<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
--------------------------------------------
OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
333-29727
(Commission File Number)
VIASYSTEMS GROUP, INC.
(Exact name of Registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
75-2668620
(I.R.S. Employer Identification No.)
101 SOUTH HANLEY ROAD
ST. LOUIS, MO 63105
(314) 727-2087
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class August 5, 2000
---------------------- ------------------
Viasystems Group, Inc.
Common Stock 133,824,278 shares
<PAGE> 2
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Viasystems Group, Inc. & Subsidiaries
Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000.................... 2
Condensed Consolidated Statements of Operations and Comprehensive Income for the
three and six months ended June 30, 1999 and 2000.............................................. 3
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 2000......................................................................... 4
Notes to Condensed Consolidated Financial Statements............................................... 5
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition......... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 18
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................................................... 19
Item 5. Other Information............................................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................................................. 20
SIGNATURES............................................................................................... 21
</TABLE>
<PAGE> 3
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
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.......................... 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.................... 128,392 94,904
Income taxes payable............................. 25,163 20,437
----------- -----------
Total current liabilities..................... 369,038 312,958
Long-term obligations, less current maturities... 1,334,672 945,480
Other long-term liabilities...................... 97,121 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.................................. 668,482 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................... (532,878) (3,414)
----------- -----------
Total liabilities and stockholders' deficit... $ 1,309,226 $ 1,329,883
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ...................................................................... $ 312,882 $ 358,285 $ 622,525 $ 742,869
Operating expenses:
Cost of goods sold ......................................................... 229,905 269,425 463,787 572,699
Selling, general and administrative (including
one-time non-cash compensation charges of $104,351 in
March 2000) .............................................................. 24,610 27,855 54,192 166,471
Depreciation ............................................................... 27,751 23,460 52,435 51,778
Amortization ............................................................... 12,567 11,946 25,217 24,295
--------- --------- --------- ---------
Operating income (loss) ............................................... 18,049 25,599 26,894 (72,374)
Other expense (income):
Interest expense ........................................................... 27,208 21,494 53,183 59,263
Amortization of deferred financing costs ................................... 1,592 856 3,083 2,649
Other, net ................................................................. 367 (27) 1,566 647
--------- --------- --------- ---------
Income (loss) before income taxes and cumulative effect of
a change in accounting principle and extraordinary item .................... (11,118) 3,276 (30,938) (134,933)
Provision (benefit) for income taxes ........................................... (2,504) 492 (7,736) (7,008)
--------- --------- --------- ---------
Net income (loss) before cumulative effect of a change in
accounting principle and extraordinary item ................................ (8,614) 2,784 (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) .............................................................. (8,614) 2,784 (41,645) (159,121)
Other comprehensive loss:
Foreign currency translation adjustments .................................. (13,620) (10,598) (38,633) (4,382)
--------- --------- --------- ---------
Comprehensive loss ............................................................. $ (22,234) $ (7,814) $ (80,278) $(163,503)
========= ========= ========= =========
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)
Cumulative effect ......................................................... -- -- (.32) --
Extraordinary item ........................................................ -- -- -- (.29)
--------- --------- --------- ---------
Net income (loss) ......................................................... $ (.17) $ .01 $ (.75) $ (1.50)
========= ========= ========= =========
Diluted income (loss) per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item ....................................... $ (.19) $ .01 $ (.50) $ (1.21)
Cumulative effect ......................................................... -- -- (.36) --
Extraordinary item ........................................................ -- -- -- (.29)
--------- --------- --------- ---------
Net income (loss) ......................................................... $ (.19) $ .01 $ (.86) $ (1.50)
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
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.
4
<PAGE> 6
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 three and 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 three and six months ended June 30, 1999 to the results
in this Form 10-Q is as follows:
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Net sales:
As previously reported.... $ 260,404 $ 520,385
Wire Harness Business..... 52,478 102,140
--------- ---------
$ 312,882 $ 622,525
========= =========
Net income (loss):
As previously reported.... $ (10,910) $ (45,081)
Wire Harness Business..... 2,296 3,436
--------- ---------
$ (8,614) $ (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
5
<PAGE> 7
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.
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 three and 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>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1999 2000 1999 2000
<S> <C> <C> <C> <C>
Net sales...................................... $ 369,838 $382,078 $ 727,728 $ 834,684
Net income (loss) before extraordinary item.... (8,379) 4,177 (52,596) (126,042)
Net income (loss).............................. (8,379) 4,177 (52,596) (157,238)
Basic net income (loss) per share.............. $ (.16) $ .02 $ (.94) $ (1.48)
Diluted net income (loss) per share............ $ (.19) $ .02 $ (1.08) $ (1.48)
</TABLE>
6
<PAGE> 8
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>
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.
