<PAGE> 1
================================================================================
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 September 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
------ ------
001-15755
(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:
<TABLE>
<CAPTION>
Outstanding at
Class October 9, 2000
-------------------------- ------------------
<S> <C>
Viasystems Group, Inc.
Common Stock 133,839,209 shares
</TABLE>
<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
September 30, 2000............................................... 2
Condensed Consolidated Statements of Operations and Comprehensive
Income for the three and nine months ended September 30, 1999
and 2000........................................................ 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 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 6. Exhibits and Reports on Form 8-K............................... 19
SIGNATURES................................................................ 20
</TABLE>
<PAGE> 3
VIASYSTEMS GROUP, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 22,839 $ 51,453
Accounts receivable, net ......................... 236,455 273,787
Inventories ...................................... 176,125 202,950
Prepaid expenses and other ....................... 51,010 88,359
----------- -----------
Total current assets .......................... 486,429 616,549
Property, plant and equipment, net .................... 482,144 427,067
Intangibles, net and other assets ..................... 340,653 360,993
----------- -----------
Total assets .................................. $ 1,309,226 $ 1,404,609
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations ...... $ 27,851 $ 17,533
Accounts payable ................................. 187,632 197,795
Accrued and other liabilities .................... 133,563 133,421
Income taxes payable ............................. 25,163 21,114
----------- -----------
Total current liabilities ..................... 374,209 369,863
Long-term obligations, less current maturities ... 1,334,672 984,689
Other long-term liabilities ...................... 96,319 31,571
Preferred Stock:
Series B preferred stock ......................... 41,273 44,834
Stockholders' deficit:
Common stock ..................................... 780 1,338
Class A common stock ............................. 59 --
Class A series II common stock ................... 62 --
Paid-in capital .................................. 664,113 1,456,912
Note due from affiliate .......................... -- (114,814)
Accumulated deficit .............................. (1,178,954) (1,328,556)
Treasury stock, at cost .......................... (162) (162)
Accumulated other comprehensive loss ............. (23,145) (41,066)
----------- -----------
Total stockholders' deficit ................... (537,247) (26,348)
----------- -----------
Total liabilities and stockholders' deficit ... $ 1,309,226 $ 1,404,609
=========== ===========
</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 Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1999 2000 1999 2000
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ........................................................ $ 316,396 $ 406,504 $ 938,921 $ 1,149,373
Operating expenses:
Cost of goods sold .......................................... 245,695 308,855 709,482 881,554
Selling, general and administrative (including
one-time non-cash compensation charges of $104,351
in March 2000) ............................................. 31,315 28,489 85,507 194,960
Depreciation ................................................ 31,108 23,114 83,543 74,892
Amortization ................................................. 17,722 11,259 42,939 35,554
Write-off of acquired in-process R&D ......................... 17,600 -- 17,600 --
----------- ----------- ----------- -----------
Operating income (loss) ................................. (27,044) 34,787 (150) (37,587)
Other expense (income):
Interest expense ............................................. 32,675 23,082 85,858 82,345
Amortization of deferred financing costs ..................... 1,658 885 4,741 3,534
Other, net ................................................... 2,164 (379) 3,730 268
----------- ----------- ----------- -----------
Income (loss) before income taxes and cumulative effect of
a change in accounting principle and extraordinary item ...... (63,541) 11,199 (94,479) (123,734)
Provision (benefit) for income taxes ............................. (16,836) 1,680 (24,572) (5,328)
----------- ----------- ----------- -----------
Net income (loss) before cumulative effect of a change in
accounting principle and extraordinary item .................. (46,705) 9,519 (69,907) (118,406)
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) ................................................ (46,705) 9,519 (88,350) (149,602)
Other comprehensive income (loss):
Foreign currency translation adjustments .................... 21,489 (13,539) (17,144) (17,921)
----------- ----------- ----------- -----------
Comprehensive loss ............................................... $ (25,216) $ (4,020) $ (105,494) $ (167,523)
=========== =========== =========== ===========
Basic income (loss) per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item ......................... $ (0.60) $ 0.06 $ (1.12) $ (1.02)
Cumulative effect ........................................... -- -- (0.28) --
Extraordinary item .......................................... -- -- -- (0.26)
----------- ----------- ----------- -----------
Net income (loss) ........................................... $ (0.60) $ 0.06 $ (1.40) $ (1.28)
=========== =========== =========== ===========
Diluted income (loss) per weighted average common share:
Before cumulative effect of a change in accounting
principle and extraordinary item ......................... $ (0.69) $ 0.06 $ (1.28) $ (1.03)
Cumulative effect ........................................... -- -- (0.32) --
Extraordinary item .......................................... -- -- -- (0.26)
----------- ----------- ----------- -----------
Net income (loss) ........................................... $ (0.69) $ 0.06 $ (1.60) $ (1.29)
=========== =========== =========== ===========
</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>
Nine Months Ended
