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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2001
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 333-49011
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[ADVANCED ACCESSORY SYSTEMS, LLC. LOGO]
ADVANCED ACCESSORY SYSTEMS, LLC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3848156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MI 48313
(Address of principal executive offices) (Zip Code)
(810) 997-2900
(Telephone Number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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ADVANCED ACCESSORY SYSTEMS, LLC
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of 1
March 31, 2001 and December 31, 2000
Consolidated Condensed Statements of 2
Operations for the Three Months
Ended March 31, 2001 and 2000
Consolidated Condensed Statements of 3
Cash Flows for the Three Months
Ended March 31, 2001 and 2000
Consolidated Condensed Statement of Changes 4
in Members' Equity for the Three Months
Ended March 31, 2001
Notes to Consolidated Condensed Financial 5
Statements
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures About 14
Market Risk
Part II. Other Information and Signature
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of 15
Security-Holders
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
March 31, December 31,
2001 2000
ASSETS (Unaudited)
Current assets
Cash $ 1,978 $ 3,315
Accounts receivable, less reserves
of $1,802 and $2,140, respectively 55,103 42,942
Inventories
Raw materials 17,182 17,746
Work-in-process 9,287 7,910
Finished goods 19,814 18,978
Reserves (2,738) (2,540)
------------- --------------
Total inventories 43,545 42,094
Deferred income taxes 3,174 1,775
Other current assets 5,782 6,874
------------- --------------
Total current assets 109,582 97,000
Property and equipment, net 55,597 58,232
Goodwill, net 75,391 77,391
Other intangible assets, net 4,526 5,030
Deferred income taxes 1,921 2,020
Other noncurrent assets 2,364 2,824
------------- --------------
$ 249,381 $ 242,497
============= ==============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 11,676 $ 11,811
Accounts payable 38,772 24,996
Accrued liabilities 27,569 25,402
------------- --------------
Total current liabilities 78,017 62,209
------------- --------------
Noncurrent liabilities
Deferred income taxes 1,288 1,001
Other noncurrent liabilities 4,411 4,557
Long-term debt, less current maturities 155,336 163,824
------------- --------------
Total noncurrent liabilities 161,035 169,382
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Mandatorily redeemable warrants 5,040 5,010
------------- --------------
Members' equity
Class A Units 7,406 7,409
Class A-1 Units 4,114 4,117
Other comprehensive loss (151) (1,077)
Accumulated deficit (6,080) (4,553)
------------- --------------
5,289 5,896
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$ 249,381 $ 242,497
============= ==============
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
2001 2000
Net sales $ 79,182 $ 85,563
Cost of sales 59,950 62,369
------------- -------------
Gross profit 19,232 23,194
Selling, administrative and
product development expenses 11,731 12,327
Amortization of intangible assets 750 786
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Operating income 6,751 10,081
------------- -------------
Other income (expense)
Interest expense (4,531) (4,421)
Foreign currency loss, net (4,820) (3,464)
Other income (expense) (44) 315
------------- -------------
Income (loss) before income taxes (2,644) 2,511
Benefit for income taxes 1,119 1,112
------------- --------------
Net income (loss) $ (1,525) $ 3,623
============= =============
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
2001 2000
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (1,525) $ 3,623
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 3,494 3,493
Deferred taxes (1,223) (878)
Foreign currency loss 4,761 2,898
Loss on disposal of assets 38 --
Changes in assets and liabilities, net 1,972 (6,221)
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Net cash provided by operating
activities 7,517 2,915
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of property and equipment (1,320) (3,222)
Acquisitions, net of cash acquired -- (1,515)
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Net cash used for investing activities (1,320) (4,737)
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CASH FLOWS USED FOR FINANCING
ACTIVITIES:
Net increase (decrease) in revolving loan (5,343) 1,100
Collection on note receivable for unit purchase 24 30
Payments on long-term debt (2,923) (4,028)
Distributions to members (2) (1,042)
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Net cash used for financing activities (8,244) (3,940)
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Effect of exchange rate changes 710 335
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Net decrease in cash (1,337) (5,427)
Cash at beginning of period 3,315 8,718
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Cash at end of period $ 1,978 $ 3,291
============= ==============
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Other Total
Members' comprehensive Accumulated members'
capital loss deficit equity
------------- ------------- ------------- -------------
Balance at December 31, 2000 $ 11,526 $ (1,077) $ (4,553) $ 5,896
Collection on notes receivable for unit purchase 24 -- -- 24
Accretion of membership warrants (30) -- -- (30)
Distributions to members -- -- (2) (2)
Currency translation adjustment -- 926 -- 926
Net loss -- -- (1,525) (1,525)
------------- ------------- ------------- -------------
Balance at March 31, 2001 $ 11,520 $ (151) $ (6,080) $ 5,289
============= ============= ============= =============
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which are
normal and recurring in nature, necessary to present fairly its
financial position as of March 31, 2001 and December 31, 2000 and the
results of its operations for the three months ended March 31, 2001 and
2000 and its cash flows for the three months ended March 31, 2001 and
2000.
