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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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333-29727
(Commission File Number)
VIASYSTEMS, INC.
(Exact name of Registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-177752
(I.R.S. Employer Identification No.)
101 SOUTH HANLEY ROAD
ST. LOUIS, MO 63105
(314) 727-2087
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class May 15, 2000
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Viasystems, Inc.
Common Stock 1,000 shares
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VIASYSTEMS, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Viasystems, Inc. & Subsidiaries
Condensed Consolidated Balance Sheets as of December 31, 1999 and March 31, 2000.............................. 2
Condensed Consolidated Statements of Operations and Comprehensive Income for the
three months ended March 31, 1999 and 2000................................................................ 3
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 2000................................................................................... 4
Notes to Condensed Consolidated Financial Statements.......................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................... 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................................... 19
SIGNATURES.......................................................................................................... 20
</TABLE>
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VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 22,839 $ 84,395
Accounts receivable, net ................................... 236,455 228,253
Inventories ................................................ 176,125 157,170
Prepaid expenses and other ................................. 51,010 49,876
----------- -----------
Total current assets .................................... 486,429 519,694
Property, plant and equipment, net .............................. 482,144 394,379
Intangibles and other assets .................................... 340,653 351,240
----------- -----------
Total assets ............................................ $ 1,309,226 $ 1,265,313
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LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations ................ $ 27,851 $ 8,732
Accounts payable ........................................... 187,632 162,221
Accrued and other liabilities .............................. 128,392 106,482
Income taxes payable ....................................... 25,163 17,776
----------- -----------
Total current liabilities ............................... 369,038 295,211
Long-term obligations, less current maturities ............. 1,334,672 939,675
Other long-term liabilities ................................ 97,121 29,610
Stockholder's equity (deficit):
Common stock ............................................... -- --
Contributed capital ........................................ 710,494 1,482,355
Note due from affiliate .................................... -- (123,750)
Accumulated deficit ........................................ (1,178,954) (1,340,859)
Accumulated other comprehensive loss ....................... (23,145) (16,929)
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Total stockholder's deficit ............................. (491,605) 817
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Total liabilities and stockholder's equity (deficit) .... $ 1,309,226 $ 1,265,313
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 2000
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<S> <C> <C>
Net sales .............................................................. $ 309,643 $ 384,584
Operating expenses:
Cost of goods sold .................................................. 233,882 303,274
Selling, general and administrative (including one-time non-cash
compensation charges of $104,351 in 2000) ........................ 29,582 138,616
Depreciation ........................................................ 24,684 28,318
Amortization ........................................................ 12,650 12,349
------------ ------------
Operating income (loss) .......................................... 8,845 (97,973)
Other expense:
Interest expense .................................................... 25,975 37,769
Amortization of deferred financing costs ............................ 1,491 1,793
Other, net .......................................................... 1,199 674
------------ ------------
Loss before income tax provision and cumulative
effect of a change in accounting principle and extraordinary item ... (19,820) (138,209)
Benefit for income taxes ............................................... (5,232) (7,500)
------------ ------------
Net loss before cumulative effect of a change in
accounting principle and extraordinary item ......................... (14,588) (130,709)
------------ ------------
Cumulative effect on prior years - write-off of start-up
costs, net of income tax benefit of $5,647 .......................... 18,443 --
------------ ------------
Extraordinary item - loss on early extinguishment of debt,
net of income tax benefit of $0 .................................. -- 31,196
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Net loss ............................................................... (33,031) (161,905)
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Other comprehensive income (loss):
Foreign currency translation adjustments .......................... (25,013) 6,216
------------ ------------
Comprehensive loss ..................................................... $ (58,044) $ (155,689)
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIASYSTEMS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 2000
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<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss ................................................................... $ (33,031) $ (161,905)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation ............................................................ 24,684 28,318
Amortization of intangibles ............................................. 12,650 12,349
Amortization of deferred financing costs ................................ 1,491 1,793
Cumulative effect of a change in accounting principle -
