1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 333-82617
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Michigan VENTURE HOLDINGS COMPANY LLC 38-3470015
Michigan VEMCO, INC. 38-2737797
Michigan VENTURE INDUSTRIES CORPORATION 38-2034680
Michigan VENTURE MOLD & ENGINEERING CORPORATION 38-2556799
Michigan VENTURE LEASING COMPANY 38-2777356
Michigan VEMCO LEASING, INC. 38-2777324
Michigan VENTURE HOLDINGS CORPORATION 38-2793543
Michigan VENTURE SERVICE COMPANY 38-3024165
Michigan EXPERIENCE MANAGEMENT, LLC 38-3382308
Michigan VENTURE EUROPE, INC. 38-3464213
Michigan VENTURE EU CORPORATION 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
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
The Company hereby amends Part I and Item 6 of Part II of its Quarterly Report
on Form 10-Q for the period ended September 30, 1999.
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE #
--------------------------------- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999,
December 31, 1998 and September 30, 1998 1
Consolidated Statements of Income and Comprehensive Income
for the Three Months and Nine Months Ended September 30, 1999
and 1998 2
Consolidated Statements of Changes in Member's Equity
for the Three Months and Nine Months Ended September 30, 1999
and 1998 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
September 30, September 30,
1999 December 31, 1998
ASSETS (Unaudited) 1998 (Unaudited)
----------- ---- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 13,204 $ 130 $ 2,575
Accounts receivable, net, includes related
party receivables of $66,016, $56,648 and
$34,085 at September 30, 1999, December 31,
1998 and September 30, 1998, respectively 379,681 190,135 175,439
(Note 6)
Inventories (Note 3) 165,453 51,139 55,522
Investments (Note 5) 6,989 -- --
Prepaid and other current assets 49,359 8,870 7,900
------------ -------------- -------------
Total current assets 614,686 250,274 241,436
Property, Plant and Equipment, Net (Note 2) 618,179 200,544 200,458
Intangible Assets, Net (Note 2) 82,905 52,022 52,492
Other Assets 66,926 26,636 26,685
Deferred Tax Assets 18,505 11,839 12,224
------------ -------------- -------------
Total Assets $ 1,401,201 $ 541,315 $ 533,295
============ ============== =============
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 197,662 $ 52,351 $ 57,138
Accrued interest 16,219 13,387 6,403
Accrued expenses 91,092 14,316 14,226
Current portion of long term debt (Note 4) 18,986 1,565 1,693
------------ -------------- -------------
Total current liabilities 323,959 81,619 79,460
Pension Liabilities & Other 38,440 7,254 7,489
Deferred Tax Liabilities 18,607 11,955 12,283
Long Term Debt (Note 4) 946,036 363,374 362,630
------------ -------------- -------------
Total liabilities 1,327,042 464,202 461,862
Commitments and Contingencies -- -- --
Member's Equity:
Member's equity 74,804 77,850 71,433
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 -- --
------------ -------------- -------------
Member's Equity 74,159 77,113 71,433
------------ -------------- -------------
Total Liabilities and Member's Equity $ 1,401,201 $ 541,315 $ 533,295
============ ============== =============
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 Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
NET SALES $ 440,046 $ 137,971 $ 879,841 $ 482,563
COST OF PRODUCT SOLD 393,025 116,225 772,781 400,899
----------- ---------- ---------- ----------
GROSS PROFIT 47,021 21,746 107,060 81,664
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 38,582 14,954 72,806 45,055
PAYMENTS TO BENEFICIARY IN
LIEU OF DISTRIBUTIONS 175 -- 252 360
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 8,264 6,792 34,002 36,249
INTEREST EXPENSE (Note 5) 20,819 9,559 45,847 27,401
OTHER EXPENSE (INCOME) (Note 5) 5,694 -- (14,206) --
---------- ---------- ---------- ----------
(LOSS) INCOME BEFORE TAXES (18,249) (2,767) 2,361 8,848
TAX (BENEFIT) PROVISION (1,020) 635 (615) 1,697
MINORITY INTEREST 424 -- 453 --
---------- --------- ---------- ----------
NET (LOSS) INCOME BEFORE
EXTRAORDINARY LOSS (17,653) (3,402) 2,523 7,151
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (Note 7) -- -- 5,569 --
---------- ---------- ---------- ----------
NET (LOSS) INCOME (17,653) (3,402) (3,046) 7,151
OTHER COMPREHENSIVE INCOME -
Cumulative translation adjustments 22,883 -- 92 --
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ 5,230 $ (3,402) $ (2,954) $ 7,151
========== ========== ========== ==========
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 Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
MEMBER'S EQUITY, BEGINNING
OF PERIOD $ 68,929 $ 74,835 $ 77,113 $ 64,282
COMPREHENSIVE (LOSS) INCOME:
NET (LOSS) INCOME (17,653) (3,402) (3,046) 7,151
OTHER COMPREHENSIVE INCOME 22,883 -- 92 --
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) 5,230 (3,402) (2,954) 7,151
--------- --------- --------- ---------
MEMBER'S EQUITY, END
OF PERIOD $ 74,159 $ 71,433 $ 74,159 $ 71,433
========= ========= ========= =========
See notes to consolidated financial statements.