During 2000, the Company adopted the provisions of the EITF 00-10,
"Accounting for Shipping and Handling Revenues and Costs", which
requires that all amounts billed to customers related to shipping and
handling costs be classified as revenue. In prior years, these costs
and the reimbursement of these costs were netted in our financial
statements. Accordingly, amounts billed to customers are now included
in net sales and the related costs are included in cost of sales in the
accompanying statement of operations. There was no impact on net income
(loss).
These consolidated condensed financial statements should be read
together with the Company's audited financial statements presented in
the Company's Annual Report on Form 10-K for the year ended December
31, 2000, filed with the Securities and Exchange Commission on March
27, 2001.
2. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the first quarter of 2001 and 2000 of
$(599) and $3,997, respectively, includes reported net income (loss)
adjusted by the effect of changes in the cumulative translation
adjustment.
3. CONDENSED CONSOLIDATING INFORMATION
On October 1, 1997, the Company and its wholly-owned subsidiary, AAS
Capital Corporation, issued and sold $125,000 of its 9 3/4 Senior
Subordinated Notes due 2007 ("the Notes"). The Notes are guaranteed on
a full, unconditional and joint and several basis by all of the
Company's direct and indirect wholly-owned domestic subsidiaries. The
following condensed consolidating financial information presents the
financial position, results of operations and cash flows of (i) the
Company as parent, as if it accounted for its subsidiaries on the
equity method, and AAS Capital Corporation as issuers; (ii) guarantor
subsidiaries which are domestic, wholly-owned subsidiaries and include
SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek,
LLC; and (iii) the non-guarantor subsidiaries which are foreign,
wholly-owned subsidiaries and include Brink International B.V. and its
subsidiaries, SportRack Accessories, Inc. and its subsidiary, and
SportRack Automotive GmbH and its subsidiaries. The guarantor and
non-guarantor subsidiaries for the three months ended March 31, 2001
and 2000 have been allocated a portion of certain corporate overhead
costs on a basis consistent with each subsidiary's relative business
activity, including interest on intercompany debt balances. Since its
formation in September 1997, AAS Capital Corporation has had no
operations and has no assets or liabilities at March 31, 2001.
