<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number: 0-23238
DEFLECTA-SHIELD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 42-1411117
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1800 North Ninth Street 50125
Indianola, Iowa (Zip Code)
(Address of principal
executive offices)
(515) 961-6100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of each class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant on March 25, 1997 was $ 25,529,359 based upon a closing
price of $ 9.50 per share on that date, on the NASDAQ Stock Market,
Inc., using beneficial ownership of stock rules adopted pursuant to
Section 13 of the Securities Exchange Act of 1934. Certain persons
designated as affiliates for purposes of this computation may not be
held to be affiliates upon judicial determination.
At March 25, 1997, 4,800,000 shares of the Registrant's Common Stock
were outstanding.
Part III incorporates information by reference from portions of the
Registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 22, 1997, which will be filed with the
Securities and Exchange Commission within 120 days after December 31,
1996. <PAGE>
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DEFLECTA-SHIELD CORPORATION
INDEX
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . 14
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Market for Registrant's
Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . 15
Item 6. Selected Consolidated
Financial Data . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion
and Analysis of Financial
Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . 17
Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . 22
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . 22
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Items 10, 11, 12 and 13
Directors and Executive Officers
of the Registrant, Executive
Compensation, Security Ownership
of Certain Beneficial Owners and
Management and Certain Relationships
and Related Transactions . . . . . . . . . . . . . 23
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2<PAGE>
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PART I
Item 1. Business
Forward-Looking Statements
Information included in this Report on Form 10-K may constitute
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. 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.
General
Deflecta-Shield Corporation is a holding company with subsidiaries
involved in the manufacture and marketing of accessories for light
trucks and heavy trucks primarily in the United States. Deflecta-Shield
Corporation conducts its business through its direct and indirect
subsidiaries. The direct subsidiaries are Belmor Autotron Corp. and DFM
Corp. The indirect subsidiaries are BAC Acquisition Co.
("Fibernetics"), Trailmaster Products, Inc. ("Trailmaster"), and Delta
III, Inc. ("Delta III"), through which the company acquired its
Fibernetics(TM), Trailmaster(reg. trdmk.) and Delta III(TM) product lines,
respectively. Deflecta-Shield Corporation and its direct and indirect
subsidiaries are referred to herein collectively as the "Company."
The Company is a leading manufacturer and marketer of accessories for
light trucks (which include pick-up trucks, sport utility vehicles,
mini-vans and other vans) and heavy trucks in the United States. Its
product lines for light trucks include bug deflectors, which customize
the relatively uniform look of light trucks and protect hoods and
windshields from insects, stones and other road debris; fiberglass,
aluminum, and ABS running boards; tool boxes; cab visors; and suspension
kits and related accessories. In addition to its light truck
accessories, the Company is the largest supplier in the United States of
winterfronts, bug screens, bug deflectors and rock guards for heavy
trucks. The Company also manufactures and markets interior trim parts
for heavy truck cabs.
The Company sells its products under several brand names including
Deflecta-Shield(reg. trdmk.), Streetmaster(TM), Trailmaster(reg. trdmk.),
Delta III(TM), Challenger(TM), Fibernetics(TM) and Belmor Autotron(TM), and
also sells its products through private label/original equipment manufacturer
("OEM") lines. Its light truck accessories are sold through a
nationwide distribution system incorporating automotive warehouse
distributors, automotive specialty chain stores, OEMs, catalog companies
and dealer expediters. In these respective categories, customers for
light truck accessories include Reliable Automotive, Champion Auto
Stores, Ford Motor Company ("Ford") and Chrysler Corporation
("Chrysler"), Warshawsky & Company (J.C. Whitney catalog) and Dulando
Auto Screens. The Company's heavy truck products are sold through heavy
truck dealers and directly to heavy truck manufacturers such as Ford,
Freightliner, Kenworth, Navistar, Peterbilt, Volvo and Western Star.
Deflecta-Shield Corporation is incorporated in the State of Delaware.
The principal executive offices are located at 1800 North 9th Street,
Indianola, Iowa 50125 (telephone 515/961-6100).
3 <PAGE>
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Industry Overview
Light Trucks. According to data supplied by the American Automobile
Manufacturers' Association (the "AAMA"), retail sales of light trucks in
the United States have increased to 4,421,891 units in 1995 from
2,718,927 units in 1991. The following table sets forth data on sales
of new light trucks in the United States during the periods shown:
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Number of
Units Sold 4,421,891 4,132,069 3,754,219 3,211,669 2,718,927
Source: AAMA Data on U.S. Domestic Retail Sales of Light Trucks
(0-6,000 lbs.). Sales information for 1996 is not yet available.
The Company believes that the increase in light truck sales is due,
in part, to the more comfortable interiors and modern designs offered in
late model light trucks, the increasing popularity of sport utility
vehicles, the low price of certain light trucks relative to automobiles,
the changing lifestyles of consumers and the increasing acceptance of
light truck use for everyday transportation. Light trucks have a
relatively uniform appearance because of the limited number of makes,
models and option packages available from manufacturers of such
vehicles. Light truck owners often purchase various accessories to
modify or enhance the appearance of their vehicles and to differentiate
them from other vehicles.
Light truck accessories include bug deflectors, running boards,
bedliners, cab visors, window visors, truck bed tool boxes,
headlight/taillight covers, tonneau covers, sport/fog lights, roll bars,
grille/brush guards, suspension kits, ground effects, pick-up truck
covers and many other product types. Distribution channels for light
truck accessories include warehouse distributors (resellers to auto
parts stores), auto specialty chain stores, mass merchants, dealer
expediters (installers of accessories for dealerships and consumers),
catalog companies and OEMs.
Heavy Trucks. The heavy truck market consists of over-the-road
trucks in the Class 8 weight category (trucks with a gross vehicle
weight over 33,000 pounds). In the past decade, annual sales of new
heavy trucks have fluctuated significantly. The following table sets
forth data on sales of new heavy trucks in the United States during the
periods shown:
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------
Number of
Units Sold 170,009 201,303 185,696 157,886 119,057 98,711
Source: AAMA data on Class 8 Truck Sales. Based on industry
projections, the Company expects that the number of units to be sold in
1997 is approximately 149,000.
Functional purposes are generally more important in sales of heavy
truck products than light truck accessories. Examples of heavy truck
products include bug deflectors, winterfronts (radiator covers to help
regulate engine and cab temperatures), rock guards (which deflect rocks
and other road debris away from the radiator and engine) and bug screens
(radiator screens to catch bugs).
Products
General. The following table sets forth the dollar amount and
percentage of net sales contributed by certain classes of the Company's
products during the periods shown:
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Year Ended December 31, 1996
----------------------------
Net % of
Sales Total
------- -------
(Dollars in thousands)
Light truck accessories:
Bug deflectors $21,921 30.3%
Other(1) 37,117 51.3
------ -----
Total light truck accessories 59,038 81.6
Heavy truck products 13,300 18.4
------ -----
Total net sales $72,338 100.0%
====== =====
Year Ended December 31, 1995
----------------------------
Net % of
Sales Total
------- -------
(Dollars in thousands)
Light truck accessories:
Bug deflectors $20,253 29.7%
Other(1) 33,540 49.1
------ ----
Total light truck accessories 53,793 78.8
Heavy truck products 14,446 21.2
------ -----
Total net sales $68,239 100.0%
====== =====
Year Ended December 31, 1994
----------------------------
Net % of
Sales Total
------- -------
(Dollars in thousands)
Light truck accessories:
Bug deflectors $24,781 40.9%
Other(1) 21,465(2) 35.4
------ ----
Total light truck accessories 46,246 76.3
Heavy truck products 14,340 23.7
------ ----
Total net sales $60,586 100.0%
====== =====
(1) Includes sales of other light truck accessories, including running
boards, tool boxes and suspension kits.
(2) Includes sales by Trailmaster and Delta III since the effective
dates of the respective acquisitions.
Light Truck Accessories
Bug Deflectors. The Company has been a leader in the market for
light truck bug deflectors since 1961, when it developed the original
Deflecta-Shield(reg. trdmk.) bug deflector. A bug deflector is an
accessory which can be mechanically fastened, or mounted with
Deflecta-Shield's no-drill attachment, and is designed to both enhance
the appearance of a vehicle and protect the windshield and hood from
insects, stones and other road debris. The original line of bug
deflectors, Custom Fit(TM), is made with a cut, acrylic, plastic sheet
mounted vertically in an aluminum channel which is fastened to the
underside of the hood.
In the late 1980's, a new line of bug deflectors was developed by the
Company under the Concept II(TM) name which combined the new contoured,
aerodynamic style with the toughness of General Electric Plastics(TM)
Lexan(reg. trdmk.), a highly impact-resistant polycarbonate plastic.
Like Custom Fit, the Concept II line of deflector is manufactured in a
variety of colors and to individual model year specifications.
In 1991, the Company introduced a new top-of-the-line bug deflector
under the Mirage(reg. trdmk.) name, which featured wrap- around design
and Quad Airflow Vents(TM). The wrap-around design feature helps protect
painted fenders from chipping, while the Quad Airflow Vents are designed
to reduce the back pressure created by air deflection in order to
provide significant air deflection while maintaining aerodynamics and
permitting windshield sprayers to function properly. During the first
quarter of 1994, the Magnum(TM) line of wrap-around bug deflectors was
introduced. The Magnum bug deflectors feature a flowing aerodynamic
appearance combined with the toughness and durability of Lexan(reg.
trdmk.). Most competitors manufacture bug deflectors only from acrylic
or modified acrylic materials which are less resistant to breakage and
scratching.
During the first quarter of 1995, the Company introduced several new
bug deflector products for dealer-expediter customers. These new
products include the LX2000(TM) Wrap Around Shield and the LX1000(TM) Contour
Shield, which are premium, high quality bug deflectors made from
Lexan(reg. trdmk.). These products are designed to satisfy the needs of
truck dealers and consumers seeking high quality and modern aerodynamic
styling. The Company's other new products for 1995, the AC200(TM) Wrap
Around Shield and the AC100(TM) Contour Shield, meet the needs of more value
conscious customers.
The Company's bug deflectors are marketed through a variety of
distribution channels under various brand and product names and at
various price points. Light truck bug deflector product lines are
marketed through warehouse distributors, auto specialty chain stores,
mass merchants, dealer expediters, catalog companies and OEMs with brand
name differentiation in the different market channels and with products
manufactured from Lexan(reg. trdmk.), modified acrylic and acrylic
plastics.
5 <PAGE>
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Fiberglass, Aluminum and ABS Running Boards. In July 1993, the
Company entered the market for light truck running boards with its
acquisition of the Fibernetics(TM) product line, a line of premium molded
fiberglass running boards for pick-up trucks, mini-vans and sport
utility vehicles. Manufactured of reinforced fiberglass and available
in a variety of original factory colors, these running boards provide an
aerodynamic, original equipment look, protect the sides of the vehicle
and assist in entry and exit. The Company markets its full length
running board products under the SportBoard(reg. trdmk.) name and its
pick-up truck step boards under the SportStep(reg. trdmk.) name. As
part of the Fibernetics acquisition, a line of body styling accessories
was acquired including full flare van running boards, van tops, ground
effects, rear wings and air dams.
The August 1994 acquisition of the Delta III(TM) lines has provided a
complement to the Company's existing line of fiberglass running boards.
Delta III manufactures an extensive line of treadplate aluminum and
extruded aluminum running boards. In addition to running boards, Delta
III manufactures a full line of treadplate aluminum and extruded
aluminum pick-up bed protection products.
In June 1996, the Company introduced an ABS running board with an
exclusive body-mount attachment system. The paintable thermoformed
polymer shell is reinforced with an extruded aluminum sub-frame that
provides enough rigidity to permit a person to stand anywhere along the
length of the board. Also in June 1996, the Company introduced
paintable fender flares that are molded from ABS material. These
products are marketed under the Sportrend(TM) name and can be combined
to complete an integrated styling package. The fiberglass, aluminum,
and ABS running boards allow the Company to offer the most complete
running board program in the industry.
Aluminum Tool Boxes. Under the Challenger(TM) brand name, Delta III
manufactures a complete line of high quality treadplate aluminum pick-up
truck tool boxes.
Light Truck Visors. In 1989, the Company introduced its SunCap(reg.
trdmk.) Visor, a fiberglass accessory which reduces glare on windshields
and helps prevent heat build-up in truck cabs. In 1990, the Company
introduced the lighted SunCap(reg. trdmk.) Visor, the industry's first
lighted cab visor, providing a stylish nighttime look.
In 1994, the Company introduced its Vision Visor(reg. trdmk.), the
first two piece visor specifically designed to complement and blend with
the aerodynamic look of current models of pick-up trucks, mini-vans and
sport utility vehicles. Vision Visor(reg. trdmk.)'s lighted and
unlighted versions provide a unique contour design featuring a
smoke-tint Lexan(reg. trdmk.) insert, which allows filtered light
through the visor, helping to eliminate the "tunnel" effect associated
with certain other visor designs.
Light Truck Suspension Products. The July 1994 acquisition of
Trailmaster resulted in the addition of a full line of products for
lifting or lowering vehicles. Trailmaster is best known for its Matched
Systems Technology approach, under which each Streetmaster(TM) brand
lift kit is engineered to include all the system's components.
Trailmaster believes this preferable to selling individual components
separately which may or may not function properly together when
assembled. In the second quarter of 1996, Trailmaster introduced the
SSV(TM) self adjusting shock absorber that provides "on-the-fly" ride
adjustability.
Other Light Truck Accessory Products. In the second quarter of 1995,
the Company introduced a line of light truck vent-shields and Lexan(reg.
trdmk.) Cruiser(TM) Headlight Covers. These products complement the
existing line of slotted Cruiser(TM) Taillight Covers. In the fourth
quarter of 1995, a cargo mat was introduced, a formed rubber mat to
protect the floor space in the cargo area of sport utility vehicles.
In the third quarter of 1996, the Company introduced Sports Caps(TM),
an ABS bed rail protector; Sports Cover(TM), a fiberglass tonneau cover;
Sports Shades(TM), an ABS window shade for the rear sidewindows of
extended cab pickups; and Scorcher(TM), two tailgate spoilers
manufactured from either modified acrylic or aluminum. The Company also
offers other light truck product accessories such as fiberglass cab
extenders, aluminum side rails, chrome tie downs and rear air
deflectors.
6 <PAGE>
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Heavy Truck Products
General. The Company's line of products for heavy trucks is
developed, manufactured and marketed at the facility in Chicago,
Illinois. The Company is the largest supplier of winterfronts, bug
screens, bug deflectors and rock guards for heavy trucks in the United
States. Each of these product lines is (i) designed and developed in
cooperation with major heavy truck manufacturers, (ii) built to
individual model year specifications, and (iii) with few exceptions, the
exclusive OEM-approved accessory sold to the OEM in that product
category. These products are sold for substantially all makes and
models of U.S.-made heavy trucks. Function is emphasized to a greater
degree in the manufacturing of the Company's heavy truck products than
its light truck accessories.
Heavy Truck Bug Deflectors. Heavy truck bug deflectors are designed
to provide air deflection to keep truck windshields cleaner, reduce
driver fatigue, and prevent chipping of paint on truck fenders. The
Company is the largest supplier in the United States of heavy truck bug
deflectors.
