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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 333-49011
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[ADVANCED ACCESSORY SYSTEMS, LLC LOGO]
ADVANCED ACCESSORY SYSTEMS, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3848156
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313
- ------------------------------------------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (810) 997-2900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate fair market value of the registrant's Class A Units held
by non-affiliates of the registrant as of March 17, 2000, based upon the good
faith determination of the Board of Managers was approximately $22,291,000. For
purposes of this disclosure, shares of Class A Units held by persons who hold
more than 5% of the outstanding Class A Units and Class A Units held by officers
and directors of the registrant have been excluded because such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive for other purposes.
The number of the registrant's Class A Units, outstanding at March 17,
2000 was 15,869.
Documents Incorporated by Reference
None
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ADVANCED ACCESSORY SYSTEMS, LLC
FORM 10-K
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PART I
<S> <C> <C>
Item 1. BUSINESS.................................................................................1
Item 2. PROPERTIES...............................................................................9
Item 3. LEGAL PROCEEDINGS.......................................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................10
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
MEMBERS' MATTERS........................................................................10
Item 6. SELECTED HISTORICAL FINANCIAL DATA......................................................11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................................13
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................21
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................49
PART III
Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................49
Item 11. EXECUTIVE COMPENSATION..................................................................50
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..............................................................................52
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................53
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K................................................................................54
SIGNATURES.......................................................................................57
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FORWARD-LOOKING STATEMENTS
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-K CONTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS, AND SUCH DIFFERENCES MAY BE MATERIAL. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
PART I
ITEM 1. BUSINESS
GENERAL
Advanced Accessory Systems, LLC (together with its subsidiaries, the
"Company" or "AAS") is one of the world's largest suppliers of towing and rack
systems and related accessories for the automotive original equipment
manufacturer ("OEM") market and the automotive aftermarket. The Company's
products include a complete line of towing systems including accessories such as
trailer balls, ball mounts, electrical harnesses, safety chains and locking
hitch pins. The Company's broad offering of rack systems includes fixed and
detachable racks and accessories which can be installed on vehicles to carry
items such as bicycles, skis, luggage, surfboards and sailboards. The Company's
products are sold as standard accessories or options for a variety of light
vehicles. In 1999, the Company estimates that more than 50% of its net sales
were generated from products sold for light trucks. For the year ended December
31, 1999, the Company's net sales and EBITDA, as adjusted, were $311.7 million
and $46.5 million, respectively.
In September 1995, the Company, through its SportRack, LLC subsidiary
("SportRack"), acquired substantially all of the net assets of the MascoTech
Accessories division (the "MascoTech Division") of MascoTech, Inc. ("MascoTech"
or the "Predecessor"). The MascoTech Division was a North American supplier of
rack systems and accessories to the automotive OEM market and aftermarket.
In October 1996, the Company acquired (the "Brink Acquisition") all of the
capital stock of Brink B.V., a private company with limited liability
incorporated under the laws of The Netherlands and a European supplier of towing
systems to the automotive OEM market and aftermarket. In December 1996,
ownership of Brink B.V. and its subsidiaries was transferred to a newly formed
subsidiary of the Company, Brink International B.V. ("Brink").
In August 1997, the Company formed Valley Industries, LLC ("Valley") to
acquire (the "Valley Acquisition") the net assets of Valley Industries, Inc.
("Valley Industries"), a North American supplier of towing systems to the
automotive OEM market and aftermarket.
Two smaller acquisitions were completed in July 1997 by SportRack
International, Inc. ("SportRack International"), a subsidiary of SportRack.
SportRack International acquired from Bell Sports Corporation ("Bell") the net
assets of its sportrack division, a Canadian supplier of rack systems and
accessories to the automotive aftermarket. Chase Capital Partners ("CCP"), an
affiliate of the Company, at that time was a significant equity investor in
Bell. SportRack International also acquired the capital stock of Nomadic Sports,
Inc. ("Nomadic"), a Canadian supplier of rack systems and accessories to the
automotive OEM market and aftermarket. The acquisitions of the sportrack
division of Bell and Nomadic are collectively referred to in this 10-K as the
"SportRack International Acquisition."
In January 1998, the Company through Brink, acquired (the "Ellebi
Acquisition") the net assets of the towbar segment of Ellebi S.p.A. ("Ellebi").
Ellebi is an Italian supplier of towing systems to the automotive OEM market and
aftermarket.
In February 1998, the Company through SportRack International, acquired (the
"Tranfo-Rakzs Acquisition") the net assets of Transfo-Rakzs, Inc.
("Transfo-Rakzs"). Transfo-Rakzs is a Canadian supplier of rear hitch rack
carrying systems and related products to the automotive aftermarket.
In February 2000, the Company through Valley, acquired the 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.
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PRODUCTS
The principal product lines of the Company are towing systems and rack
systems and accessories. In 1999, towing systems and towing accessories
constituted approximately 60% and rack systems and rack accessories constituted
approximately 40% of the Company's net sales. The Company believes it offers a
more comprehensive product line than any of its competitors. The Company has
devoted considerable resources to the engineering and designing of its products
and, as a result, considers itself a market leader in the research and new
product development of towing systems and rack systems.
Towing Systems. The Company designs, manufactures and supplies towing
systems to automotive OEMs and the automotive aftermarket which fit almost every
light vehicle produced in North America and Europe. In the aggregate, the
Company supplies over 2,000 different towing systems, as well as a line of
towing accessories.
The Company's towing systems sold in Europe are installed primarily on
passenger cars. The Company's primary product within the European market is the
fixed ball towbar that is specifically designed to be mounted on a particular
car model in accordance with the OEM's specified mounting points. The Company
also markets sophisticated detachable ball systems which are popular with owners
of more expensive cars or cars on which the license plate would otherwise be
blocked by a fixed ball towbar. The Company's towing systems sold in Europe
currently undergo rigorous safety testing in order to satisfy European Community
("EC") regulatory standards.
The Company's towing systems sold in North America are installed primarily
on light trucks. Two of the Company's most innovative product designs have been
the tubular trailer hitch which is lighter in weight, less obtrusive and
stronger than the conventional hitch, and a device which ensures secure
attachment of a towing product to the vehicle. These product innovations have
enabled the Company to improve the functionality and safety of towing systems
while, at the same time, enhancing the overall appearance of vehicles utilizing
these towing products.
The Company also offers a line of towing accessories, including trailer
balls, ball mounts, electrical harnesses, safety chains and locking hitch pins.
Fixed Rack Systems. The Company supplies fixed roof rack systems for
individual vehicle models that are generally sold to the automotive OEMs for
installation at the factory or dealership. These rack systems typically remain
on a model for the life of its design, which generally ranges from four to six
years. The Company has been an industry leader in developing designs which not
only complement the styling themes of a particular vehicle, but also increase
the utility and functionality of the rack system.
Most of the fixed rack systems sold by the Company are composed of side
rails which run along both sides of the vehicle's roof, feet which mount the
side rails to the vehicle's roof, and cross rails which run between the side
rails. Cross rails, which are attached to the side rails with stanchions, are
typically movable and can be used to carry a load. The Company uses advanced
materials such as lightweight, high strength plastics and roll formed aluminum
to develop durable rack systems that optimize vehicle performance. Many of these
products incorporate innovative features such as push button and pull lever
stanchions, which allow easy movement of the cross rails to accommodate various
size loads. These rack systems are utilized on a large number of light trucks,
including Jeep Grand Cherokee and Cherokee, DaimlerChrysler minivans, Dodge
Durango, GM Suburban, Tahoe and Yukon and Mercedes Benz M-Class.
Detachable Rack Systems. The Company supplies a full line of detachable roof
rack systems for distribution in both the automotive and sporting accessory
aftermarkets. A detachable rack system typically consists of cross rails which
are attached to the roof of a vehicle by removable mounting clips.
Rack System Accessories. The Company designs and manufactures lifestyle
accessories for distribution in both the automotive and sporting accessory
aftermarkets. These accessories typically attach to the Company's towing systems
or rack systems and are used for carrying items such as bicycles, skis, luggage,
surfboards and sailboards.
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CUSTOMERS AND MARKETING
Management believes that the Company has strong and diverse industry
relationships which are based on its reputation for high service levels, strong
technical support, innovative product development, high quality and competitive
pricing. Sales to OEM and aftermarket customers represented approximately 67%
and 33% of the Company's net sales, respectively, in 1999. In addition, sales to
DaimlerChrysler and General Motors were approximately 36% and 12%, respectively,
of the Company's aggregate net sales in 1999.
Automotive OEMs. The Company obtains most of its new orders through a
presourcing process by which the customer invites one or a few preferred
suppliers to design and manufacture a component or system that meets certain
price, timing, functional and aesthetic parameters. Upon selection at the
development stage, the Company and the customer typically agree to cooperate in
developing the product to meet the specified parameters. Upon completion of the
development stage and the award of the manufacturing business, the Company
receives a purchase order that covers parts to be supplied for a particular car
model. Such supply arrangements typically involve annual renewals of the
purchase order over the life of the model, which is generally four to six years.
In addition, the Company enters into long-term contracts with certain OEM
customers which require the Company to make annual price reductions. The Company
also competes to supply parts for successor models even though the Company may
currently supply parts on the predecessor model. Sales to OEMs are made directly
by the Company's internal sales staff and outside sales representatives.
The Company sells its products to most of the automotive OEMs selling light
vehicles in North America and/or Europe, including DaimlerChrysler, General
Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan,
Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler
with substantially all of its North American towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the towing system
and rack system requirements of General Motors. The following chart sets forth
information regarding vehicle models on which the Company's automotive products
are used or for which the Company has been awarded business.
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AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 1999 PRODUCTION(A) FUTURE PRODUCTION(B)
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<S> <C> <C> <C>
Towing Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Plymouth, PT Cruiser
Voyager, Town & Country, Ram Prowler, Ram Van, 300M, Voyager
Pick-up, Stratus, Sebring
Dakota, Wrangler, Durango, Neon Frontera, Corsa, Arena (van),
General Motors CK Pick-up, ML Van, S-10 Vectra
Blazer, APV Vans, Bravada,
Jimmy, Geo Tracker, Blazer,
Corsa, Astra (hatchback),
Astra (Sedan), Astra (Station
wagon), Calibra, Vectra
(Hatchback), Vectra (Sedan),
Vectra (Station wagon), Omega
(Sedan), Omega (Station
wagon), Campo, Frontera,
Monterey, Zafira
Ford Expedition, Explorer, Ranger, Focus Focus Wagon, Ranger, Escape,
Aerostar Minivan, Mercury Villager, Mondeo, Explorer
Windstar Minivan, Navigator, Fiesta,
Escort (all models), Mondeo, Mondeo
(Wagon), Scorpio (Sedan), Scorpio
(Wagon), Maverick, Transit
Renault Laguna (Station wagon), Laguna, Laguna, Matra
Isuzu Rodeo, Trooper
Toyota 4-Runner, Land Cruiser, RAV4, Lexus, Lexus LS400, Landcrusier pick-up
646T, 477T, 860T, Corolla, Corolla Previa, RAV 4, 355N
Wagon Camry, Hi-Lux, Picnic, Previa,
Carina Hi-Ace, Celica, Yaris Verso
Nissan Pathfinder, Pick-up, Quest, Infiniti Primera, Primera Wagon,
Vehicle, QW Truck, Micra, Sunny Patrol, Terrano, MPV, Micra
Almera, Primera, Maxima, King Cab, Almera, Almera MPV, Tino MPV
Terrano, Mavric, Patrol, Serena,
Vanette
Mazda 121, MPV, J54, J16, 626, 323 626 Wagon, 323, Demio
Honda Passport PF Van, CRV
Mitsubishi Montero, Carisma, L200 Pajero
FIAT Almost all models
Alpha Romeo Almost all models
Lancia Almost all models
Subaru Outback 79V
Range Rover Range Rover, Land Rover
Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
(Station wagon), 850 (Sedan), 850
</TABLE>
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Towing Systems SAAB 9000 series, 900 series 900 series, 9000 series, 9000
(continued) station wagon, small car 9-3,
small car 9-5, small station wagon
Hyundai Lantra, Sonata, Starex 4WD, Trajet, Lantra, Joyce
Accent, Atos
Verna
Peugeot 106, 306, 406 (Sedan), 406 (Station 206, 206 Sport, 207, 306 Break
wagon), 406 (Coupe), 605, 806, J5
(Van), Boxer (Van)
Suzuki Carry
Daihatsu Gran Move, Move LCX Mini Van
KIA Clarus, Frontiers, Carnivall
SEAT Toledo
Skoda SK240
Volkswagen Golf 4, Caddy, Transporter, Polo
Daewoo Nubira U 100
Rack Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Caravan,
Voyager, Town & Country, Durango, Voyager, Town & Country, Neon PT,
Mercedes M-Class, PT Cruiser, BW 72
General Motors Suburban, Yukon, Tahoe, Astro, Safari Suburban, Yukon, Tahoe, Envoy,
Escalade, Denali Trail Blazer, Bravada
Ford
Honda Accord
Nissan Pathfinder, Infinity
Mitsubishi Montero
Subaru Outback, Impreza, Legacy, Forester
KIA Sportage
SEAT Vario GP99
Opel Astra Vectra
BMW E-53 (SUV)
</TABLE>
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(a) Represents models for which the Company produced products in 1999.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. There can be no assurance that any of
these vehicles will be produced or that the Company will generate certain
revenues under these awards even if the models are produced.
Automotive Aftermarket. The Company sells its products directly into the
automotive aftermarket through a number of channels, including wholesalers,
retailers and installers, through its internal sales force and outside sales
representatives. The largest of the Company's aftermarket customers include
U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System,
Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire.
The Company believes that it has established a reputation as a highly reliable
aftermarket supplier able to meet its customers' requirements for on-time
deliveries while minimizing the carrying levels of inventory. For example,
Valley began supplying towing systems to U-Haul (which the Company believes, is
the largest installer of towing systems in the United States) in 1994 and for
the year ended December 31, 1999, supplied approximately 50% of U-Haul's towing
system requirements. The Company believes aftermarket customers such as U-Haul
represent opportunities to cross-sell existing products such as rack systems and
accessories.
PRODUCT DESIGN, DEVELOPMENT AND TESTING
The Company believes that it is a leader in the design of towing systems and
rack systems and accessories. The Company believes it offers products that
possess greater quality, reliability and performance than the products sold by
many of its competitors. The 116 members of the Company's engineering and design
staff possess strong technical skills. The Company currently holds more than 125
U.S. and foreign patents, and has numerous patent applications pending. The
expiration of such patents are not expected to have a material adverse effect on
the Company's operations.
The Company spent $10.3 million, $9.6 million and $5.9 million on
engineering, research and development in 1999, 1998 and 1997, respectively. The
Company works closely with OEMs to constantly improve design and manufacturing
technology and product functionality. When an OEM is in the process of
developing a new model, it typically approaches an established or incumbent
supplier with a request to supply the required towing system or rack system. The
Company is typically contacted two to four years prior to the start of
production of the new model. The Company's product development engineers then
work closely with the OEM to develop a product that satisfies the OEM's
aesthetic and functional requirements. This relationship also provides the
Company with a competitive advantage in the aftermarket because, in many cases,
the Company already possesses the knowledge to create a system compatible with
new model vehicles prior to release.
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The Company has extensive testing capabilities which enable it to test and
certify its products. The Company subjects its products to tests which it
believes are more demanding than conditions which would occur during normal use.
The Company has specialized equipment which it has purchased or developed for
use in its testing laboratories.
Since May 1994, 14 European countries enacted the new EC regulatory
standards which require that towing systems undergo significant safety testing
prior to gaining approval for sale. This safety testing requires that a towing
system be extensively tested for fatigue and includes subjecting a towing system
to upwards of two million high load pulses. The Company does its testing in its
own laboratory under the control of an independent institute that is authorized
by the EC to approve the towing systems for sale. The quality assurance system
is regularly audited by an independent institute and by the automotive OEMs
themselves. The Company has continually been awarded the highest distinction of
achievement by the independent institute.
MANUFACTURING PROCESS
The Company's manufacturing operations are directed toward achieving ongoing
quality improvements, reducing manufacturing and overhead costs, realizing
efficiencies and adding flexibility. The Company has organized its production
process to minimize the number of manufacturing functions and the frequency of
material handling, thereby improving quality and reducing costs. In addition,
the Company uses cellular manufacturing which improves scheduling flexibility,
productivity and quality while reducing work in process and costs.
The manufacturing operations utilized by the Company include metal cutting,
bending, cold forming, roll forming, stamping, welding, plastic injection
molding, painting, assembly and packaging. The Company performs most
manufacturing operations in-house but outsources certain processes depending on
the capabilities and capacities of individual plants and cost considerations.
For example, while some of the Company's towing systems manufacturing facilities
have painting capabilities, the Company has chosen to outsource the painting of
its rack systems.
The Company has established quality procedures at each of its facilities and
strives to manufacture the highest quality product possible. The Company has
achieved ISO-9000 or QS-9000 certification for 12 of its 21 manufacturing and
engineering facilities and is in the process of obtaining certification for
other of its facilities. The Company has received numerous quality and
performance awards from its OEM customers, including DaimlerChrysler's Gold
Pentastar Award, Ford's Q-1 Award, Toyota's Distinguished Supplier Award, KIA's
Preferred Supplier Award and the Nissan Superior Supplier Performance Award.
RAW MATERIALS
The principal raw material used in the Company's products is steel, which is
purchased in sheets, rolls, bars or tubes and represents approximately 50% of
the Company's raw material costs. The Company also purchases significant amounts
of aluminum and plastics. The Company has various suppliers globally and has not
had difficulties in procuring raw materials nor does it expect to have any
problems in the future. The Company is committed to supplier development and
long-term supplier relationships. However, most of the Company's raw material
demands are for commodities and, as such, can be purchased on the open market on
an as needed basis. The Company selects among available suppliers by comparing
cost, consistent quality and timely delivery as well as compliance with QS-9000
and ISO-9000 standards.
The Company customarily obtains its supplies through individual purchase
orders. In some instances, the Company will enter into short-term contracts with
its suppliers which generally run one year or less. However, the Company has
signed a long-term supply agreement which terminates in 2004 with one of its
painting suppliers, Crown Group, Inc. ("Crown"), under which Crown opened a
state-of-the-art paint line in a facility adjacent to the Company's Port Huron,
Michigan facility.
AUTOMOTIVE OEM AND AFTERMARKET TRENDS
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it has benefited and will continue
to benefit from the following automotive OEM and aftermarket trends.
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Consolidation of Supplier Base by OEMs. The OEMs have significantly
consolidated their supplier base in an effort to reduce their
procurement-related costs, ensure high quality and accelerate new model
development. As a result, many smaller, poorly capitalized suppliers with
limited product lines and engineering and design capabilities have been
eliminated as direct suppliers to OEMs. Consequently, larger suppliers with
broad product lines, in-house design and engineering capabilities and the
ability to effectively manage their own supplier bases, have been able to
significantly increase their market share.
The consolidation by OEMs has altered the typical structure of supplier
contracts. In the past, OEMs supplied all design, development and manufacturing
expertise for accessory parts and were responsible for consistency of quality
and reliability of delivery. Today, however, the OEMs typically involve
potential suppliers earlier in the design and development process to encourage
suppliers to share design and development responsibility. In some cases,
sole-source supply contracts, which cover the life of a vehicle or platform, are
awarded. Both OEMs and suppliers benefit from the consolidation trend. Suppliers
are able to devote the resources necessary for proprietary product development
with the expectation that they will have the opportunity to profit on such
investment over the multi-year life of a contract. OEMs benefit from shared
manufacturing cost savings attributable to long, multi-year production runs at
high capacity utilization levels.
Emergence of European Community Regulatory Standards. Trends within the
European towing systems market result primarily from EC regulatory standards and
the corresponding legislative framework. Such standards provide that a towing
system must fit all the vehicle manufacturer's recommended fitting points, must
not interfere with the vision of the number plate when not in use and must meet
strict testing criteria for durability and safety. These standards have been
adopted by The Netherlands, Germany, Sweden, Italy, the United Kingdom, France,
Belgium, Luxembourg, Spain, Austria, Switzerland and Scandinavia. Other EC
countries are expected to adopt the legislation. All of the Company's towing
systems sold in Europe currently undergo rigorous safety testing in order to
satisfy these EC regulatory standards.
Increased Levels of Manufacturing in North America by Transplants. As a
result of the relative cost advantage of producing vehicles in North America,
many foreign automobile manufacturers with manufacturing operations in the
United States ("transplants") have increased their share of North American light
vehicle production from approximately 6% in 1986 to approximately 22% in 1999.
Industry sources forecast that this trend will continue. For example, BMW
commenced manufacturing in the U.S. in 1996 and launched production of its E-53
SUV in 1999. In addition, Toyota launched production of its Tundra pickup truck
in Indiana during 1999 and plans to launch production of its Sequoia SUV during
2000, Honda began production of its Odyssey minivan in North America during 1999
and plans to begin production of its Acura MD SUV during 2000. The Company
believes that increased levels of manufacturing of light trucks in North America
by transplants will benefit full service, high quality suppliers with North
American operations such as the Company.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. The Company competes primarily
on the basis of product quality, cost, timely delivery, customer service,
engineering and design capabilities and new product innovation in both the OEM
market and the automotive aftermarket. The Company believes that as OEMs
continue to strive to reduce new model development cost and time, innovation and
design and engineering capabilities will become more important as a basis for
distinguishing competitors. The Company believes it has an outstanding
reputation in both of these areas. In the automotive aftermarket, the Company
believes that its wide range of product applications is a competitive advantage.
For example, the Company has developed towing systems to fit almost every light
vehicle produced in North America and Europe. The Company believes its
competitive advantage in the aftermarket is enhanced by its close relationship
with OEMs, allowing the Company access to automobile design at an earlier time
than its competitors.
In the towing systems market, the Company competes with Draw-Tite Inc. and
Reese Products Inc., both of which are subsidiaries of MascoTech, Bosal Holding
B.V., The Oris Group, Production Stamping Inc. and numerous smaller competitors.
In the rack systems and accessories market, the Company's competitors
include JAC Holding Corp., Thule, which is a wholly-owned subsidiary of Eldon AB
(a Swedish company), Yakima Products, Inc., Barrecrafters, Graber Products Inc.
and several smaller competitors.