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------- ------------- -------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
Current assets
Cash................................... $ 1,465 $ 211 $ 302 $ -- $ 1,978
Accounts receivable.................... -- 37,453 17,650 -- 55,103
Inventories............................ -- 19,370 24,175 -- 43,545
Deferred income taxes and other
current assets........................ -- 5,185 3,771 -- 8,956
------------ ----------- ----------- ----------- ----------
Total current assets.............. 1,465 62,219 45,898 -- 109,582
------------ ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 34,321 21,276 -- 55,597
Goodwill, net............................ 1,015 55,595 18,781 -- 75,391
Intangible assets, net................... 3,849 120 557 -- 4,526
Deferred income taxes and other
noncurrent assets...................... 93 1,718 2,474 -- 4,285
Investment in subsidiaries............... 58,734 9,955 -- (68,689) --
Intercompany notes receivable............ 87,774 -- -- (87,774) --
------------ ----------- ----------- ----------- ----------
Total assets...................... $ 152,930 $ 163,928 $ 88,986 $ (156,463) $ 249,381
============ =========== =========== =========== ==========
LIABILITIES AND MEMBER'S
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 11,676 $ -- $ 11,676
Accounts payable....................... -- 27,685 11,087 -- 38,772
Accrued liabilities and deferred
income taxes......................... 10,094 6,784 10,691 -- 27,569
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 10,094 34,469 33,454 -- 78,017
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 2,003 394 3,302 -- 5,699
Long-term debt, less current maturities.. 130,643 -- 24,693 -- 155,336
Intercompany debt........................ -- 39,380 48,394 (87,774) --
Mandatorily redeemable warrants.......... 5,040 -- -- -- 5,040
Members' equity.......................... 5,150 89,685 (20,857) (68,689) 5,289
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity.......................... $ 152,930 $ 163,928 $ 88,986 $ (156,463) $ 249,381
============ =========== =========== =========== ==========
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------- ------------- -------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
Current assets
Cash................................... $ 1,153 $ 246 $ 1,916 $ -- $ 3,315
Accounts receivable.................... -- 28,309 14,633 -- 42,942
Inventories............................ -- 19,148 22,946 -- 42,094
Deferred income taxes and other
current assets........................ 7 5,180 3,462 -- 8,649
------------ ----------- ----------- ----------- ----------
Total current assets.............. 1,160 52,883 42,957 -- 97,000
------------ ----------- ----------- ----------- ----------
Property and equipment, net.............. -- 34,830 23,402 -- 58,232
Goodwill, net............................ 1,025 56,144 20,222 -- 77,391
Other intangible assets, net............. 3,968 234 828 -- 5,030
Deferred income taxes and other
noncurrent assets...................... 93 2,385 2,366 -- 4,844
Investment in subsidiaries............... 57,615 9,955 -- (67,570) --
Intercompany notes receivable............ 91,695 -- -- (91,695) --
------------ ----------- ----------- ----------- ----------
Total assets...................... $ 155,556 $ 156,431 $ 89,775 $ (159,265) $ 242,497
============ =========== =========== =========== ==========
LIABILITIES AND MEMBERS'
EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 11,811 $ -- $ 11,811
Accounts payable....................... -- 16,689 8,307 -- 24,996
Accrued liabilities and deferred
income taxes......................... 6,799 8,027 10,576 -- 25,402
------------ ----------- ----------- ----------- ----------
Total current liabilities......... 6,799 24,716 30,694 -- 62,209
------------ ----------- ----------- ----------- ----------
Deferred income taxes and other
noncurrent liabilities................. 2,003 343 3,212 -- 5,558
Long-term debt, less current maturities.. 135,976 -- 27,848 -- 163,824
Intercompany debt........................ -- 46,064 45,631 (91,695) --
Mandatorily redeemable warrants.......... 5,010 -- -- -- 5,010
Members' equity.......................... 5,768 85,308 (17,610) (67,570) 5,896
------------ ----------- ----------- ----------- ----------
Total liabilities and members'
equity.......................... $ 155,556 $ 156,431 $ 89,775 $ (159,265) $ 242,497
============ =========== =========== =========== ==========
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................ $ -- $ 56,759 $ 22,423 $ -- $ 79,182
Cost of sales............................ -- 44,351 15,599 -- 59,950
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 12,408 6,824 -- 19,232
Selling, administrative and product
development expenses................... 82 6,402 5,247 -- 11,731
Amortization of intangible assets........ 9 549 192 -- 750
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (91) 5,457 1,385 -- 6,751
Interest expense......................... 1,638 1,058 1,835 -- 4,531
Equity in income (loss) of subsidiaries.. 204 -- -- (204) --
Foreign currency loss.................... -- 22 4,798 -- 4,820
Other income (expense)................... -- -- (44) -- (44)
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ (1,525) 4,377 (5,292) (204) (2,644)
Benefit for income taxes................. -- -- 1,119 -- 1,119
