1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number: 333-82617
---------
VENTURE HOLDINGS COMPANY LLC
Michigan 38-3470015
VEMCO, INC.
Michigan 38-2737797
VENTURE INDUSTRIES CORPORATION
Michigan 38-2034680
VENTURE MOLD & ENGINEERING CORPORATION
Michigan 38-2556799
VENTURE LEASING COMPANY
Michigan 38-2777356
VEMCO LEASING, INC.
Michigan 38-2777324
VENTURE HOLDINGS CORPORATION
Michigan 38-2793543
VENTURE SERVICE COMPANY
Michigan 38-3024165
EXPERIENCE MANAGEMENT, LLC
Michigan 38-3382308
VENTURE EUROPE, INC.
Michigan 38-3464213
VENTURE EU CORPORATION
Michigan 38-3470019
(State or other (Exact name of registrant as
jurisdiction of specified in its charter) (I.R.S. Employer
incorporation or Identification
organization) Number)
--------------------
33662 James J. Pompo
Fraser, Michigan 48026
(Address, including zip code of registrants' principal executive offices)
Registrants' telephone number, including area code:
(810) 294-1500
2
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
---------- ----------
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE #
--------------------------------- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000,
December 31, 1999 and March 31, 1999 1
Consolidated Statements of Income and Comprehensive Income
for the Three Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Changes in Member's Equity
for the Three Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VENTURE HOLDINGS COMPANY LLC
- ----------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
March 31, March 31,
2000 December 31, 1999
ASSETS (Unaudited) 1999 (Unaudited)
- ------ ----------- ---- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 2,572 $ 7,392 $ 3,153
Accounts receivable, net, includes related party
receivables of $86,709, $82,644 and $59,878 at
March 31, 2000, December 31, 1999 and March 31,
1999, respectively (Note 6) 357,104 311,344 200,067
Inventories (Note 3) 151,946 154,620 53,288
Investments (Note 5) 15,007 40,501 --
Prepaid and other current assets 64,055 53,861 8,648
------------ ------------ -------------
Total current assets 590,684 567,718 265,156
Property, Plant and Equipment, Net (Note 2) 544,377 562,838 196,226
Intangible Assets, Net (Note 2) 164,814 172,090 51,552
Other Assets 88,179 82,504 26,547
Deferred Tax Assets 36,666 29,826 11,035
------------ ------------ -------------
Total Assets $ 1,424,720 $ 1,414,976 $ 550,516
============ ============ =============
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
CURRENT LIABILITIES:
Accounts payable $ 207,341 $ 194,596 $ 62,506
Accrued interest 16,184 13,403 6,274
Accrued expenses 119,311 108,653 16,032
Current portion of long term debt (Note 4) 24,251 68,368 1,588
------------ ------------ -------------
Total current liabilities 367,087 385,020 86,400
Pension Liabilities & Other 56,341 57,614 5,948
Deferred Tax Liabilities 59,412 59,431 11,881
Long Term Debt (Note 4) 881,581 852,008 361,068
------------ ------------ -------------
Total liabilities 1,364,421 1,354,073 465,297
Commitments and Contingencies -- -- --
Member's Equity:
Member's equity 68,914 63,340 85,956
Accumulated other comprehensive loss - minimum pension
liability in excess of unrecognized prior service
cost, net of tax -- -- (737)
Accumulated other comprehensive loss - cumulative
translation adjustments (8,615) (2,437)
------------ ------------ -------------
Member's Equity 60,299 60,903 85,219
------------ ------------ -------------
Total Liabilities and Member's Equity $ 1,424,720 $ 1,414,976 $ 550,516
============ ============ =============
See notes to consolidated financial statements.
1
4
VENTURE HOLDINGS COMPANY LLC
- ----------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31,
---------
2000 1999
---- ----
NET SALES $ 480,506 $ 165,992
COST OF PRODUCT SOLD 410,748 133,070
--------------- ---------------
GROSS PROFIT 69,758 32,922
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 40,304 14,270
PAYMENTS TO BENEFICIARY IN LIEU
OF DISTRIBUTIONS 565 --
--------------- ---------------
INCOME FROM OPERATIONS 28,889 18,652
INTEREST EXPENSE (Note 5) 25,661 9,479
OTHER INCOME (Note 5) 215 --
--------------- ---------------
INCOME BEFORE TAXES 3,443 9,173
TAX (BENEFIT) PROVISION (2,401) 1,067
MINORITY INTEREST 270 --
--------------- ---------------
NET INCOME 5,574 8,106
OTHER COMPREHENSIVE LOSS -
Cumulative translation adjustments (6,178) --
--------------- ---------------
COMPREHENSIVE (LOSS) INCOME $ (604) $ 8,106
=============== ===============
See notes to consolidated financial statements.
2
5
VENTURE HOLDINGS COMPANY LLC
- ----------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31,
---------
2000 1999
---- ----
MEMBER'S EQUITY, BEGINNING
OF PERIOD $ 60,903 $ 77,113
COMPREHENSIVE (LOSS) INCOME:
NET INCOME 5,574 8,106
OTHER COMPREHENSIVE LOSS (6,178) --
------------ ------------
COMPREHENSIVE (LOSS) INCOME (604) 8,106
------------ ------------
MEMBER'S EQUITY, END
OF PERIOD $ 60,299 $ 85,219
============ ============
See notes to consolidated financial statements.
3
6
VENTURE HOLDINGS COMPANY LLC
- ----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,574 $ 8,106
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 22,288 10,794
Unrealized loss on currency exchange 42,188 --
Gain from the disposal of fixed assets (3) --
Change in accounts receivable (52,054) (10,056)
Change in inventories (2,244) (2,149)
Change in prepaid and other current assets (13,195) (100)
Change in other assets (3,621) (3,105)
Change in investments in associated company (715) --
Change in accounts payable 18,917 10,155
Change in accrued expenses 18,095 (5,397)
Change in other liabilities 1,106 (1,305)
Change in deferred taxes (4,173) 1,052
------------- ------------
Net cash provided by operating activities 32,163 7,995
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,589) (2,688)
Proceeds from sale of fixed assets 11 --
Unrealized loss on investments 544 --
------------- ------------
Net cash used in investing activities (19,034) (2,688)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit agreement 37,000 (2,000)
Principal payments on debt (48,972) (284)
------------- ------------
Net cash used in financing activities (11,972) (2,284)
Effect of exchange rate changes on cash and cash equivalents (5,977) --
NET (DECREASE) INCREASE IN CASH (4,820) 3,023
CASH AT BEGINNING OF PERIOD 7,392 130
------------- ------------
CASH AT END OF PERIOD $ 2,572 $ 3,153
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 22,690 $ 16,592
============= ============
Cash paid during the period for taxes $ 1,230 $ 20
============= ============
See notes to consolidated financial statements.
