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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
--------------------------------------------------
OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
333-29727
(Commission File Number)
VIASYSTEMS, INC.
(Exact name of Registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-1777252
(I.R.S. Employer Identification No.)
101 SOUTH HANLEY ROAD
ST. LOUIS, MO 63105
(314) 727-2087
(Address, including zip code, and telephone number,
including area code, of registrant's 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Outstanding at
Class August 12, 1998
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<S> <C>
Viasystems, Inc.
Common Stock 1,000 shares
</TABLE>
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VIASYSTEMS, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
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PART I - FINANCIAL INFORMATION
VIASYSTEMS, INC. & SUBSIDIARIES
Condensed Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999............................... 2
Condensed Consolidated Statements of Operations and Comprehensive Income
for the three and six months ended June 30, 1998 and 1999................................................... 3
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1999...................................................................................... 4
Notes to Condensed Consolidated Financial Statements.......................................................... 5
Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........................................................................... 15
SIGNATURES.......................................................................................................... 16
</TABLE>
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VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 9,335 $ 2,042
Accounts receivable, net............................................ 204,545 199,912
Inventories, net.................................................... 105,619 106,209
Prepaid expenses and other.......................................... 44,612 39,476
------------- -------------
Total current assets............................................. 364,111 347,639
Property, plant and equipment, net.................................. 580,204 561,894
Intangibles and other assets........................................ 510,388 446,140
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Total assets..................................................... $ 1,454,703 $ 1,355,673
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations......................... $ 54,534 $ 67,486
Accounts payable.................................................... 133,725 147,295
Accrued and other liabilities....................................... 141,400 112,203
Income taxes payable................................................ 14,914 --
------------- -------------
Total current liabilities........................................ 344,573 326,984
Long-term obligations, less current maturities........................... 1,079,961 1,086,958
Other long-term liabilities.............................................. 143,655 136,963
Stockholder's equity (deficit):
Contributed capital................................................. 338,407 340,375
Accumulated deficit................................................. (461,013) (506,094)
Accumulated other comprehensive income (loss)....................... 9,120 (29,513)
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Total stockholder's equity (deficit)............................. (113,486) (195,232)
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Total liabilities and stockholder's equity (deficit)............. $ 1,454,703 $ 1,355,673
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ...................................................................... $ 261,872 $ 260,404 $ 504,318 $ 520,385
Operating expenses:
Cost of goods sold ............................................................. 189,661 187,568 367,350 382,412
Selling, general and administrative ............................................ 28,699 22,061 56,408 49,037
Depreciation and amortization .................................................. 33,584 37,598 65,887 72,367
Write-off of acquired in-process R&D ........................................... -- -- 20,100 --
--------- --------- --------- ---------
Operating income (loss) .................................................... 9,928 13,177 (5,427) 16,569
Other expense:
Interest expense ........................................................... 21,804 25,246 44,891 49,255
Amortization of deferred financing costs.................................... 2,414 2,510 4,406 4,915
Other, net ................................................................. 1,729 367 2,157 1,566
--------- --------- --------- ---------
Loss before income tax provision and
cumulative effect of a change in accounting
principle ............................................................... (16,019) (14,946) (56,881) (39,167)
Provision (benefit) for income taxes ........................................... (6,763) (4,036) (12,030) (11,028)
--------- --------- --------- ---------
Loss before cumulative effect of a change in
accounting principle .................................................... (9,256) (10,910) (44,851) (28,139)
Cumulative effect- write-off of start-up costs, net
of income tax benefit
of $5,647 .................................................................. -- -- -- 16,942
--------- --------- --------- ---------