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VENTURE HOLDINGS COMPANY LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,046) $ 7,151
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 47,603 28,369
Loss from the disposal of fixed assets 335
Unrealized gain on investments (7,293) --
Net extraordinary loss on early extinguishment of debt 5,569 --
Change in accounts receivable (5,274) (16,373)
Change in inventories 7,587 (2,905)
Change in prepaid and other current assets (12,857) 2,735
Change in other assets (12,666) (3,250)
Change in accounts payable 8,828 (12,909)
Change in accrued expenses 8,295 (5,344)
Change in other liabilities 8,629 (6,793)
Change in deferred taxes (7,704) (489)
--------- ---------
Net cash provided by (used in) operating activities 38,006 (9,808)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired (450,842) --
Capital expenditures (34,550) (17,229)
-- --
Proceeds from sale of fixed assets 692 --
--------- ---------
Net cash used in investing activities (484,700) (17,229)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit agreement (25,284) 31,000
Debt issuance fees (27,731) --
Net proceeds from issuance of debt 650,000 --
Payment for early extinguishment of debt (82,788) --
Principal payments on debt (53,303) (2,865)
--------- ---------
Net cash provided by financing activities 460,894 28,135
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (1,126) --
NET INCREASE IN CASH 13,074 1,098
CASH AT BEGINNING OF PERIOD 130 1,477
--------- ---------
CASH AT END OF PERIOD $ 13,204 $ 2,575
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 44,759 $ 33,146
========= =========
Cash paid during the period for taxes $ 1,263 $ 285
========= =========
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 preliminary purchase price and related
allocation were as follows (in millions):
Consideration paid to former owner, net of cash acquired of $18.8 million $ 444.0
Debt assumed (including capital leases) 117.9
--------
Cost of acquisition $ 561.9
========
Property, plant and equipment $ 417.0
Net working capital 101.8
Other assets purchased and liabilities assumed 15.2
Goodwill 27.9
--------
Total cost allocation $ 561.9
========
The excess of the purchase price over the fair market value of the net
assets acquired (goodwill) is estimated to be approximately $27.9 million
and is being amortized on a straight-line basis over 30 years.
Adjustments to the purchase price and related allocation may occur as a
result of obtaining more information regarding property valuations,
liabilities assumed, the outcome of final negotiations with the former
owner and revisions of preliminary estimates of fair values made at the
date of purchase. The Company can provide no assurances as to whether any
revisions to the original purchase price allocation will be significant.
These uncertainties could result in an adjustment to goodwill of up to
$60 million. The net effect of the adjustments described above will be
reported as an adjustment to the purchase price and related allocation
described above.
5
8
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.
