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 September 30, 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 September 30, 2000,
December 31, 1999 and September 30, 1999 1
Consolidated Statements of Income and Comprehensive Income
for the Three Months and Nine Months Ended September 30, 2000
and 1999 2
Consolidated Statements of Changes in Member's Equity
for the Three Months and Nine Months Ended September 30, 2000
and 1999 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 6. Exhibits and Reports on Form 8-K 32
Signature 33
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLARS in Thousands)
September 30, September 30,
2000 December 31, 1999
ASSETS (Unaudited) 1999 (Unaudited)
- ------ ----------- ---- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 7,765 $ 7,392 $ 13,204
Accounts receivable, net, includes related party receivables
of $91,090, $82,644 and $66,016 at September 30, 2000, 328,847 311,344 379,681
December 31, 1999 and September 30, 1999, respectively (Note 6)
Inventories (Note 3) 155,030 154,620 165,453
Investments (Note 5) 6,386 40,501 6,989
Prepaid and other current assets 63,557 53,861 49,359
----------- ----------- -----------
Total current assets 561,585 567,718 614,686
Property, Plant and Equipment, Net 525,039 562,838 618,179
Intangible Assets, Net (Note 2) 136,754 172,090 82,905
Other Assets 89,372 82,504 66,926
Deferred Tax Assets 76,835 29,826 18,505
----------- ----------- -----------
Total Assets $ 1,389,585 $ 1,414,976 $ 1,401,201
=========== =========== ===========
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Accounts payable $ 185,914 $ 194,596 197,662
Accrued interest 15,585 13,403 16,219
Accrued expenses 111,405 108,653 91,092
Current portion of long term debt (Note 4) 26,653 68,368 18,986
----------- ----------- -----------
Total current liabilities 339,557 385,020 323,959
Pension Liabilities & Other 52,178 57,614 38,440
Deferred Tax Liabilities 61,402 59,431 18,607
Long Term Debt (Note 4) 882,841 852,008 946,036
----------- ----------- -----------
Total liabilities 1,335,978 1,354,073 1,327,042
Commitments and Contingencies -- -- --
Member's Equity:
Member's equity 65,195 63,340 74,804
Accumulated other comprehensive loss - minimum pension
liability in excess of unrecognized prior service cost, net -- -- (737)
of tax
Accumulated other comprehensive loss - cumulative
translation adjustments (11,588) (2,437) 92
----------- ----------- -----------
Member's Equity 53,607 60,903 74,159
----------- ----------- -----------
Total Liabilities and Member's Equity $ 1,389,585 $ 1,414,976 $ 1,401,201
=========== =========== ===========
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 Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
NET SALES $ 430,397 $ 440,046 $ 1,394,103 $ 879,841
COST OF PRODUCT SOLD 391,253 393,025 1,223,250 772,781
--------- ---------- ----------- ---------
GROSS PROFIT 39,144 47,021 170,853 107,060
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 32,124 38,582 105,788 72,806
PAYMENTS TO BENEFICIARY IN
LIEU OF DISTRIBUTIONS -- 175 1,165 252
--------- ---------- ----------- ---------
INCOME FROM OPERATIONS 7,020 8,264 63,900 34,002
INTEREST EXPENSE (Note 5) 25,426 20,819 75,841 45,847
OTHER EXPENSE (INCOME) (Note 5) 18,912 5,694 16,948 (14,206)
--------- ---------- ----------- ---------
(LOSS) INCOME BEFORE TAXES (37,318) (18,249) (28,889) 2,361
TAX BENEFIT (29,665) (1,020) (31,480) (615)
MINORITY INTEREST 256 424 736 453
--------- ---------- ----------- ---------
NET (LOSS) INCOME BEFORE
EXTRAORDINARY LOSS (7,909) (17,653) 1,855 2,523
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- -- -- 5,569
--------- ---------- ----------- ---------
NET (LOSS) INCOME (7,909) (17,653) 1,855 (3,046)
OTHER COMPREHENSIVE (LOSS) INCOME -
Cumulative translation adjustments (3,477) 22,883 (9,151) 92
--------- ---------- ----------- ---------
COMPREHENSIVE (LOSS) INCOME $ (11,386) $ 5,230 $ (7,296) $ (2,954)
========= ========== =========== =========
2
5
VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY (Unaudited)
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
MEMBER'S EQUITY, BEGINNING
OF PERIOD $ 64,993 $ 68,929 $ 60,903 $ 77,113
COMPREHENSIVE (LOSS) INCOME:
NET (LOSS) INCOME (7,909) (17,653) 1,855 (3,046)
OTHER COMPREHENSIVE (LOSS) INCOME (3,477) 22,883 (9,151) 92
-------- -------- -------- --------
COMPREHENSIVE (LOSS) INCOME (11,386) 5,230 (7,296) (2,954)
-------- -------- -------- --------
MEMBER'S EQUITY, END OF PERIOD $ 53,607 $ 74,159 $ 53,607 $ 74,159
======== ======== ======== ========
See notes to consolidated financial statements.
3
6
VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Nine Months Ended
September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,855 $ (3,046)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 72,242 47,603
Unrealized loss on currency exchange 59,734 --
Net extraordinary loss on early extinguishment of debt -- 5,569
Loss from the disposal of fixed assets -- 335
Change in accounts receivable (17,502) (5,274)
Change in inventories (409) 7,587
Change in prepaid and other current assets (11,057) (12,857)
Change in other assets 11,814 (12,666)
Change in accounts payable (8,683) 8,828
Change in accrued expenses (2,633) 8,295
Change in other liabilities (5,436) 8,629
Change in deferred taxes (37,269) (7,704)
--------- ---------
Net cash provided by operating activities 62,656 45,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired -- (450,842)
Capital expenditures (66,416) (34,550)
Proceeds from sale of fixed assets 206 692
Unrealized loss (gain) on investments 37,174 (7,293)
--------- ---------
Net cash used in investing activities (29,036) (491,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit agreement 66,500 (25,284)
Net borrowings on bank debt -- --
Net proceeds from issuance of debt -- 650,000
Debt issuance fees -- (27,731)
Payment for early extinguishment of debt -- (82,788)
Principal payments on debt (77,382) (53,303)
--------- ---------
Net cash (used in) provided by financing activities (10,882) 460,894
Effect of exchange rate changes on cash and cash equivalents (22,365) (1,126)
NET INCREASE IN CASH 373 13,074
CASH AT BEGINNING OF PERIOD 7,392 130
--------- ---------
CASH AT END OF PERIOD $ 7,765 $ 13,204
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 72,501 44,759
========= =========
Cash paid during the period for taxes $ 4,150 1,263
========= =========
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 accounting principles generally accepted in
the United States of America 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
investments in less than majority-owned businesses are 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. ACQUISITIONS
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. During the second quarter
of 2000, an agreement was reached on post closing adjustments related to
the Peguform Acquisition reducing the consideration paid for Peguform by
$18 million to $445 million. The Company used the proceeds of the final
settlement to reduce its outstanding borrowings.
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.
