<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 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)
</TABLE>
---------------------
<TABLE>
<S> <C>
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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(2) PRICE REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share.......... 19,550,000(1) $18.625 $364,118,750 $96,128.00
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 2,550,000 shares that may be sold upon exercise of the
underwriters' over-allotment option.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee, based upon the average of the high and low sale prices of
such common stock as reported by the New York Stock Exchange on September
22, 2000.
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
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 September 28, 2000
17,000,000 Shares
[VIASYSTEMS LOGO]
COMMON STOCK
------------------------
VIASYSTEMS GROUP, INC. IS OFFERING 17,000,000 SHARES OF ITS COMMON STOCK.
------------------------
OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "VG."
ON SEPTEMBER 27, 2000, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK WAS
$19 3/4 PER SHARE.
------------------------
INVESTING IN OUR 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 2,550,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
BANC OF AMERICA SECURITIES LLC
, 2000
<PAGE> 3
EDGAR DESCRIPTION OF COVER ARTWORK
INSIDE FRONT COVER PAGE:
Dark blue background with text heading "Wide Range of Products and Services;"
Photo showing computer design display next to text "Design;"
Photo showing printed circuit board next to text "PCB Fabrication;"
Photo showing assembled printed circuit board next to text "PCB Assembly;"
Photo showing metal enclosure with attached wire harnesses next to text "Wire
Harness Assembly, Metal Enclosures and Test;" and
Photos showing large custom metal enclosures below text "Full System Assembly."
INSIDE BACK COVER PAGE:
Graphic global map with marked locations of Viasystems' facilities and city and
country location names; and
Text under graphic "Our Worldwide Facilities" and Viasystems logo.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 11
Special Note About Forward-Looking
Statements......................... 17
Use of Proceeds...................... 18
Price Range of Common Stock.......... 18
Dividend Policy...................... 18
Dilution............................. 19
Capitalization....................... 20
Unaudited Pro Forma Financial
Information........................ 22
Selected Financial Data.............. 29
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................ 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................. 48
Management........................... 62
Principal Stockholders............... 70
Related Party Transactions........... 73
Description of Indebtedness.......... 77
Description of Capital Stock......... 81
Shares Eligible for Future Sale...... 87
Important United States Federal Tax
Considerations for Non-United
States Holders..................... 88
Underwriters......................... 91
Legal Matters........................ 94
Experts.............................. 94
Additional Information............... 94
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.
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.
2
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock being sold in this offering
and our financial statements and notes appearing elsewhere in this prospectus.
Throughout this prospectus, "pro forma" information gives effect to the
transactions described under the caption "Unaudited Pro Forma Financial
Information" elsewhere in this prospectus.
We are a leading worldwide independent provider of electronics
manufacturing services. Electronics manufacturing services include a wide
spectrum of services, ranging from the design, production and assembly of
electronic devices to testing and after-sales support. We serve primarily the
telecommunications and networking industries, which we believe to be the
fastest-growing customer segments of the $73 billion electronics manufacturing
services market. We are a supplier to over 50 manufacturers of original
equipment, including industry leaders Alcatel, Cisco Systems, Delco, Ericsson,
General Electric, Intel, Lucent Technologies, Marconi Communications, Motorola,
Nortel, Siemens, Sun Microsystems, 3Com and Tut Systems. We operate 29
manufacturing facilities located in the United States, Canada, Mexico, the
United Kingdom, Italy, Denmark, the Netherlands and China. These facilities are
strategically located to take advantage of low-cost manufacturing environments
and to better serve the needs of our customers.
We offer a wide range of products and services to original equipment
manufacturers of electronic products. Our original equipment manufacturer
customers typically use product components from one or more other companies to
build a product that they sell under their own brand name. Our products and
services consist of:
- the design and fabrication of printed circuit boards, in particular
highly complex multi-layered printed circuit boards;
- the manufacture of complex printed circuit board assemblies, which are
printed circuit boards to which electronic components, including
integrated circuits, capacitors, microprocessors and resistors, are
attached;
- the manufacture of custom-designed backpanel assemblies, which are large
printed circuit boards into which electronic components, including other
printed circuit boards and integrated circuits, can be plugged;
- the design and manufacture of wire harnesses and cable assemblies, which
are assemblies of wires with connectors and terminals attached that
transmit electricity between two or more end points;
- the design and manufacture of custom metal enclosures for
telecommunications and networking systems;
- the design and manufacture of thermal management systems used in custom
metal enclosures;
- the procurement and management of materials; and
- the assembly and testing of our customers' complete systems and products.
We target leading original equipment manufacturers primarily in the
telecommunications and networking industries. We believe that these industries
represent a large and attractive market for electronics manufacturing services.
Networking companies were among the first communications equipment companies to
aggressively outsource much of their manufacturing to providers of electronics
manufacturing services. Telecommunications equipment companies have only
recently begun to use providers of electronics manufacturing services and we
expect their use of electronics manufacturing service providers to increase.
3
<PAGE> 6
Approximately 62% of our pro forma revenues for the six months ended June
30, 2000 were from telecommunications and networking customers. The products we
manufacture for these customers include, or can be found in, a wide array of
products including switching and transmission equipment, wireless base stations,
workstations, servers and data networking equipment including hubs, routers and
switches. Given our strong relationships with leading original equipment
manufacturers in the telecommunications and networking industries, we believe we
are well positioned to participate in the outsourcing programs and asset
dispositions of those manufacturers. For example, we recently agreed to acquire
two facilities and manufacturing assets located in Rouen, France, from Lucent
Technologies.
Our principal competitive advantages are our advanced product capabilities,
strong customer relationships, global infrastructure, broad service offering,
supply chain management capabilities and experienced and successful management
team. These competitive advantages allow us to provide significant value to our
customers by reducing their new product development cycles, the amount of time
it takes to bring their product to market, the amount of time it takes to reach
desired volume levels of production and their overall manufacturing cost. Based
on our estimates of market share and our product capabilities, we believe we are
the industry leader in the manufacture of highly complex, technologically
advanced multi-layered printed circuit boards and custom-designed backpanel
assemblies. In our state-of-the-art manufacturing facilities, we currently
produce commercial quantities of printed circuit boards with up to 48 layers and
circuit track widths as narrow as three one-thousandths of an inch. We have the
capability to produce printed circuit boards with up to 60 layers and circuit
track widths as narrow as two one-thousandths of an inch. We have used these
capabilities to participate in the product design of many next generation
products for major original equipment manufacturers in the telecommunications
and networking industries.
OUR STRATEGY
Our goal is to be the partner of choice to leading original equipment
manufacturers. Our strategy is to:
- focus on the high growth telecommunications and networking customer
segments;
- take advantage of our ability to provide a full-service offering to, and
expand relationships with, our customers;
- concentrate on high value-added products and services;
- capitalize on our advanced printed circuit board and backpanel
capabilities to further expand into complete assembly and other
value-added 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.
RECENT EVENTS
On August 18, 2000, we entered into an agreement with Lucent Technologies
to acquire its global provisioning facilities in Rouen, France, for
approximately $48.0 million in cash. The Rouen facilities are dedicated to the
production of network transmission and radio frequency equipment, based on fixed
wireless, microwave radio and synchronous digital hierarchy, or SDH,
technologies. Upon consummation of the Rouen facilities acquisition, we will
enter into a 30-month supply agreement with Lucent to continue to provide those
products to them.
While the acquisition of the Rouen facilities is expected to close by
September 30, 2000, we cannot assure you that the closing will occur at that
time or at all. This offering is not dependent on the consummation of the Rouen
facilities acquisition.
4
<PAGE> 7
THE OFFERING
Common stock offered................ 17,000,000 shares(1)
Common stock to be outstanding after
this offering....................... 150,824,209 shares(1)(2)
Over-allotment option............... 2,550,000 shares
Use of proceeds..................... To repay approximately $48.0 million of
indebtedness expected to be incurred to
fund the Rouen facilities acquisition,
for possible future acquisitions and
for general corporate purposes. See
"Use of Proceeds."
New York Stock Exchange symbol...... VG
------------
(1) Excludes up to 2,550,000 shares that may be sold by us if the underwriters
exercise their over-allotment option.
(2) Excludes:
- 3,033,872 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued under our management stock
option plan with a weighted average exercise price of $10.31 per share;
- 130,748 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued to former optionholders of
Top Line Electronics Corporation with a weighted average exercise price of
$15.99 per share;
- 2,802,897 shares of common stock that are issuable upon the exercise of
our outstanding performance options with an exercise price of $9.00 per
share;
- 16,666 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued to a non-employee director
with an exercise price of $6.00 per share;
- 100,000 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued to our non-employee
directors with an exercise price of $21.00 per share;
- 136,645 shares of common stock that are issuable upon the exercise of our
outstanding warrants with an exercise price of $10.50 per share; and
- 2,134,000 shares of common stock that are issuable upon the exercise of
stock options granted to Hicks Muse and partners of Hicks Muse with an
exercise price equal to $21.00 per share.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary historical consolidated financial data
of Viasystems Group, Inc. for the periods indicated. The financial data used in
the preparation of the summary historical consolidated financial data has been
derived from our audited or 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 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ---------------------------
1997(1) 1998(2) 1999(3) 1999 2000
----------- ----------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 960,719 $ 1,202,321 $ 1,293,370 $ 622,525 $ 742,869
----------- ----------- ----------- ------------ ------------
Cost of goods sold................................... 684,777 856,942 969,614 463,787 572,699
Selling, general and administrative expenses,
including non-cash compensation expense charge of
$--, $3,398, $110,070, $-- and $104,351,
respectively(4).................................... 83,497 119,424 232,653 54,192 166,471
Depreciation and amortization........................ 116,229 172,950 182,143 77,652 76,073
Impairment loss(5)................................... -- -- 468,389 -- --
Write-off of acquired in-process research and
development(6)..................................... 294,500 20,100 17,600 -- --
----------- ----------- ----------- ------------ ------------
Operating income (loss)............................ (218,284) 32,905 (577,029) 26,894 (72,374)
----------- ----------- ----------- ------------ ------------
Interest expense, net................................ 73,322 101,045 117,822 53,183 59,263
Amortization of deferred financing costs............. 6,629 9,354 6,619 3,083 2,649
Other expense........................................ 1,138 4,964 23,594 1,566 647
----------- ----------- ----------- ------------ ------------
Loss before income taxes, cumulative effect of a
change in accounting principle and extraordinary
item............................................. (299,373) (82,458) (725,064) (30,938) (134,933)
Provision (benefit) from income taxes................ 13,490 (1,812) (23,212) (7,736) (7,008)
----------- ----------- ----------- ------------ ------------
Loss before cumulative effect of a change in
accounting principle and extraordinary item...... (312,863) (80,646) (701,852) (23,202) (127,925)
Cumulative effect -- write-off of start-up costs, net
of income tax benefit of $6,734.................... -- -- 18,443 18,443 --
Extraordinary item -- loss on early extinguishment of
debt, net of income tax benefit of $4,332 in 1997
and $-- in 2000.................................... 7,796 -- -- -- 31,196
----------- ----------- ----------- ------------ ------------
Net loss............................................. $ (320,659) $ (80,646) $ (720,295) $ (41,645) $ (159,121)
=========== =========== =========== ============ ============
Basic net loss per weighted average common
share(7)......................................... $ (10.76) $ (1.54) $ (10.14) $ (.75) $ (1.50)
=========== =========== =========== ============ ============
Basic weighted average common shares(7)............ 26,507,409 48,205,838 62,123,268 50,531,592 107,649,703
Diluted net loss per weighted average common
share(7)......................................... $ (12.22) $ (1.71) $ (10.77) $ (.86) $ (1.50)
=========== =========== =========== ============ ============
Diluted weighted average common shares(7).......... 26,507,409 48,669,528 67,238,458 50,754,995 107,649,703
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 27,538 $ 9,335 $ 22,839 $ 2,042 $ 22,445
Working capital...................................... 37,830 31,394 112,220 31,797 232,964
Total assets......................................... 1,153,548 1,545,641 1,309,226 1,451,350 1,329,883
Total debt, including current maturities............. 847,396 1,134,992 1,362,523 1,154,350 966,504
Stockholders' deficit................................ (60,036) (90,578) (537,247) (129,261) (3,414)
</TABLE>
------------
(1) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1997, and include the results of Forward Group and
Interconnection Systems Limited since the dates of acquisition in April
1997, as well as the pooling impact of the wire harness business of
International Wire. See notes 1 and 24 to our consolidated financial
statements.
6
<PAGE> 9
(2) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1998 and include the results of the printed circuit
board production facility of Ericsson Telecom AB purchased by our
subsidiary, Viasystems Sweden, Mommers Print Service B.V. and Zincocelere
S.p.A. since the dates of acquisition in the first quarter of 1998 as well
as the pooling impact of the wire harness business of International Wire.
See notes 1 and 24 to our consolidated financial statements.
(3) Amounts are derived from our audited historical financial statements for the
year ended December 31, 1999, and include the results of the printed circuit
board manufacturing facilities of Kalex Printed Circuit Board Limited and
its direct and indirect subsidiaries, which we purchased from Termbray
Industries International (Holdings) Limited, since the date of acquisition
in August 1999 and PAGG Corporation since the date of acquisition in April
1999 as well as the pooling impact of the wire harness business of
International Wire. See notes 1 and 24 to our consolidated financial
statements.
(4) During the years ended December 31, 1998 and 1999, we recorded non-cash
compensation charges of $3,398 and $110,070, respectively, which reflect the
difference between the cost of the class A common stock and class A series
II common stock and the value of the common stock that it was convertible
into at those dates. Additionally, in connection with our initial public
offering during the six months ended June 30, 2000, we recorded non-cash
compensation expense charges totaling $104.4 million; (i) $33.6 million
related to the amendment of terms of the performance stock options held by
members of management that eliminated the exercisability restrictions and
variable exercise price terms, (ii) $62.9 million related to the
reclassification of each 6 2/3 shares of class A common stock and class A
series II common stock into one share of common stock and (iii) $7.8 million
related to options issued to Hicks Muse and partners of Hicks Muse as
consideration for the termination of certain agreements.
(5) Represents an impairment loss related to the write-off of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." See note 3 to our consolidated financial
statements.
(6) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the purchase accounting for the
acquisition of Forward Group and Interconnection Systems Limited in 1997,
the Mommers and Zincocelere acquisitions in 1998 and the Kalex acquisition
in 1999. The write-off relates to acquired research and development for
projects that do not have a future alternative use. See note 1 to our
consolidated financial statements.
(7) Basic net loss per weighted average common share for the years ended
December 31, 1997, 1998 and 1999 and for the six months ended June 30, 1999
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 for the years ended December 31, 1997, 1998 and 1999 and for the six
months ended June 30, 1999 is computed by dividing the net loss plus the
charge for preferred stock dividends and accretion by the weighted average
common shares outstanding during the period plus the weighted average class
A common stock and class A series II common stock shares outstanding on an
as if converted basis. Basic and diluted net loss per weighted average
common share for the six months ended June 30, 2000 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. Options
and warrants were excluded from the diluted calculation because their effect
is anti-dilutive. For further discussion of the calculation of basic and
diluted loss per share, refer to note 22 of our consolidated financial
statements.
7
<PAGE> 10
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data for the
fiscal year ended December 31, 1999 and the six months ended June 30, 2000. The
pro forma statement of operations data for the fiscal year ended December 31,
1999 gives effect to (1) the acquisitions we completed in 1999, (2) the transfer
of the operations formerly conducted by Interconnection Systems Limited, Forward
Group, Zincocelere and Viasystems Sweden, (3) the initial public offering of
44.0 million shares of our common stock in March 2000, including the application
of the net proceeds from the offering and (4) this offering, including the
application of the net proceeds from this offering, in each case, as if those
transactions had occurred at January 1, 1999 and as more fully described under
the heading "Unaudited Pro Forma Financial Information" contained elsewhere in
this prospectus. The pro forma statement of operations data for the six months
ended June 30, 2000 gives effect to (1) the transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden, (2) the initial public offering of 44.0 million shares of our
common stock in March 2000, including the application of the net proceeds from
the offering and (3) this offering, including the application of the net
proceeds from this offering, in each case, as if those transactions had occurred
at January 1, 1999 and as more fully described under the heading "Unaudited Pro
Forma Financial Information" contained elsewhere in this prospectus. The pro
forma balance sheet data as of June 30, 2000 gives effect to this offering, as
if such transaction 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.
8
<PAGE> 11
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
-------------- ------------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 1,026,354 $ 647,206
Cost of goods sold........................................ 735,420 487,463
Selling, general and administrative expenses, including
non-cash compensation expense charge of $110,070 in
1999 and $104,351 in 2000(1)........................... 195,763 154,040
Depreciation and amortization............................. 123,399 67,366
Write-off of acquired in-process research and
development(2)......................................... 17,600 --
------------ ------------
Operating income....................................... (45,828) (61,663)
------------ ------------
Interest expense, net..................................... 74,059 44,645
Amortization of deferred financing costs.................. 2,680 1,680
Other expense (income).................................... 4,335 250
------------ ------------
Loss before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle............................................ (126,902) (108,238)
Provision (benefit) from income taxes..................... (11,385) 2,409
------------ ------------
Loss before extraordinary item and cumulative effect of
a change in accounting principle..................... $ (115,517) $ (110,647)
============ ============
Basic net loss per weighted average common share before
extraordinary item and cumulative effect of a change
in accounting principle(3)........................... $ (.90) $ (.76)
============ ============
Basic weighted average common shares(3)................ 133,355,486 149,381,979
Diluted net loss per weighted average common share
before extraordinary item and cumulative effect of a
change in accounting principle(3).................... $ (.90) $ (.76)
============ ============
Diluted weighted average common shares(3).............. 133,355,486 149,381,979
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-------------
AS OF
JUNE 30, 2000
-------------
(IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 342,926
Working capital........................................... 553,445
Total assets.............................................. 1,650,364
Total debt, including current maturities.................. 966,504
Stockholders' equity (deficit)............................ 317,067
</TABLE>
------------
(1) During the year ended December 31, 1999, we recorded a non-cash compensation
charge of $110.1 million which reflects the difference between the cost of
the class A common stock and class A series II common stock and the value of
the common stock into which it was convertible at that date. Additionally,
in connection with our initial public offering during the six months ended
June 30, 2000, we recorded non-cash compensation expense charges totaling
$104.4 million; (i) $33.6 million related to the amendment of terms of the
performance stock options held by members of management that eliminated the
exercisability restrictions and variable exercise price terms, (ii) $62.9
million related to the reclassification of each 6 2/3 shares of class A
common stock and class A series II common stock into one
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<PAGE> 12
share of common stock and (iii) $7.8 million related to options issued to
Hicks Muse and partners of Hicks Muse as consideration for the termination
of certain agreements.
(2) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the purchase accounting for the Kalex
acquisition in 1999. The write-off relates to acquired research and
development for projects that do not have a future alternative use. See note
1 to our consolidated financial statements.
(3) Basic and diluted net loss per weighted average common share before
extraordinary item and cumulative effect of a change in accounting principle
for the year ended December 31, 1999 is computed by dividing the net loss
before extraordinary item and cumulative effect of a change in accounting
principle plus the charge for preferred stock dividends and accretion by the
weighted average common shares outstanding during the period plus the class
A common stock and class A series II common stock shares outstanding on an
as if converted basis at a conversion rate of one share of common stock for
each 6 2/3 outstanding shares of class A common stock and class A series II
common stock. Basic and diluted net loss per weighted average common share
before extraordinary item and cumulative effect of a change in accounting
principle for the six months ended June 30, 2000 is computed by dividing the
net loss before extraordinary item and cumulative effect of a change in
accounting principle plus the charge for preferred stock dividends and
accretion by the weighted average common shares outstanding during the
period. Options and warrants were excluded from the diluted calculation
because their effect is antidilutive. For a further discussion of the
methodology used to calculate basic and diluted loss per share, refer to
note 22 of our consolidated financial statements.
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<PAGE> 13
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial conditions or results of operations could be
materially adversely affected by any of these risks. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS AND, BECAUSE MANY OF OUR
OPERATING COSTS ARE FIXED, EVEN SMALL REVENUE SHORTFALLS CAN HAVE A
DISPROPORTIONATE EFFECT ON OUR OPERATING RESULTS
Our operating results may vary significantly for a variety of reasons,
including:
- expenditures or write-offs related to acquisitions;
- start-up expenses relating to new manufacturing facilities;
- pricing pressures;
- timing of orders from and shipments to major customers;
- our capacity relative to the volume of orders;
- expenditures in anticipation of future sales;
- variations in product mix; and
- overall economic conditions in the electronics industry.
Historically, expenditures and write-offs related to acquisitions, start-up
expenses relating to new manufacturing facilities and pricing pressures have
caused fluctuations in our operating results. For example, in the fiscal year
ended December 31, 1999, we incurred $17.6 million of write-offs related to
acquisitions and $18.4 million of start-up expenses, net of tax benefit of $6.7
million. Because a significant portion of our operating expenses are fixed, even
a relatively small revenue shortfall can have a disproportionate effect on our
results of operations. Results of operations in any period should not be
considered indicative of the results to be expected for any future period.
A SIGNIFICANT PORTION OF OUR REVENUES ARE BASED ON SALES TO OUR LARGEST
CUSTOMERS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE
SIGNIFICANTLY
For the year ended December 31, 1999 and the six months ended June 30,
2000, Lucent Technologies accounted for approximately 32% and 26%, respectively,
General Electric accounted for approximately 9% and 7%, respectively, and our
five largest customers as a group accounted for approximately 55% and 46%,
respectively, of our pro forma net sales. Although we cannot assure you that our
principal customers will continue to purchase products from us at past levels,
we expect a significant portion of our revenue will continue to be concentrated
within a small number of customers. In addition, we anticipate that Lucent
Technologies will continue to be our largest customer for at least the next few
years. Although we have supply agreements with each of Lucent Technologies and
General Electric which could first expire in December 2001 and December 2006,
respectively, there may be circumstances that would allow them to terminate
those agreements or to purchase required quantities from other suppliers if we
fail to perform. Additionally, an extraordinary change in the financial
condition or business of these customers could cause them to be unable to
fulfill their obligations to us under those contracts. The loss of, or
significant curtailment of purchases by, Lucent Technologies or General Electric
or one or more of these principal customers could have a material adverse effect
on our revenues.
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<PAGE> 14
WE RELY HEAVILY ON THE TELECOMMUNICATIONS AND NETWORKING INDUSTRIES;
ACCORDINGLY, A DOWNTURN IN THESE INDUSTRIES WOULD LIKELY HAVE A MATERIAL ADVERSE
EFFECT ON OUR ABILITY TO FORECAST DEMAND AND PRODUCTION AND TO MEET DESIRED
SALES LEVELS
Our principal customers are in the telecommunications and networking
industries, which are characterized by intense competition, relatively short
product life cycles and significant fluctuations in product demand. In addition,
these industries are generally subject to rapid technological change and product
obsolescence. Furthermore, these industries are subject to economic cycles and
have in the past experienced, and are likely in the future to experience,
recessionary periods. A recession or any other event leading to excess capacity
or a downturn in the telecommunications and networking industries would likely
have a material adverse effect on our ability to forecast demand and production
and to meet desired sales levels.
WE ARE EXPANDING OUR BUSINESS INTO NEW PRODUCTS AND SERVICES AND MAY NOT BE ABLE
TO COMPETE EFFECTIVELY WITH OTHER COMPANIES WHO HAVE BEEN IN THESE BUSINESSES
LONGER THAN WE HAVE
The electronics manufacturing services industry is highly fragmented and
characterized by intense competition. During the last two years, we have
broadened our product offerings by expanding our backpanel assembly capabilities
as well as adding printed circuit board assembly, full system assembly and test
capabilities. As a result of our broadened focus in the electronics
manufacturing services industry, we will be competing with companies that have
substantially greater financial and manufacturing resources than we have and who
have been providing these services longer than we have. As a participant in the
electronics manufacturing services industry, we compete on the basis of product
quality, responsiveness to customers, manufacturing and engineering technology
and price. There can be no assurance that we will be able to successfully
compete on this basis with our more established competitors.
THE ELECTRONICS MANUFACTURING SERVICES INDUSTRY IS SUBJECT TO RAPID
TECHNOLOGICAL CHANGE; OUR FAILURE TO TIMELY OR ADEQUATELY RESPOND TO THOSE
CHANGES MAY RENDER OUR EXISTING TECHNOLOGY LESS COMPETITIVE OR OBSOLETE, AND OUR
OPERATING RESULTS MAY SUFFER
The market for our products and services is characterized by rapidly
changing technology and continuing process development. The future success of
our business will depend in large part upon our ability to maintain and enhance
our technological capabilities, develop and market products and services that
meet changing customer needs, and successfully anticipate or respond to
technological changes on a cost-effective and timely basis. Research and
development expenses are expected to increase as manufacturers make demands for
higher technology and more complex products. In addition, the electronics
manufacturing services industry could in the future encounter competition from
new or revised technologies that render existing technology less competitive or
obsolete. There can be no assurance that we will effectively respond to the
technological requirements of the changing market, including the need for
substantial additional capital expenditures that may be required as a result of
those changes and, as a result, our operating results may suffer.
IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR ABILITY TO
CONTROL BUSINESS OPERATIONS AND EXPENDITURES MAY BE LIMITED
We have grown rapidly in recent periods, and this growth may be difficult
to sustain. Internal growth and further expansion of our value-added electronics
manufacturing services offerings will require us to expand our existing
operations and relationships and to improve our operational and information
systems.
We plan to expand our manufacturing capacity and value-added electronics
manufacturing services offerings by expanding our facilities and by adding new
equipment. This expansion involves significant risks. For example:
- we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
- we may not efficiently and effectively integrate new operations, expand
existing operations and manage geographically dispersed operations;
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<PAGE> 15
- we may incur cost overruns;
- we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that could
adversely affect our growth and our ability to meet customers' delivery
schedules; and
- we may not be able to obtain funds for this expansion on acceptable
terms.
In addition, we expect to incur new fixed operating expenses associated
with our expansion efforts, including increases in depreciation expense and
rental expense. If our revenues do not increase sufficiently to offset these
expenses, our operating results would be adversely affected.
OUR ACQUISITION STRATEGY COULD FAIL OR PRESENT UNANTICIPATED PROBLEMS FOR OUR
BUSINESS IN THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MAKE
ACQUIRED BUSINESSES PROFITABLE OR REALIZE ANTICIPATED BENEFITS OF THOSE
ACQUISITIONS; OUR ACQUISITION STRATEGY COULD ALSO RESULT IN DILUTION TO OUR
STOCKHOLDERS
Our growth strategy includes acquiring complementary businesses. We cannot
assure you that we will be able to successfully identify suitable acquisition
opportunities or finance and complete any particular acquisition, combination or
other transaction on acceptable terms and prices. Furthermore, acquisitions
involve a number of risks and challenges, including:
- diversion of management's attention;
- the need to integrate acquired operations;
- potential loss of key employees and customers of the acquired companies;
- lack of experience operating in the geographic market of the acquired
business; and
- an increase in our expenses and working capital requirements.
Any of these and other factors could adversely affect our ability to
achieve anticipated levels of profitability at acquired operations or realize
other anticipated benefits of acquisitions.
To the extent that we issue shares of our stock or other rights to purchase
stock in connection with any future acquisitions, our existing stockholders will
suffer dilution and our earnings per share may decrease. Any future acquisitions
may not generate additional revenue or benefit our business, and we may not
achieve a satisfactory return on our investment in any acquired businesses.
THERE MAY BE SHORTAGES OF REQUIRED COMPONENTS WHICH WOULD CAUSE US TO CURTAIL
OUR MANUFACTURING OR INCUR HIGHER THAN EXPECTED COSTS
We purchase the components we use in producing printed circuit board and
backpanel assemblies and other electronics manufacturing services and we may be
required to bear the risk of component price fluctuations. In addition,
shortages of electronic components have occurred in the past and may occur in
the future. Component shortages or price fluctuations could have an adverse
effect on our results of operations. Due to the continued increase of our
contract manufacturing and assembly businesses as a percentage of our net sales,
component shortages and price fluctuations would adversely affect our results of
operations to a greater extent than in prior fiscal years.
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT AND THE ABILITY TO FURTHER INCREASE OUR
DEBT, WHICH COULD HAVE NEGATIVE CONSEQUENCES ON OUR BUSINESS IN THE FUTURE
As of June 30, 2000, on a pro forma basis:
- our total debt outstanding was approximately $966.5 million;
- our interest expense for the six months ended June 30, 2000 was
approximately $44.6 million; and
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<PAGE> 16
- our total stockholders' equity was approximately $317.1 million.
In addition, as of June 30, 2000, we had approximately $149.4 million
available for future borrowings under the revolving portion of our senior credit
facility that may be used for future acquisitions and capital expenditures.
Depending on our future performance, we and our subsidiaries will be
permitted to incur significant additional debt in the future. Our high level of
debt could have negative consequences. For example, it could:
- increase our vulnerability to adverse industry and general economic
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to make scheduled principal payments on our debt, thereby
reducing the availability of our cash flow for working capital, capital
investments, acquisitions and other business activities;
- limit our ability to obtain additional financing to fund future working
capital, capital investments, acquisitions and other business activities;
- expose us to the risk of interest rate fluctuations to the extent we pay
interest at variable rates on our debt;
- limit our flexibility to plan for, and react to, changes in our business
and our industry; and
- place us at a competitive disadvantage relative to our less leveraged
competitors.
WE EXPECT FUTURE AMORTIZATION OF OUR INTANGIBLES TO CONTINUE TO HAVE A NEGATIVE
EFFECT ON OUR OPERATING RESULTS, AND ANY FUTURE IMPAIRMENT OF OUR LONG-LIVED
ASSETS, INCLUDING OUR INTANGIBLES, WOULD LIKELY HAVE A NEGATIVE EFFECT ON OUR
OPERATING RESULTS
In the past, we have experienced net losses as a result of significant
amortization and write-offs associated with our acquisitions. Since acquisitions
are expected to continue to be a focus of our growth strategy, we expect these
charges and expenses to have a negative impact on our results in the future. For
example, in 1999, we incurred $43.4 million in charges relating to the
amortization of goodwill from prior acquisitions. Additionally, in 1999, we
incurred a $468.4 million non-cash impairment loss related to the write-down of
long-lived assets, including goodwill and other acquired intangibles. We assess
the recoverability of our long-lived assets, including intangible assets, based
on their current and anticipated future undiscounted cash flows. Our policy for
the recognition and measurement of any impairment of long-lived assets is to
assess the current and anticipated future discounted cash flows associated with
any impaired assets. To the extent any assets become impaired in the future, the
charges would have a negative impact on our results.
A SIGNIFICANT PORTION OF OUR BUSINESS IS CONDUCTED IN FOREIGN COUNTRIES,
EXPOSING US TO ADDITIONAL RISKS THAT MAY NOT EXIST IN THE UNITED STATES
A significant portion of our operations is conducted in foreign countries
and is subject to risks that are inherent in operating abroad, including:
- inflation or changes in political and economic conditions;
- governmental regulation;
- changes in import duties;
- trade restrictions;
- work stoppages; and
- other restraints and burdensome taxes.
Our pro forma net sales outside the United States during the fiscal year
ended December 31, 1999 and for the six months ended June 30, 2000 were
approximately $608.7 million and $420.6, or 59.3% and 65.0% of net sales,
respectively.
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<PAGE> 17
WE ARE SUBJECT TO CURRENCY FLUCTUATIONS WHICH MAY AFFECT OUR COST OF GOODS SOLD
AND OPERATING MARGINS
Approximately 7% of our business is conducted in the Euro. In addition,
approximately 26% of our costs, including payroll and rent, are denominated in
the Hong Kong dollar, the Chinese renminbi, the Mexican peso and the British
pound sterling, as well as the Euro. Changes in exchange rates between these and
other currencies and the U.S. dollar will affect our cost of goods sold and
operating margins. Historically, these currency fluctuations have not had a
significant effect on our operating results. We cannot predict the impact of
future exchange rate fluctuations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND WE
MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES WHICH MAY CAUSE US TO
INCUR SUBSTANTIAL COSTS
Our success depends in part on proprietary technology and manufacturing
techniques. We have few patents for these proprietary techniques and choose to
rely primarily on trade secret protection. Litigation may be necessary to
protect our technology, to determine the validity and scope of the proprietary
rights of others or to defend against claims of patent infringement. Litigation
with respect to patents or other intellectual property matters could result in
substantial costs and diversion of management and other resources and could have
a material adverse effect on us. If any infringement claim is asserted against
us, we may seek to obtain a license of the other party's intellectual property
rights. We cannot assure you that a license would be available on reasonable
terms or at all.
WE ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS WHICH EXPOSE US TO
POTENTIAL FINANCIAL LIABILITY
Our operations are regulated under a number of federal, state, local and
foreign environmental laws and regulations, which govern, among other things,
the discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of hazardous materials. Compliance with these
environmental laws are major considerations in the fabrication of printed
circuit boards because metals and other hazardous materials are used in the
manufacturing process. Various federal, state and local laws and regulations
impose liability on current or previous real property owners or operators for
the cost of investigating, cleaning up or removing contamination caused by
hazardous or toxic substances at the property. In addition, because we are a
generator of hazardous wastes, we, along with any other person who arranges for
the disposal of those wastes, may be subject to potential financial exposure for
costs associated with the investigation and remediation of sites at which it has
arranged for the disposal of hazardous wastes, if those sites become
contaminated. Liability may be imposed without regard to legality of the
original actions and without regard to whether we knew of, or were responsible
for, the presence of such hazardous or toxic substances, and we could be
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. In addition, it is possible that in the
future new or more stringent requirements could be imposed.
SOME OF OUR EMPLOYEES ARE UNIONIZED WHICH COULD RESULT IN LABOR DISPUTES THAT
COULD DIVERT MANAGEMENT RESOURCES AND INCREASE OUR LABOR COSTS
Approximately 7% of our employees are unionized, all at our Richmond,
Virginia facility. A prolonged dispute, work stoppage or strike at this facility
could have a material adverse effect on us, divert management resources or
increase our labor costs. We have closed facilities in the past and may do so in
the future. In connection with these closures, there is the potential for work
stoppages or other disruptions, which could have an adverse effect on us.
OUR DEBT INSTRUMENTS IMPOSE RESTRICTIONS ON US THAT MAY RESTRICT OUR ABILITY TO
OPERATE THE BUSINESS
The agreements governing our indebtedness contain covenants that restrict
our ability to, among other things, incur additional debt, pay dividends,
repurchase junior debt, make investments, enter into transactions with
affiliates, merge or consolidate with other entities and sell all or
substantially all of our assets. In addition, our new senior credit facility is
expected to contain other limitations and also require us to maintain specified
financial ratios. A breach of any of these provisions could result in a default
under our indebtedness, which would allow our lenders to declare all amounts
outstanding under the indebtedness immediately due and
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<PAGE> 18
payable, in which case, our assets might not be sufficient to repay those
amounts. We may also be prevented from taking advantage of business
opportunities that arise because of the limitations imposed on us by the
restrictive covenants under our indebtedness.
AFFILIATES OF HICKS MUSE CONTROL A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK, WHICH
COULD RESULT IN ACTIONS OR DECISIONS THAT ARE NOT CONSISTENT WITH THE INTERESTS
OF OUR OTHER STOCKHOLDERS
Following the offering, approximately 51.2% of our common stock will
continue to be controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated. In addition, a stockholders agreement among us, affiliates of
Hicks Muse and other existing holders of our common stock provides that we and
those stockholders have agreed to take all actions necessary, including voting
the shares held by those stockholders, to elect the designees of Hicks Muse to
our board of directors. Accordingly, Hicks Muse effectively controls the
election of our board of directors and the approval or disapproval of other
matters requiring stockholder approval and, as a result thereof, the direction
of our management and policies. Using this control, Hicks Muse may take actions
or make decisions that are not in the best interests of our other stockholders.
WE WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING AND
MAY NOT OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS
We currently have no specific plans for a significant portion of our net
proceeds from this offering. Consequently, our management has complete
discretion as to how to spend the proceeds from this offering. They may spend
these proceeds in ways with which our stockholders may not agree. Management's
allocation of the proceeds of this offering may not benefit our business and the
investment of the proceeds may not yield a favorable return.
OUR STOCK PRICE HAS BEEN, AND MAY CONTINUE TO BE, EXTREMELY VOLATILE AND MAY
DECREASE SIGNIFICANTLY
Since the initial public offering of our common stock in March 2000, the
trading prices of electronics manufacturing services companies in general, and
ours in particular, have experienced extreme price fluctuations. Stock prices
and trading volumes for our common stock may fluctuate widely for a number of
reasons, including reasons that may be unrelated to our business or results of
operations. Any negative change in the public's perception of electronics
manufacturing services companies in general, or us in particular, could depress
our stock price regardless of our operating results. Market fluctuations, as
well as general political or economic conditions such as recession or interest
rate or currency rate fluctuations, also may decrease the trading price of our
common stock. As a result, you may not be able to resell your shares at or above
the offering price.
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
some of our existing stockholders have agreed to enter into with the
underwriters. With several exceptions, the lock-up agreements restrict us, our
directors and officers and those stockholders from selling or otherwise
disposing of any shares for a period of 90 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 133,824,209 outstanding shares
of common stock, not including the shares of common stock being sold in the
offering. 88,243,441 of such 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 90 days following the offering,
88,233,441 shares will be eligible for
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sale in the public market under Rule 144, subject, if applicable, to 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, Tate & Furst
Incorporated will control approximately 51.2% 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.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus, including the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" that are based on our management's beliefs and
assumptions and on information currently available to our management. Forward-
looking statements include the information concerning our possible or assumed
future results of operations, business strategies, financing plans, competitive
position, potential growth opportunities, benefits resulting from the
transactions described herein, this offering, and the effects of competition.
Forward-looking statements include all statements that are not historical facts
and can be identified by the use of forward-looking terminology such as the
words "believes," "expects," "anticipates," "intends," "plans," "estimates" or
other similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we distribute this prospectus.
You should understand that many important factors could cause our results
to differ materially from those expressed in forward-looking statements. These
factors include fluctuations in our operating results and customer orders, our
competitive environment, our reliance on our largest customers, risks associated
with our international operations, our ability to protect our patents and trade
secrets, environmental laws and regulations, our relationship with unionized
employees, risks associated with our acquisition strategy, our substantial
indebtedness, control by our largest stockholders and other factors described
under "Risk Factors" elsewhere in this prospectus.
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USE OF PROCEEDS
The net proceeds to Viasystems from this offering are estimated to be
approximately $320.5 million, or approximately $368.7 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. We intend to use the net proceeds from this offering to
repay approximately $48.0 million of revolving loan indebtedness that we expect
to incur under our senior credit facility to fund the Rouen facilities
acquisition, with the remainder to be used for possible future acquisitions and
general corporate purposes.
Currently, we have no specific plan for the net proceeds to be used for
possible future acquisitions and general corporate purposes. Accordingly, our
management will have broad discretion in the application of such net proceeds.
We routinely review, evaluate and negotiate with third parties regarding
possible acquisition or investment opportunities in complementary businesses and
may in the future use such proceeds to acquire or invest in such businesses,
although we have no definitive arrangements, understanding or agreements with
respect to any such acquisitions as of the date of this prospectus. Pending any
such uses, we intend to invest the unused portion of the net proceeds from this
offering in short-term, interest bearing, investment grade obligations.
On June 30, 2000, the weighted average annual interest rate applicable to
the revolver under our senior credit facility was approximately 9.25%. The
outstanding portion of revolving indebtedness under our senior credit facility
is expected to be incurred to fund the Rouen facilities acquisition. For a
description of the business conducted by the Rouen facilities, see "Prospectus
Summary -- Recent Events." The revolving facility is scheduled to expire in
September 2005, although amounts repaid thereunder may be reborrowed by
Viasystems from time to time prior to such expiration, subject to compliance
with conditions specified therein.
PRICE RANGE OF COMMON STOCK
Our common stock has been listed on the New York Stock Exchange under the
symbol "VG" since March 23, 2000. Prior to that time, there was no public market
for our common stock. The following table sets forth, for the periods indicated,
the high and low closing prices per share of our common stock as reported on the
New York Stock Exchange.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
-------------------
HIGH LOW
Year ended December 31, 2000 -------- --------
<S> <C> <C>
First Quarter (since March 23, 2000)...................... $ 23 1/16 $ 14 7/16
Second Quarter............................................ 18 1/8 8 3/8
Third Quarter (through September 27, 2000)................ 21 3/4 13 3/4
</TABLE>
On September 27, 2000, the reported last sale price on the New York Stock
Exchange for our common stock was $19 3/4. As of September 22, 2000, there were
approximately 155 stockholders of record.
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, our senior
credit facility, the indentures governing our senior subordinated notes and our
Series B preferred stock restrict our ability to pay dividends on our common
stock. Any payment of future dividends will be at the discretion of our board of
directors and will depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends, and other considerations that our
board of directors deems relevant.
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DILUTION
Purchasers of the common stock offered by this prospectus will suffer an
immediate and substantial dilution in net tangible book value per share.
Dilution is the amount by which the 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 June 30, 2000, we had a tangible book value (deficit) of $(355.8) million
or $(2.66) per share excluding this offering. Upon the sale of 17.0 million
shares at an assumed offering price of $19.75 per share (the reported last sale
price on September 27, 2000) and deducting estimated underwriting discounts and
commissions and estimated offering expenses, our tangible book value (deficit)
as of June 30, 2000 would have been $(35.3) million or $(.23) per share. This
represents an immediate increase in net tangible book value to existing
stockholders of $2.43 per share and an immediate dilution to new investors of
$19.98 per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $19.75
Net tangible book value (deficit) per share before the
offering............................................... $(2.66)
Increase in net tangible book value per share resulting
from the offering...................................... 2.43
------
Net tangible book value (deficit) per share after the
offering.................................................. (.23)
------
Dilution per share to new investors......................... $19.98
======
</TABLE>
The following table summarizes, on an as adjusted basis set forth above as
of June 30, 2000, 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............ 133,824,209 89% $1,472,040,128 81% $10.93
New Investors.................... 17,000,000 11 335,750,000 19 19.75
----------- --- -------------- ---
Total.................. 150,824,209 100% $1,807,790,128 100%
=========== === ============== ===
</TABLE>
As of September 25, 2000, there were outstanding options and warrants to
purchase an additional 5,298,491 shares of common stock at exercise prices
ranging from $6.00 to $14.41 per share. To the extent these options or warrants
are exercised, there will be further dilution to new investors.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
- on an actual basis; and
- on a pro forma basis after giving effect to this offering.
