<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-94321
PROSPECTUS
44,000,000 Shares
[VIASYSTEMS LOGO]
COMMON STOCK
------------------------
VIASYSTEMS GROUP, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES.
------------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "VG."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
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PRICE $21 A SHARE
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS VIASYSTEMS
------------ ------------- ------------
<S> <C> <C> <C>
Per Share...................... $21.000 $1.155 $19.845
Total.......................... $924,000,000 $50,820,000 $873,180,000
</TABLE>
Viasystems Group, Inc. has granted the underwriters the right to purchase up to
an additional 2,000,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
March 29, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
WIT SOUNDVIEW
March 23, 2000
<PAGE> 2
[PHOTOS OF PRINTED CIRCUIT BOARDS, BACKPANEL ASSEMBLIES AND WIRE HARNESSES AND
CABLE ASSEMBLIES]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 11
Special Note About Forward-Looking
Statements......................... 17
The Transactions..................... 18
Use of Proceeds...................... 20
Dividend Policy...................... 20
Dilution............................. 21
Capitalization....................... 22
Unaudited Pro Forma Financial
Information........................ 24
Selected Financial Data.............. 36
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................ 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................. 53
Management........................... 67
Principal Stockholders............... 75
Related Party Transactions........... 78
Description of Indebtedness.......... 83
Description of Capital Stock......... 87
Shares Eligible for Future Sale...... 93
Important United States Federal Tax
Considerations for Non-United
States Holders..................... 94
Underwriters......................... 97
Legal Matters........................ 100
Experts.............................. 100
Additional Information............... 100
Index to Financial Statements........ F-1
</TABLE>
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Our principal executive offices are located at 101 South Hanley Road, Suite
400, St. Louis, Missouri 63105 and our telephone number at that address is (314)
727-2087.
Unless we indicate otherwise, information in this prospectus assumes the
underwriters will not exercise their over-allotment option. The share and per
share information provided in this prospectus gives effect to a 1 for 6 reverse
stock split of our common stock and the reclassification of each 6 2/3 shares of
our class A common stock and class A series II common stock into one share of
our common stock, which will occur on the date of this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of our common stock
and seeking offers to buy shares of our common stock, only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of the common stock.
UNTIL APRIL 17, 2000, 25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING, ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock being sold in this offering
and our financial statements and notes appearing elsewhere in this prospectus.
Throughout this prospectus, "pro forma" information gives effect to the
transactions described under the caption "The Transactions" elsewhere in this
prospectus.
We are a leading worldwide independent provider of electronics
manufacturing services. Electronics manufacturing services include a wide
spectrum of services, ranging from the design, production and assembly of
electronic devices to testing and after-sales support. We serve primarily the
telecommunications and networking industries, which we believe to be the
fastest-growing customer segments of the $73 billion electronics manufacturing
services market. Our pro forma revenues for the year ended December 31, 1999
were approximately $1 billion. We are a supplier to over 50 manufacturers of
original equipment, including industry leaders Alcatel, Cisco Systems, Delco,
Ericsson, Intel, Lucent Technologies, Marconi Communications, Motorola, Nortel,
Siemens, Sun Microsystems and 3Com. Additionally, upon the consummation of the
acquisition of the wire harness business of International Wire Group, Inc, an
entity controlled by affiliates of Hicks, Muse, Tate & Furst Incorporated, we
will be a supplier to General Electric. Upon completion of the acquisition of
the wire harness business and the transfer of nine European manufacturing
facilities to our existing stockholders, we will operate 20 manufacturing
facilities located in the United States, Canada, Mexico, the United Kingdom, the
Netherlands and China. These facilities are strategically located to take
advantage of low-cost manufacturing environments and to better serve the needs
of our customers.
We offer a wide range of products and services to original equipment
manufacturers of electronic products. Our original equipment manufacturer
customers typically use product components from one or more other companies to
build a product that they sell under their own brand name. Our products and
services consist of:
- the design and fabrication of printed circuit boards, in particular
highly complex multi-layered printed circuit boards;
- the manufacture of custom-designed backpanel assemblies, which are large
printed circuit boards into which electronic components, including other
printed circuit boards and integrated circuits, can be plugged;
- the manufacture of complex printed circuit board assemblies, which are
printed circuit boards to which electronic components, including
integrated circuits, capacitors, microprocessors and resistors, are
attached;
- the procurement and management of materials; and
- the assembly and testing of our customers' complete systems and products.
Additionally, upon the consummation of the acquisition of the wire harness
business of International Wire, we will also design and manufacture wire
harnesses and cable assemblies, which are assemblies of wires with connectors
and terminals attached that transmit electricity between two or more end points.
For the year ended December 31, 1999, approximately 35% of our pro forma
revenues were generated from value-added services, including the manufacture of
custom-designed backpanel assemblies, printed circuit board assemblies and wire
harnesses and cable assemblies, and 26% of our pro forma revenues were generated
from the fabrication of highly complex multi-layered printed circuit boards,
with the remainder of our pro forma revenues generated from the fabrication of
low-layer printed circuit boards.
We believe that our leadership in the design and fabrication of highly
complex multi-layered printed circuit boards and custom-designed backpanel
assemblies is a competitive advantage. As a result, we gain early access to our
customers' new product designs, giving us the opportunity to use our printed
circuit board and backpanel capabilities to capture the full system assembly
business of our customers at the design stage of their product development
cycles. Upon the consummation of the acquisition of the wire harness business of
International Wire, our integrated manufacturing capabilities, including our
ability to manufacture wire
3
<PAGE> 5
harnesses and cable assemblies, will enable us to provide a broad array of
services and offer more value to our customers.
We target leading original equipment manufacturers primarily in the
telecommunications and networking industries. We believe that these industries
represent a large and attractive market for electronics manufacturing services.
Networking companies were among the first communications equipment companies to
aggressively outsource much of their manufacturing to providers of electronics
manufacturing services. Telecommunications equipment companies have only
recently begun to use providers of electronics manufacturing services and we
expect their use of electronics manufacturing service providers to increase.
Approximately 55% of our pro forma revenues for the year ended December 31,
1999 were from telecommunications and networking customers. The products we
manufacture for these customers include, or can be found in, a wide array of
products including switching and transmission equipment, wireless base stations,
workstations, servers and data networking equipment including hubs, routers and
switches. Given our strong relationships with leading original equipment
manufacturers in the telecommunications and networking industries, we believe we
are well positioned to participate in the outsourcing programs and asset
dispositions of those manufacturers.
Our principal competitive advantages are our advanced product capabilities,
strong customer relationships, global infrastructure, broad service offering,
supply chain management capabilities and experienced and successful management
team. These competitive advantages allow us to provide significant value to our
customers by reducing their new product development cycles, the amount of time
it takes to bring their product to market, the amount of time it takes to reach
desired volume levels of production and their overall manufacturing cost. Based
on our estimates of market share and our product capabilities, we believe we are
the industry leader in the manufacture of highly complex, technologically
advanced multi-layered printed circuit boards and custom-designed backpanel
assemblies. In our state-of-the-art manufacturing facilities, we currently
produce commercial quantities of printed circuit boards with up to 48 layers and
circuit track widths as narrow as three one-thousandths of an inch. We have the
capability to produce printed circuit boards with up to 60 layers and circuit
track widths as narrow as two one-thousandths of an inch. We have used these
capabilities to participate in the product design of many next generation
products for major original equipment manufacturers in the telecommunications
and networking industries.
OUR STRATEGY
Our goal is to be the partner of choice to leading original equipment
manufacturers. Our strategy is to:
- focus on the high growth telecommunications and networking customer
segments;
- capitalize on our advanced printed circuit board and backpanel
capabilities to further expand into complete assembly and other
value-added services;
- take advantage of our ability to provide a full-service offering to, and
expand relationships with, our customers;
- concentrate on high value-added products and services;
- exploit our low-cost manufacturing locations to reduce our customers'
total costs;
- expand our manufacturing facilities geographically to better meet the
needs of our customers; and
- pursue acquisition opportunities.
OUR HISTORY
We were formed in 1996 by Hicks, Muse, Tate & Furst Incorporated and Mills
& Partners, Inc. to create a preferred global manufacturing provider to leading
original equipment manufacturers through acquisitions of printed circuit board
fabricators and backpanel assemblers. During the past eighteen months, we have
broadened our focus to become a full-solution provider in the electronics
manufacturing services industry. We have completed six acquisitions and
established operations at four newly created facilities, significantly
broadening our service offering capabilities, expanding our geographic reach and
building our customer base of
4
<PAGE> 6
original equipment manufacturers. Our management team previously worked together
at Berg Electronics, a leading electronics manufacturing enterprise, where they
worked directly with many of the same original equipment manufacturer customers
that are currently some of our largest customers.
THE TRANSACTIONS
In connection with the offering, we will complete the following
transactions:
- the transfer of nine European printed circuit board manufacturing
facilities, consisting primarily of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden, to a new entity formed by our existing stockholders in
consideration for subordinated notes payable to us in the aggregate
amount of $124.0 million; and
- the acquisition of the wire harness business of International Wire Group,
Inc., an entity controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated, for a cash purchase price of $210.0 million.
We are transferring the operations consisting primarily of the business
formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden as part of our overall strategy to focus our
resources on value-added electronics manufacturing services for
telecommunications and networking customers. The acquisition of the wire harness
business allows us to provide our wire harnesses for products we manufacture to
our customers.
For the fiscal year ended December 31, 1999, the business we are
transferring had revenue of $364.2 million; operating income (loss), plus
depreciation, amortization and the non-cash charge relating to the impairment
loss, of $20.9 million; and a net loss before cumulative effect of a change in
accounting principle of $562.9 million. During the same period, the wire harness
business had revenue of $191.0 million; operating income (loss), plus
depreciation and amortization of $25.3 million; and income before cumulative
effect of a change in accounting principle of $5.0 million.
In connection with these transactions and concurrently with the offering,
we expect to refinance our existing senior credit facility with a new senior
credit facility.
For a more detailed description of these transactions, please see "The
Transactions" beginning on page 18.
RECENT EVENTS
On January 25, 2000, we entered into an agreement with Marconi
Communications, Inc. to acquire Marconi's network components and services
business for $115.0 million. This business has manufacturing facilities in
Europe and China, where it provides electronic manufacturing services primarily
to telecommunications customers, including Italtel, Lucent, Marconi, Nokia and
Siemens. For the twelve months ended December 31, 1999, the network components
and services business had revenues and operating income (loss), plus
depreciation and amortization of approximately $151.6 million and $10.6 million,
respectively.
While the acquisition of the network components and services business is
expected to close on March 30, 2000, we cannot assure you that the closing will
occur at, or subsequent to, that time. This offering is not dependent on the
closing of the acquisition.
5
<PAGE> 7
THE OFFERING
Common stock offered....... 44,000,000 shares(1)
Common stock to be
outstanding after this
offering................. 132,233,472 shares(1)(2)(3)
Over-allotment option...... 2,000,000 shares
Use of proceeds............ We intend to use the estimated net proceeds of
$870.2 million from the offering to fund the
acquisition of the wire harness business, to repay
a portion of our outstanding indebtedness and for
general corporate purposes. See "Use of Proceeds."
New York Stock Exchange
symbol................... VG
- ------------
(1) Excludes up to 2,000,000 shares that may be sold by us if the underwriters
exercise their over-allotment option.
(2) Gives effect to a 1 for 6 reverse stock split of our common stock and the
reclassification of each 6 2/3 shares of our class A common stock and class
A series II common stock into one share of our common stock.
(3) Excludes:
- 2,430,333 shares of common stock that are issuable upon the exercise of
our outstanding stock options that have been issued under our management
stock option plan with a weighted average exercise price of $6.99 per
share;
- 2,802,897 shares of common stock that are issuable upon the exercise of
our outstanding performance options with an exercise price of $9.00 per
share after giving effect to amendments to those options to be effected
prior to completion of the offering;
- 16,666 shares of common stock that are issuable upon the exercise of our
outstanding stock options that have been issued to a director with an
exercise price of $6.00 per share;
- 136,645 shares of common stock that are issuable upon the exercise of our
outstanding warrants with an exercise price of $10.50 per share; and
- 2,134,000 shares of common stock which will be issuable upon the exercise
of stock options to be granted to Hicks Muse and partners of Hicks Muse
with an exercise price equal to $21.00 per share.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary historical consolidated financial data
of Viasystems Group, Inc. for the periods indicated. The financial data used in
the preparation of the summary historical consolidated financial data has been
derived from our audited financial statements for the periods indicated.
The following information should be read in conjunction with our
consolidated financial statements and the related notes, "Selected Financial
Data," and "Management's Discussion and Analysis of Results of Operations and
Financial Condition," all included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997(1) 1998(2) 1999(3)
--------------- --------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 795,289 $ 1,031,928 $ 1,102,324
----------- ----------- -----------
Cost of goods sold................................... 554,097 723,741 816,370
Selling, general and administrative expenses,
including non-cash compensation expense charge of
$--, $3,398 and $110,070, respectively(4)......... 75,650 110,147 223,139
Depreciation and amortization........................ 110,037 166,606 174,322
Impairment loss(5)................................... -- -- 468,389
Write-off of acquired in-process research and
development(6).................................... 294,500 20,100 17,600
----------- ----------- -----------
Operating income (loss)........................... (238,995) 11,334 (597,496)
----------- ----------- -----------
Interest expense, net................................ 64,612 92,535 109,980
Amortization of deferred financing costs............. 6,629 9,354 6,619
Other expense........................................ 1,024 4,960 23,594
----------- ----------- -----------
Loss before income taxes, cumulative effect of a
change in accounting principle and extraordinary
item............................................ (311,260) (95,515) (737,689)
Provision (benefit) from income taxes................ 8,432 (7,334) (28,289)
----------- ----------- -----------
Loss before cumulative effect of change in
accounting principle and extraordinary item..... (319,692) (88,181) (709,400)
Cumulative effect -- write-off of start-up costs, net
of income tax benefit of $5,647................... -- -- 16,942
Extraordinary item -- loss on early extinguishment of
debt, net of income tax benefit of $4,332......... 7,796 -- --
----------- ----------- -----------
Net loss............................................. $ (327,488) $ (88,181) $ (726,342)
=========== =========== ===========
Basic net loss per weighted average common
share(7)........................................ $ (10.99) $ (1.68) $ (10.24)
=========== =========== ===========
Basic weighted average common shares(7)........... 26,507,409 48,205,838 62,123,268
Diluted net loss per weighted average common
share(7)........................................ $ (12.48) $ (1.89) $ (10.86)
=========== =========== ===========
Diluted weighted average common shares(7)......... 26,507,409 48,669,528 67,238,458
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 27,538 $ 9,335 $ 22,839
Working capital...................................... 16,659 19,538 99,066
Total assets......................................... 1,068,912 1,454,703 1,212,558
Total debt, including current maturities............. 847,375 1,134,495 1,362,212
Stockholders' deficit................................ (125,491) (150,519) (603,003)
</TABLE>
- ------------
(1) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1997, and include the results of Forward Group and
Interconnection Systems Limited since the dates of acquisition in April
1997. See note 1 to our consolidated financial statements.
(2) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1998 and include the results of the printed circuit
board production facility of Ericsson Telecom AB purchased by our
subsidiary, Viasystems Sweden, Mommers Print Service B.V. and Zincocelere
S.p.A.
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<PAGE> 9
since the dates of acquisition in the first quarter of 1998. See note 1 to
our consolidated financial statements.
(3) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1999, and include the results of the printed circuit
board manufacturing facilities of Kalex Printed Circuit Board Limited and
its direct and indirect subsidiaries, which we purchased from Termbray
Industries International (Holdings) Limited, since the date of acquisition
in August 1999 and PAGG Corporation since the date of acquisition in April
1999. See note 1 to our consolidated financial statements.
(4) During the years ended December 31, 1998 and 1999, we recorded non-cash
compensation charges of $3,398 and $110,070, respectively, which reflect the
difference between the cost of the class A common stock and class A series
II common stock and the value of the common stock that it is convertible
into at those dates. We expect to record an additional non-cash compensation
charge in the first quarter of 2000 as a result of the reclassification of
each 6 2/3 shares of class A common stock and class A series II common stock
into one share of common stock in connection with this offering.
(5) Represents an impairment loss related to the write-off of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." See note 3 to our consolidated financial
statements.
(6) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the purchase accounting for the
acquisition of Forward Group and Interconnection Systems Limited in 1997,
the Mommers and Zincocelere acquisitions in 1998 and the Kalex acquisition
in 1999. The write-off relates to acquired research and development for
projects that do not have a future alternative use. See note 1 to our
consolidated financial statements.
(7) Basic net loss per weighted average common share is computed by dividing the
net loss plus the charge for preferred stock dividends and accretion less
the loss attributable to class A common stock and class A series II common
stock by the weighted average common shares outstanding during the period.
Diluted net loss per weighted average common share is computed by dividing
the net loss plus the charge for preferred stock dividends and accretion by
the weighted average common shares outstanding during the period plus the
weighted average class A common stock and class A series II common stock
shares outstanding on an as if converted basis. Options and warrants were
excluded from the diluted calculation because their effect is anti-dilutive.
For further discussion of the calculation of basic and diluted loss per
share, refer to note 22 of our consolidated financial statements.
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<PAGE> 10
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data for the
fiscal year ended December 31, 1999 giving effect to (1) the acquisitions we
completed in 1999, (2) the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden and the acquisition of the wire harness business of International Wire,
collectively referred to as the "Transactions" in the table below, and (3) the
offering, including the application of the net proceeds from the offering, in
each case, as if those transactions had occurred at January 1, 1999 and as more
fully described under the heading "Unaudited Pro Forma Financial Information"
contained elsewhere in this prospectus. The pro forma balance sheet data as of
December 31, 1999 gives effect to (1) the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden and the acquisition of the wire harness business of
International Wire, and (2) the offering, including the application of the net
proceeds from the offering, in each case, as if those transactions had occurred
at the balance sheet date.
The summary pro forma financial data are not necessarily indicative of
either our future results of operations or the results of operations that would
have occurred if those events had been consummated on the indicated dates. The
following information should be read in conjunction with our consolidated
financial statements and the related notes, "Selected Financial Data,"
"Unaudited Pro Forma Financial Information," and "Management's Discussion and
Analysis of Results of Operations and Financial Condition," all included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPLETED ACQUISITIONS,
COMPLETED ACQUISITIONS THE TRANSACTIONS
AND THE TRANSACTIONS AND THE OFFERING
------------------------ ------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1999
------------------------ ------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $1,026,354 $ 1,026,354
Cost of goods sold................................. 735,420 735,420
Selling, general and administrative expenses,
including non-cash compensation expense charge
of $110,070(1).................................. 195,763 195,763
Depreciation and amortization...................... 124,044 124,044
Write-off of acquired in-process research and
development(2).................................. 17,600 17,600
---------- ------------
Operating income................................ (46,473) (46,473)
---------- ------------
Interest expense, net.............................. 131,290 66,217
Amortization of deferred financing costs........... 6,461 2,680
Other expense (income)............................. 4,335 4,335
---------- ------------
Loss before income taxes and cumulative effect
of a change in accounting principle........... (188,559) (119,705)
Benefit from income taxes.......................... (36,049) (8,508)
---------- ------------
Loss before cumulative effect of a change in
accounting principle.......................... $ (152,510) $ (111,197)
========== ============
Basic net loss per weighted average common share
before cumulative effect of a change in
accounting principle(3)....................... $ (.99)
============
Basic weighted average common shares(3)......... 116,355,486
Diluted net loss per weighted average common
share before cumulative effect of a change in
accounting principle(3)....................... $ (.99)
============
Diluted weighted average common shares(3)....... 116,355,486
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THE TRANSACTIONS AND
THE TRANSACTIONS THE OFFERING
----------------- --------------------
AS OF AS OF
DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 16,306 $ 126,808
Working capital.......................................... 113,470 233,377
Total assets............................................. 1,049,633 1,157,649
Total debt, including current maturities................. 1,541,877 799,524
Stockholders' equity (deficit)........................... (822,826) 35,448
</TABLE>
- ------------
(1) During the year ended December 31, 1999, we recorded a non-cash compensation
charge of $110.1 million which reflects the difference between the cost of
the class A common stock and class A series II common stock and the value of
the common stock into which it is convertible at that date. We expect to
record an additional non-cash compensation charge in the first quarter of
2000 of $80.5 million as a result of the reclassification of each 6 2/3
shares of class A common stock and class A series II common stock into one
share of common stock in connection with this offering. No additional charge
related to the class A common stock and class A series II common stock will
be required after the reclassification. Excluding the non-cash compensation
expense of $110.1 million, loss before cumulative effect of a change in
accounting principle would be $1.2 million, basic net loss per weighted
average common share before cumulative effect of a change in accounting
principle would be $(.05) and diluted net loss per weighted average common
share before cumulative effect of a change in accounting principle would be
$(.05).
(2) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the purchase accounting for the Kalex
acquisition in 1999. The write-off relates to acquired research and
development for projects that do not have a future alternative use. See note
1 to our consolidated financial statements.
(3) Basic and diluted net loss per weighted average common share before
cumulative effect of a change in accounting principle is computed by
dividing the net loss before cumulative effect of a change in accounting
principle plus the charge for preferred stock dividends and accretion by the
weighted average common shares outstanding during the period plus the class
A common stock and class A series II common stock shares outstanding on an
as if converted basis at a conversion rate of one share of common stock for
each 6 2/3 outstanding shares of class A common stock and class A series II
common stock. The shares used in the computation of net loss per share also
include shares being sold in the offering that would be required to retire
the debt and fund the wire harness business acquisition as more fully
described under "Use of Proceeds." Options and warrants were excluded from
the diluted calculation because their effect is antidilutive. For a further
discussion of the methodology used to calculate basic and diluted loss per
share, refer to note 22 of our consolidated financial statements.
10
<PAGE> 12
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial conditions or results of operations could be
materially adversely affected by any of these risks. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS AND, BECAUSE MANY OF OUR
OPERATING COSTS ARE FIXED, EVEN SMALL REVENUE SHORTFALLS CAN HAVE A
DISPROPORTIONATE EFFECT ON OUR OPERATING RESULTS
Our operating results may vary significantly for a variety of reasons,
including:
- expenditures or write-offs related to acquisitions;
- start-up expenses relating to new manufacturing facilities;
- pricing pressures;
- timing of orders from and shipments to major customers;
- our capacity relative to the volume of orders;
- expenditures in anticipation of future sales;
- variations in product mix; and
- overall economic conditions in the electronics industry.
Historically, expenditures and write-offs related to acquisitions, start-up
expenses relating to new manufacturing facilities and pricing pressures have
caused fluctuations in our operating results. For example, in the fiscal year
ended December 31, 1999, we incurred $17.6 million of write-offs related to
acquisitions and $16.9 million of start-up expenses, net of tax benefit of $5.6
million. Because a significant portion of our operating expenses are fixed, even
a relatively small revenue shortfall can have a disproportionate effect on our
results of operations. Results of operations in any period should not be
considered indicative of the results to be expected for any future period.
A SIGNIFICANT PORTION OF OUR REVENUES ARE BASED ON SALES TO OUR LARGEST
CUSTOMERS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE
SIGNIFICANTLY
Lucent Technologies accounted for approximately 34% and 32%, General
Electric accounted for approximately 10% and 9% and our five largest customers
as a group accounted for approximately 60% and 55% of our pro forma net sales
for the calendar years 1998 and 1999, respectively. General Electric will become
our customer upon the consummation of the acquisition of the wire harness
business of International Wire. Although we cannot assure you that our principal
customers will continue to purchase products from us at past levels, we expect a
significant portion of our revenue will continue to be concentrated within a
small number of customers. In addition, we anticipate that Lucent Technologies
will continue to be our largest customer for at least the next few years.
Although we have supply agreements with each of Lucent Technologies and General
Electric which could first expire in December 2001 and December 2006,
respectively, there may be circumstances that would allow them to terminate
those agreements or to purchase required quantities from other suppliers if we
fail to perform. Additionally, an extraordinary change in the financial
condition or business of these customers could cause them to be unable to
fulfill their obligations to us under those contracts. The loss of, or
significant curtailment of purchases by, Lucent Technologies or General Electric
or one or more of these principal customers could have a material adverse effect
on our revenues.
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WE RELY HEAVILY ON THE TELECOMMUNICATIONS AND NETWORKING INDUSTRIES;
ACCORDINGLY, A DOWNTURN IN THESE INDUSTRIES WOULD LIKELY HAVE A MATERIAL ADVERSE
EFFECT ON OUR ABILITY TO FORECAST DEMAND AND PRODUCTION AND TO MEET DESIRED
SALES LEVELS
Our principal customers are in the telecommunications and networking
industries, which are characterized by intense competition, relatively short
product life cycles and significant fluctuations in product demand. In addition,
these industries are generally subject to rapid technological change and product
obsolescence. Furthermore, these industries are subject to economic cycles and
have in the past experienced, and are likely in the future to experience,
recessionary periods. A recession or any other event leading to excess capacity
or a downturn in the telecommunications and networking industries would likely
have a material adverse effect on our ability to forecast demand and production
and to meet desired sales levels.
WE ARE EXPANDING OUR BUSINESS INTO NEW PRODUCTS AND SERVICES AND MAY NOT BE ABLE
TO COMPETE EFFECTIVELY WITH OTHER COMPANIES WHO HAVE BEEN IN THESE BUSINESSES
LONGER THAN WE HAVE
The electronics manufacturing services industry is highly fragmented and
characterized by intense competition. During the last eighteen months, we have
broadened our product offerings by expanding our backpanel assembly capabilities
as well as adding printed circuit board assembly, full system assembly and test
capabilities. As a result of our broadened focus in the electronics
manufacturing services industry, we will be competing with companies that have
substantially greater financial and manufacturing resources than we have and who
have been providing these services longer than we have. As a participant in the
electronics manufacturing services industry, we compete on the basis of product
quality, responsiveness to customers, manufacturing and engineering technology
and price. There can be no assurance that we will be able to successfully
compete on this basis with our more established competitors.
THE ELECTRONICS MANUFACTURING SERVICES INDUSTRY IS SUBJECT TO RAPID
TECHNOLOGICAL CHANGE; OUR FAILURE TO TIMELY OR ADEQUATELY RESPOND TO THOSE
CHANGES MAY RENDER OUR EXISTING TECHNOLOGY LESS COMPETITIVE OR OBSOLETE, AND OUR
OPERATING RESULTS MAY SUFFER
The market for our products and services is characterized by rapidly
changing technology and continuing process development. The future success of
our business will depend in large part upon our ability to maintain and enhance
our technological capabilities, develop and market products and services that
meet changing customer needs, and successfully anticipate or respond to
technological changes on a cost-effective and timely basis. Research and
development expenses are expected to increase as manufacturers make demands for
higher technology and more complex products. In addition, the electronics
manufacturing services industry could in the future encounter competition from
new or revised technologies that render existing technology less competitive or
obsolete. There can be no assurance that we will effectively respond to the
technological requirements of the changing market, including the need for
substantial additional capital expenditures that may be required as a result of
those changes and, as a result, our operating results may suffer.
IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR ABILITY TO
CONTROL BUSINESS OPERATIONS AND EXPENDITURES MAY BE LIMITED
We have grown rapidly in recent periods, and this growth may be difficult
to sustain. Internal growth and further expansion of our value-added electronics
manufacturing services offerings will require us to expand our existing
operations and relationships and to improve our operational and information
systems.
We plan to expand our manufacturing capacity and value-added electronics
manufacturing services offerings by expanding our facilities and by adding new
equipment. This expansion involves significant risks. For example:
- we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
- we may not efficiently and effectively integrate new operations, expand
existing operations and manage geographically dispersed operations;
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- we may incur cost overruns;
- we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that could
adversely affect our growth and our ability to meet customers' delivery
schedules; and
- we may not be able to obtain funds for this expansion on acceptable
terms.
In addition, we expect to incur new fixed operating expenses associated
with our expansion efforts, including increases in depreciation expense and
rental expense. If our revenues do not increase sufficiently to offset these
expenses, our operating results would be adversely affected.
OUR ACQUISITION STRATEGY COULD FAIL OR PRESENT UNANTICIPATED PROBLEMS FOR OUR
BUSINESS IN THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MAKE
ACQUIRED BUSINESSES PROFITABLE OR REALIZE ANTICIPATED BENEFITS OF THOSE
ACQUISITIONS
Our growth strategy includes acquiring complementary businesses. We cannot
assure you that we will be able to successfully identify suitable acquisition
opportunities or finance and complete any particular acquisition, combination or
other transaction on acceptable terms and prices. Furthermore, acquisitions
involve a number of risks and challenges, including:
- diversion of management's attention;
- the need to integrate acquired operations;
- potential loss of key employees and customers of the acquired companies;
- lack of experience operating in the geographic market of the acquired
business; and
- an increase in our expenses and working capital requirements.
Any of these and other factors could adversely affect our ability to
achieve anticipated levels of profitability at acquired operations or realize
other anticipated benefits of acquisitions.
THERE MAY BE SHORTAGES OF REQUIRED COMPONENTS WHICH WOULD CAUSE US TO CURTAIL
OUR MANUFACTURING OR INCUR HIGHER THAN EXPECTED COSTS
We purchase the components we use in producing printed circuit board and
backpanel assemblies and other electronics manufacturing services and we may be
required to bear the risk of component price fluctuations. In addition,
shortages of electronic components have occurred in the past and may occur in
the future. Component shortages or price fluctuations could have an adverse
effect on our results of operations. Due to the continued increase of our
contract manufacturing and assembly businesses as a percentage of our net sales,
component shortages and price fluctuations would adversely affect our results of
operations to a greater extent than in prior fiscal years.
WE WILL CONTINUE TO HAVE A SUBSTANTIAL AMOUNT OF DEBT AND THE ABILITY TO FURTHER
INCREASE OUR DEBT, WHICH COULD HAVE NEGATIVE CONSEQUENCES ON OUR BUSINESS IN THE
FUTURE
After the consummation of the transfer of the operations formerly conducted
by Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden, the acquisition of the wire harness business of International Wire, and
completion of this offering, including the application of net proceeds that we
receive and the refinancing of our senior credit facility, we will continue to
have substantial indebtedness and leverage. As of December 31, 1999, after
giving effect to the foregoing transactions:
- our total debt outstanding would have been approximately $799.5 million;
- our interest expense would have been approximately $66.2 million for the
year ended December 31, 1999; and
- our total stockholders' equity would have been approximately $35.4
million.
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Upon completion of the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden, the acquisition of the wire harness business of International Wire and
the offering, and the refinancing of our senior credit facility, we expect to
draw an additional $150.0 million under the term loan portion of our new senior
credit facility and to have approximately $175.0 million available for future
borrowings under the revolving portion of our new senior credit facility that
may be used for future acquisitions and capital expenditures.
Depending on our future performance, we and our subsidiaries will be
permitted to incur significant additional debt in the future. Our high level of
debt could have negative consequences. For example, it could:
- increase our vulnerability to adverse industry and general economic
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to make scheduled principal payments on our debt, thereby
reducing the availability of our cash flow for working capital, capital
investments, acquisitions and other business activities;
- limit our ability to obtain additional financing to fund future working
capital, capital investments, acquisitions and other business activities;
- expose us to the risk of interest rate fluctuations to the extent we pay
interest at variable rates on our debt;
- limit our flexibility to plan for, and react to, changes in our business
and our industry; and
- place us at a competitive disadvantage relative to our less leveraged
competitors.
WE EXPECT FUTURE AMORTIZATION OF OUR INTANGIBLES TO CONTINUE TO HAVE A NEGATIVE
EFFECT ON OUR OPERATING RESULTS, AND ANY FUTURE IMPAIRMENT OF OUR LONG-LIVED
ASSETS, INCLUDING OUR INTANGIBLES, WOULD LIKELY HAVE A NEGATIVE EFFECT ON OUR
OPERATING RESULTS
In the past, we have experienced net losses as a result of significant
amortization and write-offs associated with our acquisitions. Since acquisitions
are expected to continue to be a focus of our growth strategy, we expect these
charges and expenses to have a negative impact on our results in the future. For
example, in 1999, we incurred $44.1 million in charges relating to the
amortization of goodwill from prior acquisitions. Additionally, in 1999, we
incurred a $468.4 million non-cash impairment loss related to the write-down of
long-lived assets, including goodwill and other acquired intangibles. We assess
the recoverability of our long-lived assets (including intangible assets) based
on their current and anticipated future undiscounted cash flows. Our policy for
the recognition and measurement of any impairment of long-lived assets is to
assess the current and anticipated future discounted cash flows associated with
any impaired assets. To the extent any assets become impaired in the future, the
charges would have a negative impact on our results.
A SIGNIFICANT PORTION OF OUR BUSINESS IS CONDUCTED IN FOREIGN COUNTRIES,
EXPOSING US TO ADDITIONAL RISKS THAT MAY NOT EXIST IN THE UNITED STATES
A significant portion of our operations is conducted in foreign countries
and is subject to risks that are inherent in operating abroad, including:
- inflation or changes in political and economic conditions;
- governmental regulation;
- changes in import duties;
- trade restrictions;
- work stoppages; and
- other restraints and burdensome taxes.
After giving effect to the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden and the acquisition of the wire harness business of International Wire,
our pro forma net sales outside the United States during fiscal years 1998 and
1999 were approximately $543.5 million and $608.7 million, or 56.8% and 59.3% of
net sales, respectively.
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WE ARE SUBJECT TO CURRENCY FLUCTUATIONS WHICH MAY AFFECT OUR COST OF GOODS SOLD
AND OPERATING MARGINS
Approximately 3.5% of our business is conducted in the Euro. In addition,
approximately 27% of our costs, including payroll and rent, are denominated in
the Hong Kong dollar, the Chinese renminbi and the Mexican peso, as well as the
Euro. Changes in exchange rates between these and other currencies and the U.S.
dollar will affect our cost of goods sold and operating margins. Historically,
these currency fluctuations have not had a significant effect on our operating
results. We cannot predict the impact of future exchange rate fluctuations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND WE
MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES WHICH MAY CAUSE US TO
INCUR SUBSTANTIAL COSTS
Our success depends in part on proprietary technology and manufacturing
techniques. We have few patents for these proprietary techniques and choose to
rely primarily on trade secret protection. Litigation may be necessary to
protect our technology, to determine the validity and scope of the proprietary
rights of others or to defend against claims of patent infringement. Litigation
with respect to patents or other intellectual property matters could result in
substantial costs and diversion of management and other resources and could have
a material adverse effect on us. If any infringement claim is asserted against
us, we may seek to obtain a license of the other party's intellectual property
rights. We cannot assure you that a license would be available on reasonable
terms or at all.
WE ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS WHICH EXPOSE US TO
POTENTIAL FINANCIAL LIABILITY
Our operations are regulated under a number of federal, state, local and
foreign environmental laws and regulations, which govern, among other things,
the discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of hazardous materials. Compliance with these
environmental laws are major considerations in the fabrication of printed
circuit boards because metals and other hazardous materials are used in the
manufacturing process. Various federal, state and local laws and regulations
impose liability on current or previous real property owners or operators for
the cost of investigating, cleaning up or removing contamination caused by
hazardous or toxic substances at the property. In addition, because we are a
generator of hazardous wastes, we, along with any other person who arranges for
the disposal of those wastes, may be subject to potential financial exposure for
costs associated with the investigation and remediation of sites at which it has
arranged for the disposal of hazardous wastes, if those sites become
contaminated. Liability may be imposed without regard to legality of the
original actions and without regard to whether we knew of, or were responsible
for, the presence of such hazardous or toxic substances, and we could be
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. In addition, it is possible that in the
future new or more stringent requirements could be imposed.
SOME OF OUR EMPLOYEES ARE UNIONIZED WHICH COULD RESULT IN LABOR DISPUTES THAT
COULD DIVERT MANAGEMENT RESOURCES AND INCREASE OUR LABOR COSTS
Approximately 9% of our employees are unionized, all at our Richmond,
Virginia facility. A prolonged dispute, work stoppage or strike at this facility
could have a material adverse effect on us, divert management resources or
increase our labor costs. We have closed facilities in the past and may do so in
the future. In connection with these closures, there is the potential for work
stoppages or other disruptions, which could have an adverse effect on us.
OUR DEBT INSTRUMENTS IMPOSE RESTRICTIONS ON US THAT MAY RESTRICT OUR ABILITY TO
OPERATE THE BUSINESS
The agreements governing our indebtedness contain covenants that restrict
our ability to, among other things, incur additional debt, pay dividends,
repurchase junior debt, make investments, enter into transactions with
affiliates, merge or consolidate with other entities and sell all or
substantially all of our assets. In addition, our new senior credit facility is
expected to contain other limitations and also require us to maintain specified
financial ratios. A breach of any of these provisions could result in a default
under our indebtedness, which
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would allow our lenders to declare all amounts outstanding under the
indebtedness immediately due and payable, in which case, our assets might not be
sufficient to repay those amounts. We may also be prevented from taking
advantage of business opportunities that arise because of the limitations
imposed on us by the restrictive covenants under our indebtedness.
WE ARE CONTROLLED BY AFFILIATES OF HICKS MUSE, WHICH COULD RESULT IN ACTIONS OR
DECISIONS THAT ARE NOT CONSISTENT WITH THE INTERESTS OF OUR OTHER STOCKHOLDERS
Following the offering, approximately 59.4% of our common stock will
continue to be controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated. In addition, a stockholders agreement among us, affiliates of
Hicks Muse and other existing holders of our common stock provides that we and
those stockholders have agreed to take all actions necessary, including voting
the shares held by those stockholders, to elect the designees of Hicks Muse to
our board of directors. Accordingly, Hicks Muse controls the election of our
board of directors and the approval or disapproval of other matters requiring
stockholder approval and, as a result thereof, the direction of our management
and policies. Using this control, Hicks Muse may take actions or make decisions
that are not in the best interests of our other stockholders.
THERE MAY NOT BE AN ACTIVE MARKET FOR OUR COMMON STOCK, MAKING IT DIFFICULT FOR
YOU
TO SELL YOUR STOCK
This is our initial public offering, which means that there is no current
market for our common stock. We cannot assure you that after this offering our
stock will be traded actively. An illiquid market for our stock may result in
price volatility and poor execution of buy and sell orders for investors. The
initial public offering price may bear no relationship to the price at which the
common stock will trade upon completion of this offering.
OUR STOCK PRICE MAY BE VOLATILE AND MAY DECREASE SIGNIFICANTLY
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including reasons that may be
unrelated to their businesses or results of operations. This market volatility
could depress the price of our common stock without regard to our operating
performance. In addition, our operating results may be below the expectations of
public market analysts or investors. If this were to occur, the market price of
our common stock could decrease, perhaps significantly.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE
The market price for our common stock could fall substantially if our
stockholders who hold restricted shares of common stock sell large amounts of
shares of common stock in the public market following this offering. These
sales, or the possibility that these sales may occur, could make it more
difficult for us to sell equity or equity related securities in the future.
These sales in the public market are limited by restrictions under federal
securities law and by lock-up agreements that we, our directors, officers and
substantially all of our existing stockholders have agreed to enter into with
the underwriters. With several exceptions, the lock-up agreements restrict us,
our directors and officers and those stockholders from selling or otherwise
disposing of any shares for a period of 180 days after the date of this
prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated.
As of the date of this prospectus, we have 88,233,472 outstanding shares of
common stock, not including the shares of common stock being sold in the
offering. All of the shares outstanding before the offering are "restricted"
securities within the meaning of the federal securities laws and may not be
resold unless registered under the Securities Act of 1933 or sold pursuant to an
applicable exemption, including Rule 144. Following the offering, and in the
case of our directors, officers and stockholders who have entered into lock-up
agreements, the expiration of 180 days following the offering, all of those
88,233,472 shares will be eligible for sale in the public market under Rule 144,
subject, if applicable, to volume and manner of sale limitations imposed by Rule
144.
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IT MAY BE DIFFICULT TO TAKE OVER OUR COMPANY, AND THAT COULD ADVERSELY AFFECT
THE PRICE
OF OUR COMMON STOCK
Following the offering, affiliates of Hicks, Muse, Tate & Furst
Incorporated will control approximately 59.4% of our outstanding common stock.
Accordingly, Hicks Muse effectively controls the decision whether a change of
control will occur. Moreover, some provisions of our certificate of
incorporation, bylaws and Delaware law could make it more difficult for a third
party to acquire control of us, even if a change of control could be beneficial
to you. These provisions and controlling ownership by Hicks Muse could also
adversely affect our common stock price.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
In an article published in an Asian newspaper on January 11, 2000, the
following statement was attributed to Mr. Timothy L. Conlon, our President: "Mr.
Conlon forecast[ed that] mainland sales would triple to US$250 million after two
years." Viasystems does not, as a matter of policy, publish projections of its
future sales or financial results. The referenced article related to potential
sales growth in mainland China permitted by our current expansion of our
mainland China manufacturing facilities. However, Mr. Conlon did not state that
this sales growth would be realized over any particular time frame, nor did he
offer any assurance that our mainland China facilities would achieve full
capacity. Investors should not assume that Viasystems will increase its mainland
China sales to $250 million within two years.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus, including the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" that are based on our management's beliefs and
assumptions and on information currently available to our management. Forward-
looking statements include the information concerning our possible or assumed
future results of operations, business strategies, financing plans, competitive
position, potential growth opportunities, benefits resulting from the
transactions described herein, this offering, and the effects of competition.
