended July 2, 2000, compared
to $4,226, or 7.8% of net sales, for the comparable three month period ended
June 30, 1999. This decrease of $638 reflected approximately a 15% decline in
general and administrative costs in the quarter. This favorable performance
reflected the results of lower headcount and salaries associated with a prior
management reorganization, the closing of the Company's warehouse operations in
Iowa and a benefit from better than expected collection of problem accounts
receivable, which resulted in a reduction in the allowance for doubtful accounts
of $450. The quarter also included approximately $300 in consulting fees
associated with the Company's plan to restructure its businesses and the
relocation of its Suspension business from its Coldwater, MI facility to its
manufacturing operation in Corona, CA.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $5,024, or
9.8% of net sales, for the three months ended July 2, 2000, compared to $5,673,
or 10.5% of net sales, for the three months ended June 30, 1999. This favorable
development resulted primarily from a concentrated effort to reduce promotional
spending that does not provide an acceptable payback, especially in the
acquisition of new distribution opportunities.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $557,
or 1.1% of net sales, for the three months ended July 2, 2000, compared to $915,
or 1.7% of net sales, for the three months ended June 30, 1999. This favorable
development resulted primarily from the combination of delaying specific product
development programs and cost reductions. During the end of the second quarter,
the Company began to add additional resources to accelerate its effort on
completing planned product development programs
AMORTIZATION OF INTANGIBLES: Amortization expense was $1,336 for the three
months ended July 2, 2000, compared to $1,337 for the three months ended June
30, 1999. This expense remained comparable to last year, since no additional
acquisitions were made after the Smittybilt purchase in January 1999.
INCOME FROM OPERATIONS: Income from operations for the three months ended July
2, 2000, was $3,968, or 7.8% of net sales, compared to $3,675, or 6.8% of net
sales for the period ended June 30, 1999. The favorable operating income
performance was achieved on lower sales volumes, primarily offset by reductions
in selling, general and administrative expenses.
OTHER EXPENSE, NET: Other expense, net, was $3,285 for the three months ended
July 2, 2000, compared to $3,154 for the three months ended June 30, 1999. The
increase in interest expense was primarily the result of escalating interest
rates in 2000 versus the prior year, offset to some extent by lower debt levels.
INCOME TAX BENEFIT: For the three months ended July 2, 2000, the Company
recorded a tax expense of $398. The income tax expense recorded in the quarter
ended July 2, 2000, was the result of increased profitability when comparing the
two quarters. The Company's effective tax rate is substantially
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different than the statutory federal tax rate of 34% due to the amortization of
non-tax deductible goodwill.
NET INCOME: The Company's net profit for the three months ended July 2, 2000,
was $285, or $.03 per share. This compares to a net profit of $540, or $.06 per
share, for the three months period ended June 30, 1999.
SIX MONTHS ENDED JULY 2, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
NET SALES: Consolidated net sales for the six months ended July 2, 2000, were
$98,113 versus $98,641 for the six months ended June 30, 1999. The decline of
$528 was primarily attributable to the following factors: (i) Light Truck net
sales declined by $146, (ii) Heavy Truck sales decreased by $924, or 9.5%, (iii)
Suspension net sales increased by $542, or 8.1%. The Light Truck division's
decline in sales volume of plastic products was predominantly offset by
increases in the sales of aluminum storage boxes and stronger sales from the
division's Smittybilt business. Smittybilt manufactures powder painted, chrome
plated and polished stainless steel products.
COST OF GOODS SOLD AND GROSS PROFIT: The gross profit margin for the six months
ended July 2, 2000, was 28.4% of net sales compared to 28.7% for the six month
period ended June 30, 1999. The 1999 period included purchase accounting
adjustments charged to cost of goods sold in the amount of $1,150, related to
the write up of inventories associated with acquisitions made by the Company.
Excluding the purchase accounting adjustment, the comparable gross profit figure
was 29.8% in 1999. The decline in margin included manufacturing inefficiencies
experienced in the Light Truck division, higher than anticipated cost of
aluminum used in the manufacturing of storage boxes and unfavorable sales mix.
These negatives were offset by price concessions attained in the purchase of
plastic resin, other product cost reduction programs initiated during the year
and, to a lesser extent, price increases on specific products.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$7,398, or 7.5% of net sales for the six months ended July 2, 2000, compared to
$7,933, or 8.0% of net sales for the comparable six month period ended June 30,
1999. The decrease of $535, or 6.7%, is the result of various cost reduction
efforts, lower corporate costs relating to salaries and information systems and
better than anticipated collection of problem accounts receivable resulting in a
favorable adjustment to bad debt expense. On a year-to-date basis the Company
incurred approximately $500 in consulting fees associated with the Company's
plan to restructure its business operations and relocate its Suspension business
from its Coldwater, MI facility to its manufacturing operation in Corona, CA.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $9,518, or
9.7% of net sales for the six month period ended July 2, 2000, compared to
$10,436, or 10.6% of net sales for the six month period ended June 30, 1999. The
decrease of $918 was primarily attributed to a concentrated effort by the
Company to evaluate its sales and marketing program spending, particularly in
the acquisition of new distribution opportunities.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were
$1,282, or 1.3% of net sales for the six month period ended July 2, 2000,
compared to $1,813, or 1.8% of net sales for the period ended June 30, 1999. The
decrease of $531 was primarily the result of delaying some
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development programs and cost reductions. However, the Company began to
accelerate its effort to complete certain development programs at the end of the
second quarter.