The Company's heavy truck bug deflectors are manufactured and
marketed primarily under the Aeroshield(TM) name. The Aeroshield I is a
traditionally-styled flat vertical deflector manufactured from
Lexan(reg. trdmk.), mounted in an aluminum channel and available in five
colors. The Aeroshield II is an aerodynamically designed bug deflector
manufactured from Lexan(reg. trdmk.) and mounted in a bright-dipped,
anodized aluminum base that attaches on top of the truck hood to provide
a sleek, original equipment look. The Aeroshield III is a high-end,
stylish deflector made of molded, UV-fade resistant acrylic mounted in a
black ABS plastic base. In addition, the Aeroshield III has an
accessory, the Aero Mask(reg. trdmk.), a black ABS plastic mask which
attaches using existing holes and hardware and which provides front end
protection against rocks, chips and scratches. During the first quarter
of 1994, the Company introduced Aeroshield-Plus, an aerodynamically
designed shield for heavy trucks. To satisfy the market need for a mid
priced aerodynamic shield, the Company introduced the Aeroshield Wave in
early 1996.
A Mustache Shield(reg. trdmk.) is a contoured bug deflector designed
to fit the sloping hood of certain model trucks. The Company also
manufactures heavy truck Universal Sider Shields, a pair of 19"
one-sized Lexan(reg. trdmk.) deflectors, which mount vertically on the
truck front.
Bug Screens and Rock Guards. Bug screens are used primarily during
the warmer months of the year to keep bugs and road debris from reaching
the radiator of a truck. Bug screens are constructed of light weight
aluminum or fiberglass screen mesh and are often included in a new truck
package. They are snapped on to the front of the truck and are
generally replaced about every other year at a heavy truck dealer. Rock
guards are heavy fabricated metal screens installed inside the truck
engine compartment in front of the radiator and designed to protect the
radiator and engine against damage from rocks and other road debris.
Rock guards are installed on many truck models as a standard part. The
Company is the largest supplier of bug screens and rock guards in the
United States.
Two types of bug screens are offered; aluminum mesh and fiberglass
mesh bug screens. Aluminum bug screens are constructed of light weight
aluminum screen mesh material with vinyl binding. Fiberglass bug
screens are lower-priced products, manufactured of black fiberglass mesh
with flexible vinyl binding and can be easily folded and stored when not
in use. The Company also offers a designer series of fiberglass bug
screens with designs such as the American Flag, Confederate Flag,
Canadian Flag, company names, fleet logos or truck manufacturers' logos
in various color schemes.
Rigid frame rock guards are premium-priced grill protectors
constructed of heavy gauge aluminum screen mesh with a rigid metal
frame.
Winterfronts. Winterfronts are snap-on vinyl covers for the radiator
grill on the front of a truck and are used to regulate the air intake of
the truck's engine during cold weather. By installing a winterfront, a
driver can maintain proper engine operating temperature in cold weather
and increase the amount of heat available to warm the cab of the truck.
The Company is the largest supplier of winterfronts in the United
States.
7 <PAGE>
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Three basic styles of winterfronts are offered by the Company: fixed
opening winterfronts, adjustable opening winterfronts and "V" opening
winterfronts. The style of winterfront selected for a heavy truck
depends on the manufacturer, model and engine type of the truck. The
Company has a United States patent on its center opening winterfront, an
innovative product developed to reduce engine wear. Fixed center
opening winterfronts were developed in response to technological changes
in heavy truck engines. In some cases, hardware to attach the
winterfronts to the truck is sold separately. Materials used in all of
the winterfronts are designed to resist cold cracking down to -40 F with
shrinkage of less than 2% over two years and are resistant to wind whip
and salt spray. Winterfronts are sold in standard white vinyl or can be
custom silk screened with company names, fleet logos or with truck
manufacturers' logos.
Interior Trim Parts. The Company also manufactures and sells
interior panels and trim items to certain manufacturers of heavy trucks,
and replacement trim kits for certain models to heavy truck dealers.
Replacement trim kits are offered for certain Ford, Navistar and Mack
heavy truck models. Interior trim products sold to heavy truck
manufacturers include door panels, roof panels, side panels, sleeper
curtains, door pockets, dash boards, headliners, carpets and floor
mats. A dielectric heat sealing process is utilized in manufacturing
interior trim products with sheet vinyl, foam and fiberboard as the
primary raw materials. Interior trim products sold directly to OEM
customers are installed on the truck during assembly. Replacement trim
kits are sold through heavy truck dealers, are designed for the
do-it-yourself market and are sold as an affordable method to upgrade a
worn interior and increase the resale value of a truck.
Product Development
Enhancement of its existing products and the development of new
products are essential for the Company's long-term growth and success in
the light truck and heavy truck product markets. New product ideas are
generated by senior management, the product development staff,
manufacturers' representatives and through suggestions from customers
and outside consultants.
Development of new products is managed by a team of engineers located
in the Longmont, Colorado facility. The product development team is
responsible for the design, engineering and development of new products,
including assessing feasibility, manufacturing cost parameters and lead
times.
Moldmakers are employed at manufacturing facilities in Longmont,
Colorado, Corydon, Iowa and Compton, California. The moldmaking staff
is responsible for the manufacture, repair and maintenance of the
tooling used in the manufacture of the thermoformed, vacuum formed and
fiberglass products. The Company believes that the size and
capabilities of its moldmaking staff contribute significantly to the
ability to quickly bring new product ideas to market. The length of the
new product development cycle for the Company's products (from concept
to initial production) varies, but is typically between nine and 18
months.
New products are currently being developed in several categories for
introduction to the marketplace in 1997.
Customers and Marketing
General. The Company has in excess of 1,900 active customers. The
Company ships its products directly to over 6,000 different locations,
including numerous heavy truck dealers and automotive specialty stores.
In 1996, none of the customers accounted for 10% or more of net sales,
with the largest customer accounting for approximately 6% of net sales,
the top four customers accounting for approximately 19% of net sales,
and the top 15 customers accounting for approximately 42% of net sales.
Light Truck Accessories. The Company sells its light truck
accessories through a diversified nationwide distribution system.
Autotron Products ("Autotron"), a division of DFM Corp., Trailmaster,
and Fibernetics are primarily responsible for their own sales and
marketing activities. The balance of the sales and marketing programs
are developed and coordinated from its corporate headquarters in
Indianola, Iowa by DFM Corp.'s Vice President of Sales and Marketing who
8 <PAGE>
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oversees three Sales Directors, who in turn oversee 20 independent
representative organizations.
In the light truck accessory market, warehouse distributors and
performance warehouse distributors are the primary channels for high
quality aftermarket accessories. Warehouse distributors often stock a
broad line of aftermarket products in multiple warehouse locations, and
sell to independent auto parts stores, auto repair stores and service
stations. Customers in the warehouse distributors category include
Reliable Automotive and Keystone Automotive. Performance warehouse
distributors, including customers such as American Specialty and
Performance Warehouse, specialize in aftermarket products designed to
improve the performance of a vehicle and sell to similar retailers and
installers.
Dealer expediters provide aftermarket accessories and installation
services to automotive dealers. Customers of the Company in the dealer
expediter category include Monroe Truck Equipment and Memphis
Accessories. Automotive specialty chain stores are larger
multi-location retail auto parts stores that frequently purchase
aftermarket products on a direct basis from manufacturers. This type of
customer includes Champion Auto Stores. Catalog companies, such as
Warshawsky & Company (J.C. Whitney catalog), purchase aftermarket
products directly from manufacturers and sell through catalogs
distributed to a variety of customers, including consumers and
automotive dealers. Automobile and light truck OEMs, including
customers such as Ford, Chrysler and Toyota, purchase specialized
aftermarket accessories directly from accessory manufacturers and sell
these products through their parts distribution divisions to their
dealer networks.
Consumers purchase light truck accessories through a variety of
distribution channels. The majority of the Company's light truck
accessories are purchased by consumers at retail auto parts stores.
These stores may be independent or part of automotive specialty chains.
In most retail stores, the consumer has a choice of only one or two
manufacturers' product lines in the categories in which the Company
competes. Some retailers offer installation services for accessories.
In other instances, the retailer may refer the consumer to a service
garage or the consumer will install the accessory himself. Consumers
may also purchase light truck accessories, through mail order catalogs,
at automotive dealers' parts departments or at automotive dealers as an
add-on accessory installed at the time of a new truck purchase.
The in-house marketing and sales department at the Indianola, Iowa
corporate headquarters manages the light truck aftermarket accessory
marketing and sales efforts for locations except Autotron, Trailmaster
and Fibernetics. This department's responsibilities include: (1)
managing and supporting the independent manufacturers' representative
network; (2) creating and implementing marketing plans; (3) developing,
purchasing and monitoring advertising, including cooperative advertising
and promotional campaigns; (4) developing and implementing sales
programs; (5) designing and creating product catalogs, price lists and
other marketing materials; (6) managing trade show scheduling and
exhibits; (7) designing and coordinating retail packaging materials; and
(8) providing market research and input into new product development
plans.
A variety of marketing tools are utilized to increase awareness of
the Company's products and promote its brands and sales of its light
truck accessories at the retail level. The Company designs and develops
product catalogs, price/application lists and other product literature
which it distributes directly and through its independent manufacturers'
representatives. In addition, point-of-purchase displays are developed
and provided to retailers of the Company's products. These displays
feature miniature versions of various products and highlight their
respective features and benefits. Advertising campaigns are also
conducted by the Company in light truck enthusiast magazines such as
"Four Wheeler", "Four Wheel and Offroad" and "Sport Truck." Cooperative
advertising programs are offered to retailers which feature accessory
products in their advertising.
Heavy Truck Products. The Company's heavy truck products are sold in
the United States primarily (i) through OEM direct ship programs
involving approximately 2,800 heavy truck dealers, (ii) directly to
heavy truck manufacturers and (iii) directly to heavy truck OEM parts
distribution centers. The heavy truck products customers include every
9 <PAGE>
<PAGE>
major heavy truck manufacturer in the United States, including
Freightliner, Navistar, Paccar (including both Kenworth and Peterbilt),
Volvo-White-GMC, Ford, Mack, Marmon and Western Star.
Participation in OEM direct ship programs allows telephone sales
representatives to speak directly to heavy truck dealers on a frequent
basis. Heavy truck dealers order accessories directly from the Company
and the product is shipped directly to dealers. Invoices for the orders
are sent to the aftermarket parts divisions of the heavy truck OEMs
which pay for their dealers' orders and bill the dealers separately. An
outbound telemarketing program and an inbound customer service staff are
located in Chicago, Illinois to service the Company's heavy truck dealer
customer base.
The Company ships its accessory products directly to heavy truck
dealers that include the products in new truck accessory packages and
sell the products as replacement parts. Products are sold to heavy truck
OEM parts distribution centers which stock accessories and in turn
supply the OEMs' dealers. The Company also sells and ships its heavy
truck products directly to heavy truck OEMs which install these products
on or include them with new trucks. A manufacturer's representative is
engaged in connection with sales to Paccar and Freightliner.
Customer Service Departments. The Company has three customer service
departments. The light truck accessory customers are serviced by an
inbound customer service department located in the Indianola, Iowa
facility and a combination inbound/outbound customer service and
telemarketing department in the Sturgis, Michigan facility. These
departments process all light truck customer orders. The heavy truck
products are serviced by a telemarketing and customer service department
located in the Chicago, Illinois facility.
Manufacturing and Sourcing
The Company's products are manufactured in six different locations,
each of which utilizes a variety of manufacturing processes. In
addition, the Indianola, Iowa facility is used as corporate headquarters
and distribution and warehouse.
Indianola, Iowa--The Indianola, Iowa facility is the primary
distribution location for light truck products and houses the corporate
offices.
Corydon, Iowa--The Corydon, Iowa plant is a manufacturing, assembly
and packaging facility. Manufacturing operations in this facility
include manufacture of fiberglass products, routing of plastic sheet,
cutting of extruded aluminum channels for bug deflectors, assembly and
thermoforming of bug deflectors and other accessories, and packaging of
products. The primary fiberglass products manufactured in the Corydon
facility are the Deflecta-Shield(reg. trdmk.) brand SportBoard(reg. trdmk.)
running boards, SportStep(reg. trdmk.) step boards, and SportVisors(TM).
The Company also leases a small facility in Corydon which is utilized as a
painting facility and tool shop.
Longmont, Colorado--The Longmont, Colorado plant is the principal
manufacturing facility for molded bug deflectors. The principal
manufacturing activity in this plant is thermoforming of Lexan(reg.
trdmk.), modified acrylic plastic, and acrylic plastic in a process
that combines computer controlled ovens and an automated conveyor
system. The facility also serves as a principal moldmaking operation
for the Company. The Longmont facility has been awarded a Q1 quality
rating from Ford and a Gold Pentastar award from Chrysler.
Compton, California--The principal manufacturing activities at the
Compton, California plant are fiberglass molding, thermoplastic vacuum
forming and moldmaking. In the Compton, California facility, the
Company manufactures (i) a variety of Fibernetics(TM) brand products,
including fiberglass molded full flare running boards and van tops which
are sold to van converters in the Western United States, and (ii)
certain custom fiberglass and vacuum-formed parts for other vehicle
manufacturers.
Chicago, Illinois--The Chicago, Illinois plant houses the heavy truck
products business. Manufacturing processes in the Chicago plant
include: (i) vinyl and fiberglass screen cut and sew and silk screening
10 <PAGE>
<PAGE>
operations for the manufacture of winterfronts and bug screens; (ii)
metal fabrication for heavy truck bug deflectors and rock guards; (iii)
dielectric heat sealing of vinyl, foam and paperboard into interior trim
kits and components; and (iv) vacuum forming of various accessories and
components. The Chicago plant was awarded a Q1 quality rating from Ford
in July 1993. Since that time, the Company has added Freightliner's
Masters of Quality, Volvo's ISO-9000 and Military Spec. MIL-I-145208 to
it's quality awards.
Coldwater, Michigan--The Coldwater, Michigan facility houses the
Trailmaster(reg. trdmk.) and Streetmaster(TM) brand product lines. This
facility serves as the assembly and distribution center as well as the
research and development center for Trailmaster.
Sturgis, Michigan--The Sturgis, Michigan operation includes two
manufacturing facilities (one of which is located outside Sturgis, in
neighboring Howe, Indiana). Primary products manufactured at this
facility include Challenger(TM) aluminum brand tool boxes and aluminum
running boards as well as extruded products.
Multiple sources for the raw materials used in manufacturing
operations are available to the Company. The Company is one of the
largest purchasers of General Electric Plastics(TM) Lexan(reg. trdmk.)
branded polycarbonate sheet plastic in the United States and uses
General Electric Plastics(TM) Lexan(reg. trdmk.) brand name in its
advertising and packaging. The Company has not experienced any
significant delays in the delivery of materials from suppliers. The
Company believes that in the event of a shortage or significant delay in
the delivery of any raw materials used in its manufacturing processes,
including Lexan(reg. trdmk.) plastic, alternative vendors could be found
to supply such materials or alternative materials, and that the shortage
or delay would not be expected to have a significant impact on the
Company's financial condition or results of operations.
Competition
The market for the Company's products is highly competitive and
competition is faced from a number of sources in certain of its product
lines. Certain of the competitors may have greater financial resources
than the Company. Competition in product lines is based on design,
brand name recognition, merchandising programs, quality, price,
timeliness of delivery, service and packaging. There are no significant
technological or manufacturing barriers to entry into the truck and
automotive accessories businesses in which the Company currently
operates. The Company believes it is able to compete effectively as a
result of the breadth and quality of its products lines. Many of the
smaller competitors primarily ship only a single product category.
