-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A1tR4/g8GxXAzJ6j5mjTg95AiJcl6w0fjIhv1FwF38zB0Aw3hDDBnvrl19HpUfk3 JCSiRrTpGbSN4r1zv6jIqg== 0000950124-02-000950.txt : 20020415 0000950124-02-000950.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950124-02-000950 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED ACCESSORY SYSTEMS LLC CENTRAL INDEX KEY: 0001057836 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 133848156 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 333-49011 FILM NUMBER: 02583172 BUSINESS ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 BUSINESS PHONE: 8109972900 MAIL ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 10-K405 1 k68283e10-k405.txt ANNUAL REPORT FOR FISCAL YEAR END 12/31/01 ================================================================================ UNITED STATES 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, 2001 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ------------ COMMISSION FILE NUMBER 333-49011 ------------- [ADVANCED ACCESSORY SYSTEMS, LLC LOGO] ADVANCED ACCESSORY SYSTEMS, LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3848156 ----------- ------------- (STATE OR OTHER JURISDICTION (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: (586) 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. /X/ 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 20, 2002, based upon the good faith determination of the Board of Managers, was approximately $8,753,000. 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 20, 2002 was 9,236 and 5,133, respectively. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ ADVANCED ACCESSORY SYSTEMS, LLC FORM 10-K YEAR ENDED DECEMBER 31, 2001 TABLE OF CONTENTS PART I Item 1. BUSINESS.............................................................1 Item 2. PROPERTIES...........................................................9 Item 3. LEGAL PROCEEDINGS....................................................10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................10 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBER 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.........................22 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................50 PART III Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................50 Item 11. EXECUTIVE COMPENSATION..............................................51 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................................54 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................55 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................................................56 SIGNATURES...................................................................59 i 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. FORWARD LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF TERMS SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "BELIEVE," "INTEND," "PLAN," "ESTIMATE," "PREDICT," "POTENTIAL," "FORECAST," "CONTINUE" OR VARIATIONS OF SUCH TERMS, OR THE USE OF THESE TERMS IN THE NEGATIVE. 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, THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 11 OF THE PROSPECTUS DATED APRIL 26, 2001 INCLUDED IN OUR REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-49011). 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 2001, 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, 2001, the Company's net sales and EBITDA were $313.9 million and $40.1 million, respectively. AAS is a Delaware limited liability company that was formed on August 28, 1995 and commenced business on September 28, 1995. In September 1995, the Company, through its SportRack, LLC subsidiary ("SportRack"), acquired substantially all of the 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 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 Accessories, Inc. ("SportRack Accessories" formerly SportRack International, Inc.), a subsidiary of SportRack. SportRack Accessories acquired from Bell Sports Corporation ("Bell") the 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 Accessories 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 Accessories Acquisition." In January 1998, the Company through Brink, acquired (the "Ellebi Acquisition") the 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 Accessories, acquired (the "Transfo-Rakzs Acquisition") the 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. 1 In February 2000, the Company through Valley, acquired (the "Titan Acquisition") the 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 Accessories, acquired (the "Barrecrafters Acquisition") the 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. PRODUCTS The principal product lines of the Company are towing systems, rack systems and related accessories. In 2001, towing systems and towing accessories constituted approximately 55% and rack systems and rack accessories constituted approximately 45% 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. In Europe, the Company sells both fixed ball towbars as well as more sophisticated detachable ball systems. Fixed ball towbars are designed to be permanently attached to a vehicle while detachable ball systems are designed so that the towing ball can be easily removed when not in use. The detachable ball systems are becoming increasingly popular especially with owners of more expensive cars and for cars on which the license plates would otherwise be blocked by a fixed ball towbar. The Company's towing systems sold in Europe are designed to satisfy European Community ("EC") regulatory standards and undergo rigorous durability and safety testing in order to comply with these 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. In many cases, the rack system includes cross rails, which are attached to the side rails with stanchions, and 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 Liberty, DaimlerChrysler minivans, Dodge Durango, Chevrolet Suburban, Tahoe and Trailblazer, GMC Yukon and Envoy, Cadillac Escalade, Oldsmobile Bravada, 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 CUSTOMERS AND MARKETING Management believes that the Company has strong and diverse industry relationships which are based on its reputation for high service levels, strong technical support, innovative product development, high quality and competitive pricing. Sales to OEM and aftermarket customers represented approximately 67% and 33% of the Company's net sales, respectively, in 2001. In addition, sales to DaimlerChrysler and General Motors were approximately 28% and 17%, respectively, of the Company's aggregate net sales in 2001. Automotive OEMs. The Company obtains most of its new orders through a sourcing process by which the customer invites 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 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 2001 PRODUCTION(A) FUTURE PRODUCTION(B) --------------- ------------------ ------------------------------------ -------------------------- Towing Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Grand Cherokee Voyager, Town & Country, Dodge Ram Pick-up, Dakota, Wrangler, Durango, Liberty, Neon, PT Cruiser, Plymouth Prowler, Ram Van, 300M, Voyager, Stratus, Sebring General Motors CK Pick-up, ML Van, S-10, Cavalier, Frontera, Corsa, Arena (van), Vectra, Sunfire GMT 355 Small Pick-up, Hummer II Blazer, APV Vans, Bravada, Jimmy, Geo Tracker, Corsa, Astra, Grand Prix (hatchback), Astra (Sedan), Cadillac Seville Astra (Station wagon), Calibra, Vectra (Hatchback), Vectra (Sedan), Vectra (Station wagon), Omega (Sedan), Omega (Station wagon), Campo, Frontera, Monterey, Zafira, Chevrolet Malibu, Saturn 315 Vue, Firebird, Sunbird, Bonneville, Grand Am, Grand Prix Ford Ranger, Transit, Explorer Sport Focus Wagon, Ranger, Trac, Windstar Minivan, Focus Mondeo, Explorer, Connect, V227 Mondeo, Mondeo (Wagon), Jaguar, X350, X400 Sport Scorpio (Sedan), Scorpio (Wagon) Renault Laguna (Station wagon), Laguna, Laguna, Matra Isuzu Rodeo, Trooper Toyota 4-Runner, RAV4, Tacoma Pick-up, Landcruiser pick-up Previa, 355N Sienna 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, Mavric, Patrol, Serena, Vanette Mitra Mazda 121, MPV, J54, J16, 626, 323 626 Wagon, 323, Demio, R 8, 6 series Tribute, MPV Honda Passport, Acura MDX, CRV PF Van, Honda HP Mitsubishi Montero, Montero Sport, Smart, Spacestart FIAT Almost all models Alpha Romeo Almost all models Lancia Almost all models Subaru Outback, Legacy, Forester, Impreza 79V Range Rover Range Rover, Land Rover Landrover range T5 Volvo 900 series (Sedan), 900 series, 900 series, S/V 70 series P26E (Station wagon), 850 (Sedan), 850
3
AWARDED BUSINESS ON PRODUCT OEM CUSTOMER 2001 PRODUCTION(A) FUTURE PRODUCTION(B) --------------- ------------------ ------------------------------------ -------------------------- Towing Systems SAAB 9000 series, 900 series 900 series, 9000 series, 9000 (continued) station wagon, small car 9-3, small car 9-5, small station wagon Hyundai Lantra, Sonata, Starex 4WD, Trajet, Lantra, Joyce, TB (name Accent, Atos still Verna Unknown), Facelift of XG Peugeot 106, 306, 406 (Sedan), 406 (Station 206, 206 Sport, 207, 306 Break, wagon), 406 (Coupe), 605, 806, J5 Boxer (Van), Boxer (Van) Suzuki Almost All Models Daihatsu Gran Move, Move LCX Mini Van KIA Clarus, Frontiers, Carnival Sorento, Carens SEAT Toledo Skoda SK240 Ibiza, Arosa Volkswagen Golf 4, Caddy, Transporter, Polo, Polo, Golf Passat Euro Audi A2, A8-4WD, A4-4WD Daewoo Nubira U 100, Kalos, Nubira, Laganza Rack Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Durango, CS Voyager, Town & Country, Durango, Mercedes M-Class, PT Cruiser, BW 72, Jeep Liberty General Motors Suburban, Yukon, Tahoe, Astro, Hummer, Trans Port, Venture, Safari Montana Escalade, Denali, Avalanche, Z-71 SUV Envoy, Trail Blazer, Bravada, Saturn SUV Ford D219 Honda Acura MDX Honda HP Nissan Pathfinder, Infinity QX4 Toyota Tacoma Mitsubishi Montero Sport Subaru Outback, Impreza, Legacy, Forester KIA Sportage Sedona Hyundi Santa Fe, Alantra, Sanada, Accent SEAT Vario Scoda Octavia Volvo P26E Audi A6 Opel Astra Vectra, Astra, Ypsylon BMW E-53 (SUV)
- ---------- (a) Represents models for which the Company produced products in 2001. (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, 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. The Company's sales in the automotive aftermarket are seasonal. Historically the highest sales have been in the second quarter of each year and the second highest sales have been in the first quarter of each year. 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 121 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 several patent applications pending. The expiration of such patents are not expected to have a material adverse effect on the Company's operations. 4 The Company spent $9.4 million, $9.8 million and $10.3 million on engineering, research and development in 2001, 2000 and 1999, respectively. The Company works closely with OEMs to improve design and manufacturing technology and product functionality. When an OEM is in the process of developing a new model, it typically approaches an established or incumbent supplier with a request to supply the required towing system or rack system. The Company is typically contacted two to four years prior to the start of production of the new model. The Company's product development engineers then work closely with the OEM to develop a product that satisfies the OEM's aesthetic and functional requirements. This relationship also provides the Company with a competitive advantage in the aftermarket because, in many cases, the Company already possesses the knowledge to create a system compatible with new model vehicles prior to release. 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 23 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 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. Following are some of the significant trends impacting the automotive OEM market and automotive aftermarket. 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. Pricing pressures. As a result of increased global competition, excess capacity and recent recessionary trends, many automotive OEMs have increased the pressures on suppliers to reduce selling prices. This pricing pressure in conjunction with the need to increase investment in product engineering and development capabilities has reduced the profitability of many tier one automotive suppliers. The Company works closely with its customers to find ways to reduce selling prices through design and engineering changes or to minimize the impact of price reductions through internal cost reductions and manufacturing efficiency gains. The Company believes that its design and engineering capabilities and manufacturing expertise may allow it to offset much of the mandated price reductions, while allowing the Company to increase business as customers look to reduce costs. 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 are designed and tested to satisfy these EC regulatory standards. Increased Levels of Manufacturing in North America by Transplants. 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 21% in 2001. 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, and 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. COMPETITION The Company's industry is highly competitive. Although, the Company is one of the world's largest suppliers of towing and rack systems, 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 these areas. In the automotive aftermarket, the Company believes that its wide range of product applications 6 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 relationships 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 28 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 modern 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. 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, 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 used for towing in North America and Europe. The Company is one of a limited number of European manufacturers with such a broad product line that also satisfies EC regulatory standards. Competitors whose products do not satisfy such standards face substantial design and testing costs to offer a comparable product line that meets these safety standards. The Company has provided OEMs with fixed rack systems for approximately half of the light truck models produced in North America that utilize vehicle-specific fixed racks. The Company believes that its broad product offerings also facilitate strategic partnerships with automotive aftermarket wholesalers, retailers and installers. Design and Engineering Expertise. The Company has an engineering and research and development staff that develops new products and processing technologies. The Company works directly with OEM designers to create innovative solutions that simplify vehicle assembly and reduce vehicle cost and weight. The Company is responsible for many industry innovations, including lighter, less obtrusive, round tube towing hitches as well as push button and pull lever stanchions on fixed rack systems. The Company believes its design and engineering capabilities provide significant value to its customers by (i) shortening OEM new product development cycles; (ii) lowering OEM manufacturing costs; (iii) providing technical expertise; and (iv) permitting aftermarket customers to maintain lower inventory levels. The Company also believes that its design innovations have created value for end users by providing products that are durable and easy to install and that enhance vehicle utility and appearance. High Quality, Low Cost Manufacturing Position. The Company believes that it is one of the highest quality, lowest cost suppliers of towing and rack systems in North America and Europe. The Company has received numerous quality and performance awards, including DaimlerChrysler's Gold 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 13 of its 23 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 7 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 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 8 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, 2001, the Company had approximately 2,200 employees of whom approximately 1,700 are hourly employees and approximately 500 are salaried personnel. Approximately 160 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 and net sales by product line, see "Note 12" of the Company's "Notes to Consolidated Financial Statements" included in Item 8 of this report. 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 28 facilities with a total of 2,247,954 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 Sterling Heights, Michigan Manufacturing 58,000 Leased 2006 Madison Heights, Michigan* Administration and 90,000 Leased 2002 manufacturing Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2002 Williston, Vermont Warehousing 10,000 Leased 2006 Wyandot, Michigan Manufacturing 5,000 Leased 2002 Lodi, California Administration, engineering 150,000 Owned -- and manufacturing 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 88,200 Leased 2003 and warehousing Bromptonville, Quebec Manufacturing 2,000 Leased Month to Month 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 185,000 Owned -- Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned -- Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned -- Vanersborg, Sweden* Manufacturing and warehousing 160,000 Leased 2004 Wolsztyn, Poland Warehousing 5,000 Leased Month to Month Reims, France Manufacturing and warehousing 115,000 Owned -- St. Victoria di Gualtieri, Administration, engineering, 170,000 Leased 2003 Italy manufacturing and warehousing St. Victoria di Gualtieri, Manufacturing 110,000 Leased 2003 Italy