Nine Months Ended
September 30,
1999
----
Net sales $ 1,406,107
Net income before extraordinary loss 15,299
Net income 9,730
5
8
3. INVENTORIES
Inventories included the following (in thousands):
September 30, December 31, September 30,
2000 1999 1999
---- ---- ----
Raw materials $ 62,848 $ 59,243 $ 56,040
Work-in-process - manufactured parts 14,201 17,623 14,271
Work-in-process - tools and molds 57,460 57,984 71,299
Finished goods 20,521 19,770 23,843
------------- ------------- --------------
Total $ 155,030 $ 154,620 $ 165,453
============= ============= ==============
4. DEBT
Debt consisted of the following (in thousands):
September 30, December 31, September 30,
2000 1999 1999
---- ---- ----
Credit agreement
Term loan A, with interest of 9.65%, Due 2004 $ 69,525 $ 73,950 $ 74,475
Term loan B, with interest of 10.15%, Due 2005 197,500 199,000 199,500
Interim term loan, with interest of 9.62%, Due 2000 73,000 125,000 125,000
Revolving credit outstanding, with interest of
11.00%, Due 2004 72,000 5,500 51,787
Bank debt payable with interest from 0.0% to 9.04%,
Due 2004 14,715 25,930 24,239
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% 125,000 125,000 125,000
Senior subordinated notes payable, Due 2009
With interest at 12.0% 125,000 125,000 125,000
Capital leases with interest from 3.80%
to 11.70% 26,812 34,658 33,596
Installment notes payable with
Interest from 3.00% to 7.41% 942 1,338 1,425
-------------- ------------ --------------
Total $ 909,494 $ 920,376 $ 965,022
============== ============ ==============
Less current portion of debt 26,653 68,368 18,986
============== ============ ==============
Total 882,841 852,008 946,036
============== ============ ==============
In March 2000, the Company applied a prepayment of $42 million to the
18-month interim term loan which matures November 27, 2000. In July 2000,
the Company applied additional $8 million and $2 million prepayments to
the 18-month interim term loan, reducing the principal balance to $73
million. See Note 5 of Notes to Consolidated Financial Statements. The
Company intends to repay the remaining principal balance of the 18-month
interim term loan with the proceeds under a European non-recourse
factoring program supplemented with, if necessary, proceeds under the
revolving credit facility.
On June 29, 2000, the credit agreement was amended for several purposes.
First, the requirement that the Company issue $125 million 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 was
extended from November 27, 2000 to March 31, 2002. Second, the credit
agreement was amended to allow for a $100 million non-recourse factoring
program. Third, certain restrictive covenants were amended to provide the
Company with additional flexibility in its stipulated financial ratios.
6
9
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 September 30, 2000, the Company could have borrowed an
additional $94.3 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 September 30, 2000, the Company was in compliance with all
debt covenants.
5. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In March 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 nine months ended September 30, 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 during 1999.
For the three and nine months ended September 30, 1999, the non-cash
change in fair market value of the cross-currency swap agreements
resulted in $20.8 million and $3.3 million, respectively, of other
expense.
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 of each of the put and call sides of the foreign currency exchange
collar was originally 500,000,000 Euros. During July 2000, the Company
terminated the put side of its foreign currency exchange collar and
received $10.9 million. The Company used $2.7 million of the proceeds to
purchase a replacement put to protect against any large devaluations in
the Euro to US dollar exchange rate. The notional amount of the
replacement put is 400,000,000 Euros. The Company applied $8.0 million of
the net cash proceeds as a prepayment of the 18-month interim term loan.
See Note 4 of Notes to Consolidated Financial Statements. The estimated
fair market value of the resulting financial instrument is $6.0 million,
and is recorded as an investment on the balance sheet as of September 30,
2000. The corresponding $(0.5) million and $3.3 million non-cash change
in estimated fair market value is recorded in other (expense) income for
the three and nine months ended September 30, 2000, respectively.
One of the interest rate swap agreements within each of the original
cross-currency interest rate swap agreements was accounted for using
settlement accounting. The cash flows from these interest rate swap
agreements was accounted for as adjustments to interest expense. For the
three and nine months ended September 30, 2000, these interest rate swap
agreements resulted in an increase to interest expense of $48,000 and
$500,000, respectively. For the three and nine months ended September 30,
1999, these interest rate swap agreements resulted in a decrease to
interest expense of $1.0 million and $1.1 million, respectively. During
July 2000, the Company paid $14.9 million to terminate these financial
instruments. This amount has
7
10
been capitalized and will be amortized into interest expense over the
terms of the original interest rate swap agreements. For each of the
three and nine months ended September 30, 2000, interest expense includes
$1.2 million of this deferred interest asset amortization.
The other interest rate swap agreements within each of the original
cross-currency interest rate swap agreements did 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. For the three and nine months ended September
30, 1999, the non-cash change in estimated fair market value of these
financial instruments of $8.3 million and $10.3 million was recorded as
other income. During July 2000, the Company terminated these financial
instruments and realized a cash gain of $16.9 million plus interest
income of $0.1 million.
At December 31, 1999, these financial instruments had an estimated fair
market value of $13.4 million which was recorded as an investment on the
balance sheet with a corresponding unrealized gain of $13.4 million being
recorded in other income during 1999. At June 30, 2000, these financial
instruments had an estimated fair market value of $16.9 million which was
recorded as an investment on the balance sheet with a corresponding
unrealized gain of $3.5 million being recorded in other income.
Accordingly, as a result of the termination of these interest rate swap
agreements, the net impact on earnings for the nine months ended
September 30, 2000 is an increase in other income of $3.5 million, which
is comprised of a realized gain of $16.9 million, offset by an unrealized
loss of $13.4 million.
During July 2000, the Company applied $2.0 million of the net cash
proceeds from the terminations of the interest rate swap agreements as an
additional prepayment of the 18-month interim term loan. See Note 4 of
Notes to Consolidated Financial Statements.
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 $141,000 and
$645,000 of additional interest expense for the nine months ended
September 30, 2000 and 1999, respectively. The impact of these interest
rate swap agreements resulted in $36,000 of reduced interest expense for
the three months ended September 30, 2000 and $193,000 of additional
interest expense for the three months ended September 30, 1999.
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
transactions 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:
September 30, December 31, September 30,
2000 1999 1999
---- ---- ----
Amounts receivable $ 113,906 $ 96,795 $ 78,515
Amounts payable 22,816 14,151 12,499
-------------- ------------- --------------
Net amounts receivable $ 91,090 $ 82,644 $ 66,016
============== ============= ==============
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 (excluding Mexico) and International.
The following table presents net sales and other financial information by
business segment for the nine months ended September 30, 2000 (in
thousands):
INCOME NET TOTAL
NET SALES FROM OPERATIONS INCOME (LOSS) ASSETS
--------- --------------- ------------- ------
NORTH AMERICA (Venture) $ 446,019 $ 11,564 $ 3,062 $ 1,024,163
INTERNATIONAL (Peguform) 951,547 52,336 (1,207) 581,714
ELIMINATIONS (3,463) -- -- (216,292)
------------- -------------- ------------ ------------
TOTAL 1,394,103 63,900 1,855 1,389,585
============= ============== ============ ============
The following table presents net sales and other financial information by
business segment for the nine months ended September 30, 1999 (in
thousands):
INCOME NET TOTAL
NET SALES FROM OPERATIONS (LOSS) INCOME ASSETS
--------- --------------- -------------- ------
NORTH AMERICA (Venture) $ 454,651 $ 13,481 $ (14,704) $ 1,086,090
INTERNATIONAL (Peguform) 425,190 20,521 11,658 531,403
ELIMINATIONS -- -- -- (216,292)
------------ -------------- ------------ ------------
TOTAL 879,841 34,002 (3,046) 1,401,201
============ ============== ============ ============
12
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Venture, as the successor to Venture Holdings Trust, and certain of its
100% owned, domestic subsidiaries are jointly and severally liable for
the 1997 Senior Notes issued on July 9, 1997. On May 27, 1999, certain
100% 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 100% owned, domestic subsidiaries. The guarantees of these 100%
owned, domestic subsidiaries are full and unconditional, joint and
several.
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.
1997 SENIOR NOTES:
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of September 30,
2000, December 31, 1999 and September 30, 1999 and for the three
and nine month period ended September 30, 2000 and September 30,
1999, 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.
