UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2009
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________to ____________________
333-29727
(Commission File Number)
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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, Suite 400
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 [ ] NO [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [ ] | Accelerated Filer [ ] | Non-Accelerated Filer [X] Smaller Reporting Company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 14, 2009, there were 1,000 shares of Viasystems, Inc.’s Common Stock outstanding.
VIASYSTEMS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009
PAGE | |
PART I - FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Viasystems, Inc. and Subsidiaries | |
2 | |
3 | |
4 | |
5 | |
16 | |
26 | |
27 | |
PART II - OTHER INFORMATION | |
Item 6. Exhibits & #160; | 27 |
28 | |
29 |
VIASYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, 2009 | December 31, 2008 | |||||||
ASSETS | (Unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 109,844 | $ | 83,053 | ||||
Restricted cash | 303 | 303 | ||||||
Accounts receivable, net | 79,515 | 96,564 | ||||||
Inventories | 49,235 | 70,419 | ||||||
Prepaid expenses and other | 8,431 | 11,599 | ||||||
Total current assets | 247,328 | 261,938 | ||||||
Property, plant and equipment, net | 213,379 | 232,741 | ||||||
Goodwill | 79,485 | 79,485 | ||||||
Intangible assets, net | 5,215 | 5,780 | ||||||
Deferred financing costs, net | 2,885 | 3,917 | ||||||
Other assets | 1,967 | 2,181 | ||||||
Total assets | $ | 550,259 | $ | 586,042 | ||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | $ | 10,618 | $ | 9,617 | ||||
Accounts payable | 73,223 | 74,668 | ||||||
Accrued and other liabilities | 43,289 | 58,535 | ||||||
Total current liabilities | 127,130 | 142,820 | ||||||
Long-term debt, less current maturities | 206,547 | 211,046 | ||||||
Other non-current liabilities | 35,056 | 32,882 | ||||||
Total liabilities | 368,733 | 386,748 | ||||||
Stockholder’s equity: | ||||||||
Common stock, par value $0.01 per share, 1,000 shares authorized, issued and outstanding | - | - | ||||||
Paid-in capital | 2,438,253 | 2,437,792 | ||||||
Accumulated deficit | (2,264,565 | ) | (2,242,445 | ) | ||||
Accumulated other comprehensive income | 7,838 | 3,947 | ||||||
Total stockholder’s equity �� | 181,526 | 199,294 | ||||||
Total liabilities and stockholder’s equity | $ | 550,259 | $ | 586,042 |
See accompanying notes to condensed consolidated financial statements.
VIASYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales | $ | 120,561 | $ | 188,157 | $ | 243,998 | $ | 368,676 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of goods sold, exclusive of items shown separately | 97,323 | 147,452 | 200,199 | 287,882 | ||||||||||||
Selling, general and administrative | 11,455 | 14,365 | 21,659 | 29,689 | ||||||||||||
Depreciation | 12,614 | 13,249 | 25,294 | 26,289 | ||||||||||||
Amortization | 299 | 313 | 603 | 625 | ||||||||||||
Restructuring and impairment | 3,847 | - | 4,570 | - | ||||||||||||
Operating (loss) income | (4,977 | ) | 12,778 | (8,327 | ) | 24,191 | ||||||||||
Other expense (income): | ||||||||||||||||
Interest expense, net | 5,514 | 5,398 | 11,018 | 10,919 | ||||||||||||
Amortization of deferred financing costs | 516 | 516 | 1,032 | 1,032 | ||||||||||||
Other, net | 224 | (1,318 | ) | 346 | (2,537 | ) | ||||||||||
(Loss) income before income taxes | (11,231 | ) | 8,182 | (20,723 | ) | 14,777 | ||||||||||
Income tax provision | (1,020 | ) | 4,001 | 1,397 | 6,507 | |||||||||||
Net (loss) income | $ | (10,211 | ) | $ | 4,181 | $ | (22,120 | ) | $ | 8,270 |
See accompanying notes to condensed consolidated financial statements.
VIASYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (22,120 | ) | $ | 8,270 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 25,897 | 26,914 | ||||||
Amortization of deferred financing costs | 1,032 | 1,032 | ||||||
Deferred income taxes | 920 | 189 | ||||||
Non-cash stock compensation expense | 461 | 457 | ||||||
Non-cash impact of exchange rate changes | 351 | 492 | ||||||
(Gain) loss on disposition of assets, net | (244 | ) | 596 | |||||
Change in assets and liabilities: | ||||||||
Accounts receivable | 17,049 | 7,968 | ||||||
Inventories | 21,184 | (11,017 | ) | |||||
Prepaid expenses and other | 5,503 | (1,366 | ) | |||||
Accounts payable | (1,445 | ) | (3,565 | ) | ||||
Accrued and other liabilities | (11,821 | ) | (7,855 | ) | ||||
Net cash provided by operating activities | 36,767 | 22,115 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (9,279 | ) | (33,175 | ) | ||||
Proceeds from disposals of property | 2,803 | 37 | ||||||
Net cash used in investing activities | (6,476 | ) | (33,138 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings under credit facility | - | 20,000 | ||||||
Repayments of borrowings under credit facility | (3,500 | ) | (1,500 | ) | ||||
Net cash (used in) provided by financing activities | (3,500 | ) | 18,500 | |||||
Net change in cash and cash equivalents | 26,791 | 7,477 | ||||||
Cash and cash equivalents, beginning of the period | 83,053 | 64,002 | ||||||
Cash and cash equivalents, end of the period | $ | 109,844 | $ | 71,479 | ||||
See accompanying notes to condensed consolidated financial statements.
VIASYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
1. Basis of Presentation
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements of Viasystems, Inc. and subsidiaries (“Viasystems” or the “Company”) 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 and cash flows. The Company has evaluated the effect of subsequent events through August 14, 2009, the date these financial statements were issued. The results for the six months ended June 30, 2009, are not necessarily indicative of the results that may be expected for a full fiscal year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report for the year ended December 31, 2008, filed on Form 10-K with the Securities and Exchange Commission.
Nature of Business
Viasystems is a leading worldwide provider of complex multi-layer printed circuit boards and electro-mechanical solutions. The Company’s products are used in a wide range of applications, including automotive dash panels and control modules, data networking equipment, telecommunications switching equipment, and complex medical and technical instruments.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Viasystems. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect i) the reported amounts of assets and liabilities, ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and iii) the reported amounts of revenues and expenses during the reporting period.
Estimates and assumptions are used in accounting for the following significant matters, among others:
· | allowances for doubtful accounts; |
· | inventory valuation; |
· | fair value of derivative instruments and related hedged items; |
· | useful lives of property, plant, equipment and intangible assets; |
· | long-lived and intangible asset impairments; |
· | restructuring charges; |
· | warranty and product returns allowances; |
· | deferred compensation agreements; |
· | tax related items; |
· | contingencies; and |
· | fair value of options granted under our stock-based compensation plan. |
Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period in which the revision is made. As further discussed in Note 5, the Company reversed $1,676 of accrued restructuring charges in its Printed Circuit Boards segment during the three months ended June 30, 2009.
Commitments and Contingencies
The Company is a party to contracts with third party consultants, independent contractors and other service providers in which the Company has agreed to indemnify such parties against certain liabilities in connection with their performance. Based on historical experience and the likelihood that such parties will ever make a claim against the Company, in the opinion of the Company’s management, the ultimate liabilities resulting from such indemnification obligations will not have a material adverse effect on its financial condition and results of operations and cash flows.
Viasystems provides that none of the Directors and officers of the Company bear the risk of personal liability for monetary damages for breach of fiduciary duty as a Director or officer except in cases where the action involves a breach of the duty of loyalty, acts in bad faith or intentional misconduct, the unlawful paying of dividends or repurchasing of capital stock, or transactions from which the Director or officer derived improper personal benefits.
The Company is subject to various lawsuits and claims with respect to such matters as product liability, product development and other actions arising in the normal course of business. In the opinion of the Company’s management, the ultimate liabilities resulting from such lawsuits and claims will not have a material adverse effect on its financial condition and results of operations and cash flows.
Earnings Per Share
Viasystems is exempt from the computation, presentation and disclosure requirements surrounding earnings per share as the Company has no publicly held common stock or potential common stock.
Fair Value Measurements
The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 - observable inputs such as quoted prices in active markets; Level 2 - inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3 - valuations derived from valuation techniques in which one or more significant inputs are unobservable. In addition, the Company uses various valuation techniques, including the market approach, using comparable market prices; the income approach, using present value of future income or cash flow; and the cost approach, using the replacement cost of assets.