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ (1,525) $ 4,377 $ (4,173) $ (204) $ (1,525)
========== ========== =========== ========== ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................ $ -- $ 60,249 $ 25,314 $ -- $ 85,563
Cost of sales............................ -- 45,207 17,162 -- 62,369
---------- ---------- ----------- ---------- ----------
Gross profit........................... -- 15,042 8,152 -- 23,194
Selling, administrative and product
development expenses................... 350 6,388 5,589 -- 12,327
Amortization of intangible assets........ 9 570 207 -- 786
---------- ---------- ----------- ---------- ----------
Operating income (loss)................ (359) 8,084 2,356 -- 10,081
Interest expense......................... 1,383 1,155 1,883 -- 4,421
Equity in income (loss) of subsidiaries.. 5,365 -- -- (5,365) --
Foreign currency loss.................... -- -- 3,464 -- 3,464
Other income............................. -- -- 315 -- 315
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes........ 3,623 6,929 (2,676) (5,365) 2,511
Benefit for income taxes................. -- -- 1,112 -- 1,112
---------- ---------- ----------- ---------- ----------
Net income (loss)........................ $ 3,623 $ 6,929 $ (1,564) $ (5,365) $ 3,623
========== ========== =========== ========== ==========
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. CONDENSED CONSOLIDATING INFORMATION -- (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net cash provided by (used for) operating
activities.............................. $ 1,712 $ 7,423 $ (1,618) $ -- $ 7,517
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (774) (546) -- (1,320)
---------- --------- ---------- ---------- ---------
Net cash used for investing
activities.......................... -- (774) (546) -- (1,320)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............. 3,921 (6,684) 2,763 -- --
Net increase in revolving loan.......... (5,343) -- -- -- (5,343)
Collection on note receivable for unit
purchase.............................. 24 -- -- -- 24
Repayment of debt....................... -- -- (2,923) -- (2,923)
Distributions to members................ (2) -- -- -- (2)
---------- --------- ---------- ---------- ----------
Net cash used for financing
activities.......................... (1,400) (6,684) (160) -- (8,244)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 710 -- 710
Net increase (decrease) in cash........... 312 (35) (1,614) -- (1,337)
Cash at beginning of period............... 1,153 246 1,916 -- 3,315
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ 1,465 $ 211 $ 302 $ -- $ 1,978
========== ========= ========== ========== ==========
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. CONDENSED CONSOLIDATING INFORMATION-- (continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net cash provided by (used for) operating
activities.............................. $ 1,515 $ 3,587 $ (2,187) $ -- $ 2,915
---------- --------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment............................. -- (2,884) (338) -- (3,222)
Acquisition, net of cash acquired....... -- (1,515) -- -- (1,515)
---------- --------- ---------- ---------- ----------
Net cash used for investing
activities.......................... -- (4,399) (338) -- (4,737)
---------- --------- ---------- ---------- ----------
Cash flows from financing activities:
Change in intercompany debt............. (503) (5,282) 5,785 -- --
Net increase in revolving loan.......... -- 1,100 -- -- 1,100
Collection on note receivable for unit
purchase.............................. 30 -- -- -- 30
Repayment of debt....................... -- -- (4,028) -- (4,028)
Distributions to members................ (1,042) -- -- (1,042)
---------- --------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities................ (1,515) (4,182) 1,757 -- (3,940)
---------- --------- ---------- ---------- ----------
Effect of exchange rate changes........... -- -- 335 -- 335
Net decrease in cash...................... -- (4,994) (433) -- (5,427)
Cash at beginning of period............... -- 5,469 3,249 -- 8,718
---------- --------- ---------- ---------- ----------
Cash at end of period..................... $ -- $ 475 $ 2,816 $ -- $ 3,291
========== ========= ========== ========== ==========
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ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements and notes thereto of the Company included elsewhere in this Form
10-Q. Discussions containing forward-looking statements may be found in the
material set forth below. These may include statements projecting, forecasting
or estimating Company performance and industry trends. General risks that may
impact the achievement of such forecasts include, but are not limited to:
compliance with new laws and regulations, general economic conditions in the
markets in which the Company operates, fluctuation in demand for the Company's
products, significant raw material price fluctuations, and other business
factors. Any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual events or results may
differ materially from those discussed in the forward-looking statements. All of
these forward-looking statements are based on estimates and assumptions made by
management of the Company which, although believed to be reasonable, are
inherently uncertain. The Company does not intend to update these
forward-looking statements.
