10-K 1 k61038e10-k.txt FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 LOGO] ADVANCED ACCESSORY SYSTEMS, LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3848156 -------- ---------- (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313 ------------------------------------------------ ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (810) 997-2900 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate fair market value of the registrant's Class A and A-1 Units held by non-affiliates of the registrant as of March 19, 2001, based upon the good faith determination of the Board of Managers was approximately $8,540,000. For purposes of this disclosure, shares of Class A and A-1 Units held by persons who hold more than 5% of the outstanding Class A and A-1 Units and Class A and A-1 Units held by officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes. The number of the registrant's Class A and A-1 Units, outstanding at March 19, 2001 was 9,236 and 5,133, respectively. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ 2 ADVANCED ACCESSORY SYSTEMS, LLC FORM 10-K YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS
PART I Item 1. BUSINESS................................................................................1 Item 2. PROPERTIES..............................................................................10 Item 3. LEGAL PROCEEDINGS.......................................................................10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................10 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS' MATTERS........................................................................11 Item 6. SELECTED FINANCIAL DATA.................................................................12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................14 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................20 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................20 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................48 PART III Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................48 Item 11. EXECUTIVE COMPENSATION..................................................................49 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................................................................51 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................52 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................................................53 SIGNATURES.......................................................................................56
i 3 FORWARD-LOOKING STATEMENTS THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K CONTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS, AND SUCH DIFFERENCES MAY BE MATERIAL. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." PART I ITEM 1. BUSINESS GENERAL Advanced Accessory Systems, LLC (together with its subsidiaries, the "Company" or "AAS") is one of the world's largest suppliers of towing and rack systems and related accessories for the automotive original equipment manufacturer ("OEM") market and the automotive aftermarket. The Company's products include a comprehensive line of towing systems including accessories such as trailer balls, ball mounts, electrical harnesses, safety chains and locking hitch pins. The Company's broad offering of rack systems includes fixed and detachable racks and accessories which can be installed on vehicles to carry items such as bicycles, skis, luggage, surfboards and sailboards. The Company's products are sold as standard accessories or options for a variety of light vehicles. In 2000, the Company estimates that more than 50% of its net sales were generated from products sold for light trucks. For the year ended December 31, 2000, the Company's net sales and EBITDA, as adjusted, were $318.8 million and $44.5 million, respectively. In September 1995, the Company, through its SportRack, LLC subsidiary ("SportRack"), acquired substantially all of the net assets of the MascoTech Accessories division (the "MascoTech Division") of MascoTech, Inc. ("MascoTech" or the "Predecessor"). The MascoTech Division was a North American supplier of rack systems and accessories to the automotive OEM market and aftermarket. In October 1996, the Company acquired (the "Brink Acquisition") all of the capital stock of Brink B.V., a private company with limited liability incorporated under the laws of The Netherlands and a European supplier of towing systems to the automotive OEM market and aftermarket. In December 1996, ownership of Brink B.V. and its subsidiaries was transferred to a newly formed subsidiary of the Company, Brink International B.V. ("Brink"). In August 1997, the Company formed Valley Industries, LLC ("Valley") to acquire (the "Valley Acquisition") the net assets of Valley Industries, Inc. ("Valley Industries"), a North American supplier of towing systems to the automotive OEM market and aftermarket. Two smaller acquisitions were completed in July 1997 by SportRack International, Inc. ("SportRack International"), a subsidiary of SportRack. SportRack International acquired from Bell Sports Corporation ("Bell") the net assets of its sportrack division, a Canadian supplier of rack systems and accessories to the automotive aftermarket. An affiliate of J.P. Morgan Partners, LLC ("JPMP") which is also an affiliate of the Company, at that time was a significant equity investor in Bell. SportRack International also acquired the capital stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian supplier of rack systems and accessories to the automotive OEM market and aftermarket. The acquisitions of the sportrack division of Bell and Nomadic are collectively referred to in this Form 10-K as the "SportRack International Acquisition." In January 1998, the Company through Brink, acquired (the "Ellebi Acquisition") the net assets of the towbar segment of Ellebi S.p.A. ("Ellebi"). Ellebi is an Italian supplier of towing systems to the automotive OEM market and aftermarket. In February 1998, the Company through SportRack International, acquired (the "Tranfo-Rakzs Acquisition") the net assets of Transfo-Rakzs, Inc. ("Transfo-Rakzs"). Transfo-Rakzs is a Canadian supplier of rear hitch rack carrying systems and related products to the automotive aftermarket. In February 2000, the Company through Valley, acquired (the "Titan Acquisition") 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 September 2000, the Company through SportRack International, acquired (the "Barrecrafters Acquisition") the net assets of the Wiswall Hill Corporation ("Wiswall Hill" or "Barrecrafters"). Wiswall Hill is a North American supplier of rack systems and accessories to the automotive aftermarket under its popular brand name, Barrecrafters. 1 4 PRODUCTS The principal product lines of the Company are towing systems, rack systems and related accessories. In 2000, towing systems and towing accessories constituted approximately 59% and rack systems and rack accessories constituted approximately 41% of the Company's net sales. The Company believes it offers a more comprehensive product line than most of its competitors. The Company has devoted considerable resources to the engineering and designing of its products and, as a result, considers itself a market leader in the research and new product development of towing systems and rack systems. Towing Systems. The Company designs, manufactures and supplies towing systems to automotive OEMs and the automotive aftermarket which fit almost every light vehicle used for towing in North America and Europe. In the aggregate, the Company supplies over 2,000 different towing systems, as well as a line of towing accessories. The Company's towing systems sold in Europe are installed primarily on passenger cars. The Company's primary product within the European market is the fixed ball towbar that is specifically designed to be mounted on a particular car model in accordance with the OEM's specified mounting points. The Company also markets sophisticated detachable ball systems which are popular with owners of more expensive cars or cars on which the license plate would otherwise be blocked by a fixed ball towbar. The Company's towing systems sold in Europe currently undergo rigorous safety testing in order to satisfy European Community ("EC") regulatory standards. The Company's towing systems sold in North America are installed primarily on light trucks. As new vehicles are introduced, the Company designs towing systems to match the specific vehicle design. The Company has introduced many innovative product designs such as the tubular trailer hitch which is lighter in weight, less obtrusive and stronger than the conventional hitch. Many of the Company's product innovations have enabled the Company to improve the functionality and safety of towing systems while, at the same time, enhancing the overall appearance of vehicles utilizing these towing products. The Company also offers a line of towing accessories, including trailer balls, ball mounts, electrical harnesses, safety chains and locking hitch pins. Fixed Rack Systems. The Company supplies fixed roof rack systems for individual vehicle models that are generally sold to the automotive OEMs for installation at the factory or dealership. These rack systems are typically installed on a model for the life of its design, which generally ranges from four to six years. The Company has been an industry leader in developing designs which not only complement the styling themes of a particular vehicle, but also increase the utility and functionality of the rack system. Most of the fixed rack systems sold by the Company are composed of side rails which run along both sides of the vehicle's roof, feet which mount the side rails to the vehicle's roof, and cross rails which run between the side rails. Cross rails, which are attached to the side rails with stanchions, are typically movable and can be used to carry a load. The Company uses advanced materials such as lightweight, high strength plastics and roll formed aluminum to develop durable rack systems that optimize vehicle performance. Many of these products incorporate innovative features such as push button and pull lever stanchions, which allow easy movement of the cross rails to accommodate various size loads. These rack systems are utilized on a large number of light trucks, including Jeep Grand Cherokee and Cherokee, DaimlerChrysler minivans, Dodge Durango, GM Suburban, Tahoe and Yukon, Mercedes Benz M-Class and BMW X5. Detachable Rack Systems. The Company supplies a full line of detachable roof rack systems for distribution in both the automotive and sporting accessory aftermarkets. A detachable rack system typically consists of cross rails which are attached to the roof of a vehicle by removable mounting clips. Rack System Accessories. The Company designs and manufactures lifestyle accessories for distribution in both the automotive and sporting accessory aftermarkets. These accessories typically attach to the Company's towing systems or rack systems and are used for carrying items such as bicycles, skis, luggage, surfboards and sailboards. 2 5 CUSTOMERS AND MARKETING Management believes that the Company has strong and diverse industry relationships which are based on its reputation for high service levels, strong technical support, innovative product development, high quality and competitive pricing. Sales to OEM and aftermarket customers represented approximately 68% and 32% of the Company's net sales, respectively, in 2000. In addition, sales to DaimlerChrysler and General Motors were approximately 32% and 11%, respectively, of the Company's aggregate net sales in 2000. Automotive OEMs. The Company obtains most of its new orders through a presourcing process by which the customer invites one or a few preferred suppliers to design and manufacture a component or system that meets certain price, timing, functional and aesthetic parameters. Upon selection at the development stage, the Company and the customer typically agree to cooperate in developing the product to meet the specified parameters. Upon completion of the development stage and the award of the manufacturing business, the Company receives a purchase order that covers parts to be supplied for a particular car model. Such supply arrangements typically involve annual renewals of the purchase order over the life of the model, which is generally four to six years. In addition, the Company enters into long-term contracts with certain OEM customers which require the Company to make annual price reductions. The Company competes to supply parts for successor models even though the Company may currently supply parts on the predecessor model. Sales to OEMs are made directly by the Company's internal sales staff and outside sales representatives. The Company sells its products to most of the automotive OEMs selling light vehicles in North America and/or Europe, including DaimlerChrysler, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan, Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler with substantially all of its North American towing systems and rack systems and accessories. The Company also supplies approximately 50% of the rack system requirements of General Motors. The following chart sets forth information regarding vehicle models on which the Company's products are used or for which the Company has been awarded business.
AWARDED BUSINESS ON PRODUCT OEM CUSTOMER 2000 PRODUCTION(A) FUTURE PRODUCTION(b) --------------- ------------------ ------------------------------------ -------------------------- Towing Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty Voyager, Town & Country, Dodge Ram Pick-up, Dakota, Wrangler, Durango, Neon, PT Cruiser, Plymouth Prowler, Ram Van, 300M, Voyager, Stratus, Sebring General Motors CK Pick-up, ML Van, S-10, Cavlier, Sunfire Frontera, Corsa, Arena (van),Vectra Blazer, APV Vans, Bravada, Jimmy, Geo Tracker, Blazer, Corsa, Astra, Grand Priz (hatchback), Astra (Sedan), Cadilac Seville Astra (Station wagon), Calibra, Vectra (Hatchback), Vectra (Sedan), Vectra (Station wagon), Omega (Sedan), Omega (Station wagon), Campo, Frontera, Monterey, Zafira, Chevrolet Malibu Ford Explorer, Ranger, Focus Wagon, Ranger, Windstar Minivan, Focus Mondeo, Explorer Mondeo, Mondeo (Wagon), Scorpio (Sedan), Scorpio (Wagon), Maverick, Transit Renault Laguna (Station wagon), Laguna, Laguna, Matra Isuzu Rodeo, Trooper Toyota 4-Runner, RAV4, Tacoma Pick-up, Seniena Landcrusier pick-up Previa, 355N Minivan Sequoia SUV, Tundra Pick-up Corolla, Corolla Wagon Camry, Hi-Lux, Picnic, Previa, Carina Hi-Ace, Celica, Yaris Verso Nissan Pathfinder, Pick-up, Quest, Primera, Primera Wagon, Infiniti, XTerra Vehicle, QW Truck, Micra, Sunny, Patrol, Terrano, MPV, Micra Frontier Almera, Primera, Maxima, King Cab, Almera, Almera MPV, Tino MPV Terrano, Mavric, Patrol, Serena, Vanette Mazda 121, MPV, J54, J16, 626, 323 626 Wagon, 323, Demio Honda Passport, Accura MDX, CRV PF Van, Honda HP Mitsubishi Montero, Montero Sport, Carisma, Pajero L200 FIAT Almost all models Alpha Romeo Almost all models Lancia Almost all models Subaru Outback, Legacy, Forester 79V Range Rover Range Rover, Land Rover Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
3 6
AWARDED BUSINESS ON PRODUCT OEM CUSTOMER 2000 PRODUCTION(a) FUTURE PRODUCTION(b) --------------- ------------------ ---------------------------------------- -------------------------- Towing Systems Volvo (continued) (Station wagon), 850 (Sedan), 850 (continued) SAAB 9000 series, 900 series 900 series, 9000 series, 9000 station wagon, small car 9-3, small car 9-5, small station wagon Hyundai Lantra, Sonata, Starex 4WD, Accent, Atos Trajet, Lantra, Joyce Verna Peugeot 106, 306, 406 (Sedan), 406 (Station 206, 206 Sport, 207, 306 Break wagon), 406 (Coupe), 605, 806, J5 (Van), Boxer (Van) Suzuki Carry Daihatsu Gran Move, Move LCX Mini Van KIA Clarus, Frontiers, Carnivall SEAT Toledo Skoda SK240 Volkswagen Golf 4, Caddy, Transporter, Polo, Euro Daewoo Nubira U 100 Rack Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty, Durango, CS Voyager, Town & Country, Durango, Mercedes M-Class, PT Cruiser, BW 72 General Motors Suburban, Yukon, Tahoe, Astro, Hummer, Trans Port, Venture, Safari Montana Escalade, Denali, Avalanche, Z-71 Saturn SUV SUV Envoy, Trail Blazer, Bravada Ford D219 Honda Accura MDX Honda HP Nissan Pathfinder, Infinity QX4 Toyota Tacoma Mitsubishi Montero Sport Subaru Outback, Impreza, Legacy, Forester KIA Sportage Sadona Hyundi Santa Fe, Alantra, Sanada, Accent SEAT Vario GP99 Scoda Octavia Opel Astra Vectra, Astra BMW E-53 (SUV)
------------- (a) Represents models for which the Company produced products in 2000. (b) The amount of products produced under these awards is dependent on the number of vehicles manufactured by the OEMs. Many of the models are versions of vehicles not yet in production. There can be no assurance that any of these vehicles will be produced or that the Company will generate certain revenues under these awards even if the models are produced. Automotive Aftermarket. The Company sells its products directly into the automotive aftermarket through a number of channels, including wholesalers, retailers and installers, through its internal sales force and outside sales representatives. The largest of the Company's aftermarket customers include U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire. The Company believes that it has established a reputation as a highly reliable aftermarket supplier able to meet its customers' requirements for on-time deliveries while minimizing the carrying levels of inventory. For example, Valley began supplying towing systems to U-Haul (which the Company believes, is the largest installer of towing systems in the United States) in 1994 and for the year ended December 31, 2000, supplied approximately 50% of U-Haul's towing system requirements. PRODUCT DESIGN, DEVELOPMENT AND TESTING The Company believes that it is a leader in the design of towing systems and rack systems and accessories. The Company believes it offers products that possess greater quality, reliability and performance than the products sold by many of its competitors. The 128 members of the Company's engineering and design staff possess strong technical skills. The Company currently holds more than 125 U.S. and foreign patents, and has numerous patent applications pending. The expiration of such patents are not expected to have a material adverse effect on the Company's operations. The Company spent $9.8 million, $10.3 million and $9.6 million on engineering, research and development in 2000, 1999 and 1998, respectively. The Company works closely with OEMs to constantly improve design and manufacturing technology and product functionality. When an OEM is in the process of developing a new model, it typically approaches an established or incumbent supplier with a request to supply the required towing system or rack system. The Company is typically contacted two to four years prior to the 4 7 start of production of the new model. The Company's product development engineers then work closely with the OEM to develop a product that satisfies the OEM's aesthetic and functional requirements. This relationship also provides the Company with a competitive advantage in the aftermarket because, in many cases, the Company already possesses the knowledge to create a system compatible with new model vehicles prior to release. The Company has extensive testing capabilities which enable it to test and certify its products. The Company subjects its products to tests which it believes are more demanding than conditions which would occur during normal use. The Company has specialized equipment which it has purchased or developed for use in its testing laboratories. Since May 1994, 14 European countries enacted the new EC regulatory standards which require that towing systems undergo significant safety testing prior to gaining approval for sale. This safety testing requires that a towing system be extensively tested for fatigue and includes subjecting a towing system to upwards of two million high load pulses. The Company does its testing in its own laboratory under the control of an independent institute that is authorized by the EC to approve the towing systems for sale. The quality assurance system is regularly audited by an independent institute and by the automotive OEMs themselves. The Company has continually been awarded the highest distinction of achievement by the independent institute. MANUFACTURING PROCESS The Company's manufacturing operations are directed toward achieving ongoing quality improvements, reducing manufacturing and overhead costs, realizing efficiencies and adding flexibility. The Company has organized its production process to minimize the number of manufacturing functions and the frequency of material handling, thereby improving quality and reducing costs. In addition, the Company uses cellular manufacturing which improves scheduling flexibility, productivity and quality while reducing work in process and costs. The manufacturing operations utilized by the Company include metal cutting, bending, cold forming, roll forming, stamping, welding, plastic injection molding, painting, assembly and packaging. The Company performs most manufacturing operations in-house but outsources certain processes depending on the capabilities and capacities of individual plants and cost considerations. For example, while some of the Company's towing systems manufacturing facilities have painting capabilities, the Company has chosen to outsource the painting of its rack systems. The Company has established quality procedures at each of its facilities and strives to manufacture the highest quality product possible. The Company has achieved ISO-9000 or QS-9000 certification for 13 of its 21 manufacturing and engineering facilities and is in the process of obtaining certification for other of its facilities. The Company has received numerous quality and performance awards from its OEM customers, including DaimlerChrysler's Gold Award, General Motors's Supplier of the Year Award, Ford's Q-1 Award, Toyota's Distinguished Supplier Award, KIA's Preferred Supplier Award and the Nissan Superior Supplier Performance Award. RAW MATERIALS The principal raw material used in the Company's products is steel, which is purchased in sheets, rolls, bars or tubes and represents approximately 50% of the Company's raw material costs. The Company also purchases significant amounts of aluminum and plastics. The Company has various suppliers globally and has not had difficulties in procuring raw materials nor does it expect to have any problems in the future. The Company is committed to supplier development and long-term supplier relationships. However, most of the Company's raw material demands are for commodities and, as such, can be purchased on the open market on an as needed basis. The Company selects among available suppliers by comparing cost, consistent quality and timely delivery as well as compliance with QS-9000 and ISO-9000 standards. The Company customarily obtains its supplies through individual purchase orders. In some instances, the Company will enter into short-term contracts with its suppliers which generally run one year or less. However, the Company has signed a long-term supply agreement which terminates in 2004 with one of its painting suppliers, Crown Group, Inc. ("Crown"), under which Crown opened a state-of-the-art paint line in a facility adjacent to the Company's Port Huron, Michigan facility. 