<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
VIASYSTEMS GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3672 75-2668620
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
DAVID M. SINDELAR
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
VIASYSTEMS GROUP, INC. VIASYSTEMS GROUP, INC.
101 SOUTH HANLEY ROAD, SUITE 400 101 SOUTH HANLEY ROAD, SUITE 400
ST. LOUIS, MISSOURI 63105 ST. LOUIS, MISSOURI 63105
(314) 727-2087 (314) 727-2087
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, of Registrant's Telephone Number, Including Area Code, of
Principal Executive Offices) Agent for Service)
- ---------------------------------------------------------------------------------------------
Copies to:
BRIAN W. DUWE, ESQ.
R. SCOTT COHEN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
WEIL, GOTSHAL & MANGES LLP (ILLINOIS)
100 CRESCENT COURT, SUITE 1300 333 WEST WACKER DRIVE, SUITE 2100
DALLAS, TEXAS 75201 CHICAGO, ILLINOIS 60606
(214) 746-7700 (312) 407-0700
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share............... $500,000,000 $132,000
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated for the sole purpose of computing the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8, MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of common stock. The second prospectus relates to a
concurrent offering outside the United States and Canada of an aggregate of
shares of common stock. The prospectuses for each of the U.S. offering and
the international offering will be identical with the exception of an alternate
front cover page for the international offering. This alternate page appears in
this registration statement immediately following the complete prospectus for
the U.S. offering.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS (Subject to Completion)
Issued January 10, 2000
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. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
WE INTEND TO APPLY TO LIST OUR COMMON STOCK ON [THE NEW YORK STOCK EXCHANGE]
[THE NASDAQ NATIONAL MARKET] UNDER THE SYMBOL " ."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS VIASYSTEMS
------------ ------------- -----------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total.......................... $ $ $
</TABLE>
Viasystems Group, Inc. has granted the underwriters the right to purchase up to
an additional 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
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
, 2000
<PAGE> 4
[DESCRIPTION OF INSIDE FRONT COVER ART TO BE PROVIDED BY AMENDMENT]
<PAGE> 5
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...................... 19
Dividend Policy...................... 19
Dilution............................. 20
Capitalization....................... 21
Unaudited Pro Forma Financial
Information........................ 22
Selected Financial Data.............. 33
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................ 39
Business............................. 50
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management........................... 63
Principal Stockholders............... 71
Certain Transactions................. 73
Description of Indebtedness.......... 75
Description of Capital Stock......... 77
Shares Eligible for Future Sale...... 84
Important United States Federal Tax
Considerations for Non-United
States Holders..................... 85
Underwriters......................... 88
Legal Matters........................ 91
Experts.............................. 91
Additional Information............... 91
Index to Financial Statements........ F-1
</TABLE>
------------------------
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 the context requires otherwise, "Viasystems," "we," "us," "our" and
similar terms refer to Viasystems Group, Inc., its consolidated subsidiaries and
the business conducted by its predecessor companies, after giving effect to the
transactions described under "The Transactions" elsewhere in this prospectus.
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 for 1
reverse stock split, which will occur immediately prior to the completion of
this offering, and, unless otherwise indicated, assumes the issuance of
shares of common stock upon the conversion of outstanding shares of class A
common stock and class A series II common stock based on an initial public
offering price of $ per share. We do not expect any holders of class A
common stock or class A series II common stock to convert their shares into
common stock in connection with this offering.
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 , 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> 6
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.
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. Our revenues for the twelve months ended
September 30, 1999 were approximately $1 billion. We are a supplier to over 50
original equipment manufacturers, or OEMs, including such industry leaders as
Alcatel, Cisco Systems, Delco, Ericsson, General Electric, Intel, Lucent
Technologies, Marconi Communications, Motorola, Nortel, Siemens, Sun
Microsystems and 3Com. We 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 EMS solutions to OEMs 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 design and manufacture of wire harnesses and cable
assemblies, the procurement and management of materials and the assembly and
testing of our customers' complete systems and products. For the twelve months
ended September 30, 1999, approximately 35% of our revenues were generated from
value-added services such as the manufacture of custom-designed backpanel
assemblies, printed circuit board assemblies and wire harnesses and cable
assemblies, 26% of our revenues were generated from the fabrication of highly
complex multi-layered 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 leverage 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. Our integrated manufacturing capabilities, including our
ability to manufacture wire harnesses and cable assemblies, enable us to provide
a broad array of services and offer more value to our customers.
We target leading OEMs 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 EMS providers. Telecommunications equipment companies
have only recently begun to use EMS providers, and we expect their use of EMS
providers to increase.
Approximately 55% of our revenues for the nine months ended September 30,
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 such as hubs, routers and
switches. Given our strong relationships with leading OEMs in the
telecommunications and networking industries, we believe we are well positioned
to participate in the outsourcing programs and asset dispositions of those OEMs.
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, time-to-market,
time-to-volume and manufacturing cost. We believe we are the industry leader and
have pioneered advances in the manufacture of 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 mils. We have the capability to produce printed
circuit boards with up to 60 layers and circuit track widths as narrow as two
mils.
3
<PAGE> 7
We have leveraged these capabilities to participate in the product design of
many next generation products for major OEMs in the telecommunications and
networking industries.
OUR STRATEGY
Our goal is to be the EMS full-solution partner of choice to leading OEMs.
Our strategy is to:
- focus on the high growth telecommunications and networking customer
segments;
- leverage our advanced printed circuit board and backpanel capabilities to
further expand into complete assembly and other value-added services;
- leverage our vertical integration 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 and Mills & Partners to
create a preferred global manufacturing provider to leading OEMs through
acquisitions of printed circuit board fabricators and backpanel assemblers.
Since our formation, we have further broadened our focus to become a leading EMS
full-solution provider. We have completed six acquisitions and established four
greenfield operations, significantly broadening our service offering
capabilities, expanding our geographic reach and building our customer base of
leading OEMs. Our management team previously worked together at Berg
Electronics, a leading electronics manufacturing enterprise, where they worked
directly with many of the same OEM customers that are currently some of our
largest customers.
THE TRANSACTIONS
In connection with the offering, we will complete several transactions,
including:
- the transfer of nine European printed circuit board manufacturing
facilities, referred to as the transferred operations, 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 a note
payable to us for $150 million; and
- the acquisition of the wire harness business of International Wire Group,
Inc., an entity controlled by affiliates of Hicks, Muse, Tate & Furst,
for a cash purchase price of $210 million.
We are transferring the transferred operations as part of our overall
strategy to focus our resources on value-added EMS services for
telecommunications and networking customers. The acquisition of the wire harness
business allows us to further vertically integrate our electronics manufacturing
services.
For the fiscal year ended December 31, 1998 and the nine months ended
September 30, 1999, the transferred operations had revenue and Adjusted EBITDA,
as that term is defined in note 6 to the Summary Consolidated Financial Data, of
$458.5 and $266.1 million and $81.1 and $10.9 million, respectively. During the
same periods, the revenue and Adjusted EBITDA for the wire harness business was
$170.4 and $148.4 million and $29 and $22.7 million, respectively.
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.
4
<PAGE> 8
THE OFFERING
Common stock offered....... shares(1)
Common stock offered in
United States offering... shares
International offering... shares
Common stock to be
outstanding after this
offering................. shares(1)(2)
Over-allotment option...... shares
Use of proceeds............ We intend to use the estimated net proceeds of
$ million from the offering to fund the
acquisition of the wire harness business and to
repay a portion of our outstanding indebtedness.
See "Use of Proceeds."
Proposed [New York Stock
Exchange] [Nasdaq
National Market]
symbol...................
- ------------
(1) Excludes up to shares that may be sold by us if the underwriters
exercise their over-allotment option.
(2) Excludes shares of common stock that are issuable upon the exercise of
our outstanding stock options, shares of common stock that are issuable
upon the exercise of our outstanding warrants and shares of common
stock that are issuable upon the conversion of our outstanding class A
common stock and class A series II common stock.
5
<PAGE> 9
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 and unaudited financial statements for the periods
indicated. In the opinion of management, the unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair and accurate presentation of the data.
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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ----------------------
1997(1) 1998(2) 1998(2) 1999(3)
--------- ---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $795,289 $1,031,928 $767,307 $790,481
--------- ---------- --------- ---------
Cost of goods sold....................... 554,097 723,741 552,357 590,754
Selling, general and administrative
expenses.............................. 75,650 106,749 81,655 78,052
Depreciation and amortization............ 110,037 166,606 109,152 120,807
Write-off of acquired in-process research
and development(4).................... 294,500 20,100 20,100 17,600
--------- ---------- --------- ---------
Operating income (loss)............... (238,995) 14,732 4,043 (16,732)
--------- ---------- --------- ---------
Interest expense, net.................... 64,612 92,535 68,273 79,972
Amortization of deferred financing
costs................................. 6,629 9,354 6,789 4,741
Other expense............................ 1,024 4,960 2,659 3,730
--------- ---------- --------- ---------
Loss before income taxes, cumulative
effect of a change in accounting
principle and extraordinary item.... (311,260) (92,117) (73,678) (105,175)
Provision (benefit) from income taxes.... 8,432 (7,334) (13,094) (28,850)
Loss before cumulative effect of
change in accounting principle and
extraordinary item.................. (319,692) (84,783) (60,584) (76,325)
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) $ (84,783) $ (60,584) $ (93,267)
========= ========== ========= =========
Basic net loss per weighted average
common share(5)..................... $ $ $ $
========= ========== ========= =========
Basic weighted average common
shares(5)...........................
Diluted net loss per weighted average
common share(5)..................... $ $ $ $
========= ========== ========= =========
Diluted weighted average common
shares(5)...........................
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ----------------------
1997(1) 1998(2) 1998(2) 1999(3)
--------- ---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA(6)....................... $ 165,542 $ 201,438 $ 133,295 $ 121,675
Adjusted EBITDA margin(7)................ 20.8% 19.5% 17.4% 15.4%
Capital expenditures..................... $ 117,163 $ 130,361 $ 86,416 $ 77,388
Net cash from operating activities....... 104,906 (43,835) (26,572) (3,539)
Net cash from investing activities....... (273,067) (276,026) (231,880) (391,331)
Net cash from financing activities....... 184,077 303,530 238,788 404,936
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 27,538 $ 9,335 $ 10,386 $ 18,622
Working capital.......................... 16,659 19,538 19,235 109,488
Total assets............................. 1,068,912 1,454,703 1,442,402 1,792,432
Total debt, including current
maturities............................ 847,375 1,134,495 1,065,619 1,348,959
Stockholders' deficit.................... (92,193) (113,486) (75,631) (23,824)
</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 PLC
(Forward) and Interconnection Systems (Holdings) Limited (ISL) since the
dates of acquisition in April 1997. See note 1 to our consolidated financial
statements included elsewhere herein.
(2) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1998, and our historical unaudited interim financial
statements for the nine months ended September 30, 1998, and include the
results of the PCB production facility of Ericsson Telecom AB (Viasystems
Sweden), Mommers Print Service B.V. (Mommers) and Zincocelere S.p.A.
(Zincocelere) since the dates of acquisition in the first quarter of 1998.
See note 1 to our consolidated financial statements included elsewhere
herein.
(3) Amounts are derived from our historical unaudited interim financial
statements for the nine months ended September 30, 1999, and include the
results of the PCB manufacturing division of Termbray Industries
International (Holdings) Limited (Kalex) since the date of acquisition in
August 1999 and PAGG Corporation (PAGG) since the date of acquisition in
April 1999. See note 1 to our consolidated financial statements included
elsewhere herein.
(4) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the purchase accounting for the
Forward and ISL acquisitions 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
included elsewhere herein.
(5) 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 of the calculation of basic and diluted loss per share, refer to
note 21 of our consolidated financial statements.
(6) Adjusted EBITDA is defined as operating income (loss) plus depreciation,
amortization and the non-cash charge relating to the write-off of acquired
in-process research and development. We believe that Adjusted EBITDA
enhances an understanding of our financial condition, results of operations
and cash
7
<PAGE> 11
flows by providing additional information for determining our ability to
meet debt service requirements. Adjusted EBITDA does not represent and
should not be considered as an alternative to operating income, net income
or cash flow from operations as determined by GAAP. Adjusted EBITDA is not
indicative of operating performance and does not necessarily indicate
whether cash flow will be sufficient for cash requirements. Items excluded
from the calculation of Adjusted EBITDA are significant components in
understanding and assessing our financial performance. For example, the
calculation of Adjusted EBITDA does not include our commitments for capital
expenditures and payment of debt and should not be deemed to represent funds
available to us. Adjusted EBITDA, as presented, may not be comparable to
similarly-titled measures of other companies.
(7) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales
expressed as a percentage.
8
<PAGE> 12
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data for the
fiscal year ended December 31, 1998 and the nine months ended September 30, 1999
giving effect to (1) the acquisitions we completed in 1998 and in the first nine
months of 1999, referred to as the completed acquisitions, together with the
transactions described under the heading "The Transactions" contained elsewhere
in this prospectus, and (2) the offering, including the application of the net
proceeds therefrom, in each case as if such transactions had occurred at January
1, 1998 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 September 30, 1999 gives effect to (1) the transactions
described under the heading "The Transactions" contained elsewhere in this
prospectus, and (2) the offering, including the application of the net proceeds
therefrom, in each case, as if such 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
---------------------------- ----------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1999 1998 1999
------------ ------------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $956,655 $769,973 $956,655 $769,973
Cost of goods sold........................... 660,075 544,209 660,075 544,209
Selling, general and administrative
expenses.................................. 100,863 68,295 100,863 68,295
Depreciation and amortization................ 119,663 91,200 119,663 91,200
Write-off of acquired in-process research and
development(1)............................ 5,300 17,600 5,300 17,600
---------- ---------- -------- --------
Operating income.......................... 70,754 48,669 70,754 48,669
---------- ---------- -------- --------
Interest expense, net........................ 125,138 97,745
Amortization of deferred financing costs..... 7,702 4,621
Other expense (income)....................... 1,100 25 1,100 25
---------- ---------- -------- --------
Loss before income taxes and cumulative
effect of a change in accounting
principle............................... (63,186) (53,722)
Benefit from income taxes.................... (17,651) (35,831)
---------- ---------- -------- --------
Loss before cumulative effect of a change
in accounting principle................. (45,535) (17,891)
Cumulative effect -- write-off of start-up
costs, net of income tax benefit of
$5,647.................................... -- 16,942
---------- ---------- -------- --------
Net loss.................................. $ (45,535) $ (34,833) $ $
========== ========== ======== ========
Basic net loss per weighted average common
share(2)................................ $ $
======== ========
Basic weighted average common shares(2)...
Diluted net loss per weighted average
common share(2)......................... $ $
======== ========
Diluted weighted average common
shares(2)...............................
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPLETED ACQUISITIONS,
COMPLETED ACQUISITIONS THE TRANSACTIONS AND
AND THE TRANSACTIONS THE OFFERING
----------------------- -----------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
----------------------- -----------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 14,172 $14,172
Working capital.................................... 141,845
Total assets....................................... 1,487,839
Total debt, including current maturities........... 1,526,447
Stockholders' deficit.............................. (357,566)
</TABLE>
- ------------
(1) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the purchase accounting for the
Mommers acquisition 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
included elsewhere herein.
(2) 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 (assuming an initial public offering price of
$ per share). The shares used in the computation of net loss per share
also include shares being sold pursuant to 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 21 of our consolidated financial
statements.
10
<PAGE> 14
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 CUSTOMER ORDERS
Our operating results may vary significantly for a variety of reasons,
including:
- timing of orders from and shipments to major customers;
- our capacity relative to the volume of orders;
- expenditures in anticipation of future sales;
- pricing pressures;
- variations in product mix;
- expenditures or write-offs related to acquisitions;
- start-up expenses relating to new manufacturing facilities; and
- overall economic conditions in the electronics industry.
Many of these factors are outside of our control. 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 35%, General
Electric (GE) accounted for approximately 10% and 9% and our five largest
customers as a group accounted for approximately 60% and 56% of our net sales
for the calendar year 1998 and the nine months ended September 30, 1999,
respectively. 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, in part because of the
five-year supply agreement that we entered into with them in November 1996,
which is renewable in certain circumstances for two additional one-year terms.
Additionally, GE will continue to be one of our largest customers as a result of
the supply agreement that we entered into with them, which expires December 31,
2006. The loss of, or significant curtailment of purchases by, Lucent
Technologies or GE or one or more of these other customers could have a material
adverse effect on us.
WE RELY HEAVILY ON AND WILL BE AFFECTED BY THE TELECOMMUNICATIONS AND NETWORKING
INDUSTRIES
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 business, financial condition and results
of operations.
11
<PAGE> 15
OUR BUSINESS MAY BE HARMED IF WE FAIL TO EFFECTIVELY COMPETE
The EMS industry is highly fragmented and characterized by intense
competition. Certain of our competitors have substantially greater financial and
manufacturing resources than we have. As a participant in the EMS industry, we
compete on the basis of product quality, responsiveness to customers,
manufacturing and engineering technology and price. During periods of recession
in the EMS industry, our competitive advantages may be of reduced importance.
THE EMS INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE
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 EMS 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.
IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS
MAY BE HARMED
We have grown rapidly in recent periods, and this growth may be difficult
to sustain. Internal growth and further expansion of our value-added EMS
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 EMS 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;
- 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.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
Our growth strategy includes acquiring complementary businesses. There is
substantial competition for attractive acquisition candidates. 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;
12
<PAGE> 16
- 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 EMS services and, in certain circumstances, we
may be required to bear the risk of component price fluctuations. In addition,
shortages of certain types 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
After the consummation of the Transactions and the application of net
proceeds that we receive, we will continue to have substantial indebtedness and
leverage. As of September 30, 1999, after giving effect to the foregoing:
- our total debt outstanding would have been approximately $ million;
- our interest expense would have been approximately $ million for the
nine months ended September 30, 1999 and $ million for the year ended
December 31, 1998; and
- our total stockholders' equity would have been approximately $
million.
Upon completion of the Transactions and the offering, we expect to have
approximately $ million available for future borrowings under 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.
13
<PAGE> 17
A SIGNIFICANT PORTION OF OUR BUSINESS IS CONDUCTED IN FOREIGN COUNTRIES,
EXPOSING US TO ADDITIONAL RISK
A significant portion of our operations is conducted in foreign countries
and is subject to risks that are inherent in operating abroad, including:
- currency fluctuations and restrictions;
- inflation or changes in political and economic conditions;
- governmental regulation;
- changes in import duties;
- trade restrictions;
- work stoppages; and
- other restraints and burdensome taxes.
Net sales outside the United States during fiscal 1998 and the nine months
ended September 30, 1999 were approximately $543.5 million and $475 million, or
56.8% and 60.1% of net sales, respectively.
WE ARE SUBJECT TO RISKS OF CURRENCY FLUCTUATIONS
A significant portion of our business is conducted in the Euro. In
addition, some of our costs, such as payroll and rent, are denominated in
currencies such as 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. 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
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 such 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 such 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 such sites become
contaminated. Such 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 such liability may
be joint and several with other parties. If the liability is joint and several,
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.
14
<PAGE> 18
SOME OF OUR EMPLOYEES ARE UNIONIZED
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.
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 take various actions, such as incurring additional debt, paying
dividends, repurchasing junior debt, making investments, entering into certain
transactions with affiliates, merging or consolidating with other entities and
selling 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 would allow our lenders to
declare all amounts outstanding under such indebtedness immediately due and
payable. In such an event, 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
Following the offering, approximately % of our common stock will continue
to be controlled by affiliates of Hicks, Muse, Tate & Furst Incorporated,
referred to as Hicks Muse. As a result, Hicks Muse will continue to have
substantial influence on the election of our board of directors, the approval or
disapproval of other matters requiring stockholder approval, and the direction
of our management and policies.
WE MAY SUFFER YEAR 2000 RELATED FAILURES
Many software applications, embedded computer chips and computer equipment
have been designed to determine the year based upon only the last two digits.
Accordingly, some of these systems may mistake the year 2000 for the year 1900,
resulting in miscalculations and potential system failures. We cannot be certain
that our efforts to address the Year 2000 issue have been appropriate, adequate
or complete. We also depend on software and services from third parties that may
have failed to adequately address their Year 2000 issues and, accordingly, cause
our production, shipment and financial operations to be materially impaired.
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
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some 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
15
<PAGE> 19
our existing stockholders have agreed to enter into with the underwriters. With
some 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 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, shares
will be eligible for sale in the public market under Rule 144, subject to
applicable volume and manner of sale limitations imposed by Rule 144.
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 will control approximately
% 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.
16
<PAGE> 20
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, in addition to those
discussed elsewhere in this prospectus, 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 risks associated with Year
2000 systems failures.
17
<PAGE> 21
THE TRANSACTIONS
In connection with this offering, we will complete the following
transactions, referred to herein as 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 (collectively, the "Transferred Operations") to
our existing stockholders. The Transferred Operations consist primarily of the
operations formerly conducted by Interconnection Systems (Holdings) Limited
("ISL"), the Forward Group PLC ("Forward"), Zincocelere S.p.A. ("Zincocelere")
and Viasystems Sweden AB ("Viasystems Sweden"). The Transferred Operations are
being transferred because:
- they do not provide value-added assembly services;
- they do not produce complex higher technology products; and
- they supply products to EMS providers.
The Transferred Operations will focus on the European market for quick-turn and
low-layer count printed circuit board fabrication. In consideration for the
Transferred Operations, we will receive a note payable to us in the aggregate
principal amount of $150 million.
The Transferred Operations are expected to enter into:
- a transition services agreement with us, whereby we will provide certain
administrative and financial services for the Transferred Operations for
a limited period of time; and
- a service and supply agreement, whereby the Transferred Operations will
continue to provide various manufacturing services to us from their
facilities at North Tyneside in the United Kingdom and Norrkoping,
Sweden, together with an option for us to purchase certain assets.
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.
(the "Wire Harness Acquisition"), a wholly-owned subsidiary of International
Wire Group, Inc. ("International Wire"), through which it conducts its business
of manufacturing and assembling wire harness products. A wire harness is an
assembly 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 allows us to increase our
vertical integration. 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 EMS suppliers. In
addition, our vertical integration provides us with greater control over
quality, delivery and costs, and enables us to offer our customers a complete
EMS solution.
Following the completion 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 Wire Harness Acquisition 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.
Each of the boards of directors of Viasystems and International Wire are
expected to receive opinions of nationally recognized financial advisors that
the purchase price for the wire harness business is fair, from a financial point
of view, to each of the respective parties.
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds to Viasystems from this offering are estimated to be
approximately $ million (approximately $ 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
million purchase price of the wire harness business and to repay approximately
$ million in borrowings outstanding under our senior credit facilities.
On September 30, 1999, the weighted average annual interest rate applicable
to our existing senior credit facility was approximately 9.2%. The outstanding
indebtedness under our existing senior credit facility was used in part to fund
the acquisition of the printed circuit board manufacturing business ("Kalex") of
Termbray Industries International (Holdings) Limited in August 1999. 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 current 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, for $210 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.
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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<PAGE> 23
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 September 30, 1999, we had a pro forma tangible book value
(deficit) of $( ) or $( ) per share after giving effect to the for 1
reverse stock split, the assumed issuance of shares of common stock
upon conversion of outstanding shares of class A common stock and class A series
II common stock, and the Transactions described elsewhere in this prospectus,
but excluding this offering. Assuming the sale of shares at an initial
public offering price of $ per share and deducting estimated underwriting
discounts and commissions and estimated offering expenses, our pro forma
tangible book value (deficit) as of September 30, 1999 would have been $ or
$ per share. This represents an immediate increase in pro forma net tangible
book value to existing stockholders of $ per share and an immediate dilution
to new investors of $ per share. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value (deficit) per share
before the offering.................................... $ ()
Increase in pro forma net tangible book value per share
resulting from the offering............................
------
Pro forma net tangible book value (deficit) per share after
the offering..............................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, on a pro forma, as adjusted basis as of
September 30, 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.................. % $ % $
New Investors..........................
----------- --- ------- ---
Total........................ % $ % $
=== ======= ===
</TABLE>
As of , 2000, there were outstanding options and warrants to
purchase an additional shares of common stock at exercise prices ranging
from $ to $ per share. To the extent these options or warrants are
exercised, there will be further dilution to new investors.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis; and
- as adjusted to give effect to the Transactions and the offering,
including the application of the net proceeds of the offering, assuming
an initial public offering price of $ per share.
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>
SEPTEMBER 30, 1999
-----------------------------
AS ADJUSTED FOR
THE TRANSACTIONS
ACTUAL AND OFFERING
---------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
Existing credit facility.................................. $ 517,988 $ --
New credit facility....................................... -- (1)
Loan notes................................................ 285,312
9 3/4% senior subordinated notes(2)....................... 503,952
Other(3).................................................. 41,707
---------- -------
Total long-term debt............................... 1,348,959
---------- -------
Stockholders' equity:
Series B preferred stock, $.01 par value, 6,000,000 shares
authorized, 1,492,049.19 shares issued and outstanding,
aggregate liquidation value $37,301(4).................. 15 15
Common stock, $.01 par value, shares authorized,
shares issued and outstanding (actual)(5),
shares issued and outstanding (as
adjusted)(5)(6).........................................
Class A common stock, $.01 par value, shares
authorized, shares issued and outstanding(6)...
Class A series II common stock, $.01 par value,
shares authorized, shares issued and
outstanding(6)..........................................
Additional paid-in capital................................ (7)
Accumulated deficit....................................... (564,442) (8)
Treasury stock............................................ (122)
Accumulated other comprehensive income.................... (8,024)
---------- -------
Total stockholders' equity (deficit)............... (23,824)
---------- -------
Total capitalization............................. $1,325,135 $
========== =======
</TABLE>
- ------------
(1) The new senior credit facility is expected to provide for revolving
borrowings of up to $ million. As of September 30, 1999, on a pro forma
basis after giving effect to the Transactions and the offering and the use
of net proceeds therefrom, we would have had $ million of available
revolving borrowings under the new senior credit facility.
(2) Includes unamortized premium of $3,952.
(3) Includes $12,139 of capital lease obligations.
(4) Does not include 9,947 shares, $249 liquidation preference, issuable to
holders of series B preferred stock for the period from August 31, 1999 to
September 30, 1999.
(5) Does not include (i) shares of common stock issuable upon exercise of
outstanding stock options, (ii) shares of common stock issuable upon
exercise of outstanding warrants and (iii) shares of common stock
issuable upon the conversion of outstanding shares of class A common stock
and class A series II common stock, based upon an initial public offering
price of $ per share.
(6) Assumes that no shares of class A common stock and class A series II common
stock are converted into shares of common stock in connection with the
offering.
(7) Reflects an adjustment of $43,004 related to the Transferred Operations and
a compensation charge of $ related to performance options which will be
amended and become exercisable in connection with the offering.
(8) Reflects the write-off of (i) deferred financing costs previously
capitalized of $ (net of income tax benefit of $ ), (ii) the net
adjustment of $154,442 related to the Wire Harness Acquisition and (iii) a
compensation charge of $ related to performance options which will be
amended and become exercisable in connection with the offering.
21
<PAGE> 25
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") is based on our condensed consolidated financial
statements, the condensed financial statements of 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 and 1998. The unaudited pro forma
balance sheet as of September 30, 1999 gives effect to the Transactions and the
consummation of the offering, as though each such transaction had occurred on
September 30, 1999. The unaudited pro forma statement of operations for the year
ended December 31, 1997 gives effect to the Wire Harness Acquisition as though
the acquisition had occurred at January 1, 1997. The unaudited pro forma
statement of operations for the year ended December 31, 1998 gives effect to the
acquisition of Mommers Print Service B.V. (the "1998 Acquisition"), the
acquisitions of PAGG Corporation ("PAGG") and Kalex (collectively, the "1999
Acquisitions"), the Transactions and the consummation of the offering as though
each such transaction had occurred at January 1, 1998. The unaudited pro forma
statement of operations for the nine months ended September 30, 1999, gives
effect to the 1999 Acquisitions, the Transactions and the consummation of the
offering, as though each such transaction had occurred at January 1, 1998.
The pro forma financial information gives effect to pro forma adjustments
that are based upon available information and certain assumptions that we
believe are reasonable. The Wire Harness Acquisition 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 Transferred Operations 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 such transactions been completed
as of the assumed dates and for the periods presented or that may be obtained in
the future.
22
<PAGE> 26
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
WIRE HARNESS "AS IF POOLED" "AS IF 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................. $ 18,662 $ 339 $ -- $ 19,001 $ (4,829) $ --
Accounts
receivable......... 262,425 14,858 -- 277,283 (78,410) --
Inventories.......... 132,261 17,773 -- 150,034 (42,447) --
Prepaid expenses &
other.............. 38,657 3,613 -- 42,270 (7,296) --
---------- -------- --------- ---------- --------- --------
Total current
assets....... 452,005 36,583 -- 488,588 (132,982) --
Property, plant &
equipment, net....... 680,098 19,448 -- 699,546 (220,416) --
Deferred financing
costs, net........... 43,762 3,507 (3,507)(3) 43,762 (1,172) --
Intangible assets,
net.................. 550,993 41,672 -- 592,665 (50,065) --
Other assets........... 65,574 6,592 (2,700)(3) 69,466 (1,553) --
---------- -------- --------- ---------- --------- --------
Total assets... $1,792,432 $107,802 $ (6,207) $1,894,027 $(406,188) $ --
========== ======== ========= ========== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of
long-term
obligations........ $ 25,214 $ 59 $ (59)(3) $ 25,214 $ (16,197) $ --
Accounts payable..... 157,480 10,933 (200)(3) 168,213 (74,474) --
Accrued and other
liabilities........ 138,447 12,228 (1,060)(3) 149,615 (36,552) --
Income taxes
payable............ 21,376 218 -- 21,594 (23,652) --
---------- -------- --------- ---------- --------- --------
Total current
liabilities... 342,517 23,438 (1,319) 364,636 (150,875) --
Deferred taxes......... 75,291 6,553 -- 81,844 (10,692) --
Long-term obligations,
less current
maturities........... 1,323,745 300 209,700(4) 1,533,745 (16,315) --
Other noncurrent
liabilities.......... 74,703 -- -- 74,703 (31,641) --
Intercompany........... -- 60,166 (60,166)(3) -- (43,004) 43,004(7)
Stockholders' equity
(deficit)............ (23,824) 17,345 (154,422)(5) (160,901) (153,661) (43,004)(8)
---------- -------- --------- ---------- --------- --------
Total
liabilities
and
stockholders'
equity
(deficit).... $1,792,432 $107,802 $ (6,207) $1,894,027 $(406,188) $ --
========== ======== ========= ========== ========= ========
<CAPTION>
COMPANY
PRO FORMA PRO FORMA
FOR THE ADJUSTMENTS COMPANY
TRANSFERRED FOR THE PRO FORMA,
OPERATIONS OFFERING AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash................. $ 14,172 $ -- $ 14,172
Accounts
receivable......... 198,873 -- 198,873
Inventories.......... 107,587 -- 107,587
Prepaid expenses &
other.............. 34,974 -- 34,974
---------- ------- ----------
Total current
assets....... 355,606 -- 355,606
Property, plant &
equipment, net....... 479,130 -- 479,130
Deferred financing
costs, net........... 42,590 (9)
Intangible assets,
net.................. 542,600 -- 542,600
Other assets........... 67,913 -- 67,913
---------- ------- ----------
Total assets... $1,487,839 $ -- $
========== ======= ==========
Current liabilities:
Current maturities of
long-term
obligations........ $ 9,017 $ (10) $
Accounts payable..... 93,739 -- 93,739
Accrued and other
liabilities........ 113,063 -- 113,063
Income taxes
payable............ (2,058) -- (2,058)
---------- ------- ----------
Total current
liabilities... 213,761 --
Deferred taxes......... 71,152 -- 71,152
Long-term obligations,
less current
maturities........... 1,517,430 (11)
Other noncurrent
liabilities.......... 43,062 -- 43,062
Intercompany........... -- -- --
Stockholders' equity
(deficit)............ (357,566) (12)
---------- ------- ----------
Total
liabilities
and
stockholders'
equity
(deficit).... $1,487,839 $ -- $
========== ======= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Balance Sheet.
23
<PAGE> 27
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
(1) The detail of the historical financial data as of September 30, 1999 has
been obtained from the unaudited historical financial statement of the wire
harness business.
(2) The Wire Harness Acquisition 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 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
Repayment of historical debt of wire harness business...... (300)
--------
$209,700
========
</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 Transferred Operations to a new entity formed by our
existing stockholders. The financial information related to the Transferred
Operations has been derived from the unaudited historical financial
statements of the Transferred Operations as of September 30, 1999.
Viasystems will receive a $150,000 note for the Transferred Operations. For
financial reporting purposes, the note will be deducted from stockholders'
equity.
(7) Reflects the elimination of intercompany balances related to the
Transferred Operations.
(8) Adjustment reflects the effect on equity of intercompany balance not
transferred.
(9) Reflects the write-off of $ of previously capitalized deferred
financing costs related to the prior credit agreement, net of the
capitalization or $ of deferred financing costs related to the new
credit agreement and the offering.
(10) Reflects the repayment of current maturities of indebtedness under the
existing credit agreement.
(11) Reflects the repayment of long-term maturities of indebtedness under the
existing credit agreement.
(12) Reflects the following:
<TABLE>
<S> <C>
(a) The estimated net proceeds of the offering.............. $
(b) Write-off of deferred financing costs previously
capitalized (net of income tax benefit of $ ).......
(c) Fees and expenses relating to the refinancing of the
existing credit facility..................................
-------
$
=======
</TABLE>
Additionally, accumulated deficit and additional paid in capital will be
increased as a result of a charge related to performance options which will
be amended in connection with the offering and become exercisable.
24
<PAGE> 28
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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..................... $ 790,481 $148,440 -- $ 938,921 $(266,089) $97,141
Costs of goods sold........... 590,754 107,392 -- 698,146 (216,205) 62,268
Selling, general and
administrative expenses...... 78,052 18,318 1,000(3) 97,370 (38,968) 9,893
Depreciation and
amortization................. 120,807 6,609 -- 127,416 (62,996) 8,195
Write-off of acquired
in-process research and
development.................. 17,600 -- -- 17,600 -- --
--------- -------- ------- --------- --------- -------
Operating income (loss)....... (16,732) 16,121 (1,000) (1,611) 52,080 16,785
Interest expense, net......... 79,972 5,886 9,077(4) 94,935 (6,568) 1,555
Amortization of deferred
financing costs.............. 4,741 546 (546)(5) 4,741 (120) --
Other expense (income)........ 3,730 -- -- 3,730 (1,133) (2,572)
--------- -------- ------- --------- --------- -------
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle.................... (105,175) 9,689 (9,531) (105,017) 59,901 17,802
Provision (benefit) for income
taxes........................ (28,850) 3,876 (3,812)(6) (28,786) (6,174) 2,347
--------- -------- ------- --------- --------- -------
Income (loss) before
cumulative effect of a change
in accounting principle...... $ (76,325) $ 5,813 $(5,719) $ (76,231) $ 66,075 $15,455
========= ======== ======= ========= ========= =======
Basic net loss per weighted
average common share before
cumulative effect of a change
in accounting
principle(16)................ $
=========
Basic weighted average common
shares(16)...................
Diluted net loss per weighted
average common share before
cumulative effect of a change
in accounting
principle(16)................ $
=========
Diluted weighted average
common shares(16)............
<CAPTION>
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
FOR THE FOR 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..................... -- $769,973 -- $769,973
Costs of goods sold........... -- 544,209 -- 544,209
Selling, general and
administrative expenses...... -- 68,295 -- 68,295
Depreciation and
amortization................. 18,585(9) 91,200 -- 91,200
Write-off of acquired
in-process research and
development.................. -- 17,600 -- 17,600
-------- -------- -------- --------
Operating income (loss)....... (18,585) 48,669 -- 48,669
Interest expense, net......... 7,823(10) 97,745 (13)
Amortization of deferred
financing costs.............. -- 4,621 (14)
Other expense (income)........ -- 25 -- 25
-------- -------- -------- --------
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle.................... (26,408) (53,722) --
Provision (benefit) for income
taxes........................ (3,218)(11) (35,831) (15)
-------- -------- -------- --------
Income (loss) before
cumulative effect of a change
in accounting principle...... $(23,190) $(17,891) $ -- $
======== ======== ======== ========
Basic net loss per weighted
average common share before
cumulative effect of a change
in accounting
principle(16)................ $ $
======== ========
Basic weighted average common
shares(16)...................
Diluted net loss per weighted
average common share before
cumulative effect of a change
in accounting
principle(16)................ $ $
======== ========
Diluted weighted average
common shares(16)............
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
25
<PAGE> 29
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(1) The detail of the historical financial data during the nine months ended
September 30, 1999 has been obtained from the unaudited historical financial
statement of the wire harness business.
