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 June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 333-34475
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
(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
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 .
-------- -------
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE #
--------------------------------- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999,
December 31, 1998 and June 30, 1998 1
Consolidated Statements of Income and Comprehensive Income
for the Three Months and Six Months Ended June 30, 1999
and 1998 2
Consolidated Statements of Changes in Member's Equity
for the Three Months and Six Months Ended June 30, 1999
and 1998 3
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
June 30, June 30,
1999 Dec. 31, 1998
ASSETS (Unaudited) 1998 (Unaudited)
- ------ ----------- ---- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 40,295 $ 130 $ 12,603
Accounts receivable, net, includes related
party receivables of $65,690, $56,648 and
$33,981 at June 30, 1999, December 31, 1998
and June 30, 1998, respectively (Note 6) 360,092 190,135 164,194
Inventories (Note 3) 172,081 51,139 55,881
Investments (Note 5) 25,875 -- --
Prepaid and other current assets 49,310 8,870 8,573
------------ -------------- ------------
Total current assets 647,653 250,274 241,251
Property, Plant and Equipment, Net (Note 2) 601,162 200,544 205,507
Intangible Assets, Net (Note 2) 59,398 52,022 52,958
Other Assets 54,756 26,636 25,153
Deferred Tax Assets 16,146 11,839 13,952
------------ -------------- ------------
Total Assets $ 1,379,115 $ 541,315 $ 538,821
============ ============== ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Accounts payable $ 203,123 $ 52,351 $ 58,412
Accrued interest 5,816 13,387 2,851
Accrued expenses 85,891 14,316 14,548
Current portion of long-term debt 10,502 1,565 1,835
------------ -------------- ------------
Total current liabilities 305,332 81,619 77,646
Pension Liabilities & Other 34,176 7,254 7,826
Deferred Tax Liabilities 19,859 11,955 14,175
Long Term Debt (Note 4) 950,819 363,374 364,339
------------ -------------- ------------
Total liabilities 1,310,186 464,202 463,986
Commitments and Contingencies -- -- --
Member's Equity:
Member's equity 92,457 77,850 74,835
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 (22,791) -- --
------------ -------------- ------------
Member's Equity 68,929 77,113 74,835
------------ -------------- ------------
Total Liabilities and Member's Equity $ 1,379,115 $ 541,315 $ 538,821
============ ============== ============
See notes to consolidated financial statements.
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VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
NET SALES $ 273,803 $ 177,979 $ 439,795 $ 344,591
COST OF PRODUCT SOLD 246,686 151,069 379,756 284,685
---------- ---------- ---------- -----------
GROSS PROFIT 27,117 26,910 60,039 59,906
SELLING GENERAL AND
ADMINISTRATIVE EXPENSE 19,954 15,244 34,224 30,099
PAYMENTS TO BENEFICIARY IN
LIEU OF TRUST DISTRIBUTIONS 77 360 77 360
---------- ---------- ---------- -----------
INCOME FROM OPERATIONS 7,086 11,306 25,738 29,447
INTEREST EXPENSE (NOTE 5) 15,549 10,697 25,028 17,842
OTHER INCOME (NOTE 5) (19,900) -- (19,900) --
---------- ---------- ---------- -----------
INCOME BEFORE TAXES 11,437 609 20,610 11,605
TAX (BENEFIT) PROVISION (662) (413) 405 1,052
MINORITY INTEREST 29 -- 29 --
---------- ---------- ---------- -----------
NET INCOME BEFORE
EXTRAORDINARY LOSS 12,070 1,022 20,176 10,553
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (Note 7) 5,569 -- 5,569 --
---------- ---------- ---------- -----------
NET INCOME 6,501 1,022 14,607 10,553
OTHER COMPREHENSIVE LOSS -
Cumulative translation adjustments (22,791) -- (22,791) --
---------- ---------- --------- -----------
COMPREHENSIVE (LOSS) INCOME $ (16,290) $ 1,022 $ (8,184) $ 10,553
========== ========== ========= ===========
See notes to consolidated financial statements.
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VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
MEMBER'S EQUITY, BEGINNING
OF PERIOD $ 85,219 $ 64,282 $ 77,113 $ 64,282
COMPREHENSIVE (LOSS) INCOME:
NET INCOME 6,501 1,022 14,607 10,553
OTHER COMPREHENSIVE LOSS (22,791) -- (22,791) --
--------- --------- --------- ---------
COMPREHENSIVE (LOSS) INCOME (16,290) 1,022 (8,184) 10,553
--------- --------- --------- ---------
MEMBER'S EQUITY, END
OF PERIOD $ 68,929 $ 65,304 $ 68,929 $ 74,835
========= ========= ========= =========
See notes to consolidated financial statements.
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VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Six Months Ended
June 30,
--------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,607 $ 10,553
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 26,031 18,305
Unrealized gain on investments (19,663) --
Net extraordinary loss on early extinguishment of debt 5,569 --
Change in accounts receivable 6,897 (2,985)
Change in inventories (4,224) (3,264)
Change in prepaid and other current assets (3,992) 2,878
Change in other assets (15,240) (1,454)
Change in accounts payable 20,333 (11,686)
Change in accrued expenses 369 (8,576)
Change in other liabilities 1,461 (6,455)
Change in deferred taxes (386) (1,141)
------------ -----------
Net cash provided by (used in) operating activities 31,762 (3,825)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired (444,012) --
Capital expenditures (13,177) (15,035)
------------ -----------
Net cash used in investing activities (457,189) (15,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit agreement (58,500) 32,500
Net borrowings on bank debt 5,806 --
Net proceeds from issuance of debt 650,000 --
Debt issuance fees (26,981) --
Payment for early extinguishment of debt (82,788) --
Principal payments on debt (19,949) (2,514)
------------ -----------
Net cash provided by financing activities 467,588 29,986
------------ -----------
Effect of exchange rate changes on cash and cash equivalents (1,996) --
NET INCREASE IN CASH 40,165 11,126
CASH AT BEGINNING OF PERIOD 130 1,477
============ ===========
CASH AT END OF PERIOD $ 40,295 $ 12,603
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 31,969 $ 27,139
============ ===========
Cash paid during the period for taxes $ 35 $ 225
============ ===========
See notes to consolidated financial statements.
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VENTURE HOLDINGS COMPANY LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. The consolidated financial statements
include the accounts of Venture Holdings Company LLC (hereinafter
referred to as "Venture") and all of Venture's domestic and foreign
subsidiaries that are wholly-owned or majority-owned (collectively
referred to as the "Company"). The Company's investment in a less than
majority-owned business is accounted for under the equity method. In the
opinion of management, all adjustments (consisting of only normal
recurring items), which are necessary for a fair presentation have been
included. The results for interim periods are not necessarily indicative
of results which may be expected for any other interim period or for the
full year. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's 1998 Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
2. ACQUISITION
On May 28, 1999, the Company purchased Peguform GmbH ("Peguform"), a
leading European supplier of high performance interior and exterior
plastic modules, systems and components to European OEMs (the "Peguform
Acquisition"), for approximately $463 million. The consideration paid for
Peguform is subject to adjustment based upon a final audit of the
financial statements of Peguform as of March 31, 1999.