As of June 30, 2009, the Company adopted FASB Staff Position No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which requires disclosure about fair value of financial instruments for interim reporting periods. The Company’s financial instruments consist of cash equivalents, accounts receivable, notes receivable, long-term debt, and other long-term obligations. For cash equivalents, accounts receivable, notes receivable and other long-term obligations, the carrying amounts approximate fair value.
The estimated fair market values of the Company’s long-term debt instruments and cash flow hedges are as follows:
June 30, 2009 | |||||||||
Fair Value | Carrying Amount | Balance Sheet Classification | |||||||
Senior subordinated Notes due 2011 | $ | 178,500 | $ | 200,000 | Long-term debt, including current maturities | ||||
2006 Credit Agreement | $ | 12,000 | $ | 12,000 | Long-term debt, including current maturities | ||||
Cash flow hedges | $ | 1,369 | $ | 1,369 | Prepaid expenses and other | ||||
December 31, 2008 | |||||||||
Fair Value | Carrying Amount | Balance Sheet Classification | |||||||
Senior subordinated Notes due 2011 | $ | 150,000 | $ | 200,000 | Long-term debt, including current maturities | ||||
2006 Credit Agreement | $ | 15,500 | $ | 15,500 | Long-term debt, including current maturities | ||||
Cash flow hedges | $ | (2,522 | ) | $ | (2,522 | ) | Accrued and other liabilities |
The Company determined the fair value of the Senior Subordinated Notes due 2011 (“Senior Notes”) using quoted market prices for the Senior Notes. As the balance owed on the 2006 Credit Agreement bears interest at a variable rate, the carrying value of the 2006 Credit Agreement approximates its fair value. The Company determined the fair value of the cash flow hedges using a market approach and Level 2 inputs (see Note 6).
Recently Issued Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165 Subsequent Events (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Company has adopted SFAS No. 165 as of June 30, 2009, and upon adoption there was no material effect on the Company’s financial position, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards CodificationTM” and the Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards CodificationTM (the “Codification”) to become the source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Company is required to adopt SFAS No. 168 beginning July 1, 2009, and while it will impact the way the Company refers to accounting pronouncements in its disclosures, it will not affect the Company’s financial position, results of operations or cash flows.
2. Inventories
The composition of inventories is as follows:
June 30, 2009 | December 31, 2008 | |||||||
Raw materials | $ | 18,321 | $ | 26,388 | ||||
Work in process | 11,858 | 18,488 | ||||||
Finished goods | 19,056 | 25,543 | ||||||
Total | $ | 49,235 | $ | 70,419 |
Inventories are stated at the lower of cost (valued using the first-in, first-out method) or market.
3. Property, Plant and Equipment
The composition of property, plant and equipment is as follows:
June 30, 2009 | December 31, 2008 | |||||||
Land and buildings | $ | 55,010 | $ | 54,885 | ||||
Machinery, equipment and systems | 423,535 | 422,489 | ||||||
Leasehold improvements | 41,105 | 40,355 | ||||||
Construction in progress | 849 | 1,537 | ||||||
520,499 | 519,266 | |||||||
Less: Accumulated depreciation | (307,120 | ) | (286,525 | ) | ||||
Total | $ | 213,379 | $ | 232,741 |
4. Long-term Debt
The composition of long-term debt is as follows:
June 30, 2009 | December 31, 2008 | |||||||
2006 Credit Agreement: | ||||||||
Term loans | $ | 12,000 | $ | 15,500 | ||||
Revolving credit loans | - | - | ||||||
Senior Subordinated Notes, due 2011 | 200,000 | 200,000 | ||||||
Capital leases | 5,165 | 5,163 | ||||||
217,165 | 220,663 | |||||||
Less: Current maturities | (10,618 | ) | (9,617 | ) | ||||
$ | 206,547 | $ | 211,046 |
As of June 30, 2009, $12,000 was outstanding under the term loan facility of the 2006 Credit Agreement which is repayable in quarterly installments through July 2010. As of June 30, 2009, approximately $57,250 of the revolving credit facility under the 2006 Credit Agreement was unused and available, which is net of outstanding letters of credit totaling $2,750.
5. Restructuring and Charges
In light of the global economic downturn which began toward the end of 2008, and as part of the Company’s ongoing efforts to align capacity, overhead costs and operating expenses with market demand, the Company initiated restructuring activities during the fourth quarter of 2008 (the “2008 Restructuring”). These activities were substantially completed during the first half of 2009, and included the shutdown of the Company’s metal fabrication facility in Milwaukee, Wisconsin, and its satellite final-assembly and distribution facility in Newberry, South Carolina (together, the “Milwaukee Facility”); as well as workforce reductions across the Company’s global operations.
The reserve for restructuring activities at June 30, 2008, primarily relates to severance requirements under foreign social plans and commitments under a long-term lease, which were incurred as part of restructuring activities initiated during 2001. These restructuring activities were a result of the economic downturn that began in 2000 and continued into early 2003 related to many of the Company’s key telecommunication and networking customers, and the shift of production demand from high cost countries to low cost countries. These actions resulted in asset impairments, plant shutdowns and downsizings which continued through 2005.
The following tables summarize changes in the reserve for restructuring and impairment charges for the six month periods ending June 30, 2009 and 2008.
Six Months Ended June 30, 2009 | |||||||||||||||||||||
Balance at 12/31/08 | Net Charges | Cash Payments | Adjustments | Balance at 6/30/09 | |||||||||||||||||
Restructuring Activities: | |||||||||||||||||||||
Personnel and severance | $ | 8,896 | $ | (299 | ) | $ | (7,419 | ) | $ | - | $ | 1,178 | |||||||||
Lease and other contractual commitments | 3,226 | 5,164 | (878 | ) | 115 | (a) | 7,627 | ||||||||||||||
Asset impairment | - | (295 | ) | - | 295 | (b) | - | ||||||||||||||
Total restructuring charges | $ | 12,122 | $ | 4,570 | $ | (8,297 | ) | $ | 410 | $ | 8,805 | ||||||||||
Six Months Ended June 30, 2008 | |||||||||||||||||||||
Balance at 12/31/07 | Net Charges | Cash Payments | Adjustments | Balance at 6/30/08 | |||||||||||||||||
Restructuring Activities: | |||||||||||||||||||||
Personnel and severance | $ | 349 | $ | - | $ | (14 | ) | $ | - | $ | 335 | ||||||||||
Lease and other contractual commitments | 4,818 | - | (466 | ) | 169 | (a) | 4,521 | ||||||||||||||
Total restructuring charges | $ | 5,167 | $ | - | $ | (480 | ) | $ | 169 | $ | 4,856 | ||||||||||
(b) Represents gains realized from disposal of assets in connection with the shutdown of the Milwaukee Facility.
For the six months ended June 30, 2009, restructuring charges related to personnel and severance included $1,377 of charges primarily related to the closure of the Milwaukee Facility, which were more than offset by a reversal of $1,676 of restructuring reserves in the Printed Circuit Boards segment. The reversal was a result of higher than anticipated employee attrition, which reduced the amount of severance costs related to involuntary headcount reductions anticipated in the Company’s 2008 Restructuring plan. For the six months ended June 30, 2009, restructuring charges related to leases and contractual commitments of $5,164 and realized gains on the sale of previously impaired assets of $295, both related to the closure of the Milwaukee Facility.
The Company recorded total net restructuring charges for the three and six months ended June 30, 2009, of $3,847 and $4,570, respectively. For the three and six months ended June 30, 2009, net restructuring charges related to the closure of the Milwaukee Facility were $5,486 and $6,181, respectively, which for purpose of segment reporting are included in “Other,” (see Note 10.) For the three and six months ended June 30, 2009, restructuring charges were recorded in the Assembly segment in the amount of $38 and $66, respectively, and restructuring charges were reversed in the Printed Circuit Boards segment in the amount of $1,676 and $1,676, respectively.
The Company has recorded cumulative restructuring charges totaling $19,639 through June 30, 2009, related to the 2008 Restructuring, and does not expect to incur significant additional charges related to those activities. These charges include $9,212 related to personnel and severance, $5,263 of non-cash asset impairment charges and $5,164 related to lease termination and other closure costs. The charges of $19,639 were incurred in the Printed Circuit Boards and Assembly segments in the amount of $8,259 and $781, respectively, with $10,600 related to the closure of the Milwaukee Facility included in “Other”.
6. Derivative Financial Instruments and Cash Flow Hedging Strategy
As of January 1, 2009, the Company adopted the provisions of SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133 (“SFAS No. 161”). This standard applies to derivative instruments, nonderivative instruments that are designed and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). SFAS No. 161 does not change the accounting for derivatives and hedging activities, but requires enhanced disclosures concerning the effect on financial statements from their use.