(2) The Wire Harness Acquisition 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) Reflects estimated payment of direct acquisition costs in connection with
the Wire Harness Acquisition.
(4) Reflects the impact on interest expense of the additional borrowings as if
the Wire Harness Acquisition had been consummated as of the beginning of the
period calculated as follows:
<TABLE>
<S> <C>
Borrowings -- $210,000 at 9.5%.............................. $14,963
Elimination of historical interest of the wire harness
business.................................................. (5,886)
-------
$ 9,077
=======
</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 Transferred Operations to a new entity formed by our
existing stockholders. The financial information related to the Transferred
Operations has been derived from the unaudited historical financial
statements of the Transferred Operations for the nine months ended September
30, 1999. Viasystems will receive a $150,000 note for the Transferred
Operations. For financial reporting purposes, the note will be deducted from
stockholders' equity.
(8) The detail of the historical financial data from the 1999 Acquisitions for
the pre-acquisition periods during the nine months ended September 30, 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 7,756 8,195
------- ------- -------
Operating income (loss)................................. (973) 17,758 16,785
Interest expense, net................................... 256 1,299 1,555
Other expense (income).................................. 32 (2,604) (2,572)
------- ------- -------
Income (loss) before income taxes and cumulative effect
of a change in accounting principle................... (1,261) 19,063 17,802
Provision (benefit) for income taxes.................... (161) 2,508 2,347
------- ------- -------
Income (loss) before cumulative effect of a change in
accounting principle.................................. $(1,100) $16,555 $15,455
======= ======= =======
</TABLE>
(a) Amounts reflect the historical unaudited results of PAGG 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.
26
<PAGE> 30
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(9) Adjustment reflects the effect of the amortization of acquired intangibles
and goodwill related to the 1999 Acquisitions. 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 1999 Acquisitions and the Transactions 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 1999 Acquisitions..... (1,555)
--------
$ 7,823
========
</TABLE>
(11) Reflects the tax effect of adjustments (9) and (10) above.
(12) The pro forma income statement data does not reflect a noncash
extraordinary charge of approximately $ (net of income tax
benefit of $ ) for the write-off of previously capitalized debt
issuance costs and a compensation charge for performance options
outstanding which will be amended and become exercisable in connection with
the offering.
(13) Reflects the impact on interest due to the paydown of senior indebtedness
of $ at an assumed average interest rate of %.
(14) Adjustment reflects $ related to the amortization of deferred
financing costs associated with the refinancing of the existing senior
credit facility net of the elimination of $ of historical
amortization of deferred financing fees associated with the existing credit
facility.
(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 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 (assuming an initial public
offering price of $ per share on a pro forma basis). The shares used in
the computation of net loss per share also include shares being sold
pursuant to the offering that would be required to retire the debt and fund
the Wire Harness Acquisition 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 21 of our consolidated financial statements.
27
<PAGE> 31
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>
1998 AND
WIRE HARNESS "AS IF POOLED" "AS IF POOLED" 1999
COMPANY BUSINESS PRO FORMA COMPANY TRANSFERRED ACQUISITIONS
HISTORICAL HISTORICAL(1) ADJUSTMENTS(2) HISTORICAL OPERATIONS(6) HISTORICAL(7)
---------- ------------- ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $1,031,928 $170,393 $ -- $1,202,321 $(458,449) $212,783
Costs of goods sold.......... 723,741 119,144 -- 842,885 (328,499) 145,689
Selling, general and
administrative expenses..... 106,749 22,248 -- 128,997 (48,896) 20,762
Depreciation and
amortization................ 166,606 7,589 -- 174,195 (100,396) 12,431
Write-off of acquired
in-process research and
development................. 20,100 -- -- 20,100 (14,800) --
---------- -------- -------- ---------- --------- --------
Operating income (loss)...... 14,732 21,412 -- 36,144 34,142 33,901
Interest expense, net........ 92,535 8,510 11,440(3) 112,485 (4,398) 2,934
Amortization of deferred
financing costs............. 9,354 689 (689)(4) 9,354 (1,652) --
Other expense (income)....... 4,960 4 -- 4,964 (1,300) (2,564)
---------- -------- -------- ---------- --------- --------
Income (loss) before income
taxes....................... (92,117) 12,209 (10,751) (90,659) 41,492 33,531
Provision (benefit) for
income taxes................ (7,334) 4,884 (4,300)(5) (6,750) (7,784) 3,312
---------- -------- -------- ---------- --------- --------
Net income (loss)............ $ (84,783) $ 7,325 $ (6,451) $ (83,909) $ 49,276 $ 30,219
========== ======== ======== ========== ========= ========
Basic net loss per weighted
average common share(15).... $
==========
Basic weighted average common
shares(15)..................
Diluted net loss per weighted
average common share(15).... $
==========
Diluted weighted average
common shares(15)...........
<CAPTION>
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
TRANSFERRED TRANSFERRED
OPERATIONS OPERATIONS PRO FORMA
AND THE 1998 AND 1998 ADJUSTMENTS COMPANY
AND 1999 AND 1999 FOR THE PRO FORMA,
ACQUISITIONS ACQUISITIONS OFFERING(11) AS ADJUSTED
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................... $ -- $956,655 $ -- $956,655
Costs of goods sold.......... -- 660,075 -- 660,075
Selling, general and
administrative expenses..... -- 100,863 -- 100,863
Depreciation and
amortization................ 33,433(8) 119,663 -- 119,663
Write-off of acquired
in-process research and
development................. -- 5,300 -- 5,300
-------- -------- -------- --------
Operating income (loss)...... (33,433) 70,754 -- 70,754
Interest expense, net........ 14,117(9) 125,138 (12)
Amortization of deferred
financing costs............. -- 7,702 (13)
Other expense (income)....... -- 1,100 -- 1,100
-------- -------- -------- --------
Income (loss) before income
taxes....................... (47,550) (63,186)
Provision (benefit) for
income taxes................ (6,429)(10) (17,651) (14)
-------- -------- -------- --------
Net income (loss)............ $(41,121) $(45,535) $ $
======== ======== ======== ========
Basic net loss per weighted
average common share(15).... $ $
======== ========
Basic weighted average common
shares(15)..................
Diluted net loss per weighted
average common share(15).... $ $
======== ========
Diluted weighted average
common shares(15)...........
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
28
<PAGE> 32
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(1) The detail of the historical financial data as for the year ending December
31, 1998 has been obtained from the unaudited historical financial
statement of the wire harness business.
(2) The Wire Harness Acquisition 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) Reflects the impact on interest expense of the additional borrowings as if
the Wire Harness Acquisition 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.............................................. (8,510)
-------
$11,440
=======
</TABLE>
(4) Reflects the elimination of historical amortization of deferred financing
costs.
(5) Adjustment reflects the tax effect of adjustments (3) and (4) above.
(6) Concurrently with the completion of the offering, we will complete a
transfer of the Transferred Operations to a new entity formed by our
existing stockholders. The financial information related to the Transferred
Operations has been derived from the unaudited historical financial
statements of the Transferred Operations for the year ended December 31,
1998. Viasystems will receive a $150,000 note for the Transferred
Operations. For financial reporting purposes, the note will be deducted
from stockholders' equity.
(7) The detail of the historical financial data from the 1998 and 1999
Acquisitions for the pre-acquisition period during the year ended December
31, 1998 has been obtained from the unaudited historical financial
statements of the respective companies detailed below:
<TABLE>
<CAPTION>
1998 and
1999
Mommers PAGG Kalex Acquisitions
Historical(a) Historical(b) Historical(c) Historical
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................. $10,278 $29,401 $173,104 $212,783
Costs of goods sold........................ 9,729 25,398 110,562 145,689
Selling, general and administrative
expenses................................. 1,393 2,648 16,721 20,762
Depreciation and amortization.............. 1,067 907 10,457 12,431
------- ------- -------- --------
Operating income (loss).................... (1,911) 448 35,364 33,901
Interest expense, net...................... -- 585 2,349 2,934
Other expense (income)..................... -- (35) (2,529) (2,564)
------- ------- -------- --------
Income (loss) before income taxes.......... (1,911) (102) 35,544 33,531
Provision (benefit) for income taxes....... (669) 8 3,973 3,312
------- ------- -------- --------
Net loss................................... $(1,242) $ (110) $ 31,571 $ 30,219
======= ======= ======== ========
</TABLE>
(a) Amounts reflect the historical unaudited results of Mommers for the
period prior to its acquisition by Viasystems for the year ended
December 31, 1998. The financial information for Mommers was translated
from local currency to United States dollars at a rate of NGL 2.064 =
US$1.00, the average exchange rate in effect for the respective period.
(b) Amounts reflect the historical unaudited results of PAGG for the year
ending December 31, 1998.
(c) Amounts reflect the historical audited results of Kalex for the year
ending March 31, 1999. The financial information of Kalex was translated
from local currency to United States dollars at a rate of
HK$7.7479 = US$1.00 the average exchange rate in effect for the
respective period.
29
<PAGE> 33
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(8) Adjustment reflects the effect of the amortization of acquired intangibles
and goodwill related to the 1998 and 1999 Acquisitions. Amortization
related to the 1998 and 1999 Acquisitions is computed using systematic
methods over the estimated useful lives ranging from 1-20 years.
(9) Reflects the net impact to interest expense of the following borrowings as
if the 1998 and 1999 Acquisitions and the Transactions had been consummated
as of the beginning of the period.
<TABLE>
<S> <C>
Tranche C Term Loan -- $291,000 at 9.2%..................... $ 26,772
Borrowings related to Mommers Acquisition -- $60,000 at
9.75%..................................................... 975
Interest income of cash collateral account -- $89,900 at
4.5%...................................................... (4,046)
US Revolver -- paydown $70,000 at 8.3%...................... (5,810)
Term Loan -- paydown $10,125 at 8.3%........................ (840)
--------
17,051
Eliminate historical interest of the 1998 and 1999
Acquisitions.............................................. (2,934)
--------
$ 14,117
========
</TABLE>
(10) Reflects the tax effect of adjustments (8) and (9) above.
(11) The pro forma income statement data does not reflect a noncash
extraordinary charge of approximately $ (net of income tax benefit of
$ ) for the write-off of previously capitalized debt issuance costs
and a compensation charge for performance options which will be amended and
become exercisable in connection with the offering.
(12) Reflects the impact on interest due to the paydown of senior indebtedness
of $ at an assumed average interest rate of %.
(13) Adjustment reflects $ related to the amortization of deferred financing
costs associated with the refinancing of the existing senior credit
facility net of the elimination of $ of historical amortization of
deferred financing fees associated with the existing credit facility.
(14) Adjustment reflects the tax effect of adjustments (12) and (13) above.
(15) 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 (assuming an initial public
offering price of $ per share on a pro forma basis). The shares used
in the computation of net loss per share also include shares being sold
pursuant to the offering that would be required to retire the debt and fund
the Wire Harness Acquisition 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 basic and diluted loss per share, refer to
note 21 of our consolidated financial statements.
30
<PAGE> 34
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
WIRE HARNESS "AS IF POOLED" "AS IF POOLED"
COMPANY BUSINESS PRO-FORMA COMPANY
HISTORICAL HISTORICAL(1) ADJUSTMENTS(2) HISTORICAL
---------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales.................................................. $ 795,289 $165,430 -- $ 960,719
Cost of goods sold......................................... 554,097 119,268 -- 673,365
Selling, general and administrative expenses............... 75,650 18,377 -- 94,027
Depreciation and amortization.............................. 110,037 7,437 -- 117,474
Write-off of acquired in-process research and
development.............................................. 294,500 -- -- 294,500
--------- -------- -------- ---------
Operating income (loss).................................... (238,995) 20,348 -- (218,647)
Interest expense, net...................................... 64,612 8,710 11,240(3) 84,562
Amortization of deferred financing costs................... 6,629 710 (710)(4) 6,629
Other expense (income)..................................... 1,024 114 -- 1,138
--------- -------- -------- ---------
Income (loss) before income taxes and extraordinary item... (311,260) 10,814 (10,530) (310,976)
Provision (benefit) for income taxes....................... 8,432 4,326 (4,212)(5) 8,546
--------- -------- -------- ---------
Income (loss) before extraordinary item.................... $(319,692) $ 6,488 $ (6,318) $(319,522)
========= ======== ======== =========
Basic net loss per weighted average common share before
extraordinary item(6).................................... $ $
========= =========
Basic weighted average common shares(6)....................
Diluted net loss per weighted average common share before
extraordinary item(6).................................... $ $
========= =========
Diluted weighted average common shares(6)..................
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
31
<PAGE> 35
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(1) The detail of the historical financial information for the year ended
December 31, 1997 has been obtained from the unaudited 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) Adjustment reflects:
<TABLE>
<S> <C>
Borrowings for Wire Harness Acquisition -- $210,000 at
9.5%........................................................ $19,950
Elimination of historical interest of the wire harness
business.................................................. (8,710)
-------
$11,240
=======
</TABLE>
(4) Reflects elimination of historical amortization of deferred financing fees
related to the wire harness business.
(5) Reflects tax effect of adjustments (3) and (4) above.
(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 (assuming an initial public offering price of
$ per share on a pro forma 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 21 of our consolidated financial statements.
32
<PAGE> 36
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
and 1998 and for the nine months ended September 30, 1998 and 1999 presents
consolidated financial information of Viasystems Group, Inc. and subsidiaries.
The data for the period from inception (August 28, 1996) to December 31, 1997
and 1998 has been derived from our audited consolidated financial statements.
The selected information below for the nine months ended September 30, 1998 and
1999 has been derived from our unaudited consolidated interim financial
statements. Such financial statements reflect all adjustments, consisting only
of normal and recurring adjustments, that management considers necessary for a
fair and accurate presentation of the data. The interim results are not
necessarily indicative of results of operations for the entire year. 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, YEAR ENDED
1996) TO DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------- -------------------------------
1996 1997 1998 1998 1999
-------------- ------------ ------------ -------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $ 50,400 $ 795,289 $ 1,031,928 $ 767,307 $ 790,481
Cost of goods sold........ 42,052 554,097 723,741 552,357 590,754
Selling, general and
administrative
expenses............... 3,844 75,650 106,749 81,655 78,052
Depreciation.............. 4,102 51,884 104,831 59,125 80,678
Amortization of intangible
assets................. 533 58,153 61,775 50,027 40,129
Write-off of acquired in-
process research and
development(1)......... 50,800 294,500 20,100 20,100 17,600
------------ ------------ ------------ ------------ ------------
Operating income (loss)... (50,931) (238,995) 14,732 4,043 (16,732)
Interest expense.......... 2,503 64,612 92,535 68,273 79,972
Amortization of deferred
financing costs........ 470 6,629 9,354 6,789 4,741
Other expense............. 262 1,024 4,960 2,659 3,730
------------ ------------ ------------ ------------ ------------
Loss before income taxes,
cumulative effect of a
change in accounting
principle, and
extraordinary item..... (54,166) (311,260) (92,117) (73,678) (105,175)
Provision (benefit) for
income taxes........... (5,424) 8,432 (7,334) (13,094) (28,850)
------------ ------------ ------------ ------------ ------------
Loss before, cumulative
effect of a change in
accounting principle,
extraordinary
item................... (48,742) (319,692) (84,783) (60,584) (76,325)
Cumulative
effect-write-off of
start-up costs, net of
income tax benefit of
$5,647(2).............. -- -- -- -- 16,942
Extraordinary loss, net of
tax(3)................. -- 7,796 -- -- --
------------ ------------ ------------ ------------ ------------
Net loss.................. $ (48,742) $ (327,488) $ (84,783) $ (60,584) $ (93,267)
============ ============ ============ ============ ============
</TABLE>
33
<PAGE> 37
<TABLE>
<CAPTION>
FROM INCEPTION
(AUGUST 28, YEAR ENDED
1996) TO DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------- -------------------------------
1996 1997 1998 1998 1999
-------------- ------------ ------------ -------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Basic net loss per weighted
average common
share(4).................... $ $ $ $ $
============ ============ ============ ============ ============
Basic weighted average
common shares(4).......
Diluted net loss per
weighted average common
share(4)............... $ $ $ $ $
============ ============ ============ ============ ============
Diluted weighted average
common shares(4).......
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 16,117 $ 27,538 $ 9,335 $ 10,386 $ 18,622
Working capital........... 44,938 16,659 19,538 19,235 109,488
Total assets.............. 387,741 1,068,912 1,454,703 1,442,402 1,792,432
Total debt, including
current maturities..... 265,620 847,375 1,134,495 1,065,619 1,348,959
Stockholders' equity
(deficit).............. 54,973 (92,193) (113,486) (75,631) (23,824)
</TABLE>
- ------------
(1) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the acquisitions of Circo Craft and
the assets of the Interconnection Technologies Unit of the Microelectronics
Group (the "Lucent Division") of Lucent Technologies Inc. ("Lucent
Technologies") in 1996, Forward and ISL in 1997, Mommers Print Service B.V.
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.
(2) 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.
(3) 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 $4,332,
related to deferred financing fees incurred on debt retired before maturity.
(4) Basic net loss per weighted average common share is computed by dividing the
net loss plus the charge for preferred stock dividends and accretion less
the loss attributable to class A common stock and class A series II common
stock by the weighted average common shares outstanding during the period.
Diluted net loss per weighted average common share is computed by dividing
the net loss plus the charge for preferred stock dividends and accretion by
the weighted average common shares outstanding during the period plus the
weighted average class A common stock and class A series II common stock on
an as if converted basis. Options and warrants were excluded from the
diluted calculation because their effect is anti-dilutive. For further
discussion on the calculation of basic and diluted loss per share, refer to
note 21 of our consolidated financial statements.
34
<PAGE> 38
PREDECESSORS
Each of Circo Craft Co. Inc., Viasystems Technologies Corp., Forward Group
PLC and Interconnection Systems (Holdings) Limited are considered predecessors
to Viasystems Group, Inc. and, as such, the following selected financial data is
presented for each predecessor.
CIRCO CRAFT CO. INC.
The selected financial and other data below represents the financial
information of Circo Craft for the periods indicated. The data for the two
fiscal years ended December 31, 1995 and the nine months ended September 30,
1996 (the period prior to the acquisition of Circo Craft by Viasystems), set
forth in Canadian GAAP in Canadian dollars ("C$"), has been derived from the
audited consolidated financial statements of Circo Craft. The consolidated
financial statements of Circo Craft have been prepared in accordance with
Canadian GAAP, which differs in certain significant respects from U.S. GAAP (see
note 7 to the consolidated financial statements of Circo Craft). The data set
forth in U.S. GAAP for the two fiscal years ended December 31, 1995 and the nine
months ended September 30, 1996, has been derived from the audited consolidated
financial statements of Circo Craft and adjusted for differences between
Canadian GAAP and U.S. GAAP. The following information should be read in
conjunction with the audited consolidated statements of earnings, retained
earnings and changes in financial position of Circo Craft and the notes thereto
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition," all included elsewhere herein.
<TABLE>
<CAPTION>
CANADIAN GAAP APPROXIMATE AMOUNTS IN U.S. GAAP
------------------------------------- -------------------------------------
FISCAL YEAR ENDED NINE MONTHS FISCAL YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31, ENDED
--------------------- SEPTEMBER 30, --------------------- SEPTEMBER 30,
1994(1) 1995(1) 1996 1994(1) 1995(1) 1996
--------- --------- ------------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... C$151,825 C$185,156 C$129,633 C$142,840 C$194,140 C$129,633
Cost of goods sold............ 124,929 148,788 101,532 122,513 148,788 101,532
Selling, general and
administrative expenses..... 10,079 11,087 7,969 10,217 10,846 8,072
Depreciation and
amortization................ 7,160 7,931 8,456 7,160 7,931 8,456
--------- --------- --------- --------- --------- ---------
Operating income............ 9,657 17,350 11,676 2,950 26,575 11,573
Interest expense.............. 515 852 646 515 852 646
Other income.................. (195) (915) (880) (195) (915) (880)
Expenses related to sale(2)... -- -- 5,907 -- -- 5,907
--------- --------- --------- --------- --------- ---------
Income before income
taxes..................... 9,337 17,413 6,003 2,630 26,638 5,900
Provision for income taxes.... 2,719 5,564 3,847 2,822 6,079 3,680
--------- --------- --------- --------- --------- ---------
Net income before non-
controlling
interest............. C$ 6,618 C$ 11,849 C$ 2,156 C$ (192) C$ 20,559 C$ 2,220
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents..... C$ 7,202 C$ 19,231 C$ 28,438 C$ 4,703 C$ 16,600 C$ 21,411
Working capital............... 34,260 40,057 41,909 25,276 40,057 41,909
Total assets.................. 101,175 128,964 134,725 91,139 128,964 134,725
Total debt, including current
maturities.................. 14,101 15,998 17,563
</TABLE>
- ------------
(1) Under Canadian GAAP in effect at the time, Circo Craft recognized certain
revenues related to a gain on an out-of-court settlement in 1994. Under U.S.
GAAP, that gain would have been deferred and recognized in 1995.
(2) Represents non-recurring expenses incurred in connection with the sale of
Circo Craft to Viasystems which includes, among others, brokerage and legal
fees.
35
<PAGE> 39
VIASYSTEMS TECHNOLOGIES CORP.
The selected financial and other data below presents financial information
of the Lucent Division (renamed Viasystems Technologies) for the periods
indicated. The data for the fiscal years ended December 31, 1994 and 1995, and
the eleven months ended November 30, 1996 (the period prior to the acquisition
of the Lucent Division by Viasystems Technologies), has been derived from the
audited statements of operations of Viasystems Technologies. 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 the audited statements of operations of
Viasystems Technologies and the notes thereto and "Management's Discussion and
Analysis of Results of Operations and Financial Condition," all included
elsewhere herein.
<TABLE>
<CAPTION>
ELEVEN
FISCAL YEAR ENDED MONTHS
DECEMBER 31, ENDED
------------------- NOVEMBER 30,
1994 1995 1996
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $310,559 $325,047 $325,102
Cost of goods sold....................................... 238,623 274,824 244,313
Selling, general and administrative expenses............. 42,930 42,445 34,792
Depreciation and amortization............................ 16,111 16,378 18,317
-------- -------- --------
Operating income (loss)............................... 12,895 (8,600) 27,680
Interest expense(1)...................................... 5 204 917
Other income............................................. (75) (94) (228)
-------- -------- --------
Income (loss) before income taxes..................... 12,965 (8,710) 26,991
Provision (benefit) for income taxes..................... 4,927 (3,310) 10,257
-------- -------- --------
Net income (loss)................................ $ 8,038 $ (5,400) $ 16,734
======== ======== ========
</TABLE>
- ------------
(1) Interest expense represents interest incurred on capital leases.
36
<PAGE> 40
FORWARD GROUP PLC
The selected financial and other data below presents financial information
of Forward for the periods indicated. The data for the three fiscal years ended
January 31, 1997, set forth in U.K. GAAP in U.K. pounds sterling ("U.K.L"), has
been derived from the audited consolidated financial statements of Forward. The
consolidated financial statements of Forward have been prepared in accordance
with U.K. GAAP, which differs in certain significant respects from U.S. GAAP
(see note 17 to the consolidated financial statements of Forward included
elsewhere herein). The data set forth in U.S. GAAP as of and for the three
fiscal years ended January 31, 1997, has been derived from the audited
consolidated financial statements of Forward and adjusted for differences
between U.K. GAAP and U.S. GAAP. The following information should be read in
conjunction with the audited consolidated financial statements of Forward and
the notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition," all included elsewhere herein.
<TABLE>
<CAPTION>
U.K. GAAP APPROXIMATE AMOUNTS IN U.S. GAAP
FISCAL YEAR ENDED JANUARY 31, FISCAL YEAR ENDED JANUARY 31,
------------------------------- --------------------------------
1995 1996 1997 1995 1996 1997
-------- -------- --------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... L23,819 L66,839 L105,029 L23,819 L 66,839 L105,029
Costs of goods sold............. 17,032 49,850 79,030 17,032 49,850 79,030
Selling, general and
administrative expenses...... 3,179 6,425 11,189 3,179 6,390 11,029
Depreciation and amortization... 1,215 2,701 4,694 1,219 2,787 4,870
Restructuring charges(1)........ -- -- 1,244 -- -- 1,244
------- ------- -------- ------- -------- --------
Operating income............. 2,393 7,863 8,872 2,389 7,812 8,856
Interest expense................ 228 412 996 228 412 996
Other income.................... (52) (113) (229) (52) (113) (229)
Gain on disposal of discontinued
operation(2)................. (1,503) -- -- (1,523) -- --
------- ------- -------- ------- -------- --------
Income before income taxes... 3,720 7,564 8,105 3,736 7,513 8,089
Provision for income taxes...... 744 2,641 2,707 1,488 2,652 2,760
------- ------- -------- ------- -------- --------
Net income.............. L 2,976 L 4,923 L 5,398 L 2,248 L 4,861 L 5,329
======= ======= ======== ======= ======== ========
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents....... L 3 L 789 L -- L 3 L 789 L --
Working capital................. 1,245 1,898 (3,074) 1,534 2,553 (3,074)
Total assets............ 15,589 51,124 60,282 15,134 56,539 67,406
Total debt, including
current maturities.... 1,746 7,879 15,535
</TABLE>
- ------------
(1) Represents non-recurring restructuring charges related to the consolidation
and rationalization of several facilities at Forward.
(2) Represents the gain recognized from the sale of an unrelated business in
December 1994.
37
<PAGE> 41
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
The selected financial and other data below presents financial information
of ISL as of and for the periods indicated. The data as of and for the fiscal
years ended March 31, 1995, March 29, 1996, and April 4, 1997 set forth in U.K.
GAAP in U.K.L, has been derived from the audited consolidated financial
statements ISL. The consolidated financial statements of ISL have been prepared
in accordance with U.K. GAAP, which differs in certain significant respects from
U.S. GAAP (see note 13 to the consolidated financial statements of ISL included
elsewhere herein). The data set forth in U.S. GAAP as of and for the fiscal
years ended March 31, 1995, March 29, 1996 and April 4, 1997, has been derived
from the audited consolidated financial statements of ISL and adjusted for
differences between U.K. GAAP and U.S. GAAP. The following information should be
read in conjunction with the audited consolidated financial statements of ISL
and the notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition," all included elsewhere herein.
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS IN
U.K. GAAP U.S. GAAP
FISCAL YEAR ENDED FISCAL YEAR ENDED
--------------------------------- --------------------------------
MARCH 31, MARCH 29, APRIL 4, MARCH 31, MARCH 29, APRIL 4,
1995 1996 1997 1995 1996 1997
--------- --------- --------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................... L70,805 L104,611 L141,643 L 70,805 L104,611 L141,643
Costs of goods sold.......... 49,149 73,407 94,466 49,149 73,407 94,446
Selling, general and
administrative expenses... 6,242 7,522 10,514 6,112 7,464 10,437
Depreciation and
amortization.............. 10,822 17,302 26,771 9,124 15,752 17,522
------- -------- -------- -------- -------- --------
Operating income............. 4,592 6,380 9,892 6,420 7,988 19,218
Interest expense............. 921 807 818 921 807 818
Other income................. (109) -- (44) (109) -- (44)
------- -------- -------- -------- -------- --------
Income before income taxes... 3,780 5,573 9,118 5,608 7,181 18,444
Provision for income taxes... 2,539 4,422 6,874 2,080 2,584 6,112
------- -------- -------- -------- -------- --------
Net income........... L 1,241 L 1,151 L 2,244 L 3,528 L 4,597 L 12,332
======= ======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents.... L 2,087 L 2,636 L 26,244 L 2,087 L 2,636 L 26,244
Working capital.............. (1,094) (5,851) 11,516 (677) (3,929) 14,276
Total assets................. 52,616 67,349 129,921 45,397 62,893 105,452
Total debt, including current
maturities................ 11,295 15,699 35,754
</TABLE>
38
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
We are a leading worldwide independent provider of electronics
manufacturing services. We serve primarily the telecommunications and networking
industries, which we believe to be the fastest-growing customer segments of the
$73 billion EMS market. Our revenues for the twelve months ended September 30,
1999 were approximately $1.0 billion. We are a supplier to over 50 OEMs,
including such industry leaders as Alcatel, Cisco Systems, Delco, Ericsson,
General Electric, Intel, Lucent Technologies, Marconi Communications, Motorola,
Nortel, Siemens, Sun Microsystems and 3Com. We operate 20 manufacturing
facilities located in the United States, Canada, Mexico, the United Kingdom, the
Netherlands and China.
We offer EMS solutions to OEMs 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 design and manufacture of wire harnesses and cable
assemblies, the procurement and management of materials and the assembly and
testing of our customers' complete systems and products. For the twelve months
ended September 30, 1999, approximately 35% of our revenues were generated from
value-added services such as the manufacture of customer-designed backpanel
assemblies, printed circuit board assemblies and wire harnesses and cable
assemblies, and 26% of our revenues were generated from the fabrication of
highly complex multi-layered printed circuit boards.
We were formed in 1996 by Hicks Muse and Mills & Partners to create a
preferred global manufacturing provider to leading OEMs through acquisitions of
printed circuit board fabricators and backpanel assemblers. Recently, we decided
to transfer nine of our European printed circuit board manufacturing facilities
in order to sharpen our focus on value-added services for our core
telecommunications and networking customers.
ACQUISITIONS
A significant portion of our growth has been generated through acquisitions
completed since 1996. Giving effect to the Transactions, our business will
include six acquired businesses, including:
- the purchase of Circo Craft in Canada in October 1996 for $129.9 million
cash;
- the purchase of the Lucent Division in Richmond, Virginia in December
1996 for $170 million cash and $30 million series B preferred stock;
- the purchase of Mommers in the Netherlands in February 1998 for $59.4
million cash;
- the purchase of PAGG Corporation in Milford, Massachusetts in April 1999
for $9.3 million cash, plus the issuance of shares of our
common stock, and warrants to purchase shares of common stock;
- the purchase of Kalex in the People's Republic of China in August 1999
for $301 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 million cash.
We continue to examine numerous acquisition opportunities in order to:
- diversify end-product programs with existing customers;
- locate manufacturing facilities close to OEMs or their end users;
- expand our capacity in selected geographic regions to take advantage of
existing infrastructure or low cost manufacturing;
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- complement our service offerings; and
- diversify our customer base to serve a wide variety of end-markets with
new telecommunications and networking customers.
Consistent with our past practices and as a normal course of business, we are
engaged in discussions with respect to several possible acquisitions.
Acquisitions considered by us could include a single facility, significant
multiple facilities or OEM 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 to
continue the current discussions and actively pursue other opportunities.
However, we do not currently have any definitive acquisition agreements other
than those discussed in "The Transactions."
We expect each acquisition to be accretive to earnings and cash flow after
a transition period for such 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. 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 such
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 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
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales for the nine months ended September 30, 1999 were $790.5 million,
representing a $23.2 million, or 3% increase from the comparable period in 1998.
The increase was due primarily to the acquisitions of Mommers and Zincocelere in
1998 and the acquisition of Kalex in 1999, partially offset by industry-wide
pricing pressures, as well as the negative impact of the stronger U.K. pound as
it relates to continental European and certain Asian currencies and contractual
price reductions.
Cost of goods sold for the nine months ended September 30, 1999 was $590.8
million, or 74.7% of net sales compared to $552.4 million, or 72% of net sales
for the nine months ended September 30, 1998. Cost of goods sold as a percent of
net sales increased year over year as a result of product mix changes as well as
the contractual price reductions experienced by the Company, partially offset by
cost containment activities.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 decreased by $3.6 million versus the comparable period in
1998. These costs decreased primarily due to cost containment efforts made by
the Company partially offset by increases in general and administrative expenses
related to the Kalex acquisition.
Other expense increased $10.7 million, from $77.7 million for the nine
months ended September 30, 1998 to $88.4 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.
Depreciation and amortization increased $11.7 million for the nine months
ended September 30, 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.
During the first nine months of 1999, the Company 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 the first nine months of 1998, the Company recorded a one-time
non-cash write-off of $20.1 million related to in-process research and
development acquired in the acquisitions of Mommers and Zincocelere. During the
nine months ended September 30, 1999, the Company recorded a one-time non-cash
write-off of $17.6 million related to in-process research and development
acquired in the Kalex acquisition.
We believe that the operating results of Viasystems for the nine months
ended September 30, 1999 are not comparable to the operating results for the
nine months ended September 30, 1998 nor to the operating results expected to be
achieved in the future due to, among other things, the acquisitions completed
during 1998 and 1999.
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 certain Asian currencies and contractual
price reductions.
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 1998 Acquisitions 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.
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Selling, general and administrative expenses for the year ended December
31, 1998 increased by $31.1 million over selling, general and administrative
expenses for the year ended December 31, 1997. These costs increased primarily
due to the 1998 Acquisitions, increased sales and marketing expenses and
increases in administrative expenses at our Richmond, Virginia facility related
to the separation from Lucent Technologies.
Depreciation and amortization for the year ended December 31, 1998
increased $56.6 million over the comparable period for 1997 primarily as a
result of the full year impact of the acquisitions of Forward and ISL in the
second quarter of 1997 and of the Ericsson Facility, Mommers and Zincocelere in
the first quarter of 1998.
During the year ended December 31, 1998 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 and ISL.
Other expense increased $34.5 million, from $72.3 million for the year
ended December 31, 1997 to $106.8 million for the same period in 1998, due
primarily to increased interest expense and amortization of deferred financing
costs related to the debt financing incurred to fund the 1998 Acquisitions.
YEAR ENDED DECEMBER 31, 1997
Our net sales for the year ended December 31, 1997 were $795.3 million and
cost of goods sold were $554.1 million, or 69.7% of net sales. Selling, general
and administrative expenses for the same period were $75.6 million, or 9.5% of
net sales. During the year ended December 31, 1997, we recorded a one-time non-
cash write-off of $294.5 million related to the acquisitions of Forward and ISL.
THE PERIOD FROM INCEPTION (AUGUST 28, 1996) TO DECEMBER 31, 1996
Our net sales for the period from inception (August 28, 1996) to December
31, 1996 were $50.4 million and cost of goods sold were $42.1 million, or 83.4%
of net sales. Selling, general and administrative expenses for the same period
were $3.8 million, or 7.5% of net sales. During the period from inception to
December 31, 1996, net cash provided by operating activities was $1.7 million.
For the same period, we used approximately $286.3 million in investing
activities primarily for the acquisitions of Circo Craft and the Lucent
Division. The acquisitions were funded through the issuance of $238.3 million of
long-term obligations and the proceeds of $73.8 million of equity offerings
offset by $11.4 million of financing costs.
We believe that our operating results are not comparable between the period
from inception to December 31, 1996 and the years ended December 31, 1997 and
1998 nor to the operating results expected to be achieved in the future due to,
among other things, our startup in 1996, the acquisitions made in 1996, 1997 and
1998, the anticipated future acquisitions, and the financing incurred to fund
past and future acquisitions. We believe that, due to the acquisitions made,
sales in subsequent periods will increase from those reported for the period
from inception to December 31, 1996 and for the years ended December 31, 1997
and 1998.
HISTORICAL RESULTS OF OPERATIONS -- PREDECESSORS
Each of Circo Craft, Viasystems Technologies, Forward and ISL are
considered predecessors to Viasystems and, as such, the following is a
discussion of the results of operations of each separate predecessor. The
discussion of the results of operations of the separate entities has been
prepared based upon the results of each separate entity in accordance with the
local GAAP of the entity and should be read in conjunction with the "Selected
Financial Data" for each predecessor and the financial statements and notes
thereto of Circo Craft, Viasystems Technologies, Forward and ISL, all of which
are included elsewhere herein.
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CIRCO CRAFT
Nine Months Ended September 30, 1996 Compared to Fiscal 1995. Net sales and
cost of goods sold for the nine months ended September 30, 1996, were C$129.6
million and C$101.5 million, respectively, compared to sales and cost of goods
sold for fiscal 1995 of C$185.2 million and C$148.8 million, respectively. Net
sales for the nine months ended September 30, 1996, were approximately 70% of
sales for fiscal 1995. In general, Circo Craft's sales were lower during 1996
due to a shift in the product mix to lower layer count products driven primarily
by the demand of one of Circo Craft's customers in the automotive industry. As a
percentage of sales, cost of goods sold for the nine months ended September 30,
1996, decreased to 78.3% from 80.4% for fiscal 1995 primarily as a result of
cost savings achieved through improved production processes. Selling, general
and administrative expenses for the nine months ended September 30, 1996, were
C$8 million compared to selling, general and administrative expenses for fiscal
1995 of C$11.1 million. Selling, general and administrative expenses as a
percentage of sales for the nine months ended September 30, 1996, increased to
6.1% from 6% for fiscal 1995 primarily as a result of the lower sales caused by
the product mix shift discussed above.
