<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ----------------
--------------
COMMISSION FILE NUMBER
--------------
--------------
[ADVANCED ACCESSORY SYSTEMS LOGO]
ADVANCED ACCESSORY SYSTEMS, LLC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3848156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313
(Address of principal executive offices) (Zip Code)
(810) 997-2900
(Telephone Number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes No X
================================================================================
<PAGE> 2
ADVANCED ACCESSORY SYSTEMS, LLC
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of 1
March 31, 1998 and December 31, 1997
Consolidated Condensed Statements of Income 2
for the Three Months Ended
March 31, 1998 and 1997
Consolidated Condensed Statements of 3
Cash Flows for the Three Months
Ended March 31, 1998 and 1997
Consolidated Condensed Statement of Changes 4
in Members' Equity for the Three Months
Ended March 31, 1998
Notes to Consolidated Condensed Financial 5
Statements
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of
Operations
Item 3. Quantitive and Qualitative Disclosures About 15
Market Risk
Part II. Other Information and Signatures
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of 16
Security-holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
<S> <C> <C>
Current assets
Cash $ 4,926 $ 27,348
Accounts receivable, less reserves
of $1,841 and $1,699, respectively 55,140 43,523
Inventories
Finished goods 16,849 15,624
Work-in-process 13,984 5,040
Raw materials 15,233 13,744
--------- ---------
Total inventory 46,066 34,408
Other current assets 7,451 6,469
--------- ---------
Total current assets 113,583 111,748
Property and equipment, net 62,612 55,928
Goodwill, net 89,499 85,889
Other intangible assets, net 6,992 7,595
Deferred income taxes 4,435 3,626
Other noncurrent assets 907 697
--------- ---------
$ 278,028 $ 265,483
========= =========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities
Current maturities of long-term debt $ 3,875 $ 3,746
Accounts payable 31,459 23,479
Accrued liabilities 21,994 18,815
Deferred income taxes 1,332 1,333
--------- ---------
Total current liabilities 58,660 47,373
--------- ---------
Noncurrent liabilities
Deferred income taxes 3,215 3,545
Other noncurrent liabilities 3,410 1,234
Long-term debt, less current maturities 190,667 193,380
--------- ---------
Total noncurrent liabilities 197,292 198,159
--------- ---------
Mandatorily redeemable warrants 3,582 3,507
--------- ---------
Member's equity
Class A units 23,088 23,163
Currency translation adjustment (464) (490)
Retained earnings (accumulated deficit) (4,130) (6,229)
--------- ---------
18,494 16,444
--------- ---------
$ 278,028 $ 265,483
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE> 4
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Net sales $ 74,027 $ 34,516
Cost of sales 53,978 23,767
-------- --------
Gross profit 20,049 10,749
Selling, administrative and
product development expenses 12,350 6,423
Amortization of intangible assets 785 511
-------- --------
Operating income 6,914 3,815
-------- --------
Other income (expense)
Interest expense (4,936) (2,158)
Foreign currency loss, net (1,042) (3,514)
-------- --------
Income (loss) before minority
interest and income taxes 936 (1,857)
Provision (benefit) for income
taxes (1,171) (1,078)
-------- --------
Income (loss) before minority interest 2,107 (779)
Minority interest -- 21
Net income (loss) $ 2,107 $ (800)
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE> 5
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES:
Net income (loss) $ 2,107 $ (800)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation and amortization 3,496 2,171
Deferred taxes (1,183) (1,164)
Foreign currency loss 1,023 3,572
Changes in assets and liabilities, net (1,182) (5,522)
-------- --------
Net cash provided by (used for) operating
activities 4,261 (1,743)
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of property and equipment (2,444) (742)
Acquisitions, net of cash acquired (21,774) --
-------- --------
Net cash used for investing
activities (24,218) (742)
-------- --------
CASH FLOWS FROM (USED FOR) FINANCING
ACTIVITIES:
Net increase (reduction) in revolving loan (1,900) 2,800
Payments on long-term debt (888) (1,250)
Distributions to members (8) (198)
-------- --------
Net cash provided by (used for) financing
activities (2,796) 1,352
-------- --------
Effect of exchange rate changes 331 (572)