write-off of start-up costs .......................................... 24,090 --
Non-cash compensation charge ............................................ -- 104,351
Extraordinary item - loss on early extinguishment of debt ............... -- 31,196
Deferred taxes .......................................................... (1,326) (7,500)
Change in assets and liabilities, net of acquisitions:
Accounts receivable .................................................. 4,634 (43,356)
Inventories .......................................................... (4,044) (4,508)
Prepaid expenses and other ........................................... 2,500 (6,903)
Accounts payable and accrued and other liabilities ................... 7,718 24,736
Income taxes payable ................................................. (9,192) (3,115)
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Net cash provided by (used in) operating activities ........................ 30,174 (24,544)
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash acquired ...................................... -- (111,214)
Purchase of the Wire Harness Business ................................... -- (210,000)
Capital expenditures .................................................... (25,282) (34,132)
------------ ------------
Net cash used in investing activities ...................................... (25,282) (355,346)
Cash flows provided by (used in) financing activities:
Equity proceeds (repurchases) ........................................... (27) 864,774
Distribution to stockholders ............................................ -- (16,213)
Repayment of term loans outstanding under the Third Amended and
Restated Credit Agreement, net of cash collateral .................... -- (346,262)
Borrowings under the Term Loan B ........................................ -- 150,000
Net repayments of revolving loans under the Third Amended and
Restated Credit Agreement ............................................ (9,330) (179,301)
Borrowings (repayments) of other long-term obligations .................. 2,949 (10,929)
Financing costs ......................................................... -- (19,692)
Net receipt (distribution) to parent .................................... 1,594 (438)
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Net cash provided by (used in) financing activities ........................ (4,814) 441,939
Effect of exchange rate changes on cash .................................... (155) (493)
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Net change in cash and cash equivalents .................................... (77) 61,556
Cash and cash equivalents - beginning of the period ........................ 9,335 22,839
------------ ------------
Cash and cash equivalents - end of the period .............................. $ 9,258 $ 84,395
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIASYSTEMS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements of
Viasystems, Inc. (the "Company") and subsidiaries reflect all adjustments
consisting only of normal recurring adjustments that are, in the opinion of
management, necessary for a fair presentation of financial position and results
of operations. The results for the three months ended March 31, 2000, are not
necessarily indicative of the results that may be expected for a full fiscal
year. These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K filed with the Securities and Exchange Commission.
Initial Public Offering
On March 24, 2000, Viasystems Group, Inc. ("Group"), the holding company
parent of the Company, completed an initial public offering of 44,000,000 shares
of common stock at $21.00 per share with net proceeds of $873,180. The Company
used the proceeds contributed to it from the offering to fund the acquisition of
the Wire Harness Business, to repay a portion of the existing indebtedness and
for general corporate purposes.
Statement of Cash Flows
Interest paid for the three months ended March 31, 1999 and 2000 was
approximately $14,816 and $32,622, respectively. Net income tax refunds received
for the three months ended March 31, 1999, and taxes paid for the three months
ended March 31, 2000, were approximately $1,812 and $3,115, respectively.
2. ACQUISITIONS
In August 1999, the Company acquired the printed circuit board ("PCB")
manufacturing division ("Kalex") of Termbray Industries International (Holdings)
Limited, a manufacturer of rigid PCBs located in the People's Republic of China,
for a net cash purchase price of approximately $301,000 plus acquisition costs
of approximately $8,500 (the "Kalex Acquisition"). Accordingly, the results of
operations of Kalex since acquisition are included in the results of operations
of the Company.
The Kalex 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 research and development ("in-process R&D"). The
portion of the purchase price allocated to in-process R&D projects that did not
have future alternative use totaled $17,600 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.
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Kalex's manufacturing facilities are located in the People's Republic of
China. Manufacturing in the People's Republic of China entails political and
economic risks, including political instability, expropriation and currency
controls and fluctuations.
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets ......................... $ 55,060
Property, plant and equipment .......... 98,326
Acquired intangibles ................... 89,400
In-process R&D ......................... 17,600
Goodwill ............................... 91,123
Other non-current assets ............... 112
Current liabilities .................... (39,410)
Non-current liabilities ................ (2,343)
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Total .............................. $ 309,868
============
</TABLE>
In April 1999, the Company acquired all of the outstanding shares of PAGG
Corporation ("PAGG") located in Milford, Massachusetts, for a cash purchase
price of approximately $9,300 plus the issuance of 273,223 shares of Group's,
$0.01 per share common stock valued at $2,000. PAGG operates multiple surface
mount production lines for PCB and backplane assembly and has full box build
capabilities. The acquisition was accounted for as a purchase and, accordingly,
the results of operations of PAGG since acquisition are included in the results
of operations of the Company.