Net loss ....................................................................... (9,256) (10,910) (44,851) (45,081)
--------- --------- --------- ---------
Other comprehensive income (loss):
Foreign currency translation adjustments ....................................... (4,766) (13,620) 1,324 (38,633)
--------- --------- --------- ---------
Comprehensive loss ............................................................. $ (14,022) $ (24,530) $ (43,527) $ (83,714)
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1998 1999
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<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss ....................................................................... $ (44,851) $ (45,081)
Adjustments to reconcile net loss to net cash from operating activities:
Write-off of acquired in-process research and development ................. 20,100 --
Depreciation .............................................................. 35,747 50,774
Amortization of intangibles ............................................... 30,140 21,593
Amortization of deferred financing costs .................................. 4,406 4,915
Cumulative effect of a change in accounting principle - write-off
of start-up costs ....................................................... -- 22,589
Deferred taxes ............................................................ (11,575) (2,070)
Change in assets and liabilities, net of acquisitions:
Accounts receivable ..................................................... (15,092) (2,118)
Inventories ............................................................. (474) (7,504)
Prepaid expenses and other .............................................. (8,772) 1,238
Accounts payable and accrued and other liabilities ...................... (26,843) (5,564)
Income taxes payable .................................................... (16,640) (14,308)
--------- ---------
Net cash provided by (used in) operating activities ............................ (33,854) 24,464
--------- ---------
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash acquired ........................................ (145,464) (9,341)
Capital expenditures ...................................................... (58,029) (44,924)
--------- ---------
Net cash used in investing activities .......................................... (203,493) (54,265)
--------- ---------
Cash flows provided by (used in) financing activities:
Equity proceeds (repurchases) ............................................. 55,552 (27)
Proceeds from the issuance of Series B Senior Subordinated Notes
due 2007 ................................................................ 104,500 --
Borrowings (repayments) under the Term Facilities ......................... 103,438 (16,000)
Net borrowings under the Revolvers ........................................ 13,663 48,199
Repayment of the Chips Loan Notes liability ............................... (33,938) --
Repayments of other long-term obligations ................................. (934) (9,005)
Financing costs ........................................................... (12,271) --
--------- ---------
Net cash provided by financing activities ...................................... 230,010 23,167
--------- ---------
Effect of exchange rate changes on cash ........................................ 112 (659)
--------- ---------
Net change in cash and cash equivalents ........................................ (7,225) (7,293)
Cash and cash equivalents - beginning of the period ............................ 27,538 9,335
--------- ---------
Cash and cash equivalents - end of the period .................................. $ 20,313 $ 2,042
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements reflect
all adjustments consisting only of normal recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. The results for the three and six months ended June
30, 1999, are not necessarily indicative of the results that may be expected for
a full fiscal year. These financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1998.
Statement of Cash Flows
Interest paid for the six months ended June 30, 1998 and 1999 was
approximately $44,578 and $48,546, respectively. Income taxes paid for the six
months ended June 30, 1998, were approximately $16,186. Net income tax refunds
received for the six months ended June 30, 1999, were approximately $296.
2. INTANGIBLE ASSET
The Company's management is performing a comprehensive review of the
strategic position of its individual business units, which have resulted in
plant shutdowns, downsizing and consolidation of certain facilities. As a
result, the Company is assessing the carrying value of goodwill and other
acquired intangibles. While the Company has not yet completed this assessment, a
possible outcome may be a write-off of a portion of the goodwill and other
acquired intangible assets presently carried on the books. The Company expects
to conclude this matter in the near term, but not later than the filing of its
Form 10-K for the current fiscal year.
3. ACQUISITION
In April 1999 the Company acquired all of the outstanding shares of PAGG
Corporation ("PAGG") located in Milford, Massachusetts, for a cash purchase
price of approximately $9,300 plus the issuance of 1,639,344 shares of
Viasystems Group, Inc.'s $0.01 per share common stock valued at $2,000. PAGG
operates multiple surface mount production lines for printed circuit board and
backplane assembly and has full box build capabilities. The acquisition was
accounted for as a purchase, and accordingly, the results of operations of PAGG
since acquisition are included in the results of operations of the Company.
