<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 June 30, 2000
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 333-49011
-----------------------
--------------
[ADVANCED ACCESSORY SYSTEMS, LLC. 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 |X| No
================================================================================
<PAGE> 2
ADVANCED ACCESSORY SYSTEMS, LLC
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of 1
June 30, 2000 and December 31, 1999
Consolidated Condensed Statements of Income 2
for the Three and Six Months Ended
June 30, 2000 and 1999
Consolidated Condensed Statements of 3
Cash Flows for the Six Months
Ended June 30, 2000 and 1999
Consolidated Condensed Statement of Changes 4
in Members' Equity for the Six Months
Ended June 30, 2000
Notes to Consolidated Condensed Financial 5
Statements
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures About 18
Market Risk
Part II. Other Information and Signature
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of 18
Security-holders
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 4,617 $ 8,718
Accounts receivable, less reserves
of $4,657 and $4,997, respectively 62,528 46,918
Inventories
Finished goods 13,108 15,523
Work-in-process 11,065 9,871
Raw materials 14,530 13,043
------------- --------------
Total inventory 38,703 38,437
Deferred income taxes 2,120 1,804
Other current assets 7,434 4,879
------------- --------------
Total current assets 115,402 100,756
Property and equipment, net 58,599 59,316
Goodwill, net 79,244 80,674
Other intangible assets, net 5,115 5,729
Deferred income taxes 1,868 1,922
Other noncurrent assets 2,749 2,816
------------- --------------
$ 262,977 $ 251,213
============= ==============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 11,591 $ 12,449
Accounts payable 33,143 26,715
Accrued liabilities 26,071 24,767
------------- --------------
Total current liabilities 70,805 63,931
------------- --------------
Noncurrent liabilities
Deferred income taxes 1,532 1,772
Other noncurrent liabilities 4,450 4,320
Long-term debt, less current maturities 164,889 166,049
------------- --------------
Total noncurrent liabilities 170,871 172,141
------------- --------------
Mandatorily redeemable warrants 4,960 4,810
------------- --------------
Members' equity
Class A Units 17,998 18,083
Other comprehensive loss (1,009) (1,496)
Accumulated deficit (648) (6,256)
------------- --------------
16,341 10,331
------------- --------------
$ 262,977 $ 251,213
============= ==============
</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 AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 92,448 $ 89,572 $ 177,442 $ 167,607
Cost of sales 66,535 63,229 128,335 119,470
------------- ------------- ------------- --------------
Gross profit 25,913 26,343 49,107 48,137
Selling, administrative and
product development expenses 11,571 13,022 23,898 26,419
Amortization of intangible assets 726 779 1,512 1,568
------------- ------------- ------------- --------------
Operating income 13,616 12,542 23,697 20,150
------------- ------------- ------------- --------------
Other income (expense)
Interest expense (4,542) (4,409) (8,963) (8,855)
Foreign currency loss, net (490) (1,646) (3,954) (5,619)
Other expense (316) -- (1) (2,000)
------------- ------------- ------------- --------------
Income before income taxes 8,268 6,487 10,779 3,676
Provision (benefit) for income taxes 1,120 847 8 (131)
------------- ------------- ------------- --------------
Net income $ 7,148 $ 5,640 $ 10,771 $ 3,807
============= ============= ============= ==============
</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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 10,771 $ 3,807
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,057 7,537
Loss on disposal of property and equipment 2 6
Deferred taxes (585) (1,957)
Foreign currency loss 2,971 4,219
Changes in assets and liabilities, net (11,225) (9,812)
------------- --------------
Net cash provided by operating
activities 8,991 3,800
------------- --------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of property and equipment (5,605) (6,100)
Acquisition, net of cash acquired (1,515) --
------------- --------------
Net cash used for investing activities (7,120) (6,100)
------------- --------------
CASH FLOWS USED FOR FINANCING
ACTIVITIES:
Net increase (reduction) in revolving loan 6,286 4,500
Collection on notes receivable for unit purchase 65 31
Payments on long-term debt (8,086) (5,537)
Issuance of membership units -- 50
Repurchase of membership units -- (26)
Distributions to members (5,163) (3,706)
------------- --------------
Net cash used for financing activities (6,898) (4,688)
------------- --------------
Effect of exchange rate changes 926 1,823
------------- --------------
Net decrease in cash (4,101) (5,165)
Cash at beginning of period 8,718 11,240
------------- --------------
Cash at end of period $ 4,617 $ 6,075
============= ==============
</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 SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Other Total
Class A comprehensive Accumulated members'
Units loss deficit equity
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 18,083 $ (1,496) $ (6,256) $ 10,331
Collection on notes receivable for unit purchase 65 -- -- 65
Accretion of membership warrants (150) -- -- (150)
Distributions to members -- -- (5,163) (5,163)
Currency translation adjustment -- 487 -- 487
Net income -- -- 10,771 10,771
------------- ------------- ------------- -------------
Balance at June 30, 2000 $ 17,998 $ (1,009) $ (648) $ 16,341
============= ============= ============= =============
</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 June 30, 2000 and December 31, 1999 and the
results of its operations for the three and six months ended June 30,
2000 and 1999 and its cash flows for the six months ended June 30, 2000
and 1999.
