VIASYSTEMS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2002
--------------------------------------------------

OR

[ ] 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)

VIASYSTEMS, INC.
(Exact name of Registrant as specified in charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)

43-1777252
(I.R.S. Employer Identification No.)

101 SOUTH HANLEY ROAD
ST. LOUIS, MO 63105
(314) 727-2087
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

VIASYSTEMS, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes to condensed consolidated financial statements.

2

VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

3

VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

4

VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of
Viasystems, Inc. ("Viasystems") and its subsidiaries 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. Viasystems, together with its subsidiaries and its holding
company parent, Viasystems Group, Inc. ("Group"), is herein referred to as the
"Company." The results for the three and six months ended June 30, 2002, are not
necessarily indicative of the results that may be expected for a full fiscal
year. These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in Viasystems' 2001
Annual Report on Form 10-K and other filings made with the Securities and
Exchange Commission.

2. SALE OF JOINT VENTURE INTEREST

In June 2002, the Company sold its entire equity interest in Raintherm
Limited, a manufacturer of thermal management systems used in custom metal
enclosures to A/S Dantherm Holding Company. In connection with such disposition,
the Company entered into a supply agreement with the buyer, whereby, the Company
agreed to purchase, to the extent needed, certain thermal management products
from the buyer. Total consideration received was $14,500 resulting in a gain on
sale of $4,187 recorded in other income in the condensed consolidated statement
of operations.

3. RESTRUCTURING AND IMPAIRMENT CHARGES

In light of the continued economic downturn related to many of its key
telecommunication and networking customers, the Company has continued its
restructuring activities during 2002. The continued downturn has made it
necessary for the Company to regularly evaluate its cost position compared to
currently anticipated levels of business. During 2002, this continued evaluation
has resulted in additional plant shutdowns and downsizings to reduce costs to
more appropriate levels, in line with current and expected customer demand. A
summary of the restructuring activity taken during 2002 is as follows:

During the quarter ended March 31, 2002, the Company recorded a
restructuring charge of $1,646, primarily related to workforce reductions at its
Italian metal fabrication and assembly facility. The workforce reduction
impacted a total of 82 employees all of which were regular employees. Seven of
these employees were terminated by March 31, 2002, with an additional 31
employees to be terminated by the end of 2002 and the remainder to be terminated
in 2003.

Additionally, during the quarter ended March 31, 2002, the Company reversed
$1,646 of excess restructuring accruals, primarily related to the closure of its
Puerto Rico PCB fabrication facility.

During the quarter ended June 30, 2002, the Company recorded a
restructuring charge of $2,818 primarily related to the closure of its remaining
printed circuit board assembly operation in San Jose, California and other
workforce reductions in North America. The San Jose facility closure impacted a
total of 198 employees, all of which were regular, non-union employees. 173 of
these employees were terminated by the end of July 2002, the last month of
operations with the remaining 25 transition team employees to be terminated
during the third quarter of 2002. The other North American workforce reductions
impacted a total of 73 employees, of which, 49 were regular, non-union employees
and 24 were temporary employees.

5

In connection with the closure of the San Jose, California printed circuit
board assembly operation, the Company also recorded impairment charges totaling
$4,748 to write-down to fair value assets being held for sale related to this
operation. The impairment consisted of a write-down of $1,888 for land and
building and $2,860 for machinery and equipment as well as office equipment. The
Company is actively holding this property and equipment for sale and expects to
complete the disposal of these assets during 2002. At June 30, 2002, these
assets had a net book value of $6,598, of which, $4,600 related to the land and
building.

Below is a table summarizing restructuring and impairment activity for the
six months ended June 30, 2002:

The restructuring and impairment charges were determined based on formal
plans approved by the Company's management using the best information available
to it at the time. The amounts the Company may ultimately incur may change as
the balance of the plans are executed.

4. INVENTORIES

The composition of inventories at June 30, 2002, is as follows:

Raw materials.................................... $ 50,058
Work in process.................................. 31,130
Finished goods................................... 25,674
--------------
Total......................................... $ 106,862
==============

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, the Company implemented Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets", and as a result, ceased amortizing goodwill and other indefinite lived
intangible assets.

Also in connection with the implementation, the Company evaluated its
goodwill and other indefinite lived intangible assets for impairment in
accordance with SFAS 142. The evaluation did not result in an impairment charge
at any of the Company's reporting units.

6

Had the implementation of SFAS 142 occurred at January 1, 2001, and
amortization of goodwill ceased, net loss, for the three and six months ended
June 30, 2001, would have been as follows:

Included in the Company's intangible assets at December 31, 2001 and June
30, 2002 is goodwill totaling approximately $213,000 that is not subject to
amortization. During the three and six months ended June 30, 2002, there were no
acquisitions of intangible assets. The components of intangible assets subject
to amortization were as follows:

Expected future annual amortization expense is as follows:

Fiscal Years:

2002* ................... $ 3,679
2003 .................... 2,845
2004 .................... 2,455
2005 .................... 2,207
2006 .................... 2,010
Thereafter .............. 12,092
------------
$ 25,288
============

*Represents remaining six month period ending December 31, 2002.

