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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file Numbers: 333-34475
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VENTURE HOLDINGS TRUST
(Exact name of registrant as specified in its charter)
Michigan 3714 38-6530870
(Primary standard industrial classification code number)
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 (I.R.S. Employer
jurisdiction of specified in its charter) Identification
incorporation or Number)
organization)
__________________
33662 James J. Pompo
Fraser, Michigan 48026
(810) 294-1500
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
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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The common stock of each of the registrants, except for Venture Holdings Trust,
is owned by Venture Holdings Trust.
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VENTURE HOLDINGS TRUST
FORM 10-K
TABLE OF CONTENTS
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PAGE #
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PART I
Item 1. Business 2
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to Vote of Security Holders 11
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders Matters 11
Item 6. Selected Consolidated Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
Item 7a. Quantitative and Qualitative Disclosures about Market Risks 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31
PART II.
Item 10. Directors and Executive Officers of Registrant 31
Item 11 Executive Compensation 32
Item 12 Security Ownership of Certain Beneficial Owners and Management 33
Item 13 Certain Transactions and Related Transactions
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
SIGNATURES
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PART 1
ITEM 1. BUSINESS
GENERAL
Venture Holdings Trust (the "Trust") together with its wholly owned
subsidiaries (each a "Subsidiary" and collectively the "Subsidiaries") is a
leading systems integrator, designer and manufacturer of high quality molded
and painted parts for automotive original equipment manufacturers ("OEMs") and
other direct, or "Tier 1" suppliers. As used herein, "the Company" refers to
the Trust and the Subsidiaries taken as a whole. The Company's products
include both exterior and interior plastic components. Exterior components
include such items as front and rear bumper fascias, body side moldings,
claddings, fenders, grille opening panels and reinforcements, farings, wheel
lips, spoilers, and large body panels such as hoods, sunroofs, doors and lift
gates. Interior components include instrument panel systems, airbag covers,
side wall trim, garnishment molding systems, door panels and consoles. The
Company's principal customers include various divisions of General Motors
Corporation ("General Motors" or "GM"), Ford Motor Company ("Ford"), Chrysler
Corporation ("Chrysler") and a number of their various Tier 1 suppliers, such
as Autoliv S.A., TRW Automotive Company, Textron Automotive Inc., a subsidiary
of Textron Corporation, and Lear Corporation. In late 1997, Experience
Management L.L.C. was formed as a wholly owned subsidiary of the Trust to
assume the human resource obligations of the Trust.
The table below sets forth information regarding the products produced by
the Company:
<TABLE>
<CAPTION>
COMPANY PRODUCTS OR SERVICES
------------------------------ ----------------------------------
<S> <C>
Vemco, Inc.................... Exterior products, airbag
covers
Venture Holdings Corporation.. Exterior products
Venture Canada Ltd............ Exterior products
Venture Industries Corporation Interior products
Venture Mold & Engineering
Corporation................... Design/build mold tooling for
company and outside customers
Venture Service Company....... Administrative services, mold
tooling repair to Subsidiaries and
related parties
Venture Leasing Company....... Leases mold machines and other
equipment to other Subsidiaries
Vemco Leasing, Inc............ Leases mold machines and other
equipment to other Subsidiaries
Experience Management L.L.C... Human resource administration
</TABLE>
The Company is a full-service supplier and an industry leader in providing
plastic components and in applying new design and engineering technology to
reduce product development time. In recent years, the Company has placed
particular emphasis on designing and manufacturing airbag covers and supplying
components for higher growth sport utility, light truck, minivan and high
volume car segments of the market, which the Company believes are less subject
to the automotive industry's historical cyclicality.
The Company believes that it is enhancing its competitive position to the
OEMs and other Tier 1 suppliers by moving away from positioning itself
exclusively as a component supplier to being a provider of complete interior
and exterior systems, consisting of rapid design, engineering, prototyping,
manufacturing and assembly expertise. The Company continuously strives to
maintain what it believes to be an industry leading position, applying
state-of-the-art design and engineering technology, and optical-based design
techniques. The Company believes that early involvement in the design and
engineering of new components affords the Company a competitive advantage in
securing new business and provides its customers with innovative cost reduction
opportunities through the Company's involvement in the coordination of the
design, development and just-in-time manufacturing processes. The Company
believes this competitive advantage is further enhanced by the Company's
adoption of "lean manufacturing" and "Kaizen" philosophies that seek continuous
improvement by identifying and eliminating waste, not only in the Company's
operations, but also in those of its customers and suppliers.
In 1996, the Company expanded its customer base and technology
capabilities through strategic acquisitions. The acquisition of Bailey allowed
the Company to expand its relationship into a Tier 1 supplier to Ford in North
America. Moreover, the Bailey Corporation ("Bailey"), (now "Venture Holdings
Corporation") acquisition and the acquisition of certain assets form Autostyle
Plastics, Inc. ("Autostyle" or "Grand Rapids") offered the Company the ability
to expand into compression molding technologies and to enhance its reaction
injection molding (RIM) capabilities as well as the ability to leverage and
provide new outlets for the Company's existing design, engineering and tooling
capabilities.
Venture Industries Corporation, the initial business which became part of
the Company, was founded in 1973 by a group of individuals, including Mr. Larry
J. Winget ("Mr. Winget"). Mr. Winget is the only founder still involved with
the Company. Venture Holdings Trust was established December 28, 1987 by Mr.
Winget by agreement (the "Trust Agreement") with a financial institution as
Trustee.
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Effective October 19, 1993, Mr. Winget assumed the duties of sole Trustee (the
"Trustee"). The Trust owns, directly or indirectly, all of the outstanding
capital stock of, or equity interests in, each of the Subsidiaries.
Mr. Winget is the sole beneficiary of the Trust. He has the power to
terminate the Trust, but the Trust may only terminate upon his death, when
certain obligations specified in the Trust Agreement are no longer outstanding
or when the capital stock has been transferred to Venture Holdings Corporation
in accordance with the terms of the Trust Agreement. Upon a termination of the
Trust, the stock of the subsidiaries (other than Venture Holdings Corporation)
will be distributed in accordance with the Trust Agreement. Mr. Winget may not
transfer his beneficial interest in the Trust except in connection with a
termination of the Trust or upon his death. Mr. Winget has limited authority to
amend the Trust Agreement. The Trust cannot engage in any business or activity,
except for agreements related to the outstanding indebtedness of the Company.
Upon the death, disability, or unavailability of Mr. Winget, except for
its administrative duties in connection with the holding of the assets of the
Trust and receiving income on those assets, the successor Trustee may not take
action with respect to the assets of the Trust without the prior consent of the
"Special Advisor." Actions that the Trustee may not take without the prior
consent of the Special Advisor include (i) borrowing money or incurring other
obligations; (ii) disposing of the Trust assets; (iii) making loans to the
subsidiaries of the Trust; (iv) making investments, except investment of funds
in specified money-market funds; and (v) exercising any of its rights as a
shareholder in the Subsidiaries of the Trust.
INDUSTRY TRENDS
The Company's business is providing systems integration and plastic trim
components to the OEM market. Although the Company sells replacement or service
components to OEMs, it does not participate in the automotive aftermarket. The
OEM market to which the Company sells its products consists of the design,
engineering, development and production of exterior and interior plastic
components to be used in the manufacture of new motor vehicles. The Company's
inception, performance, growth, and strategy have been directly related to
trends in the OEM market. Since the 1980s, Chrysler, Ford and GM have each
outsourced an increasing percentage of their production requirements. The OEMs
have also reduced the number of suppliers that may bid for new awards while
insisting that the remaining participants assist OEMs in their attempts to
accelerate new platform developments. Currently, OEMs are focusing on the
development of long-term, sole-source relationships with more capable
full-service suppliers. As a result of ever-increasing global competition, OEMs
are continually upgrading their supplier policies. The OEMs are requiring
suppliers to meet increasingly strict standards of quality, overall cost
reductions and increased support for up-front design, engineering, project
management and the ability to supply on a global basis. These requirements are
continually accelerating the trend towards consolidation of the OEM supplier
base which also involves a shift in capital investment requirements from the
OEMs to the suppliers. For capable suppliers, this changing environment should
continue to create the opportunity to grow by obtaining business previously
awarded to competing suppliers.
Competition for business within the Company's industry generally consists
of a competitive selection process in which the OEM approaches one or several
suppliers for an intended component with a conceptual design of the component
as well as estimated production volumes and, in some instances, target prices.
Discussions are held with each potential supplier concerning its ability to
manufacture, engineer and design the component at a unit price quoted by the
supplier. OEMs also have rigorous programs for evaluating and rating suppliers
which encompass quality, cost control, reliability of delivery, new technology
implementation and overall management leadership and structure which have
resulted in a sharply reduced number of component suppliers. The supplier is
generally selected to manufacture a component two to four years in advance of
production. Once selected, a supplier works with the OEM's design team to
design and develop a component which will satisfy the OEM's standards. The
supplier is typically responsible for the design, production and necessary
tooling, at negotiated fixed prices, required to manufacture the component on a
sole source basis to meet requirements for a model year. In practice, model
year purchase orders are typically renewed until the component is redesigned or
eliminated due to a model change, which normally occurs every two to six years
for cars and five to ten years for sport utility vehicles, light trucks and
minivans. In recent years, there has been a change to award sole source life of
the program contracts that cover components supplied for a particular model for
the entire product life cycle in exchange for annual price reductions.
Consequently, a supplier's ability to improve operating performance is somewhat
dependent on its ability to reduce costs and operate more efficiently over the
life of the program. The supplier is also at risk that the OEM will produce
fewer units of the model than anticipated. In addition, the supplier must
compete for new business to supply components for successor models, and as
such, there is a risk that the OEM will not select the supplier to produce
components on a successor model.
The decision of OEMs to outsource an increasing number of components is
another area of potential growth for component suppliers. Domestic OEMs have
continued to increase the outsourcing of components and subassemblies from
internal divisions to outside suppliers. OEMs benefit from outsourcing because
outside suppliers generally have significantly lower cost structures and
shorter development periods, thus allowing the OEMs to focus on overall vehicle
design, assembly and consumer marketing.
The combined pressures of cost reduction, fuel economy enhancement,
durability, design flexibility and environmental concerns
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have caused automotive manufacturers to concentrate their efforts on developing
and employing lower cost, lighter materials, which can be recycled. As a result,
plastic content in motor vehicles has grown significantly. This trend towards
the use of plastic in exterior and functional components has been driven by
innovations in molding and painting technologies, which have improved the
performance and appearance of molded plastic components, and improvements in
materials and manufacturing technologies which have a lower cost. In addition,
because plastic components can be more readily redesigned than steel components,
OEMs are able to rapidly and less expensively alter a vehicle's appearance
through the use of plastics. Due to lower up front tooling costs, plastic
generally has an advantage over steel for low volume production runs. Coupled
with the industry trend towards short production runs, this should lead to
increased plastic content per vehicle. Increasingly, automobile designs require
large, plastic, molded assemblies for both the interior and exterior. Although,
for interior trim applications, substitution of plastic for other materials is
largely complete, interior applications which allow OEMs to enhance a vehicle's
appearance in cost-effective ways may grow. The use of plastics continues to
increase for exterior applications. As an example, compression molding, compared
to steel, is gaining favor for its light weight, lower-cost tooling and its
ability to consolidate a number of parts into one piece. Trucks, both pick-up
and heavy-duty models, represent a potential area for significant growth for
compression molding.
The OEM supplier industry is highly cyclical and, in large part, dependent
upon the overall strength of consumer demand for light trucks and passenger
cars. There can be no assurance that the automotive industry, for which the
Company supplies components and systems, will not experience downturns in the
future. An economic recession typically impacts substantially leveraged
companies such as the Company more than similarly situated companies with less
leverage. A decrease in overall consumer demand for motor vehicles, in general,
or specific segments, could have an adverse effect on the Company's financial
condition and results of operations.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on current conditions and
anticipate future automotive industry trends in order to supply an increasing
number of components to its existing OEM and Tier 1 supplier customers as well
as to expand these customer bases. The Company believes that the principal
sources for continued growth and increased market share lie in (i) capitalizing
on its engineering and design capabilities; (ii) expanding its capabilities to
provide integrated interior and exterior systems; and (iii) emphasizing its
status as a manufacturer of high quality components for North American OEMs.
The Company believes the key elements of achieving this strategy are the
following:
Provide Full-Service Program Capability. In response to the evolving
purchasing and manufacturing policies of its OEM customers, the Company has
developed comprehensive full-service capabilities, including component
research, design and engineering, prototype production, tooling, manufacturing
and assembly. As the OEMs have focused increasingly on shortening vehicle
design and production cycles and reducing design and production costs,
suppliers who have the ability to take an idea or design from concept to mass
production ("art to part") are being involved earlier in the process and are
being selected as sole-source suppliers for vehicle components. This evolution
of the OEM relationship into strategic partnerships provides a significant
advantage to strong existing suppliers, such as the Company, in retaining
existing contracts as well as participating during the design phase for new
vehicles, which is integral to becoming a supplier to such new platforms.
The Company has made a substantial commitment to product technology and
product design, including establishing an Advanced Engineering and Design
Center, integrating the use of CAD/CAM, and the latest optical design
technology to rapidly and cost-effectively replicate and modify existing
designs as well as develop new prototypes. The Company believes its
participation with customers in the early phases of product design has enabled
it to provide better product quality at a lower cost in a shortened development
period.
Supply Highly Engineered, High Value-Added Components. The Company has,
over the past several years, changed its marketing emphasis to include its
advanced engineering capabilities to supply more highly engineered components.
These components are more difficult for a customer to produce in-house and are
difficult for a competitor to replicate due to the substantial up-front
investment and the specialized design and engineering required. The Company
believes that the number of companies that have the ability to participate in
the concept and design of a component and have efficient manufacturing
operations to competitively manufacture complex components, such as instrument
and door panel assemblies, is limited. This affords the Company the opportunity
to supply an increasing number of components to existing customers and will
offer it opportunities to expand its customer base.
Enhance Position as a Full Service Provider of Exterior and Interior
Plastic Trim. The Company believes that it is one of only a small number of
companies that can provide its customers with not only a full-service program
capability but also a wide array of alternative plastic molding technologies.
The Company possesses the latest technologies associated with thermoplastic
injection molding, compression molding and RIM. By possessing a wide range of
plastic design and manufacturing technologies, the Company is able to
distinguish itself from its competition by offering the process that will best
meet the customers' needs, while often lowering design and production costs and
shortening the product development cycle.
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Develop and Manufacture High Quality Products. The Company believes it
maintains an excellent reputation with the OEMs for providing world class
quality and customer service at competitive prices. Quality levels are currently
being standardized across OEMs through the QS-9000 program, which is expected to
lower the cost of maintaining separate quality programs. As of the date hereof,
all of the Company's operating facilities have received or have been
recommended for QS-9000 certification.
Emphasize Continuous Improvement. The Company follows "lean manufacturing"
and "Kaizen" philosophies that seek continuous improvement by identifying and
eliminating waste in its own operations and in those of its customers and
suppliers. These philosophies emphasize employee involvement in all phases of
the Company's operations.
Provide Just-in-Time Delivery/Sequential Shipping. As OEMs have moved to
just-in-time inventory management, the timeliness and reliability of shipments
by their suppliers have become increasingly important. The Company also offers
its customers sequential shipping, in which components are sent to automotive
OEMs in the specific order in which the vehicles are assembled, based on as
little as two hours' lead time. The Company believes it has established a
reputation as a highly reliable and timely supplier able to meet its customers'
demanding delivery requirements.