10
13
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ -- $ -- $ 7,765 $ -- $ 7,765
Accounts receivable, net -- 185,685 134 143,028 -- 328,847
Inventories -- 60,006 -- 95,024 -- 155,030
Investments 6,016 -- -- 370 -- 6,386
Prepaid and other current assets -- 30,414 531 32,612 -- 63,557
---------- --------- ---------- ----------- --------- ----------
Total current assets 6,016 276,105 665 278,799 -- 561,585
Property, Plant and Equipment, Net -- 190,920 11 334,108 -- 525,039
Intangible Assets, Net -- 48,723 -- 88,031 -- 136,754
Other Assets 13,691 58,232 -- 17,449 -- 89,372
Deferred Tax Assets -- 10,725 -- 66,110 -- 76,835
Net Investment in and advances to (from)
subsidiaries & affiliates 940,121 (565,809) 42,840 (200,860) (216,292) --
---------- --------- ---------- ----------- --------- ----------
Total Assets $ 959,828 $ 18,896 $ 43,516 $ 583,637 $ (216,292) $ 1,389,585
========== ========= ========== =========== ========= ==========
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $ 47,976 $ 906 $ 137,032 $ -- $ 185,914
Accrued interest 15,339 -- -- 246 -- 15,585
Accrued expenses -- 7,096 2,980 101,329 -- 111,405
Current portion of long term debt 16,549 604 -- 9,500 -- 26,653
---------- --------- ---------- ----------- --------- ----------
Total current liabilities 31,888 55,676 3,886 248,107 -- 339,557
Pension Liabilities & Other -- 6,709 -- 45,469 -- 52,178
Deferred Tax Liabilities -- 11,507 -- 49,895 -- 61,402
Long Term Debt 850,476 1,146 -- 31,219 -- 882,841
---------- --------- ---------- ----------- --------- ----------
Total liabilities 882,364 75,038 3,886 374,690 -- 1,335,978
Commitments and Contingencies -- -- -- -- -- --
Member's Equity:
Member's equity 77,464 (56,142) 39,630 220,535 (216,292) 65,195
Accumulated other comprehensive income-
cumulative translation adjustments -- -- -- (11,588) -- (11,588)
---------- --------- ---------- ----------- --------- ----------
Member's Equity 77,464 (56,142) 39,630 208,947 (216,292) 53,607
---------- --------- ---------- ----------- --------- ----------
Total Liabilities and Member's Equity $ 959,828 $ 18,896 $ 43,516 $ 583,637 $ (216,292) $ 1,389,585
========== ========= ========== =========== ========= ==========
11
14
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 -- 188,763 153 122,428 -- 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 (476,391) 12,083 (192,854) (216,292) --
Total Assets ---------- --------- ---------- ----------- --------- ----------
$ 913,955 $ 101,055 $ 12,251 $ 604,007 $ (216,292) $ 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 -- 15,395 2,365 90,893 -- 108,653
Current portion of long term debt 51,800 1,021 -- 15,547 -- 68,368
---------- --------- ---------- ----------- --------- ----------
Total current liabilities 65,028 73,804 2,877 243,311 -- 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 93,593 2,877 385,925 -- 1,354,073
Commitments and Contingencies -- -- -- -- -- --
Member's Equity:
Member's equity 42,277 7,458 9,374 220,523 (216,292) 63,340
Accumulated other comprehensive income-
cumulative translation adjustments -- 4 -- (2,441) -- (2,437)
---------- --------- ---------- ----------- --------- ----------
Member's Equity 42,277 7,462 9,374 218,082 (216,292) 60,903
---------- --------- ---------- ----------- --------- ----------
Total Liabilities and Member's Equity $ 913,955 $ 101,055 $ 12,251 $ 604,007 $ (216,292) $ 1,414,976
========== ========= ========== =========== ========= ==========
12
15
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 8,427 $ -- $ 4,777 $ -- $ 13,204
Accounts receivable, net -- 192,296 9,715 177,670 -- 379,681
Inventories -- 57,663 -- 107,790 -- 165,453
Investments 6,989 -- -- -- -- 6,989
Prepaid and other current assets -- 8,201 -- 41,158 -- 49,359
---------- --------- ---------- ----------- --------- ----------
Total current assets 6,989 266,587 9,715 331,395 -- 614,686
Property, Plant and Equipment, Net -- 196,276 16 421,887 -- 618,179
Intangible Assets, Net -- 50,615 -- 32,290 -- 82,905
Other Assets -- 54,000 -- 12,926 -- 66,926
Deferred Tax Assets -- 14,139 -- 4,366 -- --
Net Investment in and advances to (from)
subsidiaries & affiliates 916,531 (431,934) -- (268,305) (216,292) 18,505
---------- --------- ---------- ----------- --------- ----------
Total Assets $ 923,520 $ 149,683 $ 9,731 $ 534,559 $ (216,292) $ 1,401,201
========== ========= ========== =========== ========= ==========
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
Current Liabilities:
Accounts payable $ -- $ 65,289 $ 746 $ 131,627 $ -- $ 197,662
Accrued interest 16,219 -- -- -- -- 16,219
Accrued expenses -- 11,532 3,008 76,552 -- 91,092
Current portion of long term debt 6,950 971 -- 11,065 -- 18,986
---------- --------- ---------- ----------- --------- ----------
Total current liabilities 23,169 77,792 3,754 219,244 -- 323,959
Pension Liabilities & Other -- 5,589 -- 32,851 -- 38,440
Deferred Tax Liabilities -- 11,622 -- 6,985 -- 18,607
Long Term Debt 898,812 1,607 -- 45,617 -- 946,036
---------- --------- ---------- ----------- --------- ----------
Total liabilities 921,981 96,610 3,754 304,697 -- 1,327,042
Commitments and Contingencies -- -- -- -- -- --
Member's Equity:
Member's equity 1,539 53,810 5,977 229,770 (216,292) 74,804
Accumulated other comprehensive income-
minimum pension liability in excess of
unrecognized prior service cost, net of tax -- (737) -- -- -- (737)
Accumulated other comprehensive income-
cumulative translation adjustments -- -- -- 92 -- 92
---------- --------- ---------- ----------- --------- ----------
Member's Equity 1,539 53,073 5,977 229,862 (216,292) 74,159
---------- --------- ---------- ----------- --------- ----------
Total Liabilities and Member's Equity $ 923,520 $ 149,683 $ 9,731 $ 534,559 $ (216,292) $ 1,401,201
========== ========= ========== =========== ========= ==========
13
16
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
NET SALES $ -- $ 495,493 $ 123,157 $ 955,501 $ (180,048) $ 1,394,103
COST OF PRODUCT SOLD -- 440,327 122,896 840,075 (180,048) 1,223,250
------------ ------------ ----------- ------------ ----------- ------------
GROSS PROFIT -- 55,166 261 115,426 -- 170,853
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 43,922 -- 61,866 -- 105,788
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 1,165 -- -- -- -- 1,165
------------ ------------ ----------- ------------ ----------- ------------
(LOSS) INCOME FROM OPERATIONS (1,165) 11,244 261 53,560 -- 63,900
INTEREST EXPENSE 69,462 (49) -- 6,428 -- 75,841
INTERCOMPANY INTEREST ALLOCATION (69,462) 69,338 (24,127) 24,251 -- --
OTHER (INCOME) EXPENSE (36,352) 5,614 (5,868) 53,554 -- 16,948
------------ ------------ ----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE TAXES 35,187 (63,659) 30,256 (30,673) -- (28,889)
TAX BENEFIT -- (59) -- (31,421) -- (31,480)
MINORITY INTEREST -- -- -- 736 -- 736
------------ ------------ ----------- ------------ ----------- ------------
NET INCOME (LOSS) $ 35,187 $ (63,600) $ 30,256 $ 12 $ -- $ 1,855
============ ============ =========== ============ =========== ============
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
NET SALES $ -- $ 142,101 $ 40,179 $ 311,489 $ (63,372) $ 430,397
COST OF PRODUCT SOLD -- 132,097 41,166 281,362 (63,372) 391,253
------------ ------------ ----------- ------------ ----------- ------------
GROSS PROFIT (LOSS) -- 10,004 (987) 30,127 -- 39,144
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 16,506 -- 15,618 -- 32,124