The Company recognizes all of its derivative contracts as either assets or liabilities in the balance sheet and measures those instruments at fair value through adjustments to other comprehensive income, current earnings, or both, as appropriate. Accumulated other comprehensive income as of June 30, 2009, and December 31, 2008, included an unrecognized gain on derivatives of $1,369 and an unrecognized loss on derivatives of $2,522, respectively.
The Company uses foreign exchange forward contracts that are designated and qualify as cash flow hedges, to manage certain of its foreign exchange rate risks. The Company’s objective is to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. The Company’s foreign currency exposure arises from the transacting of business in a currency other than the U.S. dollar, which is the currency in which the Company incurs the majority of its costs.
The Company’s decision to enter into foreign exchange forward contracts is made after considering future use of foreign currencies, desired foreign exchange rate sensitivities and the foreign exchange rate environment. Prior to entering into a hedge transaction, the Company formally documents the relationship between hedging instruments to be used and the hedged items, as well as the risk management objective for undertaking the hedge transactions. The maximum term over which the Company hedges exposure to the exchange rate variability of future cash flows is generally less than one year.
The Company records deferred gains and losses related to cash flow hedges based on the fair value of active derivative contracts on the reporting date (see Note 1). As of June 30, 2009 and 2008, all of the Company’s derivatives were in the form of Chinese Renminbi (“RMB”) foreign exchange forward contracts which were designated and qualified as cash flow hedging instruments under SFAS No. 133. The following table summarizes the Company’s outstanding derivative contracts:
June 30, 2009 | December 31, 2008 | |||||||
Notional amount in Chinese RMB | 420,000 | 840,000 | ||||||
Weighted average remaining maturity in months | 3.0 | 6.0 | ||||||
Weighted average exchange rate to one U.S. Dollar | 6.977 | 6.797 | ||||||
Deferred gain (loss) measured at fair value | $ | 1,369 | $ | (2,522 | ) | |||
Balance sheet classification of deferred gain (loss) | Prepaid expenses and other | Accrued and other liabilities |
Amounts received or paid to settle foreign exchange forward contracts are recorded in cost of goods sold at the time of settlement. For the three and six months ended June 30, 2009, losses of $1,243 and $2,003, respectively, were recorded in cost of goods sold related to the settlement of foreign exchange forward contracts. For the three and six months ended June 30, 2008, gains of $432 and $1,036, respectively, were recorded in cost of goods sold related to the settlement of foreign exchange forward contracts.
7. Stock-based Compensation
Stock compensation expense was recorded in the condensed consolidated statements of operations as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Cost of goods sold | $ | 39 | $ | 22 | $ | 64 | $ | 58 | ||||||||
Selling, general and administrative | 208 | 203 | 397 | 399 | ||||||||||||
$ | 247 | $ | 225 | $ | 461 | $ | 457 |
The following table summarizes the stock option activity from January 1, 2009, through June 30, 2009:
Shares | Weighted Average Exercise Price | |||||||
Outstanding at December 31, 2008 | 2,608,400 | $ | 12.63 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | (47,400 | ) | 12.63 | |||||
Outstanding at June 30, 2009 | 2,561,000 | 12.63 | ||||||
Options exercisable at June 30, 2009 | 2,366,453 | 12.63 |
There were no options granted during the six months ended June 30, 2009. For options granted during the six months ended June 30, 2008, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions.
Expected life of options | 5 years | |||
Risk free interest rate | 2.71 | % | ||
Expected volatility of stock | 52 | % | ||
Expected dividend yield | None |
8. Income Taxes
The Company’s income tax provision relates primarily to its operations in China and Hong Kong. Because of the substantial net operating loss carryforwards previously existing in the Company’s U.S. and other tax jurisdictions, the Company has not recognized certain income tax benefits in such jurisdictions for the Company’s substantial interest expense, among other expenses.
9. Comprehensive Income (Loss)
The components of comprehensive income (loss), net of tax, are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net (loss) income | $ | (10,211 | ) | $ | 4,181 | $ | (22,120 | ) | $ | 8,270 | ||||||
Change in fair value of derivatives, net of tax of $0 | 1,157 | (755 | ) | 3,891 | 973 | |||||||||||
Comprehensive (loss) income | $ | (9,054 | ) | $ | 3,426 | $ | (18,229 | ) | $ | 9,243 |
10. Business Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance. The Company operates in two segments: (i) Printed Circuit Boards and (ii) Assembly, with the assets and liabilities of the Company’s corporate headquarters and the assets, liabilities and operating results of its closed Printed Circuit Boards and Assembly operations reported as “Other”. Except for certain professional fees, operating expenses of the Company’s corporate headquarters are allocated to each segment based on a number of factors, including sales. The assets, liabilities and operating results of the Milwaukee Facility were previously reported within the Assembly segment. With the closure of the Milwaukee Facility in May 2009, the Company’s Management reclassified the assets, liabilities and operating results of the Milwaukee Facility from assembly to “Other”. The Company’s segment results for prior periods have been reclassified for comparison purposes.
The Printed Circuit Boards segment consists of printed circuit board manufacturing facilities located in China. These facilities manufacture double-sided and multi-layer printed circuit boards and backpanels. The Assembly segment consists of assembly operations including backpanel assembly, printed circuit board assembly, cable assembly, custom enclosures, and full system assembly and testing. The assembly operations are conducted in manufacturing facilities in China and Mexico.
Total assets by segment are as follows:
June 30, 2009 | December 31, 2008 | |||||||
Total assets: | ||||||||
Printed Circuit Boards | $ | 407,473 | $ | 435,664 | ||||
Assembly | 97,465 | 102,208 | ||||||
Other | 45,321 | 48,170 | ||||||
$ | 550,259 | $ | 586,042 |
Net sales and operating (loss) income by segment, together with a reconciliation to (loss) income before income taxes, are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales to external customers: | ||||||||||||||||
Printed Circuit Boards | $ | 77,664 | $ | 124,818 | $ | 155,285 | $ | 253,731 | ||||||||
Assembly | 39,315 | 49,701 | 74,952 | 88,677 | ||||||||||||
Other | 3,582 | 13,638 | 13,761 | 26,268 | ||||||||||||
Total | $ | 120,561 | $ | 188,157 | $ | 243,998 | $ | 368,676 | ||||||||
Intersegment sales: | ||||||||||||||||
Printed Circuit Boards | $ | 2,559 | $ | 6,101 | $ | 4,993 | $ | 10,356 | ||||||||
Assembly | 2 | 17 | 11 | 17 | ||||||||||||
Other | 178 | 317 | 363 | 651 | ||||||||||||
Total | $ | 2,739 | $ | 6,435 | $ | 5,367 | $ | 11,024 | ||||||||
Operating (loss) income: | ||||||||||||||||
Printed Circuit Boards | $ | 1,094 | $ | 12,170 | $ | (3,218 | ) | $ | 26,284 | |||||||
Assembly | 2,025 | 1,723 | 3,636 | 405 | ||||||||||||
Other | (8,096 | ) | (1,115 | ) | (8,745 | ) | (2,498 | ) | ||||||||
Total | (4,977 | ) | 12,778 | (8,327 | ) | 24,191 | ||||||||||
Interest expense, net | 5,514 | 5,398 | 11,018 | 10,919 | ||||||||||||
Amortization of deferred financing costs | 516 | 516 | 1,032 | 1,032 | ||||||||||||
Other, net | 224 | (1,318 | ) | 346 | (2,537 | ) | ||||||||||
(Loss) income before income taxes | $ | (11,231 | ) | $ | 8,182 | $ | (20,723 | ) | $ | 14,777 |
11. Guarantor Subsidiaries
The Senior Subordinated Notes (the “2011 Notes”) are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured, senior subordinated basis by each subsidiary of Viasystems other than its foreign subsidiaries. Each of the guarantor subsidiaries and non-guarantor subsidiaries is wholly-owned by the Company.
The following condensed consolidating financial information includes the accounts of Viasystems, Inc., the combined accounts of the guarantor subsidiaries and the combined accounts of the non-guarantor subsidiaries.