On March 29, 2000, the Company acquired all of the outstanding shares of
Wirekraft Industries, Inc. (the "Wire Harness Business"), a wholly owned
subsidiary of International Wire Group, Inc., an affiliate of Hicks, Muse, Tate
& Furst Incorporated ("HMTF") (the "Wire Harness Acquisition") for a cash
purchase price of $210,000. The Wire Harness Business manufactures and assembles
wire harness products. The Wire Harness Acquisition occurred immediately prior
to Group's initial public offering. The Company and International Wire Group,
Inc. are considered entities under common control. Accordingly, the acquisition
has been accounted for on an "as if pooling basis", with the excess purchase
price over book value acquired accounted for as a distribution to Group's
stockholders. Additionally, as the acquisition has been accounted for as an "as
if pooling basis", the Company's condensed consolidated financial statements
have been restated to reflect the acquisition as if it occurred at the beginning
of the first period presented. A reconciliation of the previously reported
results for the three months ended March 31, 1999 to the results in this form
10-Q is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
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<S> <C>
Net sales:
As previously reported ................... $ 259,981
Wire Harness Business .................... 49,662
------------
$ 309,643
============
Net income (loss):
As previously reported ................... $ (34,171)
Wire Harness Business .................... 1,140
------------
$ (33,031)
============
</TABLE>
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On March 30, 2000, the Company acquired Marconi Communications Inc's
Network Components & Services European and China operations, for a cash purchase
price of approximately $115,000 (the "NC&S Acquisition"). Accordingly, the
results of operations of NC&S since acquisition are included in the results of
operations of the Company.
The NC&S Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been preliminarily allocated to
the assets and liabilities on their estimated respective fair values. The excess
purchase price over fair values has been preliminarily allocated to goodwill and
is being amortized over its estimated useful life of 20 years.
The total purchase price including fees and expenses has been preliminarily
allocated to the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets .............................. $ 74,029
Property, plant and equipment ............... 19,868
Goodwill .................................... 57,972
Other non-current assets .................... 12,632
Current liabilities ......................... (49,501)
------------
Total .................................... $ 115,000
============
</TABLE>
Included below is unaudited pro forma financial data setting forth
condensed results of operations of the Company for the three months ended March
31, 1999 and 2000, as though the NC&S Acquisition had occurred at January 1,
1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net sales ................................... $ 347,278 $ 429,519
Net loss before extraordinary item .......... (45,360) (132,064)
Net loss .................................... (45,360) (163,260)
</TABLE>
3. INVENTORIES
The composition of inventories at March 31, 2000, is as follows:
<TABLE>
<S> <C>
Raw materials ............................... $ 56,952
Work-in-process ............................. 35,746
Finished goods .............................. 64,472
------------
Total ....................................... $ 157,170
============
</TABLE>
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4. LONG-TERM OBLIGATIONS
The composition of long-term obligations at March 31, 2000, is as follows:
<TABLE>
<S> <C>
Credit Agreement:
Term facilities ........................................ $ 150,000
Senior Subordinated Notes due 2007 ......................... 400,000
Series B Senior Subordinated Notes due 2007 ................ 100,000
Series B Senior Subordinated Notes due 2007, premium ....... 3,776
Chips Loan Notes Liability ................................. 285,312
Other debt ................................................. 9,319
------------
948,407
Less: current maturities ................................... 8,732
------------
$ 939,675
============
</TABLE>
The Company used a portion of the proceeds contributed to it from Group's
initial public offering to repay all amounts due under the Third Amended and
Restated Credit Agreement. At which time, the Company, and certain subsidiaries,
entered into a new senior credit agreement ("the Credit Agreement"). The Credit
Agreement provides for (i) a $300,000 term loan facility consisting of (a) a
$150,000 term loan (the "Term Loan B") and (b) a second $150,000 term loan (the
"Chips Term Loan B"), (ii) $153,100 term loan facility (the "Chips Term Loan A"
together with the Chips Term Loan B, the "Chips Term Loan") and (iii) $175,000
revolving loan (the "Revolver"). The Chips Term Loan is an unfunded term loan
facility that may be drawn upon by the Company so that it may satisfy the loan
notes issued in 1997 in connection with the acquisition of Interconnection
Systems (Holdings) Limited ("ISL") (the "Chips Loan Notes Liability").
Borrowings under the Credit Agreement are collateralized by first priority
mortgages and liens on substantially all of the material assets of the Company
and its subsidiaries.
At March 31, 2000, the Company had $150,000 outstanding under the Term Loan
B and $150,000 under the Chips Term Loan B, which has been fully cash
collateralized. At March 31, 2000, the Company had no borrowings outstanding
under the Revolver.