Forward-looking statements include all statements that are not historical facts
and can be identified by the use of forward-looking terminology such as the
words "believes," "expects," "anticipates," "intends," "plans," "estimates" or
other similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we distribute this prospectus.
You should understand that many important factors could cause our results
to differ materially from those expressed in forward-looking statements. These
factors include 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, risks associated with our acquisition strategy, our substantial
indebtedness, control by our largest stockholders and other factors described
under "Risk Factors" elsewhere in this prospectus.
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THE TRANSACTIONS
TRANSFER OF NINE EUROPEAN PRINTED CIRCUIT BOARD MANUFACTURING FACILITIES
Concurrently with the consummation of this offering, we will transfer all
of the capital stock of our subsidiaries that own nine European printed circuit
board manufacturing facilities to our existing stockholders, which will not
include the stockholders who purchase common stock in the offering. The
operations we are transferring consist primarily of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden. These operations are being transferred because:
- they do not provide value-added assembly services, such as backpanel and
printed circuit board assembly, manufacture of wire harness and cable
assemblies or the assembly and testing of complete systems or products;
- they do not produce complex higher technology products such as high layer
count printed circuit boards; or
- they supply products to other competing providers of electronics
manufacturing services.
As a result, the transferred operations do not provide services or
capabilities which will allow us to expand our relationships with our strategic
customers. Consequently, we believe that each of the operations being
transferred and our remaining operations after the transfer will be better
positioned to serve its respective customers. The operations of the transferred
businesses will focus on the European market for quick-turn and low-layer count
printed circuit board fabrication. In consideration for the stock of our
subsidiaries that own Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden, we will receive subordinated notes payable to
us in the aggregate principal amount of $124 million. The subordinated notes
will be unsecured and will bear interest at 9% per year, which interest will be
payable in kind by the issuance of additional notes. The notes will mature in 10
years.
The transferred businesses will enter into a contract manufacturing
agreement with us, whereby those businesses will continue to provide
manufacturing services to us from their facilities at North Tyneside in the
United Kingdom and Norrkoping, Sweden. Pursuant to the contract manufacturing
agreement, those businesses will supply us with our forecasted needs for the
specified manufacturing services at a price equal to our direct costs of
providing the services from one of our other facilities. The specified
manufacturing services may include the production of innerlayers as well as
complete printed circuit boards. Innerlayers are the simple building blocks used
in the production of multi-layered printed circuit boards. The agreement will
provide for a three year term and otherwise will contain terms and conditions
similar to our agreements to provide similar manufacturing services to third
parties. In addition, we will have an option, exercisable by us at any time
within two years following the closing, to acquire the North Tyneside and
Norrkoping facilities for an amount equal to the book value of the facilities.
Currently, the North Tyneside facility is adding manufacturing equipment
designed to enable it to expand its innerlayer capacity and to produce high
layer count printed circuit boards.
ACQUISITION OF THE WIRE HARNESS BUSINESS OF INTERNATIONAL WIRE GROUP
Immediately prior to the consummation of the offering, we will acquire for
$210 million in cash all of the outstanding shares of Wirekraft Industries,
Inc., a wholly-owned subsidiary of International Wire Group, Inc. A majority of
the common stock of International Wire is held by affiliates of Hicks, Muse,
Tate & Furst Incorporated. Wirekraft Industries manufactures and assembles wire
harness products, which are assemblies of wires with connectors and terminals
attached to their ends that transmit electricity between two or more end points.
The acquisition of the wire harness business of International Wire allows
us to increase our vertical integration by allowing us to provide our wire
harnesses to customers. By manufacturing wire harnesses and cable assemblies, we
are able to shorten our customers' product development cycles, lower their cost
and provide expertise not generally available from other suppliers in the
electronics manufacturing services industry. In addition, our vertical
integration provides us with greater control over quality, delivery and costs,
and enables us to offer our customers a broad array of services.
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At the closing of the acquisition of the wire harness business, we will
enter into a supply agreement with International Wire whereby International Wire
will continue to supply insulated wire to us for use in the wire harness
business at market prices. The terms of the supply agreement will require us to
purchase 100% of the wire harness business' requirements for insulated appliance
wire from International Wire, which is a continuation of existing practice. The
acquisition of the wire harness business will be accounted for at historical
cost, on a basis similar to a pooling of interests, as Viasystems Group, Inc.
and International Wire are under common control.
The closing of the purchase of the wire harness business is conditioned
upon the receipt by each of the boards of directors of Viasystems and
International Wire of opinions of financial advisors that the purchase price for
the wire harness business is fair, from a financial point of view, to the
respective parties.
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USE OF PROCEEDS
The net proceeds to Viasystems from this offering are estimated to be
approximately $870.2 million, or approximately $909.9 million if the
underwriters' over-allotment option is exercised in full, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by Viasystems. Viasystems intends to use the net proceeds to fund the
$210.0 million purchase price of the wire harness business and to repay
approximately $629.4 million in borrowings outstanding under our senior credit
facilities, with the remainder to be used for general corporate purposes.
On December 31, 1999, the weighted average annual interest rate applicable
to our existing senior credit facility was approximately 8.5%. The outstanding
indebtedness under our existing senior credit facility was used in part to fund
the acquisition of the printed circuit board manufacturing business of Termbray
Industries International (Holdings) Limited in August 1999, to repay amounts
outstanding under our revolving loan facility and to cash collateralize future
amounts due under our term loans. Approximately $187.3 million of the term loans
under our existing senior credit facility relate to our acquisition of
Interconnections Systems Limited. The operations formerly conducted by
Interconnections Systems Limited are being transferred prior to this offering to
our existing stockholders. Our senior credit facility is also used on an ongoing
basis for debt service requirements, working capital needs and capital
expenditures and may be used in the future to fund acquisitions of other
businesses. Our existing senior credit facility is scheduled to expire on June
30, 2005. Concurrently with the offering, we expect to refinance the remaining
amounts outstanding under our existing senior credit facility with a new senior
credit facility.
The wire harness business is being acquired from International Wire, a
designer, manufacturer and marketer of wire products and wire harnesses
controlled by affiliates of Hicks, Muse, Tate & Furst Incorporated, for $210.0
million in cash. The purchase price was determined by senior management of
Viasystems and International Wire. In addition, each of the boards of directors
of Viasystems and International Wire are expected to receive opinions from
nationally recognized financial advisors that the purchase price is fair, from a
financial point of view, to each of the respective parties. The acquisition of
the wire harness business will be accounted for at historical cost, on a basis
similar to a pooling of interests, as Viasystems Group, Inc. and International
Wire are under common control.
The acquisition price for the network components and services business of
Marconi Communications, Inc. will be funded by amounts available under our new
senior credit facility. While this acquisition is expected to close on March 30,
2000, we cannot assure you that the closing will occur at, or subsequent to,
that time. This offering is not dependent on the closing of the acquisition.
DIVIDEND POLICY
We do not currently anticipate paying cash dividends on our common stock in
the foreseeable future because we expect to retain our future earnings, if any,
for use in the operation and expansion of our business. Moreover, the indentures
governing our senior subordinated notes and our Series B preferred stock
restrict, and we anticipate that our new senior credit facility will restrict,
our ability to pay dividends on our common stock. Any payment of future
dividends will be at the discretion of our board of directors and will depend
upon, among other things, our earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
the payment of dividends, and other considerations that our board of directors
deems relevant.
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DILUTION
Purchasers of the common stock offered by this prospectus will suffer an
immediate and substantial dilution in net tangible book value per share.
Dilution is the amount by which the initial public offering price paid by the
purchasers of common stock will exceed the net tangible book value per share of
common stock after the offering. The net tangible book value (deficit) per share
of common stock is determined by subtracting total liabilities from the total
book value of the tangible assets and dividing the difference by the number of
shares of common stock deemed to be outstanding on the date the book value is
determined. As of December 31, 1999, we had a pro forma tangible book value
(deficit) of $(1,143.1) million or $(12.96) per share after giving effect to the
1 for 6 reverse stock split, the reclassification of each 6 2/3 shares of class
A common stock and class A series II common stock into one share of common
stock, the transfer of the operations formerly conducted by Interconnection
Systems Limited, Forward Group, Zincocelere and Viasystems Sweden and the
acquisition of the wire harness business of International Wire, but excluding
this offering. Upon the sale of 44,000,000 shares at an initial public offering
price of $21.00 per share and deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma tangible book value
(deficit) as of December 31, 1999 would have been $(278.4) million or $(2.11)
per share. This represents an immediate increase in pro forma net tangible book
value to existing stockholders of $10.85 per share and an immediate dilution to
new investors of $23.11 per share. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $21.00
Pro forma net tangible book value (deficit) per share
before the offering.................................... $(12.96)
Increase in pro forma net tangible book value per share
resulting from the offering............................ 10.85
-------
Pro forma net tangible book value (deficit) per share after
the offering.............................................. (2.11)
------
Dilution per share to new investors......................... $23.11
======
</TABLE>
The following table summarizes, on a pro forma, as adjusted basis set forth
above as of December 31, 1999, the differences between existing stockholders and
the new investors with respect to the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid
before deducting estimated underwriting discounts, commissions and offering
expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ------------------------ AVERAGE PRICE
NUMBER OF SHARES PERCENT AMOUNT PERCENT PER SHARE
---------------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............ 88,233,472 67% $ 514,784,000 36% $ 6.09
New Investors.................... 44,000,000 33 924,000,000 64 21.00
----------- --- -------------- ---
Total.................. 132,233,472 100% $1,438,784,000 100%
=========== === ============== ===
</TABLE>
As of March 21, 2000, there were outstanding options and warrants to
purchase an additional 5,386,541 shares of common stock at exercise prices
ranging from $6.00 to $10.50 per share. To the extent these options or warrants
are exercised, there will be further dilution to new investors.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis; and
- as adjusted to give effect to the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere
and Viasystems Sweden and the acquisition of the wire harness business of
International Wire, referred to in the table below as the "Transactions,"
and the offering, including the application of the net proceeds of the
offering.
The information set forth below should be read in conjunction with
"Selected Financial Data," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Consolidated Financial Statements of Viasystems and the notes
thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------
AS ADJUSTED FOR
THE TRANSACTIONS
ACTUAL AND OFFERING
----------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 22,839 $ 126,808
=========== ===========
Long-term debt, including current portion:
Existing credit facility.................................. $ 530,853(1) $ --
New credit facility....................................... -- --(2)
Loan notes................................................ 285,312 285,312
9 3/4% senior subordinated notes(3)....................... 503,865 503,865
Other(4).................................................. 42,182 10,347
----------- -----------
Total long-term debt............................... 1,362,212 799,524
----------- -----------
Series B preferred stock, $.01 par value, 6,000,000 shares
authorized, 1,521,890.17 shares issued and outstanding,
aggregate liquidation value $38,047(5).................... 41,273 41,273
Stockholders' equity:
Common stock, $.01 par value, 500,000,000 shares
authorized, 78,001,265 shares issued and outstanding
(actual)(6), 132,233,472 shares issued and outstanding
(as adjusted)(6)(7)..................................... 780 1,322
Class A common stock, $.01 par value, 25,000,000 shares
authorized, 5,196,216 shares issued and outstanding
(actual)(7), no shares issued and outstanding (as
adjusted)(8)............................................ 59 --
Class A series II common stock, $.01 par value, 25,000,000
shares authorized, 6,172,891 shares issued and
outstanding (actual)(7), no shares issued and
outstanding (as adjusted)(8)............................ 62 --
Additional paid-in capital................................ 610,156 1,396,999(9)
Accumulated deficit....................................... (1,190,753) (1,339,566)(10)
Treasury stock............................................ (162) (162)
Accumulated other comprehensive income.................... (23,145) (23,145)
----------- -----------
Total stockholders' equity (deficit)............... (603,003) 35,448
----------- -----------
Total capitalization............................. $ 800,482 $ 876,245
=========== ===========
</TABLE>
- ------------
(1) Represents $629.4 million of term and revolving credit facilities
outstanding under the existing credit facility net of cash collateral
amounts of $98.5 million.
(2) The new senior credit facility is expected to provide for a seven year term
loan facility in the amount of $150.0 million, a letter of credit
reimbursement facility in the amount of $303.1 million and a revolving
credit facility in the amount of $175.0 million. As of December 31, 1999,
on a pro forma basis after giving effect to the transfer of the operations
formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden, the acquisition of the wire harness
business of International Wire and the offering and the use of net proceeds
therefrom, we would have had $175.0 million of available revolving
borrowings under the new senior credit facility. Because the term loan
facility requires us to make a single drawing of the $150.0 million
facility, upon consummation of the offering the amount outstanding under
the new credit facility would be $150.0 million and our cash balance would
be $276.8 million. Approximately $115.0 million of these funds will be used
to fund the acquisition of the network components and services business of
Marconi Communications, Inc. if that acquisition is consummated. The
remainder of these funds could be used to cash collateralize the letter of
credit reimbursement facility or for general corporate purposes.
22
<PAGE> 24
(3) Includes unamortized premium of $3.9 million.
(4) Includes $12.1 million of capital lease obligations.
(5) Does not include 10,146 shares, $0.254 million liquidation preference,
issuable to holders of series B preferred stock for the period from
November 30, 1999 to December 31, 1999.
(6) Excludes:
- 2,430,333 shares of common stock that are issuable upon the exercise of
our outstanding stock options that have been issued under our management
stock option plan with a weighted average exercise price of $6.99 per
share;
- 2,802,897 shares of common stock that are issuable upon the exercise of
our outstanding performance options with an exercise price of $9.00 per
share after giving effect to amendments to those options to be effected
prior to the completion of the offering;
- 16,666 shares of common stock that are issuable upon the exercise of our
outstanding stock options that have been issued to a director with an
exercise price of $6.00 per share;
- 136,645 shares of common stock that are issuable upon the exercise of our
outstanding warrants with an exercise price of $10.50 per share; and
- 2,134,000 shares of common stock which will be issuable upon the exercise
of stock options to be granted to Hicks Muse and partners of Hicks Muse
with an exercise price equal to $21.00 per share.
(7) As of December 31, 1999, 31,177,359 shares of class A common stock and
37,037,431 shares of class A series II common stock were issued and
outstanding. If the 1 for 6 reverse stock split of the common stock had
occurred as of that date, the class A common stock and class A series II
common stock would have participated equally in the 1 for 6 reverse stock
split in accordance with their terms. Accordingly, the number of shares of
class A common stock and class A series II common stock that would have
been outstanding on December 31, 1999 after giving effect to a 1 for 6
reverse stock split has been reflected in the actual amounts.
(8) Reflects the reclassification of each 6 2/3 shares of our class A common
stock (based on 31,177,359 shares outstanding) and class A series II common
stock (based on 37,037,431 shares outstanding) into one share of common
stock.
(9) Reflects an adjustment of $208.3 million related to the intercompany
accounts of the nine European manufacturing facilities being transferred
prior to the offering and a compensation charge of $33.6 million related to
performance options which will be amended and become exercisable in
connection with the offering.
(10) Reflects the write-off of deferred financing costs previously capitalized
of $15.9 million (net of income tax benefit of $4.0 million) and the net
adjustment of $148.4 million related to the acquisition of the wire harness
business of International Wire. Additionally, accumulated deficit and
additional paid in capital will be increased by $33.6 million as a result
of a charge related to performance options which will be amended in
connection with the offering and become exercisable, by $22.8 million as a
result of a charge related to the grant of the option to Hicks Muse and
partners of Hicks Muse in connection with the termination of the monitoring
and oversight agreement and the financial advisory agreement and $80.5
million as a result of a non-cash compensation charge related to the
reclassification of the class A common stock and class A series II common
stock into our common stock.
23
<PAGE> 25
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is based on our
condensed consolidated financial statements, the condensed financial statements
of the operations formerly conducted by Interconnection Systems Limited, Forward
Group, Zincocelere and Viasystems Sweden, referred to in the pro forma financial
statements as the "Transferred Operations," and the condensed financial
statements of the wire harness business of International Wire, which we are
acquiring prior to the offering and the condensed financial statements of
businesses acquired in 1999. The unaudited pro forma balance sheet as of
December 31, 1999 gives effect to the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden and the acquisition of the wire harness business of
International Wire, and the consummation of the offering, as though each such
transaction had occurred on December 31, 1999. The unaudited pro forma statement
of operations for the years ended December 31, 1997 and 1998 gives effect to the
acquisition of the wire harness business of International Wire as though the
acquisition had occurred at January 1, 1997. The unaudited pro forma statement
of operations for the year ended December 31, 1999, gives effect to the
acquisition of the wire harness business as though the acquisition had occurred
on January 1, 1997 and the acquisitions of PAGG Corporation and Kalex
(collectively referred to in the pro forma financial statements as the "1999
Acquisitions"), the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden and the consummation of the offering, as though each such transaction had
occurred at January 1, 1999.
The pro forma financial information gives effect to pro forma adjustments
that are based upon available information and assumptions that we believe are
reasonable. The acquisition of the wire harness business will be accounted for
at historical cost, on a basis similar to a pooling of interest, as Viasystems
Group, Inc. and International Wire are under common control. Viasystems Group,
Inc.'s transfer of the operations formerly conducted by Interconnection Systems
Limited, Forward Group, Zincocelere and Viasystems Sweden to a new entity formed
by our existing stockholders will be transferred at historical cost. The pro
forma financial information should be read in conjunction with our historical
financial statements and the related notes thereto, and "Management's Discussion
and Analysis of Results of Operations and Financial Condition" included
elsewhere herein.
The pro forma financial information does not purport to be indicative of
the results that would have been obtained had those transactions been completed
as of the assumed dates and for the periods presented or that may be obtained in
the future.
24
<PAGE> 26
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
"AS IF "AS IF ADJUSTMENTS
WIRE HARNESS POOLED" POOLED" FOR THE
COMPANY BUSINESS PRO FORMA COMPANY TRANSFERRED TRANSFERRED
HISTORICAL HISTORICAL(1) ADJUSTMENTS(2) HISTORICAL OPERATIONS(6) OPERATIONS
---------- ------------- ---------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................... $ 22,839 $ -- $ -- $ 22,839 $ (6,533) $ --
Accounts receivable...... 220,619 15,836 -- 236,455 (78,159) --
Inventories.............. 155,818 20,307 -- 176,125 (40,970) --
Prepaid expenses &
other.................. 46,871 4,139 -- 51,010 (8,548) --
---------- -------- --------- ---------- --------- ---------
Total current
assets........... 446,147 40,282 -- 486,429 (134,210) --
Property, plant &
equipment, net........... 462,266 19,878 -- 482,144 (109,476) --
Deferred financing costs,
net...................... 41,751 2,115 (2,115)(3) 41,751 (1,088) --
Intangible assets, net..... 261,298 33,747 -- 295,045 (15,441) --
Other assets............... 1,096 4,098 -- 5,194 (715) --
---------- -------- --------- ---------- --------- ---------
Total assets....... $1,212,558 $100,120 $ (2,115) $1,310,563 $(260,930) $ --
========== ======== ========= ========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of
long-term
obligations............ $ 27,663 $ 188 $ (188)(3) $ 27,663 $ (16,210) $ --
Accounts payable......... 173,591 14,041 (195)(3) 187,437 (80,299) --
Accrued and other
liabilities............ 121,475 10,819 -- 132,294 (38,094) --
Income taxes payable..... 24,352 811 -- 25,163 795 --
---------- -------- --------- ---------- --------- ---------
Total current
liabilities...... 347,081 25,859 (383) 372,557 (133,808) --
Deferred taxes............. 23,887 4,463 -- 28,350 (6,462) --
Long-term obligations, less
current maturities....... 1,334,549 123 210,877(4) 1,545,549 (15,125) --
Other noncurrent
liabilities.............. 68,771 1,060 (1,060)(3) 68,771 (28,646) --
Intercompany............... -- 63,100 (63,100)(3) -- (208,338) 208,338(7)
Preferred Stock............ 41,273 -- -- 41,273 -- --
Stockholders' equity
(deficit)................ (603,003) 5,515 (148,449)(5) (745,937) 131,449 (208,338)(8)
---------- -------- --------- ---------- --------- ---------
Total liabilities
and stockholders'
equity
(deficit)........ $1,212,558 $100,120 $ (2,115) $1,310,563 $(260,930) $ --
========== ======== ========= ========== ========= =========
<CAPTION>
COMPANY
PRO FORMA
AFTER
GIVING
EFFECT TO
THE
DISPOSITION PRO FORMA
OF THE ADJUSTMENTS COMPANY
TRANSFERRED FOR THE PRO FORMA,
OPERATIONS OFFERING AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................... $ 16,306 $ 110,502(9) $ 126,808
Accounts receivable...... 158,296 -- 158,296
Inventories.............. 135,155 -- 135,155
Prepaid expenses &
other.................. 42,462 -- 42,462
---------- --------- ----------
Total current
assets........... 352,219 110,502 462,721
Property, plant &
equipment, net........... 372,668 -- 372,668
Deferred financing costs,
net...................... 40,663 (6,455)(10) 34,208
Intangible assets, net..... 279,604 -- 279,604
Other assets............... 4,479 3,969(11) 8,448
---------- --------- ----------
Total assets....... $1,049,633 $ 108,016 $1,157,649
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current maturities of
long-term
obligations............ $ 11,453 $ (1,500)(12) $ 9,953
Accounts payable......... 107,138 -- 107,138
Accrued and other
liabilities............ 94,200 (7,905)(13) 86,295
Income taxes payable..... 25,958 -- 25,958
---------- --------- ----------
Total current
liabilities...... 238,749 (9,405) 229,344
Deferred taxes............. 21,888 -- 21,888
Long-term obligations, less
current maturities....... 1,530,424 (740,853)(14) 789,571
Other noncurrent
liabilities.............. 40,125 -- 40,125
Intercompany............... -- -- --
Preferred Stock............ 41,273 -- 41,273
Stockholders' equity
(deficit)................ (822,826) 858,274(15) 35,448
---------- --------- ----------
Total liabilities
and stockholders'
equity
(deficit)........ $1,049,633 $ 108,016 $1,157,649
========== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Balance Sheet.
25
<PAGE> 27
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
(1) The detail of the historical financial data as of December 31, 1999 has
been obtained from the audited historical financial statement of the wire
harness business.
(2) The acquisition of the wire harness business will be accounted for at
historical cost, on a basis similar to a pooling of interests, as
Viasystems Group, Inc. and International Wire are under common control. The
excess of the consideration paid over historical cost of net assets
acquired, $148,449, has been reflected as a distribution to Viasystems
Group, Inc.'s stockholders.
(3) Adjustment reflects the elimination of assets not acquired and liabilities
not assumed.
(4) Adjustment reflects:
<TABLE>
<S> <C>
Borrowing for purchase of the wire harness business........ $210,000
Borrowings for payment of acquisition expenses............. 1,000
Repayment of historical debt of wire harness business...... (123)
--------
$210,877
========
</TABLE>
(5) Adjustment reflects the impact on stockholders' equity of the acquisition
of the wire harness business which is considered a distribution to
Viasystems Group, Inc.'s stockholders.
(6) Concurrently with the completion of the offering, we will complete a
transfer of the capital stock of our subsidiaries that own the business
formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden to a new entity formed by our existing
stockholders. The financial information related to those operations has
been derived from the unaudited historical financial statements of those
operations as of December 31, 1999. Viasystems will receive subordinated
notes in the aggregate principal amount of $124,000 for the capital stock
of those entities. The subordinated notes will be unsecured and will bear
interest at 9% per year, which interest will be payable in kind by the
issuance of additional notes. The notes will mature in 10 years. For
financial reporting purposes, the subordinated notes will be deducted from
stockholders' equity. Any difference at the date of transfer between the
net book value of the net assets transferred of the transferred operations
(($131,449) at December 31, 1999) and $124,000 will be accounted for as a
reduction or increase to additional paid in capital.
(7) Reflects the elimination of intercompany balances related to the operations
formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden.
(8) Adjustment reflects the effect on equity of intercompany balance not
transferred.
(9) Represents excess net cash proceeds from the offering and the
reclassification of cash collateral.
(10) Reflects the write-off of approximately $15,875 of previously capitalized
deferred financing costs related to the prior credit agreement, net of the
capitalization of approximately $9,420 of deferred financing costs related
to the new credit agreement.
(11) Reflects deferred taxes established as a result of items set forth in
footnote 15(b) below.
(12) Reflects the repayment of current maturities of indebtedness under the
existing credit agreement.
(13) Reflects the repayment of accrued interest on amounts repaid under the
existing credit agreement.
(14) Reflects the following:
<TABLE>
<S> <C>
Repayment of indebtedness from the acquisition of the wire
harness business.......................................... $(210,000)
Repayment of net indebtedness under the existing credit
agreement................................................. (530,853)
---------
$(740,853)
=========
</TABLE>
26
<PAGE> 28
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET -- (CONTINUED)
(15) Reflects the following:
<TABLE>
<S> <C>
(a) The estimated net proceeds of the offering............. $870,180
(b) Write-off of deferred financing costs previously
capitalized (net of income tax benefit of $3,969)...... (11,906)
--------
$858,274
========
</TABLE>
Additionally, accumulated deficit and additional paid in capital will be
- increased by $33,600 as a result of a charge related to performance
options which will be amended in connection with the offering to
eliminate the exercisability restrictions and modify the exercise price.
Currently the performance options are only exercisable upon the
occurrence of an initial public offering or other liquidity event of the
Company or ten years from the option's grant date if on either date Hicks
Muse has realized an overall rate of return of 35%. The initial exercise
price for the performance options was either $6.00 or $7.32 per share and
such exercise price increased by 8% per year. The modified exercise price
will be $9.00 per share;
- increased by approximately $22,800 as a result of a charge related to the
grant of options to purchase common stock to be given to Hicks Muse and
partners of Hicks Muse in connection with the termination of the
monitoring and oversight agreement and the financial advisory agreement;
and
- increased by approximately $80,507 as a result of a non-cash compensation
charge related to the reclassification of each 6 2/3 shares of our class
A common stock and class A series II common stock into one share of
common stock.
27
<PAGE> 29
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WIRE
HARNESS "AS IF POOLED" "AS IF POOLED" 1999
COMPANY BUSINESS PRO FORMA COMPANY TRANSFERRED ACQUISITIONS
HISTORICAL HISTORICAL(1) ADJUSTMENTS(2) HISTORICAL OPERATIONS(7) HISTORICAL(8)
----------- ------------- ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 1,102,324 $191,046 $ -- $1,293,370 $(364,157) $97,141
Costs of goods sold........ 816,370 153,244 -- 969,614 (296,462) 62,268
Selling, general and
administrative expenses,
including non-cash
compensation expense
charge of $110,070........ 223,139 12,514 (3,000)(3) 232,653 (46,783) 9,893
Depreciation and
amortization.............. 174,322 8,466 -- 182,788 (84,705) 6,890
Impairment loss............ 468,389 -- -- 468,389 (468,389) --
Write-off of acquired
in-process research and
development............... 17,600 -- -- 17,600 -- --
----------- -------- -------- ---------- --------- -------
Operating income (loss).... (597,496) 16,822 3,000 (577,674) 532,182 18,090
Interest expense, net...... 109,980 7,842 12,108(4) 129,930 (8,018) 1,021
Amortization of deferred
financing costs........... 6,619 529 (529)(5) 6,619 (158) --
Other expense (income)..... 23,594 -- -- 23,594 (17,403) (1,856)
----------- -------- -------- ---------- --------- -------
Income (loss) before income
taxes and cumulative
effect of a change in
accounting principle...... (737,689) 8,451 (8,579) (737,817) 557,761 18,925
Provision (benefit) for
income taxes.............. (28,289) 3,407 (3,432)(6) (28,314) (5,143) 840
----------- -------- -------- ---------- --------- -------
Income (loss) before
cumulative effect of a
change in accounting
principle................. $ (709,400) $ 5,044 $ (5,147) $ (709,503) $ 562,904 $18,085
=========== ======== ======== ========== ========= =======
Basic net loss per weighted
average common share
before cumulative effect
of a change in accounting
principle(16)............. $ 10.00
===========
Basic weighted average
common shares(16)......... 62,123,268
Diluted net loss per
weighted average common
share before cumulative
effect of a change in
accounting
principle(16)............. $ 10.61
===========
Diluted weighted average
common shares(16)......... 67,238,458
<CAPTION>
COMPANY
PRO FORMA
AFTER GIVING
PRO FORMA EFFECT TO THE
ADJUSTMENTS DISPOSITION
FOR THE OF THE
TRANSFERRED TRANSFERRED
OPERATIONS OPERATIONS PRO FORMA
AND THE AND THE ADJUSTMENTS COMPANY
1999 1999 FOR THE PRO FORMA,
ACQUISITIONS ACQUISITIONS OFFERING(12) AS ADJUSTED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................. $ -- $1,026,354 $ -- $ 1,026,354
Costs of goods sold........ -- 735,420 -- 735,420
Selling, general and
administrative expenses,
including non-cash
compensation expense
charge of $110,070........ -- 195,763 -- 195,763
Depreciation and
amortization.............. 19,071(9) 124,044 -- 124,044
Impairment loss............ -- -- --
Write-off of acquired
in-process research and
development............... -- 17,600 -- 17,600
-------- ---------- ----------- ------------
Operating income (loss).... (19,071) (46,473) -- (46,473)
Interest expense, net...... 8,357(10) 131,290 (65,073)(13) 66,217
Amortization of deferred
financing costs........... -- 6,461 (3,781)(14) 2,680
Other expense (income)..... -- 4,335 -- 4,335
-------- ---------- ----------- ------------
Income (loss) before income
taxes and cumulative
effect of a change in
accounting principle...... (27,428) (188,559) 68,854 (119,705)
Provision (benefit) for
income taxes.............. (3,432)(11) (36,049) 27,541(15) (8,508)
-------- ---------- ----------- ------------
Income (loss) before
cumulative effect of a
change in accounting
principle................. $(23,996) $ (152,510) $ 41,313 $ (111,197)
======== ========== =========== ============
Basic net loss per weighted
average common share
before cumulative effect
of a change in accounting
principle(16)............. $ (2.20) $ (.99)
========== ============
Basic weighted average
common shares(16)......... 62,123,268 116,355,486
Diluted net loss per
weighted average common
share before cumulative
effect of a change in
accounting
principle(16)............. $ (2.33) $ (.99)
========== ============
Diluted weighted average
common shares(16)......... 67,238,458 116,355,486
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
28
<PAGE> 30
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The detail of the historical financial data for the year ended December 31,
1999 has been obtained from the audited historical financial statement of
the wire harness business.
(2) The acquisition of the wire harness business will be accounted for at
historical cost, on a basis similar to a pooling of interests, as Viasystems
Group, Inc. and International Wire are under common control.
(3) Adjustment represents the elimination of a $3,000 charge related to a
liability not being assumed. Additionally, upon completion of the
acquisition of the wire harness business, there will be approximately $3,300
of corporate allocations for management fees incurred by International Wire
and allocated to the wire harness business, which will no longer be incurred
by or on behalf of the wire harness business in the future because the
obligation to pay such fees is not being assumed by us.
(4) Reflects the impact on interest expense of the additional borrowings as if
the acquisition of the wire harness business had been consummated as of the
beginning of the period calculated as follows:
<TABLE>
<S> <C>
Borrowings -- $210,000 at 9.5%.............................. $19,950
Elimination of historical interest of the wire harness
business.................................................. (7,842)
-------
$12,108
=======
</TABLE>
(5) Reflects the elimination of historical amortization of deferred financing
costs.
(6) Adjustment reflects the tax effect of the adjustments (3), (4) and (5)
above.
(7) Concurrently with the completion of the offering, we will complete a
transfer of the capital stock of our subsidiaries that own Interconnection
Systems Limited, Forward Group, Zincocelere and Viasystems Sweden to a new
entity formed by our existing stockholders. The financial information
related to those operations has been derived from the unaudited historical
financial statements of those operations for the year ended December 31,
1999. Viasystems will receive subordinated notes in the aggregate principal
amount of $124,000 for the capital stock of those entities. For financial
reporting purposes, the subordinated notes will be a component of
stockholders' equity.
(8) The detail of the historical financial data from the acquisitions of PAGG
Corporation and Kalex for the periods prior to acquisition by Viasystems
during the year ended December 31, 1999 has been obtained from the unaudited
historical financial statements of the respective companies below:
<TABLE>
<CAPTION>
1999
PAGG KALEX ACQUISITIONS
HISTORICAL(A) HISTORICAL(B) HISTORICAL
------------- ------------- ------------
<S> <C> <C> <C>
Net sales............................................ $ 4,925 $92,216 $97,141
Costs of goods sold.................................. 4,644 57,624 62,268
Selling, general and administrative expenses......... 815 9,078 9,893
Depreciation and amortization........................ 439 6,451 6,890
------- ------- -------
Operating income (loss).............................. (973) 19,063 18,090
Interest expense, net................................ 256 765 1,021
Other expense (income)............................... 32 (1,888) (1,856)
------- ------- -------
Income (loss) before income taxes and cumulative
effect of a change in accounting principle......... (1,261) 20,186 18,925
Provision (benefit) for income taxes................. (161) 1,001 840
------- ------- -------
Income (loss) before cumulative effect of a change in
accounting principle............................... $(1,100) $19,185 $18,085
======= ======= =======
</TABLE>
29
<PAGE> 31
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(a) Amounts reflect the historical unaudited results of PAGG Corporation
for the period prior to its acquisition by Viasystems from January 1,
1999 to April 30, 1999.
(b) Amounts reflect the historical unaudited results of Kalex for the
period prior to its acquisition by Viasystems from January 1, 1999 to
July 31, 1999. The financial information for Kalex was translated at a
rate of HK$7.7536 = US$1.00, the average rate in effect for the
respective period.
(9) Adjustment reflects the effect of the amortization of acquired intangibles
and goodwill related to the acquisitions of PAGG Corporation and Kalex.
Amortization is computed using systematic methods over the estimated useful
lives ranging from 1 to 20 years.
(10) Reflects the net impact to interest expense of the following borrowings as
if the acquisitions of PAGG Corporation and Kalex, the transfer of the
operations formerly conducted by Interconnection Systems Limited, Forward
Group, Zincocelere and Viasystems Sweden and the acquisition of the wire
harness business of International Wire had been consummated as of the
beginning of the period.
<TABLE>
<S> <C>
Tranche C Term Loan -- $291,000 at 9.2%..................... $15,617
Interest income of cash collateral account -- $89,900 at
4.5%...................................................... (2,360)
US Revolver -- paydown $70,000 at 8.3%...................... (3,389)
Term Loan -- paydown $10,125 at 8.3%........................ (490)
-------
9,378
Eliminate historical interest of the acquisitions of PAGG
Corporation and Kalex..................................... (1,021)
-------
$ 8,357
=======
</TABLE>
(11) Reflects the tax effect of adjustments (9) and (10) above.
(12) The pro forma statement of operations data does not reflect the following:
- direct acquisition costs incurred in connection with the acquisition of
the wire harness business of $1,000;
- a noncash extraordinary charge of approximately $11,906 (net of income
tax benefit of $3,969) for the write-off of previously capitalized debt
issuance costs;
- a compensation charge of $33,600 related to performance options which
will be amended in connection with the offering and become exercisable;
- a charge of approximately $22,800 related to the grant of options to
purchase common stock to be given to Hicks Muse and partners of Hicks
Muse in connection with the termination of the monitoring and oversight
agreement and the financial advisory agreement; and
- a non-cash compensation charge of approximately $80,507 as a result of
the reclassification of each 6 2/3 shares of our class A common stock and
class A series II common stock into one share of common stock.
(13) Reflects the following:
<TABLE>
<S> <C>
Elimination of interest under the borrowings for the
acquisition of the wire harness business at 9.5%.......... $(19,950)
Elimination of interest under the existing credit agreement
at 8.5%................................................... (45,123)
--------
$(65,073)
========
</TABLE>
(14) Adjustment reflects $1,343 related to the amortization of deferred
financing costs associated with the refinancing of the existing senior
credit facility net of the elimination of $5,124 of historical amortization
of deferred financing fees associated with the existing credit facility.
30
<PAGE> 32
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(15) Adjustment reflects the pro forma tax effect of the adjustments related to
the offering described above.
(16) Basic net loss per weighted average common share before cumulative effect
of a change in accounting principle is computed by dividing the net loss
before cumulative effect of a change in accounting principle plus the
charge for preferred stock dividends and accretion less the loss
attributable to class A common stock and class A series II common stock by
the weighted average common shares outstanding during the period. Basic and
diluted net loss per weighted average common share before cumulative effect
of a change in accounting principle is computed by dividing the net loss
before cumulative effect of a change in accounting principle plus the
charge for preferred stock dividends and accretion by the weighted average
common shares outstanding during the period plus the weighted average class
A common stock and class A series II common stock shares outstanding on an
as if converted basis (prior to the offering, assuming an initial public
offering price of $21.00 per share on a pro forma basis). The number of
shares of class A common stock and class A series II common stock used to
calculate the diluted net loss per weighted average common share before
cumulative effect of a change in accounting principle as of the offering is
the number of shares outstanding, converted at a rate of one share of
common stock for each 6 2/3 outstanding shares of class A common stock and
class A series II common stock. The shares used in the computation of net
loss per share also include shares being sold in the offering that would be
required to retire the debt and fund the acquisition of the wire harness
business as more fully described under "Use of Proceeds." Options and
warrants were excluded from the diluted calculation because their effect is
antidilutive. For further discussion of the methodology used to calculate
the basic and diluted loss per share, refer to note 22 of our consolidated
financial statements.
31
<PAGE> 33
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WIRE HARNESS "AS IF POOLED"
COMPANY BUSINESS COMPANY
HISTORICAL HISTORICAL(1)(2) HISTORICAL
----------- ---------------- ----------------
<S> <C> <C> <C>
Net sales............................................... $ 1,031,928 $170,393 $ 1,202,321
Costs of goods sold..................................... 723,741 133,201 856,942
Selling, general and administrative expenses, including
non-cash compensation expense charge of $3,398........ 110,147 9,277 119,424
Depreciation and amortization........................... 166,606 6,968 173,574
Write-off of acquired in-process research and
development........................................... 20,100 -- 20,100
----------- -------- -----------
Operating income (loss)................................. 11,334 20,947 32,281
Interest expense, net................................... 92,535 8,510 101,045
Amortization of deferred financing costs................ 9,354 519 9,873
Other expense (income).................................. 4,960 4 4,964
----------- -------- -----------
Income (loss) before income taxes....................... (95,515) 11,914 (83,601)
Provision (benefit) for income taxes.................... (7,334) 5,042 (2,292)
----------- -------- -----------
Net income (loss)....................................... $ (88,181) $ 6,872 $ (81,309)
=========== ======== ===========
Basic net loss per weighted average common share(3)..... $ (1.68) $ (1.56)
=========== ===========
Basic weighted average common shares(3)................. 48,205,838 48,205,838
Diluted net loss per weighted average common share(3)... $ (1.89) $ (1.75)
=========== ===========
Diluted weighted average common shares(3)............... 48,669,528 48,669,528
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
32
<PAGE> 34
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The detail of the historical financial data as for the year ending December
31, 1998 has been obtained from the audited historical financial statement
of the wire harness business.
(2) The acquisition of the wire harness business will be accounted for at
historical cost, on a basis similar to a pooling of interests, as
Viasystems Group, Inc. and International Wire are under common control.
(3) Basic net loss per weighted average common share is computed by dividing
the net loss plus the charge for preferred stock dividends and accretion
less the loss attributable to class A common stock and class A series II
common stock by the weighted average common shares outstanding during the
period. Diluted net loss per weighted average common share is computed by
dividing the net loss plus the charge for preferred stock dividends and
accretion by the weighted average common shares outstanding during the
period plus the weighted average class A common stock and class A series II
common stock shares outstanding on an as if converted basis. Options and
warrants were excluded from the diluted calculation because their effect is
antidilutive. For further discussion of the methodology used to calculate
basic and diluted loss per share, refer to note 22 of our consolidated
financial statements.
33
<PAGE> 35
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WIRE HARNESS "AS IF POOLED"
COMPANY BUSINESS COMPANY
HISTORICAL HISTORICAL(1)(2) HISTORICAL
----------- ---------------- --------------
<S> <C> <C> <C>
Net sales................................................... $ 795,289 $165,430 $ 960,719
Cost of goods sold.......................................... 554,097 130,680 684,777
Selling, general and administrative expenses................ 75,650 7,847 83,497
Depreciation and amortization............................... 110,037 6,811 116,848
Write-off of acquired in-process research and development... 294,500 -- 294,500
----------- -------- -----------
Operating income (loss)..................................... (238,995) 20,092 (218,903)
Interest expense, net....................................... 64,612 8,710 73,322
Amortization of deferred financing costs.................... 6,629 545 7,174
Other expense (income)...................................... 1,024 114 1,138
----------- -------- -----------
Income (loss) before income taxes and extraordinary item.... (311,260) 10,723 (300,537)
Provision (benefit) for income taxes........................ 8,432 4,558 12,990
----------- -------- -----------
Income (loss) before extraordinary item..................... $ (319,692) $ 6,165 $ (313,527)
=========== ======== ===========
Basic net loss per weighted average common share before
extraordinary item(3)..................................... $ (10.73) $ (10.52)
=========== ===========
Basic weighted average common shares(3)..................... 26,507,409 26,507,409
Diluted net loss per weighted average common share before
extraordinary item(3)..................................... $ (12.19) $ (11.95)
=========== ===========
Diluted weighted average common shares(3)................... 26,507,409 26,507,409
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
34
<PAGE> 36
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The detail of the historical financial information for the year ended
December 31, 1997 has been obtained from the audited historical financial
statement of the wire harness business.