The information set forth below should be read in conjunction with
"Selected Financial Data," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Consolidated Financial Statements of Viasystems and the notes
thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------
ACTUAL PRO FORMA
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 22,445 $ 342,926(1)
=========== ===========
Long-term debt, including current portion:
Senior credit facility.................................... $ 150,000 $ 150,000(2)
Loan notes................................................ 285,312 285,312
9 3/4% senior subordinated notes(3)....................... 503,664 503,664
Other(4).................................................. 27,528 27,528
----------- -----------
Total long-term debt............................... 966,504 966,504
----------- -----------
Series B preferred stock, $.01 par value, 6,000,000 shares
authorized, 1,583,374.522 shares issued and outstanding,
aggregate liquidation value $39,584(5).................... 43,608 43,608
Stockholders' equity:
Common stock, $.01 par value, 500,000,000 shares
authorized, 133,824,209 shares issued and outstanding
(actual),(6) 150,824,209 shares issued and outstanding
(as adjusted)(6)........................................ 1,338 1,508
Additional paid-in capital................................ 1,480,289 1,800,600
Note from affiliate....................................... (119,277) (119,277)
Accumulated deficit....................................... (1,338,075) (1,338,075)
Treasury stock............................................ (162) (162)
Accumulated other comprehensive income.................... (27,527) (27,527)
----------- -----------
Total stockholders' equity (deficit)............... (3,414) 317,067
----------- -----------
Total capitalization............................. $ 1,006,698 $ 1,327,179
=========== ===========
</TABLE>
------------
(1) Includes approximately $48.0 million that will be used to repay revolving
indebtedness expected to be incurred to fund the Rouen facilities
acquisition.
(2) The senior credit facility provides for a seven year term loan facility in
the amount of $150.0 million, a letter of credit reimbursement facility in
the amount of $303.1 million and a revolving credit facility in the amount
of $175.0 million. As of June 30, 2000, on a pro forma basis after giving
effect to this offering and the use of net proceeds therefrom, we would have
had $149.4 million of available revolving borrowings under the senior credit
facility.
(3) Includes unamortized premium of $3.7 million.
(4) Includes $5.3 million of capital lease obligations.
(5) Does not include 10,555.83 shares, $.3 million liquidation preference,
issuable to holders of series B preferred stock for the period from June 1,
2000 to June 30, 2000.
(6) Excludes:
- 3,033,872 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued under our management stock
option plan with a weighted average exercise price of $10.31 per share;
- 130,748 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued to former optionholders of
Top Line Electronics Corporation with a weighted average exercise price of
$15.99 per share;
20
<PAGE> 23
- 2,802,897 shares of common stock that are issuable upon the exercise of
our outstanding performance options with an exercise price of $9.00 per
share;
- 16,666 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued to a non-employee director
with an exercise price of $6.00 per share;
- 100,000 shares of common stock that are issuable upon the exercise of
outstanding stock options that have been issued to our non-employee
directors with an exercise price of $21.00 per share;
- 136,645 shares of common stock that are issuable upon the exercise of our
outstanding warrants with an exercise price of $10.50 per share; and
- 2,134,000 shares of common stock that are issuable upon the exercise of
stock options granted to Hicks Muse and partners of Hicks Muse with an
exercise price equal to $21.00 per share.
21
<PAGE> 24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is based on our
condensed consolidated financial statements, the condensed financial statements
of the operations formerly conducted by Interconnection Systems Limited, Forward
Group, Zincocelere and Viasystems Sweden, referred to in the pro forma financial
statements as the "Transferred Operations," and the condensed financial
statements of businesses acquired in 1999. The unaudited pro forma balance sheet
as of June 30, 2000 gives effect to the consummation of this offering, as though
such transaction had occurred on June 30, 2000. The unaudited pro forma
statement of operations for the year ended December 31, 1999 gives effect to the
acquisitions of PAGG Corporation and Kalex (collectively referred to in the pro
forma financial statements as the "1999 Acquisitions"), the transfer of the
operations formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden, the consummation of our initial public
offering of 44.0 million shares of common stock in March 2000, including the
application of the net proceeds therefrom, and this offering, as though each
such transaction had occurred at January 1, 1999. The unaudited pro forma
statement of operations for the six months ended June 30, 2000 gives effect to
the transfer of the operations formerly conducted by Interconnection Systems
Limited, Forward Group, Zincocelere and Viasystems Sweden, the consummation of
our initial public offering of 44.0 million shares of common stock in March
2000, including the application of the net proceeds therefrom, and this
offering, as though each such transaction had occurred at January 1, 1999.
The pro forma financial information gives effect to pro forma adjustments
that are based upon available information and assumptions that we believe are
reasonable. Viasystems Group, Inc.'s transfer of the operations formerly
conducted by Interconnection Systems Limited, Forward Group, Zincocelere and
Viasystems Sweden have been transferred at historical cost. The pro forma
financial information should be read in conjunction with our historical
financial statements and the related notes thereto, and "Management's Discussion
and Analysis of Results of Operations and Financial Condition" included
elsewhere herein.
The pro forma financial information does not purport to be indicative of
the results that would have been obtained had those transactions been completed
as of the assumed dates and for the periods presented or that may be obtained in
the future.
22
<PAGE> 25
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPANY FOR THE COMPANY
HISTORICAL OFFERING PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 22,445 $320,481(1) $ 342,926
Accounts receivable.................................. 275,526 -- 275,526
Inventories.......................................... 193,947 -- 193,947
Prepaid expenses & other............................. 54,004 -- 54,004
---------- -------- ----------
Total current assets......................... 545,922 320,481 866,403
Property, plant & equipment, net....................... 410,270 -- 410,270
Intangible and other assets............................ 373,691 -- 373,691
---------- -------- ----------
Total assets................................. $1,329,883 $320,481 $1,650,364
========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations.......... $ 21,024 $ -- $ 21,024
Accounts payable..................................... 176,593 -- 176,593
Accrued and other liabilities........................ 94,904 -- 94,904
Income taxes payable................................. 20,437 -- 20,437
---------- -------- ----------
Total current liabilities.................... 312,958 -- 312,958
Long-term obligations, less current maturities......... 945,480 -- 945,480
Other noncurrent liabilities........................... 31,251 -- 31,251
Preferred stock........................................ 43,608 -- 43,608
Stockholders' equity (deficit)......................... (3,414) 320,481(1) 317,067
---------- -------- ----------
Total liabilities and stockholders' equity
(deficit).................................. $1,329,883 $320,481 $1,650,364
========== ======== ==========
</TABLE>
---------------
(1) Represents the net cash proceeds from this offering.
23
<PAGE> 26
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY
PRO FORMA
AFTER GIVING
PRO FORMA EFFECT TO THE
ADJUSTMENTS DISPOSITION OF
FOR THE THE
TRANSFERRED TRANSFERRED
OPERATIONS OPERATIONS PRO FORMA
AND THE AND THE ADJUSTMENTS
COMPANY TRANSFERRED INITIAL PUBLIC INITIAL PUBLIC FOR THE COMPANY
HISTORICAL OPERATIONS(1) OFFERING OFFERING OFFERING PRO FORMA
------------ ------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 742,869 $(95,663) $ -- $ 647,206 $ -- $ 647,206
Costs of goods sold............ 572,699 (85,236) -- 487,463 -- 487,463
Selling, general and
administrative expenses,
including non-cash
compensation expense charge
of $104,351.................. 166,471 (12,431) -- 154,040 -- 154,040
Depreciation and
amortization................. 76,073 (8,707) -- 67,366 -- 67,366
------------ -------- -------- ------------ ----------- ------------
Operating income (loss)........ (72,374) 10,711 -- (61,663) -- (61,663)
Interest expense, net.......... 59,263 (3,616) (11,002)(2) 44,645 44,645
Amortization of deferred
financing costs.............. 2,649 (24) (945)(3) 1,680 -- 1,680
Other expense (income)......... 647 (397) -- 250 -- 250
------------ -------- -------- ------------ ----------- ------------
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle.................... (134,933) 14,748 11,947 (108,238) -- (108,238)
Provision (benefit) for income
taxes........................ (7,008) 4,638 4,779(4) 2,409 -- 2,409
------------ -------- -------- ------------ ----------- ------------
Income (loss) before
extraordinary item........... $ (127,925) $ 10,110 $ 7,168 $ (110,647) $ -- $ (110,647)
============ ======== ======== ============ =========== ============
Basic net loss per weighted
average common share before
extraordinary item(5)........ $ (1.21) $ (.85) $ (.76)
============ ============ ============
Basic weighted average common
shares(5).................... 107,649,703 132,381,979 149,381,979
Diluted net loss per weighted
average common share before
extraordinary item(5)........ $ (1.50) $ (.85) $ (.76)
============ ============ ============
Diluted weighted average common
shares(5).................... 107,649,703 132,381,979 149,381,979
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
24
<PAGE> 27
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
(1) On March 30, 2000, we completed a transfer of the capital stock of our
subsidiaries that owned Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden to a new entity formed by our pre-IPO
stockholders. The financial information related to those operations has been
derived from the unaudited historical financial statements of those
operations for the period beginning January 1, 2000 and ending March 30,
2000. Viasystems received subordinated notes in the aggregate principal
amount of $124,000 for the capital stock of those entities. For financial
reporting purposes, the subordinated notes will be a component of
stockholders' equity.
(2) Reflects the elimination of interest under our prior credit agreement at
8.5%.
(3) Adjustment reflects $336 related to the amortization of deferred financing
costs associated with the refinancing of the existing senior credit facility
net of the elimination of $1,281 of historical amortization of deferred
financing fees associated with the existing credit facility.
(4) Adjustment reflects the pro forma tax effect of the adjustments related to
notes (2) and (3) above for the Transferred Operations.
(5) Basic and diluted net loss per weighted average common share before
extraordinary item is computed by dividing the net loss before extraordinary
item plus the charge for preferred stock dividends and accretion by the
weighted average common shares outstanding during the period. Options and
warrants were excluded from the diluted calculation because their effect is
antidilutive. For further discussion of the methodology used to calculate
the basic and diluted loss per share, refer to note 22 of our consolidated
financial statements.
25
<PAGE> 28
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY
PRO FORMA
AFTER GIVING
PRO FORMA EFFECT TO THE
ADJUSTMENTS DISPOSITION
FOR THE OF THE
TRANSFERRED TRANSFERRED
OPERATIONS, OPERATIONS,
THE 1999 THE 1999
ACQUISITIONS ACQUISITIONS
1999 AND INITIAL AND INITIAL
COMPANY TRANSFERRED ACQUISITIONS PUBLIC PUBLIC
HISTORICAL OPERATIONS(1) HISTORICAL(2) OFFERING OFFERING
---------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $1,293,370 $(364,157) $97,141 $ -- $ 1,026,354
Costs of goods sold........................ 969,614 (296,462) 62,268 -- 735,420
Selling, general and administrative
expenses, including non-cash compensation
expense charge of $110,070............... 232,653 (46,783) 9,893 -- 195,763
Depreciation and amortization.............. 182,143 (84,705) 6,890 19,071(3) 123,399
Impairment loss............................ 468,389 (468,389) -- -- --
Write-off of acquired in-process research
and development.......................... 17,600 -- -- -- 17,600
---------- --------- ------- -------- ------------
Operating income (loss).................... (577,029) 532,182 18,090 (19,071) (45,828)
Interest expense, net...................... 117,822 (8,018) 1,021 (36,766)(4) 74,059
Amortization of deferred financing costs... 6,619 (158) -- (3,781)(5) 2,680
Other expense (income)..................... 23,594 (17,403) (1,856) -- 4,335
---------- --------- ------- -------- ------------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle..................... (725,064) 557,761 18,925 21,476 (126,902)
Provision (benefit) for income taxes....... (23,212) (5,143) 840 16,130(6) (11,385)
---------- --------- ------- -------- ------------
Income (loss) before cumulative effect of a
change in accounting principle........... $ (701,852) $ 562,904 $18,085 $ 5,346 $ (115,517)
========== ========= ======= ======== ============
Basic net loss per weighted average common
share before cumulative effect of a
change in accounting principle........... $ (10.14))(7) $ (1.03)(8)
========== ============
Basic weighted average common shares....... 62,123,268(7) 116,355,486(8)
Diluted net loss per weighted average
common share before cumulative effect of
a change in accounting principle......... $ (10.77)(7) $ (1.03)(8)
========== ============
Diluted weighted average common shares..... 67,238,458(7) 116,355,486(8)
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE COMPANY
OFFERING PRO FORMA
----------- ------------
<S> <C> <C>
Net sales.................................. $ -- $ 1,026,354
Costs of goods sold........................ -- 735,420
Selling, general and administrative
expenses, including non-cash compensation
expense charge of $110,070............... -- 195,763
Depreciation and amortization.............. -- 123,399
Impairment loss............................ --
Write-off of acquired in-process research
and development.......................... -- 17,600
----------- ------------
Operating income (loss).................... -- (45,828)
Interest expense, net...................... -- 74,059
Amortization of deferred financing costs... -- 2,680
Other expense (income)..................... -- 4,335
----------- ------------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle..................... -- (126,902)
Provision (benefit) for income taxes....... -- (11,385)
----------- ------------
Income (loss) before cumulative effect of a
change in accounting principle........... $ -- $ (115,517)
=========== ============
Basic net loss per weighted average common
share before cumulative effect of a
change in accounting principle........... $ (.90)(8)
============
Basic weighted average common shares....... 133,355,486(8)
Diluted net loss per weighted average
common share before cumulative effect of
a change in accounting principle......... $ (.90)(8)
============
Diluted weighted average common shares..... 133,355,486(8)
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
26
<PAGE> 29
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) On March 30, 2000, we completed a transfer of the capital stock of our
subsidiaries that owned Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden to a new entity formed by our pre-IPO
stockholders. The financial information related to those operations has been
derived from the unaudited historical financial statements of those
operations for the year ended December 31, 1999. Viasystems received
subordinated notes in the aggregate principal amount of $124,000 for the
capital stock of those entities. For financial reporting purposes, the
subordinated notes will be a component of stockholders' equity.
(2) The detail of the historical financial data from the acquisitions of PAGG
Corporation and Kalex for the periods prior to acquisition by Viasystems
during the year ended December 31, 1999 has been obtained from the unaudited
historical financial statements of the respective companies below:
<TABLE>
<CAPTION>
1999
PAGG KALEX ACQUISITIONS
HISTORICAL(A) HISTORICAL(B) HISTORICAL
------------- ------------- ------------
<S> <C> <C> <C>
Net sales............................................ $ 4,925 $92,216 $97,141
Costs of goods sold.................................. 4,644 57,624 62,268
Selling, general and administrative expenses......... 815 9,078 9,893
Depreciation and amortization........................ 439 6,451 6,890
------- ------- -------
Operating income (loss).............................. (973) 19,063 18,090
Interest expense, net................................ 256 765 1,021
Other expense (income)............................... 32 (1,888) (1,856)
------- ------- -------
Income (loss) before income taxes and cumulative
effect of a change in accounting principle......... (1,261) 20,186 18,925
Provision (benefit) for income taxes................. (161) 1,001 840
------- ------- -------
Income (loss) before cumulative effect of a change in
accounting principle............................... $(1,100) $19,185 $18,085
======= ======= =======
</TABLE>
(a) Amounts reflect the historical unaudited results of PAGG Corporation
for the period prior to its acquisition by Viasystems from January 1,
1999 to April 30, 1999.
(b) Amounts reflect the historical unaudited results of Kalex for the
period prior to its acquisition by Viasystems from January 1, 1999 to
July 31, 1999. The financial information for Kalex was translated at a
rate of HK$7.7536 = US$1.00, the average rate in effect for the
respective period.
(3) Adjustment reflects the effect of the amortization of acquired intangibles
and goodwill related to the acquisitions of PAGG Corporation and Kalex.
Amortization is computed using systematic methods over the estimated useful
lives ranging from 1 to 20 years.
27
<PAGE> 30
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(4) Reflects the net impact to interest expense of the following borrowings as
if the acquisitions of PAGG Corporation and Kalex, the transfer of the
operations formerly conducted by Interconnection Systems Limited, Forward
Group, Zincocelere and Viasystems Sweden and the initial public offering 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)
Elimination of interest under the credit agreement at
8.5%...................................................... (45,123)
--------
(35,745)
Eliminate historical interest of the acquisitions of PAGG
Corporation and Kalex..................................... (1,021)
--------
$(36,766)
========
</TABLE>
(5) Adjustment reflects $1,343 related to the amortization of deferred financing
costs associated with the refinancing of our senior credit facility net of
the elimination of $5,124 of historical amortization of deferred financing
fees associated with the prior credit facility.
(6) Reflects the tax effect of adjustments (3), (4) and (5) above.
(7) Basic net loss per weighted average common share before cumulative effect of
a change in accounting principle is computed by dividing the net loss before
cumulative effect of a change in accounting principle plus the charge for
preferred stock dividends and accretion less the loss attributable to class
A common stock and class A series II common stock by the weighted average
common shares outstanding during the period. Diluted net loss per weighted
average common share before cumulative effect of a change in accounting
principle is computed by dividing the net loss before cumulative effect of a
change in accounting principle plus the charge for preferred stock dividends
and accretion by the weighted average common shares outstanding during the
period plus the weighted average class A common stock and class A series II
common stock shares outstanding on an as if converted basis, assuming a
price of $21.00 per share. Options and warrants were excluded from the
diluted calculation because their effect is antidilutive. For further
discussion of the methodology used to calculate the basic and diluted loss
per share, refer to note 22 of our consolidated financial statements.
(8) Basic and diluted net loss per weighted average common share before
cumulative effect of a change in accounting principle is computed by
dividing the net loss before cumulative effect of a change in accounting
principle plus the charge for preferred stock dividends and accretion by the
weighted average common shares outstanding during the period. The number of
shares of class A common stock and class A series II common stock used to
calculate the basic and diluted net loss per weighted average common share
before cumulative effect of a change in accounting principle is the number
of shares outstanding, converted at a rate of one share of common stock for
each 6 2/3 outstanding shares of class A common stock and class A series II
common stock. Options and warrants were excluded from the diluted
calculation because their effect is antidilutive. For further discussion of
the methodology used to calculate the basic and diluted loss per share,
refer to note 22 of our consolidated financial statements.
28
<PAGE> 31
SELECTED FINANCIAL DATA
VIASYSTEMS GROUP, INC.
The selected financial and other data below for the years ended December
31, 1995, 1996, 1997, 1998 and 1999 presents consolidated financial information
of Viasystems Group, Inc. and subsidiaries and have been derived from our
audited consolidated financial statements. In March 2000, we acquired all of the
outstanding shares of Wirekraft Industries, Inc. in a transaction between
entities under common control which was accounted for in a manner similar to a
pooling of interest. The table below presents only the financial data of
Wirekraft from January 1, 1995 through August 28, 1996, the date Viasystems
Group, Inc. commenced operations. Subsequent to August 28, 1996, the historical
financial data of Viasystems and Wirekraft have been combined. The selected
information below for the six months ended June 30, 1999 and 2000 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- --------------------------
1995 1996 1997 1998 1999 1999 2000
-------- ---------- ----------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $172,907 $ 212,698 $ 960,719 $ 1,202,321 $ 1,293,370 $ 622,525 $ 742,869
Cost of goods sold.............. 131,903 172,536 684,777 856,942 969,614 463,787 572,699
Selling, general and
administrative expenses,
including non-cash
compensation expense charge of
$3,398 in 1998, $110,070 in
1999 and $104,351 in March
2000(1)....................... 14,879 10,558 83,497 119,424 232,653 54,192 166,471
Depreciation.................... 4,774 8,264 55,064 107,400 118,873 52,435 51,778
Amortization of intangible
assets........................ 2,637 1,594 61,165 65,550 63,270 25,217 24,295
Impairment loss(2).............. -- 32,835 -- -- 468,389 -- --
Write-off of acquired in-process
research and development(3)... -- 50,800 294,500 20,100 17,600 -- --
-------- ---------- ----------- ----------- ----------- ----------- ------------
Operating income (loss)......... 18,714 (63,889) (218,284) 32,905 (577,029) 26,894 (72,374)
Interest expense................ 5,609 13,363 73,322 101,045 117,822 53,183 59,263
Amortization of deferred
financing costs............... -- 470 6,629 9,354 6,619 3,083 2,649
Other expense (income).......... 185 (330) 1,138 4,964 23,594 1,566 647
-------- ---------- ----------- ----------- ----------- ----------- ------------
Loss before income taxes,
cumulative effect of a change
in accounting principle, and
extraordinary item............ 12,920 (77,392) (299,373) (82,458) (725,064) (30,938) (134,933)
Provision (benefit) for income
taxes......................... 5,168 (1,580) 13,490 (1,812) (23,212) (7,736) (7,008)
-------- ---------- ----------- ----------- ----------- ----------- ------------
Loss before cumulative effect of
a change in accounting
principle, extraordinary
item.......................... 7,752 (75,812) (312,863) (80,646) (701,852) (23,202) (127,925)
Cumulative effect-write-off of
start-up costs, net of income
tax benefit of $6,734(4)...... -- -- -- -- 18,443 18,443 --
Extraordinary loss, net of
tax(5)........................ -- -- 7,796 -- -- -- 31,196
-------- ---------- ----------- ----------- ----------- ----------- ------------
Net income (loss)............... $ 7,752 $ (75,812) $ (320,659) $ (80,646) $ (720,295) $ (41,645) $ (159,121)
======== ========== =========== =========== =========== =========== ============
Basic net loss per weighted
average common share(6)....... $ -- $ (46.32) $ (10.76) $ (1.54) $ (10.14) $ (.75) $ (1.50)
======== ========== =========== =========== =========== =========== ============
Basic weighted average common
shares(6)..................... -- 1,440,000 26,507,409 48,205,838 62,123,268 50,531,592 107,649,703
Diluted net loss per weighted
average common share(6)....... $ -- $ (52.21) $ (12.22) $ (1.71) $ (10.77) $ (.86) $ (1.50)
======== ========== =========== =========== =========== =========== ============
Diluted weighted average common
shares(6)..................... -- 1,451,955 26,507,407 48,669,528 67,238,458 50,754,995 107,649,703
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- --------------------------
1995 1996 1997 1998 1999 1999 2000
-------- ---------- ----------- ----------- ----------- ----------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 31 $ 16,117 $ 27,538 $ 9,335 $ 22,839 $ 2,042 $ 22,445
Working capital................. 11,470 60,839 37,830 31,394 112,220 31,797 232,964
Total assets.................... 116,962 467,767 1,153,548 1,545,641 1,309,226 1,451,350 1,329,883
Total debt, including current
maturities.................... -- 265,685 847,396 1,134,992 1,362,523 1,154,926 966,504
Stockholders' equity
(deficit)..................... 94,326 115,837 (26,738) (90,578) (537,247) (129,261) (3,414)
</TABLE>
------------
(1) During the years ended December 31, 1998 and 1999, we recorded non-cash
compensation charges of $3,398 and $110,070, respectively, which reflect the
difference between the cost of the class A common stock and class A series
II common stock and the value of the common stock that it is convertible
into at those dates. Additionally, in connection with our initial public
offering during the six months ended June 30, 2000, we recorded non-cash
compensation expense charges totaling $104.4 million; (i) $33.6 million
related to the amendment of terms of the performance stock options held by
members of management that eliminated the exercisability restrictions and
variable exercise price terms, (ii) $62.9 million related to the
reclassification of each 6 2/3 shares of class A common stock and class A
series II common stock into one share of common stock and (iii) $7.8 million
related to options issued to Hicks Muse and partners of Hicks Muse as
consideration for the termination of certain agreements.
(2) Represents an impairment loss related to the write-off of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." See note 3 to our consolidated financial
statements.
(3) Represents charges relating to the write-off of acquired in-process research
and development costs associated with the acquisitions of Circo Craft and
the assets of the Interconnection Technologies Unit of the Microelectronics
Group (the "Lucent Division") of Lucent Technologies Inc. in 1996, Forward
and ISL in 1997, Mommers and Zincocelere in 1998 and Kalex in 1999. The
write-off relates to acquired research and development for projects that do
not have a future alternative use. See note 1 to our consolidated financial
statements included elsewhere herein.
(4) Represents the write-off of the net book value of start-up costs as of
January 1, 1999 related to the required adoption of the Financial Accounting
Standards Board's issuance of Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," which requires costs of start-up activities
and organizational costs to be expensed as incurred effective January 1,
1999.
(5) We recorded, as an extraordinary item, a non-cash write-off of deferred
financing fees of approximately $7,796, net of income tax benefit of $4,332
in 1997 and $31,196, net of income tax benefit of $0 in 2000 related to
deferred financing fees incurred on debt retired before maturity.
(6) Basic net loss per weighted average common share for the years ended
December 31, 1996, 1997, 1998, and 1999 and for the six months ended June
30, 1999, 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 for the years ended December 31, 1996, 1997, 1998, and 1999 and
for the six months ended June 30, 1999, 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. Basic and diluted net loss per weighted average common
share for the six months ended June 30, 2000, 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. Options and
warrants were excluded from the diluted calculation because their effect is
anti-dilutive. For further discussion on the calculation of basic and
diluted loss per share, refer to note 22 of our consolidated financial
statements.
30
<PAGE> 33
PREDECESSORS
Each of Circo Craft Co. Inc., Viasystems Technologies Corp., Forward Group
PLC and Interconnection Systems (Holdings) Limited are considered predecessors
to Viasystems Group, Inc. and, as such, the following selected financial data is
presented for each predecessor.
CIRCO CRAFT CO. INC.
The selected financial and other data below represents the financial
information of Circo Craft for the periods indicated. The data for the year
ended December 31, 1995 and the nine months ended September 30, 1996 (the period
prior to the acquisition of Circo Craft by Viasystems), set forth in Canadian
GAAP in Canadian dollars, has been derived from the audited consolidated
financial statements of Circo Craft. The consolidated financial statements of
Circo Craft have been prepared in accordance with Canadian GAAP, which differs
in significant respects from U.S. GAAP. The data set forth in U.S. GAAP for the
fiscal year ended December 31, 1995 and the nine months ended September 30,
1996, has been derived from the audited consolidated financial statements of
Circo Craft and adjusted for differences between Canadian GAAP and U.S. GAAP.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition," all
included elsewhere herein.
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS
CANADIAN GAAP IN U.S. GAAP
---------------------------- ----------------------------
FISCAL YEAR NINE MONTHS FISCAL YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995(1) 1996 1995(1) 1996
------------ ------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... C$185,156 C$129,633 C$194,140 C$129,633
Cost of goods sold............................ 148,788 101,532 148,788 101,532
Selling, general and administrative
expenses.................................... 11,087 7,969 10,846 8,072
Depreciation and amortization................. 7,931 8,456 7,931 8,456
--------- --------- --------- ---------
Operating income............................ 17,350 11,676 26,575 11,573
Interest expense.............................. 852 646 852 646
Other income.................................. (915) (880) (915) (880)
Expenses related to sale(2)................... -- 5,907 -- 5,907
--------- --------- --------- ---------
Income before income taxes.................. 17,413 6,003 26,638 5,900
Provision for income taxes.................... 5,564 3,847 6,079 3,680
--------- --------- --------- ---------
Net income before non-controlling
interest............................. C$ 11,849 C$ 2,156 C$ 20,559 C$ 2,220
========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents..................... C$ 19,231 C$ 28,438 C$ 16,600 C$ 21,411
Working capital............................... 40,057 41,909 40,057 41,909
Total assets.................................. 128,964 134,725 128,964 134,725
Total debt, including current maturities...... 15,998 17,563
</TABLE>
------------
(1) Under Canadian GAAP in effect at the time, Circo Craft recognized revenues
related to a gain on an out-of-court settlement in 1994. Under U.S. GAAP,
that gain would have been deferred and recognized in 1995.
(2) Represents non-recurring expenses incurred in connection with the sale of
Circo Craft to Viasystems which includes, among others, brokerage and legal
fees.
31
<PAGE> 34
VIASYSTEMS TECHNOLOGIES CORP.
The selected financial and other data below presents financial information
of the Lucent Division (renamed Viasystems Technologies) for the periods
indicated. The data for the fiscal year ended December 31, 1995, and the eleven
months ended November 30, 1996 (the period prior to the acquisition of the
Lucent Division by Viasystems Technologies), has been derived from the audited
statements of operations of Viasystems Technologies. We have omitted balance
sheet data because we do not believe that the presentation of balance sheet data
for Viasystems Technologies is meaningful because such business was a division
of Lucent Technologies for the periods indicated. In addition, Viasystems
Technologies was a captive producer for Lucent Technologies and historical
financial results for Viasystems Technologies may not be indicative of its
results of operations as an independent entity. The following information should
be read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
ELEVEN
FISCAL YEAR MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $325,047 $325,102
Cost of goods sold........................................ 274,824 244,313
Selling, general and administrative expenses.............. 42,445 34,792
Depreciation and amortization............................. 16,378 18,317
-------- --------
Operating income (loss)................................ (8,600) 27,680
Interest expense(1)....................................... 204 917
Other income.............................................. (94) (228)
-------- --------
Income (loss) before income taxes...................... (8,710) 26,991
Provision (benefit) for income taxes...................... (3,310) 10,257
-------- --------
Net income (loss)................................. $ (5,400) $ 16,734
======== ========
</TABLE>
------------
(1) Interest expense represents interest incurred on capital leases.
32
<PAGE> 35
FORWARD GROUP PLC
The selected financial and other data below presents financial information
of Forward Group for the periods indicated. The data for the two fiscal years
ended January 31, 1997, set forth in U.K. GAAP in U.K. pounds sterling, has been
derived from the audited consolidated financial statements of Forward Group. The
consolidated financial statements of Forward Group have been prepared in
accordance with U.K. GAAP, which differs in significant respects from U.S. GAAP.
The data set forth in U.S. GAAP as of and for the two fiscal years ended January
31, 1997, has been derived from the audited consolidated financial statements of
Forward Group and adjusted for differences between U.K. GAAP and U.S. GAAP. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS
U.K. GAAP IN U.S. GAAP
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 31, JANUARY 31,
------------------ --------------------
1996 1997 1996 1997
------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... L66,839 L105,029 L66,839 L105,029
Costs of goods sold................................ 49,850 79,030 49,850 79,030
Selling, general and administrative expenses....... 6,425 11,189 6,390 11,029
Depreciation and amortization...................... 2,701 4,694 2,787 4,870
Restructuring charges(1)........................... -- 1,244 -- 1,244
------- -------- ------- --------
Operating income................................ 7,863 8,872 7,812 8,856
Interest expense................................... 412 996 412 996
Other income....................................... (113) (229) (113) (229)
------- -------- ------- --------
Income before income taxes...................... 7,564 8,105 7,513 8,089
Provision for income taxes......................... 2,641 2,707 2,652 2,760
------- -------- ------- --------
Net income................................. L 4,923 L 5,398 L 4,861 L 5,329
======= ======== ======= ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.......................... L 789 L -- L 789 L --
Working capital.................................... 1,898 (3,074) 2,553 (3,074)
Total assets....................................... 51,124 60,282 56,539 67,406
Total debt, including current maturities........... 7,879 15,535
</TABLE>
------------
(1) Represents non-recurring restructuring charges related to the consolidation
and rationalization of several facilities at Forward Group.
33
<PAGE> 36
INTERCONNECTION SYSTEMS (HOLDINGS) LIMITED
The selected financial and other data below presents financial information
of Interconnection Systems (Holdings) Limited, or ISL, as of and for the periods
indicated. The data as of and for the fiscal years ended March 29, 1996, and
April 4, 1997 set forth in U.K. GAAP in U.K.L, has been derived from the audited
consolidated financial statements of ISL. The consolidated financial statements
of ISL have been prepared in accordance with U.K. GAAP, which differs in
significant respects from U.S. GAAP. The data set forth in U.S. GAAP as of and
for the fiscal years ended March 29, 1996 and April 4, 1997, has been derived
from the audited consolidated financial statements of ISL and adjusted for
differences between U.K. GAAP and U.S. GAAP. The following information should be
read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
APPROXIMATE AMOUNTS IN
U.K. GAAP U.S. GAAP
FISCAL YEAR ENDED FISCAL YEAR ENDED
--------------------- ----------------------
MARCH 29, APRIL 4, MARCH 29, APRIL 4,
1996 1997 1996 1997
--------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... L104,611 L141,643 L104,611 L141,643
Costs of goods sold............................... 73,407 94,466 73,407 94,466
Selling, general and administrative expenses...... 7,522 10,514 7,464 10,437
Depreciation and amortization..................... 17,302 26,771 15,752 17,522
-------- -------- -------- --------
Operating income.................................. 6,380 9,892 7,988 19,218
Interest expense.................................. 807 818 807 818
Other income...................................... -- (44) -- (44)
-------- -------- -------- --------
Income before income taxes........................ 5,573 9,118 7,181 18,444
Provision for income taxes........................ 4,422 6,874 2,584 6,112
-------- -------- -------- --------
Net income................................ L 1,151 L 2,244 L 4,597 L 12,332
======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents......................... L 2,636 L 26,244 L 2,636 L 26,244
Working capital................................... (5,851) 11,516 (3,929) 14,276
Total assets...................................... 67,349 129,921 62,893 105,452
Total debt, including current maturities.......... 15,699 35,754
</TABLE>
34
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
We are a leading worldwide independent provider of electronics
manufacturing services, or EMS. We serve primarily the telecommunications and
networking industries, which we believe to be the fastest-growing customer
segments of the $73 billion EMS market. We offer a wide range of products and
services to original equipment manufacturers of electronic products. Our
products and services consist of the design and fabrication of printed circuit
boards, in particular highly complex multi-layered printed circuit boards, the
manufacture of custom-designed backpanel assemblies, the manufacture of complex
printed circuit board assemblies, the procurement and management of materials
and the assembly and testing of our customers' complete systems and products.
OUR DEVELOPMENT
We were formed in 1996 by Hicks, Muse, Tate & Furst Incorporated and Mills
& Partners, Inc. under the name Circo Craft Holding Company to create a
preferred global manufacturing provider to leading original equipment
manufacturers through acquisitions of printed circuit board fabricators and
backpanel assemblers. In August 1996, we changed our name to CC Canada Holding
Company and then back to Circo Craft Holding Company in September 1996. We had
no operations prior to our first acquisition in October 1996, when we changed
our name to Circo Technologies, Inc. In January 1997, we changed our name to
Viasystems Group, Inc.
During the past two years, we have broadened our focus to become a
full-solution provider in the electronics manufacturing services industry. This
change occurred as a result of our recognition that many of the next generation
products in the telecommunications and networking industries require highly
advanced printed circuit boards and backpanel assemblies. As a result, we made a
strategic decision to capitalize on our capabilities to compete for the complete
assembly of our customers' products that utilize our printed circuit boards and
backpanels.
In connection with this initiative, we opened four new facilities in the
later part of 1998. The four new facilities broadened our product offerings by
expanding our backpanel assembly capabilities as well as adding full system
assembly and test capabilities. In addition, in 1999 we consummated the
acquisition of PAGG Corporation and the printed circuit board manufacturing
facilities of Kalex Printed Circuit Board Limited and its direct and indirect
subsidiaries. The PAGG and Kalex acquisitions added printed circuit board
assembly capabilities and expanded our full system assembly and test
capabilities. The acquisition of the wire harness business in March 2000 added
the design and manufacture of wire harnesses and cable assemblies to our
capabilities. In March and June 2000, we also enhanced our EMS capabilities with
the acquisitions of Marconi Communications' network components and services
business and Top Line Electronics Corporation, respectively.
Since our formation, we have also undertaken a rationalization of various
facilities we have acquired. In particular, we have closed the Selkirk and
Galashiels, Scotland facilities and the Manchester and Rugby, England
facilities.
RECENT EVENTS
On August 18, 2000, we entered into an agreement with Lucent Technologies
to acquire its global provisioning facilities in Rouen, France, for
approximately $48.0 million. The Rouen facilities are dedicated to the
production of network transmission and radio frequency equipment, based on fixed
wireless, microwave radio and synchronous digital hierarchy, or SDH,
technologies. Upon consummation of the Rouen facilities acquisition, we will
enter into a 30-month supply agreement with Lucent to continue to provide those
products to them.
35
<PAGE> 38
While the acquisition of the Rouen facilities is expected to close by
September 30, 2000, we cannot assure you that the closing will occur at that
time or at all. This offering is not dependent on the consummation of the Rouen
facilities acquisition.
ACQUISITIONS
A significant portion of our growth has been generated through acquisitions
completed since 1996. Our business includes eight acquired businesses, including
the following acquisitions in 2000:
- the purchase of the wire harness business from International Wire, a
business engaged in the assembly of wire harness products, in the United
States and Mexico, in March 2000, for $210.0 million in cash (the
acquisition of the wire harness business has been accounted for in a
manner similar to a pooling of interests and, accordingly, the historical
results of the wire harness business have been combined with our
historical results for all periods presented);
- the purchase of Marconi's network components and services business, a
business engaged in electronic manufacturing services primarily to
telecommunication customers with operations in the United Kingdom, Italy
and China, in March 2000, for $115.0 million in cash; and
- the purchase of Top Line Electronics Corporation, a business engaged in
design and prototype services, printed circuit board assembly, full
system assembly and testing, in San Jose, California in June 2000, for
1,580,768 shares of our common stock (subject to the issuance of
additional shares based on (i) the performance of Top Line's business
through July 31, 2000 and (ii) the price of our common stock for the
months of January and February 2001).
We continue to examine numerous acquisition opportunities in order to:
- diversify end-product programs with existing customers;
- locate manufacturing facilities close to original equipment manufacturers
or their end users;
- expand our capacity in selected geographic regions to take advantage of
existing infrastructure or low cost manufacturing;
- complement our service offerings; and
- diversify our customer base to serve a wide variety of end-markets with
new telecommunications and networking customers.
We routinely engage in discussions with respect to possible acquisitions.
Acquisitions considered by us could include a single facility, significant
multiple facilities or original equipment manufacturer asset acquisitions. We
cannot assure you 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.
Although we expect each acquisition to be accretive to earnings and cash
flow after a transition period for each acquisition, generally approximately one
year, we cannot assure you that any acquisition will be accretive after the
transition period. 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
commitment, take or pay arrangements or limited revenue or product volume
guarantees to support the financial viability of the facility until it reaches
self-sufficiency.
36
<PAGE> 39
We expect that the results for an acquired business or facility will
improve over the transition period as we:
- increase capacity utilization and reduce cost;
- complete integration activities, including replacing third-party
suppliers of printed circuit boards, backpanel assemblies and wire
harnesses and cable assemblies with our own internal production of those
components;
- implement our processes and disciplines to reduce costs and obtain the
cost benefits of our procurement leverage; and
- introduce new business from the original customer and others.
GREENFIELD FACILITIES
Since our inception in 1996, we have opened four new start-up, or
greenfield, facilities in the United States, Mexico, Europe and Asia. These
facilities provide us with operations in key geographic markets. The four
greenfield facilities are:
- a 35,000 square foot facility opened September 1998 in Columbus, Ohio
providing full system assembly services;
- a 51,000 square foot facility opened August 1998 in Juarez, Mexico
providing backpanel assembly services;
- a 52,000 square foot facility opened June 1998 in Boldon, England
providing backpanel assembly and full system assembly services; and
- a 17,000 square foot facility opened November 1998 in Nantong, China
providing backpanel assembly services.
We are also currently completing a new 150,000 square foot facility in
Shanghai, China, which will provide backpanel and cable 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.
HISTORICAL RESULTS OF OPERATIONS -- VIASYSTEMS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net sales for the six months ended June 30, 2000 were $742.9 million,
representing a $120.3 million, or 19.3%, increase from the same period in 1999.
The increase was primarily a result of acquisitions completed in 1999 and 2000,
in addition to volume growth in the telecom/datacom industry, partially offset
by the reduction in sales associated with the distribution of the operations
formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden in March 2000.
Cost of goods sold for the six months ended June 30, 2000, was $572.7
million, or 77.1% of sales compared to $463.8 million, or 74.5% of sales for the
six months ended June 30, 1999. Cost of goods sold as a percent of net sales
increased primarily due to costs incurred associated with the ramp-up of higher
technology PCBs and backpanels in North America and Europe, costs associated
with the start-up of the Chinese capacity expansion and a higher percentage of
EMS sales in 2000 which have lower margins.
Selling, general and administrative expenses (excluding one-time non-cash
charges of $104.4 million in March 2000, as described below) for the six months
ended June 30, 2000 of $62.1 million increased by $7.9 million versus the
comparable period in 1999. These costs increased primarily due to increases in
general and administrative expenses related to certain acquisitions completed in
1999 and 2000. These increases were partially offset by a reduction in expenses
associated with the distribution of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden in March 2000 and cost containment efforts resulting from headcount
reductions made at our corporate offices in 1999.
37
<PAGE> 40
In connection with our initial public offering in March 2000, we amended
the terms of the performance stock options held by members of management that
eliminated the exercisability restrictions and variable exercise price terms.
The amended performance options have a fixed exercise price and are immediately
exercisable. As a result of these amendments, we recorded a one-time non-cash
compensation expense charge of approximately $33.6 million during the six months
ended June 30, 2000.
Also in connection with our initial public offering in March 2000, we
reclassified each 6 2/3 shares of class A common stock and class A series II
common stock into one share of common stock. This reclassification eliminated
the variable terms of the class A and class A series II common stock and
resulted in a one-time non-cash compensation expense charge of approximately
$62.9 million recorded during the six months ended June 30, 2000.
Additionally, in connection with our initial public offering in March 2000,
we terminated the monitoring and oversight agreement and financial advisory
agreement with an affiliate of Hicks, Muse, Tate & Furst Incorporated. As
consideration for Hicks Muse's willingness to agree to such termination, we
granted to an affiliate of Hicks Muse and partners of Hicks Muse options to
purchase an aggregate 2,134,000 shares of our common stock at an exercise price
equal to $21.00 per share. The option grant resulted in a net one-time non-cash
compensation expense charge of approximately $7.8 million recorded during the
six months ended June 30, 2000.
Other expense increased $4.8 million, from $57.8 million for the six months
ended June 30, 1999 to $62.6 million for the same period of 2000, primarily due
to increased interest expense related to the debt financing incurred to fund the
August 1999 acquisition of Kalex, partially offset by reduced interest expense
in the second quarter of 2000 related to the recapitalization completed in
connection with the initial public offering in March 2000.
Depreciation and amortization decreased $1.6 million, from $77.7 million
for the six months ended June 30, 1999 to $76.1 million for the same period of
2000, primarily as a result of depreciation and amortization expense associated
with the distribution of the operations formerly conducted by Interconnection
Systems Limited, Forward Group, Zincocelere and Viasystems Sweden in March 2000.
This decrease was offset by the impact to depreciation of acquired fixed assets
and amortization of acquired intangibles from certain acquisitions completed in
1999 and 2000.
During 1999, we recorded a one-time non-cash cumulative effect of a change
in accounting principle of $18.4 million (net of $6.7 million income tax
benefit) related to the write-off of the net book value of start-up costs as of
January 1, 1999.
