UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period 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 No. 1-12942
VSI HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Georgia 22-2135522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 North Woodward Avenue 201 West
Bloomfield Hills, MI 48304-2263
(Address of principal executive offices)
(248) 644-0500
Registrant's telephone number, including area code
For information regarding this filing, contact: Peggy Toth
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,
and (2) has been subject to such filing requirements for the past
90 days. Yes__X___ No______
There were 32,880,555 shares of Common Stock, par value $.01 per
share, outstanding at June 30, 1999. The Company held 270,250 of
these shares as treasury stock.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30 September 30
1999 1998
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 643,000 $ 463,000
Cash in escrow 2,690,000 1,797,000
Trade accounts receivable:
Billed 29,681,000 36,081,000
Unbilled 18,220,000 13,485,000
Notes receivable and advances:
Related party 29,000 319,000
Other 230,000 800,000
Inventory 458,000 409,000
Accumulated costs of uncompleted
programs 5,624,000 3,220,000
Deferred tax asset 759,000 1,336,000
Other current assets 3,229,000 1,158,000
__________ __________
Total Current Assets 61,563,000 59,068,000
LONG-TERM PORTION
OF NOTES RECEIVABLE - Related Parties 777,000 804,000
PROPERTY, PLANT AND EQUIPMENT (NET) 21,825,000 24,182,000
DEFERRED TAX ASSET 194,000 194,000
INVESTMENTS 9,617,000 1,021,000
GOODWILL-NET 4,061,000 4,286,000
__________ __________
Total Assets $98,037,000 $89,555,000
=========== ===========
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30 September 30
1999 1998
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 559,000 $ 461,000
Trade accounts payable 14,921,000 11,926,000
Notes payable to related parties 1,361,000 -
Notes payable to bank 31,776,000 25,139,000
Accrued liabilities 2,387,000 3,817,000
Federal income tax payable - 4,562,000
Advances from customers for
uncompleted projects 5,938,000 4,042,000
__________ __________
Total Current Liabilities 56,942,000 49,947,000
LONG-TERM LIABILITIES
Notes payable - Related parties 11,595,000 11,494,000
Long-term debt - Other 7,740,000 6,012,000
Redeemable Common Stock - 1,960,000
__________ __________
Total Long-Term Liabilities 19,335,000 19,466,000
STOCKHOLDERS' EQUITY
Preferred stock - $1.00 par value $ - $ -
per share, 2,000,000 shares
authorized, no shares issued
Common stock - $.01 par value 329,000 407,000
per share, 60,000,000 shares
authorized, 32,881,000 shares
issued at June 30, 1999
and 40,741,000 at September 30, 1998
Treasury stock, (at cost) - (1,406,000) (3,643,000)
270,000 shares at June 30, 1999,
7,888,000 shares at September 30, 1998
Additional paid-in capital 6,485,000 8,208,000
Stock Subscriptions Receivable - (25,000)
Accumulated Other Comprehensive Income
Translation Account (25,000) (23,000)
Unrealized Gain on Securities,
Net of Tax of $275,000 534,000 -
Retained Earnings 15,843,000 15,218,000
__________ __________
Total Stockholders' Equity 21,760,000 20,142,000
Total Liabilities and $98,037,000 $89,555,000
Stockholders' Equity =========== ===========
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
June 30 June 30
1999 1998
(Unaudited) (Unaudited)
REVENUE $28,439,000 $37,817,000
EXPENSES
Cost of revenue 12,444,000 17,061,000
Operating expenses 18,742,000 16,779,000
__________ __________
Total Expenses 31,186,000 33,840,000
OPERATING INCOME (LOSS) (2,747,000) 3,977,000
OTHER EXPENSES
Interest and other income (expense) (181,000) 45,000
Interest expense (692,000) (505,000)
__________ __________
Total Other Expenses (873,000) (460,000)
INCOME (LOSS) - Before income taxes (3,620,000) 3,517,000
PROVISION FOR INCOME TAXES (BENEFIT) (1,293,000) 1,195,000
__________ __________
INCOME (LOSS) FROM CONTINUING
OPERATIONS $(2,327,000) $ 2,322,000