Increase its Global Presence. The Company and affiliated companies have
established a presence in Canada, Australia, Asia, Africa and Europe in order
to serve customers on a global basis. Although the affiliated companies are
outside of the Trust, they are owned by Mr. Winget and use the Venture name.
This global presence has allowed the Company to leverage the Venture name as
General Motors, Chrysler, Ford and other Tier 1 suppliers make parts sourcing
decisions to award purchase orders to companies with world-wide capabilities.
Through these relationships, the Company has also established relationships
with new customers, such as BMW or Mercedes. The affiliated companies, in turn,
have provided, and are expected to provide, significant new outlets for the
Company's existing design, engineering and tooling capabilities. The Company or
other affiliated companies intend to continue to expand in foreign markets to
meet the OEMs' evolving global needs, either directly or as a supplier of
design services and molds to its affiliated companies.
Make Strategic Acquisitions. In recent years, OEMs have instituted tighter
quality, manufacturing, delivery and systems requirements which have resulted
in consolidation of the automotive supplier industry. Through strategic
acquisitions or joint ventures, the Company believes it can further leverage
its capabilities and relationships with existing customers by adding
complementary products and manufacturing processes. The Company also intends to
pursue acquisitions which offer an entree to new customers and to expand or
enhance its customer base. The Company believes that the continuing supplier
consolidation may provide attractive opportunities to acquire companies which
can be improved economically through cost cutting, lean manufacturing
techniques and use of existing tooling and design capabilities. Historically,
the Company has financed acquisitions with debt and would expect to do so in
the future. As such, this aspect of the Company's business strategy may be
limited by provisions of current or future indebtedness. As of the date
hereof, the Company does not have any agreements or understandings with respect
to specific acquisitions or joint ventures.
PRINCIPAL PRODUCTS
The Company produces thermoplastic injection molded, compression molded
and RIM plastic parts primarily for OEMs and other Tier 1 suppliers. The
production of many of the Company's components requires sophisticated
technology and considerable manufacturing expertise. The Company utilizes two
component paint technology, including soft-touch paints for interior
applications (principally air bag covers and interior consoles), as well as
base coat and clear coat paints applied to exterior components including
fascias, fenders, lift gates, wheel lips, spoilers and side moldings. The
Company's side wall hard trim components, scuff plates and seat back trims are
molded in color. Vinyl and cloth wrapping techniques are used to manufacture
the Company's instrument panels, side wall hard trim components consoles and
door panels. The Company also emphasizes complex products, such as instrument
panels, which require the integration of multiple components, including ash
trays and glove compartments, into complete sub-assemblies.
The following sets forth information about the Company's automotive
products and vehicle models on which they are used or for which the Company has
been awarded business.
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AWARDED BUSINESS ON
COMPONENT OEM/CUSTOMER 1998 PRODUCTION(A) FUTURE PRODUCTION(B)
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Interior Trim General Motors Achieva, Blazer, Cadillac S5S, STS, Cavalier, Century, Regal, Skylark,
Century, Express/Savana Van, Lumina, Park GM Small Sport Utility
Avenue, Regal, Skylark, Sunfire
Ford Continental, Escort, Mountaineer, Taurus,
Thunderbird
Chrysler B Van, Breeze, Cirrus, Concorde, Grand B Van, Cherokee, Breeze,
Cherokee, LHS, Intrepid, Stratus, Wrangler Cirrus, Stratus, PT
DEPCO Bonneville, LeSabre, Olds 88
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Finley Beauville
Industries
Lear Chrysler Ram 150/350 Pickup, Viper, Windstar
Instrument and General Motors Corvette, Olds 88
Door Panels/ Ford Continental
Assemblies Chrysler Jeep Cherokee, B Van
Airbag Covers Autoliv Breeze, Caravan, Cirrus, Mazda 626, Sable, Accord, Cobra, Civic, Dodge
Taurus, Town Car, Stratus, Town & Country, Ram, Grand Am, GM S5S,
Voyager Mustang, Mazda MX6,
Mercedes, PACCAR, Probe,
Subaru, Volkswagen
TRW Continental, Cougar, Mark VIII, PN96, Ranger,
Ram Pickup, Thunderbird, Windstar
Cladding/ General Motors Astro Van, Blazer, Bonneville, Cavalier, Century, Cutlass, Malibu, Yukon
Exterior Corvette, Grand Am, Grand-Am GT,
Grand Prix, DeVille, Eldorado, Seville, STS,
Intrigue, Lumina, Monte Carlo, Olds 88, Opel,
Regal, Safari, Saturn, Silhouette, Skylark,
Sunfire, Transport, Yukon, Express/Savana Van,
Venture
Ford Econoline Van, Escort, Explorer, Expedition, Mustang, Explorer
F-Series Pickups, Mustang, Navigator, Nissan
Quest, Ranger, Villager, Windstar
Chrysler B Van, Dakota, Durango, Eclipse, Minivan, Viper Dakota, Prowler, Viper
Dott Bravada
Freightliner Truck
Fascias General Motors Astro, DeVille, Eldorado, STS, Seville, LeSabre,
Safari, Transport, Opel, Tahoe, Venture, Yukon,
Ford Expedition, F-Series Pickup, Explorer Ranger, Explorer
Isuzu Rodeo, Honda Rodeo
Functional General Motors Blazer, Delphi-AC Spark Plug, G Van,
Components Express/Savana Van, Seville, Skylark
Ford Escort, Mustang, Mystique, Navigator Econoline Van, F-Series
Pickups, PHN131-Sport
Utility, Jaguar
Miscellaneous Bombardier Sea Doo, Ski Doo SkiDoo
Non-Automotive Club Car Golf Cart bodies
</TABLE>
(a) Represents models for which the Company will produce products in 1998.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are
versions of vehicles not yet in production. There can be no assurance
that any of these vehicles will be produced or that the Company will
generate certain revenues under these awards even if the models are
produced.
For the year ended December 31, 1997 and 1996, as a percentage of net
sales, interior components accounted for approximately 15% and 35%, exterior
components accounted for 70% and 55%, and tooling accounted for 15% and 10%,
respectively. No single component accounted for in excess of 5% of net
sales during such periods.
CUSTOMERS AND MARKETING
The Company competes in the global OEM supplier industry, which is
characterized by a small number of OEMs which are able to exert considerable
pressure on OEM suppliers. Sales to these customers consist of a large number
of different parts, tooling and other services, which are sold to separate
divisions and operating groups within each customer's organization. Although
the Company has purchase orders from such customers, such purchase orders
generally provide for supplying the customer's requirements for a particular
model or model year rather than for manufacturing a specific quantity of
products and the purchase orders may be canceled by the OEMs. However, the
Company believes that cancellation of purchase orders is rare, due, in part, to
the OEM production interruptions likely to be caused by changing suppliers.
The North American automotive market is dominated by General Motors, Ford
and Chrysler, although foreign OEMs have achieved significant market share. The
Company's principal customers are General Motors, Ford and Chrysler and other
Tier 1 suppliers, such as Autoliv, S.A., TRW Automotive Company, Textron
Automotive Inc. a subsidiary of Textron Corporation and Lear
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Corporation. While a large percentage of the Company's sales are derived
from General Motors, Ford and Chrysler, the Company maintains a diversity of
volume among the various divisions of the OEMs, and is further diversified by
its position as a supplier for a number of high volume vehicle platforms
manufactured by those divisions. The Company continues to pursue opportunities
with foreign-based OEMs with North American operations. Beginning with the 1998
model, the Company supplies fascias on the Isuzu Rodeo along with a companion
vehicle assembled in the United States for Honda. In addition, the Company will
supply air bag covers for the Honda Accord and Civic. The Company's
non-automotive customers include Club Car, Inc. (golf cart bodies and cowls)
and Bombardier, Inc. (Ski Doo and Sea Doo bodies).
The approximate net sales and percentage of net sales to the Company's
principal customers and customer categories for the years ended December 31,
1994 through 1997 are shown below (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996 1995
--------- ---------- ---------
Customer $ % $ % $ %
- ---------
<S> <C> <C> <C> <C> <C> <C>
General Motors........ $248 40% $145 41% $123 49%
Ford(1)............... 170 27 57 16 -- --
Chrysler.............. 47 8 41 12 56 22
Foreign OEM's......... 44 7 -- -- -- --
Tier 1 Suppliers to
OEMs................. 81 13 81 23 62 25
Other Non-Automotive.. 34 5 28 8 10 4
---- --- ---- --- ---- ---
Total............... $624 100% $352 100% $251 100%
==== === ==== === ==== ===
</TABLE>
(1) Prior to 1996, sales to Ford were not significant and are included under
sales to Tier 1 suppliers.
OEM customers are also able to exert considerable pressure on component
and system suppliers to reduce costs, finance tooling, improve quality and
provide additional design and engineering capabilities.
The Company's sales are made directly to the OEMs with marketing and
customer support assistance provided by an affiliated company, wholly owned by
Mr. Winget, and by other unaffiliated entities. See "Certain Transactions and
Related Transactions."
ENGINEERING AND DESIGN
The Company believes that its state-of-the-art technology, experienced
engineering and technical staff and reputation for product innovation are major
factors contributing to its market position.
Technology. The Company utilizes state-of-the-art technology to improve
product quality, increase price competitiveness and reduce product development
time. The Company's design and manufacturing technologies include integrated
CAD/CAM; computer-aided optical scanning and proprietary manufacturing systems;
gas-aided injection molding technology ("GAIN"); and two component paint
technology, including soft-touch paints for interior applications (principally
air bag covers and consoles). With the aid of its integrated computer design
systems and the introduction of optical scanning prototyping equipment, the
Company has significantly reduced the amount of time required to create a
prototype part and ultimately a production component. This process not only
reduces development time but also improves the accuracy of product and mold
tolerances. Further, the Company's advanced systems allow hundreds of design
solutions to be visualized and ergonomically tested quickly and easily,
facilitating product design and manufacturing.
Engineering and Technical Staff. The Company maintains an advanced
engineering center and quality assurance center, along with an engineering and
technical staff which generates ideas for new parts and extensions of existing
lines. The Company's engineering and technical staff work closely with the
Company's OEM customers to help design and develop new products, to ensure high
quality and coordinate development with the manufacture of new vehicles. The
design and engineering staff also provides suggested design and material
changes to the OEMs.
The Company maintains laboratories dedicated to product development,
tryout and production certification issues. The Company does not conduct
research and development activities in the experimental or laboratory sense,
and any costs for these activities are expensed as incurred. These laboratories
are certified for use by General Motors, Ford and Chrysler. In its tryout
facility, five molding machines are dedicated to simulate the manufacturing
environment.
PRODUCTION CONTROL, MANUFACTURING AND QUALITY
Due to the evolving purchasing and manufacturing policies of the OEMs,
production control has emerged as the critical factor for
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coordinating and integrating the customers' requirements with the Company's
scheduling and manufacturing processes.
Responding to these changes, the Company has developed and incorporated
the principles of "lean manufacturing" and "Kaizen" into its manufacturing
operations. These programs establish a work environment which encourages
employee involvement in identifying and eliminating waste. The Company's
operations are structured flexibly to respond to the demands of different
product runs and changing product delivery requirements while increasing
production efficiency. Additionally, the Company relies on the quality and
training of its work force and, when appropriate, automation, to reduce costs.
The Company's plastic components have sophisticated tooling requirements,
the costs of which are generally billed to the customer at pre-authorized
levels. Development of the tooling typically begins approximately two to three
years before production, after being selected by the customer to develop a
particular component or assembly. At that time, the Company commences its
tooling design and development work and accumulates in inventory the costs
incurred. The production tooling is ordered generally one year prior to
production. The Company supplies substantially all of its tooling requirements
from its own tooling operations.
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene (including thermoplastics), polycarbonate,
acrylonitrile-butadiene-styrene, fiberglass reinforced polyester, PET and TPU;
a variety of ingredients used in the compression molding process; paint related
products; and steel for production molds. Although all of these materials are
available from one or more suppliers, the Company's customers generally specify
materials and suppliers to be used by the Company in connection with a specific
program. The Company procures most of its raw materials by issuing purchase
orders against one-year supply agreements under which the Company's annual
needs for such materials are estimated. Releases against such purchase orders
are made only upon the Company's receipt of corresponding orders from its
customers. The Company has not experienced raw material shortages, although
there can be no assurance that the Company will not experience raw material
shortages in the foreseeable future.
COMPETITION
The industry in which the Company competes is highly competitive.
Competition generally occurs on the basis of product groups. A large number of
actual or potential competitors exist, including the internal component
operations of the OEMs as well as independent suppliers, many of which are
larger than the Company. Some of the Company's competitors include Magna
International, Cambridge Industries, Inc., LDM, Inc., Buckeye Plastics, a
division of Worthington Industries, Textron Automotive Inc., a subsidiary of
Textron Corporation, The Becker Group, Inc., Lear Corporation, Finley
Industries, The Budd Company plastic division, the Prince division of Johnson
Controls, Inc., and United Technologies Automotive division, plus a large
number of smaller competitors. In addition, the Company's business is
increasingly competitive due to supplier consolidations resulting from OEM
supplier optimization policies and the spin-off by OEMs of formerly in-house
plastics manufacturing facilities. However, these consolidations and
divestitures should benefit the Company's product pricing in the future as
former marginal competitors are removed and the former in-house facilities must
now compete independently.
The Company competes on the basis of quality, cost, timely delivery and
customer service and, increasingly, on the basis of design and engineering
capability, painting capability, new product innovation, product testing
capability and its ability to reduce the time from concept to mass production
("art-to-part"). The Company believes that as OEMs continue to strive to reduce
new model development cost and timing, innovation and design and engineering
capabilities will become more important as a basis for distinguishing
competitors and are areas where the Company believes that it is well positioned
to compete. There can be no assurance, however, that the Company will be able
to continue to compete successfully in this environment.
Some of the OEMs have adopted supplier management policies designed to
strengthen their supply base. These policies include designating only some of
the suppliers as preferred future suppliers and, in some cases, encouraging new
suppliers to begin to supply selected product groups. The Company is such a
supplier to Chrysler and to Ford.
EMPLOYEES
At December 31, 1997, the Company employed approximately 4,100 persons.
The Company has approximately 830 hourly persons at the Seabrook, New Hampshire
and Lancaster, Ohio facilities, who are covered by collective bargaining
agreements with the United Auto Workers. The Lancaster contract, representing
about 8% of the workforce, was renewed for a four year term, ending June 2001
during 1997, and the Seabrook contract, representing about 12% of the
workforce, expires in 1999. The Company has started discussion with the union
regarding a new contract at Seabrook. In 1996, there was a union election at
Vemco, Inc. The results of that election are being held pending resolution of
challenged ballots and election objections. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
However, many of the Company's OEM and Tier 1 supplier customers and other
suppliers to the Company's customers are unionized, and work stoppages,
slow-downs or other labor disputes experienced by, and the labor relations
policies of, OEMs and other Tier 1 suppliers could have an adverse effect on
the Company's
8
<PAGE> 10
results of operations.
PATENTS
The Company has the right to use various patents which aid in maintaining
its competitive position. These patents begin to expire over the next 15
years. The expiration of such patents are not expected to have a material
adverse effect on the Company's operations.
ENVIRONMENTAL
The Company's operations are subject to numerous federal, state and local
laws and regulations pertaining to the generation and discharge of materials
into the environment. The Company has taken steps related to such matters in
order to minimize the risks of potentially harmful aspects of its operations on
the environment. However, from time to time, the Company has been subject to
claims asserted against it by regulatory agencies for environmental matters
relating to the generation and disposal of hazardous substances and wastes.