- ---------- * QS 9000 and/or ISO 9000 certification. ** Gives effect to all renewal options. 9 ITEM 3. LEGAL PROCEEDINGS Gibbs v. Advanced Accessory Systems, LLC. In February 1996, the Company commenced an action against two former employees 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 $3.8 million plus interest and reasonable attorney fees. The Company is currently pursuing an appeal in the Sixth Circuit Court of Appeals. During 2001, the Company increased its estimated accrual for this matter by $600,000 which charge is included in interest expense. No amounts have been paid as of December 31, 2001. In addition to the above, from time to time, the Company is subject to legal proceedings and other claims arising in the ordinary course of its business. Management believes that the resolution of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. 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 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBER MATTERS There is no established public trading market for the Company's Class A or Class A-1 Units. At March 20, 2001, 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. Class A Units are convertible into Class A-1 Units by holders that are regulated financial institutions. Class A-1 Units are convertible into Class A Units provided such conversion is not in violation of certain governmental regulations of the unit holder. As listed below, since January 1, 1999, 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 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. 2) 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. 3) 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 ITEM 6. SELECTED FINANCIAL DATA The information below presents consolidated financial data of the Company and includes (i) the operations of the sportrack division of Bell and Nomadic subsequent to the SportRack Accessories Acquisition on July 2, 1997 and July 24, 1997, respectively, (ii) the operations of Valley subsequent to the Valley Acquisition on August 5, 1997, (iii) the operations of Ellebi subsequent to the Ellebi Acquisition on January 2, 1998, (iv) the operations of Transfo-Rakzs subsequent to the Transfo-Rakzs Acquisition on February 7, 1998, (v) the operations of Titan subsequent to the Titan Acquisition on February 22, 2000 and (vi) 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, ------------------------------------------------------------- 2001 2000(3) 1999 1998(2) 1997(1) --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales .................................. $ 314,035 $ 318,817 $ 314,142 $ 292,145 $ 189,352 Cost of sales(4) ........................... 239,583 239,090 227,889 215,441 136,230 --------- --------- --------- --------- --------- Gross profit ............................. 74,452 79,727 86,253 76,704 53,122 Selling, administrative and product development expenses(4) .................. 44,769 45,527 50,258 50,839 31,350 Amortization of intangible assets .......... 3,312 3,297 3,245 3,551 2,336 Impairment charge(4) ....................... -- -- -- 7,863 -- --------- --------- --------- --------- --------- Operating income ......................... 26,371 30,903 32,750 14,451 19,436 Other (income) expense Interest expense ......................... 17,684 17,950 17,453 18,633 12,627 Foreign currency (gain) loss(5) .......... 4,948 5,386 7,912 (4,995) 6,097 Other, net ............................... 743 52 1,990 -- -- --------- --------- --------- --------- --------- Income before minority interest, extraordinary charge and income taxes .................................. 2,996 7,515 5,395 813 712 Provision (benefit) for income taxes(6) ................................. 602 (278) 417 903 (2,856) --------- --------- --------- --------- --------- Income (loss) before minority interest and extraordinary charge ............... 2,394 7,793 4,978 (90) 3,568 Minority interest .......................... -- -- -- -- 97 --------- --------- --------- --------- --------- Income (loss) before extraordinary charge ................................. 2,394 7,793 4,978 (90) 3,471 Extraordinary charge(7) .................... -- -- -- -- 7,416 --------- --------- --------- --------- --------- Net income (loss) ........................ $ 2,394 $ 7,793 $ 4,978 $ (90) $ (3,945) ========= ========= ========= ========= ========= OTHER DATA: Cash flows provided by operating activities ............................... $ 27,651 $ 21,416 $ 25,014 $ 21,879 $ 6,982 Cash flows (used for) investing activities ............................... (7,580) (13,249) (11,775) (31,618) (79,733) Cash flows provided by (used for) financing activities ..................... (20,389) (14,982) (18,185) (8,367) 97,080 EBITDA(8) .................................. 40,252 44,546 46,539 38,364 27,916 Depreciation ............................... 10,569 10,346 10,418 10,857 6,144 Capital expenditures ....................... 7,580 10,445 11,775 9,998 7,751 Ratio of EBITDA to interest expense ........ 2.28x 2.48x 2.67x 2.06x 2.21x Ratio of earnings to fixed charges(9) ..... 1.15x 1.36x 1.29x 1.04x 1.06x BALANCE SHEET DATA (AT END OF PERIOD) Cash ....................................... $ 2,139 $ 3,315 $ 8,718 $ 11,240 $ 27,348 Working capital ............................ 23,380 34,791 36,825 49,232 65,803 Total assets ............................... 228,290 242,497 251,213 258,981 265,558 Total debt, including current maturities ... 156,649 175,635 178,498 187,524 197,126 Mandatorily redeemable warrants ............ 5,130 5,010 4,810 4,409 3,507 Distributions to members ................... 801 6,090 4,720 195 2,945 Members' equity ............................ 8,324 5,896 10,331 15,147 16,444
- ---------- (1) The Company acquired the assets of the sportrack division of Bell on July 2, 1997, Nomadic on July 24, 1997, and of Valley Industries on August 5, 1997. The SportRack Accessories Acquisition and Valley Acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of SportRack Accessories and Valley are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. 12 (2) The Company acquired the towbar segment of Ellebi S.p.A. on January 2, 1998 and the assets of Transfo-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 Transfo-Rakzs are included in the consolidated operating results of the Company subsequent to the respective acquisition dates. (3) The Company acquired the assets of Titan Industries, Inc. on February 22, 2000 and the 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. (4) In June 1998, information became available that indicated that certain assets acquired from Bell (accounts receivable, inventory and tooling) had a fair value less than originally recorded. The SportRack Accessories 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 Accessories, 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 Accessories operations, management reviewed the carrying value of goodwill and other intangible assets, determined that future cash flows would not be sufficient to recover recorded amounts, and recorded an impairment charge of $7.9 million. (5) Primarily represents net currency gains and loss on indebtedness of the Company's foreign subsidiaries denominated in currencies other than their functional currency. (6) 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. (7) 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. (8) 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. (9) 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 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, in the material set forth below, in the material set forth in Item 1. "Business," as well as in this Form 10-K generally. These may include statements projecting, forecasting or estimating Company performance and industry trends. General risks that may impact the achievement of such forecasts include, but are not limited to, compliance with new laws and regulations, general economic conditions in the markets in which the Company operates, fluctuation in demand for the Company's products and in the production of vehicles for which the Company is a supplier, significant raw material price fluctuations, labor disputes involving the Company or its significant customers or suppliers, changes in consumer preferences, dependence on significant automotive customers, the level of competition in the automotive supply industry, pricing pressure from automotive customers, the substantial leverage of the Company, limitations imposed by the Company's debt facilities, changes in the popularity of particular vehicle models or towing and rack systems, the loss of programs on particular vehicle models, risks associated with conducting business in foreign countries and other business factors. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements. All of these forward looking statements are based on estimates and assumptions made by management of the Company which, although believed to be reasonable, are inherently uncertain. The Company does not intend to update these forward-looking statements. GENERAL 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 February 2000, the Company through Valley, acquired the 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 Accessories, acquired the 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, ------------------------------------------------------------- 2001 2000 1999 ------------------ ------------------- ----------------- (DOLLARS IN THOUSANDS) Net sales ............................... $ 314,035 100.0% $318,817 100.0% $314,142 100.0% Gross profit .......................... 74,452 23.7% 79,727 25.0% 86,253 27.5% Selling, administrative and product ..... 44,769 14.3% 45,527 14.3% 50,258 16.0% development expenses Amortization of intangible assets ....... 3,312 1.1% 3,297 1.0% 3,245 1.0% Operating income ...................... 26,371 8.4% 30,903 9.7% 32,750 10.4% Interest expense ........................ 17,684 5.6% 17,950 5.6% 17,453 5.6% Foreign currency loss ................... 4,948 1.6% 5,386 1.7% 7,912 2.5% Other expense ........................... 743 1.2% 52 0.1% 1,990 0.6% Income before income taxes .............. 2,996 1.0% 7,515 2.4% 5,395 1.7% Income tax provision (benefit) .......... 602 0.2% (278) 0.1% 417 0.1% Net income .............................. 2,394 0.8% 7,793 2.4% 4,978 1.6%
14 RESULTS OF OPERATIONS 2001 COMPARED TO 2000 Net sales. Net sales for 2001 were $314.0 million, representing a decrease of $4.8 million, or 1.5%, from net sales for 2000. This decrease resulted from decreased sales to OEMs of approximately $4.2 million and the effect of declining exchange rates between the U.S. Dollar and the currencies used by the Company's foreign subsidiaries totaling $2.1 million. The North American OEMs reduced vehicle production beginning in the fourth quarter of 2000 and continuing in 2001 in response to lower sales of new vehicles in the North American automotive market, resulting in an approximately $9.0 million decrease in sales. Sales were also reduced by approximately $6.0 million as a result of price decreases given to the Company's OEM customers during 2001. Additionally, in efforts to reduce overall vehicle cost, certain of the Company's customers reduced or eliminated certain components of their vehicles, including products manufactured by the Company, resulting in an approximately $6.0 million decrease in sales. These decreases were partially offset by approximately $17.0 million in sales of new products for new vehicles introduced during 2001 and higher sales to the automotive aftermarket totaling $1.4 million Gross profit. Gross profit for 2001 was $74.5 million, representing a decrease of $5.3 million, or 6.6%, from the gross profit for 2000. Gross profit as a percentage of net sales was 23.7% in 2001 compared to 25.0% in 2000. The decrease in the gross margin percentage was primarily attributable to price reductions given to the Company's largest customer which were only partially offset by internal cost reductions. Additionally, the Company's North American OEM towing business continued to experience reduced productivity during 2001. 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 European Euro and the U.S. Dollar for 2001 compared with 2000. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2001 were $44.8 million, representing a decrease of $758,000, or 1.7%, compared with the selling, administrative and product development expenses for 2000. The decrease resulted from an approximately $633,000 reduction in corporate administrative expenses, lower sales at Brink, which has greater selling, administrative and product development expenses as a percentage of sales compared to the Company as a whole, and the lack of approximately $900,000 of legal and accounting costs incurred in 2000 related to a potential recapitalization of the Company's equity securities during the year, partially offset by the lack of the $1.9 million benefit recognized in 2000 related to a contingent obligation to a customer. Selling, administrative and product development expenses as a percentage of net sales was 14.3% in 2001 and 2000. Operating income. Operating income for 2001 was $26.4 million, a decrease of $4.5 million, or 14.7%, compared with operating income for 2000. The decrease in operating income reflects the decrease in gross profit partially offset by the decrease in selling, administrative and product development expenses. Operating income as a percentage of net sales decreased to 8.4% in 2001 from 9.7% in 2000 due primarily to the decrease in the gross margin percentage. Under a new accounting standard that the Company will adopt as of January 1, 2002, goodwill will no longer be amortized, see "New Accounting Pronouncements". As a result, operating income for 2002 is expected to be $3.0 million higher. Interest expense. Interest expense for 2001 was $17.7 million, a decrease of $266,000 from interest expense for 2000. Lower average indebtedness and lower interest rates on the Company's variable rate debt were partially offset by $342,000 of bank fees related to amending the Second Amended and Restated Credit Agreement and $150,000 more interest recorded in 2001 than 2000 for an estimated contingent legal liability, see "2000 compared to 1999 - Other expense". Interest rates on the Company's senior indebtedness will increase in 2002 as a result of amendments to the U.S. Credit Agreement in 2001. Foreign currency loss. Foreign currency loss in 2001 was $4.9 million, compared to a foreign currency loss of $5.4 million in 2000. The Company's foreign currency loss during 2001 was primarily related to Brink and SportRack Accessories, each of which have indebtedness, including intercompany indebtedness, denominated in U.S. Dollars. During 2001 and 2000, the U.S. Dollar strengthened significantly in relation to the European Euro, the functional currency of Brink. The U.S. Dollar strengthening was less significant during 2001 than 2000. Additionally, the U.S. Dollar strengthened significantly in relation to the Canadian Dollar, the functional currency of SportRack Accessories. Other expense. Other expense for 2001 consists primarily of losses on the disposal of property and equipment. 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, most of 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 2001, the Company had a loss before income taxes for its taxable subsidiaries totaling $3.1 million but recorded a provision for income taxes of $602,000. The provision resulted primarily from the pretax income of Brink which was offset by the pretax losses of SportRack Accessories. The tax benefit for SportRack Accessories was offset by the increase in the valuation allowance recorded against the tax assets of the subsidiary. Additionally, the effective tax rate differs from the U.S. federal income tax rate due to differences in the tax rates of foreign countries. 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. 15 Net income. Net income for 2001 was $2.4 million, as compared to net income of $7.8 million in 2000, a decrease of $5.4 million. The change in net income is primarily attributable to the decrease in operating income and increases in other expenses and taxes, partially offset by the decrease in foreign currency losses. 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. In 1999, the U.S. Dollar strengthened in relation to the European Euro by a greater amount. 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 is currently pursuing an appeal in the Sixth Circuit Court of Appeals. 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. 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 16 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 partially offset by a decrease in gross profit. 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, 2001 was $156.6 million, including current maturities of $11.0 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:
2001 2000 1999 ---------- ---------- ---------- (IN THOUSANDS) Working capital..................... $ 23,380 $ 34,791 $ 36,825 Cash flows provided by operating activities........................ 27,651 21,416 25,014 Cash flows used for investing activities........................ (7,580) (13,249) (11,775) Cash flows used for financing activities........................ (20,389) (14,982) (18,185)
