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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 333-49011
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[ADVANCED ACCESSORY SYSTEMS LOGO]
ADVANCED ACCESSORY SYSTEMS, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3848156
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (810) 997-2900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate fair market value of the registrant's Class A and
A-1 Units held by non-affiliates of the registrant as of March 19, 2001, based
upon the good faith determination of the Board of Managers was approximately
$8,540,000. For purposes of this disclosure, shares of Class A and A-1 Units
held by persons who hold more than 5% of the outstanding Class A and A-1 Units
and Class A and A-1 Units held by officers and directors of the registrant have
been excluded because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive for other
purposes.
The number of the registrant's Class A and A-1 Units, outstanding
at March 19, 2001 was 9,236 and 5,133, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None
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ADVANCED ACCESSORY SYSTEMS, LLC
FORM 10-K
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
Item 1. BUSINESS................................................................................1
Item 2. PROPERTIES..............................................................................10
Item 3. LEGAL PROCEEDINGS.......................................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................10
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
MEMBERS' MATTERS........................................................................11
Item 6. SELECTED FINANCIAL DATA.................................................................12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................................14
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................48
PART III
Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................48
Item 11. EXECUTIVE COMPENSATION..................................................................49
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..............................................................................51
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................52
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K................................................................................53
SIGNATURES.......................................................................................56
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FORWARD-LOOKING STATEMENTS
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-K CONTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS, AND SUCH DIFFERENCES MAY BE MATERIAL. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
PART I
ITEM 1. BUSINESS
GENERAL
Advanced Accessory Systems, LLC (together with its subsidiaries, the
"Company" or "AAS") is one of the world's largest suppliers of towing and rack
systems and related accessories for the automotive original equipment
manufacturer ("OEM") market and the automotive aftermarket. The Company's
products include a comprehensive line of towing systems including accessories
such as trailer balls, ball mounts, electrical harnesses, safety chains and
locking hitch pins. The Company's broad offering of rack systems includes fixed
and detachable racks and accessories which can be installed on vehicles to carry
items such as bicycles, skis, luggage, surfboards and sailboards. The Company's
products are sold as standard accessories or options for a variety of light
vehicles. In 2000, the Company estimates that more than 50% of its net sales
were generated from products sold for light trucks. For the year ended December
31, 2000, the Company's net sales and EBITDA, as adjusted, were $318.8 million
and $44.5 million, respectively.
In September 1995, the Company, through its SportRack, LLC subsidiary
("SportRack"), acquired substantially all of the net assets of the MascoTech
Accessories division (the "MascoTech Division") of MascoTech, Inc. ("MascoTech"
or the "Predecessor"). The MascoTech Division was a North American supplier of
rack systems and accessories to the automotive OEM market and aftermarket.
In October 1996, the Company acquired (the "Brink Acquisition") all of the
capital stock of Brink B.V., a private company with limited liability
incorporated under the laws of The Netherlands and a European supplier of towing
systems to the automotive OEM market and aftermarket. In December 1996,
ownership of Brink B.V. and its subsidiaries was transferred to a newly formed
subsidiary of the Company, Brink International B.V. ("Brink").
In August 1997, the Company formed Valley Industries, LLC ("Valley") to
acquire (the "Valley Acquisition") the net assets of Valley Industries, Inc.
("Valley Industries"), a North American supplier of towing systems to the
automotive OEM market and aftermarket.
Two smaller acquisitions were completed in July 1997 by SportRack
International, Inc. ("SportRack International"), a subsidiary of SportRack.
SportRack International acquired from Bell Sports Corporation ("Bell") the net
assets of its sportrack division, a Canadian supplier of rack systems and
accessories to the automotive aftermarket. An affiliate of J.P. Morgan Partners,
LLC ("JPMP") which is also an affiliate of the Company, at that time was a
significant equity investor in Bell. SportRack International also acquired the
capital stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian supplier of rack
systems and accessories to the automotive OEM market and aftermarket. The
acquisitions of the sportrack division of Bell and Nomadic are collectively
referred to in this Form 10-K as the "SportRack International Acquisition."
In January 1998, the Company through Brink, acquired (the "Ellebi
Acquisition") the net assets of the towbar segment of Ellebi S.p.A. ("Ellebi").
Ellebi is an Italian supplier of towing systems to the automotive OEM market and
aftermarket.
In February 1998, the Company through SportRack International, acquired (the
"Tranfo-Rakzs Acquisition") the net assets of Transfo-Rakzs, Inc.
("Transfo-Rakzs"). Transfo-Rakzs is a Canadian supplier of rear hitch rack
carrying systems and related products to the automotive aftermarket.
In February 2000, the Company through Valley, acquired (the "Titan
Acquisition") the net assets of Titan Industries, Inc. ("Titan"). Titan is a
North American Supplier of trailer balls and other towing related accessories to
the automotive aftermarket.
In September 2000, the Company through SportRack International, acquired
(the "Barrecrafters Acquisition") the net assets of the Wiswall Hill Corporation
("Wiswall Hill" or "Barrecrafters"). Wiswall Hill is a North American supplier
of rack systems and accessories to the automotive aftermarket under its popular
brand name, Barrecrafters.
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PRODUCTS
The principal product lines of the Company are towing systems, rack systems
and related accessories. In 2000, towing systems and towing accessories
constituted approximately 59% and rack systems and rack accessories constituted
approximately 41% of the Company's net sales. The Company believes it offers a
more comprehensive product line than most of its competitors. The Company has
devoted considerable resources to the engineering and designing of its products
and, as a result, considers itself a market leader in the research and new
product development of towing systems and rack systems.
Towing Systems. The Company designs, manufactures and supplies towing
systems to automotive OEMs and the automotive aftermarket which fit almost every
light vehicle used for towing in North America and Europe. In the aggregate, the
Company supplies over 2,000 different towing systems, as well as a line of
towing accessories.
The Company's towing systems sold in Europe are installed primarily on
passenger cars. The Company's primary product within the European market is the
fixed ball towbar that is specifically designed to be mounted on a particular
car model in accordance with the OEM's specified mounting points. The Company
also markets sophisticated detachable ball systems which are popular with owners
of more expensive cars or cars on which the license plate would otherwise be
blocked by a fixed ball towbar. The Company's towing systems sold in Europe
currently undergo rigorous safety testing in order to satisfy European Community
("EC") regulatory standards.
The Company's towing systems sold in North America are installed primarily
on light trucks. As new vehicles are introduced, the Company designs towing
systems to match the specific vehicle design. The Company has introduced many
innovative product designs such as the tubular trailer hitch which is lighter in
weight, less obtrusive and stronger than the conventional hitch. Many of the
Company's product innovations have enabled the Company to improve the
functionality and safety of towing systems while, at the same time, enhancing
the overall appearance of vehicles utilizing these towing products.
The Company also offers a line of towing accessories, including trailer
balls, ball mounts, electrical harnesses, safety chains and locking hitch pins.
Fixed Rack Systems. The Company supplies fixed roof rack systems for
individual vehicle models that are generally sold to the automotive OEMs for
installation at the factory or dealership. These rack systems are typically
installed on a model for the life of its design, which generally ranges from
four to six years. The Company has been an industry leader in developing designs
which not only complement the styling themes of a particular vehicle, but also
increase the utility and functionality of the rack system.
Most of the fixed rack systems sold by the Company are composed of side
rails which run along both sides of the vehicle's roof, feet which mount the
side rails to the vehicle's roof, and cross rails which run between the side
rails. Cross rails, which are attached to the side rails with stanchions, are
typically movable and can be used to carry a load. The Company uses advanced
materials such as lightweight, high strength plastics and roll formed aluminum
to develop durable rack systems that optimize vehicle performance. Many of these
products incorporate innovative features such as push button and pull lever
stanchions, which allow easy movement of the cross rails to accommodate various
size loads. These rack systems are utilized on a large number of light trucks,
including Jeep Grand Cherokee and Cherokee, DaimlerChrysler minivans, Dodge
Durango, GM Suburban, Tahoe and Yukon, Mercedes Benz M-Class and BMW X5.
Detachable Rack Systems. The Company supplies a full line of detachable roof
rack systems for distribution in both the automotive and sporting accessory
aftermarkets. A detachable rack system typically consists of cross rails which
are attached to the roof of a vehicle by removable mounting clips.
Rack System Accessories. The Company designs and manufactures lifestyle
accessories for distribution in both the automotive and sporting accessory
aftermarkets. These accessories typically attach to the Company's towing systems
or rack systems and are used for carrying items such as bicycles, skis, luggage,
surfboards and sailboards.
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CUSTOMERS AND MARKETING
Management believes that the Company has strong and diverse industry
relationships which are based on its reputation for high service levels, strong
technical support, innovative product development, high quality and competitive
pricing. Sales to OEM and aftermarket customers represented approximately 68%
and 32% of the Company's net sales, respectively, in 2000. In addition, sales to
DaimlerChrysler and General Motors were approximately 32% and 11%, respectively,
of the Company's aggregate net sales in 2000.
Automotive OEMs. The Company obtains most of its new orders through a
presourcing process by which the customer invites one or a few preferred
suppliers to design and manufacture a component or system that meets certain
price, timing, functional and aesthetic parameters. Upon selection at the
development stage, the Company and the customer typically agree to cooperate in
developing the product to meet the specified parameters. Upon completion of the
development stage and the award of the manufacturing business, the Company
receives a purchase order that covers parts to be supplied for a particular car
model. Such supply arrangements typically involve annual renewals of the
purchase order over the life of the model, which is generally four to six years.
In addition, the Company enters into long-term contracts with certain OEM
customers which require the Company to make annual price reductions. The Company
competes to supply parts for successor models even though the Company may
currently supply parts on the predecessor model. Sales to OEMs are made directly
by the Company's internal sales staff and outside sales representatives.
The Company sells its products to most of the automotive OEMs selling light
vehicles in North America and/or Europe, including DaimlerChrysler, General
Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan,
Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler
with substantially all of its North American towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the rack system
requirements of General Motors. The following chart sets forth information
regarding vehicle models on which the Company's products are used or for which
the Company has been awarded business.
AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 2000 PRODUCTION(A) FUTURE PRODUCTION(b)
--------------- ------------------ ------------------------------------ --------------------------
Towing Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty
Voyager, Town & Country, Dodge Ram
Pick-up, Dakota, Wrangler, Durango, Neon,
PT Cruiser, Plymouth Prowler, Ram
Van, 300M, Voyager, Stratus, Sebring
General Motors CK Pick-up, ML Van, S-10, Cavlier, Sunfire Frontera, Corsa, Arena (van),Vectra
Blazer, APV Vans, Bravada, Jimmy, Geo
Tracker, Blazer, Corsa, Astra, Grand Priz
(hatchback), Astra (Sedan), Cadilac Seville
Astra (Station wagon), Calibra, Vectra
(Hatchback), Vectra (Sedan), Vectra
(Station wagon), Omega (Sedan), Omega
(Station wagon), Campo, Frontera,
Monterey, Zafira, Chevrolet Malibu
Ford Explorer, Ranger, Focus Wagon, Ranger,
Windstar Minivan, Focus Mondeo, Explorer
Mondeo, Mondeo (Wagon),
Scorpio (Sedan), Scorpio
(Wagon), Maverick, Transit
Renault Laguna (Station wagon), Laguna, Laguna, Matra
Isuzu Rodeo, Trooper
Toyota 4-Runner, RAV4, Tacoma Pick-up, Seniena Landcrusier pick-up Previa, 355N
Minivan Sequoia SUV, Tundra Pick-up
Corolla, Corolla Wagon
Camry, Hi-Lux, Picnic, Previa, Carina
Hi-Ace, Celica, Yaris Verso
Nissan Pathfinder, Pick-up, Quest, Primera, Primera Wagon,
Infiniti, XTerra
Vehicle, QW Truck, Micra, Sunny, Patrol, Terrano, MPV, Micra
Frontier
Almera, Primera, Maxima, King Cab, Almera, Almera MPV, Tino MPV
Terrano, Mavric, Patrol, Serena,
Vanette
Mazda 121, MPV, J54, J16, 626, 323 626 Wagon, 323, Demio
Honda Passport, Accura MDX, CRV PF Van, Honda HP
Mitsubishi Montero, Montero Sport, Carisma, Pajero
L200
FIAT Almost all models
Alpha Romeo Almost all models
Lancia Almost all models
Subaru Outback, Legacy, Forester 79V
Range Rover Range Rover, Land Rover
Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
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AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 2000 PRODUCTION(a) FUTURE PRODUCTION(b)
--------------- ------------------ ---------------------------------------- --------------------------
Towing Systems Volvo (continued) (Station wagon), 850 (Sedan), 850
(continued) SAAB 9000 series, 900 series 900 series, 9000 series, 9000
station wagon, small car 9-3,
small car 9-5, small station
wagon
Hyundai Lantra, Sonata, Starex 4WD, Accent, Atos Trajet, Lantra, Joyce
Verna
Peugeot 106, 306, 406 (Sedan), 406 (Station 206, 206 Sport, 207, 306 Break
wagon), 406 (Coupe), 605, 806, J5
(Van), Boxer (Van)
Suzuki Carry
Daihatsu Gran Move, Move LCX Mini Van
KIA Clarus, Frontiers, Carnivall
SEAT Toledo
Skoda SK240
Volkswagen Golf 4, Caddy, Transporter, Polo, Euro
Daewoo Nubira U 100
Rack Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty, Durango, CS
Voyager, Town & Country, Durango,
Mercedes M-Class, PT Cruiser, BW 72
General Motors Suburban, Yukon, Tahoe, Astro, Hummer, Trans Port, Venture,
Safari Montana
Escalade, Denali, Avalanche, Z-71 Saturn SUV
SUV
Envoy, Trail Blazer, Bravada
Ford D219
Honda Accura MDX Honda HP
Nissan Pathfinder, Infinity QX4
Toyota Tacoma
Mitsubishi Montero Sport
Subaru Outback, Impreza, Legacy, Forester
KIA Sportage Sadona
Hyundi Santa Fe, Alantra, Sanada, Accent
SEAT Vario GP99
Scoda Octavia
Opel Astra Vectra, Astra
BMW E-53 (SUV)
- -------------
(a) Represents models for which the Company produced products in 2000.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. There can be no assurance that any of
these vehicles will be produced or that the Company will generate certain
revenues under these awards even if the models are produced.
Automotive Aftermarket. The Company sells its products directly into the
automotive aftermarket through a number of channels, including wholesalers,
retailers and installers, through its internal sales force and outside sales
representatives. The largest of the Company's aftermarket customers include
U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System,
Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire.
The Company believes that it has established a reputation as a highly reliable
aftermarket supplier able to meet its customers' requirements for on-time
deliveries while minimizing the carrying levels of inventory. For example,
Valley began supplying towing systems to U-Haul (which the Company believes, is
the largest installer of towing systems in the United States) in 1994 and for
the year ended December 31, 2000, supplied approximately 50% of U-Haul's towing
system requirements.
PRODUCT DESIGN, DEVELOPMENT AND TESTING
The Company believes that it is a leader in the design of towing systems and
rack systems and accessories. The Company believes it offers products that
possess greater quality, reliability and performance than the products sold by
many of its competitors. The 128 members of the Company's engineering and design
staff possess strong technical skills. The Company currently holds more than 125
U.S. and foreign patents, and has numerous patent applications pending. The
expiration of such patents are not expected to have a material adverse effect on
the Company's operations.
The Company spent $9.8 million, $10.3 million and $9.6 million on
engineering, research and development in 2000, 1999 and 1998, respectively. The
Company works closely with OEMs to constantly improve design and manufacturing
technology and product functionality. When an OEM is in the process of
developing a new model, it typically approaches an established or incumbent
supplier with a request to supply the required towing system or rack system. The
Company is typically contacted two to four years prior to the
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start of production of the new model. The Company's product development
engineers then work closely with the OEM to develop a product that satisfies the
OEM's aesthetic and functional requirements. This relationship also provides the
Company with a competitive advantage in the aftermarket because, in many cases,
the Company already possesses the knowledge to create a system compatible with
new model vehicles prior to release.
The Company has extensive testing capabilities which enable it to test and
certify its products. The Company subjects its products to tests which it
believes are more demanding than conditions which would occur during normal use.
The Company has specialized equipment which it has purchased or developed for
use in its testing laboratories.
Since May 1994, 14 European countries enacted the new EC regulatory
standards which require that towing systems undergo significant safety testing
prior to gaining approval for sale. This safety testing requires that a towing
system be extensively tested for fatigue and includes subjecting a towing system
to upwards of two million high load pulses. The Company does its testing in its
own laboratory under the control of an independent institute that is authorized
by the EC to approve the towing systems for sale. The quality assurance system
is regularly audited by an independent institute and by the automotive OEMs
themselves. The Company has continually been awarded the highest distinction of
achievement by the independent institute.
MANUFACTURING PROCESS
The Company's manufacturing operations are directed toward achieving ongoing
quality improvements, reducing manufacturing and overhead costs, realizing
efficiencies and adding flexibility. The Company has organized its production
process to minimize the number of manufacturing functions and the frequency of
material handling, thereby improving quality and reducing costs. In addition,
the Company uses cellular manufacturing which improves scheduling flexibility,
productivity and quality while reducing work in process and costs.
The manufacturing operations utilized by the Company include metal cutting,
bending, cold forming, roll forming, stamping, welding, plastic injection
molding, painting, assembly and packaging. The Company performs most
manufacturing operations in-house but outsources certain processes depending on
the capabilities and capacities of individual plants and cost considerations.
For example, while some of the Company's towing systems manufacturing facilities
have painting capabilities, the Company has chosen to outsource the painting of
its rack systems.
The Company has established quality procedures at each of its facilities and
strives to manufacture the highest quality product possible. The Company has
achieved ISO-9000 or QS-9000 certification for 13 of its 21 manufacturing and
engineering facilities and is in the process of obtaining certification for
other of its facilities. The Company has received numerous quality and
performance awards from its OEM customers, including DaimlerChrysler's Gold
Award, General Motors's Supplier of the Year Award, Ford's Q-1 Award, Toyota's
Distinguished Supplier Award, KIA's Preferred Supplier Award and the Nissan
Superior Supplier Performance Award.
RAW MATERIALS
The principal raw material used in the Company's products is steel, which is
purchased in sheets, rolls, bars or tubes and represents approximately 50% of
the Company's raw material costs. The Company also purchases significant amounts
of aluminum and plastics. The Company has various suppliers globally and has not
had difficulties in procuring raw materials nor does it expect to have any
problems in the future. The Company is committed to supplier development and
long-term supplier relationships. However, most of the Company's raw material
demands are for commodities and, as such, can be purchased on the open market on
an as needed basis. The Company selects among available suppliers by comparing
cost, consistent quality and timely delivery as well as compliance with QS-9000
and ISO-9000 standards.
The Company customarily obtains its supplies through individual purchase
orders. In some instances, the Company will enter into short-term contracts with
its suppliers which generally run one year or less. However, the Company has
signed a long-term supply agreement which terminates in 2004 with one of its
painting suppliers, Crown Group, Inc. ("Crown"), under which Crown opened a
state-of-the-art paint line in a facility adjacent to the Company's Port Huron,
Michigan facility.
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NORTH AMERICAN AUTOMOTIVE INDUSTRY
During the later part of 2000, sales in the North American automotive
industry began to decline and some of the Company's major customers adjusted
production in the 4th quarter of 2000 to reduce their inventory of unsold
vehicles. This lowering of production negatively impacted the Company's sales
during the 4th quarter of 2000. This trend has continued during the early part
of 2001.
It is anticipated that U.S. auto sales for 2001 will be in the range of 15.5
million to 16.5 million vehicles, down from 17.4 million vehicles in 2000.
In addition, DaimlerChrysler, the Company's largest customer, incurred
substantial losses at its North American, Chrysler Group. During the first
quarter of 2001, DaimlerChrysler announced a restructuring plan to return the
Chrysler Group to profitability in 2002. This restructuring plan includes the
reduction of 26,000 employees and a 15% reduction in material cost by 2003.
