<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ----------------
--------------
COMMISSION FILE NUMBER 333-49011
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[ADVANCED ACCESSORY SYSTEMS LOGO]
ADVANCED ACCESSORY SYSTEMS, LLC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3848156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313
(Address of principal executive offices) (Zip Code)
(810) 997-2900
(Telephone Number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO
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<PAGE> 2
ADVANCED ACCESSORY SYSTEMS, LLC
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of 1
March 31, 2000 and December 31, 1999
Consolidated Condensed Statements of Income 2
(loss) for the Three Months Ended
March 31, 2000 and 1999
Consolidated Condensed Statements of 3
Cash Flows for the Three Months
Ended March 31, 2000 and 1999
Consolidated Condensed Statement of Changes 4
in Members' Equity for the Three Months
Ended March 31, 2000
Notes to Consolidated Condensed Financial 5
Statements
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
Part II. Other Information and Signature
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of 16
Security-holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash $ 3,291 $ 8,718
Accounts receivable, less reserves
of $4,717 and $4,997, respectively 60,204 46,918
Inventories
Finished goods 16,855 15,523
Work-in-process 8,386 9,871
Raw materials 15,179 13,043
------------- --------------
Total inventories 40,420 38,437
Deferred income taxes 2,510 1,804
Other current assets 5,048 4,879
------------- --------------
Total current assets 111,473 100,756
Property and equipment, net 58,994 59,316
Goodwill, net 80,123 80,674
Other intangible assets, net 5,298 5,729
Deferred income taxes 1,908 1,922
Other noncurrent assets 2,806 2,816
------------- --------------
$ 260,602 $ 251,213
============= ==============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 11,379 $ 12,449
Accounts payable 33,181 26,715
Accrued liabilities 27,809 24,767
------------- --------------
Total current liabilities 72,369 63,931
------------- --------------
Noncurrent liabilities
Deferred income taxes 1,643 1,772
Other noncurrent liabilities 4,336 4,320
Long-term debt, less current maturities 164,128 166,049
------------- --------------
Total noncurrent liabilities 170,107 172,141
------------- --------------
Mandatorily redeemable warrants 4,885 4,810
------------- --------------
Members' equity
Class A Units 18,038 18,083
Other comprehensive loss (1,122) (1,496)
Accumulated deficit (3,675) (6,256)
------------- --------------
13,241 10,331
------------- --------------
$ 260,602 $ 251,213
============= ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE> 4
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Net sales $ 84,994 $ 78,035
Cost of sales 61,800 56,241
------------- --------------
Gross profit 23,194 21,794
Selling, administrative and
product development expenses 12,327 13,397
Amortization of intangible assets 786 789
------------- --------------
Operating income 10,081 7,608
------------- --------------
Other income (expense)
Interest expense (4,421) (4,446)
Foreign currency loss, net (3,464) (3,973)
Other income (expense) 315 (2,000)
------------- ---------------
Income (loss) before income taxes 2,511 (2,811)
Benefit for income taxes 1,112 978
------------- --------------
Net income (loss) $ 3,623 $ (1,833)
============= ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE> 5
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 3,623 $ (1,833)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 3,493 3,549
Deferred taxes (878) (1,459)
Foreign currency loss 2,898 4,134
Changes in assets and liabilities, net (6,221) (3,462)
------------- --------------
Net cash provided by operating
activities 2,915 929
------------- --------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of property and equipment (3,222) (2,592)
Acquisitions, net of cash acquired (1,515) --
------------- --------------
Net cash used for investing activities (4,737) (2,592)
------------- --------------
CASH FLOWS USED FOR FINANCING
ACTIVITIES:
Net increase in revolving loan 1,100 --
Collection on note receivable for unit purchase 30 9
Payments on long-term debt (4,028) (1,060)
Distributions to members (1,042) (787)
------------- --------------
Net cash used for financing activities (3,940) (1,838)
------------- --------------
Effect of exchange rate changes 335 (29)
------------- --------------
Net decrease in cash (5,427) (3,530)
Cash at beginning of period 8,718 11,240
------------- --------------
Cash at end of period $ 3,291 $ 7,710
============= ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE> 6
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Other Total
Class A comprehensive Accumulated members'
Units loss deficit equity
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 18,083 $ (1,496) $ (6,256) $ 10,331
Collection on notes receivable for unit purchase 30 -- -- 30
Accretion of membership warrants (75) -- -- (75)
Distributions to members -- -- (1,042) (1,042)
Currency translation adjustment -- 374 -- 374
Net income -- -- 3,623 3,623
------------- ------------- ------------- -------------
Balance at March 31, 2000 $ 18,038 $ (1,122) $ (3,675) $ 13,241
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
4
<PAGE> 7
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which are
normal and recurring in nature, necessary to present fairly its
financial position as of March 31, 2000 and December 31, 1999 and the
results of its operations for the three months ended March 31, 2000 and
1999 and its cash flows for the three months ended March 31, 2000 and
1999.