(2) The wire harness acquisition is accounted for at historical cost, on a basis
similar to a pooling of interests, as Viasystems Group, Inc. and
International Wire are under common control.
(3) Basic net loss per weighted average common share is computed by dividing the
net loss plus the charge for preferred stock dividends and accretion less
the loss attributable to class A common stock and class A series II common
stock by the weighted average common shares outstanding during the period.
Diluted net loss per weighted average common share is computed by dividing
the net loss plus the charge for preferred stock dividends and accretion by
the weighted average common shares outstanding during the period plus the
weighted average class A common stock and class A series II common stock
shares outstanding on an as if converted basis. Options and warrants were
excluded from the diluted calculation because their effect is antidilutive.
For further discussion of the methodology used to calculated basic and
diluted loss per share, refer to note 22 of our consolidated financial
statements.
35
<PAGE> 37
SELECTED FINANCIAL DATA
VIASYSTEMS GROUP, INC.
The selected financial and other data below for the period from inception,
August 28, 1996, to December 31, 1996 and for the years ended December 31, 1997,
1998 and 1999 presents consolidated financial information of Viasystems Group,
Inc. and subsidiaries and have been derived from our audited consolidated
financial statements. The following information should be read in conjunction
with our audited consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," all included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FROM INCEPTION
(AUGUST 28,
1996) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------
1996 1997 1998 1999
-------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 50,400 $ 795,289 $ 1,031,928 $ 1,102,324
Cost of goods sold......................... 42,052 554,097 723,741 816,370
Selling, general and administrative
expenses, including non-cash
compensation expense charge of $3,398 in
1998 and $110,070 in 1999(1)............ 3,844 75,650 110,147 223,139
Depreciation............................... 4,102 51,884 104,831 114,753
Amortization of intangible assets.......... 533 58,153 61,775 59,569
Impairment loss(2)......................... -- -- -- 468,389
Write-off of acquired in-process research
and development(3)...................... 50,800 294,500 20,100 17,600
-------- ----------- ----------- -----------
Operating income (loss).................... (50,931) (238,995) 11,334 (597,496)
Interest expense........................... 2,503 64,612 92,535 109,980
Amortization of deferred financing costs... 470 6,629 9,354 6,619
Other expense.............................. 262 1,024 4,960 23,594
-------- ----------- ----------- -----------
Loss before income taxes, cumulative effect
of a change in accounting principle, and
extraordinary item...................... (54,166) (311,260) (95,515) (737,689)
Provision (benefit) for income taxes....... (5,424) 8,432 (7,334) (28,289)
-------- ----------- ----------- -----------
Loss before, cumulative effect of a change
in accounting principle, extraordinary
item.................................... (48,742) (319,692) (88,181) (709,400)
Cumulative effect-write-off of start-up
costs, net of income tax benefit of
$5,647(4)............................... -- -- -- 16,942
Extraordinary loss, net of tax(5).......... -- 7,796 -- --
-------- ----------- ----------- -----------
Net loss................................... $(48,742) $ (327,488) $ (88,181) $ (726,342)
======== =========== =========== ===========
Basic net loss per weighted average common
share(6)................................ $ (29.78) $ (10.99) $ (1.68) $ (10.24)
======== =========== =========== ===========
Basic weighted average common shares(6).... 1,440,000 26,507,409 48,205,838 62,123,268
Diluted net loss per weighted average
common share(6)......................... $ (33.57) $ (12.48) $ (1.89) $ (10.86)
======== =========== =========== ===========
Diluted weighted average common
shares(6)............................... 1,451,955 26,507,407 48,669,528 67,238,458
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 16,117 $ 27,538 $ 9,335 $ 22,839
Working capital............................ 44,938 16,659 19,538 99,066
Total assets............................... 387,741 1,068,912 1,454,703 1,212,558
Total debt, including current maturities... 265,620 847,375 1,134,495 1,362,212
Stockholders' equity (deficit)............. 24,955 (125,491) (150,519) (603,003)
</TABLE>
36
<PAGE> 38
- ------------
(1) During the years ended December 31, 1998 and 1999, we recorded non-cash
compensation charges of $3,398 and $110,070, respectively, which reflect the
difference between the cost of the class A common stock and class A series
II common stock and the value of the common stock that it is convertible
into at those dates. We expect to record an additional non-cash compensation
charge in the first-quarter of 2000 as a result of the reclassification of
each 6 2/3 shares of class A common stock and class A series II common stock
into one share of common stock in connection with this offering.
(2) Represents an impairment loss related to the write-off of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." See note 3 to our consolidated financial
statements.
(3) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the acquisitions of Circo Craft and
the assets of the Interconnection Technologies Unit of the Microelectronics
Group (the "Lucent Division") of Lucent Technologies Inc. in 1996, Forward
and ISL in 1997, Mommers and Zincocelere in 1998 and Kalex in 1999. The
write-off relates to acquired research and development for projects that do
not have a future alternative use. See note 1 to our consolidated financial
statements included elsewhere herein.
(4) Represents the write-off of the net book value of start-up costs as of
January 1, 1999 related to the required adoption of the Financial Accounting
Standards Board's issuance of Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," which requires costs of start-up activities
and organizational costs to be expensed as incurred effective January 1,
1999.
(5) We 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.
(6) Basic net loss per weighted average common share is computed by dividing the
net loss plus the charge for preferred stock dividends and accretion less
the loss attributable to class A common stock and class A series II common
stock by the weighted average common shares outstanding during the period.
Diluted net loss per weighted average common share is computed by dividing
the net loss plus the charge for preferred stock dividends and accretion by
the weighted average common shares outstanding during the period plus the
weighted average class A common stock and class A series II common stock on
an as if converted basis. Options and warrants were excluded from the
diluted calculation because their effect is anti-dilutive. For further
discussion on the calculation of basic and diluted loss per share, refer to
note 22 of our consolidated financial statements.
37
<PAGE> 39
PREDECESSORS
Each of Circo Craft Co. Inc., Viasystems Technologies Corp., Forward Group
PLC and Interconnection Systems (Holdings) Limited are considered predecessors
to Viasystems Group, Inc. and, as such, the following selected financial data is
presented for each predecessor.
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 year
ended December 31, 1995 and the nine months ended September 30, 1996 (the period
prior to the acquisition of Circo Craft by Viasystems), set forth in Canadian
GAAP in Canadian dollars, 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 significant respects from U.S. GAAP. The data set forth in U.S. GAAP for the
fiscal year 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 "Management's
Discussion and Analysis of Results of Operations and Financial Condition," all
included elsewhere herein.
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS
CANADIAN GAAP IN U.S. GAAP
---------------------------- ----------------------------
FISCAL YEAR NINE MONTHS FISCAL YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995(1) 1996 1995(1) 1996
------------ ------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... C$185,156 C$129,633 C$194,140 C$129,633
Cost of goods sold.......................... 148,788 101,532 148,788 101,532
Selling, general and administrative
expenses................................. 11,087 7,969 10,846 8,072
Depreciation and amortization............... 7,931 8,456 7,931 8,456
--------- --------- --------- ---------
Operating income......................... 17,350 11,676 26,575 11,573
Interest expense............................ 852 646 852 646
Other income................................ (915) (880) (915) (880)
Expenses related to sale(2)................. -- 5,907 -- 5,907
--------- --------- --------- ---------
Income before income taxes............... 17,413 6,003 26,638 5,900
Provision for income taxes.................. 5,564 3,847 6,079 3,680
--------- --------- --------- ---------
Net income before non-controlling
interest.......................... C$ 11,849 C$ 2,156 C$ 20,559 C$ 2,220
========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................... C$ 19,231 C$ 28,438 C$ 16,600 C$ 21,411
Working capital............................. 40,057 41,909 40,057 41,909
Total assets................................ 128,964 134,725 128,964 134,725
Total debt, including current maturities.... 15,998 17,563
</TABLE>
- ------------
(1) Under Canadian GAAP in effect at the time, Circo Craft recognized 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 Viasystems which includes, among others, brokerage and legal
fees.
38
<PAGE> 40
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 year ended December 31, 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. We have omitted balance
sheet data because we do 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 "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
ELEVEN
FISCAL YEAR MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $325,047 $325,102
Cost of goods sold........................................ 274,824 244,313
Selling, general and administrative expenses.............. 42,445 34,792
Depreciation and amortization............................. 16,378 18,317
-------- --------
Operating income (loss)................................ (8,600) 27,680
Interest expense(1)....................................... 204 917
Other income.............................................. (94) (228)
-------- --------
Income (loss) before income taxes...................... (8,710) 26,991
Provision (benefit) for income taxes...................... (3,310) 10,257
-------- --------
Net income (loss)................................. $ (5,400) $ 16,734
======== ========
</TABLE>
- ------------
(1) Interest expense represents interest incurred on capital leases.
39
<PAGE> 41
FORWARD GROUP PLC
The selected financial and other data below presents financial information
of Forward Group for the periods indicated. The data for the two fiscal years
ended January 31, 1997, set forth in U.K. GAAP in U.K. pounds sterling, has been
derived from the audited consolidated financial statements of Forward Group. The
consolidated financial statements of Forward Group have been prepared in
accordance with U.K. GAAP, which differs in significant respects from U.S. GAAP.
The data set forth in U.S. GAAP as of and for the two fiscal years ended January
31, 1997, has been derived from the audited consolidated financial statements of
Forward Group and adjusted for differences between U.K. GAAP and U.S. GAAP. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS
U.K. GAAP IN U.S. GAAP
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 31, JANUARY 31,
------------------ --------------------
1996 1997 1996 1997
------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... L66,839 L105,029 L66,839 L105,029
Costs of goods sold................................ 49,850 79,030 49,850 79,030
Selling, general and administrative expenses....... 6,425 11,189 6,390 11,029
Depreciation and amortization...................... 2,701 4,694 2,787 4,870
Restructuring charges(1)........................... -- 1,244 -- 1,244
------- -------- ------- --------
Operating income................................ 7,863 8,872 7,812 8,856
Interest expense................................... 412 996 412 996
Other income....................................... (113) (229) (113) (229)
------- -------- ------- --------
Income before income taxes...................... 7,564 8,105 7,513 8,089
Provision for income taxes......................... 2,641 2,707 2,652 2,760
------- -------- ------- --------
Net income................................. L 4,923 L 5,398 L 4,861 L 5,329
======= ======== ======= ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.......................... L 789 L -- L 789 L --
Working capital.................................... 1,898 (3,074) 2,553 (3,074)
Total assets....................................... 51,124 60,282 56,539 67,406
Total debt, including current maturities........... 7,879 15,535
</TABLE>
- ------------
(1) Represents non-recurring restructuring charges related to the consolidation
and rationalization of several facilities at Forward Group.
40
<PAGE> 42
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
The selected financial and other data below presents financial information
of Interconnection Systems (Holdings) Limited, or ISL, as of and for the periods
indicated. The data as of and for the fiscal years ended 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
significant respects from U.S. GAAP. The data set forth in U.S. GAAP as of and
for the fiscal years ended 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 "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS IN
U.K. GAAP U.S. GAAP
FISCAL YEAR ENDED FISCAL YEAR ENDED
--------------------- ----------------------
MARCH 29, APRIL 4, MARCH 29, APRIL 4,
1996 1997 1996 1997
--------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... L104,611 L141,643 L104,611 L141,643
Costs of goods sold............................... 73,407 94,466 73,407 94,466
Selling, general and administrative expenses...... 7,522 10,514 7,464 10,437
Depreciation and amortization..................... 17,302 26,771 15,752 17,522
-------- -------- -------- --------
Operating income.................................. 6,380 9,892 7,988 19,218
Interest expense.................................. 807 818 807 818
Other income...................................... -- (44) -- (44)
-------- -------- -------- --------
Income before income taxes........................ 5,573 9,118 7,181 18,444
Provision for income taxes........................ 4,422 6,874 2,584 6,112
-------- -------- -------- --------
Net income................................ L 1,151 L 2,244 L 4,597 L 12,332
======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents......................... L 2,636 L 26,244 L 2,636 L 26,244
Working capital................................... (5,851) 11,516 (3,929) 14,276
Total assets...................................... 67,349 129,921 62,893 105,452
Total debt, including current maturities.......... 15,699 35,754
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
We are a leading worldwide independent provider of electronics
manufacturing services, or EMS. We serve primarily the telecommunications and
networking industries, which we believe to be the fastest-growing customer
segments of the $73 billion EMS market. We offer a wide range of products and
services to original equipment manufacturers of electronic products. Our
products and services consist of the design and fabrication of printed circuit
boards, in particular highly complex multi-layered printed circuit boards, the
manufacture of custom-designed backpanel assemblies, the manufacture of complex
printed circuit board assemblies, the procurement and management of materials
and the assembly and testing of our customers' complete systems and products.
OUR DEVELOPMENT
We were formed in 1996 by Hicks, Muse, Tate & Furst Incorporated and Mills
& Partners, Inc. under the name Circo Craft Holding Company to create a
preferred global manufacturing provider to leading original equipment
manufacturers through acquisitions of printed circuit board fabricators and
backpanel assemblers. In August 1996, we changed our name to CC Canada Holding
Company and then back to Circo Craft Holding Company in September 1996. We had
no operations prior to our first acquisition in October 1996, when we changed
our name to Circo Technologies, Inc. In January 1997, we changed our name to
Viasystems Group, Inc.
During the past eighteen months, we have broadened our focus to become a
full-solution provider in the electronics manufacturing services industry. This
change occurred as a result of our recognition that many of the next generation
products in the telecommunications and networking industries require highly
advanced printed circuit boards and backpanel assemblies. As a result, we made a
strategic decision to capitalize on our capabilities to compete for the complete
assembly of our customers' products that utilize our printed circuit boards and
backpanels.
In connection with this initiative, we opened four new facilities in the
later part of 1998. The four new facilities broadened our product offerings by
expanding our backpanel assembly capabilities as well as adding full system
assembly and test capabilities. In addition, in 1999 we consummated the
acquisition of PAGG Corporation and the printed circuit board manufacturing
facilities of Kalex Printed Circuit Board Limited and its direct and indirect
subsidiaries. The PAGG and Kalex acquisitions added printed circuit board
assembly capabilities and expanded our 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 our formation, we have also undertaken a rationalization of various
facilities we have acquired. In particular, we have closed the Selkirk and
Galashiels, Scotland facilities and the Manchester and Rugby, England
facilities.
RECENT EVENTS
On January 25, 2000, we entered into an agreement with Marconi
Communications, Inc. to acquire Marconi's network components and services
business for $115 million. This business has manufacturing facilities in Europe
and China, where it provides electronic manufacturing services primarily to
telecommunications customers, including Italtel, Lucent, Marconi, Nokia and
Siemens.
The network components and services business' products include integrated
enclosures, racks, sub-racks, cable assemblies and custom power supplies and,
through a joint venture, heat management systems. A rack is the metal framework
inside an enclosure used for the mounting and/or holding of printed circuit
boards and electronic components; and a sub rack is the smaller framework
included within a rack used to mount electronic components. Power supplies
distribute and regulate power for electronics equipment. There are two
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primary types of power supplies -- alternating current to direct current or
direct current to direct current. Heat management systems are systems that
either cool or heat electronic equipment.
The core products of the network components and services business are
enclosures, racks and sub-racks. These products are used primarily in wireless
base stations, telecommunications switching and transmission equipment, cable TV
infrastructure and precision control instrumentation. Precision control
instrumentation equipment is utilized primarily in manufacturing process control
equipment to monitor manufacturing functions on a factory floor.
For the twelve months ended December 31, 1999, the network components and
services business had revenues and operating income (loss), plus depreciation
and amortization of approximately $151.6 million and $10.6 million,
respectively. The network components and services business operates from
manufacturing facilities in England, Northern Ireland, Italy and China. In
addition the network components and services business' joint venture has
manufacturing facilities in Denmark and South Carolina.
While the acquisition of the network components and services business is
expected to close on March 30, 2000, we cannot assure you that the closing will
occur at, or subsequent to, that time.
ACQUISITIONS
A significant portion of our growth has been generated through acquisitions
completed since 1996. Giving effect to the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden and the acquisition of the wire harness business of
International Wire, our business will include the following six acquired
businesses:
- the purchase of Circo Craft, a business engaged in the fabrication of
printed circuit boards, in Canada in October 1996 for $129.9 million
cash;
- 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 printed circuit boards 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;
- the purchase of Mommers, a business engaged in the fabrication of printed
circuit boards and backpanels, in the Netherlands in February 1998 for
$59.4 million cash;
- the purchase of PAGG Corporation, a business engaged in design and
prototype services, printed circuit board 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 our common stock, and
warrants to purchase 136,645 shares of common stock;
- the purchase of the printed circuit board manufacturing facilities of
Kalex Printed Circuit Board Limited and its direct and indirect
subsidiaries in the People's Republic of China in August 1999 for $301.0
million cash; and
- the purchase of the wire harness business of International Wire, which
will occur immediately prior to the consummation of the offering, for
$210.0 million cash.
We continue to examine numerous acquisition opportunities in order to:
- diversify end-product programs with existing customers;
- locate manufacturing facilities close to original equipment manufacturers
or their end users;
- expand our capacity in selected geographic regions to take advantage of
existing infrastructure or low cost manufacturing;
- complement our service offerings; and
- diversify our customer base to serve a wide variety of end-markets with
new telecommunications and networking customers.
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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:
- an acquired business or facility may be underutilized;
- existing business at a new or acquired business or facility may be lower
margin, such as printed circuit board assembly or system assembly;
- a newly acquired business or facility may be less efficient initially;
and
- 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 commitments, 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' captive printed circuit board
facility in December 1996, pricing to Lucent initially exceeded prevailing
market 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:
- increase capacity utilization and reduce cost;
- complete integration activities, including replacing third-party
suppliers of printed circuit boards, backpanel assemblies and wire
harnesses and cable assemblies with our own internal production of those
components;
- implement our processes and disciplines to reduce costs and obtain the
cost benefits of our procurement leverage; and
- introduce new business from the original customer and others.
GREENFIELD FACILITIES
Since our inception in 1996, we have opened four new start-up, or
greenfield, facilities in the United States, Mexico, Europe and Asia. These
facilities provide us with operations in key geographic markets. The four
greenfield facilities are:
- a 35,000 square foot facility opened September 1998 in Columbus, Ohio
providing full system assembly services;
- a 51,000 square foot facility opened August 1998 in Juarez, Mexico
providing backpanel assembly services;
- a 52,000 square foot facility opened June 1998 in Boldon, England
providing backpanel assembly and full system assembly services; and
- a 17,000 square foot facility opened November 1998 in Nantong, China
providing backpanel assembly services.
Consistent with our past practices and as a normal course of business, we will
continue to evaluate establishing new greenfield facilities particularly when
greenfield operations have the potential to enable us to increase our sales or
service to our existing customers, access new geographic markets or provide
favorable cost advantages.
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HISTORICAL RESULTS OF OPERATIONS -- VIASYSTEMS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net sales for the year ended December 31, 1999 were $1,102.0 million,
representing a $70.4 million, or 6.8%, increase from the comparable period in
1998. Approximately $123.6 million of the increase was due primarily to the
acquisitions of Mommers and Zincocelere in 1998 and the acquisitions of Kalex
and PAGG Corporation in 1999, offset by contractual price reductions of
approximately $48.0 million under the Lucent supply agreement and other
industry-wide pricing pressures.
Cost of goods sold for the year ended December 31, 1999 was $816.4 million,
or 74.1% of net sales, compared to $723.7 million, or 70.1% of net sales, for
the year ended December 31, 1998. Cost of goods sold as a percent of net sales
increased year over year as a result of the contractual and industry-wide
pricing pressures, partially offset by cost containment activities which
approximated $80.0 million in reduced material costs negotiated as a result of
our increased purchasing power and improved plant operating efficiencies through
upgrades in systems and equipment technologies and by improving the process flow
of our Echt, Netherlands facility.
Selling, general and administrative expenses (excluding the non-cash
compensation expense charge of $3.4 million and $110.1 million in 1998 and 1999,
respectively) for the year ended December 31, 1999 increased by $6.3 million
versus the comparable period in 1998. These costs increased primarily due to
increases in general and administrative expenses related to the Kalex and PAGG
Corporation acquisitions partially offset by cost containment efforts resulting
from headcount reductions made at our corporate offices. During the years ended
December 31, 1998 and 1999, we recorded non-cash compensation charges of $3.4
million and $110.1 million, respectively, which reflect the difference between
the cost of the class A common stock and class A series II common stock and the
value of common stock that it is convertible into at December 31, 1998 and 1999,
respectively.
Other expense increased $33.3 million, from $106.9 million for the year
ended December 31, 1998 to $140.2 million in the same period of 1999, due
primarily to increased interest expense and amortization of deferred financing
costs related to the debt financing incurred to fund the acquisitions of Mommers
and Zincocelere in the first quarter of 1998 and Kalex in August 1999 and from
the loss on disposal of plant, property and equipment related to our Selkirk,
Scotland facility that was closed during 1999.
Depreciation and amortization increased $7.7 million, from $166.6 million
for the year ended December 31, 1998 to $174.3 million for the same period in
1999, primarily as a result of the impact to depreciation of acquired fixed
assets and to amortization of acquired intangibles from the acquisitions of
Mommers and Zincocelere in the first quarter of 1998 and the Kalex acquisition
in August 1999.
During 1999, we recorded a non-cash impairment loss of $468.4 million
related to the write-off of long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Based on current
business enterprise values using common appraisal methods, the assessment has
identified impairment of long-lived assets acquired from the Forward Group,
Interconnection Systems Limited and Zincocelere acquisitions. The calculated
business enterprise values determined were compared to the net book value of the
related long-lived assets with the difference representing the amount of the
impairment loss. The impairment loss for each group of assets was first charged
against goodwill with any remaining amounts being charged to the other acquired
intangibles and property, plant and equipment, if necessary. The impairment
resulted due to significant changes in the markets served by the acquisitions
that were not anticipated at the time of each acquisition, most significantly a
significant decline in market pricing. The decline in market pricing was due to
the convergence of two factors: significant currency fluctuations and the
emergence of significant offshore competition from Asia Pacific. While the
primary currency for the acquisitions is the U.K. pound sterling, their
competitors were in Continental Europe and beginning to emerge from Asia
Pacific. The currencies for most of the Continental European and Asia Pacific
countries declined significantly against the U.K. pound sterling, which resulted
in an improved relative cost position for the competitors and reduced market
pricing.
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This decline in market pricing has resulted in a significant decline in
profitability that is not expected to return in the near term.
During 1999, we recorded a one-time non-cash cumulative effect of a change
in accounting principle of $16.9 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 1998, we 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 1999, we recorded a one-time non-cash write-off
of $17.6 million related to in-process research and development acquired in the
Kalex acquisition.
During 1999, we initiated a comprehensive review of the strategic position
of our individual business units with the intent to restructure our existing
operations. As a result of the events detailed in "The Transactions," we decided
to abandon the planned restructuring.
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%, over the year ended
December 31, 1997. The increase was primarily attributable to the acquisitions
of Viasystems Sweden, Mommers and Zincocelere completed in the first quarter of
1998 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 Asian currencies and contractual price
reductions under the Lucent supply agreement.
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 a percent of net sales
increased as a result of product mix changes from the acquisitions of Viasystems
Sweden, Mommers and Zincocelere, as well as the above mentioned currency-related
and contractual price reductions we experienced. These factors were partially
offset by cost containment and reduction activities.
Selling, general and administrative expenses (excluding the non-cash
compensation expense charge of $3.4 million in 1998) 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 of Viasystems Sweden, Mommers and Zincocelere,
increased sales and marketing expenses and increases in administrative expenses
at our Richmond, Virginia facility related to the separation from Lucent
Technologies. During the year ended December 31, 1998, we recorded a non-cash
compensation charge of $3.4 million, which reflects the difference between the
cost of the class A common stock and class A series II common stock and the
value of common stock that it is convertible into at December 31, 1998.
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 Group and
Interconnection Systems Limited in the second quarter of 1997 and of Viasystems
Sweden, Mommers and Zincocelere in the first quarter of 1998.
During the year ended December 31, 1998 we 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, we recorded a similar charge of $294.5 million related to the
acquisitions of Forward Group and Interconnection Systems Limited.
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 acquisitions of
Viasystems Sweden, Mommers and Zincocelere.
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LIQUIDITY AND CAPITAL RESOURCES -- VIASYSTEMS
We are a holding company that has no significant assets other than the
capital stock of Viasystems, Inc., and therefore, we rely on dividends and
distributions from Viasystems, Inc. as our sole source of cash. Our right to
participate in dividends or other distributions from Viasystems, Inc. is subject
to restrictions imposed by the terms of Viasystems, Inc.'s senior credit
facility and senior subordinated notes, as well as the prior rights of
Viasystems, Inc.'s creditors and other statutory restrictions.
Net cash provided by operating activities was $31.6 million for the year
ended December 31, 1999 compared to net cash used in operating activities of
$43.8 million for the same period in 1998. The increase in net cash from
operating activities related primarily to timing of payments to vendors. Net
cash used in investing activities was $441.0 million for the year ended December
31, 1999, compared to $276.0 million for the year ended December 31, 1998. The
net cash used in investing activities for 1999 included $314.2 million related
to the acquisitions of Kalex and PAGG Corporation with the remainder related to
capital expenditures. In 1998, net cash used in investing activities included
$145.7 million related to the acquisitions of Viasystems Sweden, Mommers and
Zincocelere with the remainder related to capital expenditures.
In connection with our acquisition of Interconnection Systems Limited in
June 1997, we assumed approximately $437.5 million of loan notes, of which
$285.3 million were outstanding as of December 31, 1999. Our prior credit
facility contained a committed term loan facility that we could draw upon to
satisfy our remaining obligations under those loan notes. In June 1997, we also
completed a $400.0 million offering of Viasystems, Inc.'s 9 3/4% senior
subordinated notes due 2007. The net proceeds of that offering were used to
repay a bridge loan facility and approximately $171.9 million under our existing
credit facility.
In February 1998, Viasystems, Inc. issued an additional $100.0 million of
its 9 3/4% senior subordinated notes due 2007 at a price of 104.5% of their
principal amount, yielding approximately $101.0 million in proceeds. In
connection with this offering of senior subordinated notes, our existing credit
facilities were increased by $95.0 million, and an affiliate of Hicks, Muse,
Tate & Furst Incorporated purchased an additional $50.0 million of our common
stock. The proceeds from these financing activities were used to fund the
acquisitions of Viasystems Sweden, Mommers and Zincocelere and repay a portion
of our revolving credit facilities.
In connection with the acquisition of Kalex in August 1999, we entered into
a third amended and restated credit agreement with terms substantially similar
to the prior credit agreement. Our credit agreement was amended to, among other
things, establish an additional $291.0 million term loan facility, repay $10.1
million outstanding under the term loans available to refinance the loan notes
issued in connection with the acquisition of Interconnection Systems Limited in
1997, and collateralize future amounts due under the term loans with
approximately $89.9 million in cash. Additionally, we received an equity
contribution of $200.0 million.
As of December 31, 1999, our indebtedness consisted of amounts outstanding
under the existing senior credit facilities, the senior subordinated notes, the
loan notes, capital leases and other debt.
We anticipate that our primary uses of cash in 2000 will be:
- for capital expenditures for maintenance, replacement and acquisitions of
equipment, expansion of capacity, productivity improvements and product
and process technology development;
- the $115.0 million purchase price for the Marconi Communications, Inc.
network components and service business; and
- to pay interest on, and to repay principal of, indebtedness under our
senior credit facilities, the senior subordinated notes and our other
outstanding indebtedness as discussed in note 8 to our consolidated
financial statements set forth elsewhere herein.
We anticipate making capital expenditures of approximately $120.0 million
in 2000. In 2000, we will be obligated to make principal and interest payments
of approximately $75.0 million under our new senior credit facilities and the
senior subordinated notes.
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We expect that our primary sources of cash will be cash on hand, cash from
operating activities and revolving borrowings under our senior credit
facilities. In connection with the offering, we expect to refinance our existing
senior credit facilities and our obligations under the loan notes with a new
senior secured credit facility. Our new credit facility is expected to consist
of a $150.0 million term loan facility, $303.0 million letter of credit and term
loan reimbursement facility and $175.0 million of available revolving loans. As
of December 31, 1999, as adjusted for the offering, the transfer of the
operations formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden and the acquisition of the wire harness
business of International Wire, there would have been no amounts outstanding
under the revolving credit facilities available under the new senior credit
facilities, and approximately $175.0 million of available borrowing capacity
thereunder, subject to limitations.
We anticipate that our cash on hand, cash flow from operations and
additional funds available under the revolving facilities of our new senior
credit facilities will be sufficient to meet our requirements for working
capital, capital expenditures, the purchase price for the Marconi network
components and service business, and debt service and other operating cash
requirements over the next 12 months. Although we are not able to currently
predict those needs in periods beyond 12 months, we believe our current cash
flow from operations and borrowings available under our new senior credit
facility will be sufficient to meet our capital requirements through 2001. Any
future acquisitions would likely require external sources of debt and/or equity
financing. There can be no assurance that those funds would be available on
terms satisfactory to us, or at all. In addition, our future operating
performance and ability to meet our financial obligations will be subject to
future economic conditions and to financial, business and other factors, many of
which will be beyond our control.
Borrowings under our senior credit facilities are expected to bear interest
at floating rates and will require interest payments on varying dates depending
on the interest rate option we select. The senior subordinated notes bear
interest at the rate of 9 3/4% per annum, which is payable semiannually in
arrears.
The senior subordinated notes restrict us from, and the new senior credit
facilities are expected to restrict us from, among other things:
- incurring additional indebtedness;
- making capital expenditures in excess of $130.0 million for the fiscal
years ended 2000 and 2001 and $110.0 million for the fiscal years ended
2002, 2003 and 2004;
- creating liens upon its property, assets or revenues;
- disposing of assets;
- guaranteeing indebtedness;
- merging or selling substantially all of our assets;
- declaring and paying dividends;
- making investments and loans; and
- entering into transactions with affiliates,
in each case with exceptions customary for credit facilities such as the new
senior credit facilities.
NET OPERATING LOSS CARRYFORWARD
We estimate that for United States federal income tax purposes we will have
net operating loss carryforwards, or NOLs, amounting to approximately $545
million as of January 1, 2000. Such NOLs expire in 2018 through 2019 if not
utilized before then to offset taxable income. Section 382 of the Internal
Revenue Code of 1986, as amended, and regulations issued thereunder impose
limitations on the ability of corporations to use NOLs if the corporation
experiences more than a 50% change in ownership during certain periods. Changes
in ownership in future periods could substantially restrict our ability to
utilize our tax net operating loss carryforwards. We believe that no such
ownership change has occurred or will occur as a result of the offering. There
can be no assurances, however, that such an ownership change will not occur in
the future. In addition, as of January 1, 2000 we had NOLs of $11 million in the
People's Republic of China, $6 million in
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<PAGE> 50
Puerto Rico, $55 million in the United Kingdom, and $19 million in the
Netherlands. The NOLs in the People's Republic of China and Puerto Rico begin to
expire in 2000, while the other NOLs carry forward indefinitely.
EXTRAORDINARY ITEM AND NON-CASH COMPENSATION EXPENSE
In connection with this offering, the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden and the acquisition of the wire harness business of
International Wire, we will repay our existing senior credit facility. That
repayment will result in the write-off of deferred financing costs, which we
expect will be reported as an extraordinary item in the first quarter of fiscal
year 2000. Had the offering and those transactions been completed at December
31, 1999, we would have recorded an extraordinary charge of $15.9 million (net
of income tax benefit of $4.0 million) with respect to the write-off of these
deferred financing costs.
Also in connection with this offering, we are amending the terms of our
performance stock options held by members of management to eliminate the
exercisability restrictions and variable exercise price terms. The amended
performance options will have a fixed exercise price and will be immediately
exercisable. As a result of these amendments, we expect to record a one-time
non-cash charge of $33.6 million to compensation expense in the first quarter of
fiscal year 2000.
In connection with this offering, we expect to reclassify each 6 2/3 shares
of our class A common stock and class A series II common stock into one share of
common stock. The reclassification is expected to result in a non-cash
compensation charge of $80.5 million. No additional charge related to the class
A common stock and class A series II common stock will be required after the
reclassification.
In connection with this offering, we also expect to terminate the
monitoring and oversight agreement and financial advisory agreement with an
affiliate of Hicks Muse. As consideration for Hicks Muse's willingness to agree
to such termination, we will grant to Hicks Muse and partners of Hicks Muse
options to purchase an aggregate of 2,134,000 shares of our common stock at an
exercise price equal to $21.00 per share. The grant is expected to result in a
non-cash compensation charge of $22.8 million.
RECENT ACCOUNTING PRONOUNCEMENTS
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
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, 2000. We have not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor have we
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.
IN-PROCESS RESEARCH AND DEVELOPMENT
1997 Acquisitions
Forward Group's and Interconnection Systems Limited's in-process research
and development, or R&D, value was comprised of numerous R&D projects. These R&D
projects targeted improvements in materials and processing to reduce printed
circuit board thickness, lines, spaces and vias for market applications and
improvements in registration which would allow for the increase in the thickness
of the printed circuit board backpanels for other market applications. There
were several in-process R&D projects focused on plating, including panel
plating, reverse pulse plating, direct metallization and immersion silver. In
addition, other in-process R&D projects were investigating laser technology,
sequential build up of printed circuit boards, the applicability of specialty
materials and the ability to build components into a printed circuit board.
Finally, the
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remaining in-process R&D projects targeted improvements in testing procedures to
allow for testing for the more complex technologies related to the
above-mentioned in-process R&D projects.
The in-process R&D projects from the Forward Group and Interconnection
Systems Limited acquisitions can now be classified into three categories:
completed, abandoned or still in progress. We were technologically successful on
many of the in-process R&D projects, but several were abandoned due to the
unavailability of appropriate materials or manufacturing equipment or the lack
of market acceptance. The remaining, still in progress, projects are primarily
specialty materials projects, which have yet to develop the market demand
anticipated at the time of these acquisitions. We believe that efforts to
complete the still in progress acquired in-process R&D projects will consist
primarily of internal engineering costs over the next one to three years. These
costs are estimated to be approximately $1 million.
The revenues derived from the in-process R&D projects from the Forward
Group and Interconnection Systems Limited acquisitions are significantly lower
than anticipated. This significant shortfall was caused by the abandonment of
certain projects, the lack of market demand for others, and the general economic
conditions of the printed circuit board market served by the Forward Group and
Interconnection Systems Limited acquisitions. The market served by the Forward
Group and Interconnection Systems Limited acquisitions has experienced
significant changes not anticipated at the time of the acquisitions, most
significantly a significant decline in market pricing. The decline in market
pricing was due to the convergence of two factors: significant currency
fluctuations and the emergence of significant offshore competition from Asia
Pacific. While the primary currency for the Forward Group and Interconnection
Systems Limited acquisitions is the U.K. pound sterling, their competitors were
in Continental Europe and beginning to emerge from Asia Pacific. The currencies
for most of the Continental European and Asia Pacific countries declined
significantly against the U.K. pound sterling, which resulted in an improved
relative cost position for the competitors and reduced market pricing. The
decline in market pricing has resulted in a significant decline in profitability
for the Forward Group and Interconnection Systems Limited acquisitions.
1998 Acquisitions
Mommers' in-process R&D value was comprised of several R&D projects. These
in-process R&D projects, like those of the Forward Group and Interconnection
Systems Limited acquisitions, targeted improvements in materials, processing and
registration. Mommers' primary in-process R&D projects were focused on
developing the capability to produce larger, thicker backpanels ranging from 48
to 60 layers and the development of thin core technology. The remaining projects
were related to the further development of Mommers' high-density capabilities
and the applicability of specialty materials.
We approached the development of thicker backpanels as the combination of
several projects: increasing board thickness, increasing the aspect ratio, which
is a measure of hole diameter to board thickness, improving drilling and plating
of higher aspect ratios and thicker boards, and increasing board size. Finally,
upon successful completion of these steps, we would need to invest in the
capital equipment necessary to produce the larger boards.
The thin core technology project targeted the reduction of insulating
material between two conductive layers of a printed circuit board, to produce
thin, lightweight printed circuit boards. The reason for this activity is to
address the electronics industry trend toward lighter and more densely populated
product offerings.
The primary in-process R&D projects from the Mommers acquisition can now be
classified as completed as the development of the capabilities for the larger,
thicker backpanels and the development of thin core technology have been
achieved. In 1999, the revenues derived from the Mommers in-process R&D
approximate the levels anticipated at the time of the acquisition. We are 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 R&D in
the acquisition. There can be no guarantee that the acquired in-process R&D
projects will result in future revenue growth, we believe that the likelihood is
reasonable for these projects.
Zincocelere's in-process R&D value was also comprised of several R&D
projects, which targeted improvements in materials, processing and registration.
Zincocelere's primary in-process R&D projects related to material processing and
developing a photo microvia process. In addition, Zincocelere was involved in
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projects designed to reduce printed circuit board thickness, lines, spaces and
vias, and other projects designed to increase board thickness for other
applications.
The primary material-processing project underway at the time of the
acquisition was focused on finding solutions to the problem of thin copper foil
handling. This project was primarily related to the reduction of cost. We have
successfully completed this project.
The photo microvia process project under development at the time of the
acquisition has been abandoned at this site. The commercial viability of this
project for the customer base served by Zincocelere was limited and would have
required significantly more capital investment.
Most of the other in-process R&D projects related to the Zincocelere
acquisition have also been abandoned. The abandonment of most of Zincocelere's
in-process R&D projects combined with a significant reduction in market pricing
for lower technology printed circuit boards has resulted in less revenue than
anticipated at the date of the acquisition. The decline in market pricing has
resulted in a significant decline in profitability for the Zincocelere
acquisition.
1999 Acquisitions
Kalex's in-process R&D value is comprised of three primary projects
consisting of developing Rambus technology, increasing board layer count and
developing ball grid array substrates capability. At the acquisition date, R&D
programs ranged from 65% to 80% complete and total continuing R&D commitments to
complete the projects were expected to be $2.4 million. Since the date of the
acquisition we have completed the Rambus project and continued to pursue the
board layer count project and the ball grid array substrate project.
The Rambus project is expected to generate revenues in 2000 at levels
originally anticipated, assuming market acceptance of the technology. Rambus
technology is designed to improve the communication between current and next
generation fast central processing unit microchips and peripherals on the
motherboard. This requires motherboards with finer lines, much lower impedance,
and extremely small variance in specification tolerance. The applications for
Rambus technology are personal computers, workstations, mainframes, mobile
phones, communications equipment and network systems.
Because we have capabilities at most of our facilities to produce high
layer count printed circuit boards, the board layer count project has progressed
more quickly than originally anticipated and is nearing completion. The ball
grid array substrates project is designed to improve printed circuit board
density and performance. This project, to be successful, will require specific
machinery and precision tools, including unique drilling, routing, lamination,
and etching equipment. We will further evaluate this program before committing
to such investment.
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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At December 31, 1999, approximately $816.2 million of our long-term debt,
specifically borrowings outstanding under our existing senior credit facility
and the loan notes, bear interest at variable rates. Accordingly, our earnings
and cash flow are affected by changes in interest rates. Assuming the current
level of borrowings at variable rates and assuming a change of twenty percent in
the end-of-period market rates under these borrowings, it is estimated that our
interest expense for the year ended December 31, 1999, would have increased by
approximately $15.2 million. In the event of an adverse change in interest
rates, management would likely take actions that would mitigate our exposure to
interest rate risk; however, due to
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the uncertainty of the actions that would be taken and their possible effects,
this analysis assumes no such action. Further, this analysis does not consider
the effects of the change in the level of overall economic activity that could
exist in such an environment.
FOREIGN CURRENCY RISK
We conduct our business in various regions of the world, and export and
import products to and from several countries. Our operations may, therefore, be
subject to volatility because of currency fluctuations, 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 our product prices and
operating costs or those of our competitors. From time to time, we engage in
hedging operations, such as forward exchange contracts, to reduce our exposure
to foreign currency fluctuations. We do not engage in hedging transactions for
speculative investment reasons. Our hedging operations historically have not
been material and gains or losses from these operations have not been
significant. There can be no assurance that our hedging operations will
eliminate or substantially reduce risks associated with fluctuating currencies.
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BUSINESS
Unless otherwise indicated or required in the context, the following
discussion gives effect to the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden and the acquisition of the wire harness business of International Wire,
all as more fully described under "The Transactions" contained elsewhere in this
prospectus.
GENERAL
We are a leading worldwide independent provider of electronics
manufacturing services, or EMS, to original equipment manufacturers, or OEMs,
primarily in the telecommunications and networking industries. We offer our EMS
solutions to OEMs that outsource the design and manufacture of their products.
Our products and services consist of the following:
- the manufacture of printed circuit board assemblies, in particular highly
complex multi-layered printed circuit boards;
- the manufacture of custom-designed backpanel assemblies;
- the procurement and management of materials; and
- the assembly and testing of our customers' complete systems and products.
Additionally, upon the consummation of the acquisition of the wire harness
business of International Wire, we will also design and manufacture wire
harnesses and custom cable assemblies.