=========== ===========
Discontinued Operations
Loss from Discontinued Operations - - $ (66,000)
Net of Income Tax Benefit of $33,000
for the three months ended June 30,1998
NET INCOME (LOSS) $(2,327,000) $ 2,256,000
=========== ===========
OTHER COMPREHENSIVE LOSS
Foreign Currency Translation Adjustment (9,000) -
Unrealized loss on Securities, Net (226,000) -
of Tax Benefit of $117,000 ____________ ___________
TOTAL OTHER COMPREHENSIVE LOSS $ (235,000) $ -
COMPREHENSIVE INCOME (LOSS) $(2,562,000) $ 2,256,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - Continued
Three Months Ended
June 30 June 30
1999 1998
(Unaudited) (Unaudited)
EARNINGS (LOSS) PER SHARE:
Basic:
Income (Loss) from Continuing
Operations $(0.07) $ 0.07
Loss from Discontinued Operations - (0.00)
_________ __________
Net Income (Loss) $(0.07) $ 0.07
========= ==========
Fully Diluted:
Income (Loss) from Continuing
Operations $(0.07) $ 0.07
Loss from Discontinued Operations - (0.00)
_________ __________
Net Income (Loss) $(0.07) $ 0.07
========= ==========
Weighted Average Shares
Basic 32,623,000 32,959,000
Dilutive 33,286,000 34,219,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended
June 30 June 30
1999 1998
(Unaudited) (Unaudited)
REVENUE $104,289,000 $104,442,000
EXPENSES
Cost of revenue 50,779,000 49,755,000
Operating expenses 50,329,000 43,018,000
___________ ___________
Total Expenses 101,108,000 92,773,000
OPERATING INCOME 3,181,000 11,669,000
OTHER EXPENSES
Interest and other income (expense) (68,000) 507,000
Interest expense (1,999,000) (1,242,000)
___________ ____________
Total Other Expenses (2,067,000) (735,000)
INCOME - Before income taxes 1,114,000 10,934,000
PROVISION FOR INCOME TAXES 487,000 3,717,000
___________ ___________
INCOME FROM CONTINUING OPERATIONS $ 627,000 $ 7,217,000
============ ============
Discontinued Operations
Loss from Discontinued Operations - - $ (429,000)
Net of Income Tax Benefit of $221,000
for the nine months ended June 30,1998
NET INCOME $ 627,000 $ 6,788,000
============ ============
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustment (25,000) -
Unrealized gain on Securities, Net 534,000 -
of Tax of $275,000 ___________ ___________
TOTAL OTHER COMPREHENSIVE INCOME $ 509,000 $ -
COMPREHENSIVE INCOME $ 1,136,000 $ 6,788,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - Continued
Nine Months Ended
June 30 June 30
1999 1998
(Unaudited) (Unaudited)
EARNINGS PER SHARE:
Basic:
Income from Continuing Operations $ 0.02 $ 0.22
Loss from Discontinued Operations - (0.01)
_________ _________
Net Income $ 0.02 $ 0.21
========= =========
Fully Diluted:
Income from Continuing Operations $ 0.02 $ 0.22
Loss from Discontinued Operations - (0.01)
_________ _________
Net Income $ 0.02 $ 0.20
========= =========
Weighted Average Shares
Basic 32,849,000 32,804,000
Dilutive 33,531,000 33,487,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
June 30 June 30
1999 1998
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net Income $ 627,000 $ 6,788,000
Adjustments to reconcile net income to
Net cash from operating activities:
Depreciation and amortization 4,616,000 2,750,000
Equity in losses of unconsolidated
investee 109,000 12,000
Deferred income taxes 577,000 -
(Increase) decrease in assets:
Trade accounts receivable 1,665,000 (10,253,000)
Inventory (49,000) 436,000
Other Current Assets (2,071,000) 1,986,000
Accumulated costs of uncompleted
programs (2,404,000) (6,601,000)
Increase (decrease) in liabilities:
Trade accounts payable 1,035,000 18,004,000
Accrued liabilities (5,192,000) (523,000)
Advances from customers for
uncompleted projects 1,003,000 2,127,000
__________ __________
Net cash provided by (used in)
operating activities (84,000) 14,726,000
Cash Flows from Investing Activities
Changes notes receivable 570,000 (117,000)
Changes notes receivable Related Party 317,000 9,416,000
Changes property and equipment (2,034,000) (8,723,000)
Investment in unconsolidated
investments (7,896,000) -
