-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TIfQwsES/IXnDFc5/vTt2YFnTz1hGrnJxBmH+7kVbihl5b3KrCLLA+34B3cS4x+c d2hjtcfJIfcth6lqHANj7Q== 0000897101-97-001041.txt : 19970930 0000897101-97-001041.hdr.sgml : 19970930 ACCESSION NUMBER: 0000897101-97-001041 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUND INTERNATIONAL HOLDINGS INC CENTRAL INDEX KEY: 0000820526 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 411568618 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16319 FILM NUMBER: 97687042 BUSINESS ADDRESS: STREET 1: 911 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 BUSINESS PHONE: 6127802520 MAIL ADDRESS: STREET 2: 911 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 FORMER COMPANY: FORMER CONFORMED NAME: LUND ENTERPRISES INC DATE OF NAME CHANGE: 19891019 FORMER COMPANY: FORMER CONFORMED NAME: FLEX CORP /DE/ DATE OF NAME CHANGE: 19880218 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended June 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______to________ Commission File Number: 0-16319 LUND INTERNATIONAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1568618 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 911 Lund Boulevard, Anoka Minnesota 55303 (Address of principal executives offices including Zip Code) Registrant's telephone number, including area code: (612) 576-4200 Common Stock, $.10 par value 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. [X] Number of shares of Common Stock, $.10 par value, outstanding as of September 23, 1997 was 4,393,970. The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 23, 1997 was approximately $37,530,878 based upon the last sale price of the registrant's Common Stock on such date. Documents incorporated by reference: Portions of the registrant's 1997 Annual Report to Stockholders are incorporated by reference into Part II and portions of the registrant's Proxy Statement are incorporated by reference into Part III. PART I. Item 1. BUSINESS General Lund International Holdings, Inc. ("Holdings") was incorporated on November 10, 1986, pursuant to the Delaware General Corporation Law. Lund Industries, Incorporated ("Lund") was incorporated as a Minnesota corporation in 1965 and first engaged in its present business in 1974. In October 1987, Holdings acquired Lund as a wholly-owned operating subsidiary. During fiscal 1993, a foreign sales corporation was incorporated and named Lund FSC, Inc. (formerly Lund International FSC, Inc. "FSC") as a wholly-owned foreign sales corporation of Holdings. In fiscal 1996, Lund Acquisition Corp. ("Acquisition") was incorporated as a Minnesota corporation. During fiscal 1996, Acquisition acquired certain assets of Innovative Accessories, Inc., an Oklahoma corporation. (Holdings, Lund, FSC and Acquisition will hereinafter be referred to collectively as the "Company" or "Lund"). Lund is a leading designer, manufacturer and marketer of a broad line of appearance accessories for new and used light trucks, including pickup trucks, sport utility vehicles, minivans and other vans. The Company's products allow consumers to customize the relatively uniform look of light trucks with stylish and functional accessories which are engineered and designed to give an original equipment look and fit. The Company currently has 34 product lines, each designed to fit a wide range of makes, models and years of light trucks. The Company's major product categories are: EXTERNAL VISORS, which give light trucks an aerodynamically-styled look while reducing glare; HOOD SHIELDS/BUG DEFLECTORS, which provide a distinctive look and protect hoods and windshields from insects, stones and road debris; RUNNING BOARDS, which provide an original equipment look, protect the rocker panels of a vehicle and assist in passenger entry and exit; TONNEAU COVERS, which protect the bed of a pickup truck with a smooth stylish look; and OTHER EXTERNAL APPEARANCE ACCESSORIES, which include cab extenders, styling covers for taillights and headlights, tailgate protectors, fender extensions, custom grille inserts, rear window air deflectors, side window covers, wiper cowls, rear valances, cargo trays, floor mats and bumper covers. Products The Company currently has 34 product lines, each designed to fit a wide range of vehicles. These products are generally manufactured from fiberglass, vinyl or plastic sheets composed of polyester, ABS plastic, acrylic or polycarbonate, or reinforced vinyl. Virtually all of Lund's products are custom molded for an exact fit to each vehicle. EXTERNAL VISORS In fiscal 1978, Lund entered the light truck accessory market by introducing the Lund SunVisor(R). Since then, the Company has been designing, manufacturing and selling external visors and believes it is the largest supplier of external visors in the industry. In fiscal 1996, Lund introduced and began shipping the Solar(TM) and Lunar (TM) visors. The visor category represented 30.8%, 36.2%, and 43.4% of the Company's net sales in fiscal 1997, 1996 and 1995, respectively. The Company's current visor product lines include: LUND SUNVISOR(R). The Lund SunVisor extends forward from the roofline of the light truck's cab, enhancing its appearance with an aerodynamically-styled look while reducing glare for passengers. A distinctive hawk-like silhouette is incorporated into a majority of the Lund SunVisors. MOONVISOR (R). The MoonVisor is similar to the Lund SunVisor, with the addition of recessed amber running lights for additional style and lighting. The SunVisors and MoonVisors are sold unpainted to allow a customer to match the paint of the visor to that of the vehicle. The visors are easy to install and are mounted to the cab of the vehicle using self-tapping screws which are capped with custom finishing covers. SOLAR (TM) VISOR. The SolarVisor is manufactured using a UV stable, ABS polymer and is designed with the unique feature of attaching in the door mount of the vehicle rather than into the roof. This visor is available in the color black and can be painted to match the exterior of the vehicle. LUNAR(TM) VISOR. The LunarVisor is similar to the SolarVisor, with the addition of Department of Transportation approved recessed amber lights. HOOD SHIELDS/BUG DEFLECTORS The Company entered the hood shield/bug deflector market in fiscal 1990 and now offers four styles, which represented 23.8%, 24.1%, and 23.9% of the Company's net sales in fiscal 1997, 1996 and 1995, respectively. These product lines currently are: INTERCEPTOR (TM). The Interceptor has a wrap-around design that is consistent with today's sleek looking vehicles. The Interceptor's design protects the leading edge of each fender as well as the hood from bugs, stones and other road debris. This product line is available in smoke, red, blue and clear. The clear shield can be painted for a more customized look. FRONTRUNNER (TM). The FrontRunner, which is also available for certain cars, follows the contour of the hood for a "second skin" look and mounts easily without tools or drilling. The FrontRunner protects the hood as well as the leading edge of each fender and is available in a black satin finish which can be painted to match the color of the vehicle. DEFENDER(TM). The Defender is a low-profile hood shield that is contoured to match the lines of the hood for maximum aerodynamics. The Defender can be installed using screws or tape. This product line is available in the smoke color. AVENGER(TM). The Avenger is similar to the Defender but has the added feature of wrap-around design for hood and fender protection. This product line is also available in the smoke color. RUNNING BOARDS AND STEP BOARDS In fiscal 1992, the Company entered this market when it developed its line of fiberglass running boards. The Company currently offers four lines of boards, which provide an original equipment look, protect the rocker panels of a vehicle and assist in passenger entry and exit. This product category represented 20.0%, 18.0% and 14.4% of the Company's net sales in fiscal 1997, 1996 and 1995, respectively. These lines currently are: RUNNINGMATES(TM). RunningMates are full-length fiberglass running boards that come with a non-skid rubber tread, gravel guard and splash guard. RunningMates are offered in a two-piece design for pickups and large sport utility vehicles. This product line is available in ready-to-paint white gel-coat or, for the Ford(R) Explorer, in mocha. STEPMATES (TM). StepMates are single step boards that are similar to RunningMates in style and function. StepMates are available in a white gel-coat finish to allow a customer to match the exterior of the vehicle. SUPERSTEPS(TM). SuperSteps are step boards designed to be a multi-application product with limited part numbers that fit a broad array of vehicles. SuperSteps are molded from an ABS black polymer plastic which can be painted to match the vehicle or installed without painting. SIDETRACKER(TM). SideTracker running boards are designed to allow four applications to fit most extended cab pickups and sport utility vehicles. These running boards are manufactured from ABS plastic polymer which can be installed without painting or painted to match the vehicle. TONNEAU COVERS The Company entered into the tonneau cover market in fiscal 1996 with the acquisition of certain assets of Innovative Accessories, Inc. Lund currently markets three styles of tonneau covers, which are each designed to protect the bed of a pickup truck. This product category represented 6.5% and 2.3% of the Company's net sales in fiscal 1997 and 1996, respectively. These product lines currently are: HATCHBACK(TM). The Hatchback is a uniquely designed cab-extending tonneau cover that incorporates the features and functions of an automobile trunk with the benefits of a hard tonneau cover. The Hatchback is constructed of three individually molded pieces of fiberglass, assembled to make the smooth inner and outer surfaces. The Hatchback comes in a white gel-coat finish which can be painted to match the vehicle. ADVANTAGE(TM). The Advantage tonneau cover is a vinyl cover that is attached to the bed of a pickup truck to protect the cargo from the elements and to add a smooth look to the pickup. The Advantage tonneau cover is available in black. The cover attaches to the bed of the truck with the use of anodized aluminum rails that are clamped onto the bed. Rust-proof Insulsnaps(R) are used to attach the vinyl to the rail. PREMIER(TM). The Premier tonneau cover is similar to the Advantage cover but has an upgraded bow design system that allows for easy removal of the bows. The Premier is available in a variety of colors to complement the color of the pickup. OTHER EXTERNAL APPEARANCE ACCESSORIES The Company began designing, manufacturing and selling other external appearance accessories in fiscal 1982. These products represented 18.9%, 19.4% and 18.3% of the Company's net sales in fiscal 1997, 1996 and 1995, respectively. The Company's other external appearance accessories currently are: CAB EXTENDERS AND BODY ACCESSORIES. The Company designed and began selling cab extenders in the 1980's, and other body accessories in the 1990's. FASTBACK(R). The Fastback is a cab spoiler designed to enhance the appearance of a pickup truck by extending the lines of the cab. It also acts like a visor for the back of the cab and provides a bar on which accessory lights may be mounted. This product line is available with solid or cutout side panels and has a white gel-coat finish which can be