During the quarter ended March 31, 2000, we recorded, as an extraordinary
item, a one-time, non-cash write-off of deferred financing fees of approximately
$31.2 million (net of $0 income tax benefit) related to deferred financing fees
incurred on debt under the old credit agreement, which was retired before
maturity with proceeds from our initial public offering.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net sales for the year ended December 31, 1999 were $1,293.4 million,
representing a $91.1 million, or 7.6%, increase from the comparable period in
1998. Approximately $123.6 million of the increase was due primarily to the
acquisitions of Mommers and Zincocelere in 1998 and the acquisitions of Kalex
and PAGG Corporation in 1999, offset by contractual price reductions of
approximately $48.0 million under the Lucent supply agreement and other
industry-wide pricing pressures.
Cost of goods sold for the year ended December 31, 1999 was $969.6 million,
or 75.0% of net sales, compared to $856.9 million, or 71.3% of net sales, for
the year ended December 31, 1998. Cost of goods sold as a percent of net sales
increased year over year as a result of contractual and industry-wide pricing
pressures, partially offset by cost containment activities which approximated
$80.0 million in reduced material costs negotiated as a result of our increased
purchasing power and improved plant operating efficiencies through upgrades in
systems and equipment technologies and by improving the process flow of our
Echt, Netherlands facility.
38
<PAGE> 41
Selling, general and administrative expenses (excluding the non-cash
compensation expense charge of $3.4 million and $110.1 million in 1998 and 1999,
respectively) for the year ended December 31, 1999 increased by $6.6 million
versus the comparable period in 1998. These costs increased primarily due to
increases in general and administrative expenses related to the Kalex and PAGG
Corporation acquisitions partially offset by cost containment efforts resulting
from headcount reductions made at our corporate offices. During the years ended
December 31, 1998 and 1999, we recorded non-cash compensation charges of $3.4
million and $110.1 million, respectively, which reflect the difference between
the cost of the class A common stock and class A series II common stock and the
value of common stock that it is convertible into at December 31, 1998 and 1999,
respectively.
Other expense increased $32.6 million, from $115.4 million for the year
ended December 31, 1998 to $148.0 million in the same period of 1999, due
primarily to increased interest expense and amortization of deferred financing
costs related to the debt financing incurred to fund the acquisitions of Mommers
and Zincocelere in the first quarter of 1998 and Kalex in August 1999 and from
the loss on disposal of plant, property and equipment related to our Selkirk,
Scotland facility that was closed during 1999.
Depreciation and amortization increased $9.2 million, from $173.0 million
for the year ended December 31, 1998 to $182.2 million for the same period in
1999, primarily as a result of the impact to depreciation of acquired fixed
assets and to amortization of acquired intangibles from the acquisitions of
Mommers and Zincocelere in the first quarter of 1998 and the Kalex acquisition
in August 1999.
During 1999, we recorded a non-cash impairment loss of $468.4 million
related to the write-off of long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Based on current
business enterprise values using common appraisal methods, the assessment has
identified impairment of long-lived assets acquired from the Forward Group,
Interconnection Systems Limited and Zincocelere acquisitions. The calculated
business enterprise values determined were compared to the net book value of the
related long-lived assets with the difference representing the amount of the
impairment loss. The impairment loss for each group of assets was first charged
against goodwill with any remaining amounts being charged to the other acquired
intangibles and property, plant and equipment, if necessary. The impairment
resulted due to significant changes in the markets served by the acquisitions
that were not anticipated at the time of each acquisition, most significantly a
significant decline in market pricing. The decline in market pricing was due to
the convergence of two factors: significant currency fluctuations and the
emergence of significant offshore competition from Asia Pacific. While the
primary currency for the acquisitions is the U.K. pound sterling, their
competitors were in Continental Europe and beginning to emerge from Asia
Pacific. The currencies for most of the Continental European and Asia Pacific
countries declined significantly against the U.K. pound sterling, which resulted
in an improved relative cost position for the competitors and reduced market
pricing. This decline in market pricing has resulted in a significant decline in
profitability that is not expected to return in the near term.
During 1999, we recorded a one-time non-cash cumulative effect of a change
in accounting principle of $18.4 million (net of $6.7 million income tax
benefit) related to the write-off of the net book value of start-up costs as of
January 1, 1999.
During 1998, we recorded a one-time non-cash write-off of $20.1 million
related to in-process research and development acquired in the acquisitions of
Mommers and Zincocelere. During 1999, we recorded a one-time non-cash write-off
of $17.6 million related to in-process research and development acquired in the
Kalex acquisition.
During 1999, we initiated a comprehensive review of the strategic position
of our individual business units with the intent to restructure our existing
operations. As a result of the transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden and the acquisition of the wire harness business of International Wire,
we decided to abandon the planned restructuring.
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YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net sales for the year ended December 31, 1998 were $1,202.3 million,
representing an increase of $241.6 million, or 25.2%, over the year ended
December 31, 1997. The increase was primarily attributable to the acquisitions
of Viasystems Sweden, Mommers and Zincocelere completed in the first quarter of
1998 and increased volume partially offset by typical, industry-wide pricing
pressures as well as the negative impact of the stronger U.K. pound as it
relates to continental European and Asian currencies and contractual price
reductions under the Lucent supply agreement.
Cost of goods sold for the year ended December 31, 1998 was $856.9 million,
or 71.3% of net sales, compared to $684.8 million, or 71.3% of net sales for the
year ended December 31, 1997. Cost of goods sold as a percent of net sales
remained constant as product mix changes from the acquisitions of Viasystems
Sweden, Mommers and Zincocelere, as well as the above mentioned currency-related
and contractual price reductions we experienced were offset by cost containment
and reduction activities.
Selling, general and administrative expenses (excluding the non-cash
compensation expense charge of $3.4 million in 1998) for the year ended December
31, 1998 increased by $32.5 million over selling, general and administrative
expenses for the year ended December 31, 1997. These costs increased primarily
due to the 1998 acquisitions of Viasystems Sweden, Mommers and Zincocelere,
increased sales and marketing expenses and increases in administrative expenses
at our Richmond, Virginia facility related to the separation from Lucent
Technologies. During the year ended December 31, 1998, we recorded a non-cash
compensation charge of $3.4 million, which reflects the difference between the
cost of the class A common stock and class A series II common stock and the
value of common stock that it is convertible into at December 31, 1998.
Depreciation and amortization for the year ended December 31, 1998
increased $56.7 million over the comparable period for 1997 primarily as a
result of the full year impact of the acquisitions of Forward Group and
Interconnection Systems Limited in the second quarter of 1997 and of Viasystems
Sweden, Mommers and Zincocelere in the first quarter of 1998.
During the year ended December 31, 1998 we recorded a one-time non-cash
write-off of $20.1 million related to in-process research and development
acquired in the acquisitions of Mommers and Zincocelere. During the year ended
December 31, 1997, we recorded a similar charge of $294.5 million related to the
acquisitions of Forward Group and Interconnection Systems Limited.
Other expense increased $34.4 million, from $81.0 million for the year
ended December 31, 1997 to $115.4 million for the same period in 1998, due
primarily to increased interest expense and amortization of deferred financing
costs related to the debt financing incurred to fund the acquisitions of
Viasystems Sweden, Mommers and Zincocelere.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth data regarding our net sales; gross profit;
income (loss) before cumulative effect of change in accounting principle and
extraordinary items and income (loss), in each case for the ten quarterly
periods ending June 30, 2000. Such data has been derived from our unaudited
consolidated financial statements which, in the opinion of management, have been
prepared on substantially the same basis as our audited consolidated financial
statements, subject to normal quarterly adjustments. The operating results in
any quarter are not necessarily indicative of the results that may be expected
for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $287,177 $304,841 $304,973 $305,330 $309,643 $312,882 $316,396 $ 354,449
Gross profit............ 73,995 81,765 87,698 101,921 75,761 82,977 70,701 94,317
Income (loss) before
cumulative effect of a
change in accounting
principle.............. (33,563) (7,152) (13,579) (26,352) (14,589) (8,614) (46,705) (631,944)
Net income (loss)....... (33,563) (7,152) (13,579) (26,352) (33,032) (8,614) (46,705) (631,944)
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31, JUNE 30,
2000 2000
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Sales............... $384,584 $358,285
Gross profit............ 81,310 88,860
Income (loss) before
cumulative effect of a
change in accounting
principle.............. (130,709) 2,784
Net income (loss)....... (161,905) 2,784
</TABLE>
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<PAGE> 43
Net sales increased from the quarter ended March 31, 1998 to the quarter
ended June 30, 1998 due primarily to the acquisitions of Mommers and Zincocelere
in February 1998 and March 1998, respectively. Quarterly net sales increased
during 1999 primarily due to the acquisitions of PAGG and Kalex in April 1999
and August 1999, respectively. The decrease in net sales from the quarter ended
March 31, 2000 to the quarter ended June 30, 2000 was primarily due to the
distribution of the operations formerly conducted by Interconnection Systems
Limited, Forward Group, Zincocelere and Viasystems Sweden in March 2000,
partially offset by the acquisition of Marconi's network components and services
business in March 2000.
During the quarter ended December 31 1999, we recorded a non-cash
impairment loss of $468.4 million related to the write-off of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Based on business enterprise values using common appraisal
methods, we identified impairment of long-lived assets acquired from the Forward
Group, Interconnection Systems Limited and Zincocelere acquisitions. The
calculated business enterprise values determined were compared to the net book
value of the related long-lived assets with the difference representing the
amount of the impairment loss. The impairment loss for each group of assets was
first charged against goodwill with the remaining amounts being charged to the
other acquired intangibles and property, plant and equipment, if necessary. The
impairment resulted from significant changes in the markets served by the
acquisitions that were not anticipated at the time of each acquisition, most
significantly a significant decline in market pricing. The decline in market
pricing was due to the convergence of two factors: significant currency
fluctuations and the emergence of significant offshore competition from Asia
Pacific. While the primary currency for the acquisitions is the U.K. pound
sterling, our competitors were in Continental Europe and beginning to emerge
from Asia Pacific. The currencies for most of the Continental European and Asia
Pacific countries declined significantly against the U.K. pound sterling, which
resulted in an improved relative cost position for the competitors and reduced
market pricing. This decline in market pricing has resulted in a significant
decline in profitability that is not expected to return in the near term.
During the quarter ended March 31, 1999, we recorded a one-time non-cash
cumulative effect of a change in accounting principle of $18.4 million (net of
$6.7 million income tax benefit) related to the write-off of the net book value
of start-up costs as of January 1, 1999.
During the quarter ended March 31, 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 quarter
ended September 30, 1999, we recorded a one-time non-cash write-off of $17.6
million related to in-process research and development acquired in the Kalex
acquisition.
In connection with our initial public offering in March 2000, we amended
the terms of the performance stock options held by members of management that
eliminated the exercisability restrictions and variable exercise price terms.
The amended performance options have a fixed exercise price and are immediately
exercisable. As a result of these amendments, we recorded a one-time non-cash
compensation expense charge of approximately $33.6 million during the quarter
ended March 31, 2000.
Also in connection with our initial public offering in March 2000, we
reclassified each 6 2/3 shares of class A common stock and class A series II
common stock into one share of common stock. This reclassification eliminated
the variable terms of the class A and class A series II common stock and
resulted in a one-time non-cash compensation expense charge of approximately
$62.9 million recorded during the quarter ended March 31, 2000.
Additionally, in connection with our initial public offering in March 2000,
we terminated the monitoring and oversight agreement and financial advisory
agreement with an affiliate of Hicks, Muse, Tate & Furst Incorporated. As
consideration for Hicks Muse's willingness to agree to such termination, we
granted to an affiliate of Hicks Muse and partners of Hicks Muse options to
purchase an aggregate 2,134,000 shares of our common stock at an exercise price
equal to $21.00 per share. The option grant resulted in a net one-time non-cash
compensation expense charge of approximately $7.8 million recorded during the
quarter ended March 31, 2000.
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During the quarter ended March 31, 1999, we recorded a one-time non-cash
cumulative effect of a change in accounting principle of $18.4 million (net of
$6.7 million income tax benefit) related to the write-off of the net book value
of start-up costs as of January 1, 1999.
During the quarter ended March 31, 2000, we recorded, as an extraordinary
item, a one-time, non-cash write-off of deferred financing fees of approximately
$31.2 million (net of $0.0 income tax benefit) related to deferred financing
fees incurred on debt under the old credit agreement, which was retired before
maturity with proceeds from our initial public offering.
Our quarterly results are affected by a variety of factors and may
fluctuate significantly for a variety of reasons, including:
- expenditures and write-offs related to acquisitions;
- start-up expenses relating to new manufacturing facilities;
- pricing pressures;
- timing of orders from and shipments to major customers;
- our capacity relative to the volume of orders;
- expenditures in anticipation of future sales;
- variations in product mix; and
- overall economic conditions in the electronics industry.
LIQUIDITY AND CAPITAL RESOURCES -- VIASYSTEMS
We are a holding company that has no significant assets other than the
capital stock of Viasystems, Inc., and therefore, we rely on dividends and
distributions from Viasystems, Inc. as our sole source of cash. Our right to
participate in dividends or other distributions from Viasystems, Inc. is subject
to restrictions imposed by the terms of Viasystems, Inc.'s senior credit
facility and senior subordinated notes, as well as the prior rights of
Viasystems, Inc.'s creditors and other statutory restrictions.
Net cash used in operating activities was $65.5 million for the six months
ended June 30, 2000, compared to net cash provided by operating activities of
$27.9 million for the same period in 1999. The decrease in net cash provided by
operating activities relates primarily to an increase in revenues, timing of
receipts from certain major customers and investments in inventories.
Net cash used in investing activities was $379.8 million for the six months
ended June 30, 2000, compared to $60.0 million for the six months ended June 30,
1999. In 2000, net cash used in investing activities included $317.2 million
related to the acquisitions of the wire harness business of International Wire,
Marconi's network component and services business and Top Line Electronics
Corporation, with the remainder related to capital expenditures. The net cash
used in investing activities for the first half of 1999 included $9.3 million
related to the PAGG acquisition with the remainder used for capital
expenditures.
Net cash provided by operating activities was $43.2 million for the year
ended December 31, 1999 compared to net cash used in operating activities of
$27.1 million for the same period in 1998. The increase in net cash from
operating activities related primarily to timing of payments to vendors. Net
cash used in investing activities was $452.2 million for the year ended December
31, 1999, compared to $280.2 million for the year ended December 31, 1998. The
net cash used in investing activities for 1999 included $314.2 million related
to the acquisitions of Kalex and PAGG Corporation with the remainder related to
capital expenditures. In 1998, net cash used in investing activities included
$145.7 million related to the acquisitions of Viasystems Sweden, Mommers and
Zincocelere with the remainder related to capital expenditures.
In connection with our acquisition of Interconnection Systems Limited in
June 1997, we assumed approximately $437.5 million of loan notes, of which
$285.3 million were outstanding as of December 31, 1999. Our prior credit
facility contained a committed term loan facility that we could draw upon to
satisfy our
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<PAGE> 45
remaining obligations under those loan notes. In June 1997, we also completed a
$400.0 million offering of Viasystems, Inc.'s 9 3/4% senior subordinated notes
due 2007. The net proceeds of that offering were used to repay a bridge loan
facility and approximately $171.9 million under our existing credit facility.
In February 1998, Viasystems, Inc. issued an additional $100.0 million of
its 9 3/4% senior subordinated notes due 2007 at a price of 104.5% of their
principal amount, yielding approximately $101.0 million in proceeds. In
connection with this offering of senior subordinated notes, our existing credit
facilities were increased by $95.0 million, and an affiliate of Hicks, Muse,
Tate & Furst Incorporated purchased an additional $50.0 million of our common
stock. The proceeds from these financing activities were used to fund the
acquisitions of Viasystems Sweden, Mommers and Zincocelere and repay a portion
of our revolving credit facilities.
In connection with the acquisition of Kalex in August 1999, we entered into
a third amended and restated credit agreement with terms substantially similar
to the prior credit agreement. Our credit agreement was amended to, among other
things, establish an additional $291.0 million term loan facility, repay $10.1
million outstanding under the term loans available to refinance the loan notes
issued in connection with the acquisition of Interconnection Systems Limited in
1997, and collateralize future amounts due under the term loans with
approximately $89.9 million in cash. Additionally, we received an equity
contribution of $200.0 million.
In connection with our initial public offering in March 2000, we entered
into a new senior credit facility. Our senior credit facility consists of a
$150.0 million term loan facility, $303.0 million letter of credit and term loan
reimbursement facility, and $175.0 million of available revolving loans. As of
June 30, 2000, we had $149.4 million of available borrowing capacity under the
revolving loan facility, subject to limitations. We expect to borrow
approximately $48.0 million under the revolving loan facility to consummate the
Rouen facilities acquisition. We expect to use a portion of the net proceeds
from this offering to repay such indebtedness under the facility.
As of June 30, 2000, our indebtedness consisted of amounts outstanding
under the senior credit facilities, the senior subordinated notes, the loan
notes, capital leases and other debt.
We anticipate that our primary uses of cash for the next twelve months will
be:
- for capital expenditures for maintenance, replacement and acquisitions of
equipment, expansion of capacity, productivity improvements and product
and process technology development;
- the $48.0 million purchase price for the Rouen facilities acquisition;
and
- to pay interest on, and to repay principal of, indebtedness under our
senior credit facilities, the senior subordinated notes and our other
outstanding indebtedness as discussed in note 8 to our consolidated
financial statements set forth elsewhere herein.
We anticipate that our aggregate capital expenditures in 2000 will be
approximately $129.0 million. In 2000, our aggregate principal and interest
payments under our senior credit facilities and the senior subordinated notes
are expected to be approximately $79.0 million.
We expect that our primary sources of cash will be cash on hand, cash from
operating activities and revolving borrowings under our senior credit
facilities. We anticipate that our cash on hand, cash flow from operations and
additional funds available under the revolving facilities of our senior credit
facilities will be sufficient to meet our requirements for working capital,
capital expenditures, and debt service and other operating cash requirements
over the next 12 months. Although we are not able to currently predict those
needs in periods beyond 12 months, we believe our current cash flow from
operations and borrowings available under our senior credit facility will be
sufficient to meet our capital requirements through 2001. Any future
acquisitions would likely require external sources of debt and/or equity
financing. There can be no assurance that those funds would be available on
terms satisfactory to us, or at all. In addition, our future operating
performance and ability to meet our financial obligations will be subject to
future economic conditions and to financial, business and other factors, many of
which will be beyond our control.
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<PAGE> 46
Borrowings under our senior credit facilities bear interest at floating
rates and 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 credit facilities and senior subordinated notes restrict us
from, among other things:
- incurring additional indebtedness;
- making capital expenditures in excess of $150.0 million for the fiscal
year ended 2000 and $130.0 million for each of the fiscal years
thereafter;
- creating liens upon our property, assets or revenues;
- disposing of assets;
- guaranteeing indebtedness;
- merging or selling substantially all of our assets;
- declaring and paying dividends;
- making investments and loans; and
- entering into transactions with affiliates,
in each case with exceptions customary for indebtedness such as our senior
credit facilities and senior subordinated notes.
NET OPERATING LOSS CARRYFORWARD
For United States federal income tax purposes we had net operating loss
carryforwards, or NOLs, amounting to approximately $642.7 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 Puerto Rico, $47 million in the United Kingdom and $25 million in the
Netherlands. Some of the NOLs in the People's Republic of China and Puerto Rico
will expire if not utilized by December 31, 2000, while the other NOLs carry
forward indefinitely.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138,
establishes accounting and reporting standards requiring that every derivative
instrument (including derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allow a derivative's gains and losses to offset
related results on the hedged item in the income statement, and require that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. We have not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor have we
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings and other comprehensive income. In
December 1999, the Commission issued Staff Accounting Bulletin No. 101 (SAB No.
101), "Revenue Recognition in Financial Statements." At this time SAB No. 101
has no effect on consolidated financial statements. In March 2000, the FASB
issued FASB Interpretation No. 44, an interpretation of APB opinion No. 25. The
financial impact, if any, of FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation," has not been quantified.
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IN-PROCESS RESEARCH AND DEVELOPMENT
1997 Acquisitions
Forward Group's and Interconnection Systems Limited's in-process research
and development, or R&D, value was comprised of numerous R&D projects. These R&D
projects targeted improvements in materials and processing to reduce printed
circuit board thickness, lines, spaces and vias for market applications and
improvements in registration which would allow for the increase in the thickness
of the printed circuit board backpanels for other market applications. There
were several in-process R&D projects focused on plating, including panel
plating, reverse pulse plating, direct metallization and immersion silver. In
addition, other in-process R&D projects were investigating laser technology,
sequential build up of printed circuit boards, the applicability of specialty
materials and the ability to build components into a printed circuit board.
Finally, the remaining in-process R&D projects targeted improvements in testing
procedures to allow for testing for the more complex technologies related to the
above-mentioned in-process R&D projects.
The in-process R&D projects from the Forward Group and Interconnection
Systems Limited acquisitions can now be classified into three categories:
completed, abandoned or still in progress. We were technologically successful on
many of the in-process R&D projects, but several were abandoned due to the
unavailability of appropriate materials or manufacturing equipment or the lack
of market acceptance. The remaining, still in progress, projects are primarily
specialty materials projects, which have yet to develop the market demand
anticipated at the time of these acquisitions. We believe that efforts to
complete the still in progress acquired in-process R&D projects will consist
primarily of internal engineering costs over the next one to three years. These
costs are estimated to be approximately $1 million.
The revenues derived from the in-process R&D projects from the Forward
Group and Interconnection Systems Limited acquisitions are significantly lower
than anticipated. This significant shortfall was caused by the abandonment of
certain projects, the lack of market demand for others, and the general economic
conditions of the printed circuit board market served by the Forward Group and
Interconnection Systems Limited acquisitions. The market served by the Forward
Group and Interconnection Systems Limited acquisitions has experienced
significant changes not anticipated at the time of the acquisitions, most
significantly a significant decline in market pricing. The decline in market
pricing was due to the convergence of two factors: significant currency
fluctuations and the emergence of significant offshore competition from Asia
Pacific. While the primary currency for the Forward Group and Interconnection
Systems Limited acquisitions is the U.K. pound sterling, their competitors were
in Continental Europe and beginning to emerge from Asia Pacific. The currencies
for most of the Continental European and Asia Pacific countries declined
significantly against the U.K. pound sterling, which resulted in an improved
relative cost position for the competitors and reduced market pricing. The
decline in market pricing has resulted in a significant decline in profitability
for the Forward Group and Interconnection Systems Limited acquisitions.
1998 Acquisitions
Mommers' in-process R&D value was comprised of several R&D projects. These
in-process R&D projects, like those of the Forward Group and Interconnection
Systems Limited acquisitions, targeted improvements in materials, processing and
registration. Mommers' primary in-process R&D projects were focused on
developing the capability to produce larger, thicker backpanels ranging from 48
to 60 layers and the development of thin core technology. The remaining projects
were related to the further development of Mommers' high-density capabilities
and the applicability of specialty materials.
We approached the development of thicker backpanels as the combination of
several projects: increasing board thickness, increasing the aspect ratio, which
is a measure of hole diameter to board thickness, improving drilling and plating
of higher aspect ratios and thicker boards, and increasing board size. Finally,
upon successful completion of these steps, we would need to invest in the
capital equipment necessary to produce the larger boards.
The thin core technology project targeted the reduction of insulating
material between two conductive layers of a printed circuit board, to produce
thin, lightweight printed circuit boards. The reason for this activity is to
address the electronics industry trend toward lighter and more densely populated
product offerings.
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The primary in-process R&D projects from the Mommers acquisition can now be
classified as completed as the development of the capabilities for the larger,
thicker backpanels and the development of thin core technology have been
achieved. In 1999, the revenues derived from the Mommers in-process R&D
approximate the levels anticipated at the time of the acquisition. We are unable
to accurately quantify the potential impact in the future of the failure of any
single project or multiple projects, which were acquired as in-process R&D in
the acquisition. There can be no guarantee that the acquired in-process R&D
projects will result in future revenue growth, we believe that the likelihood is
reasonable for these projects.
Zincocelere's in-process R&D value was also comprised of several R&D
projects, which targeted improvements in materials, processing and registration.
Zincocelere's primary in-process R&D projects related to material processing and
developing a photo microvia process. In addition, Zincocelere was involved in
projects designed to reduce printed circuit board thickness, lines, spaces and
vias, and other projects designed to increase board thickness for other
applications.
The primary material-processing project underway at the time of the
acquisition was focused on finding solutions to the problem of thin copper foil
handling. This project was primarily related to the reduction of cost. We have
successfully completed this project.
The photo microvia process project under development at the time of the
acquisition has been abandoned at this site. The commercial viability of this
project for the customer base served by Zincocelere was limited and would have
required significantly more capital investment.
Most of the other in-process R&D projects related to the Zincocelere
acquisition have also been abandoned. The abandonment of most of Zincocelere's
in-process R&D projects combined with a significant reduction in market pricing
for lower technology printed circuit boards has resulted in less revenue than
anticipated at the date of the acquisition. The decline in market pricing has
resulted in a significant decline in profitability for the Zincocelere
acquisition.
1999 Acquisitions
Kalex's in-process R&D value is comprised of three primary projects
consisting of developing Rambus technology, increasing board layer count and
developing ball grid array substrates capability. At the acquisition date, R&D
programs ranged from 65% to 80% complete and total continuing R&D commitments to
complete the projects were expected to be $2.4 million. Since the date of the
acquisition we have completed the Rambus project and continued to pursue the
board layer count project and the ball grid array substrate project.
The Rambus project is expected to generate revenues in 2000 at levels
originally anticipated, assuming market acceptance of the technology. Rambus
technology is designed to improve the communication between current and next
generation fast central processing unit microchips and peripherals on the
motherboard. This requires motherboards with finer lines, much lower impedance,
and extremely small variance in specification tolerance. The applications for
Rambus technology are personal computers, workstations, mainframes, mobile
phones, communications equipment and network systems.
Because we have capabilities at most of our facilities to produce high
layer count printed circuit boards, the board layer count project has progressed
more quickly than originally anticipated and is nearing completion. The ball
grid array substrates project is designed to improve printed circuit board
density and performance. This project, to be successful, will require specific
machinery and precision tools, including unique drilling, routing, lamination,
and etching equipment. We will further evaluate this program before committing
to such investment.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur.
CONVERSION TO THE EURO
On January 1, 1999, eleven participating countries of the European Union
converted to the Euro as their common national currency. The previous national
currencies of these countries will still be accepted as legal tender until at
least January 1, 2002. We do not expect the conversion to the Euro to have a
material effect on our results of operations, financial condition or cash flows.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At June 30, 2000, approximately $435.3 million of our long-term debt,
specifically borrowings outstanding under our senior credit facility and the
loan notes, bear interest at variable rates. Accordingly, our earnings and cash
flow are affected by changes in interest rates. Assuming the current level of
borrowings at variable rates and assuming a two percentage point change in the
average interest rate under these borrowings, it is estimated that our interest
expense for the six months ended June 30, 2000, would have increased by
approximately $4.4 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, or EMS, to original equipment manufacturers, or OEMs,
primarily in the telecommunications and networking industries. We offer our EMS
solutions to OEMs that outsource the design and manufacture of their products.
Our products and services consist of the following:
- the design and fabrication of printed circuit board assemblies, in
particular highly complex multi-layered printed circuit boards;
- the manufacture of complex printed circuit board assemblies;
- the manufacture of custom-designed backpanel assemblies;
- the design and manufacture of wire harnesses and custom cable assemblies;
- the design and manufacture of custom metal enclosures for the
telecommunications and networking systems;
- the design and manufacture of thermal management systems used in custom
metal enclosures;
- 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 use our
printed circuit board and backpanel capabilities to capture the full assembly of
our customers' products at the design stage of their product development cycle.
Our customer base primarily consists of OEMs in the telecommunications and
networking industries. We currently are a supplier to over 50 OEMs, including
industry leaders Alcatel, Cisco Systems, Delco, Ericsson, General Electric,
Intel, Lucent Technologies, Marconi Communications, Motorola, Nortel, Siemens,
Sun Microsystems, 3Com and Tut Systems. For the six months ended June 30, 2000,
approximately 62% of our pro forma revenues were from telecommunications and
networking customers. The products we manufacture include, or can be found in, a
wide array of products such as switching and transmission equipment, wireless
base stations, workstations, servers and data networking equipment including
hubs, routers and switches.
Our pro forma revenues for the last twelve months ended June 30, 2000 were
approximately $1.2 billion. We operate 29 manufacturing facilities located in
the United States, Canada, Mexico, the United Kingdom, Italy, Denmark, 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. forecasted in its October 1999 report that
the EMS industry will grow annually at approximately 20% through 2003, with
total industry revenue projected to be $149.4 billion by 2003.
EMS industry growth is being fueled by the growth of the overall
electronics industry and increased outsourcing of manufacturing and related
functions by electronics OEMs worldwide. This outsourcing trend is being fueled
by an increasing number of OEMs that are outsourcing a substantial portion of
their manufacturing in order to focus resources on core competencies, including
through the sale of manufacturing operations to EMS providers. We believe that,
as the trend to outsourcing continues, OEMs will increasingly outsource more
complex products and services. We believe this trend will favor larger EMS
providers that have clear advantages of scale, geographic diversity, technology
and quality and lead to consolidation in the EMS industry.
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We believe that the telecommunications and networking equipment industries
represent large and attractive markets for electronics manufacturing services.
The rapid growth of the Internet has changed the way that networks must be
constructed in order to handle the growing volume of both voice and data
traffic. This shift is causing network providers to make significant capital
expenditures to expand and upgrade the existing network infrastructure.
Networking companies such as Cisco, Bay Networks and Ascend Communications were
among the first communications equipment companies to aggressively outsource
much of their manufacturing to EMS providers. These companies set the standard
for the networking industry, demonstrating the benefits that can be realized
from an OEM model that relies heavily on the services of EMS providers.
Telecommunications equipment companies have only recently begun to use EMS
providers. In part because of acquisitions such as Lucent's purchase of Ascend
and Nortel's acquisition of Bay Networks, telecommunications equipment vendors
have seen the success that the networking companies they acquired have achieved
through outsourcing. In addition, networking companies are increasingly offering
products that compete with those of telecommunications equipment vendors,
forcing telecommunications OEMs to react to and adopt the outsourcing practices
of their networking competitors to be able to compete effectively.
EVOLUTION OF EMS INDUSTRY
Historically, OEMs invested heavily in manufacturing assets and facilities
around the world to support the manufacture, service and distribution of their
products. In the early stages of the EMS industry, EMS companies acted as
subcontractors and performed simple, labor-intensive material assembly functions
to provide excess production capacity for OEMs during peak demand periods.
Accordingly, the relationship between OEMs and EMS providers tended to be
transactional in nature.
Significant advancements in manufacturing process technology in the 1980s,
such as surface mount technology, enabled EMS companies to provide cost savings
to OEMs while at the same time improving the quality of their products.
Furthermore, as the capabilities of EMS companies expanded, an increasing number
of OEMs adopted and increasingly relied upon manufacturing outsourcing
strategies. In recent years, large sophisticated EMS companies have further
expanded their capabilities to include services ranging from front-end design to
back-end full system assembly, product test, test development, order fulfillment
and distribution and after-sales support. Large EMS companies generally have a
lower cost structure, superior manufacturing technological expertise and more
advanced manufacturing processes relative to the OEM customers they serve.
By using EMS providers, OEMs are able to focus on their core competencies,
including product development, sales, marketing and customer service, while
leveraging the expertise of EMS providers for design, procurement, assembly and
test operations and supply chain management. As a result, larger, more
sophisticated EMS providers have established strong strategic relationships with
many of their OEM customers.
We believe that the principal reasons OEMs establish relationships with EMS
providers include the following:
Decrease Time-to-Market and Time-to-Volume. Electronics products are
experiencing shorter product life cycles, requiring OEMs to continually
reduce the time required to bring products to market. OEMs can
significantly shorten product development cycles and decrease
time-to-market by benefiting from the design and manufacturing expertise
and infrastructure of EMS providers. This includes 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.
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Focus Resources on Core Competencies. The electronics industry is
experiencing greater levels of competition and rapid technological change.
In this environment, many OEMs are seeking to focus on their core
competencies of product development, sales, marketing and customer service,
and to outsource design, manufacturing and related requirements to their
EMS providers.
Access Leading Manufacturing Technologies. Electronics products and
electronics manufacturing technology have become increasingly sophisticated
and complex, making it difficult for many OEMs to maintain the necessary
technological expertise and focus required to efficiently manufacture
products themselves. By working closely with EMS providers, OEMs gain
access to high quality manufacturing expertise and capabilities in the
areas of advanced process, interconnect and test technologies.
Utilize EMS Companies' Procurement, Inventory Management and Logistics
Expertise. OEMs that manufacture internally are faced with greater
complexities in planning, procurement and inventory management due to
frequent design changes, short product life cycles and product demand
fluctuations. OEMs can address these complexities by outsourcing to EMS
providers that possess sophisticated supply chain management capabilities
and can use significant component procurement advantages to reduce product
costs.
Improve Access to Global Markets. OEMs are generally increasing their
international activities in an effort to expand their sales through access
to foreign markets. EMS companies with worldwide capabilities are able to
offer OEMs global manufacturing solutions to assist them in meeting local
content requirements, distributing products efficiently around the world
and reducing costs.
KEY SUCCESS FACTORS
We believe that the following are the key success factors for EMS
providers seeking to establish and expand relationships with leading OEMs:
Large-Scale and Flexible Production Capacity. Increasingly, leading
OEMs are seeking to outsource large-scale manufacturing programs.
Generally, those EMS providers that can meet the volume and time-to-market
requirements associated with these programs will be able to exploit these
opportunities. EMS providers must have sufficient scale and flexible
production capacity to be awarded large outsourcing programs, as OEMs often
seek partners with the resources to support simultaneous product launches
in multiple markets.
Broad Service Offering. In order to establish strategic relationships
with OEM customers that are seeking to reduce their number of suppliers,
EMS companies must be able to provide a broad portfolio of services. These
services include front-end product design and design for manufacturability,
component selection and procurement, quick-turn prototyping, product
testing, product assurance and failure analysis as well as back-end
functions such as full system assembly, order fulfillment, worldwide
distribution and after-sales support, including repair services.
Sophisticated Technological Capabilities. The desire of OEMs to
increase product performance, functionality and quality is driving a
requirement for increasingly complex printed circuit board fabrication,
assembly and test technologies. EMS providers that possess expertise in
manufacturing technology, and that continually innovate and develop
advanced fabrication, assembly and test techniques, provide a competitive
advantage to their OEM customers. We believe that as the trend to
outsourcing continues, OEMs will increasingly outsource more complex
products.
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
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providers are locating facilities in lower-cost regions, including Mexico
and Asia, in order to complement their offerings by providing lower cost
manufacturing solutions for price-sensitive applications. As a result of
these trends, many large OEMs are beginning to work with a smaller number
of EMS providers that, as worldwide suppliers, can meet their needs in
multiple geographic markets.
MARKET CONSOLIDATION
We believe that larger EMS providers that possess the foregoing attributes
are well positioned to take advantage of anticipated growth in the EMS industry.
Conversely, we believe that smaller providers who seek to serve leading OEMs are
disadvantaged due to lack of scale and difficulty in meeting OEM requirements
relating to capacity, broad service offerings, technology, supply chain
management and global manufacturing capabilities.
The EMS industry has experienced an increase in large-scale acquisition
activity in recent years, primarily as a result of the sale of OEM facilities
and manufacturing operations to EMS providers. OEMs have tended to award these
opportunities to larger EMS providers that possess the capital, management
expertise and advanced systems required to acquire and integrate the acquired
businesses effectively. For the EMS provider, these acquisitions have been
driven by the need for additional capacity, a desire to enter new geographic or
product markets and services, or a desire to establish or further develop a
customer relationship with a particular OEM.
Given this environment, we believe that the EMS industry may experience
significant consolidation, driven by the continued trend among OEMs to outsource
large-volume programs to leading EMS providers, the continued disposition of OEM
manufacturing assets to these companies and acquisition activity among EMS
businesses themselves.
OUR STRATEGY
Our goal is to be the EMS full-solution partner of choice to leading OEMs
through leadership in technology, quality and supply chain management. To meet
this goal, we are implementing the following strategy which we believe will
allow us to achieve superior financial performance and enhance stockholder
value:
Focus on the High Growth Telecommunications and Networking Customer
Segments. We have focused our marketing efforts on the fast-growing
telecommunications and networking industries. Approximately 62% of our pro
forma revenues for the six months ended June 30, 2000 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.
Take Advantage of Our Ability to Provide a Full-Service Offering to,
and Expand Relationships with, Our Customers. Building on our integrated
manufacturing capabilities, we can provide our customers with a broad range
of EMS solutions from fabrication of bare boards to final system assembly
and test. Our wire harness and cable assembly capabilities provide us with
further opportunities to sell these services to our existing OEM customers.
The capability to manufacture a range of product components from printed
circuit boards to wire harnesses and cable assemblies used in final
assemblies enables us to shorten our customers' product development cycles
and to lower their cost. In addition, our vertical integration provides us
with greater control over quality, delivery and cost, and enables us to
offer our customers a complete EMS solution. Each of the four greenfield
facilities (all of which are assembly facilities) we have opened since 1996
has been in response to the expansion of our relationships with existing
customers. We will continue to emphasize being a full-solution partner to
our existing customers.
Concentrate on High Value-Added Products and Services. We focus on
providing EMS solutions to leading manufacturers of advanced electronic
products that generally require custom designed, more complex interconnect
products and short lead-time manufacturing services. These products are
typically lower-volume, higher-margin products.
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Capitalize on Our Advanced Printed Circuit Board and Backpanel
Capabilities. Based on our estimates of market share and our product
capabilities, we believe we are the industry leader in the manufacture of
complex, technologically advanced multi-layer printed circuit boards and
custom-designed backpanel assemblies. Our state-of-the-art manufacturing
facilities allow us to efficiently produce commercial quantities of printed
circuit boards with up to 48 layers and circuit track widths as narrow as
three one-thousandths of an inch. We also have the capability to produce
printed circuit boards with up to 60 layers and circuit track widths as
narrow as two one-thousandths of an inch. We have pioneered advances in
some of the most significant areas of printed circuit board fabrication.
Because many of the next generation products in the telecommunications and
networking industries will require highly advanced printed circuit boards
and backpanel assemblies, we are well positioned to capitalize on our
capabilities in those areas to compete for the complete assembly of
customers' products that utilize our printed circuit boards and backpanels.
Currently, we are involved in the design of several new platforms for large
telecommunication OEMs where we are leveraging our printed circuit board
and backpanel capabilities to generate additional assembly revenues.
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 the wire harness and cable assembly facilities in
Mexico allow us to offer OEM customers a lower cost solution for printed
circuit board fabrication, printed circuit board assembly, 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. We have also begun building a new facility
in Shanghai, China, which we expect to be completed in the fourth quarter
of 2000. These facilities provide us with operations in key geographic
markets for our existing customers as well as the electronics industry in
general. We will continue to pursue future expansion opportunities.
Pursue Acquisition Opportunities. We continue to pursue business
acquisition opportunities in order to broaden our service offerings, gain
access to new geographic markets, implement our vertical integration
strategy and/or obtain facilities and equipment at a lower cost than
building or leasing them. We have acquired entire companies, such as Circo
Craft, Mommers, PAGG Corporation, Kalex and Top Line Electronics
Corporation. In addition, given our strong relationships with leading OEMs
in the telecommunications and networking segments, we expect to proactively
pursue acquisition opportunities from our OEM customers that divest their
captive manufacturing assets. Prior acquisitions of this nature include the
acquisition of the Richmond, Virginia, operations of Lucent Technologies,
the acquisition of the wire harness assets of General Electric and the
acquisition of the Marconi network components and services business. Also,
we have agreed to acquire the Rouen global provisioning facilities of
Lucent Technologies.
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.
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The following table shows our pro forma net sales as a percentage by
principal end-user markets we serve:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------- SIX MONTHS ENDED
MARKETS 1998 1999 JUNE 30, 2000
------- ----- ----- ----------------
<S> <C> <C> <C>
Telecommunications and networking........................... 52.7% 55.3% 61.6%
Industrial/Consumer......................................... 22.0 22.4 19.2
Computer.................................................... 14.9 12.1 7.7
Automotive.................................................. 7.1 7.9 6.9
Other....................................................... 3.3 2.3 4.6
----- ----- -----
Total combined net sales.......................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table lists our telecommunications and networking customers
in alphabetical order and the end products for which we provide manufacturing
services.
<TABLE>
<CAPTION>
CUSTOMER END PRODUCT
-------- -----------
<S> <C>
Alcatel............................ Telecommunications switching and transmission
equipment, datacommunications networks, routing and
switching equipment, mobile phones
Cisco.............................. Datacommunications high end routers, LAN/WAN,
routing and switching equipment
Ericsson........................... Telecommunications switching and transmission
equipment, mobile phones, datacommunications routing
and switching equipment
Lucent Technologies................ Telecommunications switching and transmission
equipment, business communication systems,
datacommunications routing and switching equipment
Marconi Communications............. Telecommunications optical transmission equipment,
WAN network switching equipment
Motorola........................... Telecommunications infrastructure equipment,
wireless datacommunications equipment, satellite
communication equipment
Newbridge.......................... Datacommunications carrier switch routing equipment,
advanced enterprise networking equipment
Nortel Networks.................... Telecommunications optical network equipment,
LAN/WAN routers, access switching equipment
Siemens............................ Telecommunications switching equipment, LAN/WAN
network equipment, mobile switching equipment
Tellabs............................ Datacommunications routing and switching equipment
3Com............................... Datacommunications hubs, routing and switching
equipment, modems, network interface cards
Tut Systems........................ Data communications customer premise equipment
</TABLE>
Other than Lucent Technologies, no customer accounted for more than 10% of
pro forma net sales for the year ended December 31, 1999 or the six months ended
June 30, 2000.
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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]
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. We are one of
the leading suppliers of wire harnesses and cable assemblies for use in
household appliances. Due to the similar process technology utilized in the
manufacture of wire harnesses and cable assemblies for telecommunications and
networking products to that utilized in the manufacture of wire harnesses for
use in household appliances, we leverage this
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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 custom metal enclosures, thermal
management systems (provided through our joint venture in Spartanburg, South
Carolina and Skive, Denmark) and a wide range of subassemblies, including
printed circuit board assembly. We also employ advanced test techniques to
various subassemblies and final end products. Increasingly, OEMs require custom
build-to-order system solutions with very short lead times. We are focused on
exploiting this trend through our advanced supply chain management capabilities.
Packaging and Global Distribution. We offer our customers flexible
just-in-time and build-to-order delivery programs, allowing product shipments to
be closely coordinated with customers' inventory requirements. Increasingly, we
ship products directly into customers' distribution channels or directly to the
end-user.
After-Sales Support. We offer a wide range of after-sales support services.
This support can be tailored to meet customer requirements, including field
failure analysis, product upgrades, repair and engineering change management.
Supply Chain Management. Effective management of the supply chain is
critical to the success of OEMs as it directly impacts the time required to
deliver product to market and the capital requirements associated with carrying
inventory. Our global supply chain organization works with customers and
suppliers to meet production requirements. We utilize our enterprise resource
planning systems to optimize inventory management.
