-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WbbjK0dArPm6B0hY6Tp2Acn0ldnZZ8Lk7H/dPXXWuFJKZujcbsBFqe0rUyFQWYE2 Kl6eYeaUeZ3Go4Do4rGOiQ== /in/edgar/work/20000814/0000950124-00-004987/0000950124-00-004987.txt : 20000921 0000950124-00-004987.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950124-00-004987 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED ACCESSORY SYSTEMS LLC CENTRAL INDEX KEY: 0001057836 STANDARD INDUSTRIAL CLASSIFICATION: [3714 ] IRS NUMBER: 133848156 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49011 FILM NUMBER: 696061 BUSINESS ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 BUSINESS PHONE: 8109972900 MAIL ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 10-Q 1 e10-q.txt FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to --------------- ---------------- -------------- COMMISSION FILE NUMBER 333-49011 ----------------------- -------------- [ADVANCED ACCESSORY SYSTEMS, LLC. LOGO] ADVANCED ACCESSORY SYSTEMS, LLC. (Exact name of Registrant as specified in its Charter) DELAWARE 13-3848156 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313 (Address of principal executive offices) (Zip Code) (810) 997-2900 (Telephone Number) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No ================================================================================ 2 ADVANCED ACCESSORY SYSTEMS, LLC INDEX Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets as of 1 June 30, 2000 and December 31, 1999 Consolidated Condensed Statements of Income 2 for the Three and Six Months Ended June 30, 2000 and 1999 Consolidated Condensed Statements of 3 Cash Flows for the Six Months Ended June 30, 2000 and 1999 Consolidated Condensed Statement of Changes 4 in Members' Equity for the Six Months Ended June 30, 2000 Notes to Consolidated Condensed Financial 5 Statements Item 2. Management's Discussion and Analysis of 12 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 18 Market Risk Part II. Other Information and Signature Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of 18 Security-holders Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signature 19 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
June 30, December 31, 2000 1999 ASSETS (Unaudited) Current assets Cash $ 4,617 $ 8,718 Accounts receivable, less reserves of $4,657 and $4,997, respectively 62,528 46,918 Inventories Finished goods 13,108 15,523 Work-in-process 11,065 9,871 Raw materials 14,530 13,043 ------------- -------------- Total inventory 38,703 38,437 Deferred income taxes 2,120 1,804 Other current assets 7,434 4,879 ------------- -------------- Total current assets 115,402 100,756 Property and equipment, net 58,599 59,316 Goodwill, net 79,244 80,674 Other intangible assets, net 5,115 5,729 Deferred income taxes 1,868 1,922 Other noncurrent assets 2,749 2,816 ------------- -------------- $ 262,977 $ 251,213 ============= ============== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt $ 11,591 $ 12,449 Accounts payable 33,143 26,715 Accrued liabilities 26,071 24,767 ------------- -------------- Total current liabilities 70,805 63,931 ------------- -------------- Noncurrent liabilities Deferred income taxes 1,532 1,772 Other noncurrent liabilities 4,450 4,320 Long-term debt, less current maturities 164,889 166,049 ------------- -------------- Total noncurrent liabilities 170,871 172,141 ------------- -------------- Mandatorily redeemable warrants 4,960 4,810 ------------- -------------- Members' equity Class A Units 17,998 18,083 Other comprehensive loss (1,009) (1,496) Accumulated deficit (648) (6,256) ------------- -------------- 16,341 10,331 ------------- -------------- $ 262,977 $ 251,213 ============= ==============
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 4 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (DOLLARS IN THOUSANDS) (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Net sales $ 92,448 $ 89,572 $ 177,442 $ 167,607 Cost of sales 66,535 63,229 128,335 119,470 ------------- ------------- ------------- -------------- Gross profit 25,913 26,343 49,107 48,137 Selling, administrative and product development expenses 11,571 13,022 23,898 26,419 Amortization of intangible assets 726 779 1,512 1,568 ------------- ------------- ------------- -------------- Operating income 13,616 12,542 23,697 20,150 ------------- ------------- ------------- -------------- Other income (expense) Interest expense (4,542) (4,409) (8,963) (8,855) Foreign currency loss, net (490) (1,646) (3,954) (5,619) Other expense (316) -- (1) (2,000) ------------- ------------- ------------- -------------- Income before income taxes 8,268 6,487 10,779 3,676 Provision (benefit) for income taxes 1,120 847 8 (131) ------------- ------------- ------------- -------------- Net income $ 7,148 $ 5,640 $ 10,771 $ 3,807 ============= ============= ============= ==============
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 5 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (DOLLARS IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,771 $ 3,807 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,057 7,537 Loss on disposal of property and equipment 2 6 Deferred taxes (585) (1,957) Foreign currency loss 2,971 4,219 Changes in assets and liabilities, net (11,225) (9,812) ------------- -------------- Net cash provided by operating activities 8,991 3,800 ------------- -------------- CASH FLOWS USED FOR INVESTING ACTIVITIES: Acquisition of property and equipment (5,605) (6,100) Acquisition, net of cash acquired (1,515) -- ------------- -------------- Net cash used for investing activities (7,120) (6,100) ------------- -------------- CASH FLOWS USED FOR FINANCING ACTIVITIES: Net increase (reduction) in revolving loan 6,286 4,500 Collection on notes receivable for unit purchase 65 31 Payments on long-term debt (8,086) (5,537) Issuance of membership units -- 50 Repurchase of membership units -- (26) Distributions to members (5,163) (3,706) ------------- -------------- Net cash used for financing activities (6,898) (4,688) ------------- -------------- Effect of exchange rate changes 926 1,823 ------------- -------------- Net decrease in cash (4,101) (5,165) Cash at beginning of period 8,718 11,240 ------------- -------------- Cash at end of period $ 4,617 $ 6,075 ============= ==============