Nine Months Ended
September 30,
-------------------
1999 1998
---- ----
Net sales $ 1,406,107 $ 1,306,418
Net income before extraordinary loss 15,299 15,942
Net income 9,730 10,373
3. INVENTORIES
Inventories included the following (in thousands):
September 30, December 31, September 30,
1999 1998 1998
---- ---- ----
Raw materials $ 56,040 $ 25,169 $ 25,719
Work-in-process - manufactured parts 14,271 2,965 2,949
Work-in-process - tools and molds 71,299 11,436 14,284
Finished goods 23,843 11,569 12,570
---------- --------- ---------
Total $ 165,453 $ 51,139 $ 55,522
========== ========= =========
4. DEBT
Debt consisted of the following (in thousands):
September 30, December 31, September 30,
1999 1998 1998
---- ---- ----
Credit agreement
Term loan A $ 74,475 $ -- $ --
Term loan B 199,500 -- --
Interim term loan 125,000 -- --
Revolving credit outstanding 51,787 77,000 76,000
Bank debt payable with interest from 2.45% to
11.25% 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 -- --
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 4.16%
to 11.76% 33,596 2,196 1,724
Installment notes payable with
interest from 5.85% to 11.75% 1,425 1,803 2,659
---------- ---------- ----------
Total 965,022 364,939 364,323
Less current portion of debt 18,986 1,565 1,693
---------- ---------- ----------
Total $ 946,036 $ 363,374 $ 362,630
========== ========== ==========
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
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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 September 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 1999 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 cash flow, fixed charges, debt,
member's equity, distributions, leases, and liens on assets. The
Company's debt 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
September 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
September 30, 1999, these currency swaps had an estimated fair market
value of $(3.3) million. Since these contracts do not meet all of the
criteria for hedge accounting under generally accepted accounting
principles, the estimated fair market value of these financial
instruments is recorded as an investment on the balance sheet and the
$20.8 million non-cash change in estimated fair market value for the
quarter is recorded in other expense (income) on the income statement.
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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 $10.3
million do not meet all of the criteria for hedge accounting under
generally accepted accounting principles. Accordingly, the estimated fair
market value of these financial instruments is recorded as an investment
on the balance sheet and the $(8.3) million non-cash change in estimated
fair market value for the quarter is recorded in other expense (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 $467 thousand in the nine months ended
September 30, 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 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.
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,
1999 1998 1998
---- ---- ----
Amounts receivable $ 78,515 $ 65,755 $ 41,441
Amounts payable 12,499 9,107 7,356
--------- --------- ---------
Net amounts receivable $ 66,016 $ 56,648 $ 34,085
========= ========= =========
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).
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8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Venture, as the successor to Venture Holdings Trust, and certain of its
wholly-owned, domestic subsidiaries are jointly and severally liable for
the 1997 Senior Notes issued on July 9, 1997. On May 27, 1999, certain
wholly-owned, domestic subsidiaries of Venture became guarantors of the
1997 Senior Notes. These guarantees are full and unconditional, joint and
several. Venture issued the 1999 Notes on May 27, 1999 in connection with
the Peguform Acquisition, as a result of which Venture acquired certain
additional foreign subsidiaries. The 1999 Notes are guaranteed by each of
Venture's wholly-owned, domestic subsidiaries. The guarantees of these
wholly-owned, domestic subsidiaries are full and unconditional, joint and
several.
Condensed consolidating financial information for the periods prior to
September 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. 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 eliminate investments in subsidiaries
and intercompany balances and transactions.
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12
1997 SENIOR NOTES:
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of September 30, 1999
and for the three and nine month periods ended 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.
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 973,496 (383,627) -- (424,822) (98,121) 66,926
Deferred Tax Assets -- 14,139 -- 4,366 -- 18,505
--------- --------- ---------- --------- --------- ---------