September 30,
-----------------------
1999 2000
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................................... $ (88,350) $(149,602)
Adjustments to reconcile net loss to net cash from operating activities:
Write-off of acquired in-process research and development .................. 17,600 --
Depreciation and amortization .............................................. 126,482 110,446
Amortization of deferred financing costs ................................... 4,741 3,534
Investment income earned from joint venture ................................ -- (1,421)
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 ............................................................. (31,355) (8,300)
Change in assets and liabilities, net of acquisitions:
Accounts receivable, net ................................................ (24,067) (91,690)
Inventories ............................................................. (7,993) (30,030)
Prepaid expenses and other .............................................. (1,973) (8,497)
Accounts payable and accrued and other liabilities ...................... (16,659) 42,309
Income taxes payable .................................................... 1,358 (2,203)
--------- ---------
Net cash provided by operating activities ..................................... 4,961 93
Cash flows from investing activities:
Acquisitions, net of cash acquired ......................................... (313,843) (355,908)
Capital expenditures ....................................................... (87,034) (95,263)
--------- ---------
Net cash used in investing activities ......................................... (400,877) (451,171)
Cash flows from financing activities:
Equity proceeds, net ....................................................... 198,077 864,834
Distribution to stockholders ............................................... -- (16,213)
Net borrowings (repayments) of term loans outstanding under the Third
Amended and Restated Credit Agreement, net of cash collateral............ 264,875 (346,262)
Borrowings under the Credit Agreement ...................................... -- 150,000
Net borrowings (repayments) of revolving loans under the Third Amended
and Restated Credit Agreement ........................................... 50,307 (139,501)
Chips Term Loan - cash collateral .......................................... (89,875) --
Net repayments of other long-term obligations .............................. (10,880) (13,387)
Financing costs ............................................................ (7,706) (19,692)
Net receipt from parent .................................................... 1,623 48
--------- ---------
Net cash provided by financing activities ..................................... 406,421 479,827
Net effect of exchange rate changes on cash ................................... (839) (135)
--------- ---------
Net change in cash and cash equivalents ....................................... 9,666 28,614
Cash and cash equivalents - beginning of the period ........................... 9,335 22,839
--------- ---------
Cash and cash equivalents - end of the period ................................. $ 19,001 $ 51,453
========= =========
</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 nine months ended
September 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 results of the Company
before the as if pooling of the Wire Harness Business' results for the three and
nine months ended September 30, 1999 and the nine months ended September 30,
2000 to the results in this Form 10-Q is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Three September 30, 1999
Months Ended -----------------------------
September 30, 1999 1999 2000
------------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Before as if pooling............................... $ 270,096 $ 790,481 $ 1,099,517
Wire Harness Business.............................. 46,300 148,440 $ 49,856
------------ ------------ ------------
$ 316,396 $ 938,921 $ 1,149,373
============ ============ ============
Net income (loss):
Before as if pooling............................... $ (48,186) $ (93,267) $ (153,532)
Wire Harness Business.............................. 1,481 4,917 3,930
------------ ------------ ------------
$ (46,705) $ (88,350) $ (149,602)
============ ============ ============
</TABLE>
5
<PAGE> 7
In March 2000, the Company acquired Marconi Communications Inc.'s Network
Components & Services European and China operations ("NC&S"), for a purchase
price of approximately $117,595 (the "NC&S Acquisition"). 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......................................... 68,968
Other non-current assets......................... 12,632
Current liabilities.............................. (52,233)
Non-current liabilities.......................... (2,961)
-----------
Total......................................... $ 117,595
===========
</TABLE>
In June 2000, the Company acquired Top Line Electronics Corporation ("Top Line")
by issuing 1,580,737 shares of the Company's common stock (the "Top Line
Acquisition"), preliminarily valued at $23,294. The value was determined by
using a stock price calculated by averaging the daily stock price for a period
of time prior to and subsequent to the announcement of the acquisition. This is
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 the Company's common
stock for the months of January and February 2001. 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 nine months ended
September 30, 1999 and 2000, as though the acquisitions of NC&S and Top Line had
occurred at January 1, 1999.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 2000
----------- ---------
<S> <C> <C>
Net sales .................................. $ 1,105,460 $ 1,241,188
Net loss before extraordinary item ......... (98,209) (116,523)
Net loss ................................... (98,209) (147,719)
Basic net loss per share ................... $ (1.55) $ (1.26)
Diluted net loss per share ................. $ (1.78) $ (1.28)
</TABLE>
On September 29, 2000, the Company acquired Lucent Technologies' Rouen
Global Provising Center ("Rouen") for a cash purchase price of approximately
$48,000 (the "Rouen Acquisition"). Rouen, located in
6
<PAGE> 8
Rouen, France, manufactures network transmission and radio frequency equipment.
