As filed with the
Securities and Exchange Commission on February 5,
2010
Registration
No. 333-164186
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment
No. 1
to
FORM S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
VIASYSTEMS GROUP,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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3672
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75-2668620
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(IRS Employer
Identification Number)
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101 South Hanley Road,
Suite 400
St. Louis, Missouri
63105
(314) 727-2087
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Daniel J. Weber
Vice President and General
Counsel
101 South Hanley Road,
Suite 400
St. Louis, Missouri
63105
(314) 746-2205
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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R. Scott Cohen
Weil, Gotshal & Manges LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201
(214) 746-7700
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Todd R. Chandler
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
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Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box. þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act:
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting
company)
CALCULATION OF REGISTRATION
FEE
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Title of Each Class of
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Amount to be
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Proposed Maximum
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Proposed Maximum
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Amount of
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Securities to be Registered(1)
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Registered
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Offering Price Per Share
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Aggregate Offering Price(2)
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Registration Fee(3)
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Common Stock, par value $0.01 per share
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1,390,087
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N/A
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$
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34,318,016.35
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$
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2,447
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(1)
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Represents 1,390,087 shares of
1,398,251 shares of our common stock to be issued (together
with cash) in exchange for approximately $68.6 million in
aggregate principal amount of 4% Convertible Senior Subordinated
Notes due 2013 (the Merix Convertible Notes) of
Merix Corporation (Merix) pursuant to that certain
Note Exchange Agreement dated as of October 6, 2009 among
Viasystems Group, Inc., Maple Acquisition Corp. and the entities
listed on Schedule I thereto, which may be resold from time
to time by the selling stockholders identified herein.
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(2)
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Estimated solely for purpose of
calculating the registration fee pursuant to Rule 457(o)
under the Securities Act. The proposed maximum aggregate
offering price for the common stock is the product of (i) the
quotient of (x) $2.40, the average of the high and low
sales prices of the Merix common stock, as quoted on the NASDAQ
Global Market on December 31, 2009, divided by
(y) 0.0972145, the estimated exchange ratio of Viasystems
common stock to be issued to holders of Merix common stock in
connection with the pending merger of Maple Acquisition Corp., a
wholly owned subsidiary of Viasystems, with and into Merix
(assumes 25,716,323 shares of Merix common stock are
outstanding on the effective date of the merger) and
(ii) 1,390,087, the number of shares of Viasystems common
stock that are being registered hereby pursuant to the Note
Exchange Agreement.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission
acting pursuant to said Section 8(a) may determine.
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
February 5, 2010.
1,390,087 Shares
Common
Stock
This prospectus relates solely to the resale of up to an
aggregate of 1,390,087 shares of common stock, par value
$0.01 per share, of Viasystems Group, Inc.
(Viasystems or the Company) by the
selling stockholders identified in this prospectus.
The selling stockholders identified in this prospectus (which
term as used herein includes their pledgees, donees, transferees
or other
successors-in-interest)
may offer the shares from time to time as they may determine
through public transactions or through other means described in
the section entitled Plan of Distribution, beginning
on page 114. Our common stock is not currently listed on
any exchange or quotation system. In connection with this
offering, we applied to list our common stock for quotation on
The NASDAQ Global Market and our application has been approved,
subject to notice of issuance. Accordingly, there is no set
market price for our common stock.
We will not receive any of the proceeds from the sale of these
shares by the selling stockholders. The selling stockholders
will pay any brokerage commissions
and/or
similar charges incurred for the sale of these shares of our
common stock.
Investing in our common stock
involves significant risks. See Risk Factors
beginning on page 11 to read about factors you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is .
TABLE OF
CONTENTS
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Page
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ii
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iii
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iv
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1
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11
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28
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33
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45
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70
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80
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84
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100
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101
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103
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106
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110
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114
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118
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118
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118
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F-1
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EX-5.1 |
EX-23.1 |
EX-23.2 |
ABOUT THIS
PROSPECTUS
This prospectus is part of a registration statement on
Form S-1
that we filed with the Securities and Exchange Commission, or
SEC. You should rely only on the information contained in this
prospectus (as supplemented and amended). We have not authorized
anyone to provide you with different information. This document
may only be used where it is legal to sell these securities. You
should not assume that the information contained in this
prospectus is accurate as of any date other than its date
regardless of the time of delivery of the prospectus or any sale
of our common stock. We may from time to time supplement the
information contained in this prospectus in a prospectus
supplement.
ii
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus are
forward-looking statements, including, in particular, statements
about our plans, strategies and prospects and industry
estimates. These statements identify prospective information and
include words such as expects, plans,
anticipates, believes,
estimates, predicts,
projects and similar expressions. Examples of
forward-looking statements include, but are not limited to, our
liquidity resources being sufficient for at least the next
12 months and the estimated closing date for the Merger (as
defined herein).
Forward-looking statements are based on information available to
us as of the date of this prospectus. Current expectations,
forecasts and assumptions involve a number of risks,
uncertainties and other factors that could cause actual results
to differ materially from those anticipated by these
forward-looking statements. We caution you therefore that you
should not rely on any of these forward-looking statements as
statement of historical fact or as guarantees of future
performance. These forward-looking statements should not be
relied upon as representing our views as of any subsequent date,
and we undertake no obligation to update forward-looking
statements to reflect events or circumstances after the date
they were made.
Factors that could cause actual results to differ materially
from those expressed or implied by forward-looking statements
include, but are not limited to:
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declines in gross margin as a result of excess capacity;
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our significant reliance on net sales to our largest customers;
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fluctuations in our operating results;
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our history of losses and inability to become profitable in the
future;
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our reliance on the automotive industry and the
telecommunications and networking industries;
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risks associated with the credit risk of our customers and
suppliers;
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influence of significant stockholders;
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our significant foreign operations and risks relating to
currency fluctuations;
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our dependence on the electronics industry, which is highly
cyclical and subject to significant downturns in demand;
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shortages of, or price fluctuations with respect to, raw
materials and increases in oil prices;
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our ability to compete in a highly competitive industry or our
inability to respond to rapid technological changes;
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reduction in, or cancellation of, customer orders;
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risks associated with manufacturing defective products and
failure to meet quality control standards;
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uncertainty and adverse changes in the economy and financial
markets;
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damage to our manufacturing facilities or information systems;
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loss of key personnel and high employee turnover;
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risks associated with governmental and environmental regulation;
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our exposure to income tax fluctuations;
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failure to comply with, or expenses related to compliance with,
export laws or other laws applicable to our foreign operations,
including the Foreign Corrupt Practices Act (FCPA);
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risks relating to our substantial indebtedness;
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iii
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failure to realize the expected benefits of the Merger and the
incurrence of significant costs in connection with the Merger;
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failure to realize anticipated cost synergies or the incurrence
of additional costs in connection therewith;
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additional risks that we will become subject to following
consummation of the Merger; and
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other risks described under the headings Risk
Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
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INDUSTRY AND
MARKET DATA
This prospectus includes information with respect to market
share and industry conditions from third-party sources or based
upon our estimates using such sources when available.
iv
SUMMARY
This summary highlights certain information concerning our
business and this offering. It does not contain all of the
information that may be important to you and to your investment
decision. The following summary is qualified by the more
detailed information and financial statements and notes thereto
appearing elsewhere in this prospectus. You should carefully
read this entire prospectus and should consider, among other
things, the matters set forth in Risk Factors before
deciding to invest in our common stock. Unless the context
otherwise requires, references to Viasystems,
the Company, we, us and
our refer to Viasystems Group, Inc. and its
subsidiaries and references to Viasystems, Inc.
refer to Viasystems, Inc., our subsidiary.
Our
Company
We are a leading worldwide provider of complex multi-layer
printed circuit boards (PCBs) and electro-mechanical
solutions
(E-M
Solutions). PCBs serve as the electronic
backbone of almost all electronic equipment, and our
E-M
Solutions products and services integrate PCBs and other
components into finished or semi-finished electronic equipment,
which include custom and standard metal enclosures, metal
cabinets, metal racks and
sub-racks,
backplanes, cable assemblies and busbars.
We currently operate our business in two segments: Printed
Circuit Boards, which includes our PCB products, and Assembly,
which includes our
E-M
Solutions products and services. For the twelve months ended
September 30, 2009, our Printed Circuit Board segment
accounted for approximately two-thirds of our net sales and our
Assembly segment accounted for approximately one-third of our
net sales.
The components we manufacture include, or can be found in, a
wide variety of commercial products, including automotive engine
controls, hybrid converters, automotive electronics for
navigation, safety, entertainment and anti-lock braking systems,
telecommunications switching equipment, data networking
equipment, computer storage equipment, wind and solar energy
applications and several other complex industrial, medical and
technical instruments. Our broad offering of
E-M
Solutions services include component fabrication, component
integration and final system assembly and testing. These
services can be bundled with our PCBs to provide an integrated
solution to our customers. Our net sales for the twelve months
ended September 30, 2009 were derived from the following
end markets:
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Automotive (37%);
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Industrial and instrumentation/energy/medical/consumer/other
(27%);
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Telecommunications (27%); and
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Computer/data communications (9%).
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We are a supplier to over 125 original equipment manufacturers
(OEMs) and contract electronic manufacturing
services companies (CEMs) in our end markets. We
target the sale of PCBs and
E-M
Solutions to global OEMs. Our top OEM customers include industry
leaders such as Alcatel-Lucent SA, Autoliv, Inc., Bosch Group,
Continental AG, Delphi Corporation, EMC Corporation, Ericsson
AB, General Electric Company, Hewlett-Packard Company, Hitachi,
Ltd, Huawei Technologies Co. Ltd., Rockwell Automation, Inc.,
Siemens AG, Sun Microsystems, Inc., Tellabs, Inc.,
TRW Automotive Holdings Corp. and Xyratex Ltd. Our top CEM
relationships include industry-leading contract manufacturers
such as Celestica, Inc. and Jabil Circuits, Inc.
We currently have six manufacturing facilities, all of which are
located outside of the United States to take advantage of
low-cost, high quality manufacturing environments. Our PCB
products are produced in two of our five facilities in China.
Our E-M
Solutions products and services are provided from our other
three Chinese facilities and our one facility in Mexico. In
addition to our
1
manufacturing facilities, in order to support our
customers local needs, we maintain engineering and
customer service centers in Canada, Mexico, the United States,
Hong Kong, China, The Netherlands and England. These engineering
and customer service centers correspond directly to the primary
areas where we ship our products, as evidenced by the fact that,
for the twelve months ended September 30, 2009,
approximately 38%, 36% and 26% of our net sales were generated
by shipments to North America, Asia and Europe, respectively.
We believe that a key driver for our business will be the
expected growth in PCBs produced in China, which will be driven
by local and worldwide demand. Prismark Partners LLC, a leading
analyst of the PCB market (Prismark), estimates that
demand for PCBs manufactured in China will grow at a projected
average annual rate of approximately 10.4% from 2009 through
2013 (compared to the rest of the global PCB industry, which is
estimated to grow at a projected compound average annual growth
rate of approximately 8.9% over the same period). Through our
China operations, we currently produce highly complex,
technologically advanced and standard technology, multi-layer
PCBs that meet increasingly narrow tolerances and specifications
demanded by our customers. We possess the technical ability and
experience to provide comprehensive front-end engineering
services, prototype services and production-volume manufacturing
of PCBs with 50+ layers and circuit track widths as narrow as
three one-thousandths of an inch. We are also developing the
ability to meet our PCB customers needs for quick-turn or
short-lead-times for prototypes and expedited recurring
products. We believe that another key driver for our business
will be the expected increase in demand for electronic equipment
manufactured in China. According to the Henderson Electronic
Market Forecast (October 2009), a leading semiconductor industry
publication produced by Henderson Ventures (the Henderson
Forecast), the demand for electronic equipment
manufactured in China is expected to grow at a projected
compound average annual growth rate of approximately 10.7% from
2009 to 2011, outpacing an anticipated slower recovery from
other regions and benefiting from the migration of production
from the United States and Western Europe.
Industry
Trends
We believe there are a number of important industry trends that
will benefit us in the future. These trends include:
Global PCB supply sector estimated to be in early stages
of recovery. After decreased demand during
the global economic downturn which began near the end of 2008,
forecasts for GDP growth, semiconductor consumption and PCB
demand have increased over the last three months. According to
Prismark, the global PCB industry is estimated to grow at a
projected compound annual growth rate of 8.9% from 2009 through
2013 following a substantial market decline in 2009 (an
estimated 13.7% decrease from 2008) and a relatively flat
2008 (an estimated 1.1% increase from 2007).
Manufacturing migration to low-cost manufacturing
regions particularly China. China
has steadily grown its share of global PCB production over the
past eight years, increasing its share from approximately 9.8%
to approximately 31% from 2001 to 2008, according to Prismark.
Chinas combination of technological advancements, low
labor costs, growing domestic markets and favorable export
policies has made it a favorable low-cost manufacturing region
and an increasingly important center for electronics
manufacturing. According to Prismark, China is projected to
account for approximately 36% to 38% of global PCB production
from 2010 through 2013. Higher technology PCBs are expected to
account for a disproportionate share of this growth.
Recovery in key end markets. Evidence
from our customers suggests that global electronics demand
started to recover in the second quarter of 2009, with our key
end markets being projected to demonstrate strong growth in 2010
and 2011. For example, the Henderson Forecast estimates that
each of our key end markets (i.e., automotive, industrial and
instrumentation, medical and consumer, telecommunications and
computer/data communications) will return to positive growth in
the United States in 2010 and will benefit from even
stronger growth in 2011. Furthermore, two significant growth end
markets,
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automotive and industrial instrumentation, due to our expertise
in the fabrication and assembly of wind power
related-technologies, are expected to benefit strongly from the
economic recovery and improved stability in the capital markets.
As mentioned above, according to the Henderson Forecast, the
U.S. automotive market is expected to begin to grow in 2010 with
an increased rate of growth in 2011, but, according to JP Morgan
Securities Japan Co., the recovery in this end market will also
be driven by a distinct growth in hybrid vehicles (which are
projected to grow from approximately 500,000 units in 2008
to approximately 11.2 million units by 2020). The growth in
hybrid vehicles is expected to be a particularly favorable trend
for PCB manufacturers. Additionally, as stability returns to the
financial markets and credit begins to ease, we expect the focus
on green technologies and clean energy initiatives
to drive growth in wind power related demand, which we believe
will in turn create an increased need for our products. While
our visibility of future demand trends remains limited,
sequential growth in sales during the third quarter in our
automotive, industrial and instrumentation, medical and
consumer, telecommunications and computer/data communications
end-user markets, together with positive trends in backlog and
customer orders across all our end-user markets, indicate that
our customers may have achieved their inventory goals and their
buying patterns better reflect ongoing demand.
Our Business
Strengths
We believe that the following factors are instrumental to our
success:
Leadership position in complex PCB and
E-M
Solutions through low-cost manufacturing and global technology
support. We believe we are one of the
industry leaders in the manufacture of complex multi-layer PCBs
and E-M
Solutions. Our differentiation comes from our ability to
manufacture complex PCBs and
E-M
Solutions in low-cost regions, while maintaining close ties to
our global customers through our localized engineering and sales
presence. We believe that our ability to produce complex
electronic products in volume at a lower cost provides us with a
significant advantage over our competitors based in North
America and Europe, while our experienced engineering and
selling resources in those regions give us a significant
advantage over local Chinese competitors. We believe that we are
one of the largest manufacturers of complex high quality PCBs in
China, with approximately three million square feet of PCB
manufacturing capacity. In addition, we believe that the
development of a greenfield plant in China with comparable
capacity and capabilities to our current facilities
(i) would take a typical competitor three to four years to
build, (ii) would require a substantial capital investment
to attain volume commercial production and (iii) to comply
with the current highly-regulated environmental policies in
China, would require waste treatment licenses that are strictly
allocated by the Chinese government.
Technology leadership in China. We
believe that our PCB facilities in China represent the leading
edge of technology in the region. We have the ability to produce
PCBs with 50+ layers in China. We have pioneered advances in
some of the most significant areas of the PCB production
process, including various proprietary technologies and process
methods important in the development and production of complex
PCBs and backpanels.
Diverse end market and customer
profile. We benefit from established,
long-term relationships with a diverse group of customers. We
have solidified these relationships, in part, by providing our
customers with high quality products and services from the
design phase through high volume production. We supply over 125
OEM customers, including leading manufacturers of:
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Automotive products, such as Autoliv, Bosch, Continental, Delphi
and TRW;
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Telecommunications equipment, such as Alcatel-Lucent, Ericsson,
Huawei and Tellabs;
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Computer and data communication equipment, such as
Hewlett-Packard, EMC, Sun Microsystems and Xyratex; and
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Industrial, instrumentation, medical, energy and other products,
such as General Electric, Hitachi, Rockwell and Siemens.
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We also supply PCBs to leading CEMs, such as Celestica and
Jabil, for their use in OEM programs. The diversity of our
end-user market reduces our dependence on any one market segment
and any one customer, thereby providing a more stable source of
cash flow.
Broad product and integrated services offering that
provides cross-selling opportunities. We
continue to position ourselves to become our customers
leading supplier for a growing range of products and services.
While each of our products is designed to meet a particular
customers specifications, the processes we use to develop
these products can be applied to any customer, thereby resulting
in additional opportunities to expand our product offering to
other customers. Furthermore, we provide a full range of
integrated services, from product design and development
services to quick-turnaround prototyping, pre-production and
medium to high volume production. By offering design and
development services, we have gained early access to volume
production sales opportunities, which in turn has created
additional design and development and quick-turnaround
prototyping sales opportunities. We believe our integrated
services provide significant value to our customers by
shortening their new product development cycles, assisting them
in meeting their
time-to-market
and
time-to-volume
requirements, lowering their manufacturing costs and providing
technical expertise.
Additionally, we leverage our PCB capabilities to provide our
customers with an integrated manufacturing solution that can
range from fabrication of bare PCBs to final system assembly and
testing. Through our cross-selling effort, we have successfully
converted PCB customers to
E-M
Solutions customers and vice-versa.
Experienced and successful management
team. Our senior management team has an
average of 20 years of electronics industry experience,
including both manufacturing and marketing positions.
Individually, our senior managers have established a track
record of managing strong growth in sales and delivering
profitability utilizing various strategies, including the
penetration of new markets and the development of new
manufacturing processes. Further, our senior managers have
demonstrated success in aligning labor and overhead costs with
market demands as well as implementing cost savings initiatives.
Under our management teams leadership, we have
significantly improved our operations, positioning our business
for growth and financial strength, which we believe has been
integral to achieving our current competitive profile.
Our Business
Strategy
Maintenance of diverse end market and end customer
mix. In order to reduce our exposure to, and
reliance on, unpredictable end markets and to provide
alternative growth paths, we sell our product offerings into a
diverse range of markets, including automotive, industrial and
instrumentation, medical and consumer, telecommunications and
computer/data communications. We have pursued new substantial
customers in each market and intend to continue to build our
customer base in a broad range of target end markets.
Enhancement of our strong customer
relationships. We benefit from established,
long-term relationships with a diverse group of customers. We
are focused on expanding our business with these customers by
leveraging our history of producing quality products with a high
level of customer service and operational excellence, which
provides us with the opportunity to bid for additional programs
from the strong position of a preferred supplier. In addition,
we have good working relationships with industry leading CEMs
such as Celestica and Jabil. These relationships provide us
access to additional PCB and
E-M
Solutions opportunities and enable our partners to offer a fully
integrated product solution to their customers. Our management
team has created a culture that is focused on providing our
customers with high quality service and technical support, which
is reflected in our continuing ability to obtain new business
and expand our current customer relationships.
Expansion of our relationships with existing customers
through cross-selling. Building on our broad
product offering, we intend to continue to pursue cross-selling
opportunities with our
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existing base of customers. We leverage our PCB capabilities to
provide our customers with an integrated manufacturing solution
that can range from fabrication of bare PCBs to final system
assembly and testing. We intend to continue to leverage our
customer relationships to expand sales to our existing customers.
Expansion of our manufacturing capabilities in low-cost
locations. To meet our customers
demands for high quality, low-cost products and services, we
have invested and will continue to invest, as market conditions
allow, in facilities and equipment in low-cost locations. For
the twelve months ended September 30, 2009, approximately
95.5% of our net sales were generated from products produced in
our operations in China and Mexico, with the remaining 4.5%
being generated by a recently closed facility in the United
States. We will continue to develop our
best-in-class
technology and manufacturing processes in low-cost manufacturing
locations. We believe our ability to leverage our advanced
technology and manufacturing capabilities in low-cost locations
will enable us to grow our net sales, improve our profitability
and effectively meet our customers requirements for high
quality, low-cost products and services.
Expansion of our quick-turn manufacturing
capabilities. We intend to further develop
our quick-turn PCB manufacturing capabilities in Asia and in
North America after the Merger (as defined herein) with Merix.
Quick-turn manufacturing enables us to provide our customers
with an expedited turnaround for prototype PCBs. By enhancing
our quick-turn offering, we are able to offer our customers a
seamless manufacturing transition from quick-turn prototyping
near the engineering/design team to volume manufacturing in
China.
Concentration on high value-added products and
services. We focus on providing
E-M
Solutions manufacturing services to leading designers and
sellers of advanced electronics products that generally require
custom designed, complex products and short lead-time
manufacturing services. These products are typically lower
volume, higher mix. We differentiate ourselves from many of our
global competitors by not focusing on programs for high volume,
low margin products such as cell phone handsets, personal
computers or peripherals and low-end consumer electronics.
Focus on green technologies and
practices. We are focused on incorporating
green technologies and practices into our operations
to reduce costs, mitigate potential liabilities, ensure a safe
and healthy workplace for our employees and to maintain our
reputation as an environmentally responsible neighbor to the
communities in which we operate. We are also focused on
supporting our customers demands for green
technology related products, and, to that end, we have developed
an expertise in the fabrication and assembly of wind power
related technologies, as well as an expertise in our PCB
manufacturing process for heavy copper applications,
which are necessary to support hybrid automotive technologies.
For the nine months ended September 30, 2009, approximately
9% of our net sales were derived from our green
technologies. Our goal is to grow our sales related to these
technologies to 25-35% of our net sales.
Continued emphasis on our operational
excellence. We continuously implement
strategic initiatives designed to improve product quality while
reducing manufacturing costs. We expect to continue to focus on
opportunities to improve operating income, including continued
implementation of advanced manufacturing techniques, such as
Lean and Six Sigma initiatives, efficient investment in new
equipment and technologies and the upgrading of existing
equipment and continued improvement of our internal control over
and centralization of certain aspects of our accounting and
finance functions. Our management team is focused on maximizing
our current asset base to improve our operational efficiency
while also adapting to the needs of our customers and the market.
5
Recent
Developments
Pending Merger
with Merix Corporation and Related Transactions
Pending
Merger
On October 6, 2009, we entered into an Agreement and Plan
of Merger (the Merger Agreement) with Merix
Corporation (Merix) and Maple Acquisition Corp., our
wholly owned subsidiary (Merger Sub), pursuant to
which, subject to the satisfaction of several conditions, Merger
Sub will merge with and into Merix, with Merix continuing as the
surviving corporation and our wholly owned subsidiary (the
Merger). Immediately following the Merger, we will
contribute the shares of Merix to Viasystems, Inc., our
subsidiary. The Merger is currently expected to be completed in
the first calendar quarter of 2010; however, the closing may
occur as late as March 31, 2010 pursuant to the Merger
Agreement. In connection with the Merger, each outstanding share
of Merix common stock will be converted into the right to
receive the number of validly issued, fully paid and
nonassessable shares of our common stock, based upon an exchange
ratio based on the number of Merix common stock outstanding as
of the effective time of the Merger. Assuming all options with
an exercise price of $1.60 and below are exercised, Merix
shareholders would receive 0.10677 shares of our common
stock, and assuming all options with an exercise price of $2.86
and below are exercised, Merix shareholders would receive
0.10401 shares of our common stock for each share of Merix
common stock. Assuming that the number of shares of Merix common
stock that were issued and outstanding as of October 6,
2009 represents the number of shares of Merix common stock that
will be issued and outstanding at the effective time of the
Merger, then the exchange ratio would equal approximately
0.11559034. No fractional shares of our common stock will be
issued in the Merger. Merix stockholders will own approximately
12.5% of the combined company after the Merger.
Note
Exchange
On October 6, 2009, we also entered into a note exchange
agreement with holders of approximately 98% of the
$70 million aggregate principal amount of
4% Convertible Senior Subordinated Notes due 2013 (the
Merix Convertible Notes) of Merix, pursuant to which
such noteholders agreed to exchange their Merix Convertible
Notes for (i) approximately 1.4 million shares of our
common stock and (ii) approximately $35 million in
cash (the Exchange). The closing of the Exchange is
conditioned upon the closing of the Merger and will occur
concurrently with the Merger. Pursuant to the terms of the note
exchange agreement that was entered into in connection with the
Exchange, we agreed to file this resale registration
statement for the benefit of the noteholders receiving shares of
our common stock in the Exchange and such noteholders committed
to refrain from selling a portion of such shares for up to
150 days following the closing of the Exchange. Merix
noteholders will own approximately 7.0% of the combined company
after the Merger.
Recapitalization
In connection with the execution of the Merger Agreement, on
October 6, 2009, we entered into a recapitalization
agreement with the Funds (as defined herein), pursuant to which,
among other things, we and the Funds agreed to recapitalize
Viasystems such that, prior to the consummation of the Merger,
(i) each outstanding share of our common stock will be
exchanged for 0.083647 shares of our newly issued common
stock, (ii) each outstanding share of our Class A
Junior Preferred Stock will be reclassified as, and converted
into, 8.478683 shares of our newly issued common stock and
(iii) each outstanding share of our Class B Senior
Preferred Stock will be reclassified as, and converted into,
1.416566 shares of our newly issued common stock (the
Recapitalization).
In connection with the Recapitalization, certain outstanding
options and warrants to purchase our common stock will also be
adjusted by our compensation committee or board of directors, as
applicable. Each outstanding option to purchase our common stock
under our 2003 Stock Option Plan and each outstanding warrant to
purchase our common stock granted pursuant to the warrant
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agreement, dated as of January 31, 2003, between Viasystems
and Computershare Investor Services, LLC, as warrant agent, upon
the consummation of the Recapitalization, will be adjusted as
follows: (i) the current exercise price of each option
or warrant will be adjusted by dividing that exercise price by
0.083647 and (ii) the number of shares of common stock
covered by each option or warrant will be adjusted by
multiplying that number of shares by 0.083647.
As a result of the completion of the Recapitalization, the
transactions contemplated under the Exchange and the Merger,
(i) the holders of the our common stock prior to the
Recapitalization will receive approximately
2,415,263 shares of our newly issued common stock,
(ii) the holders of our Class A Junior Preferred Stock
prior to the Recapitalization will receive approximately
7,658,226 shares of our newly issued common stock,
(iii) the holders of our Class B Senior Preferred
Stock prior to the Recapitalization will receive approximately
6,028,260 shares of our newly issued common stock,
(iv) the holders of the Merix common stock prior to the
closing of the Merger will receive approximately
2,500,000 shares of our newly issued common stock and
(v) the holders of Merix Convertible Notes will receive
1,398,251 shares of our newly issued common stock. The
total issued and outstanding shares of our common stock
immediately after the closing of the Merger will be
approximately 20,000,000 shares, subject to adjustment as
provided for in the Merger Agreement and the recapitalization
agreement.
We expect that, immediately after the Merger, the Exchange and
the Recapitalization, the current stockholders of Merix will own
approximately 12.5% of our outstanding common stock, the current
noteholders of Merix will own approximately 7.0% of our
outstanding common stock and our current stockholders will own
approximately 80.5% of our outstanding common stock. Upon
completion of the Merger, our board of directors will be
comprised of nine directors designated by us prior to the
completion of the Merger and three persons who were directors of
Merix immediately prior to completion of the Merger. Except as
indicated by us prior to the closing of the Merger, our chief
executive officer, chief financial officer and chief operating
officer will, after the Merger, remain in the same positions as
they held immediately before the Merger. Additionally, we have
agreed to use our commercially reasonable efforts to cause our
common stock to be issued in connection with the Merger and the
Exchange to be listed on The Nasdaq Global Market.
Conditions to
the Completion of the Merger
The completion of the Merger depends on a number of conditions
being satisfied or waived, including, among others:
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approval by Merix stockholders;
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the absence of governmental injunction or law enjoining or
prohibiting the Merger;
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regulatory or other governmental approvals;
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the accuracy of representations and warranties made by the
parties in the Merger Agreement (subject to certain materiality
and other exceptions);
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the performance by the parties of their obligations under the
Merger Agreement in all material respects;
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the completion of the Recapitalization;
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the closing of the Exchange;
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effectiveness of the registration statement on
Form S-4
registering the shares of our common stock issued in connection
with the Merger;
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the execution of the Wachovia Credit Facility (as defined
herein); and
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the absence of a material adverse effect on either Merix or us
since the date of the Merger Agreement.
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7
Overview of
Merix
Headquartered in Beaverton, Oregon, Merix is a leading
manufacturer of technologically advanced, multilayer, rigid PCBs
for use in sophisticated electronic equipment. Merix provides
high performance materials, quick-turn prototype, pre-production
and volume production services to its customers. Principal
markets served by Merix include communications and networking,
computing and peripherals, test, industrial and medical, defense
and aerospace and automotive end markets in the electronics
industry.
Merix
Acquisition Rationale
We believe that the Merger will create a world-class technology
leader in PCB and related electronic manufacturing services,
with a complementary match up of market segments, customers and
manufacturing capabilities. We believe that the acquisition of
Merix will provide several compelling benefits to us, including:
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The Merger will allow us to leverage capabilities of Merix to
meet existing demands of our customers for North American
quick-turn production as a means to expand revenue opportunities
with our large and diversified customer base;
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The combination with Merix will add high-volume production
capacity in China as well as substantial North American
quick-turn and
low-to-mid
volume production capabilities to our high-technology,
high-volume Chinese production capabilities, which will better
enable complementary market penetration as well as expansion
into the military and aerospace industries;
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Our E-M Solutions provide an additional platform for extending
Merix service offerings to its customers;
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The merged company is expected to create a financially sound
industry leader with a publicly-traded capital structure and
substantial liquidity; and
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We will have access to Merix deep global industry
experience in its sales force, its operational management team
and its global technology resources.
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Wachovia Credit
Facility
In connection with the Merger and conditioned upon the
consummation of the Merger, Viasystems, Inc. expects to enter
into a new $75.0 million asset-based senior secured
revolving credit facility to be arranged by Wachovia Bank,
National Association (the Wachovia Credit Facility).
The Wachovia Credit Facility will be guaranteed by Viasystems,
Inc. and Merix and will replace Merix existing
$55.0 million revolving credit facility. We expect the
Wachovia Credit Facility to be secured by substantially all of
the domestic assets of Viasystems, Inc. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Financing Arrangements.
Senior Secured
Notes due 2015
On November 24, 2009, Viasystems, Inc. closed a private
offering of $220 million aggregate principal amount of its
senior secured notes due 2015 (the 2015 Notes). The
net proceeds of such offering were used to fund the tender offer
to repurchase $94,124,000 aggregate principal amount, or
approximately 47.03%, of Viasystems, Inc.s outstanding
$200 million aggregate principal amount of 10.5% Senior
Subordinated Notes due 2011 (the 2011 Notes),
and to pay transaction fees and expenses. The remaining net
proceeds of the 2015 Notes offering were used to redeem the
remaining outstanding 2011 Notes on January 15, 2010.
8
Additional
Information
The mailing address of our principal executive offices is 101
South Hanley Road, Suite 400, St. Louis, Missouri
63105, and our telephone number at that address is
(314) 727-2087.
Our website address is www.viasystems.com. Information on or
accessible through our website is not included or incorporated
by reference in this prospectus. For additional information
about us, see Where You Can Find More Information About
Us.
9
THE
OFFERING
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Common stock being offered for resale to the public by the
selling stockholders |
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1,390,087 shares |
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Common stock to be outstanding after this offering, the Merger
and the Recapitalization |
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20,000,000 shares |
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Use of proceeds |
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We will not receive any proceeds from the resale of our common
stock under this offering. |
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Proposed listing |
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Our common stock is not currently listed on any exchange or
quotation system. In connection with this offering, we applied
to list our common stock for quotation on The NASDAQ Global
Market and our application has been approved, subject to notice
of issuance. |
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Risk factors |
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See Risk Factors and the other information included
in this prospectus for a discussion of risk factors you should
carefully consider before deciding to invest in our common stock. |
Unless otherwise indicated, the number of shares of common stock
to be outstanding after this offering:
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excludes 2,503,796 shares (approximately 209,435 shares
after giving effect to the Merger and the Recapitalization) of
our common stock issuable upon exercise of outstanding options
and 1,378,226 shares (approximately 115,284 shares after
giving effect to the Merger and the Recapitalization) of our
common stock issuable upon exercise of outstanding warrants.
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Unless otherwise indicated, and except as to the historical
information contained in our Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Executive Compensation, Director Compensation and the historical
financial statements included elsewhere herein, the information
in this prospectus:
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gives effect to the Merger and the Recapitalization; and
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gives effect to our adoption of our third amended and restated
certificate of incorporation and our second amended and restated
bylaws, which will be in effect upon consummation of the Merger.
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10
RISK
FACTORS
You should consider carefully the following factors, as well
as the other information set forth in this prospectus, before
making an investment decision. Additional risks that are not
currently known to us or that we currently consider immaterial
may also adversely impact our business. If any of the following
risks actually occur, our business, financial condition or
operating results may be significantly adversely affected. You
could lose all or part of your investment.
Risks Related to
Our Business and Industry
During periods
of excess global PCB manufacturing capacity, our gross margins
may fall and/or we may have to incur restructuring charges if we
choose to reduce the capacity of or close any of our
facilities.
When we experience excess capacity, our sales revenues may not
fully cover our fixed overhead expenses, and our gross margins
will fall. If we conclude we have significant, long-term excess
capacity, we may decide to permanently close or scale down our
facilities and lay off some of our employees. Closures or
lay-offs could result in our recording restructuring charges
such as severance, other exit costs and asset impairments.
A significant
portion of our net sales is based on transactions with our
largest customers; if we lose any of these customers, our sales
could decline significantly.
For the nine months ended September 30, 2009 and the years
ended December 31, 2008, 2007 and 2006, sales to our ten
largest customers accounted for approximately 75.1%, 73.3%,
76.2% and 73.7% of our net sales, respectively. Four of our
customers, Alcatel-Lucent SA, Bosch Group, General Electric
Company and Continental AG, each individually accounted for over
10% of our net sales for the year ended December 31, 2008
and the nine months ended September 30, 2009.
Although we cannot assure you that our principal customers will
continue to purchase products from us at past levels, we expect
a significant portion of our net sales will continue to be
concentrated within a small number of customers. The loss of, or
significant curtailment of purchases by, any of our principal
customers could have a material adverse effect on our financial
condition, operating results and cash flows.
We may
experience fluctuations in our operating results, and because
many of our operating costs are fixed, even small revenue
shortfalls or increased expenses can have a disproportionate
effect on our operating results.
Our operating results may vary significantly for a variety of
reasons, including:
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overall economic conditions in the electronics industry and
global economy;
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pricing pressures;
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timing of orders from and shipments to major customers;
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our capacity relative to the volume of orders;
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expenditures in anticipation of future sales;
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expenditures or write-offs related to acquisitions;
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expenditures or write-offs related to restructuring activities;
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start-up
expenses relating to new manufacturing facilities; and
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variations in product mix.
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Our historical results of operations may not be indicative of
the results to be expected for any future period as a result of
unanticipated revenue shortfalls or increased expenses.
11
We have a
history of losses and may not be profitable in the
future.
We have a history of losses and cannot assure you that we will
achieve sustained profitability in the near future. For the nine
months ended September 30, 2009 and the years ended
December 31, 2008, 2006, 2005 and 2004, we incurred losses
from continuing operations of $38.8 million,
$15.5 million, $25.6 million, $114.5 million and
$36.6 million, respectively. If we cannot improve our
profitability, the value of our enterprise may decline.
We rely on the
automotive industry for a significant portion of our sales.
Accordingly, the economic downturn in this industry has had, and
may continue to have, a material adverse effect on our ability
to forecast demand and production to meet desired sales
levels.
The economic downturn in the automotive industry has had, and
may continue to have, a material adverse effect on our ability
to forecast demand and production and to meet desired sales
levels. A significant portion of our sales are to customers
within the automotive industry. For the nine months ending
September 30, 2009 and the years ending December 31,
2008, 2007 and 2006, sales to customers in the automotive
industry represented approximately 36.6%, 37.0%, 36.0% and 33.0%
of our net sales, respectively. If the destabilization of the
automotive industry or a market shift away from our automotive
customers continues, it may have an adverse effect on our
results of operations, financial condition and cash flows.
We rely on the
telecommunications and networking industries for a significant
portion of our sales. Accordingly, the economic downturn in
these industries has had, and may continue to have, a material
adverse effect on our ability to forecast demand and production
and to meet desired sales levels.
A large percentage of our business is conducted with customers
who are in the telecommunications and networking industries. For
the nine months ending September 30, 2009 and the years
ending December 31, 2008, 2007 and 2006, sales to customers
in the telecommunications and networking industries represented
approximately 27.8%, 26.0%, 31.0% and 32.0% of our net sales,
respectively. These industries are characterized by intense
competition, relatively short product life cycles and
significant fluctuations in product demand. These industries are
heavily dependent on the end markets they serve and therefore
can be affected by the demand patterns of those markets. If the
weakness in these industries continues, it would likely have a
material adverse effect on our financial condition, operating
results and cash flows.
Our exposure
to the credit risk of our customers and suppliers may adversely
affect our financial results.
We sell our products to customers that have in the past, and may
in the future, experience financial difficulties, particularly
in light of the recent global economic downturn. If our
customers experience financial difficulties, we could have
difficulty recovering amounts owed to us from these customers.
While we perform credit evaluations and adjust credit limits
based upon each customers payment history and credit
worthiness, such programs may not be effective in reducing our
exposure to credit risk. We evaluate the collectability of
accounts receivable, and based on this evaluation make
adjustments to the allowance for doubtful accounts for expected
losses. Actual bad debt write-offs may differ from our
estimates, which may have a material adverse effect on our
financial condition, operating results and cash flows.
Our suppliers may also experience financial difficulties, which
could result in our having difficulty sourcing the materials and
components we use in producing our products and providing our
services. If we encounter such difficulties, we may not be able
to produce our products for our customers in a timely fashion
which could have an adverse effect on our results of operations,
financial condition and cash flows.
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We are
significantly influenced by our significant stockholders, whose
interests may be different than ours.
Approximately 54.5% of our common stock is owned by affiliates
of Hicks, Muse, Tate & Furst, Incorporated
(HMTF). In addition, a stockholders agreement among
us, affiliates of HMTF and other existing holders of our common
stock provides that we and those stockholders have agreed to
take all actions necessary, including voting the shares held by
those stockholders, to elect five designees of HMTF to our board
of directors. Accordingly, HMTF effectively controls the
election of a majority of our board of directors and the
approval or disapproval of certain other matters requiring
stockholder approval and, as a result, has significant influence
over the direction of our management and policies. Using this
influence, HMTF may take actions or make decisions that are not
in the same interests of our other stockholders. In addition,
HMTF is in the business of making investments in companies and
may from time to time acquire and hold interests in businesses
that compete directly or indirectly with us or otherwise have
business objectives that are not aligned with our business
objectives.
If the Merger is consummated, approximately 77.8% of our common
stock will be owned by an entity formed by Hicks, Muse,
Tate & Furst Equity Fund III, LP and certain of
its affiliates (the HMTF Entities), GSC Recovery II,
L.P. and certain of its affiliates (the GSC
Entities) and TCW Shared Opportunities Fund III, L.P.
(TCW and together with the HMTF Entities and the GSC
Entities, the Funds). Additionally, the existing
stockholders agreement will be terminated and we will enter into
a new stockholders agreement with the Funds, pursuant to which
we will use commercially reasonable efforts to cause the
election of five designees of the Funds to our board of
directors, subject to reduction pursuant to the terms of the new
stockholders agreement.
Accordingly, the Funds will effectively control the election of
a substantial percentage of our board of directors and the
approval or disapproval of certain other matters requiring
stockholder approval and, as a result, have significant
influence over the direction of our management and policies.
All of our
manufacturing activities are conducted in foreign countries,
exposing us to additional risks that may not exist in the United
States.
International manufacturing operations represent 100% of our
business. Sales outside the United States represent a
significant portion of our net sales, and we expect net sales
outside the United States to represent a significant portion of
our total net sales. We operate manufacturing facilities in
Mexico and The Peoples Republic of China
(China or the PRC).
Our international manufacturing operations are subject to a
number of potential risks. Such risks include, among others:
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inflation or changes in political and economic conditions;
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unstable regulatory environments;
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changes in import and export duties;
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domestic and foreign customs and tariffs;
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potentially adverse tax consequences;
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trade restrictions;
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restrictions on the transfer of funds into or out of a country;
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labor unrest;
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logistical and communications challenges;
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difficulties associated with managing a large organization
spread throughout various countries;
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differing protection of intellectual property and trade
secrets; and
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other restraints and burdensome taxes.
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These factors may have an adverse effect on our international
operations or on the ability of our international operations to
repatriate earnings to us.
We are subject
to currency fluctuations, which may affect our cost of goods
sold and operating margins.
A significant portion of our costs, including payroll and rent,
are denominated in foreign currencies, particularly the Chinese
renminbi (RMB). Changes in exchange rates between
other currencies and the U.S. dollar will affect our cost
of goods sold and operating margins and could have a material
adverse effect on our financial condition, operating results and
cash flows.
We lease land
for all of our owned and leased Chinese manufacturing facilities
from the Chinese government under land use rights agreements
that may be terminated by the Chinese government.
We lease the land where our Chinese manufacturing facilities are
located from the Chinese government through land use rights
agreements. Although we believe our relationship with the
Chinese government is sound, if the Chinese government decided
to terminate our land use rights agreements, our assets could
become impaired and our ability to meet our customers
orders could be impacted. This could have a material adverse
effect on our financial condition, operating results and cash
flows.
Electrical
power shortages in certain areas of Southern China have, in the
past, caused the government to impose a power rationing program
and additional or extended power rationings could adversely
affect our Chinese operations.
In early 2008, certain areas of Southern China faced electrical
power constraints, which resulted from extreme winter weather in
the area. In order to address the power constraints, the
Southern China Province Government initiated a power rationing
plan. The power rationing program was terminated in May 2008.
Although power rationing did not impact our Asia operations
during the winter of 2008-2009, we may experience issues in the
future with obtaining power or other key services due to
infrastructure weaknesses in China that may impair our ability
to compete effectively as well as adversely affect revenues and
production costs.
We are
dependent upon the electronics industry, which is highly
cyclical and suffers significant downturns in demand resulting
in excess manufacturing capacity and increased price
competition.
The electronics industry, on which a substantial portion of our
business depends, is cyclical and subject to significant
downturns characterized by diminished product demand, rapid
declines in average selling prices and over-capacity. This
industry has experienced periods characterized by relatively low
demand and price depression and is likely to experience
recessionary periods in the future. Economic conditions
affecting the electronics industry in general, or specific
customers in particular, have adversely affected our operating
results in the past and may do so in the future. Over the past
year, the global economy has been greatly impacted by the global
recessionary conditions linked to rising default levels in the
U.S. home mortgage sector, volatile fuel prices and a
changing political and economic landscape. These factors have
contributed to historically low consumer confidence levels,
resulting in a significantly intensified downturn in demand for
products incorporating PCBs, which in turn has adversely
affected our operating results in 2008 and for the first three
quarters of 2009.
The electronics industry is characterized by intense
competition, rapid technological change, relatively short
product life cycles and pricing and profitability pressures.
These factors adversely affect our customers and we suffer
similar effects. Our customers are primarily high-technology
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equipment manufacturers in the communications and networking,
computing and peripherals, test, industrial and medical and
automotive markets of the electronics industry. Due to the
uncertainty in the markets served by most of our customers, we
cannot accurately predict our future financial results or
accurately anticipate future orders. At any time, our customers
can discontinue or modify products containing components
manufactured by us, adjust the timing of orders and shipments or
affect our mix of consolidated net sales, any of which could
have a material adverse effect on our financial condition,
operating results and cash flows.
There may be
shortages of, or price fluctuations with respect to, raw
materials or components, which would cause us to curtail our
manufacturing or incur higher than expected costs.
We purchase the raw materials and components we use in producing
our products and providing our services, and we may be required
to bear the risk of raw material or component price
fluctuations. In addition, shortages of raw materials such as
laminates, a principal raw material used in our PCB operations,
have occurred in the past and may occur in the future. Raw
material or component shortages or price fluctuations such as
these could have a material adverse effect on financial
condition, operating results and cash flows. In addition, if we
experience a shortage of materials or components, we may not be
able to produce our products for our customers in a timely
fashion.
The PCB and
electronic manufacturing services (EMS) industries
are highly competitive, and we may not be able to compete
effectively in one or both of them.
The PCB industry is highly competitive, with multiple global
competitors and hundreds of regional and local manufacturers.
The EMS industry is also highly competitive, with competitors on
the global, regional and local levels and relatively low
barriers to entry. In both of these industries, we could
experience increased future competition resulting in price
reductions, reduced margins or loss of market share. Any of
these could have an adverse effect on our financial condition,
operating results or cash flows. In addition, some of our
principal competitors may be less leveraged, may have greater
access to financial or other resources, may have lower cost
operations and may be better able to withstand adverse market
conditions.
We generally
do not obtain long-term volume purchase commitments from
customers, and, therefore, cancellations, reductions in
production quantities and delays in production by our customers
could adversely affect our operating results.
For many of our customers, we do not have firm long-term
purchase commitments, but rather conduct business on a purchase
order basis. Customers may cancel their orders, reduce
production quantities or delay production at any time for a
number of reasons. Many of our customers have, over the past
several years, experienced significant decreases in demand for
their products and services. The uncertain economic conditions
in the global economy and in several of the markets in which our
customers operate have prompted some of our customers to cancel
orders, delay the delivery of some of the products that we
manufacture or place purchase orders for fewer products than we
previously anticipated. Even when our customers are
contractually obligated to purchase products from us, we may be
unable or, for other business reasons, choose not to enforce our
contractual rights. Cancellations, reductions or delays of
orders by customers could:
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adversely affect our operating results by reducing the volumes
of products that we manufacture for our customers;
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delay or eliminate recoupment of our expenditures for inventory
purchased in preparation for customer orders; and
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lower our asset utilization, which would result in lower gross
margins.
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15
Our products
and the manufacturing processes we use to produce them are often
highly complex and therefore may at times contain manufacturing
defects, which may subject us to product liability and warranty
claims.
We face an inherent business risk of exposure to warranty and
product liability claims in the event that our products,
particularly those supplied to the automotive industry, fail to
perform as expected or such failure results, or is alleged to
result, in bodily injury
and/or
property damage. If we were to manufacture and deliver products
to our customers that contain defects, whether caused by a
design, manufacturing or component failure, or deficiencies in
our manufacturing processes, it may result in delayed shipments
to our customers and reduced or cancelled customer orders. In
addition, if any of our products are or are alleged to be
defective, we may be required to participate in a recall of such
products. As suppliers become more integral to the vehicle
design process and assume more of the vehicle assembly
functions, vehicle manufacturers are increasingly looking to
their suppliers for contributions when faced with product
liability claims or recalls. In addition, vehicle manufacturers,
who have traditionally borne the costs associated with warranty
programs offered on their vehicles, are increasingly requiring
suppliers to guarantee or warrant their products and may seek to
hold us responsible for some or all of the costs related to the
repair and replacement of parts supplied by us to the vehicle
manufacturer. A successful warranty or product liability claim
against us in excess of our available insurance coverage or
established warranty and legal reserves or a requirement that we
participate in a product recall may have a material adverse
effect on our business, financial condition, operating results
and cash flows and may harm our business reputation, which could
lead to customer cancellations or non-renewals.
Failure to
meet the quality control standards of our automotive customers
may cause us to lose existing, or prevent us from gaining new,
automotive customers, which may adversely affect our financial
results.
For safety reasons, our automotive customers have strict quality
standards that generally exceed the quality requirements of our
other customers. Because a significant portion of our Asian
manufacturing facilities products are sold to customers in the
automotive industry, if our manufacturing facilities in Asia do
not meet these quality standards, our results of operations may
be materially and adversely affected. These automotive customers
may require long periods of time to evaluate whether our
manufacturing processes and facilities meet their quality
standards. If we were to lose automotive customers due to
quality control issues, we might not be able to regain those
customers, or gain new automotive customers, for long periods of
time, which could significantly decrease our consolidated net
sales and profitability.
The electronic
manufacturing services industry is subject to rapid
technological change; our failure to respond timely or
adequately to such changes may render our existing technology
less competitive or obsolete, and our operating results may
suffer.
The market for our products and services is characterized by
rapidly changing product platforms based on technology and
continuing process development. The success of our business will
depend, in large part, upon our ability to maintain and enhance
our technological capabilities, develop and market products and
services that meet changing customer needs and successfully
anticipate or respond to technological product platforms changes
on a cost-effective and timely basis. There can be no assurance
that we will effectively respond to the technological product
requirements of the changing market, including having sufficient
cash flow to make additional capital expenditures that may be
required as a result of those changes. To the extent we are
unable to respond to such technological product requirements,
our operating results may suffer.
16
Uncertainty
and adverse changes in the economy and financial markets could
have an adverse impact on our business and operating
results.
Uncertainty or adverse changes in the economy could lead to a
significant decline in demand for the end products manufactured
by our customers, which, in turn, could result in a decline in
the demand for our products and pressure to reduce our prices.
As a result of the recent global economic downturn, many
businesses appear to be experiencing weaker demand for their
products and services and, as a result, are taking a more
conservative stance in ordering component inventory. Any
decrease in demand for our products could have an adverse impact
on our financial condition, operating results and cash flows.
Uncertainty and adverse changes in the economy could also
increase the cost and decrease the availability of potential
sources of financing and increase our exposure to losses from
bad debts, either of which could have a material adverse effect
on our financial condition, operating results and cash flows.
Recent instability in the financial markets has led to the
consolidation, restructuring and closure of certain financial
institutions. Should any of the financial institutions who
maintain our cash deposits or who are a party to our credit
facilities become unable to repay our deposits or honor their
commitments under our credit facilities, it could have a
material adverse effect on our financial condition, operating
results and cash flows. As of September 30, 2009,
approximately 33.9% of our cash balances were on deposit with
Citibank (China), which is a subsidiary of Citigroup Inc. The
U.S. government has previously taken certain actions to
stabilize Citigroup Inc. in an effort to remove uncertainty and
restore confidence in that company. Management has been
monitoring, and will continue to monitor, the stability of
Citigroup, Inc. and the appropriateness of our depository
relationship with Citibank (China).
Oil prices may
fluctuate, which would increase our cost to manufacture
goods.
We generate a portion of our own electricity in certain of our
manufacturing facilities using diesel generators, and we will be
required to bear the increased cost of generating electricity if
the cost of oil increases. Prices for diesel fuel rose
substantially in several recent years. Future price increases
for diesel fuel would increase our cost and could have a
material adverse effect on our financial condition, operating
results and cash flows.
Damage to our
manufacturing facilities or information systems due to fire,
natural disaster or other events could harm our financial
results.
We have manufacturing facilities in China and Mexico. In
addition, we maintain engineering and customer service centers
in Canada, China, England, Hong Kong, Mexico, The Netherlands,
and the United States. The destruction or closure of any of our
facilities for a significant period of time as a result of fire,
explosion, act of war or terrorism, blizzard, flood, tornado,
earthquake, lightning, or other natural disaster could harm us
financially, increasing our costs of doing business and limiting
our ability to deliver our manufacturing services on a timely
basis. Additionally, we rely heavily upon information technology
systems and high-technology equipment in our manufacturing
processes and the management of our business. We have developed
disaster recovery plans; however, disruption of these
technologies as a result of natural disaster or other events
could harm our business and have a material adverse effect on
our financial condition, operating results and cash flows.
If we lose key
management, operations, engineering or sales and marketing
personnel, we could experience reduced sales, delayed product
development and diversion of management resources.
Our success depends largely on the continued contributions of
our key management, administration, operations, engineering and
sales and marketing personnel, many of whom would be difficult
to replace. With the exception of certain of our executive
officers, we generally do not have employment or non-compete
agreements with our key personnel. If one or more members of our
senior
17
management or key professionals were to resign, the loss of
personnel could result in loss of sales, delays in new product
development and diversion of management resources, which would
have a negative effect on our business. We do not maintain
key man insurance policies on any of our personnel.
Due to the global economic downturn, we have made substantial
reductions-in-force,
including a number of management personnel. We do not anticipate
the loss of any of the personnel will have a material impact on
our operations and have attempted to mitigate the impact of the
change in personnel. However, there can be no assurance that
these risks are fully mitigated.
In addition, we rely on the collective experience of our
employees, particularly in the manufacturing process, to ensure
we continuously evaluate and adopt new technologies and remain
competitive. Although we are not generally dependent on any one
employee or a small number of employees involved in our
manufacturing process, we have in the past experienced periods
of high employee turnover and continue to experience
significantly high employee turnover at our Asian facilities. If
we are not able to replace these people with new employees with
comparable capabilities, our operations could suffer as we may
be unable to keep up with innovations in the industry or the
demands of our customers. As a result, we may not be able to
continue to compete effectively.
We are subject
to environmental laws and regulations that expose us to
potential financial liability.
Our operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations that
govern, among other things, the discharge of hazardous materials
into the air, ground and water as well as the handling, storage
and disposal of, or exposure to, hazardous materials and
occupational health and safety. Violations of these laws can
lead to material liabilities, fines or penalties. Compliance
with these environmental laws is a major consideration in the
fabrication of PCBs because metals and other hazardous materials
are used in the manufacturing process. In addition, it is
possible that in the future, new or more stringent requirements
could be imposed. Various federal, state, local and foreign laws
and regulations impose liability on current or previous real
property owners or operators for the cost of investigating,
cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In addition, because we are a
generator of hazardous wastes, we, along with any other person
who arranges for the disposal of those wastes, may be subject to
potential financial exposure for costs associated with the
investigation and remediation of sites at which such hazardous
waste has been disposed, if those sites become contaminated.
Liability may be imposed without regard to legality of the
original actions and without regard to whether we knew of, or
were responsible for, the presence of such hazardous or toxic
substances, and we could be responsible for payment of the full
amount of the liability, whether or not any other responsible
party is also liable.
We may have
exposure to income tax rate fluctuations as well as to
additional tax liabilities, which could impact our financial
position.
As a corporation with a presence both abroad and in the United
States, we are subject to taxes in various jurisdictions. Our
effective tax rate is subject to fluctuation as the income tax
rates for each year are a function of the following factors,
among others:
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the effects of a mix of profits or losses earned by us and our
subsidiaries in numerous tax jurisdictions with a broad range of
income tax rates;
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our ability to utilize net operating losses;
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changes in contingencies related to taxes, interest or penalties
resulting from tax audits; and
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changes in tax laws or the interpretation of such laws.
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18
Changes in the mix of these items and other items may cause our
effective tax rate to fluctuate between periods, which could
have a material adverse effect on our financial position.
Certain of our Chinese subsidiaries have operated under tax
holidays during the past years. These holidays allow a two-year
tax exemption and a three-year 50% reduction in the tax rate. In
addition, the Chinese government introduced new tax legislation
that went into effect January 1, 2008, resulting in
increases to the corporate tax rates. The expiration of these
tax holidays and new tax legislation could have a material
adverse effect on our effective tax rate, financial condition,
operating results and cash flows.
We are also subject to non-income taxes, such as payroll, sales,
use, value-added, net worth, property and goods and services
taxes, in various jurisdictions.
Significant judgment is required in determining our provision
for income taxes and other tax liabilities. Although we believe
that our tax estimates are reasonable, we cannot provide
assurance that the final determination of tax audits or tax
disputes will not be different from what is reflected in our
historical income tax provisions and accruals.
We could be
subject to litigation in the course of our operations and
relating to the Merger that could adversely affect our operating
results.
If we became the subject of legal proceedings, our results may
be affected by the outcome of such proceedings and other
contingencies that cannot be predicted with certainty. When
appropriate, and as required by U.S. GAAP, we estimate
material loss contingencies and establish reserves based on our
assessment of contingencies where liability is deemed probable
and reasonably estimable in light of the facts and circumstances
known to us at a particular point in time. Subsequent
developments in legal proceedings may affect our assessment and
estimates of the loss contingency recorded as a liability or as
a reserve against assets in our consolidated financial
statements and could result in an adverse effect on our results
of operations in the period in which a liability would be
recognized or cash flows for the period in which damages would
be paid. Although claims have been rare in the past, because we
are a manufacturer, we are subject to claims by our customers or
end users of our products that we may have been negligent in our
production or have infringed on intellectual property of
another. In addition, following the announcement of the Merger,
Merix, its board of directors and Viasystems have been named as
defendants in two putative class action lawsuits brought by
alleged Merix stockholders challenging Merix proposed
Merger with Viasystems. See Business Legal
Proceedings.
Several of our competitors hold patents covering a variety of
technologies, applications and methods of use similar to some of
those used in our products. From time to time, we and our
customers have received correspondence from our competitors
claiming that some of our products, as used by our customers,
may be infringing one or more of these patents. Competitors or
others have in the past and may in the future assert
infringement claims against our customers or us with respect to
current or future products or uses, and these assertions may
result in costly litigation or require us to obtain a license to
use intellectual property rights of others. If claims of
infringement are asserted against our customers, those customers
may seek indemnification from us for damages or expenses they
incur.
If we become subject to infringement claims, we will evaluate
our position and consider the available alternatives, which may
include seeking licenses to use the technology in question or
defending our position. These licenses, however, may not be
available on satisfactory terms or at all. If we are not able to
negotiate the necessary licenses on commercially reasonable
terms or successfully defend our position, our financial
condition and operating results could be materially and
adversely affected.
19
We may not have sufficient insurance coverage for certain of the
risks and liabilities we assume in connection with the products
and services we provide to our customers, which could leave us
responsible for certain costs and damages incurred by our
customers.
We carry various forms of business and liability insurance that
we believe are reasonable and customary for similarly situated
companies in our industry. However, we do not have insurance
coverage for all of the risks and liabilities we assume in
connection with the products and services we provide to our
customers, such as potential warranty, product liability and
product recall claims. As a result, such liability claims may
only be partially covered under our insurance policies. We
continue to monitor the insurance marketplace to evaluate the
availability of and need to obtain additional insurance coverage
in the future. However, should we sustain a significant
uncovered loss, our net income would be reduced.
As a U.S.
corporation with international operations, we are subject to the
Foreign Corrupt Practices Act (FCPA). A
determination that we violated this act may affect our business
and operations adversely.
As a U.S. corporation, we and our subsidiaries are subject
to the regulations imposed by the FCPA, which generally
prohibits U.S. companies and their intermediaries from
making improper payments to foreign officials for the purpose of
obtaining or keeping business. Any determination that we or any
of our subsidiaries have violated the FCPA could have a material
adverse effect on our financial position, operating results and
cash flows.
Down-grading
of our debt ratings would adversely affect us.
Any down-grading by Moodys Investors Service, Inc. and
Standard & Poors Ratings Services, a division of
The McGraw-Hill Companies, Inc., of our debt securities could
make it more difficult for us to obtain new financing if we had
an immediate need to increase our liquidity.
We may be
required to recognize additional impairment
charges.
Pursuant to U.S. GAAP, we are required to make periodic
assessments of our goodwill, intangibles and other long-lived
assets to determine if they are impaired. Disruptions to our
business, end-market conditions and protracted economic
weakness, unexpected significant declines in operating results
of reporting units, divestitures and enterprise value declines
may result in additional charges for goodwill and other asset
impairments. Future impairment charges could substantially
affect our reported earnings in the periods of such charges. In
addition, such charges would reduce our consolidated net worth
and our stockholders equity, increasing our
debt-to-total-capitalization
ratio.
We have a
substantial amount of debt and may be unable to service or
refinance this debt, which could have negative consequences on
our business in the future, could adversely affect our ability
to fulfill our obligations under our indebtedness and may place
us at a competitive disadvantage in our industry.
As of September 30, 2009, our total outstanding
indebtedness was approximately $215.2 million. In addition,
as of September 30, 2009, we had approximately
$116.1 million of Mandatory Redeemable Class A Junior
preferred stock which was classified as liability under
provisions of U.S. GAAP concerning financial instruments
with characteristics of both liabilities and equity. Our net
interest expense for the nine months ended September 30,
2009, and the year ended December 31, 2008, was
approximately $24.4 million and $31.6 million,
respectively. As of September 30, 2009, our total
consolidated stockholders equity was a deficit of
approximately $40.5 million. On September 1, 2009, our
Chinese subsidiary, Guangzhou Termbray Electronics Technology
Co., Ltd., consummated a 200 million RMB facility
(approximately $29.3 million based on the exchange rate of
as September 30, 2009) of which, $10 million was
outstanding at September 30, 2009. On November 25,
2009, our
20
subsidiary, Viasystems, Inc., completed a tender offer to
repurchase $94,124,000 aggregate principal amount, or
approximately 47.03%, of the 2011 Notes; and on
November 24, 2009, completed an offering of the 2015 Notes.
The net proceeds of that offering were used to fund the tender
offer for Viasystem, Inc.s 2011 Notes, and to pay
transaction fees and expenses. The remaining net proceeds of the
2015 Notes offering were used to redeem the remaining
outstanding 2011 Notes on January 15, 2010.
This high level of debt could have negative consequences to us.
For example, it could:
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result in our inability to comply with the financial and other
restrictive covenants in our credit facilities;
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increase our vulnerability to adverse industry and general
economic conditions;
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require us to dedicate a substantial portion of our cash flow
from operations to make scheduled principal payments on our
debt, thereby reducing the availability of our cash flow for
working capital, capital investments and other business
activities;
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limit our ability to obtain additional financing to fund future
working capital, capital investments and other business
activities;
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limit our ability to refinance our indebtedness on terms that
are commercially reasonable, or at all;
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expose us to the risk of interest rate fluctuations to the
extent we pay interest at variable rates on the debt;
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limit our flexibility to plan for, and react to, changes in our
business and our industry; and
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place us at a competitive disadvantage relative to our less
leveraged competitors.
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Servicing our
debt requires a significant amount of cash and our ability to
generate cash may be affected by factors beyond our
control.
Our business may not generate cash flow in an amount sufficient
to enable us to pay the principal of, or interest on, our
indebtedness, or to fund our other liquidity needs, including
working capital, capital expenditures, product development
efforts, strategic acquisitions, investments and alliances and
other general corporate requirements.
Our ability to generate cash is subject to general economic,
financial, competitive, legislative, regulatory and other
factors that are beyond our control. We cannot assure you that:
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our business will generate sufficient cash flow from operations;
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we will continue to realize the cost savings, revenue growth and
operating improvements that resulted from the execution of our
long-term strategic plan; or
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future sources of funding will be available to us in amounts
sufficient to enable us to fund our liquidity needs.
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If we cannot fund our liquidity needs, we will have to take
actions such as reducing or delaying capital expenditures,
product development efforts, strategic acquisitions, investments
and alliances; selling assets; restructuring or refinancing our
debt; or seeking additional equity capital. We cannot assure you
that any of these remedies could, if necessary, be effected on
commercially reasonable terms, or at all, or that they would
permit us to meet our scheduled debt service obligations. The
Wachovia Credit Facility and the indenture governing the
2015 Notes limit the use of the proceeds from any
disposition of assets and, as a result, we may not be allowed,
under those documents, to use the proceeds from such
dispositions to satisfy all current debt service obligations. In
addition, if we incur additional debt, the risks associated with
our substantial leverage, including the risk that we
21
will be unable to service our debt or generate enough cash flow
to fund our liquidity needs, could intensify.
We are a
holding company with no operations of our own and depend on our
subsidiaries for cash.
Although our operations are conducted through our subsidiaries,
none of our subsidiaries are obligated to make funds available
to us for payment on our indebtedness. Accordingly, our ability
to service our indebtedness is dependent on the earnings and the
distribution of funds from our subsidiaries. In addition,
payment of dividends, distributions, loans or advances to us by
our subsidiaries could be subject to restrictions on dividends
or repatriation of earnings under applicable local law and
monetary transfer restrictions in the jurisdictions in which our
subsidiaries operate. Payments to us by our subsidiaries are
also contingent upon our subsidiaries earnings. Our
ability to repatriate cash generated by our foreign operations
or borrow from our foreign subsidiaries may be limited by tax,
foreign exchange or other laws. Also, the amount we are able to
repatriate to pay U.S. dollar based obligations will be
subject to foreign exchange rates. Foreign earnings may be
subject to foreign taxes and withholding, potentially at
confiscatory levels. Cash we hold in foreign entities may become
subject to exchange controls that prevent their being converted
into other currencies, including U.S. dollars. Foreign tax
laws may affect our ability to repatriate cash from foreign
subsidiaries in a tax efficient manner or at all. Legal
restrictions may prevent foreign subsidiaries from paying
dividends or other cash distributions to service payments on our
indebtedness, and directors and officers of such foreign
subsidiaries may therefore be unable or unwilling to authorize
such payments or such loans. If these or other risks limit our
ability to transfer cash generated by our foreign operations to
us, our ability to make payments on our indebtedness will be
impaired.
Restrictive
covenants in the indenture governing the 2015 Notes and the
agreements governing our other indebtedness will restrict our
ability to operate our business.
The indenture for the 2015 Notes and the agreement
governing the Wachovia Credit Facility will, and agreements
governing our other indebtedness in effect from time to time
will likely, contain covenants that restrict our ability to,
among other things, incur additional debt, pay dividends, make
investments, enter into transactions with affiliates, merge or
consolidate with other entities or sell all or substantially all
of our assets. Additionally, the agreement governing the
Wachovia Credit Facility will require us to maintain certain
financial ratios. A breach of any of these covenants could
result in a default thereunder, which could allow the lenders or
the noteholders to declare all amounts outstanding thereunder
immediately due and payable. If we are unable to repay
outstanding borrowings when due, the lenders will have the right
to proceed against the collateral granted to them under the
Wachovia Credit Facility, including the capital stock of
Viasystems, Inc. We may also be prevented from taking advantage
of business opportunities that arise because of the limitations
imposed on us by the restrictive covenants under our
indebtedness, including the indenture for the 2015 Notes.
We may not
realize the expected benefits of the Merger because of
integration difficulties and other challenges.
The success of the Merger will depend, in part, on our ability
to realize the anticipated synergies and cost savings from
integrating the Merix business with our existing businesses. The
integration process may be complex, costly and time-consuming.
The difficulties of integrating the operations of the Merix
business include, among others:
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failure to implement our business plan for the combined business;
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unanticipated issues in integrating manufacturing, logistics,
information, communications and other systems;
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unanticipated changes in applicable laws and regulations;
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failure to retain key employees;
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failure to retain customers;
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operating, competitive and market risks inherent in Merix
business and our business;
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the impact of the Merger on our internal controls and compliance
with the regulatory requirements under the Sarbanes-Oxley Act of
2002; and
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unanticipated issues, expenses and liabilities.
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We may not accomplish the integration of Merix business
smoothly, successfully or within the anticipated cost range or
timeframe. The diversion of our managements attention from
our current operations to the integration effort and any
difficulties encountered in combining operations could prevent
us from realizing the full benefits anticipated to result from
the Merger and could adversely affect our business.
We may be
unable to realize anticipated cost synergies or may incur
additional costs.
We have identified annual cost synergies in connection with the
Merger, consisting of the elimination of redundant corporate
costs, selling, general and administrative expense reductions,
materials savings and other rationalizations, in addition to the
potential for revenue synergies. While management believes that
these cost synergies are achievable, we may be unable to realize
all of these cost synergies within the timeframe expected or at
all. In addition, we may incur additional and/or unexpected
costs in order to realize these cost synergies.
The purchase
price allocation for Merix reflected in the unaudited pro forma
condensed combined financial data contained elsewhere in this
prospectus is preliminary, and the adjustment upon the
completion of the final valuation of Merix after the Merger may
be materially different than as reflected herein.
The purchase price allocation for Merix reflected in the
unaudited pro forma condensed combined financial data contained
elsewhere in this prospectus is preliminary. For the purposes of
the unaudited pro forma condensed combined financial data, we
have made a preliminary allocation of the estimated purchase
price paid as compared to the net assets expected to be acquired
in the Merger, as if the Merger had closed on September 30,
2009. When the actual calculation and allocation of the purchase
price to net assets acquired is performed, it will be based on
the net assets assumed at the effective date of the Merger and
other information at that date to support the allocation of the
fair values of Merix assets and liabilities. Accordingly,
the actual amounts of net assets will vary from the pro forma
amounts, and the final valuation of Merix may be materially
different than as reflected in the selected unaudited pro forma
condensed combined financial data contained in this prospectus.
See Unaudited Pro Forma Condensed Combined Financial
Data and the notes thereto.
The
requirements of being a public company, including compliance
with the requirements of the NASDAQ and the requirements of the
Sarbanes-Oxley Act, may strain our resources, increase costs and
distract management.
As a public company with listed equity securities, we will need
to comply with laws, regulations and requirements, certain
corporate governance provisions of the Sarbanes-Oxley Act of
2002, related regulations of the SEC and requirements of the
NASDAQ, with which we were not required to comply as a private
company. Complying with these statutes, regulations and
requirements will occupy a significant amount of the time of our
board of directors and management and will increase our costs
and expenses.
23
Success in
Asia may adversely affect our U.S. operations.
To the extent Asian PCB manufacturers are able to compete
effectively with products historically manufactured in the
United States, Merix facilities in the United States may
not be able to compete as effectively and parts of Merix
North American operations may not remain viable.
If competitive
production capabilities increase in Asia and other foreign
countries, where production costs are lower, we may lose market
share in both North America and Asia, and our profitability may
be materially adversely affected by increased pricing
pressure.
PCB manufacturers in Asia and other geographies often have
significantly lower production costs than Merix North
American operations and may even have cost advantages over
Merix Asia operations. Production capability improvements
by foreign and domestic competitors may play an increasing role
in the PCB markets in which we and Merix compete, which may
adversely affect our revenues and profitability. While PCB
manufacturers in these locations have historically competed
primarily in markets for less technologically advanced products,
they are expanding their manufacturing capabilities to produce
higher layer count, higher technology PCBs and could compete
more directly with Merix North American and Asia
operations.
Failure to
maintain good relations with a minority investor in Merix
majority-owned China subsidiaries could materially adversely
affect our ability to manage Merix Asian
operations.
Currently, Merix has a PCB manufacturing plant in each of
Huiyang and Huizhou, China that are each operated by a separate
majority-owned joint venture subsidiary of Merix. A minority
investor owns a 5% interest in the Merix subsidiary that
operates the Huiyang plant. The same minority investor owns a
15% interest in the Merix subsidiary that operates the Huizhou
plant. The minority owner owns the buildings of the Huizhou
facility and it leases the premises to the Merix subsidiary. The
minority investor is owned by the Chinese government and has
close ties to local economic development and other Chinese
government agencies. In connection with the negotiation of its
investments, the minority investor secured certain rights to be
consulted and to consent to certain operating and investment
matters concerning the plants and to be represented on the
subsidiaries boards of directors overseeing these
businesses. Failure to maintain good relations with the minority
investor in either Chinese subsidiary could materially adversely
affect our ability to manage the operations of one or more of
the plants.