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6. LONG-TERM OBLIGATIONS AND PLAN OF REORGANIZATION

The composition of long-term obligations at June 30, 2002, is as follows:

Credit Agreement:
Term facilities ................................................ $ 437,250
Revolvers ...................................................... 70,600
Senior Subordinated Notes due 2007 ................................. 400,000
Series B Senior Subordinated Notes due 2007 ........................ 100,000
Series B Senior Subordinated Notes due 2007, Premium ............... 2,814
Senior Unsecured Notes, including paid-in-kind interest of $13,810 . 113,810
Senior Unsecured Notes, discount ................................... (23,440)
Other and capital lease obligations ................................ 9,385
------------
1,110,419
Less: current maturities and amounts subject to acceleration ....... 1,100,660
------------
$ 9,759
============

The Company has experienced and continues to experience financial
difficulties primarily as a result of the dramatic downturn in telecommunication
and networking component demand that occurred in 2001 and continues through
2002. The economic downturn affecting the Company's large telecommunication and
networking customer base has resulted in slower sales and weaker cash flows than
management originally expected. As a result of the downturn and the Company's
highly leveraged capital structure, the Company failed to satisfy certain
financial maintenance covenants contained in its senior secured credit facility
at the end of the first quarter of 2002.

In anticipation of this circumstance, during the first quarter of 2002, the
Company's board of directors established a special committee and retained
Rothschild Inc. as independent financial advisor to evaluate recapitalization
alternatives that would reduce its debt and strengthen its balance sheet. In
addition, the Company entered into an amendment to the senior secured credit
facility on March 29, 2002 and a subsequent amendment on May 29, 2002 under
which its senior secured credit facility lenders agreed to refrain from
exercising any rights or remedies under such facility in respect of the
Company's failure to comply with specified covenants thereunder prior to August
29, 2002. Under the terms of the amendments, the Company's revolving borrowings
under the senior secured credit facility are limited to $100 million, unless its
consolidated net sales for the preceding eight week period exceed specified
thresholds, in which case the Company's revolving loan availability is increased
to $150 million. The amendments further increased the interest rates payable on
these borrowings by .25% per annum, imposed additional financial and operating
restrictions and provides for the grant of certain additional liens to secure
these borrowings.

On May 30, 2002, the Company also announced that in light of these
developments and consistent with the terms of the forbearance agreement with the
senior secured credit facility lenders, the Company would not make the scheduled
$24.4 million interest payment on our senior subordinated notes that was due on
June 3, 2002. As a result of the failure to make this interest payment, an event
of default has occurred and is continuing under its senior subordinated notes.
Accordingly, the holders of these notes currently have the right to accelerate
payment thereunder. In addition, if the senior secured credit facility lenders
demand repayment of such indebtedness following the expiration of the existing
forebearance agreement, the holders of the Company's senior unsecured notes
will have the right to accelerate payment thereunder.

During the second fiscal quarter of 2002, the Company began negotiations
with its senior secured credit facility lenders, holders of its senior unsecured
notes and holders of its senior subordinated notes regarding a recapitalization
plan.

On July 2, 2002, the Company announced that it had reached an agreement in
principle with the steering committee of the senior secured credit facilities,
affiliates of Hicks, Muse, Tate & Furst Incorporated, and an ad

8

hoc committee of the holders of senior subordinated notes of Viasystems, Inc.
regarding the terms of a recapitalization plan. Members of these creditor groups
hold collectively approximately 42% of the existing outstanding indebtedness
under the Company's senior secured credit facility, 100% of the principal amount
of outstanding unsecured senior notes and 70% of the principal amount of
outstanding senior subordinated notes.

The agreement in principle provides for the modification of the terms of
the Company's existing senior secured indebtedness and the conversion of
approximately $715 million of existing indebtedness into preferred and common
stock. The agreement in principle also contemplates the execution of an as yet
uncommitted revolving credit facility to meet the Company's future working
capital requirements. Based on the terms of the agreement in principle and
ongoing negotiations with the Company's creditor constituencies, it is
anticipated that holders of Viasystems Group, Inc.'s preferred stock will
receive a nominal distribution in the form of warrants to purchase common stock
and that the holders of common stock will receive no recovery.