Accordingly, the balance sheet of Rouen is included in the Company's
consolidated balance sheet. Rouen's results of operations will be included in
the fourth quarter results of operations of the Company.
3. INVENTORIES
The composition of inventories at September 30, 2000, is as follows:
<TABLE>
<S> <C>
Raw materials .............................. $ 97,823
Work-in-process ............................ 46,842
Finished goods ............................. 58,285
--------
Total ...................................... $202,950
========
</TABLE>
4. LONG-TERM OBLIGATIONS
The composition of long-term obligations at September 30, 2000, is as
follows:
<TABLE>
<S> <C>
Credit Agreement:
Term facilities, net of cash collateral .................. $ 150,000
Revolver ................................................. 39,800
Senior Subordinated Notes due 2007 ........................... 400,000
Series B Senior Subordinated Notes due 2007 .................. 100,000
Series B Senior Subordinated Notes due 2007, premium ......... 3,566
Chips Loan Notes ............................................. 285,312
Other debt ................................................... 23,544
----------
1,002,222
Less: current maturities ..................................... 17,533
----------
$ 984,689
==========
</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 September 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 September 30, 2000,
the Company had $39.8 million outstanding under the Revolver.
7
<PAGE> 9
5. EXTRAORDINARY ITEM
During the nine months ended September 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 nine
months ended September 30, 2000.
Also in connection with the initial public offering, the Company
converted each 6 2/3 shares of class A common stock and class A series II
common stock into one share of common stock. This conversion 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 nine months ended September 30, 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 nine months ended September 30, 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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
North America ........................... $ 182,866 $ 271,041 $ 574,951 $ 705,547
Europe .................................. 105,377 70,592 339,809 273,980
Asia .................................... 31,298 71,846 33,281 186,594
Eliminations ............................ (3,145) (6,975) (9,120) (16,748)
----------- ----------- ----------- -----------
Total ................................... $ 316,396 $ 406,504 $ 938,921 $ 1,149,373
=========== =========== =========== ===========
Operating income (loss):
North America ........................... $ 9,138 $ 22,185 $ 62,218 $ (57,270)
Europe .................................. (19,883) 2,234 (46,506) (3,985)
Asia .................................... (16,299) 10,368 (15,862) 23,668
Eliminations ............................ -- -- -- --
----------- ----------- ----------- -----------
Total ................................... $ (27,044) $ 34,787 $ (150) $ (37,587)
=========== =========== =========== ===========
</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 converted 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
conversion.
