-----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, CD/xW8KcI/RX1gdKLuPRP/K1Lom8cX0fd5s5pKGkuySlwn1vWVhyywiNfEmZERmU ifUhAWqlWrQV2qUlyMX37g== 0000950124-02-003486.txt : 20021113 0000950124-02-003486.hdr.sgml : 20021113 20021113115136 ACCESSION NUMBER: 0000950124-02-003486 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-49011 FILM NUMBER: 02818934 BUSINESS ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 BUSINESS PHONE: 8109972900 MAIL ADDRESS: STREET 1: 12900 HALL RD STREET 2: SUITE 200 CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 10-Q 1 k72327e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 09/30/02 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to ________________ -------------- COMMISSION FILE NUMBER 333-49011 -------------- [ADVANCED ACCESSORY SYSTEMS LOGO] ADVANCED ACCESSORY SYSTEMS, LLC. (Exact name of registrant as specified in its charter) DELAWARE 13-3848156 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313 (Address of principal executive offices) (Zip Code) (586) 997-2900 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 whether the registrant is an accelerated filed (as defined in Rule 12b-2 of the Exchange Act). Yes No X ================================================================================ ADVANCED ACCESSORY SYSTEMS, LLC INDEX
Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets as of 1 September 30, 2002 and December 31, 2001 Consolidated Condensed Statements of 2 Operations for the Three and Nine Months Ended September 30, 2002 and 2001 Consolidated Condensed Statements of 3 Cash Flows for the Nine Months Ended September 30, 2002 and 2001 Consolidated Condensed Statement of Changes 4 in Members' Equity for the Nine Months Ended September 30, 2002 Notes to Consolidated Condensed Financial 5 Statements Item 2. Management's Discussion and Analysis of 13 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 19 Market Risk Item 4. Controls & Procedures 19 Part II. Other Information Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 19 Signature 20 Certifications 21
PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)
September 30, December 31, 2002 2001 ASSETS (Unaudited) Current assets Cash $ 1,807 $ 2,139 Accounts receivable, less reserves of $1,881 and $1,788, respectively 60,430 44,790 Inventories Raw materials 15,294 14,689 Work-in-process 11,445 10,323 Finished goods 13,935 17,248 Reserves (2,944) (2,828) ------------- -------------- Total inventories 37,730 39,432 Deferred income taxes 115 1,643 Other current assets 7,180 4,133 ------------- -------------- Total current assets 107,262 92,137 Property and equipment, net 57,745 54,404 Goodwill, net 46,129 73,394 Other intangible assets, net 3,879 4,685 Deferred income taxes 1,951 1,932 Other noncurrent assets 1,678 1,738 ------------- -------------- $ 218,644 $ 228,290 ============= ============== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt $ 8,195 $ 11,023 Accounts payable 34,912 29,051 Accrued liabilities 26,777 23,553 Deferred income taxes 674 -- Mandatorily redeemable warrants 5,230 5,130 ------------- -------------- Total current liabilities 75,788 68,757 ------------- -------------- Noncurrent liabilities Deferred income taxes 620 828 Other noncurrent liabilities 5,165 4,755 Long-term debt, less current maturities 142,347 145,626 ------------- -------------- Total noncurrent liabilities 148,132 151,209 ------------- -------------- Members' equity Class A Units 7,348 7,348 Class A-1 Units 4,117 4,117 Other comprehensive loss 233 (181) Accumulated deficit (16,974) (2,960) ------------- -------------- (5,276) 8,324 ------------- -------------- $ 218,644 $ 228,290 ============= ==============
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (DOLLARS IN THOUSANDS) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 Net sales $ 80,088 $ 75,555 $ 254,279 $ 243,648 Cost of sales 61,143 57,840 191,004 184,170 ------------- ------------- ------------- -------------- Gross profit 18,945 17,715 63,275 59,478 Selling, administrative and product development expenses 11,491 11,006 34,032 34,142 Amortization of intangible assets 6 743 19 2,241 ------------- ------------- ------------- -------------- Operating income 7,448 5,906 29,224 23,095 ------------- ------------- ------------- -------------- Other income (expense) Interest expense (4,375) (4,245) (12,232) (13,286) Foreign currency gain (loss), net (1,167) 2,679 5,747 (3,364) Other income (expense) 1 (18) (115) (79) ------------- ------------- ------------- -------------- Income before cumulative effect of accounting change and income taxes 1,907 4,322 22,624 6,366 Cumulative effect of accounting change for goodwill impairment -- -- (29,207) -- ------------- ------------- ------------- -------------- Income (loss) before income taxes 1,907 4,322 (6,583) 6,366 Provision for income taxes 1,140 1,890 4,075 963 ------------- ------------- ------------- -------------- Net income (loss) $ 767 $ 2,432 $ (10,658) $ 5,403 ============= ============= ============= ==============