Merix has
reported material weaknesses in its internal control over
financial reporting and if additional material weaknesses are
discovered in the future, investor confidence in us may be
adversely affected.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
consolidated financial statements will not be prevented or
detected. In connection with managements assessments of
Merix internal control over financial reporting in prior
fiscal years, Merix identified material weaknesses in its
internal control over financial reporting.
Merix has previously identified a material weakness in internal
control over financial reporting for its Asia operations, which
has been remediated as of May 30, 2009. At the time of
Merix acquisition of Merix Asia Limited (Merix
Asia) in September 2005, Merix Asia had a weak system of
internal control over financial reporting and needed to develop
processes to strengthen its accounting systems and control
environment. Merix has devoted significant time and resources to
improving the internal controls over financial reporting since
the acquisition.
Merix may, in the future, identify additional internal control
deficiencies that could rise to the level of a material weakness
or uncover errors in financial reporting. Material weaknesses in
its internal control over financial reporting may cause
investors to lose confidence in us, which could have an adverse
effect on our business and the trading price of our common stock.
24
If we do not
align Merix manufacturing capacity with customer demand,
we could experience difficulties meeting our customers
expectations or, conversely, incur excess costs to maintain
unneeded capacity.
Beginning the latter half of its first quarter and continuing
through its second quarter of fiscal 2010, Merix noted
increasing demand for its products as customers began to rebuild
inventory levels, which were severely curtailed in response to
the deterioration in global economic conditions. If we fail to
recruit, train and retain sufficient staff to meet customer
demand, particularly in China, we may experience extended lead
times leading to the loss of customer orders. Conversely, if we
restore manufacturing capacity and order levels do not remain
stable or increase, our business, operating results and
financial condition could be adversely impacted.
We will export
products from the United States to other countries. If we fail
to comply with export laws, we could be subject to additional
taxes, duties, fines and other punitive actions.
Exports from the United States are regulated by the
U.S. Department of Commerce. Failure to comply with these
regulations can result in significant fines and penalties.
Additionally, violations of these laws can result in punitive
penalties, which would restrict or prohibit us from exporting
certain products, resulting in significant harm to our business.
Risks Related to
Owning Our Common Stock
There may not
be an active, liquid trading market for our common
stock.
Prior to this offering, there has been no public market for
shares of our common stock. We cannot predict the extent to
which investor interest in our company will lead to the
development of a trading market on The NASDAQ Global Market, or
how liquid that market may become. If an active trading market
does not develop, you may have difficulty selling any of our
common stock that you purchase.
Insiders will
continue to have substantial control over us after this offering
which could limit your ability to influence the outcome of key
transactions, including a change of control.
Our principal stockholders, directors and executive officers and
entities affiliated with them will own approximately 80.5% of
the outstanding shares of our common stock after this offering
and the consummation of the Merger. As a result, these
stockholders, if acting together, would be able to influence or
control matters requiring approval by our stockholders,
including the election of directors and the approval of mergers
or other extraordinary transactions. They may also have
interests that differ from yours and may vote in a way with
which you disagree and which may be adverse to your interests.
In addition, we have elected to opt out of Section 203 of
the Delaware General Corporation Law, which prohibits a
publicly-held Delaware corporation from engaging in a
business combination with an interested
stockholder, and we will be able to enter into
transactions with our principal stockholders. The concentration
of ownership may have the effect of delaying, preventing or
deterring a change of control of our company, could deprive our
stockholders of an opportunity to receive a premium for their
common stock as part of a sale of our company and might
ultimately affect the market price of our common stock.
We expect that
our stock price will fluctuate significantly, which could cause
the value of your investment to decline, and you may not be able
to resell your shares at or above the initial public offering
price.
Securities markets worldwide have experienced, and are likely to
continue to experience, significant price and volume
fluctuations. This market volatility, as well as general
economic, market or political conditions, could reduce the
market price of our common stock regardless of our operating
25
performance. The trading price of our common stock is likely to
be volatile and subject to wide price fluctuations in response
to various factors, including:
|
|
|
|
|
market conditions in the broader stock market;
|
|
|
|
actual or anticipated fluctuations in our quarterly financial
and operating results;
|
|
|
|
introduction of new products or services by us or our
competitors;
|
|
|
|
issuance of new or changed securities analysts reports or
recommendations;
|
|
|
|
investor perceptions of us and the electronics industry or
telecommunications industry;
|
|
|
|
sales, or anticipated sales, of large blocks of our stock;
|
|
|
|
additions or departures of key personnel;
|
|
|
|
regulatory or political developments;
|
|
|
|
litigation and governmental investigations; and
|
|
|
|
changing economic conditions.
|
These and other factors may cause the market price and demand
for our common stock to fluctuate substantially, which may limit
or prevent investors from readily selling their shares of common
stock and may otherwise negatively affect the liquidity of our
common stock. In addition, in the past, when the market price of
a stock has been volatile, holders of that stock have sometimes
instituted securities class action litigation against the
company that issued the stock. If any of our stockholders
brought a lawsuit against us, we could incur substantial costs
defending the lawsuit. Such a lawsuit could also divert the time
and attention of our management from our business, which could
significantly harm our profitability and reputation.
Some
provisions of Delaware law and our certificate of incorporation
and bylaws may deter third parties from acquiring us and
diminish the value of our common stock.
Our third amended and restated certificate of incorporation and
second amended and restated bylaws provide for, among other
things:
|
|
|
|
|
restrictions on the ability of our stockholders to call a
special meeting and the business that can be conducted at such
meeting;
|
|
|
|
restrictions on the ability of our stockholders to remove a
director or fill a vacancy on the board of directors;
|
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|
|
our ability to issue preferred stock with terms that the board
of directors may determine, without stockholder approval;
|
|
|
|
the absence of cumulative voting in the election of directors;
|
|
|
|
a prohibition of action by written consent of stockholders
unless such action is recommended by all directors then in
office; and
|
|
|
|
advance notice requirements for stockholder proposals and
nominations.
|
These provisions in our third amended and restated certificate
of incorporation and second amended and restated bylaws may
discourage, delay or prevent a transaction involving a change of
control of our company that is in the best interest of our
minority stockholders. Even in the absence of a takeover
attempt, the existence of these provisions may adversely affect
the prevailing market price of our common stock if they are
viewed as discouraging future takeover attempts.
26
You may
experience dilution of your ownership interests due to the
future issuance of additional shares of our capital stock, which
could have an adverse effect on the price of our common
stock.
We may in the future issue additional shares of our common stock
which could result in the dilution of the ownership interests of
our stockholders. Upon completion of the Merger, we will be
authorized to issue 100 million shares of common stock and
25 million shares of preferred stock with such
designations, preferences and rights as determined by our board
of directors. Upon consummation of the Merger, we are expected
to have outstanding approximately 20 million shares of
common stock, and no shares of preferred stock. The potential
issuance of such additional shares of common stock may create
downward pressure on the trading price of our common stock. We
may also issue additional shares of our common stock in
connection with the hiring of personnel, future acquisitions,
future issuances of our securities for capital raising purposes
or for other business purposes. Future sales of substantial
amounts of our common stock, or the perception that sales could
occur, could have a material adverse effect on the price of our
common stock.
27
USE OF
PROCEEDS
We are registering these shares pursuant to the registration
rights granted to the selling stockholders in connection with
the Note Exchange Agreement. We will not receive any proceeds
from the resale of our common stock under this offering. See
Summary Recent Developments
Pending Merger with Merix Corporation and Related
Transactions Note Exchange.
DIVIDEND
POLICY
We currently do not, and do not in the foreseeable future intend
to, pay cash dividends on our common stock. However,
Viasystems subsidiaries in China will continue to make
required distributions to minority interest holders.
Furthermore, our Guangzhou 2009 Credit Facility and the
indenture governing our 2015 Notes contain, and our new Wachovia
Credit Facility will contain, restrictions that limit our or our
subsidiaries ability to pay dividends. We currently intend
to retain all available earnings generated by our operations for
use in our business operations and debt service.
28
CAPITALIZATION
The following table sets forth as of September 30, 2009 our
cash and cash equivalents and capitalization:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on a pro forma basis giving effect to Viasystems, Inc.s
recent issuance of the 2015 Notes, the Merger and related
transactions.
|
This table should be read in conjunction with the sections
entitled Selected Historical Consolidated Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations,
Unaudited Pro Forma Condensed Combined Financial
Data and our consolidated financial statements and the
related notes thereto, included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
110,725
|
|
|
$
|
80,125
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion):
|
|
|
|
|
|
|
|
|
Wachovia Credit Facility(1)
|
|
|
|
|
|
|
|
|
12.00% Senior Secured Notes due 2015
|
|
|
|
|
|
|
220,000
|
|
Discount on 12.00% Senior Secured Notes due 2015
|
|
|
|
|
|
|
(8,208
|
)
|
10.50% Senior Subordinated Notes due 2011(2)
|
|
|
200,000
|
|
|
|
|
|
Guangzhou 2009 Credit Facility
|
|
|
10,000
|
|
|
|
10,000
|
|
Capital leases
|
|
|
5,167
|
|
|
|
5,167
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
215,167
|
|
|
|
226,959
|
|
Mandatory Convertible Class A Junior preferred stock
|
|
|
116,055
|
|
|
|
|
|
Redeemable Class B Senior preferred stock
|
|
|
96,154
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value; 110,000,000 shares
authorized; 28,874,509 shares issued and outstanding
|
|
|
289
|
|
|
|
200
|
|
Paid-in capital
|
|
|
1,946,077
|
|
|
|
2,256,111
|
|
Accumulated deficit
|
|
|
(1,994,160
|
)
|
|
|
(1,996,701
|
)
|
Accumulated other comprehensive income
|
|
|
7,337
|
|
|
|
7,337
|
|
Noncontrolling interests
|
|
|
|
|
|
|
4,501
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(40,457
|
)
|
|
|
271,448
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
386,919
|
|
|
$
|
498,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In connection with the Merger and conditioned upon the
consummation of the Merger, we expect to enter into a new
$75.0 million asset-backed senior secured revolving credit
facility. We do not currently expect to borrow any amounts under
the Wachovia Credit Facility in connection with the Merger. |
|
|
|
(2) |
|
On November 25, 2009, Viasystems, Inc. purchased
$94,124,000 of the $200.0 million original principal amount
of 10.50% Senior Subordinated Notes due 2011 pursuant to a
tender offer. Viasystems, Inc. redeemed the remaining amount of
such notes on January 15, 2010. |
29
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected historical
consolidated financial data as of the dates and for the periods
indicated. The selected historical consolidated financial data
for the fiscal year ended December 31, 2006 and as of and
for the fiscal years ended December 31, 2007 and
December 31, 2008 have been derived from our audited
historical consolidated financial statements included elsewhere
in this prospectus. The selected historical consolidated
financial data as of December 31, 2006 and as of and for
the fiscal years ended December 31, 2004 and
December 31, 2005 have been derived from our audited
historical consolidated financial statements not included in
this prospectus. The selected historical consolidated financial
data as of and for the nine months ended September 30, 2009
and for the nine months ended September 30, 2008, have been
derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus, each of which
have been prepared on a basis consistent with our annual audited
consolidated financial statements. The selected historical
consolidated financial data as of September 30, 2008 have
been derived from our unaudited condensed consolidated financial
statements not included in into this prospectus, but which have
been prepared on a basis consistent with our annual audited
consolidated financial statements. In the opinion of management,
such unaudited financial data reflect all adjustments,
consisting of normal and recurring adjustments, necessary for a
fair statement of our financial position and results of our
operations for those periods. The historical results of
operations for any period are not necessarily indicative of the
results to be expected for any future period.
The selected historical consolidated financial data should be
read in conjunction with, and are qualified by reference to,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and by our
consolidated financial statements and related notes thereto,
each appearing elsewhere in this prospectus.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
(Unaudited)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
630,754
|
|
|
$
|
652,821
|
|
|
$
|
734,992
|
|
|
$
|
714,343
|
|
|
$
|
712,830
|
|
|
$
|
565,019
|
|
|
$
|
365,085
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold(1)
|
|
|
521,393
|
|
|
|
560,974
|
|
|
|
601,232
|
|
|
|
570,384
|
|
|
|
568,356
|
|
|
|
446,462
|
|
|
|
296,300
|
|
Selling, general and administrative(1)
|
|
|
65,205
|
|
|
|
66,190
|
|
|
|
56,339
|
|
|
|
58,215
|
|
|
|
52,475
|
|
|
|
42,938
|
|
|
|
32,115
|
|
Depreciation
|
|
|
41,622
|
|
|
|
44,234
|
|
|
|
45,422
|
|
|
|
49,704
|
|
|
|
53,285
|
|
|
|
39,839
|
|
|
|
37,832
|
|
Amortization
|
|
|
1,570
|
|
|
|
1,436
|
|
|
|
1,325
|
|
|
|
1,269
|
|
|
|
1,243
|
|
|
|
936
|
|
|
|
900
|
|
Restructuring and impairment(2)
|
|
|
1,013
|
|
|
|
27,662
|
|
|
|
(4,915
|
)
|
|
|
278
|
|
|
|
15,069
|
|
|
|
|
|
|
|
5,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(49
|
)
|
|
|
(47,675
|
)
|
|
|
35,589
|
|
|
|
34,493
|
|
|
|
22,402
|
|
|
|
34,844
|
|
|
|
(7,215
|
)
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
46,092
|
|
|
|
48,137
|
|
|
|
38,768
|
|
|
|
30,573
|
|
|
|
31,585
|
|
|
|
23,570
|
|
|
|
24,443
|
|
Amortization of deferred financing costs
|
|
|
1,305
|
|
|
|
1,613
|
|
|
|
1,678
|
|
|
|
2,065
|
|
|
|
2,063
|
|
|
|
1,547
|
|
|
|
1,547
|
|
Loss on early extinguishment of debt(3)
|
|
|
|
|
|
|
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729
|
|
Reorganization expenses (reversals)(4)
|
|
|
(9,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion of Class A Junior preferred stock
|
|
|
6,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(980
|
)
|
|
|
13,110
|
|
|
|
742
|
|
|
|
277
|
|
|
|
(711
|
)
|
|
|
(2,028
|
)
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(42,865
|
)
|
|
|
(110,535
|
)
|
|
|
(7,097
|
)
|
|
|
1,578
|
|
|
|
(10,535
|
)
|
|
|
11,755
|
|
|
|
(34,413
|
)
|
Income tax provision
|
|
|
(6,291
|
)
|
|
|
3,953
|
|
|
|
18,514
|
|
|
|
(6,853
|
)
|
|
|
4,938
|
|
|
|
7,652
|
|
|
|
4,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations(5)
|
|
|
(36,574
|
)
|
|
|
(114,488
|
)
|
|
|
(25,611
|
)
|
|
|
8,431
|
|
|
|
(15,473
|
)
|
|
|
4,103
|
|
|
|
(38,808
|
)
|
Income from discontinued operations, net of tax(1)(5)
|
|
|
27,307
|
|
|
|
25,739
|
|
|
|
9,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of discontinued operations, net of tax(5)
|
|
|
|
|
|
|
|
|
|
|
214,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,267
|
)
|
|
$
|
(88,749
|
)
|
|
$
|
197,949
|
|
|
$
|
8,431
|
|
|
$
|
(15,473
|
)
|
|
$
|
4,103
|
|
|
$
|
(38,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accretion of Class B Senior Convertible preferred
stock
|
|
|
5,642
|
|
|
|
6,114
|
|
|
|
6,633
|
|
|
|
7,203
|
|
|
|
7,829
|
|
|
|
5,831
|
|
|
|
6,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(14,909
|
)
|
|
$
|
(94,863
|
)
|
|
$
|
191,316
|
|
|
$
|
1,228
|
|
|
$
|
(23,302
|
)
|
|
$
|
(1,728
|
)
|
|
$
|
(45,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per share from continuing
operations (unaudited)
|
|
$
|
(1.86
|
)
|
|
$
|
(4.18
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(1.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic and diluted share calculations
|
|
|
22,646
|
|
|
|
28,875
|
|
|
|
28,875
|
|
|
|
28,875
|
|
|
|
28,875
|
|
|
|
28,875
|
|
|
|
28,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
112,891
|
|
|
$
|
35,923
|
|
|
$
|
37,954
|
|
|
$
|
64,002
|
|
|
$
|
83,053
|
|
|
$
|
61,818
|
|
|
$
|
110,725
|
|
Working capital
|
|
|
150,776
|
|
|
|
91,071
|
|
|
|
95,475
|
|
|
|
110,460
|
|
|
|
119,118
|
|
|
|
125,970
|
|
|
|
114,882
|
|
Total assets
|
|
|
746,845
|
|
|
|
710,237
|
|
|
|
625,085
|
|
|
|
628,429
|
|
|
|
585,238
|
|
|
|
641,997
|
|
|
|
543,663
|
|
Total debt, including current maturities
|
|
|
465,555
|
|
|
|
462,535
|
|
|
|
206,914
|
|
|
|
206,613
|
|
|
|
220,663
|
|
|
|
224,105
|
|
|
|
215,167
|
|
Stockholders equity (deficit)(6)
|
|
|
(88,773
|
)
|
|
|
(155,631
|
)
|
|
|
32,844
|
|
|
|
26,141
|
|
|
|
582
|
|
|
|
21,259
|
|
|
|
(40,457
|
)
|
Consolidated Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
71,410
|
|
|
|
11,646
|
|
|
|
(1,838
|
)
|
|
|
63,794
|
|
|
|
53,738
|
|
|
|
22,798
|
|
|
|
44,333
|
|
Net cash provided by (used in) investing activities
|
|
|
(71,933
|
)
|
|
|
(85,022
|
)
|
|
|
273,818
|
|
|
|
(36,992
|
)
|
|
|
(48,262
|
)
|
|
|
(41,982
|
)
|
|
|
(10,714
|
)
|
Net cash provided by (used in) financing activities
|
|
|
54,545
|
|
|
|
(3,245
|
)
|
|
|
(270,546
|
)
|
|
|
(754
|
)
|
|
|
13,575
|
|
|
|
17,000
|
|
|
|
(5,947
|
)
|
|
|
|
(1)
|
|
Effective January 1, 2004, we
adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). On
January 1, 2006, we adopted SFAS No. 123 (revised
2004), Share-Based Payments
(SFAS No. 123(R)). Stock compensation
expense included in cost of goods sold and selling, general and
|
31
|
|
|
|
|
administrative expenses for the
years ended December 31, 2008, 2007, 2006, 2005 and 2004
and nine months ended September 30, 2009 and 2008 was $615,
$2,085, $1,400, $6,152, $3,710, $704 and $651, respectively.
Stock compensation expense included in income from discontinued
operations, net for the years ended December 31, 2008,
2007, 2006, 2005 and 2004 and nine months ended
September 30, 2009 and 2008 was $0, $0, $105, $641, $127,
$0 and $0, respectively.
|
|
(2)
|
|
Represents restructuring charges
taken to downsize and close facilities and impairment losses
related to the write-off of long-lived assets. In 2006,
restructuring and impairment includes realized gains of $5,463
related to property held for sale that was disposed of in 2006.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations and the accompanying
notes to consolidated financial statements.
|
|
(3)
|
|
In 2006, in connection with the
termination of our 2003 credit facility, we recorded a loss on
early extinguishment of debt of $1,498. In 2009, in connection
with the termination of our credit agreement, dated as of
August 17, 2006 with UBS AG Hong Kong Branch and UBS AG,
Singapore Branch (the 2006 Credit Agreement), we
recorded a loss on early extinguishment of debt of $729.
|
|
(4)
|
|
In May 2004, a promissory note to
the Secretary of State for Trade and Industry of the United
Kingdom was discharged in full as a result of proceeds they
received from the liquidation of a disposed subsidiary of ours,
which resulted in a gain of $9,776.
|
|
(5)
|
|
On May 1, 2006, we sold our
wire harness business. All periods have been restated to reflect
the wire harness business as a discontinued operation.
|
|
(6)
|
|
On January 1, 2007, we adopted
Financial Accounting Standard Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement
No. 109 (FIN 48). As a result of the
adoption of FIN 48, we recorded a $10,213 increase in the
net liability for unrecognized tax positions, which was recorded
as a cumulative effect adjustment to the opening balance of
accumulated deficit on January 1, 2007. During the fourth
quarter of 2006, we adopted Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB No. 108).
As a result of the adoption of SAB No. 108, we recorded an
$8,628 cumulative effect adjustment to accumulated deficit on
January 1, 2006.
|
32
UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined balance
sheet as of September 30, 2009, and the unaudited pro forma
condensed combined statements of operations for the nine months
ended September 30, 2009 and the twelve months ended
December 31, 2008, are based upon the historical
consolidated financial statements of Viasystems Group, Inc.
(Viasystems) and Merix Corporation
(Merix) after giving effect to the Merger and
related transactions, and after applying the assumptions,
reclassifications and adjustments described in the accompanying
notes to the unaudited pro forma condensed combined financial
data.
Viasystems and Merix have different fiscal year ends. For ease
of reference, all pro forma statements use Viasystems
period end date and no adjustments were made to Merix
reported information for its different period end dates.
Accordingly, the unaudited pro forma condensed combined balance
sheet as of September 30, 2009, combines Viasystems
historical unaudited condensed consolidated balance sheet as of
September 30, 2009, and Merix historical unaudited
consolidated balance sheet as of August 29, 2009, and is
presented as if the Merger had occurred on September 30,
2009. The unaudited pro forma condensed combined statement of
operations for the twelve months ended December 31, 2008,
combines the historical audited results of Viasystems for the
twelve months ended December 31, 2008, and the historical
unaudited results of Merix for twelve months ended
November 29, 2008, which have been derived from Merix
historical audited consolidated statements of operations for the
twelve months ended May 31, 2008, and Merix
historical unaudited consolidated statements of operations for
the six months ended November 29, 2008 and December 1,
2007. The unaudited pro forma condensed combined statement of
operations for the nine months ended September 30, 2009,
combines the historical unaudited results of Viasystems for the
nine months ended September 30, 2009, and the historical
unaudited results of Merix for nine months ended August 29,
2009, which have been derived from Merix historical
audited consolidated statement of operations for the twelve
months ended May 30, 2009, Merix historical unaudited
consolidated statement of operations for the three months ended
August 29, 2009, and Merix historical unaudited
consolidated statement of operations for the six months ended
November 29, 2008. The unaudited pro forma condensed
combined statements of operations are presented as if the Merger
occurred on January 1, 2008.
The unaudited pro forma condensed combined financial data are
presented for informational purposes only. The unaudited pro
forma condensed combined financial data do not purport to
represent what Viasystems and Merix actual
consolidated results of operations or consolidated financial
condition would have been had the Merger actually occurred on
the dates indicated, nor are they necessarily indicative of
future consolidated results of operations or consolidated
financial condition.
The unaudited pro forma condensed combined financial data should
be read in conjunction with the information contained in
Selected Historical Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the consolidated
financial statements of Viasystems and Merix and related notes
thereto appearing elsewhere in this prospectus.
The historical consolidated financial information has been
adjusted in the unaudited pro forma condensed combined financial
data to give effect to pro forma events that are, based upon
available information and certain assumptions, (i) directly
attributable to the Merger, (ii) factually supportable and
reasonable under the circumstances and (iii) with respect
to the statements of operations, expected to have a continuing
impact on the combined results.
The Merger between Viasystems and Merix will be accounted for
using the acquisition method of accounting. The unaudited pro
forma condensed combined financial data presented assume that,
as part of a number of Merger related transactions to occur
simultaneously, Merix will become a wholly owned subsidiary of
Viasystems. Viasystems is the acquiror for accounting purposes,
and thus Viasystems will acquire all of the assets, including
identifiable intangible assets, and assume all of the
33
liabilities of Merix (the Net Assets). For purpose
of the unaudited pro forma condensed combined financial data,
the Net Assets have been valued based on preliminary estimates
of their fair values, which will be revised as additional
information becomes available. The actual adjustments to
Viasystems consolidated financial statements upon the
closing of the Merger will depend on a number of factors,
including additional information available and the actual
balance of Merix Net Assets on the closing date of the
Merger. Therefore, the actual adjustments will differ from the
pro forma adjustments, and the differences may be material.
The unaudited pro forma condensed combined financial data do not
reflect any costs required to integrate the operations of
Viasystems and Merix or any cost savings, operating synergies or
revenue enhancements that the combined companies may achieve as
a result of the Merger.
On November 24, 2009, our subsidiary, Viasystems, Inc.,
completed an offering of the 2015 Notes; and on
November 25, 2009, completed a tender offer to repurchase
$94,124,000 aggregate principal amount, or approximately 47.03%,
of its 2011 Notes. The net proceeds of the 2015 Notes
offering were partially used to fund the tender offer for
Viasystem, Inc.s 2011 Notes and to pay transaction fees
and expenses. The remaining net proceeds of the 2015 Notes
offering were used to redeem the remaining outstanding 2011
Notes on January 15, 2010. The unaudited pro forma
condensed combined financial data do not reflect any adjustments
related to the private placement of 2015 Notes, the tender offer
or redemption.
34
Unaudited Pro
Forma Condensed Combined Balance Sheet
as of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
September 30,
|
|
|
August 29,
|
|
|
|
|
|
|
|
|
for the Merger
|
|
|
|
2009
|
|
|
2009
|
|
|
(See Note 6)
|
|
|
(See Note 6)
|
|
|
September 30,
|
|
|
|
Viasystems,
|
|
|
Merix
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
2009
|
|
|
|
Group, Inc.
|
|
|
Corporation
|
|
|
for the Merger
|
|
|
for the Merger
|
|
|
Combined
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
110,725
|
|
|
$
|
21,353
|
|
|
$
|
|
|
|
|
$ (51,470
|
) E,F,O
|
|
$
|
80,608
|
|
Restricted cash
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303
|
|
Accounts receivable, net
|
|
|
77,219
|
|
|
|
42,219
|
|
|
|
|
|
|
|
|
|
|
|
119,438
|
|
Inventories
|
|
|
50,202
|
|
|
|
14,941
|
|
|
|
|
|
|
|
480
|
G
|
|
|
65,623
|
|
Prepaid expenses and other
|
|
|
11,129
|
|
|
|
7,200
|
|
|
|
|
|
|
|
|
|
|
|
18,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
249,578
|
|
|
|
85,713
|
|
|
|
|
|
|
|
(50,990
|
)
|
|
|
284,301
|
|
Property, plant and equipment, net
|
|
|
206,189
|
|
|
|
89,458
|
|
|
|
1,190
|
A
|
|
|
|
P
|
|
|
296,837
|
|
Goodwill
|
|
|
79,485
|
|
|
|
11,392
|
|
|
|
|
|
|
|
(8,360
|
) H
|
|
|
82,517
|
|
Intangible assets, net
|
|
|
4,943
|
|
|
|
6,359
|
|
|
|
|
|
|
|
(1,359
|
) H
|
|
|
9,943
|
|
Deferred financing costs, net
|
|
|
2,088
|
|
|
|
|
|
|
|
2,826
|
B
|
|
|
(826
|
) F,O
|
|
|
4,088
|
|
Assets held for sale
|
|
|
|
|
|
|
1,146
|
|
|
|
|
|
|
|
17,553
|
G
|
|
|
18,699
|
|
Other assets
|
|
|
1,380
|
|
|
|
4,849
|
|
|
|
(4,016
|
) A,B
|
|
|
|
|
|
|
2,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
543,663
|
|
|
$
|
198,917
|
|
|
$
|
|
|
|
|
(43,982
|
)
|
|
$
|
698,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
12,119
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
12,119
|
|
Accounts payable
|
|
|
79,225
|
|
|
|
34,514
|
|
|
|
|
|
|
|
|
|
|
|
113,739
|
|
Accrued and other liabilities
|
|
|
43,352
|
|
|
|
14,547
|
|
|
|
|
|
|
|
(945
|
) E,F
|
|
|
56,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
134,696
|
|
|
|
49,061
|
|
|
|
|
|
|
|
(945
|
)
|
|
|
182,812
|
|
Long-term debt, less current maturities
|
|
|
203,048
|
|
|
|
83,000
|
|
|
|
|
|
|
|
(83,000
|
) E,F
|
|
|
203,048
|
|
Mandatory redeemable Class A Junior preferred stock
|
|
|
116,055
|
|
|
|
|
|
|
|
|
|
|
|
(116,055
|
) J
|
|
|
|
|
Other non-current liabilities
|
|
|
34,167
|
|
|
|
4,582
|
|
|
|
|
|
|
|
|
|
|
|
38,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
487,966
|
|
|
|
136,643
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
424,609
|
|
Redeemable Class B Senior Convertible preferred stock
|
|
|
96,154
|
|
|
|
|
|
|
|
|
|
|
|
(96,154
|
) J
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders controlling interest
|
|
|
(40,457
|
)
|
|
|
58,565
|
|
|
|
|
|
|
|
251,380
|
E,I,J,K
|
|
|
269,488
|
|
Noncontrolling interests
|
|
|
|
|
|
|
3,709
|
|
|
|
|
|
|
|
792
|
G
|
|
|
4,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(40,457
|
)
|
|
|
62,274
|
|
|
|
|
|
|
|
252,172
|
|
|
|
273,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
543,663
|
|
|
$
|
198,917
|
|
|
$
|
|
|
|
|
$(43,982
|
)
|
|
$
|
698,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined
financial data
35
Unaudited Pro
Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
|
|
|
|
|
for the Merger
|
|
|
|
December 31,
|
|
|
November 29,
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
2008
|
|
|
2008
|
|
|
(See Note 6)
|
|
|
(See Note 6)
|
|
|
December 31,
|
|
|
|
Viasystems,
|
|
|
Merix
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
2008
|
|
|
|
Group, Inc.
|
|
|
Corporation
|
|
|
for the Merger
|
|
|
for the Merger
|
|
|
Combined
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net sales
|
|
$
|
712,830
|
|
|
$
|
349,356
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,062,186
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of items shown separately below
|
|
|
568,356
|
|
|
|
315,754
|
|
|
|
(12,331
|
) C, D
|
|
|
|
|
|
|
871,779
|
|
Engineering
|
|
|
|
|
|
|
2,120
|
|
|
|
(2,120
|
) C, D
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
52,475
|
|
|
|
36,423
|
|
|
|
(3,546
|
) C
|
|
|
(200
|
) L
|
|
|
85,152
|
|
Depreciation
|
|
|
53,285
|
|
|
|
|
|
|
|
18,025
|
C
|
|
|
|
P
|
|
|
71,310
|
|
Amortization
|
|
|
1,243
|
|
|
|
2,087
|
|
|
|
(28
|
) C
|
|
|
(1,559
|
) M
|
|
|
1,743
|
|
Restructuring and impairment
|
|
|
15,069
|
|
|
|
15,027
|
|
|
|
|
|
|
|
|
|
|
|
30,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
22,402
|
|
|
|
(22,055
|
)
|
|
|
|
|
|
|
(1,759
|
)
|
|
|
2,106
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
31,585
|
|
|
|
3,487
|
|
|
|
(844
|
) B
|
|
|
(11,920
|
) E,F,J,N
|
|
|
22,308
|
|
Amortization of deferred financing costs
|
|
|
2,063
|
|
|
|
|
|
|
|
844
|
B
|
|
|
(344
|
) F,O
|
|
|
2,563
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
(4,618
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,618
|
)
|
Other, net
|
|
|
(711
|
)
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(10,535
|
)
|
|
|
(22,082
|
)
|
|
|
|
|
|
|
14,023
|
|
|
|
(18,594
|
)
|
Income tax provision
|
|
|
4,938
|
|
|
|
1,967
|
|
|
|
|
|
|
|
|
Q
|
|
|
6,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(15,473
|
)
|
|
|
(24,049
|
)
|
|
|
|
|
|
|
14,023
|
|
|
|
(25,499
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to controlling interest
|
|
$
|
(15,473
|
)
|
|
$
|
(25,128
|
)
|
|
$
|
|
|
|
$
|
14,023
|
|
|
$
|
(26,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accretion of Class B Senior Convertible preferred
stock
|
|
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
(7,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(23,302
|
)
|
|
$
|
(25,128
|
)
|
|
$
|
|
|
|
$
|
21,852
|
|
|
$
|
(26,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share attributable to common
stockholders
|
|
$
|
(0.81
|
)
|
|
$
|
(1.21
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(1.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares basic and diluted
|
|
|
28,875
|
|
|
|
20,812
|
|
|
|
|
|
|
|
(29,687
|
) E,I,J,K
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined
financial data
36
Unaudited Pro
Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
for the Merger
|
|
|
|
September 30,
|
|
|
August 29,
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2009
|
|
|
(See Note 6)
|
|
|
(See Note 6)
|
|
|
September 30,
|
|
|
|
Viasystems,
|
|
|
Merix
|
|
|
Reclassifications
|
|
|
Adjustments
|
|
|
2009
|
|
|
|
Group Inc.
|
|
|
Corporation
|
|
|
for the Merger
|
|
|
for the Merger
|
|
|
Combined
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net sales
|
|
$
|
365,085
|
|
|
$
|
177,397
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
542,482
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of items shown separately below
|
|
|
296,300
|
|
|
|
168,006
|
|
|
|
(10,427
|
) C, D
|
|
|
|
|
|
|
453,879
|
|
Engineering
|
|
|
|
|
|
|
1,122
|
|
|
|
(1,122
|
) C, D
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
32,115
|
|
|
|
25,190
|
|
|
|
(3,605
|
) C
|
|
|
(3,066
|
) L
|
|
|
50,634
|
|
Depreciation
|
|
|
37,832
|
|
|
|
|
|
|
|
15,175
|
C
|
|
|
|
P
|
|
|
53,007
|
|
Amortization
|
|
|
900
|
|
|
|
1,410
|
|
|
|
(21
|
) C
|
|
|
(1,014
|
) M
|
|
|
1,275
|
|
Restructuring and impairment
|
|
|
5,153
|
|
|
|
25,289
|
|
|
|
|
|
|
|
|
|
|
|
30,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7,215
|
)
|
|
|
(43,620
|
)
|
|
|
|
|
|
|
4,080
|
|
|
|
(46,755
|
)
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
24,443
|
|
|
|
3,060
|
|
|
|
(593
|
) B
|
|
|
(10,243
|
) E,F,J,N
|
|
|
16,667
|
|
Amortization of deferred financing costs
|
|
|
1,547
|
|
|
|
|
|
|
|
593
|
B
|
|
|
(218
|
) F,O
|
|
|
1,922
|
|
Loss on extinguishment of debt
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729
|
|
Other, net
|
|
|
479
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(34,413
|
)
|
|
|
(46,807
|
)
|
|
|
|
|
|
|
14,541
|
|
|
|
(66,679
|
)
|
Income tax provision
|
|
|
4,395
|
|
|
|
2,116
|
|
|
|
|
|
|
|
|
|
|
|
6,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(38,808
|
)
|
|
|
(48,923
|
)
|
|
|
|
|
|
|
14,541
|
|
|
|
(73,190
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to controlling interest
|
|
$
|
(38,808
|
)
|
|
$
|
(49,263
|
)
|
|
$
|
|
|
|
$
|
14,541
|
|
|
$
|
(73,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accretion of Class B Senior Convertible preferred
stock
|
|
|
6,342
|
|
|
|
|
|
|
|
|
|
|
|
(6,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(45,150
|
)
|
|
$
|
(49,263
|
)
|
|
$
|
|
|
|
$
|
20,883
|
|
|
$
|
(73,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share attributable to common
stockholders
|
|
$
|
(1.56
|
)
|
|
$
|
(2.30
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(3.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares basic and diluted
|
|
|
28,875
|
|
|
|
21,453
|
|
|
|
|
|
|
|
(30,328
|
) E,I,J,K
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined
financial data
37
Notes to
Unaudited Pro Forma Condensed Combined Financial Data
(in thousands, except per share data)
General
The unaudited pro forma condensed combined financial data were
prepared using the acquisition method of accounting and were
based on the historical financial statements of Viasystems and
Merix. Viasystems and Merix have different fiscal year ends. For
ease of reference, all pro forma statements use Viasystems
period-end date and no adjustments were made to Merix
reported information for its different period-end dates.
Acquisition
Accounting
The Merger will be accounted for using the acquisition method of
accounting. For the purposes of the unaudited pro forma
condensed combined financial data, Viasystems has been treated
as the acquiror in the Merger and will account for the
transaction by using its historical accounting information and
accounting policies and adding the assets acquired, including
identifiable intangible assets, and liabilities assumed from
Merix (the Net Assets) as of the effective date of
the Merger at their respective fair values. The process for
estimating the fair values of the Net Assets requires the use of
significant estimates and assumptions. The amount by which the
acquisition date fair value of the purchase price (consideration
transferred) and any noncontrolling interests exceed the
recognized bases of the net identifiable assets acquired (see
Note 4) will be recognized as goodwill. The purchase price
allocation is subject to finalization of Viasystems
analysis of the fair value of the Net Assets as of the effective
date of the Merger. Accordingly, the purchase price allocation
reflected in this unaudited pro forma condensed combined
financial data are preliminary and will be adjusted upon the
completion of the final valuation. Such adjustments could be
material. The final valuation is expected to be completed as
soon as practicable but no later than one year after the
consummation of the Merger.
Accounting
Policies
The unaudited pro forma condensed combined financial data do not
assume any differences in accounting policies between Viasystems
and Merix. Upon consummation of the Merger, Viasystems will
review Merix accounting polices and, as a result of that
review, Viasystems may identify differences between the
accounting policies of the two companies that, when conformed,
could have a material impact on the combined financial
statements. At this time, Viasystems is not aware of any
difference that would have a material impact on the combined
financial statements.
Earnings Per
Share
Earnings per share amounts have been presented in the unaudited
pro forma condensed combined statements of operations for the
unaudited pro forma combined results based on the estimated
total issued and outstanding common stock of Viasystems
immediately after the closing of the Merger as described under
the heading Summary Recent Developments
Pending Merger with Merix Corporation and Related Transactions
Pending Merger.
Reclassifications
Certain reclassifications have been made to the historical
financial statements of Merix to conform with Viasystems
presentation. These adjustments are further described in
Note 6.
38
|
|
2.
|
Description of
the Merger
|
As more fully described under the heading Summary
Recent Developments Pending Merger with Merix Corporation
and Related Transactions on October 6, 2009,
Viasystems and Merix entered into a Merger Agreement, pursuant
to which, Merix will become a wholly owned subsidiary of
Viasystems. Merix is a leading manufacturer of technologically
advanced, multi-layer PCBs with operations in the United States
and China. Under the terms of the Merger Agreement, Viasystems
will acquire all of the outstanding common stock of Merix in
exchange for shares of Viasystems common stock representing
approximately 12.5% of the combined companies; and retire
$68,590 of Merix convertible debt securities in exchange
for approximately $34,908 of cash and shares of Viasystems
common stock representing approximately 7.0% of the combined
companies. The Merger is subject to Merix shareholders
approval, certain regulatory approvals, and certain terms and
conditions contained in the Merger Agreement. The Merger is
expected to be completed during the first quarter of 2010. See
Summary Recent Developments Pending Merger
with Merix Corporation and Related Transactions.
|
|
3.
|
Estimate of
Consideration Expected to Be Transferred
|
The acquisition method of accounting requires that the purchase
price (consideration transferred) in a business combination be
measured at fair value as of the acquisition closing date. In
addition to cash, the consideration transferred in the Merger
will include shares of Viasystems common stock. As of
September 30, 2009, Viasystems common stock was not
marketable, and so for the purposes of the unaudited pro forma
condensed combined financial data, the fair value of Merix was
used to estimate the consideration transferred, as it is likely
this method would provide the most reliably determinable fair
value.
The following is a preliminary estimate of consideration
expected to be transferred to effect the acquisition of Merix:
|
|
|
|
|
Merix common shares outstanding at September 30, 2009(a)
|
|
|
21,809,030
|
|
Equivalent Merix common shares from exchange of Merix
4% Convertible Notes(b)
|
|
|
12,711,368
|
|
Merix common shares from exercise of options(c)
|
|
|
891,197
|
|
|
|
|
|
|
|
|
|
35,411,595
|
|
Multiplied by Merix per share stock price(d)
|
|
$
|
2.76
|
|
|
|
|
|
|
|
|
$
|
97,736
|
|
Cash consideration for the Merix Notes(b)
|
|
$
|
36,318
|
|
|
|
|
|
|
Preliminary purchase price
|
|
$
|
134,054
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents outstanding shares as reported on Merix
historical unaudited balance sheet as of August 29, 2009,
net of restricted stock awards that will not vest upon
consummation of the Merger. |
|
(b) |
|
In accordance with the note exchange agreement described under
the heading Summary Recent Developments
Pending Merger with Merix Corporation and Related Transactions
Note Exchange, the holders of approximately 98% of
Merix 4% Convertible Notes (the Merix
Notes) agreed to exchange their Merix Notes for shares of
Viasystems common stock and approximately $34,908 in cash. For
the purpose of the unaudited pro forma financial data, based on
the exchange ratio defined in the Merger Agreement, Viasystems
has estimated the number of Merix common shares equivalent to
the number of Viasystems shares to be issued to the holders of
the Merix Notes pursuant to the note exchange agreement.
Pursuant to the indenture governing the Merix Notes, the holders
of the remaining 2% of the Merix Notes will have the right to
require the repurchase of their outstanding Merix Notes at a
price of 100%. For purposes of the unaudited pro forma condensed
combined financial data, Viasystems has assumed the remaining 2%
of the Merix Notes will be repurchased at par for approximately
$1,410 cash on the acquisition date. |
39
|
|
|
(c) |
|
Based upon the assumed stock price (see (d), below), for
purposes of the unaudited pro forma condensed combined financial
data, Viasystems has assumed that all holders of Merix stock
options will exercise their in the money options as
of the acquisition date in a cashless exchange, and receive the
number of Merix common shares equivalent to the net of:
(i) the market value represented by the number of option
shares and (ii) the cost to exercise the options. For an
illustration of the number of outstanding options to purchase
shares of Merix common stock for a given range of exercise
prices. |
|
(d) |
|
For the purpose of the unaudited pro forma condensed combined
financial data, Viasystems has used the closing stock price for
Merix as of October 6, 2009, the day the Merger was
announced. Merix stock price as of the Merger closing date
may materially differ from the assumed price. The table below
illustrates the potential impact to the preliminary purchase
price resulting from a 50% increase or decrease from this level: |
|
|
|
|
|
|
|
|
|
|
|
50% Increase in
|
|
|
50% Decrease in
|
|
|
|
Merix stock price
|
|
|
Merix stock price
|
|
|
Cash consideration
|
|
$
|
36,318
|
|
|
$
|
36,318
|
|
Share consideration
|
|
|
148,432
|
|
|
|
47,638
|
|
|
|
|
|
|
|
|
|
|
Preliminary purchase price
|
|
$
|
184,750
|
|
|
$
|
83,956
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Preliminary
Allocation of Consideration Transferred to Net Assets
Acquired
|
For the purposes of this unaudited pro forma condensed combined
financial data, Viasystems has made a preliminary allocation of
the estimated consideration expected to be transferred (see
Note 3) to the Net Assets acquired, as if the Merger
had closed on September 30, 2009, as follows:
|
|
|
|
|
Tangible assets and liabilities:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,201
|
|
Accounts receivable, net
|
|
|
42,219
|
|
Inventories
|
|
|
15,421
|
|
Property, plant and equipment, net
|
|
|
90,648
|
|
Assets held for sale
|
|
|
18,699
|
|
Other assets
|
|
|
8,033
|
|
Accounts payable
|
|
|
(34,514
|
)
|
Accrued and other liabilities assumed
|
|
|
(18,184
|
)
|
Intangible assets:
|
|
|
|
|
Customer contracts and related relationships
|
|
|
5,000
|
|
Goodwill
|
|
|
3,032
|
|
|
|
|
|
|
|
|
|
138,555
|
|
Less: Fair value of noncontrolling interests
|
|
|
(4,501
|
)
|
|
|
|
|
|
Total preliminary purchase price allocation
|
|
$
|
134,054
|
|
|
|
|
|
|
The allocation of the consideration expected to be paid to the
Net Assets acquired, as noted in the table above, is based on
the fair value of Net Assets with the remainder being allocated
to goodwill. When the actual calculation of the consideration
paid and the actual allocation of the consideration paid to Net
Assets acquired are performed, they will be based on the Net
Assets assumed at the effective date of the Merger and other
information at that date to support the calculations.
Accordingly, the actual amounts for each of the Net Assets will
vary from the pro forma amounts and the variations may be
material.
40
The following table reconciles the historical value of the Net
Assets as of September 30, 2009, to the preliminary
purchase price:
|
|
|
|
|
Historical value of Net Assets, net of noncontrolling interests,
as of September 30, 2009
|
|
$
|
58,565
|
|
Elimination of the Merix Notes and related accrued interest
pursuant to the Merger
|
|
|
70,793
|
|
Elimination of deferred financing costs
|
|
|
(2,826
|
)
|
Elimination of the historical value of goodwill and intangible
assets
|
|
|
(17,751
|
)
|
Recognition of intangible assets acquired:
|
|
|
|
|
Amortizable intangible assets
|
|
|
5,000
|
|
Goodwill
|
|
|
3,032
|
|
Adjustments to the historical carrying value of the Net Assets
acquired and historical value of noncontrolling interests based
on the preliminary estimates of fair value:
|
|
|
|
|
Inventories
|
|
|
480
|
|
Assets held for sale
|
|
|
17,553
|
|
Noncontrolling interests
|
|
|
(792
|
)
|
|
|
|
|
|
Preliminary purchase price
|
|
$
|
134,054
|
|
|
|
|
|
|
|
|
5.
|
Recapitalization
of Viasystems
|
As described under the heading Summary Recent
Developments Pending Merger with Merix Corporation and
Related Transactions Recapitalization, on
October 6, 2009, Viasystems and the principal holders of
Viasystems Redeemable Class B Senior Convertible
preferred stock (the Class B Preferred),
Mandatory redeemable Class A Junior preferred stock (the
Class A Preferred) and common stock entered
into a recapitalization agreement, pursuant to which, following
the consummation of the Merger, the outstanding capitalization
of Viasystems will consist solely of approximately
20 million newly issued shares of common stock. The former
holders of Merix common stock will hold approximately
2.5 million shares of the newly issued common stock, the
former holders of Merix Notes will hold approximately
1.4 million shares of the newly issued common stock, the
former holders of Viasystems Class B Preferred will
hold approximately 7.7 million shares of the newly issued
common stock, the former holders of Viasystems
Class A Preferred will hold approximately 6.0 million
shares of the newly issued common stock, and Viasystems
common stock holders, as a result of a reverse common stock
split, will hold the remaining approximately 2.4 million
shares of newly issued common stock. The recapitalization will
be effected immediately prior to, and is conditioned upon, the
consummation of Merger. For the purpose of the unaudited pro
forma condensed combined financial data Viasystems has assumed
there will be 20 million shares of Viasystems common
stock issued and outstanding immediately after the closing of
the Merger; however, the actual amount of issued and outstanding
common stock is subject to adjustment as provided for in the
Merger Agreement and the recapitalization agreement.
|
|
6.
|
Pro Forma
Reclassifications and Adjustments for the Merger
|
Pro Forma
Reclassifications for the Merger
Adjustments included in the column under the heading
Reclassifications for the Merger which are necessary
to conform Merix financial statement presentation with
Viasystems, include the following:
|
|
|
|
A.
|
Reflects the reclassification of Merix $1,190 of
capitalized long-term land use rights agreements from other
assets to property, plant and equipment, net.
|
41
|
|
|
|
B.
|
Reflects the reclassification of Merix $2,826 of
capitalized deferred financing costs from other assets to
deferred financing costs, net; and the reclassification of the
related amortization of $844 and $593 for the twelve months
ended December 31, 2008, and the nine months ended
September 30, 2009, respectively, from interest expense,
net to the amortization of deferred financing costs caption (see
item F below).
|
|
|
C.
|
Reflects the reclassification of Merix depreciation
expense to the depreciation caption from other captions as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2008
|
|
|
September 30, 2009
|
|
|
Depreciation reclassified from:
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
$
|
14,445
|
|
|
$
|
11,544
|
|
Engineering
|
|
|
6
|
|
|
|
5
|
|
Selling, general and administration
|
|
|
3,546
|
|
|
|
3,605
|
|
Amortization
|
|
|
28
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation
|
|
$
|
18,025
|
|
|
$
|
15,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.
|
Reflects the reclassification of Merix engineering
expenses other than depreciation to cost of goods sold of $2,114
and $1,117 for the twelve months and December 31, 2008, and
the nine months ended September 30, 2009, respectively.
|
Pro Forma
Adjustments for the Merger
Adjustments included in the column under the heading
Adjustments for the Merger which are necessary to
reflect the Merger and related acquisition accounting include
the following:
|
|
|
|
E.
|
Reflects the elimination of the Merix Notes (see Note 3),
for $36,318 of cash consideration and the issuance of
approximately 1.4 million shares of newly issued
$0.01 par value Viasystems common stock (see
Note 5); and the elimination of the related accrued
interest payable of $793 and related interest expense of $2,800
and $2,100 for the twelve months ended December 31, 2008,
and the nine months ended September 30, 2009, respectively.
|
|
|
F.
|
Reflects the cancellation of Merix revolving credit
facilities, including the repayment of $13,000 of outstanding
credit facility debt plus accrued interest of $152, the
elimination of related amortization of deferred financing costs
of $844 and $593 for the twelve months ended December 31,
2008, and the nine months ended September 30, 2009,
respectively, the elimination of related interest expense of
$322 and $381 for the twelve months ended December 31,
2008, and the nine months ended September 30, 2009,
respectively, and the write-off of $2,826 of unamortized
deferred financing costs associated with Merix credit
facility debt. Because the write-off of the unamortized deferred
financing costs will not have a continuing impact, they are not
reflected in the unaudited pro forma condensed combined
statements of operations.
|
|
|
G.
|
Reflects adjustments necessary to reflect the preliminary
estimate of the fair value of the tangible Net Assets acquired
and the fair value of noncontrolling interests pursuant to the
Merger (see Note 4), as follows:
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2009
|
|
Inventories
|
|
$
|
480
|
|
Assets held for sale
|
|
|
17,553
|
|
Noncontrolling interests
|
|
|
(792
|
)
|
42
Viasystems cost of sales will reflect the increased
valuation of Merix inventory as the acquired inventory is
sold, which for the purposes of these unaudited pro forma
condensed combined financial statements is assumed will occur
within the first year post-Merger. There is no continuing impact
of the acquired inventory adjustment on the combined operating
results and as such is not included in the unaudited pro forma
condensed combined statements of operations.
As of September 30, 2009, Merix has assets held for sale
which include equipment, parcels of land adjacent to one of
Merix U.S. manufacturing facilities as well as an
industrial building in Hong Kong.
|
|
|
|
H.
|
Reflects the elimination of Merix historical goodwill and
other intangible assets in accordance with acquisition
accounting, and the establishment of intangible assets of $5,000
for customer contracts and relationships and $3,032 for goodwill
resulting from the Merger (see item M, below).
|
|
|
I.
|
Reflects the issuance of approximately 2.5 million shares
of newly issued $0.01 par value shares of Viasystems
common stock (see Note 5) to the former holders of
Merix common stock.
|
|
|
J.
|
Reflects, pursuant to the recapitalization agreement (see Note
5), the issuance of approximately 13.7 million shares of
newly issued $0.01 par value shares of Viasystems
common stock, and the cancellation of Viasystems
Class B Preferred and Class A Preferred including the
elimination of interest expense related to the Class A
Preferred of $9,770 and $7,959 for the twelve months ended
December 31, 2008, and the nine months ended
September 30, 2009, respectively; and the issuance of
approximately 2.4 million shares of newly issued
$0.01 par value shares of Viasystems common stock
pursuant to a reverse common stock split.
|
|
|
K.
|
Reflects the elimination of the historical equity of Merix.
|
|
|
L.
|
Reflects the elimination of Viasystems Merger related
costs of $2,246 for the nine months ending September 30,
2009, and Merix Merger related costs of $200 and $820 for
the twelve months ended December 31, 2008, and the nine month
period ended September 30, 2009, respectively. On a
combined basis, total transaction related costs, including costs
incurred to date, are estimated to approximate $19,500. Merger
related costs do not have a continuing impact and therefore are
not reflected in the unaudited pro forma condensed combined
financial data.
|
|
|
M.
|
Reflects the elimination of Merix historical intangible
asset amortization expense of $2,059 and $1,389 for the twelve
months ended December 31, 2008, and the nine months ended
September 30, 2009, respectively, and the recognition of
amortization expense of $500 and $375, for the twelve months
ended December 31, 2008, and the nine months ended
September 30, 2009, respectively, related to amortizable
intangible assets established (see item H, above), assuming
a useful life of ten years.
|
|
|
N.
|
Reflects an estimate of forgone interest income related to the
$36,318 cash consideration (see item E, above) and the
repayment of $13,000 of outstanding credit facility debt (see
item F, above) of $972 and $197 for the twelve months ended
December 31, 2008, and the nine months ended
September 30, 2009, respectively.
|
|
|
O.
|
Reflects the capitalization of $2,000 of deferred financing
costs associated with a new $75,000 revolving credit facility
which is expected to be entered into pursuant to the Merger, and
related amortization of $500 and $375, for the twelve months
ended December 31, 2008, and the nine months ended
September 30, 2009, respectively. The unaudited pro forma
condensed combined statements of operations do not reflect any
interest expense that may result from Viasystems
utilization of this credit facility.
|
43
|
|
|
|
P.
|
At this time, there is insufficient information as to the
specific nature, age and condition of Merix property,
plant and equipment to make a reasonable estimation of fair
value or the corresponding adjustment to depreciation and
amortization. Therefore, property, plant and equipment presented
reflect Merix historical carrying value. For each $10,000
fair value adjustment to property, plant and equipment, assuming
a weighted-average useful life of 10 years, deprecation
expense would change by approximately $1,000 and $750 in the
twelve month and nine month period, respectively.
|
|
|
Q.
|
As a result of Viasystems and Merix existing income
tax loss carry-forwards in the United States, for which full
valuation allowances have been provided, no deferred income
taxes have been established, and no income tax has been provided
related to the pro forma adjustments for the Merger.
|
44
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations covers periods prior to the
consummation of the proposed Merger and related transactions.
Accordingly, the discussion and analysis of historical periods
does not reflect the impact that the proposed Merger and related
transactions may have on us. You should read the following
discussion in conjunction with our financial statements and
related notes, Unaudited Pro Forma Condensed Combined
Financial Data and Selected Historical Consolidated
Financial Data, that appear elsewhere in this prospectus.
The following discussion contains forward-looking statements
based upon current expectations and related to future events and
our future financial performance involves risks and
uncertainties. Our actual results and the timing of events could
differ materially from those discussed in the forward-looking
statements, see Cautionary Statement Regarding
Forward-Looking Statements. Factors that could cause or
contribute to these differences include, but are not limited to,
those discussed below and elsewhere in this prospectus,
particularly in Risk Factors.
Overview
We are a leading worldwide provider of complex multi-layer PCBs
and
E-M Solutions.
PCBs serve as the electronic backbone of almost all
electronic equipment, and our
E-M Solutions
products and services integrate PCBs and other components into
finished or semi-finished electronic equipment, which include
custom and standard metal enclosures, metal cabinets, metal
racks and
sub-racks,
backplanes, cable assemblies and busbars. The components we
manufacture include, or can be found in, a wide variety of
commercial products including automotive engine controls, hybrid
converters, automotive electronics for navigation, safety,
entertainment and anti-lock braking systems, telecommunications
switching equipment, data networking equipment, computer storage
equipment, wind and solar energy applications and several other
complex medical and technical instruments. As of
September 30, 2009, we have six manufacturing facilities
all of which are located outside of the United States to take
advantage of low-cost, high quality manufacturing environments.
Our PCB products are produced in two of our five facilities in
China. Our
E-M Solutions
products and services are provided from our other three Chinese
facilities and our one facility in Mexico. In addition to our
manufacturing facilities, in order to support our
customers local needs, we have maintained engineering and
customer service centers in Canada, Mexico, the United States,
Hong Kong, China, The Netherlands and England. We had one
manufacturing facility in Milwaukee, Wisconsin, which ceased
operations in May 2009.
We are a supplier to over 125 OEMs and contract electronic
manufacturing service companies (CEMs) in numerous
end markets. Our top OEM customers include industry leaders
Alcatel-Lucent SA, Bosch Group, Continental AG, Delphi
Corporation, EMC Corporation, Ericsson AB, General Electric
Company, Hewlett-Packard Company, Hitachi Ltd., Huawei
Technologies Co. Ltd., Rockwell Automation, Inc., Siemens AG,
Sun Microsystems, Inc., Tellabs, Inc., TRW Automotive Holdings
Corp. and Xyratex Ltd. Our top CEM relationships include
industry-leading contract manufacturers such as Celestica, Inc.
and Jabil Circuits, Inc.
We currently operate our business in two segments: Printed
Circuit Boards, which includes our PCB products, and Assembly,
which includes our
E-M Solutions
products and services.
Industry
Overview
Despite the current economic downturn, we believe the long-term
growth prospects for our PCB and
E-M Solutions
products remain solid. The global economic recession, which
began during 2008, affected demand across all of our customer
end-user markets. We believe the sequential decline in sales
from the fourth quarter of 2008 to the first part of 2009 is
primarily attributable to the above mentioned weak economic
condition as well as our customers actions to reduce
inventory levels as they reacted to economic conditions. While
our visibility to future demand trends remains limited,
45
sequential growth in sales during the third quarter in our
automotive, industrial and instrumentation, medical and
consumer, telecommunications, and computer/data communications
end-user markets, together with positive trends in backlog and
customer orders across all our end-user markets, indicate that
our customers may have achieved their inventory goals and their
buying patterns better reflect ongoing demand.
We expect recent government stimulus programs in the United
States and Europe to improve auto sales, which will help to
support our sales to the automotive end-user market in the
short-term. As stability returns to the financial markets and
credit begins to ease, we expect the focus on green
technologies and clean energy initiatives to drive growth in
wind power related sales to our industrial and instrumentation,
medical, consumer and other end-user markets. We expect that
anticipated expansion and enhancements of 3G telecommunication
networks in Asia and around the world during the last half of
2009 and into 2010 will help to support our sales to the
telecommunications end-user market. We expect that the modest
growth projected by industry analysts for the computer and
datacommunications industry will be reflected in our sales to
that end-user market.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires that management make certain estimates
and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results may differ
from those estimates and assumptions and the differences may be
material. Significant accounting policies, estimates and
judgments that management believes are the most critical to aid
in fully understanding and evaluating the reported financial
results are discussed below.
Revenue
Recognition
We recognize revenue when all of the following criteria are
satisfied: persuasive evidence of an arrangement exists; risk of
loss and title transfer to the customer; the price is fixed and
determinable; and collectibility is reasonably assured. Sales
and related costs of goods sold are included in income when
goods are shipped to the customer in accordance with the
delivery terms and the above criteria are satisfied. All
services are performed prior to invoicing customers for any
products manufactured by us. We monitor and track product
returns, which have historically been within our expectations
and the provisions established. Reserves for product returns are
recorded based on historical trend rates at the time of sale.
Despite our efforts to improve our quality and service to
customers, we cannot guarantee that we will continue to
experience the same or better return rates than we have in the
past. Any significant increase in returns could have a material
negative impact on our operating results.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable balances represent customer trade
receivables generated from our operations. We evaluate
collectibility of accounts receivable based on a specific
case-by-case
analysis of larger accounts; and based on an overall analysis of
historical experience, past due status of the entire accounts
receivable balance and the current economic environment. Based
on this evaluation, we make adjustments to the allowance for
doubtful accounts for expected losses. We also perform credit
evaluations and adjust credit limits based upon each
customers payment history and credit worthiness. While
credit losses have historically been within our expectations and
the provisions established, actual bad debt write-offs may
differ from our estimates, resulting in higher or lower charges
in the future for our allowance for doubtful accounts.
Inventories
Inventories are stated at the lower of cost (valued using the
first-in,
first-out (FIFO) method) or market value. Cost includes raw
materials, labor and manufacturing overhead.
46
We apply judgment in valuing our inventories by assessing the
net realizable value of our inventories based on current
expected selling prices, as well as factors such as obsolescence
and excess stock and providing valuation allowances as
necessary. Should we not achieve our expectations of the net
realizable value of our inventory, future losses may occur.
Long-Lived
Assets, Including Goodwill
We conduct impairment reviews of long-lived assets, including
goodwill. Such reviews require us to make estimates of future
cash flows and fair values. We utilize discounted and
non-discounted cash flow models in our reviews, and our cash
flow projections include significant assumptions about economic
conditions, demand and pricing for our product and costs. In
addition, our determination of whether or not impairment exists
requires us to make certain assumptions and estimates in
determining fair value of the reporting unit. While significant
judgment is required, we believe that our assumptions and
estimates are reasonable. However, should our assumptions change
in the future, our fair value models could result in lower fair
values for long-lived assets and goodwill, which could
materially affect the value of property, plant and equipment and
goodwill and results of operations. In addition to performing
the annual impairment tests for 2008 and 2007, we reviewed the
goodwill balance for impairment upon the announcement of our
restructuring plans on November 24, 2008. No adjustments
were recorded to the balance of goodwill as a result of these
reviews. In connection with the restructuring plans announced in
November 2008, we also reviewed the balance of certain items of
property, plant and equipment for impairment. As a result of
this review we recorded a non-cash impairment charge of
$5.6 million during the fourth quarter of 2008.
Income
Taxes
We record a valuation allowance to reduce our deferred tax
assets to the amount that we believe will more likely than not
be realized. While we have considered future taxable income and
ongoing prudent, feasible tax planning strategies in assessing
the need for the valuation allowance, in the event we were to
determine that we would not be able to realize all or part of
our net deferred tax assets in the future, an adjustment to the
net deferred tax assets would be charged to income in the period
such determination was made. Similarly, should we determine that
we would be able to realize our deferred tax assets in the
future in excess of its net recorded amount, an adjustment to
the net deferred tax asset would increase income in the period
such determination was made.
Effective January 1, 2007, we adopted the provisions of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48). FIN 48 addresses the
determination of how tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. Under FIN 48, we must recognize the tax benefit
from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial
statements from such a position are measured based on the
largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate resolution. Upon adoption, we
increased our existing reserves for uncertain tax positions by
$10.2 million. This increase was recorded as a cumulative
effect adjustment to the opening balance of accumulated deficit
on January 1, 2007.
Derivative
Financial Instruments and Fair Value Measurements
We conduct our business in various regions of the world, and
export and import products to and from several countries. As a
result, a significant portion of our expenses and some of our
sales are frequently denominated in local currencies. From time
to time, we enter into foreign exchange forward contracts to
minimize the short-term impact of foreign currency fluctuations.
However, there can be no assurance that these activities will
eliminate or reduce foreign currency risk. We do not engage in
hedging transactions for speculative investment reasons.
47
The foreign exchange forward contracts are designated as cash
flow hedges and are accounted for at fair value. As of
January 1, 2008, we adopted SFAS No. 157, Fair
Value Measurements (SFAS No. 157) for
financial assets and liabilities. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. We record
deferred gains and losses related to cash flow hedges based on
their fair value using a market approach. The effective portion
of the change in each cash flow hedges gain or loss is
reported as a component of other comprehensive income, net of
taxes. The ineffective portion of the change in the cash flow
hedges gain or loss is recorded in earnings at each
measurement date. Gains and losses on derivative contracts are
reclassified from accumulated other comprehensive income (loss)
to current period earnings in the line item in which the hedged
item is recorded at the time the contracts are settled. Our
hedging operations historically have not been material, and
gains or losses from these operations have not been material to
our cash flows, financial position or results of operations. At
September 30, 2009, we have foreign exchange contracts
outstanding which hedge a notional amount of 690 million
RMB at an average exchange rate of 6.835 with a weighted average
remaining maturity of 5.3 months.
Results of
Operations
Nine Months
Ended September 30, 2009, Compared to Nine Months Ended
September 30, 2008
Net Sales. Net sales for the nine
months ended September 30, 2009, were $365.1 million,
representing a $199.9 million, or 35.4%, decrease from net
sales during the same period in 2008. Product demand from
essentially all of our existing customer base has declined
significantly in connection with the global economic recession
that began during the second half of 2008. Our visibility to
future demand trends remains limited.
Net sales by end-user market for the nine months ended
September 30, 2009 and 2008, were as follows:
|
|
|
|
|
|
|
|
|
End-User Market (Dollars in
millions)
|
|
2009
|
|
|
2008
|
|
|
Automotive
|
|
$
|
133.7
|
|
|
$
|
210.9
|
|
Industrial & Instrumentation, Medical, Consumer, and
Other
|
|
|
97.7
|
|
|
|
145.8
|
|
Telecommunications
|
|
|
101.4
|
|
|
|
147.8
|
|
Computer and Data communications
|
|
|
32.3
|
|
|
|
60.5
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
365.1
|
|
|
$
|
565.0
|
|
|
|
|
|
|
|
|
|
|
Our net sales of products for end use in the automotive market
decreased by approximately 36.6% during the nine months ended
September 30, 2009, compared to the same period in 2008 due
to reduced global demand from our automotive customers. Extended
factory closures and the financial instability of the largest
U.S. automotive manufacturers have slowed demand throughout
the automotive products supply chain.
Net sales of products ultimately used in the telecommunications
market decreased by approximately 31.4% from the nine months
ended September 30, 2008, to the nine months ended
September 30, 2009. Spending stimulus projects sponsored by
the Chinese government drove increased demand for
telecommunications products during the nine months ended
September 30, 2009, but this increase was not sufficient to
offset declining demand from our other telecommunications
customers.
Net sales of products ultimately used in the industrial and
instrumentation, medical, consumer and other markets, decreased
by approximately 33.0% compared to the same period in 2008 due
to (i) generally weaker demand from our customers,
(ii) the loss of revenue from a fabricated metal products
program which our customer began to source internally and
(iii) the closure of our metal facilitation facility in
Milwaukee, Wisconsin and satellite final assembly and
distribution facility in Newberry, South Carolina (together, the
Milwaukee Facility).
48
An approximate 46.6% decrease in net sales for the nine months
ended September 30, 2009, of our products for use in the
computer and datacommunications markets, as compared to the same
period in the prior year, is primarily the result of reduced
global demand from our computer and data communication customers.
Net sales by segment for the nine months ended
September 30, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
Segment (Dollars in
millions)
|
|
2009
|
|
|
2008
|
|
|
Printed Circuit Boards
|
|
$
|
247.4
|
|
|
$
|
391.0
|
|
Assembly(a)
|
|
|
110.9
|
|
|
|
153.7
|
|
Other(a)
|
|
|
14.1
|
|
|
|
36.7
|
|
Eliminations
|
|
|
(7.3
|
)
|
|
|
(16.4
|
)
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
365.1
|
|
|
$
|
565.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
With the closure of our Milwaukee Facility, we reclassified the
operating results of the Milwaukee Facility as
Other. Our segment results for prior periods have
been reclassified for comparison purposes. |
Printed Circuit Boards segment net sales, including intersegment
sales, for the nine months ended September 30, 2009,
decreased by $143.6 million, or 36.7% to
$247.4 million. The majority of the decrease is a result of
a decrease in volume of more than 36.0%, which was driven by
reduced demand across all end-user markets.
Assembly segment net sales decreased by $42.8 million, or
27.8%, to $110.9 million for the nine months ended
September 30, 2009, compared to the same period during
2008. The decline was the result of reduced demand across all
end-user markets.
Other sales relate to our Milwaukee Facility which ceased all
operations in May 2009.
Cost of Goods Sold. Cost of goods sold,
exclusive of items shown separately in the condensed
consolidated statement of operations for the nine months ended
September 30, 2009, was $296.3 million, or 81.2% of
consolidated net sales. This represents a 2.2 percentage
point increase from the 79.0% of consolidated net sales for the
nine months ended September 30, 2008.
In response to global economic conditions, in November 2008, we
announced a plan to close our Milwaukee Facility and to reduce
our direct and indirect labor costs globally. These activities
were designed to better align our labor and overhead costs with
current market demands and were substantially completed during
the first half of 2009. As a result of planned reductions and
attrition, our direct labor headcount, including temporary
workers, declined to an average of approximately 8,300 during
the nine months ended September 30, 2009, compared to an
average of approximately 11,900 during the same period in the
prior year, and compared to approximately 9,000 as of
December 31, 2008. Our average indirect labor headcount
declined approximately 27.0% during the nine months ended
September 30, 2009, compared to the same period in 2008.
The costs of materials, labor and overhead in our Printed
Circuit Boards segment can be impacted by trends in global
commodities prices and currency exchange rates, as well as other
cost trends that can impact minimum wage rates, electricity and
diesel fuel costs in China. Economies of scale can help to
offset any adverse trends in these costs. Cost of goods sold for
the nine months ended September 30, 2009, as compared to
the same period in the prior year, was negatively impacted by
higher labor and overhead costs relative to sales volume.
Various factors, including our willingness to work with the
local labor bureau in China, led to our decision to stagger the
execution of headcount reductions, which negatively impacted
direct and indirect labor costs during the period. Partially
offsetting the effect of labor and overhead costs, our cost of
materials was favorably impacted by positive trends in the
global commodities markets as well as favorable pricing from our
materials suppliers.
49
Cost of goods sold in our Assembly segment relates primarily to
component materials costs. As a result, trends in sales volume
for the segment drive similar trends in cost of goods sold. Our
costs have been positively impacted by favorable pricing from
our materials suppliers as well as reduced labor and overhead
costs which resulted from headcount reductions implemented in
the fourth quarter of 2008.
Selling, General and Administrative
Costs. Selling, general and administrative
costs decreased $10.8 million, or 25.2%, to
$32.1 million for the nine months ended September 30,
2009, compared to the same period in the prior year. This
decline was a result of global headcount reductions in our sales
and administrative organization during the fourth quarter of
2008, lower compensation expense and the successful
implementation of other cost savings initiatives including wage
freezes and travel restrictions. Professional fees and travel
costs of $2.2 million were incurred during the period
related to the announced Merger with Merix.
Depreciation. Depreciation expense for
the nine months ended September 30, 2009, declined by
$2.0 million to $37.8 million as compared to
$39.8 million for the same period of 2008. The decrease
relates primarily to impairment write-downs of fixed assets at
our Milwaukee Facility during the fourth quarter of 2008 and the
subsequent disposal of these fixed assets during 2009.
Depreciation expense in our Printed Circuit Boards and Assembly
segments of $34.4 million and $3.4 million,
respectively, were substantially unchanged as compared to the
same period in 2008, primarily as our base of depreciable assets
in each segment remained relatively constant.
Restructuring and Impairment. In light
of the global economic recession that began during the second
half of 2008, and as part of our ongoing efforts to align
capacity, overhead costs and operating expenses with market
demand, we initiated restructuring activities beginning in the
fourth quarter of 2008. These activities have been substantially
completed, and included the shutdown of our Milwaukee Facility,
as well as workforce reductions across our global operations.
The cumulative cost of these activities as of September 30,
2009, was approximately $19.6 million, including
approximately $14.7 million of cash charges and
approximately $4.9 million of non-cash asset impairment
charges. The estimated cash charges include approximately
$9.6 million related to headcount reductions with the
balance related to lease terminations and other closure costs.