4
7
VENTURE HOLDINGS COMPANY LLC
- ----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. The consolidated financial statements
include the accounts of Venture Holdings Company LLC (hereinafter
referred to as "Venture") and all of Venture's domestic and foreign
subsidiaries that are wholly-owned or majority-owned (collectively
referred to as the "Company"). The Company's investment in a less than
majority-owned business is accounted for under the equity method. In the
opinion of management, all adjustments (consisting of only normal
recurring items), which are necessary for a fair presentation have been
included. The results for interim periods are not necessarily indicative
of results which may be expected for any other interim period or for the
full year. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's 1999 Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
2. ACQUISITION
On May 28, 1999, the Company purchased Peguform GmbH ("Peguform"), a
leading European supplier of high performance interior and exterior
plastic modules, systems and components to European OEMs (the "Peguform
Acquisition"), for approximately $463 million.
The excess of the purchase price over the fair market value of the net
assets acquired (goodwill) is estimated to be approximately $126 million
and is being amortized on a straight-line basis over 30 years.
Adjustments to the purchase price and related allocation may occur.
For further information, refer to Note 2 to the consolidated financial
statements included in the Company's 1999 Annual Report on Form 10-K.
The following unaudited pro forma financial data is presented to
illustrate the estimated effects of the Peguform Acquisition, as if the
transaction had occurred as of the beginning of the period presented.
5
8
Three Months Ended
March 31,
1999
----
Net sales $ 521,856
Net income before extraordinary loss 9,422
Net income 9,422
3. INVENTORIES
Inventories included the following (in thousands):
March 31, December 31, March 31,
2000 1999 1999
---- ---- ----
Raw materials $ 46,020 $ 59,243 $ 22,900
Work-in-process - manufactured parts 14,852 17,623 2,952
Work-in-process - tools and molds 63,598 57,984 15,002
Finished goods 27,476 19,770 12,434
------------- ------------- --------------
Total $ 151,946 $ 154,620 $ 53,288
============= ============= ==============
4. DEBT
Debt consisted of the following (in thousands):
March 31, December 31, March 31,
2000 1999 1999
---- ---- ----
Credit agreement
Term loan A, with interest of 8.88%, Due 2004 $ 73,425 $ 73,950 $ --
Term loan B, with interest of 9.38%, Due 2005 198,500 199,000 --
Interim term loan, with interest of 8.88%, Due 2000 83,000 125,000 --
Revolving credit outstanding, with interest of
10.25%, Due 2004 42,500 5,500 75,000
Bank debt payable with interest from 0.0% to 9.04%,
Due 2004 20,316 25,930
Senior notes payable, Due 2005
With interest at 9.5% 205,000 205,000 205,000
Senior notes payable, Due 2007
With interest at 11.0% 125,000 125,000 --
Senior subordinated notes payable, With interest at
9.75% -- -- 78,940
Senior subordinated notes payable, Due 2009
With interest at 12.0% 125,000 125,000 --
Capital leases with interest from 3.80%
to 11.70% 31,905 34,658 2,056
Installment notes payable with
Interest from 3.00% to 7.41% 1,186 1,338 1,660
----------- ----------- ---------------
Total $ 905,832 $ 920,376 $ 362,656
=========== =========== ===============
Less current portion of debt 24,251 68,368 1,588
=========== =========== ===============
Total 881,581 852,008 361,068
=========== =========== ===============
On May 27, 1999, in connection with the Peguform Acquisition, the Company
entered into a new credit agreement, which was amended on June 4, 1999
(the "credit agreement"). The credit agreement provides for borrowings of
(1) up to $175 million under a revolving credit facility, which, in
addition to those matters described below, is used for working capital
and general corporate purposes; (2) $75 million under a five-
6
9
year term loan A; (3) $200 million under a six-year term loan B; and (4)
$125 million under an 18-month interim term loan. On March 20, 2000, the
Company applied a prepayment of $42 million to the 18-month interim term
loan. See Note 5 of Notes to Consolidated Financial Statements. The
Company intends to refinance the remaining principal balance of the
18-month interim term loan and has the ability to use proceeds under the
revolving credit facility to do so. The revolving credit facility permits
the Company to borrow up to the lesser of a borrowing base computed as a
percentage of accounts receivable and inventory, or $175 million less the
amount of any letters of credit issued against the credit agreement.
Pursuant to the borrowing base formula as of March 31, 2000, the Company
could have borrowed an additional $129.5 million under the revolving
credit facility.
Obligations under the credit agreement are jointly and severally
guaranteed by Venture's domestic subsidiaries and are secured by first
priority security interests in substantially all of the assets of Venture
and its domestic subsidiaries.
The credit agreement, the documents governing the Company's 9 1/2% senior
notes due 2005 (the "1997 Senior Notes"), and the documents governing the
Company's 11% unsecured senior notes (the "1999 Senior Notes") and 12%
unsecured senior subordinated notes (the "1999 Senior Subordinated Notes"
and together with the 1999 Senior Notes, the "1999 Notes"), contain
restrictive covenants relating to cash flow, fixed charges, debt,
member's equity, distributions, leases, and liens on assets. The
Company's debt obligations also contain various restrictive covenants
that require the Company to maintain stipulated financial ratios,
including a minimum consolidated net worth (adjusted yearly), fixed
charge coverage ratio, interest coverage ratio and total indebtedness
ratio. As of March 31, 2000, the Company was in compliance with all debt
covenants.
5. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
During May 1999, and in connection with the issuance of debt to finance
the Peguform Acquisition, Venture entered into two five-year Euro dollar
cross-currency interest rate swap agreements and one three-year Euro
dollar cross-currency interest rate swap agreement. All agreements are
executed with major international financial institutions and, as such,
the Company does not anticipate that these institutions will fail to
perform.
Under the two five-year cross-currency interest rate swap agreements, the
Company received interest based on a fixed U.S. dollar interest rate of
11.5% and paid a fixed Euro dollar rate of 9.0% on the outstanding
notional principal amounts in U.S. dollars and Euro dollars,
respectively. If held to maturity, the Company would have paid 237
million Euro dollars in exchange for $250 million.
Under the three-year cross-currency interest rate swap agreement, the
Company received interest based on a fixed U.S. dollar interest rate of
9.5% and paid a fixed Euro dollar rate of 7.1% on the outstanding
notional principal amounts in U.S. dollars and Euro dollars,
respectively. If held to maturity, the Company would have paid 194
million Euro dollars in exchange for $205 million.
Each cross-currency interest rate swap agreement was originally comprised
of three separate financial instruments, consisting of two interest rate
swap agreements and a cross-currency swap agreement. When combined with
the underlying fixed U.S. dollar interest rate debt that they matched,
the debt was economically converted to fixed Euro dollar interest rate
debt.
On March 20, 2000, the Company terminated its cross-currency swap
agreements within each of its three original cross-currency interest rate
swap agreements and realized a cash gain of $42.0 million. The entire
cash proceeds were applied as a prepayment of the Company's $125 million
interim term loan. At December 31, 1999, these financial instruments had
an estimated fair market value of $27.1 million which was recorded as an
investment on the balance sheet with a corresponding unrealized gain of
$27.1 million being recorded in other income. Accordingly, as a result of
the termination of the cross-currency swap agreements, the net impact on
earnings for the three months ended March 31, 2000 is an increase in
other income of $14.9 million, which is comprised of a realized gain of
$42.0 million, offset by an unrealized loss of $27.1 million.