-------- --------
Net increase (decrease) in cash (22,422) (1,705)
Cash at beginning of period 27,348 2,514
-------- --------
Cash at end of period $ 4,926 $ 809
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE> 6
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Currency earnings Total
Class A translation (accumulated members'
units adjustment deficit) equity
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 23,163 $ (490) $ (6,229) $ 16,444
Accretion of membership warrants (75) -- -- (75)
Distributions to members -- -- (8) (8)
Currency translation adjustment -- 26 -- 26
Net income -- -- 2,107 2,107
------------- ------------- ------------- -------------
Balance at March 31, 1998 $ 23,088 $ (464) $ (4,130) $ 18,494
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
4
<PAGE> 7
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which are
normal and recurring in nature, necessary to present fairly its
financial position as of March 31, 1998 and December 31, 1997 and the
results of operations for the three months ended March 31, 1998 and
1997 and cash flows for the three months ended March 31, 1998 and 1997.
2. NEW BUSINESSES
On January 2, 1998 the Company through Brink International B.V.,
acquired the net assets of the towbar segment of Ellebi S.p.A. for an
aggregate purchase price of approximately $22,000, including estimated
costs of the transaction. Ellebi S.p.A. is an Italian manufacturer and
distributor of towing systems to the European automotive OEM market and
aftermarket. The acquisition has been accounted for under the purchase
method of accounting. The excess of the aggregate purchase price over
the estimated fair market value of the net assets acquired was
approximately $3,250. The acquisition was financed primarily through
the Company's Acquisition Revolving Note.
In February 1998, the Company, through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. for an aggregate
purchase price of approximately $1,100, including estimated costs of
the transaction. Transfo-Rakzs is a designer, manufacturer and
distributor of rear hitch rack carrying systems and related products to
Canada and the U.S. The acquisition has been accounted for under the
purchase method of accounting. The excess of the aggregate purchase
price over the estimated fair market value of the net assets acquired
was approximately $900. The acquisition was financed with proceeds from
the Company's Revolving Line of Credit.
In addition to the Ellebi and Transfo-Rakzs acquisitions consummated
during the first quarter of 1998, discussed above, during the third
quarter of 1997 the Company acquired the assets of the business of
Valley Industries, Inc., the assets of the business of the SportRack
division of Bell Sports Canada, Inc. and the stock of Nomadic Sports,
Inc. Each acquisition has been accounted for under the purchase method
of accounting with the results of operations included in the
accompanying financial statements from the respective dates of
acquisition.
Pro forma sales and net (loss) for the first quarter of 1997 are
$61,606, and $(353), respectively. The pro forma data for the first
quarter of 1997 illustrates the estimated effects as if the
acquisitions had been completed January 1, 1997, after including the
impact of certain adjustments for goodwill amortization, depreciation,
interest expense and the related income tax effects. Pro forma data for
the first quarter of 1998 is not presented as such data is
substantially that of the Company for the period. The pro forma results
are not necessarily indicative of the actual results, as if the
transactions had been in effect for the entire period and are not
intended to be a projection of future results of operations.
3. MINORITY INTEREST
Effective December 31, 1997, Chase Capital Partners, a majority owner
of the Company, exchanged its one percent interest in SportRack, LLC,
the Company's then (prior to the exchange) 99% owned subsidiary, for a
one percent interest in the Company. As of that date and during the
three months ended March 31, 1998, no minority interests existed in
any of the Company's subsidiaries. Accordingly, no provision for
minority interest has been made as of and for the three months ended
March 31, 1998.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the first quarter of 1998 and 1997 of
$2.1 million and $ (1.4) million, respectively, includes reported net
income (loss) adjusted by the non-cash effect of changes in the
cumulative translation adjustment.