Acquisition of PSG International - (2,525,000)
__________ __________
Net cash provided by (used in)
investing activities (9,043,000) (1,949,000)
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
Cash Flows from Financing Activities
Changes Long Term Debt 1,826,000 11,509,000
Change to related party debt 1,462,000 (9,694,000)
Net borrowings Notes Payable 6,637,000 (2,843,000)
Proceeds from exercise of stock options 23,000 3,000
Proceeds from issuance of stock 30,000 48,000
Purchase of treasury stock (669,000) -
Distributions to shareholders - (11,346,000)
__________ __________
Net cash provided by (used in)
financing activities 9,309,000 (12,323,000)
Effect of Exchange Rate Changes on Cash (2,000) -
Net Increase (Decrease)in Cash 180,000 454,000
Cash - Beginning of Period 463,000 235,000
__________ __________
Cash - End of Period $ 643,000 $ 689,000
========== ==========
See Notes to Consolidated Financial Statements
VSI Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. The consolidated financial statements included herein have
been prepared by the Company without audit pursuant to the rules
of the Securities and Exchange Commission. Preparing financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenues, and expenses. Examples include provisions for bad
debts and the length of product life cycles and buildings' lives.
Actual results may differ from these estimates. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
In the opinion of management, the accompanying balance
sheets and statements of income and cash flows include all
adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the results for the interim period, in
conformity with generally accepted accounting principles.
2. The interim financial information presented herein should
be read in conjunction with Management's Discussion and Analysis
and financial statements and notes thereto included in the
Registrant's Annual Report on Form 10-K for the year ended
September 30, 1998. Results for interim periods should not be
considered indicative of the results that may be expected for the
year ended September 30, 1999.
3. Certain amounts for prior periods were reclassified to
conform with present period presentation.
4. We evaluate the carrying value of long-lived assets for
potential impairment on an ongoing basis. Such evaluations
consider management's plans for future operations, recent
operating results, undiscounted annual cash flows and other
economic factors related to the operation to which the asset
applies.
5. We adopted SFAS number 130, "Reporting Comprehensive
Income", as of October 1, 1998. Accounting principles generally
require that recognized revenue, expenses, gains and losses be
included in net income. Certain changes in assets and
liabilities, however, such as foreign currency translation
adjustments and unrealized gains on available-for-sale
securities, are reported as a direct adjustment to the equity
section of the balance sheet. Such items, along with net income,
are considered components of comprehensive income under the new
standard. The adoption of SFAS number 130 had no effect on our
net income or stockholders equity.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS DESCRIPTION:
VSI Holdings, Inc. (the "Company", "we", "our", "us") is a full
service supplier to businesses; providing imaginative and integrated
applications of technology and systems encompassing marketing
initiatives, communications, education and training, and
entertainment.
The Company consists of wholly-owned subsidiaries in the
Marketing Services and Entertainment business sectors under the
following trade names:
Visual Services, Inc., a broad-based provider of educational
curriculums and product training; interactive technology-based
distance learning systems; product launches; Web site
development, internet, intranet, and extranet solutions; direct-
response and site-based marketing; change process and cultural
change consulting.