painted to match the vehicle. RACERBACK(TM). The Racerback cab fairing is similar to the Fastback except that it raises above the cab line with a streamlined spoiler-effect and fastens to the truck cab and roof. The Racerback also allows for the use of a tonneau cover. The Racerback comes in a white gel-coat finish which can be painted to match the vehicle. WINDJAMMER (TM). The WindJammer is a stylish rear window air deflector that helps prevent the build-up of dirt on the rear window of vans, minivans and sport utility vehicles. The WindJammer is available in smoke acrylic or paintable plastic. TAILMATE(TM). The TailMate is a fiberglass rear valance that is mounted below a pickup truck's tailgate, providing a smooth look to the back of the vehicle. The TailMate comes in a white gel coat finish which can be painted to match the vehicle. WIDESIDES (TM). WideSides are fiberglass fender extensions which attach to the rear wheel wells of a pickup truck, giving a vehicle a "dual-tire" look. WideSides extend the body panel by approximately four inches and are offered in a nine inch super-wide size for Chevrolet(R) pickup trucks. WideSides come in a white gel-coat finish which can be painted to match the vehicle. GATEKEEPER (TM). The GateKeeper tailgate protector adheres to the top edge of a pickup truck's tailgate, protecting it from scratches and dents. The GateKeeper is made from flexible PVC and is sold in black. SHADOW(TM) WIPER COWL. The Shadow Wiper Cowl hides the windshield wipers and creates the appearance of a lowered cab, known as a "chopped look." The Shadow is available in smoke or a paintable clear finish. RUNNINGMATE(TM) REAR EXTENDER. The RunningMate Rear Extender is used to complement the Company's running board line by extending the look of the running boards to the rear portion of the fender. The RunningMate Extender is made of ABS black polymer plastic and can be painted to match the vehicle. N.E.T PERFORMANCE(TM) BY LUND. N.E.T.s are designed to capitalize on the popular motorsports enthusiasm. They are installed to the interior of a vehicle to give the look of window racing nets. N.E.T.s are available in a variety of colors. HARDNOSE(TM) BUMPER COVER. The HardNose Bumper Cover is a clear plastic polymer cover for the front bumper of a vehicle. The HardNose can be painted from behind to ensure a chip-free painted surface. BACKDRAFT(TM)TAILGATE SPOILER. The BackDraft tailgate spoiler is a designed black ABS polymer spoiler that can be attached to the tailgate of a pickup using 3M(R)tape. GRILLE INSERTS. The Company entered the market for grille inserts when it acquired the Cold Front(R) product line in fiscal 1990. The Company developed the Screen Front(TM) product line in fiscal 1991. COLD FRONT(R). The Cold Front custom grille insert snaps into the grille of a light truck to give a stylish "backed-out look" and to provide it with fast engine warm-up and even engine temperature in cold weather. The Cold Front consists of solid Lexan(R) panels which come in the color smoke. SCREEN FRONT(TM). The Screen Front custom grille insert is similar to the Cold Front except that it consists of perforated Lexan panels that are used to screen bugs and road debris from the grille. The Screen Front is sold in the color smoke and can be painted to match the vehicle. HEADLIGHT, TAILLIGHT AND SIDE WINDOW STYLING COVERS. In fiscal 1993, the Company introduced its Eclipse(TM) line of styling covers for headlights and taillights. The Company introduced the Eclipse Side Window Styling Covers in fiscal 1994. The Eclipse product lines are: ECLIPSE HEADLIGHT AND TAILLIGHT STYLING COVERS. The Eclipse headlight and taillight styling covers are solid in design and can be easily mounted without tools or drilling, either by snapping in place or by using a patented mounting system acquired by the Company. The Eclipse headlight styling covers are available in smoke and paintable clear, and the Eclipse taillight styling covers are available in smoke. The Company entered the market for automobile accessories with its headlight styling covers, which are available for most domestic and imported cars and light trucks. ECLIPSE SLOTTED TAILLIGHT STYLING COVERS. The Eclipse slotted taillight styling covers provide a distinctive look and can be easily mounted using double-sided industrial tape. This product comes in a paintable black finish. ECLIPSE SIDE WINDOW STYLING COVERS. The Eclipse side window styling covers provide a distinctive look for many domestic and imported extended cab pickup trucks. These covers attach to the side window using double-sided industrial tape. The Eclipse side window styling covers come in smoke or a paintable black finish. CARGO TRAYS AND FLOOR MATS. The Company entered the market for cargo trays and floor mats with the introduction of two new products in fiscal 1995. These products are used to protect the interior floor of vehicles. Lund's cargo trays and floor mats are manufactured using a special blend of polymers and recycled rubber. SPORTLINER(TM) CARGO TRAY. The SportLiner cargo trays are used to protect the storage areas of sport utility vehicles and minivans and are manufactured on the Company's vacuum-forming machine. This product is available in a variety of colors to match the interior of the vehicle. SPORTMAT(TM) FLOOR TRAY. SportMats are designed to protect the interior floor space of a light truck and are also manufactured on the Company's vacuum-forming machine. This product is available to match the SportLiner Cargo Trays. Manufacturing Process The Company's products are generally manufactured from fiberglass, vinyl or plastic sheets composed of polyester, ABS plastic, acrylic, polycarbonate or reinforced vinyl. Product lines representing a majority of the Company's sales are manufactured from laminated fiberglass and polyester resin, making these the predominant raw materials currently used by the Company. The Company believes that the raw materials it uses are available from numerous sources and that it could find alternative vendors to supply such materials or alternative materials, if necessary. Fiberglass products, such as Lund SunVisors, Fastbacks and RunningMates, are manufactured largely by hand using production molds to form a 1/8" fiberglass laminate into product shapes. The edges are then machine trimmed and hand sanded for a smooth finish. Plastic products, including the Solar and Lunar visors, FrontRunner, WindJammer and the Eclipse product lines, are manufactured from plastic sheets utilizing drape-forming and vacuum- forming processes. In the drape-forming process, a plastic sheet is cut into custom flat shapes, known as blanks. These blanks are heated in a computerized conveyor oven and formed into products by draping the heated blanks over molds. In the vacuum-forming process, a plastic sheet is heated and formed over a mold using vacuum pressure in a thermo-forming machine. Tonneau covers, including the Premium and Advantage lines, are manufactured from a reinforced vinyl tonneau cover material and aluminum extrusion. The cover material is cut and sewn to fit each application and the aluminum is cut to size to match. To supplement its internal manufacturing, the Company relies on independent manufacturers. The Company qualifies each manufacturer and works closely with it to assure the timely delivery of products that meet the Company's specifications. The Company generally retains ownership of the tooling used to produce a product line, with the understanding that it will remove the tooling from the manufacturer's plant at the termination of the manufacturing relationship. The Company has not experienced any product liability claims in the past. Lund generally provides limited lifetime warranties against manufacturing defects on its products. In fiscal 1997, 1996 and 1995, the Company had warranty expense of $ 1,110,440, $778,239 and $510,624, respectively, which represented 2.6%, 1.7% and 1.1% of net sales, respectively. These expenses resulted primarily from warranty claims related to breakage in its acrylic product lines. The Company believes it has addressed this issue by moving to a virtually non-breakable Lexan(R) plastic material for a majority of its acrylic product line. Marketing and Sales The Company sells its products through a national distribution system utilizing an in-house sales staff and independent manufacturer's representatives. The Company has three in-house regional sales managers who oversee 13 independent manufacturer's representative organizations employing approximately 60 sales representatives. The Company's staff and the independent manufacturer's representatives sell the Company's products to warehouse distributors, dealer expediters, automotive specialty chain stores, converters and catalog companies. In addition, the Company sells heavy duty truck visor products to original equipment manufacturers. In fiscal 1997, the Company began limited direct marketing to retailers. While the light truck accessory market is highly fragmented, the Company believes that there is a trend among distributors and retailers to prefer suppliers, such as Lund, who provide well-recognized brand names, customer service and a broad product line that accommodates "one-stop-shopping." In addition, the Company believes there is a trend toward computerized ordering and therefore offers its customers access to ordering through Electronic Data Interchange (EDI). Virtually all of the Company's sales are from product lines sold in the United States and Canada. The Company delivers product to warehouse distributors and retailers by truck from its manufacturing and warehouse facilities in Anoka, Minnesota and Oklahoma City, Oklahoma, as well as from independent warehouses in Toronto, Ontario and Los Angeles, California. The Company's marketing program is focused on developing high profile new products, creating excitement around its broad product offering and building equity in the Lund name. The Company employs an integrated communications strategy that utilizes consumer and trade advertising, public relations, promotions, point-of-purchase and packaging to communicate a specific message to each level of the selling process. That message is centered on industry leadership, innovation, high quality, breadth of line and Company integrity. Consumer advertising is focused on building equity in the Lund name through getting the "Lund Look". The program utilizes consumer magazines targeted to the street truck enthusiasts, off-road enthusiasts, sportsmen, tow vehicle owners and family vehicle markets. Promotion plays a critical role in exposing the "Lund Look" to the consuming public. An example is the Company's sponsorship of the nationally televised "Lund Look 275" NASCAR(R) Craftsman Super Truck Series Race. In addition, the Company participates in other enthusiast events through team sponsorships in racing, off-roading and fishing. The Company also promotes through the use of "Lundmobiles". Lundmobiles consist of various light trucks that have been customized with Lund products to illustrate the ultimate extent of the "Lund Look". Lundmobiles appear at numerous consumer and trade shows, are used in all of the Company's advertisements, are featured in consumer magazine editorials and are utilized by retailers and distributors to create consumer excitement. Other steps in pulling the product through the distribution system involve trade advertising, direct communication with businesses that come