Working Capital Working capital decreased by $11.4 million to $23.4 million at December 31, 2001 from $34.8 million at December 31, 2000 due to a decrease in other current assets of $2.8 million, a decrease in inventory of $1.4 million, a decrease in cash of $1.2 million, an increase in accounts payable of $4.1 million, a reclassification of mandatorily redeemable warrants to a component of current liabilities of $5.1 million 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 $1.1 million. These decreases were partially offset by an increase in accounts receivable of $2.6 million and decreases in accrued liabilities and the current portion of long term debt $950,000 and $788,000, respectively. Cash decreased by $1.2 million to $2.1 million at December 31, 2001 from $3.3 million at December 31, 2000 primarily due to investing and financing activities of $7.6 million and $20.4 million, respectively, partially offset by cash provided by operating activities of $27.7 million. Accounts receivable increased primarily as a result of an increase in sales levels during the fourth quarter of 2001 as compared with the fourth quarter of 2000. This increase in sales is primarily attributable to the North American OEMs which had reduced production schedules during the fourth quarter of 2000 and closed several plants on a temporary basis to correct for their growing inventory levels and to adjust for a slowing automotive sales market. The increase in accounts payable reflected increased purchasing activities to support the increased sales volume during the fourth quarter of 2001 as compared with the fourth quarter of 2000. The decrease in other current assets is primarily related to decreased investment in customer reimbursable tooling reflecting a lower number of new products under development as of December 31, 2001 as compared with 2000. Operating Activities Cash flow provided by operating activities for 2001 was $27.7 million, compared to $21.4 million in 2000 and $25.0 million in 1999. Cash flow for 2001 increased from 2000 primarily due to a decreased investment in working capital. 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. The Company's European and Canadian subsidiaries have income tax net operating loss carryforwards ("NOLs") of approximately $6.2 million and $10.6 million, respectively, at December 31, 2001. The European NOLs have no expiration date and the Canadian 17 NOLs expire in 2004 through 2008. Management believes that it is more likely than not that a portion of the deferred tax assets of the Canadian subsidiaries will not be realized and a valuation allowance of $5.7 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 $6.9 million, $10.4 million and $11.8 million in 2001, 2000 and 1999, respectively. The lower capital expenditures during 2001 reflected a reduced need to increase production capacity and management's efforts to increase the productivity of existing equipment. The Company estimates that capital expenditures for 2002 will be approximately $8.0 million, primarily for the expansion of capacity, productivity and process improvements and maintenance. The Company's 2002 capital expenditures are anticipated to by paid for from cash flow provided by operating activities or borrowings against the Company's revolving notes and include approximately $4.0 million for replacing and upgrading existing equipment. The Company's ability to make capital expenditures is subject to restrictions in the U.S. Credit Facility, including a maximum of $12.5 million of capital expenditures annually. Investing cash flows in 2000 include $2.8 million for the acquisitions of Titan and Barrecrafters. Financing Activities During 2001, financing cash flows included payments of principal on the Company's term indebtedness of $11.7 million, net payments of $8.3 million on the Company's revolving line of credit and distributions to members in amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members totaling $801,000. 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 U.S. Credit Facility. 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 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 U.S. Credit Facility. Repurchase of membership units included repurchases from the Company's former Chief Executive Officer of $4.3 million. 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 $10.9 million in 2002, $12.0 million in 2003 and $8.7 million in 2004. On December 15, 2001, the Company entered into Amendment No. 9 to the U.S. Credit Facility which reset certain financial covenants for fiscal years 2001 and 2002 and provided the Company with additional liquidity by adding a conditional supplemental revolving loan facility of up to $10.0 million which is available until March 31, 2003. The Notes bear interest at 9.75% which is payable semiannually in arrears. See "Note 3" 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, 2001, the Company had $3.0 million borrowed under the revolving note of the U.S. Credit Facility and had an outstanding letter of credit of $8.0 million issued to benefit plaintiffs in a lawsuit against the Company. For a description of the Company's contingent obligations with respect to that lawsuit, see "Results of Operations - 2000 Compared to 1999- Other expense". No amounts were borrowed under the revolving note of the Canadian Credit Facility or the conditional supplemental revolving note. Available borrowing capacity under the revolving notes was $24.0 million as of December 31, 2001. 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. 18 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 U.S. Credit Facility and the Canadian Credit Facility or successor facilities. The Company anticipates that, based on current and expected levels of operations, its operating cash flow, together with borrowings under the U.S. Credit Facility and the Canadian Credit Facility, should be sufficient to meet its debt service, working capital and capital expenditure requirements for the foreseeable future, although no assurances can be given in this regard, including as to the ability to increase revenues or profit margins. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all, including, whether, and on what terms, the Company could raise equity capital. See "Forward Looking Statements" and the introductory paragraph of this Item 7. 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 2001 were approximately $90.4 million, or 28.8% of the Company's net sales. At December 31, 2001, assets associated with these operations were approximately 37.9% 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, 2001 and does not use derivative financial instruments for trading or speculative purposes. CRITICAL ACCOUNTING POLICIES The Company prepared its financial statements in conformity with accounting principles generally accepted in the Unites States of America. In this process, it is often necessary for management to select accounting policies and make estimates about matters that are inherently uncertain. Estimates are developed using various methods and by making certain assumptions and require management to make subjective and complex judgments. Variations in these accounting policies and estimates can significantly affect the amounts reported in the consolidated financial statements and the attached notes. These methods and assumptions have been developed based upon available information. However actual results can differ from assumed and estimated amounts. The significant accounting polices applied in preparing the Company's financial statements are described in Note 1 to the financial statements. Policies which are considered critical are described below. Impairment of Long-Lived Assets. Management evaluates the potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At that time, a comparison is made between estimated future cash flows expected to result from the use of the asset and its eventual disposition and the carrying value of the asset. Future cash flows are estimated using current and forecasted revenues, projected profit margins and the current and expected future economic environment. Impairments of long-lived assets may be reported if the facts and circumstances surrounding assumptions made in developing estimates of future cash flows were to change. The Company will change its methodology for assessing goodwill impairments beginning on January 1, 2002, see "New Accounting Pronouncements". Contingent obligations and losses. The Company is subject to various contingent obligations and losses including contingent legal obligations, see Item 3. "Legal Proceedings". The Company establishes reserves for contingent obligations and losses when information concerning an obligation or loss indicates that it is probable that an asset had been impaired or a liability had been incurred provided that the amount of the loss can be reasonably estimated. Estimates of the cost are derived using known and assumed facts related to the specific circumstances surrounding each obligation. Management reviews and updates these estimates periodically. The ultimate cost of the Company's contingent obligations may be greater or less than the established accruals and could have a material impact upon the Company's financial position and results of operations. 19 Workers compensation expense. The Company establishes accruals for workers' compensation claims utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy the claims. The estimates are based both on historical experience, industry trends and current legal, economic and regulatory factors. The ultimate cost of these claims may be greater than or less than the established accrual and could have a material impact upon the Company's financial position and results of operations. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2002, the Company will adopt the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets" (SFAS 142) and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 142 will change the methodology for assessing goodwill impairments. The initial application of this statement is likely to result in the impairment of goodwill due to the differences in the methods of calculating impairment. The first step of the initial impairment test required by SFAS 142 has been substantially completed and has identified $29.2 million of goodwill that may be impaired based upon the new accounting standard. The impairment testing required to determine the actual amounts of goodwill impaired will be completed in 2002. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. This will result in a reduction of approximately $3.0 million in amortization of intangible assets annually. The adoption of SFAS 144 is not expected to have a material impact on the Company's financial position of results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars, indebtedness, including intercompany indebtedness, of foreign subsidiaries denominated in currencies other then their functional currency and movements in Federal Funds rates and the London Interbank Offered Rate ("LIBOR"). The Company, as a matter of policy, does not engage in trading or speculative transactions. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates, which consist of debt obligations. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Intercompany indebtedness is due on demand and is therefore show and maturing in 2002. Weighted average variable rates are based on current rates. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instrument's actual cash flows are denominated in U.S. dollars ($US) and Canadian dollars ($CAN), as indicated in parentheses.
DECEMBER 31, 2001 EXPECTED MATURITY DATE ------------------------------------------------------------------------------------------ 2002 2003 2004 2005 2006 THEREAFTER FAIR VALUE ------------- -------------- ------------- ------------- ------------- ------------- ------------ ($US EQUIVALENT IN THOUSANDS) Fixed Rate ($US) $ 103 $ 102 $ 76 $ 62 $ 56 $ 125,000 $ 104,149 Average interest rate 7.0% 7.0% 7.0% 7.0% 7.0% 9.75% Variable Rate ($US) $ 8,341 $ 10,073 $ 8,654 $ -- $ -- $ -- $ 27,041 Average interest rate 5.79% 5.79% 5.79% -- -- -- Variable Rate ($CAN) $ 2,579 $ 1,930 $ -- $ -- $ -- $ -- $ 4,509 Average interest rate 4.75% 4.75% -- -- -- -- Intercompany indebtedness $ 30,650 $ -- $ -- $ -- $ -- $ -- $ 30,650 denominated in currency other than the functional currency (Euro) Average interest rate 7.08% -- -- -- -- -- Intercompany indebtedness 28,866 $ -- $ -- $ -- $ -- $ -- $ 28,866 denominated in currency other than the functional currency ($CAN) Average interest rate 7.08%
20
DECEMBER 31, 2000 EXPECTED MATURITY DATE ------------------------------------------------------------------------------------------ 2001 2002 2003 2004 2005 THEREAFTER FAIR VALUE ------------- -------------- ------------- ------------- ------------- ------------- ------------ ($US EQUIVALENT IN THOUSANDS) Fixed Rate ($US) $ -- $ -- $ -- $ -- $ -- $ 125,000 $ 85,000 Average interest rate 7.0% 7.0% 7.0% 7.0% 7.0% 9.75% Variable Rate ($US) $ 9,074 $ 7,336 $ 7,071 $ 8,655 $ -- $ -- $ 32,153 Average interest rate 9.02% 9.02% 9.02% 9.02% -- -- Variable Rate ($CAN) $ 2,737 $ 2,737 $ 2,049 $ -- $ -- $ -- $ 7,523 Average interest rate 8.25% 8.25% 8.25% -- -- -- Intercompany $ 21,496 $ -- $ -- $ -- $ -- $ -- indebtedness denominated in currency other than the functional currency (Euro) Average interest rate 8.58% Intercompany $ 22,966 $ -- $ -- $ -- $ -- $ -- indebtedness denominated in currency other than the functional currency ($CAN) Average interest rate 8.58%
The changes from 2000 to 2001 are primarily due to the Company's repayment of approximately $8.3 million of revolving loans and approximately $11.7 million of other indebtedness in 2001. The table below provides information about the Company's financial instruments and foreign currency earnings by functional currency and presents such information in U.S. dollar equivalents. The table summarizes information on instruments, consisting of foreign currency investments in subsidiaries, and foreign currency earnings that are sensitive to foreign currency exchange rates. The Company has foreign currency investments in other currencies that are not included in the table since they are not material. For foreign currency investments, the table presents the amount invested (translated into U.S. dollars at year-end exchange rates) and identifies the currency of the investment and the exchange rate. For foreign currency earnings, the table presents the amount of earnings (translated from the functional currency into U.S. dollars at the average exchange rate for the year) and identifies the functional currency and the exchange rate.
DECEMBER 31, 2001 2000 -------------- --------- ($US EQUIVALENT IN THOUSANDS) Foreign Currency Investments In Subsidiaries (U.S.$ functional currency) Euro 8,949 9,000 Exchange Rate 0.89 0.93 Foreign Currency Earnings (Losses) $CAD Functional Currency (4,082) (2,305) Exchange Rate 0.64 0.67 Euro Functional Currency 349 (393) Exchange Rate 0.89 0.91
21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Accountants........................................................................... 22 Consolidated Balance Sheets-- December 31, 2001 and 2000.................................................... 23 Consolidated Statements of Operations-- Years Ended December 31, 2001, 2000 and 1999........................ 24 Consolidated Statements of Cash Flows-- Years Ended December 31, 2001, 2000 and 1999........................ 25 Consolidated Statements of Changes in Members' Equity -- Years Ended December 31, 2001, 2000 and 1999....... 26 Notes to Consolidated Financial Statements.................................................................. 27
22 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 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 15, 2002 23 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- 2001 2000 ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash..................................................... $ 2,139 $ 3,315 Accounts receivable, less reserves of $1,788 and $2,140, respectively.................................. 44,790 42,942 Inventories.............................................. 39,432 42,094 Deferred income taxes.................................... 1,643 1,775 Other current assets..................................... 4,133 6,874 -------- -------- Total current assets................................ 92,137 97,000 Property and equipment, net................................ 54,404 58,232 Goodwill, net.............................................. 73,394 77,391 Other intangible assets, net............................... 4,685 5,030 Deferred income taxes...................................... 1,932 2,020 Other noncurrent assets.................................... 1,738 2,824 -------- -------- $228,290 $242,497 ======== ======== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt..................... $ 11,023 $ 11,811 Accounts payable......................................... 29,051 24,996 Accrued liabilities...................................... 23,553 25,402 Mandatorily redeemable warrants............................ 5,130 -- -------- -------- Total current liabilities........................... 68,757 62,209 -------- -------- Noncurrent liabilities Deferred income taxes.................................... 828 1,001 Other noncurrent liabilities............................. 4,755 4,557 Long-term debt, less current maturities.................. 145,626 163,824 -------- -------- Total noncurrent liabilities........................ 151,209 169,382 -------- -------- Commitments and contingencies (Note 11) Mandatorily redeemable warrants............................ -- 5,010 -------- -------- Members' equity Class A Units 25,000 authorized, 9,236 issued at December 31, 2001 and 2000, respectively......................... 7,348 7,409 Class A-1 Units 25,000 authorized, 5,133 issued at December 31, 2001 and 2000, respectively................ 4,117 4,117 Class B Units, 2,000 authorized, no Units issued at December 31, 2001 and 2000 -- -- Other comprehensive loss................................. (181) (1,077) Accumulated deficit...................................... (2,960) (4,553) -------- -------- 8,324 5,896 -------- -------- $228,290 $242,497 ======== ========
See accompanying notes to consolidated financial statements. 24 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 --------- --------- --------- (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................................... $ 314,035 $ 318,817 $ 314,142 Cost of sales............................................... 239,583 239,090 227,889 --------- --------- --------- Gross profit.............................................. 74,452 79,727 86,253 Selling, administrative and product development expenses...................................... 44,769 45,527 50,258 Amortization of intangible assets........................... 3,312 3,297 3,245 --------- --------- --------- Operating income.......................................... 26,371 30,903 32,750 --------- --------- --------- Other expense Interest expense.......................................... 17,684 17,950 17,453 Foreign currency loss..................................... 4,948 5,386 7,912 Other expense............................................. 743 52 1,990 --------- --------- --------- Income before income taxes.................................. 2,996 7,515 5,395 Provision (benefit) for income taxes........................ 602 (278) 417 --------- --------- --------- Net income.................................................. $ 2,394 $ 7,793 $ 4,978 ========= ========= =========