The Peguform Acquisition was accounted for as a purchase and,
accordingly, the assets purchased and liabilities assumed in the
acquisition have been reflected in the accompanying consolidated balance
sheets at estimated fair market value and the operating results of
Peguform have been included in the consolidated financial statements
since the date of acquisition.
The excess of the purchase price over the fair market value of the net
assets acquired (goodwill) was approximately $8 million and is being
amortized on a straight-line basis over 30 years.
The financial statements as of and for the six months ended June 30, 1999
reflect the preliminary allocation of the purchase price. The final
allocation of the purchase price is subject to the completion of asset
valuations. Accordingly, the goodwill associated with the acquisition of
Peguform may change during 1999.
The following 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 periods presented.
Six Months Ended
June 30,
--------
1999 1998
---- ----
Net sales $ 991,651 $ 926,013
Net income before extraordinary loss 22,883 12,508
Net income 17,314 18,077
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3. INVENTORIES
Inventories included the following (in thousands):
June 30, Dec. 31, June 30,
1999 1998 1998
---- ---- ----
Raw materials $ 56,061 $ 25,169 $ 38,939
Work-in-process - manufactured parts 17,824 2,965 2,612
Work-in-process - tools and molds 75,212 11,436 10,319
Finished goods 22,984 11,569 4,011
---------- ---------- ------------
Total $ 172,081 $ 51,139 $ 55,881
========== ========== =============
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4. DEBT
Debt consisted of the following (in thousands):
June 30, Dec. 31, June 30,
1999 1998 1998
---- ---- ----
Credit agreement
Term loan A $ 75,000 $ -- $ --
Term loan B 200,000 -- --
Interim term loan 125,000 -- --
Revolving credit outstanding 18,500 77,000 77,500
Bank debt payable 52,582 -- --
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 -- --
Senior subordinated notes payable, Due 2004
with interest at 9.75% -- 78,940 78,940
Senior subordinated notes payable, Due 2009
with interest at 12.0% 125,000 -- --
Capital leases with interest from 8.25%
to 11.5% 33,695 2,196 2,731
Installment notes payable with
interest from 5.85% to 11.75% 1,544 1,803 2,003
---------- ---------- ----------
Total 961,321 364,939 366,174
Less current portion of debt 10,502 1,565 1,835
---------- ---------- ----------
Total $ 950,819 $ 363,374 $ 364,339
========== ========== ==========
On May 27, 1999, and in connection with the Peguform Acquisition, the
Company entered into a new credit agreement, which was amended on June 4,
1999 (the "credit agreement"). The credit agreement provides for
borrowings of (1) up to $175 million under a revolving credit facility,
which, in addition to those matters described below, will be used for
working capital and general corporate purposes; (2) $75 million under a
five-year term loan A; (3) $200 million under a six-year term loan B; and
(4) $125 million under an 18-month interim term loan. 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 June 30, 1999, the Company could have borrowed up to the
maximum availability under the revolving credit facility.
Interest rates under the credit agreement are based on the London
Interbank Offer Rate ("LIBOR"), or the Alternate Base Rate ("ABR"), which
is the larger of the bank's corporate base rate of interest announced
from time-to-time or the federal funds rate plus 1/2% per annum, and, in
the case of non-dollar denominated loans, a euro currency reference rate.
Interest rates are determined by reference to the relevant interest rate
option, plus an Applicable Margin (as defined) based on the Company's
Consolidated Ratio of Total Debt to EBITDA. 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.
On May 27, 1999, Venture issued $125 million of 11% unsecured senior
notes (the "1999 Senior Notes") and $125 million of 12% unsecured senior
subordinated notes (the "1999 Senior Subordinated Notes" and, together
with the 1999 Senior Notes, the "1999 Notes"). The net proceeds of the
issuances of $243 million, together with borrowings under the credit
agreement were used to (1) fund the cash consideration of $463 million
paid in the Peguform Acquisition; (2) redeem the Company's 9 3/4% senior
subordinated notes due 2004 at the redemption price of 104.875% plus
accrued interest; (3) refinance amounts outstanding under previous credit
agreements; (4) pay certain fees and expenses related to the Peguform
Acquisition and the offering of the notes; and (5) fund working capital
and other corporate purposes.
The credit agreement, and documents governing the Company's 9 1/2% Senior
Notes due 2005 (the "1997 Senior Notes") and the 1999 Notes, contain
restrictive covenants relating to, among other things, cash flow,
fixed charges, debt, member's equity, distributions, leases, and liens on
assets. The Company's debt
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obligations 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 June 30,
1999, the Company was in compliance with all debt covenants.
Simultaneously with the issuance of the 1999 Notes, and to reduce the
Company's exposure to fluctuations in foreign exchange rates and reduce
the Company's overall cost of capital, the Company entered into various
financial instrument transactions. Refer to Note 5 - Derivative Financial
Instruments and Risk Management.
5. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In connection with the issuance of debt to finance the Peguform
Acquisition, Venture has entered into various currency and interest rate
swaps. Currency swaps are used to economically hedge foreign exchange
exposure relating to foreign denominated assets being financed by U.S.
dollar denominated debt. Currency swaps are legal agreements between
Venture and a counterparty to purchase and sell a foreign currency, for a
price specified at the contract date, with delivery and settlement at
both the effective date and the maturity date of the contract. Interest
rate swaps are used to minimize interest expense while maintaining the
desired level of exposure to the risk of interest rate fluctuations.
Venture has entered into these financial instruments to take advantage of
lower interest rates in Europe and to hedge its foreign exchange risk.
On May 27, 1999, Venture, as part of the Peguform Acquisition, entered
into U.S. dollar versus Euro currency swaps with notional amounts of $205
million and $250 million which mature in 2002 and 2004, respectively. At
June 30, 1999, these currency swaps had an estimated fair market value of
$17.5 million. Since these contracts do not meet all of the criteria for
hedge accounting, the estimated fair market value of these financial
instruments is recorded as an investment on the balance sheet and the
$17.5 million non-cash change in estimated fair market value for the
quarter is recorded in other income on the income statement.
Also on May 27, 1999, Venture, as part of the Peguform Acquisition,
entered into interest rate swaps with notional amounts of $410 million
and $500 million which mature in 2002 and 2004, respectively. Certain of
the interest rate swaps with an estimated fair market value of $2.0
million do not meet all of the criteria for hedge accounting.
Accordingly, the estimated fair market value of these financial
instruments is recorded as an investment on the balance sheet and the
$2.0 million non-cash change in estimated fair market value for the
quarter is recorded in other income on the income statement. Certain
other interest rate swaps do qualify for settlement accounting. The
impact of these interest rate swaps was to reduce interest expense by
$142 thousand in the second quarter of 1999.
