Lund International Holdings, Inc.

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Lund International Holdings, Inc.

911 Lund Boulevard
Anoka, Minnesota 55303
U.S.A.
Telephone: (612) 576-4200
Fax: (612) 576-4297
Web site: http://www.lundinternational.com

Public Company
Incorporated: 1965
Employees: 3,100
Sales: $194.4 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: LUND
NAIC: 336399 All Other Motor Vehicle Parts Manufacturing; 326199 All Other Plastics Product Manufacturing (pt); 332510 Hardware Manufacturing

Lund International Holdings, Inc. (Lund) is the nation’s largest maker of light truck accessories. Through its subsidiaries, Lund Industries, Incorporated, Deflecta-Shield Corporation, Ventshade Company, and Smittybilt, Incorporated, the company designs, manufactures, and distributes aftermarket automotive accessories and other products for light trucks, sport utility vehicles, vans, passenger cars, and heavy trucks. The company sells 70 product lines through dealers, distributors, catalogs, and chain stores. Products include side window ventvisors, windshield visors, hood shields, bug deflectors, running boards, tonneau covers, aluminum storage boxes, tubular products, and suspension lift systems. Through acquisitions of leading brands in all of the major product categories, Lund items are clear market leaders or are in a strong secondary position. Lund’s hood shields, window vents, cab visors, molded boards, and grille covers are considered the number one brands on the market. Customers include Ford, Toyota, Navistar, and Freightliner.

Company Beginnings in 1965

Lund International was founded in 1965 by Allan W. Lund, an entrepreneur highly skilled in the design of fiberglass products. Prior to producing accessories for the truck market, Allan Lund was a teacher and insurance salesman. He began producing prototype work for snowmobile, boat, and other recreational vehicle makers, and started making sun visors in a Coon Rapids, Minnesota chicken barn in 1974. The Lund SunVisor attached to the cab of a truck or van. By the late 1970s, as light truck sales increased, Lund began producing appearance accessories for light trucks. He developed several new product lines in the 1980s and by 1990, the visors, available for 940 different makes, models, and years of vehicles, were producing revenues of an estimated $15 million per year.

Lund’s second product was a cab spoiler. An authorized dealer program was established to sell products through auto parts stores, auto body and trim stores, and car washes. Dealer-expediters, who customize new trucks before they leave the lot, significantly boosted product sales. The company soon expanded to offer 20 additional product lines, including bug shields, fender extensions, and grill inserts. One of the company’s fastest growing lines from this period was running boards, mainly because women, who were driving trucks in greater numbers, found them helpful for getting in and out.

Accelerated Expansion in 1994

Lund consolidated operations and doubled its production capacity as a means of keeping up with demand for its products, which soared 41 percent in the first nine months of fiscal 1994, compared with results of a year earlier. In 1993, sales had increased 58 percent over 1992 results. The company reported at the time that its consolidation meant vacating two leased buildings in Coon Rapids totaling 97,000 square feet, and two additional leased areas in nearby Mounds View and Blaine. Plans were under way to construct a new 200,000-square-foot office, manufacturing, and warehouse building in Anoka, Minnesota.

The fast-growing firm also organized the sale of 800,000 shares of stock in an effort to allow large-scale investors a chance to buy into the company. According to the SEC filings, all proceeds from the sale would go to CEO Allan Lund, who owned 52 percent of the company and would retain 33.5 percent after the sale. Allan Lund received approximately $17 million for his stock and the company benefited from having more of its shares available for public trading. “Most institutions have shied away from the company because relatively few shares have been available for purchase,” according to Piper Jaffray analyst Blair Frantzin in City Business. He said that five or six institutions already owned significant portions, but the company expected to double the number through the offering. Lund maintained very low debt and was well positioned for growth. The company reported a profit margin in excess of 40 percent, but because of rapid growth, the company was forced to subcontract some of its manufacturing, depressing profit margins for 1994 and 1995. In 1994, Lund won approval to sell its products in Europe. William McMahan, who had led the company from 1988 through 1991, left to take a position with Anagram International, but he returned in 1994.