See accompanying notes to consolidated financial statements. 25 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------------- 2001 2000 1999 ------------------------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net income.............................................. $ 2,394 $ 7,793 $ 4,978 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization......................... 14,599 14,304 14,065 Deferred taxes........................................ (161) (908) (2,433) Foreign currency loss................................. 4,965 5,159 6,297 Loss (gain) on disposal of assets..................... 701 37 (13) Changes in assets and liabilities net of acquisitions: Accounts receivable................................ (2,645) 3,425 (8,188) Inventories........................................ 1,427 (4,055) 1,815 Other current assets............................... 2,771 (1,546) (677) Other noncurrent assets............................ 685 (346) (56) Accounts payable................................... 4,084 (199) 4,527 Accrued liabilities................................ (950) (763) 3,441 Other noncurrent liabilities....................... (219) (1,485) 1,258 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... 27,651 21,416 25,014 ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES Acquisition of machinery and equipment.................. (7,580) (10,445) (11,775) Acquisition of subsidiaries, net of cash acquired.............................................. -- (2,804) -- ---------- ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES.................................... (7,580) (13,249) (11,775) ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES Increase (decrease) in revolving loan................... (8,341) 11,343 -- Repayment of debt....................................... (11,706) (13,878) (9,270) Issuance of membership units............................ -- -- 50 Collections of membership notes receivable.............. 59 65 29 Borrowing of debt....................................... 400 -- -- Repurchase of membership units.......................... -- (6,422) (4,274) Distributions to members................................ (801) (6,090) (4,720) ---------- ---------- ---------- NET CASH USED FOR FINANCING ACTIVITIES..................................... (20,389) (14,982) (18,185) ---------- ---------- ---------- Effect of exchange rate changes......................... (858) 1,412 2,424 Net decrease in cash.................................... (1,176) (5,403) (2,522) Cash at beginning of period............................. 3,315 8,718 11,240 ---------- ---------- ---------- Cash at end of period................................... $ 2,139 $ 3,315 $ 8,718 ========== ========== ========== Cash paid for interest.................................. $ 16,304 $ 17,032 $ 16,809 ========== ========== ========== Cash paid for income taxes.............................. $ 845 $ 1,763 $ 3,131 ========== ========== ==========
See accompanying notes to consolidated financial statements. 26 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, 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 Notes receivable for unit purchase........... 59 -- -- 59 Accretion of membership warrants............. (120) -- -- (120) Distributions to members..................... -- -- (801) (801) Comprehensive income: Minimum pension liability adjustment....... -- (285) -- Currency translation adjustment............ -- 1,181 -- Net income for 2001........................ -- -- 2,394 Total comprehensive income............... 3,290 --------- --------- --------- -------- Balance at December 31, 2001 $ 11,465 $ (181) $ (2,960) $ 8,324 ========= ========= ========= ========
See accompanying notes to consolidated financial statements. 27 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") supplies 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. 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. 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 Accessories, 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. 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. FINANCIAL INSTRUMENTS Financial instruments at December 31, 2001 and 2000, 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, 2001 and 2000. The fair value of the Notes (as defined below) as of December 31, 2001 and 2000 was approximately $103,750 and $85,000, respectively, based upon quoted prices in the market in which the Notes are traded. 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 -- (CONTINUED) The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the London Interbank Offered Rate (LIBOR). The Company will use 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, 2001, 2000 and 1999 includes net currency losses of $4,948, $5,386 and $7,912, respectively, relating primarily to debt denominated in U.S. Dollars at Brink International B.V., and SportRack Accessories, Inc. whose functional currency was the European Euro and Canadian Dollar, respectively. At December 31, 2001, U.S. Dollar denominated debt recorded at Brink includes intercompany debt and substantially all outstanding term notes 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 related 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 $1,111 and $2,205 at December 31, 2001 and 2000, 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 and incurred. 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 $10,569, $10,445 and $10,418 for the years ended December 31, 2001, 2000 and 1999, 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
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) GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill of $73,394 and $77,391, net of accumulated amortization of $16,872 and $14,032, at December 31, 2001 and 2000, 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 $4,093 and $4,602, net of accumulated amortization at December 31, 2001 and 2000, respectively, are amortized over the terms of the loan agreements, which are six to ten years. Debt issuance cost amortization of $677, $625 and $589 for 2001, 2000 and 1999, 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. 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 $801, $6,090 and $4,720 were made during 2001, 2000 and 1999, 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. RESEARCH, DEVELOPMENT AND ENGINEERING Research, development and engineering costs are expensed as incurred and aggregated approximately $9,397, $9,779 and $10,302 for the years ended December 31, 2001, 2000 and 1999, respectively. 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) NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2002, the Company will adopt the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets" (SFAS 142) and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 142 will change the methodology for assessing goodwill impairments. The initial application of this statement is likely to result in the impairment of goodwill due to the differences in the methods of calculating impairment. The first step of the initial impairment test required by SFAS 142 has been substantially completed and has identified $29,200 of goodwill that may be impaired based upon the new accounting standard. The impairment testing required to determine the actual amounts of goodwill impaired will be completed in 2002. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. This will result in a reduction of approximately $3,000 in amortization of intangible assets annually. The adoption of SFAS 144 is not expected to have a material impact on the Company's financial position or results of operations. Effective June 30, 2001, the Company adopted Emerging Issues Task Force (EITF) Consensus 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock'". Accordingly, based upon the terms of the warrants, the Company has reclassified the mandatorily redeemable warrants to a component of current liabilities. Future accretion will be included in the determination of net income or loss for each reporting period. 2. ACQUISITIONS Acquisitions of the Company from January 1, 1999 through December 31, 2001 are as follows:
PURCHASE GOODWILL ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES ----------------------------------------- ------------------ -------- --------- ------------- -------------- 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 assets of the respective company and each acquired company was purchased for cash. Pro forma results have not been presented as they are substantially the same as the Company's actual results. 31 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT Long-term debt is comprised of the following:
OUTSTANDING AT INTEREST RATE AT DECEMBER 31, DECEMBER 31, ------------------ 2001 2001 2000 -------------- ---------- ------- Senior Subordinated Notes, less discount of $327 and $367 respectively........................ 9.75% $ 124,673 $ 124,633 Second Amended and Restated Credit Agreement (U.S. Credit Facility) Term note A............................... 5.58% 1,794 5,326 Term note B............................... 6.08% 12,079 12,370 Acquisition revolving note................ 5.58% 9,188 14,438 Revolving line of credit note............. 6.13% 3,002 11,343 Supplemental revolving loan note.......... -- -- -- First Amended and Restated Credit Agreement (Canadian Credit Facility) Canadian term note........................ 4.75% 4,509 7,525 Canadian revolving line of credit note.... -- -- -- Other.......................................... -- 1,404 -- --------- --------- 156,649 175,635 Less -- current portion........................ 11,023 11,811 --------- --------- $ 145,626 $ 163,824 ========= =========
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 restrictions on, 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 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. On December 15, 2001, the Company entered into Amendment No. 9 to the U.S. Credit Facility which reset certain financial covenants for fiscal years 2001 and 2002 and provided the Company with additional liquidity by adding a conditional supplemental revolving loan facility of up to $10.0 million which is available until March 31, 2003. 32 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) The U.S. Credit Facility provides for two term notes (Term note A and Term note B), a revolving line of credit note, an acquisition note and a Supplemental Revolving Loan Note. Loans under each of the term notes and the revolving notes 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 Leverage 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, 2001 and 2000, the Company had an irrevocable letter of credit outstanding in the amount of $8,041 and $6,350, respectively (see Note 11). 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. At December 31, 2001, the applicable margin for Term note A ranges from 2.0% to 3.0% for Base Rate Loans and from 2.75% to 3.75% for Eurocurrency Loans. The applicable margin for Base Rate Loans and Eurocurrency Loans will increase by 0.25% (for all points within the range) on July 1, 2002 and again on October 1, 2002. Repayments under the note are required in the following installments:
QUARTERLY ----------------------- March 31, 2002 and June 30, 2002.................... $ 883 Final installment on September 30, 2002............. 28
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. At December 31, 2001, the applicable margin for Term note B ranges from 2.5% to 3.5% for Base Rate Loans and from 3.25% to 4.25% for Eurocurrency Loans. The applicable margin for Base Rate Loans and Eurocurrency Loans will increase by 0.25% (for all points within the range) on July 1, 2002 and again on October 1, 2002. Repayments under Term note B are required in the following installments: March 31, 2002 through September 30, 2003 (quarterly)....... $ 73 December 31, 2003........................................... 2,914 March 31, 2004 and June 30, 2004............................ 3,764 October 30, 2004............................................ 1,126
Acquisition note On December 31, 1997, the Company borrowed $21,000 under its acquisition note. The proceeds were used to acquire the assets of Ellebi on January 2, 1998. At December 31, 2001, the applicable margin for acquisition note ranges from 2.0% to 3.0% for Base Rate Loans and from 2.75% to 3.75% for Eurocurrency Loans. The applicable margin for Base Rate Loans and Eurocurrency Loans will increase by 0.25% (for all points within the range) on July 1, 2002 and again on October 1, 2002. Repayments under the acquisition note are due in equal quarterly installments of $1,312 through September 30, 2003. 33 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) 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. At December 31, 2001, $13,957 was available for borrowing on the note. At December 31, 2001, the applicable margin for revolving line of credit note ranges from 2.0% to 3.0% for Base Rate Loans and from 2.75% to 3.75% for Eurocurrency Loans. The applicable margin for Base Rate Loans and Eurocurrency Loans will increase by 0.25% (for all points within the range) on July 1, 2002 and again on October 1, 2002. 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. Supplemental revolving loan note When the availability under the revolving line of credit note reaches zero, the Company has the ability to borrow up to $10,000 under the supplemental revolving loan note. Available borrowings are limited to the same borrowing base as the revolving line of credit note to the extent the borrowing base exceeds $25,000. At December 31, 2001, $10,000 in borrowings were available on the note. At December 31, 2001, the applicable margin for supplemental revolving note ranges from 2.0% to 3.0% for Base Rate Loans and from 2.75% to 3.75% for Eurocurrency Loans. The applicable margin for Base Rate Loans and Eurocurrency Loans will increase by 0.25% (for all points within the range) on July 1, 2002 and again on October 1, 2002. 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. A mandatory prepayment of all outstanding loans under the note is due if the Company reports Earnings Before Interest, Taxes, Depreciation and Amortization (`EBITDA'), as defined by the agreement, of less than $32,000 on a trailing four quarter basis at the end of any fiscal quarter. The note expires on March 31, 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. $12,558 and U.S. $2,512) at December 31, 2001, 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. Canadian term note Repayments under the Canadian term note are required in the following installments:
QUARTERLY ------------------------- March 31, 2002 through June 30, 2003....................... $ 645 Final installment on October 30, 2003...................... 639
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. 34 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 3. LONG-TERM DEBT -- (CONTINUED) 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 before the earlier of October 30, 2004 and 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 were accreted to their estimated redemption value through periodic charges against Members' Equity through October 30, 2001 or the time redemption first becomes available. Thereafter the warrants are being 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: 2002...................................................... $ 11,023 2003...................................................... 12,105 2004...................................................... 8,730 2005...................................................... 62 2006...................................................... 56 Thereafter................................................ 125,000 --------- 156,976 Less -- discount.......................................... (327) --------- $ 156,649 =========
4. MEMBERS' EQUITY Holders of Class A Units are eligible to vote in elections of Managers of the Company and other matters as set forth 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, 2001 or 2000. 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. 35 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 5. INCOME TAXES The Company's C corporation subsidiaries and taxable foreign subsidiaries account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Company and certain domestic subsidiaries are limited liability corporations; as such, the Company's earnings are included in the taxable income of the Company's members. Income (loss) before minority interest and income taxes were attributable to the following sources:
YEAR ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 ----------- ----------- ------- United States.............................................. $ 6,133 $10,491 $10,925 Foreign.................................................... (3,131) (2,976) (5,530) ------- ------- ------- $ 3,002 $ 7,515 $ 5,395 ======= ======= =======
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 ----------- ----------- ------- CURRENTLY PAYABLE United States............................................ $ 26 $ -- $ 14 Foreign.................................................. 737 630 2,836 ------- ------- ------- 763 630 2,850 ------- ------- ------- DEFERRED United States............................................ -- -- -- Foreign.................................................. (161) (908) (2,433) ------- ------- ------- (161) (908) (2,433) ------- ------- ------- $ 602 $ (278) $ 417 ======= ======= =======
The effective tax rates differ from the U.S. federal income tax rate as follows:
YEAR ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 ----------- ----------- ------- Income tax provision at U.S. statutory rate (35%).......... $ 1,051 $ 2,630 $ 1,887 U. S. income taxes attributable to members................. (2,147) (3,674) (3,823) Change in valuation allowance.............................. 841 (86) 854 Nondeductible foreign goodwill............................. 391 224 369 Foreign rate differences and other, net.................... 466 628 1,130 ------- ------- ------- $ 602 $ (278) $ 417 ======= ======= =======
Deferred tax assets and liabilities, related primarily to the Company's foreign subsidiaries, comprise the following:
DECEMBER 31, -------------------- 2001 2000 ------- ------- DEFERRED TAX ASSETS Net operating loss carryforwards of foreign subsidiaries..................... $ 6,229 $ 6,660 Fixed assets................................................................. 2,169 2,738 Goodwill..................................................................... 452 480 Inventory.................................................................... 52 83 Other........................................................................ 2,369 1,561 ------- ------- 11,271 11,522 DEFERRED TAX LIABILITIES Fixed assets................................................................. (1,565) (2,492) Inventory.................................................................... (783) (862) Goodwill..................................................................... (194) (132) Other........................................................................ (243) (297) ------- ------- (2,785) (3,783) Valuation allowance.......................................................... (5,739) (4,945) ------- ------- Net deferred tax asset....................................................... $ 2,747 $ 2,794 ======= =======