Effective January 1, 2001, the Company agreed to reduce prices on products sold
to DaimlerChrysler and has been able to partially offset these price reductions
through reductions in its material costs. The Company continues to work with
DaimlerChrysler to help identify other potential cost savings.
AUTOMOTIVE OEM AND AFTERMARKET TRENDS
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it has benefited and will continue
to benefit from the following automotive OEM and aftermarket trends.
Consolidation of Supplier Base by OEMs. The OEMs have significantly
consolidated their supplier base in an effort to reduce their
procurement-related costs, ensure high quality and accelerate new model
development. As a result, many smaller, poorly capitalized suppliers with
limited product lines and engineering and design capabilities have been
eliminated as direct suppliers to OEMs. Consequently, larger suppliers with
broad product lines, in-house design and engineering capabilities and the
ability to effectively manage their own supplier bases, have been able to
significantly increase their market share.
The consolidation by OEMs has altered the typical structure of supplier
contracts. In the past, OEMs supplied all design, development and manufacturing
expertise for accessory parts and were responsible for consistency of quality
and reliability of delivery. Today, however, the OEMs typically involve
potential suppliers earlier in the design and development process to encourage
suppliers to share design and development responsibility. In some cases,
sole-source supply contracts, which cover the life of a vehicle or platform, are
awarded. Both OEMs and suppliers benefit from the consolidation trend. Suppliers
are able to devote the resources necessary for proprietary product development
with the expectation that they will have the opportunity to profit on such
investment over the multi-year life of a contract. OEMs benefit from shared
manufacturing cost savings attributable to long, multi-year production runs at
high capacity utilization levels.
Emergence of European Community Regulatory Standards. Trends within the
European towing systems market result primarily from EC regulatory standards and
the corresponding legislative framework. Such standards provide that a towing
system must fit all the vehicle manufacturer's recommended fitting points, must
not interfere with the vision of the number plate when not in use and must meet
strict testing criteria for durability and safety. These standards have been
adopted by The Netherlands, Germany, Sweden, Italy, the United Kingdom, France,
Belgium, Luxembourg, Spain, Austria, Switzerland and Scandinavia. Other EC
countries are expected to adopt the legislation. All of the Company's towing
systems sold in Europe currently undergo rigorous safety testing in order to
satisfy these EC regulatory standards.
Increased Levels of Manufacturing in North America by Transplants. As a
result of the relative cost advantage of producing vehicles in North America,
many foreign automobile manufacturers with manufacturing operations in the
United States ("transplants") have increased their share of North American light
vehicle production from approximately 6% in 1986 to approximately 24% in 2000.
Industry sources forecast that this trend will continue. For example, BMW
commenced manufacturing in the U.S. in 1996 and launched production of its E-53
SUV in 1999. In addition, Toyota launched production of its Tundra pickup truck
in Indiana during 1999 and launched production of its Sequoia SUV during 2000,
Honda began production of its Odyssey minivan in North America during 1999 and
began production of its Acura MD SUV during 2000. The Company believes that
increased levels of manufacturing of light trucks in North America by
transplants will benefit full service, high quality suppliers with North
American operations such as the Company.
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COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. The Company competes primarily
on the basis of product quality, cost, timely delivery, customer service,
engineering and design capabilities and new product innovation in both the OEM
market and the automotive aftermarket. The Company believes that as OEMs
continue to strive to reduce new model development cost and time, innovation and
design and engineering capabilities will become more important as a basis for
distinguishing competitors. The Company believes it has an outstanding
reputation in both of these areas. In the automotive aftermarket, the Company
believes that its wide range of product applications is a competitive advantage.
For example, the Company has developed towing systems to fit almost every light
vehicle used for towing in North America and Europe. The Company believes its
competitive advantage in the aftermarket is enhanced by its close relationship
with OEMs, allowing the Company access to automobile design at an earlier time
than its competitors.
In the towing systems market, the Company competes with Draw-Tite Inc. and
Reese Products Inc., both of which are subsidiaries of Metaldyne Corporation,
Bosal Holding B.V., The Oris Group, Production Stamping Inc. and numerous
smaller competitors.
In the rack systems and accessories market, the Company's competitors
include JAC Holding Corp., Thule International S.A., Yakima Products, Inc.,
Graber Products Inc. and several smaller competitors.
COMPETITIVE ADVANTAGES
Leading Global Market Position. Based on its knowledge of the industry, the
Company believes that it is one of the world's largest suppliers of towing
systems and one of the world's largest suppliers of rack systems. The Company
also believes, based on its knowledge of the industry, that it is the largest
supplier of towing systems in Europe and the second largest supplier of towing
systems in North America. The Company also believes that it is one of the two
largest suppliers of rack systems sold to automotive OEMs in North America. The
Company has 27 facilities strategically located in North America and Europe. By
virtue of its size and global presence, the Company believes it benefits from
several competitive advantages, including the ability to (i) satisfy local
design, production, quality and timing requirements of global OEMs; (ii) provide
"one-stop shopping" for customers' product and service requirements; (iii)
optimize plant production; (iv) maximize its raw material purchasing power; (v)
spread its selling, administrative and product development expenses over a large
base of net sales; and (vi) develop and maintain state-of-the-art production
facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systems to most
of the OEMs manufacturing in North America and/or Europe including
DaimlerChrysler, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru,
Fiat, Mitsubishi, Nissan, Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company
supplies DaimlerChrysler with substantially all its North American towing
systems and rack systems and accessories. The Company also supplies
approximately 50% of the rack system requirements of General Motors. Tier 1
status and strong customer relationships are important elements in achieving
continued profitable growth because, as OEMs narrow their supplier bases, well
regarded, existing suppliers have an advantage in gaining new contracts. The
evolution of OEM relationships into strategic partnerships provides a
significant advantage to Tier 1 suppliers with system integration capabilities
(such as the Company) in retaining existing contracts as well as in
participating during the design phase for new vehicles, which is integral to
becoming a supplier for such new platforms. The Company is also a leading
supplier of towing and rack systems to automotive aftermarket wholesalers,
retailers and installers, such as U-Haul, Pep Boys, Balkamp, Advance Auto Parts,
Coast Distribution System, Discount Auto Parts, Ace Hardware, Norauto, Brezan,
Feuvert and Canadian Tire.
Comprehensive Product Line. The Company continues to position itself as a
leading supplier to its customers for a growing range of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit almost every light vehicle produced in North America and Europe. The Company
is one of a limited number of European manufacturers with such a broad product
line that also satisfies EC regulatory standards. Competitors whose products do
not satisfy such standards face substantial design and testing costs to offer a
comparable product line that meets these safety standards. The Company has
provided OEMs with fixed rack systems for approximately half of the light truck
models produced in North America that utilize vehicle-specific fixed racks. The
Company believes that its broad product offerings also facilitate strategic
partnerships with automotive aftermarket wholesalers, retailers and installers.
7
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Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. The
Company is responsible for many industry innovations, including lighter, less
obtrusive, round tube towing hitches as well as push button and pull lever
stanchions on fixed rack systems. The Company believes its design and
engineering capabilities provide significant value to its customers by (i)
shortening OEM new product development cycles; (ii) lowering OEM manufacturing
costs; (iii) providing technical expertise; and (iv) permitting aftermarket
customers to maintain lower inventory levels. The Company also believes that its
design innovations have created value for end users by providing products that
are durable and easy to install and that enhance vehicle utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including DaimlerChrysler's Gold Award, General Motor's
Supplier of the Year Award, Ford's Q-1 Award, Toyota's Distinguished Supplier
Award, Kia's Preferred Supplier Award and Nissan's Superior Supplier Performance
Award. Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or
QS-9000 certification for 12 of its 21 manufacturing and engineering facilities
and is in the process of obtaining certification for other of its facilities.
The Company's low cost position is a result of its strict cost controls and
continuous improvement programs designed to enhance productivity. OEMs typically
prefer stable suppliers who can generate productivity gains that can be shared
to reduce OEM costs. The Company's cost controls are closely integrated with its
quality driven manufacturing operations, thereby allowing it to profitably
deliver high quality, easy to install and competitively-priced components on a
just-in-time basis. The Company's focus on low cost manufacturing also provides
benefits when selling products to the automotive aftermarket.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading global
supplier of automotive exterior accessories, thereby increasing revenue and cash
flow. In order to accomplish its goal, the Company intends to pursue the
following strategies.
Increase Global Market Share. The Company intends to capitalize on its
expanded presence in North America and Europe by marketing products to its
global automotive OEM customers. Through its past acquisitions of complementary
product lines, the Company is able to offer an expanded range of products and
services to its extended customer base. The Company also expects to secure new
customers by virtue of its expanded market presence and broad product and
service offerings. The Company believes its continued emphasis on new technology
(both product and process), will result in the development of innovative, towing
and rack system products which it expects to market to its expanding customer
base.
Maintain and Enhance Strong Customer Relationships. The Company intends to
strengthen and expand its relationships with global automotive OEMs and
aftermarket customers by (i) continuing its commitment to innovative design and
development of products during the early stages of vehicle design and redesign;
(ii) building on its position as a low cost supplier of quality accessory
products; (iii) offering new products in existing and new geographic areas by
taking advantage of existing OEM relationships; and (iv) working with
aftermarket customers to develop new products and marketing strategies.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward systems suppliers, the Company is focused on making strategic
acquisitions that will enhance its ability to provide integrated systems (such
as a towing or rack system) or otherwise leverage its existing business by
providing additional product, manufacturing and service capabilities. The
Company also intends to pursue acquisitions which will expand its customer base
by providing an entree to new customers, including expansion into selected
geographic areas. The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
ENVIRONMENTAL REGULATION
The Company's operations are subject to foreign, state and local
environmental laws and regulations that limit the discharges into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage, and disposal of certain materials,
substances and wastes. In many jurisdictions, these laws are complex, change
frequently and have tended to become stronger over time.
In jurisdictions such as the United States, such obligations, including but
not limited to those under the Comprehensive Environmental Response,
Compensation & Liability Act ("CERCLA"), may be joint and several and may apply
to conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which waste or
other contamination attributable to an entity or its predecessors have been sent
or otherwise come to be located. The
8
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Company believes that its operations are in substantial compliance with the
terms of all applicable environmental laws and regulations as currently
interpreted. In addition, to the best of the Company's knowledge, there are no
existing or potential environmental claims against the Company nor has the
Company received any notification nor is there any current investigation
regarding, the disposal, release, or threatened release at any location of any
hazardous substance generated or transported by the Company. However, the
Company cannot predict with any certainty that it will not in the future incur
liability under environmental laws and regulations with respect to contamination
of sites currently or formerly owned or operated by the Company (including
contamination caused by prior owners and operators of such sites), or the
off-site disposal of hazardous substances.
While historically the Company has not had to make significant capital
expenditures for environmental compliance, the Company cannot predict with any
certainty its future capital expenditures for environmental compliance because
of continually changing compliance standards and technology. Future events, such
as changes in existing environmental laws and regulations or unknown
contamination of sites owned or operated by the Company (including contamination
caused by prior owners and operators of such sites), may give rise to additional
compliance costs which could have a material adverse effect on the Company's
financial condition. Furthermore, actions by foreign, federal, state and local
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect the demand for its products. Additionally,
the Company does not currently have any insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future.
EMPLOYEES
At December 31, 2000, the Company had approximately 2,200 employees of whom
approximately 1,700 are hourly employees and approximately 500 are salaried
personnel. Approximately 150 of the Company's employees in the United States at
the Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 2004. As is common in many European jurisdictions,
substantially all of the Company's employees in Europe are covered by
country-wide collective bargaining agreements. The Company believes that its
relations with its employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
For financial information about foreign and domestic operations of the
Company, see "Note 14" of the Company's "Notes to Consolidated Financial
Statements".
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ITEM 2. PROPERTIES
The Company's executive offices are located in 14,550 square feet of leased
space in Sterling Heights, Michigan. The Company has 27 facilities with a total
of 2,252,954 square feet of space. The Company believes that substantially all
of its property and equipment is in good condition and that it has sufficient
capacity to meet its current and projected manufacturing and distribution needs.
The Company's facilities are as follows:
SQUARE OWNED/ LEASE
LOCATION PRINCIPAL FUNCTIONS FEET LEASED EXPIRATION**
--------------------------- ----------------------------- --------- --------- --------------
North America
-------------
Shelby Township, Michigan* Manufacturing 74,800 Owned --
Shelby Township, Michigan* Manufacturing 13,000 Leased 2008
Port Huron, Michigan* Manufacturing 200,000 Owned --
Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003
Madison Heights, Michigan* Administration and 90,000 Leased 2002
manufacturing
Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2002
Shelburne, Vermont Administration, manufacturing 73,000 Leased 2001
and engineering
Wyandot, Michigan Manufacturing 5,000 Leased 2002
Lodi, California Administration, manufacturing and 150,000 Owned --
engineering
Lodi, California Warehousing 77,760 Leased 2002
Grove City, Ohio Warehousing 70,644 Leased 2006
Dallas, Texas Warehousing 23,800 Leased 2005
Granby, Quebec Administration, manufacturing and 88,200 Leased 2003
warehousing
Bromptonville, Quebec Manufacturing 2,000 Leased 2000
Hamer Bay, Ontario Manufacturing 15,000 Owned --
Europe
Sandhausen, Germany* Administration and engineering 5,000 Leased Month to Month
Barcelona, Spain Manufacturing 6,200 Leased Month to Month
Bakov nad Jizerou, Czech Manufacturing 6,000 Leased Month to Month
Republic*
Staphorst, The Netherlands* Administration, engineering 405,000 Owned --
manufacturing, and warehousing
Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned --
Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned --
Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned --
Vanersborg, Sweden* Manufacturing and warehousing 160,000 Leased 2004
Wolsztyn, Poland Warehousing 5,000 Leased Month to Month
Reims, France Manufacturing and warehousing 115,000 Owned --
St. Victoria di Gualtieri, Italy Administration, engineering, 170,000 Leased 2003
manufacturing and warehousing
St. Victoria di Gualtieri, Italy Manufacturing 110,000 Leased 2003
- -----------------
* QS 9000 and/or ISO 9000 certification.
** Gives effect to all renewal options.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
it is not presently a party to any litigation the outcome of which would have a
material adverse effect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS'
MATTERS
There is no established public trading market for the Company's Class A or
Class A-1 Units. At March 19, 2000, there were 19 holders of record of Class A
Units and one holder of record of Class A-1 Units. Except as set forth below
with respect to quarterly tax distributions to Members, the Company has never
declared or paid dividends (or made any other distributions) on the Class A
Units or the Class A-1 Units and does not anticipate doing so in the foreseeable
future. Under certain loan agreements, the Company is prohibited from declaring
or paying any cash dividend or making distributions thereon, except for
quarterly distributions to Members to the extent of any tax liability with
respect to the Class A Units and Class A-1 Units and except for repurchases of
Class A Units from employees upon a termination of their employment with the
Company pursuant to an Employment Agreement and the Operating Agreement.
As listed below, since January 1, 1998, the Company has issued unregistered
securities to investors and to certain other individuals. Each such issuance was
made in reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) of the Securities
Act on the basis that such transactions did not involve a public offering.
1) On April 22, 1998 pursuant to their respective subscription
agreements, the Company issued an aggregate of 43 of its Class A Units
for an aggregate purchase price of approximately $150,000, to Gerrit
de Graaf and J. Wim Rengelink.
2) On May 18, 1999 pursuant to a subscription agreement, the Company
issued 25 of its Class A Units for an aggregate purchase price of
$100,000 to Bryan A Fletcher.
3) On January 1, 2000, the Company issued 3,655 of its Class A-1 Units
to J.P. Morgan Partners (23A SBIC), LLC in exchange for 3,655 Class A
Units.
4) On November 11, 2000 the Company issued 1,478 of its Class A-1
Units to J.P. Morgan Partners (23A SBIC), LLC in exchange for 1,478
Class A Units.
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ITEM 6. SELECTED FINANCIAL DATA
The information below presents consolidated financial data of the Company
and includes (i) the operations of Brink subsequent to the Brink Acquisition on
October 30, 1996; (ii) the operations of the sportrack division of Bell and
Nomadic subsequent to the SportRack International Acquisition on July 2, 1997
and July 24, 1997, respectively, (iii) the operations of Valley subsequent to
the Valley Acquisition on August 5, 1997, (iv) the operations of Ellebi
subsequent to the Ellebi Acquisition on January 2, 1998, (v) the operations of
Tranfo-Rakzs subsequent to the Tranfo-Rakzs Acquisition on February 7, 1998,
(vi) the operations of Titan subsequent to the Titan Acquisition on February 22,
2000 and (vii) the operations of Barrecrafters subsequent to the Barrecrafters
Acquisition on September 5, 2000, and have been derived from the audited
financial statements of the Company. The following table should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000(4) 1999 1998(3) 1997(2) 1996(1)
------------ ------------ ------------ -------------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales .................................... $ 318,817 $ 314,142 $ 292,145 $ 189,352 $ 81,466
Cost of sales(5) ............................. 239,090 227,889 215,441 136,230 53,607
--------- --------- --------- --------- ---------
Gross profit ............................... 79,727 86,253 76,704 53,122 27,859
Selling, administrative and product
development expenses(5) .................... 45,527 50,258 50,839 31,350 13,413
Amortization of intangible assets ............ 3,297 3,245 3,551 2,336 2,475
Impairment charge(5) ......................... -- -- 7,863 -- --
--------- --------- --------- --------- ---------
Operating income ........................... 30,903 32,750 14,451 19,436 11,971
Other (income) expense
Interest expense ........................... 17,950 17,453 18,633 12,627 4,312
Foreign currency (gain) loss(6) ............ 5,386 7,912 (4,995) 6,097 1,330
Other, net ................................. 52 1,990 -- -- (80)
--------- --------- --------- --------- ---------
Income before minority interest,
extraordinary charge and income
taxes .................................... 7,515 5,395 813 712 6,409
Provision (benefit) for income
taxes(7) ................................... (278) 417 903 (2,856) (491)
--------- --------- --------- --------- ---------
Income before minority interest and ........ 7,793 4,978 (90) 3,568 6,900
extraordinary charge
Minority interest ............................ -- -- -- 97 69
--------- --------- --------- --------- ---------
Income before extraordinary
charge ................................... 7,793 4,978 (90) 3,471 6,831
Extraordinary charge(8) ...................... -- -- -- 7,416 1,970
--------- --------- --------- --------- ---------
Net income (loss) .......................... $ 7,793 $ 4,978 $ (90) $ (3,945) $ 4,861
========= ========= ========= ========= =========
OTHER DATA:
Cash flows from operating
Activities ................................. $ 21,416 $ 25,014 $ 21,879 $ 6,982 $ 9,917
EBITDA(9) .................................... 44,546 46,539 38,364 27,916 16,448
Depreciation ................................. 10,346 10,418 10,857 6,144 2,002
Capital expenditures ......................... 10,445 11,775 9,998 7,751 3,124
Ratio of EBITDA to interest expense .......... 2.48x 2.67x 2.06x 2.21x 3.81x
Ratio of earnings to fixed charges(10) ....... 1.36x 1.29x 1.04x 1.06x 2.43x
BALANCE SHEET DATA (AT END OF PERIOD)
Cash ......................................... $ 3,315 $ 8,718 $ 11,240 $ 27,348 $ 2,514
Working capital .............................. 34,791 36,825 49,232 65,803 14,368
Total assets ................................. 242,497 251,213 258,981 265,558 148,359
Total debt, including current maturities ..... 175,635 178,498 187,524 197,126 93,142
Mandatorily redeemable warrants .............. 5,010 4,810 4,409 3,507 3,498
Distributions to Members' .................... 6,090 4,720 195 2,945 3,692
Members' equity .............................. 5,896 10,331 15,147 16,444 18,463
- --------------
(1) In October 1996, the Company acquired Brink. The Brink Acquisition has been
accounted for in accordance with the purchase method of accounting.