By manufacturing highly complex multi-layered printed circuit boards and
custom-designed backpanel assemblies, we are able to gain early access to our
customers' new product designs. This access gives us an opportunity to use our
printed circuit board and backpanel capabilities to capture the full assembly of
our customers' products at the design stage of their product development cycle.
Our customer base primarily consists of OEMs in the telecommunications and
networking industries. We currently are a supplier to over 50 OEMs, including
industry leaders Alcatel, Cisco Systems, Delco, Ericsson, Intel, Lucent
Technologies, Marconi Communications, Motorola, Nortel, Siemens, Sun
Microsystems and 3Com. Additionally, upon the consummation of the acquisition of
the wire harness business of International Wire, we will be a supplier to
General Electric. For the year ended December 31, 1999, approximately 55% of our
pro forma revenues were from telecommunications and networking customers. The
products we manufacture include, or can be found in, a wide array of products
such as switching and transmission equipment, wireless base stations,
workstations, servers and data networking equipment including hubs, routers and
switches.
Our pro forma revenues for the year ended December 31, 1999 were
approximately $1 billion. Upon completion of the acquisition of the wire harness
business and the transfer of nine European manufacturing facilities to our
existing stockholders, we will operate 20 manufacturing facilities located in
the United States, Canada, Mexico, the United Kingdom, the Netherlands and
China.
ELECTRONICS MANUFACTURING SERVICES INDUSTRY
OVERVIEW
The EMS industry is comprised of companies that provide a range of
manufacturing services to OEMs. The industry is experiencing a rapid rate of
growth. Technology Forecasters, Inc. forecasts that the EMS industry will grow
annually at approximately 20% from 1998 through 2003, with total industry
revenue projected to be $149.4 billion by 2003. Additionally, Technology
Forecasters forecasts that the EMS providers with annual 1998 revenue of greater
than $500 million will have a growth rate of approximately 30% over the same
period. In addition, the EMS industry is highly fragmented, with only eight EMS
providers achieving total revenue in excess of $1 billion, and the ten largest
participants accounting for approximately 39% of total industry revenue in 1998,
based on estimates by Technology Forecasters.
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EMS industry growth is being fueled by the growth of the overall
electronics industry and increased outsourcing of manufacturing and related
functions by electronics OEMs worldwide. This outsourcing trend is being fueled
by an increasing number of OEMs that are outsourcing a substantial portion of
their manufacturing in order to focus resources on core competencies, including
through the sale of manufacturing operations to EMS providers. We believe that,
as the trend to outsourcing continues, OEMs will increasingly outsource more
complex products and services. We believe this trend will favor larger EMS
providers that have clear advantages of scale, geographic diversity, technology
and quality and lead to consolidation in the EMS industry.
We believe that the telecommunications and networking equipment industries
represent large and attractive markets for electronics manufacturing services.
The rapid growth of the Internet has changed the way that networks must be
constructed in order to handle the growing volume of both voice and data
traffic. This shift is causing network providers to make significant capital
expenditures to expand and upgrade the existing network infrastructure.
Networking companies such as Cisco, Bay Networks and Ascend Communications were
among the first communications equipment companies to aggressively outsource
much of their manufacturing to EMS providers. These companies set the standard
for the networking industry, demonstrating the benefits that can be realized
from an OEM model that relies heavily on the services of EMS providers.
Telecommunications equipment companies have only recently begun to use EMS
providers. In part because of acquisitions such as Lucent's purchase of Ascend
and Nortel's acquisition of Bay Networks, telecommunications equipment vendors
have seen the success that the networking companies they acquired have achieved
through outsourcing. In addition, networking companies are increasingly offering
products that compete with those of telecommunications equipment vendors,
forcing telecommunications OEMs to react to and adopt the outsourcing practices
of their networking competitors to be able to compete effectively.
EVOLUTION OF EMS INDUSTRY
Historically, OEMs invested heavily in manufacturing assets and facilities
around the world to support the manufacture, service and distribution of their
products. In the early stages of the EMS industry, EMS companies acted as
subcontractors and performed simple, labor-intensive material assembly functions
to provide excess production capacity for OEMs during peak demand periods.
Accordingly, the relationship between OEMs and EMS providers tended to be
transactional in nature.
Significant advancements in manufacturing process technology in the 1980s,
such as surface mount technology, enabled EMS companies to provide cost savings
to OEMs while at the same time improving the quality of their products.
Furthermore, as the capabilities of EMS companies expanded, an increasing number
of OEMs adopted and increasingly relied upon manufacturing outsourcing
strategies. In recent years, large sophisticated EMS companies have further
expanded their capabilities to include services ranging from front-end design to
back-end full system assembly, product test, test development, order fulfillment
and distribution and after-sales support. Large EMS companies generally have a
lower cost structure, superior manufacturing technological expertise and more
advanced manufacturing processes relative to the OEM customers they serve.
By using EMS providers, OEMs are able to focus on their core competencies,
including product development, sales, marketing and customer service, while
leveraging the expertise of EMS providers for design, procurement, assembly and
test operations and supply chain management. As a result, larger, more
sophisticated EMS providers have established strong strategic relationships with
many of their OEM customers.
We believe that the principal reasons OEMs establish relationships with EMS
providers include the following:
Decrease Time-to-Market and Time-to-Volume. Electronics products are
experiencing shorter product life cycles, requiring OEMs to continually
reduce the time required to bring products to market. OEMs can
significantly shorten product development cycles and decrease
time-to-market by benefiting from the design and manufacturing expertise
and infrastructure of EMS providers. This includes
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capabilities relating to design, quick-turn prototype development and rapid
ramp-up of new products to high volume production, combined with critical
worldwide supply chain management expertise.
Reduce Operating Costs and Invested Capital. As electronics products
have become more technologically advanced, manufacturing processes have
become increasingly automated, requiring greater levels of investment in
capital equipment. EMS companies provide OEMs access to advanced
manufacturing facilities, supply chain management and engineering
capabilities, additional capacity, greater production flexibility and
economies of scale without capital investment.
Focus Resources on Core Competencies. The electronics industry is
experiencing greater levels of competition and rapid technological change.
In this environment, many OEMs are seeking to focus on their core
competencies of product development, sales, marketing and customer service,
and to outsource design, manufacturing and related requirements to their
EMS providers.
Access Leading Manufacturing Technologies. Electronics products and
electronics manufacturing technology have become increasingly sophisticated
and complex, making it difficult for many OEMs to maintain the necessary
technological expertise and focus required to efficiently manufacture
products themselves. By working closely with EMS providers, OEMs gain
access to high quality manufacturing expertise and capabilities in the
areas of advanced process, interconnect and test technologies.
Utilize EMS Companies' Procurement, Inventory Management and Logistics
Expertise. OEMs that manufacture internally are faced with greater
complexities in planning, procurement and inventory management due to
frequent design changes, short product life cycles and product demand
fluctuations. OEMs can address these complexities by outsourcing to EMS
providers that possess sophisticated supply chain management capabilities
and can use significant component procurement advantages to reduce product
costs.
Improve Access to Global Markets. OEMs are generally increasing their
international activities in an effort to expand their sales through access
to foreign markets. EMS companies with worldwide capabilities are able to
offer OEMs global manufacturing solutions to assist them in meeting local
content requirements, distributing products efficiently around the world
and reducing costs.
KEY SUCCESS FACTORS
We believe that the following are the key success factors for EMS providers
seeking to establish and expand relationships with leading OEMs:
Large-Scale and Flexible Production Capacity. Increasingly, leading
OEMs are seeking to outsource large-scale manufacturing programs.
Generally, those EMS providers that can meet the volume and time-to-market
requirements associated with these programs will be able to exploit these
opportunities. EMS providers must have sufficient scale and flexible
production capacity to be awarded large outsourcing programs, as OEMs often
seek partners with the resources to support simultaneous product launches
in multiple markets.
Broad Service Offering. In order to establish strategic relationships
with OEM customers that are seeking to reduce their number of suppliers,
EMS companies must be able to provide a broad portfolio of services. These
services include front-end product design and design for manufacturability,
component selection and procurement, quick-turn prototyping, product
testing, product assurance and failure analysis as well as back-end
functions such as full system assembly, order fulfillment, worldwide
distribution and after-sales support, including repair services.
Sophisticated Technological Capabilities. The desire of OEMs to
increase product performance, functionality and quality is driving a
requirement for increasingly complex printed circuit board fabrication,
assembly and test technologies. EMS providers that possess expertise in
manufacturing technology, and that continually innovate and develop
advanced fabrication, assembly and test techniques, provide a competitive
advantage to their OEM customers. We believe that as the trend to
outsourcing continues, OEMs will increasingly outsource more complex
products.
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Global Supply Chain Management Skills. EMS providers must possess the
skills required to optimize many aspects of an OEM's global supply chain,
from managing a sophisticated supplier base, including component selection
and cost-effective procurement to inventory management and rapid product
distribution directly to end customers. EMS providers who lack the
sophisticated material resource planning and information technology systems
necessary to effectively optimize the supply chain will be at a significant
disadvantage in the marketplace.
Global Presence. EMS companies with global facilities can simplify and
shorten an OEM's supply chain and significantly reduce the time required to
bring products to market. Additionally, EMS providers are locating
facilities in lower-cost regions, including Mexico and Asia, in order to
complement their offerings by providing lower cost manufacturing solutions
for price-sensitive applications. As a result of these trends, many large
OEMs are beginning to work with a smaller number of EMS providers that, as
worldwide suppliers, can meet their needs in multiple geographic markets.
MARKET CONSOLIDATION
We believe that larger EMS providers that possess the foregoing attributes
are well positioned to take advantage of anticipated growth in the EMS industry.
Conversely, we believe that smaller providers who seek to serve leading OEMs are
disadvantaged due to lack of scale and difficulty in meeting OEM requirements
relating to capacity, broad service offerings, technology, supply chain
management and global manufacturing capabilities.
The EMS industry has experienced an increase in large-scale acquisition
activity in recent years, primarily as a result of the sale of OEM facilities
and manufacturing operations to EMS providers. OEMs have tended to award these
opportunities to larger EMS providers that possess the capital, management
expertise and advanced systems required to acquire and integrate the acquired
businesses effectively. For the EMS provider, these acquisitions have been
driven by the need for additional capacity, a desire to enter new geographic or
product markets and services, or a desire to establish or further develop a
customer relationship with a particular OEM.
Given this environment, we believe that the EMS industry may experience
significant consolidation, driven by the continued trend among OEMs to outsource
large-volume programs to leading EMS providers, the continued disposition of OEM
manufacturing assets to these companies and acquisition activity among EMS
businesses themselves.
OUR STRATEGY
Our goal is to be the EMS full-solution partner of choice to leading OEMs
through leadership in technology, quality and supply chain management. To meet
this goal, we are implementing the following strategy which we believe will
allow us to achieve superior financial performance and enhance stockholder
value:
Focus on the High Growth Telecommunications and Networking Customer
Segments. We have focused our marketing efforts on the fast-growing
telecommunications and networking industries. Approximately 55% of our pro
forma revenues for the year ended December 31, 1999 were from
telecommunications and networking customers. Our sales efforts will focus
on generating revenue from new programs as well as diversifying our
customer base in these high growth segments by increasing our penetration
of our existing customer base and attracting new customers.
Capitalize on Our Advanced Printed Circuit Board and Backpanel
Capabilities. Based on our estimates of market share and our product
capabilities, we believe we are the industry leader in the manufacture of
complex, technologically advanced multi-layer printed circuit boards and
custom-designed backpanel assemblies. Our state-of-the-art manufacturing
facilities allow us to efficiently produce commercial quantities of printed
circuit boards with up to 48 layers and circuit track widths as narrow as
three one-thousandths of an inch. We also have the capability to produce
printed circuit boards with up to 60 layers and circuit track widths as
narrow as two one-thousandths of an inch. We have
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pioneered advances in some of the most significant areas of printed circuit
board fabrication. Because many of the next generation products in the
telecommunications and networking industries will require highly advanced
printed circuit boards and backpanel assemblies, we are well positioned to
capitalize on our capabilities in those areas to compete for the complete
assembly of customers' products that utilize our printed circuit boards and
backpanels. Currently, we are involved in the design of several new
platforms for large telecommunication OEMs where we are leveraging our
printed circuit board and backpanel capabilities to generate additional
assembly revenues.
Take Advantage of Our Ability to Provide a Full-Service Offering to,
and Expand Relationships with, Our Customers. Building on our integrated
manufacturing capabilities, we can provide our customers with a broad range
of EMS solutions from fabrication of bare boards to final system assembly
and test. The wire harness capabilities we will acquire as part of the
acquisition of the wire harness business and our cable assembly
capabilities provide us with further opportunities to sell these services
to our existing OEM customers. The capability to manufacture a range of
product components from printed circuit boards to wire harnesses and cable
assemblies used in final assemblies, will enable us to shorten our
customers' product development cycles and to lower their cost. In addition,
our vertical integration provides us with greater control over quality,
delivery and cost, and enables us to offer our customers a complete EMS
solution. Each of the four greenfield facilities (all of which are assembly
facilities) we have opened since 1996 has been in response to the expansion
of our relationships with existing customers. We will continue to emphasize
being a full-solution partner to our existing customers.
Concentrate on High Value-Added Products and Services. We focus on
providing EMS solutions to leading manufacturers of advanced electronic
products that generally require custom designed, more complex interconnect
products and short lead-time manufacturing services. These products are
typically lower-volume, higher-margin products.
Exploit our Low Cost Manufacturing Locations. By aggressively pursuing
the transfer of products and services from high cost areas to China and
Mexico, we have successfully reduced our customers' total cost, improved
our margins and freed up our capacity in other regions of the world to
focus on more technologically advanced products and services. Our Kalex
facilities in China allow and the wire harness and cable assembly
facilities in Mexico that we will acquire in connection with the
acquisition of the wire harness business will allow us to offer OEM
customers a lower cost solution for printed circuit board fabrication, wire
harness and cable assembly as well as full system assembly.
Expand Manufacturing Facilities Geographically. Since 1996, we have
significantly expanded our operations through acquisitions and the opening
of greenfield facilities. In order to increase our scale and expand our
capabilities, we have opened four greenfield facilities in the United
States, Mexico, Europe and Asia. These facilities provide us with
operations in key geographic markets for our existing customers as well as
the electronics industry in general. We will continue to pursue future
expansion opportunities.
Pursue Acquisition Opportunities. We continue to pursue business
acquisition opportunities in order to broaden our service offerings, gain
access to new geographic markets, implement our vertical integration
strategy and/or obtain facilities and equipment at a lower cost than
building or leasing them. We have acquired entire companies, such as Circo
Craft, Mommers, PAGG Corporation and Kalex. In addition, given our strong
relationships with leading OEMs in the telecommunications and networking
segments, we expect to proactively pursue acquisition opportunities from
our OEM customers that divest their captive manufacturing assets. Prior
acquisitions of this nature include the acquisition of the Richmond,
Virginia, operations of Lucent Technologies, the acquisition of the wire
harness assets of General Electric and our pending acquisition of the
Marconi network components and services business.
MARKETS AND CUSTOMERS
We provide EMS services to more than 50 OEMs. Our position as a strategic
supplier of EMS services, including printed circuit boards, backpanel assemblies
and, upon consummation of the acquisition of the wire harness business, wire
harnesses and cable assemblies fosters close relationships with our customers.
These
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relationships result in additional growth opportunities as we have expanded our
capabilities and capacity to meet our customers' wide range of needs.
The following table shows our pro forma net sales as a percentage by
principal end-user markets we serve:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
MARKETS 1997 1998 1999
- ------- ------ ------ ------
<S> <C> <C> <C>
Telecommunications and networking........................... 52.8% 52.7% 55.3%
Industrial/Consumer......................................... 22.2 22.0 22.4
Computer.................................................... 14.8 14.9 12.1
Automotive.................................................. 6.8 7.1 7.9
Other....................................................... 3.4 3.3 2.3
----- ----- -----
Total combined net sales.......................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table lists our telecommunications and networking customers
in alphabetical order and the end products for which we provide manufacturing
services.
<TABLE>
<CAPTION>
CUSTOMER END PRODUCT
- -------- -----------
<S> <C>
Alcatel............................ Telecommunications switching and transmission
equipment, datacommunications networks, routing and
switching equipment, mobile phones
Cisco.............................. Datacommunications high end routers, LAN/WAN,
routing and switching equipment
Ericsson........................... Telecommunications switching and transmission
equipment, mobile phones, datacommunications routing
and switching equipment
Lucent Technologies................ Telecommunications switching and transmission
equipment, business communication systems,
datacommunications routing and switching equipment
Marconi Communications............. Telecommunications optical transmission equipment,
WAN network switching equipment
Motorola........................... Telecommunications infrastructure equipment,
wireless datacommunications equipment, satellite
communication equipment
Newbridge.......................... Datacommunications carrier switch routing equipment,
advanced enterprise networking equipment
Nortel Networks.................... Telecommunications optical network equipment,
LAN/WAN routers, access switching equipment
Siemens............................ Telecommunications switching equipment, LAN/WAN
network equipment, mobile switching equipment
3Com............................... Datacommunications hubs, routing and switching
equipment, modems, network interface cards
Tellabs............................ Datacommunications routing and switching equipment
</TABLE>
Other than Lucent Technologies, no customer accounted for more than 10% of
pro forma net sales for the year ended December 31, 1999.
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PRODUCTS AND SERVICES
For each of the years ended December 31, 1997, 1998 and 1999, approximately
35% of our pro forma revenues were generated from value-added services,
including the manufacture of custom-designed backpanel assemblies, printed
circuit board assemblies and wire harness and cable assemblies. For the same
periods, approximately 19%, 20% and 26%, respectively, of our pro forma revenues
were generated from the fabrication of highly complex, multi-layered printed
circuit boards, with the remainder of our pro forma revenues generated from the
fabrication of low-layer printed circuit boards.
We believe that our ability to deliver a wide spectrum of services to our
OEM customers provides us with a competitive advantage over EMS providers
focused in few service areas. We offer a full range of manufacturing services,
including those depicted in the following diagram.
[SUPPLY CHAIN MANAGEMENT CHART]
Design and Prototyping Services. We provide comprehensive front-end
engineering services, including circuit board layout and design services for
efficient manufacturing and testing. We offer quick-turn prototyping, which is
the rapid production of a new product sample. Our quick-turn prototype service
allows us to provide small test quantities to our customers' product development
groups. Our participation in product design and prototyping allows us to reduce
our customers' manufacturing costs and their time-to-market and time-to-volume.
These services enable us to strengthen our relationships with customers that
require advanced engineering services. In addition, by working closely with
customers throughout the development and manufacturing process, we gain insight
into their future product requirements.
Printed Circuit Board and Backpanel Fabrication. Printed circuit boards and
backpanels are platforms that connect semiconductors and other electronic
components. Backpanels also connect printed circuit boards. We manufacture
multi-layer printed circuit boards and backpanels on a low-volume, quick-turn
basis, as well as on a high-volume production basis. In recent years, the trend
in the electronics industry has been to increase the speed and performance of
components while reducing their size. Semiconductor designs are currently so
complex that they often require printed circuit boards with many layers of
narrow, tightly spaced wiring. These advancements in component technologies have
driven the change in printed circuit board design to higher density printed
circuits. We have invested approximately $150 million in the last two years
primarily for the advanced engineering systems and process equipment needed to
meet these higher density requirements.
Systems Assembly and Test. Our manufacturing operations include the
placement of electronic parts onto printed circuit boards as well as the
manufacture of complete electronics products. As OEMs seek to provide greater
functionality in smaller products, they require more sophisticated systems
assembly technologies and processes. Our investment in advanced manufacturing
equipment and our experience with the latest technologies enable us to offer a
variety of complex systems assembly services. We offer testing of assembled
printed circuit boards and testing of all of the functions of the completed
product, and we work with our customers to develop product-specific test
strategies. Our test capabilities include manufacturing defect analysis,
in-circuit tests, functional tests and environmental stress tests of board or
system assemblies.
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Wire Harnesses and Cable Assemblies. A wire harness and cable assembly is
an assembly of wires with connectors and terminals attached to their ends that
transmits electricity between two or more points. Our capability to provide wire
harness and cable assembly components will complement our vertically integrated
approach to providing our OEM customers a complete EMS solution. Our acquisition
of the wire harness business will make us one of the leading suppliers of wire
harnesses and cable assemblies for use in household appliances. Due to the
similar process technology utilized in the manufacture of wire harnesses and
cable assemblies for telecommunications and networking products to that utilized
in the manufacture of wire harnesses for use in household appliances, we intend
to leverage this expertise to enhance the value of the products and services we
supply to our OEM customers in the telecommunications and networking industries.
Full System Assembly. We provide full system assembly services to OEMs.
These services require sophisticated logistics capabilities and supply chain
management capabilities to rapidly procure components, assemble products,
perform complex testing and deliver products to end users around the world. Our
full system assembly services involve combining a wide range of subassemblies,
including printed circuit board assembly, and employing advanced test techniques
to various subassemblies and final end products. Increasingly, OEMs require
custom build-to-order system solutions with very short lead times. We are
focused on exploiting this trend through our advanced supply chain management
capabilities.
Packaging and Global Distribution. We offer our customers flexible
just-in-time and build-to-order delivery programs, allowing product shipments to
be closely coordinated with customers' inventory requirements. Increasingly, we
ship products directly into customers' distribution channels or directly to the
end-user.
After-Sales Support. We offer a wide range of after-sales support services.
This support can be tailored to meet customer requirements, including field
failure analysis, product upgrades, repair and engineering change management.
Supply Chain Management. Effective management of the supply chain is
critical to the success of OEMs as it directly impacts the time required to
deliver product to market and the capital requirements associated with carrying
inventory. Our global supply chain organization works with customers and
suppliers to meet production requirements. We utilize our enterprise resource
planning systems to optimize inventory management.
SALES AND MARKETING
We focus on developing close relationships with our customers at the
earliest development and design phases and continuing throughout all stages of
production. We identify, develop and market new technologies that benefit our
customers and position us as a preferred EMS provider.
We market our products through our own sales and marketing organization as
well as manufacturers' representatives. This global sales organization is
structured to ensure geographic coverage and account coordination. As of
December 31, 1999, after giving effect to the transfer of the operations
formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden and the acquisition of the wire harness
business of International Wire, we employed approximately 200 sales and
marketing employees, of which 75 are direct sales representatives strategically
located throughout fifteen countries in North America, Europe and Asia. The
North American sales organization is divided into five regions which are jointly
serviced by direct sales representatives and nineteen manufacturers'
representatives. In Europe and Asia, our sales force is focused by country and
by customer. Each sales region has a support staff of sales engineers, technical
service personnel and customer service organizations to ensure high-quality,
customer-focused service. The global marketing organization further supports the
sales organization through market research, market development and
communications.
We have enhanced our global sales and marketing network in order to
leverage our increased EMS capabilities. For those customers with locations in
more than one region of the world, we offer consistently high-quality products
and services which can be delivered from our facility which best meets that
customer's requirements.
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We have 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. To ensure itself a stable and
consistent supply of printed circuit boards and backpanels in the future, Lucent
entered into a five-year supply agreement with us in November 1996. The
agreement contains automatic renewal provisions for two additional one-year
periods upon our satisfaction of performance requirements for cost, quality and
service. Under the agreement, Lucent is required to purchase a minimum annual
dollar volume of printed circuit boards and backpanels from us. Lucent is also
required to compensate us if they fail to purchase the minimum annual dollar
volume. As required by the agreement, our prices for products supplied were
reduced to market-based prices effective January 1, 1999. Additionally, either
party is permitted to undertake a formal study to reset the benchmark based upon
a variety of factors, including the prices charged by comparable industry
manufacturers for printed circuit boards and backpanels. Depending upon the
results of such benchmarking study, the prices we charge may be further
adjusted. 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 has also designated us as a preferred supplier and
afforded us the right to bid for all of Lucent's product requirements for which
we demonstrate capability.
MANUFACTURING AND ENGINEERING
We produce highly complex, technologically advanced multi-layer and
low-layer printed circuit boards, backpanel assemblies, printed circuit board
assemblies, wire harnesses and custom cable assemblies and full systems that
meet increasingly tight tolerances and specifications demanded by OEMs.
Multi-layering, which involves placing multiple layers of electrical circuitry
on a single printed circuit board or backpanel, expands the number of circuits
and components that can be contained on the interconnect product and increases
the operating speed of the system by reducing the distance that electrical
signals must travel. Increasing the density of the circuitry in each layer is
accomplished by reducing the width of the circuit tracks and placing them closer
together on the printed circuit board or backpanel. Interconnect products having
narrow, closely spaced circuit tracks are known as fine line products. Today, we
and a few other industry leaders are capable of efficiently producing commercial
quantities of printed circuit boards with up to 48 layers and circuit track
widths as narrow as three one-thousandths of an inch. We have the capability to
produce printed circuit boards with up to 60 layers and circuit track widths as
narrow as two one-thousandths of an inch. The manufacture of complex multi-layer
interconnect products often requires the use of sophisticated circuit
interconnections between layers, called blind or buried vias, and adherence to
strict electrical characteristics to maintain consistent circuit transmission
speeds, referred to as controlled impedance. These technologies require very
tight lamination and etching tolerances and are especially critical for printed
circuit boards with ten or more layers.
The manufacture of printed circuit boards involves several steps: etching
the circuit image on copper-clad epoxy laminate, pressing the laminates together
to form a panel, drilling holes and depositing copper or other conductive
material to form the innerlayer electrical connections and, lastly, cutting the
panels to shape. Advanced interconnect products may also require additional
critical steps, including dry film imaging, photoimageable soldermask
processing, computer controlled drilling and routing, automated plating and
process controls and achievement of controlled impedance. Manufacture of printed
circuit boards used in backpanel assemblies requires specialized expertise and
equipment because of the larger size of the backpanel relative to other printed
circuit boards and the increased number of holes for component mounting.
The manufacture of printed circuit board assemblies involves the attachment
of various electronic components, such as integrated circuits, capacitors,
microprocessors and resistors to printed circuit boards. The manufacture of
backpanel assemblies involves attachment of electronic components, including
printed circuit boards, integrated circuits and other components, to the
backpanel, which is a large printed circuit board. We use surface mount,
pin-through hole and press fit technologies in backpanel assembly. We also
assemble higher-level sub-systems and full systems incorporating printed circuit
boards and complex electromechanical components. We manufacture on a turnkey
basis, directly procuring some or all of the components necessary for
production.
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We also provide computer-aided testing of printed circuit boards,
sub-systems and full systems, which contributes significantly to our ability to
deliver high quality products on a consistent basis. We test boards and system
level assemblies to verify that all components have been properly inserted and
that the electrical circuits are complete. Further functional tests determine if
the board or system assembly is performing to customer specifications.
QUALITY STANDARDS
All of our manufacturing facilities are certified under ISO 9002, a set of
standards published by the International Organization of Standardization and
used to document, implement and demonstrate quality management and assurance
systems in design and manufacturing. As part of the ISO 9002 certification
process, we developed a quality systems manual and an internal system of quality
controls and audits. Although ISO 9002 certification is of particular importance
to the companies doing business in the European Community, we believe that
United States electronics manufacturers are increasing their use of ISO 9002
registration as a criteria for suppliers.
In addition to ISO 9002 certification, we are BellCore, British Approval
Board for Telecommunications, or BABT, and Underwriters Laboratories, or UL,
compliant. These qualifications establish standards for quality, manufacturing
process control and manufacturing documentation and are required by many OEMs in
the electronics industry.
TECHNOLOGY DEVELOPMENT
Our close involvement with our customers at the early stages of their
product development cycles positions us at the leading edge of technical
innovation in the manufacturing of backpanel assemblies and printed circuit
boards. We selectively seek orders that require the use of state-of-the-art
manufacturing techniques or materials in order to further develop our
manufacturing expertise. We work closely with our customers and suppliers to
provide industry-leading solutions. Current areas of manufacturing process
development include reducing circuit widths and hole sizes, establishing new
standards for particle contamination and developing new manufacturing processes
for use with new materials and new surface mount connector and component
designs.
Recent developments in the electronics industry have necessitated
improvements in the types of laminate used in the manufacture of interconnect
products. New laminate materials may contain new chemical formulations to
achieve better control of flow, resin systems with high glass transition
temperatures, reduced surface imperfections and greatly improved dimensional
stability. Future generations of interconnect products will require ultra fine
lines, multi-layers of much greater complexity and thickness and extremely small
holes in the range of 4 to 10 one-thousandths of an inch. The materials designed
to meet these requirements, such as BT epoxy, cyanate esters, polyamide quartz
and Kevlar epoxy, are beginning to appear in the marketplace. Widespread
commercial use of these materials will depend upon statistical process control
and improved manufacturing procedures to achieve the required yields and
quality.
We have developed expertise and techniques that we use in the manufacture
of printed circuit boards, backpanels and subsystems. We believe many of the
manufacturing processes related to the manufacture of printed circuit boards are
proprietary, including our ability to manufacture large perimeter, thick high
layer count backpanels. Generally, we rely on common law trade secret protection
and on confidentiality agreements with our employees to protect our expertise
and techniques. We own 13 and license 14 patents and believe that patents have
not historically constituted a significant form of intellectual property right
in our industry. Six patents expire within the next two years and the remainder
expire over the next 15 years. The expiration of any of these patents is not
expected to have a material adverse effect on our ability to operate.
SUPPLIER RELATIONSHIPS
We order materials and components based on purchase orders received and
accepted and seek to minimize our inventory of materials or components that are
not identified for use in filling specific orders. Materials and components we
use are readily available in the open market and to date we have not
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experienced any significant shortages of those materials. We work with our
suppliers to develop just-in-time supply systems which reduce inventory carrying
costs. We also maintain a supplier certification program which evaluates
potential vendors on the basis of such factors as quality, on-time delivery,
costs, technical capability, and potential technical advancement.
COMPETITION
Significant competitive factors in the electronics manufacturing services,
or EMS, industry include product quality, responsiveness to customers,
manufacturing and engineering technology and price. We believe that competition
in the market segments served by us is based more on product quality and
responsive customer service and support than on price, in part because the cost
of interconnect products manufactured by us is usually low relative to the total
cost of the equipment and the greater importance of product reliability and
prompt delivery to our customers. We believe that our primary competitive
strengths are our ability to provide responsive, flexible, short lead-time
manufacturing services, our engineering and manufacturing expertise and our
customer service support.
We believe that our breadth of service offering in the electronics
manufacturing services industry compares favorably to that of the other leading
EMS providers. The acquisition of the wire harness business allows us to
increase our service offerings, while the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden does not affect our ability to provide a full range of
services to original equipment manufacturers.
We face intense competition from a number of established competitors in our
various product markets. We also face competition from OEMs who perform EMS
services internally. We have competitors that have greater financial and
manufacturing resources than we do, including significantly greater printed
circuit board assembly capacity. During periods of recession, our competitive
advantages may be of reduced importance.
In addition, captive interconnect product manufacturers may seek orders in
the open market to fill excess capacity, thereby increasing price competition.
Although we generally do not pursue high-volume, highly price sensitive
interconnect product business, we may be at a competitive disadvantage with
respect to price when compared to manufacturers with lower cost structures,
particularly those manufacturers with offshore facilities where labor and other
costs are lower.
INTERNATIONAL OPERATIONS
Approximately 59.3% of our pro forma sales for the year ended December 31,
1999 originated outside of the United States. As of December 31, 1999, after
giving effect to the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden and the acquisition of the wire harness business of International Wire,
we had 13 manufacturing facilities in the United Kingdom, Canada, Mexico, the
Netherlands and China, and sales offices throughout Europe. We believe that our
global presence is important as it allows us to provide consistent, quality
products on a timely basis to our multinational customers worldwide.
We are 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 our results of
operations.
BACKLOG
We estimate that our pro forma backlog of unfilled orders on December 31,
1998 and 1999 was approximately $88.5 million and $139.6 million, respectively.
The increase in backlog in 1999 was due to increased demand from our OEM
customers for our printed circuit boards manufactured in Canada and the
Netherlands. Unfilled orders may be cancelled prior to delivery. Historically,
those cancellations have not been material. The backlog outstanding at any point
in time is not necessarily indicative of the level of business to be expected in
the ensuing period.
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ENVIRONMENTAL
Some of our operations 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. We believe that we are 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 us. Further, we are not a party to any claim or
proceeding and we are not aware of any threatened claim or proceeding under
environmental laws that could, if adversely decided, reasonably be expected to
have a material adverse effect on us. Currently, remediation of contamination is
being undertaken at our facilities in Virginia and Puerto Rico. While the cost
of the remediation could be material, the prior owners are conducting the
requisite remedial actions and have agreed to indemnify us for costs associated
with the remediations. We believe that the prior owners of those facilities are
fully capable of performing and will perform under such agreements. Accordingly,
we do not believe that any of these matters are reasonably likely to have a
material adverse effect on our business, results of operations, financial
condition, prospects and ability to service debt.
EMPLOYEES
As of December 31, 1999, after giving effect to the transfer of the
operations formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden and the acquisition of the wire harness
business of International Wire, we had approximately 19,550 employees. Of these
employees, approximately 17,200 were involved in manufacturing, 1,350 worked in
engineering, 200 worked in sales and marketing, and 800 worked in accounting and
administrative capacities. Approximately 1,800 employees, or about 9%, were
represented by a union pursuant to a collective bargaining agreement. We have
not experienced any labor problems resulting in a work stoppage or work
slowdown, and believe we have good relations with our employees.
FACILITIES
In addition to our executive offices in St. Louis, Missouri, as of December
31, 1999, after giving effect to the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden and the acquisition of the wire harness business of
International Wire, we operate 20 principal manufacturing and research
facilities located in six different countries with a total area of approximately
4,549,000 square feet. We own approximately 3,774,000 square feet and lease
approximately 775,000 square feet. We believe our plants and equipment include
state-of-the-art technology and are well maintained. Our principal circuit board
manufacturing facilities are operating at or near capacity.
Some of our owned facilities are subject to mortgages under our existing
senior credit facility and are expected to be similarly subject to mortgages
under our new senior credit facility. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and our consolidated financial
statements contained elsewhere in this prospectus.
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Our facilities at December 31, 1999, after giving effect to the transfer of
the operations formerly conducted by Interconnection Systems Limited, Forward
Group, Zincocelere and Viasystems Sweden and the acquisition of the wire harness
business of International Wire, 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 Printed circuit board
fabrication, backpanel assembly
and full system assembly
Bucyrus, Ohio............ 47,000 Leased(1) Wire harness and cable assembly
El Paso, Texas........... 38,000 Leased(2) Wire harness and cable assembly
Mishawaka, Indiana....... 29,000 Owned Wire harness and cable assembly
San German, Puerto 199,000 Leased(3) Printed circuit board
Rico................... fabrication
Columbus, Ohio........... 35,000 Leased(4) Full system assembly
Milford, Massachusetts... 125,000 Leased(5) Full system assembly
CANADA
Kirkland, Quebec......... 115,000 Owned Printed circuit board
fabrication
Pointe-Claire, Quebec.... 168,000 Owned Printed circuit board
fabrication
Granby, Quebec........... 119,000 Owned Printed circuit board
fabrication
MEXICO
Juarez, Mexico........... 51,000 Leased(3) Backpanel assembly
Juarez, Mexico........... 120,000 Leased(6) Wire harness and cable assembly
Chihuahua, Mexico........ 100,000 Owned Wire harness and cable assembly
Chihuahua, Mexico........ 91,000 Leased(7) Wire harness and cable assembly
EUROPE
Boldon, England.......... 52,000 Leased(8) Backpanel assembly and full
system assembly
Echt, Netherlands........ 462,000 Owned Printed circuit board
fabrication and backpanel
assembly
ASIA
Guangzhou, China......... 1,665,000 Owned Printed circuit board
fabrication
Nantong, China........... 17,000 Leased(9) Backpanel assembly
Zhongshan, China......... 260,000 Owned Printed circuit board
fabrication
Guangzhou, China......... 130,000 Owned Laminate products
</TABLE>
- ------------
(1) Lease expires November 12, 2000.
(2) Lease expires March 31, 2002.
(3) Lease expires December 31, 2002.
(4) Lease expires February 1, 2002.
(5) Lease expires August 31, 2009.
(6) Lease expires July 31, 2002.
(7) Lease expires March 15, 2008.
(8) Lease expires June 21, 2019.
(9) Lease expires April 28, 2000.
In addition to the facilities listed above, at December 31, 1999 we
maintained several sales and marketing facilities located throughout North
America and Europe, all of which are leased.
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LEGAL
Our operations have from time to time been involved in claims and
litigation. The nature of our business is such that it is anticipated that we
will be involved from time to time in claims and litigation in the ordinary
course of our business. Based on experience with similar claims and litigation,
we do not anticipate that these matters will have a material adverse effect on
our business, results of operations, financial condition, prospects or ability
to service debt.
We anticipate that we 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, we believe that the resolution, including any ultimate liability,
will not have a material adverse effect on our business, results of operations,
financial condition, prospects or ability to service debt. We are not currently
involved in any patent infringement disputes and have not received any notices
alleging infringement of patents, the unfavorable resolution of which we believe
would be material.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and positions of our directors and executive
officers. All directors hold office until our next annual meeting of
stockholders and until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
James N. Mills........... 62 Chairman of the Board and Chief Executive Officer
Thomas O. Hicks.......... 53 Director
Jack D. Furst............ 40 Director
Richard W. Vieser........ 72 Director
Kenneth F. Yontz......... 55 Director
Thomas H. O'Brien........ 63 Director Nominee
Alex J. Mandl............ 55 Director Nominee
Timothy L. Conlon........ 48 President, Chief Operating Officer and Director
David M. Sindelar........ 42 Senior Vice President and Chief Financial Officer
Barry L. Brigman......... 52 President -- Viasystems Americas
Steven S.L. Tang......... 44 President -- Viasystems Asia
James G. Powers.......... 38 Executive Vice President -- Operations
Dominic J. Pileggi....... 48 Executive Vice President -- Sales and Marketing
Joseph S. Catanzaro...... 47 Senior Vice President -- Finance
Jeffrey A. Bloch......... 42 Vice President -- Global Supply Management
</TABLE>
Prior to the offering, we will amend and restate our certificate of
incorporation to provide that our board of directors will be divided into three
classes. It is expected that Messrs. Vieser and Yontz will serve as Class I
directors, with terms expiring at the 2001 annual meeting of stockholders;
Messrs. Conlon and Furst will serve as Class II directors, with terms expiring
at the 2002 annual meeting of stockholders; and Messrs. Hicks and Mills will
serve as Class III directors, with terms expiring at the 2003 annual meeting of
stockholders. At each annual meeting of stockholders thereafter, directors in
the class to be elected at the meeting will be elected to three-year terms to
succeed those directors whose terms are expiring. These procedures could have
the effect of discouraging opposition to candidates nominated by management and
could provide management with a greater opportunity to oppose stockholder
nominees or proposals should they choose to do so. For a discussion of other
proposed charter and bylaw provisions that could have the effect of delaying a
change of control, see "Description of Capital Stock -- Special Provisions in
Our Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws."
In January 2000, the board of directors established an Audit Committee
comprised of Messrs. Vieser and Yontz, a Compensation Committee comprised of
Messrs. Hicks, Mills, Vieser and Yontz, and an Independent Compensation
Committee comprised of Messrs. Vieser and Yontz. The board of directors has
nominated two additional candidates to serve on the board of directors following
the offering. Messrs. O'Brien and Mandl will serve as Class I and Class II
directors, respectively. One of these additional directors is expected to meet
the independence requirements of The New York Stock Exchange relating to members
of the Audit Committee and will be appointed to the Audit Committee upon
election.
James N. Mills has been Chairman of the Board and Chief Executive Officer
of Viasystems since January 1997. Mr. Mills is also the Chairman of the Board
and Chief Executive Officer of Mills & Partners, International Wire Holding
Company, International Wire Group, Inc. and LLS Corp. 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 November 1992
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.
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Thomas O. Hicks has been a director of Viasystems since January 1997. Mr.
Hicks is Chairman of the Board and Chief Executive Officer of Hicks, Muse, Tate
& Furst Incorporated. 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 AMFM Inc. and as a director of International Home
Foods, Inc., Sybron International Corporation, Home Interiors & Gifts, Inc., LIN
Holdings Corp., LIN Television Corporation, Regal Cinemas, Inc., Triton Energy
Limited, Mumm Perrier-Jouet, Teligent, Inc. and Cooperative Computing, Inc.
Jack D. Furst has been a director of Viasystems since August 1996. Mr.
Furst is a Partner of Hicks, Muse, Tate & Furst Incorporated and has held this
position since 1989. Mr. Furst has approximately 20 years of experience in
leveraged acquisitions and private investments. Mr. Furst is involved in all
aspects of Hicks Muse's business and has been actively involved in originating,
structuring and monitoring its investments. Mr. Furst is primarily responsible
for managing the relationship with Mills & Partners. Prior to joining Hicks
Muse, 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 York. Before joining First
Boston, Mr. Furst was a financial consultant at Price Waterhouse. Mr. Furst
serves on the board of directors of American Tower Corporation, Triton Energy
Limited, Home Interiors & Gifts, Inc., Hedstrom Holdings, Inc., International
Wire Holding Company, Cooperative Computing, Inc., LLS Corp. and Globix
Corporation.
Richard W. Vieser has been a director of Viasystems since January 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 the Chairman of
the Board of Varian Medical Systems and is also a director of Harvard
Industries, Inc., International Wire Holding Company and Sybron International
Corporation.
Kenneth F. Yontz has been a director of Viasystems since January 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.