The Company has continued the negotiation of definitive agreements with its
principal creditor constituencies to implement the recapitalization transactions
contemplated by the agreement in principle. The Company's objective is to
complete these negotiations, execute the definitive agreements and publicly
announce the recapitalization plan as soon as possible, preferably within the
next two weeks. However, there can be no assurance that the Company will succeed
in completing the negotiations and entering into the definitive agreements or
that the recapitalization plan contemplated by the agreement in principle will
be consummated on the terms described above, if at all.

As of June 30, 2002, the Company had $85.2 million of cash and cash
equivalents and the Company had revolver availability under the senior secured
credit facility of $17.9 million.

The Company anticipates that its primary uses of cash for the next twelve
months will be:

o to meet working capital requirements;

o for capital expenditures for maintenance, replacement and acquisitions of
equipment, expansion of capabilities, productivity improvements and
product and process technology development; and

o to pay interest on, and to repay principal of, indebtedness under its
senior secured credit facility.

The Company's primary sources of cash are cash on hand, cash from operating
activities and revolving borrowings under its existing senior secured credit
facility. These sources of cash would be sufficient to meet the Company's
anticipated requirements for working capital, capital expenditures, and debt
service under its senior secured credit facility over the next 12 months, but
would not be sufficient to make required interest payments on its senior
subordinated notes. Further, in the event the Company's senior secured lenders
demand repayment of such indebtedness following the expiration of the existing
forbearance agreement on August 29, 2002, or the holders of the Company's senior
unsecured and senior subordinated notes elect to seek acceleration and repayment
of that indebtedness, the Company would not have sufficient liquidity to repay
such indebtedness and the Company would not expect to be able to refinance such
indebtedness. As there are currently no agreements in place with these lenders
to refrain from exercising these rights and there can be no assurance that the
recapitalization plan contemplated by the agreement in principle will be
successfully implemented, the Company has reclassified this indebtedness, in the
approximate aggregate amount of $1.0 billion, as current liabilities.

Borrowings under the Company's existing senior secured credit facility bear
interest at floating rates which vary according to the interest option the
Company selects. Base rate term loans bear interest at the then effective base
rate plus an applicable margin ranging from 2.50% to 3.00%. Eurocurrency term
loans bear interest at the then effective eurocurrency base rate plus an
applicable margin ranging from 3.50% to 4.00%. Revolving credit

9

loans bear interest, at our option, at the then effective base rate plus 2.5% or
the then effective eurocurrency base rate plus 3.50%. The Company's senior
subordinated notes bear interest, payable semiannually, at the rate of 9 3/4%
per annum.

7. COMPREHENSIVE INCOME

The components of comprehensive income, net of tax, are as follows:

8. BUSINESS SEGMENT INFORMATION

The Company operates in one product business segment--a worldwide
vertically integrated independent provider of electronics manufacturing
services, which are sold throughout many diverse markets.

The Company's operations are located worldwide and are analyzed by three
geographical segments. Segment data includes intersegment revenues.

Pertinent financial data by major geographic segments is as follows:

9. NEW ACCOUNTING STANDARDS

In October 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations", to be effective for all
fiscal years beginning after June 15, 2002, with early adoption permitted. SFAS
No. 143 provides for the fair value of a liability for an asset retirement
obligation covered under the scope of SFAS No. 143 to be recognized in the
period in which the liability is incurred, with an offsetting increase in the
carrying amount of the related long-lived asset. Over time, the liability would
be accreted to its present value, and the capitalized cost would be depreciated
over the useful life of the related

10

asset. Upon settlement of the liability, an entity would either settle the
obligation for its recorded amount or incur a gain or loss upon settlement. The
Company is currently assessing the impact, if any, of SFAS No. 143 on its
financial position, results of operations and cash flows as well as timing of
its adoption.

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145
"Gain or loss on early extinguishment of debt", to be effective for fiscal years
beginning after May 15, 2002, with immediate effectiveness for certain
transactions occurring after May 15, 2002, with overall early adoption
permitted. SFAS No. 145 among other things, eliminated the prior requirement
that all gains and losses from the early extinguishment of debt be classified as
an extraordinary item. Upon adoption of SFAS No. 145, gains and losses from the
early extinguishment of debt are now classified as an extraordinary item only if
they meet the "unusual and infrequent" criteria contained in Accounting
Principles Bulletin ("APBO") No. 30. In addition, upon adoption of SFAS No. 145,
all gains and losses from the early extinguishment of debt that had been
classified as an extraordinary item are to be reassessed to determine if they
would have met the "unusual and infrequent" criteria of APBO No. 30; any such
gain or loss that would not have met the APBO No. 30 criteria are retroactively
reclassified and reported as a component of income before extraordinary item.
The Company is currently assessing the impact of SFAS No. 145 on its financial
position, results of operations and cash flows.