These consolidated condensed financial statements should be read
together with the Company's audited financial statements presented in
the Company's Annual Report on Form 10-K for the year ended December
31, 1999, filed with the Securities and Exchange Commission on March
22, 2000.
2. 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 $3,800
plus interest and reasonable attorney fees. The Company plans to file
an appeal once a judgment, expected during the third quarter of 2000,
is made by the court. The Company has issued a $6,350 letter of credit
benefiting the plaintiffs pending the resolution of the matter. During
the first quarter of 1999, the Company increased its estimated accrual
for this matter by $2,000 which charge is included in other expense. No
amounts have been paid as of June 30, 2000.
3. COMPREHENSIVE INCOME
Comprehensive income for the second quarter of 2000 and 1999 of $7,261
and $5,069, respectively, and for the first half of 2000 and 1999 of
$11,258 and $2,972, respectively, includes reported net income adjusted
by the effect of changes in the cumulative translation adjustment.
4. SIGNIFICANT EVENT
During the second quarter 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 is in the process of working with its
customer to provide technical and other support in response to the
recall. Management can not estimate at this time what the financial
impact would be to the Company, if any, as a result of the recall.
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 its subsidiary, and
SportRack Automotive GmbH and its subsidiaries. The guarantor and
non-guarantor subsidiaries for the three and six months ended June 30,
2000 and 1999 have been allocated a portion of certain corporate
overhead costs on a basis consistent with each subsidiary's relative
business activity and interest on intercompany debt 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 June 30, 2000.
5
<PAGE> 8
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION-- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
<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................................... $ 498 $ 39 $ 4,080 $ -- $ 4,617
Accounts receivable.................... -- 39,416 23,112 -- 62,528
Inventories............................ -- 17,152 21,551 -- 38,703
Other current assets................... 37 6,187 3,330 -- 9,554
------------ ----------- ----------- ----------- ----------
Total current assets.............. 535 62,794 52,073 -- 115,402
------------ ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 34,428 24,171 -- 58,599
Goodwill, net............................ 1,045 57,242 20,957 -- 79,244
Intangible assets, net................... 4,200 180 735 -- 5,115
Deferred income taxes and other
noncurrent assets...................... 93 2,036 2,488 -- 4,617
Investment in subsidiaries............... 57,243 9,955 -- (67,198) --
Intercompany notes receivable............ 97,176 -- -- (97,176) --
------------ ----------- ----------- ----------- ----------
Total Assets...................... $ 160,292 $ 166,635 $ 100,424 $ (164,374) $ 262,977
============ =========== =========== =========== ==========
LIABILITIES AND MEMBERS'
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 11,591 $ -- $ 11,591
Accounts payable....................... -- 22,754 10,389 -- 33,143
Accrued liabilities and deferred
income taxes......................... 5,418 8,564 12,089 -- 26,071
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 5,418 31,318 34,069 -- 70,805
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 1,778 696 3,508 -- 5,982
Long-term debt, less current maturities.. 130,901 -- 33,988 -- 164,889
Intercompany debt........................ -- 53,596 43,580 (97,176) --
Mandatorily redeemable warrants.......... 4,960 -- -- -- 4,960
Members' equity.......................... 17,235 81,025 (14,721) (67,198) 16,341
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity............................ $ 160,292 $ 166,635 $ 100,424 $ (164,374) $ 262,977
============ =========== =========== =========== ==========
</TABLE>
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
DECEMBER 31, 1999
<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................................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718
Accounts receivable.................... -- 32,087 14,831 -- 46,918
Inventories............................ -- 16,361 22,076 -- 38,437
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
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
============ =========== =========== ========== ==========