These consolidated condensed financial statements should be read
together with the Company's audited financial statements presented in
the Company's Annual Report on Form 10-K for the year ended December
31, 1999, filed with the Securities and Exchange Commission on March
22, 2000.
2. OTHER EXPENSE
In February 1996 the Company commenced an action against certain
individuals alleging breach of contract under the terms of an October
1992 Purchase Agreement and Employment Agreement with the predecessor
of the Company. The individuals then filed a separate lawsuit against
the Company alleging breach of contract under the respective Purchase
and Employment agreements. On May 7, 1999 a jury in the United States
District Court for the Eastern District of Michigan reached a verdict
against the company and awarded the individuals approximately $3.8
million plus interest and reasonable attorney fees. The Company plans
to file an appeal once a judgment, expected during the second or third
quarter of 2000, is made by the court. In January 2000 the Company
issued a $6,000 letter of credit benefiting the plaintiffs pending the
resolution of the matter. During the first quarter of 1999, the Company
increased its estimated accrual for this matter by $2.0 million which
charge is included in other expense. No amounts have been paid as of
March 31, 2000.
3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the first quarter of 2000 and 1999 of
$4.0 million and $(2.1) million, respectively, includes reported net
income (loss) adjusted by the non-cash effect of changes in the
cumulative translation adjustment.
4. SUBSEQUENT EVENT
One of the Company's significant OEM customers announced on May 5, 2000
that it will be voluntarily recalling approximately 380,000 trucks to
replace or reinforce their trailer hitches, which were supplied by the
Company. The recall affects 1998-2000 model year vehicles built between
January 1998 and September 1999. The Company is in the process of
working with its customer to provide technical and other support in
response to the recall. Management can not estimate at this time what
the financial impact would be to the Company, if any, as a result of
the recall.
5. CONDENSED CONSOLIDATING INFORMATION
On October 1, 1997, the Company and its wholly-owned subsidiary, AAS
Capital Corporation, issued and sold $125,000 of its 9 3/4 Senior
Subordinated Notes due 2007 ("the Notes"). The Notes are guaranteed on
a full, unconditional and joint and several basis by all of the
Company's direct and indirect wholly-owned domestic subsidiaries. The
following condensed consolidating financial information presents the
financial position, results of operations and cash flows of (i) the
Company as parent, as if it accounted for its subsidiaries on the
equity method, and AAS Capital Corporation as issuers; (ii) guarantor
subsidiaries which are domestic, wholly-owned subsidiaries and include
SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek,
LLC; and (iii) the non-guarantor subsidiaries which are foreign,
wholly-owned subsidiaries and include Brink International B.V. and its
subsidiaries, SportRack International, Inc. and its subsidiary, and
SportRack Automotive GmbH and its subsidiaries. The guarantor and
non-guarantor subsidiaries for the three months ended March 31, 2000
and 1999 have been allocated a portion of certain corporate overhead
costs on a basis consistent with each subsidiary's relative business
activity, including interest on intercompany debt balances. Separate
financial statements of the guarantor subsidiaries are not presented
because management has determined that the separate financial
statements are not material to investors. Since its formation in
September 1997, AAS Capital Corporation has had no operations and has
no assets or liabilities at March 31, 2000.