In June 2002, Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" to be
effective for exit or disposal activities initiated after December 15, 2002 with
early adoption encouraged. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 also establishes that
fair value is the objective for initial measurement of the liability. This
Statement applies to costs associated with an exit activity that does not
involve an entity newly acquired in a business combination or with a disposal
activity covered by SFAB No. 144. This statement does not apply to costs
associated with the retirement of a long-lived asset covered by SFAS No. 143.
The Company is currently assessing the impact of SFAS No. 146 on its financial
position, results of operations and cash flows as well as timing of its
adoption.

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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 Form 10-Q.

We have made forward-looking statements in this Form 10-Q 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.
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 Form 10-Q.

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, 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, our
relationship with unionized employees, risks associated with our acquisition
strategy, our substantial indebtedness, control by our largest stockholders and
other factors.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2002, Compared to Three Months Ended June 30, 2001

Net sales for the three months ended June 30, 2002 were $231.6 million,
representing a $77.6 million, or 25.1% decrease, from the same period in 2001.
The decrease was primarily a result of continued weakness in sales to North
American and European telecommunication and networking customers.

Cost of goods sold for the three months ended June 30, 2002 was $190.0
million, or 82.0% of sales, compared to $256.4 million, or 82.9% of sales
(excluding one-time write-offs of inventory totaling $49.3 million related to
restructurings), for the three months ended June 30, 2001. Cost of goods sold as
a percent of net sales increased as a result of lower absorption of our fixed
overhead cost in our facilities throughout North America, Europe and Asia due to
lower demand from our key telecommunication and networking customers.

Selling, general and administrative expenses for the three months ended
June 30, 2002 of $22.6 million decreased by $0.7 million versus the comparable
period in 2001. These costs decreased primarily due to cost reduction and
restructuring activities implemented during 2001 and 2002.

Depreciation and amortization decreased $8.6 million, from $33.6 million
for the quarter ended June 30, 2001, to $25.0 million for the same period of
2002, primarily due to the implementation of Statement of Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", whereby, effective January 1,
2002, goodwill and indefinite lived intangibles are no longer amortized and due
to the fixed assets disposed of in connection with the 2001 restructuring and
impairment activity.

During the quarter ended June 30, 2002 we incurred $4.6 million in
professional fees related to our plan of reorganization to reduce debt on our
balance sheet.

12

Interest expense increased $2.1 million, from $24.0 million for the quarter
ended June 30, 2001, to $26.1 million for the same period of 2002, primarily due
to increased interest expense related to the Senior Unsecured Notes partially
offset by lower market benchmark interest rates compared to the second quarter
of 2001.

Amortization of deferred financing costs increased $0.3 million, from $0.9
million for the quarter ended June 30, 2001, to $1.2 million for the same period
in 2002 due to amortization of deferred financing fees related to amendments to
our Senior Credit Facility during 2002.

Included in other expense (income) for the quarter ended June 30, 2002, was
income of $4.2 million, representing a gain on the sale of our joint venture
interest in Raintherm Limited, a manufacturer of thermal management systems used
in custom metal enclosures.

In light of the continued economic downturn related to many of our key
telecommunication and networking customers, we have continued our restructuring
activities during 2002. The continued downturn has made it necessary for us to
regularly evaluate our cost position compared to currently anticipated levels of
business. During 2002, this continued evaluation has resulted in additional
plant shutdowns and downsizings to reduce costs to more appropriate levels, in
line with current and expected customer demand. A summary of the restructuring
activity taken during 2002 is as follows:

During the quarter ended June 30, 2002, we recorded a restructuring charge
of $2.8 million primarily related to the closure of our remaining printed
circuit board assembly operation in San Jose, California and other workforce
reductions in North America. The San Jose facility closure impacted a total of
198 employees, all of which were regular, non-union employees. 173 of these
employees were terminated by the end of July 2002, the last month of operations
with the remaining 25 transition team employees to be terminated during the
third quarter of 2002. The other North American workforce reductions impacted a
total of 73 employees, of which, 49 were regular, non-union employees and 24
were temporary employees.

In connection with the closure of the San Jose, California printed circuit
board assembly operation, we also recorded impairment charges totaling $4.8
million to write-down to fair value assets being held for sale related to this
operation. The impairment consisted of a write-down of $1.9 million for land and
building and $2.9 million for machinery and equipment as well as office
equipment. We are actively holding this property and equipment for sale and
expect to complete the disposal of these assets during 2002. At June 30, 2002,
these assets had a net book value of $6.6 million, of which, $4.6 million
related to the land and building.

The restructuring and impairment charges were determined based on formal
plans approved by our management using the best information available to us at
the time. The amounts we may ultimately incur may change as the balance of the
plans are executed.

Six Months Ended June 30, 2002, Compared to Six Months Ended June 30, 2001

Net sales for the six months ended June 30, 2002 were $456.3 million,
representing a $242.0 million, or 34.7% decrease, from the same period in 2001.
The decrease was primarily a result of continued weakness in sales to North
American and European telecommunication and networking customers.