7
10
The cross-currency swap agreements were replaced with a twelve-month
foreign exchange collar. The collar is designed to reduce the economic
risk to the Company of Euro to US dollar exchange movements. The notional
amount is 500,000,000 Euros. The estimated fair market value of this
financial instrument is $2.2 million, and is recorded as an investment on
the balance sheet as of March 31, 2000. The corresponding $2.2 million
non-cash change in estimated fair market value is recorded in other
income for the three months ended March 31, 2000.
One of the interest rate swap agreements within each of the original
cross-currency interest rate swap agreements is accounted for using
settlement accounting. The cash flows from these interest rate swap
agreements are accounted for as adjustments to interest expense. For the
three months ended March 31, 2000, these interest rate swap agreements
resulted in an increase to interest expense of $0.2 million.
The other interest rate swap agreements within each of the original
cross-currency interest rate swap agreements do not meet all the criteria
for settlement accounting under generally accepted accounting principles.
The cash flows from these interest rate swap agreements are included in
other income. The estimated fair market value of these financial
instruments of $12.8 million is recorded as an investment on the balance
sheet as of March 31, 2000. The corresponding $0.5 million non-cash
change in estimated fair market value is recorded in other expense for
the three months ended March 31, 2000.
The Company has also entered into interest rate swap agreements with a
notional value of $55 million to mitigate the risk associated with
changing interest rates on certain floating rate debt. These interest
rate swap agreements are accounted for using settlement accounting. The
impact of these interest rate swap agreements resulted in $0.1 million
and $0.2 million of additional interest expense for the three months
ended March 31, 2000 and 1999, respectively.
6. RELATED PARTY TRANSACTIONS
Venture Holdings Trust (the "Trust") is the sole member of Venture. The
Company has entered into various transactions with entities that the sole
beneficiary of the Trust owns or controls. These transactions include
leases of real estate, usage of machinery, equipment and facilities,
purchases and sales of inventory, performance of manufacturing related
services, administrative services, insurance activities, and payment and
receipt of sales commissions. In addition, employees of the Company are
made available to certain of these entities for services such as design,
model and tool building. Since the Company operates for the benefit of
the sole beneficiary of the Trust, the terms of these transactions are
not the result of arms'-length bargaining; however, the Company believes
that such transactions are on terms no less favorable to the Company than
would be obtained if such transactions or arrangements were arms'-length
transaction with non-affiliated persons.
The Company provides or arranges for others to provide certain related
parties with various administrative and professional services, including
employee group insurance and benefit coverage, property and other
insurance, financial and cash management and administrative services such
as data processing. The related parties are charged fees and premiums for
these services. Administrative services were allocated to the entity for
which they were incurred and certain entities were charged a management
fee. In connection with the above cash management services, the Company
pays the administrative and operating expenses on behalf of certain
related parties and charges them for the amounts paid which results in
receivables from these related parties.
8
11
The result of these related party transactions was a net receivable,
which was included in accounts receivable as follows:
March 31, December 31, March 31,
2000 1999 1999
---- ---- ----
Amounts receivable $ 105,202 $ 96,795 $ 70,386
Amounts payable 18,493 14,151 10,508
-------------- ------------- --------------
Net amounts receivable $ 86,709 $ 82,644 $ 59,878
============== ============= ==============
7. SEGMENT REPORTING
Prior to the Peguform Acquisition on May 28, 1999, the Company was
organized and operated in one reporting segment. As a result of the
Peguform Acquisition, the Company is organized and managed based
primarily on geographic markets served. Under this organizational
structure, the Company's operating segments have been aggregated into two
reportable segments: North America and Europe. The following table
presents net sales and other financial information by business segment
for the three months ended March 31, 2000 (in thousands):
INCOME NET TOTAL
NET SALES FROM OPERATIONS INCOME ASSETS
--------- --------------- ------ ------
NORTH AMERICA (Venture) $ 169,802 $ 8,568 $ 845 $ 1,049,374
EUROPE (Peguform) 314,153 20,321 4,729 375,346
ELIMINATIONS (3,449) -- -- --
------------- -------------- ------------ ------------
TOTAL 480,506 28,889 5,574 1,424,720
============= ============== ============ ============
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Venture, as the successor to Venture Holdings Trust, and certain of its
wholly-owned, domestic subsidiaries are jointly and severally liable for
the 1997 Senior Notes issued on July 9, 1997. On May 27, 1999, certain
wholly-owned, domestic subsidiaries of Venture became guarantors of the
1997 Senior Notes. These guarantees are full and unconditional, joint and
several. Venture issued the 1999 Notes on May 27, 1999 in connection with
the Peguform Acquisition, as a result of which Venture acquired certain
additional foreign subsidiaries. The 1999 Notes are guaranteed by each of
Venture's wholly-owned, domestic subsidiaries. The guarantees of these
wholly-owned, domestic subsidiaries are full and unconditional, joint and
several.
Condensed consolidating financial information for the three months ended
March 31, 1999 are not presented because prior to May 27, 1999 the
non-guarantors and the non-issuers of the 1997 Senior Notes and the
non-guarantors of the 1999 Notes during those periods were
inconsequential, individually and in aggregate, to the consolidated
financial statements. Management does not believe that separate financial
statements of the issuer subsidiaries or guarantor subsidiaries are
material to investors in the 1997 Senior Notes or the 1999 Notes.
The principal elimination entries in the condensed consolidating
financial information set forth below eliminate investments in
subsidiaries and intercompany balances and transactions.
9
12
1997 SENIOR NOTES:
-----------------
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of March 31,
2000 and December 31, 1999 and for the three month period ended March 31,
2000, of (a) Venture, as a co-issuer of the 1997 senior notes (b) the
subsidiaries that are co-issuers of the 1997 Senior Notes, (c) the
guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) the
Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Venture, the
other issuers and the guarantor subsidiaries with the nonguarantor
subsidiaries.