5. ACCOUNTING CHANGE
In April 1998, the Financial Accounting Standards Board ("FASB") issued
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. Effective January 1, 1999, the Company adopted SOP
98-5 and accordingly recorded a cumulative effect of a change in accounting
principle for the write-off of the net book value of start-up costs as of
January 1, 1999. See the Condensed Consolidated Statement of Operations and
Comprehensive Income.
6. EXTRAORDINARY ITEM
During the quarter ended March 31, 2000, the Company recorded, as an
extraordinary item, a one-time, non-cash write-off of deferred financing fees of
approximately $31,196 (net of income tax benefit of $0) related to deferred
financing fees incurred on debt under the old credit agreement retired before
maturity with proceeds received by it from Group's initial public offering.
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7. NON-CASH COMPENSATION EXPENSE AND OTHER CHARGES
In connection with Group's initial public offering, Group amended the
terms of the performance stock options held by members of management that
eliminated the exercisability restrictions and variable exercise price terms.
The amended performance options have a fixed exercise price and are immediately
exercisable. As a result of these amendments, the Company recorded a one-time
non-cash compensation expense charge of approximately $33,635 during the three
months ended March 31, 2000.
Also in connection with the initial public offering, Group reclassified
each 6 2/3 shares of class A common stock and class A series II common stock
into one share of common stock. The reclassification resulted in a one-time
non-cash compensation expense charge of approximately $62,945 recorded during
the three months ended March 31, 2000.
Additionally, in connection with the initial public offering, Group
terminated the monitoring and oversight agreement and financial advisory
agreement with an affiliate of HMTF. As consideration for HMTF's willingness to
agree to such termination, Group granted to HMTF and partners of HMTF options to
purchase an aggregate 2,134,000 shares of Group's common stock at an exercise
price equal to $21.00 per share. The option grant resulted in a net one-time
non-cash compensation expense charge of approximately $7,771 recorded for the
three months ended March 31, 2000.
8. BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," during fiscal year 1999. SFAS No. 131
established standards for reporting information about operating segments in
financial statements and requires selected information about operating segments
in interim financial reports issued to stockholders. It also established
standards for related disclosures about products and services and geographic
areas. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-maker is the President/Chief Operating Officer. Based on the evaluation
of financial information by the President/Chief Operating Officer, the Company
operates in one business segment--the manufacture, testing, design and servicing
of a full spectrum of PCBs, custom backpanel interconnect devices, wire harness
and cable assemblies and electronic assembly services.
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Pertinent financial data by major geographic segments is as follows:
<TABLE>
<CAPTION>
Operating
Net Sales Income/(Loss)
------------ ------------
<S> <C> <C>
NORTH AMERICA:
Three months ended March 31, 1999 ....................... $ 192,273 $ 23,508
Three months ended March 31, 2000 ....................... 207,497 (94,101)
EUROPE:
Three months ended March 31, 1999 ....................... $ 120,454 $ (14,663)
Three months ended March 31, 2000 ....................... 129,759 (9,297)
ASIA:
Three months ended March 31, 1999 ....................... $ -- $ --
Three months ended March 31, 2000 ....................... 51,531 5,425
ELIMINATIONS:
Three months ended March 31, 1999 ....................... $ (3,084) $ --
Three months ended March 31, 2000 ....................... (4,203) --
TOTAL:
Three months ended March 31, 1999 ....................... $ 309,643 $ 8,845
Three months ended March 31, 2000 ....................... 384,584 (97,973)
</TABLE>
9. TRANSFER TO STOCKHOLDERS
On March 29, 2000, the Company effected a transfer to Group, which in turn
transferred to its existing stockholders all of the capital stock of certain
businesses ("NewCo") in Europe. NewCo consists primarily of the operations
formerly conducted by Forward Group Plc ("Forward"), Zincocelere S.p.A.
("Zincocelere"), ISL and the PCB production facility of Ericsson Telecom AB
("Viasystems Sweden" or the "Ericsson Facility"). In consideration for the
transfer, NewCo delivered notes payable to the Company for approximately
$124,000 in the aggregate, which have been classified as a component of
stockholders' equity. The notes each have a 10-year term and bear interest at a
rate of 9% per annum, payable in kind by the issuance of additional notes. The
net assets transferred totaled $102,197, net of cash.
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10. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
this Form 10-Q.
The Company has made forward-looking statements in this Form 10-Q, including
the section entitled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" that are based on management's beliefs and
assumptions and on information currently available to management.
Forward-looking statements include the information concerning our possible or
assumed future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, benefits resulting from
the transactions completed and the effects of competition. Forward-looking
statements include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the words
"believes," "expects," "anticipates," "intends," "plans," "estimates," or other
similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. The Company does not have any intention or
obligation to update forward-looking statements after distribution of this Form
10-Q.