5
<PAGE> 8
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- -------------- ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................... $ -- $ 475 $ 2,816 $ -- $ 3,291
Accounts receivable.................... -- 40,599 19,605 -- 60,204
Inventories............................ -- 18,012 22,408 -- 40,420
Deferred income taxes and other
current assets........................ 58 3,912 3,588 -- 7,558
----------- ----------- ----------- ----------- ----------
Total current assets.............. 58 62,998 48,417 -- 111,473
----------- ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 33,870 25,124 -- 58,994
Goodwill, net............................ 1,055 57,789 21,279 -- 80,123
Intangible assets, net................... 4,314 200 784 -- 5,298
Deferred income taxes and other
noncurrent assets...................... 29 2,080 2,605 -- 4,714
Investment in subsidiaries............... 48,430 9,955 -- (58,385) --
Intercompany notes receivable............ 100,040 -- -- (100,040) --
------------ ----------- ----------- ----------- ----------
Total Assets...................... $ 153,926 $ 166,892 $ 98,209 $ (158,425) $ 260,602
============ =========== =========== =========== ==========
LIABILITIES AND MEMBER'S
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 11,379 $ -- $ 11,379
Accounts payable....................... -- 23,615 9,566 -- 33,181
Accrued liabilities and deferred
income taxes......................... 8,522 8,754 10,533 -- 27,809
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 8,522 32,369 31,478 -- 72,369
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 1,665 662 3,652 -- 5,979
Long-term debt, less current maturities.. 124,606 1,100 38,422 -- 164,128
Intercompany debt........................ -- 58,862 41,178 (100,040) --
Mandatorily redeemable warrants.......... 4,885 -- -- -- 4,885
Members' equity.......................... 14,248 73,899 (16,521) (58,385) 13,241
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity............................ $ 153,926 $ 166,892 $ 98,209 $ (158,425) $ 260,602
============ =========== =========== ========== ==========
</TABLE>
6
<PAGE> 9
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718
Accounts receivable.................... -- 32,087 14,831 -- 46,918
Inventories............................ -- 16,361 22,076 -- 38,437
Other current assets...................
13 3,724 2,946 -- 6,683
----------- ----------- ----------- ----------- ----------
Total current assets.............. 13 57,641 43,102 -- 100,756
----------- ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 32,014 27,302 -- 59,316
Goodwill, net............................ 1,065 57,100 22,509 -- 80,674
Intangible assets, net................... 4,423 390 916 -- 5,729
Deferred income taxes and other
noncurrent assets...................... 93 1,988 2,657 -- 4,738
Investment in subsidiaries............... 43,065 9,955 -- (53,020) --
Intercompany notes receivable............ 99,537 -- -- (99,537) --
------------ ----------- ----------- ------------ ----------
Total Assets...................... $ 148,196 $ 159,088 $ 96,486 $ (152,557) $ 251,213
============ =========== =========== =========== ==========
LIABILITIES AND MEMBER'S
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 12,449 $ -- $ 12,449
Accounts payable....................... -- 18,090 8,625 -- 26,715
Accrued liabilities and deferred
income taxes......................... 5,524 9,231 10,012 -- 24,767
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 5,524 27,321 31,086 -- 63,931
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 1,553 608 3,931 -- 6,092
Long-term debt, less current maturities.. 124,597 -- 41,452 -- 166,049
Intercompany debt........................ -- 64,189 35,348 (99,537) --
Mandatorily redeemable warrants.......... 4,810 -- -- -- 4,810
Members' equity.......................... 11,712 66,970 (15,331) (53,020) 10,331
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity............................ $ 148,196 $ 159,088 $ 96,486 $ (152,557) $ 251,213
============ =========== =========== ========== ==========
</TABLE>
7
<PAGE> 10
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 59,680 $ 25,314 $ -- $ 84,994
Cost of sales............................ -- 44,638 17,162 -- 61,800
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 15,042 8,152 -- 23,194
Selling, administrative and product
development expenses................... 350 6,388 5,589 -- 12,327
Amortization of intangible assets........ 9 570 207 -- 786
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (359) 8,084 2,356 -- 10,081
Interest expense......................... 1,383 1,155 1,883 -- 4,421
Equity in income (loss) of subsidiaries 5,365 -- -- (5,365) --
Foreign currency (gain) loss............. -- -- 3,464 -- 3,464
Other income -- -- 315 -- 315
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 3,623 6,929 (2,676) (5,365) 2,511