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES -- -- -- -- -- --
------------ ------------ ----------- ------------ ----------- ------------
(LOSS) INCOME FROM OPERATIONS -- (6,502) (987) 14,509 -- 7,020
INTEREST EXPENSE 23,630 (49) -- 1,845 -- 25,426
INTERCOMPANY INTEREST ALLOCATION (23,630) 23,506 (11,114) 11,238 -- --
OTHER (INCOME) EXPENSE (14,237) 5,031 (7,411) 35,529 -- 18,912
------------ ------------ ----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE TAXES 14,237 (34,990) 17,538 (34,103) -- (37,318)
TAX PROVISION (BENEFIT) -- (28) -- (29,637) -- (29,665)
MINORITY INTEREST -- -- -- 256 -- 256
------------ ------------ ----------- ------------ ----------- ------------
NET INCOME (LOSS) $ 14,237 $ (34,962) $ 17,538 $ (4,722) $ -- $ (7,909)
============ ============ =========== ============ =========== ============
14
17
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
NET SALES $ -- $ 332,535 $ 117,260 $ 430,046 $ (180,913) $ 879,841
COST OF PRODUCT SOLD -- 288,963 111,390 372,428 (180,913) 772,781
------------ ------------ ----------- ------------ ----------- -----------
GROSS PROFIT -- 43,572 5,870 57,618 -- 107,060
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 37,529 -- 35,277 -- 72,806
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 252 -- -- -- -- 252
------------ ------------ ----------- ------------ ----------- -----------
(LOSS) INCOME FROM OPERATIONS (252) 6,043 5,870 22,341 -- 34,002
INTEREST EXPENSE 44,867 129 -- 851 -- 45,847
INTERCOMPANY INTEREST ALLOCATION (44,867) 38,683 -- 6,184 -- --
OTHER EXPENSE (INCOME) (7,360) (7,633) -- 787 -- (14,206)
------------ ------------ ----------- ------------ ----------- -----------
(LOSS) INCOME BEFORE TAXES 7,108 (25,136) 5,870 14,519 -- 2,361
TAX (BENEFIT) PROVISION -- (1,203) -- 509 -- (615)
MINORITY INTEREST -- -- -- 453 -- 453
------------ ------------ ----------- ------------ ----------- -----------
NET (LOSS) INCOME BEFORE
EXTRODINARY LOSS 7,108 (23,933) 5,870 13,478 -- 2,523
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT 5,569 -- -- -- -- 5,569
------------ ------------ ----------- ------------ ----------- -----------
NET (LOSS) INCOME $ 1,539 $ (23,933) $ 5,870 $ 13,478 $ -- $ (3,046)
============ ============ =========== ============ =========== ===========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
NET SALES $ -- $ 141,890 $41,022 $ 318,668 $(61,534) $ 440,046
COST OF PRODUCT SOLD -- 146,216 38,810 269,533 (61,534) 393,025
-------- --------- ------- --------- -------- ---------
GROSS PROFIT -- (4,326) 2,212 49,135 -- 47,021
SELLING, GENERAL & ADMINISTRATIVE -- 10,681 -- 27,901 -- 38,582
EXPENSE
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 175 -- -- -- -- 175
-------- --------- ------- --------- -------- ---------
(LOSS) INCOME FROM OPERATIONS (175) (15,007) 2,212 21,234 -- 8,264
INTEREST EXPENSE 20,661 1,234 -- (1,076) -- 20,819
INTERCOMPANY INTEREST ALLOCATION (20,661) 14,477 -- 6,184 -- --
OTHER EXPENSE (INCOME) 12,533 (7,382) -- 543 -- 5,694
-------- --------- ------- --------- -------- ---------
(LOSS) INCOME BEFORE TAXES (12,708) (23,336) 2,212 15,583 -- (18,249)
TAX (BENEFIT) PROVISION -- (1,347) -- 327 -- (1,020)
MINORITY INTEREST -- -- -- 424 -- 424
-------- --------- ------- --------- -------- ---------
NET (LOSS) INCOME BEFORE (12,708) (21,989) 2,212 14,832 -- (17,653)
EXTRAORDINARY LOSS
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- -- -- -- -- --
-------- --------- ------- --------- -------- ---------
-------- ---------
NET (LOSS) INCOME $(12,708) $ (21,989) $ 2,212 $ 14,832 $ -- $ (17,653)
======== ========= ======= ========= ======== =========
15
18
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 35,187 $(63,600) $ 30,256 $ 12 $ -- $ 1,855
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,158 34,911 3 36,170 -- 72,242
Unrealized loss (gain) on currency exchange -- 5,779 (2,436) 56,391 -- 59,734
Change in accounts receivable -- 3,079 19 (20,600) -- (17,502)
Change in inventories -- (11,069) -- 10,660 -- (409)
Change in prepaid and other current assets -- (12,312) 57 1,198 -- (11,057)
Change in other assets (14,849) (7,691) -- 34,354 -- 11,814
Change in accounts payable -- (9,413) 394 336 -- (8,683)
Change in accrued expenses 2,111 (15,866) 615 10,507 -- (2,633)
Change in pension liabilities and other -- 470 -- (5,906) -- (5,436)
Change in deferred taxes -- 8,208 -- (45,477) -- (37,269)
-------- -------- -------- -------- ------------ --------
Net cash provided by (used in) operating
activities 23,607 (67,504) 28,908 77,645 -- 62,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (20,980) -- (45,436) -- (66,416)
Net activity in investments in and advances to (from)
subsidiaries and affiliates (69,356) 89,046 (28,908) 9,218 -- --
Proceeds from sale of fixed assets -- -- -- 206 -- 206
Unrealized loss on investments 37,174 -- -- -- -- 37,174
-------- -------- -------- -------- ------------ --------
Net cash (used in) provided by investing activities (32,182) 68,066 (28,908) (36,012) -- (29,036)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
facility 66,500 -- -- -- -- 66,500
Principal payments on debt (57,925) (588) -- (18,869) -- (77,382)
-------- ------- -------- -------- ------------ --------
Net cash provided by (used in) financing activities 8,575 (588) -- (18,869) -- (10,882)
Effect of exchange rate changes on cash and cash
Equivalents -- -- -- (22,365) -- (22,365)
NET (DECREASE) INCREASE IN CASH -- (26) -- 399 -- 373
CASH AT BEGINNING OF PERIOD $ -- $ 26 $ -- $ 7,366 $ -- $ 7,392
-------- -------- -------- -------- ------------ --------
CASH AT END OF PERIOD $ -- $ -- $ -- $ 7,765 $ -- $ 7,765
======== ======== ======== ======== ============ ========
16
19
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
OTHER GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------- ------------ ------------ ------------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,539 $(23,933) $ 5,870 $ 13,478 $ -- $ (3,046)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization -- 32,527 3 15,073 -- 47,603
Loss from the disposal of fixed assets -- -- -- 335 -- 335
Net extraordinary loss on early extinguishment 5,569 -- -- -- -- 5,569
of debt
Change in accounts receivable -- (5,352) (6,510) 6,588 -- (5,274)
Change in inventories -- (6,892) -- 14,479 -- 7,587
Change in prepaid and other current assets -- (856) -- (12,001) -- (12,857)
Change in other assets -- (12,305) -- (361) -- (12,666)
Change in accounts payable -- 14,014 (256) (4,930) -- 8,828
Change in accrued expenses 2,832 (646) 893 5,216 -- 8,295
Change in pension liabilities and other -- (1,666) -- 10,295 -- 8,629
Change in deferred taxes -- (1,123) -- (6,581) -- (7,704)
--------- ------- ------- -------- -------- ---------
Net cash provided by (used in)
Operating activities 9,940 6,232 -- 41,591 -- 45,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired -- (469,644) -- 18,802 -- (450,842)
Capital expenditures -- (17,558) -- (16,992) -- (34,550)
Net activity in investments in and advances to (from)
subsidiaries and affiliates (544,949) 531,909 -- 13,040 -- --
Proceeds from sale of fixed assets -- -- -- 692 -- 692
Unrealized gain on investments (6,990) -- -- (303) -- (7,293)
--------- ------- ------- -------- -------- ---------
Net cash used in investing activities (551,939) 44,707 -- 15,239 -- (491,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit
facility (25,213) -- -- (71) -- (25,284)
Net proceeds from issuance of debt 650,000 -- -- -- -- 650,000