VIASYSTEMS TECHNOLOGIES
Eleven Months Ended November 30, 1996 Compared to Fiscal 1995. Net sales
and cost of goods sold for the eleven months ended November 30, 1996, were
$325.1 million and $244.3 million, respectively, compared to sales and cost of
goods sold for fiscal 1995 of $325.0 million and $274.8 million, respectively.
Net sales for the eleven months ended November 30, 1996, were approximately 100%
of sales for fiscal 1995 as sales for Viasystems Technologies increased during
1996 due to increased demand by Lucent Technologies caused by the rapidly
expanding telecommunications market. As a percentage of sales, cost of goods
sold for the eleven months ended November 30, 1996, decreased to 75.1% from
84.5% for fiscal 1995 primarily as a result of the favorable impact of
productivity improvements. Selling, general and administrative expenses for the
eleven months ended November 30, 1996, were $34.8 million compared to selling,
general and administrative expenses for fiscal 1995 of $42.4 million. Selling,
general and administrative expenses as a percentage of sales for the eleven
months ended November 30, 1996, decreased to 10.7% from 13.1% for fiscal 1995 as
a result of decreased allocations from Lucent Technologies.
FORWARD
Fiscal Year Ended January 31, 1997 Compared to Fiscal Year Ended January
31, 1996. Net sales and cost of goods sold for the fiscal year ended 1997 were
L105.0 million and L79 million, respectively, compared to sales and cost of
goods sold for the fiscal year ended 1996 of L66.8 million and L49.9 million,
respectively. Sales during the fiscal year ended 1997 increased over the fiscal
year ended 1996 due primarily to the full year impact of the 1995 acquisition of
Exacta Circuits and three smaller companies in 1996. As a percentage of sales,
cost of goods sold for the fiscal year ended 1997 increased to 75.2% from 74.6%
for the fiscal year ended 1996 primarily as a result of the three smaller
acquisitions of companies in 1996 which have products with lower margins.
Selling, general and administrative expenses for the fiscal year ended 1997 were
L11.2 million compared to selling, general and administrative expenses for the
fiscal year ended 1996 of L6.4 million. Selling, general and administrative
expenses increased in the fiscal year ended 1997 primarily due to the impact of
the acquisitions discussed above.
ISL
Fiscal Year Ended April 4, 1997 Compared to Fiscal Year Ended March 29,
1996. Net sales and cost of goods sold for the fiscal year ended 1997 were
L141.6 million and L94.5 million, respectively, compared to sales and cost of
goods sold for the fiscal year ended 1996 of L104.6 million and L73.4 million,
respectively. Sales during the fiscal year ended 1997 increased over the fiscal
year ended 1996 due to increased demand for higher layer count PCBs for the
telecommunications and computer industries. As a percentage of sales, cost of
goods sold for the fiscal year ended 1997 decreased to 66.7% from 70.2% for the
fiscal year ended 1996 primarily as a result of improved absorption of costs due
to higher sales and productivity improvements achieved as a result of a number
of cost savings projects, including projects to decrease the cost of process
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materials and improve process automation. Selling, general and administrative
expenses for the fiscal year ended 1997 were L10.5 million compared to selling,
general and administrative expenses for the fiscal year ended 1996 of L7.5
million. Selling, general and administrative expenses as a percentage of sales
for the fiscal year ended 1997 remained relatively consistent at 7.4% compared
to 7.2% for the fiscal year ended 1996.
SUPPLEMENTAL PRO FORMA RESULTS OF OPERATION -- VIASYSTEMS
The following table presents supplemental pro forma financial data for the
fiscal years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999, giving effect to the acquisitions we completed in
1997, 1998 and the first nine months of 1999, referred to as the Completed
Acquisitions, together with the Transactions, in each case as if such
acquisitions and Transactions had occurred on January 1, 1997. The following
table of supplemental pro forma financial data is intended to be for
informational purposes only and is not necessarily indicative of either our
financial position or results of operations in the future, or what would have
occurred had such acquisitions or the Transactions occurred on January 1, 1997.
This data has not been prepared in accordance with generally accepted accounting
principles.
We believe that supplemental pro forma financial information may be helpful
in understanding the past operations of our business excluding those operations
which will be transferred to a new entity formed by our existing stockholders
and including the operation of the wire harness business, which we will acquire
as part of the Transactions. The acquisition of the wire harness business will
be accounted at historical cost, on a basis similar to a pooling of interests,
as Viasystems Group, Inc. and International Wire are under common control. The
following information should be read in conjunction with our historical
consolidated financial statements and those of our predecessors, including the
related notes thereto.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA FOR THE COMPLETED ACQUISITIONS
AND THE TRANSACTIONS
-----------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.......................................... $931,361 $956,655 $741,099 $769,973
Gross profit....................................... 276,965 296,580 218,149 225,764
Operating expenses................................. 91,433 100,863 83,473 68,295
Adjusted EBITDA.................................... 185,532 195,717 134,676 157,469
Depreciation....................................... 55,425 78,047 47,412 60,224
Amortization....................................... 62,902 41,617 38,502 30,976
Adjusted EBIT...................................... 67,205 76,053 48,762 66,269
</TABLE>
SUPPLEMENTAL PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net sales for the nine months ended September 30, 1999 were $770 million
compared to the same period 1998 net sales of $741.1 million. This increase of
$28.9 million, or 3.9%, was due to significant volume growth of approximately
25%, spread across all product lines, including printed circuit boards,
backpanel and printed circuit board assemblies, wire harnesses and system
assembly services. The printed circuit board fabrication growth occurred within
each of the various layer count products that we produce, with the most
significant growth in our higher layer count products. Partially offsetting this
volume growth were industry-wide price reductions as well as the price
reductions required by the Lucent supply agreement.
Cost of goods sold for the nine months ended September 30, 1999 was $544.2
million, or 70.7% of net sales compared to $523 million, or 70.6% of net sales
for the nine months ended September 30, 1998. Cost of goods sold as a percent of
net sales remained constant year over year as the incremental volume and the
impact of company-wide cost reduction activities partially offset the
contractual price reductions related to the Lucent supply agreement and
industry-wide price reductions.
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Selling, general and administrative expenses for the nine months ended
September 30, 1999 decreased by $15.2 million versus the comparable period in
1998. These costs decreased primarily due to cost containment efforts that we
initiated in 1999.
Depreciation and amortization for the nine months ended September 30, 1999,
increased $5.3 million over the comparable period in 1998 primarily as a result
of the increased capital investments.
SUPPLEMENTAL PRO FORMA YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1998
Net sales for the year ended December 31, 1998, were $956.7 million,
compared to net sales of $931.4 million for 1997. This increase of $25.3
million, or 2.7%, was due to volume growth of approximately 4.9%, spread across
all product lines, including printed circuit boards, backpanel and printed
circuit board assemblies, wire harnesses and system assembly services.
Additionally, we benefited from an improved printed circuit board product mix.
Partially offsetting this volume growth were contractual price reductions
related to the Lucent supply agreement and industry-wide price reductions.
Finally, a noncore portion of the wire harness business was sold during 1997,
which contributed approximately $6.1 million in net sales in 1997.
Cost of goods sold for the year ended December 31, 1998 was $660.1 million,
or 69% of net sales compared to $654.4 million, or 70.3% of net sales for the
year ended December 31, 1997. Cost of goods sold as a percent of net sales
decreased primarily as a result of the volume growth and cost reduction
activities of Viasystems, partially offset by contractual price reductions
related to the Lucent supply agreement and industry-wide price reductions.
Selling, general and administrative expenses for the year ended December
31, 1998 were $100.9 million, representing an increase of 10.4% over the year
ended December 31, 1997. This increase was due primarily to increased sales and
marketing expenses and increases in administrative expenses at our Richmond,
Virginia facility related to the separation from Lucent Technologies.
Depreciation and amortization for the year ended December 31, 1998
increased $1.3 million over 1997 as a result of the increased capital
investments.
LIQUIDITY AND CAPITAL RESOURCES -- VIASYSTEMS
Net cash used in operating activities was $3.5 million for the nine months
ended September 30, 1999 compared to net cash used in operating activities of
$26.6 million for the same period in 1998. The decrease in net cash used in
operating activities related primarily to timing of payments to certain vendors.
Net cash used in investing activities was $391.2 million for the nine months
ended September 30, 1999, compared to $231.9 million for the nine months ended
September 30, 1998. The net cash used in investing activities for the first nine
months of 1999 included $313.8 million related to the acquisitions of Kalex and
PAGG with the remainder related to capital expenditures. In 1998, net cash used
in investing activities included $145.5 million related to the 1998 acquisitions
with the remainder related to capital expenditures.
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 million term loan facility, repay $10.1
million outstanding under the term loans available to refinance the Loan Notes
(the "Term Loans"), and collateralize future amounts due under the Term Loans
with approximately $89.9 million in cash. Additionally, we received an equity
contribution of $200 million.
As of September 30, 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; and
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<PAGE> 49
- 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 the notes to our
consolidated financial statements set forth elsewhere herein.
We anticipate making capital expenditures of approximately $120 million in
2000. In 2000, we will be obligated to make principal and interest payments of
approximately $ million under our new senior credit facilities and the
senior subordinated notes.
We expect that our primary sources of cash will be 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 term loan
borrowings and revolving loans. As of September 30, 1999, as adjusted for the
offering and the Transactions, there would have been $ million outstanding
under the revolving credit facilities available under the new senior credit
facilities, and approximately $ million of available borrowing capacity
thereunder, subject to certain limitations. We anticipate that the cash flow
from operations and additional funds available under the revolving facilities of
our new senior credit facilities will be sufficient to meet our foreseeable
requirements for working capital, capital expenditures and debt service and
other operating cash requirements. However, any future acquisitions would likely
require external sources of debt and/or equity financing. There can be no
assurance that such 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 (other than permitted indebtedness);
- making capital expenditures in excess of specified amounts;
- creating liens;
- disposing of assets;
- guaranteeing indebtedness;
- merging or selling substantially all of our assets;
- declaring and paying certain dividends;
- making certain investments and loans; and
- entering into certain transactions with affiliates, in each case with
certain 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 and the Transactions, 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 the
Transactions been completed at September 30, 1999, we would have recorded an
extraordinary charge of $ 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 certain 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 $ million, based on an initial public offering price
of $ , to compensation expense in the first quarter of fiscal year
2000.
RECENT ACCOUNTING PRONOUNCEMENTS
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. Effective
January 1, 1999, we adopted SOP 98-5 and accordingly recorded a cumulative
effect of a change in accounting principle for the write-off of the net book
value of start-up costs as of January 1, 1999, of approximately $16.9 million
(net of a tax benefit of $5.6 million).
In June 1998, the FASB adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and require that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 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.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two
digits rather than four digits to define the applicable year. Any of our
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, produce invoices,
or engage in similar normal business activities.
In anticipation of the year 2000 issue, management implemented a
company-wide initiative to ensure that both its information technology systems
and non-information technology systems applications are capable of processing
data and transactions pertaining to the year 2000. The initiative utilized both
our own internal resources and external resources to identify and assess systems
and applications affected, to correct existing systems or to acquire replacement
systems, and to test the systems and applications for compliance with the
requirements for processing year 2000 information. Our information systems have
been either corrected in order to enable them to process year 2000 information
or, if necessary, were replaced with year 2000 compliant systems. We have, to
the best of our knowledge, achieved Year 2000 readiness in mission critical
business applications, computers and communications, facilities and process
equipment, and do not anticipate any
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material disruption in our operations as the result of any failure to be in
compliance. However, there can be no assurance that all issues were identified
or that the remediation process will be fully effective. We will capitalize and
depreciate the cost of replacement systems consistent with our existing capital
expenditures policies. Costs incurred to modify and maintain existing systems
are expensed as incurred. Management believes that a substantial portion of the
costs for the new systems and the modifications have not represented incremental
costs, but rather represent the reallocation of existing and planned information
technology resources. We estimate approximately $1.5 to $2 million has been
spent to remediate the year 2000 issue, and management expects that amounts
required to be expensed in future periods will not have a material effect on our
financial position or results of operations.
We have also evaluated the external risk associated with the year 2000
issue. All critical or significant suppliers were identified and surveyed
regarding their year 2000 readiness. Although we use a select group of
suppliers, the materials used in manufacturing printed circuit boards are
generally readily available in the open market. Therefore, we believe any costs
associated with the anticipated effect of third parties will be immaterial on
our business, financial position or results of operations. However, there can be
no guarantee that any failures of third party systems would not have a material
adverse effect on us.
If we have failed to identify and remediate year 2000 issues or key third
parties who do business with us have failed to timely remediate their year 2000
issues, it could cause systems failures or errors, business interruptions and in
a worst case scenario, the inability to engage in normal business practices for
an unknown length of time. Litigation could also ensue. The effect on our
business, financial condition, results of operations and cash flows could be
materially adverse.
IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisitions made in 1996, 1997 and 1998 we incurred
significant charges related to purchased in-process research and development. We
believe that efforts to complete the acquired in-process research and
development projects will consist primarily of internal engineering costs over
the next two to four years. These costs are estimated to be approximately $22
million. This estimate is subject to revision should there be changes in the
operating environment or the technical knowledge available to us or the
industry. We believe that the new product and process technologies which result
from ongoing research and development will build on the existing core printed
circuit board technology and contribute to an anticipated growth in our sales
and anticipated improvements in our cost of production in the future. If
acceptable advancements are not achieved, failed research and development
projects could have a material adverse effect on our financial position or
results of operations. 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 research and development in the acquisitions.
Although there can be no guarantee that the acquired in-process research and
development projects will achieve technological feasibility, we believe that the
likelihood of development is reasonable for these projects. We do not believe
that we are subject to any greater risk of failure than our competitors, and, in
fact, believe that our size, access to financial resources and relationships
with customers contribute to a reduction of that risk which gives us a
competitive technical advantage.
CONVERSION TO THE EURO
On January 1, 1999, eleven participating countries of the European Union
converted to the Euro as their common national currency. The previous national
currencies of these countries will still be accepted as legal tender until at
least January 1, 2002. We do not expect the conversion to the Euro to have a
material effect on our results of operations, financial condition or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At September 30, 1999, approximately $900 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
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of borrowings at variable rates and assuming a two percentage point change in
the average interest rate under these borrowings, it is estimated that our
interest expense for the nine months ended September 30, 1999, would have
increased by approximately $13.4 million. In the event of an adverse change in
interest rates, management would likely take actions that would mitigate our
exposure to interest rate risk; however, due to the uncertainty of the actions
that would be taken and their possible effects, this analysis assumes no such
action. Further, this analysis does not consider the effects of the change in
the level of overall economic activity that could exist in such an environment.
FOREIGN CURRENCY RISK
We conduct our business in various regions of the world, and export and
import products to and from several countries. Our operations may, therefore, be
subject to volatility because of currency fluctuations, 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
GENERAL
We are a leading worldwide independent provider of electronics
manufacturing services to 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 manufacture of printed circuit board assemblies, in particular highly
complex multi-layered printed circuit boards, the manufacture of custom-designed
backpanel assemblies, the design and manufacture of wire harnesses and custom
cable assemblies, the procurement and management of materials and the assembly
and testing of our customers' complete systems and products. 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 leverage 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 such as Alcatel, Cisco Systems, Delco, Ericsson, General
Electric, Intel, Lucent Technologies, Marconi Communications, Motorola, Nortel,
Siemens, Sun Microsystems and 3Com. For the nine months ended September 30,
1999, approximately 55% of our revenues were from telecommunications and
networking customers. The products we manufacture 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 such as hubs,
routers and switches.
Our revenues for the twelve months ended September 30, 1999 were
approximately $1 billion. We 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., or TFI, 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, TFI
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 TFI.
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, in certain
instances 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. This trend will favor larger EMS
providers that have clear advantages of scale, geographic diversity, technology
and quality, and is expected to lead to a sustained period of 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, demonstrat-
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ing 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 were vertically integrated manufacturers that 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 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
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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 leverage 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.
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 such as Mexico and Asia in order to
complement their offerings by providing lower cost manufacturing solutions
for certain 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.
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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
revenues for the nine months ended September 30, 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.
Leverage our Advanced Printed Circuit Board and Backpanel
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 mils. We also have the capability to produce printed circuit boards
with up to 60 layers and circuit track widths as narrow as two mils. We
have 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 leverage 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.
Leverage our Vertical Integration 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. Our wire harness and cable assembly capabilities
provide us with further opportunities to sell these services to our
existing OEM customers. Our capability to manufacture a range of product
components from printed circuit boards to wire harnesses and cable
assemblies used in final assemblies, enables us to shorten our customers'
product development cycles and to lower their cost. In addition, our
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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 and our wire harness and cable assembly facilities in
Mexico 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 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 and the acquisition of the wire
harness assets of General Electric.
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 wire harnesses and cable assemblies fosters close relationships with our
customers. These 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 net sales as a percentage by principal
end-user markets we serve:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------- SEPTEMBER 30,
MARKETS 1997 1998 1999
- ------- ----- ----- -------------
<S> <C> <C> <C>
Telecommunications and networking........................... 52.8% 52.7% 55.0%
Industrial/Consumer......................................... 22.2 22.0 23.5
Computer.................................................... 14.8 14.9 10.9
Automotive.................................................. 6.8 7.1 9.0
Other....................................................... 3.4 3.3 1.6
----- ----- -----
Total combined net sales.......................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
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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
consolidated net sales for the nine months ended September 30, 1999.
PRODUCTS AND SERVICES
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]
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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.
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 complements our vertically integrated
approach to providing our OEM customers a complete EMS solution. Our acquisition
of the wire harness business makes 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 utilzed
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.
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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, we employed 223 sales and marketing employees, of which 94
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.
We have a unique, long-term supplier relationship with Lucent, 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 certain specified 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 such 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
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efficiently producing commercial quantities of printed circuit boards with up to
48 layers and circuit track widths as narrow as three mils. We have the
capability to produce printed circuit boards with up to 60 layers and circuit
track widths as narrow as two mils. The manufacture of complex multi-layer
interconnect products often requires the use of sophisticated circuit
interconnections between certain 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 inter-layer electrical connections and, lastly, cutting the
panels to shape. Certain advanced interconnect products 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.
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
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<PAGE> 62
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 4 to 10 mil range. 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. Generally, we rely on
common law trade secret protection and on confidentiality agreements with our
employees to protect our expertise and techniques. We own 20 patents and believe
that patents have not historically constituted a significant form of
intellectual property right in our industry.
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 experienced
any significant shortages of such 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 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 face intense competition from a number of established competitors in our
various product markets. Certain of our competitors 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 60.1% of our sales for the nine months ended September 30,
1999 originated outside of the United States. As of September 30, 1999, we had
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.
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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 backlog of unfilled orders on September 30, 1998 and
1999 was approximately $94.4 million and $114.4 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, such
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.
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. Currently, remediation of contamination is being
undertaken at our facilities in Virginia and Puerto Rico. While the cost of such
remediation could be material, the prior owners are conducting the requisite
remedial actions pursuant to governmental orders and have agreed to indemnify 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. However,
no assurance can be given that the parties providing such indemnification will
have the financial resources to perform their responsibilities under the
indemnification agreements or will not for other reasons decline to fulfill such
responsibilities in which case we may be subject to claims by government
agencies or private parties arising from such contamination.
EMPLOYEES
As of September 30, 1999, we had approximately 19,350 employees. Of these
employees, approximately 16,900 were involved in manufacturing, 1,300 worked in
engineering, 350 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
September 30, 1999, 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 pursuant to 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 September 30, 1999, after giving effect to the
Transactions, 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 September 30, 1999 we
maintained several sales and marketing facilities located throughout North
America and Europe, all of which are leased.
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
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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.
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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........ 71 Director
Kenneth F. Yontz......... 55 Director
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
Jeffrey L. Davis......... 47 President -- Viasystems Europe
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 such 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 2000, the board of directors established an Audit Committee
comprised of Messrs. Vieser and Yontz and a Compensation Committee comprised of
Messrs. and . In addition, the board of directors has begun a search
of qualified candidates and expects to add one additional member to the board of
directors following the offering. This additional director is expected to meet
the independence requirements of [The New York Stock Exchange]/[the Nasdaq
National Market] 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.
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
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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 Associates, Inc. and is also a director of Ceridian
Corporation (formerly Control Data Corporation), Dresser Industries, Inc.,
Harvard Industries, INDRESCO 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.
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. 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.
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Jeffrey L. Davis joined Viasystems in January 1999 as
President -- Viasystems Europe. Reporting directly to the President and COO, Mr.
Davis is responsible for the overall operations of Viasystems' European
facilities. Previously, Mr. Davis served as Senior Vice President of Europe for
FCI/Berg headquartered in London. Mr. Davis joined Berg Electronics as a result
of Berg's acquisition of McKenzie Technology from Kyocera Corporation in August
1994. Mr. Davis was President of McKenzie. During his Berg years, Mr. Davis also
served as General Manager of Berg Electronics' value added cable assembly
business.
Steven S.L. Tang joined Viasystems in June 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, since 1995. Prior to 1995, Mr. Tang held various positions, all in
Asia, with companies such as Amphenol, Pace Inc., National Semiconductor and
Honeywell.
James G. Powers has been a Vice President of Viasystems since April 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
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.
Most recently, Mr. Bloch was Vice President of Worldwide Materials at GET
Manufacturing.
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 (an "Outside Director") receives
an annual retainer of $12,000 and a fee of $1,000 for each meeting of the board
of directors at which the director is present. Directors of 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 Outside Directors based upon an analysis of comparable public
companies and applicable published guidelines and policies and may implement a
new compensation structure at that time.
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<PAGE> 69
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............ 1997 $395,000 $550,000 (5) --
1998 685,000 342,500 (5) --
1999 685,000 *(4) (5) --
Timothy L. Conlon, President and Chief
Operating Officer.................... 1997 -- -- -- --
1998 88,542 34,815 -- $537,374(6)
1999 425,000 *(4) -- --
Barry Brigman, President -- Viasystems
Americas............................. 1997 310,000 201,500 66,285(7)
1998 325,000 105,600 -- 155,369(7)
1999 341,300 *(4) --
David M. Sindelar, Senior Vice
President and Chief Financial
Officer.............................. 1997 168,200 150,000 (5) --
1998 230,000 92,000 (5) --
1999 300,000 *(4) (5) --
Dominic J. Pileggi, Executive Vice
President -- Sales and Marketing..... 1998 189,583(8) 126,750 116,997(9)
1999 331,875 *(4) --
</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 $50,000 or 10% of the
total of annual salary and bonus reported for each executive.
(2) Bonuses were paid in 1998 for 1997, in 1999 for 1998 and will be paid in
2000 for 1999.
(3) Options were granted under the Viasystems Group, Inc. 1997 Stock Option Plan
(the "Stock Option Plan") pursuant to which incentive and non-qualified
stock options may be issued to certain of Viasystems' or its subsidiaries'
officers, key employees and directors.
(4) Does not include bonus for 1999, which has not yet been determined.
(5) Reflects Amended Performance Options (as hereinafter defined) granted by
Viasystems. See "Benefit Plans -- Performance Options."
(6) Reflects amounts paid to Mr. Conlon to partially compensate him for his
voluntary termination of his employment contract with Berg Electronics Corp.
and forego compensation otherwise payable to him thereunder.
(7) Mr. Brigman received compensation in the form of reimbursement of relocation
expenses during 1997 and 1998.
(8) Mr. Pileggi commenced employment with Viasystems on June 1, 1998.
(9) Reflects relocation expenses paid to Mr. Pileggi in connection with his
relocation to St. Louis, Missouri.
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The following table summarizes option grants made with respect to
Viasystems' common stock during fiscal year 1999 to the executive officers named
above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION
NUMBER OF OPTIONS FOR OPTION
SECURITIES GRANTED EXERCISE TERM(2)
UNDERLYING TO EMPLOYEES PRICE ---------------
OPTIONS(#) IN FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
---------- -------------- --------- --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills(1)........... 18.1% 8/5/09
Timothy L. Conlon........... -- N/A N/A N/A N/A N/A
Barry L. Brigman............ 5.0 9/1/09
David M. Sindelar(1)........ 12.2 8/5/09
Dominic J. Pileggi.......... 5.0 9/1/09
</TABLE>
- ------------
(1) Reflects Amended 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.
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............................ / /
Timothy L. Conlon......................... --/-- --/--
Barry L. Brigman.......................... / /
David M. Sindelar......................... / /
Dominic J. Pileggi........................ / /
</TABLE>
- ------------
(1) Represents the difference between $ per share, the assumed initial
public offering price of common stock, and the exercise price per share of
such options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions are made by the entire board of directors. James N.
Mills served as both an executive officer and a director during 1999 and has
continued to serve in such capacities in 2000. Mr. Mills participated in
deliberations of the board of directors concerning compensation of executive
officers.
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<PAGE> 71
EMPLOYMENT AGREEMENTS
James N. Mills Executive Employment Agreement. Mr. James N. Mills entered
into an executive employment agreement with Viasystems and some of its
subsidiaries as of January 1, 1997. Pursuant to his employment agreement, Mr.
Mills will serve as the Chairman of the board of directors and Chief Executive
Officer of Viasystems through December 31, 2001, unless terminated earlier as
provided therein. Mr. Mills is required to devote such time as is 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, and such benefits as are 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 the Senior Executive Incentive Compensation Plan 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 death or "total disability" (as defined therein) and
no further compensation shall be payable except that he or his estate, heirs or
beneficiaries, as applicable, shall receive his then current salary for a period
of 18 months, in addition to benefits otherwise specifically provided for. The
agreement also provides medical benefits for Mr. Mills' and his spouse's
lifetime.
Timothy L. Conlon Executive Employment Agreement. Mr. Timothy L. Conlon
entered into an executive employment agreement with Viasystems and some of its
subsidiaries as of October 16, 1998. Pursuant to his employment agreement, Mr.
Conlon will serve as the President and Chief Operating Officer of Group through
December 31, 2001, unless terminated earlier as provided therein. Mr. Conlon is
required to devote such time as is reasonably necessary to faithfully and
adequately supervise the overall financial management of Viasystems and its
subsidiaries, both direct and indirect. Subject to the foregoing limitation on
his activities, Mr. Conlon is free to participate in other endeavors.
The compensation provided to Mr. Conlon under his executive employment
agreement includes an annual base salary of not less than $425,000, subject to
upward adjustment at the sole discretion of the Chairman of the board of
directors of Viasystems, and such benefits as are 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 the Senior Executive Incentive Compensation Plan
and reimbursement for expenses to own and maintain an automobile.
Mr. Conlon's executive employment agreement also provides that if Mr.
Conlon's employment is terminated without cause, Mr. Conlon will continue to
receive his then current salary, which shall not be less than $425,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon death or "total disability" (as defined
therein) and no further compensation shall be payable except that he or his
estate, heirs or beneficiaries, as applicable, shall receive his then current
salary for a period of 18 months, in addition to benefits otherwise specifically
provided for. The agreement also provides medical benefits for Mr. Conlon's and
his spouse's lifetime.
David M. Sindelar Executive Employment Agreement. Mr. David M. Sindelar
entered into an executive employment agreement with Viasystems and some of its
subsidiaries as of January 1, 1997. Pursuant to his employment agreement, Mr.
Sindelar will serve as the Senior Vice President and Chief Financial Officer of
Viasystems through December 31, 2001, unless terminated earlier as provided
therein. Mr. Sindelar is required to devote such time as is reasonably necessary
to faithfully and adequately supervise the overall
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<PAGE> 72
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 $230,000, subject to
upward adjustment at the sole discretion of the Chairman of the board of
directors of Viasystems, and such benefits as are 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 the Senior Executive Incentive Compensation Plan
and reimbursement for expenses to own and maintain an automobile.
Mr. Sindelar's executive employment agreement also provides that if Mr.
Sindelar's employment is terminated without cause, Mr. Sindelar will continue to
receive his then current salary, which shall not be less than $230,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon death or "total disability" (as defined
therein) and no further compensation shall be payable except that he or his
estate, heirs or beneficiaries, as applicable, shall receive his then current
salary for a period of 18 months, in addition to benefits otherwise specifically
provided for. The agreement also provides medical benefits for his and his
spouse's lifetime.
BENEFIT PLANS
STOCK OPTION PLAN
Viasystems has adopted the Stock Option Plan pursuant to which incentive
and non-qualified stock options, stock appreciation rights, stock awards,
performance awards and stock units may be issued to such employees of Viasystems
and any parent or subsidiary corporation designated by the board of directors of
Viasystems. A total of shares of Viasystems common stock have been reserved
for issuance under the Stock Option Plan. As of December 31, 1999, options to
purchase an aggregate of 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 such a committee
(the "Committee"). The Committee has the authority to grant to any participant
one or more stock options, and to establish the terms and conditions of such
options, subject to certain limitations specified in the Stock Option Plan. For
example, the per-share exercise price of each option must not be less than 100%
of the fair market value of the Viasystems common stock on the date such option
is granted, and no option may be exercisable later than ten years after the date
of grant. In the event of a change in control (as defined in the Stock Option
Plan), the Committee, in its discretion, may take such actions as it deems
appropriate with respect to outstanding awards, including, without limitation,
accelerating the exercisability or vesting of such awards.
The Stock Option Plan became effective as of February 4, 1997 and has
subsequently been amended to increase the number of shares eligible for grant
thereunder. 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 (the "Performance Options") to purchase an
aggregate of shares of common stock to certain officers of Viasystems also
affiliated with Mills & Partners.
Pursuant to the terms of the option agreements related to the Performance
Options, the Performance Options are exercisable only 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 Viasystems. In addition, the Performance Options are
exercisable upon the occurrence of certain liquidity events, including an
initial public offering of our common stock. The initial exercise prices of the
Performance Options were $ and $ per share, increasing by 8% annually.
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<PAGE> 73
In connection with this offering, we expect to amend the terms of the
Performance Options (the "Amended Performance Options") to eliminate the
exercisability restrictions and variable exercise price features. The Amended
Performance Options will have a fixed exercise price of $ per share and will
be immediately exercisable for an aggregate of shares of common stock.
As a result of the amendments, we expect to record a one-time charge of $
million (based on an initial public offering price of $ per share, the midpoint
of the range set forth on the cover page of this prospectus) in non-cash
compensation expense in the first quarter of fiscal year 2000.
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<PAGE> 74
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1999, certain
information regarding the beneficial ownership of the voting securities of
Viasystems by each person who beneficially owned more than 5% of any class of
our voting securities and by the directors and certain executive officers of
Viasystems, individually, and by the directors and executive officers of
Viasystems as a group, in each case after giving effect to the for 1
reverse stock split and the offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)(2)
------------------------------------------------------------------------
CLASS A SERIES II
COMMON STOCK CLASS A COMMON STOCK COMMON STOCK
---------------------- ---------------------- ----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES CLASS SHARES CLASS SHARES CLASS
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
HM Parties(3)............................ % % -- %
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
OFFICERS AND DIRECTORS:
James N. Mills(4)........................ * 100.0% 100.0%
Thomas O. Hicks(3)....................... -- -- -- --
Jack D. Furst(3)......................... -- -- -- --
Richard W. Vieser(5)..................... * -- -- -- --
Kenneth F. Yontz(6)...................... * -- -- -- --
Timothy L. Conlon........................ -- -- -- --
David M. Sindelar(7)..................... -- --
Barry L. Brigman.........................
Dominic J. Pileggi.......................
All executive officers and directors as a
group (14 persons)(8)................. 100.0% 100.0%
</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 or warrants that are currently exercisable or exercisable within 60
days of , 2000 are deemed to be outstanding and to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage ownership
of any other person.
(2) The class A common stock and class A series II common stock vote together
with the common stock as a single class and are entitled to one vote for
each share. Shares of class A common stock and class A series II common
stock are convertible into shares of common stock:
- at the option of any holder thereof at any time,
- at the option of Viasystems upon the occurrence of a Triggering Event (as
defined below), and
- automatically on September 30, 2006.
A "Triggering Event" means any sale of substantially all of the assets
of Viasystems or any merger, consolidation or other business combination of
Viasystems in which Hicks Muse and its affiliates cease to beneficially
own, directly or indirectly, at least 50% of the resulting entity. Each
share of class A common stock and class A series II common stock is
convertible into a fraction of a share of common stock equal to:
(1) the fair market value of a share of common stock at the time of
conversion, minus the sum of $.99 in the case of the class A common
stock, or $1.21 in the case of class A series II common
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<PAGE> 75
stock, plus imputed interest at a rate of 8% per annum, compounded
annually, at the time of conversion,
(2) divided by the fair market value of a share of common stock at
the time of conversion.
Because the fraction of a share of common stock into which class A
common stock and class A series II common stock is convertible can be
determined only at the time of a conversion, the following table reflects
the assumed issuance of shares of common stock that may be issuable
upon conversion of class A common stock and class A series II common stock
based upon an initial public offering price of $ per share.
(3) These figures include shares of common stock owned of record by:
- Hicks, Muse Equity Fund III, a limited partnership, of which the ultimate
general partner is Hicks, Muse, Tate & Furst Fund III Incorporated, an
affiliate of Hicks Muse;
- HM3 Coinvestors, L.P., a limited partnership of which the ultimate
general partner is Hicks, Muse, Tate & Furst Fund III Incorporated;
- HMTF/Viasystems Partners, L.P., a limited partnership controlled by
affiliates of Hicks Muse;
- HMTF/Viasystems Investments, LLC, a limited liability company controlled
by affiliates of Hicks Muse and in which an affiliate of Hambrecht &
Quist LLC, one of the underwriters, holds an approximate 25% membership
interest; and
- Other stockholders who own shares of common stock subject to an
irrevocable proxy in favor of Hicks, Muse, Tate & Furst Equity Fund III,
L.P.
Thomas O. Hicks is a controlling stockholder of Hicks Muse and serves
as Chairman of the Board and Chief Executive Officer of Hicks, Muse, Tate &
Furst Incorporated. Jack D. Furst is an officer, director and minority
stockholder of Hicks, Muse, Tate & Furst Incorporated. Accordingly, Messrs.
Hicks and Furst may be deemed to be the beneficial owner of common stock
held by Hicks, Muse Equity Fund III, HM3 Coinvestors, L.P., HMTF/Viasystems
Partners, L.P. and HMTF/ Viasystems Investments, LLC. John R. Muse, Charles
W. Tate, Lawrence D. Stuart, Jr., Michael J. Levitt, Dan H. Blanks and
David R. Deniger are also officers, directors and minority stockholders of
Hicks Muse and as such may be deemed to share with Messrs. Hicks and Furst
the power to vote or dispose of common stock held by Hicks, Muse Equity
Fund III, HM3 Coinvestors, L.P., HMTF/Viasystems Partners, L.P. and
HMTF/Viasystems Investments, LLC. Each of Messrs. Hicks, Muse, Tate, Furst,
Stuart, Levitt, Blanks and Deniger disclaims the existence of a group and
disclaims beneficial ownership of common stock not owned of record by him.
(4) These figures include shares of common stock, class A common stock and class
A series II common stock held by James N. Mills and shares of common stock,
class A common stock and class A series II common stock owned of record by
certain individuals, including Mr. Sindelar, subject to an irrevocable proxy
in favor of Mr. Mills. For more information on this proxy, see the text
under the heading "Certain Transactions." These figures also include
shares of common stock issuable to Mr. Mills upon the exercise of
Amended Performance Options that are currently exercisable. For more
information on these Amended Performance Options, see the text under the
heading "Management -- Benefit Plans -- Performance Options."
(5) These figures include shares of common stock that may be acquired
by Mr. Vieser upon the exercise of options granted to him pursuant to a
stock option agreement with Viasystems.
(6) These figures include shares of common stock owned of record by
the Kenneth F. Yontz 1997 Family Trust, a trust of which Mr. Yontz does not
have the power to vote or dispose of this stock. Mr. Yontz disclaims
beneficial ownership of common stock not owned of record by him.
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<PAGE> 76
(7) These figures include:
- shares of class A common stock owned of record by two children's
trusts, of which Mr. Sindelar is a trustee having the power to vote and
dispose of this stock; and
- shares of class A common stock and shares of class A
series II common stock owned of record by The D&S Trust #2, of which Mr.
Sindelar's brother is the sole trustee. Mr. Sindelar disclaims beneficial
ownership of class A common stock not owned of record by him.
These figures also include shares of common stock issuable
to Mr. Sindelar upon exercise of Amended Performance Options that are
exercisable within the next 60 days. For more information on these Amended
Performance Options, see the text under the heading "Management -- Benefit
Plans -- Performance Options."
(8) Includes shares issuable upon exercise of outstanding options
issued under the Stock Option Plan that are exercisable within 60 days of
the date of this prospectus. Also includes shares of common stock
issuable to executive officers of Viasystems upon the exercise of Amended
Performance Options.