Benefit for income taxes................. -- -- 1,112 -- 1,112
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 3,623 $ 6,929 $ (1,564) $ (5,365) $ 3,623
========== ========== =========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 52,840 $ 25,195 $ -- $ 78,035
Cost of sales............................ -- 39,218 17,023 -- 56,241
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 13,622 8,172 -- 21,794
Selling, administrative and product
development expenses................... 1,136 6,778 5,483 -- 13,397
Amortization of intangible assets........ 10 549 230 -- 789
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (1,146) 6,295 2,459 -- 7,608
Interest expense......................... 1,707 1,130 1,609 -- 4,446
Equity in income (loss) of subsidiaries 1,064 -- -- (1,064) --
Foreign currency (gain) loss............. -- -- 3,973 -- 3,973
Other expense 2,000 -- -- -- 2,000
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ (3,789) 5,165 (3,123) (1,064) (2,811)
Benefit for income taxes................. -- -- 978 -- 978
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ (3,789) $ 5,165 $ (2,145) $ (1,064) $ (1,833)
========== ========== =========== ========== ==========
</TABLE>
8
<PAGE> 11
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities................................ $ 1,515 $ 3,587 $ (2,187) $ -- $ 2,915
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................... -- (2,884) (338) -- (3,222)
Acquisition, net of cash acquired......... -- (1,515) -- -- (1,515)
---------- --------- ---------- ---------- ----------
Net cash used for investing activities.. -- (4,399) (338) -- (4,737)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............... (503) (5,282) 5,785 -- --
Net increase in revolving loan............ -- 1,100 -- -- 1,100
Collection on note receivable for unit
purchase................................ 30 -- -- -- 30
Repayment of debt......................... -- -- (4,028) -- (4,028)
Distributions to members.................. (1,042) -- -- (1,042)
---------- --------- ---------- ---------- ----------
Net cash provided by financing
activities............................ (1,515) (4,182) 1,757 -- (3,940)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes............. -- -- 335 -- 335
Net increase (decrease) in cash............. -- (4,994) (433) -- (5,427)
Cash at beginning of period................. -- 5,469 3,249 -- 8,718
---------- --------- ---------- ---------- ----------
Cash at end of period....................... $ -- $ 475 $ 2,816 $ -- $ 3,291
========== ========= ========== ========== ==========
</TABLE>
9
<PAGE> 12
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for) operating
activities.............................. $ -- $ 2,697 $ (1,768) $ -- $ 929
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (1,758) (834) -- (2,592)
---------- --------- ---------- ---------- ---------
Net cash used for investing activities -- (1,758) (834) -- (2,592)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............. 778 (2,775) 2,784 (787) --
Collection on note receivable for unit
purchase.............................. 9 -- -- -- 9
Repayment of debt....................... -- -- (1,060) -- (1,060)
Distributions to members................ (787) (787) -- 787 (787)
---------- --------- ---------- ---------- ----------
Net cash provided by financing
activities.......................... -- (3,562) 1,724 -- (1,838)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- (29) -- (29)
Net increase (decrease) in cash........... -- (2,623) (907) -- (3,530)
Cash at beginning of period............... -- 5,636 5,604 -- 11,240
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 3,013 $ 4,697 $ -- $ 7,710
========== ========= ========== ========== ==========
</TABLE>
10
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements and notes thereto of the Company included elsewhere in this Form
10-Q. Discussions containing forward-looking statements may be found in the
material set forth below. These may include statements projecting, forecasting
or estimating Company performance and industry trends. General risks that may
impact the achievement of such forecasts include, but are not limited to:
compliance with new laws and regulations, general economic conditions in the
markets in which the Company operates, fluctuation in demand for the Company's
products, significant raw material price fluctuations, and other business
factors. Any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual events or results may
differ materially from those discussed in the forward-looking statements. All of
these forward-looking statements are based on estimates and assumptions made by
management of the Company which, although believed to be reasonable, are
inherently uncertain. The Company does not intend to update these
forward-looking statements.