36 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 5. INCOME TAXES -- (CONTINUED) The net operating loss carryforwards of the Company's European subsidiaries approximate $6,199 at December 31, 2001 and have no expiration date. The net operating loss carryforwards of the Company's Canadian subsidiaries approximate $10,610 at December 31, 2001 and expire primarily in 2004 through 2008. As of December 31, 2001 and 2000, respectively, the Company recorded a valuation allowance of $5,739 and $4,945 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, 2001. If certain substantial changes in the Company's ownership should occur, there could be an annual limit on the amount of certain carryforwards which can be utilized. 6. RELATED PARTY TRANSACTIONS AND ALLOCATIONS A portion of the Company's U.S. Credit Facility, 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 $361, $406 and $400 for the years ended December 31, 2001, 2000 and 1999, 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. 7. OPTION PLAN The Company uses the disclosure requirements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The Company, however, 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, 2001 and 2000, 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, 2001, there were 179 options that remained available for grant under the Plan. Information concerning options to purchase Class A Units is as follows:
2001 2000 1999 ------------------------ ------------------------ ---------------------- 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............. 2,358 $ 1,417 2,405 $ 1,499 3,971 $ 1,343 Options granted...................... -- -- -- -- 50 $ 4,000 Options exercised.................... -- -- -- -- 696 $ 1,251 Options cancelled.................... 94 $ 5,524 47 $ 5,610 920 $ 1,150 -- ------- ------- Outstanding at December 31........... 2,264 $ 1,247 2,358 $ 1,417 2,405 $ 1,499 ===== ======= ======= Exercisable at December 31........... 1,247 $ 1,282 1,581 $ 1,515 1,282 $ 1,532 ===== ======= =======
37 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 7. OPTION PLAN -- (CONTINUED) 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. 1,290 $ 1,183 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. 570 $ 1,105 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 expense of $450 and $400 for the years ended December 31, 2000 and 1999, respectively. No compensation expense was recognized during 2001 as no options vested during the year. 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 of the Company would have been $2,256, $8,047 and $5,258 the years ended December 31, 2001, 2000 and 1999, respectively. The weighted average fair value of options granted per unit was $2,300 for the year ended December 31, 1999. Options granted in 1999 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 ---- Dividend yield............................... 0.0% Risk-free rate of return..................... 6.0% Expected option term (in years).............. 8
The following table summarizes the status of the Company's options outstanding and exercisable at December 31, 2001:
OPTIONS OUTSTANDING --------------------------- WEIGHTED AVERAGE REMAINING EXERCISE CONTRACTUAL OPTIONS PRICES UNITS LIFE EXERCISABLE --------- --------- ------------- ------------ $ 1,000 2,025 9 1,959 $ 3,029 129 11 215 $ 3,485 65 11 52 $ 4,000 45 12 20
38 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. PENSION PLANS The Company has a defined benefit pension plan covering substantially all of SportRack, LLC's domestic employees covered under a collective bargaining agreement. An employee's monthly pension benefit is determined by multiplying a defined dollar amount by the years of credited service earned. Plan assets are comprised principally of marketable equity securities and short-term investments. The Company's funding policy is to contribute annually the amounts necessary to comply with ERISA funding requirements. The following table sets forth the change in the plan's benefit obligations and plan assets, and the funded status of the plan as of and for the years ended December 31, 2001 and 2000:
DECEMBER 31, --------------------- 2001 2000 --------- ------- Change in benefit obligation: Benefit obligation at beginning of year......................... $ 2,703 $ 2,491 Benefits earned during the year................................. 136 124 Interest on projected benefit obligation........................ 201 182 Actuarial loss (gain)........................................... 133 (7) Benefits paid................................................... (93) (87) ------- ------- Benefit obligation at end of year............................... 3,080 2,703 ------- ------- Change in plan assets: Market value of assets at beginning of year..................... 2,424 2,190 Actual return on plan assets.................................... (79) 84 Employer contributions.......................................... 358 238 Benefits paid................................................... (93) (87) ------- ------- Market value of assets at end of year........................... 2,610 2,425 ------- ------- Funded status...................................................... (470) (278) Unrecognized prior service cost.................................... 318 345 Unrecognized net (gain) loss....................................... 285 (160) ------- ------- Net amount recognized.............................................. $ 133 $ (93) ======= ======= Amounts recognized in the statement of financial position consist of: Accrued benefit liability....................................... $ (470) $ (93) Intangible asset................................................ 318 -- Accumulated other comprehensive income adjustment............... 285 -- ------- ------- Net amount recognized........................................... $ 133 $ (93) ======= =======
YEAR ENDED DECEMBER 31, ---------------------------------- 2001 2000 1999 --------- --------- ------- Components of net periodic benefit cost: Service cost.................................................... $ 136 $ 124 $ 110 Interest cost................................................... 201 182 151 Expected return on plan assets.................................. (232) (205) (175) Recognized net actuarial gain................................... -- (10) -- Amortization of prior service cost.............................. 27 27 1 ------- ------- ------- Net periodic benefit cost.......................................... $ 132 $ 118 $ 87 ======= ======= =======
39 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 8. PENSION PLANS -- (CONTINUED) The weighted average discount rate used in determining the actuarial present value of the accumulated benefit obligation was 7.25%, 7.50%, and 7.75% at December 31, 2001, 2000 and 1999, respectively. The expected long-term rate of return on plan assets was 9.00% at December 31, 2001, 2000 and 1999. 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 $296, $369 and $334 in 2001, 2000 and 1999, 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 $1,086, $1,270 and $1,271 for the years ended December 31, 2001, 2000 and 1999, respectively. 9. OPERATING LEASES The Company leases certain equipment under leases expiring on various dates through 2006. Future minimum annual lease payments required under leases that have a noncancellable lease term in excess of one year at December 31, 2001 are as follows: 2002................................................... $ 3,744 2003................................................... 2,727 2004................................................... 1,707 2005................................................... 1,252 2006................................................... 520 ------- $ 9,950 -------
Rental expense charged to operations was approximately $4,069, $4,066 and $4,169 for the years ended December 31, 2001, 2000 and 1999, respectively. 10. ACCOUNT BALANCES Account balances included in the consolidated balance sheets are comprised of the following:
DECEMBER 31, ----------------------- 2001 2000 -------- ------- INVENTORIES Raw materials.............................................................. $14,689 $17,746 Work-in-process............................................................ 10,323 7,910 Finished goods............................................................. 17,248 18,978 Reserves................................................................... (2,828) (2,540) ------- ------- $39,432 $42,094 ------- ------- PROPERTY AND EQUIPMENT Land, buildings and improvements........................................... $23,138 $23,751 Furniture, fixtures and computer hardware.................................. 11,582 11,346 Machinery, equipment and tooling........................................... 58,403 54,219 Construction-in-progress................................................... 2,262 1,579 ------- ------- 95,385 90,895 Less -- accumulated depreciation........................................... (40,981) (32,663) ------- ------- $54,404 $58,232 ======= ======= ACCRUED LIABILITIES Compensation and benefits.................................................. $13,594 $12,400 Interest................................................................... 2,983 3,148 Other...................................................................... 6,976 9,854 ------- ------- $23,553 $25,402 ======= =======
40 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 11. COMMITMENTS AND CONTINGENCIES In February 1996, the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreements with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999 a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the Company and awarded the individuals approximately $3,800 plus interest and reasonable attorney fees. The Company is currently pursuing an appeal in the Sixth Circuit Court of Appeals. During 2001 and 2000, the Company increased its estimated accrual for this matter by $600 and $450, respectively, 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, 2001, the Company had an outstanding irrevocable letter of credit totaling $8,041 benefiting the individuals. No amounts have been paid as of December 31, 2001. 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. 12. SEGMENT INFORMATION The Company operates in one reportable segment, providing towing and rack systems and related accessories to the automotive OEM and aftermarket. All sales are to unaffiliated customers. Revenues by geographic area, accumulated by the geographic area where the revenue originated, revenues by product line and long-lived assets, which include net property and equipment and net goodwill and debt issuance costs, by geographic area are as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 ----------- ----------- ---------- REVENUES United States.................................................... $ 223,662 $ 222,159 $ 211,167 The Netherlands.................................................. 31,768 32,344 35,647 Italy............................................................ 15,788 15,725 19,211 Other foreign.................................................... 42,817 48,589 48,117 --------- --------- --------- $ 314,035 $ 318,817 $ 314,142 ========= ========= ========= YEAR ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 ----------- ----------- ---------- REVENUES Towing systems.................................................. $ 173,327 $ 186,753 $ 187,276 Rack systems.................................................... 140,708 132,064 126,866 --------- --------- --------- $ 314,035 $ 318,817 $ 314,142 ========= ========= ========= DECEMBER 31, ----------------------------------- 2001 2000 1999 ---------- ----------- ---------- LONG-LIVED ASSETS United States........................................................ $ 93,068 $ 96,201 $ 94,991 The Netherlands...................................................... 22,326 24,197 27,303 Italy................................................................ 4,705 6,280 8,235 Other foreign........................................................ 12,384 13,975 15,190 -------- -------- -------- $132,483 $140,653 $145,719 ======== ======== ========
41 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 12. SEGMENT INFORMATION -- (CONTINUED) The Company has two significant customers in the automotive OEM industry. Sales to these customers represented 28% and 17% of total Company sales for the year ended December 31, 2001, 32% and 11% for the year ended December 31, 2000, and 36% and 12% for the year ended December 31, 1999. Accounts receivable from these customers represented 27% and 10% of the Company's trade accounts receivable at December 31, 2001, and 30% and 11% at December 31, 2000, 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, 2001. Consistent with industry practice, the Company does not require collateral to reduce such credit risk. 13. CONDENSED CONSOLIDATING INFORMATION On October 1, 1997, the Company and its wholly-owned subsidiary, AAS Capital Corporation, issued and sold $125,000 of its 9 3/4% Senior Subordinated Notes due 2007. The Notes are guaranteed on a full, unconditional and joint and several basis, by all of the Company's direct and indirect wholly-owned domestic subsidiaries. The following condensed consolidating financial information for 2001, 2000 and 1999 presents the financial position, results of operations and cash flows of (i) the Company as parent, as if it accounted for its subsidiaries on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and include Brink International B.V. and its subsidiaries, SportRack Accessories, Inc. and its subsidiary, and SportRack Automotive, GmbH and its subsidiaries. The operating results of the guarantor and non-guarantor subsidiaries include management fees of $1,416 and $310, respectively, for the year ended December 31, 2001, $1,410 and $330, respectively, for the year ended December 31, 2000 and $1,410 and $320 for the year ended December 31, 1999, 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, 2001. 42 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ---------- ------------ ------------ ----------- ------------ ASSETS Current assets Cash................................... $ 334 $ 2 $ 1,803 $ -- $ 2,139 Accounts receivable.................... -- 29,094 15,696 -- 44,790 Inventories............................ -- 15,603 23,829 -- 39,432 Deferred income taxes and other current assets........................ 7 2,326 3,443 -- 5,776 ----------- ----------- ----------- ----------- ---------- Total current assets.............. 341 47,025 44,771 -- 92,137 ----------- ----------- ----------- ----------- ---------- Property and equipment, net.............. -- 34,071 20,333 -- 54,404 Goodwill, net............................ 985 53,930 18,479 -- 73,394 Other intangible assets, net............. 3,670 412 603 -- 4,685 Deferred income taxes and other noncurrent assets...................... 93 1,340 2,237 -- 3,670 Investment in subsidiaries............... 70,323 9,955 -- (80,278) -- Intercompany notes receivable............ 74,601 -- -- (74,601) -- ------------ ----------- ----------- ----------- ---------- Total assets...................... $ 150,013 $ 146,733 $ 86,423 $ (154,879) $ 228,290 ============ =========== =========== =========== ========== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt... $ -- $ 1,108 $ 9,915 $ -- $ 11,023 Accounts payable....................... -- 19,562 9,489 -- 29,051 Accrued liabilities and deferred income taxes......................... 6,731 7,804 9,018 -- 23,553 Mandatorily redeemable warrants.......... 5,130 -- -- -- 5,130 ------------ ----------- ----------- ----------- ---------- Total current liabilities......... 11,861 28,474 28,422 -- 68,757 ------------ ----------- ----------- ----------- ---------- Deferred income taxes and other noncurrent liabilities................. 2,003 719 2,861 -- 5,583 Long-term debt, less current maturities.. 127,675 297 17,654 -- 145,626 Intercompany debt........................ -- 16,920 57,681 (74,601) -- Members' equity.......................... 8,474 100,323 (20,195) (80,278) 8,324 ------------ ----------- ----------- ----------- ---------- Total liabilities and members' equity.......................... $ 150,013 $ 146,733 $ 86,423 $ (154,879) $ 228,290 ============ =========== =========== =========== ==========
43 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 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 ============ =========== =========== =========== ==========
44 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ----------- ------------ ------------- ------------- ------------ Net sales................................ $ -- $ 223,662 $ 90,373 $ -- $ 314,035 Cost of sales............................ -- 178,092 61,491 -- 239,583 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 45,570 28,882 -- 74,452 Selling, administrative and product development expenses................... 247 24,822 19,700 -- 44,769 Amortization of intangible assets........ 40 2,372 900 -- 3,312 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (287) 18,376 8,282 -- 26,371 Interest expense......................... 8,853 2,533 6,298 -- 17,684 Equity in net income (loss) of subsidiaries........................... 11,534 -- -- (11,534) -- Foreign currency gain (loss)............. -- -- (4,948) -- (4,948) Other income (expense)................... -- (543) (200) -- (743) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 2,394 15,300 (3,164) (11,534) 2,996 Provision for income taxes............... -- -- 602 -- 602 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 2,394 $ 15,300 $ (3,766) $ (11,534) $ 2,394 ========== ========== =========== ========== ==========
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 ========== ========== =========== ========== ==========
45 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING 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 ========== ========== =========== ========== ==========
46 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ----------- ------------ ------------ ----------- ------------ Net cash provided by (used for) operating activities.............................. $ (8,830) $ 32,749 $ 3,732 $ -- $ 27,651 ----------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment............................. -- (4,249) (3,331) -- (7,580) ---------- --------- ---------- ---------- --------- Net cash used for investing activities -- (4,249) (3,331) -- (7,580) ---------- ---------- ---------- ---------- --------- Cash flows provided by (used for) financing activities: Change in intercompany debt............. 17,094 (29,144) 12,050 -- -- Net increase in revolving loan.......... (8,341) -- -- -- (8,341) Repayment of debt....................... -- -- (11,706) -- (11,706) Collection on members notes receivable.. 59 -- -- -- 59 Borrowing of debt....................... -- 400 -- -- 400 Distributions to members................ (801) -- -- (801) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities................ 8,011 (28,744) 344 -- (20,389) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes........... -- -- (858) -- (858) ---------- --------- ---------- ---------- --------- Net decrease in cash...................... (819) (244) (113) -- (1,176) Cash at beginning of period............... 1,153 246 1,916 -- 3,315 ---------- --------- ---------- ---------- ---------- Cash at end of period..................... $ 334 $ 2 $ 1,803 $ -- $ 2,139 ========== ========= ========== ========== ==========