5 8 NORTH AMERICAN AUTOMOTIVE INDUSTRY During the later part of 2000, sales in the North American automotive industry began to decline and some of the Company's major customers adjusted production in the 4th quarter of 2000 to reduce their inventory of unsold vehicles. This lowering of production negatively impacted the Company's sales during the 4th quarter of 2000. This trend has continued during the early part of 2001. It is anticipated that U.S. auto sales for 2001 will be in the range of 15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000. In addition, DaimlerChrysler, the Company's largest customer, incurred substantial losses at its North American, Chrysler Group. During the first quarter of 2001, DaimlerChrysler announced a restructuring plan to return the Chrysler Group to profitability in 2002. This restructuring plan includes the reduction of 26,000 employees and a 15% reduction in material cost by 2003. Effective January 1, 2001, the Company agreed to reduce prices on products sold to DaimlerChrysler and has been able to partially offset these price reductions through reductions in its material costs. The Company continues to work with DaimlerChrysler to help identify other potential cost savings. AUTOMOTIVE OEM AND AFTERMARKET TRENDS As automobile and light truck manufacturers have faced increased global competition, they have sought to significantly improve quality, reduce costs and shorten the development time required for new vehicle models. These changes have altered the OEM/supplier relationship and benefited larger suppliers that have strong product engineering and development capabilities, superior quality products, lower unit costs and the ability to deliver products on a timely basis. As a result, the Company believes that it has benefited and will continue to benefit from the following automotive OEM and aftermarket trends. Consolidation of Supplier Base by OEMs. The OEMs have significantly consolidated their supplier base in an effort to reduce their procurement-related costs, ensure high quality and accelerate new model development. As a result, many smaller, poorly capitalized suppliers with limited product lines and engineering and design capabilities have been eliminated as direct suppliers to OEMs. Consequently, larger suppliers with broad product lines, in-house design and engineering capabilities and the ability to effectively manage their own supplier bases, have been able to significantly increase their market share. The consolidation by OEMs has altered the typical structure of supplier contracts. In the past, OEMs supplied all design, development and manufacturing expertise for accessory parts and were responsible for consistency of quality and reliability of delivery. Today, however, the OEMs typically involve potential suppliers earlier in the design and development process to encourage suppliers to share design and development responsibility. In some cases, sole-source supply contracts, which cover the life of a vehicle or platform, are awarded. Both OEMs and suppliers benefit from the consolidation trend. Suppliers are able to devote the resources necessary for proprietary product development with the expectation that they will have the opportunity to profit on such investment over the multi-year life of a contract. OEMs benefit from shared manufacturing cost savings attributable to long, multi-year production runs at high capacity utilization levels. Emergence of European Community Regulatory Standards. Trends within the European towing systems market result primarily from EC regulatory standards and the corresponding legislative framework. Such standards provide that a towing system must fit all the vehicle manufacturer's recommended fitting points, must not interfere with the vision of the number plate when not in use and must meet strict testing criteria for durability and safety. These standards have been adopted by The Netherlands, Germany, Sweden, Italy, the United Kingdom, France, Belgium, Luxembourg, Spain, Austria, Switzerland and Scandinavia. Other EC countries are expected to adopt the legislation. All of the Company's towing systems sold in Europe currently undergo rigorous safety testing in order to satisfy these EC regulatory standards. Increased Levels of Manufacturing in North America by Transplants. As a result of the relative cost advantage of producing vehicles in North America, many foreign automobile manufacturers with manufacturing operations in the United States ("transplants") have increased their share of North American light vehicle production from approximately 6% in 1986 to approximately 24% in 2000. Industry sources forecast that this trend will continue. For example, BMW commenced manufacturing in the U.S. in 1996 and launched production of its E-53 SUV in 1999. In addition, Toyota launched production of its Tundra pickup truck in Indiana during 1999 and launched production of its Sequoia SUV during 2000, Honda began production of its Odyssey minivan in North America during 1999 and began production of its Acura MD SUV during 2000. The Company believes that increased levels of manufacturing of light trucks in North America by transplants will benefit full service, high quality suppliers with North American operations such as the Company. 6 9 COMPETITION The Company's industry is highly competitive. A large number of actual or potential competitors exist, some of which are larger than the Company and have substantially greater resources than the Company. The Company competes primarily on the basis of product quality, cost, timely delivery, customer service, engineering and design capabilities and new product innovation in both the OEM market and the automotive aftermarket. The Company believes that as OEMs continue to strive to reduce new model development cost and time, innovation and design and engineering capabilities will become more important as a basis for distinguishing competitors. The Company believes it has an outstanding reputation in both of these areas. In the automotive aftermarket, the Company believes that its wide range of product applications is a competitive advantage. For example, the Company has developed towing systems to fit almost every light vehicle used for towing in North America and Europe. The Company believes its competitive advantage in the aftermarket is enhanced by its close relationship with OEMs, allowing the Company access to automobile design at an earlier time than its competitors. In the towing systems market, the Company competes with Draw-Tite Inc. and Reese Products Inc., both of which are subsidiaries of Metaldyne Corporation, Bosal Holding B.V., The Oris Group, Production Stamping Inc. and numerous smaller competitors. In the rack systems and accessories market, the Company's competitors include JAC Holding Corp., Thule International S.A., Yakima Products, Inc., Graber Products Inc. and several smaller competitors. COMPETITIVE ADVANTAGES Leading Global Market Position. Based on its knowledge of the industry, the Company believes that it is one of the world's largest suppliers of towing systems and one of the world's largest suppliers of rack systems. The Company also believes, based on its knowledge of the industry, that it is the largest supplier of towing systems in Europe and the second largest supplier of towing systems in North America. The Company also believes that it is one of the two largest suppliers of rack systems sold to automotive OEMs in North America. The Company has 27 facilities strategically located in North America and Europe. By virtue of its size and global presence, the Company believes it benefits from several competitive advantages, including the ability to (i) satisfy local design, production, quality and timing requirements of global OEMs; (ii) provide "one-stop shopping" for customers' product and service requirements; (iii) optimize plant production; (iv) maximize its raw material purchasing power; (v) spread its selling, administrative and product development expenses over a large base of net sales; and (vi) develop and maintain state-of-the-art production facilities. Strong Relationships with Diverse Customer Base. The Company has an established position as a Tier 1 supplier of towing and/or rack systems to most of the OEMs manufacturing in North America and/or Europe including DaimlerChrysler, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan, Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler with substantially all its North American towing systems and rack systems and accessories. The Company also supplies approximately 50% of the rack system requirements of General Motors. Tier 1 status and strong customer relationships are important elements in achieving continued profitable growth because, as OEMs narrow their supplier bases, well regarded, existing suppliers have an advantage in gaining new contracts. The evolution of OEM relationships into strategic partnerships provides a significant advantage to Tier 1 suppliers with system integration capabilities (such as the Company) in retaining existing contracts as well as in participating during the design phase for new vehicles, which is integral to becoming a supplier for such new platforms. The Company is also a leading supplier of towing and rack systems to automotive aftermarket wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire. Comprehensive Product Line. The Company continues to position itself as a leading supplier to its customers for a growing range of products and services. Through its offering of over 2,000 towing system models, the Company's products fit almost every light vehicle produced in North America and Europe. The Company is one of a limited number of European manufacturers with such a broad product line that also satisfies EC regulatory standards. Competitors whose products do not satisfy such standards face substantial design and testing costs to offer a comparable product line that meets these safety standards. The Company has provided OEMs with fixed rack systems for approximately half of the light truck models produced in North America that utilize vehicle-specific fixed racks. The Company believes that its broad product offerings also facilitate strategic partnerships with automotive aftermarket wholesalers, retailers and installers. 7 10 Design and Engineering Expertise. The Company has an engineering and research and development staff that develops new products and processing technologies. The Company works directly with OEM designers to create innovative solutions that simplify vehicle assembly and reduce vehicle cost and weight. The Company is responsible for many industry innovations, including lighter, less obtrusive, round tube towing hitches as well as push button and pull lever stanchions on fixed rack systems. The Company believes its design and engineering capabilities provide significant value to its customers by (i) shortening OEM new product development cycles; (ii) lowering OEM manufacturing costs; (iii) providing technical expertise; and (iv) permitting aftermarket customers to maintain lower inventory levels. The Company also believes that its design innovations have created value for end users by providing products that are durable and easy to install and that enhance vehicle utility and appearance. High Quality, Low Cost Manufacturing Position. The Company believes that it is one of the highest quality, lowest cost suppliers of towing and rack systems in North America and Europe. The Company has received numerous quality and performance awards, including DaimlerChrysler's Gold Award, General Motor's Supplier of the Year Award, Ford's Q-1 Award, Toyota's Distinguished Supplier Award, Kia's Preferred Supplier Award and Nissan's Superior Supplier Performance Award. Supplier quality systems are currently being standardized across OEMs through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or QS-9000 certification for 12 of its 21 manufacturing and engineering facilities and is in the process of obtaining certification for other of its facilities. The Company's low cost position is a result of its strict cost controls and continuous improvement programs designed to enhance productivity. OEMs typically prefer stable suppliers who can generate productivity gains that can be shared to reduce OEM costs. The Company's cost controls are closely integrated with its quality driven manufacturing operations, thereby allowing it to profitably deliver high quality, easy to install and competitively-priced components on a just-in-time basis. The Company's focus on low cost manufacturing also provides benefits when selling products to the automotive aftermarket. BUSINESS STRATEGY The Company's objective is to strengthen its position as a leading global supplier of automotive exterior accessories, thereby increasing revenue and cash flow. In order to accomplish its goal, the Company intends to pursue the following strategies. Increase Global Market Share. The Company intends to capitalize on its expanded presence in North America and Europe by marketing products to its global automotive OEM customers. Through its past acquisitions of complementary product lines, the Company is able to offer an expanded range of products and services to its extended customer base. The Company also expects to secure new customers by virtue of its expanded market presence and broad product and service offerings. The Company believes its continued emphasis on new technology (both product and process), will result in the development of innovative, towing and rack system products which it expects to market to its expanding customer base. Maintain and Enhance Strong Customer Relationships. The Company intends to strengthen and expand its relationships with global automotive OEMs and aftermarket customers by (i) continuing its commitment to innovative design and development of products during the early stages of vehicle design and redesign; (ii) building on its position as a low cost supplier of quality accessory products; (iii) offering new products in existing and new geographic areas by taking advantage of existing OEM relationships; and (iv) working with aftermarket customers to develop new products and marketing strategies. Pursue Strategic Acquisitions. In response to the trend in the OEM market toward systems suppliers, the Company is focused on making strategic acquisitions that will enhance its ability to provide integrated systems (such as a towing or rack system) or otherwise leverage its existing business by providing additional product, manufacturing and service capabilities. The Company also intends to pursue acquisitions which will expand its customer base by providing an entree to new customers, including expansion into selected geographic areas. The Company believes that such acquisitions should provide additional opportunities for increased net sales and cash flow by enhancing the Company's manufacturing and marketing capabilities. ENVIRONMENTAL REGULATION The Company's operations are subject to foreign, state and local environmental laws and regulations that limit the discharges into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage, and disposal of certain materials, substances and wastes. In many jurisdictions, these laws are complex, change frequently and have tended to become stronger over time. In jurisdictions such as the United States, such obligations, including but not limited to those under the Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA"), may be joint and several and may apply to conditions at properties presently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which waste or other contamination attributable to an entity or its predecessors have been sent or otherwise come to be located. The 8 11 Company believes that its operations are in substantial compliance with the terms of all applicable environmental laws and regulations as currently interpreted. In addition, to the best of the Company's knowledge, there are no existing or potential environmental claims against the Company nor has the Company received any notification nor is there any current investigation regarding, the disposal, release, or threatened release at any location of any hazardous substance generated or transported by the Company. However, the Company cannot predict with any certainty that it will not in the future incur liability under environmental laws and regulations with respect to contamination of sites currently or formerly owned or operated by the Company (including contamination caused by prior owners and operators of such sites), or the off-site disposal of hazardous substances. While historically the Company has not had to make significant capital expenditures for environmental compliance, the Company cannot predict with any certainty its future capital expenditures for environmental compliance because of continually changing compliance standards and technology. Future events, such as changes in existing environmental laws and regulations or unknown contamination of sites owned or operated by the Company (including contamination caused by prior owners and operators of such sites), may give rise to additional compliance costs which could have a material adverse effect on the Company's financial condition. Furthermore, actions by foreign, federal, state and local governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the products manufactured by the Company or otherwise adversely affect the demand for its products. Additionally, the Company does not currently have any insurance coverage for environmental liabilities and does not anticipate obtaining such coverage in the future. EMPLOYEES At December 31, 2000, the Company had approximately 2,200 employees of whom approximately 1,700 are hourly employees and approximately 500 are salaried personnel. Approximately 150 of the Company's employees in the United States at the Port Huron, Michigan facility are represented by the Teamsters Union. Collective bargaining agreements with the Teamsters Union affecting these employees expire in April 2004. As is common in many European jurisdictions, substantially all of the Company's employees in Europe are covered by country-wide collective bargaining agreements. The Company believes that its relations with its employees are good. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS For financial information about foreign and domestic operations of the Company, see "Note 14" of the Company's "Notes to Consolidated Financial Statements". 9 12 ITEM 2. PROPERTIES The Company's executive offices are located in 14,550 square feet of leased space in Sterling Heights, Michigan. The Company has 27 facilities with a total of 2,252,954 square feet of space. The Company believes that substantially all of its property and equipment is in good condition and that it has sufficient capacity to meet its current and projected manufacturing and distribution needs. The Company's facilities are as follows:
SQUARE OWNED/ LEASE LOCATION PRINCIPAL FUNCTIONS FEET LEASED EXPIRATION** --------------------------- ----------------------------- --------- --------- -------------- North America ------------- Shelby Township, Michigan* Manufacturing 74,800 Owned -- Shelby Township, Michigan* Manufacturing 13,000 Leased 2008 Port Huron, Michigan* Manufacturing 200,000 Owned -- Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003 Madison Heights, Michigan* Administration and 90,000 Leased 2002 manufacturing Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2002 Shelburne, Vermont Administration, manufacturing 73,000 Leased 2001 and engineering Wyandot, Michigan Manufacturing 5,000 Leased 2002 Lodi, California Administration, manufacturing and 150,000 Owned -- engineering Lodi, California Warehousing 77,760 Leased 2002 Grove City, Ohio Warehousing 70,644 Leased 2006 Dallas, Texas Warehousing 23,800 Leased 2005 Granby, Quebec Administration, manufacturing and 88,200 Leased 2003 warehousing Bromptonville, Quebec Manufacturing 2,000 Leased 2000 Hamer Bay, Ontario Manufacturing 15,000 Owned -- Europe Sandhausen, Germany* Administration and engineering 5,000 Leased Month to Month Barcelona, Spain Manufacturing 6,200 Leased Month to Month Bakov nad Jizerou, Czech Manufacturing 6,000 Leased Month to Month Republic* Staphorst, The Netherlands* Administration, engineering 405,000 Owned -- manufacturing, and warehousing Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned -- Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned -- Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned -- Vanersborg, Sweden* Manufacturing and warehousing 160,000 Leased 2004 Wolsztyn, Poland Warehousing 5,000 Leased Month to Month Reims, France Manufacturing and warehousing 115,000 Owned -- St. Victoria di Gualtieri, Italy Administration, engineering, 170,000 Leased 2003 manufacturing and warehousing St. Victoria di Gualtieri, Italy Manufacturing 110,000 Leased 2003
----------------- * QS 9000 and/or ISO 9000 certification. ** Gives effect to all renewal options. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is subject to legal proceedings and other claims arising in the ordinary course of its business. The Company believes that it is not presently a party to any litigation the outcome of which would have a material adverse effect on its financial condition or results of operations. The Company maintains insurance coverage against claims in an amount which it believes to be adequate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS' MATTERS There is no established public trading market for the Company's Class A or Class A-1 Units. At March 19, 2000, there were 19 holders of record of Class A Units and one holder of record of Class A-1 Units. Except as set forth below with respect to quarterly tax distributions to Members, the Company has never declared or paid dividends (or made any other distributions) on the Class A Units or the Class A-1 Units and does not anticipate doing so in the foreseeable future. Under certain loan agreements, the Company is prohibited from declaring or paying any cash dividend or making distributions thereon, except for quarterly distributions to Members to the extent of any tax liability with respect to the Class A Units and Class A-1 Units and except for repurchases of Class A Units from employees upon a termination of their employment with the Company pursuant to an Employment Agreement and the Operating Agreement. As listed below, since January 1, 1998, the Company has issued unregistered securities to investors and to certain other individuals. Each such issuance was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, contained in Section 4(2) of the Securities Act on the basis that such transactions did not involve a public offering. 1) On April 22, 1998 pursuant to their respective subscription agreements, the Company issued an aggregate of 43 of its Class A Units for an aggregate purchase price of approximately $150,000, to Gerrit de Graaf and J. Wim Rengelink. 2) On May 18, 1999 pursuant to a subscription agreement, the Company issued 25 of its Class A Units for an aggregate purchase price of $100,000 to Bryan A Fletcher. 3) On January 1, 2000, the Company issued 3,655 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC in exchange for 3,655 Class A Units. 4) On November 11, 2000 the Company issued 1,478 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC in exchange for 1,478 Class A Units. 11 14 ITEM 6. SELECTED FINANCIAL DATA The information below presents consolidated financial data of the Company and includes (i) the operations of Brink subsequent to the Brink Acquisition on October 30, 1996; (ii) the operations of the sportrack division of Bell and Nomadic subsequent to the SportRack International Acquisition on July 2, 1997 and July 24, 1997, respectively, (iii) the operations of Valley subsequent to the Valley Acquisition on August 5, 1997, (iv) the operations of Ellebi subsequent to the Ellebi Acquisition on January 2, 1998, (v) the operations of Tranfo-Rakzs subsequent to the Tranfo-Rakzs Acquisition on February 7, 1998, (vi) the operations of Titan subsequent to the Titan Acquisition on February 22, 2000 and (vii) the operations of Barrecrafters subsequent to the Barrecrafters Acquisition on September 5, 2000, and have been derived from the audited financial statements of the Company. The following table should be read in conjunction with the consolidated financial statements of the Company and notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 2000(4) 1999 1998(3) 1997(2) 1996(1) ------------ ------------ ------------ -------------- ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales .................................... $ 318,817 $ 314,142 $ 292,145 $ 189,352 $ 81,466 Cost of sales(5) ............................. 239,090 227,889 215,441 136,230 53,607 --------- --------- --------- --------- --------- Gross profit ............................... 79,727 86,253 76,704 53,122 27,859 Selling, administrative and product development expenses(5) .................... 45,527 50,258 50,839 31,350 13,413 Amortization of intangible assets ............ 3,297 3,245 3,551 2,336 2,475 Impairment charge(5) ......................... -- -- 7,863 -- -- --------- --------- --------- --------- --------- Operating income ........................... 30,903 32,750 14,451 19,436 11,971 Other (income) expense Interest expense ........................... 17,950 17,453 18,633 12,627 4,312 Foreign currency (gain) loss(6) ............ 5,386 7,912 (4,995) 6,097 1,330 Other, net ................................. 52 1,990 -- -- (80) --------- --------- --------- --------- --------- Income before minority interest, extraordinary charge and income taxes .................................... 7,515 5,395 813 712 6,409 Provision (benefit) for income taxes(7) ................................... (278) 417 903 (2,856) (491) --------- --------- --------- --------- --------- Income before minority interest and ........ 7,793 4,978 (90) 3,568 6,900 extraordinary charge Minority interest ............................ -- -- -- 97 69 --------- --------- --------- --------- --------- Income before extraordinary charge ................................... 7,793 4,978 (90) 3,471 6,831 Extraordinary charge(8) ...................... -- -- -- 7,416 1,970 --------- --------- --------- --------- --------- Net income (loss) .......................... $ 7,793 $ 4,978 $ (90) $ (3,945) $ 4,861 ========= ========= ========= ========= ========= OTHER DATA: Cash flows from operating Activities ................................. $ 21,416 $ 25,014 $ 21,879 $ 6,982 $ 9,917 EBITDA(9) .................................... 44,546 46,539 38,364 27,916 16,448 Depreciation ................................. 10,346 10,418 10,857 6,144 2,002 Capital expenditures ......................... 10,445 11,775 9,998 7,751 3,124 Ratio of EBITDA to interest expense .......... 2.48x 2.67x 2.06x 2.21x 3.81x Ratio of earnings to fixed charges(10) ....... 1.36x 1.29x 1.04x 1.06x 2.43x BALANCE SHEET DATA (AT END OF PERIOD) Cash ......................................... $ 3,315 $ 8,718 $ 11,240 $ 27,348 $ 2,514 Working capital .............................. 34,791 36,825 49,232 65,803 14,368 Total assets ................................. 242,497 251,213 258,981 265,558 148,359 Total debt, including current maturities ..... 175,635 178,498 187,524 197,126 93,142 Mandatorily redeemable warrants .............. 5,010 4,810 4,409 3,507 3,498 Distributions to Members' .................... 6,090 4,720 195 2,945 3,692 Members' equity .............................. 5,896 10,331 15,147 16,444 18,463
