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 April 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 May 5, 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
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1-2
April 2, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Operations (Unaudited) 3
Three Months Ended April 2, 2000 and March 31, 1999
Consolidated Statements of Cash Flows (Unaudited) 4
Three Months Ended April 2, 2000 and March 31, 1999
Notes to Condensed Consolidated Financial Statements (Unaudited) 5-8
Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis of Financial 10-17
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibits 20-21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 2, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 681 $ 448
Restricted cash -- 3,387
Accounts receivable, net 34,447 32,836
Inventories 25,254 24,214
Deferred income taxes 5,544 5,301
Other current assets 1,516 902
------------ ------------
Total current assets 67,442 67,088
Property and equipment, net 30,518 31,331
Intangibles, net 123,184 124,502
Other assets 3,449 3,748
------------ ------------
Total assets $ 224,593 $ 226,669
============ ============
</TABLE>
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>
April 2, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 10,646 $ 10,995
Accrued expenses 14,034 16,055
Long-term debt, current portion 7,086 9,591
------------ ------------
Total current liabilities 31,766 36,641
Long-term debt, less current portion 98,302 95,118
Deferred income taxes 5,877 5,931
Other liabilities 628 656
------------ ------------
Total liabilities 136,573 138,346
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock-Series B, $.01 stated value;
authorized 363 shares; 167 issued and outstanding at April 2, 2000
and December 31, 1999 2 2
Common stock, $.10 par value;
authorized 25,000 shares; 7,874 issued and outstanding at April 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 April 2, 2000 and December 31, 1999 15 15
Additional paid-in capital 64,277 64,277
Retained earnings 22,939 23,242
------------ ------------
Total stockholders' equity 88,020 88,323
------------ ------------
Total liabilities and stockholders' equity $ 224,593 $ 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)
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 2, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 47,065 $ 44,402
Cost of goods sold 33,657 31,950
------------ ------------
Gross profit 13,408 12,452
Operating expenses
General and administrative 3,810 3,707
Selling and marketing 4,494 4,763
Research and development 725 898
Amortization of intangibles 1,317 1,297
------------ ------------
Total operating expenses 10,346 10,665
Income from operations 3,062 1,787
Interest expense (3,262) (3,063)
Interest income and other, net 14 26
------------ ------------
Loss before income taxes (186) (1,250)
Income tax benefit 108 650
------------ ------------
Loss before extraordinary item (78) (600)
Extraordinary item, less income
tax benefit of $130 (225) --
------------ ------------
Net loss $ (303) $ (600)
============ ============
Basic and diluted net loss per share:
Loss before extraordinary item $ (0.01) $ (0.08)
Extraordinary item (0.02) --
------------ ------------
Net loss $ (0.03) $ (0.08)
============ ============
Weighted average common shares 9,368 7,804
============ ============
Weighted average common and common equivalent
shares 9,368 7,804
============ ============
</TABLE>
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
------------------
April 2, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (303) $ (600)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 1,427 1,451
Amortization 1,603 1,595
Deferred income taxes (297) (471)
Provision for doubtful accounts 280 102
Provision for inventory reserves 683 69
Loss (gain) on disposal of property and equipment 32 (32)
Changes in operating assets and liabilities, net of impact
of acquisition in 1999:
Accounts receivable (1,891) 193
Inventories (1,723) 1,754
Other assets (479) 1,077
Accounts payable, trade (349) 61
Accrued expenses (1,746) (2,901)
Other liabilities (28) (14)
------------ ------------
Net cash (used in) provided by operating activities (2,791) 2,284
------------ ------------
Cash flows from investing activities:
Purchase of Smittybilt, net of cash acquired -- (16,749)
Purchases of property and equipment (759) (1,152)
Change in restricted cash 3,387 --
Proceeds from sales of property and equipment 113 64
Other investing activities -- 938
------------ ------------
Net cash provided by (used in) investing activities 2,741 (16,899)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (9,429) (4,853)
Proceeds from long-term debt 9,987 15,871
Change in checks issued in excess of bank balances (275) (1,015)
Proceeds from issuance of preferred stock -- 5,000
Debt issuance costs -- (315)
------------ ------------
Net cash provided by financing activities 283 14,688
------------ ------------
Net increase in cash 233 73
Cash:
Beginning of period 448 1,191
------------ ------------
End of period $ 681 $ 1,264
============ ============
</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
Company and Smittybilt, Inc. (collectively referred to as the "Company"). The
condensed consolidated balance sheet as of April 2, 2000, and the consolidated
statements of operations and of cash flows for the three months ended April 2,
2000 and March 31, 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 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 $5.0 million gross proceeds from issuance of 12.5% senior subordinated
notes.