Seasonality and Backlog
The Company's sales and earnings pattern is seasonal, with the
majority of the sales and earnings historically taking place during the
spring and summer months. During 1996, 1995, and 1994, approximately
50.8%, 51.8%, and 50.7% of the net sales and approximately 54.2%,
50.4%, and 59.4% of the income from operations occurred during the
second and third quarters of the year, respectively. The Company's
backlog as of any given date is not a meaningful measure of future
business because its customers generally require rapid shipment of
orders.
Trademarks, Patents, Regulation
The Company owns numerous domestic and foreign trademarks and trade
names used in its business, including Deflecta-Shield(reg. trdmk.),
SportBoard(reg. trdmk.), SportStep(reg. trdmk.),Sport Shield(reg.
trdmk.), Sport Cap(reg. trdmk.) Mirage(reg. trdmk.), Ultima(reg.
trdmk.), Vision Visor(reg. trdmk.), Trailmaster(reg. trdmk.), 4-Way(reg.
trdmk.), Aero Mask(reg. trdmk.) and Mustache Shield(reg. trdmk.). There
are pending applications for federal registration of certain trademarks
including Magnum(TM), Sportrail(TM) and Thermofront(TM). The Company
believes that the reputation attached to such trademarks and trade names
as a whole is of material importance to the businesses in which they are
used. The Company also has several domestic and foreign patents which,
in the aggregate, are not of material importance to the business. These
patents will expire by the year 2006.
11 <PAGE>
<PAGE>
The Company is not subject to the jurisdiction of any major
regulatory agency in the United States on a regular basis. However,
like all manufacturers of consumer products, the Company is subject to
federal, state and local regulations concerning consumer products, the
environment and occupational safety and health. The Company believes
that its operations currently comply in all material respects with these
laws and regulations. In general, the Company has not experienced any
difficulty complying with such regulations, and compliance has not had a
material effect on the Company's business.
Employees
As of December 31, 1996, the Company had 670 full-time employees.
The Company believes that its future success will depend in large part
upon the continued service of its key production, sales, marketing and
management personnel, and its ability to identify and hire additional
appropriately skilled, highly qualified technical, marketing and
managerial personnel. None of the Company's employees are represented
by a labor union and the Company considers its relationship with its
employees to be good. The Company has not suffered a work stoppage or
slowdown in the last ten years.
Item 2. Properties
The Company owns and leases facilities for manufacturing,
distribution, offices and engineering in Indianola, Iowa; Corydon, Iowa;
Longmont, Colorado; Chicago, Illinois; Compton, California; Coldwater,
Michigan; Sturgis, Michigan; and Howe, Indiana. Overall, the Company's
facilities encompass 534,100 square feet as follows:
Principal Use Own Lease Lease
of Facilities Location (Sq. Ft.) (Sq. Ft.) Expires
------------- ------------- --------- --------- -------------
Distribution
and offices Indianola, IA 129,200
Manufacturing Corydon, IA 68,000
Manufacturing Corydon, IA 4,700 Oct. 31, 1997
Manufacturing
and distribution Longmont, CO 42,900 Nov. 1, 1997
Manufacturing Longmont, CO 5,200 May 1, 1999
Offices and
engineering Longmont, CO 10,000 Aug. 31, 1997
Manufacturing,
distribution
and offices Chicago, IL 48,000
Manufacturing Chicago, IL 16,000 Monthly
Manufacturing,
distribution
and offices Compton, CA 87,200 Jun. 30, 1997
Assembly,
distribution
and offices Coldwater, MI 44,400 Apr. 30, 1998
Distribution
and offices Sturgis, MI 47,000 Aug. 31, 1999
Manufacturing Howe, IN 31,500
------- -------
276,700 257,400
======= =======
The Company anticipates no difficulty in retaining occupancy of any
of its facilities through lease renewals prior to expiration or through
month-to-month occupancy or in replacing them with equivalent
facilities. The Company believes that its existing facilities are
adequate for the manufacture and distribution of its products and have
sufficient capacity to meet its current requirements. The Company is
conducting a study to determine the feasibility of consolidating in a
central location portions of its manufacturing and distribution
facilities.
12 <PAGE>
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Item 3. Legal Proceedings
The predecessor of the Company's Trailmaster subsidiary has been
named as a defendant in Scott Ford v. Ford Motor Corp., et al., a
negligence/products liability lawsuit pending in Allegheny County,
Pennsylvania. The accident occurred on February 12, 1994. The
plaintiff is paralyzed and alleges that this resulted from a broken neck
suffered as a result of the accident. The Asset Purchase Agreement
pursuant to which the Company acquired assets through Trailmaster
provides that the predecessor must indemnify the Company for certain
claims arising out of occurrences prior to the closing date of the
acquisition. The defense of this claim has been tendered to the
predecessor's insurers and the Company believes that the predecessor and
its insurer will bear any liability resulting from this claim.
The predecessor of the Company's Trailmaster subsidiary has also been
named as a defendant in Sexton v. Ford Motor Company, et al., a wrongful
death lawsuit pending in Sumter County, South Carolina. The suit arises
from a two vehicle accident which occurred on September 21, 1993. The
complaint states that the plaintiff's decedent's vehicle was equipped
with a lift kit manufactured by the predecessor. The defense of the
claim has been tendered to the predecessor's insurer and the Company
believes that the predecessor and its insurer will bear any liability
resulting from this claim.
The Company's Trailmaster subsidiary has been named a defendant in
Embree for Estate of Kershner v. T.M. Liquidation, Inc., a wrongful
death lawsuit pending in Viola County, Virginia. The suit arises out of
an roll-over accident involving a pick-up truck which occurred on
September 4, 1994. The complaint states that the plaintiff's decedent's
car was equipped with a lift kit manufactured by the predecessor of such
subsidiary. The complaint alleges that the predecessor was negligent
and its products were defective and claims compensatory damages of $10
million and punitive damages of $5 million. The defense of the claim
has been tendered to the Company's insurer, local counsel has been
engaged, and a fact investigation is in process. This case is in an
early stage and the ultimate outcome cannot yet be determined.
The Company's Trailmaster subsidiary has been named a defendant in
Nyilos v. Trailmaster Products, Inc., a negligence/products liability
lawsuit pending in the Circuit Court of Macomb County, Michigan. The
suit arises from a single vehicle roll-over accident on October 1, 1994.
The complaint states that the plaintiff's vehicle was equipped with a
suspension lift system manufactured by Trailmaster that failed while the
plaintiff was operating his vehicle in a careful and prudent manner.
The complaint seeks judgment in an amount in excess of $10,000 for
breach of warranty and an amount in excess of $10,000 for negligence.
The defense of the claim has been tendered to the Company's insurer,
local counsel has been engaged, and a fact investigation is in process.
This case is in an early stage and the ultimate outcome cannot yet be
determined.
The Company's Trailmaster subsidiary has been named as a defendant in
Schmidt v. General Motors Corporation, et al., a wrongful death suit in
the District Court of Starr County, Texas. The suit arises from a
single vehicle roll-over accident which occurred on January 1, 1995.
The complaint alleges that the equipment was unreasonably dangerous as
it was designed and marketed. The defense of this complaint has been
tendered to the Company's insurer and fact investigation is in process.
This case is in an early stage and the ultimate outcome cannot yet be
determined.
The Company has been named as a defendant in Pinney v.
Deflecta-Shield Corporation, et al., a products liability lawsuit
pending in the District Court of Stearns County, Minnesota. The
complaint arises from a two vehicle accident which occurred on October
7, 1995 and alleges that the plaintiff's daughter, a minor, was injured
by a piece of a bug shield striking her as a back seat passenger in one
of the vehicles. The complaint seeks judgment for the plaintiff as
mother and natural guardian in an amount in excess of $50,000 and for
the plaintiff personally an amount in excess of $50,000. The defense of
the claim has been tendered to the Company's insurer, local counsel has
been engaged, and fact investigation is in process. The case is at a
pre-trial stage and the ultimate outcome cannot yet be determined.
13 <PAGE>
<PAGE>
The Company has, from time to time, become a party to other claims
and lawsuits in the ordinary course of business, none of which is
material.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the last quarter of the year ended December 31, 1996.
14 <PAGE>
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol "TRUX." The quarterly
range of prices per share during 1995 and 1996 was as follows:
High Low
------- -------
1996: First Quarter $ 5.250 $ 3.750
Second Quarter 6.375 4.250
Third Quarter 7.875 5.250
Fourth Quarter 9.500 7.000
1995: First Quarter $10.750 $ 8.375
Second Quarter 11.500 7.750
Third Quarter 10.000 6.750
Fourth Quarter 7.250 4.625
As of December 31, 1996, there were 150 Deflecta-Shield Corporation
stockholders of record. The Company estimates that an additional 1,005
stockholders own stock held for their account at brokerage firms and
financial institutions.
There have been no dividends paid to shareholders since the inception
of Deflecta-Shield Corporation in October 1993. The Company currently
intends to retain its earnings for use in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future.
Any future determination to pay cash dividends will be made by the Board
of Directors in light of the earnings, financial position, capital
requirements, credit agreements and such other factors as the Board of
Directors deems relevant. The current credit facility prohibits the
payments of dividends on the Common Stock without permission of its
lender. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
15 <PAGE>
<PAGE>
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data of the Predecessor
Partnership as of and for the years ended December 31, 1992 and 1993 and
for the Company as of and for the three years ended December 31, 1996,
have been derived from the audited consolidated financial statements of
the Predecessor Partnership and the Company, respectively. All such
periods have been audited by Price Waterhouse LLP, independent
accountants. The information set forth below should be read in
conjunction with the consolidated financial statements of the Company
(and related notes thereto) and the other financial information
appearing elsewhere in this Report, and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
1996 1995 1994(2) 1993(1) 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Statement of
Income Data:
Net sales $72,338 $68,239 $60,586 $39,850 $33,926
Cost of sales 47,661 46,550 37,309 23,201 19,971
------ ------ ------ ------ ------
Gross profit 24,677 21,689 23,277 16,649 13,955
Selling expenses 9,608 10,567 9,125 5,144 5,045
General and
administrative
expenses 7,134 6,255 5,757 4,503 3,747
Amortization of
other assets 483 519 364 418 594
------ ------ ------ ------ ------
Income from
operations 7,452 4,348 8,031 6,584 4,569
Interest expense 986 1,437 521 1,288 1,869
Income tax expense 2,533 1,183 3,000 150 54
------ ------ ------ ------ ------
Income before
extraordinary
item 3,933 1,728 4,510 5,146 2,646
Extraordinary
item (3) -- -- 363 240 --
Net income $3,933 $1,728 $4,147 $4,906 $2,646
====== ====== ====== ====== ======
Actual and
Pro Forma Data (4):
Income before
extraordinary
item $3,933 $1,728 $4,663 $4,192 $2,866
Net income 3,933 1,728 4,300 3,952 2,866
Per Share:
Income before
extraordinary
item .82 .36 .97 .87 .60
Net income .82 .36 .90 .82 .60
Weighted average
shares outstanding 4,800 4,800 4,800 -- --
Balance Sheet Data
(at period end):
Working capital $15,240 $15,188 $14,110 $7,130 $4,050
Total assets 44,147 45,410 42,171 21,729 16,845
Total debt and
mandatory
redeemable
security 8,033 13,869 11,883 17,864 10,473
Total equity 28,543 24,610 22,882 181 3,140
(1) The operating results of Fibernetics are included from the date
of acquisition by the Predecessor Partnership.
(2) The operating results of Trailmaster and Delta III are included
from their respective dates of acquisition by the Company.
(3) Net income during the year ended December 31, 1993 includes an
extraordinary loss, net of tax, totaling $240. The
extraordinary loss represents the net loss on early
extinguishment of debt in conjunction with the refinancing of
certain long term debt instruments and repurchase of warrants
held by creditors. Net income during the year ended December
31, 1994 includes an extraordinary loss, net of tax, totaling
$363. The extraordinary loss represents the net loss on early
extinguishment of debt in conjunction with the January, 1994
stock offering. See Note 9 of Notes to Consolidated Financial
Statements.
(4) Pro forma data are presented for the years ended December 31,
1994, 1993 and 1992, respectively, which reflect the
recapitalization (the "Recapitalization") of Belmor
Manufacturing Limited Partnership, a Delaware limited
partnership (the "Predecessor Partnership") pursuant to a plan
of recapitalization (including the issuance of 3,200,000 shares
of Common Stock to the direct or indirect partners of the
Predecessor Partnership), the Company's initial public sale of
1,600,000 shares of Common Stock (the "Offering") and the
application of the net proceeds therefrom, assuming the
foregoing transactions were consummated on January 1, 1992.
The Company was organized as a partnership prior to the
Offering. Thus, a portion of the income of the Company was
taxable to the partners of the Predecessor Partnership and no
provision for income taxes was made, except for federal and
state income taxes imposed on DFM Corp., a subsidiary of the
Predecessor Partnership. The information included herein
assumes an income tax provision which has been compiled as if
the Company's income had been subject to taxation at an
effective rate of 39% for 1994, 37% for 1993 and 38% for 1992.
16 <PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
($ in thousands except per share amounts)
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the
consolidated financial statements included elsewhere herein.
General
In July 1994, the Company purchased Trailmaster Products, Inc., a
privately-held marketer of a variety of aftermarket suspension kits for
vehicles, primarily light trucks. In August 1994, the Company acquired
all of the outstanding stock of Delta III, Inc. a privately-held
manufacturer and marketer of running boards, pick-up truck tool boxes
and other aluminum accessories for light trucks.
Prior to the Recapitalization, the business was conducted as a
limited partnership. Earnings of the Predecessor Partnership generally
were included on the income tax returns of its partners. The
Predecessor Partnership's subsidiary, DFM Corp., was subject to state
and federal income taxes. Accordingly, income tax expense reflected in
the Predecessor Partnership's consolidated financial statements reflects
the provision for income taxes based on pre-tax income for DFM Corp. for
the respective periods.
Approximately $16,360 of the net proceeds from the Offering were used
to repay in full the Company's outstanding indebtedness and accrued
interest under its then-existing revolving credit and term loan
facilities. As a result of repaying the term loans prior to maturity,
the Company recorded an extraordinary loss on early extinguishment of
debt in the amount of approximately $363 (before income taxes) in the
first quarter of 1994.
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.
Percentage of Percentage Increase
Net Sales (Decrease)
------------------------ -------------------
Years Ended Years Ended
December 31, December 31,
------------------------ -------------------
1996 1995
over over
1996 1995 1994 1995 1994
------ ------ ------ ------ ------
Net Sales 100.0% 100.0% 100.0% 6.0% 12.6%
Cost of Sales 65.9 68.2 61.6 2.4 24.8
----- ----- -----
Gross profit 34.1 31.8 38.4 13.8 (6.8)
Selling expenses 13.3 15.4 15.0 (9.1) 15.8
General and
administrative
expenses 9.9 9.2 9.5 14.1 8.7
Amortization
of other assets .6 .8 .6 (6.7) 42.6
----- ----- -----
Income from
operations 10.3 6.4 13.3 71.4 (45.9)
Interest expense 1.4 2.1 .9 (31.3) 175.6
----- ----- -----
Income before
income taxes and
extraordinary
item 8.9% 4.3% 12.4% 122.1 (61.2)
===== ===== =====
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales were $72,338 in 1996 compared to $68,239 for
1995, an increase of $4,099 or 6.0%. Net sales of light truck products
increased by $5,324 and net sales of heavy truck products decreased by
$1,225 The increase in net sales of light truck products was
attributable to sales increases of $1,998 in Delta III products, $716 in
17 <PAGE>
<PAGE>
Trailmaster products, and $682 in Fibernetics products. The remainder
of the change in net sales of light truck products, an increase of
$1,928, was attributable to increased sales of bug deflector products
and sales of the Sportrend(TM) product introduced in June 1996, partially
offset by decreased net sales of other light truck products.