Some of these claims relate to properties or business lines acquired by the
Company after a release had occurred. In each known instance, however, the
Company believes that the claims asserted against it, or obligations incurred
by it, will not result in a material adverse effect upon the Company's
financial position or results of operations. Nonetheless, there can be no
assurance that activities at these facilities or facilities acquired in the
future, or changes in environmental laws and regulations, will not result in
additional environmental claims being asserted against the Company or
additional investigations or remedial actions being required.
Estimates of the costs of future compliance with environmental laws are
necessarily imprecise due to numerous uncertainties, including the enactment of
new laws and regulations, the development and application of new technologies,
the identification of new sites for which the Company may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. The Company establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. At
December 31, 1997, the Company had a reserve of approximately $0.9 million to
address the known issues and for known compliance monitoring activities that
may be incurred. It is possible that final resolution of some of these matters
may require the Company to make expenditures in excess of established reserves,
over an extended period of time and in a range of amounts that cannot be
reasonably estimated. Although the final resolution of any such matters could
have a material effect on the Company's consolidated operating results for the
particular reporting period in which an adjustment of the reserve is recorded,
the Company believes that any resulting adjustment should not materially affect
its consolidated financial position.
ITEM 2. PROPERTIES
The Company's executive offices are located in Fraser, Michigan. Molding
operations are conducted at fourteen facilities in Michigan, Ohio, Kentucky,
Indiana and New Hampshire. The utilization and capacity of the Company's
facilities may fluctuate based upon the mix of components the Company produces
and the vehicle models for which they are being produced by the Company. The
Company believes that substantially all of its property and equipment is in
good condition and that it has sufficient capacity to meet its current and
projected manufacturing and distribution needs through the 2000 model year.
The following table sets forth certain information concerning the
Company's facilities.
<TABLE>
<CAPTION>
SQUARE TYPE OF DESCRIPTION
LOCATION FOOTAGE INTEREST OF USE
- --------- ------- -------- ------
<S> <C> <C> <C>
MICHIGAN
Masonic Facility...... 178,000 Leased(1) Molding, Mold Fabrication and Repair
Malyn Complex......... 23,000 Leased(1) Molding
22,000 Leased(1) Molding
18,000 Owned Warehouse
Technical Center...... 56,000 Owned Headquarters, Laboratory, Tryout, Mold
Fabrication
Commerce Facility..... 24,000 Leased(1) Mold Fabrication and Repair
Doreka Center......... 6,000 Leased Design and Engineering
Grand Blanc Facility.. 365,000 Owned Molding, Painting, Assembly
Grand Rapids Complex.. 440,000 Leased Molding, Painting, Assembly
125,000 Leased Assembly Warehouse
85,000 Leased Warehouse, Shipping
Harper Facility....... 180,000 Leased(1) Molding, Painting, Assembly
Groesbeck Facility.... 128,000 Owned Molding
Service Center........ 20,000 Leased Administrative Services
Almont Facility....... 10,000 Leased(1) Mold Fabrication and Repair
Troy Center........... 10,000 Leased Mold Fabrication
Hillsdale Facility.... 119,000 Owned Molding, Painting, Assembly
Redford Facility...... 22,000 Leased(1) Mold Fabrication
Allen Park Center..... 26,000 Leased Sales, Design, Engineering
KENTUCKY
Hopkinsville Complex.. 104,000 Leased(2) Molding, Painting, Assembly
80,000 Leased Warehouse
NEW HAMPSHIRE
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Seabrook Facility........... 390,000 Owned Molding, Painting, Assembly
WALLACEBURG, ONTARIO, CANADA
Venture Canada Facility..... 35,000 Owned Painting and Assembly
OHIO
Conneaut Facility........... 183,000 Leased Molding, Painting, Assembly
Lancaster Facility.......... 156,000 Owned Molding, Painting, Assembly
INDIANA
Madison Facility............ 71,000 Owned Painting and Assembly
Hartford City Facility...... 116,000 Owned Molding and Assembly
Portland Facility........... 120,000 Owned Molding and Painting (inactive)
</TABLE>
(1) Leased from an affiliate of the Company. See "Certain Transactions and
Related Transactions."
(2) Capital Lease on which the Company executed purchase option in January
1998.
In addition to the above facilities, the Company relies upon certain
affiliated companies, which are owned or controlled by Mr. Winget, to provide
facilities, machinery and equipment, technology or services to the Company that
are necessary for it to be a full service supplier. Deluxe Pattern Company
("Deluxe"), a company wholly owned by Mr. Winget's living trust, makes
available to the Company a 30,000 square foot advanced design and model
building facility under a usage agreement. In addition, Venture Automotive
Corp. ("VAC"), a company wholly owned by Mr. Winget's living trust, operates a
208,000 square foot facility in Flint, Michigan at which it performed services
for the Company which included sequencing and value-added assembly of parts.
Some of the services previously performed by VAC have now been contracted to
MAST Services, LLC, in which N. Matthew Winget, Mr. Winget's son, owns a
minority interest. In addition, the Company has subcontracted certain work to
Nova Corporation ("Nova"), a business in which Mr. Winget has a significant
equity interest.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to several legal proceedings incidental to the
conduct of its business. The Company believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
financial condition or results of operations of the Company.
In December of 1997, the Company settled the litigation with the
contractor that built the paint line at Vemco, Inc. for $2.0 million,
$0.8 million was as a reduction to the carrying value of the paint line
and $1.2 million was recorded as miscellaneous income.
Environmental Matters. The Company's operations are subject to numerous
federal, state and local laws and regulations pertaining to the generation and
discharge of materials into the environment. The Company has taken steps
related to such matters in order to minimize the risks of potentially harmful
aspects of its operations on the environment. However, from time to time, the
Company has been subject to claims asserted against it by regulatory agencies
for environmental matters relating to the generation and disposal of hazardous
substances and wastes. Some of these claims relate to properties or business
lines acquired by the Company after a release had occurred. In most instances
the Company is only one of a number of PRP's who may be found jointly and
severally liable for remediation cost at 5 sites involved in the foregoing
matter at December 31, 1997. Reserves for environmental matters totaled
approximately $1.3 million and $0.9 million at December 31, 1996 and 1997
respectively. In each known instance, however, the Company believes that the
claims asserted against it, or obligations incurred by it, will not result in a
material adverse effect upon the Company's financial position or results of
operations. Nonetheless, there can be no assurance that activities at these
facilities or facilities acquired in the future, or changes in environmental
laws and regulations, will not result in additional environmental claims being
asserted against the Company or additional investigations or remedial actions
being required. The Company periodically evaluated and revises estimates for
environmental reserves based upon expenditures against established reserve and
the availability of additional information. The agreement pursuant to which
the Company acquired Bailey does not contain indemnification provisions in
favor of the Company with respect to environmental matters. Bailey did,
however, have certain indemnifications in their favor with respect to
environmental matters.
As previously reported, the Company was involved in discussions with the
Michigan Department of Environmental Quality (MDEQ) concerning the emissions
from the Company's Grand Blanc paint facility. On February 23, 1998, the
Attorney General of the State of Michigan along with the MDEQ initiated in
state court legal proceedings alleging violations of the current permits
regarding the level of emissions and odors discharged from the facility. These
proceedings seek and may result in the imposition of civil penalties of up to
$10,000 per day, the total amount is not reasonable to estimate given the
current status of the proceeding. Emissions levels are being evaluated, as
part of the proceedings, and it is probable that the Company will be required
to improve its systems to meet applicable requirements. Although it is not
anticipated that the improvements will require substantial expenditures by the
Company, there can be no assurances that such will be the case.
10
<PAGE> 12
Estimates of the future cost of such environmental matters are necessarily
imprecise due to numerous uncertainties, including the enactment of new laws
and regulations, the development and application of new technologies, the
identification of new sites for which the Company may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. The Company establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. It
is possible that final resolution of some of these matters may require the
Company to make expenditures in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although the final resolution of any such matters could have a
material effect on the Company's consolidated operating results for the
particular reporting period in which an adjustment of the reserve is recorded,
the Company believes that any resulting adjustment should not materially affect
its consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
MARKET INFORMATION
All of the Subsidiaries capital is owned by the Trust, of which Mr. Winget
is the sole beneficiary, thus there is no market for the stock.
DIVIDENDS
No dividends were declared in 1997 or 1996. The Company is restricted by
certain debt covenants from paying dividends except for distribution related to
the payment of taxes by the beneficiary of the Trust related to the results of
operation of the Company and its Subsidiaries.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data and income statement data
presented below as of December 31, 1996 and 1997 and for the years ended
December 31, 1995, 1996 and 1997, are derived from the Company's consolidated
financial statements, audited by Deloitte & Touche LLP, independent auditors,
and should be read in conjunction with the Company's audited financial
statements and notes thereto included elsewhere herein. The selected
consolidated income statement data and balance sheet data presented below as of
December 31, 1993, 1994 and 1995 and for the years ended December 31, 1993 and
1994, are derived from the Company's audited consolidated financial statements
not included herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)(2):
Net sales...................................... $624,113 $ 351,777 $251,142 $244,112 $205,567
Cost of products sold.......................... 521,361 302,940 211,262 199,717 163,521
Gross profit.................................. 102,752 48,837 39,880 44,395 42,046
Selling, general and administrative expense.... 57,217 26,588 20,129 19,200 15,523
Payments to beneficiary in lieu of taxes(3).... 472 666 577 3,405 1,177
Income from operations......................... 45,063 21,583 19,174 21,790 25,346
Interest expense............................... 30,182 19,248 15,032 14,345 11,158
Net income before extraordinary items and
taxes........................................ 14,881 2,335 4,142 7,445 14,188
Net extraordinary loss on early retirement of
debt.......................................... -- 2,738 -- -- 4,066
Net income (loss) after extraordinary items... 14,881 (403) 4,142 7,445 10,122
Tax provision(4)............................... 3,358 336 -- -- --
Net income (loss)............................. 11,523 (739) 4,142 7,445 10,122
Ratio of earnings to fixed
charges(5).................................... 1.5X 1.2x 1.3x 1.7x 2.2x
OTHER FINANCIAL DATA:
EBITDA(6)...................................... $ 77,682 $ 44,877 $ 35,819 $ 39,265 $ 38,611
Depreciation and amortization.................. 32,147 22,628 16,068 14,070 12,088
Capital expenditures........................... 33,012 64,593 20,339 22,798 19,413
Net cash provided by (used in):
Operating activities........................... (13,058) 35,003 10,950 (3,066) 19,422
Investing activities........................... (37,093) (121,547) (20,339) (22,798) (19,413)
Financing activities........................... 36,192 82,976 (655) 53,643 (4,487)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................ $125,101 $ 83,403 $ 74,354 $ 85,258 $ 32,291
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C>
Property, plant and equipment -- net.. 205,765 201,035 116,299 111,472 102,277
Total assets.......................... 524,122 498,067 231,602 234,435 166,578
Total debt............................ 336,188 299,996 152,463 153,118 94,957
Trust principal....................... 64,282 52,759 53,498 49,356 41,911
</TABLE>
(1) The Trust operates as a holding company and has no independent operations
of its own. Separate financial statements of the Trust and each Subsidiary
have not been presented because the Company does not believe that such
information would be material to an investment decision.
(2) The results for 1996 include the operations of Bailey from August 26,
1996, and of Venture Grand Rapids from June 3, 1996.
(3) The Company makes payments to the beneficiary of the Trust in amounts
generally equal to taxes incurred by the beneficiary as a result of the
activities of the Trust's subsidiaries that have elected "S" corporation
status under the Code. For all the years presented, the Company paid the
beneficiary compensation in lieu of a distribution of Trust principal for
such purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) This provision relates solely to Venture Holdings Corporation, formerly
Bailey and its subsidiaries (see Note 2 above). Other significant
subsidiaries of the Trust have elected "S" corporation status under the
Code and, consequently, the Company does not incur liability for federal
and certain state income taxes for these subsidiaries. Upon termination of
the Trust, the S elections may terminate and the corporation succeeding
the Trust according to the terms of the Trust would be subject to income
tax.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of net income before extraordinary items and fixed
charges. Fixed charges consist of (i) interest, whether expensed or
capitalized; (ii) amortization of debt discount and debt financing costs;
and (iii) the portion of rental expense that management believes is
representative of the interest component of rental expense.
(6) EBITDA represents income from operations before deducting taxes,
depreciation, amortization, interest and Trust Tax Distributions (as
defined in the Indenture). EBITDA is not presented as an alternative to
net income, as a measure of operating results or as an indicator of the
Company's performance, nor is it presented as an alternative to cash flow
or as a measure of liquidity, but rather to provide additional information
related to debt service capacity. EBITDA should not be considered in
isolation or as a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability. EBITDA, while commonly used, is not
calculated uniformly by all companies and should not be used as a
comparative measure without further analysis, nor does EBITDA necessarily
represent funds available for discretionary use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a discussion of liquidity and operating results
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS
The following discussion and analysis contains a number of "forward
looking" statements within the meaning of the Securities Exchange Act of 1934
and are subject to a number of risks and uncertainties. Such factors include,
among others, the following: international, national and local general economic
and market conditions; demographic changes; the size and growth of the
automobile market or the plastic automobile component market; the ability of
the Company to sustain, manage or forecast its growth; the size, timing and mix
of purchases of the Company's products; new product development and
introduction; existing government regulations and changes in, or the failure to
comply with, government regulations; adverse publicity; dependence upon
original equipment manufacturers; liability and other claims asserted against
the Company; competition; the loss of significant customers or suppliers;
fluctuations and difficulty in forecasting operating results; changes in
business strategy or development plans; business disruptions; product recalls;
warranty costs; the ability to attract and retain qualified personnel; the
ability to protect technology; retention of earnings; control and the level of
affiliated transactions.
12
<PAGE> 14
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 notes thereto included elsewhere herein.
AS A PERCENTAGE OF NET SALES
----------------------------
YEARS ENDED DECEMBER 31,
-----------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of products sold....................... 83.5 86.1 84.1
----- ----- -----
Gross profit................................ 16.5 13.9 15.9
Selling, general and administrative expenses 9.2 7.6 8.0
Payments to beneficiary in lieu of Trust
distributions............................... 0.1 0.2 0.2
----- ----- -----
Income from operations...................... 7.2 6.1 7.7
Interest expense............................ 4.8 5.4 6.0
----- ----- -----
Income before extraordinary items and taxes. 2.4 0.7 1.7
Extraordinary loss on retirement of debt.... -- 0.8 --
----- ----- -----
Income (loss) before taxes.................. 2.4 (0.1) 1.7
Tax provision............................... 0.5 0.1 --
----- ----- -----
Net income (loss)........................... 1.9% (0.2)% 1.7%
===== ===== =====
</TABLE>
On June 3, 1996, the Company acquired certain assets from AutoStyle and
entered into a capital lease for all of AutoStyle's plant, property and
equipment located in Grand Rapids, Michigan and Hopkinsville, Kentucky.
Simultaneously, the Company entered into a long-term supply agreement with
General Motors for substantially all of AutoStyle's former business at revised
prices.
On August 26, 1996, the Company purchased all of the outstanding stock of
Bailey, an OEM supplier to General Motors, Ford and Chrysler.
The subsidiaries of the Trust that had conducted the business of AutoStyle
and Bailey were merged or otherwise consolidated with the other subsidiaries
and such former subsidiaries' separate existence ceased during the third
quarter.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The period to period comparisons are substantially effected by the
acquisitions of Bailey and AutoStyle ("Grand Rapids"). The operations of these
acquisitions have been and continue to be rationalized among the various
manufacturing facilities to optimize plant capacity and utilization.
Net sales increased $272.3 million for the year ended December 31, 1997,
or 77.4%, to $624.1 million, compared to net sales of $351.8 million for the
year ended December 31, 1996. The increase in net sales was primarily the
result having the benefit of a full year of the Bailey and Grand Rapids
operating sales. The operating sales for 1996 represented only the activities
subsequent to the acquisitions. The following table explains the changes (in
millions).