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF MARCH 31, 2000
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES TOTAL
------- ------- ------------ ------------ -----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 58 $ -- $ 2,514 $ 2,572
Accounts receivable, net -- 211,736 124 145,244 357,104
Inventories -- 47,121 -- 104,825 151,946
Investments 15,007 -- -- -- 15,007
Prepaid and other current -- 24,883 -- 39,172 64,055
assets
----------- ----------- ----------- ----------- -----------
Total current assets 15,007 283,798 124 291,755 590,684
Property, Plant and Equipment, Net -- 196,012 13 348,352 544,377
Intangible Assets, Net -- 49,677 -- 115,137 164,814
Other Assets -- 62,027 -- 26,152 88,179
Deferred Tax Asset -- 12,666 -- 24,000 36,666
Net Investment in and advances to
to (from) subsidiaries &
affiliates 914,865 (485,417) 4,298 (433,746) --
----------- ----------- ----------- ----------- -----------
Total Assets $ 929,872 $ 118,763 $ 4,435 $ 371,650 $ 1,424,720
=========== =========== =========== =========== ===========
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $ 77,403 $ 919 $ 129,019 $ 207,341
Accrued interest 16,109 -- -- 75 16,184
Accrued expenses -- 12,363 4,043 102,905 119,311
Current portion of long
term debt 13,617 -- -- 10,634 24,251
----------- ----------- ----------- ----------- -----------
Total current
liabilities 29,726 89,766 4,962 242,633 367,087
Pension Liabilities & Other -- 6,104 -- 50,237 56,341
Deferred Tax Liabilities -- 11,871 -- 47,541 59,412
Long Term Debt 840,871 -- -- 40,710 881,581
----------- ----------- ----------- ----------- -----------
Total liabilities 870,597 107,741 4,962 381,121 1,364,421
Member's Equity:
Member's equity 59,275 11,022 (527) (856) 68,914
Accumulated other
comprehensive loss-
minimum pension
liability in excess of
unrecognized prior
service cost, net of tax -- -- -- -- --
Accumulated other
comprehensive loss-
cumulative translation
adjustments -- -- -- (8,615) (8,615)
----------- ----------- ----------- ----------- -----------
Member's Equity 59,275 11,022 (527) (9,471) 60,299
----------- ----------- ----------- ----------- -----------
Total Liabilities and Member's Equity $ 929,872 $ 118,763 $ 4,435 $ 371,650 $ 1,424,720
=========== =========== =========== =========== ===========
10
13
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 26 $ -- $ 7,366 $ -- $ 7,392
Accounts receivable, net -- 188,763 15 122,428 -- 311,344
Inventories -- 48,936 -- 105,684 -- 154,620
Investments 40,501 -- -- -- -- 40,501
Prepaid and other current
assets -- 20,051 -- 33,810 -- 53,861
--------- ---------- ------------ ------------- ------------- -----------
Total current assets 40,501 257,776 153 269,288 -- 567,718
Property, Plant and Equipment, Net -- 193,199 15 369,624 -- 562,838
Intangible Assets, Net -- 50,140 -- 121,950 -- 172,090
Other Assets -- 64,620 -- 17,884 -- 82,504
Deferred Tax Assets -- 11,711 -- 18,115 -- 29,826
Net Investment in and advances to
(from) subsidiaries & affiliates 873,454 (456,809) (6,971) (409,674) -- --
--------- ---------- ------------ ------------ ----------- ----------
Total Assets $ 913,955 $ 120,637 $ (6,803) $ 387,187 $ -- $ 1,414,976
========= ========== ============ ============ ============ ============
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $ 57,388 $ 512 $ 136,696 $ -- $ 194,596
Accrued interest 13,228 -- -- 175 -- 13,403
Accrued expenses -- 16,161 1,599 90,893 -- 108,653
Current portion of long 51,800 1,021 -- 15,547 -- 68,368
term debt
--------- ---------- ------------ ------------ ------------ -----------
Total current liabilities 65,028 74,570 2,111 243,311 -- 385,020
Pension Liabilities & Other -- 6,239 -- 51,375 -- 57,614
Deferred Tax Liabilities -- 12,054 -- 47,377 -- 59,431
Long Term Debt 806,650 1,496 -- 43,862 -- 852,008
--------- ---------- ------------ ------------ ------------ -----------
Total liabilities 871,678 94,359 2,111 385,925 -- 1,354,073
Commitments and Contingencies -- -- -- -- -- --
Member's Equity:
Member's equity 42,277 26,274 (8,914) 3,703 -- 63,340
Accumulated other
comprehensive income-
minimum pension
liability in excess of
unrecognized prior
service cost, net of tax -- -- -- -- -- --
Accumulated other
comprehensive income-
cumulative translation
adjustments -- 4 -- (2,441) -- (2,437)
--------- ---------- ------------- ------------ ------------ ------------
Member's Equity 42,277 26,278 (8,914) 1,262 -- 60,903
--------- ---------- ------------ ------------ ------------ -----------
Total Liabilities and Member's Equity $ 913,955 $ 120,637 $ (6,803) $ 387,187 $ -- $ 1,414,976
========= ========== ============ ============ ============ ============
11
14
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------- ------------ -----
NET SALES $ -- $ 188,067 $ 42,476 $ 315,488 $ (65,525) $ 480,506
COST OF PRODUCT SOLD -- 164,123 40,633 271,517 (65,525) 410,748
---------- ----------- ----------- ----------- --------- ----------
GROSS PROFIT -- 23,944 1,843 43,971 69,758
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 17,287 -- 23,017 -- 40,304
PAYMENTS TO BENEFICIARY IN LIEU
OF TAXES 565 -- -- -- -- 565
---------- ----------- ---------- ------------ --------- ----------
(LOSS) INCOME FROM OPERATIONS (565) 6,657 1,843 20,954 28,889
INTEREST EXPENSE 23,074 -- -- 2,587 -- 25,661
INTERCOMPANY INTEREST ALLOCATION (23,074) 23,074 (6,948) 6,948 -- --
OTHER (INCOME) EXPENSE (17,563) 460 404 16,484 -- (215)
---------- ----------- ---------- ---------- --------- ----------
INCOME (LOSS) BEFORE TAXES 16,998 (16,877) 8,387 (5,065) -- 3,443
TAX BENEFIT -- (1,625) -- (776) -- (2,401)
MINORITY INTEREST -- -- -- 270 -- 270
---------- ----------- ---------- ----------- --------- ----------
NET INCOME (LOSS) $ 16,998 $ (15,252) $ 8,387 $ (4,559) $ -- $ 5,574
========== =========== ========== =========== ========= ==========
12
15
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES TOTAL
------- ------- ------------ ------------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,998 $ (15,252) $ 8,387 $ (4,559) $ 5,574
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization -- 11,272 1 11,015 22,288
Unrealized loss (gain) on
currency exchange -- 24,951 (89) 17,326 42,188
Gain from the disposal of
fixed assets -- -- -- (3) (3)
Change in accounts receivable -- (22,973) 29 (29,110) (52,054)
Change in inventories -- 1,816 -- (4,060) (2,244)
Change in prepaid and other
current assets -- (4,346) -- (8,849) (13,195)
Change in other assets -- (441) -- (3,180) (3,621)
Change in investments in
associated company -- -- -- (715) (715)
Change in accounts payable -- 20,015 407 (1,505) 18,917
Change in accrued expenses 2,881 (2,953) 1,678 10,042 11,648
Change in pension liabilities
and other -- (135) -- 10,137 10,002
Change in deferred taxes -- (1,705) -- (4,917) (6,622)
--------- ---------- ----------- ---------- -----------
Net cash provided by (used
in) operating activities 19,879 10,249 10,413 (8,378) 32,163
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (10,589) -- (9,000) (19,589)
Net activity in investments in
and advances to (from)
subsidiaries and affiliates (13,943) 372 (10,413) 23,984 --
Proceeds from sale of fixed assets -- -- -- 11 11
Unrealized gain on investments 544 -- -- -- 544
--------- ---------- ----------- ---------- -----------
Net cash (used in) provided by
investing activities (13,399) (10,217) (10,413) 14,995 (19,034)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit facility 37,000 -- -- -- 37,000
Principal payments on debt (43,480) -- -- (5,492) (48,972)
--------- ---------- ----------- ---------- -----------
Net cash used in financing
activities (6,480) -- -- (5,492) (11,972)
Effect of exchange rate changes on
cash and cash Equivalents -- -- -- (5,977) (5,977)
NET INCREASE (DECREASE) IN
CASH -- 32 -- (4,852) (4,820)
CASH AT BEGINNING OF PERIOD $ -- $ 26 $ -- $ 7,366 $ 7,392
--------- --------- ----------- ---------- -----------
CASH AT END OF PERIOD $ -- $ 58 $ $ 2,514 $ 2,572
========= ========== =========== ========== ============
13
16
1999 NOTES:
- ----------
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of March 31,
2000 and December 31, 1999 and for the three month period ended March
31, 2000, of (a) Venture, the sole issuer of the 1999 Notes, (b) the
guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d) the
Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Venture and the
guarantor subsidiaries with the nonguarantor subsidiaries.
