<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
--------- ----------
Commission File Number 333-43195
Commission File Number 333-43195-01
SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
(Exact name of registrants as specified in their respective charters)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3965 95-3959561
Delaware 6719 58-2365743
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Scovill Fasteners Inc.
Scovill Holdings Inc.
Post Office Box 44
1802 Scovill Drive
Clarkesville, Georgia 30523
706-754-4181
(Name, 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
Number of shares of Common Stock outstanding as of July 15, 1999 was 4,655,500.
<PAGE>
SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page No.
--------
<S> <C> <C>
Item 1. Financial Statements -
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998............ 3
Consolidated Statements of Operations for the three and six month
periods ended June 30, 1999 and 1998........................................ 4
Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 1998............................................................... 5
Notes to Consolidated Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 13
Item 2. Changes in Securities and Use of Proceeds..................................... 13
Item 3. Defaults Upon Senior Securities............................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........................... 13
Item 5. Other Information............................................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................................. 13
SIGNATURES.................................................................... 14
</TABLE>
2
<PAGE>
Scovill Holdings Inc.
Consolidated Balance Sheets
(in thousands, except share data)
June 30, December 31,
1999 1998
(Unaudited)
-------------------------------
ASSETS
Current Assets
Cash and cash equivalents .................. $ 710 $ 293
Accounts receivable, net of allowances of
$1,122 and $1,132, respectively............. 15,898 12,319
Inventories ................................ 24,909 24,573
Other ...................................... 348 572
--------- ---------
Total Current Assets .................. 41,865 37,757
--------- ---------
Property, Plant and Equipment, Net .............. 66,850 69,421
Intangible Assets ............................... 107,733 110,089
--------- ---------
$ 216,448 $ 217,267
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt ....... $ 407 $ 3,530
Accounts payable ........................... 9,576 8,379
Accrued liabilities ........................ 6,069 6,202
Accrued interest ........................... 919 957
Term loan .................................. 25,500 --
Revolving line of credit ................... 17,600 --
--------- ---------
Total Current Liabilities ............. 60,071 19,068
--------- ---------
Long-Term Liabilities
Revolving line of credit ................... -- 12,900
Long-term debt ............................. 101,194 124,893
Employee benefits .......................... 24,001 24,032
Deferred income taxes ...................... -- 319
Other ...................................... 3,031 3,530
--------- ---------
Total Long-term Liabilities ........... 128,226 165,664
--------- ---------
Series A Cumulative Redeemable Exchangeable
Preferred Stock, $.001 par value,
200,000 shares authorized, none at June 30,
1999 and at December 31, 1998 (liquidation
preference of $100 per share)............... -- --
--------- ---------
Stockholders' Equity
Series B Preferred Stock, $.0001 par value,
16,200,000 shares authorized, 4,655,500
shares issued and outstanding at June 30,
1999 and December 31, 1998.................. -- --
Common stock, $.0001 par value, 6,000,000 shares
authorized, 4,655,500 shares issued and
outstanding at June 30, 1999 and December
31, 1998.................................... -- --
Additional paid-in capital--preferred.......... 49,942 49,942
Additional paid-in capital--common............. 503 503
Predecessor basis adjustment................... (7,831) (7,831)
Retained earnings (deficit).................... (14,641) (10,548)
Foreign currency translation adjustment........ 178 469
--------- ---------
Total Stockholders' Equity............. 28,151 32,535
--------- ---------
$ 216,448 $ 217,267
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
<PAGE>
Scovill Holdings Inc.