<TABLE>
<CAPTION>
NET SALES YEAR
ENDED DECEMBER 31,
------------------
1997 1996 INCREASE
---- ---- --------
<S> <C> <C> <C>
Bailey $ 224.8 $ 72.6 $ 152.2
Grand Rapids 96.5 38.9 57.6
Comparable 302.8 240.3 62.5
------- ------- -------
Total $ 624.1 $ 351.8 $ 272.3
======= ======= =======
Sales were less in the last half of the year than were expected for the
Chrysler LH due to a slow new model changeover.
</TABLE>
Gross profit for the year ended December 31, 1997 increased $53.9 million,
or 110.4%, to $102.7 million compared to $48.8 million for the year ended
December 31, 1996. As a percentage of operating sales, gross profit increased
from 13.9% to 16.5% for the year ended December 31, 1997, which was in part due
to the increased volumes associated with product rationalizations among the
facilities and cost cutting efforts at Bailey. However, gross profit was
unfavorably impacted by new model introductions and launch costs in the third
and fourth quarter which are expected to continue until the middle of the first
quarter of 1998. Gross profits continue to be under pressure attributable to
selling price reductions, as OEMs continue to expect annual productivity
improvements on the part of their suppliers. In addition the Company's sales
are shifting more to use the injection molding process, which traditionally
have had higher margins. During the fourth quarter certain reserves were
reevaluated and reduced by $2.8 million reflecting changes in circumstances and
estimates and were recorded as reductions in cost of products sold.
Selling, general and administrative expenses increased $30.6 million, or
115.2%, for fiscal 1997 to $57.2 million, compared to $26.6 million in fiscal
1996. As a percentage of net sales, selling, general and administrative
expenses increased to 9.2% for the year ended December 31, 1997, compared to
7.6% in 1996. The increase is generally due to the acquisition of Bailey and
the attendant cost of its operations.
Payments to the beneficiary of the Trust, in the amounts generally equal
to taxes incurred by the beneficiary as a result of the activities of the
Trust's subsidiaries which have elected S corporation status, totaled $0.5
million and $0.7 million in fiscal 1997 and 1996, respectively. These amounts
were paid as compensation rather than as distributions of Trust principal.
13
<PAGE> 15
As a result of the foregoing, income from operations in the year ended
December 31, 1997 increased $23.5 million, or 108.8%, to $45.1 million,
compared to $21.6 million in fiscal 1996. As a percentage of net sales, income
from operations increased to 7.2% in fiscal 1997 from 6.1% in fiscal 1996.
Interest expense increased $10.9 million to $30.2 million in fiscal 1997
compared to $19.2 million in fiscal 1996. The increase is the result of the
senior credit agreement entered into on August 26, 1996 to fund the Bailey
acquisition, subsequent refinancing and issuance of $205 million senior notes
in the third quarter of 1997 and increased working capital needs.
Due to the foregoing, net income for the year ended December 31, 1997
increased $12.2 million, to $11.5 million compared to $(0.7) million for the
year ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 increased $100.7 million,
or 40.1%, to $351.8 million, compared to net sales of $251.1 million for the
year ended December 31, 1995. The increase in net sales was primarily the
result of the acquisition of Bailey. Specifically, Bailey accounted for $72.6
million and Grand Rapids for $38.9 million of the increase offset by a $10.8
million decrease in comparable operating sales. These increases offset
reductions in net sales resulting from the discontinuance of the Chrysler ZJ
fascias after the second quarter of 1995, Buick LeSabre fascias in December of
1995 and fascias for the GM "G" Body (Oldsmobile Aurora and Buick Riviera)
during the first quarter of 1996 which were not otherwise offset due to the
delay in new model start ups.
Gross profit for the year ended December 31, 1996 increased $9.0 million,
or 22.5%, to $48.8 million compared to $39.9 million for the year ended
December 31, 1995. The increase in gross profit for the year is attributable to
the increase in sales arising from the Bailey and Venture Grand Rapids
acquisitions. Without the impact of these acquisitions, gross profit would have
decreased approximately $3.8 million. As a percentage of comparable operating
sales, gross profit would have decreased from 15.9% to 15.0% for the year ended
December 31, 1996, which was due to the delay in launching of the GM "M" vans
(Astro and Safari) side molding program and GM full size vans (Express and
Savana). Full production of these vehicles did not begin until late June 1996.
Gross profit pressures are also attributable to selling price reductions, which
have become industry practice in recent years, as OEMs continue to expect
annual productivity improvements on the part of their suppliers. Gross profit
margins fell from the third quarter of 1996 due to lower margins attributable
to net sales from former Bailey operations.
Selling, general and administrative expenses increased $6.5 million, or
32.1%, for fiscal 1996 to $26.6 million, compared to $20.1 million in fiscal
1995. As a percentage of net sales, selling, general and administrative
expenses decreased to 7.6% for the year ended December 31, 1996, compared to
8.0% in 1995.
Payments to the beneficiary of the Trust, in the amounts generally equal
to taxes incurred by the beneficiary as a result of the activities of the
Trust's subsidiaries which have elected S corporation status, totaled $0.7
million and $0.6 million in fiscal 1996 and 1995, respectively. These amounts
were paid as compensation rather than as distributions of Trust principal.
As a result of the foregoing, income from operations in the year ended
December 31, 1996 increased $2.4 million, or 12.6%, to $21.6 million, compared
to $19.2 million in fiscal 1995. As a percentage of net sales, income from
operations decreased to 6.1% in fiscal 1996 from 7.7% in fiscal 1995.
Interest expense increased $4.2 million to $19.2 million in fiscal 1996
compared to $15.0 million in fiscal 1995. The increase is the result of the new
credit agreement entered into on August 26, 1996. As a result of the
refinancing, the Company incurred an extraordinary loss in the amount of $2.7
million during the third quarter of 1996.
Due to the foregoing, net income for the year ended December 31, 1996
decreased $4.8 million, to $(0.7) million compared to $4.1 million for the year
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital was $125.1 million at December
31, 1997, compared to $83.4 million at December 31, 1996, an increase of $41.7
million. The Company's working capital ratio increased to 2.3x at December 31,
1997 from 1.7x at December 31, 1996, as a result of the growth of the Company's
balance sheet attributable to the Bailey and Grand Rapids acquisitions and
decreased current liabilities.
The Company's principal sources of liquidity are internally generated
funds, cash equivalent investments and borrowings under the Company's bank
credit facility, as amended on July 9, 1997 (the "Senior Credit Facility"). Net
cash flows provided by (used in) operating activities were $(13.1) million $35.0
million and $11.0 million for the years 1997, 1996 and 1995, respectively.
The
14
<PAGE> 16
The Company's cash flow from operating activities was lower in 1997 than in
1996 as a result of an overall increase in accounts receivables, principally
from increased tooling sales, increase in other assets and decrease in other
current liabilities that arose in 1996 as a result of the acquisition. The use
of cash relating to other assets incurred due to financing costs, as a result
of the issuance of new debt and increased design cost. Net related party
receivables increased in 1997 due to the timing of collections, increased
transactions primarily tooling, design, assembly, sequencing and trucking
activities outsourced to related parties.
Net cash flows used in investing activities were $37.1 million, $121.6
million and $20.3 million in 1997, 1996 and 1995 respectively. The 1996 amount
is primarily for the acquisition of Bailey. Capital expenditures for 1995 and
1997 were principally for the upgrading and purchase of machinery and
equipment, leasehold improvements and the expansion of facilities to
accommodate increased volumes. The Company believes that it has sufficient
capacity to meet current manufacturing production needs through the 2000 model
year.
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 such material business and there is no assurance that the
Company will be awarded any such business.
In addition, the Company expects that its investment in molds and design
costs will increase as OEMs increasingly require the Company to finance these
items for new components and defer receipt of revenue for such over the
production life of the related manufactured component. Historically, OEMs paid
for molds upon completion of the tool and internally performed the design.
In 1997 and 1996, net cash flows from financing activities were $36.2
million and $83.0 million, respectively. The cash flows provided by financing
activities in 1997 is the result of refinancing the Bailey acquisition debt
through the issuance of $205 million of 9.5% Senior Notes (the "Senior Notes")
net of debt retirements and principal reductions. In addition to the issuance
of the Senior Notes, the Company amended and restated the Senior Credit Facility
into a $200 million revolving credit facility. The cash flows provided by
financing activities in 1996 was the result of the Senior Credit Facility to
facilitate the acquisition of Bailey and the refinancing of certain obligations
resulting from this acquisition. During 1995, net cash flows from financing
activities were $(0.7) million, principally for repayment of indebtedness.
The Senior Credit Facility contains various covenants that require the
Company to maintain stipulated financial ratios, including (a) consolidated net
worth (adjusted yearly); (b) fixed charge coverage ratio; (c) interest coverage
ratio; and (d) leverage ratio (ratio of consolidated Indebtedness). As of
December 31, 1997 the Company was in compliance with these covenants.
The Senior 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 $200 million less the amount of any letter of credit issued
against the Senior Credit Facility. At December 31, 1997, the Company had a
maximum availability of approximately $197.6 million, and pursuant to the
borrowing base formula could have borrowed $107.1 million, of which $45 million
was outstanding thereunder.
The Company believes that existing cash balances, cash flows from
operations, borrowings available under the bank credit facility and other
short-term arrangements will be sufficient to fund working capital needs,
anticipated capital expenditures for the operations of the business and debt
service requirements through the end of 2000.
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 Company
is currently engaged in a project to upgrade its information, technology,
manufacturing and facilities software to programs that will consistently and
properly recognize the Year 2000. Many of the Company's systems include new
hardware and packaged software recently purchased from vendors who have
represented that these systems are already Year 2000 compliant. The Company is
also obtaining assurance form vendors that timely updates will be made
available to make some software Year 2000 compliant.
The Company is in the process of initiating formal communication with all
its significant suppliers and large customers to determine the extent to which
the Company is vulnerable to those third parties failure to remediate their
own Year 2000 issues. The Company can give no assurance that the systems of
other companies on which the Company's systems rely will be converted on time
or that a failure to convert by another company or a conversion that is
incompatible with the Company's systems would not have a material adverse
effect on the Company.
The Company will utilize both internal and external resources to
reprogram, replace and test its software for Year 2000 compliance, and the
Company expects to complete the project in early 1999. The total cost
associated with the required modification and conversion, based upon current
plans, is not expected to be material to the Company's consolidated results of
operations and
15
<PAGE> 17
financial position and is being expensed as incurred.
NEW ACCOUNTING STANDARDS
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement also requires that an entity display an
amount representing total comprehensive income for the period in that financial
statement. In addition, this statement requires that an entity classify items
of other comprehensive income by their nature in a financial statement. For
example, other comprehensive income may include foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. Reclassification of financial
statements for earlier periods, provided for comparative purposes, is required.
This new accounting statement is not expected to have a material impact on the
Company's consolidated financial statements. The Company will adopt this
accounting standard on January 1, 1998, as required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement requires reporting segment profit or
loss, certain specific revenue and expense items and segment assets. It also
requires reconciliations of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments to
corresponding amounts reported in the consolidated financial statements.
Restatement of comparative information for earlier periods presented is
required in the initial year of application. Interim information is not
required until the second year of application, at which time comparative
information is required. The Company has not yet determined the impact from the
adoption of this new accounting standard on its consolidated financial
statement disclosures. The Company will adopt this accounting standard on
January 1, 1998, as required.
In February 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. This statement is effective for
financial statments for the year ended December 31, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VENTURE HOLDINGS TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................17
Consolidated Balance Sheets.......................................18
Consolidated Statements of Income and Trust Principal.............19
Consolidated Statements of Cash Flows ............................20
Notes to Consolidated Financial Statements........................21
</TABLE>
NOTE: Separate financial statements for the Trust and each Subsidiary are not
included herein because each entity (other than Venture Canada and Experience
Management L.L.C.) is jointly and severally liable for the Senior Credit
Facility and the Senior Notes, and each entity (including Venture Canada but
excluding Experience Management L.L.C.) is jointly and severally liable for the
Company's Senior Subordinated Notes either as a co-issuer or as a guarantor. In
addition, the aggregate total assets, net earnings and net equity of the
Subsidiaries of the Trust (with or without Venture Canada) are substantially
equivalent to the total assets, net earnings and net equity of the Company on a
consolidated basis. Venture Canada represents less than 1% of total assets, net
earnings, net trust principal and operating cash flow.
16
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
Trustee of Venture Holdings Trust
Fraser, Michigan
We have audited the accompanying consolidated balance sheets of Venture
Holdings Trust as of December 31, 1997 and 1996, and the related consolidated
statements of income and trust principal and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Venture Holdings Trust as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
March 30, 1998
Detroit, MI
17
<PAGE> 19
VENTURE HOLDINGS TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
December 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,477 $ 15,436
Accounts receivable, net (Notes 2, 6 & 7) 161,157 129,668
Inventories (Notes 3, 6 & 7) 52,616 51,100
Prepaid expenses and other (Note 11) 8,994 14,213
-------------- --------------
Total current assets 224,244 210,417
Property, Plant and Equipment, Net (Notes 4 & 7) 205,765 201,035
Intangible Assets (Note 5) 53,900 51,748
Other Assets (Notes 1 & 7) 25,771 20,528
Deferred Tax Assets (Note 11) 14,442 14,339
-------------- --------------
Total Assets $ 524,122 $ 498,067
============== ==============
LIABILITIES AND TRUST PRINCIPAL
Current Liabilities:
Accounts payable (Note 7) $ 70,047 $ 84,821
Accrued payroll & taxes 7,341 7,352
Accrued interest 12,148 4,954
Other accrued expenses (Note 5) 6,485 19,255
Current portion of long-term debt (Note 6) 3,122 10,632
-------------- --------------
Total current liabilities 99,143 127,014
Other Liabilities (Note 10) 14,281 15,912
Deferred Tax Liabilities (Note 11) 13,350 13,018
Long Term Debt (Note 6) 333,066 289,364
Commitments and Contingencies (Note 8)
Trust Principal 64,282 52,759
-------------- --------------
Total Liabilities and Trust Principal $ 524,122 $ 498,067
============== ==============
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 20
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF INCOME AND TRUST PRINCIPAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1997 1996 1995
----------------- --------------- ---------------
<S> <C> <C> <C>
Net Sales (Notes 7, 8 & 9) $ 624,113 $ 351,777 $ 251,142
Cost of Products Sold (Note 7) 521,361 302,940 211,262
----------------- -------------- ---------------
Gross Profit 102,752 48,837 39,880
Selling General and Administrative Expense (Note 7) 57,217 26,588 20,129
Payments to Beneficiary in Lieu of Taxes (Note 7) 472 666 577
----------------- -------------- ---------------
Income from Operations 45,063 21,583 19,174
Interest Expense 30,182 19,248 15,032
----------------- -------------- ---------------
Net Income Before Extraordinary Items and Taxes 14,881 2,335 4,142
Tax Provision (Note 11) 3,358 336 0
----------------- -------------- ---------------
Net Income Before Extraordinary Items 11,523 1,999 4,142
Net Extraordinary Loss on Early Retirement
of Debt (Note 12) 0 2,738 0
----------------- -------------- ---------------
Net Income (Loss) 11,523 (739) 4,142
Trust Principal, Beginning of Period 52,759 53,498 49,356
----------------- -------------- ---------------
Trust Principal, End of Period $ 64,282 $ 52,759 $ 53,498
================= ============== ===============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 21
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
----------------- --------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 11,523 $ (739) $ 4,142
Adjustments to reconcile net income to net cash provided
By operating activities:
Depreciation and amortization 32,147 22,628 16,068
Change in accounts receivable (31,489) (35,789) (2,406)
Change in inventories (1,517) (4,298) (371)
Change in prepaid expenses 2,329 (4,116) (218)
Change in other assets (7,178) (6,445) 56
Change in accounts payable (14,774) 32,400 (5,728)
Change in accrued expenses (5,588) 21,221 (592)
Change in other liabilities (1,630) 8,725 0
Change in deferred taxes 3,119 (1,322) 0
Net loss on early extinguishment of debt 0 2,738 0
--------- -------- --------
Net cash (used in) provided by operating activities (13,058) 35,003 10,951
Cash Flows From Investing Activities:
Capital expenditures (33,012) (64,593) (20,339)
Purchase of Subsidiaries, net of cash acquired (4,081) (56,954) 0
--------- -------- --------
Net cash used in investing activities (37,093) (121,547) (20,339)
Cash Flows From Financing Activities:
Net borrowings under revolving credit agreement (46,000) 91,000 0
Net proceeds from issuance of debt 205,000 69,249 0
Principal payments on debt (122,808) (14,535) (655)
Payment for early extinguishment of debt 0 (62,738) 0
--------- -------- --------
Net cash provided (used in) by financing activities 36,192 82,976 (655)
--------- -------- --------
Net Decrease in Cash (13,959) (3,568) (10,043)
Cash and Cash Equivalents at Beginning of Period 15,436 19,004 29,047
--------- -------- --------
Cash and Cash Equivalents at End of Period $ 1,477 $ 15,436 $ 19,004
========= ======== ========
Supplemental Cash Flow Information
Cash paid during the period for Interest $ 22,628 $ 18,187 $ 15,073
========= ======== ========
Income taxes paid (refunded) $ 140 $ (2,179) $ 0
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Organization -- In 1987, the sole shareholder of the Venture Group of
companies contributed all of the common stock of the companies to Venture
Holdings Trust (the Trust). Simultaneously, certain property, plant, and
equipment was contributed by the sole shareholder to certain companies owned by
the Trust. In exchange, the shareholder was named the sole beneficiary of the
Trust.