A surge in truck sales accounted for much of the company’s success. Offering a broad line of branded products, the company kept its name highly visible by sponsoring NASCAR races. Lund unveiled three new products in late 1995. The company introduced a running board that came in four variations and fit 22 different sport utility vehicles, a market that was just beginning to develop. The second product introduced that year was a rounded exterior sun visor that did not require screws to attach to the vehicle. Representing a new product area for Lund, the third introduction was a tonneau cover, a flat seal over a pickup’s cargo hold. The cover featured an easy-to-use seal that saved customers the cost of installation. Lund experienced very favorable orders for both the tonneau covers and sun visors. Company officials reported that the new headquarters and new automated manufacturing plant allowed the company to fill orders more efficiently and rapidly.

A Major Acquisition in 1997

In the winter of 1997, Lund signed a merger agreement to acquire a much larger competitor, Deflecta-Shield Corporation of Indianola, Iowa. Deflecta-Shield was founded in 1961 and successfully sold hood shields. The company developed product lines to include running boards, side window deflectors and covers, visors, tonneau covers, and other styling accessories. In 1994, Deflecta-Shield acquired a leading aluminum products manufacturer, which enabled the company to extend product offerings to a more diverse market. Products included aluminum running boards, storage boxes, bed protection, and other accessories.

Lund primarily sold to wholesale distributors, who in turn sold to retailers. The majority of Deflecta-Shield sales were to auto manufacturers like Ford, General Motors, and Chrysler. Lund offered to pay $16 per share for the publicly traded company, which had been selling at about $15.75. Lund CEO William McMahon said at the time that the acquisition would form a new company with more breadth of products and sales clout than its competitors. “The industry is very fragmented and young, and we expect to be market leaders and the low-cost providers by sharing our resources,” McMahon said. Most competing companies in the market had sales of less than $40 million, while Deflecta Shield reported sales of $72.3 million in 1996. The two companies represented the leading players in the plastic and fiberglass truck accessories market. Together, the merged companies were expected to generate close to $130 million in sales for 1998, according to a Plastic News report.

A key catalyst for the acquisition was New York-based investment banker Harvest Partners, Inc., which had acquired 38.4 percent of Lund in September 1997 by buying out company founder Allan Lund, who retired as chairman. According to Plastic News, as part of the Deflecta-Shield deal, Harvest committed debt financing of $87 million and increased its economic stake in Lund to 60 percent and its voting share to 49 percent. Harvest Managing General Partner Harvey Wertheim said at the time, “When we made our first investment in Lund, we knew we were entering an industry with a good growth cycle but with a lot of little players. What we plan to do is change the position of the market by growing quickly and keeping our eyes open for new acquisitions to bring into the fold. We’re looking for companies that overlap and fit into what we acquired.” In addition to making plastic parts through injection molding, ther-moforming and drape molding, which involves placing preheated resin over an open mold, Deflecta-Shield also made aluminum accessories and suspension products.

For five years in a row, Forbes and Fortune listed Lund among the top 100 growth companies in the United States, but the company had experienced problems getting newly developed products to market, resulting in net declines of 3.6 percent. A downturn in the automotive accessories market led to a dip in sales the next year. Margins improved by the last quarter of 1997. Company officials remained optimistic and estimated that by 2000, more than half the vehicles sold in the United States would be light trucks. The add-on accessories market was a $2 billion industry made up of approximately 2,000 small companies. McMahon reasoned that the fragmented industry was ideal for consolidation.

Company Perspectives:

We set out to become a one-stop shop for accessories: to sell everything but the truck. Today we offer the market’s broadest line of accessory products. We consciously instituted world-class quality standards. Our mission is, and always has been, to be the leader in satisfying customer needs for automotive accessories. Today we have the sales momentum to prove our leadership in service, engineering and innovation. And like the vehicles themselves, Lund International is powerful, responsive and aggressive in seeking new opportunities. We continue to drive ahead of the competition in automotive accessories.