5
<PAGE> 8
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION
On October 1, 1997, the Company and its wholly-owned subsidiary, AAS
Capital Corporation, issued and sold $125,000 of its 9 3/4 Senior
Subordinated Notes due 2007 ("the Notes"). The Notes are guaranteed on
a full, unconditional and joint and several basis by all of the
Company's direct and indirect wholly-owned domestic subsidiaries. The
following condensed consolidating financial information 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. and its
subsidiaries, SportRack International, Inc., and SportRack Automotive
GmbH. The guarantor and non-guarantor subsidiaries for the three months
ended March 31, 1998 have been allocated a portion of certain corporate
overhead costs on a basis consistent with each subsidiary's relative
business activity, including interest on intercompany debt balances.
During the three month period ended March 31, 1997 only foreign
subsidiaries have been charged interest on intercompany balances.
Separate financial statements of the guarantor subsidiaries are not
presented because management has determined that the separate financial
statements are not material to investors. Since its formation in
September 1997, AAS Capital Corporation has had no operations and has
no assets or liabilities at March 31, 1998.
6
<PAGE> 9
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------- ----------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................... $ -- $ 521 $ 4,405 $ -- $ 4,926
Accounts receivable.................... -- 35,552 19,588 -- 55,140
Inventories............................ -- 16,001 30,065 -- 46,066
Other current assets................... -- 5,193 2,258 -- 7,451
----------- ----------- ----------- ----------- ----------
Total current assets.............. -- 57,267 56,316 -- 113,583
----------- ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 27,813 34,799 -- 62,612
Goodwill, net............................ 1,135 60,887 27,477 -- 89,499
Intangible assets, net................... 5,439 681 872 -- 6,992
Deferred income taxes and other
noncurrent assets...................... -- 122 5,220 -- 5,342
Investment in subsidiaries............... 29,641 10,022 -- (39,663) --
Intercompany notes receivable............ 115,096 -- -- (115,096) --
------------ ----------- ----------- ----------- ----------
Total Assets...................... $ 151,311 $ 156,792 $ 124,684 $ (154,759) $ 278,028
============ =========== =========== =========== ==========
LIABILITIES AND MEMBER'S
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 3,875 $ -- $ 3,875
Accounts payable....................... -- 20,995 10,464 -- 31,459
Accrued liabilities and deferred
income taxes......................... 6,349 6,388 10,589 -- 23,326
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 6,349 27,383 24,928 -- 58,660
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 691 1,167 4,767 -- 6,625
Long-term debt, less current maturities.. 124,543 -- 66,124 -- 190,667
Intercompany debt........................ -- 86,816 28,280 (115,096) --
Mandatorily redeemable warrants.......... 3,582 -- -- -- 3,582
Members' equity.......................... 16,146 41,426 585 (39,663) 18,494
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity............................ $ 151,311 $ 156,792 $ 124,684 $ (154,759) $ 278,028
============ =========== =========== =========== ==========
</TABLE>
7
<PAGE> 10
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash .................................. $ -- $ 2,217 $ 25,131 $ -- $ 27,348
Accounts receivable ................... -- 31,649 11,874 -- 43,523
Inventories ........................... -- 14,835 19,573 -- 34,408
Other current assets .................. -- 4,912 1,557 -- 6,469
--------- --------- --------- --------- ---------
Total current assets ............. -- 53,613 58,135 -- 111,748
--------- --------- --------- --------- ---------
Property and equipment, net ............. -- 28,009 27,919 -- 55,928
Goodwill, net ........................... 1,145 61,431 23,313 -- 85,889
Intangible assets, net .................. 5,558 722 1,315 -- 7,595
Deferred income taxes and other
noncurrent assets ..................... -- 384 3,939 -- 4,323
Investment in subsidiaries .............. 26,500 10,022 -- (36,522) --
Intercompany notes receivable ........... 115,056 -- -- (115,056) --
--------- --------- --------- --------- ---------
Total Assets ..................... $ 148,259 $ 154,181 $ 114,621 $(151,578) $ 265,483