6. RELATED PARTY TRANSACTIONS
The Company has entered into various transactions with entities that the
sole beneficiary 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, the terms of these transactions are not the result of
arms'-length bargaining; however, the Company believes that such
transactions are on terms no less favorable to the Company than would be
obtained if such transactions or arrangements were arms'-length
transaction with non-affiliated persons.
The Company provides or arranges for others to provide certain related
parties with various administrative and professional services, including
employee group insurance and benefit coverage, property and other
insurance, financial and cash management and administrative services such
as data processing. The related parties are charged fees and premiums for
these services. Administrative services were allocated to the entity for
which they were incurred and certain entities were charged a management
fee. In connection with the above cash management services, the
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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.
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The result of these related party transactions was a net receivable,
which was included in accounts receivable as follows:
June 30, Dec. 31, June 30,
1999 1998 1998
---- ---- ----
Amounts receivable $ 76,607 $ 65,755 $ 36,529
Amounts payable 10,917 9,107 2,548
---------- ---------- -----------
Net amounts receivable $ 65,690 $ 56,648 $ 33,981
========== ========== ===========
7. EXTRAORDINARY ITEM
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).
8. GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
Venture, as the successor to Venture Holdings Trust, and certain of its
wholly-owned, domestic subsidiaries are jointly and severally liable for
the 1997 Notes issued on July 9, 1997. On May 27, 1999, certain
wholly-owned, domestic subsidiaries of Venture became guarantors of the
1997 Senior Notes. These guarantees are full and unconditional, joint and
several. Venture issued the 1999 Notes on May 27, 1999 in connection
with the Peguform Acquisition, as a result of which Venture acquired
certain additional foreign subsidiaries. The 1999 Notes are guaranteed by
each of Venture's wholly-owned, domestic subsidiaries. The guarantees of
these wholly-owned, domestic subsidiaries are full and unconditional,
joint and several.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of June 30, 1999 and
for the three and six month periods ended June 30, 1999, of (a)
Venture and the guarantor subsidiaries and (b) the nonguarantor
subsidiaries and (c) the Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Venture and the
guarantor subsidiaries with the nonguarantor subsidiaries.
Condensed consolidating financial information for Venture and guarantor
subsidiaries set forth below includes both the issuer subsidiaries and
the guarantor subsidiaries with respect to the 1997 Senior Notes and
includes all of the guarantor subsidiaries with respect to the 1999
Notes. Condensed consolidating financial information for the periods
prior to June 30, 1999 are not presented because prior to May 27, 1999
the non-guarantors and the non-issuers of the 1997 Senior Notes and the
non-guarantors of the 1999 Notes during those periods were
inconsequential, individually and in aggregate, to the consolidated
financial statements.
The principal elimination entries eliminate investments in subsidiaries
and intercompany balances and transactions.
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GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
VENTURE
& GUARANTOR NONGUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,929 $ 34,366 $ -- $ 40,295
Accounts receivable, net 212,480 147,612 -- 360,092
Inventories 52,101 119,980 -- 172,081
Investments 19,522 6,353 -- 25,875
Prepaid and other current assets 10,451 39,964 (1,105) 49,310
----------- ---------- ----------- ------------
Total current assets 300,483 348,275 (1,105) 647,653
Property, Plant and Equipment, Net 194,825 406,337 -- 601,162
Intangible Assets, Net 51,082 8,316 -- 59,398
Other Assets 519,444 4,513 (469,201) 54,756
Deferred Tax Assets 11,969 4,177 -- 16,146
----------- ----------- ----------- ------------
Total Assets $ 1,077,803 $ 771,618 $ (470,306) $ 1,379,115
=========== =========== =========== ============
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 68,005 $ 135,118 $ -- $ 203,123
Accrued interest 5,816 1,105 (1,105) 5,816
Accrued expenses 17,126 68,765 -- 85,891
Current portion of long-term debt 5,102 11,787 (6,387) 10,502
----------- ----------- ----------- ------------
Total current liabilities 96,049 216,775 (7,492) 305,332
Pension Liabilities & Other 5,647 28,529 -- 34,176
Deferred Tax Liabilities 11,784 8,075 -- 19,859
Long Term Debt 871,249 496,103 (416,533) 950,819
----------- ----------- ----------- -----------
Total liabilities 984,729 749,482 (424,025) 1,310,186
Commitments and Contingencies -- -- -- --
Member's Equity:
Member's equity 93,811 44,927 (46,281) 92,457
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 -- (22,791) -- (22,791)
----------- ------------ ----------- ------------
Member's Equity 93,074 23,241 (46,281) 68,929
----------- ----------- ----------- ------------
Total Liabilities and Member's Equity $ 1,077,803 $ 771,618 $ (470,306) $ 1,379,115
=========== =========== =========== ============
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GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
VENTURE
& GUARANTOR NONGUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
NET SALES $ 328,417 111,378 -- 439,795
COST OF PRODUCTS SOLD 276,861 102,895 -- 379,756
---------- ----------- ----------- ----------
GROSS PROFIT 51,556 8,483 -- 60,039
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE 26,848 7,376 -- 34,224
PAYMENTS TO BENEFICIARY IN LIEU OF TAXES 77 -- -- 77
---------- ----------- ----------- ----------
INCOME FROM OPERATIONS 24,631 1,107 -- 25,738
INTEREST EXPENSE 24,206 1,927 (1,105) 25,028
OTHER EXPENSE (INCOME) (21,249) 244 1,105 (19,900)
---------- ----------- ----------- ----------
INCOME BEFORE TAXES 21,674 (1,064) -- 20,610
TAX PROVISION 144 261 -- 405
MINORITY INTEREST -- 29 -- 29
---------- ----------- ----------- ----------
NET INCOME BEFORE EXTRAORDINARY
LOSS 21,530 (1,354) -- 20,176
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT 5,569 -- -- 5,569
---------- ----------- ----------- ----------
NET INCOME (LOSS) $ 15,961 (1,354) -- 14,607
========== =========== =========== ==========
GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
VENTURE
& GUARANTOR NONGUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
NET SALES $ 162,425 111,378 -- 273,803
COST OF PRODUCTS SOLD 143,791 102,895 -- 246,686
---------- ----------- ----------- ----------
GROSS PROFIT 18,634 8,483 -- 27,117
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE 12,578 7,376 -- 19,954
PAYMENTS TO BENEFICIARY IN LIEU OF TAXES 77 -- -- 77
---------- ----------- ----------- ----------
INCOME FROM OPERATIONS 5,979 1,107 -- 7,086
INTEREST EXPENSE 14,727 1,927 (1,105) 15,549
OTHER EXPENSE (INCOME) (21,249) 244 1,105 (19,900)
---------- ----------- ----------- ----------
INCOME BEFORE TAXES 12,501 (1,064) -- 11,437
TAX (BENEFIT) PROVISION (923) 261 -- (662)