Payment for early extinguishment of debt (82,788) -- -- -- -- (82,788)
Debt issuance fees -- (27,731) -- -- -- (27,731)
Principal payments on debt -- (2,377) -- (50,926) -- (53,303)
--------- ------- ------- -------- -------- ---------
Net cash (used in) provided by
financing activities 541,999 (30,108) -- (50,997) -- 460,894
Effect of exchange rate changes on cash and cash
Equivalents -- -- -- (1,126) -- (1,126)
NET INCREASE IN CASH -- 8,367 -- 4,707 -- 13,074
CASH AT BEGINNING OF PERIOD $ -- $ 60 $ -- $ 70 $ -- $ 130
--------- ------- ------- -------- -------- ---------
CASH AT END OF PERIOD $ -- $ 8,427 $ -- $ 4,777 $ -- $ 13,204
========= ======= ======= ======== ======== =========
17
20
1999 NOTES:
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of September 30, 2000,
December 31, 1999 and September 30, 1999 and for the three and nine
month period ended September 30, 2000 and September 30, 1999, 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 SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ -- $ 7,765 $ -- $ 7,765
Accounts receivable, net -- 185,819 143,028 -- 328,847
Inventories -- 60,006 95,024 -- 155,030
Investments 6,016 -- 370 -- 6,386
Prepaid and other current assets -- 30,945 32,612 -- 63,557
------------ ------------ ------------- ----------- ------------
Total current assets 6,016 276,770 278,799 -- 561,585
Property, Plant and Equipment, Net -- 190,931 334,108 -- 525,039
Intangible Assets, Net -- 48,723 88,031 -- 136,754
Other Assets 13,691 58,232 17,449 -- 89,372
Deferred Tax Assets -- 10,725 66,110 -- 76,835
Net Investment in and advances to (from)
subsidiaries & affiliates 940,121 (522,969) (200,860) (216,292) --
------------ ------------ ------------- ----------- ------------
Total Assets $ 959,828 $ 62,412 $ 583,637 $ (216,292) $ 1,389,585
============ ============ ============= =========== ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 48,882 $ 137,032 $ -- $ 185,914
Accrued interest 15,339 -- 246 -- 15,585
Accrued expenses -- 10,076 101,329 -- 111,405
Current portion of long term debt 16,549 604 9,500 -- 26,653
------------ ------------ ------------- ----------- ------------
Total current liabilities 31,888 59,562 248,107 -- 339,557
Pension Liabilities & Other -- 6,709 45,469 -- 52,178
Deferred Tax Liabilities -- 11,507 49,895 -- 61,402
Long Term Debt 850,476 1,146 31,219 -- 882,841
------------ ------------ ------------- ----------- ------------
Total liabilities 882,364 78,924 374,690 --
1,335,978
Commitments and Contingencies -- -- -- -- --
Member's Equity:
Member's equity 77,464 (16,512) 220,535 (216,292) 65,195
Accumulated other comprehensive income-
cumulative translation adjustments -- -- (11,588) -- (11,588)
------------ ------------ ------------- ----------- ------------
Member's Equity 77,464 (16,512) 208,947 (216,292) 53,607
------------ ------------ ------------- ----------- ------------
Total Liabilities and Member's Equity $ 959,828 $ 62,412 $ 583,637 $ (216,292) $ 1,389,585
============ ============ ============= =========== ============
18
21
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 (464,308) (192,854) (216,292) --
------------ ------------ ------------- ----------- ------------
Total Assets $ 913,955 $ 113,306 $ 604,007 $ (216,292) $ 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 16,832 220,523 (216,292) 63,340
Accumulated other comprehensive income-
cumulative translation adjustments -- 4 (2,441) -- (2,437)
------------ ------------ ------------- ----------- ------------
Member's Equity 42,277 16,836 218,082 (216,292) 60,903
------------ ------------ ------------- ----------- ------------
Total Liabilities and Member's Equity $ 913,955 $ 113,306 $ 604,007 $ (216,292) $ 1,414,976
------------ ------------ ------------- ----------- ------------
19
22
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 8,427 $ 4,777 $ -- $ 13,204
Accounts receivable, net -- 202,011 177,670 -- 379,681
Inventories -- 57,663 107,790 -- 165,453
Investments 6,989 -- -- -- 6,989
Prepaid and other current assets -- 8,201 41,158 -- 49,359
------------ ----------- ------------- ----------- ------------
Total current assets 6,989 276,302 331,395 -- 614,686
Property, Plant and Equipment, Net -- 196,292 421,887 -- 618,179
Intangible Assets, Net -- 50,615 32,290 -- 82,905
Other Assets -- 54,000 12,926 -- 66,926
Deferred Tax Assets -- 14,139 4,366 -- --
Net Investment in and advances to (from)
subsidiaries & affiliates 916,531 (431,934) (268,305) (216,292) 18,505
------------ ----------- ------------- ----------- ------------
Total Assets $ 923,520 $ 159,414 $ 534,559 $ (216,292) $ 1,401,201
============ =========== ============= =========== ============
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $ 66,035 $ 131,627 $ -- $ 197,662
Accrued interest 16,219 -- -- -- 16,219
Accrued expenses -- 14,540 76,552 -- 91,092
Current portion of long term debt 6,950 971 11,065 -- 18,986
------------ ----------- ------------- ----------- ------------
Total current liabilities 23,169 81,546 219,244 -- 323,959
Pension Liabilities & Other -- 5,589 32,851 -- 38,440
Deferred Tax Liabilities -- 11,622 6,985 -- 18,607
Long Term Debt 898,812 1,607 45,617 -- 946,036
------------ ----------- ------------- ----------- ------------
Total liabilities 921,981 100,364 304,697 -- 1,327,042
Commitments and Contingencies -- -- -- -- --
Member's Equity:
Member's equity 1,539 59,787 229,770 (216,292) 74,804
Accumulated other comprehensive income-
minimum pension liability in excess of
unrecognized prior service cost, net of tax -- (737) -- -- (737)
Accumulated other comprehensive income-
cumulative translation adjustments -- -- 92 -- 92
------------ ----------- ------------- ----------- ------------
Member's Equity 1,539 59,050 229,862 (216,292) 74,159
------------ ----------- ------------- ----------- ------------
Total Liabilities and Member's Equity $ 923,520 $ 159,414 $ 534,559 $ (216,292) $ 1,401,201
============ =========== ============= =========== ============
20
23
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
NET SALES $ -- $ 618,650 $ 955,501 $ (180,048) $ 1,394,103
COST OF PRODUCT SOLD -- 563,223 840,075 (180,048) 1,223,250
------------ ------------ ------------- ----------- ------------
GROSS PROFIT -- 55,427 115,426 -- 170,853
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 43,922 61,866 -- 105,788
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 1,165 -- -- -- 1,165
------------ ------------ ------------- ----------- ------------
(LOSS) INCOME FROM OPERATIONS (1,165) 11,505 53,560 -- 63,900
INTEREST EXPENSE 69,462 (49) 6,428 -- 75,841
INTERCOMPANY INTEREST ALLOCATION (69,462) 45,211 24,251 -- --
OTHER (INCOME) EXPENSE (36,352) (254) 53,554 -- 16,948
------------ ------------ ------------- ----------- ------------
INCOME (LOSS) BEFORE TAXES 35,187 (33,403) (30,673) -- (28,889)
TAX BENEFIT -- (59) (31,421) -- (31,480)
MINORITY INTEREST -- -- 736 -- 736
------------ ------------ ------------- ----------- ------------
NET INCOME (LOSS) $ 35,187 $ (33,344) $ 12 $ -- $ 1,855
============ ============ ============= =========== ============
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
NET SALES $ -- $ 182,280 $ 311,489 $ (63,372) $ 430,397
COST OF PRODUCT SOLD -- 173,263 281,362 (63,372) 391,253
------------ ------------ ------------- ----------- ------------
GROSS PROFIT (LOSS) -- 9,017 30,127 -- 39,144
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 16,506 15,618 -- 32,124
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES -- -- -- -- --