The companies included in the Trust are Venture Industries Corporation,
Venture Mold and Engineering Corporation, Venture Industries Canada, Ltd.,
Vemco, Inc., Venture Leasing Company, Vemco Leasing, Inc., Venture Holdings
Corporation, Venture Service Company, Experience Management L.L.C. and any
predecessors to such organizations. Experience Management L.L.C. was formed
late in 1997 to assume the human resource obligations of the Trust. The
companies included in the Trust are involved in the design and manufacturing of
molded parts and systems integration for North American automotive original
equipment manufacturers. During 1996 the Trust acquired Bailey Corporation and
its subsidiaries (Bailey) which were merged into Venture Holdings Corporation
in July of 1997. During 1996, the trust acquired the assets of Autostyle
Plastics, Inc. ("Autostyle") which was merged into Vemco, Inc. in July of 1997.
The Trust has been established as a grantor trust. The Trust received a
private letter ruling from the Internal Revenue Service confirming that the
Trust meets the requirements of a grantor trust under Section 1361(c)(2)(A)(i)
of the Internal Revenue Code.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Venture Holdings Trust and its wholly owned
subsidiaries (collectively the "Company"). All intercompany accounts and
transactions have been eliminated.
The consolidated financial statements include only those assets and
liabilities which relate to the business of Venture Holdings Trust. These
statements do not include any assets or liabilities attributable to the
beneficiary's individual activities. However, the Company does enter into
various transactions with companies in which the sole beneficiary has an
interest. These transactions are summarized in Note 7-Related Party
Transactions.
Estimates -- The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Highly liquid investments with an initial
maturity of three months or less are classified as cash equivalents.
Inventories -- Manufactured parts inventories are stated at the lower of
cost or market using the first-in, first-out method. Inventory also includes
costs associated with building molds under contract. Molds owned by the Company
and used in the Company's manufacturing operations are transferred to tooling,
in property, plant and equipment, when the molds are operational.
Property and Depreciation -- Property, plant, and equipment are recorded
at cost. Depreciation is computed by the straight-line method over the
estimated useful lives of the various classes of assets. Tooling is amortized
on a piece price or straight line basis over the related production contract,
generally 3 to 7 years. The principal estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and improvements............... 10-40
Machinery and equipment, and automobiles 3-20
</TABLE>
Leasehold improvements are amortized over the useful life or the term of
the lease. Expenditures for maintenance and repairs are charged to expense as
incurred.
Intangible Assets -- The purchase price of companies in excess of the fair
value of net identifiable assets acquired ("goodwill") is amortized over 30
years using the straight-line method. The amount reported at December 31, 1997
and 1996 was $53.9 million and $51.7 million respectively, which is net of
accumulated amortization.
Long-Lived Assets and Long-Lived Assets to be Disposed of -- Effective
January 1, 1996, the Statement of Financial Accounting
21
<PAGE> 23
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" was adopted. This Statement
establishes accounting standards for the impairment of long-lived assets, and
certain identifiable intangibles, and goodwill related to those assets to be
held and used and long-lived and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, the Statement
requires that certain long-lived assets and identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. The Company periodically evaluates the carrying value for impairment,
such evaluations are based principally on the undiscounted cash flows of the
operations to which the goodwill is related.
Revenue Recognition -- Revenue from the sale of manufactured parts is
recognized when the parts are shipped. Revenue from mold sales is recognized
using the completed contract method due to the reasonably short build cycle.
Accounts receivable includes unbilled receivables for mold contracts that are
substantially complete. The amounts are billed when final approval has been
received from the customer or in accordance with contract terms. Provision for
estimated losses on uncompleted contracts, if any, is made in the period such
losses are identified.
Other Assets -- Deferred financing costs are included in other assets and
are amortized over the life of the related financing arrangement.
Debt Discount -- The debt discount related to notes payable is amortized
using the interest method over the life of the notes.
Design Cost -- Certain costs incurred for the design of components to be
built for customers are recorded as deferred design costs which are included in
other assets. These costs are recovered based on units produced in each year
over the term of production contracts.
Income Taxes -- Amounts in the financial statements relating to income
taxes relate to the subsidiaries that have not elected S corporation status and
are calculated using the Statement of Financial Accounting Standards Board No.
109, "Accounting for Income Taxes" (SFAS 109).
Other significant subsidiaries have elected to be taxed as S corporations
under the Internal Revenue Code. The beneficiary is required to report all
income, gains, losses, deductions, and credits of the S corporations included
in the Trust on his individual tax returns.
Separate Financial Statements -- Separate financial statements for the
Trust and each Subsidiary are not included in this report because each entity
(other than Venture Canada and Experience Management L.L.C.) is jointly and
severally liable for the Company's senior credit facility and senior notes,
and each entity (including Venture Canada but excluding Experience Management
L.L.C.) is jointly and severally liable for the Company's senior subordinated
notes either as a co-issuer or as a guarantor. In addition, the aggregate total
assets, net earnings and net equity of the Subsidiaries of the Trust (with or
without Venture Canada) are substantially equivalent to the total assets, net
earnings and net equity of the Company on a consolidated basis. Venture Canada
represents less than 1% of total assets, net earnings, net trust principal and
operating cash flow.
Derivative Financial Instruments -- Interest rate swaps are utilized to
reduce the sensitivity of earnings to various market risk and manage funding
costs. The primary market risk includes fluctuations in interest rates and
variability in spread relationships (i.e. Prime vs. LIBOR spreads). Interest
rate swaps are used to change the characteristics of its variable rate
exposures. Interest rate differentials resulting from interest rate swap
agreements used to change the interest rate characteristics are recorded on an
accrual basis as an adjustment to interest expense as part of operating
activities. In the event of early termination of an interest rate swap
agreement designated as a hedge, the gain or loss is deferred, and recognized
as an adjustment to interest expense over the remaining term of the underlying
debt.
Reclassifications -- Certain reclassifications have been made to the 1996
financial statements in order to conform to the 1997 presentation.
22
<PAGE> 24
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
(IN THOUSANDS)
-------------------
1997 1996
--------- --------
<S> <C> <C>
Accounts receivable (including related parties) $139,361 $115,469
Unbilled mold contract receivables............. 24,726 16,980
-------- --------
164,087 132,449
Allowance for doubtful accounts................ (2,930) (2,781)
-------- --------
Net accounts receivable........................ $161,157 $129,668
======== ========
</TABLE>
Substantially all of the receivables are from companies operating in the
automobile industry.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
(IN THOUSANDS)
-------------------
1997 1996
-------- --------
<S> <C> <C>
Raw material.................................. $26,036 $23,406
Work-in-process -- manufactured parts......... 2,863 4,573
Work-in-process -- molds...................... 10,922 12,347
Finished goods................................ 12,795 10,774
-------- --------
Total......................................... $52,616 $51,100
======== ========
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
(IN THOUSANDS)
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
Land.......................................... $ 2,427 $ 2,614
Building and improvements..................... 45,496 47,365
Leasehold Improvements........................ 19,797 17,519
Machinery and equipment....................... 231,029 205,279
Tooling/Molds................................. 8,659 7,222
Office and transportation equipment........... 6,140 5,548
Construction in progress...................... 5,727 4,785
----------- ------------
319,275 290,332
Less accumulated depreciation and
amortization............................... 113,510 89,297
----------- ------------
Total.................................... $205,765 $201,035
=========== ============
</TABLE>
Included in property, plant and equipment is equipment and buildings held
under capitalized leases. These assets have a cost basis of $12.7 million and
accumulated depreciation relating to these assets of $4.0 million at December
31, 1997.
5. BUSINESS ACQUISITIONS
Effective August 26, 1996, the Trust acquired Bailey, a manufacturer of
high quality molded plastic exterior components for sale to automobile
manufacturers for an aggregate purchase price of $57 million. This acquisition
price was the cost to acquire all of the outstanding shares of the company at
$8.75 per share including all of the outstanding options and warrants. The
acquisition was accounted for as a purchase with the purchase price allocated
over the estimated fair value of the assets and liabilities assumed, resulting
in goodwill of approximately $53.8 million. The goodwill is being amortized
over 30 years using the straight-line method. Bailey was merged into Venture
Holdings Corporation in July of 1997.
Effective June 3, 1996, the Company acquired certain assets from Autostyle
for a purchase price of $6.7 million and entered into a capital lease for all
property, plant and equipment. The acquisition was accounted for as a purchase
with the purchase price allocated over the estimated fair value of the assets
and liabilities assumed, resulting in goodwill of $2.6 million. The goodwill is
being amortized over 30 years using the straight-line method.
The consolidated earnings includes the operations of Bailey from August
26, 1996 and the operations for Autostyle from June 3, 1996.
23
<PAGE> 25
Unaudited pro forma results of operations represent the consolidation of
historical results for the twelve months ended December 31, 1996 and 1995,
assuming the acquisition of Bailey had occurred at January 1, are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales............................................. $471,118 $413,724
Net (loss) before extraordinary item.................. (887) (22,085)
Net (loss)............................................ (3,402) (22,085)
</TABLE>
The transaction had the following non-cash impact on the Company's balance
sheet at August 26, 1996 (in millions):
<TABLE>
<S> <C>
Current assets........................................ $ 62
Non-current assets.................................... 143
Current liabilities................................... 159
Non-current liabilities............................... 46
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
(IN THOUSANDS)
--------------
1997 1996
---- ----
<S> <C> <C>
Revolving credit agreement......................... $ 45,000 $ 91,000
Term loan A with fluctuating interest rate
currently at 8.375%................................ 0 74,450
Term loan B with fluctuating interest rate
currently at 8.875%................................ 0 44,550
Registered senior secured notes payable with
interest at 9.5%................................... 205,000 0
Registered senior subordinated notes payable with
interest at 9.75%.................................. 78,940 78,940
Capital leases with interest at 8.25% to 11.5%..... 5,023 6,194
Installment notes payable with interest at 5.85% to
11.75%............................................. 2,225 4,862
-------- --------
Total.............................................. 336,188 299,996
Less current portion of debt....................... 3,122 10,632
-------- --------
Total.............................................. $333,066 $289,364
======== ========
</TABLE>
In connection with the acquisition of Bailey Corporation on August 26,
1996, the Company entered into a senior credit agreement with NBD Bank, as
Agent, which included two term loans, term loan A for $75 million and term loan
B for $45 million and a new revolving loan facility discussed below. The term
loans were repaid in 1997. The annual interest rate fluctuated for borrowings
under these agreements based upon LIBOR or the bank's prime rate.
In 1997, the Company issued $205 million of 9.5% senior notes due 2005.
The proceeds of the notes were used to repay $117 million of the term loans A
and B under the senior credit agreement. The balance of the proceeds of
approximately $82 million was used to pay down the amount outstanding under the
revolving credit portion of the facility and approximately $6 million in
expenses related to the issuance.
In conjunction with the issuance of the senior notes, the Company amended
and restated the senior credit agreement into a revolving credit agreement
providing up to $200 million through June 30, 2002. The annual interest rate
for borrowings under this agreement is a floating rate based upon LIBOR or the
banks prime rate which averaged 8.5% at December 31, 1997. The Company must
pay a fee of up to .5% of the unused portion of the commitment. The Company
has issued letters of credit of approximately $2.4 million at December 31,
1997 against this agreement, thereby reducing the maximum availability to
$197.6 million, and pursuant to the borrowing base formula could have
borrowed 107.1 million, of which $45 million was outstanding thereunder.
Effective June 3, 1996, the Company entered into a $6.2 million capital
lease for plant, property and equipment. The lease runs through May of 1998,
and requires monthly payments of principal and interest. The Company intends
to exercise its option to buy the plant, property and equipment.
The Trust has agreed to guarantee up to $3.5 million of obligations of a
related party. In a separate transaction, a different related party agreed to
fully indemnify the Trust for all amounts paid under the guarantee.
24
<PAGE> 26
See also Note 12 - Extraordinary Items for information related to the early
retirement of debt.
The senior credit agreement, senior notes and the senior subordinated
notes contain certain restrictive covenants relating to cash flow, fixed
charges, debt, trust principal, trust distributions, leases, and liens on
assets.
Scheduled maturities of debt at December 31, 1997 were as
follows (in thousands):
<TABLE>
<S> <C>
1998.............................. $ 3,122
1999.............................. 1,545
2000.............................. 935
2001.............................. 855
2002.............................. 699
Remaining years................... 329,032
-----------
Total............................. $336,188
===========
</TABLE>
To mitigate risk associated with changing interest rates on certain debt,
the Company entered into interest rate swap agreements. The notional amounts
are used to measure the volume of these agreements and do not represent
exposure to credit loss. The impact of interest rate swap agreements resulted
in $0.2 million of additional interest expense for 1996 and $0.6 million for the
year ended 1997.
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS NOTIONAL AMOUNTS
OUTSTANDING OUTSTANDING
VARIABLE AND WEIGHTED AND WEIGHTED
RATE MATURING AVERAGE RATES AVERAGE RATES
UNDERLYING FINANCIAL INSTRUMENT INDEX THROUGH DECEMBER 31, 1997 DECEMBER 31, 1996
- -------------------------------- ----- ------- ----------------- -----------------
<S> <C> <C> <C> <C>
Pay Fixed Interest Rate Swaps Term Loans LIBOR 2001 $55,000,000 $55,000,000
Weighted average pay rate............... FIXED 2001 6.75% 6.75%
Weighted average receive rate........... LIBOR 2001 5.70% 5.64%
</TABLE>
7. 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 the receipt and payment of sales
commissions. 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 transactions with non-affiliated persons.