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4. INVENTORIES
The composition of inventories at June 30, 1999, is as follows:
<TABLE>
<S> <C>
Raw materials................................................................ $ 36,845
Work-in-process.............................................................. 44,966
Finished goods............................................................... 24,398
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Total........................................................................ $ 106,209
==========
</TABLE>
5. PLANT SHUTDOWN, DOWNSIZING AND CONSOLIDATION ACCRUALS
Details of accrued liabilities follows:
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Accrual balance, December 31, 1998.......................................... $ 39,620
Costs incurred:
Key personnel and severance costs........................................... 3,629
Equipment removal and disposal.............................................. 768
Idle plant costs............................................................ 4,676
Cleanup and restoration..................................................... 2,511
Lease commitment costs...................................................... 311
----------
Accrual balance, June 30, 1999.............................................. $ 27,725
==========
</TABLE>
6. ACCOUNTING CHANGE
In April 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. Effective January 1, 1999, the Company adopted SOP
98-5 and accordingly recorded a cumulative effect of a change in accounting
principle for the write-off of the net book value of start-up costs as of
January 1, 1999. See the Condensed Consolidated Statement of Operations and
Comprehensive Income.
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7. BUSINESS SEGMENT INFORMATION
Pertinent financial data by major geographic segments is as follows:
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Operating
Net Sales Income/(Loss)
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<S> <C> <C>
NORTH AMERICA:
Six months ended June 30, 1998.................................. $ 253,297 $ 22,996
Six months ended June 30, 1999.................................. 296,465 42,848
EUROPE:
Six months ended June 30, 1998.................................. $ 251,021 $ (28,423)
Six months ended June 30, 1999.................................. 229,898 (26,279)
ELIMINATIONS:
Six months ended June 30, 1998.................................. $ - $ -
Six months ended June 30, 1999.................................. (5,978) -
TOTAL:
Six months ended June 30, 1998.................................. $ 504,318 $ (5,427)
Six months ended June 30, 1999.................................. 520,385 16,569
</TABLE>
<TABLE>
<CAPTION>
Operating
Net Sales Income/(Loss)
------------ ------------
<S> <C> <C>
NORTH AMERICA:
Three months ended June 30, 1998................................ $ 129,636 $ 14,288
Three months ended June 30, 1999................................ 153,854 24,797
EUROPE:
Three months ended June 30, 1998................................ $ 132,236 $ (4,360)
Three months ended June 30, 1999................................ 109,441 (11,620)
ELIMINATIONS:
Three months ended June 30, 1998................................ $ - $ -
Three months ended June 30, 1999................................ (2,891) -
TOTAL:
Three months ended June 30, 1998................................ $ 261,872 $ 9,928
Three months ended June 30, 1999................................ 260,404 13,177
</TABLE>
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8. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor has it
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings and other comprehensive income.
9. SUBSEQUENT EVENT
On August 5, 1999, the Company acquired the PCB manufacturing division
("Kalex") of Termbray Industries International (Holdings) Limited (the "Kalex
Acquisition"), a manufacturer of rigid printed circuit boards located in China
for a net cash purchase of approximately $301,000. The Kalex Acquisition and the
transactions described below were funded with (i) $200,000 from the issuance of
163,934,426 shares of Viasystems Group Inc.'s common stock, (ii) $291,000 from
borrowings under a New Tranche C Term Loan.