Balance Sheet as of June 30, 2009
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 546 | $ | 36,575 | $ | 72,723 | $ | - | $ | 109,844 | ||||||||||
Restricted cash | - | 303 | - | - | 303 | |||||||||||||||
Accounts receivable, net | - | 9,774 | 69,741 | - | 79,515 | |||||||||||||||
Inventories | - | 6,150 | 43,085 | - | 49,235 | |||||||||||||||
Other current assets | - | 3,596 | 4,835 | - | 8,431 | |||||||||||||||
Total current assets | 546 | 56,398 | 190,384 | - | 247,328 | |||||||||||||||
Property, plant and equipment, net | - | 3,797 | 209,582 | - | 213,379 | |||||||||||||||
Other assets, net | 3,259 | - | 86,293 | - | 89,552 | |||||||||||||||
Investment in subsidiaries | 652,668 | 335,486 | - | (988,154 | ) | - | ||||||||||||||
Total assets | $ | 656,473 | $ | 395,681 | $ | 486,259 | $ | (988,154 | ) | $ | 550,259 | |||||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||||||||||||||
Current maturities of long-term debt | $ | - | $ | - | $ | 10,618 | $ | - | $ | 10,618 | ||||||||||
Accounts payable | - | 5,013 | 68,210 | - | 73,223 | |||||||||||||||
Accrued and other liabilities | 9,920 | 10,563 | 22,806 | - | 43,289 | |||||||||||||||
Total current liabilities | 9,920 | 15,576 | 101,634 | 127,130 | ||||||||||||||||
Long-term debt, less current maturities | 200,000 | - | 6,547 | - | 206,547 | |||||||||||||||
Other non-current liabilities | - | 11,499 | 23,557 | - | 35,056 | |||||||||||||||
Intercompany payable (receivable) | 272,270 | (285,449 | ) | 13,179 | - | - | ||||||||||||||
Total liabilities | 482,190 | (258,374 | ) | 144,917 | - | 368,733 | ||||||||||||||
Total paid-in capital and accumulated deficit | 173,688 | 652,668 | 335,486 | (988,154 | ) | 173,688 | ||||||||||||||
Accumulated other comprehensive income (loss) | 595 | 1,387 | 5,856 | - | 7,838 | |||||||||||||||
Total liabilities and stockholder’s equity | $ | 656,473 | $ | 395,681 | $ | 486,259 | $ | (988,154 | ) | $ | 550,259 |
Balance Sheet as of December 31, 2008
Viasystems, Inc. | Total Guarantors | Total Non- Guarantors | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 391 | $ | 29,468 | $ | 53,194 | $ | - | $ | 83,053 | ||||||||||
Restricted cash | - | 303 | - | - | 303 | |||||||||||||||
Accounts receivable, net | - | 16,530 | 80,034 | - | 96,564 | |||||||||||||||
Inventories | - | 11,705 | 58,714 | - | 70,419 | |||||||||||||||
Other current assets | - | 1,494 | 10,105 | - | 11,599 | |||||||||||||||
Total current assets | 391 | 59,500 | 202,047 | - | 261,938 | |||||||||||||||
Property, plant and equipment, net | - | 7,519 | 225,222 | - | 232,741 | |||||||||||||||
Other assets, net | 3,976 | 115 | 87,272 | - | 91,363 | |||||||||||||||
Investment in subsidiaries | 665,674 | 348,167 | - | (1,013,841 | ) | - | ||||||||||||||
Total assets | $ | 670,041 | $ | 415,301 | $ | 514,541 | $ | (1,013,841 | ) | $ | 586,042 | |||||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||||||||||||||
Current maturities of long-term debt | $ | - | $ | - | $ | 9,617 | $ | - | $ | 9,617 | ||||||||||
Accounts payable | - | 6,917 | 67,751 | - | 74,668 | |||||||||||||||
Accrued and other liabilities | 9,904 | 12,830 | 35,801 | - | 58,535 | |||||||||||||||
Total current liabilities | 9,904 | 19,747 | 113,169 | - | 142,820 | |||||||||||||||
Long-term debt, less current maturities | 200,000 | - | 11,046 | - | 211,046 | |||||||||||||||
Other non-current liabilities | - | 10,635 | 22,247 | - | 32,882 | |||||||||||||||
Intercompany payable (receivable) | 264,427 | (278,251 | ) | 13,824 | - | - | ||||||||||||||
Total liabilities | 474,331 | (247,869 | ) | 160,286 | - | 386,748 | ||||||||||||||
Total paid-in capital and accumulated deficit | 195,347 | 665,674 | 348,167 | (1,013,841 | ) | 195,347 | ||||||||||||||
Accumulated other comprehensive income (loss) | 363 | (2,504 | ) | 6,088 | - | 3,947 | ||||||||||||||
Total liabilities and stockholder’s equity | $ | 670,041 | $ | 415,301 | $ | 514,541 | $ | (1,013,841 | ) | $ | 586,042 |
Statement of Operations for the three months ended June 30, 2009
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
Net sales | $ | - | $ | 20,791 | $ | 108,188 | $ | (8,418 | ) | $ | 120,561 | |||||||||
Operating expenses: | ||||||||||||||||||||
Cost of goods sold, exclusive of items shown separately | 39 | 20,182 | 85,520 | (8,418 | ) | 97,323 | ||||||||||||||
Selling, general and administrative | 208 | 5,688 | 5,559 | - | 11,455 | |||||||||||||||
Depreciation | - | 345 | 12,269 | - | 12,614 | |||||||||||||||
Amortization | 68 | - | 231 | - | 299 | |||||||||||||||
Restructuring and impairment | - | 5,417 | (1,570 | ) | - | 3,847 | ||||||||||||||
Operating (loss) income | (315 | ) | (10,841 | ) | 6,179 | - | (4,977 | ) | ||||||||||||
Other expense (income): | ||||||||||||||||||||
Interest expense (income), net | 3,967 | (6,018 | ) | 7,565 | - | 5,514 | ||||||||||||||
Amortization of deferred financing costs | 307 | - | 209 | - | 516 | |||||||||||||||
Other, net | 21 | 703 | (500 | ) | - | 224 | ||||||||||||||
Equity in (earnings) loss of subsidiaries | 5,601 | 98 | - | (5,699 | ) | - | ||||||||||||||
(Loss) income before income taxes | (10,211 | ) | (5,624 | ) | (1,095 | ) | 5,699 | (11,231 | ) | |||||||||||
Income tax provision | - | (23 | ) | (997 | ) | - | (1,020 | ) | ||||||||||||
Net (loss) income | $ | (10,211 | ) | $ | (5,601 | ) | $ | (98 | ) | $ | 5,699 | $ | (10,211 | ) |
Statement of Operations for the six months ended June 30, 2009
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
Net sales | $ | - | $ | 47,504 | $ | 214,259 | $ | (17,765 | ) | $ | 243,998 | |||||||||
Operating expenses: | ||||||||||||||||||||
Cost of goods sold, exclusive of items shown seperately | 64 | 44,681 | 173,219 | (17,765 | ) | 200,199 | ||||||||||||||
Selling, general and administrative | 397 | 7,433 | 13,829 | - | 21,659 | |||||||||||||||
Depreciation | - | 701 | 24,593 | - | 25,294 | |||||||||||||||
Amortization | 140 | - | 463 | - | 603 | |||||||||||||||
Restructuring and impairment | - | 6,140 | (1,570 | ) | - | 4,570 | ||||||||||||||
Operating (loss) income | (601 | ) | (11,451 | ) | 3,725 | - | (8,327 | ) | ||||||||||||
Other expense (income): | ||||||||||||||||||||
Interest expense (income), net | 7,881 | (12,033 | ) | 15,170 | - | 11,018 | ||||||||||||||
Amortization of deferred financing costs | 615 | - | 417 | - | 1,032 | |||||||||||||||
Other, net | 17 | 384 | (55 | ) | - | 346 | ||||||||||||||
Equity in (earnings) loss of subsidiaries | 13,006 | 12,681 | - | (25,687 | ) | - | ||||||||||||||
Income before income taxes | (22,120 | ) | (12,483 | ) | (11,807 | ) | 25,687 | (20,723 | ) | |||||||||||
Income tax provision | - | 523 | 874 | - | 1,397 | |||||||||||||||
Net (loss) income | $ | (22,120 | ) | $ | (13,006 | ) | $ | (12,681 | ) | $ | 25,687 | $ | (22,120 | ) |
Statement of Operations for the three months ended June 30, 2008
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
Net sales | $ | - | $ | 44,706 | $ | 161,865 | $ | (18,414 | ) | $ | 188,157 | |||||||||
Operating expenses: | ||||||||||||||||||||
Cost of goods sold, exclusive of items shown separately | 21 | 40,963 | 124,882 | (18,414 | ) | 147,452 | ||||||||||||||
Selling, general and administrative | 204 | 4,548 | 9,613 | - | 14,365 | |||||||||||||||
Depreciation | - | 883 | 12,366 | - | 13,249 | |||||||||||||||
Amortization | 81 | - | 232 | - | 313 | |||||||||||||||
Operating (loss) income | (306 | ) | (1,688 | ) | 14,772 | - | 12,778 | |||||||||||||
Other expense (income): | ||||||||||||||||||||
Interest expense (income), net | 2,806 | (5,897 | ) | 8,489 | - | 5,398 | ||||||||||||||
Amortization of deferred financing costs | 306 | - | 210 | - | 516 | |||||||||||||||
Other, net | 6 | 167 | (1,491 | ) | - | (1,318 | ) | |||||||||||||
Equity in (earnings) loss of subsidiaries | (7,605 | ) | (3,563 | ) | - | 11,168 | - | |||||||||||||
Income (loss) before income taxes | 4,181 | 7,605 | 7,564 | (11,168 | ) | 8,182 | ||||||||||||||
Income tax provision | - | - | 4,001 | - | 4,001 | |||||||||||||||
Net income (loss) | $ | 4,181 | $ | 7,605 | $ | 3,563 | $ | (11,168 | ) | $ | 4,181 |
Statement of Operations for the six months ended June 30, 2008
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
Net sales | $ | - | $ | 87,438 | $ | 318,467 | $ | (37,229 | ) | $ | 368,676 | |||||||||
Operating expenses: | ||||||||||||||||||||