-------------- (1) In October 1996, the Company acquired Brink. The Brink Acquisition has been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Brink are included in the consolidated operating results of the Company subsequent to October 30, 1996. (2) The Company acquired the net assets of the sportrack division of Bell on July 2, 1997, Nomadic on July 24, 1997, and the net assets of Valley Industries on August 5, 1997. The SportRack International Acquisition and Valley Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of SportRack International and Valley are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. 12 15 (3) The Company acquired the towbar segment of Ellebi S.p.A. on January 2, 1998 and the net assets of Tranfo-Rakzs on February 7, 1998. The Ellebi Acquisition and Transfo-Rakzs Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Ellebi and Tranfo-Rakzs are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. (4) The Company acquired the net assets of Titan Industries, Inc. on February 22, 2000 and the net assets of Barrecrafters on September 5, 2000. The Titan Acquisition and Barrecrafters Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Titan and Barrecrafters are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. (5) In June 1998, information became available that indicated that certain assets acquired from Bell (accounts receivable, inventory and tooling) had a fair value less than originally recorded. The SportRack International purchase was renegotiated and a $2.0 million reimbursement was received from Bell. Accounts receivable, inventory and tooling were reduced by $6.5 million and additional goodwill of $4.5 million, net of the $2.0 million reimbursement from Bell, was recorded. During the second half of 1998, management further reassessed the operations of SportRack International, took actions to restructure the operations, and recorded restructuring charges totaling $1.9 million. Restructuring charges have been included in cost of sales ($1.1 million) and in selling, administrative and product development expenses ($832,000) in the Company's consolidated statement of operations. All restructuring costs have been incurred as of December 31, 1998. Concurrent with the reassessment of the SportRack International operations, management reviewed the carrying value of goodwill and other intangible assets, determined that future cash flows would not be sufficient to recover recorded amounts, and recorded an impairment charge of $7.9 million. (6) Primarily represents net currency gains and loss on indebtedness of the Company's foreign subsidiaries denominated in currencies other than their functional currency. (7) The Company is a limited liability corporation and, as such, the earnings of the Company and its domestic subsidiaries, except for AAS Holdings, Inc. (a holding company for Brink) which is a C corporation, are included in the taxable income of the Company's unitholders and no federal income tax provision is required. The Company's foreign and taxable domestic subsidiaries provide for income taxes on their results of operations. (8) In connection with the indebtedness extinguished as a result of the Brink Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt issuance costs of $1.8 million were charged to operations during 1996. In connection with indebtedness extinguished as a result of issuing the Notes (as defined below), a prepayment penalty of $1.4 million, $3.1 million of unamortized debt discount, and unamortized deferred debt issuance costs of $3.2 million were charged to operations during 1997. The debt extinguishment charges in 1997 were reduced by $365,000 representing the income tax benefit recognized by Brink. (9) EBITDA is defined as operating income plus depreciation and amortization adjusted in 1998 for the non-cash portion of impairment and restructuring charges ($9.5 million for the year ended December 31, 1998), which definition may not be comparable to similarly titled measures reported by other companies. EBITDA is presented because it is generally accepted as providing useful information regarding a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered in isolation from or as an alternative to net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. In addition, funds depicted by the EBITDA measurement are not fully available for discretionary use because of debt service requirements, expenditures for capital replacement and expansion, and the need to conserve funds for other commitments and uncertainties. (10) For purposes of determining the ratio of earnings to fixed charges, "earnings" are defined as income (loss) before minority interest, extraordinary charge and income taxes, plus fixed charges. "Fixed charges" consist of interest expense on all indebtedness (including amortization of deferred debt issuance costs) and the component of operating lease rental expense that management believes is representative of the interest component of rent expense. 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the financial statements and notes thereto of the Company included elsewhere in this Form 10-K. This Form 10-K contains forward-looking statements. Discussions containing such forward-looking statements may be found in the material set forth above and under "Business," as well as in this Form 10-K generally. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors set forth in this Form 10-K generally. GENERAL An affiliate of JPMP 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. RECENT ACQUISITIONS 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 September 2000, the Company through SportRack International, acquired the net assets of the Wiswall Hill Corporation ("Wiswall Hill" or "Barrecrafters"). Wiswall Hill is a North American supplier of rack systems and accessories to the automotive aftermarket under its popular brand name, Barrecrafters. SUMMARY RESULTS OF OPERATIONS The following table presents the major components of the statement of operations together with percentages of each component as a percentage of net sales.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 2000 1999 1998 ------------------------ ------------------------ ------------------------ (DOLLARS IN THOUSANDS) Net sales ......................... $ 318,817 100.0% $ 314,142 100.0% $ 292,145 100.0% Gross profit .................... 79,727 25.0% 86,253 27.5% 76,704 26.3% Selling, administrative and product development expenses............. 45,527 14.3% 50,258 16.0% 50,839 17.4% Amortization of intangible assets.. 3,297 1.0% 3,245 1.0% 3,551 1.2% Impairment charge ................. -- -- -- -- 7,863 2.7% Operating income ................ 30,903 9.7% 32,750 10.4% 14,451 4.9% Interest expense .................. 17,950 5.6% 17,453 5.6% 18,633 6.4% Foreign currency (gain) loss ...... 5,386 1.7% 7,912 2.5% (4,995) (1.7%) Income before income taxes ........ 7,515 2.4% 5,395 1.7% 813 0.3% Income tax provision (benefit) ... (278) 0.1% 417 0.1% 903 0.3% Net income (loss) ................. 7,793 2.4% 4,978 1.6% (90) 0.0%
14 17 RESULTS OF OPERATIONS 2000 COMPARED TO 1999 Net sales. Net sales for 2000 were $318.8 million, representing an increase of $4.7 million, or 1.5%, over net sales for 1999. This increase resulted from increased sales to OEMs of approximately $14.5 million and increased sales to the aftermarket of $2.4 million. Partially 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 $12.2 million. For example the average value of the European Euro, the functional currency of Brink, as compared to the U.S. Dollar declined by 13.4% during 2000 as compared to 1999 resulting in a similar decrease in sales as reported in U.S. Dollars. During the fourth quarter of 2000, the Company's sales to North American OEM's were lower than expected as a result of several temporary plant shut-downs. The shut-downs were instituted by the OEM's as a measure to reduce inventory levels which had increased as a result of lower automotive sales during the period. Gross profit. Gross profit for 2000 was $79.7 million, representing a decrease of $6.5 million, or 7.6%, from the gross profit for 1999. Gross profit as a percentage of net sales was 25.0% in 2000 compared to 27.5% in 1999. The decrease in the gross margin percentage is attributable to decreased productivity for the North American OEM towing business related to a reorganization of the manufacturing facility in order to better meet customer delivery and quality requirements. Additionally, higher costs were incurred during the year at the same facility due to an increase in outsourcing of component parts. Brink had higher material costs during the year attributable to increased cost of steel during the year as compared with that of 1999. The gross profit percentage was also reduced due to 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 2000 compared with 1999. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2000 were $45.5 million, representing a decrease of $4.7 million, or 9.4%, compared with the selling, administrative and product development expenses for 1999. Selling, administrative and product development expenses as a percentage of net sales decreased to 14.3% in 2000 from 16.0% in 1999. This decrease is partly due to a decrease of an estimated liability related to a contingent obligation to a customer totaling $1.9 million. The reduction was also attributable to 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. Offsetting the lower percent were legal and accounting costs of approximately $900,000 related to a potential recapitalization of the Company's equity securities during the year. Operating income. Operating income for 2000 was $30.9 million, a decrease of $1.8 million, or 5.6%, compared with operating income for 1999. Operating income as a percentage of net sales decreased to 9.7% in 2000 from 10.4% in 1999. This decrease reflects the decrease in gross profit, partially offset by the decrease in selling, general and product development expenses as a percentage of net sales. Interest expense. Interest expense for 2000 was $18.0 million, an increase of $497,000 from interest expense for 1999. The increase is due to interest costs totaling $450,000 recorded for an estimated contingent legal liability which is more fully discussed below in the discussion of other expense. The effect of reduced average borrowings during 2000 as compared with 1999 was offset by higher interest rates charged on the Company's variable rate indebtedness. Foreign currency loss. Foreign currency loss in 2000 was $5.4 million, compared to a foreign currency loss of $7.9 million in 1999. The Company's foreign currency loss is primarily related to Brink which has indebtedness denominated in U.S. Dollars. During 2000 the U.S. Dollar strengthened significantly in relation to the European Euro, the functional currency of Brink. At December 31, 1999, the exchange rate of the European Euro to the U.S. Dollar was 0.99:1, whereas at December 31, 2000 the exchange rate was 1.06:1, or a 7.1% decline in the relative value of the Euro during the period. In 1999, the relationship between the two currencies was more volatile. At December 31, 1998, the exchange rate of the European Euro to the U.S. Dollar was 0.85:1, whereas at December 31, 1999 the exchange rate was 0.99:1, or a 16.5% decline in the relative value of the Euro. 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 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 December 31, 2000. 15 18 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 2000, the Company had a loss before income taxes for its taxable subsidiaries totaling $3.0 million and recorded a benefit for income taxes of $278,000. 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 Accessories and differences in the tax rates of foreign countries. During 1999, the Company had a loss before income taxes for its taxable subsidiaries totaling $5.6 million and recorded a provision for income taxes of $403,000. Net income. Net income for 2000 was $7.8 million, as compared to net income of $5.0 million in 1999, an increase of $2.8 million. The change in net income is primarily attributable to decreases in operating expenses, foreign currency losses and other expense offset by a decrease in gross profit. Other. During the second quarter of 2000 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 worked with the customer to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact will be to the Company, if any, as a result of the recall. 1999 COMPARED TO 1998 Net Sales. Net sales for 1999 were $314.1 million, representing an increase of $22.0 million, or 7.5%, over net sales for 1998. This increase resulted from increased sales to OEM's of approximately $10.1 million and increased aftermarket sales of $10.9 million. Increased OEM sales are attributable to higher production volumes by the OEM's on the Company's existing programs. Increases in aftermarket sales are primarily attributable to new customers in the retail market and new business with an existing customer in the installer business. Offsetting the Company's increased sales volume is a decrease of approximately $3.1 million related to the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries. Gross Profit. Gross profit for 1999 was $86.3 million, representing an increase of $9.5 million, or 12.4%, over the gross profit for 1998. This increase resulted from the increase in net sales. Gross profit as a percentage of net sales was 27.5% in 1999 compared to 26.3% in 1998. The increase in the gross profit percent resulted primarily from reduced material costs, primarily steel, and the effect of higher net sales on fixed overhead costs. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 1999 were $50.3 million, representing a decrease of $581,000, or 1.1%, over the selling, administrative and product development expenses for 1998. Selling, administrative and product development expenses as a percentage of net sales decreased to 16.0% in 1999 from 17.4% in 1998. This decrease resulted primarily from the effect of higher net sales on fixed costs, decreased selling, administrative and product development expenses of SportRack International resulting from the restructuring of the subsidiary's operations during the fourth quarter of 1998 and the restructuring charges (as further discussed below) related to the operations of SportRack Accessories incurred in 1998. Operating income. Operating income for 1999 was $32.8 million, an increase of $18.3 million, or 126.6%, over operating income for 1998. In addition to the increase in net sales, this increase was due to an impairment and restructuring charge in 1998. Excluding the impairment and restructuring charges, operating income in 1998 would have been $24.2 million and there would have been an increase in operating income during 1999 of $8.6. Operating income as a percentage of net sales increased to 10.5% in 1999 from 8.3% in 1998, excluding the impairment and restructuring charge. This increase reflects the increase in gross profit, and decrease in selling, general and product development expenses as a percentage of net sales. Interest expense. Interest expense for 1999 was $17.5 million, a decrease of $1.2 million, or 6.3%, compared to interest expense for 1998. The decrease was primarily due to lower outstanding senior indebtedness attributable to scheduled principal payments made during 1999 partially offset by higher average line of credit borrowings during 1999 as compared with 1998, and higher interest rates on the Company's variable rate debt. Foreign currency (gain) loss. Foreign currency loss in 1999 was $7.9 million, compared to a foreign currency gain of $5.0 million in 1998. The Company's foreign currency loss is primarily related to Brink which has indebtedness denominated in U.S. Dollars. During 1999 the U.S. Dollar strengthened significantly in relation to the European Euro, the functional currency of Brink. At December 31, 1998, the exchange rate of the European Euro to the U.S. Dollar was 0.85:1, whereas at December 31, 1999 the exchange rate was 0.99:1, or a 16.5% decline in the relative value of the Euro. 16 19 Provision for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During 1999, the Company had a loss before income taxes for its taxable subsidiaries totaling $5.6 million and recorded a provision for income taxes of $417,000. The effective tax rate differs from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack International recorded during 1999, non-deductible goodwill and differences in the tax rates of foreign countries. During 1998, the Company had a loss before income taxes for its taxable subsidiaries totaling $9.2 million and recorded a provision for income taxes of $903,000. Net income. Net income for 1999 was $5.0 million, as compared to a net loss of $90,000 in 1998, an increase of $5.1 million. The change in net income is primarily attributable to increased operating income, decreased interest expense and decreased provision for income taxes offset by a foreign currency loss in 1999 compared with the foreign currency gain during 1998. NORTH AMERICAN AUTOMOTIVE INDUSTRY During the later part of 2000, sales in the North American automotive industry began to decline and some of the Company's major customers adjusted production in the 4th quarter of 2000 to reduce their inventory of unsold vehicles. This lowering of production negatively impacted the Company's sales during the 4th quarter of 2000. This trend has continued during the early part of 2001. It is anticipated that U.S. auto sales for 2001 will be in the range of 15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000. In addition, DaimlerChrysler, the Company's largest customer, incurred substantial losses at its North American, Chrysler Group. During the first quarter of 2001, DaimlerChrysler announced a restructuring plan to return the Chrysler Group to profitability in 2002. This restructuring plan includes the reduction of 26,000 employees and a 15% reduction in material cost by 2003. Effective January 1, 2001, the Company agreed to reduce prices on products sold to DaimlerChrysler and has been able to partially offset these price reductions through reductions in its material costs. The Company continues to work with DaimlerChrysler to help identify other potential cost savings. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are to service its debt and meet its working capital and capital expenditure needs. The Company's indebtedness at December 31, 2000 was $175.6 million including current maturities of $11.8 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:
2000 1999 1998 ------------------- ------------------- ------------------- (IN THOUSANDS) Working Capital................ $ 34,791 $ 36,825 $ 46,370 Cash flows provided by operating activities................... 21,416 25,014 21,879 Cash flows (used for) investing activities................... (13,249) (11,775) (31,618) Cash flows provided by (used for) financing activities.... (14,982) (18,185) (8,367)
Working Capital Working capital decreased by $2.0 million to $34.7 million at December 31, 2000 from $36.8 million at December 31, 1999 due to decreases in cash and accounts receivable of $5.4 million and $3.4 million, respectively, and decreases attributable to the decline of the exchange rates between the functional currencies of the Company's foreign subsidiaries against the U.S. Dollar totaling $400,000. These decreases were offset by increases in inventory and other current assets of $4.1 million and $1.5 million, respectively, and decreases in accounts payable and accrued liabilities of $199,000 and $763,000, respectively, and a decrease in the current maturities of long-term debt of $638,000. Cash decreased by $5.4 million to $3.3 million at December 31, 2000 from $8.7 million at December 31, 1999 primarily due to investing and financing activities of $13.2 million and $15.0 million, respectively, offset by cash provided by operating activities of 17 20 $21.0 million. Accounts receivable decreased primarily as a result of a reduction in sales levels during the fourth quarter of 2000 as compared with the fourth quarter of 1999. This sales decline was primarily due to reduced sales to North American OEM's during the period as they reduced production schedules and closed several plants on a temporary basis to correct for their growing inventory levels and to adjust for a slowing automotive sales market. This trend continued in the first quarter of 2001. The increase in inventory is primarily related to a greater quantity of hitches on hand to ensure timely delivery to OEM and aftermarket customers and reflecting an increased cost per hitch attributable to lower productivity levels. The increase in other current assets is primarily related to increased investment in customer reimbursable tooling reflecting a greater number of new products under development as of December 31, 2000 as compared with 1999. Operating Activities Cash flow provided by operating activities for 2000 was $21.4 million, compared to $25.0 million in 1999 and $21.9 million in 1998. Cash flow for 2000 decreased from 1999 due to an increased investment in working capital and non-current assets and the declining exchange rate between the U.S. Dollar and the functional currency of the Company's foreign subsidiaries. Cash flow provided by operating activities increased in 1999 from that of 1998 due to improved operating performance for the year and lower working capital for the year. The Company's European and Canadian subsidiaries have income tax net operating loss carryforwards ("NOLs") of approximately $7.3 million and $10.8 million, respectively, at December 31, 2000. The European NOLs have no expiration date and the Canadian NOLs expire in 2004 through 2007. Management believes that it is more likely than not that a portion of the deferred tax assets of the Canadian subsidiaries will not be realized and a valuation allowance of $4.9 million has been recorded against such assets. No valuation allowance has been recorded for the European NOLs as it is management's belief that it is more likely than not that the related deferred tax asset will be realized. Investing Activities Investing cash flows include acquisitions of property and equipment of $10.4 million, $11.8 million and $10.0 million in 2000, 1999 and 1998, respectively. The higher capital expenditures during 1999 was primarily due to the expansion of the Company's manufacturing facility in Shelby Township, Michigan to accommodate increased manufacturing capacity needs for new and existing OEM roof rack programs. The Company estimates that capital expenditures for 2001 will be primarily for the expansion of capacity, productivity and process improvements and maintenance. The Company's 2001 capital expenditures are anticipated to include approximately $5.0 million for replacing and upgrading existing equipment. The Company's ability to make capital expenditures is subject to restrictions in the Amended and Restated Credit Agreement, including a maximum of $12.5 million of capital expenditures annually. Investing cash flows in 2000 and 1998 include $2.8 million and $22.8 million, respectively, for the acquisitions of Titan and Barrecrafters during 2000 and the acquisitions of the Ellebi and Tranfo-Rakzs during 1998. Financing Activities During 2000, financing cash flows included net borrowings on the Company's revolving line of credit totaling $11.3 million offset by payments of principal on the Company's term indebtedness of $13.9 million, distributions to members in amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members totaling $6.1 million and repurchase of membership units of $6.4 million. Principal payments included $12.5 million in scheduled repayments and a $1.4 million mandatory prepayment required as a result of the Company having excess cash flows during 1999 as defined by the Second Amended and Restated Credit Agreement. During 1999, financing cash flows included payments of principal on the Company's term indebtedness of $9.3 million, distributions to members in amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members totaling $4.7 million and repurchase of membership units of $4.3 million. Principal payments included $5.9 million in scheduled repayments and a $3.4 million mandatory prepayment required as a result of the Company having excess cash flows during 1998 as defined by the Second Amended and Restated Credit Agreement. Repurchase of membership units included repurchases from the Company's former Chief Executive Officer of $4.3 million. During 1998, financing cash flows were primarily limited to scheduled payments of principal on the Company's term indebtedness of $3.7 million and net repayments of borrowings under the Company's revolving loans of $4.5 million. 