Cost of goods sold for the six months ended June 30, 2002 was $373.7
million, or 81.9% of sales, compared to $566.9 million, or 81.2% of sales
(excluding one-time write-offs of inventory totaling $49.3 million related to
restructurings), for the six months ended June 30, 2001. Cost of goods sold as a
percent of net sales increased as a result of lower absorption of our fixed
overhead cost in our facilities throughout North America, Europe and Asia due to
lower demand from our key telecommunication and networking customers.

13

Selling, general and administrative expenses for the six months ended June
30, 2002 of $45.9 million decreased by $5.9 million versus the comparable period
in 2001. These costs decreased primarily due to cost reduction and restructuring
activities implemented during 2001 and 2002.

Depreciation and amortization decreased $17.7 million, from $67.4 million
for the six months ended June 30, 2001, to $49.7 million for the same period of
2002, primarily due to the implementation of Statement of Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", whereby, effective January 1,
2002, goodwill and indefinite lived intangibles are no longer amortized and due
to the fixed assets disposed of in connection with the 2001 restructuring and
impairment activity.

Interest expense increased $4.7 million, from $46.0 million for the six
months ended June 30, 2001, to $50.7 million for the same period of 2002,
primarily due to increased interest expense related to the Senior Unsecured
Notes partially offset by lower market benchmark interest rates compared to
2001.

Amortization of deferred financing costs increased $0.5 million from $1.8
million for the six months ended June 30, 2001, to $2.3 million for the same
period in 2002 due to amortization of deferred financing fees related to
amendments to our Senior Credit facility during 2002.

Included in other expense (income) for the quarter ended June 30, 2002, was
income of $4.2 million, representing a gain on the sale of our joint venture
interest in Raintherm Limited, a manufacturer of thermal management systems used
in custom metal enclosures.

In light of the continued economic downturn related to many of our key
telecommunication and networking customers, we have continued our restructuring
activities during 2002. The continued downturn has made it necessary for us to
regularly evaluate our cost position compared to currently anticipated levels of
business. During 2002, this continued evaluation has resulted in additional
plant shutdowns and downsizings to reduce costs to more appropriate levels, in
line with current and expected customer demand. A summary of the restructuring
activity taken during 2002 is as follows:

During the quarter ended March 31, 2002, we recorded a restructuring charge
of $1.6 million, primarily related to workforce reductions at our Italian metal
fabrication and assembly facility. The workforce reduction impacted a total of
82 employees all of which were regular employees. Seven of these employees were
terminated by March 31, 2002, with an additional 31 employees to be terminated
by the end of 2002 and the remainder to be terminated in 2003.

Additionally, during the quarter ended March 31, 2002, we reversed $1.6
million of excess restructuring accruals, primarily related to the closure of
its Puerto Rico PCB fabrication facility.

During the quarter ended June 30, 2002, we recorded a restructuring charge
of $2.8 million primarily related to the closure of our remaining printed
circuit board assembly operation in San Jose, California and other workforce
reductions in North America. The San Jose facility closure impacted a total of
198 employees, all of which were regular, non-union employees. 173 of these
employees were terminated by the end of July 2002, the last month of operations
with the remaining 25 transition team employees to be terminated during the
third quarter of 2002. The other North American workforce reductions impacted a
total of 73 employees, of which, 49 were regular, non-union employees and 24
were temporary employees.

In connection with the closure of the San Jose, California printed circuit
board assembly operation, we also recorded impairment charges totaling $4.8
million to write-down to fair value assets being held for sale related to this
operation. The impairment consisted of a write-down of $1.9 million for land and
building and $2.9 million for machinery and equipment as well as office
equipment. We are actively holding this property and equipment for sale and
expect to complete the disposal of these assets during 2002. At June 30, 2002,
these assets had a net book value of $6.6 million, of which, $4.6 million
related to the land and building.

14

During the six months ended June 30, 2002 we incurred $4.6 million in
professional fees related to our plan of reorganization to reduce debt on our
balance sheet.

The restructuring and impairment charges were determined based on formal
plans approved by our management using the best information available to us at
the time. The amounts we may ultimately incur may change as the balance of the
plans are executed.

CASH FLOWS

Net cash used in operating activities was $3.7 million for the six months
ended June 30, 2002, compared to net cash used in operating activities of $21.1
million for the same period in 2001. The increase in operating cash relates to
timing of payments to vendors, partially offset by timing of collection of
receipts from certain major customers.

Net cash used in investing activities was $1.2 million for the six months
ended June 30, 2002, compared to $61.1 million for the six months ended June 30,
2001. The net cash used in investing activities for the six months ended June
30, 2002 related to capital expenditures of $15.7 million, offset by $14.5
million of cash received from the sale of our joint venture interest. The cash
used in investing activities for the six months ended June 30, 2001 was $61.1
million, of which, $50.5 million was related to capital expenditures with the
remainder related to two small acquisitions.