</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 STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------------- ----------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 63,538 $ 28,910 $ -- $ 92,448
Cost of sales............................ -- 48,110 18,425 -- 66,535
------------ ---------- ----------- ---------- ----------
Gross profit........................... -- 15,428 10,485 -- 25,913
Selling, administrative and product
development expenses................... 142 6,276 5,153 -- 11,571
Amortization of intangible assets........ 9 528 189 -- 726
------------ ---------- ----------- ---------- ----------
Operating income (loss)................ (151) 8,624 5,143 -- 13,616
Interest expense......................... 1,514 1,189 1,839 -- 4,542
Equity in income of subsidiaries......... 8,813 -- -- (8,813) --
Foreign currency loss.................... -- -- 490 -- 490
Other income (expense)................... -- (309) (7) -- (316)
------------ ---------- ----------- ---------- ----------
Income before income taxes............... 7,148 7,126 2,807 (8,813) 8,268
Provision for income taxes............... -- -- 1,120 -- 1,120
------------ ---------- ----------- ---------- ----------
Net income............................... $ 7,148 $ 7,126 $ 1,687 $ (8,813) $ 7,148
============ ========== =========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ --------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 57,310 $ 32,262 $ -- $ 89,572
Cost of sales............................ -- 42,208 21,021 -- 63,229
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 15,102 11,241 -- 26,343
Selling, administrative and product
development expenses................... 369 6,263 6,390 -- 13,022
Amortization of intangible assets........ 10 549 220 -- 779
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (379) 8,290 4,631 -- 12,542
Interest expense......................... 728 1,823 1,858 -- 4,409
Equity in income of subsidiaries......... 8,703 -- -- (8,703) --
Foreign currency loss.................... -- -- 1,646 -- 1,646
---------- ---------- ----------- ---------- ----------
Income before income taxes............... 7,596 6,467 1,127 (8,703) 6,487
Provision for income taxes............... -- -- 847 -- 847
---------- ---------- ----------- ---------- ----------
Net income............................... $ 7,596 $ 6,467 $ 280 $ (8,703) $ 5,640
========== ========== =========== ========== ==========
</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 SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------------- -------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 123,218 $ 54,224 $ -- $ 177,442
Cost of sales............................ -- 92,748 35,587 -- 128,335
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 30,470 18,637 -- 49,107
Selling, administrative and product
development expenses................... 492 12,664 10,742 -- 23,898
Amortization of intangible assets........ 18 1,098 396 -- 1,512
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (510) 16,708 7,499 -- 23,697
Interest expense......................... 2,897 2,344 3,722 -- 8,963
Equity in income of subsidiaries......... 14,178 -- -- (14,178) --
Foreign currency loss.................... -- -- 3,954 -- 3,954
Other income (expense)................... -- (309) 308 -- (1)
---------- ---------- ----------- ---------- ----------
Income before income taxes............... 10,771 14,055 131 (14,178) 10,779
Provision for income taxes............... -- -- 8 -- 8
---------- ---------- ----------- ---------- ----------
Net income............................... $ 10,771 $ 14,055 $ 123 $ (14,178) $ 10,771
========== ========== =========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------- ------------ ---------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 110,150 $ 57,457 $ -- $ 167,607
Cost of sales............................ -- 81,426 38,044 -- 119,470
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 28,724 19,413 -- 48,137
Selling, administrative and product
development expenses................... 1,505 13,041 11,873 -- 26,419
Amortization of intangible assets........ 20 1,098 450 -- 1,568
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,525) 14,585 7,090 -- 20,150
Interest expense......................... 2,435 2,953 3,467 -- 8,855
Equity in income (loss) of subsidiaries.. 9,767 -- -- (9,767) --
Foreign currency loss.................... -- -- 5,619 -- 5,619
Other income (expense)................... (2,000) -- -- -- (2,000)
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 3,807 11,632 (1,996) (9,767) 3,676
