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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 333-49011
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ADVANCED ACCESSORY SYSTEMS, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3969422
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313
- ------------------------------------------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (810) 997-2900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate fair market value of the Registrant's Class A Units held by
non-affiliates of the Registrant as of March 15, 1998, based upon the good faith
determination of the Board of Managers was approximately $5,971,000. For
purposes of this disclosure, shares of Class A Units held by persons who hold
more than 5% of the outstanding Class A Units and Class A 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 Units, outstanding at
March 31, 1998 was 16,271.16,411.
Documents Incorporated by Reference
None
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ADVANCED ACCESSORY SYSTEMS, LLC
FORM 10-K
YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
Item 1. BUSINESS...........................................................1
Item 2. PROPERTIES.........................................................9
Item 3. LEGAL PROCEEDINGS..................................................9
Item 4. SUBMISSION OF MATTERS OF A VOTE TO SECURITY HOLDERS................9
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
MEMBERS' MATTERS...................................................10
Item 6. SELECTED HISTORICAL FINANCIAL DATA.................................10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................12
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................42DISCLOSURE................................43
PART III
Item 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................42REGISTRANT..................43
Item 11. EXECUTIVE COMPENSATION.............................................43COMPENSATION.............................................44
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.........................................................45MANAGEMENT.........................................................46
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................46TRANSACTIONS.....................47
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K...........................................................468-K...........................................................47
SIGNATURES
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FORWARD-LOOKING STATEMENTS
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON
FORM 10-K CONTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS, AND SUCH DIFFERENCES MAY BE
MATERIAL. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
PART I
ITEM 1. BUSINESS
GENERAL
Advanced Accessory Systems, LLC (together with its subsidiaries, the
"Company" or "AAS") is one of the world's largest designers, manufacturers and
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 complete 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 1997, on a pro forma basis (after giving
effect to the Valley Acquisition, SportRack International Acquisition, Ellebi
Acquisition and Transfo-Rakzs Acquisition (as such terms are defined below) as
though they had occurred on January 1, 1997), the Company estimates that
approximately 49% of its net sales were generated from products sold for light
trucks. The Company is the sole Tier 1 OEM supplier of towing or rack systems
for eight of the top ten light trucks produced in North America, including the
GM C/K Pickup and Blazer, the Chrysler Grand Cherokee (towing systems and rack
systems), T-3000 Pickup and Caravan and the Ford Explorer, Ranger and Windstar.
On a pro forma basis for the year ended December 31, 1997, the Company's net
sales and EBITDA would have been $268.5 million and $36.3 million, respectively.
In September 1995, the Company, through its SportRack, LLC subsidiary
("SportRack"), acquired substantially all of the net assets of the MascoTech
Accessories division (the "MascoTech Division") of MascoTech, Inc. ("MascoTech"
or the "Predecessor"). The MascoTech Division was a North American supplier of
rack systems and accessories to the automotive OEM market and aftermarket.
In October 1996, the Company acquired (the "Brink Acquisition") all of the
capital stock of Brink B.V., a private company with limited liability
incorporated under the laws of The Netherlands and a European supplier of towing
systems to the automotive OEM market and aftermarket. In December 1996,
ownership of Brink B.V. and its subsidiaries was transferred to a newly formed
subsidiary of the Company, Brink International B.V. ("Brink").
In August 1997, the Company formed Valley Industries, LLC ("Valley") to
acquire (the "Valley Acquisition") the net assets of Valley Industries, Inc.
("Valley Industries"), a North American supplier of towing systems to the
automotive OEM market and aftermarket.
Two smaller acquisitions were completed in July 1997 by SportRack
International, Inc. ("SportRack International"), a subsidiary of SportRack.
SportRack International acquired from Bell Sports Corporation ("Bell") the net
assets of its SportRack division, a Canadian supplier of rack systems and
accessories to the automotive aftermarket. CCP (as defined) is a significant
equity investor in Bell. SportRack International also acquired the capital
stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian supplier of rack systems
and accessories to the automotive OEM market and aftermarket. The acquisitions
of the SportRack division of Bell and Nomadic are collectively referred to in
this 10-K as the "SportRack International Acquisition."
In January 1998, the Company formed Ellebi S.r.l. ("Ellebi") to acquirethrough Brink International B.V., acquired
the net assets of a divisionthe towbar segment of Ellebi S.p.A for an aggregate purchase
price of approximately $22 million including estimated costs of the
transaction. The towbar segment of Ellebi S.p.A. (the "Ellebi Acquisition"). Ellebi is an Italiana manufacturer and
distributor of towing systems to the European
automotive OEM market and aftermarket. The
acquisition was financed primarily through the Company's Acquisition revolving
note. Total revenue for the towbar segment of Ellebi S.p.A. was $21.3 million
for the year ended December 31, 1997.
In February 1998, the Company through SportRack International, Inc.,
acquired (the "Transfo-Rakzs Acquisition") the net assets of Transfo-Rakzs Inc.,for an aggregate purchase price of
approximately $1.1 million, including estimated costs of the transaction.
Transfo-Rakzs is a designer, manufacturer and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S. The acquisition
was financed primarily through borrowings under the Company's revolving credit
facility. Total revenue for Transfo-Rakzs, Inc. was $498,000 for the year ended
December 31, 1997.
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COMPETITIVE ADVANTAGES
Leading Global Market Position. TheBased on its knowledge of the industry,
the Company believes that it is one of the world's largest designer, manufacturerdesigners,
manufacturers and suppliersuppliers of towing systems and one of the world's largest
designers, manufacturers and 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, the largest supplier of towing systems to
automotive OEMs in North America and the second largest supplier of towing
systems to the aftermarket in North America. TheBased on its knowledge of the
industry, the Company also believes that it is also one of the two largest
suppliers of rack systems sold to automotive OEMs in the North America. The
Company has 19 engineering, manufacturing and distribution facilities
strategically located in the United States, Canada, The Netherlands, Denmark,
Germany, the United Kingdom, Sweden, Italy and France. By virtue of its size
and global presence, the Company believes it benefits from several competitive
advantages, including the ability to (i) satisfy local design, production,
quality and timing requirements of global OEMs; (ii) provide "one-stop
shopping" for customers' product and service requirements; (iii) optimize plant
production; (iv) maximize its raw material purchasing power; (v) spread its
selling, administrative and product development expenses over a large base of
net sales; and (vi) develop and maintain state-of-the-art production
facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systems to most
of the OEMs manufacturing in North America and Europe including Chrysler,
General Motors, Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat,
Mitsubishi, Nissan, Volkswagen, SEAT, Skoda and Kia. The Company supplies
Chrysler with substantially all its towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the towing and rack
system requirements of General Motors. Tier 1 status and strong customer
relationships are important elements in achieving continued profitable growth
because, as OEMs narrow their supplier bases, well regarded, existing suppliers
have an advantage in gaining new contracts. The evolution of OEM relationships
into strategic partnerships provides a significant advantage to Tier 1 suppliers
with system integration capabilities (such as the Company) in retaining existing
contracts as well as in participating during the design phase for new vehicles,
which is integral to becoming a supplier for such new platforms. The Company is
also a leading supplier of towing and rack systems to automotive aftermarket
wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp,
Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace Hardware
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 virtually every light vehicle produced in North America
and Europe. The Company is one of a limited number of European manufacturers
with such a broad product line that also satisfies European Community ("EC")
regulatory safety standards, even though such standards have not yet been
adopted by each EC member country. 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's innovative Mondial(R) product line of detachable rack systems, which
consists of only 14 SKUs,stock keeping units ("SKUs"), is able to fit substantially
all the light vehicles produced in North America and Europe, while some
competitors' comparable product lines consist of more than 200 SKUs. 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. For
example, the Company developed a roll formed, aluminum cross rail which
substantially reduced the weight of the Chrysler minivan rack at a competitive
cost. Additionally, 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 Chrysler's Gold Pentastar Award, Ford's Q-1 Award,
Toyota's Distinguished 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 ten of its 17 manufacturing and engineering facilities
and is in the process of obtaining certification for the rest of its facilities.
The Company's low cost position is a result of its strict cost controls and
continuous improvement programs designed to enhance productivity. OEMs typically
prefer stable suppliers who can generate productivity gains that can be shared
to reduce OEM costs. The Company's cost controls are closely integrated with its
quality driven manufacturing operations, thereby allowing it to profitably
deliver high quality, easy to install and competitively-priced
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components on a just-in-time basis. The Company's focus on low cost
manufacturing also provides benefits when selling products to the less price
sensitive 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 more innovative,
high margin 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. The
Company has recently obtained orders from Mercedes Benz, BMW, SEAT and Chrysler
to supply products for new SUVs.
Increase Operating Efficiencies. The Company believes there are significant
opportunities for improvement in margins and cash flow through intercompany
cooperation among its various acquired business units, including (i) realizing
economies of scale from the combined purchasing power of a larger company; (ii)
achieving production and other operating efficiencies through the implementation
of a "best practices" program; (iii) reducing certain selling, general and
administrative and product development expenses; and (iv) reducing capital and
operating expenditures from coordinated use of manufacturing resources.
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.
AUTOMOTIVE OEM AND AFTERMARKET TRENDS
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it has benefited and will continue
to benefit from the following automotive OEM and aftermarket trends:
Consolidation of Supplier Base by OEMs. Since the 1980's, 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 either been
eliminated as suppliers to OEMs or tiered (i.e., they supply other suppliers).
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.
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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. On newer models, however, there has been a trend
toward involving potential suppliers earlier in the design and development
process to encourage suppliers to share design and development responsibility.
In some cases, sole-source supply contracts which cover the life of a vehicle or
platform are awarded. Both OEMs and suppliers benefit from the consolidation
trend. Suppliers are able to devote the resources necessary for proprietary
product development with the expectation that they will have the opportunity to
profit on such investment over the multi-year life of a contract. OEMs benefit
from shared manufacturing cost savings attributable to long, multi-year
production runs at high capacity utilization levels.
Emergence of European Community Safety Standards. Trends within the European
towing systems market result primarily from emerging EC safety 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 and Scandinavia. Other EC
countries are expected to adopt the legislation within two years. All of the
Company's approximately 2,000 towing systems sold in Europe currently undergo
rigorous safety testing in order to satisfy these EC regulatory standards. In
addition, all of the Company's detachable roof rack systems are designed and
tested to meet and exceed strict German standards.
Increased Levels of Manufacturing in North America by Transplants. As a
result of the relative cost advantage of producing vehicles in North America,
many transplantsforiegn 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 20% in
1996. Industry sources forecast that this trend will continue. For example,
both Mercedes Benz and BMW commenced manufacturing in the U.S. in 1996. In
addition, Toyota has announced plans to build its T-100 pickup truck in Indiana
by 1998, Honda has announced plans to build its Odyssey minivan in North
America by 1999, and BMW has announced plans to build its E-53 SUV in North
America by 1999. 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.
Outsourcing by OEMs. In an effort to facilitate and enhance product design,
reduce costs and simplify manufacturing processes, automotive OEMs are
increasingly outsourcing the manufacture of many components that were previously
manufactured internally. This trend results from independent suppliers being
generally able to design, manufacture and deliver components at a lower cost
than OEMs as a result of (i) their significantly lower direct labor, fringe
benefit and overhead costs; (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs; and
(iii) the economies of scale inherent in product specialization. Independent
suppliers such as the Company have benefited from outsourcing because the
aggregate number, complexity and value of components that they manufacture have
increased dramatically. OEMs, in turn, have benefited because outsourcing has
allowed them to reduce costs and to focus on overall vehicle design and consumer
marketing.
PRODUCTS
The principal product lines of the Company are towing systems and rack
systems and accessories. On a pro forma basis in 1997, towing systems
constituted approximately 62% and rack systems and accessories constituted
approximately 38% of the Company's net sales, respectively. The Company believes
it offers a more comprehensive product line than any 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 virtually
every light vehicle produced in North America and Europe.
In the aggregate, the Company supplies over 2,000 different towing systems,
including a complete line of towing accessories.
The Company's towing systems sold in Europe are installed primarily on
passenger cars. The Company's primary product within the European market is the
fixed ball towbar that is specifically designed to be mounted on a particular
car model in accordance with the OEM's specified mounting points. The Company
also markets sophisticated detachable ball systems which are popular with owners
of more expensive cars or cars on which the license plate would otherwise be
blocked by a fixed ball towbar. All of the Company's towing system products sold
in Europe currently undergo rigorous safety testing in order to satisfy 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 the safety standards.
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The Company's towing systems sold in North America are installed primarily
on light trucks. Two of the Company's most innovative product designs have been
the tubular trailer hitch which is lighter in weight, less obtrusive and
stronger than the conventional hitch, and a device which ensures secure
attachment of a towing product to the vehicle. These 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 offers a complete line of towing accessories, including trailer
balls, ball mounts, electrical harnesses, safety chains and locking hitch pins.
To capitalize on the strong growth trend in light trucks, the Company has
recently expanded its product line to include other products designed
specifically for this market, such as grille guards, brush guards and tire
carriers.
Fixed Rack Systems. The Company designs, manufactures and 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 typically remain on a model for the life of its design, which generally
ranges from four to six years. The Company has been an industry leader in
developing designs which not only complement the styling themes of a particular
vehicle, but also increase the utility and functionality of the rack system.
Most of the fixed rack systems sold by the Company are composed of side rails
which run along both sides of the vehicle's roof, feet which mount the side
rails to the vehicle's roof, and cross rails which run between the side rails.
Cross rails, which are attached to the side rails with stanchions, are typically
movable and can be used to carry a load. The Company uses advanced materials
such as lightweight, high strength plastics and roll formed aluminum to develop
durable rack systems that optimize vehicle performance. Many of these products
incorporate innovative features such as push button and pull lever stanchions,
which allow easy movement of the cross rails to accommodate various size loads.
These rack systems are utilized on a large number of light trucks, including
Jeep Grand Cherokee and Cherokee, Chrysler minivans, GM Suburban, Tahoe and
Yukon and Mercedes Benz ML320.
Detachable Rack Systems. The Company designs, manufactures and supplies
detachable roof and rear mount 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. The Company offers a full line of detachable rack
systems, including the SportRack(R), SnapRack(TM) and Mondial(R) rack systems.
The Company's innovative Mondial(R) product line of detachable rack systems
consists of only 14 SKUs that are able to fit substantially all passenger
vehicles sold in North America and Europe while some competitors' comparable
product lines consist of more than 200 SKUs. In addition, the Mondial(R) line of
detachable rack systems is designed to meet and exceed strict international
performance standards, and is noted for its flexibility, ease of attachment and
minimal SKU requirements.
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 rack systems
and are used for carrying items such as bicycles, skis, luggage, surfboards and
sailboards.
CUSTOMERS AND MARKETING
Management believes that the Company's strong and diverse industry
relationships are based on its reputation for high service levels, strong
technical support, innovative product development, high quality and competitive
pricing. On a pro forma basis, sales to OEM and aftermarket customers
represented approximately 65% and 35% of the Company's net sales, respectively,
in 1997. In addition, on a pro forma basis, sales to Chrysler and General
Motors were approximately 27% and 16%, respectively, of the Company's aggregate
net sales in 1997. Based upon publicly available information, the Company does
not believe that the proposed merger between Chrysler and Daimler-Benz will
have a material impact on its sales or results of operations.
Automotive OEMs. The Company obtains most of its new orders through a
presourcing process by which the customer invites one or a few preferred
suppliers to manufacture and design 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
also competes to supply parts for successor models even though the Company may
currently supply parts on the predecessor model. Sales to OEMs and Tier 1
suppliers are made directly by the Company's internal sales staff of 29
individuals and 23 outside sales representatives.
The Company sells its products to most of the automotive OEMs selling light
vehicles in North America and Europe, including Chrysler, General Motors,
Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat, Mitsubishi,
Nissan, Volkswagen, SEAT, Skoda and Kia. The Company supplies Chrysler with
substantially all of its towing systems and rack systems and accessories. The
Company also supplies approximately 50% of the towing system and rack system
requirements of General Motors, for which it has
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been a supplier for over 20 years. The following chart sets forth information
regarding vehicle models on which the Company's automotive products are used or
for which the Company has been awarded business (including Ellebi, which was
acquired on January 2, 1998).
AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
-------------- ---------------- ------------------------------------- ----------------------------------
Towing Systems Chrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Grand Cherokee, Plymouth
Voyager, Town & Country, Ram Pick-up, Prowler, Ram Van
Dakota, Wrangler, Durango
General Motors Suburban, Yukon, Tahoe, Astro, Frontera, Corsa, Arena (van)
Safari, CK Pick-up, ML Van, S-10
Blazer, APV Vans, Bravada Jimmy,
Geo Tracker, Blazer, Corsa, Astra
(hatchback), Astra (Sedan), Astra
(Station wagon), Calibra, Vectra
(Hatchback), Vectra (Sedan), Vectra
(Station wagon), Omega (Sedan),
Omega (Station wagon), Campo,
Frontera, Monterey, Zafira
Ford Expedition, Explorer, Ranger, Escort, Explorer
Aerostar Minivan, Mercury Villager,
Windstar Minivan, Navigator, Fiesta,
Escort (all models), Mondeo, Mondeo
(Wagon), Scorpio (Sedan), Scorpio
(Wagon), Maverick, Transit
Renault Laguna (Station wagon), Laguna, Twingo, Laguna, Clio
Megane, Twingo, Espace
Isuzu Rodeo, Trooper
Toyota 4-Runner, Land Cruiser, RAV4, Lexus, Corolla, Lexus LS200, Carina,
646T, 477T, 860T, Corolla, Carina, Carina Wagon, Yaris
Camry, Hi-Lux, Picnic, Previa,
Hi-Ace, Celica
Nissan Pathfinder, Pick-up, Quest, Infiniti Almera, Primera Wagon, Micra,
vehicle, QW Truck, Micra, Sunny, Patrol
Almera, Primera, Maxima, King Cab,
Terrano, Patrol
Mazda 121, MPV, Xedos-9, Xedos-6, 626, 323 626 Wagon, 323
Honda Passport PF Van, CRV
Mitsubishi Montero Spacestar, Challenger
FIAT Almost all models
Alpha Romeo Almost all models
Lancia Almost all models
Subaru Outback 79V
Range Rover Range Rover, Land Rover
Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
(Station wagon), 850 (Sedan), 850
(Station wagon)
SAAB 9000 series, 900 series 900 series, 9000 series, 9000
station wagon, small car 9-3,
small car 9-5, small station
wagon 206 Sport, 306 Break
Peugeot 106, 306, 406 (Sedan), 406 (Station
wagon), 406 (Coupe), 605, 806, J5
(Van), Boxer (Van)
Suzuki Wagon R. Grand Vitara
Daihatsu Sirion, More, Charade
SEAT Toledo
Skoda SK240
Volkswagen Gold Combi, Vento
Daewoo LD100
Cherokee, Grand Cherokee, Caravan,
Rack Systems Chrysler Cherokee, Grand Cherokee, Caravan, Voyager, Town & Country, Neon PT,
Voyager, Town & Country, Durango BW 72
General Motors Suburban, Yukon, Tahoe, Astro, Safari Suburban, Yukon, Tahoe, Jimmy,
Blazer, Bravada
Honda Accord
Mitsubishi Montero
Mercedes ML320
Subaru Outback, Impreza, Legacy
KIA Sportage
SEAT Vario GP99
Opel Astra
BMW E-53 (SUV)
6
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- -------------------------
(a) Represents models for which the Company produced products in 1997.
(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. See "Risk Factors -- The OEM Supplier
Industry." There can be no assurance that any of these vehicles will be
produced or that the Company will generate certain revenues under these
awards even if the models are produced.
Automotive Aftermarket. The Company sells its products directly into the
automotive aftermarket through a number of channels, including wholesalers,
retailers and installers, through its internal sales force and outside sales
representatives. The largest of the Company's aftermarket customers include
U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System,
Discount Auto Parts, Ace Hardware and Canadian Tire. The Company believes that
it has established a reputation as a highly reliable aftermarket supplier able
to meet its customers' requirements for on-time deliveries while minimizing the
carrying levels of inventory. For example, the Company began supplying towing
systems to U-Haul (the(which the Company believes, based on its research, is the
largest installer of towing systems in the United States) in 1994 and for the
year ended December 31, 1997, supplied approximately 50% of U-Haul's towing
system requirements. The Company believes aftermarket customers such as U-Haul
represent opportunities to cross-sell existing products such as rack systems
and accessories.
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 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 develops new tooling used in the manufacture of its products.
Once a customer accepts such tooling, the tooling becomes the property of the
customer and the Company is reimbursed by the customer for the cost of the
tooling, or in certain instances, recovers all or a portion of such costs
through incremental increases in unit selling prices.
In some cases, the Company has also developed special machinery to meet its
particular needs. For example, the hardware that accompanies certain towing
systems is selected automatically by special equipment and is then weighed and
transferred into the final package without human intervention. The Company has
developed specialized, computer operated machinery to enable it to efficiently
perform this operation. 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 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 ten of its seventeen
manufacturing and engineering facilities and is in the process of obtaining
certification for the rest of its facilities. The Company has received numerous
quality and performance awards from its OEM customers, including Chrysler's Gold
Pentastar Award, Ford Q-1 Award, Toyota's Distinguished Supplier Award and the
Nissan Superior Supplier Performance Award.
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 84 members of the Company's engineering and design
staff possess strong technical skills. The Company currently holds more than 150
U.S. and foreign patents, and has numerous patent applications pending. The
expiration of such patents are not expected to have a material adverse effect on
the Company's operations.
On a pro forma basis, the Company spent $6.9 million on research and
development in 1997. The Company works closely with OEMs to constantly improve
design and manufacturing technology and product functionality. When an OEM is in
the process of developing a new model, it typically approaches an established or
incumbent supplier with a request to supply the required towing system or rack
system. The Company is typically contacted two to four years prior to the 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
7
10
and functional requirements. This relationship also provides the Company
with a competitive advantage in the aftermarket because 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, six 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.
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, in the Company's
sole outsourcing relationship, it 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 facility.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. The Company competes primarily
on the basis of product quality, cost, timely delivery, customer service,
engineering and design capabilities and new product innovation in both the OEM
market and the automotive aftermarket. The Company believes that as OEMs
continue to strive to reduce new model development cost and time, innovation and
design and engineering capabilities will become more important as a basis for
distinguishing competitors. The Company believes it has an outstanding
reputation in both of these areas. In the automotive aftermarket, the Company
believes that its wide range of product applications is a competitive advantage.
For example, the Company has developed towing systems to fit substantially all
the light vehicles produced in North America and Europe. The Company believes
its competitive advantage in the aftermarket is enhanced by its close
relationship with OEMs, allowing the Company access to automobile design at an
earlier time than its competitors.
In the towing systems market, the Company competes with Draw-Tite Inc. and
Reese Products Inc., both of which are subsidiaries of TriMas Corp., 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, which is a wholly-owned subsidiary of Eldon AB
(a Swedish company), Yakima Products Inc., Barrecrafters, Graber Products Inc.
and several smaller competitors.
EMPLOYEES
At December 31, 1997, the Company had approximately 1,600 employees of whom
approximately 1,100 are hourly employees and approximately 500 are salaried
personnel. Approximately 150 of the Company's employees in the United States at
the Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 1999. As is common in many European jurisdictions,
substantially all of the Company's employees in
8
11
Europe are covered by country-wide collective bargaining agreements. The
Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's executive offices are located in approximately 14,550 square
feet of leased space in Sterling Heights, Michigan. The Company has 19
engineering, manufacturing and distribution facilities with a total of
approximately 1,973,350 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 FUNCTION FEET LEASED EXPIRATION**
-------------------------- ------------------------------ ------- -------- --------------
North America
Shelby Township, Michigan* Manufacturing 42,800 Owned --
Port Huron, Michigan* Manufacturing 200,000 Owned --
Sterling Heights,
Michigan* Administration and engineering 14,550 Leased 2003
Mt. Clemens, Michigan Warehousing 25,000 Leased 1998
Administration, manufacturing
Lodi, California and 150,000 Owned --
engineering
Auburn Hills, Michigan Warehousing 49,000 Leased 2006
Administration and
Madison Heights, Michigan* manufacturing 90,000 Leased 2002
Madison Heights, Michigan* Engineering 18,000 Leased 2002
Administration, manufacturing
Granby, Quebec and 62,000 Leased 2001
warehousing
Bromptonville, Quebec Manufacturing 2,000 Leased 1999
Europe
Sandhausen, Germany Administration and engineering 5,000 Leased Month to Month
Staphorst, The
Netherlands* Administration, manufacturing, 405,000 Owned --
warehousing and engineering
Hoogeveen, The
Netherlands* Manufacturing and warehousing 185,000 Owned --
Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned --
Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned --
Vanersborg, Sweden* Manufacturing, warehousing and 160,000 Leased 2004
engineering
Reims, France Manufacturing and warehousing 115,000 Owned --
Reggio Emilia, Italy Administration, manufacturing, 170,000 Leased 2003
warehousing and engineering
Reggio Emilia, Italy Manufacturing and warehousing 110,000 Leased 2003
- -------------------------
* QS 9000 and/or ISO 9000 certification.
** Gives effect to all renewal options.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
it is not presently a party to any litigation the outcome of which would have a
material adverse effect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
ITEM 4. SUBMISSION OF MATTERS OF A VOTE TO SECURITY HOLDERS
None.
9
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MEMBERS' MATTERS
There is no established public trading market for the Company's Class A
Units. At March 31, 1998, there were 21 holders of record of Class A 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 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 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.
Since September 1995, the Company has issued unregistered securities to
investors and to certain other individuals in connection with acquisitions. 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 September 28, 1995, pursuant to their respective
subscription agreements, the Company issued an aggregate of
13,860 of its Class A Units for an aggregate purchase price of
$13.9 million, to Chase Venture Capital Associates (an
affiliate of CCP), F. Allan Smith, Barry Banducci, Richard
Borghi, Marshall Gladchun and MascoTech.
2) On September 30, 1996 pursuant to their respective
subscription agreements, the Company issued an aggregate of
279 of its Class A Units for an aggregate purchase price of
$279,000, to Chase Venture Capital Associates (an affiliate of
CCP), Marshall Gladchun, the Laverne A. Farris Trust, and
certain employees of SportRack LLC.
3) On October 30, 1996 pursuant to an Agreement for the Sale and
Purchase of Shares in Brink BV dated October 30, 1996, the
Company issued an aggregate of 1,230 of its Class A Units for
an aggregate purchase price of $4.3 million, to the former
shareholders of Brink B.V.
4) On August 5, 1997 pursuant to an Asset Purchase Agreement
among Valley Industries, LLC, Valley Industries, Inc., certain
affiliates of Valley Industries, Inc., Robert L. Fisher and
Roger T. Morgan dated August 5, 1997, the Company issued an
aggregate of 802 of its Class A Units for an aggregate
purchase price of $4.5 million, to Robert L. FischerFisher and Roger
T. Morgan.
5) On October 31, 1997 pursuant to an Asset Purchase Agreement
among Bell Sports Corp., Bell Sports Canada, Inc. and Advanced
Accessory Systems Canada Inc./Les Systems d' Accessorie
Advanced Canada Inc. dated as of July 2, 1997, the Company
issued an aggregate of 100 of its Class A Units for an
aggregate purchase price of $500,000 to Jean M. Maynard.
6) On December 31, 1997 the Company issued 140 of its Class A
Units to CB Capital Investors, Inc. (an affiliate of CCP) in
exchange for its 1% interest in SportRack.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The information below presents historical financial data of the MascoTech
Division ("Predecessor") for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 through September 27, 1995 (the period prior to the
acquisition of the net assets of MascoTech Division by the Company). The data as
of and for the years ended December 31, 1993 and 1994 have been derived from the
unaudited financial statements of the MascoTech Division and the data for the
period from January 1, 1995 through September 27, 1995 have been derived from
the audited financial statements included elsewhere in this Form 10-K. The data
as of and for the period from September 28, 1995 through December 31, 1995 and
for the years ended December 31, 1996 and 1997 represent consolidated financial
data of the Company subsequent to the acquisition of the MascoTech Division, and
include (i) the operations of Brink (as defined) subsequent to the Brink
Acquisition (as defined) on October 30, 1996; (ii) the operations of the
SportRack division of Bell (as defined) and Nomadic (as defined) subsequent to
the SportRack International Acquisition (as defined) on July 2, 1997 and July
24, 1997, respectively, (iii) the operations of Valley (as defined) subsequent
to the Valley Acquisition (as defined) on August 5, 1997, and have been derived
from the audited financial statements included elsewhere in this Form 10-K. The
following table should be read in conjunction with the 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.
10
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PREDECESSOR COMPANY
------------------------------------------ --------------------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, JANUARY 1 TO SEPTEMBER 28, TO DECEMBER 31,
------------------------- SEPTEMBER 27, DECEMBER 31, --------------------------
1993 1994 1995 1995 1996(1) 1997(2)
------------ ------------ -------------- ---------------- ------------ ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 59,081 $ 60,882 $ 48,698 $ 16,299 $ 81,466 $188,678
Cost of sales...................... 48,369 47,716 38,645 12,458 53,607 135,556
-------- -------- -------- --------- -------- --------
Gross profit..................... 10,712 13,166 10,053 3,841 27,859 53,122
Selling, administrative and product
development expenses............. 6,585 7,313 6,107 1,472 13,413 31,350
Amortization of intangible assets.. -- -- -- 546 2,475 2,336
-------- -------- -------- --------- -------- --------
Operating income................. 4,127 5,853 3,946 1,823 11,971 19,436
Other (income) expense
Interest expense(3).............. -- -- -- 975 4,312 12,627
Foreign currency loss(4)......... -- -- -- -- 1,330 6,097
Other, net....................... 665 (105) 65 (22) (80) --
-------- -------- -------- --------- -------- --------
Income before minority interest,
extraordinary charge and income
taxes.......................... 3,462 5,958 3,881 870 6,409 712
Provision (benefit) for income
taxes(5)......................... 1,247 2,114 1,324 -- (491) (2,856)
-------- -------- -------- --------- -------- --------
Income before minority interest
and extraordinary charge......... 2,215 3,844 2,557 870 6,900 3,568
Minority interest.................. -- -- -- 9 69 97
-------- -------- -------- --------- -------- --------
Income before extraordinary
charge......................... 2,215 3,844 2,557 861 6,831 3,471
Extraordinary charge(6)............ -- -- -- -- 1,970 7,416
-------- -------- -------- --------- -------- --------
Net income (loss)................ $ 2,215 $ 3,844 $ 2,557 $ 861 $ 4,861 $ (3,945)
======== ======== ======== ========= ======== ========
OTHER DATA:
Cash flows from operating
activities....................... $ 8,683 $ 1,165 $ 3,741 $ 1,390 $ 9,917 $ 6,982
Cash flows used for investing
activities....................... 2,213 1,392 2,079 46,538 57,463 79,733
-------- -------- -------- --------- -------- --------
Cash flows from financing
activities....................... (6,259) 289 (1,666) 46,785 48,605 97,080
-------- -------- -------- --------- -------- --------
EBITDA(7).......................... 4,890 6,773 4,735 2,651 16,448 27,916
Depreciation....................... 763 920 789 282 2,002 6,144
Capital expenditures............... 2,213 1,392 2,079 491 3,124 7,751
Ratio of EBITDA to interest expense........................................ 2.72x 3.81x 2.21x
Ratio of earnings to fixed charges(8)...................................... 1.89x 2.43x 1.06x
BALANCE SHEET DATA (AT END OF PERIOD)
Cash.......................................................................Cash............................... $ 10 $ 8 $ 3 $ 1,637 $ 2,514 $ 27,348
Working capital............................................................capital.................... (612) 3,518 4,002 3,960 14,368 64,375
Total assets...............................................................assets....................... 15,070 21,743 24,698 59,979 148,359 265,483
Total debt, including current
maturities...................................maturities....................... -- -- -- 34,900 93,142 197,126
Mandatorily redeemable warrants............................................warrants.... -- -- -- 200 3,498 3,507
Members' equity............................................................Equity............................. 8,940 13,664 15,794 14,221 18,463 16,19316,444
- ----------
(1) In October 1996, the Company acquired Brink. The Brink Acquisition has been
accounted for in accordance with the purchase method of accounting.
Accordingly, the operating results of Brink are included in the consolidated
operating results of the Company subsequent to October 30, 1996.
(2) The Company acquired Bell on July 2, 1997, Nomadic on July 24, 1997, and
Valley on August 5, 1997. The SportRack International Acquisition and Valley
Acquisition have been accounted for in accordance with the purchase method
of accounting. Accordingly, the operating results of SportRack International
and Valley are included in the consolidated operating results of the Company
subsequent to the respective acquisition dates.
(3) Prior to its acquisition by the Company on September 28, 1995, the
Predecessor was a division of MascoTech and, accordingly, had no outstanding
indebtedness.
(4) Represents net currency loss on indebtedness, incurred in connection with
the Brink Acquisition, which is currently denominated in U.S. dollars.