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 Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect of a change
in accounting principle and extraordinary item ......... $ (46,705) $ 9,519 $ (69,907) $ (118,406)
Plus paid-in-kind dividends and accretion on
preferred stock ......................................... (1,076) (1,226) (3,129) (3,561)
Less loss attributable to class A common
shareholders ............................................ 3,133 -- 6,128 1,620
Less loss attributable to class A series II
common shareholders ..................................... 2,818 -- 3,412 1,925
------------- ------------- ------------- -------------
Income (loss) available to common shareholders
before cumulative effect of a change in
accounting principle and extraordinary item ............ $ (41,830) $ 8,293 $ (63,496) $ (118,422)
============= ============= ============= =============
Basic weighted average common shares
outstanding ........................................... 69,383,920 133,824,209 56,873,707 116,438,209
Basic income (loss) per weighted average common
share before cumulative effect of a change in
accounting principle and extraordinary item ............ $ (0.60) $ 0.06 $ (1.12) $ (1.02)
============= ============= ============= =============
Basic net income (loss) per weighted average
common share ........................................... $ (0.60) $ 0.06 $ (1.40) $ (1.28)
============= ============= ============= =============
</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 Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect of a change
in accounting principle and extraordinary item ........... $ (46,705) $ 9,519 $ (69,907) $ (118,406)
Plus paid-in-kind dividends and accretion on
preferred stock .......................................... (1,076) (1,226) (3,129) (3,561)
------------- ------------- ------------- -------------
Income (loss) available to common shareholders
before cumulative effect of a change in
accounting principle and extraordinary item .............. $ (47,781) $ 8,293 $ (73,036) $ (121,967)
============= ============= ============= =============
Basic weighted average common shares outstanding ............ 69,383,920 133,824,209 56,873,707 116,438,209
Effect of dilutive securities ............................... -- 2,404,752 -- --
Common shares assuming conversion of class A and
class A series II ......................................... 133,951 -- 142,760 2,206,230
------------- ------------- ------------- -------------
Diluted weighted average common shares outstanding .......... 69,517,871 136,228,961 57,016,467 118,644,439
Diluted income (loss) per weighted average common
share before cumulative effect of a change in
accounting principle and extraordinary item .............. $ (0.69) $ 0.06 $ (1.28) $ (1.03)
============= ============= ============= =============
Diluted net income (loss) per weighted average
common share ............................................. $ (0.69) $ 0.06 $ (1.60) $ (1.29)
============= ============= ============= =============
</TABLE>
Shares assumed in the conversion of class A and class A series II common
stock are calculated on an as if converted basis through March 23, 2000, 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 nine months ended
September 30, 1999 and the nine months ended September 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 .............................. 2,203,559 5,079,519
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. However, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" in June 1999, which defers the
effective date of SFAS No. 133 for one year, to 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. In December
1999, the Commission issued Staff Accounting Bulletin No. 101 ("SAB No. 101"),
"Revenue Recognition in Financial Statements". At this time, the financial
impact, if any, of SAB No. 101, has not been quantified. 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.
13. SUBSEQUENT EVENTS
On October 6, 2000, the Company entered into an agreement to acquire all of
the outstanding common stock of Laughlin-Wilt Group, Inc., a business engaged in
design and prototype services for printed circuit boards, printed circuit board
assembly, full system assembly and testing, in Beaverton, Oregon and Orange
County, California for approximately 3,600,000 shares of our common stock and
$9.0 million in cash, plus the assumption of outstanding indebtedness.
While the Laughlin-Wilt acquisition is expected to close in the fourth
quarter of 2000, the Company cannot be assured that the closing will occur at
that time or at all.
12
<PAGE> 14
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
this 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. Undue reliance should not be put 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.
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.
ACQUISITIONS
A significant portion of our growth has been generated through acquisitions
completed since 1996. In September 2000, the Company acquired Lucent
Technologies' Rouen Global Provising Center, a business engaged in the
manufacture of network transmission and radio frequency equipment, located in
Rouen, France, for approximately $48.0 million cash.
The Company continues to examine numerous acquisition opportunities in order
to:
o diversify end-product programs with existing customers;
13
<PAGE> 15
o locate manufacturing facilities close to original equipment
manufacturers or their end users;
o expand our capacity in selected geographic regions to take advantage of
existing infrastructure or low cost manufacturing;
o complement our service offerings; and
o diversify our customer base to serve a wide variety of end-markets with
new telecommunications and networking customers.
We routinely engage in discussions with respect to possible acquisitions.
Acquisitions considered by us could include a single facility, significant
multiple facilities or original equipment manufacturer asset acquisitions. There
can be no assurance that any of these discussions will result in a definitive
purchase agreement and, if they do, what the terms or timing of any agreement
would be.
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 be assured 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:
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
commitments, take or pay arrangements or limited revenue or product volume
guarantees to support the financial viability of the facility until it reaches
self-sufficiency.
We expect that the results for an acquired business or facility will improve
over the transition period as we:
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.
14
<PAGE> 16
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Net sales for the three months ended September 30, 2000, were $406.5
million, representing a $90.1 million, or 28.5% increase from the same period in
1999. The increase was primarily due to volume growth in the telecom/datacom
industry and a result of acquisitions completed in 1999 and 2000, 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 September 30, 2000, was
$308.9 million, or 76.0% of sales compared to $245.7 million, or 77.7% of sales
for the three months ended September 30, 1999. Cost of goods sold as a percent
of net sales decreased primarily as a result of the distribution of NewCo in
March 2000. This decrease was partially offset by a higher percentage of EMS
sales in 2000, which have lower margins.