Cost of goods sold, exclusive of items shown separately | 57 | 80,308 | 244,746 | (37,229 | ) | 287,882 | ||||||||||||||
Selling, general and administrative | 400 | 8,709 | 20,580 | - | 29,689 | |||||||||||||||
Depreciation | - | 1,667 | 24,622 | - | 26,289 | |||||||||||||||
Amortization | 162 | - | 463 | - | 625 | |||||||||||||||
Operating (loss) income | (619 | ) | (3,246 | ) | 28,056 | - | 24,191 | |||||||||||||
Other expense (income): | - | |||||||||||||||||||
Interest expense (income), net | 5,434 | (11,823 | ) | 17,308 | - | 10,919 | ||||||||||||||
Amortization of deferred financing costs | 615 | - | 417 | - | 1,032 | |||||||||||||||
Other, net | 73 | 1,631 | (4,241 | ) | - | (2,537 | ) | |||||||||||||
Equity in (earnings) loss of subsidiaries | (15,011 | ) | (8,076 | ) | - | 23,087 | - | |||||||||||||
Income (loss) before income taxes | 8,270 | 15,022 | 14,572 | (23,087 | ) | 14,777 | ||||||||||||||
Income tax provision | - | 11 | 6,496 | - | 6,507 | |||||||||||||||
Net income (loss) | $ | 8,270 | $ | 15,011 | $ | 8,076 | $ | (23,087 | ) | $ | 8,270 |
Statement of Cash Flows for the six months ended June 30, 2009
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
Net cash provided by (used in) operating activities | $ | 155 | $ | 4,626 | $ | 31,986 | $ | - | $ | 36,767 | ||||||||||
Net cash provided by (used in) investing activities | - | 2,481 | (8,957 | ) | - | (6,476 | ) | |||||||||||||
Net cash provided by (used in) financing activities | - | - | (3,500 | ) | - | (3,500 | ) | |||||||||||||
Net change in cash and cash equivalents | 155 | 7,107 | 19,529 | - | 26,791 | |||||||||||||||
Cash and cash equivalents, beginning of the period | 391 | 29,468 | 53,194 | - | 83,053 | |||||||||||||||
Cash and cash equivalents, end of the period | $ | 546 | $ | 36,575 | $ | 72,723 | $ | - | $ | 109,844 |
Statement of Cash Flows for the six months ended June 30, 2008
Viasystems, Inc. | Total Guarantor | Total Non- Guarantor | Eliminations | Viasystems, Inc. Consolidated | ||||||||||||||||
Net cash provided by (used in) operating activities | $ | 33 | $ | 2,230 | $ | 19,852 | $ | - | $ | 22,115 | ||||||||||
Net cash provided by (used in) investing activities | - | (3,207 | ) | (29,931 | ) | - | (33,138 | ) | ||||||||||||
Net cash provided by (used in) financing activities | - | - | 18,500 | - | 18,500 | |||||||||||||||
Net change in cash and cash equivalents | 33 | (977 | ) | 8,421 | - | 7,477 | ||||||||||||||
Cash and cash equivalents, beginning of the period | 653 | 28,464 | 34,885 | - | 64,002 | |||||||||||||||
Cash and cash equivalents, end of the period | $ | 686 | $ | 27,487 | $ | 43,306 | $ | - | $ | 71,479 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this information statement.
We have made forward-looking statements in this analysis that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” or other similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions, including those referred to in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on March 30, 2009. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements after we file this information statement.
You should understand that many important factors could cause our results to differ materially from those expressed in forward-looking statements. These factors include, but are not limited to global economic conditions, fluctuations in our operating results and customer orders, unexpected decreases in demand or increases in our inventory levels, our competitive environment, our reliance on our largest customers, risks associated with our international operations, our ability to protect our patents and trade secrets, environmental laws and regulations, risks associated with our acquisition strategy, our substantial indebtedness and our ability to comply with the terms thereof, control by our largest stockholder and other factors.
Overview
We are a leading worldwide provider of complex multi-layer printed circuit boards (“PCBs”) and electro-mechanical solutions (“EMS”). The products we manufacture include, or can be found in, a wide array of products including automotive dash panels and control modules, telecommunications switching equipment, data networking equipment, computer storage equipment, major household appliances, wind energy applications, and a variety of complex industrial, medical and technical instruments. As of June 30, 2009, we have six manufacturing facilities which are all located outside the United States to take advantage of low cost, high quality manufacturing environments, including five manufacturing sites in The People’s Republic of China (“China”) and one in Mexico. In order to support our customers’ local needs, we also maintain engineering and customer service centers in Hong Kong, China, the Netherlands, England, Canada, Mexico and the United States.
We are a supplier to over 125 manufacturers of original equipment in numerous end markets, including industry leaders Alcatel-Lucent SA, Bosch Group, Continental AG, Delphi Corporation, EMC Corporation, Ericsson AB, General Electric Company, Hewlett-Packard Company, Huawei Technologies Co. Ltd., Rockwell Automation, Inc., Siemens AG, Sun Microsystems, Inc. Tellabs, Inc. and TRW Automotive Holdings Corp. We have good working relationships with industry- leading contract manufacturers such as Celestica, Inc. and Jabil Circuit, Inc., and we supply PCBs and EMS products to these customers as well.
Results of Operations
Three Months Ended June 30, 2009, Compared to the Three Months Ended June 30, 2008
Net Sales. Net sales for the three months ended June 30, 2009, were $120.6 million, representing a $67.6 million, or 35.9%, decrease from net sales during the same period in 2008. Product demand by essentially all of our existing customer base has declined significantly in connection with the global economic turmoil that began during the second half of 2008. Our visibility to future demand trends remains limited.
Net sales by end-user market for the three months ended June 30, 2009 and 2008, were as follows:
End-User Market (dollars in millions) | 2009 | 2008 | ||||||
Automotive | $ | 43.0 | $ | 72.5 | ||||
Telecommunications | 38.5 | 48.1 | ||||||
Industrial & Instrumentation, Medical, Consumer and Other | 28.9 | 46.7 | ||||||
Computer and Datacommunications | 10.2 | 20.9 | ||||||
Total Net Sales | $ | 120.6 | $ | 188.2 |
Our net sales of products for end use in the automotive market decreased by approximately 40.7% during the three months ended June 30, 2009, compared to the same period in 2008 due to reduced global demand from our automotive customers. Extended factory closures and the financial instability of the largest U.S. automotive manufacturers have slowed demand throughout the automotive products supply chain since the global economic recession began in 2008. Our sales in this market have improved sequentially by $3.4 million, or approximately 8.6%, as compared to the first quarter of 2009 on increased demand.
Net sales of products ultimately used in the telecommunications market decreased by approximately 20.0% from the quarter ended June 30, 2008, to the quarter ended June 30, 2009. Spending stimulus projects sponsored by the Chinese government drove increased demand for telecommunications products early in the quarter ended June 30, 2009, but this increase was not sufficient to offset declining demand from our other telecommunications customers.
Net sales of products ultimately used in the industrial & instrumentation, medical, consumer and other markets, decreased by approximately 38.1% compared to the same period in 2008 due to generally weaker demand from our customers, along with the loss of revenue from i) a fabricated metal products program which our customer began to source internally and ii) revenue associated with our metal fabrication facility in Milwaukee, Wisconsin, and its satellite final-assembly and distribution facility in Newberry, South Carolina (together, the “Milwaukee Facility”) which ceased operations in May 2009 and March 2009, respectively.
An approximate 51.2% decrease in second quarter net sales of our products for use in the computer and datacommunications markets, as compared to the same period in the prior year, is primarily the result of reduced global demand from our computer and data communication customers.