SALES AND MARKETING
We focus on developing close relationships with our customers at the
earliest development and design phases and continuing throughout all stages of
production. We identify, develop and market new technologies that benefit our
customers and position us as a preferred EMS provider.
We market our products through our own sales and marketing organization as
well as manufacturers' representatives in North America. This global sales
organization is structured to ensure geographic coverage and account
coordination. As of June 30, 2000, we employed approximately 250 sales and
marketing employees, of which 75 are direct sales representatives strategically
located throughout fifteen countries in North America, Europe and Asia. The
North American sales organization is divided into three regions (East, Central
and West) which are jointly serviced by direct sales representatives and
fourteen 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 assign global account managers to our most strategic
customers. These global account managers are the strategic focal point within
Viasystems for developing a strong strategic business partner relationship with
our global accounts. Regional account managers support these global account
managers, providing account sales support at the global account's various
locations around the world.
We have a unique, long-term supplier relationship with Lucent Technologies,
one of the world's leading designers, developers and manufacturers of
telecommunications systems, software and products. To ensure itself a stable and
consistent supply of printed circuit boards and backpanels in the future, Lucent
entered into a five-year supply agreement with us in November 1996. The
agreement contains automatic renewal provisions for two additional one-year
periods upon our satisfaction of performance requirements for cost,
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quality and service. Under the agreement, Lucent is required to purchase a
minimum annual dollar volume of printed circuit boards and backpanels from us.
Lucent is also required to compensate us if they fail to purchase the minimum
annual dollar volume. As required by the agreement, our prices for products
supplied were reduced to market-based prices effective January 1, 1999.
Additionally, either party is permitted to undertake a formal study to reset the
benchmark based upon a variety of factors, including the prices charged by
comparable industry manufacturers for printed circuit boards and backpanels.
Depending upon the results of such benchmarking study, the prices we charge may
be further adjusted. After the expiration of the two additional annual renewal
periods, the agreement continues to renew unless either party terminates the
agreement on 18 months' notice. Lucent has also designated us as a preferred
supplier and afforded us the right to bid for all of Lucent's product
requirements for which we demonstrate capability.
MANUFACTURING AND ENGINEERING
We produce highly complex, technologically advanced multi-layer and
low-layer printed circuit boards, backpanel assemblies, printed circuit board
assemblies, wire harnesses and custom cable assemblies and full systems that
meet increasingly tight tolerances and specifications demanded by OEMs.
Multi-layering, which involves placing multiple layers of electrical circuitry
on a single printed circuit board or backpanel, expands the number of circuits
and components that can be contained on the interconnect product and increases
the operating speed of the system by reducing the distance that electrical
signals must travel. Increasing the density of the circuitry in each layer is
accomplished by reducing the width of the circuit tracks and placing them closer
together on the printed circuit board or backpanel. Interconnect products having
narrow, closely spaced circuit tracks are known as fine line products. Today, we
and a few other industry leaders are capable of efficiently producing commercial
quantities of printed circuit boards with up to 48 layers and circuit track
widths as narrow as three one-thousandths of an inch. We have the capability to
produce printed circuit boards with up to 60 layers and circuit track widths as
narrow as two one-thousandths of an inch. The manufacture of complex multi-layer
interconnect products often requires the use of sophisticated circuit
interconnections between layers, called blind or buried vias, and adherence to
strict electrical characteristics to maintain consistent circuit transmission
speeds, referred to as controlled impedance. These technologies require very
tight lamination and etching tolerances and are especially critical for printed
circuit boards with ten or more layers.
The manufacture of printed circuit boards involves several steps: etching
the circuit image on copper-clad epoxy laminate, pressing the laminates together
to form a panel, drilling holes and depositing copper or other conductive
material to form the innerlayer electrical connections and, lastly, cutting the
panels to shape. Advanced interconnect products may also require additional
critical steps, including dry film imaging, photoimageable soldermask
processing, computer controlled drilling and routing, automated plating and
process controls and achievement of controlled impedance. Manufacture of printed
circuit boards used in backpanel assemblies requires specialized expertise and
equipment because of the larger size of the backpanel relative to other printed
circuit boards and the increased number of holes for component mounting.
The manufacture of printed circuit board assemblies involves the attachment
of various electronic components, such as integrated circuits, capacitors,
microprocessors and resistors to printed circuit boards. The manufacture of
backpanel assemblies involves attachment of electronic components, including
printed circuit boards, integrated circuits and other components, to the
backpanel, which is a large printed circuit board. We use surface mount,
pin-through hole and press fit technologies in backpanel assembly. We also
assemble higher-level sub-systems and full systems incorporating printed circuit
boards and complex electromechanical components. We manufacture on a turnkey
basis, directly procuring some or all of the components necessary for
production.
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.
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QUALITY STANDARDS
All of our manufacturing facilities are certified under ISO 9002, a set of
standards published by the International Organization of Standardization and
used to document, implement and demonstrate quality management and assurance
systems in design and manufacturing. As part of the ISO 9002 certification
process, we developed a quality systems manual and an internal system of quality
controls and audits. Although ISO 9002 certification is of particular importance
to the companies doing business in the European Community, we believe that
United States electronics manufacturers are increasing their use of ISO 9002
registration as a criteria for suppliers.
In addition to ISO 9002 certification, we are BellCore, British Approval
Board for Telecommunications, or BABT, and Underwriters Laboratories, or UL,
compliant. These qualifications establish standards for quality, manufacturing
process control and manufacturing documentation and are required by many OEMs in
the electronics industry.
TECHNOLOGY DEVELOPMENT
Our close involvement with our customers at the early stages of their
product development cycles positions us at the leading edge of technical
innovation in the manufacturing of backpanel assemblies and printed circuit
boards. We selectively seek orders that require the use of state-of-the-art
manufacturing techniques or materials in order to further develop our
manufacturing expertise. We work closely with our customers and suppliers to
provide industry-leading solutions. Current areas of manufacturing process
development include reducing circuit widths and hole sizes, establishing new
standards for particle contamination and developing new manufacturing processes
for use with new materials and new surface mount connector and component
designs.
Recent developments in the electronics industry have necessitated
improvements in the types of laminate used in the manufacture of interconnect
products. New laminate materials may contain new chemical formulations to
achieve better control of flow, resin systems with high glass transition
temperatures, reduced surface imperfections and greatly improved dimensional
stability. Future generations of interconnect products will require ultra fine
lines, multi-layers of much greater complexity and thickness and extremely small
holes in the range of 4 to 10 one-thousandths of an inch. The materials designed
to meet these requirements, such as BT epoxy, cyanate esters, polyamide quartz
and Kevlar epoxy, are beginning to appear in the marketplace. Widespread
commercial use of these materials will depend upon statistical process control
and improved manufacturing procedures to achieve the required yields and
quality.
We have developed expertise and techniques that we use in the manufacture
of printed circuit boards, backpanels and subsystems. We believe many of the
manufacturing processes related to the manufacture of printed circuit boards are
proprietary, including our ability to manufacture large perimeter, thick high
layer count backpanels. Generally, we rely on common law trade secret protection
and on confidentiality agreements with our employees to protect our expertise
and techniques. We own 13 and license 14 patents and believe that patents have
not historically constituted a significant form of intellectual property right
in our industry. Six patents expire within the next two years and the remainder
expire over the next 15 years. The expiration of any of these patents is not
expected to have a material adverse effect on our ability to operate.
SUPPLIER RELATIONSHIPS
We order materials and components based on purchase orders received and
accepted and seek to minimize our inventory of materials or components that are
not identified for use in filling specific orders. Materials and components we
use are readily available in the open market and to date we have not experienced
any significant shortages of those materials. We work with our suppliers to
develop just-in-time supply systems which reduce inventory carrying costs. We
also maintain a supplier certification program which evaluates potential vendors
on the basis of such factors as quality, on-time delivery, costs, technical
capability, and potential technical advancement.
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COMPETITION
Significant competitive factors in the electronics manufacturing services,
or EMS, industry include product quality, responsiveness to customers,
manufacturing and engineering technology and price. We believe that competition
in the market segments served by us is based more on product quality and
responsive customer service and support than on price, in part because the cost
of interconnect products manufactured by us is usually low relative to the total
cost of the equipment and the greater importance of product reliability and
prompt delivery to our customers. We believe that our primary competitive
strengths are our ability to provide responsive, flexible, short lead-time
manufacturing services, our engineering and manufacturing expertise and our
customer service support.
We believe that our breadth of service offering in the electronics
manufacturing services industry compares favorably to that of the other leading
EMS providers. The acquisition of the wire harness business of International
Wire, the networks components and services business of Marconi Communications
and Top Line Electronics Corporation allowed us to increase our service
offerings, while the March transfer of the operations formerly conducted by
Interconnection Systems Limited, Forward Group, Zincocelere and Viasystems
Sweden did not affect our ability to provide a full range of services to
original equipment manufacturers.
We face intense competition from a number of established competitors in our
various product markets. We also face competition from OEMs who perform EMS
services internally. We have competitors that have greater financial and
manufacturing resources than we do, including significantly greater printed
circuit board assembly capacity. During periods of recession, our competitive
advantages may be of reduced importance.
In addition, captive interconnect product manufacturers may seek orders in
the open market to fill excess capacity, thereby increasing price competition.
Although we generally do not pursue high-volume, highly price sensitive
interconnect product business, we may be at a competitive disadvantage with
respect to price when compared to manufacturers with lower cost structures,
particularly those manufacturers with offshore facilities where labor and other
costs are lower.
INTERNATIONAL OPERATIONS
Approximately 59.3% and 65.0% of our pro forma sales for the year ended
December 31, 1999 and six months ended June 30, 2000, respectively, originated
outside of the United States. As of June 30, 2000, we had 19 manufacturing
facilities in the United Kingdom, Canada, Mexico, Italy, Denmark, the
Netherlands and China, and sales offices throughout Europe. We believe that our
global presence is important as it allows us to provide consistent, quality
products on a timely basis to our multinational customers worldwide.
We are subject to risks generally associated with international operations,
including price and exchange controls and other restrictive actions. In
addition, fluctuations in currency exchange rates may affect our results of
operations.
BACKLOG
We estimate that our pro forma backlog of unfilled orders on December 31,
1999 and June 30, 2000 was approximately $139.6 million and $267.7 million,
respectively. The increase in backlog in 2000 was due to increased demand from
our OEM customers for our printed circuit boards manufactured in Richmond and
Canada as well as increases due to our March 2000 acquisition of Marconi's
network components and services and our June 2000 acquisition of Top Line
Electronics Corporation. Unfilled orders may be cancelled prior to delivery.
Historically, those cancellations have not been material. The backlog
outstanding at any point in time is not necessarily indicative of the level of
business to be expected in the ensuing period.
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
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<PAGE> 61
environmental laws and the costs of compliance with such current or proposed
environmental laws and regulations will not have a material adverse effect on
us. Further, we are not a party to any claim or proceeding and we are not aware
of any threatened claim or proceeding under environmental laws that could, if
adversely decided, reasonably be expected to have a material adverse effect on
us. Currently, remediation of contamination is being undertaken at our
facilities in Virginia and Puerto Rico. While the cost of the remediation could
be material, the prior owners are conducting the requisite remedial actions and
have agreed to indemnify us for costs associated with the remediations. We
believe that the prior owners of those facilities are fully capable of
performing and will perform under such agreements. Accordingly, we do not
believe that any of these matters are reasonably likely to have a material
adverse effect on our business, results of operations, financial condition,
prospects and ability to service debt.
EMPLOYEES
As of June 30, 2000, we had approximately 23,200 employees. Of these
employees, approximately 20,400 were involved in manufacturing, 1,600 worked in
engineering, 250 worked in sales and marketing, and 950 worked in accounting and
administrative capacities. Approximately 1,550 employees, or about 7%, 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 June 30,
2000, we operate 29 principal manufacturing and research facilities located in
eight different countries with a total area of approximately 5,365,000 square
feet. We believe our plants and equipment include state-of-the-art technology
and are well maintained. Our principal circuit board manufacturing facilities
are operating at or near capacity.
Some of our owned facilities are subject to mortgages under our 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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<PAGE> 62
Our facilities at June 30, 2000, 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 Rico.............. 199,000 Leased(3) Printed circuit board fabrication
Columbus, Ohio....................... 35,000 Leased(4) Full system assembly
Milford, Massachusetts............... 125,000 Leased(5) Full system assembly
San Jose, California................. 60,000 Owned Full system assembly
San Jose, California................. 40,000 Leased Full system assembly
Spartanburg, South Carolina.......... 30,000 * Manufacture of thermal management
systems
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
Terni, Italy......................... 193,000 Owned Custom metal enclosure
fabrication and full systems
assembly
Ballynahinch, Northern Ireland....... 73,000 Owned Wire harness and cable assembly,
power supplies and printed
circuit board fabrication
Coventry, England.................... 180,000 Leased(9) Custom metal enclosure
fabrication and full systems
assembly
Skive, Denmark....................... 142,000 * Manufacture of thermal management
systems
ASIA
Guangzhou, China..................... 1,665,000 Owned Printed circuit board fabrication
Nantong, China....................... 17,000 Leased(10) Backpanel assembly
Zhongshan, China..................... 260,000 Owned Printed circuit board fabrication
Guangzhou, China..................... 130,000 Owned Laminate products
Shanghai, China...................... 73,000 Leased(11) Custom metal enclosure
fabrication and full system
assembly
Beijing, China....................... 25,000 Leased(12) Custom metal enclosure
fabrication
</TABLE>
------------
* Operated under a joint venture.
(1) Lease expires November 12, 2000.
(2) Lease expires March 31, 2002.
(3) Lease expires December 31, 2002.
(4) Lease expires February 1, 2002.
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(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) Leases expire beginning March 2002.
(10) Lease is month to month.
(11) Lease is month to month subject to three months notice.
(12) Lease expires April 19, 2002.
In addition to the facilities listed above, at June 30, 2000 we maintained
several sales and marketing facilities located throughout North America, Europe
and Asia, 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
course of our business. Based on experience with similar claims and litigation,
we do not anticipate that these matters will have a material adverse effect on
our business, results of operations, financial condition, prospects or ability
to service debt.
We anticipate that we may, from time to time, receive notifications
alleging infringements of patents generally held by other manufacturers.
Disputes over patent infringement are common in the electronics industry and
typically begin with notices of the type described above. Although the ultimate
resolution of the legal action and infringement notices described above cannot
be predicted, we believe that the resolution, including any ultimate liability,
will not have a material adverse effect on our business, results of operations,
financial condition, prospects or ability to service debt. We are not currently
involved in any patent infringement disputes and have not received any notices
alleging infringement of patents, the unfavorable resolution of which we believe
would be material.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and positions of our directors and executive
officers. All directors hold office until our next annual meeting of
stockholders and until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
James N. Mills........... 63 Chairman of the Board and Chief Executive Officer
Thomas O. Hicks.......... 54 Director
Jack D. Furst............ 41 Director
Richard W. Vieser........ 72 Director
Kenneth F. Yontz......... 56 Director
Thomas H. O'Brien........ 63 Director
Alex J. Mandl............ 55 Director
Timothy L. Conlon........ 48 President, Chief Operating Officer and Director
David M. Sindelar........ 43 Senior Vice President and Chief Financial Officer
Barry L. Brigman......... 53 President -- Viasystems Americas
Steven S.L. Tang......... 44 President -- Viasystems Asia
James G. Powers.......... 39 Executive Vice President -- Business Development
Dominic J. Pileggi....... 48 Executive Vice President -- Sales and Marketing
Joseph S. Catanzaro...... 48 Senior Vice President -- Finance
Jeffrey A. Bloch......... 42 Vice President -- Global Supply Management
</TABLE>
Our certificate of incorporation provides that our board of directors is
divided into three classes. Messrs. O'Brien, Vieser and Yontz serve as Class I
directors, with terms expiring at the 2001 annual meeting of stockholders;
Messrs. Conlon, Mandl and Furst serve as Class II directors, with terms expiring
at the 2002 annual meeting of stockholders; and Messrs. Hicks and Mills serve as
Class III directors, with terms expiring at the 2003 annual meeting of
stockholders. At each annual meeting of stockholders thereafter, directors in
the class to be elected at the meeting will be elected to three-year terms to
succeed those directors whose terms are expiring. These procedures could have
the effect of discouraging opposition to candidates nominated by management and
could provide management with a greater opportunity to oppose stockholder
nominees or proposals should they choose to do so. For a discussion of other
charter and bylaw provisions that could have the effect of delaying a change of
control, see "Description of Capital Stock -- Special Provisions in Our Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws."
In January 2000, the board of directors established an Audit Committee
comprised of Messrs. Vieser and Yontz, a Compensation Committee comprised of
Messrs. Hicks, Mills, Vieser and Yontz, and an Independent Compensation
Committee comprised of Messrs. Vieser and Yontz. In May 2000, Mr. O'Brien was
also appointed to serve on the Audit Committee.
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
Dallas-based private investment firm. Mr. Hicks serves as a director of Clear
Channel Communications, Inc.,
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Sybron International Corporation, Home Interiors & Gifts, 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 Triton Energy Limited, Home Interiors &
Gifts, Inc., Hedstrom Holdings, Inc., International Wire Holding Company,
Cooperative Computing, Inc., LLS Corp. and Globix Corporation.
Richard W. Vieser has been a director of Viasystems since January 1997. Mr.
Vieser is the retired Chairman of the Board, Chief Executive Officer and
President of Lear Siegler, Inc. (a diversified manufacturing company), the
former Chairman of the Board and Chief Executive Officer of FL Industries, Inc.
and FL Aerospace (also diversified manufacturing companies) and the former
President and Chief Operating Officer of McGraw-Edison Co. He is the Chairman of
the Board of Varian Medical Systems and is also a director of Harvard
Industries, Inc., International Wire Holding Company and Sybron International
Corporation.
Kenneth F. Yontz has been a director of Viasystems since January 1997. Mr.
Yontz is the Chairman, President and Chief Executive Officer of Sybron
International Corporation, a manufacturer and marketer of laboratory apparatus
products, dental sundry supplies and orthodontic appliances. Mr. Yontz is also a
director of Playtex Products, Inc. Prior to joining Sybron, Mr. Yontz was Group
Vice President and Executive Vice President of the Allen-Bradley Company. Mr.
Yontz also held various managerial and professional positions with Chemetron
from 1974 to 1980 and at Ford Motor Company from 1966 to 1974.
Thomas H. O'Brien has been a director of Viasystems since May 2000. Mr.
O'Brien is chairman of The PNC Financial Services Group, Inc. and PNC Bank,
National Association and a member of PNC's Office of the Chairman. Mr. O'Brien
was appointed to the board of directors and elected vice chairman of PNC in
1983, president and chief executive officer in 1985 and chairman in June 1988.
Prior to his election as president and chief executive officer in 1985, he was
chairman and chief executive officer of Pittsburgh National Bank (predecessor of
PNC Bank). He joined Pittsburgh National Bank in 1962, was elected vice
president in 1967, senior vice president in 1973, executive vice president in
1980, vice chairman of PNC Bank in 1983 and chairman of PNC Bank in 1993. Mr.
O'Brien is also a director of Verizon Wireless, BlackRock, Inc., US Airways
Group, Inc. and Hilb, Rogal & Hamilton Co.
Alex J. Mandl has been a director of Viasystems since May 2000. Mr. Mandl
has been Chairman and Chief Executive Officer of Teligent since September 1996.
Prior to joining Teligent, Mr. Mandl served as President and Chief Operating
Officer of AT&T and Executive Vice President of AT&T and CEO of AT&T's
Communications Services Group from 1993 to 1995. As President and Chief
Operating Officer, Mr. Mandl oversaw AT&T's operations including its
long-distance, wireless and local communications services, in addition to its
credit card and Internet businesses. As Chief Financial Officer of AT&T from
1991 to 1993, Mr. Mandl directed AT&T's financial strategy, policy and
operations, and managed the acquisition of McCaw Cellular Communications, Inc.
Earlier, Mr. Mandl served as Chairman and CEO of Sea-Land Services, Inc., an
ocean transportation and distribution services company. Mr. Mandl also serves on
the boards of the Warner-Lambert Company, Dell Computer Corporation, Forstmann
Little & Co. and General Instrument Corp.
Timothy L. Conlon has been a director, President and Chief Operating
Officer of Viasystems since October 1998. Prior to joining Viasystems, Mr.
Conlon was employed as President and Chief Operating Officer of Berg Electronics
Corp. from January 1997 through October 1998. Mr. Conlon also served as
Executive Vice President and Chief Operating Officer of Berg Electronics Group,
Inc., a wholly owned
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subsidiary of Berg Electronics Corp., from October 1993 through January 1997.
Prior to joining Berg Electronics Group, Inc., Mr. Conlon was employed as
President of the Cutting and Welding Division of Thermadyne Industries, Inc.
from April 1993 through October 1993. Prior to joining Thermadyne Industries,
Inc., Mr. Conlon spent nine years in the electronic connector industry including
serving as General Manager of the Information Technologies and Spectra strip
divisions of Amphenol Corporation from 1990 through July 1992 and President of
Cambridge Products from 1988 through 1989.
David M. Sindelar has been a Senior Vice President of Viasystems since
January 1997 and Chief Financial Officer of Viasystems since its inception. Mr.
Sindelar is also President and Chief Operating Officer of Mills & Partners. Mr.
Sindelar also serves as Senior Vice President and Chief Financial Officer of
International Wire Holding Company and LLS Corp. Mr. Sindelar was Senior Vice
President and Chief Financial Officer of Berg Electronics Corp. from March 1993
through October 1998 and of Crain Industries, Inc. and Crain Holdings Corp. from
August 1995 through December 1997 and of Jackson Holding Company from February
1993 through August 1995. Mr. Sindelar is a director of LLS Corp.
Barry L. Brigman joined Viasystems in January 1997 as President of
Viasystems Americas and is currently responsible for the overall operations of
Viasystems' facilities on the continent of North America. Prior to Viasystems,
Brigman was Senior Vice President and General Manager of Berg Electronics from
March 1993. Prior to 1993, Mr. Brigman held various management positions within
the fibers, medical and electronics groups of E.I. DuPont Company.
Steven S.L. Tang joined Viasystems in July 1999 as President -- Viasystems
Asia. Prior to coming to Viasystems, Mr. Tang served as a Managing Director for
the Asian division of Utilix Asia Limited, an Australian connector manufacturing
company, from 1995 to July 1999. Prior to 1995, Mr. Tang held various positions,
all in Asia, with companies such as Amphenol, Pace Inc., National Semiconductor
and Honeywell. Mr. Tang is a director of China Gateway Holdings, Inc.
James G. Powers has been a Vice President of Viasystems since January 1997,
serving as Executive Vice President -- Business Development since April 2000, as
Executive Vice President -- Operations from June 1999 to April 2000, and as
Senior Vice President -- Finance from January 1997 until June 1999. Prior to
joining Viasystems, Mr. Powers served as Vice President -- Finance of Crain
Industries, Inc. He also held various positions at Berg Electronics Corp.,
including Vice President -- Controller, from June 1993 to August 1995.
Previously, Mr. Powers was Controller of Moog Automotive, Inc. from 1991 through
1993 and was employed by Arthur Andersen & Co. from 1983 to 1991.
Dominic J. Pileggi joined Viasystems in July 1998 as Executive Vice
President of Sales and Marketing. Mr. Pileggi is responsible for the global
marketing and sales organization of Viasystems. Mr. Pileggi has more than 20
years experience in global business operations, most recently serving as
President and Chief Executive Officer of Jordan Telecommunications Products, a
division of Jordan Industries, Inc. Mr. Pileggi was also president of the
electronics division and electrical division of Thomas & Betts.
Joseph S. Catanzaro was named Senior Vice President -- Finance of
Viasystems in June 1999. Mr. Catanzaro joined Viasystems in October 1998 in the
position of Vice President of Business Services, and continues to manage that
department along with his global financial responsibilities. Prior to joining
Viasystems, Mr. Catanzaro was Vice President of Finance at Berg Electronics from
April 1993 to October 1998.
Jeffrey A. Bloch joined Viasystems in April 1999 as Vice President of
Global Supply Management and is responsible for the company's global supply
chain and materials management. Mr. Bloch has more than 15 years experience in
global materials management, including key positions with Solectron and Intel.
From May 1997 until March 1999, Mr. Bloch was Vice President of Worldwide
Materials at GET Manufacturing and prior to that time, from April 1995 until
March 1997, Mr. Bloch served as Director, Corporate Procurement, at Cirrus
Logic.
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COMPENSATION OF DIRECTORS
Directors who are officers or employees of Viasystems receive no
compensation for their services as directors. Each director of Viasystems who is
not also an officer or employee of Viasystems receives an annual retainer of
$36,000 and a fee of $1,000 for each meeting of the board of directors at which
the director is present. Each non-employee director also receives a one-time
grant of options to purchase 25,000 shares of our common stock. 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.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation earned
during the fiscal years ended December 31, 1997, 1998 and 1999 by the Chief
Executive Officer and the four other most highly compensated executive officers
of Viasystems.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
YEAR SALARY BONUS(2) OPTIONS(3) COMPENSATION
---- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James N. Mills, Chairman of the Board
and Chief Executive Officer.......... 1999 $685,000 $445,250 453,665(4) --
1998 685,000 342,500 133,886(4) --
1997 395,000 550,000 355,398(4) --
Timothy L. Conlon, President and Chief
Operating Officer.................... 1999 425,000 325,000 -- --
1998 88,542 34,815 -- $537,374(5)
1997 -- -- -- --
Barry Brigman, President -- Viasystems
Americas............................. 1999 341,300 205,000 125,000 --
1998 325,000 105,600 -- 155,369(6)
1997 310,000 201,500 125,000 66,285(6)
David M. Sindelar, Senior Vice
President and Chief Financial
Officer.............................. 1999 300,000 250,000 306,332(4) --
1998 230,000 92,000 80,833(4) --
1997 168,200 150,000 219,750(4) --
Dominic J. Pileggi, Executive Vice
President -- Sales and Marketing..... 1999 331,875 125,000 125,000 --
1998 189,583(7) 126,750 125,000 116,997(8)
</TABLE>
------------
(1) We provide a car allowance, reimbursement of club memberships and other
benefits to some executives. The aggregate incremental costs of these
benefits to us do not exceed the lesser of either $50,000 or 10% of the
total of annual salary and bonus reported for each executive.
(2) Bonuses were paid in 1998 for 1997, in 1999 for 1998 and in 2000 for 1999.
(3) Options were granted under the Viasystems Group, Inc. 1997 Stock Option
Plan, pursuant to which incentive and non-qualified stock options may be
issued to Viasystems' or its subsidiaries' officers, key employees and
directors.
(4) Reflects performance options granted by Viasystems. See "Benefit
Plans -- Performance Options."
(5) Reflects amounts paid to Mr. Conlon to partially compensate him for his
voluntary termination of his employment contract with Berg Electronics Corp.
and forego compensation otherwise payable to him thereunder.
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(6) Mr. Brigman received compensation in the form of reimbursement of relocation
expenses during 1997 and 1998.
(7) Mr. Pileggi commenced employment with Viasystems on June 1, 1998.
(8) Reflects relocation expenses paid to Mr. Pileggi in connection with his
relocation to St. Louis, Missouri.
The following table summarizes option grants made with respect to
Viasystems' common stock during fiscal year 1999 to the executive officers named
above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED EXERCISE FOR OPTION TERM(2)
UNDERLYING TO EMPLOYEES PRICE ---------------------------
OPTIONS(#) IN FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
---------- -------------- --------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills(1).... 453,665 18.1% $9.00 8/5/09 $ --(3) $ --(3)
Timothy L. Conlon.... -- N/A N/A N/A N/A N/A
Barry L. Brigman..... 125,000 5.0 $7.32 9/1/09 $2,478,750 $4,242,500
David M.
Sindelar(1)........ 306,332 12.2 $9.00 8/5/09 --(3) --(3)
Dominic J. Pileggi... 125,000 5.0 $7.32 9/1/09 $2,478,750 $4,242,500
</TABLE>
------------
(1) Reflects performance options granted by Viasystems. See "Benefit
Plans -- Performance Options."
(2) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the option immediately
prior to the expiration of its term, assuming the specified compound rules
of appreciation of common stock over the term of the options. Actual gains
on the exercise of the options are dependent on the future performance of
the common stock. There can be no assurance that the potential values
reflected in this table will be achieved. All amounts have been rounded to
the nearest whole dollar.
(3) The terms of the performance options held by Mr. Mills and Mr. Sindelar
would not have been exercisable based upon annual rates of stock
appreciation of 5% or 10% at the end of the last fiscal year. Pursuant to
the amended terms of the performance options, the potential realizable value
of Mr. Mills' and Mr. Sindelar's amended performance options for an assumed
rate of stock price appreciation term of 5% and 10% would be $8,234,019 and
$14,635,232 for Mr. Mills, respectively, and $5,559,925 and $9,882,270 for
Mr. Sindelar, respectively.
The following table summarizes the number of options exercised during the
fiscal year ended December 31, 1999 for the above named executive officers and
the value of unexercised options as of December 31, 1999:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END(1)
------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
James N. Mills............................ --/1,099,018 --/--(2)
Timothy L. Conlon......................... --/-- --/--
Barry L. Brigman.......................... 50,000/200,000 $575,000/$2,389,500
David M. Sindelar......................... --/737,257 --/--(2)
Dominic J. Pileggi........................ 25,000/225,000 $254,500/$2,290,500
</TABLE>
------------
(1) Represents the difference between $17.50 per share, the fair market value
per share on December 31, 1999, and the exercise price per share of the
options.
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(2) At fiscal year end, the value of performance options could not be calculated
due to exercisability restrictions and variable exercise prices. As a result
of the amendments to the performance options in March 2000, those
restrictions were eliminated and the exercise price fixed at $9.00 per
share. As a result, the value of Mr. Mills' and Mr. Sindelar's performance
options at fiscal year end would have been $9,341,653 and $6,266,684,
respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, compensation decisions were made by the entire board of
directors. Each of James N. Mills and Timothy L. Conlon served as both an
executive officer and a director during 1999. Messrs. Mills and Conlon
participated in deliberations of the board of directors concerning compensation
of executive officers. As of January 2000, compensation decisions are made by
the compensation committee of the board of directors. Mr. Mills serves as a
member of the compensation committee.
EMPLOYMENT AGREEMENTS
James N. Mills Executive Employment Agreement. Mr. James N. Mills entered
into an amended and restated executive employment agreement with Viasystems and
some of its subsidiaries as of February 16, 2000. Pursuant to his employment
agreement, Mr. Mills will serve as the Chairman of the board of directors and
Chief Executive Officer of Viasystems through March 31, 2005, unless terminated
earlier by Viasystems or Mr. Mills. Mr. Mills is required to devote the amount
of time reasonably necessary to faithfully and adequately supervise the overall
executive management of Viasystems and its subsidiaries, both direct and
indirect. Subject to the foregoing limitation on his activities, Mr. Mills is
free to participate in other endeavors.
The compensation provided to Mr. Mills under his executive employment
agreement includes an annual base salary of not less than $685,000, subject to
upward adjustment at the sole discretion of the board of directors of
Viasystems, as well as those benefits customarily accorded the executives of
Viasystems as long as the executive employment agreement is in force. In
addition, Mr. Mills is entitled to an annual bonus in an amount determined in
accordance with our incentive compensation plan for senior executives and
reimbursement for expenses to own and maintain an automobile.
Mr. Mills' executive employment agreement also provides that if Mr. Mills'
employment is terminated without cause, Mr. Mills will continue to receive his
then current salary, which shall not be less than $685,000, for the longer of
the remainder of the period the executive employment agreement is in force or a
period of one year following such termination. The executive employment
agreement terminates upon Mr. Mills' death or his inability to perform his
duties due to mental or physical incapacity for six consecutive months or any
one hundred working days out of a twelve month period, and no further
compensation shall be payable except that he or his estate, heirs or
beneficiaries, as applicable, shall receive his then current salary for a period
of 18 months, in addition to benefits otherwise specifically provided for. The
agreement also provides medical benefits for Mr. Mills' and his spouse's
lifetime.
Timothy L. Conlon Executive Employment Agreement. Mr. Timothy L. Conlon
entered into an amended and restated executive employment agreement with
Viasystems and some of its subsidiaries as of February 16, 2000. Pursuant to his
employment agreement, Mr. Conlon will serve as the President and Chief Operating
Officer of Viasystems through March 31, 2005, unless terminated earlier by
Viasystems or Mr. Conlon. Mr. Conlon is required to devote the amount of time
reasonably necessary to faithfully and adequately supervise the overall
financial management of Viasystems and its subsidiaries, both direct and
indirect.
The compensation provided to Mr. Conlon under his executive employment
agreement includes an annual base salary of not less than $500,000, subject to
upward adjustment at the sole discretion of the Chairman of the board of
directors of Viasystems, as well as those benefits customarily accorded the
executives of Viasystems as long as the executive employment agreement is in
force. In addition, Mr. Conlon is entitled to an annual bonus in an amount
determined in accordance with our incentive compensation plan for senior
executives and reimbursement for expenses to own and maintain an automobile.
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Mr. Conlon's executive employment agreement also provides that if Mr.
Conlon's employment is terminated without cause, Mr. Conlon will continue to
receive his then current salary, which shall not be less than $500,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon Mr. Conlon's death or his inability to
perform his duties due to mental or physical incapacity for six consecutive
months or any one hundred working days out of a twelve month period, and no
further compensation shall be payable except that he or his estate, heirs or
beneficiaries, as applicable, shall receive his then current salary for a period
of 18 months, in addition to benefits otherwise specifically provided for. The
agreement also provides medical benefits for Mr. Conlon's and his spouse's
lifetime.
David M. Sindelar Executive Employment Agreement. Mr. David M. Sindelar
entered into an amended and restated executive employment agreement with
Viasystems and some of its subsidiaries as of February 16, 2000. Pursuant to his
employment agreement, Mr. Sindelar will serve as the Senior Vice President and
Chief Financial Officer of Viasystems through March 31, 2005, unless terminated
earlier by Viasystems or Mr. Sindelar. Mr. Sindelar is required to devote the
amount of time reasonably necessary to faithfully and adequately supervise the
overall financial management of Viasystems and its subsidiaries, both direct and
indirect. Subject to the foregoing limitation on his activities, Mr. Sindelar is
free to participate in other business endeavors.
The compensation provided to Mr. Sindelar under his executive employment
agreement includes an annual base salary of not less than $300,000, subject to
upward adjustment at the sole discretion of the Chairman of the board of
directors of Viasystems, as well as those benefits customarily accorded the
executives of Viasystems as long as the executive employment agreement is in
force. In addition, Mr. Sindelar is entitled to an annual bonus in an amount
determined in accordance with our incentive compensation plan for senior
executives and reimbursement for expenses to own and maintain an automobile.
Mr. Sindelar's executive employment agreement also provides that if Mr.
Sindelar's employment is terminated without cause, Mr. Sindelar will continue to
receive his then current salary, which shall not be less than $300,000, for the
longer of the remainder of the period the executive employment agreement is in
force or a period of one year following such termination. The executive
employment agreement terminates upon Mr. Sindelar's death or his inability to
perform his duties due to mental or physical incapacity for six consecutive
months or any one hundred working days out of a twelve month period, and no
further compensation shall be payable except that he or his estate, heirs or
beneficiaries, as applicable, shall receive his then current salary for a period
of 18 months, in addition to benefits otherwise specifically provided for. The
agreement also provides medical benefits for his and his spouse's lifetime.
BENEFIT PLANS
STOCK OPTION PLAN
Viasystems has adopted the Viasystems Group, Inc. 1997 Stock Option Plan
pursuant to which incentive and non-qualified stock options, stock appreciation
rights, stock awards, performance awards and stock units may be issued to
employees of Viasystems and any parent or subsidiary corporation designated by
the board of directors of Viasystems. A total of 4,404,613 shares of Viasystems
common stock are issuable under the 1997 Stock Option Plan. As of September 25,
2000, options to purchase an aggregate of 3,033,872 shares of common stock
subject to the terms and conditions of the stock option plan are outstanding.
The stock option plan provides that it is to be administered by a committee
of the board of directors of Viasystems or a subcommittee of that committee. The
committee has the authority to grant to any participant one or more stock
options, and to establish the terms and conditions of the options, subject to
limitations specified in the stock option plan. For example, the per-share
exercise price of each option must not be less than 100% of the fair market
value of the Viasystems common stock on the date the option is granted, and no
option may be exercisable later than ten years after the date of grant. In the
event that any person other than Hicks, Muse, Tate & Furst Equity Fund III, L.P.
and/or Mills & Partners Inc. becomes the owner of a majority of the voting power
of the company or a majority of the board consists of directors who were not
directors at the time the plan was adopted or were not nominated or elected by
those directors, the committee,
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<PAGE> 71
in its discretion, may take those actions it deems appropriate with respect to
outstanding awards, including, without limitation, accelerating the
exercisability or vesting of those awards.
Viasystems' stock option plan became effective as of February 4, 1997 and
was subsequently amended to increase the number of shares eligible for grant
under the stock option plan. The stock option plan, as amended, will terminate
on February 4, 2007, unless sooner terminated by the committee.
PERFORMANCE OPTIONS
In addition to the options granted under the stock option plan, Viasystems
has granted performance options to purchase an aggregate of 2,802,897 shares of
common stock to officers of Viasystems also affiliated with Mills & Partners. In
connection with the initial public offering in March 2000, the outstanding
performance options were amended to eliminate the exercisability restrictions
and variable exercise price features. The amended performance options have a
fixed exercise price of $9.00 per share and are immediately exercisable. As a
result of the amendments, we incurred a one-time charge of $33.6 million in
non-cash compensation expense in the first quarter of fiscal year 2000.
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<PAGE> 72
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 25, 2000, information
regarding the beneficial ownership of our common stock by each person who
beneficially owned more than 5% of any class of our voting securities and by our
directors and named executive officers, individually, and by our directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NUMBER OF OWNED
SHARES -------------------
BENEFICIALLY BEFORE AFTER
OWNED(1) OFFERING OFFERING
------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
HM Parties(2)............................................. 77,326,449 57.7% 51.2%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
OFFICERS AND DIRECTORS:
James N. Mills(3)......................................... 11,391,224 8.4 7.5
Thomas O. Hicks(4)........................................ 78,818,685 58.8 52.2
Jack D. Furst(5).......................................... 493,703 * *
Richard W. Vieser(6)...................................... 110,832 * *
Kenneth F. Yontz(7)....................................... 66,666 * *
Thomas H. O'Brien......................................... -- -- --
Alex J. Mandl............................................. -- -- --
Timothy L. Conlon(8)...................................... 2,014,106 1.5 1.3
David M. Sindelar(9)...................................... 2,956,840 2.2 1.9
Barry L. Brigman(10)...................................... 52,500 * *
Dominic J. Pileggi(11).................................... 25,000 * *
All executive officers and directors as a group (15
persons)(12)........................................... 91,553,344 66.0 58.8
</TABLE>
------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock and
options, warrants or other convertible securities that are currently
exercisable or exercisable within 60 days of September 25, 2000 are deemed
to be outstanding and to be beneficially owned by the person holding those
options, warrants or other convertible securities for the purpose of
computing the percentage ownership of that person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) These figures include:
- 47,843,495 shares held of record by Hicks, Muse, Tate & Furst Equity Fund
III, L.P., a limited partnership, of which the ultimate general partner
is Hicks, Muse Fund III Incorporated, an affiliate of Hicks, Muse, Tate &
Furst Incorporated;
- 636,715 shares held of record by HM3 Coinvestors, L.P., a limited
partnership of which the ultimate general partner is Hicks, Muse Fund III
Incorporated;
- 416,708 shares held of record by HMTF/Viasystems Partners, L.P., a
limited partnership controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated; and
- 27,322,404 shares held of record by HMTF/Viasystems Investments, LLC, a
limited liability company controlled by affiliates of Hicks, Muse, Tate &
Furst Incorporated and in which an affiliate of Chase Securities Inc.,
one of the underwriters, holds an approximate 25% membership interest,
and an affiliate of Deutsche Bank Securities Inc., one of the
underwriters, holds a 5% membership interest.
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In addition, these figures include 234,740 shares of common stock
issuable upon exercise of options held by Hicks, Muse & Co. Partners, L.P.,
a limited partnership controlled by affiliates of Hicks, Muse, Tate & Furst
Incorporated, and partners of Hicks Muse and 872,387 shares of common stock
owned of record by other stockholders and for which Hicks, Muse, Tate &
Furst Equity Fund III, L.P. holds an irrevocable proxy to vote the shares.
An aggregate of 133,332 shares of common stock shown in the table above as
owned by Messrs. Vieser and Yontz are subject to this proxy.
Thomas O. Hicks is the controlling stockholder of the general partner
of each of Hicks, Muse, Tate & Furst Equity Fund III, L.P., HM3
Coinvestors, L.P., HMTF/Viasystems Partners, L.P. and Hicks, Muse & Co.
Partners, L.P. and the Manager of HMTF/Viasystems Investments, LLC and,
accordingly, may be deemed to beneficially own all or a portion of the
shares held by those entities. See note 4 below. Mr. Hicks disclaims
beneficial ownership of common stock not owned of record by him.
(3) These figures include:
- 3,154,906 shares of common stock held by a limited partnership controlled
by Mr. Mills;
- 1,099,018 shares of common stock issuable upon exercise of amended
performance options that will be exercisable upon the effective date of
the amendments; and
- 7,093,967 shares of common stock owned of record by other stockholders
and for which Mr. Mills holds an irrevocable proxy to vote the shares,
which includes an aggregate of 4,218,689 shares of common stock shown in
the table above as owned by Messrs. Sindelar and Conlon.
(4) These figures include:
- 904,514 shares held of record by Mr. Hicks;
- 46,180 shares held of record by Mr. Hicks as trustee of certain trusts
for the benefit of his children;
- 15,674 shares held of record by a limited partnership whose general
partner is a limited liability company whose sole member is Mr. Hicks;
- 76,219,322 shares of common stock held of record by Hicks, Muse, Tate &
Furst Equity Fund III, L.P., HM3 Coinvestors, L.P., HMTF/Viasystems
Partners, L.P. and HMTF/Viasystems Investments, LLC;
- 234,740 shares of common stock issuable upon exercise of an option held
by Hicks, Muse & Co. Partners, L.P.; and
- 872,387 shares of common stock owned of record by other stockholders and
for which Hicks, Muse, Tate & Furst Equity Fund III, L.P. holds an
irrevocable proxy to vote the shares.
Mr. Hicks is the controlling stockholder of the general partner of each of
Hicks, Muse, Tate & Furst Equity Fund III, L.P., HM3 Coinvestors, L.P.,
HMTF/Viasystems Partners, L.P. and Hicks, Muse & Co. Partners, L.P. and the
Manager of HMTF/Viasystems Investments, LLC and, accordingly, may be deemed
to beneficially own all or a portion of the shares held by those entities.
Mr. Hicks disclaims beneficial ownership of common stock not owned of
record by him.