Consolidated Statements of Operations
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales.................... $ 47,183 $ 48,994 $ 24,826 $ 24,396
Cost of sales................ 34,765 35,993 18,183 17,883
-------- -------- -------- --------
Gross profit................ 12,418 13,001 6,643 6,513
Selling, general and
administrative expenses.... 7,646 8,085 3,873 4,007
Amortization expense......... 1,679 1,952 813 965
Restructuring and asset
impairment charge.......... -- 1,968 -- 1,968
-------- -------- -------- --------
Operating income (loss)..... 3,093 996 1,957 (427)
Other expense (income)....... 104 52 210 151
Interest expense ............ 8,244 7,497 4,378 3,854
-------- -------- -------- --------
Income (loss) before income
tax provision (benefit).... (5,255) (6,553) (2,631) (4,432)
Income tax provision
(benefit).................. (1,162) (2,175) (281) (1,510)
-------- -------- -------- --------
Net income (loss)............ $ (4,093) $ (4,378) $ (2,350) $ (2,922)
-------- -------- -------- --------
Dividends on redeemable
preferred stock............ -- 230 -- --
-------- -------- -------- --------
Net income (loss) available
to common stockholders..... $ (4,093) $ (4,608) $ (2,350) $ (2,922)
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
Scovill Holdings Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
-------------------------
Six Months ended June 30,
1999 1998
-------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) available to common stockholders...... (4,093) $ (4,608)
Adjustments to reconcile net income (loss) available to
common stockholders to net cash used in operating
activities:
Depreciation.......................................... 5,054 5,573
Amortization.......................................... 2,253 2,334
Deferred income taxes................................. (1,300) 1,382
Asset impairment charge............................... -- 940
Non-operating preferred stock dividends............... -- 345
Changes in operating assets and liabilities:
Accounts receivable, net............................ (3,579) (4,946)
Inventories......................................... (336) (1,588)
Other current assets................................ 224 69
Accounts payable.................................... 1,197 (836)
Accrued liabilities................................. (171) (159)
Other assets and liabilities........................ 163 (3,112)
-------- --------
Net cash used in operating activities................... (588) (4,606)
-------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.............. (2,373) (4,788)
-------- --------
Net cash used in investing activities................... (2,373) (4,788)
-------- --------
Cash Flows from Financing Activities:
Net borrowings on line of credit ....................... 4,700 7,800
Repayments of long-term debt............................ (1,322) (410)
Redemption of preferred stock and payments of
dividends............................................. -- (10,345)
Issuance of common and preferred stock.................. -- 10,345
-------- --------
Net cash provided by financing activities............... 3,378 7,390
-------- --------
Net Increase (Decrease) in Cash......................... 417 (2,004)
Cash at Beginning of Period............................. 293 2,821
-------- --------
Cash at End of Period................................... $ 710 $ 817
======== ========
Supplemental Disclosure of Cash Flow Information
Interest paid....................................... $ 7,706 $ 7,153
======== ========
Income taxes paid................................... $ 140 $ 70
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
<PAGE>
SCOVILL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(All amounts expressed in thousands, or as otherwise noted)
Note 1. Basis of Presentation and Business
The interim financial statements presented herein include the accounts of
Scovill Holdings Inc. ("Holdings") and its wholly owned subsidiaries (together
with Holdings, the "Company") as of June 30, 1999 and December 31, 1998 and for
the three and six month periods ended June 30, 1999 and 1998.
The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments which are in the
opinion of the Company necessary for a fair statement of the results of the
interim periods. The operating results for the three and six month periods ended
June 30, 1999 and 1998 are not indicative of the results that would be obtained
for the entire fiscal year or any other interim period. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been omitted
from these consolidated financial statements pursuant to the applicable rules
and regulations of the SEC. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the annual report on Form 10-K for the year ended December 31, 1998.
Note 2. New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133"). This Statement requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 will be effective for the Company's fiscal year 2000.
Management believes that this Statement will not have a significant impact on
the Company's financial condition or results of operations.
Note 3. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in the first quarter of fiscal
1998. SFAS 130 requires the reporting of a measure of all changes in equity of
an entity that result from recognized transactions and other economic events
other than transactions with owners in their capacity as owners. Other
comprehensive income (loss) for the six months ended June 30, 1999 and 1998
includes only foreign currency translation. The calculation of comprehensive
income is as follows:
June 30, 1999 June 30, 1998
--------------------------------------
Net Income (Loss) $ (4,093) $ (4,608)
Foreign Currency Translation Adjustments (291) 210
-------- --------
Comprehensive Income (Loss) $ (4,384) $ (4,398)
======== ========
6
<PAGE>
Note 4. Inventories
Inventories consisted of the following at:
June 30, 1999 December 31, 1998
--------------------------------------
Raw materials $ 2,080 $ 1,901
Work in process 5,592 4,797
Attaching machine spare parts 8,165 8,219
Finished goods 9,072 9,656
--------------------------------------
$ 24,909 $ 24,573
======================================
Note 5. Credit Facility
The Company received a waiver for the financial covenant related to the
ratio of funded indebtedness to consolidated EBITDA, with which it was not in
compliance, as of June 30, 1999. The Company expects to be out of compliance
with this covenant for the remainder of 1999 and has therefore classified both
the Term Loan and the Revolving Credit Facility outstanding under the Credit
Facility as current. The Company will continue to request waivers if it
continues to be out of compliance. The Company believes that future waivers will
be granted if the Company is out of compliance, however, no assurances can be
made that the waivers will be granted. The Company is currently evaluating its
alternatives with respect to obtaining additional capital. In addition, the
Company may engage in discussions with holders of the Notes regarding
alternatives for restructuring the Company's obligation, yet there can be no
assurances that the Company will be successful in either of these options.