GENERAL
Chase Capital Partners and certain members of the Company's management
formed the Company in September 1995 to make strategic acquisitions of
automotive exterior accessory manufacturers and to integrate those acquisitions
into a global enterprise that would be a preferred supplier to the automotive
industry. In September 1995, the Company, through its SportRack, LLC subsidiary
("SportRack"), acquired substantially all of the net assets of the MascoTech
Accessories division of MascoTech, Inc., a North American supplier of rack
systems and accessories to the automotive original equipment manufacturers
("OEM") market and aftermarket.
In October 1996, the Company acquired all the capital stock of Brink
B.V., a private company with limited liability incorporated under the laws of
The Netherlands and a European supplier of towing systems and accessories to the
automotive OEM market and aftermarket. In December 1996, ownership of Brink B.V.
and its subsidiaries was transferred to a newly formed subsidiary of the
Company, Brink International B.V. ("Brink").
In August 1997, the Company formed Valley Industries, LLC to acquire
the net assets of Valley Industries, Inc. ("Valley"), a North American supplier
of towing systems and accessories to the automotive OEM market and aftermarket.
Two smaller acquisitions were completed in July 1997 by a subsidiary of
SportRack, SportRack International, Inc. SportRack International acquired from
Bell Sports Corporation the net assets of its sportrack division, a Canadian
supplier of rack systems and accessories to the automotive aftermarket.
SportRack International also acquired the capital stock of Nomadic Sports, Inc.,
a Canadian supplier of rack systems and accessories to the automotive OEM market
and aftermarket.
In January 1998, the Company through Brink International B.V., acquired
the net assets of the towbar segment Ellebi S.p.A., an Italian supplier of
towing systems to the automotive OEM market and aftermarket.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, a Canadian supplier of rear hitch rack
carrying systems and related products to the automotive aftermarket.
In February 2000, the Company through Valley, acquired the net assets
of Titan Industries, Inc. ("Titan"). Titan is a North American supplier of
trailer balls and other towing related accessories to the automotive
aftermarket.
In each instance, the acquisition was accounted for in accordance with
the purchase method of accounting and the operating results of the acquired
company have been included in the Company's consolidated financial statements
since the date of the respective acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999.
Net Sales. Net sales for the first quarter of 2000 were $85.0 million,
representing an increase of $7.0 million, or 8.9%, over net sales for the first
quarter of 1999. This increase resulted primarily from increased sales to OEM's
of approximately $6.7 million resulting from their increased production levels
of vehicles over the prior year. This increase is net of a decreased of
approximately $2.6 million related to the effect of declining exchange rates
between the U.S. Dollar and the currencies used by the Company's foreign
subsidiaries.
