FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] 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: 0-23238
DEFLECTA-SHIELD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 42-1411117
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1800 North 9th Street,
Indianola, Iowa 50125
(Address of principal (Zip Code)
executive offices)
(515) 961-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
As of May 13, 1996, 4,800,000 shares of the
registrant's Common Stock were outstanding.
<PAGE>
DEFLECTA-SHIELD CORPORATION
INDEX
Page
PART I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets
at December 31, 1995 and March 31, 1996 3
Condensed Consolidated Statements
of Operations for the Three Months ended
March 31, 1995 and 1996 4
Condensed Consolidated Statements of
Cash Flow for the Three Months ended
March 31, 1995 and 1996 5
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II. Other Information 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
2
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Dec. 31, Mar. 31,
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $533 $353
Accounts receivable, less
allowance for doubtful
accounts of $623 and
$735, respectively 9,708 11,148
Inventories 10,580 9,790
Deferred income taxes 1,635 1,635
Prepaid expenses 912 310
------- -------
Total current assets 23,368 23,236
Property and equipment, net 9,344 9,310
Intangible assets 12,601 12,455
Other assets 97 99
------- -------
$45,410 $45,100
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $1,523 $1,419
Accounts payable 4,233 4,810
Accrued expenses 2,423 2,320
------- -------
Total current liabilities 8,179 8,549
Deferred taxes 275 275
Long-term debt, less current
maturities 12,345 10,943
Stockholders' equity:
Common stock 48 48
Additional paid-in capital 18,556 18,556
Retained earnings 6,007 6,729
------- -------
$45,410 $45,100
======= =======
</TABLE>
The accompanying notes are an integral part of these
statements.
3
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1996
<S> <C> <C>
Net sales $17,351 $18,023
Cost of sales 10,356 12,233
------- -------
Gross profit 6,995 5,790
Operating expenses:
Selling 2,619 2,647
General and administrative 1,665 1,540
Amortization of other assets 113 146
------- -------
Income from operations 2,598 1,457
Interest expense 284 308
------- -------
Income before income taxes 2,314 1,149
Income tax expense 903 427
------- -------
Net income $1,411 $722
======= =======
Net income per share $.29 $.15
Weighted average
common shares outstanding 4,800 4,800
</TABLE>
The accompanying notes are an integral part of these
statements.
4
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1996
<S> <C> <C>
Cash flow from operating activities:
Net income $1,411 $ 722
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 310 462
Amortization of other assets 113 146
Add (deduct) changes in assets
and liabilities:
Accounts receivable (2,661) (1,440)
Inventories (2,001) 790
Prepaid expenses (133) 602
Accounts payable 753 577
Accrued expenses 323 (103)
------- -------
Net cash provided (used) by
operating activities (1,885) 1,756
------- -------
Cash flow from investing activities:
Acquisition adjustments 65 -
Acquisition of other assets - (2)
Purchases of property and equipment (1,556) (428)
------- -------
Cash used by investing activities (1,491) (430)
------- -------
Cash flow from financing activities:
Net proceeds (repayment) on revolving
line of credit 2,687 (1,402)
Repayment of debt (126) (104)
------- -------
Net cash provided (used) by financing
activities 2,561 (1,506)
------- -------
Net decrease in cash (815) (180)
Cash at beginning of period 747 533
------- -------
Cash at end of period $ (68) $ 353
======= =======
5
<PAGE>
Cash paid during the period for
interest $ 301 $ 324
Cash paid during the period for
income taxes $ 651 $ 10
</TABLE>
The accompanying notes are an integral part of this
statement.
6
<PAGE>
DEFLECTA-SHIELD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION OF UNAUDITED FINANCIAL
STATEMENTS
The accompanying unaudited consolidated financial
statements of Deflecta-Shield Corporation and its
subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information. In the
opinion of management, all adjustments (which were of a
normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for
the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the
year ended December 31, 1996. For further information,
refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
NOTE 2 - CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
<S> <C> <C> <C>
Balance at December 31, 1995 $ 48 $18,556 $6,007
Net income for the
three months
ended March 31, 1996 -- -- 722
------- ------- -------
Balance at March 31, 1996 $ 48 $18,556 $6,729
======= ======= =======
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the
financial condition and results of operations should be
read in conjunction with the condensed consolidated
financial statements included elsewhere herein and in
conjunction with the Management's Discussion and Analysis
of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1995.