7
<PAGE> 9
5. EXTRAORDINARY ITEM
During the quarter ended March 31, 2000, the Company recorded, as an
extraordinary item, a one-time, non-cash write-off of deferred financing fees of
approximately $31,196 (net of income tax benefit of $0) related to deferred
financing fees incurred on debt under the old credit agreement retired before
maturity with proceeds 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 three months ended March 31, 2000.
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.
8
<PAGE> 10
Pertinent financial data by major geographic segments is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
North America .......... $ 206,332 $ 228,097 $ 398,605 $ 435,594
Europe ................. 109,441 73,629 229,895 203,388
Asia ................... -- 62,129 -- 113,660
Eliminations ........... (2,891) (5,570) (5,975) (9,773)
--------- --------- --------- ---------
Total .................. $ 312,882 $ 358,285 $ 622,525 $ 742,869
========= ========= ========= =========
Operating income (loss):
North America .......... $ 29,669 $ 14,662 $ 53,177 $ (79,439)
Europe ................. (11,620) 3,078 (26,283) (6,219)
Asia ................... -- 7,859 -- 13,284
Eliminations ........... -- -- -- --
--------- --------- --------- ---------
Total .................. $ 18,049 $ 25,599 $ 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 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.
9
<PAGE> 11
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.
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.
10
<PAGE> 12
Diluted 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)
------------ ------------- ------------ -------------
Income (loss) available to common shareholders
before cumulative effect of a change in
accounting principle and extraordinary item ............ (9,657) 1,597 (25,255) (130,260)
============ ============= ============ =============
Weighted average common shares outstanding ............... 50,645,497 134,550,013 50,531,592 107,649,703
Common shares assuming conversion of class A and
class A series II ....................................... 223,403 -- 223,403 --
------------ ------------- ------------ -------------
Diluted weighted average common shares outstanding 50,868,900 134,550,013 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 ............ $ (.19) $ .01 $ (.50) $ (1.21)
============ ============= ============ =============
Diluted net income (loss) per weighted average
common share ........................................... $ (.19) $ .01 $ (.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>
11
<PAGE> 13
12. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on its consolidated financial statements nor has it
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings and other comprehensive income.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and the notes thereto
included in this Form 10-Q.
The Company has made forward-looking statements in this Form 10-Q,
including the section entitled "Management's Discussion and Analysis of Results
of Operations and Financial Condition" that are based on management's beliefs
and assumptions and on information currently available to management.
Forward-looking statements include the information concerning our possible or
assumed future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, benefits resulting from
the transactions completed and the effects of competition. Forward-looking
statements include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the words
"believes," "expects," "anticipates," "intends," "plans," "estimates," or other
similar expressions.
Forward-looking statements involve risks, uncertainties and
assumptions. Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. The Company does not have any intention or
obligation to update forward-looking statements after distribution of this Form
10-Q.
You should understand that many important factors could cause our
results to differ materially from those expressed in forward-looking statements.
These factors include, but are not limited to, fluctuations in our operating
results and customer orders, our competitive environment, our reliance on our
largest customers, risks associated with our international operations, our
ability to protect our patents and trade secrets, environmental laws and
regulations, our relationship with unionized employees, risk associated with our
acquisition strategy, our substantial indebtedness, and control by our largest
stockholders.
GENERAL
The Company is a leading worldwide provider of electronics
manufacturing services, or EMS. The Company serves primarily the
telecommunications and networking industries, which it believes to be the
fastest-growing customer segments of the estimated $73 billion EMS market. The
Company offers a wide range of products and services to original equipment
manufacturers of electronic products. These products and services consist of the
design and fabrication of PCBs, in particular highly complex multi-layered PCBs,
the manufacture of custom-designed backpanel assemblies, the manufacture of
complex PCB assemblies, the design and manufacture of wire harnesses and cable
assemblies, the procurement and management of materials and the assembly and
testing of our customers' complete systems and products.
DEVELOPMENT
The Company was formed in 1996 by HMTF and Mills & Partners, Inc. to
create a preferred global manufacturing provider to leading original equipment
manufacturers through acquisitions of PCB fabricators and backpanel assemblers.
The Company had no operations prior to the first acquisition in October 1996
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<PAGE> 15
During the past twenty-one months, the Company has broadened its focus
to become a full-solution provider in the electronics manufacturing services
industry. This change occurred as a result of the recognition that many of the
next generation products in the telecommunications and networking industries
require highly advanced PCBs and backpanel assemblies. As a result, management
made a strategic decision to capitalize on the Company's capabilities and
compete for the complete assembly of its customers' products that utilize our
PCBs and backpanels.