You should understand that many important factors could cause our results to
differ materially from those expressed in forward-looking statements. These
factors include, but are not limited to, fluctuations in our operating results
and customer orders, our competitive environment, our reliance on our largest
customers, risks associated with our international operations, our ability to
protect our patents and trade secrets, environmental laws and regulations, our
relationship with unionized employees, risk associated with our acquisition
strategy, our substantial indebtedness, and control by our largest stockholders.
GENERAL
The Company is a leading worldwide independent provider of electronics
manufacturing services, or EMS. The Company serves primarily the
telecommunications and networking industries, which it believes to be the
fastest-growing customer segments of the $73 billion EMS market. The Company
offers a wide range of products and services to original equipment manufacturers
of electronic products. These products and services consist of the design and
fabrication of PCBs, in particular highly complex multi-layered PCBs, the
manufacture of custom-designed backpanel assemblies, the manufacture of complex
PCB assemblies, the procurement and management of materials and the assembly and
testing of our customers' complete systems and products.
DEVELOPMENT
The Company was formed in 1996 by HMTF and Mills & Partners, Inc. ("Mills &
Partners") to create a preferred global manufacturing provider to leading
original equipment manufacturers through acquisitions of PCB fabricators and
backpanel assemblers. The Company had no operations prior to the first
acquisition in October 1996.
During the past eighteen months, the Company has broadened its focus to
become a full-solution provider in the electronics manufacturing services
industry. This change occurred as a result of the recognition that many of the
next generation products in the telecommunications and networking industries
require highly advanced PCBs and backpanel assemblies. As a result, management
made a strategic decision to capitalize on the
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Company's capabilities to compete for the complete assembly of its customers'
products that utilize our PCBs and backpanels.
In connection with this initiative, the Company opened four new facilities
in the later part of 1998. The four new facilities broadened the product
offerings by expanding its backpanel assembly capabilities as well as adding
full system assembly and test capabilities. In addition, in 1999 the Company
consummated the acquisition of PAGG and Kalex. The PAGG and Kalex acquisitions
added PCB assembly capabilities and expanded its full system assembly and test
capabilities. The acquisition of the Wire Harness Business will add the design
and manufacture of wire harnesses and cable assemblies to our capabilities.
Since the Company's formation, the Company has also undertaken a
rationalization of various facilities it had acquired. In particular, the
Selkirk and Galashiels, Scotland facilities and the Manchester and Rugby,
England facilities have all been closed.
ACQUISITIONS
A significant portion of our growth has been generated through acquisitions
completed since 1996. Our business includes the following nine acquired
businesses:
o the purchase of Circo Craft Co., Inc., a business engaged in the
fabrication of PCBs, in Canada, in October for $129.9 million cash;
o the purchase of the assets of the Interconnection Technologies Unit of
the Microelectronics Group of Lucent Technologies, Inc., a business
engaged in the fabrication of PCBs and backpanels and the assembly of
backpanels, in Richmond, Virginia, in December 1996 for $170.0 million
cash and $30.0 million series B preferred stock;
o the purchase of Forward, a business engaged in the fabrication of PCBs,
in the United Kingdom, in April 1997 for $208.5 million cash;
o the purchase of ISL, a business engaged in the fabrication of PCBs, in
the United Kingdom, in April 1997 for $140.0 million cash, plus
assumption of debt;
o the purchase of the Ericsson Facility, a business engaged in the
fabrication of PCBs, in Sweden, in February 1998 for $7.1 million cash;
o the purchase of Mommers Print Service B.V. ("Mommers"), a business
engaged in the fabrication of PCBs and backpanels, in the Netherlands
in February 1998 for $59.4 million cash;
o the purchase of Zincocelere, a business engaged in the fabrication of
PCBs and backpanels, in Italy, in March 1998 for $85.0 million cash,
plus assumption of debt;
o the purchase of PAGG, a business engaged in design and prototype
services, PCB assembly, full system assembly and testing, in Milford,
Massachusetts, in April 1999 for $9.3 million cash, plus the issuance
of 273,223 shares of Group's common stock, and warrants to purchase
136,645 shares of Group's common stock;
13
<PAGE> 15
o the purchase of the PCB manufacturing facilities of Kalex and its
direct and indirect subsidiaries in the People's Republic of China in
August 1999 for $301.0 million cash;
o The purchase of the Wire Harness Business, a business engaged in the
assembly of wire harness products, in the United States and Mexico, in
March 2000 for a $210.0 million cash; and
o The purchase of NC&S, a business engaged in electronic manufacturing
services primarily to telecommunication customers with operations in
the United Kingdom, Italy and China, in March 2000 for $115.0 million
in cash.