========= ========= ========= ========= =========
LIABILITIES AND MEMBER'S
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 3,746 $ -- $ 3,746
Accounts payable ...................... -- 19,053 4,426 -- 23,479
Accrued liabilities and deferred
income taxes ........................ 4,202 7,180 8,766 -- 20,148
--------- --------- --------- --------- ---------
Total current liabilities ........ 4,202 26,233 16,938 -- 47,373
--------- --------- --------- --------- ---------
Deferred income taxes and other
noncurrent liabilities ................ -- 1,318 3,461 -- 4,779
Long-term debt, less current maturities . 126,436 -- 66,944 -- 193,380
Intercompany debt ....................... -- 89,218 25,838 (115,056) --
Mandatorily redeemable warrants ......... 3,507 -- -- -- 3,507
Members' equity ......................... 14,114 37,412 1,440 (36,522) 16,444
--------- --------- --------- --------- ---------
Total liabilities and members'
equity ........................... $ 148,259 $ 154,181 $ 114,621 $(151,578) $ 265,483
========= ========= ========= ========= =========
</TABLE>
8
<PAGE> 11
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 51,217 $ 22,810 $ -- $ 74,027
Cost of sales............................ -- 38,436 15,542 -- 53,978
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 12,781 7,268 -- 20,049
Selling, administrative and product
development expenses................... 171 5,973 6,206 -- 12,350
Amortization of intangible assets........ 10 543 232 -- 785
---------- ---------- ----------- ---------- ----------
Operating income (loss) ............... (181) 6,265 830 -- 6,914
Interest expense......................... 853 1,919 2,164 -- 4,936
Equity in income (loss) of subsidiaries.. 3,141 -- -- (3,141) --
Foreign currency (gain) loss............. -- -- 1,042 -- 1,042
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 2,107 4,346 (2,376) (3,141) 936
Provision (benefit) for income taxes..... -- -- (1,171) -- (1,171)
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 2,107 $ 4,346 $ (1,205) $ (3,141) $ 2,107
========== ========== =========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 20,231 $ 14,285 $ -- $ 34,516
Cost of sales............................ -- 13,913 9,854 -- 23,767
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 6,318 4,431 -- 10,749
Selling, administrative and product
development expenses................... 188 2,852 3,383 -- 6,423
Amortization of intangible assets........ 20 274 217 -- 511
---------- ---------- ----------- ---------- ----------
Operating income (loss) ............... (208) 3,192 831 -- 3,815
Interest expense......................... 215 908 1,035 -- 2,158
Equity in income (loss) of subsidiaries.. (354) -- -- 354 --
Foreign currency (gain) loss............. 2 40 3,472 -- 3,514
---------- ---------- ----------- ---------- ----------
Income (loss) before minority interest
and income taxes...................... (779) 2,244 (3,676) 354 (1,857)
Provision (benefit) for income taxes..... -- -- (1,078) -- (1,078)
---------- ---------- ----------- ---------- ----------
Income (loss) before minority
interest............................. (779) 2,244 (2,598) 354 (779)
Minority interest........................ -- -- -- 21 21
---------- ---------- ---------- ---------- ----------
Net income (loss)........................ $ (779) $ 2,244 $ (2,598) $ 333 $ (800)
========== ========== =========== ========== ==========
</TABLE>
9
<PAGE> 12
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities.............................. $ 1,940 $ 3,562 $ (1,241) $ -- $ 4,261
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment... -- (1,938) (506) -- (2,444)
Acquisitions, net of cash acquired...... -- -- (21,774) -- (21,774)
---------- --------- ---------- ---------- ----------
Net cash used for investing activities.. -- (1,938) (22,280) -- (24,218)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............. (32) (2,863) 2,903 (8) --
Increase (decrease) in revolving loan... (1,900) -- -- -- (1,900)
Repayment of debt....................... -- -- (888) -- (888)
Distributions to members................ (8) (8) -- 8 (8)
---------- --------- ---------- ---------- ----------
Net cash provided by financing
activities............................ (1,940) (2,871) 2,015 -- (2,796)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 331 -- 331
Net increase (decrease) in cash........... -- (1,247) (21,175) -- (22,422)
Cash at beginning of period............... -- 2,761 24,587 -- 27,348