For the nine months ended September 30, 2009, we recorded
restructuring charges of approximately $5.2 million, which
was net of reversals and gains on disposal of assets totaling
approximately $2.3 million. The restructuring charges
recorded during the period relate primarily to lease
terminations and other closure costs at our Milwaukee Facility,
which, in accordance with U.S. GAAP, could not be accrued
until the Milwaukee Facility ceased operations. Due to higher
than anticipated employee attrition in our Printed Circuit
Boards segment, we were able to reduce the number of involuntary
headcount reductions we had planned. As a result we reversed
approximately $1.7 million in related accrued severance
costs. We do not expect we will incur significant additional
charges related to these restructuring activities.
50
Operating (Loss) Income. The operating
loss of $7.2 million for the nine months ended
September 30, 2009, represents a decrease of
$42.0 million compared to operating income of
$34.8 million during the nine months ended
September 30, 2008. The primary sources of operating (loss)
income for the nine months ended September 30, 2009 and
2008, were as follows:
|
|
|
|
|
|
|
|
|
Source (Dollars in
millions)
|
|
2009
|
|
|
2008
|
|
|
Printed Circuit Boards segment
|
|
$
|
(1.0
|
)
|
|
$
|
33.9
|
|
Assembly segment(a)
|
|
|
3.9
|
|
|
|
5.3
|
|
Other(a)
|
|
|
(10.1
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
$
|
(7.2
|
)
|
|
$
|
34.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
With the closure of our Milwaukee Facility, we reclassified the
operating results of the Milwaukee Facility to
Other. Our segment results for prior periods have
been reclassified for comparison purposes. |
The operating income from our Printed Circuit Boards segment
decreased by $34.9 million to an operating loss of
$1.0 million for the nine months ended September 30,
2009, compared to $33.9 million of operating income for the
same period in the prior year. The decrease is primarily the
result of declining sales volume, partially offset by reduced
selling, general and administrative expense and an approximate
$1.7 million reversal of accrued restructuring costs.
The operating income from our Assembly segment was
$3.9 million for the nine months ended September 30,
2009, compared to $5.3 million for the same period in the
prior year. The decrease is primarily the result of declining
sales volumes partially offset by reduced selling, general and
administrative expense and improved cost of goods sold relative
to sales.
The Other operating loss relates to our closed Printed Circuit
Boards and Assembly operations and certain non-recurring
professional fees.
Adjusted EBITDA. We measure our
performance primarily through our operating income. In addition
to our consolidated financial statements presented in accordance
with U.S. GAAP, management uses certain non-U.S. GAAP
financial measures, including Adjusted EBITDA.
Adjusted EBITDA is not a recognized financial measure under
U.S. GAAP, and does not purport to be an alternative to
operating income or an indicator of operating performance.
Adjusted EBITDA is presented to enhance an understanding of our
operating results and is not intended to represent cash flows or
results of operations. Our owners and management use Adjusted
EBITDA primarily as an additional measure of operating
performance for matters including executive compensation and
competitor comparisons. In addition, the use of this non-U.S.
GAAP measure provides an indication of our ability to service
debt, and we consider it an appropriate measure to use because
of our highly leveraged position.
Adjusted EBITDA has certain material limitations, primarily due
to the exclusion of certain amounts that are material to our
consolidated results of operations, such as interest expense,
income tax expense and depreciation and amortization. In
addition, Adjusted EBITDA may differ from the Adjusted EBITDA
calculations of other companies in our industry, limiting its
usefulness as a comparative measure.
We use Adjusted EBITDA to provide meaningful supplemental
information regarding our operating performance and
profitability by excluding from EBITDA certain items that we
believe are not indicative of our ongoing operating results or
will not impact future operating cash flows as follows:
|
|
|
|
|
Restructuring and Impairment Charges which consist
primarily of facility closures and other headcount reductions.
Historically, a significant amount of these restructuring and
impairment charges are non-cash charges related to the
write-down of property, plant and equipment to estimated net
realizable value. We exclude these restructuring and impairment
charges to more clearly reflect our ongoing operating
performance.
|
51
|
|
|
|
|
Stock Compensation non-cash charges associated with
recognizing the fair value of stock options granted to
employees. We exclude these charges to more clearly reflect a
comparable year over year cash operating performance.
|
|
|
|
Costs Relating to the Merger professional fees and
expenses incurred in connection with the Merger. We exclude
these fees and expenses because they are not representative of
our customary operating expenses.
|
Reconciliations of operating (loss) income applicable to common
stockholders to Adjusted EBITDA for the nine months ended
September 30, 2009 and 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
Source
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Operating (loss) income
|
|
$
|
(7.2
|
)
|
|
$
|
34.8
|
|
Add back
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38.7
|
|
|
|
40.8
|
|
Restructuring and impairment
|
|
|
5.2
|
|
|
|
|
|
Non-cash stock compensation expense
|
|
|
0.7
|
|
|
|
0.7
|
|
Costs related to the Merger
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
39.6
|
|
|
$
|
76.3
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA decreased by $36.7 million, or 48.1%,
primarily as a result of a 35.4% decrease in net sales and a
2.2 percentage point increase in cost of goods sold
relative to consolidated net sales, partially offset by
reductions in selling, general and administrative expense.
Interest Expense, Net. Interest
expense, net of interest income, increased by $0.8 million
to $24.4 million for the nine months ended
September 30, 2009, from $23.6 million of interest
expense, net for the same period in the prior year. Interest
expense related to the Class A Junior preferred stock was
approximately $8.0 million and $7.2 million for the
nine months ended September 30, 2009 and 2008,
respectively. Interest expense related to the 2011 Notes is
approximately $15.8 million in each nine month period as
the $200 million principal and the 10.5% interest rate
remained unchanged since the 2011 Notes were issued in 2003.
Other Expense. Other expense, net was
$0.5 million for the nine months ended September 30,
2009, as compared to $2.0 million of other income, net for
the same period in the prior year. The other income in 2008 was
primarily the result of foreign currency remeasurement gains
during the first nine months of 2008, when the RMB appreciated
more than 7.0% against the U.S. dollar.
Loss on Early Extinguishment of
Debt. As a result of our prepayment and
cancellation of the 2006 Credit Agreement, we recorded a loss on
early extinguishment of debt of approximately $0.7 million
during the period in conjunction with the write-off of related
unamortized deferred financing costs.
Income Taxes. Income tax expense of
$4.4 million for the nine months ended September 30,
2009, compares to income tax expense of $7.7 million for
the same period in 2008. Our income tax provision relates
primarily to our profitable operations in China and additional
expense related to uncertain tax positions, partially offset by
income tax benefits recognized in Hong Kong. Because of the
substantial net operating loss carryforwards previously existing
in our U.S. and other tax jurisdictions, we have not
recognized certain income tax benefits in such jurisdictions for
our substantial interest expense, among other expenses.
52
Year Ended
December 31, 2008, Compared to Year Ended December 31,
2007
Net Sales. Net sales for the year ended
December 31, 2008, were $712.8 million, representing a
$1.5 million, or 0.2%, decrease from net sales for the year
ended December 31, 2007.
Net sales by end-user market for the years ended
December 31, 2008 and 2007, were as follows:
|
|
|
|
|
|
|
|
|
End-User Market (Dollars in
millions)
|
|
2008
|
|
|
2007
|
|
|
Automotive
|
|
$
|
266.6
|
|
|
$
|
258.8
|
|
Industrial & Instrumentation, Medical, Consumer, and
Other
|
|
|
189.7
|
|
|
|
159.3
|
|
Telecommunications
|
|
|
184.2
|
|
|
|
221.2
|
|
Computer and Datacommunications
|
|
|
72.3
|
|
|
|
75.0
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
712.8
|
|
|
$
|
714.3
|
|
|
|
|
|
|
|
|
|
|
Our net sales of products for end use in the automotive market
grew by approximately 3.0% during the year ended
December 31, 2008, based on strong demand early in the year
and new program wins with European and Asian automotive
producers, partially offset by weak demand in North America
throughout the year, and in all regions towards the end of the
year. The increase in the automotive market was negatively
impacted by an approximately 17.0%
year-over-year
decline in fourth quarter 2008 net sales as a result of
reduced global demand from our automotive customers. In the
industrial & instrumentation, medical, consumer and
other market, new wind power related programs with an existing
customer was the primary driver of our 19.1% increase in net
sales to this end use market, in which a broad base of other
customers remained stable. Net sales of products ultimately used
in the telecommunications market declined by approximately 16.7%
from the year ended December 31, 2007, to the year ended
December 31, 2008, primarily as a result of weak demand
from our customers on select product offerings. An approximate
3.6% decrease in net sales for the year ended December 31,
2008, of our products for use in the computer and data
communications markets is largely the result of an approximately
49.6%
year-over-year
decline in fourth quarter 2008 net sales as a result of
reduced global demand from our computer and data communication
customers, which was partially offset by sales to a new customer
and increased demand from existing customers through the first
nine months of the year.
Net sales by business segment for the years ended
December 31, 2008 and 2007, were as follows:
|
|
|
|
|
|
|
|
|
Segment (Dollars in
millions)
|
|
2008
|
|
|
2007
|
|
|
Printed Circuit Boards
|
|
$
|
489.8
|
|
|
$
|
489.8
|
|
Assembly(a)
|
|
|
196.6
|
|
|
|
187.3
|
|
Other(a)
|
|
|
46.0
|
|
|
|
58.5
|
|
Eliminations
|
|
|
(19.6
|
)
|
|
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
712.8
|
|
|
$
|
714.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
With the closure of the Milwaukee Facility in 2009, we
reclassified the operating results of the Milwaukee Facility to
Other. Segment results for all periods presented
have been reclassified for comparison purposes. |
Printed Circuit Boards segment net sales, including intersegment
sales, were flat for the year ended December 31, 2008, as
compared to the prior year, as an approximately 9.2%
year-over-year
growth in sales through the third quarter of 2008 was offset by
falling demand during the fourth quarter of 2008. Four principal
factors, including volume, selling price, product mix and
currency changes, can affect PCB sales growth or decline from
one period to the next. In 2008 compared to 2007, there was a
decrease in sales volume which was offset by selling price
increases introduced towards the end of the third quarter 2008.
53
Finished PCB volume, measured as total square feet of PCB
surface area, decreased by approximately 3.6% in 2008 compared
to 2007, while our capacity remained unchanged.
Like most electronic components, Printed Circuit Boards segment
product prices historically have declined in sequential periods
as a result of competitive pressures and manufacturing cost
efficiencies. However, in September and October of 2008 we
implemented limited PCB product price increases to compensate
for unusually high increases in the costs of our commodity
materials, including petroleum, copper and other precious metals
that occurred during the first nine months of 2008. To the
extent we experience decreases in the cost of certain commodity
materials, we would expect to adjust our selling prices
accordingly, and our ability to pass on future material cost
increases is uncertain.
Printed Circuit Boards segment sales mix is affected by several
factors, including layer count, hole density, line and space
density, materials content, order size and other factors. For
example, incremental layer content generally results in a higher
selling price for an equivalent finished product outer surface
square footage. In 2008, the volume mixture of different layer
count PCB products was consistent with 2007. As a result, we
estimate that product mix changes did not significantly impact
2008 sales as compared to 2007.
The effects of changing currency rates added less than 1.0% to
sales in 2008 compared to 2007, as approximately 10% of our
Printed Circuit Boards segment sales are denominated in
currencies other than the U.S. dollar.
Assembly segment net sales increased by $9.3 million, or
5.0%, to $196.6 million for the year ended
December 31, 2008. The increase was the result of new wind
power related programs with an existing customer in our
industrial and instrumentation end market, partially offset
by reduced demand from select customers in our
telecommunications end market.
Other sales relate to the Milwaukee Facility, which for segment
reporting purposes, are included in Other as a
result of its closure in May 2009.
Cost of Goods Sold. Cost of goods sold,
exclusive of items shown separately in the consolidated
statement of operations for the year ended December 31,
2008, was $568.4 million, or 79.7% of consolidated net
sales. This represents a 0.1 percentage point improvement
from the 79.8% of consolidated net sales achieved during 2007.
The improvement is a result of successful implementation of cost
improvement initiatives, partially offset by adverse trends in
global commodities and currency exchange rates and cost trends
in China.
In our Printed Circuit Boards segment, the cost of direct
materials represents approximately 60% of our cost of sales. The
quantities of materials and supplies used for production are
responsible for the most significant costs in our Printed
Circuit Boards segment. Materials, labor and overhead costs in
the segment have been impacted by adverse trends in global
commodities and currency exchange rates and minimum wage
increases. Copper is used in our circuit plating processes and
by our suppliers in the form of high-quality foil to make
laminate materials that are the basic building blocks in our
products. Despite steep global copper price declines during the
fourth quarter of 2008, the average cost of copper was higher
during most of 2008, when compared to 2007.
Other cost trends in China also adversely impacted our costs,
including increases in electricity and diesel fuel prices, which
began in July 2008. In addition, the RMB strengthened versus the
U.S. dollar by more than 5.0% during 2008. Despite these
cost increases, wages and local operating costs in China remain
among the most competitive in the world. Finally, cost of goods
sold was favorably impacted by the elimination of professional
fees associated with initiatives to reduce production costs. In
addition to the $7.6 million improvement related to
professional fees, 2008 reflects cost improvements associated
with these initiatives.
Cost of goods sold in our Assembly segment relates primarily to
component materials costs. As a result, trends in net sales for
the segment drive similar trends in cost of goods sold. However,
in 2008 our costs were negatively impacted by startup costs for
production of new products related to
54
new customers and new programs with existing customers. In
addition, costs of materials, labor and overhead incurred in RMB
were negatively impacted by the appreciation of that currency.
Selling, General and Administrative
Costs. Selling, general and administrative
costs were $52.5 million, or 7.4% of net sales for the year
ended December 31, 2008, and decreased by $5.7 million
compared to the year ended December 31, 2007. The decrease
is primarily due to reduced professional fees and other cost
savings initiatives, as well as lower bonus and stock-based
compensation. Approximately one-half of our costs are incurred
to support our global operations and are not specific to any
segment. These common costs are allocated to our Printed Circuit
Boards segment and Assembly segment.
Depreciation. Depreciation expense for
the year ended December 31, 2008, was $53.3 million,
including $46.3 million related to our Printed Circuit
Boards segment, $5.0 million related to our Assembly
segment and $2.0 million related to Other.
Depreciation expense in our Printed Circuit Boards segment and
Assembly segment increased by approximately $2.6 million
and $1.0 million, respectively, compared to the year ended
December 31, 2007, as a result of investment in new
equipment. Depreciation expense in Other, which
relates to the Milwaukee Facility, declined by approximately
$0.4 million.
Restructuring and Impairment. In light
of the global economic downturn which began towards the end of
2008, and as part of our ongoing efforts to align capacity,
overhead costs and operating expenses with market demand, we
initiated restructuring activities during the fourth quarter of
2008. These activities were completed during the first half of
2009, and include the shutdown of our metal fabrication facility
in Milwaukee, Wisconsin and its satellite final-assembly and
distribution facility in Newberry, South Carolina, as well as
workforce reductions across our global operations. We estimated
the cost of these activities to be approximately
$22.0 million, including approximately $16.0 million
of cash charges and approximately $6.0 million of non-cash
asset impairment charges. The estimated cash charges include
approximately $10.0 million related to headcount reductions
with the balance related to lease termination and other closure
costs.
For the year ended December 31, 2008, we recorded
restructuring charges of approximately $15.1 million, which
included approximately $9.5 million related to headcount
reductions and approximately $5.6 million of non-cash asset
impairment charges. The total $15.1 million charge is
attributable to our Printed Circuit Boards, Assembly and
Other Segments in amounts totaling approximately
$10.0 million, $4.4 million and $0.7 million,
respectively. We expect we will incur additional restructuring
charges totaling approximately $6.9 million in 2009 and
2010 primarily related to lease terminations and other closure
costs as we complete our restructuring plan.
Previously, dating back to 2000, we have incurred substantial
costs to downsize
and/or close
facilities in Europe and North America in response to market
pressures for low cost products. We reported net restructuring
and impairment losses of $0.3 million for the year ended
December 31, 2007, related to closed facilities sold late
in 2006.
The primary components of restructuring and impairment expense
for the years ended December 31, 2008 and 2007, are as
follows:
|
|
|
|
|
|
|
|
|
Restructuring Activity (Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
Personnel and severance
|
|
$
|
9.5
|
|
|
$
|
|
|
Lease and other contractual commitment expenses
|
|
|
|
|
|
|
0.3
|
|
Asset impairments
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense, net
|
|
$
|
15.1
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Operating Income. Operating income of
$22.4 million for the year ended December 31, 2008,
represents a decrease of $12.1 million compared to
operating income of $34.5 million during the year
55
ended December 31, 2007. The primary sources of operating
income for the years ended December 31, 2008 and 2007, are
as follows:
|
|
|
|
|
|
|
|
|
Source (Dollars in
millions)
|
|
2008
|
|
|
2007
|
|
|
Printed Circuit Boards segment(a)
|
|
$
|
23.8
|
|
|
$
|
26.1
|
|
Assembly segment(a)(b)
|
|
|
8.8
|
|
|
|
8.4
|
|
Other(b)
|
|
|
(10.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
22.4
|
|
|
$
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the first quarter of 2008, we refined our methodology for
allocating common selling, general and administrative expenses
to our segments to better reflect the efforts undertaken to
support each segment. Previously, these costs were allocated
based solely on each segments percentage of total net
sales. For the year ended December 31, 2007, operating
income has been restated to conform to the presentation in the
current period. |
|
(b) |
|
With the closure of the Milwaukee Facility in 2009, we
reclassified the operating results of the Milwaukee Facility to
Other. Segment results for all periods presented
have been reclassified for comparison purposes. |
Operating income of our Printed Circuit Boards segment decreased
by $2.3 million to $23.8 million for the year ended
December 31, 2008, compared to $26.1 million for the
year ended December 31, 2007. The decrease is primarily the
result of $7.8 million of severance costs related to
restructuring activities, non-cash fixed asset impairment
charges of $1.7 million, sales declines during the fourth
quarter, currency exchange rates and increased depreciation
expense, partially offset by net cost improvements and a
reduction in professional fees associated with our continuing
initiatives to reduce production costs.
Operating income of our Assembly segment increased by
$0.4 million to $8.8 million for the year ended
December 31, 2008, compared to operating income of
$8.4 million in 2007. The increase is primarily the result
of increased sales, partially offset by restructuring costs,
currency exchange rates and increased depreciation expense.
The operating loss of $10.2 million in Other
for the year ended December 31, 2008, relates to the
Milwaukee Facility, and is primarily the result of a
$12.5 million decline in net sales, and non-cash fixed
asset impairment charges of $3.9 million.
Adjusted EBITDA. Reconciliations of
operating income applicable to common stockholders to Adjusted
EBITDA for the years ended December 31, 2008 and 2007, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Source
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Operating Income
|
|
$
|
22.4
|
|
|
$
|
34.5
|
|
Add-back Depreciation and amortization
|
|
|
54.5
|
|
|
|
51.0
|
|
Restructuring and impairment
|
|
|
15.1
|
|
|
|
0.3
|
|
Non-cash stock compensation expense
|
|
|
0.6
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
92.6
|
|
|
$
|
87.9
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA increased by $4.7 million, or 5.3%,
primarily as a result of an approximate 9.9% decrease in
selling, general and administrative expense and reduced cost of
goods sold relative to our sales. See Results of
Operations Nine Months Ended September 30,
2009, Compared to Nine Months Ended September 30,
2008 Adjusted EBITDA for further discussion of
Adjusted EBITDA.
56
Interest Expense, Net. Interest
expense, net of interest income, for the year ended
December 31, 2008, was $31.6 million, compared with
$30.6 million for the year ended December 31, 2007.
Interest expense related to the Class A Junior preferred
stock was approximately $9.8 million and $8.9 million
for the twelve months ended December 31, 2008 and 2007,
respectively. Interest expense related to the 2011 Notes was
$21.0 million in each year, as the $200.0 million
principal and the 10.5% interest rate remain unchanged since the
2011 Notes were issued in 2003.
For the year ended December 31, 2008, interest expense was
$1.3 million under our prior revolving credit facility.
Interest expense on capital leases declined by approximately
$0.1 million to approximately $0.6 million during the
year ended December 31, 2008, as compared to the prior year.
Interest income increased $0.3 million to $1.4 million
for the year ended December 31, 2008, as compared to the
year ended December 31, 2007, on higher cash deposits in
interest bearing accounts.
Income Taxes. Income tax expense of
$4.9 million for the year ended December 31, 2008,
compares to an income tax benefit of $6.9 million for the
year ended December 31, 2007. For the year ended
December 31, 2007, we recorded a $10.4 million benefit
related to the settlement of prior uncertain tax positions and a
$3.2 million benefit related to certain tax benefits
received in China related to additional investments made. In
addition, we revalued certain foreign deferred tax assets and
liabilities as a result of a March 2007 tax law change in China.
The income tax provision for the year ended December 31,
2007, includes approximately $1.7 million of deferred tax
expense related to this revaluation.
Excluding these items, our income tax provision in both 2008 and
2007 relates primarily to expense from our profitable operations
in China and Hong Kong. Because of the substantial net operating
loss carry forwards previously existing in our U.S. and
other tax jurisdictions, we have not fully recognized income tax
benefits related to our substantial interest expense, among
other expenses.
Year Ended
December 31, 2007, Compared to Year Ended December 31,
2006
Net Sales. Net sales for the year ended
December 31, 2007, were $714.3 million, representing a
$20.7 million, or 2.8%, decrease from net sales for the
year ended December 31, 2006.
Net sales by end-user market for the years ended
December 31, 2007 and 2006, were as follows:
|
|
|
|
|
|
|
|
|
End-User Market (Dollars in
millions)
|
|
2007
|
|
|
2006
|
|
|
Automotive
|
|
$
|
258.8
|
|
|
$
|
241.5
|
|
Telecommunications
|
|
|
221.2
|
|
|
|
234.9
|
|
Industrial & Instrumentation, Medical, Consumer, and
Other
|
|
|
159.3
|
|
|
|
167.5
|
|
Computer and Datacommunications
|
|
|
75.0
|
|
|
|
91.1
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
714.3
|
|
|
$
|
735.0
|
|
|
|
|
|
|
|
|
|
|
Our net sales of products for end use in the automotive market
grew by approximately 7.2% during the year ended
December 31, 2007, compared to 2006 based on sustained
strong demand by global automotive producers. Net sales of
products ultimately used in the telecommunications market
declined by approximately 5.8% from the year ended
December 31, 2006, to the year ended December 31,
2007, primarily as a result of weak demand, which included weak
demand from two of our larger customers who merged in December
2006. In the industrial and instrumentation, medical, consumer
and other market, cessation of a customer program for photo
booths was the primary driver of our 4.9% decline of net sales
to this end-user market, in which a broad base of other
customers remained stable. An approximate 17.7% decline in net
sales for the year ended December 31, 2007, of our products
for use in the computer and data communications markets is
largely the result of an existing customer executing a new
strategy to broaden our supplier base.
57
Net sales by business segment for the years ended
December 31, 2007 and 2006, were as follows:
|
|
|
|
|
|
|
|
|
Segment (Dollars in
millions)
|
|
2007
|
|
|
2006
|
|
|
Printed Circuit Boards
|
|
$
|
489.8
|
|
|
$
|
507.2
|
|
Assembly(a)
|
|
|
187.3
|
|
|
|
192.8
|
|
Other(a)
|
|
|
58.5
|
|
|
|
60.2
|
|
Eliminations
|
|
|
(21.3
|
)
|
|
|
(25.2
|
)
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
714.3
|
|
|
$
|
735.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
With the closure of the Milwaukee Facility in 2009, we
reclassified the operating results of the Milwaukee Facility to
Other. Segment results for all periods presented
have been reclassified for comparison purposes. |
Printed Circuit Boards segment net sales, including intersegment
sales, for the year ended December 31, 2007, declined by
$17.4 million, or 3.4%, to $489.8 million. Four
principal factors, including volume, selling price, product mix
and currency changes, can affect PCB sales growth or decline
from one period to the next. In 2007 compared to 2006, the
decline in our Printed Circuit Boards segment primarily is the
result of decreased sales volume resulting from weak demand
experienced in our telecommunications, and computer and data
communications end markets, partially offset by increased demand
in our automotive end market and price increases.
Finished PCB volume, measured as total square feet of PCB
surface area, declined by approximately 10% in 2007 compared to
2006, while our capacity to finish outer surfaces of products
remained unchanged between years.
Like most electronic components, Printed Circuit Boards segment
product prices historically have declined in sequential periods
as a result of competitive pressures and manufacturing cost
efficiencies. However, during 2006 we were successful in
implementing broad-based PCB product price increases to
compensate for unusually high increases in the costs of our
commodity materials, including petroleum, copper and other
precious metals. Approximately one-half of our sales during the
year ended December 31, 2007, were derived from identical
parts sold during the prior year. The price increases on
identical parts averaged nearly 5%. We estimate that the
favorable impact of price increases offset the overall sales
decline in our Printed Circuit Boards segment in 2007 versus
2006 by 2.2%.
Printed Circuit Boards segment sales mix is affected by several
factors, including layer count, hole density, line and space
density, materials content, order size and other factors. For
example, incremental layer content generally results in a higher
selling price for an equivalent finished product outer surface
square footage. In 2007, the volume mixture of different layer
count PCB products was consistent as compared to 2006. As a
result, we estimate that product mix changes did not
significantly impact 2007 sales as compared to 2006.
The effects of changing currency rates added less than 1% to
sales in 2007 compared to 2006, as less than 10% of our Printed
Circuit Boards segment sales are denominated in currencies other
than the U.S. dollar.
Assembly segment net sales declined by $5.5 million, or
2.9%, to $187.3 million for the year ended
December 31, 2007. The decline was primarily the result of
reduced demand from select customers in our telecommunications
and industrial and instrumentation end markets.
Sales in Other for the year ended December 31,
2007, all relate to the Milwaukee Facility. Compared to the year
ended December 31, 2006, there was a $1.1 million
decrease in sales from the Milwaukee Facility and a
$0.6 million decrease in sales from former manufacturing
facilities in Europe and Canada.
58
Cost of Goods Sold. Cost of goods sold,
exclusive of items shown separately in the consolidated
statement of operations for the year ended December 31,
2007, was $570.4 million, or 79.8% of consolidated net
sales. This represents a 2.0 percentage point improvement
from the 81.8% of consolidated net sales achieved during 2006.
The improvement is a result of cost improvement initiatives,
partially offset by adverse trends in global commodities and
currency exchange rates and cost trends in China.
In our Printed Circuit Boards segment, the cost of direct
materials represents approximately 60% of our cost of sales. The
quantities of materials and supplies used for production are
responsible for the most significant costs in our Printed
Circuit Boards segment. Materials, labor and overhead costs in
the segment have been impacted by adverse trends in global
commodities and currency exchange rates. Copper, which is used
in our circuit plating processes, and which is used by our
suppliers in the form of high-quality foil to make laminate
materials that are the basic building blocks in our products,
increased in price substantially
year-over-year
in line with global copper trading price increases.
To a lesser degree, cost trends in China also adversely impacted
our cost, including minimum wage increases, social benefit cost
increases, and a strengthening of the RMB versus the
U.S. dollar by more than 6% during 2007. Despite these cost
increases, wages and local operating costs in China remain among
the most competitive in the world. Finally, additional
professional fees associated with cost improvement initiatives
negatively impacted cost of goods sold by approximately
$7.6 million for the year ended December 31, 2007.
Cost of goods sold in our Assembly segment relates primarily to
component materials costs. As a result, trends in net sales for
the segment drove similar trends in cost of goods sold. For the
year ended December 31, 2007, product mix favorably
impacted cost of goods sold.
Selling, General and Administrative
Costs. Selling, general and administrative
costs were $58.2 million, or 8.1% of net sales for the year
ended December 31, 2007, and increased by $1.9 million
compared to the year ended December 31, 2006. The increase
is primarily due to general inflation across numerous costs and
stock-based compensation (approximately $0.5 million).
Approximately one-half of our costs are incurred to support our
global operations and are not specific to any segment. These
common costs are allocated to our Printed Circuit Boards segment
and Assembly segment.
Depreciation. Depreciation expense for
the year ended December 31, 2007, was $49.7 million,
including $43.7 million related to our Printed Circuit
Boards segment and $4.8 related to our Assembly segment.
Depreciation expense in our Printed Circuit Boards segment
increased by $4.4 million compared to the year ended
December 31, 2006, as a result of investment in new
equipment. Depreciation expense in our Assembly segment for the
year ended December 31, 2007, declined by $0.5 million
compared to the year ended December 31, 2006, on a lower
average depreciable base. Depreciation expense in
Other, which relates to the Milwaukee Facility,
increased by $0.3 million.
Restructuring and Impairment. Dating
back to 2000, we have incurred substantial costs to downsize
and/or close
facilities in Europe and North America in response to market
pressures for low cost products. We closed facilities in the
United States, The Netherlands and Canada in prior years, and we
continued to incur costs to maintain and to insure certain of
the sites while we marketed those properties for sale. The
primary components of restructuring and impairment (expense)
income for the years ended December 31, 2007 and 2006, are
as follows:
|
|
|
|
|
|
|
|
|
Restructuring Activity (Dollars
in millions)
|
|
2007
|
|
|
2006
|
|
|
Gains on sales of properties held for sale
|
|
$
|
|
|
|
$
|
5.4
|
|
Personnel and severance reversals
|
|
|
|
|
|
|
1.4
|
|
Lease and other contractual commitment expenses
|
|
|
(0.3
|
)
|
|
|
(1.5
|
)
|
Asset impairments
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
Total (expense) income, net
|
|
$
|
(0.3
|
)
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
59
We incurred $0.3 million in restructuring and impairment
charges for the year ended December 31, 2007, related to
closed facilities sold late in 2006. We reported net
restructuring and impairment gains of $4.9 million for the
year ended December 31, 2006.
During the year ended December 31, 2006, we recognized net
gains on sales of previously closed properties in the United
States, The Netherlands and Canada, and we reported the net
gains as a reduction of restructuring and impairment expenses.
In addition, we negotiated early payment of certain employment
obligations in exchange for a discount of the total obligation,
resulting in reversal of previously recognized severance
expenses. Lease and other contractual commitment expenses during
the year ended December 31, 2006, represent expenses
incurred to maintain and insure the properties prior to disposal.
Operating Income. Operating income of
$34.5 million for the year ended December 31, 2007,
represents a decrease of $1.1 million compared to operating
income of $35.6 million during the year ended
December 31, 2006. The primary sources of operating income
for the years ended December 31, 2007 and 2006, are as
follows:
|
|
|
|
|
|
|
|
|
Source (Dollars in
millions)
|
|
2007
|
|
|
2006
|
|
|
Printed Circuit Boards segment(a)
|
|
$
|
26.1
|
|
|
$
|
22.5
|
|
Assembly segment(a)(b)
|
|
|
8.4
|
|
|
|
3.0
|
|
Other(b)
|
|
|
0.3
|
|
|
|
1.2
|
|
Restructuring activities
|
|
|
(0.3
|
)
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
34.5
|
|
|
$
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During 2008, we refined our methodology for allocating common
selling, general and administrative expenses to our segments to
better reflect the efforts undertaken to support each segment.
Previously these costs were allocated based solely on each
segments percentage of total net sales. For the years
ended December 31, 2007 and 2006, operating income has been
restated to conform to the presentation in the current period. |
|
(b) |
|
With the closure of the Milwaukee Facility in 2009, we
reclassified the operating results of the Milwaukee Facility to
Other. Segment results for all periods presented
have been reclassified for comparison purposes. |
Operating income of our Printed Circuit Boards segment increased
by $3.6 million to $26.1 million for the year ended
December 31, 2007, compared to $22.5 million for the
year ended December 31, 2006. The increase is primarily the
result of cost reductions which drove a nearly 3% improvement in
our Printed Circuit Boards segment gross margin percentage,
partially offset by increased depreciation expense, the decline
in sales volume and additional professional fees associated with
cost improvement and business growth initiatives.
Operating income of our Assembly segment increased by
$1.4 million to $8.4 million for the year ended
December 31, 2007, compared to operating income of
$7.0 million in 2006. The improvement is primarily the
result of improved product mix and price premiums on certain
fabricated metal products.
Operating income of $0.3 million in Other for
the year ended December 31, 2007, relates to the Milwaukee
Facility; and compares to operating income of $1.2 million
for the year ended December 31, 2006, which included
$0.8 million from the Milwaukee Facility and
$0.4 million from closed Europe and Canada operations.
60
Adjusted EBITDA. Reconciliations of
operating income applicable to common stockholders to Adjusted
EBITDA for the years ended December 31, 2007 and 2006, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Source
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Operating Income
|
|
$
|
34.5
|
|
|
$
|
35.6
|
|
Add-back Depreciation and amortization
|
|
|
51.0
|
|
|
|
46.7
|
|
Restructuring and impairment
|
|
|
0.3
|
|
|
|
(4.9
|
)
|
Non-cash stock compensation expense
|
|
|
2.1
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
87.9
|
|
|
$
|
78.8
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA increased by $9.1 million, or 11.5%,
despite the 2.8% decline in net sales, primarily as a result of
cost reduction initiatives and improved product mix. See
Results of Operations Nine Months Ended
September 30, 2009, Compared to Nine Months Ended
September 30, 2008 Adjusted EBITDA for
further discussion of Adjusted EBITDA.
Interest Expense, Net. Interest
expense, net of interest income, for the year ended
December 31, 2007, was $30.6 million, compared with
$38.8 million for the year ended December 31, 2006.
Interest income earned in both years was immaterial. Interest
expense related to the Class A Junior preferred stock was
approximately $8.9 million and $8.1 million for the
twelve months ended December 31, 2007 and 2006,
respectively. Interest expense related to the 2011 Notes was
approximately $21.0 million in each year as the
$200.0 million principal and the 10.5% interest rate have
remained unchanged since the 2011 Notes were issued in 2003.
Interest expense was $0.7 million for year ended
December 31, 2007, under our prior revolving credit
facility, and this expense varies from period to period based on
the outstanding principal balances and letters of credit, both
of which bear interest at floating rates. Interest expense on
capital leases was approximately $0.7 million during the
year ended December 31, 2007.
The significant reduction of net interest expense for the year
ended December 31, 2007, compared to 2006 is primarily the
result of the extinguishment of our 2003 Credit Facility (as
defined below). Interest expense totaling approximately
$9.3 million during the year ended December 31, 2006,
was incurred on an average $165.6 million of term loan and
revolver loan borrowings under our then outstanding 2003 Credit
Facility at an average rate of 9.1%. We extinguished the
remaining balance of our 2003 Credit Facility in May 2006 by
applying the proceeds from the sale of our wire harness
business. Interest expense totaling approximately
$0.5 million during the year ended December 31, 2006,
was incurred on an average $19.6 million of revolver loan
borrowings under our prior revolving credit facility which began
in August 2006. Interest expense on capital leases was
approximately $0.5 million during the year ended
December 31, 2006.
Income Taxes. Income tax benefit of
$6.9 million for the year ended December 31, 2007,
compares to income tax expense of $18.5 million for the
year ended December 31, 2006. Certain events unrelated to
pre-tax income and expenses generated in 2007 impacted the 2007
income tax provision. For the year ended December 31, 2007,
we recorded a $10.4 million benefit related to the
settlement of prior uncertain tax positions and a
$3.2 million benefit related to certain tax benefits
received in China related to additional investments made. In
addition, we revalued certain foreign deferred tax assets and
liabilities as a result of a March 2007 tax law change in China.
The income tax benefit for the year ended December 31,
2007, includes approximately $1.7 million of deferred tax
expense related to this revaluation.
Excluding these items, our income tax provision in both 2007 and
2006 relates primarily to our profitable operations in China and
Hong Kong. Because of the substantial net operating loss carry
forwards previously existing in our U.S. and other tax
jurisdictions, we have not fully recognized income tax benefits
related to our substantial interest expense, among other
expenses.
61
Discontinued
Operations
On May 1, 2006, we sold our wire harness business to
Electrical Components International Holdings Company, a
newly-formed affiliate of Francisco Partners, L.P., a private
equity firm, for gross cash proceeds of $320.0 million. Net
cash proceeds reported in the accompanying consolidated
statement of cash flows for the year ended December 31,
2006, of $307.9 million reflect reductions of the gross
proceeds for (i) cash of $3.0 million on deposit in
bank accounts of the disposed business on the date of the
transaction, (ii) a $2.4 million contractual purchase
price adjustment agreed and paid to the acquirer in June 2006,
and (iii) transaction costs of $6.7 million paid in
2006 related to the disposal. One further contractual purchase
price adjustment, which was accrued at the time of the disposal,
was settled at the estimated amount of approximately
$2.0 million during the quarter ended June 30, 2007.
In the accompanying consolidated statement of operations for the
year ended December 31, 2006, we recognized a net gain on
the sale of our discontinued wire harness operations of
$214.1 million. The gain is net of (i) the carrying
value of net assets disposed, (ii) professional fees and
other costs related to the disposal transaction,
(iii) actual and estimated purchase price adjustments and
(iv) taxes of approximately $9.5 million.
We have classified the results of operations of our wire harness
business as discontinued operations for all periods presented.
For the four months ended April 30, 2006, operating results
for the discontinued operations are as follows (dollars in
millions):
|
|
|
|
|
Net sales
|
|
$
|
102.4
|
|
|
|
|
|
|
Operating income
|
|
$
|
11.3
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
11.4
|
|
Income tax provision
|
|
|
1.9
|
|
|
|
|
|
|
Net income
|
|
$
|
9.5
|
|
|
|
|
|
|
Functional
Currency
On January 1, 2007, we changed the functional currency for
certain of our foreign subsidiaries from the local currency to
the U.S. dollar due to a change in the way these businesses
are financed, resulting in the U.S. dollar becoming the
currency of the primary economic environment in which the
subsidiaries operate. As a result, all foreign subsidiaries use
the U.S. dollar as the functional currency effective
January 1, 2007.
Prior to 2007, adjustments resulting from translating the
foreign currency financial statements of these subsidiaries into
U.S. dollars have been included as a separate component of
accumulated other comprehensive income (loss). Upon the change
of the functional currency, these subsidiaries no longer
generate such translation adjustments, and such translation
adjustments from prior periods will continue to remain a
component of accumulated other comprehensive income (loss).
Liquidity and
Capital Resources
Cash
Flow
We had cash and cash equivalents at September 30, 2009,
December 31, 2008 and December 31, 2007, of
$110.7 million, $83.1 million and $64.0 million,
respectively.
Net cash provided by operating activities for the nine months
ended September 30, 2009, and the year ended
December 31, 2008 was $44.3 million and
$53.7 million, respectively, compared to $22.8 million
for the nine months ended September 30, 2008 and
$63.8 million for the year ended December 31, 2007,
and net cash used in operating activities of $1.8 million
for the year ended December 31, 2006. The improvement in
net cash from operating activities for the nine months ended
62
September 30, 2009 is primarily due to positive changes in
working capital partially offset by reduced income from
operations and cash payments of approximately $14.7 million
for severance and other restructuring costs. The decrease in net
cash provided by operating activities from 2007 to 2008 was
primarily due to lower net income, partially offset by positive
changes in working capital. The change in operating cash flows
from 2006 to 2007 was primarily due to increased net income from
continuing operations and positive changes in working capital.
Net cash used in investing activities for the nine months ended
September 30, 2009, and the year ended December 31,
2008 was $10.7 million, which related to capital
expenditures and was net of $4.0 million in proceeds from
disposal of equipment, and $48.3 million, respectively,
compared to net cash used in investing activities of
$42.0 million for the nine months ended September 30,
2008, $37.0 million for the year ended December 31,
2007, and net cash provided by investing activities of
$273.8 million for the year ended December 31, 2006.
The increase from 2007 to 2008 was due primarily to higher
capital expenditures. The 2007 decrease from 2006 was due to the
2006 disposals of (i) our former wire harness business for
net proceeds of $307.9 million, and (ii) properties
held for sale for net proceeds of $21.8 million.
Given the uncertainty about global economic conditions, we have
and will continue to focus on managing capital expenditures to
respond to changes in demand or other economic conditions. Our
Printed Circuit Boards segment is a capital-intensive business
that requires annual spending to keep pace with consumer demands
for new technologies, cost reductions, and product quality
standards. The spending required to meet our customers
requirements is incremental to recurring repair and replacement
capital expenditures required to maintain our existing
production capacities and capabilities. Investing cash flows
include capital expenditures by our Printed Circuit Boards
segment of $13.2 million and $37.0 million for the
nine months ended September 30, 2009 and 2008,
respectively, and $42.9 million, $29.5 million and
$47.0 million for the years ended December 31, 2008,
2007 and 2006, respectively. Continued growth in our Printed
Circuit Boards segment and advances in technological
requirements to meet customer needs were the primary drivers of
our investments in property and equipment in that segment.
Capital expenditures related to our Assembly segment for the
nine months ended September 30, 2009 and 2008 were
$1.5 million and $5.6 million, respectively, and for
each of 2008, 2007 and 2006 were $2.8 million,
$4.0 million and $3.3 million, respectively.
Non-recurring cash outflows of investing activities during the
year ended December 31, 2006, also include capital
expenditures related to our former wire harness business of
$3.0 million.
Net cash used in financing activities was $5.9 million for
the nine months ended September 30, 2009, which related to
the repayment of a $15.5 million term loan balance under
our 2006 Credit Agreement (as defined below) and a
$10.0 million draw on our Guangzhou Termbray Electronics
Technology Company Limited subsidiarys 200 million
RMB (approximately $29.3 million U.S. dollars based on
the exchange rate as of September 30, 2009) revolving
credit facility (the Guangzhou 2009 Credit Facility)
with China Construction Bank, Guangzhou Economic and Technical
Development District Branch. During the period we also incurred
financing costs, which primarily related to our exploration of
alternatives for refinancing of our 2011 Notes. Net cash
provided by financing activities of $13.6 million for the
year ended December 31, 2008, related to net borrowings
under the term loan facility of the 2006 Credit Agreement of
$15.5 million, offset by the payment of capital lease
obligations of $1.9 million. Net cash used in financing
activities of $0.8 million for the year ended
December 31, 2007, related entirely to the payment of
capital lease obligations. Net cash used in financing activities
was $270.5 million for the year ended December 31,
2006, including the extinguishment of $262.4 million of our
2003 Credit Facility paid primarily from the net proceeds of the
disposal of our wire harness business. Cash used by financing
activities in 2006 also includes $3.3 million of costs
incurred in connection with the establishment of the 2006 Credit
Agreement, plus scheduled principal payments on capital lease
obligations of $4.9 million.
63
Financing
Arrangements
On November 24, 2009, our subsidiary, Viasystems, Inc.,
completed an offering of the 2015 Notes. The
2015 Notes bear interest at a rate of 12.00% per annum,
payable semi-annually on January 15 and July 15 of
each year, beginning on July 15, 2010. The obligations
under the 2015 Notes are fully and unconditionally
guaranteed, jointly and severally, by all of our current and
future domestic subsidiaries, other than certain immaterial
subsidiaries. The 2015 Notes and the 2015 Notes
guarantees thereof are secured together with any other shared
lien obligations, equally and ratably by security interests
granted to the collateral trustee in all collateral from time to
time owned by Viasystems, Inc. or the guarantors, which
consists of certain equity interests and substantially all of
Viasystems, Inc. and the guarantors tangible and
intangible assets, other than certain excluded assets. The 2015
Notes were sold at a price of 93.769% of their par value and the
net proceeds were partially used to fund the tender offer of the
2011 Notes and to pay transaction fees and expenses. The
remaining net proceeds of the 2015 Notes offering were used
to redeem the outstanding 2011 Notes on January 15, 2010.
The indenture governing the 2015 Notes contains containing
covenants that, among other things, will restrict our ability
and the ability of our restricted subsidiaries to:
incur additional indebtedness or issue disqualified
stock or preferred stock;
create liens;
pay dividends, make investments or make other
restricted payments;
sell assets;
consolidate, merge, sell or otherwise dispose of all
or substantially all of our or their assets;
enter into transactions with our or their
affiliates; and
designate our or their subsidiaries as unrestricted.
On September 1, 2009, our Guangzhou Termbray Electronics
Technology Company Limited subsidiary consummated the Guangzhou
2009 Credit Facility with China Construction Bank Guangzhou
Economic and Technical Development District Branch. The
Guangzhou 2009 Credit Facility provides for borrowings
denominated in RMB and foreign currencies, including the
U.S. dollar; and borrowings are secured by a mortgage lien
on the buildings and land lease at our manufacturing facility in
Guangzhou, China. Borrowings under the Guangzhou 2009 Credit
Facility are to be used for Viasystems Termbrays working
capital and trade financing purposes. The revolving credit
facility is renewable annually beginning June 30, 2010.
Loans under the credit facility bear interest at the rate of
(i) LIBOR plus a margin negotiated prior to each
U.S. dollar denominated loan or (ii) the interest rate
quoted by the Peoples Bank of China multiplied by 0.9 for
RMB denominated loans. The Guangzhou 2009 Credit Facility has
certain restrictions and other covenants that are customary for
similar credit arrangements; however there are no financial
covenants contained in this facility. As of September 30,
2009, $10.0 million in U.S. dollar loans was
outstanding under the Guangzhou 2009 Credit Facility, and
approximately $19.3 million of the revolving credit
facility was unused and available.
In September 2009, in connection with the consummation of the
Guangzhou 2009 Credit Facility, we provided notice to
voluntarily prepay and cancel the 2006 Credit Agreement with UBS
AG Hong Kong Branch and UBS AG, Singapore Branch, and repaid all
outstanding amounts under the 2006 Credit Agreement. The 2006
Credit Agreement was for a term of four years and provided a
$60.0 million revolving credit facility and a
$20.0 million term loan facility. As a result of the
prepayment and cancellation of the 2006 Credit Agreement, we
recorded a loss on early extinguishment of debt of
$0.7 million in conjunction with the write-off of related
unamortized deferred financing costs.
In May 2006, we extinguished the remaining term loan balance
under our 2003 Credit Facility using the net proceeds from the
sale of our wire harness business, and in August 2006, we
terminated
64
the remaining revolving credit portion of the 2003 Credit
Facility with cash available from continuing operations.
In December 2003, we completed an offering of
$200.0 million of our 2011 Notes. The proceeds from that
offering were used to repay a portion of original term loan
borrowings under our then existing senior credit facility (the
2003 Credit Agreement). The entire original
principal balance of the 2011 Notes remained outstanding at
September 30, 2009; however, as noted above, Viasystems,
Inc. completed a tender offer to repurchase $94,124,000
aggregate principal amount, or approximately 47.03%, of the 2011
Notes on November 25, 2009 and redeemed the remaining 2011
Notes on January 15, 2010.
If the Merger is consummated, we expect to enter into the
Wachovia Credit Facility, a new senior secured revolving credit
and letter of credit facility in an amount up to $75,000,000
with Wachovia Bank, National Association. The borrowers under
the Wachovia Credit Facility will be certain of our domestic
subsidiaries, including from and after the Merger and the
subsequent contribution, Merix and certain of its subsidiaries.
The borrowing base availability at any time is expected to be
calculated as follows (subject to certain adjustments): 85% of
the net amount of eligible accounts receivable of the borrowers;
plus the lesser of (i) the sum of (A) 85% of the
appraised value of eligible equipment plus (B) 65% of the
appraised fair market value of eligible real property or
(ii) $20,000,000; minus applicable reserves (if any). The
Wachovia Credit Facility will mature four years from the
consummation of the Merger. Borrowings under the Wachovia Credit
Facility are expected to bear interest at a rate per annum equal
to, at the borrowers option, either (i) the base rate
determined by reference to the higher of (A) the rate of
interest publicly announced by Wachovia Bank, National
Association as its prime rate and (B) the sum of
(x) the federal funds effective rate plus
(y) one-half
percent (.50%) per annum plus, in each case, (z) an
applicable margin or (ii) the sum of (A) Eurodollar
rate plus (B) an applicable margin. All obligations under
the Wachovia Credit Facility will be unconditionally guaranteed
by Viasystems, Inc. and certain direct and indirect
subsidiaries of Viasystems, Inc. that are not the
borrowers. All obligations under the Wachovia Credit Facility
will be secured, subject to certain exceptions, by a first
priority security interest and lien on all of the
borrowers and the guarantors present and future
assets, other than certain excluded assets. The Wachovia Credit
Facility will contain certain customary representations and
warranties, affirmative and negative covenants and events of
default.
During 2008 and 2007, we did not enter into any new capital
leases obligations; however, in 2006 we entered into a capital
lease obligation of $11.6 million for certain new equipment.
65
Contractual
Obligations
The following table provides a summary of future payments due
under contractual obligations and commitments as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
|
|
|
Contractual
Obligations
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2011 senior subordinated notes(a)
|
|
$
|
|
|
|
$
|
200.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
200.0
|
|
Interest on 2011 senior subordinated notes(a)
|
|
|
21.0
|
|
|
|
31.5
|
|
|
|
|
|
|
|
|
|
|
|
52.5
|
|
2006 Credit Agreement(b)
|
|
|
7.5
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
15.5
|
|
Capital lease payments
|
|
|
2.6
|
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
6.4
|
|
Operating leases
|
|
|
5.3
|
|
|
|
6.6
|
|
|
|
0.9
|
|
|
|
1.4
|
|
|
|
14.2
|
|
Restructuring payments
|
|
|
9.3
|
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
1.5
|
|
|
|
13.4
|
|
Management fees(c)
|
|
|
1.8
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
12.7
|
|
|
|
15.7
|
|
Unrecognized tax benefits(d)
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
Disposition agreements
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Deferred compensation
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
1.9
|
|
|
|
2.4
|
|
Purchase orders
|
|
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.6
|
|
Redemption of Class B Senior preferred stock
|
|
|
|
|
|
|
|
|
|
|
203.6
|
|
|
|
|
|
|
|
203.6
|
|
Redemption of Class A Junior preferred stock
|
|
|
|
|
|
|
|
|
|
|
159.2
|
|
|
|
|
|
|
|
159.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
92.0
|
|
|
$
|
251.0
|
|
|
$
|
366.0
|
|
|
$
|
18.3
|
|
|
$
|
727.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On November 24, 2009 we issued $220.0 million original
principal amount 12.00% Senior Secured Notes due 2015; and
purchased $94.1 million of the $200.0 million original
principal amount of 10.50% Senior Subordinated Notes due
2011 pursuant to a tender offer. On January 15, 2010, we
redeemed the remaining 2011 Notes. |
|
|
|
(b) |
|
In September 2009, we repaid all outstanding amounts and
voluntarily cancelled the 2006 Credit Agreement. In addition, in
September 2009, we borrowed $10.0 million under the
Guangzhou 2009 Credit Facility. |
|
(c) |
|
Includes a management fee of $1.5 million owed to HMTF in
2008 in connection with the monitoring and oversight agreement.
The agreement requires an annual fee equal to the lesser of
$1.5 million or 2% of consolidated adjusted EBITDA, which
has been excluded for all periods subsequent to 2008 as the
amounts are indeterminable. The agreement expires in January
2013. |
|
(d) |
|
Includes the liability for unrecognized tax benefits that could
be settled in the next twelve months and has been classified as
current income taxes payable in the consolidated balance sheet
at December 31, 2008. The liability for unrecognized tax
benefits of $16.2 million included in other non-current
liabilities at December 31, 2008, has been excluded from
the above table as we cannot make a reasonably reliable estimate
of the timing of future payments. |
Liquidity
Given the uncertainty about global economic conditions,
management has and will continue to focus on managing capital
expenditures to respond to changing economic conditions. Subject
to changes in customer demand and other market conditions, we
anticipate making capital expenditures of approximately
$25.0 million during 2009. We believe that cash flow from
operations, available cash on hand and the cash available from
our Guangzhou 2009 Credit Facility will be sufficient to fund
our capital expenditures and other currently anticipated cash
needs for at least the next 12 months, including,
(i) our semi-annual interest payments on our notes,
(ii) working capital needs, (iii) scheduled
66
capital lease payments for equipment leased by our Printed
Circuit Boards segment and (iv) debt service requirements
in connection with our Guangzhou 2009 Credit Facility.
Our ability to meet our cash needs through cash generated by our
operating activities will depend on the demand for our products,
as well as general economic, financial, competitive and other
factors, many of which are beyond our control. Our business may
not generate cash flow in an amount sufficient to enable us to
pay the principal of, or interest on, our indebtedness, or to
fund our other liquidity needs, including working capital,
capital expenditures, product development efforts, strategic
acquisitions, investments and alliances and other general
corporate requirements. If we cannot fund our liquidity needs,
we will have to take actions such as reducing or delaying
capital expenditures, product development efforts, strategic
acquisitions, investments and alliances; selling assets;
restructuring or refinancing our debt; or seeking additional
equity capital. We cannot assure you that any of these remedies
could, if necessary, be effected on commercially reasonable
terms, or at all, or that they would permit us to meet our
scheduled debt service obligations. Our credit facilities and
the indenture governing the 2015 Notes limit the use of the
proceeds from any disposition of assets and, as a result, we may
not be allowed, under those documents, to use the proceeds from
such dispositions to satisfy all current debt service
obligations. See Risk Factors Risks Related to
Our Business and Industry Servicing our debt,
requires a significant amount of cash and our ability to
generate cash may be affected by factors beyond our
control.
Recent instability in the financial markets has lead to the
consolidation, restructuring and closure of certain financial
institutions. Should any of the financial institutions who
maintain our cash deposits or who are party to our credit
facilities become unable to repay our deposits or honor their
commitments under our credit facilities, it could have a
material adverse effect on our liquidity. As of
September 30, 2009, approximately 33.9% of our cash
balances were on deposit with Citibank (China), which is a
subsidiary of Citigroup Inc. The U.S. government has
previously taken certain actions to stabilize Citigroup Inc. in
an effort to remove uncertainty and restore confidence in that
company. Management has been monitoring, and will continue to
monitor, the stability of Citigroup, Inc. and the
appropriateness of our depository relationship with Citibank
(China).
We continue to explore certain alternatives that may impact our
liquidity, including but not limited to acquisitions, debt
refinancing, debt retirement and equity offerings. We can give
no assurance of our ability to execute any of these alternatives.
Off Balance Sheet
Arrangements
We do not have any off balance sheet arrangements.
Backlog
We estimate that our backlog of unfilled orders as of
September 30, 2009, was approximately $77.3 million,
which includes $60.0 million and $17.3 million from
our Printed Circuit Board and Assembly segments, respectively.
This compares to our backlog of unfilled orders of
$78.0 million at December 31, 2008, which included
$54.1 million and $23.9 million from our Printed
Circuit Board and Assembly segments, respectively. Because
unfilled orders may be cancelled prior to delivery, the backlog
outstanding at any point in time is not necessarily indicative
of the level of business to be expected in the ensuing period.
Recently Adopted
Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159
provides companies with an option to report selected financial
assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected are reported in earnings at each subsequent reporting
date. SFAS No. 159 was effective as of the beginning
of 2008, and we have not elected the fair value option for any
financial instruments.
67
In September 2006, the SEC released Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB No. 108).
SAB No. 108 addresses how the effects of prior-year
uncorrected misstatements should be considered when quantifying
misstatements in current year financial statements.
SAB No. 108 requires an entity to quantify
misstatements using a balance sheet and income statement
approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant
quantitative and qualitative factors. We adopted
SAB No. 108 in the fourth quarter of 2006.
In 2006, we identified certain errors in previously reported
financial statements, which were evaluated under the criteria of
SAB No. 108. The following table summarizes the items
and amounts, net of tax where applicable, of the cumulative
effect adjustment resulting in the increase to accumulated
deficit.
|
|
|
|
|
Nature of Adjustment (Dollars
in millions)
|
|
Amount
|
|
|
Lease termination
|
|
$
|
4.1
|
|
Impaired long-lived assets
|
|
|
2.2
|
|
Lifetime medical benefits
|
|
|
1.1
|
|
Accrued vacation
|
|
|
1.2
|
|
|
|
|
|
|
|
|
$
|
8.6
|
|
|
|
|
|
|
These amounts were evaluated on a qualitative and quantitative
basis, both individually and in the aggregate, and were not
deemed material to any prior years under the income statement
approach. However, in connection with the adoption of
SAB No. 108, we have corrected these errors because
these amounts have been deemed material using the balance sheet
approach.
The transition provisions of SAB No. 108 permit us to
adjust for the cumulative effect on retained earnings of
immaterial errors relating to prior years. Accordingly, we
recognized a cumulative effect adjustment to increase
accumulated deficit as of January 1, 2006, totaling
$8.6 million (net of a tax benefit of $0.1 million).
SAB No. 108 also requires the adjustment of any prior
quarterly financial statements within the fiscal year of
adoption for the effects of such errors on the quarters when the
information is next presented. Such adjustments do not require
previously filed reports with the SEC to be amended.
In May 2009, the FASB issued SFAS No. 165 Subsequent
Events (SFAS No. 165).
SFAS No. 165 establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
available to be issued. We adopted SFAS No. 165 as of
June 30, 2009, and upon adoption, there was no material
effect on our financial position, results of operations or cash
flows.
In June 2009, the FASB established, with effect from
July 1, 2009, the FASB Accounting Standards
Codificationtm
(the Codification) as the source of authoritative
U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources
of authoritative U.S. GAAP for SEC registrants. We adopted
the Codification beginning July 1, 2009, and while it will
impact the way we refer to accounting pronouncements in our
disclosures, it did not affect our financial position, results
of operations or cash flows.
Quantitative and
Qualitative Disclosures About Market Risk
Interest Rate
Risk
As of September 30, 2009, we had a $10.0 million
outstanding loan with a variable interest rate, and we may have
additional variable rate long-term debt in the future.
Accordingly, our earnings and cash flows could be affected by
changes in interest rates in the future. As of
September 30, 2009, our variable rate debt bears interest
at the London Inter-Bank Offer Rate (LIBOR) plus
0.5% per annum.
68
Based on the September 30, 2009, LIBOR rate, we do not
believe a 10% movement in LIBOR would have a material effect on
our financial condition, operating results or cash flows.
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. Sales are primarily denominated in
U.S. dollars, while 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 enter into foreign exchange forward contracts to minimize the
short-term impact of 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 material to our cash flows, financial position or results
from operations. There can be no assurance that our hedging
activities will eliminate or substantially reduce risks
associated with fluctuating currencies. At September 30,
2009, there were foreign currency hedge instruments outstanding
with a notional value of 690 million RMB (the equivalent of
$101.0 million U.S. dollars as of September 30,
2009) related to our Asian operations. Based on the
September 30, 2009 exchange rates, an increase or decrease
in foreign exchange rates of 10% (ignoring the effects of
hedging) would result in an increase or decrease, respectively,
in our operating expenses of approximately $8.1 million and
$18.2 million for the three and nine months ended
September 30, 2009, respectively.
Commodity
Price Risk
We purchase diesel fuel to generate portions of our energy in
certain of our manufacturing facilities using generators, and we
will be required to bear the increased cost of generating energy
if the cost of oil increases. In addition, the materials we
purchase to manufacture PCBs contain copper, gold, silver and
tin. To the extent the prices for such metals increase, our cost
to manufacture PCBs will increase. Prices for copper, gold,
silver, tin and oil have a history of substantial increases in
recent years. Future price increases for such commodities would
increase our cost and could have an adverse effect on our
results of operations.
69
BUSINESS
General
We are a leading worldwide provider of complex multi-layer PCBs
and E-M
Solutions. PCBs serve as the electronic backbone of
almost all electronic equipment, and our
E-M
Solutions products and services integrate PCBs and other
components into finished or semi-finished electronic equipment,
which include custom and standard metal enclosures, metal
cabinets, metal racks and sub-racks, backplanes, cable
assemblies and busbars.
We currently operate our business in two segments: Printed
Circuit Boards, which includes our PCB products, and Assembly,
which includes our
E-M
Solutions products and services. For the twelve months ended
September 30, 2009, our Printed Circuit Board segment
accounted for approximately two-thirds of our net sales and our
Assembly segment accounted for approximately one-third of our
net sales.
The components we manufacture include, or can be found in, a
wide variety of commercial products, including automotive engine
controls, hybrid converters, automotive electronics for
navigation, safety, entertainment and anti-lock braking systems,
telecommunications switching equipment, data networking
equipment, computer storage equipment, wind and solar energy
applications and several other complex industrial, medical and
technical instruments. Our broad offering of
E-M
Solutions services include component fabrication, component
integration, and final system assembly and testing. These
services can be bundled with our PCBs to provide an integrated
solution to our customers. Our net sales for the twelve months
ended September 30, 2009 were derived from the following
end markets:
|
|
|
|
|
Automotive (37%);
|
|
|
|
Industrial and instrumentation/energy/medical/consumer/other
(27%);
|
|
|
|
Telecommunications (27%); and
|
|
|
|
Computer/data communications (9%).
|
We are a supplier to over 125 original equipment manufacturers
(OEMs) and contract electronic manufacturing
services companies (CEMs) in our end markets. We
target the sale of PCBs and
E-M
Solutions to global OEMs. Our top OEM customers include industry
leaders such as Alcatel-Lucent SA, Autoliv, Inc., Bosch Group,
Continental AG, Delphi Corporation, EMC Corporation, Ericsson
AB, General Electric Company, Hewlett-Packard Company, Hitachi,
Ltd, Huawei Technologies Co. Ltd., Rockwell Automation, Inc.,
Siemens AG, Sun Microsystems, Inc., Tellabs, Inc., TRW
Automotive Holdings Corp. and Xyratex Ltd. Our top CEM
relationships include industry-leading contract manufacturers
such as Celestica, Inc. and Jabil Circuits, Inc.
We currently have six manufacturing facilities, all of which are
located outside of the United States to take advantage of
low-cost, high quality manufacturing environments. Our PCB
products are produced in two of our five facilities in China.
Our E-M
Solutions products and services are provided from our other
three Chinese facilities and our one facility in Mexico. In
addition to our manufacturing facilities, in order to support
our customers local needs, we maintain engineering and
customer service centers in Canada, Mexico, the United States,
Hong Kong, China, The Netherlands and England. These engineering
and customer service centers correspond directly to the primary
areas where we ship our products, as evidenced by the fact that,
for the twelve months ended September 30, 2009,
approximately 38%, 36% and 26% of our net sales were generated
by shipments to North America, Asia and Europe, respectively.
Our
History
We were formed in 1996 under the name Circo Craft Holding
Company. Circo Craft Holding Company had no operations prior to
its first acquisition in October 1996, when it changed its name
to
70
Circo Technologies, Inc. In January 1997, Circo Technologies,
Inc. changed its name to Viasystems Group, Inc.
From 1997 through 2001, we expanded rapidly through the
acquisition of several businesses throughout Europe, North
America and China. During that time, we expanded our business
model to include full systems assemblies, wire harnesses and
cable assemblies to complement our original PCB and backpanel
offerings.
From 1999 to 2001, our business was heavily reliant on the
telecommunications and networking markets, as the majority of
our customers were telecommunication and networking original
equipment manufacturers. In early 2001, the telecommunications
and networking industries began a significant business downturn
caused by the decline in capital spending related to those
industries. The decline in capital spending in the
telecommunications and networking industries was exacerbated by
excess inventories for those industries within the contract
manufacturing supply chain. As a result of these and other
factors, in January 2003, we reorganized under prepackaged
Chapter 11 proceedings.
From April 2001 through 2005, we substantially restructured our
operations and closed or sold 24 under-performing or
non-strategic facilities. During that time, we streamlined our
business to focus on PCBs,
E-M
Solutions and wire harnesses, and we significantly diversified
our end markets and customer base.
During 2006, we sold our wire harness business. As a result of
the disposal of the wire harness operations and our
restructuring activities early in this decade, we believe we are
well positioned as a PCB and
E-M
Solutions manufacturer, with manufacturing facilities located in
low cost areas of the world, able to serve our global customer
base. Our PCB and
E-M
Solutions products are supplied from our Printed Circuit Boards
and Assembly segments, respectively.
In November 2008, in light of global economic conditions and our
ongoing efforts to align capacity, overhead costs and operating
expenses with market demand, we announced a planned 2009 closure
of our manufacturing facility in Milwaukee, Wisconsin, and its
satellite final-assembly and distribution facility in Newberry,
South Carolina, as well as a planned work force reduction across
our global operations, which began in November 2008 and was
substantially completed during the first half of 2009. Depending
upon the length and severity of the current global economic
turndown, further actions may be required to adjust our capacity
and cost structure.
We are headquartered in St. Louis, Missouri. The mailing
address for our headquarters is 101 South Hanley Road,
Suite 400, St. Louis, Missouri 63105, and our
telephone number at that location is
(314) 727-2087.
We can also be reached at our website, www.viasystems.com.
Our
Products
Printed Circuit Boards PCBs serve as
the foundation of almost all electronic equipment, providing the
circuitry and mounting surfaces necessary to interconnect
discrete electronic components, such as integrated circuits,
capacitors and resistors. PCBs consist of a pattern of
electrical circuitry etched from copper and laminated to a board
made of insulating material, thereby providing electrical
interconnection between the components mounted onto them.
Electro-Mechanical Solutions
E-M
Solutions include a wide variety of products and services,
primarily including assembly of backplanes, custom and standard
metal enclosures, cabinets, racks and sub-racks, systems
integration and assembly, final product testing and fulfillment.
Markets and
Customers
We provide products and services to more than 125 OEMs. We
believe our position as a strategic supplier of PCBs and
E-M
Solutions fosters close relationships with our customers. These
relationships have resulted in additional growth opportunities
as we have expanded our capabilities and capacity to meet our
customers wide range of needs.
71
The following table shows our net sales as a percentage by the
principal end-user markets we serve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Markets
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Automotive
|
|
|
36.6
|
%
|
|
|
37.4
|
%
|
|
|
36.2
|
%
|
|
|
32.9
|
%
|
Telecommunications
|
|
|
27.8
|
|
|
|
25.9
|
|
|
|
31.0
|
|
|
|
32.0
|
|
Industrial & Instrumentation/Medical/Consumer/Other
|
|
|
26.8
|
|
|
|
26.6
|
|
|
|
22.3
|
|
|
|
22.7
|
|
Computer/Datacommunications
|
|
|
8.8
|
|
|
|
10.1
|
|
|
|
10.5
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Although we seek to diversify our customer base, a small number
of customers are responsible for a significant portion of our
net sales. For the years ended December 31, 2008, 2007 and
2006, sales to our ten largest customers accounted for
approximately 73.3%, 76.2% and 73.7% of our net sales,
respectively.
Further, the table below highlights individual end customers
that directly and indirectly account for more than 10% of our
consolidated net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Customer
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Alcatel-Lucent SA(a)
|
|
|
15.1
|
%
|
|
|
16.3
|
%
|
|
|
20.2
|
%
|
|
|
20.8
|
%
|
Bosch Group
|
|
|
13.2
|
|
|
|
11.2
|
|
|
|
10.7
|
|
|
|
10.1
|
|
General Electric Company
|
|
|
12.1
|
|
|
|
10.2
|
|
|
|
*
|
(c)
|
|
|
*
|
(c)
|
Continental AG(b)
|
|
|
10.9
|
|
|
|
13.4
|
|
|
|
*
|
(c)
|
|
|
*
|
(c)
|
Siemens AG(b)
|
|
|
*
|
(c)
|
|
|
*
|
(c)
|
|
|
12.4
|
|
|
|
13.7
|
|
|
|
|
(a) |
|
Alcatel SA and Lucent Technologies, Inc. merged during 2006.
Amounts represent sales to both the individual companies prior
to the Merger and the combined companies after the Merger. |
|
(b) |
|
In December 2007, Continental AG concluded the purchase of the
automotive parts business unit of Siemens AG. Sales to that
business unit in 2008 are included in the table for Continental
AG. Sales to that business unit in 2007 and 2006 are included in
the table for Siemens AG. Through its other business units,
Siemens AG remains our customer. |
|
|
|
(c) |
|
Represents less than ten percent of consolidated net sales. |
Our PCB and
E-M
Solutions products are supplied from our Printed Circuit Boards
and Assembly segments, respectively (see Note 14 to our
Consolidated Financial Statements). Sales to Alcatel-Lucent SA,
Siemens AG and General Electric Company occurred in both the
Printed Circuit Boards and Assembly segments. Sales to
Continental AG and Bosch Group occurred in the Printed Circuit
Boards segment.
Manufacturing
Services
Our offering of manufacturing services includes the following:
Design and Prototyping Services We
provide comprehensive front-end engineering services, including
custom enclosure design, circuit board layout and related design
services leading to efficient manufacturing and delivery. We
offer quick-turn prototyping, which is the rapid production of a
new product sample. Our quick-turn prototype service allows us
to provide small test quantities to our
72
customers product development groups. Our participation in
product design and prototyping allows us to reduce our
customers manufacturing costs and their time-to-market and
time-to-volume. These services enable us to strengthen our
relationships with customers that require advanced engineering
services. In addition, by working closely with customers
throughout the development and manufacturing process, we often
gain insight into their future product requirements. These
services are not billed separately, but instead are included in
the determination of the product sales price to be invoiced to
the customer.
PCB and Backpanel Fabrication PCBs are
platforms that connect semiconductors and other electronic
components. Backpanels connect PCBs. We manufacture multi-layer
PCBs and backpanels on a low-volume, quick-turn basis, as well
as on a high-volume production basis. In recent years, the trend
in the electronics industry has been to increase the speed and
performance of components while reducing their size.
Semiconductor designs are currently so complex that they often
require PCBs with many layers of narrow, tightly spaced wiring.
These advancements in component technologies have driven the
change in PCB design to higher density printed circuits.
Backpanel Assembly We provide
backpanel assemblies, which are manufactured by mounting
interconnect devices, integrated circuits and other electronic
components on a bare backpanel. This process differs from that
used to provide PCB assemblies primarily because of the larger
size of the backpanel and the more complex placement techniques
that must be used with higher layer count PCBs. We also perform
functional and in-circuit testing on assembled backpanels.
PCB Assembly As a complement to our
E-M
Solutions offering, we have the capability to manufacture PCB
assemblies. Generally, we do not produce PCB assemblies
separately, but rather we integrate them with other components
as part of a full electro-mechanical solution. In addition, we
offer testing of assembled PCBs and testing of all of the
functions of the completed product, and we work with our
customers to develop product-specific test strategies. Our test
capabilities include manufacturing defect analysis, in-circuit
tests, functional tests and environmental stress tests of board
or system assemblies.
Custom Metal Enclosure Fabrication We
specialize in the manufacture of custom-designed chassis and
enclosures primarily used in the telecommunications, industrial,
medical and computer/datacommunications industries. As a fully
integrated supply chain partner with expertise in design, rapid
prototyping, manufacturing, packaging and logistics, we provide
our customers with reduced manufacturing costs and shortened
time-to-market throughout a products life cycle.
Full System Assembly and Test We
provide full system assembly services to customers from our
facilities in China and Mexico. These services require
sophisticated logistics capabilities and supply chain management
capabilities to procure components rapidly, assemble products,
perform complex testing and deliver products to end users around
the world. Our full system assembly services involve combining
custom metal enclosures and a wide range of subassemblies,
including PCB assemblies. We also employ advanced test
techniques to various subassemblies and final end products.
Increasingly, customers require custom, build-to-order system
solutions with very short lead times. We are focused on
supporting this trend by providing supply chain solutions
designed to meet their individual needs.
Packaging and Global Distribution We
offer our customers flexible,
just-in-time
and build-to-order delivery programs, allowing product shipments
to be closely coordinated with our customers inventory
requirements. Increasingly, we ship products directly into
customers distribution channels or directly to the
end-user. These services are not billed separately, but instead
are included in the determination of the product sales price to
be invoiced to the customer.