Thomas H. O'Brien has been nominated to become a director of Viasystems.
Mr. O'Brien is chairman and chief executive officer of The PNC Financial
Services Group, Inc. and PNC Bank, National Association and a member of PNC's
Office of the Chairman. Mr. O'Brien was appointed to the board of directors and
elected vice chairman of PNC in 1983, president and chief executive officer in
1985 and chairman in June 1988. Prior to his election as president and chief
executive officer in 1985, he was chairman and chief executive officer of
Pittsburgh National Bank (predecessor of PNC Bank). He joined Pittsburgh
National Bank in 1962, was elected vice president in 1967, senior vice president
in 1973, executive vice president in 1980, vice chairman of PNC Bank in 1983 and
chairman of PNC Bank in 1993. Mr. O'Brien is also a director of Bell Atlantic
Corp., BlackRock, Inc., US Airways Group, Inc. and Hilb, Rogal & Hamilton Co.
Alex J. Mandl has been nominated to become a director of Viasystems. Mr.
Mandl has been Chairman and Chief Executive Officer of Teligent since September
1996. Prior to joining Teligent, Mr. Mandl served as President and Chief
Operating Officer of AT&T and Executive Vice President of AT&T and CEO of AT&T's
Communications Services Group from 1993 to 1995. As President and Chief
Operating Officer, Mr. Mandl oversaw AT&T's operations including its
long-distance, wireless and local communications services, in addition to its
credit card and Internet businesses. As Chief Financial Officer of AT&T from
1991 to 1993, Mr. Mandl directed AT&T's financial strategy, policy and
operations, and managed the acquisition of McCaw Cellular Communications, Inc.
Earlier, Mr. Mandl served as Chairman and CEO of Sea-Land Services, Inc., an
ocean transportation and distribution services company. Mr. Mandl also serves on
the boards of the
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Warner-Lambert Company, Dell Computer Corporation, Forstmann Little & Co. and
General Instrument Corp.
Timothy L. Conlon has been a director, President and Chief Operating
Officer of Viasystems since October 1998. Prior to joining Viasystems, 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 Viasystems since
January 1997 and Chief Financial Officer of Viasystems since its inception. Mr.
Sindelar is also President and Chief Operating Officer of Mills & Partners. Mr.
Sindelar also serves as Senior Vice President and Chief Financial Officer of
International Wire Holding Company and LLS Corp. 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. Mr. Sindelar is a director of LLS Corp.
Barry L. Brigman joined Viasystems in January 1997 as President of
Viasystems Americas and is currently responsible for the overall operations of
Viasystems' facilities on the continent of North America. Prior to Viasystems,
Brigman was Senior Vice President and General Manager of Berg Electronics from
March 1993. Prior to 1993, Mr. Brigman held various management positions within
the fibers, medical and electronics groups of E.I. DuPont Company.
Steven S.L. Tang joined Viasystems in July 1999 as President -- Viasystems
Asia. Prior to coming to Viasystems, Mr. Tang served as a Managing Director for
the Asian division of Utilix Asia Limited, an Australian connector manufacturing
company, from 1995 to July 1999. Prior to 1995, Mr. Tang held various positions,
all in Asia, with companies such as Amphenol, Pace Inc., National Semiconductor
and Honeywell. Mr. Tang is a director of China Gateway Holdings, Inc.
James G. Powers has been a Vice President of Viasystems since January 1997,
serving as Executive Vice President -- Operations since June 1999, and as Senior
Vice President -- Finance from January 1997 until June 1999. Prior to joining
Viasystems, Mr. Powers served as Vice 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.
Dominic J. Pileggi joined Viasystems in July 1998 as Executive Vice
President of Sales and Marketing. Mr. Pileggi is responsible for the global
marketing and sales organization of Viasystems. Mr. Pileggi has more than 20
years experience in global business operations, most recently serving as
President and Chief Executive Officer of Jordan Telecommunications Products, a
division of Jordan Industries, Inc. Mr. Pileggi was also president of the
electronics division and electrical division of Thomas & Betts.
Joseph S. Catanzaro was named Senior Vice President -- Finance of
Viasystems in June 1999. Mr. Catanzaro joined Viasystems in October 1998 in the
position of Vice President of Business Services, and continues to manage that
department along with his global financial responsibilities. Prior to joining
Viasystems, Mr. Catanzaro was Vice President of Finance at Berg Electronics from
April 1993 to October 1998.
Jeffrey A. Bloch joined Viasystems in April 1999 as Vice President of
Global Supply Management and is responsible for the company's global supply
chain and materials management. Mr. Bloch has more than 15 years experience in
global materials management, including key positions with Solectron and Intel.
From May 1997 until March 1999, Mr. Bloch was Vice President of Worldwide
Materials at GET Manufacturing
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<PAGE> 71
and prior to that time, from April 1995 until March 1997, Mr. Bloch served as
Director, Corporate Procurement, at Cirrus Logic.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of Viasystems receive no
compensation for their services as directors. Each director of Viasystems who is
not also an officer or employee of Viasystems 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 Viasystems 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.
Following the offering, we expect to evaluate the compensation structure for our
directors who are not officers or employees based upon an analysis of comparable
public companies and applicable published guidelines and policies and may
implement a new compensation structure at that time.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation earned
during the fiscal years ended December 31, 1997, 1998 and 1999 by the Chief
Executive Officer and the four other most highly compensated executive officers
of Viasystems.
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.......... 1999 $685,000 $445,250 453,665(4) --
1998 685,000 342,500 133,886(4) --
1997 395,000 550,000 355,398(4) --
Timothy L. Conlon, President and Chief
Operating Officer.................... 1999 425,000 325,000 -- --
1998 88,542 34,815 -- $537,374(5)
1997 -- -- -- --
Barry Brigman, President -- Viasystems
Americas............................. 1999 341,300 205,000 125,000 --
1998 325,000 105,600 -- 155,369(6)
1997 310,000 201,500 125,000 66,285(6)
David M. Sindelar, Senior Vice
President and Chief Financial
Officer.............................. 1999 300,000 250,000 306,332(4) --
1998 230,000 92,000 80,833(4) --
1997 168,200 150,000 219,750(4) --
Dominic J. Pileggi, Executive Vice
President -- Sales and Marketing..... 1999 331,875 125,000 125,000 --
1998 189,583(7) 126,750 125,000 116,997(8)
</TABLE>
- ------------
(1) We provide a car allowance, reimbursement of club memberships and other
benefits to some executives. The aggregate incremental costs of these
benefits to us do not exceed the lesser of either $50,000 or 10% of the
total of annual salary and bonus reported for each executive.
(2) Bonuses were paid in 1998 for 1997, in 1999 for 1998 and in 2000 for 1999.
(3) Options were granted under the Viasystems Group, Inc. 1997 Stock Option
Plan, pursuant to which incentive and non-qualified stock options may be
issued to Viasystems' or its subsidiaries' officers, key employees and
directors.
(4) Reflects performance options granted by Viasystems. See "Benefit
Plans -- Performance Options."
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<PAGE> 72
(5) Reflects amounts paid to Mr. Conlon to partially compensate him for his
voluntary termination of his employment contract with Berg Electronics Corp.
and forego compensation otherwise payable to him thereunder.
(6) Mr. Brigman received compensation in the form of reimbursement of relocation
expenses during 1997 and 1998.
(7) Mr. Pileggi commenced employment with Viasystems on June 1, 1998.
(8) Reflects relocation expenses paid to Mr. Pileggi in connection with his
relocation to St. Louis, Missouri.
The following table summarizes option grants made with respect to
Viasystems' common stock during fiscal year 1999 to the executive officers named
above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED EXERCISE FOR OPTION TERM(2)
UNDERLYING TO EMPLOYEES PRICE ---------------------------
OPTIONS(#) IN FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
---------- -------------- --------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills(1).... 453,665 18.1% $9.00 8/5/09 $ --(3) $ --(3)
Timothy L. Conlon.... -- N/A N/A N/A N/A N/A
Barry L. Brigman..... 125,000 5.0 $7.32 9/1/09 $2,478,750 $4,242,500
David M.
Sindelar(1)........ 306,332 12.2 $9.00 8/5/09 --(3) --(3)
Dominic J. Pileggi... 125,000 5.0 $7.32 9/1/09 $2,478,750 $4,242,500
</TABLE>
- ------------
(1) Reflects performance options granted by Viasystems. 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 common stock over the term of the options. Actual gains
on the exercise of the options are dependent on the future performance of
the 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.
(3) The terms of the performance options held by Mr. Mills and Mr. Sindelar
would not have been exercisable based upon annual rates of stock
appreciation of 5% or 10% at the end of the last fiscal year. Pursuant to
the terms of the amended performance options, potential realizable value of
Mr. Mills' and Mr. Sindelar's amended performance options for an assumed
rate of stock price appreciation term of 5% and 10% would be $8,234,019 and
$14,635,232 for Mr. Mills, respectively, and $5,559,925 and $9,882,270 for
Mr. Sindelar, respectively.
The following table summarizes the number of options exercised during the
fiscal year ended December 31, 1999 for the above named executive officers and
the value of unexercised options as of December 31, 1999:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END(1)
------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
James N. Mills............................ --/1,099,018(2) --/--(3)
Timothy L. Conlon......................... --/-- --/--
Barry L. Brigman.......................... 50,000/200,000 $575,000/$2,389,500
David M. Sindelar......................... --/737,257(2) --/--(3)
Dominic J. Pileggi........................ 25,000/225,000 $254,500/$2,290,500
</TABLE>
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<PAGE> 73
- ------------
(1) Represents the difference between $17.50 per share, the assumed initial
public offering price of common stock, and the exercise price per share of
the options.
(2) In connection with this offering, we are amending the terms of the
performance options, the effect of which will make them exercisable.
(3) At fiscal year end, the value of performance options could not be calculated
due to exercisability restrictions and variable exercise prices. As a result
of the amendments to the performance options, those restrictions will be
eliminated and the exercise price fixed at $9.00 per share. As a result, the
value of Mr. Mills' and Mr. Sindelar's performance options at fiscal year
end would have been $9,341,653 and $6,266,684, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, compensation decisions were made by the entire board of
directors. Each of James N. Mills and Timothy L. Conlon served as both an
executive officer and a director during 1999. Messrs. Mills and Conlon
participated in deliberations of the board of directors concerning compensation
of executive officers. As of January 2000, compensation decisions are made by
the compensation committee of the board of directors. Mr. Mills serves as a
member of the compensation committee.
EMPLOYMENT AGREEMENTS
James N. Mills Executive Employment Agreement. Mr. James N. Mills entered
into an amended and restated executive employment agreement with Viasystems and
some of its subsidiaries as of February 16, 2000. Pursuant to his employment
agreement, Mr. Mills will serve as the Chairman of the board of directors and
Chief Executive Officer of Viasystems through March 31, 2005, unless terminated
earlier by Viasystems or Mr. Mills. Mr. Mills is required to devote the amount
of time reasonably necessary to faithfully and adequately supervise the overall
executive management of Viasystems and its subsidiaries, both direct and
indirect. Subject to the foregoing limitation on his activities, Mr. Mills is
free to participate in other endeavors.
The compensation provided to Mr. 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
Viasystems, as well as those benefits customarily accorded the executives of
Viasystems as long as the executive employment agreement is in force. In
addition, Mr. Mills is entitled to an annual bonus in an amount determined in
accordance with our incentive compensation plan for senior executives and
reimbursement for expenses to own and maintain an automobile.
Mr. Mills' executive employment agreement also provides that if Mr. Mills'
employment is terminated without cause, Mr. 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 Mr. Mills' death or his inability to perform his
duties due to mental or physical incapacity for six consecutive months or any
one hundred working days out of a twelve month period, 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. Mills' and his spouse's
lifetime.
Timothy L. Conlon Executive Employment Agreement. Mr. Timothy L. Conlon
entered into an amended and restated executive employment agreement with
Viasystems and some of its subsidiaries as of February 16, 2000. Pursuant to his
employment agreement, Mr. Conlon will serve as the President and Chief Operating
Officer of Viasystems through March 31, 2005, unless terminated earlier by
Viasystems or Mr. Conlon. Mr. Conlon is required to devote the amount of time
reasonably necessary to faithfully and adequately supervise the overall
financial management of Viasystems and its subsidiaries, both direct and
indirect.
The compensation provided to Mr. Conlon under his executive employment
agreement includes an annual base salary of not less than $500,000, subject to
upward adjustment at the sole discretion of the
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<PAGE> 74
Chairman of the board of directors of Viasystems, as well as those benefits
customarily accorded the executives of Viasystems 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 our incentive
compensation plan for senior executives 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 $500,000, 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 Mr. Conlon's death or his inability to
perform his duties due to mental or physical incapacity for six consecutive
months or any one hundred working days out of a twelve month period, 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 amended and restated executive employment agreement with
Viasystems and some of its subsidiaries as of February 16, 2000. Pursuant to his
employment agreement, Mr. Sindelar will serve as the Senior Vice President and
Chief Financial Officer of Viasystems through March 31, 2005, unless terminated
earlier by Viasystems or Mr. Sindelar. Mr. Sindelar is required to devote the
amount of time reasonably necessary to faithfully and adequately supervise the
overall financial management of Viasystems 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 $300,000, subject to
upward adjustment at the sole discretion of the Chairman of the board of
directors of Viasystems, as well as those benefits customarily accorded the
executives of Viasystems 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 our incentive compensation plan for senior
executives 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 $300,000, 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 Mr. Sindelar's death or his inability to
perform his duties due to mental or physical incapacity for six consecutive
months or any one hundred working days out of a twelve month period, 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
Viasystems has adopted the Viasystems Group, Inc. 1997 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
employees of Viasystems and any parent or subsidiary corporation designated by
the board of directors of Viasystems. It is expected that prior to the offering,
Viasystems will amend the stock option plan to increase the number of shares
issuable under the plan to a total of 4,404,613 shares of Viasystems common
stock. As of December 31, 1999, options to purchase an aggregate of 2,430,333
shares of 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 Viasystems or a subcommittee of that committee. The
committee has the authority to grant to any participant one or more stock
options, and to establish the terms and conditions of the options, subject to
limitations
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<PAGE> 75
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
Viasystems common stock on the date the option is granted, and no option may be
exercisable later than ten years after the date of grant. In the event that any
person other than Hicks, Muse, Tate & Furst Equity Fund III, L.P. and/or Mills &
Partners Inc. becomes the owner of a majority of the voting power of the company
or a majority of the board consists of directors who were not directors at the
time the plan was adopted or were not nominated or elected by those directors,
the committee, in its discretion, may take those actions it deems appropriate
with respect to outstanding awards, including, without limitation, accelerating
the exercisability or vesting of those awards.
Viasystems' stock option plan became effective as of February 4, 1997 and
was subsequently amended to increase the number of shares eligible for grant
under the stock option plan. The stock option plan, as amended, will terminate
on February 4, 2007, unless sooner terminated by the committee.
PERFORMANCE OPTIONS
In addition to the options granted under the stock option plan, Viasystems
has granted performance options to purchase an aggregate of 2,802,897 shares of
common stock to officers of Viasystems also affiliated with Mills & Partners.
The performance options are exercisable only in the event that affiliates
of Hicks Muse have, 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 Viasystems. In addition, the performance options are exercisable upon the
occurrence of a liquidity event, including an initial public offering of our
common stock. The initial exercise prices of the performance options were $6.00
and $7.32 per share, increasing by 8% annually.
In connection with this offering, we expect to amend the terms of the
performance options to eliminate the exercisability restrictions and variable
exercise price features. The amended performance options will have a fixed
exercise price of $9.00 per share and will be immediately exercisable for an
aggregate of 2,802,897 shares of common stock. As a result of the amendments, we
expect to record a one-time charge of $33.6 million in non-cash compensation
expense in the first quarter of fiscal year 2000.
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<PAGE> 76
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 21, 2000, information regarding
the beneficial ownership of our common stock by each person who beneficially
owned more than 5% of any class of our voting securities and by our directors
and named executive officers, individually, and by our directors and executive
officers as a group, in each case after giving effect to the 1 for 6 reverse
stock split of our common stock and the reclassification of each 6 2/3 shares of
our class A common stock and class A series II common stock into one share of
our common stock immediately prior to the offering.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NUMBER OF OWNED
SHARES -------------------
BENEFICIALLY BEFORE AFTER
OWNED(1) OFFERING OFFERING
------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
HM Parties(2)............................................. 78,176,840 88.4% 59.0%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
OFFICERS AND DIRECTORS:
James N. Mills(3)......................................... 11,381,224 12.7 8.5
Thomas O. Hicks(4)........................................ 78,702,708 89.0 59.4
Jack D. Furst(5).......................................... 331,180 * *
Richard W. Vieser(6)...................................... 83,332 * *
Kenneth F. Yontz(7)....................................... 66,666 * *
Thomas H. O'Brien......................................... -- -- --
Alex J. Mandl............................................. -- -- --
Timothy L. Conlon(8)...................................... 2,014,106 2.3 1.5
David M. Sindelar(9)...................................... 2,941,840 3.3 2.2
Barry L. Brigman(10)...................................... 52,500 * *
Dominic J. Pileggi(11).................................... 25,000 * *
All executive officers and directors as a group (15
persons)(12)........................................... 91,437,367 98.2 66.7
</TABLE>
- ------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock and
options, warrants or other convertible securities that are currently
exercisable or exercisable within 60 days of March 21, 2000 are deemed to
be outstanding and to be beneficially owned by the person holding those
options, warrants or other convertible securities for the purpose of
computing the percentage ownership of that person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) These figures include:
- 47,843,495 shares held of record by Hicks, Muse, Tate & Furst Equity Fund
III, L.P., a limited partnership, of which the ultimate general partner
is Hicks, Muse Fund III Incorporated, an affiliate of Hicks, Muse, Tate &
Furst Incorporated;
- 1,487,106 shares held of record by HM3 Coinvestors, L.P., a limited
partnership of which the ultimate general partner is Hicks, Muse Fund III
Incorporated;
- 416,708 shares held of record by HMTF/Viasystems Partners, L.P., a
limited partnership controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated; and
- 27,322,404 shares held of record by HMTF/Viasystems Investments, LLC, a
limited liability company controlled by affiliates of Hicks, Muse, Tate &
Furst Incorporated and in which an affiliate of Chase Securities Inc.,
one of the underwriters, holds an approximate 25% membership interest,
and an affiliate of Deutsche Bank Securities Inc., one of the
underwriters, holds a 5% membership interest.
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<PAGE> 77
In addition, these figures include 234,740 shares of common stock
issuable upon exercise of options held by Hicks, Muse & Co. Partners, L.P.,
a limited partnership controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated, and partners of Hicks Muse and 872,387 shares of common stock
owned of record by other stockholders and for which Hicks, Muse, Tate &
Furst Equity Fund III, L.P. holds an irrevocable proxy to vote the shares.
An aggregate of 133,332 shares of common stock shown in the table above as
owned by Messrs. Vieser and Yontz are subject to this proxy.
Thomas O. Hicks is the controlling stockholder of the general partner
of each of Hicks, Muse, Tate & Furst Equity Fund III, L.P., HM3
Coinvestors, L.P., HMTF/Viasystems Partners, L.P. and Hicks, Muse & Co.
Partners, L.P. and the Manager of HMTF/Viasystems Investments, LLC and,
accordingly, may be deemed to beneficially own all or a portion of the
shares held by those entities. See Note 4 below. Mr. Hicks disclaims
beneficial ownership of common stock not owned of record by him.
(3) These figures include:
- 3,154,906 shares of common stock held by a limited partnership controlled
by Mr. Mills;
- 1,099,018 shares of common stock issuable upon exercise of amended
performance options that will be exercisable upon the effective date of
the amendments; and
- 7,093,967 shares of common stock owned of record by other stockholders
and for which Mr. Mills holds an irrevocable proxy to vote the shares,
which includes an aggregate of 4,218,689 shares of common stock shown in
the table above as owned by Messrs. Sindelar and Conlon.
(4) These figures include:
- 77,069,713 shares of common stock held of record by Hicks, Muse, Tate &
Furst Equity Fund III, L.P., HM3 Coinvestors, L.P., HMTF/Viasystems
Partners, L.P. and HMTF/Viasystems Investments, LLC;
- 234,740 shares of common stock issuable upon exercise of an option to be
issued to by Hicks, Muse & Co. Partners, L.P.; and
- 872,387 shares of common stock owned of record by other stockholders and
for which Hicks, Muse, Tate & Furst Equity Fund III, L.P. holds an
irrevocable proxy to vote the shares.
Mr. Hicks is the controlling stockholder of the general partner of each of
Hicks, Muse, Tate & Furst Equity Fund III, L.P., HM3 Coinvestors, L.P.,
HMTF/Viasystems Partners, L.P. and Hicks, Muse & Co. Partners, L.P. and the
Manager of HMTF/Viasystems Investments, LLC and, accordingly, may be deemed
to beneficially own all or a portion of the shares held by those entities.
Mr. Hicks disclaims beneficial ownership of common stock not owned of
record by him.
These figures also include 525,868 shares of common stock issuable upon the
exercise of an option to be issued to Mr. Hicks that will be exercisable
upon issuance.
(5) These figures represent 331,180 shares of common stock issuable upon the
exercise of an option to be issued to Mr. Furst that will be exercisable
upon issuance.
(6) These figures include 16,666 shares of common stock issuable upon the
exercise of options that are currently exercisable.
(7) These figures include 33,333 shares of common stock owned of record by the
Kenneth F. Yontz 1996 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.
(8) These figures include 1,110,000 shares of common stock owned by a family
limited partnership controlled by Mr. Conlon. Mr. Conlon disclaims
beneficial ownership of shares of common stock not owned of record by him.
(9) These figures include:
- 120,000 shares of 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
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<PAGE> 78
- 2,084,583 shares of 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 common stock not owned of record by him.
These figures also include 737,257 shares of common stock issuable to Mr.
Sindelar upon exercise of amended performance options that will be
exercisable upon the effective date of the amendments.
(10) Represents 52,500 shares of common stock issuable upon the exercise of
options that are exercisable within 60 days.
(11) Represents 25,000 shares of common stock issuable upon the exercise of
options that are exercisable within 60 days.
(12) Includes 196,666 shares issuable upon exercise of outstanding options
issued under Viasystems' stock option plan and to one of our directors that
are exercisable within 60 days of the date of this prospectus. Also
includes 1,836,275 shares of common stock issuable to executive officers of
Viasystems upon the exercise of amended performance options, and 1,091,788
shares of common stock issuable to Thomas O. Hicks, Jack D. Furst and an
affiliate of Hicks, Muse, Tate & Furst Incorporated upon exercise of
options to be issued in connection with the termination of the monitoring
and oversight and financial advisory agreements.
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<PAGE> 79
RELATED PARTY TRANSACTIONS
MONITORING AND OVERSIGHT AGREEMENT; FINANCIAL ADVISORY AGREEMENT
In 1996, Viasystems and its subsidiaries entered into a ten-year monitoring
and oversight agreement with an affiliate of Hicks, Muse, Tate & Furst
Incorporated, as amended from time to time. Under the monitoring and oversight
agreement, Viasystems and its subsidiaries are required to pay Hicks Muse an
annual fee, payable quarterly, for oversight and monitoring services to
Viasystems. The annual fee is adjustable on January 1 of each calendar year to
an amount equal to .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. For 1999, 1998 and 1997, we paid an annual fee to Hicks Muse of $1.8
million, $3.0 million and $1.7 million, respectively. Upon the acquisition by
Viasystems 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. Hicks Muse has performed various
monitoring and oversight activities for Viasystems including providing input in
management's establishment of Viasystems' financial and strategic acquisition
plans. Hicks Muse monitors the viability and implementation of Viasystems'
strategic plan through actions such as review of monthly financial data,
management briefings and facility visits. Thomas O. Hicks and Jack D. Furst,
directors of Viasystems, are each principals of Hicks Muse. Hicks Muse is also
entitled to reimbursement for any expenses incurred by it in connection with
rendering services allocable to Viasystems under the monitoring and oversight
agreement. In addition, Viasystems and its subsidiaries have agreed to indemnify
Hicks Muse, 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 under the monitoring and oversight agreement and not resulting
primarily from the bad faith, gross negligence, or willful misconduct of Hicks
Muse. The monitoring and oversight agreement makes available the resources of
Hicks Muse concerning a variety of financial and operational matters.
Historically, these services have been provided not only by Messrs. Hicks and
Furst, outside their scope of duties as our directors, but also from numerous
other employees of Hicks Muse.
In 1996, Viasystems and its subsidiaries also entered into a ten-year
financial advisory agreement with Hicks Muse, pursuant to which Hicks Muse is
entitled to receive a fee equal to 1.5% of the "transaction value" for each
"add-on transaction" in which Viasystems or any of its subsidiaries is involved.
In respect of acquisitions to date, Hicks Muse has received aggregate fees of
approximately $22.5 million under the financial advisory agreement. In 1999,
1998 and 1997, we paid Hicks Muse $4.7 million, $5.0 million and $10.4 million,
respectively. 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 Viasystems or any of its subsidiaries or any of
their respective subsidiaries and any other person or entity. In addition,
Viasystems and its subsidiaries have agreed to indemnify Hicks Muse, 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 under the financial advisory agreement and not
resulting primarily from the bad faith, gross negligence, or willful misconduct
of Hicks Muse. The financial advisory agreement makes available the resources of
Hicks Muse concerning a variety of financial and operational matters.
Historically, these services have been provided not only by Messrs. Hicks and
Furst, outside their scope of duties as our directors, but also from numerous
other employees of Hicks Muse. Although Hicks Muse is contractually entitled to
receive fees from both Viasystems and International Wire in connection with the
transfer of the operations formerly conducted by Interconnection Systems
Limited, Forward Group, Zincocelere and Viasystems Sweden and the acquisition of
the wire harness business of International Wire, Hicks Muse has agreed to waive
any fee payable under the financial advisory agreement.
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In connection with this offering, we expect to terminate the monitoring and
oversight agreement and the financial advisory agreement. As consideration for
Hicks Muse's willingness to agree to such termination, we will grant to Hicks
Muse and partners of Hicks Muse options to purchase an aggregate of 2,134,000
shares of our common stock at an exercise price equal to $21.00 per share, the
initial public offering price of our common stock. The option shall be
exercisable for three years from the date of issue.
The options are designed to have a present value equal to $22.8 million,
the present value of the projected amount of fee income which Hicks Muse will
forego for the period through the stated expiration date of the agreements
(December 31, 2006) as a result of the termination of the agreements. The
present value of such options were calculated using the Black-Scholes option
pricing model.
STOCKHOLDERS AGREEMENT
Nearly all holders of all classes of common stock of Viasystems have
entered into an amended and restated stockholders agreement. The stockholders
agreement, among other things, grants registration rights to the parties
thereto. All parties to the stockholders agreement agreed to take all action
within their respective power, including the voting of common stock, to cause
the board of directors of Viasystems to at all times be constituted by the
members designated by an affiliate of Hicks, Muse, Tate & Furst Incorporated.
The stockholders agreement contains an irrevocable proxy pursuant to which all
parties to the stockholders agreement, other than James N. Mills, David M.
Sindelar, Timothy L. Conlon and the other securityholders employed by Mills &
Partners and their transferees, grant to an affiliate of Hicks Muse 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 David M. Sindelar, Timothy L. Conlon and the other
securityholders employed by Mills & Partners and their transferees grant to
James N. Mills, or to an affiliate of Hicks Muse if Mr. Mills is no longer an
officer or director of Viasystems, the power to vote all shares of common stock
held by these parties on all matters submitted to stockholders. The stockholders
agreement terminates on its tenth anniversary date.
WIRE HARNESS BUSINESS
Immediately prior to the consummation of the offering, Viasystems will
purchase the wire harness business of International Wire for $210.0 million.
International Wire is controlled by affiliates of Hicks Muse which is also our
controlling stockholder. Mr. James N. Mills is Chairman of the Board and Chief
Executive Officer of each of Viasystems and International Wire. In addition Mr.
David M. Sindelar is Senior Vice President and Chief Financial Officer of both
Viasystems and International Wire, and Jack D. Furst and Richard W. Vieser are
directors of both companies. The closing of the purchase of the wire harness
business is conditioned upon the receipt by each of the boards of directors of
Viasystems and International Wire of opinions of financial advisors that the
purchase price for the wire harness business is fair, from a financial point of
view, to the respective parties. At the closing of the acquisition of the wire
harness business, we will enter into a supply agreement with International Wire
whereby International Wire will continue to supply insulated wire to us for use
in the wire harness business at market prices.
TRANSFER OF PRINTED CIRCUIT BOARD FACILITIES
Concurrently with the consummation of the offering, we will transfer all of
the capital stock of our subsidiaries that own the operations formerly conducted
by Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden to our existing stockholders, including affiliates of Hicks Muse and
officers and directors of Viasystems. In consideration for the capital stock of
those entities, we will receive subordinated notes payable to us in the
aggregate principal amount of $124.0 million. The subordinated notes will be
unsecured, bear interest at 9% per year, be payable in kind by the issuance of
additional notes, and will mature in 10 years. The determination of the
consideration we received for those entities was based on business enterprise
values using common appraisal methods. We originally paid $738.0 million for the
assets related to the printed circuit board facilities being transferred. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" for an explanation of the decline in value of these assets. Following
the completion of the transfer, the transferred businesses are expected to enter
into a contract
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manufacturing agreement with us, whereby the transferred businesses will
continue to provide manufacturing services to us from their facilities at North
Tyneside in the United Kingdom and Norrkoping, Sweden. We will also have an
option to repurchase the North Tyneside and Norrkoping, Sweden facilities for an
amount equal to the net book value of the facilities.
CHIPS HOLDING, INC.
In April 1997, our stockholders and their affiliates formed Chips Holding,
Inc. to acquire Interconnection Systems Limited. On April 21, 1997, Chips
acquired Interconnection Systems Limited for $437.5 million plus $9.0 million of
acquisition fees and expenses, payable in notes to the former stockholders of
Interconnection Systems Limited. In connection with the transaction, our
stockholders invested $140.0 million of equity in Chips, and Chips paid Hicks
Muse a financial advisory fee of $6.9 million.
On June 6, 1997, Chips merged with Viasystems, and the subsidiaries of
Chips became subsidiaries of Viasystems, in consideration for the issuance to
our stockholders of 23,333,333 shares of our common stock valued at $140.0
million. We assumed the notes payable incurred by Chips to finance the
acquisition of Interconnection Systems Limited. The acquisition was consummated
by Chips prior to being acquired by Viasystems because of timing considerations
relating to our financing of the acquisition. No additional fee was paid to
Hicks Muse under our financial advisory agreement in connection with our merger
with Chips.
FORWARD GROUP ACQUISITION
In April 1997, an affiliate of Hicks Muse acquired Forward Group plc for a
purchase price of approximately $236.3 million, plus the issuance of loan notes
to former stockholders of Forward Group in the principal amount of $23.9
million. The acquisition was funded with $216.0 million of borrowings under a
tender offer loan facility and the proceeds from the issuance to Hicks Muse of
$40.0 million of the preferred stock of the acquiring entity. Subsequently,
Viasystems acquired Forward Group at cost, consisting of the assumption of the
$216.0 million tender offer loan facility, the assumption of the $23.9 million
principal amount of loan notes payable to the former stockholders of Forward
Group, and the issuance to Hicks Muse of $40.0 million in initial liquidation
preference of Viasystems' preferred stock in exchange for the $40.0 million of
preferred stock of the acquiring entity. In connection with the initial
acquisition, Hicks Muse received a $3.5 million financial advisory fee from the
acquiring entity. No additional fee was paid to Hicks Muse under our financial
advisory agreement in connection with our subsequent acquisition of Forward
Group.
GENERAL
All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the disinterested
directors. The determination as to whether a particular director is
disinterested will be made under applicable standards of Delaware law.
We believe that the terms of each of the transactions described in this
section were no less favorable to Viasystems than could have been obtained with
non-affiliated parties, but we have not independently verified this conclusion.
STOCK OPTIONS
Stock option grants to our executive officers are described in this
prospectus under the heading "Management -- Compensation of Executive Officers."
In addition, stock options were granted to each of Messrs. Vieser and Yontz on
February 4, 1997, to purchase 16,666 shares of common stock at an exercise price
of $6.00 per share. We issued 16,666 shares of common stock to Mr. Vieser on May
13, 1997 upon exercise of his stock options.
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COMMON STOCK
From March through June 1997, we sold an aggregate of 66,666 shares of
common stock to Mr. Vieser at a purchase price per share of $6.00 for cash
proceeds in the amount of $400,000.
From March through June 1997, we sold an aggregate of 49,999 shares of
common stock to Mr. Yontz at a purchase price per share of $6.00 for cash
proceeds in the amount of $300,000.
In June 1997, we sold an aggregate of 37,500,000 shares of common stock to
affiliates of Hicks, Muse, Tate & Furst Incorporated at a purchase price per
share of $6.00 for cash proceeds in the amount of $225,000,000.
In June 1997, we sold 33,333 shares of common stock to Mr. Mills at a
purchase price per share of $6.00 for cash proceeds in the amount of $200,000.
In April 1998, we sold an aggregate of 416,708 shares of common stock to a
partnership affiliated with Hicks, Muse, Tate & Furst Incorporated at a purchase
price per share of $6.00 for cash proceeds in the amount of $2,500,250.
In April 1998, we sold an aggregate of 6,830,601 shares of common stock to
affiliates of Hicks, Muse, Tate & Furst Incorporated at a purchase price per
share of $7.32 for cash proceeds in the amount of $50,000,000.
In August 1999, we sold 27,322,404 shares of common stock to an affiliate
of Hicks, Muse, Tate & Furst Incorporated at a purchase price per share of $7.32
for cash proceeds in the amount of $200,000,000.
CLASS A COMMON STOCK
In June 1997, we sold 1,817,083 shares of class A common stock to Mr. Mills
for a purchase price per share of $.06 for cash proceeds in the amount of
$109,024.99.
In June 1997, we sold 116,071 shares of class A common stock to Mr. Conlon
for a purchase price per share of $.06 for cash proceeds in the amount of
$6,964.29.
In June 1997, we sold 1,066,666 shares of class A common stock to Mr.
Sindelar for a purchase price per share of $.06 for cash proceeds in the amount
of $63,999.98.
In May 1998, we sold 31,921 shares of class A common stock to Mr. Mills for
a per share purchase price of $.06 for cash proceeds of $1,915.27.
In May 1998, we sold 18,333 shares of class A common stock to Mr. Sindelar
for a per share purchase price of $.06 for cash proceeds of $1,100.00.
CLASS A SERIES II COMMON STOCK
In May 1998, we sold 346,563 shares of class A series II common stock to
Mr. Mills for a per share purchase price of $.06 for cash proceeds of
$20,793.81.
In May 1998, we sold 206,768 shares of class A series II common stock to
Mr. Sindelar for a per share purchase price of $.06 for cash proceeds of
$12,406.09.
In May 1998, we sold 14,657 shares of class A series II common stock to Mr.
Conlon for a per share purchase price of $.06 for cash proceeds of $879.46. In
November 1998, we sold 1,243,833 additional shares of class A series II common
stock to Mr. Conlon for a per share purchase price of $.06 for cash proceeds of
$74,630.00.
In August 1999, we sold an aggregate of 1,026,670 shares of class A series
II common stock to Mr. Mills for a per share purchase price of $.06 for cash
proceeds of $61,600.20.
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In August 1999, we sold an aggregate of 100,000 shares of class A series II
common stock to trusts for the benefit of Mr. Sindelar's children. Those shares
were purchased at $.06 per share for cash proceeds of $6,000.00.
In August 1999, we sold 846,668 shares of class A series II common stock to
Mr. Conlon for a per share purchase price of $.06 for cash proceeds of
$50,800.13.
In August 1999, we sold 841,502 shares of class A series II common stock to
a trust for the benefit of Mr. Sindelar's children for cash proceeds of
$50,490.15. The purchase price per share was $.06.
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DESCRIPTION OF INDEBTEDNESS
SENIOR CREDIT FACILITY
In connection with the offering, the transfer of operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden and the acquisition of the wire harness business of
International Wire, Viasystems, Inc. will enter into a new senior credit
facility in its entirety. Viasystems, Inc. has received a commitment letter from
its lenders with respect to this facility. The material terms of the new senior
credit facility, as set forth in the commitment letter, are described below.
However, according to the commitment letter, the lenders may change the terms,
pricing and structure of the loans so long as the changes do not materially and
adversely affect us. Those changes may affect the interest rate we are required
to pay on all or any part of the loans, as well as amortization.
The new senior credit facility will include:
- a $150,000,000 term loan facility, all of which is required to be drawn
in a single draw at the closing of the new senior credit facility;
- a $175,000,000 revolving credit facility; and
- a letter of credit and term loan facility in an aggregate amount of
$303,100,000 in respect of our obligations under the loan notes made in
connection with the acquisition of Interconnection Systems Limited. The
letter of credit and term loan facility has a tranche A portion in the
amount of $153,000,000 and a tranche B amount of $150,000,000.
The term loan facility amortizes semi-annually over seven years, commencing
September 30, 2000; and the letter of credit and term loan facility amortizes
semi-annually over two years, commencing September 30, 2003 in the case of
tranche A, and over four years, commencing September 30, 2003 in the case of
tranche B.
Viasystems, Inc. and its foreign subsidiaries who are parties to the senior
credit facility, or the borrowers, may use the revolving loans for letters of
credit in an amount not to exceed $40 million. Furthermore, up to an aggregate
principal amount of $75 million of the revolving loan will be available as a
multicurrency facility. Also, up to $10 million of the revolving facility will
be available for swingline loans.
The borrowers may optionally prepay the term loans from time to time in
whole or in part, without premium or penalty. At our option, the revolving loans
may be prepaid, and revolving credit commitments may be permanently reduced, in
whole or in part, at any time.
Viasystems, Inc. will be required to make mandatory prepayments of the term
loans, to cash collateralize the letter of credit term loan and to reduce the
revolving facility, in the amounts equal to (a) 50% of excess cash flow,
beginning in the earlier of the fiscal year in which the letter of credit term
loans exceed $270 million and fiscal year 2002 and (b) 100% of the net proceeds
of dispositions by us or any of our subsidiaries of material assets or
incurrences of indebtedness by us or any of our subsidiaries.
Viasystems, Inc.'s obligations under the new senior credit facilities are
unconditionally and irrevocably guaranteed by us and each existing and future
domestic subsidiary of Viasystems, Inc. In addition, the senior credit facility
is secured by a perfected first priority security interest in all of the capital
stock of Viasystems, Inc. and each of its direct and indirect domestic
subsidiaries and 65% of each first tier foreign subsidiary of Viasystems, Inc.
and its domestic subsidiaries, all intercompany notes owing to Viasystems, Inc.
or any of its domestic subsidiaries, the notes issued in connection with the
transfer of the operations formerly conducted by Interconnection Systems
Limited, Forward Group, Zincocelere and Viasystems Sweden and all other tangible
and intangible assets of Viasystems, Inc. and each guarantor.
The loans bear interest, at the borrower's election, at either:
- the highest of (A) the rate of interest publicly announced by The Chase
Manhattan Bank as its prime rate in effect, (B) the secondary market rate
for three-month certificates of deposit plus 1% and
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(C) the federal funds effective rate from time to time plus .5%, plus a
percentage based on the ratio of consolidated total debt to consolidated
EBITDA; or
- the rate for eurodollar (or Canadian, as applicable) deposits for a
period equal to one, two, three or six months, or to the extent available
to all lenders, nine or twelve months, as selected by the borrower, plus
a percentage based on the ratio of consolidated total debt to
consolidated EBITDA.
The senior credit facility contains a number of covenants that, among other
things, restrict the ability of Viasystems, Inc. and its subsidiaries to:
- incur additional indebtedness;
- create liens on assets;
- incur guarantee obligations;
- enter into mergers, consolidations or amalgamations or liquidate, wind up
or dissolve;
- dispose of assets;
- pay dividends, make payment on account of, or set apart assets for, a
sinking or analogous fund or purchase, redeem, defease or retire capital
stock;
- make capital expenditures;
- make amendments to the Lucent supply agreement which would have a
material adverse effect on the lenders;
- make optional repurchases of subordinated debt or preferred stock;
- make advances, loans, extensions of credit, capital contributions to, or
purchases of any stock, bonds, notes, debentures or other securities;
- engage in transactions with affiliates; and
- enter into sale and leaseback transactions.
The senior credit facility also contains customary events of default
including:
- failure to pay principal on any loan when due or any interest or other
amount that becomes due within five days after the due date thereof;
- any representation or warranty made or deemed made is incorrect in any
material respect on or as of the date made or deemed made;
- the default in the performance of negative covenants or a default in the
performance of other covenants or agreements for a period of thirty days;
- default in other indebtedness or guarantee obligations with a principal
amount in excess of $20.0 million beyond the period of grace;
- events of insolvency;
- ERISA events; and
- other customary events of default for facilities similar to the senior
credit facility.
SENIOR SUBORDINATED NOTES
Following completion of the offering and the application of the net
proceeds from the offering, Viasystems, Inc., a wholly-owned subsidiary of
Viasystems, will have an aggregate of $500 million of its 9 3/4% Senior
Subordinated Notes due 2007 and Series B 9 3/4% Senior Subordinated Notes due
2007 issued and outstanding. The following is a brief summary of the material
provisions of the notes.