AMORTIZATION OF INTANGIBLES: Amortization expense was $2,653, or 2.7% of net
sales for the six month period ended July 2, 2000, compared to $2,634, or 2.7%
of net sales for the period ended June 30, 1999. This expense remained
comparable to last year because the Company did not make any acquisitions since
January 1999.
INCOME FROM OPERATIONS: Income from operations for the six months ended July 2,
2000, was $7,030, or 7.2%, of the net sales compared to $5,462, or 5.5% of net
sales for the six month period ended June 30, 1999. The increase of $1,568, or
28.7%, resulted from the effect of slightly lower sales volumes being offset by
reductions in selling, general and administrative expenses.
OTHER EXPENSE, NET: Other expense was $6,533 for the six month period ended July
2, 2000, compared to $6,191 for the six month period ended June 30, 1999.
Interest expense, which is the predominant item in other expense, increased as a
result of higher rates offset by lower debt levels.
INCOME TAX EXPENSE (BENEFIT): An income tax expense of $290 was recorded for the
six month period ended July 2, 2000, compared to an income tax benefit of $669
for the six month period ended June 30, 1999. The Company's effective tax rate
is substantially higher than the statutory federal tax rate of 34% due to
amortization of non-tax deductible goodwill recorded in connection with the
Acquisitions.
NET LOSS PER SHARE: The Company's net loss for the six months ended July 2,
2000, was $18, which is less than a penny per share compared to a $60 net loss,
or $.01 per share for the period ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operating activities was $1,316 for the six months ended July
2, 2000, and $862 for the six months ended June 30, 1999. The slight increase is
due primarily to improved working capital changes.
Cash provided by investing activities was $1,619 for the six months ended July
2, 2000, compared to $19,305 of cash used in investing activities for the period
ending June 30, 1999. The significant cash used in investing activities in 1999
related primarily to the acquisition of Smittybilt, Inc. in the first quarter of
1999. The net cash provided by investing activities in the six months ended July
2, 2000 was primarily the result of the change in restricted cash associated
with the defeasance of the Company's Industrial Revenue Bonds, offset by capital
purchases.
Cash used in financing activities was $2,687 in the six months ended July 2,
2000, compared to $17,935 of cash provided by financing activities in the six
months ended June 30, 1999. The significant cash provided by financing
activities in 1999 reflected the proceeds from long-term debt and issuance of
common stock related to the Smittybilt acquisition. The net cash used in
financing activities for the six months ended July 2, 2000 primarily consisted
of principal payments on long-term debt.
The Company believes that its $30 million revolving credit facility and
operating cash flows will be sufficient to satisfy its working capital
requirements, required debt principal payments and operating
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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 July 2, 2000, the Company had borrowed $12,603 under its revolving credit
line and had additional availability of $17,397.
Consolidated assets have decreased $2,308 from $226,669 at December 31, 1999, to
$224,361 at July 2, 2000. The decrease in assets reflected primarily the
amortization of intangibles, property plant and equipment, and the change in
restricted cash, offset by the increase in working capital items, most notably,
accounts receivable.
YEAR 2000 COMPLIANCE:
The Company's program to address the Year 2000 issue
consisted of the following phases: awareness, assessment, remediation, testing
and contingency planning. As of December 31, 1999, all phases were completed.
The Company did not experience any disruption of business as a result of the
Year 2000 and no significant known issues have resulted since the conversion on
January 1, 2000.
The Company made every effort to assess its Year 2000 risks related to
significant relationships with its critical third party suppliers and customers.
Despite these efforts, the Company can provide no assurance that all supplier
and customer Year 2000 compliance plans were successfully completed in a timely
manner. However, the Company is not currently aware of any problems related to
year 2000, which would significantly impact its operation. The Company spent
approximately $900 to convert its systems to become Y2K compliant. These costs
were incurred during 1998 and 1999, of which a portion was capitalized and the
remainder charged to earnings in the respective years. These charges did not
materially impact the Company's results of operations.
OUTLOOK:
As a result of its most recent acquisitions, the Company has added new product
lines, improved its customer service levels, increased operational strengths
with new production methods and enhanced its design and engineering
capabilities.