Vispac, Inc., integrated logistics and call center operations.
Performance Systems Group; in-field consulting and change process
sustainment services.
Advanced Animations, Inc., a manufacturer of product simulators,
animatronic figures and displays for theme parks, casinos, and
retail.
We are attempting to position ourselves to take advantage of
opportunities created by changes in technology. One of our
practices has been the usage of a wide variety of technologies,
without overdependence on any one technology. Over the last
three years, we have spent over $20 million to enhance our
competitive position. This allows us to meet client needs with
whatever technology is most appropriate.
We have negotiated the rights to design worldwide touring and
permanent exhibitions based on the series of Grossology-themed
books authored by science teacher Sylvia Branzei. We fully
expect that Grossology will expand worldwide as it appeals to a
variety of venues including science centers, children's museums,
theme parks, malls and zoos. Revenues are expected to begin in
the next fiscal year. This fiscal year, the initial exhibition
design and construction will require capital investment of
approximately $1,000,000, and will increase in future years based
on the number of exhibits built.
In response to an automotive client's direction that their
employees acquire a "consumer headset" (learn how to develop an
intuitive feel for the people who buy their products), VSI has
developed training sessions for this need. We plan to execute 60
sessions this calendar year for over 8,000 participants. All
participants spend time actually "one-on-one" listening to
consumers. Beginning in late September, VSI will roll out 36
sessions in England and Germany for more than 5,000 of their
European employees. These European sessions are designed to
recreate the current U.S. program, by keeping the content and
flavor of the current consumer-focused curriculum while
incorporating a more global perspective. Both the U.S. and
European training have sessions planned well into 2000.
We serve our global customers from our Bloomfield Hills, Michigan
headquarters and offices in California, Vermont, and Canada. The
Company employs more than 1,000 professionals.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries,
consisting of Advanced Animations, Inc., Vispac, Inc., Visual
Services, Inc., and PSG International, Inc. Inter-company
balances and transactions have been eliminated in consolidation.
Stock and Stock Options Granted
In the current fiscal year, we issued options for 110,000 shares
of our common stock. One-half of the options are exercisable two
years from the date of the grant, with the remaining options
exercisable three years from the date of the grant. The options
have an exercise price ranging from $5.75 to $8.20 and expire
five years from the date of grant.
OPERATING RESULTS
Revenues were $28,439,000 for the three months ended June 30,
1999, compared to $37,817,000 for the same period last year.
Revenues were $104,289,000 for the nine months ended June 30,
1999, compared to $104,442,000 for the same period last year.
This decrease of 25% for the three months is attributable to some
program cancellations, reductions, and schedule slippage. We
also expect a revenue decrease in this year's fourth quarter
compared to last year's fourth quarter, although it is expected
to exceed this year's third quarter. Management expects to
return to profitability in the fourth quarter, and for that trend
to continue next fiscal year.
Operating Expense. Our operating expenses have grown to
$18,742,000 for the three months ended June 30, 1999 from
$16,779,000 in the three months ended June 30, 1998. Our
operating expenses have grown to $50,329,000 for the nine months
ended June 30, 1999 from $43,018,000 in the nine months ended
June 30, 1998. This increase is mainly attributable to the
following factors: (1) the wage escalations for computer-industry
and other professionals; (2) Michigan's extremely tight and
competitive contract labor supply; (3) start up costs associated
with new projects in the Internet and E-Commerce areas; (4)
growth in fixed costs due to facility and equipment acquisitions
in the prior year; (5) growth in the number of employees to
handle an anticipated growth in sales.
We compete in very competitive and volatile markets. The
Marketing Services sector is subject to intense competition, as
well as delays in project fulfillment due to matters beyond its
control, such as delayed product launches, strikes at clients,
and other factors. The Entertainment sector's sales represent
discretionary spending on the part of its customers, and their
customers. Some projects, which in aggregate are significant,
have been postponed from this spring to the fourth quarter, or
next year. If these projects end up being deferred from this
fiscal year to next fiscal year or canceled, it could have an
adverse effect on operating results. Such factors make it
difficult to project full year financial results.