Results of Operations
The following table sets forth, for the periods
indicated, certain operating data as a percentage of net
sales and the percentage change in the dollar amounts of
such items compared to the prior period.
<TABLE>
<CAPTION>
Percentage
Percentage of Increase
Net Sales (Decrease)
Three Months Three Months
Ended Ended
March 31, March 31,
1996
over
1995 1996 1995
<S> <C> <C> <C>
Net sales 100.0% 100.0% 3.9%
Cost of sales 59.7 67.9 18.1
----- -----
Gross profit 40.3 32.1 (17.2)
Selling expenses 15.1 14.7 1.1
General and administrative
expenses 9.6 8.5 (7.5)
Amortization of
other assets .6 .8 29.2
----- -----
Income from
operations 15.0 8.1 (43.9)
Interest expense 1.7 1.7 8.5
----- -----
Income before income taxes 13.3% 6.4% (50.3)
===== =====
</TABLE>
8
<PAGE>
Three Months ended March 31, 1996 Compared to Three
Months Ended March 31, 1995
Net Sales. Net sales were $18,023,000 for the three
months ended March 31, 1996, compared to $17,351,000 for
the three months ended March 31, 1995, an increase of
$672,000 or 3.9%. Net sales of light truck products
increased by $983,000 and net sales of heavy truck
products decreased by $311,000. The increase in net
sales of light truck products was attributable to sales
increases of $533,000 in Delta III products, $325,000 in
Trailmaster products and $288,000 in Fibernetics
products, offset by a net decrease of $183,000 in other
light truck product categories. Sales of heavy truck
products in 1996 were affected by a lower level of sales
of new heavy trucks which adversely affected demand for
the Company's heavy truck products.
Gross Profit. Gross profit was $5,790,000 for the
three months ended March 31, 1996, compared to $6,995,000
for the three months ended March 31, 1995, a decrease of
$1,205,000, or 17.2%. The reduction in gross profit was
primarily attributable to cost increases in raw
materials, primarily plastics, aluminum, and packaging;
the incurrence of additional overhead to accommodate
planned business consolidations; and the decrease in
heavy truck product sales. As a percentage of net sales,
gross profit decreased to 32.1% for the three months
ended March 31, 1996, compared to 40.3% for the three
months ended March 31, 1995, a decrease of 8.2% of net
sales. This percentage margin decrease was primarily
attributable to increased cost of sales of light truck
products. Gross profit on heavy truck products, as a
percentage of such sales, was relatively unchanged
between the quarters ending March 31, 1996, and March 31,
1995, respectively.
Selling Expenses. Selling expenses were $2,647,000
for the three months ended March 31, 1996, compared to
$2,619,000 for the three months ended March 31, 1995, an
increase of $28,000, or 1.1%. As a percentage of net
sales, selling expense decreased to 14.7% for the three
months ended March 31, 1996, from 15.1% for the three
months ended March 31, 1995. This decrease of 0.4% of
net sales was primarily attributable to a decrease in
sales personnel (compensation and associated costs,
including travel, decreased as a percentage of net sales
by 0.6% for the quarter ended March 31, 1996, compared to
the quarter ended March 31, 1995) and a decrease in
variable selling expenses of 0.8% of net sales for the
quarter ended March 31, 1996, compared to the quarter
ended March 31, 1995. The remaining change in selling<PAGE>
9
<PAGE>
expenses, an increase of 1.0% of net sales, was primarily
attributable to an increase in advertising expense of
0.7% of net sales.
General and Administrative Expenses. General and
administrative expenses were $1,540,000 for the three
months ended March 31, 1996, compared to $1,665,000 for
the three months ended March 31, 1995, a decrease of
$125,000, or 7.5%. As a percentage of net sales, general
and administrative expense decreased to 8.5% for the
three months ended March 31, 1996, from 9.6% for the
three months ended March 31, 1995. This decrease of 1.1%
of net sales was primarily attributable to a decrease of
1.7% of net sales for general and administrative wages
and associated costs, including travel. The remaining
change in general and administrative expense, an increase
of 0.6% of net sales, was primarily attributable to an
increase in product development expense of 0.5% of net
sales.