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 1,514 $ 3,412 $ -- $ 4,926
========== ========= ========== ========== ==========
</TABLE>
10
<PAGE> 13
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities.............................. $ -- $ 324 $ (2,067) $ -- $ (1,743)
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................ -- (369) (373) -- (742)
---------- --------- ---------- ---------- ----------
Net cash used for investing activities... -- (369) (373) -- (742)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............. 196 (2,414) 2,414 (196) --
Increase in revolving loan.............. -- 2,800 -- -- 2,800
Repayment of debt....................... -- (162) (1,088) -- (1,250)
Distributions to members................ (196) (198) -- 196 (198)
---------- --------- ---------- ---------- ----------
Net cash provided by financing
activities............................ -- 26 1,326 -- 1,352
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- (572) -- (572)
Net increase (decrease) in cash........... -- (19) (1,686) -- (1,705)
Cash at beginning of period............... -- 91 2,423 -- 2,514
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 72 $ 737 $ -- $ 809
========== ========= ========== ========== ==========
</TABLE>
11
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
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-Q. Discussions containing forward-looking statements may be found in the
material set forth below. These may include statements projecting, forecasting
or estimating Company performance and industry trends. General risks that may
impact the achievement of such forecasts include, but are not limited to:
compliance with new laws and regulations, general economic conditions in the
markets in which the Company operates, fluctuation in demand for the Company's
products, significant raw material price fluctuations, and other business
factors. 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. All of
these forward-looking statements are based on estimates and assumptions made by
management of the Company which, although believed to be reasonable, are
inherently uncertain. The Company does not intend to update these
forward-looking statements.
GENERAL
Chase Capital Partners 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. In September 1995, the Company, through its SportRack, LLC subsidiary
("SportRack"), acquired substantially all of the net assets of the MascoTech
Accessories division of MascoTech, Inc., a North American supplier of rack
systems and accessories to the automotive original equipment manufacturers
("OEM") market and aftermarket.
In October 1996, the Company acquired all 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 and accessories 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 to acquire
the net assets of Valley Industries, Inc. ("Valley"), a North American supplier
of towing systems and accessories to the automotive OEM market and aftermarket.
Two smaller acquisitions were completed in July 1997 by a subsidiary of
SportRack, SportRack International, Inc. SportRack International acquired from
Bell Sports Corporation the net assets of its SportRack division, a Canadian
supplier of rack systems and accessories to the automotive aftermarket.
SportRack International also acquired the capital stock of Nomadic Sports, Inc.,
a Canadian supplier of rack systems and accessories to the automotive OEM market
and aftermarket.
In January 1998, the Company through Brink International B.V., acquired
the net assets of the towbar segment of Ellebi S.p.A. ("Ellebi") for an
aggregate purchase price of approximately $22 million including estimated costs
of the transaction. Ellebi is an Italian manufacturer and distributor of towing
systems to the European automotive OEM market and aftermarket. The acquisition
was financed primarily through the Company's acquisition revolving note. Total
revenue for Ellebi was $21.3 million for the year ended December 31, 1997.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. (Tranfo-Rakzs) for an aggregate
purchase price of approximately $1.1 million, including estimated costs of the
transaction. Transfo-Rakzs is a designer, manufacturer and distributor of rear
hitch rack carrying systems and related products to Canada and the U.S. The
acquisition was financed primarily through borrowings under the Company's
revolving credit facility. Total revenue for Transfo-Rakzs, Inc. was $498,000
for the year ended December 31, 1997.