Our future operating results will depend in part on management's
ability to manage any future growth and control expenses. The
Company intends to pursue the continued growth of its business,
however, there can be no assurance that such growth will be
achieved. A decline in revenues, without a corresponding and
timely reduction in staffing and other expenses, or a staffing
increase that is not accompanied by a corresponding increase in
revenues, could have a material adverse effect on our operating
results.
Liquidity and Capital Resources
We have various bank lines of credit totaling $45,000,000, which
mature in February and November of 2000. At June 30, 1999, we
had borrowed $31,776,000 (including outstanding checks, less cash
balances) against these lines. Interest on these lines is
primarily based on LIBOR (London Inter-Bank Offered Rate) plus
1.5%. The rate at June 30, 1999 was 6.4425%.
We have had a long-term relationship with our current bank.
Through the years, it has provided financing and lines of credit
for us. There can, however, be no assurances that the lines of
credit will be renewed when they mature. If we are unable to
renew the lines of credit, other sources of financing would be
sought, primarily lines of credit from another banking
institution.
Since we are a net borrower of funds, minimal cash balances are
kept on hand. At any point in time, we may have more money in
checks outstanding than the cash balance. When checks are
presented for payment, the bank notifies us. We borrow on our
lines of credit to cover the checks.
We believe that cash flows from operations, along with bank
borrowings, will be sufficient to finance our activities in 1999.
On a long-term basis, increased financing may be necessary to
fund any large project awarded to us, or any acquisitions we may
make. We have no current plans to conduct an offering of our
shares to the public in fiscal year 1999.
During the nine months ended June 30,1999, $6,137,000 was paid in
federal income taxes. Most of this amount was for the year ended
September 30, 1998 and is the first full year of federal income
tax paid by us compared to prior years where these subsidiaries
were taxed as subchapter S Corporations, and Federal Income Taxes
were paid by the individual shareholders.
During the current year, we have retired 8,024,000 shares of
treasury stock with a cost of $4,866,000. During the current
year, 127,000 shares of the Company were purchased in the open
market for a total price of $669,000. We have no plan to
purchase additional shares.
INVESTMENTS
Recent material investments are listed in the next paragraphs.
In the summer of 1998, we committed to a $4 million investment in
a limited partnership (as a limited partner) which will develop a
theme park, located in Kansas, based on the icon story "The
Wizard of Oz". In September 1998, we invested $400,000. In the
current fiscal year we invested the remaining $3.6 million. The
limited partnership currently owns 25.6% of the park, which will
be built on 1,900 acres. We have a 22.2% interest in the limited
partnership, which also owns 7,100 acres surrounding the park,
with development rights for that land. The park is estimated to
be a $770 million project, with approved support exceeding $250
million from the state of Kansas and other governmental
authorities, primarily in the form of Sales Tax Revenue bonds.
Our Advanced Animations subsidiary has been designated as the
exclusive supplier of all animatronic character elements for the
park, which is scheduled to open in 2002. Our Visual Services,
Inc. subsidiary is the exclusive marketing agency of record for
the time period through the opening of the park.
In December 1998, we invested $3.5 million in convertible
preferred stock in a private placement offering of eCollege.com,
a company engaged in developing Internet-based education for
colleges and universities. Through relationships with its
educational partners, it develops, manages and markets on-line
courses and degree programs. It has filed registration documents
with the Securities and Exchange Commission pursuant to an
initial public offering of common stock. The registration
statement indicates that upon completion of the offering, our
holdings will be converted to 703,213 shares of common stock. It
is anticipated that these shares will have certain restrictions
on near-term sale.
During the second quarter, we paid $797,287.50 to exercise its
option to acquire 177,175 shares of Navidec, Inc. at $4.50 each.