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF MARCH 31, 2000
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES TOTAL
------- ------------ ------------ -----
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 58 $ 2,514 $ 2,572
Accounts receivable, net -- 211,860 145,244 357,104
Inventories -- 47,121 104,825 151,946
Investments 15,007 -- -- 15,007
Prepaid and other current
assets -- 24,883 39,172 64,055
----------- ---------- -------------- ---------------
Total current assets 15,007 283,922 291,755 590,684
Property, Plant and Equipment, Net -- 196,025 348,352 544,377
Intangible Assets, Net -- 49,677 115,137 164,814
Other Assets -- 62,027 26,152 88,179
Deferred Tax Asset -- 12,666 24,000 36,666
Net Investment in and advances
to (from) subsidiaries & affiliates 914,865 (481,119) (433,746) --
----------- ---------- -------------- ---------------
Total Assets $ 929,872 $ 123,198 $ 371,650 $ 1,424,720
=========== ========== ============== ===============
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
Current Liabilities:
Accounts payable $ -- $ 78,322 $ 129,019 $ 207,341
Accrued interest 16,109 -- 75 16,184
Accrued expenses -- 16,406 102,905 119,311
Current portion of long
term debt 13,617 -- 10,634 24,251
----------- ---------- -------------- ---------------
Total current liabilities 29,726 94,728 242,633 367,087
Pension Liabilities & Other -- 6,104 50,237 56,341
Deferred Tax Liabilities -- 11,871 47,541 59,412
Long Term Debt 840,871 -- 40,710 881,581
----------- ---------- -------------- ---------------
Total liabilities 870,597 112,703 381,121 1,364,421
Member's Equity:
Member's equity 59,275 10,495 (856) 68,914
Accumulated other
comprehensive loss-
minimum pension
liability in excess of
unrecognized prior
service cost, net of tax -- -- -- --
Accumulated other
comprehensive loss-
cumulative translation
adjustments -- -- (8,615) (8,615)
----------- ---------- -------------- ---------------
Member's Equity 59,275 10,495 (9,471) 60,299
----------- ---------- -------------- ---------------
Total Liabilities and Member's Equity $ 929,872 $ 123,198 $ 371,650 $ 1,424,720
=========== ========== ============== ===============
14
17
CONDENSED CONSOLIDATING BALANCE SHEET
- --------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 26 $ 7,366 $ -- $ 7,392
Accounts receivable, net -- 188,916 122,428 -- 311,344
Inventories -- 48,936 105,684 -- 154,620
Investments 40,501 -- -- -- 40,501
Prepaid and other current
assets -- 20,051 33,810 -- 53,861
----------- ----------- ------------- ---------- ----------
Total current assets 40,501 257,929 269,288 -- 567,718
Property, Plant and Equipment, Net -- 193,214 369,624 -- 562,838
Intangible Assets, Net -- 50,140 121,950 -- 172,090
Other Assets -- 64,620 17,884 -- 82,504
Deferred Tax Assets -- 11,711 18,115 -- 29,826
Net Investment in and advances to
(from) subsidiaries & affiliates 873,454 (463,780) (409,674) -- --
----------- ----------- ------------- ---------- ----------
Total Assets $ 913,955 $ 113,834 $ 387,187 $ -- $ 1,414,976
=========== ============ ============= =========== ==========
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $ 57,900 $ 136,696 $ -- $ 194,596
Accrued interest 13,228 -- 175 -- 13,403
Accrued expenses -- 17,760 90,893 -- 108,653
Current portion of long
term debt 51,800 1,021 15,547 -- 68,368
----------- ----------- ------------- ---------- ----------
Total current
liabilities 65,028 76,681 243,311 -- 385,020
Pension Liabilities & Other -- 6,239 51,375 -- 57,614
Deferred Tax Liabilities -- 12,054 47,377 -- 59,431
Long Term Debt 806,650 1,496 43,862 -- 852,008
----------- ----------- ------------- ---------- ----------
Total liabilities 871,678 96,470 385,925 -- 1,354,073
Commitments and Contingencies -- -- -- -- --
Member's Equity:
Member's equity 42,277 17,360 3,703 -- 63,340
Accumulated other
comprehensive income-
minimum pension
liability in excess of
unrecognized prior
service cost, net of tax -- -- -- -- --
Accumulated other
comprehensive income-
cumulative translation
adjustments -- 4 (2,441) -- (2,437)
----------- ----------- ------------- ---------- ----------
Member's Equity 42,277 17,364 1,262 -- 60,903
----------- ----------- ------------- ---------- ----------
Total Liabilities and Member's
Equity $ 913,955 $ 113,834 $ 387,187 $ -- $1,414,976
=========== =========== ============= =========== ==========
15
18
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
NET SALES $ -- $ 230,543 $ 315,488 $(65,525) $ 480,506
COST OF PRODUCT SOLD -- 204,756 271,517 (65,525) 410,748
--------- --------- ---------- -------- ----------
GROSS PROFIT -- 25,787 43,971 69,758
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 17,287 23,017 -- 40,304
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 565 -- -- -- 565
--------- --------- ---------- -------- ----------
(LOSS) INCOME FROM OPERATIONS (565) 8,500 20,954 28,889
INTEREST EXPENSE 23,074 -- 2,587 -- 25,661
INTERCOMPANY INTEREST ALLOCATION (23,074) 16,126 6,948 -- --
OTHER (INCOME) EXPENSE (17,563) 864 16,484 -- (215)
--------- --------- ---------- -------- ----------
INCOME (LOSS) BEFORE TAXES 16,998 (8,490) (5,065) -- 3,443
TAX BENEFIT -- (1,625) (776) -- (2,401)
MINORITY INTEREST -- -- 270 -- 270
--------- --------- ---------- -------- ----------
NET INCOME (LOSS) $ 16,998 $ (6,865) $ (4,559) $ -- $ 5,574
========= ========= ========== ======== ==========
16
19
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES TOTAL
------- ------------ ------------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,998 $ (6,865) $ (4,559) $ 5,574
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 11,273 11,015 22,288
Unrealized loss (gain) on currency exchange -- 24,862 17,326 42,188
Gain from the disposal of fixed assets -- -- (3) (3)
Change in accounts receivable -- (22,944) (29,110) (52,054)
Change in inventories -- 1,816 (4,060) (2,244)
Change in prepaid and other current assets -- (4,346) (8,849) (13,195)
Change in other assets -- (441) (3,180) (3,621)
Change in investments in associated company -- -- (715) (715)
Change in accounts payable -- 20,422 (1,505) 18,917
Change in accrued expenses 2,881 (1,275) 10,042 11,648
Change in pension liabilities and other -- (135) 10,137 10,002
Change in deferred taxes -- (1,705) (4,917) (6,622)
------- --------- ----------- ----------
Net cash provided by (used in) operating
activities 19,879 20,662 (8,378) 32,163
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (10,589) (9,000) (19,589)
Net activity in investments in and advances
to (from) subsidiaries and affiliates (13,943) (10,041) 23,984 --
Proceeds from sale of fixed assets -- -- 11 11
Unrealized gain on investments 544 -- -- 544
------- --------- ----------- ----------
Net cash (used in) provided by investing activities (13,399) (20,630) 14,995 (19,034)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit
facility 37,000 -- -- 37,000
Principal payments on debt (43,480) -- (5,492) (48,972)
------- --------- ----------- ----------