Accordingly, the operating results of Brink are included in the
consolidated operating results of the Company subsequent to October 30,
1996.
(2) The Company acquired the net assets of the sportrack division of Bell on
July 2, 1997, Nomadic on July 24, 1997, and the net assets of Valley
Industries on August 5, 1997. The SportRack International Acquisition and
Valley Acquisition have been accounted for in accordance with the purchase
method of accounting. Accordingly, the operating results of SportRack
International and Valley are included in the consolidated operating results
of the Company subsequent to the respective acquisition dates.
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(3) The Company acquired the towbar segment of Ellebi S.p.A. on January 2, 1998
and the net assets of Tranfo-Rakzs on February 7, 1998. The Ellebi
Acquisition and Transfo-Rakzs Acquisition have been accounted for in
accordance with the purchase method of accounting. Accordingly, the
operating results of Ellebi and Tranfo-Rakzs are included in the
consolidated operating results of the Company subsequent to the respective
acquisition dates.
(4) The Company acquired the net assets of Titan Industries, Inc. on February
22, 2000 and the net assets of Barrecrafters on September 5, 2000. The
Titan Acquisition and Barrecrafters Acquisition have been accounted for in
accordance with the purchase method of accounting. Accordingly, the
operating results of Titan and Barrecrafters are included in the
consolidated operating results of the Company subsequent to the respective
acquisition dates.
(5) In June 1998, information became available that indicated that certain
assets acquired from Bell (accounts receivable, inventory and tooling) had
a fair value less than originally recorded. The SportRack International
purchase was renegotiated and a $2.0 million reimbursement was received
from Bell. Accounts receivable, inventory and tooling were reduced by $6.5
million and additional goodwill of $4.5 million, net of the $2.0 million
reimbursement from Bell, was recorded. During the second half of 1998,
management further reassessed the operations of SportRack International,
took actions to restructure the operations, and recorded restructuring
charges totaling $1.9 million. Restructuring charges have been included in
cost of sales ($1.1 million) and in selling, administrative and product
development expenses ($832,000) in the Company's consolidated statement of
operations. All restructuring costs have been incurred as of December 31,
1998. Concurrent with the reassessment of the SportRack International
operations, management reviewed the carrying value of goodwill and other
intangible assets, determined that future cash flows would not be
sufficient to recover recorded amounts, and recorded an impairment charge
of $7.9 million.
(6) Primarily represents net currency gains and loss on indebtedness of the
Company's foreign subsidiaries denominated in currencies other than their
functional currency.
(7) The Company is a limited liability corporation and, as such, the earnings
of the Company and its domestic subsidiaries, except for AAS Holdings, Inc.
(a holding company for Brink) which is a C corporation, are included in the
taxable income of the Company's unitholders and no federal income tax
provision is required. The Company's foreign and taxable domestic
subsidiaries provide for income taxes on their results of operations.
(8) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Notes
(as defined below), a prepayment penalty of $1.4 million, $3.1 million of
unamortized debt discount, and unamortized deferred debt issuance costs of
$3.2 million were charged to operations during 1997. The debt
extinguishment charges in 1997 were reduced by $365,000 representing the
income tax benefit recognized by Brink.
(9) EBITDA is defined as operating income plus depreciation and amortization
adjusted in 1998 for the non-cash portion of impairment and restructuring
charges ($9.5 million for the year ended December 31, 1998), which
definition may not be comparable to similarly titled measures reported by
other companies. EBITDA is presented because it is generally accepted as
providing useful information regarding a company's ability to service
and/or incur indebtedness. However, EBITDA should not be considered in
isolation from or as an alternative to net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity. In addition, funds depicted
by the EBITDA measurement are not fully available for discretionary use
because of debt service requirements, expenditures for capital replacement
and expansion, and the need to conserve funds for other commitments and
uncertainties.
(10) For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before minority interest,
extraordinary charge and income taxes, plus fixed charges. "Fixed charges"
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the component of operating lease rental
expense that management believes is representative of the interest
component of rent expense.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements and notes thereto of the Company included elsewhere in this Form
10-K. This Form 10-K contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth above and
under "Business," as well as in this Form 10-K generally. Any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various factors
set forth in this Form 10-K generally.
GENERAL
An affiliate of JPMP and certain members of the Company's management formed
the Company in September 1995 to make strategic acquisitions of automotive
exterior accessory manufacturers and to integrate those acquisitions into a
global enterprise that would be a preferred supplier to the automotive industry.
RECENT ACQUISITIONS
In January 1998, the Company through Brink International B.V., acquired the
net assets of the towbar segment Ellebi S.p.A., an Italian supplier of towing
systems to the automotive OEM market and aftermarket.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, a Canadian supplier of rear hitch rack
carrying systems and related products to the automotive aftermarket.
In February 2000, the Company through Valley, acquired the net assets of
Titan Industries, Inc. ("Titan"). Titan is a North American Supplier of trailer
balls and other towing related accessories to the automotive aftermarket.
In September 2000, the Company through SportRack International, acquired the
net assets of the Wiswall Hill Corporation ("Wiswall Hill" or "Barrecrafters").
Wiswall Hill is a North American supplier of rack systems and accessories to the
automotive aftermarket under its popular brand name, Barrecrafters.
SUMMARY RESULTS OF OPERATIONS
The following table presents the major components of the statement of
operations together with percentages of each component as a percentage of net
sales.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
(DOLLARS IN THOUSANDS)
Net sales ......................... $ 318,817 100.0% $ 314,142 100.0% $ 292,145 100.0%
Gross profit .................... 79,727 25.0% 86,253 27.5% 76,704 26.3%
Selling, administrative and product
development expenses............. 45,527 14.3% 50,258 16.0% 50,839 17.4%
Amortization of intangible assets.. 3,297 1.0% 3,245 1.0% 3,551 1.2%
Impairment charge ................. -- -- -- -- 7,863 2.7%
Operating income ................ 30,903 9.7% 32,750 10.4% 14,451 4.9%
Interest expense .................. 17,950 5.6% 17,453 5.6% 18,633 6.4%
Foreign currency (gain) loss ...... 5,386 1.7% 7,912 2.5% (4,995) (1.7%)
Income before income taxes ........ 7,515 2.4% 5,395 1.7% 813 0.3%
Income tax provision (benefit) ... (278) 0.1% 417 0.1% 903 0.3%
Net income (loss) ................. 7,793 2.4% 4,978 1.6% (90) 0.0%
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RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Net sales. Net sales for 2000 were $318.8 million, representing an
increase of $4.7 million, or 1.5%, over net sales for 1999. This increase
resulted from increased sales to OEMs of approximately $14.5 million and
increased sales to the aftermarket of $2.4 million. Partially offsetting the
Company's increased sales volume was the effect of declining exchange rates
between the U.S. Dollar and the currencies used by the Company's foreign
subsidiaries totaling $12.2 million. For example the average value of the
European Euro, the functional currency of Brink, as compared to the U.S. Dollar
declined by 13.4% during 2000 as compared to 1999 resulting in a similar
decrease in sales as reported in U.S. Dollars.
During the fourth quarter of 2000, the Company's sales to North
American OEM's were lower than expected as a result of several temporary plant
shut-downs. The shut-downs were instituted by the OEM's as a measure to reduce
inventory levels which had increased as a result of lower automotive sales
during the period.
Gross profit. Gross profit for 2000 was $79.7 million, representing a
decrease of $6.5 million, or 7.6%, from the gross profit for 1999. Gross profit
as a percentage of net sales was 25.0% in 2000 compared to 27.5% in 1999. The
decrease in the gross margin percentage is attributable to decreased
productivity for the North American OEM towing business related to a
reorganization of the manufacturing facility in order to better meet customer
delivery and quality requirements. Additionally, higher costs were incurred
during the year at the same facility due to an increase in outsourcing of
component parts. Brink had higher material costs during the year attributable to
increased cost of steel during the year as compared with that of 1999. The gross
profit percentage was also reduced due to proportionately lower sales for Brink
which has a greater gross margin percentage as compared with the Company as a
whole. Reduced sales for Brink are attributable to the decline in the exchange
rate between the Dutch Guilder and the U.S. Dollar for 2000 compared with 1999.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 2000 were $45.5 million,
representing a decrease of $4.7 million, or 9.4%, compared with the selling,
administrative and product development expenses for 1999. Selling,
administrative and product development expenses as a percentage of net sales
decreased to 14.3% in 2000 from 16.0% in 1999. This decrease is partly due to a
decrease of an estimated liability related to a contingent obligation to a
customer totaling $1.9 million. The reduction was also attributable to reduced
corporate expenditures including severance compensation recorded during the
first quarter of 1999 related to the departure of the Company's former President
and Chief Executive Officer and proportionately lower sales of Brink which has
greater selling, administrative and product development expenses as a percentage
of sales as compared with the Company as a whole. Offsetting the lower percent
were legal and accounting costs of approximately $900,000 related to a potential
recapitalization of the Company's equity securities during the year.
Operating income. Operating income for 2000 was $30.9 million, a
decrease of $1.8 million, or 5.6%, compared with operating income for 1999.
Operating income as a percentage of net sales decreased to 9.7% in 2000 from
10.4% in 1999. This decrease reflects the decrease in gross profit, partially
offset by the decrease in selling, general and product development expenses as a
percentage of net sales.
Interest expense. Interest expense for 2000 was $18.0 million, an
increase of $497,000 from interest expense for 1999. The increase is due to
interest costs totaling $450,000 recorded for an estimated contingent legal
liability which is more fully discussed below in the discussion of other
expense. The effect of reduced average borrowings during 2000 as compared with
1999 was offset by higher interest rates charged on the Company's variable rate
indebtedness.
Foreign currency loss. Foreign currency loss in 2000 was $5.4 million,
compared to a foreign currency loss of $7.9 million in 1999. The Company's
foreign currency loss is primarily related to Brink which has indebtedness
denominated in U.S. Dollars. During 2000 the U.S. Dollar strengthened
significantly in relation to the European Euro, the functional currency of
Brink. At December 31, 1999, the exchange rate of the European Euro to the U.S.
Dollar was 0.99:1, whereas at December 31, 2000 the exchange rate was 1.06:1, or
a 7.1% decline in the relative value of the Euro during the period. In 1999, the
relationship between the two currencies was more volatile. At December 31, 1998,
the exchange rate of the European Euro to the U.S. Dollar was 0.85:1, whereas at
December 31, 1999 the exchange rate was 0.99:1, or a 16.5% decline in the
relative value of the Euro.
Other expense. In February 1996, the Company commenced an action
against certain individuals alleging breach of contract under the terms of an
October 1992 Purchase Agreement and Employment Agreement with the predecessor of
the Company. The individuals then filed a separate lawsuit against the Company
alleging breach of contract under the respective Purchase and Employment
agreements. On May 7, 1999, a jury in the United States District Court for the
Eastern District of Michigan reached a verdict against the Company and awarded
the individuals approximately $3.8 million plus interest and reasonable attorney
fees. The Company plans to file an appeal once a judgment is made by the court.
During the First quarter of 1999, the Company increased its estimated accrual
for this matter by $2.0 million which charge is included in other expense. No
amounts have been paid as of December 31, 2000.
15
18
Provision (benefit) for income taxes. The Company and certain of its
domestic subsidiaries have elected to be taxed as limited liability companies
for federal income tax purposes. As a result of this election, the Company's
domestic taxable income accrues to the individual members. Certain of the
Company's domestic subsidiaries and foreign subsidiaries are subject to income
taxes in their respective jurisdictions. During 2000, the Company had a loss
before income taxes for its taxable subsidiaries totaling $3.0 million and
recorded a benefit for income taxes of $278,000. The effective tax rate differs
from the U.S. federal income tax rate primarily due to changes in valuation
allowances on the deferred tax assets of SportRack Accessories and differences
in the tax rates of foreign countries. During 1999, the Company had a loss
before income taxes for its taxable subsidiaries totaling $5.6 million and
recorded a provision for income taxes of $403,000.
Net income. Net income for 2000 was $7.8 million, as compared to net
income of $5.0 million in 1999, an increase of $2.8 million. The change in net
income is primarily attributable to decreases in operating expenses, foreign
currency losses and other expense offset by a decrease in gross profit.
Other. During the second quarter of 2000 one of the Company's
significant OEM customers recalled approximately 380,000 trucks to replace or
reinforce their trailer hitches, which were supplied by the Company. The recall
affects 1998-2000 model year vehicles built between January 1998 and September
1999. The Company worked with the customer to provide technical and other
support in response to the recall. Management can not estimate at this time what
the financial impact will be to the Company, if any, as a result of the recall.
1999 COMPARED TO 1998
Net Sales. Net sales for 1999 were $314.1 million, representing an
increase of $22.0 million, or 7.5%, over net sales for 1998. This increase
resulted from increased sales to OEM's of approximately $10.1 million and
increased aftermarket sales of $10.9 million. Increased OEM sales are
attributable to higher production volumes by the OEM's on the Company's existing
programs. Increases in aftermarket sales are primarily attributable to new
customers in the retail market and new business with an existing customer in the
installer business. Offsetting the Company's increased sales volume is a
decrease of approximately $3.1 million related to the effect of declining
exchange rates between the U.S. Dollar and the currencies used by the Company's
foreign subsidiaries.
Gross Profit. Gross profit for 1999 was $86.3 million, representing an
increase of $9.5 million, or 12.4%, over the gross profit for 1998. This
increase resulted from the increase in net sales. Gross profit as a percentage
of net sales was 27.5% in 1999 compared to 26.3% in 1998. The increase in the
gross profit percent resulted primarily from reduced material costs, primarily
steel, and the effect of higher net sales on fixed overhead costs.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1999 were $50.3 million,
representing a decrease of $581,000, or 1.1%, over the selling, administrative
and product development expenses for 1998. Selling, administrative and product
development expenses as a percentage of net sales decreased to 16.0% in 1999
from 17.4% in 1998. This decrease resulted primarily from the effect of higher
net sales on fixed costs, decreased selling, administrative and product
development expenses of SportRack International resulting from the restructuring
of the subsidiary's operations during the fourth quarter of 1998 and the
restructuring charges (as further discussed below) related to the operations of
SportRack Accessories incurred in 1998.
Operating income. Operating income for 1999 was $32.8 million, an
increase of $18.3 million, or 126.6%, over operating income for 1998. In
addition to the increase in net sales, this increase was due to an impairment
and restructuring charge in 1998. Excluding the impairment and restructuring
charges, operating income in 1998 would have been $24.2 million and there would
have been an increase in operating income during 1999 of $8.6. Operating income
as a percentage of net sales increased to 10.5% in 1999 from 8.3% in 1998,
excluding the impairment and restructuring charge. This increase reflects the
increase in gross profit, and decrease in selling, general and product
development expenses as a percentage of net sales.
Interest expense. Interest expense for 1999 was $17.5 million, a
decrease of $1.2 million, or 6.3%, compared to interest expense for 1998. The
decrease was primarily due to lower outstanding senior indebtedness attributable
to scheduled principal payments made during 1999 partially offset by higher
average line of credit borrowings during 1999 as compared with 1998, and higher
interest rates on the Company's variable rate debt.
Foreign currency (gain) loss. Foreign currency loss in 1999 was $7.9
million, compared to a foreign currency gain of $5.0 million in 1998. The
Company's foreign currency loss is primarily related to Brink which has
indebtedness denominated in U.S. Dollars. During 1999 the U.S. Dollar
strengthened significantly in relation to the European Euro, the functional
currency of Brink. At December 31, 1998, the exchange rate of the European Euro
to the U.S. Dollar was 0.85:1, whereas at December 31, 1999 the exchange rate
was 0.99:1, or a 16.5% decline in the relative value of the Euro.
16
19
Provision for income taxes. The Company and certain of its domestic
subsidiaries have elected to be taxed as limited liability companies for federal
income tax purposes. As a result of this election, the Company's domestic
taxable income accrues to the individual members. Certain of the Company's
domestic subsidiaries and foreign subsidiaries are subject to income taxes in
their respective jurisdictions. During 1999, the Company had a loss before
income taxes for its taxable subsidiaries totaling $5.6 million and recorded a
provision for income taxes of $417,000. The effective tax rate differs from the
U.S. federal income tax rate primarily due to changes in valuation allowances on
the deferred tax assets of SportRack International recorded during 1999,
non-deductible goodwill and differences in the tax rates of foreign countries.
During 1998, the Company had a loss before income taxes for its taxable
subsidiaries totaling $9.2 million and recorded a provision for income taxes of
$903,000.
Net income. Net income for 1999 was $5.0 million, as compared to a net
loss of $90,000 in 1998, an increase of $5.1 million. The change in net income
is primarily attributable to increased operating income, decreased interest
expense and decreased provision for income taxes offset by a foreign currency
loss in 1999 compared with the foreign currency gain during 1998.
NORTH AMERICAN AUTOMOTIVE INDUSTRY
During the later part of 2000, sales in the North American automotive
industry began to decline and some of the Company's major customers adjusted
production in the 4th quarter of 2000 to reduce their inventory of unsold
vehicles. This lowering of production negatively impacted the Company's sales
during the 4th quarter of 2000. This trend has continued during the early part
of 2001.
It is anticipated that U.S. auto sales for 2001 will be in the range of 15.5
million to 16.5 million vehicles, down from 17.4 million vehicles in 2000.
In addition, DaimlerChrysler, the Company's largest customer, incurred
substantial losses at its North American, Chrysler Group. During the first
quarter of 2001, DaimlerChrysler announced a restructuring plan to return the
Chrysler Group to profitability in 2002. This restructuring plan includes the
reduction of 26,000 employees and a 15% reduction in material cost by 2003.
Effective January 1, 2001, the Company agreed to reduce prices on products sold
to DaimlerChrysler and has been able to partially offset these price reductions
through reductions in its material costs. The Company continues to work with
DaimlerChrysler to help identify other potential cost savings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to service its debt and
meet its working capital and capital expenditure needs. The Company's
indebtedness at December 31, 2000 was $175.6 million including current
maturities of $11.8 million. The Company expects to be able to meet its
liquidity requirements through cash provided by operations and through
borrowings available under the Second Amended and Restated Credit Agreement
("U.S. Credit Facility").
Working Capital and Cash Flows
Working capital and key elements of the consolidated statement of cash flows
are:
2000 1999 1998
------------------- ------------------- -------------------
(IN THOUSANDS)
Working Capital................ $ 34,791 $ 36,825 $ 46,370
Cash flows provided by operating
activities................... 21,416 25,014 21,879
Cash flows (used for) investing
activities................... (13,249) (11,775) (31,618)
Cash flows provided by (used
for) financing activities.... (14,982) (18,185) (8,367)
Working Capital
Working capital decreased by $2.0 million to $34.7 million at December 31,
2000 from $36.8 million at December 31, 1999 due to decreases in cash and
accounts receivable of $5.4 million and $3.4 million, respectively, and
decreases attributable to the decline of the exchange rates between the
functional currencies of the Company's foreign subsidiaries against the U.S.
Dollar totaling $400,000. These decreases were offset by increases in inventory
and other current assets of $4.1 million and $1.5 million, respectively, and
decreases in accounts payable and accrued liabilities of $199,000 and $763,000,
respectively, and a decrease in the current maturities of long-term debt of
$638,000.
Cash decreased by $5.4 million to $3.3 million at December 31, 2000 from
$8.7 million at December 31, 1999 primarily due to investing and financing
activities of $13.2 million and $15.0 million, respectively, offset by cash
provided by operating activities of
17
20
$21.0 million. Accounts receivable decreased primarily as a result of a
reduction in sales levels during the fourth quarter of 2000 as compared with the
fourth quarter of 1999. This sales decline was primarily due to reduced sales to
North American OEM's during the period as they reduced production schedules and
closed several plants on a temporary basis to correct for their growing
inventory levels and to adjust for a slowing automotive sales market. This trend
continued in the first quarter of 2001. The increase in inventory is primarily
related to a greater quantity of hitches on hand to ensure timely delivery to
OEM and aftermarket customers and reflecting an increased cost per hitch
attributable to lower productivity levels. The increase in other current assets
is primarily related to increased investment in customer reimbursable tooling
reflecting a greater number of new products under development as of December 31,
2000 as compared with 1999.