The shares received cannot be sold for one year from the time of
purchase. Navidec is traded on the NASDAQ system; as of June 30,
1999, the shares were at $9.06 each. As part of Comprehensive
Income, we recorded an Unrealized Gain of $534,000 net of income
taxes of $275,000 for the nine months ended June 30, 1999. For
the quarter, we recorded an Unrealized Loss of $226,000 net of
income tax benefit of $117,000. We also have options on an
additional 254,350 shares at $6.50; this option expires September
30, 1999. Management expects to exercise these options before
September 30.
Year 2000 (Y2K)
Most computer systems were originally designed to utilize a two-
character field (or string of data) to reference any given year
in the 20th century. If not corrected, many computer systems
could fail or produce erroneous results. On January 1, 2000
computer systems may confuse "00" (meant to be 2000) as 1900. A
product defined as being Year-2000 compliant will not produce
errors in date data related to the year change from December 31,
1999 to January 1, 2000.
State of Readiness
Our plans for preparing and testing its computer systems for Y2K
compliance have been approved by its management, and the project
is being funded in the normal course of our operations. We
expect to complete remediation of the Year 2000 issue for all
Information Systems by September 1999, although no assurance can
be given of the timely completion of this project. We estimate
that the software remediation phase is more than 90 percent
complete at July 30, 1999, and the remaining conversions are on
schedule to be completed by autumn of 1999. We have identified 5
distinct areas for Year 2000 compliance efforts which involve all
areas of the business:
Critical Business Computer Systems: These include computer
systems and applications relating to operations such as financial
reporting, human resources, sales, purchasing and new business
development.
Suppliers: We are taking steps to determine the status of the Y2K
compliance plans of our significant vendors. For instance,
surveys have been sent to all significant vendors with whom we
interact, requesting that they report their respective level of
Y2K compliance. We are currently monitoring the progress of those
business-critical vendors who are still working towards achieving
compliance.
End-User Computing: Our plans include Y2K compliance of desktop
and laptop computers used throughout the Company and replace or
repair all non-complaint computers and related software.
Application Development: We are addressing the compliance
regarding all applications development for internal and external
clients by modifying or replacing existing applications.
Technical Infrastructure: We have established a testing facility
for testing system infrastructures, internal phone systems, local
area networks, electronic data center, e-mail systems and web
hosting. Components are tested in the lab following Y2K
compliance certification with suppliers. This should be the last
step in Y2K verification.
Y2K Programming Timing
Plan Date Present Status
Critical Business Computer Systems 9/99 85%
Suppliers 2/99 100%
End-User computing 1/99 100%
Application Development 9/99 90%
Technical Infrastructure 6/99 100%
Y2K Costs
We estimate that we will spend about $400,000 during the current
fiscal year for its Y2K compliance efforts. This estimate is as
of July 30, 1999, and excludes the time that may be spent by
management and administrative staff in guiding and assisting the
information technology effort described above. All Y2K related
costs are expected to be funded through operating cash flows. The
cost of the project is based on our estimates.
Y2K Risks
The most reasonably likely worst case scenario for us with
respect to the Y2K problem is the failure of a third parties such
as: energy, computer and component hardware, as well as other
potential product or service suppliers failing to provide
products and/or services. The failure to correct a material Year
2000 problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failures
could materially and adversely affect our results of operations,
liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, we are unable to determine at this time
whether the consequences of Year 2000 failures will have a
material impact on our results of operations, liquidity or
financial condition. The Year 2000 Project is expected to reduce
our level of uncertainty about the Year 2000 problem, and in
particular, about the Year 2000 compliance and readiness of its
material third parties. We believe, but can not assure that with
the completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
Readers are cautioned that forward-looking statements contained
in the Year 2000 update should be read in conjunction with our
disclosures under the heading: "CAUTIONARY STATEMENT FOR THE
PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995".