In connection with the Kalex Acquisition, the Company entered into an
Amended and Restated Credit Agreement with terms substantially similar to the
prior credit agreement. The balance of the proceeds raised by the Company were
used to repay $10,125 of debt outstanding under the Chips Term Loans, cash
collateralize the Chips Term Loans by $89,875 and pay down approximately $73,000
under its revolving credit facilities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain information presented herein includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. One
can identify these forward-looking statements by their use of words such as
"expects," "plans," "will," "intends," "anticipates," "estimates," "forecasts,"
"projects" and other words of similar meaning. These statements are likely to
address expected or possible future events, including statements of the plans
and objectives of management for future growth, operations, products and
services and statements relating to future economic performance. There can be no
assurance that the Company's actual results will not differ materially from its
expectations. One must carefully consider any such statement and should
understand that many factors could cause actual results to differ from the
Company's forward-looking statements. For those statements, the Company claims
protection of the safe harbor for forward-looking statements provided for by
Section 27A of the Securities Act of 1933, as amended. These factors include
assumptions based on historic experiences that may not apply to future results
as well as a broad variety of other risks and uncertainties, including some that
are known and some that are not. No forward-looking statement can be guaranteed
and actual future results may vary materially. Although it is not possible to
predict or identify all such factors, they include the following:
o General competition in the markets and industries in which the Company
operates;
o Consequences of the Company's substantial leverage including: (i)
significant cash requirements to service indebtedness, reducing funds
available for operations and future business opportunities and increasing
the Company's vulnerability to adverse general economic and industry
conditions and competition; (ii) possible limitations on its ability to
obtain additional financing for operations and acquisitions; and (iii)
restrictions placed on it by the agreements setting forth the terms and
conditions of such indebtedness;
o Uncertainties arising from the Company's limited history of integrating the
operations of separate and distinct businesses acquired since August 1996;
o Uncertainties arising from the Company's ability to implement its operating
and acquisition strategies, including the ability to identify, negotiate
and consummate future acquisitions on terms management considers favorable;
o Fluctuation in operating results arising from the variability in timing and
volume of customer orders compared to the Company's capacity at the time of
such orders, timing of expenditures in anticipation of future sales,
pricing pressures, variations in product mix, start-up expenses relating to
new facilities, economic conditions in the electronics industry and adverse
developments with respect to significant customers, including Lucent
Technologies, any or all of which could have a material adverse effect on
the Company and its results of operations, financial condition, cash flows
and its ability to service debt;
o Uncertainties arising from the rapidly changing technology and continually
changing process developments characteristic of the market for the
Company's products and services;
o Uncertainties relating to the Company's significant operations in
international markets, including currency fluctuations and restrictions,
inflation, changes in political and economic conditions, governmental
regulation, changes in import duties, trade restrictions, work stoppages
and taxes;
o Changes in accounting standards promulgated by the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board or
the SEC that are adverse to the Company; and
o Economic factors over which the Company has no control, including inflation
and interest rates.
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This list should not be considered an exhaustive statement of all potential
risks and uncertainties that may affect adversely the Company's business,
results of operations, financial condition, prospects and ability to service
debt.
GENERAL
The Company was formed by Hicks, Muse, Tate & Furst Incorporated ("HMTF")
and Mills & Partners, Inc. ("M&P") in August 1996 to make acquisitions of PCB
manufacturers and backplane assemblers globally. Viasystems had no operations
prior to the first acquisition completed in October 1996. A total of seven
acquired businesses include five previously stand-alone companies and two
previously captive divisions of electronic manufacturing OEMs.
The four initial acquisitions included i) an approximate $129.9 million cash
purchase price for Circo Craft in Canada in October 1996, ii) an approximate
$200.0 million cash purchase price for the Lucent Division in Richmond, Virginia
in December 1996, iii) an approximate $208.5 million cash purchase price for
Forward in the United Kingdom in April 1997, and iv) an approximate $140.0
million cash purchase price, plus assumption of debt, for ISL in the United
Kingdom in April 1997.
Three subsequent acquisitions included i) an approximate $7.1 million cash
purchase price for the Ericsson Facility in Sweden in January 1998, ii) an
approximate $59.4 million cash purchase price for Mommers in the Netherlands in
February 1998, and iii) an approximate $85.0 million cash purchase price, plus
assumption of debt for Zincocelere in Italy in March 1998.
Assimilation of the seven acquired businesses into a single global operation
has included the closure of acquired manufacturing facilities, severance of
redundant production and administrative personnel, relocation of production
equipment, transfer of technology and customer-specific product capabilities
among Viasystems' sites, leverage of purchasing power of the larger combined
business and other similar activities. Management plans to continue such
activities related to the existing business and related to any subsequent
acquisitions.