After-Sales Support We offer a wide
range of after-sales support services. These support services
can be tailored to meet customer requirements, including field
failure analysis, product upgrades, repair and engineering
change management. These services are not billed separately, but
instead are included in the determination of the product sales
price to be invoiced to the customer.
73
Supply Chain Management Effective
management of the supply chain is critical to the success of
customers as it directly impacts the time required to deliver
product to market and the capital requirements associated with
carrying inventory. Our global supply chain organization works
with customers and suppliers to meet production requirements and
to procure materials. We utilize our enterprise resource
planning systems to optimize inventory management. These
services are not billed separately, but instead are included in
the determination of the product sales price to be invoiced to
the customer.
Sales and
Marketing
We focus on developing close relationships with our customers at
the earliest development and design phases of products, and we
continue to develop our relationship with our customers
throughout all stages of production. We identify, develop and
market new technologies that benefit our customers and position
us as a preferred product or service provider.
We market our products through our own sales and marketing
organization and through relationships with independent sales
agents around the world. This global sales organization is
structured to ensure global account coverage by
industry-specific teams of account managers. As of
September 30, 2009, we employed approximately 190 sales and
marketing employees, of which 66 are account managers
strategically located throughout North America, Europe and Asia.
In addition, we contract with independent sales agents
strategically around the world. Each industry marketing team
shares support staff of sales engineers, program managers,
technical service personnel and customer service organizations
to ensure high-quality, customer-focused service. The global
marketing organization further supports the sales organization
through market research, market development and communications.
Manufacturing and
Engineering
We produce highly complex, technologically advanced multi-layer
and standard technology PCBs, backpanel assemblies, PCB
assemblies, custom enclosures and full systems that meet
increasingly narrow tolerances and specifications demanded by
our customers. Multi-layering, which involves placing multiple
layers of electronic circuitry on a single PCB or backpanel,
expands the number of circuits and components that can be
contained on the interconnect product and increases the
operating speed of the system by reducing the distance that
electrical signals must travel. Increasing the density of the
circuitry in each layer is accomplished by reducing the width of
the circuit tracks and placing them closer together on the PCB
or backpanel. Interconnect products having narrow, closely
spaced circuit tracks are known as fine line products. Today, we
are capable of producing commercial quantities of PCBs with 50+
layers and circuit track widths as narrow as three
one-thousandths of an inch. We also have the capability to
produce large format backpanels of up to 50 inches in
length and as thin as four tenths of an inch. We have developed
heavy copper capabilities, up to 12 ounces per square foot, to
support high-power applications. In addition, we have developed
microwave and heatsink technology to support radio frequency
(RF) applications. The manufacturing of complex
multi-layer interconnect products often requires the use of
sophisticated circuit interconnections between layers, called
blind or buried vias, and the ability to control the electrical
properties of our products very closely (i.e., electrical
impedance), which is key to transmission of high speed signals.
These technologies require very tight lamination and etching
tolerances and are especially critical for PCBs with ten or more
layers. Our PCB operation is an industry leader in performing
extensive testing of various PCB designs, materials and surface
finishes for restriction of hazardous substances
(RoHS) compliance and compatibility.
The manufacturing of PCBs involves several steps: etching the
circuit image on copper-clad epoxy laminate and pressing the
laminates together to form a panel; drilling holes and
depositing copper or other conductive material to form the
interlayer electrical connections; and cutting the panels to
shape. Our advanced interconnect products require critical
process steps, such as dry film imaging, optical aligned
registration, photoimageable soldermask, computer controlled
drilling and
74
routing, automated plating, and various surface finishes. Tight
process controls are required throughout the manufacturing
process to achieve critical electrical properties, such as
controlled impedance. The manufacturing of PCBs used in
backpanel assemblies requires specialized expertise and
equipment because of the larger size and thickness of the
backpanel relative to other PCBs and the increased number of
holes for component mounting.
The manufacturing of PCB assemblies involves the attachment of
various electronic components, such as integrated circuits,
capacitors, microprocessors and resistors to PCBs. The
manufacturing of backpanel assemblies involves attachment of
electronic components, including PCBs, integrated circuits and
other components, to the backpanel, which is a large PCB. We use
surface mount, pin-through hole and press fit technologies in
backpanel assembly. We also assemble higher-level sub-systems
and full systems incorporating PCBs and complex
electro-mechanical components.
We also provide computer-aided testing of PCBs, sub-systems and
full systems, which contributes significantly to our ability to
consistently deliver high quality products. We test boards and
system level assemblies to verify that all components have been
properly inserted and that the electrical circuits are complete.
Further functional tests determine whether the board or system
assembly is performing to customer specifications.
Quality
Standards
Our quality management systems are defect prevention based,
customer focused and compliant to international standards. All
of our facilities are compliant or certified to the ISO
9001:2000 a globally accepted quality management
standard. In addition to ISO 9001:2000, we have facilities that
are certified to QS 9000, TL 9000 and TS 16949 standards based
on customer segment requirements. Our facility in Guangzhou has
achieved ISO 17025 certification.
Our facilities and products are also compliant to industry and
regulatory requirements, including Bellcore and Underwriters
Laboratories. These requirements include quality, manufacturing
process controls, manufacturing documentation and supplier
certification of raw materials.
Supplier
Relationships
We order raw materials and components based on purchase orders,
forecasts and demand patterns of our customers and seek to
minimize our inventory of materials or components that are not
identified for use in filling specific orders or specific
customer contracts. We continue to work with our suppliers to
develop
just-in-time
supply systems that reduce inventory carrying costs and contract
globally, where appropriate, to leverage our purchasing volumes.
We also select our suppliers and potential suppliers on the
basis of quality, on-time delivery, costs, technical capability,
and potential technical advancement. While some of our customer
agreements may require certain components to be sourced from
specific vendors, the raw materials and component parts we use
to manufacture our products, including copper and laminate, are
generally available from multiple suppliers.
Competition
Our industry is highly competitive, and we believe our markets
are highly fragmented. We face competition from numerous local,
regional and large international providers of PCBs and
E-M Solutions.
Our primary direct competitors are Compeq Manufacturing Co.
Ltd., Flextronics Corporation, Gold Circuit Electronics Ltd.,
Kingboard Chemical Holdings Ltd., LG Corp., Merix, Nanya
Technology Corp., Sanmina-SCI Corp. and TTM Technologies, Inc.
Some of our primary competitors may be less leveraged, may have
greater access to financial or other resources or may have lower
cost operations, allowing them to be better able to withstand
adverse market conditions. We believe that competition in the
markets we serve is based on product quality, responsive
customer service and support, and price, in part, because the
cost of many of the products manufactured by us is usually low
relative to the total cost of the equipment and because product
reliability and prompt delivery are of greater importance to our
customers.
75
International
Operations
As of September 30, 2009, we had six manufacturing
facilities located outside the United States, with sales offices
in Canada, Mexico, Asia, and throughout Europe. Our
international operations produce products in China and Mexico
that account for approximately 89.2% and 7.0% of our net sales,
respectively, for the nine months ended September 30, 2009
and 86.7% and 7.0% of our 2008 net sales, respectively. The
remaining 3.8% and 6.3% of net sales for the nine months ended
September 30, 2009 and the year ended December 31,
2008, respectively, are from products produced in now closed
facilities in the United States. Approximately 65.9% and 23.4%
of our net sales for the nine months ended September 30,
2009, and 66.1% and 20.6% of our 2008 net sales were from
products produced in China by our Printed Circuit Boards and
Assembly business segments, respectively. We believe that our
global presence is important as it allows us to provide
consistent, quality products on a cost effective and timely
basis to our multinational customers worldwide. We rely heavily
on our international operations and are subject to risks
generally associated with operating in foreign countries,
including price and exchange controls, fluctuations in currency
exchange rates and other restrictive actions that could have a
material affect on our results of operations, financial
condition and cash flows.
Environmental
Some of our operations are subject to federal, state, local and
foreign environmental laws and regulations, which govern, among
other things, the discharge of pollutants into the air, ground
and water, as well as the handling, storage, manufacturing and
disposal of, or exposure to, solid and hazardous wastes, and
occupational safety and health. We believe that we are in
material compliance with applicable environmental laws, and the
costs of compliance with such current or proposed environmental
laws and regulations will not have a material adverse effect on
us. All of our manufacturing sites in China and the United
States are certified to ISO 14001 standards for environmental
quality compliance. Further, we are not a party to any current
claim or proceeding, and we are not aware of any threatened
claim or proceeding under environmental laws that could, if
adversely decided, reasonably be expected to have a material
adverse effect on us. Accordingly, we do not believe that any of
these matters are reasonably likely to have a material adverse
effect on our business, results of operations, financial
condition, prospects and ability to service debt. However, there
can be no assurance that any material environmental liability
will not arise in the future, such as due to a change in the law
or the discovery of currently unknown conditions.
Employees
As of September 30, 2009, we had 11,299 employees. Of
these employees, 9,807 were involved in manufacturing, 998 in
engineering, 190 in sales and marketing and 304 in accounting
and administrative capacities. No employees were represented by
a union pursuant to a collective bargaining agreement. We have
not experienced any labor problems resulting in a work stoppage
or work slowdown, and we believe we have good relations with our
employees. In November 2008, we announced a planned work force
reduction across our global organization which began in November
2008 and is substantially completed.
Intellectual
Property
We have developed expertise and techniques that we use in the
manufacturing of PCBs and
E-M
Solutions products. Research, development and engineering
expenditures for the creation and application of new products
and processes were approximately $0.9 million for the nine
months ended September 30, 2009 and approximately
$2.2 million, $3.4 million and $2.8 million for
the years ended December 31, 2008, 2007 and 2006,
respectively. We believe many of our processes related to the
manufacturing of PCBs are proprietary, including our ability to
manufacture large perimeter, thick, high-layer count backpanels.
Generally, we rely on common law trade secret protection and on
confidentiality agreements with our employees and customers to
protect our secrets and techniques.
76
We own 55 patents (including pending patents) but believe that
patents have not historically constituted a significant form of
intellectual property rights in our industry. Our patents begin
to expire in 10 years. The expiration of any of these
patents is not expected to have a material adverse effect on our
ability to operate.
Backlog
We estimate that our backlog of unfilled orders as of
September 30, 2009, was approximately $77.3 million,
compared to $78.0 million at December 31, 2008.
Because some unfilled orders may be cancelled prior to delivery,
the backlog outstanding at any point in time is not necessarily
indicative of the level of business to be expected in the
ensuing periods.
Segments
On May 1, 2006, we completed the sale of our wire harness
business, which was required to be accounted for as a
discontinued operation in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. We have
classified the results of operations of our wire harness
business as discontinued operations for all periods presented.
In connection with the disposal of the wire harness business, we
reevaluated our operating segments based on the application of
SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, and we identified two
segments: (i) Printed Circuit Boards and
(ii) Assembly. See Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our notes to consolidated financial statements for further
information regarding our segments.
Properties
In addition to our executive offices in St. Louis, Missouri, as
of September 30, 2009, we operate six principal
manufacturing and two principal distribution facilities, located
in two different countries with a total area of approximately
4.1 million square feet. Our Guangzhou, China property is
pledged to secure our indebtedness under our Guangzhou 2009
Credit Facility. Our leased properties are leased for terms
ranging from two to ten years. In September of 2009, we
entered into an agreement to terminate the lease on our
manufacturing facility in Milwaukee, Wisconsin and agreed to
make termination payments of $0.7 million and
$2.0 million in September 2009, and January 2010,
respectively.
77
At September 30, 2009, the principal properties owned or
leased by us are described below.
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Location
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Size (Appx. Sq. Ft.)
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Type of Interest
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Description of Primary
Products
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United States
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El Paso, Texas
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29,000
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Leased
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Warehousing and distribution of
E-M
Solutions products, backpanel assemblies, full system assemblies
and PCB assemblies
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Mexico
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Juarez, Mexico
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90,000
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Leased
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Backpanel assembly, PCB assembly, custom metal enclosure
fabrication, and full system assembly and test
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Asia
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Guangzhou, China
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2,250,000
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Owned
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(b)
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PCB and backpanel fabrication
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106,000
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Leased
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Zhongshan, China
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799,000
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Owned
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(a)
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PCB fabrication
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Shanghai, China
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430,000
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Owned
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(a)
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Custom metal enclosure fabrication, backpanel assembly, PCB
assembly and full system assembly and test
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Shenzhen, China
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286,000
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Leased
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Custom metal enclosure fabrication, PCB assembly and full system
assembly and test
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Qingdao, China
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93,000
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Leased
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Full system assembly and test/cable assembly
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Hong Kong
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53,000
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Owned
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Warehousing and distribution of PCBs, backpanel assemblies, full
system assemblies and PCB assemblies
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(a) |
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Although these facilities are owned, we lease the underlying
land pursuant to land use rights agreements with the Chinese
government, which expire from 2043 to 2050. |
In addition to the facilities listed above, at
September 30, 2009, we maintained several engineering,
customer service, sales and marketing and other offices
throughout North America, Europe and Asia, all of which are
leased.
Legal
Proceedings
Litigation
Relating to the Merger
Merix, its board of directors and Viasystems are named as
defendants in two putative class action lawsuits brought by
alleged Merix stockholders challenging Merix proposed
Merger with Viasystems. The stockholder actions were both filed
in the Circuit Court of the State of Oregon, County of
Multnomah. The actions are called Asbestos Workers
Philadelphia Pension Fund v. Merix Corporation, et al.,
filed October 9, 2009, Case
No. 0910-14399
and W. Donald Wybert v. Merix Corporation, et. al.,
filed on or about November 5, 2009. Both stockholder
actions generally allege, among other things, that (i) each
member of the Merix board of directors breached his fiduciary
duties to Merix and its stockholders by authorizing the sale of
Merix to us, (ii) the Merger does not maximize value to
Merix stockholders and (iii) Viasystems and Merix aided and
abetted the breaches of fiduciary duty allegedly committed by
the members of the Merix board of directors. The stockholder
actions seek class action certification and equitable relief,
including judgments enjoining the defendants from consummating
the Merger on the
agreed-upon
terms. On November 23, 2009, the court entered an order
consolidating the cases into one matter. On or about
December 2, 2009, the plaintiffs filed a Consolidated
Amended Class Action Complaint, which substantially repeats
the allegations of the original complaints, adds Merger Sub as a
defendant and also alleges that Merix did not make sufficient
disclosures regarding the Merger.
We believe the claims asserted by the plaintiffs to be without
merit and intend to vigorously defend against such claims.
78
Litigation
Relating to the Company
We are presently involved in various other legal proceedings
arising in the ordinary course of our business operations,
including employment matters and contract claims. We believe
that any liability with respect to these proceedings will not be
material in the aggregate to our consolidated financial
position, results of operations or cash flows.
Litigation
Relating to Merix
Four purported class action complaints were filed against Merix
and certain of its executive officers and directors in the first
quarter of fiscal 2005. The complaints were consolidated in a
single action entitled In re Merix Corporation Securities
Litigation, Lead Case No. CV
04-826-MO,
in the U.S. District Court for the District of Oregon.
After the court granted Merix motion to dismiss without
prejudice, the plaintiffs filed a second amended complaint. That
complaint alleged that the defendants violated the federal
securities laws by making certain inaccurate and misleading
statements in the prospectus used in connection with the January
2004 public offering of approximately $103.4 million of the
Merix common stock. In September 2006, the court dismissed
that complaint with prejudice. The plaintiffs appealed to the
Ninth Circuit Court of Appeals. In April 2008, the Ninth Circuit
reversed the dismissal of the second amended complaint. Merix
sought rehearing which was denied and rehearing en banc was also
denied. Merix obtained a stay of the mandate from the Ninth
Circuit and filed a certiorari petition with the United States
Supreme Court on September 22, 2008. On December 15,
2008, the Supreme Court denied the certiorari petition and the
case was remanded back to the U.S. District Court for the
District of Oregon. On May 15, 2009, the plaintiffs moved
to certify a class of all investors who purchased in the public
offering and who were damaged thereby. On November 5, 2009,
the court partially granted the certification motion and
certified a class consisting of all persons and entities who
purchased or otherwise acquired the common stock of Merix
Corporation from an underwriter directly pursuant to Merix
January 29, 2004 offering, who held the stock through
May 13, 2004, and who were damaged thereby. The case is
currently in the discovery phase. The plaintiffs seek
unspecified damages. A potential loss or range of loss that
could arise from these cases is not estimable or probable at
this time.
79
MANAGEMENT
It is contemplated that upon the consummation of the Merger, our
board of directors will consist of twelve members, consisting of
nine of the current members of our board of directors and three
directors from the current Merix board of directors. One of our
existing directors will resign from our board of directors in
connection with the completion of the Merger. Christopher J.
Steffen currently serves as the chairman of the our board of
directors. Committee members and chairpersons will be chosen by
our post-Merger board of directors from among its members.
The following table sets forth the names and ages, as of
February 5, 2010, of each of our current directors and
executive officers, followed by a description of their business
experience during at least the past five years. All executive
officers are appointed by the board of directors of the Company
and serve at their pleasure. There are no family relationships
among any of the executive officers or directors.
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Name
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Age
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Position
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Executive Officers
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David M. Sindelar
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52
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Chief Executive Officer and Director
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Timothy L. Conlon
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58
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President, Chief Operating Officer and Director
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Gerald G. Sax
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48
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Senior Vice President and Chief Financial Officer
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Brian W. Barber
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54
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Senior Vice President Operations-Printed Circuit Board &
Supply Chain Management
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Richard B. Kampf
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54
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Senior Vice President Sales and Marketing
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Non-Employee Directors
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Christopher J. Steffen(1)(2)*
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67
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Chairman
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Jack D. Furst
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50
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Director
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Edward Herring(1)
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39
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Director
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Robert F. Cummings Jr.(1)
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60
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Director
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Diane H. Gulyas(2)
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53
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Director
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Richard A. McGinn(1)(2)
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63
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Director
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Philip Raygorodetsky(2)
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36
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Director
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Richard W. Vieser(2)
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82
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Director
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(1) |
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Member of our Compensation Committee. |
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(2) |
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Member of our Audit Committee. |
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* |
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Denoted financial expert of the Audit Committee and independent
Director. |
David M. Sindelar has been a Director since August
2001 and Chief Executive Officer of the Company since July 2001.
He also served as our Senior Vice President and Chief Financial
Officer from January 1997 through June 2001. Previously,
Mr. Sindelar served as Chief Executive Officer of
International Wire Group, Inc. and LLS Corp. He also served as
Senior Vice President and Chief Financial Officer of Berg
Electronics Corp. Mr. Sindelar is a member of the Board of
Trustees of Saint Louis University and is Chairman of the Board
of St. Anthonys Medical Center.
Timothy L. Conlon has been a Director, President
and Chief Operating Officer of the Company since October 1998.
Prior to joining the Company, Mr. Conlon was President and
Chief Operating Officer of Berg Electronics Corp. from January
1997 through October 1998. Mr. Conlon also served as
Executive Vice President and Chief Operating Officer of Berg
Electronics Group, Inc., a wholly-owned subsidiary of Berg
Electronics Corp., from October 1993 through January 1997.
Mr. Conlon is a member of the board of directors of
Maryville University.
Gerald G. Sax has been the Senior Vice President
and Chief Financial Officer of the Company since August 2005.
Mr. Sax served as Senior Vice President-Supply Chain from
February 2003 to August 2005. He also served as our Senior Vice
President-Europe from July 1999 to January 2003.
80
Mr. Sax joined us in November 1998, in the position of Vice
President-Corporate Controller. Prior to joining us,
Mr. Sax was Vice President-Corporate Controller for Berg
Electronics Corp. from September 1995 to October 1998.
Brian W. Barber has been the Senior Vice President
Operations Printed Circuit Board & Supply Chain
Management of Viasystems since December 2007. From November 2000
to December 2007, Mr. Barber was Vice President Operations
Printed Circuit Board/Electro-mechanical Americas, and from
January 2000 to October 2000, Mr. Barber was Vice President
Printed Circuit Board Operations. Prior to joining Viasystems in
2000, Mr. Barber had been employed by Hadco Corporation
since 1982 serving as Vice President and Business Unit Manager
of their high technology operation.
Richard B. Kampf has been the Senior Vice
President of Sales & Marketing since December 2007.
From November 2002 to December 2007, Mr. Kampf was Vice
President of Sales & Marketing, and from March 2000 to
October 2002, Mr. Kampf was Vice President of
Sales & Marketing for Viasystems Printed Circuit
Board, Americas. Mr. Kampf joined us in April 1999, as
Director of Sales for the Americas with over 18 years of
experience in the electronics industry with companies such as
Marshall Industries, where he was Vice President of Sales, and
Thomas & Betts Corporation, where he was Vice
President of Sales & Marketing.
Christopher J. Steffen has been Chairman of the
board of directors since December 2003 and a Director since
October 2003. Mr. Steffen acts as the financial expert on
our Audit Committee and holds such position as an independent
Director of the Company. Mr. Steffen has been an advisor to
Wall Street Management and Capital, Inc. since 2002.
Mr. Steffen currently serves as a Director of W.R. Grace
and Co. and Accelrys, Inc. From 1993 to 1996, Mr. Steffen
served as the Vice Chairman and Director of Citicorp and its
principal subsidiary, Citibank, N.A. In 1993, Mr. Steffen
served as Senior Vice President and Chief Financial Officer of
Eastman Kodak. From 1989 to 1993, Mr. Steffen served as
Executive Vice President and Chief Financial and Administrative
Officer and Director of Honeywell, Inc.
Jack D. Furst was a Director of the Company from
1996 to February 2003 and resumed his position as a Director of
the Company in February 2005. Mr. Furst currently serves on
the Boards of Directors of Arena Brands Holding Co., Kent
Distributors, Conley Lott Nichols of Texas, Inc. and Stratford
Capital Corporation. Mr. Furst was affiliated with HM
Capital Partners, LLC (HMC) (formerly HMTF) from
1989, the year in which it was formed, through the end of 2008.
Mr. Furst has over 20 years of experience in leveraged
acquisitions and private investments. Mr. Furst is involved
in all aspects of HMCs business and has been actively
involved in originating, structuring and monitoring HMCs
investments. Prior to joining HMC, Mr. Furst served as a
Vice President and subsequently as a Partner of
Hicks & Haas from 1987 to 1989. From 1984 to 1986,
Mr. Furst was a merger and acquisitions/corporate finance
specialist for the First Boston Corporation in New York. Before
joining First Boston Corporation, Mr. Furst was a Financial
Consultant at PricewaterhouseCoopers LLC.
Edward Herring was elected as a Director in August
of 2006. Mr. Herring currently serves as a Director of
BlackBrush Energy, Capital for Kids and Swett and Crawford,
TexStar II and TriDimension Energy. Mr. Herring is a
Partner of HMC. From 1996 to 1998, Mr. Herring attended
Harvard Business School and earned a Masters in Business
Administration degree. From 1993 to 1996, Mr. Herring was
an investment banker with Goldman, Sachs & Co.
Robert F. Cummings, Jr. has been a Director
since January 2003. Mr. Cummings currently serves as
Director of Corning, Inc., GSC Investment Corp., and Precision
Partners, Inc. Mr. Cummings joined GSC in 2002. He retired
from GSC in July 2009 as a Senior Managing Director. For the
prior 28 years, Mr. Cummings was with Goldman,
Sachs & Co., where he was a member of the Corporate
Finance Department, advising corporate clients on financing,
mergers and acquisitions and strategic financial issues.
Diane H. Gulyas has been a Director since January
2003. Ms. Gulyas is Group Vice President DuPont
Performance Materials and has held such position since April
2006. Prior to
81
being appointed Group Vice President DuPont
Performance Materials, Ms. Gulyas was the Chief
Marketing & Sales Officer of E.I. du Pont de Nemours
and Company from April 2004 to April 2006. Before being
appointed Chief Marketing & Sales Officer, she was
Group Vice President of DuPont Electronics and Communication
Technologies, a position she had held from February 2002 until
April 2004. Prior to that appointment, Ms. Gulyas served as
Vice President and General Manager of the DuPont Advanced Fibers
Businesses. Since 1978, Ms. Gulyas has held various
positions with DuPont including Executive Assistant to the
Chairman of the Board and Global Business Director.
Richard A. McGinn has been a Director since
January 2003. Mr. McGinn is currently a Director of
American Express Company. Mr. McGinn has been a General
Partner at RRE Ventures (a private company that invests in
entrepreneurial information technology companies) since August
2001. From 1997 to October 2000, Mr. McGinn served as Chief
Executive Officer of Lucent Technologies, Inc. From 1996 to
1997, Mr. McGinn served as President of Lucent
Technologies, Inc.
Philip Raygorodetsky joined our board of directors
on March 27, 2009. He is a Senior Managing Director of GSC
Group, which he joined in 1999. Mr. Raygorodetsky is a
director of Dukes Place Holdings Limited, Seaton Insurance
Company, Stonewall Insurance Company and Wrightline, LLC.
Mr. Raygorodetsky was previously with Greenwich Street
Capital Partners from 1997 to 1999. Prior to that,
Mr. Raygorodetsky was with Salomon Smith Barney Inc. in the
Investment Banking Divisions health care group.
Previously, Mr. Raygorodetsky worked at Andersen Consulting.
Richard W. Vieser has been a Director since 1997.
Mr. Vieser currently serves as Chairman Emeritus of Varian
Medical Systems. Mr. Vieser is the retired Chairman of the
Board of Varian Medical Systems where he served from April 1999
to February 2003. From June 1985 to December 1989,
Mr. Vieser served as Chairman of the Board and Chief
Executive Officer of FL Industries, Inc. From September 1986 to
December 1989, Mr. Vieser served as Chairman of the Board
and Chief Executive Officer of FL Aerospace. From March 1987 to
December 1989, Mr. Vieser served as Chairman, President and
Chief Executive Officer of Lear Siegler, Inc. From April 1984
through June 1985, he served as President and Chief Operating
Officer of McGraw-Edison Company.
Board of
Directors
Our board of directors presently consists of 10 members.
Upon the closing of the Merger, our board of directors will
consist of twelve members, consisting of nine of the current
members of our board of directors and three directors from the
current Merix board of directors. One of our existing directors
will resign from our board of directors in connection with the
completion of the Merger.
Committees of the
Board of Directors
Our board of directors has established two committees: the audit
committee and the compensation committee. These committees will
also be in place after the Merger. Following the completion of
the Merger, we will have a corporate governance and nominating
committee. In addition, after the Merger the composition of the
committees will change as a result of the resignation of an
existing director and the election of three Merix directors to
our board of directors. We intend that all the members of our
audit committee will be independent under the applicable
provisions of the Securities Exchange Act of 1934, as amended
(the Exchange Act) and the NASDAQ rules.
Audit Committee. The audit committee
assists the board of directors in overseeing (i) the
integrity of our financial statements, (ii) our compliance
with legal and regulatory requirements, (iii) the
independence, qualifications and performance of our independent
registered public accounting firm and (iv) the performance
of our internal audit function. The audit committee currently
consists of Christopher J. Steffen, Philip Raygorodetsky, Diane
H. Gulyas, Richard A. McGinn and Richard W. Vieser. Messrs
McGinn and Vieser, as well as Ms. Gulyas, are considered
independent directors.
82
Mr. Steffen is also an independent director and is the
designated financial expert on the audit committee.
Compensation Committee. The
compensation committee is composed of Christopher J. Steffen,
Edward Herring, Robert F. Cummings and Richard A. McGinn.
The compensation committee (i) reviews and approves the
compensation of our executive officers and other key employees,
(ii) evaluates the performance of our chief executive
officer and oversees the performance evaluation of senior
management and (iii) administer and make recommendations to
the board of directors with respect to incentive-compensation
plans, equity-based plans and other compensation benefit plans.
Corporate Governance and Nominating
Committee. The corporate governance and
nominating committee will assist the board of directors in
identifying and recommending candidates to fill vacancies on the
board of directors and for election by the stockholders,
recommending committee assignments for directors to the board of
directors, monitoring and assessing the performance of the board
of directors and individual non-employee directors, reviewing
compensation received by directors for service on the board of
directors and its committees and developing and recommending to
the board of directors appropriate corporate governance
policies, practices and procedures for Viasystems.
Compensation
Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2009,
Messrs. Steffen, Herring, Cummings and McGinn served on the
compensation committee. Mr. Steffen, has been Chairman of
the board of directors since December 2003, and, as a result, he
is an officer of the Company pursuant to our bylaws. Except as
disclosed, no compensation committee member (i) was our
officer or employee, (ii) was formerly our officer or
(iii) had any relationship requiring disclosure under the
SECs rules governing disclosure of related person
transactions. During the fiscal year ended December 31,
2009, we did not have any interlocking relationships
in which (i) our executive officer served as a member of
the compensation committee of another entity, one of whose
executive officers served on our compensation committee,
(ii) our executive officer served as a director of another
entity, one of whose executive officers served on our
compensation committee or (iii) our executive officer
served as a member of the compensation committee of another
entity, one of whose executive officers served as our director.
83
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This section of the prospectus describes our current and past
compensation philosophies, policies and programs. Following the
completion of the Merger, we will be a publicly traded company
with a reconstituted board of directors, the Compensation
Committee of which may adopt compensation philosophies, policies
and programs that are materially different from those described
in this section.
Our Compensation Committee of the Board of Directors administers
our executive compensation program. The role of the Compensation
Committee is to oversee our compensation and benefit plans and
policies, administer our equity-based plan, and review and
approve annually all compensation decisions relating to our
senior executive officers.
The compensation programs are designed to remunerate our
executives and are intended to provide incentive to our
executives and other employees to maximize stockholder value,
which in turn affects the overall compensation earned by our
management.
The Compensation Committee has adopted compensation programs
designed to:
|
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attract, motivate and retain superior talent;
|
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encourage high performance and promote accountability;
|
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ensure that compensation is commensurate with our annual
performance; and
|
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|
provide performance awards for the achievement of financial and
operational targets and strategic objectives that are critical
to our long-term growth.
|
Presently, the total compensation of our executive officers is
comprised of any or all of the following: (i) base salary,
(ii) cash-based incentive compensation under our Annual
Incentive Compensation Plan (AICP), (iii) cash
bonus awards given at the discretion of the Compensation
Committee and (iv) long-term equity-based incentives in the
form of stock options. In determining specific components of
compensation, the Compensation Committee considers each
executives historical individual performance, our overall
performance, the level of responsibility managed by each
executive, the skills and experience of each executive, and
other performance-based measures. The Compensation Committee
reviews and approves all elements of compensation for each of
Messrs. Sindelar, Conlon, Sax, Barber, and Kampf
(collectively, the Named Executive Officers), taking
into consideration our performance, the performance of each
respective internal organization for which the executive is
responsible, as well as information regarding compensation
levels for senior executives at similarly situated companies
described below. Our Chief Executive Officer also makes
compensation recommendations to the Compensation Committee on
all Named Executive Officers (other than himself, as his
performance is reviewed by the Compensation Committee) based on
information he gathers including industry resources, benchmark
data and other peer compensation information gathered in
response to requests from the Compensation Committee. The
Compensation Committee has the ability to engage the services of
an outside consultant if and when it believes it would be
effective to do so. Notwithstanding the input from the Chief
Executive Officer and his recommendations, the Compensation
Committee ultimately determines the compensation of our Chief
Executive Officer, President and Chief Operating Officer, Chief
Financial Officer and the other Named Executive Officers during
their meetings in executive session without any members of
management present.
The Compensation Committee has implemented and intends to
maintain compensation plans that tie a substantial portion of
our executives overall compensation (in the form of
incentive compensation) to key financial and operational goals.
The Compensation Committee measures our performance primarily
through our operating income. The Compensation Committee also
uses the
non-U.S. GAAP
financial measurement of Adjusted EBITDA as an
important quantitative measurement of our performance. The
Compensation Committee establishes individual executive
84
compensation at levels the Compensation Committee believes are
comparable with executives in other companies of similar size
and stage of development, operating in similar markets, taking
into account our performance and strategic goals. In order to
benchmark the compensation paid to our Named Executive Officers,
in February 2008, the Compensation Committee reviewed a
compensation study for senior executives of similarly situated
companies prepared by Lockton Companies, LLC
(Lockton) as of January 21, 2008, which
included an analysis of our peer group companies senior
executive compensation (the Comparison Group). After
having reviewed the Lockton survey, the Compensation Committee
determined at that time that the overall compensation paid to
each of our Named Executive Officers was adequate and within the
median range of the senior executives of companies in the
Comparison Group. Since then, the Compensation Committee has not
changed any of the elements of compensation for any of the Named
Executive Officers or other employees. In addition, while the
Compensation Committee determined the overall senior executive
compensation packages are adequate as compared with our peers,
the Compensation Committee recognized that the long-term
incentive awards granted to all of our Named Executive Officers
is below the median range. With these and other data points, the
Compensation Committee will continue to periodically review all
of our compensation policies, including policies and strategy
relating to executive recruitment, retention and compensation,
as well as the appropriate mix of base salary, cash-based
incentive compensation and long-term incentive compensation for
our senior executives.
The following is a list of the companies that were in the
Comparison Group: A O Smith Corp., Altera Corp., Amphenol Corp.,
Axcelis Technologies, Inc. Benchmark Electronics, Inc., Brady
Corp., Celestica, Inc., Cypress Semiconductor Corp. DDI Corp.,
Flextronics International, Ltd., Gentek, Inc., International
Rectifier Corp., Jabil Circuit, Inc., LSI Logic Corp., MEMC
Electronic Materials, Inc., Merix, Molex, Inc., National
Semiconductor Corp., Network Appliance, Inc., ON Semiconductor
Corp., Plexus Corp., Sandisk Corp., Sanmina-SCI Corp., TTM
Technologies, Inc., Utstarcom, Inc., Varian Medical Systems,
Inc., Vishay Intertechnology, Inc. and Xilinx, Inc.
The Compensation Committee anticipates that it will continue to
make adjustments in the compensation structure for our Named
Executive Officers and other senior executives in the future to
adjust as necessary with the ever-changing global economy. In
that regard, in the fourth quarter of 2008, the Compensation
Committee approved managements decision to institute a
salary freeze for employees and other cost cutting measures
until the global economy shows signs of recovery from the
current economic climate which remains in place as of the date
hereof.
The Compensation Committee regards compensation of the Chief
Executive Officer to be among its most important
responsibilities. The Compensation Committee believes that the
Chief Executive Officer should be properly incentivized and
properly rewarded for the performance of his duties. The
Compensation Committee provides incentives in the form of
cash-based bonus opportunities as well as long term compensation
in the form of stock options to the Chief Executive Officer to
lead the business in a direction that will maximize the value of
the enterprise. In order to properly incentivize our Chief
Executive Officer to drive us to reach our financial goals, the
Compensation Committee has determined that the incentives
provided to him should be heavily weighted in the form of
nonequity, cash-based incentive opportunities conditioned upon
the achievement of our financial performance goals as measured
by Adjusted EBITDA, and certain other defined management
by objective goals.
Based on the policies and strategies set by the Compensation
Committee, our Chief Executive Officer, President and Chief
Operating Officer, Chief Financial Officer and Vice President of
Human Resources set salaries and incentive compensation
opportunities for the respective employees who report to them.
The Chief Executive Officer submits recommendations to the
Compensation Committee with respect to stock option awards for
all of our employees at all levels.
Except as described below, the Compensation Committee has not
adopted any formal or informal policies or guidelines for
allocating compensation between long-term and currently paid-out
compensation, between cash and noncash compensation, or among
different forms of compensation.
85
This is due to the Compensation Committees desire to
maintain flexibility to tailor executive compensation and to
attract and retain top-flight executives.
Elements of
Compensation
Our executive compensation consists of the following elements:
Base Salary. Base salaries for
executives are generally established after consideration of the
following criteria: (i) the scope of their
responsibilities, (ii) level of experience and individual
performance, (iii) external competitiveness, and
(iv) internal fairness considerations. The goal for the
base salary component of our executives is to compensate them at
a level that approximates the median salaries of individuals in
comparable positions at companies in the Comparison Group. Base
salaries of the Named Executive Officers are reviewed annually
by the Compensation Committee and may be adjusted from time to
time at the Compensation Committees discretion.
Annual Incentive Compensation
Plan. Each year the Compensation Committee
establishes measurement criteria for our AICP to promote the
achievement of our financial performance objectives. The AICP is
designed to motivate executives and other employees who are able
to participate toward the achievement of individual and business
unit performance objectives. The Compensation Committee
primarily uses our total aggregate Adjusted EBITDA to measure
our performance when determining managements incentive
compensation because, in the view of the Compensation Committee,
Adjusted EBITDA facilitates performance comparisons from period
to period and company to company by backing out certain
nonrecurring expenses and other potential differences caused by
variations in capital structures, the book amortization of
intangibles, taxes, the age and book value of facilities and
equipment, and certain noncash or nonoperating changes in our
performance. Adjusted EBITDA, measured by the Compensation
Committee, is not a recognized financial measure under
U.S. GAAP and does not purport to be an alternative to
operating income or an indicator of operating performance.
Adjusted EBITDA is used by the Compensation Committee as a tool
to enhance its understanding of our operating results and is not
intended to represent cash flow or results of operations. The
Compensation Committee recognizes that Adjusted EBITDA has
certain material limitations, primarily due to the exclusion of
certain amounts that are material to our consolidated results of
operations. In addition, the Compensation Committee recognizes
that Adjusted EBITDA, as measured by the Compensation Committee,
may differ from the Adjusted EBITDA calculation of other
companies in our industry, limiting its usefulness as a
comparative measure.
Target incentive compensation opportunities for each participant
(Management) in the AICP are established as a
percentage of each individuals base salary. Incentive
compensation amounts are intended to provide total cash
compensation that approximates the median for individuals in
comparable positions at companies in the Comparison Group when
assuming that our target performance is achieved. In addition,
at the beginning of each year, the Compensation Committee
carefully chooses, at its discretion, our leaders of Management
(the Company Leaders) who are eligible for bonuses
in excess of 100% of their target incentive compensation
opportunity, up to a maximum of 200% of each individuals
target incentive compensation opportunity. Historically such
group of less than 40 Company Leaders has included those
individuals who the Compensation Committee believes can affect
our overall performance as functional, manufacturing facility or
regional leaders. The Company Leaders have also historically
included the Named Executive Officers.
In addition, the Compensation Committee also sets definitive
nonquantitative management by objective
(MBO) goals for a group of less than 10 of the most
senior Company Leaders selected by the Compensation Committee,
at its discretion, which group has historically included the
Named Executive Officers (collectively, the Executive
Team). In order to achieve 100% of their respective
incentive compensation opportunity, each member of the Executive
Team must produce results for us that meet or exceed the
Adjusted EBITDA target set by the Compensation Committee, and in
the opinion of the Compensation Committee, meet the respective
nonquantitative MBO goals assigned to each member of the
Executive Team by the Compensation Committee. Historically, 15%
of each
86
member of the Executive Teams cash-based incentive
compensation opportunity has been awarded based on the
determination of the Compensation Committee that each member of
the Executive Team achieved their established MBO goals, and 85%
was awarded based on our financial performance as compared to
the Adjusted EBITDA target set by the Compensation Committee.
At the beginning of 2009, the Compensation Committee established
that the quantitative measurement of our performance would be
based on an Adjusted EBITDA target (excluding the results of our
Milwaukee facility) of $70.0 million, after assuming a 100%
payout of each individuals incentive compensation
opportunity. In addition, in accordance with past practice, in
early 2009, the Compensation Committee set other nonquantitative
definitive MBO goals for the Executive Team. The Compensation
Committee created a formula for a graduated scale of projected
incentive payments that would be made to the AICP participants
based on the Adjusted EBITDA target that was achieved. The
graduated scale, as set out below, developed by the Compensation
Committee, is a mathematical equation that allows the
Compensation Committee to calculate the incentive compensation
that is to be paid pursuant to our AICP as a function of
Adjusted EBITDA. The Adjusted EBITDA targets in 2009 were set by
the Compensation Committee at an aggressive growth level but a
level in line with our annual plan.
The following table provides in tabular format the various
facets of our AICP and the individuals or groups of individuals
who are eligible to receive each respective bonus opportunity by
category, and demonstrates the potential percentage of the
incentive compensation opportunity that each member of each
respective group would have been paid at certain Adjusted EBITDA
levels if achieved by us as provided for in our AICP.
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Adjusted EBITDA
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% of Adjusted
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Executive Team
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Executive Team
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Performance
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EBITDA Target
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Management
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Company
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Bonus Based on
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Bonus Based on
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($ in millions)
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Achieved
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Bonus
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Leaders Bonus
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Adjusted EBITDA
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MBO Goals
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Below $56.0
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Below 80%
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0%
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0%
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0.00%
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0.00%
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59.5
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|
85
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25
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25
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21.25
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15.00
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63.0
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|
90
|
|
50
|
|
50
|
|
42.50
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15.00
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66.5
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|
95
|
|
75
|
|
75
|
|
63.75
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15.00
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70.0
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100
|
|
100
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|
100
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|
85.00
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15.00
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73.5
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|
105
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|
100
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|
125
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|
106.25
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15.00
|
77.0
|
|
110
|
|
100
|
|
150
|
|
127.50
|
|
15.00
|
80.5
|
|
115
|
|
100
|
|
175
|
|
148.75
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15.00
|
84.0
|
|
120
|
|
100
|
|
200
|
|
170.00
|
|
15.00
|
During a February, 2010 meeting, the Compensation Committee
determined that each member of the Executive Team had
successfully achieved the nonquantitative MBO goals presented to
them at the beginning of the year 2009. Due to dramatically weak
demand during the first two quarters of 2009 and a moderate
market recovery versus our budget, our total year Adjusted
EBITDA was approximately equivalent of 85% of our Adjusted
EBITDA target of $70 million after making adjustments to
exclude the results of our Milwaukee facility. By applying the
incentive compensation formula to determine the incentive
compensation to be paid out for 2009, based solely on our
Adjusted EBITDA performance for the full year 2009, the bonus
payable to Management under the AICP was 25% of each
individuals target incentive compensation opportunity and
the bonus payable to each member of the Executive Team was
determined to be 36.25% of each individuals target
incentive compensation opportunity.
Discretionary Bonus. Pursuant to the
terms of the AICP, the Compensation Committee also has the
authority to grant discretionary-based awards or adjust the
bonus set forth above downward for one or a group of employees
based on criteria set at the Compensation Committees
discretion.
Based on our overall performance during 2009 in a down market
and the actions that management took to allow us to sustain our
financial strength, the Compensation Committee unanimously
87
voted to use its discretion as allowed under our compensation
plan and awarded certain of our key employees, including all the
Named Executive Officers, a discretionary bonus in addition to
the amount that was awarded under the AICP of up to 50% of each
such individuals target incentive compensation
opportunity, which the Compensation Committee determined that
such discretionary bonus was to be made on an individual basis
based on the recommendation made by the Chief Executive Officer,
subject to the condition that after combining the award made
under the AICP formula plan and the discretionary award, no
individual was to receive more than 50% of such
individuals target incentive compensation. The
Compensation Committee also granted a discretionary bonus to the
Chief Executive Officer of $126,500 to bring his total bonus to
$460,000, or 50% of his target incentive compensation
opportunity.
Stock Options. Our Compensation
Committee oversees the administration of our 2003 Stock Option
Plan. Historically, the board of directors and Compensation
Committee have made stock option grants at a qualifying
employees commencement of employment and, occasionally,
following a significant change in job responsibilities or to
meet other special recruiting or retention objectives. Although
the Compensation Committee has the authority to grant restricted
stock and stock appreciation rights under our 2003 Stock Option
Plan, to date the Compensation Committee has elected only to
grant awards of stock options to employees. In making awards of
stock options, the Compensation Committee has historically
considered the recommendations of our Chief Executive Officer.
Most of the stock options issued to the Named Executive Officers
were issued at the time the 2003 Stock Option Plan was adopted
by the board of directors, when we emerged from bankruptcy on
January 31, 2003. As of January 31, 2003, our common
stock was valued at $12.63 per share. Since 2003, because there
is no active market in our common stock, all subsequent
issuances of options under the 2003 Stock Option Plan have been
issued at the exercise price of $12.63, which we and the
Compensation Committee believe is above the price that our
common stock has been privately traded since January 2003.
The Compensation Committee uses stock options as our primary
long-term incentive vehicle because:
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stock options and the related vesting period help attract and
retain executives;
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the value received by the recipient of a stock option is based
on the growth of our enterprise value; and
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stock options help to provide a balance to the overall executive
compensation program as base salary and the AICP focus on
short-term compensation, while stock options reward executives
for increases in our overall enterprise value.
|
In determining the number of stock options to be granted to
executives, the Compensation Committee takes into account the
individuals position, scope of responsibility, ability to
affect profits and stockholder value, and the value of the stock
options in relation to other elements of the individual
executives total compensation.
Stock option holders recognize taxable income from stock option
awards when a vested option is exercised. We would generally
receive a corresponding tax deduction for compensation expense
in the year of exercise. The amount included in the
employees wages and the amount we may deduct is equal to
the common stock price when the stock options are exercised less
the exercise price multiplied by the number of stock options
exercised. We do not pay or reimburse any employee for any taxes
due upon exercise of a stock option. As of December 31,
2009, only 273,978 stock options of the total original pool of
2,777,778 remain available for grant under our 2003 Stock Option
Plan. The Compensation Committee may consider amending our 2003
Stock Option Plan in the future to allow for additional grants
as such may become necessary.
88
Other
Benefits
General Benefits. All of our executives
are eligible to participate in all of the applicable local
employee benefit plans offered by us in each respective region,
such as medical, dental, vision, long-term and short-term
disability, and life insurance, in each case on the same basis
as other employees. We also offer to Management, including the
Named Executive Officers, additional perquisites and benefits,
such as club dues, paid transportation and parking costs
reflected in the All Other Compensation column of the Summary
Compensation Table for the Named Executive Officers. Each of the
employment contracts with Messrs. Sindelar, Conlon, and Sax
contain provisions that require us to pay all medical expenses
for them for the remainder of their lifetime and the lifetime of
their spouse under certain conditions contained in their
respective contracts. The Compensation Committee believes these
benefits and perquisites are reasonable and consistent with our
overall compensation program to better enable us to attract and
retain executive talent to key positions.
401(k) Defined Contribution Plan. All
domestic employees may participate in our 401(k) Retirement
Savings Plan, or 401(k) Plan. All eligible full-time and
part-time employees who meet certain age and service
requirements may participate. For the year 2009, we made
matching contributions to the 401(k) Plan equal to 50% of the
first 6% each participating employees contribution, up to
the lesser of 3% of each participants annual eligible
compensation or, for 2009, $7,350. In 2009, all of the Named
Executives Officers participated in our 401(k) Plan.
2009 Executive
Base Salary and Incentive Compensation Determinations
David M.
Sindelar
Mr. Sindelars employment agreement with us was agreed
in January, 2003 and provides for a base salary of not lower
than $920,000 and certain other benefits and incentive
opportunities. In structuring and reviewing the Chief Executive
Officers compensation for 2009, the Compensation Committee
considered our financial performance in fiscal years 2008 and
2007, the total compensation package and value of incentive
awards to Chief Executive Officers at similarly situated
companies, and Mr. Sindelars performance during his
tenure with us. Mr. Sindelars base salary did not
increase in 2009.
For calendar year 2009, Mr. Sindelar received a base salary
of $954,354 (which included a car allowance and gross-ups for
medical claims). Under our AICP, Mr. Sindelars
cash-based incentive award opportunity was set at 100% of his
base salary. As discussed above, a payment of 36.25%, or
$333,500, was made pursuant to the AICP for 2009. However, based
on the determination by the Compensation Committee that
Mr. Sindelar lead the Executive Team and us to implement
the actions which allowed us to maintain financial strength in a
difficult overall market and based on the discretion and
judgment of the Compensation Committee, Mr. Sindelar, was
also awarded a discretionary bonus payment for the year 2009 of
an additional $126,500 on February 2, 2009 bringing his
total bonus to $460,000, or 50% of his target incentive
compensation opportunity. The Compensation Committee had
previously granted Mr. Sindelar 420,000 stock options and
determined that no additional stock options should be granted to
Mr. Sindelar in 2009.
Timothy L.
Conlon
Mr. Conlons employment agreement with us was agreed
in January, 2003 and provides for a base salary of not lower
than $550,000 and certain other benefits and incentive
opportunities. The Compensation Committee reviewed the
compensation data for Presidents and Chief Operating Officers of
similarly situated companies to determine Mr. Conlons
compensation package for 2009. In 2009, Mr. Conlon received
a salary of $572,663 (which included a car allowance). In the
spring of 2007, Mr. Conlon relocated his residence to Hong
Kong as an expatriate of the United States, to assist in leading
our Asia operations. Because Mr. Conlon moved his residence
to Hong Kong, the perquisites granted to Mr. Conlon
increased and, therefore, his total compensation increased in
2007, 2008 and 2009 to account for the additional expenses
necessary for Mr. Conlon and his wife to take
89
residence in Hong Kong. Except for the payment of expenses
related to his expatriate status, Mr. Conlons base
compensation did not increase in 2009. Under the AICP,
Mr. Conlons cash-based incentive compensation
opportunity was set at 100% of his base salary. As discussed
above, a payment of 36.25%, or $199,375, was made pursuant to
the AICP for 2009. In addition, Mr. Conlon received a
discretionary bonus award of an additional $75,625 bringing his
total bonus to $275,000, or 50% of his target incentive
compensation opportunity, from the Compensation Committee based
on the recommendation of the Chief Executive Officer. The
Compensation Committee had previously granted Mr. Conlon
400,000 stock options and determined that no additional stock
options should be granted to Mr. Conlon in 2009.
Gerald G.
Sax
Mr. Saxs employment agreement with us provides for a
base salary of not less than $360,000. The Compensation
Committee reviewed compensation data for Chief Financial
Officers of similarly situated companies to determine
Mr. Saxs base compensation package for 2009.
Mr. Saxs base salary did not increase in 2009. In
2009, Mr. Sax received a salary of $373,312 (which included
a car allowance and
gross-ups
for medical claims). Under the AICP, Mr. Saxs
cash-based incentive compensation opportunity was set at 65% of
his base salary. As discussed above, a payment of 36.25%, or
$84,825, was made pursuant to the AICP for 2009. In addition,
Mr. Sax received a discretionary bonus award of an
additional $32,175 bringing his total bonus to $117,000, or 50%
of his target incentive compensation opportunity, from the
Compensation Committee based on the recommendation of the Chief
Executive Officer. The Compensation Committee had previously
granted Mr. Sax 200,000 stock options and determined that
no additional stock options should be granted to Mr. Sax in
2009.
Brian W.
Barber
The Compensation Committee reviewed the compensation data for
Senior Vice Presidents of Operations for similarly situated
companies to determine Mr. Barbers compensation
package for 2009. Mr. Barbers base salary did not
increase in 2009. For calendar year 2009, Mr. Barber
received a base salary of $319,558 (including a car allowance).
Under the AICP, Mr. Barbers cash-based incentive
award opportunity was set at 65% of his base salary. As
discussed above, a payment of 36.25%, or $72,502, was made
pursuant to the AICP for 2009. In addition, Mr. Barber
received a discretionary bonus award of an additional $27,500
bringing his total bonus to $100,002, or 50% of his target
incentive compensation opportunity, from the Compensation
Committee based on the recommendation of the Chief Executive
Officer.
Richard B.
Kampf
The Compensation Committee reviewed the compensation data for
Senior Vice Presidents of Sales and Marketing for similarly
situated companies to determine Mr. Kampfs
compensation package for 2009. Mr. Kampfs base salary
did not increase in 2009. For calendar year 2009, Mr. Kampf
received a base salary of $318,440 (including a car allowance).
Under the AICP, Mr. Kampfs cash-based incentive award
opportunity was set at 65% of his base salary. As discussed
above, a payment of 36.25%, or $72,478, was made pursuant to the
AICP for 2009. In addition, Mr. Kampf received a
discretionary bonus award of an additional $27,492 bringing his
total bonus to $99,970, or 50% of his target incentive
compensation opportunity, from the Compensation Committee based
on the recommendation of the Chief Executive Officer.
90
Summary
Compensation
The following table shows information regarding the compensation
earned during the fiscal years ended December 31, 2009,
2008 and 2007, by our Chief Executive Officer, Chief Financial
Officer and our three other most highly compensated executive
officers for such fiscal year.
SUMMARY
COMPENSATION TABLE
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Change in
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Pension Value
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and Non-
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Qualified
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Name of
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Nonequity
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Deferred
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Participant,
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Fiscal
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Position
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Year
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Salary
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Bonus
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Awards
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Awards(1)
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Compensation(2)
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Earnings(3)
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Compensation
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Total
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David M. Sindelar,
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2009
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$
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954,354
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(4a)(20)
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$
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126,500
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(5)
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$
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$
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$
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333,500
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$
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7,250
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|
|
$
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95,191
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(9a)(10a)(11a)(12)(14)(17a)
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$
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1,516,795
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Chief Executive
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2008
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953,994
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(4a)
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506,000
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(5)
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|
|
|
|
|
|
|
|
|
|
|
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6,900
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|
|
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92,358
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(7)(9a)(10a)(11a)(12)(13a)(14)
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|
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1,559,252
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Officer
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2007
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953,994
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(4a)
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|
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184,000
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(5)
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|
|
|
|
|
|
|
|
85,122
|
|
|
|
|
644,000
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|
|
|
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6,750
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|
|
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66,239
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(9a)(10a)(11a)(12)(13a)(14)
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1,940,105
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Conlon,
|
|
|
2009
|
|
|
|
$
|
572,663
|
(4b)
|
|
|
$
|
75,625
|
(5)
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
199,375
|
|
|
|
$
|
7,250
|
|
|
|
$
|
705,488
|
(6a)(8)(9b)(10b)(11b)(12)(15)(16)(17b)(18)
|
|
|
$
|
1,560,401
|
|
|
President and Chief
|
|
|
2008
|
|
|
|
|
572,663
|
(4b)
|
|
|
|
302,500
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,900
|
|
|
|
|
631,976
|
(6a)(8)(9b)(10b)(11b)(12)(15)(16)(17b)
|
|
|
|
1,514,039
|
|
|
Operating Officer
|
|
|
2007
|
|
|
|
|
572,663
|
(4b)
|
|
|
|
110,000
|
(5)
|
|
|
|
|
|
|
|
|
85,122
|
|
|
|
|
385,000
|
|
|
|
|
6,750
|
|
|
|
|
465,962
|
(8)(9b)(10b)(11b)(12)(15)(16)(17b)(18)(19)
|
|
|
|
1,625,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald G. Sax,
|
|
|
2009
|
|
|
|
$
|
373,312
|
(4c)(20)
|
|
|
$
|
32,175
|
(5)
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
84,825
|
|
|
|
$
|
7,350
|
|
|
|
$
|
15,932
|
(9c)(10c)(11c)(12)
|
|
|
$
|
513,594
|
|
|
Sr. Vice President
|
|
|
2008
|
|
|
|
|
387,734
|
(4c)(20)
|
|
|
|
128,700
|
(5)
|
|
|
|
|
|
|
|
|
134,937
|
|
|
|
|
|
|
|
|
|
6,900
|
|
|
|
|
36,098
|
(9c)(10c)(11c)(12)(13b)
|
|
|
|
694,369
|
|
|
and Chief Financial Officer
|
|
|
2007
|
|
|
|
|
377,895
|
(4c)(20)
|
|
|
|
46,800
|
(5)
|
|
|
|
|
|
|
|
|
188,283
|
|
|
|
|
163,800
|
|
|
|
|
6,750
|
|
|
|
|
17,369
|
(9c)(10c)(11c)(13b)
|
|
|
|
800,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian W. Barber,
|
|
|
2009
|
|
|
|
$
|
319,558
|
(4d)
|
|
|
$
|
27,500
|
(5)
|
|
|
$
|
|
|
|
|
$
|
138,438
|
|
|
|
$
|
72,502
|
|
|
|
$
|
6,749
|
|
|
|
$
|
12,077
|
(6b)(9d)(10d)(11d)(12)
|
|
|
$
|
576,824
|
|
|
Sr. Vice President Operations PCB & Supply Chain
Management
|
|
|
2008
|
|
|
|
|
319,558
|
(4d)
|
|
|
|
110,003
|
(5)
|
|
|
|
|
|
|
|
|
78,595
|
|
|
|
|
|
|
|
|
|
6,240
|
|
|
|
|
19,289
|
(6b)(9d)(10d)(11d)(12)
|
|
|
|
533,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard B. Kampf,
|
|
|
2009
|
|
|
|
$
|
318,440
|
(4e)
|
|
|
$
|
27,492
|
(5)
|
|
|
$
|
|
|
|
|
$
|
138,438
|
|
|
|
$
|
72,478
|
|
|
|
$
|
7,250
|
|
|
|
$
|
7,818
|
(9e)(11e)(12)
|
|
|
$
|
571,916
|
|
|
Sr. Vice President Sales and Marketing
|
|
|
2008
|
|
|
|
|
318,440
|
(4e)
|
|
|
|
109,967
|
(5)
|
|
|
|
|
|
|
|
|
78,595
|
|
|
|
|
|
|
|
|
|
6,525
|
|
|
|
|
8,171
|
(9e)(11e)(12)
|
|
|
|
521,698
|
|
|
|
|
|
(1)
|
|
Amounts reflect the compensation cost associated with stock
option grants, calculated in accordance with SFAS 123(R)
and using a Black-Scholes valuation method.
|
(2)
|
|
Includes bonus paid in 2010 and 2008 for incentive compensation
earned in 2009 and 2007, respectively, under the Companys
AICP.
|
(3)
|
|
Matching contributions made by the Company pursuant to the
Companys 401(k) Plan.
|
(4)
|
|
(a) Includes a car allowance of $33,994 for 2009, 2008 and
2007.
|
(4)
|
|
(b) Includes a car allowance of $22,663 for 2009, 2008 and
2007.
|
(4)
|
|
(c) Includes a car allowance of $12,834 for 2009, 2008 and
2007.
|
(4)
|
|
(d) Includes a car allowance of $11,858 for 2009, 2008 and
2007.
|
(4)
|
|
(e) Includes a car allowance of $10,840 for 2009, 2008 and
2007.
|
(5)
|
|
Includes discretionary bonus award paid in 2010, 2009 and 2008
for incentive compensation earned in 2009, 2008 and 2007,
respectively.
|
(6)
|
|
(a) Includes $392,410 and $273,594 income tax expenses and
tax gross-up
paid by the Company in foreign jurisdiction on behalf of
individual in 2009 and 2008, respectively.
|
(6)
|
|
(b) Includes $6,740 and $13,593 income tax expenses and tax
gross-up
paid by the Company in foreign jurisdiction on behalf of
individual in 2009 and 2008, respectively.
|
(7)
|
|
Includes 4 personal seat licenses for St. Louis Cardinals
Baseball in Mr. Sindelars name in the amount of
$10,000 in 2008.
|
(8)
|
|
All or a substantial portion of the perquisites are paid in Hong
Kong dollars at the exchange rate of approximately US $1 to HK
$7.8.
|
(9)
|
|
(a) Includes club dues of $22,480 in 2009, $27,088 in 2008
and $26,875 in 2007.
|
(9)
|
|
(b) Includes club dues of $14,157 in 2009, $16,253 in 2008
and $62,658 in 2007.
|
(9)
|
|
(c) Includes club dues of $7,395 in 2009, $7,771 in 2008
and $6,502 in 2007.
|
(9)
|
|
(d) Includes club dues of $50 in 2009 and $700 in 2008.
|
(9)
|
|
(e) Includes club dues of $4,976 in 2009 and $5,400 in 2008.
|
(10)
|
|
(a) Includes financial consulting services in the amounts
of $16,163 in 2009, $18,715 in 2008 and $10,314 in 2007.
|
91
|
|
|
(10)
|
|
(b) Includes financial consulting services in the amounts
of $7,895 in 2009, $7,220 in 2008 and $7,375 in 2007.
|
(10)
|
|
(c) Includes financial consulting services in the amounts
of $3,700 in 2009, $3,475 in 2008 $5,125 in 2007.
|
(10)
|
|
(d) Includes financial consulting services in the amounts
of $2,445 in 2009 and $2,225 in 2008.
|
(11)
|
|
(a) Includes Supplemental Life Insurance premiums in the
amounts of $5,252 in 2009, $5,530 in 2008 and $5,963 in 2007.
|
(11)
|
|
(b) Includes Supplemental Life Insurance premiums in the
amounts of $8,754 in 2009, $8,751 in 2008 and $9,596 in 2007.
|
(11)
|
|
(c) Includes Supplemental Life Insurance premiums in the
amounts of $4,146 in 2009, $4,143 in 2008 and $4,377 in 2007.
|
(11)
|
|
(d) Includes Supplemental Life Insurance premiums in the
amounts of $1,582 in 2009 and $1,506 in 2008.
|
(11)
|
|
(e) Includes Supplemental Life Insurance premiums in the
amounts of $1,582 in 2009 and $1,506 in 2008.
|
(12)
|
|
Includes medical premiums.
|
(13)
|
|
(a) Includes designation of charitable donations by the
Company in the amounts of $20,000 in 2008 and $13,300 in 2007.
|
(13)
|
|
(b) Includes designation of charitable donations by the
Company in the amounts of $20,000 in 2008 and $1,365 in 2007.
|
(14)
|
|
Includes continuing education in the amounts of $9,120 in both
2009 and 2008 and $8,500 in 2007.
|
(15)
|
|
Includes expenses of $52,332 in 2009, $60,359 in 2008 and
$69,516 in 2007 for a car, driver and parking in Hong Kong.
|
(16)
|
|
Includes $180,265 in 2009, $176,398 in 2008 and $284,215 in 2007
of expenses related to the relocation to Hong Kong, housing,
additional living expenses, and expenses related to additional
domestic services provided in the United States and in Hong Kong
due to expatriate assignment.
|
(17)
|
|
(a) Includes tickets to sporting events in the amount of
$26,404, use of a private airline charter and spouse tag along
travel of $14,289.
|
(17)
|
|
(b) Includes entertainment and spouse tag-along travel in
2009 $45,958, tickets to sporting events and spouse tag-along
travel in the amount of $53,914 in 2008, spouse tag along travel
in the amount of $26,848 in 2007.
|
(18)
|
|
Includes $18,951 in additional electronic equipment for home in
Hong Kong.
|
(19)
|
|
Includes supplemental medical and dental expenses for insurance
in Hong Kong in the amount of $15,272 in 2008 and $13,653 in
2007.
|
(20)
|
|
Includes medical claims grossed up for tax purposes.
|
Grants of
Plan-Based Awards
The following table sets forth certain information with respect
to grants of plan-based awards for the year ended
December 31, 2009, to our Chief Executive Officer, Chief
Financial Officer and our three other most highly compensated
executive officers for such fiscal year.
92
Grants of Plan
Based Awards For Fiscal Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise or
|
|
|
Date Fair
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
Estimated Future Payouts Under
|
|
|
Number of
|
|
|
Number of
|
|
|
Base Price
|
|
|
Value of
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
|
Equity Incentive Plan Awards(2)
|
|
|
Shares of
|
|
|
Securities
|
|
|
of Option
|
|
|
Stock and
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Stock
|
|
|
Underlying
|
|
|
Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
or Units (#)
|
|
|
Options
|
|
|
($/sh)
|
|
|
Awards ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David M. Sindelar
|
|
|
|
|
|
|
195,500
|
|
|
|
920,000
|
|
|
|
1,840,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Conlon
|
|
|
|
|
|
|
116,075
|
|
|
|
550,000
|
|
|
|
1,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald G. Sax
|
|
|
|
|
|
|
49,725
|
|
|
|
234,000
|
|
|
|
468,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian W. Barber
|
|
|
|
|
|
|
42,501
|
|
|
|
200,005
|
|
|
|
400,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard B. Kampf
|
|
|
|
|
|
|
42,487
|
|
|
|
199,940
|
|
|
|
399,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to the AICP for 2009. |
|
|
|
(2) |
|
The fair market value of our common stock is below the stock
option price of $12.63 per share. |
Discussion of
Summary Compensation and Grants of Plan-Based Awards
Tables
David M.
Sindelar
Mr. Sindelar entered into an amended and restated executive
employment agreement with us and certain of our subsidiaries as
of October 13, 2003, as amended. Pursuant to his employment
agreement, Mr. Sindelar will serve as our Chief Executive
Officer through January 31, 2011, unless the agreement is
terminated earlier by us or Mr. Sindelar. In the event the
agreement is not terminated by either Mr. Sindelar or us
before the expiration of the term of the agreement, the
agreement will automatically renew for an additional year.
Mr. Sindelar is required to devote the amount of time
reasonably necessary to faithfully and adequately supervise our
overall management. Subject to the foregoing limitation on his
activities, Mr. Sindelar is free to participate in other
business endeavors.
The compensation provided to Mr. Sindelar under his
executive employment agreement includes an annual base salary of
not less than $920,000, subject to upward adjustment, and
additional compensation that may be used by Mr. Sindelar to
own and maintain an automobile, as well as those other benefits
customarily accorded our executives as long as the executive
employment agreement is in force. In addition, Mr. Sindelar
is eligible to receive an annual cash-based incentive
compensation opportunity of up to 200% of his annual base
salary, in an amount determined in accordance with our AICP (if
we achieve 120% of the target Adjusted EBITDA set by the
Compensation Committee each year).
Mr. Sindelars executive employment agreement also
provides that if Mr. Sindelars employment is
terminated without cause (as such term is defined in his
employment agreement), Mr. Sindelar will continue to
receive his then current salary, which will not be less than
$920,000, together with his annual bonus amount, for a period of
18 months following such termination. The executive
employment agreement terminates upon Mr. Sindelars
death or his inability to perform his duties due to mental or
physical incapacity for six consecutive months or any 100
working days out of a twelve-month period, and no further
compensation will be payable except that he or his estate, heirs
or beneficiaries, as applicable, will receive his then current
salary, together with his annual bonus amount, for a period of
18 months, in addition to benefits otherwise specifically
provided for. The agreement also provides medical benefits for
Mr. Sindelars and his spouses lifetime.
Timothy L.
Conlon
Mr. Conlon entered into an amended and restated executive
employment agreement with us and certain of our subsidiaries as
of January 31, 2003. Pursuant to his employment agreement,
Mr. Conlon will serve as our President and Chief Operating
Officer through January 31, 2011, unless terminated earlier
by us or Mr. Conlon. In the event the agreement is not
terminated by either Mr. Conlon or us before the expiration
of the term of the agreement, the agreement will automatically
renew for an additional year. Mr. Conlon is required to
devote the amount of time reasonably necessary to faithfully and
adequately supervise our overall operational management.
93
The compensation provided to Mr. Conlon under his executive
employment agreement includes an annual base salary of not less
than $550,000, subject to upward adjustment, and additional
compensation that may be used by Mr. Conlon to own and
maintain an automobile, as well as those other benefits granted
to Mr. Conlon for his expatriate service to us during his
assignment to reside in Hong Kong, and other benefits customary
accorded to our executives as long as the executive employment
agreement is in force. In addition, Mr. Conlon is eligible
to receive an annual cash-based incentive compensation
opportunity of up to 200% of his annual base salary, in an
amount determined in accordance with our AICP (if we achieve
120% of the target Adjusted EBITDA set by the Compensation
Committee each year).
Mr. Conlons executive employment agreement also
provides that if Mr. Conlons employment is terminated
without cause, Mr. Conlon will continue to receive his then
current salary, which will not be less than $550,000, for a
period of 18 months following such termination. The
executive employment agreement terminates upon
Mr. Conlons death or his inability to perform his
duties due to mental or physical incapacity for six consecutive
months or any 100 working days out of a twelve-month period, and
no further compensation will be payable except that he or his
estate, heirs or beneficiaries, as applicable, will receive his
then current salary for a period of 18 months, in addition
to benefits otherwise specifically provided for. The agreement
also provides medical benefits for Mr. Conlons and
his spouses lifetime.
As of March 1, 2007, we assigned Mr. Conlon to work in
our Hong Kong office and to take residence in Hong Kong. We have
agreed to pay for Mr. Conlons expatriate expenses
including tax
gross-ups
and equalization, expenses for living quarters and other related
expenses.
Gerald G.
Sax
Mr. Sax entered into an amended and restated executive
employment agreement with us and certain of our subsidiaries as
of August 15, 2005. Pursuant to his employment agreement,
Mr. Sax will serve as our Senior Vice President and Chief
Financial Officer until his death or termination of employment.
Mr. Sax is required to devote the amount of time reasonably
necessary to faithfully and adequately supervise our overall
financial management.
The compensation provided to Mr. Sax under his executive
employment agreement includes an annual base salary of not less
than $360,000 and additional compensation that may be used by
Mr. Sax to own and maintain an automobile, as well as those
other benefits customarily accorded our executives as long as
the executive employment agreement is in force. In addition,
Mr. Sax is eligible to receive an annual cash-based
incentive compensation opportunity of up to 130% of his annual
base salary in an amount determined in accordance with the AICP
(if we achieve 120% of the target Adjusted EBITDA set by the
Compensation Committee each year).
Mr. Saxs employment agreement also provides that if
Mr. Saxs employment is terminated without cause,
Mr. Sax will continue to receive his then current salary,
which will not be less than $360,000, for a period of
18 months following such termination and a payment of 65%
of his annual salary in lieu of annual incentive compensation.
The executive employment agreement terminates upon
Mr. Saxs death or his inability to perform his duties
due to mental or physical incapacity for six consecutive months
or any 100 working days out of a twelve-month period, and no
further compensation will be payable except that he or his
estate, heirs or beneficiaries, as applicable, will receive his
then current salary for a period of 18 months, in addition
to benefits otherwise specifically provided for. The agreement
also provides medical benefits for Mr. Saxs and his
spouses lifetime.
Brian W.
Barber
Mr. Barber entered into an amended and restated executive
employment agreement with us as of January 31, 2000.
Mr. Barber serves as our Senior Vice President Operations
Printed Circuit
94
Board & Supply Chain Management until his death or
termination of employment. Mr. Barber is required to devote
the amount of time reasonably necessary to faithfully and
adequately supervise our PCB operations as well as our PCB
supply chain.
The compensation provided to Mr. Barber under his executive
employment arrangement includes an annual base salary of
$307,700 and additional compensation that may be used by
Mr. Barber to own and maintain an automobile, as well as
those other benefits customarily accorded our executives as long
as the executive employment agreement is in force. In addition,
Mr. Barber is eligible to receive an annual cash-based
incentive compensation opportunity of up to 130% of his annual
base salary, in an amount determined in accordance with our AICP
(if we achieve 120% of the target Adjusted EBITDA set by the
Compensation Committee each year).
Mr. Barbers employment agreement also provides that
if Mr. Barbers employment is terminated without
cause, Mr. Barber will continue to receive his then current
salary and employee benefits, including any incentive bonus he
is eligible to receive under our AICP on a pro-rata basis as of
the time of the termination of his employment, for a period of
12 months following such termination.
Richard B.
Kampf
Mr. Kampf entered into an amended and restated executive
employment agreement with certain of our subsidiaries as of
October 3, 2002. Mr. Kampf serves as our Senior Vice
President Sales and Marketing until his death or termination of
employment. Mr. Kampf is required to devote the amount of
time reasonably necessary to faithfully and adequately supervise
our overall sales and marketing management.