The Company provides or arranges for others to provide certain related
parties with various administrative and professional services, including
employee group insurance and benefit coverage, property and other insurance,
financial and cash management and administrative services such as data
processing. The related parties are charged fees and premiums for these
services. Administrative services were allocated to the entity for which they
were incurred and certain entities were charged a management fee.
In connection with the above mentioned 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 Company purchased from Pompo Insurance & Indemnity Company Ltd.
("Pompo"), a corporation indirectly owned by the sole beneficiary, insurance to
cover certain medical claims by the Company's covered employees and certain
workers compensation claims. The Company remains an obligor for any amounts in
excess of insurance coverage or any amounts not paid by Pompo under these
coverages. If a liability is settled for less than the amount of the premium a
portion of the excess is available as a premium credit on future insurance. The
Company has accounted for this arrangement using the deposit method wherein the
full amount of the estimated liability for such claims is recorded in other
liabilities and the premiums paid to Pompo are recorded in other assets until
such time that the claims are settled. The Company made no payments to Pompo in
1996 or 1997. At December 31, 1996 and 1997, the Company had approximately $2.8
million on deposit with Pompo. This amount was invested on a short term basis
with a related party.
In accordance with the terms of the insurance agreement, in 1996 and 1995
the Company received and utilized premium credits of $0.2 and $0.6 million,
respectively.
During 1996, the Company purchased machinery and equipment for $49,000
from Venture Automotive Corporation (VAC), an entity wholly owned by the sole
beneficiary of the Company. VAC provided certain manufacturing related
25
<PAGE> 27
services on behalf of the Trust for 1995 and until October 1, 1996.
Beginning October 1, 1996 the manufacturing services previously provided
by VAC were contracted to MAST, Services Inc., a company related to the sole
beneficiary of the Trust but not owned or controlled by him. Services for the
period ending December 31, 1996 and 1997 were $0.2 and $2.7 million,
respectively.
Deluxe Pattern Corporation (Deluxe) provided design, model and
tool-building services to the Company of $8.3, $4.3, and $1.1 million in 1997,
1996 and 1995, respectively. The Company received approximately $1.1 million
each year from Deluxe in 1997, 1996 and 1995 for equipment rentals and
services.
The Company leases buildings and machinery and equipment that have a book
value of approximately $517 thousand to an entity in which the sole beneficiary
owns a significant equity interest. During 1997, 1996 and 1995, the Company
received $162 thousand per year, in connection with this agreement.
Venture Sales and Engineering and Venture Foreign Sales Corporation,
corporations wholly owned by the sole beneficiary, serve as the Company's sales
representatives. The Company pays Venture Sales and Engineering and Venture
Foreign Sales Corporation, in the aggregate, a sales commission of 3% on all
production sales.
The Company provided management services to Venture Asia Pacific Pty. Ltd.
(VAP) and its subsidiaries and corporations wholly owned by the sole
beneficiary. The Company received management fees and commissions totaling
$4.0, $5.1 and $2.4 million from VAP in 1997, 1996 and 1995, respectively. In
addition, VAP also reimbursed the Company for certain other expenditures made
on its behalf and assigned certain tooling contracts to the Company.
The following is a summary of transactions with all related parties at
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
(IN THOUSANDS)
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue received for:
Materials sold, sales
commission and rent
charged.......................... $6,098 $ 2,123 $2,681
Providing administrative
services......................... 0 149 149
Insurance and benefit
Premiums......................... 166 420 503
Management Fees................... 4,028 5,098 2,357
Subcontracted services............. 2,686 9,632 3,287
Manufacturing related services
and inventory purchased........... 10,213 11,683 12,742
Rent expense paid................. 3,195 2,950 2,776
Machine and facility usage fees
paid............................. 3,748 3,397 2,703
Commission expense paid........... 7,269 6,391 6,072
Litigation, workers compensation
and medical insurance............
premiums......................... 0 0 0
Property, Plant and Equipment
purchased........................ 0 49 186
Beneficiary receivable............ 0 0 106
</TABLE>
The result of these related party transactions is a net receivable, which
is included in accounts receivable as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(IN THOUSANDS)
-------------------------
1997 1996
---- ----
<S> <C> <C>
Amounts Receivable.... $36,690 $14,976
Amounts Payable....... 4,430 2,269
-------- --------
Net Amounts Receivable $32,260 $12,707
======== ========
</TABLE>
In accordance with the Company's debt agreements, payments are permitted
to be made to the Company's sole beneficiary for income tax payments and may be
made as a bonus payment or distribution of Trust Principal. The payments for
the years ended December 31, 1997, 1996 and 1995 were recorded as expense.
26
<PAGE> 28
8. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Trust leases certain machinery and equipment under
operating leases which have initial or remaining terms of one year or more at
December 31, 1997. Future minimum lease commitments, including related party
leases, are as follows (in thousands):
<TABLE>
<CAPTION>
RELATED PARTY OTHER
OPERATING OPERATING
LEASES LEASES
------------- -----------
<S> <C> <C>
Years:
1998................ 2,180 2,366
1999................ 2,180 494
2000................ 186
2001................ 25
2002................
Remaining years..... 0 0
--------- ---------
Total............. $4,360 $3,071
========= =========
</TABLE>
Rent expense for operating leases and other agreements with a term of
greater than one month, including amounts paid to related parties, was $6.3
million, $5.0 and $3.3 million for the years ended December 31, 1997, 1996, and
1995, respectively. Usage fees paid based on monthly usage of certain machinery
and equipment and facilities, all of which were paid to related parties, were
$3.6, $3.4, and $2.7 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Litigation -- In December of 1997, the Company settled the litigation with
the contractor that built the paint line at Vemco, Inc. for $2.0 million, $0.8
million was recorded as a reduction to the carrying value of the paint line and
$1.2 million was recorded as miscellaneous income.
Fourth Quarter Adjustments -- During the fourth quarter, certain reserves
were reevaluated and reduced by $2.8 million reflecting changes in
circumstances and estimates and were recorded as reductions in cost of products
sold.
Environmental Costs -- The Company is subject to potential liability under
government regulations and various claims and legal actions which are pending
or may be asserted against the Company concerning environmental matters.
Estimates of future costs of such environmental matters are necessarily
imprecise due to numerous uncertainties, including the enactment of new laws
and regulations, the development and application of new technologies, the
identification of new sites for which the Company may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. The Company establishes reserves for these
environmental matters when a loss is probable and reasonably estimable. The
Company's reserves for these environmental matters totaled $1.3 million at
December 31, 1996 and $0.9 million at December 31, 1997.
The Company is involved in discussions with the Michigan Department of
Environmental Quality (MDEQ) concerning the emissions from the Company's Grand
Blanc paint facility. On February 23, 1998, the Attorney General of the State
of Michigan along with the MDEQ initiated legal proceedings alleging violations
of the current permits regarding the level of emissions and odors discharged
from the facility . These proceedings seek and may result in the imposition of
civil penalties in an amount not reasonable to estimate given the current
status of the proceeding. Emissions levels are being evaluated, as part of the
proceedings, and it is probable that the Company will be required to improve
its systems to meet applicable requirements. Although it is not anticipated
that the improvements will require substantial expenditures by the Company,
there can be no assurances that such will be the case.
The Company is party to various contractual, legal and environmental
proceedings, some which assert claims for large amounts. Although the ultimate
cost of resolving these matters could not be precisely determined at December
31, 1997, management believes, based on currently known facts and
circumstances, that the disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position and results of
operations. These matters are subject to many uncertainties, and the outcome of
individual matters is not predictable with assurance. It is more than remote
but less than likely that the final resolution of these matters many require
the Company to make expenditures, in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. The Company's reserves have been set based upon a review of costs
that may be incurred after considering the creditworthiness of guarantors
and/or indemnification from third parties which the Company has received. The
Company is not covered by insurance for any unfavorable environmental outcomes,
but relies on the established reserves, guarantees and indemnifications it has
received.
9. CONCENTRATIONS
The Company's sales to General Motors Corporation ("GM") and Chrysler
Corporation ("Chrysler"), expressed as a percentage of
27
<PAGE> 29
sales, were 49% and 22% in 1995. For 1996, the percentage of sales to GM,
Ford Motor Company ("Ford") and Chrysler were 41%, 16% and 12%, respectively.
For 1997, the percentages were 40% and 27% for GM and Ford, respectively, and
less than 10% for Chrysler. Many of the Company's automotive industry customers
are unionized and work stoppages, slow-downs experienced by them, and their
employee relations policies could have an adverse effect on the Company's
results of operations. Approximately 12% of the workforce is covered by a
collective bargaining agreement which will expire within one year.
10. PENSIONS, PROFIT-SHARING AND SALARY REDUCTION PLAN
The Company sponsors profit-sharing and salary reduction 401(k) plans
which covers substantially all employees. The plans provide for the Company to
contribute a discretionary amount each year. Contributions were $2.2, $1.3 and
$1.3 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Bailey has various retirement plans covering substantially all its'
employees, including five defined benefit pension plans covering full-time
hourly and salaried employees. The benefits payable under the plans are
generally determined based on the employees' length of service and earnings.
For all these plans the funding policy is to make at least the minimum annual
contributions required by Federal law and regulation.
The funded status of the defined benefit plans at December 31, 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested Benefits.................................... $ 5,151 $ 10,003
Nonvested benefits................................. 42 70
----------------- -----------------
Accumulated benefit obligation...................... $ 5,193 $ 10,073
================= =================
Projected benefit obligation........................ $ 5,907 $ 10,073
Market value of plan assets......................... 6,996 7,030
----------------- -----------------
Excess (deficiency) of assets over projected benefit
obligation......................................... 1,089 (3,043)
Unrecognized net loss............................... (1,736) (892)
Unrecognized prior service cost..................... 0 559
----------------- -----------------
Accrued pension cost................................ $ (647) $ (3,376)
================= =================
</TABLE>
The funded status of the defined benefit plans at December 31, 1996 was as
follows (in thousands):
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested Benefits.................................... $ 4,892 $ 8,633
Nonvested benefits................................. 54 65
------------------- -------------------
Accumulated benefit obligation...................... $ 4,946 $ 8,698
=================== ===================
Projected benefit obligation........................ $ 6,163 $ 8,698
Market value of plan assets......................... 5,576 5,389
------------------- -------------------
Excess (deficiency) of assets over projected benefit
obligation......................................... (587) (3,309)
Unrecognized net loss............................... (77) (115)
------------------- -------------------
Accrued pension cost................................ $ (664) $ (3,424)
=================== ===================
</TABLE>
Net periodic pension expense for the year ended December 31, 1997 included the
following components (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Service cost benefits during the year $ 321
Interest cost on projected benefit obligation 1,069
Actual return on plan assets (2,531)
Net amortization and deferral 1,548
--------
Net periodic pension expense $ 407
========
</TABLE>
The date used to measure plan assets and liabilities is as of September 30
each year.
The weighted-average assumed discount rate was 7.25 and 7.5%, respectively
for 1997 and 1996. The assumed rate of return on plan assets was 8.5% for 1997
and 1996. For salary based plans, the expected rate of increase in
compensation levels was 5.5% for 1997 and 1996.
Plan assets consist principally of cash and cash equivalents, listed
common stocks, debentures, and fixed income securities.
VHC and the Union agreed to temporarily freeze benefit accruals of the
Hourly Pension Plan in consideration for providing an increasing schedule of
benefit levels during the course of the bargaining agreement. A salaried
pension plan is frozen and no further service liability will accrue under the
plan.
28
<PAGE> 30
11. INCOME TAXES
Amounts in the financial statements related to income taxes are for the
operations of Bailey. The other significant Subsidiaries have elected S
corporation status under the Internal Revenue Code. The beneficiary is required
to report all income, gains, losses, deductions, and credits of the S
corporations included in the Trust on his individual tax returns.
The provision for income tax expense for the period ended (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Currently Payable
United States..................... $ 0 $ 0
State and Local................... 239 0
----------- -----------
Total............................ 239 $ 0
=========== ===========
Deferred
United States..................... $ 2,716 $ 293
State and Local................... 403 43
----------- -----------
Total............................ $ 3,119 $ 336
=========== ===========
</TABLE>
The Company does not provide for U.S. income taxes or foreign withholding
taxes on cumulative undistributed earnings of foreign subsidiaries as these
earnings are all taxed currently to the beneficiary of the Trust.
The effective tax rate on pretax income was 58.3% for the year ended
December 31, 1997, of which 18.1% relates to permanent differences not
deductible for income taxes and 5.2% for state and local income taxes, net of
the federal tax benefit. The effective tax rate on pretax income was 232.7% for
the year ended December 31, 1996, of which 192.5% relates to permanent
differences not deductible for income taxes and 5.2% for state and local income
taxes, net of the federal tax benefit.
The tax-effected temporary differences and carryforwards which comprised
deferred assets and liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses and reserves...... $ 8,920 $ 17,759
Net Operating Loss carryforward.... 11,497 5,180
Minimum tax credit carryforward.... 764 764
Other.............................. 293 557
------------ -----------
Total deferred tax assets........ $ 21,474 $ 24,260
------------ -----------
Deferred tax liabilities:
Depreciation....................... 12,505 12,191
Other.............................. 845 826
------------ -----------
Total deferred tax liabilities... 13,350 13,017
------------ -----------
Net deferred tax asset........... $ 8,124 $ 11,243
============ ===========
</TABLE>
The current portion of deferred tax assets, $7.0 and $9.9 million is
included in prepaid expense and other at December 31, 1997 and 1996,
respectively. Bailey's U.S. net operating loss carryforwards, which totaled
$29.9 and $14.1 million at December 31, 1997 and 1996, begin to expire in the
year 2011. Alternative minimum tax credit carryforward totaled $0.8 million and
have no expiration date. Management believes the net operating loss
carryforwards at December 31, 1997 are realizable based on forecasted earnings
and available tax planning strategies.
12. EXTRAORDINARY ITEMS
The senior secured notes payable to financial institutions required
semiannual interest payments at 9.89% and annual principal payments of $10
million each year commencing March 15, 1996. The outstanding balance of $40
million was refinanced on August 26, 1996 which resulted in an extraordinary
loss of $3.4 million ($2.5 million prepayment penalty plus unamortized deferred
financing costs of $0.9 million) in the quarter ended September 30, 1996.
On September 23, 1996 the Company redeemed approximately $21 million of
the senior subordinated bonds at 95% of par in conjunction with the refinancing
under the new credit agreement for acquisition of Bailey Corporation as
required by the First Supplement Indenture. The early extinguishment resulted
in an extraordinary gain of $688 thousand (net of unamortized deferred
29
<PAGE> 31
financing costs of $365 thousand).
13. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's debt instruments have been
determined using available market information. However, considerable judgment
is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein may not be indicative of the
amounts that the Company could realize in a current market exchange. The use of
different assumptions or valuation methodologies may have a material effect on
the estimated fair value amounts. The fair value of long-term debt was
estimated using quoted market prices (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Debt $283,940 $287,626 $197,940 $191,230
</TABLE>
The fair values of interest rate swaps were estimated by discounting
expected cash flows using quoted market interest rates. Interest rate swaps are
also discussed in Note 1.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ---------------------------
NOTIONAL UNREALIZED GAIN/ NOTIONAL UNREALIZED GAIN/
AMOUNT (LOSSES) AMOUNT (LOSSES)
------ ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Interest Rate
Swaps........ $55,000 $(1,367) $55,000 ($1,036)
</TABLE>
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and the Senior Credit Facility approximate fair market value
due to the short-term maturities of these instruments.