MINORITY INTEREST -- 29 -- 29
---------- ----------- ----------- ----------
NET INCOME BEFORE EXTRAORDINARY
LOSS 13,424 (1,354) -- 12,070
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT 5,569 -- -- 5,569
---------- ----------- ----------- ----------
NET INCOME (LOSS) $ 7,855 (1,354) -- 6,501
========== =========== =========== ==========
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VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
VENTURE
& GUARANTOR NONGUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,961 $ (1,354) $ -- $ 14,607
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 21,540 4,491 -- 26,031
Unrealized gain on investments (19,522) (141) -- (19,663)
Net extraordinary loss on early
extinguishment of debt 5,569 -- -- 5,569
Change in accounts receivable (22,612) 29,509 -- 6,897
Change in inventories (962) (3,262) -- (4,224)
Change in prepaid and other current
assets (2,095) (1,897) -- (3,992)
Change in other assets (11,309) (3,931) -- (15,240)
Change in accounts payable 15,654 4,679 -- 20,333
Change in accrued expenses (4,762) 5,131 -- 369
Change in pension liabilities and other (1,606) 3,067 -- 1,461
Change in deferred taxes 214 (600) -- (386)
--------- ----------- ----------- ----------
Net cash provided by (used in)
operating activities (3,930) 35,692 -- 31,762
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired (462,814) 18,802 -- (444,012)
Capital expenditures (8,040) (5,137) -- (13,177)
--------- ----------- ----------- ----------
Net cash used in investing activities (480,583) 13,665 -- (467,588)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments underrevolving credit facility (58,500) -- -- (58,500)
Net borrowings on bank debt -- 5,806 -- 5,806
Net proceeds from issuance of debt 650,000 -- -- 650,000
Debt issuance fees (26,981) -- -- (26,981)
Payment for early extinguishment of debt (82,788) -- -- (82,788)
Principal payments on debt (1,148) (18,801) -- (19,949)
--------- ----------- ----------- ----------
Net cash (used in) provided by
financing activities 480,583 (12,995) -- 467,588
Effect of exchange rate changes on cash and cash
equivalents -- (1,996) -- (1,996)
NET INCREASE IN CASH 5,799 34,366 -- 40,165
CASH AT BEGINNING OF PERIOD 130 -- -- 130
--------- ----------- ----------- ----------
CASH AT END OF PERIOD $ 5,929 $ 34,366 -- 40,295
========= =========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 31,969 $ -- -- $ 31,969
========= =========== =========== ==========
Cash paid during the period for taxes $ 35 $ -- -- $ 35
========= =========== =========== ==========
9. 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 segregated into two
reportable segments: North America and Europe. The following table
presents net sales and other financial information by business segment
for the six months ended June 30, 1999 (in thousands):
INCOME (LOSS) NET TOTAL
NET SALES FROM OPERATIONS INCOME (LOSS) ASSETS
--------- --------------- ------------- ------
NORTH AMERICA (Venture) $ 328,417 24,631 $ 15,961 607,497
EUROPE (Peguform) 111,378 1,107 (1,354) 771,618
---------- ------------ ----------- ---------
TOTAL 439,795 25,738 14,607 1,379,115
========== ============ =========== =========
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 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS (UNAUDITED)
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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 Six months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold 90.1 84.8 86.3 82.5
-------- ------- -------- --------
Gross profit 9.9 15.2 13.7 17.5
Selling, general and administrative expense 7.3 8.6 7.8 8.7
Payments to beneficiary in lieu of trust distributions 0.0 0.2 0.0 0.2
-------- ------- -------- --------
Income from operations 2.6 6.4 5.9 8.6
Interest expense 5.7 6.0 5.7 5.2
Other income (7.3) 0.0 (4.5) 0.0
-------- ------- -------- --------
Income before taxes 4.2 0.4 4.7 3.4
Tax (benefit) provision (0.2) (0.2) 0.1 0.3
Minority interest 0.0 0.0 0.0 0.0
-------- ------- -------- --------
Net income before extraordinary loss 4.4 0.6 4.6 3.1
Extraordinary loss on early extinguishment of debt 2.0 0.0 1.3 0.0
-------- ------- -------- --------
Net income 2.4 % 0.6 % 3.3 % 3.1 %
======== ======= ======== ========
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales for the second quarter of 1999 increased $95.8 million, or
53.8%, from the second quarter of 1998. This increase was largely due to the
addition of Peguform's sales during the month of June. Domestically, sales
decreased $15.6 million, or 8.7%, due primarily to lower tooling sales as
compared to the comparable period in the prior year. Net sales for the quarter
were also reduced by a $3.0 million retroactive sales price reduction negotiated
with a major customer. This customer has awarded the Company with a significant
New Program (described below) with production scheduled to begin in 2001.
GROSS PROFIT. Gross profit for the second quarter of 1999 increased $0.2 million
to $27.1 million compared to $26.9 million for the second quarter of 1998. As a
percentage of net sales, gross profit decreased to 9.9% for the second quarter
of 1999 from 15.2% for the second quarter of 1998. The decrease was largely due
to the contribution of Peguform's lower margin business being included in the
consolidated sales for the month of June. The 7.6% gross profit margin on
Peguform's sales was further reduced by approximately $1.0 million because only
the value added to the acquired inventory subsequent to the acquisition date
could be recognized in gross profit. Domestically, the gross profit margin
decreased to 11.5% for the second quarter of 1999 from 15.2% in the second
quarter of 1998, primarily due to a decrease in tooling sales, which generally
account for higher margins than sales of components. Gross margin was also
reduced by a $3.0 million retroactive sales price reduction negotiated with a
major customer in return for substantial program opportunities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the second quarter of 1999 increased $4.7 million, or 30.9%, to
$20.0 million compared to $15.2 million for the second quarter of 1998. As a
percentage of net sales, selling, general and administrative expense decreased
to 7.3% for the second quarter of 1999 as compared to 8.6% for the second
quarter of 1998. The decrease is primarily attributable to the impact of
Peguform's lower selling, general and administrative expense as a percentage of
net sales, relative to Venture's, being included in the operating results for
the month of June.
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations for
the second quarter of 1999 decreased $4.2 million, or 37.2%, to $7.1 million,
compared to $11.3 million for the second quarter of 1998. As a percentage of net
sales, income from operations decreased to 2.6% for the second quarter of 1999
from 6.4% for the second quarter of 1998.
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INTEREST EXPENSE. Second quarter interest expense increased $4.9 million, or
45.4%, to $15.5 million in 1999 as compared to 1998. The increase is the result
of the increased debt associated with the Peguform Acquisition partially offset
by a reduced overall cost of capital under the new capital structure, after
consideration of interest rate swaps.
