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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
333-29727
(Commission File Number)
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VIASYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-177752
(I.R.S. Employer Identification No.)
101 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63105
(314) 727-2087
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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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 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. (The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such common equity, as of a specified date within 60
days prior to the date of filing.)
NO ESTABLISHED PUBLISHED TRADING MARKET EXISTS FOR THE COMMON STOCK, PAR
VALUE $.01 per SHARE, OF VIASYSTEMS, INC. ALL OF THE 1,000 OUTSTANDING SHARES OF
COMMON STOCK, PAR VALUE $.01 per SHARE, OF VIASYSTEMS, INC. ARE HELD BY
VIASYSTEMS GROUP, INC.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS MARCH 29, 1999
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<S> <C>
Common Stock 1,000
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING STATEMENTS
Information set forth in this Annual Report on Form 10-K regarding expected
or possible future events, including statements of the plans, strategy, goals
and objectives of management for future growth, operations, prospects, products
and services and statements relating to future economic performance, is
forward-looking and subject to risks and uncertainties. For those statements,
the Company claims the protection of the safe harbor for forward-looking
statements provided for by the Private Securities Litigation Act of 1995.
Factors that could affect the future results of the Company and could cause
those results to differ materially from those expressed in the forward-looking
statements are discussed at greater length herein. See Item 7, "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
ITEM 1. BUSINESS
THE COMPANY
Viasystems, Inc. ("Viasystems" or the "Company") is a Delaware corporation
and is a wholly-owned subsidiary of Viasystems Group, Inc. ("Group"), its parent
holding company and sole stockholder. Group was formed in August 1996 to make
strategic acquisitions of printed circuit board ("PCB") manufacturers and
backplane assemblers and to integrate those acquisitions into a global
enterprise that is the preferred supplier to end users of PCBs and backplanes.
Discussion herein of Viasystems or the Company refer to Group, prior to the
formation of Viasystems as a subsidiary of Group in April 1997, and to
Viasystems subsequent to that date.
In a series of transactions during 1996 and 1997, the Company completed
acquisitions of: (i) Circo Craft Co. Inc. ("Circo Craft"), a PCB manufacturer
with principal operations in Canada and Puerto Rico; (ii) substantially all of
the assets of the Interconnection Technologies Unit of the Microelectronics
Group ("Lucent Division") of Lucent Technologies Inc. ("Lucent Technologies"),
which unit was a producer of PCBs in Richmond, Virginia and backplanes in
Richmond and is now operated as Viasystems Technologies Corp. ("Viasystems
Technologies"); (iii) Forward Group PLC ("Forward"), a PCB manufacturer with
principal operations in the United Kingdom; and (iv) Interconnection Systems
(Holdings) Limited ("ISL"), a PCB manufacturer with principal operations in the
United Kingdom.
During the first quarter of 1998, the Company completed three additional
acquisitions of: (i) certain assets and obligations of Ericsson Telecom AB's
("Ericsson") PCB production facility located in Sweden (the "Ericsson
Facility"); (ii) Mommers Print Service B.V. ("Mommers"), a PCB manufacturer
located in the Netherlands; and (iii) Zincocelere S.p.A. ("Zincocelere"), a PCB
manufacturer with principal operations in Italy.
MARKETS AND CUSTOMERS
Based on published industry data and management's knowledge of the
industry, the Company believes it is one of the largest manufacturers and
marketers of PCBs and backplanes in the world. PCBs are the basic platforms used
to interconnect microprocessors, integrated circuits and other components
essential to the functioning of virtually all electronic systems, ranging from
sophisticated computers and industrial products to basic household appliances.
Backplanes are printed circuit boards populated with components, such as
connectors, capacitors, resistors and power supplies. Backplanes are used in
electronic systems to distribute and ground power, to connect PCBs, power
supplies and other elements, and to relay information into and out of electronic
systems. The Company supplies over 800 customers globally, serving primarily the
telecommunications, computer, automotive, industrial and instrumentation,
military, and consumer electronics industries. As of December 31, 1998, the
Company operated 20 manufacturing facilities, strategically located in North
America, Europe and Asia.
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The Company has a unique, long-term supplier relationship with Lucent
Technologies, one of the world's leading designers, developers and manufacturers
of telecommunications systems, software and products. In connection with the
Lucent Division acquisition in December 1996, Lucent Technologies and the
Company have entered into a five-year supply agreement pursuant to which
substantial revenues may be derived. Under the agreement, Lucent Technologies is
required to purchase a minimum annual dollar volume of PCBs and backplanes from
the Company and is required to compensate the Company if it fails to purchase
such minimum annual dollar volume. The supply agreement contains automatic
renewal provisions for two additional one-year periods upon the Company's
satisfaction of specified performance requirements for cost, quality and
service. After the expiration of the two additional annual renewal periods, the
agreement continues to renew unless either party terminates the agreement on 18
months' notice. Lucent Technologies has also designated the Company as a
preferred supplier and afforded Viasystems the right to bid to supply all of
Lucent Technologies' product requirements for which the Company demonstrates
capability.
Sales to Lucent Technologies by the Company for the period from inception
(August 28, 1996) to December 31, 1996, and for the years ended December 31,
1997 and 1998 were $13.6 million, $310.1 million, and $334.2 million,
respectively. Lucent Technologies accounted for approximately 27.0%, 39.0% and
32.4% of the Company's net sales for the period from inception (August 28, 1996)
to December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively. The loss of, or a significant curtailment of orders from, Lucent
Technologies would affect adversely the Company's business, results of
operations, financial condition, prospects and ability to service debt.
In connection with the acquisition of the Ericsson Facility in January
1998, the Company entered into a perpetual global supply agreement with Ericsson
to produce a substantial portion of Ericsson's ongoing PCB requirements.
PRODUCTS AND SERVICES
The Company's offering of products and services includes the following:
Design and Development. The Company provides design and engineering
assistance to customers in the early stages of product development to assure
that both mechanical and electrical considerations are integrated to achieve a
high quality and cost-effective product. Through development groups located at
various facilities, the Company identifies, develops and markets new
technologies that it believes will benefit its customers. These development
groups work closely with customers during all stages of product life-cycles. For
instance, process design changes and refinements required for volume production
are identified and implemented prior to production. The Company also evaluates
customer designs in light of manufacturing considerations and, when appropriate,
recommends design changes to reduce manufacturing costs or lead times or to
increase manufacturing yields or the quality of finished PCBs.
Quick-Turnaround Prototype. Prototypes typically require lead times of
three to seven days, although lead times can be as short as 24 hours. The
Company provides quick-turnaround prototype services to customers to facilitate
their testing of products in development. Prototype development at the Company
has included multilayer PCBs of up to 24 layers, embedded discrete components,
and various high performance substrates for the high frequency microwave market.
Pre-Production. Pre-production is the manufacture of limited quantities of
PCBs and backplanes during the transition period from prototype to volume
production. Pre-production generally requires quick-turnaround delivery to
accommodate time-to-volume pressures or as a temporary solution for
unpredictable customer demands.
Medium to High Volume Production. Volume production is characterized by
longer lead times and increased emphasis on lower cost as the product moves to
full-scale commercial production. As customers increasingly demand a quick
transition from prototype to volume production, few independent manufacturers
can provide complex PCBs of 18 or more layers in the volume provided by the
Company's larger facilities. The Company operates nine facilities that have
medium and/or high volume PCB production capabilities.
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Backplanes. Backplanes are generally larger and thicker PCBs on which
connectors, pins and other components are mounted to interconnect PCBs,
integrated circuits and other electronic components. The Company incorporates
its own PCBs in backplanes to provide customers with a high level of PCB
technology on a quick-turnaround and volume basis.
Specialty Production. The Company manufactures the following specialty
products in quick-turnaround and medium to high volume quantities:
High-Performance PCBs. High-performance PCBs are used in electronic
products that require high frequency interconnect solutions, such as
cellular phone base stations and other telecommunications products, and are
manufactured using specialty materials with properties that address the
need for higher operating temperatures, higher frequencies and increased
density. The Company has the expertise and specialized engineering
processes required to manufacture high-performance PCBs with a broad range
of materials and technological requirements.
PCMCIA Products. Personal Computer Memory Card Industry Association
("PCMCIA") products are credit card-sized, plug-in PCBs, a significant
portion of which are memory and communication cards tailored to the mobile
computing market. PCMCIA production requires the ability to produce very
thin, dense packaging.
MANUFACTURING PROCESSES
The production of PCBs involves a variety of manufacturing disciplines,
including mechanical operations (such as lamination, drilling and routing),
chemical operations (such as copper deposition and etching), and graphics
operations (such as phototool generation, photoprinting and screen printing).
Much of the equipment is automated and highly specialized. The production
processes are substantially similar for all PCB products, whether double-sided
or multi-layer, and whether for a customer in the telecom industry or for
customers in any of the computer, automotive or other industries served by the
Company.
The Company's customers require that their suppliers be qualified under
various industry standards for manufacture of PCBs, including Bellcore standards
for telecommunications products, and UL (Underwriters Laboratories) standards
for electronics. All of the Company's facilities are ISO-9002 certified. This
certification facilitates worldwide acceptance of the Company's products.
ISO-9002 certification is based on successful implementation of certain quality
assurance requirements and includes ongoing monitoring of the Company's business
and periodic compliance audits conducted by an independent quality assessor.
The Company's more sophisticated manufacturing processes used in the
various manufacturing disciplines described above include:
Drilling. Complex multilayer PCBs require large numbers of small (less
than 0.019 inches) holes in order to interconnect the various PCB layers.
Automatic Plating. The Company has custom designed, computer
controlled plating lines that are capable of plating significant volumes of
high quality PCBs. The plating lines are installed above a special purpose
basement where chemicals are prepared and pumped to the manufacturing
lines, chemical wastes are pre-processed and water is pre-treated and
recycled.
Automatic Optical Inspection ("AOI") and Electrical Test ("ET")
Equipment. Because defects in complex circuitry cannot be readily detected
by conventional visual inspection, sophisticated AOI and ET equipment is
used to improve yields and reduce the potential for customer returns.
Surface Mount Technology. The Company incorporates the use of surface
mount technology to achieve greater component packaging densities. Surface
mount technology allows components to be soldered to the surface of a PCB
as opposed to the traditional through-hole technique, which requires
components to be affixed to PCBs by inserting leads through the board. The
use of surface mount technology has facilitated several overall
improvements in PCBs, including: (i) the miniaturization of PCBs; (ii)
end-user innovations using smaller and more complex designs; and (iii) more
reliable interconnection within the PCB.
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SALES AND MARKETING
The Company places a high priority on identifying and responding to its
customers' requirements on a timely basis. In order to ensure that the Company
is best positioned to respond to these requirements, it has developed a sales
and marketing strategy that utilizes global account managers, a highly trained
Company-employed direct sales force and independent manufacturers'
representatives. This global sales organization is structured to ensure
geographic coverage and account coordination.
As of December 31, 1998, the Company employed approximately 190 sales and
marketing employees, of which 71 were direct sales representatives strategically
located throughout 12 countries in North America, Europe, the Middle East and
South Africa. The Company is also represented by 11 manufacturers'
representative organizations in North America. The North American sales
organization is divided into three regions which are jointly serviced by direct
sales representatives and manufacturers' representatives. In Europe, the
Company's sales force is organized into four regions, by customer. In both North
America and Europe, a staff of sales engineers, technical service personnel and
customer service organizations support the sales organization to ensure
high-quality, customer-focused service. The global marketing organization
further supports the sales organization through market research, market
development and communications.
INTERNATIONAL OPERATIONS
Approximately 37% and 50% of the Company's 1997 and 1998 sales,
respectively, originated outside of North America, primarily in Europe. As of
December 31, 1998, the Company had manufacturing facilities in the U.K.,
Scotland, the Netherlands, Italy, Sweden and China, and sales offices throughout
Europe. The Company believes that its global presence is important as it allows
the Company to provide consistent, quality products on a timely basis to its
multinational customers worldwide. See Note 13 of the Company's Consolidated
Financial Statements for geographic region information.
The Company is subject to risks generally associated with international
operations, including price and exchange controls and other restrictive actions.
In addition, fluctuations in currency exchange rates may affect the Company's
results of operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" in Item 7 hereof.
RAW MATERIALS AND SUPPLIER RELATIONSHIP
The Company orders materials and supplies based on purchase orders received
and accepted and seeks to minimize its inventory of materials that are not
identified for use in filling specific orders. Raw materials used in the
Company's products consist mainly of inorganic chemicals, copper foil, copper
clad epoxy glass laminate, epoxy glass prepreg and dryfilm resist. Although the
Company uses a select group of suppliers, the materials used in manufacturing
PCBs are generally readily available in the open market. The Company works with
its suppliers to develop just-in-time supply systems to reduce inventory
carrying costs. The Company also maintains a Supplier Certification Program to
evaluate potential vendors on the basis of such factors as quality, on-time
delivery, cost, technical capability, and potential technical advancement. In
addition, the Company works closely with certain of its suppliers to improve the
raw materials used in PCB and backplane production. Although adequate amounts of
raw materials have been available in the past, there can be no assurances this
will continue in the future.
TECHNOLOGY, DEVELOPMENT AND PATENTS
The Company maintains a strong commitment to research and development,
focusing its efforts on enhancing existing product lines as well as developing
new products based on the Company's existing technologies and production
capabilities. During the period from the Company's inception (August 28, 1996)
to December 31, 1996 and the years ended December 31, 1997 and 1998, the
Company's research and development expenditures were $0.5 million, $10.8 million
and $13.4 million, respectively. In addition, in the Company's acquisitions of
Circo Craft and the Lucent Division in 1996, of Forward and ISL in 1997 and of
Mommers and Zincocelere in 1998, portions of the purchase prices -- totals of
$50.8 million, $294.5 million and $20.1 million in 1996, 1997 and 1998,
respectively -- were assigned to acquired in-process research and
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development and expensed in the Company's statements of operations. See the
Consolidated Financial Statements included in Item 8, hereof.
The Company's research and development staff of over 650 experienced
engineers, chemists and laboratory technicians works together with the Company's
sales staff to identify specific customer and industry needs and develop
innovative, high performance solutions which satisfy those needs. This method of
product development allows the customer to effectively become a member of the
development team, develops close ongoing working relationships between the
Company and its customers and, in many instances, permits the Company to gain an
in-depth understanding of its customers' businesses, thereby enabling it to
better anticipate and serve their needs. The Company also seeks to apply
advancements resulting from this process to other high-margin end user markets.
The Company has developed proprietary techniques and manufacturing
expertise, particularly in the area of complex multilayer PCBs. The Company has
received certain U.S. and foreign patents, including patents on advanced
registration and positioning techniques, solder leveling, drilling and pin
insertion, but chooses to rely primarily on trade secret protection. Although
such techniques and expertise are subject to misappropriation or obsolescence,
the Company intends to continue to develop improved methods, processes and
techniques as dictated by the technological needs of the business.
COMPETITION
The PCB and backplane industry is highly fragmented and characterized by
intense competition. The Company believes that its major competitors are the
independent and captive producers that manufacture multilayer PCBs and provide
backplane and other electronic assemblies.
The demand for PCBs has continued to be affected by the development of
smaller, more powerful electronic components requiring less PCB area but a
higher layer count. Expansion of the Company's existing products or services
could expose the Company to new competition. Moreover, new developments in the
electronics industry could render existing technology obsolete or less
competitive and could potentially introduce new competition into the industry.
There can be no assurance that the Company will continue to compete successfully
against present and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company competes on the basis of product quality, timeliness of
delivery, price, product costs, customer technical support and the Company's
integrated offering from development and design through volume production and
backplane assembly.
BACKLOG
The Company estimates that its backlog of unfilled orders on December 31,
1996, 1997 and 1998 was approximately $50.8 million, $108.5 million and $141.7
million, respectively. The increases in backlog in 1997 and 1998 were due to the
1997 acquisitions of Forward and ISL and the 1998 acquisitions of the Ericsson
Facility, Mommers and Zincocelere. Unfilled orders may be cancelled prior to
delivery; however, such cancellations have historically not been material.
Substantially all the backlog as of December 31, 1998 is expected to be filled
by March 30, 1999. The backlog outstanding at any point in time is not
necessarily indicative of the level of business to be expected in the ensuing
period.
ENVIRONMENTAL
Certain operations of the Company are subject to federal, state, local and
foreign environmental laws and regulations, which govern, among other things,
the discharge of pollutants into the air and water, as well as the handling and
disposal of solid and hazardous wastes. The Company believes that it is in
material compliance with applicable environmental laws and the costs of
compliance with such current or proposed environmental laws and regulations will
not have a material adverse effect on the Company. Further, the Company is not a
party to any claim or proceeding and is not aware of any threatened claim or
proceeding under environmental
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laws that could, if adversely decided, reasonably be expected to have a material
adverse effect. Currently, remedial activities are being undertaken at the
Company's facilities in Virginia and Puerto Rico. While the cost of such
remediation could be material, the prior owners are conducting the requisite
remedial actions pursuant to governmental orders and have agreed to indemnify
the Company for costs associated with the remediations. The Company believes
that the prior owners of those facilities are fully capable of performing and
will perform under such agreements. Accordingly, the Company does not believe
that any of these matters are reasonably likely to have a material adverse
effect on its business, results of operations, financial condition, prospects
and ability to service debt.
EMPLOYEES
As of December 31, 1998, the Company had approximately 9,300 employees.
Approximately 3,300 employees, or about 35%, were represented by various unions
pursuant to collective bargaining agreements. The Company has not experienced
any labor problems resulting in a work stoppage, and believes it has good
relations with its employees.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports and other
information with the Securities and Exchange Commission (the "SEC"). Any
reports, statements or other information filed by the Company may be read and
copied at the SEC's public reference room, at 450 Fifth Street NW, Washington,
DC, as well as at public reference rooms in New York, NY and Chicago, Ill. For
further information on public reference rooms, call 1 (800) SEC-0330. The
Company's filings are also available to the public from commercial retrieval
services and at the Internet web site maintained by the SEC at
http://www.SEC.gov.
ITEM 2. PROPERTIES
In addition to its executive offices in St. Louis, Missouri, as of December
31, 1998, the Company operated 20 principal manufacturing and research
facilities located in nine different countries with a total area of
approximately 3.6 million square feet. The Company owns approximately 2.9
million square feet and leases approximately 747,000 square feet. The Company
owns what it believes to be the largest PCB manufacturing facility in Europe.
The Company believes its plants and equipment include state-of-the-art
technology and are well-maintained. Production facilities for certain of the
Company's products are operating at or near capacity.
All of the Company's owned facilities are subject to mortgages pursuant to
a credit facility with a financial institution. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements included in Items 7 and 8, respectively, hereof.
The Company's facilities at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SIZE TYPE OF DESCRIPTION OF
LOCATION (APPROX. SQ. FT) INTEREST PRODUCTS/SERVICES PROVIDED
-------- ---------------- -------- --------------------------
<S> <C> <C> <C>
UNITED STATES
Richmond, Virginia................ 726,000 Owned High volume PCBs and backplanes
San German, Puerto Rico........... 199,000 Leased(1) High volume inner layer and high
density PCBs
CANADA
Kirkland, Quebec.................. 115,000 Owned High volume, high density PCBs
Pointe-Claire, Quebec............. 168,000 Owned High volume inner layers,
prototype and pre-production
Granby, Quebec.................... 119,000 Owned High volume, high density PCBs
MEXICO
Juarez, Mexico.................... 51,000 Leased(1) Backplanes
EUROPE
Selkirk, Scotland................. 142,000 Owned/Leased(2) Masslam
</TABLE>
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<TABLE>
<CAPTION>
SIZE TYPE OF DESCRIPTION OF
LOCATION (APPROX. SQ. FT) INTEREST PRODUCTS/SERVICES PROVIDED
-------- ---------------- -------- --------------------------
<S> <C> <C> <C>
Rugby, England............ 36,000 Leased(3) Pre-production PCBs
Tamworth, England......... 35,000 Owned Prototype, quick-turnaround
complex PCBs
Telford, England.......... 44,000 Owned Medium volume PCBs
Portsmouth, England....... 27,000 Leased(4) High reliability thick-film hybrids
South Shields, England.... 320,000 Owned High volume PCBs and
quick-turnaround
Newcastle, England........ 500,000 Owned High volume PCBs and backplanes
Blackburn, England........ 12,000 Owned High volume PCBs and quick-
turnaround
Bolden, England........... 52,000 Leased(5) Backplanes
Cavaglia, Italy........... 275,000 Owned High volume, medium- to
high-complexity PCBs
Pont Saint Martin,
Italy................... 101,000 Leased(6) High volume, medium- to
high-complexity PCBs
Echt, Netherlands......... 462,000 Owned High volume PCBs and backplanes
Norrkoping, Sweden........ 234,000 Leased(7) Prototype, quick-turnaround
and medium volume PCBs
ASIA
Nantong, China............ 17,000 Leased(8) Backplanes
</TABLE>
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(1) Lease expires December 31, 2002.
(2) Lease portion of facility (approximately 30,000 sq. ft.) expires May 15,
2004.
(3) Lease expires June 24, 2009.
(4) Lease expires October 1, 2004.
(5) Lease expires June 21, 2014.
(6) Lease expires December 31, 2006.
(7) Lease expires December 31, 2000.
(8) Lease expires July 31, 2000.
In addition to the facilities listed above, at December 31, 1998 the
Company maintained several sales and marketing facilities located throughout
North America and Europe, all of which are leased.
ITEM 3. LEGAL PROCEEDINGS
The operations of the Company have from time to time been involved in
claims and litigation. The nature of the Company's business is such that it is
anticipated that the Company will be involved from time to time in claims and
litigation considered to be in the ordinary course of its business. Based on
experience with similar claims and litigation, the Company does not anticipate
that these matters will have a material adverse effect on its business, results
of operations, financial condition, prospects or ability to service debt.
The Company anticipates that it may, from time to time, receive
notifications alleging infringements of patents generally held by other
manufacturers. Disputes over patent infringement are common in the electronics
industry and typically begin with notices of the type described above. Although
the ultimate resolution of the legal action and infringement notices described
above cannot be predicted, the Company believes that such resolution, including
any ultimate liability, will not have a material adverse effect on its business,
results of operations, financial condition, prospects or ability to service
debt.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
All of the Company's outstanding common stock is held by Group, and,
accordingly, there is no established public trading market for the Company's
common stock. The Company has paid no dividends since inception, and its ability
to pay dividends is limited by the terms of certain agreements related to its
indebtedness.
ITEM 6. SELECTED FINANCIAL DATA
THE COMPANY
The selected financial and other data below for the period from inception
(August 28, 1996) to December 31, 1996 presents financial information of Group
for the period during which Circo Craft and Viasystems Technologies were
operated by Group and prior to the formation of the Company and Group's
contribution of its assets to the Company in April 1997. The data for the period
from inception (August 28, 1996) to December 31, 1996 has been derived from the
audited consolidated financial statements of Group. The selected information
below for the years ended December 31, 1997 and 1998, present the financial
information of Viasystems and its subsidiaries subsequent to the capital
contribution by Group and the financial information of Group and its
subsidiaries prior to the capital contribution to Viasystems. The data for the
years ended December 31, 1997 and 1998, have been derived from the audited
consolidated financial statements of Viasystems. The following information
should be read in conjunction with the audited Consolidated Financial Statements
of Viasystems and the notes thereto and "Item 7. Management's Discussion and
Analysis of Results of Operations and Financial Condition," all included
elsewhere herein.
<TABLE>
<CAPTION>
FROM INCEPTION
(AUGUST 28,
1996) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1996 1997 1998
-------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 50,400 $ 795,289 $1,031,928
Cost of goods sold..................................... 42,052 554,097 723,741
Selling, general and administrative expenses........... 3,844 75,650 106,749
Depreciation........................................... 4,102 51,884 104,831
Amortization of intangible assets...................... 533 58,153 61,775
Write-off of acquired in-process research and
development(1)....................................... 50,800 294,500 20,100
--------- ---------- ----------
Operating income (loss).............................. (50,931) (238,995) 14,732
Interest expense....................................... 2,503 64,612 92,535
Amortization of deferred financing costs............... 470 6,629 9,354
Other expense.......................................... 262 1,024 4,960
--------- ---------- ----------
Loss before income taxes and extraordinary item...... (54,166) (311,260) (92,117)
Provision (benefit) for income taxes................... (5,424) 8,432 (7,334)
--------- ---------- ----------
Loss before extraordinary item....................... (48,742) (319,692) (84,783)
Extraordinary loss, net of tax(2)...................... -- 7,796 --
--------- ---------- ----------
Net loss............................................. $ (48,742) $ (327,488) $ (84,783)
========= ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
FROM INCEPTION
(AUGUST 28,
1996) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1996 1997 1998
-------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.............................. $ 16,117 $ 27,538 $ 9,335
Working capital........................................ 44,938 16,659 19,538
Total assets................................. 387,741 1,068,912 1,454,703
Total debt, including current maturities..... 265,620 847,375 1,134,495
Stockholders' equity (deficit)......................... 54,973 (92,193) (113,486)
OTHER DATA:
Adjusted EBITDA(3)..................................... $ 4,504 $ 165,812 $ 201,438
Operating cash flows................................... 1,662 104,906 (43,835)
Investing cash flows................................... (286,286) (273,067) (276,026)
Financing cash flows................................... 300,713 184,077 303,530
Capital expenditures................................... 3,563 117,163 130,361
</TABLE>
- ---------------
(1) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the acquisitions of Circo Craft and
the Lucent Division in 1996, Forward and ISL in 1997 and Mommers and
Zincocelere in 1998. The write-off relates to acquired research and
development for projects that do not have a future alternative use. See
"Note 1 to Consolidated Financial Statements" of Viasystems, Inc.
(2) The Company recorded, as an extraordinary item, a non-cash write-off of
deferred financing fees of approximately $7,796, net of income tax benefit
of $4,332, related to deferred financing fees incurred on debt retired
before maturity.
(3) Adjusted EBITDA is defined as operating income (loss) plus depreciation,
amortization and the non-cash charge relating to the write-off of acquired
in-process research and development. The Company believes that Adjusted
EBITDA enhances an understanding of its financial condition, results of
operations and cash flows by providing additional information for
determining its ability to meet debt service requirements as revenues
increase more than cash expenditures for operating expenses. Adjusted EBITDA
does not represent and should not be considered as an alternative to
operating income, net income or cash flow from operations as determined by
Generally Accepted Accounting Principles ("GAAP"). Adjusted EBITDA is not
indicative of operating performance and does not necessarily indicate
whether cash flow will be sufficient for cash requirements. Items excluded
from the calculation of Adjusted EBITDA are significant components in
understanding and assessing the Company's financial performance. For
example, the calculation of Adjusted EBITDA does not include the commitments
of the Company for capital expenditures and payment of debt and should not
be deemed to represent funds available to the Company. Adjusted EBITDA, as
presented, may not be comparable to similarly-titled measures of other
companies.
CIRCO CRAFT CO. INC.
The selected financial and other data below represents the financial
information of Circo Craft for the periods indicated. The data for the two
fiscal years ended December 31, 1995, and the nine months ended September 30,
1996 (the period prior to the acquisition of Circo Craft by Group), set forth in
Canadian GAAP in Canadian dollars ("C$"), has been derived from the audited
consolidated financial statements of Circo Craft. The consolidated financial
statements of Circo Craft have been prepared in accordance with Canadian GAAP,
which differs in certain significant respects from U.S. GAAP (see Note 7 to the
consolidated financial statements of Circo Craft). The data set forth in U.S.
GAAP for the two years ended December 31, 1995 and the nine months ended
September 30, 1996, has been derived from the audited consolidated financial
statements of Circo Craft and adjusted for differences between Canadian GAAP and
U.S. GAAP. The following information should be read in conjunction with the
audited consolidated
10
<PAGE> 11
statements of earnings, retained earnings and changes in financial position of
Circo Craft and the notes thereto and "Item 7. Management's Discussion and
Analysis of Results of Operations and Financial Condition," all included
elsewhere herein.
CANADIAN GAAP
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------- SEPTEMBER 30,
1994(1) 1995(1) 1996
--------- --------- -------------
(CANADIAN DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... C$151,825 C$185,156 C$129,633
Cost of goods sold...................................... 124,929 148,788 101,532
Selling, general and administrative expenses............ 10,079 11,087 7,969
Depreciation and amortization........................... 7,160 7,931 8,456
--------- --------- ---------
Operating income...................................... 9,657 17,350 11,676
Interest expense........................................ 515 852 646
Other income............................................ (195) (915) (880)
Expenses related to sale(2)............................. -- -- 5,907
--------- --------- ---------
Income before income taxes............................ 9,337 17,413 6,003
Provision for income taxes.............................. 2,719 5,564 3,847
--------- --------- ---------
Net income before non-controlling interest............ C$ 6,618 C$ 11,849 C$ 2,156
========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............................... C$ 7,202 C$ 19,231 C$ 28,438
Working capital......................................... 34,260 40,057 41,909
Total assets............................................ 101,175 128,964 134,725
OTHER DATA:
EBITDA(3)............................................... C$ 16,817 C$ 25,281 C$ 20,132
Capital expenditures.................................... 6,679 23,764 13,058
</TABLE>
11
<PAGE> 12
APPROXIMATE AMOUNTS IN U.S. GAAP
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------- SEPTEMBER 30,
1994(1) 1995(1) 1996
--------- --------- -------------
(CANADIAN DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. C$142,840 C$194,140 C$129,633
Cost of goods sold.................................... 122,513 148,788 101,532
Selling, general and administrative expenses.......... 10,217 10,846 8,072
Depreciation and amortization......................... 7,160 7,931 8,456
--------- --------- ---------
Operating income.................................... 2,950 26,575 11,573
Interest expense...................................... 515 852 646
Other income.......................................... (195) (915) (880)
Expenses related to sale(2)........................... -- -- 5,907
--------- --------- ---------
Income before income taxes.......................... 2,630 26,638 5,900
Provision for income taxes............................ 2,822 6,079 3,680
--------- --------- ---------
Net income (loss) before non-controlling
interest.................................. C$ (192) C$ 20,559 C$ 2,220
========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............................. C$ 4,703 C$ 16,600 C$ 21,411
Working capital....................................... 25,276 40,057 41,909
Total assets.......................................... 91,139 128,964 134,725
Total debt, including current maturities.............. 14,101 15,998 17,563
OTHER DATA:
EBITDA(3)............................................. C$ 10,110 C$ 34,506 C$ 20,029
Operating cash flows.................................. 5,653 24,388 18,034
Investing cash flows.................................. (7,392) (21,790) (14,444)
Financing cash flows.................................. 5,737 9,300 1,222
Capital expenditures.................................. 6,679 23,764 13,058
</TABLE>
- ---------------
(1) Under Canadian GAAP in effect at the time, the Company recognized certain
revenues related to a gain on an out-of-court settlement in 1994. Under U.S.
GAAP, that gain would have been deferred and recognized in 1995.
(2) Represents non-recurring expenses incurred in connection with the sale of
Circo Craft to Group which includes, among others, brokerage and legal fees.
(3) EBITDA is defined as operating income plus depreciation and amortization.
The Company believes that EBITDA enhances an understanding of its financial
condition, results of operations and cash flows by providing additional
information for determining its ability to meet debt service requirements as
revenues increase more than cash expenditures for operating expenses. EBITDA
does not represent and should not be considered as an alternative to
operating income, net income or cash flow from operations as determined by
generally accepted accounting principles, and EBITDA is not indicative of
operating performance and does not necessarily indicate whether cash flow
will be sufficient for cash requirements. Items excluded from the
calculation of EBITDA are significant components in understanding and
assessing the Company's financial performance. For example, the calculation
of EBITDA does not include the commitments of the Company for capital
expenditures and payment of debt and should not be deemed to represent funds
available to the Company. EBITDA, as presented, may not be comparable to
similarly-titled measures of other companies.
12
<PAGE> 13
VIASYSTEMS TECHNOLOGIES CORP.
The selected financial and other data below presents financial information
of the Lucent Division (renamed Viasystems Technologies) for the periods
indicated. The data for the fiscal years ended December 31, 1994 and 1995, and
the eleven months ended November 30, 1996 (the period prior to the acquisition
of the Lucent Division by Viasystems Technologies), has been derived from the
audited statements of operations of Viasystems Technologies. The Company has
omitted balance sheet data because it does not believe that the presentation of
balance sheet data for Viasystems Technologies is meaningful because such
business was a division of Lucent Technologies for the periods indicated. In
addition, Viasystems Technologies was a captive producer for Lucent Technologies
and historical financial results for Viasystems Technologies may not be
indicative of its results of operations as an independent entity. The following
information should be read in conjunction with the audited statements of
operations of Viasystems Technologies and the notes thereto and "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition," all included elsewhere herein.
<TABLE>
<CAPTION>
ELEVEN
FISCAL YEARS ENDED MONTHS
DECEMBER 31, ENDED
------------------- NOVEMBER 30,
1994 1995 1996
-------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $310,559 $325,047 $325,102
Cost of goods sold......................................... 238,623 274,824 244,313
Selling, general and administrative expenses............... 42,930 42,445 34,792
Depreciation and amortization.............................. 16,111 16,378 18,317
-------- -------- --------
Operating income (loss).................................. 12,895 (8,600) 27,680
Interest expense(1)........................................ 5 204 917
Other income............................................... (75) (94) (228)
-------- -------- --------
Income (loss) before income taxes........................ 12,965 (8,710) 26,991
Provision (benefit) for income taxes....................... 4,927 (3,310) 10,257
-------- -------- --------
Net income (loss)........................................ $ 8,038 $ (5,400) $ 16,734
======== ======== ========
OTHER DATA:
EBITDA(2).................................................. $ 29,006 $ 7,778 $ 45,997
Operating cash flows(3)....................................
Investing cash flows(3)....................................
Financing cash flows(3)....................................
Capital expenditures....................................... 16,884 22,173 16,485
</TABLE>
- ---------------
(1) Interest expense represents interest incurred on capital leases.
(2) EBITDA is defined as operating income (loss) plus depreciation and
amortization. The Company believes that EBITDA enhances an understanding of
its financial condition, results of operations and cash flows by providing
additional information for determining its ability to meet debt service
requirements as revenues increase more than cash expenditures for operating
expenses. EBITDA does not represent and should not be considered as an
alternative to operating income, net income or cash flow from operations as
determined by generally accepted accounting principles, and EBITDA is not
indicative of operating performance and does not necessarily indicate
whether cash flow will be sufficient for cash requirements. Items excluded
from the calculation of EBITDA are significant components in understanding
and assessing the Company's financial performance. For example, the
calculation of EBITDA does not include the commitments of the Company for
capital expenditures and payment of debt and should not be deemed to
represent funds available to the Company. EBITDA, as presented, may not be
comparable to similarly-titled measures of other companies. Charges of
$14,565, $18,987, and $7,900, net of estimated additional administrative
costs to be incurred, for fiscal years ended 1994, 1995 and the eleven
13
<PAGE> 14
months ended November 30, 1996, respectively, incurred with respect to
corporate allocations to the Lucent Division by Lucent Technologies, which
are not expected to be incurred by the Company are included in the
historical results of operations and have not been eliminated to calculate
EBITDA.
(3) Financial statements had not been previously prepared for the Lucent
Division. The data in the table above has been derived from financial
statements that present only assets purchased in the Lucent Division
acquisition and results of operations related to the Lucent Division. Any
computation of historical cash flow data for the Lucent Division would be
based on arbitrary assumptions of the financial information necessary to
prepare such data. As a result, the historical cash flow data of the Lucent
Division has not been prepared or presented.
FORWARD GROUP PLC
The selected financial and other data below presents financial information
of Forward for the periods indicated. The data for the three fiscal years ended
January 31, 1997, set forth in U.K. GAAP in U.K. pounds sterling ("U.K.L"), has
been derived from the audited consolidated financial statements of Forward. The
consolidated financial statements of Forward have been prepared in accordance
with U.K. GAAP, which differs in certain significant respects from U.S. GAAP
(see Note 17 to the consolidated financial statements of Forward included
elsewhere herein). The data set forth in U.S. GAAP as of and for the three
fiscal years ended January 31, 1997, has been derived from the audited
consolidated financial statements of Forward and adjusted for differences
between U.K. GAAP and U.S. GAAP. The following information should be read in
conjunction with the audited consolidated financial statements of Forward and
the notes thereto and "Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition," all included elsewhere herein.