Net sales by segment for the three months ended June 30, 2009 and 2008, were as follows:
Segment (dollars in millions) | 2009 | 2008 | ||||||
Printed Circuit Boards | $ | 80.2 | $ | 130.9 | ||||
Assembly (a) | 39.3 | 49.7 | ||||||
Other (a) | 3.8 | 14.0 | ||||||
Eliminations | (2.7 | ) | (6.4 | ) | ||||
Total Net Sales | $ | 120.6 | $ | 188.2 |
(a) With the closure of our Milwaukee Facility, we reclassified the operating results of the Milwaukee Facility to “Other.” Our segment results for prior periods have been reclassified for comparison purposes. |
Printed Circuit Boards segment net sales, including intersegment sales, for the three months ended June 30, 2009, decreased by $50.7 million, or 38.7%, to $80.2 million. The majority of the decrease is a result of a decrease in volume of more than 39% which was driven by reduced demand across all end-user market segments.
Assembly segment net sales decreased by $10.4 million, or 20.9%, to $39.3 million for the three months ended June 30, 2009, compared to the second quarter of 2008. The decline was the result of reduced demand across all end-user markets.
Other sales relate to our Milwaukee Facility which ceased all operations in May 2009.
Cost of Goods Sold. Cost of goods sold, exclusive of items shown separately in the condensed consolidated statement of operations for the three months ended June 30, 2009, was $97.3 million, or 80.7% of consolidated net sales. While this represents a 2.3 percentage point increase from the 78.4% of consolidated net sales for the second quarter of 2008, it does demonstrate an improvement of 1.8 percentage points from the 82.5% of consolidated net sales for the fourth quarter of 2008, and an improvement of 2.6 percentage points from the 83.3% of consolidated net sales for the first quarter of 2009.
In response to global economic conditions, in November 2008, we announced a plan to close our Milwaukee Facility and to reduce our direct and indirect labor costs globally. These activities were substantially completed by the end of the quarter ended June 30, 2009. We anticipate these activities will better align our labor and overhead costs with current market demands. As a result of planned reductions and attrition, our direct labor headcount, including temporary workers, declined to an average of approximately 8,000 during the quarter ended June 30, 2009, compared to an average of approximately 12,200 during the same quarter the prior year, and compared to approximately 9,000 as of December 31, 2008. Our average indirect labor headcount declined approximately 28% during the second quarter of 2009 compared to the same quarter of 2008.
The costs of materials, labor and overhead in our Printed Circuit Boards segment can be impacted by trends in global commodities prices and currency exchange rates, as well as other cost trends which can impact minimum wage rates, electricity and diesel fuel costs in China. Economies of scale can help to offset any adverse trends in these costs. Cost of goods sold for the second quarter of 2009, as compared to the same period in the prior year, was negatively impacted by higher labor and overhead costs relative to sales volume. Various factors, including our willingness to work with the local labor bureau in China, led to our decision to stagger the execution of head count reductions, which negatively impacted direct and indirect labor costs during the quarter. Partially offsetting the effect of labor and overhead costs, our cost of materials was favorably impacted by positive trends in the global commodities markets as well as favorable pricing from our materials suppliers.
Cost of goods sold in our Assembly segment relates primarily to component materials costs. As a result, trends in sales volume for the segment drive similar trends in cost of goods sold. Our costs have been positively impacted by favorable pricing from our materials suppliers as well as reduced labor costs which resulted from head count reductions implemented in the fourth quarter of 2008.
Selling, General and Administrative Costs. Selling, general and administrative costs decreased $2.9 million or 20.1%, to $11.5 million for the three months ended June 30, 2009, compared to the same period in the prior year. This decline was a result of global headcount reductions in our sales and administrative organization during the fourth quarter of 2008, lower compensation expense and the successful implementation of other cost savings initiatives including wage freezes and travel restrictions, partially offset by increased professional fees incurred during the period.
Depreciation. Depreciation expense for the three months ended June 30, 2009, declined $0.6 million to $12.6 million as compared to $13.2 million for the second quarter of 2008. The decrease relates primarily to impairment write-downs of fixed assets at our Milwaukee Facility during the fourth quarter of 2008. Depreciation expense in our Printed Circuit Boards and Assembly segments of $11.4 million and $1.2 million, respectively, were substantially unchanged as compared to the same period last year, as our base of depreciable assets in each segment remained relatively constant.
Restructuring and Impairment. In light of the global economic downturn which began toward the end of 2008, and as part of our ongoing efforts to align capacity, overhead costs and operating expenses with market demand, we initiated restructuring activities beginning in the fourth quarter of 2008 which continued through the second quarter of 2009. These activities have been substantially completed, and included the shutdown of our Milwaukee Facility as well as workforce reductions across our global operations. The cumulative cost of these activities as of June 30, 2009, approximates $19.6 million, including approximately $14.3 million of cash charges and approximately $5.3 million of non-cash asset impairment charges. The cash charges include approximately $9.2 million related to headcount reductions with the balance related to lease termination and other closure costs.
For the three months ended June 30, 2009, we recorded restructuring charges of approximately $3.8 million, which was net of reversals and gains on disposal of assets totaling approximately $2.0 million. The restructuring charges recorded during the period relate primarily to lease terminations and other closure costs at our Milwaukee Facility, which, in accordance with U.S. GAAP, could not be accrued until the Milwaukee Facility ceased operations. During the quarter, due to higher than anticipated employee attrition in our Printed Circuit Boards segment, we were able to reduce the number of involuntary headcount reductions we had planned. As a result, we reversed approximately $1.7 million in related accrued severance costs. We do not expect we will incur significant additional charges related to these restructuring activities.
Operating (Loss) Income. The operating loss of $5.0 million for the three months ended June 30, 2009, represents a decrease of $17.8 million compared to operating income of $12.8 million during the three months ended June 30, 2008. The primary sources of operating (loss) income for the three months ended June 30, 2009 and 2008, were as follows:
Source (dollars in millions) | 2009 | 2008 | ||||||
Printed Circuit Boards segment | $ | 1.1 | $ | 12.2 | ||||
Assembly segment (a) | 2.0 | 1.7 | ||||||
Other (a) | (8.1 | ) | (1.1 | ) | ||||
Operating (loss) income | $ | (5.0 | ) | $ | 12.8 |
(a) With the closure of our Milwaukee Facility, we reclassified the operating results of the Milwaukee Facility to “Other.” Our segment results for prior periods have been reclassified for comparison purposes. |
The operating income from our Printed Circuit Boards segment decreased by $11.1 million to $1.1 million for the three months ended June 30, 2009, compared to $12.2 million for the same period in the prior year. The decrease is primarily the result of declining sales volume, partially offset by reduced selling, general and administrative expense, and an approximate $1.7 million reversal of accrued restructuring costs.
The operating income from our Assembly segment was $2.0 million for the three months ended June 30, 2009, compared to $1.7 million in the second quarter of 2008. The increase is primarily the result of reduced selling, general and administrative expense, partially offset by declining sales volumes.
The Other operating loss relates to our Milwaukee Facility which ceased operations in May 2009, and certain non-recurring professional fees.
Adjusted EBITDA. We measure our performance primarily through our operating income. In addition to our consolidated financial statements presented in accordance with U.S. GAAP, management uses certain non-GAAP financial measures, including “adjusted EBITDA.” Adjusted EBITDA is not a recognized financial measure under U.S. GAAP, and does not purport to be an alternative to operating income or an indicator of operating performance. Adjusted EBITDA is presented to enhance an understanding of our operating results and is not intended to represent cash flows or results of operations. Our owners, lenders and management use adjusted EBITDA as an additional measure of operating performance for matters including covenant compliance, executive compensation, and competitor comparisons. The use of this non-GAAP measure provides an indication of our ability to service debt, and we consider it an appropriate measure to use because of our highly leveraged position.
Adjusted EBITDA has certain material limitations, primarily due to the exclusion of certain amounts that are material to our consolidated results of operations, such as interest expense, income tax expense and depreciation and amortization. In addition, adjusted EBITDA may differ from the adjusted EBITDA calculations of other companies in our industry, limiting its usefulness as a comparative measure.