Selling, general and administrative expenses for the three months ended
September 30, 2000, of $28.5 million decreased by $2.8 million versus the
comparable period in 1999. These costs decreased primarily due to 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,
partially offset by increases in general and administrative expenses related to
certain acquisitions completed in 1999 and 2000.
Other expense decreased $12.9 million, from $36.5 million for the quarter
ended September 30, 1999 to $23.6 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 $14.4 million, from $48.8 million
for the quarter ended September 30, 1999 to $34.4 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.
During the three months ended September 30, 1999, the Company recorded a
one-time non-cash write-off of $17.6 million related to in-process research and
development acquired in the acquisition of the printed circuit board
manufacturing division ("Kalex") of Termbray Industries International (Holdings)
Limited.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Net sales for the nine months ended September 30, 2000, were $1.1 billion,
representing a $210.5 million, or 22.4% increase from the same period in 1999.
The increase was primarily due to volume growth in the telecom/datacom industry
and a result of acquisitions completed in 1999 and 2000, partially offset by the
reduction in sales associated with the distribution of NewCo in March 2000.
Cost of goods sold for the nine months ended September 30, 2000, was $881.6
million, or 76.7% of sales compared to $709.5 million, or 75.6% of sales for the
nine months ended September 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 nine months
ended September 30, 2000, of $90.6 million increased by $5.1 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
15
<PAGE> 17
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 nine months ended September 30, 2000.
Also in connection with the initial public offering in March 2000, the
Company converted each 6 2/3 shares of class A common stock and class A series
II common stock into one share of common stock. This conversion 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 $63 million
recorded during the nine months ended September 30, 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 nine months ended September 30,
2000.
Other expense decreased $8.2 million, from $94.3 million for the nine
months ended September 30, 1999 to $86.1 million for the same period of 2000,
primarily due to the recapitalization completed in connection with the initial
public offering in March 2000.
Depreciation and amortization decreased $16.1 million, from $126.5 million
for the nine months ended September 30, 1999 to $110.4 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
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 nine months ended September 30, 1999, the Company recorded a
one-time non-cash write-off of $17.6 million related to in-process research and
development acquired in the acquisition of Kalex.
During the nine months ended September 30, 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.
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that its principal liquidity requirements over the next
twelve months will be for debt service requirements, working capital needs and
capital expenditures. The Company expects its primary sources of cash during
such time will be cash on hand, cash from operating activities and Revolver
borrowings under the Credit Agreement, which the Company believes will be
sufficient to meet such liquidity needs during the next twelve months. However,
the potential for acquisitions of other businesses by the Company in the future
likely may require additional debt and/or equity financing.
Net cash provided by operating activities was $0.1 million for the nine
months ended September 30, 2000, compared to net cash provided by operating
activities of $5.0 million for the same period in 1999. The decrease in net cash
provided by operating activities relates primarily to the timing of receipts
from certain major customers and investments in inventories partially offset by
the timing of payments to vendors.
Net cash used in investing activities was $451.2 million for the nine
months ended September 30, 2000, compared to $400.9 million for the nine months
ended September 30, 1999. In 2000, net cash used in investing activities
included $355.9 million related to the acquisitions of the Wire Harness
Business, NC&S, Top Line and Rouen with the remainder related to capital
expenditures. The net cash used in investing activities for the nine months
ended September 30, 1999 included $313.8 million related to the acquisitions of
PAGG Corporation ("PAGG") and Kalex 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.
RECENT 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. However, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" in June 1999, which defers the
effective date of SFAS No. 133 for one year, to 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. In December
1999, the Commission issued Staff Accounting Bulletin No. 101 ("SAB No. 101"),
"Revenue Recognition in Financial Statements". At this time, the financial
impact, if any, of SAB No. 101, has not been quantified. In March 2000, the FASB
issued FASB Interpretation No. 44, an interpretation of APB Opinion No. 25. The
financial impact, if any, of FASB
17
<PAGE> 19
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", has not been quantified.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At September 30, 2000, approximately $475.1 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 nine months
ended September 30, 2000, would have increased by approximately $2.2 million and
$6.6 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.
18
<PAGE> 20
PART II. OTHER INFORMATION
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
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIASYSTEMS GROUP, INC.
Dated: October 23, 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
20
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule of Viasystems Group, Inc.*
</TABLE>
----------
* Filed herewith