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The notes mature on June 1, 2007. Interest on the notes accrues at the rate
of 9 3/4% per annum and is payable semiannually. The notes are unsecured
obligations of Viasystems, Inc., ranking subordinate in right of payment to all
senior indebtedness, including the senior credit facility of Viasystems, Inc.,
on par with any future senior indebtedness that is subordinated in right of
payment to senior indebtedness of Viasystems, Inc., and senior to all
indebtedness of Viasystems, Inc. that is subordinate in right of payment to the
notes by written agreement.
Except as set forth below, the notes will not be redeemable at the option
of Viasystems, Inc. prior to June 1, 2002. On and after that date, the notes
will be redeemable at the following redemption prices (expressed in percentages
of principal amount) if redeemed during the twelve month period beginning on
June 1 of the years set forth below, plus, in each case, accrued and unpaid
interest to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2002..................................................... 104.875%
2003..................................................... 103.250
2004..................................................... 101.625
2005 and thereafter...................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to June 1, 2000,
Viasystems, Inc. may redeem in the aggregate up to $175.0 million of the notes
with the net cash proceeds of one or more equity offerings by Viasystems or
Viasystems, Inc. (to the extent, in the case of Viasystems, that the net cash
proceeds of the offering are contributed to the common or non-redeemable
preferred equity capital of Viasystems, Inc.) so long as there is a public
market at the time of such redemption, at a redemption price (expressed as a
percentage of principal amount) of 109.75%, plus accrued and unpaid interest, if
any, to the redemption date; provided, however, that at least $250.0 million
aggregate principal amount of the notes must remain outstanding after each
redemption.
At any time on or prior to June 1, 2002, the notes may also be redeemed as
a whole at the option of Viasystems, Inc. upon the occurrence of a change of
control, including upon a sale of substantially all of the assets of Viasystems,
Inc., the acquisition of a majority of the voting power of Viasystems, Inc. by
persons other than Hicks Muse, Mills & Partners or any of their affiliates, or a
change in the board composition so that a majority of the board consists of
directors who were not directors at the time the indentures were executed or
were not nominated or elected by those directors. The redemption price will be
equal to 100% of the principal amount of the notes, plus the greater of:
- 1.0% of the principal amount of the notes and
- the excess of (A) the present value of the sum of 104.875% of the
principal amount of the notes and all required interest payments due on
the notes through June 1, 2002 over (B) the principal amount of the notes
as of, and accrued and unpaid interest, if any, to, the date of redemption.
The indentures governing the notes contain restrictive covenants which,
among other things, impose limitations (subject to exceptions) on Viasystems,
Inc. with respect to the following:
- the payment of dividends or other distributions on capital stock and the
purchase, redemption or retirement for value of shares of capital stock
or warrants, options or other securities convertible into capital stock;
- the repayment or redemption of subordinated indebtedness other than in
accordance with scheduled repayment;
- making investments, except for permitted investments;
- the incurrence of indebtedness, except for permitted indebtedness and
other indebtedness incurred after satisfying specified financial ratios;
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- the incurrence of indebtedness senior to the notes and subordinated to
its senior indebtedness;
- the restrictions of payments by subsidiaries to their respective parents;
- sales of assets and stock of its subsidiaries;
- the issuance of capital stock by any of its subsidiaries;
- transactions with stockholders and affiliates; and
- the merger or sale of all or substantially all of its assets.
Upon the occurrence of events of default specified in the indentures, the
trustee for the notes or the holders of at least 25% of the principal amount of
the outstanding notes may declare the principal amount then outstanding of, and
accrued but unpaid interest, if any, on, all of the notes to be due and payable.
Upon the happening of other events of default specified in the indentures, the
unpaid balance of an accrued but unpaid interest on all outstanding notes will
automatically become due and payable without any action by the trustee or the
holders of the notes.
Viasystems, Inc. may terminate most of its obligations under the notes
indentures at any time by irrevocably depositing in trust with the trustee money
or U.S. government obligations for the payment of principal, premium (if any),
and interest on the notes to maturity or any redemption date specified by
Viasystems, Inc., together with satisfying other conditions and obligations set
forth in the indentures.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
charter gives effect to:
- the 1 for 6 reverse stock split that will be effected prior to the
offering;
- the reclassification of each 6 2/3 shares of our class A common stock and
class A series II common stock into one share of our common stock; and
- the other provisions of our amended and restated certificate of
incorporation, which is expected to be filed immediately prior to the
offering.
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of:
- 60,000,000 shares of preferred stock, 6,000,000 shares of which have been
designated series B preferred stock, of which 1,522,327.98 shares are
outstanding; and
- 500,000,000 shares of common stock, of which 88,233,472 shares were
outstanding as of the date of this prospectus and held of record by
approximately 45 stockholders.
STOCK RESERVED FOR ISSUANCE
As of the date of this prospectus, no shares of series B preferred stock
are reserved for issuance. 4,404,613 shares of common stock are reserved for
issuance upon exercise of options granted under our stock option plan. In
addition, 2,802,897 shares of common stock are reserved for issuance upon
exercise of outstanding performance options, 2,134,000 shares of common stock
reserved for issuance upon exercise of options to be issued to partners and
affiliates of Hicks, Muse, Tate & Furst Incorporated in connection with the
termination of monitoring and oversight and financial advisory agreements, and
16,666 shares are reserved for issuance upon exercise of an option granted to
one of our directors. 136,645 shares of common stock are reserved for issuance
upon exercise of outstanding warrants.
COMMON STOCK
Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. There is no cumulative voting. The
holders of outstanding shares of common stock are entitled to receive dividends
out of assets legally available therefor at such time and in such amounts as the
board of directors may from time to time determine, subject to the prior rights
of the holders of any preferred stock. See "Dividend Policy." The shares of
common stock are not convertible and the holders have no preemptive or
subscription rights to purchase any of our securities. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive,
pro rata, our assets which are legally available for distribution, after payment
of all debts and other liabilities and subject to the rights of any holders of
preferred stock. There are no redemption or sinking fund provisions applicable
to the common stock. All of our outstanding shares of common stock are, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully-paid and nonassessable.
PREFERRED STOCK
Our board is authorized without stockholder approval to issue preferred
stock in one or more classes or series and to designate for each class or series
the following:
- the terms and conditions of any voting, dividend and conversion or
exchange rights;
- the amount payable on the series upon redemption and upon our dissolution
or distribution of our assets; and
- the rights, qualifications, limitations or restrictions pertaining to the
class or series.
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These rights and privileges could adversely affect your voting power, and our
board's authority to issue preferred stock without your approval could delay or
prevent a change in control of the company.
SERIES B PREFERRED STOCK
Dividends. The holders of series B preferred stock are entitled to be paid
cumulative dividends at a rate per annum equal to:
- $2.00 per whole share prior to November 30, 2004;
- $2.50 per whole share on and after November 30, 2004 and prior to
November 30, 2005;
- $3.00 per whole share on and after November 30, 2005 and prior to
November 30, 2006; and
- $3.50 per whole share on and after November 30, 2006, payable quarterly
on February 28, May 31, August 31, and November 30 in each year.
On the first twenty payment dates, any dividend shall be payable either:
- in cash;
- by issuing a number of additional shares (or fractional shares) of series
B preferred stock in respect of each share (or fractional share) of
series B preferred stock then outstanding at the rate of 1/25th of a
whole share of series B preferred stock for each $1.00 of dividend
declared; or
- in any combination of the above.
However, upon the completion of this offering, all dividends on the series B
preferred stock will be payable in cash unless we are prohibited from using cash
under the terms of our existing credit arrangements, in which case the dividends
will be paid in shares of series B preferred stock. If dividends on the series B
preferred stock are not paid in full on any dividend payment date, the dividends
will accrue and cumulate.
So long as any shares of series B preferred stock remain outstanding, we will
not:
- pay any dividend (other than a dividend payable solely in junior
securities) on any junior securities;
- redeem or purchase any junior securities or parity stock (except in
exchange for junior securities);
- pay any monies or make available for a sinking fund for redemption or
purchase of any junior securities or parity stock;
unless, in each of the instances mentioned above, full dividends on all
outstanding shares of series B preferred stock for all past dividend periods are
paid, and the dividends on all outstanding shares of series B preferred stock
for the then current quarterly dividend period are paid or set aside for
payment.
So long as any series B preferred stock remains outstanding, we will not:
- pay cash dividends with respect to any junior securities or parity stock;
- redeem or purchase any junior securities or parity stock (except in
exchange for junior securities);
- pay any monies to or make available for a sinking fund for redemption or
purchase of any junior securities or parity stock;
unless, in each such instance, we have paid cash dividends on all outstanding
shares of series B preferred stock for the then current quarterly dividend
period.
We will not pay any dividend on any share of series B preferred stock for any
dividend period unless at the same time:
- we pay a like proportionate dividend for the same dividend period on all
shares of the series B preferred stock then outstanding and entitled to
receive the dividend; and
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- we have paid on all shares ranking on parity with the series B preferred
stock, dividends ratably in proportion to the respective dividend rates
fixed for the series B preferred stock and any parity stock. We will pay
no dividend on the parity stock unless we have paid dividends on all
shares then outstanding of the series B preferred stock, for the same
dividend period ratably in proportion to the respective dividend rates
fixed for the series B preferred stock and the parity capital stock.
Ranking. The series B preferred stock ranks:
- senior to the common stock and any other class or series of capital stock
which provides that it ranks junior to the series B preferred stock or
which does not expressly provide for any ranking;
- on a parity with any class or series of capital stock which provides that
it ranks on a parity with the series B preferred stock; and
- junior to any class or series of capital stock which provides that it
ranks senior to the series B preferred stock.
Liquidation. Subject to the rights of the holders of any class of capital
stock or series of capital stock ranking senior to the series B preferred stock,
in the event of any liquidation, dissolution or winding up, the holder of each
share of series B preferred stock will be entitled to receive a cash liquidation
payment equal to $25.00 per share plus a cash amount equal to all accumulated
and unpaid dividends before any distribution or payment shall be made to the
holders of any junior securities. If we lack sufficient funds to pay the full
amount owed to the holders of the series B preferred stock and the full amount
owed to the holders of any other class or series of capital stock ranking on a
parity with the series B preferred stock, we will distribute funds to the
holders of the series B preferred stock and the parity stock on a pro rata
basis.
Redemption. We can redeem, at any time, shares of series B preferred stock,
for cash at a redemption price of $25.00 per share plus an amount equal to all
accumulated and unpaid dividends on the shares. We must redeem within sixty
calendar days of a change of control, all outstanding shares of the series B
preferred stock at a redemption price, payable in cash, equal to the per share
liquidation preference of the shares, plus an amount equal to accumulated and
unpaid dividends on the shares to the date the shares are redeemed.
Notwithstanding our obligation to redeem shares of the series B preferred stock
upon the occurrence of a change of control, we are also subject to the
limitations under our existing credit arrangements. A "change of control" will
be deemed to occur if Hicks, Muse, Tate & Furst Incorporated, Mills & Partners,
Inc. and/or their respective affiliates cease to have the power to vote or
direct the voting of securities having a majority interest for the election of
our directors, provided, that this event shall not be deemed a change of control
if following the consummation of this offering:
- Hicks, Muse, Tate & Furst Incorporated, Mills & Partners, Inc. and/or
their respective affiliates own greater than 20% of our outstanding
common stock; and
- (A) no "Person" or "group" (as those terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Hicks, Muse, Tate & Furst
Incorporated, Mills & Partners, Inc. and/or their respective affiliates,
is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of a greater
percentage of our voting stock than is owned by Hicks, Muse, Tate & Furst
Incorporated, Mills & Partners, Inc. and/or their respective affiliates,
or (B) our board consists of a majority of those directors serving on
November 26, 1996 and each other director whose nomination for election
is recommended by a majority of the then continuing directors or who
receives the vote of Hicks, Muse, Tate & Furst Incorporated, Mills &
Partners, Inc. and/or their respective affiliates in his or her election
by our shareholders.
In the event we merge or consolidate and are not the surviving entity and in
connection with the transaction we are not required to redeem the series B
preferred stock, the holders will be entitled to exchange their series B
preferred stock for securities of the surviving entity having economic terms
substantially similar to the series B preferred stock.
Any share of series B preferred stock which we redeem, repurchase or
reacquire will be retired.
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Special Voting Rights to Elect Directors. If dividends on the series B
preferred stock remain unpaid for four consecutive quarterly periods, the
holders of series B preferred stock will be entitled to elect two directors.
Each share of series B preferred stock will be entitled to one vote. The holders
of series B preferred stock will retain this right until we pay all accumulated
dividends on the series B preferred stock in full or we redeem all the
outstanding series B preferred stock. In the event we pay all accumulated
dividends in full on the series B preferred stock or redeem in full the series B
preferred stock, the terms of the directors elected by the holders of the series
B preferred stock will terminate.
Other Special Voting Rights. So long as any shares of the series B
preferred stock are outstanding, we cannot, without the consent of at least a
majority of the votes of the shares of the series B preferred stock then
outstanding:
- create, authorize or issue more than 10,000,000 shares of any class or
series of capital stock that ranks senior to the series B preferred
stock;
- pay any dividend (other than a dividend payable solely in junior
securities) with respect to any junior securities or repurchase or redeem
for cash any junior securities; or
- amend any rights of the series B preferred stock so as to affect
adversely those rights.
The above provisions will not prohibit:
- the payment of any dividend within sixty days after the date of
declaration, if the payment would have complied with the above
provisions;
- the retirement of any of our shares capital stock, other than shares
issued to Hicks, Muse, Tate & Furst Incorporated, Mills & Partners, Inc.
and/or their respective affiliates on November 26, 1996, in exchange for,
or out of the net proceeds of the substantially concurrent sale of, other
shares of any of our capital stock;
- the acquisition or cancellation of capital stock in connection with any
merger, consolidation or transfer;
- any repurchase or redemption of capital stock or equity interest of any
of our subsidiaries held by any of our employees or employees of any of
our subsidiaries in connection with the termination of those employees,
to the extent that the aggregate amount of all such payments,
redemptions, and repurchases does not exceed $5,000,000; and
- cash payments to holders of junior securities in lieu of the issuance of
fractional shares.
SPECIAL PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND
AMENDED
AND RESTATED BYLAWS
Upon consummation of the offering, our amended and restated certificate of
incorporation and amended and restated bylaws will include provisions that could
have an anti-takeover effect. We intend these provisions to enhance the
likelihood of continuity and stability in the composition of our board and in
the policies formulated by our board. We also intend these provisions to help
ensure that our board, if confronted by a surprise proposal from a third party
which has acquired a block of our stock, will have sufficient time to review the
proposal and appropriate alternatives to the proposal and to act in what it
believes to be the stockholders' best interests.
Blank Check Preferred Stock. Our amended and restated certificate of
incorporation provides that our board may authorize the issuance of up to
60,000,000 shares of preferred stock in one or more series and may designate the
dividend rate, voting rights and other rights, preferences and restrictions of
each series. To date, 6,000,000 shares have been designated series B preferred
stock. We have no present intention to issue any additional shares of preferred
stock. We could, however, issue a series of preferred stock that could either
impede or facilitate the completion of a merger, tender offer or other takeover
attempt. Although our board is required to make any determination to issue stock
based on its judgment as to the best interests of our stockholders, our board
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might believe to be in
their best interests or in which
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stockholders might receive a premium for their stock over the then market price
of their stock. Our board does not intend to seek stockholder approval prior to
any issuance of any preferred stock, unless otherwise required by law or stock
exchange rules.
Classified Board of Directors. Our amended and restated certificate of
incorporation will provide for a board divided into three classes of directors
serving staggered three-year terms. The classification of directors has the
effect of making it more difficult for stockholders to change the composition of
the board in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the board. Furthermore, the affirmative vote of the holders of at
least eighty percent (80%) of the voting power of all shares entitled to vote
generally in the election of directors then outstanding, voting together as a
single class, is required to alter, amend or adopt any provision inconsistent
with or repeal the provision relating to the classified board.
Number of Directors; Vacancies; Removal. Our amended and restated
certificate of incorporation will provide that the board must consist of at
least six and no more than nine members. Our amended and restated bylaws provide
that the board, acting by majority vote of the directors then in office, may
fill any newly created directorships or vacancies on the board. Moreover, under
the DGCL, in the case of a corporation having a classified board, stockholders
may remove a director only for cause. This provision, when coupled with the
provision of our amended and restated bylaws authorizing the board to fill
vacant directorships, will preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of the board by
filling the vacancies created by the directors' removal with its own nominees.
Stockholder Action by Written Consent; Special Meetings. Our amended and
restated certificate of incorporation will prohibit action by stockholders by
written consent in lieu of a meeting. The affirmative vote of the holders of at
least eighty percent (80%) of the voting power of all shares entitled to vote
generally in the election of directors then outstanding, voting together as a
single class, is required to alter, amend or adopt any provision inconsistent
with or repeal the provision prohibiting action by stockholders by written
consent in lieu of a meeting. Our amended and restated bylaws will provide that
special meetings of stockholders may be called by a majority of the board, the
chairman of the board or any holder or holders of at least 50% of the
outstanding shares of our voting capital stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. Our amended and restated bylaws will establish an advance notice
procedure with regard to business proposed to be submitted by a stockholder at
any annual or special meeting of our stockholders, including the nomination of
candidates for election as directors. The procedure provides that a notice of
proposed stockholder business must be timely given in writing to our Secretary
prior to the meeting. In all cases, to be timely, notice relating to an annual
meeting must be received at our principal executive office not less than 60 days
nor more than 90 days before the first anniversary of the prior year's annual
meeting.
Notice to us from a stockholder who proposes to nominate a person at a
meeting for election as a director must contain all information relating to that
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act. The notice must also include the person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected.
The chairman of a meeting of stockholders may determine that a person was
not nominated in accordance with the nomination procedure, in which case the
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before the
meeting in accordance with our amended and restated bylaw procedures, the
business will not be conducted at the meeting. Nothing in the nomination
procedure or the business procedure will preclude discussion by any stockholder
of any nomination or business properly made or brought before the annual or any
other meeting in accordance with the above-mentioned procedures.
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LIMITATIONS ON DIRECTOR LIABILITY
Our amended and restated certificate of incorporation also contains
provisions permitted under the DGCL regarding liability of directors. These
provisions eliminate the personal liability of directors for monetary damages
for any breach of their fiduciary duties as directors, except for:
- any breach of the duty of loyalty;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- liability under Section 174 of the DGCL regarding unlawful dividends,
stock repurchases or stock redemptions; or
- any transaction from which the director derived an improper personal
benefit.
These provisions do not eliminate a director's duty of care and do not affect
the availability of equitable remedies, including action to enjoin or rescind a
transaction involving a breach of fiduciary duty. Moreover, these provisions do
not apply to claims against a director for knowing violation of laws, including
the federal securities laws. Our amended and restated certificate of
incorporation further provides that we must indemnify our directors and
officers, and may indemnify any of our employees or agents, to the fullest
extent permitted by the DGCL. We believe these provisions assist us in
attracting and retaining qualified individuals to serve as directors and
officers.
DELAWARE TAKEOVER STATUTE
Section 203 of the DGCL prohibits persons deemed "interested stockholders"
from engaging in a "business combination" with a Delaware corporation for three
years following the date those persons become interested stockholders.
Interested stockholders generally include:
- persons who are the beneficial owners of 15% or more of our outstanding
voting stock; and
- persons who are our affiliates or associates and who hold 15% or more of
our outstanding voting stock at any time within three years before the
date on which the person's status as an interested stockholder is
determined.
Subject to statutory exceptions, a "business combination" includes, among other
things:
- mergers and consolidations;
- the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to 10% or
more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market
value of all our outstanding stock;
- transactions that result in our issuance or transfer of any of our stock
to the interested stockholder, except pursuant to exercises, exchanges,
conversions, distributions or offers to purchase with respect to
securities outstanding prior to the time that the interested stockholder
became an interested stockholder and that, generally, do not increase the
interested stockholder's proportionate share of any class or series of
our stock;
- any transaction involving us that has the effect of increasing the
proportionate share of our stock of any class or series, or securities
convertible into the stock of any class or series, that is owned directly
or indirectly by the interested stockholder; or
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- any receipt by the interested stockholder of the benefit, except
proportionately as a stockholder, of any loans, advances, guarantees,
pledges or other financial benefits which we provided.
Section 203 does not apply to a business combination if:
- before a person becomes an interested stockholder, our board approves the
transaction in which the interested stockholder became an interested
stockholder or approves the business combination;
- upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of our voting stock outstanding at the time
the transaction commences, excluding, for purposes of determining the
number of shares outstanding, those shares owned by persons who are
directors and also officers, and those shares subject to employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
- following a transaction in which the person became an interested
stockholder, the business combination is approved by our board and
authorized at a regular or special meeting of stockholders (and not by
written consent) by the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock not owned by the interested
stockholder.
These provisions of Delaware law and our amended and restated certificate
of incorporation and amended and restated bylaws could discourage hostile
takeover attempts. As a consequence, they may also inhibit temporary
fluctuations in the market price of our common stock that often result from
actual or rumored hostile takeover attempts. These provisions may also have the
effect of preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Harris Trust and
Savings Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market after this offering could adversely affect
market prices prevailing from time to time and could impair our ability to raise
capital through the sale of our equity securities.
Upon completion of this offering, we will have outstanding 132,233,472
shares of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, 44,000,000 shares, or 46,000,000 shares if the
underwriters exercise their over-allotment option in full, of the common stock
sold in this offering will be freely tradable without restriction under the
Securities Act unless purchased by one of our affiliates as that term is defined
in Rule 144 under the Securities Act, which generally includes directors,
officers or 10% stockholders, or unless purchased by any of our directors,
officers or stockholders that enter into the lock-up agreement described in
"Underwriters" or by any of our employees if the shares are part of the
2,000,000 shares that have been reserved, at our request, by the underwriters
for sale as described in "Underwriters." The remaining 88,233,472 shares of
common stock outstanding will be restricted securities under Rule 144 and may in
the future be sold without registration under the Securities Act to the extent
permitted by Rule 144 or any other applicable exemption under the Securities
Act, subject to the restrictions on transfer contained in the lock-up agreements
described in "Underwriters."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one
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year, including the holding period of any prior owner except an affiliate, would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately 1,322,335 shares immediately after this
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
Sales under Rule 144 also are subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
Viasystems at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell those shares without complying with the manner of sale, public
information, volume limitation and notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance on Rule 144 but without
compliance with specified restrictions of Rule 144. Any employee, officer or
director of or consultant to Viasystems who purchased his or her shares under a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell those shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling those shares.
Nearly all holders of all classes of common stock outstanding immediately
prior to this offering have entered into an amended and restated stockholders
agreement that grants registration rights to the parties thereto with respect to
outstanding shares of common stock and shares of common stock issued upon
exercise of outstanding options or warrants. Registration of shares of common
stock pursuant to these registration rights will result in those shares becoming
freely tradable without restriction under the Securities Act.
Following consummation of this offering we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
reserved for issuance under our stock option plan and our performance option
agreements. Based on the number of shares that are expected to be reserved for
issuance under our stock option plan and amended performance options, that
registration statement would cover up to 7,207,510 shares issuable on exercise
of the options, of which 5,249,896 options will have been issued as of the date
of this offering. The registration statement on Form S-8 will automatically
become effective upon filing. Accordingly, subject to the exercise of those
options, shares registered under that registration statement will immediately be
available for sale in the open market, subject to the restrictions on transfer
contained in the lock-up agreements described in "Underwriters."
IMPORTANT UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
This is a general discussion of the United States federal tax consequences
of the acquisition, ownership, and disposition of our common stock by a holder
that, for U.S. federal income tax purposes, is not a U.S. person as we define
that term below. A holder of our common stock who is not a U.S. person is a non-
U.S. holder. We assume in this discussion that you will hold our common stock
issued pursuant to the offering as a capital asset (generally, property held for
investment). We do not discuss all aspects of U.S. federal taxation that may be
important to you in light of your individual investment circumstances, such as
special tax rules that would apply to you, for example, if you are a dealer in
securities, financial institution, bank, insurance company, tax-exempt
organization, partnership or owner of more than 5% of our common stock. In
addition, this discussion does not apply to persons holding the common stock
through a partnership or other pass-through entity. Our discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, judicial opinions, published positions of the U.S. Internal Revenue
Service
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and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and will not seek, any
ruling from the IRS or opinion of counsel with respect to the tax consequences
discussed in this prospectus, and there can be no assurance that the IRS will
not take a position contrary to the tax consequences discussed below or that any
position taken by the IRS would not be sustained. We urge you to consult your
tax advisor about the U.S. federal tax consequences of acquiring, holding, and
disposing of our common stock, as well as any tax consequences that may arise
under the laws of any foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the U.S;
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S;
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust.
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business of the
U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be withheld at a reduced rate as
specified by a treaty, we generally will presume that dividends we pay on or
before December 31, 2000, to an address in a foreign country are paid to a
resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether, for
purposes of applying a treaty, dividends that we pay a non-U.S. holder that is
an entity should be treated as paid to holders of interests in that entity.
GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder;
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met;
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates; or
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes.
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If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our common stock provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock; and
- our common stock is and continues to be regularly traded on an
established securities market for U.S. federal income tax purposes.
We believe that our common stock will be regularly traded on an established
securities market for this purpose in any year in which it is listed on The New
York Stock Exchange.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our common stock as well as to a withholding tax, generally
at a rate of 10% of the proceeds. Any amount withheld pursuant to a withholding
tax will be creditable against a non-U.S. holder's U.S. federal income tax
liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a county in which the non-U.S. holder resides.
Under current U.S. Treasury regulations, certain U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office of a broker are subject to both backup withholding
at a rate of 31% and information reporting, unless the holder certifies as to
its non-U.S. holder status under penalties of perjury or otherwise establishes
an exemption. Information reporting requirements, but not backup withholding
tax, will also apply to payments of the proceeds of a sale or other taxable
disposition of our common stock by foreign offices of U.S. brokers or foreign
brokers with certain types of relationships to the U.S. unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met or the holder otherwise established an
exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below have
severally agreed to purchase, and Viasystems has agreed to sell to them,
severally, the number of shares indicated below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................... 15,400,000
Credit Suisse First Boston Corporation...................... 15,400,000
Chase Securities Inc........................................ 2,961,200
Banc of America Securities LLC.............................. 2,961,200
Bear, Stearns & Co. Inc. ................................... 2,961,200
Deutsche Bank Securities Inc. .............................. 1,079,100
Goldman, Sachs & Co. ....................................... 1,079,100
Salomon Smith Barney Inc. .................................. 1,079,100
SoundView Technology Group, Inc. ........................... 1,079,100
----------
Total..................................................... 44,000,000
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus are
subject to the approval of legal matters by their counsel and to other
conditions specified in the underwriting agreement. The underwriters are
obligated to take and pay for all of the shares of common stock offered by this
prospectus, if any such shares are taken. However, the underwriters are not
required to take or pay for the shares covered by the underwriters'
over-allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to securities dealers at a price that
represents a concession not in excess of $.75 a share under the public offering
price. No underwriter will allow, and no dealer will reallow, any concession to
other underwriters or to other dealers. After the initial offering of the shares
of common stock, the offering price and other selling terms may from time to
time be varied by the representatives.
Viasystems has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
2,000,000 additional shares of common stock at the public offering price listed
on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of common stock offered by this prospectus. To the extent this option is
exercised, each underwriter will become obligated, subject to limited
conditions, to purchase about the same percentage of the additional shares of
common stock as the number listed next to the underwriter's name in the
preceding table bears to the total number of shares of common stock listed next
to the names of all underwriters in the preceding table.
The underwriters have informed Viasystems that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
At the request of Viasystems, the underwriters have reserved for sale, at
the initial public offering price, up to 2,000,000 shares of common stock
offered by this prospectus for our directors, officers, employees, business
associates and related persons. Any of these shares purchased by our employees
may not be sold, transferred, assigned or pledged for a period of 180 days after
the date of this prospectus. The number of shares available for sale to the
general public will be reduced to the extent that such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares of
common stock offered by this prospectus.
97
<PAGE> 99
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, is acting as a dealer in connection with this distribution
and, together with Wit Capital Corporation, an affiliate of Wit SoundView, will
distribute shares of common stock over the Internet to their eligible account
holders.
The common stock has been approved for listing, subject to official notice
of issuance, on The New York Stock Exchange under the symbol "VG."
Each of Viasystems and the directors, officers and substantially all of the
other stockholders of Viasystems has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it
will not, during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance by Viasystems of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
- transactions by any person other than Viasystems relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares;
- the transfer of shares by one of the foregoing persons as a bona fide
gift, as a distribution to its limited partners, stockholders or members,
or to its affiliates, if the person receiving the shares as a bona fide
gift, distribution or transfer agrees to be bound by the foregoing
provisions; or
- shares of common stock issued as consideration for any acquisition
(including, without limitation, by way of merger or consolidation) by
Viasystems or any of its subsidiaries.
In addition, the directors, officers and stockholders referred to above
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, they will not, during the period
ending 180 days after the date of this prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any security convertible into or exercisable or exchangeable for common
stock.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously distributed
shares of common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities and may
end any of these activities at any time.
Some of the underwriters and their affiliates have provided, and may in the
future from time to time provide, investment banking and general financing and
banking services to Viasystems and its affiliates,
98
<PAGE> 100
including Hicks, Muse, Tate & Furst Incorporated for which they have in the past
received, and may in the future receive, customary fees. An affiliate of Chase
Securities Inc. acts as an agent and lender under Viasystems current credit
facility and will act in those capacities under Viasystems' new credit facility,
and receives fees customary for performing those services. An affiliate of Chase
Securities Inc. holds approximately 25% of the ownership interest, and an
affiliate of Deutsche Bank Securities Inc. holds 5% of the ownership interest,
in HMTF/Viasystems Investments, LLC, which in turn beneficially owns
approximately 35% of the outstanding common stock of Viasystems. In addition,
affiliates of Banc of America Securities LLC, Bear, Stearns & Co. Inc., Chase
Securities Inc., Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and Salomon Smith Barney Inc. are limited partners in the
limited partnerships through which Hicks Muse owns common stock in Viasystems.
Viasystems and the underwriters have agreed to indemnify each other against
a number of specified liabilities, including liabilities under the Securities
Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the shares of common stock offered
by this prospectus has been determined by negotiations between Viasystems and
the underwriters. Among the factors considered in determining the initial public
offering price were:
- Viasystems' results of operations, current financial position and future
prospects;
- sales, earnings and other financial and operating information of
Viasystems in recent periods; and
- the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to Viasystems.
Goldman, Sachs & Co. beneficially owns more than 10% of Viasystems'
preferred equity. In addition, affiliates of Chase Securities Inc., Deutsche
Bank Securities Inc., Goldman, Sachs & Co. and Salomon Smith Barney Inc. are
lenders to Viasystems under its existing credit facility. More than 10% of the
net proceeds Viasystems receives from this offering may be used to repay
indebtedness owing to those lenders. As a result, this offering must be
conducted in compliance with the conflict-of-interest requirements of the
National Association of Securities Dealers, Inc., the regulatory agency that
governs the compensation paid to underwriters in securities offerings. Under
these rules, the initial public offering price of the common stock can be no
higher than that recommended by a qualified independent underwriter, as that
term is defined in the NASD's rules. Morgan Stanley & Co. Incorporated has
agreed to serve as a qualified independent underwriter and has conducted due
diligence and will recommend the maximum price for the shares of common stock to
be offered.
99
<PAGE> 101
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Viasystems by Weil, Gotshal & Manges LLP, Dallas, Texas and New York,
New York. A number of partners of Weil, Gotshal & Manges LLP are investors in
Hicks Muse-sponsored limited partnerships that own an aggregate of 41,984 shares
of our common stock attributable to the gross investment by those partners.
Legal matters in connection with the offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois.
EXPERTS
The consolidated financial statements of Viasystems Group, Inc. and
Subsidiaries as of December 31, 1998 and 1999, and for each of the three years
in the period ended December 31, 1999, included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing. The combined balance sheet of the Printed Circuit Board Division of
Termbray Industries International (Holdings) Limited as of March 31, 1999 and
the related combined statements of income, of cash flows and of changes in
divisional equity for the year ended March 31, 1999, included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1
regarding this offering. This prospectus, which is part of the registration
statement, does not contain all of the information included in the registration
statement, and you should refer to the registration statement and its exhibits
to read that information. References in this prospectus to any of our contracts
or other documents are not necessarily complete, and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may read and copy the registration statement, the
related exhibits and the other material we file with the Commission at the
Commission's public reference room in Washington, D.C. and at the Commission's
regional offices in Chicago, Illinois and New York, New York. You can also
request copies of those documents, upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Commission also
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file with the
Commission. The site's address is www.sec.gov. You may also request a copy of
these filings, at no cost, by writing or telephoning us as follows: 101 South
Hanley Road, Suite 400, St. Louis, Missouri 63105, Attention: Chief Financial
Officer.
100
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1997, 1998 and
1999...................................................... F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED -- THE
PCB DIVISION
Independent Auditors' Report................................ F-34
Combined Statement of Income for the year ended March 31,
1999...................................................... F-35
Combined Balance Sheet as of March 31, 1999................. F-36
Combined Statement of Changes in Divisional Equity for the
year ended March 31, 1999................................. F-37
Combined Statement of Cash Flows for the year ended March
31, 1999.................................................. F-38
Notes to the Combined Financial Statements.................. F-40
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of Viasystems Group, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index on page F-1 present fairly, in all material respects, the financial
position of Viasystems Group, Inc. and its subsidiaries at December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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 statements presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of reporting costs of start-up activities.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 23, 2000, except as to Note 24,
which is as of March 23, 2000
F-2
<PAGE> 104
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,335 $ 22,839
Accounts receivable, less allowance for doubtful accounts
of $3,794 for 1998, $6,965 for 1999.................... 179,503 220,619
Inventories............................................... 130,661 155,818
Prepaid expenses and other................................ 44,612 46,871
---------- ----------
Total current assets.............................. 364,111 446,147
Property, plant and equipment, net.......................... 580,204 462,266
Deferred financing costs, net............................... 41,986 41,751
Intangible assets, net...................................... 421,747 261,298
Other assets................................................ 46,655 1,096
---------- ----------
Total assets...................................... $1,454,703 $1,212,558
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations............... $ 54,534 $ 27,663
Accounts payable.......................................... 133,725 173,591
Accrued and other liabilities............................. 141,400 121,475
Income taxes payable...................................... 14,914 24,352
---------- ----------
Total current liabilities......................... 344,573 347,081
Deferred taxes.............................................. 77,214 23,887
Long-term obligations, less current maturities.............. 1,079,961 1,334,549
Other non-current liabilities............................... 66,441 68,771
---------- ----------
Total liabilities................................. 1,568,189 1,774,288
---------- ----------
Preferred Stock:
Series B preferred stock, par value $.01 per share,
6,000,000 shares authorized; 1,405,992 and 1,521,890
shares issued and outstanding, respectively, including
liquidation preferences of $25.00 per share............... 37,033 41,273
Stockholders' deficit
Common stock, par value $.01 per share, 600,000,000
shares authorized; 50,414,810 and 78,001,272 shares
issued and outstanding, respectively.................. 504 780
Class A common stock, par value $.01 per share,
50,000,000 shares authorized; 5,862,894 and 5,196,216
shares issued and outstanding, respectively........... 59 59
Series II Class A common stock, par value $.01 per
share, 50,000,000 shares authorized; 990,062 and
6,172,891 shares issued and outstanding,
respectively.......................................... 10 62
Paid in capital........................................ 304,199 610,156
Accumulated deficit.................................... (464,411) (1,190,753)
Treasury stock, at cost................................ -- (162)
Accumulated other comprehensive income................. 9,120 (23,145)
---------- ----------
Total stockholders' deficit....................... (150,519) (603,003)
---------- ----------
Total liabilities and stockholders' deficit....... $1,454,703 $1,212,558
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 105
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 795,289 $1,031,928 $1,102,324
Operating expenses:
Cost of goods sold..................................... 554,097 723,741 816,370
Selling, general and administrative, including non-cash
compensation expense charge of $--, $3,398 and
$110,070, respectively.............................. 75,650 110,147 223,139
Depreciation........................................... 51,884 104,831 114,753
Amortization of intangibles............................ 58,153 61,775 59,569
Impairment loss........................................ -- -- 468,389
Write-off of acquired in-process research and
development......................................... 294,500 20,100 17,600
--------- ---------- ----------
Operating income (loss).................................. (238,995) 11,334 (597,496)
--------- ---------- ----------
Other expenses:
Interest expense....................................... 64,612 92,535 109,980
Amortization of deferred financing costs............... 6,629 9,354 6,619
Other expense.......................................... 1,024 4,960 23,594
--------- ---------- ----------
Loss before income taxes, cumulative effect of a change
in accounting principle and extraordinary item......... (311,260) (95,515) (737,689)
Provision (benefit) for income taxes..................... 8,432 (7,334) (28,289)
--------- ---------- ----------
Loss before cumulative effect of a change in accounting
principle and extraordinary item....................... (319,692) (88,181) (709,400)
Cumulative effect -- write-off of start-up costs, net of
income tax benefit of $5,647........................... -- -- 16,942
Extraordinary item -- loss on early extinguishment of
debt, net of income tax benefit of $4,332.............. 7,796 -- --
--------- ---------- ----------
Net loss................................................. (327,488) (88,181) (726,342)
Other comprehensive income (loss):
Foreign currency translation adjustments............... 1,353 9,187 (32,858)
Minimum pension liability, net of income tax provision
(benefit) of $0, $575 and $(254), respectively...... -- (1,341) 593
--------- ---------- ----------
Comprehensive loss....................................... $(326,135) $ (80,335) $ (758,607)
========= ========== ==========
Basic loss per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item.................... $ (10.73) $ (1.68) $ (10.00)
Cumulative effect...................................... -- -- (0.24)
Extraordinary item..................................... (0.26) -- --
--------- ---------- ----------
Net loss............................................... $ (10.99) $ (1.68) $ (10.24)
========= ========== ==========
Diluted loss per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item.................... $ (12.19) $ (1.89) $ (10.61)
Cumulative effect...................................... -- -- (0.25)
Extraordinary item..................................... (0.29) -- --
--------- ---------- ----------
Net loss............................................ $ (12.48) $ (1.89) $ (10.86)
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 106
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
AND OTHER
COMPREHENSIVE
COMMON PAID IN ACCUMULATED TREASURY INCOME
STOCK CAPITAL DEFICIT STOCK (LOSS) TOTAL
------ -------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996......................... $ 57 $ 73,719 $ (48,742) $ -- $ (79) $ 24,955
Issuance of 37,745,833 shares of common stock...... 377 226,098 -- -- -- 226,475
Issuance of 5,122,917 shares of Class A common
stock............................................ 51 256 -- -- -- 307
Conversion of 1,800,000 shares of Series A
Preferred Stock into common stock................ -- (44,982) -- -- -- (44,982)
Issuance of 1,600,000 shares of Series C Preferred
Stock............................................ -- 39,984 -- -- 39,984
Conversion of 1,600,000 shares of Series C
Preferred Stock into common stock................ -- (39,984) -- -- (39,984)
Paid-in-kind dividends of 98,919 shares of Series B
Preferred Stock.................................. -- (3,298) -- -- -- (3,298)
Stock issuance costs............................... (2,813) -- (2,813)
Net loss........................................... -- -- (327,488) -- -- (327,488)
Foreign currency translation adjustment............ -- -- -- -- 1,353 1,353
------ -------- ----------- ----- -------- ---------
Balance at December 31, 1997......................... 485 248,980 (376,230) -- 1,274 (125,491)
Issuance of 7,668,976 shares of common
stock............................................ 77 55,505 -- -- -- 55,582
Issuance of 56,921 shares of Class A common
stock............................................ 1 2 -- -- -- 3
Issuance of 990,062 shares of Class A Series II
common stock..................................... 10 49 -- -- -- 59
Paid-in-kind dividends of 107,073 shares of Series
B Preferred Stock................................ -- (3,735) (3,735)
Non-cash compensation expense charge............... -- 3,398 -- -- -- 3,398
Net loss........................................... -- -- (88,181) -- -- (88,181)
Minimum pension liability.......................... -- -- -- -- (1,341) (1,341)
Foreign currency translation adjustment............ -- -- -- -- 9,187 9,187
------ -------- ----------- ----- -------- ---------
Balance at December 31, 1998......................... 573 304,199 (464,411) -- 9,120 (150,519)
Issuance of 27,603,129 shares of common stock...... 276 201,771 -- -- -- 202,047
Issuance of 5,182,829 shares of Class A Series II
common stock..................................... 52 259 -- -- -- 311
Repurchase of 16,667 shares of common
stock............................................ -- -- -- (122) -- (122)
Repurchase of 666,678 shares of Class A common
stock............................................ -- -- -- (40) -- (40)
Stock issuance costs............................... (1,903) -- (1,903)
Paid-in-kind dividends of 115,899 shares of Series
B Preferred Stock................................ -- (4,240) (4,240)
Non-cash compensation expense charge............... -- 110,070 -- -- -- 110,070
Net loss........................................... -- -- (726,342) -- -- (726,342)
Minimum pension liability.......................... -- -- -- -- 593 593
Foreign currency translation adjustment............ -- -- -- -- (32,858) (32,858)
------ -------- ----------- ----- -------- ---------
Balance at December 31, 1999......................... $ 901 $610,156 $(1,190,753) $(162) $(23,145) $(603,003)
====== ======== =========== ===== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 107
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $(327,488) $ (88,181) $(726,342)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Write-off of acquired in-process research and
development........................................... 294,500 20,100 17,600
Impairment loss......................................... -- -- 468,389
Loss on disposal of plant, property and equipment....... -- -- 18,762
Cumulative effect of a change in accounting
principle -- write-off of start-up costs.............. -- -- 22,589
Extraordinary item -- loss on early extinguishment of
debt.................................................. 12,128 -- --
Non-cash compensation expense charge.................... -- 3,398 110,070
Depreciation and amortization of intangibles............ 110,037 166,606 174,322
Amortization of deferred financing costs................ 6,629 9,354 6,619
Deferred taxes.......................................... (15,109) (15,127) (38,205)
Change in assets and liabilities, net of acquisitions:
Accounts receivable................................... (8,050) (20,641) (15,494)
Inventories........................................... (15,979) (19,997) (13,829)
Prepaid expenses and other............................ (6,640) (22,693) 2,182
Accounts payable and accrued and other liabilities.... 38,539 (65,976) (2,033)
Income taxes payable.................................. 16,339 (10,678) 6,969
--------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 104,906 (43,835) 31,599
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired of $42,778 for 1997,
$3,738 for 1998 and $5,022 for 1999..................... (155,904) (145,665) (314,187)
Capital expenditures...................................... (117,163) (130,361) (126,856)
--------- --------- ---------
Net cash used in investing activities....................... (273,067) (276,026) (441,043)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations under the
Credit Agreement........................................ -- 103,938 291,000
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 65,943
Repayment of amounts due under the Credit Agreement....... (151,964) (16,000) (26,125)
Repayment of amounts under the Chips Loan Notes
Liability............................................... -- (33,938) --
Repayment of the Subordinated Credit Facility............. (216,000) -- --
Chips Term Loans -- Cash collateral....................... -- -- (95,295)
Repayment of other long-term obligations.................. (90,187) (12,085) (5,509)
Equity proceeds........................................... 60,719 55,644 198,293
Financing fees and other.................................. (34,491) (15,773) (7,706)
--------- --------- ---------
Net cash provided by financing activities................... 184,077 303,530 420,601
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (4,495) (1,872) 2,347
--------- --------- ---------
Net change in cash and cash equivalents..................... 11,421 (18,203) 13,504
Cash and cash equivalents at beginning of year.............. 16,117 27,538 9,335
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 27,538 $ 9,335 $ 22,839
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 108
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND ACQUISITIONS
Viasystems Group, Inc., a Delaware corporation ("Group"), was formed on
August 28, 1996. Viasystems Group, together with its subsidiaries, is herein
referred to as the Company. The Company makes strategic acquisitions of
electronics manufacturing services ("EMS") and integrates those acquisitions as
a global enterprise that is the preferred provider of EMS solutions to original
equipment manufacturers of electronic products.
