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OPINION – Cycle Country moves aggressively to strengthen and grow business

April 24, 2006
Filed under Columns

Jim Danbom, founder and chairman of Cycle Country Accessories, the Milford, Iowa, manufacturer of ATV accessories, thinks the company has been too quiet for too long and he’s ready to do something about it.
He’s taken some pretty aggressive steps for this $17 million company that’s traded on the AMEX. For starters, he has:

  • Removed his long-time associate, Ron Hickman, as president and CEO, and launched a search for someone with extensive engineering, business and manufacturing skills;
  • Begun looking for outside contract work to fill unused capacity at the company’s one-year-old acquisition, Simonsen Iron works, a Spencer, Iowa, metal fabrication company;
  • Stepped up R&D development in a drive to develop products that will make the company less dependent upon snow-related products, and
  • Put out the word that he’s looking for more acquisitions to fit in with his recent purchases of Simonsen, Perf-Form oil filters and Weekend Warrior, a producer of lawn and garden accessories.
    “The board has been dissatisfied with the return on invested capital,” says Danbom, “and we decided to make changes to increase shareholder value and growth.” That’s a bold new agenda for this small Iowa manufacturer that historically has kept a relatively low profile despite selling its innovative ATV accessories around the world.
    Hickman, a CPA and a close associate of founder Danbom for nearly 25 years, was removed in a step to add manufacturing and engineering expertise at the company. Hickman’s employment contract was scheduled to expire this summer.
    John Gault, a director, has been named interim CEO while a search is conducted for Hickman’s replacement. The company is looking for an executive with a strong engineering and manufacturing background, Gault said during an interview with Powersports Business.
    “The ideal person,” says Gault, “is someone with an engineering degree, an MBA and substantial manufacturing experience.”
    The business and manufacturing strengths Gault and Danbom are looking for reflect a new direction for this company.
    Manufacturing, Diversification Eyed
    Cycle Country is a leading supplier of ATV accessories and, in fact, could be given credit for launching the segment. Danbom developed one of the first snowplows for ATVs — the company’s initial product — when he was searching for a way to plow the parking lot at his Iowa dealership.
    Eventually, he developed a unique system that allowed easy and economical mounting of accessories to any model ATV.
    Hickman served as Danbom’s accountant until he joined the company and eventually was named president and CEO, replacing Danbom.
    From the beginning, Cycle Country was an assembler, not a manufacturer. It outsourced its manufacturing until a year ago when it acquired Simonsen Iron Works, its long-time metal fabrication supplier. Simonsen is located in Spencer, Iowa, about 10 miles from Milford.
    “With the purchase of Simonsen,” says Gault, “Cycle Country moved from an assembly and distribution operation to a manufacturer. It’s been a dramatic change for us.” That’s sweet music to Gault, who spent more than 30 years running manufacturing operations for John Deere. Gault is retired but has been working with Cycle Country for about a year to improve the company’s manufacturing processes. “We’ve fixed some things,” says Gault, “but there are no deep-seated problems. We just want to see our shareholder value reflect the quality of our products.”
    Danbom and Gault see the Simonsen operation as being underutilized and a great opportunity to provide profitable fabricating services to outside customers. The 110,000 sq. ft. Simonsen plant is primarily a sheet metal and light plate manufacturing facility. It includes a robotic welder, a laser cutter and a powder-coating paint facility.
    “It’s capable of producing anything short of military tanks,” says Danbom. “Just look at our catalog — they do all the primary manufacturing for our blades, our push tubes, things like that.”
    Cycle Country is close to signing a substantial contract with an unnamed customer in the powersports industry, said Gault, a move that will soak up some of Simonsen’s excess capacity and help boost CC’s bottom line. “We can do better by working for others,” Gault says.
    The company also is moving toward a just-in-time manufacturing system, asking its hardware suppliers to warehouse products instead of having Cycle Country store these parts prior to assembly. This move frees cash for more profitable operations.
    Cycle Country also is beefing up its R&D efforts in a move to reduce its dependence on snow-related products. “We’ll still be in powersports,” says Gault, “but (these new products) will help stabilize the cyclicality and seasonality of our business. It will increase shareholder value by making our business more predictable.”
    Finally, Cycle Country is looking aggressively for more acquisitions.
    “We certainly hope we can continue with acquisitions,” says Danbom. “We’re in a position to do that, and we’re seeking those.”
    Gault puts it simply when asked about the moves: “We have to increase shareholder value,” he says.
    Danbom took Cycle Country public about five years ago with an initial offering price of about $5.50. The stock hasn’t done much since the IPO and has been trading at about $3.50 recently.
    Tighter internal controls. Additional outside manufacturing revenues. Broad diversification through new product development and acquisitions. It’s an aggressive agenda for a company that’s been fairly quiet up until now and a full agenda for a new chief executive. psb

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