U.K. GAAP
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
-------------------------------
1995 1996 1997
-------- -------- ---------
(POUNDS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... L23,819 L66,839 L105,029
Costs of goods sold......................................... 17,032 49,850 79,030
Selling, general and administrative expenses................ 3,179 6,425 11,189
Depreciation and amortization............................... 1,215 2,701 4,694
Restructuring charges(1).................................... -- -- 1,244
------- ------- --------
Operating income.......................................... 2,393 7,863 8,872
Interest expense............................................ 228 412 996
Other income................................................ (52) (113) (229)
Gain on disposal of discontinued operation(2)............... (1,503) -- --
------- ------- --------
Income before income taxes................................ 3,720 7,564 8,105
Provision for income taxes.................................. 744 2,641 2,707
------- ------- --------
Net income................................................ L 2,976 L 4,923 L 5,398
======= ======= ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... L 3 L 789 L --
Working capital............................................. 1,245 1,898 (3,074)
Total assets...................................... 15,589 51,124 60,282
OTHER DATA:
Adjusted EBITDA(3).......................................... L 3,608 L10,564 L 14,810
Capital expenditures........................................ 2,724 4,678 11,841
</TABLE>
14
<PAGE> 15
APPROXIMATE AMOUNTS IN U.S. GAAP
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
--------------------------------
1995 1996 1997
-------- --------- ---------
(POUNDS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales................................................... L23,819 L 66,839 L105,029
Costs of goods sold......................................... 17,032 49,850 79,030
Selling, general and administrative expenses................ 3,179 6,390 11,029
Depreciation and amortization............................... 1,219 2,787 4,870
Restructuring charges(1).................................... -- -- 1,244
------- -------- --------
Operating income.......................................... 2,389 7,812 8,856
Interest expense............................................ 228 412 996
Other income................................................ (52) (113) (229)
Gain on disposal of discontinued operation(2)............... (1,523) -- --
------- -------- --------
Income before income taxes................................ 3,736 7,513 8,089
Provision for income taxes.................................. 1,488 2,652 2,760
------- -------- --------
Net income................................................ L 2,248 L 4,861 L 5,329
======= ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... L 3 L 789 L --
Working capital............................................. 1,534 2,553 (3,074)
Total assets................................................ 15,134 56,539 67,406
Total debt, including current maturities.................... 1,746 7,879 15,535
OTHER DATA:
Adjusted EBITDA(3).......................................... L 3,608 L 10,599 L 14,970
Operating cash flows........................................ 1,901 8,594 13,995
Investing cash flows........................................ 301 (12,045) (16,373)
Financing cash flows........................................ (2,203) 4,237 1,589
Capital expenditures........................................ 2,724 4,678 11,841
</TABLE>
- ---------------
(1) Represents non-recurring restructuring charges related to the consolidation
and rationalization of several facilities at Forward.
(2) Represents the gain recognized from the sale of an unrelated business in
December 1994.
(3) Adjusted EBITDA is defined as operating income plus depreciation,
amortization and the non-cash charges related to the restructuring of
facilities discussed in note (1) above in the amount of L1,244 and $2,006,
in U.K.L and U.S.$, respectively. The Company believes that Adjusted EBITDA
enhances an understanding of its financial condition, results of operations
and cash flows by providing additional information for determining its
ability to meet debt service requirements as revenues increase more than
cash expenditures for operating expenses. Adjusted EBITDA does not represent
and should not be considered as an alternative to operating income, net
income or cash flow from operations as determined by generally accepted
accounting principles, and Adjusted EBITDA is not indicative of operating
performance and does not necessarily indicate whether cash flow will be
sufficient for cash requirements. Items excluded from the calculation of
Adjusted EBITDA are significant components in understanding and assessing
the Company's financial performance. For example, the calculation of
Adjusted EBITDA does not include the commitments of the Company for capital
expenditures and payment of debt and should not be deemed to represent funds
available to the Company. Adjusted EBITDA, as presented, may not be
comparable to similarly-titled measures of other companies.
15
<PAGE> 16
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
The selected financial and other data below presents financial information
of ISL as of and for the periods indicated. The data as of and for the fiscal
years ended March 31, 1995, March 29, 1996, and April 4, 1997 set forth in U.K.
GAAP in U.K.L, has been derived from the audited consolidated financial
statements of ISL. The consolidated financial statements of ISL have been
prepared in accordance with U.K. GAAP, which differs in certain significant
respects from U.S. GAAP (see Note 13 to the consolidated financial statements of
Chips included elsewhere herein). The data set forth in U.S. GAAP as of and for
the fiscal years ended March 31, 1995, March 29, 1996 and April 4, 1997, has
been derived from the audited consolidated financial statements of ISL and
adjusted for differences between U.K. GAAP and U.S. GAAP. The following
information should be read in conjunction with the audited consolidated
financial statements of ISL and the notes thereto and "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition," all
included elsewhere herein.
U.K. GAAP
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------
MARCH 31, MARCH 29, APRIL 4,
1995 1996 1997
--------- --------- --------
(POUNDS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales................................................... L70,805 L104,611 L141,643
Costs of goods sold......................................... 49,149 73,407 94,466
Selling, general and administrative expenses................ 6,242 7,522 10,514
Depreciation and amortization............................... 10,822 17,302 26,771
------- -------- --------
Operating income.......................................... 4,592 6,380 9,892
Interest expense............................................ 921 807 818
Other income................................................ (109) -- (44)
------- -------- --------
Income before income taxes................................ 3,780 5,573 9,118
Provision for income taxes.................................. 2,539 4,422 6,874
------- -------- --------
Net income................................................ L 1,241 L 1,151 L 2,244
======= ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... L 2,087 L 2,636 L 26,244
Working capital............................................. (1,094) (5,851) 11,516
Total assets................................................ 52,616 67,349 129,921
OTHER DATA:
EBITDA(1)................................................... L15,414 L 23,682 L 36,663
Capital expenditures........................................ 14,477 25,544 27,591
</TABLE>
16
<PAGE> 17
APPROXIMATE AMOUNTS IN U.S. GAAP
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------
MARCH 31, MARCH 29, APRIL 4,
1995 1996 1997
--------- --------- --------
(POUNDS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. L 70,805 L104,611 L141,643
Costs of goods sold........................................ 49,149 73,407 94,466
Selling, general and administrative expenses............... 6,112 7,464 10,437
Depreciation and amortization.............................. 9,124 15,752 17,522
-------- -------- --------
Operating income......................................... 6,420 7,988 19,218
Interest expense........................................... 921 807 818
Other income............................................... (109) -- (44)
-------- -------- --------
Income before income taxes............................... 5,608 7,181 18,444
Provision for income taxes................................. 2,080 2,584 6,112
-------- -------- --------
Net income............................................... L 3,528 L 4,597 L 12,332
======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.................................. L 2,087 L 2,636 L 26,244
Working capital............................................ (677) (3,929) 14,276
Total assets............................................... 45,397 62,893 105,452
Total debt, including current maturities................... 11,295 15,699 35,754
OTHER DATA:
EBITDA(1).................................................. L 15,544 L 23,740 L 36,740
Operating cash flows....................................... 10,763 18,670 27,826
Investing cash flows....................................... (12,670) (16,816) (24,119)
Financing cash flows....................................... 3,967 (1,305) 19,901
Capital expenditures....................................... 14,477 25,544 27,591
</TABLE>
- ---------------
(1) EBITDA is defined as operating income plus depreciation and amortization.
The Company believes that EBITDA enhances an understanding of its financial
condition, results of operations and cash flows by providing additional
information for determining its ability to meet debt service requirements as
revenues increase more than cash expenditures for operating expenses. EBITDA
does not represent and should not be considered as an alternative to
operating income, net income or cash flow from operations as determined by
generally accepted accounting principles, and EBITDA is not indicative of
operating performance and does not necessarily indicate whether cash flow
will be sufficient for cash requirements. Items excluded from the
calculation of EBITDA are significant components in understanding and
assessing the Company's financial performance. For example, the calculation
of EBITDA does not include the commitments of the Company for capital
expenditures and payment of debt and should not be deemed to represent funds
available to the Company. EBITDA, as presented, may not be comparable to
similarly-titled measures of other companies.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the audited
Consolidated Financial Statements and the notes thereto included in Item 8 of
this report.
Certain information presented herein includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. One
can identify these forward-looking statements by their use of words such as
"expects," "plans," "will," "intends," "anticipates," "estimates," "forecasts,"
"projects" and other words of similar meaning. These statements are likely to
address expected or possible future events, including statements of the plans
and objectives of management for future growth, operations, products and
services and statements relating to future economic performance. There can be no
assurance that the
17
<PAGE> 18
Company's actual results will not differ materially from its expectations. One
must carefully consider any such statement and should understand that many
factors could cause actual results to differ from the Company's forward-looking
statements. These factors include assumptions based on historic experiences that
may not apply to future results as well as a broad variety of other risks and
uncertainties, including some that are known and some that are not. No
forward-looking statement can be guaranteed and actual future results may vary
materially. Although it is not possible to predict or identify all such factors,
they include the following:
- General competition in the markets and industries in which the Company
operates;
- Consequences of the Company's substantial leverage including: (i)
significant cash requirements to service indebtedness, reducing funds
available for operations and future business opportunities and increasing
the Company's vulnerability to adverse general economic and industry
conditions and competition; (ii) possible limitations on its ability to
obtain additional financing for operations and acquisitions; and (iii)
restrictions placed on it by the agreements setting forth the terms and
conditions of such indebtedness;
- Uncertainties arising from the Company's limited history of integrating
the operations of separate and distinct businesses acquired since August
1996;
- Uncertainties arising from the Company's ability to implement its
operating and acquisition strategies, including the ability to identify,
negotiate and consummate future acquisitions on terms management
considers favorable;
- Fluctuation in operating results arising from the variability in timing
and volume of customer orders compared to the Company's capacity at the
time of such orders, timing of expenditures in anticipation of future
sales, pricing pressures, variations in product mix, start-up expenses
relating to new facilities, economic conditions in the electronics
industry and adverse developments with respect to significant customers,
including Lucent Technologies, any or all of which could have a material
adverse effect on the Company and its results of operations, financial
condition, cash flows and its ability to service debt;
- Uncertainties arising from the rapidly changing technology and
continually changing process developments characteristic of the market
for the Company's products and services;
- Uncertainties relating to the Company's significant operations in
international markets, including currency fluctuations and restrictions,
inflation, changes in political and economic conditions, governmental
regulation, changes in import duties, trade restrictions, work stoppages
and taxes;
- Changes in accounting standards promulgated by the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board or
the SEC that are adverse to the Company; and
- Economic factors over which the Company has no control, including
inflation and interest rates.
This list should not be considered an exhaustive statement of all potential
risks and uncertainties that may affect adversely the Company's business,
results of operations, financial condition, prospects and ability to service
debt.
GENERAL
The Company was formed by Hicks, Muse, Tate & Furst Incorporated ("HMTF")
and Mills & Partners, Inc. ("M&P") in August 1996 to make acquisitions of PCB
manufacturers and backplane assemblers globally. Viasystems had no operations
prior to the first acquisition completed in October 1996. A total of seven
acquired businesses include five previously stand-alone companies and two
previously captive divisions of electronic manufacturing OEMs.
The four initial acquisitions included i) an approximate $129.9 million
cash purchase price for Circo Craft in Canada in October 1996, ii) an
approximate $200.0 million cash purchase price for the Lucent Division in
Richmond, Virginia in December 1996, iii) an approximate $208.5 million cash
purchase price for Forward in the United Kingdom in April 1997, and iv) an
approximate $140.0 million cash purchase price, plus assumption of debt, for ISL
in the United Kingdom in April 1997.
18
<PAGE> 19
Three subsequent acquisitions included i) an approximate $7.1 million cash
purchase price for the Ericsson Facility in Sweden in January 1998, ii) an
approximate $59.4 million cash purchase price for Mommers in the Netherlands in
February 1998, and iii) an approximate $85.0 million cash purchase price, plus
assumption of debt for Zincocelere in Italy in March 1998.
Assimilation of the seven acquired businesses into a single global
operation has included the closure of acquired manufacturing facilities,
severance of redundant production and administrative personnel, relocation of
production equipment, transfer of technology and customer-specific product
capabilities among Viasystems' sites, leverage of purchasing power of the larger
combined business and other similar activities. Management plans to continue
such activities related to the existing business and related to any subsequent
acquisitions.
In general, volume demand for Viasystems' products increases or decreases
consistent with demand trends in the electronics industry markets served by the
Company, predominantly telecommunications, computer, automotive, and industrial
and instrumentation. Demand trends for higher layer count PCBs and backplanes,
greater density of circuits and vias on PCBs and backplanes, and surface mount
and other developing interconnect technologies, among others, have also resulted
in increased demand for the Company's more complex product offerings. Management
expects increased demand for denser and increasingly complex products in most
industry markets.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two
digits rather than four digits to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
produce invoices, or engage in similar normal business activities.
Management has implemented a Company-wide initiative to ensure that both
its information technology systems and non-information technology systems
applications are capable of processing data and transactions pertaining to the
year 2000. The initiative utilizes both Company resources and external resources
to identify and assess systems and applications affected, to correct existing
systems or to acquire replacement systems, and to test the systems and
applications for compliance with the requirements for processing year 2000
information. The Company's information systems are currently being upgraded and
replaced as part of a strategy to implement consistent systems worldwide. The
new systems being installed are capable of processing year 2000 information. All
remaining systems will either be corrected in order to enable them to process
year 2000 information or, if necessary, will be replaced with year 2000
compliant systems. The Company is more than fifty percent complete in having its
mission critical business applications, computers and communications, facilities
and process equipment fully compliant. The Company believes that it will achieve
compliance with all business critical year 2000 processing requirements by the
third fiscal quarter of 1999, and does not anticipate any material disruption in
its operations as the result of any failure by the Company to be in compliance.
The Company will capitalize and depreciate the cost of replacement systems
consistent with its existing capital expenditures policies. Costs incurred to
modify and maintain existing systems will be expensed as incurred. Management
believes that a substantial portion of the costs for the new systems and the
modifications will not represent incremental costs to the Company, but rather
will represent the reallocation of existing and planned information technology
resources. The amounts expensed in 1998 were immaterial, and management expects
that amounts required to be expensed in future periods will not have a material
effect on its financial position or results of operations. However, there can be
no assurance that this process can be completed on the timetable described
above; that all issues have been identified; or that the remediation process
will be fully effective.
The Company is currently in the process of evaluating the external risk
associated with the year 2000 issue. All critical or significant suppliers have
been identified by the Company and have been surveyed regarding their year 2000
readiness. The Company is currently reviewing the results of those surveys and
is planning year 2000 risk assessment audits at each critical supplier. Although
the Company uses a select group of suppliers, the materials used in
manufacturing PCBs are generally readily available in the open market.
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Therefore, the Company believes any costs associated with the anticipated effect
of third parties will be immaterial on its business, financial position or
results of operations. However, there can be no guarantee that the systems of
third parties on which the Company's systems rely will be converted timely or
that a failure of a third party to convert would not have a material adverse
effect on the Company.
The Company is currently developing contingency plans for all inventoried
business critical year 2000 applications and significant third parties based on
the assessed level of risk known to date.
The failure to identify and remediate year 2000 issues or the failure of
key third parties who do business with the Company to timely remediate their
year 2000 issues could cause systems failures or errors, business interruptions
and in a worst case scenario, the inability to engage in normal business
practices for an unknown length of time. Litigation could also ensue. The effect
on the Company's business, financial condition, results of operations and cash
flows could be materially adverse.
IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisitions made in 1996, 1997 and 1998 the Company
incurred significant charges related to purchased in-process research and
development. The Company believes that efforts to complete the acquired
in-process research and development projects will consist primarily of internal
engineering costs over the next two to four years. These costs are estimated to
be approximately $22.0 million. Such estimate is subject to revision should
there be changes in the operating environment or the technical knowledge
available within the industry or the Company. The Company, through its continued
investment in research and development, intends to achieve and sustain technical
superiority in the design and delivery of advanced PCB products, and believes,
given its leadership position in the industry, that it is well positioned to do
so. The Company believes that the new product and process technologies which
result from ongoing research and development will build on the existing core
printed circuit board technology and contribute to an anticipated growth in the
Company's sales and anticipated improvements in the Company's cost of production
in the future. If acceptable advancements are not achieved, failed research and
development projects could have a material adverse effect on the Company's
financial position or results of operations. The Company is unable to accurately
quantify the potential impact in the future of the failure of any single project
or multiple projects which were acquired as in-process research and development
in the acquisitions. Although there can be no guarantee that the acquired
in-process research and development projects will achieve technological
feasibility, the Company believes that the likelihood of development is
reasonable for these projects. The Company does not believe that it is subject
to any greater risk of failure than its competitors, and, in fact, believes that
its size, access to financial resources and relationships with customers
contribute to a reduction of that risk which gives the Company a competitive
technical advantage.
CONVERSION TO THE EURO
On January 1, 1999, eleven participating countries of the European Union
converted to the Euro as their common national currency. The previous national
currencies of these countries will still be accepted as legal tender until at
least January 1, 2002. We do not expect the conversion to the Euro to have a
material effect on our results of operations, financial condition or cash flows.
PREDECESSORS
Each of Circo Craft, the Lucent Division, Forward and ISL are considered
predecessors to Viasystems and, as such, a discussion of the results of
operations of each separate predecessor follows the discussion of the results of
operations of the Company. The separate results of Viasystems and of each
predecessor are affected by a number of factors including target markets,
customers, and local economics. Differing demand for printed circuit boards in
general and demand for different technologies of printed circuit boards may not
be consistent for each of the predecessor entities acquired. The Company
believes that the combination of the predecessor entities will provide it with a
significant advantage in managing its operations to meet demand. The discussion
of the results of operations of the separate entities has been prepared based
upon the results of each separate entity in accordance with the local GAAP of
the entity and should be read in conjunction with the "Item 6.
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Selected Financial Data" for each predecessor and the financial statements and
notes thereto of Circo Craft, the Lucent Division, Forward and ISL, all of which
are included elsewhere herein.
RESULTS OF OPERATIONS -- THE COMPANY
Viasystems is a wholly owned subsidiary of Group. Viasystems was formed on
April 2, 1997, as a subsidiary of Group. On April 10, 1997, Group contributed to
Viasystems all of the capital of its then existing subsidiaries -- Circo Craft,
Viasystems Technologies, and PCB Acquisition Limited (the acquisition parent of
Forward). Prior to the contribution of this capital by Group, Viasystems had no
operations of its own. The discussion included herein of the Company represents
the results of operations of Viasystems and its subsidiaries subsequent to the
capital contribution by Group and of Group and its subsidiaries prior to the
capital contribution of such subsidiaries to Viasystems.
Year Ended December 31, 1997, Compared to Year Ended December 31, 1998
Net sales for the year ended December 31, 1998, were $1,031.9 million,
representing an increase of $236.6 million, or 29.8%, increase over the year
ended December 31, 1997. The increase was primarily attributable to the
acquisitions of the Ericsson Facility, Mommers and Zincocelere completed in the
first quarter of 1998 (the "1998 Acquisitions") and increased volume partially
offset by typical, industry-wide pricing pressures as well as the negative
impact of the stronger U.K. pound as it relates to continental European and
certain Asian currencies.
Cost of goods sold for the year ended December 31, 1998, was $723.7
million, or 70.1% of net sales, compared to $554.1 million, or 69.7% of net
sales for the year ended December 31, 1997. Cost of goods sold as
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a percent of net sales increased as product mix changes from the 1998
Acquisitions as well as the above mentioned currency-related price reductions
experienced by the Company were partially offset by cost containment and
reduction activities.
Selling, general and administrative expenses for the year ended December
31, 1998, increased by $31.1 million over selling, general and administrative
expenses for the year ended December 31, 1997. These costs increased primarily
due to the 1998 Acquisitions, the implementation of the Company's sales and
marketing plan and planned increases in administrative expenses at the Company's
Richmond, Virginia facility related to the separation from Lucent Technologies.
Depreciation and amortization for the year ended December 31, 1998,
increased $56.6 million over the comparable period for 1997 primarily as a
result of the full year impact of the acquisitions of Forward and ISL in the
second quarter of 1997 and of the Ericsson Facility, Mommers and Zincocelere in
the first quarter of 1998.
During the year ended December 31, 1998, the Company recorded a one-time
non-cash write-off of $20.1 million related to in-process research and
development acquired in the acquisitions of Mommers and Zincocelere. During the
year ended December 31, 1997, the Company recorded a similar charge of $294.5
million related to the acquisitions of Forward and ISL.
Other expense increased $34.5 million, from $72.3 million for the year
ended December 31, 1997, to $106.8 million for the same period in 1998, due
primarily to increased interest expense and amortization of deferred financing
costs related to the debt financing incurred to fund the 1998 Acquisitions.
Year Ended December 31, 1997
The Company's net sales for the year ended December 31, 1997 were $795.3
million and cost of goods sold were $554.1 million, or 69.7% of net sales.
Selling, general and administrative expenses for the same period were $75.6
million, or 9.5% of net sales. During the year ended December 31, 1997, the
Company recorded a one-time non-cash write-off of $294.5 million related to the
acquisitions of Forward and ISL.
The Period from Inception (August 28, 1996) to December 31, 1996
The Company's net sales for the period from inception (August 28, 1996) to
December 31, 1996 were $50.4 million and cost of goods sold were $42.1 million,
or 83.4% of net sales. Selling, general and administrative expenses for the same
period were $3.8 million, or 7.5% of net sales. During the period from inception
(August 28, 1996) to December 31, 1996, net cash provided by operating
activities was $1.7 million. For the same period, the Company used approximately
$286.3 million in investing activities primarily for the acquisitions of Circo
Craft and the Lucent Division. The acquisitions were funded through the issuance
of $238.3 million of long-term obligations and the proceeds of $73.8 million of
equity offerings offset by $11.4 million of financing costs.
The Company believes that its operating results are not comparable between
the period from inception (August 28, 1996) to December 31, 1996 and the years
ended December 31, 1997 and 1998 nor to the operating results expected to be
achieved in the future due to, among other things, the startup of the Company in
1996, the acquisitions made in 1996, 1997 and 1998, the anticipated future
acquisitions, and the financing incurred to fund past and future acquisitions.
The Company believes that, due to the acquisitions made, sales in subsequent
periods will increase from those reported for the period from inception (August
28, 1996) to December 31, 1996 and for the years ended December 31, 1997 and
1998.
RESULTS OF OPERATIONS -- CIRCO CRAFT
Nine Months Ended September 30, 1996 Compared to Fiscal 1995
Net sales and cost of goods sold for the nine months ended September 30,
1996, were C$129.6 million and C$101.5 million, respectively, compared to sales
and cost of goods sold for fiscal 1995 of C$185.2 million and C$148.8 million,
respectively. Net sales for the nine months ended September 30, 1996, were
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approximately 70.0% of sales for fiscal 1995. In general, Circo Craft's sales
were lower during 1996 due to a shift in the product mix to lower layer count
products driven primarily by the demand of one of Circo Craft's customers in the
automotive industry. As a percentage of sales, cost of goods sold for the nine
months ended September 30, 1996, decreased to 78.3% from 80.4% for fiscal 1995
primarily as a result of cost savings achieved through improved production
processes. Selling, general and administrative expenses for the nine months
ended September 30, 1996, were C$8.0 million compared to selling, general and
administrative expenses for fiscal 1995 of C$11.1 million. Selling, general and
administrative expenses as a percentage of sales for the nine months ended
September 30, 1996, increased to 6.1% from 6.0% for fiscal 1995 primarily as a
result of the lower sales caused by the product mix shift discussed above.
RESULTS OF OPERATIONS -- VIASYSTEMS TECHNOLOGIES
Eleven Months Ended November 30, 1996 Compared to Fiscal 1995
Net sales and cost of goods sold for the eleven months ended November 30,
1996, were $325.1 million and $244.3 million, respectively, compared to sales
and cost of goods sold for fiscal 1995 of $325.0 million and $274.8 million,
respectively. Net sales for the eleven months ended November 30, 1996, were
approximately 100.0% of sales for fiscal 1995 as sales for Viasystems
Technologies increased during 1996 due to increased demand by Lucent
Technologies caused by the rapidly expanding telecommunications market. As a
percentage of sales, cost of goods sold for the eleven months ended November 30,
1996, decreased to 75.1% from 84.5% for fiscal 1995 primarily as a result of the
favorable impact of productivity improvements. Selling, general and
administrative expenses for the eleven months ended November 30, 1996, were
$34.8 million compared to selling, general and administrative expenses for
fiscal 1995 of $42.4 million. Selling, general and administrative expenses as a
percentage of sales for the eleven months ended November 30, 1996, decreased to
10.7% from 13.1% for fiscal 1995 as a result of decreased allocations from
Lucent Technologies.
RESULTS OF OPERATIONS -- FORWARD
Fiscal Year Ended January 31, 1997 Compared to Fiscal Year Ended January 31,
1996
Net sales and cost of goods sold for the fiscal year ended 1997 were L105.0
million and L79.0 million, respectively, compared to sales and cost of goods
sold for the fiscal year ended 1996 of L66.8 million and L49.9 million,
respectively. Sales during the fiscal year ended 1997 increased over the fiscal
year ended 1996 due primarily to the full year impact of the 1995 acquisition of
Exacta Circuits and three smaller companies in 1996. As a percentage of sales,
cost of goods sold for the fiscal year ended 1997 increased to 75.2% from 74.6%
for the fiscal year ended 1996 primarily as a result of the three smaller
acquisitions of companies in 1996 which have products with lower margins.
Selling, general and administrative expenses for the fiscal year ended 1997 were
L11.2 million compared to selling, general and administrative expenses for the
fiscal year ended 1996 of L6.4 million. Selling, general and administrative
expenses increased in the fiscal year ended 1997 primarily due to the impact of
the acquisitions discussed above.
RESULTS OF OPERATIONS -- ISL
Fiscal Year Ended April 4, 1997 Compared to Fiscal Year Ended March 29, 1996
Net sales and cost of goods sold for the fiscal year ended 1997 were L141.6
million and L94.5 million, respectively, compared to sales and cost of goods
sold for the fiscal year ended 1996 of L104.6 million and L73.4 million,
respectively. Sales during the fiscal year ended 1997 increased over the fiscal
year ended 1996 due to increased demand for higher layer count PCBs for the
telecommunications and computer industries. As a percentage of sales, cost of
goods sold for the fiscal year ended 1997 decreased to 66.7% from 70.2% for the
fiscal year ended 1996 primarily as a result of improved absorption of costs due
to higher sales and productivity improvements achieved as a result of a number
of cost savings projects underway including projects to decrease the cost of
process materials and improve process automation. Selling, general and
administrative expenses for the fiscal year ended 1997 were L10.5 million
compared to selling, general and administrative expenses for the fiscal year
ended 1996 of L7.5 million. Selling, general and administrative expenses as a
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percentage of sales for the fiscal year ended 1997 remained relatively
consistent at 7.4% compared to 7.2% for the fiscal year ended 1996.
LIQUIDITY AND CAPITAL RESOURCES -- THE COMPANY
Net cash used in operating activities was $43.8 million for the year ended
December 31, 1998, which compared to $104.9 million provided by operating
activities for the comparable period in 1997 primarily as a result of timing of
payments made in 1998 to vendors and related to certain plant shutdown,
downsizing and consolidation costs. Net cash used in investing activities was
$276.0 million for the year ended December 31, 1998, compared to net cash used
of $273.1 million for the year ended December 31, 1997. The net cash used in
investing activities for the year ended December 31, 1998, consisted of capital
expenditures of $130.4 million and $145.7 million used for the acquisitions of
the Ericsson Facility, Mommers, and Zincocelere. Net cash used in investing
activities for the year ended December 31, 1997, consisted of $117.2 million for
capital expenditures and $155.9 million for the acquisitions of Forward and ISL.
Net cash provided by operating activities was $104.9 million for the year
ended December 31, 1997, which compared to $1.7 million provided by operations
for the period from inception (August 28, 1996) to December 31, 1996. Net cash
used in investing of $273.1 million for the year ended December 31, 1997,
consisted of capital expenditures of $117.2 million and acquisition activities
of a net of $155.9 million. Net cash used in investing of $286.3 million for the
period from inception (August 28, 1996) to December 31, 1996 consisted of
capital expenditures of $3.6 million and acquisition activities of a net of
$282.7 million. Net cash provided by financing activities was $184.1 million for
the year ended December 31, 1997, compared to net cash provided by financing
activities of $300.7 million for the period from inception (August 28, 1996) to
December 31, 1996. The net cash provided by financing activities for the year
ended December 31, 1997 was used primarily for the acquisition of Forward. The
acquisition of ISL was completed in a non-cash transaction in which the selling
stockholders received notes payable (the "Chips Loan Notes"). The net cash
provided by financing activities in the period from inception (August 28, 1996)
to December 31, 1996 was used primarily to finance the acquisitions of Circo
Craft and the Lucent Division.
In connection with the acquisition of ISL, Group assumed the $437.5 million
of Chips Loan Notes of which $285.3 million was outstanding at December 31,
1998. In order to fund principal payments when the remaining Chips Loan Notes
are called the Senior Credit Facilities contain a committed, term loan facility
that may be drawn upon by the Company so that it may satisfy its obligation in
respect of the remaining $285.3 million principal amount of the Chips Loan Notes
(see Note 8 to the Notes to Consolidated Financial Statements in Item 8 hereof).
In June 1997, the Company completed the offering of $400.0 million of 9 3/4%
Senior Subordinated Notes due 2007 (the "1997 Notes"). The net proceeds of the
1997 Notes were used to repay the Subordinated Credit Facility, approximately
$130.3 million of term loans outstanding under the Senior Credit Facilities, and
approximately $41.6 million of revolving credit amounts outstanding under the
Senior Credit Facilities which was borrowed subsequent to December 31, 1996, to
repay debt assumed in the acquisition of ISL.
In February 1998, the Company completed the offering of an additional
$100.0 million of 9 3/4% Senior Subordinated Notes due 2007 at a price of
104.5%, yielding net proceeds of $101.0 million (the "1998 Notes" and together
with the 1997 Notes, the "2007 Notes"). As a condition of the offering of the
1998 Notes, HMTF contributed an additional $50.0 million of equity to the
Company and the Senior Credit Facilities were amended to, among other things,
establish an additional $70.0 million term loan and increase available revolving
credit facilities by $25.0 million (the "Amended Senior Credit Facilities"). A
portion of the proceeds of the 1998 Notes, the additional term loan under the
Amended Senior Credit Facilities, and the equity contribution have been used to
fund the acquisitions of the Ericsson Facility, Mommers, and Zincocelere. In
addition, the Company used a portion of these proceeds to repay revolving credit
line amounts outstanding under the Amended Senior Credit Facilities.
In April 1998, the holders of the Chips Loan Notes redeemed $152.2 million
of the Chips Loan Notes. As such, $118.3 million of cash held by Bisto Funding,
Inc. was paid to the holders of the Chips Loan Notes.
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The Company borrowed $33.9 million of the available Chips Term Loan to fund its
portion of the payment of the Chips Loan Notes.
As of December 31, 1998, the Company's indebtedness consisted of amounts
outstanding under the Amended Senior Credit Facilities, the 2007 Notes, the
Company's liability under the Chips Loan Notes, capital leases and other debt.
The Company's Adjusted EBITDA (as defined in "Item 6. Selected Financial
Data") for fiscal 1996, 1997 and 1998 was $4.5 million, $165.8 million and
$201.4 million, respectively. As a percentage of sales, Adjusted EBITDA was
8.9%, 20.9% and 19.5%, respectively, for the same periods. Adjusted EBITDA is
one of the financial measures in the covenants to the Amended Senior Credit
Facilities. Although Adjusted EBITDA does not necessarily indicate whether cash
flows will be sufficient for cash requirements, the Company believes that
Adjusted EBITDA provides additional information for determining its ability to
meet debt service requirements as revenues increase more than cash expenditures
for operating expenses.
The Company anticipates that its primary uses of cash in 1999 will be (i)
for capital expenditures for maintenance, replacement and acquisitions of
equipment, expansion of capacity, productivity improvements and product and
process technology development and (ii) to pay interest on, and to repay
principal of, indebtedness under the Amended Senior Credit Facilities, the 2007
Notes, the Chips Reimbursement Obligation and other outstanding indebtedness of
the Company as discussed in Note 8 to the Notes to Consolidated Financial
Statements in Item 8 hereof. The Company anticipates making capital expenditures
in 1999 for facilities, equipment and information systems. The Amended Senior
Credit Facilities contain annual limits on the Company's capital expenditures.
The Company believes that such limits are sufficient to allow the Company to
undertake all anticipated capital projects. In 1999, the Company will be
obligated to make principal and interest payments of approximately $117.0
million under the Amended Senior Credit Facilities, the 2007 Notes, and the
Chips Reimbursement Obligation, which the Company anticipates will be made from
cash flow from operations or, if necessary, additional borrowings.
The Company expects that its primary sources of cash will be cash from
operating activities and revolving borrowings under the Amended Senior Credit
Facilities. As of December 31, 1998, there was $117.2 million outstanding under
the revolving credit facilities available under the Amended Senior Credit
Facilities, and approximately $161.2 million ($58.9 million of which was only
available for future acquisitions) of available borrowing capacity thereunder,
subject to certain limitations. The Company anticipates that the cash flow from
operations and additional funds available under the revolving facilities of the
Amended Senior Credit Facilities will be sufficient to meet its foreseeable
requirements for working capital, capital expenditures and debt service and
other operating cash requirements. The acquisition of other businesses by the
Company in the future likely would require external sources of debt and/or
equity financing. There can be no assurance that such funds would be available
on terms satisfactory to the Company, or at all. In addition, the Company's
future operating performance and ability to meet its financial obligations will
be subject to future economic conditions and to financial, business and other
factors, many of which will be beyond the Company's control.
Borrowings under the Amended Senior Credit Facilities bear interest at
floating rates and will require interest payments on varying dates depending on
the interest rate option selected by the Company. The 2007 Notes bear interest
at the rate of 9 3/4% per annum, which is payable semiannually in arrears. The
Chips Loan Notes have a maturity of six years and pay cash interest quarterly at
a fixed rate initially of approximately 6.2% per annum and thereafter at a
varying discount to The Chase Manhattan Bank's prime rate. The Company is liable
for payment of interest on the Chips Loan Notes through the Chips Reimbursement
Obligation. The holders of the Chips Loan Notes have the right after the first
anniversary of their issuance to redeem the Chips Loan Notes by putting them to
Group on any interest payment date at 100% of their principal amount. In the
event additional Chips Loan Notes are redeemed, the Company's liability under
the Chips Reimbursement Obligation of $285.3 million will be funded by a term
loan available under the Amended Senior Credit Facilities.
The Amended Senior Credit Facilities and the 2007 Notes restrict the
Company from, among other things: (i) incurring additional indebtedness (other
than permitted indebtedness); (ii) creating liens; (iii) disposing of assets;
(iv) guaranteeing indebtedness; (v) merging or selling substantially all of its
assets;
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(vi) declaring and paying certain dividends; (vii) making certain investments
and loans; and (viii) entering into certain transactions with affiliates, in
each case with certain exceptions customary for credit facilities such as the
Amended Senior Credit Facilities.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and disclosure
of comprehensive income (loss) and its components. Effective January 1, 1998,
the Company adopted SFAS No. 130. See the consolidated statements of operations
and comprehensive income for the impact of such gains and losses on the
measurement of comprehensive income.
In June 1997, the FASB adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes reporting requirements
related to a business' operating segments, products and services, geographic
areas of operations and major customers. Effective January 1, 1998, the Company
adopted SFAS No. 131. See Note 13 to the Consolidated Financial Statements.
In February 1998, the FASB adopted SFAS No. 132, "Employer's Disclosure
about Pensions and Other Post Retirement Benefits," which establishes reporting
requirements related to a business' pension and other post retirement benefits.
Effective January 1, 1998, the Company adopted SFAS No. 132. See Note 16 to the
Consolidated Financial Statements.