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COMPETITIVE ADVANTAGES
Leading Global Market Position. Based on its knowledge of the industry, the
Company believes that it is one of the world's largest suppliers of towing
systems and one of the world's largest suppliers of rack systems. The Company
also believes, based on its knowledge of the industry, that it is the largest
supplier of towing systems in Europe and the second largest supplier of towing
systems in North America. The Company also believes that it is one of the two
largest suppliers of rack systems sold to automotive OEMs in North America. The
Company has 26 facilities strategically located in North America and Europe. By
virtue of its size and global presence, the Company believes it benefits from
several competitive advantages, including the ability to (i) satisfy local
design, production, quality and timing requirements of global OEMs; (ii) provide
"one-stop shopping" for customers' product and service requirements; (iii)
optimize plant production; (iv) maximize its raw material purchasing power; (v)
spread its selling, administrative and product development expenses over a large
base of net sales; and (vi) develop and maintain state-of-the-art production
facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systems to most
of the OEMs manufacturing in North America and/or Europe including
DaimlerChrysler, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru,
Fiat, Mitsubishi, Nissan, Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company
supplies DaimlerChrysler with substantially all its North American towing
systems and rack systems and accessories. The Company also supplies
approximately 50% of the rack system requirements of General Motors. Tier 1
status and strong customer relationships are important elements in achieving
continued profitable growth because, as OEMs narrow their supplier bases, well
regarded, existing suppliers have an advantage in gaining new contracts. The
evolution of OEM relationships into strategic partnerships provides a
significant advantage to Tier 1 suppliers with system integration capabilities
(such as the Company) in retaining existing contracts as well as in
participating during the design phase for new vehicles, which is integral to
becoming a supplier for such new platforms. The Company is also a leading
supplier of towing and rack systems to automotive aftermarket wholesalers,
retailers and installers, such as U-Haul, Pep Boys, Balkamp, Advance Auto Parts,
Coast Distribution System, Discount Auto Parts, Ace Hardware, Norauto, Brezan,
Feuvert and Canadian Tire.
Comprehensive Product Line. The Company continues to position itself as a
leading supplier to its customers for a growing range of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit almost every light vehicle produced in North America and Europe. The Company
is one of a limited number of European manufacturers with such a broad product
line that also satisfies EC regulatory standards. Competitors whose products do
not satisfy such standards face substantial design and testing costs to offer a
comparable product line that meets these safety standards. The Company has
provided OEMs with fixed rack systems for approximately half of the light truck
models produced in North America that utilize vehicle-specific fixed racks. The
Company believes that its broad product offerings also facilitate strategic
partnerships with automotive aftermarket wholesalers, retailers and installers.
Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. The
Company is responsible for many industry innovations, including lighter, less
obtrusive, round tube towing hitches as well as push button and pull lever
stanchions on fixed rack systems. The Company believes its design and
engineering capabilities provide significant value to its customers by (i)
shortening OEM new product development cycles; (ii) lowering OEM manufacturing
costs; (iii) providing technical expertise; and (iv) permitting aftermarket
customers to maintain lower inventory levels. The Company also believes that its
design innovations have created value for end users by providing products that
are durable and easy to install and that enhance vehicle utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including DaimlerChrysler's Gold Pentastar Award, Ford's Q-1
Award, Toyota's Distinguished Supplier Award and Nissan's Superior Supplier
Performance Award. Supplier quality systems are currently being standardized
across OEMs through the ISO-9000 and QS-9000 programs. The Company has achieved
ISO-9000 or QS-9000 certification for 12 of its 21 manufacturing and engineering
facilities and is in the process of obtaining certification for other of its
facilities. The Company's low cost position is a result of its strict cost
controls and continuous improvement programs designed to enhance productivity.
OEMs typically prefer stable suppliers who can generate productivity gains that
can be shared to reduce OEM costs. The Company's cost controls are closely
integrated with its quality driven manufacturing operations, thereby allowing it
to profitably deliver high quality, easy to install and competitively-priced
components on a just-in-time basis. The Company's focus on low cost
manufacturing also provides benefits when selling products to the automotive
aftermarket.
7
<PAGE> 10
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading global
supplier of automotive exterior accessories, thereby increasing revenue and cash
flow. In order to accomplish its goal, the Company intends to pursue the
following strategies.
Increase Global Market Share. The Company intends to capitalize on its
expanded presence in North America and Europe by marketing products to its
global automotive OEM customers. Through its past acquisitions of complementary
product lines, the Company is able to offer an expanded range of products and
services to its extended customer base. The Company also expects to secure new
customers by virtue of its expanded market presence and broad product and
service offerings. The Company believes its continued emphasis on new technology
(both product and process), will result in the development of more innovative,
high margin towing and rack system products which it expects to market to its
expanding customer base.
Maintain and Enhance Strong Customer Relationships. The Company intends to
strengthen and expand its relationships with global automotive OEMs and
aftermarket customers by (i) continuing its commitment to innovative design and
development of products during the early stages of vehicle design and redesign;
(ii) building on its position as a low cost supplier of quality accessory
products; (iii) offering new products in existing and new geographic areas by
taking advantage of existing OEM relationships; and (iv) working with
aftermarket customers to develop new products and marketing strategies.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward systems suppliers, the Company is focused on making strategic
acquisitions that will enhance its ability to provide integrated systems (such
as a towing or rack system) or otherwise leverage its existing business by
providing additional product, manufacturing and service capabilities. The
Company also intends to pursue acquisitions which will expand its customer base
by providing an entree to new customers, including expansion into selected
geographic areas. The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
ENVIRONMENTAL REGULATION
The Company's operations are subject to foreign, state and local
environmental laws and regulations that limit the discharges into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage, and disposal of certain materials,
substances and wastes. In many jurisdictions, these laws are complex, change
frequently and have tended to become stronger over time.
In jurisdictions such as the United States, such obligations, including but
not limited to those under the Comprehensive Environmental Response,
Compensation & Liability Act ("CERCLA"), may be joint and several and may apply
to conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which waste or
other contamination attributable to an entity or its predecessors have been sent
or otherwise come to be located. The Company believes that its operations are in
substantial compliance with the terms of all applicable environmental laws and
regulations as currently interpreted. In addition, to the best of the Company's
knowledge, there are no existing or potential environmental claims against the
Company nor has the Company received any notification nor is there any current
investigation regarding, the disposal, release, or threatened release at any
location of any hazardous substance generated or transported by the Company.
However, the Company cannot predict with any certainty that it will not in the
future incur liability under environmental laws and regulations with respect to
contamination of sites currently or formerly owned or operated by the Company
(including contamination caused by prior owners and operators of such sites), or
the off-site disposal of hazardous substances.
While historically the Company has not had to make significant capital
expenditures for environmental compliance, the Company cannot predict with any
certainty its future capital expenditures for environmental compliance because
of continually changing compliance standards and technology. Future events, such
as changes in existing environmental laws and regulations or unknown
contamination of sites owned or operated by the Company (including contamination
caused by prior owners and operators of such sites), may give rise to additional
compliance costs which could have a material adverse effect on the Company's
financial condition. Furthermore, actions by foreign, federal, state and local
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect the demand for its products. Additionally,
the Company does not currently have any insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future.
8
<PAGE> 11
EMPLOYEES
At December 31, 1999, the Company had approximately 1,900 employees of whom
approximately 1,600 are hourly employees and approximately 300 are salaried
personnel. Approximately 170 of the Company's employees in the United States at
the Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 2004. As is common in many European jurisdictions,
substantially all of the Company's employees in Europe are covered by
country-wide collective bargaining agreements. The Company believes that its
relations with its employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
For financial information about foreign and domestic operations of the
Company, see "Note 12" of the Company's "Notes to Consolidated Financial
Statements".
ITEM 2. PROPERTIES
The Company's executive offices are located in 14,550 square feet of leased
space in Sterling Heights, Michigan. The Company has 26 facilities with a total
of 2,154,050 square feet of space. The Company believes that substantially all
of its property and equipment is in good condition and that it has sufficient
capacity to meet its current and projected manufacturing and distribution needs.
The Company's facilities are as follows:
<TABLE>
<CAPTION>
SQUARE OWNED/ LEASE
LOCATION PRINCIPAL FUNCTIONS FEET LEASED EXPIRATION**
--------------------------- ----------------------------- --------- --------- --------------
<S> <C> <C> <C> <C>
North America
-------------
Shelby Township, Michigan* Manufacturing 74,800 Owned --
Shelby Township, Michigan* Manufacturing 13,000 Leased 2008
Port Huron, Michigan* Manufacturing 200,000 Owned --
Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003
Auburn Hills, Michigan Warehousing 49,000 Leased 2005
Madison Heights, Michigan* Administration and 90,000 Leased 2002
manufacturing
Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2002
Lodi, California Administration, manufacturing 150,000 Owned --
and engineering
Lodi, California Warehousing 25,000 Leased Month to Month
Lodi, California Warehousing 59,000 Leased 2002
Dallas, Texas Warehousing 18,300 Leased 2001
Granby, Quebec Administration, manufacturing 88,200 Leased 2003
and warehousing
Bromptonville, Quebec Manufacturing 2,000 Leased 2000
Hamer Bay, Ontario Manufacturing 15,000 Owned --
Europe
------
Sandhausen, Germany* Administration and engineering 5,000 Leased Month to Month
Barcelona, Spain Manufacturing 6,200 Leased Month to Month
Bakov nad Jizerou, Czech Manufacturing 6,000 Leased Month to Month
Republic
Staphorst, The Netherlands* Administration, engineering 405,000 Owned --
manufacturing, and warehousing
Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned --
Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned --
Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned --
Vanersborg, Sweden* Manufacturing and warehousing 160,000 Leased 2004
Wolsztyn, Poland Warehousing 5,000 Leased Month to Month
Reims, France Manufacturing and warehousing 115,000 Owned --
St. Victoria di Gualtieri, Administration, engineering, 170,000 Leased 2003
Italy manufacturing and warehousing
St. Victoria di Gualtieri, Manufacturing 110,000 Leased 2003
Italy
</TABLE>
- ----------
* QS 9000 and/or ISO 9000 certification.
** Gives effect to all renewal options.
9
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
it is not presently a party to any litigation the outcome of which would have a
material adverse effect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS'
MATTERS
There is no established public trading market for the Company's Class A
Units. At March 17, 2000, there were 20 holders of record of Class A Units.
Except as set forth below with respect to quarterly tax distributions to
Members, the Company has never declared or paid dividends (or made any other
distributions) on the Class A Units and does not anticipate doing so in the
foreseeable future. Under certain loan agreements, the Company is prohibited
from declaring or paying any cash dividend or making distributions thereon,
except for quarterly distributions to Members to the extent of any tax liability
with respect to the Class A Units and except for repurchases of Class A Units
from employees upon a termination of their employment with the Company pursuant
to an Employment Agreement and the Operating Agreement.
As listed below, since January 1, 1997, the Company has issued unregistered
securities to investors and to certain other individuals. Each such issuance was
made in reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) of the Securities
Act on the basis that such transactions did not involve a public offering.
1) On August 5, 1997 pursuant to an Asset Purchase Agreement
among Valley Industries, LLC, Valley Industries, Inc., certain
affiliates of Valley Industries, Inc., Robert L. Fisher and Roger
T. Morgan dated August 5, 1997, the Company issued an aggregate of
802 of its Class A Units for an aggregate purchase price of $4.5
million, to Robert L. Fisher and Roger T. Morgan.
2) On October 31, 1997 pursuant to an Asset Purchase Agreement
among Bell Sports Corp., Bell Sports Canada, Inc. and Advanced
Accessory Systems Canada Inc./Les Systems d' Accessorie Advanced
Canada Inc. dated as of July 2, 1997, the Company issued an
aggregate of 100 of its Class A Units for an aggregate purchase
price of $500,000 to Jean M. Maynard.
3) On December 31, 1997 the Company issued 140 of its Class A
Units to CB Capital Investors, Inc. (an affiliate of CCP) in
exchange for its 1% interest in SportRack.
4) On April 22, 1998 pursuant to their respective subscription
agreements, the Company issued an aggregate of 43 of its Class A
Units for an aggregate purchase price of approximately $150,000,
to Gerrit de Graaf and J. Wim Rengelink.
5) On May 18, 1999 pursuant to a subscription agreement, the
Company issued 25 of its Class A Units for an aggregate purchase
price of $100,000 to Bryan A Fletcher.
10
<PAGE> 13
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The information below presents historical financial data of the MascoTech
Division ("Predecessor") for the period from January 1, 1995 through September
27, 1995 (the period prior to the acquisition of the net assets of MascoTech
Division by the Company). The data for the period from January 1, 1995 through
September 27, 1995 have been derived from the audited financial statements of
the MascoTech Division. The data as of and for the period from September 28,
1995 through December 31, 1995 and for the years ended December 31, 1996, 1997,
1998 and 1999 represent consolidated financial data of the Company subsequent to
the acquisition of the MascoTech Division, and include (i) the operations of
Brink subsequent to the Brink Acquisition on October 30, 1996; (ii) the
operations of the sportrack division of Bell and Nomadic subsequent to the
SportRack International Acquisition on July 2, 1997 and July 24, 1997,
respectively, (iii) the operations of Valley subsequent to the Valley
Acquisition on August 5, 1997, (iv) the operations of Ellebi subsequent to the
Ellebi Acquisition on January 2, 1998, (v) the operations of Tranfo-Rakzs
subsequent to the Tranfo-Rakzs Acquisition on February 7, 1998, and have been
derived from the audited financial statements of the Company. The following
table should be read in conjunction with the financial statements of the Company
and notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------------------------------- ----------------
YEAR ENDED PERIOD FROM PERIOD FROM
DECEMBER 31, SEPTEMBER 28, TO JANUARY 1 TO
---------------------------------------------- DECEMBER 31, SEPTEMBER 27,
1999 1998(3) 1997(2) 1996(1) 1995 1995
---------- ---------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $311,732 $290,139 $188,678 $ 81,466 $ 16,299 $ 48,698
Cost of sales(4)................... 225,479 213,435 135,556 53,607 12,458 38,645
-------- -------- -------- -------- --------- --------
Gross profit..................... 86,253 76,704 53,122 27,859 3,841 10,053
Selling, administrative and product
development expenses(4).......... 50,258 50,839 31,350 13,413 1,472 6,107
Amortization of intangible assets.. 3,245 3,551 2,336 2,475 546 --
Impairment charge(4)............... -- 7,863 -- -- -- --
-------- -------- -------- -------- --------- --------
Operating income................. 32,750 14,451 19,436 11,971 1,823 3,946
Other (income) expense
Interest expense(5).............. 17,453 18,633 12,627 4,312 975 --
Foreign currency (gain) loss(6).. 7,912 (4,995) 6,097 1,330 -- --
Other, net....................... 1,990 -- -- (80) (22) 65
-------- -------- -------- -------- --------- --------
Income before minority interest,
extraordinary charge and income
taxes.......................... 5,395 813 712 6,409 870 3,881
Provision (benefit) for income
taxes(7)......................... 417 903 (2,856) (491) -- 1,324
-------- -------- -------- -------- --------- --------
Income before minority interest
and extraordinary charge........... 4,978 (90) 3,568 6,900 870 2,557
Minority interest.................. -- -- 97 69 9 --
-------- -------- -------- -------- --------- --------
Income before extraordinary
charge......................... 4,978 (90) 3,471 6,831 861 2,557
Extraordinary charge(8)............ -- -- 7,416 1,970 -- --
-------- -------- -------- -------- --------- --------
Net income (loss)................ $ 4,978 $ (90) $ (3,945) $ 4,861 $ 861 $ 2,557
======== ======== ======== ======== ========= ========
OTHER DATA:
Cash flows from operating
activities....................... $ 25,014 $ 21,879 $ 6,982 $ 9,917 $ 1,390 $ 3,741
EBITDA(9).......................... 46,539 38,364 27,916 16,448 2,651 4,735
Depreciation....................... 10,418 10,857 6,144 2,002 282 789
Capital expenditures............... 11,775 9,998 7,751 3,124 491 2,079
Ratio of EBITDA to interest
expense(5)......................... 2.67x 2.06x 2.21x 3.81x 2.72x --
Ratio of earnings to fixed
charges(5)(10)..................... 1.29x 1.04x 1.06x 2.43x 1.89x --
BALANCE SHEET DATA (AT END OF
PERIOD)
Cash............................... $ 8,718 $.11,240 $ 27,348 $ 2,514 $ 1,637 $ 3
Working capital.................... 36,825 49,232 65,803 14,368 3,960 4,002
Total assets....................... 251,213 258,981 265,558 148,359 59,979 24,698
Total debt, including current
maturities(5)...................... 178,498 187,524 197,126 93,142 34,900 --
Mandatorily redeemable warrants(5). 4,810 4,409 3,507 3,498 200 --
Distributions to Members'.......... 4,720 195 2,945 3,692 -- --
Members' equity.................... 10,331 15,147 16,444 18,463 14,221 15,794
</TABLE>
- ----------
(1) In October 1996, the Company acquired Brink. The Brink Acquisition has been
accounted for in accordance with the purchase method of accounting.
Accordingly, the operating results of Brink are included in the consolidated
operating results of the Company subsequent to October 30, 1996.
11
<PAGE> 14
(2) The Company acquired the net assets of the sportrack division of Bell on
July 2, 1997, Nomadic on July 24, 1997, and the net assets of Valley
Industries on August 5, 1997. The SportRack International Acquisition and
Valley Acquisition have been accounted for in accordance with the purchase
method of accounting. Accordingly, the operating results of SportRack
International and Valley are included in the consolidated operating results
of the Company subsequent to the respective acquisition dates.
(3) The Company acquired the towbar segment of Ellebi S.p.A. on January 2, 1998
and the net assets of Tranfo-Rakzs on February 7, 1998. The Ellebi
Acquisition and Transfo-Rakzs Acquisition have been accounted for in
accordance with the purchase method of accounting. Accordingly, the
operating results of Ellebi and Tranfo-Rakzs are included in the
consolidated operating results of the Company subsequent to the respective
acquisition dates.
(4) In June 1998, information became available that indicated that certain
assets acquired from Bell (accounts receivable, inventory and tooling) had
a fair value less than originally recorded. The SportRack International
purchase was renegotiated and a $2.0 million reimbursement was received
from Bell. Accounts receivable, inventory and tooling were reduced by $6.5
million and additional goodwill of $4.5 million, net of the $2.0 million
reimbursement from Bell, was recorded. During the second half of 1998,
management further reassessed the operations of SportRack International,
took actions to restructure the operations, and recorded restructuring
charges totaling $1.9 million. Restructuring charges have been included in
cost of sales ($1.1 million) and in selling, administrative and product
development expenses ($832,000) in the Company's consolidated statement of
operations. All restructuring costs have been incurred as of December 31,
1998. Concurrent with the reassessment of the SportRack International
operations, management reviewed the carrying value of goodwill and other
intangible assets, determined that future cash flows would not be
sufficient to recover recorded amounts, and recorded an impairment charge
of $7.9 million.
(5) Prior to its acquisition by the Company on September 28, 1995, the
Predecessor was a division of MascoTech and, accordingly, had no
outstanding indebtedness.
(6) Primarily represents net currency gains and loss on indebtedness of the
Company's foreign subsidiaries denominated in currencies other than their
functional currency.
(7) The Predecessor, as a division of MascoTech, was allocated a portion of the
consolidated income tax provision, which approximated the division's federal
income tax provision on a stand-alone basis. The Company is a limited
liability corporation and, as such, the earnings of the Company and its
domestic subsidiaries, except for AAS Holdings, Inc. which is a C
corporation, are included in the taxable income of the Company's unitholders
and no federal income tax provision is required. The Company's foreign and
taxable domestic subsidiaries provide for income taxes on their results of
operations.
(8) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Notes
(as defined below), a prepayment penalty of $1.4 million, $3.1 million of
unamortized debt discount, and unamortized deferred debt issuance costs of
$3.2 million were charged to operations during 1997. The debt extinguishment
charges in 1997 were reduced by $365,000 representing the income tax benefit
recognized by Brink.
(9) EBITDA is defined as operating income plus depreciation and amortization
adjusted in 1998 for the non-cash portion of impairment and restructuring
charges ($9.5 million for the year ended December 31, 1998), which
definition may not be comparable to similarly titled measures reported by
other companies. EBITDA is presented because it is generally accepted as
providing useful information regarding a company's ability to service and/or
incur indebtedness. However, EBITDA should not be considered in isolation
from or as an alternative to net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. In addition, funds depicted by the
EBITDA measurement are not fully available for discretionary use because of
debt service requirement, expenditures for capital replacement and
expansion, and the need to conserve funds for other commitments and
uncertainties.
(10)For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before minority interest,
extraordinary charge and income taxes, plus fixed charges. "Fixed charges"
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the component of operating lease rental
expense that management believes is representative of the interest component
of rent expense.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements and notes thereto of the Company included elsewhere in this Form
10-K. This Form 10-K contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth above and
under "Business," as well as in this Form 10-K generally. Any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various factors
set forth in this Form 10-K generally.
GENERAL
Chase Capital Partners ("CCP") 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.
ACQUISITIONS
In September 1995, the Company, through its SportRack subsidiary, acquired
the MascoTech Division of MascoTech. The MascoTech Division was a North American
supplier of rack systems and accessories to the automotive OEM market and
aftermarket.
In October 1996, the Company consummated the Brink Acquisition by acquiring
all of the capital stock of Brink B.V., a private company with limited liability
incorporated under the laws of The Netherlands and a European supplier of towing
systems to the automotive OEM market and aftermarket. In December 1996,
ownership of Brink B.V. and its subsidiaries was transferred to Brink, a newly
formed subsidiary of the Company.
In August 1997, the Company formed Valley to effect the Valley Acquisition
by acquiring the net assets of Valley Industries, a North American supplier of
towing systems to the automotive OEM market and aftermarket.
Two smaller acquisitions were completed in July 1997 by SportRack
International. SportRack International acquired from Bell the net assets of its
sportrack division, a Canadian supplier of rack systems and accessories to the
automotive aftermarket. CCP at that time was a significant equity investor in
Bell. SportRack International also acquired the capital stock of Nomadic, a
Canadian supplier of rack systems and accessories to the automotive OEM market
and aftermarket. The acquisitions of the sportrack division of Bell and Nomadic
are collectively referred to in this 10-K as the "SportRack International
Acquisition."
In January 1998, the Company through Brink International B.V., acquired the
net assets of the towbar segment Ellebi S.p.A., an Italian supplier of towing
systems to the automotive OEM market and aftermarket.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, a Canadian supplier of rear hitch rack
carrying systems and related products to the automotive aftermarket.