------------ ------------ ------------- ----------- ------------
(LOSS) INCOME FROM OPERATIONS -- (7,489) 14,509 -- 7,020
INTEREST EXPENSE 23,630 (49) 1,845 -- 25,426
INTERCOMPANY INTEREST ALLOCATION (23,630) 12,392 11,238 -- --
OTHER (INCOME) EXPENSE (14,237) (2,380) 35,529 -- 18,912
------------ ------------ ------------- ----------- ------------
INCOME (LOSS) BEFORE TAXES 14,237 (17,452) (34,103) -- (37,318)
TAX PROVISION (BENEFIT) -- (28) (29,637) -- (29,665)
MINORITY INTEREST -- -- 256 -- 256
------------ ------------ ------------- ----------- ------------
NET INCOME (LOSS) $ 14,237 $ (17,424) $ (4,722) $ -- $ (7,909)
============ ============ ============= =========== ============
21
24
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
NET SALES $ -- $ 630,708 $ 430,046 $ (180,913) $ 879,841
COST OF PRODUCT SOLD -- 581,266 372,428 (180,913) 772,781
------------ ------------ ------------- ----------- ------------
GROSS PROFIT -- 49,442 57,618 -- 107,060
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 37,529 35,277 -- 72,806
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 252 -- -- -- 252
------------ ------------ ------------- ----------- ------------
(LOSS) INCOME FROM OPERATIONS (252) 11,913 22,341 -- 34,002
INTEREST EXPENSE 44,867 129 851 -- 45,847
INTERCOMPANY INTEREST ALLOCATION (44,867) 38,683 6,184 -- --
OTHER EXPENSE (INCOME) (7,360) (7,633) 787 -- (14,206)
------------ ------------ ------------- ----------- ------------
(LOSS) INCOME BEFORE TAXES 7,108 (19,266) 14,519 -- 2,361
TAX (BENEFIT) PROVISION -- (1,203) 509 -- (615)
MINORITY INTEREST -- -- 453 -- 453
------------ ------------ ------------- ----------- ------------
NET (LOSS) INCOME BEFORE
EXTRAORDINARY LOSS 7,108 (18,063) 13,478 -- 2,523
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT 5,569 -- -- -- 5,569
------------ ------------ ------------- ----------- ------------
NET (LOSS) INCOME $ 1,539 $ (18,063) $ 13,478 $ -- $ (3,046)
============ ============ ============= =========== ============
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
NET SALES $ -- $ 182,912 $ 318,668 $ (61,534) $ 440,046
----------- ------------ -------------- ---------- ------------
COST OF PRODUCT SOLD -- 185,026 269,533 (61,534) 393,025
----------- ------------ -------------- ---------- ------------
GROSS PROFIT -- (2,114) 49,135 -- 47,021
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 10,681 27,901 -- 38,582
PAYMENTS TO BENEFICIARY IN LIEU OF
TAXES 175 -- -- -- 175
----------- ------------ -------------- ---------- ------------
(LOSS) INCOME FROM (175) (12,795) 21,234 -- 8,264
OPERATIONS
INTEREST EXPENSE 20,661 1,234 (1,076) -- 20,819
INTERCOMPANY INTEREST ALLOCATION (20,661) 14,477 6,184 -- --
OTHER EXPENSE (INCOME) 12,533 (7,382) 543 -- 5,694
----------- ------------ -------------- ---------- ------------
(LOSS) INCOME BEFORE TAXES (12,708) (21,124) 15,583 -- (18,249)
TAX (BENEFIT) PROVISION -- (1,347) 327 -- (1,020)
MINORITY INTEREST -- -- 424 -- 424
----------- ------------ -------------- ---------- ------------
NET (LOSS) INCOME BEFORE (12,708) (19,777) 14,832 -- (17,653)
EXTRAORDINARY LOSS
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- -- -- -- --
----------- ------------ -------------- ---------- ------------
NET (LOSS) INCOME $ (12,708) $ (19,777) $ 14,832 $ -- $ (17,653)
=========== ============ ============== ========== ============
22
25
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 35,187 $(33,344) $ 12 $-- $ 1,855
Adjustments to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,158 34,911 36,170 -- 72,242
Unrealized loss on currency exchange -- 3,343 56,391 -- 59,734
Change in accounts receivable -- 3,098 (20,600) -- (17,502)
Change in inventories -- (11,069) 10,660 -- (409)
Change in prepaid and other current assets -- (12,255) 1,198 -- (11,057)
Change in other assets (14,849) (7,691) 34,354 -- 11,814
Change in accounts payable -- (9,019) 336 -- (8,683)
Change in accrued expenses 2,111 (15,251) 10,507 -- (2,633)
Change in pension liabilities and others -- 470 (5,906) -- (5,436)
Change in deferred taxes -- 8,208 (45,477) -- (37,269)
-------- -------- -------- ---- --------
Net cash provided by (used in operating
Activities 23,607 (38,596) 77,645 -- 62,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (20,980) (45,436) -- (66,416)
Net activity in investments in and advances (from)
subsidiaries and affiliates (69,356) 60,138 9,218 -- --
Proceeds from sale of fixed assets -- 206 -- 206
Unrealized loss on investments 37,174 -- -- -- 37,174
-------- -------- -------- ---- --------
Net cash (used in) provided by investing activities (32,182) 39,158 (36,012) -- (29,036)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
facility 66,500 -- -- -- 66,500
Principal payments on debt (57,925) (588) (18,869) -- (77,382)
-------- -------- -------- ---- --------
Net cash provided by (used in) financing activities 8,575 (588) (18,869) -- (10,882)
Effect of exchange rate changes on cash and cash
Equivalents -- -- (22,365) -- (22,365)
NET (DECREASE) INCREASE IN CASH -- (26) 399 -- 373
CASH AT BEGINNING OF PERIOD $ -- $ 26 $ 7,366 $-- $ 7,392
-------- -------- -------- ---- --------
CASH AT END OF PERIOD $ -- $ -- $ 7,765 $-- $ 7,765
======== ======== ======== ==== ========
23
26
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
(Dollars in Thousands)
GUARANTOR NONGUARANTOR CONSOLIDATED
VENTURE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,539 $ (18,123) $ 13,478 $ -- $ (3,046)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization -- 32,530 15,073 -- 47,603
Loss from the disposal of
fixed assets -- -- 335 335
Net extraordinary loss on
early extinguishment
of debt 5,569 -- -- -- 5,569
Change in accounts receivable -- (11,862) 6,588 -- (5,274)
Change in inventories -- (6,892) 14,479 -- 7,587
Change in prepaid and other current assets -- (856) (12,001) -- (12,857)
Change in other assets -- (12,305) (361) -- (12,666)
Change in accounts payable -- 13,758 (4,930) -- 8,828
Change in accrued expenses 2,832 247 5,216 -- 8,295
Change in pension liabilities
and other -- (1,666) 10,295 -- 8,629
Change in deferred taxes -- (1,123) (6,581) -- (7,704)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
Operating activities 9,940 (6,232) 41,591 -- 45,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of
cash acquired -- (469,644) 18,802 -- (450,842)
Capital expenditures -- (17,558) (16,992) -- (34,550)
Net activity in investments in and
advances to (from) subsidiaries and affiliates (544,949) 531,909 13,040 -- --
Proceeds from sale of fixed assets -- -- 692 -- 692
Unrealized gain on investments (6,990) -- (303) -- (7,293)
--------- --------- --------- --------- --------
Net cash used in investing activities (551,939) 44,707 15,239 -- (491,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under
revolving credit facility (25,213) -- (71) -- (25,284)
Net proceeds from issuance of debt 650,000 -- -- 650,000
Payment for early extinguishment
of debt (82,788) -- -- (82,788)
Debt issuance fees -- (27,731) -- -- (27,731)
Principal payments on debt -- (2,377) (50,926) -- (53,303)
--------- --------- --------- --------- ---------
Net cash (used in) provided by
financing activities 541,999 (30,108) (50,997) -- 460,894
Effect of exchange rate changes on cash
and cash Equivalents -- -- (1,126) -- (1,126)
NET INCREASE IN CASH -- 8,367 4,777 -- 13,074
CASH AT BEGINNING OF PERIOD $ -- $ 60 $ 70 $ -- $ 130
--------- --------- ---------- ---------- ---------
CASH AT END OF PERIOD $ -- $ 8,427 $ 4,777 $ -- $ 13,204