18 21 Debt and Credit Sources Borrowings under the Company's U.S. Credit Facility and the Company's First Amended and Restated Credit Agreement ("Canadian Credit Facility") bear interest at floating rates, which require interest payments on varying dates depending on the interest rate option selected by the Company. Under the terms of these credit facilities, the Company will be required to make principal payments totaling approximately $11.8 million in 2001, $10.1 million in 2002, $20.5 million in 2003 and $8.7 million in 2004. The Notes bear interest at 9.75% which is payable semiannually in arrears. See "Note 4" to the Company's "Consolidated Financial Statements" for additional information regarding the U.S. Credit Facility, the Canadian Credit Facility and the Senior Subordinated Notes. The Company expects that its primary sources of cash will be from operating activities and borrowings under the U.S. Credit Facility and Canadian Credit Facility each of which provide the Company with revolving notes. As of December 31, 2000, the Company had $11.3 million borrowed under the revolving note of the U.S. Credit Facility and had an outstanding letter of credit of $6.4 million. No amounts were borrowed under the revolving note of the Canadian Credit Facility. Available borrowing capacity under the revolving notes was $7.3 million As of December 31, 2000. Future acquisitions, if any, may require additional third party financing and there can be no assurances that such funds would be available on terms satisfactory to the Company, if at all. The Company's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business, and other factors, certain of which are beyond its control, as well as the availability of revolving credit borrowings under the Amended and Restated Credit Agreement or a successor facility. The Company anticipates that, based on current and expected levels of operations, its operating cash flow, together with borrowings under the U.S. Credit Facility and the Canadian Credit Facility, should be sufficient to meet its debt service, working capital and capital expenditure requirements for the foreseeable future, although no assurances can be given in this regard, including as to the ability to increase revenues or profit margins. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all, including, whether, and on what terms, the Company could raise equity capital. See "Forward Looking Statements". The Company conducts operations in several foreign countries including Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany, Poland, Spain, the Czech Republic and, Italy. Net sales from international operations during 2000 were approximately $96.7 million, or 30.3% of the Company's net sales. At December 31, 2000, assets associated with these operations were approximately 38.4% of total assets, and the Company had indebtedness denominated in currencies other than the U.S. dollar of approximately $7.5 million. The Company's international operations may be subject to volatility because of currency fluctuations, inflation and changes in political and economic conditions in these countries. Most of the revenues and costs and expenses of the Company's operations in these countries are denominated in the local currencies. The financial position and results of operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Certain of the Company's foreign subsidiaries have debt denominated in currencies other than their functional currency. As the exchange rates between the currency of the debt and the subsidiaries functional currency change the Company is subject to foreign currency gains and losses. The Company may periodically use foreign currency forward option contracts to offset the effects of exchange rate fluctuations on cash flows denominated in foreign currencies. The Company has no outstanding foreign currency forward options at December 31, 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 Company adopted this statement at the beginning of fiscal 2001. This pronouncement is not expected to have a material impact on the Company's results of operations. 19 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the London Interbank Offered Rate ("LIBOR"). The Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Accountants........................................................................... 21 Consolidated Balance Sheets -- December 31, 2000 and 1999................................................... 22 Consolidated Statements of Operations -- Years Ended December 31, 2000, 1999 and 1998....................... 23 Consolidated Statements of Cash Flows -- Years Ended December 31, 2000, 1999 and 1998....................... 24 Consolidated Statements of Changes in Members' Equity -- Years Ended December 31, 2000, 1999 and 1998....... 25 Notes to Consolidated Financial Statements.................................................................. 26
20 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Managers and Members of Advanced Accessory Systems, LLC In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Advanced Accessory Systems, LLC and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Detroit, Michigan March 19, 2001 21 24 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------- 2000 1999 ---- ---- (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash..................................................... $ 3,315 $ 8,718 Accounts receivable, less reserves of $2,140 and $4,997, respectively.......................................... 42,942 46,918 Inventories.............................................. 42,094 38,437 Deferred income taxes.................................... 1,775 1,804 Other current assets..................................... 6,874 4,879 -------- -------- Total current assets................................ 97,000 100,756 Property and equipment, net................................ 58,232 59,316 Goodwill, net.............................................. 77,391 80,674 Other intangible assets, net............................... 5,030 5,729 Deferred income taxes...................................... 2,020 1,922 Other noncurrent assets.................................... 2,824 2,816 -------- -------- $242,497 $251,213 ======== ======== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt..................... $ 11,811 $ 12,449 Accounts payable......................................... 24,996 26,715 Accrued liabilities...................................... 25,402 24,767 -------- -------- Total current liabilities........................... 62,209 63,931 -------- -------- Noncurrent liabilities Deferred income taxes.................................... 1,001 1,772 Other noncurrent liabilities............................. 4,557 4,320 Long-term debt, less current maturities.................. 163,824 166,049 -------- -------- Total noncurrent liabilities........................ 169,382 172,141 -------- -------- Commitments and contingencies (Note 12) Mandatorily redeemable warrants............................ 5,010 4,810 -------- -------- Members' equity Class A Units 25,000 authorized, 9,236 and 15,869 issued at December 31, 2000 and 1999, respectively............. 7,409 18,083 Class A-1 Units 25,000 authorized, 5,133 issued at December 31, 2000....................................... 4,117 -- Class B Units, 2,000 authorized, no Units issued at December 31, 2000 and 1999.............................. -- -- Other comprehensive loss................................. (1,077) (1,496) Accumulated deficit...................................... (4,553) (6,256) -------- -------- 5,896 10,331 -------- -------- $242,497 $251,213 ======== ========
See accompanying notes to consolidated financial statements. 22 25 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 ------------- ------------- ------------- (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................................... $ 318,817 $ 314,142 $ 292,145 Cost of sales............................................... 239,090 227,889 215,441 --------- --------- --------- Gross profit.............................................. 79,727 86,253 76,704 Selling, administrative and product development expenses...................................... 45,527 50,258 50,839 Amortization of intangible assets........................... 3,297 3,245 3,551 Impairment charge........................................... -- -- 7,863 --------- --------- --------- Operating income.......................................... 30,903 32,750 14,451 --------- --------- --------- Other (income) expense Interest expense.......................................... 17,950 17,453 18,633 Foreign currency (gain) loss.............................. 5,386 7,912 (4,995) Other expense............................................. 52 1,990 -- --------- --------- --------- Income before income taxes.................................. 7,515 5,395 813 Provision (benefit) for income taxes........................ (278) 417 903 --------- --------- --------- Net income (loss)........................................... $ 7,793 $ 4,978 $ (90) ========= ========= =========
See accompanying notes to consolidated financial statements. 23 26 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (DOLLAR AMOUNTS IN THOUSANDS) CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net income (loss)....................................... $ 7,793 $ 4,978 $ (90) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization......................... 14,304 14,065 15,093 Deferred taxes........................................ (908) (2,433) (688) Impairment and restructuring charge................... -- -- 9,505 Foreign currency (gain) loss.......................... 5,159 6,297 (4,948) Loss (gain) on disposal of assets..................... 37 (13) 191 Changes in assets and liabilities net of acquisitions: Accounts receivable................................ 3,425 (8,188) 5,873 Inventories........................................ (4,055) 1,815 (1,457) Other current assets............................... (1,546) (677) 1,513 Other noncurrent assets............................ (346) (56) (1,934) Accounts payable................................... (199) 4,527 (3,032) Accrued liabilities................................ (763) 3,441 1,133 Other noncurrent liabilities....................... (1,485) 1,258 720 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... 21,416 25,014 21,879 ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES Acquisition of machinery and equipment.................. (10,445) (11,775) (9,998) Amount due from sellers of Valley Industries, Inc................................................... -- -- 1,150 Acquisition of subsidiaries, net of cash acquired.............................................. (2,804) -- (22,770) ---------- ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES.................................... (13,249) (11,775) (31,618) ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES Increase (decrease) in revolving loan................... 11,343 -- (4,505) Repayment of debt....................................... (13,878) (9,270) (3,682) Issuance of membership units............................ -- 50 29 Collections of membership notes receivable.............. 65 29 -- Repurchase of membership units.......................... (6,422) (4,274) (14) Distributions to members................................ (6,090) (4,720) (195) ---------- ---------- ---------- NET CASH USED FOR FINANCING ACTIVITIES..................................... (14,982) (18,185) (8,367) ---------- ---------- ---------- Effect of exchange rate changes......................... 1,412 2,424 1,998 Net increase (decrease) in cash......................... (5,403) (2,522) (16,108) Cash at beginning of period............................. 8,718 11,240 27,348 ---------- ---------- ---------- Cash at end of period................................... $ 3,315 $ 8,718 $ 11,240 ========== ========== ========== Cash paid for interest.................................. $ 17,032 $ 16,809 $ 17,559 ========== ========== ========== Cash paid for income taxes.............................. $ 1,763 $ 3,131 $ 934 ========== ========== ==========
See accompanying notes to consolidated financial statements. 24 27 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DOLLAR AMOUNTS IN THOUSANDS)
OTHER RETAINED TOTAL MEMBERS' COMPREHENSIVE EARNINGS MEMBERS' CAPITAL INCOME (LOSS) (DEFICIT) EQUITY --------- --------- --------- -------- Balance at December 31, 1997................. $ 23,163 $ (490) $ (6,229) $ 16,444 Issuance of additional units................. 150 -- -- 150 Notes receivable for unit purchase........... (121) -- -- (121) Repurchase of membership units............... (14) -- -- (14) Accretion of membership warrants............. (902) -- -- (902) Distributions to members..................... -- -- (195) (195) Comprehensive loss: Currency translation adjustment............ -- (125) -- -- Net loss for 1998.......................... -- -- (90) -- Total comprehensive loss................. -- -- -- (215) --------- --------- --------- -------- Balance at December 31, 1998................. 22,276 (615) (6,514) 15,147 Issuance of additional units................. 970 -- -- 970 Notes receivable for unit purchase........... 380 -- -- 380 Repurchase of membership units............... (5,142) -- -- (5,142) Accretion of membership warrants............. (401) -- -- (401) Distributions to members..................... -- -- (4,720) (4,720) Comprehensive income: Currency translation adjustment............ -- (881) -- -- Net income for 1999........................ -- -- 4,978 -- Total comprehensive income............... -- -- -- 4,097 --------- --------- --------- -------- Balance at December 31, 1999................. 18,083 (1,496) (6,256) 10,331 Notes receivable for unit purchase........... 65 -- -- 65 Repurchase of membership units............... (6,422) -- -- (6,422) Accretion of membership warrants............. (200) -- -- (200) Distributions to members..................... -- -- (6,090) (6,090) Comprehensive income: Currency translation adjustment............ -- 419 -- -- Net income for 2000........................ -- -- 7,793 -- Total comprehensive income............... -- -- -- 8,212 --------- --------- --------- -------- Balance at December 31, 2000................. $ 11,526 $ (1,077) $ (4,553) $ 5,896 ========= ========= ========= ========
See accompanying notes to consolidated financial statements. 25 28 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITIES Advanced Accessory Systems, LLC (the "Company") is engaged in the design, manufacture and supply of towing and rack systems and accessories for the automotive original equipment manufacturer ("OEM") market and the automotive aftermarket. The Company's business commenced on September 28, 1995, with the acquisition of certain of the net assets of MascoTech Accessories (the "Predecessor"), a division of MascoTech, Inc., through the Company's majority-owned subsidiary, SportRack, LLC. As described in Note 2, in October 1996 the Company acquired Brink B.V., in July and August of 1997 acquired the sportrack division of Bell Sports Corporation, Nomadic Sports, Inc. and certain net assets of Valley Industries, Inc., in January and February 1998 acquired the net assets of the towbar segment of Ellebi S.p.A. and the net assets of Transfo-Rakzs, Inc. and in February and September 2000 acquired the net assets of Titan Industries, Inc. and the Wiswall Hill Corporation. PRINCIPLES OF CONSOLIDATION The Company includes the accounts of the following: SportRack, LLC ..................................................... 100% owned by Advanced Accessory Systems, LLC SportRack Automotive, GmbH and its consolidated subsidiaries ................................... A German corporation, 100% owned by SportRack, LLC SportRack International, Inc and its consolidated subsidiary ......................................... A Canadian corporation, 100% owned by SportRack, LLC AAS Holdings, Inc. ................................................. 100% owned by Advanced Accessory Systems, LLC Brink International B.V and its consolidated subsidiaries ...................................... A Dutch corporation, 100% owned by AAS Holdings, Inc. Valley Industries, LLC ............................................. 99% owned by Advanced Accessory Systems, LLC and 1% owned by SportRack, LLC ValTek, LLC ........................................................ 99% owned by Advanced Accessory Systems, LLC and 1% owned by SportRack, LLC AAS Capital Corporation ............................................ 100% owned by Advanced Accessory Systems, LLC
All intercompany transactions have been eliminated in consolidation. REVENUE RECOGNITION Revenue and related cost of goods sold are recognized upon shipment of the product to the customer. Sales allowances, discounts, rebates and other adjustments are recorded or accrued in the period of the sale. During 2000, the Company adopted the provisions of the EITF 00-10, "Accounting for Shipping and Handling Revenues and Costs", which requires that all amounts billed to customers related to shipping and handling costs be classified as revenue. In prior years, these costs and the reimbursement of these costs were netted in our financial statements. Accordingly, amounts billed to customers are now included in net sales and the related costs are included in cost of sales for all years presented. There was no impact on net income. SIGNIFICANT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal period. Actual results could differ from those estimates. During the year ended December 31, 2000 management decreased an estimated liability related to a contingent obligation to one of its customers. The reduction resulted in a benefit to the Company of approximately $1,900 which was included in selling, administrative and product development expenses. 26 29 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) FINANCIAL INSTRUMENTS Financial instruments at December 31, 2000 and 1999, including cash, accounts receivable and accounts payable, are recorded at cost, which approximates fair value due to the short-term maturities of these assets and liabilities. The carrying value of the obligations under the bank agreements are considered to approximate fair value as the agreements provide for interest rate revisions based on changes in prevailing market rates or were entered into at rates that approximate market rates at December 31, 2000 and 1999. The fair value of the Notes (as defined below) as of December 31, 2000 and 1999 was approximately $85,000 and $112,500, respectively, based upon quoted prices in the market in which the Notes are traded. The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the London Interbank Offered Rate (LIBOR). The Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions. CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly-liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. CURRENCY TRANSLATION The functional currency for the Company's foreign subsidiaries is the applicable local currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance sheet date; translation adjustments are reported as a separate component of members' equity. Revenues, expenses and cash flows for foreign subsidiaries are translated at average exchange rates during the period; foreign currency transaction gains and losses are included in current earnings. The accompanying consolidated statement of operations for the years ended December 31, 2000, 1999 and 1998 includes net currency gains (losses) of $(5,386), $(7,912) and $4,995, respectively, relating primarily to debt denominated in U.S. Dollars at Brink International B.V., whose functional currency was the Dutch Guilder through December 31, 1998 and the European Euro during 1999 and 2000. At December 31, 2000, U.S. Dollar denominated debt recorded at Brink includes intercompany debt and substantially all outstanding loans under the Company's Second Amended and Restated Credit Agreement. INVENTORIES Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out (FIFO) method. Inventories are periodically reviewed and reserves established for excess and obsolete items. TOOLING The Company incurs costs to related to new tooling used in the manufacture of products sold to OEMs. Tooling costs that are reimbursed by customers as the tooling is completed are included in other current assets. All other customer owned tooling costs, which totaled $2,205 and $1,829 at December 31, 2000 and 1999, respectively, are included in other noncurrent assets and amortized over the expected product life, generally three to six years. Company owned tooling is included in property and equipment and depreciated over its expected useful life, generally three to five years. Management periodically evaluates the recoverability of tooling costs, based on estimated future cash flows, and makes provisions for tooling costs that will not be recovered, if any, when such amounts are known. 27 30 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is stated at acquisition cost, which reflects the fair market value of assets acquired at the acquisition date for all subsidiaries. Property and equipment purchased other than through the acquisitions described in Note 2 is stated at cost. Expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation expense, which was $10,346, $10,418 and $10,857 for the years ended December 31, 2000, 1999 and 1998, respectively, is computed using the straight-line method over the following estimated useful lives:
YEARS ----- Buildings and improvements............................................................ 5-50 Machinery, equipment and tooling...................................................... 2-10 Furniture and fixtures................................................................ 5-7
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill of $77,391 and $80,674 (net of accumulated amortization of $14,032 and $11,194) at December 31, 2000 and 1999, respectively, represents the costs in excess of net assets acquired and is amortized using the straight line method over periods of up to 30 years. Debt issuance costs of $4,602 and $5,280, net of accumulated amortization at December 31, 2000 and 1999, respectively, are amortized over the terms of the loan agreements, which are six to ten years. Debt issuance cost amortization of $625, $589 and $587 for 2000, 1999 and 1998, respectively, has been included in interest expense. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS The Company evaluates the potential impairment of goodwill on an ongoing basis and reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the impairment of long-lived assets by comparing the undiscounted future net cash flows to be generated by the assets to their carrying value. Impairment losses are then measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. In 1998, as described in Note 3, the Company determined that certain intangible assets of its subsidiary, SportRack International, Inc. had been impaired. INCOME TAXES The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Distributions are made to the members in amounts sufficient to meet the tax liability on the Company's domestic taxable income accruing to the individual members. Distributions to members of $6,090, $4,720 and $195 were made during 2000, 1999 and 1998, respectively. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. Income tax provisions for these entities are based on the U.S. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are provided for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such entities' assets and liabilities. Deferred tax assets are reduced by a valuation allowance for tax benefits that are not expected to be realized. The Company does not provide for U.S. income taxes or foreign withholding taxes on the undistributed earnings of foreign subsidiaries because of management's intent to permanently reinvest in such operations. The Company and certain subsidiaries are subject to taxes, including Michigan Single Business Tax and Canadian capital tax, which are based primarily on factors other than income. As such, these amounts are included in selling, administrative and product development expenses in the accompanying consolidated statements of operations. Deferred taxes related to Michigan Single Business Tax are provided on the temporary differences resulting from capital acquisitions and depreciation. 28 31 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) RESEARCH, DEVELOPMENT AND ENGINEERING Research, development and engineering costs are expensed as incurred and aggregated approximately $9,779, $10,302 and $9,611 for the years ended December 31, 2000, 1999 and 1998, respectively. NEW ACCOUNTING PRONOUNCEMENT During the first quarter of 2001, the Company has adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments and Hedging Activities". This pronouncement is not expected the have a significant impact on the Company's results of operations or financial position. 2. ACQUISITIONS Acquisitions of the Company from inception through December 31, 2000 are as follows:
PURCHASE GOODWILL ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES ----------------------------------------- ------------------ -------- --------- ----------- -------------- MascoTech Accessories.................... September 28, 1995 $46,050 $32,781 United States Rack systems Brink B.V................................ October 30, 1996 54,339 27,730 Europe Towing systems Sportrack division of Bell Sports........ July 2, 1997 13,505 1,198 Canada Rack systems Nomadic Sports, Inc...................... July 24, 1997 849 433 Canada Rack systems Valley Industries, Inc................... August 5, 1997 56,478 32,891 United States Towing systems Towbar segment of Ellebi S.p.A........... January 2, 1998 21,938 5,645 Italy Towing systems Tranfo-Rakzs, Inc........................ February 7, 1998 1,040 902 Canada Rack systems Titan Industries, Inc.................... February 22, 2000 1,525 1,237 United States Towing systems Wiswall Hill Corporation................. September 5, 2000 1,200 -- United States Rack systems
The above acquisitions have each been accounted for in accordance with the purchase method of accounting. Accordingly, the respective purchase price of each acquisition has been allocated to assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The excess of the aggregate purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. The operating results of these entities have been included in the Company's consolidated financial statements since the date of each acquisition. Each acquisition represented the purchase of the net assets of the respective company with the exceptions of Brink B.V. and Nomadic Sports, Inc. which were purchases of the outstanding shares. Each company was purchased for cash except for Brink B.V. which was purchased for $54,339 in cash and a 12,500 Junior Subordinated Note denominated in Dutch Guilders ($7,340), to Brink Holdings, B.V. Pro forma results have not been presented as they are substantially the same as the Company's actual results. 3. IMPAIRMENT AND RESTRUCTURING CHARGES In July 1997, the Company acquired the net assets of the sportrack division of Bell Sports Corporation ("Bell") for approximately $13,500 and recorded goodwill of approximately $1,200, representing the excess of the purchase price over the then estimated fair value of net assets acquired. In June 1998 information became available which indicated that certain assets acquired from Bell (accounts receivable, inventory, and tooling) had a fair value less than originally recorded. The SportRack International purchase was renegotiated and a $2,000 reimbursement was received from Bell. Accounts receivable, inventory and tooling were reduced by $6,500 and additional goodwill of $4,500, net of the $2,000 reimbursement from Bell, was recorded. 29 32 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. IMPAIRMENT AND RESTRUCTURING CHARGE -- (CONTINUED) During the second half of 1998, management further reassessed the operations of SportRack International, and as a result took actions to restructure the operations and rationalize the product offerings, customer and supplier base, distribution channels and warehousing, and terminated 14 employees, including certain members of SportRack International's senior management. Concurrent with the reassessment of SportRack International's operations, management reviewed the revised carrying value of goodwill and other intangible assets, determined that future cash flows would not be sufficient to recover recorded amounts, and recorded an impairment charge of $7,863. The SportRack International impairment and restructuring charges are comprised of the following: Impairment of: Goodwill..................................... $ 6,116 Other intangible assets...................... 1,747 $ 7,863 -------- Restructuring charges for: Product rationalization...................... 1,068 Other costs.................................. 832 1,900 -------- -------- $ 9,763 ========
The restructuring charge related to inventory has been included in cost of sales and other costs have been included in selling, administrative and product development expenses in the accompanying 1998 consolidated statement of operations. All restructuring costs have been incurred as of December 31, 1998, including cash expenditures during 1998 of $258. Sales for SportRack International during the year ended December 31, 1998 were approximately $4,000 and total assets as of December 31, 1998 were approximately $7,100 after the impairment charge. 4. LONG-TERM DEBT Long-term debt is comprised of the following:
OUTSTANDING AT INTEREST RATE AT DECEMBER 31, DECEMBER 31, ------------------------ 2000 2000 1999 ---------- ---------- ---------- Senior Subordinated Notes, less discount of $367 and $403 respectively........................................... 9.75% $ 124,633 $ 124,597 Second Amended and Restated Credit Agreement (U.S. Credit Facility) Term note A......................................... 8.89% 5,326 9,082 Term note B......................................... 9.39% 12,370 13,494 Revolving line of credit note....................... 8.85% 11,343 -- Acquisition revolving note.......................... 8.88% 14,438 21,000 First Amended and Restated Credit Agreement (Canadian Credit Facility) Canadian term note.................................. 8.25% 7,525 10,325 Canadian revolving line of credit note.............. -- -- -- --------- --------- 175,635 178,498 Less -- current portion.................................. 11,811 12,449 --------- --------- $ 163,824 $ 166,049 ========= =========
30 33 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 4. LONG-TERM DEBT -- (CONTINUED) SENIOR SUBORDINATED NOTES Borrowings under the Company's Series B Senior Subordinated Notes (the "Notes"), due October 1, 2007, are unsecured and are subordinated in right of payment to all existing and future senior indebtedness of the Company, including the loans under the U.S. and Canadian Credit Agreements described below. The Company, at its option, may redeem the Notes, in whole or in part, together with accrued and unpaid interest subsequent to October 1, 2002 at certain redemption prices as set forth by the indenture under which the Notes have been issued. Upon the occurrence of a change of control of the Company, as defined by the indenture, the Company is required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount of the Notes. The indenture places certain limits on the Company, the most restrictive of which include, the incurrence of additional indebtedness by the Company, the payment of dividends on, and redemption of capital of the Company, the redemption of certain subordinated obligations, investments, sales of assets and stock of certain subsidiaries, transactions with affiliates, consolidations, mergers and transfers of all or substantially all of the Company's assets. Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year. SECOND AMENDED AND RESTATED CREDIT AGREEMENT The Company's Second Amended and Restated Credit Agreement ("U.S. Credit Facility"), which is administered by Bank One (formerly First Chicago NBD Bank) and The Chase Manhattan Bank ("Chase"), is secured by substantially all the assets of the Company and places certain restrictions on the Company related to indebtedness, sales of assets, investments, capital expenditures, dividend payments, management fees, and members' equity transactions. In addition, the agreement subjects the Company to certain restrictive covenants, including the attainment of designated operating ratios and minimum net worth levels. The Company, at its election, may make prepayments of the term notes under the credit agreement on a pro-rata basis. Additionally, mandatory prepayments of the term notes are required in the event of sales of assets meeting certain criteria, as set forth by the agreement, or based upon periodic calculations of excess cash flows, as defined by the agreement. The U.S. Credit Facility provides for two term notes (Term note A and Term note B), a revolving line of credit note and an acquisition note. Loans under each of the term notes and the revolving note can be converted, at the election of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans. Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in one, two or three months on Eurocurrency Loans, as determined by the length of the Eurocurrency Loan, as selected by the Company. Interest is charged at an adjustable rate plus the applicable margin. The applicable margin is based upon the Company's Senior Debt Ratio, as defined by the Credit Agreement. Eurocurrency Loans under each of the term notes can be made in U.S. dollars or certain other currencies, at the option of the Company. The U.S. Credit Facility also provides for a Letter of Credit Facility. At December 31, 2000 the company had an irrevocable letter of credit outstanding in the amount of $6,350, see Note 12. At December 31, 1999, no letters of credit were outstanding. Term note A On October 30, 1996, the Company borrowed $65,000 under Term note A. On October 1, 1997, the Company made a mandatory prepayment totaling $43,475 in connection with the issuance of the Notes. Mandatory prepayments of $518 and $1,597 were made in June 2000 and June 1999, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. The applicable margin for Term note A ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. Repayments under the note are required in the following installments:
QUARTERLY --------- March 31, 2001 through June 30, 2002................................................. $ 883 Final installment on September 30, 2002.............................................. 28
31 34 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 4. LONG-TERM DEBT -- (CONTINUED) Term note B On August 5, 1997, the Company borrowed $55,000 under Term note B. On October 1, 1997 the Company made a mandatory prepayment totaling $39,044 in connection with the issuance of the Notes. Mandatory prepayments of $833 and $1,806 were made in June 2000 and June 1999, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. The applicable margin for Term note B ranges from 1.75% to 3.0% for Base Rate Loans and from 2.75% to 4.0% for Eurocurrency Loans. Repayments under Term note B are required in the following installments: March 31, 2001 through September 30, 2003 (quarterly)................................ $ 73 December 31, 2003.................................................................... 2,914 March 30, 2004 and June 30, 2004..................................................... 3,764 October 30, 2004..................................................................... 1,125
Revolving line of credit note The Company has the ability to borrow up to $25,000 under the revolving line of credit which expires on October 30, 2003. Available borrowings, however, are limited to a defined borrowing base amount equal to 85% eligible domestic accounts receivable and 80% of certain eligible foreign accounts receivable. The base borrowing amount is increased by the lesser of the sum of 50% of domestic eligible inventory and 40% to 50% of certain eligible foreign inventory or $10,000. Available borrowings are reduced by amounts outstanding under the Canadian revolving line of credit note described below and outstanding letters of credit. The applicable margin for the revolving line of credit ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. A commitment fee of 0.5% to 0.625% is charged on the unused balance based on the Company's Senior Leverage Ratio, as defined. At December 31, 2000, $7,307 was available under the facility. Acquisition note On December 31, 1997, the Company borrowed $21,000 under its acquisition note. The proceeds were used to acquire the net assets of Ellebi on January 2, 1998, as discussed in Note 2. The applicable margin for the acquisition note ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. Repayments under the acquisition note are due in equal quarterly installments of $1,313 through September 30, 2003. FIRST AMENDED AND RESTATED CREDIT AGREEMENT The Company's First Amended and Restated Credit Agreement ("Canadian Credit Facility"), which is administered by Bank One and The Chase Manhattan Bank of Canada ("Chase Canada"), is secured by substantially all of the assets of the Company's Canadian subsidiaries and is guaranteed by the Company. The Canadian Credit Facility provides for a C$20,000 term note and a C$4,000 revolving note, (U.S. $13,332 and U.S. $2,666) at December 31, 2000, respectively. Loans under each of the notes can be converted at the election of the Company, in whole or in part, into Floating Rate advances, U.S. Base Rate advances or LIBOR advances. Floating rate advances are denominated in Canadian dollars and bear interest at a variable rate based on the bank's prime lending rate plus a variable margin. U.S. Base Rate advances are denominated in U.S. dollars and bear interest at the bank's prime lending rate plus a variable margin. LIBOR advances are denominated in U.S. dollars and bear interest at LIBOR plus a variable margin. The variable margin is based upon the Company's Senior Debt Ratio, as defined by the Canadian Credit Facility and ranges from 0.5% to 1.75% for U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR advances. 32 35 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 4. LONG-TERM DEBT -- (CONTINUED) Canadian term note Repayments under the Canadian term note are required in the following installments:
QUARTERLY --------- March 31, 2001 through June 30, 2003................................................... $ 684 Final installment on October 30, 2003.................................................. 684
Canadian revolving line of credit note A commitment fee of 0.5% is charged on the unused balance of the Canadian revolving line of credit note. SENIOR SUBORDINATED LOANS On October 30, 1996, the Company borrowed $20,000 under its Senior Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with J.P. Morgan Partners (23A SBIC), LLC, an affiliate of J.P. Morgan Partners, LLC, and International Mezzanine. The Senior Subordinated Loans were repaid in full on October 1, 1997 with the proceeds of the Notes discussed above. In connection with the issuance of the Senior Subordinated Loans, the Company issued warrants to purchase 1,002 membership units. The warrants have an exercise price of one cent per warrant, are exercisable immediately, and expire October 30, 2004. As provided in the Warrant Agreement, the warrant holder can put the warrants and membership units acquired through the exercise of the warrants back to the Company after October 30, 2001 or upon occurrence of a Triggering Event, as defined, but prior to the earlier of October 30, 2004 or the consummation of a Qualified Public Offering for an amount equal to Fair Market Value, as defined. Additionally, as provided in the Warrant Agreement, the Company may call the warrants and membership units acquired through the exercise of the warrants at any time after the sixth anniversary of the Closing Date, but prior to the earlier of October 30, 2004 or a Qualified Public Offering for an amount equal to Fair Market Value, as defined. At the date of issuance, the proceeds from the Senior Subordinated Loans were allocated between the Senior Subordinated Loans and the warrants based upon their estimated relative fair market value. The warrants are being accreted to their estimated redemption value through periodic charges against Members' Equity through the earlier of October 30, 2001 or the time redemption first becomes available. Thereafter the warrants will be recorded at the then estimated redemption value. The aforementioned warrants have been presented as mandatorily redeemable warrants in the accompanying balance sheets. SCHEDULED MATURITIES The aggregate scheduled annual principal payments due in each of the years ending December 31, is as follows: 2001...................................................................................... $ 11,811 2002...................................................................................... 10,073 2003...................................................................................... 20,463 2004...................................................................................... 8,655 2005...................................................................................... -- thereafter................................................................................ 125,000 --------- 176,002 Less -- discount.......................................................................... (367) --------- $ 175,635 =========
33 36 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 5. MEMBERS' EQUITY Holders of Class A Units are eligible to vote in elections of Managers of the Company and other matters as set fourth in the Company's Operating Agreement and By-Laws and are convertible to Class A-1 Units by holders that are regulated financial institutions. Class A-1 Units are non-voting but are otherwise entitled to the identical rights as holders of Class A Units and are convertible to Class A units provided such conversion is not in violation of certain governmental regulations of the unit holder. Holders of Class B Units are entitled to such rights as designated by the Board of Managers upon the original issuance of any Class B Units provided however that those rights shall not be senior to the rights of the holders of Class A units as to allocations of net profits and as to distributions without the consent of a majority in interest of Class A Members. There were no Class B Units issued as of December 31, 2000 or 1999. Effective January 1, 2000, the Company issued 3,655 of its Class A-1 Units in exchange for an equal amount of Class A Units. Effective November 11, 2000 the Company issued 1,478 of its Class A-1 Units in exchange for an equal amount of Class A Units. 6. INCOME TAXES The Company's C corporation subsidiaries and taxable foreign subsidiaries account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Company and certain domestic subsidiaries are limited liability corporations; as such, the Company's earnings are included in the taxable income of the Company's members. Income (loss) before minority interest and income taxes were attributable to the following sources:
YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ---------- United States.............................................. $10,491 $10,925 $10,002 Foreign.................................................... (2,976) (5,530) (9,189) ------- ------- ------- $ 7,515 $ 5,395 $ 813 ======= ======= =======
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ---------- CURRENTLY PAYABLE United States............................................ $ -- $ 14 $ -- Foreign.................................................. 630 2,836 1,591 ------- ------- ------- 630 2,850 1,591 ------- ------- ------- DEFERRED United States............................................ -- -- -- Foreign.................................................. (908) (2,433) (688) ------- ------- ------- (908) (2,433) (688) ------- ------- ------- $ (278) $ 417 $ 903 ======= ======= =======
The effective tax rates differ from the U.S. federal income tax rate as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ---------- Income tax provision (benefit) at U.S. statutory rate (35%)...... $ 2,630 $ 1,887 $ 286 U.S. income taxes attributable to members........................ (3,674) (3,823) (3,502) Change in valuation allowance.................................... (86) 854 4,225 Nondeductible foreign goodwill................................... 224 369 270 Foreign rate differences and other, net.......................... 628 1,130 (376) ------- ------- ------- $ (278) $ 417 $ 903 ======= ======= =======
34 37 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 6. INCOME TAXES -- (CONTINUED) Deferred tax assets and liabilities, related primarily to the Company's foreign subsidiaries, comprise the following:
DECEMBER 31, -------------------- 2000 1999 ------- ------- DEFERRED TAX ASSETS Net operating loss carryforwards of foreign subsidiaries..................... $ 6,660 $ 7,259 Fixed assets................................................................. 2,738 2,918 Goodwill..................................................................... 480 573 Inventory.................................................................... 83 133 Other........................................................................ 1,561 1,642 ------- ------- 11,522 12,525 ------- ------- DEFERRED TAX LIABILITIES Fixed assets................................................................. (2,492) (3,938) Inventory.................................................................... (862) (889) Employee benefits............................................................ -- (177) Other........................................................................ (429) (309) ------- ------- (3,783) (5,313) Valuation allowance.......................................................... (4,945) (5,258) ------- ------- Net deferred tax asset (liability)........................................... $ 2,794 $ 1,954 ======= =======
The net operating loss carryforwards of the Company's European subsidiaries approximate $7,257 at December 31, 2000 and have no expiration date. The net operating loss carryforwards of the Company's Canadian subsidiaries approximate $10,765 at December 31, 2000 and expire primarily in 2005 through 2009. As of December 31, 2000 and 1999, respectively, the Company recorded a valuation allowance of $4,945 and $5,258 based upon management's current assessment of the likelihood of realizing the Canadian subsidiaries' deferred tax assets. Management believes that it is more likely than not that the related deferred tax assets recorded for its other subsidiaries will be realized and no valuation allowance has been provided against such amounts as of December 31, 2000. If certain substantial changes in the Company's ownership should occur, there could be an annual limit on the amount of certain carryforwards which can be utilized. 7. RELATED PARTY TRANSACTIONS AND ALLOCATIONS A portion of the Company's U.S. Credit Facility, Canadian Credit Facility and Senior Subordinated Loans, as described in Note 4, is with Chase, Chase Canada and J.P. Morgan Partners (23ASBIC), LLC, respectively, which are each affiliates of a member of the Company. Charges to operations related to consulting services provided to the Company by certain members of the Company aggregated approximately $406, $400 and $386 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain employees and consultants of the Company hold Class A Units of the Company. During the year ended December 31, 1999, the Company acquired the equity instruments owned by its former president for $4,250. 8. OPTION PLAN The Company adopted the disclosure requirements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The Company, however, has elected to continue to measure compensation cost using the intrinsic value method, in accordance with APB Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees". The Company has issued options to purchase Class A Units which are outstanding under the Company's 1995 Option Plan ("the Plan"). As of December 31, 2000 and 1999, the Company was authorized under the Plan to issue options to purchase up to 4,200 Class A Units to officers, directors and employees of the Company and its subsidiaries. At December 31, 2000, there were 179 options that remained available for grant under the Plan. 35 38 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. OPTION PLAN -- (CONTINUED) Information concerning options to purchase Class A Units is as follows:
2000 1999 1998 ----------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE UNITS PRICE UNITS PRICE UNITS PRICE -------- -------- --------- -------- --------- -------- Outstanding at January 1............... 2,405 $ 1,499 3,971 $ 1,343 3,903 $ 1,415 Options granted........................ -- -- 50 $ 4,000 280 $ 3,135 Options exercised...................... -- -- 696 $ 1,251 -- -- Options cancelled...................... 47 $ 5,610 920 $ 1,150 212 $ 5,035 ----- ------- ------- Outstanding at December 31............. 2,358 $ 1,417 2,405 $ 1,499 3,971 $ 1,343 ===== ======= ======= Exercisable at December 31............. 1,581 $ 1,515 1,282 $ 1,532 1,665 $ 1,398 ===== ======= =======
All options granted have terms of 15 years and vest as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE UNITS PRICE VESTING PERIOD --------- --------- --------------------------------------------------------------------------------------- 129 $ 3,029 Options vest immediately. 1,379 $ 1,469 Options vest over periods, generally up to ten years, as determined by the Option Committee. Vesting may be accelerated based on the results of a Liquidity Event, as defined in the Plan, or based upon the achievement of certain operating results of the Company or its subsidiaries. 275 $ 1,000 Options vest based on the results of a Liquidity Event, as defined in the Plan. 575 $ 1,130 Options vest based upon achievement of certain operating results of the Company.