in contact with the consumer and a cooperative advertising program to help them reach the consumer. The Company uses various trade magazines to create excitement at the jobber and retail level. In addition, the Company has developed a network of Authorized Dealers that currently consists of over 9,000 retail businesses and a certified dealer program that consists of 3,000 car dealerships. Lund communicates directly with these dealers regarding new product introductions, promotions, selling tools and selling techniques. The Company also communicates directly to the consumer through the use of its high quality consumer packaging and point-of-purchase displays. The packaging depicts the product in use on standard vehicles as well as "Lundmobiles" and conveys the features and benefits of the specific product. Lund produces all of its printed selling tools internally. These tools include product catalogs, application lists and other product literature, which it distributes to the warehouse distributors, retailers and independent sales representatives. SEASONALITY AND BACKLOG Historically, Lund has had a seasonal mix which favored late winter, spring and early summer with higher sales than late summer and early fall. During fiscal 1996 and 1997, the Company did not experience its historical seasonal increases due to problems with the production and shipment of new products. The Company maintains an average backlog of two to five days. COMPETITION The Company's industry is highly competitive. The Company believes that competition in the industry is based on brand name recognition, quality, design, breadth of product line, price, service and packaging. Certain of the Company's competitors and potential competitors, including manufacturers of light trucks, have greater financial or other resources than the Company. There are no significant technological or manufacturing barriers to entry into the Company's business. While the Company has many competitors for most of its product lines, it believes that in the United States it has one of the broadest offerings of appearance accessories in the light truck market along with the strongest brand name and that it occupies a dominant position for external visors and cab extenders. INTELLECTUAL PROPERTY The Company generally seeks to obtain patent protection, shape/design trademarks and brand trademarks for its products. The Company holds more than 20 patents, expiring at various dates from 1998 to 2010, generally related to product design or mounting procedures. In addition, the Company owns various federally registered and common law trademarks, including the LUND SUNVISOR and a shape/design mark, respectively, in the distinctive "hawk-like" design, incorporated in a majority of the Company's visor products. The Company has aggressively enforced its patents and trademarks and intends to do so in the future. The Company believes that by aggressively enforcing its patents and trademarks it deters other manufacturers from attempting to copy its products or selling lesser quality products at lower prices. GOVERNMENT REGULATION The Company is subject to federal, state and local laws and regulations concerning consumer products, the environment and occupational safety and health. EMPLOYEES As of September 23, 1997, the Company employed 266 people on a full-time basis and three people on a part-time basis. None of the Company's employees are represented by a labor union. The Company believes its employee relations are good. EXECUTIVE OFFICERS AND KEY EMPLOYEES The executive officers and key employees of the Company during fiscal 1997 were as follows: WILLIAM J. MCMAHON, 51, rejoined the Company in September 1994 as President and Chief Executive Officer. From May 1991 to September 1994, Mr. McMahon served as Chief Operating Officer for Anagram International, Inc., a manufacturer and distributor of consumer products and industrial packaging. From 1988 to 1991, Mr. McMahon was Chief Executive Officer and President of Lund International Holdings, Inc. JAY M. ALLSUP, 39, joined the Company in October 1993 as the Director of Finance and was appointed Chief Financial Officer in June 1994. From April 1989 to October 1993, he was the Chief Financial Officer and Treasurer of Standun, Inc., a manufacturing holding company. BRADLEY W. ANDRESS, 43, joined the Company in October 1995 as Vice President of Marketing. From August 1985 to October 1995, Mr. Andress held various positions, including Vice President of Marketing and Vice President of Sales, at Plastics, Inc. and Anchor-Hocking Plastics, which are division of the Newell Companies. KATHY R. SMITH, 36, joined the Company in May 1989 and since April 1990 has served as Executive Assistant to the Chief Executive Officer. Ms. Smith was named Corporate Secretary and Investor Relations Manager of the Company in February 1994. WILLIAM H. TOMS, 52, joined the Company in April 1995 as Vice President of Operations. From 1983 to April 1995, Mr. Toms was the Vice President of Operations for Anchor-Hocking Plastics, a manufacturer of household storage containers and microwave cookware accessories and a division of the Newell Companies. STEPHEN S. TREICHEL, 54, joined the Company in October 1995 as Vice President of Strategic and Human Information Systems. From 1993 to October 1995, Mr. Treichel was the President of Process Management International, a management consulting firm. From 1990 to 1993, he was a senior manager of strategic services at McGladrey & Pullen, a CPA and consulting firm. Item 2. PROPERTIES In fiscal 1995, the Company constructed a new facility to consolidate its corporate offices, manufacturing operations and warehouse facilities which allowed Lund to significantly expand its manufacturing capacity and capabilities. This 228,000 square foot facility is located in Anoka, Minnesota, and the Company believes that the new facility is adequate for its needs and will allow it to maintain its sales growth, reduce costs by manufacturing more products in-house, increase profitability through greater manufacturing efficiencies and improve product quality. In fiscal 1996, the Company acquired the assets of Innovative Accessories, Inc. of Oklahoma City, Oklahoma. In connection with the acquisition, the Company leased a 32,000 square foot manufacturing and office facility and a 10,000 square foot warehouse facility. Item 3. LEGAL PROCEEDINGS The Company is not currently a party to any material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II. Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 is incorporated herein by reference to the section entitled "Market for the Company's Common Stock" which appears on page 28 of the Company's 1997 Annual Report to Stockholders for the fiscal year ended June 30, 1997. Item 6. SELECTED FINANCIAL DATA The information required by Item 6 is incorporated herein by reference to the section entitled "Five Year Summary" which appears on page 28 of the Company's 1997 Annual Report to Stockholders for the fiscal year ended June 30, 1997. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" which appears on pages 10 through 13 of the Company's 1997 Annual Report to Stockholders for the fiscal year ended June 30, 1997. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 is incorporated herein by reference to the "Financial Statements, Notes thereto and Report of Independent Accountants" which appear on pages 14 through 27 of the Company's 1997 Annual Report to Stockholders for the fiscal year ended June 30, 1997. See Item 14 (a) for an index of the financial statements and related schedule. The Report of Independent Accountants as of June 30, 1995 and for the year ended June 30, 1995 is included as Exhibit 99 to this Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 9, 1996, the Company dismissed KPMG Peat Marwick LLP as its independent accountant. KPMG Peat Marwick LLP was the independent accountant who was engaged as its principal accountant to audit the Company's financial statements for the Company's fiscal year 1995. On April 9, 1996, the Company retained Coopers & Lybrand L.L.P. as its independent accountants to audit the Company's financial statements for the year ending June 30, 1996. The reports of KPMG Peat Marwick LLP on the financial statements of the Company for the 1995 fiscal year did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of the Company's financial statements for the 1995 fiscal year and the subsequent interim period proceeding their dismissal, there were no disagreements with KPMG Peat Marwick LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of KPMG Peat Marwick LLP would have caused it to make reference to the subject matter of the disagreement in connection with its reports. During the Company's 1995 fiscal year and the subsequent interim period, there were no "reportable events" as described in Item 304(a)(1)(v) of Regulation S-K. Prior to the engagement of Coopers & Lybrand L.L.P., the Company had not consulted with Coopers & Lybrand L.L.P. regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, or any matter described above. The decision to change accountants was recommended by the audit committee of the Board of Directors and approved by the entire Board. The Company has requested, and KPMG Peat Marwick LLP has furnished, a letter addressed to the Commission stating that it agrees with the above statements. A copy of that letter was filed by the Company. In addition, Coopers & Lybrand L.L.P. was provided an opportunity to review the above statements and provide a letter regarding such statements. PART III. Item 10. EXECUTIVE OFFICERS AND DIRECTORS The information required by Item 10 concerning the executive officers and directors of the Company is incorporated herein by reference to the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. PART IV. Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report (1) Consolidated Financial Statements. Pages Independent Auditors' Report.................................................* Consolidated Balance Sheets as of June 30, 1997, and 1996....................* Consolidated Statements of Earnings for the fiscal years ended June 30, 1997, 1996 and 1995..................................* Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended June 30, 1997, 1996 and 1995.............* Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1997, 1996 and 1995..................................* Notes to Consolidated Financial Statements...................................* *Incorporated by reference to the registrant's Annual Report to Stockholders for the fiscal year ended June 30, 1997, a copy of which is included in this Form 10-K as Exhibit 13. (2) Financial Statement Schedules. Pages in this Form 10-K Report of Independent Accountants of Financial Statement Schedule.......21-22 Schedule II: Valuation and Qualifying Accounts for the fiscal years ended June 30, 1997, 1996 and 1995..........23 All other schedules are omitted because they are not required or not applicable or the information is otherwise shown in the Consolidated Financial Statements or notes thereto. (3) Exhibits. See "Exhibit Index" on the pages following the signatures. (b) Reports on Form 8-K. None 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. LUND INTERNATIONAL HOLDINGS, INC. By /s/ William J. McMahon ----------------------------- William J. McMahon Chief Executive Officer and President September 29, 1997 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.