OTHER INCOME. Other income is primarily comprised of $19.5 million non-cash,
mark-to-market adjustments on various currency and interest rate swaps entered
into during the quarter to economically hedge the Company's exposure to foreign
exchange and interest rate risk associated with the Peguform Acquisition. These
cross currency and interest rate swaps serve to reduce the overall cost of
capital of the Company, while also providing an economic hedge to fluctuations
in foreign exchange rates.
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).
NET INCOME. Due to the foregoing, net income for the second quarter of 1999
increased $5.5 million to $6.5 million compared to $1.0 million for the second
quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales for the first six months of 1999 increased $95.2 million,
or 27.6%, from the first six months of 1998. This increase was largely due to
the addition of Peguform's sales during the month of June. Domestically, sales
decreased $16.2 million, or 4.7%, due primarily to lower tooling sales as
compared to the comparable period in the prior year. Net sales for the period
were also reduced by a $3.0 million sales price reduction negotiated with a
major customer. This customer has awarded the Company with a significant New
Program (described below) with production scheduled to begin in 2001.
GROSS PROFIT. Gross profit for the first six months of 1999 increased $0.1
million to $60.0 million compared to $59.9 million for the first six months of
1998. As a percentage of net sales, gross profit decreased to 13.7% for the
first six months of 1999 from 17.5% for the first six months of 1998. The
decrease was largely due to the contribution of Peguform's lower margin business
being included in the consolidated sales for the month of June. The 7.6% gross
profit margin on Peguform's sales was further reduced by approximately $1.0
million because only value added to the acquired inventory subsequent to the
acquisition date could be recognized in gross profit. Domestically, the gross
profit margin decreased to 15.7% for the first six months of 1999 from 17.5% in
the first six months of 1998 primarily due to a decrease in tooling sales, which
generally account for higher margins than sales of components. Gross margin was
also reduced by a $3.0 million retroactive sales price reduction negotiated with
a major customer in return for substantial program opportunities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the first six months of 1999 increased $4.1 million, or 13.7%, to
$34.2 million compared to $30.1 million for the first six months of 1998. As a
percentage of net sales, selling, general and administrative expense decreased
to 7.8% for the second quarter of 1999 as compared to 8.7% for the first six
months of 1998. 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 for the month of
June.
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations for
the first six months of 1999 decreased $3.7 million, or 12.6%, to $25.7 million,
compared to $29.4 million for the first six months of 1998. As a percentage of
net sales, income from operations decreased to 5.9% for the first six months of
1999 from 8.6% for the first six months of 1998.
INTEREST EXPENSE. Interest expense for the first six months of 1999 increased
$7.2 million, or 40.3%, to $25.0 million in 1999 as compared to 1998. The
increase is the result of the increased debt associated with the Peguform
Acquisition partially offset by a reduced overall cost of capital under the new
capital structure, after consideration of interest rate swaps.
OTHER INCOME. Other income is primarily comprised of $19.5 million non-cash,
mark-to-market adjustments on various currency and interest rate swaps entered
into during the second quarter of 1999 to economically hedge the Company's
exposure to foreign exchange and interest rate risk associated with the
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Peguform Acquisition. These cross currency and interest rate swaps serve to
reduce the overall cost of capital of the Company, while also providing an
economic hedge to fluctuations in foreign exchange rates.
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).
NET INCOME. Due to the foregoing, net income for the first six months of 1999
increased $4.1 million to $14.6 million compared to $10.6 million for the first
six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES (UNAUDITED)
The Company's consolidated working capital was $342.3 million at June 30, 1999
compared to $163.6 million at June 30, 1998, an increase of $178.7 million. The
Company's working capital ratio decreased to 2.12x at June 30, 1999 from 3.11x
at June 30, 1998. The decrease is due to an increase in current liabilities,
primarily accounts payable and accrued expense not offset by a like increase in
current assets as a result of the Peguform Acquisition. Net cash provided by
operating activities was $31.8 million for the six months ended June 30, 1999
compared to net cash used of $3.8 million for the same period in 1998. The
increase in cash provided by operations is due primarily to a reduction in the
net increase in accounts receivable and a net increase in liabilities.
Capital expenditures were $13.2 million for the six months ended June 30, 1999
compared to $15.0 million for the same period in 1998. 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 require
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 other such material business, other than business acquired as a
consequence of the Peguform Acquisition and except as noted below.
The Company has just been awarded a letter of intent for a significant new
program for one of its major customers (the "new program") with projected annual
revenues of approximately $100 million, with production scheduled to start in
late 2001. As a result, of this award the Company may be required to make
aggregate capital expenditures in the range of $40.0 million to $80.0 million
payable over the next several years in addition to its normal capital
expenditures. The size and scope of the expenditures associated with the New
Program are still being defined.
Net cash provided by financing activities was $467.6 million for the six months
ended June 30, 1999 compared to $30.0 million for the same period in 1998. The
fluctuation primarily relates to the refinancing of certain existing debt and
the issuance of new debt to make the Peguform acquisition
The aggregate purchase price of the Peguform Acquisition was approximately DEM
850 million (approximately $463 million), subject to post-closing adjustments.
In addition, the Company had $28.8 million of fees and expenses. The Company is
still conducting a review of the post-closing adjustments associated with the
Peguform Acquisition and does not know how this will be concluded, however the
Company does not expect this to have a material impact on it operations or cash
flows.
In connection with the Peguform Acquisition, the Company entered into an amended
and restated credit agreement (the "New Credit Agreement"). The New Credit
Agreement provides for borrowings of (1) up to $175.0 million under a revolving
credit facility, which, in addition to those matters described below, will be
used for working capital and general corporate purposes; (2) $75.0 million under
a five-year term loan A; (3) $200.0 million under a six-year term loan B and (4)
$125 million under an 18 month interim term loan. 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 letter of credit issued against the New Credit Agreement. At June
30, 1999 the Company had $18.5 million outstanding with $156.5 million still
available under the revolving credit facility. The New Credit Agreement and each
of the indentures for the Company's 9 1/2% Senior Notes due 2005 (the 1997
"Senior 1997 Notes"), 11% Senior Notes due 2007 (the "1999 Senior Notes"). and
12% Senior Subordinated Notes due 2009 (the "1999 Senior Subordinated Notes")
contain various restrictive covenants that require the Company to maintain,
among other things, stipulated financial ratios. As of June 30, 1999, the
Company was in compliance with all such covenants.
At June 30, 1999 the Company's interest rates under the New Credit Agreement
are based on the London Interbank Offer Rate ("LIBOR"), or an Alternate Base
Rate ("ABR"), which is the larger of the bank's corporate base rate of interest
announced from time-to-time or the federal funds rate plus 1/2% per annum, and,
in the case of non-dollar denominated loans, a Euro currency reference rate.