47 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF 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 ========== ========= ========== ========== ==========
48 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA) 13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
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 ========== ========= ========== ========== ==========
49 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 MANAGER OR OFFICER SINCE --------------------- --------------------------------------------------------- ------------------------ F. Alan Smith........... 70 Chairman of the Board of Managers of the Company September 1995 Terence C. Seikel....... 44 President and Chief Executive Officer of the January 1996 Company; Board Member Richard E. Borghi....... 55 President and Chief Operating Officer of September 1995 SportRack; Board Member Gerrit de Graaf......... 38 General Manager and Chief Executive Officer of October 1996 Brink; Board Member Bryan A. Fletcher....... 42 President and Chief Operating Officer of Valley August 1997 Aftermarket (a division of Valley Industries, LLC), Board Member Barry G. Steele......... 31 Corporate Controller and Treasurer of the Company June 1999 J. Wim Rengelink........ 47 Finance Director of Brink October 1996 Donald J. Hofmann, Jr... 44 Board Member, Vice President and Secretary of the September 1995 Company Barry Banducci.......... 66 Board Member September 1995 Gerard J. Brink......... 58 Board Member October 1996
F. Alan Smith has served in the automotive industry for 40 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 TransPro, Inc. Terence C. Seikel has served in the automotive industry for 18 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 34 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 as a consultant for Philips Medical Systems (a division of Philips Electronics), a company engaged in the distribution of electronic medical equipment, and most recently as Philips' Marketing Manager in the United States. Bryan A. Fletcher has served in the automotive industry for 13 years and has been President and Chief Operating Officer of Valley Aftermarket (a division of Valley Industries, LLC) 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 and Treasurer since July 2001. From June 1999 to July 2001 Mr. Steele was Corporate Controller of the Company. 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 15 years and has been Finance Director of Brink since 1995. From 1988 to 1995 he worked in Brink's internal audit department. 50 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 and Pliant Corporation. Barry Banducci has been a Board Member of the Company since October 1995. Since September 1995, Mr. Banducci has been the Chairman of TransPro, Inc., a supplier to the automotive OEM market and aftermarket. 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, Inc. Gerard J. Brink has been a Board Member of the Company since October 1996. Mr. Brink has been retired since October 1996 prior to that he was General Manager of Brink from 1965 to 1996. Each member of the Board of Managers holds office until his successor is elected and qualified, or until his earlier death, resignation or removal. The Company's officers serve at the discretion of the Board of Managers. See the disclosures in Item 12. under the caption "Members' Agreement" for a description of arrangements to elect Messrs. Seikel, Borghi, Smith, Banducci, Brink and Fletcher as managers of the Company. See the disclosures in Item 11. under the caption "Employment Agreements" for a description of agreements with each of Messrs. Seikel, Borghi, de Graaf and Fletcher pursuant to which they are required to be appointed to the executive positions they currently hold. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for 1999 through 2001 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(#) ($) - -------------------------------------- -------- ------------- ------------- ----------------- ----------------- ----------- F. Alan Smith......................... 2001 183,500 -- -- -- -- Chairman of the Company 2000 228,000 114,000 -- -- -- 1999 228,000 114,000 -- -- -- Terence C. Seikel..................... 2001 265,000 115,000 -- -- -- President and Chief Executive 2000 265,000 175,000 -- -- -- Officer of the Company and SportRack 1999 245,000 175,000 -- -- -- Richard E. Borghi..................... 2001 324,964 105,000 -- -- -- President and Chief Operating 2000 279,798 125,000 -- -- -- Officer of SportRack 1999 261,897 125,000 -- -- -- Gerrit de Graaf....................... 2001 151,577 41,250 -- -- -- General Manager and Chief Executive 2000 154,000 65,000 -- -- -- Officer of Brink 1999 164,830 68,660 -- -- -- Bryan Fletcher........................ 2001 142,000 57,200 -- -- -- President and Chief Operating 2000 132,664 40,500 -- -- -- Officer of Valley Aftermarket 1999 133,170 64,050 -- 50 --
- --------------- OPTION GRANTS IN 2001 AND OPTION VALUES AT YEAR END During 2001, there were no options granted to the named executive officers. The following table sets forth information regarding outstanding membership unit options issued to the chief executive officer of the Company and the four next most highly compensated executive officers. 51 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT YEAR END(#) AT YEAR END($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE -------------------- -------------------- --------------- ------------------------- -------------------- F. Alan Smith....... -- -- 332/150 1,702,000/ 769,000 Terence C. Seikel... -- -- 465/200 2,383,000/ 1,025,000 Richard E. Borghi... -- -- 432/200 2,214,000/ 1,025,000 Gerrit de Graaf..... -- -- 32/7 164,000/ 36,000 Bryan Fletcher...... -- -- 15/30 77,000/ 154,000
- ---------- 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 "Consulting Agreements." EMPLOYMENT AGREEMENTS Each of Terence C. Seikel, Richard E. Borghi, Gerrit de Graaf and Bryan Fletcher has entered into an employment agreement (collectively, the "Employment Agreements") with the Company. Mr. Seikel's Employment Agreement provides for an annual base salary of $250,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 50-70% of his base salary. Mr. 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 he is entitled to 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, 2001. The Consulting Agreements each provide for an annual consulting fee of $50,000. Either party can terminate the Consulting Agreements upon 10 days notice. Following the termination date and for so long as the consultant shall continue to serve on the Board of Managers of the Company, the consultant will receive an annual board fee of no less than 10% of the aggregate purchase price for all Units of the Company acquired by him, currently $20,000 for Mr. Smith and $30,000 for Mr. Banducci. The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing non- 52 public information about the Company. 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. None of the members of the Compensation Committee was, during 2001, an officer or employee of the Company or any of its subsidiaries or was formerly an officer of the Company or any of its subsidiaries, except that Mr. Smith has been the Company's Chairman of the Board of Managers and Mr. Hofmann has been Vice President and Secretary of the Company since its formation in September 1995. None of the Compensation Committee members had any relationship with the Company requiring disclosure by the Company pursuant to Securities and Exchange Commission rules regarding disclosure of related-party transactions, except that Mr. Hofmann and Mr. Smith had the relationships with the Company described below: 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 and currently beneficially owns 68.9% of the Company's equity securities. CSI acted as an Initial Purchaser in connection with the offering of Notes, for which it received customary fees. Chase is agent bank and a lender to the Company under the U.S. Credit Facility 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 U.S. Credit Facility from the proceeds of the offering of Notes. 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 of Notes. As a result of the offering of Notes, 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 of Notes. 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 a Consulting Agreement with F. Alan Smith, the Chairman of the Company. See "Consulting Agreements." 53 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 20, 2002, the outstanding membership interests of the Company consisted of 14,369 Units, including 9,236 Class A Units and 5,133 Class A-1 Units. The following table sets forth certain information regarding the beneficial ownership of the Units by (i) each person known by the Company to beneficially own more than 5% of the Units, (ii) each manager, (iii) each executive officer named in the Summary Compensation Table in Item 11. of this report, and (iv) all of the Company's managers 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 68.9% 1221 Avenue of the Americas New York, New York 10020 Celerity Partners.......................... 1,500 10.4 c/o Mark Benham 300 Sand Hill Road Building 4, Suite 230 Menlo Park, California 94025 F. Alan Smith(4)........................... 632 4.3 Terence C. Seikel(5)....................... 665 4.5 Richard E. Borghi(6)....................... 632 4.3 Gerrit de Graaf(7)......................... 58 0.4 Bryan A. Fletcher(8)....................... 40 0.3 Barry Banducci(9).......................... 500 3.4 Gerard J. Brink............................ 410 2.9 Donald J. Hofmann (10)..................... 10,251 68.9 All managers and executive officers as a group (nine persons) (11).................. 13,188 80.4
- --------- (1) Addresses are provided only for persons beneficially owning more than five percent of the Units. (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 20, 2002 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) J.P. Morgan Partners(23A SBIC), LLC is an affiliate of JPMP. 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 32 Units subject to options exercisable within 60 days. (8) Includes 15 Units subject to options exercisable within 60 days. (9) Includes 250 Units subject to options exercisable within 60 days. 250 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. (11) Includes 2,027 Units subject to options exercisable within 60 days. 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 Bryan Fletcher (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. 54 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Item 11. under the caption "Compensation Committee Interlocks and Insider Participation" for a description of transactions between the Company and entities with which Donald J. Hofmann, Jr., a manager of the Company, is affiliated. 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 Item 11. "Executive Compensation -- Consulting Agreements." In connection with the acquisition of the MascoTech Division by the Company, the Company loaned Mr. Borghi, the President and Chief Operating Officer of SportRack and a Board Member of the Company, $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. 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 Report 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 are not material, or the information called for thereby is otherwise included in the financial statements and, therefore, have been omitted. 3. Index to Exhibits: Each management contract or compensatory plan or arrangement filed as an exhibit to this report in identified in this index to exhibits with an asterisk before the exhibit number. EXHIBIT NUMBER DESCRIPTION 3(i) 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), filed March 31, 1998. 3(ii).1 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(ii).2 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). 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), filed March 31, 1998. 4.2 See Exhibits 10.7 through 10.7(i) and 10.8 Advanced Accessory Systems, LLC agrees to furnish to the Commission upon request in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K copies of instruments defining the rights of holders of long-term debt of Advanced Accessory Systems, LLC or any of its subsidiaries, which debt does not exceed 10% of the total assets of Advanced Accessory Systems, LLC and its subsidiaries on a consolidated basis. 10.1 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), filed March 31, 1998. 10.2 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), filed March 31, 1998. 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, 56 EXHIBIT NUMBER DESCRIPTION 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. 10.7(h) Amendment No. 8 dated as of June 30, 2001 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(h) to AAS' Quarterly Report on Form 10-Q (File No. 333-49011) for the six months ended June 30, 2001. 10.7(i) Amendment No. 9 dated as of December 14, 2001 to Second Amended and Restated Credit Agreement Dated as of August 5, 1997. Incorporated by reference to Exhibit 10.7(i) to AAS' Current Report on Form 8-K (File No. 333-49011). 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), filed March 31, 1998. *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, incorporated by reference to Exhibit 10.9(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. *10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 2001 *10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 2001 *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), filed March 31, 1998. *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, incorporated by reference to Exhibit 10.13(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. *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), filed March 31, 1998. 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), filed March 31, 1998. 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), filed March 31, 1998. 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), filed March 31, 1998. 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), filed March 31, 1998. 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), filed March 31, 1998. *10.22 Amended and Restated Employment Agreement dated as of March 14, 2001 between Valley Industries, LLC, and Bryan Fletcher, incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 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, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 10.24 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). 10.25 Unit Redemption Agreement dated as of October 26, 2000 between MascoTech, Inc. and Advanced Accessory Systems, LLC, incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. *10.26 Advanced Accessory Systems, LLC 1995 Option Plan. 57 EXHIBIT NUMBER DESCRIPTION 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), filed March 31, 1998. 24.1 Power of Attorney (b) Reports of form 8-K: On December 21, 2001, the Company filed a report on Form 8-K to announce, in Item 5. the execution of Amendment No. 9 to the Second Amended and Restated Credit Agreement dated as of August 5, 1997. No financial statements were filed with the report. - -------------- 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 Date: March 20, 2002 By: /s/ TERENCE C. SEIKEL -------------------------- Terence C. Seikel President and 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 below on the 20 day of March, 2002, 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 ----------------------------------------- Manager (Principal Executive and Principal Terence C. Seikel Financial Officer) /s/ BARRY G. STEELE Corporate Controller (Principal Accounting ----------------------------------------- Officer) Barry G. Steele * Chairman of the Board of Managers ----------------------------------------- F. Alan Smith * Manager ----------------------------------------- Barry Banducci * Manager ----------------------------------------- Gerard Jacobus Brink * Manager ----------------------------------------- Donald J. Hofmann * Manager ----------------------------------------- Richard E. Borghi * Manager ----------------------------------------- Bryan A. Fletcher * Manager ----------------------------------------- Gerrit de Graaf *By: /s/ TERENCE C. SEIKEL ----------------------------------------- Terence C. Seikel, Attorney-in-Fact
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, no annual report or proxy material has been sent to security holders. 60 ADVANCED ACCESSORY SYSTEMS, LLC- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999, (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, 2001........................................ $ 2,140 $ 818 $ (41) $ 1,129 $ 1,788 2000........................................ 4,997 (1,887) (41) 929 2,140 1999........................................ 2,766 2,670 (67) 372 4,997 ALLOWANCE FOR INVENTORY AND LOWER OF COST OR MARKET RESERVE ------------------------------- For the year ended December 31, 2001........................................ $ 2,540 $ 1,688 $ (60) $ 1,267 $ 2,901 2000........................................ 3,217 1,021 173 1,871 2,540 1999........................................ 3,917 573 (136) 1,137 3,217 ALLOWANCE FOR REIMBURSABLE TOOLING ----------------------------------- For the year ended December 31, 2001........................................ $ 414 $ 1,063 $ -- $ 661 $ 816 2000........................................ 541 266 -- 393 414 1999........................................ 324 230 -- 13 541 ALLOWANCE FOR DEFERRED TAX ASSETS --------------------------------- 2001........................................ $ 4,945 $ 1,023 $ (229) $ -- $ 5,739 2000........................................ 5,258 (86) (227) -- 4,945 1999........................................ 4,225 854 179 -- 5,258