GENERAL
An affiliate of J.P. Morgan Partners, LLC ("JPMP") and certain members
of the Company's management formed the Company in September 1995 to make
strategic acquisitions of automotive exterior accessory manufacturers and to
integrate those acquisitions into a global enterprise that would be a preferred
supplier to the automotive industry.
RECENT ACQUISITIONS
In February 2000, the Company through Valley Industries, acquired the
net assets of Titan Industries, Inc. ("Titan"). Titan is a North American
supplier of trailer balls and other towing related accessories to the automotive
aftermarket.
In September 2000, the Company through SportRack Accessories, acquired
the net assets of the Wiswall Hill Corporation ("Wiswall Hill" or
"Barrecrafters"). Wiswall Hill is a North American supplier of rack systems and
accessories to the automotive aftermarket under its popular brand name,
Barrecrafters.
In each instance, the acquisition was accounted for in accordance with
the purchase method of accounting and the operating results of the acquired
company have been included in the Company's consolidated financial statements
since the date of the respective acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000.
Net sales. Net sales for the first quarter of 2001 were $79.2 million,
representing a decrease of $6.4 million, or 7.5%, compared with net sales for
the first quarter of 2000. This decrease resulted primarily from decreased sales
to OEM's of approximately $5.1 million resulting from decreased production
levels of vehicles compared to the prior year. The North American OEM's reduced
vehicle production beginning in the fourth quarter of 2000 and continuing in the
first quarter of 2001 in anticipation of lower sales and to address vehicle
inventories which had generally grown above acceptable levels. Net sales was
also reduced by approximately $1.1 million due to the effect of declining
exchange rates between the U.S. Dollar and the currencies used by the Company's
foreign subsidiaries.
Gross profit. Gross profit for the first quarter of 2001 was $19.2
million, representing a decrease of $4.0 million, or 17.1%, from the gross
profit for the first quarter of 2000. This decrease resulted from the decrease
in net sales and a decrease in the gross margin percentage. Gross profit as a
percentage of net sales was 24.3% in the first quarter of 2001 compared to 27.1%
in the first quarter of 2000. The decrease in the gross margin percentage is
attributable to the effects of spreading fixed costs over a lower sales base and
a change in the mix of products sold being weighted more toward lower margin
products than in the prior year.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for the first quarter of 2001
were $11.7 million, representing a decrease of $596,000, or 4.8%, over the
selling, administrative and product development expenses for the first quarter
of 2000. Selling, administrative and product development expenses as a
percentage of net sales increased to 14.8% in the first quarter of 2001 from
14.4% in the first quarter of 2000.
Operating income. Operating income for the first quarter of 2001 was
$6.8 million, a decrease of $3.3 million, or 33.0%, from operating income for
the first quarter of 2000 reflecting the decrease in gross profit and offset by
the decrease in selling, administrative and product development expenses.
Operating income as a percentage of net sales decreased to 8.5% in the first
quarter of 2001 from 11.8% in the first quarter of 2000.
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ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
Interest expense. Interest expense for the first quarter of 2001 was
$4.5 million, which was $110,000 higher than interest expense for the first
quarter of 2000. In the first quarter of 2001, higher interest rates charged on
the Company's variable rate indebtedness was partially offset by lower interest
expense resulting from reduced average borrowings.
Foreign currency loss. Foreign currency loss in the first quarter of
2001 was $4.8 million, compared to a foreign currency loss of $3.5 million in
the first quarter of 2000. The Company's foreign currency loss is primarily
related to Brink which has indebtedness denominated in U.S. Dollars including
intercompany debt and a portion of the loans under the Company's Second Amended
and Restated Credit Agreement. During the first quarter of 2001 and the first
quarter of 2000, the U.S. Dollar strengthened significantly in relation to the
European Euro, the functional currency of Brink.
Benefit for income taxes. The Company and certain of its domestic
subsidiaries have elected to be taxed as limited liability companies for federal
income tax purposes. As a result of this election, the Company's domestic
taxable income accrues to the individual members. Certain of the Company's
domestic subsidiaries and foreign subsidiaries are subject to income taxes in
their respective jurisdictions. During the first quarter of 2001, the Company
had a loss before income taxes for its taxable subsidiaries totaling $5.2
million and recorded a benefit for income taxes of $1.1 million. The effective
tax rate differs from the U.S. federal income tax rate primarily due to changes
in valuation allowances on the deferred tax assets of SportRack Accessories
recorded during 2001 and differences in the tax rates of foreign countries.