Interest Expense. Interest expense was $308,000 for
the three months ended March 31, 1996, compared to
$284,000 for the three months ended March 31, 1995, an
increase of $24,000, or 8.5%. Interest bearing debt
averaged approximately $13,123,000 for the quarter ended
March 31, 1996, compared to approximately $12,990,000 for
the quarter ended March 31, 1995.
Seasonality and Quarterly Data
Although the Company deviated from the pattern in
1995, it has historically generated the majority of its
net sales and income from operations in the second and
third quarters of each year. The Company expects results
to move toward the historical pattern in 1996 and future
years. This seasonal pattern combined with effects of
new product introductions and the timing of customer
orders can cause the Company's results of operations to
vary from quarter to quarter.
Liquidity and Capital Resources
The Company's primary sources of working capital are
cash flow from operations and borrowings by the Company
under its credit facility. As of March 31, 1996, the
Company had cash balances of approximately $353,000 and
working capital of approximately $14,687,000.
Net cash provided (used) by operating activities was
approximately $1,756,000 and $(1,885,000) for the
quarters ended March 31, 1996, and March 31, 1995,
respectively.
10
<PAGE>
The Company's capital expenditures totaled
approximately $428,000 and $1,556,000 for the quarters
ended March 31, 1996, and March 31, 1995, respectively.
In August 1994, the Company initiated the
construction of a new distribution facility in Indianola,
Iowa. Upon completion of Phase I of this facility in
late December 1994, the Company relocated and
consolidated certain of its distribution and
manufacturing functions. The Company received certain
state and local grants and loans with respect to this
project. Total capital expenditures of the Company
associated with the Indianola, Iowa facility (net of
state and local funding), including computer hardware and
software, were $3.7 million, with approximately $1.6
million expended in 1994 and approximately $2.1 million
expended in 1995. Phase I of the facility was
operational in early January 1995. Phase II of the
facility, an expansion of approximately 60,000 square
feet, was completed and occupied in July 1995. The
period costs incurred in the fourth quarter of 1994 and
in the first six months of 1995 in connection with this
project, primarily consisting of costs and expenses
associated with acquiring and training the initial
workforce for the Indianola facility, were recognized as
these costs were incurred. The Company is currently
studying the appropriate means of consolidating portions
of its manufacturing and distribution facilities. The
locations into which various activities would be
consolidated have not been determined. The Company
anticipates that costs and expenses associated with any
relocation and consolidation of the Company's
distribution and manufacturing functions would be
substantially offset by cost savings generated through
such relocation and consolidation. The timing
relationship between the incurrence of such charges and
the generation of such savings may cause the Company's
results of operations to vary from quarter to quarter.
On July 21, 1994, the Company entered in to a $24
million Revolving Credit and Acquisition Facility (the
"Credit Agreement") with Heller Financial, Inc. (the
"Lender"), pursuant to which the Lender is providing
Deflecta-Shield with a $6.0 million revolving credit
facility (the "Revolver") and an $18.0 million
acquisition facility (the "Acquisition Facility").
Approximately $2 million of the Revolver was used to
finance the purchase of the assets of Trailmaster
Products, Inc., with the balance of the purchase price
paid with cash generated from operations of Deflecta-
Shield's subsidiaries. Approximately $5.8 million of the
Acquisition Facility was used to finance the purchase of<PAGE>
11
<PAGE>
Delta III, Inc., with the balance of the purchase price
paid with a note made by a subsidiary of the Company for
approximately $1.5 million. Deflecta-Shield's
obligations under the Credit Agreement are guaranteed by
its direct and indirect wholly owned subsidiaries. Some
of these guarantees are secured by the assets of certain
subsidiaries. Availability under the Acquisition
Facility is subject to the sole and absolute discretion
of the Lender. It is anticipated that future
acquisitions by Deflecta-Shield and its subsidiaries will
be funded primarily through the Acquisition Facility. No
such acquisitions are currently contemplated.