Gross Profit. Gross Profit was $24,677 in 1996, compared to $21,689
for 1995, an increase of $2,988, or 13.8%. As a percentage of net
sales, gross profit margins were 34.1% in 1996, compared to 31.8% for
1995, an increase of 2.3% percentage points. The dollar increase in
gross profits is the result of increased sales volumes, improvements in
manufacturing efficiencies, a more favorable customer and product mix
for light truck products, better raw material utilization, lower raw
material prices and a reduction in product warranty claims.
Selling Expenses. Selling expenses were $9,608 in 1996, compared to
$10,567 in 1995, a decrease of $959, or 9.1%. As a percentage of net
sales, selling and marketing expenses were 13.3% for 1996, compared to
15.4% for 1995. The dollar decrease in 1996 resulted from significant
reductions in freight costs along with decreases in spending for travel
and commissions. These reductions were partially offset by some
increased promotional costs and increased charges to bad debt reserves.
General and Administrative Expenses. General and administrative
expenses were $7,134 in 1996, compared to $6,255 for 1995, an increase
of $879, or 14.1%. The majority of this increase is for new product
development, employee bonuses, management relocation costs, and
increased data processing activities.
Interest Expense. Interest expense was $986 in 1996, compared to
$1,437 for 1995, a decrease of $451, or 31.4%. The improved cash flow
from operating activities in 1996 resulted in a paydown of
interest-bearing debt which averaged $10,458 in 1996, compared to
$15,229 in 1995.
Income Tax Expense. The effective income tax rates were 39.2% and
40.6% for 1996 and 1995, respectively.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales were $68,239 in 1995, compared to $60,586 in
1994, an increase of $7,653, or 12.6%. Increased net sales of $9,548
were attributable to sales of Trailmaster and Delta III products. The
Company acquired the Trailmaster and Delta III product lines during the
third quarter of 1994. Net sales of custom order Fibernetics products
increased by $887 and net sales of fiberglass running board products
increased by $1,149 in 1995, as compared to 1994. Net sales of heavy
truck products increased by $106 in 1995, as compared to 1994. The
remainder of the change in net sales, a net decrease of $4,037, was
attributable to other light truck products, primarily bug deflectors.
The Company has historically offered buying incentives for its light
truck product customers in the first quarter of each calendar year.
Such incentives were offered in both January and December 1994, and no
such incentives were offered in 1995.
Gross Profit. Gross profit was $21,689 in 1995, compared to $23,277
in 1994 a decrease of $1,588, or 6.8%. As a percentage of net sales,
gross profit margins decreased to 31.8% in 1995, compared to 38.4% in
1994, a decline of 6.6 percentage points. Because Trailmaster and Delta
III product lines were included in 1995 for a full year versus a partial
year in 1994, these products added $3,352 to 1995 gross profits. At the
same time, the remaining product lines and operations resulted in a
combined decrease in gross profits of $4,940. A combination of factors
contributed to the decline in gross profits including a change in
product mix to lower margin products; cost increases in raw materials,
primarily plastics, aluminum and packaging; one-time costs for the
startup of fiberglass manufacturing at the Corydon, Iowa facility in the
second quarter of 1995; underabsorption of fixed overhead due to a
reduction of manufacturing volumes in the third and fourth quarters of
1995; and additional costs to accommodate planned business
consolidations.
Selling Expenses. Selling and marketing expenses were $10,567 in
1995, compared to $9,125 in 1994, an increase of $1,442, or 15.8%. As a
percentage of net sales, selling expenses increased slightly to 15.4%
18 <PAGE>
<PAGE>
for 1995, compared to 15.0% for 1994. The addition of Trailmaster and
Delta III for a full year in 1995 contributed to the overall dollar
increase in selling and marketing costs. The remaining increase in
selling and marketing costs was the result of additional personnel
costs, increases in the bad debt reserve, and a royalty fee initiated in
1995 for the right to use the name Bigfoot on certain light truck
products.
General and Administrative Expenses. General and administrative
expenses were $6,255 in 1995, compared to $5,757 in 1994, an increase of
$498, or 8.7%. As a percentage of net sales, general and administrative
expenses decreased to 9.2% in 1995, from 9.5% in 1994. After deducting
the increased general and administrative expenses of $349, resulting
from the acquisition of Trailmaster and Delta III, the remaining
increase of $149 is due to increased telephone costs, new product
development costs, office supplies, and data processing activities,
offset by a decrease in employee bonuses.
Interest Expense. Interest expense was $1,437 in 1995, compared to
$521 for 1994, an increase of $916. In January 1994, the Company's
initial public offering resulted in a paydown of its then-existing term
loans and revolving credit facilities. Interest-bearing debt averaged
$15,229 in 1995, compared to $7,095 in 1994.
Income Tax Expense. The effective income tax rates were 40.6% and
39.9% for 1995 and 1994, respectively.
Seasonality and Quarterly Data
Although in 1995, the Company recorded 53.7% of its net sales and
97.3% of its income from operations in the first two quarters,
historically the majority of its net sales and income have been
generated from operations in the second and third quarters of each year.
This seasonal pattern combined with effects of new product introductions
and the timing of customer orders can cause the results of operations to
vary from quarter to quarter. The following table sets forth selected
unaudited quarterly consolidated financial data for the eight quarters
ended December 31, 1996. Although this information is unaudited, in the
opinion of management such information reflects all adjustments (which
include only normal recurring adjustments) necessary for a fair
presentation of the results of operations for such periods. Results of
any one or more quarters are not necessarily indicative of annual
results or continuing trends.
1996
(Dollars in Thousands)
----------------------------------------
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4
------ ------ ------ ------
Quarterly
Statement of
Operations Data:
Net sales $18,023 $18,255 $18,465 $17,595
Gross profit 5,790 6,338 6,430 6,119
Income (loss)
from operations 1,506 1,783 2,259 1,904
1995
--------------------------------------
(Dollars in Thousands)
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4
------ ------ ------ ------
Quarterly
Statement of
Operations Data:
Net sales $17,351 $19,346 $16,007 $15,535
Gross profit 6,995 6,136 4,840 3,718
Income (loss)
from operations 2,650 1,581 611 (494)
Liquidity and Capital Resources
As of December 31, 1996, the Company had cash balances of $459 and
working capital of $15,240. Cash flows from operating activities
improved to $7,911 for the year ended December 31, 1996, compared to
$1,804 and $2,955 for the years ended December 31, 1995 and 1994,
respectively. The current ratio at December 31, 1996 was 3.1 : 1
compared to 2.9 : 1 at December 31, 1995.
Accounts receivable increased by $617, or 6.3% during 1996 while days
sales outstanding increased to 56 days from 55 days. The increase was
primarily due to a 13.3% increase in net sales in the fourth quarter of
19 <PAGE>
<PAGE>
1996 compared to 1995. Inventories decreased by $457, or 4.3% with the
majority of the decrease in work-in-process inventories.
Accounts payable increased by $598 or 14.1%, due to the timing of
purchases for inventory and other operational expenditures. Long-term
debt was reduced to $8,033 at December 31, 1996 from $13,869 at December
31, 1995.
Capital expenditures in 1996 of $2,149 were primarily for new product
molds and tooling, production machinery and equipment, and computer
peripheral equipment. The Company anticipates that capital expenditures
in 1997 will be approximately $2,800 absent further consolidation of
manufacturing and distribution facilities discussed below.
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.
Certain state and local grants and loans were received with respect to
this project. Total capital expenditures associated with the Indianola,
Iowa facility (net of state and local funding), including computer
hardware and software, were $3,700 with approximately $1,600 expended in
1994 and approximately $2,100 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. Fiberglass manufacturing
operations were initiated in the Corydon, Iowa facility in April 1995.
Costs of approximately $390 were incurred during the quarter ended June
30, 1995, in connection with the initiation of this production activity.
These costs were expensed as they were incurred.
The Company is currently in the process of implementing a reorganization
of its manufacturing facilities and processes. The Company is developing a
strategic plan designed to minimize short-term disruptions, inefficiencies
and costs resulting from the contemplated reorganization, which is expected
to include consolidation of portions of the Company's manufacturing and
distribution facilities. There has not been a final determination of which
locations into which various activities would be consolidated, but it is
currently anticipated that there will be consolidation into a new facility
located in the same metropolitan area as one of the Company's existing
facilities. The Company anticipates that costs and expenses associated with
any relocation and consolidation would ultimately be substantially offset by
cost savings generated thereby. However, it is currently anticipated that
the reorganization will negatively impact earnings in the short term.
Furthermore, the timing relationship between the incurrence of charges with
respect to the reorganization and the generation of anticipated savings may
cause the Company's results of operations to vary from quarter to quarter.
On January 31, 1994, approximately $16,360 of the net proceeds from
the Company's initial public offering were used to repay in full the
Company's indebtedness and accrued interest under its then existing
revolving credit and term loan facilities. In connection with the
repayment of this indebtedness, the term loan facility was terminated.
On July 21, 1994, the Company entered into a $24,000 Revolving Credit
and Acquisition Facility (the "Credit Agreement") with Heller Financial,
Inc. (the "Lender"), pursuant to which the Lender provided
Deflecta-Shield with a $6,000 revolving credit facility (the "Revolver")
and an $18,000 acquisition facility (the "Acquisition Facility").
Approximately $2,000 of the Revolver was used to finance the purchase of
the assets of Trailmaster, with the balance of the purchase price paid
with cash generated from operations of Deflecta-Shield's subsidiaries.
Approximately $5,800 of the Acquisition Facility was used to finance the
purchase of Delta III, with the balance of the purchase price paid with
a note made by the Company's subsidiary for approximately $1,500.
Effective December 1, 1996, the Credit Agreement was amended to
increase the Revolver to $21,000 and to eliminate the $18,000
acquisition facility. Balances outstanding under the acquisition
facility were transferred to the Revolver. 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
Revolver for acquisitions 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 Revolver. No such acquisitions are currently contemplated.
20 <PAGE>
<PAGE>
The Credit Agreement provides for the Revolver commitment until July
21, 1999. Interest on Revolver loans is payable at varying rates, based
on the lender's base rate (8.25% at December 31, 1996) plus a margin
ranging from 0% to .25%. There was no margin at December 31, 1996. The
Company may also elect to have portions of the Revolver accrue interest
based upon the London Inter-Bank Offering Rates (LIBOR), plus a margin
ranging from 1.25% to 1.75%. No such election was made at December 31,
1996. The Company is obligated to pay a fee of .25% per annum on the
unused portion of the Revolver during the term of the Credit Agreement.
The Credit Agreement contains certain covenants covering
Deflecta-Shield and its subsidiaries on a consolidated basis, including,
covenants relating to the maximum amount of indebtedness which the
entities may incur and payment of dividends by Deflecta-Shield. The
Company has complied with and is currently in compliance with all such
covenants, except for the violations of certain covenants regarding
capital expenditures for which waivers were received.
As of December 31, 1996, the outstanding principal balance, together
with accrued interest, under the new credit facility was $8,075. The
Company believes that cash flow from operating activities and available
borrowings under the Credit Agreement are adequate to meet its
liquidity needs for the forthcoming year.
In the ordinary course of business, the Company is subject to
examination by the Internal Revenue Service (the "IRS"). In October
1993, 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 December
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 approximately $300 in additional
Federal income tax for the periods examined, including amounts
previously paid. The assessment had been fully accrued in 1995.
Environmental Regulation
The Company is subject to various federal, state and local
environmental laws and regulations. The Company believes that its
operations currently comply in all material respects with applicable
laws and regulations. The Company believes that the trend in
environmental litigation and regulation is toward stricter standards
that may result in higher costs for the Company and its competitors.
Such changes in the law and regulations may require additional capital
expenditures which, while not presently estimable with certainty, are
not presently expected to be of material amounts. Costs for
environmental compliance and waste disposal have not been material to
the Company in the past.
Inflation
The Company does not believe that inflation has had a significant
impact on its results of operations for 1996. While the Company does
not anticipate any significant increase in raw material prices in the
near future, a significant increase in its costs of materials and labor
could negatively impact the gross profits of the Company. Competitive
pressures could preclude the Company from raising its selling prices to
reflect the increased costs.
Impact of New Accounting Standards
In December 1993, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 93-7, "Reporting on Advertising Costs." SOP
93-7 requires companies to report the costs of all advertising, other
than direct-response advertising, as expenses in the periods in which
those costs are incurred, or the first time the advertising takes place.
The costs of direct-response advertising can be capitalized only as
outlined in SOP 93-7. The Company adopted SOP 93-7 for the year ended
December 31, 1995. The adoption did not have a material impact on the
Company's financial position or results of operations.
21 <PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and financial schedule and the
report of Price Waterhouse LLP dated February 14, 1997, are set forth on
pages F-1 through F-17.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
22 <PAGE>
<PAGE>
PART III
Items 10, 11, 12 and 13. Directors and Executive Officers of the
Registrant, Executive Compensation,
Security Ownership of Certain Beneficial
Owners and Management and
Certain Relationships and Related
Transactions
The Company will file a definitive proxy statement with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (the "Proxy Statement") relating to the Company's
Annual Meeting of Stockholders to be held on May 22, 1997, not later
than 120 days after the end of the period covered by this 1996 Report on
Form 10-K. Information required by Items 10 through 13 will appear in
the Proxy Statement and is incorporated herein by reference.
23 <PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements
The following consolidated financial
statements of Deflecta- Shield Corporation
are included in Part II, Item 8:
Report of Independent Accountants . . . . . . . . . F-1
Consolidated Statements of Income for the
three years ended December 31, 1996 . . . . . . . . F-2
Consolidated Balance Sheets as of December
31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows for
the three years ended December 31, 1996 . . . . . . F-4
Statements of Changes in Stockholders'
Equity and Predecessor Partners' Equity
for the three years ended December 31,
1996. . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . F-6
(a)(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . . . . . . . F-17
All other schedules are omitted because they are not applicable
or because the required information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
Exhibit Description
Number
*3.(a) Certificate of Incorporation of the Company.
*3.(b) By-Laws of the Company.
*4.(i)(1) Specimen Common Stock Certificate of the
Company.
*4.(i)(2) Form of Registration Rights Agreement among
the Company and certain stockholders of the
Company.
*4.(i)(3) Form of Voting Agreement among certain
stockholders of the Company.
24 <PAGE>
<PAGE>
4.(ii)(1)(a) Credit Agreement dated as of July 21, 1994
between the Company and Heller Financial,
Inc., individually, and as agent for the
other Lenders (referred to hereinafter as
"Agent"), incorporated by reference to
Exhibit 10(c) to Form 8-K filed by the
Company with respect to an event occurring
July 22, 1994.
4.(ii)(1)(a)(A) First Amendment to Credit Agreement dated as
of December 31, 1996 between the Company and
Agent.
4.(ii)(1)(b) Amended and Restated Revolving Note payable
to Agent dated December 31, 1996.
**4.(ii)(1)(f) Security Agreement dated July 21, 1994 among
Belmor Autotron Corp. ("Autotron"), DFM
Corp. ("DFM") and Agent.
**4.(ii)(1)(g) Copyright Security Agreement dated July 21,
1994 executed by DFM in favor of Agent.
**4.(ii)(1)(h) Trademark Security Agreement dated July 21,
1994 executed by DFM in favor of Agent.
**4.(ii)(1)(i) Patent Security Agreement dated July 21,
1994 executed by DFM in favor of Agent.