CERTAIN TRANSACTIONS
Viasystems and its subsidiaries have entered into a ten-year monitoring and
oversight agreement with Hicks, Muse & Co. Partners, L.P., ("Hicks Muse
Partners") an affiliate of Hicks Muse, as amended from time to time. Under the
monitoring and oversight agreement, Viasystems and its subsidiaries are required
to pay Hicks Muse Partners 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 0.2% of our budgeted consolidated
annual net sales for the then-current fiscal year, but in no event less than the
base fee of $1.75 million. Upon the acquisition by 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. Thomas O. Hicks and Jack D. Furst, directors of
Viasystems, are each principals of Hicks Muse Partners. Hicks Muse Partners is
also entitled to reimbursement for any expenses incurred by it in connection
with rendering services allocable to Viasystems under the monitoring and
oversight agreement. In addition, Viasystems and its subsidiaries have agreed to
indemnify Hicks Muse Partners, its affiliates, and their respective directors,
officers, controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees and disbursements of counsel
related to or arising out of or in connection with the services rendered by
Hicks Muse Partners under the monitoring and oversight agreement and not
resulting primarily from the bad faith, gross negligence, or willful misconduct
of Hicks Muse Partners. The monitoring and oversight agreement makes available
the resources of Hicks Muse Partners concerning a variety of financial and
operational matters.
Viasystems and its subsidiaries have also entered into a ten-year financial
advisory agreement, pursuant to which Hicks Muse Partners is entitled to receive
a fee equal to 1.5% of the "transaction value" (as defined) for each "add-on
transaction" (as defined) in which Viasystems or any of its subsidiaries is
involved. In respect of acquisitions to date, Hicks Muse Partners has received
aggregate fees of approximately $22.5 million under the financial advisory
agreement. The term "transaction value" means the total value of the add-on
transaction including without limitation, the aggregate amount of the funds
required to complete the add-on transaction, excluding any fees payable pursuant
to the financial advisory agreement, including the amount of any indebtedness,
preferred stock or similar terms assumed (or remaining outstanding). The term
"add-on transaction" means any future proposal for a tender offer, acquisition,
sale, merger, exchange offer, recapitalization, restructuring or other similar
transaction directly involving Viasystems or any of its subsidiaries or any of
their respective subsidiaries and any other person or entity. In addition,
Viasystems and its subsidiaries has agreed to indemnify Hicks Muse Partners, its
affiliates, and their respective directors, officers, controlling persons,
agents and employees from and against all claims, liabilities, losses, damages,
expenses and fees related to or arising out of or in connection with the
services rendered by Hicks Muse Partners under the financial advisory agreement
and not resulting primarily from the bad faith, gross
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<PAGE> 77
negligence, or willful misconduct of Hicks Muse Partners. The financial advisory
agreement makes available the resources of Hicks Muse Partners concerning a
variety of financial and operational matters. In connection with the
Transactions, Hicks Muse Partners has agreed to waive any fee payable under the
financial advisory 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 certain 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, class A
common stock and class A series II 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. The stockholders agreement contains an irrevocable
proxy pursuant to which all parties to the stockholders agreement, other than
the initial holders of class A common stock, class A series II common stock and
their transferees, grant to 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 the initial holders of class A common stock, class A series II
common stock 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 class A common stock and class A series II
common stock held by these parties on all matters submitted to stockholders. The
stockholders agreement was amended in November 1998 to provide that either James
N. Mills and David Sindelar or the beneficial owners of a majority of the
outstanding shares of class A common stock and class A series II common stock
may waive preemptive rights with respect to all shares of class A common stock
and class A series II common stock. The stockholders agreement terminates on its
tenth anniversary date.
Immediately prior to the consummation of the offering, Viasystems will
purchase the wire harness business 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. Following the completion 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.
Concurrently with the consummation of the offering, we will transfer all of
the capital stock of our subsidiaries that own the Transferred Operations to our
existing stockholders, including affiliates of Hicks Muse and officers and
directors of Viasystems. In consideration for the Transferred Operations, we
will receive a note payable to us in the aggregate principal amount of $150
million. Following the completion of the transfer, the Transferred Operations
are expected to enter into:
- a transition services agreement with us, whereby we will provide certain
administrative and financial services for the Transferred Operations for
a limited period of time; and
- a service and supply agreement, whereby the Transferred Operations will
continue to provide various manufacturing services to us from its
facilities at North Tyneside in the United Kingdom and Norrkoping,
Sweden, together with a grant of an option to purchase certain assets.
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<PAGE> 78
DESCRIPTION OF INDEBTEDNESS
SENIOR CREDIT FACILITY
In connection with the offering, Viasystems and its subsidiaries will enter
into a new senior secured credit facility with financial institutions and
lenders. The senior credit facility is expected to consist of a term loan
facility and revolving loan facility.
SENIOR SUBORDINATED NOTES
Following completion of the offering and the application of the net
proceeds therefrom, 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.
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 (as defined in the indentures) of Viasystems, Inc., pari
passu with any future senior subordinated indebtedness (as defined in the
indentures) of Viasystems, Inc., and senior to all subordinated indebtedness (as
defined in the indentures) of Viasystems, Inc.
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 thereof 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 such
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 (as defined in the indentures)at a redemption price equal to 100% of the
principal amount thereof, plus an applicable premium (defined in the indentures)
as of, and accrued and unpaid interest, if any, to, the date of redemption.
The indentures governing the notes contain certain restrictive covenants
which, among other things, impose limitations (subject to certain exceptions) on
Viasystems, Inc. with respect to (i) 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, (ii) the repayment or redemption of subordinated
indebtedness other than in accordance with scheduled repayment, (iii) making
investments, except for certain permitted investments, (iv) the incurrence of
indebtedness, except for certain permitted indebtedness and other indebtedness
incurred after satisfying specified financial ratios, (v) the incurrence of
indebtedness senior to the notes and subordinated to its senior indebtedness,
(vi) the restrictions of certain payments by subsidiaries to their respective
parents, (vii)sales of assets and stock of its subsidiaries,
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(viii) the issuance of capital stock by any of its subsidiaries, (ix)
transactions with stockholders and affiliates, and (x) the merger or sale of all
or substantially all of its assets. Upon the occurrence of certain 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 certain 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 its obligations under the notes indentures
at any time, except for certain obligations, by exercising its legal or covenant
defeasance option under the indentures. Viasystems, Inc. may exercise its
defeasance options 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 certain other defeasance conditions
and obligations set forth in the indentures.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and some provisions of our
charter gives effect to the for 1 reverse stock split that will be
effected prior to the offering and the other provisions of our amended and
restated certificate of incorporation, which is expected to be filed immediately
prior to the offering, as well as the issuance and sale of shares of
common stock in this 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 1,521,890.18 shares are
outstanding;
- shares of common stock, of which shares are
outstanding;
- 50,000,000 shares of class A common stock, of which shares are
outstanding; and
- 50,000,000 shares of class A series II common stock, of which
shares are outstanding.
STOCK RESERVED FOR ISSUANCE
No shares of series B preferred stock are reserved for issuance.
shares of common stock are reserved for issuance pursuant to options under the
Stock Option Plan. In addition, shares of common stock will be
reserved for issuance pursuant to outstanding Performance Options.
shares of common stock are reserved for issuance upon conversion of outstanding
shares of class A common stock and shares of common stock are reserved
for issuance upon conversion of outstanding shares of class A series II common
stock. No shares of either class A common stock or class A series II common
stock are reserved for issuance.
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 such class or
series 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. 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 such 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;
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except that 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 such
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,
such 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 such instance, 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, no cash dividends will be paid
with respect to any junior securities or parity stock nor will we redeem or
purchase any junior securities or parity stock (except in exchange for junior
securities) nor will we 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 such dividend; and
- 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 such 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 thereof 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 such funds to the holders of
the series B preferred stock and such 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 such shares. Upon the occurrence of a
"change of control", we must redeem, within sixty calendar days of such 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 such shares, plus an amount equal to accumulated and unpaid dividends on
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such shares to the date such shares are redeemed. Notwithstanding, our
obligation to redeem shares of the series B preferred stock upon the occurrence
of a change of control, however, is subject to any 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 (HMTF) ceases 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:
- HMTF owns greater than 20% of our outstanding common stock; and
- (A) any "Person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), excluding HMTF, is not or shall not become
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 HMTF, or (B) our board consists of a
majority of "continuing directors." "Continuing directors" means our
directors on November 26, 1996 and each other director, if in each case,
such other director's nomination for election to our board is recommended
by a majority of the then continuing directors or such other director
receives the vote of HMTF 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 such 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.
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,
with each share being 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.
Certain Actions. 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 such junior securities; or
- amend any rights of the series B preferred stock so as to affect
adversely such rights.
The above provisions will not prohibit:
- the payment of any dividend within sixty days after the date of
declaration, if at such payment would have complied with the above
provisions;
- the retirement of any of our shares of capital stock (other than shares
issued to HMTF 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 such 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.
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COMMON STOCK, CLASS A COMMON STOCK, AND CLASS A SERIES II COMMON STOCK
General. Except as discussed below, all shares of common stock, class A
common stock and the class A series II common stock have identical rights and
privileges.
Voting. Our common stock, class A common stock and class A series II common
stock are fully voting stock entitled to one vote per share with respect to all
matters to be voted on by our stockholders. Except as expressly required by
Delaware law, our common stock, class A common stock and class A series II
common stock will vote together as a single class.
Dividends. Holders of common stock, class A common stock and the class A
series II common stock are entitled to participate ratably, on a share-for-share
basis as if all shares were of a single class, in:
- ordinary dividends payable in cash out of our current earnings; and
- dividends in shares of common stock, class A common stock or class A
series II common stock (or rights to subscribe for or purchase shares of
common stock, class A common stock and class A series II common stock, as
applicable, or securities or indebtedness convertible into shares of
common stock, class A common stock and class A series II common stock, as
applicable);
except that:
- dividends payable in shares of common stock (or rights to subscribe for
or purchase shares of common stock or securities or indebtedness
convertible into shares of common stock) will be paid only on shares of
common stock;
- dividends payable in shares of class A common stock (or rights to
subscribe for or purchase shares of class A common stock or securities or
indebtedness convertible into shares of class A common stock) will be
paid only on shares of class A common stock; and
- dividends payable in shares of class A series II common stock (or rights
to subscribe for or purchase shares of class A series II common stock or
securities or indebtedness convertible into shares of class A series II
common stock) will be paid only on shares of class A series II common
stock. If we pay any dividend on the common stock other than the ratable
dividend as provided above, then the applicable "base price" (as defined
below) will be reduced by the per share amount of such dividend.
CONVERSION OF CLASS A COMMON STOCK AND THE CLASS A SERIES II COMMON STOCK
Conversion Rights. Holders of shares of class A common stock and class A
series II common stock may convert their shares into shares of common stock at
any time. In addition, shares of class A common stock:
- can be converted into shares of common stock at our option effective
immediately prior to the consummation of a "triggering event;" and
- will automatically be converted into shares of common stock on September
30, 2006.
Shares of class A series II common stock:
- can be converted into shares of common stock at our option effective
immediately prior to the consummation of a "triggering event;" and
- will automatically be converted into shares of common stock on April 30,
2008.
For purposes of such conversions, each share of class A common stock and
class A series II common stock will be convertible into a fraction of a share of
common stock equal to the quotient of (1) the excess, if any, of the fair value
of one share of common stock over the conversion price, as defined below,
divided by (2) the fair value of the common stock, all computed as of the close
of business on the date preceding the date of conversion. "Triggering event"
means certain mergers or business combinations in which we are not the surviving
entity, or any sale of all or substantially all of our assets; except that this
term does not include any transaction in which HMTF and/or its affiliates own
beneficially in excess of 50% of the outstanding capital stock of the surviving
entity.
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Adjustments for Dividends on Converted Shares. We will pay any dividends
declared but not paid on the shares of class A common stock or class A series II
common stock prior to conversion into common stock, on the payment date to the
holders of such shares; except that such holders will not be entitled to receive
the corresponding dividends declared but not paid on the shares of common stock
issuable upon such conversion.
Adjustments for Stock Splits and Stock Dividends. We will treat the common
stock, class A common stock and class A series II common stock identically in
respect of any subdivisions or combinations. If we subdivide the common stock,
class A common stock and class A series II common stock into a greater number of
shares, or combine the common stock, class A common stock and/or class A series
II common stock into a fewer number of shares, or pay to the holders of common
stock, class A common stock or class A series II common stock a dividend in
common stock, class A common stock or class A series II common stock, as
applicable, the then applicable "base price" shall be adjusted, effective at the
close of business on the effective date of such split or combination or the
record date for determination of the holders of common stock, class A common
stock or class A series II common stock entitled to such dividend, by
multiplying the base price then in effect times a fraction, (1) the numerator of
which is the total number of shares of class A common stock or class A series II
common stock, as the case may be, outstanding immediately before such
subdivision, combination, or dividend and (2) the denominator of which is the
total number of shares of class A common stock or class A series II common
stock, as the case may be, outstanding immediately after such subdivision,
combination, or dividend. "Base price" means $ with respect to the class A
common stock and $
with respect to the class A series II common stock. The "conversion price" means
the Base Price plus imputed interest at 8%, compounded annually.
Recapitalization, Consolidation, or Merger. In the event that we
recapitalize, consolidate or merge with or into any other corporation the terms
must provide (1) that the class A common stock and/or class A series II common
stock remain outstanding after such reorganization and (2) for any change in the
common stock, provision must be made as part of the terms of such reorganization
so that each holder of class A common stock or class A series II common stock
which will remain outstanding following such reorganization will be entitled to
receive, upon conversion of its class A common stock or class A series II common
stock and in lieu of each share of common stock issuable to it upon conversion
of its class A common stock or class A series II common stock prior to such
reorganization, the same kind and amount of securities or assets as will be
distributable upon such reorganization with respect to one share of common
stock.
Reservation of Shares. We will reserve and keep available such number of
shares of common stock sufficient to effect the conversion of all outstanding
shares of class A common stock and class A series II common stock and will
increase our authorized but unissued shares of common stock if necessary for
such purpose.
Fractional Shares. In lieu of any fractional share of common stock that
otherwise would be issuable upon conversion of shares of class A common stock or
class A series II common stock, we will deliver to the holder of the shares
being converted an amount in cash equal to the fair value of such fractional
shares on such conversion date.
Retirement of Shares. We will not reissue shares of class A common stock
and class A series II common stock which have been converted into common stock,
repurchased, or reacquired in any other manner.
Liquidation. Holders of our common stock, class A common stock and class A
series II common stock share ratably on a share-for-share basis in all
distributions of assets pursuant to any liquidation, dissolution, or winding-up
of the corporation.
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 certain 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
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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 such 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 such 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
stockholders might receive a premium for their stock over the then market price
of such stock. Our board does not intend to seek stockholder approval prior to
any issuance of such 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.
Number of Directors; Vacancies; Removal. Our amended and restated
certificate of incorporation will provide that the board must consist of at
least and no more than 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 such 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. 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 25% 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 such
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, including such 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 such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before such
meeting in accordance with our amended and restated bylaw procedures, such
business will not be conducted
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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.
LIMITATIONS ON DIRECTOR LIABILITY
Our amended and restated certificate of incorporation also contains certain
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, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for liability under
Section 174 of the DGCL (regarding certain unlawful dividends, stock repurchases
or stock redemptions), or for 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 such as an
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
violation of certain 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 certain persons deemed "interested
stockholders" from engaging in a "business combination" with a Delaware
corporation for three years following the date such 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 such person's status as an interested stockholder is
determined.
Subject to certain 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 certain exercises,
exchanges, conversions, distributions or offers to purchase with respect
to securities outstanding prior to the time that the interested
stockholder became such 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
- 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;
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- 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 (other than certain excluded shares); or
- following a transaction in which the person became an interested
stockholder, the business combination is (a) approved by our board and
(b) 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 and, 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. Such provisions may also have the
effect of preventing changes in our management. It is possible that such
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 .
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 and shares issued upon conversion of class A common stock and Class
A series II common stock, 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 shares of
common stock, assuming no exercise of the underwriters' over-allotment option.
Of these shares, shares, or 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
our affiliates as that term is defined in Rule 144 under the Securities Act. The
remaining shares of common stock outstanding and the shares of common stock
issuable upon conversion of the shares of outstanding class A common stock
and shares of outstanding class A series II common stock 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 in certain cases 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 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 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
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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 certain 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 currently reserved for issuance under
our Stock Option Plan and Amended Performance Options, that registration
statement would cover up to shares issuable on exercise of the options, of
which 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 in certain cases 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 certain 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. 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 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.
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<PAGE> 89
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source.
- 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
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes
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.
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<PAGE> 90
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, 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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<PAGE> 91
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the U.S. underwriters named below,
for whom Morgan Stanley & Co. Incorporated, Credit Suisse First Boston
Corporation and Hambrecht & Quist LLC are acting as U.S. representatives, and
the international underwriters named below for whom Morgan Stanley & Co.
International Limited, Credit Suisse First Boston (Europe) Limited and Hambrecht
& Quist LLC are acting as international representatives, 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>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Credit Suisse First Boston Corporation....................
Hambrecht & Quist LLC.....................................
--------
Subtotal..................................................
--------
International Underwriters:
Morgan Stanley & Co. International Limited................
Credit Suisse First Boston (Europe) Limited...............
Hambrecht & Quist LLC.....................................
--------
Subtotal..................................................
--------
Total.............................................
========
</TABLE>
The U.S. underwriters and the international underwriters are collectively
referred to as the underwriters, and the U.S. representatives and the
international representatives are collectively referred to as the
representatives. 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 certain legal matters by their counsel
and to certain other conditions. 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.
In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. The per share price of any shares sold by the
underwriters shall be the public offering price listed on the cover page of
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<PAGE> 92
this prospectus, in United States dollars, less an amount not greater than the
per share amount of the concession to dealers set forth 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 certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain 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 U.S. underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price listed on
the cover page of this prospectus, less underwriting discounts and commissions.
The U.S. 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 U.S. 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 U.S. underwriter's name in the
preceding table bears to the total number of shares of common stock listed next
to the names of all U.S. 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.
Viasystems expects to file an application for the common stock to be quoted
on [The New York Stock Exchange] [the Nasdaq National Market] under the symbol
" ."
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; or
- 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.
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
89
<PAGE> 93
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.
Certain 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, including Hicks Muse, for
which they have in the past received, and may in the future receive, customary
fees. An affiliate of Hambrecht & Quist LLC acts as an agent and lender under
Viasystems current credit facility and will act in such capacities under
Viasystems new credit facility, and receives fees customary for performing those
services. An affiliate of Hambrecht & Quist LLC holds an approximate 25%
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 Credit Suisse First Boston Corporation
and Hambrecht & Quist LLC 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
certain 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 will be determined by negotiations between Viasystems and the
representatives. Among the factors to be considered in determining the initial
public offering price will be:
- Viasystems' results of operations, current financial position and future
prospects;
- sales, earnings and certain of Viasystems' other financial and operating
information 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.
The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
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<PAGE> 94
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. Certain partners of Weil, Gotshal & Manges LLP are investors in
limited partnerships that own shares of our common stock. Certain 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, 1997 and 1998, and for the period from inception
(August 28, 1996) to December 31, 1996 and for the years ended December 31, 1997
and 1998, 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 consolidated
statements of earnings, retained earnings and changes in financial position of
Circo Craft Co. Inc. for the nine month period ended September 30, 1996,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, chartered accountants, Montreal, Quebec, given on
the authority of said firm as experts in accounting and auditing. The statement
of operations of the Interconnection Business of the Microelectronics Group,
Interconnection Technologies Unit of Lucent Technologies Inc. for the eleven
month period ended November 30, 1996, 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. The consolidated profit and loss account and statement
of total recognized gains and losses and of cash flows of Interconnection
Systems (Holdings) Limited for the year ended April 4, 1997, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, chartered accountants, Birmingham, England, given on the
authority of said firm as experts in accounting and auditing.
The consolidated profit and loss account, total recognized gains and losses
and statement of cash flows of Forward Group PLC for the year ended January 31,
1997, have been included herein in reliance on the report of KPMG Audit Plc,
chartered accountants and registered auditor, Birmingham, England, given on the
authority of that 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.
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<PAGE> 95
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, 1997 and 1998
and September 30, 1999 (unaudited)........................ F-3
Consolidated Statements of Operations and Comprehensive
Income from inception (August 28, 1996) to December 31,
1996 and for the years ended December 31, 1997 and 1998
and for the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited).......................... F-4
Consolidated Statements of Stockholders' Deficit from
inception (August 28, 1996) to December 31, 1996 and for
the years ended December 31, 1997 and 1998 and for the
nine months ended September 30, 1999 (unaudited).......... F-5
Consolidated Statements of Cash Flows from inception (August
28, 1996) to December 31, 1996 and for the years ended
December 31, 1997 and 1998 and for the nine months ended
September 30, 1998 (unaudited) and 1999 (unaudited)....... F-6
Notes to Consolidated Financial Statements.................. F-7
CIRCO CRAFT CO. INC.
Auditors' Report............................................ F-36
Consolidated Statement of Retained Earnings for the nine
month period ended September 30, 1996..................... F-37
Consolidated Statement of Earnings for the nine month period
ended September 30, 1996.................................. F-38
Consolidated Statement of Changes in Financial Position for
the nine month period ended September 30, 1996............ F-39
Notes to Consolidated Statements............................ F-40
VIASYSTEMS TECHNOLOGIES CORP. (FORMERLY MICROELECTRONICS
GROUP, INTERCONNECTION TECHNOLOGIES UNIT OF LUCENT
TECHNOLOGIES, INC.)
Report of Independent Accountants........................... F-46
Statement of Operations for the eleven month period ended
November 30, 1996......................................... F-47
Notes to Financial Statement................................ F-48
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED -- THE
PCB DIVISION
Independent Auditors' Report................................ F-51
Combined Statement of Income for the year ended March 31,
1999...................................................... F-52
Combined Balance Sheet as of March 31, 1999................. F-53
Combined Statement of Changes in Divisional Equity for the
year ended March 31, 1999................................. F-54
Combined Statement of Cash Flows for the year ended March
31, 1999.................................................. F-55
Notes to the Combined Financial Statements.................. F-57
FORWARD GROUP PLC
Report of Independent Auditors.............................. F-72
Consolidated Profit and Loss Account for the year ended
January 31, 1997.......................................... F-73
Consolidated Statement of Total Recognized Gains and Losses
for the year ended January 31, 1997....................... F-74
Consolidated Statement of Cash Flows for the year ended
January 31, 1997.......................................... F-75
Notes to the Consolidated Financial Statements.............. F-76
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
Report of Independent Auditors.............................. F-89
Consolidated Profit and Loss Account for the year ended
April 4, 1997............................................. F-90
Consolidated Statement of Total Recognized Gains and Losses
for the year ended April 4, 1997.......................... F-91
Consolidated Statement of Cash Flows for the year ended
April 4, 1997............................................. F-92
Notes to the Consolidated Financial Statements.............. F-93
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors 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, 1997 and 1998 and the results of their operations and their cash flows for
the period from inception (August 28, 1996) to December 31, 1996 and the years
ended December 31, 1997 and 1998, in conformity with 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 statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 7, 2000
F-2
<PAGE> 97
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 27,538 $ 9,335 $ 18,662
Accounts receivable, less allowance for doubtful accounts
of $2,573 for 1997, $3,794 for 1998..................... 135,299 204,545 262,425
Inventories............................................... 62,601 105,619 132,261
Prepaid expenses and other................................ 26,240 44,612 38,657
---------- ---------- ----------
Total current assets............................... 251,678 364,111 452,005
Property, plant and equipment, net.......................... 448,128 580,204 680,098
Deferred financing costs, net............................... 30,839 41,986 43,762
Intangible assets, net...................................... 337,327 421,747 550,993
Other assets................................................ 940 46,655 65,574
---------- ---------- ----------
Total assets....................................... $1,068,912 $1,454,703 $1,792,432
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations............... $ 31,363 $ 54,534 $ 25,214
Accounts payable.......................................... 86,941 133,725 157,480
Accrued and other liabilities............................. 85,860 141,400 138,447
Income taxes payable...................................... 30,855 14,914 21,376
---------- ---------- ----------
Total current liabilities.......................... 235,019 344,573 342,517
Deferred taxes.............................................. 67,797 77,214 75,291
Long-term obligations, less current maturities.............. 816,012 1,079,961 1,323,745
Other non-current liabilities............................... 42,277 66,441 74,703
---------- ---------- ----------
Total liabilities.................................. 1,161,105 1,568,189 1,816,256
---------- ---------- ----------
Stockholders' deficit
Series B preferred stock, par value $.01 per share,
6,000,000 shares authorized; 1,298,919, 1,405,991 and
1,492,049 (unaudited) shares issued and outstanding,
respectively, including liquidation preferences of
$25.00 per share...................................... 13 14 15
Common stock, par value $.01 per share, 500,000,000
shares authorized; 256,475,004, 302,488,861 and
467,987,632 (unaudited) shares issued and outstanding,
respectively.......................................... 2,565 3,025 4,681
Class A common stock, par value $.01 per share,
50,000,000 shares authorized; 34,835,832, 35,177,359
and 35,177,359 (unaudited) shares issued and
outstanding, respectively............................. 348 351 351
Series II Class A common stock, par value $.01 per
share, 10,000,000 shares authorized; 0, 5,940,370 and
13,403,370 (unaudited) shares issued and outstanding,
respectively.......................................... -- 59 134
Paid in capital......................................... 283,135 341,991 543,583
Accumulated deficit..................................... (379,528) (468,046) (564,442)
Treasury stock, at cost................................. -- -- (122)
Accumulated other comprehensive income.................. 1,274 9,120 (8,024)
---------- ---------- ----------
Total stockholders' deficit........................ (92,193) (113,486) (23,824)
---------- ---------- ----------
Total liabilities and stockholders' deficit........ $1,068,912 $1,454,703 $1,792,432
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 98
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION
(AUGUST 28, YEARS ENDED NINE MONTHS ENDED
1996) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- ----------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 50,400 $ 795,289 $ 1,031,928 $ 767,307 $ 790,481
Operating expenses:
Cost of goods sold.................. 42,052 554,097 723,741 552,357 590,754
Selling, general and
administrative.................... 3,844 75,650 106,749 81,655 78,052
Depreciation........................ 4,102 51,884 104,831 59,125 80,678
Amortization of intangibles......... 533 58,153 61,775 50,027 40,129
Write-off of acquired in-process
research and development.......... 50,800 294,500 20,100 20,100 17,600
---------- ------------ ------------ ------------ ------------
Operating income (loss)............... (50,931) (238,995) 14,732 4,043 (16,732)
---------- ------------ ------------ ------------ ------------
Other expenses:
Interest expense.................... 2,503 64,612 92,535 68,273 79,972
Amortization of deferred financing
costs............................. 470 6,629 9,354 6,789 4,741
Other expense....................... 262 1,024 4,960 2,659 3,730
---------- ------------ ------------ ------------ ------------
Loss before income taxes, cumulative
effect of a change in accounting
principle and extraordinary item.... (54,166) (311,260) (92,117) (73,678) (105,175)
Provision (benefit) for income
taxes............................... (5,424) 8,432 (7,334) (13,094) (28,850)
---------- ------------ ------------ ------------ ------------
Loss before cumulative effect of a
change in accounting principle and
extraordinary item.................. (48,742) (319,692) (84,783) (60,584) (76,325)
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.............................. (48,742) (327,488) (84,783) (60,584) (93,267)
Other comprehensive income (loss):
Foreign currency translation
adjustments....................... (79) 1,353 9,187 21,533 (17,144)
Minimum pension liability, net of
income tax benefit of $575........ -- -- (1,341) -- --
---------- ------------ ------------ ------------ ------------
Comprehensive loss.................... $ (48,821) $ (326,135) $ (76,937) $ (39,051) $ (110,411)
========== ============ ============ ============ ============
Basic loss per weighted average common
share:
Before cumulative effect of a change
in accounting principle and
extraordinary item................ $ (4.96) $ (1.79) $ (0.27) $ (0.20) $ (0.20)
Cumulative effect................... -- -- -- -- (0.05)
Extraordinary item.................. -- (0.04) -- -- --
---------- ------------ ------------ ------------ ------------
Net loss............................ $ (4.96) $ (1.83) $ (0.27) $ (0.20) $ (0.25)
========== ============ ============ ============ ============
Diluted loss per weighted average
common share:
Before cumulative effect of a change
in accounting principle and
extraordinary item................ $ (5.60) $ (1.99) $ (0.30) $ (0.22) $ (0.23)
Cumulative effect................... -- -- -- -- (0.05)
Extraordinary item.................. -- (0.05) -- -- --
---------- ------------ ------------ ------------ ------------
Net loss.......................... $ (5.60) $ (2.04) $ (0.30) $ (0.22) $ (0.28)
========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 99
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
AND OTHER
COMPREHENSIVE
PREFERRED COMMON PAID IN ACCUMULATED TREASURY INCOME
STOCK STOCK CAPITAL DEFICIT STOCK (LOSS) TOTAL
--------- ------ -------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception (August 28, 1996)..... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 30,000,004 shares of common
stock.................................. -- 300 29,700 -- -- -- 30,000
Issuance of 4,098,333 shares of Class A
common stock........................... -- 41 -- -- -- -- 41
Issuance of 1,800,000 shares of Series A
Preferred Stock........................ 18 -- 44,982 -- -- -- 45,000
Issuance of 1,200,000 shares of Series B
Preferred Stock........................ 12 -- 29,988 -- -- -- 30,000
Stock issuance costs..................... -- -- (1,247) -- -- -- (1,247)
Net loss................................. -- -- -- (48,742) -- -- (48,742)
Foreign currency translation
adjustment............................. -- -- -- -- -- (79) (79)
---- ------ -------- --------- ----- -------- ---------
Balance at December 31, 1996............... 30 341 103,423 (48,742) -- (79) 54,973
Issuance of 226,475,000 shares of common
stock.................................. -- 2,265 224,210 -- -- -- 226,475
Issuance of 30,737,499 shares of Class A
common stock........................... -- 307 -- -- -- -- 307
Conversion of 1,800,000 shares of Series
A Preferred Stock into common stock.... (18) -- (44,982) -- -- -- (45,000)
Issuance of 1,600,000 shares of Series C
Preferred Stock........................ 16 -- 39,984 -- -- 40,000
Conversion of 1,600,000 shares of Series
C Preferred Stock into common stock.... (16) -- (39,984) -- -- (40,000)
Paid-in-kind dividends of 98,919 shares
and accretion of Series B Preferred
Stock.................................. 1 -- 3,297 (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............... 13 2,913 283,135 (379,528) -- 1,274 (92,193)
Issuance of 46,013,857 shares of common
stock.................................. -- 460 55,122 -- -- -- 55,582
Issuance of 341,527 shares of Class A
common stock........................... -- 3 -- -- -- -- 3
Issuance of 5,940,370 shares of Class A
Series II common stock................. -- 59 -- -- -- -- 59
Paid-in-kind dividends of 107,073 shares
and accretion of Series B Preferred
Stock.................................. 1 -- 3,734 (3,735) -- --
Net loss................................. -- -- -- (84,783) -- -- (84,783)
Minimum pension liability................ -- -- -- -- -- (1,341) (1,341)
Foreign currency translation
adjustment............................. -- -- -- -- -- 9,187 9,187
---- ------ -------- --------- ----- -------- ---------
Balance at December 31, 1998............... 14 3,435 341,991 (468,046) -- 9,120 (113,486)
Issuance of 165,598,771 shares of common
stock (unaudited)...................... -- 1,656 200,371 -- -- -- 202,027
Issuance of 7,463,000 shares of Class A
Series II common stock (unaudited)..... -- 75 -- -- -- -- 75
Repurchase of 100,000 shares of common
stock (unaudited)...................... -- -- -- -- (122) -- (122)
Stock issuance costs (unaudited)......... (1,907) -- (1,907)
Paid-in-kind dividends of 86,058 shares
and accretion of Series B Preferred
Stock.................................. 1 -- 3,128 (3,129) -- -- --
Net loss (unaudited)..................... -- -- -- (93,267) -- -- (93,267)
Foreign currency translation adjustment
(unaudited)............................ -- -- -- -- -- (17,144) (17,144)
---- ------ -------- --------- ----- -------- ---------
Balance at September 30, 1999
(unaudited).............................. $ 15 $5,166 $543,583 $(564,442) $(122) $ (8,024) $ (23,824)
==== ====== ======== ========= ===== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 100
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(AUGUST 28, YEARS ENDED NINE MONTHS ENDED
1996) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- ------------------------
1996 1997 1998 1998 1999
------------ --------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) operating
activities:
Net loss.................................... $ (48,742) $(327,488) $ (84,783) $ (60,584) $ (93,267)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write-off of acquired in-process research
and development......................... 50,800 294,500 20,100 20,100 17,600
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 -- -- --
Depreciation and amortization of
intangibles............................. 4,635 110,037 166,606 109,152 120,807
Amortization of deferred financing
costs................................... 470 6,629 9,354 6,789 4,741
Deferred taxes............................ (5,594) (15,109) (15,127) (10,709) (33,584)
Change in assets and liabilities, net of
acquisitions:
Accounts receivable..................... (15,469) (8,050) (20,641) (25,780) (25,516)
Inventories............................. 2,655 (15,979) (19,997) 3,581 (9,519)
Prepaid expenses and other.............. (927) (6,640) (22,693) (9,551) 1,609
Accounts payable and accrued and other
liabilities.......................... 14,875 38,539 (65,976) (59,570) (10,217)
Income taxes payable.................... (1,041) 16,339 (10,678) -- 1,218
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities............... 1,662 104,906 (43,835) (26,572) (3,539)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired of
$20,890 for 1996, $42,778 for 1997 and
$3,738 for 1998........................... (282,723) (155,904) (145,665) (145,464) (313,843)
Capital expenditures........................ (3,563) (117,163) (130,361) (86,416) (77,388)
--------- --------- --------- --------- ---------
Net cash used in investing activities......... (286,286) (273,067) (276,026) (231,880) (391,231)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations............................... 238,283 -- 103,938 103,438 264,875
Proceeds from the issuance of Senior
Subordinated Notes, due 2007.............. -- 400,000 -- -- --
Proceeds from the issuance of Series B
Senior Subordinated Notes, due 2007....... -- -- 104,500 104,500 --
Proceeds from the Subordinated Credit
Facility.................................. -- 216,000 -- -- --
Net borrowings on Revolvers................. -- -- 117,244 29,260 50,307
Repayment of amounts due under the Credit
Agreements and the Second Amended and
Restated Credit Agreement................. -- (151,964) (16,000) -- --
Repayment of amounts under the Chips Loan
Notes Liability........................... -- -- (33,938) (33,938) --
Repayment of the Subordinated Credit
Facility.................................. -- (216,000) -- -- --
Chips Term Loans -- Cash collateral......... -- -- -- -- (89,875)
Repayment of other long-term obligations.... -- (90,187) (12,085) (7,817) (10,742)
Equity proceeds............................. 73,794 60,719 55,644 55,616 198,077
Financing fees and other.................... (11,364) (34,491) (15,773) (12,271) (7,706)
--------- --------- --------- --------- ---------
Net cash provided by financing activities..... 300,713 184,077 303,530 238,788 404,936
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and
cash equivalents............................ 28 (4,495) (1,872) 2,512 (839)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents....... 16,117 11,421 (18,203) (17,152) 9,327
Cash and cash equivalents at beginning of
period...................................... -- 16,117 27,538 27,538 9,335
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.... $ 16,117 $ 27,538 $ 9,335 $ 10,386 $ 18,662
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 101
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.
1996 ACQUISITIONS
On October 1, 1996, the Company acquired all of the outstanding stock of
Circo Craft Co. Inc. ("Circo Craft"), a Quebec corporation and a rigid printed
circuit board ("PCB") manufacturer, for aggregate cash consideration of $129,850
plus acquisition fees and expenses of $885 (the "Circo Craft Acquisition"). The
operating results of Circo Craft Co. Inc. are included in the consolidated
financial statements of the Company since the date of the Circo Craft
Acquisition.
The Circo Craft Acquisition has been accounted for using the purchase
method of accounting whereby the total purchase price has been allocated to the
assets and liabilities based on their estimated respective fair values. The
Company allocated a significant portion of the purchase price, as described
below, to intangible assets, including approximately $39,200 of in-process
research and development ("in-process R&D"). The portion of the purchase price
allocated to in-process R&D projects that did not have a future alternative use
totaled $39,200 and was charged to expense as of the acquisition date. The
in-process R&D projects relate primarily to developing significant enhancements
to the current product offering, as well as introducing advanced new products.
The incomplete projects include new connector functionality, chip packaging
solutions, component miniaturization, specialty drilling and surface finishes.