Provision (benefit) for income taxes..... -- -- (131) -- (131)
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 3,807 $ 11,632 $ (1,865) $ (9,767) $ 3,807
========== ========== =========== ========== ==========
</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 SIX MONTHS ENDED JUNE 30, 2000
<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................................ $ (3,051) $ 11,415 $ 627 $ -- $ 8,991
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................... -- (4,737) (868) -- (5,605)
Acquisition, net of cash acquired
equipment............................... -- (1,515) -- -- (1,515)
---------- --------- ---------- ---------- ----------
Net cash used for investing activities.. -- (6,252) (868) -- (7,120)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............... 2,361 (10,593) 8,232 -- --
Increase in revolving loan................ 6,286 -- -- -- 6,286
Collection on notes receivable for unit
purchase................................ 65 -- -- -- 65
Repayment of debt......................... -- -- (8,086) -- (8,086)
Distributions to members.................. (5,163) -- -- -- (5,163)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities.................. 3,549 (10,593) 146 -- (6,898)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes............. -- -- 926 -- 926
---------- --------- ---------- ---------- ----------
Net increase (decrease) in cash............. 498 (5,430) 831 -- (4,101)
Cash at beginning of period................. -- 5,469 3,249 -- 8,718
---------- --------- ---------- ---------- ----------
Cash at end of period....................... $ 498 $ 39 $ 4,080 $ -- $ 4,617
========== ========= ========== ========== ==========
</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 SIX MONTHS ENDED JUNE 30, 1999
<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.............................. $ -- $ 8,338 $ (4,538) $ -- $ 3,800
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (3,994) (2,106) -- (6,100)
---------- --------- ---------- ---------- ----------
Net cash used for investing activities -- (3,994) (2,106) -- (6,100)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............. (849) (6,029) 10,584 (3,706) --
Increase in revolving loan.............. 4,500 -- -- -- 4,500
Collection on notes receivable for unit
purchase.............................. 31 -- -- -- 31
Repayment of debt....................... -- -- (5,537) -- (5,537)
Issuance of membership units............ 50 -- -- -- 50
Repurchase of membership units.......... (26) -- -- -- (26)
Distributions to members................ (3,706) (3,706) -- 3,706 (3,706)
---------- --------- ---------- ---------- ----------
Net cash provided by financing
activities.......................... -- (9,735) 5,047 -- (4,688)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 1,823 -- 1,823
---------- --------- ---------- ---------- ----------
Net increase (decrease) in cash........... -- (5,391) 226 -- (5,165)
Cash at beginning of period............... -- 5,636 5,604 -- 11,240
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 245 $ 5,830 $ -- $ 6,075
========== ========= ========== ========== ==========
</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 AND SIX MONTHS ENDED JUNE 30, 2000
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 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 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, 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 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 JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999.
Net Sales. Net sales for the second quarter of 2000 were $92.4 million,
representing an increase of $2.9 million, or 3.2%, over net sales for the second
quarter of 1999. This increase resulted primarily from increased sales to OEMs
of approximately $5.7 million and continued aftermarket sales growth of
$486,000. 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 $3.1 million. For example the average
value of the Dutch Guilder, the functional currency of Brink, as compared to the
U.S. Dollar declined by 11.6% during the second quarter of 2000 as compared to
the second quarter of 1999 resulting in a similar decrease in sales as reported
in U.S. Dollars.
12
<PAGE> 15
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
Gross Profit. Gross profit for the second quarter of 2000 was $25.9
million, representing a decrease of $430,000, or 1.6%, over the gross profit for
the second quarter of 1999. Gross profit as a percentage of net sales was 28.0%
in the second quarter of 2000 compared to 29.4% in the second quarter of 1999.