Interest rates will be determined by reference to the relevant interest rate
option, plus an Applicable Margin (as defined) based on the Company's
Consolidated Ratio of Total Debt to EBITDA. Obligations under the New Credit
Agreement are
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jointly and severally guaranteed by the Company's domestic
subsidiaries and are secured by first priority security interests in
substantially all of the assets of the Company and its domestic subsidiaries.
The New Credit Agreement became effective May 27, 1999 contemporaneously with
the completion of the Peguform Acquisition and was amended on June 4, 1999.
In addition, we issued $125.0 million of our 1999 Senior Notes due 2007 and
$125.0 million of our 1999 Senior Subordinated Notes (collectively, the "1999
Senior Notes"). Proceeds from the issuance of the notes, together with
borrowings under the New Credit Agreement were used to (1) fund cash
consideration paid in the Acquisition; (2) redeem the Company's 9 3/4% Senior
Subordinated Notes due 2004 at the redemption price of 104.875%, plus accrued
interest; (3) refinance amounts outstanding under the previous credit agreement;
(4) pay certain fees and expenses related to the Peguform Acquisition and the
offering of the 1999 Notes; and (5) fund working capital and other general
corporate purposes.
As part of the Peguform Acquisition, to take advantage of lower interest rates
in Europe and to hedge its exchange rate risk, the Company entered into currency
(US dollar versus Euro) and interest rate swaps. The currency swaps are in
notional amounts of $205 million and $250 million, which mature in 2002 and
2004, respectively. The interest rate swaps are in notional amounts of $410
million and $500 million also maturing in 2002 and 2004, respectively. These
currency and interest rate swaps effectively converted the Company's United
States dollar fixed rate coupon on the 1997 Senior Notes and the 1999 Notes to
an Euro fixed rate coupon. These instruments only partially qualified for hedge
accounting, which resulted in non-cash increase in earnings related to the mark
to market on the swaps in the amount of $19.5 million which was recorded as
other income on the income statement and in investments on the balance sheet.
The hedge accounting impact of these interest rate swaps was to reduce interest
expense by $142 thousand in the second quarter. The non-cash impact of the mark
to market adjustments each quarter to earning and current assets associated with
these swaps may be significant both positively and negatively in the future
depending on currency and interest rate movements. See Item 3. Quantitative and
Qualitative Disclosure about Market Risk for a further discussion
The Company believes that its existing cash balances, operating cash flow,
borrowings under its bank credit facility and other short term arrangements will
be sufficient to fund working capital needs, and normal capital expenditures
required for the operation of its existing business through the end of 2000. The
Company is obligated to refinance the interim term loan portion of the New
Credit Agreement prior to the end of 2000 and the company is exploring its
options. As the scope of the New Program, defined above, is further defined the
Company may seek new or amended credit arrangements to fund these capital
expenditures and working capital requirements and may look at this connection
with the refinancing of the Interim term loan.
YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations, the
Company is in the process of addressing the year 2000 problem. The year 2000
issue is the result of computer programs being written using two digits rather
than four digits to define the applicable year. Any of the Company's systems,
equipment, or hardware that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than year 2000. This could
result in a system failure or miscalculations causing disruption of operations,
including among other things, a temporary inability to properly manufacture
products, process transactions, send invoices or engage in similar normal
business activities.
Based on its initial assessments, the Company determined that it needed to
modify or replace certain portions of its equipment, hardware, and software so
that affected systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that, with modifications and some replacement of
existing equipment, hardware and software, the year 2000 risk will be
substantially mitigated.
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The Company's plan to resolve the year 2000 issue is being implemented by
each its facilities and involves six phases:
- inventory;
- risk assessment;
- prioritization and ownership assignment;
- compliance research;
- remediation; and
- testing.
The inventory, risk assessment, prioritization, and ownership
assignment phases were performed concurrently and are substantially complete.
The compliance research phase is complete at all of the Company's facilities.
The remediation and testing phases are approximately 95% complete in North
America and are 99% complete at the Company's foreign operations, other than
France. In France the remediation and testing phases are expected to be
completed by September 30, 1999. In North America, the year 2000 plan is being
completed on a facility by facility basis. For foreign operations, it is being
completed on a country by country basis.
The Company's year 2000 inventory of potentially affected items is
segregated into four categories:
- business application (developed software, customized extensions
to purchased software and systems interfaces);
- tools and platforms (purchased commercial products, both hardware
and software);
- intelligent devices (manufacturing, laboratory, office and
facilities equipment); and
- external business partners (suppliers, customers and other service
providers).
Business applications and tools and platforms are considered
information technology ("IT") systems, while intelligent devices and external
business partners are considered non-IT systems.
Concerning IT systems, several facilities that share existing
applications will upgrade those applications to year 2000 compliant versions.
All other facilities have already made their systems year 2000 compliant. The
Company's facilities in Germany and Spain have received "Status Green" rating
for compliance in TUV year 2000 audits. TUV is the European equivalent of the
Automotive Industry Action Group in the United States.
With respect to non-IT systems, the Company has dedicated resources to
assist in identifying potentially affected intelligent devices. Determination of
compliance status, remediation, and testing of these devices may be more
difficult than IT systems, as some of the manufacturers of potentially affected
equipment may no longer be in business.
The external business partners category of potentially affected items
primarily includes the process of identifying and prioritizing critical
suppliers and customers, and communicating with them about their plans and
progress in addressing the year 2000 problem. The Company has developed a
questionnaire that has been used to obtain this information from key existing
business partners. Based on the responses to the questionnaires, the Company is
not aware of any problems that would materially impact results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that these parties will be year 2000 ready and the inability of these parties to
successfully complete their year 2000 compliance program could impact the
Company. For key business partners, the initial assessments are evaluated and,
as deemed necessary, follow-up assessments are made. The Company expects this
process to be ongoing throughout 1999. The Company in the process of developing
contingency plans to address potential year 2000 exposure which we expect to be
complete by October 1999.
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The Company has utilized both internal and external resources to repair
or replace, test, and implement software and operating equipment for year 2000
modifications. The Company is unable to estimate with any certainty the total
cost of the year 2000 project. The Company has not, however, seen a significant
increase in its IT cost nor in the normal overhead cost associated with its
facilities. Primarily all of the costs of the year 2000 project have been
expensed and have been funded through normal operating cash flow or bank
borrowings.
The failure to remediate a material year 2000 problem could result in
an interruption in, or a failure of, certain normal business activities or
operations, including the Company's ability to produce or deliver products to
its customers. Such failures could materially or adversely affect the results of
operations, liquidity, and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, the Company is unable to determine with
certainty at this time whether the consequences of year 2000 failure will have a
material impact on us. The year 2000 plan is expected to significantly reduce
the level of uncertainty about the year 2000 problem. The Company believes that
by executing the year 2000 plan in a timely manner, the possibility of
significant interruptions to normal operations should be reduced. The Company
believes that its most reasonably likely worst case scenario is that certain
suppliers will not be able to supply the Company with key materials, thus
disrupting the manufacture and sale of products to customers.