Total Assets $ 980,485 $ 143,990 $ 9,731 $ 365,116 $ (98,121) $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 58,504 48,117 5,977 60,327 (98,121) 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 58,504 47,380 5,977 60,419 (98,121) 74,159
--------- --------- ---------- --------- --------- ----------
Total Liabilities and Member's Equity $ 980,485 $ 143,990 $ 9,731 $ 365,116 $ (98,121) $1,401,201
========= ========= ========== ========= ========= ==========
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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 $ -- $ 879,841
COST OF PRODUCT SOLD -- 288,963 111,390 372,428 -- 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) 44,867 -- 6,184 (6,184) --
OTHER EXPENSE (INCOME) 12,788 (8,691) -- 787 (19,090) (14,206)
---------- --------- --------- --------- --------- ---------
(LOSS) INCOME BEFORE TAXES (13,040) (30,262) 5,870 14,519 25,274 2,361
TAX (BENEFIT) PROVISION -- (1,203) -- 588 -- (615)
MINORITY INTEREST -- -- -- 453 -- 453
---------- --------- --------- --------- --------- ---------
NET (LOSS) INCOME BEFORE (13,040) (29,059) 5,870 13,478 25,274 2,523
EXTRAORDINARY LOSS
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT 5,569 -- -- -- -- 5,569
---------- --------- --------- --------- --------- ---------
NET (LOSS) INCOME $ (18,609) $ (29,059) $ 5,870 $ 13,478 $ 25,274 $ (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 $ -- $ 83,233 $ 41,022 $ 315,791 $ -- $ 440,046
COST OF PRODUCT SOLD -- 86,817 38,810 267,398 -- 393,025
---------- --------- --------- --------- --------- ---------
GROSS PROFIT -- (3,584) 2,212 48,393 -- 47,021
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 10,681 -- 27,901 -- 38,582
PAYMENTS TO BENEFICIARY IN LIEU
OF TAXES 175 -- -- -- -- 175
---------- ---------- --------- --------- --------- ---------
(LOSS) INCOME FROM OPERATIONS (175) (14,265) 2,212 20,492 -- 8,264
INTEREST EXPENSE 20,758 32 -- 29 -- 20,819
INTERCOMPANY INTEREST ALLOCATION (20,758) 20,758 -- 5,079 (5,079) --
OTHER EXPENSE (INCOME) 60,240 19,130 -- 543 (74,219) 5,694
---------- ---------- --------- --------- --------- ---------
(LOSS) INCOME BEFORE TAXES (60,415) (54,185) 2,212 14,841 79,298 (18,249)
TAX (BENEFIT) PROVISION -- (1,347) -- 327 -- (1,020)
MINORITY INTEREST -- -- -- 424 -- 424
---------- ---------- --------- --------- --------- ---------
NET (LOSS) INCOME BEFORE (60,415) (52,838) 2,212 14,090 79,298 (17,653)
EXTRAORDINARY LOSS
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- -- -- -- -- --
---------- ---------- --------- --------- --------- ---------
NET (LOSS) INCOME $ (60,415) $ (52,838) $ 2,212 $ 14,090 $ 79,298 $ (17,653)
========== ========== ========= ========= ========= =========
11
14
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 $ (18,609) $ (29,059) $ 5,870 $ 13,478 $ 25,274 $ (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 -- -- -- 335 -- 335
assets
Unrealized gain on investments (6,990) -- -- (303) -- (7,293)
Net extraordinary loss on
early extinguishment of debt 5,569 -- -- -- -- 5,569
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 -- (856) -- (12,001) -- (12,857)
current assets
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 -- (1,666) -- 10,295 -- 8,629
and other
Change in deferred taxes -- (1,123) -- (6,581) -- (7,704)
--------- --------- ----------- --------- --------- ---------
Net cash provided by (used in)
Operating activities (17,198) (11,358) -- 41,288 25,274 38,006
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of -- (469,644) -- 18,802 -- (450,842)
cash acquired
Capital expenditures -- (17,558) -- (16,992) -- (34,550)
Net activity in investments in
and advances to (from) subsidiaries (524,801) 537,035 -- 13,040 (25,274) --
and affiliates
Proceeds from sale of fixed assets -- -- -- 692 692
--------- --------- ----------- --------- --------- ---------
Net cash used in investing activities (524,801) 49,833 -- 15,542 (25,274) (484,700)
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 (82,788) -- -- -- -- (82,788)
debt
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
========= ========= =========== ========= ========= =========
12
15
1999 NOTES:
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of September 30, 1999
and for the three and nine month periods ended 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, 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 973,496 (383,627) (424,822) (98,121) 66,926
Deferred Tax Assets -- 14,139 4,366 -- 18,505
--------- --------- --------- --------- ----------
Total Assets $ 980,485 $ 153,721 $ 365,116 $ (98,121) $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 58,504 54,094 60,327 (98,121) 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 58,504 53,357 60,419 (98,121) 74,159
--------- --------- --------- --------- ----------
Total Liabilities and Member's Equity $ 980,485 153,721 $ 365,116 $ (98,121) $1,401,201
========= ========= ========= ========= ==========
13