In April 1998, the FASB adopted Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which requires costs of
start-up activities and organization costs to be expensed as incurred. SOP 98-5
is effective for financial statements for fiscal years beginning after December
15, 1998. The Company will adopt SOP 98-5 in fiscal year 1999 and will report
the write off of the net book value of start-up costs as of January 1, 1999, of
approximately $23.0 million as a cumulative effect of a change in accounting
principle.
In June 1998, the FASB adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and require that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor has it
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings and other comprehensive income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At December 31, 1998, approximately $514.8 million of the Company's
long-term debt, specifically borrowings outstanding under the Amended Senior
Credit Facilities and the Chips Loan Notes, bear interest at variable rates.
Accordingly, the Company's earnings and cash flow are affected by changes in
interest rates. Assuming the current level of borrowings at variable rates and
assuming a two percentage point change in the average interest rate under these
borrowings, it is estimated that the Company's 1998 interest expense would have
increased by approximately $10.3 million. In the event of an adverse change in
interest rates, management would likely take actions that would mitigate the
Company's exposure to interest rate risk; however, due to the uncertainty of the
actions that would be taken and their possible effects, this analysis assumes no
such action. Further, this analysis does not consider the effects of the change
in the level of overall economic activity that could exist in such an
environment.
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FOREIGN CURRENCY RISK
The Company manufactures PCBs and assembles backplanes in various regions
of the world, and exports and imports these products to and from several
countries. The Company's operations may therefore be subject to volatility
because of currency fluctuations, inflation and changes in political and
economic conditions in these countries. Sales and expenses are frequently
denominated in local currencies, and results of operations may be affected
adversely as currency fluctuations affect the Company's product prices and
operating costs or those of its competitors. The Company, from time to time,
engages in hedging operations, such as forward exchange contracts, to reduce its
exposure to foreign currency fluctuations. The Company does not engage in
hedging transactions for speculative investment reasons. Such hedging operations
historically have not been material, and gains and losses from such operations
have not been significant. There can be no assurance that such hedging
operations will eliminate or substantially reduce risks associated with
fluctuating currencies.
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ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
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<S> <C>
VIASYSTEMS, INC. & SUBSIDIARIES
Report of Independent Auditors.............................. 28
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... 29
Consolidated Statements of Operations and Comprehensive
Income from inception (August 28, 1996) to December 31,
1996 and for the years ended December 31, 1997 and 1998... 30
Consolidated Statements of Stockholder's Equity (deficit)
from inception (August 28, 1996) to December 31, 1996 and
for the years ended December 31, 1997 and 1998............ 31
Consolidated Statements of Cash Flows from inception (August
28, 1996) to December 31, 1996 and for the years ended
December 31, 1997 and 1998................................ 32
Notes to Consolidated Financial Statements.................. 33
Schedule II -- Valuation and Qualifying Accounts............ 56
CIRCO CRAFT CO. INC.
Auditors' Report............................................ 57
Consolidated Statement of Retained Earnings for the nine
month period ended September 30, 1996..................... 58
Consolidated Statement of Earnings for the nine month period
ended September 30, 1996.................................. 59
Consolidated Statement of Changes in Financial Position for
the nine month period ended September 30, 1996............ 60
Notes to Consolidated Statements............................ 61
VIASYSTEMS TECHNOLOGIES CORP. (FORMERLY MICROELECTRONICS
GROUP, INTERCONNECTION TECHNOLOGIES UNIT OF LUCENT
TECHNOLOGIES, INC.)
Report of Independent Auditors.............................. 67
Statement of Operations for the eleven month period ended
November 30, 1996......................................... 68
Notes to Financial Statement................................ 69
FORWARD GROUP PLC
Report of Independent Auditors.............................. 72
Consolidated Profit and Loss Account for the year ended
January 31, 1997.......................................... 73
Consolidated Statement of Total Recognized Gains and Losses
for the year ended January 31, 1997....................... 74
Consolidated Statement of Cash Flows for the year ended
January 31, 1997.......................................... 75
Notes to the Consolidated Financial Statements.............. 76
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
Report of Independent Auditors.............................. 89
Consolidated Profit and Loss Account for the year ended
April 4, 1997............................................. 90
Consolidated Statement of Total Recognized Gains and Losses
for the year ended April 4, 1997.......................... 91
Consolidated Statement of Cash Flows for the year ended
April 4, 1997............................................. 92
Notes to the Consolidated Financial Statements.............. 93
</TABLE>
27
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Viasystems, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Viasystems, Inc. and its subsidiaries at December 31, 1997 and 1998
and the results of their operations and their cash flows for the period from
inception (August 28, 1996) to December 31, 1996 and the years ended December
31, 1997 and 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
March 23, 1999
28
<PAGE> 30
VIASYSTEMS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 27,538 $ 9,335
Accounts receivable, less allowance for doubtful accounts
of $2,573 and $3,794, respectively..................... 135,299 204,545
Inventories............................................... 62,601 105,619
Prepaid expenses and other................................ 26,240 44,612
---------- ----------
Total current assets.............................. 251,678 364,111
Property, plant and equipment, net........................ 448,128 580,204
Deferred financing costs, net............................. 58,696 72,124
Intangible assets, net.................................... 309,470 391,609
Other assets.............................................. 940 46,655
---------- ----------
Total assets...................................... $1,068,912 $1,454,703
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations............... $ 31,363 $ 54,534
Accounts payable.......................................... 86,941 133,725
Accrued and other liabilities............................. 85,860 141,400
Income taxes payable...................................... 30,855 14,914
---------- ----------
Total current liabilities......................... 235,019 344,573
Deferred taxes............................................ 67,797 77,214
Long-term obligations, less current maturities............ 816,012 1,079,961
Other non-current liabilities............................. 42,277 66,441
---------- ----------
Total liabilities................................. 1,161,105 1,568,189
---------- ----------
Stockholder's equity (deficit)
Common stock, par value $.01 per share, 1,000 shares
authorized, issued and outstanding.................... -- --
Contributed capital.................................... 282,763 338,407
Accumulated deficit.................................... (376,230) (461,013)
Accumulated other comprehensive income................. 1,274 9,120
---------- ----------
Total stockholder's equity (deficit).............. (92,193) (113,486)
---------- ----------
Total liabilities and stockholder's equity
(deficit)....................................... $1,068,912 $1,454,703
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated balance sheets.
29
<PAGE> 31
VIASYSTEMS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(AUGUST 28, YEARS ENDED
1996) TO DECEMBER 31,
DECEMBER 31, ----------------------
1996 1997 1998
------------ --------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 50,400 $ 795,289 $1,031,928
Operating expenses:
Cost of goods sold..................................... 42,052 554,097 723,741
Selling, general and administrative.................... 3,844 75,650 106,749
Depreciation........................................... 4,102 51,884 104,831
Amortization of intangibles............................ 533 58,153 61,775
Write-off of acquired in-process research and
development......................................... 50,800 294,500 20,100
-------- --------- ----------
Operating income (loss).................................. (50,931) (238,995) 14,732
-------- --------- ----------
Other expenses:
Interest expense....................................... 2,503 64,612 92,535
Amortization of deferred financing costs............... 470 6,629 9,354
Other expense.......................................... 262 1,024 4,960
-------- --------- ----------
Loss before income taxes and extraordinary item.......... (54,166) (311,260) (92,117)
Provision (benefit) for income taxes..................... (5,424) 8,432 (7,334)
-------- --------- ----------
Loss before extraordinary item........................... (48,742) (319,692) (84,783)
Extraordinary item -- loss on early extinguishment of
debt, net of income tax benefit of $4,332.............. -- 7,796 --
-------- --------- ----------
Net loss................................................. (48,742) (327,488) (84,783)
-------- --------- ----------
Other comprehensive income (loss):
Foreign currency translation adjustments............... (79) 1,353 9,187
Minimum pension liability, net of income tax benefit of
$575................................................ -- -- (1,341)
-------- --------- ----------
Comprehensive loss....................................... $(48,821) $(326,135) $ (76,937)
======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 32
VIASYSTEMS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
AND OTHER
COMPREHENSIVE
COMMON CONTRIBUTED ACCUMULATED INCOME
STOCK CAPITAL DEFICIT (LOSS) TOTAL
------ ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at Inception (August 28,
1996)................................. $-- $ -- $ -- $ -- $ --
Capital contributed to Viasystems
Group prior to formation of the
Company............................ -- 103,794 -- -- 103,794
Net loss.............................. -- -- (48,742) -- (48,742)
Foreign currency translation
adjustment......................... -- -- -- (79) (79)
--- -------- --------- ------- ---------
Balance at December 31, 1996............ -- 103,794 (48,742) (79) 54,973
Capital contribution by Viasystems
Group to the Company............... -- 178,969 -- -- 178,969
Net loss.............................. -- -- (327,488) -- (327,488)
Foreign currency translation
adjustment......................... -- -- -- 1,353 1,353
--- -------- --------- ------- ---------
Balance at December 31, 1997............ -- 282,763 (376,230) 1,274 (92,193)
Capital contributed by Viasystems
Group to the Company............... -- 55,644 -- -- 55,644
Net loss.............................. -- -- (84,783) -- (84,783)
Minimum pension liability............. -- -- -- (1,341) (1,341)
Foreign currency translation
adjustment......................... -- -- -- 9,187 9,187
--- -------- --------- ------- ---------
Balance at December 31, 1998............ $-- $338,407 $(461,013) $ 9,120 $(113,486)
=== ======== ========= ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 33
VIASYSTEMS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(AUGUST 28, YEARS ENDED
1996) TO DECEMBER 31,
DECEMBER 31, ---------------------
1996 1997 1998
------------ --------- ---------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $ (48,742) $(327,488) $ (84,783)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Write-off of acquired in-process research and
development.......................................... 50,800 294,500 20,100
Extraordinary item -- loss on early extinguishment of
debt................................................. -- 12,128 --
Depreciation and amortization of intangibles........... 4,635 110,037 166,606
Amortization of deferred financing costs............... 470 6,629 9,354
Deferred taxes......................................... (5,874) (15,109) (9,484)
Change in assets and liabilities, net of acquisitions:
Accounts receivable.................................. (15,469) (8,050) (20,641)
Inventories.......................................... 2,655 (15,979) (19,997)
Prepaid expenses and other........................... (927) (6,640) (22,693)
Accounts payable and accrued and other liabilities... 14,875 38,539 (65,976)
Income taxes payable................................. (761) 16,339 (16,321)
--------- --------- ---------
Net cash provided by (used in) operating
activities...................................... 1,662 104,906 (43,835)
--------- --------- ---------
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash acquired of $20,890, $42,778 and
$3,738, respectively................................... (282,723) (155,904) (145,665)
Capital expenditures...................................... (3,563) (117,163) (130,361)
--------- --------- ---------
Net cash used in investing activities....................... (286,286) (273,067) (276,026)
--------- --------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations........... 238,283 -- 103,938
Proceeds from the issuance of Senior Subordinated Notes,
due 2007............................................... -- 400,000 --
Proceeds from the issuance of Series B Senior Subordinated
Notes, due 2007........................................ -- -- 104,500
Proceeds from the Subordinated Credit Facility............ -- 216,000 --
Net borrowings on Revolvers............................... -- -- 117,244
Repayment of amounts due under the Credit Agreements and
the Second Amended and Restated Credit Agreement....... -- (151,964) (16,000)
Repayment of amounts under the Chips Loan Notes
Liability.............................................. -- -- (33,938)
Repayment of the Subordinated Credit Facility............. -- (216,000) --
Repayment of other long-term obligations.................. -- (90,187) (12,085)
Equity proceeds........................................... 73,794 60,719 55,644
Financing fees and other.................................. (11,364) (34,491) (15,773)
--------- --------- ---------
Net cash from financing activities.......................... 300,713 184,077 303,530
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... 28 (4,495) (1,872)
--------- --------- ---------
Net change in cash and cash equivalents..................... 16,117 11,421 (18,203)
Cash and cash equivalents at beginning of period............ -- 16,117 27,538
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 16,117 $ 27,538 $ 9,335
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 34
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND ACQUISITIONS
Viasystems, Inc. ("Viasystems"), a wholly owned subsidiary of Viasystems
Group, Inc. ("Group"), was formed on April 2, 1997. On April 10, 1997, Group
contributed to Viasystems all of the capital of its then existing subsidiaries.
Prior to the contribution of this capital by Group, Viasystems had no operations
of its own. The consolidated financial statements included herein present the
results of operations of Viasystems and its subsidiaries subsequent to the
capital contribution by Group, and the results of operations of Group and its
subsidiaries prior to the capital contribution of such subsidiaries to
Viasystems. As used herein, the Company refers to Viasystems and its
subsidiaries subsequent to the capital contribution by Group and to Group and
its subsidiaries prior to such capital contribution. These financial statements
have been adjusted to reflect the equity structure of Viasystems on a
retroactive basis.
On October 1, 1996, the Company acquired all of the outstanding stock of
Circo Craft Co. Inc. ("Circo Craft"), a Quebec corporation and a rigid printed
circuit board ("PCB") manufacturer, for aggregate cash consideration of $129,850
plus acquisition fees and expenses of $885 (the "Circo Craft Acquisition"). The
operating results of Circo Craft Co. Inc. are included in the consolidated
financial statements of Viasystems since the date of the Circo Craft
Acquisition.
The Circo Craft Acquisition has been accounted for using the purchase
method of accounting whereby the total purchase price has been allocated to the
assets and liabilities based on their estimated respective fair values. The
Company allocated a significant portion of the purchase price, as described
below, to intangible assets, including approximately $39,200 of in-process
research and development ("in-process R&D"). The portion of the purchase price
allocated to in-process R&D projects that did not have a future alternative use
totaled $39,200 and was charged to expense as of the acquisition date. The
in-process R&D projects relate primarily to developing significant enhancements
to the current product offering, as well as introducing advanced new products.
The incomplete projects include new connector functionality, chip packaging
solutions, component miniaturization, specialty drilling and surface finishes.
Given the uniqueness of the tasks and the technologies involved, alternative
future uses for these projects, apart from the objectives and economics of the
projects for which they are intended, do not exist. The Company believes that
the efforts to complete the acquired in-process R&D projects will consist of
internally-staffed engineering costs over the next two to four years. The costs
to complete the in-process R&D projects and to procure, develop and test the
required capital assets are anticipated to be significant. The other acquired
intangibles include developed technology, assembled workforce, and customer
list. These intangibles are being amortized over their estimated useful lives of
1-15 years. The remaining unidentified intangible asset has been allocated to
goodwill and is being amortized over its estimated useful life of 20 years (see
Note 2).
On December 1, 1996, the Company, through its newly formed subsidiary,
Viasystems Technologies Corp., acquired certain assets and assumed certain
liabilities of the Microelectronics Group, Interconnection Technologies Unit of
Lucent Technologies Inc. (the "Lucent Division"), a rigid PCB manufacturer and
backplane assembler, (the "Lucent Division Acquisition") for an aggregate cash
consideration of $170,000 and 1,200,000 shares of preferred stock valued at
$30,000 plus acquisition fees and expenses of $1,969. The operating results of
Viasystems Technologies Corp. are included in the consolidated financial
statements of the Company since the date of the Lucent Division Acquisition.
The Lucent Division Acquisition was accounted for using the purchase method
of accounting whereby the total purchase price has been allocated to the assets
and liabilities based on their estimated respective fair values. The Company
allocated a significant portion of the purchase price, as described below, to
intangible assets, including approximately $11,600 of in-process R&D. The
portion of the purchase price allocated to in-process R&D projects that did not
have a future alternative use totaled $11,600 and was charged to expense as of
the acquisition date. The in-process R&D projects relate primarily to developing
significant enhancements to the current product offering as well as introducing
advanced new products. The incomplete projects
33
<PAGE> 35
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include new connector functionality, chip packaging solutions, component
miniaturization, specialty drilling and surface finishes. Given the uniqueness
of the tasks and the technologies involved, alternative future uses for these
projects, apart from the objectives and economics of the projects for which they
are intended, do not exist. The Company believes that the efforts to complete
the acquired in-process R&D projects will consist of internally-staffed
engineering costs over the next two to four years. The costs to complete the
in-process R&D projects and to procure, develop and test the required capital
assets are anticipated to be significant. The other acquired intangibles include
developed technology, assembled workforce, and customer list. These intangibles
are being amortized over their estimated useful lives of 1-15 years. The
remaining unidentified intangible asset has been allocated to goodwill and is
being amortized over its estimated useful life of 20 years (see Note 2).
In connection with the Lucent Division Acquisition, the Company entered
into a supply agreement with Lucent Technologies Inc. ("Lucent Technologies")
under which Lucent Technologies agreed to purchase minimum annual dollar volumes
of PCBs and backplanes from the Company at defined prices. Such agreement also
provides the Company with specified remedies against Lucent Technologies in the
event Lucent Technologies does not purchase the minimum annual volumes set forth
in the agreement.
On April 11, 1997, the Company acquired all of the outstanding stock of
Forward Group, PLC ("Forward"), a manufacturer of rigid PCBs located in the U.K.
The purchase price of approximately $208,483 consisted of cash and notes payable
to certain Forward stockholders plus $5,585 of acquisition fees and expenses
(the "Forward Acquisition"). The Forward Acquisition and related transaction
fees and expenses were funded with (i) $40,000 from the issuance of 1,600,000
shares of Series C Preferred Stock of Viasystems Group, Inc. and (ii) $216,000
from a Subordinated Credit Facility. The Subordinated Credit Facility was paid
off with a subsequent debt offering (see Note 8).
The Forward Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. Accordingly, the
results of operations of Forward since its acquisition are included in the
results of operations of the Company. The Company has allocated a significant
portion of the purchase price, as described below, to intangible assets,
including approximately $97,800 of in-process R&D. The portion of the purchase
price allocated to in-process R&D projects that did not have a future
alternative use totaled $97,800 and was charged to expense as of the acquisition
date. The other acquired intangibles include developed technology, assembled
workforce, and customer list. These intangibles are being amortized over their
estimated useful lives of 1-15 years. The remaining unidentified intangible
asset has been allocated to goodwill and is being amortized over its estimated
useful life of 20 years (see Note 2).
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 57,034
Property, plant and equipment............................... 59,358
Developed technologies...................................... 34,800
Assembled workforce......................................... 6,600
Customer list............................................... 13,200
In-process R&D.............................................. 97,800
Goodwill.................................................... 82,240
Non-current assets.......................................... 5,660
Current liabilities......................................... (86,297)
Non-current liabilities..................................... (56,327)
--------
Total............................................. $214,068
========
</TABLE>
34
<PAGE> 36
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, Viasystems Group, Inc.'s stockholders and certain of its
affiliates formed Chips Holding, Inc., to acquire Interconnection Systems
(Holdings) Limited ("ISL"), a manufacturer of rigid PCBs located in the U.K. On
April 21, 1997, Chips Holdings, Inc. acquired ISL for $437,500 plus $8,953 of
acquisition fees and expenses (the "ISL Acquisition"). The purchase price
consisted entirely of notes payable to the former stockholders of ISL. In
connection with the transaction, the stockholders of Viasystems Group, Inc.
invested $140,000 of equity capital in Chips Holdings, Inc. On June 6, 1997,
Chips Holdings, Inc. merged with Viasystems Group, Inc. and the subsidiaries of
Chips Holdings, Inc., including ISL, became subsidiaries of Viasystems and
certain of its subsidiaries (the "Chips Merger") in consideration for the
issuance to Viasystems Group, Inc.'s stockholders and certain of its affiliates
of 140,000,000 shares of Viasystems Group, Inc. common stock valued at $140,000.
Viasystems Group, Inc. assumed the $437,500 of notes payable which were incurred
by Chips Holdings, Inc. (the "Chips Loan Notes") to finance the ISL acquisition
(see Note 8).
The ISL Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. The Company has
allocated a significant portion of the purchase price, as described below, to
intangible assets, including approximately $196,700 of in-process R&D. The
portion of the purchase price allocated to in-process R&D projects that did not
have a future alternative use totaled $196,700 and was charged to expense as of
the acquisition date. The other acquired intangibles include developed
technology, assembled workforce, and customer list. These intangibles are being
amortized over their estimated useful lives of 1-15 years. The remaining
unidentified intangible asset has been allocated to goodwill and is being
amortized over its estimated useful life of 20 years (see Note 2).
The Chips Merger was accounted for as a transfer of assets among companies
under common control and was recorded at Chips Holdings, Inc.'s historical cost.
In the Chips Merger, ISL and its subsidiaries became wholly owned subsidiaries
of Viasystems, and as such, Viasystems will account for the acquisition of ISL
as of the acquisition by Chips Holdings, Inc. and the results of operations of
ISL since the acquisition by Chips Holdings, Inc. are included in the results of
operations of the Company.
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 98,357
Property, plant and equipment............................... 120,329
Developed technologies...................................... 66,500
Assembled workforce......................................... 8,000
Customer list............................................... 17,900
In-process R&D.............................................. 196,700
Goodwill.................................................... 114,042
Non-current assets.......................................... 12,971
Current liabilities......................................... (77,507)
Non-current liabilities..................................... (110,839)
---------
Total............................................. $ 446,453
=========
</TABLE>
Forward's and ISL's (the "1997 Acquisitions") in-process R&D value is
comprised of numerous R&D programs that should reach completion during periods
ranging from 1998 through 1999. These projects will include the introduction of
important new technology that will, if successful, enable the advancement of the
1997 Acquisitions' PCB product line. At the acquisition date, R&D programs
ranged in completion from 10% to 90% complete and total continuing research and
development commitments to complete the projects are expected to be
approximately $5,900. These estimates are subject to change, given the
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.
35
<PAGE> 37
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, these projects will require maintenance research and development
after they have reached a state of technological and commercial feasibility. In
addition to usage of the companies' internal cash flows, Viasystems will likely
provide a substantial amount of funding to complete each company's programs.
Remaining development efforts for the in-process R&D programs are complex and
include the development of next-generation technological solutions.
Certain projects within the 1997 Acquisitions' in-process R&D programs
began to bear results in 1998. As evidenced by their continued support for these
projects, management believes the Company is well positioned to successfully
complete each of the major in-process R&D programs. Management believes other
in-process projects are on track to be completed and will continue to bear
results in future periods. However, there is risk associated with the completion
of the projects and there is no assurance that each will meet with either
technological or commercial success. The substantial delay or outright failure
of the in-process R&D related to the 1997 Acquisitions would impact the
Company's business, results of operations and cash flows.
The 1997 Acquisitions' total revenues are projected to increase over the
next 5 years, assuming the successful completion and market acceptance of the
in-process R&D programs. Estimated revenue from existing technologies of the
1997 Acquisitions is expected to grow in 1999, then begins a slow decline over
the next 10 years as the in-process technologies are completed and existing
processes and know-how approach obsolescence. The estimated revenues for
in-process R&D projects related to the 1997 Acquisitions are expected to peak in
2005, and thereafter decline as other new products and technologies are expected
to enter the market.
In January 1998, the Company acquired certain assets and assumed certain
liabilities of the PCB production facility of Ericsson Telecom AB ("Ericsson")
located in Sweden (the "Ericsson Facility"), for a cash purchase price of
approximately $7,000. In addition, the Company and Ericsson signed a three-year
supply agreement whereby Ericsson committed to purchase 40% of its PCB
requirements from the Company.
In February 1998, the Company acquired all the outstanding shares of Print
Service Holding N.V., the parent holding company of Mommers Print Service B.V.
("Mommers"), a PCB manufacturer located in The Netherlands and specializing in
the production of high-volume, medium- to high-complexity PCBs and backplanes,
for a cash purchase price of approximately $59,399, plus assumed obligations
(the "Mommers Acquisition"). Accordingly, the results of operations of Mommers
since its acquisition are included in the results of operations of the company.
The Mommers Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. The Company has
allocated a portion of the purchase price, as described below, to intangible
assets, including in-process R&D. The portion of the purchase price allocated to
in-process R&D projects that did not have a future alternative use totaled
$5,300 and was charged to expense as of the acquisition date. The other acquired
intangibles include developed technologies, assembled workforce, and customer
list. These intangibles are being amortized over their estimated useful lives of
1-15 years. The remaining unidentified intangible asset has been allocated to
goodwill and is being amortized over its estimated useful life of 20 years (see
Note 2).
36
<PAGE> 38
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 24,634
Property, plant and equipment............................... 28,917
Acquired intangibles........................................ 13,000
In-process R&D.............................................. 5,300
Goodwill.................................................... 28,562
Current liabilities......................................... (29,468)
Non-current liabilities..................................... (11,546)
--------
Total............................................. $ 59,399
========
</TABLE>
In March 1998, the Company acquired all the outstanding shares of
Zincocelere S.p.A. ("Zincocelere"), a PCB manufacturer located in northern Italy
and specializing in the production of high-volume medium- to high-complexity
PCBs, for a cash purchase price of approximately $85,012, plus assumed
obligations (the "Zincocelere Acquisition").
The Zincocelere Acquisition has been accounted for using the purchase
method of accounting whereby the total purchase price has been allocated to the
assets and liabilities based on their estimated respective fair values. The
Company has allocated a portion of the purchase price, as described below, to
intangible assets, including in-process R&D. The portion of the purchase price
allocated to in-process R&D projects that did not have a future alternative use
totaled $14,800 and was charged to expense as of the acquisition date. The other
acquired intangibles include developed technologies, assembled workforce, and
customer list. These intangibles are being amortized over their estimated useful
lives of 1-15 years. The remaining unidentified intangible asset has been
allocated to goodwill and is being amortized over its estimated useful life of
20 years (see Note 2).
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 58,642
Property, plant and equipment............................... 51,620
Acquired intangibles........................................ 21,000
In-process R&D.............................................. 14,800
Goodwill.................................................... 37,680
Current liabilities......................................... (56,620)
Non-current liabilities..................................... (42,110)
--------
Total............................................. $ 85,012
========
</TABLE>
The Mommers and Zincocelere Acquisitions were funded by a February 1998
offering of $100,000 of 9 3/4% Series B Senior Subordinated Notes due 2007, a
$70,000 term loan (see Note 8), and an additional equity contribution of
$50,000.
Mommers' and Zincocelere' (the "1998 Acquisitions") in-process R&D value is
comprised of numerous R&D programs that should reach completion during periods
ranging from 1999 through 2001. These projects will include the introduction of
important new technology that will, if successful, enable the advancement of the
1998 Acquisitions' PCB product line. At the acquisition date, R&D programs
ranged in completion from 10% to 90% complete and total continuing research and
development commitments to complete the projects are expected to be
approximately $15,900. These estimates are subject to change, given the
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.
37
<PAGE> 39
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, these projects will require maintenance research and development
after they have reached a state of technological and commercial feasibility. In
addition to usage of the companies' internal cash flows, Viasystems will likely
provide a substantial amount of funding to complete each company's programs.
Remaining development efforts for the in-process R&D programs are complex and
include the development of next-generation technological solutions.
Certain projects within the 1998 Acquisitions' in-process R&D programs will
begin to bear results in late 1999. As evidenced by their continued support for
these projects, management believes the Company is well positioned to
successfully complete each of the major in-process R&D programs. Management
believes other in-process projects are on track to be completed and will
continue to bear results in future periods. However, there is risk associated
with the completion of the projects and there is no assurance that each will
meet with either technological or commercial success. The substantial delay or
outright failure of the in-process R&D related to the 1998 Acquisitions would
impact the Company's business, results of operations and cash flows.
The 1998 Acquisitions' total revenues are projected to increase over the
next 5 years, assuming the successful completion and market acceptance of the
in-process R&D programs. Estimated revenue from existing technologies of the
1998 Acquisition is expected to grow in 1999, then begins a slow decline over
the next 5-8 years as the in-process technologies are completed and existing
processes and know-how approach obsolescence. The estimated revenues for
in-process projects related to the 1998 Acquisitions are expected to peak in
2003, and thereafter decline as other new products and technologies are expected
to enter the market.
The Company incurred significant charges in 1996, 1997 and 1998 related to
purchased in-process R&D costs. A portion of the purchase price for acquisitions
was attributed to the value of in-process R&D projects and was expensed in
accordance with Statement of Accounting Standards No. 2, "Accounting for
Research and Development Costs." The Company believes its accounting for
purchased in-process R&D was made in accordance with generally accepted
accounting principles and valuation practices at the time of the related
acquisitions. The Company obtained independent valuations of the purchased
in-process R&D. The income valuation approach was used to determine the fair
value of the in-process R&D projects acquired in connections with the
acquisitions made in 1996 and 1997. In 1998, the Company applied the Security
and Exchange Commission's new guidelines for valuing purchased in-process R&D.
In connection with the acquisitions of Forward, ISL, Mommers, Zincocelere,
and the Ericsson Facility, the Company's management assessed and evaluated the
operations, employment levels and overall strategic fit of each facility
acquired. As a result of this assessment and finalization of its plans, the
Company recorded certain plant shutdown, downsizing and consolidation accruals
as part of the purchase price allocations related to the 1997 and 1998
Acquisitions, which also resulted in certain adjustments to the Company's
preliminary purchase price allocations.
Accruals were established to cover costs associated with the closure of the
Selkirk and Galashiels, Scotland facilities, to cover costs associated with the
closure of the Manchester, Rugby and Telford, England facilities, to cover costs
associated with redundant employment levels at the Norrkoping, Sweden and Echt,
Netherlands facilities and to cover the cost of consolidating redundant
administrative functions among the 1998 Acquisitions. The accruals cover
shutdown costs from the period of the plant closure to the date of disposal,
including personnel and severance related costs, lease commitment costs,
equipment removal and disposal costs, cleanup and restoration costs and idle
plant costs.
During fiscal 1998, plant shutdown and downsizing actions resulted in the
termination of approximately 860 employees. Remaining shutdown actions are
expected to be complete by the end of fiscal 1999.
38
<PAGE> 40
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of accrued liabilities follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Balance, beginning of year................................. $ -- $ 8,863
Provisions:
Personnel and severance costs............................ 4,000 35,313
Equipment removal and disposal........................... 3,300 7,356
Idle plant costs......................................... -- 5,715
Cleanup and restoration.................................. 1,000 3,519
Lease commitment costs................................... 563 1,906
------ -------
Total............................................ 8,863 62,672
------ -------
Costs incurred:
Personnel and severance costs............................ -- 19,394
Equipment removal and disposal........................... -- 1,475
Idle plant costs......................................... -- 371
Cleanup and restoration.................................. -- 1,812
Lease commitment costs................................... -- --
------ -------
Total............................................ -- 23,052
------ -------
Balance, end of year....................................... $8,863 $39,620
====== =======
</TABLE>
Included below is unaudited pro forma financial data setting forth results
of operations of the Company for the year ended December 31, 1997, as though the
Forward Acquisition, the ISL Acquisition, the Mommers Acquisition and the
Zincocelere Acquisition and the related financing had occurred at January 1,
1997 and for the year ended December 31, 1998, as though the Mommers Acquisition
and the Zincocelere Acquisition and the related financing had occurred at
January 1, 1998. In preparing this data, the financial data of Forward for the
three months ended March 31, 1997 has been translated at an exchange rate of
U.K. L0.61=U.S.$1.00, which is not materially different from the average
exchange rate for the period. The financial data for ISL for the three months
ended April 4, 1997, has been translated at an exchange rate of U.K.
L0.61=U.S.$1.00, which is not materially different from the average exchange
rate for the period. The financial data of Mommers for the year ended December
31, 1997 and for the two months ended February 28, 1998, has been translated at
an exchange rate of Dutch Guilder 2.02=U.S.$1.00 and Dutch Guilder
2.08=U.S.$1.00, respectively, which is not materially different from the average
exchange rate for the respective period. The financial data of Zincocelere for
the year ended December 31, 1997, and for the two months ended February 28, 1998
has been translated at an exchange rate of Italian Lira 1,761.00=U.S.$1.00 and
Italian Lira 1,821.00=U.S.$1.00, respectively, which is not materially different
from the average exchange rate for the respective period.
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net sales................................................... $1,129,264 $1,067,080
Loss before extraordinary item.............................. (387,148) (92,439)
Net loss.................................................... (389,867) (92,439)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is primarily involved in marketing, manufacturing and
distributing advanced printed circuit boards ("PCBs") and assembled backplanes
at various facilities located in the United States, Canada, Mexico, the United
Kingdom, the Netherlands, Italy, Sweden, China and Puerto Rico. The Company's
39
<PAGE> 41
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
customers include a diverse base of manufacturers in the telecommunications,
computer and automotive industries throughout North America and Europe.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Foreign Currency Translation
Local currencies have been designated as the functional currency for all
subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are
translated at the rates of exchange at the balance sheet date. Income and
expense items of these subsidiaries are translated at average monthly rates of
exchange. The resultant translation gains and losses are included as a component
of stockholders' equity on the consolidated balance sheet. See the consolidated
statements of operations and comprehensive income for the impact of such gains
and losses on the measurement of comprehensive income.
Derivative Financial Instruments
From time to time, the Company engages in short-term hedging activities to
reduce its exposure to foreign currency fluctuations. Such hedging activities
are not material and gains and losses from such activities are not significant.
There can be no assurance that these hedging activities will eliminate or reduce
foreign currency risk.
Inventories
Inventories are stated at the lower of cost (valued using the first-in,
first-out (FIFO) method) or market. Cost includes raw materials, labor and
manufacturing overhead.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Repairs and
maintenance which do not extend the useful life of an asset are charged to
expense as incurred. The useful lives of leasehold improvements are the lesser
of the remaining lease term or the useful life of the improvement. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets as follows:
<TABLE>
<S> <C>
Building.................................................... 40 years
Leasehold improvements...................................... 10-12 years
Machinery, equipment, systems and other..................... 3-8 years
</TABLE>
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with debt financing, are amortized over the term of the related debt using the
straight-line method, which approximates the effective interest method.
Intangible Assets
Intangible assets consist primarily of identifiable intangibles acquired
and goodwill arising from the excess of cost over the fair value of net assets
acquired. The Company assesses the recoverability of its intangible assets based
on its current and anticipated future undiscounted cash flows. In addition, the
Company's policy for the recognition and measurement of any impairment of
goodwill is to assess the current and anticipated future discounted cash flows
associated with the goodwill. An impairment of goodwill occurs
40
<PAGE> 42
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
when the discounted cash flows (excluding interest) do not exceed the carrying
amount of goodwill. The amount of the impairment loss is the difference between
the amount of the goodwill and the discounted cash flows associated with the
goodwill. At December 31, 1998 the Company does not believe there has been any
impairment of its identified intangible assets or goodwill. Amortization of
intangible assets is computed using systematic methods over the estimated useful
lives of the related assets as follows:
<TABLE>
<CAPTION>
LIFE METHOD
---- ------
<S> <C> <C>
Developed technologies............................ 15 years Double-declining balance
Assembled workforce............................... 1 year Straight-line
Customer list..................................... 3 years Straight-line
Goodwill.......................................... 20 years Straight-line
</TABLE>
Revenue Recognition
Sales and related costs of goods sold are included in income when goods are
shipped to the customer in accordance with the delivery terms.
Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, the Company
considers investments purchased with an original maturity of three months or
less to be cash equivalents.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair market value of the Senior Subordinated Notes due 2007 and the
Series B Senior Subordinated Notes due 2007 is $372,000 and $93,000,
respectively, at December 31, 1998. The Company has estimated this fair value
data by using current market data. The fair market values of the other financial
instruments included in the consolidated financial statements approximate the
carrying values of those instruments.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and disclosure
of comprehensive income (loss) and its components. Effective January 1, 1998,
the Company adopted SFAS No. 130. See the consolidated statements of operations
and comprehensive income for the impact of such gains and losses on the
measurement of comprehensive income.
In June 1997, the FASB adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes reporting requirements
related to a business' operating segments, products and services, geographic
areas of operations and major customers. Effective January 1, 1998, the Company
adopted SFAS No. 131 (See Note 13).
In February 1998, the FASB adopted SFAS No. 132, "Employer's Disclosure
about Pensions and Other Post Retirement Benefits," which establishes reporting
requirements related to a business' pension and other post retirement benefits.
Effective January 1, 1998, the Company adopted SFAS No. 132 (See Note 16).