Operating Activities
Cash flow provided by operating activities for 2000 was $21.4 million,
compared to $25.0 million in 1999 and $21.9 million in 1998. Cash flow for 2000
decreased from 1999 due to an increased investment in working capital and
non-current assets and the declining exchange rate between the U.S. Dollar and
the functional currency of the Company's foreign subsidiaries. Cash flow
provided by operating activities increased in 1999 from that of 1998 due to
improved operating performance for the year and lower working capital for the
year.
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $7.3 million and $10.8
million, respectively, at December 31, 2000. The European NOLs have no
expiration date and the Canadian NOLs expire in 2004 through 2007. Management
believes that it is more likely than not that a portion of the deferred tax
assets of the Canadian subsidiaries will not be realized and a valuation
allowance of $4.9 million has been recorded against such assets. No valuation
allowance has been recorded for the European NOLs as it is management's belief
that it is more likely than not that the related deferred tax asset will be
realized.
Investing Activities
Investing cash flows include acquisitions of property and equipment of $10.4
million, $11.8 million and $10.0 million in 2000, 1999 and 1998, respectively.
The higher capital expenditures during 1999 was primarily due to the expansion
of the Company's manufacturing facility in Shelby Township, Michigan to
accommodate increased manufacturing capacity needs for new and existing OEM roof
rack programs. The Company estimates that capital expenditures for 2001 will be
primarily for the expansion of capacity, productivity and process improvements
and maintenance. The Company's 2001 capital expenditures are anticipated to
include approximately $5.0 million for replacing and upgrading existing
equipment. The Company's ability to make capital expenditures is subject to
restrictions in the Amended and Restated Credit Agreement, including a maximum
of $12.5 million of capital expenditures annually.
Investing cash flows in 2000 and 1998 include $2.8 million and $22.8
million, respectively, for the acquisitions of Titan and Barrecrafters during
2000 and the acquisitions of the Ellebi and Tranfo-Rakzs during 1998.
Financing Activities
During 2000, financing cash flows included net borrowings on the Company's
revolving line of credit totaling $11.3 million offset by payments of principal
on the Company's term indebtedness of $13.9 million, distributions to members in
amounts sufficient to meet the tax liability on the Company's domestic taxable
income which accrues to individual members totaling $6.1 million and repurchase
of membership units of $6.4 million. Principal payments included $12.5 million
in scheduled repayments and a $1.4 million mandatory prepayment required as a
result of the Company having excess cash flows during 1999 as defined by the
Second Amended and Restated Credit Agreement.
During 1999, financing cash flows included payments of principal on the
Company's term indebtedness of $9.3 million, distributions to members in amounts
sufficient to meet the tax liability on the Company's domestic taxable income
which accrues to individual members totaling $4.7 million and repurchase of
membership units of $4.3 million. Principal payments included $5.9 million in
scheduled repayments and a $3.4 million mandatory prepayment required as a
result of the Company having excess cash flows during 1998 as defined by the
Second Amended and Restated Credit Agreement. Repurchase of membership units
included repurchases from the Company's former Chief Executive Officer of $4.3
million.
During 1998, financing cash flows were primarily limited to scheduled
payments of principal on the Company's term indebtedness of $3.7 million and net
repayments of borrowings under the Company's revolving loans of $4.5 million.
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Debt and Credit Sources
Borrowings under the Company's U.S. Credit Facility and the Company's First
Amended and Restated Credit Agreement ("Canadian Credit Facility") bear interest
at floating rates, which require interest payments on varying dates depending on
the interest rate option selected by the Company. Under the terms of these
credit facilities, the Company will be required to make principal payments
totaling approximately $11.8 million in 2001, $10.1 million in 2002, $20.5
million in 2003 and $8.7 million in 2004. The Notes bear interest at 9.75% which
is payable semiannually in arrears. See "Note 4" to the Company's "Consolidated
Financial Statements" for additional information regarding the U.S. Credit
Facility, the Canadian Credit Facility and the Senior Subordinated Notes.
The Company expects that its primary sources of cash will be from operating
activities and borrowings under the U.S. Credit Facility and Canadian Credit
Facility each of which provide the Company with revolving notes. As of December
31, 2000, the Company had $11.3 million borrowed under the revolving note of the
U.S. Credit Facility and had an outstanding letter of credit of $6.4 million. No
amounts were borrowed under the revolving note of the Canadian Credit Facility.
Available borrowing capacity under the revolving notes was $7.3 million As of
December 31, 2000. Future acquisitions, if any, may require additional third
party financing and there can be no assurances that such funds would be
available on terms satisfactory to the Company, if at all.
The Company's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under the Amended and Restated Credit Agreement or a successor facility. The
Company anticipates that, based on current and expected levels of operations,
its operating cash flow, together with borrowings under the U.S. Credit Facility
and the Canadian Credit Facility, should be sufficient to meet its debt service,
working capital and capital expenditure requirements for the foreseeable future,
although no assurances can be given in this regard, including as to the ability
to increase revenues or profit margins. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
acquisitions and/or capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There is no
assurance that any of these remedies can be effected on satisfactory terms, if
at all, including, whether, and on what terms, the Company could raise equity
capital. See "Forward Looking Statements".
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
Poland, Spain, the Czech Republic and, Italy. Net sales from international
operations during 2000 were approximately $96.7 million, or 30.3% of the
Company's net sales. At December 31, 2000, assets associated with these
operations were approximately 38.4% of total assets, and the Company had
indebtedness denominated in currencies other than the U.S. dollar of
approximately $7.5 million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Certain of the Company's foreign subsidiaries have debt denominated in
currencies other than their functional currency. As the exchange rates between
the currency of the debt and the subsidiaries functional currency change the
Company is subject to foreign currency gains and losses.
The Company may periodically use foreign currency forward option contracts
to offset the effects of exchange rate fluctuations on cash flows denominated in
foreign currencies. The Company has no outstanding foreign currency forward
options at December 31, 2000 and does not use derivative financial instruments
for trading or speculative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). The Company adopted this statement at the
beginning of fiscal 2001. This pronouncement is not expected to have a material
impact on the Company's results of operations.
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22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate ("LIBOR"). The Company uses
derivative financial instruments, where appropriate, to manage these risks. The
Company, as a matter of policy, does not engage in trading or speculative
transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants........................................................................... 21
Consolidated Balance Sheets -- December 31, 2000 and 1999................................................... 22
Consolidated Statements of Operations -- Years Ended December 31, 2000, 1999 and 1998....................... 23
Consolidated Statements of Cash Flows -- Years Ended December 31, 2000, 1999 and 1998....................... 24
Consolidated Statements of Changes in Members' Equity -- Years Ended December 31, 2000, 1999 and 1998....... 25
Notes to Consolidated Financial Statements.................................................................. 26
20
23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Advanced Accessory Systems, LLC and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14 (a) (2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 19, 2001
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24
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------
2000 1999
---- ----
(DOLLAR AMOUNTS IN
THOUSANDS)
ASSETS
Current assets
Cash..................................................... $ 3,315 $ 8,718
Accounts receivable, less reserves of $2,140 and $4,997,
respectively.......................................... 42,942 46,918
Inventories.............................................. 42,094 38,437
Deferred income taxes.................................... 1,775 1,804
Other current assets..................................... 6,874 4,879
-------- --------
Total current assets................................ 97,000 100,756
Property and equipment, net................................ 58,232 59,316
Goodwill, net.............................................. 77,391 80,674
Other intangible assets, net............................... 5,030 5,729
Deferred income taxes...................................... 2,020 1,922
Other noncurrent assets.................................... 2,824 2,816
-------- --------
$242,497 $251,213
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt..................... $ 11,811 $ 12,449
Accounts payable......................................... 24,996 26,715
Accrued liabilities...................................... 25,402 24,767
-------- --------
Total current liabilities........................... 62,209 63,931
-------- --------
Noncurrent liabilities
Deferred income taxes.................................... 1,001 1,772
Other noncurrent liabilities............................. 4,557 4,320
Long-term debt, less current maturities.................. 163,824 166,049
-------- --------
Total noncurrent liabilities........................ 169,382 172,141
-------- --------
Commitments and contingencies (Note 12)
Mandatorily redeemable warrants............................ 5,010 4,810
-------- --------
Members' equity
Class A Units 25,000 authorized, 9,236 and 15,869 issued
at December 31, 2000 and 1999, respectively............. 7,409 18,083
Class A-1 Units 25,000 authorized, 5,133 issued at
December 31, 2000....................................... 4,117 --
Class B Units, 2,000 authorized, no Units issued at
December 31, 2000 and 1999.............................. -- --
Other comprehensive loss................................. (1,077) (1,496)
Accumulated deficit...................................... (4,553) (6,256)
-------- --------
5,896 10,331
-------- --------
$242,497 $251,213
======== ========
See accompanying notes to consolidated financial statements.
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ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
------------------------------------------
2000 1999 1998
------------- ------------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................................... $ 318,817 $ 314,142 $ 292,145
Cost of sales............................................... 239,090 227,889 215,441
--------- --------- ---------
Gross profit.............................................. 79,727 86,253 76,704
Selling, administrative and product
development expenses...................................... 45,527 50,258 50,839
Amortization of intangible assets........................... 3,297 3,245 3,551
Impairment charge........................................... -- -- 7,863
--------- --------- ---------
Operating income.......................................... 30,903 32,750 14,451
--------- --------- ---------
Other (income) expense
Interest expense.......................................... 17,950 17,453 18,633
Foreign currency (gain) loss.............................. 5,386 7,912 (4,995)
Other expense............................................. 52 1,990 --
--------- --------- ---------
Income before income taxes.................................. 7,515 5,395 813
Provision (benefit) for income taxes........................ (278) 417 903
--------- --------- ---------
Net income (loss)........................................... $ 7,793 $ 4,978 $ (90)
========= ========= =========
See accompanying notes to consolidated financial statements.
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26
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
-------------------------------------
2000 1999 1998
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net income (loss)....................................... $ 7,793 $ 4,978 $ (90)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization......................... 14,304 14,065 15,093
Deferred taxes........................................ (908) (2,433) (688)
Impairment and restructuring charge................... -- -- 9,505
Foreign currency (gain) loss.......................... 5,159 6,297 (4,948)
Loss (gain) on disposal of assets..................... 37 (13) 191
Changes in assets and liabilities net of acquisitions:
Accounts receivable................................ 3,425 (8,188) 5,873
Inventories........................................ (4,055) 1,815 (1,457)
Other current assets............................... (1,546) (677) 1,513
Other noncurrent assets............................ (346) (56) (1,934)
Accounts payable................................... (199) 4,527 (3,032)
Accrued liabilities................................ (763) 3,441 1,133
Other noncurrent liabilities....................... (1,485) 1,258 720
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.................................... 21,416 25,014 21,879
---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES
Acquisition of machinery and equipment.................. (10,445) (11,775) (9,998)
Amount due from sellers of Valley Industries,
Inc................................................... -- -- 1,150
Acquisition of subsidiaries, net of cash
acquired.............................................. (2,804) -- (22,770)
---------- ---------- ----------
NET CASH USED FOR INVESTING
ACTIVITIES.................................... (13,249) (11,775) (31,618)
---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES
Increase (decrease) in revolving loan................... 11,343 -- (4,505)
Repayment of debt....................................... (13,878) (9,270) (3,682)
Issuance of membership units............................ -- 50 29
Collections of membership notes receivable.............. 65 29 --
Repurchase of membership units.......................... (6,422) (4,274) (14)
Distributions to members................................ (6,090) (4,720) (195)
---------- ---------- ----------
NET CASH USED FOR FINANCING
ACTIVITIES..................................... (14,982) (18,185) (8,367)
---------- ---------- ----------
Effect of exchange rate changes......................... 1,412 2,424 1,998
Net increase (decrease) in cash......................... (5,403) (2,522) (16,108)
Cash at beginning of period............................. 8,718 11,240 27,348
---------- ---------- ----------
Cash at end of period................................... $ 3,315 $ 8,718 $ 11,240
========== ========== ==========
Cash paid for interest.................................. $ 17,032 $ 16,809 $ 17,559
========== ========== ==========
Cash paid for income taxes.............................. $ 1,763 $ 3,131 $ 934
========== ========== ==========
See accompanying notes to consolidated financial statements.
24
27
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
OTHER RETAINED TOTAL
MEMBERS' COMPREHENSIVE EARNINGS MEMBERS'
CAPITAL INCOME (LOSS) (DEFICIT) EQUITY
--------- --------- --------- --------
Balance at December 31, 1997................. $ 23,163 $ (490) $ (6,229) $ 16,444
Issuance of additional units................. 150 -- -- 150
Notes receivable for unit purchase........... (121) -- -- (121)
Repurchase of membership units............... (14) -- -- (14)
Accretion of membership warrants............. (902) -- -- (902)
Distributions to members..................... -- -- (195) (195)
Comprehensive loss:
Currency translation adjustment............ -- (125) -- --
Net loss for 1998.......................... -- -- (90) --
Total comprehensive loss................. -- -- -- (215)
--------- --------- --------- --------
Balance at December 31, 1998................. 22,276 (615) (6,514) 15,147
Issuance of additional units................. 970 -- -- 970
Notes receivable for unit purchase........... 380 -- -- 380
Repurchase of membership units............... (5,142) -- -- (5,142)
Accretion of membership warrants............. (401) -- -- (401)
Distributions to members..................... -- -- (4,720) (4,720)
Comprehensive income:
Currency translation adjustment............ -- (881) -- --
Net income for 1999........................ -- -- 4,978 --
Total comprehensive income............... -- -- -- 4,097
--------- --------- --------- --------
Balance at December 31, 1999................. 18,083 (1,496) (6,256) 10,331
Notes receivable for unit purchase........... 65 -- -- 65
Repurchase of membership units............... (6,422) -- -- (6,422)
Accretion of membership warrants............. (200) -- -- (200)
Distributions to members..................... -- -- (6,090) (6,090)
Comprehensive income:
Currency translation adjustment............ -- 419 -- --
Net income for 2000........................ -- -- 7,793 --
Total comprehensive income............... -- -- -- 8,212
--------- --------- --------- --------
Balance at December 31, 2000................. $ 11,526 $ (1,077) $ (4,553) $ 5,896
========= ========= ========= ========
See accompanying notes to consolidated financial statements.
25
28
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Advanced Accessory Systems, LLC (the "Company") is engaged in the design,
manufacture and supply of towing and rack systems and accessories for the
automotive original equipment manufacturer ("OEM") market and the automotive
aftermarket. The Company's business commenced on September 28, 1995, with the
acquisition of certain of the net assets of MascoTech Accessories (the
"Predecessor"), a division of MascoTech, Inc., through the Company's
majority-owned subsidiary, SportRack, LLC. As described in Note 2, in October
1996 the Company acquired Brink B.V., in July and August of 1997 acquired the
sportrack division of Bell Sports Corporation, Nomadic Sports, Inc. and certain
net assets of Valley Industries, Inc., in January and February 1998 acquired the
net assets of the towbar segment of Ellebi S.p.A. and the net assets of
Transfo-Rakzs, Inc. and in February and September 2000 acquired the net assets
of Titan Industries, Inc. and the Wiswall Hill Corporation.
PRINCIPLES OF CONSOLIDATION
The Company includes the accounts of the following:
SportRack, LLC ..................................................... 100% owned by Advanced Accessory Systems, LLC
SportRack Automotive, GmbH and
its consolidated subsidiaries ................................... A German corporation, 100% owned by SportRack, LLC
SportRack International, Inc and its
consolidated subsidiary ......................................... A Canadian corporation, 100% owned by SportRack, LLC
AAS Holdings, Inc. ................................................. 100% owned by Advanced Accessory Systems, LLC
Brink International B.V and its
consolidated subsidiaries ...................................... A Dutch corporation, 100% owned by AAS Holdings, Inc.
Valley Industries, LLC ............................................. 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
ValTek, LLC ........................................................ 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
AAS Capital Corporation ............................................ 100% owned by Advanced Accessory Systems, LLC
All intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue and related cost of goods sold are recognized upon shipment of the
product to the customer. Sales allowances, discounts, rebates and other
adjustments are recorded or accrued in the period of the sale.
During 2000, the Company adopted the provisions of the EITF 00-10,
"Accounting for Shipping and Handling Revenues and Costs", which requires that
all amounts billed to customers related to shipping and handling costs be
classified as revenue. In prior years, these costs and the reimbursement of
these costs were netted in our financial statements. Accordingly, amounts billed
to customers are now included in net sales and the related costs are included in
cost of sales for all years presented. There was no impact on net income.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the fiscal period. Actual results could differ from those
estimates.
During the year ended December 31, 2000 management decreased an estimated
liability related to a contingent obligation to one of its customers. The
reduction resulted in a benefit to the Company of approximately $1,900 which was
included in selling, administrative and product development expenses.
26
29
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES --
(CONTINUED)
FINANCIAL INSTRUMENTS
Financial instruments at December 31, 2000 and 1999, including cash,
accounts receivable and accounts payable, are recorded at cost, which
approximates fair value due to the short-term maturities of these assets and
liabilities. The carrying value of the obligations under the bank agreements are
considered to approximate fair value as the agreements provide for interest rate
revisions based on changes in prevailing market rates or were entered into at
rates that approximate market rates at December 31, 2000 and 1999. The fair
value of the Notes (as defined below) as of December 31, 2000 and 1999 was
approximately $85,000 and $112,500, respectively, based upon quoted prices in
the market in which the Notes are traded.
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate (LIBOR). The Company uses derivative
financial instruments, where appropriate, to manage these risks. The Company, as
a matter of policy, does not engage in trading or speculative transactions.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date; translation adjustments are reported as a separate component of
members' equity. Revenues, expenses and cash flows for foreign subsidiaries are
translated at average exchange rates during the period; foreign currency
transaction gains and losses are included in current earnings. The accompanying
consolidated statement of operations for the years ended December 31, 2000, 1999
and 1998 includes net currency gains (losses) of $(5,386), $(7,912) and $4,995,
respectively, relating primarily to debt denominated in U.S. Dollars at Brink
International B.V., whose functional currency was the Dutch Guilder through
December 31, 1998 and the European Euro during 1999 and 2000. At December 31,
2000, U.S. Dollar denominated debt recorded at Brink includes intercompany debt
and substantially all outstanding loans under the Company's Second Amended and
Restated Credit Agreement.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventories are
periodically reviewed and reserves established for excess and obsolete items.
TOOLING
The Company incurs costs to related to new tooling used in the manufacture
of products sold to OEMs. Tooling costs that are reimbursed by customers as the
tooling is completed are included in other current assets. All other customer
owned tooling costs, which totaled $2,205 and $1,829 at December 31, 2000 and
1999, respectively, are included in other noncurrent assets and amortized over
the expected product life, generally three to six years. Company owned tooling
is included in property and equipment and depreciated over its expected useful
life, generally three to five years. Management periodically evaluates the
recoverability of tooling costs, based on estimated future cash flows, and makes
provisions for tooling costs that will not be recovered, if any, when such
amounts are known.
27
30
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES --
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at acquisition cost, which reflects the
fair market value of assets acquired at the acquisition date for all
subsidiaries. Property and equipment purchased other than through the
acquisitions described in Note 2 is stated at cost. Expenditures for normal
repairs and maintenance are charged to operations as incurred. Depreciation
expense, which was $10,346, $10,418 and $10,857 for the years ended December 31,
2000, 1999 and 1998, respectively, is computed using the straight-line method
over the following estimated useful lives:
YEARS
-----
Buildings and improvements............................................................ 5-50
Machinery, equipment and tooling...................................................... 2-10
Furniture and fixtures................................................................ 5-7
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill of $77,391 and $80,674 (net of accumulated amortization of $14,032
and $11,194) at December 31, 2000 and 1999, respectively, represents the costs
in excess of net assets acquired and is amortized using the straight line method
over periods of up to 30 years.