16
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 $ -- $ 449,795 $ 430,046 $ $ 879,841
COST OF PRODUCT SOLD -- 400,353 372,428 772,781
--------- --------- --------- --------- ---------
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) 44,867 6,184 (6,184) --
OTHER EXPENSE (INCOME) 12,788 (8,691) 787 (19,090) (14,206)
--------- --------- ---------- -------- ---------
(LOSS) INCOME BEFORE TAXES (13,040) (24,392) 14,519 25,274 2,361
TAX (BENEFIT) PROVISION -- (1,203) 588 -- (615)
MINORITY INTEREST -- -- 453 -- 453
--------- --------- ---------- -------- ---------
NET (LOSS) INCOME BEFORE
EXTRAORDINARY LOSS (13,040) (23,189) 13,478 25,274 2,523
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT 5,569 -- -- -- 5,569
--------- --------- ---------- -------- ---------
NET (LOSS) INCOME $ (18,609) $ (23,189) $ 13,478 $ 25,274 $ (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 $ -- $ 124,255 $ 315,791 $ -- $ 440,046
COST OF PRODUCT SOLD -- 125,627 267,398 -- 393,025
--------- --------- --------- --------- ---------
GROSS PROFIT -- (1,372) 48,393 -- 47,021
SELLING, GENERAL & ADMINISTRATIVE
EXPENSE -- 10,681 27,901 -- 38,582
PAYMENTS TO BENEFICIARY IN LIEU OF TAXES 175 -- -- -- 175
--------- --------- --------- --------- ---------
(LOSS) INCOME FROM OPERATIONS (175) (12,053) 20,492 -- 8,264
INTEREST EXPENSE 20,758 32 29 -- 20,819
INTERCOMPANY INTEREST ALLOCATION (20,758) 20,758 5,079 (5,079) --
OTHER EXPENSE (INCOME) 60,240 19,130 543 (74,219) 5,694
--------- --------- --------- --------- ---------
(LOSS) INCOME BEFORE TAXES (60,415) (51,973) 14,841 79,298 (18,249)
TAX (BENEFIT) PROVISION -- (1,347) 327 -- (1,020)
MINORITY INTEREST -- -- 424 -- 424
--------- --------- --------- --------- ---------
NET (LOSS) INCOME BEFORE
EXTRAORDINARY LOSS (60,415) (50,626) 14,090 79,298 (17,653)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- -- -- -- --
--------- --------- --------- --------- ---------
NET (LOSS) INCOME $ (60,415) $ (50,626) $ 14,090 $ 79,298 $ (17,653)
========= ========= ========= ========= =========
14
17
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 $ (18,609) $ (23,189) $ 13,478 $ 25,274 $ (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
Unrealized loss on investments (6,990) -- (303) -- (7,293)
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 (17,198) (11,358) 41,288 25,274 38,006
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 (524,801) 537,035 13,040 (25,274) --
Proceeds from sale of fixed assets -- -- 692 -- 692
--------- --------- --------- --------- ---------
Net cash used in investing activities (524,801) 49,833 15,542 (25,274) (484,700)
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
========= ========= ========= ========= =========
15
18
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 aggregated into two reportable
segments: North America and Europe. The following table presents net sales
and other financial information by business segment for the nine months
ended September 30, 1999 (in thousands):
INCOME (LOSS) NET TOTAL
NET SALES FROM OPERATIONS INCOME (LOSS) ASSETS
--------- --------------- ------------- ------
NORTH AMERICA (Venture) $ 454,651 $ 13,481 $ (14,704) $1,085,452
EUROPE (Peguform) 425,190 20,521 11,658 362,031
ELIMINATIONS -- -- -- (46,282)
--------- --------- ---------- ----------
TOTAL 879,841 34,002 (3,046) 1,401,201
========= ========= ========== ==========
16
19
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)
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,
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold 89.3 84.2 87.8 83.1
----- ----- ----- -----
Gross profit 10.7 15.8 12.2 16.9
Selling, general and administrative expense 8.8 10.9 8.3 9.3
Payments to beneficiary in lieu of distributions 0.0 0.0 0.0 0.1
----- ----- ----- -----
Income from operations 1.9 4.9 3.9 7.5
Interest expense 4.7 6.9 5.2 5.7
Other expense (income) 1.3 0.0 (1.6) 0.0
----- ----- ----- -----
(Loss) income before taxes (4.1) (2.0) 0.3 1.8
Tax provision (0.2) 0.5 (0.1) 0.3
Minority interest 0.1 0.0 0.1 0.0
----- ----- ----- -----
Net (loss) income before extraordinary loss (4.0) (2.5) 0.3 1.5
Extraordinary loss on early extinguishment of debt 0.0 0.0 0.6 0.0
----- ----- ----- -----
Net (loss) income (4.0) % (2.5) % (0.3) % 1.5 %
===== ===== ===== =====
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
NET SALES. Net sales for the third quarter of 1999 increased $302.1 million, or
218.9%, from the third quarter of 1998. This increase was due to the addition of
Peguform's sales for the third quarter of 1999. Domestically, sales decreased
$11.7 million, or 8.5%, due primarily to lower tooling sales, as compared to the
comparable period in the prior year, and a $1.9 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. The Company expects some recovery of tooling sales
in the fourth quarter, however, management believes some projects originally
scheduled for the fourth quarter will be delayed.