The Company has elected to continue applying the provisions of APB 25 and accordingly, recognized compensation cost of $450, $400 and $558 for the years ended December 31, 2000, 1999 and 1998, respectively. If compensation cost and the fair value of options granted had been determined based upon the fair value method in accordance with SFAS 123, the pro forma net income (loss) of the Company would have been $8,047, $5,258 and ($290) the years ended December 31, 2000, 1999 and 1998, respectively. The weighted average fair value of options granted per unit was $2,300 and $2,400 for the years ended December 31, 1999 and 1998, respectively. Options granted in 1999 and 1998 had exercise prices below market value at the date of grant. The fair value of options granted and related pro forma compensation cost were estimated using the Black-Scholes option-pricing model with an expected volatility of zero and the following assumptions:
1999 1998 ---- ---- Dividend yield............................ 0.0% 0.0% Risk-free rate of return.................. 6.0% 5.5% Expected option term (in years)........... 8 8
36 39 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. OPTION PLANS -- (CONTINUED) The following table summarizes the status of the Company's options outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING ----------------------- WEIGHTED AVERAGE REMAINING EXERCISE CONTRACTUAL OPTIONS PRICES UNITS LIFE EXERCISABLE --------- --------- ------------- ------------ $ 1,000 2,025 10 1,309 $ 3,029 129 12 129 $ 3,485 65 12 39 $ 4,000 50 13 15 $ 5,610 89 12 89
9. PENSION PLANS The Company has a defined benefit pension plan covering substantially all of SportRack, LLC's domestic employees covered under a collective bargaining agreement. An employee's monthly pension benefit is determined by multiplying a defined dollar amount by the years of credited service earned. Plan assets are comprised principally of marketable equity securities and short-term investments. The Company's funding policy is to contribute annually the amounts necessary to comply with ERISA funding requirements. The following table sets forth the change in the plan's benefit obligations and plan assets, and the funded status of the plan as of and for the years ended December 31, 2000 and 1999:
DECEMBER 31, ---------------------- 2000 1999 --------- -------- Change in benefit obligation: Benefit obligation at beginning of year........................ $ 2,491 $ 2,301 Benefits earned during the year................................ 124 110 Interest on projected benefit obligation....................... 182 151 Increase as a result in plan amendment......................... -- 363 Actuarial loss (gain).......................................... (7) (362) Benefits paid.................................................. (87) (72) ------ ------ Benefit obligation at end of year.............................. 2,703 2,491 ------ ------ Change in plan assets: Market value of assets at beginning of year.................... 2,190 1,831 Actual return on plan assets................................... 84 147 Employer contributions......................................... 238 284 Benefits paid.................................................. (87) (72) ------ ------ Market value of assets at end of year.......................... 2,425 2,190 ------ ------ Funded status..................................................... (278) (301) Unrecognized prior service cost................................... 345 371 Unrecognized net (gain) loss...................................... (160) (284) ------ ------ Accrued pension cost.............................................. $ (93) $ (214) ====== ======
YEAR ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 --------- --------- ---------- Components of net periodic benefit cost: Service cost.................................................. $ 124 $ 110 $ 99 Interest cost................................................. 182 151 140 Expected return on plan assets................................ (205) (175) (147) Recognized net actuarial gain................................. (10) -- -- Amortization of prior service cost............................ 27 1 1 ------- ------- ------- Net periodic Benefit cost........................................ $ 118 $ 87 $ 93 ======= ======= =======
37 40 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 9. PENSION PLANS -- (CONTINUED) The weighted average discount rate used in determining the actuarial present value of the accumulated benefit obligation was 7.50%, 7.75%, and 6.75% at December 31, 2000, 1999 and 1998, respectively. The expected long-term rate of return on plan assets was 9.00% at December 31, 2000, 1999 and 1998. The Company has various defined contribution retirement plans for its domestic and certain foreign subsidiaries, including 401(k) plans, whereby participants can contribute a portion of their salary up to certain maximums established by the related plan documents. The Company makes matching contributions, which are based upon the amounts contributed by employees. The Company's matching contributions charged to operations aggregated $369, $334 and $306 in 2000, 1999 and 1998, respectively. Substantially all of the employees of Brink International B.V. are covered by a union-sponsored, collectively-bargained, multi-employer defined benefit plan. Pension expense was $1,270, $1,271 and $1,302 for the years ended December 31, 2000, 1999 and 1998, respectively. 10. OPERATING LEASES The Company leases certain equipment under leases expiring on various dates through 2004. Future minimum annual lease payments required under leases that have a noncancellable lease term in excess of one year at December 31, 2000 are as follows: 2001.................................................................................... $ 3,542 2002.................................................................................... 2,870 2003.................................................................................... 1,942 2004.................................................................................... 1,431 2005.................................................................................... 762 ------- $10,547 =======
Rental expense charged to operations was approximately $4,066, $4,169 and $3,947 for the years ended December 31, 2000, 1999 and 1998, respectively. 11. ACCOUNT BALANCES Account balances included in the consolidated balance sheets are comprised of the following:
DECEMBER 31, ----------------------- 2000 1999 --------- -------- INVENTORIES Raw materials.............................................................. $17,746 $13,068 Work-in-process............................................................ 7,910 9,871 Finished goods............................................................. 18,978 18,715 Reserves................................................................... (2,540) (3,217) ------- ------- $42,094 $38,437 ======= ======= PROPERTY AND EQUIPMENT Land, buildings and improvements........................................... $23,751 $23,694 Furniture, fixtures and computer hardware.................................. 11,346 9,891 Machinery, equipment and tooling........................................... 54,219 47,565 Construction-in-progress................................................... 1,579 2,820 ------- ------- 90,895 83,970 Less -- accumulated depreciation........................................... (32,663) (24,654) ------- ------- $58,232 $59,316 ======= ======= ACCRUED LIABILITIES Compensation and benefits.................................................. $12,400 $12,350 Interest................................................................... 3,148 3,367 Other...................................................................... 9,854 9,050 ------- ------- $25,402 $24,767 ======= =======
38 41 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 12. COMMITMENTS AND CONTINGENCIES In February 1996, the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreements with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999 a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the Company and awarded the individuals approximately $3,800 plus interest and reasonable attorney fees. The Company plans to file an appeal once the court enters a judgment, which is expected during the second quarter of 2001. During 2000, the Company increased its estimated accrual for this matter by $450 representing accrued interest for the year which charge is included in interest expense. During 1999, the Company increased its estimated accrual for this matter by $2,000 which charge is included in other expense. At December 31, 2000 the Company had an outstanding irrevocable letter of credit totaling $6,350 benefiting the individuals. No amounts have been paid as of December 31, 1999. During the second quarter of 2000 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 worked with the customer to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact will be to the Company, if any, as a result of the recall. In addition to the above, the Company is party to various claims, lawsuits and administrative proceedings related to matters arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company. 13. SEGMENT INFORMATION The Company operates in one reportable segment, providing towing and rack systems and related accessories to the automotive OEM and aftermarket. All sales are to unaffiliated customers. Revenues by geographic area, accumulated by the geographic area where the revenue originated, revenues by product line and long-lived assets, which include net property and equipment and net goodwill and debt issuance costs, by geographic area are as follows:
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ------------ REVENUES United States.................................................... $ 222,159 $ 211,167 $ 192,306 The Netherlands.................................................. 32,344 35,647 35,543 Italy............................................................ 15,725 19,211 19,900 Other foreign.................................................... 48,589 48,117 44,396 --------- --------- --------- $ 318,817 $ 314,142 $ 292,145 ========= ========= =========
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ------------ REVENUES Towing systems.................................................. $ 186,753 $ 187,276 $ 175,236 Rack systems.................................................... 132,064 126,866 116,909 --------- --------- --------- $ 318,817 $ 314,142 $ 292,145 ========= ========= =========
DECEMBER 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ------------ LONG-LIVED ASSETS United States........................................................ $34,830 $ 32,013 $ 28,416 The Netherlands...................................................... 11,494 13,080 16,258 Italy................................................................ 3,044 4,619 6,435 Other foreign........................................................ 8,864 9,604 10,186 ------- -------- -------- $58,232 $ 59,316 $ 61,295 ======= ======== ========
39 42 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. SEGMENT INFORMATION -- (CONTINUED) The Company has two significant customers in the automotive OEM industry. Sales to these customers represented 32% and 11% of total Company sales for the year ended December 31, 2000, 36% and 12% for the year ended December 31, 1999, and 32% and 11% for the year ended December 31, 1998. Accounts receivable from these customers represented 30% and 11% of the Company's trade accounts receivable at December 31, 2000, and 35% and 5% at December 31, 1999, respectively. Although the Company is directly affected by the economic well being of the industries and customers referred to above, management does not believe significant credit risk exists at December 31, 2000. Consistent with industry practice, the Company does not require collateral to reduce such credit risk. 14. CONDENSED CONSOLIDATING INFORMATION The Notes have been issued by the Company and its wholly-owned subsidiary, AAS Capital Corporation and are guaranteed on a full and unconditional and joint and several basis, by all of the Company's wholly-owned domestic subsidiaries. The following condensed consolidating financial information for 2000, 1999 and 1998 presents the financial position, results of operations and cash flows of (i) the Company as parent, as if it accounted for its subsidiaries on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and include Brink International B.V., SportRack International, Inc., and SportRack Automotive, GmbH. The operating results of the guarantor and non-guarantor subsidiaries include management fees of $1,410 and $330, respectively, for the year ended December 31, 2000, $1,410 and $320, respectively, for the year ended December 31, 1999 and $1,198 and $318 for the year ended December 31, 1998, in addition to having been charged interest on their intercompany balances. Since its formation in September 1997, AAS Capital Corporation has had no operations and has no assets or liabilities at December 31, 2000. 40 43 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ ASSETS Current assets Cash .................................. $ 1,153 $ 246 $ 1,916 $ -- $ 3,315 Accounts receivable ................... -- 28,309 14,633 -- 42,942 Inventories ........................... -- 19,148 22,946 -- 42,094 Deferred income taxes and other current assets ....................... 7 5,180 3,462 -- 8,649 --------- --------- --------- --------- --------- Total current assets ............. 1,160 52,883 42,957 -- 97,000 --------- --------- --------- --------- --------- Property and equipment, net ............. -- 34,830 23,402 -- 58,232 Goodwill, net ........................... 1,025 56,144 20,222 -- 77,391 Other intangible assets, net ............ 3,968 234 828 -- 5,030 Deferred income taxes and other noncurrent assets ..................... 93 2,385 2,366 -- 4,844 Investment in subsidiaries .............. 57,615 9,955 -- (67,570) -- Intercompany notes receivable ........... 91,695 -- -- (91,695) -- --------- --------- --------- --------- --------- Total assets ..................... $ 155,556 $ 156,431 $ 89,775 $(159,265) $ 242,497 ========= ========= ========= ========= ========= LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt .. $ -- $ -- $ 11,811 $ -- $ 11,811 Accounts payable ...................... -- 16,689 8,307 -- 24,996 Accrued liabilities and deferred income taxes ........................ 6,799 8,027 10,576 -- 25,402 --------- --------- --------- --------- --------- Total current liabilities ........ 6,799 24,716 30,694 -- 62,209 --------- --------- --------- --------- --------- Deferred income taxes and other noncurrent liabilities ................ 2,003 343 3,212 -- 5,558 Long-term debt, less current maturities . 135,976 -- 27,848 -- 163,824 Intercompany debt ....................... -- 46,064 45,631 (91,695) -- Mandatorily redeemable warrants ......... 5,010 -- -- -- 5,010 Members' equity ......................... 5,768 85,308 (17,610) (67,570) 5,896 --------- --------- --------- --------- --------- Total liabilities and members' equity ......................... $ 155,556 $ 156,431 $ 89,775 $(159,265) $ 242,497 ========= ========= ========= ========= =========
41 44 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ ASSETS Current assets Cash .................................. $ -- $ 5,469 $ 3,249 $ -- $ 8,718 Accounts receivable ................... -- 32,087 14,831 -- 46,918 Inventories ........................... -- 16,361 22,076 -- 38,437 Deferred income taxes and other current assets ....................... 13 3,724 2,946 -- 6,683 --------- --------- --------- --------- --------- Total current assets ............. 13 57,641 43,102 -- 100,756 --------- --------- --------- --------- --------- Property and equipment, net ............. -- 32,014 27,302 -- 59,316 Goodwill, net ........................... 1,065 57,100 22,509 -- 80,674 Other intangible assets, net ............ 4,423 390 916 -- 5,729 Deferred income taxes and other noncurrent assets ..................... 93 1,988 2,657 -- 4,738 Investment in subsidiaries .............. 43,065 9,955 -- (53,020) -- Intercompany notes receivable ........... 99,537 -- -- (99,537) -- --------- --------- --------- --------- --------- Total assets ..................... $ 148,196 $ 159,088 $ 96,486 $(152,557) $ 251,213 ========= ========= ========= ========= ========= LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt .. $ -- $ -- $ 12,449 $ -- $ 12,449 Accounts payable ...................... -- 18,090 8,625 -- 26,715 Accrued liabilities and deferred income taxes ........................ 5,524 9,231 10,012 -- 24,767 --------- --------- --------- --------- --------- Total current liabilities ........ 5,524 27,321 31,086 -- 63,931 --------- --------- --------- --------- --------- Deferred income taxes and other noncurrent liabilities ................ 1,553 608 3,931 -- 6,092 Long-term debt, less current maturities . 124,597 -- 41,452 -- 166,049 Intercompany debt ....................... -- 64,189 35,348 (99,537) -- Mandatorily redeemable warrants ......... 4,810 -- -- -- 4,810 Members' equity ......................... 11,712 66,970 (15,331) (53,020) 10,331 --------- --------- --------- --------- --------- Total liabilities and members' equity ......................... $ 148,196 $ 159,088 $ 96,486 $(152,557) $ 251,213 ========= ========= ========= ========= =========
42 45 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net sales................................ $ -- $ 222,159 $ 96,658 $ -- $ 318,817 Cost of sales............................ -- 173,230 65,860 -- 239,090 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 48,929 30,798 -- 79,727 Selling, administrative and product development expenses................... 1,780 23,450 20,297 -- 45,527 Amortization of intangible assets........ 40 2,347 910 -- 3,297 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,820) 23,132 9,591 -- 30,903 Interest expense......................... 6,027 4,433 7,490 -- 17,950 Equity in net income (loss) of subsidiaries........................... 15,640 -- -- (15,640) -- Foreign currency gain (loss)............. -- -- (5,386) -- (5,386) Other income (expense)................... -- (361) 309 -- (52) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 7,793 18,338 (2,976) (15,640) 7,515 Benefit for income taxes................. -- -- 278 -- 278 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 7,793 $ 18,338 $ (2,698) $ (15,640) $ 7,793 ========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net sales................................ $ -- $ 211,265 $ 102,877 $ -- $ 314,142 Cost of sales............................ -- 158,691 69,198 -- 227,889 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 52,574 33,679 -- 86,253 Selling, administrative and product development expenses................... 1,624 25,141 23,493 -- 50,258 Amortization of intangible assets........ 40 2,326 879 -- 3,245 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,664) 25,107 9,307 -- 32,750 Interest expense......................... 4,933 5,559 6,961 -- 17,453 Equity in net income (loss) of subsidiaries........................... 13,575 -- -- (13,575) -- Foreign currency gain (loss)............. -- -- (7,912) -- (7,912) Other income (expense)................... (2,000) 10 -- -- (1,990) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 4,978 19,558 (5,566) (13,575) 5,395 Provision for income taxes............... -- 14 403 -- 417 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 4,978 $ 19,544 $ (5,969) $ (13,575) $ 4,978 ========== ========== =========== ========== ==========