(5) The Predecessor, as a division of MascoTech, was allocated a portion of the
consolidated income tax provision, which approximated the division's federal
income tax provision on a stand-alone basis. The Company is a limited
liability corporation and, as such, the earnings of the Company and its
domestic subsidiaries are included in the taxable income of the Company's
unitholders and no federal income tax provision is required. The Company's
foreign subsidiaries provide for income taxes on their results of
operations.
11
14
(6) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Notes
(as defined below), a prepayment penalty of $1.4 million, $3.1 million of
unamortized debt discount, and unamortized deferred debt issuance costs of
$3.2 million were charged to operations during 1997. The debt extinguishment
charges in 1997 were reduced by $365,000 representing the income tax benefit
recognized by Brink.
(7) EBITDA is defined as operating income plus depreciation and
amortization.amortization, 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.
(8) 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.
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 below and
under "Business," as well as in this Form 10-K generally. Any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various factors
set forth in this Form 10-K generally.
GENERAL
Chase Capital Partners ("CCP") and certain members of the Company's
management formed the Company in September 1995 to make strategic acquisitions
of automotive exterior accessory manufacturers and to integrate those
acquisitions into a global enterprise that would be a preferred supplier to the
automotive industry. In September 1995, the Company, through its subsidiary,
SportRack, LLC ("SportRack") acquired substantially all of the net assets of the
MascoTech Division, a North American supplier of rack systems and accessories to
the automotive OEM market and aftermarket. The MascoTech Division was a division
of MascoTech. For comparative purposes, the financial information for the year
ended December 31, 1995 represents the combination of the results of operations
of the MascoTech Division for the period from January 1, 1995 to September 27,
1995 together with the results of operations of the Company from September 28,
1995 to December 31, 1995 (the period subsequent to the acquisition of the
MascoTech Division by the Company). The financial statements of the MascoTech
Division and the Company in the two combined periods are not comparable in
certain respects due to differences between the cost bases of certain assets
held by the Company versus that of the MascoTech Division, changes in accounting
policies at the acquisition date, and certain incremental costs, such as
interest expense, that the Company incurred as a stand-alone company subsequent
to September 27, 1995.
ACQUISITIONS
In September 1995, the Company, through its SportRack subsidiary, acquired
the MascoTech Division of MascoTech. 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 consummated the Brink Acquisition by acquiring
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 Brink, a newly
formed subsidiary of the Company.
In August 1997, the Company formed Valley to effect the Valley Acquisition
by acquiring the net assets of Valley Industries, a North American supplier of
towing systems to the automotive OEM market and aftermarket.
12
15
Two smaller acquisitions were completed in July 1997 by SportRack
International. SportRack International acquired from Bell the net assets of its
SportRack division, a Canadian supplier of rack systems and accessories to the
automotive aftermarket. CCP (as defined) is a significant equity investor in
Bell. SportRack International also acquired the capital stock of 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 10-K as the "SportRack International
Acquisition."
In January 1998, the Company formed Ellebi to effect the Ellebi Acquisition
by acquiringthrough Brink International B.V., acquired
the net assets of a divisionthe towbar segment of Ellebi S.p.A for an aggregate purchase
price of approximately $22 million including estimated costs of the
transaction. The towbar segment of Ellebi S.p.A. Ellebi is an Italiana manufacturer and
distributor of towing systems to the European automotive OEM market and aftermarket. The
acquisition was financed primarily through the Company's Acquisition revolving
note. Total revenue for the towbar segment of Ellebi S.p.A. was $21.3 million
for the year ended December 31, 1997.
In February 1998, the Company through SportRack International, consummated
the Transfo-Rakzs Acquisition by acquiringInc.,
acquired the net assets of Transfo-Rakzs Inc.,for an aggregate purchase price of
approximately $1.1 million, including estimated costs of the transaction.
Transfo-Rakzs is a designer, manufacturer and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S. The acquisition
was financed primarily through borrowings under the Company's revolving credit
facility. Total revenue for Transfo-Rakzs, Inc. was $498,000 for the year ended
December 31, 1997.
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,
---------------------------------------------------------------
1995(1) 1996 1997
------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
Net sales...................... $64,997 100.0% $ 81,466 100.0% $ 188,678 100.0%
Gross profit................. 13,894 21.4% 27,859 34.2% 53,122 28.2%
Selling, administrative and
product development
expenses..................... 7,579 11.7% 13,413 16.5% 31,350 16.6%
Amortization of intangible
assets....................... 546 .8% 2,475 3.0% 2,336 1.2%
Operating income............. 5,769 8.9% 11,971 14.7% 19,436 10.3%
Interest expense............... 975 1.5% 4,312 5.3% 12,627 6.7%
Foreign currency loss.......... -- -- 1,330 1.6% 6,097 3.2%
Income before minority
interest, extraordinary
charge and income taxes...... 4,751 7.3% 6,409 7.9% 712 .4%
Extraordinary charge........... -- -- 1,970 2.4% 7,416 3.9%
Net income (loss) ............. 3,418 5.3% 4,861 6.0% (3,945) (2.1%)
- ----------
(1) Represents the combination of the historical results of operations for the
MascoTech Division for the period January 1, 1995 to September 27, 1995
together with the results of operations of the Company from September 28,
1995 to December 31, 1995 (the period subsequent to the acquisition of the
MascoTech Division by the Company).
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales. Net sales for 1997 were $188.7 million, representing an increase
of $107.2 million, or 131.6% over net sales for 1996. The increase was due
primarily to the Valley Acquisition in August 1997 ($37.9 million), the
SportRack International Acquisition in July 1997 ($2.5 million), and the full
year sales of Brink in 1997 as compared to two months in 1996 ($54.8 million).
In addition, sales for SportRack increased $12.0 million because of increased
sales of rack systems to OEM's for installation on new light truck models and
increased OEM production of certain light truck models which use SportRack's
systems. On a pro forma basis, if the net sales of Valley and Sportrack
International were included with those of the Company for 1996 and 1997, and
Brink sales were included with those of the Company for 1996, net sales for 1997
would have been $246.7 million, as compared to net sales of $233.5 million for
1996, an increase of $13.2 million, or 5.7%.
Gross profit. Gross profit for 1997 was $53.1 million, representing an
increase of $25.3 million, or 90.7%, over the gross profit for 1996. This
increase resulted from the increase in net sales offset by a decrease in the
gross margin. Gross profit as a percentage of net sales was 28.2% in 1997
compared to 34.2% in 1996. The decrease in gross margin resulted from a lower
gross margin on sales contributed by Valley and a lower gross margin on sales of
rack systems to the OEM's due to (i) launch costs related to new programs, (ii)
lower margins on certain newly launched programs, and (iii) price givebacksrebates on
certain OEM programs.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1997 were $31.4 million,
representing an increase of $17.9 million, or 133.7% over selling,
administrative and product development expenses for 1996, reflecting the
increase in net sales. Selling, administrative and product development expenses
as a percentage of
13
16
net sales increased to 16.6% in 1997 from 16.5% in 1996. Certain selling,
administrative and product development expenses are relatively fixed and do not
increase proportionately with sales. The effect of these fixed expenses has been
offset by higher expenses associated with the Company's European expansion and
new corporate headquarters. In addition, selling, administrative and product
development expenses are higher as a percentage of net sales for Brink, which
was acquired in October 1996, and SportRack International, which was acquired in
July 1997, than for the Company.
Operating income. Operating income for 1997 was $19.4 million, an increase
of $7.5 million, or 62.4%, over operating income for 1996. The increase was due
primarily to inclusion of Brink operating results for the full year in 1997 as
compared to two months in 1996 together with the increases from the SportRack
International and Valley Acquisitions in July and August of 1997, respectively.
Operating income as a percentage of net sales decreased to 10.3% in 1997 from
14.7% in 1996 reflecting a decrease in gross margins offset by reduced
amortization of intangible assets as a result of changing the goodwill
amortization period from 15 years to 30 years in 1997.
Interest expense. Interest expense for 1997 was $12.6 million, an increase
of $8.3 million, or 192.8%, over interest expense for 1996. The increase was
primarily due to additional borrowings to finance (i) the Brink Acquisition in
October 1996, (ii) the Sportrack International Acquisition in July 1997, (iii)
the Valley Acquisition in August 1997, and (iv) the effect of the issuance of
the Notes (as defined below), of which a portion of the proceeds were used to
repay debt from the Valley Acquisition and the Brink Acquisition.
Foreign currency loss. Foreign currency loss in 1997 was $6.1 million. The
Company acquired Brink in October 1996 and the related Brink Acquisition
indebtedness is denominated in U.S. dollars. During 1997, the U.S. dollar
strengthened significantly in relation to the Dutch Guilder, the functional
currency of Brink. At December 31, 1996, the exchange rate of the Dutch Guilder
to the U.S. dollar was 1.75:1, whereas at December 31, 1997 the exchange rate
was 2.02:1, or a 15.4% decline in the relative value of the Dutch Guilder.
Extraordinary charge. The extraordinary charge resulting from debt
extinguishment in 1997 ws $7.4 million. In connection with the issuance of $125
million aggregate principal amount of 9 3/4% Senior Subordinated Promissory
Notes due 2007 (the "Notes"), the Company repaid, in full, its Senior
Subordinated Debt and Junior Subordinated Guilder Note and repaid a portion of
certain term notes under the Amended and Restated Credit Agreement. In
connection with such debt extinguishments, the Company recorded an
extraordinary charge comprised of $1.4 million in prepayment penalties, $3.1
million of unamortized debt discount and $3.2 million of unamortized debt
issuance costs, less $400,000 of tax benefit.
Net income (loss). The net loss for 1997 was $3.9 million as compared to
net income of $4.9 in 1996, a decrease of $8.8 million. Operating income for
1997 was $19.4 million, representing an increase of $7.5 million, or 62.4%
over operating income for 1996. The increased operating income, resulting from
inclusion of Brink's operating results for a full year in 1997 as compared to
two months in 1996, the Valley Acquisition in August 1997, and the SportRack
International Acquistion in July 1997, was offset by increased interest costs
associated with such acquisitions ($8.3 million), increased foriegn currency
loss related to Brink Acquistion debt denominated in U.S. dollars ($4.8
million), and an increase in an extraordinary charge resulting from debt
extinguishment ($5.4 million), collectively offset by an increase in the
related income tax benefit ($2.4 million).
1996 COMPARED TO 1995
Net sales. Net sales for 1996 were $81.5 million, representing an increase
of $16.5 million, or 25.3% over net sales for 1995. The increase was due to the
Brink Acquisition in October 1996 ($7.6 million) and increased sales of rack
systems to OEM's for installation on new light truck models and increased OEM
production of certain light truck models which use the Company's rack systems.
Gross profit. Gross profit for 1996 was $27.9 million, representing an
increase of $14.0 million, or 100.5% over gross profit for 1995. This increase
resulted from the increase in net sales and an increase in the gross margin.
Gross profit as a percentage of net sales was 34.2% in 1996 compared to 21.4% in
1995. The increase was primarily a result of (i) increased sales of higher
margin rack systems for installation on new light truck models, (ii) expanded
margins on certain rack systems resulting from engineering changes and
manufacturing improvements, and (iii) the effect of higher net sales on fixed
overhead costs.
Selling, administrative and product development costs. Selling,
administrative and product development expenses for 1996 were $13.4 million,
representing an increase of $5.8 million, or 77.0%, over selling, administrative
and product development costs for 1995. Selling, administrative and product
development costs as a percentage of net sales increased to 16.5% in 1996
compared to 11.7% in 1995. These increases resulted primarily from the Brink
Acquisition in October 1996 and increased costs associated with the MascoTech
Division becoming a stand-alone company in September 1995.
Operating income. Operating income for 1996 was $12.0 million, an increase
of $6.2 million, or 107.5%, over operating income for 1995. Operating income as
a percentage of net sales increased to 14.7% in 1996 from 8.9% in 1995 primarily
as a result of higher gross margins partially offset, as a percentage of net
sales, by increased selling, administrative and product development costs and
increased amortization of intangible assets.
Interest expense. Interest expense for 1996 was $4.3 million, an increase of
$3.3 million, or 342.3%, over interest expense for 1995 representing, in 1996, a
full year of interest cost associated with the acquisition of the MascoTech
Division in September 1995. The MascoTech Division, as a matter of policy, was
not charged interest on intercompany balances by MascoTech during 1995.
Foreign currency loss. Foreign currency loss in 1996 was $1.3 million. The
Company acquired Brink in October 1996 and the related Brink Acquisition debt
($65.0 million) was denominated in U.S. dollars whereas the functional currency
of Brink is the Dutch Guilder. During 1996, the U.S. dollar strengthened in
relation to the Dutch Guilder, the functional currency of Brink. On October 31,
1996 (the Brink Acquisition date) the exchange rate of the Dutch Guilder to the
U.S. dollar was 1.70:1, whereas, at December 31, 1996 the exchange rate was
1.75:1 or a 2.9% decline in the relative value of the Dutch Guilder.
14
17
LIQUIDITY AND CAPITAL RESOURCESExtraordinary charge. The extraordinary charge resulting from debt
extinguishment in 1996 was $2.0 million. In connection with the Brink
Acquisition, the Company repaid, in full, borrowings under a credit agreement
and senior subordinated loan agreement. In connection with such debt
extinguishments, the Company recorded an extraordinary charge comprised of $1.6
million in prepayment penalties, $220,000 of unamortized debt discount and
$150,000 of unamortized debt issuance costs.
Net income (loss). The net income for 1996 was $4.9 million as
compared to net income of $3.4 in 1995, an increase of $1.5 million. Operating
income for 1996 was 12.0 million, representing an increase of $6.2 million, or
107.5% over operating income for 1995. The increased operating income,
resulting from increased gross margins and inclusion of Brink's operating
results for two months in 1996, was offset by increased interest costs
associated with such acquisition ($3.3 million), increased foreign currency
loss related to Brink Acquisition debt denominated in U.S. dollars ($1.3
million), and an increase in an extraordinary charge resulting from debt
extinguishment ($2.0 million), collectively offset by an increase in the
related income tax benefit ($1.8 million).
Liquidity and Capital Resources
The Company's principal liquidity requirements are to service its debt
under its existing credit facilitiesfacillities and meet its working capital needs and
capital expenditures.expenditure needs. The Company's indebtedness at December 31, 1997 was
$197.1 million.
Working Capital and Cash Flows
Working capital and key elements of the consolidated statement of cash
flows are:
1995 1996 1997
---- ---- ----
Working capital ............................... $ 3,960 $ 14,368 $ 64,375
Cash flows provided by operating
activities (1)............................... 5,131 9,917 6,982
Cash flows used for investing activities (1)... (48,617) (57,463) (79,733)
Cash flows provided financing activities (1) .. 45,119 48,605 97,080
(1) Represents the combination of the historical cash flows for the
Predecessor for the period January 1, 1995 to September 27, 1995 together with
the cash flows of the Company from September 28, 1995 to December 31, 1995 (the
period subsequent to the acquisiton of the Predecessor by the Company).
Operating Activities
Cash flows from operating activities reflect the Company's net income,
adjusted for non-cash items and changes in working capital. Non-cash charges
for depreciation and amortization were $1.7 million. $4.7 million, and $9.4
million for 1995, 1996, and 1997, respectively, primarily as a result of the
Brink, Valley, and SportRack International acquisitions.
Cash increased to $27.3 million at December 31, 1997 from $2.5 million
at December 31, 1996 primarily as a result of borrowings of 21.0 million on
December 31, 1997 which were used to acquire Ellebi on January 2, 1998.
Accounts receivable and inventories increased $24.7 million and $13.8 million,
respectively, at December 31, 1997 as compared to December 31, 1996 of which
$18.0 million and $14.6 million, respectively, related to the Valley and
SportRack International acquisitions. The remaining increase in accounts
receivable at December 31, 1997 results from the timing of collections from
large customers, primarily OEM's. During 1998 management will focus on reducing
inventory levels, primarily within its foreign operations. Accounts payable and
accrued expenses increased $9.8 million and $7.6 million, respectively, at
December 31, 1997 as compared to December 31, 1996 of which $10.5 million and
$3.5 million, respectively, related to the Valley and SportRack International
acquisitions.
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $8.0 million and $1.1
million, respectively, at December 31, 1997. The European NOLs have no
expiration date and the Canadian NOLs expire primarily in 2004.
Investing Activities
Investing cash flows include acquisitions of property and equipment of
$2.6 million, $3.1 million, and $7.8 million in 1995, 1996 and 1997,
respectively. On a pro forma basis for 1997, capital expenditures were $10.3
million and are limited to $10.0 million for 1998 under the terms of the
Amended and Restated Credit Agreement. The Company estimates that capital
expenditures for 1998 will be primarily for the expansion of capacity,
productivity and process improvements and maintenance. The Company's 1998
capital expenditures are anticipated to 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 Amended and Restated
Credit Agreement.