These figures also include 525,868 shares of common stock issuable upon the
exercise of an option held by Mr. Hicks that is currently exercisable.
(5) These figures include 331,180 shares of common stock issuable upon the
exercise of an option held by Mr. Furst that is currently exercisable.
(6) These figures include 16,666 shares of common stock issuable upon the
exercise of options that are currently exercisable.
(7) These figures include 33,333 shares of common stock owned of record by the
Kenneth F. Yontz 1996 Family Trust, a trust of which Mr. Yontz does not
have the power to vote or dispose of this stock. Mr. Yontz disclaims
beneficial ownership of common stock not owned of record by him.
(8) These figures include 1,110,000 shares of common stock owned by a family
limited partnership controlled by Mr. Conlon. Mr. Conlon disclaims
beneficial ownership of shares of common stock not owned of record by him.
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(9) These figures include:
- 120,000 shares of common stock owned of record by two children's trusts,
of which Mr. Sindelar is a trustee having the power to vote and dispose
of this stock; and
- 2,084,583 shares of common stock owned of record by The D&S Trust #2, of
which Mr. Sindelar's brother is the sole trustee. Mr. Sindelar disclaims
beneficial ownership of common stock not owned of record by him.
These figures also include 737,257 shares of common stock issuable to Mr.
Sindelar upon exercise of amended performance options that will be
exercisable upon the effective date of the amendments.
(10) Represents 52,500 shares of common stock issuable upon the exercise of
options that are exercisable within 60 days.
(11) Represents 25,000 shares of common stock issuable upon the exercise of
options that are exercisable within 60 days.
(12) Includes 196,666 shares issuable upon exercise of outstanding options
issued under Viasystems' stock option plan and to one of our directors that
are exercisable within 60 days of the date of this prospectus. Also
includes 1,836,275 shares of common stock issuable to executive officers of
Viasystems upon the exercise of amended performance options, and 1,091,788
shares of common stock issuable upon the exercise of options held by Thomas
O. Hicks, Jack D. Furst and an affiliate of Hicks, Muse, Tate & Furst
Incorporated.
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RELATED PARTY TRANSACTIONS
MONITORING AND OVERSIGHT AGREEMENT; FINANCIAL ADVISORY AGREEMENT
In 1996, Viasystems and its subsidiaries entered into a ten-year monitoring
and oversight agreement with an affiliate of Hicks, Muse, Tate & Furst
Incorporated, as amended from time to time. Under the monitoring and oversight
agreement, Viasystems and its subsidiaries are required to pay Hicks Muse an
annual fee, payable quarterly, for oversight and monitoring services to
Viasystems. The annual fee is adjustable on January 1 of each calendar year to
an amount equal to 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. For 1999, 1998 and 1997, we paid an annual fee to Hicks Muse of $1.8
million, $3.0 million and $1.7 million, respectively. Upon the acquisition by
Viasystems or any of its subsidiaries of another entity or business, the fee
shall be adjusted prospectively in the same manner using our pro forma combined
budgeted consolidated annual net sales. Hicks Muse has performed various
monitoring and oversight activities for Viasystems including providing input in
management's establishment of Viasystems' financial and strategic acquisition
plans. Hicks Muse monitors the viability and implementation of Viasystems'
strategic plan through actions such as review of monthly financial data,
management briefings and facility visits. Thomas O. Hicks and Jack D. Furst,
directors of Viasystems, are each principals of Hicks Muse. Hicks Muse is also
entitled to reimbursement for any expenses incurred by it in connection with
rendering services allocable to Viasystems under the monitoring and oversight
agreement. In addition, Viasystems and its subsidiaries have agreed to indemnify
Hicks Muse, its affiliates, and their respective directors, officers,
controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees and disbursements of counsel
related to or arising out of or in connection with the services rendered by
Hicks Muse under the monitoring and oversight agreement and not resulting
primarily from the bad faith, gross negligence, or willful misconduct of Hicks
Muse. The monitoring and oversight agreement makes available the resources of
Hicks Muse concerning a variety of financial and operational matters.
Historically, these services have been provided not only by Messrs. Hicks and
Furst, outside their scope of duties as our directors, but also from numerous
other employees of Hicks Muse.
In 1996, Viasystems and its subsidiaries also entered into a ten-year
financial advisory agreement with Hicks Muse, pursuant to which Hicks Muse is
entitled to receive a fee equal to 1.5% of the "transaction value" for each
"add-on transaction" in which Viasystems or any of its subsidiaries is involved.
In respect of acquisitions to date, Hicks Muse has received aggregate fees of
approximately $22.5 million under the financial advisory agreement. In 1999,
1998 and 1997, we paid Hicks Muse $4.7 million, $5.0 million and $10.4 million,
respectively. The term "transaction value" means the total value of the add-on
transaction including without limitation, the aggregate amount of the funds
required to complete the add-on transaction, excluding any fees payable pursuant
to the financial advisory agreement, including the amount of any indebtedness,
preferred stock or similar terms assumed (or remaining outstanding). The term
"add-on transaction" means any future proposal for a tender offer, acquisition,
sale, merger, exchange offer, recapitalization, restructuring or other similar
transaction directly involving Viasystems or any of its subsidiaries or any of
their respective subsidiaries and any other person or entity. In addition,
Viasystems and its subsidiaries have agreed to indemnify Hicks Muse, its
affiliates, and their respective directors, officers, controlling persons,
agents and employees from and against all claims, liabilities, losses, damages,
expenses and fees related to or arising out of or in connection with the
services rendered by Hicks Muse under the financial advisory agreement and not
resulting primarily from the bad faith, gross negligence, or willful misconduct
of Hicks Muse. The financial advisory agreement makes available the resources of
Hicks Muse concerning a variety of financial and operational matters.
Historically, these services have been provided not only by Messrs. Hicks and
Furst, outside their scope of duties as our directors, but also from numerous
other employees of Hicks Muse.
In March 2000, we terminated the monitoring and oversight agreement and the
financial advisory agreement. As consideration for Hicks Muse's willingness to
agree to such termination, we granted to Hicks Muse and partners of Hicks Muse
options to purchase an aggregate of 2,134,000 shares of our common stock at an
exercise price equal to $21.00 per share. The option is exercisable for three
years from the date of issue.
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The options were designed to have a present value equal to $22.8 million,
the present value of the projected amount of fee income which Hicks Muse agreed
to forego for the period through the stated expiration date of the agreements
(December 31, 2006) as a result of the termination of the agreements. The
present value of such options were calculated using the Black-Scholes option
pricing model.
STOCKHOLDERS AGREEMENT
Certain holders of common stock of Viasystems have entered into an amended
and restated stockholders agreement. The stockholders agreement, among other
things, grants registration rights to the parties thereto. All parties to the
stockholders agreement agreed to take all action within their respective power,
including the voting of common stock, to cause the board of directors of
Viasystems to at all times be constituted by the members designated by an
affiliate of Hicks, Muse, Tate & Furst Incorporated. The stockholders agreement
contains an irrevocable proxy pursuant to which all parties to the stockholders
agreement, other than James N. Mills, David M. Sindelar, Timothy L. Conlon and
the other securityholders employed by Mills & Partners and their transferees,
grant to an affiliate of Hicks Muse the power to vote all shares of common stock
held by these parties on all matters submitted to stockholders. Further, the
stockholders agreement contains an irrevocable proxy pursuant to which David M.
Sindelar, Timothy L. Conlon and the other securityholders employed by Mills &
Partners and their transferees grant to James N. Mills, or to an affiliate of
Hicks Muse if Mr. Mills is no longer an officer or director of Viasystems, the
power to vote all shares of common stock held by these parties on all matters
submitted to stockholders. The stockholders agreement terminates on its tenth
anniversary date.
WIRE HARNESS BUSINESS
In March 2000, Viasystems purchased the wire harness business of
International Wire for $210.0 million. International Wire is controlled by
affiliates of Hicks Muse which is also our controlling stockholder. Mr. James N.
Mills is Chairman of the Board and Chief Executive Officer of each of Viasystems
and International Wire. In addition Mr. David M. Sindelar is Senior Vice
President and Chief Financial Officer of both Viasystems and International Wire,
and Jack D. Furst and Richard W. Vieser are directors of both companies. At the
closing of the purchase of the wire harness business, each of the boards of
directors of Viasystems and International Wire received opinions of financial
advisors that the purchase price for the wire harness business was fair, from a
financial point of view, to the respective parties. At the closing of the
acquisition of the wire harness business, we entered into a supply agreement
with International Wire whereby International Wire continues to supply insulated
wire to us for use in the wire harness business at market prices.
TRANSFER OF PRINTED CIRCUIT BOARD FACILITIES
Concurrently with the consummation of our initial public offering in March
2000, we transferred all of the capital stock of our subsidiaries that own the
operations formerly conducted by Interconnection Systems Limited, Forward Group,
Zincocelere and Viasystems Sweden to our then existing stockholders, including
affiliates of Hicks Muse and officers and directors of Viasystems. In
consideration for the capital stock of those entities, we received subordinated
notes payable to us in the aggregate principal amount of $124.0 million. The
subordinated notes are unsecured, bear interest at 9% per year, are payable in
kind by the issuance of additional notes, and mature in 10 years. The
determination of the consideration we received for those entities was based on
business enterprise values using common appraisal methods. We originally paid
$738.0 million for the assets related to the printed circuit board facilities
being transferred. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" for an explanation of the decline in value
of these assets. Following the completion of the transfer, the transferred
businesses entered into a contract manufacturing agreement with us, whereby the
transferred businesses continue to provide manufacturing services to us from
their facilities at North Tyneside in the United Kingdom and Norrkoping, Sweden.
We also have an option to repurchase the North Tyneside and Norrkoping, Sweden
facilities for an amount equal to the net book value of the facilities.
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CHIPS HOLDING, INC.
In April 1997, our stockholders and their affiliates formed Chips Holding,
Inc. to acquire Interconnection Systems Limited. On April 21, 1997, Chips
acquired Interconnection Systems Limited for $437.5 million plus $9.0 million of
acquisition fees and expenses, payable in notes to the former stockholders of
Interconnection Systems Limited. In connection with the transaction, our
stockholders invested $140.0 million of equity in Chips, and Chips paid Hicks
Muse a financial advisory fee of $6.9 million.
On June 6, 1997, Chips merged with Viasystems, and the subsidiaries of
Chips became subsidiaries of Viasystems, in consideration for the issuance to
our stockholders of 23,333,333 shares of our common stock valued at $140.0
million. We assumed the notes payable incurred by Chips to finance the
acquisition of Interconnection Systems Limited. The acquisition was consummated
by Chips prior to being acquired by Viasystems because of timing considerations
relating to our financing of the acquisition. No additional fee was paid to
Hicks Muse under our financial advisory agreement in connection with our merger
with Chips.
FORWARD GROUP ACQUISITION
In April 1997, an affiliate of Hicks Muse acquired Forward Group plc for a
purchase price of approximately $236.3 million, plus the issuance of loan notes
to former stockholders of Forward Group in the principal amount of $23.9
million. The acquisition was funded with $216.0 million of borrowings under a
tender offer loan facility and the proceeds from the issuance to Hicks Muse of
$40.0 million of the preferred stock of the acquiring entity. Subsequently,
Viasystems acquired Forward Group at cost, consisting of the assumption of the
$216.0 million tender offer loan facility, the assumption of the $23.9 million
principal amount of loan notes payable to the former stockholders of Forward
Group, and the issuance to Hicks Muse of $40.0 million in initial liquidation
preference of Viasystems' preferred stock in exchange for the $40.0 million of
preferred stock of the acquiring entity. In connection with the initial
acquisition, Hicks Muse received a $3.5 million financial advisory fee from the
acquiring entity. No additional fee was paid to Hicks Muse under our financial
advisory agreement in connection with our subsequent acquisition of Forward
Group.
GENERAL
All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the disinterested
directors. The determination as to whether a particular director is
disinterested will be made under applicable standards of Delaware law.
We believe that the terms of each of the transactions described in this
section were no less favorable to Viasystems than could have been obtained with
non-affiliated parties, but we have not independently verified this conclusion.
STOCK OPTIONS
Stock option grants to our executive officers are described in this
prospectus under the heading "Management -- Compensation of Executive Officers."
In addition, stock options were granted to each of Messrs. Vieser and Yontz on
February 4, 1997, to purchase 16,666 shares of common stock at an exercise price
of $6.00 per share. We issued 16,666 shares of common stock to Mr. Vieser on May
13, 1997 upon exercise of his stock options. In addition, in May 2000, we
granted options to purchase 25,000 shares of common stock at an exercise price
of $21.00 per share to each of Messrs. O'Brien, Mandl, Vieser and Yontz.
COMMON STOCK
From March through June 1997, we sold an aggregate of 66,666 shares of
common stock to Mr. Vieser at a purchase price per share of $6.00 for cash
proceeds in the amount of $400,000.
From March through June 1997, we sold an aggregate of 49,999 shares of
common stock to Mr. Yontz at a purchase price per share of $6.00 for cash
proceeds in the amount of $300,000.
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In June 1997, we sold an aggregate of 37,500,000 shares of common stock to
affiliates of Hicks, Muse, Tate & Furst Incorporated at a purchase price per
share of $6.00 for cash proceeds in the amount of $225,000,000.
In June 1997, we sold 33,333 shares of common stock to Mr. Mills at a
purchase price per share of $6.00 for cash proceeds in the amount of $200,000.
In April 1998, we sold an aggregate of 416,708 shares of common stock to a
partnership affiliated with Hicks, Muse, Tate & Furst Incorporated at a purchase
price per share of $6.00 for cash proceeds in the amount of $2,500,250.
In April 1998, we sold an aggregate of 6,830,601 shares of common stock to
affiliates of Hicks, Muse, Tate & Furst Incorporated at a purchase price per
share of $7.32 for cash proceeds in the amount of $50,000,000.
In August 1999, we sold 27,322,404 shares of common stock to an affiliate
of Hicks, Muse, Tate & Furst Incorporated at a purchase price per share of $7.32
for cash proceeds in the amount of $200,000,000.
CLASS A COMMON STOCK
In June 1997, we sold 1,817,083 shares of class A common stock to Mr. Mills
for a purchase price per share of $.06 for cash proceeds in the amount of
$109,024.99.
In June 1997, we sold 116,071 shares of class A common stock to Mr. Conlon
for a purchase price per share of $.06 for cash proceeds in the amount of
$6,964.29.
In June 1997, we sold 1,066,666 shares of class A common stock to Mr.
Sindelar for a purchase price per share of $.06 for cash proceeds in the amount
of $63,999.98.
In May 1998, we sold 31,921 shares of class A common stock to Mr. Mills for
a per share purchase price of $.06 for cash proceeds of $1,915.27.
In May 1998, we sold 18,333 shares of class A common stock to Mr. Sindelar
for a per share purchase price of $.06 for cash proceeds of $1,100.00.
CLASS A SERIES II COMMON STOCK
In May 1998, we sold 346,563 shares of class A series II common stock to
Mr. Mills for a per share purchase price of $.06 for cash proceeds of
$20,793.81.
In May 1998, we sold 206,768 shares of class A series II common stock to
Mr. Sindelar for a per share purchase price of $.06 for cash proceeds of
$12,406.09.
In May 1998, we sold 14,657 shares of class A series II common stock to Mr.
Conlon for a per share purchase price of $.06 for cash proceeds of $879.46. In
November 1998, we sold 1,243,833 additional shares of class A series II common
stock to Mr. Conlon for a per share purchase price of $.06 for cash proceeds of
$74,630.00.
In August 1999, we sold an aggregate of 1,026,670 shares of class A series
II common stock to Mr. Mills for a per share purchase price of $.06 for cash
proceeds of $61,600.20.
In August 1999, we sold an aggregate of 100,000 shares of class A series II
common stock to trusts for the benefit of Mr. Sindelar's children. Those shares
were purchased at $.06 per share for cash proceeds of $6,000.00.
In August 1999, we sold 846,668 shares of class A series II common stock to
Mr. Conlon for a per share purchase price of $.06 for cash proceeds of
$50,800.13.
In August 1999, we sold 841,502 shares of class A series II common stock to
a trust for the benefit of Mr. Sindelar's children for cash proceeds of
$50,490.15. The purchase price per share was $.06.
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DESCRIPTION OF INDEBTEDNESS
SENIOR CREDIT FACILITY
In March 2000, Viasystems, Inc., our wholly-owned subsidiary, entered into
a new senior credit facility. The material terms of the senior credit facility
are described below.
The senior credit facility includes:
- a $150,000,000 term loan facility, all of which was required to be drawn
in a single draw at the closing of the senior credit facility in March
2000;
- a $175,000,000 revolving credit facility; and
- a letter of credit and term loan facility in an aggregate amount of
$303,100,000 in respect of our obligations under the loan notes made in
connection with the acquisition of Interconnection Systems Limited. The
letter of credit and term loan facility has a tranche A portion in the
amount of $153,100,000 and a tranche B amount of $150,000,000.
The term loan facility amortizes semi-annually over seven years, commencing
September 30, 2000; and the letter of credit and term loan facility amortizes
semi-annually over two and one half years, commencing September 30, 2003 in the
case of tranche A, and over four years, commencing September 30, 2003 in the
case of tranche B.
Viasystems, Inc. and its foreign subsidiaries who are parties to the senior
credit facility, or the borrowers, may use the revolving loans for letters of
credit in an amount not to exceed $40 million. Furthermore, up to an aggregate
principal amount of $75 million of the revolving loan will be available as a
multicurrency facility. Also, up to $10 million of the revolving facility is
available for swingline loans.
The borrowers may optionally prepay the term loans from time to time in
whole or in part, without premium or penalty. At our option, the revolving loans
may be prepaid, and revolving credit commitments may be permanently reduced, in
whole or in part, at any time.
Viasystems, Inc. will be required to make mandatory prepayments of the term
loans, to cash collateralize the letter of credit term loan and to reduce the
revolving facility, in the amounts equal to (a) 50% of excess cash flow,
beginning in the earlier of (i) the fiscal year in which the letter of credit
term loans exceed $270 million and (ii) fiscal year 2002, but only if the
leverage ratio exceeds 3 1/2 to 1 at such time, and (b) 100% of the net proceeds
of dispositions by us or any of our subsidiaries of material assets or
incurrences of indebtedness by us or any of our subsidiaries.
Viasystems, Inc.'s obligations under the senior credit facility are
unconditionally and irrevocably guaranteed by us and each existing and future
domestic subsidiary of Viasystems, Inc. In addition, the senior credit facility
is secured by a perfected first priority security interest in all of the capital
stock of Viasystems, Inc. and each of its direct and indirect domestic
subsidiaries and 65% of each first tier foreign subsidiary of Viasystems, Inc.
and its domestic subsidiaries, all intercompany notes owing to Viasystems, Inc.
or any of its domestic subsidiaries, the notes issued in connection with the
transfer of the operations formerly conducted by Interconnection Systems
Limited, Forward Group, Zincocelere and Viasystems Sweden and all other tangible
and intangible assets of Viasystems, Inc. and each guarantor.
The loans bear interest, at the borrower's election, at either:
- the highest of (A) the rate of interest publicly announced by The Chase
Manhattan Bank as its prime rate in effect, (B) the secondary market rate
for three-month certificates of deposit plus 1% and (C) the federal funds
effective rate from time to time plus .5%, plus a percentage based on the
ratio of consolidated total debt to consolidated EBITDA; or
- the rate for eurodollar (or Canadian, as applicable) deposits for a
period equal to one, two, three or six months, or to the extent available
to all lenders, nine or twelve months, as selected by the borrower, plus
a percentage based on the ratio of consolidated total debt to
consolidated EBITDA.
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The senior credit facility contains a number of covenants that, among other
things, restrict the ability of Viasystems, Inc. and its subsidiaries to:
- incur additional indebtedness;
- create liens on assets;
- incur guarantee obligations;
- enter into mergers, consolidations or amalgamations or liquidate, wind up
or dissolve;
- dispose of assets;
- pay dividends, make payment on account of, or set apart assets for, a
sinking or analogous fund or purchase, redeem, defease or retire capital
stock;
- make capital expenditures;
- make amendments to the Lucent supply agreement which would have a
material adverse effect on the lenders;
- make optional repurchases of subordinated debt or preferred stock;
- make advances, loans, extensions of credit, capital contributions to, or
purchases of any stock, bonds, notes, debentures or other securities;
- engage in transactions with affiliates; and
- enter into sale and leaseback transactions.
The senior credit facility also contains customary events of default
including:
- failure to pay principal on any loan when due or any interest or other
amount that becomes due within five days after the due date thereof;
- any representation or warranty made or deemed made is incorrect in any
material respect on or as of the date made or deemed made;
- the default in the performance of negative covenants or a default in the
performance of other covenants or agreements for a period of thirty days;
- default in other indebtedness or guarantee obligations with a principal
amount in excess of $20.0 million beyond the period of grace;
- events of insolvency;
- ERISA events; and
- other customary events of default for facilities similar to the senior
credit facility.
SENIOR SUBORDINATED NOTES
Viasystems, Inc. has 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, including the senior credit facility of Viasystems, Inc.,
on par with any future senior indebtedness that is subordinated in right of
payment to senior indebtedness of Viasystems, Inc., and senior to all
indebtedness of Viasystems, Inc. that is subordinate in right of payment to the
notes by written agreement.
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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>
At any time on or prior to June 1, 2002, the notes may also be redeemed as
a whole at the option of Viasystems, Inc. upon the occurrence of a change of
control, including upon a sale of substantially all of the assets of Viasystems,
Inc., the acquisition of a majority of the voting power of Viasystems, Inc. by
persons other than Hicks Muse, Mills & Partners or any of their affiliates, or a
change in the board composition so that a majority of the board consists of
directors who were not directors at the time the indentures were executed or
were not nominated or elected by those directors. The redemption price will be
equal to 100% of the principal amount of the notes, plus the greater of:
- 1.0% of the principal amount of the notes and
- the excess of (A) the present value of the sum of 104.875% of the
principal amount of the notes and all required interest payments due on
the notes through June 1, 2002 over (B) the principal amount of the notes
as of, and accrued and unpaid interest, if any, to, the date of redemption.
The indentures governing the notes contain restrictive covenants which,
among other things, impose limitations (subject to exceptions) on Viasystems,
Inc. with respect to the following:
- the payment of dividends or other distributions on capital stock and the
purchase, redemption or retirement for value of shares of capital stock
or warrants, options or other securities convertible into capital stock;
- the repayment or redemption of subordinated indebtedness other than in
accordance with scheduled repayment;
- making investments, except for permitted investments;
- the incurrence of indebtedness, except for permitted indebtedness and
other indebtedness incurred after satisfying specified financial ratios;
- the incurrence of indebtedness senior to the notes and subordinated to
its senior indebtedness;
- the restrictions of payments by subsidiaries to their respective parents;
- sales of assets and stock of its subsidiaries;
- the issuance of capital stock by any of its subsidiaries;
- transactions with stockholders and affiliates; and
- the merger or sale of all or substantially all of its assets.
Upon the occurrence of events of default specified in the indentures, the
trustee for the notes or the holders of at least 25% of the principal amount of
the outstanding notes may declare the principal amount then outstanding of, and
accrued but unpaid interest, if any, on, all of the notes to be due and payable.
Upon the happening of other events of default specified in the indentures, the
unpaid balance of an accrued but unpaid
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interest on all outstanding notes will automatically become due and payable
without any action by the trustee or the holders of the notes.
Viasystems, Inc. may terminate most of its obligations under the notes
indentures at any time by irrevocably depositing in trust with the trustee money
or U.S. government obligations for the payment of principal, premium (if any),
and interest on the notes to maturity or any redemption date specified by
Viasystems, Inc., together with satisfying other conditions and obligations set
forth in the indentures.
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DESCRIPTION OF CAPITAL STOCK
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 1,615,042.013 shares are
outstanding; and
- 500,000,000 shares of common stock, of which 133,824,209 shares were
outstanding as of the date of this prospectus and held of record by
approximately 155 stockholders.
STOCK RESERVED FOR ISSUANCE
As of the date of this prospectus, no shares of series B preferred stock
are reserved for issuance. 4,404,613 shares of common stock are reserved for
issuance upon exercise of options granted under our stock option plan. In
addition, 2,802,897 shares of common stock are reserved for issuance upon
exercise of outstanding performance options, 2,134,000 shares of common stock
reserved for issuance upon exercise of options held by partners and affiliates
of Hicks, Muse, Tate & Furst Incorporated, and 16,666 shares are reserved for
issuance upon exercise of an option granted to one of our directors. 136,645
shares of common stock are reserved for issuance upon exercise of outstanding
warrants.
COMMON STOCK
Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. There is no cumulative voting. The
holders of outstanding shares of common stock are entitled to receive dividends
out of assets legally available therefor at such time and in such amounts as the
board of directors may from time to time determine, subject to the prior rights
of the holders of any preferred stock. See "Dividend Policy." The shares of
common stock are not convertible and the holders have no preemptive or
subscription rights to purchase any of our securities. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive,
pro rata, our assets which are legally available for distribution, after payment
of all debts and other liabilities and subject to the rights of any holders of
preferred stock. There are no redemption or sinking fund provisions applicable
to the common stock. All of our outstanding shares of common stock are, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully-paid and nonassessable.
PREFERRED STOCK
Our board is authorized without stockholder approval to issue preferred
stock in one or more classes or series and to designate for each class or series
the following:
- the terms and conditions of any voting, dividend and conversion or
exchange rights;
- the amount payable on the series upon redemption and upon our dissolution
or distribution of our assets; and
- the rights, qualifications, limitations or restrictions pertaining to the
class or series.
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;
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- $3.00 per whole share on and after November 30, 2005 and prior to
November 30, 2006; and
- $3.50 per whole share on and after November 30, 2006, payable quarterly
on February 28, May 31, August 31, and November 30 in each year.
On the first twenty payment dates, any dividend shall be payable either:
- in cash;
- by issuing a number of additional shares (or fractional shares) of series
B preferred stock in respect of each share (or fractional share) of
series B preferred stock then outstanding at the rate of 1/25th of a
whole share of series B preferred stock for each $1.00 of dividend
declared; or
- in any combination of the above.
However, upon the completion of our initial public offering in March 2000, all
dividends on the series B preferred stock became payable in cash unless we are
prohibited from using cash under the terms of our existing credit arrangements,
in which case the dividends will be paid in shares of series B preferred stock.
If dividends on the series B preferred stock are not paid in full on any
dividend payment date, the dividends will accrue and cumulate. As of the date of
this prospectus, our credit arrangements prohibit us from paying cash dividends
on the series B preferred stock and, accordingly, we expect to continue to pay
dividends in additional shares of series B preferred stock for the foreseeable
future.
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); or
- pay any monies or make available for a sinking fund for redemption or
purchase of any junior securities or parity stock;
unless, in each of the instances mentioned above, full dividends on all
outstanding shares of series B preferred stock for all past dividend periods are
paid, and the dividends on all outstanding shares of series B preferred stock
for the then current quarterly dividend period are paid or set aside for
payment.
So long as any series B preferred stock remains outstanding, we will not:
- pay cash dividends with respect to any junior securities or parity stock;
- redeem or purchase any junior securities or parity stock (except in
exchange for junior securities); or
- pay any monies to or make available for a sinking fund for redemption or
purchase of any junior securities or parity stock;
unless, in each such instance, we have paid cash dividends on all outstanding
shares of series B preferred stock for the then current quarterly dividend
period.
We will not pay any dividend on any share of series B preferred stock for any
dividend period unless at the same time:
- we pay a like proportionate dividend for the same dividend period on all
shares of the series B preferred stock then outstanding and entitled to
receive the dividend; and
- we have paid on all shares ranking on parity with the series B preferred
stock, dividends ratably in proportion to the respective dividend rates
fixed for the series B preferred stock and any parity stock. We will pay
no dividend on the parity stock unless we have paid dividends on all
shares then outstanding of the series B preferred stock, for the same
dividend period ratably in proportion to the respective dividend rates
fixed for the series B preferred stock and the parity capital stock.
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Ranking. The series B preferred stock ranks:
- senior to the common stock and any other class or series of capital stock
which provides that it ranks junior to the series B preferred stock or
which does not expressly provide for any ranking;
- on a parity with any class or series of capital stock which provides that
it ranks on a parity with the series B preferred stock; and
- junior to any class or series of capital stock which provides that it
ranks senior to the series B preferred stock.
Liquidation. Subject to the rights of the holders of any class of capital
stock or series of capital stock ranking senior to the series B preferred stock,
in the event of any liquidation, dissolution or winding up, the holder of each
share of series B preferred stock will be entitled to receive a cash liquidation
payment equal to $25.00 per share plus a cash amount equal to all accumulated
and unpaid dividends before any distribution or payment shall be made to the
holders of any junior securities. If we lack sufficient funds to pay the full
amount owed to the holders of the series B preferred stock and the full amount
owed to the holders of any other class or series of capital stock ranking on a
parity with the series B preferred stock, we will distribute funds to the
holders of the series B preferred stock and the parity stock on a pro rata
basis.
Redemption. We can redeem, at any time, shares of series B preferred stock,
for cash at a redemption price of $25.00 per share plus an amount equal to all
accumulated and unpaid dividends on the shares. We must redeem within sixty
calendar days of a change of control, all outstanding shares of the series B
preferred stock at a redemption price, payable in cash, equal to the per share
liquidation preference of the shares, plus an amount equal to accumulated and
unpaid dividends on the shares to the date the shares are redeemed.
Notwithstanding our obligation to redeem shares of the series B preferred stock
upon the occurrence of a change of control, we are also subject to the
limitations under our existing credit arrangements. A "change of control" will
be deemed to occur if Hicks, Muse, Tate & Furst Incorporated, Mills & Partners,
Inc. and/or their respective affiliates cease to have the power to vote or
direct the voting of securities having a majority interest for the election of
our directors, provided, that this event shall not be deemed a change of control
if following the consummation of this offering:
- Hicks, Muse, Tate & Furst Incorporated, Mills & Partners, Inc. and/or
their respective affiliates own greater than 20% of our outstanding
common stock; and
- (A) no "Person" or "group" (as those terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Hicks, Muse, Tate & Furst
Incorporated, Mills & Partners, Inc. and/or their respective affiliates,
is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of a greater
percentage of our voting stock than is owned by Hicks, Muse, Tate & Furst
Incorporated, Mills & Partners, Inc. and/or their respective affiliates,
or (B) our board consists of a majority of those directors serving on
November 26, 1996 and each other director whose nomination for election
is recommended by a majority of the then continuing directors or who
receives the vote of Hicks, Muse, Tate & Furst Incorporated, Mills &
Partners, Inc. and/or their respective affiliates in his or her election
by our shareholders.
In the event we merge or consolidate and are not the surviving entity and in
connection with the transaction we are not required to redeem the series B
preferred stock, the holders will be entitled to exchange their series B
preferred stock for securities of the surviving entity having economic terms
substantially similar to the series B preferred stock.
Any share of series B preferred stock which we redeem, repurchase or
reacquire will be retired.
Special Voting Rights to Elect Directors. If dividends on the series B
preferred stock remain unpaid for four consecutive quarterly periods, the
holders of series B preferred stock will be entitled to elect two directors.
Each share of series B preferred stock will be entitled to one vote. The holders
of series B preferred stock will retain this right until we pay all accumulated
dividends on the series B preferred stock in full or we redeem all the
outstanding series B preferred stock. In the event we pay all accumulated
dividends in full on the series B
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preferred stock or redeem in full the series B preferred stock, the terms of the
directors elected by the holders of the series B preferred stock will terminate.
Other Special Voting Rights. So long as any shares of the series B
preferred stock are outstanding, we cannot, without the consent of at least a
majority of the votes of the shares of the series B preferred stock then
outstanding:
- create, authorize or issue more than 10,000,000 shares of any class or
series of capital stock that ranks senior to the series B preferred
stock;
- pay any dividend (other than a dividend payable solely in junior
securities) with respect to any junior securities or repurchase or redeem
for cash any junior securities; or
- amend any rights of the series B preferred stock so as to affect
adversely those rights.
The above provisions will not prohibit:
- the payment of any dividend within sixty days after the date of
declaration, if the payment would have complied with the above
provisions;
- the retirement of any of our shares capital stock, other than shares
issued to Hicks, Muse, Tate & Furst Incorporated, Mills & Partners, Inc.
and/or their respective affiliates on November 26, 1996, in exchange for,
or out of the net proceeds of the substantially concurrent sale of, other
shares of any of our capital stock;
- the acquisition or cancellation of capital stock in connection with any
merger, consolidation or transfer;
- any repurchase or redemption of capital stock or equity interest of any
of our subsidiaries held by any of our employees or employees of any of
our subsidiaries in connection with the termination of those employees,
to the extent that the aggregate amount of all such payments,
redemptions, and repurchases does not exceed $5,000,000; and
- cash payments to holders of junior securities in lieu of the issuance of
fractional shares.
SPECIAL PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND
AMENDED
AND RESTATED BYLAWS
Our amended and restated certificate of incorporation and amended and
restated bylaws include provisions that could have an anti-takeover effect.
These provisions enhance the likelihood of continuity and stability in the
composition of our board and in the policies formulated by our board. These
provisions also help ensure that our board, if confronted by a surprise proposal
from a third party which has acquired a block of our stock, will have sufficient
time to review the proposal and appropriate alternatives to the proposal and to
act in what it believes to be the stockholders' best interests.
Blank Check Preferred Stock. Our amended and restated certificate of
incorporation provides that our board may authorize the issuance of up to
60,000,000 shares of preferred stock in one or more series and may designate the
dividend rate, voting rights and other rights, preferences and restrictions of
each series. To date, 6,000,000 shares have been designated series B preferred
stock. We have no present intention to issue any additional shares of preferred
stock. We could, however, issue a series of preferred stock that could either
impede or facilitate the completion of a merger, tender offer or other takeover
attempt. Although our board is required to make any determination to issue stock
based on its judgment as to the best interests of our stockholders, our board
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then market price of their stock. Our board does not intend to
seek stockholder approval prior to any issuance of any preferred stock, unless
otherwise required by law or stock exchange rules.
Classified Board of Directors. Our amended and restated certificate of
incorporation provides for a board divided into three classes of directors
serving staggered three-year terms. The classification of directors has the
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effect of making it more difficult for stockholders to change the composition of
the board in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the board. Furthermore, the affirmative vote of the holders of at
least eighty percent (80%) of the voting power of all shares entitled to vote
generally in the election of directors then outstanding, voting together as a
single class, is required to alter, amend or adopt any provision inconsistent
with or repeal the provision relating to the classified board.
Number of Directors; Vacancies; Removal. Our amended and restated
certificate of incorporation provides that the board must consist of at least
six and no more than nine members. Our amended and restated bylaws provide that
the board, acting by majority vote of the directors then in office, may fill any
newly created directorships or vacancies on the board. Moreover, under the DGCL,
in the case of a corporation having a classified board, stockholders may remove
a director only for cause. This provision, when coupled with the provision of
our amended and restated bylaws authorizing the board to fill vacant
directorships, will preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the board by filling the
vacancies created by the directors' removal with its own nominees.
Stockholder Action by Written Consent; Special Meetings. Our amended and
restated certificate of incorporation prohibits action by stockholders by
written consent in lieu of a meeting. The affirmative vote of the holders of at
least eighty percent (80%) of the voting power of all shares entitled to vote
generally in the election of directors then outstanding, voting together as a
single class, is required to alter, amend or adopt any provision inconsistent
with or repeal the provision prohibiting action by stockholders by written
consent in lieu of a meeting. Our amended and restated bylaws provide that
special meetings of stockholders may be called by a majority of the board, the
chairman of the board or any holder or holders of at least 50% of the
outstanding shares of our voting capital stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. Our amended and restated bylaws establish an advance notice procedure
with regard to business proposed to be submitted by a stockholder at any annual
or special meeting of our stockholders, including the nomination of candidates
for election as directors. The procedure provides that a notice of proposed
stockholder business must be timely given in writing to our Secretary prior to
the meeting. In all cases, to be timely, notice relating to an annual meeting
must be received at our principal executive office not less than 60 days nor
more than 90 days before the first anniversary of the prior year's annual
meeting.
Notice to us from a stockholder who proposes to nominate a person at a
meeting for election as a director must contain all information relating to that
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act. The notice must also include the person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected.
The chairman of a meeting of stockholders may determine that a person was
not nominated in accordance with the nomination procedure, in which case the
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before the
meeting in accordance with our amended and restated bylaw procedures, the
business will not be conducted at the meeting. Nothing in the nomination
procedure or the business procedure will preclude discussion by any stockholder
of any nomination or business properly made or brought before the annual or any
other meeting in accordance with the above-mentioned procedures.
LIMITATIONS ON DIRECTOR LIABILITY
Our amended and restated certificate of incorporation also contains
provisions permitted under the DGCL regarding liability of directors. These
provisions eliminate the personal liability of directors for monetary damages
for any breach of their fiduciary duties as directors, except for:
- any breach of the duty of loyalty;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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- liability under Section 174 of the DGCL regarding unlawful dividends,
stock repurchases or stock redemptions; or
- any transaction from which the director derived an improper personal
benefit.
These provisions do not eliminate a director's duty of care and do not affect
the availability of equitable remedies, including action to enjoin or rescind a
transaction involving a breach of fiduciary duty. Moreover, these provisions do
not apply to claims against a director for knowing violation of laws, including
the federal securities laws. Our amended and restated certificate of
incorporation further provides that we must indemnify our directors and
officers, and may indemnify any of our employees or agents, to the fullest
extent permitted by the DGCL. We believe these provisions assist us in
attracting and retaining qualified individuals to serve as directors and
officers.
DELAWARE TAKEOVER STATUTE
Section 203 of the DGCL prohibits persons deemed "interested stockholders"
from engaging in a "business combination" with a Delaware corporation for three
years following the date those persons become interested stockholders.
Interested stockholders generally include:
- persons who are the beneficial owners of 15% or more of our outstanding
voting stock; and
- persons who are our affiliates or associates and who hold 15% or more of
our outstanding voting stock at any time within three years before the
date on which the person's status as an interested stockholder is
determined.
Subject to statutory exceptions, a "business combination" includes, among other
things:
- mergers and consolidations;
- the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to 10% or
more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market
value of all our outstanding stock;
- transactions that result in our issuance or transfer of any of our stock
to the interested stockholder, except pursuant to exercises, exchanges,
conversions, distributions or offers to purchase with respect to
securities outstanding prior to the time that the interested stockholder
became an interested stockholder and that, generally, do not increase the
interested stockholder's proportionate share of any class or series of
our stock;
- any transaction involving us that has the effect of increasing the
proportionate share of our stock of any class or series, or securities
convertible into the stock of any class or series, that is owned directly
or indirectly by the interested stockholder; or
- any receipt by the interested stockholder of the benefit, except
proportionately as a stockholder, of any loans, advances, guarantees,
pledges or other financial benefits which we provided.
Section 203 does not apply to a business combination if:
- before a person becomes an interested stockholder, our board approves the
transaction in which the interested stockholder became an interested
stockholder or approves the business combination;
- upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of our voting stock outstanding at the time
the transaction commences, excluding, for purposes of determining the
number of shares outstanding, those shares owned by persons who are
directors and also officers, and those shares subject to employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
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- following a transaction in which the person became an interested
stockholder, the business combination is approved by our board and
authorized at a regular or special meeting of stockholders (and not by
written consent) by the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock not owned by the interested
stockholder.
These provisions of Delaware law and our amended and restated certificate
of incorporation and amended and restated bylaws could discourage hostile
takeover attempts. As a consequence, they may also inhibit temporary
fluctuations in the market price of our common stock that often result from
actual or rumored hostile takeover attempts. These provisions may also have the
effect of preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Computershare
Investor Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
after this offering could adversely affect market prices prevailing from time to
time and could impair our ability to raise capital through the sale of our
equity securities.
Upon completion of this offering, we will have outstanding 150,824,209
shares of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, 62,580,768 shares, or 65,130,768 shares if the
underwriters exercise their over-allotment option in full, will be freely
tradable without restriction under the Securities Act unless purchased by one of
our affiliates as that term is defined in Rule 144 under the Securities Act,
which generally includes directors, officers or 10% stockholders, or unless
purchased by any of our directors, officers or stockholders that enter into the
lock-up agreement described in "Underwriters." The remaining 88,243,441 shares
of common stock outstanding are restricted securities under Rule 144 and may in
the future be sold without registration under the Securities Act to the extent
permitted by Rule 144 or any other applicable exemption under the Securities
Act, subject to the restrictions on transfer contained in the lock-up agreements
described in "Underwriters."
In general, under Rule 144 as currently in effect, 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 1,508,242 shares immediately after this
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
Sales under Rule 144 also are subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
Viasystems at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell those shares without complying with the manner of sale, public
information, volume limitation and notice provisions of Rule 144.
Certain holders of common stock have entered into an amended and restated
stockholders agreement that grants registration rights to the parties thereto
with respect to outstanding shares of common stock and shares of common stock
issued upon exercise of outstanding options or warrants. Registration of shares
of common
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stock pursuant to these registration rights will result in those shares becoming
freely tradable without restriction under the Securities Act.
We intend to file a registration statement on Form S-8 under the Securities
Act covering shares of common stock reserved for issuance under our stock option
plan and our performance option agreements. Based on the number of shares that
are expected to be reserved for issuance under our stock option plans, non-
employee directors' options and amended performance options, that registration
statement would cover up to 7,389,924 shares issuable on exercise of the
options, of which 6,084,183 options have been issued as of the date of this
offering. The registration statement on Form S-8 will automatically become
effective upon filing. Accordingly, subject to the exercise of those options,
shares registered under that registration statement will immediately be
available for sale in the open market, subject to the restrictions on transfer
contained in the lock-up agreements described in "Underwriters."
IMPORTANT UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
This is a general discussion of the United States federal tax consequences
of the acquisition, ownership, and disposition of our common stock by a holder
that, for U.S. federal income tax purposes, is not a U.S. person as we define
that term below. A holder of our common stock who is not a U.S. person is a non-
U.S. holder. We assume in this discussion that you will hold our common stock
issued pursuant to the offering as a capital asset (generally, property held for
investment). We do not discuss all aspects of U.S. federal taxation that may be
important to you in light of your individual investment circumstances, such as
special tax rules that would apply to you, for example, if you are a dealer in
securities, financial institution, bank, insurance company, tax-exempt
organization, partnership or owner of more than 5% of our common stock. In
addition, this discussion does not apply to persons holding the common stock
through a partnership or other pass-through entity. Our discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, judicial opinions, published positions of the U.S. Internal Revenue
Service and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and will not seek, any
ruling from the IRS or opinion of counsel with respect to the tax consequences
discussed in this prospectus, and there can be no assurance that the IRS will
not take a position contrary to the tax consequences discussed below or that any
position taken by the IRS would not be sustained. We urge you to consult your
tax advisor about the U.S. federal tax consequences of acquiring, holding, and
disposing of our common stock, as well as any tax consequences that may arise
under the laws of any foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the U.S.;
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.;
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust.