In February 2000, the Company through Valley, acquired the net assets of
Titan Industries, Inc. ("Titan"). Titan is a North American Supplier of trailer
balls and other towing related accessories to the automotive aftermarket.
13
<PAGE> 16
SUMMARY RESULTS OF OPERATIONS
The following table presents the major components of the statement of
operations together with percentages of each component as a percentage of net
sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997
------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales...................... $311,732 100.0% $290,139 100.0% $ 188,678 100.0%
Gross profit................. 86,253 27.7% 76,704 26.4% 53,122 28.2%
Selling, administrative and
product development expenses... 50,258 16.1% 50,839 17.5% 31,350 16.6%
Amortization of intangible
assets......................... 3,245 1.0% 3,551 1.2% 2,336 1.2%
Impairment charge.............. -- -- 7,863 2.7% -- --
Operating income............. 32,750 10.5% 14,451 5.0% 19,436 10.3%
Interest expense............... 17,453 5.6% 18,633 6.4% 12,627 6.7%
Foreign currency (gain) loss... 7,912 2.5% (4,995) (1.7%) 6,097 3.2%
Income before minority interest,
extraordinary charge and
income taxes................. 5,395 1.7% 813 0.3% 712 0.4%
Income tax provision (benefit). 417 0.1% 903 0.4% (2,856) (1.5%)
Extraordinary charge........... -- -- -- -- 7,416 3.9%
Net income (loss).............. 4,978 1.6% (90) 0.0% (3,945) (2.1%)
</TABLE>
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Net Sales. Net sales for 1999 were $311.7 million, representing an
increase of $21.6 million, or 7.4%, over net sales for 1998. This increase
resulted from increased sales to OEM's of approximately $10.1 million and
increased aftermarket sales of $10.5 million. Increased OEM sales are
attributable to higher production volumes by the OEM's on the Company's existing
programs. Increases in aftermarket sales are primarily attributable to new
customers in the retail market and new business with an existing customer in the
installer business. Offsetting the Company's increased sales volume is a
decrease of approximately $3.1 million related to the effect of declining
exchange rates between the U.S. Dollar and the currencies used by the Company's
foreign subsidiaries.
Gross Profit. Gross profit for 1999 was $86.3 million, representing an
increase of $9.5 million, or 12.4%, over the gross profit for 1998. This
increase resulted from the increase in net sales. Gross profit as a percentage
of net sales was 27.7% in 1999 compared to 26.4% in 1998. The increase in the
gross profit percent resulted primarily from reduced material costs, primarily
steel, and the effect of higher net sales on fixed overhead costs.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1999 were $50.3 million,
representing a decrease of $581,000, or 1.1%, over the selling, administrative
and product development expenses for 1998. Selling, administrative and product
development expenses as a percentage of net sales decreased to 16.1% in 1999
from 17.5% in 1998. This decrease resulted primarily from the effect of higher
net sales on fixed costs, decreased selling, administrative and product
development expenses of SportRack International resulting from the restructuring
of the subsidiary's operations during the fourth quarter of 1998 and the
restructuring charges (as further discussed below) related to the operations of
SportRack Accessories incurred in 1998.
Operating income. Operating income for 1999 was $32.8 million, an
increase of $18.3 million, or 126.6%, over operating income for 1998. In
addition to the increase in net sales, this increase was due to an impairment
and restructuring charge in 1998. Excluding the impairment and restructuring
charges, operating income in 1998 would have been $24.2 million and there would
have been an increase in operating income during 1999 of $8.6. Operating income
as a percentage of net sales increased to 10.5% in 1999 from 8.3% in 1998,
excluding the impairment and restructuring charge. This increase reflects the
increase in gross profit, and decrease in selling, general and product
development expenses as a percentage of net sales.
Interest expense. Interest expense for 1999 was $17.5 million, a
decrease of $1.2 million, or 6.3%, compared to interest expense for 1998. The
decrease was primarily due to lower outstanding senior indebtedness attributable
to scheduled principal payments made during 1999 partially offset by higher
average line of credit borrowings during 1999 as compared with 1998, and higher
interest rates on the Company's variable rate debt.
Foreign currency (gain) loss. Foreign currency loss in 1999 was $7.9
million, compared to a foreign currency gain of $5.0 million in 1998. The
Company's foreign currency loss is primarily related to Brink which has
indebtedness denominated in U.S. Dollars. During 1999 the U.S. Dollar
strengthened significantly in relation to the Dutch Guilder, the functional
currency of Brink. At December 31, 1998, the
14
<PAGE> 17
exchange rate of the Dutch Guilder to the U.S. Dollar was 1.89:1, whereas at
December 31, 1999 the exchange rate was 2.19:1, or a 16.5% decline in the
relative value of the Dutch Guilder.
Provision for income taxes. The Company and certain of its domestic
subsidiaries have elected to be taxed as limited liability companies for federal
income tax purposes. As a result of this election, the Company's domestic
taxable income accrues to the individual members. Certain of the Company's
domestic subsidiaries and foreign subsidiaries are subject to income taxes in
their respective jurisdictions. During 1999, the Company had a loss before
income taxes for its taxable subsidiaries totaling $5.6 million and recorded a
provision for income taxes of $417,000. The effective tax rate differs from the
U.S. federal income tax rate primarily due to changes in valuation allowances on
the deferred tax assets of SportRack International recorded during 1999,
non-deductible goodwill and differences in the tax rates of foreign countries.
During 1998, the Company had a loss before income taxes for its taxable
subsidiaries totaling $9.2 million and recorded a provision for income taxes of
$903,000.
Net income. Net income for 1999 was $5.0 million, as compared to a net
loss of $90,000 in 1998, an increase of $5.1 million. The change in net income
is primarily attributable to increased operating income, decreased interest
expense and decreased provision for income taxes offset by a foreign currency
loss in 1999 compared with the foreign currency gain during 1998.
1998 COMPARED TO 1997
Net sales. Net sales for 1998 were $290.1 million, representing an increase
of $101.5 million, or 53.8% over net sales for 1997. The increase resulted
primarily from the Ellebi Acquisition in January 1998, the Transfo-Rakzs
Acquisition in February 1998, the Valley Acquisition in August 1997 and the
SportRack International Acquisition in July 1997. The 1998 sales increase
resulting from these acquisitions was $80.1 million. The remaining sales
increase of $21.4 million resulted primarily from increased sales volumes of OEM
rack systems on existing programs and the effect of having a full year of sales
on new OEM rack system programs launched during 1997. On a pro forma basis, if
the net sales of Ellebi and Tranfo-Rakzs and the net sales of Valley and
SportRack International prior to acquisition were included with those of the
Company for 1997 net sales for 1997 would have been $268.5 million, as compared
to net sales of $290.1 million for 1998, an increase of $21.6 million, or 8.1%.
Gross profit. Gross profit for 1998 was $76.7 million, representing an
increase of $23.6 million, or 44.4%, over the gross profit for 1997. This
increase resulted from the increase in net sales offset by a decrease in the
gross margin. Gross profit as a percentage of net sales was 26.4% in 1998
compared to 28.2% in 1997. The decrease in gross margin resulted primarily from
lower gross margins of newly acquired businesses, lower gross profit margins
from sales of OEM rack systems resulting from increased sales of lower margin
programs and restructuring charges (as further discussed below) related to the
operations of SportRack International.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1998 were $50.8 million,
representing an increase of $19.5 million, or 62.2% over selling, administrative
and product development expenses for 1997, reflecting the increase in net sales.
Selling, administrative and product development expenses as a percentage of net
sales increased to 17.5% in 1998 from 16.6% in 1997. This increase is the result
of increased spending on research and development activities, higher selling,
administrative and product development expenses as a percentage of nets sales
for Ellebi, increased costs in the roof rack aftermarket as a percentage of net
sales and restructuring charges (as further discussed below) related to the
operations of SportRack International.
Impairment and restructuring charges. In June 1998, information became
available that indicated that certain assets acquired from Bell (accounts
receivable, inventory and tooling) had a fair value less than originally
recorded. The SportRack International purchase price was renegotiated and a $2.0
million reimbursement was received from Bell. Accounts receivable, inventory and
tooling were reduced by $6.5 million and additional goodwill of $4.5 million,
net of the $2.0 million reimbursement from Bell, was recorded.
During the second half of 1998, management further reassessed the operations
of SportRack International, and as a result took actions to restructure the
operations, rationalize the product offerings, customer and supplier base,
distribution channels and warehousing, and terminated 14 employees, including
certain members of SportRack International's senior management. A restructuring
charge totaling $1.9 million was recorded including cash expenditures made
during 1998 totaling $258,000 consisting of outside legal and accounting fees,
employee severance and costs to dispose of obsolete inventory. Non-cash expenses
included in the restructuring charge totaling $1.6 million included recording of
inventory reserves related to the product rationalization of $1.1 million and
recording of customer allowances, bad debts and other items of $574,000. The
restructuring charge related to inventory ($1.1 million) has been included in
cost of sales and other restructuring costs ($832,000) have been included in
selling, administrative and product development expenses in the Company's
consolidated statement of operations.
15
<PAGE> 18
Concurrent with the reassessment of SportRack International's operations,
management reviewed the revised carrying value of goodwill and other intangible
assets, determined that future cash flows would not be sufficient to recover
recorded amounts, and recorded an impairment charge of $7.9 million. No
impairment or restructuring charge was recorded during 1997.
Operating income. Operating income for 1998 was $14.5 million, a decrease of
$5.0 million, or 25.6%, compared to operating income for 1997. The decrease was
due primarily to an impairment and restructuring charge in 1998. Excluding the
impairment and restructuring charges, operating income in 1998 would have been
$24.2 million, representing an increase of $4.8 million, or 24.6% over operating
income for 1997. Excluding the impairment and restructuring charge, operating
income as a percentage of net sales decreased to 8.3% in 1998 from 10.3% in 1997
as a result of lower gross margins and higher selling, administrative and
product development expenses as a percentage of net sales in 1998.
Interest expense. Interest expense for 1998 was $18.6 million, an increase
of $6.0 million, or 47.6%, over interest expense for 1997. The increase was
primarily due to additional borrowings to finance (i) the SportRack
International Acquisition in July 1997, (ii) the Valley Acquisition in August
1997, (iii) the Ellebi Acquisition in January 1998, (iv) the Tranfo-Rakzs
Acquisition in February 1998, and (v) the effect of the issuance of the Notes
(as defined below), of which a portion of the proceeds were used to repay debt
from the Valley Acquisition and other then existing debt. These increases were
partially offset by lower interest expense due to lower average line of credit
borrowings during the year and lower interest rates on the Company's variable
rate debt.
Foreign currency (gain) loss. Foreign currency gain in 1998 was $5.0
million. The foreign currency gain primarily relates to the debt of Brink (whose
functional currency was the Dutch Guilder through December 31, 1998) which is
denominated in U.S. Dollars including intercompany debt and substantially all
outstanding loans under the Company's Second Amended and Restated Credit
Agreement, except for Term note A (as defined below) which was changed from a
U.S. Dollar denominated loan to a Dutch Guilder denominated loan in October
1998. During 1998, the U.S. dollar weakened significantly in relation to the
Dutch Guilder. At December 31, 1997, the exchange rate of the Dutch Guilder to
the U.S. dollar was 2.02:1, whereas at December 31, 1998 the exchange rate was
1.89:1, or a 6.4% increase in the relative value of the Dutch Guilder.
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 1998, the Company had a loss
before income taxes for its taxable subsidiaries totaling $9.2 million and
recorded a provision for income taxes of $903,000. The effective tax rate
differs from the U.S. federal income tax rate primarily due to changes in
valuation allowances on the deferred tax assets of SportRack International
recorded during 1998 and differences in the tax rates of foreign countries.
During 1997, the Company had a loss before income taxes for its taxable
subsidiaries totaling $9.9 million and recorded a benefit for income taxes of
$3.2 million.
Extraordinary charge. There were no extraordinary charges incurred by the
Company during the year ended December 31, 1998. The extraordinary charge
resulting from debt extinguishment in 1997 was $7.4 million. In connection with
the issuance of $125 million aggregate principal amount of 9 3/4% Senior
Subordinated Promissory Notes due 2007 (the "Notes"), the Company repaid, in
full, its Senior Subordinated Debt and Junior Subordinated Guilder Note and
repaid a portion of certain term notes under the Amended and Restated Credit
Agreement. In connection with such debt extinguishments, the Company recorded an
extraordinary charge comprised of $1.4 million in prepayment penalties, $3.1
million of unamortized debt discount and $3.2 million of unamortized debt
issuance costs, less $365,000 of tax benefit.
Net income (loss). The net loss for 1998 was $90,000 as compared to a net
loss of $3.9 million in 1997, a decrease of $3.9 million. Operating income for
1998 was $14.5 million, representing a decrease of $5.0 million, or 25.6%
compared to operating income for 1997. The decreased operating income, resulting
from the impairment and restructuring charges offset by the inclusion of Valley
and SportRack International's operating results for a full year in 1998 as
compared to five and six months, respectively, in 1997, the Ellebi acquisition
in January 1998 and the Tranfo-Rakzs acquisition in February 1998, and increased
interest expense ($6.0 million) was offset by the foreign currency gain in 1998
as compared with a foreign currency loss in 1997 related to Brink Acquisition
debt denominated in U.S. dollars ($11.1 million), and no extraordinary charge in
1998 compared with an extraordinary charge resulting from debt extinguishment in
1997 ($7.4 million), and reduced by the provision for income taxes in 1998 as
compared to an income tax benefit in 1997 ($3.8 million).
16
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to service its debt and
meet its working capital and capital expenditure needs. The Company's
indebtedness at December 31, 1999 was $178.5 million including current
maturities of $12.4 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:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- --------------------
<S> <C> <C> <C>
Working Capital................ $ 36,825 $ 46,370 $ 65,803
Cash flows provided by operating
activities................... 25,014 21,879 6,982
Cash flows (used for) investing
activities................... (11,775) (31,618) (79,733)
Cash flows provided by (used
for) financing activities.... (18,185) (8,367) 97,080
</TABLE>
Working Capital
Working capital decreased by $9.5 million to $36.8 million at December 31,
1999 from $46.4 million at December 31, 1998 due to decreases in cash and
inventory of $2.5 million and $1.8 million, respectively, increases in accounts
payable and accrued liabilities of $4.5 million and $3.4 million, respectively,
increase in the current maturities of long-term debt of $5.1 and decreases
attributable to the decline of the exchange rates between the functional
currencies of the Company's foreign subsidiaries against the U.S. Dollar
totaling $900,000. These decreases were offset by increases in accounts
receivable and other current assets of $8.2 million and $677,000, respectively.
Inventory balances decreased as a result of management's efforts to reduce
inventory levels held for the Company's aftermarket business. The increases in
accounts receivable and accounts payable are attributable to increases in the
Company's sales and corresponding purchasing activities during the year.
Working capital decreased by $19.4 million to $46.4 million at December 31,
1998 from $65.8 million at December 31, 1997 due to a decrease in cash of $16.1
million, a decrease of $5.7 million in working capital of SportRack
International related to the change in estimated fair value of accounts
receivable and inventory recorded in June 1998 and restructuring charges
recorded in 1998 (as discussed above) and a decrease in accounts receivable of
$5.9 million primarily related to the timing of collections of accounts
receivable from large customers, primarily OEMs. Offsetting these decreases are
increases in working capital of $9.7 million attributable to the Ellebi and
Tranfo-Rakzs acquisitions.
Cash decreased by $16.1 million to $11.2 million at December 31, 1998 from
$27.3 million at December 31, 1997 primarily due to cash used for investing and
financing activities of $31.6 million and $8.4 million, respectively, offset by
cash provided by operating activities of $21.9 million. Cash increased by $24.8
million to $27.3 million at December 31, 1997 from $2.5 million at December 31,
1996 primarily due to cash provided by operating and financing activities of
$7.0 million and $97.8 million (of which $21.0 million was borrowed to finance
the acquisition of Ellebi on January 2, 1998), respectively, offset by cash used
for investing activities of $79.7 million.
17
<PAGE> 20
Operating Activities
Cash flow provided by operating activities for 1999 was $25.0 million,
compared to $21.9 million in 1998 and $7.0 million in 1997. Cash flow for 1999
increased from 1998 due to improved operating performance and lower working
capital for the year.
Cash flow for 1998 increased from 1997 due to the cash flows provided by
acquisitions completed in 1998, including the Ellebi Acquisition and the
Transfo-Rakzs Acquisition, and the full year effect of acquisitions completed in
1997, including the Valley Acquisition and the SportRack International
Acquisition. Acquisition related increases in operating cash flow totaled $4.0
million. The remaining increase in operating cash flows is attributable to
improved operating performance and lower working capital of SportRack.
SportRack's working capital decreased primarily as a result of the timing of
collections of accounts receivable from large customers, primarily OEMs.
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $5.7 million and $13.7
million, respectively, at December 31, 1999. The European NOLs have no
expiration date and the Canadian NOLs expire in 2004 through 2006. Management
believes that it is more likely than not that a portion of the deferred tax
assets of the Canadian subsidiaries will not be realized and a valuation
allowance of $5.3 million has been recorded against such assets. No valuation
allowance has been recorded for the European NOLs as it is management's belief
that it is more likely than not that the related deferred tax asset will be
realized.
Investing Activities
Investing cash flows include acquisitions of property and equipment of $11.8
million, $10.0 million and $7.8 million in 1999, 1998 and 1997, respectively.
The increase in capital expenditures during 1999 was primarily due to the
expansion of the Company's manufacturing facility in Shelby Township, Michigan
to accommodate increased manufacturing capacity needs for new and existing OEM
roof rack programs. The increase in capital expenditures during 1998 was
primarily attributable to the capital expenditures of Ellebi and Transfo-Rakzs,
which were acquired in 1998, and the increased capital expenditures of Valley
and SportRack International, which were acquired during 1997. The Company
estimates that capital expenditures for 2000 will be primarily for the expansion
of capacity, productivity and process improvements and maintenance. The
Company's 2000 capital expenditures are anticipated to include approximately
$5.0 million for replacing and upgrading existing equipment. The Company's
ability to make capital expenditures is subject to restrictions in the Amended
and Restated Credit Agreement, including a maximum of $12.5 million of capital
expenditures annually.
Investing cash flows in 1998 include $22.8 million, for the acquisition of
the Ellebi and Tranfo-Rakzs (January and February 1998, respectively). Investing
cash flows in 1997 include $70.8 million for the acquisitions of SportRack
International and Valley (July and August 1997, respectively).
Financing Activities
During 1999, financing cash flows included payments of principal on the
Company's term indebtedness of $9.3, distributions to members in amounts
sufficient to meet the tax liability on the Company's domestic taxable income
which accrues to individual members totaling $4.7 million and repurchase of
membership units of $4.3 million. Principal payments included $5.9 million in
scheduled repayments and a $3.4 million mandatory prepayment required as a
result of the Company having excess cash flows during 1998 as defined by the
Second Amended and Restated Credit Agreement. Repurchase of membership units
included repurchases from the Company's former Chief Executive Officer of $4.3
million.
During 1998, financing cash flows were primarily limited to scheduled
payments of principal on the Company's term indebtedness of $3.7 million and net
repayments of borrowing under the Company's revolving loans of $4.5 million.
Financing cash flows in 1997 include borrowings of $90.5 million for the
acquisition of the SportRack International, Valley and Ellebi (July, August and
December 1997, respectively). Although the Ellebi Acquisition was consummated in
January 1998, proceeds related to borrowing for the purchase were received in
December 1997 and were included in the Company's cash at December 31, 1997. Debt
issuance costs in connection with such borrowings were $2.6 million in 1997. In
October 1997 the Company issued the Notes (as defined below). Proceeds from the
issuance, which totaled $124.5 million, were used to reduce or eliminate certain
of the Company's outstanding senior and subordinated debt and to pay $4.7
million in offering costs. Proceeds from the issuance of membership units were
not significant in 1998 and were $5.0 million in 1997. Distributions to members,
in amounts sufficient to meet the tax liability on the Company's domestic
taxable income which accrues to individual members, were not significant in 1998
and were $2.9 million in 1997.
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<PAGE> 21
Debt and Credit Sources
Borrowings under the Company's U.S. Credit Facility and the Company's First
Amended and Restated Credit Agreement ("Canadian Credit Facility") bear interest
at floating rates which require interest payments on varying dates depending on
the interest rate option selected by the Company. Under the terms of these
credit facilities, the Company will be required to make principal payments
totaling approximately $12.4 million in 2000, $11.9 million in 2001, $10.8
million in 2002 and $9.2 million in 2003. The Notes bear interest at 9.75% which
is payable semiannually in arrears. See "Note 4" to the Company's "Consolidated
Financial Statements" for additional information regarding the U.S. Credit
Facility, the Canadian Credit Facility and the Senior Subordinated Notes.
The Company expects that its primary sources of cash will be from operating
activities and borrowings under the U.S. Credit Facility and Canadian Credit
Facility each of which provide the Company with revolving notes. As of December
31, 1999, the Company had no amounts borrowed under the revolving note of either
the U.S. Credit Facility or the Canadian Credit Facility and has $25.0 million
available borrowing capacity. As part of the U.S. Credit Facility, Chase and NBD
committed to provide a $22.0 million Acquisition Revolving Note to finance
acquisitions. On December 31, 1997, the Company borrowed $21.0 million under the
Acquisition Revolving Note and used such proceeds to acquire the net operating
assets of the towbar segment of Ellebi S.p.A. on January 2, 1998. Future
acquisitions, if any, may require additional third party financing and there can
be no assurances that such funds would be available on terms satisfactory to the
Company, if at all.
The Company's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under the Amended and Restated Credit Agreement or a successor facility. The
Company anticipates that, based on current and expected levels of operations,
its operating cash flow, together with borrowings under the U.S. Credit Facility
and the Canadian Credit Facility, should be sufficient to meet its debt service,
working capital and capital expenditure requirements for the foreseeable future,
although no assurances can be given in this regard, including as to the ability
to increase revenues or profit margins. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
acquisitions and/or capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There is no
assurance that any of these remedies can be effected on satisfactory terms, if
at all, including, whether, and on what terms, the Company could raise equity
capital. See "Forward Looking Statements".