Net cash provided by financing activities was $55.7 million for the six
months ended June 30, 2002 compared to $58.7 million for the same period in
2001. The net cash provided by financing activities for the six months ended
June 30, 2002 related principally to borrowings of revolving loans under our
senior credit facility partially offset by financing fees of $3.2 million paid
related to the amendments to our senior credit facility. The net cash provided
by financing activities for the six months ended June 30, 2001 related
principally to borrowings of revolving and term loans under our senior credit
facility, partially offset by payments made for the chips loan notes and other
long-term obligations.

LIQUIDITY AND CAPITAL RESOURCES

We have experienced and continue to experience financial difficulties
primarily as a result of the dramatic downturn in telecommunication and
networking component demand that occurred in 2001 and continues through 2002.
The economic downturn affecting our large telecommunication and networking
customer base has resulted in slower sales and weaker cash flows than management
originally expected. As a result of the downturn and our highly leveraged
capital structure, we failed to satisfy certain financial maintenance covenants
contained in our senior secured credit facility at the end of the first quarter
of 2002.

In anticipation of this circumstance, during the first quarter of 2002, our
board of directors established a special committee and retained Rothschild Inc.
as independent financial advisor to evaluate recapitalization alternatives that
would reduce our debt and strengthen our balance sheet. In addition, we entered
into an amendment to the senior secured credit facility on March 29, 2002 and a
subsequent amendment on May 29, 2002 under which our senior secured credit
facility lenders agreed to refrain from exercising any rights or remedies under
such facility in respect of our failure to comply with specified covenants
thereunder prior to August 29, 2002. Under the terms of the amendments, our
revolving borrowings under the senior secured credit facility are limited to
$100 million, unless our consolidated net sales for the preceding eight week
period exceed specified thresholds, in which case our revolving loan
availability is increased to $150 million. The amendments further increased the
interest rates payable on these borrowings by .25% per annum, imposed additional
financial and operating restrictions and provides for the grant of certain
additional liens to secure these borrowings.

15

On May 30, 2002, we also announced that in light of these developments and
consistent with the terms of our forbearance agreement with the senior secured
credit facility lenders, we would not make the scheduled $24.4 million interest
payment on our senior subordinated notes that was due on June 3, 2002. As a
result of the failure to make this interest payment, an event of default has
occurred and is continuing under our senior subordinated notes. Accordingly, the
holders of these notes currently have the right to accelerate payment
thereunder. In addition, if the senior secured credit facility lenders demand
repayment of such indebtedness following the expiration of the existing
forebearance agreement, the holders of our senior unsecured notes will have the
right to accelerate payment thereunder.

During the second fiscal quarter of 2002, we began negotiations with our
senior secured credit facility lenders, holders of our senior unsecured notes
and holders of our senior subordinated notes regarding a recapitalization plan.

On July 2, 2002, we announced that we had reached an agreement in principle
with the steering committee of the senior secured credit facilities, affiliates
of Hicks, Muse, Tate & Furst Incorporated, and an ad hoc committee of the
holders of senior subordinated notes of Viasystems, Inc. regarding the terms of
a recapitalization plan. Members of these creditor groups hold collectively
approximately 42% of the existing outstanding indebtedness under our senior
secured credit facility, 100% of the principal amount of outstanding unsecured
senior notes and 70% of the principal amount of outstanding senior
subordinated notes.

The agreement in principle provides for the modification of the terms of
our existing senior secured indebtedness and the conversion of approximately
$715 million of existing indebtedness into preferred and common stock. The
agreement in principle also contemplates the execution of an as yet uncommitted
revolving credit facility to meet our future working capital requirements. Based
on the terms of the agreement in principle and ongoing negotiations with our
creditor constituencies, it is anticipated that holders of our preferred stock
will receive a nominal distribution in the form of warrants to purchase common
stock and that the holders of common stock will receive no recovery.

We have continued the negotiation of definitive agreements with our
principal creditor constituencies to implement the recapitalization transactions
contemplated by the agreement in principle. Our objective is to complete these
negotiations, execute the definitive agreements and publicly announce the
recapitalization plan as soon as possible, preferably within the next two weeks.
However, there can be no assurance that we will succeed in completing the
negotiations and entering into the definitive agreements or that the
recapitalization plan contemplated by the agreement in principle will be
consummated on the terms described above, if at all.

As of June 30, 2002, we had $85.2 million of cash and cash equivalents and
we had revolver availability under the senior secured credit facility of $17.9
million.

