FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
incorporation No.)
or organization)
1800 North 9th Street, Indianola, Iowa 50125
(Address of principal executive offices) (Zip Code)
(515) 961-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes [ X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
As of May 13, 1997, 4,800,000 shares of the registrant's
Common Stock were outstanding. <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
----
PART I. Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets as of March 31,
1997 and December 31, 1996 3
Consolidated Statements of Income for
the Three Months ended March 31,
1997 and 1996 4
Consolidated Statements of Cash
Flows for the Three Months ended
March 31, 1997 and 1996 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II. Other Information
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
2<PAGE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
DEFLECTA-SHIELD CORPORATION
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
($ in thousands)
March 31 December 31
1997 1996
---------- -----------
(Unaudited)
ASSETS
------
Current Assets:
Cash and equivalents $ 340 $ 459
Accounts receivable, less
allowance for doubtful
accounts of $783 and $703,
respectively 10,320 10,326
Inventories 11,101 10,123
Deferred income taxes 1,354 1,328
Prepaid expenses 445 304
---------- -----------
Total current assets 23,560 22,540
Property and equipment, net 9,383 9,383
Goodwill and intangibles, net 12,007 12,117
Other assets 103 107
---------- -----------
$45,053 $44,147
========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term
debt $ 9 $ 9
Accounts payable 4,356 4,830
Accrued expenses 2,499 2,461
---------- -----------
Total current liabilities 6,864 7,300
Deferred income taxes 284 280
Long-term debt, less current
maturities 8,482 8,024
---------- -----------
Total liabilities 15,630 15,604
---------- -----------
Stockholders equity:
Common stock 48 48
Additional paid-in capital 18,556 18,556
Retained earnings 10,819 9,939
---------- -----------
29,423 28,543
Commitments and contingencies - -
---------- -----------
$45,053 $44,147
========== ===========
The accompanying notes are an integral part of these
statements.
3 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
---------------------------
1997 1996
--------------- -----------
Net sales $16,893 $18,023
Cost of sales 10,940 12,233
--------------- -----------
Gross Profit 5,953 5,790
Operating expenses:
Selling 2,303 2,647
General and administrative 1,854 1,491
Amortization 110 146
--------------- -----------
Income from operations 1,686 1,506
Interest expense 194 308
--------------- -----------
Income before income taxes 1,492 1,198
Income tax expense 612 476
--------------- -----------
Net income $880 $722
=============== ===========
Net income per share $.18 $.15
=============== ===========
Weighted average common
shares outstanding 4,800 4,800
=============== ===========
The accompanying notes are an integral part of these
statements.
4<PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended March 31
---------------------------
1997 1996
----------- ----------
Cash flow from operating
activities:
Net income $ 880 $ 722
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 499 462
Amortization 110 146
Deferred income taxes (22) -
Add (deduct) changes in
assets and liabilities:
Accounts receivable 6 (1,440)
Inventories (978) 790
Prepaid expenses (141) 602
Other assets 4 (2)
Accounts payable (474) 577
Accrued expenses 38 (103)
----------- ----------
Net cash provided (used)
by operating activities (78) 1,754
----------- ----------
Cash flow from investing
activities:
Purchases of property
and equipment (499) (428)
----------- ----------
Cash used by investing
activities (499) (428)
----------- ----------
Cash flow from financing activities:
Net proceeds (repayment)
of revolving line of credit 460 (1,402)
Repayment of other debt (2) (104)
----------- ----------
Net cash provided (used) by
financing activities 458 (1,506)
----------- ----------
Net decrease in cash (119) (180)
Cash at beginning of period 459 533
Cash at end of period $ 340 $ 353
=========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the period
for interest $ 164 $ 324
Cash paid during the period
for income taxes $ 42 $ 10
The accompanying notes are an integral part of this
statement.
5 <PAGE>
<PAGE>
DEFLECTA-SHIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
NOTE 1 - BASIS OF PRESENTATION OF UNAUDITED FINANCIAL
STATEMENTS
The accompanying unaudited consolidated financial
statements of Deflecta-Shield Corporation and its
subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information. In the
opinion of management, all adjustments (which were of a
normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for
the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the
year ended December 31, 1997. For further information,
refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.
NOTE 2 - INVENTORIES
Inventories at March 31, 1997 and December 31, 1996
consisted of the following:
March 31, December 31,
1997 1996
(Unaudited)
Raw materials $ 4,243 $ 4,606
Finished goods and 6,858 5,517
work-in-process ------- -------
$11,101 $10,123
======= =======
NOTE 3 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
#128 - Earnings Per Share which must be adopted by the
Company for all financial statements issued after
December 15, 1997. If the Company would have adopted the
provisions of the standard during the first quarter of
1997, basic earnings per share and diluted earnings per
share would have been equal to the earnings per share of
$.18 presented on the face of the Consolidated Statements
of Income.