The Credit Agreement provides for the revolving
credit and acquisition loans up to the amount of the
respective commitments until July 21, 1999. Under the
terms of the Credit Agreement, Deflecta-Shield paid a
closing fee of $60,000, and is obligated to pay a fee of
.5% per annum of the unused Revolver and .2% per annum of
the unused portion of the Acquisition Facility during the
term of the Credit Agreement. Availability under the
Revolver is limited by levels of inventory and
receivables which, together with other assets, secure the
borrowings under the Credit Agreement. Interest on all
loans under the Credit Agreement is payable at varying
rates, ranging from the Lender's base rate (the "Base
Rate") plus .5% for loans under the Revolver, to a
maximum of the Base Rate plus 2% for the final $6 million
drawn under the Acquisition Facility.
The Credit Agreement contains certain covenants
covering Deflecta-Shield and its subsidiaries on a
consolidated basis, including, without limitation,
covenants relating to the maximum amount of indebtedness
which the entities may incur and limitations on capital
expenditures and payment of dividends by Deflecta-Shield.
As of March 31, 1996, the outstanding principal
balance, together with accrued interest, under the credit
facility was approximately $11,027,000. During 1995, the
Lender agreed to make $3,000,000 of the Acquisition
Facility available on a revolving basis. At March 31,
1996, the amount available under the Revolver and the
revolving portion of the Acquisition Facility was
approximately $5,531,000. The Company believes that cash
flow from operations and available borrowings under the
credit facility will be adequate to meet the Company's
liquidity needs for the next 12 months.
In the ordinary course of business, the Company is
subject to examination by the Internal Revenue Service
12
<PAGE>
(the "IRS"). In October 1994, the IRS initiated an
examination of the 1990 Federal income tax return of DFM
Corp. The examination was subsequently expanded to
include the 1991 and 1992 Federal income tax returns. As
of March 1996, the examination has been substantially
completed, and the Company anticipates settlement of all
matters in connection with this examination for a total
assessment of between $245,000 and $300,000 in additional
Federal income tax for the periods examined. The Company
believes that it has made adequate provision for the
additional assessment of taxes.
Forward Looking Information
Information included in this Report on Form 10-Q
relating to sales and earnings expectations constitutes
forward-looking statements that involve a number of risks
and uncertainties. From time to time, information
provided by the Company or statements made by its
employees may contain other forward-looking statements.
Factors that could cause actual results to differ
materially from the forward-looking statements include
but are not limited to: general economic conditions,
including their impact on the sale of new light trucks;
sales of heavy trucks, which are cyclical; competitive
factors, including pricing pressures; changes in product
and sales mix; the timely development and introduction of
competitive new products by the Company and market
acceptance of those products; inventory risks due to
changes in market demand or the Company's business
strategies; difficulties which may be encountered in the
consolidation of the Company's manufacturing and
distribution facilities; changes in effective tax rates;
and the fact that a substantial portion of the Company's
sales are generated from orders received during the
quarter, making prediction of quarterly revenues and
earnings difficult. The words "believe," "expect,"
"anticipate," "project," and similar expressions identify
forward looking statements. Readers are cautioned not to
place undue reliance on these forward looking statements,
which speak only as of the date made. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise.
13
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27.--Financial Data Schedule
14
<PAGE>
SIGNATURE
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 13, 1996
DEFLECTA-SHIELD CORPORATION
By: /s/ LOWELL A. SWARTHOUT
-------------------------------------
Lowell A. Swarthout,
Vice President and
Chief Financial Officer
(Duly authorized officer and Principal
Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<NAME>DEFLECTA-SHIELD CORPORATION
<CIK> 0000914605
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 353
<SECURITIES> 0
<RECEIVABLES> 11,148
<ALLOWANCES> 735
<INVENTORY> 9,790
<CURRENT-ASSETS> 23,236
<PP&E> 17,875
<DEPRECIATION> 8,565
<TOTAL-ASSETS> 45,100
<CURRENT-LIABILITIES> 8,549
<BONDS> 10,943
0
0
<COMMON> 48
<OTHER-SE> 25,285
<TOTAL-LIABILITY-AND-EQUITY> 45,100
<SALES> 18,023
<TOTAL-REVENUES> 18,023
<CGS> 12,233
<TOTAL-COSTS> 12,233
<OTHER-EXPENSES> 4,333
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<INCOME-TAX> 427
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