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
Poland, Spain, the Czech Republic and, Italy. Net sales from international
operations during 1999 were approximately $102.9 million, or 33.0% of the
Company's net sales. At December 31, 1999, assets associated with these
operations were approximately 38.4% of total assets, and the Company had
indebtedness denominated in currencies other than the U.S. dollar of
approximately $10.3 million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Certain of the Company's foreign subsidiaries have debt denominated in
currencies other than their functional currency. As the exchange rates between
the currency of the debt and the subsidiaries functional currency change the
Company is subject to foreign currency gains and losses.
The Company may periodically use foreign currency forward option contracts
to offset the effects of exchange rate fluctuations on cash flows denominated in
foreign currencies. The Company has no outstanding foreign currency forward
options at December 31, 1999 and does not use derivative financial instruments
for trading or speculative purposes.
YEAR 2000
General
The "Year 2000 Issue" is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
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<PAGE> 22
During 1998 and 1999, the Company and each of its operating subsidiaries
implemented Year 2000 readiness programs with the objective of having all of
their significant business systems functioning properly with respect to the Year
2000 Issue before December 31, 1999.
Project
Generally each subsidiary's Year 2000 program was divided into three major
sections - internal business software and hardware, internal non-financial
software and embedded chip technology and external compliance by customers and
suppliers. The general phases common to all sections were: (1) inventorying Year
2000 items; (2) assessing the Year 2000 compliance of identified items; (3)
repairing or replacing material items that were determined not to be Year 2000
compliant; (4) testing material items; and (5) designing and implementing
contingency and business continuation plans for each organization and company
location.
The internal business software and hardware section of the Company's Year
2000 plans varied by operating subsidiary and included either the conversion or
reprogramming of applications software that was not Year 2000 compliant, the
inclusion of newly acquired companies on the Company's existing Enterprise
Resource Planning System (ERP System) or, where available from the supplier, the
upgrading of such software to a Year 2000 compliant version. This phase was
completed by September 1999. As of March 17, 2000, the Company has not
experienced any disruptions in its operations resulting from any Year 2000
related system failure of its internal business software or hardware.
The total cost associated with required modifications to the Company's
internal business software and hardware to become Year 2000 compliant was not
material to the Company's financial position. The estimated total cost of the
Year 2000 program was approximately $935,000 of which approximately $335,000
related to the cost of software modification and approximately $600,000 related
to the cost of upgrading existing software to Year 2000 compliant versions.
Costs were included in operating expenses as incurred.
The Company completed all phases of its Year 2000 plan related to
non-financial software, embedded chip technology, and its non-financial systems
such as manufacturing equipment, security equipment, etc during 1998. Few of
these systems were identified as not being in compliance. Accordingly, the cost
of achieving Year 2000 compliance for these systems was minimal. As of March 17,
2000, the Company has not experienced any disruptions in its operations
resulting from any Year 2000 related failure of non-financial software, embedded
chip technology or non-financial systems.
The Company identified and contacted its critical suppliers, service
providers and contractors to determine the extent to which the Company's
interface systems were vulnerable to those third parties' failure to remedy
their own Year 2000 issues. Each of the suppliers contacted indicated that they
had completed programs related to the Year 2000 problem within their
organizations. As of March 17, 2000, the Company has not experienced any
disruptions in its operations resulting from any Year 2000 related failure of
its suppliers or customers.
The Company's transition into the year 2000 has, to date, been considered
uneventful and successful and did not result in any noteworthy events with the
Company or its suppliers. However, the potential for future disruptions
resulting from Year-2000 issues exists. Accordingly, the Company will continue
to monitor its operations.
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<PAGE> 23
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 statement is effective for fiscal years
beginning after June 15, 1999. The Company plans to adopt this statement at the
beginning of fiscal 2000. 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 issued ("EITF") Issue No.
99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply
Arrangements". EITF Issue No. 99-5 will require 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 is completing an analysis of the issue which is not expected to have
a material impact on the Company's results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate ("LIBOR"). The Company uses
derivative financial instruments, where appropriate, to manage these risks. The
Company, as a matter of policy, does not engage in trading or speculative
transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Report of Independent Accountants........................................................................... 22
Consolidated Balance Sheets -- December 31, 1999 and 1998.................................................... 23
Consolidated Statements of Operations -- Years Ended December 31, 1999, 1998 and 1997........................ 24
Consolidated Statements of Cash Flows -- Years Ended December 31, 1999, 1998 and 1997........................ 25
Consolidated Statements of Changes in Members' Equity -- Years Ended December 31, 1999, 1998 and 1997........ 26
Notes to Consolidated Financial Statements................................................................... 27
</TABLE>
21
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 present fairly, in all material respects, the financial
position of Advanced Accessory Systems, LLC and its subsidiaries at December 31,
1999 and 1998, and the results of their operations, their cash flows and changes
in members' equity for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14 (a) (2) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 17, 2000
22
<PAGE> 25
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- --------
(DOLLAR AMOUNTS IN
THOUSANDS)
ASSETS
<S> <C> <C>
Current assets
Cash..................................................... $ 8,718 $ 11,240
Accounts receivable, less reserves of $4,997 and $2,766,
respectively.......................................... 46,918 40,727
Inventories.............................................. 38,437 43,087
Deferred income taxes.................................... 1,804 280
Other current assets..................................... 4,879 3,964
-------- --------
Total current assets................................ 100,756 99,298
Property and equipment, net................................ 59,316 61,295
Goodwill, net.............................................. 80,674 87,079
Other intangible assets, net............................... 5,729 6,592
Deferred income taxes...................................... 1,922 1,933
Other noncurrent assets.................................... 2,816 2,784
-------- --------
$251,213 $258,981
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt..................... $ 12,449 $ 7,398
Accounts payable......................................... 26,715 23,115
Accrued liabilities...................................... 24,767 21,335
Deferred income taxes.................................... -- 1,080
------- --------
Total current liabilities........................... 63,931 52,928
-------- --------
Noncurrent liabilities
Deferred income taxes.................................... 1,772 1,790
Other noncurrent liabilities............................. 4,320 4,581
Long-term debt, less current maturities.................. 166,049 180,126
-------- --------
Total noncurrent liabilities........................ 172,141 186,497
-------- --------
Commitments and contingencies (Note 11)
Mandatorily redeemable warrants............................ 4,810 4,409
-------- --------
Members' equity
Class A Units 25,000 authorized, 15,869 and 16,450 issued
at December 31, 1999 and 1998, respectively............. 18,083 22,276
Class B Units, 2,000 authorized, no Units issued at
December 31, 1999 and 1998.............................. -- --
Other comprehensive loss................................. (1,496) (615)
Accumulated deficit...................................... (6,256) (6,514)
-------- --------
10,331 15,147
-------- --------
$251,213 $258,981
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 26
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $ 311,732 $ 290,139 $ 188,678
Cost of sales............................................... 225,479 213,435 135,556
--------- --------- ---------
Gross profit.............................................. 86,253 76,704 53,122
Selling, administrative and product
development expenses...................................... 50,258 50,839 31,350
Amortization of intangible assets........................... 3,245 3,551 2,336
Impairment charge........................................... -- 7,863 --
--------- --------- ---------
Operating income.......................................... 32,750 14,451 19,436
--------- --------- ---------
Other (income) expense
Interest expense.......................................... 17,453 18,633 12,627
Foreign currency (gain) loss.............................. 7,912 (4,995) 6,097
Other (income) expense.................................... 1,990 -- --
--------- --------- ---------
Income before minority interest,
extraordinary charge and income
taxes..................................................... 5,395 813 712
Provision (benefit) for income taxes........................ 417 903 (2,856)
--------- --------- ---------
Income (loss) before minority interest and
extraordinary charge...................................... 4,978 (90) 3,568
Minority interest........................................... -- -- 97
Extraordinary charge resulting from debt
extinguishment............................................ -- -- 7,416
--------- --------- ---------
Net income (loss)........................................... $ 4,978 $ (90) $ (3,945)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 27
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net income (loss)....................................... $ 4,978 $ (90) $ (3,945)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization......................... 14,065 15,093 9,360
Deferred taxes........................................ (2,433) (688) (3,146)
Impairment and restructuring charge................... -- 9,505 --
Foreign currency (gain) loss.......................... 6,297 (4,948) 5,500
Loss (gain) on disposal of assets..................... (13) 191 --
Extraordinary charge resulting from debt
extinguishment..................................... -- -- 7,416
Changes in assets and liabilities:
Accounts receivable................................ (8,188) 5,873 (8,661)
Inventories........................................ 1,815 (1,457) 582
Other current assets............................... (677) 1,513 378
Other noncurrent assets............................ (56) (1,934) (482)
Accounts payable................................... 4,527 (3,032) (2,719)
Accrued liabilities................................ 3,441 1,133 2,819
Other noncurrent liabilities....................... 1,258 720 (217)
Minority interest in consolidated
subsidiaries..................................... -- -- 97
---------- --------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.................................... 25,014 21,879 6,982
---------- --------- ----------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES
Acquisition of machinery and equipment.................. (11,775) (9,998) (7,751)
Amount due from sellers of Valley Industries,
Inc................................................... -- 1,150 (1,150)
Acquisition of subsidiaries, net of cash
acquired.............................................. -- (22,770) (70,832)
---------- --------- ----------
NET CASH USED FOR INVESTING
ACTIVITIES.................................... (11,775) (31,618) (79,733)
---------- --------- ----------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES
Proceeds from issuance of debt.......................... -- -- 215,050
Increase (decrease) in revolving loan................... -- (4,505) 504
Repayment of debt....................................... (9,270) (3,682) (113,248)
Debt issuance costs..................................... -- -- (7,280)
Issuance of membership units............................ 50 29 4,999
Collections of membership notes receivable.............. 29 -- --
Repurchase of membership units.......................... (4,274) (14) --
Distributions to members................................ (4,720) (195) (2,945)
---------- ---------- ----------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES.......................... (18,185) (8,367) 97,080
---------- --------- ----------
Effect of exchange rate changes......................... 2,424 1,998 505
Net increase (decrease) in cash......................... (2,522) (16,108) 24,834
Cash at beginning of period............................. 11,240 27,348 2,514
---------- --------- ----------
Cash at end of period................................... $ 8,718 $ 11,240 $ 27,348
========== ========== ==========
Cash paid for interest.................................. $ 16,809 $ 17,559 $ 8,302
========== ========== ==========
Cash paid for income taxes.............................. $ 3,131 $ 934 $ 581
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 28
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER RETAINED TOTAL
MEMBERS' COMPREHENSIVE EARNINGS MEMBERS'
CAPITAL INCOME (LOSS) (DEFICIT) EQUITY
-------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................ $ 17,922 $ (89) $ 630 $ 18,463
Issuance of additional units................ 5,250 -- -- 5,250
Accretion of membership warrants............ (9) -- -- (9)
Distributions to members, net of minority
interest.................................. -- -- (2,914) (2,914)
Comprehensive loss:
Currency translation adjustment........... -- (401) -- --
Net loss for 1997......................... -- -- (3,945) --
Total comprehensive loss................ -- -- -- (4,346)
-------- -------- -------- ---------
Balance at December 31, 1997................ 23,163 (490) (6,229) 16,444
Issuance of additional units................ 150 -- -- 150
Notes receivable for unit purchase.......... (121) -- -- (121)
Repurchase of membership units.............. (14) -- -- (14)
Accretion of membership warrants............ (902) -- -- (902)
Distributions to members.................... -- -- (195) (195)
Comprehensive loss:
Currency translation adjustment........... -- (125) -- --
Net loss for 1998......................... -- -- (90) --
Total comprehensive loss................ -- -- -- (215)
-------- -------- -------- ---------
Balance at December 31, 1998................ 22,276 (615) (6,514) 15,147
Issuance of additional units................ 970 -- -- 970
Notes receivable for unit purchase.......... 380 -- -- 380
Repurchase of membership units.............. (5,142) -- -- (5,142)
Accretion of membership warrants............ (401) -- -- (401)
Distributions to members.................... -- -- (4,720) (4,720)
Comprehensive income:
Currency translation adjustment........... -- (881) -- --
Net income for 1999....................... -- -- 4,978 --
Total comprehensive income.............. -- -- -- 4,097
-------- -------- -------- ---------
Balance at December 31, 1999................ $ 18,083 $ (1,496) $ (6,256) $ 10,331
======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Advanced Accessory Systems, LLC (the "Company") is engaged in the design,
manufacture and supply of towing and rack systems and accessories for the
automotive original equipment manufacturer ("OEM") market and the automotive
aftermarket. The Company's business commenced on September 28, 1995, with the
acquisition of certain of the net assets of MascoTech Accessories (the
"Predecessor"), a division of MascoTech, Inc., through the Company's
majority-owned subsidiary, SportRack, LLC. As described in Note 2, in October
1996 the Company acquired Brink B.V., in July and August of 1997 acquired the
sportrack division of Bell Sports Corporation, Nomadic Sports, Inc. and certain
net assets of Valley Industries, Inc. and in January and February 1998 acquired
the net assets of the towbar segment of Ellebi S.p.A. and the net assets of
Transfo-Rakzs, Inc.
PRINCIPLES OF CONSOLIDATION
The Company includes the accounts of the following:
<TABLE>
<S> <C>
SportRack, LLC................ 100% owned by Advanced Accessory Systems, LLC
SportRack Automotive, GmbH.. A German corporation, 100% owned by SportRack, LLC
SportRack International,
Inc and its consolidated
subsidiary................. A Canadian corporation, 100% owned by SportRack, LLC
AAS Holdings, Inc............. 100% owned by Advanced Accessory Systems, LLC
Brink International B.V and
its consolidated
subsidiaries............... A Dutch corporation, 100% owned by AAS Holdings, Inc.
Valley Industries, LLC........ 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
ValTek, LLC................... 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
AAS Capital Corporation....... 100% owned by Advanced Accessory Systems, LLC
</TABLE>
All intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue and related cost of goods sold are recognized upon shipment of the
product to the customer. Sales allowances, discounts, rebates and other
adjustments are recorded or accrued in the period of the sale.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the fiscal period. Actual results could differ from those
estimates.
FINANCIAL INSTRUMENTS
Financial instruments at December 31, 1999 and 1998, including cash,
accounts receivable and accounts payable, are recorded at cost, which
approximates fair value due to the short-term maturities of these assets and
liabilities. The carrying value of the obligations under the bank agreements are
considered to approximate fair value as the agreements provide for interest rate
revisions based on changes in prevailing market rates or were entered into at
rates that approximate market rates at December 31, 1999 and 1998. The fair
value of the Notes (as defined below) as of December 31, 1999 was approximately
$112,500 based upon quoted prices in the market in which the Notes are traded.
The fair value approximated the carrying value at December 31, 1998.
27
<PAGE> 30
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (continued)
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate (LIBOR). The Company uses derivative
financial instruments, where appropriate, to manage these risks. The Company, as
a matter of policy, does not engage in trading or speculative transactions.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date; translation adjustments are reported as a separate component of
members' equity. Revenues, expenses and cash flows for foreign subsidiaries are
translated at average exchange rates during the period; foreign currency
transaction gains and losses are included in current earnings. The accompanying
consolidated statement of operations for the years ended December 31, 1999, 1998
and 1997 includes net currency gains (losses) of $(7,912), $4,995 and $(6,097),
respectively, relating primarily to debt denominated in U.S. Dollars at Brink
International B.V., whose functional currency was the Dutch Guilder through
December 31, 1998 and the European Euro during 1999. At December 31, 1999, U.S.
Dollar denominated debt recorded at Brink includes intercompany debt and
substantially all outstanding loans under the Company's Second Amended and
Restated Credit Agreement.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventories are
periodically reviewed and reserves established for excess and obsolete items.
TOOLING
The Company incurs costs to develop new tooling used in the manufacture of
products sold to OEMs. Tooling costs that are reimbursed by the OEMs as the
tooling is completed are included in other current assets. All other customer
tooling costs are included in other noncurrent assets and amortized over the
expected product life, generally four to six years. Company owned tooling is
included in property and equipment and depreciated over its expected useful
life, generally three to five years. Management periodically evaluates the
recoverability of tooling costs, based on estimated future cash flows, and makes
provisions for tooling costs that will not be recovered, if any, when such
amounts are known.
PROPERTY AND EQUIPMENT
Property and equipment is stated at acquisition cost, which reflects the
fair market value of assets acquired at the acquisition date for all
subsidiaries. Property and equipment purchased other than through the
acquisitions described in Note 2 is stated at cost. Expenditures for normal
repairs and maintenance are charged to operations as incurred. Depreciation is
computed using the straight-line method over the following estimated useful
lives:
YEARS
-------
Buildings and improvements.................................... 5-50
Machinery, equipment and tooling.............................. 2-10
Furniture and fixtures........................................ 5-7
28
<PAGE> 31
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (continued)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill of $80,674 and $87,079 (net of accumulated amortization of $11,194
and $8,400) at December 31, 1999 and 1998, respectively, represents the costs in
excess of net assets acquired and is amortized using the straight line method
over periods of up to 30 years.
Debt issuance costs of $5,280 and $5,958, net of accumulated amortization at
December 31, 1999 and 1998, respectively, are amortized over the terms of the
loan agreements, which are six to ten years. Debt issuance cost amortization of
$589, $587 and $551 for 1999, 1998 and 1997, respectively, has been included in
interest expense.
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
The Company evaluates the potential impairment of goodwill on an ongoing
basis and reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company determines
the impairment of long-lived assets by comparing the undiscounted future net
cash flows to be generated by the assets to their carrying value. Impairment
losses are then measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. In 1998, as described in Note 3, the
Company determined that certain intangible assets of its subsidiary, SportRack
International, Inc. had been impaired.
INCOME TAXES
The Company and certain of its domestic subsidiaries have elected to be
taxed as limited liability companies for federal income tax purposes. As a
result of this election, the Company's domestic taxable income accrues to the
individual members. Distributions are made to the members in amounts sufficient
to meet the tax liability on the Company's domestic taxable income accruing to
the individual members. Distributions to members, net of minority interest, of
$4,720, $195 and $2,914 were made during 1999, 1998 and 1997 respectively.
Certain of the Company's domestic subsidiaries and foreign subsidiaries are
subject to income taxes in their respective jurisdictions. Income tax provisions
for these entities are based on the U.S. Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and
liabilities are provided for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of such entities'
assets and liabilities. Deferred tax assets are reduced by a valuation allowance
for tax benefits that are not expected to be realized. The Company does not
provide for U.S. income taxes or foreign withholding taxes on the undistributed
earnings of foreign subsidiaries because of management's intent to permanently
reinvest in such operations.
The Company and certain subsidiaries are subject to taxes, including
Michigan Single Business Tax and Canadian capital tax, which are based primarily
on factors other than income. As such, these amounts are included in selling,
administrative and product development expenses in the accompanying consolidated
statements of income. Deferred taxes related to Michigan Single Business Tax are
provided on the temporary differences resulting from capital acquisitions and
depreciation.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed as incurred and
aggregated approximately $10,302, $9,611 and $5,860 for the years ended December
31, 1999, 1998 and 1997, respectively.
29
<PAGE> 32
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
2. ACQUISITIONS
Acquisitions of the Company from inception through December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
PURCHASE GOODWILL
ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES
----------------------------------------- ------------------ -------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
MascoTech Accessories.................... September 28, 1995 $46,050 $32,781 United States Rack systems
Brink B.V................................ October 30, 1996 54,339 27,730 Europe Towing systems
Sportrack division of Bell Sports........ July 2, 1997 13,505 1,198 Canada Rack systems
Nomadic Sports, Inc...................... July 24, 1997 849 433 Canada Rack systems
Valley Industries, Inc................... August 5, 1997 56,478 32,891 United States Towing systems
Towbar segment of Ellebi S.p.A........... January 2, 1998 21,938 5,645 Italy Towing systems
Tranfo-Rakzs, Inc........................ February 7, 1998 1,040 902 Canada Rack systems
</TABLE>
The above acquisitions have each been accounted for in accordance with the
purchase method of accounting. Accordingly, the respective purchase price of
each acquisition has been allocated to assets acquired and liabilities assumed
based upon their estimated fair values at the acquisition date. The excess of
the aggregate purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill. The operating results of these entities
have been included in the Company's consolidated financial statements since the
date of each acquisition. Each acquisition represented the purchase of the net
assets of the respective company with the exceptions of Brink B.V. and Nomadic
Sports, Inc. which were purchases of the outstanding shares. Each company was
purchased for cash except for Brink B.V. which was purchased for $54,339 in cash
and a 12,500 Junior Subordinated Note denominated in Dutch Guilders ($7,340), to
Brink Holdings, B.V.
In February 2000, the Company, through Valley Industries, LLC, acquired the
net assets of Titan Industries, Inc. ("Titan") for an aggregate purchase price
of approximately $1,550, including estimated costs of the transaction. Titan is
a designer, manufacturer and distributor of towballs and towing accessories to
North America. The acquisition will be 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 $1,200. The
acquisition was financed primarily through the Company's revolving line of
credit. Titan's sales approximated $1,500 for 1999 and Titan's net income, after
consideration of pro forma adjustments for interest expense and amortization of
goodwill, was not material.
Pro Forma Data
The following unaudited pro forma consolidated results of operations have
been prepared as if the Valley, SportRack International, Inc., Ellebi and
Tranfo-Rakzs, Inc. acquisitions had occurred on January 1, 1997.
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Net sales............................................................ $ 268,489
Income before extraordinary charge................................... 2,015
Net loss............................................................. (5,401)
</TABLE>
Pro forma results for 1999 and 1998 have not been presented as they are
substantially the same as the Company's actual results. The pro forma data is
not intended to be a projection of future results.
The pro forma data included above includes adjustments to historical results
of operations for increased depreciation expense, intangible asset amortization
and interest expense, net of the related tax benefits.
3. IMPAIRMENT AND RESTRUCTURING CHARGES
In July 1997, the Company acquired the net assets of the sportrack division
of Bell Sports Corporation ("Bell") for approximately $13,500 and recorded
goodwill of approximately $1,200, representing the excess of the purchase price
over the then estimated fair value of net assets acquired. In June 1998
information became available which indicated that certain assets acquired from
Bell (accounts receivable, inventory, and tooling) had a fair value less than
originally recorded. The SportRack International purchase was renegotiated and a
$2,000 reimbursement was received from Bell. Accounts receivable, inventory and
tooling were reduced by $6,500 and additional goodwill of $4,500, net of the
$2,000 reimbursement from Bell, was recorded.