Lund acquired 100 percent of the outstanding common stock of Ventshade for $67 million and of Smittybilt for $18 million, in 1998 and 1999, respectively. Ventshade had been established since 1935 in Jacksonville, Florida. The company was founded by the current president’s father, who built the business with the Ventshade, a device mounted above car windows to keep out rain. The company made window shades, hood shields, light covers, and other accessories. Smittybilt, a Corona, California company, was also a long established business that engineered and manufactured accessories for cars, sport utility vehicles, pickup trucks, and heavy over-the-road vehicles on a national level. Smittybilt specialized in offering a broad line of tubular products, including the Outland and SureStep brands. Harvest Partners committed to investing additional equity in Lund and structured the financing for the transactions. Belmor, a company established in 1921, was a nationally recognized manufacturer of class 8 truck accessories located in Chicago, Illinois. Belmor became a subsidiary of Lund at the time of the Deflecta-Shield merger.

Acquisition-related expenses caused a revenue loss in 1998. That year, Dennis Vollmershausen, who headed a construction equipment company, Champion Road Machinery, replaced CEO McMahan, who retired. Vollmershausen said in m Atlanta Business Chronicle article, “In order to lead in the industry, our strategy is to build a broader product offering. Clearly, part of the attraction of [acquiring] Auto Ventshade is its manufacturing proficiency and capacity.” Board directors Ira Kleinman and Harvey Wertheim became owners of nearly 50 percent of the company. Also in 1999, the company sold the assets of its Fibernetics specialty and plastics division in Compton, California, for approximately $1 million. Fibernetics President Jim Covone reported in Plastic News, “We really didn’t fit in [Lund’s] long-term plans because Lund is primarily proprietary.” The company processed plastic, fiberglass, carbon fiber, and urethane materials.

According to Vollmershausen, Lund enjoyed more than 10 percent of a $1.6 billion market for accessories and suspension products by the end of 2000. The expansion program resulted in sales growth from $42 million in 1997 to $194 million in 1999. The company introduced five new products for the year, including Eclipse hood scoops, X-Terminator wrap bug shields, Stainless Interceptor wrap bug shield, Ultima storage boxes, and the Smittybilt Sure-Step box step.

Outlook for 2001 and Beyond

Early on, Lund sold its products principally through warehouse distributors. With increased sales of light trucks in later years, competition from mass merchandisers, national automotive retailers, and original equipment manufacturers significantly shifted a portion of sales away from warehouse distributors and created pricing pressures, especially in the plastic and fiberglass product lines. In addition, the automotive accessory market began undergoing consolidation in both the manufacturing and distribution areas. In response to changing market conditions, the company reported that it had reorganized its sales and marketing functions to better accommodate each of its market channels. Lund also had restructured and consolidated its manufacturing and warehouse operations. The company continued to develop new cost-competitive products in response to weaker than anticipated sales in fiscal 2000, and anticipated strong longer-term demand for light truck and heavy truck accessories. The company announced in 2000 that it would begin outsourcing its production of fiberglass products.

Principal Subsidiaries

Lund Industries, Incorporated; Deflecta-Shield Corporation; Ventshade Company; Smittybilt, Incorporated.

Principal Divisions

Light Truck; Heavy Truck; Suspension and Ventshade; Product Supply Companies.

Principal Competitors

DaimlerChrysler AG; Discount Auto Parts, Inc.; Donnelly Corporation; Durakon; Eagle-Picher Industries, Inc.; General Motors Corporation; Lancaster Colony Corporation; Textron Inc.; Toyota Motor Corporation; Williams Controls.

Key Dates:

1965:: Business is founded by Minnesota entrepreneur Allan W. Lund.
1994:: Company begins selling its products in Europe.
1997:: Company signs merger agreement to acquire Deflecta-Shield Corporation.
1998:: Lund International acquires Ventshade Company.
1999:: Company acquires Smittybilt, Incorporated.