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (DOLLARS IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (10,658) $ 5,403 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 9,277 10,468 Cumulative effect of accounting change for goodwill impairment 29,207 -- Loss on disposal of property and equipment 216 162 Deferred taxes 883 12 Foreign currency (gain) loss (6,127) 3,035 Changes in assets and liabilities, net (4,835) 1,141 ------------- -------------- Net cash provided by operating activities 17,963 20,221 ------------- -------------- CASH FLOWS USED FOR INVESTING ACTIVITIES: Acquisition of property and equipment (9,849) (5,414) ------------- -------------- Net cash used for investing activities (9,849) (5,414) ------------- -------------- CASH FLOWS USED FOR FINANCING ACTIVITIES: Net increase (decrease) in revolving loan 5,096 (6,594) Collection of membership notes receivable -- 59 Repayment of debt (11,308) (8,789) Distributions to members (3,355) (815) ------------- -------------- Net cash used for financing activities (9,567) (16,139) ------------- -------------- Effect of exchange rate changes 1,121 (146) ------------- -------------- Net decrease in cash (332) (1,478) Cash at beginning of period 2,139 3,315 ------------- -------------- Cash at end of period $ 1,807 $ 1,837 ============= ==============
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (DOLLARS IN THOUSANDS) (UNAUDITED)
Other Total Members' comprehensive Accumulated members' capital loss deficit equity ------------- ------------- ------------- ------------- Balance at December 31, 2001 $ 11,465 $ (181) $ (2,960) $ 8,324 Distributions to members -- -- (3,356) (3,356) Currency translation adjustment -- 414 -- 414 Net loss -- -- (10,658) (10,558) ------------- ------------- ------------- ------------- Balance at September 30, 2002 $ 11,465 $ 233 $ (16,974) $ (5,276) ============= ============= ============= =============
The accompanying notes are an integral part of the consolidated condensed financial statements. 4 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of September 30, 2002 and December 31, 2001 and the results of its operations for the three and nine months ended September 30, 2002 and 2001 and its cash flows for the nine months ended September 30, 2002 and 2001. These consolidated condensed financial statements should be read together with the Company's audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission on March 20, 2002. 2. COMPREHENSIVE INCOME Comprehensive (loss) income for the third quarter of 2002 and 2001 of $1,520 and $3,096, respectively, and for the first nine months of 2002 and 2001 of ($10,244) and $6,309, respectively, includes reported net loss adjusted by the effect of changes in the cumulative translation adjustment. 3. SIGNIFICANT EVENT In early July 2002, three European automotive OEM customers of Brink Sweden recalled in total approximately 41,000 towbars which were supplied by the Company. The recall affects vehicles fitted with the G 3.0 model removable towbar system sold between January 1999 and March 2000. The Company is in the process of working with its customers to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact would be to the Company, if any, as a result of the recall. 4. CUMULATIVE EFFECT OF ACCOUNTING CHANGE On January 1, 2002, the Company adopted 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 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29,207 to write down goodwill related to the Valley Industries Acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change during the first quarter of 2002. Under the new standard, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which was determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley Industries, LLC for which taxable income accrues to the individual members, no tax effect was recorded for this charge. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. The effect of no longer amortizing goodwill resulted in a reduction in amortization of intangible assets during the third quarter of 2002 as compared with the third quarter of 2001 of $737 and a reduction during the first nine months of 2002 as compared with the first nine months of 2001 of $2,222. The adoption of SFAS 144 did not have a material impact on the Company's financial position, results of operations or cash flows. The following table presents net income (loss) for the third quarter 2001 and first nine months of 2001, as adjusted for the non-amortization provisions of SFAS No. 142.