**4.(ii)(1)(j) Patent Security Agreement dated July 21,
1994 executed by Autotron in favor of Agent.
**4.(ii)(1)(k) Mortgage, Assignment of Rents and Security
Agreement dated July 21, 1994, executed by
Autotron in favor of Agent evidencing the
mortgage of Autotron's owned real property
located in Chicago, Illinois (Cook County).
**4.(ii)(1)(l) Mortgage, Assignment of Rents and Security
Agreement dated July 21, 1994, executed by
DFM in favor of Agent evidencing the
mortgage of DFM's owned real property
located in Corydon, Iowa (Wayne County).
**4.(ii)(1)(m) Leasehold Deed of Trust, Assignment of Rents
and Security Agreement dated July 21, 1994,
executed by DFM in favor of Agent evidencing
the mortgage of DFM's leased real property
located at 1275 Sherman Avenue, Longmont,
Colorado (Boulder County).
**4.(ii)(1)(n) Guaranty dated July 21, 1994 executed by DFM
and Belmor Autotron in favor of Agent.
4.(ii)(1)(o) Option Agreement dated July 22, 1994 between
Trailmaster Products, Inc., the Company and
Trailmaster Acquisition, Inc., incorporated
by reference to Exhibit 4 to Form 8-K filed
by the Company for an event occurring July
22, 1994.
25 <PAGE>
<PAGE>
4.(ii)(1)(p) Consent dated as of August 14, 1995 between
the Company and Agent, incorporated by
reference to Exhibit 4.(ii)(1)(p) to the
Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995.
**10.(i)(1) Community Economic Betterment Account Loan
Agreement dated December 28, 1994 between
the Company and the Iowa Department of
Economic Development.
**10.(i)(2) Industrial New Jobs Training Agreement dated
as of September 30, 1994 between Des Moines
Area Community College and the Company.
**10.(i)(3) Agreement for Private Redevelopment among
the City of Indianola, Iowa, the Company,
DFM Corp. and Indianola Development
Corporation.
*10.(ii)(A) Form of Indemnification Agreement between
the Company and directors and certain
officers of the Company.
**10.(ii)(B)(1) Licensing Agreement dated as of January 18,
1995 between Bigfoot 4x4, Incorporated and
the Company.
10.(iii)(A)(1) Amended and Restated Deflecta-Shield
Corporation 1993 Stock Plan, incorporated by
reference to Exhibit 10.(iii)(A)(1) to the
Company's Quarterly Report on form 10-Q for
the quarter ended September 30, 1996.
10.(iii)(A)(1)(a) Amended and Restated Deflecta-Shield
Corporation 1996 Stock Plan, incorporated by
reference to Exhibit 10.(iii)(A)(1)(a) to
the Company's Quarterly Report on form 10-Q
for the quarter ended September 30, 1996.
*10.(iii)(A)(2) Management Equity Agreement dated June 15,
1990 among Gregory J. Pacer ("Pacer"),
Michael G. Harrison ("Harrison"), Lowell A.
Swarthout ("Swarthout") and John A. Daniels
("Daniels") and Belmor.
10.(iii)(A)(2)(a) First Amendment to Management Equity
Agreement dated January 19, 1994 among
Pacer, Harrison, Swarthout, Daniels, Belmor
and the Company, incorporated by reference
to Exhibit 10.(iii)(A)(2)(a) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
10.(iii)(A)(4) Employment Letter Agreement dated September
1, 1995 between the Company and Russell
Stubbings, incorporated by reference to
Exhibit 10.(iii)(A)(4) to the Company's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
10.(iii)(A)(5) Employment Letter Agreement dated February
7, 1996 between the Company and Richard D.
Minehart, Jr., incorporated by reference to
Exhibit 10.(iii)(A)(5) to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
26 <PAGE>
<PAGE>
10.(iii)(A)(6) Employment Letter Agreement dated October 4,
1996 between the Company and James T.
Jurinak.
10.(iii)(A)(7) Employment Letter Agreement dated October
28, 1996 between the Company and Ronald C.
Fox, incorporated by reference to Exhibit
10.(iii)(A)(7) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1996.
*10.(iii)(A)(8) Severance Agreement dated June 15, 1990
between DFM and Swarthout.
*10.(iii)(A)(9) Severance Agreement dated June 15, 1990
between DFM and Daniels.
*10.(iii)(A)(13) Non-Competition and Consulting Agreement
dated July 6, 1993 among BAC, Beckett,
Christopher M. Beckett, James Beckett, Jr.
and Jane C. Beckett.
**21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants
- ---------------
* Filed as an exhibit to the Company's Registration Statement on
Form S-1, Reg. No. 33-71410, declared effective by the
Securities and Exchange Commission on January 21, 1994.
** Filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
27 <PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1997
DEFLECTA-SHIELD CORPORATION
By: /S/ RUSSELL E. STUBBINGS
________________________________
Russell E. Stubbings
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date: Signature Title:
March 27, 1997 /S/ RUSSELL E. STUBBINGS
____________________________ President and Chief
Russell E. Stubbings Executive Officer and a
Director (Principal
Executive Officer)
March 27, 1997 /S/ RONALD C. FOX
____________________________ Vice President and Chief
Ronald C. Fox Financial Officer
(Principal Financial and
Accounting Officer)
March 27, 1997 /S/ MARK C. MAMOLEN
____________________________ Director
Mark C. Mamolen
March 27, 1997 /S/ CHARLES S. MEYER
____________________________ Director
Charles S. Meyer
March 27, 1997 /S/ WILLIAM V. GLASTRIS, JR.
____________________________ Director
William V. Glastris, Jr.
March 27, 1997 /S/ DOUGLAS MERGENTHALER
____________________________ Director
Douglas Mergenthaler
March 27, 1997 /S/ LEON E. VINYARD
____________________________ Director
Leon E. Vinyard
March 27, 1997 /S/ RONALD C. KATZ
____________________________ Director
Ronald C. Katz
28 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 <PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Deflecta-Shield Corporation
In our opinion, the consolidated financial statements listed
in the index appearing under Item 14(a)(1) and (2) on page
24 present fairly, in all material respects, the financial
position of Deflecta-Shield Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
February 14, 1997
F-1 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Net sales $72,337,556 $68,239,409 $60,586,325
Cost of sales 47,660,268 46,550,689 37,309,469
----------- ----------- -----------
Gross profit 24,677,288 21,688,720 23,276,856
Operating expenses:
Selling 9,608,194 10,566,769 9,125,271
General and
administrative 7,133,930 6,255,355 5,756,676
Amortization 483,571 518,819 364,207
----------- ---------- -----------
Income from operations 7,451,593 4,347,777 8,030,702
Interest expense 985,773 1,436,308 520,616
---------- ---------- ----------
Income before income
taxes and extra-
ordinary item 6,465,820 2,911,469 7,510,086
Income tax expense 2,533,000 1,183,000 3,000,000
---------- ---------- -----------
Income before extra-
ordinary item 3,932,820 1,728,469 4,510,086
---------- ---------- -----------
Extraordinary loss
on early extinguish-
ment of debt, net of
tax benefit of
$223,000 - - 363,102
---------- ---------- -----------
Net income $3,932,820 $1,728,469 $4,146,984
========== ========== ===========
Earnings per share:
Income before extra-
ordinary item $0.82 $0.36 $0.97*
========== ========== ===========
Net income $0.82 $0.36 $0.90*
========== ========== ===========
Weighted average common
shares outstanding 4,800,000 4,800,000 4,800,000
========== ========== ===========
* Earnings per share and weighted average common shares
outstanding are presented on a pro forma basis reflecting
the recapitalization and the offering described in Note 2.
The accompanying notes are an integral part of these
statements.
F-2 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
1996 1995
------------ ------------
ASSETS
Current assets:
Cash and equivalents $ 458,979 $ 532,586
Accounts receivable, less
allowance for doubtful
accounts of $702,831 and
$623,428, respectively 10,325,902 9,708,390
Inventories, net (Note 5) 10,123,265 10,580,128
Deferred income taxes
(Note 10) 1,327,580 1,634,923
Prepaid expenses 304,282 912,431
----------- -----------
Total current assets 22,540,008 23,368,458
Property and equipment, net
(Note 6) 9,383,275 9,343,831
Goodwill and intangibles, net
(Note 7) 12,116,931 12,600,502
Other assets 106,696 96,914
----------- -----------
$44,146,910 $45,409,705
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt (Note 8) $ 8,750 $1,523,437
Accounts payable 4,830,429 4,232,648
Accrued expenses 2,460,713 2,423,267
----------- -----------
Total current liabilities 7,299,892 8,179,352
Deferred income taxes (Note 10) 279,566 274,925
Long-term debt, less current
maturities (Note 8) 8,024,341 12,345,137
----------- -----------
Total liabilities 15,603,799 20,799,414
----------- -----------
Stockholders' equity:
Preferred stock; $.01 par value;
2,500,000 shares authorized,
none outstanding - -
Common stock; $.01 par value;
20,000,000 shares authorized,
4,800,000 shares outstanding 48,000 48,000
Additional paid-in capital 18,555,611 18,555,611
Retained earnings 9,939,500 6,006,680
----------- -----------
28,543,111 24,610,291
Commitments and contingencies
(Note 13) - -
----------- -----------
$44,146,910 $45,409,705
=========== ===========
The accompanying notes are an integral part of these
statements.
F-3 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
Cash flows from
operating activities:
Net income $3,932,820 $1,728,469 $4,146,984
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 2,109,462 1,574,602 1,012,322
Amortization 483,571 518,819 364,207
Loss on early
extinguishment
of debt 363,102
Deferred income
taxes 311,984 (444,676) (253,679)
Add (deduct) changes
in assets and
liabilities:
Accounts receivable (617,512) 1,388,948 (3,349,505)
Inventories 456,863 (1,763,334) (646,939)
Prepaid expenses 608,149 (689,786) 1,067,123
Other assets (9,782) (59,446)
Accounts payable 597,781 (347,513) 621,350
Accrued expenses,
excluding distri-
bution payable to
Predecessor Partners 37,446 (101,877) (369,886)
--------- --------- ---------
Net cash provided by
operating activities 7,910,782 1,804,206 2,955,079
--------- --------- ---------
Cash flows from investing
activities -
Purchases of property
and equipment (2,148,906) (4,004,646) (2,723,650)
Acquisition of Delta
III, Inc., net of
cash acquired of
$17,000 and
promissory note
payable of $1,460,000 (5,822,615)
Acquisition of Trail-
master Products, Inc.,
net of cash acquired
of $80,000 - - (5,250,306)
--------- --------- ---------
Net cash used in
investing
activities (2,148,906) (4,004,646) (13,796,571)
--------- --------- ----------
Cash flows from
financing activities:
Proceeds from
long-term
borrowings 2,800,000 6,505,000
Proceeds from
revolving line
of credit 5,450,000 7,972,162 2,688,382
Repayment of debt (11,285,483) (8,786,196) (17,345,398)
Proceeds from the
issuance of
common stock 18,553,610
Payment of debt
issuance costs - - (114,000)
---------- --------- ----------
Net cash (used)
provided by
financing
activities (5,835,483) 1,985,966 10,287,594
--------- --------- ----------
Net decrease in cash
and equivalents (73,607) (214,474) (553,898)
Cash and equivalents
at beginning of year 532,586 747,060 1,300,958
--------- --------- ----------
Cash and equivalents
at end of year $458,979 $532,586 $747,060
========= ========= =========
Cash paid during
the period for:
Interest $1,041,801 $1,203,175 $516,351
Income taxes 1,995,058 1,574,000 2,673,264
The accompanying notes are an integral part of these
statements.
F-4 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND PREDECESSOR PARTNERS' EQUITY
Deflecta-Shield
Corporation
-------------------------------------------------
Additional
Common Paid-In Retained
Stock Capital Earnings Total
-------- ------------ ---------- -----------
Balance at
Dec. 31, 1993
Effect of recap-
italization
(Note 2) $32,000 $ 18,000 $ 131,227 $ 181,227
Effect of initial
public offering
of common stock
(Note 2) 16,000 18,537,611 18,553,611
Net income for
the year ended
Dec. 31, 1994 - - 4,146,984 4,146,984
------- ----------- ---------- -----------
Balance at
Dec. 31, 1994 48,000 18,555,611 4,278,211 22,881,822
Net income for
the year ended
Dec. 31, 1995 - - 1,728,469 1,728,469
------- ----------- ---------- ----------
Balance at
Dec. 31, 1995 48,000 18,555,611 6,006,680 24,610,291
Net income for
the year ended
Dec. 31, 1996 - - 3,932,820 3,932,820
------- ----------- ---------- ----------
Balance at
Dec. 31, 1996 $48,000 $18,555,611 $9,939,500 $28,543,111
======= =========== ========== ===========
Belmor Manufacturing
Limited Partnership
---------------------------------------
Class B Class C Total
--------- --------- ---------
Balance at
Dec. 31, 1993 23,826 157,401 181,227
Effect of recap-
italization
(Note 2) (23,826) (157,401) (181,227)
Effect of initial
public offering
of common stock
(Note 2)
Net income for
the year ended
Dec. 31, 1994 - - -
-------- -------- --------
Balance at
Dec. 31, 1994 $ - $ - $ -
======== ======== ========
The accompanying notes are an integral part of these
statements.
F-5<PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS:
Deflecta-Shield Corporation ("Deflecta-Shield" or the
"Company") is a holding company with subsidiaries involved
in the manufacture and marketing of accessories for light
trucks and heavy trucks. The Company conducts its business
through its direct and indirect subsidiaries with customers
throughout the United States and Canada. The direct
subsidiaries are Belmor Autotron Corp. and DFM Corp. (DFM).
The indirect subsidiaries are BAC Acquisition Co. ("BAC"),
Trailmaster Products, Inc. ("Trailmaster") and Delta III,
Inc. ("Delta III").
The Company's principal product lines for light trucks are
bug deflectors, which customize the relatively uniform look
of light trucks and protect the hood and windshield from
insects, stones and other road debris. The Company also
sells other light truck appearance accessories (running
boards, cab visors and taillight covers), pick-up truck tool
boxes and other aluminum accessories, and a variety of
aftermarket suspension systems, primarily for light trucks.
In addition to its light truck accessories, the Company is a
leading supplier in the United States of winterfronts, bug
screens, bug deflectors and rock guards for heavy trucks.
The Company also manufactures and markets interior trim
parts for heavy truck cabs.
NOTE 2 - RECAPITALIZATION AND BASIS OF PRESENTATION:
Prior to January 27, 1994, the Company was organized as
Belmor Manufacturing Limited Partnership, a Delaware limited
partnership (the "Predecessor Partnership"). On January 27,
1994, the Company executed a Plan of Recapitalization
whereby (i) certain non-corporate partners of the
Predecessor Partnership contributed their interests in the
Predecessor Partnership to Deflecta-Shield, and (ii) the
Predecessor Partnership's corporate partners merged with and
into Deflecta-Shield. Upon completion of the Plan of
Recapitalization, the assets and liabilities of the
Predecessor Partnership were owned and assumed by Deflecta-
Shield. The Predecessor Partnership's historical carrying
values for assets and liabilities carried over to
Deflecta-Shield Corporation upon consummation of the Plan of
Recapitalization.
The Company issued 3,200,000 shares of common stock to the
direct and indirect partners of the Predecessor Partnership
effective January 27, 1994. The Plan of Recapitalization
was consummated immediately prior to the public offering of
1,600,000 shares of common stock by Deflecta-Shield
Corporation (the "Offering"). The net proceeds of the
Offering of approximately $18.6 million were used to repay
long-term debt (approximately $16.4 million) and other
obligations and provide additional working capital.