Note 6. Business Segments
The Company's businesses are organized and internally reported as three
segments: Apparel, Industrial, and European operations. The European operations
include some of the same products as both apparel and industrial. However, the
European operations are managed separately and thus reported as a separate
segment. Sales are reported and classified based on the customers' location.
<TABLE>
<CAPTION>
Business Segment Six Months European Total
Information ended June 30, Apparel Industrial(1) Operations(2) Company
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales 1999 $ 27,188 $ 14,581 $ 5,414 $ 47,183
1998 27,806 15,297 5,891 48,994
Operating Income (3) 1999 $ 7,083 $ 2,601 $ 442 $ 10,126
1998 7,370 2,798 621 10,789
</TABLE>
(1) Includes all Canadian operations.
(2) Represents Scovill-Europe operations.
(3) Operating Income (i) includes allocations of general and
administrative expenses based on sales and (ii) excludes
depreciation, amortization and unallocated corporate charges.
The following is a reconciliation of operating income from reportable segments
above to operating income on the financial statements:
7
<PAGE>
Six Months Ended June 30,
1999 1998
- --------------------------------------------------------------------------
Operating income from reportable segments $ 10,126 $ 10,789
Less:
Depreciation 5,054 5,573
Amortization 1,679 1,952
Restructuring charge -- 1,968
Unallocated corporate charges 300 300
--------------------------
Total operating income $ 3,093 $ 996
==========================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain statements contained in the
body of this Report are forward-looking statements (rather than historical
facts) that are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Such forward-looking statements are based on management's current
plans and expectations and are subject to a number of uncertainties that could
cause actual results to differ materially from those described in such
statements. Such uncertainties and risks include, but are not limited to: the
highly leveraged nature of the Company, its substantial debt service
requirements and the substantial operating and financing restrictions on the
Company by the terms of the Credit Facility, the Indenture, and the other
agreements governing the Company's indebtedness; the risks and uncertainties
inherent in doing business abroad, the volatility of the price of raw materials;
increasing domestic and foreign competition; increasingly complex and stringent
environmental laws and regulations; delays or difficulties associated with
systems conversion and Year 2000 compliance; and general economic conditions.
The preceding list of uncertainties, however, is not intended to be exhaustive,
and should be read in conjunction with other cautionary statements in the
Company's publicly-filed reports and its final Form S-1 Registration Statement,
dated December 24, 1997 (Commission File No. 333-43195).
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
Net Sales Net sales decreased $1.8 million, or 3.7% from $49.0 million to
$47.2 million. Such decrease was attributable primarily to lower Industrial
group revenues, which declined $0.7 million, or 4.7% from $15.3 million to $14.6
million. Apparel group revenues decreased $0.6 million, or 2.2%, from $27.8
million to $27.2 million. Such decrease is primarily a result of decreased sales
of the Company's Gripper product line both domestically and in Asia. The
Company's European revenues decreased $0.5 million, or 8.1%, from $5.9 million
to $5.4 million.
Gross Profit Gross profit decreased $0.6 million, or 4.5% from $13.0 million
to $12.4 million, which is primarily attributable to a decline in sales
discussed above and to a lesser extent from an unfavorable sales mix. The gross
margin decreased slightly from 26.5% to 26.3%.