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 -------------- ------------ ------------ -------- Reported net income (loss) $ 767 $ 2,432 $(10,658) $5,403 Add back: Goodwill amortization -- 737 -- 2,222 ----------- ----------- -------- ------ Adjusted net income (loss) $ 767 $ 3,169 $(10,658) $7,625 =========== =========== ======== ======
Other intangible assets at September 30, 2002 and December 31, 2001 consist of deferred financing costs, a defined benefit pension asset and patents and licenses. Deferred financing costs have a gross carrying amount of $5,848 and 5 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) $6,577, respectively, and accumulated amortization of $3,836 and $2,483, respectively, and are amortized under the effective interest method over the terms of the related debt agreements. Aggregate amortization related to other intangible assets for the three and nine months ended September 30, 2002 was $354 and $860, respectively, and for the three and nine months ended September 30, 2001 was $201 and $585, respectively. Aggregate amortization expense related to other intangible assets for each of the five succeeding fiscal years as of June 30, 2002 is as follows:
Year Ended December 31, ---------------------------- Remainder of 2002 $ 206 2003 825 2004 605 2005 670 2006 742
For the nine months ended September 30, 2002, the carrying amount of goodwill decreased by $29,207 as a result of the impairment write down discussed above and increased by $1,942 as a result of the change in exchange rates between the U.S. Dollar and the European Euro, the functional currency of Brink International B.V. 5. CONDENSED CONSOLIDATING INFORMATION On October 1, 1997, the Company and its wholly-owned subsidiary, AAS Capital Corporation, issued and sold $125,000 of its 9 3/4% Senior Subordinated Notes due 2007 ("the Notes"). The Notes are guaranteed on a full, unconditional and joint and several basis by all of the Company's direct and indirect wholly-owned domestic subsidiaries. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of (i) the Company as parent, as if it accounted for its subsidiaries on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek, LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and include Brink International B.V. and its subsidiaries, SportRack Accessories, Inc. and its subsidiary, and SportRack Automotive GmbH and its subsidiaries. The operating results of the guarantor and non-guarantor subsidiaries for the three and nine months ended September 30, 2002 and 2001 have been allocated a portion of certain corporate overhead costs on a basis consistent with each subsidiary's relative business activity, including interest on intercompany debt balances. Since its formation in September 1997, AAS Capital Corporation has had no operations and has no assets or liabilities at September 30, 2002. 6 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------- ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) ASSETS Current assets Cash................................... $ 386 $ 124 $ 1,297 $ -- $ 1,807 Accounts receivable.................... -- 40,090 20,340 -- 60,430 Inventories............................ -- 15,695 22,035 -- 37,730 Deferred income taxes and other current assets........................ 67 5,546 1,682 -- 7,295 ----------- ----------- ----------- ----------- ---------- Total current assets.............. 453 61,455 45,354 -- 107,262 ----------- ----------- ----------- ----------- ---------- Property and equipment, net.............. -- 32,161 25,584 -- 57,745 Goodwill, net............................ 985 24,723 20,421 -- 46,129 Other intangible assets, net............. 3,159 401 319 -- 3,879 Deferred income taxes and other noncurrent assets...................... 93 871 2,665 -- 3,629 Investment in subsidiaries............... 68,296 9,955 -- (78,251) -- Intercompany notes receivable............ 71,855 -- -- (71,855) -- ------------ ----------- ----------- ------------ ---------- Total assets...................... $ 144,841 $ 129,566 $ 94,343 $ (150,106) $ 218,644 ============ =========== =========== =========== ========== LIABILITIES AND MEMBERS' EQUITY Current liabilities Current maturities of long-term debt... $ -- $ 54 $ 8,141 $ -- $ 8,195 Accounts payable....................... -- 25,530 9,382 -- 34,912 Accrued liabilities and deferred income taxes......................... 9,934 7,945 9,572 -- 27,451 Mandatorily redeemable warrants........ 5,230 -- -- -- 5,230 ------------ ----------- ----------- ----------- ---------- Total current liabilities......... 15,164 33,529 27,095 -- 75,788 Deferred income taxes and other noncurrent liabilities................. 2,003 893 2,889 -- 5,785 Long-term debt, less current maturities.. 132,803 275 9,269 -- 142,347 Intercompany debt........................ -- 1,708 70,147 (71,855) -- Members' equity.......................... (5,129) 93,161 (15,057) (78,251) (5,276) ------------ ----------- ----------- ----------- ---------- Total liabilities and members' equity............................ $ 144,841 $ 129,566 $ 94,343 $ (150,106) $ 218,644 ============ =========== =========== ========== ==========
7 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 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 ============ =========== =========== =========== ==========
8 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------- ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 56,566 $ 23,522 $ -- $ 80,088 Cost of sales............................ -- 44,419 16,724 -- 61,143 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 12,147 6,798 -- 18,945 Selling, administrative and product development expenses................... (18) 6,082 5,427 -- 11,491 Amortization of intangible assets........ -- 3 3 -- 6 ---------- ---------- ----------- ---------- ---------- Operating income....................... 18 6,062 1,368 -- 7,448 Interest expense......................... 2,859 64 1,452 -- 4,375 Equity in income of subsidiaries......... 3,608 -- -- (3,608) -- Foreign currency loss, net............... -- (13) (1,154) -- (1,167) Other income (expense)................... -- (36) 37 -- 1 ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 767 5,949 (1,201) (3,608) 1,907 Provision for income taxes............... -- -- 1,140 -- 1,140 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 767 $ 5,949 $ (2,341) $ (3,608) $ 767 ========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------- ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 53,656 $ 21,899 $ -- $ 75,555 Cost of sales............................ -- 43,493 14,347 -- 57,840 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 10,163 7,552 -- 17,715 Selling, administrative and product development expenses................... 72 5,992 5,002 -- 11,066 Amortization of intangible assets........ 9 549 185 -- 743 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (81) 3,622 2,365 -- 5,906 Interest expense......................... 2,210 526 1,509 -- 4,245 Equity in income of subsidiaries......... 4,723 -- -- (4,723) -- Foreign currency gain, net............... -- -- 2,679 -- 2,679 Other income (expense)................... -- (60) 42 -- (18) ---------- ---------- ----------- ---------- ---------- Income before income taxes............... 2,432 3,036 3,577 (4,723) 4,322 Provision for income taxes............... -- -- 1,890 -- 1,890 ---------- ---------- ----------- ---------- ---------- Net income .............................. $ 2,432 $ 3,036 $ 1,687 $ (4,723) $ 2,432 ========== ========== =========== ==========- ==========
9 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------- ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 179,260 $ 75,019 $ -- $ 254,279 Cost of sales............................ -- 138,629 52,375 -- 191,004 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 40,631 22,644 -- 63,275 Selling, administrative and product development expenses................... (23) 17,938 16,117 -- 34,032 Amortization of intangible assets........ -- 9 10 -- 19 ---------- ---------- ----------- ---------- ---------- Operating income....................... 23 22,684 6,517 -- 29,224 Interest expense......................... 8,298 411 3,523 -- 12,232 Equity in loss of subsidiaries........... (2,383) -- -- 2,383 -- Foreign currency gain (loss), net........ -- (13) 5,760 -- 5,747 Other income (expense)................... -- (161) 46 -- (115) ---------- ----------- ----------- ---------- ---------- Income (loss) before cumulative effect of accounting change and income taxes.. (10,658) 22,099 8,800 2,383 22,624 Cumulative effect of accounting change... -- (29,207) -- -- (29,207) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ (10,658) (7,108) 8,800 2,383 (6,583) Provision for income taxes............... -- -- 4,075 -- 4,075 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ (10,658) $ (7,108) $ 4,725 $ 2,383 $ (10,658) ========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------- ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net sales................................ $ -- $ 172,276 $ 71,372 $ -- $ 243,648 Cost of sales............................ -- 136,171 47,999 -- 184,170 ---------- ---------- ----------- ---------- ---------- Gross profit........................... -- 36,105 23,373 -- 59,478 Selling, administrative and product development expenses................... 220 18,528 15,394 -- 34,142 Amortization of intangible assets........ 27 1,656 558 -- 2,241 ---------- ---------- ----------- ---------- ---------- Operating income (loss)................ (247) 15,921 7,421 -- 23,095 Interest expense......................... 5,940 2,307 5,039 -- 13,286 Equity in income of subsidiaries......... 11,590 -- -- (11,590) -- Foreign currency loss.................... -- -- 3,364 -- 3,364 Other income (expense)................... -- (82) 3 -- (79) ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes........ 5,403 13,532 (979) (11,590) 6,366 Provision for income taxes............... -- -- 963 -- 963 ---------- ---------- ----------- ---------- ---------- Net income (loss)........................ $ 5,403 $ 13,532 $ (1,942) $ (11,590) $ 5,403 ========== ========== =========== ========== ==========
10 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net cash provided by (used for) operating activities.............................. $ (4,434) $ 19,020 $ 3,377 $ -- $ 17,963 ---------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment............................. -- (2,611) (7,238) -- (9,849) ---------- --------- ---------- ---------- --------- Net cash used for investing activities -- (2,611) (7,238) -- (9,849) ---------- --------- ---------- ---------- ---------- Cash flows from financing activities: Change in intercompany debt............. 2,745 (15,211) 12,466 -- -- Net increase in revolving loan.......... 5,096 -- -- -- 5,096 Repayment of debt....................... -- (1,076) (10,232) -- (11,308) Distributions to members................ (3,355) -- -- -- (3,355) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities................ 4,486 (16,287) 2,234 -- (9,567) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes........... -- -- 1,121 -- 1,121 ---------- --------- ---------- ---------- --------- Net increase (decrease) in cash........... 52 122 (506) -- (332) Cash at beginning of period............... 334 2 1,803 -- 2,139 ---------- --------- ---------- ---------- ---------- Cash at end of period..................... $ 386 $ 124 $ 1,297 $ -- $ 1,087 ========== ========= ========== ========== ==========
11 ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. CONDENSED CONSOLIDATING INFORMATION-- (continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/ ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ------------- ----------------- -------------- ------------ (DOLLAR AMOUNTS IN THOUSANDS) Net cash provided by (used for) operating activities.............................. $ (3,387) $ 23,110 $ 498 $ -- $ 20,221 ---------- --------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment............................. -- (3,494) (1,920) -- (5,414) ---------- --------- ---------- ---------- ----------- Net cash used for investing activities -- (3,494) (1,920) -- (5,414) ---------- --------- ---------- ---------- ---------- Cash flows from financing activities: Change in intercompany debt............. 10,713 (19,620) 8,907 -- -- Decrease in revolving loan.............. (6,594) -- -- -- (6,594) Collection on notes receivable for unit purchase.............................. 59 -- -- -- 59 Repayment of debt....................... -- -- (8,789) -- (8,789) Distributions to members................ (815) -- -- -- (815) ---------- --------- ---------- ---------- ---------- Net cash provided by (used for) financing activities................ 3,363 (19,620) 118 -- (16,139) ---------- --------- ---------- ---------- ---------- Effect of exchange rate changes........... -- -- (146) -- (146) ---------- --------- ---------- ---------- --------- Net decrease in cash...................... (24) (4) (1,450) -- (1,478) Cash at beginning of period............... 1,153 246 1,916 -- 3,315 ---------- --------- ---------- ---------- ---------- Cash at end of period..................... $ 1,129 $ 242 $ 466 $ -- $ 1,837 ========== ========= ========== ========== ==========