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 6 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED)
Other Total Class A comprehensive Accumulated members' Units loss deficit equity ------------- ------------- ------------- ------------- Balance at December 31, 1999 $ 18,083 $ (1,496) $ (6,256) $ 10,331 Collection on notes receivable for unit purchase 65 -- -- 65 Accretion of membership warrants (150) -- -- (150) Distributions to members -- -- (5,163) (5,163) Currency translation adjustment -- 487 -- 487 Net income -- -- 10,771 10,771 ------------- ------------- ------------- ------------- Balance at June 30, 2000 $ 17,998 $ (1,009) $ (648) $ 16,341 ============= ============= ============= =============
The accompanying notes are an integral part of the consolidated condensed financial statements. 4 7 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of June 30, 2000 and December 31, 1999 and the results of its operations for the three and six months ended June 30, 2000 and 1999 and its cash flows for the six months ended June 30, 2000 and 1999. These consolidated condensed financial statements should be read together with the Company's audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 22, 2000. 2. OTHER EXPENSE In February 1996 the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreement with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999 a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the company and awarded the individuals approximately $3,800 plus interest and reasonable attorney fees. The Company plans to file an appeal once a judgment, expected during the third quarter of 2000, is made by the court. The Company has issued a $6,350 letter of credit benefiting the plaintiffs pending the resolution of the matter. During the first quarter of 1999, the Company increased its estimated accrual for this matter by $2,000 which charge is included in other expense. No amounts have been paid as of June 30, 2000. 3. COMPREHENSIVE INCOME Comprehensive income for the second quarter of 2000 and 1999 of $7,261 and $5,069, respectively, and for the first half of 2000 and 1999 of $11,258 and $2,972, respectively, includes reported net income adjusted by the effect of changes in the cumulative translation adjustment. 4. SIGNIFICANT EVENT During the second quarter one of the Company's significant OEM customers recalled approximately 380,000 trucks to replace or reinforce their trailer hitches, which were supplied by the Company. The recall affects 1998-2000 model year vehicles built between January 1998 and September 1999. The Company is in the process of working with its customer to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact would be to the Company, if any, as a result of the recall. 5. CONDENSED CONSOLIDATING INFORMATION On October 1, 1997, the Company and its wholly-owned subsidiary, AAS Capital Corporation, issued and sold $125,000 of its 9 3/4 Senior Subordinated Notes due 2007 ("the Notes"). The Notes are guaranteed on a full, unconditional and joint and several basis by all of the Company's direct and indirect wholly-owned domestic subsidiaries. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of (i) the Company as parent, as if it accounted for its subsidiaries on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek, LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and include Brink International B.V. and its subsidiaries, SportRack International, Inc. and its subsidiary, and SportRack Automotive GmbH and its subsidiaries. The guarantor and non-guarantor subsidiaries for the three and six months ended June 30, 2000 and 1999 have been allocated a portion of certain corporate overhead costs on a basis consistent with each subsidiary's relative business activity and interest on intercompany debt balances. Separate financial statements of the guarantor subsidiaries are not presented because management has determined that the separate financial statements are not material to investors. Since its formation in September 1997, AAS Capital Corporation has had no operations and has no assets or liabilities at June 30, 2000. 5 8 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------ --------------- ------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash................................... $ 498 $ 39 $ 4,080 $ -- $ 4,617 Accounts receivable.................... -- 39,416 23,112 -- 62,528 Inventories............................ -- 17,152 21,551 -- 38,703 Other current assets................... 37 6,187 3,330 -- 9,554 ------------ ----------- ----------- ----------- ---------- Total current assets.............. 535 62,794 52,073 -- 115,402 ------------ ----------- ----------- ----------- ---------- Property and equipment, net.............. -- 34,428 24,171 -- 58,599 Goodwill, net............................ 1,045 57,242 20,957 -- 79,244 Intangible assets, net................... 4,200 180 735 -- 5,115 Deferred income taxes and other noncurrent assets...................... 93 2,036 2,488 -- 4,617 Investment in subsidiaries............... 57,243 9,955 -- (67,198) -- Intercompany notes receivable............ 97,176 -- -- (97,176) -- ------------ ----------- ----------- ----------- ---------- Total Assets...................... $ 160,292 $ 166,635 $ 100,424 $ (164,374) $ 262,977 ============ =========== =========== =========== ========== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt... $ -- $ -- $ 11,591 $ -- $ 11,591 Accounts payable....................... -- 22,754 10,389 -- 33,143 Accrued liabilities and deferred income taxes......................... 5,418 8,564 12,089 -- 26,071 ------------ ----------- ----------- ----------- ---------- Total current liabilities......... 5,418 31,318 34,069 -- 70,805 ------------ ----------- ----------- ----------- ---------- Deferred income taxes and other noncurrent liabilities................. 1,778 696 3,508 -- 5,982 Long-term debt, less current maturities.. 130,901 -- 33,988 -- 164,889 Intercompany debt........................ -- 53,596 43,580 (97,176) -- Mandatorily redeemable warrants.......... 4,960 -- -- -- 4,960 Members' equity.......................... 17,235 81,025 (14,721) (67,198) 16,341 ------------ ----------- ----------- ----------- ---------- Total liabilities and members' equity............................ $ 160,292 $ 166,635 $ 100,424 $ (164,374) $ 262,977 ============ =========== =========== =========== ==========