5
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ 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 three months
ended March 31, 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.
Three Months Ended
March 31,1999
-------------
Net sales $45,582
Net loss (877)
Basic and diluted
net loss per share (0.11)
C - Inventories
Inventories consisted of the following:
April 2, December 31,
2000 1999
----------- -----------
Raw materials $ 11,583 $ 12,285
Finished goods and work in process 13,671 11,929
----------- -----------
$ 25,254 $ 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.
6
<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 period ended April 2, 2000 and March 31, 1999 is as
follows:
Three Months Ended
------------------
April 2, March 31,
2000 1999
------------ -----------
NET SALES:
Light truck $ 39,292 $ 37,171
Heavy truck 4,253 4,556
Suspension 3,520 2,675
------------ -----------
Total 47,065 44,402
------------ -----------
INCOME FROM OPERATIONS:
Light truck 1,705 285
Heavy truck 880 1253
Suspension 477 249
------------ -----------
Total 3,062 1,787
============ ===========
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 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 3,520 shares as of April 2, 2000.
F - Comprehensive income (loss)
There were no other comprehensive income (loss) items in the three months ended
April 2, 2000 or March 31, 1999.
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
7
<PAGE>
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).
I - Subsequent Event - Restructuring
On April 26, 2000, the Company announced a plan to outsource the fiberglass
production at its Anoka, Minnesota facility. The Company anticipates phasing out
production over a six-month period with completion to occur by November. The
Company anticipates taking a $500 - $700 restructuring charge primarily during
the second and third quarters of 2000 related to this outsourcing decision
* * * *
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.
8
<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 April 2, 2000, and the related
consolidated statements of operations and of cash flows for the three months
ended April 2, 2000 and March 31, 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 generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
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
April 25, 2000
9
<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. 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 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.
RESULTS OF OPERATIONS:
Certain 1999 adjusted pro forma information is included for comparative purposes
to provide information comparable to the first quarter 2000 information. To
provide comparable 1999 information, the adjusted pro forma information assumes
the acquisition of Smittybilt and the sale of Fibernetics were completed on
January 1, 1999.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
April 2, March 31, March 31,
2000 1999 1999
Actual Actual Pro forma
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES:
Light truck $ 39,292 $ 37,171 $ 38,082
Heavy truck 4,253 4,556 4,556
Suspension 3,520 2,675 2,675
------------ ------------ ------------
Total 47,065 44,402 45,313
------------ ------------ ------------
INCOME FROM OPERATIONS:
Light truck 1,705 285 1,021
Heavy truck 880 1,253 1,253
Suspension 477 249 249
------------ ------------ ------------
Total 3,062 1,787 2,523
Other income (expense), net:
Interest expense (3,262) (3,063) (3,239)
Other, net 14 26 26
------------ ------------ ------------
LOSS BEFORE INCOME TAXES $ (186) $ (1,250) $ (690)
============ ============ ============
</TABLE>
11
<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:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------
April 2, 2000 March 31, 1999 March 31, 1999
Actual Actual Pro forma
-------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $47,065 100.0% $44,402 100.0% $45,313 100.0%
Gross profit 13,408 28.5 12,452 28.0 13,418 29.6
General and administrative 3,810 8.1 3,707 8.3 3,854 8.5
Selling and marketing 4,494 9.5 4,763 10.7 4,798 10.6
Research and development 725 1.5 898 2.0 914 2.0
Amortization of intangibles 1,317 2.8 1,297 2.9 1,329 2.9
Income from operations 3,062 6.5 1,787 4.0 2,523 5.6
Other expense, net (3,248) (6.9) (3,037) (6.8) (3,213) (7.1)
Income tax benefit (108) (0.2) (650) (1.5) (359) (0.8)
Extraordinary loss 225 0.5 -- -- -- --
Net loss ($303) (0.6%) ($600) (1.4%) ($331) (0.7%)
</TABLE>
THREE MONTHS ENDED APRIL 2, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(ACTUAL AND PRO FORMA)
NET SALES: Consolidated net sales for the three months ended April 2, 2000 were
$47,065, an increase of $2,663 over consolidated net sales of $44,402 for the
three months ended March 31, 1999, reflecting the impact of an additional month
of Smittybilt sales and strong sales in the Light Truck and Suspension
Divisions. This increase was primarily attributable to the following factors:
(i) Light Truck net sales increased $2,121, or 5.7%, (ii) Suspension net sales
increased $845, or 31.6%, (iii) offset by shortfalls in our Heavy Truck Division
of $303, or 6.7%. Light Truck has experienced strong sales performances in its
aluminum and tubular businesses in the quarter. Strong OEM sales of hood shields
were offset by weaker performance of these products in the aftermarket sector.