12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the financial statements and notes thereto of the Company included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth above, in the material set forth below, as well as in this Form 10-Q 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 J.P. Morgan Partners, LLC ("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. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001. Net sales. Net sales for the third quarter of 2002 were $80.1 million, representing an increase of $4.5 million, or 6.0%, compared with net sales for the third quarter of 2001. This increase resulted primarily from increased sales to automotive OEMs of approximately $1.9 million primarily resulting from increased production levels of vehicles in North America compared to the prior year. Partially offsetting this increase was a reduction in North American OEM hitch sales due to the resourcing of several OEM programs by one customer and a reduction of sales to Volvo in Sweden resulting from a temporary halt in shipments of detachable towbars to Volvo during a recall investigation. Sales of detachable towbars to Volvo began again in August. See further discussion regarding the recall below. Sales to aftermarket customers also increased during the quarter by approximately $572,000. Additionally, sales were higher by $2.0 million due to an increase in average exchange rates for the period between the U.S. Dollar and the currencies, primarily the European Euro, used by the Company's foreign subsidiaries. Gross profit. Gross profit for the third quarter of 2002 was $18.9 million, representing an increase of $1.2 million, or 6.9%, from the gross profit for the third quarter of 2001. This increase resulted from the increase in sales and an increase in the gross margin percentage. Gross profit as a percentage of net sales was 23.7% in the third quarter of 2002 compared to 23.4% in the third quarter of 2001. The gross margin was higher primarily as a result of spreading fixed costs over a higher sales base partially offset by higher material and labor costs for Brink associated with a reorganization of the production facility in the Netherlands. Selling, administrative and product development expenses. Selling, administrative and product development expenses for the third quarter of 2002 were $11.5 million, representing an increase of $485,000, or 4.4%, over the selling, administrative and product development expenses for the third quarter of 2001. Selling, administrative and product development expenses as a percentage of net sales decreased to 14.3% in the third quarter of 2002 from 14.6% in the third quarter of 2001. This decrease is primarily attributable to the effect of covering fixed costs with greater sales and the Company's ongoing cost containment initiatives partially offset by the increase in sales for Brink which has a higher percentage of selling, administrative and product development expenses than the Company as a whole. Amortization of intangible assets. Amortization of intangible assets for the third quarter of 2002 was $6,000, representing a decrease of $737,000 compared with amortization of intangible assets, which included amortization of goodwill, for the third quarter of 2001. This decrease was the result of a new accounting standard adopted on January 1, 2002, which ceased the amortization of goodwill as of that date. See "New Accounting Pronouncements". 13 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 Operating income. Operating income for the third quarter of 2002 was $7.4 million, an increase of $1.5 million, or 26.1%, from operating income for the third quarter of 2001, reflecting the increase in gross profit and the decrease in amortization of intangible assets, partially offset by the increase in selling, administrative and product development expenses. Operating income as a percentage of net sales increased to 9.3% in the third quarter of 2002 from 7.8% in the third quarter of 2001. Interest expense. Interest expense for the third quarter of 2002 was $4.4 million, which was $130,000 higher than interest expense for the third quarter of 2001. The increase was primarily due to the increase in the interest rates on the Company's senior debt, partially offset by lower interest rates charged on the Company's variable rate indebtedness and reduced average borrowings. Foreign currency gain (loss). Foreign currency loss in the third quarter of 2002 was $1.2 million, compared to a foreign currency gain of $2.7 million in the third quarter of 2001. The Company's foreign currency gains and losses are primarily related to Brink and SportRack Accessories which have indebtedness denominated in U.S. Dollars, including intercompany debt and a portion of the loans under the Company's Third Amended and Restated Credit Agreement. During the third quarter of 2002, the U.S. Dollar strengthened in relation to the European Euro and the Canadian Dollar, the functional currency of Brink and SportRack Accessories, respectively, whereas during the third quarter of 2001 the U.S. Dollar weakened in relation to the European Euro and Canadian Dollar. Provision for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During the third quarter of 2002, the Company recorded a tax provision amounting to $735,000 related to an ongoing income tax audit in Italy covering the periods 1998 to 2001. During the third quarter of 2002, the Company had a loss before income taxes for its taxable subsidiaries totaling $1.2 million and recorded a provision for income taxes of $390,000 exclusive of the $735,000 provision related to the income tax audit. 