Investing cash flows also include $46.0 million, $54.3 million, and
$70.9 million in 1995, 1996, and 1997, respectively, for the acquisiton of the
Predecessor (September 1995), Brink (October 1996), SportRack International and
Valley (July and August 1997, respectively).
Financing Activities
Financing cash flows include borrowings of $31.0 million, $46.1
million, and $90.5 million in 1995, 1996, and 1997, respectively for the
acquisition of the Predecessor (September 1995), Brink (October 1996),
SportRack International and Valley (July and August 1997, respectively), and
Ellebi (January 1998). Debt issuance costs in connection with such borrowings
were $1.8 million, $2.6 million and $2.6 million in 1995, 1996, and 1997,
respectively. In October 1997 the Company issued the Notes. Proceeds from the
issuance, which totaled $124.5 million, were used to reduce or eliminate
certain of the Company's outstanding senior and subordinated debt and to pay
$4.7 million in offering costs. Proceeds from the issuance of membership units
were $13.5 million, $4.6 million, and $5.0 million in 1995, 1996, and 1997,
respectively. Distributions to members, in amounts suffcient to meet the tax
liability on the Company's domestic taxable income which accrues to individual
members, were $3.7 million in 1996 and $2.9 million in 1997.
Debt and Credit Sources
Borrowings under the Company's existing credit facilities 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 the
Company's existing credit facilities, the Company will be required to make
principal payments totaling approximately $3.7 million in 1998, $4.7 million in
1999, $11.2 million in 2000, and $11.9 million in 2001. The Company is also
required to purchase and maintain interest rate protection with respect to a
portion of the term loans for three years. On October 1, 1997 the Company used a portion of the net proceeds from its
offering of $125,000,000 9 3/4% Senior SubordinatedThe Notes due 2007 (the "Notes")
to repay: (i) approximately $91.9 million outstanding under its Second Amended
and Restated Credit Agreement ("Credit Agreement Debt"), (ii) approximately
$21.4 million of senior subordinated indebtedness incurred in connection with
the Brink Acquisition ("Brink Senior Subordinated Debt") and to refinance then
existing debt and (iii) approximately $6.4 million of subordinated indebtedness
incurred in connection with the Brink Acquisition ("Brink Junior Subordinated
Debt"). The repaid Credit Agreement Debt consisted of approximately $83.1
million outstanding under the Term Loan Facilities (as defined therein) and
approximately $7.5 million outstanding under the Revolving Credit Facility (as
defined therein) incurred in connection with the Brink Acquisition and the
Valley Acquisition. The repaid Credit Agreement Debt borebear interest at rates
ranging from 8.4%9.75%
which is payable semiannually in arrears. See "Note 3" to 8.9% per annum and maturing from 1997 to 2004. The repaid
Brink Senior Subordinated Debt was paid to an affiliate of CCP and to another
institutional investor, bore interest at a rate of 12.5% per annum, matured in
October 1995 and included a prepayment penalty of $1.4 million. The Brink Junior
Subordinated Debt was paid to Brink Holding B.V., a Dutch entity owned in part
by Gerard J. Brink, a member of the Company's
Board of Managers, bore"Consolidated Financial Statements" for additional information regarding the
credit facilities.
The Company is exposed to interest at a rate of 7.0% per annum and matured in 2006. See "Financial Statements and
Supplementary Data - Notesvolatility with regard to
Consolidated Financial Statements."variable rate debt. The Company's capital expenditures were $0.5 million, $3.1 million, and $7.8
million for the years ended DecemberCompany uses interest rate swaps to reduce interest
rate volatility. At Decemebr 31, 1995, 1996 and 1997 respectively. On
a pro forma basis for 1997, capital expenditures were $10.3the notional value of interest
rate swaps was $18.5 million. Capital
expenditures for 1998 are limited to $10.0 million underUnder the Termsterms of the Amendedinterest rate swap
agreements, the Company pays a fixed interest rate on debt equal to the
notional value. The effects of interest rate swaps are reflected in
interest expense and Restated Credit Agreement. The Company estimates that capital
expenditures for 1998 will be primarily for the expansion of capacity,
productivity and process improvements and maintenance. The Company's 1998
capital expenditures are anticipated to include approximately $4.0 million for
replacing and upgrading existing equipment. The Company's ability to make
capital expenditures is subject to restrictions in its existing credit
facilities.
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $8.0 million and $1.1
million, respectively, at December 31, 1997. The European NOLs have no
expiration date and the Canadian NOLs expire primarily in 2004.not material.
The Company expects that its primary sources of cash will be from
operating activities and borrowings under its existing credit facilities.the Revolving Credit Facility. As of
December 31, 1997, the Company had an aggregate ofhas $4.7 million borrowed under its
existing credit facilitiesthe Revolving
Credit Facility and Canadian Revolving Note and has $20.3 million available
borrowing capacity. As part of the Company's existing credit facilities,Amended and Restated Credit Agreement,
Chase and NBD Bank committed to provide a $22.0 million acquisition facilityAcquisition Revolving Note
to finance acquisitions.acquisitons. On December 31, 1997, the Company borrowed $21.0
million under the revolving credit facilityAcquisition Revolving Note and used such proceeds to acquire
the net operating assets of the towbar segment of Ellebi S.p.A. on January 2,
1998. Future acquisitions, if any, may require additional third party financing
and there can be no assurances that such funds would be available on terms
satisfactory to the Company, if at all.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other 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 Company's
existing credit facilitiesAmended and Restated Credit Agreement or a successor
facility. The Company anticipates that, based on current and expected levels
of operations, its operating cash flow, together with borrowings under its existing credit facilities,the
Amended and Restated Credit Agreement, should be sufficient to meet its debt
service, working capital and capital expenditure requirements for the
foreseeableforseeable 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, (which could
include the Notes), 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"
for more information that may effect the Company's results of operations.
INTERNATIONAL OPERATIONS
15
18
INTERNATIONAL OPERATIONS
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
and, with the Ellebi Acquisition in January 1998, Italy. On a pro forma basis,
net sales from international operations during 1997 were approximately $92.7
million, or 34.5% of the Company's net sales. At December 31, 1997, on a pro
forma basis, assets associated with these operations were approximately 44.8% of
total assets, and the Company had indebtedness denominated in currencies other
than the U.S. dollar of approximately $16.7 million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency.
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 balance of these contracts as of December 31, 1997 was
not material, and the Company does not use derivative financial instruments for
trading or speculative purposes.
YEAR 2000
The Company has established an internal task force at each significant
operating subsidiary to develop and implement a plan to address Year 2000
issues, including relationships with customers and suppliers. While the
assessment is ongoing, based on currently available information the Company
believes that it will be able to resolve Year 2000 issues in a timely manner
through modification, upgrading or replacement of certain externally purchased
software to Year 2000 compliant versions and upgrading or replacing certain
machinery and equipment through normal, or in some cases accelerated,
replacement programs. The Company does not believe that the incremental cost to
resolve the Year 2000 issues will have a material impact on capital expenditures
or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards ("SFAS") No. 130 "Comprehensive Income" and No. 131,
"Disclosure about Segments of an Enterprise and Related Information" which
will require the disclosure of total comprehensive income and change the method
for determining and reporting business segment information. The Company's
components of comprehensive income will include net income from operations and
other comprehensive income, which for the Company will include foreign currency
translation adjustments. The Company operates in one business segment, however,
SFAS No. 131 will require the Company to report revenues and long-lived assets
on a country level. These statements are effective for fiscal years beginning
after December 15, 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as
a part of its ongoing business operations. Primary exposures include
fluctuations in the value of foreign currency investments in subsidiaries,
volatility in the translation of foreign currency earnings to U.S. Dollars and
movements in Federal Funds rates and the London Interbank Offered Rate (LIBOR).
The Company uses derivative financial instruments, where appropriate, to manage
these risks. The Company, as a matter of policy, does not engage in trading or
speculative transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reports of Independent Accountants........................................ 17
Consolidated Balance Sheets -- December 31, 1996 and 1997................. 19
Consolidated Statements of Operations -- Period from January 1, 1995
through September 27, 1995 for the Predecessor and Period from
September 28, 1995 through December 31, 1995, and Years Ended
December 31, 1996 and 1997 for the Company............................ 20
Consolidated Statements of Cash Flows -- Period from January 1, 1995
through September 27, 1995 for the Predecessor and Period from
September 28, 1995 through December 31, 1995, and Years Ended
December 31, 1996 and 1997 for the Company............................ 21
Consolidated Statements of Changes in Divisional and Members' Equity
-- Period from January 1, 1995 through September 27, 1995 for the
Predecessor and Period from September 28, 1995 through
December 31, 1995, and Years Ended December 31, 1996
and 1997 for the Company.............................................. 22
Notes to Consolidated Financial Statements................................ 23
16
19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in members'
equity present fairly, in all material respects, the financial position of
Advanced Accessory Systems, LLC (formerly AAS Holdings, LLC) and its
subsidiaries (the "Company") at December 31, 1996 and 1997 and the results of
their operations and their cash flows for the period from September 28, 1995
through December 31, 1995 and for the years ended December 31, 1996 and 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards 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 the opinion expressed
above.
Price Waterhouse LLP
Bloomfield Hills, Michigan
March 15, 1998
17
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the accompanying statements of income, of cash flows and of
changes in divisional equity of MascoTech Accessories (the "Predecessor"), a
division of MascoTech, Inc. present fairly, in all material respects, the
results of its operations and its cash flows for the period from January 1, 1995
through September 27, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Predecessor's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards 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 audit provides a
reasonable basis for the opinion expressed above.
The Predecessor was a division of MascoTech, Inc. and, as disclosed in Note
5 to the financial statements, had extensive transactions and relationships with
affiliated entities. Because of these relationships, the terms of these
transactions may differ from those that would result from transactions among
wholly unrelated parties.
As discussed in Note 1, on September 28, 1995, certain of the net assets of
the Predecessor were purchased by Advanced Accessory Systems, LLC (formerly AAS
Holdings, LLC). The accompanying financial statements for the period from
January 1, 1995 through September 27, 1995 do not give effect to the purchase
transaction.
Price Waterhouse LLP
Bloomfield Hills, Michigan
August 25, 1997
18
21
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
1996 1997
------ ------
(DOLLAR AMOUNTS IN
THOUSANDS
EXCEPT UNIT-RELATED
DATA)
ASSETS
Current assets
Cash..................................................... $ 2,514 $ 27,348
Accounts receivable, less reserves of $605 and $1,699,
respectively.......................................... 18,807 43,523
Inventories.............................................. 20,652 34,408
Other current assets..................................... 4,083 6,469
-------- --------
Total current assets................................ 46,056 111,748
Property and equipment, net................................ 41,828 55,928
Goodwill, net.............................................. 56,799 85,889
Intangible assets, net..................................... 2,635 7,595
Deferred income taxes...................................... 856 3,626
Other noncurrent assets.................................... 185 697
-------- --------
$148,359 $265,483
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt..................... $ 5,500 $ 3,746
Accounts payable......................................... 13,668 23,479
Accrued liabilities...................................... 11,228 18,815
Deferred income taxes.................................... 1,292 1,333
-------- --------
Total current liabilities........................... 31,688 47,373
-------- --------
Noncurrent liabilities
Deferred income taxes.................................... 4,613 3,545
Other noncurrent liabilities............................. 2,271 1,234
Long-term debt, less current maturities.................. 87,642 193,380
-------- --------
Total noncurrent liabilities........................ 94,526 198,159
-------- --------
Commitments and contingencies (Note 10)
Mandatorily redeemable warrants............................ 3,498 3,507
-------- --------
Minority interest.......................................... 184 251--
-------- --------
Members' equity
Class A Units 25,000 authorized, 15,369 and 16,27116,411
issued at December 31, 1996 and 1997, respectively......... 17,922 22,91223,163
Class B Units, 2,000 units authorized, no Units issued
at December 31, 1996 and 1997.............................. -- --
Currency translation adjustment.......................... (89) (490)
Retained earnings (deficit).............................. 630 (6,229)
-------- --------
18,463 16,19316,444
-------- --------
$148,359 $265,483
======== ========
See accompanying notes to consolidated financial statements.
19
22
ADVANCED ACCESSORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR COMPANY
------------------- ----------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
JANUARY 1, 1995 SEPTEMBER 28, 1995 DECEMBER 31,
THROUGH THROUGH --------------------------
SEPTEMBER 27, 1995 DECEMBER 31, 1995 1996 1997
------------------- ------------------ ------------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales........................... $ 48,698 $ 16,299 $81,466 $ 188,678
Cost of sales....................... 38,645 12,458 53,607 135,556
-------- -------- ------- ---------
Gross profit...................... 10,053 3,841 27,859 53,122
Selling, administrative and product
development expenses.............. 6,107 1,472 13,413 31,350
Amortization of intangible assets... -- 546 2,475 2,336
-------- -------- ------- ---------
Operating income.................. 3,946 1,823 11,971 19,436
-------- -------- ------- ---------
Other (income) expense
Interest expense.................. -- 975 4,312 12,627
Foreign currency loss............. -- -- 1,330 6,097
Other (income) expense............ 65 (22) (80) --
-------- -------- ------- ---------
Income before minority interest,
extraordinary charge and income
taxes............................. 3,881 870 6,409 712
Provision (benefit) for
income taxes ..................... 1,324 -- (491) (2,856)
-------- -------- ------- ---------
Income before minority interest and
extraordinary charge.............. 2,557 870 6,900 3,568
Minority interest................... -- 9 69 97
Extraordinary charge resulting from
debt extinguishment............... -- -- 1,970 7,416
-------- -------- ------- ---------
Net income (loss)................... $ 2,557 $ 861 $ 4,861 $ (3,945)
======== ======== ======= =========
See accompanying notes to consolidated financial statements.
20
23
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR COMPANY
------------- ----------------------------------------
PERIOD FROM
PERIOD FROM SEPTEMBER
JANUARY 1, 28, YEAR ENDED
1995 THROUGH 1995 THROUGH DECEMBER 31,
SEPTEMBER 27, DECEMBER 31, ------------------------
1995 1995 1996 1997
------------- ------------ ------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................... $ 2,557 $ 861 $ 4,861 $ (3,945)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization......... 789 890 4,689 9,360
Deferred taxes........................ -- -- (363) (3,146)
Foreign currency loss................. -- -- 1,118 5,500
Loss on disposal of assets............ -- -- 10 --
Extraordinary charge resulting from
debt extinguishment.................. -- -- 1,970 7,416
Changes in assets and liabilities
Accounts receivable................ 947 488 (118) (8,661)
Inventories........................ 133 412 (3,736) 582
Other current assets............... (569) (193) (1,742) 378
Other noncurrent assets............ (13) -- (67) (482)
Accounts payable................... 467 (1,679) 1,995 (2,719)
Accrued liabilities................ (653) 484 3,144 2,819
Other noncurrent liabilities....... 83 118 (1,913) (217)
Minority interest in consolidated
subsidiaries..................... -- 9 69 97
------- --------- -------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.................... 3,741 1,390 9,917 6,982
------- --------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of machinery and equipment.. (2,079) (491) (3,124) (7,751)
Amount due from sellers of Valley
Industries,Inc.......................... -- -- -- (1,150)
Acquisition of subsidiaries, net of cash
acquired.............................. -- (46,047) (54,339) (70,832)
------- --------- -------- ----------
NET CASH USED FOR INVESTING
ACTIVITIES.................... (2,079) (46,538) (57,463) (79,733)
------- --------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt.......... -- 30,800 88,842 215,050
Proceeds from issuance of warrants...... -- 200 3,498 --
Increase in revolving loan.............. -- 4,100 4,300 504
Extinguishment of warrants.............. -- -- (1,600) --
Repayment of debt....................... -- -- (44,628) (113,248)
Divisional activity..................... (1,666) -- -- --
Debt issuance costs..................... -- (1,815) (2,643) (7,280)
Issuance of membership units............ -- 13,500 4,562 4,999
Distributions to members................ -- -- (3,726) (2,945)
------- --------- -------- ----------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES.......... (1,666) 46,785 48,605 97,080
------- --------- -------- ----------
Effect of exchange rate changes......... -- -- (182) 505
Net increase (decrease) in cash......... (4) 1,637 877 24,834
Cash at beginning of period............. 7 -- 1,637 2,514
------- --------- -------- ----------
Cash at end of period................... $ 3 $ 1,637 $ 2,514 $ 27,348
======= ========= ======== ==========
Cash paid for interest.................. $ -- $ 746 $ 4,215 $ 8,302
======= ========= ======== ==========
Cash paid for income taxes.............. $ -- $ -- $ -- $ 581
======= ========= ======== ==========
See accompanying notes to consolidated financial statements.