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business of the
U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be
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withheld at a reduced rate as specified by a treaty, we generally will presume
that dividends we pay on or before December 31, 2000, to an address in a foreign
country are paid to a resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether, for
purposes of applying a treaty, dividends that we pay a non-U.S. holder that is
an entity should be treated as paid to holders of interests in that entity.
GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder;
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met;
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates; or
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes.
If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our common stock provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock; and
- our common stock is and continues to be regularly traded on an
established securities market for U.S. federal income tax purposes.
We believe that our common stock will be regularly traded on an established
securities market for this purpose in any year in which it is listed on The New
York Stock Exchange.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our common stock as well as to a withholding tax, generally
at a rate of 10% of the proceeds. Any amount withheld pursuant to a withholding
tax will be creditable against a non-U.S. holder's U.S. federal income tax
liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a county in which the non-U.S. holder resides.
Under current U.S. Treasury regulations, certain U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office of a broker are subject to both backup withholding
at a rate of 31% and information reporting, unless the holder certifies as to
its non-U.S. holder status under penalties of perjury or otherwise establishes
an exemption. Information reporting requirements, but not backup withholding
tax, will also apply to payments of the proceeds of a sale or other taxable
disposition of our common stock by foreign offices of U.S. brokers or foreign
brokers with certain types of relationships to the U.S. unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met or the holder otherwise established an
exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below have
severally agreed to purchase, and we have agreed to sell to them, severally, the
number of shares of common stock indicated below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Credit Suisse First Boston Corporation......................
Chase Securities Inc. ......................................
Banc of America Securities LLC..............................
----------
Total.....................................................
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus are
subject to the approval of legal matters by their counsel and to other
conditions specified in the underwriting agreement. The underwriters are
obligated to take and pay for all of the shares of common stock offered by this
prospectus, if any such shares are taken. However, the underwriters are not
required to take or pay for the shares covered by the underwriters'
over-allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to securities dealers at a price that
represents a concession not in excess of $ a share under the public offering
price. Any underwriter may allow, and these dealers may reallow, a concession
not in excess of $ a share to other underwriters or to other dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives. Morgan
Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley & Co.
Incorporated, may act as a selected dealer in the offering to facilitate the
distribution of shares of common stock over the Internet to its eligible account
holders.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 2,550,000
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent this option is exercised,
each underwriter will become obligated, subject to limited conditions, to
purchase about the same percentage of the additional shares of common stock as
the number listed next to the underwriter's name in the preceding table bears to
the total number of shares of common stock listed next to the names of all
underwriters in the preceding table. If the underwriters' option is exercised in
full, the total price to the public would be $ , the total
underwriters' discounts and commissions would be $ , and the total
proceeds to us would be $ .
The underwriters have informed us 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.
The common stock is listed on The New York Stock Exchange under the symbol
"VG."
Viasystems, our directors, officers and certain of our other stockholders
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, it will not, during the period
ending 90 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,
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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 the preceding paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares;
- the transfer of shares by one of the foregoing persons as a bona fide
gift, as a distribution to its limited partners, stockholders or members,
or to its affiliates, if the person receiving the shares as a bona fide
gift, distribution or transfer agrees to be bound by the foregoing
provisions; or
- shares of common stock issued as consideration for any acquisition
(including, without limitation, by way of merger or consolidation) by
Viasystems or any of its subsidiaries, provided the parties receiving
shares of common stock in any such acquisition agree in writing to the
foregoing restrictions.
In addition, the directors, officers and stockholders referred to above
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, they will not, during the period
ending 90 days after the date of this prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any security convertible into or exercisable or exchangeable for common
stock.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating a
short position. A short sale is covered if the short position is no greater than
the number of shares available for purchase by the underwriters under the
over-allotment option. The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the open market. In
determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of shares
compared to the price available under the over-allotment option. The
underwriters may also sell shares in excess of the over-allotment option,
creating a naked short position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the underwriters are convinced that there may be
downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. As
an additional means of facilitating the offering, the underwriters may bid for,
and purchase, shares of common stock in the open market to stabilize the price
of the common stock. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing the common
stock in the offering, if the syndicate repurchases previously distributed
shares of common stock to cover syndicate short positions or to stabilize the
price of common stock. These activities may raise or maintain the market price
of the common stock above independent market levels or prevent or retard a
decline in the market price of the common stock. The underwriters are not
required to engage in these activities and may end any of these activities at
any time.
Some of the underwriters and their affiliates have provided, and may in the
future from time to time provide, investment banking and general financing and
banking services to us and our affiliates, including
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Hicks, Muse, Tate & Furst Incorporated for which they have in the past received,
and may in the future receive, customary fees. Specifically, Morgan, Stanley &
Co. Incorporated, Credit Suisse First Boston Corporation and Chase Securities
Inc. acted as joint-lead managers, and Banc of America Securities LLC acted as a
co-manager, of our initial public offering in March 2000, and they received
customary underwriting discounts in connection therewith. An affiliate of Chase
Securities Inc. acts as an agent and lender under our senior credit facility,
and receives fees customary for performing those services. An affiliate of Chase
Securities Inc. holds approximately 25% of the ownership interest in
HMTF/Viasystems Investments, LLC, which in turn beneficially owns approximately
20.4% of our outstanding common stock. In addition, affiliates of Banc of
America Securities LLC, Chase Securities Inc. and Credit Suisse First Boston
Corporation are limited partners in the limited partnerships through which Hicks
Muse owns shares of our common stock.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Viasystems by Weil, Gotshal & Manges LLP, Dallas, Texas and New York,
New York. A number of partners of Weil, Gotshal & Manges LLP are investors in
Hicks Muse-sponsored limited partnerships that own an aggregate of 41,984 shares
of our common stock attributable to the gross investment by those partners.
Legal matters in connection with the offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois.
EXPERTS
The consolidated financial statements of Viasystems Group, Inc. and
Subsidiaries as of December 31, 1998 and 1999, and for each of the three years
in the period ended December 31, 1999, included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing. The combined balance sheet of the Printed Circuit Board Division of
Termbray Industries International (Holdings) Limited as of March 31, 1999 and
the related combined statements of income, of cash flows and of changes in
divisional equity for the year ended March 31, 1999, included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1
regarding this offering. This prospectus, which is part of the registration
statement, does not contain all of the information included in the registration
statement, and you should refer to the registration statement and its exhibits
to read that information. References in this prospectus to any of our contracts
or other documents are not necessarily complete, and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may read and copy the registration statement, the
related exhibits and the other material we file with the Commission at the
Commission's public reference room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. 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 (314) 727-2087.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and therefore we file reports, proxy statements and
other information with the Commission. You can inspect and copy the reports,
proxy statements and other information that we file at the public reference
facilities maintained by the Commission at its public reference room, and at its
regional offices located in New York, New York and Chicago, Illinois. You can
also obtain copies of such material from the Commission's public reference room
at prescribed rates. The Commission also makes electronic filings publicly
available on its web site. Our common stock is quoted on the New York Stock
Exchange under the trading symbol "VG." Reports, proxy and information
statements and other information about us may be inspected at the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
Annual Financial Information
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1997, 1998 and
1999................................................... F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1997, 1998 and 1999........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-6
Notes to Consolidated Financial Statements................ F-7
Interim Financial Information
Unaudited Condensed Consolidated Balance Sheet as of
December 31, 1999 and June 30, 2000.................... F-35
Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Income for the six months ended June
30, 1999 and 2000...................................... F-36
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 2000........ F-37
Notes to Condensed Consolidated Financial Statements...... F-38
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED -- THE
PCB DIVISION
Independent Auditors' Report................................ F-44
Combined Statement of Income for the year ended March 31,
1999...................................................... F-45
Combined Balance Sheet as of March 31, 1999................. F-46
Combined Statement of Changes in Divisional Equity for the
year ended March 31, 1999................................. F-47
Combined Statement of Cash Flows for the year ended March
31, 1999.................................................. F-48
Notes to the Combined Financial Statements.................. F-50
</TABLE>
F-1
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of Viasystems Group, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index on page F-1 present fairly, in all material respects, the financial
position of Viasystems Group, Inc. and its subsidiaries at December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statements presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of reporting costs of start-up activities.
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 23, 2000, except as to Note 23 and Note 24 Paragraph 1
which are as of March 23, 2000
and Note 24 Paragraph 2 which is as of March 29, 2000
F-2
<PAGE> 99
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,335 $ 22,839
Accounts receivable, less allowance for doubtful accounts
of $4,223 for 1998, $7,411 for 1999.................... 195,810 236,455
Inventories............................................... 147,960 176,125
Prepaid expenses and other................................ 49,394 51,010
---------- -----------
Total current assets.............................. 402,499 486,429
Property, plant and equipment, net.......................... 593,516 482,144
Deferred financing costs, net............................... 41,986 41,751
Intangible assets, net...................................... 455,086 293,708
Other assets, net........................................... 52,554 5,194
---------- -----------
Total assets...................................... $1,545,641 $ 1,309,226
========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations............... $ 54,731 $ 27,851
Accounts payable.......................................... 150,136 187,632
Accrued and other liabilities............................. 151,246 133,563
Income taxes payable...................................... 14,992 25,163
---------- -----------
Total current liabilities......................... 371,105 374,209
Deferred taxes.............................................. 81,379 27,548
Long-term obligations, less current maturities.............. 1,080,261 1,334,672
Other non-current liabilities............................... 66,441 68,771
---------- -----------
Total liabilities................................. 1,599,186 1,805,200
---------- -----------
Preferred Stock:
Series B preferred stock, par value $.01 per share,
6,000,000 shares authorized; 1,405,992 and 1,521,890
shares issued and outstanding, respectively, including
liquidation preferences of $25.00 per share............... 37,033 41,273
Stockholders' deficit
Common stock, par value $.01 per share, 600,000,000
shares authorized; 50,414,810 and 78,001,272 shares
issued and outstanding, respectively.................. 504 780
Class A common stock, par value $.01 per share,
50,000,000 shares authorized; 5,862,894 and 5,196,216
shares issued and outstanding, respectively........... 59 59
Class A series II common stock, par value $.01 per
share, 50,000,000 shares authorized; 990,062 and
6,172,891 shares issued and outstanding,
respectively.......................................... 10 62
Paid in capital........................................ 358,388 664,113
Accumulated deficit.................................... (458,659) (1,178,954)
Treasury stock, at cost................................ -- (162)
Accumulated other comprehensive income (loss).......... 9,120 (23,145)
---------- -----------
Total stockholders' deficit....................... (90,578) (537,247)
---------- -----------
Total liabilities and stockholders' deficit....... $1,545,641 $ 1,309,226
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 100
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 960,719 $1,202,321 $1,293,370
Operating expenses:
Cost of goods sold..................................... 684,777 856,942 969,614
Selling, general and administrative, including non-cash
compensation expense charge of $0, $3,398 and
$110,070, respectively.............................. 83,497 119,424 232,653
Depreciation........................................... 55,064 107,400 118,873
Amortization........................................... 61,165 65,550 63,270
Impairment loss........................................ -- -- 468,389
Write-off of acquired in-process research and
development......................................... 294,500 20,100 17,600
--------- ---------- ----------
Operating income (loss).................................. (218,284) 32,905 (577,029)
--------- ---------- ----------
Other expenses:
Interest expense....................................... 73,322 101,045 117,822
Amortization of deferred financing costs............... 6,629 9,354 6,619
Other expense.......................................... 1,138 4,964 23,594
--------- ---------- ----------
Loss before income taxes, cumulative effect of a change
in accounting principle and extraordinary item......... (299,373) (82,458) (725,064)
Provision (benefit) for income taxes..................... 13,490 (1,812) (23,212)
--------- ---------- ----------
Loss before cumulative effect of a change in accounting
principle and extraordinary item....................... (312,863) (80,646) (701,852)
Cumulative effect -- write-off of start-up costs, net of
income tax benefit of $6,734........................... -- -- 18,443
Extraordinary item -- loss on early extinguishment of
debt, net of income tax benefit of $4,332.............. 7,796 -- --
--------- ---------- ----------
Net loss................................................. (320,659) (80,646) (720,295)
Other comprehensive income (loss):
Foreign currency translation adjustments............... 1,353 9,187 (32,858)
Minimum pension liability, net of income tax provision
(benefit) of $0, $575 and $(254), respectively...... -- (1,341) 593
--------- ---------- ----------
Comprehensive loss....................................... $(319,306) $ (72,800) $ (752,560)
========= ========== ==========
Basic loss per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item.................... $ (10.50) $ (1.54) $ (9.89)
Cumulative effect...................................... -- -- (.25)
Extraordinary item..................................... (.26) -- --
--------- ---------- ----------
Net loss............................................... $ (10.76) $ (1.54) $ (10.14)
========= ========== ==========
Diluted loss per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item.................... $ (11.93) $ (1.71) $ (10.50)
Cumulative effect...................................... (.29) -- (.27)
Extraordinary item..................................... -- -- --
--------- ---------- ----------
Net loss............................................ $ (12.22) $ (1.71) $ (10.77)
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 101
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
AND OTHER
COMPREHENSIVE
COMMON PAID IN ACCUMULATED TREASURY INCOME
STOCK CAPITAL DEFICIT STOCK (LOSS) TOTAL
-------- -------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 as previously
reported...................................... $ 57 $ 73,719 $ (48,742) $ -- $ (79) $ 24,955
Adjustments for "as if pooling"............... -- 69,476 (8,612) -- -- 60,864
Issuance of 37,745,833 shares of common
stock....................................... 377 226,098 -- -- -- 226,475
Issuance of 5,122,917 shares of Class A common
stock....................................... 51 256 -- -- -- 307
Conversion of 1,800,000 shares of Series A
Preferred Stock into common stock........... -- (44,982) -- -- -- (44,982)
Issuance of 1,600,000 shares of Series C
Preferred Stock............................. -- 39,984 -- -- -- 39,984
Conversion of 1,600,000 shares of Series C
Preferred Stock into common stock........... -- (39,984) -- -- -- (39,984)
Paid-in-kind dividends of 98,919 shares of
Series B Preferred Stock.................... -- (3,298) -- -- -- (3,298)
Stock issuance costs.......................... (2,813) -- (2,813)
Net distribution to parent.................... -- (2,238) -- -- -- (2,238)
Net loss...................................... -- -- (320,659) -- -- (320,659)
Foreign currency translation adjustment....... -- -- -- -- 1,353 1,353
-------- -------- ----------- ----- -------- ---------
Balance at December 31, 1997.................... 485 316,218 (378,013) -- 1,274 (60,036)
Issuance of 7,668,976 shares of common
stock....................................... 77 55,505 -- -- -- 55,582
Issuance of 56,921 shares of Class A common
stock....................................... 1 2 -- -- -- 3
Issuance of 990,062 shares of Class A Series
II common stock............................. 10 49 -- -- -- 59
Paid-in-kind dividends of 107,073 shares of
Series B Preferred Stock.................... -- (3,735) -- -- -- (3,735)
Non-cash compensation expense charge.......... -- 3,398 -- -- -- 3,398
Net distribution to parent.................... (13,049) -- -- -- (13,049)
Net loss...................................... -- -- (80,646) -- -- (80,646)
Minimum pension liability..................... -- -- -- -- (1,341) (1,341)
Foreign currency translation adjustment....... -- -- -- -- 9,187 9,187
-------- -------- ----------- ----- -------- ---------
Balance at December 31, 1998.................... 573 358,388 (458,659) -- 9,120 (90,578)
Issuance of 27,603,129 shares of common
stock....................................... 276 201,771 -- -- -- 202,047
Issuance of 5,182,829 shares of Class A Series
II common stock............................. 52 259 -- -- -- 311
Repurchase of 16,667 shares of common
stock....................................... -- -- -- (122) -- (122)
Repurchase of 666,678 shares of Class A common
stock....................................... -- -- -- (40) -- (40)
Stock issuance costs.......................... (1,903) -- (1,903)
Paid-in-kind dividends of 115,899 shares of
Series B Preferred Stock.................... -- (4,240) -- -- -- (4,240)
Net distribution to parent.................... -- (232) -- -- -- (232)
Non-cash compensation expense charge.......... -- 110,070 -- -- -- 110,070
Net loss...................................... -- -- (720,295) -- -- (720,295)
Minimum pension liability..................... -- -- -- -- 593 593
Foreign currency translation adjustment....... -- -- -- -- (32,858) (32,858)
-------- -------- ----------- ----- -------- ---------
Balance at December 31, 1999.................... $ 901 $664,113 $(1,178,954) $(162) $(23,145) $(537,247)
======== ======== =========== ===== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 102
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $(320,659) $ (80,646) $(720,295)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Write-off of acquired in-process research and
development........................................... 294,500 20,100 17,600
Impairment loss......................................... -- -- 468,389
Loss on disposal of plant, property and equipment....... -- -- 18,762
Cumulative effect of a change in accounting
principle -- write-off of start-up costs.............. -- -- 25,177
Extraordinary item -- loss on early extinguishment of
debt.................................................. 12,128 -- --
Non-cash compensation expense charge.................... -- 3,398 110,070
Depreciation and amortization........................... 116,229 172,950 182,143
Amortization of deferred financing costs................ 6,629 9,354 6,619
Deferred taxes.......................................... (11,681) (14,093) (35,734)
Change in assets and liabilities, net of acquisitions:
Accounts receivable................................... (10,139) (18,578) (15,023)
Inventories........................................... (19,913) (21,121) (16,837)
Prepaid expenses and other............................ (10,195) (32,106) (273)
Accounts payable and accrued and other liabilities.... 36,351 (55,746) (5,136)
Income taxes payable.................................. 16,296 (10,602) 7,702
--------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 109,546 (27,090) 43,164
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired of $42,778 for 1997,
$3,738 for 1998 and $5,022 for 1999..................... (155,904) (145,665) (314,187)
Capital expenditures...................................... (119,525) (134,533) (138,003)
--------- --------- ---------
Net cash used in investing activities....................... (275,429) (280,198) (452,190)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations under the
Credit Agreement........................................ -- 103,938 291,000
Proceeds from the issuance of Senior Subordinated Notes,
due 2007................................................ 400,000 -- --
Proceeds from the issuance of Series B Senior Subordinated
Notes, due 2007......................................... -- 104,500 --
Proceeds from the Subordinated Credit Facility............ 216,000 -- --
Net borrowings on Revolvers............................... -- 117,244 65,943
Repayment of amounts due under the Credit Agreement....... (151,964) (16,000) (26,125)
Repayment of amounts under the Chips Loan Notes
Liability............................................... -- (33,938) --
Repayment of the Subordinated Credit Facility............. (216,000) -- --
Chips Term Loans -- Cash collateral....................... -- -- (95,295)
Repayment of other long-term obligations.................. (90,187) (12,085) (5,509)
Net distribution of cash to parent........................ (2,238) (13,049) (232)
Equity proceeds........................................... 60,719 55,644 198,293
Financing fees and other.................................. (34,531) (15,297) (7,892)
--------- --------- ---------
Net cash provided by financing activities................... 181,799 290,957 420,183
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (4,495) (1,872) 2,347
--------- --------- ---------
Net change in cash and cash equivalents..................... 11,421 (18,203) 13,504
Cash and cash equivalents at beginning of year.............. 16,117 27,538 9,335
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 27,538 $ 9,335 $ 22,839
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 103
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. See Note 24 regarding
restatement of financial statements for "as if pooling" related to the
acquisition of Wirekraft Industries, Inc.
1997 ACQUISITIONS
On April 11, 1997, the Company acquired all of the outstanding stock of
Forward Group, PLC ("Forward"), a manufacturer of rigid PCBs located in the U.K.
The purchase price of approximately $208,483 consisted of cash and notes payable
to certain Forward stockholders plus $5,585 of acquisition fees and expenses
(the "Forward Acquisition"). The Forward Acquisition and related transaction
fees and expenses were funded with (i) $40,000 from the issuance of 1,600,000
shares of Series C Preferred Stock of Viasystems Group, Inc. and (ii) $216,000
from a Subordinated Credit Facility. The Subordinated Credit Facility was paid
off with a subsequent debt offering (see Note 9).
The Forward Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. Accordingly, the
results of operations of Forward since its acquisition are included in the
results of operations of the Company. The Company has allocated a significant
portion of the purchase price, as described below, to intangible assets,
including approximately $97,800 of in-process R&D valued using a discount rate
of 14.0%. The portion of the purchase price allocated to in-process research and
development ("in-process R&D") projects that did not have a future alternative
use and to which technological feasibility had not been established totaled
$97,800 and was charged to expense as of the acquisition date. The other
acquired intangibles include developed technology, assembled workforce, and
customer list. These intangibles are being amortized over their estimated useful
lives of 1-15 years. The remaining unidentified intangible asset has been
allocated to goodwill and is being amortized over its estimated useful life of
20 years (see Note 2).
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 57,034
Property, plant and equipment............................... 59,358
Developed technologies...................................... 34,800
Assembled workforce......................................... 6,600
Customer list............................................... 13,200
In-process R&D.............................................. 97,800
Goodwill.................................................... 82,240
Non-current assets.......................................... 5,660
Current liabilities......................................... (86,297)
Non-current liabilities..................................... (56,327)
--------
Total............................................. $214,068
========
</TABLE>
In April 1997, the Company's stockholders and their affiliates formed Chips
Holding, Inc., to acquire Interconnection Systems (Holdings) Limited ("ISL"), a
manufacturer of rigid PCBs located in the U.K. On April 21, 1997, Chips
Holdings, Inc. acquired ISL for $437,500 plus $8,953 of acquisition fees and
expenses (the "ISL Acquisition"). The purchase price consisted entirely of notes
payable to the former stockholders of
F-7
<PAGE> 104
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 23,333,333 shares of the
Company common stock valued at $140,000. The Company assumed the $437,500 of
notes payable which were incurred by Chips Holdings, Inc. (the "Chips Loan
Notes") to finance the ISL Acquisition (see Note 9).
The ISL Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. The Company has
allocated a significant portion of the purchase price, as described below, to
intangible assets, including approximately $196,700 of in-process R&D valued
using a discount rate of 14.0%. The portion of the purchase price allocated to
in-process R&D projects that did not have a future alternative use and to which
technological feasibility had not been established totaled $196,700 and was
charged to expense as of the acquisition date. The other acquired intangibles
include developed technology, assembled workforce, and customer list. These
intangibles are being amortized over their estimated useful lives of 1-15 years.
The remaining unidentified intangible asset has been allocated to goodwill and
is being amortized over its estimated useful life of 20 years (see Note 2).
The Chips Merger was accounted for as a transfer of assets among companies
under common control and was recorded at Chips Holdings, Inc.'s historical cost.
In the Chips Merger, ISL and its subsidiaries became wholly owned subsidiaries
of the Company, and as such, the Company will account for the acquisition of ISL
as of the acquisition by Chips Holdings, Inc. and the results of operations of
ISL since the acquisition by Chips Holdings, Inc. are included in the results of
operations of the Company.
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 98,357
Property, plant and equipment............................... 120,329
Developed technologies...................................... 66,500
Assembled workforce......................................... 8,000
Customer list............................................... 17,900
In-process R&D.............................................. 196,700
Goodwill.................................................... 114,042
Non-current assets.......................................... 12,971
Current liabilities......................................... (77,507)
Non-current liabilities..................................... (110,839)
---------
Total............................................. $ 446,453
=========
</TABLE>
Forward's and ISL's (the "1997 Acquisitions") in-process R&D value was
comprised of numerous research and development projects that were anticipated to
reach completion during 1998 and 1999. At the acquisition date, research and
development projects ranged in completion from 10% to 90% complete and total
continuing research and development commitments to complete the projects were
expected to be approximately $5,900. These estimates were subject to change,
given the uncertainties of the development process, and no assurance was given
that deviations from these estimates would not occur. The 1999 revenue derived
from the in-process R&D projects from the 1997 Acquisitions were significantly
lower than anticipated.
In connection with the acquisition of Forward and ISL the Company's
management assessed and evaluated the operations, employment levels and overall
strategic fit of each facility acquired. As a result of
F-8
<PAGE> 105
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this assessment and finalization of its plans, the Company recorded certain
plant shutdown, downsizing and consolidation accruals as part of the purchase
price allocations related to the 1997 Acquisitions.
Accruals were established primarily to cover costs associated with the
closure of the Selkirk and Galashiels, Scotland facilities and to cover costs
associated with the closure of the Manchester, Rugby and Telford, England
facilities, each of which was acquired in the Forward Acquisition, and the
related severance of approximately 1,600 employees. The accruals cover shutdown
costs from the period of the plant closure to the date of disposal, including
personnel and severance related costs, lease commitment costs, equipment removal
and disposal costs, cleanup and restoration costs and idle plant costs.
As of December 31, 1999, plant shutdown and downsizing actions related to
the 1997 Acquisitions had resulted in the termination of approximately 1,150
employees.
Due to changes in circumstances, the original plan to close the Telford,
England facility was not executed. Therefore, the accrual established for this
plan of $3,920 was reversed against goodwill during 1999.
Details of accrued liabilities related to the 1997 Acquisitions follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
------ -------- --------
<S> <C> <C> <C>
Balance, beginning of year........................... $ -- $ 8,863 $ 35,046
Provisions (Reversals):
Personnel and severance costs...................... 4,000 22,115 (1,324)
Equipment removal and disposal..................... 3,300 7,357 (1,685)
Idle plant costs................................... -- 5,715 (695)
Cleanup and restoration............................ 1,000 3,519 (120)
Lease commitment costs............................. 563 1,906 (96)
------ -------- --------
Total...................................... 8,863 49,475 31,126
------ -------- --------
Costs incurred:
Personnel and severance costs...................... -- (9,979) (10,992)
Equipment removal and disposal..................... -- (1,638) (5,420)
Idle plant costs................................... -- (371) (1,178)
Cleanup and restoration............................ -- (2,441) (1,131)
Lease commitment costs............................. -- -- (494)
------ -------- --------
Total...................................... -- (14,429) (19,215)
------ -------- --------
Translation.......................................... -- -- (1,226)
------ -------- --------
Balance, end of year................................. $8,863 $ 35,046 $ 10,685
====== ======== ========
</TABLE>
All costs incurred related to the plant closure and downsizing accruals for
the 1997 Acquisitions were cash charges except for $2,783 which related to
non-cash charges for the disposition of certain assets. Of the remaining
$10,685, approximately $3,200 relates to deferred severance, settlement of
benefits and related legal costs. Approximately, $7,400 is expected to be used
in 2000 for remaining shutdown activities including disposition of the idle
Rugby, England and Galashiels, Scotland facilities, final removal of equipment
from the sites and settlement of the lease of the Rugby site.
1998 ACQUISITIONS
In January 1998, the Company acquired certain assets and assumed certain
liabilities of the PCB production facility of Ericsson Telecom AB ("Ericsson")
located in Sweden (the "Ericsson Facility"), for a cash purchase price of
approximately $7,000. In addition, the Company and Ericsson signed a three-year
supply agreement whereby Ericsson committed to purchase 40% of its PCB
requirements from the Company.
F-9
<PAGE> 106
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 valued using a discount rate of 13.0%. The
portion of the purchase price allocated to in-process R&D projects that did not
have a future alternative use and to which technological feasibility had not
been established totaled $5,300 and was charged to expense as of the acquisition
date. The other acquired intangibles include developed technologies, assembled
workforce, and customer list. These intangibles are being amortized over their
estimated useful lives of 1-15 years. The remaining unidentified intangible
asset has been allocated to goodwill and is being amortized over its estimated
useful life of 20 years (see Note 2).
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 24,634
Property, plant and equipment............................... 28,917
Acquired intangibles........................................ 13,000
In-process R&D.............................................. 5,300
Goodwill.................................................... 28,562
Current liabilities......................................... (29,468)
Non-current liabilities..................................... (11,546)
--------
Total............................................. $ 59,399
========
</TABLE>
Mommers in-process R&D value was comprised of several research and
development projects which were scheduled to reach completion beginning in 1999.
At the acquisition date, research and development projects ranged in completion
from 10% to 90% complete. As of December 31, 1999, the Mommers in-process R&D
projects were completed. These projects will require maintenance research and
development which are not expected to represent significant costs in 2000 and
beyond.
In March 1998, the Company acquired all the outstanding shares of
Zincocelere S.p.A. ("Zincocelere"), a PCB manufacturer located in northern Italy
and specializing in the production of high-volume medium- to high-complexity
PCBs, for a cash purchase price of approximately $85,012, plus assumed
obligations (the "Zincocelere Acquisition").
The Zincocelere Acquisition has been accounted for using the purchase
method of accounting whereby the total purchase price has been allocated to the
assets and liabilities based on their estimated respective fair values. The
Company has allocated a portion of the purchase price, as described below, to
intangible assets, including in-process R&D valued using a discount rate of
13.0%. The portion of the purchase price allocated to in-process R&D projects
that did not have a future alternative use and to which technological
feasibility had not been established totaled $14,800 and was charged to expense
as of the acquisition date. The other acquired intangibles include developed
technologies, assembled workforce, and customer list. These intangibles are
being amortized over their estimated useful lives of 1-15 years. The remaining
unidentified intangible asset has been allocated to goodwill and is being
amortized over its estimated useful life of 20 years (see Note 2).
F-10
<PAGE> 107
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 58,642
Property, plant and equipment............................... 51,620
Acquired intangibles........................................ 21,000
In-process R&D.............................................. 14,800
Goodwill.................................................... 37,680
Current liabilities......................................... (56,620)
Non-current liabilities..................................... (42,110)
--------
Total............................................. $ 85,012
========
</TABLE>
Zincocelere's in-process R&D value was comprised of numerous research and
development projects which were scheduled to reach completion during 1999 and
2000. At the acquisition date, research and development projects ranged in
completion from 10% to 90%. As of December 31, 1999, Zincocelere's in-process
R&D projects were substantially completed. These projects will require
maintenance research and development which are not expected to represent
significant costs in 2000 and beyond.
The Mommers and Zincocelere Acquisitions were funded by a February 1998
offering of $100,000 of 9 3/4% Series B Senior Subordinated Notes due 2007, a
$70,000 term loan (see Note 9), and an additional equity contribution of
$50,000.
Mommers' and Zincocelere's (the "1998 Acquisitions") in-process R&D value
was comprised of numerous research and development projects which were scheduled
to reach completion during periods ranging from 1999 through 2001. These
projects will include the introduction of important new technology that will, if
successful, enable the advancement of the 1998 Acquisitions' PCB product line.
At the acquisition date, research and development projects ranged in completion
from 10% to 90% complete and total continuing research and development
commitments to complete the projects were expected to be approximately $15,000.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur.
The Company incurred significant charges in 1997 and 1998 related to
purchased in-process R&D costs. A portion of the purchase price for acquisitions
was attributed to the value of in-process R&D projects and was expensed in
accordance with Statement of Accounting Standards No. 2, "Accounting for
Research and Development Costs." The Company believes its accounting for
purchased in-process R&D was made in accordance with generally accepted
accounting principles and valuation practices at the time of the related
acquisitions.
In connection with the acquisitions of Mommers and Zincocelere the
Company's management assessed and evaluated the operations, employment levels
and overall strategic fit of each facility acquired. As a result of this
assessment and finalization of its plans, the Company recorded certain
downsizing and consolidation accruals as part of the purchase price allocations
related to the 1998 Acquisitions.
Accruals were established primarily to cover costs associated with
downsizing employment levels of the Echt, Netherlands facility by 150 employees
and costs associated with eliminating approximately 175 redundant administrative
functions related to the 1998 Acquisitions. The accruals cover costs associated
with downsizing, including personnel and severance related costs, lease
commitment costs and equipment removal and disposal costs.
As of December 31, 1999 plant downsizing actions related to the 1998
Acquisitions had resulted in the termination of approximately 90 employees.
F-11
<PAGE> 108
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to changes in circumstances, the original plan to eliminate
approximately 175 redundant administrative functions related to the 1998
Acquisitions was not executed. Therefore the accrual established for this plan
of $8,000 was reversed against goodwill during 1999.
Details of accrued liabilities related to the 1998 Acquisitions follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Balance, beginning of year.................................. $ -- $ 9,336
Provisions (Reversals):
Personnel and severance costs............................. 10,465 (7,000)
Equipment removal and disposal............................ 533 --
Lease commitment costs.................................... 1,000 (1,000)
------- -------
Total............................................. 11,998 1,336
Costs incurred:
Personnel and severance costs............................. (2,662) (340)
Equipment removal and disposal............................ -- --
Lease commitment costs.................................... -- --
------- -------
Total............................................. (2,662) (340)
------- -------
Translation................................................. -- --
------- -------
Balance, end of year........................................ $ 9,336 $ 996
======= =======
</TABLE>
All costs incurred related to the downsizing plan have been cash charges.
Of the $996 remaining accruals at December 31, 1999, approximately $460 will be
used during 2000 to cover continuing severance and related legal costs
associated with the downsizing, with the remainder to cover equipment removal
and disposition cost upon the final disposition of certain equipment.
1999 ACQUISITIONS
In August 1999, the Company acquired the printed circuit board ("PCB")
manufacturing division ("Kalex") of Termbray Industries International (Holdings)
Limited, a manufacturer of rigid PCBs located in the People's Republic of China,
for a net cash purchase price of approximately $301,000 plus acquisition costs
of approximately $8,500 (the "Kalex Acquisition"). Accordingly, the results of
operations of Kalex since acquisition are included in the results of operations
of the Company.
The Kalex Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been allocated to the assets and
liabilities based on their estimated respective fair values. The Company has
allocated a portion of the purchase price, as described below, to intangible
assets, including in-process R&D using a discount rate of 25.0%. The portion of
the purchase price allocated to in-process R&D projects that did not have future
alternative use totaled $17,600 and was charged to expense as of the acquisition
date. The other acquired intangibles include developed technologies, assembled
workforce and customer list. These intangibles are being amortized over their
estimated useful lives of 1-15 years. The remaining unidentified intangible
asset has been allocated to goodwill and is being amortized over its estimated
useful life of 20 years.
Kalex's in-process R&D value was comprised of numerous projects which were
scheduled to reach completion during periods ranging from October 1999 through
September 2000. At the acquisition date, research and development projects
ranged from 65% to 80% complete and total continuing research and development
commitments to complete the projects are expected to be approximately $2,400. As
of December 31, 1999, one of the projects was completed and the others were 65%
to 80% complete. These estimates are subject to change, given the uncertainties
of the development process, and no assurance can be
F-12
<PAGE> 109
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
given that deviations from these estimates will not occur. Additionally, these
projects will require maintenance research and development after they have
reached a state of technological and commercial feasibility. In addition to
usage of the companies' internal cash flows, Viasystems will likely provide a
substantial amount of funding to complete the company's programs. Remaining
development efforts for the in-process research and development programs are
complex and include the development of next-generation technological solutions.
As evidenced by their continued support for these projects, management
believes the Company is well positioned to successfully complete each of the
major in-process research and development programs. Management believes other
in-process projects are on track to be completed and will continue to bear
results in future periods. However, there is risk associated with the completion
of the projects and there is no assurance that each will meet with either
technological or commercial success. The substantial delay or outright failure
of the in-process research and development related to Kalex would impact the
Company's business, results of operations and cash flows.
Kalex's total revenues are projected to increase over the next ten years,
assuming the successful completion and market acceptance of the in-process
research and development programs. Estimated revenue from existing technologies
of Kalex are expected to slowly decline over the next six years as the
in-process technologies are completed and existing processes and know-how
approach obsolescence. The estimated revenues for in-process projects related to
Kalex are expected to peak in 2002, and thereafter decline as other new products
and technologies are expected to enter the market.
Kalex's manufacturing facilities are located in the People's Republic of
China. Manufacturing in the People's Republic of China entails political and
economic risks, including political instability, expropriation and currency
controls and fluctuations.
The total purchase price including fees and expenses has been allocated to
the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 55,060
Property, plant and equipment............................... 98,326
Acquired intangibles........................................ 89,400
In-process R&D.............................................. 17,600
Goodwill.................................................... 91,123
Other non-current assets.................................... 112
Current liabilities......................................... (39,410)
Non-current liabilities..................................... (2,343)
--------
Total............................................. $309,868
========
</TABLE>
The Kalex Acquisition was funded with (i) and additional equity
contribution of $200,000 and (ii) a portion of a $291,000 term loan borrowing
under the Company's senior secured credit facility (see Note 9).
Included below is unaudited pro forma financial data setting forth
condensed results of operations of the Company for the year ended December 31,
1998 and 1999, as though the Kalex Acquisition and the related financing and
equity contribution had occurred at January 1, 1998 and January 1, 1999,
respectively. In preparing this data, the financial data of Kalex for the year
ended March 31, 1998 has been translated at an exchange rate of Hong Kong
Dollars ("HK$")7.7490 = U.S.$1.00. The financial data of Kalex for the period
prior to acquisition by the Company from January through July 1999 has been
translated at an exchange rate
F-13
<PAGE> 110
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of HK$7.7536 = U.S.$1.00. These exchange rates represent the average rates in
effect for the respective periods.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $1,375,425 $1,385,586
Net loss.................................................... (91,456) (726,244)
</TABLE>
In April 1999, the Company acquired all of the outstanding shares of PAGG
Corporation ("PAGG") located in Milford, Massachusetts, for a cash purchase
price of approximately $9,300 plus the issuance of 273,223 shares of the
Company's $0.01 per share common stock valued at $2,000 and the issuance of
136,645 warrants to purchase common stock with an exercise price of $10.50
expiring in 2004. Using the Black Scholes method, at the date of issuance, the
warrants have no value. PAGG operates multiple surface mount production lines
for printed circuit board and backplane assembly and has full box build
capabilities. The acquisition was accounted for as a purchase and, accordingly,
the results of operations of PAGG since acquisition are included in the results
of operations of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a leading provider of electronic manufacturing services,
with facilities located in the United States, Canada, Mexico, the United
Kingdom, the Netherlands, Italy, Sweden, China and Puerto Rico. The Company's
customers include a diverse base of manufacturers in the telecommunications,
computer and automotive industries throughout North America and Europe.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
Local currencies have been designated as the functional currency for most
subsidiaries. Accordingly, assets and liabilities of most 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) or last-in, first-out (LIFO) method) or market. Cost includes
raw materials, labor and manufacturing overhead.
F-14
<PAGE> 111
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Repairs and
maintenance which do not extend the useful life of an asset are charged to
expense as incurred. The useful lives of leasehold improvements are the lesser
of the remaining lease term or the useful life of the improvement. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets as follows:
<TABLE>
<S> <C>
Building.................................................... 40 years
Leasehold improvements...................................... 10-12 years
Machinery, equipment, systems and other..................... 3-8 years
</TABLE>
DEFERRED FINANCING COSTS
Deferred financing costs, consisting of fees and other expenses associated
with debt financing, are amortized over the term of the related debt using the
straight-line method, which approximates the effective interest method.
INCOME TAXES
The Company accounts for certain items of income and expense in different
periods for financial reporting and income tax purposes. Provisions for deferred
income taxes are made in recognition of such temporary differences, where
applicable. A valuation allowance is established against deferred tax assets
unless the Company believes it is more likely than not that the benefit will be
realized.
INTANGIBLE ASSETS
Intangible assets consist primarily of identifiable intangibles acquired
and goodwill arising from the excess of cost over the fair value of net assets
acquired. Amortization of intangible assets is computed using systematic methods
over the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
LIFE METHOD
---- ------
<S> <C> <C>
Developed technologies.......................... 15 years Double-declining balance
Assembled workforce............................. 1 year Straight-line
Customer list................................... 3 years Straight-line
Goodwill........................................ 20-40 years Straight-line
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of its long-lived assets (including
intangible assets) based on their current and anticipated future undiscounted
cash flows. In addition, the Company's policy for the recognition and
measurement of any impairment of long-lived assets is to assess the current and
anticipated future cash flows associated with the impaired asset. An impairment
occurs when the cash flows (excluding interest) do not exceed the carrying
amount of the asset. The amount of the impairment loss is the difference between
the carrying amount of the asset and its estimated fair value.
REVENUE RECOGNITION
Sales and related costs of goods sold are included in income when goods are
shipped to the customer in accordance with the delivery terms, except in the
case of vendor managed inventory arrangements, whereby sales and the related
costs of goods sold are included in income when goods are taken into production
by the customer.
F-15
<PAGE> 112
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Accrued liabilities do not include claims
against third parties and are not discounted. Costs related to environmental
remediation are charged to expense. Other environmental costs are also charged
to expense unless they increase the value of the property and/or mitigate or
prevent contamination from future operations, in which event they are
capitalized.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company
considers investments purchased with an original maturity of three months or
less to be cash equivalents.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of the Senior Subordinated Notes due 2007 and the
Series B Senior Subordinated Notes due 2007 was $372,000 and $93,000,
respectively, at December 31, 1998 and was $220,000 and $55,000, respectively,
at December 31, 1999. The Company has estimated this fair value data by using
current market data. The fair market values of the other financial instruments
included in the consolidated financial statements approximate the carrying
values of those instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor has it
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings and other comprehensive income.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN 1999
In April 1998, the FASB adopted Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which requires costs of
start-up activities and organization costs to be expensed as incurred. SOP 98-5
is effective for financial statements for fiscal years beginning after December
15, 1998. The Company adopted SOP 98-5 in fiscal year 1999 and reported the
write off of the net book value of start-up costs as of January 1, 1999, of
$18,443 (net of income tax benefit of $6,734) as a cumulative effect of a change
in accounting principle.
F-16
<PAGE> 113
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. IMPAIRMENT LOSS
The Company has assessed the carrying value of long-lived assets, including
goodwill and other acquired intangibles in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Based on current
business enterprise values using common appraisal methods, the assessment has
identified impairment of long-lived assets acquired from the Forward, ISL and
Zincocelere acquisitions. The calculated business enterprise values determined
were compared to the net book value of the related long-lived assets with the
difference representing the amount of the impairment loss. The impairment loss
for each group of assets was first charged against goodwill with any remaining
amounts being charged to the other acquired intangibles and property, plant and
equipment, if necessary. The impairment resulted due to significant changes in
the markets served by the acquisitions that were not anticipated at the time of
each acquisition, most significantly a significant decline in market pricing.
The decline in market pricing was due to the convergence of two factors:
significant currency fluctuations and the emergence of significant offshore
competition from Asia Pacific. While the primary currency for the acquisitions
is the U.K. pound sterling, their competitors were in Continental Europe and
beginning to emerge from Asia Pacific. The currencies for most of the
Continental European and Asia Pacific countries declined significantly against
the U.K. pound sterling, which resulted in an improved relative cost position
for the competitors and reduced market pricing. This decline in market pricing
has resulted in a significant decline in profitability that is not expected to
return in the near term.
In the fourth quarter of fiscal year 1999, the Company recorded a non-cash
impairment loss of $468,389 related to the write down of $206,335 related to
goodwill, $65,877 related to developed technologies, $847 related to customer
lists and $195,330 related to machinery and equipment used in the production of
printed circuit boards of the three groups of assets.
4. SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest for the years ended December 31, 1997, 1998 and
1999, was $68,666, $99,578 and $110,185, respectively. Cash paid for income
taxes for the years ended December 31, 1997 and 1998 was $5,593 and $21,791,
respectively. For the year ended December 31, 1999 net cash received for income
tax refunds was $1,591.
The purchase of the shares of Forward Group was partially funded through
the issuance of approximately $24,420 of notes payable to Forward Group's former
shareholders. The purchase of shares of ISL was entirely funded through the
issuance of approximately $437,500 of loan notes.
In 1997, the Company received a capital contribution of $118,250 which was
transferred to Bisto Funding, Inc. The capital contribution was recorded as a
reduction of the carrying amount of the notes payable to the former shareholders
of Interconnection Systems (Holdings) Limited (see Note 1). The notes payable
recorded by the Company are net of the $118,250 as Bisto Funding, Inc. is
contractually obligated to pay such amount to the note holders in the event the
notes payable are redeemed (see Note 9).
5. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Raw materials............................................... $ 62,247 $ 56,715
Work in process............................................. 40,746 41,435
Finished goods.............................................. 44,967 77,975
-------- --------
Total............................................. $147,960 $176,125
======== ========
</TABLE>
F-17
<PAGE> 114
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
The composition of intangible assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Developed technologies...................................... $ 139,220 $ 51,670
Assembled workforce......................................... 33,907 21,269
Customer list............................................... 55,300 82,072
Goodwill.................................................... 357,562 206,928
--------- ---------
585,989 361,939
Less: Accumulated amortization.............................. (130,903) (68,231)
--------- ---------
Total................................................. $ 455,086 $ 293,708
========= =========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Land and buildings.......................................... $ 115,987 $ 184,465
Machinery, equipment, systems and other..................... 491,254 527,128
Construction in progress.................................... 132,786 31,938
Leasehold improvements...................................... 7,496 13,173
--------- ---------
747,523 756,704
Less: Accumulated depreciation.............................. (154,007) (274,560)
--------- ---------
Total................................................. $ 593,516 $ 482,144
========= =========
</TABLE>
8. ACCRUED AND OTHER LIABILITIES
The composition of accrued and other liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued payroll and related costs........................... $ 33,461 $ 30,580
Accrued capital expenditures................................ 13,040 17,026
Plant shutdown, downsizing and consolidation accruals....... 44,382 11,680
Accrued interest............................................ 7,270 16,156
Accrued and other liabilities............................... 53,093 58,121
-------- --------
Total............................................. $151,246 $133,563
======== ========
</TABLE>
F-18
<PAGE> 115
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Credit Agreements:
Term Facilities........................................... $ 175,438 $ 347,666
Revolvers................................................. 117,244 183,187
Senior Subordinated Notes Due 2007.......................... 400,000 400,000
Series B Senior Subordinated Notes Due 2007................. 100,000 100,000
Series B Senior Subordinated Notes Due 2007, Premium........ 4,211 3,865
Chips Loan Notes Liability.................................. 285,312 285,312
Capital lease obligations (see Note 10)..................... 22,663 8,362
Other....................................................... 30,124 34,131
---------- ----------
1,134,992 1,362,523
Less current maturities........................... (54,731) (27,851)
---------- ----------
$1,080,261 $1,334,672
========== ==========
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1999 is as follows:
<TABLE>
<S> <C>
2000........................................................ $ 27,851
2001........................................................ 48,967
2002........................................................ 156,936
2003........................................................ 239,611
2004........................................................ 75,647
Thereafter.................................................. 813,511
----------
$1,362,523
==========
</TABLE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the Kalex Acquisition, the Company, as guarantor, and
certain of its subsidiaries, as borrowers, entered into a Third Amended and
Restated Credit Agreement (the "Credit Agreement") with terms substantially
similar to the Second Amended and Restated Credit Agreement. The Credit
Agreement was amended to, among other things, establish an additional $291,000
term loan facility (the "New Tranche C Term Loan"), repay $10,125 outstanding
under the Chips Term Loans and to cash collateralize future amounts due under
the Chips Term Loans by approximately $89,875.
The Credit Agreement provides for (i) a term loan facility (the "U.S. Term
Loan") and a $175,000 revolving credit facility (the "U.S. Revolving Loan" and
together with the U.S. Term Loan, the "U.S. Loans"); (ii) a U.S. $25,000
revolving credit facility (the "Canadian Revolving Loan"), (iii) a L32,000
revolving credit facility (the "English Revolving Loan") and a L27,600 revolving
credit facility (the "Chips Revolving Loan", and together with the Forward Group
Revolving Loan, the "U.K. Revolving Loans", and together with the U.S. Revolving
Loan and the Canadian Revolving Loan, the "Revolving Loans") and (iv)
U.S.$346,463 Letter of Credit Facility in respect of the Chips Loan Notes
comprised of (a) a U.S.$319,250 term loan facility ("the Chips Term Loan" and
together with the U.S. Term Loan, the "Term Loans") in respect of the principal
portion of the Chips Loan Notes and (b) a U.S.$27,213 facility in respect of
interest on the Chips Loan Notes. The Chips Term Loan is an unfunded term loan
facility that may be drawn upon by the Company so that it may satisfy the Chips
Loan Notes Liability. Borrowings under the
F-19
<PAGE> 116
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Agreement are collateralized by first priority mortgages and liens on
substantially all of the material assets of the Company and its subsidiaries.
The U.S. Term Loan consists of three tranches: (i) $55,000 of tranche B
term loans (the "Tranche B Loan"), (ii) $33,000 of tranche C term loans (the
"Tranche C Loan"), (iii) $70,000 of Addition Term Loan, (iv) $291,000 New
Tranche C Term Loan. The Tranche B Loan amortizes semiannually over eight years,
the Tranche C Loan is payable $1,500 on December 31, 2004 and $31,500 on June
30, 2005, and the Additional Term Loan amortizes semiannually over 6.5 years.
The New Tranche C Term Loan and the Chips Term Loan amortize semi-annually over
six years.
At December 31, 1998, the Company had approximately $161,200 of available
borrowing capacity under the Revolving Loans, of which, approximately $59,900
was available solely for future acquisitions. At December 31, 1999, the Company
had approximately $77,830 of available borrowing capacity under the Revolving
Loans.
The U.S. Loans bear interest, at the Company's election, at either: (i) the
Eurocurrency Base Rate plus (a) 2.75% (2.5% at December 31, 1999) in the case of
the Chips Term Loan and U.S. Revolving Loan, (b) 3.25% (2.75% at December 31,
1999) in the case of the Additional Term Loan, (c) 3.25% (3.0% at December 31,
1999) in the case of Tranche B Loan, or (d) 3.75% (3.5% at December 31, 1999) in
the case of Tranche C Loan and the New Tranche C Term Loan; or (ii) the
Alternate Base Rate plus (a) 1.75% (1.5% at December 31, 1999) in the case of
the Chips Term Loan or U.S. Revolving Loan, (b) 2.25% (1.75% at December 31,
1999) in the case of the Additional Term Loan, (c) 2.25% (2.0% at December 31,
1999) in the case of Tranche B Loan, or (d) 2.75% (2.5% at December 31, 1999) in
the case of Tranche C Loan and the new Tranche C Term Loan. The Alternate Base
Rate is the highest of The Chase Manhattan Bank's Prime Rate, the Three-Month
Secondary CD Rate (as defined therein) plus 1.0%, and the Federal Funds
Effective Rate (as defined therein) plus 0.5%. The Canadian Revolving Loan
denominated in U.S. dollars bears interest, at Circo Craft's election, at either
(i) the Eurocurrency Base Rate plus 2.75% (2.5% at December 31, 1999) or (ii)
the Canadian Alternate Base Rate plus 1.75% (1.5% at December 31, 1999). The
Canadian Revolving Loan denominated in Canadian Dollars bears interest, at Circo
Craft's election either (i) the Canadian Bankers Acceptance Discount Rate plus
2.75% (2.5% at December 31, 1999) or (ii) the Canadian Prime Rate plus 1.75%
(1.5% at December 31, 1999). The Canadian Alternate Base Rate is equal to the
higher of Canadian Agent's prime rate or the Federal Funds Effective Rate (as
defined in the Credit Agreement) plus 0.5%. The U.K. Revolving Loans and any
Chips Term Loans converted to pounds sterling bear interest at the Eurocurrency
Base Rate plus 2.75% (2.5% at December 31, 1999). At December 31, 1998 and 1999
the weighted average interest rate on outstanding borrowings under the Credit
Agreement was 8.0% and 8.5%, respectively.
The Company pays a per annum fee equal to the applicable margin on
Revolving Loans which bear interest at the Eurocurrency Base Rate, of the
average daily face amount of outstanding letters of credit, other than with
respect to the Chips Letter of Credit, which fee is equal to the applicable
margin on the Chips Term Loan bearing interest at the Eurocurrency Base Rate.
The Company pays a Commitment Fee equal to 0.5% on the undrawn portion of the
commitments in respect of Revolving Loans and a Facility Fee equal to 0.5% on
the Canadian revolving credit commitment.
The Credit Agreement restricts the Company from, among other things: (i)
incurring additional indebtedness (other than permitted indebtedness); (ii)
creating liens; (iii) disposing of assets; (iv) guaranteeing indebtedness; (v)
merging or selling substantially all of its assets; (vi) declaring and paying
certain dividends; (vii) making certain investments and loans; and (viii)
entering into certain transactions with affiliates, in each case with certain
exceptions customary for credit facilities such as the Amended Senior Credit
Facilities. In addition, the Credit Agreement contains financial covenants which
require the Company to maintain certain financial ratios and limit the Company's
amount of capital expenditures.
F-20
<PAGE> 117
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SENIOR SUBORDINATED NOTES AND SERIES B SENIOR SUBORDINATED NOTES
In June 1997, Viasystems, Inc. (a wholly owned subsidiary of the Company)
completed an offering (the "1997 Offering") of $400,000 of 9 3/4% Senior
Subordinated Notes due 2007 (the "1997 Notes"). In February 1998, Viasystems,
Inc. completed the offering of an additional $100,000 of 9 3/4% Senior
Subordinated Notes due 2007 at a price of 104.5% (the "1998 Notes" and together
with the 1997 Notes, the "2007 Notes"). As a condition of the offering of the
1998 Notes, Hicks Muse contributed an additional $50,000 of equity to the
Company.
Interest on the 2007 Notes is due semiannually. The 2007 Notes may not be
redeemed prior to June 1, 2002, except in the event of a Change of Control (as
defined) or an Initial Public Offering (as defined) and at premium (as defined
in the Indenture). The 2007 Notes are redeemable, at the Company's option, at
the redemption prices of 104.875% at June 1, 2002, and at decreasing prices to
100% at June 1, 2005, and thereafter, plus accrued interest. In addition, prior
to June 1, 2001, the Company may redeem, within specified guidelines, up to
$175,000 of the 2007 Notes with proceeds of one or more Equity Offerings (as
defined) by Viasystems, Inc. or the Company at a redemption price of 109.75%
plus accrued interest.
CHIPS LOAN NOTES LIABILITY
In June 1997 and pursuant to the Chips Merger, the Company assumed the
$437,500 of Chips Loan Notes, and then entered into a reimbursement obligation
which requires it to pay a portion of the Chips Loan Notes in the event such
notes are called. The Chips Loan Notes mature on March 31, 2003 and bear
interest, payable quarterly, at approximately 6.22% per annum through April 1,
1998, with variable rate thereafter discounted from the U.S. prime rate. The
Chips Loan Notes may be called by the holders on or after any interest payment
date commencing April 1, 1998. The Chips Loan Notes are collateralized by
letters of credit which are in turn collateralized in part by a fully cash
collateralized $118,250 reimbursement obligation of Bisto Funding, Inc., a
special purpose entity established as a subsidiary of the Company in connection
with the acquisition of ISL, with the remainder, including interest on the Chips
Loan Notes for one year, collateralized by a reimbursement obligation of the
Company (the "Chips Reimbursement Obligation"). As such, the Company's liability
for principal under the Chips Loan Notes represents $319,250 (the "Chips Loan
Notes Liability"), or the amount achieved by netting the $118,250 of cash
collateral held by Bisto Funding, Inc. against the $437,500 of Chips Loan Notes.
To the extent the interest income earned by Bisto Funding, Inc. on the $118,250
of cash it holds is insufficient to fund interest on $118,250 of the principal
amount of the Chips Loan Notes, the Company will be required pursuant to the
terms of the Chips Reimbursement Obligation to fund any such shortfall. Upon
redemption of the Chips Loan Notes, the first $118,250 of principal payments
will be paid by Bisto Funding, Inc. and the remainder will be funded by the
Company in accordance with the Chips Reimbursement Obligation. Although the
Chips Loan Notes may be called by the holders on or after any interest payment
date commencing April 1, 1998, the Chips Loan Notes have not been classified as
current at December 31, 1998 and 1999, since the Company has in place a facility
to replace the Chips Loan Notes in the event they are called.
In April 1998 the holders of the Chips Loan Notes redeemed $152,200 of the
Chips Loan Notes. As such, $118,300 of cash held by Bisto Funding, Inc. was paid
to the holders of the Chips Loan Notes. The Company borrowed $33,900 of the
available Chips Term Loan to fund its portion of the payment of the Chips Loan
Notes.
SENIOR SUBORDINATED CREDIT AGREEMENT
In April 1997, the Company entered into a $216,000 Senior Subordinated
Credit Agreement (the "Subordinated Credit Facility"). The proceeds of the
Subordinated Credit Facility were used to repay $20,000 of term loans
outstanding under the Credit Agreement and to repay a tender facility used to
acquire Forward Group. Amounts due under the Senior Subordinated Credit Facility
were repaid with proceeds from the 1997 Offering.
F-21
<PAGE> 118
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
The Company leases certain building and transportation and other equipment
under capital and operating leases. Included in property, plant, and equipment
as of December 31, 1998 and 1999, was $59,645 and $39,252, respectively, of cost
basis and $28,124 and $23,343, respectively, of accumulated depreciation related
to equipment held under capital leases. Total rental expense under operating
leases $3,655, $3,706 and $5,145 for the years ended December 31, 1997, 1998 and
1999, respectively. Future minimum lease payments under capital leases and
operating leases that have initial or remaining noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
------------ ------- ---------
<S> <C> <C>
2000..................................................... $6,928 $ 5,608
2001..................................................... 1,671 4,750
2002..................................................... 14 3,276
2003..................................................... 7 2,106
2004..................................................... 6 1,511
Thereafter............................................... 3 2,834
------ -------
Total............................................. 8,629 $20,085
=======
Less: Amounts representing interest...................... (267)
------
Capital lease obligation (see Note 9)............. $8,362
======
</TABLE>
11. OTHER NONCURRENT LIABILITIES
Included in other noncurrent liabilities are liabilities for monitoring and
oversight fees to Hicks, Muse & Co. Partners L.P. ("Hicks Muse"), a shareholder
and affiliate of the Company, (see Note 20) and deferred income related to
reimbursement agreements with two governmental agencies in the U.K. (the "U.K.
Agreements"). Pursuant to the U.K. Agreements, the agencies have provided funds
totaling approximately $27,200 as of December 31, 1999. Funds received by the
Company under the U.K. Agreements are not subject to repayment, provided that
the Company meets certain employment and capital expenditure requirements at its
manufacturing facilities. For the year ended March 31, 1999 the cumulative
minimum employment requirements were 1,350 employees and the capital expenditure
requirements were L27,000. For the year ended March 31, 2000, the cumulative
minimum employment requirements were 1,425 employees and the capital expenditure
requirements were L245,000. As the Company has met and management believes that
it will continue to meet these requirements, the Company is recognizing the
amounts to be received under the U.K. Agreements as a reduction of cost of sales
over the life of the U.K. Reimbursement Agreements and, as such, recognized a
reduction of cost of sales of approximately $3,134, $3,147 and $3,042 during the
years ended December 31, 1997, 1998 and 1999, respectively. In the event the
Company failed to achieve the cumulative minimum employment requirements and
capital expenditure requirements in the future, the agencies could require the
full amount of such funds to be repaid. However, since the Company has already
surpassed the employment requirements and the capital expenditure requirements
for the full term of the agreements, the Company believes it unlikely that such
funds would be required to be repaid.
F-22
<PAGE> 119
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision (benefit) for income taxes for the years ended
December 31, 1997, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 6,897 $ 16,325 $ 1,592
State.............................................. 1,560 852 164
Foreign............................................ 19,262 (5,165) 5,120
-------- -------- --------
27,719 12,012 6,876
-------- -------- --------
Deferred:
Federal............................................ (1,479) (1,466) 2,065
State.............................................. (343) 182 405
Foreign............................................ (12,407) (12,540) (32,558)
-------- -------- --------
(14,229) (13,824) (30,088)
-------- -------- --------
$ 13,490 $ (1,812) $(23,212)
======== ======== ========
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
U.S. Federal statutory rate........................ $(104,781) $(28,860) $(253,772)
Loss on investment in foreign subsidiaries......... -- -- (130,931)
Amortization of goodwill and write-off of acquired
in-process research and development costs........ 103,077 17,114 77,309
Change in the valuation allowance for deferred
tax assets....................................... -- -- 244,255
Federal taxes on undistributed foreign earnings
(loss)........................................... 6,634 -- (4,203)
Equity in earnings of affiliates not taxable due to
dividends received deduction..................... -- -- (1,400)
State taxes net of federal benefit................. 2,075 1,158 (1,325)
Foreign income and withholding taxes in excess of
U.S. statutory rate.............................. 6,437 7,569 8,030
Non-cash compensation expense...................... -- 1,189 38,525
Other.............................................. 48 18 300
--------- -------- ---------
$ 13,490 $ (1,812) $ (23,212)
========= ======== =========
</TABLE>
F-23
<PAGE> 120
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Fixed assets.............................................. $ -- $ 38,180
Accrued liabilities not yet deductible.................... 25,216 19,367
Net operating loss carryforwards.......................... 22,848 87,216
AMT credit carryforwards.................................. 3,822 1,128
Capital loss carryforwards................................ -- 126,391
Other..................................................... 3,453 9,824
-------- --------
282,106
Valuation allowance.................................... -- (244,255)
-------- --------
55,339 37,851
-------- --------
Deferred tax liabilities:
Intangibles............................................... (40,358) (13,227)
Fixed assets.............................................. (37,644) (11,364)
Other..................................................... (7,054) (10,200)
-------- --------
(85,056) (34,791)
-------- --------
Net deferred tax asset (liability)................ $(29,717) $ 3,060
======== ========
</TABLE>
The current deferred tax assets are included in prepaid expenses and other
and the long-term deferred tax assets, consisting of net operating loss
carryforwards, are in other assets in the Consolidated Balance Sheets.
The net change in valuation allowance for the year ended December 31, 1999
was an increase of $244,255. This valuation allowance has been provided for the
capital loss carryforward and those net operating loss carryforwards which are
estimated to expire before they are utilized. Because the capital loss
carryforward period is relatively short, a full valuation allowance has been
provided against the deferred tax asset.
Approximate domestic and foreign income (loss) before income tax provision
and extraordinary item are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Domestic........................................ $ 15,337 $ 9,667 $(175,511)
Foreign......................................... (314,710) (92,125) (549,553)
</TABLE>
As of December 31, 1999 the Company had the following net operating loss
carryforwards: $65,222 in the U.S., $46,658 in the U.K., $6,672 in Puerto Rico,
$10,844 in the People's Republic of China, $24,996 in the Netherlands, $2,517 in
Italy, and $3,041 in Sweden. The U.S. NOL's expire in 2018 through 2019 where
the NOLs in the People's Republic of China and Puerto Rico begin to expire in
2000. The other NOLs carryforward indefinitely. The U.S. also has a capital loss
carryforward of $360,000 that will expire in 2004. The Company has not
recognized and does not anticipate recognizing a deferred tax liability for
approximately $22,000 of undistributed earnings of its foreign subsidiaries
because the Company does not expect those earnings to reverse and become taxable
to the Company in the foreseeable future.
13. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to such
matters as patents, product development and other actions arising in the normal
course of business. In the opinion of the Company's
F-24
<PAGE> 121
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management, the ultimate liabilities resulting from such lawsuits and claims
will not have a material adverse effect on the Company's financial condition and
results of operations and cash flows.
The Company believes it is in material compliance with applicable
environmental laws and regulations and that its environmental controls are
adequate to address existing regulatory requirements.
14. STOCKHOLDERS' EQUITY AND PREFERRED STOCK
The authorized capital stock of the Company at December 31, 1999 consists
of 600,000,000 shares of common stock, 50,000,000 shares of Class A common
stock, 50,000,000 shares of Class A Series II common stock and 60,000,000 shares
of preferred stock, of which 8,000,000 shares are designated as Series A
Preferred Stock and 6,000,000 shares are designated as Series B Preferred Stock.
All authorized capital stock has a par value of $.01.
The Class A and Class A Series II common stock may be converted into shares
of common stock at the option of the holder at any time. In addition, the Class
A and Class A Series II common stock may be converted into common stock at the
option of the Company upon the occurrence of a Triggering Event (as defined) or
automatically on September 30, 2006 for Class A common stock and April 30, 2006
for Class A Series II common stock. Such conversion is based on a formula set
forth in the Company's Certificate of Incorporation. During the years ended
December 31, 1997, 1998 and 1999, the Company recorded non-cash compensation
charges of $--, $3,398 and $110,070, respectively, which reflect the difference
between the cost of the class A and class A series II common stock and the value
of the defined conversion feature at those dates.
Activity for each class of common stock from December 31, 1996 through
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS A SERIES II
COMMON STOCK COMMON STOCK COMMON STOCK
------------------- ------------------ ------------------
SHARES AT PAR SHARES AT PAR SHARES AT PAR
---------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 5,000,001 $ 50 683,056 $ 7 -- $--
Issuance of common stock............ 37,745,833 377 -- -- -- --
Issuance of Class A common stock.... -- -- 5,122,917 51 -- --
---------- ---- --------- --- --------- ---
Balance at December 31, 1997........ 42,745,834 427 5,805,973 58 -- --
Issuance of common stock............ 7,668,976 77 -- -- -- --
Issuance of Class A common stock.... -- -- 56,921 1 -- --
Issuance of Class A Series II common
stock............................. -- -- -- -- 990,062 10
---------- ---- --------- --- --------- ---
Balance at December 31, 1998........ 50,414,810 504 5,862,894 59 990,062 10
Issuance of common stock............ 27,603,129 276 -- -- -- --
Issuance of Class A Series II common
stock............................. -- -- -- -- 5,182,829 52
Repurchase of common stock, at
cost.............................. (16,667) -- -- -- -- --
Repurchase of Class A common
stock............................. -- -- (666,678) -- -- --
---------- ---- --------- --- --------- ---
Balance at December 31, 1999........ 78,001,272 $780 5,196,216 $59 6,172,891 $62
========== ==== ========= === ========= ===
</TABLE>
Dividends are payable to holders of the common stock, Class A common stock
and Class A Series II common stock in amounts as declared by the Company's board
of directors, subject to legally available funds and certain agreements. The
common stock and Class A common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders.
F-25
<PAGE> 122
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends on the Series B Preferred are cumulative and are payable at an
annual rate of $2.00 per share per annum prior to November 30, 2004, $2.50 per
share per annum from November 30, 2004 to November 30, 2005, $3.00 per share per
annum from November 30, 2005 to November 30, 2006, and $3.50 per share per annum
on and after November 30, 2006. Dividends are payable quarterly on February 28,
May 31, August 31 and November 30 in each year, commencing on February 28, 1997.
The discount on the stock, which represents the difference between the present
value of a perpetual dividend stream of $3.50 per year and the current
subscription price, is being accreted at the rate of 10.4% per year, over 10
years. Dividend cost associated with the preferred stock is increased for the
accretion of discounts. The Company may, at its option, pay quarterly dividends
on the Series B Preferred on the first twenty payment dates, if the Credit
Agreement prohibits the payment of cash dividends, by issuing a number of
additional shares (or fractional shares) of Series B Preferred in respect to
each such share (or fractional share) of Series B Preferred then outstanding at
the rate of one twenty-fifth of a whole share of Series B Preferred for each
$1.00 of dividend declared. Except in the case of a Change in Control (as
defined), which currently cannot occur without the consent of shareholders, the
Series B Preferred have no provisions for mandatory redemption. At the Company's
option, the Series B Preferred is redeemable at any time, at $25 per share,
together with accrued and unpaid dividends to the date of redemption.
15. BUSINESS SEGMENT INFORMATION
The Company operates in one product business segment -- the manufacture and
sale of PCBs, which are sold throughout many diverse markets.
The Company's operations are located worldwide and are analyzed by two
geographical segments. The accounting policies of the segments are the same as
those described in the "Summary of Significant Accounting Policies" (note 2).
Segment data includes intersegment revenues.
Pertinent financial data by major geographic segments is as follows:
<TABLE>
<CAPTION>
OPERATING TOTAL CAPITAL
NET SALES INCOME/(LOSS) ASSETS EXPENDITURES
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
NORTH AMERICA:
Year ended December 31, 1997............. $ 664,696 $ 71,206 $ 521,120 $ 44,638
Year ended December 31, 1998............. 692,313 83,399 599,997 56,522
Year ended December 31, 1999............. 769,572 (73,106) 618,486 50,588
EUROPE:
Year ended December 31, 1997............. $ 296,023 $(289,490) $ 632,428 $ 74,887
Year ended December 31, 1998............. 512,239 (50,494) 945,644 78,011
Year ended December 31, 1999............. 454,386 (496,239) 362,991 72,704
ASIA:
Year ended December 31, 1997............. $ -- $ -- $ -- $ --
Year ended December 31, 1998............. -- -- -- --
Year ended December 31, 1999............. 80,978 (7,684) 327,749 14,711
ELIMINATIONS
Year ended December 31, 1997............. $ -- $ -- $ -- $ --
Year ended December 31, 1998............. (2,231) -- -- --
Year ended December 31, 1999............. (11,566) -- -- --
TOTAL:
Year ended December 31, 1997............. $ 960,719 $(218,284) $1,153,548 $119,525
Year ended December 31, 1998............. 1,202,321 32,905 1,545,641 134,533
Year ended December 31, 1999............. 1,293,370 (577,029) 1,309,226 138,003
</TABLE>
F-26
<PAGE> 123
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales by country of destination are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
United States..................................... $602,158 $ 623,976 $ 703,862
United Kingdom.................................... 138,274 189,103 153,083
Sweden............................................ 45,168 105,331 78,898
Canada............................................ 54,555 47,880 75,016
Other............................................. 120,564 236,031 282,511
-------- ---------- ----------
Total................................... $960,719 $1,202,321 $1,293,370
======== ========== ==========
</TABLE>
Long-lived assets by country are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1999
---------- --------
<S> <C> <C>
United States............................................... $ 283,855 $249,740
United Kingdom.............................................. 575,171 66,522
China....................................................... -- 264,370
The Netherlands............................................. 66,275 59,156
Italy....................................................... 102,874 47,758
Canada...................................................... 84,171 105,279
Other....................................................... 30,796 29,972
---------- --------
Total............................................. $1,143,142 $822,797
========== ========
</TABLE>
16. CONCENTRATION OF BUSINESS
Sales to one customer were 32%, 27% and 26% of net revenues for the years
ended December 31, 1997, 1998 and 1999, respectively. When the Company acquired
Lucent's captive printed circuit board facility in December 1996, we entered
into a supply agreement with Lucent. Under the terms of the supply agreement,
the Company was required to reduce over a two year period the pricing to Lucent.
As a result in 1998 and 1999 the Company experienced price reductions under the
Lucent contract which exceeded industry wide price decreases. Commencing January
1, 1999 the Company began charging Lucent market pricing as required under the
supply agreement.
17. STOCK OPTION PLANS
On February 4, 1997, the Company adopted the 1997 Stock Option Plan (the
"Option Plan"), pursuant to which incentive and non-qualified stock options,
stock appreciation rights, stock awards, performance awards, and stock units
(vesting stock awards) may be issued. A total of 1,401,630 shares of the
Company's Common Stock will be reserved for issuance under the Option Plan. The
terms and vesting periods of the options granted are to be determined by the
board of directors. All options granted under the Option Plan to date have ten
year terms and vest over five year periods.
The Company has also granted performance options ("the Performance
Options") to certain key executives. The Performance Options are exercisable
only if 1) in the event that certain affiliates of Hicks Muse have, as of the
exercise date, realized an overall rate of return of at least 35% per annum,
compounded annually, on all equity funds invested by it in the Company and 2)
certain liquidity events have occurred, including an initial public offering of
the Company's common stock. The exercise price for the Performance Options is
initially equal to $6.00 per share for grants made during 1997 and $7.32 per
share for grants made during 1998 and 1999 and, effective each anniversary of
the grant date, the per share exercise price for the Performance Options is
equal to the per share exercise price for the prior year multiplied by 1.08. The
F-27
<PAGE> 124
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Options terminate on the tenth anniversary date of the date of
grant. Through December 31, 1999, no compensation expense has been measured on
the outstanding performance options as achievement of the performance criteria
has not been considered probable.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the Option Plan which allows compensation expense to be measured
using the intrinsic value method. As such, compensation cost is calculated as
the excess of the market price of the stock at the grant date over the amount an
employee must pay to acquire the stock (i.e., the exercise price). Had
compensation cost for the Option Plan and the Performance Options been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under Financial Accounting
Standards No. 123, pro forma net loss for the years ended December 31, 1997,
1998 and 1999, would have been $(320,759), $(80,824) and $(721,554),
respectively. Pro forma basic and diluted loss per weighted average common share
would have been $(10.76) and $(12.23) for December 31, 1997, $(1.55) and $(1.72)
for December 31, 1998 and $(10.16) and $(10.79) for December 31, 1999.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes method with the following assumptions: (i) no dividend yield;
(ii) risk free interest rate of 5.5%; (iii) expected life of 5 years; and (iv)
volatility factor of 60%.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts of compensation costs. Additional awards in future
years are anticipated.
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS
PER SHARE OUTSTANDING PER SHARE VESTED
-------------- ----------- -------------- -------
<S> <C> <C> <C> <C>
December 31, 1996............................. $ -- -- $ -- --
Granted..................................... 6.00 871,667 -- --
Vested...................................... 6.00 -- 6.00 33,333
Forfeited................................... 6.00 (4,166) -- --
-------- -------
December 31, 1997............................. 6.00 867,501 6.00 33,333
Granted..................................... 7.32 514,167 -- --
Vested...................................... 6.00 -- 6.00 121,000
Forfeited................................... 6.12 (253,333) -- --
Exercised................................... 6.00 (2,500) 6.00 (2,500)
-------- -------
December 31, 1998............................. 6.60 1,125,835 6.00 151,833
Granted..................................... 7.32 1,521,665 -- --
Vested...................................... 6.49 -- 6.49 203,500
Forfeited................................... 7.23 (209,667) -- --
Exercised................................... 6.30 (7,500) 6.30 (7,500)
-------- -------
December 31, 1999............................. $6.99 2,430,333 $6.30 347,833
</TABLE>
F-28
<PAGE> 125
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the status of the Performance Options are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE OUTSTANDING VESTED
-------------- ----------- -------
<S> <C> <C> <C>
August 28, 1996 (inception)................................. $6.00 -- --
Granted................................................... 6.00 180,865 --
--------- --
December 31, 1996........................................... 6.00 180,865 --
Granted................................................... 6.00 1,356,484 --
Vested.................................................... -- -- --
Forfeited................................................. -- -- --
--------- --
December 31, 1997........................................... 6.00 1,537,349 --
Granted................................................... 7.32 277,220 --
Vested.................................................... -- --
Forfeited................................................. --
--------- --
December 31, 1998........................................... 6.66 1,814,569 --
Granted................................................... 7.32 988,328 --
Vested.................................................... -- -- --
Forfeited................................................. -- -- --
Exercised................................................. -- -- --
--------- --
December 31, 1999........................................... $7.26 2,802,897 --
===== ========= ==
</TABLE>
The weighted average grant-date fair value of options granted during 1997,
1998 and 1999 was $1.38, $1.74 and $1.74 per share, respectively. All options
outstanding under the Option Plan at December 31, 1999, have exercise prices
between $6.00 and $7.32 per share and have weighted average remaining
contractual lives of between 9 and 10 years.
Of the Performance Options outstanding at December 31, 1999, 180,865,
1,356,484, 1,537,349 and 1,814,569 have exercise prices of $7.56, $7.02, $7.92
and $7.32, respectively, and have a weighted average remaining contractual life
of approximately 9 years.
18. RETIREMENT PLANS
The Company has a defined contribution retirement savings plan (the "Plan")
covering substantially all domestic employees who meet certain eligibility
requirements as to age and length of service. The Plan incorporates the salary
deferral provision of Section 401(k) of the Internal Revenue Code and employees
may defer up to 15% of compensation or the annual maximum limit prescribed by
the Internal Revenue Code. The Company contributes 1% of employees salaries to
the Plan and matches a percentage of the employees' deferrals. The Company may
also elect to contribute an additional profit-sharing contribution to the Plan
at the end of each year. The Company's contributions to the Plan were $987,
$1,617 and $2,627 for the years ended December 31, 1997, 1998 and 1999,
respectively.
The Company and its subsidiaries have two defined benefit pension plans
covering certain groups of employees in foreign countries. The benefits are
based on years of services and final average salary. The Company's funding
policy is to make annual contributions to the extent such contributions are
actuarially determined.
F-29
<PAGE> 126
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of net pension expense are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Service cost (present value of benefits earned in the
year)................................................. $ 1,821 $ 2,896 $ 2,301
Interest cost on the projected benefit obligation....... 2,699 3,741 3,421
Expected return on assets............................... (6,970) (4,872) (4,780)
Net amortization and deferral........................... 4,016 -- 90
------- ------- -------
Net periodic pension costs.............................. $ 1,566 $ 1,765 $ 1,032
======= ======= =======
</TABLE>
The following table sets forth a reconciliation of the projected benefit
obligation:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Projected benefit obligation, beginning of year......... $ -- $54,469 $66,469
Acquisitions............................................ 44,977 -- --
Service cost (present value of benefits earned in the
year)................................................. 1,821 2,896 2,301
Interest cost on the projected benefit obligation....... 2,699 3,741 3,421
Plan participant's contributions........................ 1,347 2,031 1,587
Actuarial (gain)/loss................................... 4,165 3,915 (7,691)
Benefits paid........................................... (540) (980) (1,733)
Translation............................................. -- 397 (2,330)
------- ------- -------
Projected benefit obligation, end of year............... $54,469 $66,469 $62,024
======= ======= =======
</TABLE>
The following table sets forth a reconciliation of the plan assets:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Fair value of plan assets, beginning of year............. $ -- $53,434 $60,695
Acquisitions............................................. 43,675 -- --
Actual return on plan assets............................. 6,976 2,980 7,464
Employer contributions................................... 1,976 2,841 2,737
Plan participant's contributions......................... 1,347 2,031 1,587
Benefits paid............................................ (540) (980) (1,733)
Translation.............................................. -- 389 (2,128)
------- ------- -------
Fair value of plan assets, end of year................... $53,434 $60,695 $68,622
======= ======= =======
</TABLE>
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Projected benefit obligation................................ $66,469 $62,024
Plan assets at fair value, primarily equity and fixed-income
securities................................................ 60,695 68,622
------- -------
Plan assets (less than) more than projected benefit
obligation................................................ (5,774) 6,598
Unrecognized net actuarial loss (gain)...................... 5,950 (4,724)
Adjustment required to recognize minimum liability.......... (1,916) (1,068)
------- -------
Net pension (liability) asset............................... $(1,740) $ 806
======= =======
</TABLE>
F-30
<PAGE> 127
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal assumptions used are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
PERCENT PERCENT PERCENT
------- ------- -------
<S> <C> <C> <C>
Weighted average discount rates............................. 6.75% 5.50% 5.75%
Long term rate of return on plan assets..................... 8.75% 8.00% 8.00%
Salary Growth............................................... 4.75% 4.25% 3.75%
Pension Increases........................................... 3.00% 2.50% 2.75%
</TABLE>
19. RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and
application of new products and processes were approximately $10,800, $13,400
and $14,400 for the years ended December 31, 1997, 1998 and 1999, respectively.
20. RELATED PARTY TRANSACTIONS
In connection with the Acquisitions and the related financing, the Company
entered into a Monitoring and Oversight Agreement and a Financial Advisory
Agreement (together herein defined as the "Agreements") with Hicks Muse (a
shareholder and affiliate of the Company) pursuant to which the Company paid
Hicks Muse a cash fee of $10,400, $2,463 and $4,684 for the years ended December
31, 1997, 1998 and 1999, respectively, as compensation for financial advisory
services. The fees have been allocated to acquisition costs and the debt and
equity securities issued in connection with the Acquisitions. The Agreements
further provide that the Company shall pay Hicks Muse an annual fee of $1,750
for ten years of monitoring and oversight services, adjusted annually at the end
of each fiscal year to an amount equal to .2% of the budgeted consolidated net
sales of the Company, but in no event less than $1,750 annually.
Pursuant to the Chips Merger, the Company assumed the $437,500 of Chips
Loan Notes, and the Company entered into a Reimbursement Obligation which
requires it to pay a portion of the principal and interest on the Chips Loan
Notes in the event such notes are called. In April 1998, the holders of the
Chips Loan Notes redeemed $152,188 of the Chips Loan Notes. As such, $118,250 of
cash held by Bisto Fundings, Inc. was paid to the holders of the Chips Loan
Notes. The remaining $33,938 was paid to the holders of the Chips Loan Notes by
the Company. The Company's remaining portion of the Chips Loan Notes at December
31, 1999 is $285,312 (see Note 9).
21. EXTRAORDINARY ITEM
During the year ended December 31, 1997, the Company recorded, as an
extraordinary item, a one-time, non-cash write-off of deferred financing fees of
approximately $7,796, net of income tax benefit of $4,332, related to deferred
financing fees incurred on debt retired before maturity.
F-31
<PAGE> 128
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. EARNINGS PER SHARE
Basic earnings per common share amounts are computed using the weighted
average number of common shares outstanding during the year. Basic earnings per
weighted average common share are computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Loss before cumulative effect of a change in accounting
principle and extraordinary item....................... $ (312,863) $ (80,646) $ (701,852)
Plus paid-in-kind dividends and accretion on preferred
stock.................................................. (3,298) (3,735) (4,240)
Less loss attributable to Class A common shareholders.... 37,826 8,964 54,100
Less loss attributable to Class A Series II common
shareholders........................................... -- 993 37,872
---------- ---------- ----------
Loss available to common shareholders before cumulative
effect of a change in accounting principle and
extraordinary item..................................... $ (278,335) $ (74,424) $ (614,120)
========== ========== ==========
Basic weighted average common shares outstanding......... 26,507,409 48,205,838 62,123,268
========== ========== ==========
Basic loss per weighted average common share before
cumulative effect of a change in accounting principle
and extraordinary item................................. $ (10.50) $ (1.54) $ (9.89)
========== ========== ==========
Basic net loss per weighted average common share......... $ (10.76) $ (1.54) $ (10.14)
========== ========== ==========
</TABLE>
Losses attributable to Class A and Class A Series II are calculated on a
one to one basis using the weighted average shares outstanding before conversion
as these classes have identical rights and privileges with respect to dividends
and voting as the common shares.
Diluted earnings per weighted average common share are computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Loss before cumulative effect of a change in accounting
principle and extraordinary item....................... $ (312,863) $ (80,646) $ (701,852)
Plus paid-in-kind dividends and accretion on preferred
stock.................................................. (3,298) (3,735) (4,240)
---------- ---------- ----------
Loss available to common shareholders before cumulative
effect of a change on accounting principle and
extraordinary item..................................... $ (316,161) $ (84,381) $ (706,092)
========== ========== ==========
Weighted average common shares outstanding............... 26,507,409 48,205,838 62,123,268
Common shares assuming conversion of Class A and Class A
Series II.............................................. -- 463,690 5,115,190
---------- ---------- ----------
Diluted weighted average common shares outstanding....... 26,507,409 48,669,528 67,238,458
========== ========== ==========
Diluted loss per weighted average common share before
cumulative effect of a change in accounting principle
and extraordinary item................................. $ (11.93) $ (1.71) $ (10.50)
========== ========== ==========
Diluted net loss per weighted average common share....... $ (12.22) $ (1.71) $ (10.77)
========== ========== ==========
</TABLE>
Shares assumed in the conversion of Class A and Class A Series II are
calculated on an as if converted basis using the formula set forth in the
Company's Certificate of Incorporation, which yields a less than one to one
ratio.
F-32
<PAGE> 129
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of losses incurred for the years ended December 31, 1997, 1998,
and 1999, the following potentially dilutive securities were not included in
diluted earnings per share because their inclusion would be anti-dilutive:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Performance options......................................... 1,537,349 1,814,569 2,802,900
Stock options............................................... 867,501 1,125,835 2,460,000
Stock warrants.............................................. -- -- 136,645
</TABLE>
23. STOCK SPLIT
On March 23, 2000, in connection with the initial public offering, the
Company declared a reverse stock split and reclassified each 6 2/3 shares of
class A common stock and class A series II common stock into one share of common
stock. Each share of common stock was converted into 1/6 of a share of common
stock. All share and per share data have been restated for the reverse split and
reclassification.
24. SUBSEQUENT EVENTS
In March 2000, the Company effected a transfer to the Company's existing
stockholders of all of the capital stock of certain businesses ("NewCo") in
Europe. NewCo consists primarily of the operations formerly conducted by
Forward, Zincocelere, ISL and Viasystems Sweden. In consideration for the
transfer, NewCo will deliver notes payable to the Company for approximately
$124,000 in the aggregate, which will be classified as a component of
shareholders' equity. Any difference at the date of transfer between net book
value of NewCo ($(131,449) at December 31, 1999) and $124,000 will be accounted
for as a reduction or increase to additional paid in capital. The notes will
each have a 10 year term and bear interest at a rate of 9% per annum, payable in
kind by the issuance of additional notes.
On February 4, 2000, certain covenants of the Third Amended and Restated
Credit Agreement were amended.