In general, volume demand for Viasystems' products increases or decreases
consistent with demand trends in the electronics industry markets served by the
Company, predominantly telecommunications, computer, automotive, and industrial
and instrumentation. Demand trends for higher layer count PCBs and backplanes,
greater density of circuits and vias on PCBs and backplanes, and surface mount
and other developing interconnect technologies, among others, have also resulted
in increased demand for the Company's more complex product offerings. Management
expects increased demand for denser and increasingly complex products in most
industry markets.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net sales for the three months ended June 30, 1999, were $260.4 million,
representing a $1.5 million, or 0.6% decrease from the same period in 1998. The
decrease is primarily a result of industry-wide pricing pressures and
contractual price reductions, partially offset by favorable mix changes.
Cost of goods sold for the three months ended June 30, 1999, was $187.6
million, or 72.0% of sales compared to $189.7 million, or 72.4% of sales for the
three months ended June 30, 1998. Cost of goods sold decreased as a percent of
sales year over year as a result of favorable mix changes and cost containment
activities, partially offset by the above mentioned pricing pressures.
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Selling, general and administrative expenses for the three months ended
June 30, 1999, decreased by $6.6 million versus the comparable period in 1998.
These costs decreased primarily due to cost containment efforts made by the
Company.
Depreciation and amortization of $37.6 million increased $4.0 million for
the three months ended June 30, 1999 compared to $33.6 million for the same
period in 1998.
Other expense increased $2.1 million, from $26.0 million, for the three
months ended June 30, 1998 compared to $28.1 million for the three months ended
June 30, 1999. The increase was a result of higher interest expense.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1999
Net sales for the six months ended June 30, 1999, were $520.4 million,
representing a $16.1 million, or 3.2% increase from the comparable period in
1998. The increase is due primarily to the acquisitions of Mommers and
Zincocelere, partially offset by industry-wide pricing pressures, contractual
price reductions, as well as the negative impact of the stronger U.K. pound as
it relates to continental European currencies.
Cost of goods sold for the six months ended June 30, 1999, was $382.4
million, or 73.5% of sales compared to $367.4 million, or 72.9% of sales for the
six months ended June 30, 1998. Cost of goods sold as a percent of sales
increased year over year as a result of product mix changes from the 1998
acquisition as well as the above mentioned currency-related and contractual
price reductions experienced by the Company, partially offset by cost
containment activities.
Selling, general and administrative expenses for the six months ended June
30, 1999, decreased by $7.4 million versus the comparable period in 1998. These
costs decreased primarily due to cost containment efforts made by the Company.
Other expense increased $4.2 million, from $51.5 million for the six months
ended June 30, 1998 to $55.7 million in the same period of 1999, due primarily
to increased interest expense and amortization of deferred financing costs
related to the debt financing incurred to fund the acquisitions of Mommers and
Zincocelere.
Depreciation and amortization increased $6.5 million for the six months
ended June 30, 1999, primarily as a result of the impact to depreciation of
acquired fixed assets and to amortization of acquired intangibles from the
acquisitions of Mommers and Zincocelere in the first quarter of 1998.
During the first half of 1999, the Company recorded a one-time non-cash
cumulative effect of a change in accounting principle of $16.9 million (net of
$5.6 million income tax benefit) related to the write-off of the net book value
of start-up costs as of January 1, 1999.
During the first half of 1998, the Company recorded a one-time non-cash
write-off of $20.1 million related to in-process research and development
acquired in the acquisitions of Mommers and Zincocelere.
The Company believes that the operating results of Viasystems are not
comparable to the operating results expected to be achieved in the future due
to, among other things, the acquisitions and the completed debt and equity
offerings in the first fiscal quarter of 1998.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements will be for debt service
requirements, working capital needs and capital expenditures. In addition, the
potential for acquisitions of other businesses by the Company in the future
likely may require additional debt and/or equity financing.
Net cash provided by operating activities was $24.5 million for the six
months ended June 30, 1999, compared to net cash used in operating activities of
$33.9 million for the same period in 1998. The increase in net cash provided by
operating activities relates primarily to timing of receipts from certain major
customers.