21
24
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN DIVISIONAL AND MEMBERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
PREDECESSOR
-----------
DIVISIONAL
EQUITY
-----------
Balance at January 1, 1995 .............................................. $ 14,903
Net income for the period from January 1, 1995 through
September 27, 1995..................................................... 2,557
Divisional activity ..................................................... (1,666)
--------
Balance at September 27, 1995 ........................................... $ 15,794
========
- --------------------------------------------------------------------------------
COMPANY
------------------------------------------------------
CURRENCY RETAINED TOTAL
MEMBERS' TRANSLATION EARNINGS MEMBERS'
CAPITAL ADJUSTMENT (DEFICIT) EQUITY
------- ---------- --------- ------
Sale of membership interest on September 28,
1995 .......................................... $ 13,860 $ -- $ -- $ 13,860
Notes receivable for unit purchase .............. (500) -- -- (500)
-------- -------- -------- --------
13,360 -- -- 13,360
Net income for the period from September 28, 1995
through December 31, 1995 ..................... -- -- 861 861
-------- -------- -------- --------
Balance at December 31, 1995 .................... 13,360 -- 861 14,221
Issuance of additional units .................... 4,562 -- -- 4,562
Accretion of membership warrants ................ -- -- (1,400) (1,400)
Currency translation adjustment.................. -- (89) -- (89)
Net income for 1996.............................. -- -- 4,861 4,861
Distributions to members, net of minority
interest ....................................... -- -- (3,692) (3,692)
Currency translation adjustment ................. -- (89) -- (89)
Net income for 1996 ............................. -- -- 4,861 4,861
-------- -------- -------- --------
Balance at December 31, 1996 .................... 17,922 (89) 630 18,463
Issuance of additional units .................... 4,9995,250 -- -- 4,9995,250
Accretion of membership warrants ................ (9) -- -- (9)
Currency translation adjustment.................. -- (401) -- (401)
Net (loss) for 1997.............................. -- -- (3,945) (3,945)
Distributions to members, net of minority
interest ....................................... -- -- (2,914) (2,914)
Currency translation adjustment ................. -- (401) -- (401)
Net (loss) for 1997 ............................. -- -- (3,945) (3,945)
-------- -------- -------- --------
Balance at December 31, 1997 .................... $ 22,91223,163 $ (490) $ (6,229) $ 16,19316,444
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
22
25
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 (formerly AAS Holdings, LLC) (the "Company")
is engaged in the design, manufacture and supply of towing and rack systems and
accessories for the automotive original equipment manufacturer ("OEM") market
and the automotive aftermarket. The Company's business commenced on September
28, 1995, with the acquisition of certain of the net assets of MascoTech
Accessories (the "Predecessor"), a division of MascoTech, Inc., through the
Company's majority-owned subsidiary, SportRack, LLC. As described in Note 2, in
October 1996 the Company acquired Brink B.V. and in July and August of 1997
acquired the SportRack division of Bell Sports Corporation, Nomadic Sports, Inc.
and Valley Industries, Inc.
The Company has two significant customers in the automotive OEM industry.
Sales to these customers represented 62% and 22%, for the period from January 1,
1995 through September 27, 1995 for the Predecessor; 72% and 22% for the period
from September 28, 1995 through December 31, 1995, 60% and 21% for the year
ended December 31, 1996 and 29% and 13% for the year ended December 31, 1997 for
the Company. Accounts receivable from these customers represented 57% and 24% of
the Company's trade accounts receivable at December 31, 1996, and 33% and 8% at
December 31, 1997, 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, 1997. Consistent with industry
practice, the Company does not require collateral to reduce such credit risk.
BASIS OF PRESENTATION
The financial statements for the period from January 1, 1995 through
September 27, 1995 are those of the Predecessor.
The consolidated financial statements as of December 31, 1996 and 1997, for
the period from September 28, 1995 through December 31, 1995 and for the years
ended December 31, 1996 and 1997 are those of the Company and its subsidiaries.
The financial statements of the Company and the Predecessor are not comparable
in certain respects due to differences between the cost bases of certain assets
held by the Company versus that of the Predecessor, resulting in increased
depreciation and amortization charges subsequent to September 27, 1995, changes
in accounting policies and the recording of certain liabilities at the date of
acquisition in connection with the purchase of the Predecessor by the Company,
as well as the Company's acquisitions as discussed further in Note 2.
PRINCIPLES OF CONSOLIDATION
The Company includes the accounts of the following:
SportRack, LLC................ 99%100% owned by Advanced Accessory Systems, LLC
and
1% owned by Chase Capital Partners
SportRack Automotive GmbH.....GmbH... A German corporation, 100% owned by SportRack,
LLC
SportRack International, Inc..Inc. A Canadian corporation, 100% owned by SportRack,
LLC
AAS Holdings, Inc............. 100% owned by Advanced Accessory Systems, LLC
Brink International B.V..... 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.
23
26
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)
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.
CHANGE IN ESTIMATE
On a periodic basis, the Company reviews the estimated useful lives of its
long-lived assets. In connection with the Company's most recent review, the
Company determined that the remaining period of benefit relating to its goodwill
from the SportRack, LLC and Brink acquisitions was 29 years. Based upon the
Company's assessment of the period of benefit as well as the amortization
periods utilized by other companies operating within the automotive industry,
the Company began amortizing the unamortized value of its goodwill at January 1,
1997 over a remaining 29 year period. The changes in the amortization period
resulted in a decrease in amortization expense of approximately $2,080 for the
year ended December 31, 1997.
FINANCIAL INSTRUMENTS
Financial instruments at December 31, 1996 and 1997, 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, 1996 and 1997.
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate (LIBOR). The Company uses derivative
financial instruments, where appropriate, to manage these risks. The Company, as
a matter of policy, does not engage in trading or speculative transactions.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date; translation adjustments are reported as a separate component of
members' equity. Revenues, expenses and cash flows for foreign subsidiaries are
translated at average exchange rates during the period; foreign currency
transaction gains and losses are included in current earnings. The accompanying
consolidated statement of operations for the years ended December 31, 1996 and
1997 includes net currency losses of $1,330 and $6,097 relating primarily to
debt at Brink International B.V., which is denominated in U.S. dollars.
24
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 -- (CONTINUED)
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.
CUSTOMER TOOLING
The Company incurs costs to develop new tooling used in the manufacture of
products sold to OEM's. In certain instances, the tooling becomes the property
of the OEM and the Company is reimbursed by the OEM for the cost of the tooling,
or in certain instances, recovers all or a portion of such costs through
incremental increases in unit selling prices. Management makes periodic
estimates of the total costs to be incurred for customer tooling projects and
makes provisions for tooling costs which will not be recovered, if any, when
such amounts are known. Actual costs have not been materially diffrent from
estimated amounts. Customer tooling in-process is included in other current
assets in the accompanying consolidated balance sheets.
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 is
computed using the straight-line method over the following estimated useful
lives:
YEARS
------------------------
PREDECESSOR COMPANY
----------- -------
Buildings and improvement ......................... 10-40 5-50
Machinery, equipment and tooling .................. 3-15 2-10
Furniture and fixtures ............................ 10 5-7
GOODWILL AND INTANGIBLE ASSETS
Goodwill of $56,799 and $85,889 (net of accumulated amortization of $3,021
and $5,251) at December 31, 1996 and 1997, respectively, represents the costs in
excess of net assets acquired and was amortized using the straight line method
over 15 years in 1996. Due to a change in accounting estimate, the Company began
amortizing goodwill over a remaining 29 year period in 1997.
Debt issuance costs of $2,635 and $6,467, net of accumulated amortization at
December 31, 1996 and 1997, respectively, are amortized over the terms of the
loan agreements, which are six to ten years. Debt issuance cost amortization of
$60, $212 and $551 for 1995, 1996 and 1997, respectively, has been included in
interest expense.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by the company be reviewed 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 cash flows to be generated by the assets to
their carrying value. Management believes that there are no impairments as of
December 31, 1996 and 1997.
25
28
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. No distributions were made in the period from September
28, 1995 through December 31, 1995. Distributions to members, net of minority
interest, of $3,692 and $2,914 were made during 1996 and 1997, 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. 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 income. Deferred taxes related to Michigan Single Business Tax are
provided on the temporary differences resulting from capital acquisitions and
depreciation.
Prior to September 28, 1995, the Predecessor was a division of a C
corporation. In preparing its financial statements, the Predecessor has
determined its tax provision substantially on a separate return basis in
accordance with the provisions of Statement of Accounting Standards No. 109,
"Accounting for Income Taxes".
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed as incurred and
aggregated approximately $1,993 for the period from January 1, 1995 through
September 27, 1995 for the Predecessor, $672 for the period from September 28,
1995 through December 31, 1995 and $3,548 and $5,860 for the years ended
December 31, 1996 and 1997, respectively, for the Company.
RECLASSIFICATIONS
Certain amounts from the 1996 financial statements have been reclassified to
conform with the 1997 financial statement presentation.
2. ACQUISITIONS
Acquisitions of the Company from inception through December 31, 1997 are as
follows:
PURCHASE GOODWILL
ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED
---------------- ---------------- ----- --------
Predecessor ........................... September 28, 1995 $46,050 $32,781
Brink B.V ............................. October 30, 1996 54,339 27,730
SportRack Division of Bell Sports ..... July 2, 1997 13,505 1,198
Nomadic Sports, Inc. .................. July 24, 1997 849 433
Valley Industries, Inc. ............... August 5, 1997 56,478 32,891
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 market 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.
26
29
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
2. ACQUISITIONS -- (CONTINUED)
Predecessor
SportRack, LLC (formerly "Predecessor") is a designer, manufacturer and
distributor of rack systems and accessories to the automotive OEM market and
aftermarket. The Company was acquired from MascoTech, Inc. through an Asset
Purchase Agreement (the "Agreement") which contains indemnification provisions
relating to certain business activities prior to September 28, 1995.
Brink B.V.
The Company acquired all of the outstanding shares of Brink B.V. ("Brink"),
a designer, manufacturer and distributor of towing systems and related products
in Europe. The purchase price of $54,339, including acquisition costs, was
comprised of $45,801 of cash and a 12,500 Junior Subordinated Note ($7,340),
denominated in Dutch guilders, to Brink Holdings, B.V. Through a statutory
reorganization, the operations of Brink B.V. were transferred to Brink
International B.V.
SportRack Division of Bell Sports and Nomadic Sports, Inc.
The Company acquired the nets assets of the SportRack Division of Bell
Sports and the outstanding shares of Nomadic Sports, Inc. (together SportRack
International, Inc.), which are designers, manufacturers and distributors of
rack systems and accessories to the OEM market and automotive aftermarket in
Canada and the U.S.
Valley Industries, Inc.
The Company acquired the net assets of Valley Industries, Inc. ("Valley"),
which is a North American supplier of towing systems and related products to the
automotive OEM market and aftermarket.
Pro Forma Data
The following unaudited pro forma consolidated results of operations have
been prepared as if the Valley and SportRack International, Inc. acquisitions
had occurred on January 1, 1996.
1996 1997
--------- ---------
Net sales ..................................... $ 233,480 $ 246,669
Income before extraordinary charge ............ 2,724 1,319
Net income (loss) ............................. 754 (6,097)
The pro forma data is not intended to be a projection of future results.
The pro forma data included above includes adjustments to historical results
of operations for increased depreciation expense, intangible asset amortization
and interest expense, net of the related tax benefits.
27
30
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, ---------------------
1997 1996 1997
-------------- ---------- ----------
Senior Subordinated Notes, less discount of
$464...................................... 9.75% $ -- $124,536
Second Amended and Restated Credit Agreement
(U.S. Credit Facility)
Term note A............................ 8.66% 65,000 17,065
Term note B............................ 9.02% -- 15,883
Revolving line of credit note.......... 9.50% 4,300 1,900
Acquisition revolving note............. 10.25% -- 21,000
First Amended and Restated Credit Agreement
(Canadian Credit Facility)
Canadian term note..................... 7.50% -- 13,952
Canadian revolving line of credit note. 7.50% -- 2,790
Senior Subordinated Loans, less discount of
$3,498.................................... 16,502 --
Junior Subordinated Note.................... 7,340 --
-------- --------
93,142 197,126
Less-- current portion...................... 5,500 3,746
-------- --------
$ 87,642 $193,380
======== ========
In connection with the acquisition of Valley on August 5, 1997, as described
in Note 2, the Company borrowed $55,000, under its Second Amended and Restated
Credit Agreement ("U.S. Credit Facility"), Term note B. In July 1997, the
Company borrowed C$20,000 ($13,952 at December 31, 1997) under its First Amended
and Restated Credit Agreement ("Canadian Credit Facility") to purchase SportRack
International, Inc.
On October 1, 1997 the Company together with its subsidiary, AAS Capital
Corporation, issued $125,000 in Senior Subordinated Notes (the "Notes"). The
proceeds of the offering totaling $124,529, net of discount, were used to reduce
or repay outstanding debt including borrowings under the U.S. Credit Facility,
the Senior Subordinated Loans and the Junior Subordinated Note, and to pay costs
of the transaction totaling $4,950.
SENIOR SUBORDINATED NOTES
Borrowings under 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. In addition, at any time the Company may
redeem up to 35% of the aggregate principal amount of the Notes with the net
cash proceeds of one or more public equity offerings at a redemption price equal
to 109.75% of the principal amount to be redeemed. Upon the occurrence of a
change of control of the Company, as defined by the indenture, the Company is
required to make an offer to repurchase the Notes at a price equal to 101% of
the principal amount of the notes. The indenture places certain limits on the
Company, the most restrictive of which include, the incurrence of additional
indebtedness by the Company, the payment of dividends on, and redemption of
capital of the Company, the redemption of certain subordinated obligations,
investments, sales of assets and stock of certain subsidiaries, transactions
with affiliates, consolidations, mergers and transfers of all or substantially
all of the Company's assets. The indenture also requires the Company to file a
registration statement during 1998 with respect to an offer to exchange the
Notes for a series of notes of the Company with terms substantially identical to
the Notes. Interest on the Notes is payable semi-annually in arrears on April 1
and October 1 of each year.
28
31
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
3. LONG-TERM DEBT -- (CONTINUED)
SECOND AMENDED AND RESTATED CREDIT AGREEMENT (U.S. CREDIT FACILITY)
The company's U.S. Credit Facility, which is administrated by the First
Chicago NBD Bank ("NBD") 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. A mandatory
prepayment of the term notes was made on October 1, 1997 as a result of the
issuance of the Company's Notes. Additionally, mandatory prepayments of the term
notes are required in the event of sales of assets meeting certain criteria, as
set forth by the agreement, or based upon periodic calculations of excess cash
flows, as defined by the agreement.
The agreement provides for two term notes (Term note A and Term note B), a
revolving line of credit note and an acquisitions revolving note. Loans under
each of the term notes and the revolving note can be converted, at the election
of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans.
Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in
one, two, three or six months on Eurocurrency Loans, as determined by the length
of the Eurocurrency Loan, as selected by the Company. Interest is charged at an
adjustable rate plus the applicable margin. The applicable margin is based upon
the Company's Senior Debt Ratio, as defined by the Credit Agreement.
Eurocurrency Loans can be made in U.S. dollars or certain other currencies, at
the option of the Company. The agreement also provides for a Letter of Credit
Facility. At December 31, 1997, no letters of credit were outstanding.
Term note A
On October 30, 1996 the Company borrowed $65,000 under Term note A. The
applicable margin for Term note A ranges from .5% to 1.75% for Base Rate Loans
and from 1.5% to 2.75% for Eurocurrency Loans. Repayments under the note, after
giving effect to the mandatory prepayment totaling $43,475 made on October 1,
1997 as discussed above, are required in the following installments:
QUARTERLY
---------
March 31, 1998 through September 30, 1998 ........................ $441
December 31, 1998 through September 30, 1999 ..................... 552
December 31, 1999 through September 30, 2000 ..................... 736
December 31, 2000 through June 30, 2003 .......................... 883
Final installment on October 30, 2003 ............................ 877
Term note B
On August 5, 1997, the Company borrowed $55,000 under Term note B. The
applicable margin for Term B note ranges from 1.0% to 2.25% for Base Rate Loans
and from 2.0% to 3.25% for Eurocurrency Loans. Repayments under Term note B,
after giving effect to the mandatory prepayment totaling $39,044 made on October
1, 1997, as discussed above, are required in the following installments:
March 31, 1998 through September 30, 2003 (quarterly) ............. $ 73
December 31, 2003 ................................................. 2,912
March 30, 2004, June 30, 2004 and October 30, 2004 ................ 3,764
29
32
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 receivables and 80% of certain eligible foreign accounts receivables.