Debt issuance costs of $4,602 and $5,280, net of accumulated amortization at
December 31, 2000 and 1999, respectively, are amortized over the terms of the
loan agreements, which are six to ten years. Debt issuance cost amortization of
$625, $589 and $587 for 2000, 1999 and 1998, respectively, has been included in
interest expense.
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
The Company evaluates the potential impairment of goodwill on an ongoing
basis and reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company determines
the impairment of long-lived assets by comparing the undiscounted future net
cash flows to be generated by the assets to their carrying value. Impairment
losses are then measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. In 1998, as described in Note 3, the
Company determined that certain intangible assets of its subsidiary, SportRack
International, Inc. had been impaired.
INCOME TAXES
The Company and certain of its domestic subsidiaries have elected to be
taxed as limited liability companies for federal income tax purposes. As a
result of this election, the Company's domestic taxable income accrues to the
individual members. Distributions are made to the members in amounts sufficient
to meet the tax liability on the Company's domestic taxable income accruing to
the individual members. Distributions to members of $6,090, $4,720 and $195 were
made during 2000, 1999 and 1998, respectively.
Certain of the Company's domestic subsidiaries and foreign subsidiaries are
subject to income taxes in their respective jurisdictions. Income tax provisions
for these entities are based on the U.S. Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and
liabilities are provided for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of such entities'
assets and liabilities. Deferred tax assets are reduced by a valuation allowance
for tax benefits that are not expected to be realized. The Company does not
provide for U.S. income taxes or foreign withholding taxes on the undistributed
earnings of foreign subsidiaries because of management's intent to permanently
reinvest in such operations.
The Company and certain subsidiaries are subject to taxes, including
Michigan Single Business Tax and Canadian capital tax, which are based primarily
on factors other than income. As such, these amounts are included in selling,
administrative and product development expenses in the accompanying consolidated
statements of operations. Deferred taxes related to Michigan Single Business Tax
are provided on the temporary differences resulting from capital acquisitions
and depreciation.
28
31
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed as incurred and
aggregated approximately $9,779, $10,302 and $9,611 for the years ended December
31, 2000, 1999 and 1998, respectively.
NEW ACCOUNTING PRONOUNCEMENT
During the first quarter of 2001, the Company has adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments
and Hedging Activities". This pronouncement is not expected the have a
significant impact on the Company's results of operations or financial position.
2. ACQUISITIONS
Acquisitions of the Company from inception through December 31, 2000 are as
follows:
PURCHASE GOODWILL
ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES
----------------------------------------- ------------------ -------- --------- ----------- --------------
MascoTech Accessories.................... September 28, 1995 $46,050 $32,781 United States Rack systems
Brink B.V................................ October 30, 1996 54,339 27,730 Europe Towing systems
Sportrack division of Bell Sports........ July 2, 1997 13,505 1,198 Canada Rack systems
Nomadic Sports, Inc...................... July 24, 1997 849 433 Canada Rack systems
Valley Industries, Inc................... August 5, 1997 56,478 32,891 United States Towing systems
Towbar segment of Ellebi S.p.A........... January 2, 1998 21,938 5,645 Italy Towing systems
Tranfo-Rakzs, Inc........................ February 7, 1998 1,040 902 Canada Rack systems
Titan Industries, Inc.................... February 22, 2000 1,525 1,237 United States Towing systems
Wiswall Hill Corporation................. September 5, 2000 1,200 -- United States Rack systems
The above acquisitions have each been accounted for in accordance with the
purchase method of accounting. Accordingly, the respective purchase price of
each acquisition has been allocated to assets acquired and liabilities assumed
based upon their estimated fair values at the acquisition date. The excess of
the aggregate purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill. The operating results of these entities
have been included in the Company's consolidated financial statements since the
date of each acquisition. Each acquisition represented the purchase of the net
assets of the respective company with the exceptions of Brink B.V. and Nomadic
Sports, Inc. which were purchases of the outstanding shares. Each company was
purchased for cash except for Brink B.V. which was purchased for $54,339 in cash
and a 12,500 Junior Subordinated Note denominated in Dutch Guilders ($7,340), to
Brink Holdings, B.V.
Pro forma results have not been presented as they are substantially the same
as the Company's actual results.
3. IMPAIRMENT AND RESTRUCTURING CHARGES
In July 1997, the Company acquired the net assets of the sportrack division
of Bell Sports Corporation ("Bell") for approximately $13,500 and recorded
goodwill of approximately $1,200, representing the excess of the purchase price
over the then estimated fair value of net assets acquired. In June 1998
information became available which indicated that certain assets acquired from
Bell (accounts receivable, inventory, and tooling) had a fair value less than
originally recorded. The SportRack International purchase was renegotiated and a
$2,000 reimbursement was received from Bell. Accounts receivable, inventory and
tooling were reduced by $6,500 and additional goodwill of $4,500, net of the
$2,000 reimbursement from Bell, was recorded.
29
32
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
3. IMPAIRMENT AND RESTRUCTURING CHARGE -- (CONTINUED)
During the second half of 1998, management further reassessed the operations
of SportRack International, and as a result took actions to restructure the
operations and rationalize the product offerings, customer and supplier base,
distribution channels and warehousing, and terminated 14 employees, including
certain members of SportRack International's senior management. Concurrent with
the reassessment of SportRack International's operations, management reviewed
the revised carrying value of goodwill and other intangible assets, determined
that future cash flows would not be sufficient to recover recorded amounts, and
recorded an impairment charge of $7,863.
The SportRack International impairment and restructuring charges are
comprised of the following:
Impairment of:
Goodwill..................................... $ 6,116
Other intangible assets...................... 1,747 $ 7,863
--------
Restructuring charges for:
Product rationalization...................... 1,068
Other costs.................................. 832 1,900
-------- --------
$ 9,763
========
The restructuring charge related to inventory has been included in cost of
sales and other costs have been included in selling, administrative and product
development expenses in the accompanying 1998 consolidated statement of
operations. All restructuring costs have been incurred as of December 31, 1998,
including cash expenditures during 1998 of $258.
Sales for SportRack International during the year ended December 31, 1998
were approximately $4,000 and total assets as of December 31, 1998 were
approximately $7,100 after the impairment charge.
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
OUTSTANDING AT
INTEREST RATE AT DECEMBER 31,
DECEMBER 31, ------------------------
2000 2000 1999
---------- ---------- ----------
Senior Subordinated Notes, less discount of $367 and $403
respectively........................................... 9.75% $ 124,633 $ 124,597
Second Amended and Restated Credit Agreement
(U.S. Credit Facility)
Term note A......................................... 8.89% 5,326 9,082
Term note B......................................... 9.39% 12,370 13,494
Revolving line of credit note....................... 8.85% 11,343 --
Acquisition revolving note.......................... 8.88% 14,438 21,000
First Amended and Restated Credit Agreement
(Canadian Credit Facility)
Canadian term note.................................. 8.25% 7,525 10,325
Canadian revolving line of credit note.............. -- -- --
--------- ---------
175,635 178,498
Less -- current portion.................................. 11,811 12,449
--------- ---------
$ 163,824 $ 166,049
========= =========
30
33
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (CONTINUED)
SENIOR SUBORDINATED NOTES
Borrowings under the Company's Series B Senior Subordinated Notes (the
"Notes"), due October 1, 2007, are unsecured and are subordinated in right of
payment to all existing and future senior indebtedness of the Company, including
the loans under the U.S. and Canadian Credit Agreements described below. The
Company, at its option, may redeem the Notes, in whole or in part, together with
accrued and unpaid interest subsequent to October 1, 2002 at certain redemption
prices as set forth by the indenture under which the Notes have been issued.
Upon the occurrence of a change of control of the Company, as defined by the
indenture, the Company is required to make an offer to repurchase the Notes at a
price equal to 101% of the principal amount of the Notes. The indenture places
certain limits on the Company, the most restrictive of which include, the
incurrence of additional indebtedness by the Company, the payment of dividends
on, and redemption of capital of the Company, the redemption of certain
subordinated obligations, investments, sales of assets and stock of certain
subsidiaries, transactions with affiliates, consolidations, mergers and
transfers of all or substantially all of the Company's assets. Interest on the
Notes is payable semi-annually in arrears on April 1 and October 1 of each year.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
The Company's Second Amended and Restated Credit Agreement ("U.S. Credit
Facility"), which is administered by Bank One (formerly First Chicago NBD Bank)
and The Chase Manhattan Bank ("Chase"), is secured by substantially all the
assets of the Company and places certain restrictions on the Company related to
indebtedness, sales of assets, investments, capital expenditures, dividend
payments, management fees, and members' equity transactions. In addition, the
agreement subjects the Company to certain restrictive covenants, including the
attainment of designated operating ratios and minimum net worth levels. The
Company, at its election, may make prepayments of the term notes under the
credit agreement on a pro-rata basis. Additionally, mandatory prepayments of the
term notes are required in the event of sales of assets meeting certain
criteria, as set forth by the agreement, or based upon periodic calculations of
excess cash flows, as defined by the agreement.
The U.S. Credit Facility provides for two term notes (Term note A and Term
note B), a revolving line of credit note and an acquisition note. Loans under
each of the term notes and the revolving note can be converted, at the election
of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans.
Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in
one, two or three months on Eurocurrency Loans, as determined by the length of
the Eurocurrency Loan, as selected by the Company. Interest is charged at an
adjustable rate plus the applicable margin. The applicable margin is based upon
the Company's Senior Debt Ratio, as defined by the Credit Agreement.
Eurocurrency Loans under each of the term notes can be made in U.S. dollars or
certain other currencies, at the option of the Company. The U.S. Credit Facility
also provides for a Letter of Credit Facility. At December 31, 2000 the company
had an irrevocable letter of credit outstanding in the amount of $6,350, see
Note 12. At December 31, 1999, no letters of credit were outstanding.
Term note A
On October 30, 1996, the Company borrowed $65,000 under Term note A. On
October 1, 1997, the Company made a mandatory prepayment totaling $43,475 in
connection with the issuance of the Notes. Mandatory prepayments of $518 and
$1,597 were made in June 2000 and June 1999, respectively, for the excess cash
flows of the Company as defined by the Credit Agreement. The applicable margin
for Term note A ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to
3.5% for Eurocurrency Loans. Repayments under the note are required in the
following installments:
QUARTERLY
---------
March 31, 2001 through June 30, 2002................................................. $ 883
Final installment on September 30, 2002.............................................. 28
31
34
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (CONTINUED)
Term note B
On August 5, 1997, the Company borrowed $55,000 under Term note B. On
October 1, 1997 the Company made a mandatory prepayment totaling $39,044 in
connection with the issuance of the Notes. Mandatory prepayments of $833 and
$1,806 were made in June 2000 and June 1999, respectively, for the excess cash
flows of the Company as defined by the Credit Agreement. The applicable margin
for Term note B ranges from 1.75% to 3.0% for Base Rate Loans and from 2.75% to
4.0% for Eurocurrency Loans. Repayments under Term note B are required in the
following installments:
March 31, 2001 through September 30, 2003 (quarterly)................................ $ 73
December 31, 2003.................................................................... 2,914
March 30, 2004 and June 30, 2004..................................................... 3,764
October 30, 2004..................................................................... 1,125
Revolving line of credit note
The Company has the ability to borrow up to $25,000 under the revolving line
of credit which expires on October 30, 2003. Available borrowings, however, are
limited to a defined borrowing base amount equal to 85% eligible domestic
accounts receivable and 80% of certain eligible foreign accounts receivable. The
base borrowing amount is increased by the lesser of the sum of 50% of domestic
eligible inventory and 40% to 50% of certain eligible foreign inventory or
$10,000. Available borrowings are reduced by amounts outstanding under the
Canadian revolving line of credit note described below and outstanding letters
of credit. The applicable margin for the revolving line of credit ranges from
1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans.
A commitment fee of 0.5% to 0.625% is charged on the unused balance based on the
Company's Senior Leverage Ratio, as defined. At December 31, 2000, $7,307 was
available under the facility.
Acquisition note
On December 31, 1997, the Company borrowed $21,000 under its acquisition
note. The proceeds were used to acquire the net assets of Ellebi on January 2,
1998, as discussed in Note 2. The applicable margin for the acquisition note
ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for
Eurocurrency Loans. Repayments under the acquisition note are due in equal
quarterly installments of $1,313 through September 30, 2003.
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
The Company's First Amended and Restated Credit Agreement ("Canadian Credit
Facility"), which is administered by Bank One and The Chase Manhattan Bank of
Canada ("Chase Canada"), is secured by substantially all of the assets of the
Company's Canadian subsidiaries and is guaranteed by the Company.
The Canadian Credit Facility provides for a C$20,000 term note and a C$4,000
revolving note, (U.S. $13,332 and U.S. $2,666) at December 31, 2000,
respectively. Loans under each of the notes can be converted at the election of
the Company, in whole or in part, into Floating Rate advances, U.S. Base Rate
advances or LIBOR advances. Floating rate advances are denominated in Canadian
dollars and bear interest at a variable rate based on the bank's prime lending
rate plus a variable margin. U.S. Base Rate advances are denominated in U.S.
dollars and bear interest at the bank's prime lending rate plus a variable
margin. LIBOR advances are denominated in U.S. dollars and bear interest at
LIBOR plus a variable margin. The variable margin is based upon the Company's
Senior Debt Ratio, as defined by the Canadian Credit Facility and ranges from
0.5% to 1.75% for U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR
advances.
32
35
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (CONTINUED)
Canadian term note
Repayments under the Canadian term note are required in the following
installments:
QUARTERLY
---------
March 31, 2001 through June 30, 2003................................................... $ 684
Final installment on October 30, 2003.................................................. 684
Canadian revolving line of credit note
A commitment fee of 0.5% is charged on the unused balance of the Canadian
revolving line of credit note.
SENIOR SUBORDINATED LOANS
On October 30, 1996, the Company borrowed $20,000 under its Senior
Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with J.P.
Morgan Partners (23A SBIC), LLC, an affiliate of J.P. Morgan Partners, LLC, and
International Mezzanine. The Senior Subordinated Loans were repaid in full on
October 1, 1997 with the proceeds of the Notes discussed above.
In connection with the issuance of the Senior Subordinated Loans, the
Company issued warrants to purchase 1,002 membership units. The warrants have an
exercise price of one cent per warrant, are exercisable immediately, and expire
October 30, 2004. As provided in the Warrant Agreement, the warrant holder can
put the warrants and membership units acquired through the exercise of the
warrants back to the Company after October 30, 2001 or upon occurrence of a
Triggering Event, as defined, but prior to the earlier of October 30, 2004 or
the consummation of a Qualified Public Offering for an amount equal to Fair
Market Value, as defined. Additionally, as provided in the Warrant Agreement,
the Company may call the warrants and membership units acquired through the
exercise of the warrants at any time after the sixth anniversary of the Closing
Date, but prior to the earlier of October 30, 2004 or a Qualified Public
Offering for an amount equal to Fair Market Value, as defined. At the date of
issuance, the proceeds from the Senior Subordinated Loans were allocated between
the Senior Subordinated Loans and the warrants based upon their estimated
relative fair market value.
The warrants are being accreted to their estimated redemption value through
periodic charges against Members' Equity through the earlier of October 30, 2001
or the time redemption first becomes available. Thereafter the warrants will be
recorded at the then estimated redemption value. The aforementioned warrants
have been presented as mandatorily redeemable warrants in the accompanying
balance sheets.
SCHEDULED MATURITIES
The aggregate scheduled annual principal payments due in each of the years
ending December 31, is as follows:
2001...................................................................................... $ 11,811
2002...................................................................................... 10,073
2003...................................................................................... 20,463
2004...................................................................................... 8,655
2005...................................................................................... --
thereafter................................................................................ 125,000
---------
176,002
Less -- discount.......................................................................... (367)
---------
$ 175,635
=========
33
36
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
5. MEMBERS' EQUITY
Holders of Class A Units are eligible to vote in elections of Managers of
the Company and other matters as set fourth in the Company's Operating Agreement
and By-Laws and are convertible to Class A-1 Units by holders that are regulated
financial institutions. Class A-1 Units are non-voting but are otherwise
entitled to the identical rights as holders of Class A Units and are convertible
to Class A units provided such conversion is not in violation of certain
governmental regulations of the unit holder. Holders of Class B Units are
entitled to such rights as designated by the Board of Managers upon the original
issuance of any Class B Units provided however that those rights shall not be
senior to the rights of the holders of Class A units as to allocations of net
profits and as to distributions without the consent of a majority in interest of
Class A Members. There were no Class B Units issued as of December 31, 2000 or
1999.
Effective January 1, 2000, the Company issued 3,655 of its Class A-1 Units
in exchange for an equal amount of Class A Units.
Effective November 11, 2000 the Company issued 1,478 of its Class A-1 Units
in exchange for an equal amount of Class A Units.
6. INCOME TAXES
The Company's C corporation subsidiaries and taxable foreign subsidiaries
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company and certain
domestic subsidiaries are limited liability corporations; as such, the Company's
earnings are included in the taxable income of the Company's members. Income
(loss) before minority interest and income taxes were attributable to the
following sources:
YEAR ENDED
DECEMBER 31,
----------------------------------------
2000 1999 1998
----------- ----------- ----------
United States.............................................. $10,491 $10,925 $10,002
Foreign.................................................... (2,976) (5,530) (9,189)
------- ------- -------
$ 7,515 $ 5,395 $ 813
======= ======= =======
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED
DECEMBER 31,
----------------------------------------
2000 1999 1998
----------- ----------- ----------
CURRENTLY PAYABLE
United States............................................ $ -- $ 14 $ --
Foreign.................................................. 630 2,836 1,591
------- ------- -------
630 2,850 1,591
------- ------- -------
DEFERRED
United States............................................ -- -- --
Foreign.................................................. (908) (2,433) (688)
------- ------- -------
(908) (2,433) (688)
------- ------- -------
$ (278) $ 417 $ 903
======= ======= =======
The effective tax rates differ from the U.S. federal income tax rate as
follows:
YEAR ENDED
DECEMBER 31,
----------------------------------------
2000 1999 1998
----------- ----------- ----------
Income tax provision (benefit) at U.S. statutory rate (35%)...... $ 2,630 $ 1,887 $ 286
U.S. income taxes attributable to members........................ (3,674) (3,823) (3,502)
Change in valuation allowance.................................... (86) 854 4,225
Nondeductible foreign goodwill................................... 224 369 270
Foreign rate differences and other, net.......................... 628 1,130 (376)
------- ------- -------
$ (278) $ 417 $ 903
======= ======= =======
34
37
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
6. INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities, related primarily to the Company's
foreign subsidiaries, comprise the following:
DECEMBER 31,
--------------------
2000 1999
------- -------
DEFERRED TAX ASSETS
Net operating loss carryforwards of foreign subsidiaries..................... $ 6,660 $ 7,259
Fixed assets................................................................. 2,738 2,918
Goodwill..................................................................... 480 573
Inventory.................................................................... 83 133
Other........................................................................ 1,561 1,642
------- -------
11,522 12,525
------- -------
DEFERRED TAX LIABILITIES
Fixed assets................................................................. (2,492) (3,938)
Inventory.................................................................... (862) (889)
Employee benefits............................................................ -- (177)
Other........................................................................ (429) (309)
------- -------
(3,783) (5,313)
Valuation allowance.......................................................... (4,945) (5,258)
------- -------
Net deferred tax asset (liability)........................................... $ 2,794 $ 1,954
======= =======
The net operating loss carryforwards of the Company's European subsidiaries
approximate $7,257 at December 31, 2000 and have no expiration date. The net
operating loss carryforwards of the Company's Canadian subsidiaries approximate
$10,765 at December 31, 2000 and expire primarily in 2005 through 2009. As of
December 31, 2000 and 1999, respectively, the Company recorded a valuation
allowance of $4,945 and $5,258 based upon management's current assessment of the
likelihood of realizing the Canadian subsidiaries' deferred tax assets.