/s/ William J. McMahon Chief Executive Officer September 29, 1997 - ------------------------------- President (Principal Executive William J. McMahon Officer) /s/ Jay M. Allsup Chief Financial Officer September 29, 1997 - ------------------------------- (Principal Financial Officer) Jay M. Allsup /s/ David E. Dovenberg Director September 29, 1997 - ------------------------------- David E. Dovenberg /s/ James E. Haglund Director September 29, 1997 - ------------------------------- James E. Haglund /s/ Ira D. Kleinman Director September 29, 1997 - ------------------------------- Ira D. Kleinman /s/ Robert R. Schoeberl Director September 29, 1997 - ------------------------------- Robert R. Schoeberl Director September __, 1997 - ------------------------------- Dennis W. Vollmershausen /s/ Charles R. Weaver, Jr. Director September 29, 1997 - ------------------------------- Charles R. Weaver, Jr. /s/ Harvey J. Wertheim Director September 29, 1997 - ------------------------------- Harvey J. Wertheim
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NO: 0-16319 Exhibit Page Number or Incorporation by Number Description Reference to - ------ ----------- ------------ 2.1 Agreement and Plan of Exhibit 2 of the Registrant's Reorganization dated July 21, 1987, Registration Statement on Form S-4 as amended as of August 20, 1987 Reg. No. 33-16685 and September 25, 1987, by and among Flex Corporation, Lund Industries Incorporated and Flex Acquisition Corp. 2.2 Articles of Merger of Flex Exhibit 2.2 of the Registrant's Form Acquisition Corp. into Lund 10-K for the fiscal year ended June Industries Incorporated 30, 1988, Commission File No. 0-16319 3.1 Certificate of Incorporation of Exhibit 19 of the Registrant's Form Registrant as amended to date 10-Q for the quarter ended December 31, 1987, Commission File No. 0-16319 3.2 Bylaws Exhibit 3.2 of the Registrant's Registration Statement on Form S-4, Reg. No. 33-16685 10.2 Assignment dated July 22, 1987, Exhibit 10.3 of the Registrant's of certain U.S. patents of Lund Registration Statement of Form S-4, Industries Incorporated by Allan Reg. No. 33-16685 W. Lund 10.3 Assignment of Certain Canadian Exhibit 10.4 of the Registrant's Industries Designs to Lund Industries Registration Statement on Form S-4 Incorporated by Allan W. Lund Reg. No. 33-16685 10.8 Incentive Stock Option Plan Exhibit 10.8 of the Registrant's Form 10-K for the fiscal year ended June 30, 1989, Commission File No. 0-16319 10.9 Revised specimen of form of option granted under the Registrant's Incentive Stock Option Plan 10.18 1992 Non-Employee Exhibit 10.18 of the Registrant's Form Director Stock Option Plan 10-K for the fiscal year ended June 30, 1992 10.19 Employment letter with Jay M. Allsup Exhibit 10.19 of the Registrant's Form dated September 16, 1993 10-K for the fiscal year ended June 30, 1994 10.20 Employment Agreement with Exhibit 10.20 of the Registrant's Form William J. McMahon dated 10-K for the fiscal year ended June 30, 1994 August 30, 1994 10.28 Bond Purchase Agreement Among Exhibit 10.28 of the Registrant's Form Lund Industries, Incorporated; Lund 10-Q for the quarter ended September International Holdings, Inc.; City of 30, 1994 Anoka Minnesota; and Piper Jaffray, Inc. dated September 22, 1994 10.29 1994 Incentive Stock Option Plan Exhibit 10.29 of the Registrant's Form 10-Q for the quarter ended December 31, 1994 10.31 Employment Letter with William H. Exhibit 10.31 of the Registrant's Form Toms dated March 7, 1995 10-Q for the quarter ended March 31, 1995 10.32 Supply agreement between Lund Exhibit 10.32 of the Registrant's Form 10-K Industries, Incorporated and GenCorp, for the fiscal year ended June 30, 1995 Inc. dated June 1, 1995 10.33 Master Lease Agreement between Exhibit 10.33 of the Registrant's Form 10-Q LMI Funding Corporation and Lund for the quarter ended September 30, 1995 Industries, Incorporated dated August 1, 1995 10.34 Employment letter with Bradley W. Exhibit 10.34 of the Registrant's Form 10-Q Andress dated October 11, 1995 for the quarter ended September 30, 1995 10.35 Marketing Agreement dated Exhibit 10.35 of the Registrant's Form 10-Q October 18, 1995 by and between for the quarter ended September 30, 1995 Innovative Accessories, Inc. and Lund Industries, Incorporated. 10.36 Restated Exclusive Purchase Option Exhibit 10.36 of the Registrant's Form 10-Q Agreement dated October 18, 1995 by for the quarter ended September 30, 1995 and among Lund International Holdings, Inc., Innovative Accessories, Inc. and shareholders of Innovative Accessories, Inc. 10.37 Employment and Non-Competition Exhibit 10.37 of the Registrant's From 10-Q Agreement dated October 18, 1995 for the quarter ended September 30, 1995 by and between Innovative Accessories, Inc. and James A. Nett. 10.38 Interim Loan Agreement dated Exhibit 10.38 of the Registrant's Form 10-Q November 7, 1995 by and between for the quarter ended September 30, 1995 Innovative Accessories, Inc. and Lund International Holdings, Inc. 10.39 Demand Promissory Note dated Exhibit 10.39 of the Registrant's From 10-Q November 7, 1995 between Innovative for the quarter ended September 30, 1995 Accessories, Inc. and Lund International Holdings, Inc. 10.40 Assignment of Patents dated Exhibit 10.40 of the Registrant's Form 10-Q November 7, 1995 from James A. for the quarter ended September 30, 1995 Nett to Lund International Holdings, Inc. 10.41 Loan Agreement dated November 29, Exhibit 10.41 of the Registrant's Form 1995 by and between Innovative 10-Q for the quarter ended Accessories, Inc. and Lund December 31, 1995 International Holdings, Inc. 10.42 Revolving Promissory Note dated Exhibit 10.42 of the Registrant's Form November 29, 1995 by and between 10-Q for the quarter ended Innovative Accessories, Inc. and December 31, 1995 Lund International Holdings, Inc. 10.43 Security Agreement dated November Exhibit 10.43 of the Registrant's Form 29, 1995 by and between Innovative 10-Q for the quarter ended Accessories, Inc. and Lund December 31, 1995 International Holdings, Inc. 10.44 Asset Purchase Agreement by and Exhibit 10.44 of the Registrant's Form among Lund Acquisition Corp., 10-K for the fiscal year ended June 30, 1996 Innovative Accessories, Incorporated, Lund International Holdings, Inc., James A. Nett and Ramona C. Friar dated March 29, 1996. 10.45 Assignment and Assumption of Real Exhibit 10.45 of the Registrant's Form 10-K Property Lease by and between for the fiscal year ended June 30, 1996 Innovative Accessories, Incorporated and Lund Acquisition Corp. dated June 3, 1996. 10.46 Assignment of Intellectual Property Exhibit 10.46 of the Registrant's Form 10-K Rights from Innovative Accessories, for the fiscal year ended June 30, 1996 Incorporated and James A. Nett to Lund Acquisition Corp. dated June 3, 1996. 10.47 Stock Purchase Agreement, dated Exhibit 10.1 of the Registrant's Form 8-K dated September 9, 1997, by and among LIH September 9, 1997 Holdings, LLC, Allan W. Lund, the Lund Family Limited Partnership, Lois and Allan Lund Family Foundation and Certain Lund Family Members. 10.48 Governance Agreement, dated September Exhibit 10.2 of the Registrant's Form 8-K dated 9, 1997 between Lund International September 9, 1997 Holdings, Inc. and LIH Holdings, LLC. 10.49 Services Agreement, dated September Exhibit 10.3 of the Registrant's Form 8-K dated 9, 1997 by and between Harvest September 9, 1997 Partners, Inc. and Lund International Holdings, Inc. 10.50 Severance and Noncompetition Exhibit 10.4 of the Registrant's Form 8-K dated Agreement, dated September 9, 1997 September 9, 1997 by and between Lund International Holdings, Inc. and Allan W. Lund. 13 Portions of Annual Report to Stockholders for fiscal 1997 which are incorporated herein by reference. 16.1 Letter of KPMG Peat Marwick regarding Exhibit 16.1 of the Registrant's Form 10-K for change in Certifying Accountants the fiscal year ended June 30, 1996
21 Subsidiaries of the registrant: Name State or Jurisdiction of Incorporation - ---- -------------------------------------- Lund Industries, Incorporated Minnesota Lund FSC, Inc. Barbados Lund Acquisition Corp. Minnesota 23.1 Consent of Independent Accountant - Coopers & Lybrand L.L.P. 23.2 Independent Auditors' Consent - KPMG Peat Marwick LLP 27 Financial Data Schedule 99 Independent Auditors' Report for the year ended June 30, 1995 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Lund International Holdings, Inc.: Our report on the consolidated financial statements of Lund International Holdings, Inc. has been incorporated by reference in this Form 10-K from page 27 of the 1997 Annual Report to stockholders of Lund International Holdings, Inc. In connection with our audit of such financial statements, we have also audited the related financial statement schedule for the fiscal years ended June 30, 1997 and 1996 listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included herein. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota August 18, 1997 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Lund International Holdings, Inc.: Under date of August 11, 1995, we reported on the consolidated statements of earnings, changes in stockholders' equity and cash flows of Lund International Holdings, Inc. and subsidiaries for the year ended June 30, 1995. These consolidated financial statements are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed in the accompanying index as of June 30, 1995 and for the year then ended. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the 1995 information set forth therein. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota August 11, 1995 LUND INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Balance Charged at to cost Charged Balance beginning and to other at end Description of year expenses accounts Deductions of year - ------------------------------- ---------------- -------------- -------------- --------------------- -------------- Year ended June 30, 1997: Allowance for doubtful accounts (deducted from accounts receivable) $720,000 --- --- ($131,000) (1) $589,000 Year ended June 30, 1996: Allowance for doubtful accounts (deducted from accounts receivable) $532,000 $215,000 --- ($27,000) (1) $720,000 Year ended June 30, 1995: Allowance for doubtful accounts (deducted from accounts receivable) $580,000 $29,000 --- ($77,000) (1) $532,000
(1) Represents accounts written off against the allowance, net of recoveries. ================================================================================ LUND INTERNATIONAL HOLDINGS, INC. - -------------------------------------------------------------------------------- FORM 10-K - -------------------------------------------------------------------------------- FOR THE FISCAL YEAR ENDED JUNE 30, 1997 - -------------------------------------------------------------------------------- EX-13 2 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Years Ended June 30, 1997 (dollars in thousands, except per share amounts) Lund International Holdings, Inc. designs, manufactures, markets, and distributes appearance automotive aftermarket accessories for light duty trucks, sport utility vehicles and vans. The Company is the world's leading supplier of automotive sunvisors, with an estimated 70% market share in this category. Beginning in fiscal 1989, Lund instituted a product diversification plan and currently has 34 product lines, classified as Visors, Bug Shields/Hood Protectors, Running Boards, Tonneau Covers, and Other Appearance Accessories. RESULTS OF OPERATIONS: Year-to-Year Increase/(Decrease) - ------------------------------------------------------------------- Percent of Net Sales 1997 1996 Years ended June 30, Over Over 1997 1996 1995 1996 1995 - ------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% (7)% (2)% Cost of goods sold 65.9 62.1 57.7 (1) 5 - ----------------------------------------------------------------- Gross profit 34.1 37.9 42.3 (16) (12) - ------------------------------------------------------------------- General and administrative 10.1 8.5 8.3 11 --- Selling and marketing 14.6 12.4 10.3 10 18 Research and development 3.0 2.4 2.0 16 19 - ------------------------------------------------------------------- Total operating expenses 27.7 23.3 20.6 11 11 - ----------------------------------------------------------------- Income from operations 6.4 14.6 21.7 (59) (34) Other income, net 0.8 0.6 0.8 (41) (32) - ------------------------------------------------------------------- Income before income taxes 7.2 15.2 22.5 (56) (34) Provision for income taxes 2.1 5.2 7.8 (62) (34) - ------------------------------------------------------------------- Net income 5.1% 10.0% 14.7% (53)% (34)% - ------------------------------------------------------------------- SUMMARY: The Company recorded lower net