In each instance, the acquisition was accounted for in accordance with
the purchase method of accounting and the operating results of the acquired
company have been included in the Company's consolidated financial statements
since the date of the respective acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997.
Net Sales. Net sales for the first quarter of 1998 were $74.0 million,
representing an increase of $39.5 million, or 114.5%, over net sales for the
first quarter of 1997. This increase resulted primarily from the acquisitions of
Valley, SportRack International, Ellebi and Transfo-Rakzs which combined net
sales totaled $30.7 during the first quarter of 1998. The remaining increase of
$8.8 million is attributable to continued net sales growth of the Company's
SportRack and Brink subsidiaries.
12
<PAGE> 15
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Gross Profit. Gross profit for the first quarter of 1998 was $20.0
million, representing an increase of $9.3 million, or 86.5%, over the gross
profit for the first quarter of 1997. This increase resulted primarily from the
increase in net sales, partially offset by a decrease in the gross margin
percentage. Gross profit as a percentage of net sales was 27.1% in the first
quarter of 1998 compared to 31.1% in the first quarter of 1997. This decrease in
gross profit margins resulted from lower gross profit margins of newly acquired
businesses, particularly at SportRack International, which had high development
costs and a significant weather related disruption in operations in January
1998.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for the first quarter of 1998
were $12.4 million, representing an increase of $5.9 million, or 92.3%, over the
selling, administrative and product development expenses for the first quarter
of 1997, reflecting the increase in net sales. Selling, administrative and
product development expenses as a percentage of net sales decreased to 16.7% in
the first quarter of 1998 from 18.6% in the first quarter of 1996. This decrease
relative to net sales reflects the impact of spreading certain fixed costs over
a higher sales base offset partially by higher selling, administrative and
product development expense as a percentage of net sales for newly acquired
businesses.
Operating income. Operating income for the first quarter of 1998 was
$6.9 million, an increase of $3.1 million, or 81.2%, over operating income for
the first quarter of 1997 reflecting the increase in net sales. Operating income
as a percentage of net sales decreased to 9.3% in the first quarter of 1998 from
11.1% in the first quarter of 1997 reflecting a decrease in gross margins,
offset partially by a decrease in selling, general and product development
expenses as a percentage of net sales.
Interest expense. Interest expense for the first quarter of 1998 was
$4.9 million, an increase of $2.8 million, or 128.7%, over interest expense for
the first quarter of 1997. The increase was primarily due to additional
borrowings to finance (i) the acquisition of SportRack International in July
1997, (ii) the acquisition of Valley in August 1997, (iii) the acquisition of
Ellebi in January 1998, (iv) the acquisition of Transfo-Rakzs in February 1998
and (v) the effect of the issuance of $125 million of the Company's 9 3/4 Senior
Subordinated Notes in October 1997, which proceeds were used to repay debt from
the acquisition of Valley and other then existing debt.
Foreign currency loss. Foreign currency loss in the first quarter of
1998 was $1.0 million, compared to a foreign currency loss of $3.5 million in
the first quarter of 1997. The Company's Foreign currency loss is primarily
related to Brink which has indebtedness denominated in U.S. dollars. During the
first quarter of 1997 the U.S. dollar began to strengthen significantly in
relation to the Dutch Guilder, the functional currency of Brink. At December 31,
1996, the exchange rate of the Dutch Guilder to the U.S. dollar was 1.75:1,
whereas at March 31, 1997 the exchange rate was 1.88:1, or a 7.4% decline in the
relative value of the Dutch Guilder. In the first quarter of 1998, the
relationship between the two currencies has become less volatile. At December
31, 1997, the exchange rate of the Dutch Guilder to the U.S. dollar was 2.02:1,
whereas at March 31, 1998 the exchange rate was 2.05:1, or a 1.5% decline in the
relative value of the Dutch Guilder during the quarter.