Given the uniqueness of the tasks and the technologies involved, alternative
future uses for these projects, apart from the objectives and economics of the
projects for which they are intended, do not exist. The Company believes that
the efforts to complete the acquired in-process R&D projects will consist of
internally-staffed engineering costs over the next two to four years. The costs
to complete the in-process R&D projects and to procure, develop and test the
required capital assets are anticipated to be significant. The other acquired
intangibles include developed technology, assembled workforce, and customer
list. These intangibles are being amortized over their estimated useful lives of
1-15 years. The remaining unidentified intangible asset has been allocated to
goodwill and is being amortized over its estimated useful life of 20 years (see
Note 2).
On December 1, 1996, the Company, through its newly formed subsidiary,
Viasystems Technologies Corp., acquired certain assets and assumed certain
liabilities of the Microelectronics Group, Interconnection Technologies Unit of
Lucent Technologies Inc. (the "Lucent Division"), a rigid PCB manufacturer and
backplane assembler, (the "Lucent Division Acquisition") for an aggregate cash
consideration of $170,000 and 1,200,000 shares of preferred stock valued at
$30,000 plus acquisition fees and expenses of $1,969. The operating results of
Viasystems Technologies Corp. are included in the consolidated financial
statements of the Company since the date of the Lucent Division Acquisition.
The Lucent Division Acquisition was accounted for using the purchase method
of accounting whereby the total purchase price has been allocated to the assets
and liabilities based on their estimated respective fair values. The Company
allocated a significant portion of the purchase price, as described below, to
intangible assets, including approximately $11,600 of in-process R&D. The
portion of the purchase price allocated to in-process R&D projects that did not
have a future alternative use totaled $11,600 and was charged to expense as of
the acquisition date. The in-process R&D projects relate primarily to developing
significant enhancements to the current product offering as well as introducing
advanced new products. The incomplete projects include new connector
functionality, chip packaging solutions, component miniaturization, specialty
drilling and surface finishes. Given the uniqueness of the tasks and the
technologies involved, alternative future uses for these projects, apart from
the objectives and economics of the projects for which they are intended, do not
F-7
<PAGE> 102
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exist. The Company believes that the efforts to complete the acquired in-process
R&D projects will consist of internally-staffed engineering costs over the next
two to four years. The costs to complete the in-process R&D projects and to
procure, develop and test the required capital assets are anticipated to be
significant. The other acquired intangibles include developed technology,
assembled workforce, and customer list. These intangibles are being amortized
over their estimated useful lives of 1-15 years. The remaining unidentified
intangible asset has been allocated to goodwill and is being amortized over its
estimated useful life of 20 years (see Note 2).
In connection with the Lucent Division Acquisition, the Company entered
into a supply agreement with Lucent Technologies Inc. ("Lucent Technologies")
under which Lucent Technologies agreed to purchase minimum annual dollar volumes
of PCBs and backplanes from the Company at defined prices. Such agreement also
provides the Company with specified remedies against Lucent Technologies in the
event Lucent Technologies does not purchase the minimum annual volumes set forth
in the agreement.
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 8).
The Forward Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. Accordingly, the
results of operations of Forward since its acquisition are included in the
results of operations of the Company. The Company has allocated a significant
portion of the purchase price, as described below, to intangible assets,
including approximately $97,800 of in-process R&D. The portion of the purchase
price allocated to in-process R&D projects that did not have a future
alternative use totaled $97,800 and was charged to expense as of the acquisition
date. The other acquired intangibles include developed technology, assembled
workforce, and customer list. These intangibles are being amortized over their
estimated useful lives of 1-15 years. The remaining unidentified intangible
asset has been allocated to goodwill and is being amortized over its estimated
useful life of 20 years (see Note 2).
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 57,034
Property, plant and equipment............................... 59,358
Developed technologies...................................... 34,800
Assembled workforce......................................... 6,600
Customer list............................................... 13,200
In-process R&D.............................................. 97,800
Goodwill.................................................... 82,240
Non-current assets.......................................... 5,660
Current liabilities......................................... (86,297)
Non-current liabilities..................................... (56,327)
--------
Total............................................. $214,068
========
</TABLE>
F-8
<PAGE> 103
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, the Company's stockholders and certain of its affiliates
formed Chips Holding, Inc., to acquire Interconnection Systems (Holdings)
Limited ("ISL"), a manufacturer of rigid PCBs located in the U.K. On April 21,
1997, Chips Holdings, Inc. acquired ISL for $437,500 plus $8,953 of acquisition
fees and expenses (the "ISL Acquisition"). The purchase price consisted entirely
of notes payable to the former stockholders of ISL. In connection with the
transaction, the stockholders of the Company invested $140,000 of equity capital
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 140,000,000 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 8).
The ISL Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. The Company has
allocated a significant portion of the purchase price, as described below, to
intangible assets, including approximately $196,700 of in-process R&D. The
portion of the purchase price allocated to in-process R&D projects that did not
have a future alternative use totaled $196,700 and was charged to expense as of
the acquisition date. The other acquired intangibles include developed
technology, assembled workforce, and customer list. These intangibles are being
amortized over their estimated useful lives of 1-15 years. The remaining
unidentified intangible asset has been allocated to goodwill and is being
amortized over its estimated useful life of 20 years (see Note 2).
The Chips Merger was accounted for as a transfer of assets among companies
under common control and was recorded at Chips Holdings, Inc.'s historical cost.
In the Chips Merger, ISL and its subsidiaries became wholly owned subsidiaries
of 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 is
comprised of numerous R&D programs that should reach completion during periods
ranging from 1998 through 1999. These projects will include the introduction of
important new technology that will, if successful, enable the advancement of the
1997 Acquisitions' PCB product line. At the acquisition date, R&D programs
ranged in completion from 10% to 90% complete and total continuing research and
development commitments to complete the projects are expected to be
approximately $5,900. These estimates are subject to change, given the
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.
F-9
<PAGE> 104
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, these projects will require maintenance research and development
after they have reached a state of technological and commercial feasibility. In
addition to usage of the companies' internal cash flows, Viasystems will likely
provide a substantial amount of funding to complete each company's programs.
Remaining development efforts for the in-process R&D programs are complex and
include the development of next-generation technological solutions.
Certain projects within the 1997 Acquisitions' in-process R&D programs
began to bear results in 1998. As evidenced by their continued support for these
projects, management believes the Company is well positioned to successfully
complete each of the major in-process R&D programs. Management believes other
in-process projects are on track to be completed and will continue to bear
results in future periods. However, there is risk associated with the completion
of the projects and there is no assurance that each will meet with either
technological or commercial success. The substantial delay or outright failure
of the in-process R&D related to the 1997 Acquisitions would impact the
Company's business, results of operations and cash flows.
The 1997 Acquisitions' total revenues are projected to increase over the
next 5 years, assuming the successful completion and market acceptance of the
in-process R&D programs. Estimated revenue from existing technologies of the
1997 Acquisitions is expected to grow in 1999, then begins a slow decline over
the next 10 years as the in-process technologies are completed and existing
processes and know-how approach obsolescence. The estimated revenues for
in-process R&D projects related to the 1997 Acquisitions are expected to peak in
2005, and thereafter decline as other new products and technologies are expected
to enter the market.
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 backplanes,
for a cash purchase price of approximately $59,399, plus assumed obligations
(the "Mommers Acquisition"). Accordingly, the results of operations of Mommers
since its acquisition are included in the results of operations of the company.
The Mommers Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. The Company has
allocated a portion of the purchase price, as described below, to intangible
assets, including in-process R&D. The portion of the purchase price allocated to
in-process R&D projects that did not have a future alternative use totaled
$5,300 and was charged to expense as of the acquisition date. The other acquired
intangibles include developed technologies, assembled workforce, and customer
list. These intangibles are being amortized over their estimated useful lives of
1-15 years. The remaining unidentified intangible asset has been allocated to
goodwill and is being amortized over its estimated useful life of 20 years (see
Note 2).
F-10
<PAGE> 105
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.............................................. $ 24,634
Property, plant and equipment............................... 28,917
Acquired intangibles........................................ 13,000
In-process R&D.............................................. 5,300
Goodwill.................................................... 28,562
Current liabilities......................................... (29,468)
Non-current liabilities..................................... (11,546)
--------
Total............................................. $ 59,399
========
</TABLE>
In March 1998, the Company acquired all the outstanding shares of
Zincocelere S.p.A. ("Zincocelere"), a PCB manufacturer located in northern Italy
and specializing in the production of high-volume medium- to high-complexity
PCBs, for a cash purchase price of approximately $85,012, plus assumed
obligations (the "Zincocelere Acquisition").
The Zincocelere Acquisition has been accounted for using the purchase
method of accounting whereby the total purchase price has been allocated to the
assets and liabilities based on their estimated respective fair values. The
Company has allocated a portion of the purchase price, as described below, to
intangible assets, including in-process R&D. The portion of the purchase price
allocated to in-process R&D projects that did not have a future alternative use
totaled $14,800 and was charged to expense as of the acquisition date. The other
acquired intangibles include developed technologies, assembled workforce, and
customer list. These intangibles are being amortized over their estimated useful
lives of 1-15 years. The remaining unidentified intangible asset has been
allocated to goodwill and is being amortized over its estimated useful life of
20 years (see Note 2).
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 58,642
Property, plant and equipment............................... 51,620
Acquired intangibles........................................ 21,000
In-process R&D.............................................. 14,800
Goodwill.................................................... 37,680
Current liabilities......................................... (56,620)
Non-current liabilities..................................... (42,110)
--------
Total............................................. $ 85,012
========
</TABLE>
The Mommers and Zincocelere Acquisitions were funded by a February 1998
offering of $100,000 of 9 3/4% Series B Senior Subordinated Notes due 2007, a
$70,000 term loan (see Note 8), and an additional equity contribution of
$50,000.
Mommers' and Zincocelere' (the "1998 Acquisitions") in-process R&D value is
comprised of numerous R&D programs that should reach completion during periods
ranging from 1999 through 2001. These projects will include the introduction of
important new technology that will, if successful, enable the advancement of the
1998 Acquisitions' PCB product line. At the acquisition date, R&D programs
ranged in completion from 10% to 90% complete and total continuing research and
development commitments to complete the projects are expected to be
approximately $15,900. These estimates are subject to change, given the
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.
F-11
<PAGE> 106
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, these projects will require maintenance research and development
after they have reached a state of technological and commercial feasibility. In
addition to usage of the companies' internal cash flows, Viasystems will likely
provide a substantial amount of funding to complete each company's programs.
Remaining development efforts for the in-process R&D programs are complex and
include the development of next-generation technological solutions.
Certain projects within the 1998 Acquisitions' in-process R&D programs will
begin to bear results in late 1999. As evidenced by their continued support for
these projects, management believes the Company is well positioned to
successfully complete each of the major in-process R&D programs. Management
believes other in-process projects are on track to be completed and will
continue to bear results in future periods. However, there is risk associated
with the completion of the projects and there is no assurance that each will
meet with either technological or commercial success. The substantial delay or
outright failure of the in-process R&D related to the 1998 Acquisitions would
impact the Company's business, results of operations and cash flows.
The 1998 Acquisitions' total revenues are projected to increase over the
next 5 years, assuming the successful completion and market acceptance of the
in-process R&D programs. Estimated revenue from existing technologies of the
1998 Acquisition is expected to grow in 1999, then begins a slow decline over
the next 5-8 years as the in-process technologies are completed and existing
processes and know-how approach obsolescence. The estimated revenues for
in-process projects related to the 1998 Acquisitions are expected to peak in
2003, and thereafter decline as other new products and technologies are expected
to enter the market.
The Company incurred significant charges in 1996, 1997 and 1998 related to
purchased in-process R&D costs. A portion of the purchase price for acquisitions
was attributed to the value of in-process R&D projects and was expensed in
accordance with Statement of Accounting Standards No. 2, "Accounting for
Research and Development Costs." The Company believes its accounting for
purchased in-process R&D was made in accordance with generally accepted
accounting principles and valuation practices at the time of the related
acquisitions. The Company obtained independent valuations of the purchased
in-process R&D.
In connection with the acquisitions of Forward, ISL, Mommers, Zincocelere,
and the Ericsson Facility, the Company's management assessed and evaluated the
operations, employment levels and overall strategic fit of each facility
acquired. As a result of this assessment and finalization of its plans, the
Company recorded certain plant shutdown, downsizing and consolidation accruals
as part of the purchase price allocations related to the 1997 and 1998
Acquisitions, which also resulted in certain adjustments to the Company's
preliminary purchase price allocations.
Accruals were established to cover costs associated with the closure of the
Selkirk and Galashiels, Scotland facilities, to cover costs associated with the
closure of the Manchester, Rugby and Telford, England facilities. The accruals
cover shutdown costs from the period of the plant closure to the date of
disposal, including personnel and severance related costs, lease commitment
costs, equipment removal and disposal costs, cleanup and restoration costs and
idle plant costs.
During fiscal 1998, plant shutdown and downsizing actions resulted in the
termination of approximately 860 employees. Remaining shutdown actions are
expected to be complete by the end of fiscal 1999.
F-12
<PAGE> 107
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of accrued liabilities follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of year.......................... $ -- $ 8,863 $39,620
Provisions:
Personnel and severance costs..................... 4,000 35,313 --
Equipment removal and disposal.................... 3,300 7,356 --
Idle plant costs.................................. -- 5,715 --
Cleanup and restoration........................... 1,000 3,519 --
Lease commitment costs............................ 563 1,906 --
------ ------- -------
Total..................................... 8,863 62,672 39,620
------ ------- -------
Costs incurred:
Personnel and severance costs..................... -- 19,394 9,811
Equipment removal and disposal.................... -- 1,475 1,327
Idle plant costs.................................. -- 371 1,371
Cleanup and restoration........................... -- 1,812 2,245
Lease commitment costs............................ -- -- 472
------ ------- -------
Total..................................... -- 23,052 15,226
------ ------- -------
Balance, end of year................................ $8,863 $39,620 $24,394
====== ======= =======
</TABLE>
Included below is unaudited pro forma financial data setting forth results
of operations of the Company for the year ended December 31, 1997, as though the
Forward Acquisition, the ISL Acquisition, the Mommers Acquisition and the
Zincocelere Acquisition and the related financing had occurred at January 1,
1997 and for the year ended December 31, 1998, as though the Mommers Acquisition
and the Zincocelere Acquisition and the related financing had occurred at
January 1, 1998. In preparing this data, the financial data of Forward for the
three months ended March 31, 1997 has been translated at an exchange rate of
U.K. L0.61=U.S.$1.00, which is not materially different from the average
exchange rate for the period. The financial data for ISL for the three months
ended April 4, 1997, has been translated at an exchange rate of U.K.
L0.61=U.S.$1.00, which is not materially different from the average exchange
rate for the period. The financial data of Mommers for the year ended December
31, 1997 and for the two months ended February 28, 1998, has been translated at
an exchange rate of Dutch Guilder 2.02=U.S.$1.00 and Dutch Guilder
2.08=U.S.$1.00, respectively, which is not materially different from the average
exchange rate for the respective period. The financial data of Zincocelere for
the year ended December 31, 1997, and for the two months ended February 28, 1998
has been translated at an exchange rate of Italian Lira 1,761.00=U.S.$1.00 and
Italian Lira 1,821.00=U.S.$1.00, respectively, which is not materially different
from the average exchange rate for the respective period.
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net sales................................................... $1,129,264 $1,067,080
Loss before extraordinary item.............................. (387,148) (92,439)
Net loss.................................................... (389,867) (92,439)
</TABLE>
1999 ACQUISITIONS (UNAUDITED)
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
F-13
<PAGE> 108
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 preliminarily allocated to
the assets and liabilities based on their estimated respective fair values. The
Company has allocated a portion of the purchase price, as described below, to
intangible assets, including in-process research and development ("in-process
R&D"). The portion of the purchase price allocated to in-process R&D projects
that did not have future alternative use totaled $17,600 and was charged to
expense as of the acquisition date. The other acquired intangibles include
developed technologies, assembled workforce and customer list. These intangibles
are being amortized over their estimated useful lives of 1-15 years. The
remaining unidentified intangible asset has been allocated to goodwill and is
being amortized over its estimated useful life of 20 years.
Kalex's in-process research and development value is comprised of numerous
programs that should reach completion during periods ranging from October 1999
through September 2000. These projects will include the introduction of
important new technology that will, if successful, enable the advancement of
Kalex's PCB product line. At the acquisition date, research and development
programs ranged from 65% to 80% complete and total continuing research and
development commitments to complete the projects are expected to be
approximately $2,400. 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. 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.
Certain projects within Kalex's in-process research and development
programs are anticipated to bear results in October 1999. As evidenced by their
continued support for these projects, management believes the Company is well
positioned to successfully complete each of the major in-process 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.
F-14
<PAGE> 109
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total purchase price including fees and expenses has been preliminarily
allocated to the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 63,997
Property, plant and equipment............................... 101,728
Acquired intangibles........................................ 89,400
In-process R&D.............................................. 17,600
Goodwill.................................................... 71,117
Other non-current assets.................................... 699
Current liabilities......................................... (32,997)
Non-current liabilities..................................... (2,020)
--------
Total............................................. $309,524
========
</TABLE>
The Kalex Acquisition was funded with (i) and additional equity
contribution of $200,000 and (ii) a portion of a $291,000 term loan borrowing
under the Company's senior secured credit facility (see Note 8).
Included below is unaudited pro forma financial data setting forth
condensed results of operations of the Company for the nine months ended
September 30, 1998 and 1999, as though the Kalex Acquisition and the related
financing and equity contribution had occurred at January 1, 1998 and January 1,
1999, respectively. In preparing this data, the financial data of Kalex for the
nine months ended September 30, 1998 has been translated at an exchange rate of
Hong Kong Dollars ("HK$")7.7490 = U.S.$1.00. The financial data of Kalex for the
pre-acquisition period from January through July 1999 has been translated at an
exchange rate of HK$7.7621 = U.S.$1.00. These exchange rates represent the rates
in effect at September 30, 1998 and July 31, 1999, respectively, which are not
materially different from the average exchange rates for the respective periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Net sales................................................... $898,162 $882,596
Net loss.................................................... (61,003) (99,143)
</TABLE>
In connection with the Kalex Acquisition, the Company 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. Additionally, the
Company received an equity contribution of $200,000.
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 1,639,344 shares of the
Company's $0.01 per share common stock valued at $2,000 and the issuance of
819,872 warrants to purchase common stock with an exercise price of $1.75
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.
F-15
<PAGE> 110
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is primarily involved in marketing, manufacturing and
distributing advanced printed circuit boards ("PCBs") and assembled backplanes
at various facilities located in the United States, Canada, Mexico, the United
Kingdom, the Netherlands, Italy, Sweden, China and Puerto Rico. The Company's
customers include a diverse base of manufacturers in the telecommunications,
computer and automotive industries throughout North America and Europe.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
Local currencies have been designated as the functional currency for all
subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are
translated at the rates of exchange at the balance sheet date. Income and
expense items of these subsidiaries are translated at average monthly rates of
exchange. The resultant translation gains and losses are included as a component
of stockholders' equity on the consolidated balance sheet. See the consolidated
statements of operations and comprehensive income for the impact of such gains
and losses on the measurement of comprehensive income.
DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, the Company engages in short-term hedging activities to
reduce its exposure to foreign currency fluctuations. Such hedging activities
are not material and gains and losses from such activities are not significant.
There can be no assurance that these hedging activities will eliminate or reduce
foreign currency risk.
INVENTORIES
Inventories are stated at the lower of cost (valued using the first-in,
first-out (FIFO) method) or market. Cost includes raw materials, labor and
manufacturing overhead.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Repairs and
maintenance which do not extend the useful life of an asset are charged to
expense as incurred. The useful lives of leasehold improvements are the lesser
of the remaining lease term or the useful life of the improvement. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets as follows:
<TABLE>
<S> <C>
Building.................................................... 40 years
Leasehold improvements...................................... 10-12 years
Machinery, equipment, systems and other..................... 3-8 years
</TABLE>
DEFERRED FINANCING COSTS
Deferred financing costs, consisting of fees and other expenses associated
with debt financing, are amortized over the term of the related debt using the
straight-line method, which approximates the effective interest method.
F-16
<PAGE> 111
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 its 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.
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.
F-17
<PAGE> 112
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of the Senior Subordinated Notes due 2007 and the
Series B Senior Subordinated Notes due 2007 is $372,000 and $93,000,
respectively, at December 31, 1998. The Company has estimated this fair value
data by using current market data. The fair market values of the other financial
instruments included in the consolidated financial statements approximate the
carrying values of those instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In June 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 (UNAUDITED)
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
approximately $23,000 as a cumulative effect of a change in accounting
principle.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim condensed consolidated financial statements reflect
all adjustments consisting only of normal recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. The results for the nine months ended September 30,
1999 and 1998, are not necessarily indicative of the results that may be
expected for a full fiscal year.
3. SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest for the period from inception (August 28, 1996) to
December 31, 1996 and for the years ended December 31, 1997 and 1998, was $323,
$59,956 and $91,068, respectively. Cash paid for income taxes for the period
from inception (August 28, 1996) to December 31, 1996 and for the years ended
December 31, 1997 and 1998 was $1,184, $4,742 and $20,951, respectively.
The purchase of the shares of Forward Group was partially funded through
the issuance of approximately $24,420 of notes payable to Forward Group's former
shareholders. The purchase of shares of ISL was entirely funded through the
issuance of approximately $437,500 of loan notes.
In 1997, the Company received a 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 8).
F-18
<PAGE> 113
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................................... $24,709 $ 48,497 $ 48,326
Work in process..................................... 28,472 39,688 52,802
Finished goods...................................... 9,420 17,434 31,133
------- -------- --------
Total..................................... $62,601 $105,619 $132,261
======= ======== ========
</TABLE>
5. INTANGIBLE ASSETS
The composition of intangible assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Developed technologies............................ $122,808 $ 139,220 $ 159,620
Assembled workforce............................... 25,468 33,907 36,907
Customer list..................................... 39,679 55,300 121,300
Goodwill.......................................... 207,896 313,924 390,991
-------- --------- ---------
395,851 542,351 708,818
Less: Accumulated amortization.................... (58,524) (120,604) (157,825)
-------- --------- ---------
Total................................... $337,327 $ 421,747 $ 550,993
======== ========= =========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land and buildings................................ $ 77,346 $ 107,563 $ 146,210
Machinery, equipment, systems and other........... 343,028 471,214 607,157
Construction in progress.......................... 78,101 132,037 121,484
Leasehold improvements............................ 1,505 7,496 9,272
-------- --------- ---------
499,980 718,310 884,123
Less: Accumulated depreciation.................... (51,852) (138,106) (204,025)
-------- --------- ---------
Total................................... $448,128 $ 580,204 $ 680,098
======== ========= =========
</TABLE>
F-19
<PAGE> 114
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED AND OTHER LIABILITIES
The composition of accrued and other liabilities at December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Accrued payroll and related costs........................... $22,761 $ 30,596
Accrued capital expenditures................................ 24,565 13,040
Plant shutdown, downsizing and consolidation accruals....... -- 39,620
Accrued and other liabilities............................... 38,534 58,144
------- --------
Total............................................. $85,860 $141,400
======= ========
</TABLE>
8. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Credit Agreements:
Term Facilities........................................ $ 87,500 $ 175,438 $ 350,437
Revolvers.............................................. -- 117,244 167,551
Senior Subordinated Notes Due 2007....................... 400,000 400,000 400,000
Series B Senior Subordinated Notes Due 2007.............. -- 100,000 100,000
Series B Senior Subordinated Notes Due 2007, Premium..... -- 4,211 3,952
Chips Loan Notes Liability............................... 319,250 285,312 285,312
Capital lease obligations (see Note 9)................... 27,210 22,166 12,139
Other.................................................... 13,415 30,124 29,568
-------- ---------- ----------
847,375 1,134,495 1,348,959
Less current maturities........................ (31,363) (54,534) (25,214)
-------- ---------- ----------
$816,012 $1,079,961 $1,323,745
======== ========== ==========
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1998 is as follows:
<TABLE>
<S> <C>
1999........................................................ $ 54,534
2000........................................................ 74,582
2001........................................................ 69,769
2002........................................................ 184,212
2003........................................................ 147,817
Thereafter.................................................. 603,581
----------
$1,134,495
==========
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the 1997 Offering and the Chips Merger, the Company, as
guarantor, and certain of its subsidiaries, as borrowers, entered into a Second
Amended and Restated Credit Agreement with terms substantially similar to the
Amended and Restated Credit Agreement. The Second Amended and Restated Credit
Agreement provides for (i) an $88,000 term loan facility (the "U.S. Term Loan")
and a $150,000 revolving credit facility (the "U.S. Revolving Loan" and together
with the U.S. Term Loan, the "U.S. Loans"); (ii) a U.S. $25,000 revolving credit
facility (the "Canadian Revolving Loan"), (iii) a L32,000 revolving credit
facility (the "Forward Group Revolving Loan") and a L27,600 revolving credit
facility (the
F-20
<PAGE> 115
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Chips Revolving Loan", and together with the Forward Group Revolving Loan, the
"U.K. Revolving Loans", and together with the U.S. Revolving Loan and the
Canadian Revolving Loan, the "Revolving Loans") and (iv) U.S.$346,463 Letter of
Credit Facility in respect of the Chips Loan Notes comprised of (a) a
U.S.$319,250 term loan facility ("the Chips Term Loan" and together with the
U.S. Term Loan, the "Term Loans") in respect of the principal portion of the
Chips Loan Notes and (b) a U.S.$27,213 facility in respect of interest on the
Chips Loan Notes. The Chips Term Loan is an unfunded term loan facility that may
be drawn upon by the Company so that it may satisfy the Chips Loan Notes
Liability. Borrowings under the Second Amended and Restated Credit Agreement are
collateralized by first priority mortgages and liens on substantially all of the
material assets of the Company and its subsidiaries.
In February 1998, the Senior Credit Facilities were amended to, among other
things, establish an additional $70,000 U.S. term loan (the "Additional Term
Loan") and increases available revolving credit facilities by $25,000 (the
"Amended Senior Credit Facilities").
The U.S. Term Loan consists of three tranches: (i) $55,000 of tranche B
term loans (the "Tranche B Loan"), (ii) $33,000 of tranche C term loans (the
"Tranche C Loan") and (iii) $70,000 of Addition Term Loan. The Tranche B Loan
amortizes semiannually over eight years, the Tranche C Loan is payable $1,500 on
December 31, 2004 and $31,500 on June 30, 2005, and the Additional Term Loan
amortizes semiannually over 6.5 years. The Chips Term Loan amortizes
semi-annually over six years.
The Company may use the Revolving Loans for letters of credit in an amount
not to exceed $15,000, in the case of both the U.S. Revolving Loan and the
Canadian Revolving Loan, and related letters of credit and bankers' acceptances
in an amount not to exceed L5,000 in the case of the Forward Group Revolving
Loan and L10,000 in the case of the Chips Revolving Loan. Of the Forward Group
Revolving Loan, L2,232 is available solely to finance obligations in respect of
the notes payable to the selling stockholders of Forward. At December 31, 1998,
the Company had approximately $161,200 of available borrowing capacity under the
Revolving Loans, of which, approximately $59,900 was available solely for future
acquisitions.
The U.S. Loans bear interest, at the Company's election, at either: (i) the
Eurocurrency Base Rate plus (a) 2.5% in the case of the Chips Term Loan and U.S.
Revolving Loan, (b) 2.75% in the case of the Additional Term Loan, (c) 3.0% in
the case of Tranche B Loan, or (d) 3.5% in the case of Tranche C Loan; or (ii)
the Alternate Base Rate plus (a) 1.5% in the case of the Chips Term Loan or U.S.
Revolving Loan, (b) 1.75% in the case of the Additional Term Loan, (c) 2.0% in
the case of Tranche B Loan, or (d) 2.5% in the case of Tranche C Loan. The
Alternate Base Rate is the highest of The Chase Manhattan Bank's Prime Rate, the
Three-Month Secondary CD Rate (as defined therein) plus 1.0%, and the Federal
Funds Effective Rate (as defined therein) plus 0.5%. The Canadian Revolving Loan
denominated in U.S. dollars bears interest, at Circo Craft's election, at either
(i) the Eurocurrency Base Rate plus 2.5% or (ii) the Canadian Alternate Base
Rate plus 1.5%. The Canadian Revolving Loan denominated in Canadian Dollars
bears interest, at Circo Craft's election either (i) the Canadian Bankers
Acceptance Discount Rate plus 2.5% or (ii) the Canadian Prime Rate plus 1.5%.
The Canadian Alternate Base Rate is equal to the higher of Canadian Agent's
prime rate or the Federal Funds Effective Rate (as defined in the Credit
Agreement) plus 0.5%. The U.K. Revolving Loans and any Chips Term Loans
converted to pounds sterling bear interest at the Eurocurrency Base Rate plus
2.5%. At December 31, 1997 and 1998 the weighted average interest rate on
outstanding borrowings under the Amended an Restated Credit Agreement was 8.69%
and 8.0%, respectively.
The Company pays a per annum fee equal to the applicable margin on
Revolving Loans which bear interest at the Eurocurrency Base Rate, of the
average daily face amount of outstanding letters of credit, other than with
respect to the Chips Letter of Credit, which fee is equal to the applicable
margin on the Chips Term Loan bearing interest at the Eurocurrency Base Rate.
The Company pays a Commitment Fee equal to 0.5% on the undrawn portion of the
commitments in respect of Revolving Loans and a Facility Fee equal to 0.5% on
the Canadian revolving credit commitment. In addition, the Company pays a fee of
0.25% per annum of Bisto Funding, Inc.'s $118,250 portion of the Chips Letter of
Credit to the extent not paid by Bisto Funding, Inc.
F-21
<PAGE> 116
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Amended Senior Credit Facilities restrict the Company from, among other
things: (i) incurring additional indebtedness (other than permitted
indebtedness); (ii) creating liens; (iii) disposing of assets; (iv) guaranteeing
indebtedness; (v) merging or selling substantially all of its assets; (vi)
declaring and paying certain dividends; (vii) making certain investments and
loans; and (viii) entering into certain transactions with affiliates, in each
case with certain exceptions customary for credit facilities such as the Amended
Senior Credit Facilities. In addition, the Second Amended and Restated Credit
Agreement contains financial covenants which require the Company to maintain
certain financial ratios and limit the Company's amount of capital expenditures.
SENIOR SUBORDINATED NOTES AND SERIES B SENIOR SUBORDINATED NOTES
In June 1997, Viasystems, 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. A portion of the proceeds of the 1998 Notes, the additional term loan
under the Senior Credit Facilities, and the equity contribution have been used
to fund the acquisitions of the Ericsson Facility, Mommers, and Zincocelere (see
Note 1).
Interest on the 2007 Notes is due semiannually. The 2007 Notes may not be
redeemed prior to June 1, 2002, except in the event of a Change of Control (as
defined) or 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. Viasystems, Inc. used the net proceeds of the 1997
Offering to repay the Subordinated Credit Facility, approximately $130,000 of
term loans outstanding under the Amended and Restated Credit Agreement, and
approximately $41,600 of revolving credit amounts outstanding under the Amended
and Restated Credit Agreement which was borrowed subsequent to December 31,
1996, to repay debt assumed in the acquisition of Chips, plus interest on all
debt repaid.
The fair market value of the Senior Subordinated Notes due 2007 and the
Series B Senior Subordinated Notes due 2007 is $372,000 and $93,000,
respectively, at December 31, 1998. The Company has estimated this fair value
data by using current market data.
CHIPS LOAN NOTES LIABILITY
In June 1997 and pursuant to the Chips Merger, 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.
F-22
<PAGE> 117
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
against the $437,500 of Chips Loan Notes. To the extent the interest income
earned by Bisto Funding, Inc. on the $118,250 of cash it holds is insufficient
to fund interest on $118,250 of the principal amount of the Chips Loan Notes,
the Company will be required pursuant to the terms of the Chips Reimbursement
Obligation to fund any such shortfall. Upon redemption of the Chips Loan Notes,
the first $118,250 of principal payments will be paid by Bisto Funding, Inc. and
the remainder will be funded by the Company in accordance with the Chips
Reimbursement Obligation. Although the Chips Loan Notes may be called by the
holders on or after any interest payment date commencing April 1, 1998, the
Chips Loan Notes have not been classified as current at December 31, 1997 and
1998, since the Company has in place a facility to replace the Chips Loan Notes
in the event they are called.
In April 1998 the holders of the Chips Loan Notes redeemed $152,200 of the
Chips Loan Notes. As such, $118,300 of cash held by Bisto Funding, Inc. was paid
to the holders of the Chips Loan Notes. The Company borrowed $33,900 of the
available Chips Term Loan to fund its portion of the payment of the Chips Loan
Notes.
SENIOR SUBORDINATED CREDIT AGREEMENT
In April 1997, the Company entered into a $216,000 Senior Subordinated
Credit Agreement (the "Subordinated Credit Facility"). The proceeds of the
Subordinated Credit Facility were used to repay $20,000 of term loans
outstanding under the Credit Agreement and to repay a tender facility used to
acquire Forward Group. Amounts due under the Senior Subordinated Credit Facility
were repaid with proceeds from the 1997 Offering.
9. COMMITMENTS
The Company leases certain building and transportation and other equipment
under capital and operating leases. Included in property, plant, and equipment
as of December 31, 1997 and 1998, was $49,042 and $59,134, respectively, of cost
basis and $16,895 and $28,067, respectively, of accumulated depreciation related
to equipment held under capital leases. Total rental expense under operating
leases was $255, $3,005 and $3,209 for the period from inception (August 28,
1996) to December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively. Future minimum lease payments under capital leases and operating
leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
- ------------ ------- ---------
<S> <C> <C>
1999........................................................ $13,353 $2,874
2000..................................................... 7,977 2,318
2001..................................................... 1,986 1,232
2002..................................................... 38 993
2003..................................................... -- 894
------- ------
Total............................................. 23,354 $8,311
======
Less: Amounts representing interest...................... (1,188)
-------
Capital lease obligation (see Note 8)............. $22,166
=======
</TABLE>
10. OTHER NONCURRENT LIABILITIES
Included in other noncurrent liabilities are liabilities for monitoring and
oversight fees to Hicks, Muse & Co. Partners L.P. ("Hicks Muse"), a shareholder
and affiliate of the Company, (see Note 19) 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
F-23
<PAGE> 118
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$20,000 as of December 31, 1998. Funds received by the Company under the U.K.
Agreements are not subject to repayment, provided that the Company meets certain
employment requirements at its manufacturing facilities. As the Company has met
and management believes that it will continue to meet these requirements, the
Company is recognizing the amounts to be received under the U.K. Agreements as a
reduction of cost of sales over the life of the U.K. Reimbursement Agreements
and, as such, recognized a reduction of cost of sales of approximately $3,134
and $3,147 during the years ended December 31, 1997 and 1998, respectively.
11. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The (benefit) for income taxes for the period from inception
(August 28, 1996) to December 31, 1996 and the provision (benefit) for income
taxes for the years ended December 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ 3,990 $ 13,286
State............................................... -- 920 279
Foreign............................................. 170 18,631 (5,772)
------- -------- --------
170 23,541 7,793
------- -------- --------
Deferred:
Federal............................................. (5,698) (2,195) (2,552)
State............................................... -- (507) (35)
Foreign............................................. 104 (12,407) (12,540)
------- -------- --------
(5,594) (15,109) (15,127)
------- -------- --------
$(5,424) $ 8,432 $ (7,334)
======= ======== ========
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
U.S. Federal statutory rate......................... $(18,416) $(108,941) $(29,674)
Permanent items..................................... 15,680 113,159 24,653
State taxes......................................... (3,250) 269 244
Foreign taxes in excess of U.S. statutory rate...... 213 3,945 (2,413)
Other............................................... 349 -- (144)
-------- --------- --------
$ (5,424) $ 8,432 $ (7,334)
======== ========= ========
</TABLE>
F-24
<PAGE> 119
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,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities not yet deductible.................... $ 17,306 $ 24,976
Net operating loss carryforwards.......................... 406 22,848
AMT credit carryforwards.................................. -- 3,594
Other..................................................... 1,590 3,423
-------- --------
19,302 54,841
Valuation allowance.................................... (260) --
-------- --------
19,042 54,841
-------- --------
Deferred tax liabilities:
Intangibles............................................... (40,251) (39,159)
Fixed assets.............................................. (27,747) (34,450)
Other..................................................... (1,535) (3,605)
-------- --------
(69,533) (77,214)
-------- --------
Net deferred tax asset (liability)................ $(50,491) $(22,373)
======== ========
</TABLE>
The current deferred tax assets are included in prepaid expenses and other
and the long-term deferred tax assets, consisting of net operating loss
carryforwards, are in other assets in the Consolidated Balance Sheets.