We anticipate that our primary uses of cash for the next twelve months will
be:

o to meet working capital requirements;

o for capital expenditures for maintenance, replacement and acquisitions of
equipment, expansion of capabilities, productivity improvements and
product and process technology development; and

o to pay interest on, and to repay principal of, indebtedness under our
senior secured credit facility.

Our primary sources of cash are cash on hand, cash from operating
activities and revolving borrowings under our existing senior secured credit
facility. These sources of cash would be sufficient to meet our anticipated
requirements for working capital, capital expenditures, and debt service under
our senior secured credit facility over the next 12 months, but would not be
sufficient to make required interest payments on our senior subordinated notes.
Further, in the event our senior secured lenders demand repayment of such
indebtedness following the expiration of the existing forbearance agreement on
August 29, 2002, or the holders

16

of our senior unsecured and senior subordinated notes elect to seek acceleration
and repayment of that indebtedness, we would not have sufficient liquidity to
repay such indebtedness and we would not expect to be able to refinance such
indebtedness. As there are currently no agreements in place with these lenders
to refrain from exercising these rights and there can be no assurance that the
recapitalization plan contemplated by the agreement in principle will be
successfully implemented, we have reclassified this indebtedness, in the
approximate aggregate amount of $1.0 billion, as current liabilities.

Borrowings under our existing senior secured credit facility bear interest
at floating rates which vary according to the interest option we select. Base
rate term loans bear interest at the then effective base rate plus an applicable
margin ranging from 2.50% to 3.00%. Eurocurrency term loans bear interest at the
then effective eurocurrency base rate plus an applicable margin ranging from
3.50% to 4.00%. Revolving credit loans bear interest, at our option, at the then
effective base rate plus 2.5% or the then effective eurocurrency base rate plus
3.50%. Our senior subordinated notes bear interest, payable semiannually, at the
rate of 9 3/4% per annum.

NEW ACCOUNTING STANDARDS

In October 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations", to be effective for all
fiscal years beginning after June 15, 2002, with early adoption permitted. SFAS
No. 143 provides for the fair value of a liability for an asset retirement
obligation covered under the scope of SFAS No. 143 to be recognized in the
period in which the liability is incurred, with an offsetting increase in the
carrying amount of the related long-lived asset. Over time, the liability would
be accreted to its present value, and the capitalized cost would be depreciated
over the useful life of the related asset. Upon settlement of the liability, an
entity would either settle the obligation for its recorded amount or incur a
gain or loss upon settlement. We are currently assessing the impact, if any, of
SFAS No. 143 on our financial position, results of operations and cash flows as
well as timing of its adoption.

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145
"Gain or loss on early extinguishment of debt", to be effective for fiscal years
beginning after May 15, 2002, with immediate effectiveness for certain
transactions occurring after May 15, 2002, with overall early adoption
permitted. SFAS No. 145 among other things, eliminated the prior requirement
that all gains and losses from the early extinguishment of debt be classified as
an extraordinary item. Upon adoption of SFAS No. 145, gains and losses from the
early extinguishment of debt are now classified as an extraordinary item only if
they meet the "unusual and infrequent" criteria contained in Accounting
Principles Bulletin ("APBO") No. 30. In addition, upon adoption of SFAS No. 145,
all gains and losses from the early extinguishment of debt that had been
classified as an extraordinary item are to be reassessed to determine if they
would have met the "unusual and infrequent" criteria of APBO No. 30; any such
gain or loss that would not have met the APBO No. 30 criteria are retroactively
reclassified and reported as a component of income before extraordinary item. We
are currently assessing the impact of SFAS No. 145 on our financial position,
results of operations and cash flows.

In June 2002, Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" to be
effective for exit or disposal activities initiated after December 15, 2002 with
early adoption encouraged. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 also establishes that
fair value is the objective for initial measurement of the liability. This
Statement applies to costs associated with an exit activity that does not
involve an entity newly acquired in a business combination or with a disposal
activity covered by SFAB No. 144. This statement does not apply to costs
associated with the retirement of a long-lived asset covered by SFAS No. 143. We
are currently assessing the impact of SFAS No. 146 on our financial position,
results of operations and cash flows as well as timing of its adoption.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

At June 30, 2002, approximately $507.9 million of our long-term debt,
specifically borrowings outstanding under Viasystems' senior credit facility
bore interest at variable rates. Accordingly, our earnings and cash flow are
affected by changes in interest rates. Assuming the current level of borrowings
at variable rates and assuming a two-percentage point increase in the average
interest rate under these borrowings, it is estimated that our interest expense
for the six months ended June 30, 2002, would have increased by approximately
$5.1 million. In the event of an adverse change in interest rates, management
would likely take actions that would mitigate our exposure to interest rate
risk; however, due to the uncertainty of the actions that would be taken and
their possible effects, this analysis assumes no such action. Further, this
analysis does not consider the effects of the change in the level of overall
economic activity that could exist in such an environment.