F-6 <PAGE>
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies is presented
to assist the reader in understanding and evaluating the
Company's consolidated financial statements. These policies
are in conformity with generally accepted accounting
principles, and have been consistently applied in all
material respects. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Basis of consolidation
The consolidated financial statements include the accounts
of Deflecta-Shield and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Earnings per share
Earnings per share is computed by dividing net income by the
weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent
shares represent the potential dilutive impact of stock
options. For each of the three years in the period ended
December 31, 1996, stock options issued did not have a
dilutive impact on earnings per share.
Revenue recognition
Revenue is recognized upon shipment of the product.
Cash and equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market on a
first-in, first-out basis (FIFO), net of an adequate
allowance for slow-moving or obsolete material. Inventory
cost includes cost of raw material, labor, and overhead.
Property and equipment
Property and equipment are stated at cost, net of
accumulated depreciation. Expenditures that extend the
useful life of property and equipment or increase
productivity are capitalized, whereas maintenance, repairs
and minor replacement costs are charged to expense in the
year incurred. Depreciation is computed using accelerated
F-7 <PAGE>
<PAGE>
and straight-line methods over the estimated useful lives of
the assets, generally ranging from 3 to 31.5 years.
Goodwill and intangible assets
Goodwill, determined as the excess of cost over the fair
value of net assets of businesses acquired, is amortized on
a straight-line basis over 40 years. Patents are amortized
over their statutory life. Deferred financing costs are
amortized over the term of the related debt. The Company
reviews the carrying value of intangibles and other long-
lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of the asset
may not be recoverable.
Advertising costs
Advertising and related costs are charged to expense as
incurred, except for advertisement production costs which
are expensed in the year in which the advertisement is first
run. These costs amounted to $3,129,194, $2,984,569 and
$3,242,882 for years ended 1996, 1995, and 1994,
respectively.
Income taxes
The Company records income tax provisions in accordance with
Financial Accounting Standard (FAS) No. 109, "Accounting for
Income Taxes." Under this statement, a deferred income tax
asset or deferred income tax liability are recognized for
temporary differences arising when the bases of assets and
liabilities differ for financial reporting and income tax
purposes.
Through January 27, 1994, the Predecessor Partnership was
not subject to federal income tax as the tax effect of its
activities accrued to the partners. However, DFM Corp. was
subject to federal and state income taxes. Accordingly, a
provision for income taxes is reflected for taxable income
of that entity in 1994. Pro forma earnings per share for
1994 reflect an estimated income tax provision for the
income of the predecessor partnership.
Fair value of financial instruments
The carrying value of receivables, payables, and accrued
expenses approximate their fair value. The estimated fair
value of long term debt was determined using current rates
offered to the Company of issues with the same remaining
maturity and approximate the carrying value.
Reclassifications
Certain comparative prior year amounts in the consolidated
financial statements and notes have been reclassified to
conform with the current year presentation.
NOTE 4 - BUSINESS ACQUISITIONS:
On August 23, 1994, the Company's wholly owned subsidiary,
Delta III Acquisition Corp.("Delta III"), acquired all the
F-8 <PAGE>
<PAGE>
outstanding shares of capital stock of Delta III, Inc., a
privately-held manufacturer and marketer of running boards,
tool boxes and other similar accessories for light duty
trucks. Approximately $5.8 million of the Company's
acquisition credit facility was used to finance the stock
acquisition, with the balance of the purchase price paid by
the issuance of a $1.5 million promissory note due within
five years. The Company accounted for the Delta III
acquisition as a purchase. The results of operations of
Delta III are included in the Company's consolidated
financial statements from the acquisition date. The
following summarizes the costs of acquiring Delta III:
Fair value of net assets acquired $8,744,000
Less: Liabilities assumed 1,444,000
----------
Cash paid and promissory note $7,300,000
==========
On June 22, 1994, the Company's wholly owned subsidiary,
Trailmaster Acquisition, Inc.("Trailmaster"), purchased and
assumed substantially all of the assets and liabilities of
Trailmaster Products Inc., a privately-held marketer of a
variety of aftermarket suspension systems, primarily for
light trucks. Approximately $2 million of the Company's
revolving credit facility was used to finance the purchase,
with the balance of the purchase price (approximately $3.3
million) paid with cash generated from operations. In
addition, Trailmaster Products Inc. was granted options to
purchase 100,000 shares of $.01 par, common stock of
Deflecta-Shield Corporation at an option price of $13. The
options expire in July 1999. The Company accounted for the
Trailmaster acquisition as a purchase. The results of
operations of Trailmaster are included in the Company's
consolidated financial statements from the acquisition date.
The following summarizes the costs of acquiring Trailmaster:
Fair value of net assets acquired $7,483,000
Less: Liabilities assumed 2,153,000
----------
Cash paid $5,330,000
==========
The following represents pro forma condensed results of
operations of the Company assuming the purchases of Delta
III and Trailmaster were consummated January 1, 1994:
1994
-----------
(unaudited)
Net sales $71,689,000
Gross profit 27,158,000
Income from operations 9,750,000
Net income 4,833,000
These pro-forma results are not necessarily indicative of
what actually would have occurred if the acquisition had
been in effect for the entire period presented and are not
intended to project future results.
F-9 <PAGE>
<PAGE>
NOTE 5 - INVENTORIES:
The components of inventories are as follows:
December 31,
--------------------------
1996 1995
----------- -----------
Raw materials $ 4,606,513 $ 4,689,575
Finished goods 4,291,771 4,315,990
Work-In-Process 1,224,981 1,574,563
----------- -----------
$10,123,265 $10,580,128
=========== ===========
NOTE 6 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
-------------------------
1996 1995
----------- -----------
Machinery and equipment $ 6,970,603 $ 6,143,856
Building 6,094,311 6,078,274
Tooling 3,962,565 2,927,273
Furniture and office equipment 2,217,117 1,946,287
----------- -----------
19,244,596 17,095,690
Less accumulated depreciation (10,214,191) (8,104,729)
----------- -----------
9,030,405 8,990,961
Land 352,870 352,870
----------- -----------
$ 9,383,275 $ 9,343,831
=========== ===========
NOTE 7 - GOODWILL AND INTANGIBLE ASSETS:
Goodwill and intangible assets, net of accumulated
amortization of $2,235,000 and $1,876,000 at December 31,
1996 and 1995, respectively, consist of the following:
December 31,
-------------------------
1996 1995
----------- -----------
Goodwill $11,974,819 $12,309,506
Patents 87,437 172,492
Deferred financing costs 54,675 85,704
Other - 32,800
----------- -----------
$12,116,931 $12,600,502
=========== ===========
F-10 <PAGE>
<PAGE>
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of the following:
December 31,
------------------------
1996 1995
---------- -----------
Revolving credit loan (a) $8,019,010 $ 3,025,553
Acquisition A loan (a) - 6,000,000
Acquisition B loan (a) - 3,305,000
Promissory note (b) - 876,000
Other contracts and agreements (c) 14,081 662,021
---------- -----------
8,033,091 13,868,574
Less: current maturities (8,750) (1,523,437)
---------- -----------
Long-term debt $8,024,341 $12,345,137
========== ===========
(a) The Company obtained a $24 million Revolving Credit
and Acquisition Facility (the "Credit Agreement")
with a financial institution on July 21, 1994. The
credit facility was comprised of an $18 million
acquisition facility, consisting of three separate $6
million acquisition facilities, and a $6 million
revolving loan facility. On December 1, 1996, the
credit agreement was amended to provide a revolving
credit facility for $21 million and to eliminate the
$18 million acquisition facility. Balances in the
acquisition facilities were transferred into the
revolving loan facility. The assets of the Company
secure the borrowings under the Credit Agreement.
The revolving credit facility matures on July 21,
1999.
Interest on loans under the Credit Agreement is
payable at varying rates, based on the lender's base
rate (8.25% and 8.75% at December 31, 1996 and 1995,
respectively) plus a margin ranging from 0% to .25%
(.5% at December 31, 1995) on the revolving credit
facility. There was no margin at December 31, 1996.
The Company may also elect to have portions of the
credit facility accrue interest based upon the London
Inter-Bank Offering Rates (LIBOR), plus a margin
ranging from 1.25% to 1.75%. No such election was
made at December 31, 1996. The Company pays a .25%
fee on the unused line of credit for the revolving
credit facility.
The Credit Agreement contains certain covenants
covering the Company and its subsidiaries on a
consolidated basis, including covenants relating to
the maximum amount of indebtedness which the entities
may incur and payment of dividends by the Company.
The Company was in compliance with the covenants at
December 31, 1996. During 1996 and 1995, certain
covenants were violated for which the Company
received a waiver from the lender for the violation.
(b) In conjunction with the Company's acquisition of
Delta III in August 1994, a promissory note was given
to the former owners of Delta III, Inc. for an
original principal amount of $1,460,000. Principal
F-11 <PAGE>
<PAGE>
payments of $584,000 and $876,000 were made on July
1, 1995 and 1996, respectively.
(c) Other contracts and agreements consist of amounts
owed under various consulting and non-compete
agreements. These amounts were paid during 1996. The
remaining balance relates to a capitalized lease
obligation.
Aggregate maturities of long-term debt are as follows:
Period ending Amount
------------- -----------
1997 $ 8,750
1998 5,331
1999 8,019,010
-----------
$ 8,033,091
===========
NOTE 9 - EARLY EXTINGUISHMENT OF DEBT:
On January 31, 1994, using approximately $16,360,000 of the net proceeds
received from the Offering, outstanding debt and accrued interest were
repaid. In conjunction with this transaction, the Company wrote off
the unamortized portions of related financing costs and recognized a loss
on the early extinguishment of debt of approximately $586,000, excluding
any tax benefits. The net loss from the early extinguishment of debt is
shown, net of tax benefits of $223,000, as an extraordinary item,
"Loss on early extinguishment of debt."
NOTE 10 - INCOME TAXES:
Prior to January 27, 1994, the income of the Predecessor
Partnership was not subject to state and federal income
taxes. Income taxes were provided in 1994 for the income of
DFM Corp., a wholly owned subsidiary of the Predecessor
Partnership.
The components of the income tax expense shown in the
statement of operations are as follows:
December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Current:
Federal $1,954,334 $1,332,868 $2,911,186
State 266,682 294,808 342,493
---------- ---------- ----------
2,221,016 1,627,676 3,253,679
---------- ---------- ----------
Deferred:
Federal 280,312 (397,868) (226,976)
State 31,672 (46,808) (26,703)
---------- ---------- ----------
311,984 (444,676) (253,679)
---------- ---------- ----------
$2,533,000 $1,183,000 $3,000,000
========== ========== ==========
F-12 <PAGE>
<PAGE>
A reconciliation of the Company's and Predecessor
Partnership's effective income tax expense and the federal
statutory expense is as follows:
December 31,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
Income tax expense
at statutory
rate $2,198,000 $ 990,000 $2,553,000
State income taxes 259,000 131,000 315,000
Partnership income (105,000)
Other 76,000 62,000 237,000
---------- ---------- ----------
Income tax expense $2,533,000 $1,183,000 $3,000,000
========== ========== ==========
Deferred tax assets (liabilities) are comprised of the
following:
December 31,
----------------------
1996 1995
--------- ---------
Inventory $ 605,000 $ 706,000
Liability for product returns 491,000 457,000
Allowance for doubtful accounts 268,000 237,000
Employee benefit accruals 90,000 149,000
Depreciation (410,000) (313,000)
Amortization of goodwill (142,000) (55,000)
Other 146,000 179,000
---------- ----------
Net deferred tax assets $1,048,000 $1,360,000
========== ==========
NOTE 11 - LEASES:
The Company leases equipment and certain of its facilities
under cancelable and noncancelable operating leases. Rent
expense on such leases totaled $899,293, $804,662 and
$747,798 for the years ended 1996, 1995 and 1994,
respectively. Future minimum annual rental payments under
noncancellable operating lease agreements are as follows:
1997 $ 611,155
1998 205,993
1999 125,535
2000 39,601
---------
Total $ 982,284
=========
F-13 <PAGE>
<PAGE>
NOTE 12 - RELATED PARTY TRANSACTIONS:
The Company signed a lease for a facility with a related
party (former owner of Delta III, Inc.) in August 1994. The
lease term is for five years with monthly rent payments of
approximately $8,000 during 1996 ($7,000 in 1995). The
lease is recorded as an operating lease and rental payments
made total approximately $95,000 and $86,000 for the years
ended December 31, 1996 and 1995, respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
Certain legal claims, suits and complaints have been filed
or are pending against the Company arising out of the normal
course of business. These claims are in the early stages of
discovery and the ultimate outcome cannot be determined;
however, the maximum amount of claims are considered to be
within the Company's insurance limits. While the results of
litigation cannot be predicted with certainty, management
believes the final outcome of such litigation will not have
a material adverse effect on the Company's consolidated
financial position.
NOTE 14 - DEFINED CONTRIBUTION PLAN:
The Company sponsors a qualified 401(k) plan available to
substantially all full-time employees. Participants may
contribute up to 10% of their annual compensation to the
plan. The Company's contributions to the Plan are
determined on a discretionary basis by the management. The
Company's contributions to the Plan for the years ended
December 31, 1996, 1995 and 1994 were approximately
$355,000, $300,000, and $400,000, respectively.
NOTE 15 - STOCK OPTION PROGRAM:
The Company offers participation in stock option plans to
certain directors and employees. All of the outstanding
options under these plans were granted with exercise prices
for the purchase of common stock at 100% of market value of
the stock on the dates of grant.
The Company applies Accounting Principles Board (APB)
Opinion 25 and related interpretations in accounting for its
stock option plans. Accordingly, no compensation expense
has been recognized for its fixed stock option plans as the
exercise price equals the stock price on the date of grant.
Had compensation expense been determined on the fair value
at grant dates consistent with FAS No. 123 "Accounting for
Stock Based Compensation", the Company's pro forma 1996 net
income and earnings per share would have been $3,830,815
and $0.80, respectively. The pro forma adjustments for 1995
were not considered material.
F-14 <PAGE>
<PAGE>
The pro forma amounts were estimated using the Black-Scholes
option pricing model with the following assumptions for
1996:
1996
-------------
Weighted average
expected life (years) 5
Expected volatility 40.0% - 47.2%
Risk free interest rate 5.8% - 6.3%
Weighted average fair
value of options granted $2.21 - $3.90
The following table summarizes the Company's option
activity:
1996 1995
------- -------
Number of shares under option:
Beginning of year 137,000 45,000
Granted 179,000 164,000
Canceled/expired (6,000) (72,000)
------- -------
Options outstanding
at end of year 310,000 137,000
======= =======
Exercise price per share
for options
outstanding
at end of year $4.50 - $13.00 $7.75 - $13.00
Awarded options typically vest and become exercisable over
three years. Under the plan, the exercise price of options
granted may not be less than the market value of the common
stock at the date of the grant. Expiration dates for
outstanding options range from May 25, 2004 to December 1,
2006. The weighted average option price was approximately
$7.39 at December 31, 1996. A total of 450,000 shares of
common stock have been reserved for issuance under the stock
option plans.
In addition, in conjunction with the Company's acquisition
of Trailmaster, options for 100,000 shares of common stock
were granted with an exercise price per share of $13 to the
former owner of Trailmaster Products, Inc. Such options
expire in 1999.