Y2K Contingency Plan:
Currently, we do not anticipate the need for a contingency plan.
If necessary, a decision to create and implement a contingency
plan is expected to be made by late summer 1999.
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995"
Certain statements in Management Discussion and Analysis of
Financial Condition and Results of Operations and certain other
sections of this report are forward-looking. These may be
identified by the use of forward-looking words or phrases such as
"believe," "expect," "anticipate," "should," "planned," "intend,"
"estimated," and "potential," among others. These forward-
looking statements are based on the Company's reasonable current
expectations. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for such forward-looking
statements. In order to comply with the terms of the safe
harbor, we note that a variety of factors could cause our actual
results or experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking
statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company
include but are not limited to: (1) the complexity and
uncertainty regarding the development of new products and
services; (2) the loss of market share through competition; (3)
the introduction of competing products or service technologies by
other companies; (4) pricing pressures from competitors and/or
customers; (5) the Company's inability to protect proprietary
information and technology; (6) the Company's and its significant
third parties inability to complete the implementation of its
Year 2000 plans timely; (7) the ability to hire and retain key
employees; (8) successful completion and integration of future
acquisitions; (9) uncertainties relating to business and economic
conditions; (10) uncertainties relating to customer plans and
commitments; (11) dependence on the automotive industry; (12)
changes in our capital structure and cost of capital.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our earnings are affected by changes in short-term interest rates
as a result of our revolving credit agreements, which bear
interest at a floating rate. We do not use derivative or other
financial instruments to mitigate the interest rate risk. Risk
can be estimated by measuring the impact of a near-term adverse
movement of 100 basis points in short-term market interest rates.
If short-term market interest rates average 100 basis points more
in the next 12 months, the adverse impact on our results of
operations would be approximately $210,000, net of income tax
benefit. We do not anticipate any material near-term future
earnings or cash flow expenses from changes in interest rates
related to our long-term debt obligations as all of our long-term
debt obligations have fixed rates.
Although we conduct business in foreign countries, principally
Canada and Australia, foreign currency translation gains and
losses are not material to our consolidated financial position,
results of operation or cash flows. Accordingly, we are not
currently subject to material foreign currency exchange rate
risks from the effects that exchange rate movements of foreign
currencies would have on our future costs or on future cash flows
we would receive from our foreign investment. To date, we have
not entered into any foreign currency forward exchange contracts
or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange rates.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are periodically involved in routine proceedings. There are
no legal matters, existing, pending, or threatened, which
management presently believes could result in a material loss to
us.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Our shareholders approved the election of the
Board of Directors at the Annual Meeting of Shareholders held on
April 20, 1999. In addition, the shareholders approved
amendments to the 1997 Restricted Stock Plan, the 1997 Incentive
Stock Option Plan, and the 1997 Employee Stock Purchase Plan.
Voting was as follows:
Item For Against Abstained
A. Directors
Steve Toth, Jr. 31,331,613 0 3,000
Martin S. Suchik 31,331,613 0 3,000
Thomas W. Marquis 31,331,613 0 3,000
Terry Sparks 31,331,613 0 3,000
Jerry L. Barton 31,331,613 0 3,000
Dr. Kenneth L. Bernhardt 31,331,613 0 3,000
Robert F. Sui 31,331,613 0 3,000
B. 1997 Incentive Stock Option
Plan 31,297,527 14,718 22,368
C. 1997 Restricted Stock
Plan 31,295,471 14,774 24,368
D. 1997 Employee Stock Purchase
Plan 31,302,927 7,218 24,468
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
Pursuant to the requirement of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VSI Holdings, Inc.
Registrant
August 11, 1999 /S/Steve Toth, Jr.
Steve Toth, Jr., Director,
President and Chief Executive
Officer
August 11, 1999 /S/Thomas W. Marquis
Thomas W. Marquis, Director,
Treasurer, Chief Accounting
and Financial Officer