GROSS PROFIT. Gross profit for the third quarter of 1999 increased $25.3 million
to $47.0 million compared to $21.7 million for the third quarter of 1998. As a
percentage of net sales, gross profit decreased to 10.7% for the third quarter
of 1999 from 15.8% for the third quarter of 1998. The decrease was in part due
to the contribution of Peguform's lower margin business being included in the
consolidated sales for the third quarter. However, the primary reason for the
reduction was a decrease in the gross profit margin for domestic operations to a
negative gross profit margin of (0.2)% from a gross profit margin of 15.8% in
the third quarter of 1998. The decrease in margin arose as a result of several
items, including: (1) lower tooling sales completed in the third quarter, (2)
sales price reductions as described above not offset by productivity
improvements at the manufacturing plants and (3) several significant new model
launch problems. The new model launch problems have been substantially resolved
as of the date of this report, but did negatively affect early fourth quarter
results.
17
20
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the third quarter of 1999 increased $23.6 million, or 158%, to $38.6
million compared to $15.0 million for the third quarter of 1998. As a percentage
of net sales, selling, general and administrative expense decreased to 8.8% for
the third quarter of 1999 as compared to 10.9% for the third 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 third
quarter. Third quarter selling, general and administrative expense was
negatively impacted by $3.2 million for wage increases and bonuses granted to
management employees. The continuing effect of the wage increase on an annual
basis will be approximately $1.3 million.
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations for
the third quarter of 1999 increased $1.5 million, or 21.7%, to $8.3 million,
compared to income of $6.8 million for the third quarter of 1998. As a
percentage of net sales, income (loss) from operations decreased to 1.9% for
the third quarter of 1999 from 4.9% for the third quarter of 1998.
INTEREST EXPENSE. Third quarter interest expense increased $11.3 million, or
117.8%, to $20.8 million in 1999 as compared to 1998. The increase is the result
of the increased debt associated with the acquisition of Peguform partially
offset by a reduced overall cost of capital under the new capital structure,
after consideration of interest rate swaps.
OTHER EXPENSE. Other expense is primarily comprised of $12.5 million non-cash,
mark-to-market adjustments on various currency and interest rate swaps entered
into during the second quarter to economically hedge the Company's exposure to
foreign exchange and interest rate risk associated with the acquisition of
Peguform. 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. This amount was offset by
approximately $7.2 million in currency exchange gains during the quarter.
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 LOSS. Due to the foregoing, the net (loss) income for the third quarter of
1999 increased to $(17.7) million compared to $(3.4) million for the third
quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
NET SALES. Net sales for the first nine months of 1999 increased $397.3 million,
or 82.3%, as compared to the first nine months of 1998. This increase was due to
the addition of Peguform's sales for the second and third quarters.
Domestically, sales decreased $27.9 million, or 5.8%, 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 $4.9 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 first nine months of 1999 increased $25.4
million to $107.1 million compared to $81.6 million for the first nine months of
1998. As a percentage of net sales, gross profit decreased to 12.2% for the
first nine months of 1999 from 16.9% for the first nine months of 1998. The
decrease was in part due to the contribution of Peguform's lower margin business
being included in the consolidated sales for the second and third quarters.
However, the primary reason for the reduction was a reduction in the gross
profit margin for domestic operations during the third quarter to a negative
gross profit margin of (0.2)% from a gross profit margin of 15.8% in the third
quarter of 1998. The decrease in margin arose as a result of several items,
including: (1) lower tooling sales completed in the third quarter, (2) sales
price reductions as described above not offset by productivity improvements at
the manufacturing plants and (3) several significant new model launch problems.
The new model launch problems have been substantially resolved as of this date,
but did negatively affect early fourth quarter results.