Net cash used in financing activities (6,480) -- (5,492) (11,972)
Effect of exchange rate changes on cash and cash
Equivalents -- -- (5,977) (5,977)
NET INCREASE (DECREASE) IN CASH -- 32 (4,852) (4,820)
CASH AT BEGINNING OF PERIOD $ -- $ 26 $ 7,366 $ 7,392
------- --------- ----------- ----------
CASH AT END OF PERIOD $ -- $ 58 $ 2,514 $ 2,572
======= ========= =========== ==========
17
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following management's discussion and analysis of results of operations and
financial condition ("MD&A") should be read in conjunction with the MD&A
included in the Company's 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth, for the periods indicated, the Company's
consolidated statements of income expressed as a percentage of net sales. This
table and the subsequent discussion should be read in conjunction with the
consolidated financial statements and related notes.
Three Months Ended
March 31,
2000 1999
---- ----
Net sales 100.0 % 100.0
Cost of products sold 85.5 80.2
------- ------
Gross profit 14.5 19.8
Selling, general and administrative expense 8.4 8.6
Payments to beneficiary in lieu of distributions 0.1 0.0
------- ------
Income from operations 6.0 11.2
Interest expense 5.3 5.7
Other (income) expense 0.0 0.0
------- ------
Income before taxes 0.7 5.5
Tax (benefit) provision (0.5) 0.6
Minority interest .1 0.0
------- ------
Net income before extraordinary loss 1.1 4.9
Extraordinary loss on early extinguishment of debt 0.0 0.0
------- ------
Net income 1.1 % 4.9
======= ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
NET SALES. Net sales for the first quarter of 2000 increased $314.5 million, or
189.5%, from the first quarter of 1999. This increase was due to the addition of
Peguform's sales of $314.2 million for the first quarter of 2000. Domestically,
sales were comparable with the prior year.
GROSS PROFIT. Gross profit for the first quarter of 2000 increased $36.8 million
to $69.8 million compared to $32.9 million for the first quarter of 1999. As a
percentage of net sales, gross profit decreased to 14.5% for the first quarter
of 2000 from 19.8% for the first quarter of 1999. The decrease was largely due
to the contribution of Peguform's lower margin business being included in the
consolidated sales. Domestically, there was a decrease in the gross profit
margin to 15.6% from a gross profit margin of 19.8% in the first quarter of
1999. The decrease in domestic gross profit margin was primarily the result of
lower profits on tooling sales as compared with the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the first quarter of 2000 increased $26.0 million, or 182.4%, to
$40.3 million compared to $14.3 million for the first quarter of 1999 primarily
due to the addition of Peguform for the first quarter of 2000. As a percentage
of net sales, selling, general and administrative expense decreased to 8.4% for
the first quarter of 2000 as compared to 8.6% for the first quarter of 1999. The
decrease is primarily attributable to the impact of Peguform's lower selling,
general and administrative expense as a percentage of net sales, relative to
Venture's, being included in the operating results for the first quarter.
Domestically first quarter selling, general and administrative expense was
negatively impacted by $0.3 million for wage increases granted to
18
21
management employees during the third quarter of 1999. The continuing effect of
these wage increases on an annual basis will be approximately $1.3 million.
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations for
the first quarter of 2000 increased $10.2 million, or 54.9%, to $28.9 million,
compared to income from operations of $18.7 million for the first quarter of
1999. As a percentage of net sales, income from operations decreased to 6.0% for
the first quarter of 2000 from 11.2% for the first quarter of 1999.
INTEREST EXPENSE. First quarter interest expense increased $16.2 million, or
170.7 %, to $25.7 million in 2000 as compared to 1999. The increase is the
result of the increased debt associated with the acquisition of Peguform,
partially offset by a reduced overall cost of capital under the Company's new
capital structure, after consideration of interest rate swaps.
OTHER (INCOME) EXPENSE. Other (income) expense is comprised of $42.0 million of
realized gains and $27.1 million of unrealized losses on portions of the
cross-currency interest rate swap agreements entered into during the second
quarter of 1999 to economically hedge a portion of the Company's exposure to
foreign exchange and interest rate risk associated with the Peguform
Acquisition. During the first quarter, the Company terminated the three
cross-currency swap agreements and entered into a foreign exchange collar. The
foreign exchange collar had an estimated fair market value of $2.2 million which
was recorded as an investment on the balance sheet with a corresponding
unrealized gain of $2.2 million being recorded in other income during the first
quarter. See Note 5 of Notes to Consolidated Financial Statements. Other expense
was also comprised of unrealized currency losses of $17.7 million which were
offset, in part, by realized currency gains of $1.0 million.
TAX (BENEFIT) PROVISION. The tax benefit of $2.4 million for the three months
ended March 31, 2000 is primarily the result of the Company's German operations
which generated a taxable loss for the respective period. This compares to a
tax provision of $1.1 million for the three months ended March 31, 1999 which
was attributable to Venture Holdings Corporation. For the three months ended
March 31, 2000 Venture Holdings Corporation generated no tax provision.
NET INCOME. Due to the foregoing, the net income for the first quarter of 2000
decreased to $5.6 million compared to $8.1 million for the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES (UNAUDITED)
The Company's consolidated working capital was $223.6 million at March 31, 2000,
compared to $178.8 million at March 31, 1999, an increase of $44.8 million. The
Company's working capital ratio decreased to 1.61x at March 31, 2000 from 3.07x
at March 31, 1999. The decrease is due to an increase in current liabilities,
primarily accounts payable, accrued expenses and current portion of long term
debt not offset by a like increase in current assets. Net cash provided by
operating activities was $32.2 million for the year ended March 31, 2000
compared to net cash provided by operations of $8.0 million for the three months
ended March 31, 1999. The increase in cash provided by operations is due to a
realized $42 million gain on the termination of the cross-currency swap
agreements offset by a $42 million addition to the net increase of accounts
receivable from March 31, 1999 to March 31, 2000. In addition, the change in
current liabilities increased $32.3 million to $37.0 million for the three
months ended March 31, 2000 compared to $4.8 million for the same period in
1999.