Management believes that it is more likely than not that the related deferred
tax assets recorded for its other subsidiaries will be realized and no valuation
allowance has been provided against such amounts as of December 31, 2000. If
certain substantial changes in the Company's ownership should occur, there could
be an annual limit on the amount of certain carryforwards which can be utilized.
7. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
A portion of the Company's U.S. Credit Facility, Canadian Credit Facility
and Senior Subordinated Loans, as described in Note 4, is with Chase, Chase
Canada and J.P. Morgan Partners (23ASBIC), LLC, respectively, which are each
affiliates of a member of the Company.
Charges to operations related to consulting services provided to the Company
by certain members of the Company aggregated approximately $406, $400 and $386
for the years ended December 31, 2000, 1999 and 1998, respectively.
Certain employees and consultants of the Company hold Class A Units of the
Company. During the year ended December 31, 1999, the Company acquired the
equity instruments owned by its former president for $4,250.
8. OPTION PLAN
The Company adopted the disclosure requirements of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The
Company, however, has elected to continue to measure compensation cost using the
intrinsic value method, in accordance with APB Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees".
The Company has issued options to purchase Class A Units which are
outstanding under the Company's 1995 Option Plan ("the Plan"). As of December
31, 2000 and 1999, the Company was authorized under the Plan to issue options to
purchase up to 4,200 Class A Units to officers, directors and employees of the
Company and its subsidiaries. At December 31, 2000, there were 179 options that
remained available for grant under the Plan.
35
38
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
8. OPTION PLAN -- (CONTINUED)
Information concerning options to purchase Class A Units is as follows:
2000 1999 1998
----------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
UNITS PRICE UNITS PRICE UNITS PRICE
-------- -------- --------- -------- --------- --------
Outstanding at January 1............... 2,405 $ 1,499 3,971 $ 1,343 3,903 $ 1,415
Options granted........................ -- -- 50 $ 4,000 280 $ 3,135
Options exercised...................... -- -- 696 $ 1,251 -- --
Options cancelled...................... 47 $ 5,610 920 $ 1,150 212 $ 5,035
----- ------- -------
Outstanding at December 31............. 2,358 $ 1,417 2,405 $ 1,499 3,971 $ 1,343
===== ======= =======
Exercisable at December 31............. 1,581 $ 1,515 1,282 $ 1,532 1,665 $ 1,398
===== ======= =======
All options granted have terms of 15 years and vest as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
UNITS PRICE VESTING PERIOD
--------- --------- ---------------------------------------------------------------------------------------
129 $ 3,029 Options vest immediately.
1,379 $ 1,469 Options vest over periods, generally up to ten years, as determined by the Option
Committee. Vesting may be accelerated based on the results of a Liquidity Event, as
defined in the Plan, or based upon the achievement of certain operating results of
the Company or its subsidiaries.
275 $ 1,000 Options vest based on the results of a Liquidity Event, as defined in the Plan.
575 $ 1,130 Options vest based upon achievement of certain operating results of the Company.
The Company has elected to continue applying the provisions of APB 25 and
accordingly, recognized compensation cost of $450, $400 and $558 for the years
ended December 31, 2000, 1999 and 1998, respectively. If compensation cost and
the fair value of options granted had been determined based upon the fair value
method in accordance with SFAS 123, the pro forma net income (loss) of the
Company would have been $8,047, $5,258 and ($290) the years ended December 31,
2000, 1999 and 1998, respectively. The weighted average fair value of options
granted per unit was $2,300 and $2,400 for the years ended December 31, 1999 and
1998, respectively. Options granted in 1999 and 1998 had exercise prices below
market value at the date of grant.
The fair value of options granted and related pro forma compensation cost
were estimated using the Black-Scholes option-pricing model with an expected
volatility of zero and the following assumptions:
1999 1998
---- ----
Dividend yield............................ 0.0% 0.0%
Risk-free rate of return.................. 6.0% 5.5%
Expected option term (in years)........... 8 8
36
39
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
8. OPTION PLANS -- (CONTINUED)
The following table summarizes the status of the Company's options
outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING
-----------------------
WEIGHTED
AVERAGE
REMAINING
EXERCISE CONTRACTUAL OPTIONS
PRICES UNITS LIFE EXERCISABLE
--------- --------- ------------- ------------
$ 1,000 2,025 10 1,309
$ 3,029 129 12 129
$ 3,485 65 12 39
$ 4,000 50 13 15
$ 5,610 89 12 89
9. PENSION PLANS
The Company has a defined benefit pension plan covering substantially all of
SportRack, LLC's domestic employees covered under a collective bargaining
agreement. An employee's monthly pension benefit is determined by multiplying a
defined dollar amount by the years of credited service earned. Plan assets are
comprised principally of marketable equity securities and short-term
investments. The Company's funding policy is to contribute annually the amounts
necessary to comply with ERISA funding requirements.
The following table sets forth the change in the plan's benefit obligations
and plan assets, and the funded status of the plan as of and for the years ended
December 31, 2000 and 1999:
DECEMBER 31,
----------------------
2000 1999
--------- --------
Change in benefit obligation:
Benefit obligation at beginning of year........................ $ 2,491 $ 2,301
Benefits earned during the year................................ 124 110
Interest on projected benefit obligation....................... 182 151
Increase as a result in plan amendment......................... -- 363
Actuarial loss (gain).......................................... (7) (362)
Benefits paid.................................................. (87) (72)
------ ------
Benefit obligation at end of year.............................. 2,703 2,491
------ ------
Change in plan assets:
Market value of assets at beginning of year.................... 2,190 1,831
Actual return on plan assets................................... 84 147
Employer contributions......................................... 238 284
Benefits paid.................................................. (87) (72)
------ ------
Market value of assets at end of year.......................... 2,425 2,190
------ ------
Funded status..................................................... (278) (301)
Unrecognized prior service cost................................... 345 371
Unrecognized net (gain) loss...................................... (160) (284)
------ ------
Accrued pension cost.............................................. $ (93) $ (214)
====== ======
YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
--------- --------- ----------
Components of net periodic benefit cost:
Service cost.................................................. $ 124 $ 110 $ 99
Interest cost................................................. 182 151 140
Expected return on plan assets................................ (205) (175) (147)
Recognized net actuarial gain................................. (10) -- --
Amortization of prior service cost............................ 27 1 1
------- ------- -------
Net periodic Benefit cost........................................ $ 118 $ 87 $ 93
======= ======= =======
37
40
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
9. PENSION PLANS -- (CONTINUED)
The weighted average discount rate used in determining the actuarial present
value of the accumulated benefit obligation was 7.50%, 7.75%, and 6.75% at
December 31, 2000, 1999 and 1998, respectively. The expected long-term rate of
return on plan assets was 9.00% at December 31, 2000, 1999 and 1998.
The Company has various defined contribution retirement plans for its
domestic and certain foreign subsidiaries, including 401(k) plans, whereby
participants can contribute a portion of their salary up to certain maximums
established by the related plan documents. The Company makes matching
contributions, which are based upon the amounts contributed by employees. The
Company's matching contributions charged to operations aggregated $369, $334 and
$306 in 2000, 1999 and 1998, respectively.
Substantially all of the employees of Brink International B.V. are covered
by a union-sponsored, collectively-bargained, multi-employer defined benefit
plan. Pension expense was $1,270, $1,271 and $1,302 for the years ended December
31, 2000, 1999 and 1998, respectively.
10. OPERATING LEASES
The Company leases certain equipment under leases expiring on various dates
through 2004. Future minimum annual lease payments required under leases that
have a noncancellable lease term in excess of one year at December 31, 2000 are
as follows:
2001.................................................................................... $ 3,542
2002.................................................................................... 2,870
2003.................................................................................... 1,942
2004.................................................................................... 1,431
2005.................................................................................... 762
-------
$10,547
=======
Rental expense charged to operations was approximately $4,066, $4,169 and
$3,947 for the years ended December 31, 2000, 1999 and 1998, respectively.
11. ACCOUNT BALANCES
Account balances included in the consolidated balance sheets are comprised
of the following:
DECEMBER 31,
-----------------------
2000 1999
--------- --------
INVENTORIES
Raw materials.............................................................. $17,746 $13,068
Work-in-process............................................................ 7,910 9,871
Finished goods............................................................. 18,978 18,715
Reserves................................................................... (2,540) (3,217)
------- -------
$42,094 $38,437
======= =======
PROPERTY AND EQUIPMENT
Land, buildings and improvements........................................... $23,751 $23,694
Furniture, fixtures and computer hardware.................................. 11,346 9,891
Machinery, equipment and tooling........................................... 54,219 47,565
Construction-in-progress................................................... 1,579 2,820
------- -------
90,895 83,970
Less -- accumulated depreciation........................................... (32,663) (24,654)
------- -------
$58,232 $59,316
======= =======
ACCRUED LIABILITIES
Compensation and benefits.................................................. $12,400 $12,350
Interest................................................................... 3,148 3,367
Other...................................................................... 9,854 9,050
------- -------
$25,402 $24,767
======= =======
38
41
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
12. COMMITMENTS AND CONTINGENCIES
In February 1996, the Company commenced an action against certain
individuals alleging breach of contract under the terms of an October 1992
Purchase Agreement and Employment Agreements with the predecessor of the
Company. The individuals then filed a separate lawsuit against the Company
alleging breach of contract under the respective Purchase and Employment
agreements. On May 7, 1999 a jury in the United States District Court for the
Eastern District of Michigan reached a verdict against the Company and awarded
the individuals approximately $3,800 plus interest and reasonable attorney fees.
The Company plans to file an appeal once the court enters a judgment, which is
expected during the second quarter of 2001. During 2000, the Company increased
its estimated accrual for this matter by $450 representing accrued interest for
the year which charge is included in interest expense. During 1999, the Company
increased its estimated accrual for this matter by $2,000 which charge is
included in other expense. At December 31, 2000 the Company had an outstanding
irrevocable letter of credit totaling $6,350 benefiting the individuals. No
amounts have been paid as of December 31, 1999.
During the second quarter of 2000 one of the Company's significant OEM
customers recalled approximately 380,000 trucks to replace or reinforce their
trailer hitches, which were supplied by the Company. The recall affects
1998-2000 model year vehicles built between January 1998 and September 1999. The
Company worked with the customer to provide technical and other support in
response to the recall. Management can not estimate at this time what the
financial impact will be to the Company, if any, as a result of the recall.
In addition to the above, the Company is party to various claims, lawsuits
and administrative proceedings related to matters arising out of the normal
course of business. Management believes that the resolution of these matters
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
13. SEGMENT INFORMATION
The Company operates in one reportable segment, providing towing and rack
systems and related accessories to the automotive OEM and aftermarket. All sales
are to unaffiliated customers. Revenues by geographic area, accumulated by the
geographic area where the revenue originated, revenues by product line and
long-lived assets, which include net property and equipment and net goodwill and
debt issuance costs, by geographic area are as follows:
YEAR ENDED
DECEMBER 31,
--------------------------------------
2000 1999 1998
----------- ----------- ------------
REVENUES
United States.................................................... $ 222,159 $ 211,167 $ 192,306
The Netherlands.................................................. 32,344 35,647 35,543
Italy............................................................ 15,725 19,211 19,900
Other foreign.................................................... 48,589 48,117 44,396
--------- --------- ---------
$ 318,817 $ 314,142 $ 292,145
========= ========= =========
YEAR ENDED
DECEMBER 31,
--------------------------------------
2000 1999 1998
----------- ----------- ------------
REVENUES
Towing systems.................................................. $ 186,753 $ 187,276 $ 175,236
Rack systems.................................................... 132,064 126,866 116,909
--------- --------- ---------
$ 318,817 $ 314,142 $ 292,145
========= ========= =========
DECEMBER 31,
--------------------------------------
2000 1999 1998
----------- ----------- ------------
LONG-LIVED ASSETS
United States........................................................ $34,830 $ 32,013 $ 28,416
The Netherlands...................................................... 11,494 13,080 16,258
Italy................................................................ 3,044 4,619 6,435
Other foreign........................................................ 8,864 9,604 10,186
------- -------- --------
$58,232 $ 59,316 $ 61,295
======= ======== ========
39
42
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. SEGMENT INFORMATION -- (CONTINUED)
The Company has two significant customers in the automotive OEM industry.
Sales to these customers represented 32% and 11% of total Company sales for the
year ended December 31, 2000, 36% and 12% for the year ended December 31, 1999,
and 32% and 11% for the year ended December 31, 1998. Accounts receivable from
these customers represented 30% and 11% of the Company's trade accounts
receivable at December 31, 2000, and 35% and 5% at December 31, 1999,
respectively.
Although the Company is directly affected by the economic well being of the
industries and customers referred to above, management does not believe
significant credit risk exists at December 31, 2000. Consistent with industry
practice, the Company does not require collateral to reduce such credit risk.
14. CONDENSED CONSOLIDATING INFORMATION
The Notes have been issued by the Company and its wholly-owned subsidiary,
AAS Capital Corporation and are guaranteed on a full and unconditional and joint
and several basis, by all of the Company's wholly-owned domestic subsidiaries.
The following condensed consolidating financial information for 2000, 1999 and
1998 presents the financial position, results of operations and cash flows of
(i) the Company as parent, as if it accounted for its subsidiaries on the equity
method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries
which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS
Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the
non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and
include Brink International B.V., SportRack International, Inc., and SportRack
Automotive, GmbH. The operating results of the guarantor and non-guarantor
subsidiaries include management fees of $1,410 and $330, respectively, for the
year ended December 31, 2000, $1,410 and $320, respectively, for the year ended
December 31, 1999 and $1,198 and $318 for the year ended December 31, 1998, in
addition to having been charged interest on their intercompany balances. Since
its formation in September 1997, AAS Capital Corporation has had no operations
and has no assets or liabilities at December 31, 2000.
40
43
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
ASSETS
Current assets
Cash .................................. $ 1,153 $ 246 $ 1,916 $ -- $ 3,315
Accounts receivable ................... -- 28,309 14,633 -- 42,942
Inventories ........................... -- 19,148 22,946 -- 42,094
Deferred income taxes and other
current assets ....................... 7 5,180 3,462 -- 8,649
--------- --------- --------- --------- ---------
Total current assets ............. 1,160 52,883 42,957 -- 97,000
--------- --------- --------- --------- ---------
Property and equipment, net ............. -- 34,830 23,402 -- 58,232
Goodwill, net ........................... 1,025 56,144 20,222 -- 77,391
Other intangible assets, net ............ 3,968 234 828 -- 5,030
Deferred income taxes and other
noncurrent assets ..................... 93 2,385 2,366 -- 4,844
Investment in subsidiaries .............. 57,615 9,955 -- (67,570) --
Intercompany notes receivable ........... 91,695 -- -- (91,695) --
--------- --------- --------- --------- ---------
Total assets ..................... $ 155,556 $ 156,431 $ 89,775 $(159,265) $ 242,497
========= ========= ========= ========= =========
LIABILITIES AND MEMBERS'
EQUITY
Current liabilities
Current maturities of long-term debt .. $ -- $ -- $ 11,811 $ -- $ 11,811
Accounts payable ...................... -- 16,689 8,307 -- 24,996
Accrued liabilities and deferred
income taxes ........................ 6,799 8,027 10,576 -- 25,402
--------- --------- --------- --------- ---------
Total current liabilities ........ 6,799 24,716 30,694 -- 62,209
--------- --------- --------- --------- ---------
Deferred income taxes and other
noncurrent liabilities ................ 2,003 343 3,212 -- 5,558
Long-term debt, less current maturities . 135,976 -- 27,848 -- 163,824
Intercompany debt ....................... -- 46,064 45,631 (91,695) --
Mandatorily redeemable warrants ......... 5,010 -- -- -- 5,010
Members' equity ......................... 5,768 85,308 (17,610) (67,570) 5,896
--------- --------- --------- --------- ---------
Total liabilities and members'
equity ......................... $ 155,556 $ 156,431 $ 89,775 $(159,265) $ 242,497
========= ========= ========= ========= =========
41
44
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
ASSETS
Current assets
Cash .................................. $ -- $ 5,469 $ 3,249 $ -- $ 8,718
Accounts receivable ................... -- 32,087 14,831 -- 46,918
Inventories ........................... -- 16,361 22,076 -- 38,437
Deferred income taxes and other
current assets ....................... 13 3,724 2,946 -- 6,683
--------- --------- --------- --------- ---------
Total current assets ............. 13 57,641 43,102 -- 100,756
--------- --------- --------- --------- ---------
Property and equipment, net ............. -- 32,014 27,302 -- 59,316
Goodwill, net ........................... 1,065 57,100 22,509 -- 80,674
Other intangible assets, net ............ 4,423 390 916 -- 5,729
Deferred income taxes and other
noncurrent assets ..................... 93 1,988 2,657 -- 4,738
Investment in subsidiaries .............. 43,065 9,955 -- (53,020) --
Intercompany notes receivable ........... 99,537 -- -- (99,537) --
--------- --------- --------- --------- ---------
Total assets ..................... $ 148,196 $ 159,088 $ 96,486 $(152,557) $ 251,213
========= ========= ========= ========= =========
LIABILITIES AND MEMBERS'
EQUITY
Current liabilities
Current maturities of long-term debt .. $ -- $ -- $ 12,449 $ -- $ 12,449
Accounts payable ...................... -- 18,090 8,625 -- 26,715
Accrued liabilities and deferred
income taxes ........................ 5,524 9,231 10,012 -- 24,767
--------- --------- --------- --------- ---------
Total current liabilities ........ 5,524 27,321 31,086 -- 63,931
--------- --------- --------- --------- ---------
Deferred income taxes and other
noncurrent liabilities ................ 1,553 608 3,931 -- 6,092
Long-term debt, less current maturities . 124,597 -- 41,452 -- 166,049
Intercompany debt ....................... -- 64,189 35,348 (99,537) --
Mandatorily redeemable warrants ......... 4,810 -- -- -- 4,810
Members' equity ......................... 11,712 66,970 (15,331) (53,020) 10,331
--------- --------- --------- --------- ---------
Total liabilities and members'
equity ......................... $ 148,196 $ 159,088 $ 96,486 $(152,557) $ 251,213
========= ========= ========= ========= =========
42
45
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
Net sales................................ $ -- $ 222,159 $ 96,658 $ -- $ 318,817
Cost of sales............................ -- 173,230 65,860 -- 239,090
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 48,929 30,798 -- 79,727
Selling, administrative and product
development expenses................... 1,780 23,450 20,297 -- 45,527
Amortization of intangible assets........ 40 2,347 910 -- 3,297
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,820) 23,132 9,591 -- 30,903
Interest expense......................... 6,027 4,433 7,490 -- 17,950
Equity in net income (loss) of
subsidiaries........................... 15,640 -- -- (15,640) --
Foreign currency gain (loss)............. -- -- (5,386) -- (5,386)
Other income (expense)................... -- (361) 309 -- (52)
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 7,793 18,338 (2,976) (15,640) 7,515
Benefit for income taxes................. -- -- 278 -- 278
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 7,793 $ 18,338 $ (2,698) $ (15,640) $ 7,793
========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
Net sales................................ $ -- $ 211,265 $ 102,877 $ -- $ 314,142
Cost of sales............................ -- 158,691 69,198 -- 227,889
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 52,574 33,679 -- 86,253
Selling, administrative and product
development expenses................... 1,624 25,141 23,493 -- 50,258
Amortization of intangible assets........ 40 2,326 879 -- 3,245
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,664) 25,107 9,307 -- 32,750
Interest expense......................... 4,933 5,559 6,961 -- 17,453
Equity in net income (loss) of
subsidiaries........................... 13,575 -- -- (13,575) --
Foreign currency gain (loss)............. -- -- (7,912) -- (7,912)
Other income (expense)................... (2,000) 10 -- -- (1,990)
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 4,978 19,558 (5,566) (13,575) 5,395
Provision for income taxes............... -- 14 403 -- 417
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 4,978 $ 19,544 $ (5,969) $ (13,575) $ 4,978
========== ========== =========== ========== ==========
43
46
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
Net sales................................ $ -- $ 192,306 $ 99,839 $ -- $ 292,145
Cost of sales............................ -- 144,162 71,279 -- 215,441
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 48,144 28,560 -- 76,704
Selling, administrative and product
development expenses................... 1,560 23,631 25,648 -- 50,839
Amortization of intangible assets........ 40 2,314 1,197 -- 3,551
Impairment charge -- -- 7,863 -- 7,863
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,600) 22,199 (6,148) -- 14,451
Interest expense......................... 3,700 6,888 8,045 -- 18,633
Equity in net income (loss) of
subsidiaries........................... 5,210 -- -- (5,210) --
Foreign currency gain.................... -- -- 4,995 -- 4,995
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ (90) 15,311 (9,198) (5,210) 813
Provision for income taxes............... -- -- 903 -- 903
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ (90) $ 15,311 $ (10,101) $ (5,210) $ (90)
========== ========== =========== ========== ==========
44
47
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
Net cash provided by (used for) operating
activities.................................. $ (5,585) $ 22,146 $ 4,855 $ -- $ 21,416
----------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment................................. -- (7,699) (2,746) (10,445)
Acquisition of subsidiaries, net of cash
acquired.................................. -- (1,545) (1,259) -- (2,804)
---------- --------- ---------- ---------- ---------
Net cash used for investing activities.... -- (9,244) (4,005) -- (13,249)
---------- ---------- ---------- ---------- ---------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt................. 7,842 (18,125) 10,283 -- --
Net increase in revolving loan.............. 11,343 -- -- -- 11,343
Repayment of debt........................... -- -- (13,878) -- (13,878)
Repurchase of membership units.............. (6,422) -- -- -- (6,422)
Collection on members notes receivable...... 65 -- -- -- 65
Distributions to members.................... (6,090) -- (6,090)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities.................... 6,738 (18,125) (3,595) -- (14,982)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes............... -- -- 1,412 -- 1,412
---------- --------- ---------- ---------- ---------
Net increase (decrease) in cash............... 1,153 (5,223) (1,333) -- (5,403)
Cash at beginning of period................... -- 5,469 3,249 -- 8,718
---------- --------- ---------- ---------- ----------
Cash at end of period......................... $ 1,153 $ 246 $ 1,916 $ -- $ 3,315
========== ========= ========== ========== ==========
45
48
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
Net cash provided by (used for) operating
activities................................... $ (5,953) $ 26,715 $ 4,252 $ -- $ 25,014
----------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment.................................. -- (8,000) (3,775) -- (11,775)
---------- --------- ---------- ---------- ---------
Net cash used for investing activities..... -- (8,000) (3,775) -- (11,775)
---------- ---------- ---------- ---------- ---------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt.................. 10,148 (14,162) 4,014 -- --
Repayment of debt............................ -- -- (9,270) -- (9,270)
Issuance of membership units................. 50 -- -- -- 50
Repurchase of membership units............... (4,274) -- -- -- (4,274)
Collection on members notes receivable....... 29 -- -- -- 29
Distributions from subsidiaries.............. 4,720 -- -- (4,720) --
Distributions to members..................... (4,720) (4,720) -- 4,720 (4,720)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities..................... 5,953 (18,882) (5,256) -- (18,185)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes................ -- -- 2,424 -- 2,424
---------- --------- ---------- ---------- ---------
Net increase (decrease) in cash................ -- (167) (2,355) -- (2,522)
Cash at beginning of period.................... -- 5,636 5,604 -- 11,240
---------- --------- ---------- ---------- ----------
Cash at end of period.......................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718
========== ========= ========== ========== ==========
46
49
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
Net cash provided by (used for) operating
activities.................................. $ (4,216) $ 18,479 $ 7,616 $ -- $ 21,879
----------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment................................. -- (4,358) (5,640) -- (9,998)
Amount due from sellors of Valley
Industries, Inc........................... -- 1,150 -- -- 1,150
Acquisition of subsidiaries, net of cash
acquired.................................. -- -- (22,770) -- (22,770)
---------- --------- ---------- ---------- ----------
Net cash used for investing activities.... -- (3,208) (28,410) -- (31,618)
---------- ---------- ---------- ---------- ----------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt................. 6,101 (11,657) 5,556 -- --
Net reduction in revolving loan............. (1,900) -- (2,605) -- (4,505)
Repayment of debt........................... -- -- (3,682) -- (3,682)
Issuance of membership units................ 29 -- -- -- 29
Repurchase of membership units.............. (14) -- -- -- (14)
Distributions from subsidiaries............. 195 -- -- (195) --
Distributions to members.................... (195) (195) -- 195 (195)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities.................... 4,216 (11,852) (731) -- (8,367)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes............... -- -- 1,998 -- 1,998
---------- --------- ---------- ---------- ---------
Net increase (decrease) in cash............... -- 3,419 (19,527) -- (16,108)
Cash at beginning of period................... -- 2,217 25,131 -- 27,348
---------- --------- ---------- ---------- ----------
Cash at end of period......................... $ -- $ 5,636 $ 5,604 $ -- $ 11,240
========== ========= ========== ========== ==========
47
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of each of the individuals
that currently serve as a member (each, a "Board Member") of the Company's board
of managers (the "Board of Managers"), executive officers and other significant
employees of the Company.