We use adjusted EBITDA to provide meaningful supplemental information regarding our operating performance and profitability by excluding from EBITDA certain items that we believe are not indicative of our ongoing operating results or will not impact future operating cash flows as follows:
· | Restructuring Charges – which consist primarily of facility closures and other headcount reductions. Historically, a significant amount of these restructuring charges are non-cash charges related to the write-down of property, plant and equipment to estimated net realizable value. We exclude these restructuring charges to more clearly reflect our ongoing operating performance. |
· | Stock Compensation – non-cash charges associated with recognizing the fair value of stock options granted to employees. We exclude these charges to more clearly reflect a comparable year over year cash operating performance. |
Reconciliations of operating income to Adjusted EBITDA for the three months ended June 30, 2009 and 2008, were as follows:
Three Months Ended June 30, | ||||||||
Source (dollars in millions) | 2009 | 2008 | ||||||
Operating (loss) income | $ | (5.0 | ) | $ | 12.8 | |||
Add-back | ||||||||
Depreciation and Amortization | 12.9 | 13.6 | ||||||
Restructuring and impairment | 3.8 | - | ||||||
Non-cash stock compensation expense. | 0.2 | 0.2 | ||||||
Adjusted EBITDA | $ | 11.9 | $ | 26.6 |
Adjusted EBITDA decreased by $14.7 million, or 55.3%, primarily as a result of a 35.9% decrease in net sales and a 2.3 percentage point increase in cost of goods sold relative to consolidated net sales, partially offset by reductions in selling, general and administrative expense.
Interest Expense, net. Interest expense, net of interest income, increased by $0.1 million to $5.5 million for the three month period ended June 30, 2009. Interest expense related to our 2011 Senior Subordinated 10.5% Notes is approximately $5.3 million in each quarter as the $200 million principal and the 10.5% interest rate remain unchanged since the notes were issued in 2003.
Other Expense. Other expense, net was $0.2 million for the three months ended June 30, 2009, as compared to $1.3 million of other income, net for the same period in the prior year. The other income in 2008 was primarily the result of foreign currency remeasurement gains.
Income Taxes. Income tax benefit of $1.0 million for the three months ended June 30, 2009, compares to income tax expense of $4.0 million for the quarter ended June 30, 2008. Our income tax provision relates primarily to income tax benefits recognized in Hong Kong. Because of the substantial net operating loss carryforwards previously existing in our U.S. and other tax jurisdictions, we have not recognized certain income tax benefits in such jurisdictions for the Company’s substantial interest expense, among other expenses.
Results of Operations
Six Months Ended June 30, 2009, Compared to the Six Months Ended June 30, 2008
Net Sales. Net sales for the six months ended June 30, 2009, were $244.0 million, representing a $124.7 million, or 33.8%, decrease from net sales during the same period in 2008. Product demand by essentially all of our existing customer base has declined significantly in connection with the global economic turmoil that began during the second half of 2008. Our visibility to future demand trends remains limited.
Net sales by end-user market for the six months ended June 30, 2009 and 2008, were as follows:
End-User Market (dollars in millions) | 2009 | 2008 | ||||||
Automotive | $ | 82.6 | $ | 142.0 | ||||
Telecommunications | 78.1 | 97.0 | ||||||
Industrial & Instrumentation, Medical, Consumer and Other | 63.0 | 87.4 | ||||||
Computer and Datacommunications | 20.3 | 42.3 | ||||||
Total Net Sales | $ | 244.0 | $ | 368.7 |
Our net sales of products for end use in the automotive market decreased by approximately 41.8% during the six months ended June 30, 2009, compared to the same period in 2008 due to reduced global demand from our automotive customers. Extended factory closures and the financial instability of the largest U.S. automotive manufacturers have slowed demand throughout the automotive products supply chain.
Net sales of products ultimately used in the telecommunications market decreased by approximately 19.5% from the six months ended June 30, 2008, to the six months ended June 30, 2009. Spending stimulus projects sponsored by the Chinese government drove increased demand for telecommunications products during the six months ended June 30, 2009, but this increase was not sufficient to offset declining demand from our other telecommunications customers.
Net sales of products ultimately used in the industrial & instrumentation, medical, consumer and other markets, decreased by approximately 27.9% compared to the same period in 2008 due to generally weaker demand from our customers along with the loss of revenue from a fabricated metal products program which our customer began to source internally, partially offset by increased demand in wind power related programs.
An approximate 52.0% decrease in net sales for the six months ended June 30, 2009, of our products for use in the computer and datacommunications markets, as compared to the same period in the prior year, is primarily the result of reduced global demand from our computer and data communication customers.
Net sales by segment for the three months ended June 30, 2009 and 2008, were as follows:
Segment (dollars in millions) | 2009 | 2008 | ||||||
Printed Circuit Boards | $ | 160.3 | $ | 264.1 | ||||
Assembly (a) | 75.0 | 88.7 | ||||||
Other (a) | 14.1 | 26.9 | ||||||
Eliminations | (5.4 | ) | (11.0 | ) | ||||
Total Net Sales | $ | 244.0 | $ | 368.7 |
(a) With the closure of our Milwaukee Facility, we reclassified the operating results of the Milwaukee Facility to “Other.” Our segment results for prior periods have been reclassified for comparison purposes. |
Printed Circuit Boards segment net sales, including intersegment sales, for the six months ended June 30, 2009, decreased by $103.8 million, or 39.3% to $160.3 million. The majority of the decrease is a result of a decrease in volume of more than 41% which was driven by reduced demand across all end-user market segments.
Assembly segment net sales decreased by $13.7 million, or 15.4%, to $75.0 million for the six months ended June 30, 2009, compared to the same period during 2008. The decline was the result of reduced demand across all end-user markets, partially offset by improved demand in wind power related programs in our industrial & instrumentation, medical, consumer and other end markets.
Other sales relate to our Milwaukee Facility which ceased all operations in May 2009.
Cost of Goods Sold. Cost of goods sold, exclusive of items shown separately in the condensed consolidated statement of operations for the six months ended June 30, 2009, was $200.2 million, or 82.0% of consolidated net sales. This represents a 3.9 percentage point increase from the 78.1% of consolidated net sales for the six months ended June 30, 2008.
In response to global economic conditions, in November 2008, we announced a plan to close our Milwaukee Facility and to reduce our direct and indirect labor costs globally. These activities were substantially completed during the first half of 2009. We anticipate this will better align our labor and overhead costs with current market demands. As a result of planned reductions and attrition, our direct labor headcount, including temporary workers, declined to an average of approximately 8,100 during the six months ended June 30, 2009, compared to an average of approximately 12,000 during the same period in the prior year, and compared to approximately 9,000 as of December 31, 2008. Our average indirect labor headcount declined approximately 26% during the six months ended June 30, 2009 compared to the same period in 2008.
The costs of materials, labor and overhead in our Printed Circuit Boards segment can be impacted by trends in global commodities prices and currency exchange rates, as well as other cost trends which can impact minimum wage rates, electricity and diesel fuel costs in China. Economies of scale can help to offset any adverse trends in these costs. Cost of goods sold for the six months ended June 30, 2009, as compared to the same period in the prior year, was negatively impacted by higher labor and overhead costs relative to sales volume. Various factors, including our willingness to work with the local labor bureau in China, led to our decision to stagger the execution of head count reductions, which negatively impacted direct and indirect labor costs during the period. Partially offsetting the effect of labor and overhead costs, our cost of materials was favorably impacted by positive trends in the global commodities markets as well as favorable pricing from our materials suppliers.
Cost of goods sold in our Assembly segment relates primarily to component materials costs. As a result, trends in sales volume for the segment drive similar trends in cost of goods sold. Our costs have been positively impacted by favorable pricing from our materials suppliers as well as reduced labor and overhead costs which resulted from head count reductions implemented in the fourth quarter of 2008.
Selling, General and Administrative Costs. Selling, general and administrative costs decreased $8.0 million or 26.9%, to $21.7 million for the six months ended June 30, 2009, compared to the same period in the prior year. This decline was a result of global headcount reductions in our sales and administrative organization during the fourth quarter of 2008, lower compensation expense and the successful implementation of other cost savings initiatives including wage freezes and travel restrictions, partially offset by increased professional fees incurred during the period.
Depreciation. Depreciation expense for the six months ended June 30, 2009, declined by $1.0 million to $25.3 million as compared to $26.3 million for the same period of 2008. The decrease relates primarily to impairment write-downs of fixed assets at our Milwaukee Facility during the fourth quarter of 2008. Depreciation expense in our Printed Circuit Boards and Assembly segments of $22.9 million and $2.4 million, respectively were substantially unchanged as compared to the same period in 2008, primarily as our base of depreciable assets in each segment remained relatively constant.
Restructuring and Impairment. In light of the global economic downturn which began towards the end of 2008, and as part of our ongoing efforts to align capacity, overhead costs and operating expenses with market demand, we initiated restructuring activities beginning in the fourth quarter of 2008 which continued through the first half of 2009. These activities have been substantially completed, and included the shutdown of our Milwaukee Facility, as well as workforce reductions across our global operations. The cumulative cost of these activities as of June 30, 2009, approximate $19.6 million, including approximately $14.3 million of cash charges and approximately $5.3 million of non-cash asset impairment charges. The estimated cash charges include approximately $9.2 million related to headcount reductions with the balance related to lease termination and other closure costs.