Also, the Suspension Division experienced strong demand for its products and has
been successful opening new accounts in the first quarter. Consolidated net
sales increased $1,752, or 3.9%, over 1999 pro forma consolidated net sales.
COST OF GOODS SOLD AND GROSS PROFIT: The gross profit margin for the three
months ended April 2, 2000 was 28.5% of net sales compared to 28.0% of net sales
for the three months ended March 31, 1999. The gross profit margin for the three
months ended March 31, 1999 on a pro forma basis was 29.6% of net sales. The
three months ended April 2, 2000 reflects a slight margin improvement compared
to 1999 actual due to a combination of current quarter pricing actions, product
cost reduction programs and unfavorable purchase accounting adjustments of $880
included in the actual 1999 numbers. The pro forma 1999 gross profit excludes
the purchase accounting adjustment mentioned above. Therefore, actual gross
profit for the quarter ended April 2, 2000 is unfavorable compared to the 1999
pro forma period due to this exclusion.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$3,810, or 8.1% of net sales, for the three months ended April 2, 2000, compared
to $3,707, or 8.3% of net sales, for the
12
<PAGE>
comparable three month period ended March 31, 1999. On a pro forma basis for
1999, general and administrative expenses were $3,854, or 8.5% of net sales.
General and administrative expenses in the three months ended April 2, 2000 were
generally flat compared to both 1999 actual and pro forma. However, the current
quarter expense includes approximately $200 in consulting fees to assist in the
development of restructuring plans, which is explained further in the Outlook
section of this 10Q. Excluding these non-recurring consulting fees,
administrative expenses are slightly below both 1999 actual and pro forma.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $4,494, or
9.5% of net sales, for the three months ended April 2, 2000, compared to $4,763,
or 10.7% of net sales, for the three months ended March 31, 1999. Selling and
marketing expenses were $4,798, or 10.6% of net sales, for the 1999 comparable
pro forma period. Selling and marketing expense is favorable to both 1999 actual
and pro forma spending by $269 and $304, respectively. This favorability has
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 $725,
or 1.5% of net sales, for the three months ended April 2, 2000, compared to
$898, or 2.0% of net sales, for the three months ended March 31, 1999. On a pro
forma basis, research and development expenses were $914, or 2.0% of net sales,
for the three months ended March 31, 1999. Costs of $725 for the quarter are
favorable to both 1999 actual and pro forma by $173 and $189 respectively. This
favorability has resulted primarily from the combination of delaying some
product development programs and cost reductions in this area.
AMORTIZATION OF INTANGIBLES: Amortization expense was $1,317 for the three
months ended April 2, 2000, compared to $1,297 for the three months ended March
31, 1999 and $1,329 for the pro forma March 31, 1999 period. This expense
remains comparable to last year since there have been no additional acquisitions
made after the Smittybilt purchase in January 1999.
INCOME FROM OPERATIONS: Income from operations for the three months ended April
2, 2000 was $3,062, a 71% increase over the three month period ended March 31,
1999. Compared to the pro forma three months ended March 31, 1999, operating
income increased by 21% from $2,523. In both comparisons, the favorable
operating income performance has been generated by increased sales and
reductions in selling, general and administrative expenses.
OTHER EXPENSE, NET: Other expense, net, was $3,248 for the three months ended
April 2, 2000, compared to $3,037 of expense for the three months ended March
31, 1999 and $3,213 for the comparable pro forma period. The increase in
interest expense of approximately $200 in the first quarter 2000 compared to
1999 actual is due to higher debt levels subsequent to the Smittybilt
acquisition on January 28, 1999.