Capital expenditures were $19.6 million for the three months ended March 31,
2000 compared to $2.7 million for the same period in 1999. The Company continues
to upgrade machinery and equipment and paint lines at all facilities to handle
expected increased volumes and general reconditioning of equipment.
In the ordinary course of business, the Company seeks additional business with
existing and new customers. The Company continues to compete for the right to
supply new components which could be material to the Company and requires
substantial capital investment in machinery, equipment, tooling and facilities.
As of the date hereof, however, the Company has no formal commitments with
respect to any such material business, except as noted below.
In August 1999, the Company was awarded a letter of intent for a significant new
program for one of its major customers (the "New Program") with projected annual
revenues of approximately $100 million, and production scheduled to start and
ramp up in late 2001. As a result of this award, the Company may be
19
22
required to make capital expenditures in the range of $40.0 to $80.0 million
payable over the next several years in addition to its normal capital
expenditures. The size and scope of the expenditures associated with the New
Program are still being defined.
Net cash used in financing activities was $12.0 million for the three months
ended March 31, 2000 compared to net cash used in financing activities of $2.3
million for the same period in 1999. The fluctuation primarily relates to the
$42 million prepayment of a portion of the Company's interim term loan offset by
additional borrowings of $37.0 million from the revolving credit facility.
In connection with the acquisition of Peguform, the Company entered into a new
credit agreement (the "New Credit Agreement"). The New Credit Agreement provides
for borrowings of (1) up to $175.0 million under a Revolving Credit Facility,
which, in addition to those matters described below, is used for working capital
and general corporate purposes; (2) $75.0 million under a five-year Term Loan A;
(3) $200.0 million under a six-year Term Loan B and (4) $125 million under an
18-month Interim Term Loan. On March 20, 2000, the Company applied a prepayment
of $42 million to the 18-month Interim Term Loan. See Note 5 of Notes to
Consolidated Financial Statements. The New Credit Agreement requires that the
remaining $83.0 million principal amount outstanding with respect to the
18-month Interim Term Loan be refinanced by November 27, 2000, using proceeds
from the sale of securities that rank pari passu in right of payment with, or
are junior to, the Company's 12% senior subordinated notes due 2009, described
below. The Company intends to refinance the remaining principal balance of the
18-month interim term loan and has the ability to use proceeds under the
Revolving Credit Facility to do so. The Revolving Credit Facility permits the
Company to borrow up to the lesser of a borrowing base computed as a percentage
of accounts receivable and inventory, or $175.0 million less the amount of any
letters of credit issued against the New Credit Agreement. At March 31, 2000 the
Company had $42.5 million outstanding with $129.5 million still available under
the Revolving Credit Facility. The New Credit Agreement and documents governing
the Company's $205 million in principal amount of 9 1/2% senior notes due 2005,
$125 million in principal amount of 11% senior notes due 2007 and $125 million
in principal amount of 12% senior subordinated notes due 2009 contain various
covenants. As of March 31, 2000, the Company was in compliance with all such
covenants.
Obligations under the New Credit Agreement are jointly and severally
guaranteed by the Company's domestic subsidiaries and are secured by first
priority security interests in substantially all of the assets of the Company
and its domestic subsidiaries. The New Credit Agreement became effective May 27,
1999 contemporaneously with the completion of the Peguform acquisition.
During May 1999, and in connection with the issuance of debt to finance the
Peguform acquisition, Venture entered into two five-year Euro dollar
cross-currency interest rate swap agreements and one three-year Euro dollar
cross-currency interest rate swap agreement. All agreements are executed with
major international financial institutions and, as such, the Company does not
anticipate that these institutions will fail to perform.
Under the two five-year cross-currency interest rate swap agreements, the
Company received interest based on a fixed U.S. dollar interest rate of 11.5%
and paid a fixed Euro dollar rate of 9.0% on the outstanding notional principal
amounts in U.S. dollars and Euro dollars, respectively. If held to maturity, the
Company would have paid 237 million Euro dollars in exchange for $250 million.
Under the three-year cross-currency interest rate swap agreement, the Company
received interest based on a fixed U.S. dollar interest rate of 9.5% and paid a
fixed Euro dollar rate of 7.1% on the outstanding notional principal amounts in
U.S. dollars and Euro dollars, respectively. If held to maturity, the Company
would have paid 194 million Euro dollars in exchange for $205 million.
20
23
Each cross-currency interest rate swap agreement was originally comprised of
three separate financial instruments, consisting of two interest rate swap
agreements and a cross-currency swap agreement. When combined with the
underlying fixed U.S. dollar interest rate debt that they matched, the debt was
economically converted to fixed Euro dollar interest rate debt.
On March 20, 2000, the Company terminated its cross-currency swap agreements
within each of its three original cross-currency interest rate swap agreements,
and realized a cash gain of $42.0 million. The entire cash proceeds were applied
as a prepayment of the Company's $125 million interim term loan. At December 31,
1999, these financial instruments had an estimated fair market value of $27.1
million which was recorded as an investment on the balance sheet with a
corresponding unrealized gain of $27.1 million being recorded in other income.
Accordingly, upon termination of the cross-currency swap agreements, the net
impact on earnings for the three months ended March 31, 2000 is an increase in
other income of $14.9 million, which is comprised of a realized gain of $42.0
million, offset by an unrealized loss of $27.1 million.
The cross-currency swap agreements were replaced with a twelve-month foreign
exchange collar. The estimated fair market value of this financial instrument is
$2.2 million, and is recorded as an investment on the balance sheet as of March
31, 2000. The corresponding $2.2 million non-cash change in estimated fair
market value is recorded in other income for the three months ended March 31,
2000.
One of the interest rate swap agreements within each of the original
cross-currency interest rate swap agreements is accounted for using settlement
accounting. The cash flows from these interest rate swap agreements are
accounted for as adjustments to interest expense. For the three months ended
March 31, 2000, these interest rate swap agreements resulted in an increase to
interest expense of $0.2 million.
The other interest rate swap agreements within each of the original
cross-currency interest rate swap agreements do not meet all the criteria for
settlement accounting under generally accepted accounting principles. The cash
flows from these interest rate swap agreements are included in other income. The
estimated fair market value of these financial instruments of $12.8 million is
recorded as an investment on the balance sheet as of March 31, 2000. The
corresponding $0.5 million non-cash change to estimated fair market value is
recorded in other expense for the three months ended March 31, 2000.