The compensation provided to Mr. Kampf under his employment
arrangement includes an annual base salary of $307,600 and
additional compensation that may be used by Mr. Kampf to
own and maintain an automobile, as well as those other benefits
customarily accorded our executives as long as the executive
employment agreement is in force. In addition, Mr. Kampf is
eligible to receive an annual cash-based incentive compensation
opportunity of up to 130% of his annual base salary, in an
amount determined in accordance with our AICP (if we achieve
120% of the target Adjusted EBITDA set by the Compensation
Committee each year).
Mr. Kampfs employment agreement also provides that if
Mr. Kampfs employment is terminated without cause,
Mr. Kampf will continue to receive his then current salary
and employee benefits, including any incentive bonus he is
eligible to receive under our AICP on a pro-rata basis as of the
time of the termination of his employment, for a period of
12 months following such termination.
95
Outstanding
Equity Awards
The following table sets forth certain information with respect
to outstanding equity awards at December 31, 2009, with
respect to our Chief Executive Officer, Chief Financial Officer
and our three other most highly compensated executive officers
for such fiscal year.
Outstanding
Equity Awards at Fiscal Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
Equity Incentive Plan
|
|
|
|
|
|
|
Number of Securities
|
|
Awards: Number of
|
|
Option Exercise
|
|
Option Expiration
|
Name
|
|
Underlying Unexercised Options
|
|
Securities Underlying
|
|
Price ($)
|
|
Date
|
|
|
Exercisable(1)
|
|
Unexercisable (#)
|
|
Unexercised
|
|
|
|
|
|
|
|
|
|
|
Unearned Options (#)
|
|
|
|
|
|
David M. Sindelar
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
1/31/2013
|
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
8/17/2014
|
|
Timothy L. Conlon
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
1/31/2013
|
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
8/17/2014
|
|
Gerald G. Sax
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
1/31/2013
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
8/17/2014
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
8/08/2015
|
|
Brian W. Barber
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
1/31/2013
|
|
|
|
|
33,333
|
|
|
|
16,667
|
|
|
|
|
|
|
|
12.63
|
|
|
|
2/6/2017
|
|
|
|
|
26,667
|
|
|
|
13,333
|
|
|
|
|
|
|
|
12.63
|
|
|
|
11/1/2017
|
|
Richard B. Kampf
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
12.63
|
|
|
|
1/31/2013
|
|
|
|
|
33,333
|
|
|
|
16,667
|
|
|
|
|
|
|
|
12.63
|
|
|
|
2/6/2017
|
|
|
|
|
26,667
|
|
|
|
13,333
|
|
|
|
|
|
|
|
12.63
|
|
|
|
11/1/2017
|
|
|
|
|
(1) |
|
All options have a vesting schedule of (i) 33% on the date
of grant, (ii) 33% two years following the date of grant
and (iii) 33% three years after the date of grant. |
Options Exercised
and Stock Vested
None of our Named Executive Officers exercised any stock options
or similar awards during fiscal year 2009. The following table
sets forth certain information with respect to stock option
vesting during the fiscal year ended December 31, 2009,
with respect to our Chief Executive Officer, Chief Financial
Officer and the three other most highly compensated executive
officers for such fiscal year.
Option Exercises
and Stock Vested During the Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
Name
|
|
Exercise
|
|
|
Exercise
|
|
|
Acquired on Vesting
|
|
|
Vesting
|
|
|
David M. Sindelar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Conlon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald G. Sax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian W. Barber
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Richard B. Kampf
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Pension
Benefits
None of our Named Executive Officers are covered by a pension
plan or other similar benefit plan that provides for payments or
other benefits.
Nonqualified
Deferred Compensation
We do not have any nonqualified deferred compensation plans.
96
Potential
Payments Upon Termination or Change in Control
We have entered into employment agreements with
Messrs. Sindelar, Conlon, Sax, Barber, and Kampf. Specific
provisions set forth in the employment agreements regarding
payments on termination are provided below. The dollar amounts
used in the discussion are estimates based on salary as of
December 31, 2009, and benefits paid to the Named Executive
Officer in fiscal year 2009.
David M.
Sindelar
Voluntary
Termination by the Executive or Termination for Cause:
Mr. Sindelar and his spouse are entitled to receive life
and medical benefits upon his voluntary termination or
termination for cause throughout the remainder of their lives.
All other benefits and remuneration cease upon the voluntary
termination by Mr. Sindelar or termination for cause.
Cause is defined in Mr. Sindelars
employment agreement to mean fraud, dishonesty, competition with
us, unauthorized use of any of our trade secrets or confidential
information or failure to properly perform the duties assigned
to him, in our reasonable judgment.
Termination by Us
Without Cause or Upon Death or Disability:
If Mr. Sindelar is terminated by us without cause (as
defined in Mr. Sindelars Employment Agreement) or
upon Mr. Sindelars death or disability,
Mr. Sindelar will continue to receive the following
benefits for a period of eighteen months: (i) his then
current salary, which will not be less than $920,000;
(ii) his annual cash-based incentive compensation
opportunity; (iii) fringe benefits customarily afforded to
our executives; (iv) reimbursement of the expense to own
and maintain an automobile; and (v) lifetime medical
benefits for himself and his spouse.
Effect of a
Change in Control:
There is no provision in Mr. Sindelars contract that
specifically allows for any payment to Mr. Sindelar in the
event of a change in control.
Mr. Sindelars employment agreement contains covenants
for the benefit of us relating to protection of our confidential
information and the return of our property.
Timothy L.
Conlon
Voluntary
Termination by the Executive or Termination for Cause:
Mr. Conlon and his spouse are entitled to receive life and
medical benefits upon his voluntary termination or termination
for cause throughout the remainder of their lives. All other
benefits and remuneration cease upon the voluntary termination
by Mr. Conlon or termination for cause. Cause
is defined in Mr. Conlons employment agreement to
mean fraud, dishonesty, competition with us, unauthorized use of
any of our trade secrets or confidential information or failure
to properly perform the duties assigned to him, in our
reasonable judgment.
Termination by Us
Without Cause or Upon Death or Disability:
If Mr. Conlon is terminated by us without cause or upon
Mr. Conlons death or disability, he is entitled to
the following benefits for 18 months: (i) his annual
salary, which is not to be less than $550,000; (ii) fringe
benefits customarily afforded to our executives;
(iii) reimbursement of the expense to own and maintain an
automobile; and (iv) lifetime medical benefits for himself
and his spouse.
Effect of a
Change in Control:
There is no provision in Mr. Conlons contract that
specifically allows for any payment to Mr. Conlon in the
event of a change in control.
97
Mr. Conlons employment agreement contains covenants
for our benefit relating to protection of our confidential
information and the return of our property, non-competition for
one-year following termination, in the event he is terminated
for cause or voluntarily terminates, or during the period he
accepts payments, in the event he is terminated without cause or
upon death or disability, non-solicitation of our employees for
three years following his termination.
Gerald G.
Sax
Voluntary
Termination by the Executive or Termination for Cause:
Mr. Sax and his spouse are entitled to continue to receive
life and medical benefits upon voluntary termination or
termination for cause throughout the remainder of their lives.
All other benefits and remuneration cease upon the voluntary
termination by Mr. Sax or termination for cause.
Cause is defined in Mr. Saxs employment
agreement to mean fraud, dishonesty, competition with us,
unauthorized use of any of our trade secrets or confidential
information or failure to properly perform the duties assigned
to him, in our reasonable judgment.
Termination by Us
Without Cause or Upon Death or Disability:
If Mr. Sax is terminated by us without cause (as defined in
Mr. Saxs Employment Agreement) or upon
Mr. Saxs death or disability, he is entitled to the
following benefits: (i) no less than $360,000 in annual
salary for a period of 18 months (or $540,000); (ii) a
one-time payment of $351,000; (iii) fringe benefits
customarily afforded to our executives for 18 months;
(iv) reimbursement of the expense to own and maintain an
automobile for a period of 18 months; and (v) lifetime
medical benefits for himself and his spouse.
Effect of a
Change in Control:
There is no provision in Mr. Saxs contract that
specifically allows for any payment to Mr. Sax in the event
of a change in control.
Mr. Saxs employment agreement contains covenants for
our benefit relating to protection of our confidential
information and the return of our property, non-competition for
one-year following termination, in the event he is terminated
for cause or voluntarily terminates, or during the period he
accepts payments, in the event he is terminated without cause or
upon death or disability.
Brian W.
Barber
Voluntary
Termination by the Executive or Termination for Cause:
All benefits and remuneration cease upon the voluntary
termination by Mr. Barber or termination for cause.
Cause is defined in Mr. Barbers
employment agreement to mean fraud, dishonesty, competition with
us, unauthorized use of any of our trade secrets or confidential
information or failure to properly perform the duties assigned
to him, in our reasonable judgment.
Termination by Us
Without Cause or Upon Death or Disability:
If Mr. Barber is terminated by us without cause (as defined
in Mr. Barbers Employment Agreement) or upon
Mr. Barbers death or disability, he is entitled to
the following benefits: (i) no less than $307,700 and
(ii) fringe benefits customarily afforded to our executives
for 12 months. In addition, in the event that
Mr. Barbers termination is without cause,
Mr. Barber is eligible to receive an annual bonus he would
otherwise have been entitled to receive (on a pro-rated basis
through his termination date) under our AICP.
98
Effect of a
Change in Control:
There is no provision in Mr. Barbers contract that
specifically allows for any payment to Mr. Barber in the
event of a change of control.
Mr. Barbers employment arrangement contains covenants
for our benefit relating to protection of our confidential
information and the return of our property, non-competition for
one-year following termination, in the event he is terminated
for cause or voluntarily terminates.
Richard B.
Kampf
Voluntary
Termination by the Executive or Termination for Cause:
All benefits and remuneration cease upon the voluntary
termination by Mr. Kampf or termination for cause.
Cause is defined in Mr. Kampfs employment
agreement to mean fraud, dishonesty, competition with us,
unauthorized use of any of our trade secrets or confidential
information or failure to properly perform the duties assigned
to him, in our reasonable judgment.
Termination by Us
Without Cause or Upon Death or Disability:
If Mr. Kampf is terminated by us without cause (as defined
in Mr. Kampfs Employment Agreement) or upon
Mr. Kampfs death or disability, he is entitled to the
following benefits: (i) no less than $307,600 and
(ii) fringe benefits customarily afforded to our executives
for 12 months. In addition, in the event that
Mr. Kampfs termination is without cause,
Mr. Kampf is eligible to receive an annual bonus he would
otherwise have been entitled to receive (on a pro-rated basis
through his termination date) under our AICP.
Effect of a
Change in Control:
There is no provision in Mr. Kampfs contract that
specifically allows for any payment to Mr. Kampf in the
event of a change of control.
Mr. Kampfs employment arrangement contains covenants
for our benefit relating to protection of our confidential
information and the return of our property, non-competition for
one-year following termination, in the event he is terminated
for cause or voluntarily terminates.
The following table demonstrates the amounts payable to each
Named Executive Officer upon termination of employment under
several circumstances assuming such termination was effective
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
Change
|
|
|
|
|
Termination
|
|
Termination
|
|
Due to
|
|
of
|
NEO
|
|
Voluntary Resignation
|
|
for Cause
|
|
without Cause
|
|
Death or Disability
|
|
Control
|
|
David M. Sindelar
|
|
Lifetime medical benefits
|
|
Lifetime medical benefits
|
|
$2,809,500 plus lifetime medical benefits
|
|
$2,809,500 plus lifetime medical benefits
|
|
None
|
Timothy L. Conlon
|
|
Lifetime medical benefits
|
|
Lifetime medical benefits
|
|
$858,000 plus lifetime medical benefits
|
|
$858,000 plus lifetime medical benefits
|
|
None
|
Gerald G. Sax
|
|
Lifetime medical benefits
|
|
Lifetime medical benefits
|
|
$910,500 plus lifetime medical benefits
|
|
$910,500 plus lifetime medical benefits
|
|
None
|
Brian W. Barber
|
|
|
|
|
|
$307,700 plus medical benefits for 12 months
|
|
$307,700
|
|
None
|
Richard B. Kampf
|
|
|
|
|
|
$307,600 plus medical benefits for 12 months
|
|
$307,600
|
|
None
|
99
DIRECTOR
COMPENSATION
In 2009, our Chairman of the Board received annual compensation
of $130,000 and Directors (other than the Chairman) who are not
executive officers received an annual fee of $35,000. In
addition, each Audit Committee and Compensation Committee member
received an annual fee of $12,000 and the Chairman of the Audit
Committee and Compensation Committee each received an additional
fee of $7,000. We also reimbursed Directors for out-of-pocket
expenses incurred in connection with attending meetings of the
board of directors and its committees. We also granted 55,000
stock options with an exercise price of $12.63 per share, which
vested over a period of three years, to each of
Mr. Steffen, Mr. McGinn, Mr. Vieser and
Ms. Gulyas upon their original election as Directors in the
first quarter of 2003 as additional compensation for their
services as members of the board of directors. Mr. Steffen
received an additional 50,000 options with an exercise price of
$12.63 per share when he was elected as Chairman of the Board of
Directors in December of 2003, which such options vested over a
period of three years.
The following table provides compensation information for our
Directors in 2009 who were not our executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Total
|
|
|
Christopher J. Steffen
|
|
$
|
154,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
154,000
|
|
Jack D. Furst
|
|
|
35,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
Edward Herring
|
|
|
47,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
Philip Raygorodetsky
|
|
|
32,250
|
(2)
|
|
|
|
|
|
|
|
|
|
|
32,250
|
|
Robert F. Cummings
|
|
|
47,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
Diane H. Gulyas
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
Richard W. Vieser
|
|
|
54,000
|
|
|
|
|
|
|
|
|
|
|
|
54,000
|
|
Richard A. McGinn
|
|
|
66,000
|
|
|
|
|
|
|
|
|
|
|
|
66,000
|
|
Peter R. Frank
|
|
|
11,750
|
(2)(3)
|
|
|
|
|
|
|
|
|
|
|
11,750
|
|
|
|
|
(1) |
|
Compensation paid directly from us to HMTF. |
|
|
|
(2) |
|
Compensation paid directly from us to GSC. |
|
|
|
(3) |
|
Mr. Frank served on as Board of Directors for only one quarter
of the year 2009. |
100
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect
to our voting capital stock as of February 5, 2010:
|
|
|
|
|
each person or group who is known by us to own beneficially more
than 5% of our common stock;
|
|
|
|
each member of our board of directors and each of our named
executive officers; and
|
|
|
|
all members of our board of directors and named executive
officers as a group.
|
Beneficial ownership of shares is determined under rules of the
SEC and generally includes any shares over which a person
exercises sole or shared voting or investment power. The table
also includes the number of shares underlying options and
warrants that will be exercisable within 60 days of the
date of this prospectus. There were approximately
10 holders of our common stock as of February 5, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common
|
|
|
|
|
Stock Beneficially Owned After the
|
|
|
Shares of Common
|
|
Merger and
|
|
|
Stock Beneficially Owned
|
|
Recapitalization
|
Name of Beneficial Owner
|
|
Number
|
|
Percentage
|
|
Number
|
|
Percentage
|
|
HMTF Parties(1)(3)
|
|
|
18,086,786
|
|
|
|
55.0
|
|
|
|
15,562,570
|
|
|
|
77.8
|
%
|
c/o HM
Capital Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 Crescent Court, Suite 1600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, Texas 75201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Parties(2)(3)
|
|
|
11,092,411
|
|
|
|
35.1
|
|
|
|
15,562,570
|
|
|
|
77.8
|
|
c/o GSC
Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 Campus Drive, Suite 220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florham Park, New Jersey 07932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VG Holdings, LLC(3)
|
|
|
0
|
|
|
|
0
|
|
|
|
15,562,570
|
|
|
|
77.8
|
|
c/o HM
Capital Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 Crescent Court, Suite 1600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, Texas 75201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity Parties(4)
|
|
|
2,853,390
|
|
|
|
9.9
|
|
|
|
238,677
|
|
|
|
1.2
|
|
82 Devonshire Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston, Massachusetts 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack D. Furst(1)(3)
|
|
|
18,086,786
|
|
|
|
55.0
|
|
|
|
15,562,570
|
|
|
|
77.8
|
|
Philip Raygorodetsky(2)(3)
|
|
|
11,092,411
|
|
|
|
35.1
|
|
|
|
15,562,570
|
|
|
|
77.8
|
|
Edward Herring(1)(3)
|
|
|
18,086,786
|
|
|
|
55.0
|
|
|
|
15,562,570
|
|
|
|
77.8
|
|
Richard W. Vieser(5)
|
|
|
55,000
|
|
|
|
0.2
|
|
|
|
4,600
|
|
|
|
*
|
|
Robert F. Cummings(2)(3)
|
|
|
11,092,411
|
|
|
|
35.1
|
|
|
|
15,562,570
|
|
|
|
77.8
|
|
Diane H. Gulyas(5)
|
|
|
55,000
|
|
|
|
0.2
|
|
|
|
4,600
|
|
|
|
*
|
|
Richard A. McGinn(5)
|
|
|
55,000
|
|
|
|
0.2
|
|
|
|
4,600
|
|
|
|
*
|
|
Christopher J. Steffen(5)
|
|
|
105,000
|
|
|
|
0.4
|
|
|
|
8,782
|
|
|
|
*
|
|
David M. Sindelar(5)
|
|
|
420,000
|
|
|
|
1.4
|
|
|
|
35,131
|
|
|
|
0.2
|
|
Timothy L. Conlon(5)
|
|
|
400,000
|
|
|
|
1.4
|
|
|
|
35,458
|
|
|
|
0.2
|
|
Gerald G. Sax(5)
|
|
|
200,000
|
|
|
|
0.7
|
|
|
|
16,729
|
|
|
|
*
|
|
Brian W. Barber(5)
|
|
|
60,000
|
|
|
|
0.2
|
|
|
|
5,018
|
|
|
|
*
|
|
Richard B. Kampf(5)
|
|
|
60,000
|
|
|
|
0.2
|
|
|
|
5,018
|
|
|
|
*
|
|
All executive officers and directors as a group (13 persons)
|
|
|
30,589,197
|
|
|
|
82.4
|
%
|
|
|
15,680,512
|
|
|
|
78.4
|
|
|
|
|
*
|
|
Represents beneficial ownership of
less than 0.1% of the outstanding shares of our common stock.
|
|
(1)
|
|
These figures include:
3,454,094 shares of common stock held of record by Hicks,
Muse, Tate & Furst Equity Fund III, L.P., a
limited partnership, of which the ultimate general partner is
Hicks, Muse Fund III Incorporated, an affiliate of
HMTF; 93,681 shares of common stock held of record by HM3
Coinvestors, L.P., a limited partnership, of which the ultimate
general partner is Hicks, Muse Fund III Incorporated, an
affiliate of HMTF; 601,355 shares of common stock held of
record by HMTF Equity Fund IV (1999), L.P., a limited
partnership, of which the ultimate general partner is Hicks,
Muse (1999) Fund IV, LLC, an affiliate of HMTF;
32,014 shares of common stock held of record by Hicks, Muse
PG-IV (1999), C.V., of which the ultimate general partner is HM
Fund IV Cayman, LLC, an affiliate of HMTF;
14,785 shares of common stock held of record by
HM 4-SBS
(1999) Coinvestors, L.P., a limited partnership, of which
the ultimate general partner is Hicks, Muse (1999)
|
101
|
|
|
|
|
Fund IV, LLC, an affiliate of
HMTF; 9,826 shares of common stock held of record by HM
4-EQ (1999) Coinvestors, L.P., a limited partnership, of
which the ultimate general partner is Hicks, Muse
(1999) Fund IV, LLC, an affiliate of HMTF;
4,259 shares of common stock held of record by HMTF Private
Equity Fund IV (1999), L.P., a limited partnership, of
which the ultimate general partner is Hicks, Muse
(1999) Fund IV, LLC, an affiliate of HMTF; and
9,873,369 shares of common stock and 2,177,356 shares
of Class B Senior Convertible Preferred Stock (currently
convertible into 4,003,403 shares of common stock) held of
record by Pearl Street II, L.P., a limited partnership, of
which the ultimate general partner is Hicks, Muse Fund III
Incorporated, an affiliate of HMTF.
|
|
|
|
|
|
Mr. Furst and Mr. Herring
are partners, stockholders and members of the management
committee of HMTF and, accordingly, may be deemed to
beneficially own all or a portion of the shares of our common
stock beneficially owned by the HMTF Parties described above.
Each of Mr. Furst and Mr. Herring disclaims beneficial
ownership of shares of our common stock not owned of record by
him.
|
|
(2)
|
|
These figures include:
|
|
|
|
|
|
GSC Recovery II, L.P. (Recovery
II) owns 4,543,850 shares of common stock (which
includes 2,893,887 shares of common stock and
1,801,801 shares of common stock issuable upon conversion
of 979,957 shares of Class B Senior Convertible
Preferred Stock); GSC Recovery IIA, L.P. (Recovery IIA) owns
5,204,545 shares of common stock (which includes
4,357,276 shares of common stock and 925,238 shares of
common stock issuable upon conversion of 503,215 shares of
Class B Senior Convertible Preferred Stock); GSC Partners
CDO Fund, Limited (CDO) owns 654,801 shares of our common
stock; and GSC Partners CDO Fund II, Limited (CDO
II) owns 459,408 shares of our common stock. By virtue
of his relationship (described below) with Recovery II, Recovery
IIA, CDO, and CDO II, each of Mr. Raygorodetsky and
Mr. Cummings may be deemed to have shared voting and
investment power over, and be the indirect beneficial owner of,
the shares of our common stock owned by Recovery II, Recovery
IIA, CDO, and CDO II. Each of Mr. Raygorodetsky and
Mr. Cummings disclaims beneficial ownership of our common
stock except to the extent of his pecuniary interest in such
stock.
|
|
|
|
|
|
Recovery II is a Delaware
limited partnership. GSC Recovery II GP, L.P. is the
general partner of Recovery II. GSC RII, LLC is the general
partner of GSC Recovery II GP, L.P. GSCP (NJ) Holdings,
L.P. is the managing member of GSC RII, LLC. GSCP (NJ), L.P. is
the manager of Recovery II. GSCP (NJ), Inc. is the general
partner of GSCP (NJ), L.P. and GSCP (NJ) Holdings, L.P.
|
|
|
|
Recovery IIA is a Delaware limited
partnership. GSC Recovery IIA GP, L.P. is the general partner of
Recovery IIA. GSC RIIA, LLC is the general partner of GSC
Recovery IIA GP, L.P. GSCP (NJ) Holdings, L.P. is the managing
member of GSC RIIA, LLC. GSCP (NJ), L.P. is the manager of
Recovery IIA. GSCP (NJ), Inc. is the general partner of GSCP
(NJ), L.P. and GSCP (NJ) Holdings, L.P.
|
|
|
|
CDO and CDO II are Cayman Islands
corporations. GSCP (NJ), L.P. is the Collateral manager of CDO
and CDO II; GSCP (NJ), Inc. is the general partner of GSCP (NJ),
L.P.
|
|
|
|
GSCP (NJ), Inc. is the general
partner of GSCP (NJ), L.P. and GSCP (NJ) Holdings, L.P. and is a
wholly owned subsidiary of GSC Group, Inc. Additionally, GSC
Group, Inc. owns substantially all of the interests in GSCP
(NJ), L.P. and GSCP (NJ), Holdings, L.P. Mr. Cummings is an
executive officer of GSC Group, Inc. and GSCP (NJ), Inc. and
Mr. Raygorodetsky is the senior managing director of GSC
Group, Inc.
|
|
|
|
By virtue of each of the above
entitys and individuals relationship with Recovery
II, Recovery IIA, CDO and CDO II, each may be deemed to have
shared voting and investment power over, and be the indirect
beneficial owner of, the shares of our common stock owned by
Recovery II, Recovery IIA, CDO and CDO II. Each of the above
entities and individuals disclaims beneficial ownership of our
common stock except to the extent of each entitys and
individuals pecuniary interest in such common stock.
|
|
(3)
|
|
Upon formation of VG Holdings, LLC
in connection with the recapitalization prior to the completion
of the Merger, all of the members interests in VG
Holdings, LLC will be owned by the HMTF Parties, the GSC Parties
and TCW. VG Holdings, LLC will acquire 77.8% of Viasystems Group
common stock prior to the completion of the Merger through the
transactions described under Summary Recent
Developments Pending Merger with Merix Corporation
and Related Transactions Pending Merger. Each
of the HMTF Parties and the GSC Parties may be deemed to have
shared voting power and investment power with respect to shares
of our common stock owned by VG Holdings, LLC. In accordance
with note (1) to this table, Messrs. Furst and Herring
each disclaim beneficial ownership of shares of our common stock
not owned of record by him. In accordance with note (2) to
this table, each of the GSC Parties and Messrs. Cummings
and Raygorodetsky disclaims beneficial ownership of the our
common stock, except to the extent of each entitys and
individuals pecuniary interest in such common stock.
|
|
(4)
|
|
The Fidelity entities identified
above are either an investment company registered under
Section 8 of the Investment Company Act of 1940, as
amended, or an institutional investment account, each of which
is advised by an investment adviser that is a wholly-owned
subsidiary of FMR LLC. FMR LLC is a Delaware limited liability
corporation.
|
|
(5)
|
|
Represents shares of common stock
issuable upon the exercise of options that are exercisable
within 60 days.
|
102
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Monitoring and
Oversight Agreement
We entered into a ten-year monitoring and oversight agreement
with an affiliate of HMTF, effective as of January 31,
2003. Under the monitoring and oversight agreement, we are
required to pay HMTF an annual fee for oversight and monitoring
services equal to the lesser of (i) 2% of our consolidated
adjusted EBITDA for such year or (ii) $1.5 million.
The fee is payable for the preceding year following the
completion of the audited financial statements for the preceding
year, provided that HMTF may elect to defer the payment of their
fees, in which case these amounts will become due and payable at
such time as HMTF elects to require the payment of these
obligations. The monitoring and oversight agreement makes
available the resources of HMTF concerning a variety of
financial and operational matters. These services have been
provided not only by Mr. Furst and Mr. Herring,
outside the scope of their duties as our directors, but also
from numerous other principals and employees of HMTF.
Mr. Furst and Mr. Herring are each principals of HMTF.
HMTF has performed various monitoring and oversight services,
including providing input in managements establishment of
our financial and strategic acquisition plans. HMTF monitors the
viability and implementation of our strategic plan through
actions such as review of monthly financial data, management
briefings and facility visits. HMTF is also entitled to
reimbursement for any expenses incurred by it in connection with
rendering services under the monitoring and oversight agreement.
In addition, we have agreed to indemnify HMTF, its affiliates,
and their respective directors, officers, controlling persons,
agents and employees from and against all claims, liabilities,
losses, damages, expenses and fees and disbursements of counsel
related to or arising out of or in connection with the services
rendered by HMTF under the monitoring and oversight agreement
and not resulting primarily from the bad faith, gross
negligence, or willful misconduct of HMTF. The consolidated
statements of operations include expenses of $0.8 million
for the nine months ended September 30, 2009, and
$1.5 million for each of the years ended December 31,
2008, 2007 and 2006, related to the monitoring and oversight
agreement. The Monitoring and Oversight Agreement will be
terminated if the Merger is consummated and we will pay a
termination fee of approximately $5.6 million to HMTF in
connection therewith.
Stockholders
Agreement
On January 31, 2003, we entered into a Stockholders
Agreement (the Stockholders Agreement) with certain
persons acquiring shares of Viasystems Group capital stock in
connection with our Chapter 11 reorganization, including
HMTF, which controls a majority of the voting stock of
Viasystems Group, and certain affiliates of GSC.
The Stockholders Agreement provides that our board of directors
will be comprised of at least nine members as follows: our Chief
Executive Officer, five members designated for election by
affiliates of HMTF and three members designated for election by
affiliates of GSC and the other non-HMTF stockholder parties to
the Stockholders Agreements other than HMTF. In addition,
affiliates of HMTF, on the one hand, and affiliates of GSC and
the other non-HMTF stockholder parties to the Stockholders
Agreement, on the other hand, have the right to jointly
designate additional members to our board of directors. The five
Directors designated by affiliates of HMTF are Mr. Furst,
Mr. Herring, Mr. McGinn, Mr. Vieser and
Mr. Conlon. The three Directors designated by affiliates of
GSC and other non-HMTF stockholders are Mr. Cummings,
Mr. Raygorodetsky and Ms. Gulyas. Mr. Steffen is
a jointly nominated Director and Mr. Sindelar holds the
remaining seat as our Chief Executive Officer. The Stockholders
Agreement also provides that the Compensation Committee of our
board of directors will be comprised of two members designated
by the HMTF board designees and one member designated by the GSC
and non-HMTF Stockholders board designees, so long as such
individuals are qualified to serve in such capacity.
103
To the extent that the affiliates of HMTF or the affiliates of
GSC and the other non-HMTF stockholders dispose of shares of
common stock held by them, such constituencys right to
designate Directors for election (and to appoint Compensation
Committee members) shall be reduced as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
Compensation
|
Percentage of Common Stock
|
|
Designated
|
|
Committee
|
Disposed of by Affiliates of HTMTF
|
|
Directors
|
|
Members
|
|
More than 20% but equal or less than 40%
|
|
|
4
|
|
|
|
2
|
|
More than 40% but equal or less than 60%
|
|
|
3
|
|
|
|
2
|
|
More than 60% but equal or less than 80%
|
|
|
2
|
|
|
|
1
|
|
More than 80% but equal or less than 90%
|
|
|
1
|
|
|
|
1
|
|
More than 90%
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
Percentage of Common Stock
|
|
Number of
|
|
Compensation
|
Disposed of by Affiliates of GSC and
|
|
Designated
|
|
Committee
|
Other Non-HMTF Stockholders
|
|
Directors
|
|
Members
|
|
More than 30% but equal or less than 60%
|
|
|
2
|
|
|
|
1
|
|
More than 60% but equal or less than 90%
|
|
|
1
|
|
|
|
1
|
|
More than 90%
|
|
|
0
|
|
|
|
0
|
|
The Stockholders Agreement also restricts our ability to engage
in certain transactions without the consent of the requisite
stockholders under the Stockholders Agreement.
The Stockholders Agreement will be terminated if the Merger is
consummated; provided, however, we and the Funds will enter into
a new Stockholder Agreement as described below.
Additional
Agreements to Be Entered into in Connection with the
Merger
In connection with the execution of the Merger Agreement, we
entered into the Recapitalization Agreement with the Majority
Stockholders, which are comprised of the Funds, pursuant to
which, among other things, we and the Majority Stockholders
agreed to recapitalize Viasystems Group such that, prior to and
contingent upon the consummation of the Merger, (i) each
outstanding share of our common stock will be exchanged for
0.083647 shares of our newly issued common stock,
(ii) each outstanding share of our Class A Junior
Preferred Stock will be reclassified as, and converted into,
8.47868 shares of our newly issued common stock and
(iii) each outstanding share of our Class B Senior
Preferred Stock will be reclassified as, and converted into,
1.41657 shares of our newly issued common stock (the
Recapitalization).
In addition, we and the Majority Stockholders agreed,
concurrently with the consummation of the Merger, to
(i) terminate the Stockholders Agreement and
(ii) enter into a new stockholders agreement with a new
entity to be formed by the Funds that, if the Merger is
consummated, will hold approximately 77.8% of our common stock,
referred to as the Fund Entity. Under the terms of the new
stockholders agreement, the Fund Entity will have the
right, subject to certain reductions, to designate up to five
directors to serve on our board of directors. In addition,
subject to certain exceptions, the Fund Entity will agree
not to sell any of our common stock held by the Fund Entity
for 180 days after the closing of the Merger.
104
The new stockholders agreement will provide the Fund Entity
with certain registration rights related to its shares of our
common stock. Under the terms of the new stockholders agreement,
if after June 30, 2012, the public float of our common
stock has not increased by 100% of the public float immediately
prior to the completion of the Merger, then the Fund Entity
may request that we file a registration statement on
Form S-1
or
Form S-3
to effect a primary underwritten offering of shares of our
common stock. The Fund Entity also has the right to demand
that we register the Fund Entitys shares of our
common stock on at least three occasions, subject to the
conditions set forth in the registration agreement. In addition,
the Fund Entity has the right to piggyback on
any registration statement that we file on an unlimited basis,
subject to the conditions set forth in the registration
agreement. If we are eligible to file a registration statement
on
Form S-3,
the Fund Entity can request that we register its shares.
The new stockholders agreement will terminate on the tenth
anniversary of the date the new stockholder agreement is
executed.
105
SELLING
STOCKHOLDERS
The selling stockholders may from time to time offer and sell
any or all of the shares of our common stock set forth below
pursuant to this prospectus. When we refer to selling
stockholders in this prospectus, we mean the persons or
entities listed in the table below, and the pledges, donees,
permitted transferees, assignees, successors and others who
later come to hold any of such selling stockholders
interests in shares of our common stock other than through a
public sale.
The following table sets forth, as of the date of this
prospectus, the names of the selling stockholders for whom we
are registering shares for resale to the public, and the number
of shares of common stock that the selling stockholders may
offer pursuant to this prospectus. Unless otherwise noted, the
common stock being offered by the selling stockholders were
acquired from us in connection with the Exchange. The shares of
common stock offered by the selling stockholders were issued
pursuant to exemptions from the registration requirements of the
Securities Act. The selling stockholders represented to us that
they were either accredited investors or qualified institutional
buyers and were acquiring our common stock for passive
investment purposes only and not with a view to, or for resale
in connection with, any distribution thereof in violation of the
securities laws. Except as noted below, no selling stockholder
has, nor within the past three years has had, any material
relationship with us or any of our predecessors or affiliates
and no selling stockholder is or was affiliated with registered
broker-dealers.
Based on the information provided to us by the selling
stockholders and as of the date the same was provided to us,
assuming that the selling stockholders sell all of the shares of
our common stock beneficially owned by them that have been
registered by us and do not acquire any additional shares, the
selling stockholders will not own any shares other than those
appearing in the column entitled Number of Shares of
Common Stock Owned After the Offering. We cannot advise
you as to whether the selling stockholders will in fact sell any
or all of such shares of common stock. In addition, the selling
stockholders may have sold, transferred or otherwise disposed
of, or may sell, transfer or otherwise dispose of, at any time
and from time to time, the shares of our common stock in
transactions exempt from the registration requirements of the
Securities Act after the date on which it provided the
information set forth on the table below. However, the selling
stockholders are subject to certain restrictions on the transfer
of the shares of our common stock pursuant to the Note Exchange
Agreement dated as of October 6, 2009 among Viasystems
Group, Inc., Maple Acquisition Corp. and the entities listed on
Schedule I thereto. Specifically, each of the selling
stockholders, (i) with respect to one-third of its shares
during the period commencing on the day of the closing of the
Merger and ending 75 days after the day of closing of the
Merger and (ii) with respect to another one-third of its
shares during the period commencing on the day of the closing of
the Merger and ending 150 days after the day of closing of
the Merger, may not offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, such shares or enter into any swap or other
arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of such shares. Other
than the Note Exchange Agreement, we currently
106
have no agreements, arrangements or understandings with the
selling stockholders regarding the sale or other disposition of
any of the shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
Shares of
|
|
|
Percentage
|
|
|
Shares of
|
|
|
Shares of
|
|
|
Percentage
|
|
|
|
Common
|
|
|
of Common
|
|
|
Common
|
|
|
Common
|
|
|
of Common
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock Being
|
|
|
Stock
|
|
|
Stock
|
|
|
|
Owned
|
|
|
Owned
|
|
|
Offered
|
|
|
Owned
|
|
|
Owned
|
|
|
|
Prior to the
|
|
|
Prior to the
|
|
|
in this
|
|
|
After the
|
|
|
After the
|
|
Name of Selling
Stockholder
|
|
Offering
|
|
|
Offering(1)
|
|
|
Offering
|
|
|
Offering
|
|
|
Offering(1)
|
|
|
2B LLC(2)
|
|
|
11,955
|
|
|
|
0.06
|
%
|
|
|
11,955
|
|
|
|
|
|
|
|
|
%
|
ACE Bermuda Insurance Ltd.(2)
|
|
|
14,288
|
|
|
|
0.07
|
|
|
|
14,288
|
|
|
|
|
|
|
|
|
|
ACE Tempest Reinsurance Ltd.(2)
|
|
|
14,288
|
|
|
|
0.07
|
|
|
|
14,288
|
|
|
|
|
|
|
|
|
|
Arch Reinsurance Ltd.(2)
|
|
|
18,953
|
|
|
|
0.09
|
|
|
|
18,953
|
|
|
|
|
|
|
|
|
|
Brown University(2)
|
|
|
14,025
|
|
|
|
0.07
|
|
|
|
14,025
|
|
|
|
|
|
|
|
|
|
Fidelity Financial Trust: Fidelity Convertible Securities Fund(3)
|
|
|
549,643
|
|
|
|
2.75
|
|
|
|
549,643
|
|
|
|
|
|
|
|
|
|
General Motors Foundation, Inc.(2)
|
|
|
2,916
|
|
|
|
0.01
|
|
|
|
2,916
|
|
|
|
|
|
|
|
|
|
HPK Zinsplus(2)
|
|
|
11,168
|
|
|
|
0.06
|
|
|
|
11,168
|
|
|
|
|
|
|
|
|
|
LC Capital Master Fund, LTD(4)
|
|
|
161,831
|
|
|
|
0.81
|
|
|
|
161,831
|
|
|
|
|
|
|
|
|
|
MainStay Convertible Fund, a Series of the MainStay Funds(5)
|
|
|
152,529
|
|
|
|
0.76
|
|
|
|
152,529
|
|
|
|
|
|
|
|
|
|
MainStay VP Convertible Fund, a Portfolio of MainStay VP Series
Fund, Inc.(5)
|
|
|
106,255
|
|
|
|
0.53
|
|
|
|
106,255
|
|
|
|
|
|
|
|
|
|
Oaktree TT Multi-Strategy Fund, L.P.(2)
|
|
|
11,518
|
|
|
|
0.06
|
|
|
|
11,518
|
|
|
|
|
|
|
|
|
|
OCM Global Convertible Securities Fund(2)
|
|
|
2,478
|
|
|
|
0.01
|
|
|
|
2,478
|
|
|
|
|
|
|
|
|
|
OCM High Income Convertible Fund II, L.P.(2)
|
|
|
13,705
|
|
|
|
0.07
|
|
|
|
13,705
|
|
|
|
|
|
|
|
|
|
OCM High Income Convertible Limited Partnership(2)
|
|
|
8,602
|
|
|
|
0.04
|
|
|
|
8,602
|
|
|
|
|
|
|
|
|
|
Promark Global Advisors(2)
|
|
|
58,901
|
|
|
|
0.29
|
|
|
|
58,901
|
|
|
|
|
|
|
|
|
|
Quintessence Fund L.P.(6)
|
|
|
7,319
|
|
|
|
0.04
|
|
|
|
7,319
|
|
|
|
|
|
|
|
|
|
QVT Fund LP(6)
|
|
|
68,640
|
|
|
|
0.34
|
|
|
|
68,640
|
|
|
|
|
|
|
|
|
|
Richard King Mellon Foundation(2)
|
|
|
10,060
|
|
|
|
0.05
|
|
|
|
10,060
|
|
|
|
|
|
|
|
|
|
San Diego County Employees Retirement Association(2)
|
|
|
2,770
|
|
|
|
0.01
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
StarVest Convertible Securities Fund, Ltd.(2)
|
|
|
8,573
|
|
|
|
0.04
|
|
|
|
8,573
|
|
|
|
|
|
|
|
|
|
The Long-Term Investment Trust(2)
|
|
|
42,572
|
|
|
|
0.21
|
|
|
|
42,572
|
|
|
|
|
|
|
|
|
|
Virginia Retirement System(2)
|
|
|
76,629
|
|
|
|
0.38
|
|
|
|
76,629
|
|
|
|
|
|
|
|
|
|
Winchester Convertible Plus, Ltd.(2)
|
|
|
20,469
|
|
|
|
0.10
|
|
|
|
20,469
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on an approximate number of 20,000,000 shares of
outstanding common stock after consummation of the Merger, the
Recapitalization, the Exchange and related transactions. |
|
(2) |
|
Oaktree Capital Management, L.P. (Oaktree), 333 S.
Grand Ave., 28th Floor, Los Angeles, California 90071, is the
general partner or the discretionary investment manager of the
accounts of the selling stockholder with respect to its shares
of our common stock and has voting and dispositive power with
respect to such shares. Oaktree Holdings, Inc. (OHI)
is the general partner of Oaktree |
107
|
|
|
|
|
and controls the decisions of Oaktree regarding the vote and
disposition with respect to such shares. Oaktree Capital Group,
LLC (OCG) is the sole shareholder of OHI and has the
sole power to appoint and remove the directors of OHI and, as
such, may indirectly control the decisions of OHI regarding the
vote and disposition with respect to such shares. Oaktree
Capital Group Holdings, L.P. (OCGH) is the holder of
a substantial majority of the voting units of OCG and has the
ability to appoint and remove the directors of OCG and, as such,
may indirectly control the decisions of OCG regarding the vote
and disposition with respect to such shares. Oaktree Capital
Group Holdings GP, LLC (OCGH GP and, together with
Oaktree, OHI, OCG and OCGH, the Oaktree Entities) is
the general partner of OCGH. OCGH GP is a limited liability
company managed by an executive committee, the members of which
are Howard Marks, Bruce Karsh, Sheldon Stone, Larry Keele,
Stephen Kaplan, John Frank, David Kirchheimer and Kevin Clayton
(collectively, the Principals). Additionally, Andrew
Watts, a managing director of Oaktree, is the portfolio manager
for the accounts of the selling stockholder. Under applicable
law, by virtue of their respective status each of the Oaktree
Entities, the Principals and Mr. Watts may be deemed to be
beneficial owners having indirect ownership of the shares owned
of by the selling stockholder. Each of the Oaktree Entities, the
Principals and Mr. Watts hereby disclaims beneficial ownership
of our common stock listed, except to the extent of their
respective pecuniary interest therein, if any. Oaktree is an
affiliate of a registered broker-dealer, OCM Investments, LLC.
Oaktree is the majority owner of OCM Investments, LLC. Inasmuch
as Oaktree does not have information regarding all of the
investment and other activities of the selling stockholders that
constitute separately managed accounts, Oaktree, to its actual
knowledge, is not aware that any such separately managed account
is registered as a broker dealer or is an affiliate of a
registered brokerdealer. The selling stockholder has
informed us, that the shares were acquired in the ordinary
course of business and at the time it obtained the shares, it
did not have any intent, agreements or understandings, directly
or indirectly, with any person to distribute the shares. |
|
|
|
(3) |
|
Fidelity Management & Research Company
(Fidelity), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an
investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of
549,643 shares of our common stock resulting from the
Merger as a result of acting as investment adviser to various
investment companies registered under Section 8 of the
Investment Company Act of 1940. |
|
|
|
Edward C. Johnson III and FMR LLC, through its control of
Fidelity, and the funds each has sole power to dispose of the
549,643 shares owned by the Funds. |
|
|
|
Members of the family of Edward C. Johnson III, Chairman of FMR
LLC, are the predominant owners, directly or through trusts, of
Series B voting common shares of FMR LLC, representing 49%
of the voting power of FMR LLC. The Johnson family group and all
other Series B shareholders have entered into a
shareholders voting agreement under which all
Series B voting common shares will be voted in accordance
with the majority vote of Series B voting common shares.
Accordingly, through their ownership of voting common shares and
the execution of the shareholders voting agreement,
members of the Johnson family may be deemed, under the
Investment Company Act of 1940, to form a controlling group with
respect to FMR LLC. |
|
|
|
Neither FMR LLC nor Edward C. Johnson III, Chairman of FMR
LLC, has the sole power to vote or direct the voting of the
shares owned directly by the selling stockholder, which power
resides with the selling stockholders Boards of Trustees.
Fidelity carries out the voting of the shares under written
guidelines established by the Funds Boards of Trustees. |
|
|
|
|
|
The selling stockholder is an affiliate of a broker-dealer. The
selling stockholder has informed us, that the shares were
acquired in the ordinary course of business and at the time it
obtained the shares, it did not have any intent, agreements or
understandings, directly or indirectly, with any person to
distribute the shares. |
|
|
|
(4) |
|
Lampe, Conway & Co. LLC, 680 Fifth Avenue,
12th Floor, New York, New York 10019, is the beneficial
owner of 161,831 shares of our common stock resulting from
the Merger as investment |
108
|
|
|
|
|
manager to LC Capital Master Fund, LTD. Steven G. Lampe and
Richard F. Conway, as managing members of Lampe,
Conway & Co. LLC, each has power to dispose of the
161,831 shares owned by LC Capital Master Fund, LTD. |
|
|
|
(5) |
|
MacKay Shields LLC, 9 West 57th Street, New York, New York
10019, is the beneficial owner of such shares of our common
stock as a result of acting as subadviser to the selling
stockholder. Additionally, Edward Silverstein, a Managing
Director of MacKay Shields LLC, is the portfolio manager for the
accounts of the selling stockholder and has voting and
dispositive powers over such shares. MacKay Shields LLC is a
subadviser to the selling stockholder, a mutual fund. Both
MacKay Shields LLC and the selling stockholders investment
advisor are affiliates of a broker-dealer. The selling
stockholder has informed us, that the shares were acquired in
the ordinary course of business and at the time it obtained the
shares, it did not have any intent, agreements or
understandings, directly or indirectly, with any person to
distribute the shares. |
|
|
|
(6) |
|
Management of the selling stockholder is vested in its general
partner, QVT Associates GP LLC, which may be deemed to
beneficially own the shares of our common stock held by the
selling stockholder. QVT Financial LP, 1177 Avenue of the
Americas, 9th Floor, New York, New York 10036, is the investment
manager of the selling stockholder and shares voting and
investment control over such shares. QVT Financial GP LLC is the
general partner of QVT Financial LP and as such has complete
discretion in the management and control of the business affairs
of QVT Financial LP. The managing members of QVT Financial GP
LLC are Daniel Gold, Nicholas Brumm, Arthur Chu and Tracy Fu and
such managing members share voting and dispositive powers over
such shares. Each of QVT Financial LP, QVT Financial GP LLC,
Daniel Gold, Nicholas Brumm, Arthur Chu and Tracy Fu disclaims
beneficial ownership of the shares held by the selling
stockholder. QVT Associates GP LLC disclaims beneficial
ownership of the shares held by the selling stockholder, except
to the extent of its pecuniary interest therein. |
109
DESCRIPTION OF
CAPITAL STOCK
The following discussion is a summary of the material terms
of our capital stock that will be in effect if the Merger is
completed. The following description of the material terms of
our capital stock does not purport to be complete and is
qualified by reference to our certificate of incorporation and
bylaws, which documents are incorporated by reference as
exhibits to the registration statement of which this prospectus
is a part, and the applicable provisions of the General
Corporation Law of the State of Delaware.
Authorized
Capital Stock
Our third amended and restated certificate of incorporation,
which will be in effect if the Merger is completed, provides
that the total number of shares of capital stock that we may
issue is 125,000,000 shares, and the designation, the
number of authorized shares and the par value of the shares of
each class or series will be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Designation
|
|
Class
|
|
No. of Shares Authorized
|
|
Par Value
|
|
Common Stock
|
|
|
Common
|
|
|
|
100,000,000
|
|
|
$
|
0.01
|
|
Preferred Stock
|
|
|
Preferred
|
|
|
|
25,000,000
|
|
|
$
|
0.01
|
|
Description of
Common Stock
Voting
Rights
General
Except as otherwise provided by law, each share of common stock
will have identical rights and privileges in every respect.
Votes Per
Share
The holders of shares of common stock will be entitled to vote
upon all matters submitted to a vote of the stockholders and
will be entitled to one vote for each share of common stock held.
Cumulative
Voting
Stockholders are not entitled to cumulative voting of their
shares in elections of directors.
Dividends
Subject to the prior rights and preferences, if any, applicable
to shares of preferred stock, the holders of shares of common
stock will be entitled to received dividends as may be declared
by our board of directors from time to time out of funds legally
available.
Liquidation
Rights
In the event of any voluntary or involuntary liquidation,
dissolution or winding up, after distribution in full of the
preferential amounts, if any, to be distributed to the holders
of shares of preferred stock, subject to the rights of the
holders of shares of preferred stock to participate, the holders
of shares of common stock will be entitled to receive all of our
remaining assets available for distribution to its stockholders,
ratably in proportion to the number of shares of common stock
held by them.
Preemptive
Rights
The holders of common stock do not have any preemptive right to
subscribe for, purchase or otherwise acquire shares of any class
or series of our capital stock.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock is
Computershare Trust Company, N.A.
110
Anti-takeover
Provisions
The General Corporation Law of the State of Delaware, which we
refer to as the DGCL, and our second amended and restated bylaws
contain provisions which could discourage or make more difficult
a change of control without the support of the board of
directors. A summary of these provisions follows.
Notice Provisions
Relating to Stockholder Proposals and Nominees
Our second amended and restated bylaws contain provisions
requiring stockholders to give advance written notice to the
company of a proposal or director nomination in order to have
the proposal or the nominee considered at an annual meeting of
stockholders. The notice must usually be given not earlier than
120 days and not later than 90 days before the first
anniversary of the preceding years annual meeting. The
notice must also contain the information specified in our second
amended and restated bylaws.
Stockholders must also give advance written notice of director
nominations in order to have the nominee considered at a special
meeting of stockholders at which directors are to be elected
pursuant to the notice of meeting. The notice must usually be
given not earlier than 120 days and not later than
90 days before the special meeting.
Under the third amended and restated certificate of
incorporation and the second amended and restated bylaws, a
special meeting of stockholders may be called by the chairman of
the board, our board of directors (pursuant to a resolution
adopted by a majority of directors) or our president. However,
if the Fund Entity and its affiliates own 35% or more of our
outstanding capital stock, then a special meeting must, provided
certain conditions are met, be called by the board of directors
upon written request of one or more record holders of shares of
our capital stock representing not less than 35% of the total
number of shares entitled to vote on the matters to be brought
before the proposed special meeting.
Provisions
Regarding Written Consent of Stockholders
Under our third amended and restated certificate of
incorporation and the second amended and restated bylaws, as
long as the Fund Entity and its affiliates owns 50% or more of
our outstanding capital stock, any action required or permitted
to be taken by the stockholders may be taken without a meeting
if a consent in writing, setting forth the action taken, is
signed by the holders of record of capital stock having not less
than the minimum number of votes that would be necessary to
authorize the action at a meeting at which the holders of all
shares of capital stock authorized to vote on the action were
present and voted. If the Fund Entity owns less than 50% of
the outstanding shares of capital stock, then no action may be
authorized by the stockholders without a meeting except for
action taken with the unanimous consent of all holders of
capital stock authorized to vote on the action.
Business
Combinations
We are is a Delaware corporation that is subject to
Section 203 of DGCL. Section 203 provides that,
subject to certain exceptions specified in the law, a Delaware
corporation may not engage in certain business
combinations with any interested stockholder
for a three-year period following the time that the stockholder
became an interested stockholder unless:
|
|
|
|
|
prior to such time, our board of directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
|
|
|
|
upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock outstanding
at the time the transaction commenced, excluding certain
shares; or
|
|
|
|
at or subsequent to that time, the business combination is
approved by our board of directors and by the affirmative vote
(at a stockholder meeting and not by written consent) of the
holders
|
111
|
|
|
|
|
of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
|
Generally, pursuant to the DGCL, a business
combination includes, among other things, a merger, asset
or stock sale or other transaction resulting in a financial
benefit to the interested stockholder. Subject to certain
exceptions, an interested stockholder is a person
who, together with that persons affiliates and associates,
owns, or within the previous three years did own, 15% or more of
our voting stock.
Under certain circumstances, Section 203 makes it more
difficult for a person who would be an interested
stockholder to effect various business combinations with a
corporation for a three year period. The provisions of
Section 203 may encourage companies interested in acquiring
us to negotiate in advance with our board of directors because
the stockholder approval requirement would be avoided if our
board of directors approves either the business combination or
the transaction that results in the stockholder becoming an
interested stockholder. These provisions also may make it more
difficult to accomplish transactions that stockholders may
otherwise deem to be in their best interests.
No Stockholder
Rights Plan
We do not currently have a stockholder rights plan.
Description of
Preferred Stock
The preferred stock may be issued from time to time in one or
more classes or series, the shares of each class or series to
have the designations and powers, preferences, rights,
qualifications, limitations and restrictions thereof as are
stated and expressed in our third amended and restated
certificate of incorporation and in the resolution or
resolutions providing for the issuance of that class or series
adopted by our board of directors.
The board of directors has the authority to create one or more
classes or series of preferred stock and, with respect to each
class or series, to fix and state the following:
|
|
|
|
|
the voting rights of the class or series;
|
|
|
|
the number of shares constituting the class or series and the
designation of the class or series;
|
|
|
|
the preferences, and relative, participating, optional, or other
special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or
series;
|
|
|
|
whether or not the shares of the class or series will be
redeemable at our option or the holders of the class or series
or upon a specified event, and, if redeemable, the redemption
price or prices and the time or times at which the shares will
be redeemable;
|
|
|
|
whether or not the shares of the class or series will be subject
to the operation of retirement or sinking funds to be applied to
the purchase or redemption of the shares for retirement, and if
retirement or sinking funds are to be established, the annual
amount of those funds;
|
|
|
|
the dividend rate, the conditions upon which and the times when
dividends are payable, the preference to the payment of
dividends payable on any other class or series of stock, whether
the dividends will be cumulative, and if cumulative, the date
from which the dividends will accumulate;
|
|
|
|
the preferences, if any, and the amounts of those preferences
which the holders of the class or series will be entitled to
receive upon the voluntary or involuntary dissolution of, or
upon any distribution of the assets of, us;
|
112
|
|
|
|
|
whether or not the shares of the class or series will be
convertible into or exchangeable for, the shares of any other
class or series of stock, and the conversion price or ratio or
rate at which the exchange may be made; and
|
|
|
|
other special rights and protective provisions as the board of
directors deems advisable.
|
The shares of each class or series of preferred stock may vary
from the shares of any other class or series in any or all of
the foregoing respects. The board of directors may increase or
decrease the number of shares of the preferred stock designated
for any existing class or series by a resolution adding or
subtracting from the class or series; provided, however, that
the board of directors may not decrease the number of shares of
any existing class or series to a number less than the number of
shares of that class or series then issued and outstanding.
Shares Eligible
for Future Sale; Registration Rights
Prior to this offering, there was no public market for our
common stock. After this offering, there will be outstanding
approximately 20,000,000 shares of our common stock. Of
these shares, all of the shares sold in this offering as well as
the 2.5 million shares that we will issue in connection
with the Merger will be freely tradable without restriction
under the Securities Act, unless purchased by our
affiliates as that term is defined in Rule 144
under the Securities Act. The remaining shares of common stock
that will be outstanding after this offering are
restricted securities within the meaning of
Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if they are registered
under the Securities Act or are sold pursuant to an exemption
from registration under Rule 144 under the Securities Act,
which is summarized below.
In addition, under the circumstances described in Certain
Relationships and Related Party Transactions
Additional Agreements to Be Entered into in Connection with the
Merger, after June 30, 2012 we may be required to
register approximately 15.6 million shares of our common
stock in connection with the Recapitalization. Following any
such registration, such shares would be freely tradable without
restriction under the Securities Act unless purchased by our
affiliates.
Rule 144
The shares of our common stock sold in this offering will
generally be freely transferable without restriction or further
registration under the Securities Act, except that any shares of
our common stock held by an affiliate of ours may
not be resold publicly except in compliance with the
registration requirements of the Securities Act or under an
exemption under Rule 144 or otherwise. Rule 144
permits our common stock that has been acquired by a person who
is an affiliate of ours, or has been an affiliate of ours within
the past three months, to be sold into the market in an amount
that does not exceed, during any three-month period, the greater
of:
|
|
|
|
|
one percent of the total number of shares of our common stock
outstanding; or
|
|
|
|
the average weekly reported trading volume of our common stock
for the four calendar weeks prior to the sale.
|
Such sales are also subject to specific manner of sale
provisions, a one year holding period requirement, notice
requirements and the availability of current public information
about us.
Rule 144 also provides that a person who is not deemed to
have been an affiliate of ours at any time during the three
months preceding a sale, and who has for at least one year
beneficially owned shares of our common stock that are
restricted securities, will be entitled to freely sell such
shares of our common stock without regard to any other
requirements of Rule 144.
Equity Incentive
Plan
We may at some time in the future file one or more registration
statements on
Form S-8
under the Securities Act to register shares of our common stock
issued or reserved for issuance under our equity incentive
plans. Accordingly, shares registered under such registration
statement will be available for sale in the open market, unless
such shares are subject to vesting restrictions with us.
113
PLAN OF
DISTRIBUTION
We are registering shares of our common stock issued or issuable
to the selling stockholders to permit the resale of these shares
of our common stock by the holders thereof from time to time
after the date of this prospectus. We will not receive any of
the proceeds from the sale by the selling stockholders of the
shares of our common stock. We will bear all fees and expenses
incident to our obligation to register the shares of our common
stock.
The selling stockholders (or their pledgees, donees,
transferees, distributees or successors in interest selling
shares received from a named selling stockholder as a gift,
partnership distribution or other non-sale-related transfer
after the date of this prospectus (all of whom may be selling
stockholders)) may sell all or a portion of the shares of our
common stock beneficially owned by them and offered hereby from
time to time directly or through one or more underwriters,
broker-dealers or agents, and any broker-dealers or agents may
arrange for other broker-dealers or agents to participate in
effecting sales of these shares of our common stock. These
underwriters or broker-dealers may act as principals, or as an
agent of a selling stockholder. If the shares of our common
stock are sold through underwriters or broker-dealers, the
selling stockholders will be responsible for underwriting
discounts or commissions or agents commissions. The shares
of our common stock may be sold on any national securities
exchange or automated interdealer quotation system on which the
securities may be listed or quoted at the time of sale, in the
over-the-counter market or in transactions otherwise than on
these exchanges or systems or in the over-the-counter market and
in one or more transactions at fixed prices, at prevailing
market prices at the time of the sale, at varying prices
determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses
or block transactions. The selling stockholders may use any one
or more of the following methods when selling shares:
|
|
|
|
|
purchases by underwriters, brokers, dealers, and agents who may
receive compensation in the form of underwriting discounts,
concessions or commissions from the selling stockholders
and/or the
purchasers of the shares for whom they may act as agent;
|
|
|
|
ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
|
|
|
|
one or more block trades in which a broker or dealer so engaged
will attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction or, in crosses, in which the same broker acts as
agent on both sides;
|
|
|
|
purchases by a broker or dealer (including a specialist or
market maker) as principal and resale by such broker or dealer
for its account pursuant to this prospectus;
|
|
|
|
an exchange distribution in accordance with the rules of any
stock exchange on which the shares of our common stock are
listed;
|
|
|
|
face-to-face privately negotiated transactions between sellers
and purchasers without a broker-dealer;
|
|
|
|
the pledge of shares as security for any loan or obligation,
including pledges to brokers or dealers who may from time to
time effect distributions of the shares or other interests in
the shares;
|
|
|
|
settlement of short sales or transactions to cover short sales
relating to the shares entered into after the effective date of
the registration statement of which this prospectus is a part;
|
|
|
|
distributions to creditors, equity holders, partners and members
of the selling stockholders;
|
|
|
|
transactions in options, swaps or other derivatives (whether
listed on an exchange or otherwise);
|
114
|
|
|
|
|
sales in other ways not involving market makers or established
trading markets, including direct sales to institutions or
individual purchasers; and
|
|
|
|
any combination of the foregoing or by any other legally
available means.
|
The selling stockholders may also transfer the shares of our
common stock by gift. We do not know of any arrangements by the
selling stockholders for the sale of any of the shares of our
common stock.
The selling stockholders also may resell all or a portion of the
shares of our common stock in open market transactions in
reliance upon Rule 144 under the Securities Act, as
permitted by that rule, or Section 4(1) under the
Securities Act, if available, rather than under this prospectus,
provided that they meet the criteria and conform to the
requirements of those provisions.
Brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate in sales. If
the selling stockholders effect such transactions by selling
shares of our common stock to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents
may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders. Underwriters,
brokers, dealers or agents may also receive compensation from
the purchasers of shares of our common stock for whom they act
as agents or to whom they sell as principals, or both. Such
commissions will be in amounts to be negotiated, but, except as
set forth in a supplement to the prospectus contained in the
registration statement, in the case of an agency transaction
will not be in excess of a customary brokerage commission in
compliance with NASD Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with
NASD IM
2440-1 and
NASD IM
2440-2.
In connection with sales of the shares of our common stock or
otherwise, the selling stockholders (or their pledgees, donees,
transferees, distributees or successors in interest) may enter
into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of shares
of our common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of our
common stock short, and if such short sale shall take place
after the date that the registration statement is declared
effective by the SEC, the selling stockholders may deliver the
shares of our common stock covered by this prospectus to close
out short positions and to return borrowed shares in connection
with such short sales. The selling stockholders may also loan or
pledge shares of our common stock to broker-dealers that in turn
may sell such shares, to the extent permitted by applicable law.
The selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions
or one or more derivative transactions which require the
delivery to such broker-dealer or other financial institution of
shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant
to this prospectus (as supplemented or amended to reflect such
transaction). Notwithstanding the foregoing, the selling
stockholders have been advised that they may not use shares
registered on the registration statement to cover short sales of
our common stock made prior to the date the registration
statement, of which this prospectus forms a part, has been
declared effective by the SEC.
The selling stockholders (or their pledgees, donees,
transferees, distributees or successors in interest) may, from
time to time, pledge, hypothecate or grant a security interest
in some or all of the shares of our common stock owned by them
and, if they default in the performance of their secured
obligations, the pledgees, secured parties or persons to whom
the securities have been hypothecated may offer and sell the
shares of our common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the
Securities Act, amending, if necessary, the list of selling
stockholders to include the pledgee, transferee, persons to whom
the securities have been hypothecated or other successors in
interest as selling stockholders under this prospectus. The plan
of distribution for that selling stockholders shares of
our common stock will otherwise remain unchanged. The selling
stockholders (or their pledgees, donees, transferees,
distributees or successors in interest) also may transfer and
donate the shares of our common stock in other circumstances in
which case the transferees, donees, pledgees, persons to whom
the
115
securities have been hypothecated or other successors in
interest thereof will be the selling beneficial owners for
purposes of this prospectus.
The selling stockholders (or their pledgees, donees,
transferees, distributees or successors in interest) and any
broker-dealers or agents participating in the distribution of
the shares of our common stock may be deemed to be
underwriters within the meaning of
Section 2(a)(11) of the Securities Act in connection with
such sales. In such event, any profits realized by the selling
stockholders and any compensation earned by such broker-dealers
or agents may be deemed to be underwriting commissions or
discounts under the Securities Act. Selling stockholders (or
their pledgees, donees, transferees, distributees or successors
in interest) who are underwriters within the meaning
of Section 2(a)(11) of the Securities Act will be subject
to the applicable prospectus delivery requirements of the
Securities Act including Rule 172 thereunder and may be
subject to certain statutory liabilities of, including, but not
limited to, Sections 11, 12 and 17 of the Securities Act
and
Rule 10b-5
under the Exchange Act. We will make copies of this prospectus
(as it may be amended or supplemented from time to time)
available to the selling stockholders (or their pledgees,
donees, transferees, distributees or successors in interest) for
the purpose of satisfying any prospectus delivery requirements.
Except as otherwise set forth herein, each selling stockholder
has informed the Company that it is not a registered
broker-dealer or is not an affiliate of a registered
broker-dealer and does not have any written or oral agreement or
understanding, directly or indirectly, with any person to
distribute our common stock.
Under the securities laws of some states, the shares of our
common stock may be sold in such states only through registered
or licensed brokers or dealers. In addition, in some states the
shares of our common stock may not be sold unless such shares
have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is
complied with.
The selling stockholders (or their pledgees, donees,
transferees, distributees or successors in interest) may sell
the shares covered by this prospectus from time to time, and may
also decide not to sell all or any of the shares they are
allowed to sell under this prospectus. The selling stockholders
(or their pledgees, donees, transferees, distributees or
successors in interest) will act independently of us in making
decisions regarding the timing, manner, and size of each sale.
There can be no assurance, however, that all or any of the
shares will be offered by the selling stockholders. We know of
no existing arrangements between any selling stockholders and
any broker, dealer, finder, underwriter, or agent relating to
the sale or distribution of the shares.
Each selling stockholder (or its pledgees, donees, transferees,
distributees or successors in interest) and any other person
participating in such distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, to the extent
applicable, Regulation M of the Exchange Act, which may
limit the timing of purchases and sales of any of the shares of
our common stock by the selling stockholder and any other
participating person. To the extent applicable,
Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of our common stock to
engage in market-making activities with respect to the shares of
our common stock. All of the foregoing may affect the
marketability of the shares of our common stock and the ability
of any person or entity to engage in market-making activities
with respect to the shares of our common stock.
The shares of our common stock offered hereby were originally
issued to the selling stockholders pursuant to an exemption from
the registration requirements of the Securities Act. Pursuant to
the registration rights agreement, we have agreed to register
the shares of our common stock, and to keep the registration
statement to which this prospectus is a part effective until one
year after the closing date of the merger. We will pay all
expenses of the registration of the shares of our common stock
pursuant to the registration rights agreement, including,
without limitation, SEC filing fees and expenses of compliance
with state securities or blue sky laws;
provided, however, that each selling stockholder
will pay all underwriting discounts and selling commissions, if
any, and any related legal expenses incurred by it. We will not
receive any proceeds from sales of any shares of our common
116
stock by the selling stockholder. We will indemnify the selling
stockholders against certain liabilities, including some
liabilities under the Securities Act, in accordance with the
registration rights agreement, or the selling stockholders will
be entitled to contribution. We may be indemnified by the
selling stockholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any
written information furnished to us by the selling stockholders
specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to
contribution.
To the extent permitted by applicable law, this plan of
distribution may be modified in a prospectus supplement or
otherwise.
117
LEGAL
MATTERS
Weil, Gotshal & Manges LLP, Dallas, Texas and New
York, New York, has passed upon the validity of the common stock
offered hereby on behalf of us.
EXPERTS
The consolidated financial statements and schedules of Merix as
of May 30, 2009 and May 31, 2008 and for each of the
three years in the period ended May 30, 2009 have been
included in this prospectus and in the registration statement in
reliance upon the reports of Grant Thornton LLP, independent
registered public accounting firm, appearing elsewhere in this
prospectus, and upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Viasystems Group, Inc.
at December 31, 2008 and 2007, and for each of the three
years in the period ended December 31, 2008, appearing in
this prospectus and registration statement have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN
FIND MORE INFORMATION ABOUT US
We have filed with the SEC a Registration Statement on
Form S-1
(such Registration Statement, together with all amendments and
exhibits thereto, being hereinafter referred to as the
Registration Statement) under the Securities Act,
for the registration under the Securities Act of the shares of
common stock offered hereby. This prospectus does not contain
all the information set forth in the Registration Statement;
certain parts of which are omitted in accordance with the rules
and regulations of the SEC. Reference is hereby made to the
Registration Statement which contains further information with
respect to our company and our common stock. Statements herein
concerning the provisions of documents filed as exhibits to the
Registration Statement are necessarily summaries of such
documents, and each such statement is qualified by reference to
the copy of the applicable document filed with the SEC.
We are subject to the reporting requirements of the Exchange
Act, and in accordance therewith file reports, including annual
and quarterly reports, proxy statements and other information
with the SEC. Such reports, proxy statements and other
information may be inspected and copied at prescribed rates at
the public reference facilities maintained by the SEC at the
SECs Public Reference Room, 100 F Street, NE,
Washington, D.C. 20549. Further information on the Public
Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
In addition, such reports, proxy statements and other
information may be accessed through the SEC Internet website
located at
http://www.sec.gov.
You may obtain a copy of any of our filings, at no cost, by
writing or telephoning us at:
101 South Hanley Road, Suite 400
St. Louis, Missouri 63105
(314) 746-2205
118
INDEX TO
FINANCIAL STATEMENTS
|
|
|
VIASYSTEMS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-35
|
|
|
F-36
|
|
|
F-37
|
|
|
F-38
|
|
|
|
MERIX CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
F-50
|
|
|
F-51
|
|
|
F-52
|
|
|
F-53
|
|
|
F-54
|
|
|
F-55
|
|
|
F-92
|
|
|
F-93
|
|
|
F-94
|
|
|
F-96
|
|
|
F-97
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Viasystems Group, Inc.
We have audited the accompanying consolidated balance sheets of
Viasystems Group, Inc. and subsidiaries (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity (deficit)
and comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2008. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Viasystems Group, Inc. and subsidiaries at
December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, on January 1, 2007, the Company changed its
method for accounting for uncertain tax positions, and on
January 1, 2006, the Company changed its method of
quantifying misstatements in current year financial statements.