Selling, General and Administrative Expenses ("SG&A") SG&A decreased
$0.4 million, or 5.4% from $8.1 million to $7.6 million and was 16.2% and 16.5%
of sales for each of the six months ended June 30, 1999 and 1998, respectively.
Such decrease in SG&A is primarily a result of the restructuring plan which the
Company initiated in June 1998 in which it reduced its headcount by
approximately 30 people.
Restructuring and Asset Impairment Charge In June 1998, the Company
announced a corporate restructuring plan and recorded a restructuring charge of
$2.0 million. The plan included outsourcing the production of plastic
components, which was previously performed in the Company's existing
manufacturing facilities.
8
<PAGE>
Operating Income Operating income increased $2.1 million as a result of a
decrease in SG&A of $0.4 million, a decrease in amortization expense of $0.3
million as a result of the full amortization of a non-compete agreement, the
lack of a restructuring charge of $2.0 million, offset by a decrease in gross
profit of $0.6 million discussed above.
Interest Expense Interest expense increased by $0.7 million as a result of
additional borrowings outstanding under the Revolving Credit Facility at June
30, 1999 compared to June 30, 1998.
Income Tax Provision (Benefit) The income tax benefit was $1.2 million in the
six months ended June 30, 1999 compared to a benefit of $2.2 million in the six
months ended June 30, 1998. The decrease in the income tax benefit is a result
of the Company fully offsetting its deferred liabilities with its deferred tax
assets in April 1999; therefore, no income tax benefit was recognized subsequent
to April 1999.
Net Income (Loss) The net loss available to common stockholders was $4.1
million in the six months ended June 30, 1999 compared to $4.6 million in the
six months ended June 30, 1998 attributable to the factors discussed above.
Three Months Ended June 30, 1999 Compared with Three Months Ended June 30, 1998
Net Sales Net sales increased $0.4 million, or 1.8% from $24.4 million to
$24.8 million. Such increase is primarily a result of increased sales in
industrial markets.
Gross Profit Gross profit increased $0.1 million, or 2.0% from $6.5 million
to $6.6 million, which is a result of an increase in sales. The gross margin
increased slightly from 26.7% to 26.8%.
Selling, General and Administrative Expenses ("SG&A") SG&A decreased
$0.1 million, or 3.3% from $4.0 million to $3.9 million and was 15.6% of sales
for the three months ended June 30, 1999 compared to 16.4% for the three months
ended June 30, 1998.
Restructuring and Asset Impairment Charge See discussion above.
Operating Income (Loss) Operating income (loss) increased $2.4 million
primarily as a result of a decrease in SG&A of $0.1 million, a decrease in
amortization expense of $0.2 million as a result of the full amortization of
non-compete agreement, the lack of a restructuring charge of $2.0 million, and a
increase in gross profit of $0.1 million discussed above.
Interest Expense Interest expense increased by $0.5 million as a result of
additional borrowings outstanding under the Revolving Credit Facility at June
30, 1999 compared to June 30, 1998.
Income Tax Provision (Benefit) The income tax benefit was $0.3 million in the
three months ended June 30, 1999 compared to a benefit of $1.5 million in the
three months ended June 30, 1998. The decrease in the income tax benefit is a
result of the Company fully offsetting its deferred liabilities with its
deferred tax assets in April 1999; therefore, no income tax benefit was
recognized subsequent to April 1999.
Net Income (Loss) The net loss available to common stockholders was $2.4
million in the three months ended June 30, 1999 compared $2.9 million in the
three months ended June 30, 1998 attributable to the factors discussed above.
Liquidity and Capital Resources
The Company has outstanding $100 million of 11.25% Senior Subordinated
Notes due 2007 (the "Notes") and a senior secured credit facility (the "Credit
Facility"), consisting of a $28.0 million term loan (the "Term Loan") and a
$25.0 million revolving credit facility (the "Revolving Credit Facility").
9
<PAGE>
Historically, the Company derived its cash from funds generated by
operations and from third-party financings. As of June 30, 1999 and December 31,
1998, $17.6 million and $12.9 million of borrowings were outstanding under the
Revolving Credit Facility. The Company had $0.6 million of availability under
the Revolving Credit Facility at June 30, 1999. As of June 30, 1999 and December
31, 1998, $25.5 million and $27.0 million was outstanding on the Term Loan. The
Company's liquidity requirements consist primarily of scheduled payments of
principal and interest on its indebtedness, working capital needs and capital
expenditures.