18
21
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the first nine months of 1999 increased $27.8 million, or 61.6%, to
$72.8 million compared to $45.0 million for the first nine months of 1998. As a
percentage of net sales, selling, general and administrative expense decreased
to 8.3% for the first nine months of 1999 as compared to 9.3% for the first nine
months 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 second and third quarters. Third quarter selling, general and administrative
expense was negatively impacted by $3.2 million for wage increases and bonuses
granted to management employees. The continuing effect of the wage increase on
an annual basis will be approximately $1.3 million.
INCOME FROM OPERATIONS. As a result of the foregoing, income from operations for
the first nine months of 1999 decreased $2.2 million, or 0.6%, to $34.002
million, compared to $36.2 million for the first nine months of 1998. As a
percentage of net sales, income from operations decreased to 3.9% for the first
nine months of 1999 from 7.5% for the first nine months of 1998.
INTEREST EXPENSE. Interest expense for the first nine months of 1999 increased
$18.4 million, or 67.1%, to $45.8 million in 1999 as compared to 1998. The
increase is the result of the increased debt associated with the acquisition of
Peguform, 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 $7.2 million of currency
exchange gains and $7.0 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 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 (LOSS) INCOME. Due to the foregoing, net (loss) income for the first nine
months of 1999 decreased $10.2 million to $(3.0) million compared to $7.2
million for the first nine months of 1998.
LIQUIDITY AND CAPITAL RESOURCES (UNAUDITED)
The Company's consolidated working capital was $290.7 million at September 30,
1999 compared to $161.9 million at September 30, 1998, an increase of $128.8
million. The Company's working capital ratio decreased to 1.90x at September 30,
1999 from 3.04x at September 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 acquisition of Peguform.
Net cash provided by operating activities was $38.0 million for the nine months
ended September 30, 1999 compared to net cash used of $9.8 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 $34.6 million for the nine months ended September 30,
1999 compared to $17.2 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, except as noted below.
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In August 1999, the Company was awarded a letter of intent for a significant new
program for one of its major customers (the "New Program") with projected annual
revenues of approximately $100 million with production scheduled to start and
ramp up in late 2001. As a result of this award, the Company may be required to
make capital expenditures in the range of $40.0 to $80.0 million payable over
the next several years in addition to its normal capital expenditures per year.
The size and scope of the expenditures associated with the New Program are still
being defined.
Net cash provided by financing activities was $460.9 million for the nine months
ended September 30, 1999 compared to net cash provided by financing activities
of $28.1 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 to the purchase price, the Company had $30.2 million of fees and
expenses. The Company is still conducting a review of the post-closing
adjustments associated with the acquisition of Peguform 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 acquisition of Peguform, the Company entered into a new
credit agreement (the "New Credit Agreement"). The New Credit Agreement provides
for borrowings of (1) up to $175.0 million under a Revolving Credit Facility,
which, in addition to those matters described below, 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 New Credit Agreement requires that the
$125.0 million principal amount outstanding with respect to the 18-month Interim
Term Loan be refinanced by November 27, 2000, using proceeds from the sale of
securities that rank pari passu in right of payment with, or are junior to, the
12% senior subordinated notes due 2009, described below. 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 September 30, 1999 the Company had $51.8 million outstanding with $123.2
million still available under the Revolving Credit Facility. The New Credit
Agreement and documents governing the Company's 9 1/2% senior notes due 2005,
11% senior notes due 2007 and 12% senior subordinated notes due 2009 contain
various covenants. As of September 30, 1999, the Company was in compliance with
all such covenants.
At September 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 to be 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.
In addition, we issued $125.0 million of unsecured senior notes due 2007 and
$125.0 million of unsecured senior subordinated notes due 2009. Proceeds from
the issuance of these 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 Company's prior senior credit facility; (4) pay certain fees and
expenses related to the acquisition of Peguform and the offering of the notes;
and (5) fund working capital and other general corporate purposes.
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As part of the Peguform acquisition, and 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 its 9 1/2% senior notes, 11% senior notes and
12% senior subordinated notes to a Euro fixed rate coupon. These instruments
only partially qualified for hedge accounting, which resulted in a non-cash
increase in earnings related to the mark to market on the swaps in the amount of
$7.0 million as of September 30, 1999 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 $467,000
in the nine months ended September 30 1999. The non-cash impact of the mark to
market adjustments each quarter to earnings and to current assets 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 address this in 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 the modifications made and some
replacement of existing equipment, hardware and software, the year 2000 risk has
been substantially reduced.