30
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
EXECUTIVE MANAGEMENT
The following individuals are the Executive Managers of the Company,
having the operational titles set forth opposite their names. Because of its
trust structure, the Trust does not have executive officers or directors,
although the Special Advisor to the Trust, acting through the Trustee, has the
authority to designate individuals from time-to-time to act as officers as to
particular matters. Messrs. Winget, Schutz and Torakis serve as the directors
of each Issuer. Mr. Winget and Stephen M. Cheifetz serve as the directors of
Venture Canada. Mr. Butler is a director of Venture Holdings Corporation only.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----- --- --------
<S> <C> <C>
Larry J. Winget..... 55 Chairman of the Board and Chief Executive Officer
A. James Schutz..... 52 Vice Chairman
Michael G. Torakis.. 41 President and Chief Financial Officer
Robert Wedge........ 60 President of Mold & Engineering Operations
James E. Butler, Jr. 45 Executive Vice President-Finance and Secretary
Charles Hunter...... 42 Executive Vice President-Design Engineering
Michael Juras....... 56 Executive Vice President-Advanced Engineering and Marketing
Patricia A. Stephens 51 Executive Vice President-Purchasing
Joseph R. Tignanelli 36 Executive Vice President-Interior Operations
Larry J. Winget, Jr. 37 Executive Vice President-Manufacturing and Engineering
Warren Brown........ 54 Vice President-Exterior Operations
Larry R. Marshall... 50 Vice President-Engineering
</TABLE>
Larry J. Winget was one of the five original founders and shareholders of
Venture Industries Corporation and is the only one still involved with the
Company. Since 1987 he has owned 100% of the Company and is currently the sole
beneficiary of the Trust.
A. James Schutz assumed the position of Vice Chairman in October 1997 and
had been Executive Vice President since 1987. He has been in the injection
molding business for 23 years
Michael G. Torakis joined the Company in 1985 and has been President,
Secretary, Treasurer and Chief Financial Officer of the Trust since 1995. Prior
to his appointment to his current position, he served in various other
capacities at the Company, including Executive Vice President.
Robert Wedge joined the Company in November 1984 as Plant Manager, became
Vice President and General Manager of Venture Mold & Engineering in December
1993 and assumed his present position in April of 1995. Mr. Wedge has 34 years
of mold building experience.
James E. Butler joined the Company in 1994 and assumed his current
position in April of 1995. From 1981 until joining the Company, he was employed
by Coopers & Lybrand L.L.P., a certified public accounting firm.
Charles Hunter has been with the Company since 1989 and has held a number
of different positions in the Company involving mold building, design
engineering and prototype operations. He currently oversees world-wide design
and advanced engineering operations.
Michael Juras joined the Company in his current position in January 1997.
Prior to joining the Company, Mr. Juras had spent 30 years in various product
and manufacturing positions with General Motors, with his last position as
Director of Engineering Mid-Size Cars.
Patricia A. Stephens joined the Company in 1993 and has held positions
involving program management, contract administration and purchasing. She
previously had been employed for 23 years with General Motors, her last
position being purchasing agent.
Joseph R. Tignanelli, Larry J. Winget's son-in-law, has been employed by
the Company in several positions since 1980, including Molding Manager for
Venture Industries Corporation -- Groesbeck plant from 1985 until 1990,
Assistant Manager of Venture Industries Corporation from 1990 until 1993, and
Vice President of Venture Industries until October of 1995, and Executive Vice
President - Customer Services until December of 1997 when he was named to his
current position..
31
<PAGE> 33
Larry J. Winget, Jr., Larry J. Winget's son, has been employed by the
Company in various positions since 1976, including Molding Plant Manager of
Vemco, Inc. from 1988 until 1990, Assistant Manager of Vemco, Inc. from 1990
until 1993, and Vice President and General Manager of Vemco, Inc. until being
named to his present position in April of 1995. In December of 1997 he assumed
the addition role of leading all manufacturing operations.
Warren Brown joined the Company in 1993 as Vice President-Mergers and
Acquisitions and assumed his current position in 1996. Prior to joining the
Company, Mr. Brown was employed for eight years as Chief Operating Officer of
Autodie Corporation. He has over 30 years experience in the automotive supplier
industry.
Larry R. Marshall joined the Company in 1985 and in April of 1995, assumed
his current position as Vice President Engineering. Prior to his current
position, he had been General Manager Sales and Estimating.
Stephen M. Cheifetz, 41, is a partner of Wilson, Walker, Hochberg, Slopen,
a Windsor, Ontario law firm, and has served as a partner of such firm for over
five years.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Tables set forth compensation paid for
the years ended December 31, 1997, 1996, and 1995, respectively, to those
persons who were, at such date, the chief executive officer of the Company and
four other executive officers who received more than $100,000 in compensation
during such year (collectively, the "Named Officers") for services in all
capacities to the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)
-------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY(2) BONUS COMPENSATION(3) COMPENSATION(4)
- ------------------- ---- --------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Larry J. Winget.......... 1997 $527,657 $478,945 $277,347
Chairman of the Board and 1996 513,820 -- 675,799 250,807
Chief Executive Officer 1995 509,779 -- 576,905 253,271
Michael G. Torakis....... 1997 $263,819 $ 4,800
President and 1996 257,615 $250,000 -- 4,800
Chief Financial Officer 1995 216,039 250,000 -- 4,800
A. James Schutz.......... 1997 $237,150 $ 41,760 $ 4,800
Executive Vice President 1996 231,491 41,760 -- 4,800
1995 210,444 141,760 -- 4,800
Larry J. Winget, Jr...... 1997 $220,938 $ 4,275
Executive Vice President 1996 216,034 -- -- 3,950
1995 189,562 125,000 -- 1,600
Joseph R. Tignanelli..... 1997 $192,428 $ 4,800
Executive Vice President 1996 189,084 -- -- 4,800
1995 166,426 120,000 -- 4,800
</TABLE>
(1) The compensation described in this table does not include benefits under
group plans which do not discriminate in scope, terms or operation in
favor of the Named Officers and that are generally available to all
salaried employees, and certain perquisites and personal benefits received
by the Named Officers, where such perquisites do not exceed the lesser of
$50,000 or 10% of such officer's salary and bonus.
(2) Includes salary reductions made under the Company's 401(k) Plan and the
Company's Cafeteria Benefit Plan.
(3) The amount indicated for Mr. Winget represents compensation in lieu of a
distribution of Trust Principal equal to taxes incurred by the beneficiary
as a result of activities of the subsidiaries of the Trust. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(4) "All Other Compensation" is comprised of: (i) a contribution made by the
Company to the accounts of each of the Named Officers under the Company's
401(k) Plan; (ii) the incremental cost to the Company of additional
premiums for term life insurance benefits for the Named Officers which are
not generally available to the other salaried employees of the Company,
and (iii) with respect to Mr. Winget, the portion of the premium paid by
the Company under a life insurance policy (the "Reverse Split Dollar
Policy") attributable to the build-up of the cash surrender value of the
policy, which aggregated $1,311,742 $1,039,195 and $793,188 at December
31, 1997, 1996 and 1995, respectively, and is owned by Mr. Winget. The
beneficiary of the term insurance portion of the Reverse Split Dollar
Policy is the Company, which pays all premiums due under the policy and is
entitled to receive a $20
32
<PAGE> 34
million benefit in the event of Mr. Winget's death. Mr. Winget has the
right to designate the distribution of the cash surrender value and may,
prior to his death, surrender the policy in cancellation thereof and
receive the benefit of the cash surrender value.
See the table below for complete details concerning all other compensation.
<TABLE>
<CAPTION>
NAME AND YEAR 401(K) TERM LIFE INSURANCE REVERSE SPLIT DOLLAR POLICY TOTAL
- -------------- ------ ------------------- --------------------------- -----
<S> <C> <C> <C> <C>
Winget
1997 $4,500 $300 272,547 $277,347
1996 4,500 300 246,007 250,807
1995 4,500 300 248,471 253,271
Torakis
1997 $4,500 $300 $ 4,800
1996 4,500 300 -- 4,800
1995 4,500 300 -- 4,800
Schutz
1997 $4,500 $300 $ 4,800
1996 4,500 300 -- 4,800
1995 4,500 300 -- 4,800
Winget Jr.
1997 $3,975 $300 $ 4,275
1996 3,650 300 -- 3,950
1995 1,300 300 -- 1,600
Tignanelli
1997 $4,500 $300 $ 4,800
1996 4,500 300 -- 4,800
1995 4,500 300 -- 4,800
</TABLE>
COMPENSATION OF DIRECTORS
Messrs. Winget, Schutz, Torakis and Butler serve as the directors of the
Company and do not receive any additional compensation or fees for their
service to the Company in such capacities. Mr. Cheifetz does not receive
compensation for acting as a director of Venture Canada; however, the law firm
of which he is a partner acts as counsel to Venture Canada.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of the Named Officers' compensation for the year ended December 31,
1997 was paid by Venture Service. Messrs. Winget and Torakis, in their
capacities as directors of Venture Service, participated in the deliberations
concerning executive compensation. In addition, some of the Named Officers have
engaged in certain transactions with the Company. See "Certain Transactions and
Related Transactions."
OPTIONS
None of the named offiicers hold any options to acquire stock of the
Subsidiaries or were granted any such options in the 1997 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAIAL OWNERS AND MANAGEMENT
All of the capital stock of the subsidiaries of the Trust is owned by the
Trust, of which Mr. Winget is the sole beneficiary. Mr. Winget's address is c/o
Venture Holdings Trust, 33662 James J. Pompo Drive, Fraser, Michigan 48026.
ITEM 13. CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS
In addition to making distributions to Mr. Winget as sole beneficiary of
the Trust and compensating him in his capacity as an Executive Manager of the
Company, the Company has maintained business relationships and engaged in
certain transactions with Mr. Winget and certain companies owned or controlled
by him (each an "affiliate" and collectively, the "affiliates") as described
below. Since the Company operates for the benefit of Mr. Winget as sole
beneficiary of the Trust, the terms of these transactions are not the result of
arms'-length bargaining; however, the Company believes that such transactions
are on terms no less favorable to the Company than would be obtained if such
transactions or arrangements were arms'-length transactions with non-affiliated
persons.
Pursuant to the Senior Note and the Senior Subordinated Notes Indentures,
the Trust, each Subsidaiary and each Guarantor is required to maintain a
Fairness Committee, at least one of whose members is independent, which
approves the terms and conditions of certain transactions between the Company
and its affiliates and participates in decisions concerning whether certain
corporate opportunities will be pursued by the Company. The Company has
complied with such requirement since the date of the issuance of the Senior
Subordinated Notes for transactions initiated after such date. The indentures
also contain other restrictions on transactions with affiliates, including the
Corporate Opportunity Agreement, and distributions to Mr. Winget. The Corporate
Opportunity Agreement, entered into in connection with the issuance of the
Senior Subordinated Notes, requires Mr. Winget to offer to the Company certain
corporate opportunities which relate to the Company's business before he may
pursue such opportunities outside the Company.
33
<PAGE> 35
FACILITIES AND EQUIPMENT
The Company leases, or has arranged for the usage of, certain facilities,
machinery and equipment that are owned by affiliates, as set forth below. The
Company believes that the lease and usage agreements are based on the fair
market value of the facilities, machinery and equipment at the inception of the
agreements. The Company has made significant capital improvements to these
properties. Such improvements are accounted for as leasehold improvements by
the Company. At the conclusion of the applicable lease or usage agreement, the
benefits of such improvements inure to the benefit of the lessor.
Venture Real Estate, Inc., a corporation wholly owned by Mr. Winget's
living trust since 1988, leases to the Company two separate injection molding
buildings in the Company's Malyn Complex, and its Commerce Mold Shop. Starting
in 1996, the Redford facility was leased to the Company. Monthly rental charges
under these leases are $49,650 through July 1996, and $84,567 beginning in
August 1996. Amounts paid to Venture Real Estate, Inc. and a predecessor
affiliate were approximately $595,800, $770,383 and $1,014,800 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Deluxe Pattern Company ("Deluxe"), a corporation wholly owned by Mr.
Winget's living trust since 1989, provides an advanced design, model and
tool-building facility, and is engaged in the business of providing design and
model and tool-building services to the Company and to customers unaffiliated
with the Company. Since July, 1992, the Company has occupied and staffed the
Deluxe facility pursuant to a usage agreement. The Company paid Deluxe usage
fees of $396,000 for each of the years ended December 31, 1995, 1996 and 1997.
Such fees are based upon the amount of time the facility and advanced equipment
housed there are made available to the Company. In addition to the usage fees,
the Company paid Deluxe $1,153,286, $5,870,780 and $856,824 for the years ended
December 31, 1995, 1996 and 1997, respectively, for the purchase of goods and
services and equipment at net book value. The increase in 1996 relates
primarily to design services provided for 1998 model year production. Deluxe
does not directly employ its own workforce, but rather, employees of the
Company are made available to Deluxe on an as needed basis, for which Deluxe
pays the Company a fee. During the years ended December 31, 1995, 1996 and
1997, the Company made sales to Deluxe of $1,080,000 $1,080,000 and $1,080,000
respectively, and Deluxe paid the Company $3,286,861 $9,632,131 and $4,578,107,
respectively, for time spent by the Company's employees on Deluxe business.
Harper Properties of Clinton Township Limited Partnership ("Harper
Properties") and Realven Corporation ("Realven") lease to the Company its
Harper facility (the "Harper Lease") and the machinery and equipment located at
such facility (the "Realven Lease"), respectively, pursuant to operating leases
which terminate on June 7, 1999. Harper Properties is a limited partnership in
which the living trusts of Mr. Winget and his wife, Alicia, and an affiliated
company are the general partners and Mr. Winget, members of his family, A.
James Schutz, an Executive Manager of the Company, and Michael G. Torakis, an
Executive Manager of the Company, are the limited partners. Realven is a
corporation wholly owned by Mr. Winget and his wife, Alicia. The Harper Lease
provides for semi-annual lease payments of $872,000, and the Realven Lease
provides for semi-annual lease payments of $218,000. Harper Properties and
Realven have the right to require the Company to enter into negotiations
regarding an increase in the lease payments under the Harper Lease and the
Realven Lease, so that lease payments under these leases will reflect all
expenses to Harper Properties, Realven and their owners. The Company has made
several improvements to the Harper facility and the machinery and equipment
leased from Realven, and has accounted for them as leasehold improvements. At
the termination of the Harper and Realven Leases, Harper Properties and
Realven, respectively, will retain the value, if any, of the leasehold
improvements. The Company paid Harper Properties $1,744,000 in each of the
years ended December 31, 1995, 1996 and 1997, respectively, under the Harper
Lease. The Company paid Realven $436,000 in each of the years ended December
31, 1995, 1996 and 1997, respectively, under the Realven Lease.
Mr. Winget has allowed the Company to use approximately 40 molding
machines pursuant to the terms of usage agreements. Mr. Winget also leases to
the Company certain injection molding equipment. In February of 1995, Mr.
Winget contributed and assigned his interests in theses agreements to the
various injection molding machines and equipment to a new entity, Venture Heavy
Machinery Limited Liability Company. The Company paid Mr. Winget and/or Venture
Heavy Machinery Limited Liability Company $1,765,800 in each of the years ended
December 31, 1995, 1996 and 1997, respectively, under the usage agreements.
Venture Real Estate Acquisition Company and Venture Equipment Acquisition
Company, each wholly owned by Mr. Winget's living trust, own a 176,000 square
foot injection molding facility and the machinery and equipment located therein
(including 35 molding machines). The Company entered into usage agreements for
such facility (the Masonic facility), machinery and equipment, the terms of
which were reviewed and approved by the Fairness Committee. During 1995, 1996
and 1997 the Company paid $584,075, $1,277,431 and $1,262,800 respectively, to
Venture Real Estate Acquisition Company and Venture Equipment Acquisition
Company pursuant to these agreements.