Net income (loss). Net income for the first quarter of 1998 was $2.1
million, as compared to a net loss of $800,000 in the first quarter of 1997, an
increase of $2.9 million. The increase in net income is attributable to
increased operating income and decreased foreign currency loss offset by
increased interest expense related to the acquisitions of Valley, SportRack
International, Ellebi and Transfo-Rakzs.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's principal liquidity requirements are to service its debt
under its Amended and Restated Credit Agreement, the Canadian Credit Agreement
and the Company's Senior Subordinated Notes, and to meet its working capital and
capital expenditure needs.
Working capital at March 31, 1998 was $54.9 million, a decrease of $9.5
million as compared to December 31, 1997. Cash decreased to $4.9 million at
March 31, 1998 from $27.3 million at December 31, 1997 primarily as a result of
the purchase of Ellebi in January 1998 for approximately $21.0 million. Accounts
receivable, inventories, and accounts payable at March 31, 1998 increased $11.6
million, $11.7 million, and $8.0 million, respectively, as compared to December
31, 1997; the Ellebi and Transfo-Rakzs acquisitions resulted in $4.2 million,
$11.3 million, and $2.3 million, respectively of the increases. Increased sales
in the first quarter as compared to the fourth quarter of 1997, attributable to
seasonal activity in the European towing systems aftermarket and continued
growth in the U.S. OEM light truck market, caused increases in accounts
receivable of approximately $7.4 million. Accounts payable increased by
approximately $5.7 million during the quarter as a result of the timing of
payments to suppliers and increased business activity.
13
<PAGE> 16
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Key elements of the consolidated statement of cash flows are:
<TABLE>
<CAPTION>
First Quarter
1998 1997
---- ----
<S> <C> <C>
Net cash provided by (used for) operating activities $ 4,261 $ (1,743)
Net cash used in investing activities (24,218) (742)
Net cash provided by (used for) financing activities (2,796) 1,352
</TABLE>
Cash flows from operating activities reflect the Company's net income,
adjusted for non-cash items and changes in working capital. Non-cash charges for
depreciation and amortization were $3.5 million and $2.2 million for the first
quarters of 1998 and 1997, respectively.
Investing cash flows include acquisitions of property and equipment of
$2.4 million and $742,000 during the first quarter of 1998 and 1997,
respectively. Increased acquisitions of property and equipment reflect greater
volume of equipment replacement and upgrades for Valley and SportRack
International, which were acquired during the third quarter of 1997. The
Company's ability to make capital expenditures is subject to restrictions under
the Credit Agreement.
Investing cash flows also include $21.8 million during the first
quarter of 1998 for the acquisition of Ellebi and Transfo-Rakzs. The Company
expects to make an additional payment to the sellers of Ellebi totaling $1.1
million during the second quarter of 1998 representing the final installment for
the purchase of Ellebi.
Financing cash flows for the first quarter of 1998 and 1997 included,
(i) scheduled principal repayments under the Company's term notes of $888,000
and $1.3 million, respectively, (ii) net repayments of $1.9 million in 1998 and
net borrowings of $2.8 million in 1997 under the Company's revolving credit
facilities, and (iii) distributions to members in amounts sufficient to meet
their tax liability on the Company's domestic taxable income which accrues to
individual members.
CAPITAL RESOURCES
The Company's indebtedness was $194.5 million and $197.1 million at
March 31, 1998 and December 31, 1997, respectively. The Company expects that its
primary sources of cash will be from operating activities and borrowings under
its Revolving Credit Facilities. As of March 31, 1998, the Company had borrowed
$2.8 million under the revolving credit facilities and had $22.2 million of
available borrowing capacity. Management believes that, as of March 31, 1998,
the Company was in compliance with the various covenants under the debt
agreements pursuant to which it has borrowed or may borrow money and believes
the Company will remain in compliance with such covenants in all material
respects through the period ending March 31, 1999. Management believes that,
based on current and expected levels of operations, cash flows from operations
and borrowings under the Revolving Credit Facilities will be sufficient to fund
its debt service requirements, working capital needs, and capital expenditures
for the foreseeable future, although no assurances can be given in this regard.