The Company's plans to complete the year 2000 project are based on its
best estimates, which were derived utilizing numerous assumptions of future
events including, but not limited to, the continued availability of certain
resources and other factors. Estimates of the status of completion and the
expected completion dates are based on tasks completed to date compared to all
required tasks. However, there can be no guarantee that expected completion
dates will be met, and actual results could differ materially from those
forecasted. Specific factors that might cause such material difference include,
but are not limited to, the availability and cost of personnel trained in
certain areas, the ability to locate and correct all relevant equipment, devices
and computer codes, and similar uncertainties.
* * * * * * *
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 Company successfully remediating Year 2000 issues; the
size, timing and mix of purchases of the Company's products; new product
development and introduction; existing government regulations and changes in, or
the failure to comply with, government regulations; adverse publicity;
dependence upon original equipment manufacturers; liability and other claims
asserted against the Company; competition; the loss of significant customers or
suppliers; fluctuations and difficulty in forecasting operating results; changes
in business strategy or development plans; business disruptions; product
recalls; warranty costs; the ability to attract and retain qualified personnel;
the ability to protect technology; retention of earnings; and control and the
level of affiliated transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. In order to manage the risk arising
from these exposures, Venture has entered into a variety of foreign exchange and
interest rate financial instruments. A discussion of the Company's accounting
policies for derivative financial instruments is included 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 1998
Annual Report on Form 10-K.
FOREIGN CURRENCY EXCHANGE RATE RISK. The Company has foreign currency exposures
related to buying, selling, and financing in currencies other than the local
currencies in which it operates. The Company's most significant foreign currency
exposures relate to Germany, Spain, France, the Czech Republic, Mexico, Brazil
and Canada. As of June 30, 1999, the net fair value asset of financial
instruments with exposure to foreign currency risk was approximately $17.5
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 $51.7 million. The model assumes a parallel shift in the
foreign currency exchange rates. Exchange rates rarely move in the same
direction. The assumption that exchange rates change in a parallel fashion may
overstate the impact of changing exchange rates on assets and liabilities
denominated in a foreign currency.
A portion of the Company's assets is based in its foreign operations and is
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of member's equity. Accordingly, the Company's consolidated
member's equity will fluctuate depending upon the weakening or strengthening of
the U. S. dollar against the respective foreign currency.
INTEREST RATE RISK. The Company is subject to market risk from exposure to
changes in interest rates based on its financing, investing, and cash management
activities. Venture has entered into various financial instrument transactions
to maintain the desired level of exposure to the risk of interest rate
fluctuations and to minimize interest expense. As of June 30, 1999, the net fair
value liability of financial instruments with exposure to interest rate risk was
approximately $4.8 million. The potential loss in fair value for such financial
instruments from a hypothetical 10% adverse shift in interest rates would be
approximately $3.2 million.
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PART II - OTHER INFORMATION
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) Reports on Form 8-K.
The following filings occurred in the second quarter
of 1999:
Date Information Reported
---- --------------------
May 10, 1999 Item 5 regarding the offering of the 1999
Notes.
June 11, 1999 Items 2, 5 and 7 regarding the Peguform
Acquisition and related transactions.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENTURE HOLDINGS COMPANY LLC, VEMCO,
INC., VENTURE INDUSTRIES CORPORATION,
VENTURE MOLD & ENGINEERING CORPORATION,
VENTURE LEASING COMPANY, VEMCO LEASING,
INC., VENTURE HOLDINGS CORPORATION, AND
VENTURE SERVICE COMPANY
Date: August 16, 1999 /s/ James E. Butler
-----------------------------------
James E. Butler
Chief Financial Officer
Signing on behalf of each registrant and
as principal financial officer of each
registrant.
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EXHIBIT INDEX
Exhibit Description
No.
- ------- -------------------------------
2.1 Trust Contribution Agreement, made as of the 27th day of May, 1999, by
and between Venture Holdings Trust and Venture Holdings Company LLC,
filed as Exhibit 2.3 to the Company's Current Report on Form 8-K on
June 11, 1999 and incorporated herein by reference.
3.1 Restated Articles of Organization of Venture Holdings Company LLC,
filed as Exhibit 3.1 to the Company's Registration Statement on Form
S-4 filed on July 9, 1999 (File No. 333-82617) and incorporated herein
by reference.
3.2 Articles of Organization of Experience Management LLC, filed as
Exhibit 3.9 to the Company's Registration Statement on Form S-4 filed
on July 9, 1999 (File No. 333-82617) and incorporated herein by
reference.
3.3 Articles of Incorporation of Venture Europe, Inc., filed as Exhibit
3.10 to the Company's Registration Statement on Form S-4 filed on July
9, 1999 (File No. 333-82617) and incorporated herein by reference.
3.4 Articles of Incorporation of Venture EU Corporation, filed as Exhibit
3.11 to the Company's Registration Statement on Form S-4 filed on July
9, 1999 (File No. 333-82617) and incorporated herein by reference.
3.5 Amended and Restated Operating Agreement of Venture Holdings Company
LLC, filed as Exhibit 3.12 to the Company's Registration Statement on
Form S-4 filed on July 9, 1999 (File No. 333-82617) and incorporated
herein by reference.
3.6 Operating Agreement of Experience Management LLC, filed as Exhibit
3.20 to the Company's Registration Statement on Form S-4 filed on July
9, 1999 (File No. 333-82617) and incorporated herein by reference.
3.7 Bylaws of Venture Europe, Inc., filed as Exhibit 3.21 to the Company's
Registration Statement on Form S-4 filed on July 9, 1999 (File No.
333-82617) and incorporated herein by reference.
3.8 Bylaws of Venture EU Corporation, filed as Exhibit 3.22 to the
Company's Registration Statement on Form S-4 filed on July 9, 1999
(File No. 333-82617) and incorporated herein by reference.
4.1 Indenture, dated as of May 27, 1999, between Venture Holdings Trust
and The Huntington National Bank, as Trustee, regarding 11% Senior
Notes due 2007 (including form of Notes), filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed on July 9, 1999
(File No. 333-82617) and incorporated herein by reference.
4.1.1 First Supplemental Indenture to the Indenture incorporated by
reference as Exhibit 4.1, made as of the 27th day of May, 1999, by and
among Venture Holdings Trust and The Huntington National Bank, as
Trustee, filed as Exhibit 4.1.1 to the Company's Registration
Statement on Form S-4 filed on July 9, 1999 (File No. 333-82617) and
incorporated herein by reference.
4.2 Indenture, dated as of May 27, 1999, between Venture Holdings Trust
and The Huntington National Bank, as Trustee, regarding 12% Senior
Subordinated Notes due 2009 (including form of Notes), filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-4 filed
on July 9, 1999 (File No. 333-82617) and incorporated herein by
reference.