41
<PAGE> 43
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1998, the FASB adopted Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which requires costs of
start-up activities and organization costs to be expensed as incurred. SOP 98-5
is effective for financial statements for fiscal years beginning after December
15, 1998. The Company will adopt SOP 98-5 in fiscal year 1999 and will report
the write off of the net book value of start-up costs as of January 1, 1999, of
approximately $23,000 as a cumulative effect of a change in accounting
principle.
In June 1998, the FASB adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor has it
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings and other comprehensive income.
3. SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest for the period from inception (August 28, 1996) to
December 31, 1996 and for the years ended December 31, 1997 and 1998, was $323,
$59,956 and $91,068, respectively. Cash paid for income taxes for the period
from inception (August 28, 1996) to December 31, 1996 and for the years ended
December 31, 1997 and 1998 was $1,184, $4,742 and $20,951, respectively.
The purchase of the shares of Forward Group was partially funded through
the issuance of approximately $24,420 of notes payable to Forward Group's former
shareholders. The purchase of shares of ISL was entirely funded through the
issuance of approximately $437,500 of loan notes.
In 1997, the Company received a non-cash contribution of $118,250 from
Group when Group transferred $118,250 in cash to Bisto Funding, Inc. The cash
transfer was recorded as a capital contribution and a reduction of the carrying
amount of the notes payable to the former shareholders of Interconnection
Systems (Holdings) Limited (see Note 1). The notes payable recorded by the
Company are net of the $118,250 as Bisto Funding, Inc. is contractually
obligated to pay such amount to the note holders in the event the notes payable
are redeemed (see Note 8).
4. INVENTORIES
The composition of inventories at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Raw materials............................................... $24,709 $ 48,497
Work in process............................................. 28,472 39,688
Finished goods.............................................. 9,420 17,434
------- --------
Total............................................. $62,601 $105,619
======= ========
</TABLE>
42
<PAGE> 44
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
The composition of intangible assets at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Developed technologies...................................... $122,808 $ 139,220
Assembled workforce......................................... 25,468 33,907
Customer list............................................... 39,679 55,300
Goodwill.................................................... 180,039 283,786
-------- ---------
367,994 512,213
Less: Accumulated amortization.............................. (58,524) (120,604)
-------- ---------
Total............................................. $309,470 $ 391,609
======== =========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Land and buildings.......................................... $ 77,346 $ 107,563
Machinery, equipment, systems and other..................... 343,028 471,214
Construction in progress.................................... 78,101 132,037
Leasehold improvements...................................... 1,505 7,496
-------- ---------
499,980 718,310
Less: Accumulated depreciation.............................. (51,852) (138,106)
-------- ---------
Total............................................. $448,128 $ 580,204
======== =========
</TABLE>
7. ACCRUED AND OTHER LIABILITIES
The composition of accrued and other liabilities at December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Accrued payroll and related costs........................... $22,761 $ 30,596
Accrued capital expenditures................................ 24,565 13,040
Plant shutdown, downsizing and consolidation accruals....... -- 39,620
Accrued and other liabilities............................... 38,534 58,144
------- --------
Total............................................. $85,860 $141,400
======= ========
</TABLE>
43
<PAGE> 45
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Credit Agreements:
Term Facilities........................................... $ 87,500 $ 175,438
Revolvers................................................. -- 117,244
Senior Subordinated Notes Due 2007.......................... 400,000 400,000
Series B Senior Subordinated Notes Due 2007................. -- 100,000
Series B Senior Subordinated Notes Due 2007, Premium........ -- 4,211
Chips Loan Notes Liability.................................. 319,250 285,312
Capital lease obligations (see Note 9)...................... 27,210 22,166
Other....................................................... 13,415 30,124
-------- ----------
847,375 1,134,495
Less current maturities........................... (31,363) (54,534)
-------- ----------
$816,012 $1,079,961
======== ==========
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1998 is as follows:
<TABLE>
<S> <C>
1999........................................................ $ 54,534
2000........................................................ 74,582
2001........................................................ 69,769
2002........................................................ 184,212
2003........................................................ 147,817
Thereafter.................................................. 603,581
----------
$1,134,495
==========
</TABLE>
Second Amended and Restated Credit Agreement
In connection with the 1997 Offering and the Chips Merger, Viasystems
Group, Inc., as guarantor, and Viasystems and certain of its subsidiaries, as
borrowers, entered into a Second Amended and Restated Credit Agreement with
terms substantially similar to the Amended and Restated Credit Agreement. The
Second Amended and Restated Credit Agreement provides for (i) an $88,000 term
loan facility (the "U.S. Term Loan") and a $150,000 revolving credit facility
(the "U.S. Revolving Loan" and together with the U.S. Term Loan, the "U.S.
Loans"); (ii) a U.S. $25,000 revolving credit facility (the "Canadian Revolving
Loan"), (iii) a L32,000 revolving credit facility (the "Forward Group Revolving
Loan") and a L27,600 revolving credit facility (the "Chips Revolving Loan", and
together with the Forward Group Revolving Loan, the "U.K. Revolving Loans", and
together with the U.S. Revolving Loan and the Canadian Revolving Loan, the
"Revolving Loans") and (iv) U.S.$346,463 Letter of Credit Facility in respect of
the Chips Loan Notes comprised of (a) a U.S.$319,250 term loan facility ("the
Chips Term Loan" and together with the U.S. Term Loan, the "Term Loans") in
respect of the principal portion of the Chips Loan Notes and (b) a U.S.$27,213
facility in respect of interest on the Chips Loan Notes. The Chips Term Loan is
an unfunded term loan facility that may be drawn upon by the Company so that it
may satisfy the Chips Loan Notes Liability. Borrowings under the Second Amended
and Restated Credit Agreement are collateralized by first priority mortgages and
liens on substantially all of the material assets of the Company and its
subsidiaries.
In February 1998, the Senior Credit Facilities were amended to, among other
things, establish an additional $70.0 million U.S. term loan (the "Additional
Term Loan") and increases available revolving credit facilities by $25.0 million
(the "Amended Senior Credit Facilities").
44
<PAGE> 46
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The U.S. Term Loan consists of three tranches: (i) $55,000 of tranche B
term loans (the "Tranche B Loan"), (ii) $33,000 of tranche C term loans (the
"Tranche C Loan") and (iii) $70,000 of Addition Term Loan. The Tranche B Loan
amortizes semiannually over eight years, the Tranche C Loan is payable $1,500 on
December 31, 2004 and $31,500 on June 30, 2005, and the Additional Term Loan
amortizes semiannually over 6.5 years. The Chips Term Loan amortizes
semi-annually over six years.
The Company may use the Revolving Loans for letters of credit in an amount
not to exceed $15,000, in the case of both the U.S. Revolving Loan and the
Canadian Revolving Loan, and related letters of credit and bankers' acceptances
in an amount not to exceed L5,000 in the case of the Forward Group Revolving
Loan and L10,000 in the case of the Chips Revolving Loan. Of the Forward Group
Revolving Loan, L2,232 is available solely to finance obligations in respect of
the notes payable to the selling stockholders of Forward. At December 31, 1998,
the Company had approximately $161,200 of available borrowing capacity under the
Revolving Loans, of which, approximately $59,900 was available solely for future
acquisitions.
The U.S. Loans bear interest, at the Company's election, at either: (i) the
Eurocurrency Base Rate plus (a) 2.5% in the case of the Chips Term Loan and U.S.
Revolving Loan, (b) 2.75% in the case of the Additional Term Loan, (c) 3.0% in
the case of Tranche B Loan, or (d) 3.5% in the case of Tranche C Loan; or (ii)
the Alternate Base Rate plus (a) 1.5% in the case of the Chips Term Loan or U.S.
Revolving Loan, (b) 1.75% in the case of the Additional Term Loan, (c) 2.0% in
the case of Tranche B Loan, or (d) 2.5% in the case of Tranche C Loan. The
Alternate Base Rate is the highest of The Chase Manhattan Bank's Prime Rate, the
Three-Month Secondary CD Rate (as defined therein) plus 1.0%, and the Federal
Funds Effective Rate (as defined therein) plus 0.5%. The Canadian Revolving Loan
denominated in U.S. dollars bears interest, at Circo Craft's election, at either
(i) the Eurocurrency Base Rate plus 2.5% or (ii) the Canadian Alternate Base
Rate plus 1.5%. The Canadian Revolving Loan denominated in Canadian Dollars
bears interest, at Circo Craft's election either (i) the Canadian Bankers
Acceptance Discount Rate plus 2.5% or (ii) the Canadian Prime Rate plus 1.5%.
The Canadian Alternate Base Rate is equal to the higher of Canadian Agent's
prime rate or the Federal Funds Effective Rate (as defined in the Credit
Agreement) plus 0.5%. The U.K. Revolving Loans and any Chips Term Loans
converted to pounds sterling bear interest at the Eurocurrency Base Rate plus
2.5%. At December 31, 1997 and 1998 the weighted average interest rate on
outstanding borrowings under the Amended an Restated Credit Agreement was 8.69%
and 8.0%, respectively.
The Company pays a per annum fee equal to the applicable margin on
Revolving Loans which bear interest at the Eurocurrency Base Rate, of the
average daily face amount of outstanding letters of credit, other than with
respect to the Chips Letter of Credit, which fee is equal to the applicable
margin on the Chips Term Loan bearing interest at the Eurocurrency Base Rate.
The Company pays a Commitment Fee equal to 0.5% on the undrawn portion of the
commitments in respect of Revolving Loans and a Facility Fee equal to 0.5% on
the Canadian revolving credit commitment. In addition, the Company pays a fee of
0.25% per annum of Bisto Funding, Inc.'s $118,250 portion of the Chips Letter of
Credit to the extent not paid by Bisto Funding, Inc.
The Amended Senior Credit Facilities restrict the Company from, among other
things: (i) incurring additional indebtedness (other than permitted
indebtedness); (ii) creating liens; (iii) disposing of assets; (iv) guaranteeing
indebtedness; (v) merging or selling substantially all of its assets; (vi)
declaring and paying certain dividends; (vii) making certain investments and
loans; and (viii) entering into certain transactions with affiliates, in each
case with certain exceptions customary for credit facilities such as the Amended
Senior Credit Facilities. In addition, the Second Amended and Restated Credit
Agreement contains financial covenants which require the Company to maintain
certain financial ratios and limit the Company's amount of capital expenditures.
Senior Subordinated Notes and Series B Senior Subordinated Notes
In June 1997, Viasystems completed an offering (the "1997 Offering") of
$400,000 of 9 3/4% Senior Subordinated Notes due 2007 (the "1997 Notes"). In
February 1998, the Company completed the offering of
45
<PAGE> 47
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an additional $100.0 million of 9 3/4% Senior Subordinated Notes due 2007 at a
price of 104.5% (the "1998 Notes" and together with the 1997 Notes, the "2007
Notes"). As a condition of the offering of the 1998 Notes, Hicks Muse
contributed an additional $50.0 million of equity to the Company. A portion of
the proceeds of the 1998 Notes, the additional term loan under the Senior Credit
Facilities, and the equity contribution have been used to fund the acquisitions
of the Ericsson Facility, Mommers, and Zincocelere (see Note 1).
Interest on the 2007 Notes is due semiannually. The 2007 Notes may not be
redeemed prior to June 1, 2002, except in the event of a Change of Control (as
defined) or and Initial Public Offering (as defined) and at premium (as defined
in the Indenture). The 2007 Notes are redeemable, at the Company's option, at
the redemption prices of 104.875% at June 1, 2002, and at decreasing prices to
100% at June 1, 2005, and thereafter, plus accrued interest. In addition, prior
to June 1, 2001, the Company may redeem, within specified guidelines, up to
$35,000 of the 2007 Notes with proceeds of one or more Equity Offerings (as
defined) by the Company or Viasystems Group, Inc. at a redemption price of
109.75% plus accrued interest. Viasystems used the net proceeds of the 1997
Offering to repay the Subordinated Credit Facility, approximately $130,000 of
term loans outstanding under the Amended and Restated Credit Agreement, and
approximately $41,600 of revolving credit amounts outstanding under the Amended
and Restated Credit Agreement which was borrowed subsequent to December 31,
1996, to repay debt assumed in the acquisition of Chips, plus interest on all
debt repaid.
The fair market value of the Senior Subordinated Notes due 2007 and the
Series B Senior Subordinated Notes due 2007 is $372,000 and $93,000,
respectively, at December 31, 1998. The Company has estimated this fair value
data by using current market data.
Chips Loan Notes Liability
In June 1997 and pursuant to the Chips Merger, Viasystems Group, Inc.
assumed the $437,500 of Chips Loan Notes, and the Company entered into a
reimbursement obligation which requires it to pay a portion of the Chips Loan
Notes in the event such notes are called. The Chips Loan Notes mature on March
31, 2003 and bear interest, payable quarterly, at approximately 6.22% per annum
through April 1, 1998, with variable rate thereafter discounted from the U.S.
prime rate. The Chips Loan Notes may be called by the holders on or after any
interest payment date commencing April 1, 1998. The Chips Loan Notes are
collateralized by letters of credit which are in turn collateralized in part by
a fully cash collateralized $118,250 reimbursement obligation of Bisto Funding,
Inc., a special purpose entity and sister company of Viasystems established as a
subsidiary of Viasystems Group, Inc. in connection with the acquisition of ISL,
with the remainder, including interest on the Chips Loan Notes for one year,
collateralized by a reimbursement obligation of Viasystems (the "Chips
Reimbursement Obligation"). As such, the Company's liability for principal under
the Chips Loan Notes represents $319,250 (the "Chips Loan Notes Liability"), or
the amount achieved by netting the $118,250 of cash collateral held by Bisto
Funding, Inc. against the $437,500 of Chips Loan Notes. To the extent the
interest income earned by Bisto Funding, Inc. on the $118,250 of cash it holds
is insufficient to fund interest on $118,250 of the principal amount of the
Chips Loan Notes, the Company will be required pursuant to the terms of the
Chips Reimbursement Obligation to fund any such shortfall. Upon redemption of
the Chips Loan Notes, the first $118,250 of principal payments will be paid by
Bisto Funding, Inc. and the remainder will be funded by the Company in
accordance with the Chips Reimbursement Obligation. Although the Chips Loan
Notes may be called by the holders on or after any interest payment date
commencing April 1, 1998, the Chips Loan Notes have not been classified as
current at December 31, 1997 and 1998, since the Company has in place a facility
to replace the Chips Loan Notes in the event they are called.
In April 1998 the holders of the Chips Loan Notes redeemed $152,200 of the
Chips Loan Notes. As such, $118,300 of cash held by Bisto Funding, Inc. was paid
to the holders of the Chips Loan Notes. The
46
<PAGE> 48
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company borrowed $33,900 of the available Chips Term Loan to fund its portion of
the payment of the Chips Loan Notes.
Senior Subordinated Credit Agreement
In April 1997, the Company entered into a $216,000 Senior Subordinated
Credit Agreement (the "Subordinated Credit Facility"). The proceeds of the
Subordinated Credit Facility were used to repay $20,000 of term loans
outstanding under the Credit Agreement and to repay a tender facility used to
acquire Forward Group. Amounts due under the Senior Subordinated Credit Facility
were repaid with proceeds from the 1997 Offering.
9. COMMITMENTS
The Company leases certain building and transportation and other equipment
under capital and operating leases. Included in property, plant, and equipment
as of December 31, 1997 and 1998, was $49,042 and $59,134, respectively, of cost
basis and $16,895 and $28,067, respectively, of accumulated depreciation related
to equipment held under capital leases. Total rental expense under operating
leases was $255, $3,005 and $3,209 for the period from inception (August 28,
1996) to December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively. Future minimum lease payments under capital leases and operating
leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
- ------------ ------- ---------
<S> <C> <C>
1999..................................................... $13,353 $2,874
2000..................................................... 7,977 2,318
2001..................................................... 1,986 1,232
2002..................................................... 38 993
2003..................................................... -- 894
------- ------
Total............................................. 23,354 $8,311
======
Less: Amounts representing interest...................... (1,188)
-------
Capital lease obligation (see Note 8)............. $22,166
=======
</TABLE>
10. OTHER NONCURRENT LIABILITIES
Included in other noncurrent liabilities are liabilities for monitoring and
oversight fees to Hicks, Muse & Co. Partners L.P. ("Hicks, Muse"), a shareholder
and affiliate of the Company, (see Note 18) and deferred income related to
reimbursement agreements with two governmental agencies in the U.K (the "U.K.
Agreements"). Pursuant to the U.K. Agreements, the agencies have provided funds
totaling approximately $20,000 as of December 31, 1998. Funds received by the
Company under the U.K. Agreements are not subject to repayment, provided that
the Company meets certain employment requirements at its manufacturing
facilities. As the Company has met and management believes that it will continue
to meet these requirements, the Company is recognizing the amounts to be
received under the U.K. Agreements as a reduction of cost of sales over the life
of the U.K. Reimbursement Agreements and, as such, recognized a reduction of
cost of sales of approximately $3,134 and $3,147 during the years ended December
31, 1997 and 1998, respectively.
47
<PAGE> 49
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The (benefit) for income taxes for the period from inception
(August 28, 1996) to December 31, 1996 and the provision (benefit) for income
taxes for the years ended December 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ 3,990 $ 13,286
State............................................... -- 920 279
Foreign............................................. 170 18,631 (5,772)
------- -------- --------
170 23,541 7,793
------- -------- --------
Deferred:
Federal............................................. (5,698) (2,195) (2,552)
State............................................... -- (507) (35)
Foreign............................................. 104 (12,407) (12,540)
------- -------- --------
(5,594) (15,109) (15,127)
------- -------- --------
$(5,424) $ 8,432 $ (7,334)
======= ======== ========
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
U.S. Federal statutory rate......................... $(18,416) $(108,941) $(29,674)
Permanent items..................................... 15,680 113,159 24,653
State taxes......................................... (3,250) 269 244
Foreign taxes in excess of U.S. statutory rate...... 213 3,945 (2,413)
Other............................................... 349 -- (144)
-------- --------- --------
$ (5,424) $ 8,432 $ (7,334)
======== ========= ========
</TABLE>
48
<PAGE> 50
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities not yet deductible.................... $ 17,306 $ 24,976
Net operating loss carryforwards.......................... 406 22,848
AMT credit carryforwards.................................. -- 3,594
Other..................................................... 1,590 3,423
-------- --------
19,302 54,841
Valuation allowance.................................... (260) --
-------- --------
19,042 54,841
-------- --------
Deferred tax liabilities:
Intangibles............................................... (40,251) (39,159)
Fixed assets.............................................. (27,747) (34,450)
Other..................................................... (1,535) (3,605)
-------- --------
(69,533) (77,214)
-------- --------
Net deferred tax asset (liability)................ $(50,491) $(22,373)
======== ========
</TABLE>
The current deferred tax assets are included in prepaid expenses and other
and the long-term deferred tax assets, consisting of net operating loss
carryforwards, are in other assets in the Consolidated Balance Sheets.
Approximate domestic and foreign income (loss) before income tax provision
and extraordinary item are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
INCEPTION DECEMBER 31,
(AUGUST 28, 1996) TO --------------------
DECEMBER 31, 1996 1997 1998
-------------------- --------- --------
<S> <C> <C> <C>
Domestic..................................... $(14,426) $ 5,307 $ 1,792
Foreign...................................... (39,740) (316,567) (93,909)
</TABLE>
As of December 31, 1998, the Company has $5,794 of Puerto Rican net
operating loss carryforwards, which will expire in 2001-2003, if not previously
utilized. All other net operating loss carryforwards carry forward indefinitely.
The Company has not recognized and does not anticipate recognizing a deferred
tax liability for approximately $15,000 of undistributed earnings of its foreign
subsidiaries because the Company does not expect those earnings to reverse and
become taxable to the Company in the foreseeable future.
12. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to such
matters as patents, 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 the Company's financial condition and results of operations
and cash flows.
The Company believes it is in material compliance with applicable
environmental laws and regulations and that its environmental controls are
adequate to address existing regulatory requirements.
49
<PAGE> 51
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. BUSINESS SEGMENT INFORMATION
The Company operates in one product business segment -- the manufacture and
sale of PCBs, which are sold throughout many diverse markets.
The Company's operations are located worldwide and are analyzed by two
geographical segments. The accounting policies of the segments are the same as
those described in the "Summary of Significant Accounting Policies" (note 2).
Segment data includes intersegment revenues.
Pertinent financial data by major geographic segments is as follows:
<TABLE>
<CAPTION>
OPERATING TOTAL CAPITAL
NET SALES INCOME/(LOSS) ASSETS EXPENDITURES
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
NORTH AMERICA:
Inception (August 28, 1996) to
December 31, 1996.............. $ 50,400 $ (50,931) $ 387,741 $ 3,563
Year ended December 31, 1997...... 499,266 50,495 436,484 42,276
Year ended December 31, 1998...... 521,920 65,226 509,059 52,350
EUROPE:
Inception (August 28, 1996) to
December 31, 1996.............. $ -- $ -- $ -- $ --
Year ended December 31,1997....... 296,023 (289,490) 632,428 74,887
Year ended December 31, 1998...... 512,239 (50,494) 945,644 78,011
ELIMINATIONS
Inception (August 28, 1996 to
December 31, 1996)............. $ -- $ -- $ -- $ --
Year ended December 31, 1997...... -- -- -- --
Year ended December 31, 1998...... (2,231) -- -- --
TOTAL:
Inception (August 28, 1996) to
December 31, 1996.............. $ 50,400 $ (50,931) $ 387,741 $ 3,563
Year ended December 31, 1997...... 795,289 (238,995) 1,068,912 117,163
Year ended December 31, 1998...... 1,031,928 14,732 1,454,703 130,361
</TABLE>
Sales by country of destination are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
INCEPTION DECEMBER 31,
(AUGUST 28, 1996) TO ---------------------
DECEMBER 31, 1996 1997 1998
-------------------- -------- ----------
<S> <C> <C> <C>
United States................................ $38,003 $436,728 $ 453,583
United Kingdom............................... 119 138,274 189,103
Sweden....................................... -- 45,168 105,331
Canada....................................... 11,549 54,555 47,880
Other........................................ 729 120,564 236,031
------- -------- ----------
Total.............................. $50,400 $795,289 $1,031,928
======= ======== ==========
</TABLE>
50
<PAGE> 52
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-lived assets by country are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
United States............................................... $215,654 $ 248,065
United Kingdom.............................................. 520,241 575,171
The Netherlands............................................. -- 66,275
Italy....................................................... -- 102,874
Canada...................................................... 80,399 84,171
Other....................................................... -- 14,036
-------- ----------
Total............................................. $816,294 $1,090,592
======== ==========
</TABLE>
14. CONCENTRATION OF BUSINESS
Sales to one customer were 27%, 39% and 32% of net revenues for the period
from inception (August 28, 1996) to December 31, 1996 and for the years ended
December 31, 1997 and 1998, respectively.
15. STOCK OPTION PLANS
On February 4, 1997, Viasystems Group, Inc. adopted the Viasystems Group,
Inc. 1997 Stock Option Plan (the "Option Plan"), pursuant to which incentive and
non-qualified stock options, stock appreciation rights, stock awards,
performance awards, and stock units (vesting stock awards) may be issued. A
total of 8,409,782 shares of Viasystems Group, Inc. Common Stock will be
reserved for issuance under the Stock Option Plan. As of December 31, 1997,
options to purchase an aggregate of 5,235,000 shares of Viasystems Group, Inc.
Common Stock subject to the terms and conditions of the Stock Option Plan are
outstanding. The terms and vesting periods of the options granted are to be
determined by the board of directors. All options granted under the Option Plan
to date have ten year terms and vest over five year periods.
Viasystems Group, Inc. has also granted performance options ("the
Performance Options") to certain key executives. The Performance Options are
exercisable only on the occurrence of certain events. The exercise price for the
Performance Options is initially equal to $1.00 per share for grants made during
1996 and 1997 and $1.22 per share for grants made during 1998 and, effective
each anniversary of the grant date, the per share exercise price for the
Performance Options is equal to the per share exercise price for the prior year
multiplied by 1.08. The Performance Options terminate on the tenth anniversary
date of the date of grant.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the Option Plan. Had compensation cost for the Option Plan and
the Performance Options been determined based upon the fair value at the grant
date for awards under these plans consistent with the methodology prescribed
under Financial Accounting Standards No. 123, pro forma net loss for the years
ended December 31, 1997 and 1998, would have been $(327,588) and $(84,961),
respectively.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions: (i) no dividend yield;
(ii) risk free interest rate of 5.5%; and (iii) expected life of 5 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts of compensation costs. Additional awards in future
years are anticipated.
51
<PAGE> 53
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS
PER SHARE GRANTED PER SHARE VESTED
-------------- ---------- -------------- -------
<S> <C> <C> <C> <C>
December 31, 1996..................... $ -- -- $ -- --
Granted............................. 1.00 5,230,000 -- --
Vested.............................. 1.00 -- 1.00 200,000
Forfeited........................... 1.00 (25,000) -- --
---------- -------
December 31, 1997..................... 1.00 5,205,000 1.00 200,000
Granted............................. 1.22 3,085,000 -- --
Vested.............................. 1.00 -- 1.00 726,000
Forfeited........................... 1.02 (1,520,000) -- --
Exercised........................... 1.00 (15,000) 1.00 (15,000)
---------- -------
December 31, 1998..................... $1.10 6,755,000 $1.00 911,000
========== =======
</TABLE>
Changes in the status of the Performance Options are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE GRANTED VESTED
-------------- ---------- -------
<S> <C> <C> <C> <C>
August 28, 1996
(inception)............ $1.00 -- --
Granted................ 1.00 1,085,187 --
---------- --
December 31, 1996........ 1.00 1,085,187 --
Granted................ 1.00 8,138,904 --
Vested................. -- -- --
Forfeited.............. -- -- --
---------- --
December 31, 1997........ 1.01 9,224,091 --
Granted................ 1.22 1,663,320 --
Vested................. -- --
Forfeited.............. 1.00 (607,713) --
---------- --
December 31, 1998........ $1.11 10,279,698 --
========== ==
</TABLE>
The weighted average grant-date fair value of options granted during 1997
and 1998 was $0.23 and $0.29 per share, respectively. All options outstanding
under the Option Plan at December 31, 1998, have exercise prices between $1.00
and $1.22 per share and have weighted average remaining contractual lives of
between 9 and 10 years.
Of the Performance Options outstanding at December 31, 1998, 998,371 and
7,618,007 and 1,663,320 have exercise prices of $1.17, $1.08 and $1.22,
respectively, and have weighted average remaining contractual lives of between 9
and 10 years.
16. RETIREMENT PLANS
The Company has a defined contribution retirement savings plan (the "Plan")
covering substantially all domestic employees who meet certain eligibility
requirements as to age and length of service. The Plan incorporates the salary
deferral provision of Section 401 (k) of the Internal Revenue Code and employees
may defer up to 15% of compensation or the annual maximum limit prescribed by
the Internal Revenue Code. The Company contributes 1% of employees salaries to
the Plan and matches a percentage of the employees'
52
<PAGE> 54
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferrals. The Company may also elect to contribute an additional profit-sharing
contribution to the Plan at the end of each year. The Company's contributions to
the Plan were $0, $807 and $1,450 for the period from inception (August 28,
1996) to December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively.
The Company and its subsidiaries have two defined benefit pension plans
covering certain groups of employees in foreign countries. The benefits are
based on years of services and final average salary. The Company's funding
policy is to make annual contributions to the extent such contributions are
actuarially determined.
Components of net pension expense are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Service cost (present value of benefits earned in the
year)..................................................... $ 1,821 $ 2,896
Interest cost on the projected benefit obligation........... 2,699 3,741
Expected return on assets................................... (6,970) (4,872)
Net amortization and deferral............................... 4,016 --
------- -------
Net periodic pension costs.................................. $ 1,566 $ 1,765
======= =======
</TABLE>
The following table sets forth a reconciliation of the projected benefit
obligation:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Projected benefit obligation, beginning of year............. $ -- $54,469
Acquisitions................................................ 44,977 --
Service cost (present value of benefits earned in the
year)..................................................... 1,821 2,896
Interest cost on the projected benefit obligation........... 2,699 3,741
Plan participant's contributions............................ 1,347 2,031
Actuarial (gain)/loss....................................... 4,165 3,915
Benefits paid............................................... (540) (980)
Translation................................................. -- 397
------- -------
Projected benefit obligation, end of year................... $54,469 $66,469
======= =======
</TABLE>
The following table sets forth a reconciliation of the plan assets:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Fair value of plan assets, beginning of year................ $ -- $53,434
Acquisitions................................................ 43,675 --
Actual return on plan assets................................ 6,976 2,980
Employer contributions...................................... 1,976 2,841
Plan participant's contributions............................ 1,347 2,031
Benefits paid............................................... (540) (980)
Translation................................................. -- 389
------- -------
Fair value of plan assets, end of year...................... $53,434 $60,695
======= =======
</TABLE>
53
<PAGE> 55
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Projected benefit obligation................................ $54,469 $66,469
Plan assets at fair value, primarily equity and fixed-income
securities................................................ 53,434 60,695
------- -------
Plan assets less than projected benefit obligation.......... (1,035) (5,774)
Unrecognized net actuarial loss............................. 142 5,950
Adjustment required to recognize minimum liability.......... -- (1,916)
------- -------
Net pension liability....................................... $ (893) $(1,740)
======= =======
</TABLE>
The principal assumptions used are as follows:
<TABLE>
<CAPTION>
1997 1998
PERCENT PERCENT
------- -------
<S> <C> <C>
Weighted average discount rates............................. 6.75% 5.50%
Long term rate of return on plan assets..................... 8.75% 8.00%
Salary Growth............................................... 4.75% 4.25%
Pension Increases........................................... 3.00% 2.50%
</TABLE>
17. RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and
application of new products and processes were approximately $500, $10,800 and
$13,400 for the period from inception (August 28, 1996) to December 31, 1996 and
for the years ended December 31, 1997 and 1998, respectively.
18. RELATED PARTY TRANSACTIONS
In connection with the Acquisitions and the related financing, the Company
entered into a Monitoring and Oversight Agreement and a Financial Advisory
Agreement (together herein defined as the "Agreements") with Hicks, Muse (a
shareholder and affiliate of the Company) pursuant to which the Company paid
Hicks, Muse a cash fee of $5,013, $10,400 and $2,463 for the period from
inception (August 28, 1996) through December 31, 1996 and for the years ended
December 31, 1997 and 1998, respectively, as compensation for financial advisory
services. The fees have been allocated to acquisition costs and the debt and
equity securities issued in connection with the Acquisitions as deferred
financing costs. The Agreements further provide that the Company shall pay
Hicks, Muse an annual fee of $1,750 for ten years of monitoring and oversight
services, adjusted annually at the end of each fiscal year to an amount equal to
.2% of the budgeted consolidated net sales of the Company, but in no event less
than $1,750 annually. The obligation under the Agreement and the related
deferred financing costs have been recorded in the consolidated balance sheet
and will be amortized over the life of the agreement.
Pursuant to the Chips Merger, Viasystems Group, Inc. assumed the $437,500
of Chips Loan Notes, and the Company entered into a Reimbursement Obligation
which requires it to pay a portion of the principal and interest on the Chips
Loan Notes in the event such notes are called. In April 1998, the holders of the
Chips Loan Notes redeemed $152,188 of the Chips Loan Notes. As such, $118,250 of
cash held by Bisto Fundings, Inc. was paid to the holders of the Chips Loan
Notes. The remaining $33,938 was paid to the holders of the Chips Loan Notes by
the Company. The Company's remaining portion of the Chips Loan Notes at December
31, 1998 is $285,312 (see Note 8).
54
<PAGE> 56
VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. EXTRAORDINARY ITEM
During the year ended December 31, 1997, the Company recorded, as an
extraordinary item, a one-time, non-cash write-off of deferred financing fees of
approximately $7,796, net of income tax benefit of $4,332, related to deferred
financing fees incurred on debt retired before maturity.
55
<PAGE> 57
SCHEDULE II
VIASYSTEMS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT CHARGES TO BALANCE AT
- -- DEDUCTED FROM RECEIVABLES IN BEGINNING COST AND ACCOUNTS TRANSLATION END OF
THE BALANCE SHEET OF PERIOD ACQUISITIONS EXPENSES WRITTEN OFF ADJUSTMENTS PERIOD
- ------------------------------- ------------ ------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997......................... $ 409 $1,632 $7,176 $(7,636) $992 $2,573
====== ====== ====== ======= ==== ======
1998......................... $2,573 $1,470 $ 158 $ (548) $141 $3,794
====== ====== ====== ======= ==== ======
</TABLE>
56
<PAGE> 58
AUDITORS' REPORT
To The Directors of Circo Craft Co. Inc.
We have audited the consolidated statements of earnings, retained earnings
and changes in financial position of Circo Craft Co. Inc. for the nine-month
period ended September 30, 1996. These statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall statement presentation.
In our opinion, these consolidated statements of earnings, retained
earnings and changes in financial position present fairly, in all material
respects, the results of operations of the Company and the changes in its
financial position for the nine-month period then ended in accordance with
generally accepted accounting principles in Canada.
Coopers & Lybrand
General Partnership
Chartered Accountants
Montreal, Quebec
December 20, 1996
57
<PAGE> 59
CIRCO CRAFT CO. INC.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Balance -- Beginning of period.............................. 43,909
Net earnings for the period................................. 1,974
------
Balance -- End of period.................................... 45,883
======
</TABLE>
58
<PAGE> 60
CIRCO CRAFT CO. INC.
CONSOLIDATED STATEMENT OF EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Sales....................................................... 129,633
Cost of sales............................................... 101,532
-------
Operating margin............................................ 28,101
-------
Selling, general and administrative expenses................ 7,969
-------
Other expenses (income)
Depreciation of fixed assets.............................. 8,456
Interest on long-term debt................................ 646
Interest income........................................... (880)
Expenses related to sale (note 9)......................... 5,907
-------
14,129
-------
Earnings before income taxes and non-controlling interest... 6,003
Provision for income taxes (note 5)......................... 3,847
-------
Earnings before non-controlling interest.................... 2,156
Non-controlling interest.................................... 182
-------
Net earnings for the period................................. 1,974
=======
</TABLE>
59
<PAGE> 61
CIRCO CRAFT CO. INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Operating activities
Net earnings for the period............................... 1,974
Non-cash items --
Depreciation of fixed assets......................... 8,456
Deferred income taxes................................ 1,050
Gain on sale of fixed assets......................... (716)
Non-controlling interest............................. 182
-------
10,946
Cash provided by (used for) non-cash operating working
capital items.......................................... 7,191
-------
18,137
-------
Financing activities
Increase in long-term debt................................ 4,186
Repayment of long-term debt............................... (3,187)
Decrease in non-controlling interest...................... (2,608)
Issue of common shares.................................... 4,047
-------
2,438
-------
Investing activities
Acquisition of fixed assets............................... (13,058)
Proceeds from sale of fixed assets........................ 1,018
-------
(12,040)
-------
Increase in cash............................................ 8,535
Cash -- beginning of period................................. 17,730
-------
Cash -- end of period....................................... 26,265
=======
Represented by --
Cash and short-term deposits........................... 28,438
Bank indebtedness...................................... (2,173)
-------
26,265
=======
</TABLE>
60
<PAGE> 62
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
1. ACCOUNTING POLICIES
The consolidated statements of earnings, retained earning and changes in
financial position have been prepared in accordance with accounting principles
generally accepted in Canada and include the following significant accounting
policies:
Principles of Consolidation
The consolidated statements of earnings, retained earnings and changes in
financial position include the accounts of the company and its wholly owned
subsidiary, Circo Caribe Corporation ("Circo Caribe"). All significant
intercompany transactions have been eliminated on consolidation.
Inventories
Inventories are valued at the lower of cost and market. Cost is determined
using the first-in, first-out method for raw materials. The cost of work in
process inventories and finished goods includes the cost of raw materials,
direct labour and applicable manufacturing overhead, excluding depreciation.
Market is defined as replacement cost for raw materials, and as net realizable
value for work in process and finished goods.