43 46 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net sales................................ $ -- $ 192,306 $ 99,839 $ -- $ 292,145 Cost of sales............................ -- 144,162 71,279 -- 215,441 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 48,144 28,560 -- 76,704 Selling, administrative and product development expenses................... 1,560 23,631 25,648 -- 50,839 Amortization of intangible assets........ 40 2,314 1,197 -- 3,551 Impairment charge -- -- 7,863 -- 7,863 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (1,600) 22,199 (6,148) -- 14,451 Interest expense......................... 3,700 6,888 8,045 -- 18,633 Equity in net income (loss) of subsidiaries........................... 5,210 -- -- (5,210) -- Foreign currency gain.................... -- -- 4,995 -- 4,995 ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ (90) 15,311 (9,198) (5,210) 813 Provision for income taxes............... -- -- 903 -- 903 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ (90) $ 15,311 $ (10,101) $ (5,210) $ (90) ========== ========== =========== ========== ==========
44 47 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities.................................. $ (5,585) $ 22,146 $ 4,855 $ -- $ 21,416 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment................................. -- (7,699) (2,746) (10,445) Acquisition of subsidiaries, net of cash acquired.................................. -- (1,545) (1,259) -- (2,804) ---------- --------- ---------- ---------- --------- Net cash used for investing activities.... -- (9,244) (4,005) -- (13,249) ---------- ---------- ---------- ---------- --------- Cash flows provided by (used for) financing activities: Change in intercompany debt................. 7,842 (18,125) 10,283 -- -- Net increase in revolving loan.............. 11,343 -- -- -- 11,343 Repayment of debt........................... -- -- (13,878) -- (13,878) Repurchase of membership units.............. (6,422) -- -- -- (6,422) Collection on members notes receivable...... 65 -- -- -- 65 Distributions to members.................... (6,090) -- (6,090) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities.................... 6,738 (18,125) (3,595) -- (14,982) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes............... -- -- 1,412 -- 1,412 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash............... 1,153 (5,223) (1,333) -- (5,403) Cash at beginning of period................... -- 5,469 3,249 -- 8,718 ---------- --------- ---------- ---------- ---------- Cash at end of period......................... $ 1,153 $ 246 $ 1,916 $ -- $ 3,315 ========== ========= ========== ========== ==========
45 48 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities................................... $ (5,953) $ 26,715 $ 4,252 $ -- $ 25,014 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment.................................. -- (8,000) (3,775) -- (11,775) ---------- --------- ---------- ---------- --------- Net cash used for investing activities..... -- (8,000) (3,775) -- (11,775) ---------- ---------- ---------- ---------- --------- Cash flows provided by (used for) financing activities: Change in intercompany debt.................. 10,148 (14,162) 4,014 -- -- Repayment of debt............................ -- -- (9,270) -- (9,270) Issuance of membership units................. 50 -- -- -- 50 Repurchase of membership units............... (4,274) -- -- -- (4,274) Collection on members notes receivable....... 29 -- -- -- 29 Distributions from subsidiaries.............. 4,720 -- -- (4,720) -- Distributions to members..................... (4,720) (4,720) -- 4,720 (4,720) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities..................... 5,953 (18,882) (5,256) -- (18,185) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes................ -- -- 2,424 -- 2,424 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash................ -- (167) (2,355) -- (2,522) Cash at beginning of period.................... -- 5,636 5,604 -- 11,240 ---------- --------- ---------- ---------- ---------- Cash at end of period.......................... $ -- $ 5,469 $ 3,249 $ -- $ 8,718 ========== ========= ========== ========== ==========
46 49 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities.................................. $ (4,216) $ 18,479 $ 7,616 $ -- $ 21,879 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment................................. -- (4,358) (5,640) -- (9,998) Amount due from sellors of Valley Industries, Inc........................... -- 1,150 -- -- 1,150 Acquisition of subsidiaries, net of cash acquired.................................. -- -- (22,770) -- (22,770) ---------- --------- ---------- ---------- ---------- Net cash used for investing activities.... -- (3,208) (28,410) -- (31,618) ---------- ---------- ---------- ---------- ---------- Cash flows provided by (used for) financing activities: Change in intercompany debt................. 6,101 (11,657) 5,556 -- -- Net reduction in revolving loan............. (1,900) -- (2,605) -- (4,505) Repayment of debt........................... -- -- (3,682) -- (3,682) Issuance of membership units................ 29 -- -- -- 29 Repurchase of membership units.............. (14) -- -- -- (14) Distributions from subsidiaries............. 195 -- -- (195) -- Distributions to members.................... (195) (195) -- 195 (195) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities.................... 4,216 (11,852) (731) -- (8,367) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes............... -- -- 1,998 -- 1,998 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash............... -- 3,419 (19,527) -- (16,108) Cash at beginning of period................... -- 2,217 25,131 -- 27,348 ---------- --------- ---------- ---------- ---------- Cash at end of period......................... $ -- $ 5,636 $ 5,604 $ -- $ 11,240 ========== ========= ========== ========== ==========
47 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of each of the individuals that currently serve as a member (each, a "Board Member") of the Company's board of managers (the "Board of Managers"), executive officers and other significant employees of the Company.
NAME AGE POSITION --------------------------- ----- ------------------------------------------------------------ F. Alan Smith.............. 69 Chairman of the Board of Managers of the Company Terence C. Seikel.......... 44 President and Chief Executive Officer of the Company; Board Member Richard E. Borghi.......... 54 President and Chief Operating Officer of SportRack; Board Member Gerrit de Graaf............ 37 General Manager and Chief Executive Officer of Brink; Board Member Bryan A. Fletcher.......... 41 President and Chief Operating Officer of Valley Aftermarket Barry G. Steele............ 30 Corporate Controller of the Company J. Wim Rengelink........... 46 Finance Director of Brink Donald J. Hofmann, Jr...... 43 Board Member, Vice President and Secretary of the Company Barry Banducci............. 65 Board Member Gerard J. Brink............ 57 Board Member
F. Alan Smith has served in the automotive industry for 39 years and has been Chairman of the Board of Managers of the Company since its formation in September 1995. He served in various assignments at General Motors from 1956 to 1992, including President of GM Canada from 1978 to 1980. He was a member of the Board of Directors of General Motors from 1981 to 1992 and Chief Financial Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The Minnesota Mining and Manufacturing Corporation ("3M"), TransPro, Inc. ("TransPro"). Terence C. Seikel has served in the automotive industry for 17 years and has been President and Chief Executive Officer of the Company since April 15, 1999. From 1996 until April 15, 1999, Mr. Seikel served as Vice President of Finance and Administration and Chief Financial Officer of the Company and SportRack. From 1985 to 1996, Mr. Seikel was employed by Larizza Industries, a publicly held supplier of interior trim to the automotive industry, in various capacities including Chief Financial Officer. Richard E. Borghi has served in the automotive industry for 33 years and has been President and Chief Operating Officer of SportRack since April 15, 1999. From 1995 until April 15, 1999, Mr. Borghi, served as Executive Vice President of Operations and Chief Operating Officer of SportRack. From 1988 to 1995, Mr. Borghi held various senior management positions with MascoTech, and was the Executive Vice President of Operations of the MascoTech Division at the time of its acquisition by the Company. Gerrit de Graaf has been General Manager and Chief Executive Officer of Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips Medical Systems as a consultant and most recently as Philips' Marketing Manager in the United States. Bryan A. Fletcher has served in the automotive industry for 12 years and has been President and Chief Operating Officer of Valley Aftermarket since July 2000. From 1991 until July 2000 Mr. Fletcher served as Vice President of Aftermarket Operations of Valley. Barry G. Steele has been Corporate Controller of the Company since June 1999. From 1997 until June 1999, Mr. Steele served as Manager of Financial Reporting of the Company. From 1993 to 1997, Mr. Steele was employed by Price Waterhouse LLP. J. Wim Rengelink has served in the automotive industry for 14 years and has been Finance Director of Brink since 1995. From 1988 to 1995 he worked in Brink's internal audit department. 48 51 Donald J. Hofmann, Jr. has been a Board Member, Vice President and Secretary of the Company since October 1995. Mr. Hofmann has been a partner of J.P. Morgan Partners, LLC, or its predecessor Chase Capital Partners a global general partnership with over $20.0 billion under management since 1992. J.P. Morgan Partners provides equity and mezzanine debt financing for management buyouts and recapitalizations, growth equity and venture capital. Mr. Hofmann is also an executive officer of the managing member of J.P. Morgan Partners (23A SBIC), LLC, a member of the Company, which is advised by J.P. Morgan Partners, LLC. Mr. Hofmann is also a director of BPC Holding Corporation, Barry Plastics Corporation, Pliant Corporation and United Auto Group, Inc. Barry Banducci has been a Board Member of the Company since October 1995. Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior thereto, Mr. Banducci served in various capacities at Equion Corporation, a supplier of automotive components, from 1983 to 1995, including President, Chief Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro. Gerard J. Brink has been a Board Member of the Company since October 1996. Mr. Brink was General Manager of Brink from 1965 to 1996. BOARD MEMBER COMPENSATION The Board Members do not currently receive compensation for their service on the Board of Managers or any committee thereof but are reimbursed for their out-of-pocket expenses. In addition, Messrs. Smith and Banducci have consulting agreements with the Company. See "Executive Compensation - Consulting Agreements." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Managers has an Audit Committee consisting of Messrs. Banducci and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith. The Audit Committee reviews the scope and results of audits and internal accounting controls and all other tasks performed by the independent public accountants of the Company. The Compensation Committee determines compensation for executive officers of the Company and administers the Company's 1995 Option Plan. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for 1998 through 2000 for the chief executive officer of the Company and the four next most highly compensated executive officers of the Company. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------------------------- ---------------- OTHER ANNUAL SECURITIES ALL OTHER FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($) ------------------------------------ -------- ------------- ------------- ----------------- ----------------- ----------- F. Alan Smith ......................... 2000 228,000 114,000 -- -- -- Chairman of the Company 1999 228,000 114,000 -- -- -- 1998 217,000 105,000 -- 32 -- Terence C. Seikel ..................... 2000 265,000 175,000 -- -- -- President and Chief Executive Officer 1999 245,000 175,000 -- -- -- of the Company and SportRack 1998 215,000 95,000 -- 65 -- Roger T. Morgan ....................... 2000 179,892 -- -- -- -- Former President and Chief Executive 1999 263,000 100,000 -- -- -- Officer of Valley 1998 250,000 87,500 -- -- -- Richard E. Borghi ..................... 2000 279,798 125,000 -- -- -- President and Chief Operating Officer 1999 261,897 125,000 -- -- -- of SportRack 1998 219,965 115,000 -- 32 -- Gerrit de Graaf ....................... 2000 154,000 65,000 -- -- -- General Manager and Chief Executive 1999 164,830 68,660 -- -- -- Officer of Brink 1998 154,425 45,414 -- 39 -- Bryan Fletcher ........................ 2000 132,664 40,500 -- -- -- President and Chief Operating 1999 133,170 64,050 -- -- -- Officer of Valley Aftermarket 1998 115,015 41,000 -- -- --
------------------ 49 52 OPTION GRANTS IN 2000 During 2000, there were no options granted to the named executive officers. The following table sets forth information regarding outstanding membership unit options issued to the chief executive officer of the Company and the four next most highly compensated executive officers.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT YEAR END(#) AT YEAR END($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE -------------------- -------------------- --------------- ------------------------- -------------------- F. Alan Smith....... -- -- 332/150 1,660,000/ 750,000 Terence C. Seikel... -- -- 465/200 2,325,000/ 1,000,0000 Roger T. Morgan..... -- -- --/ 89 --/ -- Richard E. Borghi... -- -- 432/200 2,160,000/ 1,000,000 Gerrit de Graaf..... -- -- 24/15 120,000/ 75,000 Bryan Fletcher...... -- -- 10/35 50,000/ 175,000
------------------- EMPLOYMENT AGREEMENTS Each of Terence C. Seikel, Richard E. Borghi, Gerrit de Graaf and Bryan Fletcher have each entered into an employment agreement (collectively, the "Employment Agreements") with the Company. Mr. Seikel's Employment Agreement provides for an annual base salary of $250,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 50-70% of his base salary. Mr. Borghi's Employment Agreement provides for an annual base salary of $250,000, subject to increases at the sole discretion of the Board of Managers, a bonus in the range of 30-50% of his base salary, and a one time bonus of $100,000 on the earlier of (i) September 30, 2002, (ii) his termination date, and (iii) a sale of the Company. Mr. de Graaf's Employment Agreement provides for an annual base salary of NLG 170,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 30% to 50% of his base salary. Mr. Fletcher's Employment Agreement provides for an annual base salary of $150,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 30% to 50% of his base salary. The Employment Agreements also provide for twelve months of severance pay to the executive officer in the event such officer is terminated without cause (as defined in the Employment Agreement). The Employment Agreements for Messrs Seikel, Borghi and Fletcher provided for an increase in the severance pay period to 18 months upon a change in control of the Company, as defined in the Employment Agreement. The Employment Agreements expire December 31, 2003 for Messrs Seikel, Borghi and Fletcher and automatically extend for successive two-year terms unless terminated by the Company upon 30 days notice prior to the expiration of the current term. The Employment Agreement for Mr. de Graaf may be terminated by either party upon three month's prior written notice. Each Employment Agreement prohibits the executive officer from disclosing non-public information about the Company. The Employment Agreements also require the executive officers to assign to the Company any designs, inventions and other related items and intellectual property rights developed or acquired by the executive officer during the term of his employment. In addition, for a period of five years after termination of employment (two years if the termination is without cause) each executive officer has agreed, in his respective Employment Agreement, not to (i) engage in any Competitive Business (as defined in the Employment Agreements), (ii) interfere with or disrupt any relationship between the Company and its customers, suppliers and employees and (iii) induce any employee of the Company to terminate his or her employment with the Company or engage in any Competitive Business. CONSULTING AGREEMENTS F. Alan Smith and Barry Banducci, both members of the Board of Managers, have each entered into consulting agreements (the "Consulting Agreements") with the Company dated as of September 28, 1995. Mr. Smith's Consulting Agreement provides for an annual consulting fee of $150,000 subject to increases at the sole discretion of the Board of Managers, and a performance based bonus in the range of 30-50% of the annual consulting fee. Mr. Banducci's Consulting Agreement provides for an annual consulting fee of $50,000. The initial term of the Consulting Agreements expired on March 28, 1997. The Consulting Agreements automatically extend for successive six-month periods unless terminated by the Company upon 30 days notice prior to the expiration of the then current term. The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing non-public information about the Company. 50 53 MEMBERS' AGREEMENT Pursuant to the Third Amended and Restated Members' Agreement dated as of September 30, 1999 (the "Members' Agreement") among the Company and certain holders of outstanding units (the "Units") of the Company, such holders of the Units shall vote all Units held by them for election of a majority of the Board of Managers consisting of Terence C. Seikel and Richard E. Borghi (so long as each is employed by the Company), and F. Alan Smith, Barry Banducci, Gerard J. Brink and Roger T. Morgan (so long as each is a holder of a certain number of Units) (the "Enumerated Managers"). J.P. Morgan Partners (23A SBIC), LLC, an affiliate of JPMP, has the ability to appoint up to 5 additional members of the Board of Managers. Pursuant to the voting provision of the Members' Agreement, J.P. Morgan Partners (23A SBIC), LLC has the right, under certain circumstances, including breach by the Company of certain covenants, to replace the Enumerated Managers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 19, 2001, the outstanding membership interests of the Company consisted of 14,369 Units. The following table sets forth certain information regarding the beneficial ownership of the Units by (i) each person known by the Company to own more than 5% of the Units, (ii) each named director, (iii) each named executive officer and (iv) all of the Company's directors and executive officers treated as a group. To the knowledge of the Company, each of such holders of Units has sole voting and investment power as to the Units owned unless otherwise noted.