The decrease in the gross margin percentage is attributable to decreased
productivity and higher costs associated with increased outsourcing of component
parts for the North American OEM towing business and 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 the second
quarter of 2000 compared with the second quarter of 1999.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for the second quarter of 2000
were $11.6 million, representing a decrease of $1.5 million, or 11.1%, compared
with the selling, administrative and product development expenses for the second
quarter of 1999. Selling, administrative and product development expenses as a
percentage of net sales decreased to 12.5% in the second quarter of 2000 from
14.5% in the second quarter of 1999. This decrease is the result of reduced
corporate expenditures 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.
Operating income. Operating income for the second quarter of 2000 was
$13.6 million, an increase of $1.1 million, or 8.6%, over operating income for
the second quarter of 1999 due to decreased selling, administrative and product
development expenses offset partially by decreased gross profit. Operating
income as a percentage of net sales increased to 14.7% in the second quarter of
2000 from 14.0% in the second quarter of 1999.
Interest expense. Interest expense for the second quarter of 2000 was
$4.5 million, an increase of $133,000, or 3.0%, over interest expense for the
second quarter of 1999. The increase was primarily due to higher interest rates
on the Company's variable rate debt and higher average line of credit borrowings
during the second quarter of 2000 as compared with the second quarter of 1999
offset by lower outstanding senior indebtedness attributable to scheduled
principal payments made since the second quarter of 1999.
Foreign currency loss. Foreign currency loss in the second quarter of
2000 was $490,000, compared to a foreign currency loss of $1.6 million in the
second quarter of 1999. The Company's foreign currency loss is primarily related
to Brink which has indebtedness denominated in U.S. Dollars. During the second
quarter of 1999 the U.S. Dollar strengthened significantly in relation to the
Dutch Guilder, the functional currency of Brink. In the second quarter of 2000,
the relationship between the two currencies was less volatile. At March 31,
1999, the exchange rate of the Dutch Guilder to the U.S. Dollar was 2.04:1,
whereas at June 30, 1999 the exchange rate was 2.14:1, or a 4.9% decline in the
relative value of the Dutch Guilder. At March 31, 2000, the exchange rate of the
Dutch Guilder to the U.S. Dollar was 2.30:1, whereas at June 30, 2000 the
exchange rate was 2.31:1, or a 0.2% decrease in the relative value of the Dutch
Guilder during the quarter.
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 the second quarter of 2000, the Company
had income before income taxes for its taxable subsidiaries totaling $2.8
million and recorded a provision for income taxes of $1.1 million. 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
and differences in the tax rates of foreign countries. During the second quarter
of 1999, the Company had income before income taxes for its taxable subsidiaries
totaling $1.1 million and recorded a provision for income taxes of $847,000.
Net income. Net income for the second quarter of 2000 was $7.1 million,
as compared to net income of $5.6 million in the second quarter of 1999, an
increase of $1.5 million. The change in net income is primarily attributable to
increased operating income and decreased foreign currency loss in the second
quarter of 2000 offset by an increased provision for income taxes.
SIX MONTHS ENDED JUNE 31, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999.
Net Sales. Net sales for the first half of 2000 were $177.4 million,
representing an increase of $9.8 million, or 5.9%, over net sales for the first
half of 1999. This increase resulted primarily from increased sales to OEMs of
approximately $13.9 million and growth in aftermarket sales of $2.1 million.
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 $6.0 million. For example the average value of the
Dutch Guilder, the functional currency of Brink, as compared to the U.S. Dollar
declined by 11.8% during the first half of 2000 as compared to the first half of
1999 resulting in a similar decrease in sales as reported in U.S. Dollars.
13
<PAGE> 16
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
Gross Profit. Gross profit for the first half of 2000 was $49.1
million, representing an increase of $970,000, or 2.0%, over the gross profit
for the first half of 1999. Gross profit as a percentage of net sales was 27.7%
in the first half of 2000 compared to 28.7% in the first half of 1999. The
decrease in the gross margin percentage is attributable to decreased
productivity and higher costs associated with increased outsourcing of component
parts for the North American OEM towing business, the mix of products sold being
weighted more toward lower margin products than in the prior year and
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 the first half of 2000 compared with the first half of 1999.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for the first half of 2000 were
$23.9 million, representing a decrease of $2.5 million, or 9.5%, compared with
the selling, administrative and product development expenses for the first half
of 1999. Selling, administrative and product development expenses as a
percentage of net sales decreased to 13.5% in the first half of 2000 from 15.8%
in the first half of 1999. This decrease is the result of 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.