Fixed Assets and Depreciation
Fixed assets are recorded at cost less applicable investment tax credits,
government grants and accumulated depreciation. Assets under capital leases are
included in fixed assets. Depreciation is computed using the straight-line
method at the following annual rates:
<TABLE>
<S> <C>
Buildings................................................... 2 1/2%
Machinery and equipment..................................... 15% - 33 1/3%
Leasehold improvements...................................... 10%
</TABLE>
Revenue Recognition
Sales and related cost of sales are included in income when goods are
delivered to the customer in accordance with the delivery terms.
Foreign Currency
Foreign currency transactions and balances including those of Circo Caribe,
an integrated foreign subsidiary, are translated using the temporal method.
Under this method, monetary assets and liabilities are translated into Canadian
dollars at exchange rates in effect as at the balance sheet date and
non-monetary assets and liabilities at the exchange rates prevailing when the
assets were acquired and liabilities incurred. Sales and expenses, with the
exception of depreciation and amortization, are translated at average monthly
rates. Depreciation and amortization are translated at the rates used in the
translation of the relevant asset accounts. Translation gains and losses are
included in determining net earnings in the period in which the exchange rate
changes except for gains and losses on long-term debt, which are deferred and
amortized over the remaining life of the debt.
Income Taxes
The company follows the tax allocation method in providing for income
taxes. Deferred income taxes result primarily from the difference between
capital cost allowance claimed for income tax purposes and depreciation recorded
for accounting purposes.
61
<PAGE> 63
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
2. NON-CONTROLLING INTEREST
The Economic Development Bank for Puerto Rico (EDB) subscribed to 150,000
Class A Preferred shares of Circo Caribe (EDB shares) for a total amount of U.S.
$1,500,000. The EDB shares have a par value of U.S. $10 per share and carry a
cumulative preferential annual dividend of 7.5% on the par value thereof,
payable on a semi-annual basis. EDB shares carry no voting rights.
3. CAPITAL STOCK
(a) As at September 30, 1996, the authorized capital stock consists of the
following in an unlimited number:
First Preferred shares, without nominal or par value, issuable in
series
Second Preferred shares, without nominal or par value, issuable in
series
Common shares, without nominal or par value
The directors are responsible for defining the rights, privileges,
restrictions and conditions attached to each series of the First and Second
Preferred shares upon their issuance.
(b) The issued and paid capital stock consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
16,069,300 common shares.................................... 41,823
1,200,000 Second Preferred shares, Series A (note 3(c))..... --
156,000 Second Preferred shares, Series B (note 3(c))....... --
2,556,000 Second Preferred shares, Series C (note 3(c))..... --
------
41,823
======
</TABLE>
(c) The company issued Second Preferred shares, Series A, B and C in
connection with the financial assistance amounting to $1,200,000 in 1986,
$78,000 in 1988, $78,000 in 1990, $852,000 in 1991, $852,000 in 1992 and
$852,000 in 1993, received from the Government of Quebec for costs incurred in
the installation of facilities. Such shares are non-voting and are entitled to
receive, as and when declared, an aggregate non-cumulative preferential dividend
of $1 and upon liquidation, to receive an aggregate amount of $1. The company
issued such shares for the purposes of such financial assistance and will
repurchase such shares at their issue price of $1 per share upon request of the
holder thereof if the majority of the common shares or more than half of the
assets of the company are transferred, within five years following the granting
of such financial assistance, to an enterprise whose head office is not located
in the Province of Quebec or to an individual who does not reside therein unless
prior approval is obtained from the holder of such Preferred shares. The
proceeds from these issues were deducted from the cost of certain fixed assets.
Subsequent to September 30, 1996, pursuant to an agreement with the
Government of Quebec, the company repurchased and cancelled all of the issued
Second Preferred shares, Series A, B and C for a total cash consideration of
$752,400. As at September 30, 1996, the company recorded a provision for the
share repurchase as an increase to the cost of certain fixed assets, which had
been previously reduced upon receiving the Government of Quebec grant.
(d) On September 28, 1996, the company issued 317,100 common shares to the
Economic Development Bank for Puerto Rico in exchange for the 150,000 Class A
Preferred shares it previously held in Circo Caribe.
62
<PAGE> 64
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
The value attributed to the common shares issued corresponds to the redemption
price of the shares of Circo Caribe received, which was $2,044,950 (U.S.
$1,500,000).
(e) In 1995, the company established a Key Employee Stock Option Plan (the
"Plan"). The maximum number of common shares that may be issued under the Plan
shall not exceed 1,250,000 common shares. In 1996, the company issued 317,000
common shares for a total cash consideration of $2,002,225 upon exercise of
options granted in 1995 and 1996 under this Plan. There were no outstanding
options as at September 30, 1996.
4. INCOME TAXES
(a) The company's provision for income taxes includes the following:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Current..................................................... 2,797
Deferred.................................................... 1,050
------
3,847
======
</TABLE>
(b) The company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1996
%
----
<S> <C>
Combined basic federal and provincial income tax rate....... 45.09
Increase (decrease) in income tax rate resulting from:
Active business income deduction.......................... (7.35)
Manufacturing and processing deduction.................... (7.00)
Non-deductible expenses................................... 12.82
Surtax.................................................... 1.12
Other..................................................... 2.07
------
Combined Canadian rates..................................... 46.75
Unrecognized (recognized) income tax benefits of Circo
Caribe.................................................... 17.33
------
64.08
======
</TABLE>
(c) Circo Caribe obtained a fifteen-year tax exemption grant under the 1987
Puerto Rico Tax Incentives Act. The grant expires in December 2011 and provides
a 90% exemption on industrial development income and property taxes.
5. MAJOR CUSTOMERS
Approximately 26%, 19%, and 10%, respectively, of the company's sales were
to three unrelated multinational corporations which have multiple divisions
responsible for their own purchasing decisions.
6. BUSINESS AND GEOGRAPHIC SEGMENT
The company's operations are concentrated in the manufacturing of printed
circuits, with facilities located in Canada and Puerto Rico selling to a
diversified base of manufacturers in the telecommunications,
63
<PAGE> 65
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
computer, automotive, and industrial electronics markets throughout North
America. Information concerning the company's business by geographic segment is
as follows:
<TABLE>
<CAPTION>
CANADA PUERTO RICO CONSOLIDATED
NINE MONTH NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996
------------- ------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Sales to external customers................... 109,756 19,877 129,633
======= ====== =======
Inter-segment sales........................... 678 775 --
======= ====== =======
Earnings (loss) before income taxes and non-
controlling interest........................ 8,228 (2,225) 6,003
======= ====== =======
</TABLE>
Export sales amounted to approximately 66% of the company's total sales to
external customers.
7. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated statements of earnings, retained earnings and changes in
financial position have been prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). In certain respects, Canadian
GAAP differs from accounting principles generally accepted in the United States
("U.S. GAAP").
Net Earnings
(a) The following summary sets out the material adjustments to the
company's reported net earnings, which would be made in order to conform to U.S.
GAAP:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Net earnings for the period under Canadian GAAP............. 1,974
U.S. GAAP adjustments:
Translation gains and losses (note 8(b)).................. (103)
Income taxes (note 8(c)).................................. 167
-----
Net earnings (loss) for the period under U.S. GAAP.......... 2,038
=====
</TABLE>
(b) Under Canadian GAAP, translation gains and losses arising on the
translation, at exchange rates prevailing at the balance sheet date, of
long-term debt denominated in foreign currency are deferred and amortized over
the remaining life of the related debt. Under U.S. GAAP, such gains and losses
are included in the statement of earnings in the period in which the exchange
rate changes.
(c) Under Canadian GAAP, the company follows the tax allocation method in
providing for income taxes while under U.S. GAAP the liability method would be
used. Under this method, deferred income taxes are calculated on the difference
between accounting and tax values of the assets and liabilities. The current tax
rate is used to calculate deferred income taxes at the balance sheet date.
Deferred tax assets arising from losses and temporary differences are subject to
a valuation allowance whenever it is more likely that the assets will not be
realized.
(d) Under Canadian GAAP, costs of providing life insurance and health care
benefits to employees after retirement are recognized as incurred while under
U.S. GAAP these costs are accrued during the employees'
64
<PAGE> 66
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
years of active service. This difference in GAAP would not result in a material
change to the company's consolidated statements of earnings, retained earnings
and changes in financial position.
Cash flows
(e) Under U.S. GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Net cash provided by operating activities................... 18,034
Net cash provided by financing activities................... 1,222
Net cash used in investing activities....................... (14,444)
-------
Net increase in cash........................................ 4,812
-------
Cash at the end of the period............................... 21,412
=======
</TABLE>
(f) Canadian GAAP allows the disclosure of a subtotal of the amount of cash
provided by operating activities before cash provided by non-cash operating
working capital items. U.S. GAAP requires a statement of cash flows without
subtotal.
(g) Under U.S. GAAP, the definition of cash in the statement of cash flows
would exclude short-term deposits with original maturities of three months or
more and bank indebtedness, which amounted to $8,000,000 and $3,147,000,
respectively as at September 30, 1996. Under U.S. GAAP, changes in short-term
deposits with original maturities of three months or more would be disclosed as
an investing activity and changes in bank indebtedness would be disclosed as a
financing activity.
(h) Machinery and equipment financed through capital leases are included as
financing and investing activities in the consolidated statement of changes in
financial position under Canadian GAAP but would be excluded from a statement of
cash flows under U.S. GAAP. New capital leases amounted to $2,096,000 for the
nine-month period ended September 30, 1996.
Other disclosure
(i) The disclosure of the following amounts is required under U.S. GAAP:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30,
1996
-------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Research and development expenses........................... 3,495
Payments under operating leases............................. 799
Payments under capital leases............................... 1,713
Interest paid............................................... 631
Income taxes paid........................................... 3,931
</TABLE>
(j) The company maintains defined contribution pension plans for certain
key employees. The plan allows for employee contributions for a maximum of
$11,500, subject to certain legal limitations, of which the company contributes
100%. Under both U.S. GAAP and Canadian GAAP, company contributions are expensed
when incurred. The company's contributions for the nine-month period ended
September 30, 1996 were $105,000.
65
<PAGE> 67
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
(k) As at September 30, 1996, Circo Caribe had net operating loss
carryforwards of approximately U.S.$5,400,000, which expire from 2000 to 2003.
8. COMMITMENTS
Circo Caribe leases its manufacturing facilities in Puerto Rico under an
operating lease with the Puerto Rico Industrial Development Corporation, which
expires on December 31, 2002. Future lease payments will aggregate
U.S.$3,048,000, including the following amounts, over the next five years:
<TABLE>
<CAPTION>
(THOUSANDS OF
U.S. DOLLARS)
-------------
<S> <C>
1997........................................................ 508
1998........................................................ 508
1999........................................................ 508
2000........................................................ 508
2001........................................................ 508
</TABLE>
9. SUBSEQUENT EVENT
On October 1, 1996, the company was acquired and, effective November 8,
1996, was amalgamated with its new parent company, HMTF Canada Acquisition Inc.
under the provisions of Part IA of the Companies Act (Quebec). Combined
operations have continued under the name of Circo Craft Co. Inc.
66
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Lucent Technologies, Inc.
Berkeley Heights, New Jersey
and
The Board of Directors
Viasystems Group, Inc.
St. Louis, Missouri:
We have audited the accompanying statement of operations of the
Interconnection Business (the "Business") of the Microelectronics Group,
Interconnection Technologies Unit of Lucent Technologies Inc. ("Lucent") for the
period January 1, 1996 through November 30, 1996. This statement is the
responsibility of Lucent's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying financial statement was prepared to present the results of
operations of the Business pursuant to the acquisition agreement described in
Note 1, and are not intended to be a complete presentation of the Business'
results of operations or cash flows.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the statement of operations of the Business for the
period January 1, 1996 through November 30, 1996, pursuant to the acquisition
agreement referred to in Note 1, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 21, 1997
67
<PAGE> 69
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996,
THROUGH
NOVEMBER 30,
1996
------------
<S> <C>
Net sales................................................... $325,102
Operating expenses:
Cost of goods sold........................................ 244,313
Selling, general and administrative....................... 27,567
Research and development.................................. 7,225
Depreciation and amortization............................. 18,317
--------
Operating income (loss)................................ 27,680
Other income (expenses):
Other income.............................................. 228
Interest expense.......................................... (917)
--------
Income (loss) before income taxes...................... 26,991
Provision (benefit) for income taxes...................... 10,257
--------
Net income (loss)................................. $ 16,734
========
</TABLE>
The accompanying notes are an integral part of the financial statement.
68
<PAGE> 70
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT
(DOLLARS IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION:
Pursuant to an Acquisition Agreement (the "Agreement") dated November 26,
1996, between Viasystems Technologies Corp. ("Viasystems Technologies"), a
wholly owned subsidiary of Viasystems Group, Inc., and Lucent Technologies, Inc.
("Lucent"), Viasystems Technologies agreed to acquire certain assets and assume
certain liabilities from the Microelectronics Group, Interconnection
Technologies Unit (the "Business") of Lucent in exchange for consideration
totaling $200,000. The Business designs, manufactures and markets printed
circuit boards, backplanes and related products and components for the
telecommunications and computer-related markets. The effective date of the
Agreement is December 1, 1996.
The Business' financial statements are derived from the historical books
and records of the Microelectronics Group, Interconnection Technologies Unit of
Lucent and present assets sold and liabilities assumed and the results of
operations of the Business related to the acquisition by Viasystems
Technologies. The historical operating results may not be indicative of the
results after the acquisition by Viasystems Technologies. No statement of cash
flows has been presented since any computation of historical cash flow data for
the Business would be based on arbitrary assumptions of the financial
information necessary to prepare such data and, in the opinion of management,
would not be meaningful.
The Business' financial statements include allocations of certain expenses
that have historically been accounted for by Lucent based on allocation methods
that depend on the nature of the account. For those costs that are labor
intensive, such as research and development, allocations are made based on
forecasted head count percentages. Most other costs are allocated based on
forecasted sales. Many of the marketing and sales costs are negotiated each year
between the department providing the service and the individual business unit.
The percentage of the negotiated cost of the business unit to the total
negotiated cost for that service is applied to the actual cost each month and
allocated to the individual business units. A portion of the operating expenses
are incurred at the Richmond Works location, particularly product management,
transportation and local research and development. These expenses are allocated
to the Business using estimates calculated by the department's manager. Some
transportation expense is based on specific service contracts when they can be
identified.
Allocated expenses include certain direct and indirect selling, marketing,
and research and development costs from the Microelectronics Group and services
from Lucent. Services from Lucent represent the allocated costs for services
such as employee benefits, human resources, labor relations, corporate tax and
business planning and overhead expenses, public relations, legal services,
environmental management, data processing and training.
Lucent's management believes that these allocations are based on
assumptions that are reasonable under the circumstances. However, these
allocations are not necessarily indicative of the costs and expenses that would
have resulted if the Business had been operated as a separate entity.
69
<PAGE> 71
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
The allocations and other components of cost of sales and selling, general
and administrative expenses are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
THROUGH
NOVEMBER 30,
1996
---------------
<S> <C>
Allocated cost of sales..................................... $ 6,004
Other cost of sales......................................... 238,309
--------
$244,313
========
Allocated selling expense................................... $ 3,494
Other selling expense....................................... 2,472
Allocated general and administrative........................ 8,706
Other general and administrative............................ 12,895
--------
$ 27,567
========
Allocated research and development.......................... $ --
Other research and development.............................. 7,225
--------
$ 7,225
========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the report period. Actual results could differ from those estimates.
B. Revenue Recognition: Sales and related costs of goods sold are included
in income when goods are shipped to the customer.
C. Income Taxes: The Business is not a separate taxable entity for federal,
state, or local income tax purposes. The Business' operations are included in
the consolidated Lucent tax returns. Lucent has historically allocated income
taxes to the Business using an assumed statutory tax rate in effect without
consideration to segregating current and deferred income taxes. In addition, the
statutory tax rate has not been reduced for research and development or other
tax credits, if any, as these amounts cannot be separately determined for the
Business. Accordingly, the provision for income taxes is based on an assumed
combined federal and state statutory rate of 38% for each year presented, but
current and deferred portions of the provision have not been determined.
D. Research and Development Costs: Research and development costs are
charged to expense when incurred.
3. TRANSACTIONS WITH AFFILIATES:
The Business through the normal course of business, conducts transactions
with Lucent and its affiliates. In addition to the various allocated costs and
expenses described in Note 1, the majority of the Business' net sales is with
Lucent affiliated entities.
The Business' sales to Lucent and its affiliates were $295,189 for the
period January 1, 1996 through November 30, 1996.
70
<PAGE> 72
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
The cost of sales related to the sales to Lucent and its affiliates were
$232,276 for the period January 1, 1996 through November 30, 1996.
Receipts, disbursements and the net cash position of the Business have been
managed by the Microelectronics Group through a centralized treasury system.
Accordingly, both cash generated by and cash requirements of the Business flow
through the Microelectronics Group. There is no direct interest cost allocation
to the Business with respect to borrowings, if any, and, accordingly, the
Statements of Operations do not include any financing costs.
4. EMPLOYEE BENEFIT PLANS:
A. Pension Plans: The Business participates in noncontributory defined
benefit plans sponsored by Lucent covering substantially all employees. Benefits
for management employees are principally based on career average pay. Benefits
for occupational employees are not directly pay-related. Information required
pursuant to SFAS No. 87, Employer's Accounting for Pensions, including the
funded status of the plans is not available for the Business as a separate
entity.
Pension contributions are principally determined using the aggregate cost
method and are primarily made to trust funds held for the sole benefit of plan
participants. Pension cost is computed using the projected unit credit method
and an assumed long-term rate of return on plan assets of 9% in 1996.
B. Savings Plans: The Business participates in savings plans sponsored by
Lucent covering the majority of employees. The plans allow employees to
contribute a portion of their pre-tax and/or after-tax income in accordance with
specified guidelines. Lucent matches a percentage of the employee contributions
up to certain limits.
C. Postretirement Benefit Plans: The Business participates in benefit plans
for retirees, which include health care benefits, life insurance coverage and
telephone concessions sponsored by Lucent. Lucent adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other than Pensions, effective
January 1, 1993. This Standard requires that estimated future retiree benefits
be accrued for during the years the employees are working and accumulating these
benefits. Information required pursuant to SFAS No. 106, including the net
periodic postretirement benefit cost and information on the funded status of the
plan, is not available for the Business as a separate entity.
The costs of these plans were allocated to the Business on the basis of
salaries, the majority of which are included in cost of sales. Benefit costs
included in cost of sales were approximately $6,200 for the period January 1,
1996 through November 30, 1996.
5. COMMITMENTS:
In conjunction with the Agreement, Lucent and Viasystems Technologies have
entered into certain contractual arrangements whereby Lucent has agreed to
provide to Viasystems Technologies manufacturing, labor and support services.
Lucent and Viasystems Technologies have also entered into a supply agreement
effective through December 31, 2001, which shall extend through December 31,
2003 in the event Viasystems Technologies has in all material respects satisfied
the Performance Metrics (as defined) of the supply agreement. Such agreement
shall continue thereafter until terminated by either party upon eighteen months
prior written notice.
71
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
To: The Shareholders and Board of Directors of Forward Group PLC
We have audited the accompanying consolidated profit and loss account and
cash flow statement of Forward Group PLC and its subsidiaries for the year ended
31 January 1997. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom and the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the results of the operations and the
cash flows of Forward Group PLC and its subsidiaries for the year ended 31
January 1997 in conformity with generally accepted accounting principles in the
United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States of America. Application of generally accepted accounting
principles in the United States of America would have affected the profit for
the financial year ended 31 January 1997 to the extent summarized in Note 17 to
the consolidated financial statements.
KPMG Audit Plc
Chartered Accountants
Birmingham, England
7 April 1997
72
<PAGE> 74
FORWARD GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
NOTE 1997
---- ----------
(L000)
<S> <C> <C>
Turnover
Continuing operations..................................... 2 97,001
Acquisitions.............................................. 2 8,028
-------
105,029
-------
Operating profit
Continuing operations..................................... 3 8,079
Acquisitions.............................................. 3 1,022
9,101
Net interest payable...................................... 5 (996)
-------
Profit on ordinary activities before taxation............... 6 8,105
Tax on profit on ordinary activities........................ 8 (2,707)
-------
Profit for the financial year............................... 5,398
Dividends................................................... 9 (552)
-------
Retained profit for the financial year...................... 11 4,846
=======
</TABLE>
The results on a historical cost basis are not materially different to
those reported above.
A reconciliation of the movement in shareholders' funds is shown in note
12.
73
<PAGE> 75
FORWARD GROUP PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
1997
----------
(L000)
<S> <C>
Profit for the financial year............................... 5,398
Currency translation adjustment............................. (22)
-----
5,376
=====
</TABLE>
74
<PAGE> 76
FORWARD GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
NOTE 1997
---- ----------
(L000)
<S> <C> <C>
Net cash inflow from operating activities................... 13a 18,561
Returns on investments and servicing of finance
Interest received......................................... 85
Interest paid............................................. (1,018)
Dividends paid............................................ (1,207)
-------
Net cash outflow from returns on investments and servicing
of finance................................................ (2,140)
UK tax paid................................................. (3,633)
Investing activities
Purchase of tangible fixed assets......................... 13e (7,624)
Acquisition of businesses (net of cash and cash
equivalents acquired).................................. 13d (9,184)
Sale of tangible fixed assets............................. 435
-------
Net cash outflow from investing activities.................. (16,373)
-------
Net cash outflow before financing........................... (3,585)
Financing
Issue of Ordinary share capital........................... 92
Capitalisation issue expenses............................. (24)
Repayment of bank loan.................................... (720)
Capital element of hire purchase and finance lease
payments............................................... (2,393)
-------
Net cash outflow from financing............................. 13b (3,045)
-------
Net decrease in cash and cash equivalents................... 13c (6,630)
=======
</TABLE>
75
<PAGE> 77
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN BRITISH POUNDS STERLING)
1. GENERAL
As used in the consolidated financial statements and related notes, the
term "Company" refers to Forward Group PLC and the term "Group" refers to
Forward Group PLC and its subsidiary undertakings as set out in note 16.
PRINCIPAL ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the consolidated
financial statements of Forward Group PLC:
Basis of preparation
The consolidated financial statements have been prepared under the
historical cost convention, modified to include the revaluation of certain
freehold property, and in accordance with applicable Accounting Standards.
Basis of consolidation
The consolidated financial statements incorporate the financial statements
of Forward Group PLC and all of its subsidiary undertakings made up to 31
January 1997 under the acquisition method of accounting. The results of
companies or businesses acquired during the year are included from the date of
acquisition. Internal sales and profits are eliminated on consolidation.
Goodwill arising on acquisitions is written off directly against reserves on
acquisition.
Turnover
Turnover represents the amounts (excluding value added tax) derived from
the provision of goods to third party customers and is recognized when goods are
shipped and title has passed.
Government revenue grants
Government revenue grants are recognized in the profit and loss account in
the period during which the expenditure to which they relate is incurred.
Stocks and work in progress
Stocks and work in progress are valued on a first in, first out basis at
the lower of cost and net realizable value. Cost comprises materials, labor and
an appropriate proportion of production overheads.
Depreciation
Depreciation is provided so as to write off the cost or valuation,
including commissioning costs, of tangible fixed assets to their estimated
residual value on a straight line basis, at the following annual rates:
<TABLE>
<S> <C>
Freehold buildings.......................................... 2.5%
Plant and machinery......................................... 10%-20%
Fixtures, fittings, tools and equipment..................... 10%-25%
Motor vehicles.............................................. 25%
</TABLE>
Freehold land is not depreciated.
76
<PAGE> 78
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Research and development
Expenditure on research and development is expensed in the year in which it
is incurred.
Deferred taxation
Deferred taxation is provided using the liability method in respect of the
taxation effect of all timing differences to the extent that it is probable that
liabilities will crystallise or assets be realized in the foreseeable future.
Hire purchase and leased assets
Assets held under hire purchase or finance lease contracts are capitalized
and included in tangible fixed assets at their fair value. Each asset is
depreciated over the shorter of the contract term or its estimated useful life.
Obligations relating to such contracts, net of finance charges in respect of
future periods, are included as appropriate under creditors. Finance charges are
allocated to accounting periods over the period of the lease to produce a
constant rate of return on the outstanding balance. Rentals under operating
leases are charged to the profit and loss account on a straight-line basis over
the life of the lease.
Pensions
The Group operates both a defined contribution pension scheme and a defined
benefit pension scheme. The Group's contributions to the defined contribution
scheme are charged against profits on an accruals basis in the year to which
they relate. Contributions to the defined benefit scheme are charged against
profits so as to spread the cost of pensions over employees' working lives. The
funds of both schemes are administered by trustees and are independent of the
Group's finances.
Foreign exchange
Transactions denominated in foreign currencies are translated at the rate
of exchange ruling on the day the transaction occurs or at the contracted rate
if the transaction is covered by a forward exchange contract.
Foreign currency monetary assets and liabilities in the balance sheet are
translated into sterling at the rates of exchange ruling at the end of the year
or, if appropriate, at the forward contract rate. Any resulting exchange gains
or losses are taken to the profit and loss account.
The assets and liabilities of overseas subsidiary undertakings are
translated at the closing exchange rate. The profit and loss accounts of those
undertakings are translated using the average rate of exchange during the year.
Net exchange differences arising on translation are taken to reserves.
2. SEGMENTAL ANALYSIS
Turnover is analyzed by geographical destination as follows:
<TABLE>
<CAPTION>
1997
-------
(L000)
<S> <C>
United Kingdom.............................................. 55,848
Rest of Europe.............................................. 42,364
Rest of the world........................................... 6,817
-------
105,029
=======
</TABLE>
The Group's turnover, profit before taxation and assets relate to only one
business segment, the electronics division.
77
<PAGE> 79
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the opinion of the Directors an analysis of turnover, profit before
taxation and net assets by geographical area of operation would be seriously
prejudicial to the interests of the Group and therefore as permitted under
SSAP25 no disclosure is made.
3. OPERATING PROFIT
<TABLE>
<CAPTION>
CONTINUING
OPERATIONS ACQUISITIONS TOTAL
---------- ------------ -------
(L000) (L000) (L000)
<S> <C> <C> <C>
Turnover............................................. 97,001 8,028 105,029
Cost of sales........................................ (78,339) (5,916) (84,255)
------- ------ -------
Gross profit......................................... 18,662 2,112 20,774
Selling, general and administrative expenses......... (10,780) (1,122) (11,902)
Other income......................................... 197 32 229
------- ------ -------
Operating profit..................................... 8,079 1,022 9,101
======= ====== =======
</TABLE>
Included in the above are the following exceptional charges relating to the
restructuring of continuing operations and acquired businesses:
<TABLE>
<CAPTION>
CONTINUING
1997 OPERATIONS ACQUISITIONS TOTAL
- ---- ---------- ------------ -------
(L000) (L000) (L000)
<S> <C> <C> <C>
Cost of sales......................................... 546 433 979
Selling, general and administrative expenses.......... 168 97 265
--- --- -----
714 530 1,244
=== === =====
</TABLE>
Acquisitions comprise the former GEC-Marconi hybrid business, Manchester
Circuits Limited and TI Technologies (Pty) Limited.
4. STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including executive
Directors) during the year, analysed by category, was as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Sales....................................................... 51
Administration.............................................. 80
Production.................................................. 1,642
-----
1,773
-----
Employees at end of year.................................... 1,874
-----
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Wages and salaries.......................................... 30,503
Social security costs....................................... 2,916
Other pension costs......................................... 1,239
------
34,658
======
</TABLE>
78
<PAGE> 80
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Bank loan and overdrafts.................................... 609
Hire purchase and finance lease contracts................... 472
-----
Interest payable and similar charges........................ 1,081
Interest receivable and similar income...................... (85)
-----
996
=====
</TABLE>
6. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
As Directors................................................ 86
Remuneration as executives................................ 333
---
419
Compensation for loss of office........................... --
Grants receivable........................................... (19)
Property rental income...................................... (87)
Auditors' remuneration...................................... 84
Research and development expenditure........................ 764
Payments under operating leases:
Plant and equipment....................................... 245
Other assets.............................................. 324
===
</TABLE>
In addition, KPMG Audit Plc and its associates received L97,000 in respect
of other services provided during the year.
79
<PAGE> 81
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DIRECTORS' EMOLUMENTS
(a) Remuneration
The emoluments of the Chairman, excluding pension contributions, were
L97,000. The emoluments of the highest paid Director, excluding pension
contributions, were L136,000.
The emoluments of the Directors, excluding pension contributions, were
within the following ranges:
<TABLE>
<CAPTION>
1997
----
<C> <S> <C>
L5,001 - L10,000................................................... --
L10,001 - L15,000................................................... --
L15,001 - L20,000................................................... 1
L20,001 - L25,000................................................... 1
L25,001 - L30,000................................................... --
L40,001 - L45,000................................................... 1
L70,001 - L75,000................................................... --
L75,001 - L80,000................................................... --
L95,001 - L100,000.................................................. 1
L100,001 - L105,000.................................................. 1
L135,001 - L140,000.................................................. 1
==
</TABLE>
(b) Share options over Ordinary shares
<TABLE>
<CAPTION>
AT NUMBER OF OPTIONS AT
1 FEBRUARY ------------------- 31 JANUARY EXERCISE NORMAL
1996 GRANTED EXERCISED 1997 PRICE EXERCISE PERIOD
---------- ------- --------- ---------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
DA Bumpsteed............. 100,000 -- -- 100,000 88.75p 06.07.98 - 05.07.05
=======
MJ Glanfield............. 80,000 -- (80,000) -- 56.25p 31.05.96 - 30.05.03
20,000 -- -- 20,000 61.75p 24.02.98 - 23.02.05
-- 20,000 -- 20,000 180p 13.02.99 - 12.02.06
-------
40,000
=======
</TABLE>
The figures shown as at 1 February 1996 have been restated to reflect the 3
for 1 capitalisation issue.
The closing price of the Company's Ordinary shares on the London Stock
Exchange on 31 January 1997 was 171.5p. The range during the period was 103.5p
to 289.5p.
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
The charge for taxation all arises in the UK and comprises:
Corporation tax on profit for the year at 33%............. 2,556
Deferred taxation........................................... 439
Prior year adjustments in respect of:
Corporation tax........................................... (281)
Deferred taxation......................................... (7)
-----
2,707
=====
</TABLE>
The current year charge includes the effect of tax losses which have not
been relieved.
80
<PAGE> 82
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DIVIDENDS
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Interim dividend paid....................................... 552
Proposed final dividend..................................... --
---
552
===
</TABLE>
10. INVESTMENTS
(a) Acquisition of businesses
On 26 March 1996 Technograph Microcircuits Limited acquired GEC-Marconi's
hybrid business for a total cash consideration of L2,726,000.
On 7 May 1996 the Company acquired the entire issued share capital of
Manchester Circuits Limited for a total consideration of L830,000.
On 27 June 1996 the Company acquired the entire issued share capital of TI
Technologies (Pty) Limited (based in South Africa) for an initial consideration
of L510,000. Further consideration, which has not been provided for, of up to
L501,000 may become payable upon certain profit targets being achieved in the 22
months ending on 31 January 1998.
The fair values of the assets and liabilities acquired as a result of the
above are as follows:
<TABLE>
<CAPTION>
GEC- TI
MARCONI MANCHESTER TECHNOLOGIES
HYBRID CIRCUITS (PTY)
BUSINESS LIMITED LIMITED TOTAL
-------- ---------- ------------ ------
(L000) (L000) (L000) (L000)
<S> <C> <C> <C> <C>
Fixed assets................................. 123 2,098 302 2,523
Stocks....................................... 1,525 387 652 2,564
Debtors...................................... 463 955 873 2,291
Cash in hand................................. -- -- 15 15
Creditors.................................... (431) (960) (1,190) (2,581)
Bank loans and overdrafts.................... -- (1,645) (698) (2,343)
Taxation..................................... 113 (11) -- 102
Hire purchase obligations.................... -- (424) -- (424)
Deferred tax................................. 83 (35) --
----- ------ ------ ------
Fair value of net assets acquired............ 1,876 365 (46) 2,195
===== ====== ====== ======
</TABLE>
Fair values are after taking account of adjustments of L755,000 to reflect
an assessment of the differences between the book values and fair values of
assets acquired, L97,000 of alignments to accord with group accounting policies
and the recognition of unprovided liabilities of L265,000 at the relevant dates
of acquisition.
Following the triennial valuation of the Exacta Circuits Pension Plan on 5
April 1996 the provision at 31 January 1996 has been released resulting in an
adjustment to the provisional assessment of fair values made at the date of
acquisition.
81
<PAGE> 83
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill written off in the year comprises:
<TABLE>
<CAPTION>
(L000)
<S> <C>
Fair value of net assets acquired........................... 2,195
Consideration............................................... 4,225
Goodwill arising on current year acquisitions............... 2,030
Revision to provisional fair value assessment made in
respect of the acquisition of Exacta Circuits Limited..... (584)
-----
1,446
=====
The consideration was satisfied by:
Shares issued for non-cash consideration:
Nominal value............................................... 1
Fair value in excess of nominal value....................... 191
-----
192
Cash consideration.......................................... 3,874
Costs of acquisition........................................ 159
-----
4,225
=====
</TABLE>
The following table, which is presented for the purposes of disclosure
under US GAAP in accordance with the requirements of Accounting Principles Board
Opinion No. 16 "Business Combinations" ("APB 16"), reflects the unaudited pro
forma combined results of operations of the Group, together with the companies
and businesses acquired during the year ended 31 January 1997 on the basis that
the acquisitions had taken place on 1 February 1996:
<TABLE>
<CAPTION>
1997
-----------
(L000)
(UNAUDITED)
<S> <C>
Turnover.................................................... 107,617
Profit on ordinary activities after taxation................ 5,161
</TABLE>
These unaudited pro forma combined results have been prepared for
comparative purposes only. In management's opinion the unaudited pro forma
results of operations are not indicative of the actual results that would have
occurred had the acquisitions been consummated at the beginning of the years
presented or of future operations of the combined companies under the ownership
and management of the Company.
11. RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM MERGER REVALUATION AND LOSS
ACCOUNT RESERVE RESERVE ACCOUNT TOTAL
------- ------- ----------- -------- ------
(L000) (L000) (L000) (L000) (L000)
<S> <C> <C> <C> <C> <C>
At 1 February 1996............................. 8,840 65 578 10,340 19,823
Retained profit for the financial year......... -- -- -- 4,846 4,846
Capitalization issue (including expenses of
L24,000)..................................... (2,073) -- -- -- (2,073)
Issue of shares................................ 70 191 -- -- 261
Goodwill written off on acquisition of
businesses (note 10)......................... -- (256) -- (1,190) (1,446)
Currency translation adjustment................ -- -- -- (22) (22)
Transfer....................................... -- -- (12) 12 --
------ ---- --- ------ ------
At 31 January 1997............................. 6,837 -- 566 13,986 21,389
====== ==== === ====== ======
</TABLE>
82
<PAGE> 84
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the end of the year cumulative goodwill written off against reserves in
respect of the acquisition of businesses amounted to L7,447,000.