/s/ Ernst & Young LLP
St. Louis, Missouri
April 2, 2009, except for
Notes 6 and 15, as to which
the date is November 9, 2009
F-2
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
83,053
|
|
|
$
|
64,002
|
|
Restricted cash
|
|
|
303
|
|
|
|
303
|
|
Accounts receivable, net
|
|
|
96,564
|
|
|
|
135,326
|
|
Inventories
|
|
|
70,419
|
|
|
|
81,058
|
|
Prepaid expenses and other
|
|
|
11,599
|
|
|
|
11,049
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
261,938
|
|
|
|
291,738
|
|
Property, plant and equipment, net
|
|
|
232,741
|
|
|
|
243,973
|
|
Goodwill
|
|
|
79,485
|
|
|
|
79,485
|
|
Intangible assets, net
|
|
|
5,780
|
|
|
|
6,904
|
|
Deferred financing costs, net
|
|
|
3,917
|
|
|
|
5,980
|
|
Other assets
|
|
|
1,377
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
585,238
|
|
|
$
|
628,429
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
9,617
|
|
|
$
|
1,796
|
|
Accounts payable
|
|
|
74,668
|
|
|
|
112,765
|
|
Accrued and other liabilities
|
|
|
50,832
|
|
|
|
59,913
|
|
Income taxes payable
|
|
|
7,224
|
|
|
|
4,517
|
|
Deferred taxes
|
|
|
479
|
|
|
|
2,287
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
142,820
|
|
|
|
181,278
|
|
Long-term debt, less current maturities
|
|
|
211,046
|
|
|
|
204,817
|
|
Other non-current liabilities
|
|
|
32,882
|
|
|
|
35,473
|
|
Deferred taxes
|
|
|
|
|
|
|
411
|
|
Mandatory redeemable Class A Junior preferred stock
|
|
|
108,096
|
|
|
|
98,326
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
494,844
|
|
|
|
520,305
|
|
Redeemable Class B Senior Convertible preferred stock
|
|
|
89,812
|
|
|
|
81,983
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 110,000,000 shares
authorized; 28,874,509 shares issued and outstanding in
2008 and 2007
|
|
|
289
|
|
|
|
289
|
|
Paid-in capital
|
|
|
1,951,715
|
|
|
|
1,958,929
|
|
Accumulated deficit
|
|
|
(1,955,352
|
)
|
|
|
(1,939,879
|
)
|
Accumulated other comprehensive income
|
|
|
3,930
|
|
|
|
6,802
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
582
|
|
|
|
26,141
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
585,238
|
|
|
$
|
628,429
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
712,830
|
|
|
$
|
714,343
|
|
|
$
|
734,992
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of items shown separately below
|
|
|
568,356
|
|
|
|
570,384
|
|
|
|
601,232
|
|
Selling, general and administrative
|
|
|
52,475
|
|
|
|
58,215
|
|
|
|
56,339
|
|
Depreciation
|
|
|
53,285
|
|
|
|
49,704
|
|
|
|
45,422
|
|
Amortization
|
|
|
1,243
|
|
|
|
1,269
|
|
|
|
1,325
|
|
Restructuring and impairment
|
|
|
15,069
|
|
|
|
278
|
|
|
|
(4,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
22,402
|
|
|
|
34,493
|
|
|
|
35,589
|
|
Other expense :
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
31,585
|
|
|
|
30,573
|
|
|
|
38,768
|
|
Amortization of deferred financing costs
|
|
|
2,063
|
|
|
|
2,065
|
|
|
|
1,678
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,498
|
|
Other, net
|
|
|
(711
|
)
|
|
|
277
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10,535
|
)
|
|
|
1,578
|
|
|
|
(7,097
|
)
|
Income tax provision
|
|
|
4,938
|
|
|
|
(6,853
|
)
|
|
|
18,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(15,473
|
)
|
|
|
8,431
|
|
|
|
(25,611
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
9,475
|
|
Gain on disposition of discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
214,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(15,473
|
)
|
|
|
8,431
|
|
|
|
197,949
|
|
Less: Accretion of Class B Senior Convertible preferred
stock
|
|
|
7,829
|
|
|
|
7,203
|
|
|
|
6,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(23,302
|
)
|
|
$
|
1,228
|
|
|
$
|
191,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at December 31, 2005
|
|
|
28,874,509
|
|
|
$
|
289
|
|
|
$
|
1,969,175
|
|
|
$
|
(2,127,418
|
)
|
|
$
|
2,323
|
|
|
$
|
(155,631
|
)
|
Cumulative effect of adoption of SAB No. 108, net of
taxes of $112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,628
|
)
|
|
|
|
|
|
|
(8,628
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,949
|
|
|
|
|
|
|
|
197,949
|
|
Change in fair value of derivatives, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
34
|
|
Foreign currency translation, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,248
|
|
|
|
4,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Class B Senior Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(6,633
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,633
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
28,874,509
|
|
|
|
289
|
|
|
|
1,964,047
|
|
|
|
(1,938,097
|
)
|
|
|
6,605
|
|
|
|
32,844
|
|
Cumulative effect of adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,213
|
)
|
|
|
|
|
|
|
(10,213
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,431
|
|
|
|
|
|
|
|
8,431
|
|
Change in fair value of derivatives, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
241
|
|
Foreign currency translation, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Class B Senior Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(7,203
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,203
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,085
|
|
|
|
|
|
|
|
|
|
|
|
2,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
28,874,509
|
|
|
|
289
|
|
|
|
1,958,929
|
|
|
|
(1,939,879
|
)
|
|
|
6,802
|
|
|
|
26,141
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,473
|
)
|
|
|
|
|
|
|
(15,473
|
)
|
Change in fair value of derivatives, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,872
|
)
|
|
|
(2,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Class B Senior Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(7,829
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,829
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
28,874,509
|
|
|
$
|
289
|
|
|
$
|
1,951,715
|
|
|
$
|
1,955,352
|
)
|
|
$
|
3,930
|
|
|
$
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at December 31, 2008
and 2007 includes the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Foreign currency translation
|
|
$
|
6,452
|
|
|
$
|
6,452
|
|
Unrecognized gain on derivatives
|
|
|
(2,522
|
)
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,930
|
|
|
$
|
6,802
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(15,473
|
)
|
|
$
|
8,431
|
|
|
$
|
197,949
|
|
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
54,528
|
|
|
|
50,973
|
|
|
|
49,229
|
|
Accretion of Class A Junior preferred stock dividends
|
|
|
6,880
|
|
|
|
6,510
|
|
|
|
6,160
|
|
Impairment of assets
|
|
|
5,558
|
|
|
|
|
|
|
|
438
|
|
Amortization of preferred stock discount
|
|
|
2,890
|
|
|
|
2,377
|
|
|
|
1,894
|
|
Amortization of deferred financing costs
|
|
|
2,063
|
|
|
|
2,065
|
|
|
|
1,678
|
|
Loss (gain) on sale of property, plant and equipment
|
|
|
671
|
|
|
|
967
|
|
|
|
(5,200
|
)
|
Non-cash stock option compensation charge
|
|
|
615
|
|
|
|
2,085
|
|
|
|
1,505
|
|
Deferred taxes
|
|
|
(2,822
|
)
|
|
|
(1,121
|
)
|
|
|
(404
|
)
|
Non-cash impact of exchange rates
|
|
|
(631
|
)
|
|
|
595
|
|
|
|
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
(214,085
|
)
|
Non-cash portion of loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,313
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
38,762
|
|
|
|
(3,831
|
)
|
|
|
(18,401
|
)
|
Inventories
|
|
|
10,639
|
|
|
|
4,127
|
|
|
|
(6,664
|
)
|
Prepaid expenses and other
|
|
|
(1,456
|
)
|
|
|
4,114
|
|
|
|
(6,756
|
)
|
Accounts payable
|
|
|
(38,097
|
)
|
|
|
(2,345
|
)
|
|
|
(13,251
|
)
|
Accrued and other liabilities
|
|
|
(13,096
|
)
|
|
|
(12,523
|
)
|
|
|
325
|
|
Income taxes payable
|
|
|
2,707
|
|
|
|
1,370
|
|
|
|
2,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
53,738
|
|
|
|
63,794
|
|
|
|
(1,838
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(48,925
|
)
|
|
|
(37,197
|
)
|
|
|
(55,940
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
663
|
|
|
|
205
|
|
|
|
21,831
|
|
Net proceeds from disposal of business
|
|
|
|
|
|
|
|
|
|
|
307,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(48,262
|
)
|
|
|
(36,992
|
)
|
|
|
273,818
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowing under credit facilities
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
Repayment of amounts due under credit facilities
|
|
|
(4,500
|
)
|
|
|
|
|
|
|
(262,350
|
)
|
Repayment of other long-term and capital lease obligations
|
|
|
(1,925
|
)
|
|
|
(754
|
)
|
|
|
(4,865
|
)
|
Financing and other fees
|
|
|
|
|
|
|
|
|
|
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
13,575
|
|
|
|
(754
|
)
|
|
|
(270,546
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
19,051
|
|
|
|
26,048
|
|
|
|
2,031
|
|
Cash and cash equivalents, beginning of year
|
|
|
64,002
|
|
|
|
37,954
|
|
|
|
35,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
83,053
|
|
|
$
|
64,002
|
|
|
$
|
37,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
22,152
|
|
|
$
|
21,585
|
|
|
$
|
36,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net
|
|
$
|
6,400
|
|
|
$
|
7,804
|
|
|
$
|
7,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands)
|
|
1.
|
Summary of
Significant Accounting Policies
|
Viasystems Group, Inc., a Delaware corporation
(Viasystems) was formed on August 28, 1996.
Viasystems is a holding company whose only significant asset is
stock of its wholly owned subsidiary, Viasystems, Inc. On
April 10, 1997, Viasystems contributed to Viasystems, Inc.
all of the capital of its then existing subsidiaries. Prior to
the contribution of capital by Viasystems, Viasystems, Inc. had
no operations of its own. Viasystems relies on distributions
from Viasystems, Inc. for cash. Moreover, the 2006 Credit
Agreement and the indentures governing Viasystems, Inc.s
Senior Subordinated Notes each contain restrictions on
Viasystems Inc.s ability to pay dividends to Viasystems.
Viasystems, together with Viasystems, Inc. and its subsidiaries,
is herein referred to as Viasystems Group.
Nature of
Business
Viasystems Group is a leading worldwide provider of complex
multi-layer printed circuit boards and electro-mechanical
solutions. Viasystems Groups products are used in a wide
range of applications, including automotive dash panels and
control modules, data networking equipment, telecommunications
switching equipment, and complex medical and technical
instruments.
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts of Viasystems and Viasystems, Inc.. All intercompany
accounts and transactions have been eliminated in consolidation.
On May 1, 2006, Viasystems Group sold its wire harness
business. The results of operations of the disposed wire harness
business are classified as discontinued operations for all
periods presented. The consolidated statements of cash flows
include the cash flows of the wire harness business for all
periods presented. These notes to the consolidated financial
statements are presented on a continuing operations basis,
except where otherwise indicated.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States
(U.S.) requires management to make estimates and
assumptions that affect i) the reported amounts of assets
and liabilities, ii) the disclosure of contingent assets
and liabilities at the date of the financial statements and
iii) the reported amounts of revenues and expenses during
the reporting period.
Estimates and assumptions are used in accounting for the
following significant matters, among others:
|
|
|
|
|
allowances for doubtful accounts;
|
|
|
|
inventory valuation;
|
|
|
|
fair value of derivative instruments and related hedged items;
|
|
|
|
useful lives of property, plant, equipment and intangible assets;
|
|
|
|
long-lived and intangible asset impairments;
|
|
|
|
restructuring charges;
|
|
|
|
warranty and product returns allowances;
|
|
|
|
deferred compensation agreements;
|
F-7
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
tax related items;
|
|
|
|
contingencies; and
|
|
|
|
fair value of options granted under Viasystems Groups
stock-based compensation plan.
|
Actual results may differ from previously estimated amounts, and
such differences may be material to Viasystems Groups
consolidated financial statements. Estimates and assumptions are
reviewed periodically, and the effects of revisions are
reflected in the period in which the revision is made.
Viasystems Group does not consider as material any revisions
made to estimates or assumptions during the periods presented in
the accompanying consolidated financial statements.
Cash and Cash
Equivalents
Viasystems Group considers short-term highly liquid investments
purchased with an original maturity of three months or less to
be cash equivalents.
Accounts
Receivable and Concentration of Credit Risk
Accounts receivable balances represent customer trade
receivables generated from Viasystems Groups operations.
To reduce the potential for credit risk, Viasystems Group
evaluates the collectibility of customer balances based on a
combination of factors but does not generally require
significant collateral. Viasystems Group regularly analyzes
significant customer balances, and when it becomes evident a
specific customer will be unable to meet its financial
obligations to Viasystems Group for reasons including, but not
limited to, bankruptcy filings or deterioration in the
customers operating results or financial position, a
specific allowance for doubtful accounts is recorded to reduce
the related receivable to the amount that is believed reasonably
collectible. Viasystems Group also records an allowance for
doubtful accounts for all other customers based on a variety of
factors, including the length of time the receivables are past
due, historical experience and current economic conditions. If
circumstances related to specific customers change, estimates of
the recoverability of receivables could be further adjusted.
The provision for bad debts is included in selling, general and
administrative expense. Account balances are charged off against
the allowance when Viasystems Group believes it is probable the
receivable will not be recovered.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the
first-in,
first-out (FIFO) method. Cost includes raw materials, labor and
manufacturing overhead.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Repairs and
maintenance that do not extend the useful life of an asset are
charged to expense as incurred. The useful lives of leasehold
improvements are the lesser of the remaining lease term or the
useful life of the improvement. When assets are retired or
otherwise disposed of, their costs and related accumulated
depreciation are removed from the accounts and any resulting
gains or losses are included in the operations for the period.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets as follows:
|
|
|
|
|
Buildings
|
|
|
20-50 years
|
|
Leasehold improvements
|
|
|
3-15 years
|
|
Machinery, equipment, systems and other
|
|
|
3-10 years
|
|
F-8
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Impairment of
Long-Lived Assets
Viasystems Group reviews intangibles assets with a finite life
and other long-lived assets for impairment if facts and
circumstances exist that indicate that the assets useful
life is shorter than previously estimated or the carrying amount
may not be recoverable from future operations based on
undiscounted expected future cash flows. Impairment losses are
recognized in operating results for the amount by which the
carrying value of the asset exceeds its fair value. In addition,
the remaining useful life of an impaired asset group would be
reassessed and revised, if necessary.
Goodwill
Goodwill is recorded when the consideration paid for an
acquisition exceeds the fair value of identifiable net tangible
and identifiable intangible assets acquired. In accordance with
the Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142),
goodwill and other indefinite-lived intangible assets are no
longer amortized but are reviewed for impairment at least
annually and, if a triggering event were to occur in an interim
period.
Intangible
Assets
Intangible assets consist primarily of identifiable intangibles
acquired. Amortization of identifiable intangible assets
acquired is computed using systematic methods over the estimated
useful lives of the related assets as follows:
|
|
|
|
|
|
|
Life
|
|
Method
|
|
Developed technologies
|
|
15 years
|
|
Double-declining balance
|
Patents and trademarks
|
|
5 years
|
|
Straight-line
|
Impairment testing of these assets would occur if and when an
indicator of impairment is identified.
Deferred
Financing Costs
Deferred financing costs, consisting of fees and other expenses
associated with debt financing, are amortized over the term of
the related debt using the straight-line method, which
approximates the effective interest method.
Product
Warranties
Provisions for estimated expenses related to product warranties
are made at the time products are sold. These estimates are
established using historical information on the nature,
frequency and average cost of warranty claims.
Environmental
Costs
Accruals for environmental matters are recorded in operating
expenses when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated.
Accrued liabilities do not include claims against third parties
and are not discounted. Costs related to environmental
remediation are charged to expense. Other environmental costs
are also charged to expense unless they increase the value of
the property
and/or
mitigate or prevent contamination from future operations, in
which event they are capitalized.
F-9
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Derivative
Financial Instruments
From time to time, Viasystems Group enters into foreign exchange
forward contracts to minimize the short-term impact of foreign
currency fluctuations. However, there can be no assurance that
these activities will eliminate or reduce foreign currency risk.
The foreign exchange forward contracts are designated as cash
flow hedges and are accounted for at fair value. The effective
portion of the change in each cash flow hedges gain or
loss is reported as a component of other comprehensive income
(loss), net of taxes. The ineffective portion of the change in
the cash flow hedges gain or loss is recorded in earnings
at each measurement date. Gains and losses on derivative
contracts are reclassified from accumulated other comprehensive
income (loss) to current period earnings in the line item in
which the hedged item is recorded at the time the contracts are
settled.
Foreign
Currency Translation
On January 1, 2007, Viasystems Group changed the functional
currency for certain foreign subsidiaries from the local
currency to the U.S. dollar due to a change in the way
these businesses are financed, resulting in the U.S. dollar
becoming the currency of the primary economic environment in
which the subsidiaries operate. As a result, all foreign
subsidiaries use the U.S. dollar as the functional currency
effective January 1, 2007. Prior to 2007, adjustments
resulting from translating the foreign currency financial
statements of these subsidiaries into the U.S. dollar have
been included as a separate component of accumulated other
comprehensive income (loss). Upon the change of the functional
currency, these subsidiaries no longer generate such translation
adjustments, and such translation adjustments from prior periods
will continue to remain a component of accumulated other
comprehensive income (loss).
There was no translation adjustment recorded for the year ended
December 31, 2008, and the net translation adjustment for
the years ended December 31, 2007 and 2006, were losses of
$44 (net of tax of $0) and gains of $4,248 (net of tax of $0),
respectively. The 2007 amount represents an adjustment as a
result of the reversal of cumulative translation adjustments
required in connection with the liquidation of foreign
investments. The 2006 amount was the result of currency rate
changes during the year.
Also included in net income are the gains and losses arising
from transactions denominated in a currency other than the
functional currency of a location, the impact of remeasuring
assets and liabilities of foreign subsidiaries using
U.S. dollars as their functional currency, and the realized
results of Viasystems Groups foreign currency hedging
activities.
Fair Value of
Financial Instruments
As of January 1, 2008, Viasystems Group adopted the
provisions of SFAS No. 157, Fair Value Measurements
(SFAS No. 157) for financial assets
and liabilities. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, expands
disclosures about fair value measurements and established a
three-tier fair value hierarchy which prioritizes the inputs
used in measuring fair value as follows:
Level 1 observable inputs such as quoted prices
in active markets; Level 2 inputs, other than
quoted market prices in active markets, which are observable,
either directly or indirectly; and Level 3
valuations derived from valuation techniques in which one or
more significant inputs are unobservable. In addition,
SFAS No. 157 discusses valuation techniques which may
be used, including the market approach, using comparable market
prices; the income approach, using present value of future
income or cash flow; and the cost approach, using the
replacement cost of assets. Under the provisions of FASB Staff
Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, Viasystems
Group elected to defer the adoption of SFAS No. 157
until 2009 for nonfinancial assets and liabilities.
F-10
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Viasystems Group records deferred gains and losses related to
cash flow hedges based on the fair value of active derivative
contracts on the reporting date, as determined using a market
approach (see Note 12). As quoted prices in active markets
are not available for identical contracts, Level 2 inputs
are used to determine fair value. These inputs include quotes
for similar but not identical derivative contracts and market
interest rates which are corroborated with publicly available
market information. Upon adoption of SFAS No. 157,
Level 3 inputs were used to determine the opening fair
value of Viasystems Groups active derivative contracts.
Subsequently, Viasystems Group was able to corroborate the fair
value using Level 2 inputs. As a result, Viasystems Group
has reclassified all of its derivative contracts which were
active as of January 1, 2008, to Level 2.
Viasystems Groups financial instruments consist of cash
equivalents, accounts receivable, notes receivable, long-term
debt, preferred stock and other long-term obligations. For cash
equivalents, accounts receivable, notes receivable and other
long-term obligations, the carrying amounts approximate fair
value. The fair market values of Viasystems Groups
long-term debt, preferred stock and cash flow hedges are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Senior Subordinated Notes due 2011
|
|
$
|
150,000
|
|
|
$
|
194,250
|
|
2006 Credit Agreement
|
|
|
15,500
|
|
|
|
|
|
Class A Junior preferred stock
|
|
|
115,517
|
|
|
|
106,802
|
|
Class B Senior Convertible preferred stock
|
|
|
90,495
|
|
|
|
82,869
|
|
Cash flow hedges
|
|
|
(2,522
|
)
|
|
|
350
|
|
Viasystems Group determined the 2008 and 2007 fair values of the
Senior Subordinated Notes due 2011 using quoted market prices
for the Senior Notes. As the balance owed on the 2006 Credit
Agreement bears interest at a variable rate, the carrying value
of the 2006 Credit Agreement approximates its fair value. There
was no balance outstanding on Viasystems Groups 2006
Credit Agreement at December 31, 2007. Viasystems Group
estimated the fair values of its preferred stock instruments to
approximate the current liquidation value of each instrument.
Revenue
Recognition
Revenue is recognized when all of the following criteria are
satisfied: persuasive evidence of an arrangement exists; risk of
loss and title transfer to the customer; the price is fixed and
determinable; and collectibility is reasonably assured. Sales
and related costs of goods sold are included in income when
goods are shipped to the customer in accordance with the
delivery terms, except in the case of vendor managed inventory
arrangements, whereby sales and the related costs of goods sold
are included in income when possession of goods is taken by the
customer. Generally, there are no formal customer acceptance
requirements or further obligations related to manufacturing
services. If such requirements or obligations exist, then
revenue is recognized at the time when such requirements are
completed and the obligations are fulfilled. Services provided
as part of the manufacturing process represent less than 10% of
sales. Reserves for product returns are recorded based on
historical trend rates at the time of sale.
Shipping
Costs
Costs incurred by Viasystems Group to ship finished goods to its
customers are included in cost of goods sold on the consolidated
statements of operations.
F-11
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income
Taxes
Viasystems Group accounts for certain items of income and
expense in different periods for financial reporting and income
tax purposes. Provisions for deferred income taxes are made in
recognition of such temporary differences, where applicable. A
valuation allowance is established against deferred tax assets
unless Viasystems Group believes it is more likely than not that
the benefit will be realized.
Viasystems Group adopted Financial Accounting Standard Board
(FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of FASB
Statement No. 109 (FIN 48) as of the
beginning of its 2007 fiscal year. This interpretation clarifies
what criteria must be met prior to recognition of the financial
statement benefit, in accordance with SFAS No. 109,
Accounting for Income Taxes, of a position taken in a tax
return.
Prior to adopting FIN 48, Viasystems Groups policy
was to establish reserves that reflected the probable outcome of
known tax contingencies. Favorable resolution was recognized as
a reduction to the effective income tax rate in the period of
resolution. As compared to a contingency approach, FIN 48
is based on a benefit recognition model. Provided that the tax
position is deemed more likely than not of being sustained,
FIN 48 permits a company to recognize the largest amount of
tax benefit that is more than 50 percent likely of being
ultimately realized upon settlement. The tax position must be
derecognized when it is no longer more likely than not of being
sustained.
Viasystems Group recognizes accrued interest and penalties
related to unrecognized tax benefits as a component of income
tax expense. This policy did not change as a result of the
adoption of FIN 48.
Earnings Per
Share
Viasystems Group is exempt from the computation, presentation
and disclosure requirements of SFAS No. 128, Earnings
per Share, as it has no publicly held common stock or potential
common stock.
Employee
Stock-Based Compensation
Viasystems Group maintains a stock option plan (the 2003
Stock Option Plan). On January 1, 2006, Viasystems
Group adopted SFAS No. 123 (revised 2004),
Share-Based Payment,
(SFAS No. 123(R)), which requires the
recognition of compensation expense for share-based awards,
including stock options, based on their grant date fair values.
Viasystems Group adopted SFAS No. 123(R), using the
modified-prospective method. Under that method, compensation
cost includes: (a) compensation expense for all share-based
awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, and (b) compensation cost for all
share-based awards granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R).
Discontinued
Operations
Discontinued operations are reported in accordance with the
guidance of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS No. 144). Accordingly, businesses or
asset groups are reported as discontinued operations when, among
other things, Viasystems Group commits to a plan to divest the
business or asset group, actively begins marketing the business
or asset group, and when the sale of the business or asset group
is deemed probable within the next twelve months.
F-12
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Reclassifications
The accompanying consolidated financial statements for prior
years contain certain reclassifications to conform to the
presentation used in the current period.
Adoption of
Staff Accounting Bulletin No. 108
In September 2006, the Securities and Exchange Commission
(SEC) released Staff Accounting
Bulletin No. 108 Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements
(SAB No. 108). SAB No. 108
addresses how the effects of prior-year uncorrected
misstatements should be considered when quantifying
misstatements in current year financial statements.
SAB No. 108 requires an entity to quantify
misstatements using a balance sheet and income statement
approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant
quantitative and qualitative factors. Viasystems Group adopted
SAB No. 108 in the fourth quarter of 2006.
The transition provisions of SAB No. 108 permit
Viasystems Group to adjust for the cumulative effect on retained
earnings of immaterial errors relating to prior years.
SAB No. 108 also requires the adjustment of any prior
quarterly financial statement within the fiscal year of adoption
for the effects of such errors on the quarters when the
information is next presented. Such adjustments do not require
previously filed reports with the SEC to be amended.
In 2006, Viasystems Group identified certain errors in
previously reported financial statements, which were evaluated
under the criteria of SAB No. 108. The following table
summarizes the items and amounts, net of tax where applicable,
of the cumulative effect adjustment resulting in the increase to
accumulated deficit.
|
|
|
|
|
Nature of Adjustment
|
|
Amount
|
|
|
Lease termination
|
|
$
|
4,139
|
|
Impaired long-lived assets
|
|
|
2,205
|
|
Lifetime medical benefits
|
|
|
1,124
|
|
Accrued vacation
|
|
|
1,160
|
|
|
|
|
|
|
|
|
$
|
8,628
|
|
|
|
|
|
|
These amounts have been evaluated on a qualitative and
quantitative basis, both individually and in the aggregate, and
were not deemed material to any prior years under the income
statement approach. However, in connection with the adoption of
SAB No. 108, Viasystems Group has corrected these
errors because these amounts have been deemed material using the
balance sheet approach. Accordingly, Viasystems Group recognized
a cumulative effect adjustment to accumulated deficit as of
January 1, 2006, totaling $8,628 (net of a tax benefit of
$112).
Recently
Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) changes the accounting for business
combinations in a number of areas including the treatment of
contingent consideration, pre-acquisition contingencies,
transaction costs,
in-process
research and development and restructuring costs. In addition,
under SFAS No. 141(R), changes in an acquired
entitys deferred tax assets and uncertain tax positions
after the measurement period will impact income tax expense.
SFAS No. 141(R) is effective beginning in fiscal year
2009. This standard will change Viasystems Groups
accounting treatment for business combinations on a prospective
basis, when adopted.
F-13
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS No. 161
requires enhanced disclosures about an entitys derivative
and hedging activities. Entities will be required to provide
enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and
related hedge items are accounted for under
SFAS No. 133 and its related interpretations; and
(c) how derivative instruments and related hedge items
affect an entitys financial position, financial
performance and cash flows. Viasystems Group is required to
adopt SFAS No. 161 beginning in fiscal year 2009, and
while it will impact our disclosures, it will not affect our
results of operations or financial condition.
|
|
2.
|
Accounts
Receivable and Concentration of Credit Risk
|
The allowance for doubtful accounts is included in accounts
receivable, net in the accompanying consolidated balance sheets.
The activity in the allowance for doubtful accounts is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance, beginning of year
|
|
$
|
2,104
|
|
|
$
|
3,333
|
|
|
$
|
3,678
|
|
Provision
|
|
|
2,341
|
|
|
|
1,269
|
|
|
|
1,039
|
|
Write-offs, credits and adjustments
|
|
|
(1,251
|
)
|
|
|
(2,498
|
)
|
|
|
(1,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
3,194
|
|
|
$
|
2,104
|
|
|
$
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007 and 2006, sales
to Viasystems Groups ten largest customers accounted for
approximately 73.3%, 76.2% and 73.7% of Viasystems Groups
net sales, respectively. The table below highlights individual
end customers accounting for more than ten percent of Viasystems
Groups consolidated net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
2008
|
|
2007
|
|
2006
|
|
Alcatel-Lucent SA(a)
|
|
|
16.3
|
%
|
|
|
20.2
|
%
|
|
|
20.8
|
%
|
Continental AG(b)
|
|
|
13.4
|
|
|
|
(c
|
)
|
|
|
(c
|
)
|
Siemens AG(b)
|
|
|
(c
|
)
|
|
|
12.4
|
|
|
|
13.7
|
|
Bosch Group
|
|
|
11.2
|
|
|
|
10.7
|
|
|
|
10.1
|
|
General Electric Company
|
|
|
10.2
|
|
|
|
(c
|
)
|
|
|
(c
|
)
|
|
|
|
(a) |
|
Alcatel SA and Lucent Technologies, Inc. merged during 2006.
Amounts represent sales to both the individual companies prior
to the merger and the combined companies after the merger. |
|
(b) |
|
In December 2007, Continental AG concluded the purchase of the
automotive parts business unit of Siemens AG. Sales to that
business unit in 2008 are included in the table for Continental
AG. Sales to that business unit in 2007 and 2006 are included in
the table for Siemens AG. Through its other business units,
Siemens AG remains a customer. |
|
(c) |
|
Represents less than ten percent of consolidated net sales. |
Sales to Alcatel-Lucent SA, Siemens AG and General Electric
Company occurred in both the Printed Circuit Boards and Assembly
segments. Sales to Continental AG and Bosch Group occurred in
the Printed Circuit Boards segment.
F-14
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The composition of inventories at December 31, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
26,388
|
|
|
$
|
28,359
|
|
Work in process
|
|
|
18,488
|
|
|
|
22,588
|
|
Finished goods
|
|
|
25,543
|
|
|
|
30,111
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70,419
|
|
|
$
|
81,058
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Property, Plant
and Equipment
|
The composition of property, plant and equipment at
December 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Land and buildings
|
|
$
|
54,885
|
|
|
$
|
54,016
|
|
Machinery, equipment and systems
|
|
|
422,489
|
|
|
|
399,599
|
|
Leasehold improvements
|
|
|
40,355
|
|
|
|
38,466
|
|
Construction in progress
|
|
|
1,537
|
|
|
|
4,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519,266
|
|
|
|
496,276
|
|
Less: Accumulated depreciation
|
|
|
(286,525
|
)
|
|
|
(252,303
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
232,741
|
|
|
$
|
243,973
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, as a result of
restructuring activities (see Note 6), Viasystems Group
recorded a charge for the impairment of certain property plant
and equipment of $5,558, and reduced the gross book value and
accumulated depreciation of related assets by $19,593 and
$14,035, respectively.
|
|
5.
|
Goodwill and
Other Intangible Assets
|
The goodwill balance relates entirely to Viasystems Groups
Printed Circuit Boards segment. The balance of goodwill as of
December 31, 2008 and 2007, was $79,485.
As required by the provisions of SFAS No. 142,
Viasystems Group performs an annual impairment evaluation of
goodwill and other indefinite lived intangible assets. In
addition to performing the annual impairment tests for 2008,
2007 and 2006, Viasystems Group reviewed the goodwill balance
for impairment upon the announcement of its restructuring plans
(see Note 6) on November 24, 2008. No adjustments
were recorded to goodwill as a result of these reviews.
The components of intangible assets subject to amortization were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Developed technologies
|
|
$
|
20,371
|
|
|
$
|
(15,200
|
)
|
|
$
|
5,171
|
|
|
$
|
20,371
|
|
|
$
|
(14,274
|
)
|
|
$
|
6,097
|
|
Other
|
|
|
2,385
|
|
|
|
(1,776
|
)
|
|
|
609
|
|
|
|
2,266
|
|
|
|
(1,459
|
)
|
|
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,756
|
|
|
$
|
(16,976
|
)
|
|
$
|
5,780
|
|
|
$
|
22,637
|
|
|
$
|
(15,733
|
)
|
|
$
|
6,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Viasystems Group paid $119 and $256 for capitalizable patent
costs during the years ended December 31, 2008 and 2007,
respectively. The expected future annual amortization expense of
definite-lived intangible assets for the next five fiscal years
is as follows:
|
|
|
|
|
2009
|
|
$
|
1,182
|
|
2010
|
|
|
1,101
|
|
2011
|
|
|
1,045
|
|
2012
|
|
|
971
|
|
2013
|
|
|
939
|
|
Thereafter
|
|
|
542
|
|
|
|
|
|
|
Total
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
6.
|
Restructuring and
Impairment
|
In light of the global economic downturn which began towards the
end of 2008, and as part of Viasystems Groups ongoing
efforts to align capacity, overhead costs and operating expenses
with market demand, Viasystems Group initiated restructuring
activities during the fourth quarter of 2008. These activities
are expected to be concluded during the first half of 2009, and
include the shutdown of Viasystems Groups metal
fabrication facility in Milwaukee, Wisconsin, and its satellite
final-assembly and distribution facility in Newberry, South
Carolina (together, the Milwaukee Facility); as well
as workforce reductions across Viasystems Groups global
operations.
The reserve for restructuring activities at December 31,
2007, was related to restructuring activities initiated during
2001 to adjust Viasystems Groups cost position relative to
anticipated levels of business. These restructuring activities
were a result of the economic downturn that began in 2000 and
continued into early 2003 related to many of Viasystems
Groups key telecommunication and networking customers, and
the shift of production demand from high cost countries to low
cost countries. These actions resulted in plant shutdowns and
downsizings as well as asset impairments, which continued
through 2005.
The following tables summarize changes in the reserve for the
restructuring and impairment charges for the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
12/31/07
|
|
|
Charges
|
|
|
Reversals
|
|
|
Total
|
|
|
Cash Payments
|
|
|
Adjustments
|
|
|
12/31/08
|
|
|
Restructuring activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and severance
|
|
$
|
349
|
|
|
$
|
9,511
|
|
|
$
|
|
|
|
$
|
9,511
|
|
|
$
|
(964
|
)
|
|
$
|
|
|
|
$
|
8,896
|
|
Lease and other contractual commitments
|
|
|
4,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(870
|
)
|
|
|
(722
|
)(a)
|
|
|
3,226
|
|
Asset impairments
|
|
|
|
|
|
|
5,558
|
|
|
|
|
|
|
|
5,558
|
|
|
|
|
|
|
|
(5,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and impairment charges
|
|
$
|
5,167
|
|
|
$
|
15,069
|
|
|
$
|
|
|
|
$
|
15,069
|
|
|
$
|
(1,834
|
)
|
|
$
|
(6,280
|
)
|
|
$
|
12,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents $1,044 decrease due to changes in foreign currency
exchange rates, net of $322 of accretion of interest on
discounted restructuring liabilities. |
F-16
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
12/31/06
|
|
|
Charges
|
|
|
Reversals
|
|
|
Total
|
|
|
Cash Payments
|
|
|
Adjustments
|
|
|
12/31/07
|
|
|
Restructuring activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and severance
|
|
$
|
596
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(247
|
)
|
|
$
|
|
|
|
$
|
349
|
|
Lease and other contractual commitments
|
|
|
5,471
|
|
|
|
278
|
|
|
|
|
|
|
|
278
|
|
|
|
(1,270
|
)
|
|
|
339
|
(b)
|
|
|
4,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and impairment charges
|
|
$
|
6,067
|
|
|
$
|
278
|
|
|
$
|
|
|
|
$
|
278
|
|
|
$
|
(1,517
|
)
|
|
$
|
339
|
|
|
$
|
5,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
Represents accretion of interest on discounted restructuring
liabilities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
12/31/05
|
|
|
Charges
|
|
|
Reversals
|
|
|
Total
|
|
|
Cash Payments
|
|
|
Adjustments
|
|
|
12/31/06
|
|
|
Restructuring activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and severance
|
|
$
|
4,634
|
|
|
$
|
|
|
|
$
|
(1,423
|
)
|
|
$
|
(1,423
|
)
|
|
$
|
(2,615
|
)
|
|
$
|
|
|
|
$
|
596
|
|
Lease and other contractual commitments
|
|
|
1,308
|
|
|
|
1,533
|
|
|
|
|
|
|
|
1,533
|
|
|
|
(2,340
|
)
|
|
|
4,970
|
(c)
|
|
|
5,471
|
|
Asset impairments
|
|
|
|
|
|
|
438
|
|
|
|
(5,463
|
)
|
|
|
(5,025
|
)
|
|
|
|
|
|
|
5,025
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and impairment charges
|
|
$
|
5,942
|
|
|
$
|
1,971
|
|
|
$
|
(6,886
|
)
|
|
$
|
(4,915
|
)
|
|
$
|
(4,955
|
)
|
|
$
|
9,995
|
|
|
$
|
6,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
Represents $4,139 of lease termination costs and $831 of
lifetime medical benefits for former employees which were
recorded as a direct charge to accumulated deficit in connection
with the adoption of SAB No. 108 (see Note 1). |
|
(d) |
|
Represents a $5,463 gain on disposal of fixed assets, net of
$438 of non-cash activity associated with asset impairment. |
F-17
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The restructuring and impairment charges were determined based
on formal plans approved by Viasystems Groups management
using the best information available at the time. The amounts
Viasystems Group ultimately incurs may change as the balance of
the plans are executed. Expected cash payout of the accrued
expenses is as follows:
|
|
|
|
|
Year Ended December 31,
|
|
Cash Payments
|
|
|
2009
|
|
$
|
9,310
|
|
2010
|
|
|
670
|
|
2011
|
|
|
666
|
|
2012
|
|
|
661
|
|
2013
|
|
|
655
|
|
Thereafter
|
|
|
1,430
|
|
|
|
|
|
|
Total
|
|
|
13,392
|
|
Less: Amounts representing interest
|
|
|
(1,270
|
)
|
|
|
|
|
|
Restructuring liability
|
|
$
|
12,122
|
|
|
|
|
|
|
2008
Restructuring and Impairment
On November 24, 2008, Viasystems Group announced plans to
close its Milwaukee Facility. In addition, Viasystems Group
announced other workforce reductions across its global
operations. Viasystems Group estimates the total cost of these
activities, including asset impairments, will approximate
$22,000, with approximately $10,000 related to headcount
reduction costs, $6,000 related to non-cash asset impairments,
and the remainder related to lease termination and other costs.
Viasystems Group expects the $22,000 of costs and charges will
be incurred in the Printed Circuit Boards segment, Assembly
segment and Other (see Note 15) in the amounts
of $10,000, $1,000 and $11,000, respectively.
For the year ended December 31, 2008, Viasystems Group
recorded restructuring charges of $15,069 which included $9,511
related to headcount reductions and $5,558 of non-cash asset
impairment charges. For the purpose of calculating the asset
impairment charge, Viasystems Group determined the fair value of
the related assets using the sales comparison approach.
Viasystems Group expects it will incur additional restructuring
charges in 2009 and 2010 totaling approximately $6,900 related
primarily to lease terminations and other closure costs as it
completes its restructuring plans.
2007
Restructuring and Impairment
Viasystems Group incurred $278 in restructuring and impairment
charges for the year ended December 31, 2007, related to
closed facilities sold late in 2006.
2006
Restructuring and Impairment
During 2006, Viasystems Group reversed $1,423 of severance
accrual primarily due to early payment buyouts on employee
severance obligations in Viasystems Groups former
manufacturing facility in the Netherlands. In addition,
Viasystems Group recorded an impairment charge of $438 related
to the write down of one of the former manufacturing properties
held for sale in Canada, which was written down to the
contracted selling price, less the cost to sell.
In 2006, Viasystems Group sold its previously closed facilities
in the U.S., Canada and the Netherlands for net cash proceeds of
approximately $21,809, resulting in a net gain of $5,463 which
is included in restructuring and impairment on the consolidated
statements of operations. Viasystems
F-18
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Group has no continuing interest in any of these properties
except in connection with one U.S. facility, where
Viasystems Group was required to relocate a maintenance
structure on the property. At December 31, 2008, Viasystems
Group has placed $303 in escrow, which is included in restricted
cash, pending the final resolution of the related obligations.
|
|
7.
|
Accrued and Other
Liabilities
|
The composition of accrued and other liabilities at
December 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued payroll and related costs
|
|
$
|
12,130
|
|
|
$
|
17,910
|
|
Accrued interest
|
|
|
9,919
|
|
|
|
9,698
|
|
Accrued restructuring costs current
|
|
|
9,310
|
|
|
|
990
|
|
Accrued other
|
|
|
19,473
|
|
|
|
31,315
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,832
|
|
|
$
|
59,913
|
|
|
|
|
|
|
|
|
|
|
The composition of long-term debt at December 31, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Senior Subordinated Notes due 2011
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
2006 Credit Agreement:
|
|
|
|
|
|
|
|
|
Term loan
|
|
|
15,500
|
|
|
|
|
|
Revolving credit loans
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
5,163
|
|
|
|
6,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,663
|
|
|
|
206,613
|
|
Less: Current maturities
|
|
|
(9,617
|
)
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,046
|
|
|
$
|
204,817
|
|
|
|
|
|
|
|
|
|
|
The schedule of principal payments for long-term debt at
December 31, 2008, is as follows:
|
|
|
|
|
2009
|
|
$
|
9,617
|
|
2010
|
|
|
10,329
|
|
2011
|
|
|
200,045
|
|
2012
|
|
|
50
|
|
2013
|
|
|
55
|
|
Thereafter
|
|
|
567
|
|
|
|
|
|
|
Total
|
|
$
|
220,663
|
|
|
|
|
|
|
Senior
Subordinated Notes due 2011
In December 2003, Viasystems Group completed an offering of
$200,000 of 10.5% Senior Subordinated Notes due 2011 (the
2011 Notes).
Interest on the 2011 Notes is due semiannually on January 15 and
July 15. Viasystems Group may redeem the 2011 Notes at any
time prior to January 15, 2010, at the redemption price of
102.625%, which is inclusive of a make-whole
premium. Subsequent to January 15, 2010, Viasystems Group
may redeem the 2011 Notes at the redemption price of 100%. In
the event of a
F-19
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Change in Control (as defined), Viasystems Group is required to
make an offer to purchase the 2011 Notes at a redemption price
of 101%, plus accrued and unpaid interest.
The indenture governing the 2011 Notes contains restrictive
covenants which, among other things, limit the ability (subject
to exceptions) of Viasystems, Inc. and its Guarantors (as
defined) to: (a) incur additional debt; (b) pay
dividends or distributions on, or redeem or repurchase, its
capital stock; (c) create certain liens without securing
the notes; (d) make investments; (e) engage in
transactions with affiliates; (f) transfer or sell assets;
(g) guarantee debt; (h) restrict dividends or other
payments to Viasystems Group or any Restricted Subsidiaries (as
defined); (i) consolidate, merge or transfer all or
substantially all of its assets and the assets of its
subsidiaries; and (j) engage in unrelated businesses.
2006 Credit
Agreement
On August 17, 2006, Viasystems Group entered into a credit
facility (the 2006 Credit Agreement) with UBS AG
Hong Kong Branch and UBS AG, Singapore Branch (together
UBS). The 2006 Credit Agreement matures in August
2010 and consists of two facilities, as follows:
|
|
|
|
|
|
|
|
|
Facility A Revolver/Term Loan
|
|
|
U.S.
|
|
|
$
|
20,000
|
|
Facility B Revolver/Letters of Credit
|
|
|
U.S.
|
|
|
$
|
60,000
|
|
In January 2008, Viasystems Group borrowed $20,000 under
Facility A, which in accordance with the original terms of the
2006 Credit Agreement was converted to a term loan, that is
payable in quarterly installments through July 2010. Throughout
the entire term of the 2006 Credit Agreement, Viasystems Group
may borrow against Facility B as a revolving credit facility, of
which up to $15 million may be used to issue letters of
credit.
Borrowings under both facilities bear interest at the London
Inter-Bank Offer Rate (LIBOR) plus 1.625% per annum.
Viasystems Group is required to pay fees on issued and
outstanding letters of credit at a rate of 2.0% per annum. In
addition, Viasystems Group is required to pay a commitment fee
of 0.67% per annum on unused revolving credit capacity on both
Facility A and Facility B.
Collateral for the facilities is substantially all of Viasystems
Groups foreign assets together with pledges of the equity
ownership of substantially all of Viasystems Groups
subsidiaries in Hong Kong and the Peoples Republic of
China. Customary business covenants set limits on Viasystems
Groups ability to pay dividends, to acquire companies, to
invest in joint ventures, to dispose of assets and to incur
additional debt, among other customary limitations. Customary
financial covenants also define a maximum Net Debt-to-EBITDA
ratio (as defined), a minimum EBITDA-to-Net Interest Expense
ratio (as defined) and a maximum annual limit on capital
expenditures.
Fees and expenses incurred in connection with origination of
Viasystems Groups 2006 Credit Agreement were approximately
$3,300, which have been deferred and are being amortized over
the term of the agreement.
As of December 31, 2008, there was $15,500 outstanding
under Facility A, with remaining maturities of $7,500 and $8,000
in 2009 and 2010, respectively. There was no balance outstanding
under Facility A at December 31, 2007. As of
December 31, 2008 and 2007, there were no borrowings
outstanding under the Facility B revolving credit facility;
however, Viasystems Group secured issuance of letters of credit
totaling $2,750 and $5,400 under the Facility B as of
December 31, 2008 and 2007, respectively. As of
December 31, 2008, approximately $57,250 of the facilities
was unused and available. The weighted average interest rate on
outstanding borrowings during the years ended December 31,
2008 and 2007, were 4.6% and 0.0%, respectively.
F-20
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2003 Credit
Agreement
On August 10, 2006, Viasystems Group terminated the then
existing credit facility (the 2003 Credit
Agreement). In connection with the disposal of the wire
harness business in May 2006, the term loan portion of the 2003
Credit Agreement was extinguished. In connection with the
termination of the 2003 Credit Agreement, the remaining $9,902
balance outstanding under the revolver portion of the 2003
Credit Agreement was extinguished, and all security, including a
guarantee by Viasystems, was released by the lender group.
During the year ended December 31, 2006, Viasystems Group
recognized a loss on early extinguishment of debt of $1,498
related to i) the write-off of $1,313 unamortized deferred
financing costs related to the 2003 Credit Agreement and
ii) fees of $185 incurred in the facility termination.
Prior to extinguishment, the term loan bore interest, at
Viasystems Groups option, at the then effective base rate
plus 3.25% or the then effective Eurocurrency rate plus 4.25%,
and the revolving credit loans bore interest, at Viasystems
Groups option, at the then effective base rate plus 3.5%
or the then effective Eurocurrency rate plus 4.5%. In addition,
Viasystems Group paid a commitment fee equal to 0.5% on the
undrawn portion of the commitments in respect of the revolving
credit facility.
For the year ended December 31, 2006, the weighted average
interest rate on outstanding borrowings under the 2003 Credit
Agreement was 9.2%.
Capital
Leases
Viasystems Group leases certain of its machinery and equipment
under capital lease agreements. During 2008 and 2007, Viasystems
Group entered into no new capital leases. During 2006,
Viasystems Group entered into a capital lease obligation of
$11,594 for certain new equipment.
Viasystems Group leases certain buildings, transportation and
other equipment under capital and operating leases. As of
December 31, 2008 and 2007, there was equipment held under
capital leases with a cost basis of $12,007 included in
property, plant and equipment. Viasystems Group recorded
accumulated depreciation related to this equipment of $2,285 and
$1,201 as of December 31, 2008 and 2007, respectively.
Total rental expense under operating leases was $5,285, $5,115,
and $5,823 for the years ended December 31, 2008, 2007 and
2006, respectively.
Future minimum lease payments under capital leases and operating
leases that have initial or remaining non-cancelable lease terms
in excess of one year at December 31, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
2009
|
|
$
|
2,634
|
|
|
$
|
5,280
|
|
2010
|
|
|
2,634
|
|
|
|
4,379
|
|
2011
|
|
|
117
|
|
|
|
2,185
|
|
2012
|
|
|
117
|
|
|
|
559
|
|
2013
|
|
|
117
|
|
|
|
372
|
|
Thereafter
|
|
|
819
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,438
|
|
|
$
|
14,190
|
|
|
|
|
|
|
|
|
|
|
Less: Amounts representing interest
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
5,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Viasystems Group is a party to contracts with third party
consultants, independent contractors and other service providers
in which Viasystems Group has agreed to indemnify such parties
against certain liabilities in connection with their
performance. Based on historical experience and the likelihood
that such parties will ever make a claim against Viasystems
Group, in the opinion of Viasystems Groups management, the
ultimate liabilities resulting from such indemnification
obligations will not have a material adverse effect on its
financial condition and results of operations and cash flows.
Viasystems Group is a party to contracts and agreements with
other third parties in which Viasystems Group has agreed to
indemnify such parties against certain liabilities in connection
with claims by unrelated parties. At December 31, 2008 and
2007, other non-current liabilities include $13,486, and $13,412
of accruals for potential claims in connection with such
indemnities.
Viasystems Groups charter provides that none of the
Directors and officers of Viasystems Group bear the risk of
personal liability for monetary damages for breach of fiduciary
duty as a Director or officer except in cases where the action
involves a breach of the duty of loyalty, acts in bad faith or
intentional misconduct, the unlawful paying of dividends or
repurchasing of capital stock, or transactions from which the
Director or officer derived improper personal benefits.
Viasystems Group is subject to various lawsuits and claims with
respect to such matters as product liability, product
development and other actions arising in the normal course of
business. In the opinion of Viasystems Groups management,
the ultimate liabilities resulting from such lawsuits and claims
will not have a material adverse effect on Viasystems
Groups financial condition and results of operations and
cash flows.
Viasystems Group accounts for income taxes in accordance with
the provisions of SFAS No. 109, Accounting for
Income Taxes. The income tax provision for the years ended
December 31, 2008, 2007 and 2006, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
17
|
|
|
$
|
(316
|
)
|
|
$
|
(49
|
)
|
State
|
|
|
27
|
|
|
|
22
|
|
|
|
|
|
Foreign
|
|
|
7,716
|
|
|
|
(5,237
|
)
|
|
|
18,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,760
|
|
|
|
(5,531
|
)
|
|
|
18,917
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(2,822
|
)
|
|
|
(1,322
|
)
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,822
|
)
|
|
|
(1,322
|
)
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,938
|
|
|
$
|
(6,853
|
)
|
|
$
|
18,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation between the income tax provision at the federal
statutory income tax rate and at the effective tax rate, for the
years ended December 31, 2008, 2007 and 2006, is summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. Federal statutory rate
|
|
$
|
(3,687
|
)
|
|
$
|
552
|
|
|
$
|
(1,464
|
)
|
State taxes, net of federal benefit
|
|
|
27
|
|
|
|
2
|
|
|
|
9
|
|
Non deductible items
|
|
|
13,559
|
|
|
|
9,739
|
|
|
|
1,521
|
|
Foreign tax rate differences
|
|
|
(3,043
|
)
|
|
|
(3,125
|
)
|
|
|
10,341
|
|
AMT rate difference
|
|
|
1,880
|
|
|
|
(1,073
|
)
|
|
|
|
|
Change in the valuation allowance for deferred tax assets, net
|
|
|
(623
|
)
|
|
|
(2,797
|
)
|
|
|
7,250
|
|
Tax reserve adjustments
|
|
|
(900
|
)
|
|
|
(8,763
|
)
|
|
|
|
|
Foreign dividend reinvestment tax credit
|
|
|
|
|
|
|
(3,223
|
)
|
|
|
|
|
Foreign tax law changes
|
|
|
(2,280
|
)
|
|
|
1,674
|
|
|
|
|
|
Other
|
|
|
5
|
|
|
|
161
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,938
|
|
|
$
|
(6,853
|
)
|
|
$
|
18,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of significant temporary differences
representing deferred tax assets and liabilities at
December 31, 2008 and 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
345,829
|
|
|
$
|
340,771
|
|
Capital loss carryforwards
|
|
|
98,793
|
|
|
|
123,133
|
|
AMT credit carryforwards
|
|
|
1,508
|
|
|
|
1,508
|
|
Foreign tax credit carryforward
|
|
|
|
|
|
|
3,057
|
|
Accrued liabilities not yet deductible
|
|
|
11,765
|
|
|
|
14,355
|
|
Property, plant and equipment
|
|
|
3,290
|
|
|
|
2,651
|
|
Other
|
|
|
4,658
|
|
|
|
2,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,843
|
|
|
|
488,184
|
|
Valuation allowance
|
|
|
(459,301
|
)
|
|
|
(483,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
6,542
|
|
|
|
4,219
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
(283
|
)
|
|
|
(283
|
)
|
Other
|
|
|
(6,135
|
)
|
|
|
(6,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,418
|
)
|
|
|
(6,917
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
124
|
|
|
$
|
(2,698
|
)
|
|
|
|
|
|
|
|
|
|
The domestic and foreign (loss) income before income tax
provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Domestic
|
|
$
|
(18,870
|
)
|
|
$
|
(9,168
|
)
|
|
$
|
1,945
|
|
Foreign
|
|
|
8,335
|
|
|
|
10,746
|
|
|
|
(9,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,535
|
)
|
|
$
|
1,578
|
|
|
$
|
(7,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As of December 31, 2008, Viasystems Group had the following
net operating loss (NOL) carryforwards: $757,321 in
the U.S., $7,053 in China, $123,963 in Luxembourg, $27,783 in
Canada, $5,552 in Hong Kong, $1,525 in the U.K., and $36,740 in
the Netherlands. The U.S. NOLs expire in 2021 through 2028
and the Canada NOLs expire in 2009 through 2013. All other NOLs
carry forward indefinitely. Canada has a capital loss of
$323,917 that will carry forward indefinitely.
In connection with Viasystems Groups reorganization under
Chapter 11 completed on January 31, 2003, Viasystems
Group believes more than a 50% change in ownership occurred
under Section 382 of the Internal Revenue Code of 1986, as
amended, and regulations issued thereunder. As a consequence,
the utilization of the U.S. NOLs is limited to
approximately $19,700 per year (except to the extent Viasystems
Group recognizes certain gains built in at the time of the
ownership change), with any unused portion carried over to
succeeding years. Any NOLs not utilized in a year can be carried
over to succeeding years.
Viasystems Group has a tax holiday in China, covering certain of
Viasystems Groups subsidiaries, that allows a
two year tax exemption and three year
50% reduction in the tax rate. If not for such tax holiday,
Viasystems Group would have had $1,935, $338 and $696 of
additional income tax expense for December 31, 2008, 2007
and 2006, respectively, based on the applicable tax rates
ranging from 12% to 27%.
Uncertain Tax
Positions
Viasystems Group adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48), on
January 1, 2007. As a result of the adoption of
FIN 48, Viasystems Group recorded a $10,213 increase in the
net liability for unrecognized tax positions, which was recorded
as a cumulative effect adjustment to the opening balance of
accumulated deficit on January 1, 2007. The total amount of
unrecognized tax benefits included in the consolidated balance
sheets at December 31, 2008 and 2007, were $17,753 and
$19,399, respectively. The liability for unrecognized tax
benefits decreased by $1,646 from December 31, 2007, to
December 31, 2008. The decrease was due to the settlement
of prior uncertain tax positions partially offset by additional
provisions related to tax positions taken in the current period,
and interest and penalties related to positions taken in prior
periods. The settlement of prior uncertain tax positions
resulted in a $1,421 payment and a $4,331 reversal in the
liability for uncertain tax positions. Included in the
December 31, 2008, balance was $17,753 of unrecognized tax
positions that, if recognized, would affect the effective tax
rate. Viasystems Group is in discussions with various taxing
authorities on several open tax positions, and it is possible
that the amount of the liability for unrecognized tax benefits
could change during the next year. Viasystems Group currently
estimates approximately $1,600 of the liability for uncertain
tax positions could be settled in the next twelve months and has
classified this as current.
The current portion of Viasystems Groups unrecognized tax
benefits is presented in the consolidated balance sheets within
accrued income taxes payable, and the amount expected to be
settled after one year is recorded in other non
current liabilities. At December 31, 2008 and 2007, other
non current liabilities include $16,153 and $17,409
of long term accrued taxes, respectively, related to
the liability for unrecognized tax benefits.
Viasystems Group classifies income tax related
interest and penalties as a component of income tax expense. At
December 31, 2008, the total unrecognized tax benefit in
the consolidated balance sheet included a liability of $4,109
related to accrued interest and penalties on unrecognized tax
benefits. For the year ended December 31, 2008, the income
tax provision included in Viasystems Groups consolidated
statement of operations included a net $180 benefit related to
interest and
F-24
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
penalties on unrecognized tax benefits which included a $1,521
reversal of the liability related to a prior uncertain tax
position.
As of December 31, 2008, Viasystems Group is subject to
U.S. federal income tax examinations for all tax years from
1996 forward, and to non U.S. income tax
examinations generally for the tax years 2000 through
2007. In addition, Viasystems Group is subject to state and
local income tax examinations generally for the tax years
2000 through 2007.
Following is a reconciliation of Viasystems Groups total
gross unrecognized tax benefits, exclusively related interest
and penalties, for the year ended December 31, 2008.
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
14,717
|
|
Tax positions related to current year:
|
|
|
|
|
Additions
|
|
|
2,470
|
|
Reductions
|
|
|
|
|
Tax positions related to prior years:
|
|
|
|
|
Additions
|
|
|
|
|
Reductions
|
|
|
(2,500
|
)
|
Settlements
|
|
|
(1,043
|
)
|
Lapses in statutes of limitations
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
13,644
|
|
|
|
|
|
|
|
|
12.
|
Derivative
Financial Instruments
|
Viasystems Group accounts for derivatives under
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS No. 149), and
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133).
These standards require recognition of all derivatives as either
assets or liabilities in the balance sheet and require
measurement of those instruments at fair value through
adjustments to other comprehensive income, current earnings, or
both, as appropriate.
Viasystems Group uses derivative instruments, primarily foreign
exchange forward contracts, to manage certain of its foreign
exchange rate risks. Viasystems Groups objective is to
limit potential losses in earnings or cash flows from adverse
foreign currency exchange rate movements. Viasystems
Groups foreign currency exposure arises from the
transacting of business in a currency that is different from the
currency that Viasystems Group incurs the majority of its costs.
Viasystems Groups decision to enter into forward purchase
contracts is made after considering future use of foreign
currencies, the desired foreign exchange rate sensitivity and
exchange rate levels. Prior to entering into a hedge
transaction, Viasystems Group formally documents the
relationship between hedging instruments and hedged items, as
well as the risk management objective for undertaking the
various hedge transactions.
Viasystems Groups currency forward contracts as of
December 31, 2008, relate only to Chinese Renminbi
(RMB) exchange rates, and because that currency is
not freely traded outside of the Peoples Republic of
China, Viasystems Groups contracts are settled in
U.S. dollars by reference to changes in the value of
notional quantities of RMB through the contract settlement date.
Amounts received or paid at the contract settlement date are
recorded in cost of goods sold at the time of settlement. For
the years ended December 31, 2008 and 2007, gains of $1,197
and $77 respectively, were recorded in cost of goods sold
related to settled currency forward contracts.
F-25
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2008, deferred losses of $2,522 (net of tax
of $0) related to cash flow hedges were recorded in accrued and
other liabilities and other accumulated comprehensive income on
the consolidated balance sheet. At December 31, 2007,
deferred gains of $350 (net of tax of $0) related to cash flow
hedges were recorded in prepaid expenses and other and
accumulated other comprehensive income on the consolidated
balance sheet. The deferred losses and gains were measured using
Level 2 inputs (see Note 1). There was no
ineffectiveness recorded in earnings as of December 31,
2008.
The maximum term over which Viasystems Group hedges exposure to
the exchange rate variability of future cash flows is less than
one year.
The following table summarizes Viasystems Groups
derivative instrument activity at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
Notional
|
|
|
Maturity in
|
|
|
Exchange
|
|
|
|
Amount
|
|
|
Months
|
|
|
Rate
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chinese RMB
|
|
|
840,000
|
|
|
|
6.0
|
|
|
|
6.797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loss, net of tax
|
|
$
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Stock Option Plan
and Warrants
|
2003 Stock
Option Plan
Under the 2003 Stock Option Plan, options to purchase a total of
2,777,778 of Viasystems Groups common stock may be granted
to Viasystems Groups employees. Stock options may be
granted to employees in the form of nonqualified stock options
at market value, and Viasystems Groups practice has been
to grant options at the greater of a fixed exercise price of
$12.63 or market value. Options granted expire 10 years
after the grant date and vest one third at the grant
date, one third on the 24 month
anniversary of the grant date and one third on the
36 month anniversary of the grant date. At
December 31, 2008, 169,378 of these shares were available
for future grants.
Stock compensation expense is recognized over the requisite
service period for each award, and recorded in the consolidated
statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of goods sold
|
|
$
|
91
|
|
|
$
|
217
|
|
|
$
|
22
|
|
Selling, general and administrative
|
|
|
524
|
|
|
|
1,868
|
|
|
|
1,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
615
|
|
|
$
|
2,085
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, unrecognized compensation expense
totaled approximately $1,198 and will be recognized over a
weighted average period of approximately 9 months.
F-26
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The fair value of each option grant is estimated on the date of
the grant using the Black Scholes option
pricing model using the following assumptions:
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Expected life of options
|
|
5 years
|
|
5 years
|
|
5 years
|
Risk free interest rate
|
|
2.71%
|
|
4.02% to 4.76%
|
|
4.66% to 5.13%
|
Expected volatility of stock
|
|
52%
|
|
54% to 64%
|
|
50%
|
Expected dividend yield
|
|
None
|
|
None
|
|
None
|
The weighted average grant date fair value of options granted
was $6.13 for 2008, $6.44 for 2007 and $6.24 for 2006.
Presented below is a summary of stock option plans
activity for the years and as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
Options
|
|
Price(1)
|
|
Options
|
|
Price(1)
|
|
Options
|
|
Price(1)
|
|
Beginning balance
|
|
|
2,765,600
|
|
|
$
|
12.63
|
|
|
|
2,568,400
|
|
|
$
|
12.63
|
|
|
|
2,698,800
|
|
|
$
|
12.63
|
|
Granted
|
|
|
12,000
|
|
|
|
12.63
|
|
|
|
475,000
|
|
|
|
12.63
|
|
|
|
81,600
|
|
|
|
12.63
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(169,200
|
)
|
|
|
12.63
|
|
|
|
(277,800
|
)
|
|
|
12.63
|
|
|
|
(212,000
|
)
|
|
|
12.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
2,608,400
|
|
|
$
|
12.63
|
|
|
|
2,765,600
|
|
|
$
|
12.63
|
|
|
|
2,568,400
|
|
|
$
|
12.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at year end
|
|
|
2,313,185
|
|
|
$
|
12.63
|
|
|
|
2,349,713
|
|
|
$
|
12.63
|
|
|
|
2,294,053
|
|
|
$
|
12.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the weighted average remaining
contractual life of outstanding options was 5.2 years, and
the weighted average remaining contractual life of exercisable
options was 4.8 years.
2003
Warrants
On January 31, 2003, Viasystems Group authorized warrants
to purchase 1,436,171 shares of common stock for certain
pre petition holders of the Series B preferred
stock interest and to pre petition unsecured
creditors. As of December 31, 2008 and 2007, 1,378,226
warrants were issued and outstanding. Each warrant allows the
holder to purchase one share of common stock at an exercise
price of $25.51 per share. The warrants are immediately
exercisable and expire on January 31, 2010. No warrants
have been exercised to date.
Viasystems Group estimated the fair value at the date of issue
of the 1,436,171 warrants to be $6,965 using the
Black Scholes formula assuming no dividends, a
risk free interest rate of 4.01%, expected
volatility of 50%, and expected warrant life of seven years.
Because Viasystems Group has no obligation to settle the
warrants by any means other than through the issuance of shares
of its common stock, Viasystems Group has included the fair
value of the warrants as a component of shareholders
equity.
F-27
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Mandatory
Redeemable Class A Junior Preferred Stock
There are 1,500,000 shares of Class A Junior Preferred
Stock (the Class A Preferred) authorized, of
which 903,233 were issued and outstanding at December 31,
2008 and 2007. Par value of the stock is $.01 per share.
Dividends accrue semi annually on June 30 and
December 31, commencing on January 1, 2004. Dividends
are cumulative and accrue at an annual rate of 1.0% on the
Liquidation Preference ($100 per share plus accrued, but unpaid
dividends) per share per annum from January 1, 2004 to
December 31, 2004, 3.0% on the Liquidation Preference per
share per annum from January 1, 2005 to December 31,
2005, 5.0% on the Liquidation Preference per share per annum
from January 1, 2006 to December 31, 2006, 8.0% on the
Liquidation Preference per share per annum from January 1,
2007 to January 31, 2013, and 14.0% on the Liquidation
Preference per share per annum beginning February 1, 2013,
until the redemption completion date.
The Class A Preferred is classified as a liability under
the provisions of SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS No. 150).
The recorded balance in Viasystems Groups financial
statements is the present value of the redemption amount of
securities. When issued, the future value of the securities
resulted in the discount of $37,930 from the face amount of
$120,100. Upon completion of the October 7, 2004, exchange
of Class A Preferred, the discount was reduced by $9,900.
The discount, recorded as interest expense, is being amortized
to the maturity of Class A Preferred, January 31,
2013. All dividends are recorded as interest expense using the
weighted average interest rate of all dividends to be paid over
such term. A total of $9,770, $8,887 and $8,054 was recorded as
interest expense during the years ended December 31, 2008,
2007 and 2006, respectively.
At Viasystems option, the Class A Preferred is
redeemable at any time, at 100% of the then effective
Liquidation Preference per share, together with, without
duplication, accrued and unpaid dividends to the date of
redemption. At January 31, 2013, the Class A Preferred
is subject to mandatory redemption at a price equal to 100% of
the then effective Liquidation Preference, together with,
without duplication, accrued and unpaid dividends to the date of
redemption.
Redeemable
Class B Senior Convertible Preferred Stock
At December 31, 2008, 4,500,000 shares were authorized
as Class B Senior Convertible Preferred Stock (the
Class B Preferred), of which
4,255,546 shares were issued and outstanding. Par value of
the stock is $.01 per share. Dividends accrue semi
annually on June 30 and December 31, commencing on
June 20, 2003. Dividends are cumulative and accrue at an
annual rate of 9.0% on the Liquidation Preference ($12.63 per
share plus accrued, but unpaid dividends) prior to
January 31, 2013 and at an annual rate of 14.0% on the
Liquidation Preference per share per annum beginning
February 1, 2013, until the redemption completion date. The
2006 Credit Agreement prohibits the payment of cash dividends.
The Class B Preferred is convertible at the option of the
holder into common stock. The number of common shares received
in a conversion is calculated based on the accumulated
liquidation preference of the preferred stock being converted,
divided by a conversion price of $12.63 per share.
The Class B Preferred is classified as temporary equity. In
2003, as part of Viasystems Groups reorganization under
Chapter 11, a payment of $1,072 was paid to investors in
connection with issuance of the Class B Preferred. As a
result, the investors effective conversion price was lower
than the fair value of Viasystems Groups common stock at
the commitment date, which created a beneficial conversion
factor (BCF) of $1,081. Both the payment to
investors and BCF were capitalized to reduce the face value of
the Class B Preferred and are being amortized over ten
years.
F-28
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On January 31, 2013, the Class B Preferred is subject
to mandatory redemption at a price equal to the Liquidation
Preference, together with, without duplication, accrued and
unpaid dividends to the date of redemption.
Viasystems Group recorded increases to the Class A and
Class B Preferred Stock as follows to reflect accretion of
dividends and amortization of the discount and BCF:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Preferred
|
|
|
Class B Preferred
|
|
|
|
Shares
|
|
|
$ Amount
|
|
|
Shares
|
|
|
$ Amount
|
|
|
Balance at December 31, 2006
|
|
|
903,233
|
|
|
$
|
89,439
|
|
|
|
4,255,546
|
|
|
$
|
74,780
|
|
Accretion and amortization
|
|
|
|
|
|
|
8,887
|
|
|
|
|
|
|
|
7,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
903,233
|
|
|
|
98,326
|
|
|
|
4,255,546
|
|
|
|
81,983
|
|
Accretion and amortization
|
|
|
|
|
|
|
9,770
|
|
|
|
|
|
|
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
903,233
|
|
|
$
|
108,096
|
|
|
|
4,255,546
|
|
|
$
|
89,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the aggregate cumulative preferred
dividends in arrears for the Class A and Class B
Preferred was $25,193 and $29,024, respectively.
|
|
15.
|
Business Segment
Information
|
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information
(SFAS No. 131), establishes standards
for reporting information about operating segments in annual
financial statements and requires selected information about
operating segments in financial reports issued to stockholders.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker or
decision making group in deciding how to allocate resources and
in assessing performance.
On May 1, 2006, Viasystems Group completed the sale of its
wire harness business, which was accounted for as a discontinued
operation in accordance with SFAS No. 144. In
connection with the disposal of the wire harness business,
Viasystems Group reevaluated its operating segments based on the
application of SFAS No. 131, and identified two
segments: (i) Printed Circuit Boards and (ii) Assembly.
The Printed Circuit Boards segment consists of Viasystems
Groups printed circuit board manufacturing facilities
located in China. These facilities manufacture double-sided and
multi-layer printed circuit boards and backpanels. The Assembly
segment consists of assembly operations including backpanel
assembly, printed circuit board assembly, cable assembly, custom
enclosures, and full system assembly and testing. The assembly
operations are conducted in manufacturing facilities in China
and Mexico. The individual facilities have been aggregated into
two segments Printed Circuit Boards and
Assembly which represent Viasystems Groups
reportable segments.
The assets and liabilities of Viasystems Groups corporate
headquarters, and the assets, liabilities and operating results
of its closed Printed Circuit Boards and Assembly operations,
are reported in Other. Operating expenses of
Viasystems Groups corporate headquarters are allocated to
the Printed Circuit Boards and Assembly segments. During 2008,
Viasystems Group refined its methodology for allocating
operating expenses of Viasystems Groups corporate
headquarters to its segments to better reflect the efforts
undertaken to support each segment. Previously these costs were
allocated based solely on each segments percentage of
total net sales. Inter-segment sales are eliminated in
consolidation. The accounting policies of the segments are the
same as those described in Note 1.
F-29
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During 2009, the Companys Milwaukee Facility was closed,
and the Company began to report the assets, liabilities and
operating results of the Milwaukee Facility in
Other. Previously the operating results of the
Milwaukee Facility were reported in the Assembly segment. For
all periods presented, segment results have been reclassified
for comparison purposes to reflect the assets, liabilities and
operating results of the Milwaukee Facility in
Other, and the refined methodology for allocating
operating expenses of the Companys Corporate headquarters
to the Printed Circuit Boards and Assembly segments.
Total assets by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
435,664
|
|
|
$
|
478,690
|
|
Assembly
|
|
|
102,208
|
|
|
|
96,653
|
|
Other
|
|
|
47,366
|
|
|
|
53,086
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
585,238
|
|
|
$
|
628,429
|
|
|
|
|
|
|
|
|
|
|
Net sales and operating income (loss) by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
471,386
|
|
|
$
|
471,211
|
|
|
$
|
489,108
|
|
Assembly
|
|
|
196,552
|
|
|
|
187,338
|
|
|
|
192,800
|
|
Other
|
|
|
44,892
|
|
|
|
55,794
|
|
|
|
53,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from continuing operations
|
|
$
|
712,830
|
|
|
$
|
714,343
|
|
|
$
|
734,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
18,398
|
|
|
$
|
18,616
|
|
|
$
|
18,083
|
|
Assembly
|
|
|
9
|
|
|
|
7
|
|
|
|
27
|
|
Other
|
|
|
1,113
|
|
|
|
2,655
|
|
|
|
7,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from continuing operations
|
|
$
|
19,520
|
|
|
$
|
21,276
|
|
|
$
|
25,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
23,838
|
|
|
$
|
26,078
|
|
|
$
|
22,472
|
|
Assembly
|
|
|
8.836
|
|
|
|
8,365
|
|
|
|
7,003
|
|
Other
|
|
|
(10,272
|
)
|
|
|
50
|
|
|
|
6,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
22,402
|
|
|
|
34,493
|
|
|
|
35,589
|
|
Interest expense, net
|
|
|
31,585
|
|
|
|
30,573
|
|
|
|
38,768
|
|
Amortization of deferred financing costs
|
|
|
2,063
|
|
|
|
2,065
|
|
|
|
1,678
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,498
|
|
Other, net
|
|
|
(711
|
)
|
|
|
277
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
$
|
(10,535
|
)
|
|
$
|
1,578
|
|
|
$
|
(7,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008, Viasystems Group
recorded restructuring charges of $9,948, $702 and $4,419 in the
Printed Circuit Boards, Assembly and Other segments,
respectively. Of these charges, $1,690 and $3,868 were non-cash
asset impairment charges in the Printed Circuit Boards and
Other segments, respectively. No restructuring
charges were incurred in the Printed
F-30
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Circuit Boards and Assembly segments in 2007 and 2006. In the
Other segment, restructuring charges of $278, and
net reversals of restructuring charges of $4,915, were recorded
for 2007 and 2006, respectively.