========= ========= ========== ========== =========
24
27
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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 90.9 89.3 87.7 87.8
------- ------- ------- -------
Gross profit 9.1 10.7 12.3 12.2
Selling, general and administrative expense 7.5 8.8 7.6 8.3
Payments to beneficiary in lieu of taxes 0.0 0.0 0.1 0.0
------- ------- ------- -------
Income from operations 1.6 1.9 4.6 3.9
Interest expense 5.9 4.7 5.5 5.2
Other expense (income) 4.4 1.3 1.2 (1.6)
------- ------- ------- -------
(Loss) Income before taxes (8.7) (4.1) (2.1) 0.3
Tax benefit (7.0) (0.2) (2.3) (0.1)
Minority interest 0.1 0.1 0.1 0.1
------- ------- ------- -------
Net (loss) income before extraordinary loss (1.8) (4.0) 0.1 0.3
Extraordinary loss on early extinguishment of debt 0.0 0.0 0.0 0.6
------- ------- ------- -------
Net (loss) income (1.8)% (4.0)% 0.1% (0.3)%
======= ======= ======= =======
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
NET SALES. Net sales for the third quarter of 2000 decreased $9.6 million, or
2.2%, from the third quarter of 1999. Domestically, sales decreased $6.3
million, or 5.0%, due primarily to lower manufactured parts sales as compared to
the comparable period in the prior year. Sales for Peguform decreased $3.3
million, or 1.1%, as compared to the comparable period in the prior year. The
decrease in Peguform's sales is primarily the result of unfavorable exchange
rate fluctuations primarily related to the Euro devaluation partially offset by
a net increase in sales volumes in Europe as compared to the prior year.
GROSS PROFIT. Gross profit for the third quarter of 2000 decreased $7.9 million
to $39.1 million compared to $47.0 million for the third quarter of 1999. As a
percentage of net sales, gross profit decreased to 9.1% for the third quarter of
2000 from 10.7% for the third quarter of 1999. Domestically, there was an
increase in the gross profit margin to 7.6% from a negative gross profit margin
of (0.2)% in the third quarter of 1999. The domestic gross profit margin was
lower in the third quarter of 1999 due to a $1.9 million retroactive sales price
adjustment and several significant new model launch problems. Peguform's gross
profit margin for the third quarter of 2000 was 9.7% as compared to 15.1% in the
third quarter of 1999. The gross profit margin for Peguform was increased during
the third quarter of 1999 due to certain productivity recoveries which were
originally incurred in the second quarter of 1999.
25
28
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the third quarter of 2000 decreased $6.5 million, or
16.7%, to $32.1 million compared to $38.6 million for the third quarter of 1999.
As a percentage of net sales, selling, general and administrative expense
decreased to 7.5% for the third quarter of 2000 as compared to 8.8% for the
third quarter of 1999. The decrease is primarily attributable to a reduction of
corporate expenses at the Company's German operations.
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations for
the third quarter of 2000 decreased $1.2 million to $7.0 million, as compared to
$8.3 million for the third quarter of 1999. As a percentage of net sales, income
from operations decreased to 1.6% for the third quarter of 2000 from 1.9% for
the third quarter of 1999.
INTEREST EXPENSE. Third quarter interest expense increased $4.6 million, or
22.1%, to $25.4 million in 2000 as compared to interest expense of $20.8 million
in 1999. The increase is the result of several factors, including: (1) an
increase in variable interest rates partially offset by reduced borrowings, (2)
a $0.8 million increase as the result of interest rate swap agreements, and (3)
non-cash deferred interest asset amortization of $1.2 million. See Note 5 of
Notes to Consolidated Financial Statements.
OTHER EXPENSE (INCOME). Other expense for the third quarter of 2000 is primarily
composed of $10.4 million from financial instruments, $5.9 million from realized
currency exchange gains, and expense of $36.5 million from unrealized currency
exchange losses offset by income of $1.4 million from interest and other income.
See Note 5 of Notes to Consolidated Financial Statements. Other (expense) income
during the third quarter of 1999 was primarily composed of $(12.5) from
financial instruments, offset by approximately $7.2 million in currency exchange
gains during the quarter.
TAX BENEFIT. The tax benefit of $29.7 million for the third quarter of 2000 is
primarily the result of the Company's European operations which generated a
taxable loss for the respective period, primarily due to currency losses. The
tax benefit of $1.0 million for the third quarter of 1999 was composed of a tax
benefit of $1.3 million relating to Venture Holdings Corporation offset by a tax
provision of $0.3 million for the Peguform operations.
NET LOSS. Due to the foregoing, the net loss for the third quarter of 2000
decreased to $7.9 million compared to net loss of $17.7 million for the third
quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
NET SALES. Net sales for the first nine months of 2000 increased $514.3 million,
or 58.4%, from the first nine months of 1999. This increase was largely due to
the addition of Peguform's sales during the first nine months of 2000 compared
to Peguform's sales for only four months in 1999. Domestically, sales decreased
$8.6 million, or 1.9%, due primarily to lower manufactured parts sales as
compared to the comparable period in the prior year.
GROSS PROFIT. Gross profit for the first nine months of 2000 increased $63.8
million to $170.9 million compared to $107.1 million for the first nine months
of 1999. As a percentage of net sales, gross profit was comparable with the
prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the first nine months of 2000 increased $33.0 million, or 45.3%, to
$105.8 million compared to $72.8 million for the first nine months of 1999. As a
percentage of net sales, selling, general and administrative expense decreased
to 7.6% for the first nine months of 2000 as compared to 8.3% for the first nine
months of 1999. The decrease is 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 during the first
nine months of 2000 compared to only four months in 1999.
26
29
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations
for the first nine months of 2000 increased $29.9 million, or 87.9%, to $63.9
million, compared to $34.0 million for the first nine months of 1999. As a
percentage of net sales, income from operations increased to 4.6% for the first
nine months of 2000 from 3.9% for the first nine months of 1999.
INTEREST EXPENSE. Interest expense for the first nine months of 2000 increased
$30.0 million, or 65.4%, to $75.8 million as compared to $45.8 million for the
first nine months of 1999. The increase is primarily the result of the increased
debt associated with the Peguform Acquisition.
OTHER EXPENSE (INCOME). Other expense for the first nine months of 2000 is
primarily composed of expense of $59.7 million from unrealized currency exchange
losses offset by income of $32.2 million from financial instruments; $7.4
million from realized currency exchange gains; and $3.2 million from interest
and other income. See Note 5 of Notes to Consolidated Financial Statements.
Other income during the first nine months of 1999 was primarily composed of
income of $7.0 million from financial instruments and $7.2 million in currency
exchange gains.