All phases of the Company's plan to resolve year 2000 issues, from inventory to
testing, have been completed as of the date of this report.
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, all applications have been upgraded to year 2000
compliant versions. For 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 has been more
difficult than IT systems, as some of the manufacturers of potentially affected
equipment are no longer in business; however, based on the Company's assessment,
non-IT systems appear to be year 2000 compliant.
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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.
The Company has contacted 100% of our key existing business partners and 85%
have responded, with 98% of those who responded indicating that they are year
2000 compliant. Based on the responses to the Company's questionnaires and other
alternative evidence obtained, 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 has developed contingency plans to address
potential year 2000 exposure. Testing of these contingency plans will be ongoing
throughout the remainder of 1999. These plans included the purchase of addition
supplies and raw materials before year end and to use back up pull systems that
do not rely on computers. The Company will also monitor vendors and is prepared
to change if required.
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. These 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 it. The year 2000 plan was designed 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.
New Accounting Standard
On September 23, 1999, the Emerging Issues Task Force reached a consensus,
Issue number 99-5 "Accounting for Pre-Production Cost related to Long-Term
Supply Arrangements". These Pre-production costs relate to the design and
development of parts that will be supplied under a supply arrangement. The
consensus requires that going forward these types of cost should be expensed as
incurred as opposed to being capitalize and amortized over the production life.
The Company has historically capitalized these types of cost as deferred
program cost and amortized this over the production life. At September 30,
1999 capitalized deferred program cost was approximately $26.9 million. The
Company is presently studying the options give for adoption of the consensus,
which must be decided by the end of the current year. The Company has the
option of continuing to amortization the current capitalized costs or expense
the remaining balance as a cumulative change in accounting treatment. The
Company will make a decision prior to year-end.
In June of 1998, the FASB approved SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Standard was to apply in the first
quarter of our 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. As such the Company is now studying when the standard will be
adopted.
* * * * * * *
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 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 1998
Annual Report on Form 10-K.
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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 September 30, 1999, the net fair value liability of financial
instruments with exposure to foreign currency risk was approximately $3.3
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 $54.4 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 are based in its foreign operations and are
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of member's equity. Accordingly, the Company's consolidated
member's equity will fluctuate depending upon the weakening or strengthening of
the U. S. dollar against the respective foreign currency.
INTEREST RATE RISK. The Company is subject to market risk from exposure to
changes in interest rates based on its financing, investing, and cash management
activities. Venture has entered into various financial instrument transactions
to maintain the desired level of exposure to the risk of interest rate
fluctuations and to minimize interest expense. As of September 30, 1999, the net
fair value asset of financial instruments with exposure to interest rate
risk was approximately $10.3 million. The potential loss in fair value for such
financial instruments from a hypothetical 10% adverse shift in interest rates
would be approximately $6.9 million.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, on February 23, 1998, the Attorney General of the State
of Michigan and the Michigan Department of Environmental Quality instituted
legal proceedings in state court alleging that the Company has ongoing
violations of air pollution control laws, primarily related to the level of
emissions and odors discharged from its Grand Blanc paint facility. In October
1999, the parties to this litigation reached 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 a penalty of $1.1 million. The
conclusion of this agreement depends upon the ability to secure a rezoning of a
parcel next to the plant and the negotiation of a consent order on terms
satisfactory to both parties. Consequently, there can be no assurance that the
agreement in principle will be concluded. If the agreement is not concluded, the
Company intends to continue to vigorously contest this legal proceeding and
prepare for trial.
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 is incorporated herein by
reference.
(b) Reports on Form 8-K.
The following filings occurred in the third quarter of 1999:
Date Information Reported
---- --------------------
August 10, 1999 Item 7 regarding the Peguform
Acquisition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENTURE HOLDINGS COMPANY
LLC, VEMCO, INC., VENTURE
INDUSTRIES CORPORATION,
VENTURE MOLD & ENGINEERING
CORPORATION, VENTURE LEASING
COMPANY, VEMCO LEASING, INC.,
VENTURE HOLDINGS CORPORATION,
VENTURE SERVICE COMPANY,
EXPERIENCE MANAGEMENT LLC,
VENTURE EUROPE, INC., AND
VENTURE EU CORPORATION
Date: December 6, 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
No. Description
- ------- -------------------------------
27.1 Financial Data Schedule.
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