6 <PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
($ 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 and in conjunction
with the Management's Discussion and Analysis of
Financial Condition and Results of Operations contained
in the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1996.
Results of Operations
---------------------
The following tables set 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 Net Sales
Three Months Ended March 31,
-----------------------------
1997 1996
---- ----
Net sales 100.0% 100.0%
Cost of sales 64.8 67.9
Gross profit 35.2 32.1
Selling expenses 13.6 14.7
General and administrative
expenses 11.0 8.3
Amortization .6 .8
------ ------
Income from operations 10.0 8.3
Interest expense 1.2 1.7
------ ------
Income before income taxes 8.8 6.6
Income tax expense 3.6 2.6
------ ------
Net income 5.2% 4.0%
====== ======
Three Months ended March 31, 1997 Compared to Three
---------------------------------------------------
Months Ended March 31, 1996
---------------------------
Net Sales. Net sales were $16,893 for the three months
ended March 31, 1997, compared to $18,023 for the three
months ended March 31, 1996, a decrease of $1,130, or
6.3%. While net sales of heavy truck products increased
by $32 and shock absorbers and suspension systems
increased by $318, net sales of other light truck
products as a group decreased by $1,480, primarily due to
reduced orders for air deflectors and aluminum products.
In general, the light truck accessory market was soft in
the first quarter of 1997. In addition, our
promotions in
7 <PAGE>
<PAGE>
late 1996 resulted in reduced ordering in early 1997.
Also, by repositioning some product lines, the Company
moved away from some mass merchandisers and retail chain
stores that accounted for a fair amount of sales in the
first quarter of 1996.
Gross Profit. Offsetting the shortfall in net
sales, gross profit was $5,953 for the three months ended
March 31, 1997, compared to $5,790 for the three months
ended March 31, 1996, an increase of $163, or 2.8%. This
favorable trend in gross profit was due to improvements
in manufacturing efficiencies and changes in product mix.
As a percentage of net sales, gross profit increased to
35.2% for the three months ended March 31, 1997, compared
to 32.1% for the three months ended March 31, 1996, an
increase of 3.1 percentage points.
Selling Expenses. Selling expenses were $2,303 for
the three months ended March 31, 1997, compared to $2,647
for the three months ended March 31, 1996, a decrease of
$344, or 13.0%. As a percentage of net sales, selling
expenses decreased to 13.6% for the three months ended
March 31, 1997, from 14.7% for the three months ended
March 31, 1996. The reduction in selling expenses is a
function of: (i) the timing of spending for catalogs and
promotional flyers that was greater in the first quarter
of 1996, and (ii) a commensurate drop in variable
expenses that track with the shortfall in net sales such
as co-op advertising, outbound freight and sales
commissions.
General and Administrative Expenses. General and
administrative expenses were $1,854 for the three months
ended March 31, 1997, compared to $1,491 for the three
months ended March 31, 1996, an increase of $363, or
24.3%. As a percentage of net sales, general and
administrative expenses increased to 11.0% for the three
months ended March 31, 1997, compared to 8.3% for the
comparable period in 1996. The majority of the increase
is due to (i) increased headcount in senior management,
(ii) increased product design and development costs,
(iii) training, manpower, and development costs for a new
computer system, and (iv) costs related to consolidation
of facilities and manufacturing processes.
Interest Expense. Interest expense was $194 for the
three months ended March 31, 1997, compared to $308 for
the three months ended March 31, 1996, a decrease of
$114. Interest bearing debt averaged approximately
$8,262 for the three months ended March 31, 1997,
compared to approximately $13,115 for the three months
ended March 31, 1996.
Income Tax Expense. The effective income tax rate
was 41.0% for the three months ended March 31, 1997,
compared to 39.7% for the comparable period of 1996.
Net Income Per Share. As a result of the
improvement in net income to $880 for the three months
ended March 31, 1997, compared to $722 for the three
months ended March 31, 1996, and no change in the
weighted average common shares outstanding, net income
per share increased to $.18 per share from $.15 per
share, an increase of $.03 per share.
8<PAGE>
<PAGE>
Seasonality and Quarterly Data
------------------------------
Although the Company deviated from the pattern at
one time, it has historically generated the majority of
its net sales and income from operations in the second
and third quarters of each year. The Company expects the
historical pattern to continue in 1997 and future years.