sales and net income in fiscal 1997 as net sales decreased to $43,305 and net income decreased to $2,196. Shown for the periods indicated are the percentage relationships of certain items in the Consolidated Statements of Earnings to net sales and the percentage change of dollar amounts of such items compared to prior periods. NET SALES: Net sales decreased 7% for fiscal 1997 to $43,305 compared to $46,423 for fiscal 1996. Net sales decreased 2% in fiscal 1996 compared to net sales of $47,384 for fiscal 1995. The net sales decreases resulted primarily from lower sales of the Visor lines, which decreased 21% and 18% in fiscal 1997 and 1996 compared to fiscal 1996 and 1995, respectively. Management believes decreased sales in the Visor category resulted principally from the Company's customers delaying visor orders in anticipation of the newly developed visor lines and design, production and shipping delays in these new lines. Running Board sales increased 4% and 23% in fiscal 1997 and 1996, respectively. These increases were driven by the continued popularity of the StepMate product line, and growth in the SideTracker and SuperStepRunning Board lines introduced in fiscal 1996. The growth in the Running Board category was offset by lower sales in the RunningMate line during fiscal 1997. Tonneau Cover sales increased by 160% in fiscal 1997 due to the acquisition of certain assets of Innovative Accessories, Inc. in June 1996. The Other Appearance Accessories category decreased by 9% in fiscal 1997 compared to fiscal 1996. COST OF GOODS SOLD AND GROSS PROFIT: Gross profit margins for fiscal 1997 were 34.1% compared to 37.9% and 42.3% for fiscal 1996 and 1995, respectively. The decrease in gross profit margins for both fiscal 1997 and 1996 compared to 1995 primarily resulted from an increased percentage of sales of lower gross margin products, higher raw material plastic prices, warranty claims principally on acrylic products, higher facility and lease costs, and higher fixed costs as a percent of sales due to lower production and shipping volumes. In addition, gross profit margins in fiscal 1997 were impacted by production and material inefficiencies caused by the introduction of a new quality program. Percent of Net Sales Years ended June 30, 1997 1996 1995 - ------------------------------------------- Visors 30.8% 36.2% 43.4% Bug Shields/Hood Protectors 23.8 24.1 23.9 Running Boards 20.0 18.0 14.4 Tonneau Covers 6.5 2.3 --- Other Appearance Accessories 18.9 19.4 18.3 - ------------------------------------------- Total net sales 100.0% 100.0% 100.0% =========================================== 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were $4,386 in fiscal 1997 compared to $3,943 and $3,933 in fiscal 1996 and 1995, respectively. As a percentage of net sales, general and administrative expenses were 10.1% in fiscal 1997 compared to 8.5% and 8.3% in fiscal 1996 and 1995, respectively. The dollar increase in fiscal 1997 was caused by administrative expenses for the Oklahoma tonneau cover facility and expenses associated with evaluating the Company's strategic alternatives. These increases were offset in part by lower bad debt expense. The increase in general and administrative expenses as a percent of net sales is related to the net sales decrease. SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $6,332 in fiscal 1997 compared to $5,750 and $4,888 in fiscal 1996 and 1995, respectively. As a percentage of net sales, selling and marketing expenses were 14.6% in fiscal 1997 compared to 12.4% and 10.3% in fiscal 1996 and 1995, respectively. The dollar increase in both fiscal 1997 and 1996 resulted from higher customer advertising and display expenses, general Company advertising and printing costs, new product support costs, promotional sponsorship costs, and salary expenses. The increase in selling and marketing expenses as a percent of net sales is related to the net sales decrease. RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $1,290 in fiscal 1997 compared to $1,109 and $934 in fiscal 1996 and 1995, respectively. As a percentage of net sales, research and development expenses were 3.0% in fiscal 1997, 2.4% in fiscal 1996, and 2.0% in fiscal 1995. The dollar increase in both fiscal 1997 and 1996 related to an increase in personnel and product material to support both new product and application development, increased operating lease expenses and higher computer system costs as the Company is incorporating CAD/CAM design capabilities in its product development process. OTHER INCOME (EXPENSE): Other income, net, was $364 in fiscal 1997 compared to $258 in fiscal 1996 due primarily to higher interest income. Other income, net, decreased $121 in fiscal 1996 compared to fiscal 1995. Both fiscal 1997 and 1996 have higher interest expense from the Industrial Development Revenue Bond for the new facility compared to fiscal 1995 when the Company had leased facilities during part of that year. INCOME TAX EXPENSE: The effective income tax rates for fiscal 1997, 1996 and 1995 were 29.8%, 34.5% and 34.5%, respectively. The reduction in tax rates for fiscal 1997 resulted from a higher percentage of tax exempt interest income compared to taxable income. OUTLOOK: As the Company discussed last year, a larger portion of automotive aftermarket accessory sales are going through the large automotive retail chains. In response to these market changes, the Company launched its new retail program. The initial retail program roll-out, which began in the third and fourth quarters of fiscal 1997 with retail store testing, will continue for the next eighteen months to two years as the major retail automotive chains review and integrate light truck accessory sales into their current product offerings. The Company expects the retail segment will account for a larger percentage of sales in the future. The delays in designing, producing and shipping the visor and tonneau cover product lines resulted in further reductions of sales in fiscal 1997. The Company is completing a re-engineering and testing of the visors and expects to begin shipping the Solar and Lunar visor lines for the full size light duty trucks in the first and second quarters of fiscal 1998. During fiscal 1998, market penetration of the new visor may be slower due to customer concerns caused by original product design problems. The Company is completing tooling on its re-engineered snapless tonneau, which is expected to begin shipping early in the second quarter of fiscal 1998. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company has experienced significant delays in the implementation of its new software programs due to software vendor quality problems. The Company is implementing a previously released program and expects to complete implementation by early October. The Company believes the additional features and controls will allow a solid information platform for future internal and external growth. In conjunction with the software implementation, the Company is currently implementing a QS9000 quality program and expects to be certified by December 1998 for both its Oklahoma and Minnesota locations. The quality certification is critical to original equipment manufacturing customers such as Ford, Chrysler, and General Motors. The Company plans to leverage its current brand awareness and take advantage of the fragmented automotive accessory market by executing an aggressive Company acquisition program. The acquisition strategy will focus on the light truck accessory aftermarket by increasing market share of the Company's current product categories, adding additional product categories, production capabilities, or distribution capabilities. Over the last two fiscal years, the demand and prices for raw material products, including plastic resins, fiberglass and corrugated packaging, have stabilized. The Company anticipates a small price increase in plastics and packaging, which are not expected to significantly impact the Company's gross profit margins. EFFECTS OF INFLATION: Although increases in costs of certain materials and labor could adversely affect the Company's operations, the Company generally has been able to increase its selling prices to offset increased costs. Price competition, however, particularly in the plastic product lines, could affect the ability of the Company to increase its selling prices to reflect such increased costs. In general, the Company believes that the relatively moderate inflation over the last few years has not had a significant impact on the Company's net sales, but that increasing raw material prices have had an impact on gross profit margins. FINANCIAL CONDITION: SUMMARY: The Company's financial condition on June 30, 1997 was strong. Cash and marketable securities, including restricted cash, totalled $13,944, or 34% of total assets. Working capital, the difference between current assets and current liabilities, continued to increase. The Company has no working capital lines of credit. The Company financed its new production, warehouse, and office facility with tax-exempt Industrial Development Revenue Bonds. The following key measurements are indicative of the excellent liquidity and strong financial position of the Company.
Years ended June 30, 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Cash and Marketable Securities $ 13,944 $ 11,371 $ 12,079 (including restricted cash) Working Capital $ 26,142 $ 24,649 $ 21,761 Current Ratio 7.2 to 1 6.1 to 1 4.5 to 1 Cash Flow from Operations $ 4,528 $ 3,010 $ 2,871 Stockholders' Equity $ 32,853 $ 30,507 $ 25,504 Stockholders' Equity to Total Liabilities 3.8 to 1 3.1 to 1 2.3 to 1
LIQUIDITY: Cash flow from operations continued to provide sufficient funds to meet working capital and investment needs. Cash and marketable securities, including restricted cash, increased $2,573 to $13,944 at June 30, 1997. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Accounts receivable decreased by $1,651, or 16%, at June 30, 1997, as days' sales outstanding (the average days worth of sales that are in accounts receivable) decreased to 70 days from 78 days. Days' sales outstanding, which is traditionally higher as of year end due to the seasonality of business, was lower at June 30, 1997, due to decreased sales principally related to shipping delays for new products. Inventories increased by $411, or 7%, at June 30, 1997. The increase in inventories was due to lower than anticipated sales in the fourth quarter of fiscal 1997. Accounts payable decreased by $428, or 19%, at June 30, 1997, due to the timing of inventory purchases and more aggressive cash management to maximize vendor cash discounts. Purchases of plant and equipment during fiscal 1997 and 1996 were principally associated with internal and external tooling costs, fiberglass and plastics production equipment and information system purchases. Due to capital spending limitations associated with the Industrial Development Revenue Bond offering during fiscal 1995, all large equipment purchases and new computer hardware and software systems in fiscal 1995 and 1996 were obtained through operating leases. The total value of equipment leased during these periods was $2,741. Purchases of property, plant and equipment in fiscal 1997 were $1,487, which represented a $672 increase from fiscal 1996. This increase was due to the fact that the Company did not enter into any operating leases during fiscal 1997. During June 1996, the Company acquired the assets and assumed certain liabilities of Innovative Accessories, Inc. ("Innovative"). From November 1995 until June 1996, the Company provided funds to Innovative totaling $2,230 to pay off prior debts, reduce accounts payable, and fund working capital. In addition, as part of the acquisition, the Company paid additional consideration and transaction costs and will pay future royalty payments to the former Innovative shareholders based upon future sales. The Company expects future working capital requirements to be financed by cash flow from operations and capital requirements to be financed or met through operating leases or cash flow from operations. CAPITAL: During fiscal 1995, the Company entered into a long-term financing agreement for the first time in its history. On September 1, 1994, the City of Anoka, Minnesota offered a $5,450 series of Industrial Development Revenue Bonds on behalf of Lund Industries, Incorporated, a wholly-owned subsidiary of the Company, with sequential annual maturities which began on September 1, 1995 and will continue through 2004, bearing interest rates between 5.8% and 6.5%, depending upon maturity. The proceeds were used to build the Company's new facility and acquire production machinery and equipment. Although the Company has no other long-term debt other than the Industrial Development Revenue Bonds, the Company is prepared to utilize debt if necessary to pursue an acquisition program. The Company believes its strong cash flow will enable the Company to acquire sufficient capital to fund anticipated future acquisitions which will be complementary to the Company's operating philosophies. Statements relating to future financial results, acquisitions, Company operations, trends and market analysis, among others, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties which could cause results to differ materially from those anticipated. Among the factors that could cause results to differ materially are the following: consumer preference changes, adverse market developments, inability to effectively carry out an acquisition strategy, expansion into new distribution channels, additional delays in design, development, testing or shipping of products, increased competition, general economic developments and trends, developments and trends in the light truck and automotive accessory market and increased costs. This is not an exhaustive list and the Company may supplement this list in future filings or releases or in connection with the making of forward-looking statements. 13 CONSOLIDATED BALANCE SHEETS