12. RECONCILIATION OF MOVEMENT IN CONSOLIDATED EQUITY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997
-------
(L000)
<S> <C>
Profit for the financial year............................... 5,398
Dividends................................................... (552)
-------
4,846
Issue of shares............................................. 284
Shares to be issued......................................... --
Expenses of capitalisation issue............................ (24)
Goodwill written off........................................ (1,446)
Currency translation adjustment............................. (22)
-------
Net increase in equity shareholders' funds.................. 3,638
At beginning of year........................................ 20,505
-------
At end of year.............................................. 24,143
=======
</TABLE>
13. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Operating profit............................................ 9,101
Depreciation................................................ 4,694
Profit on sale of tangible fixed assets..................... (169)
------
13,626
Movements in working capital:
(Increase)/decrease in stocks............................... 1,454
(Increase)/decrease in debtors.............................. 2,837
Increase in creditors....................................... 644
------
4,935
------
Net cash inflow from operating activities................... 18,561
======
</TABLE>
83
<PAGE> 85
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Analysis of changes in financing during the year
<TABLE>
<CAPTION>
SHARE HIRE
CAPITAL AND PURCHASE BANK
PREMIUM OBLIGATIONS LOAN
----------- ----------- ------
(L000) (L000) (L000)
<S> <C> <C> <C>
1997
At beginning of year.................................. 9,522 4,639 3,240
Acquisition of businesses............................. -- 424 --
Net cash flows on financing........................... 68 (2,393) (720)
Issues of shares for non-cash consideration........... 1 -- --
Inception of hire purchase contracts.................. -- 4,548 --
Currency adjustment................................... -- (44) --
----- ------ -----
9,591 7,174 2,520
===== ====== =====
</TABLE>
(c) Analysis of cash and cash equivalents
<TABLE>
<CAPTION>
CHANGE
1996 IN YEAR 1997
------ ------- ------
(L000) (L000) (L000)
<S> <C> <C> <C>
Cash at bank and in hand.................................... 789 (789) --
Bank overdrafts............................................. -- (5,841) (5,841)
--- ------ ------
789 (6,630) (5,841)
=== ====== ======
</TABLE>
(d) Acquisition of businesses
The investing cash flows arising in respect of acquisitions during the year
were as follows:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Exacta Circuits Limited
Deferred cash consideration............................... 2,823
GEC-Marconi's hybrid business
Cash consideration including costs of acquisition......... 2,756
Manchester Circuits Limited
Cash consideration including costs of acquisition......... 759
Overdraft................................................. 1,645
TI Technologies (Pty) Limited
Cash consideration including costs of acquisition......... 518
Overdraft................................................. 698
Cash balances............................................. (15)
-----
9,184
=====
</TABLE>
Further information on the acquisitions is given in note 10.
(e) Major non-cash transactions
Fixed asset additions of L4,548,000 were financed by hire purchase
borrowings.
84
<PAGE> 86
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. PENSIONS
Exacta Circuits Limited operates a funded defined benefit pension scheme
covering substantially all of its employees. Employer contributions are
determined by a qualified actuary on the basis of triennial valuations using the
projected unit method.
The most recent full valuation by William M. Mercer Limited was as at 5
April 1996. The assumptions which have the most significant effect on the result
of the valuation are those relating to the rate of return on investments and the
rates of increase in salaries and pensions. It was assumed that the investment
returns would be 9% per annum, that salary increases would average 7% per annum,
that present and future pensions would increase at rates of between 3% and 4.5%
per annum and that equity dividend growth would average 5% per annum. The
valuation showed that the market value of the scheme's assets at that date was
L17,593,000 and that the actuarial value of assets represented 110% of the
benefits that has accrued to members, after allowing for expected future
increases in earnings. Group contributions to the scheme in the year were
L955,000.
As part of its provisional review of the fair value of the net assets of
Exacta Circuits Limited the Group took actuarial advice regarding the current
position of the pension scheme. This highlighted uncertainty concerning the
impact of equalisation of retirement ages. In view of this uncertainty, the
SSAP24 provision of Exacta Circuits Limited of L655,000 at the date of
acquisition was replaced by a provision of the same amount. Following the
valuation as at 5 April 1996 the provision was released.
In addition, the Group made contributions of L284,000 during the year to
several defined contribution schemes.
SFAS NO 87 DISCLOSURES (UNAUDITED)
For the purpose of the disclosure in accordance with US GAAP, the pension
cost of the Exacta Circuits Limited pension scheme has been restated in the
following tables, in accordance with the requirements of SFAS No 87. The funded
status of the scheme, under SFAS No 87 is as follows:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Projected benefit obligations............................... 19,380
Plan assets at fair value................................... 19,864
------
Projected benefit obligations less than plan assets......... (484)
Unrecognised net gain....................................... 1,099
------
Accrued pension at end of year.............................. 615
======
</TABLE>
Plan assets consist primarily of investments in UK and overseas equity and
fixed interest securities. The principal assumptions used for SFAS No 87
purposes were as follows:
<TABLE>
<CAPTION>
PERCENT
-------
<S> <C>
Discount rate............................................... 8.5
Long term rate of increase in remuneration.................. 6.5
Long term rate of increase in pensions...................... 3.5
</TABLE>
85
<PAGE> 87
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost for the pension scheme under SFAS No 87
comprised:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Service cost -- present value of benefits earned in the
year...................................................... 1,476
Interest cost on projected benefit obligations.............. 1,397
Actual return on assets..................................... (1,893)
Net amortization and deferral............................... 328
Contributions by employees.................................. (513)
------
Net periodic pension cost................................... 795
======
</TABLE>
15. POST BALANCE SHEET EVENT
On 26 March 1997 the Recommended Cash Offer for Forward Group PLC by Hicks,
Muse, Tate and Furst Equity Fund III, L.P. was declared unconditional in all
respects and, in due course, the Company will become a wholly owned subsidiary
of PCB Investments plc.
16. SUBSIDIARY UNDERTAKINGS
The Company has the following trading subsidiary undertakings:
<TABLE>
<CAPTION>
COUNTRY OF
PRINCIPAL CLASS OF
COMPANY OPERATION SHARE HOLDING PRINCIPAL ACTIVITY
------- ------------ ---------- ------- ------------------
<S> <C> <C> <C> <C>
Forward Circuits Limited England L1 100% Manufacture of printed
Ordinary circuit boards
Exacta Circuits Limited Scotland L1 100% Manufacture of printed
Ordinary circuit boards
Technograph Microcircuits England L1 100% Manufacture of ceramic
Limited Ordinary based microcircuits
Forward Circuits England L1 100% International trading
International Limited Ordinary in printed circuit
boards
Manchester Circuits Limited England L1 100% Manufacture of printed
Ordinary circuit boards
L1 100%
Preferred 100%
Ordinary
L1
Cumulative
redeemable
preference
TI Technologies (Pty) Limited South Africa R1 100% Manufacture of printed
Ordinary circuit boards
Swift International (Pty) South Africa R1 100% Manufacture of printed
Limited Ordinary circuit boards
Exacta Circuits (France) SARL France FF 100 100% Sale of printed
Ordinary circuit boards in
France
</TABLE>
86
<PAGE> 88
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
OF AMERICA GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Group's consolidated financial statements are prepared in conformity
with generally accepted accounting principles applicable in the United Kingdom
(UK GAAP), which differ in certain significant respects from those applicable in
the United States of America (US GAAP). These differences, together with the
approximate effects of the adjustments on net profit and equity shareholders'
funds, relate principally to the items set out below:
(a) Goodwill: Under UK GAAP, goodwill arising from acquisitions is
written off against equity shareholders' funds. Upon the subsequent
disposal of the business, goodwill previously written off is reinstated and
considered in the calculation of the gain or loss on disposal. Under US
GAAP, goodwill is capitalised and amortised over its estimated useful life.
For the purpose of calculating the amortisation of goodwill a life of 40
years has been assumed. Upon the subsequent disposal of the business,
unamortised goodwill is considered in the calculation of the gain or loss
on disposal.
(b) Dividends: Under UK GAAP, proposed dividends on ordinary shares,
as recommended by the Directors, are deducted from equity shareholders'
funds and shown as a liability in the balance sheet at the end of the
period to which they relate. Under US GAAP, such dividends are deducted
from equity shareholders' funds at the date of declaration of the dividend.
(c) Deferred taxation: UK GAAP requires that no provision for deferred
taxation should be made if there is reasonable evidence that such taxation
will not be payable in the foreseeable future. Under US GAAP, deferred
taxation is recognised under the full liability method which permits
deferred tax assets to be recognised if their realisation is considered
more likely than not.
Deferred taxation also arises in relation to the tax effect of other
US GAAP differences.
(d) Revaluation of properties: UK GAAP allows periodic revaluations of
freehold land and buildings and the related depreciation is calculated on
the revalued amounts. The surplus on revaluation of property is credited
directly to equity shareholders' funds. Under US GAAP, such revaluations
are not permitted and depreciation is provided on the original cost.
(e) Pension costs: Under UK GAAP, the expected cost of pensions is
charged to the profit and loss account so as to spread the cost of pensions
over the expected service lives of employees. Surpluses arising from the
actuarial valuation are similarly spread. Under US GAAP, costs and
surpluses are also spread over the expected service lives but based on
prescribed actuarial assumptions, allocation of costs and valuation
methods, which differ from those used for UK GAAP.
(f) Cash flows: The principal difference between UK GAAP and US GAAP
is in respect of classification. Under UK GAAP, the Group presents its cash
flows for operating activities, returns on investments and servicing of
finance, taxation, investing activities, and financing activities. US GAAP
requires only three categories of cash flow activities which are operating,
investing and financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under UK GAAP would, with the exception of dividends paid, be
included as operating activities under US GAAP; dividend payments would be
included as a financing activity under US GAAP. In addition, under UK GAAP, cash
and cash equivalents include short term borrowings which under US GAAP would be
presented as financing activities.
87
<PAGE> 89
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under US GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
1997
----------
(L000)
<S> <C>
Net cash provided by operating activities................... 13,995
Net cash used in investing activities....................... (16,373)
Net cash provided by financing activities................... 1,589
-------
Net decrease in cash and cash equivalents................... (789)
=======
Cash and cash equivalents under US GAAP..................... --
=======
</TABLE>
Approximate effects on net profit of differences between UK and US GAAP:
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
1997
----------
(L000)
<S> <C>
Net profit in conformity with UK GAAP....................... 5,398
Adjustments:
Goodwill.................................................. (188)
Revaluation of properties................................. 12
Pension cost.............................................. 160
Tax effect of US GAAP adjustments......................... (53)
-----
Net profit in conformity with US GAAP....................... 5,329
=====
</TABLE>
Approximate effects on equity shareholders' funds of differences between UK
and US GAAP at 31 January:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Equity shareholders' funds in conformity with UK GAAP....... 24,143
Adjustments:
Goodwill.................................................. 7,690
Deferred taxation......................................... (744)
Revaluation of properties................................. (566)
Pension cost.............................................. (615)
Tax effect of US GAAP adjustments......................... 203
------
Equity shareholders' funds in conformity with US GAAP..... 30,111
======
</TABLE>
18. COMPANIES ACT 1985
These consolidated financial statements do not comprise the Company's
statutory accounts within the meaning of Section 240 of the Companies Act 1985
of Great Britain. Statutory accounts have been prepared for the year ended 31
January 1997, on which the auditors' report was unqualified. The statutory
accounts for the year ended 31 January 1997 have not yet been delivered to the
Registrar of Companies for England and Wales.
88
<PAGE> 90
REPORT OF INDEPENDENT AUDITORS
To: The Directors
Interconnection Systems (Holdings) Limited
We have audited the accompanying consolidated profit and loss account and
statement of total recognized gains and losses and of cash flows of
Interconnection Systems (Holdings) Limited for the year ended April 4, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and consolidated cash flows of Interconnection Systems (Holdings) Limited for
the year ended April 4, 1997 in conformity with accounting principles generally
accepted in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted principles in the United
States. The application of generally accepted principles in the United States
would have affected the profit and cash flows for the year ended April 4, 1997
to the extent summarized in Note 13 to the consolidated financial statements.
PricewaterhouseCoopers
Chartered Accountants
Birmingham, England
September 28, 1998
89
<PAGE> 91
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
NOTES APRIL 4, 1997
----- -------------
(L000)
<S> <C> <C>
Turnover.................................................... 2 141,643
Cost of sales............................................... 120,628
-------
Gross profit................................................ 21,015
Distribution costs.......................................... 1,632
Administrative expenses..................................... 9,491
-------
9,892
Other operating income...................................... 44
-------
Operating profit............................................ 3 9,936
Interest receivable......................................... 6 414
Interest payable............................................ 7 (1,232)
-------
Profit on ordinary activities before taxation............... 9,118
Tax on profit on ordinary activities........................ 8 6,874
-------
Profit for the year after taxation*......................... 2,244
Dividends................................................... 9 450
-------
Retained profit for the period.............................. 1,794
-------
</TABLE>
- ---------------
* A summary of the significant adjustments to profit for the year that would
be required if United States generally accepted accounting principles had
been applied instead of those generally accepted in the United Kingdom is
set forth in Note 13 of the Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Note of historical cost profits
Reported profit on ordinary activities before taxation.... 9,118
Depreciation charged during the period in respect of the
excess of valuation over historical cost of revalued
assets................................................. 9,148
------
Historical cost profit on ordinary activities before
taxation............................................... 18,266
======
Historical cost profit on ordinary activities after
taxation and dividends................................. 3,294
======
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
Financial Statements.
90
<PAGE> 92
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Profit on ordinary activities after taxation................ 2,244
Unrealized surplus on revaluation of freehold land and
buildings................................................. (1,564)
Unrealized surplus on revaluation of plant and machinery.... 23,743
------
Total recognized gains and losses relating to the period.... 24,423
======
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
Financial Statements.
91
<PAGE> 93
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
NOTES APRIL 4, 1997
----- -------------
(L000)
<S> <C> <C>
Net cash inflow from operating activities................... 3(b) 33,842
-------
Returns on investments and servicing of finance
Interest paid............................................. (1,077)
Interest received......................................... 414
Dividends paid to parent company shareholders............. (450)
-------
Net cash outflow from returns on investments and servicing
of finance................................................ (1,113)
-------
Taxation
Corporation tax paid...................................... (4,903)
-------
Tax paid.................................................... (4,903)
-------
Management of liquid resources
Investment in term deposit................................ (16,000)
-------
Net cash outflow from management of liquid resources........ (16,000)
-------
Investing activities
Payments to acquire tangible fixed assets................. (24,119)
Net cash outflow from investing activities.................. (24,119)
-------
Net cash inflow/(outflow) before financing.................. (12,293)
=======
Financing
New loans................................................. (22,089)
Repayment of loans........................................ 1,183
Repayment of finance leases............................... 1,005
-------
Net cash outflow/(inflow) from financing.................... (19,901)
Increase in cash and cash equivalents....................... 7,608
-------
(12,293)
=======
</TABLE>
The significant differences between the cash flow statement presented above
and that required under United States generally accepted accounting principles
are described in Note 13 of the Notes to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these
Financial Statements.
92
<PAGE> 94
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN BRITISH POUNDS STERLING)
1. ACCOUNTING POLICIES
Accounting convention
The financial statements are prepared under the historical cost convention
modified to include the revaluation of certain tangible fixed assets.
The financial statements are prepared in accordance with applicable United
Kingdom accounting standards.
Basis of consolidation
The consolidated financial statements consolidate the accounts of
Interconnection Systems (Holdings) Limited (the "Company") and its subsidiary
undertaking Interconnection Systems Limited (together the "Group"). They do not
include the financial statements of Interconnection Systems Sales Limited as, in
the opinion of the directors, it would be of no real value to the Company's
members in view of the insignificant amounts involved. Interconnection Systems
Sales Limited has not traded since incorporation. The accounting period for both
companies comprises 52 weeks ending on the Friday nearest to March 31.
Periodically a 53 week period will be necessary to realign the accounting period
with the calendar. On December 4, 1997 the Company changed names to Viasystems
II Limited.
Restatement of results
In previous filings financial statements for the Company have been reported
for the year ended April 4, 1997. These previously reported financial statements
have been adjusted by the directors of the Company for a revaluation of land and
buildings and plant and machinery at an earlier date of the year as allowed
under UK GAAP. This adjustment has the effect of increasing depreciation on
these assets for the year ended April 4, 1997 under UK GAAP. The adjusted
profits under US GAAP as shown in Note 13 are not effected by this change in the
revaluation date and the related impact on profit under UK GAAP.
Revenue recognition
Revenue is recognized in the period in which goods are dispatched to
customers.
Goodwill
Goodwill, both positive and negative, arising on the acquisition of
Interconnection Systems Limited has been taken directly to reserves under "Other
reserves".
Depreciation
Depreciation is provided on all tangible fixed assets, at rates calculated
to write off the cost or valuation of each asset evenly over its expected useful
life, as follows:
Freehold buildings -- over 40 years
Plant and machinery -- over 2 to 10 years
Fixtures and fittings -- over 3 to 10 years
The part of the annual depreciation charge on revalued assets which relates
to the surplus over cost is transferred from the revaluation reserve to retained
profits.
93
<PAGE> 95
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Government grants
Regional Selective Assistance is credited to income over the period to
which it relates.
Deferred funding arrangements
Amounts secured by way of loan arrangements which if certain conditions are
achieved may not be repaid are shown in creditors and credited to income over
the life of the primary term of the funding arrangement.
Stocks
Stocks are stated at the lower of cost and net realizable value as follows:
Costs incurred in bringing each product to its present location and
condition:
<TABLE>
<S> <C>
Raw materials -- purchase cost on a first-in, first-out basis
Work in progress and finished goods -- cost of direct materials and labor plus
attributable overheads based on a normal
level of activity
</TABLE>
Net realizable value is based on estimated selling price less further costs
expected to be incurred to completion and disposal.
Finance leases
Assets held under finance leases are capitalized in the balance sheet and
are depreciated over their useful lives. The interest element of rental
obligations is charged to the profit and loss account over the period of the
lease in accordance with Statement of Standard Accounting Practice 21.
Research and development
Research and development expenditure is written off as incurred.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance sheet
date. All differences are taken to the profit and loss account.
Deferred taxation
Deferred taxation is provided using the liability method on all timing
differences to the extent that they are expected to reverse in the future
without being replaced, calculated at the rate at which it is estimated that
taxation will be payable.
Pensions
Interconnection Systems Limited operates a defined benefit pension scheme
which is funded by the payment of contributions to a separately administered
fund.
Contributions to the fund are charged to the profit and loss account so as
to spread the cost of pensions over the employees' working lives.
Future variations in pension cost, which are identified as a result of an
actuarial valuation, will be amortised over the expected remaining lives of
current employees in the scheme. Differences between the
94
<PAGE> 96
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts funded and the amounts charged to the profit and loss account will be
treated as either provisions or prepayments in the balance sheet.
2. TURNOVER
Turnover represents the net invoiced sales, excluding value added tax, of
goods sold during the period.
The Company's operations are all located in the United Kingdom and its
turnover and pre-tax profit is attributable to one continuing activity, the
manufacture of printed circuit boards.
An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
United Kingdom.............................................. 61,209
Belgium..................................................... 16,915
Germany..................................................... 19,524
Sweden...................................................... 21,630
Other Continental Europe.................................... 22,365
-------
141,643
=======
</TABLE>
Of the total turnover, 16.3% related to one customer and 15.8% to another.
3. OPERATING PROFIT
(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Directors' remuneration (see note 4)........................ 192
Auditors' remuneration for audit services -- previous....... 35
Auditors' remuneration for audit services -- current........ 30
Auditors' remuneration for non audit services -- previous... 75
Depreciation of tangible fixed assets....................... 26,771
Research and development expenditure........................ 475
Exchange gains.............................................. (431)
Hire of plant and machinery................................. 18
Regional Selective Assistance............................... (600)
======
</TABLE>
(b) Reconciliation of operating profit to net cash inflow from operating
activities:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Operating profit............................................ 9,936
Depreciation................................................ 26,771
Government grants released.................................. (600)
Increase in debtors......................................... (6,632)
Increase in stocks.......................................... (1,685)
Increase in creditors....................................... 6,052
------
Net cash inflow from operating activities................... 33,842
======
</TABLE>
95
<PAGE> 97
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Fees........................................................ --
Other emoluments (including pension contributions).......... 192
---
192
===
Emoluments of the chairman (excluding pension contributions)
were:..................................................... 9
===
Emoluments of the highest paid director (excluding pension
contributions) were:...................................... 181
===
</TABLE>
Directors emoluments (excluding pension contributions) fell within the
following ranges:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4,
1997
----------
<S> <C> <C>
L5,001 -- L10,000.................................................. 1
L180,001 -- L185,000................................................. 1
</TABLE>
5. STAFF COSTS
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Wages and salaries.......................................... 26,429
Social security costs....................................... 2,185
Other pension costs......................................... 212
------
28,826
======
</TABLE>
The average weekly number of employees during the period was made up as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
<S> <C>
Sales and administration.................................... 67
Manufacturing............................................... 1,332
-----
1,399
=====
</TABLE>
6. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Bank deposit interest....................................... 414
===
</TABLE>
96
<PAGE> 98
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTEREST PAYABLE
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Bank overdraft.............................................. 10
Other loans wholly repayable within five years (net of
rebate)................................................... 478
Other loans not wholly repayable within five years.......... 544
Loan stock.................................................. 200
-----
1,232
=====
</TABLE>
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
The taxation charge is made up as follows:
Based on the profit for the period Corporation tax at
33%.................................................... 6,463
Corporation tax under provided in previous Periods........ 411
-----
6,874
=====
</TABLE>
If full recognition had been made in respect of deferred taxation for the
period in respect of capital allowances in advance of depreciation and other
timing differences the taxation charge would have decreased by L2,252,930.
9. DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Ordinary -- interim paid on equity shares.............. 450
===
</TABLE>
10. PENSION COMMITMENTS
Interconnection Systems Limited operates a defined benefit pension scheme
which is funded by the payment of contributions to a separately administered
fund.
The contributions to the scheme are determined on behalf of the company
with the advice of an independent qualified actuary on the basis of a triennial
valuation using the Projected Unit Method. The most recent valuation was carried
out as at January 1, 1996. The actuary's valuation used the following main
assumptions:
<TABLE>
<S> <C>
Long term investment return................................. 8.5% per annum
Increase in pensionable salaries............................ 6.5% per annum
Increase in pensions in payment............................. 3.0% per annum
</TABLE>
This valuation showed that the market value of the Scheme's assets at
January 1, 1996 amounted to L5,660,314 and the actuarial value was sufficient to
cover 103% of the benefits that had accrued to members after projecting
pensionable salaries to the assumed date of retirement or death.
97
<PAGE> 99
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost for each fiscal year is as follows:
<TABLE>
<CAPTION>
APRIL 4, 1997
-------------
L
<S> <C>
Service cost................................................ 263
Interest cost............................................... 443
Actual return on plan assets................................ (509)
Net amortization and deferral............................... (57)
----
Net periodic pension cost................................... 140
====
</TABLE>
11. DIRECTORS' INTERESTS
I H Bradbury has an interest in payments of L389,933 made by
Interconnection Systems Limited to Interconnection Systems (Holdings) Limited in
the period ended 4 April 1997 in respect of consultancy services provided to
Interconnection Systems Limited by I H Bradbury.
In addition, the company purchased a property during the year at its market
value of L145,000 from T P Robinson, a director of Interconnection Systems
Limited and Interconnection Systems (Holdings) Limited.
12. COMPANIES ACT 1985
These financial statements do not comprise the Company's statutory accounts
within the meaning of section 240 of the Companies Act 1985 of Great Britain.
Statutory accounts for the year ended April 4, 1997, have been delivered to the
Registrar of Companies for England and Wales. The auditors' report on these
accounts was unqualified.
13. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Group's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK GAAP")
which differ from United States generally accepted accounting principles ("US
GAAP"). The significant differences as they apply to the Group are summarized
below.
Pension costs
The Group provides for the cost of retirement benefits based upon
consistent percentages of employees' pensionable pay as recommended by
independent qualified actuaries. US GAAP require that the projected benefit
obligation (pension liability) be matched against the fair value of the plan's
assets and be adjusted to reflect any unrecognized obligations or assets in
determining the pension cost or credit for the year. For the purposes of the
reconciliation below, US GAAP have been adopted as of April 1, 1995. The Company
has not implemented FAS 87 as of the effective date specified in the standard
for a foreign plan (fiscal years beginning after December 15, 1988) due to the
unavailability of actuarial data. A portion of the transition liability at April
1, 1995 has been allocated to shareholders' funds based on a ratio of 6/15,
being the number of years elapsed between the effective date of FAS 87 and April
1, 1995 over the 15 year period being used to amortize the transition liability.
98
<PAGE> 100
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary of principal assumptions made by the actuary:
<TABLE>
<CAPTION>
APRIL 4, 1997
--------------
%
<S> <C>
Discount rate............................................... 8.5%
Salary growth............................................... 6.5
Long-term return on assets.................................. 9.0
Pension increases........................................... 3.0
</TABLE>
The following table details the funded status of the plan under US GAAP:
<TABLE>
<CAPTION>
APRIL 4, 1997
-------------
(L000)
<S> <C>
Vested benefit obligation................................... 5,800
Accrued benefit obligation.................................. 5,800
Projected benefit obligation................................ 6,520
Assets at market value...................................... 6,368
Funded status............................................... (152)
Unrecognized transition asset............................... (395)
Other unrecognised net loss................................. 787
Prepaid pension cost........................................ 240
</TABLE>
Amounts funded to the pension are primarily invested in equity and fixed
income securities.
Goodwill and negative goodwill
Under UK GAAP, goodwill and negative goodwill arising on acquisitions is
set off against or credited to shareholders' funds in the year of acquisition.
Under US GAAP, such goodwill would be capitalized and amortized over its
estimated useful life which in the case of the acquisition of Interconnection
Systems Limited is estimated to be 10 years. Under US GAAP, negative goodwill
would be eliminated by reducing the value of the interest in the noncurrent
assets acquired.
Accordingly, under US GAAP the carrying value of the additional 20%
interest in the tangible fixed assets of Interconnection Systems Limited
acquired in 1994 would have been reduced by L1,067,000 and subsequent
depreciation would have been reduced by L201,000 per annum.
Revaluation of fixed assets
Under UK GAAP, the Group's tangible fixed assets are carried at valuations
and depreciation is computed based on the revalued amounts. Under US GAAP, such
revaluation is not permitted and all tangible assets would be carried at cost
subject to any impairment write down and the depreciation charge would be based
on such carrying amount. The gain or loss arising on the disposal of tangible
assets under US GAAP would differ from that arising under UK GAAP by the amount
of the revaluation gain thus realized, which in the year ended April 4, 1997 is
not material.
Deferred taxation
Under UK GAAP, deferred taxation is provided using the liability method on
all timing differences to the extent that they are expected to reverse in the
future without being replaced, calculated at the rate at which it is estimated
that taxation will be payable. Under US GAAP, deferred taxation would be
computed on all temporary differences between the tax and book bases of assets
and liabilities, which will result in taxable or
99
<PAGE> 101
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax deductible amounts in future years. Deferred taxation assets would be
recognized to the extent that it is more likely than not that they will be
realized.
Deferred taxation also arises in relation to the tax effect of other UK
GAAP to US GAAP adjustments.
Approximate effects on net income of differences between UK GAAP and US
GAAP:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Profit for the year as reported in the consolidated profit
and loss account.......................................... 2,244
Pension costs............................................... 77
Amortization of Goodwill.................................... (84)
Depreciation of tangible fixed assets....................... 9,333
Deferred taxation -- methodology............................ 787
-- on adjustments........................ (25)
------
Net income for the year as adjusted to accord with US
GAAP...................................................... 12,332
======
</TABLE>
Consolidated statement of cash flows
The consolidated statement of cash flows prepared under UK GAAP presents
substantially the same information as that required under US GAAP. The
statements differ however with regard to the classification of items within the
statements and as regards the definition of cash and cash equivalents.
Under US GAAP, cash and cash equivalents would not include bank overdrafts.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing. US GAAP require only three categories of cash flow activity to be
reported; operating, investing and financing. Cash flows from taxation and
returns on investments and servicing of finance shown under UK GAAP would be
included as operating activities under US GAAP.
The categories of cash flow activity under US GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Cash inflow from operating activities....................... 27,826
Cash outflow on investing activities........................ (24,119)
Cash (outflow)/inflow from financing activities............. 19,901
-------
Increase in cash and cash equivalents....................... 23,608
Cash and cash equivalents:
Opening balance........................................... 2,636
-------
Closing balance........................................... 26,244
=======
</TABLE>
100
<PAGE> 102
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL
DISCLOSURE
None, other than previously disclosed.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and positions of the respective directors and
executive officers of the Company and, if applicable, such directors' and
executive officers' positions with Group. All directors hold office until the
next annual meeting of stockholders of the Company and until their successors
are duly elected and qualified.
<TABLE>
<S> <C> <C>
James N. Mills....................... 61 Chairman of the Board and Chief Executive
Officer of the Company and Group
Thomas O. Hicks...................... 52 Director of the Company and Group
Jack D. Furst........................ 40 Director of the Company and Group
Richard W. Vieser.................... 71 Director of the Company and Group
Kenneth F. Yontz..................... 53 Director of the Company and Group
Robert N. Mills...................... 56 Co-Chairman of the Board of the Company and
Group
Timothy L. Conlon.................... 47 President, Chief Operating Officer and Director
of the Company and Group
David M. Sindelar.................... 41 Senior Vice President, Chief Financial Officer
of the Company and Group
James G. Powers...................... 37 Vice President -- Finance of the Company
</TABLE>
James N. Mills has been Chairman of the Board and Chief Executive Officer
of Group since January 1997 and Chairman of the Board and Chief Executive
Officer of the Company since April 1997. Mr. Mills is the Chairman and Chief
Executive Officer of M&P. Mr. Mills is also Chairman of the Board and Chief
Executive Officer of International Wire Holding Company and International Wire
Group, Inc. Mr. Mills was Chairman of the Board and Chief Executive Officer of
Berg Electronics Corp. and Chairman of the Board and sole director of Berg
Electronics Group, Inc. from March 1993 through October 1998 and was Chairman of
the Board and Chief Executive Officer of Crain Holdings Corp. and Crain
Industries, Inc. from August 1995 through December 1997 and of Jackson Holding
Company and Jackson Products, Inc. from February 1993 through August 1995. Mr.
Mills was Chairman of the Board and Chief Executive Officer of Thermadyne
Holdings Corporation from February 1989 through February 1995. Mr. Mills was
Executive Vice President of McGraw-Edison Company from 1978 to 1985, and served
as Industrial Group President and President of the Bussman Division of the
McGraw-Edison Company from 1980 to 1984.
Thomas O. Hicks has been a director of Group since January 1997 and a
director of the Company since May 1997. Mr. Hicks is Chairman of the Board and
Chief Executive Officer of HMTF. From 1984 to May 1989, Mr. Hicks was
Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas
Incorporated, a Dallas-based private investment firm. Mr. Hicks serves as a
director, Chairman and Chief Executive Officer of Chancellor Media Corporation,
International Home Foods, Inc., D.A.C. Vision, Inc., Sybron International
Corporation, Capstar Broadcasting Partners, Inc. and Cooperative Computing
Holding Company, Inc.
Jack D. Furst has been a director of Group since August 1996 and a director
of the Company since May 1997. Mr. Furst is a Managing Director and Principal of
HMTF and has held such position since 1989. Mr. Furst has approximately 15 years
of experience in leveraged acquisitions and private investments. Mr. Furst is
involved in all aspects of HMTF's business and has been actively involved in
originating, structuring and monitoring its investments. Mr. Furst is primarily
responsible for managing the relationship with M&P. Prior to joining HMTF, Mr.
Furst was a Vice President and subsequently a Partner of Hicks & Haas,
Incorporated, a Dallas-based private investment firm from 1987 to May 1989. From
1984 to 1986, Mr. Furst was a merger and acquisition/corporate finance
specialist for The First Boston Corporation in New
101
<PAGE> 103
York. Before joining First Boston, Mr. Furst was a financial consultant at Price
Waterhouse. Mr. Furst serves on the board of directors of America Tower
Corporation, International Wire Holding Company and Cooperative Computing, Inc.
Richard W. Vieser has been a director of Group since January 1997 and a
director of the Company since May 1997. Mr. Vieser is the retired Chairman of
the Board, Chief Executive Officer and President of Lear Siegler, Inc. (a
diversified manufacturing company), the former Chairman of the Board and Chief
Executive Officer of FL Industries, Inc. and FL Aerospace (also diversified
manufacturing companies), and the former President and Chief Operating Officer
of McGraw-Edison Co. He is also a director of Ceridian Corporation (formerly
Control Data Corporation), Dresser Industries, Inc., INDRESCO Inc., Sybron
International Corporation and Varian Associates, Inc.
Kenneth F. Yontz has been a director of Group since January 1997 and a
director of the Company since May 1997. Mr. Yontz is the Chairman, President and
Chief Executive Officer of Sybron International Corporation, a manufacturer and
marketer of laboratory apparatus products, dental sundry supplies and
orthodontic appliances. Mr. Yontz is also a director of Playtex Products, Inc.
Prior to joining Sybron, Mr. Yontz was Group Vice President and Executive Vice
President of the Allen-Bradley Company. Mr. Yontz also held various managerial
and professional positions with Chemetron from 1974 to 1980 and at Ford Motor
Company from 1966 to 1974.
Robert N. Mills has been a director of Group since January 1997 and has
been Co-Chairman of the Board of Group since October 1998, and prior to that was
President and Chief Operating Officer since the Company's formation in April
1997 and a director of the Company since May 1997. Mr. Mills also was Vice
Chairman of Berg Electronics Corp. until October 1998 and previously served as
President of Berg Electronics Corp. from June 1995 through December 1996, and as
Chief Operating Officer of Berg Electronics Corp. and as President and Chief
Executive Officer of Berg Electronics Group, Inc. from March 1993 through
December 1996. Mr. Mills served as a Vice President of Berg Electronics Corp.
from March 1993 through June 1995. Mr. Mills is a Vice President of M&P. Prior
to joining Berg in March 1993, Mr. Mills was Vice President of Thermadyne
Industries, Inc. and President of Stoody Deloro Stellite and held such positions
since February 1990 and July 1989, respectively. Prior thereto, he served as
President and Chief Operating Officer and as a director of Tridex Corporation
from 1987 through 1989, and Vice President and General Manager of Elco
Corporation, a subsidiary of Wickes Manufacturing Company, from 1983 through
1987. Robert N. Mills is the brother of James N. Mills.
Timothy L. Conlon has been a director, President and Chief Operating
Officer of Group and the Company since October 1998. Prior to joining the
Company Mr. Conlon was employed as President and Chief Operating Officer of Berg
Electronics Corp. from January 1997 through October 1998. Mr. Conlon also served
as Executive Vice President and Chief Operating Officer of Berg Electronics
Group, Inc., a wholly owned subsidiary of Berg Electronics Corp., from October
1993 through January 1997. Prior to joining Berg Electronics Group, Inc., Mr.
Conlon was employed as President of the Cutting and Welding Division of
Thermadyne Industries, Inc. from April 1993 through October 1993. Prior to
joining Thermadyne Industries, Inc., Mr. Conlon spent nine years in the
electronic connector industry including serving as General Manager of the
Information Technologies and Spectra strip divisions of Amphenol Corporation
from 1990 through July 1992 and President of Cambridge Products from 1988
through 1989.
David M. Sindelar has been a Senior Vice President of Group since January
1997 and Chief Financial Officer of Group since its inception and has been
Senior Vice President, Chief Financial Officer and Treasurer of the Company
since its formation in April 1997. Mr. Sindelar is also President and Chief
Operating Officer of M&P. Mr. Sindelar also serves as Senior Vice President and
Chief Financial Officer of International Wire Holding Company. Mr. Sindelar was
Senior Vice President and Chief Financial Officer of Berg Electronics Corp. from
March 1993 through October 1998 and of Crain Industries, Inc. and Crain Holdings
Corp. from August 1995 through December 1997 and of Jackson Holding Company from
February 1993 through August 1995.