Based on the Company's most recent projections, current borrowing
availability under the Revolving Credit Facility, and projected operating cash
flows, the Company does not expect that it will have sufficient operating cash
flow over the next year to meet its liquidity requirements discussed above,
particularly to pay the scheduled interest payments, due November 30, 1999, on
its Notes. The Company received a waiver for the financial covenant related to
the ratio of funded indebtedness to consolidated EBITDA as of June 30, 1999. The
Company expects to be out of compliance with this covenant for the remainder of
1999 and has therefore classified both the Term Loan and the Revolving Credit
Facility outstanding under the Credit Facility as current. The Company will
continue to request waivers if it continues to be out of compliance. The Company
believes that future waivers will be granted if the Company is out of
compliance. However, no assurances can be made that future waivers will be
granted.
The Credit Facility contains other restrictive financial covenants that
must also be met on a quarterly basis, and there can be no assurances that the
Company will be able to remain in compliance with these covenants in subsequent
periods, or that additional waivers will be made available if the Company fails
to comply. In the event the Company requires additional capital in subsequent
periods, there can be no assurances that such capital will be available on terms
acceptable to the Company. The Company is currently evaluating its alternatives
with respect to obtaining additional capital. In addition, the Company may
engage in discussions with holders of the Notes regarding alternatives for
restructuring the Company's obligation, yet there can be no assurances that the
Company will be successful in either of these options.
EBITDA
EBITDA is defined for the purpose of this report as net income (loss)
before interest expense (including amortization of deferred financing costs),
provision (benefit) for income taxes, depreciation, amortization, restructuring
and asset impairment charge, and management fees.
The Company has included information concerning EBITDA in this report
because it is used by certain investors as a measure of a company's ability to
service its debt. EBITDA is not required or recognized as a measure of financial
performance under generally accepted accounting principles in the U.S. ("GAAP"),
and should not be considered an alternative to net income determined in
accordance with GAAP as an indicator of operating performance or as an
alternative to cash flow from operating activities determined in accordance with
GAAP as a measure of liquidity. The Company's use of EBITDA may not be
comparable to similarly titled measures used by other companies due to their use
of different financial statement components in calculating EBITDA.
EBITDA decreased $0.7 million, or 6.2%, from $10.8 million to $10.1 million
primarily as a result of a decrease in gross profit, resulting from decreased
sales volume for the six months ended June 30, 1999 compared to the six months
ended June 30, 1998.
EBITDA was consistent at $5.4 million for each of the three months ended
June 30, 1999 and 1998.
10
<PAGE>
Cash Flows
Net cash used in the Company's operating activities was $0.6 million for
the first six months of 1999 compared to a use of cash of $4.6 million for the
first six months of 1998. Principal working capital changes included increases
of $3.6 million and $0.3 million in accounts receivable and inventories,
respectively, and a net increase of accounts payable and accrued liabilities of
$1.0 million. The Company's cash used in investing activities during the first
six months of 1999 was $2.4 million for capital expenditures. Net cash provided
by financing activities was $3.4 million, of which $4.7 million represents
borrowings under the Revolving Credit Facility.
The Indenture and the Credit Facility place significant restrictions on the
Company's ability to incur additional indebtedness, pay dividends or repurchase
stock or make other distributions, create liens, make certain investments, sell
assets, or enter into mergers or consolidations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates (the "Y2K
issue"). As a result computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance.
In consideration of the potential impact of Y2K issue on its domestic
business, operations, and financial condition, the Company has addressed issues
which may arise from its systems as described below.
Effective July 1, 1998, the Company implemented an integrated software
package, BPCS, which is fully Y2K compliant. BPCS was implemented as a complete
Enterprise Resource Planning (ERP) package, which will control the Company's
main systems of: (a) shipping/distribution, (b) accounting and (c) customer
service/order entry systems. The Company's other principal system - the core
manufacturing process - is not dependent upon computer technology, and therefore
should not be affected by the Y2K issue. Finally, the Company outsources the
payroll portion of its accounting functions, such provider has represented to
the Company that it is Y2K compliant. Thus, all of the Company's
computer-dependent systems have been replaced by the Y2K compliant BPCS package.