- ---------- (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. 61 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION 10.11 Management Consulting Agreement between AAS and Barry Banducci dated September 28, 2001 10.12 Management Consulting Agreement between AAS and F. Alan Smith dated September 28, 2001 10.26 Advanced Accessory Systems, LLC 1995 Option Plan. 12.1 Statement Re: Computation of ratios 24.1 Power of Attorney EX-10.11 3 k68283ex10-11.txt MANAGEMENT CONSULTING AGREEMENT EXHIBIT 10.11 MANAGEMENT CONSULTING AGREEMENT dated as of September 28, 2001, between ADVANCED ACCESSORY SYSTEMS, LLC, a Delaware limited liability company (the "Company"), and BARRY BANDUCCI (the "Consultant"). The Company desires to retain the Consultant to perform management consulting services for the Company and its subsidiaries, and the Consultant desires to perform such management consulting services for the Company, in each case, upon the terms and conditions hereinafter set forth. References herein to the Company's subsidiaries shall be deemed to include all of the Company's direct and indirect subsidiaries. NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties agree as follows: SECTION 1. RETENTION OF CONSULTANT. The Company hereby retains the Consultant as a consultant, and the Consultant hereby accepts such retention by the Company, upon the terms and conditions hereinafter set forth. The Consultant shall perform all such services as an independent contractor to the Company and not as an employee, agent or representative of the Company. SECTION 2. TERM. The retention of the Consultant hereunder shall be for a period commencing on the date hereof (the "Commencement Date") and ending on the date that is ten (10) days after either party hereto provides written notice to the other party of its desire to terminate this Agreement (or such later date as may be specified in such notice). The period commencing on the Commencement Date and ending on the date of termination of the Consultant's retention hereunder shall be called the "Term", and the date on which the Consultant's retention hereunder shall terminate shall be called the "Termination Date". SECTION 3. DUTIES. During the Term, the Consultant shall advise the Company concerning such matters that relate to the business and affairs of the Company and its affiliates, in each case as the Company shall reasonably request, and shall perform such duties as are consistent therewith as the Board of Managers of the Company (the "Board") shall designate. During the Term, the Consultant shall also serve, at the request of the Company or the Board, on the Board and on the Board of Managers (or Board of Directors, as applicable) of any or all of the Company's subsidiaries. Following the Termination Date, the Consultant shall continue to serve on such Boards in accordance with the provisions of the Third Amended and Restated Members' Agreement dated as of September 30, 1999 among the Company, the Consultant and the other parties named therein, as the same may be amended or modified from time to time. SECTION 4. TIME TO BE DEVOTED TO SERVICES. During the Term, the Consultant shall not be required to devote any specified amount of time to the provisions of services hereunder and shall only be required to devote such reasonable amount of time to the business of the Company and its subsidiaries as the Consultant shall reasonably determine to be necessary to fulfill his duties hereunder. SECTION 5. COMPENSATION. (a) The Company (or at the Company's option, any subsidiary thereof) shall pay to the Consultant an annual consulting fee (the "Fee") during the Term of $50,000, payable in equal monthly installments. (b) Following the Termination Date and for so long as the Consultant shall continue to serve on the Board of the Company, the Consultant shall receive an annual Board fee of no less than 10% of the aggregate purchase price for all Units of the Company acquired by him, payable in equal monthly installments. SECTION 6. BUSINESS EXPENSES; BENEFITS. (a) The Company (or, at the Company's option, any subsidiary thereof) shall reimburse the Consultant, in accordance with its practice from time to time, for all reasonable and necessary expenses and other disbursements incurred by the Consultant for or on behalf of the Company in the performance of the Consultant's duties hereunder. The Consultant shall provide such appropriate documentation of expenses and disbursements as may from time to time be required by the Company. (b) The Company shall have no obligation to provide any benefits to Consultant, including, without limitation, any health, life or disability benefits. SECTION 7. DISCLOSURE OF INFORMATION. The Consultant shall not, at any time during the Term or thereafter, disclose to any person, firm, corporation or other business entity, except as required by law, any non-public information (including, without limitation, non-public information obtained prior to the date hereof) concerning the business, clients or affairs of the Company or any subsidiary or affiliate thereof for any reason or purpose whatsoever, nor shall the Consultant make use of any of such non-public information for his own purpose or for the benefit of any person, firm, corporation or other business entity except the Company or any subsidiary or affiliate thereof. Upon the termination of the Term, the Consultant shall return to the Company all property of the Company or any subsidiary or affiliate thereof then in the possession of the Consultant and all books, records, computer tapes or discs and all other material containing non-public information concerning the business, clients or affairs of the Company or any subsidiary or affiliate thereof. Notwithstanding the foregoing, the Consultant shall be entitled to retain any records and information he would otherwise be entitled to possess by virtue of his status as a Member of the Company. 2 SECTION 8. NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows: if to the Company, to: 12900 Hall Road Suite 200 Sterling Heights, MI 48313 Attention: Chief Executive Officer Telecopier: (810) 997-6839; with copies to: O'Sullivan LLP 30 Rockefeller Plaza New York, NY 10112 Attention: Ilan S. Nissan, Esq. Telecopier: (212) 408-2420; if to the Consultant, to: Barry Banducci c/o The Equion Corporation 741 Boston Post Road, Suite 101 Guilford, CT 06437 (a) or to such other address as the party to whom notice is to be given may have furnished to the other party or parties in writing in accordance herewith. Any such notice or communication shall be deemed to have been received in the case of personal delivery, on the date of such delivery, in the case of nationally-recognized overnight courier, on the next business day after the date when sent, in the case of telecopy transmission, when received, and in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted. SECTION 9. BINDING AGREEMENT; BENEFIT. Subject to Section 15, the provisions of this Agreement will be binding upon, and will inure to the benefit of, the respective heirs, legal representatives, successors and assigns of the parties. 3 SECTION 10. GOVERNING LAW. This Agreement will be governed by, and construed and enforced in accordance with, the laws of the State of Michigan (without giving effect to principles of conflicts of laws). SECTION 11. WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other breach. SECTION 12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings between the parties with respect thereto. This Agreement may be amended only by an agreement in writing signed by the parties. SECTION 13. HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 14. ASSIGNMENT. This Agreement is personal in its nature and the parties shall not, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that the Company may assign this Agreement to any of its subsidiaries. SECTION 15. COUNTERPARTS. This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but both such counterparts together shall constitute but one agreement. SECTION 16. GENDER. Any reference to the masculine gender shall be deemed to include the feminine and neuter genders unless the context otherwise requires. 4 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Management Consulting Agreement as of the date first written above. ADVANCED ACCESSORY SYSTEMS, LLC By: /s/ Terence C. Seikel ------------------------------ Name: /s/ Barry Banducci ---------------------------- Barry Banducci EX-10.12 4 k68283ex10-12.txt MANAGEMENT CONSULTING AGREEMENT EXHIBIT 10.12 MANAGEMENT CONSULTING AGREEMENT dated as of September 28, 2001, between ADVANCED ACCESSORY SYSTEMS, LLC, a Delaware limited liability company (the "Company"), and F. ALAN SMITH (the "Consultant"). The Company desires to retain the Consultant to perform management consulting services for the Company and its subsidiaries and the Consultant desires to perform such management consulting services for the Company and its subsidiaries, in each case, upon the terms and conditions hereinafter set forth. References herein to the Company's subsidiaries shall be deemed to include all of the Company's direct and indirect subsidiaries. NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties agree as follows: SECTION 1. RETENTION OF CONSULTANT. The Company hereby retains the Consultant as a consultant, and the Consultant hereby accepts such retention by the Company, upon the terms and conditions hereinafter set forth. The Consultant shall perform all such services as an independent contractor to the Company and not as an employee, agent or representative of the Company. SECTION 2. TERM. The retention of the Consultant hereunder shall be for a period commencing on the date hereof (the "Commencement Date") and ending on the date that is ten (10) days after either party hereto provides written notice to the other party of its desire to terminate this Agreement (or such later date as may be specified in such notice). The period commencing on the Commencement Date and ending on the date of termination of the Consultant's retention hereunder shall be called the "Term", and the date on which the Consultant's retention hereunder shall terminate shall be called the "Termination Date". SECTION 3. DUTIES. During the Term, the Consultant shall, at the request of the Company or the Board, serve as the Chairman of the Board of Managers of the Company (the "Board") and the Board of Managers (or Board of Directors, as applicable) of any or all of the Company's subsidiaries and shall advise the Company concerning such matters that relate to the business and affairs of the Company and its subsidiaries, in each case as the Company shall reasonably request, and shall perform such duties as are consistent therewith as the Board shall designate. Following the Termination Date, the Consultant shall continue to serve on such Boards in accordance with the provisions of the Third Amended and Restated Members Agreement dated as of September 30, 1999 among the Company, the Consultant and the other parties named therein, as the same may be amended or modified from time to time. SECTION 4. TIME TO BE DEVOTED TO SERVICES. During the Term, the Consultant shall not be required to devote any specified amount of time to the provisions of services hereunder and shall only be required to devote such reasonable amount of time to the business of the Company and its subsidiaries as the Consultant shall reasonably determine to be necessary to fulfill his duties hereunder. SECTION 5. COMPENSATION. (a) The Company (or at the Company's option, any subsidiary thereof) shall pay to the Consultant an annual consulting fee (the "Fee") during the Term of $75,000, payable in equal monthly installments. (b) Following the Termination Date and for so long as the Consultant shall continue to serve on the Boards of the Company, the Consultant shall receive an annual Board fee of no less than 10% of the aggregate purchase price for all Units of the Company acquired by him, payable in equal monthly installments. SECTION 6. BUSINESS EXPENSES; BENEFITS. (a) The Company (or, at the Company's option, any subsidiary thereof) shall reimburse the Consultant, in accordance with its practice from time to time, for all reasonable and necessary expenses and other disbursements incurred by the Consultant for or on behalf of the Company in the performance of the Consultant's duties hereunder. The Consultant shall provide such appropriate documentation of expenses and disbursements as may from time to time be required by the Company. (b) The Company shall have no obligation to provide any benefits to Consultant, including, without limitation, any health, life or disability benefits. SECTION 7. DISCLOSURE OF INFORMATION. The Consultant shall not, at any time during the Term or thereafter, disclose to any person, firm, corporation or other business entity, except as required by law, any non-public information (including, without limitation, non-public information obtained prior to the date hereof) concerning the business, clients or affairs of the Company or any subsidiary or affiliate thereof for any reason or purpose whatsoever, nor shall the Consultant make use of any of such non-public information for his own purpose or for the benefit of any person, firm, corporation or other business entity except the Company or any subsidiary or affiliate thereof. Upon the termination of the Term, the Consultant shall return to the Company all property of the Company or any subsidiary or affiliate thereof then in the possession of the Consultant and all books, records, computer tapes or discs and all other material containing non-public information concerning the business, clients or affairs of the Company or any subsidiary or affiliate thereof. Notwithstanding the foregoing, the Consultant shall be entitled to retain any records and information he would otherwise be entitled to possess by virtue of his status as a Member of the Company. 2 SECTION 8. NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows: if to the Company, to: 12900 Hall Road Suite 200 Sterling Heights, MI 48313 Attention: Chief Executive Officer Telecopier: (810) 997-6839; with copies to: O'Sullivan LLP 30 Rockefeller Plaza New York, NY 10112 Attention: Ilan S. Nissan, Esq. Telecopier: (212) 408-2420; if to the Consultant, to: F. Alan Smith 674 Franklyn Avenue Indialantic, FL 32903 or to such other address as the party to whom notice is to be given may have furnished to the other party or parties in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of nationally-recognized overnight courier, on the next business day after the date when sent, (c) in the case of telecopy transmission, when received, and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted. SECTION 9. BINDING AGREEMENT; BENEFIT. Subject to Section 15, the provisions of this Agreement will be binding upon, and will inure to the benefit of, the respective heirs, legal representatives, successors and assigns of the parties. 3 SECTION 10. GOVERNING LAW. This Agreement will be governed by, and construed and enforced in accordance with, the laws of the State of Michigan (without giving effect to principles of conflicts of laws). SECTION 11. WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other breach. SECTION 12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings between the parties with respect thereto. This Agreement may be amended only by an agreement in writing signed by the parties. SECTION 13. HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 14. ASSIGNMENT. This Agreement is personal in its nature and the parties shall not, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that the Company may assign this Agreement to any of its subsidiaries. SECTION 15. COUNTERPARTS. This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but both such counterparts together shall constitute but one agreement. SECTION 16. GENDER. Any reference to the masculine gender shall be deemed to include the feminine and neuter genders unless the context otherwise requires. 4 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Management Consulting Agreement as of the date first written above. ADVANCED ACCESSORY SYSTEMS, LLC By: /s/ Terence C. Seikel ------------------------------------ Name: Title: /s/ F. Alan Smith ----------------------------------- F. Alan Smith EX-10.26 5 k68283ex10-26.txt ADVANCED ACCESSORY SYSTEMS, LLC EXHIBIT 10.26 AAS HOLDINGS, LLC 1995 OPTION PLAN 1. PURPOSE OF THE PLAN The purpose of the AAS HOLDINGS, LLC 1995 OPTION PLAN (the "Plan") is (i) to further the growth and success of AAS HOLDINGS, LLC (the "Company") and its Subsidiaries (as hereinafter defined) by enabling directors and employees of, and independent consultants and contractors to, the Company and any of its Subsidiaries to acquire Class A Units (the "Units"), of the Company, thereby increasing their personal interest in such growth and success, and (ii) to provide a means of rewarding outstanding performance by such persons to the Company and/or its Subsidiaries. For purposes of the Plan, the term "Subsidiary" shall mean "Subsidiary Corporation" as defined in Section 424(f) of the Code. 2. ADMINISTRATION OF THE PLAN (a) Option Committee The Plan shall be administered by the Board of Managers of the Company (the "Board") or a three-person Option Committee (the "Committee") appointed from time to time by the Board. The members of the Committee may be removed by the Board at any time either with or without cause. Any vacancy on the Committee, whether due to action of the Board or any other cause, shall be filled by the Board. The term "Committee" shall, for all purposes of the Plan other than this Section 2, be deemed to refer to the Board if the Board is administering the Plan. (b) Procedures If the Plan is administered by a Committee, the Board shall from time to time select a Chairman from among the members of the Committee. The Committee shall adopt such rules and regulations as it shall deem appropriate concerning the holding of meetings and the administration of the Plan. A majority of the entire Committee shall constitute a quorum and the actions of a majority of the members of the Committee present at a meeting at which a quorum is present, or actions approved in writing by all of the members of the Committee, shall be the actions of the Committee. (c) Interpretation Except as otherwise expressly provided in the Plan, the Committee shall have all powers with respect to the administration of the Plan, including, without limitation, full power and authority to interpret the provisions of the Plan and any Option Agreement (as defined in Section 5(b)), and to resolve all questions arising under the Plan. All decisions of the Board or the Committee, as the case may be, shall be conclusive and binding on all participants in the Plan. 3. UNITS SUBJECT TO THE PLAN. (a) Number of Units Subject to the provisions of Section 9 (relating to adjustments upon changes in capital structure and other corporate transactions), the number of Units subject at any one time to options granted under the Plan ("Options"), plus the number of Units theretofore issued and delivered pursuant to the exercise of Options granted under the Plan, shall not exceed 4,200 Units. If and to the extent that Options granted under the Plan terminate, expire or are canceled without having been fully exercised, new Options may be granted under the Plan with respect to the Units covered by the unexercised portion of such terminated, expired or canceled Options. (b) Character of Units The Units issuable upon exercise of an Option granted under the Plan shall be (i) authorized but unissued Units, (ii) Units held in the Company's treasury or (iii) a combination of the foregoing. (c) Reservation of Units The number of Units reserved for issuance under the Plan shall at no time be less than the maximum number of Units which may be purchased at any time pursuant to outstanding Options. 