6 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
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------ --------------- ------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash................................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718 Accounts receivable.................... -- 32,087 14,831 -- 46,918 Inventories............................ -- 16,361 22,076 -- 38,437 Other current assets................... 13 3,724 2,946 -- 6,683 ------------ ----------- ----------- ----------- ---------- Total current assets.............. 13 57,641 43,102 -- 100,756 ------------ ----------- ----------- ----------- ---------- Property and equipment, net.............. -- 32,014 27,302 -- 59,316 Goodwill, net............................ 1,065 57,100 22,509 -- 80,674 Intangible assets, net................... 4,423 390 916 -- 5,729 Deferred income taxes and other noncurrent assets...................... 93 1,988 2,657 -- 4,738 Investment in subsidiaries............... 43,065 9,955 -- (53,020) -- Intercompany notes receivable............ 99,537 -- -- (99,537) -- ------------ ----------- ----------- ------------ ---------- Total Assets...................... $ 148,196 $ 159,088 $ 96,486 $ (152,557) $ 251,213 ============ =========== =========== =========== ========== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt... $ -- $ -- $ 12,449 $ -- $ 12,449 Accounts payable....................... -- 18,090 8,625 -- 26,715 Accrued liabilities and deferred income taxes......................... 5,524 9,231 10,012 -- 24,767 ------------ ----------- ----------- ----------- ---------- Total current liabilities......... 5,524 27,321 31,086 -- 63,931 ------------ ----------- ----------- ----------- ---------- Deferred income taxes and other noncurrent liabilities................. 1,553 608 3,931 -- 6,092 Long-term debt, less current maturities.. 124,597 -- 41,452 -- 166,049 Intercompany debt........................ -- 64,189 35,348 (99,537) -- Mandatorily redeemable warrants.......... 4,810 -- -- -- 4,810 Members' equity.......................... 11,712 66,970 (15,331) (53,020) 10,331 ------------ ----------- ----------- ----------- ---------- Total liabilities and members' equity............................ $ 148,196 $ 159,088 $ 96,486 $ (152,557) $ 251,213 ============ =========== =========== ========== ==========
7 10 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------ ----------------- ----------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 63,538 $ 28,910 $ -- $ 92,448 Cost of sales............................ -- 48,110 18,425 -- 66,535 ------------ ---------- ----------- ---------- ---------- Gross profit........................... -- 15,428 10,485 -- 25,913 Selling, administrative and product development expenses................... 142 6,276 5,153 -- 11,571 Amortization of intangible assets........ 9 528 189 -- 726 ------------ ---------- ----------- ---------- ---------- Operating income (loss)................ (151) 8,624 5,143 -- 13,616 Interest expense......................... 1,514 1,189 1,839 -- 4,542 Equity in income of subsidiaries......... 8,813 -- -- (8,813) -- Foreign currency loss.................... -- -- 490 -- 490 Other income (expense)................... -- (309) (7) -- (316) ------------ ---------- ----------- ---------- ---------- Income before income taxes............... 7,148 7,126 2,807 (8,813) 8,268 Provision for income taxes............... -- -- 1,120 -- 1,120 ------------ ---------- ----------- ---------- ---------- Net income............................... $ 7,148 $ 7,126 $ 1,687 $ (8,813) $ 7,148 ============ ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ---------- ------------ --------------- ------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 57,310 $ 32,262 $ -- $ 89,572 Cost of sales............................ -- 42,208 21,021 -- 63,229 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 15,102 11,241 -- 26,343 Selling, administrative and product development expenses................... 369 6,263 6,390 -- 13,022 Amortization of intangible assets........ 10 549 220 -- 779 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (379) 8,290 4,631 -- 12,542 Interest expense......................... 728 1,823 1,858 -- 4,409 Equity in income of subsidiaries......... 8,703 -- -- (8,703) -- Foreign currency loss.................... -- -- 1,646 -- 1,646 ---------- ---------- ----------- ---------- ---------- Income before income taxes............... 7,596 6,467 1,127 (8,703) 6,487 Provision for income taxes............... -- -- 847 -- 847 ---------- ---------- ----------- ---------- ---------- Net income............................... $ 7,596 $ 6,467 $ 280 $ (8,703) $ 5,640 ========== ========== =========== ========== ==========