The Company's foreign subsidiaries are in the process of either
implementing new computer systems or upgrading existing systems. The Company's
Canadian subsidiary is currently implementing the BPCS software package, which
is expected to be operational by September 30, 1999. The BPCS software package
is Y2K compliant, and will control all of this subsidiary's main computer
systems, including the shipping/distribution, accounting and customer
service/order entry systems. The Company's Mexican subsidiary is nearing
completion of installing new non-BPCS computer systems, which is expected to be
completed by September 30, 1999. These new systems will be Y2K compliant, and
will control all of this subsidiaries computer systems, including the
shipping/distribution, accounting and customer service/order entry systems. The
Company's European subsidiaries (located near Brussels, Paris, London and
Wuppertal, Germany are updating their respective computer systems with software
"patches" (software code added to the existing code) that will upgrade the
software systems to Y2K compliance. This upgrade, which will cover all their
computer systems, is expected to be completed by September 30, 1999. In
addition, simultaneous with the software patches, the European subsidiaries are
in the process of implementing a more permanent Y2K solution by installing the
Baan ERP computer system, which will replace all of their existing systems.
Portions of the Baan system, which is Y2K compliant, will be on-line by December
31, 1999, with the balance of the system to be on-line in 2000. The Brussels and
Paris
11
<PAGE>
facilities utilize computer systems for shipping/distribution, accounting
and customer service/order entry processes, while the London and German
locations only employ customer service/order entry systems.
The Company is in the process of inquiring of its suppliers, vendors and
significant customers to determine whether their computer systems and operations
that impact the Company are Y2K compliant. The Company has sent Y2K compliance
surveys to approximately 350 such third parties, and have received responses
from approximately 50%. The Company is currently reviewing the responses, which
generally fall into two categories: current full Y2K compliance (approximately
57% of responses) and expected compliance prior to year end (approximately 43%
of responses). The Company is following up with survey responses that indicate
less than full Y2K compliance to determine the nature of their progress and
expected compliance date. However, the Company is not following up with third
parties that the Company deems insignificant and thus their Y2K failure would
not have a material impact on the Company's business, operations or financial
condition. The Company has not identified specific secondary suppliers or
vendors in the event any experience Y2K-related business interruptions, though
the Company intends to identify such sources for significant suppliers and
vendors prior to year end. However, in such event, the Company believes it can
locate and make such alternative arrangements, although the Company may be
required to pay more for such materials and services due to the loss of quantity
discounts or other favorable arrangements with our current relationships.
Nevertheless, Y2K-related failures by the Company's suppliers and vendors remain
a possibility and could have an adverse impact on the Company's business,
results of operations or financial condition.
The Company has not formally determined a most reasonably likely worst case
scenario regarding the impact of Y2K problems on our business. However, the
Company believes most likely and significant Y2K-related risks faced by the
Company are business interruptions by our customers. Such interruptions could
include manufacturing or assembly plant shutdowns and the related reduction or
elimination of demand for our products by such customers until their Y2K problem
is remedied. In the survey process, the Company is attempting to identify and
assess any such risks and follow up with any significant customers that indicate
less than full Y2K compliance. To date, 100% of the responding significant
customers have indicated full Y2K compliance.
Based on the Company's assessment and remediation efforts to date, it does
not believe that any problems resulting from the Y2K issue will have a material
adverse effect on its financial condition or results of operations.
The Company believes that its continuing assessment, planning and
implementation process will be effective to achieve a level of readiness that
will meet the challenges presented by Y2K issues in a timely manner. Although
the Company is evaluating the Y2K readiness of third-party software, computer
technology and other hardware and software, the Company cannot guarantee the Y2K
readiness of third-party products, services, or providers that may impact the
Company's operations.
12
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and the Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCOVILL HOLDINGS INC.
SCOVILL FASTENERS INC.
DATE: AUGUST 13, 1999 /s/ DAVID J. BARRETT
------------------------------------
David J. Barrett,
Chief Executive Officer and Director
DATE: AUGUST 13, 1999 /s/ MARTIN A. MOORE
------------------------------------
Martin A. Moore
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
14
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