TAX BENEFIT. The tax benefit of $31.5 million for the first nine months of 2000
is primarily the result of the Company's European operations which generated a
taxable loss for the respective period, primarily due to currency losses. The
tax benefit of $0.6 million for the first nine months of 1999 was composed of a
tax benefit of $1.2 million relating to Venture Holdings Corporation and a tax
provision of $0.6 million for the Peguform operations.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT. In connection with the
issuance of the 1999 Notes, the Company redeemed its 9 3/4% senior subordinated
notes due 2004 at the redemption price of 104.875% plus accrued interest which
resulted in an extraordinary loss of $5.6 million ($3.8 million prepayment
penalty plus unamortized deferred financing costs of $1.8 million) for the nine
months ended September 30, 1999.
NET INCOME. Due to the foregoing, net income for the first nine months of 2000
increased $4.8 million to $1.9 million compared to a loss of $3.0 million for
the first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES (UNAUDITED)
The Company's consolidated working capital was $222.0 million at September 30,
2000, compared to $290.7 million at September 30, 1999, a decrease of $68.7
million. The Company's working capital ratio decreased to 1.65x at September 30,
2000 from 1.90x at September 30, 1999. The decrease is due to (1) a decrease in
current assets, primarily accounts receivable, and (2) an increase in current
liabilities, primarily accrued expenses. Net cash provided by operating
activities was $62.7 million for the nine months ended September 30, 2000
compared to $45.3 million for the nine months ended September 30, 1999. The
increase in cash provided by operations is largely due to a realized $42 million
gain on the termination of cross-currency swap agreements.
Capital expenditures were $66.4 million for the nine months ended September 30,
2000 compared to $34.6 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 $175 million and production scheduled to start and
ramp up in late 2001. As a result of this award, the Company may be
27
30
required to make capital expenditures in the range of $30.0 to $60.0 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 $10.9 million for the nine months
ended September 30, 2000 compared to net cash provided by financing activities
of $460.9 million for the same period in 1999. The fluctuation primarily relates
to the refinancing of certain existing debt and the issuance of new debt to make
the Peguform acquisition during the second quarter of 1999 and the payments made
during the nine months ended September 30, 2000 to reduce outstanding
borrowings.
In March 2000, the Company applied a prepayment of $42 million to the 18-month
interim term loan which matures on November 27, 2000. In July 2000, the Company
applied additional $8 million and $2 million prepayments to the 18-month interim
term loan, reducing the principal balance to $73 million. See Notes 4 and 5 of
Notes to Consolidated Financial Statements. The Company intends to repay the
remaining principal balance of the 18-month interim term loan with the proceeds
under a European non-recourse factoring program supplemented with, if necessary,
proceeds under the revolving credit facility.
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
credit agreement. At September 30, 2000 the Company had $72 million outstanding
with $94.3 million still available under the revolving credit facility. The
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 September 30, 2000,
the Company was in compliance with all such covenants.
Obligations under the 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 credit agreement became effective May 27, 1999,
contemporaneously with the completion of the Peguform Acquisition.
In March 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 nine months ended September 30,
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
during 1999. For the three and nine months ended September 30, 1999, the
non-cash change in fair market value of the cross-currency swap agreements
resulted in $20.8 million and $3.3 million of other expense.
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 of each of
the put and call sides of the foreign currency exchange collar was originally
500 million Euros. During July 2000, the Company terminated the put side of its
foreign currency exchange collar and received $10.9 million. The Company used
$2.7 million of the proceeds to purchase a replacement put to protect against
any large devaluations in the Euro. The notional amount of the replacement put
is 400 million Euros. The Company applied $8.0 million of the net cash proceeds
as a prepayment of the 18-month interim term loan. See Note 4 of Notes to
Consolidated Financial Statements. The estimated fair market value of the
resulting financial instrument is $6.0 million, and is recorded as an investment
on the balance sheet as of September 30, 2000. The corresponding $0.5 million
and $(3.3) million non-cash change in estimated fair market value is recorded in
other expense (income) for the three and nine months ended September 30, 2000,
respectively.
28
31
One of the interest rate swap agreements within each of the original
cross-currency interest rate swap agreements was accounted for using settlement
accounting. The cash flows from these interest rate swap agreements was
accounted for as adjustments to interest expense. For the three and nine months
ended September 30, 2000, these interest rate swap agreements resulted in an
increase to interest expense of $48,000 and $500,000, respectively. For the
three and nine months ended September 30, 1999, these interest rate swap
agreements resulted in a decrease to interest expense of $1.0 million and $1.1
million, respectively. During July 2000, the Company paid $14.9 million to
terminate these financial instruments. This amount has been capitalized and will
be amortized into interest expense over the terms of the original interest rate
swap agreements. For each of the three and nine months ended September 30, 2000,
interest expense includes $1.2 million of this deferred interest asset
amortization.
The other interest rate swap agreements within each of the original
cross-currency interest rate swap agreements did 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. For
the three and nine months ended September 30, 1999, the non-cash change in
estimated fair market value of these financial instruments of $8.3 million and
$10.3 million, respectively, was recorded as other income. During July 2000, the
Company terminated these financial instruments and realized a cash gain of $16.9
million plus interest income of $0.1 million.
At December 31, 1999, these financial instruments had an estimated fair market
value of $13.4 million which was recorded as an investment on the balance sheet
with a corresponding unrealized gain of $13.4 million being recorded in other
income during 1999. At June 30, 2000, these financial instruments had an
estimated fair market value of $16.9 million which was recorded as an investment
on the balance sheet with a corresponding unrealized gain of $3.5 million being
recorded in other income. Accordingly, as a result of the termination of these
interest rate swap agreements, the net impact on earnings for the nine months
ended September 30, 2000 is an increase in other income of $3.5 million, which
is comprised of a realized gain of $16.9 million, offset by an unrealized loss
of $13.4 million.
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 $141,000 and $645,000 of additional interest expense
for the nine months ended September 30, 2000 and 1999, respectively. The impact
of these interest rate swap agreements resulted in $36,000 of reduced interest
expense for the three months ended September 30, 2000 and $193,000 of additional
interest expense for the three months ended September 30, 1999.
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 2001. 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.
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 be applied in the first quarter of the Company's fiscal
year 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. In June
2000, the FASB issued SFAS No. 138, which amends and clarifies certain guidance
in SFAS No. 133. The effect of such statements on the Company's financial
position and results of operations during 2001, if any, will depend in part on
future derivative transactions entered into prior to January 1, 2001, and the
fair value of the derivatives held as of such date, and therefore is not
determinable at this time.
29
32
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 September 30, 2000,
other assets includes approximately $15.2 million of design and development
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 design and development costs
incurred after December 31, 1999.
In December 1999, the SEC released Staff Accounting Bulletin (SAB) No. 101
entitled Revenue Recognition. The SAB provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. The SAB also
discusses the basic criteria that should be met before registrants can record
revenue. Management believes the Company is in compliance with the revenue
recognition requirements of SAB No. 101.
* * * * * * *
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; unfavorable currency exchange rates
relative to the U.S. dollar; 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 United Kingdom, the Czech
Republic, Mexico, Brazil and Canada. As of September 30, 2000, the net fair
value asset of financial instruments with exposure to foreign currency risk was
approximately $6.0 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 $7.8 million. The model assumes a parallel
shift in the foreign
30
33
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.
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.
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, which have now been resolved. In February 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
still negotiating a consent decree with the Michigan Department of Environmental
Quality and had expected this to be completed in the third quarter of 2000. The
Company now expects the consent decree to be completed in the fourth quarter of
2000. The Company is proceeding with necessary steps to complete the
installation of the additional abatement equipment by the third quarter of 2001,
now estimated at approximately $9 million.
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 disagreed 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 August 2,
2000, the Company received a letter from the Michigan Department of
Environmental Quality agreeing with the Company that current waste may be
classified at the original lower levels. At the present time the Company is
unable to quantify or qualify any liability for prior disposals but is working
with the Michigan Department of Environmental Quality to resolve this issue.
31
34
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.
32
35
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: November 9, 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.
33
36
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule.
34