Operating income. Operating income for the first half of 2000 was $23.7
million, an increase of $3.5 million, or 17.6%, over operating income for the
first half of 1999. Operating income as a percentage of net sales increased to
13.4% in the first half of 2000 from12.0% in the first half of 1999.
Interest expense. Interest expense for the first half of 2000 was $9.0
million which was slightly greater than interest expense for the first half of
1999. The effect of reduced average borrowings during the first half of 2000 as
compared with the first half of 1999 was offset by higher interest rates charged
on the Company's variable rate indebtedness.
Foreign currency loss. Foreign currency loss in the first half of 2000
was $4.0 million, compared to a foreign currency loss of $5.6 million in the
first half of 1999. The Company's foreign currency loss is primarily related to
the Brink which has indebtedness denominated in U.S. Dollars. During the first
half of 2000 the U.S. Dollar strengthened significantly in relation to the Dutch
Guilder, the functional currency of Brink. At December 31, 1998, the exchange
rate of the Dutch Guilder to the U.S. Dollar was 1.88:1, whereas at June 30,
1999 the exchange rate was 2.14:1, or a 13.8% decline in the relative value of
the Dutch Guilder. In the first half of 2000, the relationship between the two
currencies was less volatile. At December 31, 1999, the exchange rate of the
Dutch Guilder to the U.S. Dollar was 2.19:1, whereas at June 30, 2000 the
exchange rate was 2.31:1, or a 5.5% decline in the relative value of the Dutch
Guilder during the quarter.
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, expected during the
third quarter, 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 June 30,
2000.
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 the first half of 2000, the
Company had a loss before income taxes for its taxable subsidiaries totaling
$131,000 and recorded a provision for income taxes of $8,000. 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 and
differences in the tax rates of foreign countries. During the first half of
1999, the Company had a loss before income taxes for its taxable subsidiaries
totaling $2.0 million and recorded a benefit for income taxes of $131,000.
Net income. Net income for the first half of 2000 was $10.8 million, as
compared to net income of $3.8 million in the first half of 1999, an increase of
$7.0 million. The increase in net income is primarily attributable to increased
operating income, a decreased foreign currency loss and the other expense
recorded in the first half of 1999.
14
<PAGE> 17
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
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 June 30, 2000 was $176.5 million including current maturities of
$11.6 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 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Working Capital........................................ $ 44,597 $ 36,825
<CAPTION>
FIRST HALF
2000 1999
--------- ----------
<S> <C> <C>
Cash flows provided by operating activities............ $ 8,991 $ 3,800
Cash flows (used for) investing activities............. $ (7,120) $ (6,100)
Cash flows (used for) financing activities............. $ (6,898) $ (4,688)
</TABLE>
Working capital
Working capital increased by $7.8 million to $44.6 million at June 30,
2000 from $36.8 million at December 31, 1999 due to an increase in accounts
receivable of $16.2 million, an increase in inventory of $1.2 million, an
increase in other current assets of $2.8 million and a decrease in the current
portion of long term debt of $858,000. Offsetting these was an increase in
accounts payable of $8.2, a decrease in cash of $4.1 million and a decrease of
$1.0 million related to a decrease in the exchange rate between the functional
currencies of the Company's foreign subsidiaries and the U.S. Dollar.
Cash decreased by $4.1 million to $4.6 million at June 30, 2000 from
$9.0 million at December 31, 1999 primarily due to cash used for investing and
financing activities of $7.1 million and $6.9 million, respectively, partially
offset by cash provided by operating activities of $9.0 million. Increases in
accounts receivable and inventory were attributable to increased sales levels in
the second quarter of 2000 as compared with the fourth quarter of 1999. Accounts
payable increased primarily due to increased raw material purchases during the
second quarter of 2000 as compared with the fourth quarter of 1999 to support
higher sales levels. The current portion of long term debt decreased as two
scheduled payments under the Acquisition Note became due in the first quarter of
2000 compared with only one due in the third quarter of 2000.