In connection with this initiative, the Company opened four new
facilities in the later part of 1998. The four new facilities broadened the
product offerings by expanding its backpanel assembly capabilities as well as
adding full system assembly and test capabilities. In addition, in 1999 the
Company consummated the acquisitions of PAGG and Kalex. The PAGG and Kalex
acquisitions added PCB assembly capabilities and expanded its full system
assembly and test capabilities. The acquisition of the Wire Harness Business in
March 2000 added the design and manufacture of wire harnesses and cable
assemblies to our capabilities. In 2000, the Company also enhanced its EMS
capabilities with the acquisitions of NC&S and Top Line.
ACQUISITIONS
A significant portion of our growth has been generated through
acquisitions completed since 1996. Our business includes twelve acquired
businesses, including the following acquisitions in 2000:
o the purchase of the Wire Harness Business, a business engaged
in the assembly of wire harness products, in the United States
and Mexico, in March 2000, for $210.8 million cash;
o the purchase of NC&S, a business engaged in electronic
manufacturing services primarily to telecommunication
customers with operations in the United Kingdom, Italy and
China, in March 2000, for $115.0 million in cash; and
o the purchase of Top Line, a business engaged in design and
prototype services, PCB assembly, full system assembly and
testing, in San Jose, California in June 2000, for 1,580,768
shares of the Company's common stock (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).
We continue to examine numerous acquisition opportunities in order to:
o diversify end-product programs with existing customers;
o locate manufacturing facilities close to original equipment
manufacturers or their end users;
o expand our capacity in selected geographic regions to take
advantage of existing infrastructure or low cost
manufacturing;
o complement our service offerings; and
o diversify our customer base to serve a wide variety of
end-markets with new telecommunications and networking
customers.
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We routinely engage in discussions with respect to possible
acquisitions. Acquisitions considered by us could include a single facility,
significant multiple facilities or original equipment manufacturer asset
acquisitions. There can be no assurance that any of these discussions will
result in a definitive purchase agreement and, if they do, what the terms or
timing of any agreement would be.
We expect each acquisition to be accretive to earnings and cash flow
after a transition period for each acquisition, generally approximately one
year. The initial margins from a newly acquired business or facility will likely
be lower than our current overall margins for several reasons:
o an acquired business or facility may be underutilized;
o existing business at a new or acquired business or facility
may be lower margin, such as PCB assembly or system assembly;
o a newly acquired business or facility may be less efficient
initially; and
o we may accept lower initial margins on large-scale operations
with significant new customers.
The risks of lower margins frequently are mitigated during transition
periods by supply arrangements agreed to in connection with a particular
acquisition. These arrangements may include limited overhead contribution
commitment, take or pay arrangements or limited revenue or product volume
guarantees to support the financial viability of the facility until it reaches
self-sufficiency.
We expect that the results for an acquired business or facility will
improve over the transition period as we:
o increase capacity utilization and reduce cost;
o complete integration activities, including replacing
third-party suppliers of PCBs, backpanel assemblies and wire
harnesses and cable assemblies with our own internal
production of those components;
o implement our processes and disciplines to reduce costs and
obtain the cost benefits of our procurement leverage; and
o introduce new business from the original customer and others.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net sales for the three months ended June 30, 2000, were $358.3
million, representing a $45.4 million, or 14.5% 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 NewCo in
March 2000.
Cost of goods sold for the three months ended June 30, 2000, was $269.4
million, or 75.2% of sales compared to $229.9 million, or 73.5% of sales for the
three months ended June 30, 1999. Cost of goods sold as
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<PAGE> 17
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 Chinese capacity expansion and a higher
percentage of EMS sales during the second quarter of 2000 which have lower
margins.
Selling, general and administrative expenses for the three months ended
June 30, 2000, of $27.9 million increased by $3.2 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, partially offset by a reduction in selling, general and administrative
expenses associated with the distribution of NewCo in March 2000 and cost
reduction activities undertaken by the Company.
Other expense decreased $6.9 million, from $29.2 million for the
quarter ended June 30, 1999 to $22.3 million for the same period of 2000,
primarily due to reduced interest expense related to the recapitalization in
connection with the initial public offering completed in March 2000.
Depreciation and amortization decreased $4.9 million, from $40.3
million for the quarter ended June 30, 1999 to $35.4 million for the same period
of 2000, primarily as a result of depreciation and amortization expense
associated with the distribution of NewCo in March 2000. This decrease was
partially offset by the impact to depreciation of acquired fixed assets and
amortization of acquired intangibles from certain acquisitions completed in 1999
and 2000.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
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 NewCo 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 NewCo in March 2000 and cost
containment efforts resulting from headcount reductions made at our corporate
offices in 1999.