This seasonal pattern combined with effects of new
product introductions and the timing of customer orders
can cause the Company's results of operations to vary
from quarter to quarter.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirements arise primarily
from working capital and capital expenditure
requirements. The Company maintains a $21 million
revolving credit facility which expires on July 21, 1999.
The Company believes that funds generated from operations
and funds available under the revolving credit facility
will be adequate to meet its working capital, debt
service and capital expenditure requirements through the
next twelve months.
As of March 31, 1997, the Company had cash balances
of $340 and working capital of $16,696. The current
ratio at March 31, 1997 was 3.4:1 compared to 3.1:1 at
December 31, 1996. Cash flows used by operating
activities were $78 for the three months ended March 31,
1997 compared to cash flows provided by operating
activities of $1,754 for the three months ended March 31,
1996. Cash used by operating activities of $78 for the
three months ended March 31, 1997 was primarily for
payment of trade payables and to build finished goods
inventory levels.
Accounts receivable of $10,320 remained virtually
unchanged at March 31, 1997 while days sales outstanding
increased to 55.0 from 52.1 at December 31, 1996.
Inventories of $11,101 at March 31, 1997 increased by
$978, or 9.7%, from $10,123 at December 31, 1996. This
represents an increase in days sales in inventory to 91.3
days from 77.5 days. The finished goods inventory was
increased in order to balance the inventory mix and to
allow the Company to respond to customer's orders without
significant delays in the second and third quarters of
1997.
Capital expenditures of $499 in the three months
ended March 31, 1997 were primarily for new product molds
and tooling and new manufacturing equipment. The Company
anticipates that capital expenditures in the remainder of
1997 will be approximately $2,000 absent further
consolidation of manufacturing and distribution
facilities discussed below.
As of March 31, 1997, the outstanding principal
balance of the Company's debt was $8,491, an increase of
$458 from the outstanding balance at December 31, 1996.
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
9 <PAGE>
<PAGE>
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.
Forward Looking Information
---------------------------
Information included in this Report on Form 10-Q
relating to sales and earnings expectations constitutes
forward-looking statements that involve a number of risks
and uncertainties. From time to time, information
provided by the Company or statements made by its
employees may contain other forward-looking statements.
Factors that could cause actual results to differ
materially from the forward-looking statements include
but are not limited to: general economic conditions,
including their impact on the sale of new light trucks;
sales of new heavy trucks, which are cyclical;
competitive factors, including pricing pressures; changes
in product and sales mix; the timely development and
introduction of competitive new products by the Company
and market acceptance of those products; inventory risks
due to changes in market demand or the Company's business
strategies; difficulties which may be encountered in the
consolidation of the Company's manufacturing and
distribution facilities; changes in effective tax rates;
and the fact that a substantial portion of the Company's
sales are generated from orders received during the
quarter, making prediction of quarterly revenues and
earnings difficult. The words "believe," "expect,"
"anticipate," "project," and similar expressions identify
forward looking statements. Readers are cautioned not to
place undue reliance on these forward looking statements,
which speak only as of the date made. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise.
10 <PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in Olney
vs. Ioimo, et al., a negligence/products liability
lawsuit pending in the Superior Court of King County,
Washington. The complaint arises from a two vehicle
accident which occurred on April 23, 1994 and alleges
that the plaintiff's vehicle rolled over and the
plaintiff's son, a minor, was ejected from that
vehicle. The complaint alleges that a
Trailmaster lift kit was installed on the vehicle driven
by the plaintiff and that the lift kit was not reasonably
safe as it was designed and marketed and that adequate
warnings and instructions were not provided by
Trailmaster. The defense of these claims has been
tendered to the Company's insurer. This case is in an
early stage, the fact investigation has just been
commenced and the ultimate outcome cannot yet be
determined.
During the quarter ended March 31, 1997, the claims
against the predecessor of the Company's Trailmaster
subsidiary in Sexton v. Ford Motor Company, et al., were
dismissed with no payments made by the Company, and the
claims against the Company's Trailmaster subsidiary in
Haag v. Trailmaster Products, Inc. were dismissed with a
payment of $3,500.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter
ended March 31, 1997
11<PAGE>
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: May 13, 1997
DEFLECTA-SHIELD CORPORATION
By: /s/Ronald C. Fox
--------------------------------------------
Ronald C. Fox,
Chief Financial
Officer(Duly authorized officer and Principal
Financial and Accounting Officer)
12<PAGE>
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<CIK> 0000914605
<NAME> DEFLECTA-SHIELD CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 340
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0
0
<COMMON> 48
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<TOTAL-REVENUES> 16,893
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