Capital expenditures and depreciation expense by segment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
42,920
|
|
|
$
|
29,549
|
|
|
$
|
47,012
|
|
Assembly
|
|
|
2,846
|
|
|
|
4,046
|
|
|
|
3,322
|
|
Other
|
|
|
3,159
|
|
|
|
3,602
|
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
48,925
|
|
|
|
37,197
|
|
|
|
52,901
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
48,925
|
|
|
$
|
37,197
|
|
|
$
|
55,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
46,362
|
|
|
$
|
43,722
|
|
|
$
|
39,252
|
|
Assembly
|
|
|
4,979
|
|
|
|
4,752
|
|
|
|
5,308
|
|
Other
|
|
|
2,044
|
|
|
|
1,230
|
|
|
|
862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation expense
|
|
$
|
53,285
|
|
|
$
|
49,704
|
|
|
$
|
45,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net sales by country of destination are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
264,490
|
|
|
$
|
263,680
|
|
|
$
|
272,695
|
|
Peoples Republic of China
|
|
|
147,638
|
|
|
|
170,579
|
|
|
|
151,317
|
|
Germany
|
|
|
56,951
|
|
|
|
50,167
|
|
|
|
63,265
|
|
France
|
|
|
29,827
|
|
|
|
40,425
|
|
|
|
42,733
|
|
Malaysia
|
|
|
19,844
|
|
|
|
26,121
|
|
|
|
34,561
|
|
Hungary
|
|
|
18,734
|
|
|
|
20,788
|
|
|
|
12,249
|
|
Mexico
|
|
|
18,570
|
|
|
|
12,743
|
|
|
|
17,280
|
|
Belgium
|
|
|
17,372
|
|
|
|
31,999
|
|
|
|
31,043
|
|
Czech Republic
|
|
|
16,009
|
|
|
|
15,945
|
|
|
|
11,937
|
|
Canada
|
|
|
14,115
|
|
|
|
9,824
|
|
|
|
5,063
|
|
United Kingdom
|
|
|
10,309
|
|
|
|
9,277
|
|
|
|
9,291
|
|
Singapore
|
|
|
9,922
|
|
|
|
6,893
|
|
|
|
8,203
|
|
Portugal
|
|
|
8,688
|
|
|
|
7,414
|
|
|
|
4,858
|
|
Italy
|
|
|
7,418
|
|
|
|
8,791
|
|
|
|
8,930
|
|
Poland
|
|
|
7,271
|
|
|
|
2,357
|
|
|
|
|
|
Spain
|
|
|
6,872
|
|
|
|
6,839
|
|
|
|
5,295
|
|
India
|
|
|
6,520
|
|
|
|
1,344
|
|
|
|
1,867
|
|
Norway
|
|
|
6,194
|
|
|
|
4,338
|
|
|
|
|
|
Japan
|
|
|
6,191
|
|
|
|
1,813
|
|
|
|
757
|
|
Other
|
|
|
39,895
|
|
|
|
23,006
|
|
|
|
53,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
712,830
|
|
|
$
|
714,343
|
|
|
$
|
734,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net by country are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Peoples Republic of China
|
|
$
|
225,222
|
|
|
$
|
233,150
|
|
Mexico
|
|
|
3,571
|
|
|
|
3,722
|
|
United States
|
|
|
3,948
|
|
|
|
7,101
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
232,741
|
|
|
$
|
243,973
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Discontinued
Operations
|
On May 1, 2006, the wire harness business was sold to
Electrical Components International Holdings Company, a newly
formed affiliate of Francisco Partners, L.P., a private equity
firm, for gross cash proceeds of $320,000. Net cash proceeds
reported in the accompanying consolidated statement of cash
flows for the year ended December 31, 2006, of $307,927
reflect reductions of the gross proceeds for i) cash of
$2,999 on deposit in bank accounts of the disposed business on
the date of the transaction, ii) a $2,419 contractual
purchase price adjustment agreed and paid to the acquirer in
June 2006, and iii) transaction costs of $6,655 paid in
2006 related to the disposal. One further contractual purchase
price adjustment, which was accrued at the time of the disposal,
was settled at approximately $2,000 during 2007.
F-32
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In the accompanying consolidated statement of operations for the
year ended December 31, 2006, Viasystems Group recognized a
net gain on the sale of Viasystems Groups discontinued
wire harness operations of $214,085. The gain is net of
i) the carrying value of net assets disposed,
ii) professional fees and other costs related to the
disposal transaction, iii) actual and estimated purchase
price adjustments, and iv) taxes of approximately $9,462.
For the four months ended April 30, 2006, operating results
for the discontinued operations were as follows:
|
|
|
|
|
Net sales
|
|
$
|
102,358
|
|
|
|
|
|
|
Operating income
|
|
$
|
11,322
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
11,388
|
|
Income tax provision
|
|
|
1,913
|
|
|
|
|
|
|
Net income
|
|
$
|
9,475
|
|
|
|
|
|
|
Viasystems Group has a defined contribution retirement savings
plan (the Retirement Plan) covering substantially
all domestic employees who meet certain eligibility requirements
as to age and length of service. The Retirement Plan
incorporates the salary deferral provision of
Section 401(k) of the Internal Revenue Code and employees
may defer up to 30% of their compensation or the annual maximum
limit prescribed by the Internal Revenue Code. Viasystems Group
matches a percentage of the employees deferrals and may
contribute an additional 1% of employees salaries to the
Retirement Plan regardless of employee deferrals. Viasystems
Group may also elect to contribute an additional profit-sharing
contribution to the Retirement Plan at the end of each year.
Viasystems Groups contributions to the Retirement Plan
were $465, $474 and $440 for the years ended December 31,
2008, 2007 and 2006, respectively.
|
|
18.
|
Research and
Development
|
Research, development and engineering expenditures for the
creation and application of new products and processes were
approximately $2,157, $3,397 and $2,791 for the years ended
December 31, 2008, 2007 and 2006, respectively. Research
and development is included in the selling, general and
administrative line item on the consolidated statements of
operations.
|
|
19.
|
Related Party
Transactions
|
Monitoring and
Oversight Agreement
Viasystems Group entered into a ten-year monitoring and
oversight agreement with an affiliate of Hicks, Muse,
Tate & Furst, Incorporated (HMTF), which
controls a majority of the voting stock of Viasystems Group,
effective as of January 31, 2003. The monitoring and
oversight agreement obligates Viasystems Group to indemnify
HMTF, its affiliates, and their respective directors, officers,
controlling persons, agents and employees from and against all
claims, liabilities, losses, damages, expenses and fees and
disbursements of counsel related to or arising out of or in
connection with the services rendered under the monitoring and
oversight agreement and not resulting primarily from the bad
faith, gross negligence or willful misconduct of HMTF. The
consolidated statements of operations include expense of $1,500
for each of the years ended December 31, 2008, 2007 and
2006. Viasystems Group made cash payments of $1,500, $1,500, and
$750 to HMTF related to these expenses during the years ended
December 31, 2008, 2007 and 2006, respectively. At
December 31, 2008, $1,500 is included in accrued and other
liabilities for amounts due under this agreement.
F-33
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Compensation
of Directors
For the years 2008 and 2007 the Chairman of the Board received
an annual fee of $130 and $120, respectively. Directors (other
than the Chairman) who are not executive officers received an
annual fee of $35 and $30 in 2008 and 2007, respectively. In
addition, each Audit Committee and Compensation Committee member
received an annual fee of $12 and $10 in 2008 and 2007,
respectively; and the Chairman of the Audit Committee and
Compensation Committee each received an additional fee of $7 and
$5 in 2008 and 2007, respectively. In addition, Directors are
reimbursed for out-of-pocket expenses incurred in connection
with attending meetings of the Board and its committees and
receive a per diem fee of $1 for additional time spent on
Viasystems Groups business.
F-34
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
110,725
|
|
|
$
|
83,053
|
|
Restricted cash
|
|
|
303
|
|
|
|
303
|
|
Accounts receivable, net
|
|
|
77,219
|
|
|
|
96,564
|
|
Inventories
|
|
|
50,202
|
|
|
|
70,419
|
|
Prepaid expenses and other
|
|
|
11,129
|
|
|
|
11,599
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
249,578
|
|
|
|
261,938
|
|
Property, plant and equipment, net
|
|
|
206,189
|
|
|
|
232,741
|
|
Goodwill
|
|
|
79,485
|
|
|
|
79,485
|
|
Intangible assets, net
|
|
|
4,943
|
|
|
|
5,780
|
|
Deferred financing costs, net
|
|
|
2,088
|
|
|
|
3,917
|
|
Other assets
|
|
|
1,380
|
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
543,663
|
|
|
$
|
585,238
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
12,119
|
|
|
$
|
9,617
|
|
Accounts payable
|
|
|
79,225
|
|
|
|
74,668
|
|
Accrued and other liabilities
|
|
|
43,352
|
|
|
|
58,535
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
134,696
|
|
|
|
142,820
|
|
Long-term debt, less current maturities
|
|
|
203,048
|
|
|
|
211,046
|
|
Other non-current liabilities
|
|
|
34,167
|
|
|
|
32,882
|
|
Mandatory redeemable Class A Junior preferred stock
|
|
|
116,055
|
|
|
|
108,096
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
487,966
|
|
|
|
494,844
|
|
Redeemable Class B Senior Convertible preferred stock
|
|
|
96,154
|
|
|
|
89,812
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share, 110,000,000 shares
authorized; 28,874,509 shares issued and outstanding
|
|
|
289
|
|
|
|
289
|
|
Paid-in capital
|
|
|
1,946,077
|
|
|
|
1,951,715
|
|
Accumulated deficit
|
|
|
(1,994,160
|
)
|
|
|
(1,955,352
|
)
|
Accumulated other comprehensive income
|
|
|
7,337
|
|
|
|
3,930
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(40,457
|
)
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
543,663
|
|
|
$
|
585,238
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-35
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
365,085
|
|
|
$
|
565,019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of items shown separately
|
|
|
296,300
|
|
|
|
446,462
|
|
Selling, general and administrative
|
|
|
32,115
|
|
|
|
42,938
|
|
Depreciation
|
|
|
37,832
|
|
|
|
39,839
|
|
Amortization
|
|
|
900
|
|
|
|
936
|
|
Restructuring and impairment
|
|
|
5,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7,215
|
)
|
|
|
34,844
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
24,443
|
|
|
|
23,570
|
|
Amortization of deferred financing costs
|
|
|
1,547
|
|
|
|
1,547
|
|
Loss on early extinguishment of debt
|
|
|
729
|
|
|
|
|
|
Other, net
|
|
|
479
|
|
|
|
(2,028
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(34,413
|
)
|
|
|
11,755
|
|
Income tax provision
|
|
|
4,395
|
|
|
|
7,652
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(38,808
|
)
|
|
$
|
4,103
|
|
|
|
|
|
|
|
|
|
|
Less: Accretion of Class B Senior Convertible preferred
stock
|
|
|
6,342
|
|
|
|
5,831
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(45,150
|
)
|
|
$
|
(1,728
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-36
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(38,808
|
)
|
|
$
|
4,103
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38,732
|
|
|
|
40,775
|
|
Accretion of Class A Junior preferred stock dividends
|
|
|
5,415
|
|
|
|
5,124
|
|
Amortization of preferred stock discount
|
|
|
2,544
|
|
|
|
2,116
|
|
Amortization of deferred financing costs
|
|
|
1,547
|
|
|
|
1,547
|
|
Loss on early extinguishment of debt
|
|
|
729
|
|
|
|
|
|
Non-cash stock compensation expense
|
|
|
704
|
|
|
|
651
|
|
Non-cash impact of exchange rate changes
|
|
|
275
|
|
|
|
111
|
|
(Gain) loss on disposition of assets, net
|
|
|
(566
|
)
|
|
|
569
|
|
Deferred income taxes
|
|
|
(1,799
|
)
|
|
|
16
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
19,345
|
|
|
|
(3,986
|
)
|
Inventories
|
|
|
20,217
|
|
|
|
(10,155
|
)
|
Prepaid expenses and other
|
|
|
2,612
|
|
|
|
(2,872
|
)
|
Accounts payable
|
|
|
4,557
|
|
|
|
(463
|
)
|
Accrued and other liabilities
|
|
|
(11,171
|
)
|
|
|
(14,738
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
44,333
|
|
|
|
22,798
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(14,689
|
)
|
|
|
(42,623
|
)
|
Proceeds from disposals of property
|
|
|
3,975
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,714
|
)
|
|
|
(41,982
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under credit facilities
|
|
|
10,000
|
|
|
|
20,000
|
|
Repayment of borrowings under credit facilities
|
|
|
(15,500
|
)
|
|
|
(3,000
|
)
|
Financing fees
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(5,947
|
)
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
27,672
|
|
|
|
(2,184
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
83,053
|
|
|
|
64,002
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
110,725
|
|
|
$
|
61,818
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-37
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(Unaudited)
Unaudited
Interim Condensed Consolidated Financial
Statements
The unaudited interim condensed consolidated financial
statements of Viasystems Group, Inc., a Delaware corporation
(Viasystems), and its subsidiaries (collectively,
Viasystems Group) 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 and cash flows. Viasystems
Group has evaluated the effect of subsequent events through
November 10, 2009, the date these financial statements were
issued. The results for the nine months ended September 30,
2009, are not necessarily indicative of the results that may be
expected for a full fiscal year. These condensed consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for
the year ended December 31, 2008.
Nature of
Business
Viasystems, through its wholly owned subsidiary Viasystems,
Inc., is a leading worldwide provider of complex
multi-layer printed circuit boards and
electro-mechanical solutions. Viasystems Groups products
are used in a wide range of applications, including automotive
engine controls, hybrid converters, automotive electronics for
navigation, safety, entertainment and anti-lock braking systems,
telecommunications switching equipment, data networking
equipment, computer storage equipment, wind and solar energy
applications and several other complex industrial, medical and
technical instruments. Viasystems is a holding company whose
only significant asset is stock of Viasystems, Inc.
Principles of
Consolidation
The accompanying condensed consolidated financial statements
include the accounts of Viasystems. All intercompany accounts
and transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States
(U.S. GAAP) requires management to make
estimates and assumptions that affect i) the reported
amounts of assets and liabilities, ii) the disclosure of
contingent assets and liabilities at the date of the financial
statements and iii) the reported amounts of revenues and
expenses during the reporting period.
Estimates and assumptions are used in accounting for the
following significant matters, among others:
|
|
|
|
|
allowances for doubtful accounts;
|
|
|
|
inventory valuation;
|
|
|
|
fair value of derivative instruments and related hedged items;
|
|
|
|
useful lives of property, plant, equipment and intangible assets;
|
|
|
|
long-lived and intangible asset impairments;
|
|
|
|
restructuring charges;
|
|
|
|
warranty and product returns allowances;
|
F-38
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
deferred compensation agreements;
|
|
|
|
tax related items;
|
|
|
|
contingencies; and
|
|
|
|
fair value of options granted under our stock-based compensation
plan.
|
Actual results may differ from previously estimated amounts, and
such differences may be material to Viasystems Groups
consolidated financial statements. Estimates and assumptions are
reviewed periodically, and the effects of revisions are
reflected in the period in which the revision is made. As
further discussed in Note 5, Viasystems Group reversed
$1,676 of accrued restructuring charges in its Printed Circuit
Boards segment during the quarter ended June 30, 2009, as a
result of higher than anticipated employee attrition, which
reduced the amount of severance costs related to involuntary
headcount reductions anticipated in Viasystems Groups 2008
Restructuring plan (defined below in Note 5).
Commitments
and Contingencies
Viasystems Group is a party to contracts with third party
consultants, independent contractors and other service providers
in which Viasystems Group has agreed to indemnify such parties
against certain liabilities in connection with their
performance. Based on historical experience and the likelihood
that such parties will ever make a claim against Viasystems
Group, in the opinion of Viasystems Groups management, the
ultimate liabilities resulting from such indemnification
obligations will not have a material adverse effect on its
financial condition and results of operations and cash flows.
Viasystems Groups charter provides that none of the
Directors and officers of Viasystems Group bear the risk of
personal liability for monetary damages for breach of fiduciary
duty as a Director or officer except in cases where the action
involves a breach of the duty of loyalty, acts in bad faith or
intentional misconduct, the unlawful paying of dividends or
repurchasing of capital stock, or transactions from which the
Director or officer derived improper personal benefits.
Viasystems Group is subject to various lawsuits and claims with
respect to such matters as product liability, product
development and other actions arising in the normal course of
business. In the opinion of Viasystems Groups management,
the ultimate liabilities resulting from such lawsuits and claims
will not have a material adverse effect on its financial
condition and results of operations and cash flows.
Earnings Per
Share
Viasystems Group is exempt from the computation, presentation
and disclosure requirements surrounding earnings per share as
Viasystems Group has no publicly held common stock or potential
common stock.
Fair Value
Measurements
Viasystems Group measures the fair value of assets and
liabilities using a three-tier fair value hierarchy which
prioritizes the inputs used in measuring fair value as follows:
Level 1 observable inputs such as quoted prices
in active markets; Level 2 inputs, other than
quoted market prices in active markets, which are observable,
either directly or indirectly; and Level 3
valuations derived from valuation techniques in which one or
more significant inputs are unobservable. In addition,
Viasystems Group may use various valuation techniques, including
the market approach, using
F-39
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
comparable market prices; the income approach, using present
value of future income or cash flow; and the cost approach,
using the replacement cost of assets.
Viasystems Groups financial instruments consist of cash
equivalents, accounts receivable, notes receivable, long-term
debt, preferred stock and other long-term obligations. For cash
equivalents, accounts receivable, notes receivable and other
long-term obligations, the carrying amounts approximate fair
value.
The estimated fair market values of Viasystems Groups debt
instruments, preferred stock and cash flow hedges are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Balance Sheet Classification
|
|
Senior Subordinated Notes due 2011
|
|
$
|
197,500
|
|
|
$
|
200,000
|
|
|
Long-term debt, less current maturities
|
Guangzhou 2009 Credit Facility (see Note 4)
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
Current maturities of long-term debt
|
Class A Junior preferred stock
|
|
$
|
122,540
|
|
|
$
|
116,055
|
|
|
Mandatory redeemable Class A Junior preferred stock
|
Class B Senior Convertible preferred stock
|
|
$
|
96,695
|
|
|
$
|
96,154
|
|
|
Redeemable Class B Senior Convertible preferred stock
|
Cash flow hedges
|
|
$
|
885
|
|
|
$
|
885
|
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Balance Sheet Classification
|
|
Senior Subordinated Notes due 2011
|
|
$
|
150,000
|
|
|
$
|
200,000
|
|
|
Long-term debt, less current maturities
|
2006 Credit Agreement
|
|
$
|
15,500
|
|
|
$
|
15,500
|
|
|
Long-term debt, including current maturities
|
Class A Junior preferred stock
|
|
$
|
115,517
|
|
|
$
|
108,096
|
|
|
Mandatory redeemable Class A Junior preferred stock
|
Class B Senior Convertible preferred stock
|
|
$
|
90,495
|
|
|
$
|
89,812
|
|
|
Redeemable Class B Senior Convertible preferred stock
|
Cash flow hedges
|
|
$
|
(2,522
|
)
|
|
$
|
(2,522
|
)
|
|
Accrued and other liabilities
|
Viasystems Group determined the fair value of the Senior
Subordinated Notes due 2011 (the 2011 Notes) using
quoted market prices for the 2011 Notes. As the balance owed on
the Guangzhou 2009 Credit Facility (see Note 4) and
the 2006 Credit Agreement bear interest at a variable rate, the
carrying value of these debt instruments approximate their fair
value. Viasystems Group estimated the fair values of its
preferred stock instruments to approximate the current
liquidation value of each instrument. Viasystems Group
determined the fair value of the cash flow hedges using a market
approach and Level 2 inputs (see Note 6).
Recently
Adopted Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) established, with effect from July 1,
2009, the FASB Accounting Standards
CodificationTM
(the Codification) as the source of authoritative
U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants. Viasystems
F-40
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Group adopted the Codification beginning July 1, 2009, and
while it impacts the way Viasystems Group refers to accounting
pronouncements in its disclosures, it had no affect on
Viasystems Groups financial position, results of
operations or cash flows upon adoption.
The composition of inventories is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
15,777
|
|
|
$
|
26,388
|
|
Work in process
|
|
|
14,912
|
|
|
|
18,488
|
|
Finished goods
|
|
|
19,513
|
|
|
|
25,543
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,202
|
|
|
$
|
70,419
|
|
|
|
|
|
|
|
|
|
|
Inventories are stated at the lower of cost (valued using the
first-in,
first-out method) or market.
|
|
3.
|
Property, Plant
and Equipment
|
The composition of property, plant and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land and buildings
|
|
$
|
55,001
|
|
|
$
|
54,885
|
|
Machinery, equipment and systems
|
|
|
428,008
|
|
|
|
422,489
|
|
Leasehold improvements
|
|
|
41,713
|
|
|
|
40,355
|
|
Construction in progress
|
|
|
835
|
|
|
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,557
|
|
|
|
519,266
|
|
Less: Accumulated depreciation
|
|
|
(319,368
|
)
|
|
|
(286,525
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
206,189
|
|
|
$
|
232,741
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Revolving Line of
Credit and Long-term Debt
|
The composition of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Senior Subordinated Notes due 2011
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
Guangzhou 2009 Credit Facility
|
|
|
10,000
|
|
|
|
|
|
2006 Credit Agreement:
|
|
|
|
|
|
|
|
|
Term loans
|
|
|
|
|
|
|
15,500
|
|
Revolving credit loans
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
5,167
|
|
|
|
5,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,167
|
|
|
|
220,663
|
|
Less: Current maturities
|
|
|
(12,119
|
)
|
|
|
(9,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
203,048
|
|
|
$
|
211,046
|
|
|
|
|
|
|
|
|
|
|
F-41
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Guangzhou 2009
Credit Facility
In September 2009, Viasystems Groups Guangzhou Termbray
Electronics Technology Company Limited subsidiary consummated a
200 million Renminbi (approximately $29,300
U.S. dollars based on the exchange rate as of
September 30, 2009) revolving credit facility (the
Guangzhou 2009 Credit Facility) with China
Construction Bank, Guangzhou Economic and Technical Development
District Branch. The Guangzhou 2009 Credit Facility provides for
borrowings denominated in Chinese Renminbi (RMB) and
foreign currencies, including the U.S. dollar. Borrowings
are secured by a mortgage lien on the buildings and land lease
at Viasystems Groups manufacturing facility in Guangzhou,
China. The Guangzhou 2009 Credit Facility is renewable annually
beginning June 30, 2010. Loans under the Guangzhou 2009
Credit Facility bear interest at the rate of (i) LIBOR plus
a margin negotiated prior to each U.S. dollar denominated
loan or (ii) the interest rate quoted by the Peoples Bank
of China multiplied by 0.9 for RMB denominated loans. The
Guangzhou 2009 Credit Facility has certain restrictions and
other covenants that are customary for similar credit
arrangements; however, there are no financial covenants
contained in this facility. Viasystems Group incurred $37 of
deferred financing fees related to the facility. As of
September 30, 2009, $10,000 in U.S. dollar loans was
outstanding under the Guangzhou 2009 Credit Facility at a rate
of LIBOR plus 0.5%, and approximately $19,300 of the revolving
credit facility was unused and available.
2006 Credit
Agreement
In September 2009, in connection with the consummation of the
Guangzhou 2009 Credit Facility, Viasystems Group provided a
notice to voluntarily prepay and cancel the credit agreement
that had been previously entered into as of August 17, 2006
(the 2006 Credit Agreement) with UBS AG Hong Kong
Branch and UBS AG, Singapore Branch, and repaid all outstanding
amounts under that agreement. The 2006 Credit Agreement was for
a term of four years and provided a $60,000 revolving credit
facility and a $20,000 term loan facility. As a result of the
prepayment and cancellation of the 2006 Credit Agreement,
Viasystems Group recorded a loss on early extinguishment of debt
of $729 in conjunction with the write-off of related unamortized
deferred financing costs.
Senior
Subordinated Notes due 2011
On October 27, 2009, Viasystems, Inc., Viasystems
Groups subsidiary, commenced a tender offer to purchase up
to $200,000 aggregate principal amount of its outstanding Senior
Subordinated Notes due 2011 (the 2011 Notes). On
October 30, 2009, Viasystems, Inc. announced that it is
proposing to offer in a private placement $220,000 in aggregate
principal amount of senior secured notes due 2015. The net
proceeds of this offering are intended to be used to fund the
tender offer to repurchase any and all of the 2011 Notes, to
redeem or otherwise repurchase any 2011 Notes that remain
outstanding after the expiration of the tender offer and to pay
transaction fees and expenses. In connection with the proposed
senior secured notes due 2015, Viasystems Group incurred
financing fees of $410 during the nine months ended
September 30, 2009.
|
|
5.
|
Restructuring and
Charges
|
In light of the global economic downturn which began toward the
end of 2008, and as part of Viasystems Groups ongoing
efforts to align capacity, overhead costs and operating expenses
with market demand, Viasystems Group initiated restructuring
activities during the fourth quarter of 2008 (the 2008
Restructuring). These activities were substantially
completed during the first half of 2009, and included the
shutdown of Viasystems Groups metal fabrication facility
in Milwaukee, Wisconsin, and its satellite final-assembly and
distribution facility in Newberry, South Carolina (together, the
Milwaukee Facility), as well as workforce reductions
across Viasystems Groups global operations.
F-42
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The reserve for restructuring activities at September 30,
2008, primarily relates to severance requirements under foreign
social plans and commitments under a long-term lease, which were
incurred as part of restructuring activities initiated during
2001 (the 2001 Restructuring). These restructuring
activities were a result of the economic downturn that began in
2000 and continued into early 2003 related to many of Viasystems
Groups key telecommunication and networking customers, and
the shift of production demand from high cost countries to low
cost countries. These actions resulted in asset impairments,
plant shutdowns and downsizings that continued through 2005.
The following tables summarize changes in the reserve for
restructuring and impairment charges for the nine month periods
ending September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
at
|
|
|
|
|
|
|
|
|
|
|
|
at
|
|
|
|
12/31/08
|
|
|
Net Charges
|
|
|
Cash Payments
|
|
|
Adjustments
|
|
|
9/30/09
|
|
|
Restructuring Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and severance
|
|
$
|
8,896
|
|
|
$
|
62
|
|
|
$
|
(8,350
|
)
|
|
$
|
|
|
|
$
|
608
|
|
Lease and other contractual commitments
|
|
|
3,226
|
|
|
|
5,754
|
|
|
|
(2,929
|
)
|
|
|
(412
|
) (a)
|
|
|
5,639
|
|
Asset impairment
|
|
|
|
|
|
|
(663
|
)
|
|
|
|
|
|
|
663
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
12,122
|
|
|
$
|
5,153
|
|
|
$
|
(11,279
|
)
|
|
$
|
251
|
|
|
$
|
6,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
at
|
|
|
|
|
|
|
|
|
|
|
|
at
|
|
|
|
12/31/07
|
|
|
Net Charges
|
|
|
Cash Payments
|
|
|
Adjustments
|
|
|
9/30/08
|
|
|
Restructuring Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and severance
|
|
$
|
349
|
|
|
$
|
|
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
333
|
|
Lease and other contractual commitments
|
|
|
4,818
|
|
|
|
|
|
|
|
(1,038
|
)
|
|
|
250
|
(a)
|
|
|
4,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
5,167
|
|
|
$
|
|
|
|
$
|
(1,054
|
)
|
|
$
|
250
|
|
|
$
|
4,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents $177 and $250 of accretion of interest on discounted
restructuring liabilities for the nine months ended
September 30, 2009 and 2008, respectively, net of $589 of
non-cash restructuring expense incurred during the nine months
ended September 30, 2009, related to the 2001 Restructuring. |
|
(b) |
|
Represents gains realized from disposal of assets in connection
with the shutdown of the Milwaukee Facility. |
For the nine months ended September 30, 2009, restructuring
charges related to personnel and severance included $1,738 of
charges primarily related to the closure of the Milwaukee
Facility, which were substantially offset by a reversal of
$1,676 of restructuring reserves in the Printed Circuit Boards
segment. The reversal was a result of higher than anticipated
employee attrition, which reduced the amount of severance costs
related to involuntary headcount reductions anticipated in
Viasystems Groups 2008 Restructuring plan. For the nine
months ended September 30, 2009, restructuring
F-43
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
charges related to leases and contractual commitments of $5,754
primarily related to lease terminations and other closure costs
for the Milwaukee Facility.
Viasystems Group recorded total net restructuring charges for
the nine months ended September 30, 2009, of $5,153. For
the nine months ended September 30, 2009, net restructuring
charges related to Viasystems Groups closed operations
were $6,763, which for purpose of segment reporting are included
in Other. For the nine months ended
September 30, 2009, restructuring charges were recorded in
the Assembly segment in the amount of $66, and restructuring
charges were reversed in the Printed Circuit Boards segment in
the amount of $1,676.
Viasystems Group has recorded cumulative restructuring charges
totaling $19,633 through September 30, 2009, related to the
2008 Restructuring, and does not expect to incur significant
additional charges related to those activities. These charges
include $9,573 related to personnel and severance, $4,895 of
non-cash asset impairment charges and $5,165 related to lease
termination and other closure costs. The charges of $19,633 were
incurred in the Printed Circuit Boards and Assembly segments in
the amount of $8,259 and $781, respectively, with $10,593
related to the closure of the Milwaukee Facility included in
Other.
|
|
6.
|
Derivative
Financial Instruments and Cash Flow Hedging Strategy
|
Viasystems Groups decision to enter into foreign exchange
forward contracts is made after considering future use of
foreign currencies, the desired foreign exchange rate
sensitivities and the foreign exchange rate environment. Prior
to entering into a hedge transaction, Viasystems Group formally
documents the relationship between hedging instruments to be
used and the hedged items, as well as the risk management
objective for undertaking the hedge transactions. The maximum
term over which Viasystems Group hedges exposure to the exchange
rate variability of future cash flows is generally less than one
year.
Viasystems Group uses foreign exchange forward contracts that
are designated and qualify as cash flow hedges, to manage
certain of its foreign exchange rate risks. Viasystems
Groups objective is to limit potential losses in earnings
or cash flows from adverse foreign currency exchange rate
movements. Viasystems Groups foreign currency exposure
arises from the transacting of business in a currency other than
the U.S. dollar, which is the currency in which Viasystems
Group incurs the majority of its costs.
Viasystems Group recognizes all of its derivative contracts as
either assets or liabilities in the balance sheet and measures
those instruments at fair value through adjustments to other
comprehensive income, current earnings, or both, as appropriate.
Accumulated other comprehensive income as of September 30,
2009, and December 31, 2008, included an unrecognized gain
on derivatives of $885 and an unrecognized loss on derivatives
of $2,522, respectively.
F-44
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Viasystems Group records deferred gains and losses related to
cash flow hedges based on the fair value of active derivative
contracts on the reporting date (see Note 1). As of
September 30, 2009 and 2008, all of Viasystems Groups
derivatives were in the form of RMB foreign exchange forward
contracts which were designated and qualified as cash flow
hedging instruments under U.S. GAAP. The following table
summarizes Viasystems Groups outstanding derivative
contracts:
|
|
|
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Notional amount in Chinese RMB
|
|
690,000
|
|
840,000
|
Weighted average remaining maturity in months
|
|
5.3
|
|
6.0
|
Weighted average exchange rate to one U.S. Dollar
|
|
6.835
|
|
6.797
|
Deferred gain (loss) measured at fair value
|
|
$885
|
|
$(2,522)
|
Balance sheet classification of deferred gain (loss)
|
|
Prepaid expenses
and other
|
|
Accrued and
other liabilities
|
Amounts received or paid to settle foreign exchange forward
contracts are recorded in cost of goods sold at the time of
settlement. For the nine months ended September 30, 2009, a
$1,389 loss was recorded in cost of goods sold related to the
settlement of foreign exchange forward contracts. For the nine
months ended September 30, 2008, a gain of $1,343 was
recorded in cost of goods sold related to the settlement of
foreign exchange forward contracts.
|
|
7.
|
Stock-based
Compensation
|
Stock compensation expense was recorded in the condensed
consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cost of goods sold
|
|
$
|
103
|
|
|
$
|
80
|
|
Selling, general and administrative
|
|
|
601
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
704
|
|
|
$
|
651
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the stock option activity from
January 1, 2009, through September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Shares
|
|
Price
|
|
Outstanding at December 31, 2008
|
|
|
2,608,400
|
|
|
$
|
12.63
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(87,800
|
)
|
|
|
12.63
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
2,520,600
|
|
|
|
12.63
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2009
|
|
|
2,336,922
|
|
|
|
12.63
|
|
|
|
|
|
|
|
|
|
|
F-45
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
There were no options granted during the nine months ended
September 30, 2009. For options granted during the nine
months ended September 30, 2008, the fair value of each
option grant was estimated on the date of grant using the
Black-Scholes option-pricing model using the following
assumptions.
|
|
|
|
|
Expected life of options
|
|
|
5 years
|
|
Risk free interest rate
|
|
|
2.71
|
%
|
Expected volatility of stock
|
|
|
52
|
%
|
Expected dividend yield
|
|
|
None
|
|
Income tax expense of $4,395 for the nine months ended
September 30, 2009, relates primarily to expense from
Viasystems Groups profitable China operations and
uncertain tax positions in Viasystems Groups Asia
operations, partially offset by income tax benefits recognized
in Viasystems Groups Hong Kong subsidiary. Because of the
substantial net operating loss carryforwards previously existing
in Viasystems Groups U.S. and other tax
jurisdictions, Viasystems Group has not recognized certain
income tax benefits in such jurisdictions related to Viasystems
Groups substantial interest expense, among other expenses.
|
|
9.
|
Comprehensive
(Loss) Income
|
The components of comprehensive (loss) income, net of tax, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net (loss) income
|
|
$
|
(38,808
|
)
|
|
$
|
4,103
|
|
Change in fair value of derivatives, net of tax of $0
|
|
|
3,407
|
|
|
|
(3,805
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(35,401
|
)
|
|
$
|
298
|
|
|
|
|
|
|
|
|
|
|
There are 1,500,000 shares of Class A Junior preferred
stock (the Class A Preferred) authorized, of
which 903,233 were issued and outstanding at September 30,
2009, and December 31, 2008. There are
4,500,000 shares of Class B Senior Convertible
preferred stock (the Class B Preferred)
authorized, of which 4,255,546 shares were issued and
outstanding at September 30, 2009, and December 31,
2008. Viasystems Group recorded increases to the Class A
Preferred and Class B Preferred as follows to reflect the
accretion of dividends and the amortization of the original
issue discount on the Class A Preferred and the accretion
of dividends and amortization of the beneficial conversion
factor on the Class B Preferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Preferred
|
|
|
Class B Preferred
|
|
|
|
Shares
|
|
|
$ Amount
|
|
|
Shares
|
|
|
$ Amount
|
|
|
Balance as of December 31, 2008
|
|
|
903,233
|
|
|
$
|
108,096
|
|
|
|
4,255,546
|
|
|
$
|
89,812
|
|
Accretion and amortization
|
|
|
|
|
|
|
7,959
|
|
|
|
|
|
|
|
6,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
|
903,233
|
|
|
$
|
116,055
|
|
|
|
4,255,546
|
|
|
$
|
96,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, the aggregate cumulative
preferred dividends in arrears for the Class A Preferred
and Class B Preferred was $32,219 and $42,948, respectively.
F-46
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
11.
|
Business Segment
Information
|
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker or
decision making group in deciding how to allocate resources and
in assessing performance. Viasystems Group operates in two
segments: (i) Printed Circuit Boards and
(ii) Assembly, with the assets and liabilities of
Viasystems Groups corporate headquarters and the assets,
liabilities and operating results of its closed Printed Circuit
Boards and Assembly operations reported as Other.
Except for certain professional fees, operating expenses of
Viasystems Groups corporate headquarters are allocated to
each segment based on a number of factors, including sales. The
assets, liabilities and operating results of the Milwaukee
Facility were previously reported within the Assembly segment.
With the closure of the Milwaukee Facility in May 2009,
Viasystems Groups Management reclassified the assets,
liabilities and operating results of the Milwaukee Facility from
Assembly to Other. Viasystems Groups segment
results for prior periods have been reclassified for comparison
purposes.
The Printed Circuit Boards segment consists of printed circuit
board manufacturing facilities located in China. These
facilities manufacture double-sided and multi-layer printed
circuit boards and backpanels.
The Assembly segment consists of assembly operations including
backpanel assembly, printed circuit board assembly, cable
assembly, custom enclosures, and full system assembly and
testing. The assembly operations are conducted in manufacturing
facilities located in China and Mexico.
Total assets by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
385,770
|
|
|
$
|
435,664
|
|
Assembly
|
|
|
95,414
|
|
|
|
102,208
|
|
Other
|
|
|
62,479
|
|
|
|
47,366
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
543,663
|
|
|
$
|
585,238
|
|
|
|
|
|
|
|
|
|
|
F-47
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net sales and operating income (loss) by segment, together with
a reconciliation to (loss) income before income taxes, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net sales to external customers:
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
240,460
|
|
|
$
|
375,619
|
|
Assembly
|
|
|
110,864
|
|
|
|
153,697
|
|
Other
|
|
|
13,761
|
|
|
|
35,703
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
365,085
|
|
|
$
|
565,019
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
6,969
|
|
|
$
|
15,401
|
|
Assembly
|
|
|
11
|
|
|
|
17
|
|
Other
|
|
|
363
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,343
|
|
|
$
|
16,449
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Printed Circuit Boards
|
|
$
|
(1,003
|
)
|
|
$
|
33,927
|
|
Assembly
|
|
|
3,905
|
|
|
|
5,329
|
|
Other
|
|
|
(10,117
|
)
|
|
|
(4,412
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(7,215
|
)
|
|
|
34,844
|
|
Interest expense, net
|
|
|
24,443
|
|
|
|
23,570
|
|
Loss on early extinguishment of debt
|
|
|
729
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1,547
|
|
|
|
1,547
|
|
Other, net
|
|
|
479
|
|
|
|
(2,028
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
$
|
(34,413
|
)
|
|
$
|
11,755
|
|
|
|
|
|
|
|
|
|
|
Merger
Agreement between Viasystems and Merix Corporation
On October 6, 2009, Viasystems announced that it had
entered into a merger agreement pursuant to which Viasystems
will acquire Merix Corporation (Merix). Merix is a
leading manufacturer of technologically advanced, multi-layer
printed circuit boards with operations in the United States and
China. Under the terms of the merger agreement, Viasystems will
acquire all of the outstanding common stock of Merix in exchange
for shares of Viasystems common stock representing approximately
12.5% of the outstanding common stock of the post-merger
company. On October 6, 2009, Viasystems also entered into a
note exchange agreement to purchase $68,590 of Merix
outstanding convertible debt securities in exchange for
approximately $34,908 of cash and shares of Viasystems common
stock representing approximately 7.0% of the post-merger
company. It is expected that upon the consummation of the
merger, Viasystems common stock will be registered, and
Merix would become a wholly owned subsidiary of Viasystem. The
merger is subject to Merix shareholders approval, certain
regulatory approvals, and certain terms and conditions contained
in the merger agreement.
F-48
VIASYSTEMS GROUP,
INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Recapitalization
Agreement
On October 6, 2009, in connection with the announced merger
with Merix, Viasystems and the principal holders of the
Class B Preferred, Class A Preferred, and
Viasystems common stock entered into a recapitalization
agreement pursuant to which, following the consummation of the
acquisition of Merix, the outstanding capitalization of
Viasystems will consist solely of approximately 20 million
newly issued shares of common stock. The former holders of Merix
common stock will hold approximately 2.5 million shares of
the newly issued common stock, the former holders of Merix
convertible notes will hold approximately 1.4 million
shares of the newly issued common stock, the former holders of
Viasystems Class B Preferred will hold approximately
7.7 million shares of the newly issued common stock, the
former holders of Viasystems Class A Preferred will
hold approximately 6.0 million shares of the newly issued
common stock, and Viasystems common stock holders will
hold the remaining approximate 2.4 million of newly issued
shares. The recapitalization will be effected immediately prior
to, and is conditioned upon, the consummation of the Merix
acquisition. The total issued an outstanding common stock of
Viasystems immediately after the closing of the merger will be
subject to adjustment as provided for in the merger agreement
and the recapitalization agreement.
F-49
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Merix Corporation
We have audited the accompanying consolidated balance sheets of
Merix Corporation and subsidiaries (the Company) as
of May 30, 2009 and May 31, 2008, and the related
consolidated statements of operations, statements of
shareholders equity and comprehensive income (loss), and
statements of cash flows for the years ended May 30, 2009,
May 31, 2008 and May 26, 2007. Our audits of the basic
financial statements included the financial statement schedule
listed in the index appearing under Item 15 (a)(2). These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Merix Corporation and subsidiaries as of
May 30, 2009 and May 31, 2008 and the results of its
operations and its cash flows for the years ended May 30,
2009, May 31, 2008 and May 26, 2007 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 1 of Notes to Consolidated Financial
Statements, effective May 27, 2007, the Company adopted the
provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109.
/s/ GRANT THORNTON LLP
Portland, Oregon
July 30, 2009
F-50
MERIX CORPORATION
AND SUBSIDIARIES
As of
May 30, 2009 and May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,571
|
|
|
$
|
5,728
|
|
Accounts receivable, net of allowances for doubtful accounts of
$1,502 and $2,252
|
|
|
43,285
|
|
|
|
73,153
|
|
Inventories, net
|
|
|
14,367
|
|
|
|
23,631
|
|
Assets held for sale
|
|
|
3
|
|
|
|
1,477
|
|
Deferred income taxes
|
|
|
160
|
|
|
|
75
|
|
Prepaid and other current assets
|
|
|
4,896
|
|
|
|
12,961
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
80,282
|
|
|
|
117,025
|
|
Property, plant and equipment, net of accumulated depreciation
of $137,772 and $121,253
|
|
|
95,883
|
|
|
|
103,012
|
|
Goodwill
|
|
|
11,392
|
|
|
|
31,794
|
|
Definite-lived intangible assets, net of accumulated
amortization of $10,324 and $8,342
|
|
|
6,884
|
|
|
|
8,866
|
|
Deferred income taxes, net
|
|
|
612
|
|
|
|
885
|
|
Assets held for sale
|
|
|
1,146
|
|
|
|
|
|
Other assets
|
|
|
4,471
|
|
|
|
5,859
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
200,670
|
|
|
$
|
267,441
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
33,263
|
|
|
$
|
59,789
|
|
Accrued liabilities
|
|
|
14,715
|
|
|
|
15,783
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,978
|
|
|
|
75,572
|
|
Long-term debt
|
|
|
78,000
|
|
|
|
70,000
|
|
Other long-term liabilities
|
|
|
4,234
|
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
130,212
|
|
|
|
149,094
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
3,935
|
|
|
|
4,573
|
|
Commitments and Contingencies (Note 19)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value; 10,000 shares authorized;
none issued
|
|
|
|
|
|
|
|
|
Common stock, no par value; 50,000 shares authorized;
21,781 and 21,073 issued and outstanding
|
|
|
217,112
|
|
|
|
215,085
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(150,622
|
)
|
|
|
(101,358
|
)
|
Accumulated other comprehensive income
|
|
|
33
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
66,523
|
|
|
|
113,774
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
200,670
|
|
|
$
|
267,441
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-51
MERIX CORPORATION
AND SUBSIDIARIES
For the fiscal
years ended May 30, 2009, May 31, 2008 and
May 26, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30,
|
|
|
May 31,
|
|
|
May 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Net sales
|
|
$
|
287,127
|
|
|
$
|
378,637
|
|
|
$
|
400,496
|
|
Cost of sales
|
|
|
264,941
|
|
|
|
340,778
|
|
|
|
334,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,186
|
|
|
|
37,859
|
|
|
|
65,571
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
2,121
|
|
|
|
1,810
|
|
|
|
1,705
|
|
Selling, general and administration
|
|
|
34,915
|
|
|
|
40,963
|
|
|
|
44,477
|
|
Amortization of intangible assets
|
|
|
1,981
|
|
|
|
2,305
|
|
|
|
2,745
|
|
Severance, asset impairment and restructuring charges
|
|
|
24,895
|
|
|
|
15,686
|
|
|
|
81,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
63,912
|
|
|
|
60,764
|
|
|
|
130,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(41,726
|
)
|
|
|
(22,905
|
)
|
|
|
(64,770
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
134
|
|
|
|
793
|
|
|
|
1,378
|
|
Interest expense
|
|
|
(3,923
|
)
|
|
|
(4,119
|
)
|
|
|
(5,353
|
)
|
Debt extinguishment costs
|
|
|
|
|
|
|
(476
|
)
|
|
|
|
|
Gain on settlement of debt
|
|
|
|
|
|
|
5,094
|
|
|
|
|
|
Other expense, net
|
|
|
(528
|
)
|
|
|
(1,271
|
)
|
|
|
(1,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(4,317
|
)
|
|
|
21
|
|
|
|
(4,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and minority
interests
|
|
|
(46,043
|
)
|
|
|
(22,884
|
)
|
|
|
(69,764
|
)
|
Provision for income taxes
|
|
|
2,628
|
|
|
|
1,502
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before minority
interests
|
|
|
(48,671
|
)
|
|
|
(24,386
|
)
|
|
|
(71,176
|
)
|
Minority interest in net income of consolidated subsidiaries
|
|
|
593
|
|
|
|
1,165
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(49,264
|
)
|
|
|
(25,551
|
)
|
|
|
(71,915
|
)
|
Loss from discontinued operations, net of provision for income
taxes of $0, $0 and $47, respectively
|
|
|
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(49,264
|
)
|
|
$
|
(25,551
|
)
|
|
$
|
(72,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from continuing operations
|
|
$
|
(2.34
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(3.52
|
)
|
Basic loss per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(2.34
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(3.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share from continuing operations
|
|
$
|
(2.34
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(3.52
|
)
|
Diluted loss per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(2.34
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(3.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares basic
|
|
|
21,098
|
|
|
|
21,019
|
|
|
|
20,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares diluted
|
|
|
21,098
|
|
|
|
21,019
|
|
|
|
20,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Stock
|
|
|
Accumulated
|
|
|
Income
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance at May 27, 2006
|
|
|
19,806
|
|
|
$
|
204,831
|
|
|
$
|
(1,096
|
)
|
|
$
|
(1,623
|
)
|
|
$
|
13
|
|
|
$
|
202,125
|
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
724
|
|
|
|
5,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,586
|
|
Issuance of restricted stock to employees
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
1,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850
|
|
Issuance of stock under defined contribution plan
|
|
|
126
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,234
|
|
Reversal of unearned stock compensation upon adoption of
SFAS No 123(R)
|
|
|
|
|
|
|
(1,096
|
)
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased, surrendered or cancelled
|
|
|
(10
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,432
|
)
|
|
|
|
|
|
|
(72,432
|
)
|
Change in pension cost, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of SFAS No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 26, 2007
|
|
|
20,844
|
|
|
|
212,334
|
|
|
|
|
|
|
|
(74,055
|
)
|
|
|
165
|
|
|
|
138,444
|
|
Effect of adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,752
|
)
|
|
|
|
|
|
|
(1,752
|
)
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Issuance of restricted stock to employees
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,965
|
|
Issuance of stock under defined contribution plan
|
|
|
133
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873
|
|
Shares repurchased, surrendered or cancelled
|
|
|
(44
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,551
|
)
|
|
|
|
|
|
|
(25,551
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
Change in pension cost, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2008
|
|
|
21,073
|
|
|
|
215,085
|
|
|
|
|
|
|
|
(101,358
|
)
|
|
|
47
|
|
|
|
113,774
|
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to employees
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
1,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,617
|
|
Issuance of stock under employee stock purchase plan
|
|
|
750
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447
|
|
Shares repurchased, surrendered or cancelled
|
|
|
(68
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,264
|
)
|
|
|
|
|
|
|
(49,264
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 30, 2009
|
|
|
21,781
|
|
|
$
|
217,112
|
|
|
$
|
|
|
|
$
|
(150,622
|
)
|
|
$
|
33
|
|
|
$
|
66,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-53
MERIX CORPORATION
AND SUBSIDIARIES
For the fiscal
years ended May 30, 2009, May 31, 2008 and
May 26, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30,
|
|
|
May 31,
|
|
|
May 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(49,264
|
)
|
|
$
|
(25,551
|
)
|
|
$
|
(72,432
|
)
|
Adjustments to reconcile net loss to cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
22,605
|
|
|
|
20,992
|
|
|
|
23,226
|
|
Contribution of common stock to defined contribution plan
|
|
|
|
|
|
|
873
|
|
|
|
1,234
|
|
Share-based compensation expense
|
|
|
1,617
|
|
|
|
1,965
|
|
|
|
1,850
|
|
Minority interest in net income of consolidated subsidiaries
|
|
|
593
|
|
|
|
1,165
|
|
|
|
739
|
|
Asset impairment charges
|
|
|
21,202
|
|
|
|
13,056
|
|
|
|
80,773
|
|
Accrual of lease termination liability
|
|
|
1,090
|
|
|
|
95
|
|
|
|
|
|
Debt extinguishment charges
|
|
|
|
|
|
|
476
|
|
|
|
|
|
Gain on settlement of debt
|
|
|
|
|
|
|
(5,094
|
)
|
|
|
|
|
Gain on disposition of assets
|
|
|
(594
|
)
|
|
|
(343
|
)
|
|
|
|
|
Other non-cash (income) expense
|
|
|
|
|
|
|
236
|
|
|
|
|
|
Deferred income taxes
|
|
|
89
|
|
|
|
(485
|
)
|
|
|
|
|
Changes in operating accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable, net
|
|
|
29,843
|
|
|
|
3,672
|
|
|
|
(1,863
|
)
|
(Increase) decrease in inventories, net
|
|
|
9,264
|
|
|
|
1,600
|
|
|
|
(847
|
)
|
Increase in income taxes receivable
|
|
|
(10
|
)
|
|
|
(23
|
)
|
|
|
(295
|
)
|
(Increase) decrease in other assets
|
|
|
8,320
|
|
|
|
(5,968
|
)
|
|
|
196
|
|
Increase (decrease) in accounts payable
|
|
|
(20,936
|
)
|
|
|
9,775
|
|
|
|
(62
|
)
|
Decrease in other accrued liabilities
|
|
|
(2,745
|
)
|
|
|
(3,318
|
)
|
|
|
(6,165
|
)
|
Increase (decrease) in due to affiliate, net
|
|
|
1,607
|
|
|
|
(1,054
|
)
|
|
|
(387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
22,681
|
|
|
|
12,069
|
|
|
|
25,967
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(19,005
|
)
|
|
|
(28,394
|
)
|
|
|
(19,795
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
988
|
|
|
|
278
|
|
|
|
999
|
|
Purchases of investments
|
|
|
|
|
|
|
(12,775
|
)
|
|
|
(179,025
|
)
|
Proceeds from sales and maturity of securities
|
|
|
|
|
|
|
21,800
|
|
|
|
188,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(18,017
|
)
|
|
|
(19,091
|
)
|
|
|
(9,296
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term borrowings
|
|
|
(32,000
|
)
|
|
|
(2,500
|
)
|
|
|
(16,125
|
)
|
Payment of deferred financing costs
|
|
|
(4
|
)
|
|
|
(257
|
)
|
|
|
|
|
Payments on capital lease obligations
|
|
|
|
|
|
|
(438
|
)
|
|
|
(1,166
|
)
|
Proceeds from exercise of stock options and stock plan
transactions
|
|
|
447
|
|
|
|
1
|
|
|
|
5,586
|
|
Reacquisition of common stock
|
|
|
(34
|
)
|
|
|
(89
|
)
|
|
|
(71
|
)
|
Distribution to minority shareholder
|
|
|
(1,230
|
)
|
|
|
(1,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
7,179
|
|
|
|
(4,425
|
)
|
|
|
(11,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
11,843
|
|
|
|
(11,447
|
)
|
|
|
4,895
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
5,728
|
|
|
|
17,175
|
|
|
|
12,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
17,571
|
|
|
$
|
5,728
|
|
|
$
|
17,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net
|
|
$
|
1,783
|
|
|
$
|
1,562
|
|
|
$
|
1,413
|
|
Cash paid for interest
|
|
|
3,342
|
|
|
|
3,740
|
|
|
|
5,300
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance (reduction) of promissory note related to acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,406
|
)
|
Other purchase price adjustments
|
|
|
|
|
|
|
|
|
|
|
(1,435
|
)
|
Increase to asset retirement obligation
|
|
|
|
|
|
|
130
|
|
|
|
(74
|
)
|
FIN 48 transition adjustment
|
|
|
|
|
|
|
2,906
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-54
MERIX
CORPORATION
|
|
Note 1.
|
Summary of
Significant Accounting Policies
|
Business
Merix Corporation, an Oregon corporation, was formed in March
1994. Merix is a leading global manufacturing service provider
for technologically advanced printed circuit boards (PCBs) for
original equipment manufacturer (OEM) customers, and their
electronic manufacturing service (EMS) providers. The
Companys principal products are complex multi-layer rigid
PCBs, which are the platforms used to interconnect
microprocessors, integrated circuits and other components that
are essential to the operation of electronic products and
systems. The market segments the Company serves are primarily in
commercial equipment for the communications and networking,
computing and peripherals, test, industrial and medical, defense
and aerospace and automotive markets. The Companys markets
are generally characterized by rapid technological change, high
levels of complexity and short product life cycles, as new and
technologically superior electronic equipment is continually
being developed.
The Company services its customers from its headquarters in
Beaverton, Oregon and North American manufacturing
facilities in Forest Grove, Oregon and San Jose,
California. The Company also maintains manufacturing facilities
in Huiyang and Huizhou, in the Peoples Republic of China
(China or the PRC). The Company maintains a direct sales force
located in the United States, the United Kingdom, the China,
Hong Kong and Singapore.
Basis of
Consolidation
The consolidated financial statements include the accounts of
Merix Corporation and its wholly-owned and majority-owned
subsidiaries (collectively, the Company). Except for activity
related to Merix Asia, for which certain intercompany amounts
cannot be eliminated as discussed below, all inter-company
accounts, transactions and profits have been eliminated in
consolidation.
Prior to the implementation of an enterprise resource planning
(ERP) system in the first quarter of fiscal 2009, the
Companys financial reporting systems at Merix Asia were
predominantly manual in nature and required significant time to
process and review the transactions in order to assure the
financial information is properly stated. Additionally, Merix
Asia performs a complex financial consolidation of its
subsidiaries prior to the Companys final consolidation.
The time required to complete Merix Asias consolidation,
record intercompany transactions and properly report any
adjustments, intervening
and/or
subsequent events requires the use of a one-month lag in
consolidating the financial statements for Merix Asia with Merix
Corporation. Inter-company transactions which occurred during
these periods have been eliminated in consolidation.
Inter-company balances resulting from transactions with Merix
Asia during the one-month lag period have been netted and
presented as a current asset or current liability on the
consolidated balance sheet. The net intercompany payable
included as a component of accrued liabilities totaled
$1.4 million at May 30, 2009. The net intercompany
receivable included as a component of prepaid and other current
assets totaled $0.2 million as of May 31, 2008.
The Company currently contemplates elimination of the one-month
reporting lag for Merix Asia in the first quarter of fiscal 2010.
Fiscal
Year
The Companys fiscal year consists of 52 or 53 weeks
ending on the last Saturday in May. Accordingly, fiscal 2009
ended on May 30, 2009, fiscal 2008 ended on May 31,
2008 and fiscal 2007 ended on May 26, 2007 and those fiscal
years were comprised of 52 weeks, 53 weeks and
52 weeks, respectively. All references to years relate to
fiscal years unless otherwise noted.
F-55
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassifications
Certain reclassifications were made to the prior period
financial statements to conform to the current period
presentation, including a reclassification of certain
engineering costs which are directly related to the production
of goods for sale and are included in cost of sales in the
consolidated statements of operations. These costs were
previously included as a component of operating expenses. The
impact of the reclassification on inventory balances is not
material. The results of operations for fiscal year 2008 and
fiscal year 2007 have been revised as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
|
(As Reported)
|
|
|
(As Revised)
|
|
|
(As Reported)
|
|
|
(As Revised)
|
|
|
Net sales
|
|
$
|
378,637
|
|
|
$
|
378,637
|
|
|
$
|
400,496
|
|
|
$
|
400,496
|
|
Cost of sales
|
|
|
334,035
|
|
|
|
340,778
|
|
|
|
328,569
|
|
|
|
334,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
44,602
|
|
|
|
37,859
|
|
|
|
71,927
|
|
|
|
65,571
|
|
Gross margin
|
|
|
11.8
|
%
|
|
|
10.0
|
%
|
|
|
18.0
|
%
|
|
|
16.4
|
%
|
Engineering expense
|
|
|
8,553
|
|
|
|
1,810
|
|
|
|
8,061
|
|
|
|
1,705
|
|
Other operating expenses
|
|
|
58,954
|
|
|
|
58,954
|
|
|
|
128,636
|
|
|
|
128,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(22,905
|
)
|
|
$
|
(22,905
|
)
|
|
$
|
(64,770
|
)
|
|
$
|
(64,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reporting
The Company has two reportable business segments defined by
geography: North America and Asia. Operating segments are
defined as components of an enterprise for which separate
financial information is available and regularly reviewed by
senior management. The Companys operating segments are
evidence of the internal structure of its organization. Each
segment operates in the same industry with production facilities
that produce similar customized products for its customers. The
production facilities, sales management and chief
decision-makers for all processes are managed by the same
executive team. The Companys chief operating decision
maker is its Chief Executive Officer. Segment disclosures are
presented to the gross profit level as this is the primary
performance measure for which the segment managers are
responsible. No other operating results information is provided
to the chief operating decision maker for review at the segment
level.
Managements
Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of net sales and expenses during the reporting period. Actual
results could materially differ from those estimates. Management
believes that the estimates used are reasonable. Significant
estimates and judgments made by management of the Company relate
to:
|
|
|
|
|
the allowance for doubtful accounts;
|
|
|
|
the valuation of excess and obsolete inventories and idle
facilities;
|
|
|
|
product warranty liabilities;
|
|
|
|
the valuation and impairment of long-lived assets;
|
|
|
|
the valuation and impairment of goodwill and other intangible
assets;
|
F-56
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
share-based compensation;
|
|
|
|
legal contingencies; and
|
|
|
|
accounting for income taxes.
|
Fair Value of
Financial Assets and Liabilities
We estimate the fair value of our monetary assets and
liabilities based upon comparison of such assets and liabilities
to the current market values for instruments of a similar nature
and degree of risk. Our monetary assets and liabilities include
cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities and long-term debt. Due to their
short-term nature, we estimate that the recorded value of our
monetary assets and liabilities, except long-term debt as
disclosed below, approximated fair value as of May 30, 2009
and May 31, 2008.
The fair market value of long-term fixed interest rate debt is
subject to interest rate risk. Generally, the fair market value
of fixed interest rate debt will increase as interest rates fall
and decrease as interest rates rise; however, the quoted market
price for the Companys debt is currently reflecting a
significant risk premium. The Companys debt trades
infrequently in the open market and as such, the quoted market
price is considered a Level II input in the assessment of
fair value. At May 30, 2009 and May 31, 2008,
respectively, the book value of our fixed rate debt and the fair
value, based on open market trades proximate to the fair value
measurement date, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Book value of fixed rate debt
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
Fair value of fixed rate debt
|
|
$
|
28,000
|
|
|
$
|
38,106
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation and Foreign Currency
Transactions
The consolidated financial statements of the Companys
foreign operations have been translated in a process which
measures assets, liabilities and operations of a foreign entity
using the functional currency of that entity. The functional
currency of the foreign subsidiaries is the U.S. dollar,
with the exception of the foreign sales offices, which use their
respective local currencies as the functional currency.
The reporting currency of the Company and its subsidiaries is
the U.S. dollar. For those foreign subsidiaries whose books
of record are not maintained in their respective functional
currency, remeasurement into the functional currency is required
before translation into the reporting currency. Assets and
liabilities are translated into U.S. dollars at exchange
rates in effect at the balance sheet date and revenues and
expenses are translated into the U.S. dollar at weighted
average exchange rates during the period. Foreign currency
translation adjustments resulting from the translation of
foreign functional currency financial statements into
U.S. dollars are included as a component of accumulated
other comprehensive income within shareholders equity.
Transactions involving a currency other than the functional
currency generate a gain or loss from the fluctuation of the
currency relative to the functional currency and are recorded in
the consolidated statements of operations during the respective
period in which they occur. The Company currently does not
utilize any derivative instruments to mitigate potential foreign
currency transaction losses. Net foreign currency transaction
losses were $0.5 million, $1.3 million and
$0.7 million during fiscal 2009, 2008 and 2007,
respectively, and were included as a component of other income
(expense) on our consolidated statements of operations.
F-57
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash and Cash
Equivalents
Cash and cash equivalents represent cash and short-term, highly
liquid investments with original maturities of three months or
less at the date of purchase. The carrying amounts reflected in
the consolidated balance sheets for cash and cash equivalents
approximate fair value due to the short maturities.
Short-Term
Investments
Investments in auction rate securities are classified as
available-for-sale
short-term investments.
Available-for-sale
securities are recorded at fair value, as determined by quoted
market prices, with unrealized holding gains and losses (if
any), net of tax, classified as a separate component of
shareholders equity. Upon sale of the investments, any
previously unrealized holding gains or losses are recognized in
the consolidated statements of operations. The specific
identification method is used to determine the cost of
securities sold. The Company reviews short-term investments on a
periodic basis to evaluate whether such securities have
experienced an
other-than-temporary
decline in fair value. If an
other-than-temporary
decline in value exists, an impairment charge is recorded within
the consolidated statements of operations as the difference
between the carrying value of the impaired investments and the
net realizable value of the impaired investments. The Company
held no short-term investments as of May 30, 2009 and
May 31, 2008.
Accounts
Receivable, Net
The Company makes ongoing estimates relating to the
collectibility of the accounts receivable balance and the
Company maintains a reserve for estimated losses resulting from
the inability of the customers to make required payments. In
determining the amount of the reserve, the Company considers its
historical bad debt experience, ongoing credit evaluations of
customers and changes in the customers businesses.
Considerable management judgment and assumptions are necessary
to identify uncollectible receivables and, accordingly, actual
results could vary significantly from such estimates. If the
financial condition of the Companys customers were to
deteriorate, resulting in their inability to make payments, a
larger reserve might be required.
Inventories,
Net
Inventories are valued at the lower of cost or market and
include materials, labor and manufacturing overhead. Cost is
determined by standard cost, which approximates the
first-in,
first-out (FIFO) basis.
Provisions for inventories are made to reduce excess inventories
to their estimated net realizable values, as necessary. A change
in customer demand for inventory is the primary indicator for
reductions in inventory carrying values. The Company records
inventory provisions based on historical experiences with
customers, the ability to utilize inventory in other programs,
the ability to redistribute inventory back to the suppliers and
current and forecasted demand for the inventory.
The Company maintains finished goods inventories on a
consignment basis at certain customer locations in the
U.S. and in Asia. Consignment inventory is recorded as
inventory until the product is pulled from the consignment
inventories by the customer and all risks and rewards of
ownership of the consignment inventory have been transferred to
the customer.
Abnormal amounts of idle facility expense, freight, handling
costs and wasted material (spoilage) are recognized as
current-period charges and the allocation of fixed production
overheads to the costs of conversion is based on the normal
capacity of the production facilities. The Company is required
to estimate the amount of idle capacity and expense amounts in
the current period. During fiscal 2009
F-58
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and fiscal 2007, the Company expensed $1.2 million and
$0.5 million, respectively, related to abnormally low
production volumes as a component of cost of sales. There were
no amounts expensed related to abnormally low production volumes
and related excess capacity in fiscal 2008.
Assets Held
for Sale
Assets held for sale are recorded on the Companys balance
sheet at the lower of book value or estimated fair market value,
less applicable selling costs, and are no longer being
depreciated. See Note 4.
Property,
Plant and Equipment, Net
Property, plant and equipment are carried at cost less
accumulated depreciation. Costs of improvements that
significantly extend the useful life or significantly increase
the capacity of assets, including major upgrades or
implementations in management information systems, plus related
interest and qualifying internal costs, are capitalized. Costs
related to the implementation of an ERP system that met the
criteria for capitalization totaled $2.9 million,
$7.0 million and $5.6 million, respectively, in fiscal
2009, 2008 and 2007. Capitalized interest totaled
$0.1 million, $0.3 million and $0.2 million,
respectively, in fiscal 2009, 2008 and 2007. Maintenance and
repair costs are charged to expense as incurred.
As property and equipment is sold or retired, the applicable
cost and accumulated depreciation are eliminated from the asset
accounts and any gain or loss thereon is recorded. Property,
plant and equipment are depreciated on a straight-line basis
over the estimated useful lives of the depreciable assets, which
approximate up to 40 years for buildings and 3 to
10 years for machinery and equipment.
For North America, leasehold improvements are amortized over the
lesser of the economic life of the asset or the contractual term
of the lease. Optional renewal periods are included in the
contractual term of the lease if renewal is reasonably assured
at the time the asset is placed in service.
For Asias Huizhou facility, leasehold improvements are
amortized over the economic useful life of ten years.
Asias Huizhou facility has noncancelable operating lease
agreements with lease terms ending through fiscal 2010 with no
stated lease renewal options. In July 2009, the lessor indicated
that it will extend the lease by one year, although no lease
amendment has been finalized. However, as the lessor is the
minority interest holder in the Asia subsidiary and it is
reasonably assured that these lease agreements will be renewed
and management has intentions to operate the leased
manufacturing facilities indefinitely, the tenant improvements
within the leased facilities are amortized over a period longer
than the current underlying contractual lease obligations.
Asset
Retirement Obligations
In accordance with SFAS No. 143, Accounting for
Asset Retirement Obligations, the Company recognizes the
fair value of an asset retirement obligation in the period in
which it is incurred if a reasonable estimate of fair value can
be made. The present value of the estimated asset retirement
obligation is capitalized as part of the carrying amount of the
long-lived asset and allocated to expense over the useful life
of the asset. The liability is accreted at the end of each
period through charges to operating expenses. If the asset
retirement obligation is settled for other than the carrying
amount of the liability, the Company will recognize a gain or
loss upon settlement. See Note 10 for additional
information.
F-59
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Impairment of
Long-Lived Assets
The Companys long-lived assets to be held and used in the
business are reviewed for impairment when circumstances indicate
that the carrying amount may not be recoverable. When an
indicator of impairment is noted, assets are evaluated for
impairment at the lowest level for which cash flows are
identifiable. If the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset, a loss is
recognized based on the amount by which the carrying value
exceeds the fair value of the asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on assets to be
disposed of are determined in a similar manner, except that the
fair values are reduced for disposal costs. Considerable
management judgment and assumptions are necessary to identify
indicators of impairment and to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from
such estimates.
Asset impairments, excluding goodwill impairments, related to
continuing operations totaled $0.7 million,
$12.5 million and $26.6 million, respectively, in
fiscal 2009, 2008 and 2007. See Note 15 for additional
information. During fiscal 2007, the Company also recorded a net
$1.1 million asset impairment charge related to
discontinued operations. As a result of the deteriorating
economic conditions experienced during fiscal 2009, the Company
performed impairment analyses for its long-lived assets. With
the exception of the $0.7 million impairment charge
recorded in relation to disposition of certain plant assets (see
Note 15), no other long-lived assets were determined to be
impaired as of May 30, 2009.
Goodwill and
Identifiable Intangible Assets
Goodwill is not amortized but is instead tested for impairment
at least annually or when events indicate that impairment may
exist. The impairment test is a two step process. The first
identifies potential impairments by comparing the fair value of
a reporting unit with its book value, including goodwill and
other identifiable intangible assets. If the fair value of the
reporting unit exceeds the carrying amount, goodwill and other
identifiable intangible assets are not impaired and the second
step is not necessary. If the carrying value exceeds the fair
value, the second step includes determining the implied fair
value through further market research. The implied fair value of
goodwill and other identifiable intangible assets is then
compared with the carrying amount to determine if an impairment
loss is recorded. See Notes 7 and 15 for further discussion
of goodwill impairment charges.
Intangible assets that are determined to have definite lives are
amortized over their useful lives and are measured for
impairment when events or circumstances indicate that the
carrying value may be impaired in accordance with
SFAS No. 144, as discussed above. The Company reviewed
these assets for impairment during the fourth quarter of each
fiscal year and determined that no impairment existed.
Leasehold Land
Use Rights, Net
Leasehold land use rights, net represents amounts paid to lease
land in China. Amounts are paid at the beginning of the lease
term and are amortized on a straight-line basis over the
remaining period of the initial
50-year
lease terms ending 2052. See Note 8.
Deferred
Financing Costs
Debt issuance costs and loan origination fees paid are deferred
and amortized at the rate of approximately $0.2 million per
quarter through May 2013 as a component of interest expense over
the
F-60
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
life of the debt to which they relate and are included on our
consolidated balance sheets as a component of other assets. See
Notes 8 and 11.
Warranty
Liability
The Company generally warrants its products for a period of up
to twelve months from the point of sale. The Company records a
liability for the estimated cost of the warranty upon transfer
of ownership of the products to the customer. Using historical
data, the Company estimates warranty costs and records the
provision for such charges as an element of cost of goods sold
upon recognition of the related revenue. The Company also
accrues warranty liability for certain specifically identified
items that are not covered by our assessment of historical
experience.
Warranty activity, adjusted for discontinued operations, for
fiscal 2009, 2008 and 2007 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning of period
|
|
$
|
2,147
|
|
|
$
|
2,129
|
|
|
$
|
2,297
|
|
Provision for warranty charges
|
|
|
2,504
|
|
|
|
3,565
|
|
|
|
3,383
|
|
Change in estimate for existing warranties
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
Warranty charges incurred
|
|
|
(2,948
|
)
|
|
|
(3,547
|
)
|
|
|
(3,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
961
|
|
|
$
|
2,147
|
|
|
$
|
2,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to its acquisition in September 2005 and in selected
circumstances subsequent to acquisition, Merix Asia granted
longer warranty periods to certain customers of up to three
years. During the third quarter of fiscal 2009, the Company
reduced its accrual for warranty charges by approximately
$0.7 million to reflect the change from a three-year
warranty period to a twelve-month warranty period on products
currently sold by its Asia segment and the impact of improved
quality on claim rates for its Asia factories.
Revenue
Recognition
The Company recognizes revenue upon the shipment of its products
to the customer provided that the price is fixed, delivery has
occurred and title has transferred to the customer, collection
of the resulting receivable is reasonably assured, product
returns are reasonably estimable, there are no further customer
acceptance requirements and there are no remaining significant
obligations. Provisions for estimated sales returns and
adjustments are made at the point of revenue recognition based
on historical experience. Sales adjustments are charged against
consolidated net sales.
Consignment sales are recognized at the time the consignee uses
the consignment goods and all criteria of revenue recognition
described above have been satisfied.
Shipping and
Handling Charges
The Company incurs costs related to shipping and handling of its
manufactured products. The Company expenses these costs as
incurred as a component of cost of sales. The Company also
incurs shipping and handling charges related to the receipt of
raw materials, which are recorded as a cost of the related
inventory. Payments received from customers for shipping and
handling costs are immaterial and are included as a component of
net sales upon recognition of the related sale.
F-61
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Taxes Assessed
by a Governmental Authority
The Company accounts for all taxes assessed by a governmental
authority that are directly imposed on a revenue-producing
transaction (i.e., sales, use, value added) on a net basis and
those taxes are excluded from net sales.
Concentrations
of Risk
The Company is subject to concentrations of credit risk,
primarily associated with cash and cash equivalents, short-term
investments and accounts receivable.
The Company has significant credit risk attributable to its
accounts receivable. The accounts receivable are either due from
an OEM customer or its electronic manufacturing service
provider, depending upon the billing arrangement. At
May 30, 2009, five entities represented approximately 41%
of the Companys net accounts receivable balance,
individually ranging from approximately 5% to 18%. At
May 31, 2008, five entities represented approximately 48%
of the Companys net accounts receivable balance,
individually ranging from approximately 5% to 18%.
Certain of the Companys products use types of laminate
materials that are only available from a single supplier that
holds a patent on the material. Although other manufacturers of
advanced PCBs must also use the same supplier, and the
Companys OEM customers generally determine the type of
laminate materials used, a failure to obtain the material from
the single supplier for any reason may cause disruption and
possible cancellation of orders for PCBs using that type of
laminate, which in turn would cause a decrease in the
Companys consolidated net sales.