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 and 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 operations will eliminate or substantially reduce risks
associated with fluctuating currencies.

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PART II. OTHER INFORMATION

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The information required by this item is incorporated by reference to the
information in the section entitled "Liquidity and Capital Resources" in
Item 2 of Part I of this quarterly report on Form 10-Q.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Certificate of Incorporation of Viasystems, Inc.
(incorporated by reference to exhibit 3.1 to the
Registration Statement of Viasystems, Inc. on Form
S-1, Registration No. 333-29727 filed on June 20,
1997).

3.2 Bylaws of Viasystems, Inc. (incorporated by reference
to exhibit 3.2 to the Registration Statement of
Viasystems, Inc. on Form S-1, Registration No.
333-29727 filed on June 20, 1997).

4.11 Third Amendment, dated March 29, 2002, to the Credit
Agreement, dated as of March 29, 2000, as amended by
the First Amendment dated as of April 23, 2001, and
the Second Amendment dated as of June 28, 2001, among
Viasystems Group, Inc., as Guarantor, Viasystems,
Inc., as U.S. Borrower, Viasystems Canada, Inc. and
Print Service Holding N.V., as Foreign Subsidiary
Borrowers, the several banks and other Financial
Institutions parties thereto, The Chase Manhattan
Bank of Canada, as Canadian Administrative Agent,
Chase Manhattan Bank International Limited, as
Multicurrency Administrative Agent, and The Chase
Manhattan Bank, as Administrative Agent
(incorporated by reference to exhibit 4.11 to
Viasystems Group, Inc.'s 2001 Annual Report on Form
10-K filed on April 1, 2002).

4.12 Fourth Amendment and Waiver, dated as of May 29,
2002, with respect to the Credit Agreement, dated as
of March 29, 2000, as amended by the First Amendment
dated as of April 23, 2001, the Second Amendment
dated as of June 28, 2001 and the Third Amendment
dated as of March 29, 2002, among Viasystems Group,
Inc., Viasystems, Inc., as U.S. Borrower, Viasystems
Canada Holdings, Print Service Holding N.V., the
several banks and other financial institutions from
time-to-time parties thereto, J.P. Morgan Bank
Canada, as Canadian administrative agent, J.P. Morgan
Europe Limited, as the multicurrency administrative
agent, and J.P. Morgan Chase Bank, as administrative
agent (incorporated by reference to exhibit 4.12 to
Viasystems Group, Inc.'s Quarterly Report on Form
10-Q filed on August 14, 2002).

10.23 Agreement, dated as of February 4, 2002, among
Viasystems Group, Inc., Viasystems, Inc., Viasystems
Technologies Corp. LLC, Viasystems Milwaukee, Inc.,
Viasystems International, Inc., Wire Harness LLC,
Viasystems Milford LLC, Viasystems San Jose, Inc.,
Viasystems Portland, Inc., and James N. Mills
(incorporated by reference to exhibit 10.23 to
Amendment No. 2 to Viasystems Group, Inc.'s 2001
Annual Report on Form 10-K filed on April 29, 2002).

99.1 Certification by Joseph S. Catanzaro, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as
adopted by Section 906 of the "Sarbanes-Oxley Act of
2002". *

19

99.2 Certification by David M. Sindelar, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as
adopted by Section 906 of the "Sarbanes-Oxley Act of
2002". *

(b) Reports on Form 8-K

Filed March 28, 2002, Reporting Item 5. We announced that
Hicks, Muse, Tate & Furst Incorporated increased its
investment in Viasystems, Inc., a wholly owned subsidiary of
the Registrant.

Filed April 23, 2002, Reporting Item 5. We announced that the
New York Stock Exchange would suspend trading of the
Registrant's common stock prior to the opening of business on
Thursday, April 18, 2002, and initiate procedures to delist
the common stock.

Filed July 3, 2002, Reporting Item 5. We announced that we had
reached an agreement in principle with (i) a Steering
Committee of the holders of indebtedness of Viasystems, Inc.
under Viasystems, Inc.'s senior credit facility, (ii) certain
affiliates of Hicks, Muse, Tate & Furst Incorporated, and
(iii) an Ad Hoc Committee of the holders of Viasystems, Inc.'s
9 3/4% senior subordinated notes due 2007 related to the
recapitalization of our balance sheet.

- --------------

* Filed herewith

20

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

VIASYSTEMS, INC.

Dated: August 14, 2002 By:
/s/ David M. Sindelar
------------------------------
Name: David M. Sindelar
Title: Chief Executive Officer

By:
/s/ Joseph S. Catanzaro
------------------------------
Name: Joseph S. Catanzaro
Title: Senior Vice President and
Chief Financial Officer

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INDEX TO EXHIBITS