F-15 <PAGE>
<PAGE>
NOTE 16 - QUARTERLY FINANCIAL DATA (unaudited):
Summarized quarterly financial data for 1996 and 1995 is as
follows:
First Second Third Fourth
------- ------- ------- --------
(In thousands, except per share data)
1996
Net sales $18,023 $18,255 $18,465 $17,595
Gross profit 5,790 6,338 6,430 6,119
Net income 722 957 1,245 1,009
Net income
per share .15 .20 .26 .21
1995
Net sales $17,351 $19,346 $16,007 $15,535
Gross profit 6,995 6,136 4,840 3,717
Net income (loss) 1,411 706 96 (485)
Net income (loss)
per share .29 .15 .02 (.10)
F-16 <PAGE>
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the three years ended December 31, 1996
Column A Column B Column C
- ---------------- -------------- ---------------------
Additions
---------------------
Balance Charged Charged
at to costs to other
beginning and accounts
Description of period expenses (describe)
----------- --------- -------- ----------
Allowance for
doubtful accounts:
Year ended
December 31, 1994 $297,875 $55,961 $304,000(3)
Year ended
December 31, 1995 653,544 168,291
Year ended
December 31, 1996 623,428 297,418
Column A Column D Column E
- ----------------- ----------- ----------
Balance
Deductions at end
Description (describe) of period
----------- ---------- ---------
Allowance for
doubtful accounts:
Year ended
December 31, 1994 $4,292(1) $653,544
Year ended
December 31, 1995 198,407(1) 623,428
Year ended
December 31, 1996 218,015(1) 702,831
Column A Column B Column C
- ----------------- --------------- ---------------------
Additions
---------------------
Balance Charged Charged
at to costs to other
beginning and accounts
Description of period expenses (describe)
----------- --------- -------- ----------
Accumulated
amortization -
Intangible assets:
Year ended
December 31, 1994 $1,125,753 $364,207
Year ended
December 31, 1995 1,357,106 518,819
Year ended
December 31, 1996 1,875,925 483,571
Column A Column D Column E
- ----------------- ------------ ---------
Balance
Deductions at end
Description (describe) of period
----------- ---------- ---------
Accumulated
amortization -
Intangible assets:
Year ended
December 31, 1994 $132,854(2) 1,357,106
Year ended
December 31, 1995 1,875,925
Year ended
December 31, 1996 124,153(2) 2,235,343
(1) Represents write-offs, net of recoveries.
(2) Represents write-off of accumulated amortization
related to deferred financing costs and fully amortized
assets.
(3) Represents recording of amounts in conjunction with the
1994 business acquisitions.
F-17 <PAGE>
<PAGE>
Exhibit 4.(ii)(1)(a)(4)
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement, dated as of December 31,
1996 (this "Agreement"), is by and between DEFLECTA-SHIELD CORPORATION,
a Delaware corporation ("Borrower"), and HELLER FINANCIAL, INC., a
Delaware corporation ("Heller").
W I T N E S S E T H:
-------------------
WHEREAS, Borrower and Heller are parties to that certain Credit
Agreement dated as of July 21, 1994 (the "Credit Agreement"; capitalized
terms not otherwise defined herein having the definitions provided
therefor in the Credit Agreement) and to certain other documents
executed in connection with the Credit Agreement; and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendments to the Credit Agreement.
(a) As of the First Amendment Effective Date, the
projected amount outstanding under (i) Acquisition Loan A is
$2,933,793.02, (ii) Acquisition Loan B is $-0-, and (iii) Acquisition
Loan C is $-0-. On the First Amendment Effective Date, all amounts
outstanding under each of Acquisition Loan A, Acquisition Loan B and
Acquisition Loan C shall be deemed converted into Revolving Loans and
each of Acquisition Loan A Commitment, Acquisition Loan B Commitment and
Acquisition Loan C Commitment shall immediately terminate and,
thereafter, Heller shall have no further obligation or commitment to
advance any funds to Borrower under the Acquisition Loan Commitments
(collectively, the "Conversion and Termination"). Immediately after the
Conversion and Termination, the principal amount outstanding under the
Revolving Loan is projected to be $7,428,764.40. For purposes of this
Agreement, "First Amendment Effective Date" means December 1, 1996.
(b) Each of the following definitions contained in the
Credit Agreement, and each reference thereto in the Credit Agreement,
are hereby deleted in their entirety as of the First Amendment Effective
Date following the Conversion and Termination:
"Acquisition A Notes"
"Acquisition B Notes"
"Acquisition C Notes"
"Acquisition Loan A"
"Acquisition Loan A Commitment"
"Acquisition Loan B"
"Acquisition Loan B Commitment"
"Acquisition Loan C"
"Acquisition Loan C Commitment"
"Acquisition Loan Commitments"
"Acquisition Loans" <PAGE>
<PAGE>
"Available Excess Cash Flow"
"Available Excess Cash Flow Certificate"
"Eligible Accounts"
"Eligible Inventory"
"Excess Cash Flow"
"Unused Acquisition Line Fee"
(c) The definition of "Base Rate" is hereby amended by
deleting references therein to "The Chase Manhattan Bank, National
Association or Chemical Bank" and inserting in lieu thereof: "or Chase
Bank, N.A."
(d) The definitions of "Borrowing Base", "'Note' or
'Notes'" and "Revolving Notes" are hereby amended and restated as
follows:
"Borrowing Base" means, as of any date of determination, (i)
three (3) multiplied by (ii) EBIDAT for the twelve (12) month
period ending on the last day of the immediately preceding month
for which Borrower has delivered the Compliance Certificate.
"Note" or "Notes" means one or more of the Revolving Notes.
"Revolving Notes" means, collectively, the amended and
restated promissory notes of Borrower substantially in the form of
Exhibit F, issued pursuant to subsection 2.1(E).
(e) The following new definitions are inserted in
subsection 1.1 in alphabetical order:
"Base Rate Loans" means Loans bearing interest at
rates determined by reference to the Base Rate.
"LIBOR" means, for each Interest Period (as defined in
subsection 2.2(A)(1)), a rate equal to: (a) the rate of interest
determined by Agent at which deposits in U.S. dollars for the
relevant Interest Period are offered based on information
presented on the Reuters Screen LIBOR Page as of 11:00 a.m.
(London time) on the day which is two (2) Business Days prior to
the first day of such Interest Period, provided that if at least
two such offered rates appear on the Reuters Screen LIBO Page in
respect of such Interest Period, the arithmetic mean of all such
rates will be the rate used, provided, further, that if fewer than
two offered rates appear or if Reuters ceases to provide LIBOR
quotations, such rate shall be the rate of interest at which
deposits in U.S. dollars are offered for the relevant Interest
Period by either Bankers Trust Company or Chase Bank, N. A to
prime banks in the London interbank market, divided by (b) a
number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days
prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves
under any regulations of the Board of Governors of the Federal <PAGE>
<PAGE>
Reserve System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) which are required to
be maintained by a member bank of the Federal Reserve System; such
rate to be rounded upward to the next whole multiple of
one-sixteenth of one percent (.0625%).
"LIBOR Loans" means Loans bearing interest at rates
determined by reference to the LIBOR.
"Total Indebtedness to EBIDAT Ratio" means, for any
Calculation Period (as defined in subsection 2.4(A)(1)), the ratio
of (i) the sum of (a) the average daily principal balance of the
Revolving Loan for the one month period ending on the last day of
the month for which the Compliance Certificate most recently
delivered pursuant to subsection 5.1(C) was prepared, plus (b) all
other Indebtedness for borrowed money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of such
month, to (ii) EBIDAT for the twelve (12) month period ending on
the last day of such month.
(f) Subsections 2.1(B), 2.3(B)(2), 2.4(C)(4), 2.4(D)(3),
4.20(C), 5.1(F) and 5.1(T) and any references to said subsections in the
Credit Agreement, are hereby deleted in their entirety.
(g) The second sentence of subsection 2.1(A) is hereby
replaced with the following sentence:
"The aggregate amount of the Revolving Loan Commitments of Lenders
shall be $21,000,000."
(h) Subsection 2.1(E) is hereby amended and restated as
follows:
(E) Notes. Borrower shall execute and deliver to each
Lender an Amended and Restated Revolving Note to evidence the
Revolving Loan, such Amended and Restated Revolving Note to be in
the principal amount of the Revolving Loan Commitment of such
Lender and with other appropriate insertions. In the event of an
assignment under subsection 9.1, Borrower shall, upon surrender of
the assigning Lender's Note, issue new Notes to reflect the new
Commitments of the assigning Lender and its assignee.
(i) Subsection 2.2(A) is hereby amended and restated to
read as follows:
(A) Rate of Interest.
(1) So long as no Event of Default has occurred and is
continuing, from the Effective Date with respect to the Revolving
Loans outstanding at the Effective Date and from the date all
future Revolving Loans are made and the date all other Obligations
become due, depending upon Borrower's election from time to time, <PAGE>
<PAGE>
as permitted herein, to have portions of the Loans accrue interest
based upon the LIBOR, the Loans and the other Obligations shall
bear interest at the rates set forth in below:
The Revolving Loan and all other Obligations shall bear
interest as follows:
(a) If a Base Rate Loan, then at the sum of the Base Rate
plus the Base Rate Margin.
(b) If a LIBOR Loan, then at the sum of the LIBOR plus the
LIBOR Margin.
"Base Rate Margin" shall mean, (i) for the period
commencing on the Effective Date and ending on the day preceding
the first Business Day of the calendar month commencing
immediately after the receipt by Agent of the next Compliance
Certificate delivered by Borrower pursuant to subsection 5.1(C)
(the first Business Day of the calendar month commencing
immediately after the receipt by Agent of each Compliance
Certificate delivered by Borrower pursuant to subsection 5.1(C)
being hereinafter referred to as an "Adjustment Date"), the
applicable percent per annum set forth in the pricing table below
opposite the Total Indebtedness to EBIDAT Ratio, assuming that the
Total Indebtedness to EBIDAT Ratio equals 0.8 to 1.0, and (ii)
during the period commencing on each Adjustment Date and ending on
the day preceding each subsequent Adjustment Date (each such
period being hereinafter referred to as a "Calculation Period"),
the applicable percent per annum set forth in the pricing table
below opposite the Total Indebtedness to EBIDAT Ratio calculated
for such Calculation Period.
"LIBOR Margin" shall mean, (i) for all LIBOR Loans
having an Interest Period commencing during the period commencing
on the Closing Date and ending on the day preceding the first
Adjustment Date, the applicable percent per annum set forth in the
pricing table below opposite the Total Indebtedness to EBIDAT
Ratio, assuming that the Total Indebtedness to EBIDAT Ratio equals
0.8 to 1.0, and (ii) for all LIBOR Loans having an Interest Period
commencing during the period commencing on an Adjustment Date and
ending on the day preceding the subsequent Adjustment Date, the
applicable percent per annum set forth in the pricing table below
opposite the Total Indebtedness to EBIDAT Ratio calculated for
such Calculation Period. <PAGE>
<PAGE>
PRICING TABLE
---------------
Total Indebtedness Base Rate Margin LIBOR Margin
to EBIDAT Ratio
Revolving Revolving
Loans Loans
Greater than 2.5x 0.25% 1.75%
Greater than 1.5x but less
than or equal to 2.5x 0.00% 1.50%
Less than or equal to 1.5x 0.00% 1.25%
If Borrower shall fail to deliver a Compliance
Certificate by the date required pursuant to subsection 5.1(C),
effective as of the first Business Day of the immediately
succeeding calendar month and continuing through the day preceding
the next succeeding Adjustment Date, each applicable Base Rate
Margin and each applicable LIBOR Rate Margin shall be conclusively
presumed to equal the highest applicable Base Rate Margin and the
highest applicable LIBOR Margin specified in the pricing table set
forth above.
Each LIBOR Loan may be obtained for a one (1), two
(2), three (3), or six (6) month period (each being an "Interest
Period"). With respect to all LIBOR Loans: (a) the Interest
Period will commence on the date that the LIBOR Loan is made or
the date on which a Base Rate Loan is converted into a LIBOR Loan,
as applicable, or in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day
on which the next preceding Interest Period expires, (b) if the
Interest Period expires on a day that is not a Business Day, then
it will expire on the next Business Day, and (c) no Interest
Period shall extend beyond the Termination Date.
If the introduction of or the interpretation of any
law, rule, or regulation would increase the reserve requirement or
otherwise increase the cost to any Lender of making or maintaining
a LIBOR Loan, then Agent, on behalf of all affected Lenders, shall
submit a certificate to Borrower demonstrating the calculation of
the increased cost and requiring payment thereof to Agent for the
benefit of the affected Lenders within ten (10) days after the
date of the certificate. There are no limitations on the number
of times such certificate may be submitted.
(2) At the election of Agent, in its sole discretion,
after the occurrence of an Event of Default and for so long as
such Event of Default continues, the Loans and all other
Obligations shall bear interest until paid in full at a rate per
annum (meaning 360 days) that is three percent (3.0%) in excess of
the rate of interest otherwise payable under this Agreement. <PAGE>
<PAGE>
(j) Subsection 2.3(B)(1) is hereby amended by replacing
the text following "(ii)" with the following:
"one-quarter of one percent (0.25%) per annum."
(k) Subsection 2.4(C)(5) is hereby amended and restated as
follows:
(5) Application. All mandatory repayments of the Loans
pursuant to subsections 2.4(C)(2) and (C)(3) shall in each case be
applied in payment of the Revolving Loan.
(l) Subsection 3.2 is hereby amended by (i) renaming said
subsection "Conditions to Revolving Loans for Permitted Acquisitions"
and (ii) amending all references in said subsection to "Acquisition
Loan" to refer to "Revolving Loan".
(m) Subsection 4.20(B) is hereby amended and restated as
follows:
(B) No portion of the proceeds of any Revolving
Loans shall be used by Borrower for any purpose other than (i) to
satisfy the ongoing working capital requirements of Borrower and
its Subsidiaries arising from time to time in the ordinary course
of their respective businesses; (ii) Capital Expenditures; and
(iii) Permitted Acquisitions.
(n) Subsections 6.1 and 7.8 of the Credit Agreement, and
all references thereto contained in the Credit Agreement, are hereby
deleted in its entirety.
(o) The reference to Acquisition Loan Commitments
contained on the signature page to the Credit Agreement, together with
the related commitment amounts, are hereby deleted in their entirety.
In addition, the reference to Revolving Loan Commitment contained on the
signature page is hereby amended to read as follows:
"Revolving Loan Commitment: $21,000,000"
(p) Exhibits A, A-1 A-2, B and D to the Credit Agreement
are hereby deleted in their entirety. Exhibits C and F to the Credit
Agreement are hereby replaced with new Exhibits C and F in the form
attached to this Agreement.
2. Waiver of Past Defaults. Borrower is in default under the
Credit Agreement for its failure to comply with the covenant contained
in Subsection 6.1 of the Credit Agreement for the period of August 31,
1996 through November 30, 1996. Borrower has requested that Heller
waive these Events of Default for such period.
In response to Borrower's request, Heller hereby agrees to waive
the Events of Default caused by the Borrower's failure to comply with
Subsection 6.1 of the Credit Agreement solely as it relates to
Subsection 6.1, provided, however, nothing contained herein shall be <PAGE>
<PAGE>
deemed to constitute a waiver of future compliance with Subsections 6.1
or any other term or condition contained in the Credit Agreement.
3. Representations and Warranties. To induce Agent and Lenders
to enter into this Agreement, Borrower represents and warrants to Agent
on behalf of the Lenders that the execution, delivery and performance by
Borrower of this Agreement are within its corporate powers, have been
duly authorized by all necessary corporate action and do not and will
not contravene or conflict with any provision of law applicable to
Borrower, the Certificate of Incorporation or Bylaws of Borrower, or any
order, judgment or decree of any court or other agency of government or
any contractual obligation binding upon Borrower; and the Credit
Agreement as amended as of the date hereof is the legal, valid and
binding obligation of Borrower enforceable against Borrower in
accordance with its terms.