We continue to examine numerous acquisition opportunities in order to:
o diversify end-product programs with existing customers;
o locate manufacturing facilities close to original equipment
manufacturers or their end users;
o expand our capacity in selected geographic regions to take advantage of
existing infrastructure or low cost manufacturing;
o complement our service offerings; and
o diversify our customer base to serve a wide variety of end-markets with
new telecommunications and networking customers.
We routinely engage in discussions with respect to possible acquisitions.
Acquisitions considered by us could include a single facility, significant
multiple facilities or original equipment manufacturer asset acquisitions. There
can be no assurance that any of these discussions will result in a definitive
purchase agreement and, if they do, what the terms or timing of any agreement
would be.
We expect each acquisition to be accretive to earnings and cash flow after a
transition period for each acquisition, generally approximately one year. The
initial margins from a newly acquired business or facility will likely be lower
than our current overall margins for several reasons:
o an acquired business or facility may be underutilized;
o existing business at a new or acquired business or facility may be
lower margin, such as PCB assembly or system assembly;
o a newly acquired business or facility may be less efficient initially;
and
o we may accept lower initial margins on large-scale operations with
significant new customers.
The risks of lower margins frequently are mitigated during transition periods by
supply arrangements agreed to in connection with a particular acquisition. These
arrangements may include limited overhead contribution commitment, take or pay
arrangements or limited revenue or product volume guarantees to support the
financial viability of the facility until it reaches self-sufficiency. As an
example, when we acquired Lucent Technologies Inc.'s ("Lucent") captive PCB
facility in December 1996, pricing to Lucent initially exceeded prevailing
market
14
<PAGE> 16
rates, but we were required to reduce that pricing over a two year period
thereafter. As a result, in 1998 and 1999, we experienced price reductions under
the Lucent contract which exceeded industry-wide price decreases. Commencing
January 1, 1999, we are charging Lucent market pricing as required by our supply
contract and will continue to do so for the remaining term of the contract.
We expect that the results for an acquired business or facility will improve
over the transition period as we:
o increase capacity utilization and reduce cost;
o complete integration activities, including replacing third-party
suppliers of PCBs, backpanel assemblies and wire harnesses and cable
assemblies with our own internal production of those components;
o implement our processes and disciplines to reduce costs and obtain the
cost benefits of our procurement leverage; and
o introduce new business from the original customer and others.
GREENFIELD FACILITIES
Since inception in 1996, the Company has opened four new start-up, or
greenfield, facilities in the United States, Mexico, Europe and Asia. These
facilities provide the Company with operations in key geographic markets. The
four greenfield facilities are:
o a 52,000 square foot facility opened June 1998 in Boldon, England
providing backpanel assembly and full system assembly services; and
o a 51,000 square foot facility opened August 1998 in Juarez, Mexico
providing backpanel assembly services;
o a 35,000 square foot facility opened September 1998 in Columbus, Ohio
providing full system assembly services;
o a 17,000 square foot facility opened November 1998 in Nantong, China
providing backpanel assembly services.
Consistent with past practices and as a normal course of business,
management will continue to evaluate establishing new greenfield facilities
particularly when greenfield operations have the potential to enable the Company
to increase its sales or service to existing customers, access new geographic
markets or provide favorable cost advantages.
15
<PAGE> 17
TRANSFER TO STOCKHOLDERS
On March 29, 2000, the Company effected a transfer to Group, which in turn
transferred to its existing stockholders all of the capital stock of certain
businesses ("NewCo") in Europe. NewCo consists primarily of the operations
formerly conducted by Forward, Zincocelere, ISL and Viasystems Sweden. In
consideration for the transfer, NewCo delivered notes payable to the Company
for approximately $124.0 million in the aggregate, which have been classified
as a component of stockholders' equity. The notes each have a 10-year term and
bear interest at a rate of 9% per annum, payable in kind by the issuance of
additional notes.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net sales for the three months ended March 31, 2000, were $384.6 million,
representing a $75.0 million, or 24.2% increase from the same period in 1999.
The increase was primarily a result of volume growth of approximately 24%
partially offset by price reductions of approximately 8%. The remaining quarter
over quarter increase was due to the acquisitions of PAGG and Kalex in April and
August 1999, respectively.