James G. Powers has been a Vice President of Group since April 1997 and a
Vice President of the Company since its formation in April 1997. Prior to
joining the Company, Mr. Powers served as Vice
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<PAGE> 104
President -- Finance of Crain Industries, Inc. He also held various positions at
Berg Electronics Corp., including Vice President -- Controller, from June 1993
to August 1995. Previously, Mr. Powers was Controller of Moog Automotive, Inc.
from 1991 through 1993 and was employed by Arthur Andersen & Co. from 1983 to
1991.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors who are officers, employees or otherwise an affiliate of Group or
the Company receive no compensation for their services as directors. Each
director of Group or the Company who is not also an officer, employee or an
affiliate of Group or the Company (an "Outside Director") receives an annual
retainer of $12,000 and a fee of $1,000 for each meeting of the board of
directors at which the director is present. Directors of Group and the Company
are reimbursed for their reasonable out-of-pocket expenses in connection with
their travel to and attendance at the meetings of the board of directors or
committees thereof.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation earned
during the fiscal years ended December 31, 1997 and 1998 by the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company. The executive officers of Group and the Company did not receive any
compensation from either Group or the Company during the period from inception
(August 28, 1996) to December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) SECURITIES
------------------------ UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($)(2) OPTIONS(#)(3) COMPENSATION($)
---- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
James N. Mills, Chairman of the Board
and Chief Executive Officer.......... 1997 395,000 550,000 2,132,392(4) --
1998 685,000 342,500 803,320(4) --
Robert N. Mills, Co-Chairman of the
Board................................ 1997 482,000 313,300 -- --
1998 510,000 165,750 -- --
Timothy L. Conlon, President and Chief
Operating Officer.................... 1997 -- -- -- --
1998 88,542 34,815 -- 537,374(5)
Barry Brigman, President of the
Americas............................. 1997 310,000 201,500 750,000 66,285(6)
1998 325,000 105,600 -- 155,369(6)
David M. Sindelar, Senior Vice
President and Chief Financial
Officer.............................. 1997 168,200 150,000 1,318,501(4) --
1998 230,000 92,000 485,000(4) --
</TABLE>
- ---------------
(1) The Company provides a car allowance, reimbursement of club memberships and
other benefits to certain executives. The aggregate incremental costs of
these benefits to the Company do not exceed the lesser of either $50,000 or
10% of the total of annual salary and bonus reported for each executive.
(2) Bonuses were paid in 1998 for 1997 and in 1999 for 1998.
(3) Options were granted under the Viasystems Group, Inc. 1997 Stock Option Plan
(the "Stock Option Plan") pursuant to which incentive and non-qualified
stock options may be issued to certain of Group's or the Company's officers,
key employees and directors.
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<PAGE> 105
(4) Reflects Performance Options (as hereinafter defined) granted by Group. For
a description of the material terms of such options, see "Benefit
Plans -- Performance Options." The Performance Options are exercisable only
in the event that Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("Hicks,
Muse Fund III") as of the exercise date, has realized an overall rate of
return of at least 35% per annum, compounded annually on its equity funds
invested in Group.
(5) Reflects amounts paid to Mr. Conlon to partially compensate him for his
voluntary termination of his employment contract with Berg Electronics Corp.
and forego compensation otherwise payable to him thereunder.
(6) Mr. Brigman received compensation in the form of reimbursement of relocation
expenses during 1997 and 1998.
The following table summarizes option grants made with respect to the
common stock, par value $.01 per share of Group's common stock during fiscal
year 1998 to the executive officers named above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES IN PRICE
OPTIONS(#) FISCAL YEAR ($/SHARE) EXPIRATION DATE
---------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
James N. Mills(1).............. 803,320 26.2% 1.22 March 9, 2008
Robert N. Mills................ -- N/A N/A N/A
Timothy L. Conlon.............. -- N/A N/A N/A
Barry Brigman.................. -- N/A N/A N/A
David M. Sindelar(1)........... 485,000 14.3% 1.22 March 9, 2008
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM(2)
------------------------------
5%($) 10%($)
--------- -------------
<S> <C> <C>
James N. Mills........................................... -- --
Robert N. Mills.......................................... N/A N/A
Timothy L. Conlon........................................ N/A N/A
Barry Brigman............................................ N/A N/A
David M. Sindelar........................................ -- --
</TABLE>
- ---------------
(1) Reflects Performance Options granted by Group. For a description of the
material terms of such options, see "Benefit Plans -- Performance Options."
(2) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the option immediately
prior to the expiration of its term, assuming the specified compound rules
of appreciation of Group's common stock over the term of the options. Actual
gains on the exercise of the options are dependent on the future performance
of Group's common stock. There can be no assurance that the potential values
reflected in this table will be achieved. All amounts have been rounded to
the nearest whole dollar. Excludes Performance Options, which would not be
exercisable under either scenario.
104
<PAGE> 106
The following table summarizes the number of options exercised during the
fiscal year ended December 31, 1998 for the above named executive officers and
the value of unexercised options as of December 31, 1998:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
ACQUIRED ON VALUE
EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#)
----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C>
James N. Mills................... -- -- -- 3,272,120
Robert N. Mills.................. -- -- -- --
Timothy L. Conlon................ -- -- -- --
Barry Brigman.................... -- -- 150,000 600,000
David M. Sindelar................ -- -- -- 2,031,390
</TABLE>
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS AT
FISCAL YEAR END(1)
----------------------------------
EXERCISABLE($) UNEXERCISABLE($)
-------------- ----------------
<S> <C> <C>
James N. Mills......................................... -- 316,566
Robert N. Mills........................................ -- --
Timothy L. Conlon...................................... -- --
Barry Brigman.......................................... 33,000 132,000
David M. Sindelar...................................... -- 196,805
</TABLE>
- ---------------
(1) Represents the difference between the value at December 31, 1998 of Group's
common stock underlying the options and the exercise price of such options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions are made by the entire Board of Directors. James N.
Mills served as both an executive officer and a director during 1998 and is
expected to serve in such capacities in 1999. Mr. Mills participated in
deliberations of the Board of Directors concerning compensation of executive
officers.
EMPLOYMENT AGREEMENTS
James N. Mills Executive Employment Agreement. Mr. James N. Mills entered
into an executive employment agreement with Group, Viasystems Technologies and
Circo Craft as of January 1, 1997. Pursuant to his employment agreement, Mr. J.
Mills will serve as the Chairman of the Board of Directors and Chief Executive
Officer of Group through December 31, 2001, unless terminated earlier as
provided therein. Mr. J. Mills is required to devote such time as is reasonably
necessary to faithfully and adequately supervise the overall executive
management of Group and its subsidiaries, both direct and indirect. Subject to
the foregoing limitation on his activities, Mr. J. Mills is free to participate
in other endeavors.
The compensation provided to Mr. J. Mills under his executive employment
agreement includes an annual base salary of not less than $685,000, subject to
upward adjustment at the sole discretion of the Board of Directors of Group, and
such benefits as are customarily accorded the executives of Group as long as the
executive employment agreement is in force. In addition, Mr. J. Mills is
entitled to an annual bonus in an amount determined in accordance with the
Senior Executive Incentive Compensation Plan and reimbursement for expenses to
own and maintain an automobile.
Mr. J. Mills' executive employment agreement also provides that if Mr. J.
Mills' employment is terminated without cause, Mr. J. Mills will continue to
receive his then current salary, which shall not be less than $685,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon death
105
<PAGE> 107
or "total disability" (as defined therein) and no further compensation shall be
payable except that he or his estate, heirs or beneficiaries, as applicable,
shall receive his then current salary for a period of 18 months, in addition to
benefits otherwise specifically provided for. The agreement also provides
medical benefits for Mr. J. Mills' and his spouse's lifetime.
Robert N. Mills Executive Employment Agreement. Mr. Robert N. Mills entered
into an executive employment agreement with Group, Viasystems Technologies and
Circo Craft as of January 1, 1997 and amended on October 16, 1998. Pursuant to
his employment agreement, Mr. R. Mills will serve as the Co-Chairman of the
Board of Directors of Group through December 31, 2001, unless terminated earlier
as provided therein. Mr. R. Mills is required to devote such time as is
reasonably necessary to faithfully and adequately supervise the overall
financial management of Group and its subsidiaries, both direct and indirect.
Subject to the foregoing limitation on his activities, Mr. R. Mills is free to
participate in other endeavors.
The compensation provided to Mr. R. Mills under his executive employment
agreement includes an annual base salary of not less than $510,000, subject to
upward adjustment at the sole discretion of the Chairman of the Board of
Directors of Group, and such benefits as are customarily accorded the executives
of Group as long as the executive employment agreement is in force. In addition,
Mr. R. Mills is entitled to an annual bonus in an amount determined in
accordance with the Senior Executive Incentive Compensation Plan and
reimbursement for expenses to own and maintain an automobile.
Mr. R. Mills' executive employment agreement also provides that if Mr. R.
Mills' employment is terminated without cause, Mr. R. Mills will continue to
receive his then current salary, which shall not be less than $510,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon death or "total disability" (as defined
therein) and no further compensation shall be payable except that he or his
estate, heirs or beneficiaries, as applicable, shall receive his then current
salary for a period of 18 months, in addition to benefits otherwise specifically
provided for. The agreement also provides medical benefits for Mr. R. Mills' and
his spouse's lifetime.
Timothy L. Conlon Executive Employment Agreement. Mr. Timothy L. Conlon
entered into an executive employment agreement with Group, Viasystems and
Viasystems Technologies as of October 16, 1998. Pursuant to his employment
agreement, Mr. Conlon will serve as the President and Chief Operating Officer of
Group through December 31, 2001, unless terminated earlier as provided therein.
Mr. Conlon is required to devote such time as is reasonably necessary to
faithfully and adequately supervise the overall financial management of Group
and its subsidiaries, both direct and indirect. Subject to the foregoing
limitation on his activities, Mr. Conlon is free to participate in other
endeavors.
The compensation provided to Mr. Conlon under his executive employment
agreement includes an annual base salary of not less than $425,000, subject to
upward adjustment at the sole discretion of the Chairman of the Board of
Directors of Group, and such benefits as are customarily accorded the executives
of Group as long as the executive employment agreement is in force. In addition,
Mr. Conlon is entitled to an annual bonus in an amount determined in accordance
with the Senior Executive Incentive Compensation Plan and reimbursement for
expenses to own and maintain an automobile.
Mr. Conlon's executive employment agreement also provides that if Mr.
Conlon's employment is terminated without cause, Mr. Conlon will continue to
receive his then current salary, which shall not be less than $425,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon death or "total disability" (as defined
therein) and no further compensation shall be payable except that he or his
estate, heirs or beneficiaries, as applicable, shall receive his then current
salary for a period of 18 months, in addition to benefits otherwise specifically
provided for. The agreement also provides medical benefits for Mr. Conlon's and
his spouse's lifetime.
David M. Sindelar Executive Employment Agreement. Mr. David M. Sindelar
entered into an executive employment agreement with Group, Viasystems
Technologies and Circo Craft as of January 1, 1997. Pursuant to his employment
agreement, Mr. Sindelar will serve as the Senior Vice President and Chief
Financial
106
<PAGE> 108
Officer of Group through December 31, 2001, unless terminated earlier as
provided therein. Mr. Sindelar is required to devote such time as is reasonably
necessary to faithfully and adequately supervise the overall financial
management of Group and its subsidiaries, both direct and indirect. Subject to
the foregoing limitation on his activities, Mr. Sindelar is free to participate
in other business endeavors.
The compensation provided to Mr. Sindelar under his executive employment
agreement includes an annual base salary of not less than $230,000, subject to
upward adjustment at the sole discretion of the Chairman of the Board of
Directors of Group, and such benefits as are customarily accorded the executives
of Group as long as the executive employment agreement is in force. In addition,
Mr. Sindelar is entitled to an annual bonus in an amount determined in
accordance with the Senior Executive Incentive Compensation Plan and
reimbursement for expenses to own and maintain an automobile.
Mr. Sindelar's executive employment agreement also provides that if Mr.
Sindelar's employment is terminated without cause, Mr. Sindelar will continue to
receive his then current salary, which shall not be less than $230,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon death or "total disability" (as defined
therein) and no further compensation shall be payable except that he or his
estate, heirs or beneficiaries, as applicable, shall receive his then current
salary for a period of 18 months, in addition to benefits otherwise specifically
provided for. The agreement also provides medical benefits for his and his
spouse's lifetime.
BENEFIT PLANS
Stock Option Plan
Group has adopted the Stock Option Plan pursuant to which incentive and
non-qualified stock options, stock appreciation rights, stock awards,
performance awards and stock units may be issued to such employees of Group and
any parent or subsidiary corporation designated by the Board of Directors of
Group. A total of 8,260,000 shares of Group common Stock will be reserved for
issuance under the Stock Option Plan. As of December 31, 1998, options to
purchase an aggregate of 6,755,000 shares of Group common stock subject to the
terms and conditions of the Stock Option Plan are outstanding.
The Stock Option Plan provides that it is to be administered by a committee
of the Board of Directors of Group or a subcommittee of such a committee (the
"Committee"). The Committee has the authority to grant to any participant one or
more stock options, and to establish the terms and conditions of such options,
subject to certain limitations specified in the Stock Option Plan. For example,
the per-share exercise price of each option must not be less than 100% of the
fair market value of the Group common Stock on the date such option is granted,
and no option may be exercisable later than ten years after the date of grant.
In the event of a change in control (as defined in the Stock Option Plan), the
Committee, in its discretion, may take such actions as it deems appropriate with
respect to outstanding awards, including, without limitation, accelerating the
exercisability or vesting of such awards.
The Stock Option Plan became effective as of February 4, 1997. Effective
concurrent with the consummation of the Chips Merger, the Stock Option Plan was
amended to increase the number of shares of Group common stock reserved for
issuance under the Stock Option Plan. The Stock Option Plan, as amended, is
subject to stockholder approval and will terminate on February 4, 2007, unless
sooner terminated by the Committee.
Performance Options
On November 26, 1996, Group granted options (the "Performance Options") to
purchase 1,085,187 shares of Group common stock. Messrs. J. Mills and Sindelar
were granted Performance Options to purchase 336,408 and 227,889 shares of Group
common stock, respectively, and Performance Options to purchase the remaining
520,890 shares of Group common stock were granted to certain officers of the
Company who are also affiliated with M&P. On June 2, 1997, Group granted
Performance Options to purchase an additional 8,138,904 shares (of which
1,454,158 shares were cancelled) of Group common stock.
107
<PAGE> 109
Messrs. J. Mills and Sindelar were granted additional Performance Options to
purchase 2,132,392 and 1,318,501 shares of Group common stock, respectively, and
additional Performance Options to purchase the remaining 4,688,011 shares of
Group common stock were granted to certain officers of the Company who are also
affiliated with M&P. On March 9, 1998, Group granted Performance Options to
purchase an additional 1,663,320 shares of Group common stock. Messrs. J. Mills
and Sindelar were granted additional Performance Options to purchase 803,320 and
485,000 shares of Group common stock, respectively, and additional Performance
Options to purchase the remaining 375,000 shares of Group common stock were
granted to certain officers of the Company who are also affiliated with M&P.
Pursuant to the terms of the option agreements (the "Performance Option
Agreements") related to the Performance Options, the Performance Options will
become options to purchase an identical number of shares of Group common stock.
The Performance Options are exercisable only in the event that Hicks, Muse Fund
III has, as of the exercise date, realized an overall rate of return of at least
35% per annum, compounded annually, on all equity funds invested by it in Group.
Subject to the foregoing, the Performance Options are exercisable (i)
immediately prior to the consummation of a Liquidity Event (as hereinafter
defined), (ii) concurrently with the consummation of a Qualified IPO (as
hereinafter defined), or (iii) on the ten year anniversary of their grant. A
"Liquidity Event" generally means (i) one or more sales or other dispositions of
Group common stock if, thereafter, the amount of Group common stock owned by
Hicks, Muse Fund III is reduced by 50%, (ii) any merger, consolidation or other
business combination of Group pursuant to which any person or group acquires a
majority of the common stock of the resulting entity, or (iii) any sale of all
or substantially all of the assets of Group. A "Qualified IPO" means a firm
commitment underwritten public offering of Group common stock for gross proceeds
of at least $50 million pursuant to an effective registration statement under
the Securities Act of 1933, as amended.
The exercise price for the Performance Options is initially equal to $1.00
per share for the grants made in 1996 and 1997 and $1.22 per share for the
grants made in 1998 and, effective each anniversary of the grant date, the per
share exercise price for the Performance Options is increased to the per share
exercise price for the prior year multiplied by 1.08. The exercise price of the
Performance Options and the number of shares of Group common stock for which the
Performance Options are exercisable are subject to adjustment in the event of
certain fundamental changes in the capital structure of Group. All Performance
Options terminate on the ten-year anniversary of their grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
All the issued and outstanding shares of common stock of Viasystems are
held by Group. The following table sets forth certain information regarding the
beneficial ownership of the voting securities of Group by each person who
beneficially owned more than 5% of any class of Group voting securities and by
the directors and certain executive officers of Group, individually, and by the
directors and executive officers of Group as a group. The Class A Common Stock
and Class A Series II Common Stock votes together with the common stock as a
single class and are entitled to one vote for each share. Shares of Class A
Common Stock and Class A Series II Common Stock are convertible into shares of
common stock:
- at the option of any holder thereof at any time,
- at the option of Group upon the occurrence of a Triggering Event (as
defined below), and
- automatically on September 30, 2006.
A "Triggering Event" means any sale of substantially all of the assets of
Group or any merger, consolidation or other business combination of Group in
which HMTF and its affiliates cease to beneficially own, directly or indirectly,
at least 50% of the resulting entity. Each share of Class A Common Stock and
Class A Series II Common Stock is convertible into a fraction of a share of
common stock equal to:
(1) the fair market value of a share of common stock at the time of
conversion, minus the sum of $.99, or $1.21 in the case of Class A Series
II Common Stock, plus imputed interest at a rate of 8% per annum,
compounded annually, at the time of conversion,
108
<PAGE> 110
(2) divided by the fair market value of a share of common stock at the
time of conversion.
Because the fraction of a share of common stock into which Class A Common
Stock and Class A Series II Common Stock is convertible can be determined only
at the time of a conversion, shares of common stock that may be issuable upon
conversion of Class A Common Stock and Class A Series II Common Stock are not
included in the shares of common stock beneficially owned in the following
table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
(AS OF MARCH 1, 1999)
-----------------------------------------------------------------------------------------
VIASYSTEMS GROUP VIASYSTEMS GROUP
VIASYSTEMS GROUP CLASS A CLASS A SERIES II
COMMON STOCK COMMON STOCK COMMON STOCK
------------------------ ----------------------- -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF
SHARES CLASS SHARES CLASS SHARES CLASS TOTAL
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
HM Parties(1)............... 302,458,861 99.9% -- -- -- -- 86.1%
c/o Hicks, Muse, Tate &
Furst Incorporated
200 Crescent Court, Suite
1600
Dallas, Texas 75201
OFFICERS AND DIRECTORS:
James N. Mills(2)........... 200,000 * 35,177,359 100.0% 13,403,370 100.0% 13.9%
Thomas O. Hicks(1).......... 302,458,861 99.9% -- -- -- -- 86.1%
Jack D. Furst(1)............ 302,458,861 99.9% -- -- -- -- 86.1%
Richard W. Vieser(3)........ 500,000 * -- -- -- -- *
Kenneth F. Yontz(4)......... 300,000 * -- -- -- -- *
Robert N. Mills(5).......... -- 7,140,000 20.3% 1,156,380 8.6% 2.4%
Timothy L. Conlon........... -- -- -- -- 7,463,000 55.7% 2.1%
David M. Sindelar(6)........ -- 7,807,616 22.2% 1,240,609 9.3% 2.6%
All executive officers and
directors as a group (10
persons)(7)............... 302,658,861 99.9% 35,177,359 100.0% 13,403,370 100.0% 100.0%
</TABLE>
- ---------------
* Represents less than 1%.
(1) These figures include shares of common stock owned of record by:
- Hicks, Muse Equity Fund III, a limited partnership, of which the
ultimate general partner is Hicks, Muse, Tate & Furst Fund III,
Incorporated, an affiliate of HMTF;
- HM3 Coinvestors, L.P., a limited partnership of which the ultimate
general partner is Hicks, Muse Fund III; and
- Other stockholders who own shares of common stock subject to an
irrevocable proxy in favor of Hicks, Muse Fund III.
Thomas O. Hicks is a controlling stockholder of HMTF and serves as
Chairman of the Board, President, Chief Executive Officer, Chief Operating
Officer and Secretary of HMTF. Accordingly, Mr. Hicks may be deemed to be
the beneficial owner of common stock held by Hicks, Muse Fund III and HM3
Coinvestors, L.P. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D.
Stuart, Jr., Michael J. Levitt, and David R. Deniger are officers,
directors and minority stockholders of HMTF and as such may be deemed to
share with Mr. Hicks the power to vote or dispose of common stock held by
Hicks, Muse Fund III and HM3 Coinvestors, L.P. Each of Messrs. Hicks, Muse,
Tate, Furst, Stuart, and Levitt disclaims the existence of a group and
disclaims beneficial ownership of common stock not owned of record by him.
(2) These figures include shares of common stock, Class A Common Stock and Class
A Series II Common Stock held by James N. Mills and shares of common stock,
Class A Common Stock and Class A Series II Common Stock owned of record by
certain individuals, including Messrs. R. Mills and D. Sindelar, subject to
an irrevocable proxy in favor of Mr. J. Mills. For more information on this
proxy, see the text under the heading "Certain Relationships and Related
Transactions." These figures do not
109
<PAGE> 111
include 3,272,120 shares of common stock issuable to Mr. J. Mills upon the
exercise of Performance Options that are not currently exercisable. For more
information on these Performance Options, see the text under the heading
"Item 10. Executive Compensation -- Benefit Plans -- Performance Options."
(3) These figures include 100,000 shares of Group common stock that may be
acquired by Mr. Vieser upon the exercise of options granted to him pursuant
to a stock option agreement with Group.
(4) These figures include 200,000 shares of common stock owned of record by the
Kenneth F. Yontz 1997 Family Trust, a trust of which Mr. Yontz does not have
the power to vote or dispose of this stock. Mr. Yontz disclaims beneficial
ownership of common stock not owned of record by him. These figures include
100,000 shares of Group common stock that may be acquired by Mr. Yontz upon
the exercise of options granted to him pursuant to a stock option agreement
with Group.
(5) These figures include:
- 4,000,000 shares of Class A Common Stock held of record by the Robert
N. Mills Revocable Living Trust, a trust of which Mr. R. Mills is a
trustee having the power to vote and dispose of this stock;
- 3,090,000 shares of Class A Common Stock and 1,156,380 shares of Class
A Series II Common Stock owned of record by the Robert Mills Family
Limited Partnership, [of which Mr. R. Mills is a general partner
having the power to vote and dispose of this stock]; and
- 50,000 shares owned of record by another individual, subject to an
irrevocable proxy in favor of Mr. R. Mills.
Mr. R. Mills disclaims beneficial ownership of Class A Common Stock
not owned of record by him.
(6) These figures include:
- 200,000 shares of Class A Common Stock owned of record by two
children's trusts, of which Mr. Sindelar is a trustee having the power
to vote and dispose of this stock; and
- 7,443,331 shares of Class A Common Stock and 1,240,609 shares of Class
A Series II Common Stock owned of record by The D&S Trust #2, of which
Mr. Sindelar's brother is the sole trustee. Mr. Sindelar disclaims
beneficial ownership of Class A Common Stock not owned of record by
him.
These figures do not include 2,031,390 shares of common stock issuable
to Mr. Sindelar upon exercise of Performance Options that are not
exercisable within the next 60 days. For more information on these
Performance Options, see the text under the heading "Management -- Benefit
Plans -- Performance Options."
(7) These figures do not include 9,433,253 shares of common stock issuable to
executive officers of Group upon the exercise of Performance Options or
options issued under the Stock Option Plan, or Performance Options to be
issued in connection with the Equity Contribution, none of which are
exercisable within the next 60 day. For more information on these
Performance Options, see the text under the heading "Item 10. Executive
Compensation -- Benefit Plans -- Performance Options."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Group and its subsidiaries have entered into a ten-year agreement
monitoring and oversight agreement (the "Monitoring and Oversight Agreement")
with Hicks Muse Partners, an affiliate of Hicks Muse & Co. L.P. ("Hicks Muse
Partners"), which was amended upon consummation of the acquisition of Forward
and ISL. Under the Monitoring and Oversight Agreement, Group and its
subsidiaries are required to pay Hicks Muse Partners an annual fee payable
quarterly for oversight and monitoring services to the Company. The annual fee
is adjustable on January 1 of each calendar year to an amount equal to 0.2% of
our budgeted consolidated annual net sales for the then-current fiscal year, but
in no event less than the base fee of $1.75 million. Upon the acquisition by
Group or any of its subsidiaries of another entity or business, the fee shall be
adjusted prospectively in the same manner using our pro forma combined budgeted
consolidated annual net sales. Thomas O. Hicks and Jack D. Furst, directors of
Group and Viasystems, Inc., are each
110
<PAGE> 112
principals of Hicks Muse Partners. Hicks Muse Partners is also entitled to
reimbursement for any expenses incurred by it in connection with rendering
services allocable to the Company under the Monitoring and Oversight Agreement.
In addition, Group and its subsidiaries have agreed to indemnify Hicks Muse
Partners, its affiliates, and their respective directors, officers, controlling
persons, agents and employees from and against all claims, liabilities, losses,
damages, expenses and fees and disbursements of counsel related to or arising
out of or in connection with the services rendered by Hicks Muse Partners under
the monitoring and oversight agreement and not resulting primarily from the bad
faith, gross negligence, or willful misconduct of Hicks Muse Partners. The
Monitoring and Oversight Agreement makes available the resources of Hicks Muse
Partners concerning a variety of financial and operational matters. The Company
does not believe that the services that have been and will continue to be
provided to it by Hicks Muse Partners could otherwise be obtained by the Company
without the addition of personnel or the engagement of outside professional
advisors. In the opinion of the Company's management, the fees provided for
under the Monitoring and Oversight Agreement reasonably reflect the benefits
received and to be received by the Company and its respective subsidiaries.
Group and its subsidiaries have also entered into a ten-year financial
advisory agreement (the "Financial Advisory Agreement"), pursuant to which Hicks
Muse Partners is entitled to receive a fee equal to 1.5% of the "transaction
value" (as defined) for each "add-on transaction" (as defined) in which Group or
any of its subsidiaries is involved. In respect of acquisitions to date, Hicks
Muse has received aggregate fees of approximately $17.9 million under the
Financial Advisory Agreement. The term "transaction value" means the total value
of the add-on transaction including without limitation, the aggregate amount of
the funds required to complete the add-on transaction, excluding any fees
payable pursuant to the Financial Advisory Agreement, including the amount of
any indebtedness, preferred stock or similar terms assumed (or remaining
outstanding). The term "add-on transaction" means any future proposal for a
tender offer, acquisition, sale, merger, exchange offer, recapitalization,
restructuring or other similar transaction directly involving Group or any of
its subsidiaries or any of their respective subsidiaries and any other person or
entity. In addition, Group and its subsidiaries has agreed to indemnify Hicks
Muse Partners, its affiliates, and their respective directors, officers,
controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees related to or arising out of or
in connection with the services rendered by Hicks Muse Partners under the
Financial Advisory Agreement and not resulting primarily from the bad faith,
gross negligence, or willful misconduct of Hicks Muse Partners. The Financial
Advisory Agreement makes available the resources of Hicks Muse Partners
concerning a variety of financial and operational matters. The Company does not
believe that the services that have been and will continue to be provided by
Hicks Muse Partners could otherwise be obtained by the Company without the
addition of personnel or the engagement of outside professional advisors. In the
opinion of the Company's management, the fees provided for under the Financial
Advisory Agreement reasonably reflect the benefits received and to be received
by Group and its respective subsidiaries. No fee was paid under the financial
advisory agreement in connection with the acquisition of Chips Holdings.
Nearly all holders of all classes of common stock of Group have entered
into an amended and restated stockholders agreement. The stockholders agreement,
among other things, grants preemptive rights and certain registration rights to
the parties thereto and contains provisions requiring the parties thereto to
sell their shares of common stock in connection with certain sales of Common
Stock by Hick Muse Fund III, which are referred to as "drag-along rights," and
granting the parties thereto the right to include a portion of their shares of
common stock in certain sales in which Hicks Muse Fund III does not exercise its
drag-along rights, which are referred to as "tag-along rights". All parties to
the stockholders agreement agreed to take all action within their respective
power, including the voting of Common Stock, Class A Common Stock and Class A
Series II Common Stock, to cause the board of directors of Group to at all times
be constituted by the members designated by Hicks Muse Fund III. The
stockholders agreement contains an irrevocable proxy pursuant to which all
parties to the stockholders agreement, other than the initial holders of Class A
Common Stock, Class A Series II Common Stock and their transferees, grant to
Hicks Muse Fund III the power to vote all shares of Common Stock held by these
parties on all matters submitted to stockholders. Further, the stockholders
agreement contains an irrevocable proxy pursuant to which the initial holders of
Class A Common Stock, Class A Series II Common Stock and their transferees grant
to James N. Mills, or to Hicks
111
<PAGE> 113
Muse Fund III if Mr. Mills is no longer an officer or director of Group, the
power to vote all shares of Class A Common Stock and Class A Series II Common
Stock held by these parties on all matters submitted to stockholders. The
stockholders agreement was amended in November 1998 to provide that either James
N. Mills and David Sindelar or the beneficial owners of a majority of the
outstanding shares of Class A Common Stock and Class A Series II Common Stock
may waive preemptive rights with respect to all shares of Class A Common Stock
and Class A Series II Common Stock. The stockholders agreement terminates on its
tenth anniversary date, although the preemptive rights, drag-along rights and
tag-along rights terminate earlier upon the consummation of a firm commitment
underwritten public offering of Common Stock.
112
<PAGE> 114
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIASYSTEMS, INC.
By /s/ DAVID M. SINDELAR
-----------------------------------
David M. Sindelar
Senior Vice President and Chief
Financial Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JAMES N. MILLS Chairman of the Board of March 26, 1999
- ----------------------------------------------------- Directors and Chief Executive
James N. Mills Officer (Principal Executive
Officer)
/s/ DAVID M. SINDELAR Senior Vice President and Chief March 26, 1999
- ----------------------------------------------------- Financial Officer (Principal
David M. Sindelar Financial Officer)
/s/ ROBERT N. MILLS Co-Chairman of the Board of March 26, 1999
- ----------------------------------------------------- Directors
Robert N. Mills
/s/ TIMOTHY L. CONLON President, Chief Operating March 26, 1999
- ----------------------------------------------------- Officer and Director
Timothy L. Conlon
/s/ THOMAS O. HICKS Director March 26, 1999
- -----------------------------------------------------
Thomas O. Hicks
/s/ JACK D. FURST Director March 26, 1999
- -----------------------------------------------------
Jack D. Furst
/s/ RICHARD W. VIESER Director March 26, 1999
- -----------------------------------------------------
Richard W. Vieser
/s/ KENNETH F. YONTZ Director March 26, 1999
- -----------------------------------------------------
Kenneth F. Yontz
</TABLE>
113
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Securities Purchase Agreement, dated as of October 1,
1996, among Circo Craft Holding Company and certain
Purchasers (defined therein) (incorporated by reference
to exhibit 2.1 to the Registration Statement filed by the
Company on Form S-1 with the Commission on June 19, 1997
(the "Form S-1")).
2.2 -- Acquisition Agreement, dated as of November 26, 1996,
among Lucent Technologies Inc., Circo Technologies Group,
Inc. and Circo Craft Technologies, Inc. (incorporated by
reference to exhibit 2.2 to the Registration Statement
filed by the Company on Form S-1).
2.3 -- Agreement and Plan of Merger, dated as of April 11, 1997,
by and among Viasystems Group, Inc., HMTF Acquisition,
L.P., HMTF U.K. Acquisition Company, Hicks, Muse, Tate &
Furst Equity Fund III and HM3 Coinvesters, L.P.
(incorporated by reference to exhibit 2.3 to the
Registration Statement filed by the Company on Form S-1).
2.4 -- Agreement and Plan of Merger, dated as of June 6, 1997,
by and between Viasystems Group, Inc. and Chips Holdings,
Inc. (incorporated by reference to exhibit 2.4 to the
Registration Statement filed by the Company on Form S-1).
2.5 -- Agreement and Plan of Merger dated, as of June 6, 1997,
by and between Viasystems, Inc. and Chips Acquisition,
Inc. (incorporated by reference to exhibit 2.5 to the
Registration Statement filed by the Company on Form S-1).
2.6 -- Acquisition Agreement, dated as of January 29, 1998,
among Viasystems B.V. and Print Service Holding N.V.
(incorporated by reference to exhibit 2.6 to the annual
report filed by the Company on Form 10-K with the
Commission on March 31, 1998).
2.7 -- Sale and Purchase Agreement, dated as of February 11,
1998, between Viasystems, S.r.1., as purchaser, European
Circuits SA and individuals named therein, as sellers
(incorporated by reference to exhibit 2.7 to the annual
report filed by the Company on Form 10-K with the
Commission on March 31, 1998).
3.1 -- Certificate of Incorporation of Viasystems, Inc.
(incorporated by reference to exhibit 3.1 to the
Registration Statement filed by the Company on Form S-1).
3.2 -- Bylaws of Viasystems, Inc. (incorporated by reference to
exhibit 3.2 to the Registration Statement filed by the
Company on Form S-1).
4.1 -- Indenture, dated as of June 6, 1997, by and between
Viasystems, Inc. and The Bank of New York, as Trustee
(incorporated by reference to exhibit 4.1 to the
Registration Statement filed by the Company on Form S-1).
4.2 -- Form of the New Note (included in Exhibit 4.1, Exhibit
B).
4.3 -- Second Amended and Restated Credit Agreement dated as of
June 5, 1997 among Viasystems Group, Inc., Viasystems,
Inc., Circo Craft Co. Inc., PCB Investments Plc, Forward
Group Plc, Chips Acquisition Limited and Interconnection
Systems (Holdings) Limited; and The Chase Manhattan Bank
of Canada, Chase Manhattan International Limited and The
Chase Manhattan Bank (incorporated by reference to
exhibit 4.4 to the Registration Statement filed by the
Company on Form S-1).
4.4 -- Amended and Restated Guarantee and Collateral Agreement,
dated as of April 11, 1997 (incorporated by reference to
exhibit 4.5 to the Registration Statement filed by the
Company on Form S-1).
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5 -- Supplement to Guarantee and Collateral Agreement, dated
as of June 5, 1997 (incorporated by reference to exhibit
4.6 to the Registration Statement filed by the Company on
Form S-1).
4.6 -- Indenture, dated as of February 17, 1998, by and between
Viasystems, Inc. and the Bank of New York, as Trustee
(incorporated by reference to exhibit 4.7 to the annual
report filed by the Company on Form 10-K with the
Commission on March 31, 1998).
4.7 -- Form of Exchange Note (included in Exhibit 4.8, Exhibit
B).
4.8 -- First Amendment, dated as of August 29, 1997, to the
Second Amended and Restated Credit Agreement, dated as of
June 5, 1997, among Viasystems Group, Inc., Viasystems,
Inc., Circo Craft Co. Inc., PCB Investments Plc, Forward
Group Plc, Chips Acquisition Limited and Interconnection
Systems (Holdings) Limited; and The Chase Manhattan Bank
of Canada, Chase Manhattan International Limited and The
Chase Manhattan Bank (incorporated by reference to
exhibit 4.10 to the annual report filed by the Company on
Form 10-K with the Commission on March 31, 1998).
4.9 -- Second Amendment, dated as of February 3, 1998, to the
Second Amended and Restated Credit Agreement, dated as of
June 5, 1997 among Viasystems Group, Inc., Viasystems,
Inc., Circo Craft Co. Inc., PCB Investments Plc, Forward
Group Plc, Chips Acquisition Limited and Interconnection
Systems (Holdings) Limited; and The Chase Manhattan Bank
of Canada, Chase Manhattan International Limited and The
Chase Manhattan Bank (incorporated by reference to
exhibit 4.11 to the annual report filed by the Company on
Form 10-K with the Commission on March 31, 1998).
4.10 -- Third Amendment, dated as of November 30, 1998, to the
Second and Amended Restated Credit Agreement, dated as of
June 5, 1997 among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Canada (f/k/a Circo Craft Co. Inc.), PCB
Investments Plc, Viasystems Holdings Limited (f/k/a
Forward Group Plc), Chips Acquisition Limited, Print
Service Holding N.V., Viasystems II Limited (f/k/a
Interconnection Systems (Holdings) Limited); and The
Chase Manhattan Bank of Canada, Chase Manhattan
International Limited and The Chase Manhattan Bank.*
10.1 -- Supply Agreement dated as of November 26, 1996, by and
between Lucent Technologies Inc. and Circa Craft
Technologies, Inc. (confidential Treatment was granted
with respect to certain portions of this exhibit)
(incorporated by reference to exhibit 10.1 to Amendment
No. 2 to Form S-1 filed with the Commission on September
16, 1997 (the "Amendment No. 2 to Form S-1").