In March 2000, the Company acquired all of the outstanding shares of
Wirekraft Industries, Inc. (the "Wire Harness Business"), a wholly owned
subsidiary of International Wire Group, Inc., an affiliate of Hicks, Muse, Tate
& Furst Incorporated ("HMTF") (the "Wire Harness Acquisition") for a cash
purchase price of $210,798. The Wire Harness Business manufactures and assembles
wire harness products. The Wire Harness Acquisition occurred immediately prior
to the Company's initial public offering. The Company and International Wire
Group, Inc. are considered entities under common control. Accordingly, the
acquisition has been accounted for on an "as if pooling basis," with the excess
purchase price over book value acquired accounted for as a distribution to the
Company's stockholders. Additionally, as the acquisition has been accounted for
on an "as if pooling basis," the Company's consolidated financial statements
have been restated
F-33
<PAGE> 130
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to reflect the acquisition as if it occurred at the beginning of the first
period presented. A reconciliation of the previously reported results for the
years ended 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Net sales:
As previously reported......................... $ 795,289 $1,031,928 $1,102,324
Wire Harness Business.......................... 165,430 170,393 191,046
--------- ---------- ----------
$ 960,719 $1,202,321 $1,293,370
========= ========== ==========
Net income (loss):
As previously reported......................... $(327,488) $ (88,181) $ (726,342)
Wire Harness Business.......................... 6,829 7,535 6,047
--------- ---------- ----------
$(320,659) $ (80,646) $ (720,295)
========= ========== ==========
</TABLE>
F-34
<PAGE> 131
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,839 $ 22,445
Accounts receivable, net.................................. 236,455 275,526
Inventories............................................... 176,125 193,947
Prepaid expenses and other................................ 51,010 54,004
----------- -----------
Total current assets.............................. 486,429 545,922
Property, plant and equipment, net.......................... 482,144 410,270
Intangibles and other assets, net........................... 340,653 373,691
----------- -----------
Total assets...................................... $ 1,309,226 $ 1,329,883
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations............... $ 27,851 $ 21,024
Accounts payable.......................................... 187,632 176,593
Accrued and other liabilities............................. 133,563 94,904
Income taxes payable...................................... 25,163 20,437
----------- -----------
Total current liabilities......................... 374,209 312,958
Long-term obligations, less current maturities............ 1,334,672 945,480
Other long-term liabilities............................... 96,319 31,251
Preferred Stock:
Series B preferred stock.................................. 41,273 43,608
Stockholders' deficit:
Common stock.............................................. 780 1,338
Class A common stock...................................... 59 --
Class A series II common stock............................ 62 --
Paid in capital........................................... 664,113 1,480,289
Note due from affiliate................................... -- (119,277)
Accumulated deficit....................................... (1,178,954) (1,338,075)
Treasury stock, at cost................................... (162) (162)
Accumulated other comprehensive loss...................... (23,145) (27,527)
----------- -----------
Total stockholders' deficit....................... (537,247) (3,414)
----------- -----------
Total liabilities and stockholders' deficit....... $ 1,309,226 $ 1,329,883
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE> 132
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 2000
-------- ---------
<S> <C> <C>
Net sales................................................... $622,525 $ 742,869
Operating expenses:
Cost of goods sold........................................ 463,787 572,699
Selling, general and administrative (including one-time
non-cash compensation charges of $104,351 in March
2000).................................................. 54,192 166,471
Depreciation.............................................. 52,435 51,778
Amortization.............................................. 25,217 24,295
-------- ---------
Operating income (loss)..................................... 26,894 (72,374)
Other expense (income):
Interest expense.......................................... 53,183 59,263
Amortization of deferred financing costs.................. 3,083 2,649
Other, net................................................ 1,566 647
-------- ---------
Income (loss) before income taxes and cumulative effect of a
change in accounting principle and extraordinary item..... (30,938) (134,933)
Provision (benefit) for income taxes........................ (7,736) (7,008)
-------- ---------
Net income (loss) before cumulative effect of a change in
accounting principle and extraordinary item............... (23,202) (127,925)
Cumulative effect on prior years -- write-off of start-up
costs, net of income tax benefit of $6,734................ 18,443 --
Extraordinary item -- loss on early extinguishment of debt,
net of income tax benefit of $0........................... -- 31,196
-------- ---------
Net income (loss)........................................... (41,645) (159,121)
Other comprehensive loss:
Foreign currency translation adjustments.................. (38,633) (4,382)
-------- ---------
Comprehensive loss.......................................... $(80,278) $(163,503)
======== =========
Basic income (loss) per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item....................... $ (.43) $ (1.21)
Cumulative effect......................................... (.32) --
Extraordinary item........................................ -- (.29)
-------- ---------
Net income (loss)................................. $ (.75) $ (1.50)
======== =========
Diluted income (loss) per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item....................... $ (.50) $ (1.21)
Cumulative effect......................................... (.36) --
Extraordinary item........................................ -- (.29)
-------- ---------
Net income (loss)................................. $ (.86) $ (1.50)
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-36
<PAGE> 133
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 2000
-------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $(41,645) $(159,121)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation........................................... 52,435 51,778
Amortization of intangibles............................ 25,217 24,295
Amortization of deferred financing costs............... 3,083 2,649
Investment income earned from joint venture............ -- (543)
Cumulative effect of a change in accounting
principle -- write-off of start-up costs.............. 25,177 --
Non-cash compensation charges.......................... -- 104,351
Extraordinary item -- loss on early extinguishment of
debt.................................................. -- 31,196
Deferred taxes......................................... (469) (7,008)
Change in assets and liabilities, net of acquisitions:
Accounts receivable, net............................. (3,890) (84,325)
Inventories.......................................... (6,499) (17,339)
Prepaid expenses and other........................... (3,023) (8,709)
Accounts payable and accrued and other liabilities... (8,283) 2,765
Income taxes payable................................. (14,199) (5,471)
-------- ---------
Net cash provided by (used in) operating activities......... 27,904 (65,482)
Cash flows used in investing activities:
Acquisitions, net of cash acquired........................ (9,341) (106,394)
Purchase of the Wire Harness Business..................... -- (210,798)
Capital expenditures...................................... (50,677) (62,621)
-------- ---------
Net cash used in investing activities....................... (60,018) (379,813)
Cash flows provided by (used in) financing activities:
Equity proceeds (repurchases)............................. (27) 864,834
Distribution to stockholders.............................. -- (16,213)
Repayment of term loans outstanding under the Third
Amended and Restated Credit Agreement, net of cash
collateral............................................. (16,000) (346,262)
Borrowings under the Credit Agreement..................... -- 150,000
Net borrowings (repayments) of revolving loans under the
Third Amended and Restated Credit Agreement............ 48,199 (179,301)
Net repayments of other long-term obligations............. (9,020) (9,548)
Financing costs........................................... -- (19,692)
Net receipt from parent................................... 2,328 48
-------- ---------
Net cash provided by financing activities................... 25,480 443,866
Net effect of exchange rate changes on cash................. (659) 1,035
-------- ---------
Net change in cash and cash equivalents..................... (7,293) (394)
Cash and cash equivalents -- beginning of the period........ 9,335 22,839
-------- ---------
Cash and cash equivalents -- end of the period.............. $ 2,042 $ 22,445
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-37
<PAGE> 134
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim condensed consolidated financial statements of
Viasystems Group, Inc. (the "Company") and its subsidiaries reflect all
adjustments consisting only of normal recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. The results for the six months ended June 30, 2000,
are not necessarily indicative of the results that may be expected for a full
fiscal year. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Form S-1 and other filings made with the Securities and Exchange
Commission.
2. ACQUISITIONS
In March 2000, the Company acquired all of the outstanding shares of
Wirekraft Industries, Inc. (the "Wire Harness Business"), a wholly owned
subsidiary of International Wire Group, Inc., an affiliate of Hicks, Muse, Tate
& Furst Incorporated ("HMTF") (the "Wire Harness Acquisition") for a cash
purchase price of $210,798. The Wire Harness Business manufactures and assembles
wire harness products. The Wire Harness Acquisition occurred immediately prior
to the Company's initial public offering. The Company and International Wire
Group, Inc. are considered entities under common control. Accordingly, the
acquisition has been accounted for on an "as if pooling basis," with the excess
purchase price over book value acquired accounted for as a distribution to the
Company's stockholders. Additionally, as the acquisition has been accounted for
on an "as if pooling basis," the Company's condensed consolidated financial
statements have been restated to reflect the acquisition as if it occurred at
the beginning of the first period presented. A reconciliation of the previously
reported results for the six months ended June 30, 1999 to the results reported
herein:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1999
------------
<S> <C>
Net sales:
As previously reported.................................... $520,385
Wire Harness Business..................................... 102,140
--------
$622,525
========
Net income (loss):
As previously reported.................................... $(45,081)
Wire Harness Business..................................... 3,436
--------
$(41,645)
========
</TABLE>
In March 2000, the Company acquired Marconi Communications Inc.'s Network
Components & Services European and China operations ("NC&S"), for a cash
purchase price of approximately $115,000 (the "NC&S Acquisition"). Accordingly,
the results of operations of NC&S since acquisition are included in the results
of operations of the Company.
The NC&S Acquisition has been accounted for using the purchase method of
accounting whereby the total purchase price has been preliminarily allocated to
the assets and liabilities based on their estimated respective fair values. The
excess purchase price over fair values has been preliminarily allocated to
goodwill and is being amortized over its estimated useful life of 20 years.
F-38
<PAGE> 135
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONDENSED 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............................................ $ 71,321
Property, plant and equipment........................... 19,868
Goodwill................................................ 66,091
Other non-current assets................................ 12,632
Current liabilities..................................... (51,951)
Non-current liabilities................................. (2,961)
--------
Total........................................... $115,000
========
</TABLE>
In June 2000, the Company acquired Top Line Electronics Corporation ("Top
Line") by issuing 1,580,768 shares of the Company's common stock (the "Top Line
Acquisition"), preliminarily valued at $38,400. This is subject to adjustment
based on (i) the performance of Top Line's business through July 31, 2000 and
(ii) the price of the Company's common stock. Top Line, located in San Jose,
California, offers design and prototype services, PCB assembly, and full system
assembly and testing. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the results of operations of Top Line
since acquisition are included in the results of operations of the Company. The
excess purchase price over fair values has been preliminarily allocated to
goodwill and is being amortized over its estimated useful life of 20 years.
Included below is unaudited pro forma financial data setting forth
condensed results of operations of the Company for the six months ended June 30,
1999 and 2000, as though the NC&S and Top Line acquisitions had occurred at
January 1, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 2000
-------- ---------
<S> <C> <C>
Net sales................................................... $727,728 $ 834,684
Net income (loss) before extraordinary item................. (52,596) (126,042)
Net income (loss)........................................... (52,596) (157,238)
Basic net income (loss) per share........................... $ (.94) $ (1.48)
Diluted net income (loss) per share......................... $ (1.08) $ (1.48)
</TABLE>
3. INVENTORIES
The composition of inventories at June 30, 2000, is as follows:
<TABLE>
<S> <C>
Raw materials............................................. $ 82,769
Work-in-process........................................... 43,593
Finished goods............................................ 67,585
--------
Total........................................... $193,947
========
</TABLE>
F-39
<PAGE> 136
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS
The composition of long-term obligations at June 30, 2000, is as follows:
<TABLE>
<S> <C>
Credit Agreement:
Term facilities, net of cash collateral................... $150,000
Senior Subordinated Notes due 2007.......................... 400,000
Series B Senior Subordinated Notes due 2007................. 100,000
Series B Senior Subordinated Notes due 2007, premium........ 3,664
Chips Loan Notes............................................ 285,312
Other debt.................................................. 27,528
--------
966,504
Less: current maturities.................................... 21,024
--------
$945,480
========
</TABLE>
The Company used a portion of the proceeds from the initial public offering
to repay all amounts due under the Third Amended and Restated Credit Agreement.
At which time, the Company as guarantor, and certain subsidiaries, as borrowers,
entered into a new senior credit agreement (the "Credit Agreement"). The Credit
Agreement provides for (i) a $300,000 term loan facility consisting of (a) a
$150,000 term loan (the "Term Loan B") and (b) a second $150,000 term loan (the
"Chips Term Loan B"), (ii) $153,100 term loan facility (the "Chips Term Loan A"
together with the Chips Term Loan B, the "Chips Term Loan") and (iii) a $175,000
revolving loan (the "Revolver"). The Chips Term Loan is an unfunded term loan
facility that may be drawn upon by the Company so that it may satisfy the loan
notes issued in connection with the acquisition of Interconnection Systems
(Holdings) Limited ("ISL") (the "Chips Loan Notes"). Borrowings under the Credit
Agreement are collateralized by first priority mortgages and liens on
substantially all of the material assets of the Company and its subsidiaries.
At June 30, 2000, the Company had $150,000 outstanding under the Term Loan
B and $150,000 under the Chips Term Loan B. The $150,000 outstanding under the
Chips Term Loan B has been fully cash collateralized. At June 30, 2000, the
Company had no borrowings outstanding under the Revolver.
5. EXTRAORDINARY ITEM
During the six months ended June 30, 2000, the Company recorded, as an
extraordinary item, a one-time, non-cash write-off of deferred financing fees of
approximately $31,196 (net of income tax benefit of $0) related to deferred
financing fees incurred on debt under the old credit agreement retired before
maturity with proceeds from the initial public offering.
6. NON-CASH COMPENSATION EXPENSE AND OTHER CHARGES
In connection with the initial public offering, the Company amended the
terms of the performance stock options held by members of management that
eliminated the exercisability restrictions and variable exercise price terms.
The amended performance options have a fixed exercise price and are immediately
exercisable. As a result of these amendments, the Company recorded a one-time
non-cash compensation expense charge of approximately $33,635 during the three
months ended March 31, 2000.
Also in connection with the initial public offering, the Company
reclassified each 6 2/3 shares of class A common stock and class A series II
common stock into one share of common stock. This reclassification eliminated
the variable terms of the class A and class A series II common stock and
resulted in a one-time non-cash compensation expense charge of approximately
$62,945 recorded during the six months ended June 30, 2000.
F-40
<PAGE> 137
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, in connection with the initial public offering, the Company
terminated the monitoring and oversight agreement and financial advisory
agreement with an affiliate of HMTF. As consideration for HMTF's willingness to
agree to such termination, the Company granted to an affiliate of HMTF and
partners of HMTF options to purchase an aggregate 2,134,000 shares of the
Company's common stock at an exercise price equal to $21.00 per share. The
option grant resulted in a net one-time non-cash compensation expense charge of
approximately $7,771 recorded during the three months ended March 31, 2000.
7. BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," during fiscal year 1999. The Company's
chief operating decision-maker is the President/Chief Operating Officer. Based
on the evaluation of financial information by the President/Chief Operating
Officer, the Company operates in one business segment -- the manufacture,
testing, design and servicing of a full spectrum of PCBs, custom backpanel
interconnect devices, wire harness and cable assemblies and electronic assembly
services.
Pertinent financial data by major geographic segments is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Net sales:
North America............................................. $398,605 $435,594
Europe.................................................... 229,895 203,388
Asia...................................................... -- 113,660
Eliminations.............................................. (5,975) (9,773)
-------- --------
Total............................................. $622,525 $742,869
======== ========
Operating income (loss):
North America............................................. $ 53,177 $(79,439)
Europe.................................................... (26,283) (6,219)
Asia...................................................... -- 13,284
Eliminations.............................................. -- --
-------- --------
Total............................................. $ 26,894 $(72,374)
======== ========
</TABLE>
8. INITIAL PUBLIC OFFERING
On March 24, 2000, the Company completed an initial public offering of
44,000,000 shares of common stock at $21.00 per share with net proceeds of
$873,180. The Company used the proceeds from the offering to fund the
acquisition of the Wire Harness Business, to repay amounts outstanding under the
Third Amended and Restated Credit Agreement and for general corporate purposes.
9. TRANSFER TO STOCKHOLDERS
On March 29, 2000, the Company effected a transfer to European PCB Group
(Caymans) Limited ("NewCo"), a company owned by certain of the Company's
stockholders, of all the capital stock of certain businesses in Europe. As a
result, NewCo consists primarily of the operations formerly conducted by Forward
Group Plc ("Forward"), Zincocelere S.p.A. ("Zincocelere"), ISL and the PCB
production facility of Ericsson Telecom AB ("Viasystems Sweden" or the "Ericsson
Facility"). In consideration for the transfer, NewCo delivered notes payable to
the Company for approximately $124,000 in the aggregate, which have been
classified as a component of stockholders' equity. The notes each have a 10-year
term and bear interest at
F-41
<PAGE> 138
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a rate of 9% per annum, payable in kind by the issuance of additional notes. The
net assets transferred totaled $97,141, net of cash.
10. STOCK SPLIT
On March 23, 2000, in connection with the initial public offering, the
Company declared a reverse stock split and reclassified each 6 2/3 shares of
class A common stock and class A series II common stock into one share of common
stock. Each share of common stock was converted into 1/6 of a share of common
stock. All share and per share data have been restated for the reverse split and
reclassification.
11. EARNINGS PER SHARE
Basic earnings per common share amounts are computed using the weighted
average number of common shares outstanding during the period. Basic earnings
per weighted average common share are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 2000 1999 2000
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect
of a change in accounting principle
and extraordinary item............... $ (8,614) $ 2,784 $ (23,202) $ (127,925)
Plus paid-in-kind dividends and
accretion on preferred stock......... (1,043) (1,187) (2,053) (2,335)
Less loss attributable to class A
common shareholders.................. 897 -- 2,438 --
Less loss attributable to class A
series II common shareholders........ 370 -- 966 --
----------- ------------ ----------- ------------
Income (loss) available to common
shareholders before cumulative effect
of a change in accounting principle
and extraordinary item............... $ (8,390) $ 1,597 $ (21,851) $ (130,260)
=========== ============ =========== ============
Basic weighted average common shares
outstanding.......................... 50,645,497 132,530,467 50,531,592 107,649,703
Basic income (loss) per weighted
average common share before
cumulative effect of a change in
accounting principle and
extraordinary item................... $ (.17) $ .01 $ (.43) $ (1.21)
=========== ============ =========== ============
Basic net income (loss) per weighted
average common share................. $ (.17) $ .01 $ (.75) $ (1.50)
=========== ============ =========== ============
</TABLE>
Losses attributable to class A and class A series II common stock 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-42
<PAGE> 139
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Diluted earnings per weighted average common share are computed as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 2000
----------- ------------
<S> <C> <C>
Income (loss) before cumulative effect of a change in
accounting principle and extraordinary item............... $ (23,202) $ (127,925)
Plus paid-in-kind dividends and accretion on preferred
stock..................................................... (2,053) (2,335)
----------- ------------
Income (loss) available to common shareholders before
cumulative effect of a change in accounting principle and
extraordinary item........................................ (25,255) (130,260)
=========== ============
Weighted average common shares outstanding.................. 50,531,592 107,649,703
Common shares assuming conversion of class A and class A
series II................................................. 223,403 --
----------- ------------
Diluted weighted average common shares outstanding.......... 50,754,995 107,649,703
Diluted income (loss) per weighted average common share
before cumulative effect of a change in accounting
principle and extraordinary item.......................... $ (.50) $ (1.21)
=========== ============
Diluted net income (loss) per weighted average common
share..................................................... $ (.86) $ (1.50)
=========== ============
</TABLE>
Shares assumed in the conversion of class A and class A series II common
stock 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 for the three and six months ended June 30,
1999 and the six months ended June 30, 2000, the following potentially dilutive
securities were not included in diluted earnings per share because their
inclusion would be anti-dilutive:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Performance options......................................... 2,802,900 --
Stock options............................................... 1,102,996 5,041,925
Stock warrants.............................................. 136,645 136,645
</TABLE>
12. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138,
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allow a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company has not
yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and
other comprehensive income.
F-43
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Termbray Industries International (Holdings)
Limited.
We have audited the accompanying combined balance sheet of the Printed
Circuit Board Division of Termbray Industries International (Holdings) Limited
("PCB Division") as of 31st March 1999 and the related combined statements of
income, of cash flows and of changes in divisional equity for the year ended
31st March 1999, all expressed in Hong Kong Dollars. These combined financial
statements are the responsibility of the management of the PCB Division. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Hong Kong, which are substantially similar, in all material
respects, to those generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements audited by us present
fairly, in all material respects, the financial position of the PCB Division at
31st March 1999, and the results of its operations and cash flows for the year
ended 31st March 1999, in conformity with accounting principles generally
accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
the combined net income expressed in Hong Kong Dollars for the year ended 31st
March 1999 and the determination of combined divisional equity also expressed in
Hong Kong Dollars at 31st March 1999 to the extent summarised in note 18 to the
combined financial statements.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 24th September 1999
F-44
<PAGE> 141
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-45
<PAGE> 142
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-46
<PAGE> 143
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-47
<PAGE> 144
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-48
<PAGE> 145
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-49
<PAGE> 146
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-50
<PAGE> 147
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-51
<PAGE> 148
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-52
<PAGE> 149
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-53
<PAGE> 150
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-54
<PAGE> 151
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-55
<PAGE> 152
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$3,256.
8. DUE FROM FORMER RELATED COMPANIES
The amounts due from former related companies represent advances made to
certain subsidiaries of Termbray Industries International (Holdings) Limited
outside the PCB Division in order to finance the daily operations of these
companies. The amounts due from these former related companies are unsecured,
interest free and have no fixed terms of repayment.
F-56
<PAGE> 153
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. FIXED ASSETS
<TABLE>
<CAPTION>
LAND AND
LAND AND BUILDINGS FACTORIES,
BUILDINGS HELD UNDER STAFF QUARTERS
HELD UNDER MEDIUM TERM AND
MEDIUM TERM LEASES MACHINERY
LEASES IN OUTSIDE UNDER LEASEHOLD
HONG KONG HONG KONG CONSTRUCTION IMPROVEMENTS
HK$ 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-57
<PAGE> 154
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-58
<PAGE> 155
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$15,020,214
============= =============
</TABLE>
F-59
<PAGE> 156
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. RETAINED PROFITS
Retained profits of the PCB Division represents the combination of the
post-acquisition profits/(losses) of the following former subsidiaries of
Termbray attributable to the PCB Division:
<TABLE>
<CAPTION>
1999
HK$
---------
<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-60
<PAGE> 157
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$24,802
based on terms agreed by the relevant parties. The management fee was charged by
the subsidiary of Termbray for the PCB Division's share of salaries and office
expenses and comprised:
- 95% of total office salaries based on human resources utilised
- 89% of total management salaries based on estimated management hours, and
- a pre-fixed percentage of 85% of the total office rental and
communications expenses.
17. APPROVAL OF FINANCIAL STATEMENTS
The financial statements of the PCB Division were approved by the board of
directors of Termbray Industries International (Holdings) Limited on 24th
September 1999.
F-61
<PAGE> 158
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUMMARY OF DIFFERENCES BETWEEN HKGAAP AND USGAAP
The combined financial statements of the PCB Division are prepared in
accordance with accounting principles generally accepted in Hong Kong
("HKGAAP"), which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("USGAAP").
Differences between HKGAAP and USGAAP which have an effect on the net income,
total divisional equity and statement of cash flows of the Division are
summarized as follows:
(a) NET INCOME AND TOTAL DIVISIONAL EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
NOTE HK$
---- ----------
<S> <C> <C>
Net income
As stated under HKGAAP.................................... 246,550
USGAAP adjustments:
Amortisation of goodwill............................... (i) (537)
Deferred tax liabilities............................... (ii) (7,169)
Capitalisation of interest costs....................... (iii) 5,769
---------
Net income under USGAAP..................................... 244,613
=========
Total divisional equity
As stated under HKGAAP.................................... 1,077,806
USGAAP adjustments:
Goodwill............................................... 10,738
Accumulated amortisation of goodwill................... (i) (3,982)
Deferred tax liabilities............................... (ii) (2,505)
Capitalisation of interest costs on assets under
construction.......................................... (iii) 5,769
---------
Total divisional equity under USGAAP.............. 1,087,826
=========
</TABLE>
(i) Amortisation of goodwill
Under HKGAAP, the PCB Division offsets goodwill on acquisition of a
business, which represents the excess of the cost of investment over
the fair value ascribed to the net underlying assets acquired, against
reserves to the extent that such reserves are available and any excess
is charged against the statement of income in the year of acquisition.
Under USGAAP, goodwill on acquisition of a business should be
capitalised and amortised. For such purpose, the goodwill is amortised
on a straight-line basis over 20 years.
(ii) Deferred tax liabilities
Under HKGAAP, deferred taxation is accounted for at the current
taxation rate in respect of timing differences between profit as
computed for taxation purposes and profit as stated in the accounts
to the extent that a liability or an asset is expected to be payable
or receivable in the foreseeable future.
Under USGAAP, the PCB Division is required to recognise deferred tax
assets and liabilities for the expected future tax consequences of
all events that have been included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the temporary differences between the financial
reporting basis and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse. Future tax benefits in respect of tax loss carry
forwards are also required to be recognized in
F-62
<PAGE> 159
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
full. A valuation allowance is required to be established in respect
of deferred tax assets to the extent that realisation of such
benefits is less likely than not.
Details of deferred income taxes under USGAAP are disclosed in Note
(b) below.
(iii) Under HKGAAP, borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, i.e.
assets that necessarily take a substantial period of time to get
ready for their intended use or sale, are capitalised as part of the
cost of those assets. Interest on borrowings not directly
attributable to the acquisition, construction or production of
qualifying assets is not capitalizable.
Under USGAAP, the PCB Division is required to include interest costs
as a component of the historical cost of any facilities constructed
for the division's own use. Capitalizable interest cost is interest
cost incurred that theoretically could have been avoided during the
period required to bring a qualifying asset to the condition and
location necessary for its intended use if expenditures for
qualifying assets had not been made.
(b) DEFERRED TAX
Under USGAAP, deferred tax liabilities and assets comprise the following:
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
HK$
----------
<S> <C>
Deferred tax liabilities
Accelerated depreciation.................................. 29,117
Deferred tax assets
Tax loss carry forward.................................... (5,719)
Valuation allowance....................................... 1,610
------
25,008
======
</TABLE>
As of 31st March 1999, the PCB Division had accumulated tax losses
amounting to $35,741 (the tax effect thereon is $5,719) which may be carried
forward and applied to reduce future taxable income which is earned in or
derived from Hong Kong. The tax losses have no expiry date. Realization of
deferred tax assets associated with tax loss carry forwards is dependent upon
generating sufficient taxable income. A valuation allowance has been established
against part of such tax losses since management believes it is more likely than
not that insufficient taxable income will be generated in the foreseeable future
to utilise part of the tax loss carry forwards.
Certain losses incurred by certain subsidiaries of the PCB Division located
in the People's Republic of China ("PRC") are not included on the basis that
these losses are considered likely to be utilised in the years in which the
profits of these subsidiaries are tax exempt, pursuant to the PRC tax law.
Accordingly, the PCB Division will derive no benefit in respect of these losses.
F-63
<PAGE> 160
TERMBRAY INDUSTRIES INTERNATIONAL (HOLDINGS) LIMITED
THE PCB DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the valuation allowance consist of:
<TABLE>
<CAPTION>
YEAR ENDED
31ST MARCH
1999
HK$
----------
<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-64
<PAGE> 161
VIASYSTEMS LOGO
<PAGE> 162
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 fees and expenses shall be paid
by the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $96,128
NASD Fee.................................................... 30,500
NYSE 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 Ninth 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 Tenth 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> 163
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Note: The following share information related to common stock gives effect
to a 1 for 6 reverse stock split effected by the Registrant in March
2000. The share information related to class A common stock and class
A series II common stock to March 2000 does not give effect to the
reclassification of each 6 2/3 shares of class A common stock and
class A series II common stock into one share of common stock
effected in March 2000.
(a) In March 1997, the Registrant issued 33,333 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.
(b) In May 1997, the Registrant issued 16,666 shares of its common stock to
one of its directors upon exercise of a stock option for an exercise price of
$6.00 per share. The securities were issued in a transaction exempt from Section
5 of the Securities Act pursuant to Rule 701 under the Securities Act.
(c) In June 1997, the Registrant issued 14,166,666 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.
(d) In June 1997, the Registrant issued 23,333,333 shares of its common
stock to the holders of the series C preferred stock in exchange for all of
their outstanding shares of series C preferred stock in connection with the
merger of Chips Holdings, Inc. with the Registrant. The securities were issued
in reliance on Section 3(a)(9) of the Securities Act.
(e) In June 1997, the Registrant issued 195,833 shares of its common stock
to seven 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.
(f) In June 1997, the Registrant issued 30,737,499 shares of its class A
common stock, $.01 par value ("class A common stock"), to 11 of its officers for
an aggregate purchase price of $307,374.99. The securities were issued in a
private placement in reliance on Section 4(2) of the Securities Act.
(g) In April 1998, the Registrant issued 7,663,976 shares of its common
stock to two of its existing stockholders, an individual and a limited
partnership for an aggregate purchase price of $52,500,250. The securities were
issued in private placements in reliance on Section 4(2) of the Securities Act.
(h) In May 1998, the Registrant issued 341,522 shares of its class A common
stock to three of its officers for an aggregate purchase price of $3,415.22. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In May 1998, the Registrant issued 5,940,370 shares of its class A series
II common stock, par value $.01 per share ("class A series II common stock") to
11 of its officers for an aggregate purchase price of $59,403.70. The securities
were issued in a private placement in reliance on Section 4(2) of the Securities
Act.
(i) In October 1998, the Registrant issued 2,500 shares of its common stock
to an employee upon exercise of a stock option for an exercise price of $6.00
per share. The securities were issued in a transaction exempt from Section 5 of
the Securities Act pursuant to Rule 701 under the Securities Act.
(j) In November 1998, the Registrant issued 7,463,000 shares of its class A
series II common stock to one of its officers for a purchase price of
$74,630.00. The securities were issued in a private placement in reliance on
Section 4(2) of the Securities Act.
(k) In December 1998, the Registrant issued 2,500 shares of its common
stock to an employee upon exercise of a stock option for an exercise price of
$6.00 per share. 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> 164
(l) In February 1999, the Registrant issued 2,500 shares of its common
stock to an employee upon exercise of a stock option for an exercise price of
$6.00 per share. The securities were issued in a transaction exempt from Section
5 of the Securities Act pursuant to Rule 701 under the Securities Act.
(m) In April 1999, the Registrant issued 273,224 shares of its common stock
to the two 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 for an aggregate amount of
$2,000,000. The securities were issued in a private placement in reliance on
Section 4(2) of the Securities Act.
(n) In August 1999, the Registrant issued 27,322,404 shares of its common
stock to HMTF/Viasystems Investments, LLC for $200,000,000 in cash. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
(o) In August 1999, the Registrant issued 23,746,507 shares of its class A
series II common stock to 20 employees and their family members, including
trusts for the benefit of those family members for a purchase price of
$237,465.07. The securities were issued in a private placement in reliance on
Section 4(2) of the Securities Act.
(p) In September 1999, the Registrant issued 1,666 shares of its common
stock to an employee upon exercise of a stock option for an exercise price of
$7.32 per share. The securities were issued in a transaction exempt from Section
5 of the Securities Act pursuant to Rule 701 under the Securities Act.
(q) In October 1999, the Registrant issued 3,333 shares of its common stock
to an employee upon exercise of a stock option for an exercise price of $7.32
per share. The securities were issued in a transaction exempt from Section 5 of
the Securities Act pursuant to Rule 701 under the Securities Act.
(r) In May 2000, the Registrant issued 10,000 shares of its common stock to
one of its employees upon exercise of a stock option for an exercise price of
$6.00 per share. The securities were issued in a private placement in reliance
on Section 4(2) of the Securities Act.
(s) In June 2000, the Registrant issued 1,580,768 shares of its common
stock to the former shareholders of Top Line Electronics Corporation in partial
consideration for the purchase price of the acquisition of Top Line Electronics
Corporation. The securities were issued in a transaction exempt from
registration under Section 3(a)(10) of the Securities Act.
The issuances of the securities described in paragraphs (a), (b), (e), (f),
(g), (h), (j), (m), (n), (o) and (r) above were deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The issuances of the securities described in (i), (k), (l),
(p) and (q) above were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 under the Securities Act as transactions
by an issuer in compensatory circumstances. The issuance of the securities
described in (r) above were deemed to be exempt from registration under the
Securities Act in reliance on Section 3(a)(10) of the Securities Act. The
recipients of the above-described securities (except in the case of paragraph
(s)) represented their intention to acquire the securities for investment only
and not with a view for distribution thereof. Appropriate legends were affixed
to the stock certificates issued in such transactions, if required. All
recipients had adequate access, through employment or other relationships, to
information about Viasystems.
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)
</TABLE>
II-3
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 -- Agreement and Plan of Merger, dated as of June 6, 1997,
by and between Viasystems, Inc. and Chips Acquisition,
Inc.(3)
2.6 -- Acquisition Agreement, dated as of January 29, 1998,
among Viasystems B.V. and Print Service Holding N.V.(6)
2.7 -- Sale and Purchase Agreement, dated as of February 11,
1998, between Viasystems, S.r.l., as purchaser, European
Circuits SA and individuals named therein, as sellers(6)
2.8 -- 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)
2.9 -- Stock Purchase Agreement, dated March 23, 2000, by and
among International Wire Group, Inc., Wirekraft
Industries, Inc. and Viasystems International, Inc.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
Viasystems Group, Inc.(13)
3.2 -- Amended and Restated Bylaws of Viasystems Group, Inc.(13)
4.1 -- Credit Agreement, dated as of March 29, 2000, among
Viasystems Group, Inc., as Guarantor, Viasystems, Inc. as
U.S. Borrower, Viasystems Canada, Inc. and Print Service
Holding N.V., as Foreign Subsidiary Borrowers, The
Several Banks and other Financial Institutions parties
thereto, The Chase Manhattan Bank of Canada, as Canadian
Administrative Agent, Chase Manhattan Bank International
Limited, as Multicurrency Administrative Agent, and The
Chase Manhattan Bank, as Administrative Agent, Bank of
America, N.A. as Syndication Agent, Bankers Trust
Company, as Syndication Agent, and Chase Securities Inc.,
as Sole Book Manager and Sole Lead Arranger.(13)
4.2 -- Indenture, dated as of June 6, 1997, by and between
Viasystems, Inc. and The Bank of New York, as Trustee(3)
4.3 -- Form of New Note (included in Exhibit 4.3, Exhibit B)
4.4 -- Indenture, dated as of February 17, 1998, by and between
Viasystems, Inc. and The Bank of New York, as Trustee(6)
4.5 -- Form of Exchange Note (included in Exhibit 4.5, Exhibit
B)
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
March , 2000 between Viasystems Group, Inc. and James
N. Mills(2)
10.4 -- Amended and Restated Stock Option Agreement dated as of
March , 2000 between Viasystems Group, Inc. and David
M. Sindelar(2)
</TABLE>
II-4
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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)
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 -- Amended and Restated Executive Employment Agreement,
dated as of February 16, 2000, by and among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp. LLC and James N. Mills(11)
10.10 -- Amended and Restated Executive Employment Agreement,
dated as of February 16, 2000, by and among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp. LLC and David M. Sindelar(11)
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 -- Amended and Restated Executive Employment Agreement,
dated as of February 16, 2000, by and among Viasystems
Group, Inc., Viasystems, Inc. and Viasystems Technologies
Corp. LLC and Timothy L. Conlon(11)
10.14 -- Amended and Restated Stockholders Agreement, dated as of
June 6, 1997, among Viasystems Group, Inc. and certain
stockholders of Viasystems Group, Inc.(12)
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.(12)
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)
10.18 -- Viasystems Group, Inc. 1999 Key Management Incentive
Compensation Plan(12)
10.19 -- Contract Manufacturing Agreement, dated January 1, 2000,
by and between Mommers Print Service BV and Viasystems
Sweden AB(1)
10.20 -- Contract Manufacturing Agreement, dated January 1, 2000,
by and between Mommers Print Service BV and Viasystems
Tyneside Limited(1)
10.21 -- Supply Agreement, dated as of March 29, 2000, by and
between International Wire Group, Inc. and Wirekraft
Industries, Inc.(1)
</TABLE>
II-5
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 -- Termination and Release Agreement, dated as of March 29,
2000, by and among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp., Viasystems Canada,
Inc. (f/k/a Circo Craft Co. Inc.), PCB Investments
Limited, Viasystems International, Inc., Viasystems Group
Limited (f/k/a PCB Acquisition Limited), Chips
Acquisition Limited, and Hicks, Muse & Co. Partners,
L.P.(13)
21.1 -- Subsidiaries of Viasystems Group, Inc.(1)
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(1)
24.1 -- Power of Attorney (included on the signature page to this
registration statement)
</TABLE>
---------------
(1) Filed herewith.
(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.
(11) Incorporated by reference to Amendment No. 1 to Viasystems Group, Inc.'s
Registration Statement on Form S-1 (File No. 333-94321).
(12) Incorporated by reference to Amendment No. 2 to Viasystems Group, Inc.'s
Registration Statement on Form S-1 (File No. 333-94321).
(13) Incorporated by reference to Viasystems Group, Inc.'s Form 10-Q filed on
May 10, 2000.
(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.
II-6
<PAGE> 168
ITEM 17. UNDERTAKINGS.
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-7
<PAGE> 169
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 September 27,
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 426(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 September 27, 2000
----------------------------------------------------- and Chief Executive
James N. Mills Officer (Principal
Executive Officer)
/s/ TIMOTHY L. CONLON President, Chief September 27, 2000
----------------------------------------------------- Operating Officer and
Timothy L. Conlon a Director
/s/ DAVID M. SINDELAR Senior Vice President September 27, 2000
----------------------------------------------------- and Chief Financial
David M. Sindelar Officer (Principal
Financial and
Accounting Officer)
/s/ JACK D. FURST Director September 27, 2000
-----------------------------------------------------
Jack D. Furst
/s/ KENNETH F. YONTZ Director September 27, 2000
-----------------------------------------------------
Kenneth F. Yontz
</TABLE>
II-8
<PAGE> 170
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director September 27, 2000
-----------------------------------------------------
Thomas O. Hicks
/s/ RICHARD W. VIESER Director September 27, 2000
-----------------------------------------------------
Richard W. Vieser
/s/ THOMAS H. O'BRIEN Director September 27, 2000
-----------------------------------------------------
Thomas H. O'Brien
/s/ ALEX J. MANDL Director September 27, 2000
-----------------------------------------------------
Alex J. Mandl
</TABLE>
II-9
<PAGE> 171
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors of Viasystems Group, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 23, 2000, except as to Note 23 and Note 24 Paragraph 1
which are as of March 23, 2000 and Note 24 Paragraph 2 which is as of March 29,
2000 appearing in this prospectus of Viasystems Group, Inc. and its subsidiaries
also included an audit of the financial statement schedule listed in Item 16(b)
of this prospectus. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 23, 2000, except for Note 24 Paragraph 2
for which is as of March 29, 2000
S-1
<PAGE> 172
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.... $ 899 $1,632 $7,485 $(8,029) $ 992 $2,979
====== ====== ====== ======= ===== ======
Year Ended December 31, 1998.... $2,979 $1,470 $ 285 $ (652) $ 141 $4,223
====== ====== ====== ======= ===== ======
Year Ended December 31, 1999.... $4,223 $2,632 $1,784 $ (973) $(255) $7,411
====== ====== ====== ======= ===== ======
</TABLE>
S-2
<PAGE> 173
INDEX TO EXHIBITS
<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 -- Agreement and Plan of Merger, dated as of June 6, 1997,
by and between Viasystems, Inc. and Chips Acquisition,
Inc.(3)
2.6 -- Acquisition Agreement, dated as of January 29, 1998,
among Viasystems B.V. and Print Service Holding N.V.(6)
2.7 -- Sale and Purchase Agreement, dated as of February 11,
1998, between Viasystems, S.r.l., as purchaser, European
Circuits SA and individuals named therein, as sellers(6)
2.8 -- 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)
2.9 -- Stock Purchase Agreement, dated March 23, 2000, by and
among International Wire Group, Inc., Wirekraft
Industries, Inc. and Viasystems International, Inc.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
Viasystems Group, Inc.(13)
3.2 -- Amended and Restated Bylaws of Viasystems Group, Inc.(13)
4.1 -- Credit Agreement, dated as of March 29, 2000, among
Viasystems Group, Inc., as Guarantor, Viasystems, Inc. as
U.S. Borrower, Viasystems Canada, Inc. and Print Service
Holding N.V., as Foreign Subsidiary Borrowers, The
Several Banks and other Financial Institutions parties
thereto, The Chase Manhattan Bank of Canada, as Canadian
Administrative Agent, Chase Manhattan Bank International
Limited, as Multicurrency Administrative Agent, and The
Chase Manhattan Bank, as Administrative Agent, Bank of
America, N.A. as Syndication Agent, Bankers Trust
Company, as Syndication Agent, and Chase Securities Inc.,
as Sole Book Manager and Sole Lead Arranger.(13)
4.2 -- Indenture, dated as of June 6, 1997, by and between
Viasystems, Inc. and The Bank of New York, as Trustee(3)
4.3 -- Form of New Note (included in Exhibit 4.3, Exhibit B)
4.4 -- Indenture, dated as of February 17, 1998, by and between
Viasystems, Inc. and The Bank of New York, as Trustee(6)
4.5 -- Form of Exchange Note (included in Exhibit 4.5, Exhibit
B)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP(2)
</TABLE>
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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
March , 2000 between Viasystems Group, Inc. and James
N. Mills(2)
10.4 -- Amended and Restated Stock Option Agreement dated as of
March , 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)
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 -- Amended and Restated Executive Employment Agreement,
dated as of February 16, 2000, by and among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp. LLC and James N. Mills(11)
10.10 -- Amended and Restated Executive Employment Agreement,
dated as of February 16, 2000, by and among Viasystems
Group, Inc., Viasystems, Inc., Viasystems Technologies
Corp. LLC and David M. Sindelar(11)
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 -- Amended and Restated Executive Employment Agreement,
dated as of February 16, 2000, by and among Viasystems
Group, Inc., Viasystems, Inc. and Viasystems Technologies
Corp. LLC and Timothy L. Conlon(11)
10.14 -- Amended and Restated Stockholders Agreement, dated as of
June 6, 1997, among Viasystems Group, Inc. and certain
stockholders of Viasystems Group, Inc.(12)
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.(12)
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)
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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)
10.18 -- Viasystems Group, Inc. 1999 Key Management Incentive
Compensation Plan(12)
10.19 -- Contract Manufacturing Agreement, dated January 1, 2000,
by and between Mommers Print Service BV and Viasystems
Sweden AB(1)
10.20 -- Contract Manufacturing Agreement, dated January 1, 2000,
by and between Mommers Print Service BV and Viasystems
Tyneside Limited(1)
10.21 -- Supply Agreement, dated as of March 29, 2000, by and
between International Wire Group, Inc. and Wirekraft
Industries, Inc.(1)
10.22 -- Termination and Release Agreement, dated as of March 29,
2000, by and among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp., Viasystems Canada,
Inc. (f/k/a Circo Craft Co. Inc.), PCB Investments
Limited, Viasystems International, Inc., Viasystems Group
Limited (f/k/a PCB Acquisition Limited), Chips
Acquisition Limited, and Hicks, Muse & Co. Partners,
L.P.(13)
21.1 -- Subsidiaries of Viasystems Group, Inc.(1)
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(1)
24.1 -- Power of Attorney (included on the signature page to this
registration statement)
</TABLE>
---------------
(1) Filed herewith.
(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.
(11) Incorporated by reference to Amendment No. 1 to Viasystems Group, Inc.'s
Registration Statement on Form S-1 (File No. 333-94321).
(12) Incorporated by reference to Amendment No. 2 to Viasystems Group, Inc.'s
Registration Statement on Form S-1 (File No. 333-94321).
(13) Incorporated by reference to Viasystems Group, Inc.'s Form 10-Q filed on
May 10, 2000.