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 recorded during 2002 totaling approximately $589,000 and differences in the tax rates of foreign countries. During the third quarter of 2001, the Company had income before income taxes for its taxable subsidiaries totaling $3.6 million and recorded a provision for income taxes of $1.9 million. Net income. Net income for the third quarter of 2002 was $767,000, as compared to net income of $2.4 million in the third quarter of 2001, a decrease of $1.7 million. The change in net income is primarily attributable to the foreign currency loss in the third quarter of 2002, as compared with a foreign currency gain in the third quarter of 2001, partially offset by the increase in operating income and decrease in the provision for income taxes. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001. Net sales. Net sales for the first nine months of 2002 were $254.3 million, representing an increase of $10.6 million, or 4.4%, compared with net sales for the first nine months of 2001. This increase resulted primarily from increased sales to automotive OEMs of approximately $9.6 million primarily resulting from increased production levels of vehicles in North America compared to the prior year. Additionally, sales were higher by $2.2 due to an increase in average exchange rates for the period between the U.S. Dollar and the currencies, primarily the European Euro, used by the Company's foreign subsidiaries. Partially offsetting these increases was a decline in aftermarket sales of approximately $1.1 million. Gross profit. Gross profit for the first nine months of 2002 was $63.3 million, representing an increase of $3.8 million, or 6.4%, from the gross profit for the first nine months of 2001. This increase resulted from the increase in sales and an increase in the gross margin percentage. Gross profit as a percentage of net sales was 24.9% in the first nine months of 2002 compared to 24.4% in the first nine months of 2001. The increase in the gross margin percentage is primarily attributable to the effects of spreading fixed costs over a higher sales base and increased gross margin for North American towing products resulting from increased productivity and cost cutting efforts. These increases were partially offset by reduced gross margin resulting from a change in the mix of products sold being weighted more towards lower margin products and lower production efficiency at Brink which restructured its Netherlands manufacturing facilities during the first quarter of 2002. Selling, administrative and product development expenses. Selling, administrative and product development expenses for the first nine months of 2002 were $34.0 million, representing a decrease of $110,000, or 0.3%, from the selling, administrative and product development expenses for the first nine months of 2001. Selling, administrative and product development expenses as a percentage of net sales decreased to 13.4% in the first nine months of 2002 from 14.0% in the first nine months of 2001. This decrease is primarily attributable to the effect of covering fixed costs with greater sales, the Company's ongoing cost containment initiatives and the lack of costs incurred to relocate a warehouse operation during the first quarter of 2001. 14 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 Amortization of intangible assets. Amortization of intangible assets for the first nine months of 2002 was $19,000, representing a decrease of $2.2 million compared with amortization of intangible assets, which included amortization of goodwill, for the first nine months of 2001. This decrease was the result of a new accounting standard adopted on January 1, 2002, which ceased the amortization of goodwill as of that date. See "New Accounting Pronouncements". Operating income. Operating income for the first nine months of 2002 was $29.2 million, an increase of $6.1 million, or 26.5%, over operating income for the first nine months of 2001, reflecting the increase in gross profit, the decrease in amortization of intangible assets and by the decrease in selling, administrative and product development expenses. Operating income as a percentage of net sales increased to 11.5% in the first nine months of 2002 from 9.5% in the first nine months of 2001. Interest expense. Interest expense for the first nine months of 2002 was $12.2 million, which was $1.1 million lower than interest expense for the first nine months of 2001. The decrease was due to lower average interest rates charged on the Company's variable rate indebtedness and reduced average borrowings. Foreign currency loss. Foreign currency gain in the first nine months of 2002 was $5.7 million, compared to a foreign currency loss of $3.4 million in the first nine months of 2001. The Company's foreign currency gain is primarily related to Brink which has indebtedness denominated in U.S. Dollars, including intercompany debt and a portion of the loans under the Company's Third Amended and Restated Credit Agreement. During the first nine months of 2002 the U.S. Dollar weakened significantly in relation to the European Euro, the functional currency of Brink, whereas during the first nine months of 2001, the U.S. Dollar strengthened in relation to the European Euro. This was partially offset by the foreign currency loss of SportRack Accessories which has intercompany indebtedness denominated in U.S. Dollars. During the first nine months of 2002 the U.S. Dollar strengthened in relation to the Canadian Dollar, the functional currency of SportRack Accessories. Provision (benefit) for income taxes. The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During the third quarter of 2002, the Company recorded a tax provision amounting to $735,000 related to an ongoing income tax audit in Italy covering the periods 1998 to 2001. During the first nine months of 2002, the Company had income before income taxes for its taxable subsidiaries totaling $8.8 million and recorded a provision for income taxes of $3.3 million exclusive of the $735,000 provision related to the income tax audit. 