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. A commitment fee of
.375% to .5% is charged on the unused balance based on the Company's Senior
Leverage Ratio, as defined. At December 31, 1997, $20,300 was available under
the facility.
Acquisition revolving note
On December 31, 1997, the Company borrowed $21,000 under its $22,000
acquisition revolving note. The proceeds are included in cash at December 31,
1997 and were used to acquire the assets of the towbar segment of Ellebi S.p.A
on January 2, 1998, as discussed further in Note 12. The note is available to
the Company on a revolving credit basis until September 24, 1999 at which time
the outstanding principal balance will convert to a term loan which will
amortize in sixteen equal quarterly installments with a final maturity of
October 30, 2003. The applicable margin for the acquisition revolving note
ranges from .5% to 1.75% for Base Rate Loans and from 1.0% to 2.75% for
Eurocurrency Loans. A commitment fee of .375% to .5% is charged on the unused
balance based on the Company's Senior Leverage Ratio, as defined. At December
31, 1997, the acquisition revolving note was a Base Rate Loan with interest
accruing at the rate of 10.25% per annum. On January 1, 1998, the Company
converted the Loan to a Eurocurrency Loan with an interest rate of 8.46%.
FIRST AMENDED AND RESTATED CREDIT AGREEMENT (CANADIAN CREDIT FACILITY)
The Company's First Amended and Restated Credit Agreement, which is
administered by the NBD and Chase, is secured by substantially of all the assets
of the Company's Canadian subsidiaries.
The agreement provides for a C$20,000 term note and a C$4,000 revolving
note, (U.S. $13,952 and U.S. $2,790) at December 31, 1997, 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 agreement and ranges from .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, 1998 through September 30, 1998 ........................ $373
December 31, 1998 through September 30, 1999 ..................... 459
December 31, 1999 through September 30, 2000 ..................... 602
December 31, 2000 through June 30, 2003 .......................... 716
Final installment on October 30, 2003 ............................ 717
Canadian revolving line of credit note
A commitment fee of .5% is charged on the unused balance of the Canadian
revolving line of credit note. At December 31, 1997, no additional borrowings
were available under the facility.
30
33
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 CB
Capital and International Mezzanine. The Senior Subordinated Loans were repaid
in full on October 1, 1997 with the proceeds of the Notes discussed above.
Interest on the Senior Subordinated Loans was payable in arrears semiannually
and accrued at a rate of 12.5% per annum. The Senior Subordinated Loans provided
for a prepayment penalty if the Senior Subordinated Loans were paid prior to
October 30, 2002. Under this provision, a prepayment penalty totaling $1,400 was
paid in 1997 and is included in the extraordinary charge resulting from debt
extinguishment.
In connection with the issuance of the Senior Subordinated Loans, the
Company issued warrants to purchase 1,002 membership units. The warrants have an
exercise price of one cent per warrant, are exercisable immediately, and expire
October 30, 2004. As provided in the Warrant Agreement, the warrant holder can
put the warrants and membership Units acquired through the exercise of the
warrants back to the Company after October 30, 2001 or upon occurrence of a
Triggering Event, as defined, but prior to the earlier of October 30, 2004 or
the consummation of a Qualified Public Offering for an amount equal to Fair
Market Value, as defined. Additionally, as provided in the Warrant Agreement,
the Company may call the warrants and membership Units acquired through the
exercise of the warrants at any time after the sixth anniversary of the Closing
Date, but prior to the earlier of October 30, 2004 or a Qualified Public
Offering for an amount equal to Fair Market Value, as defined.
At the date of issuance, the proceeds from the Senior Subordinated Loans
were allocated between the Senior Subordinated Loans and the warrants based upon
their estimated relative fair market value; accordingly, the Senior Subordinated
Loans were recorded at a discount of $3,498, which was partially amortized prior
to repayment on October 1, 1997. The remaining unamortized balance of $3,145 was
charged to 1997 operations as part of the extraordinary charge resulting from
debt extinguishment.
The warrants are being accreted to their redemption value through periodic
charges against Members' Equity through the earlier of October 30, 2001 or the
time redemption first becomes available. Thereafter the warrants will be
recorded at redemption value. The aforementioned warrants have been presented as
mandatorily redeemable warrants in the accompanying balance sheets.
JUNIOR SUBORDINATED NOTE
On October 30, 1996, the Company issued a 12,500 Junior Subordinated Note
("Junior Note"), denominated in Dutch guilders, to Brink Holdings B.V. as part
of the consideration paid for the purchase of Brink B.V. The Junior Note was due
April 30, 2005, but was repaid in full on October 1, 1997 with the proceeds of
the Notes discussed above. The Junior Note accrued interest at a rate of 7% per
annum, payable semi-annually in arrears.
EXTINGUISHMENT OF DEBT
1997 Extinguishments
As discussed above, on October 1, 1997 the Company repaid, in full, its
Senior Subordinated Loans and Junior Note and prepaid a portion of the term
notes under the U.S. Credit Facility. In connection with this extinguishment,
the Company recorded an extraordinary charge of $7,416, net of a tax benefit of
$365. The extinguishment charge is comprised of $1,400 prepayment penalties,
$3,145 of unamortized debt discount and $3,236 of unamortized debt issuance
costs.
31
34
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
3. LONG-TERM DEBT -- (CONTINUED)
1996 Extinguishments
On October 30, 1996, the Company prepaid all amounts outstanding under a
$30,000 credit agreement and a prior $11,000 senior subordinated loan agreement.
In connection with these extinguishments, the Company recorded an extraordinary
charge of $1,970. The extinguishment charge is comprised of prepayment penalties
totaling $220, unamortized debt discount totaling $150 and debt issuance costs
of $1,600.
In connection with the issuance of the prior senior subordinated loan, the
Company issued warrants to purchase 617 membership units. The proceeds from the
issuance were allocated based on the estimated relative fair market values;
accordingly, the notes were recorded at a discount of $200. As part of the
extinguishment of the prior senior subordinated loan, the Company paid $1,600 to
redeem the warrants.
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to variable
rate debt. The Company uses interest rate swaps to reduce interest rate
volatility. At December 31, 1996 and 1997, the notional value of interest rate
swaps was $18,500. Under the terms of the interest rate swap agreements, the
Company pays a fixed interest rate on debt equal to the notional value. The
effects of interest rate swaps are reflected in interest expense.
SCHEDULED MATURITIES
The aggregate scheduled annual principal payments due in each of the years
ending December 31, is as follows:
1998 .................................................... $ 3,746
1999 .................................................... 4,661
2000 .................................................... 11,153
2001 .................................................... 11,938
2002 and thereafter ..................................... 166,092
--------
197,590
Less-- discount ......................................... 464
--------
$197,126
========
32
35
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. INCOME TAXES
The Company's C corporation subsidiaries, taxable foreign subsidiaries and
the Predecessor 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, income taxes and the pre-tax
charge resulting from debt extinguishment were attributable to the following
sources:
PREDECESSOR COMPANY
------------- ----------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, SEPTEMBER 28, YEAR ENDED
1995 THROUGH 1995 THROUGH DECEMBER 31,
SEPTEMBER 27, DECEMBER 31, -----------------------
1995 1995 1996 1997
------------- ------------- ------- --------
United States ........ $ 3,881 $ 870 $ 6,283 $ 2,872
Foreign .............. -- -- (1,844) (9,941)
------- ------- ------- -------
$ 3,881 $ 870 $ 4,439 $(7,069)
======= ======= ======= =======
The provision (benefit) for income taxes, including $365 of income tax
benefit allocated to the extraordinary charge in 1997, is comprised of the
following:
PREDECESSOR COMPANY
------------------- -----------------------
PERIOD FROM YEAR ENDED
JANUARY 1, 1995 DECEMBER 31,
THROUGH -----------------------
SEPTEMBER 27, 1995 1996 1997
------------------- -----------------------
Currently payable (refundable)
United States ...................... $ 1,234 $ -- $ --
Foreign ............................ -- (128) 290
------- ------- -------
1,234 (128) 290
------- ------- -------
Deferred
United States ...................... 90 -- --
Foreign ............................ -- (363) (3,511)
------- ------- -------
90 (363) (3,511)
------- ------- -------
$ 1,324 $ (491) $(3,221)
======= ======= =======
The effective tax rates differ from the U.S. federal income tax rate as
follows:
PREDECESSOR COMPANY
------------------- ----------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
JANUARY 1, SEPTEMBER 28, DECEMBER 31,
1995 THROUGH 1995 THROUGH ------------------------
SEPTEMBER 27, 1995 DECEMBER 31, 1995 1996 1997
------------------- ------------------- -------- --------
Income tax provision (benefit) at U.S.
statutory rate (35%) ............... $ 1,358 $ 305 $ 1,554 $(2,474)
U. S. income taxes attributable to
members ............................ -- (305) (2,200) (1,005)
Nondeductible foreign goodwill ....... -- -- 102 229
Other, net ........................... (34) -- 53 29
------- ------- ------- -------
$ 1,324 $ -- $ (491) $(3,221)
======= ======= ======= =======
33
36
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
4. INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities, related primarily to the Company's
foreign subsidiaries, comprise the following:
DECEMBER 31,
-------------------------
1996 1997
---- ----
DEFERRED TAX ASSETS
Net operating loss carryforwards .................. $ 608 $ 3,255
Fixed assets ...................................... 248 296
Other ............................................. -- 75
------- -------
856 3,626
------- -------
DEFERRED TAX LIABILITIES
Fixed assets ...................................... (4,282) (3,296)
Inventory ......................................... (1,292) (1,244)
Employee benefits and other ....................... (331) (176)
Other ............................................. -- (162)
------- -------
(5,905) (4,878)
------- -------
Net deferred tax (liability) ..................... $(5,049) $(1,252)
======= =======
The net operating loss carryforwards of the Company's European subsidiaries
approximate $8,000 at December 31, 1997 and have no expiration date. The net
operating loss carryforwards of the Company's Canadian subsidiaries approximate
$1,100 at December 31, 1997 and expire primarily in 2004. Management believes
that it is more likely than not that the related deferred tax assets will be
realized and no valuation allowance has been provided against such amounts as of
December 31, 1997. If certain substantial changes in the Company's ownership
should occur, there could be an annual limit on the amount of the carryforwards
which can be utilized.
5. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
In connection with the acquisition of Brink B.V., the Company entered into
the Junior Note Agreement, with Brink Holdings B.V., as described in Note 3 to
the financial statements. Concurrent with this acquisition, owners of Brink
Holdings B.V. purchased 1,230 membership units of the Company for cash of $4,286
($3,485 per unit).
A portion of the Company's U.S. Credit Facility and $20,000 Senior
Subordinated Loans, as described in Note 3, is with Chase and CB Capital
Investors, Inc., respectively, affiliates of certain members of the Company.
Effective December 31, 1997 CB Capital Investors, Inc. (an affiliate of
CCP), a majority owner of the Company, exchanged its one percent interest of
SportRack, L.L.C. for 140 Class A Units of the Company.
Charges to operations related to consulting services provided to the Company
by certain members of the Company aggregated approximately $70 for the period
from September 28, 1995 through December 31, 1995, $243 and $350 for the years
ended December 31, 1996 and 1997, respectively.
Certain employees of the Company are also members of the Company.
The Predecessor was a division of MascoTech, Inc. Accordingly, certain
corporate and divisional general and administrative costs were allocated to the
Predecessor from MascoTech, Inc. and certain of its subsidiaries. Allocated
costs include insurance, pensions, profit sharing, accounting and finance,
information systems and corporate overhead costs. Corporate overhead costs
relate to such functions as the corporate office, executive management, investor
relations and legal. Allocated costs, other than corporate overhead, were
charged to the division generally using an effort-based approach or based on the
division's actual experience or headcount, depending upon the nature of the
cost. Allocated corporate overhead costs were charged to the division based
primarily on divisional sales. Corporate overhead costs allocated to the
Predecessor aggregated approximately $1,000 for the period from January 1, 1995
through September 27, 1995.
It was MascoTech, Inc.'s policy not to charge the Predecessor interest on
the intercompany balance.
Management believes that the methods utilized to allocate costs to the
division, as discussed above, are reasonable. However, the terms of transactions
between the division and MascoTech, Inc., including allocated costs, may differ
from those that would result from transactions with unrelated parties.
34
37
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
6. OPTION PLAN
At September 28, 1995, the Company adopted the 1995 Option Plan (the
"Plan"). Under the Plan, certain directors and employees of the Company and its
subsidiaries may be granted options to purchase membership units (limited to up
to a total of 3,525 units as of December 31, 1996 and 3,903 units as of December
31, 1997). Of the options granted, 2,925 were granted in 1995, 600 were granted
in January 1996 and 378 were granted in 1997. All options granted in 1995 and
the January 1996 options were granted at an exercise price of $1,000, which
equaled the fair value of a membership unit on the date of grant. Of the options
granted in 1997, 178 were granted at an exercise price of $5,610 and 200 were
granted at an exercise price of $5,000, both of which exceeded the fair value of
a membership unit on the date of grant. Of the total options granted, 275 vest
based upon the results of a Liquidity Event, as defined in the plan, and 739
vest based upon the achievement of certain operating results of the Company. The
remaining options granted under the Plan vest over periods, generally up to ten
years, as determined by the Option Committee. The vesting can be accelerated in
certain instances based on the future operating results of the Company, or the
occurrence of a Liquidity Event, as defined in the Plan. At December 31, 1996
and 1997, 480 units and 938 units, respectively, were exercisable by their
terms. There were no options available for future grant at December 31, 1997. No
options were exercised, cancelled or expired during the period from September
28, 1995 through December 31, 1995 or for the years ended December 31, 1996 and
1997.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) in accounting for stock options.
Compensation cost was $332 and $263 for the years ended December 31, 1996 and
1997, respectively. If compensation cost had been determined based upon the fair
value method in accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the pro forma net income (loss)
from September 28, 1995 through December 31, 1995 and for the years ended
December 31, 1996 and 1997 would not have been materially different than that
calculated under the provisions of APB 25. For pro forma purposes, the fair
value of each stock option grant was estimated using the Black-Scholes option
pricing model with the following assumptions: weighted average risk free
interest rates of 6.33%, 6.21%, and 6.12% for the period from September 28, 1995
through December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively, an expected option life of eight years and no cash dividends.
7. PENSION PLAN
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 plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31, 1996 and
1997.
DECEMBER 31,
--------------------------
1996 1997
--------- ----------
Actuarial present value of:
Vested benefit ............................... $ 1,417 $ 1,731
Nonvested benefit obligation ................. 220 198
------- -------
Accumulated benefit obligation ............... $ 1,637 $ 1,929
======= =======
Projected benefit obligation ................. $ 1,637 $ 1,929
Plan assets at fair value .................... (1,308) (1,586)
Unrecognized net gain ........................ 166 122
------- -------
Unfunded pension liability ................... $ 495 $ 465
======= =======
35
38
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
7. PENSION PLAN -- (CONTINUED)
The components of the Company's domestic pension expense are as follows:
DECEMBER 31,
---------------------
1996 1997
-------- -------
Benefits earned during the year .................... $ 76 $ 76
Interest on projected benefit obligation ........... 118 124
Actual return on plan assets ....................... (100) (303)
Net amortization, deferral, and other .............. (13) 174
----- -----
Net periodic domestic pension cost ................. $ 81 $ 71
===== =====
The weighted average discount rate used in determining the actuarial present
value of the accumulated benefit obligation was 7.75% and 7.00% at December 31,
1996 and 1997, respectively. The expected long-term rate of return on plan
assets was 9.00% at December 31, 1996 and 1997.
Net periodic pension cost for 1995 was approximately $100, of which $75 was
included in the operations of the Predecessor for the period from January 1,
1995 through September 27, 1995.
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 $130 and $229
in 1996 and 1997, 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 $118 and $660 for the two-month period from November
1, 1996 through December 31, 1996 and for the year ended December 31, 1997,
respectively.
8. OPERATING LEASES
The Company leases certain equipment under leases expiring on various dates
through 2004. Future minimum annual lease payments required under leases that
have a noncancellable lease term in excess of one year at December 31, 1997 are
as follows:
1998 ..................................................... $1,996
1999 ..................................................... 1,500
2000 ..................................................... 1,066
2001 ..................................................... 770
2002 ..................................................... 474
2003 and thereafter ...................................... 118
------
$5,924
======
Rental expense charged to operations was approximately $434 for the period
from January 1, 1995 through September 27, 1995 for the Predecessor and $34 for
the period September 28, 1995 through December 31, 1995 and $669 and $2,252 for
the years ended December 31, 1996 and 1997, respectively for the Company.