30
<PAGE> 33
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
3. IMPAIRMENT AND RESTRUCTURING CHARGE -- (CONTINUED)
During the second half of 1998, management further reassessed the operations
of SportRack International, and as a result took actions to restructure the
operations and rationalize the product offerings, customer and supplier base,
distribution channels and warehousing, and terminated 14 employees, including
certain members of SportRack International's senior management. Concurrent with
the reassessment of SportRack International's operations, management reviewed
the revised carrying value of goodwill and other intangible assets, determined
that future cash flows would not be sufficient to recover recorded amounts, and
recorded an impairment charge of $7,863.
The SportRack International impairment and restructuring charges are
comprised of the following:
<TABLE>
Impairment of:
<S> <C> <C>
Goodwill..................................... $ 6,116
Other intangible assets...................... 1,747 $ 7,863
--------
Restructuring charges for:
Product rationalization...................... 1,068
Other costs.................................. 832 1,900
-------- --------
$ 9,763
--------
</TABLE>
The restructuring charge related to inventory has been included in cost of
sales and other costs have been included in selling, administrative and product
development expenses in the accompanying 1998 consolidated statement of
operations. All restructuring costs have been incurred as of December 31, 1998,
including cash expenditures during 1998 of $258.
Sales for SportRack International during the year ended December 31, 1998
were approximately $4,000 and total assets as of December 31, 1998 were
approximately $7,100 after the impairment charge.
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
OUTSTANDING AT
INTEREST RATE AT DECEMBER 31,
DECEMBER 31, ----------------------
1999 1999 1998
---------------- ---------- ----------
<S> <C> <C> <C>
Senior Subordinated Notes, less discount of $403
and $435, respectively......................... 9.75% $ 124,597 $ 124,565
Second Amended and Restated Credit Agreement
(U.S. Credit Facility)
Term note A................................. 8.21% 9,082 14,777
Term note B................................. 8.45% 13,494 15,592
Revolving line of credit note............... -- -- --
Acquisition revolving note.................. 8.22% 21,000 21,000
First Amended and Restated Credit Agreement
(Canadian Credit Facility)
Canadian term note.......................... 7.25% 10,325 11,590
Canadian revolving line of credit note...... -- -- --
--------- ---------
178,498 187,524
Less -- current portion.......................... 12,449 7,398
--------- ---------
$ 166,049 $ 180,126
========= =========
</TABLE>
31
<PAGE> 34
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (CONTINUED)
SENIOR SUBORDINATED NOTES
Borrowings under the Company's Series B Senior Subordinated Notes (the
"Notes"), due October 1, 2007, are unsecured and are subordinated in right of
payment to all existing and future senior indebtedness of the Company, including
the loans under the U.S. and Canadian Credit Agreements described below. The
Company, at its option, may redeem the Notes, in whole or in part, together with
accrued and unpaid interest subsequent to October 1, 2002 at certain redemption
prices as set forth by the indenture under which the Notes have been issued. In
addition, at any time on or prior to October 1, 2000, the Company may redeem up
to 35% of the aggregate principal amount of the Notes with the net cash proceeds
of one or more public equity offerings at a redemption price equal to 109.75% of
the principal amount to be redeemed. Upon the occurrence of a change of control
of the Company, as defined by the indenture, the Company is required to make an
offer to repurchase the Notes at a price equal to 101% of the principal amount
of the Notes. The indenture places certain limits on the Company, the most
restrictive of which include, the incurrence of additional indebtedness by the
Company, the payment of dividends on, and redemption of capital of the Company,
the redemption of certain subordinated obligations, investments, sales of assets
and stock of certain subsidiaries, transactions with affiliates, consolidations,
mergers and transfers of all or substantially all of the Company's assets.
Interest on the Notes is payable semi-annually in arrears on April 1 and October
1 of each year.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
The Company's Second Amended and Restated Credit Agreement ("U.S. Credit
Facility"), which is administered by Bank One (formerly First Chicago NBD Bank)
and The Chase Manhattan Bank ("Chase"), is secured by substantially all the
assets of the Company and places certain restrictions on the Company related to
indebtedness, sales of assets, investments, capital expenditures, dividend
payments, management fees, and members' equity transactions. In addition, the
agreement subjects the Company to certain restrictive covenants, including the
attainment of designated operating ratios and minimum net worth levels. The
Company, at its election, may make prepayments of the term notes under the
credit agreement on a pro-rata basis. Additionally, mandatory prepayments of the
term notes are required in the event of sales of assets meeting certain
criteria, as set forth by the agreement, or based upon periodic calculations of
excess cash flows, as defined by the agreement.
The U.S. Credit Facility provides for two term notes (Term note A and Term
note B), a revolving line of credit note and an acquisition note. Loans under
each of the term notes and the revolving note can be converted, at the election
of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans.
Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in
one, two or three months on Eurocurrency Loans, as determined by the length of
the Eurocurrency Loan, as selected by the Company. Interest is charged at an
adjustable rate plus the applicable margin. The applicable margin is based upon
the Company's Senior Debt Ratio, as defined by the Credit Agreement.
Eurocurrency Loans under the each of the term notes can be made in U.S. dollars
or certain other currencies, at the option of the Company. The U.S. Credit
Facility also provides for a Letter of Credit Facility. At December 31, 1999, no
letters of credit were outstanding.
Term note A
On October 30, 1996 the Company borrowed $65,000 under Term note A. On
October 1, 1997 the Company made a mandatory prepayment totaling $43,475 in
connection with the issuance of the Notes. A mandatory prepayment of $1,597 was
made in June 1999 for the excess cash flows of the Company as defined by the
Credit Agreement. The applicable margin for Term note A ranges from .75% to 2.0%
for Base Rate Loans and from 1.75% to 3.0% for Eurocurrency Loans. Repayments
under the note are required in the following installments:
<TABLE>
<CAPTION>
QUARTERLY
------------------------------------------
<S> <C>
March 31, 2000 through September 30, 2000............................................ $ 736
December 31, 2000 through June 30, 2002.............................................. 883
Final installment on September 30, 2002.............................................. 693
</TABLE>
32
<PAGE> 35
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (CONTINUED)
Term note B
On August 5, 1997, the Company borrowed $55,000 under Term note B. On
October 1, 1997 the Company made a mandatory prepayment totaling $39,044 in
connection with the issuance of the Notes. A mandatory prepayment of $1,806 was
made in June 1999 for the excess cash flows of the Company as defined by the
Credit Agreement. The applicable margin for Term note B ranges from 1.25% to
2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans.
Repayments under Term note B are required in the following installments:
<TABLE>
<S> <C>
March 31, 2000 through September 30, 2003 (quarterly)................................ $ 73
December 31, 2003.................................................................... 2,914
March 30, 2004 and June 30, 2004..................................................... 3,764
October 30, 2004..................................................................... 1,957
</TABLE>
Revolving line of credit note
The Company has the ability to borrow up to $25,000 under the revolving line
of credit which expires on October 30, 2003. Available borrowings, however, are
limited to a defined borrowing base amount equal to 85% eligible domestic
accounts receivable and 80% of certain eligible foreign accounts receivable. The
base borrowing amount is increased by the lesser of the sum of 50% of domestic
eligible inventory and 40% to 50% of certain eligible foreign inventory or
$10,000. Available borrowings are reduced by amounts outstanding under the
Canadian revolving line of credit note described below and outstanding letters
of credit. The applicable margin for the revolving line of credit ranges from
.75% to 2.0% for Base Rate Loans and from 1.75% to 3.0% for Eurocurrency Loans.
A commitment fee of .375% to .5% is charged on the unused balance based on the
Company's Senior Leverage Ratio, as defined. At December 31, 1999, $25,000 was
available under the facility.
Acquisition note
On December 31, 1997, the Company borrowed $21,000 under its acquisition
note. The proceeds were used to acquire the net assets of Ellebi on January 2,
1998, as discussed in Note 2. The applicable margin for the acquisition note
ranges from .75% to 2.0% for Base Rate Loans and from 1.75% to 3.0% for
Eurocurrency Loans. Repayments under the acquisition note are due in sixteen
equal quarterly installments of $1,313 beginning on January 1, 2000.
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
The Company's First Amended and Restated Credit Agreement ("Canadian Credit
Facility"), which is administered by Bank One and Chase, is secured by
substantially of all the assets of the Company's Canadian subsidiaries and is
guaranteed by the Company.
The Canadian Credit Facility provides for a C$20,000 term note and a C$4,000
revolving note, (U.S. $13,857 and U.S. $2,771) at December 31, 1999,
respectively. Loans under each of the notes can be converted at the election of
the company, in whole or in part, into Floating Rate advances, U.S. Base Rate
advances or LIBOR advances. Floating rate advances are denominated in Canadian
dollars and bear interest at a variable rate based on the bank's prime lending
rate plus a variable margin. U.S. Base Rate advances are denominated in U.S.
dollars and bear interest at the bank's prime lending rate plus a variable
margin. LIBOR advances are denominated in U.S. dollars and bear interest at
LIBOR plus a variable margin. The variable margin is based upon the Company's
Senior Debt Ratio, as defined by the Canadian Credit Facility and ranges from
.5% to 1.75% for U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR
advances.
33
<PAGE> 36
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (continued)
Canadian term note
Repayments under the Canadian term note are required in the following
installments:
<TABLE>
<CAPTION>
QUARTERLY
------------------------------------------
<S> <C>
March 31, 2000 through September 30, 2000.............................................. $ 599
December 31, 2000 through June 30, 2003................................................ 711
Final installment on October 30, 2003.................................................. 707
</TABLE>
Canadian revolving line of credit note
A commitment fee of .5% is charged on the unused balance of the Canadian
revolving line of credit note.
SENIOR SUBORDINATED LOANS
On October 30, 1996, the Company borrowed $20,000 under its Senior
Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with CB
Capital and International Mezzanine. The Senior Subordinated Loans were repaid
in full on October 1, 1997 with the proceeds of the Notes discussed above.
Interest on the Senior Subordinated Loans was payable in arrears semiannually
and accrued at a rate of 12.5% per annum. The Senior Subordinated Loans provided
for a prepayment penalty if the Senior Subordinated Loans were paid prior to
October 30, 2002. Under this provision, a prepayment penalty totaling $1,400 was
paid in 1997 and is included in the extraordinary charge resulting from debt
extinguishment.
In connection with the issuance of the Senior Subordinated Loans, the
Company issued warrants to purchase 1,002 membership units. The warrants have an
exercise price of one cent per warrant, are exercisable immediately, and expire
October 30, 2004. As provided in the Warrant Agreement, the warrant holder can
put the warrants and membership units acquired through the exercise of the
warrants back to the Company after October 30, 2001 or upon occurrence of a
Triggering Event, as defined, but prior to the earlier of October 30, 2004 or
the consummation of a Qualified Public Offering for an amount equal to Fair
Market Value, as defined. Additionally, as provided in the Warrant Agreement,
the Company may call the warrants and membership units acquired through the
exercise of the warrants at any time after the sixth anniversary of the Closing
Date, but prior to the earlier of October 30, 2004 or a Qualified Public
Offering for an amount equal to Fair Market Value, as defined.
At the date of issuance, the proceeds from the Senior Subordinated Loans
were allocated between the Senior Subordinated Loans and the warrants based upon
their estimated relative fair market value; accordingly, the Senior Subordinated
Loans were recorded at a discount of $3,498, which was partially amortized prior
to repayment on October 1, 1997. The remaining unamortized balance of $3,145 was
charged to 1997 operations as part of the extraordinary charge resulting from
debt extinguishment.
The warrants are being accreted to their estimated redemption value through
periodic charges against Members' Equity through the earlier of October 30, 2001
or the time redemption first becomes available. Thereafter the warrants will be
recorded at the then estimated redemption value. The aforementioned warrants
have been presented as mandatorily redeemable warrants in the accompanying
balance sheets.
JUNIOR SUBORDINATED NOTE
On October 30, 1996, the Company issued a 12,500 Junior Subordinated Note
("Junior Note"), denominated in Dutch Guilders, to Brink Holdings B.V. as part
of the consideration paid for the purchase of Brink B.V. The Junior Note was due
April 30, 2005, but was repaid in full on October 1, 1997 with the proceeds of
the Notes discussed above. The Junior Note accrued interest at a rate of 7% per
annum, payable semi-annually in arrears.
34
<PAGE> 37
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. LONG-TERM DEBT -- (CONTINUED)
EXTINGUISHMENT OF DEBT
As discussed above, on October 1, 1997 the Company repaid, in full, its
Senior Subordinated Loans and Junior Note and prepaid a portion of the term
notes under the U.S. Credit Facility. In connection with this extinguishment,
the Company recorded an extraordinary charge of $7,416, net of a tax benefit of
$365. The extinguishment charge is comprised of $1,400 prepayment penalties,
$3,145 of unamortized debt discount and $3,236 of unamortized debt issuance
costs.
SCHEDULED MATURITIES
The aggregate scheduled annual principal payments due in each of the years
ending December 31, is as follows:
<TABLE>
<S> <C>
2000...................................................................................... $ 12,449
2001...................................................................................... 11,919
2002...................................................................................... 10,846
2003...................................................................................... 9,200
2004...................................................................................... 9,487
thereafter................................................................................ 125,000
---------
Less -- discount........................................................................... (403)
---------
$ 178,498
=========
</TABLE>
5. INCOME TAXES
The Company's C corporation subsidiaries and taxable foreign subsidiaries
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company and certain
domestic subsidiaries are limited liability corporations; as such, the Company's
earnings are included in the taxable income of the Company's members. Income
(loss) before minority interest and income taxes (net of the pre-tax charge
resulting from debt extinguishments) were attributable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
United States.............................................. $ 10,925 $ 10,002 $ 2,872
Foreign.................................................... (5,530) (9,189) (9,941)
-------- -------- --------
$ 5,395 $ 813 $ (7,069)
======== ======== ========
</TABLE>
The provision (benefit) for income taxes, including $365 of income tax
benefit allocated to the extraordinary charge in 1997, is comprised of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------
1999 1998 1997
---------- ------------ ----------
CURRENTLY PAYABLE
<S> <C> <C> <C>
United States............................................ $ 14 $ -- $ --
Foreign.................................................. 2,836 1,591 290
------- ------- -------
2,850 1,591 290
------- ------- -------
DEFERRED
United States............................................ -- -- --
Foreign.................................................. (2,433) (688) (3,511)
------- ------- -------
(2,433) (688) (3,511)
------- ------- -------
$ 417 $ 903 $(3,221)
======= ======= =======
</TABLE>
35
<PAGE> 38
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
5. INCOME TAXES -- (CONTINUED)
The effective tax rates differ from the U.S. federal income tax rate as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Income tax provision (benefit) at U.S. statutory rate (35%).. $ 1,887 $ 286 $(2,474)
U. S. income taxes attributable to members................... (3,823) (3,502) (1,005)
Change in valuation allowance................................ 854 4,225 --
Nondeductible foreign goodwill............................... 369 270 229
Foreign rate differences and other, net...................... 1,130 (376) 29
------- ------- -------
$ 417 $ 903 $(3,221)
======= ======= =======
</TABLE>
Deferred tax assets and liabilities, related primarily to the Company's
foreign subsidiaries, comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards of foreign subsidiaries..................... $ 7,259 $ 4,689
Fixed assets................................................................. 2,918 5,185
Goodwill..................................................................... 573 621
Inventory.................................................................... 133 150
Other........................................................................ 1,642 427
------- -------
12,525 11,072
------- -------
DEFERRED TAX LIABILITIES
Fixed assets................................................................. (3,938) (5,816)
Inventory.................................................................... (889) (1,363)
Employee benefits............................................................ (177) (159)
Other........................................................................ (309) (166)
------- -------
(5,313) (7,504)
Valuation allowance.......................................................... (5,258) (4,225)
------- -------
Net deferred tax asset (liability)........................................... $ 1,954 $ (657)
======= =======
</TABLE>
The net operating loss carryforwards of the Company's European subsidiaries
approximate $5,718 at December 31, 1999 and have no expiration date. The net
operating loss carryforwards of the Company's Canadian subsidiaries approximate
$13,740 at December 31, 1999 and expire primarily in 2005 through 2007. As of
December 31, 1999 and 1998, respectively, the Company recorded a valuation
allowance of $5,258 and $4,225 based upon management's current assessment of the
likelihood of realizing the Canadian subsidiaries' deferred tax assets.
Management believes that it is more likely than not that the related deferred
tax assets recorded for its other subsidiaries will be realized and no valuation
allowance has been provided against such amounts as of December 31, 1999. If
certain substantial changes in the Company's ownership should occur, there could
be an annual limit on the amount of certain carryforwards which can be utilized.
6. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
A portion of the Company's U.S. Credit Facility and $20,000 Senior
Subordinated Loans, as described in Note 4, is with Chase and CB Capital
Investors, Inc., respectively, affiliates of certain members of the Company.
Charges to operations related to consulting services provided to the Company
by certain members of the Company aggregated approximately $400, $386 and $350
for the years ended December 31, 1999, 1998 and 1997, respectively.
Certain employees and consultants of the Company hold Class A Units of the
Company. During the year ended December 31, 1999, the Company acquired the
equity instruments owned by its former president for $4,250.
36
<PAGE> 39
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
7. OPTION PLAN
The Company adopted the disclosure requirements of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The
Company, however, has elected to continue to measure compensation cost using the
intrinsic value method, in accordance with APB Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees".
The Company has issued options to purchase Class A Units which are
outstanding under the Company's 1995 Option Plan ("the Plan"). As of December
31, 1999 and 1998, the Company was authorized under the Plan to issue options to
purchase up to 4,200 Class A Units to officers, directors and employees of the
Company and its subsidiaries. At December 31, 1999, there were 179 options that
remained available for grant under the Plan.
Information concerning options to purchase Class A Units is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
UNITS PRICE UNITS PRICE UNITS PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1............. 3,971 $ 1,343 3,903 $ 1,415 3,525 $ 1,000
Options granted...................... 50 $ 4,000 280 $ 3,135 378 $ 5,287
Options exercised.................... 696 $ 1,251 -- -- -- --
Options cancelled.................... 920 $ 1,150 212 $ 5,035 -- --
----- ------- -------
Outstanding at December 31........... 2,405 $ 1,499 3,971 $ 1,343 3,903 $ 1,415
===== ======= =======
Exercisable at December 31........... 1,282 $ 1,532 1,665 $ 1,398 950 $ 1,058
===== ======= =======
</TABLE>
All options granted have terms of 15 years and vest as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
UNITS PRICE VESTING PERIOD
--------- --------- -------------------------------------------------------------------------------------
<S> <C> <C>
129 $ 3,029 Options vest immediately.
1,379 $ 1,469 Options vest over periods, generally up to ten years, as determined by the Option
Committee. Vesting may be accelerated based on the results of a Liquidity Event, as
defined in the Plan, or based upon the achievement of certain operating results of
the Company or its subsidiaries.
275 $ 1,000 Options vest based on the results of a Liquidity Event, as defined in the Plan.
622 $ 1,469 Options vest based upon achievement of certain operating results of the Company.
</TABLE>
The Company has elected to continue applying the provisions of APB 25 and
accordingly, recognized compensation cost of $400, $558 and $263 for the years
ended December 31, 1999, 1998 and 1997, respectively. If compensation cost and
the fair value of options granted had been determined based upon the fair value
method in accordance with SFAS 123, the pro forma net income (loss) of the
Company would have been $5,258, ($290) and ($3,985) the years ended December 31,
1999, 1998 and 1997, respectively. The weighted average fair value of options
granted per unit was $2,300, $2,400 and $200 for the years ended December 31,
1999, 1998 and 1997, respectively. Options granted in 1999 and 1998 had exercise
prices below market value and 1997 options had exercise prices in excess of
market value at the date of grant.
37
<PAGE> 40
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
7. OPTION PLAN -- (CONTINUED)
The fair value of options granted and related pro forma compensation cost
were estimated using the Black-Scholes option-pricing model with an expected
volatility of zero and the following assumptions:
<TABLE>
<CAPTION>
1999 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend yield..................... 0.0% 0.0% 0.0%
Risk-free rate of return........... 6.0% 5.50% 6.12%
Expected option term (in years).... 8 8 8
</TABLE>
The following table summarizes the status of the Company's options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
WEIGHTED
AVERAGE
REMAINING
EXERCISE CONTRACTUAL OPTIONS
PRICES UNITS LIFE EXERCISABLE
-------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$ 1,000 2,025 11 1,047
$ 3,029 129 13 129
$ 3,485 65 13 26
$ 4,000 50 14 8
$ 5,610 136 13 72
</TABLE>
8. PENSION PLANS
The Company has a defined benefit pension plan covering substantially all of
SportRack, LLC's domestic employees covered under a collective bargaining
agreement. An employee's monthly pension benefit is determined by multiplying a
defined dollar amount by the years of credited service earned. Plan assets are
comprised principally of marketable equity securities and short-term
investments. The Company's funding policy is to contribute annually the amounts
necessary to comply with ERISA funding requirements.
The following table sets forth the change in the plan's benefit obligations
and plan assets, and the funded status of the plan as of and for the years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year......................... $ 2,301 $ 1,929
Benefits earned during the year................................. 110 99
Interest on projected benefit obligation........................ 151 140
Increase as a result in plan amendment.......................... 363 --
Actuarial loss (gain)........................................... (362) 202
Benefits paid................................................... (72) (69)
------- -------
Benefit obligation at end of year............................... 2,491 2,301
------- -------
Change in plan assets:
Market value of assets at beginning of year..................... 1,831 1,586
Actual return on plan assets.................................... 147 167
Employer contributions.......................................... 284 147
Benefits paid................................................... (72) (69)
------- -------
Market value of assets at end of year........................... 2,190 1,831
------- -------
Funded status...................................................... (301) (470)
Unrecognized prior service cost.................................... 371 9
Unrecognized net (gain) loss....................................... (284) 49
------- -------
Accrued pension cost............................................... $ (214) $ (412)
======= =======
</TABLE>
38
<PAGE> 41
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
8. PENSION PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost.................................................... $ 110 $ 99 $ 75
Interest cost................................................... 151 140 124
Expected return on plan assets.................................. (175) (147) (302)
Amortization of prior service cost.............................. 1 1 174
-------- ------- -------
Net periodic Benefit cost.......................................... $ 87 $ 93 $ 71
======== ======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the accumulated benefit obligation was 7.75% and 6.75% at December 31,
1999 and 1998, respectively. The expected long-term rate of return on plan
assets was 9.00% at December 31, 1999 and 1998.