8 11 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------- ------------ ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 123,218 $ 54,224 $ -- $ 177,442 Cost of sales............................ -- 92,748 35,587 -- 128,335 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 30,470 18,637 -- 49,107 Selling, administrative and product development expenses................... 492 12,664 10,742 -- 23,898 Amortization of intangible assets........ 18 1,098 396 -- 1,512 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (510) 16,708 7,499 -- 23,697 Interest expense......................... 2,897 2,344 3,722 -- 8,963 Equity in income of subsidiaries......... 14,178 -- -- (14,178) -- Foreign currency loss.................... -- -- 3,954 -- 3,954 Other income (expense)................... -- (309) 308 -- (1) ---------- ---------- ----------- ---------- ---------- Income before income taxes............... 10,771 14,055 131 (14,178) 10,779 Provision for income taxes............... -- -- 8 -- 8 ---------- ---------- ----------- ---------- ---------- Net income............................... $ 10,771 $ 14,055 $ 123 $ (14,178) $ 10,771 ========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------- ------------ ---------------- ------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 110,150 $ 57,457 $ -- $ 167,607 Cost of sales............................ -- 81,426 38,044 -- 119,470 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 28,724 19,413 -- 48,137 Selling, administrative and product development expenses................... 1,505 13,041 11,873 -- 26,419 Amortization of intangible assets........ 20 1,098 450 -- 1,568 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,525) 14,585 7,090 -- 20,150 Interest expense......................... 2,435 2,953 3,467 -- 8,855 Equity in income (loss) of subsidiaries.. 9,767 -- -- (9,767) -- Foreign currency loss.................... -- -- 5,619 -- 5,619 Other income (expense)................... (2,000) -- -- -- (2,000) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 3,807 11,632 (1,996) (9,767) 3,676 Provision (benefit) for income taxes..... -- -- (131) -- (131) ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 3,807 $ 11,632 $ (1,865) $ (9,767) $ 3,807 ========== ========== =========== ========== ==========
9 12 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------ ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net cash provided by (used for) operating activities................................ $ (3,051) $ 11,415 $ 627 $ -- $ 8,991 ---------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment............................... -- (4,737) (868) -- (5,605) Acquisition, net of cash acquired equipment............................... -- (1,515) -- -- (1,515) ---------- --------- ---------- ---------- ---------- Net cash used for investing activities.. -- (6,252) (868) -- (7,120) ---------- --------- ---------- ---------- ---------- Cash flows from financing activities: Change in intercompany debt............... 2,361 (10,593) 8,232 -- -- Increase in revolving loan................ 6,286 -- -- -- 6,286 Collection on notes receivable for unit purchase................................ 65 -- -- -- 65 Repayment of debt......................... -- -- (8,086) -- (8,086) Distributions to members.................. (5,163) -- -- -- (5,163) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities.................. 3,549 (10,593) 146 -- (6,898) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes............. -- -- 926 -- 926 ---------- --------- ---------- ---------- ---------- Net increase (decrease) in cash............. 498 (5,430) 831 -- (4,101) Cash at beginning of period................. -- 5,469 3,249 -- 8,718 ---------- --------- ---------- ---------- ---------- Cash at end of period....................... $ 498 $ 39 $ 4,080 $ -- $ 4,617 ========== ========= ========== ========== ==========
10 13 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ----------- ------------ ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net cash provided by (used for) operating activities.............................. $ -- $ 8,338 $ (4,538) $ -- $ 3,800 ---------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment............................. -- (3,994) (2,106) -- (6,100) ---------- --------- ---------- ---------- ---------- Net cash used for investing activities -- (3,994) (2,106) -- (6,100) ---------- --------- ---------- ---------- ---------- Cash flows from financing activities: Change in intercompany debt............. (849) (6,029) 10,584 (3,706) -- Increase in revolving loan.............. 4,500 -- -- -- 4,500 Collection on notes receivable for unit purchase.............................. 31 -- -- -- 31 Repayment of debt....................... -- -- (5,537) -- (5,537) Issuance of membership units............ 50 -- -- -- 50 Repurchase of membership units.......... (26) -- -- -- (26) Distributions to members................ (3,706) (3,706) -- 3,706 (3,706) ---------- --------- ---------- ---------- ---------- Net cash provided by financing activities.......................... -- (9,735) 5,047 -- (4,688) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes........... -- -- 1,823 -- 1,823 ---------- --------- ---------- ---------- ---------- Net increase (decrease) in cash........... -- (5,391) 226 -- (5,165) Cash at beginning of period............... -- 5,636 5,604 -- 11,240 ---------- --------- ---------- ---------- ---------- Cash at end of period..................... $ -- $ 245 $ 5,830 $ -- $ 6,075 ========== ========= ========== ========== ==========
11 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the financial statements and notes thereto of the Company included elsewhere in this Form 10-Q. Discussions containing forward-looking statements may be found in the material set forth below. These may include statements projecting, forecasting or estimating Company performance and industry trends. General risks that may impact the achievement of such forecasts include, but are not limited to: compliance with new laws and regulations, general economic conditions in the markets in which the Company operates, fluctuation in demand for the Company's products, significant raw material price fluctuations, and other business factors. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements. All of these forward-looking statements are based on estimates and assumptions made by management of the Company which, although believed to be reasonable, are inherently uncertain. The Company does not intend to update these forward-looking statements. GENERAL Chase Capital Partners and certain members of the Company's management formed the Company in September 1995 to make strategic acquisitions of automotive exterior accessory manufacturers and to integrate those acquisitions into a global enterprise that would be a preferred supplier to the automotive industry. In September 1995, the Company, through its SportRack, LLC subsidiary ("SportRack"), acquired substantially all of the net assets of the MascoTech Accessories division of MascoTech, Inc., a North American supplier of rack systems and accessories to the automotive original equipment manufacturers ("OEM") market and aftermarket. In October 1996, the Company acquired all of the capital stock of Brink B.V., a private company with limited liability incorporated under the laws of The Netherlands and a European supplier of towing systems and accessories to the automotive OEM market and aftermarket. In December 1996, ownership of Brink B.V. and its subsidiaries was transferred to a newly formed subsidiary of the Company, Brink International B.V. ("Brink"). In August 1997, the Company formed Valley Industries, LLC to acquire the net assets of Valley Industries, Inc. ("Valley"), a North American supplier of towing systems and accessories to the automotive OEM market and aftermarket. Two smaller acquisitions were completed in July 1997 by a subsidiary of SportRack, SportRack International, Inc. SportRack International acquired from Bell Sports Corporation the net assets of its sportrack division, a Canadian supplier of rack systems and accessories to the automotive aftermarket. SportRack International also acquired the capital stock of Nomadic Sports, Inc., a Canadian supplier of rack systems and accessories to the automotive OEM market and aftermarket. In January 1998, the Company through Brink, acquired the net assets of the towbar segment Ellebi S.p.A., an Italian supplier of towing systems to the automotive OEM market and aftermarket. In February 1998, the Company through SportRack International, Inc., acquired the net assets of Transfo-Rakzs, a Canadian supplier of rear hitch rack carrying systems and related products to the automotive aftermarket. In February 2000, the Company through Valley, acquired the net assets of Titan Industries, Inc. ("Titan"). Titan is a North American Supplier of trailer balls and other towing related accessories to the automotive aftermarket. In each instance, the acquisition was accounted for in accordance with the purchase method of accounting and the operating results of the acquired company have been included in the Company's consolidated financial statements since the date of the respective acquisition. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999. Net Sales. Net sales for the second quarter of 2000 were $92.4 million, representing an increase of $2.9 million, or 3.2%, over net sales for the second quarter of 1999. This increase resulted primarily from increased sales to OEMs of approximately $5.7 million and continued aftermarket sales growth of $486,000. Offsetting the Company's increased sales volume was the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries totaling $3.1 million. For example the average value of the Dutch Guilder, the functional currency of Brink, as compared to the U.S. Dollar declined by 11.6% during the second quarter of 2000 as compared to the second quarter of 1999 resulting in a similar decrease in sales as reported in U.S. Dollars. 12 15 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 Gross Profit. Gross profit for the second quarter of 2000 was $25.9 million, representing a decrease of $430,000, or 1.6%, over the gross profit for the second quarter of 1999. Gross profit as a percentage of net sales was 28.0% in the second quarter of 2000 compared to 29.4% in the second quarter of 1999. The decrease in the gross margin percentage is attributable to decreased productivity and higher costs associated with increased outsourcing of component parts for the North American OEM towing business and proportionately lower sales for Brink which has a greater gross margin percentage as compared with the Company as a whole. Reduced sales for Brink are attributable to the decline in the exchange rate between the Dutch Guilder and the U.S. Dollar for the second quarter of 2000 compared with the second quarter of 1999. Selling, administrative and product development expenses. Selling, administrative and product development expenses for the second quarter of 2000 were $11.6 million, representing a decrease of $1.5 million, or 11.1%, compared with the selling, administrative and product development expenses for the second quarter of 1999. Selling, administrative and product development expenses as a percentage of net sales decreased to 12.5% in the second quarter of 2000 from 14.5% in the second quarter of 1999. This decrease is the result of reduced corporate expenditures and proportionately lower sales of Brink which has greater selling, administrative and product development expenses as a percentage of sales as compared with the Company as a whole. Operating income. Operating income for the second quarter of 2000 was $13.6 million, an increase of $1.1 million, or 8.6%, over operating income for the second quarter of 1999 due to decreased selling, administrative and product development expenses offset partially by decreased gross profit. Operating income as a percentage of net sales increased to 14.7% in the second quarter of 2000 from 14.0% in the second quarter of 1999. Interest expense. Interest expense for the second quarter of 2000 was $4.5 million, an increase of $133,000, or 3.0%, over interest expense for the second quarter of 1999. The increase was primarily due to higher interest rates on the Company's variable rate debt and higher average line of credit borrowings during the second quarter of 2000 as compared with the second quarter of 1999 offset by lower outstanding senior indebtedness attributable to scheduled principal payments made since the second quarter of 1999. Foreign currency loss. Foreign currency loss in the second quarter of 2000 was $490,000, compared to a foreign currency loss of $1.6 million in the second quarter of 1999. The Company's foreign currency loss is primarily related to Brink which has