Approximate domestic and foreign income (loss) before income tax provision
and extraordinary item are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
INCEPTION DECEMBER 31,
(AUGUST 28, 1996) TO --------------------
DECEMBER 31, 1996 1997 1998
-------------------- --------- --------
<S> <C> <C> <C>
Domestic..................................... $(14,426) $ 5,307 $ 1,792
Foreign...................................... (39,740) (316,567) (93,909)
</TABLE>
As of December 31, 1998, the Company has $5,794 of Puerto Rican net
operating loss carryforwards, which will expire in 2001-2003, if not previously
utilized. All other net operating loss carryforwards carry forward indefinitely.
The Company has not recognized and does not anticipate recognizing a deferred
tax liability for approximately $15,000 of undistributed earnings of its foreign
subsidiaries because the Company does not expect those earnings to reverse and
become taxable to the Company in the foreseeable future.
12. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to such
matters as patents, product development and other actions arising in the normal
course of business. In the opinion of the Company's management, the ultimate
liabilities resulting from such lawsuits and claims will not have a material
adverse effect on the Company's financial condition and results of operations
and cash flows.
The Company believes it is in material compliance with applicable
environmental laws and regulations and that its environmental controls are
adequate to address existing regulatory requirements.
13. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company at December 31, 1998 consists
of 500,000,000 shares of common stock, 50,000,000 shares of Class A common
stock, 10,000,000 shares of Class A Series II common
F-25
<PAGE> 120
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Subsequent to December 31, 1998, the Company approved authorization of the
following additional shares: 100,000,000 shares of common stock and 40,000,000
shares of Class A Series II common stock, which will increase the total
authorized shares to 600,000,000 and 50,000,000, respectively.
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.
Activity for each class of common stock from August 28, 1996 (inception)
through September 30, 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 Inception (August 28,
1996)........................... -- $ -- -- $ -- -- $ --
Issuance of common stock........ 30,000,004 300 -- -- -- --
Issuance of Class A common
stock......................... -- -- 4,098,333 41
----------- ------ ---------- ---- ---------- ----
Balance at December 31, 1996.... 30,000,004 300 4,098,333 41 -- --
Issuance of common stock........ 226,475,000 2,265 -- -- -- --
Issuance of Class A common
stock......................... -- -- 30,737,499 307 -- --
----------- ------ ---------- ---- ---------- ----
Balance at December 31, 1997.... 256,475,004 2,565 34,835,832 348 -- --
Issuance of common stock........ 46,013,857 460 -- -- -- --
Issuance of Class A common
stock......................... -- -- 341,527 3 -- --
Issuance of Class A Series II
common stock.................. -- -- -- -- 5,940,370 59
----------- ------ ---------- ---- ---------- ----
Balance at December 31, 1998.... 302,488,861 3,025 35,177,359 351 5,940,370 59
Issuance of common stock
(unaudited)................... 165,598,771 1,656 -- -- -- --
Issuance of Class A Series II
common stock (unaudited)...... -- -- -- -- 7,463,000 75
Repurchase of common stock
(unaudited)................... (100,000) -- -- -- -- --
----------- ------ ---------- ---- ---------- ----
Balance at September 30, 1999
(unaudited)................... 467,987,632 $4,681 35,177,359 $351 13,403,370 $134
=========== ====== ========== ==== ========== ====
</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-26
<PAGE> 121
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.
14. BUSINESS SEGMENT INFORMATION
The Company operates in one product business segment -- the manufacture and
sale of PCBs, which are sold throughout many diverse markets.
The Company's operations are located worldwide and are analyzed by two
geographical segments. The accounting policies of the segments are the same as
those described in the "Summary of Significant Accounting Policies" (note 2).
Segment data includes intersegment revenues.
Pertinent financial data by major geographic segments is as follows:
<TABLE>
<CAPTION>
OPERATING TOTAL CAPITAL
NET SALES INCOME/(LOSS) ASSETS EXPENDITURES
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
NORTH AMERICA:
Inception (August 28, 1996) to December
31, 1996............................... $ 50,400 $ (50,931) $ 387,741 $ 3,563
Year ended December 31, 1997.............. 499,266 50,495 436,484 42,276
Year ended December 31, 1998.............. 521,920 65,226 509,059 52,350
EUROPE:
Inception (August 28, 1996) to December
31, 1996............................... $ -- $ -- $ -- $ --
Year ended December 31,1997............... 296,023 (289,490) 632,428 74,887
Year ended December 31, 1998.............. 512,239 (50,494) 945,644 78,011
ELIMINATIONS
Inception (August 28, 1996 to December 31,
1996).................................. $ -- $ -- $ -- $ --
Year ended December 31, 1997.............. -- -- -- --
Year ended December 31, 1998.............. (2,231) -- -- --
TOTAL:
Inception (August 28, 1996) to December
31, 1996............................... $ 50,400 $ (50,931) $ 387,741 $ 3,563
Year ended December 31, 1997.............. 795,289 (238,995) 1,068,912 117,163
Year ended December 31, 1998.............. 1,031,928 14,732 1,454,703 130,361
</TABLE>
F-27
<PAGE> 122
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales by country of destination are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
INCEPTION DECEMBER 31,
(AUGUST 28, 1996) TO ---------------------
DECEMBER 31, 1996 1997 1998
-------------------- -------- ----------
<S> <C> <C> <C>
United States................................ $38,003 $436,728 $ 453,583
United Kingdom............................... 119 138,274 189,103
Sweden....................................... -- 45,168 105,331
Canada....................................... 11,549 54,555 47,880
Other........................................ 729 120,564 236,031
------- -------- ----------
Total.............................. $50,400 $795,289 $1,031,928
======= ======== ==========
</TABLE>
Long-lived assets by country are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
United States............................................... $215,654 $ 248,065
United Kingdom.............................................. 520,241 575,171
The Netherlands............................................. -- 66,275
Italy....................................................... -- 102,874
Canada...................................................... 80,399 84,171
Other....................................................... -- 14,036
-------- ----------
Total............................................. $816,294 $1,090,592
======== ==========
</TABLE>
15. CONCENTRATION OF BUSINESS
Sales to one customer were 27%, 39% and 32% of net revenues for the period
from inception (August 28, 1996) to December 31, 1996 and for the years ended
December 31, 1997 and 1998, respectively.
16. 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 8,409,782 shares of the
Company's Common Stock will be reserved for issuance under the Stock 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 on the occurrence of certain events. The exercise price for the Performance
Options is initially equal to $1.00 per share for grants made during 1996 and
1997 and $1.22 per share for grants made during 1998 and, effective each
anniversary of the grant date, the per share exercise price for the Performance
Options is equal to the per share exercise price for the prior year multiplied
by 1.08. The Performance Options terminate on the tenth anniversary date of the
date of grant.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the Option Plan. Had compensation cost for the Option Plan and
the Performance Options been determined based upon the fair value at the grant
date for awards under these plans consistent with the methodology prescribed
under Financial Accounting Standards No. 123, pro forma net loss for the years
ended December 31, 1997 and 1998, would have been $(327,588) and $(84,961),
F-28
<PAGE> 123
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Pro forma basic and diluted loss per weighted average common share
would have been $(1.83) and $(2.04) for December 31, 1997 and $(0.27) and
$(0.30) for December 31, 1998.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions: (i) no dividend yield;
(ii) risk free interest rate of 5.5%; and (iii) expected life of 5 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts of compensation costs. Additional awards in future
years are anticipated.
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..................................... 1.00 5,230,000 -- --
Vested...................................... 1.00 -- 1.00 200,000
Forfeited................................... 1.00 (25,000) -- --
---------- -------
December 31, 1997............................. 1.00 5,205,000 1.00 200,000
Granted..................................... 1.22 3,085,000 -- --
Vested...................................... 1.00 -- 1.00 726,000
Forfeited................................... 1.02 (1,520,000) -- --
Exercised................................... 1.00 (15,000) 1.00 (15,000)
---------- -------
December 31, 1998............................. $1.10 6,755,000 $1.00 911,000
========== =======
</TABLE>
Changes in the status of the Performance Options are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE OUTSTANDING VESTED
-------------- ----------- -------
<S> <C> <C> <C>
August 28, 1996 (inception)................................. $1.00 -- --
Granted................................................... 1.00 1,085,187 --
---------- --
December 31, 1996........................................... 1.00 1,085,187 --
Granted................................................... 1.00 8,138,904 --
Vested.................................................... -- -- --
Forfeited................................................. -- -- --
---------- --
December 31, 1997........................................... 1.00 9,224,091 --
Granted................................................... 1.22 1,663,320 --
Vested.................................................... -- --
Forfeited................................................. --
---------- --
December 31, 1998........................................... $1.11 10,887,411 --
========== ==
</TABLE>
Subsequent to December 31, 1998, 9,125,000 shares were granted under the
Option Plan and 5,929,985 performance options were granted, all with $1.22
exercise prices.
The weighted average grant-date fair value of options granted during 1997
and 1998 was $0.23 and $0.29 per share, respectively. All options outstanding
under the Option Plan at December 31, 1998, have exercise prices between $1.00
and $1.22 per share and have weighted average remaining contractual lives of
between 9 and 10 years.
F-29
<PAGE> 124
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the Performance Options outstanding at December 31, 1998, 998,371 and
7,618,007 and 1,663,320 have exercise prices of $1.17, $1.08 and $1.22,
respectively, and have weighted average remaining contractual lives of between 9
and 10 years.
17. 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 $0, $807
and $1,450 for the period from inception (August 28, 1996) to December 31, 1996
and for the years ended December 31, 1997 and 1998, respectively.
The Company and its subsidiaries have two defined benefit pension plans
covering certain groups of employees in foreign countries. The benefits are
based on years of services and final average salary. The Company's funding
policy is to make annual contributions to the extent such contributions are
actuarially determined.
Components of net pension expense are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Service cost (present value of benefits earned in the
year)....................................................... $ 1,821 $ 2,896
Interest cost on the projected benefit obligation........... 2,699 3,741
Expected return on assets................................... (6,970) (4,872)
Net amortization and deferral............................... 4,016 --
------- -------
Net periodic pension costs.................................. $ 1,566 $ 1,765
======= =======
</TABLE>
The following table sets forth a reconciliation of the projected benefit
obligation:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Projected benefit obligation, beginning of year............. $ -- $54,469
Acquisitions................................................ 44,977 --
Service cost (present value of benefits earned in the
year)..................................................... 1,821 2,896
Interest cost on the projected benefit obligation........... 2,699 3,741
Plan participant's contributions............................ 1,347 2,031
Actuarial (gain)/loss....................................... 4,165 3,915
Benefits paid............................................... (540) (980)
Translation................................................. -- 397
------- -------
Projected benefit obligation, end of year................... $54,469 $66,469
======= =======
</TABLE>
F-30
<PAGE> 125
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth a reconciliation of the plan assets:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Fair value of plan assets, beginning of year................ $ -- $53,434
Acquisitions................................................ 43,675 --
Actual return on plan assets................................ 6,976 2,980
Employer contributions...................................... 1,976 2,841
Plan participant's contributions............................ 1,347 2,031
Benefits paid............................................... (540) (980)
Translation................................................. -- 389
------- -------
Fair value of plan assets, end of year...................... $53,434 $60,695
======= =======
</TABLE>
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Projected benefit obligation................................ $54,469 $66,469
Plan assets at fair value, primarily equity and fixed-income
securities................................................ 53,434 60,695
------- -------
Plan assets less than projected benefit obligation.......... (1,035) (5,774)
Unrecognized net actuarial loss............................. 142 5,950
Adjustment required to recognize minimum liability.......... -- (1,916)
------- -------
Net pension liability....................................... $ (893) $(1,740)
======= =======
</TABLE>
The principal assumptions used are as follows:
<TABLE>
<CAPTION>
1997 1998
PERCENT PERCENT
------- -------
<S> <C> <C>
Weighted average discount rates............................. 6.75% 5.50%
Long term rate of return on plan assets..................... 8.75% 8.00%
Salary Growth............................................... 4.75% 4.25%
Pension Increases........................................... 3.00% 2.50%
</TABLE>
18. RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and
application of new products and processes were approximately $500, $10,800 and
$13,400 for the period from inception (August 28, 1996) to December 31, 1996 and
for the years ended December 31, 1997 and 1998, respectively.
19. RELATED PARTY TRANSACTIONS
In connection with the Acquisitions and the related financing, the Company
entered into a Monitoring and Oversight Agreement and a Financial Advisory
Agreement (together herein defined as the "Agreements") with Hicks Muse (a
shareholder and affiliate of the Company) pursuant to which the Company paid
Hicks Muse a cash fee of $5,013, $10,400 and $2,463 for the period from
inception (August 28, 1996) through December 31, 1996 and for the years ended
December 31, 1997 and 1998, respectively, as compensation for financial advisory
services. The fees have been allocated to acquisition costs and the debt and
equity securities issued in connection with the Acquisitions. 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
F-31
<PAGE> 126
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
event less than $1,750 annually. The obligation under the Agreement and the
related direct acquisition costs have been recorded in the consolidated balance
sheet and will be amortized over the estimated useful life.
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, 1998 is $285,312 (see Note 8).
20. 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-32
<PAGE> 127
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. 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>
INCEPTION NINE MONTHS ENDED
(AUGUST 28, 1996) YEARS ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loss before cumulative effect
of a change in accounting
principle and extraordinary
item......................... $ (48,742) $ (319,692) $ (84,783) $ (60,584) $ (76,325)
Plus paid-in-kind dividends
and accretion on preferred
stock...................... -- (3,298) (3,735) (2,757) (3,129)
Less loss attributable to
Class A common
shareholders............... 5,858 38,643 9,457 6,868 7,179
Less loss attributable to
Class A Series II common
shareholders............... -- -- 1,040 618 2,736
--------- ----------- ----------- ----------- -----------
Loss available to common
shareholders before
cumulative effect of a
change in accounting
principle and extraordinary
item....................... $ (42,884) $ (284,347) $ (78,021) $ (55,855) $ (69,539)
========= =========== =========== =========== ===========
Basic weighted average common
shares outstanding......... 8,640,001 159,044,456 289,235,025 284,772,762 340,735,656
========= =========== =========== =========== ===========
Basic loss per weighted
average common share before
cumulative effect of a
change in accounting
principle and extraordinary
item....................... $ (4.96) $ (1.79) $ (0.27) $ (0.20) $ (0.20)
========= =========== =========== =========== ===========
Basic net loss per weighted
average common share....... $ (4.96) $ (1.83) $ (0.27) $ (0.20) $ (0.25)
========= =========== =========== =========== ===========
</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.
F-33
<PAGE> 128
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Diluted earnings per weighted average common share are computed as follows:
<TABLE>
<CAPTION>
INCEPTION NINE MONTHS ENDED
(AUGUST 28, 1996) YEARS ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loss before cumulative effect
of a change in accounting
principle and extraordinary
item......................... $ (48,742) $ (319,692) $ (84,783) $ (60,584) $ (76,325)
Plus paid-in-kind dividends
and accretion on preferred
stock...................... -- (3,298) (3,735) (2,757) (3,129)
--------- ----------- ----------- ----------- -----------
Loss available to common
shareholders............... $ (48,742) $ (322,990) $ (88,518) $ (63,341) $ (79,454)
========= =========== =========== =========== ===========
Weighted average common
shares outstanding......... 8,640,001 159,044,456 289,235,025 284,772,762 340,735,656
Common shares assuming
conversion of Class A and
Class A Series II.......... 71,726 3,144,948 2,782,141 3,397,939 923,945
--------- ----------- ----------- ----------- -----------
Diluted weighted average
common shares
outstanding................ 8,711,727 162,189,404 292,017,166 288,170,701 341,659,601
========= =========== =========== =========== ===========
Diluted loss per weighted
average common share before
cumulative effect of a
change in accounting
principle and extraordinary
item....................... $ (5.60) $ (1.99) $ (0.30) $ (0.22) $ (0.23)
========= =========== =========== =========== ===========
Diluted net loss per weighted
average common share....... $ (5.60) $ (2.04) $ (0.30) $ (0.22) $ (0.28)
========= =========== =========== =========== ===========
</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.
As a result of losses incurred during the period August 28, 1996 to
December 31, 1996; years ended December 31, 1997, 1998, and the nine months
ended September 30, 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>
INCEPTION YEARS ENDED NINE MONTHS ENDED
(AUGUST 1996 TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31) ---------------------- -----------------------
1996 1997 1998 1998 1999
----------------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Performance options............. 1,085,187 9,224,091 10,887,411 10,887,411 16,817,396
Stock options................... -- 5,205,000 6,755,000 6,755,000 14,577,000
Stock warrants.................. -- -- -- -- 819,872
</TABLE>
F-34
<PAGE> 129
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. ACCOUNTING CHANGE (UNAUDITED)
In April 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. Effective January 1, 1999, the Company adopted SOP
98-5 and accordingly recorded a cumulative effect of a change in accounting
principle for the write-off of the net book value of start-up costs as of
January 1, 1999.
23. SUBSEQUENT EVENTS (UNAUDITED)
During 1999, the Company's management performed a comprehensive review of
the strategic position of its individual business units, which resulted in plant
shutdowns, downsizing and consolidation of certain facilities. The Company has
also assessed the carrying value of long-lived assets, including goodwill and
other acquired intangibles. The assessment has identified three groups of assets
whose values are impaired. The groups of assets relate to long-lived assets
acquired from the Forward, Zincocelere, and ISL acquisitions. While the
impairment amount has not yet been determined, the Company expects to record a
charge in the fourth quarter of 1999.
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 a note payable to the Company for approximately
$150,000, which will be accounted for as a reduction of stockholders' equity.
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., 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.
F-35
<PAGE> 130
AUDITORS' REPORT
To The Directors of Circo Craft Co. Inc.
We have audited the consolidated statements of earnings, retained earnings
and changes in financial position of Circo Craft Co. Inc. for the nine-month
period ended September 30, 1996. These statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall statement presentation.
In our opinion, these consolidated statements of earnings, retained
earnings and changes in financial position present fairly, in all material
respects, the results of operations of the Company and the changes in its
financial position for the nine-month period then ended in accordance with
generally accepted accounting principles in Canada.
Coopers & Lybrand
General Partnership
Chartered Accountants
Montreal, Quebec
December 20, 1996
F-36
<PAGE> 131
CIRCO CRAFT CO. INC.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Balance -- Beginning of period.............................. 43,909
Net earnings for the period................................. 1,974
------
Balance -- End of period.................................... 45,883
======
</TABLE>
F-37
<PAGE> 132
CIRCO CRAFT CO. INC.
CONSOLIDATED STATEMENT OF EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Sales....................................................... 129,633
Cost of sales............................................... 101,532
-------
Operating margin............................................ 28,101
-------
Selling, general and administrative expenses................ 7,969
-------
Other expenses (income)
Depreciation of fixed assets.............................. 8,456
Interest on long-term debt................................ 646
Interest income........................................... (880)
Expenses related to sale (note 9)......................... 5,907
-------
14,129
-------
Earnings before income taxes and non-controlling interest... 6,003
Provision for income taxes (note 4)......................... 3,847
-------
Earnings before non-controlling interest.................... 2,156
Non-controlling interest.................................... 182
-------
Net earnings for the period................................. 1,974
=======
</TABLE>
F-38
<PAGE> 133
CIRCO CRAFT CO. INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Operating activities
Net earnings for the period............................... 1,974
Non-cash items --
Depreciation of fixed assets......................... 8,456
Deferred income taxes................................ 1,050
Gain on sale of fixed assets......................... (716)
Non-controlling interest............................. 182
-------
10,946
Cash provided by (used for) non-cash operating working
capital items.......................................... 7,191
-------
18,137
-------
Financing activities
Increase in long-term debt................................ 4,186
Repayment of long-term debt............................... (3,187)
Decrease in non-controlling interest...................... (2,608)
Issue of common shares.................................... 4,047
-------
2,438
-------
Investing activities
Acquisition of fixed assets............................... (13,058)
Proceeds from sale of fixed assets........................ 1,018
-------
(12,040)
-------
Increase in cash............................................ 8,535
Cash -- beginning of period................................. 17,730
-------
Cash -- end of period....................................... 26,265
=======
Represented by --
Cash and short-term deposits........................... 28,438
Bank indebtedness...................................... (2,173)
-------
26,265
=======
</TABLE>
F-39
<PAGE> 134
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
1. ACCOUNTING POLICIES
The consolidated statements of earnings, retained earning and changes in
financial position have been prepared in accordance with accounting principles
generally accepted in Canada and include the following significant accounting
policies:
PRINCIPLES OF CONSOLIDATION
The consolidated statements of earnings, retained earnings and changes in
financial position include the accounts of the company and its wholly owned
subsidiary, Circo Caribe Corporation ("Circo Caribe"). All significant
intercompany transactions have been eliminated on consolidation.
INVENTORIES
Inventories are valued at the lower of cost and market. Cost is determined
using the first-in, first-out method for raw materials. The cost of work in
process inventories and finished goods includes the cost of raw materials,
direct labour and applicable manufacturing overhead, excluding depreciation.
Market is defined as replacement cost for raw materials, and as net realizable
value for work in process and finished goods.
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at cost less applicable investment tax credits,
government grants and accumulated depreciation. Assets under capital leases are
included in fixed assets. Depreciation is computed using the straight-line
method at the following annual rates:
<TABLE>
<S> <C>
Buildings................................................... 2 1/2%
Machinery and equipment..................................... 15% - 33 1/3%
Leasehold improvements...................................... 10%
</TABLE>
REVENUE RECOGNITION
Sales and related cost of sales are included in income when goods are
delivered to the customer in accordance with the delivery terms.
FOREIGN CURRENCY
Foreign currency transactions and balances including those of Circo Caribe,
an integrated foreign subsidiary, are translated using the temporal method.
Under this method, monetary assets and liabilities are translated into Canadian
dollars at exchange rates in effect as at the balance sheet date and
non-monetary assets and liabilities at the exchange rates prevailing when the
assets were acquired and liabilities incurred. Sales and expenses, with the
exception of depreciation and amortization, are translated at average monthly
rates. Depreciation and amortization are translated at the rates used in the
translation of the relevant asset accounts. Translation gains and losses are
included in determining net earnings in the period in which the exchange rate
changes except for gains and losses on long-term debt, which are deferred and
amortized over the remaining life of the debt.
INCOME TAXES
The company follows the tax allocation method in providing for income
taxes. Deferred income taxes result primarily from the difference between
capital cost allowance claimed for income tax purposes and depreciation recorded
for accounting purposes.
F-40
<PAGE> 135
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
2. NON-CONTROLLING INTEREST
The Economic Development Bank for Puerto Rico (EDB) subscribed to 150,000
Class A Preferred shares of Circo Caribe (EDB shares) for a total amount of U.S.
$1,500,000. The EDB shares have a par value of U.S. $10 per share and carry a
cumulative preferential annual dividend of 7.5% on the par value thereof,
payable on a semi-annual basis. EDB shares carry no voting rights.
3. CAPITAL STOCK
(a) As at September 30, 1996, the authorized capital stock consists of the
following in an unlimited number:
First Preferred shares, without nominal or par value, issuable in
series
Second Preferred shares, without nominal or par value, issuable in
series
Common shares, without nominal or par value
The directors are responsible for defining the rights, privileges,
restrictions and conditions attached to each series of the First and Second
Preferred shares upon their issuance.
(b) The issued and paid capital stock consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
16,069,300 common shares.................................... 41,823
1,200,000 Second Preferred shares, Series A (note 3(c))..... --
156,000 Second Preferred shares, Series B (note 3(c))....... --
2,556,000 Second Preferred shares, Series C (note 3(c))..... --
------
41,823
======
</TABLE>
(c) The company issued Second Preferred shares, Series A, B and C in
connection with the financial assistance amounting to $1,200,000 in 1986,
$78,000 in 1988, $78,000 in 1990, $852,000 in 1991, $852,000 in 1992 and
$852,000 in 1993, received from the Government of Quebec for costs incurred in
the installation of facilities. Such shares are non-voting and are entitled to
receive, as and when declared, an aggregate non-cumulative preferential dividend
of $1 and upon liquidation, to receive an aggregate amount of $1. The company
issued such shares for the purposes of such financial assistance and will
repurchase such shares at their issue price of $1 per share upon request of the
holder thereof if the majority of the common shares or more than half of the
assets of the company are transferred, within five years following the granting
of such financial assistance, to an enterprise whose head office is not located
in the Province of Quebec or to an individual who does not reside therein unless
prior approval is obtained from the holder of such Preferred shares. The
proceeds from these issues were deducted from the cost of certain fixed assets.
Subsequent to September 30, 1996, pursuant to an agreement with the
Government of Quebec, the company repurchased and cancelled all of the issued
Second Preferred shares, Series A, B and C for a total cash consideration of
$752,400. As at September 30, 1996, the company recorded a provision for the
share repurchase as an increase to the cost of certain fixed assets, which had
been previously reduced upon receiving the Government of Quebec grant.
(d) On September 28, 1996, the company issued 317,100 common shares to the
Economic Development Bank for Puerto Rico in exchange for the 150,000 Class A
Preferred shares it previously held in Circo Caribe.
F-41
<PAGE> 136
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
The value attributed to the common shares issued corresponds to the redemption
price of the shares of Circo Caribe received, which was $2,044,950 (U.S.
$1,500,000).
(e) In 1995, the company established a Key Employee Stock Option Plan (the
"Plan"). The maximum number of common shares that may be issued under the Plan
shall not exceed 1,250,000 common shares. In 1996, the company issued 317,000
common shares for a total cash consideration of $2,002,225 upon exercise of
options granted in 1995 and 1996 under this Plan. There were no outstanding
options as at September 30, 1996.
4. INCOME TAXES
(a) The company's provision for income taxes includes the following:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Current..................................................... 2,797
Deferred.................................................... 1,050
------
3,847
======
</TABLE>
(b) The company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1996
%
----
<S> <C>
Combined basic federal and provincial income tax rate....... 45.09
Increase (decrease) in income tax rate resulting from:
Active business income deduction.......................... (7.35)
Manufacturing and processing deduction.................... (7.00)
Non-deductible expenses................................... 12.82
Surtax.................................................... 1.12
Other..................................................... 2.07
------
Combined Canadian rates..................................... 46.75
Unrecognized (recognized) income tax benefits of Circo
Caribe.................................................... 17.33
------
64.08
======
</TABLE>
(c) Circo Caribe obtained a fifteen-year tax exemption grant under the 1987
Puerto Rico Tax Incentives Act. The grant expires in December 2011 and provides
a 90% exemption on industrial development income and property taxes.
5. MAJOR CUSTOMERS
Approximately 26%, 19%, and 10%, respectively, of the company's sales were
to three unrelated multinational corporations which have multiple divisions
responsible for their own purchasing decisions.
6. BUSINESS AND GEOGRAPHIC SEGMENT
The company's operations are concentrated in the manufacturing of printed
circuits, with facilities located in Canada and Puerto Rico selling to a
diversified base of manufacturers in the telecommunications,
F-42
<PAGE> 137
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
computer, automotive, and industrial electronics markets throughout North
America. Information concerning the company's business by geographic segment is
as follows:
<TABLE>
<CAPTION>
CANADA PUERTO RICO CONSOLIDATED
NINE MONTH NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996
------------- ------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Sales to external customers................... 109,756 19,877 129,633
======= ====== =======
Inter-segment sales........................... 678 775 --
======= ====== =======
Earnings (loss) before income taxes and non-
controlling interest........................ 8,228 (2,225) 6,003
======= ====== =======
</TABLE>
Export sales amounted to approximately 66% of the company's total sales to
external customers.
7. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated statements of earnings, retained earnings and changes in
financial position have been prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). In certain respects, Canadian
GAAP differs from accounting principles generally accepted in the United States
("U.S. GAAP").
NET EARNINGS
(a) The following summary sets out the material adjustments to the
company's reported net earnings, which would be made in order to conform to U.S.
GAAP:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Net earnings for the period under Canadian GAAP............. 1,974
U.S. GAAP adjustments:
Translation gains and losses (note 8(b)).................. (103)
Income taxes (note 8(c)).................................. 167
-----
Net earnings (loss) for the period under U.S. GAAP.......... 2,038
=====
</TABLE>
(b) Under Canadian GAAP, translation gains and losses arising on the
translation, at exchange rates prevailing at the balance sheet date, of
long-term debt denominated in foreign currency are deferred and amortized over
the remaining life of the related debt. Under U.S. GAAP, such gains and losses
are included in the statement of earnings in the period in which the exchange
rate changes.
(c) Under Canadian GAAP, the company follows the tax allocation method in
providing for income taxes while under U.S. GAAP the liability method would be
used. Under this method, deferred income taxes are calculated on the difference
between accounting and tax values of the assets and liabilities. The current tax
rate is used to calculate deferred income taxes at the balance sheet date.
Deferred tax assets arising from losses and temporary differences are subject to
a valuation allowance whenever it is more likely that the assets will not be
realized.
(d) Under Canadian GAAP, costs of providing life insurance and health care
benefits to employees after retirement are recognized as incurred while under
U.S. GAAP these costs are accrued during the employees'
F-43
<PAGE> 138
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
years of active service. This difference in GAAP would not result in a material
change to the company's consolidated statements of earnings, retained earnings
and changes in financial position.
CASH FLOWS
(e) Under U.S. GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1996
------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Net cash provided by operating activities................... 18,034
Net cash provided by financing activities................... 1,222
Net cash used in investing activities....................... (14,444)
-------
Net increase in cash........................................ 4,812
-------
Cash at the end of the period............................... 21,412
=======
</TABLE>
(f) Canadian GAAP allows the disclosure of a subtotal of the amount of cash
provided by operating activities before cash provided by non-cash operating
working capital items. U.S. GAAP requires a statement of cash flows without
subtotal.
(g) Under U.S. GAAP, the definition of cash in the statement of cash flows
would exclude short-term deposits with original maturities of three months or
more and bank indebtedness, which amounted to $8,000,000 and $3,147,000,
respectively as at September 30, 1996. Under U.S. GAAP, changes in short-term
deposits with original maturities of three months or more would be disclosed as
an investing activity and changes in bank indebtedness would be disclosed as a
financing activity.
(h) Machinery and equipment financed through capital leases are included as
financing and investing activities in the consolidated statement of changes in
financial position under Canadian GAAP but would be excluded from a statement of
cash flows under U.S. GAAP. New capital leases amounted to $2,096,000 for the
nine-month period ended September 30, 1996.
OTHER DISCLOSURE
(i) The disclosure of the following amounts is required under U.S. GAAP:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30,
1996
-------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Research and development expenses........................... 3,495
Payments under operating leases............................. 799
Payments under capital leases............................... 1,713
Interest paid............................................... 631
Income taxes paid........................................... 3,931
</TABLE>
(j) The company maintains defined contribution pension plans for certain
key employees. The plan allows for employee contributions for a maximum of
$11,500, subject to certain legal limitations, of which the company contributes
100%. Under both U.S. GAAP and Canadian GAAP, company contributions are expensed
when incurred. The company's contributions for the nine-month period ended
September 30, 1996 were $105,000.
F-44
<PAGE> 139
CIRCO CRAFT CO. INC.
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
(k) As at September 30, 1996, Circo Caribe had net operating loss
carryforwards of approximately U.S.$5,400,000, which expire from 2000 to 2003.
8. COMMITMENTS
Circo Caribe leases its manufacturing facilities in Puerto Rico under an
operating lease with the Puerto Rico Industrial Development Corporation, which
expires on December 31, 2002. Future lease payments will aggregate
U.S.$3,048,000, including the following amounts, over the next five years:
<TABLE>
<CAPTION>
(THOUSANDS OF
U.S. DOLLARS)
-------------
<S> <C>
1997........................................................ 508
1998........................................................ 508
1999........................................................ 508
2000........................................................ 508
2001........................................................ 508
</TABLE>
9. SUBSEQUENT EVENT
On October 1, 1996, the company was acquired and, effective November 8,
1996, was amalgamated with its new parent company, HMTF Canada Acquisition Inc.
under the provisions of Part IA of the Companies Act (Quebec). Combined
operations have continued under the name of Circo Craft Co. Inc.
F-45
<PAGE> 140
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Lucent Technologies, Inc.
Berkeley Heights, New Jersey
and
The Board of Directors
Viasystems Group, Inc.
St. Louis, Missouri:
We have audited the accompanying statement of operations of the
Interconnection Business (the "Business") of the Microelectronics Group,
Interconnection Technologies Unit of Lucent Technologies Inc. ("Lucent") for the
period January 1, 1996 through November 30, 1996. This statement is the
responsibility of Lucent's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying financial statement was prepared to present the results of
operations of the Business pursuant to the acquisition agreement described in
Note 1, and are not intended to be a complete presentation of the Business'
results of operations or cash flows.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the statement of operations of the Business for the
period January 1, 1996 through November 30, 1996, pursuant to the acquisition
agreement referred to in Note 1, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 21, 1997
F-46
<PAGE> 141
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996,
THROUGH
NOVEMBER 30,
1996
------------
<S> <C>
Net sales................................................... $325,102
Operating expenses:
Cost of goods sold........................................ 244,313
Selling, general and administrative....................... 27,567
Research and development.................................. 7,225
Depreciation and amortization............................. 18,317
--------
Operating income (loss)................................ 27,680
Other income (expenses):
Other income.............................................. 228
Interest expense.......................................... (917)
--------
Income (loss) before income taxes...................... 26,991
Provision (benefit) for income taxes...................... 10,257
--------
Net income (loss)................................. $ 16,734
========
</TABLE>
The accompanying notes are an integral part of the financial statement.
F-47
<PAGE> 142
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT
(DOLLARS IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION:
Pursuant to an Acquisition Agreement (the "Agreement") dated November 26,
1996, between Viasystems Technologies Corp. ("Viasystems Technologies"), a
wholly owned subsidiary of Viasystems Group, Inc., and Lucent Technologies, Inc.
("Lucent"), Viasystems Technologies agreed to acquire certain assets and assume
certain liabilities from the Microelectronics Group, Interconnection
Technologies Unit (the "Business") of Lucent in exchange for consideration
totaling $200,000. The Business designs, manufactures and markets printed
circuit boards, backplanes and related products and components for the
telecommunications and computer-related markets. The effective date of the
Agreement is December 1, 1996.
The Business' financial statements are derived from the historical books
and records of the Microelectronics Group, Interconnection Technologies Unit of
Lucent and present assets sold and liabilities assumed and the results of
operations of the Business related to the acquisition by Viasystems
Technologies. The historical operating results may not be indicative of the
results after the acquisition by Viasystems Technologies. No statement of cash
flows has been presented since any computation of historical cash flow data for
the Business would be based on arbitrary assumptions of the financial
information necessary to prepare such data and, in the opinion of management,
would not be meaningful.
The Business' financial statements include allocations of certain expenses
that have historically been accounted for by Lucent based on allocation methods
that depend on the nature of the account. For those costs that are labor
intensive, such as research and development, allocations are made based on
forecasted head count percentages. Most other costs are allocated based on
forecasted sales. Many of the marketing and sales costs are negotiated each year
between the department providing the service and the individual business unit.
The percentage of the negotiated cost of the business unit to the total
negotiated cost for that service is applied to the actual cost each month and
allocated to the individual business units. A portion of the operating expenses
are incurred at the Richmond Works location, particularly product management,
transportation and local research and development. These expenses are allocated
to the Business using estimates calculated by the department's manager. Some
transportation expense is based on specific service contracts when they can be
identified.
Allocated expenses include certain direct and indirect selling, marketing,
and research and development costs from the Microelectronics Group and services
from Lucent. Services from Lucent represent the allocated costs for services
such as employee benefits, human resources, labor relations, corporate tax and
business planning and overhead expenses, public relations, legal services,
environmental management, data processing and training.
Lucent's management believes that these allocations are based on
assumptions that are reasonable under the circumstances. However, these
allocations are not necessarily indicative of the costs and expenses that would
have resulted if the Business had been operated as a separate entity.
F-48
<PAGE> 143
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
The allocations and other components of cost of sales and selling, general
and administrative expenses are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
THROUGH
NOVEMBER 30,
1996
---------------
<S> <C>
Allocated cost of sales..................................... $ 6,004
Other cost of sales......................................... 238,309
--------
$244,313
========
Allocated selling expense................................... $ 3,494
Other selling expense....................................... 2,472
Allocated general and administrative........................ 8,706
Other general and administrative............................ 12,895
--------
$ 27,567
========
Allocated research and development.......................... $ --
Other research and development.............................. 7,225
--------
$ 7,225
========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the report period. Actual results could differ from those estimates.
B. Revenue Recognition: Sales and related costs of goods sold are included
in income when goods are shipped to the customer.
C. Income Taxes: The Business is not a separate taxable entity for federal,
state, or local income tax purposes. The Business' operations are included in
the consolidated Lucent tax returns. Lucent has historically allocated income
taxes to the Business using an assumed statutory tax rate in effect without
consideration to segregating current and deferred income taxes. In addition, the
statutory tax rate has not been reduced for research and development or other
tax credits, if any, as these amounts cannot be separately determined for the
Business. Accordingly, the provision for income taxes is based on an assumed
combined federal and state statutory rate of 38% for each year presented, but
current and deferred portions of the provision have not been determined.