During the first quarter of 2000, the Company had a loss before income taxes for
its taxable subsidiaries totaling $2.7 million and recorded a benefit for income
taxes of $1.1 million.
Net income (loss). Net loss for the first quarter of 2001 was $(1.5)
million, as compared to a net income of $3.6 million in the first quarter of
2000, a change of $5.1 million. The change in net income (loss) is primarily
attributable to the decrease in operating income and the increase in the foreign
currency loss recorded in the first quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to service its debt
and meet its working capital and capital expenditure needs. The Company's
indebtedness at March 31, 2001 was $167.0 million including current maturities
of $11.7 million. The Company expects to be able to meet its liquidity
requirements through cash provided by operations and through borrowings
available under the Second Amended and Restated Credit Agreement ("U.S. Credit
Facility").
WORKING CAPITAL AND CASH FLOWS
Working capital and key elements of the consolidated statement of cash
flows are:
MARCH 31, DECEMBER 31,
2001 2000
-------------- -------------
(IN THOUSANDS)
Working Capital........................................ $ 31,565 $ 34,791
FIRST QUARTER
2001 2000
-------------- --------------
(IN THOUSANDS)
Cash flows provided by operating activities............ $ 7,517 $ 2,915
Cash flows (used for) investing activities............. $ (1,320) $ (4,737)
Cash flows (used for) financing activities............. $ (8,244) $ (3,940)
Working capital
Working capital decreased by $3.2 million to $31.6 million at March 31,
2001 from $34.8 million at December 31, 2000 due to increases in accounts
payable and accrued liabilities of $14.4 million and $2.1 million, respectively,
and due to decreases in cash and other current assets of $1.3 million and
$856,000, respectively. Working capital was further reduced by $2.2 million due
to the
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ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
effects of declining currency exchange rates for the functional currencies of
the Company's foreign subsidiaries. These decreases were partially offset by
increases in accounts receivable, inventories and current deferred tax assets of
$13.2 million, $3.0 million and $1.4 million, respectively.
Cash decreased by $1.3 million to $2.0 million at March 31, 2001 from
$3.3 million at December 31, 2000 primarily due to cash used for financing and
investing activities of $8.2 million and $1.3 million, respectively, partially
offset by cash provided by operating activities of $7.5 million. Increases in
accounts receivable and inventory were attributable to increased sales levels in
the first quarter of 2001 as compared with the fourth quarter of 2000. Increases
in accounts payable and accrued liabilities during the quarter reflected
increased purchasing activities to support the increased sales volume.
Differences in sales levels between the two consecutive quarters are partly due
to seasonal cycles and increased sales to OEM's. Accrued liabilities increased
as a result of an increase of $3.0 million in accrued interest for the Company's
Notes as compared with amounts recorded as of December 31, 2000.
Operating Activities
Cash flow provided by operating activities for the first quarter of
2001 was $7.5 million, compared to $2.9 million in the first quarter of 2000.
Cash flow for the first quarter of 2001 increased primarily due to changes in
working capital items other than cash during the first quarter of 2001 as
compared with an increase for the first quarter of 2000. This was offset by
reduced operating income during the first quarter of 2001 compared with the
first quarter of 2000.
Investing Activities
During the first quarter of 2001 and 2000, investing cash flows include
acquisitions of property and equipment of $1.3 million and $3.2 million,
respectively, and were primarily for the expansion of capacity, productivity and
process improvements and maintenance. The Company's ability to make capital
expenditures is subject to restrictions in the U.S. Credit Facility, including a
maximum of $12.5 million of capital expenditures annually.
Investing cash flows for the first quarter of 2000 also included $1.5
million paid to acquire the net assets of Titan Industries, Inc. on February 22,
2000.