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 recorded during 2002 and differences in the tax rates of foreign countries. During the first nine months of 2001, the Company had a loss before income taxes for its taxable subsidiaries totaling $979,000 and recorded a provision for income taxes of $963,000. Cumulative effect of accounting change. On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). See "New Accounting Pronouncements". As a result of this accounting change, the Company recorded a loss totaling $29.2 million to write down goodwill recorded in connection with the Valley Industries Acquisition. Net income (loss). Net loss for the first nine months of 2002 was $10.7 million, as compared to net income of $5.4 million in the first nine months of 2001, a change of $16.1 million. The change in net loss is primarily attributable to the cumulative effect of accounting change due to the adoption of SFAS 142 and the increase in the provision for income taxes offset partially by the increase in operating income, lower interest expense and the foreign currency gain in the first nine months of 2002 as compared with the foreign currency loss of the first nine months of 2001. 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 September 30, 2002 was $150.5 million including current maturities of $8.2 million. The Company expects to be able to meet its liquidity requirements through cash provided by operations and through borrowings available under the Third Amended and Restated Credit Agreement ("U.S. Credit Facility"). 15 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 WORKING CAPITAL AND CASH FLOWS Working capital and key elements of the consolidated statement of cash flows are:
SEPTEMBER 30, DECEMBER 31, 2002 2001 -------------- ----------- (IN THOUSANDS) Working Capital........................................ $ 31,474 $ 23,380
FIRST NINE MONTHS OF 2002 2001 -------------- ----------- (IN THOUSANDS) Cash flows provided by operating activities............ $ 17,963 $ 20,221 Cash flows (used for) investing activities............. $ (9,849) $ (5,414) Cash flows (used for) financing activities............. $ (9,567) $(16,139)
Working capital Working capital increased by $8.1 million to $31.5 million at September 30, 2002 from $23.4 million at December 31, 2001 due primarily to an increase in accounts receivable of $14.1 million, an increase of $3.9 in other current assets a decrease in the current portion of long term debt of $2.7 million and an increase related to foreign currency exchange rate of the Company's subsidiaries' functional currencies against the U.S. dollar of $2.7 million. These working capital increases were partially offset by a decrease in inventory of $3.7 million, a change in current deferred tax assets and liabilities of $2.2 million, an increase in accounts payable of $5.1 million, an increase in accrued liabilities of $3.8 million and a decrease in cash of $332,000. The increase in accounts receivable was attributable to increased sales levels in the third quarter of 2002 as compared with the fourth quarter of 2001 and to a difference in the timing of a payment from the Company's second largest OEM customer. Differences in sales levels between the two quarters are partly due to seasonal cycles and increased sales to automotive OEMs. Increases in accounts payable during the quarter reflected increased purchasing activities to support the increased sales volume. Inventory decreased primarily at Brink which sold product out of inventory during a plant reorganization in the Netherlands. Accrued liabilities increased as a result of an increase of $3.0 million in accrued interest for the Company's Notes as compared with amounts recorded at December 31, 2001. Other current assets increased primarily due to an increased amount of tooling costs reimbursable from the Company's North American OEM customers related to new programs currently under development. Operating Activities Cash flow provided by operating activities for the first nine months of 2002 was $18.0 million, compared to $20.2 million in the first nine months of 2001. Cash flow provided by operating activities for the first nine months of 2002 decreased primarily due to an increase in working capital during the first nine months of 2002, compared to a decrease in working capital during the first nine months of 2001. Partially offsetting the increased working capital was greater operating income during the first nine months of 2002 compared with the first nine months of 2001. Investing Activities During the first nine months of 2002 and 2001, investing cash flows included acquisitions of property and equipment of $9.8 million and $5.4 million, respectively, and were primarily for the expansion of capacity, productivity and process improvements and maintenance. The increase was primarily due to the construction of a new production facility in France which began during the first quarter of 2002 and is expected to be completed during the fourth quarter of 2002. 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. 16 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 Financing Activities During the first nine months of 2002 and 2001, financing cash flows included scheduled payments of principal on the Company's term indebtedness of $11.3 million and $8.8 million, respectively. Distributions to members, representing amounts sufficient to meet the tax liability on the Company's domestic taxable income which accrues to individual members, were $3.4 million for the first nine months of 2002 and were $815,000 during the first nine months of 2001. Financing cash flows during the first nine months of 2002 also included net borrowings under the Company's revolving loans of $5.1 million, whereas during the first nine months of 2001 financing cash flows included net payments on the revolving line of credit of $6.6 million. DEBT AND CREDIT SOURCES The Company's indebtedness was $150.5 million and $156.6 million at September 30, 2002 and December 31, 2001, respectively. The Company expects that its primary sources of cash will be from operating activities and borrowings under its revolving credit facilities. As of September 30, 2002, the Company had borrowings under the revolving credit facilities totaling $8.1 million. Borrowing availability was further reduced by an $8.3 million outstanding letter of credit issued to benefit plaintiffs in a lawsuit against the Company and by a $1.2 million letter of credit provided as security for the Company's workers compensation benefit program in North America. After the above items, the Company had $17.4 