11
<PAGE> 14
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Gross Profit. Gross profit for the first quarter of 2000 was $23.1
million, representing an increase of $1.4 million, or 6.4%, over the gross
profit for the first quarter of 1999. This increase resulted from the increase
in net sales offset by a decrease in the gross margin percentage. Gross profit
as a percentage of net sales was 27.3% in the first quarter of 2000 compared to
27.9% in the first quarter of 1999. The decrease in the gross margin percentage
is attributable to increased material costs resulting from increased outsoucing
of component parts for hitches supplied to the OEMs and the mix of products sold
being weighted more toward lower margin products than in the prior year.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for the first quarter of 2000
were $12.3 million, representing a decrease of $1.1 million, or 8.0%, over the
selling, administrative and product development expenses for the first quarter
of 1999. Selling, administrative and product development expenses as a
percentage of net sales decreased to 14.5% in the first quarter of 2000 from
17.2% in the first quarter of 1999. This decrease is primarily attributable to
lower corporate expenses including severance compensation recorded during the
first quarter of 1999 related to the departure of the Company's former President
and Chief Executive Officer.
Operating income. Operating income for the first quarter of 2000 was
$10.1 million, an increase of $2.5 million, or 32.8%, over operating income for
the first quarter of 1999 reflecting the increase in gross profit and decrease
in selling, administrative and product development expenses. Operating income as
a percentage of net sales increased to 11.9% in the first quarter of 2000 from
9.7% in the first quarter of 1999.
Interest expense. Interest expense for the first quarter of 1999 was
$4.4 million, which was equal to interest expense for the first quarter of 1999.
In the first quarter of 2000, lower interest expense resulting form reduced
average borrowings was offset by higher interest rates charged on the Company's
variable rate indebtedness.
Foreign currency loss. Foreign currency loss in the first quarter of
2000 was $3.5 million, compared to a foreign currency loss of $4.0 million in
the first quarter of 1999. The Company's foreign currency loss is primarily
related to the debt of Brink which has indebtedness denominated in U.S. Dollars
including intercompany debt and substantially all outstanding loans under the
Company's Second Amended and Restated Credit Agreement. During the first quarter
of 2000 and the first quarter of 1999 the U.S. Dollar strengthened significantly
in relation to the Dutch Guilder, the functional currency of Brink. At December
31, 1999, the exchange rate of the Dutch Guilder to the U.S. Dollar was 2.19:1,
whereas at March 31, 2000 the exchange rate was 2.30:1, or a 5.0% decline in the
relative value of the Dutch Guilder. At December 31, 1998, the exchange rate of
the Dutch Guilder to the U.S. Dollar was 1.88:1, whereas at March 31, 1999 the
exchange rate was 2.04:1, or an 8.6% decline in the relative value of the Dutch
Guilder during the quarter.
Other expense. In February 1996 the Company commenced an action against
certain individuals alleging breach of contract under the terms of an October
1992 Purchase Agreement and Employment Agreement with the predecessor of the
Company. The individuals then filed a separate lawsuit against the Company
alleging breach of contract under the respective Purchase and Employment
agreements. On May 7, 1999 a jury in the United States District Court for the
Eastern District of Michigan reached a verdict against the Company and awarded
the individuals approximately $3.8 million plus interest and reasonable attorney
fees. The Company plans to file an appeal once a judgment, expected during the
second or third quarter, is made by the count. During the first quarter of 1999,
the Company increased its estimated accrual for this matter by $2.0 million
which charge is included in other expense. No amounts have been paid as of March
31, 2000.
Benefit for income taxes. The Company and certain of its domestic
subsidiaries have elected to be taxed as limited liability companies for federal
income tax purposes. As a result of this election, the Company's domestic
taxable income accrues to the individual members. Certain of the Company's
domestic subsidiaries and foreign subsidiaries are subject to income taxes in
their respective jurisdictions. During the first quarter of 2000, the Company
had a loss before income taxes for its taxable subsidiaries totaling $2.7
million and recorded a benefit for income taxes of $1.1 million. The effective
tax rate differs from the U.S. federal income tax rate primarily due to changes
in valuation allowances on the deferred tax assets of SportRack International
recorded during 2000 and differences in the tax rates of foreign countries.
During the first quarter of 1999, the Company had a loss before income taxes for
its taxable subsidiaries totaling $3.1 million and recorded a benefit for income
taxes of $978,000.