Cost of goods sold for the three months ended March 31, 2000, was $303.3
million, or 78.9% of sales compared to $233.9 million, or 75.5% of sales for the
three months ended March 31, 1999. Cost of goods sold as a percent of net sales
increased primarily due to costs incurred in the first quarter of 2000
associated with the ramp-up of higher technology PCBs and backpanels in North
America and Europe as well as the costs associated with the start-up of the
Chinese capacity expansion.
Selling, general and administrative expenses (excluding one-time non-cash
charges of $104.4 million in 2000, as described below) for the three months
ended March 31, 2000 of $34.2 million increased by $4.6 million versus the
comparable period in 1999. These costs increased primarily due to increases in
general and administrative expenses related to the August 1999 acquisition of
Kalex and the April 1999 acquisition of PAGG partially offset by cost
containment efforts resulting from headcount reductions made at our corporate
offices.
In connection with the initial public offering in March 2000, Group amended
the terms of the performance stock options held by members of management that
eliminated the exercisability restrictions and variable exercise price terms.
The amended performance options have a fixed exercise price and are immediately
exercisable. As a result of these amendments, the Company recorded a one-time
non-cash compensation expense charge of approximately $33.6 million during the
three months ended March 31, 2000.
Also in connection with the initial public offering in March 2000, Group
reclassified each 6 2/3 shares of class A common stock and class A series II
common stock into one share of common stock. This reclassification eliminated
the variable terms of the class A and class A series II common stock and
resulted in a one-time non-cash compensation expense charge of approximately
$62.9 million recorded in the three months ended March 31, 2000.
Additionally, in connection with the initial public offering in March 2000,
Group terminated the monitoring and oversight agreement and financial advisory
agreement with an affiliate of HMTF. As consideration for HMTF's willingness to
agree to such termination, Group granted to HMTF and partners of HMTF options to
purchase an aggregate 2,134,000 shares of Group's common stock at an exercise
price equal
16
<PAGE> 18
to $21.00 per share. The option grant resulted in a net one-time non-cash
compensation expense charge of approximately $7.8 million recorded during the
three months ended March 31, 2000.
Other expense increased $11.5 million, from $28.7 million for the quarter
ended March 31, 1999 to $40.2 million for the same period of 2000, primarily due
to increased interest expense related to the debt financing incurred to fund the
August 1999 acquisition of Kalex.
Depreciation and amortization increased $3.4 million, from $37.3 million
for the quarter ended March 31, 1999 to $40.7 million for the same period of
2000, primarily as a result of the impact to depreciation of acquired fixed
assets and amortization of acquired intangibles from the acquisition of Kalex.
During 1999, the Company recorded a one-time non-cash cumulative effect of
a change in accounting principle of $18.4 million (net of $5.6 million income
tax benefit) related to the write-off of the net book value of start-up costs as
of January 1, 1999.
During the quarter ended March 31, 2000 the Company recorded, as an
extraordinary item, a one-time, non-cash write-off of deferred financing fees of
approximately $31.2 million related to deferred financing fees incurred on debt
under the old credit agreement, which was retired before maturity with proceeds
from the initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements will be for debt service
requirements, working capital needs and capital expenditures. In addition, the
potential for acquisitions of other businesses by the Company in the future
likely may require additional debt and/or equity financing.
Net cash used in operating activities was $24.5 million for the three
months ended March 31, 2000, compared to net cash provided by operating
activities of $30.2 million for the same period in 1999. The decrease in net
cash provided by operating activities relates primarily to timing of receipts
from certain major customers and payments to certain vendors.
Net cash used in investing activities was $355.3 million for the three
months ended March 31, 2000, compared to $25.3 million for the three months
ended March 31, 1999. In 2000, net cash used in investing activities included
$321.2 million related to the Wire Harness Business and the NC&S acquisitions
with the remainder related to capital expenditures. The net cash used in
investing activities for the first three months of 1999 was entirely related to
capital expenditures.
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. The Company does not expect the conversion to the Euro to
have a material effect on its results of operations, financial condition or cash
flows.
17
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At March 31, 2000, approximately $435.3 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 interest expense for the three
months ended March 31, 2000 would have increased by approximately $2.2 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.
FOREIGN CURRENCY RISK
The Company conducts its business in various regions of the world, and
export and import 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. From time to time, we engage 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. The Company's hedging operations historically
have not been material and gains or losses from these operations have not been
significant. There can be no assurance that the Company's hedging operations
will eliminate or substantially reduce risks associated with fluctuating
currencies.
18
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Viasystems, Inc.