4. ELIGIBILITY Options may be granted under the Plan only to (i) persons who are employees of, or independent consultants to, the Company or any of its Subsidiaries and (ii) persons who are directors or managers of the Company or any of its Subsidiaries. Notwithstanding the foregoing, Options may be conditionally granted to persons who are prospective employees or directors or managers of, or independent consultants to, the Company or any of its Subsidiaries. 5. GRANT OF OPTIONS (a) General Options may be granted under the Plan at any time and from time to time on or prior to the tenth anniversary of the Effective Date (as defined in Section 11). Subject to the provisions of the Plan, the Committee shall have plenary authority, in its discretion, to determine: (i) the persons (from among the class of persons eligible to receive Options under the Plan) whom Options shall be granted (the "Optionees"); (ii) the time or times at which Options shall be granted; -2- (iii) the number of Units subject to each Option; (iv) the Option Price of the Units subject to each Option; and (v) the time or times when each Option shall become exercisable and the duration of the exercise period. (b) Option Agreements Each Option granted under the Plan shall be evidenced by a written agreement (an "Option Agreement"), containing such terms and conditions and in such form, not inconsistent with the Plan, as the Committee shall, in its discretion, provide. Each Option Agreement shall be executed by the Company and the Optionee. (c) No Evidence of Employment or Service Nothing contained in the Plan or in any Option Agreement shall confer upon any Optionee any right with respect to the continuation of his or her employment by or service with the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any such Subsidiary (subject to the terms of any separate agreement to the contrary) at any time to terminate such employment or service or to increase or decrease the compensation of the Optionee from the rate in existence at the time of the grant of an Option. (d) Date of Grant The date of grant of an Option under the Plan shall be the date as of which the Committee approves the grant; provided, however, that the grant shall in no event be earlier than the date as of which the Optionee becomes an employee of the Company or one of its Subsidiaries. 6. OPTION PRICE Subject to Section 9, the price (the "Option Price") at which each Unit subject to an Option granted under the Plan may be purchased shall be determined by the Committee at the time the Option is granted. 7. EXERCISABILITY OF OPTIONS (a) Committee Determination Each Option granted under the Plan shall be exercisable at such time or times, or upon the occurrence of such event or events, and for such number of Units subject to the Option, as shall be determined by the Committee and set forth in the Option Agreement evidencing such Option. If an Option is not at the time of grant immediately exercisable, the Committee may (i) in the Option Agreement evidencing such Option, provide for the acceleration of the exercise -3- date or dates of the subject Option upon the occurrence of specified events and/or (ii) at any time prior to the complete termination of an Option, accelerate the exercise date or dates of such Option. (b) Automatic Termination of Options The unexercised portion of any Option granted under the Plan shall automatically terminate and shall become null and void and be of no further force or effect upon the first to occur of the following: (i) the end of the stated term thereof; (ii) if the Optionee is an employee, unless a shorter period is provided for in any Option Agreement, the expiration of three months from the date that the Optionee ceases to be an employee of the Company or any of its Subsidiaries (other than as a result of an Involuntary Termination (as defined in clause (iii) below)); provided, however, that if the Optionee shall die during such three-month period, the time of termination of the unexercised portion of such Option shall be the expiration of 12 months from the date that such Optionee ceased to be an employee of the Company or any of its Subsidiaries; (iii) if the Optionee is an employee, the expiration of 12 months from the date that the Optionee ceases to be an employee of the Company or any of its Subsidiaries, if such termination is due to such Optionee's death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code) (an "Involuntary Termination"); (iv) the expiration of such period of time or the occurrence of such event as the Committee in its discretion may provide in the Option Agreement; (v) on the effective date of a Material Transaction (as defined in Section 9(b)(i)) to which Section 9(b)(ii) (relating to assumptions and substitutions of Options) does not apply; and (vi) except to the extent permitted by Section 9(b)(ii), the date on which an Option or any part thereof or right or privilege relating thereto is transferred (otherwise than by will or the laws of descent and distribution), assigned, pledged, hypothecated, attached or otherwise disposed of by the Optionee. Anything contained in the Plan to the contrary notwithstanding, unless otherwise provided in an Option Agreement, no Option granted under the Plan shall be affected by any change of duties or position of the Optionee (including a transfer to or from the Company or one of its Subsidiaries), so long as such Optionee continues to be an employee of the Company or one of its Subsidiaries. 8. PROCEDURE FOR EXERCISE (a) Payment -4- Payment upon exercise of an Option shall be made in cash or personal or certified check payable to the Company in an amount equal to the aggregate Option Price of the Units with respect to which the Option is being exercised or upon the surrender of Units or option to buy Units, in each case valued at the fair market value thereof as determined by the Committee. (b) Notice An Optionee (or other person, as provided in Section 10(b)) may exercise an Option granted under the Plan in whole or in part (but for the purchase of whole Units only), as provided in the Option Agreement evidencing his Option, by delivering a written notice (the "Notice") to the Secretary of the Company. The Notice shall state: (i) that the Optionee elects to exercise the Option; (ii) the number of Units with respect to which the Option is being exercised (the "Optioned Units"); (iii) the method of payment for the Optioned Units (which method must be available to the Optionee under the terms of his or her Option Agreement); (iv) the date upon which the Optionee desires to consummate the purchase (which date must be prior so the termination of such Option); (v) a copy of any election filed by the Optionee pursuant to Section 83(b) of the Code; and (vi) such further provisions consistent with the Plan as the Committee may from time to time require. The exercise date of an Option shall be the date on which the Company receives the Notice from the Optionee. (c) Issuance of Certificates The Company shall issue a certificate in the name of the Optionee (or such other person exercising the Option in accordance with the provisions of Section 10(b)) for the Optioned Units as soon as practicable after receipt of the Notice and payment of the aggregate Option Price for such Units. Neither the Optionee nor any person exercising an Option in accordance with the provisions of Section 10(b) shall have any privileges as a holder of Units with respect to any Units subject to an Option granted under the Plan until the date of payment for such Units pursuant to the Option. 9. ADJUSTMENTS (a) Changes in Capital Structure -5- Subject to Section 9(b), if the number of Units is changed by reason of a split, reverse split or recapitalization, or converted into or exchanged for other securities as a result of a merger, consolidation or reorganization, the Committee shall make such adjustments in the number and class of Units with respect to which Options may be granted under the Plan as shall be equitable and appropriate in order to make such Options, as nearly as may be practicable, equivalent to such Options immediately prior to such change. A corresponding adjustment changing the number and class of Units allocated to, and the Option Price of, each Option or portion thereof outstanding at the time of such change shall likewise be made. (b) Material Transactions The following rules shall apply in connection with the dissolution or liquidation of the Company, a reorganization, merger or consolidation in which the Company is not the surviving corporation, or a sale of all or substantially all of the assets of the Company to another person or entity (each, a "Material Transaction"), unless otherwise provided in the Option Agreement or in the Members' Agreement of even date herewith: (i) each holder of an Option outstanding at such time shall be given (A) written notice of such Material Transaction at least 20 days prior to its proposed effective date (as specified in such notice) and (B) an opportunity, during the period commencing with delivery of such notice and ending 10 days prior to such proposed effective date, to exercise the Option to the full extent to which such Option would have been exercisable by the Optionee at the expiration of such 20-day period; provided, however, that upon the occurrence of a Material Transaction, all Options granted under the Plan and not so exercised shall automatically terminate; and (ii) notwithstanding anything contained in the Plan to the contrary, Section 9(b)(i) shall not be applicable if provision shall be made in connection with such Material Transaction for the assumption of outstanding Options by, or the substitution for such Options of new options covering the equity securities of, the surviving, successor or purchasing corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number, kind and option prices of Units subject to such options. (c) Special Rules The following rules shall apply in connection with Section 9(a) and (b) above: (i) no fractional Units shall be issued as a result of any such adjustment, and any fractional Units resulting from the computations pursuant to Section 9(a) or (b) shall be eliminated and the Optionee shall receive cash consideration for such fractional Unit at the rate of the Fair Market Value of such Unit, determined in accordance with clause (iv) below; (ii) no adjustment shall be made for cash dividends or the issuance to holders of rights to subscribe for additional Units or other securities; -6- (iii) any adjustments referred to in Section 9(a) or (b) shall be made by the Board or Committee (as the case may be) in good faith and shall be conclusive and binding on all persons holding Options granted under the Plan; and (iv) Fair Market Value of a Unit shall be deemed to be the price to be paid in such Material Transaction for each Unit. 10. RESTRICTIONS ON OPTIONS AND OPTIONED UNITS (a) Compliance With Securities Laws No Options shall be granted under the Plan, and no Units shall be issued and delivered upon the exercise of Options granted under the Plan, unless and until the Company and/or the Optionee shall have complied with all applicable Federal or state registration, listing and/or qualification requirements and all other requirements of law or of any regulatory agencies having jurisdiction. The Committee in its discretion may, as a condition to the exercise of any Option granted under the Plan, require an Optionee (i) to represent in writing that the Units received upon exercise of an Option are being acquired for investment and not with a view to distribution and (ii) to make such other representations and warranties as are deemed appropriate by the Company. Certificates representing Units acquired upon the exercise of Options that have not been registered under the Securities Act shall, if required by the Committee, bear the following legend and such additional legends as may be required by the Option Agreement evidencing a particular Option: "THE UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE UNITS HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE UNITS UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT." (b) Nonassignability of Option Rights No Option granted under the Plan shall be assignable or otherwise transferable by the Optionee except by will or by the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by the Optionee. If an Optionee dies, his or her Option shall thereafter be exercisable, during the period specified in Section 7(b)(ii) or (iii) (as the case may be), by his or her executors or administrators to the full extent to which such Option was exercisable by the Optionee at the time of his or her death. 11. EFFECTIVE DATE OF PLAN -7- The Plan shall become effective on the date of the Closing under the Asset Purchase Agreement dated as of September 28, 1995, as amended, among Advanced Accessory Systems, LLC, a subsidiary of the Company, MascoTech, Inc. and the other parties thereto (the "Effective Date"). 12. EXPIRATION AND TERMINATION OF THE PLAN Except with respect to Options then outstanding, the Plan shall expire on the first to occur of (i) the fifteenth anniversary of the date on which the Plan is approved by the holders of Units and (ii) the date as of which the Board, in its sole discretion, determines that the Plan shall terminate (the "Expiration Date"). Any Options outstanding as of the Expiration Date shall remain in effect until they have been exercised or terminated or have expired by their respective terms. 13. AMENDMENT OF PLAN The Board may at any time prior to the Expiration Date modify and amend the Plan in any respect. No such amendment to the Plan shall affect the terms or provisions of any Option granted by the Company prior to the effectiveness of such amendment. 14. CAPTIONS The use of captions in the Plan is for convenience. The captions are not intended to provide substantive rights. 15. WITHHOLDING TAXES Whenever under the Plan Units are to be delivered by an Optionee upon exercise of an Option, the Company shall be entitled to require as a condition of delivery that the Optionee remit or, in appropriate cases, agree to remit when due, an amount sufficient to satisfy all current or estimated future Federal, state and local income tax withholding the employee's portion of any employment tax requirements relating thereto. 16. OTHER PROVISIONS Each Option granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion. 17. NUMBER AND GENDER With respect to words used in the Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, and vice-versa, as the context requires 18. GOVERNING LAW -8- The validity and construction of the Plan and the instruments evidencing the Options granted hereunder shall be governed by the laws of the State of Delaware. As adopted by the Board of Managers of AAS Holdings, LLC on September 28, 1995. -9- EX-12.1 6 k68283ex12-1.txt STATEMENT RE: COMPUTATION OF RATIOS ADVANCED ACCESSORY SYSTEMS, LLC EXHIBIT 12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS - FIXED CHARGE COVERAGE RATIO FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2001 2000 1999 ------------- ------------ ------------ Pre-tax income from continuing operations..................................... $ 2,996 $ 7,515 $ 5,395 ------------ ------------ ------------ Fixed Charges: Interest expense and amortization of debt discount and premium on all indebtedness............................................. 17,684 17,950 17,453 Rentals (1)................................................. 2,713 2,711 1,390 ------------- ------------- ------------- Total fixed charges......................................... 20,397 20,661 18,843 ------------- ------------- ------------- Earnings before income taxes, minority interest and fixed charges....................... $ 23,393 $ 28,176 $ 24,238 ============= ============= ============= Ratio of earnings to fixed charges.......................... 1.15x 1.36x 1.29x ============= ============= =============
- ---------- (1) Amount included in fixed charges for rentals is considered by management to be a reasonable approximation of the interest factor. 62 EX-24.1 7 k68283ex24-1.txt POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY Each of the undersigned, being a Member of the Board of Managers of Advanced Accessory Systems, LLC (the "Registrant"), hereby severally constitutes and appoints Terence C. Seikel, the Registrant's Chief Executive Officer, with full powers of substitution and resubstitution, his true and lawful attorney, with full powers to sign for him, in his name, in the capacities indicated below, (a) the annual report of the Registrant for the fiscal year ending December 31, 2001 on Form 10-K and (b) a registration statement on Form S-4, and any and all amendments to such Form 10-K and Form S-4, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes said attorney might or could do in person, and hereby ratifying and confirming all that said attorney, or his substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. This power of attorney may be executed in separate original or facsimile counterparts. IN WITNESS WHEREOF, the undersigned have executed this instrument this 4th day of March, 2002. /s/ F. Alan Smith ---------------------------------- F. Alan Smith /s/ Barry Banducci ---------------------------------- Barry Banducci /s/ Richard E. Borghi ---------------------------------- Richard E. Borghi /s/ Gerard Jacobus Brink ---------------------------------- Gerard Jacobus Brink /s/ Gerrit de Graaf ---------------------------------- Gerrit de Graaf /s/ Donald J. Hofmann ---------------------------------- Donald J. Hofmann /s/ Bryan V. Fletcher ---------------------------------- Bryan V. Fletcher -----END PRIVACY-ENHANCED MESSAGE-----