36
39
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
9. ACCOUNT BALANCES
Account balances included in the consolidated balance sheets are comprised
of the following:
DECEMBER 31,
------------------------
1996 1997
---- ----
INVENTORIES
Raw materials .................................... $ 3,474 $ 13,744
Work-in-process .................................. 7,715 5,040
Finished goods ................................... 9,463 15,624
-------- --------
$ 20,652 $ 34,408
======== ========
PROPERTY AND EQUIPMENT
Land, buildings and improvements ................. $ 18,531 $ 20,966
Furniture, fixtures and computer hardware ........ 3,417 8,930
Machinery, equipment and tooling ................. 20,565 32,458
Construction-in-progress ......................... 1,582 1,985
-------- --------
44,095 64,339
Less-- accumulated depreciation .................. (2,267) (8,411)
-------- --------
$ 41,828 $ 55,928
======== ========
ACCRUED LIABILITIES
Compensation and benefits ........................ $ 5,398 $ 8,900
Interest ......................................... 60 3,154
Income taxes ..................................... 1,300 646
Other taxes ...................................... 417 478
Other ............................................ 4,053 5,637
-------- --------
$ 11,228 $ 18,815
======== ========
10. COMMITMENTS AND CONTINGENCIES
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.
37
40
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
11. SEGMENT INFORMATION
The Company operates in one industry segment and all sales are to
unaffiliated customers. Revenues and operating income by geographic area,
accumulated by the countrygeographic area where the revenue originated, and
long-livedidentifiable assets which include net property
and equipment and net goodwill and debt issuance costs, by geographic area are as follows:
PREDECESSOR COMPANY
------------- ------------------------------------
PERIOD FROM PERIOD FROM
JANUARYPredecessor Company
----------- ----------------------------------
Period from Period from
January 1, SEPTEMBERSeptember 28, YEAR ENDEDYear Ended
1995 THROUGHthrough 1995 THROUGH DECEMBERthrough December 31,
SEPTEMBERSeptember 27, DECEMBERDecember 31, --------------------------------------
1995 1995 1996 1997
------------ ------------- ------------ -------- ------------ ----
Revenues
United States ........ $ 48,698 $ 16,299and Canada.................................. $48,698 $16,299 $ 73,895 $122,294
The Netherlands ...... -- -- 2,791 36,268
Other foreign ........ -- -- 4,780 30,116$124,769
Europe.................................................... - - 7,571 63,909
------- ------- -------- --------
$48,698 $16,299 $ 81,466 $188,678
======= ======= ======== ========
Operating income
United States and Canada.................................. $ 3,946 $ 1,823 $ 12,383 $ 14,422
Europe.................................................... - - (412) 5,014
------- ------- -------- --------
$ 48,6983,946 $ 16,2991,823 $ 81,466 $188,67811,971 $ 19,436
======= ======= ======== ========
======== ========
DECEMBERYear Ended
December 31,
--------------------------------------------
1996 1997
---- ----
Long-livedIndentifiable assets $ 62,011 $169,065
United States .................... $ 45,460 $ 94,931
The Netherlands .................. 39,712 32,508
Other foreign .................... 16,090 20,845and Canada..................................
Europe.................................................... 86,348 96,418
-------- --------
$101,262 $148,284$148,359 $265,483
======== ========
38
41
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
12. SUBSEQUENT EVENT (UNAUDITED)
In January 1998, the Company through Brink International B.V., acquired the
net assets of the towbar segment of Ellebi S.p.A. for an aggregate purchase
price of approximately $22,000, including estimated costs of the transaction.
Ellebi S.p.A. is a manufacturer and distributor of towing systems to the
automotive OEM market and aftermarket. The acquisition will be accounted for
under the purchase method of accounting. The excess of the aggregate purchase
price over the estimated fair market value of the net assets acquired was
approximately $3,250. The acquisition was financed primarily through the
Company's Acquisition revolving note.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. for an aggregate purchase price
of approximately $1,100, including estimated costs of the transaction.
Transfo-Rakzs is a designer, manufacturer and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S. The acquisition
will be accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the estimated fair market value of the net assets
acquired was approximately $900.
13. CONDENSED CONSOLIDATING INFORMATION
The Notes have been issued by the Company and its wholly-owned subsidiary,
AAS Capital Corporation and are guaranteed jointlyon a full and severally,unconditional and
joint and several basis, by all of the Company's wholly-owned domestic
subsidiaries. The following condensed consolidating financial information for
1997 presents the financial position, results of operations and cash flows of
(i) the Company as parent, together withas if it accounted for its subsidiaries on the
equity method, and AAS Capital Corporation as issuers; (ii) guarantor
subidiaries which are domestic, subsidiaries;wholly-owned subidiaries and (ii)include SportRack
LLC, AAS Holdings, Inc., Valley Industries, LLC, and Valteck LLC; and (iii)
the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries as non-guarantor subsidiaries.and
include Brink International B.V., SportRack International, Inc., and SportRack
Automotive GmbH. The financial position and operating results of the
non-guarantor subsidiaries do not include any allocation of overhead or similar
charges except that certain foreign subsidiaries are charged interest on their
intercompany debt balance. TheSeparate financial statements of the guarantor
subsidiaries are not presented because management has determined that the
separate financial statements are not material to investors. Since its
formation in September 1997, AAS Capital Corporation has had no operations and
has no assets or liabilities at December 31, 1997.
Guarantor subsidiaries for 1995 include SportRack LLC and AAS Holdings, Inc.
and their financial statements are those of the Company acquiredand the Predecessor.
Guarantor subsidiaries for 1996 include SportRack LLC and AAS Holdings, Inc.
and their financial statements are substantially those of the Company and
include Brink, a non-guarantor subsidiary onacquired October 30, 1996. ConsolidatedThe 1996
consolidated results of operations for 1996 include Brink for the two months ended
December 31, 1996 and reflect Brink's net sales of $7,571 and a net loss of
$1,353. At December 31, 1996, Brink's total assets and total liabilities were
$86,285. Other than
Brink, the Company had no non-guarantor subsidiaries during 1996,$86,348 and had no
non-guarantor subsidiaries as of$75,574, respectively. Valtek, LLC was formed in November 1997 and
for the period ended December 31, 1995.is not significant.
39
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, 1997
PARENT AND
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------------------ ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
Current assets
Cash ..................................Cash................................... $ -- $ 2,217 $ 25,131 $ -- $ 27,348
Accounts receivable ...................receivable.................... -- 31,649 11,874 -- 43,523
Inventories ...........................Inventories............................ -- 14,835 19,573 -- 34,408
Other current assets ..................assets................... -- 4,912 1,557 -- 6,469
-------- -------- -------- --------- --------
Total current assets .............assets.............. -- 53,613 58,135 -- 111,748
-------- -------- -------- --------- --------
Property and equipment, net .............net.............. -- 28,009 27,919 -- 55,928
Goodwill, net ........................... 62,576net............................ 1,145 61,431 23,313 -- 85,889
Intangible assets, net .................. 6,280net................... 5,558 722 1,315 -- 7,595
Deferred income taxes and other
noncurrent assets .....................assets...................... -- 384 3,939 -- 4,323
Investment in subsidiaries .............. 9,955subsidiaries............... 26,500 10,022 -- (9,955)(36,522) --
Intercompany notes receivable ........... 25,838receivable............ 115,056 -- (25,838)-- (115,056) --
-------- -------- -------- --------- --------
Total Assets ..................... $186,655Assets...................... $148,259 $154,181 $114,621 $(35,793)$(151,578) $265,483
======== ======== ======== ========= ========
LIABILITIES AND MEMBER'SMEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt ..debt... $ -- $ -- $ 3,746 $ -- $ 3,746
Accounts payable ......................payable....................... -- 19,053 4,426 -- 23,479
Accrued liabilities and deferred income
taxes ........................ 11,382taxes............................... 4,202 7,180 8,766 -- 20,148
-------- -------- -------- --------- --------
Total current liabilities ........ 30,435liabilities......... 4,202 26,233 16,938 -- 47,373
-------- -------- -------- --------- --------
Deferred income taxes and other non
current liabilities ...................liabilities.................... -- 1,318 3,461 -- 4,779
Long-term debt, less current
maturities .maturities............................. 126,436 -- 66,944 -- 193,380
Intercompany debt .......................debt........................ -- 89,218 25,838 (25,838)(115,056) --
Mandatorily redeemable warrants .........warrants.......... 3,507 -- -- -- 3,507
Minority interest ....................... 251 -- -- 251
Members' equity ......................... 24,708equity.......................... 14,114 37,412 1,440 (9,955) 16,193(36,522) 16,444
-------- -------- -------- --------- --------
Total liabilities and members'
equity ......................... $186,655equity......................... $148,259 $154,181 $114,621 $(35,793)$(151,578) $265,483
======== ======== ======== ========= ========
40
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 STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
PARENT AND
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------------------ ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales ................................. $ 122,294 $ 66,384sales........................... $ -- $122,294 $66,384 $ 188,678-- $188,678
Cost of sales .............................sales....................... -- 89,647 45,909 -- 135,556
--------- --------- ------ ---------------- -------- ------- ------- --------
Gross profit ............................profit...................... -- 32,647 20,475 -- 53,122
Selling, administrative and product
development expenses .................... 15,406expenses.............. 721 14,685 15,944 -- 31,350
Amortization of intangible assets ......... 1,624assets... 53 1,571 712 -- 2,336
--------- --------- ------ ---------------- -------- ------- ------- --------
Operating income ........................ 15,617(loss)........... (774) 16,391 3,819 -- 19,436
Interest expense .......................... 7,108expense.................... 3,348 3,760 5,519 -- 12,627
Equity in income (loss) of
subsidiaries...................... 5,169 -- -- (5,169) --
Foreign currency (gain) loss ..............loss........ (1,041) -- 7,138 -- 6,097
--------- --------- ------ ---------------- -------- ------- ------- --------
Income (loss) before minority
interest and income taxes ................. 9,550taxes......... 2,088 12,631 (8,838) --(5,169) 712
Provision (benefit) for income
taxes ......taxes............................. -- -- (2,856) -- (2,856)
--------- --------- ------ ---------------- -------- ------- ------- --------
Income (loss) before minority
interest .. 9,550interest....................... 2,088 12,631 (5,982) --(5,169) 3,568
Minority interest .........................interest................... -- 97 -- -- 97
Extraordinary charge resulting from
debt extinguishment ..................... 6,678extinguishment............... 6,153 525 738 -- 7,416
--------- --------- ------ ---------------- -------- ------- ------- --------
Net income (loss) ............................................ $(4,065) $ 2,775 $ (6,720) $ --12,009 $(6,720) $(5,169) $ (3,945)
========= ========= ====== ================ ======== ======= ======= ========
41
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 CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
PARENT AND
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------------------ ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net cash provided by (used in)
operating activities ..............activities............. $ 8,6143,522 $ 5,092 $ (1,632) $ -- $ (6,982)
--------- --------- -----6,982
-------- -------- -------- ------- ---------
Cash flows from investing
activities:
Acquisition of machinery and
equipment .........................equipment..................... -- (6,005) (1,746) -- (7,751)
Amount due from sellerssellors of Valley
Industries, Inc. ..................Inc............... -- (1,150) -- -- (1,150)
Acquisition of subsidiaries, net
of cash acquired ..................acquired.............. -- (56,478) (14,354) -- (70,832)
--------- --------- ------------- -------- -------- ------- ---------
Net cash used for investing
activities ........................activities....................... -- (63,633) (16,100) -- (79,733)
--------- --------- ------------- -------- -------- ------- ---------
Cash flows from financing
activities
Change in intercompany debt ....... (23,559)debt...... (99,971) 76,412 23,559 -- --
Proceeds from issuance of debt .... 179,529debt... 124,529 55,000 35,521 -- 215,050
Increase (decrease) in revolving
loan ............................ (2,400)loan.......................... 1,900 (4,300) 2,904 -- 504
Repayment of debt ................. (91,199)debt................ (27,699) (63,500) (22,049) -- (113,248)
Debt issuance costs ...............costs.............. (7,280) -- -- -- (7,280)
Issuance of membership units ......units..... 4,999 -- -- -- 4,999
Distributions from
subsidiaries.................. 2,915 -- -- (2,915) --
Distributions to members ..........members......... (2,915) (2,945) -- --2,915 (2,945)
--------- --------- ------------- -------- -------- ------- ---------
Net cash provided by financing
activities ........................ 57,145activities....................... (3,522) 60,667 39,935 -- 97,080
--------- --------- ------------- -------- -------- ------- ---------
Effect of exchange rate changes .....changes.... -- -- 505 -- 505
Net increase (decrease) in cash .....cash.... -- 2,126 22,708 -- 24,834
Cash at beginning of period .........period........ -- 91 2,423 -- 2,514
--------- --------- ------------- -------- -------- ------- ---------
Cash at end of period ...............period.............. $ -- $ 2,217 $ 25,131 $ -- $ 27,348
========= ========= ============= ======== ======== ======= =========
42
45
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 serves as a member (each, a "Board Member") of the Company's
board of managers (the "Board of Managers"), executive officer and other
significant employee of the Company. The Board Members are designated pursuant
to the Members Agreement and serve at the pleasure of the Members. The officers
of the Company are chosen by the Board of Managers and serve at the pleasure of
the Board of Managers.
NAME AGE POSITION
--------------------- ------ -----------------------------------------------------------
F. Alan Smith.......... 66 Chairman of the Board of Managers of the Company
President and Chief Executive Officer of the
Marshall D. Gladchun... 50 Company and SportRack; Board Member
President and Chief Executive Officer of Valley;
Roger T. Morgan........ 53 Board Member General Manager and Chief Executive Officer of
Gerrit de Graaf........ 34 Brink Vice President of Finance and Administration and
Terence C. Seikel...... 41 Chief Financial Officer of the Company
Executive Vice President and Chief Operating
Richard E. Borghi...... 51 Officer of SportRack
Jean M. Maynard........ 43 President of SportRack International
J. Wim Rengelink....... 43 Managing Director of Brink
Gary K. Houston........ 44 Vice President of OEM Operations of Valley
Bryan A. Fletcher...... 38 Vice President of Aftermarket Operations of Valley
Donald J. Hofmann, Jr.. 40 Board Member, Vice President and Secretary of the Company
Barry Banducci......... 62 Board Member
Gerard J. Brink........ 54 Board Member
F. Alan Smith has served in the automotive industry for 36 years and has
been Chairman of the Board of Managers of the Company since its formation in
September 1995. He served in various assignments at General Motors from 1956 to
1992, including President of GM Canada from 1978 to 1980. He was a member of the
Board of Directors of General Motors from 1981 to 1992 and Chief Financial
Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The
Minnesota Mining and Manufacturing Corporation ("3M") and TransPro, Inc.
("TransPro"), a supplier of automotive components.
Marshall D. Gladchun has served in the automotive industry for 24 years and
has been President and Chief Executive Officer of the Company and SportRack
since September 1995. From 1986 to 1995, he held various senior management
positions with MascoTech, and was President and Chief Operating Officer of the
MascoTech Division at the time of its acquisition by the Company.
Roger T. Morgan has served in the automotive industry for 35 years and has
been President and Chief Executive Officer of Valley since June 1990. Prior to
joining Valley, he worked for General Motors for 12 years and Rockwell
International Automotive Group as Vice President -- Operations for 14 years.
Gerrit de Graaf has been General Manager and Chief Executive Officer of
Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips
Medical Systems as a consultant and most recently as Philips' Marketing Manager
in the United States.
Terence C. Seikel has served in the automotive industry for 14 years and has
been Vice President of Finance and Administration and Chief Financial Officer of
the Company since January 1996. 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 30 years and has
been Executive Vice President of Operations and Chief Operating Officer of
SportRack since 1995. 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.
43
46
Jean M. Maynard has served in the automotive industry for 18 years and has
been President of SportRack International or its predecessor since prior to
1992.
J. Wim Rengelink has served in the automotive industry for 11 years and has
been Managing Director of Brink since 1995. From 1988 to 1995 he worked in
Brink's internal audit department.
Gary K. Houston has served in the automotive industry for 24 years and has
been Vice President of OEM Operations of Valley since 1995. From 1991 to 1995 he
was Vice President of Manufacturing of Valley. Prior thereto, Mr. Houston worked
for Rockwell International for 18 years, most recently as a manufacturing
manager.
Bryan A. Fletcher has served in the automotive industry for 9 years and has
been Vice President of Aftermarket Operations of Valley since 1991.
Donald J. Hofmann, Jr. has been a Board Member, Vice President and Secretary
of the Company since October 1995. Mr. Hofmann has been a General Partner of CCP
since 1992.
Barry Banducci has been a Board Member of the Company since October 1995.
Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior
thereto, Mr. Banducci served in various capacities at Equion Corporation, a
supplier of automotive components, from 1983 to 1995, including President, Chief
Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro and
Aristotle Corporation.