NAME AGE POSITION
--------------------------- ----- ------------------------------------------------------------
F. Alan Smith.............. 69 Chairman of the Board of Managers of the Company
Terence C. Seikel.......... 44 President and Chief Executive Officer of the Company; Board
Member
Richard E. Borghi.......... 54 President and Chief Operating Officer of SportRack; Board
Member
Gerrit de Graaf............ 37 General Manager and Chief Executive Officer of Brink; Board
Member
Bryan A. Fletcher.......... 41 President and Chief Operating Officer of Valley
Aftermarket
Barry G. Steele............ 30 Corporate Controller of the Company
J. Wim Rengelink........... 46 Finance Director of Brink
Donald J. Hofmann, Jr...... 43 Board Member, Vice President and Secretary of the
Company
Barry Banducci............. 65 Board Member
Gerard J. Brink............ 57 Board Member
F. Alan Smith has served in the automotive industry for 39 years and has
been Chairman of the Board of Managers of the Company since its formation in
September 1995. He served in various assignments at General Motors from 1956 to
1992, including President of GM Canada from 1978 to 1980. He was a member of the
Board of Directors of General Motors from 1981 to 1992 and Chief Financial
Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The
Minnesota Mining and Manufacturing Corporation ("3M"), TransPro, Inc.
("TransPro").
Terence C. Seikel has served in the automotive industry for 17 years and has
been President and Chief Executive Officer of the Company since April 15, 1999.
From 1996 until April 15, 1999, Mr. Seikel served as Vice President of Finance
and Administration and Chief Financial Officer of the Company and SportRack.
From 1985 to 1996, Mr. Seikel was employed by Larizza Industries, a publicly
held supplier of interior trim to the automotive industry, in various capacities
including Chief Financial Officer.
Richard E. Borghi has served in the automotive industry for 33 years and has
been President and Chief Operating Officer of SportRack since April 15, 1999.
From 1995 until April 15, 1999, Mr. Borghi, served as Executive Vice President
of Operations and Chief Operating Officer of SportRack. From 1988 to 1995, Mr.
Borghi held various senior management positions with MascoTech, and was the
Executive Vice President of Operations of the MascoTech Division at the time of
its acquisition by the Company.
Gerrit de Graaf has been General Manager and Chief Executive Officer of
Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips
Medical Systems as a consultant and most recently as Philips' Marketing Manager
in the United States.
Bryan A. Fletcher has served in the automotive industry for 12 years and has
been President and Chief Operating Officer of Valley Aftermarket since July
2000. From 1991 until July 2000 Mr. Fletcher served as Vice President of
Aftermarket Operations of Valley.
Barry G. Steele has been Corporate Controller of the Company since June
1999. From 1997 until June 1999, Mr. Steele served as Manager of Financial
Reporting of the Company. From 1993 to 1997, Mr. Steele was employed by Price
Waterhouse LLP.
J. Wim Rengelink has served in the automotive industry for 14 years and has
been Finance Director of Brink since 1995. From 1988 to 1995 he worked in
Brink's internal audit department.
48
51
Donald J. Hofmann, Jr. has been a Board Member, Vice President and Secretary
of the Company since October 1995. Mr. Hofmann has been a partner of J.P. Morgan
Partners, LLC, or its predecessor Chase Capital Partners a global general
partnership with over $20.0 billion under management since 1992. J.P. Morgan
Partners provides equity and mezzanine debt financing for management buyouts and
recapitalizations, growth equity and venture capital. Mr. Hofmann is also an
executive officer of the managing member of J.P. Morgan Partners (23A SBIC),
LLC, a member of the Company, which is advised by J.P. Morgan Partners, LLC. Mr.
Hofmann is also a director of BPC Holding Corporation, Barry Plastics
Corporation, Pliant Corporation and United Auto Group, Inc.
Barry Banducci has been a Board Member of the Company since October 1995.
Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior
thereto, Mr. Banducci served in various capacities at Equion Corporation, a
supplier of automotive components, from 1983 to 1995, including President, Chief
Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro.
Gerard J. Brink has been a Board Member of the Company since October 1996.
Mr. Brink was General Manager of Brink from 1965 to 1996.
BOARD MEMBER COMPENSATION
The Board Members do not currently receive compensation for their service on
the Board of Managers or any committee thereof but are reimbursed for their
out-of-pocket expenses. In addition, Messrs. Smith and Banducci have consulting
agreements with the Company. See "Executive Compensation - Consulting
Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Managers has an Audit Committee consisting of Messrs. Banducci
and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith.
The Audit Committee reviews the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's 1995 Option
Plan.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
1998 through 2000 for the chief executive officer of the Company and the four
next most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ----------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($)
- ------------------------------------ -------- ------------- ------------- ----------------- ----------------- -----------
F. Alan Smith ......................... 2000 228,000 114,000 -- -- --
Chairman of the Company 1999 228,000 114,000 -- -- --
1998 217,000 105,000 -- 32 --
Terence C. Seikel ..................... 2000 265,000 175,000 -- -- --
President and Chief Executive Officer 1999 245,000 175,000 -- -- --
of the Company and SportRack 1998 215,000 95,000 -- 65 --
Roger T. Morgan ....................... 2000 179,892 -- -- -- --
Former President and Chief Executive 1999 263,000 100,000 -- -- --
Officer of Valley 1998 250,000 87,500 -- -- --
Richard E. Borghi ..................... 2000 279,798 125,000 -- -- --
President and Chief Operating Officer 1999 261,897 125,000 -- -- --
of SportRack 1998 219,965 115,000 -- 32 --
Gerrit de Graaf ....................... 2000 154,000 65,000 -- -- --
General Manager and Chief Executive 1999 164,830 68,660 -- -- --
Officer of Brink 1998 154,425 45,414 -- 39 --
Bryan Fletcher ........................ 2000 132,664 40,500 -- -- --
President and Chief Operating 1999 133,170 64,050 -- -- --
Officer of Valley Aftermarket 1998 115,015 41,000 -- -- --
- ------------------
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52
OPTION GRANTS IN 2000
During 2000, there were no options granted to the named executive officers.
The following table sets forth information regarding outstanding membership unit
options issued to the chief executive officer of the Company and the four next
most highly compensated executive officers.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END(#) AT YEAR END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
-------------------- -------------------- --------------- ------------------------- --------------------
F. Alan Smith....... -- -- 332/150 1,660,000/ 750,000
Terence C. Seikel... -- -- 465/200 2,325,000/ 1,000,0000
Roger T. Morgan..... -- -- --/ 89 --/ --
Richard E. Borghi... -- -- 432/200 2,160,000/ 1,000,000
Gerrit de Graaf..... -- -- 24/15 120,000/ 75,000
Bryan Fletcher...... -- -- 10/35 50,000/ 175,000
- -------------------
EMPLOYMENT AGREEMENTS
Each of Terence C. Seikel, Richard E. Borghi, Gerrit de Graaf and Bryan
Fletcher have each entered into an employment agreement (collectively, the
"Employment Agreements") with the Company. Mr. Seikel's Employment Agreement
provides for an annual base salary of $250,000, subject to increases at the sole
discretion of the Board of Managers, and a bonus in the range of 50-70% of his
base salary. Mr. Borghi's Employment Agreement provides for an annual base
salary of $250,000, subject to increases at the sole discretion of the Board of
Managers, a bonus in the range of 30-50% of his base salary, and a one time
bonus of $100,000 on the earlier of (i) September 30, 2002, (ii) his termination
date, and (iii) a sale of the Company. Mr. de Graaf's Employment Agreement
provides for an annual base salary of NLG 170,000, subject to increases at the
sole discretion of the Board of Managers, and a bonus in the range of 30% to 50%
of his base salary. Mr. Fletcher's Employment Agreement provides for an annual
base salary of $150,000, subject to increases at the sole discretion of the
Board of Managers, and a bonus in the range of 30% to 50% of his base salary.
The Employment Agreements also provide for twelve months of severance pay to the
executive officer in the event such officer is terminated without cause (as
defined in the Employment Agreement). The Employment Agreements for Messrs
Seikel, Borghi and Fletcher provided for an increase in the severance pay period
to 18 months upon a change in control of the Company, as defined in the
Employment Agreement.
The Employment Agreements expire December 31, 2003 for Messrs Seikel, Borghi
and Fletcher and automatically extend for successive two-year terms unless
terminated by the Company upon 30 days notice prior to the expiration of the
current term. The Employment Agreement for Mr. de Graaf may be terminated by
either party upon three month's prior written notice. Each Employment Agreement
prohibits the executive officer from disclosing non-public information about the
Company. The Employment Agreements also require the executive officers to assign
to the Company any designs, inventions and other related items and intellectual
property rights developed or acquired by the executive officer during the term
of his employment. In addition, for a period of five years after termination of
employment (two years if the termination is without cause) each executive
officer has agreed, in his respective Employment Agreement, not to (i) engage in
any Competitive Business (as defined in the Employment Agreements), (ii)
interfere with or disrupt any relationship between the Company and its
customers, suppliers and employees and (iii) induce any employee of the Company
to terminate his or her employment with the Company or engage in any Competitive
Business.
CONSULTING AGREEMENTS
F. Alan Smith and Barry Banducci, both members of the Board of Managers,
have each entered into consulting agreements (the "Consulting Agreements") with
the Company dated as of September 28, 1995. Mr. Smith's Consulting Agreement
provides for an annual consulting fee of $150,000 subject to increases at the
sole discretion of the Board of Managers, and a performance based bonus in the
range of 30-50% of the annual consulting fee. Mr. Banducci's Consulting
Agreement provides for an annual consulting fee of $50,000. The initial term of
the Consulting Agreements expired on March 28, 1997. The Consulting Agreements
automatically extend for successive six-month periods unless terminated by the
Company upon 30 days notice prior to the expiration of the then current term.
The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing
non-public information about the Company.
50
53
MEMBERS' AGREEMENT
Pursuant to the Third Amended and Restated Members' Agreement dated as of
September 30, 1999 (the "Members' Agreement") among the Company and certain
holders of outstanding units (the "Units") of the Company, such holders of the
Units shall vote all Units held by them for election of a majority of the Board
of Managers consisting of Terence C. Seikel and Richard E. Borghi (so long as
each is employed by the Company), and F. Alan Smith, Barry Banducci, Gerard J.
Brink and Roger T. Morgan (so long as each is a holder of a certain number of
Units) (the "Enumerated Managers"). J.P. Morgan Partners (23A SBIC), LLC, an
affiliate of JPMP, has the ability to appoint up to 5 additional members of the
Board of Managers. Pursuant to the voting provision of the Members' Agreement,
J.P. Morgan Partners (23A SBIC), LLC has the right, under certain circumstances,
including breach by the Company of certain covenants, to replace the Enumerated
Managers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 19, 2001, the outstanding membership interests of the Company
consisted of 14,369 Units. The following table sets forth certain information
regarding the beneficial ownership of the Units by (i) each person known by the
Company to own more than 5% of the Units, (ii) each named director, (iii) each
named executive officer and (iv) all of the Company's directors and executive
officers treated as a group. To the knowledge of the Company, each of such
holders of Units has sole voting and investment power as to the Units owned
unless otherwise noted.
PERCENTAGE
NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2)
------------------------------------------- --------------- --------------
J.P. Morgan Partners (23A SBIC), LLC (3)... 10,251 68.94%
1221 Avenue of the Americas
New York, New York 10020
Celerity Partners.......................... 1,500 10.44
C/o Mark Benham
300 Sand Hill Road
Building 4, Suite 230
Menlo Park, California 94025
F. Alan Smith(4)........................... 632 4.30
Terence C. Seikel(5)....................... 665 4.48
Richard E. Borghi(6)....................... 632 4.27
Gerrit de Graaf(7)......................... 50 0.35
Bryan Fletcher(8).......................... 35 0.24
Barry Banducci(9).......................... 500 3.42
59 Old Quarry Road
Guilford, Connecticut 06437
Gerard J. Brink............................ 410 2.85
Lijsterbeslaan 10
B-2950 Kapellen
Belgium
Donald J. Hoffman (10)..................... 10,251 68.94
All directors and executive officers as a
group (nine persons)...................... 2,924 18.41
- ----------------
(1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC,
12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Units. Units subject to options or warrants currently exercisable or
exercisable within 60 days of March 17, 2000 are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
(3) CB Capital Investors, L.P. is an affiliate of CCP. Includes 501 Units
subject to warrants exercisable within 60 days.
(4) Includes 332 Units subject to options exercisable within 60 days. 300 Units
are owned by the F. Alan Smith Family Limited Partnership.
(5) Includes 465 Units subject to options exercisable within 60 days.
(6) Includes 432 Units subject to options exercisable within 60 days.
(7) Includes 24 Units subject to options exercisable within 60 days.
(8) Includes 10 Units subject to options exercisable within 60 days.
(9) Includes 250 Units subject to options exercisable within 60 days. All Units
are owned by the Banducci Family, LLC.
(10) Such person may be deemed the beneficial owner of the Units held by J.P.
Morgan Partners (23A SBIC), LLC due to his status as an executive officer
of J.P. Morgan Partners (23A SBIC Manager), Inc. the managing member of
J.P. Morgan Partners (23A SBIC), LLC.
51
54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chase Securities Inc. ("CSI"), Chase, Chase Canada and JPMP are affiliates
of J.P. Morgan Partners (23A SBIC), LLC, which owns approximately 49.98% of the
Company's issued and outstanding voting securities on a fully diluted basis. CSI
acted as an Initial Purchaser in connection with the Offering, for which it
received customary fees. Chase is agent bank and a lender to the Company under
the Amended and Restated Credit Agreement and has received customary fees and
reimbursement of expenses in such capacities. Chase Canada is agent bank and a
lender to the Company under the Canadian Credit Agreement and has received
customary fees and reimbursement of expenses in such capacities. Chase received
its proportionate share, $6.0 million, of the repayment by the Company of $90.0
million under the Amended and Restated Credit Agreement from the proceeds of the
Offering. J.P. Morgan Partners (23A SIBC), LLC an affiliate of JPMP and CSI held
a portion of the Senior Subordinated Debt and received its proportionate share,
$10.7 million, including prepayment penalties of $700,000, of the repayment by
the Company of such debt from the proceeds of the Offering. As a result of the
Offering, such affiliate was relieved of its obligation to provide up to an
additional $20.0 million of senior subordinated debt financing. In addition, an
affiliate of CSI and JPMP purchased a portion of the Notes in connection with
the Offering. Donald J. Hofmann, Jr., a partner of JPMP, is a member of the
Board of Managers of the Company. In addition, CSI, Chase and their affiliates
participate on a regular basis in various investment banking and commercial
banking transactions for the Company and its affiliates.
On January 1, 2000, the Company issued 3,655 of its Class A-1 Units to J.P.