4.2.1 First Supplemental Indenture to the Indenture incorporated by
reference as Exhibit 4.2, made as of the 27th day of May, 1999, by and
among Venture Holdings Trust and The Huntington National Bank, as
Trustee, filed as Exhibit 4.2.1 to the Company's Registration
Statement on Form S-4 filed on July 9, 1999 (File No. 333-82617) and
incorporated herein by reference.
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4.3.1 First Amendment to the Indenture for 9 1/2% Senior Notes due 2005, by
and among Venture Holdings Trust, Vemco, Inc. Vemco Leasing, Inc.,
Venture Industries Corporation, Venture Holdings Corporation, Venture
Leasing Company, Venture Mold & Engineering Corporation and Venture
Service Company, as Issuers, and The Huntington National Bank, as
Trustee, made as of the 27th day of May, 1999, filed as Exhibit 4.3.1
to the Company's Registration Statement on Form S-4 filed on July 9,
1999 (File No. 333-82617) and incorporated herein by reference.
4.3.2 First Supplemental Indenture to the Indenture for 9 1/2% Senior Notes
due 2005, by and among Venture Holdings Trust, Vemco, Inc. Vemco
Leasing, Inc., Venture Industries Corporation, Venture Holdings
Corporation, Venture Leasing Company, Venture Mold & Engineering
Corporation and Venture Service Company, as Issuers, Venture Holdings
Company LLC, Experience Management LLC, Venture Europe, Inc. and
Venture EU Corporation, as Guarantors, and The Huntington National
Bank, as Trustee, made as of May 27, 1999, filed as Exhibit 4.3.2 to
the Company's Registration Statement on Form S-4 filed on July 9, 1999
(File No. 333-82617) and incorporated herein by reference.
4.3.3 Second Amendment to the Indenture for 9 1/2% Senior Notes due 2005, by
and among Venture Holdings Trust, Vemco, Inc. Vemco Leasing, Inc.,
Venture Industries Corporation, Venture Holdings Corporation, Venture
Leasing Company, Venture Mold & Engineering Corporation and Venture
Service Company, as Issuers, and The Huntington National Bank, as
Trustee, made as of May 27, 1999, filed as Exhibit 4.3.3 to the
Company's Registration Statement on Form S-4 filed on July 9, 1999
(File No. 333-82617) and incorporated herein by reference.
4.3.4 Second Supplemental Indenture to the Indenture for 9 1/2% Senior Notes
due 2005, by and among Venture Holdings Trust, Vemco, Inc. Vemco
Leasing, Inc., Venture Industries Corporation, Venture Holdings
Corporation, Venture Leasing Company, Venture Mold & Engineering
Corporation and Venture Service Company, as Issuers, Venture Holdings
Company LLC, and The Huntington National Bank, as Trustee, made as of
May 27, 1999, filed as Exhibit 4.3.4 to the Company's Registration
Statement on Form S-4 filed on July 9, 1999 (File No. 333-82617) and
incorporated herein by reference.
4.3.5 Guarantee executed by Venture Holdings Company LLC on the 27th day of
May, 1999, pursuant to the terms of the Indenture for 9 1/2% Senior
Notes due 2005, including Trustee's Certificate of Authorization,
filed as Exhibit 4.3.5 to the Company's Registration Statement on Form
S-4 filed on July 9, 1999 (File No. 333-82617) and incorporated herein
by reference.
4.3.6 Guarantee executed by Experience Management LLC on the 27th day of
May, 1999, pursuant to the terms of the Indenture for 9 1/2% Senior
Notes due 2005, including Trustee's Certificate of Authorization,
filed as Exhibit 4.3.6 to the Company's Registration Statement on Form
S-4 filed on July 9, 1999 (File No. 333-82617) and incorporated herein
by reference.
4.3.7 Guarantee executed by Venture Europe, Inc. on the 27th day of May,
1999, pursuant to the terms of the Indenture for 9 1/2% Senior Notes
due 2005, including Trustee's Certificate of Authorization, filed as
Exhibit 4.3.7 to the Company's Registration Statement on Form S-4
filed on July 9, 1999 (File No. 333-82617) and incorporated herein by
reference.
4.3.8 Guarantee executed by Venture EU Corporation on the 27th day of May,
1999, pursuant to the terms of the Indenture for 9 1/2% Senior Notes
due 2005, including Trustee's Certificate of Authorization, filed as
Exhibit 4.3.8 to the Company's Registration Statement on Form S-4
filed on July 9, 1999 (File No. 333-82617) and incorporated herein by
reference.
4.4 Registration Rights Agreement, made and entered into as of May 27,
1999, among Venture Holdings Trust, Vemco, Inc., Vemco Leasing, Inc.,
Venture Industries Corporation, Venture Holdings Corporation, Venture
Leasing Company, Venture Mold & Engineering Corporation, Venture
Service Company, Venture Europe, Inc., Venture EU Corporation,
Experience Management LLC and Venture Holdings Company LLC, as
Issuers, and Banc One Capital Markets, Inc. and Goldman Sachs & Co.,
as Initial Purchasers, filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-4 filed on July 9, 1999 (File No.
333-82617) and incorporated herein by reference.
10.1 Credit Agreement, dated as of May 27, 1999, among Venture Holdings
Trust, the Lenders (as defined therein) and The First National Bank of
Chicago, as Administrative Agent, filed as Exhibit 10.1
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to the Company's Registration Statement on Form S-4 filed on July 9,
1999 (File No. 333-82617) and incorporated herein by reference.
10.1.1 First Amendment, dated June 4, 1999, to the Credit Agreement
incorporated by reference as Exhibit 10.1, filed as Exhibit 10.1.1 to
the Company's Registration Statement on Form S-4 filed on July 9, 1999
(File No. 333-82617) and incorporated herein by reference.
10.2 ISDA Master Agreement, dated May 27, 1999, between Venture Holdings
Company LLC and The First National Bank of Chicago, filed as Exhibit
10.2 to the Company's Registration Statement on Form S-4 filed on July
9, 1999 (File No. 333-82617) and incorporated herein by reference.
10.2.1 Schedules to the Agreement incorporated by reference as Exhibit 10.2,
filed as Exhibit 10.2.1 to the Company's Registration Statement on
Form S-4 filed on July 9, 1999 (File No. 333-82617) and incorporated
herein by reference.
10.3 Corporate Opportunity Agreement, made and entered into on the 27th day
of May, 1999, by and between Larry J. Winget and The Huntington
National Bank, as Indenture Trustee, filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-4 filed on July 9, 1999
(File No. 333-82617) and incorporated herein by reference.
10.4 Purchase Agreement, dated May 25, 1999, relating to $125,000,000 11%
Senior Notes due 2007 and $125,000,000 12% Senior Subordinated Notes
due 2009.
27.1 Financial Data Schedule.
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