4. Conditions. The effectiveness of the amendments stated in
this Agreement is subject to each of the following conditions precedent
or concurrent:
(a) No Default. No Default or Event of Default under the
Credit Agreement, as amended hereby, shall have occurred and be
continuing;
(b) Warranties and Representations. The warranties and
representations of Borrower contained in this Agreement, the Credit
Agreement, as amended hereby, and the other Loan Documents, shall be
true and correct as of the effective date hereof, with the same effect
as though made on such date;
(c) Amended and Restated Revolving Note. Borrower shall
have executed and delivered to each Lender an Amended and Restated
Revolving Note in the form attached as Exhibit F hereto; and
(d) Reaffirmation of Guaranty. Borrower shall have
caused each of Belmor Autotron Corp. and D F M Corp. to deliver to Agent
for the benefit of each Lender a Reaffirmation of Guaranty in form and
substance satisfactory to Lender.
5. Miscellaneous.
(a) Captions. Section captions used in this Agreement are
for convenience only, and shall not affect the construction of this
Agreement.
(b) Governing Law. This Agreement shall be a contract
made under and governed by the laws of the State of Illinois, without
regard to conflict of laws principles. Whenever possible each provision
of this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
of this Agreement. <PAGE>
<PAGE>
(c) Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be
an original, but all such counterparts shall together constitute but one
and the same Agreement.
(d) Successors and Assigns. This Agreement shall be
binding upon Agent, Borrower and Lenders and their respective successors
and assigns, and shall inure to the sole benefit of Agent, Borrower and
Lenders and the successors and assigns of Agent, Borrower and Lenders.
(e) References. Any reference to the Credit Agreement
contained in any notice, request, certificate, or other document
executed concurrently with or after the execution and delivery of this
Agreement shall be deemed to include this Agreement unless the context
shall otherwise require.
(f) Continued Effectiveness. Notwithstanding anything
contained herein, the terms of this Agreement are not intended to and do
not serve to effect a novation as to the Credit Agreement. The parties
hereto expressly do not intend to extinguish the Credit Agreement.
Instead, it is the express intention of the parties hereto to reaffirm
the indebtedness created under the Credit Agreement which is evidenced
by the Notes and secured by the Collateral. The Credit Agreement as
amended hereby and each of the other Loan Documents remains in full
force and effect.
(g) Costs, Expenses and Taxes. Borrower affirms and
acknowledges that subsection 10.1 of the Credit Agreement applies to
this Agreement and the transactions and Agreements and documents
contemplated hereunder.
Delivered at Chicago, Illinois, as of the day and year first above
written.
DEFLECTA-SHIELD CORPORATION
By:___________________________
Name Printed:_________________
Title:________________________
HELLER FINANCIAL, INC.,
Individually and as Agent
By:___________________________
Name Printed:_________________
Title:________________________ <PAGE>
<PAGE>
<PAGE>
Exhibit 4.(ii)(1)(b)
AMENDED AND RESTATED
REVOLVING NOTE
--------------
$21,000,000.00 December 31, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, DEFLECTA-SHIELD CORPORATION,
a Delaware corporation ("Borrower"), hereby unconditionally promises to
pay to the order of Heller Financial, Inc., a Delaware corporation
("Lender"), at Lender's office at 500 West Monroe Street, Chicago,
Illinois at such other place as the holder of this Revolving Note may
from time to time designate in writing, in lawful money of the United
States of America and in immediately available funds, the principal sum
of Twenty One Million and No/100 Dollars ($21,000,000.00) or, if less,
the aggregate unpaid principal amount of all advances made pursuant to
subsection 2.1(A) of the "Credit Agreement" (as hereinafter defined), at
such times as are specified in, and in accordance with the provisions,
of the Credit Agreement. This Amended and Restated Revolving Note (the
"Revolving Note") is referred to in and was executed and delivered
pursuant to that certain Credit Agreement dated as of July 21, 1994 (as
amended, restated, supplemented or otherwise modified from time to time,
the "Credit Agreement") between Borrower and Lender, in its individual
capacity and as agent (in such capacity, the "Agent") for any other
Lenders from time to time parties thereto, to which Credit Agreement
reference is hereby made for a statement of the terms and conditions
under which the Revolving Loan evidenced hereby was made and is to be
repaid. All capitalized terms used but not elsewhere defined herein
shall have the respective meaning ascribed to such terms in the Credit
Agreement. This Revolving Note is secured by the Collateral. The
Revolving Note supersedes, amends and restates the revolving note (the
"Prior Note") dated July 21, 1994 in the principal amount of
$6,000,000.00 issued to Lender in accordance with the terms of the
Credit Agreement. This Revolving Note is issued in substitution and
replacement of such Prior Note and not in repayment thereof.
Borrower further promises to pay interest on the outstanding
unpaid principal amount hereof, as provided in the Credit Agreement,
from the date hereof until payment in full hereof at the rate specified
in subsection 2.2(A) of the Credit Agreement (the "Revolving Loan
Rate"); provided, however, that, if Agent, in its sole discretion, so
elects, following the occurrence and during the continuation of an Event
of Default, Borrower promises to pay to Lender interest on the unpaid
principal amount hereof at the Revolving Loan Rate plus three percent
(3.0%) per annum as determined in accordance with the Credit Agreement.
Interest shall be payable monthly in arrears on the first day of each
calendar month, on the date of any prepayment and at maturity, whether
by acceleration or otherwise. Interest shall be computed on the closing
daily principal balance in Borrower's Loan Account with respect to its
Revolving Loan on the basis of a 360 day year for the actual number of
days elapsed in the period during which it accrues. <PAGE>
<PAGE>
If a payment hereunder becomes due and payable on a day that is
not a Business Day, the payment may be made on the next succeeding
Business Day, and such extension of time shall be included in the
computation of the amount of interest due on such succeeding Business
Day. Checks, drafts or similar items of payment received by Lender
shall not constitute payment, but credit therefor shall, solely for the
purpose of computing interest earned by Lender, be given in accordance
with the Credit Agreement. In no contingency or event whatsoever shall
interest charged hereunder, however such interest may be characterized
or computed, exceed the highest rate permissible under any law which a
court of competent jurisdiction determines is applicable hereto. In the
event of any such determination, the provisions of subsection 2.2(C) of
the Credit Agreement shall govern and control.
Borrower and each endorser, guarantor and surety of this Revolving
Note hereby waive presentment for payment, protest and demand, and
notice of demand, protest, dishonor and nonpayment of this Revolving
Note. Borrower also waives, to the fullest extent permitted by law, all
rights to notice and hearing of any kind upon the occurrence of an Event
of Default and prior to the exercise by the Agent of its rights to
repossess the Collateral without judicial process or to replevy, attach
or levy upon the Collateral without notice or hearing.
THIS REVOLVING NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO
HAVE BEEN MADE AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO SHALL BE DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS. Whenever possible each
provision of this Revolving Note shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of
this Revolving Note shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Revolving Note. Whenever
in this Revolving Note reference is made to Lender, the Agent or
Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns. The provisions of
this Revolving Note shall be binding upon and shall inure to the benefit
of such successors and assigns. The successors and assigns of Borrower
shall include, without limitation, a receiver, trustee or debtor in
possession of or for Borrower.
IN WITNESS WHEREOF, Borrower has executed this Revolving Note as
of the day and year first written above.
DEFLECTA-SHIELD CORPORATION,
a Delaware corporation
By: /S/ RONALD C. FOX
--------------------------
Chief Financial Officer <PAGE>
<PAGE>
<PAGE>
Exhibit 10.(iii)(A)(6)
October 14, 1996
Mr. James T. Jurinak
8601 Robinson Court
Fort Wayne, IN 46825
Dear Jim:
This letter sets forth the basic terms of your employment with
Deflecta-Shield Corporation (the "Company"):
Position: You will serve as Vice President and General Manager
of our Autotron Division in Longmont, Colorado.
Additionally, Site Managers of our Corydon, Iowa and
Compton, California (Fibernetics) facilities will
report to you. You will perform duties as directed
by, and report to, the Chief Operating Officer of the
Company.
Start Date: December 2, 1996
Compensation: $130,000 per annum base salary, with annual reviews at
the discretion of the President of the Company.
Bonus: You will be eligible for a bonus of 30% of base pay
earned if the Company achieves it budgeted goals, plus
a discretionary bonus as determined by the Board if
DFM exceeds budgeted goals.
Stock Options: On November 13, 1996, the Board of Directors will vote
on a grant of options in your favor for 40,000 issued
shares of common stock of the Company with an exercise
price equal to the closing price on NASDAQ on December
2, 1996. Options will vest annually in equal
installments over three years with 13,333 vesting on
your anniversary date in December, 1997, December
1998, and December 1999 respectively. These options
will be granted under the terms of the Deflecta-Shield
Corporation Stock Program currently in effect and with
other terms substantially similar to stock options
previously granted to management of the Company.
Benefits: You will be eligible to participate in employment
benefits (including 401(k) and medical insurance
coverage provided to all of the Company's employees,
subject to the terms and conditions of such plans and <PAGE>
<PAGE>
applicable law. (Note: It was agreed that your
medical coverage would not be interrupted or at any
additional cost to you during your transition to
Deflecta-Shield.)
Vacation: You will be entitled to three (3) weeks paid vacation
in 1997 and 1998 respectively. Beginning in 1999,
your vacation benefit will be increased to four (4)
weeks.
Automobile: You will be provided with a late model light truck or
sport utility vehicle for your use, and at Company
expense.
Relocation: The company will pay your reasonable relocation
expenses (e.g. moving, storage, travel costs) to the
Denver, Colorado area and also temporary living
expenses (e.g. lodging, transportation, trips home)
upon presentation of appropriate evidence. The
brokerage fee associated with selling your current
residence will be paid by the Company.
You acknowledge and agree that as an employee of the Company, you will
be provided with confidential information, trade secrets, and
proprietary information of the Company and its subsidiaries and
affiliates. Confidential information, trade secrets, and proprietary
information includes, but is not limited to, any and all: sales
activities, sales records, sales histories, customer lists or knowledge
of the Company's customers and/or potential customers, sales volume by
customer, territory, state, or representative: market activities,
potential sales and/or markets, market strategies; product
specifications, materials and costs: development of new products;
inventions and information pertaining to research and development; the
quantity of various products and/or product mix of the Company as it
relates to overall sales and/or any particular products: manufacturing
processes and/or costs and/or time studies; product designs, dimensions,
tolerances; suppliers, quantity of materials purchases from suppliers,
use of materials purchased from suppliers; shipping methods; pricing;
profit margins whether per product or otherwise; financial information
which is non-public; information concerning management, financial
condition, financial operation, purchasing activities, and business
plans; and all other types and categories of information which are
generally understood by persons involved in the industry and/or by
general business practice to be confidential information, trade secrets
and/or proprietary information.
You agree that you will not disclose or use in any manner any
confidential information, trade secrets and/or proprietary information
of the Company or any subsidiary, affiliate, or any company acquired by
the Company during your employment and thereafter for the longest time
permitted by applicable law, and that in the event your employment is
terminated, for whatever reason, you will promptly deliver and return to
the Company all records, drawings, blueprints, notes, notebooks,
memoranda, specifications, property and documents or materials of any <PAGE>
<PAGE>
kind or nature whatsoever which pertain in any way to the Company, its
subsidiaries, its affiliates or any company acquired by the Company
during your employment.
Notwithstanding anything to the contrary contained in this letter, you
may terminate your employment with the Company at any time for any
reason or no reason, and your employment may be terminated at any time
by the Company for any reason or no reason. Upon termination of your
employment with the Company, you will be paid all base salary due to you
as of the date of termination. In addition, you will receive six (6)
months severance pay ("Severance Payments") following the effective date
of such termination, which shall include your base salary and a
proration of earned bonus based on termination date, provided, however,
that if you voluntarily terminate your employment with the Company or
your employment is terminated by the Company of "Cause", you will not be
entitled to Severance Payments of any kind. These Severance Payments
will be made in the same manner as your salary. As used in this letter,
"Cause" shall mean: (i) the commission of a felony (other than driving
while intoxicated or while under the influence of alcohol or drugs),
(ii) a willful dereliction of duty or intentional malicious conduct
contrary to the best interests of the Company or its business if such
dereliction of duty or misconduct is not corrected within thirty (30)
days after written notice thereof from the Company, or (iii) a refusal
to perform reasonable service customarily performed by the Executive
(other than by reason of a Disability) if such refusal is not corrected
within thirty (30) days after written notice thereof from the Company.
You agree that, for a period of six (6) months from the date of your
termination of employment with the Company (for any reason whatsoever),
you will not engage or participate in, directly or indirectly (whether
as an employee, owner, partner, shareholder, officer, member, director,
advisor, consultant, agent or, without limitation by the specific
enumeration of the foregoing, otherwise), or render services for or
assist, directly or indirectly, any business which is in whole or in
part, directly or indirectly competitive with the business of the
Company and its subsidiaries as conducted before or at the time of the
termination of your employment with the Company in any geographic area
in which the Company or any of its subsidiaries is doing business.
Further, you agree that for a period of six (6) months from the date of
your termination of employment with the company, you will not solicit or
attempt to solicit: (i) any person or entity who is or has been a
customer, supplier, distributor, licenser, licensee or other business
relation of the Company or any subsidiary to cease to do business with
the Company or subsidiary; (ii) any person or entity who is or has been
a customer of the Company or any subsidiary to purchase any product or
service which may be provided by the Company or any subsidiary; or
(iii) any person who is an employee or agent of the Company or any
subsidiary to perform services for, or accept employment with, any
entity other than the Company, its subsidiaries or its affiliates. <PAGE>
<PAGE>
This letter agreement, which shall be governed by Illinois law,
supersedes and replaces all written and oral agreements between us.
Please sign this letter if you accept and agree to the above described
terms and conditions for your employment.
Sincerely,
DEFLECTA-SHIELD CORPORATION Accepted:
By: /S/ RICHARD D. MINEHART /S/ JAMES T. JURINAK
----------------------- ---------------------
James T. Jurinak
Title: C.O.O. / V.P. Operations
Date: 10/14/96 Date: 10/14/96 <PAGE>
<PAGE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (File Nos. 333-05371 and 333-05373)
of Deflecta-Shield Corporation of our report dated February 14, 1997
appearing on page F-1 of this Annual Report on Form 10-K.
/S/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Chicago, Illinois
March 28, 1997. <PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914605
<NAME> DEFLECTA SHIELD CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 459
<SECURITIES> 0
<RECEIVABLES> 11,029
<ALLOWANCES> 703
<INVENTORY> 10,123
<CURRENT-ASSETS> 22,540
<PP&E> 19,245
<DEPRECIATION> 10,214
<TOTAL-ASSETS> 44,147
<CURRENT-LIABILITIES> 7,300
<BONDS> 8,750
0
0
<COMMON> 48
<OTHER-SE> 28,543
<TOTAL-LIABILITY-AND-EQUITY> 44,147
<SALES> 72,338
<TOTAL-REVENUES> 72,338
<CGS> 47,660
<TOTAL-COSTS> 47,660
<OTHER-EXPENSES> 17,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 986
<INCOME-PRETAX> 6,466
<INCOME-TAX> 2,533
<INCOME-CONTINUING> 3,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,933
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