Morgan Partners (23A SBIC), LLC, in exchange for 3,655 Class A Units.
On November 11, 2000 the Company issued 1,478 of its Class A-1 Units to J.P.
Morgan Partners (23A SBIC), LLC, in exchange for 1,478 Class A Units.
The Company is a party to the Consulting Agreements with F. Alan Smith, the
Chairman of the Company, and Barry Banducci, a Board Member of the Company. See
"Executive Compensation -- Consulting Agreements."
In connection with the acquisition of the MascoTech Division by the Company,
the Company loaned Mr. Borghi $100,000 to enable him to make his initial equity
investments in the Company. The loan bears interest at 6.2% and matures in
September 2002.
52
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements:
A list of the Consolidated Financial Statements, related notes and
Reports of Independent Accountants is set forth in Item 8 of this report on Form
10-K.
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore have
been omitted.
3. Index to Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Formation of
AAS. Incorporated by reference to Exhibit 3.1 to
AAS' Registration Statement on Form S-4 (File No.
333-49011).
3.2 Third Amended and Restated Operating Agreement of
AAS. Incorporated by reference to Exhibit 3.2 to
AAS' Quarterly Report for the quarterly period
ended September 30, 1999 on Form 10-Q (File No.
333-49011).
3.3 Amended Bylaws of AAS. Incorporated by reference
to Exhibit 3.3 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form
10-Q (File No. 333-49011).
3.4 Third Amended and Restated Members' Agreement
Dated as of September 30, 1999 among Advanced
Accessory Systems, LLC, and the Members that are
parties hereto. Incorporated by reference to
Exhibit 3.4 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form
10-Q (File No. 333-49011).
3.6 Unit Redemption Agreement dated as of October 26,
2000 between MascoTech, Inc. and Advanced
Accessory Systems, LLC.
4.1 Indenture dated as of October 1, 1997 for the
Notes (including the form of New Note attached as
Exhibit B thereto) among the Issuers, the
Guarantors named therein and First Union National
Bank, as Trustee. Incorporated by reference to
Exhibit 4.1 to AAS' Registration Statement on Form
S-4 (File No. 333-49011).
10.1 Asset Purchase Agreement among MascoTech
Automotive Systems Group, Inc., MascoTech
Accessories, Inc. and Advanced Accessory Systems,
LLC dated as of September 28, 1995. Incorporated
by reference to Exhibit 10.1 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.2 Agreement for the Sale and Purchase of Shares in
Brink BV dated October 30, 1996 among AAS
Holdings, Inc., AAS Holdings, LLC, Brink Holding
BV and Brink BV. Incorporated by reference to
Exhibit 10.2 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.3 Asset Purchase Agreement among Bell Sports Corp.,
Bell Sports Canada, Inc. and Advanced Accessory
Systems Canada Inc./Les Systemes d'Accessoire
Advanced Canada Inc. dated as of July 2, 1997.
Incorporated by reference to Exhibit 10.3 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.4 Stock Purchase Agreement dated July 24, 1997 among
Robert Boulard and Alan Hamer and Advanced
Accessory Systems Canada Inc./Les Systems
d'Accessoire Advanced Canada Inc. Incorporated by
reference to Exhibit 10.4 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.5 Asset Purchase Agreement among Valley Industries,
LLC, Valley Industries, Inc., certain affiliates
of Valley Industries, Inc., Robert L. Fisher and
Roger T. Morgan dated as of August 5, 1997.
Incorporated by reference to Exhibit 10.5 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.6 Preliminary Agreement for the Transfer of a
Business dated December 16, 1997 between Ellebi
S.p.A. and Brink Italia S.r.1. and Brink
International B.V. Incorporated by reference to
Exhibit 10.6 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.7 Second Amended and Restated Credit Facility among
AAS, SportRack, LLC, Brink International BV, Brink
BV and Valley Industries, LLC, as Borrowers, NBD
Bank as Administrative Agent and Documentation and
Collateral Agent and The Chase Manhattan Bank as
Co-Administrative Agent and Syndication Agent
dated August 5, 1997. Incorporated by reference to
Exhibit 10.7 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
53
56
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.7(a) Amendment No 1. Dated as of September 5, 1997 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997 and Security Agreements Dated
as of October 5, 1996. Incorporated by reference
to Exhibit 10.7(a) to AAS' Annual Report on Form
10-K (File No. 333-49011) for the fiscal year
ended December 31, 1998.
10.7(b) Amendment No.2 Dated as of September 24, 1997 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7(b) to AAS' Annual Report on Form 10-K
(File No. 333-49011) for the fiscal year ended
December 31, 1998.
10.7(c) Amendment No. 3 Dated as of December 29, 1997 to
Second Amended and Restated Credit Agreement dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7(c) to AAS' Annual Report on Form 10-K
(File No. 333-49011) for the fiscal year ended
December 31, 1998.
10.7(d) Amendment No. 4 Dated as of December 31, 1997 to
Second Amended and restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7(d) to AAS' Annual Report on Form 10-K
(File No. 333-49011) for the fiscal year ended
December 31, 1998.
10.7(e) Amendment No. 5 and Waiver Dated as of December
31, 1998 to Second Amended and Restated Credit
Agreement Dated as of August 5, 1997. Incorporated
by reference to Exhibit 10.7(e) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(f) Amendment No. 6 Dated as of August 10, 1999 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7 (f) to AAS' Annual Report on Form
10-K (File No. 333-49011) for the fiscal year
ended December 31, 1999.
10.7(g) Amendment No. 7 Dated as of September 30, 2000 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7 (g) to AAS' Quarterly Report on Form
10-Q (File No. 333-49011) for the nine months
ended September 30, 2000.
10.8 First Amended and Restated Credit Agreement among
SportRack International, Inc. and First Chicago
NBD Bank, Canada, The Chase Manhattan Bank of
Canada and The Bank of Nova Scotia dated as of
March 19, 1998. Incorporated by reference to
Exhibit 10.8 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.9 Amended and Restated Employment Agreement between
AAS and Richard Borghi dated September 30, 1999.
Incorporated by reference to Exhibit 10.9 to AAS'
Quarterly Report for the quarterly period ended
September 30, 1999 on Form 10-Q (File No.
333-49011).
10.9(a) Amendment No. 1 to the Amended and Restated
Employment Agreement dated August 1, 2000 between
SportRack, LLC and Richard Borghi.
10.11 Management Consulting Agreement between AAS and
Barry Banducci dated September 28, 1995.
Incorporated by reference to Exhibit 10.11 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.12 Management Consulting Agreement between AAS and F.
Alan Smith dated September 28, 1995. Incorporated
by reference to Exhibit 10.12 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.13 Amended and Restated Employment Agreement between
AAS and Terence C. Seikel dated September 30,
1999. Incorporated by reference to Exhibit 10.13
to AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.13(a) Amendment No. 1 to the Amended and Restated
Employment Agreement dated August 1, 2000 between
Advanced Accessory Systems, LLC and Terence C.
Seikel.
10.15 Employment Agreement between Brink B.V. and Gerrit
de Graaf dated November 1, 1996. Incorporated by
reference to Exhibit 10.15 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.17 Lease dated as of January 24, 1997 between Valley
Industries Realty, L.P. and Valley Industries,
Inc. Incorporated by reference to Exhibit 10.17 to
AAS' Registration Statement on Form S-4 (File No.
333-49011).
10.18 Addendum to Sublease dated as of July 2, 1997
between Bell Sports Canada, Inc. and SportRack
International, Inc. (formerly known as Advanced
Accessory Systems Canada Inc./Les Systems
d'Accessoire Advanced Canada Inc.). Incorporated
by reference to Exhibit 10.18 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.18(a) Sublease Amending Agreement made as of the 1st day
of January, 2000, between Bell Sports Canada Inc.
and SportRack Accessories Inc. (previously known
as SportRack International). Incorporated by
reference to Exhibit 10.7 (f) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1999.
10.19 Lease dated May 25, 1994 between VBG Towbars AB
and VBG Produkter AB. Incorporated by reference to
Exhibit 10.19 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.20 Lease Agreement for commercial use between Ellebi
S.p.A. and Brink Italia S.r.l. Incorporated by
reference to Exhibit 10.20 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.21 Registration Rights Agreement dated September 25,
1997 by and among Advanced Accessory Systems, LLC,
AAS Capital Corporation, the Guarantors named
therein and Chase Securities, Inc. and First
Chicago Capital Markets, Inc. Incorporated by
reference to Exhibit 10.21 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.22 Amended and Restated Employment Agreement dated as
of March 14, 2001 between Valley Industries, LLC,
and Bryan Fletcher.
54
57
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.23 Multi-Tenant Industrial Triple Net Lease effective
January 1, 2001 between Santa Fe Bayfront Venture,
a California general partnership and Valley
Industries, LLC a Delaware limited liability
company.
12.1 Statement Re: Computation of ratios
21.1 Subsidiaries of the Registrant Incorporated by
reference to Exhibit 21.1 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
24.1 Power of Attorney
(b) Reports of form 8-K:
None
--------------------
55
58
SIGNATURES
Pursuant to the requirements of the 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.
Advanced Accessory Systems, LLC
By: /s/ TERENCE C. SEIKEL
--------------------------------------------
Terence C. Seikel
President, Chief Executive Officer
(Principal Executive Officer and Authorized
Signatory)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed on the 22nd day of March, 2001,
by the following persons on behalf of the registrant and in the
capacities as indicated.
Signature Title
--------- -----
/s/ TERENCE C. SEIKEL
----------------------------------------- President, Chief Executive Officer and
Terence C. Seikel Manager (Principal Executive and Financial Officer)
/s/ BARRY G. STEELE
----------------------------------------- Corporate Controller (Principal
Barry G. Steele Accounting Officer)
*
----------------------------------------- Chairman of the Board of Managers
F. Alan Smith
*
----------------------------------------- Manager
Barry Banducci
*
----------------------------------------- Manager
Gerard Jacobus Brink
*
----------------------------------------- Manager
Donald J. Hofmann
*
----------------------------------------- Manager
Richard Borghi
*
----------------------------------------- Manager
Bryan Fletcher
*
----------------------------------------- Manager
Gerrit de Graaf
*By: /s/ TERENCE C. SEIKEL
-----------------------------------------
Terence C. Seikel, Attorney-in-Fact
56
59
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Other than this annual report filed on Form 10-K, none.
57
60
ADVANCED ACCESSORY SYSTEMS, LLC-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998,
(DOLLAR AMOUNTS IN THOUSANDS)
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING OF COSTS AND TO OTHER AT END OF
YEAR EXPENSES ACCOUNTS (1) WRITE-OFFS YEAR
------------ ---------- ------------ ---------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
For the year ended December 31,
2000........................................ $ 4,997 $ (1,887) $ (41) $ 929 $ 2,140
1999........................................ 2,766 2,670 (67) 372 4,997
1998........................................ 1,699 2,413 523 1,869 2,766
ALLOWANCE FOR INVENTORY AND
LOWER OF COST OR MARKET RESERVE
-------------------------------
For the year ended December 31,
2000........................................ $ 3,217 $ 1,021 $ 173 $ 1,871 $ 2,540
1999........................................ 3,917 573 (136) 1,137 3,217
1998........................................ 2,590 4,735 15 3,423 3,917
ALLOWANCE FOR REIMBURSABLE TOOLING
----------------------------------
For the year ended December 31,
2000........................................ $ 541 $ 260 $ -- $ 393 $ 414
1999........................................ 324 230 -- 13 541
1998........................................ 890 294 -- 860 324
ALLOWANCE DEFERRED TAX ASSETS
-----------------------------
2000........................................ $ 5,258 $ (86) $ (227) $ -- $ 4,945
1999........................................ 4,225 854 179 -- 5,258
1998........................................ -- 4,225 -- -- 4,225
- ---------------
(1) Charges to other accounts include amounts related to acquired companies
and the effects of changing foreign currency exchange rates for the Company's
foreign subsidiaries.
58
61
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Formation of
AAS. Incorporated by reference to Exhibit 3.1 to
AAS' Registration Statement on Form S-4 (File No.
333-49011).
3.2 Third Amended and Restated Operating Agreement of
AAS. Incorporated by reference to Exhibit 3.2 to
AAS' Quarterly Report for the quarterly period
ended September 30, 1999 on Form 10-Q (File No.
333-49011).
3.3 Amended Bylaws of AAS. Incorporated by reference
to Exhibit 3.3 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form
10-Q (File No. 333-49011).
3.4 Third Amended and Restated Members' Agreement
Dated as of September 30, 1999 among Advanced
Accessory Systems, LLC, and the Members that are
parties hereto. Incorporated by reference to
Exhibit 3.4 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form
10-Q (File No. 333-49011).
3.6 Unit Redemption Agreement dated as of October 26,
2000 between MascoTech, Inc. and Advanced
Accessory Systems, LLC.
4.1 Indenture dated as of October 1, 1997 for the
Notes (including the form of New Note attached as
Exhibit B thereto) among the Issuers, the
Guarantors named therein and First Union National
Bank, as Trustee. Incorporated by reference to
Exhibit 4.1 to AAS' Registration Statement on Form
S-4 (File No. 333-49011).
10.1 Asset Purchase Agreement among MascoTech
Automotive Systems Group, Inc., MascoTech
Accessories, Inc. and Advanced Accessory Systems,
LLC dated as of September 28, 1995. Incorporated
by reference to Exhibit 10.1 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.2 Agreement for the Sale and Purchase of Shares in
Brink BV dated October 30, 1996 among AAS
Holdings, Inc., AAS Holdings, LLC, Brink Holding
BV and Brink BV. Incorporated by reference to
Exhibit 10.2 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.3 Asset Purchase Agreement among Bell Sports Corp.,
Bell Sports Canada, Inc. and Advanced Accessory
Systems Canada Inc./Les Systemes d'Accessoire
Advanced Canada Inc. dated as of July 2, 1997.
Incorporated by reference to Exhibit 10.3 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.4 Stock Purchase Agreement dated July 24, 1997 among
Robert Boulard and Alan Hamer and Advanced
Accessory Systems Canada Inc./Les Systems
d'Accessoire Advanced Canada Inc. Incorporated by
reference to Exhibit 10.4 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.5 Asset Purchase Agreement among Valley Industries,
LLC, Valley Industries, Inc., certain affiliates
of Valley Industries, Inc., Robert L. Fisher and
Roger T. Morgan dated as of August 5, 1997.
Incorporated by reference to Exhibit 10.5 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.6 Preliminary Agreement for the Transfer of a
Business dated December 16, 1997 between Ellebi
S.p.A. and Brink Italia S.r.1. and Brink
International B.V. Incorporated by reference to
Exhibit 10.6 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.7 Second Amended and Restated Credit Facility among
AAS, SportRack, LLC, Brink International BV, Brink
BV and Valley Industries, LLC, as Borrowers, NBD
Bank as Administrative Agent and Documentation and
Collateral Agent and The Chase Manhattan Bank as
Co-Administrative Agent and Syndication Agent
dated August 5, 1997. Incorporated by reference to
Exhibit 10.7 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
62
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.7(a) Amendment No 1. Dated as of September 5, 1997 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997 and Security Agreements Dated
as of October 5, 1996. Incorporated by reference
to Exhibit 10.7(a) to AAS' Annual Report on Form
10-K (File No. 333-49011) for the fiscal year
ended December 31, 1998.
10.7(b) Amendment No.2 Dated as of September 24, 1997 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7(b) to AAS' Annual Report on Form 10-K
(File No. 333-49011) for the fiscal year ended
December 31, 1998.
10.7(c) Amendment No. 3 Dated as of December 29, 1997 to
Second Amended and Restated Credit Agreement dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7(c) to AAS' Annual Report on Form 10-K
(File No. 333-49011) for the fiscal year ended
December 31, 1998.
10.7(d) Amendment No. 4 Dated as of December 31, 1997 to
Second Amended and restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7(d) to AAS' Annual Report on Form 10-K
(File No. 333-49011) for the fiscal year ended
December 31, 1998.
10.7(e) Amendment No. 5 and Waiver Dated as of December
31, 1998 to Second Amended and Restated Credit
Agreement Dated as of August 5, 1997. Incorporated
by reference to Exhibit 10.7(e) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(f) Amendment No. 6 Dated as of August 10, 1999 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7 (f) to AAS' Annual Report on Form
10-K (File No. 333-49011) for the fiscal year
ended December 31, 1999.
10.7(g) Amendment No. 7 Dated as of September 30, 2000 to
Second Amended and Restated Credit Agreement Dated
as of August 5, 1997. Incorporated by reference to
Exhibit 10.7 (g) to AAS' Quarterly Report on Form
10-Q (File No. 333-49011) for the nine months
ended September 30, 2000.
10.8 First Amended and Restated Credit Agreement among
SportRack International, Inc. and First Chicago
NBD Bank, Canada, The Chase Manhattan Bank of
Canada and The Bank of Nova Scotia dated as of
March 19, 1998. Incorporated by reference to
Exhibit 10.8 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.9 Amended and Restated Employment Agreement between
AAS and Richard Borghi dated September 30, 1999.
Incorporated by reference to Exhibit 10.9 to AAS'
Quarterly Report for the quarterly period ended
September 30, 1999 on Form 10-Q (File No.
333-49011).
10.9(a) Amendment No. 1 to the Amended and Restated
Employment Agreement dated August 1, 2000 between
SportRack, LLC and Richard Borghi.
10.11 Management Consulting Agreement between AAS and
Barry Banducci dated September 28, 1995.
Incorporated by reference to Exhibit 10.11 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.12 Management Consulting Agreement between AAS and F.
Alan Smith dated September 28, 1995. Incorporated
by reference to Exhibit 10.12 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.13 Amended and Restated Employment Agreement between
AAS and Terence C. Seikel dated September 30,
1999. Incorporated by reference to Exhibit 10.13
to AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.13(a) Amendment No. 1 to the Amended and Restated
Employment Agreement dated August 1, 2000 between
Advanced Accessory Systems, LLC and Terence C.
Seikel.
10.15 Employment Agreement between Brink B.V. and Gerrit
de Graaf dated November 1, 1996. Incorporated by
reference to Exhibit 10.15 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.17 Lease dated as of January 24, 1997 between Valley
Industries Realty, L.P. and Valley Industries,
Inc. Incorporated by reference to Exhibit 10.17 to
AAS' Registration Statement on Form S-4 (File No.
333-49011).
10.18 Addendum to Sublease dated as of July 2, 1997
between Bell Sports Canada, Inc. and SportRack
International, Inc. (formerly known as Advanced
Accessory Systems Canada Inc./Les Systems
d'Accessoire Advanced Canada Inc.). Incorporated
by reference to Exhibit 10.18 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.18(a) Sublease Amending Agreement made as of the 1st day
of January, 2000, between Bell Sports Canada Inc.
and SportRack Accessories Inc. (previously known
as SportRack International). Incorporated by
reference to Exhibit 10.7 (f) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1999.
10.19 Lease dated May 25, 1994 between VBG Towbars AB
and VBG Produkter AB. Incorporated by reference to
Exhibit 10.19 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.20 Lease Agreement for commercial use between Ellebi
S.p.A. and Brink Italia S.r.l. Incorporated by
reference to Exhibit 10.20 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.21 Registration Rights Agreement dated September 25,
1997 by and among Advanced Accessory Systems, LLC,
AAS Capital Corporation, the Guarantors named
therein and Chase Securities, Inc. and First
Chicago Capital Markets, Inc. Incorporated by
reference to Exhibit 10.21 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.22 Amended and Restated Employment Agreement dated as
of March 14, 2001 between Valley Industries, LLC,
and Bryan Fletcher.
63
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.23 Multi-Tenant Industrial Triple Net Lease effective
January 1, 2001 between Santa Fe Bayfront Venture,
a California general partnership and Valley
Industries, LLC a Delaware limited liability
company.
12.1 Statement Re: Computation of ratios
21.1 Subsidiaries of the Registrant Incorporated by
reference to Exhibit 21.1 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
24.1 Power of Attorney