Net cash used in investing activities was $54.3 million for the six months
ended June 30, 1999, compared to $203.5 million for the six months ended June
30, 1998. The net cash used in investing activities for the first six months of
1999 included $9.3 million related to the acquisition of PAGG with the remainder
related to capital expenditures. In 1998, net cash used in investing activities
included $145.5 million related to the 1998 acquisitions with the remainder
related to capital expenditures.
During 1998, the acquisitions of Mommers and Zincocelere were funded
primarily through the proceeds from the offering of $100.0 million principal
amount of 9 3/4% Series B Senior Subordinated Notes due 2007, an equity
contribution of $50.0 million and additional term loan borrowings of $70.0
million.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two
digits rather than four digits to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
produce invoices, or engage in similar normal business activities.
Management has implemented a Company-wide initiative to ensure that both its
information technology systems and non-information technology systems
applications are capable of processing data and transactions pertaining to the
year 2000. The initiative utilizes both Company resources and external resources
to identify and assess systems and applications affected, to correct existing
systems or to acquire replacement systems, and to test the systems and
applications for compliance with the requirements for processing year 2000
information. The Company's information systems are currently being upgraded and
replaced as part of a strategy to implement consistent systems worldwide. The
new systems being installed are capable of processing year 2000 information. All
remaining systems will either be corrected in order to enable them to process
year 2000 information or, if necessary, will be replaced with year 2000
compliant systems. The Company is more than ninety percent complete in having
its mission critical business applications, computers and communications,
facilities and process equipment fully compliant. The Company believes that it
will achieve compliance with all business critical year 2000 processing
requirements by the third fiscal quarter of 1999, and does not anticipate any
material disruption in its operations as the result of any failure by the
Company to be in compliance. The Company will capitalize and depreciate the cost
of replacement systems consistent with its existing capital expenditures
policies. Costs incurred to modify and maintain existing systems will be
expensed as incurred. Management believes that a substantial portion of the
costs for the new systems and the modifications will not represent incremental
costs to the Company, but rather will represent the reallocation of existing and
planned information technology resources. The amounts expensed related to the
year 2000 issue have been immaterial, and management expects that amounts
required to be expensed in future periods will not have a material effect on its
financial position or results of operations. However, there can be no assurance
that this process can be completed on the timetable described above; that all
issues have been identified; or that the remediation process will be fully
effective.
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<PAGE> 14
The Company is currently in the process of evaluating the external risk
associated with the year 2000 issue. All critical or significant suppliers have
been identified by the Company and have been surveyed regarding their year 2000
readiness. The Company is currently reviewing the results of those surveys and
is planning year 2000 risk assessment audits at each critical supplier. Although
the Company uses a select group of suppliers, the materials used in
manufacturing PCBs are generally readily available in the open market.
Therefore, the Company believes any costs associated with the anticipated effect
of third parties will be immaterial on its business, financial position or
results of operations. However, there can be no guarantee that the systems of
third parties on which the Company's systems rely will be converted timely or
that a failure of a third party to convert would not have a material adverse
effect on the Company.
The Company is currently developing contingency plans for all inventoried
business critical year 2000 applications and significant third parties based on
the assessed level of risk known to date.
The failure to identify and remediate year 2000 issues or the failure of key
third parties who do business with the Company to timely remediate their year
2000 issues could cause systems failures or errors, business interruptions and
in a worst case scenario, the inability to engage in normal business practices
for an unknown length of time. Litigation could also ensue. The effect on the
Company's business, financial condition, results of operations and cash flows
could be materially adverse.
CONVERSION TO THE EURO
On January 1, 1999, eleven participating countries of the European Union
converted to the Euro as their common national currency. The previous national
currencies of these countries will still be accepted as legal tender until at
least January 1, 2002. We do not expect the conversion to the Euro to have a
material effect on our results of operations, financial condition or cash flows.