During 1995 and 1996 the Company purchased machinery and equipment from
VAC for a total cash purchase price of $82,185 and $49,161, respectively. In
each of the equipment purchases, the price paid by the Company was the
affiliated seller's net book value of
34
<PAGE> 36
such assets.
BUSINESS RELATIONSHIPS
The Company maintains ongoing business relationships with affiliates, as
set forth below.
Nova Corporation ("Nova") is a corporation in which Windall Industries, a
corporation in which Mr. Winget owns a significant equity interest, owns 49%
and a former Executive Manager of the Company owns the controlling 51%
interest. Nova is a successor to Windall Industries' business. Nova supplies
the Company with certain small parts or components of large assemblies that are
sold to the Company's customers. The Company paid Nova $3,651,666, $2,286,308
and $976,718 for the years ended December 31, 1995, 1996 and 1997,
respectively. In connection with this relationship, the Company has provided
Nova with various raw materials at cost and receives commission income, for
which Nova paid the Company $1,381,575, $811,659 and $290,415 in the years
ended December 31, 1995, 1996 and 1997. Nova sells products to customers other
than the Company, and has and will compete with the Company for certain
contracts. Nova paid the Company $162,300 per year pursuant to machinery and
equipment operating leases for the years ended December 31, 1995, 1996 and
1997. The Company paid Windall Industries usage fees of $84,000 in each of the
years ended December 31, 1995, 1996 and 1997.
Venture Sales and Engineering ("VS&E") and Venture Foreign Sales
Corporation ("VFS"), corporations wholly owned by Mr. Winget, serve as the
Company's outside sales agencies for sales of products manufactured at the
Company's facilities. Currently, the Company pays VS&E and VFS, in the
aggregate, a sales commission of 3% on all production sales. The Company paid
VS&E, $6,071,627, $6,391,229 and $7,268,532 in the years ended December 31,
1995, 1996 and 1997, respectively. VFS was established to handle foreign sales
and the Company paid VFS $0 in 1995, 1996 and 1997, respectively.
VAC has performed sequencing and value-added assembly of parts
manufactured at the Company's Grand Blanc facility. The Company paid VAC
$8,040,717, $3,268,109 and $0 in the years ended December 31, 1995, 1996 and
1997, respectively, under this arrangement. During the years ended December 31,
1995, 1996 and 1997, the Company made sales to VAC of $56,782, $68,743 and $0,
respectively. Beginning October 1, 1996 the manufacturing services previously
provided by VAC have been contracted to MAST Services LLC, a company in which
N. Matthew Winget, Mr. Winget's son, owns a minority interest. Services for the
period ending December 31, 1996 and 1997 were $265,386 and $2,686,552
respectively.
MANAGEMENT SERVICES
Venture Service Company ("Venture Service") provides administrative
services and insurance to Deluxe, Windall Industries, VS&E and VAC. Deluxe,
Windall Industries, VS&E and VAC paid the Company $652,093, $1,787,112 and
$166,257 in the years ended December 31, 1995, 1996 and 1997, respectively.
Venture Asia Pacific Pty. Ltd. and its subsidiaries ("VAP") were provided
with management and sales services by the Company and paid the Company
$2,356,702, $5,097,688 and $4,027,984 for 1995, 1996 and 1997, respectively. In
addition, VAP also reimbursed the Company for certain other expenditures made
on its behalf and assigned certain tooling contracts to the Company.
Pompo Insurance & Indemnity Company Ltd. ("Pompo"), a Barbados corporation
indirectly wholly owned by Mr. Winget, was incorporated in 1992 under the
Barbados Exempt Insurance Act. The Company purchases insurance from Pompo to
cover certain medical claims by the Company's employees, certain workers
compensation claims. The Company has accounted for this arrangement using the
deposit method wherein the full amount of the estimated liability for such
claims is recorded in other liabilities and the premiums paid to Pompo are
recorded in other assets until such time that the claims are settled. The
Company remains primarily liable for any amounts in excess of insurance
coverage or any amounts not paid by Pompo under these coverages. If a liability
is settled for less than the amount of the premium paid to Pompo, a portion of
the excess is available as a premium credit on future insurance. No amounts
were paid in 1995 and 1996, however, the Company received and utilized premium
credits of $651,100 and $210,910 respectively.
OTHER
From time to time, the Company pays certain expenses on behalf of Mr.
Winget which he is obligated to repay to the Company. Such amounts payable by
Mr. Winget do not bear interest and are payable on demand. Mr. Winget's
indebtedness to the Company for such expenses was $105,872 at December 31, 1995
and none at December 31, 1996 and December 31, 1997. The highest amount of such
indebtedness outstanding at any one time during such periods was $105,872.
Mr. Winget and his wife, Alicia, own the Acropolis Resort, which consists
of several separate units and a lodge near Gaylord, Michigan, a resort
community north of Detroit. The Company leases this facility from Mr. Winget
primarily for use by the Company's employees, who are permitted to use the
facility on an availability basis. Cumulative leasehold improvements to this
facility through
35
<PAGE> 37
December 31, 1997 aggregate $135,700. The Company's lease obligation to
Mr. Winget is based upon the actual utilization of the facility by the
Company's employees, provided that the Company is required to pay for the use
of 500 room nights per calendar year (approximately $25,000) whether or not
such rooms are rented. The Company paid Mr. Winget $76,371, $76,670 and $45,716
in the years ended December 31, 1995, 1996 and 1997, respectively, under this
arrangement.
Farm and Country Real Estate Company ("Farm and Country"), a corporation
wholly owned by Mr. Winget, leases to the Company approximately 84 acres of raw
land adjacent to the Company's Grand Blanc facility on a month-to-month basis.
This lease provides for monthly rental payments of $16,100. Rent paid in 1995,
1996 and 1997 was $178,200, $193,200 and $193,200, respectively.
Mr. Winget and Patent Holdings, Inc., a corporation wholly owned by Mr.
Winget, have granted to the Company non-exclusive, royalty free licenses to
certain patents which have been issued under applications filed by Mr. Winget,
as assignee. Mr. Winget and the affiliated companies also generally permit the
Company to utilize proprietary technologies or processes, such as REAP, which
are developed by Deluxe and the affiliated companies. The licenses are
perpetual, but provide that the licensor may negotiate a reasonable royalty in
the event that Mr. Winget or an Excluded Person (as defined in the Indentures)
no longer owns at least 80% of the beneficial interest of the Trust.
On July 1, 1996, Venture Industries Corporation and its affiliated
companies (not including the Trust or Venture Canada) (the "Venture
Guarantors"), along with VIC Management, L.L.C. ("VIC"), a limited liability
company wholly owned, directly or indirectly, by Mr. Winget, entered into an
agreement guaranteeing up to $3.5 million of the obligations of Atlantic
Automotive Components, L.L.C. ("Atlantic") to RIC Management Corp. ("RIC").
This guarantee is one of a series of transactions whereby VIC acquired RIC's
minority interest in Atlantic. Deluxe agreed to fully indemnify the Venture
Guarantors for all amounts paid under the guarantee.
36
<PAGE> 38
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
Financial statements filed as part of this Form 10-K are listed under
Part II, Item 8.
2. Financial Statement Schedules
Valuation and Qualifying Accounts for the years ended December 31,
1997, 1996 and 1995.
3. Exhibits.
3.1 Restated Articles of Incorporation of Vemco, Inc. filed as Exhibit 3.1
to the Registrant's Registration Statement on Form S-4, effective
October 29, 1997 and incorporated herein by reference.
3.2 Restated Articles of Incorporation of Venture Industries Corporation
filed as Exhibit 3.2 to the Registrant's Registration Statement on
Form S-4, effective October 29, 1997 and incorporated herein by
reference.
3.3 Restated Articles of Incorporation of Venture Mold & Engineering
Corporation filed as Exhibit 3.3 to the Registrant's Registration
Statement on Form S-4, effective October 29, 1997 and incorporated
herein by reference.
3.4 Restated Articles of Incorporation of Venture Leasing Company filed as
Exhibit 3.4 to the Registrant's Registration Statement on Form S-4,
effective October 29, 1997 and incorporated herein by reference.
3.5 Restated Articles of Incorporation of Vemco Leasing Company filed as
Exhibit 3.5 to the Registrant's Registration Statement on Form S-4,
effective October 29, 1997 and incorporated herein by reference.
3.6 Restated Articles of Incorporation of Venture Holdings Corporation
filed as Exhibit 3.6 to the Registrant's Registration Statement on
Form S-4, effective October 29, 1997 and incorporated herein by
reference.
3.7 Restated Articles of Incorporation of Venture Service Company filed as
Exhibit 3.7 to the Registrant's Registration Statement on Form S-4,
effective October 29, 1997 and incorporated herein by reference.
4.1 Indenture for 9 1/2% Senior Notes due 2005 (including form of Notes)
filed as Exhibit 4.1 to the Registrant's Registration Statement on
Form S-4, effective October 29, 1997 and incorporated herein by
reference.
4.2 Registration Rights Agreements, dated as of July 9,1997 among Venture
Holdings Trust, Vemco Inc., Venture Industries Corporation, Venture
Holdings Corporation Inc., Venture Leasing Company, Venture Mold &
Engineering Corporation and Venture Service Company as Issuers, and
First Chicago Capital Markets, Inc., as Initial Purchaser filed as
Exhibit 4.3 to the Registrant's Registration Statement on Form S-4,
effective October 29, 1997 and incorporated herein by reference.
4.3 Form of Series B Notes filed as Exhibit 4.4 to the Registrant's
Registration Statement on Form S-4, Effective October 29, 1997 and
incorporated herein by reference.
10.1 Amended and Restates Credit Agreement dated as of July 9, 1997 by and
among Venture Holdings Trust, certain Borrowing Subsidiaries, as (as
defined therein) the Lenders party thereto and NBD Bank, as Agent
filed as Exhibit 10.2 to the Registrant's Registration Statement on
Form S-4, effective October 29, 1997 and incorporated herein by
reference.
37
<PAGE> 39
10.2 Corporate Opportunity Agreement, dated February 16, 1994, by and
Statement on Form S-4, Effective October 29, 1997 and
incorporated herein by reference.
10.2.1 Agreement dated July 9, 1997 by Larry J. Winget to be bound by
the terms of the Corporate Opportunity Agreement, filed as
Exhibit 10.2 for the benefit of the holders of the Issuers' 9
1/2% Senior Notes due 2005 filed as Exhibit 10.3.1 to the
Registrant's Registration Statement on Form S-4, effective
October 29, 1997 and incorporated herein by reference.
10.3 License Agreement as to Proprietary Technologies and Processes
dated July 2, 1997 between Larry J. Winget and Venture Industries
Corporation, Vemco, Inc., Venture Mold & Engineering Corporation,
Venture Industries Canada Ltd., Vemco Leasing, Inc. Venture
Holdings Corporation and Venture Holdings Trust filed as Exhibit
10.30 to the Registrant's Registration Statement on Form S-4,
effective October 29, 1997 and incorporated herein by reference .
10.4 License Agreement as to Patents dated July 2, 1997 between
Larry J. Winget and Venture Industries Corporation, Vemco, Inc.,
Venture Mold & Engineering Corporation, Venture Industries Canada
Ltd., Vemco Leasing, Inc. Venture Holdings Corporation and
Venture Holdings Trust filed as Exhibit 10.31 to the Registrant's
Registration Statement on Form S-4, effective October 29, 1997
and incorporated herein by reference
12 * Statement regarding computation of ratios of earnings to fixed
charges
27.1 Financial Data Schedule
------------------
* Filed herewith
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended
December 31, 1997.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
The Company has not furnished an annual report covering the Company's last
fiscal year, or a proxy statement with respect to any annual or other meetings,
to the sole beneficiary of the Trust because it is not required to do so.
38
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 TRUST
DATE: March 31, 1998 BY: /s/ Larry J. Winget
-------------------------
LARRY J. WINGET, Chairman
and Trustee
VEMCO, INC., VENTURE INDUSTRIES
CORPORATION, VENTURE MOLD &
ENGINEERING CORPORATION, VENTURE
LEASING COMPANY, VEMCO LEASING,
INC., VENTURE SERVICE COMPANY, VENTURE
HOLDINGS CORPORATION, VENTURE
INDUSTRIES CANADA, LTD.,
DATE: March 31, 1998 BY: /s/ Michael G. Torakis
------------------------
MICHAEL G. TORAKIS
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in the capacities and on the dates indicated.
Larry J. Winget Chairman (Chief Executive
------------------ Officer) and Director of
LARRY J. WINGET each registrant; Sole
Shareholder of Venture
Industries Canada Ltd. on
behalf of the Directors of
Venture Industries Canada
Ltd. pursuant to delegated
authority
Michael G. Torakis President
------------------ (Principal Financial
MICHAEL G. TORAKIS Officer and Principal
Accounting Officer) and
Director of each registrant
except Venture Industries
Canada Ltd.
A. James Schutz Director of each registrant
------------------ except Venture Industries
A. JAMES SCHUTZ Canada Ltd.
James E. Butler Director of Venture Holdings
--------------- Corporation
JAMES E. BUTLER
39
<PAGE> 1
EXHIBIT 12
VENTURE HOLDINGS TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Earnings from continuing operations 11,523 1,999 4,142 7,445 14,188
Add back:
Taxes on Income 3,830 1,002 577 3,405 1,178
Fixed Charges 34,204 21,899 16,704 16,049 13,204
Amortization of previously capitalized interest 295 285 285 285 285
Deduct:
Capitalized interest 0 108 0 0 0
Earnings available for fixed charges 49,852 25,077 21,708 27,184 28,855
Fixed charges of Venture Holdings Trust:
Interest expense 30,182 19,248 15,032 14,345 11,158
Capitalized interest 0 108 0 0 0
Amortization of debt expense and debt discount 1,934 885 556 466 895
Interest portion of rent expense 2,088 1,658 1,116 1,238 1,151
------ ------ ------ ------ ------
34,204 21,899 16,704 16,049 13,204
Ratio of earnings to fixed charges 1.46 1.15 1.30 1.69 2.19
</TABLE>
VENTURE HOLDINGS TRUST
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C additions Column D Column E
- -------- -------- -------- --------- -------- --------
Balance at Charged to Charged to Balance at
Allowance for Doubtful Accounts Beginning Costs and other accounts Deductions End of
For the year ended December 31, of year expenses described described Year
- ------------------------------- ------- -------- --------- --------- ----
<S> <C> <C> <C> <C> <C>
1997 $2,781 $ 993 $0 $ (844) $2,930
1996 1,679 3,175 0 (2,073) 2,781
1995 1,826 522 0 (669) 1,679
</TABLE>
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF VENTURE HOLDINGS TRUST FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000864167
<NAME> VENTURE HOLDINGS TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,477
<SECURITIES> 0
<RECEIVABLES> 164,087
<ALLOWANCES> (2,930)
<INVENTORY> 52,616
<CURRENT-ASSETS> 224,244
<PP&E> 319,275
<DEPRECIATION> (113,510)
<TOTAL-ASSETS> 524,122
<CURRENT-LIABILITIES> 99,143
<BONDS> 333,066
0
0
<COMMON> 0
<OTHER-SE> 64,282
<TOTAL-LIABILITY-AND-EQUITY> 524,122
<SALES> 624,113
<TOTAL-REVENUES> 624,113
<CGS> 521,361
<TOTAL-COSTS> 579,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,182
<INCOME-PRETAX> 14,881
<INCOME-TAX> 3,358
<INCOME-CONTINUING> 11,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,523
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
INCLUDES THE BALANCE OF THE "AMORTIZATION OF DEBT EXPENSE
AND DEBT DISCOUNT"
</FN>
</TABLE>