For the six months ended June 30, 2009, we recorded restructuring charges of approximately $4.6 million, which was net of reversals and gains on disposal of assets totaling approximately $2.0 million. The restructuring charges recorded during the period relate primarily to lease terminations and other closure costs at our Milwaukee Facility, which, in accordance with U.S. GAAP, could not be accrued until the Milwaukee Facility ceased operations. During the quarter ended June 30, 2009, due to higher than anticipated employee attrition in our Printed Circuit Boards segment; we were able to reduce the number of involuntary headcount reductions we had planned. As a result we reversed approximately $1.7 million in related accrued severance costs. We do not expect we will incur significant additional charges related to these restructuring activities.
Operating (Loss) Income. The operating loss of $8.3 million for the six months ended June 30, 2009, represents a decrease of $32.5 million compared to operating income of $24.2 million during the six months ended June 30, 2008. The primary sources of operating (loss) income for the six months ended June 30, 2009 and 2008, were as follows:
Source (dollars in millions) | 2009 | 2008 | ||||||
Printed Circuit Boards segment | $ | (3.2 | ) | $ | 26.3 | |||
Assembly segment (a) | 3.6 | 0.4 | ||||||
Other (a) | (8.7 | ) | (2.5 | ) | ||||
Operating (loss) income | $ | (8.3 | ) | $ | 24.2 |
(a) With the closure of our Milwaukee Facility, we reclassified the operating results of the Milwaukee Facility to “Other.” Our segment results for prior periods have been reclassified for comparison purposes. |
The operating income from our Printed Circuit Boards segment decreased by $29.5 million to an operating loss of $3.2 million for the six months ended June 30, 2009, compared to $26.3 million of operating income for the same period in the prior year. The decrease is primarily the result of declining sales volume, partially offset by reduced selling, general and administrative expense and an approximate $1.7 million reversal of accrued restructuring costs.
The operating income from our Assembly segment was $3.6 million for the six months ended June 30, 2009, compared to $0.4 million for the same period in the prior year. The increase is primarily the result of reduced selling, general and administrative expense and improved cost of goods sold relative to sales, partially offset by declining sales volumes.
The Other operating loss relates to our Milwaukee Facility which ceased operations in May 2009, and certain non-recurring professional fees.
Adjusted EBITDA. Reconciliations of operating (loss) income to Adjusted EBITDA for the six months ended June 30, 2009 and 2008, were as follows:
Six Months Ended June 30, | ||||||||
Source (dollars in millions) | 2009 | 2008 | ||||||
Operating (loss) income | $ | (8.3 | ) | $ | 24.2 | |||
Add-back | ||||||||
Depreciation and Amortization | 25.9 | 26.9 | ||||||
Restructuring and impairment | 4.6 | - | ||||||
Non-cash stock compensation expense. | 0.5 | 0.5 | ||||||
Adjusted EBITDA | $ | 22.7 | $ | 51.6 |
Adjusted EBITDA decreased by $28.9 million, or 56.0%, primarily as a result of a 33.8% decrease in net sales and a 3.9 percentage point increase in cost of goods sold relative to consolidated net sales, partially offset by reductions in selling, general and administrative expense.
Interest Expense, net. Interest expense, net of interest income, increased by $0.1 million, to $11.0 million for the six months ended June 30, 2009. Interest expense related to our 2011 Senior Subordinated 10.5% Notes is approximately $10.6 million in each six month period as the $200 million principal and the 10.5% interest rate remain unchanged since the notes were issued in 2003.
Other Expense. Other expense, net was $0.3 million for the six months ended June 30, 2009, as compared to $2.5 million of other income, net for the same period in the prior year. The other income in 2008 was primarily the result of foreign currency remeasurement gains during the first half of 2008, while the Chinese RMB appreciated more than 5% against the U.S. Dollar.
Income Taxes. Income tax expense of $1.4 million for the six months ended June 30, 2009, compares to income tax expense of $6.5 million for the same period in 2008. Our income tax provision relates primarily to our profitable operations in China and additional expense related to uncertain tax positions, partially offset by income tax benefits recognized in Hong Kong. Because of the substantial net operating loss carryforwards previously existing in our U.S. and other tax jurisdictions, we have not recognized certain income tax benefits in such jurisdictions for the Company’s substantial interest expense, among other expenses.
Liquidity and Capital Resources
We believe that cash flow from operations and available cash on hand will be sufficient to fund our capital expenditures and other currently anticipated cash needs. Our ability to meet our cash needs through cash generated by our operating activities will depend on the demand for our products, as well as general economic, financial, competitive and other factors, many of which are beyond our control. We cannot be assured however, that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule, that future borrowings will be available to us under credit facilities or that we will be able to raise third party financing in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness.
Our principal liquidity requirements will be for i) $10.5 million semi-annual interest payments required in connection with our $200 million 2011 Notes, payable in January and July each year, ii) capital expenditure needs of our continuing operations, iii) working capital needs, iv) scheduled capital lease payments for equipment leased by our Printed Circuit Boards segment, v) debt service requirements in connection with our 2006 Credit Agreement, and vi) maturity date principal payment of our $200 million 2011 Notes. In addition, the potential for acquisitions of other businesses by us in the future may require additional debt or equity financing.
Net cash provided by operating activities for the six months ended June 30, 2009 and 2008, were $36.8 million and $22.1 million, respectively. The improvement in net cash from operating activities is primarily due to positive changes in working capital partially offset by reduced income from operations and cash payments of approximately $8.6 million for severance and other restructuring costs.
Net cash used in investing activities was $6.5 million for the six months ended June 30, 2009, which related to capital expenditures and was net of $2.8 million in proceeds from disposal of equipment. This compares to $33.1 million of net cash used in investing activities for the six months ended June 30, 2008, which related to capital expenditures. Given the uncertainty about global economic conditions, we have and will continue to focus on managing capital expenditures to respond to changes in demand or other economic conditions. Our Printed Circuit Boards segment is a capital-intensive business that requires annual spending to keep pace with customer demands for new technologies, cost reductions, and product quality standards. The spending required to meet our customer’s requirements is incremental to recurring repair and replacement capital expenditures required to maintain our existing production capacities and capabilities. Total capital expenditures by our Printed Circuit Boards segment for the six months ended June 30, 2009 and 2008, were $8.4 million, and $28.7 million, respectively.
Net cash used by financing activities was $3.5 million for the six months ended June 30 2009, which all related to scheduled payments of a term loan under our 2006 Credit Agreement. In January 2008, we borrowed $20.0 million under the 2006 Credit Agreement, which we subsequently converted to a term loan as required by the original terms of the 2006 Credit Agreement.
We continue to explore certain strategic alternatives that may impact our liquidity, including but not limited to acquisitions, debt refinancing, debt retirement and equity offerings. We can give no assurance about our ability to execute any of these alternatives.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
We conduct our business in various regions of the world, and export and import products to and from several countries. Our operations may, therefore, be subject to volatility because of currency fluctuations. Sales are primarily denominated in U.S. dollars, while expenses are frequently denominated in local currencies, and results of operations may be affected adversely as currency fluctuations affect our product prices and operating costs or those of our competitors. From time to time, we enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations. We do not engage in hedging transactions for speculative investment reasons. Our hedging operations historically have not been material, and gains or losses from these operations have not been material to our cash flows, financial position or results from operations. There can be no assurance that our hedging activities will eliminate or substantially reduce risks associated with fluctuating currencies. At June 30, 2009, there were foreign currency hedge instruments outstanding with notional value of 420 million Chinese RMB related to our Asian operations.
Item 4. Controls and Procedures
As of June 30, 2009, under the supervision, and with the participation of our Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(c) of the Securities Exchange Act of 1934, as amended). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2009, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and (b) is accumulated and communicated to our management, including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) | Exhibits | |
31.1 | Chief Executive Officer’s Certification required by Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 | Chief Financial Officer’s Certification required by Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Chief Financial Officer Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Clayton, State of Missouri on the day of August 14, 2009.
VIASYSTEMS, INC. | |
By: | /s/ David M. Sindelar |
Name: | David M. Sindelar |
Title: | Chief Executive Officer (Principal Executive Officer) |
By: | /s/ Gerald G. Sax |
Name: | Gerald G. Sax |
Title: | Senior Vice President & Chief Financial Officer (Principal Financial and Principal Accounting Officer) |
EXHIBIT INDEX
Exhibit No. | Description |
31.1 | Chief Executive Officer’s Certification required by Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended.. |
31.2 | Chief Financial Officer’s Certification required by Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended.. |
32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Chief Financial Officer Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002. |