INTEREST RATE RISK
At June 30, 1999, approximately $610.2 million of the Company's long-term
debt, specifically borrowings outstanding under the Amended Senior Credit
Facilities and the Chips Loan Notes, bear interest at variable rates.
Accordingly, the Company's earnings and cash flow are affected by changes in
interest rates. Assuming the current level of borrowings at variable rates and
assuming a two percentage point change in the average interest rate under these
borrowings, it is estimated that the Company's interest expense for the three
months ended June 30, 1999, would have increased by approximately $3.1 million.
In the event of an adverse change in interest rates, management would likely
take actions that would mitigate the Company's exposure to interest rate risk;
however, due to the uncertainty of the actions that would be taken and their
possible effects, this analysis assumes no such action. Further, this analysis
does not consider the effects of the change in the level of overall economic
activity that could exist in such an environment.
13
<PAGE> 15
FOREIGN CURRENCY RISK
The Company manufactures PCBs and assembles backplanes in various regions of
the world, and exports and imports these products to and from several countries.
The Company's operations may therefore be subject to volatility because of
currency fluctuations, inflation and changes in political and economic
conditions in these countries. Sales and expenses are frequently denominated in
local currencies, and results of operations may be affected adversely as
currency fluctuations affect the Company's product prices and operating costs or
those of its competitors. The Company, from time to time, engages in hedging
operations, such as forward exchange contracts, to reduce its exposure to
foreign currency fluctuations. The Company does not engage in hedging
transactions for speculative investment reasons. Such hedging operations
historically have not been material and gains and losses from such operations
have not been significant. There can be no assurance that such hedging
operations will eliminate or substantially reduce risks associated with
fluctuating currencies.
14
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Certificate of Incorporation of Viasystems, Inc.
(incorporated by reference to exhibit 3.1 to the
Registration Statement filed by the Company on
Form S-1, Registration No. 333-29727).
3.2 - Bylaws of Viasystems, Inc. (incorporated by
reference to exhibit 3.2 to the Registration
Statement filed by the Company on Form S-1).
27.1 - Financial data schedule of Viasystems, Inc.
(b) Reports on Form 8-K
None.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIASYSTEMS, INC.
Dated: August 13, 1999 By:
/s/ David M. Sindelar
----------------------------
Name: David M. Sindelar
Title: Senior Vice President and
Chief Financial Officer
/s/ Joseph S. Catanzaro
----------------------------
Name: Joseph S. Catanzaro
Title: Chief Accounting Officer
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of Viasystems, Inc.
(incorporated by reference to exhibit 3.1 to the
Registration Statement filed by the Company on Form S-1,
Registration No. 333-29727).
3.2 Bylaws of Viasystems, Inc. (incorporated by reference to
exhibit 3.2 to the Registration Statement filed by the
Company on Form S-1).
27.1 Financial data schedule of Viasystems, Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,042
<SECURITIES> 0
<RECEIVABLES> 203,706
<ALLOWANCES> (3,794)
<INVENTORY> 106,209
<CURRENT-ASSETS> 347,639
<PP&E> 750,774
<DEPRECIATION> (188,880)
<TOTAL-ASSETS> 1,355,673
<CURRENT-LIABILITIES> 326,984
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (195,232)
<TOTAL-LIABILITY-AND-EQUITY> 1,355,673
<SALES> 520,385
<TOTAL-REVENUES> 520,385
<CGS> 382,412
<TOTAL-COSTS> 382,412
<OTHER-EXPENSES> 73,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,170
<INCOME-PRETAX> (39,167)
<INCOME-TAX> (11,028)
<INCOME-CONTINUING> (28,139)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 16,942<F1>
<NET-INCOME> (45,081)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>REPRESENTS CUMMULATIVE EFFECT ON PRIOR YEARS DUE TO THE WRITE OFF OF START-UP
COSTS RESULTING FROM THE REQUIRED ADOPTION OF STATEMENT OF POSITION 98-5,
"REPORTING ON THE COSTS OF START-UP ACTIVITIES", NET OF TAX BENEFIT OF $5,647.
</FN>
</TABLE>