million of available borrowing capacity. As of September 30, 2002, the Company was in compliance with the various covenants under the debt agreements pursuant to which it has borrowed or may borrow money and believes the Company will remain in compliance with such covenants through September 30, 2003. The Company's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business, and other factors, certain of which are beyond its control, as well as the availability of revolving credit borrowings under its current or successor credit facilities. The Company anticipates that, based on current and expected levels of operations, its operating cash flow, together with borrowings under the U.S. Credit Facility and the Canadian Credit Facility, should be sufficient to meet its debt service, working capital and capital expenditure requirements for the foreseeable future, although no assurances can be given in this regard, including as to the ability to increase revenues or profit margins. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all, including, whether, and on what terms, the Company could raise equity capital. See the introductory paragraph of this Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 the first nine months of 2002 were approximately $75.0 million, or 29.5% of the Company's net sales. At September 30, 2002, assets associated with these operations were approximately 43.2% of total assets, and the Company had indebtedness denominated in currencies other than the U.S. Dollar of approximately $2.6 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 September 30, 2002 and does not use derivative financial instruments for trading or speculative purposes. NEW ACCOUNTING PRONOUNCEMENTS 17 ADVANCED ACCESSORY SYSTEMS, LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 On January 1, 2002, the Company adopted 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 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29.2 million to write down goodwill related to the Valley Industries Acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change during the first quarter of 2002. Under the new standard, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which was determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley Industries, LLC for which taxable income accrues to the individual members, no tax effect was recorded for this charge during the first quarter of 2002. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. The effect of no longer amortizing goodwill resulted in a reduction of $743,000 in amortization of intangible assets during the first quarter of 2002 as compared with the first quarter of 2001 and a reduction of $2.2 million during the first nine months of 2002 as compared with the first nine months of 2002. The adoption of SFAS 144 did not have a material impact on the Company's financial position, results of operations or cash flows. SIGNIFICANT EVENT In early July 2002, three European automotive OEM customers of Brink Sweden recalled in total approximately 41,000 towbars which were supplied by the Company. The recall affects vehicles fitted with the G 3.0 model removable towbar system sold between January 1999 and March 2000. The Company is in the process of working with its customers to provide technical and other support in response to the recall. Management can not estimate at this time what the financial impact would be to the Company, if any, as a result of the recall. 18 ADVANCED ACCESSORY SYSTEMS, LLC SIGNATURE Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes since those which were reported in the Company's annual report on Form 10-K, filed with the Commission on March 20, 2002. Item 4. Controls and Procedures Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, the principal executive officer and principal financial officer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are the Company's controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. PART II. OTHER INFORMATION AND SIGNATURE Item 1. 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 the first nine months of 2002 and 2001, the Company increased its estimated accrual for this matter by $450,000 which charge is included in interest expense. No amounts have been paid as of September 30, 2002. 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 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 99.1 Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 Exhibit 99.2 Certification of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (b) Reports on Form 8-K None 19 ADVANCED ACCESSORY SYSTEMS, LLC SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADVANCED ACCESSORY SYSTEMS, LLC (Registrant) Date: November 12, 2002 /s/ BARRY G. STEELE ----------------------------------- Barry G. Steele Chief Financial Officer (Principal Accounting Officer and Duly Authorized Officer) 20 ADVANCED ACCESSORY SYSTEMS, LLC CERTIFICATIONS I, Terence C. Seikel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Advanced Accessory Systems, LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ TERENCE C. SEIKEL ----------------------------------- Terence C. Seikel, President and Chief Executive Officer 21 ADVANCED ACCESSORY SYSTEMS, LLC CERTIFICATIONS I, Barry G. Steele, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Advanced Accessory Systems, LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ BARRY G. STEELE ----------------------------------- Barry G. Steele, Chief Financial Officer 22 ADVANCED ACCESSORY SYSTEMS, LLC EXHIBIT INDEX
Exhibit Description - ------- ----------- 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
23 EX-99.1 3 k72327exv99w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Advanced Accessory Systems, LLC (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Terence C. Seikel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Terence C. Seikel - --------------------------- Terence C. Seikel Chief Executive Officer November 12, 2002 EX-99.2 4 k72327exv99w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Advanced Accessory Systems, LLC (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Barry G. Steele, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Barry G. Steele - --------------------------- Barry G. Steele Chief Financial Officer November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----