(incorporated by reference to exhibit 3.1 to the
Registration Statement filed by the Company on Form S-1,
Registration No. 333-29727).
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, Registration No. 333-29727).
4.1 Credit Agreement, dated as of March 29, 2000, among
Viasystems Group, Inc., as Guarantor, Viasystems, Inc.,
as U.S. Borrower, Viasystems Canada, Inc. and Print
Service Holding N.V., as Foreign Subsidiary Borrowers,
The Several Banks and other Financial Institutions
parties thereto, The Chase Manhattan Bank of Canada, as
Canadian Administrative Agent, Chase Manhattan Bank
International Limited, as Multicurrency Administrative
Agent, and The Chase Manhattan Bank, as Administrative
Agent, Bank of America, N.A. as Syndication Agent,
Bankers Trust Company, as Syndication Agent, and Chase
Securities Inc., as Sole Book Manager and Sole Lead
Arranger (incorporated by reference to exhibit 4.1 to
the Form 10-Q filed by Viasystems Group, Inc. on May 10,
2000).
10.22 Termination and Release Agreement, dated as of March 29,
2000, by and among Viasystems, Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp., Viasystems Canada,
Inc. (f/k/a Circo Craft Co. Inc.), PCB Investments
Limited, Viasystems International, Inc., Viasystems
Group Limited (f/k/a PCB Acquisition Limited), Chips
Acquisition Limited, and Hicks, Muse & Co. Partners,
L.P. (incorporated by reference to exhibit 10.22 to the
Form 10-Q filed by Viasystems Group, Inc. on May 10,
2000).
27.1 Financial Data Schedule of Viasystems, Inc.*
(b) Reports on Form 8-K
None.
- --------------
*Filed herewith
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIASYSTEMS, INC.
Dated: May 15, 2000 By: /s/ David M. Sindelar
----------------------------------
Name: David M. Sindelar
Title: Senior Vice President and
Chief Financial Officer
20
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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,
Registration No. 333-29727).
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, Registration No. 333-29727).
4.1 Credit Agreement, dated as of March 29, 2000, among
Viasystems Group, Inc., as Guarantor, Viasystems, Inc.,
as U.S. Borrower, Viasystems Canada, Inc. and Print
Service Holding N.V., as Foreign Subsidiary Borrowers,
The Several Banks and other Financial Institutions
parties thereto, The Chase Manhattan Bank of Canada, as
Canadian Administrative Agent, Chase Manhattan Bank
International Limited, as Multicurrency Administrative
Agent, and The Chase Manhattan Bank, as Administrative
Agent, Bank of America, N.A. as Syndication Agent,
Bankers Trust Company, as Syndication Agent, and Chase
Securities Inc., as Sole Book Manager and Sole Lead
Arranger (incorporated by reference to exhibit 4.1 to
the Form 10-Q filed by Viasystems Group, Inc. on May 10,
2000).
10.22 Termination and Release Agreement, dated as of March 29,
2000, by and among Viasystems, Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp., Viasystems Canada,
Inc. (f/k/a Circo Craft Co. Inc.), PCB Investments
Limited, Viasystems International, Inc., Viasystems
Group Limited (f/k/a PCB Acquisition Limited), Chips
Acquisition Limited, and Hicks, Muse & Co. Partners,
L.P. (incorporated by reference to exhibit 10.22 to the
Form 10-Q filed by Viasystems Group, Inc. on May 10,
2000).
27.1 Financial Data Schedule of Viasystems, Inc.*
</TABLE>
- --------------
*Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 84,395
<SECURITIES> 0
<RECEIVABLES> 235,218
<ALLOWANCES> (6,965)
<INVENTORY> 157,170
<CURRENT-ASSETS> 519,694
<PP&E> 677,287
<DEPRECIATION> (282,908)
<TOTAL-ASSETS> 1,265,313
<CURRENT-LIABILITIES> 295,211
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 817
<TOTAL-LIABILITY-AND-EQUITY> 1,265,313
<SALES> 384,584
<TOTAL-REVENUES> 384,584
<CGS> 303,274
<TOTAL-COSTS> 303,274
<OTHER-EXPENSES> 179,957<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,562
<INCOME-PRETAX> (138,209)
<INCOME-TAX> (7,500)
<INCOME-CONTINUING> (130,709)
<DISCONTINUED> 0
<EXTRAORDINARY> 31,196
<CHANGES> 0
<NET-INCOME> (161,905)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES $104,351 RELATED TO ONE-TIME NON-CASH COMPENSATION EXPENSE CHARGES.
</FN>
</TABLE>