indebtedness denominated in U.S. Dollars. During the second quarter of 1999 the U.S. Dollar strengthened significantly in relation to the Dutch Guilder, the functional currency of Brink. In the second quarter of 2000, the relationship between the two currencies was less volatile. At March 31, 1999, the exchange rate of the Dutch Guilder to the U.S. Dollar was 2.04:1, whereas at June 30, 1999 the exchange rate was 2.14:1, or a 4.9% decline in the relative value of the Dutch Guilder. At March 31, 2000, the exchange rate of the Dutch Guilder to the U.S. Dollar was 2.30:1, whereas at June 30, 2000 the exchange rate was 2.31:1, or a 0.2% decrease in the relative value of the Dutch Guilder during the quarter. Provision for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During the second quarter of 2000, the Company had income before income taxes for its taxable subsidiaries totaling $2.8 million and recorded a provision for income taxes of $1.1 million. The effective tax rate differs from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack International and differences in the tax rates of foreign countries. During the second quarter of 1999, the Company had income before income taxes for its taxable subsidiaries totaling $1.1 million and recorded a provision for income taxes of $847,000. Net income. Net income for the second quarter of 2000 was $7.1 million, as compared to net income of $5.6 million in the second quarter of 1999, an increase of $1.5 million. The change in net income is primarily attributable to increased operating income and decreased foreign currency loss in the second quarter of 2000 offset by an increased provision for income taxes. SIX MONTHS ENDED JUNE 31, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999. Net Sales. Net sales for the first half of 2000 were $177.4 million, representing an increase of $9.8 million, or 5.9%, over net sales for the first half of 1999. This increase resulted primarily from increased sales to OEMs of approximately $13.9 million and growth in aftermarket sales of $2.1 million. Offsetting the Company's increased sales volume was the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries totaling $6.0 million. For example the average value of the Dutch Guilder, the functional currency of Brink, as compared to the U.S. Dollar declined by 11.8% during the first half of 2000 as compared to the first half of 1999 resulting in a similar decrease in sales as reported in U.S. Dollars. 13 16 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 Gross Profit. Gross profit for the first half of 2000 was $49.1 million, representing an increase of $970,000, or 2.0%, over the gross profit for the first half of 1999. Gross profit as a percentage of net sales was 27.7% in the first half of 2000 compared to 28.7% in the first half of 1999. The decrease in the gross margin percentage is attributable to decreased productivity and higher costs associated with increased outsourcing of component parts for the North American OEM towing business, the mix of products sold being weighted more toward lower margin products than in the prior year and proportionately lower sales for Brink which has a greater gross margin percentage as compared with the Company as a whole. Reduced sales for Brink are attributable to the decline in the exchange rate between the Dutch Guilder and the U.S. Dollar for the first half of 2000 compared with the first half of 1999. Selling, administrative and product development expenses. Selling, administrative and product development expenses for the first half of 2000 were $23.9 million, representing a decrease of $2.5 million, or 9.5%, compared with the selling, administrative and product development expenses for the first half of 1999. Selling, administrative and product development expenses as a percentage of net sales decreased to 13.5% in the first half of 2000 from 15.8% in the first half of 1999. This decrease is the result of reduced corporate expenditures including severance compensation recorded during the first quarter of 1999 related to the departure of the Company's former President and Chief Executive Officer and proportionately lower sales of Brink which has greater selling, administrative and product development expenses as a percentage of sales as compared with the Company as a whole. Operating income. Operating income for the first half of 2000 was $23.7 million, an increase of $3.5 million, or 17.6%, over operating income for the first half of 1999. Operating income as a percentage of net sales increased to 13.4% in the first half of 2000 from12.0% in the first half of 1999. Interest expense. Interest expense for the first half of 2000 was $9.0 million which was slightly greater than interest expense for the first half of 1999. The effect of reduced average borrowings during the first half of 2000 as compared with the first half of 1999 was offset by higher interest rates charged on the Company's variable rate indebtedness. Foreign currency loss. Foreign currency loss in the first half of 2000 was $4.0 million, compared to a foreign currency loss of $5.6 million in the first half of 1999. The Company's foreign currency loss is primarily related to the Brink which has indebtedness denominated in U.S. Dollars. During the first half of 2000 the U.S. Dollar strengthened significantly in relation to the Dutch Guilder, the functional currency of Brink. At December 31, 1998, the exchange rate of the Dutch Guilder to the U.S. Dollar was 1.88:1, whereas at June 30, 1999 the exchange rate was 2.14:1, or a 13.8% decline in the relative value of the Dutch Guilder. In the first half of 2000, the relationship between the two currencies was less volatile. At December 31, 1999, the exchange rate of the Dutch Guilder to the U.S. Dollar was 2.19:1, whereas at June 30, 2000 the exchange rate was 2.31:1, or a 5.5% decline in the relative value of the Dutch Guilder during the quarter. Other expense. In February 1996 the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreement with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999 