Net income (loss). Net income for the first quarter of 2000 was $3.6
million, as compared to a net loss of $(1.8) million in the first quarter of
1999, a change of $5.5 million. The change in net income (loss) is primarily
attributable increased operating income and decrease in other expenses recorded
in the first quarter of 2000.
12
<PAGE> 15
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
LIQUITY 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 March 31, 2000 was $175.5 million including current maturities
of $11.4 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>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Working Capital........................................ $ 39,104 $ 36,825
<CAPTION>
FIRST QUARTER
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows provided by operating activities........... $ 2,915 $ 929
Cash flows (used for) investing activities............. $ (4,737) $ (2,592)
Cash flows (used for) financing activities............. $ (3,940) $ (1,838)
</TABLE>
Working capital
Working capital increased by $2.3 million to $39.1 million at March 31,
2000 from $36.8 million at December 31, 1999 due to a increases in accounts
receivable and inventory of $13.7 million and $2.7 million, respectively, and a
decrease in the current portion of long term debt of $1.1 million. These were
offset by increases in accounts payable and accrued liabilities of $8.2 million
and $2.1 million, respectively, and a $5.4 million decrease in cash. Increases
in accounts receivable and inventory were attributable to increased sales levels
in the first quarter of 2000 as compared with the fourth quarter of 1999.
Increases in accounts payable and accrued liabilities during the quarter
reflected increased purchasing activities to support the increased sales volume.
Cash decreased by $5.4 million to $3.3 million at March 31, 2000 from
$8.7 million at December 31, 1999 primarily due to cash used for investing and
financing activities of $4.7 million and $3.9 million, respectively, partially
offset by cash provided by operating activities of $2.9 million. Accounts
payable increased primarily due to increased raw material purchases during the
first quarter of 2000 as compared with the fourth quarter of 1999 to support
higher sales levels. Differences in sales levels between the two consecutive
quarters are partly due to seasonal cycles. Accrued liabilities increased as a
result increase of $3.0 million in accrued interest for the Company's Notes as
compared with amounts recorded as of December 31, 1999. The current portion of
long term debt decreased as two scheduled payments under the Acquisition
Revolving Note became due in the first quarter of 2000.
13
<PAGE> 16
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Operating Activities
Cash flow provided by operating activities for the first quarter of
2000 was $2.9 million, compared to $929,000 in the first quarter of 1999. Cash
flow for the first quarter of 2000 increased primarily due to greater operating
income during the first quarter of 2000 compared with the first quarter of 1999.
Investing Activities
During the first quarter of 2000 and 1999, investing cash flows include
acquisitions of property and equipment of $3.2 million and $2.6 million,
respectively and were primarily for the expansion of capacity, productivity and
process improvements and maintenance. The Company's ability to make capital
expenditures is subject to restrictions in the U.S. Credit Facility, including a
maximum of $12.5 million of capital expenditures annually.
Investing cash flows for the first quarter of 2000 also included $1.5
million paid to acquire the net assets of Titan Industries, Inc. on February 22,
2000.
Financing Activities
During the first quarter of 2000 and 1999, financing cash flows
included scheduled payments of principal on the Company's term indebtedness of
$4.0 million and $1.1 million, respectively. Distributions to members,
representing amounts sufficient to meet the tax liability on the Company's
domestic taxable income which accrues to individual members, were $1.0 million
for the first quarter of 2000 and $787,000 during the first quarter of 1999.
Financing cash flows during the first quarter of 1999 also included net
borrowings under the company's revolving loans of $1.1 million. No revolving
loans were outstanding at either the beginning or end of the first quarter of
1999.