In connection with the initial public offering in March 2000, 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 $33.6 million
during the three months ended March 31, 2000.
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<PAGE> 18
Also in connection with the initial public offering in March 2000, 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
$62.9 million recorded during the three months ended March 31, 2000.
Additionally, in connection with the initial public offering in March
2000, 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 $7.8 million recorded during the
three months ended March 31, 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 second quarter 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 Newco 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, the Company 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, the Company 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 the initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its primary sources of cash will be cash on hand,
cash from operating activities and Revolver borrowings under the Credit
Agreement. The Company's principal liquidity requirements will be for debt
service requirements, working capital needs and capital expenditures. In
addition, the potential for acquisitions of other businesses by the Company in
the future likely may require additional debt and/or equity financing.
Net cash used in operating activities was $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.
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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, NC&S and Top
Line 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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At June 30, 2000, approximately $435.3 million of the Company's
long-term debt, specifically borrowings outstanding under the Credit Agreement
and the Chips Loan Notes, bear interest at variable rates. Accordingly, the
Company's earnings and cash flow are affected by changes in interest rates.
Assuming the current level of borrowings at variable rates and assuming a two
percentage point change in the average interest rate under these borrowings, it
is estimated that the Company's interest expense for the three and six months
ended June 30, 2000, would have increased by approximately $2.2 million and $4.4
million, respectively. In the event of an adverse change in interest rates,
management would likely take actions that would mitigate the Company's exposure
to interest rate risk; however, due to the uncertainty of the actions that would
be taken and their possible effects, this analysis assumes no such action.
Further, this analysis does not consider the effects of the change in the level
of overall economic activity that could exist in such an environment.
FOREIGN CURRENCY RISK
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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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the quarter ended June 30, 2000, the Company issued an
aggregate of 1,580,768 shares of its common stock in exchange
for all of the outstanding capital stock of Top Line
Electronics Corporation. The shares were issued pursuant to an
exemption by reason of Section 3(a)(10) of the Securities Act
of 1933, as amended. The terms and conditions of such
issuances were approved after a hearing upon the fairness of
such terms and conditions by a government authority expressly
authorized by the law to grant such approval.
ITEM 5. OTHER INFORMATION
SUBMISSION OF PROPOSALS FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the
Company's 2001 Annual Meeting must be received by the Company no later
than December 15, 2000 in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such meeting.
Such proposals should be directed to Viasystems Group, Inc., 101 South
Hanley Road, Suite 400, St. Louis, Missouri 63105, Attention: Corporate
Secretary. Proposals must comply with the rules and regulations of the
Securities Exchange Commission relating to stockholder proposals in
order to be considered for inclusion in the proxy material.
In accordance with the Company's bylaws, stockholder proposals for
the Company's 2001 Annual Meeting must be submitted in writing and
received by the Company no later than the 10th day following the
earlier of the date on which notice of the meeting is first mailed to
stockholders or the date on which the meeting date is otherwise first
made public. Otherwise, in accordance with the rules and regulations of
the Securities and Exchange Commission, the proxies named in the
Company's proxy material will have discretionary authority to vote on
any such proposal, without any discussion of the proposal in the
Company's proxy material.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of
Viasystems Group. Inc. (incorporated by reference to
exhibit 3.1 to the Form 10-Q of the Company filed on
May 10, 2000).
3.2 Amended and Restated Bylaws of Viasystems Group, Inc.
(incorporated by reference to exhibit 3.2 to the Form
10-Q of the Company filed on May 10, 2000).
27.1 Financial Data Schedule of Viasystems Group, Inc.*
(b) Reports on Form 8-K
None.
---------------
*Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIASYSTEMS GROUP, INC.
Dated: August 10, 2000 By:
/s/ David M. Sindelar
----------------------------------
Name: David M. Sindelar
Title: Senior Vice President and
Chief Financial Officer
By:
/s/ Joseph S. Catanzaro
-----------------------------------
Name: Joseph S. Catanzaro
Title: Senior Vice President - Finance and
Chief Accounting Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Viasystems Group. Inc.
(incorporated by reference to exhibit 3.1 to the Form 10-Q of the Company filed on
May 10, 2000).
3.2 Amended and Restated Bylaws of Viasystems Group, Inc. (incorporated by reference to
exhibit 3.2 to the Form 10-Q of the Company filed on May 10, 2000).
27.1 Financial Data Schedule of Viasystems Group, Inc.*
</TABLE>
---------------
*Filed herewith