The Company has various defined contribution retirement plans for its
domestic and certain foreign subsidiaries, including 401(k) plans, whereby
participants can contribute a portion of their salary up to certain maximums
established by the related plan documents. The Company makes matching
contributions, which are based upon the amounts contributed by employees. The
Company's matching contributions charged to operations aggregated $334, $306 and
$229 in 1999, 1998 and 1997, respectively.
Substantially all of the employees of Brink International B.V. are covered
by a union-sponsored, collectively-bargained, multi-employer defined benefit
plan. Pension expense was $1,271, $1,302 and $660 for the years ended December
31, 1999, 1998 and 1997, respectively.
9. OPERATING LEASES
The Company leases certain equipment under leases expiring on various dates
through 2004. Future minimum annual lease payments required under leases that
have a noncancellable lease term in excess of one year at December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000...................................................... $ 3,802
2001...................................................... 3,313
2002...................................................... 2,543
2003...................................................... 1,430
2004 and thereafter....................................... 1,555
-------
$12,643
</TABLE>
Rental expense charged to operations was approximately $4,169, $3,947 and
$2,252 for the years ended December 31, 1999, 1998 and 1997, respectively.
39
<PAGE> 42
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
10. ACCOUNT BALANCES
Account balances included in the consolidated balance sheets are comprised
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
INVENTORIES
Raw materials.............................................................. $13,043 $12,805
Work-in-process............................................................ 9,871 12,707
Finished goods............................................................. 15,523 17,575
------- -------
$38,437 $43,087
------- -------
PROPERTY AND EQUIPMENT
Land, buildings and improvements........................................... $23,694 $22,552
Furniture, fixtures and computer hardware.................................. 9,891 8,137
Machinery, equipment and tooling........................................... 47,565 46,003
Construction-in-progress................................................... 2,820 1,984
------- -------
83,970 78,676
Less-- accumulated depreciation............................................ (24,654) (17,381)
------- -------
$59,316 $61,295
------- -------
ACCRUED LIABILITIES
Compensation and benefits.................................................. $12,350 $ 9,239
Interest................................................................... 3,367 3,256
Customer rebates and discounts............................................. 2,072 616
Income taxes............................................................... 1,232 1,692
Other taxes................................................................ 1,257 766
Other...................................................................... 4,489 5,766
------- -------
$24,767 $21,335
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
In February 1996, the Company commenced an action against certain
individuals alleging breach of contract under the terms of an October 1992
Purchase Agreement and Employment Agreements with the predecessor of the
Company. The individuals then filed a separate lawsuit against the Company
alleging breach of contract under the respective Purchase and Employment
agreements. On May 7, 1999 a jury in the United States District Court for the
Eastern District of Michigan reached a verdict against the Company and awarded
the individuals approximately $3,800 plus interest and reasonable attorney fees.
The Company is currently assessing further actions in response to the verdict.
During 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 December 31, 1999.
In addition to the above, the Company is party to various claims, lawsuits
and administrative proceedings related to matters arising out of the normal
course of business. Management believes that the resolution of these matters
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
40
<PAGE> 43
12. SEGMENT INFORMATION
The Company operates in one reportable segment, providing towing and rack
systems and related accessories to the automotive OEM and aftermarket. All sales
are to unaffiliated customers. Revenues by geographic area, accumulated by the
geographic area where the revenue originated, revenues by product line and
long-lived assets, which include net property and equipment and net goodwill and
debt issuance costs, by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
United States.................................................... $ 208,757 $ 190,300 $ 122,294
The Netherlands.................................................. 35,647 35,543 36,268
Italy............................................................ 19,211 19,900 --
Other foreign.................................................... 48,117 44,396 30,116
--------- --------- ---------
$ 311,732 $ 290,139 $ 188,678
========= ========= =========
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Towing systems.................................................. $ 187,276 $ 175,236 $ 100,293
Rack systems.................................................... 124,456 114,903 88,385
--------- --------- ---------
$ 311,732 $ 290,139 $ 188,678
========= ========= =========
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
LONG-LIVED ASSETS
United States........................................................ $ 94,991 $ 93,628
The Netherlands...................................................... 27,303 33,432
Italy................................................................ 8,235 10,774
Other foreign........................................................ 15,190 16,511
-------- --------
$145,719 $154,345
</TABLE>
The Company has two significant customers in the automotive OEM industry.
Sales to these customers represented 36% and 12% for the year ended December 31,
1999, 32% and 11% for the year ended December 31, 1998, and 29% and 13% for the
year ended December 31, 1997. Accounts receivable from these customers
represented 35% and 5% of the Company's trade accounts receivable at December
31, 1999, and 42% and 6% at December 31, 1998, respectively.
Although the Company is directly affected by the economic well being of the
industries and customers referred to above, management does not believe
significant credit risk exists at December 31, 1999. Consistent with industry
practice, the Company does not require collateral to reduce such credit risk.
13. CONDENSED CONSOLIDATING INFORMATION
The Notes have been issued by the Company and its wholly-owned subsidiary,
AAS Capital Corporation and are guaranteed on a full and unconditional and joint
and several basis, by all of the Company's wholly-owned domestic subsidiaries.
The following condensed consolidating financial information for 1999, 1998 and
1997 presents the financial position, results of operations and cash flows of
(i) the Company as parent, as if it accounted for its subsidiaries on the equity
method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries
which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS
Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the
non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and
include Brink International B.V., SportRack International, Inc., and SportRack
Automotive, GmbH. The operating results of the guarantor and non-guarantor
subsidiaries include management fees of $1,410 and $320, respectively, for the
year ended December 31, 1999 and $1,198 and $318, respectively, for the year
ended December 31, 1998, in addition to having been charged interest on their
intercompany balances. For the year ended December 31, 1997 the financial
position and operating results of the guarantor and non-guarantor subsidiaries
do not include any allocation of overhead or similar charges except that certain
foreign subsidiaries were charged interest on their intercompany debt balance.
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 December
31, 1999.
41
<PAGE> 44
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<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
Deferred income taxes and other
current assets........................ 13 3,724 2,946 -- 6,683
----------- ----------- ----------- ----------- ----------
Total current assets.............. 13 57,641 43,102 -- 100,756
----------- ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 32,014 27,302 -- 59,316
Goodwill, net............................ 1,065 57,100 22,509 -- 80,674
Other intangible assets, net............. 4,423 390 916 -- 5,729
Deferred income taxes and other
noncurrent assets...................... 93 1,988 2,657 -- 4,738
Investment in subsidiaries............... 43,065 9,955 -- (53,020) --
Intercompany notes receivable............ 99,537 -- -- (99,537) --
------------ ----------- ----------- ----------- ----------
Total assets...................... $ 148,196 $ 159,088 $ 96,486 $ (152,557) $ 251,213
============ =========== =========== =========== ==========
LIABILITIES AND MEMBERS'
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 12,449 $ -- $ 12,449
Accounts payable....................... -- 18,090 8,625 -- 26,715
Accrued liabilities and deferred
income taxes......................... 5,524 9,231 10,012 -- 24,767
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 5,524 27,321 31,086 -- 63,931
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 1,553 608 3,931 -- 6,092
Long-term debt, less current maturities.. 124,597 -- 41,452 -- 166,049
Intercompany debt........................ -- 64,189 35,348 (99,537) --
Mandatorily redeemable warrants.......... 4,810 -- -- -- 4,810
Members' equity.......................... 11,712 66,970 (15,331) (53,020) 10,331
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity............................ $ 148,196 $ 159,088 $ 96,486 $ (152,557) $ 251,213
============ =========== =========== =========== ==========
</TABLE>
42
<PAGE> 45
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................... $ -- $ 5,636 $ 5,604 $ -- $ 11,240
Accounts receivable.................... -- 28,437 12,290 -- 40,727
Inventories............................ -- 15,630 27,457 -- 43,087
Deferred income taxes and other
current assets........................ 4 2,687 1,553 -- 4,244
----------- ----------- ----------- ----------- ----------
Total current assets.............. 4 52,390 46,904 -- 99,298
----------- ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 28,416 32,879 -- 61,295
Goodwill, net............................ 1,105 59,261 26,713 -- 87,079
Other intangible assets, net............. 4,846 300 1,446 -- 6,592
Deferred income taxes and other
noncurrent assets...................... 28 2,285 2,404 -- 4,717
Investment in subsidiaries............... 34,373 10,022 -- (44,395) --
Intercompany notes receivable............ 109,300 -- -- (109,300) --
------------ ----------- ----------- ------------ ----------
Total assets...................... $ 149,656 $ 152,674 $ 110,346 $ (153,695) $ 258,981
============ =========== =========== =========== ==========
LIABILITIES AND MEMBERS'
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 7,398 $ -- $ 7,398
Accounts payable....................... -- 14,260 8,855 -- 23,115
Accrued liabilities and deferred
income taxes......................... 3,702 6,995 11,718 -- 22,415
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 3,702 21,255 27,971 -- 52,928
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 1,153 1,255 3,963 -- 6,371
Long-term debt, less current maturities.. 124,565 -- 55,561 -- 180,126
Intercompany debt........................ -- 77,951 31,349 (109,300) --
Mandatorily redeemable warrants.......... 4,409 -- -- -- 4,409
Members' equity.......................... 15,827 52,213 (8,498) (44,395) 15,147
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity............................ $ 149,656 $ 152,674 $ 110,346 $ (153,695) $ 258,981
============ =========== =========== =========== ==========
</TABLE>
43
<PAGE> 46
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 208,855 $ 102,877 $ -- $ 311,732
Cost of sales............................ -- 156,281 69,198 -- 225,479
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 52,574 33,679 -- 86,253
Selling, administrative and product
development expenses................... 1,624 25,141 23,493 -- 50,258
Amortization of intangible assets........ 40 2,326 879 -- 3,245
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,664) 25,107 9,307 -- 32,750
Interest expense......................... 4,933 5,559 6,961 -- 17,453
Equity in net income (loss) of
subsidiaries 13,575 -- -- (13,575) --
Foreign currency gain (loss)............. -- -- (7,912) -- (7,912)
Other income (expense)................... (2,000) 10 -- -- (1,990)
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 4,978 19,558 (5,566) (13,575) 5,395
Provision for income taxes............... -- 14 403 -- 417
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 4,978 $ 19,544 $ (5,969) $ (13,575) $ 4,978
========== ========== =========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 190,300 $ 99,839 $ -- $ 290,139
Cost of sales............................ -- 142,156 71,279 -- 213,435
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 48,144 28,560 -- 76,704
Selling, administrative and product
development expenses................... 1,560 23,631 25,648 -- 50,839
Amortization of intangible assets........ 40 2,314 1,197 -- 3,551
Impairment charge -- -- 7,863 -- 7,863
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,600) 22,199 (6,148) -- 14,451
Interest expense......................... 3,700 6,888 8,045 -- 18,633
Equity in net income (loss) of
subsidiaries 5,024 -- -- (5,024) --
Foreign currency gain.................... -- -- 4,995 -- 4,995
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ (276) 15,311 (9,198) (5,024) 813
Provision for income taxes............... -- -- 903 -- 903
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ (276) $ 15,311 $ (10,101) $ (5,024) $ (90)
========== ========== =========== ========== ==========
</TABLE>
44
<PAGE> 47
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 122,294 $ 66,384 $ -- $ 188,678
Cost of sales............................ -- 89,647 45,909 -- 135,556
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 32,647 20,475 -- 53,122
Selling, administrative and product
development expenses................... 721 14,685 15,944 -- 31,350
Amortization of intangible assets........ 53 1,571 712 -- 2,336
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (774) 16,391 3,819 -- 19,436
Interest expense......................... 3,348 3,760 5,519 -- 12,627
Equity in net income (loss) of
subsidiaries........................... 5,169 -- -- (5,169) --
Foreign currency gain (loss)............. 1,041 -- (7,138) -- (6,097)
---------- ---------- ----------- ---------- ----------
Income (loss) before minority interest,
extraordinary charge and income
taxes................................. 2,088 12,631 (8,838) (5,169) 712
Provision (benefit) for income taxes..... -- -- (2,856) -- (2,856)
---------- ---------- ----------- ---------- ----------
Income (loss) before minority
interest and extraordinary charge.... 2,088 12,631 (5,982) (5,169) 3,568
Minority interest........................ -- 97 -- -- 97
---------- ---------- ---------- ---------- ----------
Extraordinary charge resulting from debt
extinguishment....................... 6,153 525 738 -- 7,416
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ (4,065) $ 12,009 $ (6,720) $ (5,169) $ (3,945)
========== ========== =========== ========== ==========
</TABLE>
45
<PAGE> 48
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities.............................. $ (5,953) $ 26,715 $ 4,252 $ -- $ 25,014
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (8,000) (3,775) -- (11,775)
---------- --------- ---------- ---------- ---------
Net cash used for investing activities -- (8,000) (3,775) -- (11,775)
---------- ---------- ---------- ---------- ---------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt............. 10,148 (14,162) 4,014 -- --
Repayment of debt....................... -- -- (9,270) -- (9,270)
Issuance of membership units............ 50 -- -- -- 50
Repurchase of membership units.......... (4,274) -- -- -- (4,274)
Collection on members notes receivable.. 29 -- -- -- 29
Distributions from subsidiaries......... 4,720 -- -- (4,720) --
Distributions to members................ (4,720) (4,720) -- 4,720 (4,720)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities................ 5,953 (18,882) (5,256) -- (18,185)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 2,424 -- 2,424
---------- --------- ---------- ---------- ---------
Net increase (decrease) in cash........... -- (167) (2,355) -- (2,522)
Cash at beginning of period............... -- 5,636 5,604 -- 11,240
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718
========== ========= ========== ========== ==========
</TABLE>
46
<PAGE> 49
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities.............................. $ (4,216) $ 18,479 $ 7,616 $ -- $ 21,879
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (4,358) (5,640) -- (9,998)
Amount due from sellors of Valley
Industries, Inc....................... -- 1,150 -- -- 1,150
Acquisition of subsidiaries, net of cash
acquired.............................. -- -- (22,770) -- (22,770)
---------- --------- ---------- ---------- ----------
Net cash used for investing
activities.......................... -- (3,208) (28,410) -- (31,618)
---------- --------- ---------- ---------- ----------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt............. 6,101 (11,657) 5,556 -- --
Net reduction in revolving loan......... (1,900) -- (2,605) -- (4,505)
Repayment of debt....................... -- -- (3,682) -- (3,682)
Issuance of membership units............ 29 -- -- -- 29
Repurchase of membership units.......... (14) -- -- -- (14)
Distributions from subsidiaries......... 195 -- -- (195) --
Distributions to members................ (195) (195) -- 195 (195)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities................ 4,216 (11,852) (731) -- (8,367)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 1,998 -- 1,998
---------- --------- ---------- ---------- ---------
Net increase (decrease) in cash........... -- 3,419 (19,527) -- (16,108)
Cash at beginning of period............... -- 2,217 25,131 -- 27,348
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 5,636 $ 5,604 $ -- $ 11,240
========== ========= ========== ========== ==========
</TABLE>
47
<PAGE> 50
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities.............................. $ 3,522 $ 5,092 $ (1,632) $ -- $ 6,982
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (6,005) (1,746) -- (7,751)
Amount due from sellors of Valley
Industries, Inc. -- (1,150) -- -- (1,150)
Acquisition of subsidiaries, net of cash
acquired.............................. -- (56,478) (14,354) -- (70,832)
---------- --------- ---------- ---------- ----------
Net cash used for investing
activities.......................... -- (63,633) (16,100) -- (79,733)
---------- --------- ---------- ---------- ----------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt............. (99,971) 76,412 23,559 -- --
Proceeds from issuance of debt.......... 124,529 55,000 35,521 -- 215,050
Increase (decrease) in revolving loan... 1,900 (4,300) 2,904 -- 504
Repayment of debt....................... (27,699) (63,500) (22,049) -- (113,248)
Debt issuance costs..................... (7,280) -- -- -- (7,280)
Issuance of membership units............ 4,999 -- -- -- 4,999
Distributions from subsidiaries......... 2,915 -- -- (2,915) --
Distributions to members................ (2,915) (2,945) -- 2,915 (2,945)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities................ (3,522) 60,667 39,935 -- 97,080
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 505 -- 505
---------- --------- ---------- ---------- ---------
Net increase in cash...................... -- 2,126 22,708 -- 24,834
Cash at beginning of period............... -- 91 2,423 -- 2,514
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 2,217 $ 25,131 $ -- $ 27,348
========== ========= ========== ========== ==========
</TABLE>
48
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of each of the individuals
that currently serve as a member (each, a "Board Member") of the Company's board
of managers (the "Board of Managers"), executive officer and other significant
employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------- ------ ------------------------------
<S> <C> <C>
F. Alan Smith........ 68 Chairman of the Board of Managers of the Company
Terence C. Seikel.... 43 President and Chief Executive Officer of the
Company; Board Member
Richard E. Borghi.... 53 President and Chief Operating Officer of
SportRack; Board Member
Roger T. Morgan...... 55 President of Valley; Board Member
Gerrit de Graaf...... 36 General Manager and Chief Executive Officer of
Brink; Board Member
Barry G. Steele...... 29 Corporate Controller of the Company
J. Wim Rengelink..... 45 Finance Director of Brink
Bryan A. Fletcher.... 40 Vice President of Aftermarket Operations of Valley
Donald J. Hofmann, Jr 42 Board Member, Vice President and Secretary of the
Company
Barry Banducci....... 64 Board Member
Gerard J. Brink...... 56 Board Member
</TABLE>
F. Alan Smith has served in the automotive industry for 38 years and has
been Chairman of the Board of Managers of the Company since its formation in
September 1995. He served in various assignments at General Motors from 1956 to
1992, including President of GM Canada from 1978 to 1980. He was a member of the
Board of Directors of General Motors from 1981 to 1992 and Chief Financial
Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The
Minnesota Mining and Manufacturing Corporation ("3M"), TransPro, Inc.
("TransPro").
Terence C. Seikel has served in the automotive industry for 16 years and has
been President and Chief Executive Officer of the Company since April 15, 1999.
From 1996 until April 15, 1999, Mr. Seikel served as Vice President of Finance
and Administration and Chief Financial Officer of the Company and SportRack.
From 1985 to 1996, Mr. Seikel was employed by Larizza Industries, a publicly
held supplier of interior trim to the automotive industry, in various capacities
including Chief Financial Officer.
Richard E. Borghi has served in the automotive industry for 32 years and has
been President and Chief Operating Officer of SportRack since April 15, 1999.
From 1995 until April 15, 1999, Mr. Borghi, served as Executive Vice President
of Operations and Chief Operating Officer of SportRack. From 1988 to 1995, Mr.
Borghi held various senior management positions with MascoTech, and was the
Executive Vice President of Operations of the MascoTech Division at the time of
its acquisition by the Company.
Roger T. Morgan has served in the automotive industry for 37 years and has
been President of Valley since June 1990. Prior to joining Valley, he worked for
General Motors for 12 years and Rockwell International Automotive Group as Vice
President of Operations for 14 years.
Gerrit de Graaf has been General Manager and Chief Executive Officer of
Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips
Medical Systems as a consultant and most recently as Philips' Marketing Manager
in the United States.
Barry G. Steele has been Corporate Controller of the Company since June
1999. From 1997 until June 1999, Mr. Steele served as Manager of Financial
Reporting of the Company. From 1993 to 1997, Mr. Steele was employed by Price
Waterhouse LLP.
J. Wim Rengelink has served in the automotive industry for 13 years and has
been Finance Director of Brink since 1995. From 1988 to 1995 he worked in
Brink's internal audit department.
Bryan A. Fletcher has served in the automotive industry for 11 years and has
been Vice President of Aftermarket Operations of Valley since 1991.
49
<PAGE> 52
Donald J. Hofmann, Jr. has been a Board Member, Vice President and Secretary
of the Company since October 1995. Mr. Hofmann has been a General Partner of CCP
since 1992. Prior to joining CCP, Mr. Hofmann held positions in the Acquisition
Finance Division of Manufacturers Hanover and at Smith Barney. Mr. Hofmann is a
director of Penske Corporation and Berry Plastics.
Barry Banducci has been a Board Member of the Company since October 1995.
Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior
thereto, Mr. Banducci served in various capacities at Equion Corporation, a
supplier of automotive components, from 1983 to 1995, including President, Chief
Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro and
Aristotle Corporation.
Gerard J. Brink has been a Board Member of the Company since October 1996.
Mr. Brink was General Manager of Brink from 1965 to 1996.
BOARD MEMBER COMPENSATION
The Board Members do not currently receive compensation for their service on
the Board of Managers or any committee thereof but are reimbursed for their
out-of-pocket expenses. In addition, Messrs. Smith and Banducci have consulting
agreements with the Company. See "Executive Compensation - Consulting
Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Managers has an Audit Committee consisting of Messrs. Banducci
and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith.
The Audit Committee reviews the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's 1995 Option
Plan.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
1997 through 1999 for the chief executive officer of the Company and the four
next most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- -----------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($)
- ------------------------------------ -------- ------------- ------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
F. Alan Smith....................... 1999 228,000 114,000 -- -- --
Chairman of the Company 1998 217,000 105,000 -- 32 --
1997 200,000 100,000 -- -- --
Terence C. Seikel................... 1999 245,000 175,000 -- -- --
President and Chief Executive 1998 215,000 95,000 -- 65 --
Officer of the Company and SportRack 1997 200,600 94,000 -- -- --
Roger T. Morgan..................... 1999 263,000 100,000 -- -- --
President and Chief Executive 1998 250,000 87,500 -- -- --
Officer of Valley 1997 107,220 73,000 -- 178 --
Richard E. Borghi................... 1999 261,897 125,000 -- -- --
President and Chief Operating 1998 219,965 115,000 -- 32 --
Officer of SportRack 1997 206,500 94,000 -- -- --
Gerrit de Graaf..................... 1999 164,830 68,660 -- -- --
General Manager and Chief Executive 1998 154,425 45,414 -- 39 --
Officer of Brink 1997 105,974 3,848 -- -- --
Marshall D. Gladchun................ 1999 165,541 -- -- -- 600,338 (1)
Former President and Chief Executive 1998 382,300 200,000 -- 86 --
Officer of the company and SportRack 1997 362,500 195,000 -- -- --
</TABLE>
(1) includes severance and other termination compensation.
- ----------
50
<PAGE> 53
OPTION GRANTS IN 1999
During 1999, there were no options granted to the named executive officers.