Gerard J. Brink has been a Board Member of the Company since October 1996.
Mr. Brink was General Manager of Brink from 1965 to 1996.
BOARD MEMBER COMPENSATION
The Board Members do not currently receive compensation for their service on
the Board of Managers or any committee thereof but are reimbursed for their
out-of-pocket expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Managers has an Audit Committee consisting of Messrs. Banducci
and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith.
The Audit Committee reviews the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's 1995 Option
Plan.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the
compensation for 1997 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....................... 1997 200,000 100,000 -- -- --
Chairman of the Company
Marshall D. Gladchun................ 1997 362,500 195,000 -- -- --
President and Chief Executive
Officer of the Company and
SportRack
Terence C. Seikel................... 1997 200,600 94,000 -- -- --
Vice President of Finance and
Administration and Chief
Financial Officer of the Company
Roger T. Morgan*.................... 1997 107,220 73,000 -- 178 --
President and Chief Executive
44
47
Officer of Valley
Richard E. Borghi................... 1997 206,500 94,000 -- -- --
Executive Vice President and Chief
Operating Officer of SportRack
- -------------------------
* August 5, 1997 to December 31, 1997
OPTION GRANTS IN 1997
The following table sets forth information with respect to stock options
pursuant to the 1995 Option Plan granted to the named executive officers of the
Company during 1997. All options were granted at an exercise price equal to the
fair market value per share of Common Stock on the date of grant.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENT OF TOTAL EXERCISE APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED OR BASE TERM($)(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED(#) 1997(%) ($/SH) DATE 5% 10%
- ---------------------- ----------- ---------------- ------------ ----------- --------- ----------
F. Alan Smith......... -- -- -- -- -- --
Marshall D. Gladchun.. -- -- -- -- -- --
Terence C. Seikel..... -- -- -- -- -- --
Roger T. Morgan....... 178 47.1 5,610 8/5/12 $1,077,000 $3,173,000
Richard E. Borghi..... -- -- -- -- -- --
- -------------------------
(1) Potential realizable value is based on the assumption that the price of the
Company's common stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the 15-year option term.
The values are calculated in accordance with rules promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future common stock price appreciation.
EMPLOYMENT AGREEMENTS
Each of Marshall D. Gladchun, Roger T. Morgan, Terence C. Seikel, Richard E.
Borghi and Gerrit de Graaf has entered into an employment agreement
(collectively, the "Employment Agreements") with the Company. Mr. Gladchun's
Employment Agreement provides for an annual base salary of $277,304, subject to
increases at the sole discretion of the Board of Managers, a bonus in the range
of 50-70% of his base salary, and a one-time bonus of $400,000 on the earlier of
(i) September 20, 2002, (ii) his termination date, and (iii) a sale of the
Company (any such bonus an "Ending Bonus"). Mr. Morgan'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% to 70% of
his base salary. Mr. Seikel's Employment Agreement provides for an annual base
salary of $165,000 and a bonus in the range of 30-50% of his base salary. Mr.
Borghi's Employment Agreement provides for an annual base salary of $161,200,
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 an Ending Bonus of $100,000. 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. 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 expire at various times between June 30, 2000 and
December 31, 2000 (except that Gerrit de Graaf's Employment Agreement may be
terminated by either party upon three month's prior written notice) but
automatically extend for successive two-year terms unless terminated by the
Company upon 30 days notice prior to the expiration of the current term. 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
45
48
F. Alan Smith and Barry Banducci have each entered into consulting
agreements (the "Consulting Agreements") with the Company dated as of September
28, 1995. Mr. Smith's Consulting Agreement provides for an annual consulting fee
of $150,000 subject to increases at the sole discretion of the Board of
Managers, and a performance based bonus in the range of 30-50% of the annual
consulting fee. Mr. Banducci's Consulting Agreement provides for an annual
consulting fee of $50,000. The initial term of the Consulting Agreements expired
on March 28, 1997. The Consulting Agreements automatically extend for successive
six-month periods unless terminated by the Company upon 30 days notice prior to
the expiration of the then current term. The Consulting Agreements prohibit
Messrs. Smith and Banducci from disclosing non-public information about the
Company.
MEMBERS' AGREEMENT
Pursuant to the Second Amended and Restated Members' Agreement dated as of
August 5, 1997 (the "Members' Agreement") among the Company and certain of the
holders of outstanding units (the "Units") of the Company, affiliates of CCP
have the ability to appoint a majority of the members of the Company's Board of
Managers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1998, the outstanding membership interests of the Company
consisted of 16,271 Units. The following table sets forth certain information
regarding the beneficial ownership of the Units by (i) each person known by the
Company to own more than 5% of the Units, (ii) each named director, (iii) each
named executive officer and (iv) all of the Company's directors and executive
officers treated as a group. To the knowledge of the Company, each of such
holders of Units has sole voting and investment power as to the Units owned
unless otherwise noted.
PERCENTAGE
NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2)
------------------------------------------ --------------- --------------
CB Capital Investors, L.P.Inc.(3) ............ 10,111 60.28%10,251 60.61%
380 Madison Avenue, 12th Floor
New York, New York 10017
MascoTech, Inc. .......................... 1,500 9.229.14
275 Rex Boulevard
Auburn Hills, Michigan 48326
Celerity Partners ........................ 1,500 9.229.14
c/o Mark Benham
300 Sand Hill Road
Building 4, Suite 230
Menlo Park, California 94025
F. Alan Smith(4) ......................... 429 2.622.59
Marshall D. Gladchun(5) .................. 915 5.485.44
Roger T. Morgan .......................... 89 0.550.54
c/o Valley Industries, LLC
32501 Dequindre
Madison Heights, Michigan 48071
Terence C. Seikel(6) ..................... 360 2.192.17
Richard E. Borghi(7) ..................... 366 2.232.18
Barry Banducci(8) ........................ 357 2.182.16
59 Old Quarry Road
Guildford, Connecticut 06437
Gerard J. Brink .......................... 410 2.522.50
Lijsterbeslaan 10
B-2950 Kapellen
Belgium
All directors and executive officers as a
group (9 persons) ........................ 2,926 16.9616.83
- -------------------------
(1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC,
12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Units. Units subject to options or warrants currently exercisable or
exercisable within 60 days of March 15, 1998 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.
46
49
(3) CB Capital Investors, L.P.Inc. is an affiliate of CCP. Includes 501 Units
subject to warrants exercisable within 60 days.
(4) Includes 129 Units subject to options exercisable within 60 days. 300 Units
are owned by the F. Alan Smith Family Limited Partnership.
(5) Includes 415 Units subject to options exercisable within 60 days.
(6) Includes 160 Units subject to options exercisable within 60 days.
(7) Includes 166 Units subject to options exercisable within 60 days.
(8) Includes 107 Units subject to options exercisable within 60 days. All Units
are owned by the Banducci Family, LLC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chase Securities Inc. ("CSI"), The Chase Manhattan Bank ("Chase"), The Chase
Manhattan Bank of Canada ("Chase Canada") and CCP are affiliates of CB Capital
Investors, L.P.Inc., which owns approximately 47.7%48.1% of the Company's issued and
outstanding voting securities on a fully diluted basis and the 1.0% minority
interest in SportRack.basis. CSI acted as an Initial
Purchaser in connection with the Offering, for which it received customary
fees. Chase is agent bank and a lender to the Company under the Amended and
Restated Credit Agreement and has received customary fees and reimbursement of
expenses in such capacities. Chase Canada is agent bank and a lender to the
Company under the Canadian Credit Agreement and has received customary fees and
reimbursement of expenses in such capacities. Chase received its proportionate
share, $6.0 million, of the repayment by the Company of $90.0 million under the
Amended and Restated Credit Agreement from the proceeds of the Offering. An
affiliate of CCP and CSI held a portion of the Senior Subordinated Debt and
received its proportionate share, $10.7 million, including prepayment penalties
of $700,000, of the repayment by the Company of such debt from the proceeds of
the Offering. As a result of the Offering, such affiliate was relieved of its
obligation to provide up to an additional $20.0 million of senior subordinated
debt financing. In addition, an affiliate of CSI and CCP purchased a portion of
the Notes in connection with the Offering and will not be participating in the
Exchange Offer. Donald J. Hofmann, Jr., a general partner of CCP, 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.
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
"Management -- Consulting Agreements."
In connection with the acquisition of the MascoTech Division by the Company,
the Company loaned Messrs. Gladchun and Borghi $400,000 and $100,000,
respectively, to enable them to make their initial equity investments in the
Company. The loans bear interest at 6.2% and mature in September 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K:
1. Financial Statements:
A list of the Consolidated Financial Statements, related notes
and Reports of Independent Accountants is set forth in Item 8 of this report on
Form 10-K.
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
47
50
All other schedules for which provision is made in the
applicable accounting regulations of the Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore have been omitted.
48
51
3. Index to Exhibits:
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
3.1 Amended and Restated Certificate of Formation of AAS. Incorporated by
reference to Exhibit 3.1 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
3.2 Second Amended and Restated Operating Agreement of AAS. Incorporated by
reference to Exhibit 3.2 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
3.3 Amended Bylaws of AAS Incorporated by reference to Exhibit 3.3 to AAS'
3.3 Registration Statement on Form S-4 (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).
10.1 Asset Purchase Agreement among MascoTech Automotive Systems Group,
Inc., MascoTech Accessories, Inc. and Advanced Accessory Systems, LLC
dated as of September 28, 1995 Incorporated by reference to Exhibit
10.1 to AAS' Registration Statement on Form S-4 (File No. 333-49011).
10.2 Agreement for the Sale and Purchase of Shares in Brink BV dated October
30, 1996 among AAS Holdings, Inc., AAS Holdings, LLC, Brink Holding BV
and Brink BV Incorporated by reference to Exhibit 10.2 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.3 Asset Purchase Agreement among Bell Sports Corp., Bell Sports Canada,
Inc. and Advanced Accessory Systems Canada Inc./Les Systemes
d'Accessoire Advanced Canada Inc. dated as of July 2, 1997 Incorporated
by reference to Exhibit 10.3 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.4 Stock Purchase Agreement dated July 24, 1997 among Robert Boulard and
Alan Hamer and Advanced Accessory Systems Canada Inc. / Les Systems
d'Accessoire Advanced Canada Inc. Incorporated by reference to Exhibit
10.4 to AAS' Registration Statement on Form S-4 (File No. 333-49011).
10.5 Asset Purchase Agreement among Valley Industries, LLC, Valley
Industries, Inc., certain affiliates of Valley Industries, Inc., Robert
L. Fisher and Roger T. Morgan dated as of August 5, 1997 Incorporated
by reference to Exhibit 10.5 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.6 Preliminary Agreement for the Transfer of a Business dated December 16,
1997 between Ellebi S.p.A. and Brink Italia S.r.1. and Brink
International B.V. Incorporated by reference to Exhibit 10.6 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.7 Second Amended and Restated Credit Facility among AAS, SportRack, LLC,
Brink International BV, Brink BV and Valley Industries, LLC, as
Borrowers, NBD Bank as Administrative Agent and Documentation and
Collateral Agent and The Chase Manhattan Bank as Co-Administrative
Agent and Syndication Agent dated August 5, 1997. Incorporated by
reference to Exhibit 10.7 to AAS' Registration Statement on Form S-4
(File No. 333-49011).
10.8 First Amended and Restated Credit Agreement among SportRack
International, Inc. and First Chicago NBD Bank, Canada, The Chase
Manhattan Bank of Canada and The Bank of Nova Scotia dated as of March
19, 1998. Incorporated by reference to Exhibit 10.8 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.9 Employment Agreement between AAS and Richard Borghi dated September 28,
1995. Incorporated by reference to Exhibit 10.9 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.10 Employment Agreement between AAS and Marshall Gladchun dated September
28, 1995. Incorporated by reference to Exhibit 10.10 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.11 Management Consulting Agreement between AAS and Barry Banducci dated
September 28, 1995. Incorporated by reference to Exhibit 10.11 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.12 Management Consulting Agreement between AAS and F. Alan Smith dated
September 28, 1995. Incorporated by reference to Exhibit 10.12 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.13 Employment Agreement between AAS and Terence C. Seikel dated January
22, 1996. Incorporated by reference to Exhibit 10.13 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.14 Employment Agreement between AAS and Roger T. Morgan dated August 5,
1997. Incorporated by reference to Exhibit 10.14 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf dated
November 1, 1996. Incorporated by reference to Exhibit 10.15 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.16 Management Consulting Agreement between AAS and Les Placements Jean
Maynard 10.16 Inc. dated July 2, 1997. Incorporated by reference to
Exhibit 10.16 to AAS' Registration Statement on Form S-4 (File No.
333-49011).
10.17 Lease dated as of January 24, 1997 between Valley Industries Realty,
L.P. and Valley Industries, Inc. Incorporated by reference to Exhibit
10.17 to AAS' Registration Statement on Form S-4 (File No. 333-49011).
10.18 Addendum to Sublease dated as of July 2, 1997 between Bell Sports
Canada, Inc. and SportRack International, Inc. (formerly known as
Advanced Accessory Systems Canada Inc./ Les Systems d'Accessoire
Advanced Canada Inc.). Incorporated by reference to Exhibit 10.18 to
AAS' Registration Statement on Form S-4 (File No. 333-49011).
49
52
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG Produkter AB.
Incorporated by reference to Exhibit 10.19 to AAS' Registration
Statement on Form S-4 (File No. 333-49011).
10.20 Lease Agreement for commercial use between Ellebi S.p.A. and Brink
Italia S.r.l. Incorporated by reference to Exhibit 10.20 to AAS'
Registration Statement on Form S-4 (File No. 333-49011).
10.21 Registration Rights Agreement dated September 25, 1997 by and among
Advanced Accessory Systems, LLC, AAS Capital Corporation, the
Guarantors named therein and Chase Securities, Inc. and First Chicago
Capital Markets, Inc. Incorporated by reference to Exhibit 10.21 to
AAS' Registration Statement on Form S-4 (File No. 333-49011).
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).
27.1 Financial Data Schedule
- ----------
50
53
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Advanced Accessory Systems, LLC
By: /s/ Marshall D. Gladchun
----------------------------------------
Marshall D. Gladchun
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on the 159th day of April,June, 1998, by the following
persons on behalf of the registrant and in the capacities as indicated.
Signature Title Title
--------------- -----
/s/ Marshall D. Gladchun
- --------------------------------- President, Chief Executive Officer and
Marshall D. Gladchun Director (Principal Executive Officer)
/s/ Terence C. Seikel Vice President of Finance and Administration and
- --------------------------------- Chief Financial Officer (Principal Financial and
Terence C. Seikel Accounting Officer)
/s/ F. Alan Smith
- ---------------------------------
F. Alan Smith Chairman of the Board of Managers
/s/ Barry Banducci
- ---------------------------------
Barry Banducci Manager
/s/ Gerard Jacobs Brink
- ---------------------------------
Gerard Jacobs Brink Manager
/s/ Donald J. Hofmann
- ---------------------------------
Donald J. Hofmann Manager
/s/ Roger T. Morgan
- ---------------------------------
Roger T. Morgan Manager
51
54
ADVANCED ACCESSORY SYSTEMS, LLC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997
AND 1996, AND FOR THE PERIOD FROM SEPTEMBER 28,
1995 THOUGH DECEMBER 31, 1995
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,
1997........................................ $ 605,000 $ 458,000 $ 734,000 $ 98,000 $ 1,699,000
1996........................................ 368,000 54,000 268,000 85,000 605,000
For the Period from September 28, 1995
through December 31, 1995................... 354,000 14,000 - - 368,000
ALLOWANCE FOR INVENTORY OBSOLESCENCE AND
LOWER OF COST OR MARKET RESERVE
For the year ended December 31,
1997........................................ $ 1,579,000 $ 423,000 $ 1,303,000 $ 715,000 $ 2,590,000
1996........................................ 564,000 70,000 1,173,000 228,000 1,579,000
For the Period from September 28, 1995
through December 31, 1995................... 456,000 108,000 - - 564,000
ALLOWANCE FOR REIMBURSABLE TOOLING
----------------------------------
For the year ended December 31,
1997........................................ $ 368,000 $ 195,000 $ 493,000 $ 166,000 $ 890,000
1996........................................ 257,000 300,000 - 189,000 368,000
For the Period from September 28, 1995
through December 31, 1995................... 257,000 134,000 - 134,000 257,000
(1) Charges to other accounts includes amounts related to acquired companies
and the effects of changing foreign currency exchange rates for the
Company's foreign subsidiaries.
52
55
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
12.1 Computation of Ratios
27.1 Financial Data Schedule