Financing Activities
During the first quarter of 2001 and 2000, financing cash flows
included scheduled payments of principal on the Company's term indebtedness of
$2.9 million and $4.0 million, respectively. Distributions to members,
representing amounts sufficient to meet the tax liability on the Company's
domestic taxable income which accrues to individual members, were not
significant during the first quarter of 2001 and were $1.0 million for the first
quarter of 2000. Financing cash flows during the first quarter of 2001 also
included net repayments under the company's revolving loans of $5.3 million.
DEBT AND CREDIT SOURCES
The Company's indebtedness was $167.0 million and $175.6 million at
March 31, 2001 and December 31, 2000, respectively. The Company expects that its
primary sources of cash will be from operating activities and borrowings under
its revolving credit facilities. As of March 31, 2001, the Company had
borrowings under the revolving credit facilities totaling $6.0 million and had
$12.6 million of available borrowing capacity. Borrowing availability was
reduced by a $6.4 million outstanding letter of credit issued to benefit
plaintiffs in a lawsuit against the Company. As of March 31, 2001, the Company
was in compliance with the various covenants under the debt agreements pursuant
to which it has borrowed or may borrow money and believes the Company will
remain in compliance with such covenants through the period ending March 31,
2002. Management believes that, based on current and expected levels of
operations, cash flows from operations and borrowings under the Revolving Credit
Facilities will be sufficient to fund its debt service requirements, working
capital needs, and capital expenditures for the foreseeable future, although no
assurances can be given in this regard.
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16
ADVANCED ACCESSORY SYSTEMS, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
The Company's ability to satisfy its debt obligations will depend upon
its future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under its current or successor credit facilities. The Company anticipates that,
based on current and expected levels of operations, its operating cash flow,
together with borrowings under the U.S. Credit Facility and the Canadian Credit
Facility, should be sufficient to meet its debt service, working capital and
capital expenditure requirements for the foreseeable future, although no
assurances can be given in this regard, including as to the ability to increase
revenues or profit margins. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
acquisitions and/or capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There is no
assurance that any of these remedies can be effected on satisfactory terms, if
at all, including, whether, and on what terms, the Company could raise equity
capital.
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
Poland, Spain, the Czech Republic and, Italy. Net sales from international
operations during the first quarter 2001 were approximately $22.4 million, or
28.3% of the Company's net sales. At March 31, 2001, assets associated with
these operations were approximately 35.6% of total assets, and the Company had
indebtedness denominated in currencies other than the U.S. Dollar of
approximately $6.5 million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Certain of the Company's foreign subsidiaries have debt denominated in
currencies other than their functional currency. As the exchange rates between
the currency of the debt and the subsidiaries functional currency change, the
Company is subject to foreign currency gains and losses.
The Company may periodically use foreign currency forward option contracts
to offset the effects of exchange rate fluctuations on cash flows denominated in
foreign currencies. The Company has no outstanding foreign currency forward
options at March 31, 2001 and does not use derivative financial instruments for
trading or speculative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). The Company adopted this statement at the
beginning of fiscal 2001. This pronouncement did not have a material impact on
the Company's results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable as there have been no changes since that reported in the
Company's annual report on Form 10-K filed with the commission on March 27,
2001.
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ADVANCED ACCESSORY SYSTEMS, LLC
PART II. OTHER INFORMATION AND SIGNATURE
Item 1. Legal Proceedings
Gibbs vs. AAS: In February 1996, the Company commenced an action
against certain individuals alleging breach of contract under the terms
of an October 1992 Purchase Agreement and the individuals' respective
Employment Agreements with the predecessor of the Company. In March
1996, the individuals filed a separate lawsuit against the Company
alleging breach of contract under the respective Purchase Agreement and
their respective Employment Agreements. On May 7, 1999 a jury in the
United States District Court for the Eastern District of Michigan
reached a verdict against the company and awarded the individuals
approximately $3.8 million plus interest and reasonable attorney fees.
The Company plans to file an appeal once a judgment is entered by the
court.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Items 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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ADVANCED ACCESSORY SYSTEMS, LLC
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED ACCESSORY SYSTEMS, LLC
(Registrant)
Date: May 3, 2001 /s/ BARRY G. STEELE
---------------------------
Barry G. Steele
Corporate Controller
(chief accounting officer
and authorized signatory)
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