The following table sets forth information regarding outstanding membership unit
options issued to the chief executive officer of the Company and the four next
most highly compensated executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END(#) AT YEAR END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
-------------------- -------------------- --------------- ------------------------- --------------------
<S> <C> <C> <C> <C>
F. Alan Smith....... -- -- 275/207 1,320,000/994,000
Terence C. Seikel... -- -- 345/320 1,656,000/ 1,536,000
Roger T. Morgan..... -- -- 72/64 --/ --
Richard E. Borghi... -- -- 354/278 1,699,000/ 1,334,000
Gerrit de Graaf..... -- -- 16/23 77,000/110,400
</TABLE>
- ----------
EMPLOYMENT AGREEMENTS
Each of Terence C. Seikel, Roger T. Morgan, Richard E. Borghi and Gerrit de
Graaf has entered into an employment agreement (collectively, the "Employment
Agreements") with the Company. Mr. Seikel's Employment Agreement provides for an
annual base salary of $250,000, subject to increases at the sole discretion of
the Board of Managers, and a bonus in the range of 50-70% of his base salary.
Mr. Morgan's Employment Agreement provides for an annual base salary of
$250,000, subject to increases at the sole discretion of the Board of Managers,
and a bonus in the range of 50% to 70% of his base salary. Mr. Borghi's
Employment Agreement provides for an annual base salary of $250,000, subject to
increases at the sole discretion of the Board of Managers, a bonus in the range
of 30-50% of his base salary, and a one time bonus of $100,000 on the earlier of
(i) September 30, 2002, (ii) his termination date, and (iii) a sale of the
Company. Mr. de Graaf's Employment Agreement provides for an annual base salary
of NLG 170,000, subject to increases at the sole discretion of the Board of
Managers, and a bonus in the range of 30% to 50% of his base salary. The
Employment Agreements also provide for twelve months of severance pay to the
executive officer in the event such officer is terminated without cause (as
defined in the Employment Agreement.)
The Employment Agreements expire June 30, 2000 for Mr. Morgan and December
31, 2003 for Messrs Seikel and Borghi and automatically extend for successive
two-year terms unless terminated by the Company upon 30 days notice prior to the
expiration of the current term. The Employment Agreement for Mr. de Graaf may be
terminated by either party upon three month's prior written notice. Each
Employment Agreement prohibits the executive officer from disclosing non-public
information about the Company. The Employment Agreements also require the
executive officers to assign to the Company any designs, inventions and other
related items and intellectual property rights developed or acquired by the
executive officer during the term of his employment. In addition, for a period
of five years after termination of employment (two years if the termination is
without cause) each executive officer has agreed, in his respective Employment
Agreement, not to (i) engage in any Competitive Business (as defined in the
Employment Agreements), (ii) interfere with or disrupt any relationship between
the Company and its customers, suppliers and employees and (iii) induce any
employee of the Company to terminate his or her employment with the Company or
engage in any Competitive Business.
CONSULTING AGREEMENTS
F. Alan Smith and Barry Banducci, both members of the Board of Managers,
have each entered into consulting agreements (the "Consulting Agreements") with
the Company dated as of September 28, 1995. Mr. Smith's Consulting Agreement
provides for an annual consulting fee of $150,000 subject to increases at the
sole discretion of the Board of Managers, and a performance based bonus in the
range of 30-50% of the annual consulting fee. Mr. Banducci's Consulting
Agreement provides for an annual consulting fee of $50,000. The initial term of
the Consulting Agreements expired on March 28, 1997. The Consulting Agreements
automatically extend for successive six-month periods unless terminated by the
Company upon 30 days notice prior to the expiration of the then current term.
The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing
non-public information about the Company.
51
<PAGE> 54
MEMBERS' AGREEMENT
Pursuant to the Third Amended and Restated Members' Agreement dated as of
September 30, 1999 (the "Members' Agreement") among the Company and certain
holders of outstanding units (the "Units") of the Company, such holders of the
Units shall vote all Units held by them for election of a majority of the Board
of Managers consisting of Terence C. Seikel and Richard E. Borghi (so long as
each is employed by the Company), and F. Alan Smith, Barry Banducci, Gerard J.
Brink and Roger T. Morgan (so long as each is a holder of a certain number of
Units) (the "Enumerated Managers"). Chase has the ability to appoint up to 5
additional members of the Board of Managers. Pursuant to the voting provision of
the Members' Agreement, Chase has the right, under certain circumstances,
including breach by the Company of certain convanents, to replace the Enumerated
Managers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 17, 2000, the outstanding membership interests of the Company
consisted of 15,869 Units. The following table sets forth certain information
regarding the beneficial ownership of the Units by (i) each person known by the
Company to own more than 5% of the Units, (ii) each named director, (iii) each
named executive officer and (iv) all of the Company's directors and executive
officers treated as a group. To the knowledge of the Company, each of such
holders of Units has sole voting and investment power as to the Units owned
unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2)
------------------------------------------- ----------- ------------
<S> <C> <C>
CB Capital Investors, L.P.(3).............. 10,251 61.44%
380 Madison Avenue, 12th Floor
New York, New York 10017
MascoTech, Inc............................. 1,500 9.45
275 Rex Boulevard
Auburn Hills, Michigan 48326
Celerity Partners.......................... 1,500 9.45
C/o Mark Benham
300 Sand Hill Road
Building 4, Suite 230
Menlo Park, California 94025
F. Alan Smith(4)........................... 575 3.56
Terence C. Seikel(5)....................... 585 3.60
Roger T. Morgan(6)......................... 161 1.01
Gerrit de Graaf(7)......................... 42 0.26
Richard E. Borghi(8)....................... 554 3.41
Barry Banducci(9).......................... 452 2.81
59 Old Quarry Road
Guildford, Connecticut 06437
Gerard J. Brink............................ 410 2.58
Lijsterbeslaan 10
B-2950 Kapellen
Belgium
All directors and executive officers as a
group (nine persons)....................... 2,779 16.18
</TABLE>
- ----------
(1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC,
12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Units. Units subject to options or warrants currently exercisable or
exercisable within 60 days of March 17, 2000 are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
(3) CB Capital Investors, L.P. is an affiliate of CCP. Includes 501 Units
subject to warrants exercisable within 60 days.
(4) Includes 275 Units subject to options exercisable within 60 days. 300 Units
are owned by the F. Alan Smith Family Limited Partnership.
(5) Includes 385 Units subject to options exercisable within 60 days.
52
<PAGE> 55
(6) Includes 72 Units subject to options exercisable within 60 days.
(7) Includes 16 Units subject to options exercisable within 60 days.
(8) Includes 354 Units subject to options exercisable within 60 days.
(9) Includes 202 Units subject to options exercisable within 60 days. All Units
are owned by the Banducci Family, LLC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chase Securities Inc. ("CSI"), The Chase Manhattan Bank ("Chase"), The Chase
Manhattan Bank of Canada ("Chase Canada") and CCP are affiliates of CB Capital
Investors, L.P., which owns approximately 47.8% of the Company's issued and
outstanding voting securities on a fully diluted basis. CSI acted as an Initial
Purchaser in connection with the Offering, for which it received customary fees.
Chase is agent bank and a lender to the Company under the Amended and Restated
Credit Agreement and has received customary fees and reimbursement of expenses
in such capacities. Chase Canada is agent bank and a lender to the Company under
the Canadian Credit Agreement and has received customary fees and reimbursement
of expenses in such capacities. Chase received its proportionate share, $6.0
million, of the repayment by the Company of $90.0 million under the Amended and
Restated Credit Agreement from the proceeds of the Offering. An affiliate of CCP
and CSI held a portion of the Senior Subordinated Debt and received its
proportionate share, $10.7 million, including prepayment penalties of $700,000,
of the repayment by the Company of such debt from the proceeds of the Offering.
As a result of the Offering, such affiliate was relieved of its obligation to
provide up to an additional $20.0 million of senior subordinated debt financing.
In addition, an affiliate of CSI and CCP purchased a portion of the Notes in
connection with the Offering. Donald J. Hofmann, Jr., a general partner of CCP,
is a member of the Board of Managers of the Company. In addition, CSI, Chase and
their affiliates participate on a regular basis in various investment banking
and commercial banking transactions for the Company and its affiliates.
The Company is a party to the Consulting Agreements with F. Alan Smith, the
Chairman of the Company, and Barry Banducci, a Board Member of the Company. See
"Executive Compensation -- Consulting Agreements."
In connection with the acquisition of the MascoTech Division by the Company,
the Company loaned Mr. Borghi $100,000 to enable him to make his initial equity
investments in the Company. The loan bears interest at 6.2% and matures in
September 2002.
53
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements:
A list of the Consolidated Financial Statements, related notes and
Reports of Independent Accountants is set forth in Item 8 of this
report on Form 10-K.
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under
the related instructions, are inapplicable or not material, or the
information called for thereby is otherwise included in the
financial statements and therefore have been omitted.
3. Index to Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------
3.1 Amended and Restated Certificate of Formation of
AAS. Incorporated by reference to Exhibit 3.1 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
3.2 Third Amended and Restated Operating Agreement
of AAS. Incorporated by reference to Exhibit 3.2
to AAS' Quarterly Report for the quarterly
period ended September 30, 1999 on Form 10-Q
(File No. 333-49011).
3.3 Amended Bylaws of AAS. Incorporated by reference
to Exhibit 3.3 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on
Form 10-Q (File No. 333-49011).
3.4 Third Amended and Restated Members' Agreement
Dated as of September 30, 1999 among Advanced
Accessory Systems, LLC, and the Members that are
parties hereto. Incorporated by reference to
Exhibit 3.4 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on
Form 10-Q (File No. 333-49011).
3.5 Amended and Restated Members' Agreement dated as
of September 30, 1999 among AAS Holdings, LLC,
CB Capital Investors, L.P. and MascoTech, Inc.
Incorporated by reference to Exhibit 3.5 to AAS'
Quarterly Report for the quarterly period ended
September 30, 1999 on Form 10-Q (File No.
333-49011).
4.1 Indenture dated as of October 1, 1997 for the
Notes (including the form of New Note attached
as Exhibit B thereto) among the Issuers, the
Guarantors named therein and First Union
National Bank, as Trustee. Incorporated by
reference to Exhibit 4.1 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.1 Asset Purchase Agreement among MascoTech
Automotive Systems Group, Inc., MascoTech
Accessories, Inc. and Advanced Accessory
Systems, LLC dated as of September 28, 1995.
Incorporated by reference to Exhibit 10.1 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.2 Agreement for the Sale and Purchase of Shares in
Brink BV dated October 30, 1996 among AAS
Holdings, Inc., AAS Holdings, LLC, Brink Holding
BV and Brink BV. Incorporated by reference to
Exhibit 10.2 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.3 Asset Purchase Agreement among Bell Sports
Corp., Bell Sports Canada, Inc. and Advanced
Accessory Systems Canada Inc./Les Systemes
d'Accessoire Advanced Canada Inc. dated as of
July 2, 1997. Incorporated by reference to
Exhibit 10.3 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.4 Stock Purchase Agreement dated July 24, 1997
among Robert Boulard and Alan Hamer and Advanced
Accessory Systems Canada Inc. / Les Systems
d'Accessoire Advanced Canada Inc. Incorporated
by reference to Exhibit 10.4 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.5 Asset Purchase Agreement among Valley
Industries, LLC, Valley Industries, Inc.,
certain affiliates of Valley Industries, Inc.,
Robert L. Fisher and Roger T. Morgan dated as of
August 5, 1997. Incorporated by reference to
Exhibit 10.5 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.6 Preliminary Agreement for the Transfer of a
Business dated December 16, 1997 between Ellebi
S.p.A. and Brink Italia S.r.1. and Brink
International B.V. Incorporated by reference to
Exhibit 10.6 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.7 Second Amended and Restated Credit Facility
among AAS, SportRack, LLC, Brink International
BV, Brink BV and Valley Industries, LLC, as
Borrowers, NBD Bank as Administrative Agent and
Documentation and Collateral Agent and The Chase
Manhattan Bank as Co-Administrative Agent and
Syndication Agent dated August 5, 1997.
Incorporated by reference to Exhibit 10.7 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
54
<PAGE> 57
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------
10.7(a) Amendment No 1. Dated as of September 5, 1997 to
Second Amended and Restated Credit Agreement
Dated as of August 5, 1997 and Security
Agreements Dated as of October 5, 1996.
Incorporated by reference to Exhibit 10.7(a) to
AAS' Annual Report on Form 10-K (File No.
333-49011) for the fiscal year ended December
31, 1998.
10.7(b) Amendment No.2 Dated as of September 24, 1997 to
Second Amended and Restated Credit Agreement
Dated as of August 5, 1997. Incorporated by
reference to Exhibit 10.7(b) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(c) Amendment No. 3 Dated as of December 29, 1997 to
Second Amended and Restated Credit Agreement
dated as of August 5, 1997. Incorporated by
reference to Exhibit 10.7(c) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(d) Amendment No. 4 Dated as of December 31, 1997 to
Second Amended and restated Credit Agreement
Dated as of August 5, 1997. Incorporated by
reference to Exhibit 10.7(d) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(e) Amendment No. 5 and Waiver Dated as of December
31, 1998 to Second Amended and Restated Credit
Agreement Dated as of August 5, 1997.
Incorporated by reference to Exhibit 10.7(e) to
AAS' Annual Report on Form 10-K (File No.
333-49011) for the fiscal year ended December
31, 1998.
10.7(f) Amendment No. 6 Dated as of August 10, 1999 to
Second Amended and Restated Credit Agreement
Dated as of August 5, 1997.
10.8 First Amended and Restated Credit Agreement
among SportRack International, Inc. and First
Chicago NBD Bank, Canada, The Chase Manhattan
Bank of Canada and The Bank of Nova Scotia dated
as of March 19, 1998. Incorporated by reference
to Exhibit 10.8 to AAS' Registration Statement
on Form S-4 (File No. 333-49011).
10.9 Amended and Restated Employment Agreement
between AAS and Richard Borghi dated September
30, 1999. Incorporated by reference to Exhibit
10.9 to AAS' Quarterly Report for the quarterly
period ended September 30, 1999 on Form 10-Q
(File No. 333-49011).
10.10 Employment Agreement between AAS and Marshall
Gladchun dated September 28, 1995. Incorporated
by reference to Exhibit 10.10 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.11 Management Consulting Agreement between AAS and
Barry Banducci dated September 28, 1995.
Incorporated by reference to Exhibit 10.11 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.12 Management Consulting Agreement between AAS and
F. Alan Smith dated September 28, 1995.
Incorporated by reference to Exhibit 10.12 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.13 Amended and Restated Employment Agreement
between AAS and Terence C. Seikel dated
September 30, 1999. Incorporated by reference to
Exhibit 10.13 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.14 Employment Agreement between AAS and Roger T.
Morgan dated August 5, 1997. Incorporated by
reference to Exhibit 10.14 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.15 Employment Agreement between Brink B.V. and
Gerrit de Graaf dated November 1, 1996.
Incorporated by reference to Exhibit 10.15 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.17 Lease dated as of January 24, 1997 between
Valley Industries Realty, L.P. and Valley
Industries, Inc. Incorporated by reference to
Exhibit 10.17 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.18 Addendum to Sublease dated as of July 2, 1997
between Bell Sports Canada, Inc. and SportRack
International, Inc. (formerly known as Advanced
Accessory Systems Canada Inc./ Les Systems
d'Accessoire Advanced Canada Inc.). Incorporated
by reference to Exhibit 10.18 to AAS'
Registration Statement on Form S-4 (File No.
333-49011).
10.18(a) Sublease Amending Agreement made as of the 1st
day of January, 2000, between Bell Sports Canada
Inc. and SportRack Accessories Inc. (previously
known as SportRack International.
10.19 Lease dated May 25, 1994 between VBG Towbars AB
and VBG Produkter AB. Incorporated by reference
to Exhibit 10.19 to AAS' Registration Statement
on Form S-4 (File No. 333-49011).
10.20 Lease Agreement for commercial use between
Ellebi S.p.A. and Brink Italia S.r.l.
Incorporated by reference to Exhibit 10.20 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
10.21 Registration Rights Agreement dated September
25, 1997 by and among Advanced Accessory
Systems, LLC, AAS Capital Corporation, the
Guarantors named therein and Chase Securities,
Inc. and First Chicago Capital Markets, Inc.
Incorporated by reference to Exhibit 10.21 to
AAS' Registration Statement on Form S-4 (File
No. 333-49011).
12.1 Statement Re: Computation of ratios
21.1 Subsidiaries of the Registrant Incorporated by
reference to Exhibit 21.1 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
24.1 Power of Attorney
27.1 Financial Data Schedule
55
<PAGE> 58
(b) Reports of form 8-K:
On April 22, 1999, the Company filed a report on Form 8-K to announce
the appointment of Terence C. Seikel and Richard E. Borghi to the Board of
Managers and as President and Chief Executive Officer of the Company and
President of SportRack, respectively. Also announced was the termination of
Marshall D. Gladchun, as President and Chief Executive Officer of the
Company and as Board Member.
----------
56
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
Advanced Accessory Systems, LLC
By: /s/ TERENCE C. SEIKEL
--------------------------------
Terence C. Seikel
President, Chief Executive Officer
(Principal Executive Officer and Authorized
Signatory)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on the 22nd day of March, 2000, by the
following persons on behalf of the registrant and in the capacities as
indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ TERENCE C. SEIKEL President, Chief Executive Officer and
----------------------------------- Manager (Principal Executive, Financial and
Terence C. Seikel Accounting Officer)
* Chairman of the Board of Managers
-----------------------------------
F. Alan Smith
* Manager
-----------------------------------
Barry Banducci
* Manager
-----------------------------------
Gerard Jacobus Brink
* Manager
-----------------------------------
Donald J. Hofmann
* Manager
-----------------------------------
Richard Borghi
* Manager
-----------------------------------
Roger T. Morgan
* Manager
-----------------------------------
Gerrit de Graaf
*By: /s/ TERENCE C. SEIKEL
-----------------------------------
Terence C. Seikel, Attorney-in-Fact
</TABLE>
57
<PAGE> 60
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Other than this annual report filed on Form 10-K, none.
58
<PAGE> 61
ADVANCED ACCESSORY SYSTEMS, LLC-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997,
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING OF COSTS AND TO OTHER AT END OF
YEAR EXPENSES ACCOUNTS (1) WRITE-OFFS YEAR
------------ ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
For the year ended December 31,
1999........................................ $ 2,766 $ 2,670 $ (67) $ 372 $ 4,997
1998........................................ 1,699 2,413 523 1,869 2,766
1997........................................ 605 458 734 98 1,699
ALLOWANCE FOR INVENTORY AND
LOWER OF COST OR MARKET RESERVE
-------------------------------
For the year ended December 31,
1999........................................ $ 3,917 $ 573 $ (136) $ 1,137 $ 3,217
1998........................................ 2,590 4,735 15 3,423 3,917
1997........................................ 1,579 423 1,303 715 2,590
ALLOWANCE FOR REIMBURSABLE TOOLING
----------------------------------
For the year ended December 31,
1999........................................ $ 324 $ 230 $ -- $ 13 $ 541
1998........................................ 890 294 -- 860 324
1997........................................ 368 195 493 166 890
ALLOWANCE DEFERRED TAX ASSETS
-----------------------------
1999........................................ $ 4,225 $ 854 $ 179 $ -- $ 5,258
1998........................................ -- 4,225 -- -- 4,225
</TABLE>
- ----------
(1) Charges to other accounts include amounts related to acquired companies and
the effects of changing foreign currency exchange rates for the Company's
foreign subsidiaries.
59
<PAGE> 62
Exhibit Index
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Formation of AAS.
Incorporated by reference to Exhibit 3.1 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
3.2 Third Amended and Restated Operating Agreement of AAS.
Incorporated by reference to Exhibit 3.2 to AAS' Quarterly
Report for the quarterly period ended September 30, 1999 on
Form 10-Q (File No. 333-49011).
3.3 Amended Bylaws of AAS. Incorporated by reference to Exhibit
3.3 to AAS' Quarterly Report for the quarterly period ended
September 30, 1999 on Form 10-Q (File No. 333-49011).
3.4 Third Amended and Restated Members' Agreement Dated as of
September 30, 1999 among Advanced Accessory Systems, LLC,
and the Members that are parties hereto. Incorporated by
reference to Exhibit 3.4 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form 10-Q
(File No. 333-49011).
3.5 Amended and Restated Members' Agreement dated as of
September 30, 1999 among AAS Holdings, LLC, CB Capital
Investors, L.P. and MascoTech, Inc. Incorporated by
reference to Exhibit 3.5 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form 10-Q
(File No. 333-49011).
4.1 Indenture dated as of October 1, 1997 for the Notes
(including the form of New Note attached as Exhibit B
thereto) among the Issuers, the Guarantors named therein
and First Union National Bank, as Trustee. Incorporated by
reference to Exhibit 4.1 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.1 Asset Purchase Agreement among MascoTech Automotive Systems
Group, Inc., MascoTech Accessories, Inc. and Advanced
Accessory Systems, LLC dated as of September 28, 1995.
Incorporated by reference to Exhibit 10.1 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.2 Agreement for the Sale and Purchase of Shares in Brink BV
dated October 30, 1996 among AAS Holdings, Inc., AAS
Holdings, LLC, Brink Holding BV and Brink BV. Incorporated
by reference to Exhibit 10.2 to AAS' Registration Statement
on Form S-4 (File No. 333-49011).
10.3 Asset Purchase Agreement among Bell Sports Corp., Bell
Sports Canada, Inc. and Advanced Accessory Systems Canada
Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated
as of July 2, 1997. Incorporated by reference to Exhibit
10.3 to AAS' Registration Statement on Form S-4 (File No.
333-49011).
10.4 Stock Purchase Agreement dated July 24, 1997 among Robert
Boulard and Alan Hamer and Advanced Accessory Systems
Canada Inc. / Les Systems d'Accessoire Advanced Canada Inc.
Incorporated by reference to Exhibit 10.4 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.5 Asset Purchase Agreement among Valley Industries, LLC,
Valley Industries, Inc., certain affiliates of Valley
Industries, Inc., Robert L. Fisher and Roger T. Morgan
dated as of August 5, 1997. Incorporated by reference to
Exhibit 10.5 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.6 Preliminary Agreement for the Transfer of a Business dated
December 16, 1997 between Ellebi S.p.A. and Brink Italia
S.r.1. and Brink International B.V. Incorporated by
reference to Exhibit 10.6 to AAS' Registration Statement on
Form S-4 (File No. 333-49011).