Operating Activities
Cash flow provided by operating activities for the first half of 2000
was $9.0 million, compared to $3.8 million in the first half of 1999. This
increase is attributable to higher net income for the first half of 2000 as
compared with the first half of 1999 partially offset by an increased investment
in working capital during the first half of 2000 as compared with the first half
of 1999.
15
<PAGE> 18
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
Investing Activities
During the first half of 2000 and 1999, investing cash flows include
acquisitions of property and equipment of $5.6 million and $6.1 million,
respectively and were primarily for the expansion of capacity, productivity and
process improvements and maintenance. The Company's ability to make capital
expenditures is subject to restrictions in the U.S. Credit Facility, including a
maximum of $12.5 million of capital expenditures annually.
Investing cash flows for the first half of 2000 also include $1.5
million paid to acquire the net assets of Titan Industries, Inc. on February 22,
2000.
Financing Activities
During the first half of 2000 and 1999, financing cash flows included
payments of principal on the Company's term indebtedness of $8.1 million and
$5.5 million, respectively. Distributions to members, representing amounts
sufficient to meet the tax liability on the Company's domestic taxable income
which accrues to individual members, were $5.2 million and $3.7 million during
the first half of 2000 and 1999, respectively. Financing cash flows during the
first half of 2000 and 1999 also included net borrowings under the Company's
revolving loans of $6.3 million and $4.5 million, respectively.
DEBT AND CREDIT SOURCES
The Company's indebtedness was $176.5 million and $178.5 million at
June 30, 2000 and December 31, 1999, respectively. The Company expects that its
primary sources of cash will be from operating activities and borrowings under
its revolving credit facilities. As of June 30, 2000, the Company had borrowings
of $6.3 million under the revolving credit facilities and had $12.4 million of
available borrowing capacity. Borrowing availability was reduced by a $6.4
million outstanding letter of credit issued to benefit plaintiffs in a lawsuit
against the Company. See "Managements Discussion and Analysis" and the "Notes to
the Financial Statements" for further discussion regarding this lawsuit. As of
June 30, 2000, 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 June 30, 2001. 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'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 its current or successor credit facilities. 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.
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
Poland, Spain, Czech Republic and, Italy. Net sales from international
operations during the first half of 2000 were approximately $54.2 million, or
30.6% of the Company's net sales. At June 30, 2000, assets associated with these
operations were approximately 38.2% of total assets, and the Company had
indebtedness denominated in currencies other than the U.S. Dollar of
approximately $8.9 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
16
<PAGE> 19
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
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 June 30, 1999 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 plans to adopt this
statement at the beginning of fiscal 2001. The Company is completing an analysis
of FAS 133 which is not expected to have a material impact on the Company's
results of operations.
In September 1999, the Emerging Issues Task Force ("EITF") issued Issue
No. 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply
Arrangements". EITF Issue No. 99-5 requires the company to expense design and
development costs related to long term supply arrangements as incurred unless
the customer contractually guarantees reimbursement and capitalize molds, tools
and dies for which title is held by the supplier, subject to an impairment test.
Additionally, molds, tools and dies for which title is held by the customer are
to be expensed as incurred unless the long term supply arrangement explicitly
provides the suppler with the non-cancelable right to use such molds, tools and
dies during the course of the supply arrangement. This pronouncement is
effective on a prospective basis for costs incurred after December 31, 1999. The
Company has adopted the issue for the first quarter of 2000 which has not had a
material impact on the Company's results of operations.
SIGNIFICANT EVENT
During the second quarter 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 is in the process of working with its customer to provide technical and
other support in response to the recall. Management can not estimate at this
time what the financial impact would be to the Company, if any, as a result of
the recall.
17
<PAGE> 20
ADVANCED ACCESSORY SYSTEMS, LLC
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION AND SIGNATURE
Item 1. Legal Proceedings
See "Note 2" of the Company's "Notes to Consolidated Condensed
Financial Statements"
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
18
<PAGE> 21
ADVANCED ACCESSORY SYSTEMS, LLC
SIGNATURE
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: August 10, 2000 /s/ BARRY G. STEELE
--------------------------------
Barry G. Steele
Corporate Controller
(chief accounting officer
and authorized signatory)
19
<PAGE> 22
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