1997 ACQUISITIONS
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 9).
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 valued using a discount rate
of 14.0%. The portion of the purchase price allocated to in-process research and
development ("in-process R&D") projects that did not have a future alternative
use and to which technological feasibility had not been established 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>
In April 1997, the Company's stockholders and their 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 the Company invested $140,000 of equity capital
F-7
<PAGE> 109
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in Chips Holdings, Inc. On June 6, 1997, Chips Holdings, Inc. merged with the
Company and the subsidiaries of Chips Holdings, Inc., including ISL, became
subsidiaries of the Company and certain of its subsidiaries (the "Chips Merger")
in consideration for the issuance to the Company's stockholders and certain of
its affiliates of 23,333,333 shares of the Company common stock valued at
$140,000. The Company 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 9).
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 valued
using a discount rate of 14.0%. The portion of the purchase price allocated to
in-process R&D projects that did not have a future alternative use and to which
technological feasibility had not been established 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 the Company, and as such, the Company 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 was
comprised of numerous research and development projects that were anticipated to
reach completion during 1998 and 1999. At the acquisition date, research and
development projects ranged in completion from 10% to 90% complete and total
continuing research and development commitments to complete the projects were
expected to be approximately $5,900. These estimates were subject to change,
given the uncertainties of the development process, and no assurance was given
that deviations from these estimates would not occur. The 1999 revenue derived
from the in-process R&D projects from the 1997 Acquisitions were significantly
lower than anticipated.
In connection with the acquisition of Forward and ISL 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 Acquisitions.
F-8
<PAGE> 110
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accruals were established primarily to cover costs associated with the
closure of the Selkirk and Galashiels, Scotland facilities and to cover costs
associated with the closure of the Manchester, Rugby and Telford, England
facilities, each of which was acquired in the Forward Acquisition, and the
related severance of approximately 1,600 employees. 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.
As of December 31, 1999, plant shutdown and downsizing actions related to
the 1997 Acquisitions had resulted in the termination of approximately 1,150
employees.
Due to changes in circumstances, the original plan to close the Telford,
England facility was not executed. Therefore, the accrual established for this
plan of $3,920 was reversed against goodwill during 1999.
Details of accrued liabilities related to the 1997 Acquisitions follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
------ -------- --------
<S> <C> <C> <C>
Balance, beginning of year........................... $ -- $ 8,863 $ 35,046
Provisions (Reversals):
Personnel and severance costs...................... 4,000 22,115 (1,324)
Equipment removal and disposal..................... 3,300 7,357 (1,685)
Idle plant costs................................... -- 5,715 (695)
Cleanup and restoration............................ 1,000 3,519 (120)
Lease commitment costs............................. 563 1,906 (96)
------ -------- --------
Total...................................... 8,863 49,475 31,126
------ -------- --------
Costs incurred:
Personnel and severance costs...................... -- (9,979) (10,992)
Equipment removal and disposal..................... -- (1,638) (5,420)
Idle plant costs................................... -- (371) (1,178)
Cleanup and restoration............................ -- (2,441) (1,131)
Lease commitment costs............................. -- -- (494)
------ -------- --------
Total...................................... -- (14,429) (19,215)
------ -------- --------
Translation.......................................... -- -- (1,226)
------ -------- --------
Balance, end of year................................. $8,863 $ 35,046 $ 10,685
====== ======== ========
</TABLE>
All costs incurred related to the plant closure and downsizing accruals for
the 1997 Acquisitions were cash charges except for $2,783 which related to
non-cash charges for the disposition of certain assets. Of the remaining
$10,685, approximately $3,200 relates to deferred severance, settlement of
benefits and related legal costs. Approximately, $7,400 is expected to be used
in 2000 for remaining shutdown activities including disposition of the idle
Rugby, England and Galashiels, Scotland facilities, final removal of equipment
from the sites and settlement of the lease of the Rugby site.
1998 ACQUISITIONS
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
F-9
<PAGE> 111
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 valued using a discount rate of 13.0%. The
portion of the purchase price allocated to in-process R&D projects that did not
have a future alternative use and to which technological feasibility had not
been established 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).
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>
Mommers in-process R&D value was comprised of several research and
development projects which were scheduled to reach completion beginning in 1999.
At the acquisition date, research and development projects ranged in completion
from 10% to 90% complete. As of December 31, 1999, the Mommers in-process R&D
projects were completed. These projects will require maintenance research and
development which are not expected to represent significant costs in 2000 and
beyond.
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 valued using a discount rate of
13.0%. The portion of the purchase price allocated to in-process R&D projects
that did not have a future alternative use and to which technological
feasibility had not been established 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).
F-10
<PAGE> 112
VIASYSTEMS GROUP, 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.............................................. $ 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>
Zincocelere's in-process R&D value was comprised of numerous research and
development projects which were scheduled to reach completion during 1999 and
2000. At the acquisition date, research and development projects ranged in
completion from 10% to 90%. As of December 31, 1999, Zincocelere's in-process
R&D projects were substantially completed. These projects will require
maintenance research and development which are not expected to represent
significant costs in 2000 and beyond.
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 9), and an additional equity contribution of
$50,000.
Mommers' and Zincocelere's (the "1998 Acquisitions") in-process R&D value
was comprised of numerous research and development projects which were scheduled
to 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, research and development projects ranged in completion
from 10% to 90% complete and total continuing research and development
commitments to complete the projects were expected to be approximately $15,000.
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.
The Company incurred significant charges in 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.
In connection with the acquisitions of Mommers and Zincocelere 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
downsizing and consolidation accruals as part of the purchase price allocations
related to the 1998 Acquisitions.
Accruals were established primarily to cover costs associated with
downsizing employment levels of the Echt, Netherlands facility by 150 employees
and costs associated with eliminating approximately 175 redundant administrative
functions related to the 1998 Acquisitions. The accruals cover costs associated
with downsizing, including personnel and severance related costs, lease
commitment costs and equipment removal and disposal costs.
As of December 31, 1999 plant downsizing actions related to the 1998
Acquisitions had resulted in the termination of approximately 90 employees.
F-11
<PAGE> 113
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to changes in circumstances, the original plan to eliminate
approximately 175 redundant administrative functions related to the 1998
Acquisitions was not executed. Therefore the accrual established for this plan
of $8,000 was reversed against goodwill during 1999.
Details of accrued liabilities related to the 1998 Acquisitions follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Balance, beginning of year.................................. $ -- $ 9,336
Provisions (Reversals):
Personnel and severance costs............................. 10,465 (7,000)
Equipment removal and disposal............................ 533 --
Lease commitment costs.................................... 1,000 (1,000)
------- -------
Total............................................. 11,998 1,336
Costs incurred:
Personnel and severance costs............................. (2,662) (340)
Equipment removal and disposal............................ -- --
Lease commitment costs.................................... -- --
------- -------
Total............................................. (2,662) (340)
------- -------
Translation................................................. -- --
------- -------
Balance, end of year........................................ $ 9,336 $ 996
======= =======
</TABLE>
All costs incurred related to the downsizing plan have been cash charges.
Of the $996 remaining accruals at December 31, 1999, approximately $460 will be
used during 2000 to cover continuing severance and related legal costs
associated with the downsizing, with the remainder to cover equipment removal
and disposition cost upon the final disposition of certain equipment.
1999 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 R&D using a discount rate of 25.0%. 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.
Kalex's in-process R&D value was comprised of numerous projects which were
scheduled to reach completion during periods ranging from October 1999 through
September 2000. At the acquisition date, research and development projects
ranged from 65% to 80% complete and total continuing research and development
commitments to complete the projects are expected to be approximately $2,400. As
of December 31, 1999, one of the projects was completed and the others were 65%
to 80% complete. These estimates are subject to change, given the uncertainties
of the development process, and no assurance can be
F-12
<PAGE> 114
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
given that deviations from these estimates will not occur. 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 the company's programs. Remaining
development efforts for the in-process research and development programs are
complex and include the development of next-generation technological solutions.
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 research and development 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 research and development related to Kalex would impact the
Company's business, results of operations and cash flows.
Kalex's total revenues are projected to increase over the next ten years,
assuming the successful completion and market acceptance of the in-process
research and development programs. Estimated revenue from existing technologies
of Kalex are expected to slowly decline over the next six 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
Kalex are expected to peak in 2002, and thereafter decline as other new products
and technologies are expected to enter the market.
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)
--------
Total............................................. $309,868
========
</TABLE>
The Kalex Acquisition was funded with (i) and additional equity
contribution of $200,000 and (ii) a portion of a $291,000 term loan borrowing
under the Company's senior secured credit facility (see Note 9).
Included below is unaudited pro forma financial data setting forth
condensed results of operations of the Company for the year ended December 31,
1998 and 1999, as though the Kalex Acquisition and the related financing and
equity contribution had occurred at January 1, 1998 and January 1, 1999,
respectively. In preparing this data, the financial data of Kalex for the year
ended March 31, 1998 has been translated at an exchange rate of Hong Kong
Dollars ("HK$")7.7490 = U.S.$1.00. The financial data of Kalex for the period
prior to acquisition by the Company from January through July 1999 has been
translated at an exchange rate
F-13
<PAGE> 115
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of HK$7.7536 = U.S.$1.00. These exchange rates represent the average rates in
effect for the respective periods.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $1,205,032 $1,194,540
Net loss.................................................... (98,991) (732,291)
</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 the
Company's $0.01 per share common stock valued at $2,000 and the issuance of
136,645 warrants to purchase common stock with an exercise price of $10.50
expiring in 2004. Using the Black Scholes method, at the date of issuance, the
warrants have no value. PAGG operates multiple surface mount production lines
for printed circuit board 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a leading provider of electronic manufacturing services,
with facilities located in the United States, Canada, Mexico, the United
Kingdom, the Netherlands, Italy, Sweden, China and Puerto Rico. The Company's
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 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.
F-14
<PAGE> 116
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
INCOME TAXES
The Company accounts for certain items of income and expense in different
periods for financial reporting and income tax purposes. Provisions for deferred
income taxes are made in recognition of such temporary differences, where
applicable. A valuation allowance is established against deferred tax assets
unless the Company believes it is more likely than not that the benefit will be
realized.
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. 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>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of its long-lived assets (including
intangible assets) based on their current and anticipated future undiscounted
cash flows. In addition, the Company's policy for the recognition and
measurement of any impairment of long-lived assets is to assess the current and
anticipated future cash flows associated with the impaired asset. An impairment
occurs when the cash flows (excluding interest) do not exceed the carrying
amount of the asset. The amount of the impairment loss is the difference between
the carrying amount of the asset and its estimated fair value.
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, except in the
case of vendor managed inventory arrangements, whereby sales and the related
costs of goods sold are included in income when goods are taken into production
by the customer.
F-15
<PAGE> 117
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Accrued liabilities do not include claims
against third parties and are not discounted. Costs related to environmental
remediation are charged to expense. Other environmental costs are also charged
to expense unless they increase the value of the property and/or mitigate or
prevent contamination from future operations, in which event they are
capitalized.
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 was $372,000 and $93,000,
respectively, at December 31, 1998 and was $220,000 and $55,000, respectively,
at December 31, 1999. 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 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, 2000. 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.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN 1999
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 adopted SOP 98-5 in fiscal year 1999 and reported the
write off of the net book value of start-up costs as of January 1, 1999, of
$16,942 (net of income tax benefit of $5,647) as a cumulative effect of a change
in accounting principle.
F-16
<PAGE> 118
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. IMPAIRMENT LOSS
The Company has assessed the carrying value of long-lived assets, including
goodwill and other acquired intangibles in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Based on current
business enterprise values using common appraisal methods, the assessment has
identified impairment of long-lived assets acquired from the Forward, ISL and
Zincocelere acquisitions. The calculated business enterprise values determined
were compared to the net book value of the related long-lived assets with the
difference representing the amount of the impairment loss. The impairment loss
for each group of assets was first charged against goodwill with any remaining
amounts being charged to the other acquired intangibles and property, plant and
equipment, if necessary. The impairment resulted due to significant changes in
the markets served by the acquisitions that were not anticipated at the time of
each acquisition, most significantly a significant decline in market pricing.
The decline in market pricing was due to the convergence of two factors:
significant currency fluctuations and the emergence of significant offshore
competition from Asia Pacific. While the primary currency for the acquisitions
is the U.K. pound sterling, their competitors were in Continental Europe and
beginning to emerge from Asia Pacific. The currencies for most of the
Continental European and Asia Pacific countries declined significantly against
the U.K. pound sterling, which resulted in an improved relative cost position
for the competitors and reduced market pricing. This decline in market pricing
has resulted in a significant decline in profitability that is not expected to
return in the near term.
In the fourth quarter of fiscal year 1999, the Company recorded a non-cash
impairment loss of $468,389 related to the write down of $206,335 related to
goodwill, $65,877 related to developed technologies, $847 related to customer
lists and $195,330 related to machinery and equipment used in the production of
printed circuit boards of the three groups of assets.
4. SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest for the years ended December 31, 1997, 1998 and
1999, was $59,956, $91,068 and $102,343, respectively. Cash paid for income
taxes for the years ended December 31, 1997 and 1998 was $4,742 and $20,951,
respectively. For the year ended December 31, 1999 net cash received for income
tax refunds was $2,701.
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 capital contribution of $118,250 which was
transferred to Bisto Funding, Inc. The capital contribution was recorded as 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 9).
5. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Raw materials............................................... $ 48,497 $ 47,114
Work in process............................................. 39,688 38,688
Finished goods.............................................. 42,476 70,016
-------- --------
Total............................................. $130,661 $155,818
======== ========
</TABLE>
F-17
<PAGE> 119
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
The composition of intangible assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Developed technologies...................................... $ 139,220 $ 51,670
Assembled workforce......................................... 33,907 21,269
Customer list............................................... 55,300 82,072
Goodwill.................................................... 320,347 169,713
--------- ---------
548,774 324,724
Less: Accumulated amortization.............................. (127,027) (63,426)
--------- ---------
Total................................................. $ 421,747 $ 261,298
========= =========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Land and buildings.......................................... $ 107,563 $ 183,212
Machinery, equipment, systems and other..................... 471,214 488,611
Construction in progress.................................... 132,037 31,860
Leasehold improvements...................................... 7,496 13,173
--------- ---------
718,310 716,856
Less: Accumulated depreciation.............................. (138,106) (254,590)
--------- ---------
Total................................................. $ 580,204 $ 462,266
========= =========
</TABLE>
8. ACCRUED AND OTHER LIABILITIES
The composition of accrued and other liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued payroll and related costs........................... $ 30,596 $ 29,196
Accrued capital expenditures................................ 13,040 17,026
Plant shutdown, downsizing and consolidation accruals....... 44,382 11,680
Accrued interest............................................ 7,270 16,156
Accrued and other liabilities............................... 46,112 47,417
-------- --------
Total............................................. $141,400 $121,475
======== ========
</TABLE>
F-18
<PAGE> 120
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Credit Agreements:
Term Facilities........................................... $ 175,438 $ 347,666
Revolvers................................................. 117,244 183,187
Senior Subordinated Notes Due 2007.......................... 400,000 400,000
Series B Senior Subordinated Notes Due 2007................. 100,000 100,000
Series B Senior Subordinated Notes Due 2007, Premium........ 4,211 3,865
Chips Loan Notes Liability.................................. 285,312 285,312
Capital lease obligations (see Note 10)..................... 22,166 8,051
Other....................................................... 30,124 34,131
---------- ----------
1,134,495 1,362,212
Less current maturities........................... (54,534) (27,663)
---------- ----------
$1,079,961 $1,334,549
========== ==========
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1999 is as follows:
<TABLE>
<S> <C>
2000........................................................ $ 27,663
2001........................................................ 48,844
2002........................................................ 156,936
2003........................................................ 239,611
2004........................................................ 75,647
Thereafter.................................................. 813,511
----------
$1,362,212
==========
</TABLE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the Kalex Acquisition, the Company, as guarantor, and
certain of its subsidiaries, as borrowers, entered into a Third Amended and
Restated Credit Agreement (the "Credit Agreement") with terms substantially
similar to the Second Amended and Restated Credit Agreement. The Credit
Agreement was amended to, among other things, establish an additional $291,000
term loan facility (the "New Tranche C Term Loan"), repay $10,125 outstanding
under the Chips Term Loans and to cash collateralize future amounts due under
the Chips Term Loans by approximately $89,875.
The Credit Agreement provides for (i) a term loan facility (the "U.S. Term
Loan") and a $175,000 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 "English 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
F-19
<PAGE> 121
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Agreement are collateralized by first priority mortgages and liens on
substantially all of the material assets of the Company and its subsidiaries.
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"), (iii) $70,000 of Addition Term Loan, (iv) $291,000 New
Tranche C 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 New Tranche C Term Loan and the Chips Term Loan amortize semi-annually over
six years.
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. At December 31, 1999, the Company
had approximately $77,830 of available borrowing capacity under the Revolving
Loans.
The U.S. Loans bear interest, at the Company's election, at either: (i) the
Eurocurrency Base Rate plus (a) 2.75% (2.5% at December 31, 1999) in the case of
the Chips Term Loan and U.S. Revolving Loan, (b) 3.25% (2.75% at December 31,
1999) in the case of the Additional Term Loan, (c) 3.25% (3.0% at December 31,
1999) in the case of Tranche B Loan, or (d) 3.75% (3.5% at December 31, 1999) in
the case of Tranche C Loan and the New Tranche C Term Loan; or (ii) the
Alternate Base Rate plus (a) 1.75% (1.5% at December 31, 1999) in the case of
the Chips Term Loan or U.S. Revolving Loan, (b) 2.25% (1.75% at December 31,
1999) in the case of the Additional Term Loan, (c) 2.25% (2.0% at December 31,
1999) in the case of Tranche B Loan, or (d) 2.75% (2.5% at December 31, 1999) in
the case of Tranche C Loan and the new Tranche C Term 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 2.75% (2.5% at December 31, 1999) or (ii)
the Canadian Alternate Base Rate plus 1.75% (1.5% at December 31, 1999). The
Canadian Revolving Loan denominated in Canadian Dollars bears interest, at Circo
Craft's election either (i) the Canadian Bankers Acceptance Discount Rate plus
2.75% (2.5% at December 31, 1999) or (ii) the Canadian Prime Rate plus 1.75%
(1.5% at December 31, 1999). 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 2.75% (2.5% at December 31, 1999). At December 31, 1998 and 1999
the weighted average interest rate on outstanding borrowings under the Credit
Agreement was 8.0% and 8.5%, 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.
The Credit Agreement restricts 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 Credit Agreement contains financial covenants which
require the Company to maintain certain financial ratios and limit the Company's
amount of capital expenditures.
F-20
<PAGE> 122
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SENIOR SUBORDINATED NOTES AND SERIES B SENIOR SUBORDINATED NOTES
In June 1997, Viasystems, Inc. (a wholly owned subsidiary of the Company)
completed an offering (the "1997 Offering") of $400,000 of 9 3/4% Senior
Subordinated Notes due 2007 (the "1997 Notes"). In February 1998, Viasystems,
Inc. completed the offering of an additional $100,000 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 $50,000 of equity to the
Company.
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 an 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
$175,000 of the 2007 Notes with proceeds of one or more Equity Offerings (as
defined) by Viasystems, Inc. or the Company at a redemption price of 109.75%
plus accrued interest.
CHIPS LOAN NOTES LIABILITY
In June 1997 and pursuant to the Chips Merger, the Company assumed the
$437,500 of Chips Loan Notes, and then 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 established as a subsidiary of the Company 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 the
Company (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, 1998 and 1999, 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 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
F-21
<PAGE> 123
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Group. Amounts due under the Senior Subordinated Credit Facility were repaid
with proceeds from the 1997 Offering.
10. 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, 1998 and 1999, was $59,134 and $38,741, respectively, of cost
basis and $28,067 and $23,116, respectively, of accumulated depreciation related
to equipment held under capital leases. Total rental expense under operating
leases $3,005, $3,209 and $3,861 for the years ended December 31, 1997, 1998 and
1999, 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>
2000..................................................... $6,737 $ 4,195
2001..................................................... 1,532 3,664
2002..................................................... 14 2,530
2003..................................................... 7 1,714
2004..................................................... 6 1,511
Thereafter............................................... 3 2,834
------ -------
Total............................................. 8,299 $16,448
=======
Less: Amounts representing interest...................... (248)
------
Capital lease obligation (see Note 9)............. $8,051
======
</TABLE>
11. 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 20) 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 $27,200 as of December 31, 1999. Funds received by the
Company under the U.K. Agreements are not subject to repayment, provided that
the Company meets certain employment and capital expenditure requirements at its
manufacturing facilities. For the year ended March 31, 1999 the cumulative
minimum employment requirements were 1,350 employees and the capital expenditure
requirements were L27,000. For the year ended March 31, 2000, the cumulative
minimum employment requirements were 1,425 employees and the capital expenditure
requirements were L245,000. 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, $3,147 and $3,042 during the
years ended December 31, 1997, 1998 and 1999, respectively. In the event the
Company failed to achieve the cumulative minimum employment requirements and
capital expenditure requirements in the future, the agencies could require the
full amount of such funds to be repaid. However, since the Company has already
surpassed the employment requirements and the capital expenditure requirements
for the full term of the agreements, the Company believes it unlikely that such
funds would be required to be repaid.
F-22
<PAGE> 124
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision (benefit) for income taxes for the years ended
December 31, 1997, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 3,990 $ 13,286 $ --
State.............................................. 920 279 --
Foreign............................................ 18,631 (5,772) 4,269
-------- -------- --------
23,541 7,793 4,269
-------- -------- --------
Deferred:
Federal............................................ (2,195) (2,552) --
State.............................................. (507) (35) --
Foreign............................................ (12,407) (12,540) (32,558)
-------- -------- --------
(15,109) (15,127) (32,558)
-------- -------- --------
$ 8,432 $ (7,334) $(28,289)
======== ======== ========
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
U.S. Federal statutory rate........................ $(108,941) $(33,430) $(258,191)
Loss on investment in foreign subsidiaries......... -- -- (130,931)
Amortization of goodwill and write-off of acquired
in-process research and development costs........ 103,077 17,114 77,309
Change in the valuation allowance for deferred
tax assets....................................... -- -- 244,255
Federal taxes on undistributed foreign earnings
(loss)........................................... 6,634 -- (4,203)
Equity in earnings of affiliates not taxable due to
dividends received deduction..................... -- -- (1,400)
State taxes net of federal benefit................. 1,124 244 (1,956)
Foreign income and withholding taxes in excess of
U.S. statutory rate.............................. 6,456 7,587 8,055
Non-cash compensation expense...................... -- 1,189 38,525
Other.............................................. 82 (38) 248
--------- -------- ---------
$ 8,432 $ (7,334) $ (28,289)
========= ======== =========
</TABLE>
F-23
<PAGE> 125
VIASYSTEMS GROUP, 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,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Fixed assets.............................................. $ -- $ 38,180
Accrued liabilities not yet deductible.................... 24,976 19,104
Net operating loss carryforwards.......................... 22,848 87,216
AMT credit carryforwards.................................. 3,594 326
Capital loss carryforwards................................ -- 126,391
Other..................................................... 3,423 9,799
-------- --------
54,841 281,016
Valuation allowance.................................... -- (244,255)
-------- --------
54,841 36,761
-------- --------
Deferred tax liabilities:
Intangibles............................................... (39,159) (11,911)
Fixed assets.............................................. (34,450) (8,217)
Other..................................................... (3,605) (3,759)
-------- --------
(77,214) (23,887)
-------- --------
Net deferred tax asset (liability)................ $(22,373) $ 12,874
======== ========
</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.
The net change in valuation allowance for the year ended December 31, 1999
was an increase of $244,255. This valuation allowance has been provided for the
capital loss carryforward and those net operating loss carryforwards which are
estimated to expire before they are utilized. Because the capital loss
carryforward period is relatively short, a full valuation allowance has been
provided against the deferred tax asset.
Approximate domestic and foreign income (loss) before income tax provision
and extraordinary item are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Domestic........................................ $ 5,307 $ (1,606) $(185,633)
Foreign......................................... (316,567) (93,909) (552,056)
</TABLE>
As of December 31, 1999 the Company had the following net operating loss
carryforwards: $65,222 in the U.S., $46,658 in the U.K., $6,672 in Puerto Rico,
$10,844 in the People's Republic of China, $24,996 in the Netherlands, $2,517 in
Italy, and $3,041 in Sweden. The U.S. NOL's expire in 2018 through 2019 where
the NOLs in the People's Republic of China and Puerto Rico begin to expire in
2000. The other NOLs carryforward indefinitely. The U.S. also has a capital loss
carryforward of $360,000 that will expire in 2004. The Company has not
recognized and does not anticipate recognizing a deferred tax liability for
approximately $18,000 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.
13. 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
F-24
<PAGE> 126
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
14. STOCKHOLDERS' EQUITY AND PREFERRED STOCK
The authorized capital stock of the Company at December 31, 1999 consists
of 600,000,000 shares of common stock, 50,000,000 shares of Class A common
stock, 50,000,000 shares of Class A Series II common stock and 60,000,000 shares
of preferred stock, of which 8,000,000 shares are designated as Series A
Preferred Stock and 6,000,000 shares are designated as Series B Preferred Stock.
All authorized capital stock has a par value of $.01.
The Class A and Class A Series II common stock may be converted into shares
of common stock at the option of the holder at any time. In addition, the Class
A and Class A Series II common stock may be converted into common stock at the
option of the Company upon the occurrence of a Triggering Event (as defined) or
automatically on September 30, 2006 for Class A common stock and April 30, 2006
for Class A Series II common stock. Such conversion is based on a formula set
forth in the Company's Certificate of Incorporation. During the years ended
December 31, 1997, 1998 and 1999, the Company recorded non-cash compensation
charges of $--, $3,398 and $110,070, respectively, which reflect the difference
between the cost of the class A and class A series II common stock and the value
of the defined conversion feature at those dates.
Activity for each class of common stock from December 31, 1996 through
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS A SERIES II
COMMON STOCK COMMON STOCK COMMON STOCK
------------------- ------------------ ------------------
SHARES AT PAR SHARES AT PAR SHARES AT PAR
---------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 5,000,001 $ 50 683,056 $ 7 -- $--
Issuance of common stock............ 37,745,833 377 -- -- -- --
Issuance of Class A common stock.... -- -- 5,122,917 51 -- --
---------- ---- --------- --- --------- ---
Balance at December 31, 1997........ 42,745,834 427 5,805,973 58 -- --
Issuance of common stock............ 7,668,976 77 -- -- -- --
Issuance of Class A common stock.... -- -- 56,921 1 -- --
Issuance of Class A Series II common
stock............................. -- -- -- -- 990,062 10
---------- ---- --------- --- --------- ---
Balance at December 31, 1998........ 50,414,810 504 5,862,894 59 990,062 10
Issuance of common stock............ 27,603,129 276 -- -- -- --
Issuance of Class A Series II common
stock............................. -- -- -- -- 5,182,829 52
Repurchase of common stock, at
cost.............................. (16,667) -- -- -- -- --
Repurchase of Class A common
stock............................. -- -- (666,678) -- -- --
---------- ---- --------- --- --------- ---
Balance at December 31, 1999........ 78,001,272 $780 5,196,216 $59 6,172,891 $62
========== ==== ========= === ========= ===
</TABLE>
Dividends are payable to holders of the common stock, Class A common stock
and Class A Series II common stock in amounts as declared by the Company's board
of directors, subject to legally available funds and certain agreements. The
common stock and Class A common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders.
F-25
<PAGE> 127
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends on the Series B Preferred are cumulative and are payable at an
annual rate of $2.00 per share per annum prior to November 30, 2004, $2.50 per
share per annum from November 30, 2004 to November 30, 2005, $3.00 per share per
annum from November 30, 2005 to November 30, 2006, and $3.50 per share per annum
on and after November 30, 2006. Dividends are payable quarterly on February 28,
May 31, August 31 and November 30 in each year, commencing on February 28, 1997.
The discount on the stock, which represents the difference between the present
value of a perpetual dividend stream of $3.50 per year and the current
subscription price, is being accreted at the rate of 10.4% per year, over 10
years. Dividend cost associated with the preferred stock is increased for the
accretion of discounts. The Company may, at its option, pay quarterly dividends
on the Series B Preferred on the first twenty payment dates, if the Credit
Agreement prohibits the payment of cash dividends, by issuing a number of
additional shares (or fractional shares) of Series B Preferred in respect to
each such share (or fractional share) of Series B Preferred then outstanding at
the rate of one twenty-fifth of a whole share of Series B Preferred for each
$1.00 of dividend declared. Except in the case of a Change in Control (as
defined), which currently cannot occur without the consent of shareholders, the
Series B Preferred have no provisions for mandatory redemption. At the Company's
option, the Series B Preferred is redeemable at any time, at $25 per share,
together with accrued and unpaid dividends to the date of redemption.
15. 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:
Year ended December 31, 1997............. $ 499,266 $ 50,495 $ 436,484 $ 42,276
Year ended December 31, 1998............. 521,920 61,828 509,059 52,350
Year ended December 31, 1999............. 578,526 (93,573) 521,818 39,441
EUROPE:
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
Year ended December 31, 1999............. 454,386 (496,239) 362,991 72,704
ASIA:
Year ended December 31, 1997............. $ -- $ -- $ -- $ --
Year ended December 31, 1998............. -- -- -- --
Year ended December 31, 1999............. 80,978 (7,684) 327,749 14,711
ELIMINATIONS
Year ended December 31, 1997............. $ -- $ -- $ -- $ --
Year ended December 31, 1998............. (2,231) -- -- --
Year ended December 31, 1999............. (11,566) -- -- --
TOTAL:
Year ended December 31, 1997............. $ 795,289 $(238,995) $1,068,912 $117,163
Year ended December 31, 1998............. 1,031,928 11,334 1,454,703 130,361
Year ended December 31, 1999............. 1,102,324 (597,496) 1,212,558 126,856
</TABLE>
F-26
<PAGE> 128
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales by country of destination are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
United States..................................... $436,728 $ 453,583 $ 512,816
United Kingdom.................................... 138,274 189,103 153,083
Sweden............................................ 45,168 105,331 78,898
Canada............................................ 54,555 47,880 75,016
Other............................................. 120,564 236,031 282,511
-------- ---------- ----------
Total................................... $795,289 $1,031,928 $1,102,324
======== ========== ==========
</TABLE>
Long-lived assets by country are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1999
---------- --------
<S> <C> <C>
United States............................................... $ 248,065 $210,886
United Kingdom.............................................. 575,171 66,522
China....................................................... -- 264,370
The Netherlands............................................. 66,275 59,156
Italy....................................................... 102,874 47,758
Canada...................................................... 84,171 105,279
Other....................................................... 14,036 12,440
---------- --------
Total............................................. $1,090,592 $766,411
========== ========
</TABLE>
16. CONCENTRATION OF BUSINESS
Sales to one customer were 39%, 32% and 30% of net revenues for the years
ended December 31, 1997, 1998 and 1999, respectively. When the Company acquired
Lucent's captive printed circuit board facility in December 1996, we entered
into a supply agreement with Lucent. Under the terms of the supply agreement,
the Company was required to reduce over a two year period the pricing to Lucent.
As a result in 1998 and 1999 the Company experienced price reductions under the
Lucent contract which exceeded industry wide price decreases. Commencing January
1, 1999 the Company began charging Lucent market pricing as required under the
supply agreement.
17. STOCK OPTION PLANS
On February 4, 1997, the Company adopted the 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 1,401,630 shares of the
Company's Common Stock will be reserved for issuance under the Option Plan. 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.
The Company has also granted performance options ("the Performance
Options") to certain key executives. The Performance Options are exercisable
only if 1) in the event that certain affiliates of Hicks Muse have, 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 the Company and 2)
certain liquidity events have occurred, including an initial public offering of
the Company's common stock. The exercise price for the Performance Options is
initially equal to $6.00 per share for grants made during 1997 and $7.32 per
share for grants made during 1998 and 1999 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
F-27
<PAGE> 129
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Options terminate on the tenth anniversary date of the date of
grant. Through December 31, 1999, no compensation expense has been measured on
the outstanding performance options as achievement of the performance criteria
has not been considered probable.
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 which allows compensation expense to be measured
using the intrinsic value method. As such, compensation cost is calculated as
the excess of the market price of the stock at the grant date over the amount an
employee must pay to acquire the stock (i.e., the exercise price). 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,
1998 and 1999, would have been $(327,588), $(88,359) and $(727,601),
respectively. Pro forma basic and diluted loss per weighted average common share
would have been $(10.98) and $(12.24) for December 31, 1997, $(1.68) and $(1.89)
for December 31, 1998 and $(10.25) and $(10.88) for December 31, 1999.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes method with the following assumptions: (i) no dividend yield;
(ii) risk free interest rate of 5.5%; (iii) expected life of 5 years; and (iv)
volatility factor of 60%.
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.
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 OUTSTANDING PER SHARE VESTED
-------------- ----------- -------------- -------
<S> <C> <C> <C> <C>
December 31, 1996............................. $ -- -- $ -- --
Granted..................................... 6.00 871,667 -- --
Vested...................................... 6.00 -- 6.00 33,333
Forfeited................................... 6.00 (4,166) -- --
-------- -------
December 31, 1997............................. 6.00 867,501 6.00 33,333
Granted..................................... 7.32 514,167 -- --
Vested...................................... 6.00 -- 6.00 121,000
Forfeited................................... 6.12 (253,333) -- --
Exercised................................... 6.00 (2,500) 6.00 (2,500)
-------- -------
December 31, 1998............................. 6.60 1,125,835 6.00 151,833
Granted..................................... 7.32 1,521,665 -- --
Vested...................................... -- 6.49 203,500
Forfeited................................... 7.23 (209,667) -- --
Exercised................................... 6.30 (7,500) 6.30 (7,500)
-------- -------
December 31, 1999............................. $6.99 2,430,333 $6.30 347,833
</TABLE>
F-28
<PAGE> 130
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the status of the Performance Options are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE OUTSTANDING VESTED
-------------- ----------- -------
<S> <C> <C> <C>
August 28, 1996 (inception)................................. $6.00 -- --
Granted................................................... 6.00 180,865 --
--------- --
December 31, 1996........................................... 6.00 180,865 --
Granted................................................... 6.00 1,356,484 --
Vested.................................................... -- -- --
Forfeited................................................. -- -- --
--------- --
December 31, 1997........................................... 6.00 1,537,349 --
Granted................................................... 7.32 277,220 --
Vested.................................................... -- --
Forfeited................................................. --
--------- --
December 31, 1998........................................... 6.66 1,814,569 --
Granted................................................... 7.32 988,328 --
Vested.................................................... -- -- --
Forfeited................................................. -- -- --
Exercised................................................. -- -- --
--------- --
December 31, 1999........................................... $7.26 2,802,897 --
===== ========= ==
</TABLE>
The weighted average grant-date fair value of options granted during 1997,
1998 and 1999 was $1.38, $1.74 and $1.74 per share, respectively. All options
outstanding under the Option Plan at December 31, 1999, have exercise prices
between $6.00 and $7.32 per share and have weighted average remaining
contractual lives of between 9 and 10 years.
Of the Performance Options outstanding at December 31, 1999, 180,865,
1,356,484, 1,537,349 and 1,814,569 have exercise prices of $7.56, $7.02, $7.92
and $7.32, respectively, and have a weighted average remaining contractual life
of approximately 9 years.
18. 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' 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 $807,
$1,450 and $2,375 for the years ended December 31, 1997, 1998 and 1999,
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.
F-29
<PAGE> 131
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of net pension expense are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Service cost (present value of benefits earned in the
year)................................................. $ 1,821 $ 2,896 $ 2,301
Interest cost on the projected benefit obligation....... 2,699 3,741 3,421
Expected return on assets............................... (6,970) (4,872) (4,780)
Net amortization and deferral........................... 4,016 -- 90
------- ------- -------
Net periodic pension costs.............................. $ 1,566 $ 1,765 $ 1,032
======= ======= =======
</TABLE>
The following table sets forth a reconciliation of the projected benefit
obligation:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Projected benefit obligation, beginning of year......... $ -- $54,469 $66,469
Acquisitions............................................ 44,977 -- --
Service cost (present value of benefits earned in the
year)................................................. 1,821 2,896 2,301
Interest cost on the projected benefit obligation....... 2,699 3,741 3,421
Plan participant's contributions........................ 1,347 2,031 1,587
Actuarial (gain)/loss................................... 4,165 3,915 (7,691)
Benefits paid........................................... (540) (980) (1,733)
Translation............................................. -- 397 (2,330)
------- ------- -------
Projected benefit obligation, end of year............... $54,469 $66,469 $62,024
======= ======= =======
</TABLE>
The following table sets forth a reconciliation of the plan assets:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Fair value of plan assets, beginning of year............. $ -- $53,434 $60,695
Acquisitions............................................. 43,675 -- --
Actual return on plan assets............................. 6,976 2,980 7,464
Employer contributions................................... 1,976 2,841 2,737
Plan participant's contributions......................... 1,347 2,031 1,587
Benefits paid............................................ (540) (980) (1,733)
Translation.............................................. -- 389 (2,128)
------- ------- -------
Fair value of plan assets, end of year................... $53,434 $60,695 $68,622
======= ======= =======
</TABLE>
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Projected benefit obligation................................ $66,469 $62,024
Plan assets at fair value, primarily equity and fixed-income
securities................................................ 60,695 68,622
------- -------
Plan assets (less than) more than projected benefit
obligation................................................ (5,774) 6,598
Unrecognized net actuarial loss (gain)...................... 5,950 (4,724)
Adjustment required to recognize minimum liability.......... (1,916) (1,068)
------- -------
Net pension (liability) asset............................... $(1,740) $ 806
======= =======
</TABLE>
F-30
<PAGE> 132
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal assumptions used are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
PERCENT PERCENT PERCENT
------- ------- -------
<S> <C> <C> <C>
Weighted average discount rates............................. 6.75% 5.50% 5.75%
Long term rate of return on plan assets..................... 8.75% 8.00% 8.00%
Salary Growth............................................... 4.75% 4.25% 3.75%
Pension Increases........................................... 3.00% 2.50% 2.75%
</TABLE>
19. RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and
application of new products and processes were approximately $10,800, $13,400
and $14,400 for the years ended December 31, 1997, 1998 and 1999, respectively.
20. 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 $10,400, $2,463 and $4,684 for the years ended December
31, 1997, 1998 and 1999, 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. 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.
Pursuant to the Chips Merger, the Company 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, 1999 is $285,312 (see Note 9).
21. 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.