The Company has also entered into interest rate swap agreements with a notional
value of $55 million to mitigate the risk associated with changing interest
rates on certain floating rate debt. These interest rate swap agreements are
accounted for using settlement accounting. The impact of these interest rate
swap agreements resulted in $0.1 million and $0.2 million of additional interest
expense for the three months ended March 31, 2000 and 1999, respectively.
The Company believes that its existing cash balances, operating cash flow,
borrowings under its bank credit facility and other short term arrangements will
be sufficient to fund working capital needs, and normal capital expenditures
required for the operation of its existing business through the end of 2000. The
Company is obligated to refinance the interim term loan portion of the New
Credit Agreement prior to the end of 2000 and the Company is exploring its
options. As the scope of the New Program, defined above, is further defined, the
Company may seek new or amended credit arrangements to fund these capital
expenditures and working capital requirements and may address this in connection
with the refinancing of the interim term loan.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB approved SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This Standard was to apply in the first quarter of the Company's fiscal year
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beginning January 1, 2000. In July 1999 the FASB approved SFAS No. 137, which
delayed the implementation date for SFAS No. 133 for one year. The Company is
currently analyzing the impact of this Standard on our financial position and
results of operations.
In September 1999, the Emerging Issues Task Force (EITF) reached a consensus on
Issue 99-5, "Accounting for Pre-Production Costs related to Long-Term Supply
Arrangements." The Issue addresses pre-production costs incurred by OEM
suppliers to perform certain services related to the design and development of
the parts they will supply to the OEM as well as the design and development
costs to build molds, dies and other tools that will be used in producing the
parts. The consensus generally requires all design and development costs for
products to be sold under long-term supply arrangements to be expensed unless
there is a contractual guarantee that provides for specific required payments
for design and development costs.
The Task Force concluded that the provisions of this consensus may be applied
prospectively for costs incurred after December 31, 1999. At March 31, 2000,
other assets includes approximately $18.6 million of program costs for which
customer reimbursement is anticipated but not contractually guaranteed. These
costs will continue to be amortized over the future periods as they are
reimbursed by the Company's customers. The Company has adopted the provisions of
this consensus by expensing all program costs incurred after December 31, 1999.
* * * * * * *
The foregoing discussion in MD&A includes forward-looking statements within the
meaning of the Securities Exchange Act of 1934 and are subject to a number of
risks and uncertainties. Such factors include, among others, the following:
international, national and local general economic and market conditions;
demographic changes; the size and growth of the automobile market or the plastic
automobile component market; the ability of the Company to sustain, manage or
forecast its growth; the size, timing and mix of purchases of the Company's
products; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; dependence upon original equipment
manufacturers; liability and other claims asserted against the Company;
competition; the loss of significant customers or suppliers; fluctuations and
difficulty in forecasting operating results; changes in business strategy or
development plans; business disruptions; product recalls; warranty costs; the
ability to attract and retain qualified personnel; the ability to protect
technology; retention of earnings; and control and the level of affiliated
transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. In order to manage the risk arising
from these exposures, Venture has entered into a variety of foreign exchange and
interest rate financial instruments. A discussion of the Company's accounting
policies for derivative financial instruments can be found in the Organization
and Summary of Significant Accounting Policies and Financial Instruments
footnotes to the financial statements found in Item 8 of the Company's 1999
Annual Report on Form 10-K.
FOREIGN CURRENCY EXCHANGE RATE RISK. The Company has foreign currency exposures
related to buying, selling, and financing in currencies other than the local
currencies in which it operates. The Company's most significant foreign currency
exposures relate to Germany, Spain, France, the Czech Republic, Mexico, Brazil
and Canada. As of March 31, 2000, the net fair value asset of financial
instruments with exposure to foreign currency risk was approximately $2.2
million. The potential loss in fair value for such financial instruments from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
be approximately $27.0 million. The model assumes a parallel shift in the
foreign currency exchange rates. Exchange rates rarely move in the same
direction. The assumption that exchange rates change in a parallel fashion may
overstate the impact of changing exchange rates on assets and liabilities
denominated in a foreign currency.
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A portion of the Company's assets are based in its foreign operations and are
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of member's equity. Accordingly, the Company's consolidated
member's equity will fluctuate depending upon the weakening or strengthening of
the U.S. dollar against the respective foreign currency.
INTEREST RATE RISK. The Company is subject to market risk from exposure to
changes in interest rates based on its financing, investing, and cash management
activities. Venture has entered into various financial instrument transactions
to maintain the desired level of exposure to the risk of interest rate
fluctuations and to minimize interest expense. As of March 31, 2000, the net
fair value asset of financial instruments with exposure to interest rate risk
was approximately $12.8 million. The potential loss in fair value for such
financial instruments from a hypothetical 10% adverse shift in interest rates
would be approximately $4.9 million.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been involved in legal proceedings with the Michigan Department
of Environmental Quality concerning the emissions from its Grand Blanc paint
facility. In October 1999, the parties to the litigation reached an agreement in
principle to settle the case by the installation of full pollution abatement
equipment at the Grand Blanc facility and payment by the Company of $1.1
million. The agreement was subject to several conditions, primarily rezoning of
the property. In January of 2000, rezoning approval was granted for the new
equipment. In February of 2000, the Company applied for new permits for the
installation of the equipment. The Company is currently negotiating a consent
decree with the Michigan Department of Environmental Quality and expects this to
be completed by the third quarter of 2000.
In December 1999, the Michigan Department of Environmental Quality contacted the
Grand Blanc facility relating to the classification of wastes leaving the
facility. The Company has been discussing the issue with the Michigan Department
of Environmental Quality and has been conducting tests of the waste. As a result
of the contact and to avoid future liability, the Company has voluntarily
changed the classification of the waste on all subsequent disposals even though
the Company disagrees with the Michigan Department of Environmental Quality. In
addition, the Company is changing materials and certain processes to remove the
concern of the Michigan Department of Environmental Quality. By changing the
classification of the waste for disposal subsequent to the contact, the Company
has limited its potential liability to disposals prior to the contact. However,
the Company may be exposed to some liability for past disposal. On March 20,
2000 the Company received a notice of warning from the Michigan Department of
Environmental Quality regarding this matter. At the present time the Company is
unable to quantify or qualify any liability for these disposals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. A list of the exhibits required to be filed as part of
this Form 10-Q is included under the heading "Exhibit Index" in
this Form 10-Q and incorporated herein by reference.
(b) The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENTURE HOLDINGS COMPANY LLC, VEMCO,
INC., VENTURE INDUSTRIES CORPORATION,
VENTURE MOLD & ENGINEERING CORPORATION,
VENTURE LEASING COMPANY, VEMCO LEASING,
INC., VENTURE HOLDINGS CORPORATION,
VENTURE SERVICE COMPANY, EXPERIENCE
MANAGEMENT LLC, VENTURE EUROPE, INC., AND
VENTURE EU CORPORATION
Date: May 11, 2000 /s/ James E. Butler
-------------------------------
James E. Butler
Chief Financial Officer
Signing on behalf of each registrant and
as principal financial officer of each
registrant.
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EXHIBIT INDEX
Exhibit No. Description
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27.1 Financial Data Schedule.
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