DEBT AND CREDIT SOURCES
The Company's indebtedness was $175.5 million and $178.5 million at
March 31, 2000 and December 31, 1999, respectively. The Company expects that its
primary sources of cash will be from operating activities and borrowings under
its revolving credit facilities. As of March 31, 2000, the Company had
borrowings under the revolving credit facilities totaling $1.1 million and had
$17.9 million of available borrowing capacity. Borrowing availability was
reduced by a $6.0 million outstanding letter of credit issued to benefit
plaintiffs in a lawsuit against the Company. See "Managements Discussion and
Analysis" and the "Notes to the Financial Statements" for further discussion
regarding this lawsuit. As of March 31, 2000, the Company was in compliance with
the various covenants under the debt agreements pursuant to which it has
borrowed or may borrow money and believes the Company will remain in compliance
with such covenants through the period ending March 31, 2001. Management
believes that, based on current and expected levels of operations, cash flows
from operations and borrowings under the Revolving Credit Facilities will be
sufficient to fund its debt service requirements, working capital needs, and
capital expenditures for the foreseeable future, although no assurances can be
given in this regard.
The Company's ability to satisfy its debt obligations will depend upon
its future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under its current or successor credit facilities. The Company anticipates that,
based on current and expected levels of operations, its operating cash flow,
together with borrowings under the U.S. Credit Facility and the Canadian Credit
Facility, should be sufficient to meet its debt service, working capital and
capital expenditure requirements for the foreseeable future, although no
assurances can be given in this regard, including as to the ability to increase
revenues or profit margins. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
acquisitions and/or capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There is no
assurance that any of these remedies can be effected on satisfactory terms, if
at all, including, whether, and on what terms, the Company could raise equity
capital.
14
<PAGE> 17
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
Poland, Spain and, Italy. Net sales from international operations during the
first quarter 2000 were approximately $25.3 million, or 29.8% of the Company's
net sales. At March 31, 2000, assets associated with these operations were
approximately 37.7% of total assets, and the Company had indebtedness
denominated in currencies other than the U.S. Dollar of approximately $9.7
million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most 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 March 31, 2000 and does not use derivative financial instruments for
trading or speculative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities"("FAS 133"). The 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 ("EITF") issued 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 has adopted the issue for the first quarter of 2000 which has not
had a material impact on the Company's results of operations.
SUBSEQUENT EVENT
One of the Company's significant OEM customers announced on May 5, 2000 that
it will be voluntarily recalling approximately 380,000 trucks to replace or
reinforce their trailer hitches, which were supplied by the Company. The recall
affects 1998-2000 model year vehicles built between January 1998 and September
1999. The Company is in the process of working with its customer to provide
technical and other support in response to the recall. Management can not
estimate at this time what the financial impact would be to the Company, if
any, as a result of the recall.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
15
<PAGE> 18
ADVANCED ACCESSORY SYSTEMS, LLC
PART II. OTHER INFORMATION AND SIGNATURE
Item 1. Legal Proceedings
See "Note 2" of the Company's "Notes to Consolidated Condensed
Financial Statements"
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-holders
None
Items 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE> 19
ADVANCED ACCESSORY SYSTEMS, LLC
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED ACCESSORY SYSTEMS, LLC
(Registrant)
Date: May 9, 2000 /s/ BARRY G. STEELE
--------------------------------------------
Barry G. Steele
Corporate Controller
(chief accounting officer
and authorized signatory)
17
<PAGE> 20
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,291
<SECURITIES> 0
<RECEIVABLES> 60,204
<ALLOWANCES> 4,717
<INVENTORY> 40,420
<CURRENT-ASSETS> 111,473
<PP&E> 58,994
<DEPRECIATION> 26,437
<TOTAL-ASSETS> 260,602
<CURRENT-LIABILITIES> 72,369
<BONDS> 175,507
0
0
<COMMON> 0
<OTHER-SE> 13,241
<TOTAL-LIABILITY-AND-EQUITY> 260,602
<SALES> 84,994
<TOTAL-REVENUES> 84,994
<CGS> 61,800
<TOTAL-COSTS> 61,800
<OTHER-EXPENSES> 13,113
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 4,421
<INCOME-PRETAX> 2,511
<INCOME-TAX> (1,112)
<INCOME-CONTINUING> 3,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,623
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