D. Research and Development Costs: Research and development costs are
charged to expense when incurred.
3. TRANSACTIONS WITH AFFILIATES:
The Business through the normal course of business, conducts transactions
with Lucent and its affiliates. In addition to the various allocated costs and
expenses described in Note 1, the majority of the Business' net sales is with
Lucent affiliated entities.
The Business' sales to Lucent and its affiliates were $295,189 for the
period January 1, 1996 through November 30, 1996.
F-49
<PAGE> 144
MICROELECTRONICS GROUP, INTERCONNECTION TECHNOLOGIES UNIT
OF LUCENT TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
The cost of sales related to the sales to Lucent and its affiliates were
$232,276 for the period January 1, 1996 through November 30, 1996.
Receipts, disbursements and the net cash position of the Business have been
managed by the Microelectronics Group through a centralized treasury system.
Accordingly, both cash generated by and cash requirements of the Business flow
through the Microelectronics Group. There is no direct interest cost allocation
to the Business with respect to borrowings, if any, and, accordingly, the
Statements of Operations do not include any financing costs.
4. EMPLOYEE BENEFIT PLANS:
A. Pension Plans: The Business participates in noncontributory defined
benefit plans sponsored by Lucent covering substantially all employees. Benefits
for management employees are principally based on career average pay. Benefits
for occupational employees are not directly pay-related. Information required
pursuant to SFAS No. 87, Employer's Accounting for Pensions, including the
funded status of the plans is not available for the Business as a separate
entity.
Pension contributions are principally determined using the aggregate cost
method and are primarily made to trust funds held for the sole benefit of plan
participants. Pension cost is computed using the projected unit credit method
and an assumed long-term rate of return on plan assets of 9% in 1996.
B. Savings Plans: The Business participates in savings plans sponsored by
Lucent covering the majority of employees. The plans allow employees to
contribute a portion of their pre-tax and/or after-tax income in accordance with
specified guidelines. Lucent matches a percentage of the employee contributions
up to certain limits.
C. Postretirement Benefit Plans: The Business participates in benefit plans
for retirees, which include health care benefits, life insurance coverage and
telephone concessions sponsored by Lucent. Lucent adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other than Pensions, effective
January 1, 1993. This Standard requires that estimated future retiree benefits
be accrued for during the years the employees are working and accumulating these
benefits. Information required pursuant to SFAS No. 106, including the net
periodic postretirement benefit cost and information on the funded status of the
plan, is not available for the Business as a separate entity.
The costs of these plans were allocated to the Business on the basis of
salaries, the majority of which are included in cost of sales. Benefit costs
included in cost of sales were approximately $6,200 for the period January 1,
1996 through November 30, 1996.
5. COMMITMENTS:
In conjunction with the Agreement, Lucent and Viasystems Technologies have
entered into certain contractual arrangements whereby Lucent has agreed to
provide to Viasystems Technologies manufacturing, labor and support services.
Lucent and Viasystems Technologies have also entered into a supply agreement
effective through December 31, 2001, which shall extend through December 31,
2003 in the event Viasystems Technologies has in all material respects satisfied
the Performance Metrics (as defined) of the supply agreement. Such agreement
shall continue thereafter until terminated by either party upon eighteen months
prior written notice.
F-50
<PAGE> 145
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 similar 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-51
<PAGE> 146
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-52
<PAGE> 147
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-53
<PAGE> 148
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-54
<PAGE> 149
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-55
<PAGE> 150
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-56
<PAGE> 151
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-57
<PAGE> 152
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-58
<PAGE> 153
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-59
<PAGE> 154
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-60
<PAGE> 155
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-61
<PAGE> 156
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-62
<PAGE> 157
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$3,256.
8. DUE FROM FORMER RELATED COMPANIES
The amounts due from former related companies represent advances made to
certain subsidiaries of Termbray Industries International (Holdings) Limited
outside the PCB Division in order to finance the daily operations of these
companies. The amounts due from these former related companies are unsecured,
interest free and have no fixed terms of repayment.
F-63
<PAGE> 158
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. FIXED ASSETS
<TABLE>
<CAPTION>
LAND AND
LAND AND BUILDINGS FACTORIES,
BUILDINGS HELD UNDER STAFF QUARTERS
HELD UNDER MEDIUM TERM AND
MEDIUM TERM LEASES MACHINERY
LEASES IN OUTSIDE UNDER LEASEHOLD
HONG KONG HONG KONG CONSTRUCTION IMPROVEMENTS
HK$ 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-64
<PAGE> 159
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-65
<PAGE> 160
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$15,020,214
============= =============
</TABLE>
F-66
<PAGE> 161
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. RETAINED PROFITS
Retained profits of the PCB Division represents the combination of the
post-acquisition profits/(losses) of the following former subsidiaries of
Termbray attributable to the PCB Division:
<TABLE>
<CAPTION>
1999
HK$
---------
<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-67
<PAGE> 162
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$24,802
based on terms agreed by the relevant parties. The management fee was charged by
the subsidiary of Termbray for the PCB Division's share of salaries and office
expenses and comprised:
- 95% of total office salaries based on human resources utilised
- 89% of total management salaries based on estimated management hours, and
- a pre-fixed percentage of 85% of the total office rental and
communications expenses.
17. APPROVAL OF FINANCIAL STATEMENTS
The financial statements of the PCB Division were approved by the board of
directors of Termbray Industries International (Holdings) Limited on 24th
September 1999.
F-68
<PAGE> 163
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUMMARY OF DIFFERENCES BETWEEN HKGAAP AND USGAAP
The combined financial statements of the PCB Division are prepared in
accordance with accounting principles generally accepted in Hong Kong
("HKGAAP"), which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("USGAAP").
Differences between HKGAAP and USGAAP which have an effect on the net income,
total divisional equity and statement of cash flows of the Division are
summarized as follows:
(a) Net income and total divisional equity
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
NOTE HK$
---- ----------
<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>
18. SUMMARY OF DIFFERENCES BETWEEN HKGAAP AND USGAAP
(a) Net income and total divisional equity
(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
F-69
<PAGE> 164
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 $5,719) which may be carried
forward and applied to reduce future taxable income which is earned in or
derived from Hong Kong. The tax losses have no expiry date. Realization of
deferred tax assets associated with tax loss carry forwards is dependent upon
generating sufficient taxable income. A valuation allowance has been established
against part of such tax losses since management believes it is more likely than
not that insufficient taxable income will be generated in the foreseeable future
to utilise part of the tax loss carry forwards.
Certain losses incurred by certain subsidiaries of the PCB Division located
in the People's Republic of China ("PRC") are not included on the basis that
these losses are considered likely to be utilised in the years in which the
profits of these subsidiaries are tax exempt, pursuant to the PRC tax law.
Accordingly, the PCB Division will derive no benefit in respect of these losses.
F-70
<PAGE> 165
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the valuation allowance consist of:
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
HK$
----------
<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-71
<PAGE> 166
REPORT OF INDEPENDENT AUDITORS
To: The Shareholders and Board of Directors of Forward Group PLC
We have audited the accompanying consolidated profit and loss account and
cash flow statement of Forward Group PLC and its subsidiaries for the year ended
31 January 1997. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom and the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the results of the operations and the
cash flows of Forward Group PLC and its subsidiaries for the year ended 31
January 1997 in conformity with generally accepted accounting principles in the
United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States of America. Application of generally accepted accounting
principles in the United States of America would have affected the profit for
the financial year ended 31 January 1997 to the extent summarized in Note 17 to
the consolidated financial statements.
KPMG Audit Plc
Chartered Accountants
Birmingham, England
7 April 1997
F-72
<PAGE> 167
FORWARD GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
NOTE 1997
---- ----------
(L000)
<S> <C> <C>
Turnover
Continuing operations..................................... 2 97,001
Acquisitions.............................................. 2 8,028
-------
105,029
-------
Operating profit
Continuing operations..................................... 3 8,079
Acquisitions.............................................. 3 1,022
9,101
Net interest payable...................................... 5 (996)
-------
Profit on ordinary activities before taxation............... 6 8,105
Tax on profit on ordinary activities........................ 8 (2,707)
-------
Profit for the financial year............................... 5,398
Dividends................................................... 9 (552)
-------
Retained profit for the financial year...................... 11 4,846
=======
</TABLE>
The results on a historical cost basis are not materially different to
those reported above.
A reconciliation of the movement in shareholders' funds is shown in note
12.
F-73
<PAGE> 168
FORWARD GROUP PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
1997
----------
(L000)
<S> <C>
Profit for the financial year............................... 5,398
Currency translation adjustment............................. (22)
-----
5,376
=====
</TABLE>
F-74
<PAGE> 169
FORWARD GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
NOTE 1997
---- ----------
(L000)
<S> <C> <C>
Net cash inflow from operating activities................... 13a 18,561
Returns on investments and servicing of finance
Interest received......................................... 85
Interest paid............................................. (1,018)
Dividends paid............................................ (1,207)
-------
Net cash outflow from returns on investments and servicing
of finance................................................ (2,140)
UK tax paid................................................. (3,633)
Investing activities
Purchase of tangible fixed assets......................... 13e (7,624)
Acquisition of businesses (net of cash and cash
equivalents acquired).................................. 13d (9,184)
Sale of tangible fixed assets............................. 435
-------
Net cash outflow from investing activities.................. (16,373)
-------
Net cash outflow before financing........................... (3,585)
Financing
Issue of Ordinary share capital........................... 92
Capitalisation issue expenses............................. (24)
Repayment of bank loan.................................... (720)
Capital element of hire purchase and finance lease
payments............................................... (2,393)
-------
Net cash outflow from financing............................. 13b (3,045)
-------
Net decrease in cash and cash equivalents................... 13c (6,630)
=======
</TABLE>
F-75
<PAGE> 170
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN BRITISH POUNDS STERLING)
1. GENERAL
As used in the consolidated financial statements and related notes, the
term "Company" refers to Forward Group PLC and the term "Group" refers to
Forward Group PLC and its subsidiary undertakings as set out in note 16.
PRINCIPAL ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the consolidated
financial statements of Forward Group PLC:
BASIS OF PREPARATION
The consolidated financial statements have been prepared under the
historical cost convention, modified to include the revaluation of certain
freehold property, and in accordance with applicable Accounting Standards.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements
of Forward Group PLC and all of its subsidiary undertakings made up to 31
January 1997 under the acquisition method of accounting. The results of
companies or businesses acquired during the year are included from the date of
acquisition. Internal sales and profits are eliminated on consolidation.
Goodwill arising on acquisitions is written off directly against reserves on
acquisition.
TURNOVER
Turnover represents the amounts (excluding value added tax) derived from
the provision of goods to third party customers and is recognized when goods are
shipped and title has passed.
GOVERNMENT REVENUE GRANTS
Government revenue grants are recognized in the profit and loss account in
the period during which the expenditure to which they relate is incurred.
STOCKS AND WORK IN PROGRESS
Stocks and work in progress are valued on a first in, first out basis at
the lower of cost and net realizable value. Cost comprises materials, labor and
an appropriate proportion of production overheads.
DEPRECIATION
Depreciation is provided so as to write off the cost or valuation,
including commissioning costs, of tangible fixed assets to their estimated
residual value on a straight line basis, at the following annual rates:
<TABLE>
<S> <C>
Freehold buildings.......................................... 2.5%
Plant and machinery......................................... 10%-20%
Fixtures, fittings, tools and equipment..................... 10%-25%
Motor vehicles.............................................. 25%
</TABLE>
Freehold land is not depreciated.
F-76
<PAGE> 171
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT
Expenditure on research and development is expensed in the year in which it
is incurred.
DEFERRED TAXATION
Deferred taxation is provided using the liability method in respect of the
taxation effect of all timing differences to the extent that it is probable that
liabilities will crystallise or assets be realized in the foreseeable future.
HIRE PURCHASE AND LEASED ASSETS
Assets held under hire purchase or finance lease contracts are capitalized
and included in tangible fixed assets at their fair value. Each asset is
depreciated over the shorter of the contract term or its estimated useful life.
Obligations relating to such contracts, net of finance charges in respect of
future periods, are included as appropriate under creditors. Finance charges are
allocated to accounting periods over the period of the lease to produce a
constant rate of return on the outstanding balance. Rentals under operating
leases are charged to the profit and loss account on a straight-line basis over
the life of the lease.
PENSIONS
The Group operates both a defined contribution pension scheme and a defined
benefit pension scheme. The Group's contributions to the defined contribution
scheme are charged against profits on an accruals basis in the year to which
they relate. Contributions to the defined benefit scheme are charged against
profits so as to spread the cost of pensions over employees' working lives. The
funds of both schemes are administered by trustees and are independent of the
Group's finances.
FOREIGN EXCHANGE
Transactions denominated in foreign currencies are translated at the rate
of exchange ruling on the day the transaction occurs or at the contracted rate
if the transaction is covered by a forward exchange contract.
Foreign currency monetary assets and liabilities in the balance sheet are
translated into sterling at the rates of exchange ruling at the end of the year
or, if appropriate, at the forward contract rate. Any resulting exchange gains
or losses are taken to the profit and loss account.
The assets and liabilities of overseas subsidiary undertakings are
translated at the closing exchange rate. The profit and loss accounts of those
undertakings are translated using the average rate of exchange during the year.
Net exchange differences arising on translation are taken to reserves.
2. SEGMENTAL ANALYSIS
Turnover is analyzed by geographical destination as follows:
<TABLE>
<CAPTION>
1997
-------
(L000)
<S> <C>
United Kingdom.............................................. 55,848
Rest of Europe.............................................. 42,364
Rest of the world........................................... 6,817
-------
105,029
=======
</TABLE>
The Group's turnover, profit before taxation and assets relate to only one
business segment, the electronics division.
F-77
<PAGE> 172
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the opinion of the Directors an analysis of turnover, profit before
taxation and net assets by geographical area of operation would be seriously
prejudicial to the interests of the Group and therefore as permitted under
SSAP25 no disclosure is made.
3. OPERATING PROFIT
<TABLE>
<CAPTION>
CONTINUING
OPERATIONS ACQUISITIONS TOTAL
---------- ------------ -------
(L000) (L000) (L000)
<S> <C> <C> <C>
Turnover............................................. 97,001 8,028 105,029
Cost of sales........................................ (78,339) (5,916) (84,255)
------- ------ -------
Gross profit......................................... 18,662 2,112 20,774
Selling, general and administrative expenses......... (10,780) (1,122) (11,902)
Other income......................................... 197 32 229
------- ------ -------
Operating profit..................................... 8,079 1,022 9,101
======= ====== =======
</TABLE>
Included in the above are the following exceptional charges relating to the
restructuring of continuing operations and acquired businesses:
<TABLE>
<CAPTION>
CONTINUING
1997 OPERATIONS ACQUISITIONS TOTAL
- ---- ---------- ------------ -------
(L000) (L000) (L000)
<S> <C> <C> <C>
Cost of sales......................................... 546 433 979
Selling, general and administrative expenses.......... 168 97 265
--- --- -----
714 530 1,244
=== === =====
</TABLE>
Acquisitions comprise the former GEC-Marconi hybrid business, Manchester
Circuits Limited and TI Technologies (Pty) Limited.
4. STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including executive
Directors) during the year, analysed by category, was as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Sales....................................................... 51
Administration.............................................. 80
Production.................................................. 1,642
-----
1,773
-----
Employees at end of year.................................... 1,874
-----
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Wages and salaries.......................................... 30,503
Social security costs....................................... 2,916
Other pension costs......................................... 1,239
------
34,658
======
</TABLE>
F-78
<PAGE> 173
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Bank loan and overdrafts.................................... 609
Hire purchase and finance lease contracts................... 472
-----
Interest payable and similar charges........................ 1,081
Interest receivable and similar income...................... (85)
-----
996
=====
</TABLE>
6. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
As Directors................................................ 86
Remuneration as executives................................ 333
---
419
Compensation for loss of office........................... --
Grants receivable........................................... (19)
Property rental income...................................... (87)
Auditors' remuneration...................................... 84
Research and development expenditure........................ 764
Payments under operating leases:
Plant and equipment....................................... 245
Other assets.............................................. 324
===
</TABLE>
In addition, KPMG Audit Plc and its associates received L97,000 in respect
of other services provided during the year.
F-79
<PAGE> 174
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DIRECTORS' EMOLUMENTS
(a) Remuneration
The emoluments of the Chairman, excluding pension contributions, were
L97,000. The emoluments of the highest paid Director, excluding pension
contributions, were L136,000.
The emoluments of the Directors, excluding pension contributions, were
within the following ranges:
<TABLE>
<CAPTION>
1997
----
<C> <S> <C>
L5,001 - L10,000................................................... --
L10,001 - L15,000................................................... --
L15,001 - L20,000................................................... 1
L20,001 - L25,000................................................... 1
L25,001 - L30,000................................................... --
L40,001 - L45,000................................................... 1
L70,001 - L75,000................................................... --
L75,001 - L80,000................................................... --
L95,001 - L100,000.................................................. 1
L100,001 - L105,000.................................................. 1
L135,001 - L140,000.................................................. 1
==
</TABLE>
(b) Share options over Ordinary shares
<TABLE>
<CAPTION>
AT NUMBER OF OPTIONS AT
1 FEBRUARY ------------------- 31 JANUARY EXERCISE NORMAL
1996 GRANTED EXERCISED 1997 PRICE EXERCISE PERIOD
---------- ------- --------- ---------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
DA Bumpsteed............. 100,000 -- -- 100,000 88.75p 06.07.98 - 05.07.05
=======
MJ Glanfield............. 80,000 -- (80,000) -- 56.25p 31.05.96 - 30.05.03
20,000 -- -- 20,000 61.75p 24.02.98 - 23.02.05
-- 20,000 -- 20,000 180p 13.02.99 - 12.02.06
-------
40,000
=======
</TABLE>
The figures shown as at 1 February 1996 have been restated to reflect the 3
for 1 capitalisation issue.
The closing price of the Company's Ordinary shares on the London Stock
Exchange on 31 January 1997 was 171.5p. The range during the period was 103.5p
to 289.5p.
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
The charge for taxation all arises in the UK and comprises:
Corporation tax on profit for the year at 33%............. 2,556
Deferred taxation........................................... 439
Prior year adjustments in respect of:
Corporation tax........................................... (281)
Deferred taxation......................................... (7)
-----
2,707
=====
</TABLE>
The current year charge includes the effect of tax losses which have not
been relieved.
F-80
<PAGE> 175
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DIVIDENDS
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Interim dividend paid....................................... 552
Proposed final dividend..................................... --
---
552
===
</TABLE>
10. INVESTMENTS
(a) Acquisition of businesses
On 26 March 1996 Technograph Microcircuits Limited acquired GEC-Marconi's
hybrid business for a total cash consideration of L2,726,000.
On 7 May 1996 the Company acquired the entire issued share capital of
Manchester Circuits Limited for a total consideration of L830,000.
On 27 June 1996 the Company acquired the entire issued share capital of TI
Technologies (Pty) Limited (based in South Africa) for an initial consideration
of L510,000. Further consideration, which has not been provided for, of up to
L501,000 may become payable upon certain profit targets being achieved in the 22
months ending on 31 January 1998.
The fair values of the assets and liabilities acquired as a result of the
above are as follows:
<TABLE>
<CAPTION>
GEC- TI
MARCONI MANCHESTER TECHNOLOGIES
HYBRID CIRCUITS (PTY)
BUSINESS LIMITED LIMITED TOTAL
-------- ---------- ------------ ------
(L000) (L000) (L000) (L000)
<S> <C> <C> <C> <C>
Fixed assets................................. 123 2,098 302 2,523
Stocks....................................... 1,525 387 652 2,564
Debtors...................................... 463 955 873 2,291
Cash in hand................................. -- -- 15 15
Creditors.................................... (431) (960) (1,190) (2,581)
Bank loans and overdrafts.................... -- (1,645) (698) (2,343)
Taxation..................................... 113 (11) -- 102
Hire purchase obligations.................... -- (424) -- (424)
Deferred tax................................. 83 (35) -- 48
----- ------ ------ ------
Fair value of net assets acquired............ 1,876 365 (46) 2,195
===== ====== ====== ======
</TABLE>
Fair values are after taking account of adjustments of L755,000 to reflect
an assessment of the differences between the book values and fair values of
assets acquired, L97,000 of alignments to accord with group accounting policies
and the recognition of unprovided liabilities of L265,000 at the relevant dates
of acquisition.
Following the triennial valuation of the Exacta Circuits Pension Plan on 5
April 1996 the provision at 31 January 1996 has been released resulting in an
adjustment to the provisional assessment of fair values made at the date of
acquisition.
F-81
<PAGE> 176
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill written off in the year comprises:
<TABLE>
<CAPTION>
(L000)
<S> <C>
Fair value of net assets acquired........................... 2,195
Consideration............................................... 4,225
Goodwill arising on current year acquisitions............... 2,030
Revision to provisional fair value assessment made in
respect of the acquisition of Exacta Circuits Limited..... (584)
-----
1,446
=====
The consideration was satisfied by:
Shares issued for non-cash consideration:
Nominal value............................................... 1
Fair value in excess of nominal value....................... 191
-----
192
Cash consideration.......................................... 3,874
Costs of acquisition........................................ 159
-----
4,225
=====
</TABLE>
The following table, which is presented for the purposes of disclosure
under US GAAP in accordance with the requirements of Accounting Principles Board
Opinion No. 16 "Business Combinations" ("APB 16"), reflects the unaudited pro
forma combined results of operations of the Group, together with the companies
and businesses acquired during the year ended 31 January 1997 on the basis that
the acquisitions had taken place on 1 February 1996:
<TABLE>
<CAPTION>
1997
-----------
(L000)
(UNAUDITED)
<S> <C>
Turnover.................................................... 107,617
Profit on ordinary activities after taxation................ 5,161
</TABLE>
These unaudited pro forma combined results have been prepared for
comparative purposes only. In management's opinion the unaudited pro forma
results of operations are not indicative of the actual results that would have
occurred had the acquisitions been consummated at the beginning of the years
presented or of future operations of the combined companies under the ownership
and management of the Company.
11. RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM MERGER REVALUATION AND LOSS
ACCOUNT RESERVE RESERVE ACCOUNT TOTAL
------- ------- ----------- -------- ------
(L000) (L000) (L000) (L000) (L000)
<S> <C> <C> <C> <C> <C>
At 1 February 1996............................. 8,840 65 578 10,340 19,823
Retained profit for the financial year......... -- -- -- 4,846 4,846
Capitalization issue (including expenses of
L24,000)..................................... (2,073) -- -- -- (2,073)
Issue of shares................................ 70 191 -- -- 261
Goodwill written off on acquisition of
businesses (note 10)......................... -- (256) -- (1,190) (1,446)
Currency translation adjustment................ -- -- -- (22) (22)
Transfer....................................... -- -- (12) 12 --
------ ---- --- ------ ------
At 31 January 1997............................. 6,837 -- 566 13,986 21,389
====== ==== === ====== ======
</TABLE>
F-82
<PAGE> 177
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the end of the year cumulative goodwill written off against reserves in
respect of the acquisition of businesses amounted to L7,447,000.
12. RECONCILIATION OF MOVEMENT IN CONSOLIDATED EQUITY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997
-------
(L000)
<S> <C>
Profit for the financial year............................... 5,398
Dividends................................................... (552)
-------
4,846
Issue of shares............................................. 284
Shares to be issued......................................... --
Expenses of capitalisation issue............................ (24)
Goodwill written off........................................ (1,446)
Currency translation adjustment............................. (22)
-------
Net increase in equity shareholders' funds.................. 3,638
At beginning of year........................................ 20,505
-------
At end of year.............................................. 24,143
=======
</TABLE>
13. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Operating profit............................................ 9,101
Depreciation................................................ 4,694
Profit on sale of tangible fixed assets..................... (169)
------
13,626
Movements in working capital:
(Increase)/decrease in stocks............................... 1,454
(Increase)/decrease in debtors.............................. 2,837
Increase in creditors....................................... 644
------
4,935
------
Net cash inflow from operating activities................... 18,561
======
</TABLE>
F-83
<PAGE> 178
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
SHARE HIRE
CAPITAL AND PURCHASE BANK
PREMIUM OBLIGATIONS LOAN
----------- ----------- ------
(L000) (L000) (L000)
<S> <C> <C> <C>
1997
At beginning of year.................................. 9,522 4,639 3,240
Acquisition of businesses............................. -- 424 --
Net cash flows on financing........................... 68 (2,393) (720)
Issues of shares for non-cash consideration........... 1 -- --
Inception of hire purchase contracts.................. -- 4,548 --
Currency adjustment................................... -- (44) --
----- ------ -----
9,591 7,174 2,520
===== ====== =====
</TABLE>
(c) Analysis of cash and cash equivalents
<TABLE>
<CAPTION>
CHANGE
1996 IN YEAR 1997
------ ------- ------
(L000) (L000) (L000)
<S> <C> <C> <C>
Cash at bank and in hand.................................... 789 (789) --
Bank overdrafts............................................. -- (5,841) (5,841)
--- ------ ------
789 (6,630) (5,841)
=== ====== ======
</TABLE>
(d) Acquisition of businesses
The investing cash flows arising in respect of acquisitions during the year
were as follows:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Exacta Circuits Limited
Deferred cash consideration............................... 2,823
GEC-Marconi's hybrid business
Cash consideration including costs of acquisition......... 2,756
Manchester Circuits Limited
Cash consideration including costs of acquisition......... 759
Overdraft................................................. 1,645
TI Technologies (Pty) Limited
Cash consideration including costs of acquisition......... 518
Overdraft................................................. 698
Cash balances............................................. (15)
-----
9,184
=====
</TABLE>
Further information on the acquisitions is given in note 10.
(e) MAJOR NON-CASH TRANSACTIONS
Fixed asset additions of L4,548,000 were financed by hire purchase
borrowings.
F-84
<PAGE> 179
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. PENSIONS
Exacta Circuits Limited operates a funded defined benefit pension scheme
covering substantially all of its employees. Employer contributions are
determined by a qualified actuary on the basis of triennial valuations using the
projected unit method.
The most recent full valuation by William M. Mercer Limited was as at 5
April 1996. The assumptions which have the most significant effect on the result
of the valuation are those relating to the rate of return on investments and the
rates of increase in salaries and pensions. It was assumed that the investment
returns would be 9% per annum, that salary increases would average 7% per annum,
that present and future pensions would increase at rates of between 3% and 4.5%
per annum and that equity dividend growth would average 5% per annum. The
valuation showed that the market value of the scheme's assets at that date was
L17,593,000 and that the actuarial value of assets represented 110% of the
benefits that has accrued to members, after allowing for expected future
increases in earnings. Group contributions to the scheme in the year were
L955,000.
As part of its provisional review of the fair value of the net assets of
Exacta Circuits Limited the Group took actuarial advice regarding the current
position of the pension scheme. This highlighted uncertainty concerning the
impact of equalisation of retirement ages. In view of this uncertainty, the
SSAP24 provision of Exacta Circuits Limited of L655,000 at the date of
acquisition was replaced by a provision of the same amount. Following the
valuation as at 5 April 1996 the provision was released.
In addition, the Group made contributions of L284,000 during the year to
several defined contribution schemes.
SFAS NO 87 DISCLOSURES (UNAUDITED)
For the purpose of the disclosure in accordance with US GAAP, the pension
cost of the Exacta Circuits Limited pension scheme has been restated in the
following tables, in accordance with the requirements of SFAS No 87. The funded
status of the scheme, under SFAS No 87 is as follows:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Projected benefit obligations............................... 19,380
Plan assets at fair value................................... 19,864
------
Projected benefit obligations less than plan assets......... (484)
Unrecognised net gain....................................... 1,099
------
Accrued pension at end of year.............................. 615
======
</TABLE>
Plan assets consist primarily of investments in UK and overseas equity and
fixed interest securities. The principal assumptions used for SFAS No 87
purposes were as follows:
<TABLE>
<CAPTION>
PERCENT
-------
<S> <C>
Discount rate............................................... 8.5
Long term rate of increase in remuneration.................. 6.5
Long term rate of increase in pensions...................... 3.5
</TABLE>
F-85
<PAGE> 180
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost for the pension scheme under SFAS No 87
comprised:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Service cost -- present value of benefits earned in the
year........................................................ 1,476
Interest cost on projected benefit obligations.............. 1,397
Actual return on assets..................................... (1,893)
Net amortization and deferral............................... 328
Contributions by employees.................................. (513)
------
Net periodic pension cost................................... 795
======
</TABLE>
15. POST BALANCE SHEET EVENT
On 26 March 1997 the Recommended Cash Offer for Forward Group PLC by Hicks,
Muse, Tate and Furst Equity Fund III, L.P. was declared unconditional in all
respects and, in due course, the Company will become a wholly owned subsidiary
of PCB Investments plc.
16. SUBSIDIARY UNDERTAKINGS
The Company has the following trading subsidiary undertakings:
<TABLE>
<CAPTION>
COUNTRY OF
PRINCIPAL CLASS OF
COMPANY OPERATION SHARE HOLDING PRINCIPAL ACTIVITY
------- ------------ ---------- ------- ------------------
<S> <C> <C> <C> <C>
Forward Circuits Limited England L1 100% Manufacture of printed
Ordinary circuit boards
Exacta Circuits Limited Scotland L1 100% Manufacture of printed
Ordinary circuit boards
Technograph Microcircuits England L1 100% Manufacture of ceramic
Limited Ordinary based microcircuits
Forward Circuits England L1 100% International trading
International Limited Ordinary in printed circuit
boards
Manchester Circuits Limited England L1 100% Manufacture of printed
Ordinary circuit boards
L1 100%
Preferred 100%
Ordinary
L1
Cumulative
redeemable
preference
TI Technologies (Pty) Limited South Africa R1 100% Manufacture of printed
Ordinary circuit boards
Swift International (Pty) South Africa R1 100% Manufacture of printed
Limited Ordinary circuit boards
Exacta Circuits (France) SARL France FF 100 100% Sale of printed
Ordinary circuit boards in
France
</TABLE>
F-86
<PAGE> 181
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
OF AMERICA GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Group's consolidated financial statements are prepared in conformity
with generally accepted accounting principles applicable in the United Kingdom
(UK GAAP), which differ in certain significant respects from those applicable in
the United States of America (US GAAP). These differences, together with the
approximate effects of the adjustments on net profit and equity shareholders'
funds, relate principally to the items set out below:
(a) Goodwill: Under UK GAAP, goodwill arising from acquisitions is
written off against equity shareholders' funds. Upon the subsequent
disposal of the business, goodwill previously written off is reinstated and
considered in the calculation of the gain or loss on disposal. Under US
GAAP, goodwill is capitalised and amortised over its estimated useful life.
For the purpose of calculating the amortisation of goodwill a life of 40
years has been assumed. Upon the subsequent disposal of the business,
unamortised goodwill is considered in the calculation of the gain or loss
on disposal.
(b) Dividends: Under UK GAAP, proposed dividends on ordinary shares,
as recommended by the Directors, are deducted from equity shareholders'
funds and shown as a liability in the balance sheet at the end of the
period to which they relate. Under US GAAP, such dividends are deducted
from equity shareholders' funds at the date of declaration of the dividend.
(c) Deferred taxation: UK GAAP requires that no provision for deferred
taxation should be made if there is reasonable evidence that such taxation
will not be payable in the foreseeable future. Under US GAAP, deferred
taxation is recognised under the full liability method which permits
deferred tax assets to be recognised if their realisation is considered
more likely than not.
Deferred taxation also arises in relation to the tax effect of other
US GAAP differences.
(d) Revaluation of properties: UK GAAP allows periodic revaluations of
freehold land and buildings and the related depreciation is calculated on
the revalued amounts. The surplus on revaluation of property is credited
directly to equity shareholders' funds. Under US GAAP, such revaluations
are not permitted and depreciation is provided on the original cost.
(e) Pension costs: Under UK GAAP, the expected cost of pensions is
charged to the profit and loss account so as to spread the cost of pensions
over the expected service lives of employees. Surpluses arising from the
actuarial valuation are similarly spread. Under US GAAP, costs and
surpluses are also spread over the expected service lives but based on
prescribed actuarial assumptions, allocation of costs and valuation
methods, which differ from those used for UK GAAP.
(f) Cash flows: The principal difference between UK GAAP and US GAAP
is in respect of classification. Under UK GAAP, the Group presents its cash
flows for operating activities, returns on investments and servicing of
finance, taxation, investing activities, and financing activities. US GAAP
requires only three categories of cash flow activities which are operating,
investing and financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under UK GAAP would, with the exception of dividends paid, be
included as operating activities under US GAAP; dividend payments would be
included as a financing activity under US GAAP. In addition, under UK GAAP, cash
and cash equivalents include short term borrowings which under US GAAP would be
presented as financing activities.
F-87
<PAGE> 182
FORWARD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under US GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
1997
----------
(L000)
<S> <C>
Net cash provided by operating activities................... 13,995
Net cash used in investing activities....................... (16,373)
Net cash provided by financing activities................... 1,589
-------
Net decrease in cash and cash equivalents................... (789)
=======
Cash and cash equivalents under US GAAP..................... --
=======
</TABLE>
Approximate effects on net profit of differences between UK and US GAAP:
<TABLE>
<CAPTION>
YEAR ENDED
31 JANUARY
1997
----------
(L000)
<S> <C>
Net profit in conformity with UK GAAP....................... 5,398
Adjustments:
Goodwill.................................................. (188)
Revaluation of properties................................. 12
Pension cost.............................................. 160
Tax effect of US GAAP adjustments......................... (53)
-----
Net profit in conformity with US GAAP....................... 5,329
=====
</TABLE>
Approximate effects on equity shareholders' funds of differences between UK
and US GAAP at 31 January:
<TABLE>
<CAPTION>
1997
------
(L000)
<S> <C>
Equity shareholders' funds in conformity with UK GAAP....... 24,143
Adjustments:
Goodwill.................................................. 7,690
Deferred taxation......................................... (744)
Revaluation of properties................................. (566)
Pension cost.............................................. (615)
Tax effect of US GAAP adjustments......................... 203
------
Equity shareholders' funds in conformity with US GAAP..... 30,111
======
</TABLE>
18. COMPANIES ACT 1985
These consolidated financial statements do not comprise the Company's
statutory accounts within the meaning of Section 240 of the Companies Act 1985
of Great Britain. Statutory accounts have been prepared for the year ended 31
January 1997, on which the auditors' report was unqualified. The statutory
accounts for the year ended 31 January 1997 have not yet been delivered to the
Registrar of Companies for England and Wales.
F-88
<PAGE> 183
REPORT OF INDEPENDENT AUDITORS
To: The Directors
Interconnection Systems (Holdings) Limited
We have audited the accompanying consolidated profit and loss account and
statement of total recognized gains and losses and of cash flows of
Interconnection Systems (Holdings) Limited for the year ended April 4, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and consolidated cash flows of Interconnection Systems (Holdings) Limited for
the year ended April 4, 1997 in conformity with accounting principles generally
accepted in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted principles in the United
States. The application of generally accepted principles in the United States
would have affected the profit and cash flows for the year ended April 4, 1997
to the extent summarized in Note 13 to the consolidated financial statements.
PricewaterhouseCoopers
Chartered Accountants
Birmingham, England
September 28, 1998
F-89
<PAGE> 184
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
NOTES APRIL 4, 1997
----- -------------
(L000)
<S> <C> <C>
Turnover.................................................... 2 141,643
Cost of sales............................................... 120,628
-------
Gross profit................................................ 21,015
Distribution costs.......................................... 1,632
Administrative expenses..................................... 9,491
-------
9,892
Other operating income...................................... 44
-------
Operating profit............................................ 3 9,936
Interest receivable......................................... 6 414
Interest payable............................................ 7 (1,232)
-------
Profit on ordinary activities before taxation............... 9,118
Tax on profit on ordinary activities........................ 8 6,874
-------
Profit for the year after taxation*......................... 2,244
Dividends................................................... 9 450
-------
Retained profit for the period.............................. 1,794
-------
</TABLE>
- ------------
* A summary of the significant adjustments to profit for the year that would
be required if United States generally accepted accounting principles had
been applied instead of those generally accepted in the United Kingdom is
set forth in Note 13 of the Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Note of historical cost profits
Reported profit on ordinary activities before taxation.... 9,118
Depreciation charged during the period in respect of the
excess of valuation over historical cost of revalued
assets................................................. 9,148
------
Historical cost profit on ordinary activities before
taxation............................................... 18,266
======
Historical cost profit on ordinary activities after
taxation and dividends................................. 3,294
======
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
Financial Statements.
F-90
<PAGE> 185
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
(EXPRESSED IN BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Profit on ordinary activities after taxation................ 2,244
Unrealized surplus on revaluation of freehold land and
buildings................................................. (1,564)
Unrealized surplus on revaluation of plant and machinery.... 23,743
------
Total recognized gains and losses relating to the period.... 24,423
======
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
Financial Statements.