The Company has a significant 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. The Company's Auto Ventshade business has strengthened its
light truck accessories product offering with key hood shield product lines,
ventshades and ventvisors. Ventshade has also contributed an increased presence
in mass merchandisers and retail specialty markets. Smittybilt enhanced the
Company's product line with its chromed and painted tubular accessory products.
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 to a greater extent in the distribution
of automotive accessories. The impact of increased channel competition is
shifting a portion of sales away from warehouse distributors to national
automotive retailers, mass merchandisers and OEMs. This shift has resulted in
increased competition within the warehouse distributor channel and created
pricing pressures, especially as it relates to plastic and fiberglass product
lines.
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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 and customer
service levels 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 July 2, 2000, the Company completed the integration of its
information systems into a single platform for Lund and Deflecta-Shield. These
businesses now share common systems, increasing the effectiveness of data
management between manufacturing facilities.
On April 26, 2000, the Company announced a plan to outsource the fiberglass
production at its Anoka, Minnesota facility. The Company is executing its plan
to phase out fiberglass production at Anoka. The expected completion date is
November 30, 2000. The Company will incur a $500-$700 restructuring charge in
the third and fourth quarters of 2000 related to this outsourcing decision.
In its 1999 Annual Report and Report on Form 10-K, the Company disclosed that on
March 21, 2000, it received a letter from Nasdaq. The letter indicated that the
Company was not in compliance with Marketplace Rule 4450(b)(4) (the"Rule"),
because the Company's stock had not maintained a minimum bid price of $5.00 over
thirty consecutive trading days as required on the Nasdaq National Market under
Maintenance Standard 2.
The Company was unable to regain compliance with the Rule during the allotted
time period, which ended June 19, 2000. On or before June 19, 2000, the Company
appealed to Nasdaq to remain on the Nasdaq National Market under an alternative
maintenance standard (Maintenance Standard 1). A Nasdaq Hearing Panel reviewed
the Company's appeal at a hearing on July 17, 2000. The Panel rejected the
Company's appeal, but is allowing the Company approximately sixty days to gain
compliance under Maintenance Standard 1. There can be no assurance that the
Company will be able to maintain its National Market listing. In addition, there
is no assurance that, if the Company is unable to maintain its National Market
listing, it will qualify for listing on the Nasdaq Small Cap Market.
The Company remains committed to growth through acquisitions and will continue
to seek out opportunities that add value to its existing base of business.
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 revolving line of credit are dependent on the prime
interest and LIBOR rates. The estimated fair value of long-term debt
approximates its carrying value at July 2, 2000. The Company does not enter into
hedging or derivative instruments.
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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 aluminum, 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 have had an impact on gross
profit.
FORWARD LOOKING STATEMENTS:
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company.
Statements made in this Form 10-Q relating to future financial results, the
effects of the acquisitions, Company operations, developments, trends and market
analysis, and continued Nasdaq listing, small cap or otherwise, among others,
are forward-looking statements. These statements involve risks and uncertainties
that could cause results to differ materially from those anticipated. Management
believes that all statements that express expectations and projections with
respect to future matters related to the Company's acquisitions could result in
differences, including: 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 in the merger and
purchase agreements proving to be materially untrue. In addition, the business
and operations of the Company, and its projected 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; and 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. However, the Company believes that these
are forward-looking statements within the meaning of the Act.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 4 Submission of Matter to a Vote of Security Holders
On April 27, 2000, the Company held its annual meeting of stockholders. At the
meeting, the number of directors was set at seven and, Lawrence C. Day, David E.
Dovenberg, Ira D. Kleinman, Robert Schoeberl, Dennis W. Vollmershausen, and
Harvey J. Wertheim were elected to serve as directors of the Company for 2000.
In addition, the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for 2000 was approved.
The following table provides the number of votes for, against, withheld, as well
as the number of abstentions and broker non-votes as to each matter submitted to
a vote of stockholders at the meeting.
Matter:
Withheld Broker
For Authority Against Abstention Non-votes
--------------------------------------------------------------------------------
Set Number of
Directors at Seven 5,776,516 19,860 9,743
Election of Directors
Lawrence C. Day 5,788,453 27,966
David E. Dovenberg 5,788,253 28,166
Ira D. Kleinman 5,787,953 28,466
Robert Schoeberl 5,787,653 28,766
Dennis W. Vollmershausen 5,787,953 28,466
Harvey J. Wertheim 5,787,853 28,566
Approval of Selection of
PricewaterhouseCooper LLP 5,781,956 6,900 17,263
Item 5. Other Information
(a) None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
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15 Awareness letter from the Company's independent
accountants regarding unaudited interim financial
statements.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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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: August 10, 2000
LUND INTERNATIONAL HOLDINGS, INC.
(Registrant)
By: /s/ Dennis W. Vollmershausen
----------------------------
Dennis W. Vollmershausen
President and Chief Executive Officer
By: /s/ Edmund J. Schwartz
----------------------------
Edmund J. Schwartz
Chief Financial Officer
22