10.7 Second Amended and Restated Credit Facility among AAS,
SportRack, LLC, Brink International BV, Brink BV and Valley
Industries, LLC, as Borrowers, NBD Bank as Administrative
Agent and Documentation and Collateral Agent and The Chase
Manhattan Bank as Co-Administrative Agent and Syndication
Agent dated August 5, 1997. Incorporated by reference to
Exhibit 10.7 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.7(a) Amendment No 1. Dated as of September 5, 1997 to Second
Amended and Restated Credit Agreement Dated as of August 5,
1997 and Security Agreements Dated as of October 5, 1996.
Incorporated by reference to Exhibit 10.7(a) to AAS' Annual
Report on Form 10-K (File No. 333-49011) for the fiscal
year ended December 31, 1998.
10.7(b) Amendment No.2 Dated as of September 24, 1997 to Second
Amended and Restated Credit Agreement Dated as of August 5,
1997. Incorporated by reference to Exhibit 10.7(b) to AAS'
Annual Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(c) Amendment No. 3 Dated as of December 29, 1997 to Second
Amended and Restated Credit Agreement dated as of August 5,
1997. Incorporated by reference to Exhibit 10.7(c) to AAS'
Annual Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(d) Amendment No. 4 Dated as of December 31, 1997 to Second
Amended and restated Credit Agreement Dated as of August 5,
1997. Incorporated by reference to Exhibit 10.7(d) to AAS'
Annual Report on Form 10-K (File No. 333-49011) for the
fiscal year ended December 31, 1998.
10.7(e) Amendment No. 5 and Waiver Dated as of December 31, 1998 to
Second Amended and Restated Credit Agreement Dated as of
August 5, 1997. Incorporated by reference to Exhibit
10.7(e) to AAS' Annual Report on Form 10-K (File No.
333-49011) for the fiscal year ended December 31, 1998.
10.7(f) Amendment No. 6 Dated as of August 10, 1999 to Second
Amended and Restated Credit Agreement Dated as of August 5,
1997.
10.8 First Amended and Restated Credit Agreement among SportRack
International, Inc. and First Chicago NBD Bank, Canada, The
Chase Manhattan Bank of Canada and The Bank of Nova Scotia
dated as of March 19, 1998. Incorporated by reference to
Exhibit 10.8 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.9 Amended and Restated Employment Agreement between AAS and
Richard Borghi dated September 30, 1999. Incorporated by
reference to Exhibit 10.9 to AAS' Quarterly Report for the
quarterly period ended September 30, 1999 on Form 10-Q
(File No. 333-49011).
10.10 Employment Agreement between AAS and Marshall Gladchun
dated September 28, 1995. Incorporated by reference to
Exhibit 10.10 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
</TABLE>
<PAGE> 63
Exhibit Index
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------
<S> <C>
10.11 Management Consulting Agreement between AAS and Barry
Banducci dated September 28, 1995. Incorporated by
reference to Exhibit 10.11 to AAS' Registration Statement
on Form S-4 (File No. 333-49011).
10.12 Management Consulting Agreement between AAS and F. Alan
Smith dated September 28, 1995. Incorporated by reference
to Exhibit 10.12 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.13 Amended and Restated Employment Agreement between AAS and
Terence C. Seikel dated September 30, 1999. Incorporated by
reference to Exhibit 10.13 to AAS' Registration Statement
on Form S-4 (File No. 333-49011).
10.14 Employment Agreement between AAS and Roger T. Morgan dated
August 5, 1997. Incorporated by reference to Exhibit 10.14
to AAS' Registration Statement on Form S-4 (File No.
333-49011).
10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf
dated November 1, 1996. Incorporated by reference to
Exhibit 10.15 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.17 Lease dated as of January 24, 1997 between Valley
Industries Realty, L.P. and Valley Industries, Inc.
Incorporated by reference to Exhibit 10.17 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.18 Addendum to Sublease dated as of July 2, 1997 between Bell
Sports Canada, Inc. and SportRack International, Inc.
(formerly known as Advanced Accessory Systems Canada Inc./
Les Systems d'Accessoire Advanced Canada Inc.).
Incorporated by reference to Exhibit 10.18 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.18(a) Sublease Amending Agreement made as of the 1st day of
January, 2000, between Bell Sports Canada Inc. and
SportRack Accessories Inc. (previously known as SportRack
International.
10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG
Produkter AB. Incorporated by reference to Exhibit 10.19 to
AAS' Registration Statement on Form S-4 (File No.
333-49011).
10.20 Lease Agreement for commercial use between Ellebi S.p.A.
and Brink Italia S.r.l. Incorporated by reference to
Exhibit 10.20 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.21 Registration Rights Agreement dated September 25, 1997 by
and among Advanced Accessory Systems, LLC, AAS Capital
Corporation, the Guarantors named therein and Chase
Securities, Inc. and First Chicago Capital Markets, Inc.
Incorporated by reference to Exhibit 10.21 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
12.1 Statement Re: Computation of ratios
21.1 Subsidiaries of the Registrant Incorporated by reference to
Exhibit 21.1 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.7 (f)
EXECUTION COPY
AMENDMENT NO. 6
Dated as of August 10, 1999
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 5, 1997
THIS AMENDMENT NO. 6 ("Amendment") is made as of August 10,
1999 by and among Advanced Accessory Systems, LLC (formerly known as AAS
Holdings, LLC), SportRack, LLC (formerly known as Advanced Accessory Systems,
LLC), Valley Industries, LLC, Brink International BV and Brink BV (the
"Borrowers"), the financial institutions listed on the signature pages hereof
(the "Lenders") and Bank One, Michigan (formerly known as NBD Bank), as
Administrative Agent and Documentation and Collateral Agent, and The Chase
Manhattan Bank, as Co-Administrative Agent and Syndication Agent (the "Agents"),
under that certain Second Amended and Restated Credit Agreement dated as of
August 5, 1997 by and among the Borrowers, the Lenders and the Agents (as
heretofore amended, the "Credit Agreement"). Defined terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
WHEREAS, the Borrowers, the Lenders and the Agents have agreed
to amend the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Lenders and the Agents have agreed to the following amendments to
the Credit Agreement.
1. Amendments to Credit Agreement. Effective as of August 10,
1999 and subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement is hereby amended as follows:
1.1. Section 6.3(A) of the Credit Agreement is hereby amended
by deleting the reference to "$4,000,000" now contained in subsection (i)
thereof and substituting therefor the following: "$6,000,000", and by adding the
following as new subsections (n) and (o) immediately following subsection (m)
thereof:
"(n) Indebtedness incurred by Brink International BV or Brink
BV or any of their affiliates in an amount not to exceed
5,000,000 Dutch Guilders or the Equivalent Amount in other
Agreed Currencies thereof on terms acceptable to the
Administrative Agent.
<PAGE> 2
(o) Indebtedness incurred by SportRack International Inc. in
an amount not to exceed 1,000,000 Canadian Dollars or the
Equivalent Amount in other Agreed Currencies on terms
acceptable to the Administrative Agent."
1.2 Section 6.3(B) of the Credit Agreement is hereby amended
by adding a new subsection (vi) immediately following subsection (v) thereof:
"(vi) forgiveness of Indebtedness due to Holdings
or any of its Subsidiaries evidenced by
notes payable from any employee in
connection with the termination (voluntarily
or involuntarily) of such Person's
employment with Holdings or any of its
Subsidiaries."
1.3 Section 6.3(C) of the Credit Agreement is hereby amended
by adding a new subsection (vii) immediately following subsection (vi) thereof:
"(vii) Liens to secure Indebtedness
permitted pursuant to Section 6.3(A)(n) and
Section 6.3(A)(o)."
1.4 Section 6.3(F)(iv) of the Credit Agreement is hereby
amended by deleting the reference to "$300,000" now contained therein and
substituting therefor the following: "$5,000,000."
1.5 Section 6.3(H) of the Credit Agreement is hereby amended
by adding the following immediately at the end thereof:
"except for arrangements made in connection
with the termination (voluntarily or
involuntarily) of such Person's employment
with Holdings or any of the Subsidiaries."
2. Conditions of Effectiveness. The effectiveness of this
Amendment is subject to the conditions precedent that the Administrative Agent
shall have received counterparts of this Amendment duly executed by the
Borrowers, the Required Lenders and the Agents. Upon the satisfaction of the
foregoing conditions precedent, this Amendment shall become effective with
respect to the amendments set forth in Section 1 above.
3. Representations and Warranties of the Borrowers. Each
Borrower hereby represents and warrants as follows:
(a) This Amendment and the Credit Agreement as amended hereby
constitute legal, valid and binding obligations of the Borrowers and are
enforceable against the Borrowers in accordance with their terms.
(b) As of August 10, 1999, (i) there exists no Default or
Unmatured Default under the Credit Agreement, as amended hereby, and (ii) the
representations and warranties contained in Article V of the Credit Agreement,
as amended hereby, are true and correct in all material respects, except for
representations and warranties made with reference to a specific date which
representations and warranties are true and correct in all material respects as
of such date.
2
<PAGE> 3
4. Reference to and Effect on the Credit Agreement and
Security Agreements.
(a) Upon the effectiveness of Section 1 hereof, each reference
in any Loan Document to such Loan Document or any other Loan Document shall mean
and be a reference to the applicable Loan Document as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and all other documents, instruments and agreements executed and/or delivered in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Agents or the Lenders, nor constitute a waiver
of any provision of the Credit Agreement or any other documents, instruments and
agreements executed and/or delivered in connection therewith.
5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
6. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. Counterparts. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first above written.
ADVANCED ACCESSORY SYSTEMS, LLC
as a Borrower
By: /s/ Terence C. Seikel
------------------------
Name:
Title:
SPORTRACK, LLC
as a Borrower
By: ADVANCED ACCESSORY SYSTEMS, LLC
Its Manager
By: /s/ Terence C. Seikel
--------------------------
Name:
Title:
VALLEY INDUSTRIES, LLC
as a Borrower
By: ADVANCED ACCESSORY SYSTEMS, LLC
Its Manager
3
<PAGE> 4
By: /s/ Terence C. Seikel
--------------------------
Name:
Title:
BRINK INTERNATIONAL BV
as a Borrower
By: /s/ Terence C. Seikel
--------------------------
Name:
Title:
BRINK BV
as a Borrower
By: /s/ Terence C. Seikel
--------------------------
Name:
Title:
BANK ONE, MICHIGAN
as the Administrative Agent and the
Documentation and Collateral Agent, and as a
Lender
By: /s/ Willam Canney
--------------------------
Name:
Title: Vice President
THE CHASE MANHATTAN BANK
as the Co-Administrative Agent and the
Syndication Agent, and as a Lender
By: /s/ Karen M. Sharf
--------------------------
Name:
Title: Vice President
FIRST UNION NATIONAL BANK
as a Lender
By: /s/ Kent Davis
--------------------------
Name:
Title: Vice President
THE BANK OF NOVA SCOTIA
as a Lender
By: /s/ F.C.H. Ashby
--------------------------
Name:
Title: Senior Manager Loan Operations
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK
4
<PAGE> 5
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
as a Lender
By:
----------------------------------
Name:
Title:
By:
Name:
Title:
LASALLE NATIONAL BANK
as a Lender
By: /s/ Thomas J. Ranville
----------------------------------
Name:
Title: 1st Vice President
MICHIGAN NATIONAL BANK
as a Lender
By: /s/ John M. Bebb
----------------------------------
Name:
Title: Relationship Manager
NATIONAL CITY BANK (CLEVELAND)
as a Lender
By /s/ Joshua R. Sosland
----------------------------------
Name:
Title: Account Officer
5
<PAGE> 6
COMERICA BANK
as a Lender
By: /s/ Nicholas G. Mester
-------------------------------------
Name:
Title: Account Officer
VAN KAMPEN PRIME RATE INCOME TRUST
as a Lender
By: /s/ Lisa M. Mincheski
-------------------------------------
Name:
Title: Vice President
SENIOR DEBT PORTFOLIO
By: Boston Management and Research as
Investment Advisor
By: /s/ Scott H. Page
-------------------------------------
Name:
Title: Vice President
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:
-------------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:
-------------------------------------
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.18 (a)
SUBLEASE AMENDING AGREEMENT
SUBLEASE AMENDING AGREEMENT made as of the 1st day of January, 2000, between
BELL SPORTS CANADA INC., (the "Sublessor") and SPORTRACK ACCESSORIES
INC. (previously known as SPORTRACK INTERNATIONAL), (the "SUBLESSEE")
Reference is hereby made to that certain sublease between the Sublessor and the
Sublessee dated July 2, 1997, as amended by that certain addendum to sublease
(the "ADDENDUM") dated October 23, 1997 and by that certain first amendment (the
"FIRST AMENDMENT") dated May 12, 1998 (the Sublease, the Addendum and the First
Amendment hereinafter, collectively the "SUBLEASE")
Unless the subject matter or context hereof otherwise requires, all capitalized
terms used in this Sublease Amending Agreement shall, unless otherwise defined
herein, have the meaning ascribed to them in the Sublease.
The Sublessor and the Sublessee hereby agree to amend the Sublease as follows:
1 Section 1.0 of the Addendum is hereby deleted and replaced with the
following:
The Gross Leasable Area of the Sublease Area shall be increased, making the
revised Gross Leasable Area of the Sublease Area a total of 88,224 square
feet situated on the ground floor, as reflected on the layout plan attached
as Schedule A hereto;
2. Section 1.1 of the Addendum is hereby deleted and replaced with the
following:
The Gross Leasable Area of the Sublease Area shall be made up of the
following areas:
<TABLE>
<S> <C>
a. Factory 46,772 sq. ft.
b. Office Space (as presently occupied) 3,008 sq. ft.
c. Cafeteria (Pro Rata Share) 1,149 sq. ft.
d. Compressor (Pro Rata Share) 229 sq. ft.
e. Tool Room 340 sq. ft.
f. Former "Hot Box" Area 6,080 sq. ft.
g. Former "Drilling" Area 1,974 sq. ft.
h. "Revised" Distribution Area 28,672 sq. ft.
--------------
Total Gross Leasable Area 88,224 sq. ft.
==============
</TABLE>
<PAGE> 2
2
3. Section 2.0 of the Addendum is hereby deleted and replaced with the
following:
The total basic rent per annum for the subleased area shall be, in respect
of the current lease year ending on June 30, 2000, $288,492.48 plus GST
and QST calculated on the basis of total Gross Leasable Area (as set out
above) on the square footage rental charge of $3.27. The rent is payable in
equal consecutive monthly installments of $24,041.04 plus QST and GST
during the first day of each month in advance.
4. Section 2.2 of the Addendum is hereby deleted.
5. Section 3.0 of the Addendum is hereby deleted and replaced by the
following:
In addition to the basic rent as set out in Section 2.0, the Sublessee
shall pay to the Sublessor operating costs fixed at the sum of $1.15 per
square foot for 71,742 square feet of Subleased Area. This annual operating
cost of $82,503.30 plus GST and QST shall be payable in equal consecutive
monthly installments of $6,875.27 plus GST and QST due on the first day of
each month in advance.
6. The effective date of this Sublease Amending Agreement will be January 1,
2000.
7. Section 4.0 of the Addendum is hereby deleted and replaced by the
following:
The term of the Sublease shall begin from the effective date and expire on
December 31, 2003.
8. Section 4.1 of the Addendum is hereby deleted and replaced by the
following:
Each of the Sublessee and Sublessor may terminate the Sublease or any
renewal thereof by giving nine month prior written notice to the other
party, in which event the Sublease shall terminate nine months following
the date of receipt of such notice.
Notwithstanding the foregoing, the Sublessor may terminate the Sublease if
the Sublessee fails to pay the basic rent or additional costs payable
pursuant to this Sublease or if the Sublessee is in default in fulfilling
any other term, condition or
<PAGE> 3
3
obligation of this Sublease, in each case for a period in excess of thirty
(30) days from receipt by the Sublessee of written notice by the Sublessor
calling upon the Sublessee to do so (hereinafter an "Event of Default").
All written notices which are required to be given under this Sublease must
be sent by certified mail to the following addresses:
To the Sublessor
Richard Willis
Chief Financial Officer
BELL SPORTS
6350 San Ignacio Avenue
San Jose, CA
95119
To the Sublessee
Tom Flood
SPORTRACK INTERNATIONAL INC.
At the subleased promises
If the Sublease is terminated at the Sublessee's request or by the
Sublessor by reason of the occurrence of an Event of Default, then an
equivalent of six (6) months instalments of basic rent will immediately
become due and payable by the Sublessee as accelerated rent.
If the Sublease is terminated at the Sublessor's request, except when such
termination is by reason of the occurrence of an Event of Default, then the
equivalent of six (6) months instalments of basic rent will immediately
become due and payable by the Sublessor as termination penalty.
9. Section 1.6 of the First Amendment is hereby deleted.
<PAGE> 4
4
10. Section 5.0 of the Addendum is hereby deleted and replaced by the
following:
The Sublessee shall pay all the costs of mail delivery and pick-up,
receptionist, and the following office supplies: coffee and all coffee
supplies such as cream, sugar, cups, etc., water, soap, toilet paper, paper
towels for washrooms.
11. Section 12.0 of the Addendum shall be deleted and replaced with the
following:
The Sublessor agrees and accepts to provide the Sublessee free use and
general utilization of the following equipment:
(a) compressor, and
(b) alarm system; and
(c) phone system.
12. An employee of Sublesee will serve as the on-site Facility Manager:
(a) the Facility Manager will be the contact person for office utility
maintenance or other tenant issues, including, without limitation,
controlling the alarm system and keys.
(b) the Facility Manager will also be responsible for negotiating service
contracts, including, without limitation, those relating to cleaning
and snow removal, for the entire facility, and with respect to all
tenants, it being agreed, however, that the Sublessor's prior written
approval will be required before any service or maintenance contracts
are entered into.
(c) the Facility Manager shall serve as the contact person for future
tenants' use of the telephone system and to ensure that all future
have telephones to use.
The Facility Manager's costs shall be paid through a 5% discount off the
basic rent (excluding operating costs) payable by the Sublessee, calculated
on a monthly basis.
<PAGE> 5
5
13. The Sublessee will relocate distribution to the area adjacent to
manufacturing within 30 days of the signing of this Sublease Amending
Agreement. The Sublessor will reimburse the Sublessee for the expenses of
this relocation up to an amount of $11,000.
14. The Sublessor and the Sublease will continue to share the post office box,
and the Sublessor will pay for this post office box for the remaining term
of the Sublease provided that any mail addressed to the Sublessor and which
is received by the Sublessee at the post office box will be forwarded to
the Sublessor on a weekly basis, at the Sublessor's expense (postage
expense only).
15. All of the terms and conditions of the Sublease shall remain in full force
and effert as amended hereby.
SIGNED this 23 day of February, 2000, in the City of Granby, Quebec
SUBLESSOR SUBLESSEE
BELL SPORTS CANADA INC. SPORTRACK ACCESSORIES INC.
Per: /s/ Rich Willis Per: /s/ Tom Flood
-------------------- ---------------------
<PAGE> 1
EXHIBIT 12.1
ADVANCED ACCESSORY SYSTEMS, LLC
EXHIBIT 12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS -
FIXED CHARGE COVERAGE RATIO
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Pre-tax income from
continuing operations .............. $ 5,395 $ 813 $ 712
Minority interest in the income of
subsidiary with fixed charges ...... -- -- 97
------- ------- -------
5,395 813 809
------- ------- -------
Fixed Charges:
Interest expense and amortization
of debt discount and premium on all
indebtedness ...................... 17,453 18,633 12,627
Rentals (1) .......................... 1,390 1,317 751
------- ------- -------
Total fixed charges .................. 18,843 19,950 13,378
------- ------- -------
Earnings before income taxes,
minority interest and fixed
charges............................. $24,238 $20,763 $14,187
------- ------- -------
Ratio of earnings to fixed charges ... 1.29x 1.04x 1.06x
======= ======= =======
</TABLE>
- ----------
(1) Amount included in fixed charges for rentals is considered by management to
be a reasonable approximation of the interest factor.
60
<PAGE> 2
EXHIBIT 24.1
POWER OF ATTORNEY
We, the undersigned Members of the Board of Managers of Advanced
Accessory Systems, LLC (the "Registrant"), hereby severally constitute and
appoint Terence C. Seikel, with full powers of substitution and resubstitution,
our true and lawful attorney, with full powers to sign for us, in our names and
in the capacities indicated below, (a) the annual report of the Registrant for
the fiscal year ending December 31, 1999 on Form 10-K and (b) a registration
statement on Form S-4, and any and all amendments to such Form 10-K and Form
S-4, and to file or cause to be filed the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes said attorney might
or could do in person, and hereby ratifying and confirming all that said
attorney, or his substitute or substitutes, shall do or cause to be done by
virtue of this Power of Attorney. This power of attorney may be executed in
counterparts.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this instrument this
17th day of March, 2000.
/s/ F. Alan Smith
-------------------------
F. Alan Smith
/s/ Barry Banducci
-------------------------
Barry Banducci
/s/ Richard E. Borhgi
-------------------------
Richard E. Borghi
/s/ Gerard Jacobus Brink
------------------------
Gerard Jacobus Brink
/s/ Gerrit de Graaf
------------------------
Gerrit de Graaf
/s/ Donald J. Hofmann
------------------------
Donald J. Hofmann
/s/ Roger T. Morgan
------------------------
Roger T. Morgan
/s/ Terence C. Seikel
------------------------
Terence C. Seikel
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,718
<SECURITIES> 0
<RECEIVABLES> 46,918
<ALLOWANCES> 4,997
<INVENTORY> 38,437
<CURRENT-ASSETS> 100,756
<PP&E> 59,316
<DEPRECIATION> 24,654
<TOTAL-ASSETS> 251,213
<CURRENT-LIABILITIES> 63,931
<BONDS> 178,498
0
0
<COMMON> 0
<OTHER-SE> 10,331
<TOTAL-LIABILITY-AND-EQUITY> 251,213
<SALES> 311,732
<TOTAL-REVENUES> 311,732
<CGS> 225,479
<TOTAL-COSTS> 278,982
<OTHER-EXPENSES> 27,335
<LOSS-PROVISION> 2,670
<INTEREST-EXPENSE> 17,453
<INCOME-PRETAX> 5,395
<INCOME-TAX> 417
<INCOME-CONTINUING> 4,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,978
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