F-91
<PAGE> 186
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
YEAR ENDED
NOTES APRIL 4, 1997
----- -------------
(L000)
<S> <C> <C>
Net cash inflow from operating activities................... 3(b) 33,842
-------
Returns on investments and servicing of finance
Interest paid............................................. (1,077)
Interest received......................................... 414
Dividends paid to parent company shareholders............. (450)
-------
Net cash outflow from returns on investments and servicing
of finance................................................ (1,113)
-------
Taxation
Corporation tax paid...................................... (4,903)
-------
Tax paid.................................................... (4,903)
-------
Management of liquid resources
Investment in term deposit................................ (16,000)
-------
Net cash outflow from management of liquid resources........ (16,000)
-------
Investing activities
Payments to acquire tangible fixed assets................. (24,119)
Net cash outflow from investing activities.................. (24,119)
-------
Net cash inflow/(outflow) before financing.................. (12,293)
=======
Financing
New loans................................................. (22,089)
Repayment of loans........................................ 1,183
Repayment of finance leases............................... 1,005
-------
Net cash outflow/(inflow) from financing.................... (19,901)
Increase in cash and cash equivalents....................... 7,608
-------
(12,293)
=======
</TABLE>
The significant differences between the cash flow statement presented above
and that required under United States generally accepted accounting principles
are described in Note 13 of the Notes to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these
Financial Statements.
F-92
<PAGE> 187
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN BRITISH POUNDS STERLING)
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention
modified to include the revaluation of certain tangible fixed assets.
The financial statements are prepared in accordance with applicable United
Kingdom accounting standards.
BASIS OF CONSOLIDATION
The consolidated financial statements consolidate the accounts of
Interconnection Systems (Holdings) Limited (the "Company") and its subsidiary
undertaking Interconnection Systems Limited (together the "Group"). They do not
include the financial statements of Interconnection Systems Sales Limited as, in
the opinion of the directors, it would be of no real value to the Company's
members in view of the insignificant amounts involved. Interconnection Systems
Sales Limited has not traded since incorporation. The accounting period for both
companies comprises 52 weeks ending on the Friday nearest to March 31.
Periodically a 53 week period will be necessary to realign the accounting period
with the calendar. On December 4, 1997 the Company changed names to Viasystems
II Limited.
RESTATEMENT OF RESULTS
In previous filings financial statements for the Company have been reported
for the year ended April 4, 1997. These previously reported financial statements
have been adjusted by the directors of the Company for a revaluation of land and
buildings and plant and machinery at an earlier date of the year as allowed
under UK GAAP. This adjustment has the effect of increasing depreciation on
these assets for the year ended April 4, 1997 under UK GAAP. The adjusted
profits under US GAAP as shown in Note 13 are not effected by this change in the
revaluation date and the related impact on profit under UK GAAP.
REVENUE RECOGNITION
Revenue is recognized in the period in which goods are dispatched to
customers.
GOODWILL
Goodwill, both positive and negative, arising on the acquisition of
Interconnection Systems Limited has been taken directly to reserves under "Other
reserves."
DEPRECIATION
Depreciation is provided on all tangible fixed assets, at rates calculated
to write off the cost or valuation of each asset evenly over its expected useful
life, as follows:
Freehold buildings -- over 40 years
Plant and machinery -- over 2 to 10 years
Fixtures and fittings -- over 3 to 10 years
The part of the annual depreciation charge on revalued assets which relates
to the surplus over cost is transferred from the revaluation reserve to retained
profits.
F-93
<PAGE> 188
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOVERNMENT GRANTS
Regional Selective Assistance is credited to income over the period to
which it relates.
DEFERRED FUNDING ARRANGEMENTS
Amounts secured by way of loan arrangements which if certain conditions are
achieved may not be repaid are shown in creditors and credited to income over
the life of the primary term of the funding arrangement.
STOCKS
Stocks are stated at the lower of cost and net realizable value as follows:
Costs incurred in bringing each product to its present location and
condition:
<TABLE>
<S> <C>
Raw materials -- purchase cost on a first-in, first-out basis
Work in progress and finished goods -- cost of direct materials and labor plus
attributable overheads based on a normal
level of activity
</TABLE>
Net realizable value is based on estimated selling price less further costs
expected to be incurred to completion and disposal.
FINANCE LEASES
Assets held under finance leases are capitalized in the balance sheet and
are depreciated over their useful lives. The interest element of rental
obligations is charged to the profit and loss account over the period of the
lease in accordance with Statement of Standard Accounting Practice 21.
RESEARCH AND DEVELOPMENT
Research and development expenditure is written off as incurred.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance sheet
date. All differences are taken to the profit and loss account.
DEFERRED TAXATION
Deferred taxation is provided using the liability method on all timing
differences to the extent that they are expected to reverse in the future
without being replaced, calculated at the rate at which it is estimated that
taxation will be payable.
PENSIONS
Interconnection Systems Limited operates a defined benefit pension scheme
which is funded by the payment of contributions to a separately administered
fund.
Contributions to the fund are charged to the profit and loss account so as
to spread the cost of pensions over the employees' working lives.
Future variations in pension cost, which are identified as a result of an
actuarial valuation, will be amortised over the expected remaining lives of
current employees in the scheme. Differences between the
F-94
<PAGE> 189
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts funded and the amounts charged to the profit and loss account will be
treated as either provisions or prepayments in the balance sheet.
2. TURNOVER
Turnover represents the net invoiced sales, excluding value added tax, of
goods sold during the period.
The Company's operations are all located in the United Kingdom and its
turnover and pre-tax profit is attributable to one continuing activity, the
manufacture of printed circuit boards.
An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
United Kingdom.............................................. 61,209
Belgium..................................................... 16,915
Germany..................................................... 19,524
Sweden...................................................... 21,630
Other Continental Europe.................................... 22,365
-------
141,643
=======
</TABLE>
Of the total turnover, 16.3% related to one customer and 15.8% to another.
3. OPERATING PROFIT
(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Directors' remuneration (see note 4)........................ 192
Auditors' remuneration for audit services -- previous....... 35
Auditors' remuneration for audit services -- current........ 30
Auditors' remuneration for non audit services -- previous... 75
Depreciation of tangible fixed assets....................... 26,771
Research and development expenditure........................ 475
Exchange gains.............................................. (431)
Hire of plant and machinery................................. 18
Regional Selective Assistance............................... (600)
======
</TABLE>
(b) Reconciliation of operating profit to net cash inflow from operating
activities:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Operating profit............................................ 9,936
Depreciation................................................ 26,771
Government grants released.................................. (600)
Increase in debtors......................................... (6,632)
Increase in stocks.......................................... (1,685)
Increase in creditors....................................... 6,052
------
Net cash inflow from operating activities................... 33,842
======
</TABLE>
F-95
<PAGE> 190
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Fees........................................................ --
Other emoluments (including pension contributions).......... 192
---
192
===
Emoluments of the chairman (excluding pension contributions)
were:..................................................... 9
===
Emoluments of the highest paid director (excluding pension
contributions) were:...................................... 181
===
</TABLE>
Directors emoluments (excluding pension contributions) fell within the
following ranges:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4,
1997
----------
<S> <C> <C>
L5,001 -- L10,000.................................................. 1
L180,001 -- L185,000................................................. 1
</TABLE>
5. STAFF COSTS
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Wages and salaries.......................................... 26,429
Social security costs....................................... 2,185
Other pension costs......................................... 212
------
28,826
======
</TABLE>
The average weekly number of employees during the period was made up as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
<S> <C>
Sales and administration.................................... 67
Manufacturing............................................... 1,332
-----
1,399
=====
</TABLE>
6. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Bank deposit interest....................................... 414
===
</TABLE>
F-96
<PAGE> 191
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTEREST PAYABLE
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Bank overdraft.............................................. 10
Other loans wholly repayable within five years (net of
rebate)................................................... 478
Other loans not wholly repayable within five years.......... 544
Loan stock.................................................. 200
-----
1,232
=====
</TABLE>
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
The taxation charge is made up as follows:
Based on the profit for the period Corporation tax at
33%.................................................... 6,463
Corporation tax under provided in previous Periods........ 411
-----
6,874
=====
</TABLE>
If full recognition had been made in respect of deferred taxation for the
period in respect of capital allowances in advance of depreciation and other
timing differences the taxation charge would have decreased by L2,252,930.
9. DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Ordinary -- interim paid on equity shares................... 450
===
</TABLE>
10. PENSION COMMITMENTS
Interconnection Systems Limited operates a defined benefit pension scheme
which is funded by the payment of contributions to a separately administered
fund.
The contributions to the scheme are determined on behalf of the company
with the advice of an independent qualified actuary on the basis of a triennial
valuation using the Projected Unit Method. The most recent valuation was carried
out as at January 1, 1996. The actuary's valuation used the following main
assumptions:
<TABLE>
<S> <C>
Long term investment return................................. 8.5% per annum
Increase in pensionable salaries............................ 6.5% per annum
Increase in pensions in payment............................. 3.0% per annum
</TABLE>
This valuation showed that the market value of the Scheme's assets at
January 1, 1996 amounted to L5,660,314 and the actuarial value was sufficient to
cover 103% of the benefits that had accrued to members after projecting
pensionable salaries to the assumed date of retirement or death.
F-97
<PAGE> 192
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost for each fiscal year is as follows:
<TABLE>
<CAPTION>
APRIL 4, 1997
-------------
L
<S> <C>
Service cost................................................ 263
Interest cost............................................... 443
Actual return on plan assets................................ (509)
Net amortization and deferral............................... (57)
----
Net periodic pension cost................................... 140
====
</TABLE>
11. DIRECTORS' INTERESTS
I H Bradbury has an interest in payments of L389,933 made by
Interconnection Systems Limited to Interconnection Systems (Holdings) Limited in
the period ended 4 April 1997 in respect of consultancy services provided to
Interconnection Systems Limited by I H Bradbury.
In addition, the company purchased a property during the year at its market
value of L145,000 from T P Robinson, a director of Interconnection Systems
Limited and Interconnection Systems (Holdings) Limited.
12. COMPANIES ACT 1985
These financial statements do not comprise the Company's statutory accounts
within the meaning of section 240 of the Companies Act 1985 of Great Britain.
Statutory accounts for the year ended April 4, 1997, have been delivered to the
Registrar of Companies for England and Wales. The auditors' report on these
accounts was unqualified.
13. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Group's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK GAAP")
which differ from United States generally accepted accounting principles ("US
GAAP"). The significant differences as they apply to the Group are summarized
below.
PENSION COSTS
The Group provides for the cost of retirement benefits based upon
consistent percentages of employees' pensionable pay as recommended by
independent qualified actuaries. US GAAP require that the projected benefit
obligation (pension liability) be matched against the fair value of the plan's
assets and be adjusted to reflect any unrecognized obligations or assets in
determining the pension cost or credit for the year. For the purposes of the
reconciliation below, US GAAP have been adopted as of April 1, 1995. The Company
has not implemented FAS 87 as of the effective date specified in the standard
for a foreign plan (fiscal years beginning after December 15, 1988) due to the
unavailability of actuarial data. A portion of the transition liability at April
1, 1995 has been allocated to shareholders' funds based on a ratio of 6/15,
being the number of years elapsed between the effective date of FAS 87 and April
1, 1995 over the 15 year period being used to amortize the transition liability.
F-98
<PAGE> 193
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary of principal assumptions made by the actuary:
<TABLE>
<CAPTION>
APRIL 4, 1997
--------------
%
<S> <C>
Discount rate............................................... 8.5%
Salary growth............................................... 6.5
Long-term return on assets.................................. 9.0
Pension increases........................................... 3.0
</TABLE>
The following table details the funded status of the plan under US GAAP:
<TABLE>
<CAPTION>
APRIL 4, 1997
-------------
(L000)
<S> <C>
Vested benefit obligation................................... 5,800
Accrued benefit obligation.................................. 5,800
Projected benefit obligation................................ 6,520
Assets at market value...................................... 6,368
Funded status............................................... (152)
Unrecognized transition asset............................... (395)
Other unrecognised net loss................................. 787
Prepaid pension cost........................................ 240
</TABLE>
Amounts funded to the pension are primarily invested in equity and fixed
income securities.
GOODWILL AND NEGATIVE GOODWILL
Under UK GAAP, goodwill and negative goodwill arising on acquisitions is
set off against or credited to shareholders' funds in the year of acquisition.
Under US GAAP, such goodwill would be capitalized and amortized over its
estimated useful life which in the case of the acquisition of Interconnection
Systems Limited is estimated to be 10 years. Under US GAAP, negative goodwill
would be eliminated by reducing the value of the interest in the noncurrent
assets acquired.
Accordingly, under US GAAP the carrying value of the additional 20%
interest in the tangible fixed assets of Interconnection Systems Limited
acquired in 1994 would have been reduced by L1,067,000 and subsequent
depreciation would have been reduced by L201,000 per annum.
REVALUATION OF FIXED ASSETS
Under UK GAAP, the Group's tangible fixed assets are carried at valuations
and depreciation is computed based on the revalued amounts. Under US GAAP, such
revaluation is not permitted and all tangible assets would be carried at cost
subject to any impairment write down and the depreciation charge would be based
on such carrying amount. The gain or loss arising on the disposal of tangible
assets under US GAAP would differ from that arising under UK GAAP by the amount
of the revaluation gain thus realized, which in the year ended April 4, 1997 is
not material.
DEFERRED TAXATION
Under UK GAAP, deferred taxation is provided using the liability method on
all timing differences to the extent that they are expected to reverse in the
future without being replaced, calculated at the rate at which it is estimated
that taxation will be payable. Under US GAAP, deferred taxation would be
computed on all temporary differences between the tax and book bases of assets
and liabilities, which will result in taxable or
F-99
<PAGE> 194
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax deductible amounts in future years. Deferred taxation assets would be
recognized to the extent that it is more likely than not that they will be
realized.
Deferred taxation also arises in relation to the tax effect of other UK
GAAP to US GAAP adjustments.
Approximate effects on net income of differences between UK GAAP and US
GAAP:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Profit for the year as reported in the consolidated profit
and loss account............................................ 2,244
Pension costs............................................... 77
Amortization of Goodwill.................................... (84)
Depreciation of tangible fixed assets....................... 9,333
Deferred taxation -- methodology............................ 787
-- on adjustments........................ (25)
------
Net income for the year as adjusted to accord with US
GAAP...................................................... 12,332
======
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
The consolidated statement of cash flows prepared under UK GAAP presents
substantially the same information as that required under US GAAP. The
statements differ however with regard to the classification of items within the
statements and as regards the definition of cash and cash equivalents.
Under US GAAP, cash and cash equivalents would not include bank overdrafts.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing. US GAAP require only three categories of cash flow activity to be
reported; operating, investing and financing. Cash flows from taxation and
returns on investments and servicing of finance shown under UK GAAP would be
included as operating activities under US GAAP.
The categories of cash flow activity under US GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1997
-------------
(L000)
<S> <C>
Cash inflow from operating activities....................... 27,826
Cash outflow on investing activities........................ (24,119)
Cash (outflow)/inflow from financing activities............. 19,901
-------
Increase in cash and cash equivalents....................... 23,608
Cash and cash equivalents:
Opening balance........................................... 2,636
-------
Closing balance........................................... 26,244
=======
</TABLE>
F-100
<PAGE> 195
VIASYSTEMS LOGO
<PAGE> 196
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS (Subject to Completion)
Issued January 10, 2000
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. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
WE INTEND TO APPLY TO LIST OUR COMMON STOCK ON [THE NEW YORK STOCK
EXCHANGE]/[THE NASDAQ NATIONAL MARKET] UNDER THE SYMBOL " ."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS VIASYSTEMS
------------ ------------- -----------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total.......................... $ $ $
</TABLE>
Viasystems Group, Inc. has granted the underwriters the right to purchase up to
an additional 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. International Limited expects to deliver the shares to
purchasers on , 2000.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
, 2000
<PAGE> 197
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and other
estimated expenses expected to be incurred in connection with the issuance and
distribution of securities being registered. All such fees and expenses shall be
paid by the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $132,000
NASD Fee.................................................... 30,500
[NYSE]/[Nasdaq] Listing Fee................................. *
Printing and Engraving Expenses............................. *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Transfer Agent Fees and Expenses............................ *
Miscellaneous............................................... *
--------
Total............................................. $
========
</TABLE>
- ------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person, including officers
and directors, who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
officer, director, employee or agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director actually or reasonably
incurred.
Article Tenth of the Registrant's Amended and Restated Certificate of
Incorporation provides that the Registrant shall indemnify each person who is or
was an officer or director of the Registrant to the fullest extent permitted
under the DGCL (including the right to be paid expenses incurred in
investigating or defending any such proceeding in advance of its final
disposition).
Article Eleventh of the Registrant's Amended and Restated Certificate of
Incorporation provides that the Registrant's directors shall not be personally
liable to the Registrant and its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
The Registrant has purchased a directors' and officers' liability insurance
policy.
II-1
<PAGE> 198
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1997, the Registrant issued 200,000 shares of its common stock,
$0.01 par value ("common stock"), to two of its directors for an aggregate
purchase price of $200,000. The securities were issued in private placements in
reliance on Section 4(2) of the Securities Act.
In May 1997, the Registrant issued 100,000 shares of its common stock to
one of its directors for an aggregate purchase price of $100,000. The securities
were issued in a private placement in reliance on Section 4(2) of the Securities
Act.
In June 1997, the Registrant issued 85,000,000 shares of its common stock
to the holders of its series A preferred stock in exchange for all of its
outstanding shares of series A preferred stock. The securities were issued in
reliance on Section 3(a)(9) of the Securities Act.
In June 1997, the Registrant issued 140,000,000 shares of its common stock
to the stockholders of Chips Holdings, Inc. in connection with the merger of
Chips Holdings, Inc. with the Registrant.
In June 1997, the Registrant issued 1,175,000 shares of its common stock to
certain directors, officers and consultants of the Registrant for an aggregate
purchase price of $1,175,000. The securities were issued in private placements
in reliance on Section 4(2) of the Securities Act.
In April 1998, the Registrant issued 45,983,857 shares of its common stock
to some of its existing stockholders, an individual and a limited partnership
for an aggregate purchase price of $55,550,305. The securities were issued in
private placements in reliance on Section 4(2) of the Securities Act.
In October 1998, the Registrant issued 15,000 shares of its common stock to
an employee upon exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In December 1998, the Registrant issued 15,000 shares of its common stock
to an employee upon exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In February 1999, the Registrant issued 15,000 shares of its common stock
to an employee upon exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In April 1999, the Registrant issued 1,639,344 shares of its common stock
to the former stockholders of PAGG Corporation, which the Registrant acquired in
a stock purchase transaction in April 1999, as partial consideration for the
purchase price of such acquisition. The securities were issued in a private
placement in reliance on Section 4(2) of the Securities Act.
In July 1999, the Registrant issued 163,934,427 shares of its common stock
to a limited liability company for $200,000,000 in cash. The securities were
issued in a private placement in reliance on Section 4(2) of the Securities Act.
In September 1999, the Registrant issued 10,000 shares of its common stock
to an employee upon exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In October 1999, the Registrant issued 20,000 shares of its common stock to
an employee upon exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
II-2
<PAGE> 199
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement(2)
2.1 -- Securities Purchase Agreement, dated as of October 1,
1996, among Viasystems Group, Inc. (formerly known as
Circo Craft Holding Company) and certain Purchasers (as
defined therein)(3)
2.2 -- Acquisition Agreement, dated as of November 26, 1996,
among Lucent Technologies Inc., Viasystems Group, Inc.
(formerly known as Circo Technologies Group, Inc.)and
Viasystems, Inc. (formerly known as Circo Craft
Technologies, Inc.)(3)
2.3 -- Agreement and Plan of Merger, dated as of April 11, 1997
by and among Viasystems Group, Inc., HMTF Acquisition,
L.P., HMTF U.K. Acquisition Company, Hicks, Muse, Tate &
Furst Equity Fund III and HM3 Coinvestors, L.P.(3)
2.4 -- Agreement and Plan of Merger, dated as of June 5, 1997,
by and between Viasystems Group, Inc. and Chips Holdings,
Inc.(3)
2.5 -- Share Purchase Agreement, dated August 1, 1999, among
Termbray Electronics (B.V.I.) Limited, Termbray
Industries International (Holdings) Limited, Viasystems,
Inc. and Viasystems Group, Inc.(8)
3.1 -- Amended and Restated Certificate of Incorporation of
Viasystems Group, Inc.(2)
3.2 -- Amended and Restated Bylaws of Viasystems Group, Inc.(2)
4.1 -- Third Amended and Restated Credit Agreement, dated August
5, 1999, among Viasystems Group, Inc., Viasystems, Inc.,
the Foreign Subsidiary Borrowers parties thereto, the
lenders party thereto, The Chase Manhattan Bank of
Canada, Chase Manhattan International Limited, The Chase
Manhattan Bank and Chase Securities Inc.(8)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP(2)
10.1 -- Supply Agreement dated as of November 26, 1996, by and
between Lucent Technologies Inc. and Circo Craft
Technologies, Inc. (confidential treatment was granted
with respect to certain portions of this exhibit)(5)
10.2 -- Amended and Restated Viasystems Group, Inc. 1997 Stock
Option Plan(3)
10.3 -- Amended and Restated Stock Option Agreement dated as of
, 2000 between Viasystems Group, Inc.
and James N. Mills(2)
10.4 -- Amended and Restated Stock Option Agreement dated as of
, 2000 between Viasystems Group, Inc.
and David M. Sindelar(2)
10.5 -- Viasystems Group, Inc. Stock Option Agreement, dated as
of February 4, 1997, with Richard W. Vieser(4)
10.6 -- Viasystems Group, Inc. Stock Option Agreement, dated as
of February 4, 1997, with Kenneth F. Yontz(4)
10.7 -- Third Amended and Restated Monitoring and Oversight
Agreement, dated as of June 6, 1997, among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp., Circo Craft Co. Inc., Viasystems International,
Inc., PCB Acquisition Limited, PCB Investments PLC, Chips
Acquisition Limited and Hicks, Muse & Co. Partners,
L.P.(4)
</TABLE>
II-3
<PAGE> 200
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 -- Third Amended and Restated Financial Advisory Agreement
dated as of June 6, 1997, among Viasystems Group, Inc.,
Viasystems, Inc., Viasystems Technologies Corp., Circo
Craft Co. Inc., Viasystems International, Inc., PCB
Acquisition Limited, PCB Investments PLC, Chips
Acquisition Limited and Hicks, Muse & Co. Partners,
L.P.(4)
10.9 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Viasystems Group, Inc. (formerly known
as Circo Technologies Group, Inc.), Viasystems, Inc.
(formerly known as Circo Craft Technologies, Inc.) and
James N. Mills(4)
10.10 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Viasystems Group, Inc. (formerly known
as Circo Technologies Group, Inc.), Viasystems, Inc.
(formerly known as Circo Craft Technologies, Inc.) and
David M. Sindelar(4)
10.11 -- Agreement, dated as of December 30, 1996, between
Viasystems, Inc. (formerly known as Circo Craft
Technologies, Inc.) and the Communication Workers of
America(4)
10.12 -- Environmental, Health and Safety Agreement, dated as of
November 26, 1996, between Lucent Technologies and
Viasystems, Inc. (formerly known as Circo Craft
Technologies, Inc.)(3)
10.13 -- Executive Employment Agreement, dated as of October 16,
1998, by and among Viasystems Group, Inc., Viasystems,
Inc. and Viasystems Technologies Corp. and Timothy L.
Conlon(7)
10.14 -- Amended and Restated Stockholders Agreement, dated as of
June 6, 1997, among Viasystems Group, Inc. and certain
stockholders of Viasystems Group, Inc.(2)
10.15 -- First Amendment to Amended and Restated Stockholders
Agreement, dated as of November 4, 1998, among Viasystems
Group, Inc. and certain stockholders of Viasystems Group,
Inc.(2)
10.16 -- Parts Sourcing Contract, dated as of December 2, 1994,
among Wirekraft Industries, Inc. and General Electric
Company (Confidential treatment has been granted with
respect to certain portions of this exhibit.)(9)
10.17 -- Agreement dated as of December 29, 1995 among Wirekraft
Industries, Inc. and General Electric Company
(Confidential treatment has been granted with respect to
certain portions of this exhibit.)(10)
21.1 -- Subsidiaries of Viasystems Group, Inc.(2)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1)
23.2 -- Consent of PricewaterhouseCoopers LLP(1)
23.3 -- Consent of PricewaterhouseCoopers LLP(1)
23.4 -- Consent of PricewaterhouseCoopers LLP(1)
23.5 -- Consent of PricewaterhouseCoopers(1)
23.6 -- Consent of KPMG Audit plc(1)
23.7 -- Consent of PricewaterhouseCoopers(1)
24.1 -- Power of Attorney (included on signature page of this
Registration Statement)
</TABLE>
- ---------------
(1) Filed herewith.
(2) To be filed by amendment.
II-4
<PAGE> 201
(3) Incorporated by reference to the Registration Statement of Viasystems, Inc.
on Form S-1. (File No. 333-29727).
(4) Incorporated by reference to Amendment No. 1 to the Registration Statement
of Viasystems, Inc. on Form S-1.
(5) Incorporated by reference to Amendment No. 2 to the Registration Statement
of Viasystems, Inc. on Form S-1.
(6) Incorporated by reference to Viasystems, Inc.'s 1997 Annual Report on Form
10-K.
(7) Incorporated by reference to Viasystems, Inc.'s 1998 Annual Report on Form
10-K.
(8) Incorporated by reference to the Form 8-K/A of Viasystems, Inc. filed on
October 15, 1999.
(9) Incorporated by reference to the Registration Statement of International
Wire Group, Inc. on Form S-1 (File No. 333-93970).
(10) Incorporated by reference to International Wire Group, Inc.'s 1995 Annual
Report on Form 10-K.
(b) FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE NUMBER DESCRIPTION
- ----------- -----------
<S> <C>
Report of Independent Public Accountants on Financial
S-1 Statement Schedule
S-2 Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other schedules are omitted because the required information is not
present or is not present in the amounts sufficient to require submission of the
schedules, or because the information required is included in the financial
statements and notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in St. Louis, Missouri, on January 10,
2000.
VIASYSTEMS GROUP, INC.
By: /s/ DAVID M. SINDELAR
-----------------------------------
David M. Sindelar
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints James N. Mills and David M. Sindelar, and each of
them, his true and lawful attorney-in-fact and agent, with full power and
substitution and resubstitution, for him and in his person's name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement and additional
registration statements pursuant to Rule 462(b) of the Securities Act, and to
file the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or either of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES N. MILLS Chairman of the Board and January 10, 2000
- ----------------------------------------------------- Chief Executive Officer
James N. Mills (Principal Executive
Officer)
/s/ TIMOTHY L. CONLON President, Chief Operating January 10, 2000
- ----------------------------------------------------- Officer and a Director
Timothy L. Conlon
/s/ DAVID M. SINDELAR Senior Vice President and January 10, 2000
- ----------------------------------------------------- Chief Financial Officer
David M. Sindelar (Principal Financial and
Accounting Officer)
/s/ JACK D. FURST Director January 10, 2000
- -----------------------------------------------------
Jack D. Furst
/s/ KENNETH F. YONTZ Director January 10, 2000
- -----------------------------------------------------
Kenneth F. Yontz
/s/ THOMAS O. HICKS Director January 10, 2000
- -----------------------------------------------------
Thomas O. Hicks
/s/ RICHARD W. VIESER Director January 10, 2000
- -----------------------------------------------------
Richard W. Vieser
</TABLE>
II-6
<PAGE> 203
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors of Viasystems Group, Inc.:
In connection with our audits of the consolidated financial statements of
Viasystems Group, Inc. and its subsidiaries at December 31, 1997 and 1998 and
for the period from inception (August 28, 1996) to December 31, 1996 and the
years ended December 31, 1997 and 1998, which financial statements are included
in this prospectus, we have also audited the financial statement schedule listed
in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 7, 2000
S-1
<PAGE> 204
SCHEDULE II
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT CHARGES TO BALANCE AT
- -- DEDUCTED FROM RECEIVABLES IN BEGINNING COST AND ACCOUNTS TRANSLATION END OF
THE BALANCE SHEET OF PERIOD ACQUISITIONS EXPENSES WRITTEN OFF ADJUSTMENTS PERIOD
- ------------------------------- ------------ ------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997.... $ 409 $1,632 $7,176 $(7,636) $992 $2,573
====== ====== ====== ======= ==== ======
Year Ended December 31, 1998.... $2,573 $1,470 $ 158 $ (548) $141 $3,794
====== ====== ====== ======= ==== ======
</TABLE>
S-2
<PAGE> 205
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement(2)
2.1 -- Securities Purchase Agreement, dated as of October 1,
1996, among Viasystems Group, Inc. (formerly known as
Circo Craft Holding Company) and certain Purchasers (as
defined therein)(3)
2.2 -- Acquisition Agreement, dated as of November 26, 1996,
among Lucent Technologies Inc., Viasystems Group, Inc.
(formerly known as Circo Technologies Group, Inc.)and
Viasystems, Inc. (formerly known as Circo Craft
Technologies, Inc.)(3)
2.3 -- Agreement and Plan of Merger, dated as of April 11, 1997
by and among Viasystems Group, Inc., HMTF Acquisition,
L.P., HMTF U.K. Acquisition Company, Hicks, Muse, Tate &
Furst Equity Fund III and HM3 Coinvestors, L.P.(3)
2.4 -- Agreement and Plan of Merger, dated as of June 5, 1997,
by and between Viasystems Group, Inc. and Chips Holdings,
Inc.(3)
2.5 -- Share Purchase Agreement, dated August 1, 1999, among
Termbray Electronics (B.V.I.) Limited, Termbray
Industries International (Holdings) Limited, Viasystems,
Inc. and Viasystems Group, Inc.(8)
3.1 -- Amended and Restated Certificate of Incorporation of
Viasystems Group, Inc.(2)
3.2 -- Amended and Restated Bylaws of Viasystems Group, Inc.(2)
4.1 -- Third Amended and Restated Credit Agreement, dated August
5, 1999, among Viasystems Group, Inc., Viasystems, Inc.,
the Foreign Subsidiary Borrowers parties thereto, the
lenders party thereto, The Chase Manhattan Bank of
Canada, Chase Manhattan International Limited, The Chase
Manhattan Bank and Chase Securities Inc.(8)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP(2)
10.1 -- Supply Agreement dated as of November 26, 1996, by and
between Lucent Technologies Inc. and Circo Craft
Technologies, Inc. (confidential treatment was granted
with respect to certain portions of this exhibit)(5)
10.2 -- Amended and Restated Viasystems Group, Inc. 1997 Stock
Option Plan(3)
10.3 -- Amended and Restated Stock Option Agreement dated as of
, 2000 between Viasystems Group, Inc.
and James N. Mills(2)
10.4 -- Amended and Restated Stock Option Agreement dated as of
, 2000 between Viasystems Group, Inc.
and David M. Sindelar(2)
10.5 -- Viasystems Group, Inc. Stock Option Agreement, dated as
of February 4, 1997, with Richard W. Vieser(4)
10.6 -- Viasystems Group, Inc. Stock Option Agreement, dated as
of February 4, 1997, with Kenneth F. Yontz(4)
10.7 -- Third Amended and Restated Monitoring and Oversight
Agreement, dated as of June 6, 1997, among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp., Circo Craft Co. Inc., Viasystems International,
Inc., PCB Acquisition Limited, PCB Investments PLC, Chips
Acquisition Limited and Hicks, Muse & Co. Partners,
L.P.(4)
</TABLE>
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
10.8 -- Third Amended and Restated Financial Advisory Agreement
dated as of June 6, 1997, among Viasystems Group, Inc.,
Viasystems, Inc., Viasystems Technologies Corp., Circo
Craft Co. Inc., Viasystems International, Inc., PCB
Acquisition Limited, PCB Investments PLC, Chips
Acquisition Limited and Hicks, Muse & Co. Partners,
L.P.(4)
10.9 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Viasystems Group, Inc. (formerly known
as Circo Technologies Group, Inc.), Viasystems, Inc.
(formerly known as Circo Craft Technologies, Inc.) and
James N. Mills(4)
10.10 -- Executive Employment Agreement, dated as of January 1,
1997, by and among Viasystems Group, Inc. (formerly known
as Circo Technologies Group, Inc.), Viasystems, Inc.
(formerly known as Circo Craft Technologies, Inc.) and
David M. Sindelar(4)
10.11 -- Agreement, dated as of December 30, 1996, between
Viasystems, Inc. (formerly known as Circo Craft
Technologies, Inc.) and the Communication Workers of
America(4)
10.12 -- Environmental, Health and Safety Agreement, dated as of
November 26, 1996, between Lucent Technologies and
Viasystems, Inc. (formerly known as Circo Craft
Technologies, Inc.)(3)
10.13 -- Executive Employment Agreement, dated as of October 16,
1998, by and among Viasystems Group, Inc., Viasystems,
Inc. and Viasystems Technologies Corp. and Timothy L.
Conlon(7)
10.14 -- Amended and Restated Stockholders Agreement, dated as of
June 6, 1997, among Viasystems Group, Inc. and certain
stockholders of Viasystems Group, Inc.(2)
10.15 -- First Amendment to Amended and Restated Stockholders
Agreement, dated as of November 4, 1998, among Viasystems
Group, Inc. and certain stockholders of Viasystems Group,
Inc.(2)
10.16 -- Parts Sourcing Contract, dated as of December 2, 1994,
among Wirekraft Industries, Inc. and General Electric
Company (Confidential treatment has been granted with
respect to certain portions of this exhibit.)(9)
10.17 -- Agreement dated as of December 29, 1995 among Wirekraft
Industries, Inc. and General Electric Company
(Confidential treatment has been granted with respect to
certain portions of this exhibit.)(10)
21.1 -- Subsidiaries of Viasystems Group, Inc.(2)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1)
23.2 -- Consent of PricewaterhouseCoopers LLP(1)
23.3 -- Consent of PricewaterhouseCoopers LLP(1)
23.4 -- Consent of PricewaterhouseCoopers LLP(1)
23.5 -- Consent of PricewaterhouseCoopers(1)
23.6 -- Consent of KPMG Audit plc(1)
23.7 -- Consent of PricewaterhouseCoopers(1)
24.1 -- Power of Attorney (included on signature page of this
Registration Statement)
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(1) Filed herewith.
<PAGE> 207
(2) To be filed by amendment.
(3) Incorporated by reference to the Registration Statement of Viasystems, Inc.
on Form S-1. (File No. 333-29727)
(4) Incorporated by reference to Amendment No. 1 to the Registration Statement
of Viasystems, Inc. on Form S-1.
(5) Incorporated by reference to Amendment No. 2 to the Registration Statement
of Viasystems, Inc. on Form S-1.
(6) Incorporated by reference to Viasystems, Inc.'s 1997 Annual Report on Form
10-K.
(7) Incorporated by reference to Viasystems, Inc.'s 1998 Annual Report on Form
10-K.
(8) Incorporated by reference to the Form 8-K/A of Viasystems, Inc. filed on
October 15, 1999.
(9) Incorporated by reference to the Registration Statement of International
Wire Group, Inc. on Form S-1 (File No. 333-93970).
(10) Incorporated by reference to International Wire Group, Inc.'s 1995 Annual
Report on Form 10-K.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated January 7, 2000 relating to the financial statements and financial
statement schedule of Viasystems Group, Inc. and its subsidiaries, which appear
in such Registration Statement. We also consent to the references to us under
the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 7, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF CHARTERED ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Viasystems Group,
Inc. on Form S-1 of our report dated December 20, 1996, relating to the
consolidated statements of earnings, retained earnings, and changes in financial
position of Circo Craft Co. Inc. for the nine-month period ended September 30,
1996, which appear in such Registration Statement. We also consent to the
reference to our firm under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Quebec
January 6, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 21, 1997 relating to the statement of operations of the
Interconnection Business of the Microelectronics Group, Interconnection
Technologies Unit of Lucent Technologies Inc., which appears in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
St. Louis, MO
January 7, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated September 24, 1999 relating to the financial statements of the
Printed Circuit Board Division of Termbray Industries International (Holdings)
Limited, which appears in such Registration Statement. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers
Hong Kong
January 6, 2000
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Viasystems Group, Inc.:
Dear Sirs
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Audit Plc
Birmingham, England
10 January 2000
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated 28 September 1998 relating to the financial statements of
Interconnection Systems (Holdings) Limited, which appears in such Registration
Statement. We also consent to the references to us under the heading "Experts"
in such Registration Statement.
PricewaterhouseCoopers
Birmingham, England
7 January 2000