The Company intends to pursue acquisitions which will expand its
customer base by providing an entree to new customers, including expansion into
selected geographic areas. Management believes that such acquisitions should
provide additional opportunities for increased net sales and cash flow by
enhancing the Company's manufacturing and marketing capabilities. However,
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.
Capital expenditures for the first quarter of 1998 were $2.4 million.
The Company expects that capital expenditures for 1998 will be approximately
$10.0 million, the 1998 limit under the Company's Credit Agreement, and that
such expenditures will be adequate for normal growth and replacement.
14
<PAGE> 17
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
INTERNATIONAL OPERATIONS
For the first quarter of 1998, approximately 31% of net sales were from
international operations. As of March 31, 1998, approximately 45 % of
identifiable assets were associated with these operations and the company had
debt denominated in currencies other than the U.S. dollar of approximately $16.7
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 revenues, costs and expenses of
these operations are denominated in the local currencies. The financial position
and results of operations of these foreign subsidiaries are measured using the
local currency as the functional currency. 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 balance of
these contracts as of March 31, 1998 was not significant, and the Company does
not use derivative financial instruments for trading or speculative purposes.
YEAR 2000
The Company has established an internal task force at each significant
operating subsidiary to develop and implement a plan to address Year 2000
issues, including relationships with customers and suppliers. While the
assessment is ongoing, based on currently available information the Company
believes that it will be able to resolve Year 2000 issues in a timely manner
through modification, upgrading or replacement of certain externally purchased
software to Year 2000 compliant versions and upgrading or replacing certain
machinery and equipment through normal, or in some cases accelerated,
replacement programs. The Company does not believe that the incremental cost
to resolve the Year 2000 issues will have a material impact on capital
expenditures or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information," and No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which require a change in the
method for determining and reporting business segment information and revise
employer's disclosures about pension and other postretirement benefit plans.
Although, the Company operates in one business segment, SFAS No. 131 will
require the Company to report revenues and long-lived assets on a country level.
SFAS No. 132 will standardize the Company's disclosure requirements for pensions
and other postretirement benefits and requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. These statements will be
adopted by the Company in fiscal 1998 as required and, as such statements relate
to matters of disclosure, will not have an effect upon the Company's operating
results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
15
<PAGE> 18
ADVANCED ACCESSORY SYSTEMS, LLC
PART II. OTHER INFORMATION AND SIGNITURE
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-holders
None
Items 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
---------------- -----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE> 19
ADVANCED ACCESSORY SYSTEMS, LLC
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED ACCESSORY SYSTEMS, LLC
(Registrant)
Date: May 15, 1998 /s/ TERENCE C. SEIKEL
---------------------
Terence C. Seikel
Vice President, Finance and Administration
- Chief Financial Officer
(chief accounting officer
and authorized signatory)
17
<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,926
<SECURITIES> 0
<RECEIVABLES> 55,140
<ALLOWANCES> 1,841
<INVENTORY> 46,066
<CURRENT-ASSETS> 113,583
<PP&E> 62,612
<DEPRECIATION> 10,918
<TOTAL-ASSETS> 278,028
<CURRENT-LIABILITIES> 58,660
<BONDS> 194,542
0
0
<COMMON> 0
<OTHER-SE> 18,494
<TOTAL-LIABILITY-AND-EQUITY> 278,028
<SALES> 74,027
<TOTAL-REVENUES> 74,027
<CGS> 53,978
<TOTAL-COSTS> 53,978
<OTHER-EXPENSES> 19,113
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> 4,936
<INCOME-PRETAX> 936
<INCOME-TAX> (1,171)
<INCOME-CONTINUING> 2,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,107
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