EXTRAORDINARY LOSS: The Company incurred a $225 ($355, net of $130 deferred
income tax benefit) extraordinary charge relating to the defeasance of its
Industrial Revenue Bonds related to its Anoka, Minnesota facility.
INCOME TAX BENEFIT: For the three months ended April 2, 2000, the Company
recorded a tax benefit of $108. The income tax benefit recorded in the quarter
ended April 2, 2000 is lower than both 1999 actual
13
<PAGE>
and 1999 pro forma by $542 and $251 respectively. This difference is caused by
the Company's increased profitability. The Company's effective tax rate is
substantially different than the statutory federal tax rate of 34% due to the
amortization of non-tax deductible goodwill.
NET LOSS: The Company's net loss for the three months ended April 2, 2000 was
($303), or ($.03) per share. This compares to a net loss of ($600), or ($.08)
per share for the period ended March 31, 1999. On a pro forma basis for the
comparable period ended March 31, 1999, the net loss was ($331) or ($.04) per
share.
LIQUIDITY AND CAPITAL RESOURCES:
Cash used in operating activities was $2,791 for the three months ended April 2,
2000 compared to cash provided by operating activities of $2,284 for the three
months ended March 31, 1999. The increased use of cash in operating activities
for the three months ended April 2, 2000 is primarily due to the build in
working capital items, specifically inventory and receivables.
Cash provided by investing activities was $2,741 for the three months ended
April 2, 2000 compared to $16,899 of cash used in investing activities for the
period ending March 31, 1999. The significant cash used in investing activities
related primarily to the acquisition of Smittybilt, Inc. in the first quarter of
1999. The net cash provided by investing activities in the quarter ended April
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 provided by financing activities was $283 in the three months ended April
2, 2000 and $14,688 in the three months ended March 31, 1999. The significant
cash provided by financing activities in 1999 reflects the proceeds from
long-term debt and issuance of common stock related to the Smittybilt
acquisition.
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 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
April 2, 2000, the Company had borrowed $13,333 under its revolving credit line
and had additional availability of $16,667.
Consolidated assets have decreased $2,076 from $226,669 at December 31, 1999 to
$224,593 at April 2, 2000. The decrease in assets reflects primarily the
amortization of intangibles, property plant and equipment, and the change in
restricted cash, offset by the increase in working capital items, specifically
inventories and receivables.
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.
14
<PAGE>
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:
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.
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 light truck accessories
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.
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 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.
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 April 2, 2000, the Company continued its integration of its
information systems into a single platform for Lund and Deflecta-Shield. This
process is expected to be completed by the end of the second quarter 2000.
On April 26, 2000, the Company announced a plan to outsource the fiberglass
production at its Anoka, Minnesota facility. The Company anticipates phasing out
production over a six-month period with completion to occur by November. The
Company anticipates taking a $500 - $700 restructuring charge primarily during
the second and third quarters of 2000 related to this outsourcing decision.
15
<PAGE>
As a result of its acquisitions, the Company has significant goodwill. The
Company currently amortizes goodwill over a forty-year period. The Company
believes that, based on an historical perspective, and the fact that the
products it manufactures and sells are not appreciably influenced by
technological changes, the forty-year amortization period is appropriate.
However, the Company cannot ensure that regulatory decisions made outside of its
control might require it to shorten the period used to amortize goodwill
currently recorded or goodwill arising from future acquisitions. Reducing the
goodwill amortization period would not have any cash effect on the Company;
however, it may significantly impact future earnings due to a higher goodwill
charge.
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 April 2, 2000. 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 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, 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;
16
<PAGE>
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.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 5. Other Information
(a) None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
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
18
<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 12, 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
19
EXHIBIT 15
(PricewaterhouseCoopers LLP Letterhead)
(Minneapolis, MN)
May 10, 2000
Securities and Exchange Commission
450 Fifth Street N.W.
Washington D.C. 20549
Commissioners:
We are aware that our report dated April 25, 2000 on our reviews of the interim
consolidated financial information of Lund International Holdings, Inc. (the
"Company") for the three-month periods ended April 2, 2000 and March 31, 1999,
and included in the Company's Quarterly Report on Form 10-Q for the quarter
ended April 2, 2000, is incorporated by reference in the Company's Registration
Statements on Form S-8 (Registration Nos. 333-46263, 33-64083 and 33-37160).
Yours very truly,
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
20
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