10.3 -- Amended and Restated Viasystems Group, Inc. 1997 Stock
Option Plan (incorporated by reference to exhibit 10.3 to
the Registration Statement filed by the Company on Form
S-1).
10.4 -- Amended and Restated Stock Option Agreement dated, as of
November 26, 1996 between Circo Technologies Group, Inc.,
formerly Circo Craft Holding Company and James N. Mills
(incorporated by reference to exhibit 10.4 to Amendment
No. 1 to the Form S-1 filed with the Commission on July
31, 1997 ("Amendment No. 1 to Form S-1")).
10.5 -- Amended and Restated Stock Option Agreement dated, as of
November 26, 1996 between Circo Technologies Group, Inc.,
formerly Circo Craft Holding Company and David M.
Sindelar (incorporated by reference to exhibit 10.5 to
Amendment No. 1 to the Form S-1).
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 -- Amended and Restated Stock Option Agreement, dated as of
November 26, 1996 between Circo Technologies Group, Inc.,
formerly Circo Craft Holding Company and Larry S. Bacon
(incorporated by reference to exhibit 10.6 to Amendment
No. 1 to the Form S-1).
10.7 -- Amended and Restated Stock Option Agreement, dated as of
November 26, 1996 between Circo Technologies Group, Inc.,
formerly Circo Craft Holding Company and W. Thomas McGhee
(incorporated by reference to exhibit 10.7 to Amendment
No. 1 to the Form S-1).
10.8 -- Stock Option Agreement, dated as of June 6, 1997 between
Viasystems Group, Inc. and James N. Mills (incorporated
by reference to exhibit 10.8 to Amendment No. 1 to the
Form S-1).
10.9 -- Stock Option Agreement, dated as of June 6, 1997 between
Viasystems Group, Inc. and David M. Sindelar
(incorporated by reference to exhibit 10.9 to Amendment
No. 1 to the Form S-1).
10.10 -- Viasystems Group, Inc. Stock Option Agreement, dated as
of February 4, 1997, with Richard W. Vieser (incorporated
by reference to exhibit 10.12 to Amendment No. 1 to the
Form S-1).
10.11 -- Viasystems Group, Inc. Stock Option Agreement, dated as
of February 4, 1997, with Kenneth F. Yontz (incorporated
by reference to exhibit 10.13 to Amendment No. 1 to the
Form S-1).
10.12 -- Third Amended and Restated Monitoring and Oversight
Agreement, dated as of June 6, 1997, among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp., Circo Craft Co. Inc., Viasystems International,
Inc., PCB Acquisition Limited, PCB Investments PLC, Chips
Acquisition Limited and Hicks, Muse & Co. Partners, L.P.
(incorporated by reference to exhibit 10.14 to Amendment
No. 1 to the Form S-1).
10.13 -- Third Amended and Restated Financial Advisory Agreement,
dated as of June 6, 1997, among Viasystems Group, Inc.,
Viasystems, Inc., Viasystems Technologies Corp., Circo
Craft Co. Inc., Viasystems International, Inc., PCB
Acquisition Limited, PCB Investments PLC, Chips
Acquisition Limited and Hicks, Muse & Co. Partners, L.P.
(incorporated by reference to exhibit 10.15 to Amendment
No. 1 to the Form S-1).
10.14 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Circo Technologies Group, Inc., Circo
Craft Technologies, Inc. and James N. Mills (incorporated
by reference to exhibit 10.18 to Amendment No. 1 to the
Form S-1).
10.15 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Circo Technologies Group, Inc., Circo
Craft Technologies, Inc. and David M. Sindelar
(incorporated by reference to exhibit 10.19 to Amendment
No. 1 to the Form S-1).
10.16 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Circo Technologies Group, Inc., Circo
Craft Technologies, Inc. and Robert N. Mills
(incorporated by reference to exhibit 10.20 to Amendment
No. 1 to the Form S-1).
10.17 -- Agreement, dated as of December 30, 1996, between Circo
Craft Technologies, Inc. and the Communication Workers of
America (incorporated by reference to exhibit 10.24 to
Amendment No. 1 to the Form S-1).
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- Environmental, Health and Safety Agreement, dated as of
November 26, 1996, between Lucent Technologies and Circo
Craft Technologies, Inc. (incorporated by reference to
exhibit 10.25 to the Registration Statement filed by the
Company on Form S-1).
10.19 -- Executive Employment Agreement, dated as of October 16,
1998, by and among Viasystems Group, Inc., Viasystems,
Inc. and Viasystems Technologies Corp. and Timothy L.
Conlon.*
21.1 -- Subsidiaries of Viasystems, Inc.*
27.1 -- Financial Data Schedule.*
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.10
THIRD AMENDMENT
THIRD AMENDMENT, dated as of November 10, 1998 (this
"Amendment"), to the Second Amended and Restated Credit Agreement, dated as of
June 5, 1997 (as the same may be further amended, amended and restated,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among Viasystems Group, Inc., a Delaware corporation ("Holdings"), Viasystems,
Inc., a Delaware corporation (the "US Borrower"), Viasystems Canada, Inc. (f/k/a
Circo Craft Co. Inc.), a Quebec corporation (the "Canadian Borrower"), PCB
Investments plc, a corporation organized under the laws of England and Wales
("English Bidco"), Viasystems Holdings Limited (f/k/a Forward Group Plc), a
corporation organized under the laws of England and Wales (the "English
Borrower"), Chips Acquisition Limited, a private limited company organized under
the laws of England and Wales ("Chips Limited"), Print Service Holding N.V.
(APrint Service@), Viasystems II Limited (f/k/a Interconnection Systems
(Holdings) Limited), a private limited company organized under the laws of
England and Wales ("ISL" and together with the Canadian Borrower, English Bidco,
the English Borrower, Chips Limited, Print Service and any Future Foreign
Subsidiary Borrower, the "Foreign Subsidiary Borrowers"), the several banks and
other financial institutions from time to time parties to thereto (the
"Lenders"), The Chase Manhattan Bank of Canada ("Chase Canada"), as
administrative agent for the Canadian Lenders (in such capacity, the "Canadian
Agent"), Chase Manhattan International Limited, as administrative agent for the
English Lenders (in such capacity, the "English Agent"), any Future Foreign
Agent which may from time to time be appointed thereunder and The Chase
Manhattan Bank ("Chase"), as administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans and other extensions of credit to
the Borrowers; and
WHEREAS, the Borrowers have requested, and upon the
effectiveness of this Amendment, the Lenders have agreed, that certain
provisions of the Credit Agreement be amended or waived upon the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms. Terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement. Unless otherwise indicated, all Section and subsection references are
to the Credit Agreement.
<PAGE> 2
2
SECTION 2. Amendment to Subsection 2.9. Subsection 2.9 of the
Credit Agreement is hereby amended by inserting immediately before the first
proviso thereof the following:
"(or, in the case of any optional prepayments made pursuant
to subsection 8.2(q) only, to reduce the then remaining installments of
such Term Loans in direct order of maturity);@ . SECTION 3. Amendment
to Subsection 8.1(a). Subsection 8.1(a) of the Credit Agreement is
hereby amended by deleting the portion of the table appearing therein
beginning with the first quarter indicated below in its entirety and
substituting in lieu thereof the following table:
<TABLE>
<CAPTION>
Calendar Quarter Interest Coverage Ratio
---------------- -----------------------
<S> <C> <C> <C> <C>
1998 4th 2.00 to 1.00
1999 1st 1.90 to 1.00
2nd 1.90 to 1.00
3rd 1.90 to 1.00
4th 2.00 to 1.00
2000 1st 2.00 to 1.00
2nd 2.00 to 1.00
3rd 2.00 to 1.00
4th 2.25 to 1.00
2001 1st 2.25 to 1.00
2nd 2.25 to 1.00
3rd 2.25 to 1.00
4th 2.50 to 1.00
2002 1st 2.50 to 1.00
2nd 2.50 to 1.00
3rd 2.50 to 1.00
4th 2.75 to 1.00
2003 1st 2.75 to 1.00
2nd 2.75 to 1.00
3rd 2.75 to 1.00
4th 3.00 to 1.00
</TABLE>
<PAGE> 3
3
<TABLE>
<CAPTION>
Calendar Quarter Interest Coverage Ratio
---------------- -----------------------
<S> <C> <C> <C> <C>
2004 1st 3.00 to 1.00
2nd 3.00 to 1.00
3rd 3.00 to 1.00
4th 3.00 to 1.00
</TABLE>
SECTION 4. Amendment of Subsection 8.1(b). Subsection 8.1(b)
is hereby amended by deleting the portion of the table appearing therein
beginning with the first quarter indicated below in its entirety and
substituting in lieu thereof the following table:
<TABLE>
<CAPTION>
Calendar Quarter Amount
---------------- ------------
<S> <C>
1998 4th 191,000,000
1999 1st 191,000,000
2nd 191,000,000
3rd 191,000,000
4th 200,000,000
2000 1st 200,000,000
2nd 200,000,000
3rd 200,000,000
4th 215,000,000
2001 1st 215,000,000
2nd 215,000,000
3rd 215,000,000
4th 230,000,000
2002 1st 230,000,000
2nd 230,000,000
3rd 230,000,000
4th 250,000,000
2003 1st 250,000,000
2nd 250,000,000
3rd 250,000,000
4th 275,000,000
</TABLE>
<PAGE> 4
4
<TABLE>
<CAPTION>
Calendar Quarter Amount
---------------- ------------
<S> <C> <C>
2004 1st 275,000,000
2nd 275,000,000
3rd 275,000,000
4th 300,000,000
</TABLE>
SECTION 5. Amendment of Subsection 8.1(c). Subsection 8.1(c) is hereby
amended by deleting the portion of the table appearing therein beginning with
the first quarter and ending with the last quarter indicated below and
substituting in lieu thereof the following portion of such table:
<TABLE>
<CAPTION>
Calendar Quarter Ratio
---------------- -----------
<S> <C> <C>
1999 1st 5.60 to 1.00
2nd 5.60 to 1.00
3rd 5.60 to 1.00
4th 5.60 to 1.00
2000 1st 5.60 to 1.00
2nd 5.40 to 1.00
3rd 5.20 to 1.00
4th 5.00 to 1.00
2001 1st 5.00 to 1.00
2nd 4.80 to 1.00
3rd 4.60 to 1.00
4th 4.50 to 1.00
</TABLE>
SECTION 6. Amendment of Subsection 8.2(q). Subsection 8.2 of the
Credit Agreement is hereby amended by deleting clause (q) therefrom in its
entirety and substituting in lieu thereof the following:
"(q) unsecured Senior Subordinated Indebtedness of
the US Borrower not to exceed $650,000,000 so long as any Net
Cash Proceeds of such Senior Subordinated Indebtedness in
excess of $500,000,000 are immediately used to make a
prepayment of the Term Loans in accordance with subsection
2.9".
SECTION 7. Representations and Warranties. After giving
affect to this Amendment, Holdings and the US Borrower (and each Foreign
Subsidiary Borrower, only as to itself, and its Subsidiaries) hereby confirm,
reaffirm and restate the representations and warranties set forth in Section 5
of the Credit Agreement as if made on and as of the date hereof except for
<PAGE> 5
5
any representation or warranty made as of the earlier date, which representation
or warranty shall have been true and correct in all material respects as of such
earlier date.
SECTION 8. Conditions to Effectiveness. This Amendment shall
become effective upon receipt by the Administrative Agent by no later than
November 24, 1998 of:
(a) Amendment. Counterparts of this Amendment, duly executed
and delivered by Holdings, the US Borrower, the Foreign Subsidiary
Borrowers and the Required Lenders; and
(b) Fees. Such amendment fees as shall have been agreed to by
Holdings, the US Borrower, Chase and CSI shall have been paid to the
Lenders approving this Amendment.
SECTION 9. Continuing Effect of Credit Agreement. Except as
expressly amended herein, the Credit Agreement shall continue to be, and shall
remain, in full force and effect in accordance with its terms.
SECTION 10. Governing Law; Counterparts. THIS AMENDMENT AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
This Amendment may be executed by the parties hereto in any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. The execution and delivery of this
Amendment by any Lender shall be binding upon each of its successors and assigns
(including Transferees of its commitments and Loans in whole or in part prior to
effectiveness hereof) and binding in respect of all of its commitments and
Loans, including any acquired subsequent to its execution and delivery hereof
and prior to the effectiveness hereof.
<PAGE> 6
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective proper and duly authorized officers
as of the day and year first above written.
VIASYSTEMS GROUP, INC.,
as Guarantor
By:
-------------------------------------
Title:
BORROWERS
VIASYSTEMS, INC.,
as US Borrower
By:
-------------------------------------
Title:
VIASYSTEMS CANADA, INC.,
as Canadian Borrower
By:
-------------------------------------
Title:
PCB INVESTMENTS PLC,
as English Bidco
By:
-------------------------------------
Title:
VIASYSTEMS HOLDING LIMITED,
as English Borrower
By:
-------------------------------------
Title:
<PAGE> 7
7
CHIPS ACQUISITION LIMITED,
as a Foreign Subsidiary Borrower
By:
-------------------------------------
Title:
PRINT SERVICE HOLDING N.V.,
as a Foreign Subsidiary Borrower
By:
-------------------------------------
Title:
VIASYSTEMS II LIMITED,
as a Foreign Subsidiary Borrower
By:
-------------------------------------
Title:
AGENTS
THE CHASE MANHATTAN BANK,
as Administrative Agent and Collateral
Agent, and as a Lender
By:
-------------------------------------
Title:
THE CHASE MANHATTAN BANK
OF CANADA, as Canadian Agent,
and as a Canadian Lender
By:
-------------------------------------
Title:
CHASE MANHATTAN
INTERNATIONAL LIMITED,
as English Agent
By:
-------------------------------------
Title:
<PAGE> 8
8
CHASE MANHATTAN BANK
DELAWARE, as a US Issuing Lender
By:
-------------------------------------
Title:
US LENDERS
ABN AMRO BANK N.V.
By:
-------------------------------------
Its:
------------------------------------
By:
-------------------------------------
Its:
------------------------------------
ALLSTATE LIFE INSURANCE
COMPANY
By:
-------------------------------------
Name:
Title:
ALLSTATE INSURANCE COMPANY
By:
-------------------------------------
Name:
Title:
AMARA-1 FINANCE LTD.
By:
-------------------------------------
Name:
Title:
AMARA-2 FINANCE LTD.
By:
-------------------------------------
Name:
Title:
<PAGE> 9
9
ARAB BANKING CORPORATION (B.S.C.)
By:
-------------------------------------
Name:
Title:
BANK OF MONTREAL
By:
-------------------------------------
Title:
THE BANK OF NEW YORK
By:
-------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.,
NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
By:
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------------------
Name:
Title:
<PAGE> 10
10
BANKERS TRUST
By:
-------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS, NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
BHF BANK AKTIENGESELLSCHAFT
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
BALANCED HIGH-YIELD FUND I LIMITED
BY: BHF BANK AKTIENGESELLSCHAFT,
acting through its New York branch as
attorney-in-fact
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE> 11
11
CIBC INC.
By:
-------------------------------------
Name:
Title:
CITIBANK, N.A.
By:
-------------------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By:
-------------------------------------
Name:
Title:
THE FUJI BANK LIMITED,
NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS
By:
-------------------------------------
Name:
Title:
<PAGE> 12
12
INDOSUEZ CAPITAL FUNDING III
By:
-------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF
JAPAN, LIMITED
By:
-------------------------------------
Name:
Title:
KZH SOLEIL LLC
(formerly known as KZH Holding
Corporation)
By:
-------------------------------------
Name:
Title:
KZH CRESCENT-3 LLC
By:
-------------------------------------
Name:
Title:
KZH PAMCO LLC
By:
-------------------------------------
Name:
Title:
KZH SHENKMAN LLC
By:
-------------------------------------
Name:
Title:
<PAGE> 13
13
KZH-CRESCENT-2 LLC
By:
-------------------------------------
Name:
Title:
KZH ING-3 LLC
By:
-------------------------------------
Name:
Title:
KZH SOLEIL-2 LLC
By:
-------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED
By:
-------------------------------------
Name:
Title:
THE MITSUBISHI TRUST &
BANKING CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE> 14
14
NATEXIS BANQUE BFCE, FORMERLY
BANQUE FRANCAISE DU
COMMERCE EXTERIEUR
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
NATIONAL WESTMINSTER
BANK Plc
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
ORIX USA CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE> 15
15
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By:
-------------------------------------
Name:
Title:
OCTAGON CREDIT INVESTORS
LOAN PORTFOLIO, FORMERLY
CHL HIGH YIELD LOAN PORTFOLIO
(a unit of THE CHASE MANHATTAN
BANK)
By:
-------------------------------------
Name:
Title:
PAMCO CAYMAN LTD.
By: Highland Capital Management L.P.,
as Collateral Manager
By:
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By:
-------------------------------------
Name:
Title:
THE SAKURA BANK, LIMITED
By:
-------------------------------------
Name:
Title:
<PAGE> 16
16
SENIOR DEBT PORTFOLIO
By: Eaton Vance Management,
as Investment Advisor
By:
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
-------------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
-------------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
By:
-------------------------------------
Name:
Title:
<PAGE> 17
17
CANADIAN LENDERS
BANK OF MONTREAL
By:
-------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI
(CANADA)
By:
-------------------------------------
Name:
Title:
BT BANK OF CANADA
By:
-------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS (CANADA)
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By:
-------------------------------------
Name:
Title:
<PAGE> 18
18
CITIBANK CANADA
By:
-------------------------------------
Name:
Title:
FIRST CHICAGO NBD BANK, CANADA
By:
-------------------------------------
Name:
Title:
FUJI BANK CANADA
By:
-------------------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By:
-------------------------------------
Name:
Title:
THE SAKURA BANK (CANADA)
By:
-------------------------------------
Name:
Title:
<PAGE> 19
19
ENGLISH LENDERS
THE CHASE MANHATTAN BANK,
By:
-------------------------------------
Title:
BHF BANK AKTIENGESELLSCHAFT
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
BALANCED HIGH-YIELD FUND I LIMITED
BY: BHF BANK AKTIENGESELLSCHAFT,
acting through its New York branch as
attorney-in-fact
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
BANK OF MONTREAL
By:
-------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name:
Title:
<PAGE> 20
20
BANQUE NATIONALE DE PARIS. LONDON BRANCH
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
CIBC WOOD GUNDY PLC
By:
-------------------------------------
Name:
Title:
CITIBANK, N.A.
By:
-------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK
OF BOSTON
By:
-------------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, FORMERLY BANQUE FRANCAISE
DU COMMERCE EXTERIEUR
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE> 21
21
NATIONAL WESTMINSTER
BANK Plc
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By:
-------------------------------------
Name:
Title:
SAKURA BANK, LIMITED LONDON BRANCH
By:
-------------------------------------
Name:
Title:
<PAGE> 22
22
DEEPROCK & CO.
By: Eaton Vance Management, as Investment
Advisor
By:
-------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
This agreement is made and entered into as of the 16th day of October,
1998 by and among Viasystems Group, Inc. ("Corporation"), Viasystems, Inc.
("Viasystems") and Viasystems Technologies Corp. ("Technologies"); (Corporation,
Viasystems and Technologies collectively called "Employer"), and Timothy L.
Conlon ("Employee").
W I T N E S S E T H :
WHEREAS, Employer desires to engage the service of Employee as an
employee of the Employer upon the terms set forth herein; and,
WHEREAS, Employee desires to be employed by Employer and to
appropriately memorialize the terms and conditions of such employment;
NOW, THEREFORE, Employee and Employer, in consideration of the
agreements, covenants and conditions herein contained, hereby agree as follows:
1. BASIC EMPLOYMENT PROVISIONS.
(a) Employment and Term. Employer hereby agrees to employ Employee
(hereinafter referred to as the "Employment") as the President and Chief
Operating Officer of the Corporation (the "Position"), and Employee agrees to
be employed by Employer in such Position, for a period ending on December 31,
2001, unless terminated earlier as provided herein (the "Employment Period").
In the event that termination (as hereinafter provided) has not occurred prior
to the last day of the Employment Period, unless either party shall have given
written notice to the contrary at least ninety (90) days prior to the end of
the Employment Period, the Employment Period shall annually renew for one (1)
year periods until terminated.
(b) Duties. Employee in the Position shall be subject to the direction
and supervision of the Chairman of the Board of Directors of the Corporation or
his designee (the "Chairman") and shall have those duties and responsibilities
which are assigned to Employee during the Employment Period by the Chairman
consistent with the Position, provided that the Chairman shall not assign any
greater duties or responsibilities to the Employee than are necessary to the
Employee's faithful and adequate supervision of the operations of the
Corporation and its subsidiaries, both direct and indirect. Employee agrees to
perform faithfully the duties assigned to Employee to the best of Employee's
ability.
2. COMPENSATION.
(a) Salary. Employer shall pay to Employee during the Employment
Period a salary as basic compensation for the services to be rendered by
Employee hereunder. The initial amount of such salary shall be Four Hundred
Twenty-five Thousand Dollars ($425,000) per annum. Such salary shall be
reviewed by the Chairman and may be increased in the Chairman's sole discretion
but may
<PAGE> 2
not be reduced. Such salary shall accrue and be payable in accordance
with the payroll practices of Employer in effect from time to time. All such
payments shall be subject to deduction and withholding authorized by Employee
or required by applicable law.
(b) Bonus. During the Employment Period, Employee shall be eligible to
receive an annual bonus (payable by the Employer) in an amount in accordance
with the Senior Executive Incentive Compensation Plan or any new plan adopted
by Employer applicable to other senior executives.
(c) Benefits. During the Employment Period, Employee shall be entitled
to such other benefits as are customarily accorded the executives of Employer,
including without limitation, group life, hospitalization and other insurance,
vacation pay, reimbursement for the cost of state and federal income tax
preparation by the Employer's consulting tax accountant and lunch in the
executive dining room at Employer's cost.
(d) Medical Benefits. During the lifetime of Employee and/or
Employee's surviving spouse, in the event the Employment Period has terminated
for any reason, Employer shall provide health coverage at least equal to and on
the same terms as the health coverage granted to other executives of Employer
at no cost to Employee or to Employee's surviving spouse. Employee shall be
enrolled in the Executive Medical Supplement Plan, so long as other executives
are enrolled in such plan. In addition, Employer shall provide an annual
executive physical to Employee at Employer's expense.
(e) Club Dues. During the Employment Period, Employer will reimburse
Employee for the cost of joining and remaining a member of a country club
reasonably acceptable to Employer, excluding personal charges at such country
club, and for the dues and fees for the Saint Louis Club.
3. TERMINATION.
(a) Death or Disability. This Agreement shall terminate automatically
upon the death or total disability of Employee. For the purpose of this
Agreement "total disability" shall be deemed to have occurred if Employee shall
have been unable to perform the Employee's duties of the Position due to mental
or physical incapacity for a period of six (6) consecutive months or for any
one hundred (100) working days out of a twelve (12) consecutive month period.
(b) Cause. Employer may terminate the employment of Employee under
this Agreement for Cause. For the purpose of this Agreement, "Cause" shall be
deemed to be fraud, dishonesty, competition with Employer, unauthorized use of
any of Employer's trade secrets or confidential information or failure to
properly perform the duties assigned to Employee, in the reasonable judgment of
Employer.
(c) Without Cause. Employer may terminate the employment of Employee
under this Agreement without Cause, subject to the continuing rights of
Employee pursuant to Section 4(c) below.
-2-
<PAGE> 3
4. COMPENSATION UPON TERMINATION.
(a) Death or Disability. If the Employment Period is terminated
pursuant to the provisions of Section 3(a) above, this Agreement shall
terminate, and no further compensation shall be payable to Employee except that
Employee or Employee's estate, heirs or beneficiaries, as applicable, shall be
entitled, in addition to any other benefits specifically provided to them or
Employee under any benefit plan, to receive Employee's then current salary for
a period of eighteen (18) months from the date the Employment Period terminates
and Employee and/or Employee's surviving spouse shall continue to receive the
medical benefits provided in Section 2(d).
(b) Termination for Cause or Voluntary Termination by Employee. If the
employment of Employee under this Agreement is terminated for Cause or if
Employee voluntarily terminates his employment, no further compensation shall
be paid to Employee after the date of termination but Employee and Employee's
surviving spouse shall be entitled medical benefits provided in Section 2(d)
above.
(c) Termination Without Cause. If the employment of Employee under
this Agreement is terminated pursuant to Section 3(c) above, Employee shall be
entitled to continue to receive from Employer Employee's then current salary
hereunder [which shall not be less than the amount specified in the second
sentence of Section 2(a) above] for the remainder of the Employment Period or
for one (1) year, whichever is longer, such amount to continue to be paid in
accordance with the payroll practices of Employer through the Employment
Period, and shall further be entitled to continue to receive the benefits to
which Employee and Employee's surviving spouse would otherwise be entitled
pursuant to Sections 2(c) and 2(d) above and reimbursement for expenses
incurred by Employee to own and maintain an automobile as contemplated by
Section 5 below.
5. EXPENSE REIMBURSEMENT. Upon submission of properly documented expense
account reports, Employer shall reimburse Employee for all reasonable travel
and entertainment expenses incurred by Employee in the course of his employment
with Employer. Employer shall pay Employee an auto allowance in an amount
sufficient so that, after the effect of federal and state income taxes,
Employee shall net One Thousand Dollars ($1,000.00) per month.
6. ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto except that this Agreement and all of the provisions hereof may
be assigned by Employer to any successor to all or substantially all of their
assets (by merger or otherwise) and may otherwise be assigned upon the prior
written consent of Employee.
7. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. During the Employment Period or at any time
thereafter, irrespective of the time, manner or cause of the termination of
this Agreement, Employee will not directly or indirectly reveal, divulge,
disclose or communicate to any person or entity, other than authorized
officers, directors and employees of the Employer, in any manner whatsoever,
any Confidential
-3-
<PAGE> 4
Information (as hereinafter defined) of Employer without the prior written
consent of the Chief Executive Officer.
(b) Definition. As used herein, "Confidential Information" means
information disclosed to or known by Employee as a direct or indirect
consequence of or through the Employment about Employer, or its respective
businesses, products and practices which information is not generally known in
the business in which Employer is or may be engaged. However, Confidential
Information shall not include under any circumstances any information with
respect to the foregoing matters which is (i) available to the public from a
source other than Employee, (ii) released in writing by Employer to the public
or to persons who are not under a similar obligation of confidentiality to
Employer and who are not parties to this Agreement, (iii) obtained by Employee
from a third party not under a similar obligation of confidentiality to
Employer, (iv) required to be disclosed by any court process or any government
or agency or department of any government, or (v) the subject of a written
waiver executed by either Employer for the benefit of Employee.
(c) Return of Property. Upon termination of the Employment, Employee
will surrender to Employer all recorded Confidential Information whether in
hard copy or electronically stored, including without limitation, all lists,
charts, schedules, reports, financial statements, books and records of the
Employer, and all copies thereof, and all other property belonging to the
Employer but Employee shall be accorded reasonable access to such Confidential
Information subsequent to the Employment Period for any proper purpose as
determined in the reasonable judgment of Employer.
8. AGREEMENT NOT TO COMPETE.
(a) Termination for Cause or Voluntary Termination. In the event that
the Employee is terminated for Cause or voluntarily terminates his employment
with Employer prior to the expiration of the term of this Agreement, Employee
hereby agrees that for a period of one (1) year following such termination,
neither he nor any affiliate shall, either in his own behalf or as a partner,
officer, director, employee, agent or shareholder [other than as the holder of
less than 5% of the outstanding capital stock of any corporation with a class
of equity security registered under Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934, as amended] engage in, invest in or render
services to any person or entity engaged in the businesses in which Employer is
then engaged and situated within the United States of America. Nothing
contained in this Section 8(a) shall be construed as restricting the Employee's
right to sell or otherwise dispose of any business or investments owned or
operated by Employee as of the date hereof.
(b) Termination Without Cause or For Disability. In the event that the
employment of Employee is terminated by Employer without Cause or as a result
of the total disability of Employee, Employee hereby agrees that during the
period that Employee accepts payments from the Employer pursuant to Section
4(a) or Section 4(c) above, as applicable, but not including medical benefits
pursuant to Section 2(d), neither Employee nor any affiliate shall, either in
Employee's own behalf or as a partner, officer, director, employee, agent or
shareholder [other than as the holder of less that 5% of the outstanding
capital stock of any corporation with a class of equity security registered
under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, as
amended] engage in, invest in or render services to any person or entity
engaged in the businesses in which Employer or any
-4-
<PAGE> 5
subsidiary of Employers is then engaged and situated within the United States of
America. Nothing contained in this Section 8(b) shall be construed as
restricting the Employee's right to sell or otherwise dispose of any business or
investments owned or operated by Employee as of the date hereof. In the event of
Employee's violation of the provisions of Section 8(b), the right of Employee to
receive any further payment pursuant to Sections 4(a) or 4(c) above, as
applicable, but not as to medical benefits pursuant to Section 2(d), shall
immediately terminate and the Employer shall be entitled to secure reimbursement
from Employee for all payments made to Employee under Section 4(a) or 4(c)
subsequent to the date of any such violation. The parties hereto hereby
acknowledge and agree that the provisions of the immediately preceding sentence
shall be the sole and exclusive remedy of the Employer in respect of any
violation of this Section 8(b).
9. AGREEMENT NOT TO SOLICIT EMPLOYEES. Employee agrees that, for a period of
three (3) years following the termination of the Employment Period, neither
Employee nor any affiliate shall, on behalf of any business engaged in a
business competitive with Employer, solicit or induce, or in any manner attempt
to solicit or induce, any person employed by, or any agent of, Employer to
terminate Employee's employment or agency, as the case may be, with Employer.
10. NO VIOLATION. Employee hereby represents and warrants to Employer that
neither the execution, delivery and performance of this Agreement or the
passage of time, nor both, will conflict with, result in a default, right to
accelerate or loss of rights under any provision of any agreement or
understanding to which the Employee or, to the best knowledge of Employee, any
of Employee's affiliates are a party or by which Employee, or to the best
knowledge of Employee, Employee's affiliates may be bound or affected.
11. CAPTIONS. The captions, headings and arrangements used in this Agreement
are for convenience only and do not in any way affect, limit or amplify the
provisions hereof.
12. NOTICES. All notices required or permitted to be given hereunder shall be
in writing and shall be deemed delivered, whether or not actually received, two
days after deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, addressed to the party to whom notice
is being given at the specified address or at such other address as such party
may designate by notice:
Employer: Viasystems Group, Inc.
101 South Hanley Road
St. Louis, Missouri 63105
Attn: Chairman
Employee: Timothy L. Conlon
12720 Topping Acres Drive
St. Louis, Missouri 63131
13. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provisions
shall be fully severable, and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision had
-5-
<PAGE> 6
never comprised a part of this Agreement; the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance of this
Agreement. In lieu of each such illegal, invalid or unenforceable provision,
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
14. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings, if any, relating to the subject matter
hereof. This Agreement may be amended in whole or in part only by an instrument
in writing setting forth the particulars of such amendment and duly executed by
an officer of Employer expressly authorized by the Chairman to do so and by
Employee.
15. WAIVER. No delay or omission by any party hereto to exercise any right or
power hereunder shall impair such right or power or be construed as a waiver
thereof. A waiver by any of the parties hereto of any of the covenants to be
performed by any other party or any breach thereof shall not be construed to be
a waiver of any succeeding breach thereof or of any other covenant herein
contained. Except as otherwise expressly set forth herein, all remedies
provided for in this Agreement shall be cumulative and in addition to and not
in lieu of any other remedies available to any party at law, in equity or
otherwise.
16. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each
of which shall constitute an original, and all of which together shall
constitute one and the same agreement.
17. GOVERNING LAW. This Agreement shall be construed and enforced according to
the laws of the State of Missouri.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
EMPLOYER: EMPLOYEE:
VIASYSTEMS GROUP, INC.
By:
------------------------------------ -----------------------------------
David M. Sindelar, Timothy L. Conlon
Senior Vice President
VIASYSTEMS, INC.
By:
------------------------------------
David M. Sindelar,
Senior Vice President
VIASYSTEMS TECHNOLOGIES CORP.
By:
------------------------------------
David M. Sindelar,
Senior Vice President
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF VIASYSTEM, INC.
<TABLE>
<CAPTION>
Entity Jurisdiction
- ------ ------------
<S> <C> <C> <C> <C>
Viasystems Technologies Corp., L.L.C. Delaware
Espana Viasystems Technologies, S.A. Spain
Viasystems International, Inc. Delaware
Viasystems Technologies Corp. Delaware
Viasystems ULC Nova Scotia
Viasystems Partners Ltd. Ontario
Viasystems Partnership Ontario
Viasystems International (Cayman Islands) Ltd. Cayman Islands
Viasystems Luxembourg Sarl Luxembourg
Viasystems NRO Ontario
Viasystems Canada, Inc. Quebec
Viasystems Puerto Rico Inc. Puerto Rico
Viasystems Solutions Inc. Canada
Viasystems Group Limited England/Wales
Chips Acquisition Limited England/Wales
Viasystems II Limited England/Wales
Viasystems Tyneside Limited England/Wales
Interconnection Systems Sales Ltd. England/Wales
PCB Investments Plc. England/Wales
Interconnection Systems Limited England/Wales
Viasystems Holding Limited England/Wales
Viasystems Tamworth Ltd. England/Wales
TDS Circuits PLC England/Wales
Forward Circuits (Advanced Products) Ltd. England/Wales
Forward Circuits II Limited England/Wales
Viasystems Trading Limited England/Wales
Viasystems Technograph Ltd. England/Wales
Forward Microcircuits Ltd. England/Wales
Exacta Circuits Limited England/Wales
Circuit Bureau Limited England/Wales
Covecourt Ltd. England/Wales
Forward Circuits Limited England/Wales
Powertracks Designs Limited England/Wales
TI Technologies (PTY) Ltd. South Africa
Swift International (PTY) Ltd. South Africa
Viasystems Manchester Limited England/Wales
Broadearly Ltd. England/Wales
Interconnection Systems Holdings Limited England/Wales
Flexible Circuits Limited England/Wales
Fourlayer Limited England/Wales
Forward Lamination Ltd. England/Wales
Viasystems Selkirk Limited Scotland
Viasystems France (SARL) France
Viasystems International Ltd. England/Wales
Viasystems BV Netherlands
Viasystems Sweden AB Sweden
WFOE China
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Entity Jurisdiction
- ------ ------------
<S> <C>
Print Service Holding NV Netherlands
Mommers Print Service BV Netherlands
Alex Cars BV Netherlands
Mommers Vastgoed BV Netherlands
Momm BV Netherlands
Masthoff BV Netherlands
European Semiconductors Assembly IIV Netherlands
Mommers Print Service France SARL France
Torag Trading AG Switzerland
Print Belgie Beheer BV Netherlands
Print Belgie Holding BV Netherlands
Viasystems SRL Italy
TDS Circuits PLC England/Wales
</TABLE>
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,335
<SECURITIES> 0
<RECEIVABLES> 208,339
<ALLOWANCES> 3,794
<INVENTORY> 105,619
<CURRENT-ASSETS> 364,111
<PP&E> 718,310
<DEPRECIATION> 138,106
<TOTAL-ASSETS> 1,454,703
<CURRENT-LIABILITIES> 344,573
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (113,486)
<TOTAL-LIABILITY-AND-EQUITY> 1,454,703
<SALES> 1,031,928
<TOTAL-REVENUES> 1,031,928
<CGS> 723,741
<TOTAL-COSTS> 723,741
<OTHER-EXPENSES> 293,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,889
<INCOME-PRETAX> (92,117)
<INCOME-TAX> (7,334)
<INCOME-CONTINUING> (84,783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,783)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES CHARGES OF $20,100 RELATING TO THE WRITE-OFF OF ACQUIRED IN-PROCESS
RESEARCH AND DEVELOPMENT COSTS ASSOCIATED WITH THE ACQUISITIONS OF MOMMERS
PRINT SERVICE AND ZINCOCELERE. THE WRITE-OFF RELATES TO ACQUIRED RESEARCH AND
DEVELOPMENT PROJECTS THAT DO NOT HAVE A FUTURE ALTERNATIVE USE.
</FN>
</TABLE>