F-31
<PAGE> 133
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. EARNINGS PER SHARE
Basic earnings per common share amounts are computed using the weighted
average number of common shares outstanding during the year. Basic earnings per
weighted average common share are computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Loss before cumulative effect of a change in accounting
principle and extraordinary item....................... $ (319,692) $ (88,181) $ (709,400)
Plus paid-in-kind dividends and accretion on preferred
stock.................................................. (3,298) (3,735) (4,240)
Less loss attributable to Class A common shareholders.... 38,643 9,820 54,167
Less loss attributable to Class A Series II common
shareholders........................................... -- 1,080 38,307
---------- ---------- ----------
Loss available to common shareholders before cumulative
effect of a change in accounting principle and
extraordinary item..................................... $ (284,347) $ (81,016) $ (621,166)
========== ========== ==========
Basic weighted average common shares outstanding......... 26,507,409 48,205,838 62,123,268
========== ========== ==========
Basic loss per weighted average common share before
cumulative effect of a change in accounting principle
and extraordinary item................................. $ (10.73) $ (1.68) $ (10.00)
========== ========== ==========
Basic net loss per weighted average common share......... $ (10.99) $ (1.68) $ (10.24)
========== ========== ==========
</TABLE>
Losses attributable to Class A and Class A Series II are calculated on a
one to one basis using the weighted average shares outstanding before conversion
as these classes have identical rights and privileges with respect to dividends
and voting as the common shares.
Diluted earnings per weighted average common share are computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Loss before cumulative effect of a change in accounting
principle and extraordinary item....................... $ (319,692) $ (88,181) $ (709,400)
Plus paid-in-kind dividends and accretion on preferred
stock.................................................. (3,298) (3,735) (4,240)
---------- ---------- ----------
Loss available to common shareholders before cumulative
effect of a change on accounting principle and
extraordinary item..................................... $ (322,990) $ (91,916) $ (713,640)
========== ========== ==========
Weighted average common shares outstanding............... 26,507,409 48,205,838 62,123,268
Common shares assuming conversion of Class A and Class A
Series II.............................................. -- 463,690 5,115,190
---------- ---------- ----------
Diluted weighted average common shares outstanding....... 26,507,409 48,669,528 67,238,458
========== ========== ==========
Diluted loss per weighted average common share before
cumulative effect of a change in accounting principle
and extraordinary item................................. $ (12.19) $ (1.89) $ (10.61)
========== ========== ==========
Diluted net loss per weighted average common share....... $ (12.48) $ (1.89) $ (10.86)
========== ========== ==========
</TABLE>
Shares assumed in the conversion of Class A and Class A Series II are
calculated on an as if converted basis using the formula set forth in the
Company's Certificate of Incorporation, which yields a less than one to one
ratio.
F-32
<PAGE> 134
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of losses incurred for the years ended December 31, 1997, 1998,
and 1999, the following potentially dilutive securities were not included in
diluted earnings per share because their inclusion would be anti-dilutive:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Performance options......................................... 1,537,349 1,814,569 2,802,900
Stock options............................................... 867,501 1,125,835 2,460,000
Stock warrants.............................................. -- -- 136,645
</TABLE>
23. SUBSEQUENT EVENTS
The Company intends to effect a transfer to the Company's existing
stockholders of 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 will deliver notes payable to the Company for approximately
$124,000 in the aggregate, which will be classified as a component of
shareholders' equity. Any difference at the date of transfer between net book
value of NewCo ($(131,449) at December 31, 1999) and $124,000 will be accounted
for as a reduction or increase to additional paid in capital. The notes will
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 Company has signed a letter of intent to acquire all of the outstanding
shares of Wirekraft Industries, Inc., a wholly owned subsidiary of International
Wire Group, Inc., an affiliate of Hicks Muse, which manufactures and assembles
wire harness products. The purchase price is approximately $210,000 in cash.
These transactions are expected to occur immediately prior to the Company's
anticipated initial public offering. The Company and International Wire Group,
Inc. are considered entities under common control. Accordingly, the acquisition
will be accounted for on an "as if pooling", with the excess purchase price over
book value acquired being accounted for as a distribution to the Company's
shareholders.
On February 4, 2000, certain covenants of the Third Amended and Restated
Credit Agreement were amended.
On January 25, 2000, the Company entered into an agreement with Marconi
Communications, Inc. to acquire Marconi's network components & services business
for $115 million. This business has manufacturing facilities in Europe and
China, where it manufactures products designed primarily for telecommunications
customers, including Italtel, Lucent, Marconi, Nokia and Siemens.
24. STOCK SPLIT
On March 23, 2000 in connection with the initial public offering, the
Company declared a reverse stock split; Each share of common stock, Class A
common stock, and Class A Series II common stock will be converted into 1/6 of a
share of each respective class. All share and per share data have been restated
for the reverse split, except for the par value which remains at $0.01 per
share.
F-33
<PAGE> 135
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Termbray Industries International (Holdings)
Limited.
We have audited the accompanying combined balance sheet of the Printed
Circuit Board Division of Termbray Industries International (Holdings) Limited
("PCB Division") as of 31st March 1999 and the related combined statements of
income, of cash flows and of changes in divisional equity for the year ended
31st March 1999, all expressed in Hong Kong Dollars. These combined financial
statements are the responsibility of the management of the PCB Division. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Hong Kong, which are substantially similar, in all material
respects, to those generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting 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 combined financial statements audited by us present
fairly, in all material respects, the financial position of the PCB Division at
31st March 1999, and the results of its operations and cash flows for the year
ended 31st March 1999, in conformity with accounting principles generally
accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
the combined net income expressed in Hong Kong Dollars for the year ended 31st
March 1999 and the determination of combined divisional equity also expressed in
Hong Kong Dollars at 31st March 1999 to the extent summarised in note 18 to the
combined financial statements.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 24th September 1999
F-34
<PAGE> 136
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
COMBINED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
NOTE HK$
---- ----------
<S> <C> <C>
Net sales................................................... 3 1,341,199
Cost of inventories sold.................................... (934,387)
---------
Gross profit................................................ 406,812
Operating expenses
Salaries and related costs................................ (35,278)
Sales and marketing expenses.............................. (31,259)
General and administrative expenses....................... (65,731)
---------
Income from operations...................................... 274,544
Bank interest income........................................ 4,607
Interest expense............................................ (28,577)
Other non-operating income.................................. 19,592
---------
Income before taxation...................................... 4 270,166
Provision for income taxes.................................. 5 (23,616)
---------
Net income.................................................. 246,550
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-35
<PAGE> 137
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
31ST MARCH
1999
NOTE HK$
---- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. 65,808
Trade accounts receivable, net............................ 206,085
Inventories, net.......................................... 7 185,759
Prepaid expenses and other assets......................... 58,546
Due from former related companies......................... 8 174,099
---------
Total current assets.............................. 690,297
Fixed assets, net................................. 9 799,032
---------
Total assets...................................... 1,489,329
=========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Trade accounts payable.................................... 133,780
Bills payable............................................. 24,528
Other liabilities and accrued charges..................... 44,059
Current portion of long-term liabilities.................. 10 103,787
Bank loans and overdrafts................................. 42,024
Income taxes payable...................................... 5,943
---------
Total current liabilities......................... 354,121
Long-term liabilities
Long-term loans, net of current portion................... 10 34,899
Deferred taxation......................................... 11 22,503
---------
Total liabilities................................. 411,523
Shareholders' equity
Divisional capital........................................ 12 15,020
Retained profits.......................................... 13 1,062,786
---------
Total divisional equity........................... 1,077,806
---------
Total liabilities and divisional equity........... 1,489,329
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-36
<PAGE> 138
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
COMBINED STATEMENT OF CHANGES IN DIVISIONAL EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
ORDINARY SHARES NON-VOTING DEFERRED SHARES
------------------------- ---------------------------
NUMBER OF NUMBER OF TOTAL
SHARES AMOUNT SHARES AMOUNT RETAINED DIVISIONAL
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING PROFITS EQUITY
----------- ----------- ------------ ------------ --------- ----------
HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Balance at 1st April
1998..................... 1,020,007 10,020 50,002 5,000 816,236 831,256
Net income................. -- -- -- -- 246,550 246,550
--------- ------ ------ ----- --------- ---------
Balance at 31st March
1999..................... 1,020,007 10,020 50,002 5,000 1,062,786 1,077,806
========= ====== ====== ===== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<PAGE> 139
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
COMBINED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
HK$
----------
<S> <C>
Cash flows from operating activities
Income before taxation.................................... 270,166
Depreciation of owned fixed assets........................ 66,473
Depreciation of leased fixed assets....................... 14,008
Interest expense.......................................... 20,588
Interest element of finance lease rental payments......... 7,990
Interest income........................................... (4,607)
Amortisation of pre-operating expenses.................... 1,194
Loss on disposal of fixed assets.......................... 194
Decrease in inventories................................... 56,042
Decrease in trade receivables, prepaid expenses and other
assets................................................. 32,853
Decrease in trade accounts and bills payable, other
liabilities and accrued charges........................ (54,740)
--------
Net cash inflow from operating activities................... 410,161
--------
Returns on investments and servicing of finance
Interest received......................................... 4,607
Interest paid............................................. (20,588)
Interest element of finance lease rental payments......... (7,990)
--------
Net cash outflow from returns on investments and servicing
of finance................................................ (23,971)
Taxation
Hong Kong profits tax paid.................................. (18,186)
--------
Taxation paid............................................... (18,186)
--------
Investing activities
Purchase of fixed assets.................................... (46,236)
Proceeds from sale of fixed assets........................ 1,974
--------
Net cash outflow from investing activities.................. (44,262)
--------
Net cash inflow before financing............................ 323,742
--------
Financing
Repayment of bank loans................................... (211,662)
Capital element of finance lease rental payments.......... (51,919)
Advances to former related companies...................... (56,415)
--------
Net cash outflow from financing............................. (319,996)
--------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE> 140
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
COMBINED STATEMENT OF CASH FLOWS -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
----------
<S> <C>
Net cash outflow from financing............................. (319,996)
--------
Increase in cash and cash equivalents....................... 3,746
Cash and cash equivalents at beginning of the year.......... 20,038
--------
Cash and cash equivalents at end of the year................ 23,784
========
Analysis of the balances of cash and cash equivalents
Cash on hand and demand deposits with banks............... 65,808
Bank loans and overdrafts................................. (42,024)
--------
23,784
========
</TABLE>
Supplemental cash flows information:
<TABLE>
<CAPTION>
OBLIGATIONS UNDER
LONG TERM LOANS FINANCE LEASES
HK$'000 HK$'000
--------------- -----------------
<S> <C> <C>
Analysis of changes in financing during the year
Balance as at 1st April 1998......................... 283,448 118,819
Repayment during the year............................ (211,662) (51,919)
-------- -------
Balance as at 31st March 1999........................ 71,786 66,900
======== =======
</TABLE>
The statement of cash flows is prepared in accordance with Hong Kong Statement
of Standard Accounting Practice 15 "Cash Flow Statements" which differs in
certain respects from U.S. Statement of Financial Accounting Standard 95 ("SFAS
95") "Statement of Cash Flows." The principal differences are explained in note
18.
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE> 141
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Printed Circuit Board Division of Termbray Industries International
(Holdings) Limited (the "PCB Division") manufactures and sells laminates,
prepreg products and printed circuit boards. The combined financial statements
of the PCB Division for the year ended 31st March 1999 include the following
former subsidiaries (the "PCB subsidiaries") of Termbray Industries
International (Holdings) Limited ("Termbray"), all of which are private
companies (or, if incorporated outside Hong Kong, have substantially the same
characteristics as a private company):
<TABLE>
<CAPTION>
PARTICULARS OF
PLACE OF REGISTERED
INCORPORATION/ CAPITAL/ISSUED
NAME OF COMPANY OPERATION SHARE CAPITAL PRINCIPAL ACTIVITIES
- --------------- -------------- -------------- --------------------
<S> <C> <C> <C>
Guangzhou Kalex Laminate The People's Republic Registered capital of Dormant
Company Limited (iii) of China US$28,500,000
Guangzhou Termbray The People's Republic Registered capital of Manufacture and sales
Electronics Technology of China US$28,500,000 of mass lamination
Company Limited (ii) and prepreg
products
Guangzhou Termbray Circuit The People's Republic Registered capital of Manufacture and sales
Board Company Limited of China US$28,500,000 of printed circuit
(iv) boards
Kalex Circuit Board (Hong Hong Kong 1,000,000 ordinary Dormant
Kong) Limited shares of HK$10 each
Kalex Circuit Board (China) Hong Kong/The 2 ordinary shares of Manufacture and sales
Limited People's Republic HK$100 each and of printed circuit
of China 50,000 non-voting boards and
deferred shares of investment holding
HK$100 each
Kalex Circuit Board Hong Kong/The 600,000 ordinary Manufacture and sales
(Guangzhou) Limited (i) People's Republic shares of US$1 each of printed circuit
of China boards and
investment holding
Kalex Multi-Layer Printed Hong Kong 2 ordinary shares of Dormant
Circuit Board Company HK$1 each
Limited (ii)
Kalex Printed Circuit Board Hong Kong 10,000 ordinary shares Marketing and sales
Limited of HK$1 each of printed circuit
boards
Lee Lap & Sons Limited Hong Kong/The 2 ordinary shares of Manufacture and sales
People's Republic HK$1 each and 2 of printed circuit
of China non-voting deferred boards
shares of HK$1 each
</TABLE>
F-40
<PAGE> 142
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PARTICULARS OF
PLACE OF REGISTERED
INCORPORATION/ CAPITAL/ISSUED
NAME OF COMPANY OPERATION SHARE CAPITAL PRINCIPAL ACTIVITIES
- --------------- -------------- -------------- --------------------
<S> <C> <C> <C>
Termbray Circuit Board Hong Kong 2 ordinary shares of Investment holding
Company Limited HK$1 each
Termbray Laminate Company Hong Kong/The 10,000 ordinary shares Manufacture and sales
Limited People's Republic of HK$1 each of mass lamination
of China and prepreg
products
Termbray Property (B.V.I.) The British Virgin 1 ordinary share of Property investment
Limited Islands US$1
</TABLE>
- ------------
(i) Directly held by Termbray Circuit Board Company Limited
(ii) Directly held by Kalex Circuit Board (China) Limited
(iii)Directly held by Termbray Laminate Company Limited
(iv) Indirectly held by Termbray Circuit Board Company Limited through Kalex
Circuit Board (Guangzhou) Limited
100% of the equity interest, direct or indirect, of the above companies is
attributable to the PCB Division.
The combined financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission of the United States (the "SEC") for inclusion in a registration
statement of public filing in the United States by Viasystems, Inc. They have
been prepared on a historical cost basis from the books and records of these
subsidiaries on the basis of established accounting methods, practices,
procedures and policies (see Note 2) and the accounting judgments and estimation
methodologies used by the management of the PCB Division.
The combined financial statements do not represent the combination of Hong
Kong statutory financial statements of the PCB subsidiaries as certain
reclassifications and changes in presentation have been made to the financial
statements in order to conform more closely to presentations customary in
filings with the SEC.
The combined financial statements have been prepared in accordance with
generally accepted accounting principles in Hong Kong and with accounting
standards issued by the Hong Kong Society of Accountants ("HKGAAP"). These
principles differ in certain significant respects from generally accepted
accounting principles in the United States of America ("USGAAP"). The effect of
these differences on net income and divisional equity is summarised in Note 18.
The combined statement of income includes all items of revenue and income
generated by the PCB Division, all items of expense directly incurred by it and
certain corporate expenses allocated from a subsidiary of Termbray outside the
PCB Division in the normal course of business. For additional information
concerning expenses allocated by the subsidiary of Termbray to the PCB Division,
see Note 16.
The debt of the PCB Division consists of obligations that are specifically
identifiable with associated capital expenditures of the PCB Division. No other
debt of Termbray (or related interest expense) has been allocated to the
Division. Because of the special purpose of the PCB Division's combined
financial statements and the significant related party transactions (as
described in Note 16), these combined financial statements may not necessarily
be indicative of the combined financial position, results of its operations or
cash flows that would have resulted if the Division had been operated as a
separate entity. Management believes that the
F-41
<PAGE> 143
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
accounting judgments, estimations and allocations made in preparing these
combined financial statements were reasonable.
All amounts are expressed in Hong Kong Dollars. Unless indicated otherwise,
amounts in Hong Kong Dollars have been rounded to the nearest thousand.
2. PRINCIPAL ACCOUNTING POLICIES
(a) BASIS OF COMBINATION
(i) The combined financial statements of the PCB Division include the
financial statements of the PCB subsidiaries as mentioned in Note 1
for the year ended 31st March 1999. All material intercompany
accounts and transactions among the companies included in the PCB
Division have been eliminated on combination.
(ii) Goodwill on consolidation or acquisition of a business, which
represents the excess of the cost of investment over the fair value
ascribed to the net underlying assets acquired, is charged against
reserves to the extent that such reserves are available and any
excess is charged against the statement of income in the year of
acquisition.
(b) FIXED ASSETS AND DEPRECIATION
The cost of an asset comprises its purchase price and any directly
attributable costs of bringing the asset to its present working condition and
location for its intended use. Expenditure incurred after the assets have been
put into operation, such as repairs and maintenance and overhaul costs, is
normally charged to the statement of income in the period in which it is
incurred. In situations where it can be clearly demonstrated that the
expenditure has resulted in an increase in the future economic benefits expected
to be obtained from the use of the assets, the expenditure is capitalised as an
additional cost of the assets.
(i) Leasehold land, buildings and improvements
Leasehold land, buildings and improvements are stated at cost less
accumulated amortization or depreciation and any provisions required
to reflect recoverable amount.
(ii) Amortization of leasehold land
Amortization of leasehold land is calculated to write off its cost on
the straight line basis over the unexpired period of the lease.
Leasehold land is not amortised until such land has been put into
operation.
(iii) Depreciation of leasehold buildings and improvements
Depreciation of leasehold buildings and improvements is calculated
to write off their costs on the straight line basis over the
unexpired periods of the leases or their expected useful lives,
whichever is shorter. The principal annual rates used for this
purpose are:
<TABLE>
<S> <C>
Leasehold buildings 4% or over the unexpired term of the land leases,
whichever is shorter
Leasehold improvements 10 - 25%
</TABLE>
(iv) Other tangible fixed assets
Other tangible fixed assets are stated at cost less accumulated
depreciation except machinery and equipment acquired before 31st
March 1987 which are stated at valuation less accumulated
F-42
<PAGE> 144
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation. No depreciation is provided on fixed assets under
construction until the assets are put into operation. Depreciation on
other tangible fixed assets is calculated to write off their costs on
the straight line basis over their expected useful lives. The
principal annual rates used for this purpose are:
<TABLE>
<S> <C>
Plant and machinery......................................... 10-25%
Furniture, fixtures and office equipment.................... 10-25%
Moulds, tools, equipment and motor vehicles................. 10-25%
</TABLE>
Advantage has been taken of the transitional relief provided by
paragraph 72 of Statement of Standard Accounting Practice 17
"Property, plant and equipment" issued by the Hong Kong Society of
Accountants from the requirement to make regular revaluations of the
PCB Division's machinery and equipment, which had been carried at
revalued amounts prior to 30th September, 1995, and accordingly no
further revaluation of such machinery and equipment is carried out.
A decrease in net carrying amount of an asset arising on revaluation
is charged to the statement of income to the extent that it exceeds
the surplus, if any, held in revaluation reserve relating to previous
revaluation of that particular asset.
(v) Impairment of fixed assets and other long lived assets
The carrying amounts of fixed assets are reviewed regularly to assess
whether their recoverable amounts have declined below their carrying
amounts, based on non-discounted future cash flows. When such a
decline has occurred, their carrying amounts are reduced to their
recoverable amounts. Recoverable amount is the amount which
management expects to recover from the future use of the asset,
including its residual value on disposal. The amount of any reduction
to recoverable amount is charged to the statement of income.
For purposes of the reconciliation of the PCB Division's financial
statements to US GAAP, where the recoverable amount of fixed and
other long lived assets is less than carrying value, an impairment
loss is recognized to write the assets down to their fair value. No
such impairment losses were required in the year ended 31st March
1999.
(vi) Costs of restoring and improving fixed assets
Major costs incurred in restoring fixed assets to their normal
working conditions are charged to the statement of income.
Improvements are capitalized and depreciated over their expected
useful lives.
(vii) Gain or loss on disposal of fixed assets
The gain or loss arising on disposal or retirement of an asset is
determined as the difference between the sale proceeds and the
carrying amount of the asset and is recognised in the statement of
income. On disposal of a revalued asset, the attributable
revaluation surplus not dealt with in retained profits in prior
years is transferred directly to retained profits.
(viii) Leased assets
Where assets are acquired through finance leases or hire purchase
contracts under which substantially all the risks and rewards of
ownership, other than legal title, are transferred to the company,
the assets are treated as if they had been purchased. An amount
equivalent to the cost is recorded as a fixed asset. The
corresponding lease commitments are shown as obligations under
finance leases and hire purchase contracts. Payments to the lessor
are treated as consisting of capital and interest elements. The
interest element is charged to the statement of income using the
F-43
<PAGE> 145
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
straight line method over the period of the lease. Assets held under
finance leases or hire purchase contracts are depreciated over the
shorter of lease periods or their estimated useful lives as in (iv)
above.
US GAAP requires interest on finance leases to be recognized so as
to ensure a constant periodic rate of interest on the remaining
balance of the obligation (the "interest method"). The difference
between the straight line method used by the company and the
interest method is not material.
All other leases are accounted for as operating leases (see note (h)
below).
(c) INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost,
which comprises all costs of purchase and, where applicable, costs of conversion
and other costs that have been incurred in bringing the raw material and work in
progress to their present location and condition, is calculated using the
first-in, first-out method. Net realisable value of finished goods represents
the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make the
sale.
Consumable stores are stated at purchase cost less amount allocated to
production costs when such assets are consumed.
(d) FOREIGN CURRENCIES
Transactions in foreign currencies are translated into Hong Kong dollars at
the rates of exchange ruling at the transaction dates. Monetary assets and
liabilities denominated in currencies other than Hong Kong dollars are
re-translated into Hong Kong dollars at the rates of exchange ruling at the
balance sheet date. Exchange difference arising are dealt with in the statement
of income.
(e) DEFERRED TAXATION
Deferred taxation is accounted for at the current taxation rate in respect
of timing differences between profit as computed for taxation purposes and
profit as stated in the accounts to the extent that a liability or an asset is
expected to be payable or receivable in the foreseeable future. In determining
whether a liability is expected to be payable in the foreseeable future the
company assesses the effect of its capital expenditure and other plans. If these
plans indicate that sufficient accelerated tax allowances will be available to
offset the effect of the reversal of timing differences a deferred tax liability
is not established for such timing differences, in accordance with the
requirements of HKGAAP.
(f) CAPITALISATION OF BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, i.e. assets that necessarily take a substantial
period of time to get ready for their intended use or sale, are capitalised as
part of the cost of those assets. Capitalisation of such borrowing costs ceases
when the assets are substantially ready for their intended use or sale.
(g) USE OF ESTIMATES
The preparation of combined financial statements in conformity with HKGAAP
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 financial statements and the reported amounts of
revenues and expenses reported during the period. Actual results could differ
from these estimates.
F-44
<PAGE> 146
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(h) OPERATING LEASES
Rentals payable under operating leases, where substantially all the risks
and rewards of ownership of the assets remain with the lessors, are charged to
the statement of income on a straight line basis over the term of the relevant
lease.
(i) CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent short term highly liquid investments
which are readily convertible into known amount of cash were within three months
of maturity when acquired; less advances from banks repayable within three
months from the date of the advance.
(j) REVENUE RECOGNITION
Income from processing services is recognised when the relevant services
are rendered.
Sales of goods are recognised when the goods are delivered and title has
passed.
Interest income from bank deposits is accrued on a time proportion basis,
by reference to the principal outstanding and at the interest rate applicable.
3. NET SALES
Net sales represents invoiced value of inventories sold less returns.
4. INCOME BEFORE TAXATION
<TABLE>
<CAPTION>
1999
HK$
-------
<S> <C>
Income before taxation is stated after crediting and
charging the following :
Crediting
Exchange gain.......................................... 6,321
Interest income from bank deposits..................... 4,607
=======
Charging
Cost of inventories sold............................... 934,387
Depreciation:
Owned fixed assets................................... 66,473
Leased fixed assets.................................. 14,008
Operating leases
Land and buildings................................... 932
Hire of plant & machinery............................ 65
Interest expense comprises:
Interest expense on bank loans and overdrafts........ 20,588
Interest element of finance lease rental payments.... 7,990
=======
</TABLE>
F-45
<PAGE> 147
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1999
HK$
-------
<S> <C>
Hong Kong profits tax....................................... 17,310
Overseas taxation........................................... 2,375
-------
19,685
-------
Deferred tax (note 11)...................................... 3,931
-------
23,616
=======
</TABLE>
Hong Kong profits tax has been provided at the rate of 16.0% (1998: 16.5%)
on the estimated assessable profit for the year. Taxation on overseas profits
has been calculated on the estimated assessable profit for the year at the rates
of taxation prevailing in the countries in which the PCB Division operates.
6. TRADE ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
1999
HK$
-------
<S> <C>
Trade accounts receivable................................... 213,985
Less: provision for doubtful debts.......................... (7,900)
-------
206,085
=======
</TABLE>
7. INVENTORIES, NET
<TABLE>
<CAPTION>
1999
HK$
-------
<S> <C>
Inventories, net at 31st March 1999 consisted of the
following:
Raw materials and supplies................................ 71,999
Work in progress and finished goods....................... 80,844
Consumable stores......................................... 32,916
-------
185,759
=======
</TABLE>
Included in inventories, net at 31st March 1999 was an amount of HK$1,520
carried at net realisable value after making a provision for obsolete
inventories of HK$3,256.
8. DUE FROM FORMER RELATED COMPANIES
The amounts due from former related companies represent advances made to
certain subsidiaries of Termbray Industries International (Holdings) Limited
outside the PCB Division in order to finance the daily operations of these
companies. The amounts due from these former related companies are unsecured,
interest free and have no fixed terms of repayment.
F-46
<PAGE> 148
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. FIXED ASSETS
<TABLE>
<CAPTION>
LAND AND
LAND AND BUILDINGS FACTORIES,
BUILDINGS HELD UNDER STAFF QUARTERS
HELD UNDER MEDIUM TERM AND
MEDIUM TERM LEASES MACHINERY
LEASES IN OUTSIDE UNDER LEASEHOLD
HONG KONG HONG KONG CONSTRUCTION IMPROVEMENTS
HK$ HK$ HK$ HK$
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Cost or valuation
At 1st April 1998......................... 37,413 229,568 61,417 101,379
Additions................................. -- 3,821 11,354 263
Reclassification.......................... -- -- (17,545) 4,452
Disposals................................. -- -- -- (340)
------ ------- ------- -------
At 31st March 1999........................ 37,413 233,389 55,226 105,754
------ ------- ------- -------
Accumulated depreciation
At 1st April 1998......................... 3,061 10,648 -- 42,777
Charge for the year....................... 935 3,673 -- 8,059
Disposals................................. -- -- -- --
------ ------- ------- -------
At 31st March 1999........................ 3,996 14,321 -- 50,836
------ ------- ------- -------
Net book value
At 31st March 1999........................ 33,417 219,068 55,226 54,918
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MOULDS,
FURNITURE, TOOLS,
FIXTURES EQUIPMENT
PLANT AND AND OFFICE AND MOTOR
MACHINERY EQUIPMENT VEHICLES TOTAL
HK$ HK$ HK$ HK$
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Cost or valuation
At 1st April 1998................................. 624,294 23,230 12,737 1,090,038
Additions......................................... 26,598 3,090 1,110 46,236
Reclassification.................................. 12,803 290 -- --
Disposals......................................... (1,662) -- (688) (2,690)
------- ------ ------ ---------
At 31st March 1999................................ 662,033 26,610 13,159 1,133,584
------- ------ ------ ---------
Accumulated depreciation
At 1st April 1998................................. 182,388 11,379 4,340 254,593
Charge for the year............................... 62,824 3,378 1,612 80,481
Disposals......................................... (40) -- (482) (522)
------- ------ ------ ---------
At 31st March 1999................................ 245,172 14,757 5,470 334,552
------- ------ ------ ---------
Net book value
At 31st March 1999................................ 416,861 11,853 7,689 799,032
======= ====== ====== =========
</TABLE>
- ------------
(a) Machinery and equipment with an aggregate carrying book value of
approximately HK$93,175 (1998: HK$140,430) as at the balance sheet date
were held under finance lease and hire purchase contracts.
(b) Included in the PCB Division's machinery and equipment were an amount of
HK$3,508 carried at valuation in 1987 with an aggregate depreciation of
HK$3,508 as at 31st March 1999 which would also have had no net carrying
value (1998: HK$ nil) had these assets been carried in the financial
statements at cost less aggregate depreciation.
F-47
<PAGE> 149
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
All other fixed assets were stated at cost less aggregate depreciation.
(c) Included in the PCB Division's factories, staff quarters and machinery
under construction is net interest capitalised of approximately HK$6.2
million. No interest was capitalised during the year.
10. LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
1999
HK$
-------
<S> <C>
Unsecured bank loans repayable:
Within one year........................................... 69,393
Within two to five years.................................. 2,393
-------
71,786
-------
Obligations under finance leases and hire purchase contracts
payable
Within one year........................................... 34,394
Within two to five years.................................. 32,506
-------
66,900
-------
138,686
Less: Current portion of long-term liabilities.............. 103,787
-------
34,899
=======
</TABLE>
11. DEFERRED TAXATION
<TABLE>
<CAPTION>
1999
HK$
------
<S> <C>
At 1st April 1998........................................... 18,572
Transfer from statement of income (note 5).................. 3,931
------
At 31st March 1999.......................................... 22,503
======
Provided in the financial statements in respect of:
Accelerated depreciation allowances....................... 26,648
Tax losses................................................ (4,145)
------
22,503
======
</TABLE>
The potential deferred taxation not provided for in the financial
statements amounts to:
<TABLE>
<CAPTION>
1999
HK$
------
<S> <C>
Accelerated depreciation allowances......................... 2,469
Tax losses.................................................. (1,574)
------
895
======
</TABLE>
F-48
<PAGE> 150
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. DIVISIONAL CAPITAL
Divisional capital represents the combination of the share capital of the
following former subsidiaries of Termbray.
<TABLE>
<CAPTION>
NAME OF COMPANY AUTHORISED CAPITAL 1999 HK$ ISSUED CAPITAL 1999 HK$
- --------------- ------------------ -------- -------------- --------
<S> <C> <C> <C> <C>
Kalex Circuit Board 10 ordinary shares 1,000 2 ordinary shares 200
(China) Limited of HK$100 each of HK$100 each
and 50,000 non- 5,000,000 and 50,000 non- 5,000,000
voting deferred voting deferred
shares of HK$100 shares of HK$100
each each
Kalex Circuit Board 1,000,000 ordinary 10,000,000 1,000,000 ordinary 10,000,000
(Hong Kong) Limited shares of HK$10 shares of HK$10
each each
Kalex Printed Circuit 10,000 ordinary 10,000 10,000 ordinary 10,000
Board Limited shares of HK$1 shares of HK$1
each each
Lee Lap & Sons Limited 9,998 ordinary 9,998 2 ordinary shares 2
shares of HK$1 of HK$1 each
each
and 2 non-voting 2 and 2 non-voting 2
deferred shares of deferred shares of
HK$1 each HK$1 each
Termbray Circuit Board 10,000 ordinary 10,000 2 ordinary shares 2
Company Limited shares of HK$1 of HK$1 each
each
Termbray Laminate 10,000 ordinary 10,000 10,000 ordinary 10,000
Company Limited shares of HK$1 shares of HK$1
each each
Termbray Property 50,000 ordinary 400,000 1 ordinary share 8
(B.V.I.) Limited shares of US$1 of US$1
------------- -------------
HK$15,441,000 HK$15,020,214
============= =============
</TABLE>
F-49
<PAGE> 151
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. RETAINED PROFITS
Retained profits of the PCB Division represents the combination of the
post-acquisition profits/(losses) of the following former subsidiaries of
Termbray attributable to the PCB Division:
<TABLE>
<CAPTION>
1999
HK$
---------
<S> <C>
Guangzhou Kalex Laminate Company Limited.................... (139)
Guangzhou Termbray Electronics Technology Company Limited... (11,978)
Guangzhou Termbray Circuit Board Company Limited............ (32,395)
Kalex Circuit Board (Hong Kong) Limited..................... 21,090
Kalex Circuit Board (China) Limited......................... 532,423
Kalex Circuit Board (Guangzhou) Limited..................... 47,753
Kalex Multi-Layer Printed Circuit Board Company Limited..... (1,112)
Kalex Printed Circuit Board Limited......................... 2,212
Lee Lap & Sons Limited...................................... 418,726
Termbray Circuit Board Company Limited...................... 1,020
Termbray Laminate Company Limited........................... 81,869
Termbray Property (B.V.I.) Limited.......................... 10,547
---------
1,070,016
Less: Goodwill previously written off against statement of
income.................................................... (7,230)
---------
1,062,786
=========
</TABLE>
14. COMMITMENTS
(a) CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
1999
HK$
------
<S> <C>
Contracted but not provided for
- purchase of fixed assets................................ 16,607
======
</TABLE>
(b) OPERATING LEASE COMMITMENTS
At 31st March 1999 the PCB Division had commitments to make payments in the
next twelve months under operating leases which expire as follows:
<TABLE>
<CAPTION>
1999
HK$
----
<S> <C>
Land and buildings
- Within one year......................................... 367
- In the second to fifth years inclusive.................. 114
---
481
===
</TABLE>
15. CONTINGENT LIABILITIES
During the year, certain PCB subsidiaries within the PCB Division purchased
production materials amounting to approximately HK$12 million from an outside
supplier. Such production materials acquired were subsequently found to be
defective and settlement of the purchases was therefore withheld by the
Division. Legal actions for settlement of the purchases together with interest
were taken by the supplier against these PCB subsidiaries. The Division also
instituted a legal action against such supplier claiming
F-50
<PAGE> 152
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
damages which may arise from the materials delivered by the supplier. While the
outcome of these proceedings cannot at present be estimated with certainty,
based on independent legal advice, management is of the opinion that the outcome
of these cases would not have a material adverse impact on the financial
position of the PCB Division, and that adequate disclosure having been made, no
provision has been made in the financial statements accordingly.
16. RELATED PARTY TRANSACTIONS
During the year, the PCB Division paid a management fee to a subsidiary of
Termbray Industries International (Holdings) Limited amounting to HK$24,802
based on terms agreed by the relevant parties. The management fee was charged by
the subsidiary of Termbray for the PCB Division's share of salaries and office
expenses and comprised:
- 95% of total office salaries based on human resources utilised
- 89% of total management salaries based on estimated management hours, and
- a pre-fixed percentage of 85% of the total office rental and
communications expenses.
17. APPROVAL OF FINANCIAL STATEMENTS
The financial statements of the PCB Division were approved by the board of
directors of Termbray Industries International (Holdings) Limited on 24th
September 1999.
F-51
<PAGE> 153
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUMMARY OF DIFFERENCES BETWEEN HKGAAP AND USGAAP
The combined financial statements of the PCB Division are prepared in
accordance with accounting principles generally accepted in Hong Kong
("HKGAAP"), which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("USGAAP").
Differences between HKGAAP and USGAAP which have an effect on the net income,
total divisional equity and statement of cash flows of the Division are
summarized as follows:
(a) NET INCOME AND TOTAL DIVISIONAL EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
NOTE HK$
---- ----------
<S> <C> <C>
Net income
As stated under HKGAAP.................................... 246,550
USGAAP adjustments:
Amortisation of goodwill............................... (i) (537)
Deferred tax liabilities............................... (ii) (7,169)
Capitalisation of interest costs....................... (iii) 5,769
---------
Net income under USGAAP..................................... 244,613
=========
Total divisional equity
As stated under HKGAAP.................................... 1,077,806
USGAAP adjustments:
Goodwill............................................... 10,738
Accumulated amortisation of goodwill................... (i) (3,982)
Deferred tax liabilities............................... (ii) (2,505)
Capitalisation of interest costs on assets under
construction.......................................... (iii) 5,769
---------
Total divisional equity under USGAAP.............. 1,087,826
=========
</TABLE>
(i) Amortisation of goodwill
Under HKGAAP, the PCB Division offsets goodwill on acquisition of a
business, which represents the excess of the cost of investment over
the fair value ascribed to the net underlying assets acquired, against
reserves to the extent that such reserves are available and any excess
is charged against the statement of income in the year of acquisition.
Under USGAAP, goodwill on acquisition of a business should be
capitalised and amortised. For such purpose, the goodwill is amortised
on a straight-line basis over 20 years.
(ii) Deferred tax liabilities
Under HKGAAP, deferred taxation is accounted for at the current
taxation rate in respect of timing differences between profit as
computed for taxation purposes and profit as stated in the accounts
to the extent that a liability or an asset is expected to be payable
or receivable in the foreseeable future.
Under USGAAP, the PCB Division is required to recognise deferred tax
assets and liabilities for the expected future tax consequences of
all events that have been included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the temporary differences between the financial
reporting basis and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse. Future tax benefits in respect of tax loss carry
forwards are also required to be recognized in
F-52
<PAGE> 154
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
full. A valuation allowance is required to be established in respect
of deferred tax assets to the extent that realisation of such
benefits is less likely than not.
Details of deferred income taxes under USGAAP are disclosed in Note
(b) below.
(iii) Under HKGAAP, borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, i.e.
assets that necessarily take a substantial period of time to get
ready for their intended use or sale, are capitalised as part of the
cost of those assets. Interest on borrowings not directly
attributable to the acquisition, construction or production of
qualifying assets is not capitalizable.
Under USGAAP, the PCB Division is required to include interest costs
as a component of the historical cost of any facilities constructed
for the division's own use. Capitalizable interest cost is interest
cost incurred that theoretically could have been avoided during the
period required to bring a qualifying asset to the condition and
location necessary for its intended use if expenditures for
qualifying assets had not been made.
(b) DEFERRED TAX
Under USGAAP, deferred tax liabilities and assets comprise the following:
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
HK$
----------
<S> <C>
Deferred tax liabilities
Accelerated depreciation.................................. 29,117
Deferred tax assets
Tax loss carry forward.................................... (5,719)
Valuation allowance....................................... 1,610
------
25,008
======
</TABLE>
As of 31st March 1999, the PCB Division had accumulated tax losses
amounting to $35,741 (the tax effect thereon is $5,719) which may be carried
forward and applied to reduce future taxable income which is earned in or
derived from Hong Kong. The tax losses have no expiry date. Realization of
deferred tax assets associated with tax loss carry forwards is dependent upon
generating sufficient taxable income. A valuation allowance has been established
against part of such tax losses since management believes it is more likely than
not that insufficient taxable income will be generated in the foreseeable future
to utilise part of the tax loss carry forwards.
Certain losses incurred by certain subsidiaries of the PCB Division located
in the People's Republic of China ("PRC") are not included on the basis that
these losses are considered likely to be utilised in the years in which the
profits of these subsidiaries are tax exempt, pursuant to the PRC tax law.
Accordingly, the PCB Division will derive no benefit in respect of these losses.
F-53
<PAGE> 155
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the valuation allowance consist of:
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
HK$
----------
<S> <C>
Balance at beginning of the year............................ --
-----
Additions to income tax expense............................. 1,610
-----
Balance at end of the year.................................. 1,610
=====
</TABLE>
(c) STATEMENT OF CHANGES IN DIVISIONAL EQUITY UNDER USGAAP
<TABLE>
<CAPTION>
ORDINARY SHARES NON-VOTING DEFERRED SHARES
------------------------- --------------------------------------------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT TOTAL
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING RETAINED DIVISIONAL
(NOTE 12) (NOTE 12) (NOTE 12) (NOTE 12) PROFITS EQUITY
----------- ----------- ----------- ----------- --------- ----------
HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Balance at 1st April
1998..................... 1,020,007 10,020 50,002 5,000 828,193 843,213
Net income................. -- -- -- -- 244,613 244,613
--------- ------ ------ ----- --------- ---------
Balance at 31st March
1999..................... 1,020,007 10,020 50,002 5,000 1,072,806 1,087,826
========= ====== ====== ===== ========= =========
</TABLE>
(d) STATEMENT OF CASH FLOWS
Under HKGAAP, cash flows are presented separately for operating activities;
returns on investments and servicing of finance; taxation; investing activities
and financing activities. Under USGAAP, however, only three categories of
activities are reported, being operating activities; investing activities and
financing activities. Cash flows from taxation, returns on investments and
servicing of finance would, with the exception of servicing of divisional
financing, be included as operating activities under USGAAP. The servicing of
divisional financing would be included as financing activities under USGAAP.
In addition, under USGAAP, cash and cash equivalents do not include bank
loans overdrafts repayable within three months from the date of the advance as
is the case under HKGAAP. For USGAAP purposes, the Division's cash and cash
equivalents would be adjusted as follows:
Under USGAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
----------
HK$
<S> <C>
Net cash provided from operating activities................. 368,004
Net cash used in investing activities....................... (44,262)
Net cash used in financing activities....................... (325,122)
--------
Decrease in cash and cash equivalents....................... (1,380)
Cash and cash equivalents at the beginning of year.......... 67,188
--------
Cash and cash equivalents at the end of year................ 65,808
========
</TABLE>
F-54
<PAGE> 156
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