ASSETS AS OF JUNE 30, 1997 1996 ---------------------------- Current assets: Cash and temporary cash investments ...................... $ 277,740 $ 1,643,416 Restricted cash .......................................... 1,393,146 1,096,709 Marketable securities .................................... 12,273,163 8,630,649 Accounts receivable, net ................................. 8,325,739 9,933,366 Inventories .............................................. 6,611,761 6,351,279 Deferred income taxes .................................... 743,900 815,600 Other current assets ..................................... 713,617 1,047,776 ------------ ------------ Total current assets .............................. 30,339,066 29,518,795 Property and equipment, net ................................. 7,310,357 6,906,446 Intangibles, net ............................................ 2,223,420 2,355,424 Restricted cash and marketable securities ................... 580,242 777,919 Other assets ................................................ 991,621 761,021 ------------ ------------ Total assets ...................................... $ 41,444,706 $ 40,319,605 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade .................................. $ 1,861,446 $ 2,289,763 Accrued expenses ......................................... 1,698,815 1,723,902 Income taxes payable ..................................... 176,345 416,446 Long-term debt, current portion .......................... 460,000 440,000 ------------ ------------ Total current liabilities ......................... 4,196,606 4,870,111 Long-term debt, less current portion ........................ 4,130,000 4,590,000 Other liabilities ........................................... 265,178 352,225 Commitments (Note 5) Stockholders' equity: Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued ......................... -- -- Common stock, $.10 par value; authorized 25,000,000 shares; issued and outstanding 4,393,970 and 4,391,970 shares at June 30, 1997 and 1996, respectively .................. 439,397 439,197 Class B common stock, $.01 par value; authorized 3,000,000 shares; none issued ......................... -- -- Additional paid-in capital ............................... 986,675 975,875 Unrealized holding gains (losses) on marketable securities 9,957 (60,442) Unearned deferred compensation ........................... (91,352) (159,872) Retained earnings ........................................ 31,508,245 29,312,511 ------------ ------------ Total stockholders' equity ........................ 32,852,922 30,507,269 ------------ ------------ Total liabilities and stockholders' equity ........ $ 41,444,706 $ 40,319,605 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 14 CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED JUNE 30, ---------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Net sales .................... $ 43,304,927 $ 46,423,208 $ 47,383,663 Cost of goods sold ........... 28,531,370 28,824,792 27,351,277 ------------ ------------ ------------ Gross profit ............. 14,773,557 17,598,416 20,032,386 Operating expenses General and administrative 4,386,304 3,942,855 3,932,559 Selling and marketing .... 6,332,003 5,749,668 4,888,045 Research and development . 1,289,655 1,108,750 934,076 ------------ ------------ ------------ Total operating expenses 12,007,962 10,801,273 9,754,680 ------------ ------------ ------------ Income from operations ....... 2,765,595 6,797,143 10,277,706 Other income (expense) Interest expense ......... (293,289) (324,792) (133,566) Interest income .......... 694,857 601,362 613,359 Other, net ............... (37,643) (18,797) (100,749) ------------ ------------ ------------ Other income, net ...... 363,925 257,773 379,044 ------------ ------------ ------------ Income before income taxes ... 3,129,520 7,054,916 10,656,750 Provision for income taxes ... 933,786 2,432,754 3,676,579 ------------ ------------ ------------ Net income .......... $ 2,195,734 $ 4,622,162 $ 6,980,171 ============ ============ ============ Net income per share $ .50 $ 1.05 $ 1.58 ============ ============ ============ Common and common equivalent shares .......... 4,393,566 4,393,889 4,429,661 ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 15 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1997, 1996 AND 1995
COMMON STOCK UNREALIZED HOLDING ---------------------- ADDITIONAL GAINS (LOSSES) UNEARNED NUMBER OF DOLLAR PAID-IN ON MARKETABLE DEFERRED RETAINED SHARES AMOUNT CAPITAL SECURITIES COMPENSATION EARNINGS TOTAL --------- --------- --------- ---------------- ------------ ----------- ----------- Balance, June 30, 1994 4,344,052 $ 434,405 $ 306,858 $(382,691) -- $17,710,178 $18,068,750 --------- --------- --------- --------- --------- ----------- ----------- Restricted shares issued 42,500 4,250 456,475 -- $(332,799) -- 127,926 Options exercised 1,350 135 4,084 -- -- -- 4,219 Net income -- -- -- -- -- 6,980,171 6,980,171 Change in unrealized holding gains (losses) on marketable securities -- -- -- 232,335 -- -- 232,335 Amortization of deferred compensation -- -- -- -- 90,624 -- 90,624 --------- --------- --------- --------- --------- ----------- ----------- Balance, June 30, 1995 4,387,902 438,790 767,417 (150,356) (242,175) 24,690,349 25,504,025 Restricted shares canceled (15,000) (1,500) (10,423) -- 11,923 -- -- Options exercised 19,068 1,907 218,881 -- -- -- 220,788 Net income -- -- -- -- -- 4,622,162 4,622,162 Change in unrealized holding gains (losses) on marketable securities -- -- -- 89,914 -- -- 89,914 Amortization of deferred compensation -- -- -- -- 70,380 -- 70,380 --------- --------- --------- --------- --------- ----------- ----------- Balance, June 30, 1996 4,391,970 439,197 975,875 (60,442) (159,872) 29,312,511 30,507,269 Options exercised 2,000 200 10,800 -- -- -- 11,000 Net income -- -- -- -- -- 2,195,734 2,195,734 Change in unrealized holding gains (losses) on marketable securities -- -- -- 70,399 -- -- 70,399 Amortization of deferred compensation -- -- -- -- 68,520 -- 68,520 --------- --------- --------- --------- --------- ----------- ----------- Balance, June 30, 1997 4,393,970 $ 439,397 $ 986,675 $ 9,957 $ (91,352) $31,508,245 $32,852,922 ========= ========= ========= ========= ========= =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, -------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................. $ 2,195,734 $ 4,622,162 $ 6,980,171 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ............................................. 1,039,887 779,388 556,024 Amortization ............................................. 284,164 128,813 116,159 Deferred income taxes .................................... 71,700 (136,800) (106,700) Gain on disposal of property and equipment ............... (38,000) (17,065) (43,529) Provision for (reduction in) doubtful accounts ........... (43,248) 228,200 29,190 Provision for (reduction in) inventory reserves .......... 150,077 52,895 (32,019) Changes in operating assets and liabilities, net of impact of acquisition in 1996: Accounts receivable ...................................... 1,650,875 (407,852) (3,347,851) Inventories .............................................. (410,559) (1,123,971) (2,836,781) Other current and other assets ........................... 321,329 (158,391) (355,476) Accounts payable, trade .................................. (428,317) (836,466) 1,661,665 Accrued expenses ......................................... (25,087) (146,034) 412,506 Income taxes payable ..................................... (240,101) 25,320 (162,579) ------------ ------------ ------------ Net cash provided by operating activities ............. 4,528,454 3,010,199 2,870,780 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ........................ (1,487,432) (814,959) (5,751,634) Proceeds from sales of property and equipment .............. 81,634 76,822 59,094 Purchase of marketable securities .......................... (12,365,349) (7,880,519) (7,316,913) Proceeds from sales and redemptions of marketable securities 8,793,234 10,365,818 3,387,551 Change in restricted cash and marketable securities ........ (98,760) 245,729 (2,120,357) Increase in note receivable to Innovative Accessories, Inc. -- (2,230,089) -- Acquisition costs .......................................... -- (114,341) -- Other investing activities ................................. (301,410) (175,320) (123,631) ------------ ------------ ------------ Net cash used in investing activities ................. (5,378,083) (526,859) (11,865,890) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cost of bond issuance, net ................................. -- -- (151,682) Proceeds from bond offering ................................ -- -- 5,450,000 Checks issued in excess of cash balances ................... -- (909,880) 909,880 Payment of long-term debt .................................. (440,000) (420,000) -- Proceeds from issuance of common stock ..................... 11,000 220,788 4,219 Payment of other liabilities ............................... (87,047) -- -- ------------ ------------ ------------ Net cash (used in) provided by financing activities ... (516,047) (1,109,092) 6,212,417 ------------ ------------ ------------ Net (decrease) increase in cash and temporary cash investments ............................... (1,365,676) 1,374,248 (2,782,693) CASH AND TEMPORARY CASH INVESTMENTS: Beginning of year .......................................... 1,643,416 269,168 3,051,861 ------------ ------------ ------------ End of year ................................................ $ 277,740 $ 1,643,416 $ 269,168 ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes ................................. $ 1,102,187 $ 2,544,234 $ 3,947,415 ============ ============ ============ Cash paid for interest ..................................... $ 301,209 $ 333,843 $ 23,817 ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES: Restricted shares issued ................................... -- -- $ 127,926 ============ ============ ============ Change in unrealized holding gains (losses) on marketable securities .................................... $ 70,399 $ 89,914 $ 232,335 ============ ============ ============ Conversion of note receivable to consideration for Innovative Accessories, Inc. ............................. -- $ 2,230,089 -- ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Lund International Holdings, Inc. (the "Company") designs, manufactures, and distributes aftermarket automotive accessories for light duty trucks, sport utility vehicles and vans. The following is a summary of the significant accounting policies used in the preparation of the Company's consolidated financial statements: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Lund International Holdings, Inc. and its wholly-owned subsidiaries, Lund Industries, Incorporated; Lund Acquisition Corp.; and Lund FSC, Inc. All material intercompany balances and transactions have been eliminated in consolidation. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. The Company has established a reserve to record inventories at estimated net realized value. Inventory reserves are determined based on the Company's continuing analysis of inventory levels in excess of current requirements or considered to be obsolete. TEMPORARY CASH INVESTMENTS Temporary cash investments consist of money market funds and certificates of deposit, which are stated at cost which approximates market. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be temporary cash investments. MARKETABLE SECURITIES Marketable securities consist of debt securities. Marketable securities are classified as available-for-sale securities and are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings resulting in the establishment of a new cost basis for the security. Cost is determined on a specific identification basis. REVENUE RECOGNITION Revenue is recognized upon shipment of the product. The Company estimates and records provisions for sales returns and allowances based on its historical experience. RESEARCH AND DEVELOPMENT EXPENSES Research and development costs are expensed as incurred. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is computed using the straight-line or accelerated methods over their estimated useful lives. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations for the period. The cost of maintenance and repairs is charged to operations as incurred. Significant renewals and betterments are capitalized. Costs for internally manufactured molds, tooling and dies relating to the hand laid fiberglass product lines are expensed when incurred as their estimated useful life is less than one year. Purchases of externally manufactured molds, tooling and dies, and internally manufactured molds, tooling and dies related to the plastics and automated close mold fiberglass product lines are capitalized and amortized over the estimated life of the asset. Long-lived assets are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AMORTIZATION OF INTANGIBLES Intangibles, consisting mainly of patents, non-compete agreements and goodwill, are amortized on a straight-line basis over their estimated lives. Costs incurred in applications for new patents and purchases of patents are capitalized and amortized over the life of the patent. Costs for defending and protecting Company patents are expensed when incurred. Goodwill is amortized over twenty years. The Company quarterly evaluates the recoverability of intangibles based on analyses of estimated future undiscounted cash flows. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Income tax expense is the tax payable for the period and the change in deferred income tax assets and liabilities during the period. PRODUCT WARRANTY The Company warrants its products that have been properly installed according to the instructions provided by the Company with a limited lifetime warranty which covers actual product failure. The Company accrues a liability for estimated warranty claims associated with products sold. NET INCOME PER SHARE Net income per share is computed based on the weighted average number of common and common equivalent shares outstanding during the period. Dilutive stock options are considered common stock equivalents for the purpose of this computation. In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS No. 128), Earnings per Share (EPS) was issued by the Financial Accounting Standards Board. This standard, which the Company must adopt effective with its second quarter of fiscal year 1998, requires dual presentation of basic and diluted EPS on the face of the consolidated statements of earnings. Net income per share currently presented by the Company is comparable to the diluted EPS required under SFAS No. 128. Basic EPS for the Company will be calculated based on only common shares outstanding without considering the dilutive effects of common stock equivalents. USE OF ESTIMATES The preparation of the Company's consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant areas which require the use of management's estimates relate to allowances for doubtful accounts receivable and inventory obsolescence and accruals for warranty claims, customer rebates, and advertising. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 and 1995 amounts to conform to the 1997 presentation with no effect on previously reported net income or stockholders' equity. 2. OTHER FINANCIAL STATEMENT DATA - -------------------------------------------------------------------------------- ADVERTISING The Company expenses the production and space costs of advertising the first time the advertising takes place, except for costs of direct response advertising, product catalogs and brochures, which are capitalized and amortized over the expected period of future benefits. At June 30, 1997 and 1996, $159,659 and $257,153, respectively, of direct response advertising costs, product catalogs, and brochures were reported as other current assets, net of accumulated amortization. Advertising expense was $2,738,285, $2,577,981, and $1,991,976 in 1997, 1996 and 1995, respectively. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARKETABLE SECURITIES 1997 1996 ------------- ------------ Amortized cost $ 12,263,206 $ 8,691,091 Gross unrealized holding gains (losses) 9,957 (60,442) ------------- ------------ Fair value $ 12,273,163 $ 8,630,649 ============= ============ The contractual maturities of available-for-sale securities at June 30, 1997 are as follows: Fair Value ------------- Due in one year or less $ 3,931,554 Due after one year through five years 7,390,303 Due after five years through ten years 200,694 Due after ten years 750,612 ------------- Fixed maturities available-for-sale securities $ 12,273,163 ============= Proceeds from the sales of marketable securities were $4,963,330, $7,861,812, and $3,016,600 in 1997, 1996 and 1995, respectively. Proceeds from the redemptions of marketable securities were $3,829,904, $2,504,006, and $370,951 in 1997, 1996 and 1995, respectively. Net realized gains (losses) included in net income in 1997, 1996 and 1995 were $11,125, ($1,628), and ($160,108), respectively. ACCOUNTS RECEIVABLE 1997 1996 ------------ ------------- Trade accounts receivable $ 8,914,739 $ 10,653,366 Less allowance for doubtful accounts (589,000) (720,000) ------------ ------------- $ 8,325,739 $ 9,933,366 ============ ============= INVENTORIES 1997 1996 ------------ ------------ Raw materials $ 3,309,440 $ 3,329,323 Finished goods and work-in-process 3,302,321 3,021,956 ------------ ------------ $ 6,611,761 $ 6,351,279 ============ ============ PROPERTY AND EQUIPMENT Estimated Useful 1997 1996 Lives ------------- ------------------------------ Land $ 1,983 $ 1,983 Building 5,468,517 5,433,605 25 years Machinery and equipment 3,941,882 2,730,718 5-7 years Furniture and fixtures 1,107,231 883,136 3 years ------------- ------------- 10,519,613 9,049,442 Less accumulated depreciation (3,209,256) (2,142,996) ------------- ------------- $ 7,310,357 $ 6,906,446 ============= ============= 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INTANGIBLES 1997 1996 ------------ ------------ Intangibles $ 2,543,422 $ 2,475,472 Less accumulated amortization (320,002) (120,048) ------------ ------------ $ 2,223,420 $ 2,355,424 ============ ============ ACCRUED EXPENSES 1997 1996 ------------ ------------ Salaries and vacation $ 360,323 $ 320,266 Customer rebates 397,016 422,783 Warranty 324,189 196,578 Advertising 245,792 77,739 Other 371,495 706,536 ------------ ------------ $ 1,698,815 $ 1,723,902 ============ ============ 3. LONG-TERM DEBT - -------------------------------------------------------------------------------- Long-term debt at June 30 consisted of: 1997 1996 ------------ ------------ Industrial Development Revenue Bonds, interest ranging from 5.80% to 6.50% due in annual installments through 2004 $ 4,590,000 $ 5,030,000 Less current portion (460,000) (440,000) ------------ ------------ $ 4,130,000 $ 4,590,000 ============ ============ Long-term debt maturities are as follows: 1998 $ 460,000 1999 500,000 2000 520,000 2001 545,000 2002 580,000 Thereafter 1,985,000 ------------ $ 4,590,000 ============ The bonds contain certain covenants which, among other things, require the Company to maintain a minimum level of interest coverage, fixed charge coverage and maximum ratio of debt to capitalization and limit the amount of purchases of capital equipment. The bonds were issued to provide the Company with funding to finance the constructing and equipping of its new manufacturing facility, completed in 1995. The loan agreement restricts certain cash and marketable securities in accordance with the terms of the agreement. Total restricted cash and marketable securities at June 30 were as follows:
1997 1996 ------------ ------------ Restricted cash - current $ 1,393,146 $ 1,096,709 Restricted cash and marketable securities - long-term 580,242 777,919 ------------ ------------ Total restricted cash and marketable securities $ 1,973,388 $ 1,874,628 ============ ============
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- A member of the Company's Board of Directors during 1997, 1996 and 1995 has an ownership interest in another entity from which the Company purchases products and previously rented facilities. A summary of these items is as follows: 1997 1996 1995 ------------ ------------ ------------ Rents - Facilities --- --- $ 351,447 Purchase of components $ 1,460,998 $ 1,667,982 1,336,268 In addition, during 1995, the Company leased some of its facilities and equipment from certain employees and/or stockholders of the Company under noncancelable operating leases. Total lease expense for these facilities, including real estate taxes and equipment rental, in 1995 was $498,397. 5. COMMITMENTS - -------------------------------------------------------------------------------- OPERATING LEASE COMMITMENTS The Company has various noncancelable operating leases for certain facilities and certain equipment related to the Company's manufacturing facility and computer system. Total lease expense in 1997, 1996 and 1995 was $886,919, $422,639, and $26,739, respectively. Future minimum lease payments required under the noncancelable operating leases are as follows: 1998 $ 775,989 1999 589,248 2000 589,248 2001 223,813 2002 76,800 Thereafter 51,200 ------------ $ 2,306,298 ============ PURCHASE COMMITMENTS At June 30, 1997, the Company had contractual supply agreements to purchase certain products from several suppliers. Based upon the contract provisions and Company estimates, these commitments are as follows: 1998 $ 2,740,250 1999 900,000 ------------ $ 3,640,250 ============ 6. SIGNIFICANT CUSTOMERS - -------------------------------------------------------------------------------- During 1997 and 1995, one of the Company's customers represented approximately 15.1% and 14.6%, respectively, of net sales. During 1996, none of the Company's customers represented over 10% of net sales. At June 30, 1997 and 1996, one of the Company's customers represented approximately 35.6% and 17.6%, respectively, of the Company's accounts receivable. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES - -------------------------------------------------------------------------------- The provision for income taxes is summarized as follows: 1997 1996 1995 ---------- ------------ ------------ Current: Federal $ 734,186 $ 2,326,754 $ 3,365,279 Foreign 26,900 21,800 24,000 State 101,000 221,000 394,000 ---------- ------------ ------------ 862,086 2,569,554 3,783,279 ---------- ------------ ------------ Deferred: Federal 65,300 (125,900) (97,700) State 6,400 (10,900) (9,000) ---------- ------------ ------------ 71,700 (136,800) (106,700) ---------- ------------ ------------ $ 933,786 $ 2,432,754 $ 3,676,579 ========== ============ ============ The effective tax rate differs from the statutory federal income tax rate as follows: 1997 1996 1995 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal tax effect 2.3 2.1 2.4 Foreign Sales Corporation (1.7) (.6) (.4) Tax exempt interest (6.3) (2.1) (1.2) Other 1.5 1.1 (.3) ---- ---- ---- 29.8% 34.5% 34.5% ==== ==== ==== Deferred taxes result from temporary differences in the recognition of revenue and expense for income tax and financial statement purposes. The sources of these differences and the related income tax effect are as follows: 1997 1996 1995 ---------- ----------- ----------- Allowance for doubtful accounts $ 45,400 $ (69,600) $ 17,700 Inventory capitalization 70,300 (59,200) (4,400) Accruals not currently deductible for tax purposes 2,400 (32,000) (51,800) Vacation accrual (20,300) (2,300) (23,400) Other, net (26,100) 26,300 (44,800) ---------- ----------- ----------- $ 71,700 $ (136,800) $ (106,700) ========== =========== =========== The tax effects of temporary differences that give rise to deferred income tax assets at June 30 as follows: 1997 1996 ---------- ---------- Allowance for doubtful accounts $ 220,900 $ 266,300 Inventory capitalization --- 70,300 Accruals not currently deductible for tax purposes 421,500 423,900 Vacation accrual 71,000 50,700 Other, net 30,500 4,400 ---------- ---------- $ 743,900 $ 815,600 ========== ========== There is no valuation allowance as of June 30, 1997 and 1996. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- STOCK OPTIONS The Company adopted Incentive Stock Option Plans (the "Plans") during 1989 and 1995. The Plans authorize grants of options to purchase up to 250,000 and 400,000 shares of the Company's common stock, respectively. The option prices may not be less than the fair market value of the common stock at the time the option is granted. Options expire ten years after the date granted or on a prior date as fixed by the Board of Directors or appropriate committee. Under the Plans, the option may become exercisable at the date of grant or as determined by the Board of Directors or appropriate committee. Option activity is summarized as follows: Weighted Average Number Exercise Price of Shares Per Share --------- ---------------- Balance, June 30, 1994 149,018 $ 15.41 Granted 250,000 18.29 Canceled (7,500) 16.125 Exercised (1,350) 3.125 -------- --------- Balance, June 30, 1995 390,168 17.29 Granted 120,000 15.67 Canceled (45,600) 16.125 Exercised (19,068) 11.58 -------- --------- Balance, June 30, 1996 445,500 17.22 Canceled (9,500) 16.125 -------- --------- Balance, June 30, 1997 436,000 $ 17.24 ======== ========= Number of shares exercisable at June 30, 1997 153,600 ======== At June 30, 1997, the weighted average exercise price and remaining life of the stock options are as follows: Range of exercise price $13.50 - $16.75 $21.25 - $21.50 Total ----------------------- --------------- --------------- ----- Total options outstanding 336,000 100,000 436,000 Weighted average exercise price $16.02 $21.35 $17.24 Weighted average remaining life 7.5 years 7.9 years 7.5 years Options exercisable 113,600 40,000 153,600 Weighted average price of exercisable options $16.08 $21.35 $17.45 NON-EMPLOYEE DIRECTOR OPTIONS The Company has a Non-Employee Director Stock Option Plan which authorizes grants of options to purchase up to 40,000 shares of the Company's common stock. The option price must be 100% of the fair market value of the common stock at the time the option is granted. Options expire five years from the date of grant. Options become exercisable at the date of grant or as determined by the Board of Directors or appropriate committee. During 1997, 2,000 options were exercised at $5.50 per share. Options outstanding at June 30, 1997 were 28,000 shares at $11.25 to $20.625 per share. Total shares exercisable at June 30, 1997 were 28,000 shares, which have a weighted average exercise price of $14.83 and a weighted average remaining life of 3.1 years. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, a standard of accounting and reporting for stock-based compensation plans. The Company has adopted the standard in 1997. The Company has continued to measure compensation cost for its stock option plans using the intrinsic value method of accounting it has historically used and, therefore, the standard has no effect on the Company's operating results. Had the Company used the fair-value-based method of accounting for its stock option plans beginning in 1996 and charged compensation cost against income over the vesting period, net income and net income per share for 1997 and 1996 would have been the following pro forma amounts: 1997 1996 ---------- ---------- Net income: As reported $2,195,734 $4,622,162 Pro forma 2,072,488 4,540,583 Net income per share: As reported $ .50 $ 1.05 Pro forma .47 1.03 The pro forma information above only includes stock options granted in 1996 and 1997. Compensation under the fair-value-based method of accounting will increase over the next few years as additional stock option grants are considered. The weighted-average grant-date fair value of options granted during 1997 and 1996 was $5.02 and $6.84, respectively. The weighted-average grant-date fair value of options was determined by using the fair value of each option grant on the date of grant, utilizing the Black-Scholes option-pricing model and the following key assumptions: 1997 1996 ------------ ------------ Risk-free interest rates 6.21% - 6.29% 5.84% - 6.42% Expected life 4 years 4 years Expected volatility 47.47% 47.47% Expected dividends None None RESTRICTED STOCK During 1992, the Company granted 50,000 shares of restricted stock to two key employees. During 1993 and 1996, 18,000 shares and 15,000 shares, respectively, were canceled. During 1994, the Company granted 20,000 shares of restricted stock to a key employee. These restricted shares vest over a five-year period. During 1995, the Company amended the restricted stock plan which resulted in the issuance of 42,500 shares of previously granted but unissued shares of restricted stock. These issued shares resulted in common stock and additional paid-in capital which was offset by the unearned portion of the deferred compensation. The deferred compensation is charged to stockholders' equity and amortized to compensation expense over the remainder of the five-year vesting period. Amortization of the restricted stock's value (at the date of award) over the vesting period resulted in compensation expense of approximately $68,520, $70,380, and $90,624 in 1997, 1996 and 1995, respectively. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. RETIREMENT SAVINGS PLAN - -------------------------------------------------------------------------------- The Company has a 401(k) Retirement Savings Plan covering substantially all of its employees. The Company provides matching contributions in accordance with the plan. The Company's contribution to the plan in 1997, 1996 and 1995 was $93,227, $80,377, and $71,080, respectively. 10. ACQUISITION - -------------------------------------------------------------------------------- During November 1995, the Company entered into an agreement to provide working capital funds and to market products for Innovative Accessories, Inc. ("Innovative"). In connection with this agreement, the Company provided a working capital note of $2,230,089. During June 1996, the Company acquired the assets and assumed certain liabilities of Innovative for a purchase price equal to the outstanding working capital note of $2,230,089, additional consideration and transaction costs, and future royalty payments to the former Innovative shareholders based upon future sales of Innovative. The cost in excess of net tangible and identifiable intangible assets acquired, which consists principally of goodwill, was approximately $2,238,975. The acquisition has been recorded using the purchase method of accounting, and Innovative's results have been included in the Company's operating results from the date of acquisition. The acquisition is not significant to the Company's overall results. 11. SUBSEQUENT EVENT - -------------------------------------------------------------------------------- On September 9, 1997, Harvest Partners, Inc., a private investment firm, purchased 38% of the Company from the Company's former Chairman of the Board and his family. 12. QUARTERLY FINANCIAL DATA (UNAUDITED) - -------------------------------------------------------------------------------- (In thousands, except per share data)
Sept. 30 Dec. 31 March 31 June 30 Year Ended -------- ------- -------- ------- ---------- 1997 ---- Net sales $ 10,406 $ 10,346 $ 10,441 $ 12,112 $ 43,305 Gross profit 3,346 3,684 3,530 4,214 14,774 Net income 462 463 467 804 2,196 Net income per share* .11 .11 .11 .18 .50 1996 ---- Net sales $ 10,436 $ 10,268 $ 11,525 $ 14,194 $ 46,423 Gross profit 3,910 3,899 4,238 5,551 17,598 Net income 995 821 1,218 1,588 4,622 Net income per share .22 .19 .28 .36 1.05
*The summation of quarterly net income per share does not equate to the calculation for the full fiscal year as quarterly calculations are performed on a discrete basis. 26 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders Lund International Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Lund International Holdings, Inc. as of June 30, 1997 and 1996, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The financial statements of Lund International Holdings, Inc. for the year ended June 30, 1995, were audited by other auditors whose report dated August 11, 1995, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1997 and 1996 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lund International Holdings, Inc. as of June 30, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Minneapolis, Minnesota August 18, 1997, except for Note 11 as to which the date is September 9, 1997 27 FIVE YEAR SUMMARY
- --------------------------------------------------------------------------------------------------------------------- Years ended June 30, 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Net sales $ 43,304,927 $ 46,423,208 $ 47,383,663 $ 36,395,124 $ 26,125,011 Income before income taxes 3,129,520 7,054,916 10,656,750 8,120,822 6,025,674 Provision for income taxes 933,786 2,432,754 3,676,579 2,842,289 2,094,928 Net income 2,195,734 4,622,162 6,980,171 5,278,533 3,930,746 Net income per share .50 1.05 1.58 1.20 .90 Total assets 41,444,706 40,319,605 36,706,198 21,127,377 15,203,422 Long-term liabilities 4,395,178 4,942,225 5,030,000 --- --- Total stockholders' equity 32,852,922 30,507,269 25,504,025 18,068,750 13,019,752
MARKET FOR THE COMPANY'S COMMON STOCK The Company's Common Stock is traded on the national-over-the-counter market and quoted on the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS") under the symbol "LUND". The following table sets forth, for the periods indicated, the range of bid prices per share for the Company as reported on the NASDAQ/NMS.
- --------------------------------------------------------------------------------------- 1997 1996 1995 Bid Prices Bid Prices Bid Prices - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- High Low High Low High Low First Quarter $14.25 $10.50 $21.00 $16.00 $19.25 $16.00 Second Quarter 13.00 10.75 18.50 10.25 20.75 15.75 Third Quarter 13.75 11.25 14.00 11.50 23.25 16.00 Fourth Quarter 13.25 9.50 15.75 11.75 23.00 19.00
As of June 30, 1997, there were 165 Lund International Holdings, Inc. stockholders of record. The Company estimates that an additional 2,700 stockholders own stock held for their account at brokerage firms and financial institutions. Lund International Holdings, Inc. has never paid cash dividends on its common stock. Payment of dividends is within the discretion of the Company's Board of Directors. 28 EX-23.1 3 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 We consent to the incorporation by reference in the registration statements of Lund International Holdings, Inc. on Form S-8 (File Nos. 33-64083 and 33-37160) of our reports dated August 18, 1997, except for Note 11 as to which the date is September 9, 1997, on our audits of the consolidated financial statements and financial statement schedules of Lund International Holdings, Inc. as of June 30, 1997 and 1996 and for the years then ended, which reports are included (or incorporated by reference) in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota September 25, 1997 EX-23.2 4 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors Lund International Holdings, Inc. We consent to incorporation by reference in the registration statement (File Nos. 33-64083 and 33-37160) on Form S-8 of Lund International Holdings, Inc. of our report dated August 11, 1995, relating to the consolidated statements of earnings, changes in stockholders' equity and cash flows of Lund International Holdings, Inc. and subsidiaries for the year ended June 30, 1995 and the related financial statement schedule as of June 30, 1995 and for the year then ended, which report appears in the June 30, 1997 annual report on Form 10-K of Lund International Holdings, Inc. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota September 24, 1997 EX-99 5 INDEPENDENT AUDITORS' REPORT EXHIBIT 99 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Lund International Holdings, Inc. We have audited the consolidated statements of earnings, changes in stockholders' equity and cash flows of Lund International Holdings, Inc. and subsidiaries for the year ended June 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Lund International Holdings, Inc. and subsidiaries for the year ended June 30, 1995 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota August 11, 1995 EX-27 6 FINANCIAL DATA SCHEDULE
5 0000820526 Lund International Holdings, Inc. 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 1,670,886 12,273,163 9,085,723 766,213 6,611,761 30,339,066 7,310,357 3,209,256 41,444,706 4,196,606 4,130,000 439,397 0 0 32,413,525 41,444,706 43,304,927 43,304,927 28,531,370 40,539,332 0 (43,248) 293,289 3,129,520 933,786 0 0 0 0 2,195,734 0.50 0.50
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