PERCENTAGE NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2) ------------------------------------------- --------------- -------------- J.P. Morgan Partners (23A SBIC), LLC (3)... 10,251 68.94% 1221 Avenue of the Americas New York, New York 10020 Celerity Partners.......................... 1,500 10.44 C/o Mark Benham 300 Sand Hill Road Building 4, Suite 230 Menlo Park, California 94025 F. Alan Smith(4)........................... 632 4.30 Terence C. Seikel(5)....................... 665 4.48 Richard E. Borghi(6)....................... 632 4.27 Gerrit de Graaf(7)......................... 50 0.35 Bryan Fletcher(8).......................... 35 0.24 Barry Banducci(9).......................... 500 3.42 59 Old Quarry Road Guilford, Connecticut 06437 Gerard J. Brink............................ 410 2.85 Lijsterbeslaan 10 B-2950 Kapellen Belgium Donald J. Hoffman (10)..................... 10,251 68.94 All directors and executive officers as a group (nine persons)...................... 2,924 18.41
---------------- (1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC, 12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313. (2) Beneficial ownership is determined in accordance with the rules of the Commission and includes voting and investment power with respect to the Units. Units subject to options or warrants currently exercisable or exercisable within 60 days of March 17, 2000 are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person. (3) CB Capital Investors, L.P. is an affiliate of CCP. Includes 501 Units subject to warrants exercisable within 60 days. (4) Includes 332 Units subject to options exercisable within 60 days. 300 Units are owned by the F. Alan Smith Family Limited Partnership. (5) Includes 465 Units subject to options exercisable within 60 days. (6) Includes 432 Units subject to options exercisable within 60 days. (7) Includes 24 Units subject to options exercisable within 60 days. (8) Includes 10 Units subject to options exercisable within 60 days. (9) Includes 250 Units subject to options exercisable within 60 days. All Units are owned by the Banducci Family, LLC. (10) Such person may be deemed the beneficial owner of the Units held by J.P. Morgan Partners (23A SBIC), LLC due to his status as an executive officer of J.P. Morgan Partners (23A SBIC Manager), Inc. the managing member of J.P. Morgan Partners (23A SBIC), LLC. 51 54 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Chase Securities Inc. ("CSI"), Chase, Chase Canada and JPMP are affiliates of J.P. Morgan Partners (23A SBIC), LLC, which owns approximately 49.98% of the Company's issued and outstanding voting securities on a fully diluted basis. CSI acted as an Initial Purchaser in connection with the Offering, for which it received customary fees. Chase is agent bank and a lender to the Company under the Amended and Restated Credit Agreement and has received customary fees and reimbursement of expenses in such capacities. Chase Canada is agent bank and a lender to the Company under the Canadian Credit Agreement and has received customary fees and reimbursement of expenses in such capacities. Chase received its proportionate share, $6.0 million, of the repayment by the Company of $90.0 million under the Amended and Restated Credit Agreement from the proceeds of the Offering. J.P. Morgan Partners (23A SIBC), LLC an affiliate of JPMP and CSI held a portion of the Senior Subordinated Debt and received its proportionate share, $10.7 million, including prepayment penalties of $700,000, of the repayment by the Company of such debt from the proceeds of the Offering. As a result of the Offering, such affiliate was relieved of its obligation to provide up to an additional $20.0 million of senior subordinated debt financing. In addition, an affiliate of CSI and JPMP purchased a portion of the Notes in connection with the Offering. Donald J. Hofmann, Jr., a partner of JPMP, is a member of the Board of Managers of the Company. In addition, CSI, Chase and their affiliates participate on a regular basis in various investment banking and commercial banking transactions for the Company and its affiliates. On January 1, 2000, the Company issued 3,655 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC, in exchange for 3,655 Class A Units. On November 11, 2000 the Company issued 1,478 of its Class A-1 Units to J.P. Morgan Partners (23A SBIC), LLC, in exchange for 1,478 Class A Units. The Company is a party to the Consulting Agreements with F. Alan Smith, the Chairman of the Company, and Barry Banducci, a Board Member of the Company. See "Executive Compensation -- Consulting Agreements." In connection with the acquisition of the MascoTech Division by the Company, the Company loaned Mr. Borghi $100,000 to enable him to make his initial equity investments in the Company. The loan bears interest at 6.2% and matures in September 2002. 52 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements: A list of the Consolidated Financial Statements, related notes and Reports of Independent Accountants is set forth in Item 8 of this report on Form 10-K. 2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore have been omitted. 3. Index to Exhibits: EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Formation of AAS. Incorporated by reference to Exhibit 3.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 3.2 Third Amended and Restated Operating Agreement of AAS. Incorporated by reference to Exhibit 3.2 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.3 Amended Bylaws of AAS. Incorporated by reference to Exhibit 3.3 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.4 Third Amended and Restated Members' Agreement Dated as of September 30, 1999 among Advanced Accessory Systems, LLC, and the Members that are parties hereto. Incorporated by reference to Exhibit 3.4 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.6 Unit Redemption Agreement dated as of October 26, 2000 between MascoTech, Inc. and Advanced Accessory Systems, LLC. 4.1 Indenture dated as of October 1, 1997 for the Notes (including the form of New Note attached as Exhibit B thereto) among the Issuers, the Guarantors named therein and First Union National Bank, as Trustee. Incorporated by reference to Exhibit 4.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.1 Asset Purchase Agreement among MascoTech Automotive Systems Group, Inc., MascoTech Accessories, Inc. and Advanced Accessory Systems, LLC dated as of September 28, 1995. Incorporated by reference to Exhibit 10.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.2 Agreement for the Sale and Purchase of Shares in Brink BV dated October 30, 1996 among AAS Holdings, Inc., AAS Holdings, LLC, Brink Holding BV and Brink BV. Incorporated by reference to Exhibit 10.2 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.3 Asset Purchase Agreement among Bell Sports Corp., Bell Sports Canada, Inc. and Advanced Accessory Systems Canada Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated as of July 2, 1997. Incorporated by reference to Exhibit 10.3 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.4 Stock Purchase Agreement dated July 24, 1997 among Robert Boulard and Alan Hamer and Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc. Incorporated by reference to Exhibit 10.4 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.5 Asset Purchase Agreement among Valley Industries, LLC, Valley Industries, Inc., certain affiliates of Valley Industries, Inc., Robert L. Fisher and Roger T. Morgan dated as of August 5, 1997. Incorporated by reference to Exhibit 10.5 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.6 Preliminary Agreement for the Transfer of a Business dated December 16, 1997 between Ellebi S.p.A. and Brink Italia S.r.1. and Brink International B.V. Incorporated by reference to Exhibit 10.6 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.7 Second Amended and Restated Credit Facility among AAS, SportRack, LLC, Brink International BV, Brink BV and Valley Industries, LLC, as Borrowers, NBD Bank as Administrative Agent and Documentation and Collateral Agent and The Chase Manhattan Bank as Co-Administrative Agent and Syndication Agent dated August 5, 1997. Incorporated by reference to Exhibit 10.7 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 53 56 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7(a) Amendment No 1. Dated as of September 5, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997 and Security Agreements Dated as of October 5, 1996. Incorporated by reference to Exhibit 10.7(a) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(b) Amendment No.2 Dated as of September 24, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(b) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(c) Amendment No. 3 Dated as of December 29, 1997 to Second Amended and Restated Credit Agreement dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(c) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(d) Amendment No. 4 Dated as of December 31, 1997 to Second Amended and restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(d) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(e) Amendment No. 5 and Waiver Dated as of December 31, 1998 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(e) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(f) Amendment No. 6 Dated as of August 10, 1999 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.7(g) Amendment No. 7 Dated as of September 30, 2000 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (g) to AAS' Quarterly Report on Form 10-Q (File No. 333-49011) for the nine months ended September 30, 2000. 10.8 First Amended and Restated Credit Agreement among SportRack International, Inc. and First Chicago NBD Bank, Canada, The Chase Manhattan Bank of Canada and The Bank of Nova Scotia dated as of March 19, 1998. Incorporated by reference to Exhibit 10.8 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.9 Amended and Restated Employment Agreement between AAS and Richard Borghi dated September 30, 1999. Incorporated by reference to Exhibit 10.9 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 10.9(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between SportRack, LLC and Richard Borghi. 10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 1995. Incorporated by reference to Exhibit 10.11 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 1995. Incorporated by reference to Exhibit 10.12 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13 Amended and Restated Employment Agreement between AAS and Terence C. Seikel dated September 30, 1999. Incorporated by reference to Exhibit 10.13 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between Advanced Accessory Systems, LLC and Terence C. Seikel. 10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf dated November 1, 1996. Incorporated by reference to Exhibit 10.15 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.17 Lease dated as of January 24, 1997 between Valley Industries Realty, L.P. and Valley Industries, Inc. Incorporated by reference to Exhibit 10.17 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18 Addendum to Sublease dated as of July 2, 1997 between Bell Sports Canada, Inc. and SportRack International, Inc. (formerly known as Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc.). Incorporated by reference to Exhibit 10.18 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18(a) Sublease Amending Agreement made as of the 1st day of January, 2000, between Bell Sports Canada Inc. and SportRack Accessories Inc. (previously known as SportRack International). Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG Produkter AB. Incorporated by reference to Exhibit 10.19 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.20 Lease Agreement for commercial use between Ellebi S.p.A. and Brink Italia S.r.l. Incorporated by reference to Exhibit 10.20 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.21 Registration Rights Agreement dated September 25, 1997 by and among Advanced Accessory Systems, LLC, AAS Capital Corporation, the Guarantors named therein and Chase Securities, Inc. and First Chicago Capital Markets, Inc. Incorporated by reference to Exhibit 10.21 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.22 Amended and Restated Employment Agreement dated as of March 14, 2001 between Valley Industries, LLC, and Bryan Fletcher. 54 57 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.23 Multi-Tenant Industrial Triple Net Lease effective January 1, 2001 between Santa Fe Bayfront Venture, a California general partnership and Valley Industries, LLC a Delaware limited liability company. 12.1 Statement Re: Computation of ratios 21.1 Subsidiaries of the Registrant Incorporated by reference to Exhibit 21.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 24.1 Power of Attorney (b) Reports of form 8-K: None -------------------- 55 58 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Advanced Accessory Systems, LLC By: /s/ TERENCE C. SEIKEL -------------------------------------------- Terence C. Seikel President, Chief Executive Officer (Principal Executive Officer and Authorized Signatory) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the 22nd day of March, 2001, by the following persons on behalf of the registrant and in the capacities as indicated.
Signature Title --------- ----- /s/ TERENCE C. SEIKEL ----------------------------------------- President, Chief Executive Officer and Terence C. Seikel Manager (Principal Executive and Financial Officer) /s/ BARRY G. STEELE ----------------------------------------- Corporate Controller (Principal Barry G. Steele Accounting Officer) * ----------------------------------------- Chairman of the Board of Managers F. Alan Smith * ----------------------------------------- Manager Barry Banducci * ----------------------------------------- Manager Gerard Jacobus Brink * ----------------------------------------- Manager Donald J. Hofmann * ----------------------------------------- Manager Richard Borghi * ----------------------------------------- Manager Bryan Fletcher * ----------------------------------------- Manager Gerrit de Graaf *By: /s/ TERENCE C. SEIKEL ----------------------------------------- Terence C. Seikel, Attorney-in-Fact
56 59 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Other than this annual report filed on Form 10-K, none. 57 60 ADVANCED ACCESSORY SYSTEMS, LLC- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998, (DOLLAR AMOUNTS IN THOUSANDS)
ADDITIONS ------------------------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING OF COSTS AND TO OTHER AT END OF YEAR EXPENSES ACCOUNTS (1) WRITE-OFFS YEAR ------------ ---------- ------------ ---------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS ------------------------------- For the year ended December 31, 2000........................................ $ 4,997 $ (1,887) $ (41) $ 929 $ 2,140 1999........................................ 2,766 2,670 (67) 372 4,997 1998........................................ 1,699 2,413 523 1,869 2,766 ALLOWANCE FOR INVENTORY AND LOWER OF COST OR MARKET RESERVE ------------------------------- For the year ended December 31, 2000........................................ $ 3,217 $ 1,021 $ 173 $ 1,871 $ 2,540 1999........................................ 3,917 573 (136) 1,137 3,217 1998........................................ 2,590 4,735 15 3,423 3,917 ALLOWANCE FOR REIMBURSABLE TOOLING ---------------------------------- For the year ended December 31, 2000........................................ $ 541 $ 260 $ -- $ 393 $ 414 1999........................................ 324 230 -- 13 541 1998........................................ 890 294 -- 860 324 ALLOWANCE DEFERRED TAX ASSETS ----------------------------- 2000........................................ $ 5,258 $ (86) $ (227) $ -- $ 4,945 1999........................................ 4,225 854 179 -- 5,258 1998........................................ -- 4,225 -- -- 4,225
--------------- (1) Charges to other accounts include amounts related to acquired companies and the effects of changing foreign currency exchange rates for the Company's foreign subsidiaries. 58 61 Exhibit Index EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Formation of AAS. Incorporated by reference to Exhibit 3.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 3.2 Third Amended and Restated Operating Agreement of AAS. Incorporated by reference to Exhibit 3.2 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.3 Amended Bylaws of AAS. Incorporated by reference to Exhibit 3.3 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.4 Third Amended and Restated Members' Agreement Dated as of September 30, 1999 among Advanced Accessory Systems, LLC, and the Members that are parties hereto. Incorporated by reference to Exhibit 3.4 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 3.6 Unit Redemption Agreement dated as of October 26, 2000 between MascoTech, Inc. and Advanced Accessory Systems, LLC. 4.1 Indenture dated as of October 1, 1997 for the Notes (including the form of New Note attached as Exhibit B thereto) among the Issuers, the Guarantors named therein and First Union National Bank, as Trustee. Incorporated by reference to Exhibit 4.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.1 Asset Purchase Agreement among MascoTech Automotive Systems Group, Inc., MascoTech Accessories, Inc. and Advanced Accessory Systems, LLC dated as of September 28, 1995. Incorporated by reference to Exhibit 10.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.2 Agreement for the Sale and Purchase of Shares in Brink BV dated October 30, 1996 among AAS Holdings, Inc., AAS Holdings, LLC, Brink Holding BV and Brink BV. Incorporated by reference to Exhibit 10.2 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.3 Asset Purchase Agreement among Bell Sports Corp., Bell Sports Canada, Inc. and Advanced Accessory Systems Canada Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated as of July 2, 1997. Incorporated by reference to Exhibit 10.3 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.4 Stock Purchase Agreement dated July 24, 1997 among Robert Boulard and Alan Hamer and Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc. Incorporated by reference to Exhibit 10.4 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.5 Asset Purchase Agreement among Valley Industries, LLC, Valley Industries, Inc., certain affiliates of Valley Industries, Inc., Robert L. Fisher and Roger T. Morgan dated as of August 5, 1997. Incorporated by reference to Exhibit 10.5 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.6 Preliminary Agreement for the Transfer of a Business dated December 16, 1997 between Ellebi S.p.A. and Brink Italia S.r.1. and Brink International B.V. Incorporated by reference to Exhibit 10.6 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.7 Second Amended and Restated Credit Facility among AAS, SportRack, LLC, Brink International BV, Brink BV and Valley Industries, LLC, as Borrowers, NBD Bank as Administrative Agent and Documentation and Collateral Agent and The Chase Manhattan Bank as Co-Administrative Agent and Syndication Agent dated August 5, 1997. Incorporated by reference to Exhibit 10.7 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 62 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7(a) Amendment No 1. Dated as of September 5, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997 and Security Agreements Dated as of October 5, 1996. Incorporated by reference to Exhibit 10.7(a) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(b) Amendment No.2 Dated as of September 24, 1997 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(b) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(c) Amendment No. 3 Dated as of December 29, 1997 to Second Amended and Restated Credit Agreement dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(c) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(d) Amendment No. 4 Dated as of December 31, 1997 to Second Amended and restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(d) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(e) Amendment No. 5 and Waiver Dated as of December 31, 1998 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(e) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1998. 10.7(f) Amendment No. 6 Dated as of August 10, 1999 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.7(g) Amendment No. 7 Dated as of September 30, 2000 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7 (g) to AAS' Quarterly Report on Form 10-Q (File No. 333-49011) for the nine months ended September 30, 2000. 10.8 First Amended and Restated Credit Agreement among SportRack International, Inc. and First Chicago NBD Bank, Canada, The Chase Manhattan Bank of Canada and The Bank of Nova Scotia dated as of March 19, 1998. Incorporated by reference to Exhibit 10.8 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.9 Amended and Restated Employment Agreement between AAS and Richard Borghi dated September 30, 1999. Incorporated by reference to Exhibit 10.9 to AAS' Quarterly Report for the quarterly period ended September 30, 1999 on Form 10-Q (File No. 333-49011). 10.9(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between SportRack, LLC and Richard Borghi. 10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 1995. Incorporated by reference to Exhibit 10.11 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 1995. Incorporated by reference to Exhibit 10.12 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13 Amended and Restated Employment Agreement between AAS and Terence C. Seikel dated September 30, 1999. Incorporated by reference to Exhibit 10.13 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.13(a) Amendment No. 1 to the Amended and Restated Employment Agreement dated August 1, 2000 between Advanced Accessory Systems, LLC and Terence C. Seikel. 10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf dated November 1, 1996. Incorporated by reference to Exhibit 10.15 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.17 Lease dated as of January 24, 1997 between Valley Industries Realty, L.P. and Valley Industries, Inc. Incorporated by reference to Exhibit 10.17 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18 Addendum to Sublease dated as of July 2, 1997 between Bell Sports Canada, Inc. and SportRack International, Inc. (formerly known as Advanced Accessory Systems Canada Inc./Les Systems d'Accessoire Advanced Canada Inc.). Incorporated by reference to Exhibit 10.18 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.18(a) Sublease Amending Agreement made as of the 1st day of January, 2000, between Bell Sports Canada Inc. and SportRack Accessories Inc. (previously known as SportRack International). Incorporated by reference to Exhibit 10.7 (f) to AAS' Annual Report on Form 10-K (File No. 333-49011) for the fiscal year ended December 31, 1999. 10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG Produkter AB. Incorporated by reference to Exhibit 10.19 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.20 Lease Agreement for commercial use between Ellebi S.p.A. and Brink Italia S.r.l. Incorporated by reference to Exhibit 10.20 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.21 Registration Rights Agreement dated September 25, 1997 by and among Advanced Accessory Systems, LLC, AAS Capital Corporation, the Guarantors named therein and Chase Securities, Inc. and First Chicago Capital Markets, Inc. Incorporated by reference to Exhibit 10.21 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 10.22 Amended and Restated Employment Agreement dated as of March 14, 2001 between Valley Industries, LLC, and Bryan Fletcher. 63 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.23 Multi-Tenant Industrial Triple Net Lease effective January 1, 2001 between Santa Fe Bayfront Venture, a California general partnership and Valley Industries, LLC a Delaware limited liability company. 12.1 Statement Re: Computation of ratios 21.1 Subsidiaries of the Registrant Incorporated by reference to Exhibit 21.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011). 24.1 Power of Attorney