a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the Company and awarded the individuals approximately $3.8 million plus interest and reasonable attorney fees. The Company plans to file an appeal once a judgment, expected during the third quarter, is made by the court. During the First quarter of 1999, the Company increased its estimated accrual for this matter by $2.0 million which charge is included in other expense. No amounts have been paid as of June 30, 2000. Provision (Benefit) for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During the first half of 2000, the Company had a loss before income taxes for its taxable subsidiaries totaling $131,000 and recorded a provision for income taxes of $8,000. The effective tax rate differs from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack International and differences in the tax rates of foreign countries. During the first half of 1999, the Company had a loss before income taxes for its taxable subsidiaries totaling $2.0 million and recorded a benefit for income taxes of $131,000. Net income. Net income for the first half of 2000 was $10.8 million, as compared to net income of $3.8 million in the first half of 1999, an increase of $7.0 million. The increase in net income is primarily attributable to increased operating income, a decreased foreign currency loss and the other expense recorded in the first half of 1999. 14 17 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are to service its debt and meet its working capital and capital expenditure needs. The Company's indebtedness at June 30, 2000 was $176.5 million including current maturities of $11.6 million. The Company expects to be able to meet its liquidity requirements through cash provided by operations and through borrowings available under the Second Amended and Restated Credit Agreement ("U.S. Credit Facility"). WORKING CAPITAL AND CASH FLOWS Working capital and key elements of the consolidated statement of cash flows are (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 --------- ------------ Working Capital........................................ $ 44,597 $ 36,825 FIRST HALF 2000 1999 --------- ---------- Cash flows provided by operating activities............ $ 8,991 $ 3,800 Cash flows (used for) investing activities............. $ (7,120) $ (6,100) Cash flows (used for) financing activities............. $ (6,898) $ (4,688)
Working capital Working capital increased by $7.8 million to $44.6 million at June 30, 2000 from $36.8 million at December 31, 1999 due to an increase in accounts receivable of $16.2 million, an increase in inventory of $1.2 million, an increase in other current assets of $2.8 million and a decrease in the current portion of long term debt of $858,000. Offsetting these was an increase in accounts payable of $8.2, a decrease in cash of $4.1 million and a decrease of $1.0 million related to a decrease in the exchange rate between the functional currencies of the Company's foreign subsidiaries and the U.S. Dollar. Cash decreased by $4.1 million to $4.6 million at June 30, 2000 from $9.0 million at December 31, 1999 primarily due to cash used for investing and financing activities of $7.1 million and $6.9 million, respectively, partially offset by cash provided by operating activities of $9.0 million. Increases in accounts receivable and inventory were attributable to increased sales levels in the second quarter of 2000 as compared with the fourth quarter of 1999. Accounts payable increased primarily due to increased raw material purchases during the second quarter of 2000 as compared with the fourth quarter of 1999 to support higher sales levels. The current portion of long term debt decreased as two scheduled payments under the Acquisition Note became due in the first quarter of 2000 compared with only one due in the third quarter of 2000. Operating Activities Cash flow provided by operating activities for the first half of 2000 was $9.0 million, compared to $3.8 million in the first half of 1999. This increase is attributable to higher net income for the first half of 2000 as compared with the first half of 1999 partially offset by an increased investment in working capital during the first half of 2000 as compared with the first half of 1999. 15 18 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 Investing Activities During the first half of 2000 and 1999, investing cash flows include acquisitions of property and equipment of $5.6 million and $6.1 million, respectively and were primarily for the expansion of capacity, productivity and process improvements and maintenance. The Company's ability to make capital expenditures is subject to restrictions in the U.S. Credit Facility, including a maximum of $12.5 million of capital expenditures annually. Investing cash flows for the first half of 2000 also include $1.5 million paid to acquire the net assets of Titan Industries, Inc. on February 22, 2000. Financing Activities During the first half of 2000 and 1999, financing cash flows included payments of principal on the Company's term indebtedness of $8.1 million and $5.5 million, respectively. Distributions to members, representing amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members, were $5.2 million and $3.7 million during the first half of 2000 and 1999, respectively. Financing cash flows during the first half of 2000 and 1999 also included net borrowings under the Company's revolving loans of $6.3 million and $4.5 million, respectively. DEBT AND CREDIT SOURCES The Company's indebtedness was $176.5 million and $178.5 million at June 30, 2000 and December 31, 1999, respectively. The Company expects that its primary sources of cash will be from operating activities and borrowings under its revolving credit facilities. As of June 30, 2000, the Company had borrowings of $6.3 million under the revolving credit facilities and had $12.4 million of available borrowing capacity. Borrowing availability was reduced by a $6.4 million outstanding letter of credit issued to benefit plaintiffs in a lawsuit against the Company. See "Managements Discussion and Analysis" and the "Notes to the Financial Statements" for further discussion regarding this lawsuit. As of June 30, 2000, the Company was in compliance with the various covenants under the debt agreements pursuant to which it has borrowed or may borrow money and believes the Company will remain in compliance with such covenants in all material respects through the period ending June 30, 2001. Management believes that, based on current and expected levels of operations, cash flows from operations and borrowings under the Revolving Credit Facilities will be sufficient to fund its debt service requirements, working capital needs, and capital expenditures for the foreseeable future, although no assurances can be given in this regard. The Company's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business, and other factors, certain of which are beyond its control, as well as the availability of revolving credit borrowings under its current or successor credit facilities. The Company anticipates that, based on current and expected levels of operations, its operating cash flow, together with borrowings under the U.S. Credit Facility and the Canadian Credit Facility, should be sufficient to meet its debt service, working capital and capital expenditure requirements for the foreseeable future, although no assurances can be given in this regard, including as to the ability to increase revenues or profit margins. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all, including, whether, and on what terms, the Company could raise equity capital. The Company conducts operations in several foreign countries including Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany, Poland, Spain, Czech Republic and, Italy. Net sales from international operations during the first half of 2000 were approximately $54.2 million, or 30.6% of the Company's net sales. At June 30, 2000, assets associated with these operations were approximately 38.2% of total assets, and the Company had indebtedness denominated in currencies other than the U.S. Dollar of approximately $8.9 million. The Company's international operations may be subject to volatility because of currency fluctuations, inflation and changes in political and economic conditions in these countries. Most of the revenues and costs and expenses of the Company's operations in these countries are denominated in the local currencies. The financial position and results of operations of the Company's foreign 16 19 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 subsidiaries are measured using the local currency as the functional currency. Certain of the Company's foreign subsidiaries have debt denominated in currencies other than their functional currency. As the exchange rates between the currency of the debt and the subsidiaries functional currency change the Company is subject to foreign currency gains and losses. The Company may periodically use foreign currency forward option contracts to offset the effects of exchange rate fluctuations on cash flows denominated in foreign currencies. The Company has no outstanding foreign currency forward options at June 30, 1999 and does not use derivative financial instruments for trading or speculative purposes. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"("FAS 133"). The Company plans to adopt this statement at the beginning of fiscal 2001. The Company is completing an analysis of FAS 133 which is not expected to have a material impact on the Company's results of operations. In September 1999, the Emerging Issues Task Force ("EITF") issued Issue No. 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements". EITF Issue No. 99-5 requires the company to expense design and development costs related to long term supply arrangements as incurred unless the customer contractually guarantees reimbursement and capitalize molds, tools and dies for which title is held by the supplier, subject to an impairment test. Additionally, molds, tools and dies for which title is held by the customer are to be expensed as incurred unless the long term supply arrangement explicitly provides the suppler with the non-cancelable right to use such molds, tools and dies during the course of the supply arrangement. This pronouncement is effective on a prospective basis for costs incurred after December 31, 1999. The Company has adopted the issue for the first quarter of 2000 which has not had a material impact on the Company's results of operations. SIGNIFICANT EVENT During the second quarter one of the Company's significant OEM customers recalled approximately 380,000 trucks to replace or reinforce their trailer hitches, which were supplied by the Company. The recall affects 1998-2000 model year vehicles built between January 1998 and September 1999. The Company is in the process of working with its customer to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact would be to the Company, if any, as a result of the recall. 17 20 ADVANCED ACCESSORY SYSTEMS, LLC Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable PART II. OTHER INFORMATION AND SIGNATURE Item 1. Legal Proceedings See "Note 2" of the Company's "Notes to Consolidated Condensed Financial Statements" Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security-holders None Items 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION ------------------ ----------------------- 27 Financial Data Schedule (b) Reports on Form 8-K None 18 21 ADVANCED ACCESSORY SYSTEMS, LLC SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADVANCED ACCESSORY SYSTEMS, LLC (Registrant) Date: August 10, 2000 /s/ BARRY G. STEELE -------------------------------- Barry G. Steele Corporate Controller (chief accounting officer and authorized signatory) 19 22 Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-1-2000 JUN-30-2000 4,617 0 62,528 4,657 38,703 115,402 58,599 28,758 262,977 70,805 176,480 0 0 0 16,341 262,977 177,442 177,442 128,335 128,335 29,365 100 8,963 10,779 8 10,771 0 0 0 10,771 0 0
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