One customer accounted for 13% of the Companys net sales
in fiscal 2009. Two customers accounted for 11% and 10%,
respectively, of the Companys net sales in fiscal 2008 and
accounted for 15% and 11%, respectively, in fiscal 2007. No
other customer represented more than 10% of net sales in fiscal
2009 2008 and 2007.
Legal
Contingencies Reserve
All legal contingencies which are judged to be both probable and
estimable are recorded as liabilities in the consolidated
balance sheets based on the Companys best estimates. The
Company regularly monitors its estimates in light of current
developments and changes in circumstances and the Company
adjusts its legal reserves accordingly. If no particular amount
is determined to constitute the Companys best estimate of
a particular legal contingency, a range of the Companys
estimate of the costs of resolving or disposing of the
underlying claim is disclosed and the Company will accrue for
the low end of the range of costs, unless otherwise disclosed.
Considerable management judgment and assumptions are necessary
to estimate legal contingency reserves. Accordingly, actual
results could vary significantly from such estimates. Legal fees
are expensed in the period in which they occur.
Environmental
Contingencies
Accruals for environmental matters, if any, are recorded in
operating expenses when it is probable that a liability has been
incurred and the amount of the liability can be reasonably
estimated. Accrued environmental liabilities, if any, are
exclusive of claims against third parties and are not
discounted. There were no material environmental remediation
liabilities at May 30, 2009 and May 31, 2008.
F-62
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In general, ongoing costs related to environmental remediation
are charged to expense. Environmental costs are capitalized if
such costs increase the value of the property
and/or
mitigate or prevent contamination from future operations.
Engineering
Expense
Expenditures for engineering of products and manufacturing
processes are expensed as incurred.
Income
Taxes
The Company accounts for income taxes under the asset and
liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences attributable to temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to be applicable to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
In addition, effective May 27, 2007, the Company adopted
Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN 48), which clarifies the criteria
that an individual tax position must satisfy for some or all of
the benefits of that position to be recognized in a
companys financial statements. FIN 48 prescribes a
recognition threshold of more likely than not, and a measurement
attribute for all tax positions taken or expected to be taken on
a tax return, in order for those tax positions to be recognized
in the financial statements. As a result of the adoption of
FIN 48, the Company recorded a transition adjustment of
$1.8 million to beginning accumulated deficit and
$0.7 million as an adjustment to goodwill.
The Company recognizes accrued interest and penalties related to
potential liability for uncertain tax positions as a component
of tax expense. This policy did not change as a result of the
adoption of FIN 48. No penalties were recognized during
fiscal 2008, fiscal 2007 and fiscal 2006. The Company recorded
accrued interest on the potential liability for uncertain tax
positions totaling $0.3 million and $0.4 million
during fiscal 2009 and 2008, respectively.
Net Loss Per
Share
The effect of potential dilutive common stock equivalents are
excluded from the calculation of diluted earnings per share for
the periods in which losses are reported because the effect is
antidilutive. Basic and diluted earnings per share are the same
for fiscal 2009, 2008 and 2007 as the Company was in a loss
position for each of those years.
The following common stock equivalents were excluded from the
diluted EPS calculations because inclusion would have had an
antidilutive effect (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
3,221
|
|
|
|
2,970
|
|
|
|
1,607
|
|
Convertible notes
|
|
|
4,608
|
|
|
|
4,608
|
|
|
|
4,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,829
|
|
|
|
7,578
|
|
|
|
6,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
The Company measures share-based compensation expense based on
the estimated fair value of the award on the grant date.
Share-based compensation expense is recognized using the graded
vesting attribution method for stock options and the
straight-line attribution method for restricted stock awards
over the vesting period of the individual award, adjusted for
estimated forfeitures. Share-based compensation for
performance-based stock option awards is recognized over the
requisite service period if it is probable that the performance
condition will be achieved. The Company does not accrue
compensation expense if it is not probable that the performance
condition will be achieved. The Company does not reverse
previously recognized compensation expense if vested awards
expire unexercised. New shares are issued upon the exercise of
stock options.
New Accounting
Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141(R), Business Combinations, and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS Nos. 141(R)
and 160 require most identifiable assets, liabilities,
noncontrolling interests and goodwill acquired in a business
combination to be recorded at full fair value and
require noncontrolling interests (previously referred to as
minority interests) to be reported as a component of equity,
which changes the accounting for transactions with
noncontrolling interest holders. Both statements are effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 and earlier
adoption is prohibited. SFAS No. 141(R) will be
applied to business combinations occurring after the effective
date and SFAS No. 160 will be applied prospectively to
all noncontrolling interests, including any that arose before
the effective date. The adoption of SFAS Nos. 141(R) and
160 is not expected to have a significant impact on the
Companys current financial position and results of
operations.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, which requires certain disclosures related to
derivative instruments. SFAS No. 161 is effective
prospectively for interim periods and fiscal years beginning
after November 15, 2008. The Company is currently
evaluating the effects, if any, that the adoption of
SFAS No. 161 will have on its financial position and
results of operations. The Company currently has no derivative
instruments and does not currently engage in hedging activity
and as such, the adoption of SFA No. 161 is not expected to have
a significant impact on its financial position and results of
operations.
In April 2008, the FASB issued Staff Position
No. FAS 142-3
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of this Staff Position is to improve
the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset
under SFAS No. 141 (revised 2007), Business
Combinations, and other U.S. generally accepted
accounting principles.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. The
adoption of
FSP 142-3
is not expected to have a significant impact on the
Companys financial position or results of operations.
In May 2008, the FASB issued Staff Position No. APB
14-1
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement)
(FSP 14-1).
FSP 14-1
clarifies convertible debt instruments that may be settled in
cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14,
Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants. Additionally,
F-64
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FSP 14-1
specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that
will reflect the entitys nonconvertible debt borrowing
rate when interest cost is recognized in subsequent periods.
FSP 14-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is not permitted. The
Company currently has no convertible debt instruments that may
be settled in cash upon conversion and, as such, the adoption is
not expected to have a significant impact on its financial
position and results of operations.
In April 2009, the FASB issued Staff Position
No. FAS 107-1
and APB 28-1
Interim Disclosures About Fair Value of Financial
Instruments which requires disclosure about the method and
significant assumptions used to establish the fair value of
financial instruments for interim reporting periods as well as
annual reporting periods. The FSP is effective for interim
reporting periods ending after June 15, 2009 and will not
have a material impact on the Companys financial position
and results of operations.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (SFAS 165). SFAS 165
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
Specifically, the standard requires disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date, which will alert users of the financial
statements that the Company has not evaluated subsequent events
occurring after that date. SFAS 165 is effective for
interim or annual reporting periods ending after June 15,
2009 and will not have a material impact on the Companys
financial position and results of operations.
Recently
Adopted Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
establishes a single definition of fair value and a framework
for measuring fair value, sets out a fair value hierarchy to be
used to classify the source of information used in fair value
measurement and expands disclosures about fair value
measurements required under other accounting pronouncements. It
does not change existing guidance as to whether or not an
instrument is carried at fair value.. SFAS No. 157
establishes market and observable inputs as the preferred source
of values, followed by assumptions based on hypothetical
transaction in the absence of market inputs. The valuation
techniques required by SFAS 157 are based upon observable
and unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs
reflect the Companys market assumptions. These two types
of inputs create the following fair value hierarchy:
|
|
|
|
|
Level 1 Quoted prices in active
markets for identical asset or liabilities.
|
|
|
|
Level 2 Observable inputs other
than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data.
|
|
|
|
Level 3 Unobservable inputs that
are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. This
includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant
unobservable inputs.
|
The provisions of SFAS No. 157 were to be effective
for fiscal years beginning after November 15, 2007. On
February 6, 2008, the FASB agreed to defer the effective
date of SFAS No. 157 for one year for certain
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed
F-65
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at fair value in the financial statements on a recurring basis
(at least annually). Effective June 1, 2008, the Company
adopted SFAS No. 157 except as it applies to those
nonfinancial assets and nonfinancial liabilities. The adoption
of SFAS No. 157 did not have any material impact on
the Companys results of operations or financial position.
In October 2008, the FASB issued Staff Position
No. FAS 157-3,
Determining the Fair Value of a Financial Asset in a
Market That Is Not Active
(FSP 157-3),
which clarifies the application of SFAS No, 157 when the
market for a financial asset is inactive. Specifically,
FSP 157-3
clarifies how (1) managements internal assumptions
should be considered in measuring fair value when observable
data are not present, (2) observable market information
from an inactive market should be taken into account, and
(3) the use of broker quotes or pricing services should be
considered in assessing the relevance of observable and
unobservable data to measure fair value. The guidance in
FSP 157-3
became effective immediately.
Effective January 1, 2008, the Company adopted
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities including
an amendment of FASB Statement No. 115.
SFAS No. 159 allows an entity the irrevocable option
to elect fair value for the initial and subsequent measurement
of certain financial assets and liabilities under an
instrument-by-instrument
election. Subsequent measurements for the financial assets and
liabilities an entity elects to fair value will be recognized in
the results of operations. SFAS No. 159 also
establishes additional disclosure requirements. The Company did
not elect the fair value option under SFAS No. 159 for
any of its financial assets or liabilities upon adoption. The
adoption of SFAS No. 159 did not have a material
impact on the Companys results of operations or financial
position.
F-66
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2.
|
Transactions
Related to Merix Asia Acquisition
|
Eastern
Pacific Circuits Holdings Limited and Purchase Price Allocation
Adjustment
On September 29, 2005, Merix Corporation completed the
acquisition of the business operations of Eastern Pacific
Circuits Limited and certain of its subsidiaries (collectively
referred to as Merix Asia), a Hong Kong based supplier of PCBs
from Eastern Pacific Circuits Holdings Limited (EPCH). Existing
minority interest owners retained, subsequent to completion of
the acquisition, their ownership percentage in the four entities
that hold facilities and conduct business operations in the PRC.
The individual ownership percentages of these minority interest
owners are 5% and 15%, respectively. The acquisition of the
business operations of Merix Asia was completed for an adjusted
purchase price of $116.8 million. The acquisition was
financed with a combination of approximately $32.8 million
of available cash, term loans, including the assumption of
certain EPCH debt, and revolving credit borrowings under two
credit facilities totaling approximately $71.2 million and
the issuance of an $11.0 million subordinated promissory
note to EPCH, which was subsequently reduced to
$7.6 million and then again to $2.5 million, as
described below. The purchase price included $5.2 million
of direct acquisition costs, which were funded with available
cash. The term loans and revolving credit borrowings were
refinanced in May 2006 (see Note 11). The purchase price
did not reflect potential additional consideration based on
changes in working capital, cash and an additional earn-out
payment of up to $13 million if the business met certain
EBITDA targets during the calendar year 2005.
During fiscal 2007, the Company and EPCH resolved several
uncertainties that existed regarding the application of the
post-closing working capital adjustment and EBITDA earn-out
provisions of the purchase agreement. The resolution of these
values resulted in a $3.4 million reduction of the
$11.0 million subordinated promissory note to
$7.6 million. A corresponding reduction of goodwill related
to this acquisition was also recorded. In addition, no payout
was made pursuant to the earn-out provisions. The adjustment to
the promissory note, combined with final purchase allocation
adjustments totaling $1.4 million, reduced goodwill
resulting from the acquisition by $4.8 million. In
addition, interest expense was recalculated on the note from the
date of inception as if the principal balance was always
$7.6 million, which resulted in a $0.3 million offset
to interest expense in fiscal 2007 to reverse previously
recognized interest expense.
In fiscal 2008, the Company settled certain claims outstanding
against EPCH and made a payment of $2.5 million to settle
all remaining obligations under the subordinated promissory
note. The remaining balance of $5.1 million outstanding on
the subordinated note payable, including accrued interest, was
eliminated in exchange for the Company releasing EPCH from all
past and any future claims relating to the Merix Asia
acquisition. The $5.1 million balance including accrued
interest was included as a component of gain on settlement of
debt on the statement of operations in fiscal 2008.
Inventories, net of related reserves, consisted of the following
at May 30, 2009 and May 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
2,986
|
|
|
$
|
4,876
|
|
Work in process
|
|
|
4,129
|
|
|
|
7,542
|
|
Finished goods
|
|
|
3,398
|
|
|
|
3,901
|
|
Consigned finished goods
|
|
|
3,854
|
|
|
|
7,312
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,367
|
|
|
$
|
23,631
|
|
|
|
|
|
|
|
|
|
|
F-67
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The increase (decrease) to inventory valuation reserves was
($0.1 million), $0.3 million and $0.8 million,
respectively, in fiscal 2009, 2008 and 2007. As of May 30,
2009 and May 31, 2008, the Companys inventory
reserves totaled $3.6 million and $3.7 million,
respectively.
|
|
Note 4.
|
Assets Held for
Sale
|
At May 30, 2009 and May 31, 2008, assets held for sale
included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Two parcels of land
|
|
$
|
1,146
|
|
|
$
|
1,146
|
|
Excess equipment
|
|
|
3
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
|
|
1,477
|
|
Assets held for sale included in current assets
|
|
|
(3
|
)
|
|
|
(1,477
|
)
|
|
|
|
|
|
|
|
|
|
Assets held for sales included in non-current assets
|
|
$
|
1,146
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 144, these assets are
recorded at the lower of their carrying amount or fair value
less disposal costs and are no longer being depreciated.
During fiscal 2009, the Company determined that land included in
assets held for sale should be presented in non-current assets
as a result of deteriorating general economic conditions. At
May 31, 2008, these assets were classified as current
assets.
During fiscal 2009, the Company sold assets previously used in
the Hong Kong facility valued at $0.3 million at
May 31, 2008 and recorded a gain on sale of
$0.6 million, which is reflected as a reduction to
restructuring charges on the consolidated statement of
operations.
During fiscal 2008, the Company ceased manufacturing operations
at its Hong Kong facility. The net book values of the building
and related land use rights were reduced to $0 by an impairment
charge recorded in fiscal 2007 (see Note 15). These assets
are classified as assets held for sale at May 30, 2009.
|
|
Note 5.
|
Prepaid and Other
Current Assets
|
Prepaid expenses and other current assets consisted of the
following at May 30, 2009 and May 31, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Prepaid expenses
|
|
$
|
1,410
|
|
|
$
|
1,778
|
|
Income taxes receivable (Note 16)
|
|
|
328
|
|
|
|
318
|
|
Value-added tax receivable
|
|
|
1,646
|
|
|
|
7,176
|
|
Intercompany receivable (Note 1)
|
|
|
|
|
|
|
227
|
|
Other
|
|
|
1,512
|
|
|
|
3,462
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,896
|
|
|
$
|
12,961
|
|
|
|
|
|
|
|
|
|
|
F-68
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Property, Plant
and Equipment
|
Property, plant and equipment included the following at
May 30, 2009 and May 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
922
|
|
|
$
|
922
|
|
Buildings and grounds
|
|
|
47,116
|
|
|
|
40,098
|
|
Leasehold improvements
|
|
|
2,640
|
|
|
|
1,979
|
|
Machinery and equipment
|
|
|
182,645
|
|
|
|
162,486
|
|
Construction in progress
|
|
|
332
|
|
|
|
18,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,655
|
|
|
|
224,265
|
|
Accumulated depreciation
|
|
|
(137,772
|
)
|
|
|
(121,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95,883
|
|
|
$
|
103,012
|
|
|
|
|
|
|
|
|
|
|
The Company recognized depreciation and amortization expense
relating to property, plant and equipment of $19.7 million,
$17.7 million and $19.3 million, respectively, during
fiscal 2009, 2008 and 2007.
In the second quarter of fiscal 2009, the Company implemented a
plan to dispose of certain surplus assets to streamline the
utilization of equipment in its Oregon factory and recorded
$0.7 million in impairment charges on the assets to be
disposed. The sale of the assets was finalized in the third
quarter of fiscal 2009.
In fiscal 2008, the Company recorded net asset impairment
charges totaling $12.5 million related to the closure of
its Hong Kong and Wood Village facilities. See Note 15 for
additional information.
In fiscal 2007, the Company recorded a net $1.1 million
asset impairment charge related to discontinued operations and a
$26.6 million asset impairment charge to other assets. See
Notes 12 and 15 for additional information.
|
|
Note 7.
|
Goodwill and
Definite-Lived Intangible Assets
|
Goodwill
The following is a reconciliation of changes in goodwill for
fiscal 2009, fiscal 2008 and fiscal 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning of period
|
|
$
|
31,794
|
|
|
$
|
31,614
|
|
|
$
|
89,889
|
|
Recognition of deferred tax assets related to Asia acquisition
in accordance with SFAS No. 109, Accounting for
Income Taxes
|
|
|
98
|
|
|
|
(545
|
)
|
|
|
(123
|
)
|
Impairment (Note 15)
|
|
|
(20,500
|
)
|
|
|
|
|
|
|
(53,311
|
)
|
Adjustment related to $3.4 million decrease in promissory
note and $1.4 million purchase allocation adjustment
|
|
|
|
|
|
|
|
|
|
|
(4,841
|
)
|
Adjustment related to adoption of FIN 48
|
|
|
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
11,392
|
|
|
$
|
31,794
|
|
|
$
|
31,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has historically performed its annual impairment
testing in the fourth quarter of each fiscal year by assessing
the fair value of its reporting units using a calculation based
on the
F-69
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
present value of future cash flows. Due to a number of factors
including: 1) the substantial variance between the
Companys market capitalization based on the current
trading price range for its common stock and the net asset value
reflected in its consolidated balance sheet, 2) continuing
operation losses sustained in the first three quarters of fiscal
2009 and 3) the deterioration of the general economic
environment, management has undertaken quarterly assessments of
potential impairment of the Companys long-lived assets
throughout fiscal 2009.
In the third quarter of fiscal 2009, the Company recorded an
impairment charge of $20.5 million to reduce the value of
goodwill recorded in the acquisition of the Asia subsidiary to
$0. The Company determined that there was no impairment in
fiscal 2008. In the fourth quarter of fiscal 2007, the Company
determined that goodwill impairment charges totaling
$53.3 million were required, consisting of an impairment
charge of $39.1 million related to the acquisition of its
Asia subsidiary and a charge of $14.2 million related to
the acquisition of its San Jose manufacturing facility.
Definite-Lived
Intangible Assets
The gross amount of our definite-lived intangible assets and the
related accumulated amortization at May 30, 2009 and
May 31, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
Period
|
|
2009
|
|
|
2008
|
|
|
Customer relationships
|
|
6.5-10 years
|
|
$
|
17,168
|
|
|
$
|
17,168
|
|
Accumulated amortization
|
|
|
|
|
(10,291
|
)
|
|
|
(8,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,877
|
|
|
|
8,851
|
|
Manufacturing sales representatives network
|
|
5.5 years
|
|
$
|
40
|
|
|
$
|
40
|
|
Accumulated amortization
|
|
|
|
|
(33
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite-lived intangible assets
|
|
|
|
$
|
6,884
|
|
|
$
|
8,866
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for fiscal 2009, fiscal 2008 and fiscal
2007 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Customer relationships
|
|
$
|
1,975
|
|
|
$
|
2,298
|
|
|
$
|
2,415
|
|
Non-compete agreement
|
|
|
|
|
|
|
|
|
|
|
323
|
|
Manufacturing sales representatives network
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,982
|
|
|
$
|
2,305
|
|
|
$
|
2,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization is as follows over the next five fiscal years and
thereafter (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Total
|
|
|
2010
|
|
$
|
1,765
|
|
2011
|
|
|
1,553
|
|
2012
|
|
|
1,120
|
|
2013
|
|
|
727
|
|
2014
|
|
|
727
|
|
Thereafter
|
|
|
992
|
|
|
|
|
|
|
|
|
$
|
6,884
|
|
|
|
|
|
|
F-70
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other assets consisted of the following at May 30, 2009 and
May 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Leasehold land use rights, net
|
|
$
|
1,199
|
|
|
$
|
1,227
|
|
Deferred financing costs, net
|
|
|
3,022
|
|
|
|
3,842
|
|
Other assets
|
|
|
250
|
|
|
|
790
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,471
|
|
|
$
|
5,859
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs are amortized at the rate of
approximately $0.2 million per quarter through May 2013.
During fiscal 2008, the Company recorded debt extinguishment
costs totaling $0.5 million for unamortized deferred
financing costs as a result of the replacement of its revolving
credit facility. See Note 11.
|
|
Note 9.
|
Accrued
Liabilities
|
Accrued liabilities consisted of the following at May 30,
2009 and May 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued compensation
|
|
$
|
6,686
|
|
|
$
|
7,177
|
|
Accrued warranty (Note 1)
|
|
|
961
|
|
|
|
2,147
|
|
Income taxes payable (Note 16)
|
|
|
469
|
|
|
|
316
|
|
Intercompany payable (Note 1)
|
|
|
1,380
|
|
|
|
|
|
Asset retirement obligation current portion
(Note 10)
|
|
|
|
|
|
|
873
|
|
Other liabilities
|
|
|
5,219
|
|
|
|
5,270
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,715
|
|
|
$
|
15,783
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
|
Asset Retirement
Obligations
|
At May 30, 2009 and May 31, 2008, asset retirement
obligations primarily related to the restoration of the leased
facilities to shell condition upon termination of the leases in
place at those facilities. Refer to Note 13 for a
discussion of the related lease terms. Activity related to asset
retirement obligations for the years ended May 30, 2009 and
May 31, 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Asset retirement obligations at the beginning of the period
|
|
$
|
1,328
|
|
|
$
|
1,106
|
|
Costs incurred for restoration of facilities
|
|
|
(841
|
)
|
|
|
(108
|
)
|
Revisions in estimated cash flows
|
|
|
|
|
|
|
130
|
|
Accretion expense
|
|
|
17
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations at the end of the period
|
|
|
504
|
|
|
|
1,328
|
|
Asset retirement obligations included in current liabilities
|
|
|
|
|
|
|
(873
|
)
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations included in other long-term
liabilities
|
|
$
|
504
|
|
|
$
|
455
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of fiscal 2009, the Company incurred
$0.8 million in costs related to the restoration of leased
facilities formerly housing the Wood Village manufacturing
facility, which were charged to the asset retirement obligation.
F-71
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11.
|
Revolving Lines
of Credit and Long-Term Debt
|
$55.0 Million
Revolving Line of Credit
During fiscal 2008, the Company terminated its previous
$55 million revolving loan agreement and entered into a new
loan and security agreement for a $55 million credit
facility with Bank of America, N.A., as administrative agent and
lender (the Credit Facility). Upon termination of the previous
$55 million revolving loan agreement, the Company
recognized $0.5 million in unamortized debt issuance costs
related to the terminated credit facility as a component of debt
extinguishment costs.
The Credit Facility is subject to a borrowing base calculated
using the value of accounts receivable, equipment, and real
property and is reduced by a reserve for an $8 million
guarantee for the Merix Singapore Revolving Facility Agreement
(as defined below). The Credit Facility is secured by a lien
upon substantially all of the Companys assets, including,
without limitation, accounts receivable, inventory, deposit
accounts, intellectual property and real estate, but excluding a
portion of the equity securities of Merix foreign
subsidiaries owned by Merix or one of its domestic subsidiaries.
Borrowings under the credit facility will bear interest based,
at the Companys election, on either the prime rate
announced by Bank of America or LIBOR plus an applicable margin.
All amounts outstanding under the Credit Facility will be due
and payable on February 15, 2013. The Credit Facility has
usual and customary covenants for credit facilities of this
type, including covenants limiting debt incurrence, liens,
dividends, investments, asset sales, formation of subsidiaries,
mergers, restrictive agreements, hedging agreements, affiliate
transactions, and material changes in business. The Credit
Facility also includes a financial covenant requiring a minimum
fixed charge coverage ratio of 1.1:1 if Excess Availability,
defined in the Credit Facility agreement as a function of
outstanding borrowings and available cash, falls below
$20.0 million. Excess Availability at May 30, 2009 was
$37.3 million and as such this covenant is not currently in
effect. The Company would not be in compliance if this covenant
was currently applicable. At May 30, 2009, the Company was
in compliance with all other debt covenants. Exclusive of the
$8.0 million amount outstanding under the Merix Singapore
Revolving Facility Agreement
sub-facility
as discussed below, there were no amounts outstanding on the
master Credit Facility.
Merix
Singapore Revolving Facility Agreement
In the fourth quarter of fiscal 2008, Merix Holding (Singapore)
Pte Ltd (MHS) entered into a Letter Agreement (the Merix
Singapore Facility Agreement) for a credit
sub-facility
with Bank of America, N.A. as lender, with an original
availability of $12.0 million. This agreement was amended
on October 13, 2008 to cap availability at
$8.0 million. Borrowings under the Merix Singapore Credit
Facility bear interest based on LIBOR plus an applicable margin.
The facility is uncommitted and the lender reserves the right to
vary, reduce, cancel or terminate the facility and require full
repayment of amounts outstanding. The Merix Singapore Facility
Agreement had an initial term of one year and automatically
renews on an annual basis unless terminated by either party with
30 days notice. The Credit Facility and the Merix
Singapore Facility Agreement are subject to a cross-default
covenant. As of May 30, 2009, $8.0 million was
outstanding on the Merix Singapore Facility Agreement. In the
event of termination of this credit agreement, the Company
intends to refinance any amounts outstanding on this line with
borrowings under the master Credit Facility. As such, borrowings
under the Merix Singapore Facility Agreement are classified as
long-term debt in the consolidated balance sheet at May 30,
2009.
See Note 21 for discussion of a new credit facility
established subsequent to May 30, 2009.
F-72
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Term
Debt
The Companys outstanding debt at May 30, 2009 and
May 31, 2008 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
4% Convertible debenture
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
Borrowings on revolving credit facilities
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,000
|
|
|
|
70,000
|
|
Less current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,000
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
4% Convertible
Debenture
On May 16, 2006, the Company completed the sale of
$60 million 4% Convertible Senior Subordinated Notes
due 2013. On May 24, 2006, the initial purchaser of these
notes exercised its option to purchase an additional
$10 million principal amount, bringing the total gross
proceeds to $70 million (collectively referred to as the
Notes due 2013).
The Notes due 2013 mature on May 15, 2013 and bear interest
at the rate of 4% per year. Interest is payable in arrears on
May 15 and November 15 of each year, beginning on
November 15, 2006. The Notes due 2013 are convertible at
the option of the holder into shares of the Companys
common stock at any time prior to maturity, unless the notes are
earlier redeemed or repurchased. The Notes due 2013 are
convertible at an initial conversion rate of 65.8328 shares
per $1,000 principle amount, subject to certain adjustments.
This is the equivalent to a conversion price of $15.19 per
share. The Notes due 2013 are general unsecured obligations of
the Company and are subordinate in right of payment to all of
the Companys existing and future senior debt and are equal
with any future unsecured debt that is not senior debt.
Embedded
Derivatives
The Notes due 2013 contain a provision pursuant to which the
Company may be required to issue additional shares based on a
variable conversion feature if certain events occur. The Company
concluded that the debentures are not conventional convertible
debt instruments. In addition, the Company concluded that the
embedded conversion option qualifies as a derivative under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Furthermore, in
accordance with
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own
Stock, the Company determined that the embedded derivative
would be properly classified in equity if it were a freestanding
security due to the following:
|
|
|
|
|
it has no net cash settlement feature;
|
|
|
|
delivery of the shares is within the control of the Company
since the settlement shares were registered contemporaneously
with the registration of the Notes due 2013;
|
|
|
|
the Company has sufficient authorized shares to meet the
settlement requirements;
|
|
|
|
the contract has an explicit limit on the number of shares in
settlement;
|
|
|
|
there are no cash payments to the counterparty in the event the
Company fails to make timely filings with the SEC;
|
F-73
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
there are no required cash payments to the counterparty if the
shares initially delivered upon settlement are subsequently sold
by the counterparty and the sales proceeds are insufficient to
provide the counterparty with full return of the amount due;
|
|
|
|
there are no provisions in the contract that indicate that the
counterparty has rights that rank higher than those of a
shareholder of the stock underlying the contract; and
|
|
|
|
there is no requirement in the contract to post collateral at
any point or for any reason.
|
Since the Company concluded that the embedded derivative would
be properly classified in equity if it were a freestanding
security, it was able to further conclude that the embedded
derivative qualifies for the scope exception set forth in
SFAS No. 133, paragraph 11(a). Accordingly, the
Company is not required to bifurcate and separately account for
the embedded derivative.
Subordinated
Note Payable
On September 29, 2005, the Company issued a subordinated
Promissory Note (the Note) to EPCH for a total of
(a) $11 million, plus (b) the amount of the
earn-out consideration determined under the Master Sale and
Purchase Agreement in connection with the acquisition of Merix
Asia (see Note 2). The principal was to be paid in four
equal installments on March 1, 2007, December 1, 2007,
December 1, 2008 and March 15, 2009. The outstanding
principal balance earned interest at 7% through December 1,
2006, 8% through December 1, 2007 and 9% thereafter,
payable quarterly. The Company was able to offset its payment
obligations under the Note by the amount of warranty claims
arising under the Master Sale and Purchase Agreement.
During fiscal 2007, the Company and EPCH resolved several
uncertainties that existed regarding the application of the
post-closing working capital adjustment and EBITDA earn-out
provisions of the purchase agreement. The resolution of these
values resulted in a $3.4 million reduction of the Note to
$7.6 million. A corresponding reduction of goodwill related
to this acquisition was also recorded. In addition, no payout
was made pursuant to the earn-out provisions.
In addition, in fiscal 2008, the Company exercised its rights
under the Note to not make its December 1, 2007 payment due
to Merix claims against the seller. On January 2008, the
Company settled these claims and made a payment of
$2.5 million to settle all remaining obligations under the
Note. The remaining balance of $5.1 million outstanding on
the Note, including accrued interest, was eliminated in exchange
for the Company releasing the seller from all past and any
future claims relating to the Merix Asia acquisition. The
$5.1 million of principal and accrued interest that was
eliminated are included as a component of gain on settlement of
debt on the consolidated statement of operations for fiscal
2008. The Company does not expect any of the other settlement
terms to have a material impact on its results of operations or
financial position.
Principal
Payments of Long-Term Debt
Principal payments on long-term debt related to the
$70.0 million convertible debenture and any outstanding
borrowings under the revolving Credit Facility are due in fiscal
2013.
|
|
Note 12.
|
Discontinued
Operations
|
On September 29, 2006, Merix Asia entered into an agreement
with Citi-Power Investment Limited (Citi-Power) to sell Merix
Hong Kongs 90% shareholding interest in the Lomber
single-sided manufacturing facility located in Huizhou City in
the PRC (the Lomber Facility) for a nominal amount. Also on
September 29, 2006, Merix Asia entered into an agreement
with Excel Hero (China) Limited (EXCEL) to sell its 85.29%
shareholding interest in its single-sided manufacturing facility
located in
F-74
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Dongguan City in the PRC (the Dongguan Facility) for a nominal
amount. On March 31, 2007, Merix Asia sold the stock of
Merix Holding (Hong Kong) Limited, the holding company of the
Lomber Facility and Dongguan Facility to East Bridge Group
Limited for an amount approximately equal to the book value of
the facilities.
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the
Company recorded the related assets and liabilities as current
assets and liabilities on its balance sheet at the lower of
their carrying amount or fair value, less cost to sell, upon
being classified as discontinued operations. The combined net
book value of the Dongguan and Lomber facilities was
approximately $1.1 million upon their classification as
discontinued operations and their fair value, less selling costs
was determined to be approximately $0.1 million.
Accordingly, during fiscal 2007, the Company recorded an
impairment charge of approximately $1.1 million, including
estimated closing costs, as a component of loss from
discontinued operations.
The results of operations for the Dongguan and Lomber facilities
were reclassified as discontinued operations for all periods
presented. Certain financial information related to discontinued
operations for fiscal 2007 was as follows (in thousands):
|
|
|
|
|
|
|
2007
|
|
|
Revenue
|
|
$
|
8,597
|
|
Net impairment related to assets of discontinued operations
|
|
|
(1,062
|
)
|
Pre-tax loss
|
|
|
(470
|
)
|
|
|
Note 13.
|
Lease
Agreements
|
Operating
Leases
In August 2000, the Company entered into a noncancelable
operating lease agreement to lease a manufacturing facility
located in Wood Village, Oregon. Under the terms of the lease
agreement, lease payments began in July 2001 and escalate at
specific points over the minimum ten-year term of the lease.
Rent expense is recognized on the straight line basis. In the
third quarter of fiscal 2008, the Company announced that it was
closing down this facility. In April 2008, the Company entered a
sublease agreement for its Wood Village manufacturing facility.
The terms of the sublease provide for escalating rent payments
of approximately $0.6 million per year through the
termination date of the master lease agreement in July 2011. As
of May 30, 2009, the sublease rentals are delinquent and
the Companys management believes that it is likely that
the current sublease agreement will be terminated.
In February 2007, the Company entered into a noncancelable
operating lease agreement for administrative office space in
Beaverton, Oregon with an initial term ending August 2014. Under
the terms of this lease agreement, lease payments began in
September 2007 and escalate at specific points over the term of
the lease. Rent expense is recognized on a straight line basis.
In April 2008, the Company amended this lease to provide for an
expansion of the leased premises. Additional lease payments
commenced November 2008 and are included in the summary of
future minimum lease payments shown below.
Merix San Jose leases office space and production
facilities under noncancelable operating lease agreements with
various initial terms ending through fiscal 2010 with options to
extend the lease terms beyond the initial lease terms through
fiscal 2019. Lease payments escalate at specific points over the
minimum five-year lease terms. Rent expense is recognized on the
straight line basis.
Merix Asia leases office, apartment space and production
facilities under noncancelable operating lease agreements with
various initial terms ending through fiscal 2011. Rent expense
is
F-75
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized on the straight line basis. These lease agreements do
not contain options to extend the lease terms and the lease
payments do not escalate.
Rental expense under significant operating leases was
$3.6 million, $3.5 million and $2.0 million
during fiscal 2009, 2008 and 2007, respectively. See also
Note 20 regarding related party lease payments.
Future minimum lease payments under noncancelable operating
leases as of May 30, 2009, net of sublease payments, were
as follows (in thousands):
|
|
|
|
|
Fiscal Year:
|
|
|
|
2010
|
|
$
|
2,108
|
|
2011
|
|
|
1,808
|
|
2012
|
|
|
960
|
|
2013
|
|
|
903
|
|
2014
|
|
|
830
|
|
Thereafter
|
|
|
1,088
|
|
|
|
|
|
|
|
|
$
|
7,697
|
|
|
|
|
|
|
|
|
Note 14.
|
Stock Incentive
Plans and Share-Based Compensation
|
Stock
Incentive Plans
2007 Employee
Stock Purchase Plan
Prior to January 22, 2009, the Company had the Merix
Corporation 2007 Employee Stock Purchase Plan (the ESPP), which
was approved by shareholders, pursuant to which
750,000 shares of common stock were reserved for issuance
to participating employees. Eligible employees could elect to
contribute up to 5% of their gross earnings and could purchase
shares only through payroll deductions permitted under the ESPP.
The ESPP provided for
6-month
offerings commencing on July 21 and January 21 of each calendar
year, or the immediately preceding business day if these dates
occur on a weekend. At the end of each six-month purchase
period, the purchase price was determined and the accumulated
funds were used to purchase shares of common stock. The purchase
price per share was equal to 85% of the lower of the fair market
value of the common stock on (a) the first day of the
offering period or (b) the date of purchase. At the end of
the second
six-month
purchase period, which ended in January 2009, all 750,000
reserved shares were issued to ESPP participants and the plan
was suspended at that time.
2006 Equity
Incentive Plan
The Company has the Merix Corporation 2006 Equity Incentive Plan
(the 2006 Plan), which replaced its 1994 Stock Incentive Plan
(the 1994 Plan). The 2006 Plan permits the granting of any or
all of the following types of awards: (1) incentive and
nonqualified stock options, (2) stock appreciation rights,
(3) stock awards, restricted stock and stock units,
(4) performance shares and performance units conditioned
upon meeting performance criteria and (5) other stock- or
cash-based awards. Awards may be granted under the 2006 Plan to
employees, officers, directors, consultants, agents, advisors
and independent contractors. Under the 2006 Plan, 750,000 new
shares of common stock were reserved for issuance.
396,363 shares of common stock previously reserved for
issuance, but not subject to outstanding awards, under the 1994
Plan as of October 5, 2006 ceased to be available for
issuance under the 1994 Plan and instead became available for
grant under the 2006 Plan. Additionally, shares of common stock
subject to outstanding options or unvested restricted stock
awards under the 1994 Plan will also become available for grant
under the 2006 Plan in the future to
F-76
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the extent that such awards expire or otherwise terminate
without shares of common stock being issued pursuant to options,
or to the extent that shares issued pursuant to restricted stock
awards are forfeited. As of May 30, 2009, approximately
375,000 shares of common stock were subject to outstanding
options or unvested stock awards under the 1994 Plan and
approximately 975,000 shares had been forfeited or
otherwise terminated and became available for grant under the
2006 Plan.
2000 Nonqualified
Stock Option Plan
The Company also has the Merix Corporation 2000 Nonqualified
Stock Option Plan (the 2000 Plan) that did not require approval
by its shareholders. The 2000 Plan, as amended, permits the
grant of up to 4,000,000 shares of common stock in the form
of nonqualified stock options and stock awards to employees,
directors and non-employee consultants, agents, independent
contractors and advisors who provide services to the Company.
The number of shares subject to stock options and stock awards
granted under the 2000 Plan to officers and directors in any
given year cannot exceed 25% of the total number of shares
subject to awards granted in that year.
In both plans, a committee of the Board of Directors has the
authority to determine option prices. To date, all options have
been granted at or above the fair market value of the stock at
the date of grant. The options vest as determined by the Human
Resources Compensation Committee (HRCC) of the Board of
Directors and generally become exercisable ratably over a
four-year period, beginning one year after the date of grant.
The options may, in no event, have a term exceeding ten years
from the date of grant.
On February 11, 2008, the Company granted performance-based
stock options to certain key employees, 30,000 of which were
granted under the terms of the 2006 Plan and 510,000 of which
were granted under the terms of the 2000 Plan. The options were
to vest as to 25% on various dates in October and November 2008
if certain targets are met and as to the remaining 75% in April
2009 if the remaining targets are met. Substantially all of
these performance-based stock options failed to vest as the
performance targets were not met and no material share-based
compensation expense was recognized on these options.
At May 30, 2009, there were approximately
2,175,000 shares available for grant under the 2000 Plan
and the 2006 plan. Activity under these plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Subject
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
to Options
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
Balances, May 31, 2008
|
|
|
3,304,842
|
|
|
$
|
8.48
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
588,250
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(474,314
|
)
|
|
$
|
4.43
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(835,105
|
)
|
|
$
|
8.41
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, May 30, 2009
|
|
|
2,583,673
|
|
|
$
|
7.71
|
|
|
|
4.09
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of May 30, 2009
|
|
|
2,003,218
|
|
|
$
|
8.48
|
|
|
|
3.66
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of May 30, 2009
|
|
|
1,396,560
|
|
|
$
|
10.23
|
|
|
|
2.79
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Restricted
|
|
|
Grant Date
|
|
|
|
Stock
|
|
|
Per Share
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Balances, May 31, 2008
|
|
|
344,061
|
|
|
$
|
7.36
|
|
Granted
|
|
|
26,000
|
|
|
$
|
2.13
|
|
Vested
|
|
|
(122,945
|
)
|
|
$
|
7.59
|
|
Forfeited
|
|
|
(40,858
|
)
|
|
$
|
6.32
|
|
|
|
|
|
|
|
|
|
|
Balances, May 30, 2009
|
|
|
206,258
|
|
|
$
|
6.76
|
|
|
|
|
|
|
|
|
|
|
As of May 30, 2009, unrecognized share-based compensation
related to outstanding unvested stock options and restricted
stock awards was $0.6 million and $0.5 million,
respectively, which will be recognized over the weighted-average
remaining vesting period of 1.41 years and 2.05 years,
respectively.
Share-based
Compensation Summary
Certain information regarding our share-based compensation for
fiscal 2009 and fiscal 2008 was as follows (in thousands, except
per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average grant-date per share fair value of share
options granted
|
|
$
|
1.73
|
|
|
$
|
4.56
|
|
|
$
|
9.47
|
|
Total intrinsic value of share options exercised
|
|
|
|
|
|
|
1
|
|
|
|
2,591
|
|
Fair value of non-vested shares that vested during the period
|
|
|
130
|
|
|
|
270
|
|
|
|
582
|
|
Share-based compensation recognized in results of operations
|
|
|
1,617
|
|
|
|
1,963
|
|
|
|
1,850
|
|
Cash received from options exercised and shares purchased under
all share-based arrangements
|
|
|
447
|
|
|
|
1
|
|
|
|
5,586
|
|
Weighted average grant-date per share fair value of shares
issued under ESPP
|
|
|
0.70
|
|
|
|
2.45
|
|
|
|
|
|
Total fair value expensed for shares issued under the ESPP
|
|
|
248
|
|
|
|
278
|
|
|
|
|
|
No material amount of share-based compensation was capitalized
as a part of an asset during fiscal 2009, 2008 or 2007. There
was no tax deduction realized from the exercise of stock options
and no tax benefit recognized in the statement of operations
related to share-based compensation in fiscal 2009, 2008 or
2007. The Company did not recognize a tax benefit from the
share-based compensation expense because it is believed that it
was more likely than not that the related deferred tax assets,
which have been reduced by a valuation allowance, will not be
realized.
Tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax
benefits) are classified and reported as both an operating cash
outflow and a financing cash inflow. The excess tax benefits
that would otherwise be available to reduce income taxes payable
have the effect of increasing the net operating loss
carryforwards. Accordingly, because the Company is not able to
realize these excess tax benefits, such benefits have not been
recognized in its consolidated statement of cash flows for
fiscal 2009, 2008 or 2007.
F-78
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys share-based compensation expense was included
in its statements of operations for fiscal 2009, 2008 and 2007
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
300
|
|
|
$
|
163
|
|
|
$
|
296
|
|
Engineering
|
|
|
89
|
|
|
|
66
|
|
|
|
58
|
|
Selling, general and administrative
|
|
|
1,228
|
|
|
|
1,734
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,617
|
|
|
$
|
1,963
|
|
|
$
|
1,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to restricted stock awards and
stock grants is based on the fair value of the underlying shares
on the date of grant as if the shares were vested. For fiscal
2009, 2008 and 2007, compensation expense related to options
granted pursuant to our stock incentive plans was determined
based on the estimated fair values using the Black-Scholes
option pricing model and the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
1.85% - 3.64%
|
|
1.59% - 5.13%
|
|
4.48% - 5.10%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected term
|
|
2.09 - 5.22 years
|
|
1.57 - 5.27 years
|
|
2.17 - 5.67 years
|
Volatility
|
|
55% - 65%
|
|
46% - 93%
|
|
46% - 91%
|
Discount for post vesting restrictions
|
|
0%
|
|
0%
|
|
0%
|
Assumed forfeiture rate
|
|
21.86%
|
|
20.34%
|
|
11.57%
|
For fiscal 2009 and 2008, compensation expense related to shares
to be issued pursuant to the ESPP was determined using the
following weighted average assumptions:
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Risk-free interest rate
|
|
1.91% - 3.01%
|
|
3.01%
|
Dividend yield
|
|
0%
|
|
0%
|
Expected term
|
|
6 months
|
|
6 months
|
Volatility
|
|
69% - 81%
|
|
81%
|
The risk-free interest rate used is based on the implied yield
on Treasury Constant Maturities with a remaining term equal to
the expected term of the stock option. The expected dividend
yield is zero as the Company has not paid cash dividends in the
past and has no expectation of paying dividends in the
foreseeable future. The expected term is based on historical
stock option exercise patterns. Expected volatility is
calculated based on applying historical volatility over the
expected life of the stock options granted.
F-79
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15.
|
Severance, Asset
Impairment and Restructuring Charges
|
Total severance, impairment and restructuring charges for fiscal
2009, 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Goodwill impairment
|
|
$
|
20,500
|
|
|
$
|
|
|
|
$
|
53,310
|
|
Asset impairment
|
|
|
702
|
|
|
|
12,465
|
|
|
|
26,628
|
|
Severance charges
|
|
|
3,121
|
|
|
|
3,188
|
|
|
|
1,476
|
|
Wood Village plant closure charges
|
|
|
1,090
|
|
|
|
241
|
|
|
|
|
|
Gain on sale of Hong Kong facility equipment
|
|
|
(567
|
)
|
|
|
(301
|
)
|
|
|
|
|
Legal and other restructuring costs
|
|
|
49
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,895
|
|
|
$
|
15,686
|
|
|
$
|
81,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
Actions
Goodwill
Impairment
As a result of the deepening economic downturn and resulting
reduction in demand for the Companys products, in the
third quarter of fiscal 2009 an impairment charge of
$20.5 million was recorded to reduce the value of goodwill
recorded in the acquisition of the Asia subsidiary to $0.
Reductions-in-Force
Due primarily to the deteriorating macroeconomic conditions, the
Company has taken cost reduction actions to mitigate declines in
the Companys net sales. Most of the larger cost reductions
were related to three major
reductions-in-force
that occurred in September 2008, December 2008 and January 2009.
These headcount reductions resulted in severance and related
charges paid totaling approximately $2.0 million. The
Company has also significantly reduced its labor costs due to
attrition within its labor force, particularly in the PRC. As of
the end of fiscal 2009, the Company has reduced its labor force
by approximately 22% compared to the end of fiscal 2008.
Executive
Severance
During the fourth quarter of fiscal 2009, a
reduction-in-force
was implemented that impacted a number of individuals serving
executive functions within the Company, which resulted in
severance charges of $1.1 million.
Disposal of
Surplus Plant Assets
In the second quarter of fiscal 2009, the Company implemented a
plan to dispose of certain surplus plant assets to streamline
the utilization of its Oregon factory and recorded
$0.7 million in impairment charges on the assets to be
disposed. The sale of the assets was finalized in the third
quarter of fiscal 2009. In the first quarter of fiscal 2009, the
Company recorded a gain of $0.6 million related to the sale
of equipment previously used at the Hong Kong facility.
Fiscal 2008
Actions
Hong Kong
Facility and Other Merix Asia Restructuring
In the first quarter of fiscal 2008, the Company committed to
phasing out operations at its Hong Kong facility, closing
the facility and relocating production to other manufacturing
facilities. Full closure of the facility was completed in the
fourth quarter of fiscal 2008. This closure was a part of the
F-80
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys actions to consolidate its Asian operations at
its lower-cost facilities in China and expand the facilities at
its Huiyang plant to increase its manufacturing capacity in
China. The Company recorded approximately $1.5 million in
severance and related costs in connection with closure of the
Hong Kong facility, excluding amounts to be paid out to certain
employees employed under a continuous contract for not less than
five years (the Long Service Payment Plan). The Company received
a total of approximately $2.3 million from the Long Service
Payment Plan as a refund against the cash restructuring costs.
Additionally, the Company recorded $0.4 million in asset
impairment charges related to the closure of the Hong Kong
facility and other actions. The Company also recorded severance
costs totaling $0.2 million due to other restructuring
actions at Merix Asia in fiscal 2008.
Wood Village,
Oregon Facility
In the third quarter of fiscal 2008, the Company approved a plan
to close its manufacturing facility located in Wood Village,
Oregon. This restructuring action was completed in the fourth
quarter of fiscal 2008. Under the plan, the Company transitioned
production from its Wood Village facility to its manufacturing
facility located in Forest Grove, Oregon. Overall Oregon inner
layer production capacity was reduced by approximately 40% and
panel capacity was reduced by approximately 20%. The decision to
close the facility was brought about by a number of factors
including: (a) the continued migration of traditional Merix
business to Merix Asia as well as other Asian based competitors;
and (b) continued erosion of Merix North American
gross margins, believed to result in part from the cyclicality
that is part of the PCB industry. The manufacturing operations
of the Wood Village facility were ceased on March 1, 2008,
and the facility was fully closed in April 2008.
The Company incurred charges totaling approximately
$13.5 million in the fiscal 2008 relating to the closure of
the Wood Village facility, as well as other restructuring
actions, comprising approximately $12.3 million in asset
impairments and other costs, including lease termination costs
and adjustments to the asset retirement obligation accrual for
the Wood Village lease, and $1.2 million in severance
payments.
In the fourth quarter of fiscal 2008, the Company entered into
an agreement to sublease the facility for an amount
substantially equal to its rental obligation commencing in the
first quarter of fiscal 2009. During fiscal 2009, the Company
recorded $1.1 million in additional lease termination
charges as the sublease tenant is delinquent in payment of its
sublease rentals and the Companys management believes that
it is likely that the current sublease agreement will be
terminated.
Executive
Severance
In the third quarter of fiscal 2008, the Company terminated its
Executive Vice President of Global Operations. In accordance
with the executive employment agreement related to this
termination, the Company recorded $0.4 million of severance
and related costs, which were paid in the fourth quarter of
fiscal 2008.
Fiscal 2007
Actions
Severance charges of $1.5 million in fiscal 2007 included
the following:
|
|
|
|
|
a lump-sum cash payment of $0.6 million and non-cash
share-based compensation of $0.1 million related to the
issuance of share-based awards upon the resignation of the
former Chief Executive Officer;
|
|
|
|
the cost of $0.1 million for fees related to recruiting a
new Chief Executive Officer;
|
F-81
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
$0.2 million of cash severance related to the termination
of another senior manager of Merix Asia; and
|
|
|
|
$0.5 million of cash severance related to the resignation
of Merix Asias Chief Executive Officer in the fourth
quarter of fiscal 2007.
|
In the fourth quarter of 2007, the Company recorded a
$26.6 million impairment charge related primarily to the
property, plant and equipment and land use rights of its Hong
Kong facility, which is part of its Asia operating segment. Due
to continuing and forecasted future operating losses, the
Company performed an impairment analysis pursuant to
SFAS No. 144. The Company primarily utilized market
value analyses to determine the fair value of the assets. In
addition, the $26.6 million charge included
$0.2 million related to certain assets at the
Companys Oregon facility which were determined to have
limited future use.
The Company also recorded a $53.3 million charge for
goodwill impairment as a result of lower historical operating
results than previously anticipated and lower future estimated
cash flows. The $53.3 million charge consisted of a
$14.2 million charge related to the Companys
San Jose manufacturing facility and a $39.1 million
charge for Merix Asia. See Note 7 for further discussion of
goodwill impairment charges.
Severance
Accrual
A roll-forward of the Companys severance accrual for the
fiscal years ended May 30, 2009 and May 31, 2008 was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
May 31,
|
|
|
Charged to
|
|
|
Amounts
|
|
|
May 31,
|
|
|
|
2008
|
|
|
Expense
|
|
|
Paid
|
|
|
2009
|
|
|
Hong Kong plant closure
|
|
$
|
134
|
|
|
$
|
60
|
|
|
$
|
(194
|
)
|
|
$
|
|
|
Executive severance
|
|
|
|
|
|
|
1,081
|
|
|
|
(646
|
)
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134
|
|
|
$
|
1,141
|
|
|
$
|
(840
|
)
|
|
$
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
May 26,
|
|
|
Charged to
|
|
|
Amounts
|
|
|
May 31,
|
|
|
|
2007
|
|
|
Expense
|
|
|
Paid
|
|
|
2008
|
|
|
Merix Asias Chief Executive Officer severance
|
|
$
|
453
|
|
|
$
|
|
|
|
$
|
(453
|
)
|
|
$
|
|
|
Hong Kong plant closure
|
|
|
|
|
|
|
1,462
|
|
|
|
(1,328
|
)
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
453
|
|
|
$
|
1,462
|
|
|
$
|
(1,781
|
)
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-82
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income (loss) from continuing operations
before minority interests and income taxes and the provision for
income taxes for fiscal 2009, 2008 and 2007 are presented in the
table below (in thousands). Fiscal 2007 amounts exclude the
impact of discontinued operations as discussed in Note 12:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
(31,644
|
)
|
|
$
|
(28,041
|
)
|
|
$
|
5,294
|
|
Foreign
|
|
|
(14,399
|
)
|
|
|
5,157
|
|
|
|
(75,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before minority interests and
income taxes
|
|
$
|
(46,043
|
)
|
|
$
|
(22,884
|
)
|
|
$
|
(69,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(123
|
)
|
|
$
|
19
|
|
|
$
|
362
|
|
State
|
|
|
61
|
|
|
|
53
|
|
|
|
257
|
|
Foreign
|
|
|
2,430
|
|
|
|
1,826
|
|
|
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,368
|
|
|
|
1,898
|
|
|
|
1,290
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(10,700
|
)
|
|
|
(9,714
|
)
|
|
|
5,040
|
|
State
|
|
|
(170
|
)
|
|
|
(1,177
|
)
|
|
|
(2,559
|
)
|
Foreign
|
|
|
747
|
|
|
|
(77
|
)
|
|
|
(6,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,123
|
)
|
|
|
(10,968
|
)
|
|
|
(4,458
|
)
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
10,700
|
|
|
|
9,714
|
|
|
|
(5,040
|
)
|
State
|
|
|
170
|
|
|
|
1,177
|
|
|
|
2,559
|
|
Foreign
|
|
|
(487
|
)
|
|
|
(319
|
)
|
|
|
7,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,383
|
|
|
|
10,572
|
|
|
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision
|
|
$
|
2,628
|
|
|
$
|
1,502
|
|
|
$
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate applied to net income (loss)
varied from the United States federal statutory rates of 35% in
fiscal 2009, 2008 and 2007 due to the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Tax expense at statutory rates
|
|
$
|
(16,115
|
)
|
|
$
|
(8,009
|
)
|
|
$
|
(24,418
|
)
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
(692
|
)
|
|
|
(338
|
)
|
|
|
(1,788
|
)
|
Effect of foreign income tax rates
|
|
|
(293
|
)
|
|
|
(663
|
)
|
|
|
5,360
|
|
Effect of enacted change in future foreign tax rates
|
|
|
|
|
|
|
|
|
|
|
(1,035
|
)
|
Federal qualified research and experimentation credit
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
State tax credits, net of federal benefits
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
|
|
Stock option windfall
|
|
|
|
|
|
|
|
|
|
|
(863
|
)
|
Non-deductible items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
7,175
|
|
|
|
|
|
|
|
18,698
|
|
Intercompany charges not deductible in certain foreign
jurisdictions
|
|
|
194
|
|
|
|
78
|
|
|
|
411
|
|
Interest expense not deductible in certain foreign jurisdictions
|
|
|
345
|
|
|
|
428
|
|
|
|
1,347
|
|
Amortization of intangibles
|
|
|
120
|
|
|
|
125
|
|
|
|
254
|
|
Capital loss not deductible in foreign jurisdiction
|
|
|
|
|
|
|
|
|
|
|
(678
|
)
|
Other
|
|
|
127
|
|
|
|
196
|
|
|
|
116
|
|
Change in valuation allowance
|
|
|
10,383
|
|
|
|
10,572
|
|
|
|
4,580
|
|
Other, net
|
|
|
1,391
|
|
|
|
(881
|
)
|
|
|
(528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,628
|
|
|
$
|
1,502
|
|
|
$
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-83
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys deferred tax assets
and liabilities at May 30, 2009 and May 31, 2008 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets current:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,190
|
|
|
$
|
1,856
|
|
Vacation accrual
|
|
|
431
|
|
|
|
481
|
|
Sales allowances
|
|
|
563
|
|
|
|
556
|
|
Other
|
|
|
835
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,019
|
|
|
|
3,793
|
|
Deferred tax assets long-term:
|
|
|
|
|
|
|
|
|
Alternative minimum tax credit
|
|
|
1,130
|
|
|
|
1,130
|
|
Fixed asset basis difference
|
|
|
1,765
|
|
|
|
359
|
|
Net operating loss carryforwards
|
|
|
30,478
|
|
|
|
21,511
|
|
Qualified research and experimentation credits and other
|
|
|
5,808
|
|
|
|
6,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,181
|
|
|
|
29,475
|
|
Deferred tax liabilities long-term:
|
|
|
|
|
|
|
|
|
Intangible basis difference
|
|
|
(484
|
)
|
|
|
(844
|
)
|
Other
|
|
|
(558
|
)
|
|
|
(461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,042
|
)
|
|
|
(1,305
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
42,158
|
|
|
|
31,963
|
|
Valuation allowance
|
|
|
(41,386
|
)
|
|
|
(31,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
772
|
|
|
$
|
960
|
|
|
|
|
|
|
|
|
|
|
At May 30, 2009, the Company had net operating loss
carryforwards of approximately $64.3 million,
$65.8 million and $19.3 million for U.S. federal,
U.S. state and foreign income tax purposes, respectively.
As of May 30, 2009, the Company had unused federal and
state credit carryforwards of approximately $2.2 million
and $0.6 million, respectively. Net operating losses and
research and experimentation credits will expire between fiscal
2010 and fiscal 2028 and certain state credits may be carried
forward indefinitely until exhausted. In addition, the Company
had alternative minimum tax credit carryforwards of
approximately $1.1 million, which are available to reduce
future federal regular income taxes, if any, over an indefinite
period. The ultimate realization of these deferred tax assets is
dependent upon the generation of future taxable income before
these carryforwards expire. Included in the federal net
operating loss carryforward is $7.9 million from the
exercise of employee stock options, the tax benefit of which,
when recognized, will be accounted for as an increase to
additional paid-in capital rather than a reduction of the income
tax provision.
A valuation allowance was recorded against net deferred tax
assets due to cumulative losses in recent years and the lack of
consistent, positive evidence to support the utilization of net
operating losses and other tax attributes against future income.
When realization of the deferred tax asset is
more-likely-than-not to occur, the benefit related to the
deductible temporary differences attributable to ordinary
operations will be recognized as a reduction of the provision
for income taxes. The benefit related to deductible temporary
differences attributable to purchase accounting may result in a
reduction to goodwill. The cumulative change in the valuation
allowance for fiscal 2009, 2008 and 2007 was an increase of
approximately $10.4 million, an increase of approximately
$10.0 million and an increase of approximately
$4.5 million, respectively. In the third quarter of fiscal
2008, we reversed a net $1.2 million of valuation allowance
against certain Asia deferred tax assets. This reversal is
reflected on the consolidated financial statements as a
$1.2 million increase in deferred tax assets, a
$0.5 million decrease to goodwill and a $0.7 million
decrease to tax expense.
F-84
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A subsidiary in China is in a tax holiday effective through
December 2009, whereby the applicable statutory rate was zero
through December 2006 and subject to a reduced rate of 12.5%
through December 2009. The impact of the China tax holiday was
to increase net income by $0.4 million ($0.2 per diluted
share in fiscal 2009, $0.5 million ($0.2 per diluted share)
in fiscal 2008 and $0.4 million ($0.02 per diluted share)
during fiscal 2007.
The Company will provide for U.S. income taxes on the
earnings of foreign subsidiaries if foreign subsidiaries have
positive taxable earnings and they are not considered
indefinitely reinvested outside of the U.S. The Company
indefinitely reinvests the cumulative undistributed earnings of
its foreign subsidiaries. At May 30, 2009, the cumulative
earnings and profits of foreign subsidiaries was a taxable
deficit.
In fiscal 2008, the Company recorded $2.5 million in
potential liability for uncertain tax positions related to the
adoption of FIN 48. This was reflected as a
$0.7 million increase to goodwill and a $1.8 million
charge to beginning accumulated deficit. All of the
Companys potential liability for uncertain tax positions
would have an impact on the effective tax rate if recognized.
Accrued interest on potential liability for uncertain tax
positions was $1.1 million at May 30, 2009 and
$0.8 million at May 31, 2008.
Following is a rollforward of changes in fiscal 2008 to the
Companys potential liability for uncertain tax positions
included as a component of other long-term liabilities on the
consolidated balance sheet at May 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning Balance
|
|
$
|
2,124
|
|
|
$
|
|
|
Additions for tax positions taken in prior periods
|
|
|
|
|
|
|
2,119
|
|
Additions for tax positions taken in current period
|
|
|
318
|
|
|
|
5
|
|
Decreases for lapses in statutes of limitation
|
|
|
|
|
|
|
|
|
Decreases for settlements with taxing authorities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
2,442
|
|
|
$
|
2,124
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
$
|
318
|
|
|
$
|
2,124
|
|
|
|
|
|
|
|
|
|
|
The Company believes it is reasonably possible that the total
amount of potential liability for uncertain tax positions may
change within the next 12 months but is unable to estimate
the amount of the potential change.
The Company recognizes accrued interest and penalties on the
potential liability for uncertain tax positions as a component
of tax expense. This policy did not change as a result of the
adoption of FIN 48. During fiscal 2009 and 2008, the
Company recognized $0.3 million and $0.4 million,
respectively, in interest related to the potential liability for
uncertain tax positions. No penalties were recognized related to
potential liability for uncertain tax positions in fiscal 2009
or 2008.
The Company files income tax returns in the U.S. federal
jurisdiction and in various state and local and foreign
jurisdictions. The Company is no longer subject to Internal
Revenue Service (IRS) examinations for fiscal years prior to
fiscal 2001, state or local examinations prior to fiscal 2002,
and foreign income tax examinations before fiscal year 2002. The
Company does not currently have any examinations in process.
|
|
Note 17.
|
Segment and
Enterprise-Wide Disclosures
|
Prior to fiscal 2009, the Company reported three operating
segments: 1) Oregon, 2) San Jose and
3) Asia. This was deemed appropriate as the operations of
San Jose and Asia were managed
F-85
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
individually for a time after the acquisition of the
San Jose subsidiary in fiscal 2005 and the acquisition of
the Asia subsidiary in fiscal 2006. Subsequent to the hiring of
the Companys current Chief Executive Officer at the end of
fiscal 2007 and the hiring of a Vice President of North American
operations at the end of fiscal 2008, the Companys
management team and management reporting was restructured to
focus on managing the businesses in North America and Asia as
two cohesive business units. In the fourth quarter of fiscal
2009, an assessment of segment reporting requirements under
Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, was undertaken. It was determined that the
San Jose subsidiary did not meet the criteria of an
operating segment under SFAS No. 131. As such, fiscal
2008 and fiscal 2007 financial information has been revised to
present operating segment information consistently with the
current year presentation. The following tables reconcile
certain financial information by segment.
Net sales by segment for fiscal 2009, 2008 and 2007 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
$
|
137,149
|
|
|
$
|
203,202
|
|
|
$
|
245,347
|
|
Asia
|
|
|
149,978
|
|
|
|
175,435
|
|
|
|
155,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
287,127
|
|
|
$
|
378,637
|
|
|
$
|
400,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit by segment for fiscal 2009, 2008 and 2007 was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
$
|
4,739
|
|
|
$
|
21,489
|
|
|
$
|
54,037
|
|
Asia
|
|
|
17,447
|
|
|
|
16,370
|
|
|
|
11,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,186
|
|
|
$
|
37,859
|
|
|
$
|
65,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning in fiscal 2009, the Company recorded an allocation of
certain costs attributable to costs of sales in all segments
that were previously charged to the Merix Oregon segment and
included certain engineering costs in costs of sales that were
previously presented as a component of operating expenses. Gross
profit by segment for the fiscal 2008 and fiscal 2007 has been
revised to present comparable results. The impact of these
revisions on gross margin by segment is presented in the tables
below for fiscal 2008 and fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
|
|
|
|
|
|
|
Fiscal
|
|
Engineering
|
|
Effect of
|
|
Fiscal
|
|
|
2008
|
|
Cost
|
|
Global Cost
|
|
2008
|
Fiscal 2008:
|
|
(As Reported)
|
|
Reclassification
|
|
Allocation
|
|
(As Revised)
|
|
Merix North America
|
|
|
12.2
|
%
|
|
|
(2.4
|
)%
|
|
|
0.8
|
%
|
|
|
10.6
|
%
|
Merix Asia
|
|
|
11.3
|
%
|
|
|
(1.1
|
)%
|
|
|
(0.9
|
)%
|
|
|
9.3
|
%
|
Consolidated
|
|
|
11.8
|
%
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
|
|
|
|
|
|
|
Fiscal
|
|
Engineering
|
|
Effect of
|
|
Fiscal
|
|
|
2007
|
|
Cost
|
|
Global Cost
|
|
2007
|
Fiscal 2007:
|
|
(As Reported)
|
|
Reclassification
|
|
Allocation
|
|
(As Revised)
|
|
Merix North America
|
|
|
23.5
|
%
|
|
|
(2.2
|
)%
|
|
|
0.7
|
%
|
|
|
22.0
|
%
|
Merix Asia
|
|
|
9.2
|
%
|
|
|
(0.7
|
)%
|
|
|
(1.1
|
)%
|
|
|
7.4
|
%
|
Consolidated
|
|
|
18.0
|
%
|
|
|
(1.6
|
)%
|
|
|
|
|
|
|
16.4
|
%
|
F-86
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total assets by segment at May 30, 2009 and May 31,
2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
$
|
132,225
|
|
|
$
|
153,075
|
|
Asia
|
|
|
68,445
|
|
|
|
114,366
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,670
|
|
|
$
|
267,441
|
|
|
|
|
|
|
|
|
|
|
Net sales to customers outside the United States totaled 46%,
35% and 37% in fiscal 2009, 2008 and 2007, respectively. There
were no countries outside of the United States to which sales
totaled 10% or more of net sales.
Long-lived assets by geographic location at May 30, 2009
and May 31, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
63,305
|
|
|
$
|
79,172
|
|
Peoples Republic of China (including Hong Kong)
|
|
|
57,083
|
|
|
|
71,244
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,388
|
|
|
$
|
150,416
|
|
|
|
|
|
|
|
|
|
|
Defined
Contribution 401(k) Plans
The Company maintains two defined contribution plans that cover
all regular
U.S.-based
employees, which meet the requirements of Section 401(k) of
the Internal Revenue Code. Prior to January 1, 2009, the
Company provided matching contributions to the defined
contributions under the terms described below. Effective
January 1, 2009, the Company suspended matching
contributions as part of cost containment measures in response
to declining net sales. Reinstatement of the matching
contributions will be considered when economic conditions
improve and the Company achieves sustainable improvements in its
financial performance.
Prior to suspension of the matching contribution, under the
401(k) plan for employees that reside in Oregon, the Company
matches employee contributions of 100% of the first 3% of an
employees base pay and Company contributions vest at a
rate of 25% per year. The Companys contributions may be
made in cash or in the Companys stock. Under the 401(k)
plan for employees that reside in California, the Company
matches employee contributions of 20% of the first 15% of an
employees base pay and Company contributions vest at a
rate of 20% per year after the first year. Contribution expense
for matching contributions paid in cash totaled
$0.7 million, $0.6 million and $0.1 million in
fiscal 2009, 2008 and 2007, respectively. During 2008 and 2007,
contribution expense for matching contributions in the
Companys common stock totaled $0.9 million and
$1.2 million.
Effective September 3, 2008, the two defined contribution
plans were merged. Employees residing in California became
participants in the existing defined contribution plan for the
employees residing in Oregon.
Long Service
Payment Plan
Under statutory requirement, certain Asia employees are entitled
to receive a long service payment if they have been employed
under a continuous contract for a period of not less than five
years. Upon termination of employment, the employee is entitled
to receive either the long service payment, if eligible, or a
severance payment, which are calculated as the lesser of
(1) the employees last full months wages
multiplied by two-thirds multiplied by the employees total
number of service
F-87
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years, or (2) 22,500 Hong Kong dollars (approximately
U.S. $2,900 at May 30, 2009) multiplied by
two-thirds multiplied by the employees total number of
service years. The total cumulative severance and long service
plan payment are subject to a maximum payment not to exceed
390,000 Hong Kong dollars (approximately U.S. $50,300 at
May 30, 2009).
The Companys Long Service Payment Plan accrual, included
as a component of other
long-term
liabilities, at May 30, 2009 and May 31, 2008 was
$25,000 and $32,000, respectively, and was offset by an
unrecognized actuarial gain (loss) of $6,000 and ($6,000),
respectively, which was included as a component of accumulated
other comprehensive income. During fiscal 2009, 2008 and 2007,
net periodic pension expense related to this plan was $8,000,
$43,000 and $97,000, respectively. Detailed information pursuant
to SFAS No. 87, Employers Accounting for
Pensions, and SFAS No. 132 (Revised 2003),
Employers Disclosures about Pensions and Other
Postretirement Benefits, is not provided due to the
immateriality of the defined benefit pension amounts. The
Companys liability under the Long Service Plan was
significantly reduced due to the closure of the Hong Kong
facility during fiscal 2008.
In the second quarter of fiscal 2007, the accrual for the Long
Service Payment Plan was reduced by $1.4 million with a
corresponding reduction to goodwill based on an estimate
prepared by an outside actuary. The Company engaged an outside
actuary to calculate the liability in accordance with
SFAS No. 87, Employers Accounting for
Pensions, and SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R).
|
|
Note 19.
|
Commitments and
Contingencies
|
Litigation
The Company is, from time to time, made subject to various legal
claims, actions and complaints in the ordinary course of its
business. Except as disclosed below, the Company believes that
the outcome of the litigation should not have a material adverse
effect on its consolidated results of operations, financial
condition or liquidity.
Securities
Class Action
Four purported class action complaints were filed against the
Company and certain of its executive officers and directors in
the first quarter of fiscal 2005. The complaints were
consolidated in a single action entitled In re Merix Corporation
Securities Litigation, Lead Case No. CV
04-826-MO,
in the U.S. District Court for the District of Oregon.
After the court granted the Companys motion to dismiss
without prejudice, the plaintiffs filed a second amended
complaint. That complaint alleged that the defendants violated
the federal securities laws by making certain inaccurate and
misleading statements in the prospectus used in connection with
the January 2004 public offering of approximately
$103.4 million of the Companys common stock. In
September 2006, the Court dismissed that complaint with
prejudice. The plaintiffs appealed to the Ninth Circuit Court of
Appeals. In April 2008, the Ninth Circuit reversed the dismissal
of the second amended complaint seeking an unspecified amount of
damages. The Company sought rehearing which was denied and
rehearing en banc was also denied. The Company obtained a stay
of the mandate from the Ninth Circuit and filed a certiorari
petition with the United States Supreme Court on
September 22, 2008. On December 15, 2008, the Supreme
Court denied the certiorari petition and the case was remanded
back to the U.S. District Court for the District of Oregon.
On May 15, 2009, the plaintiffs moved to certify a class of
all investors who purchased in the public offering and who were
damaged thereby. The Court has not yet ruled on that motion. The
case is currently in the discovery phase. A potential loss or
range of loss that could arise from these cases is not estimable
or probable at this time.
F-88
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Breach of
Contract Complaint
In June 2008, a complaint was filed against Merix Caymans
Trading Company Ltd. by Clark Sales, LLC, Case
No. 2:08-CV-12551-MOR-VMM,
in the United States District Court, Eastern District of
Michigan. The complaint alleges breach of contract in relation
to payment of post-termination commissions. The plaintiffs
sought damages in excess of $4 million. The parties reached
a settlement agreement on November 24, 2008 and the Company
recorded an accrual of $0.4 million in the second quarter
of fiscal 2009. The terms of the settlement amount included a
lump sum payment of $0.4 million paid in December 2008, and
monthly payments thereafter based on net sales of certain
products through August 15, 2009, paid in accordance with
the Companys existing commission structure for outside
sales representatives.
Third-Party
Indemnification
In the normal course of business, the Company indemnifies
customers with respect to certain matters. The Company has
agreed, under certain conditions, to hold these third parties
harmless against specified losses, such as those arising from
other third party claims that the Companys products, when
used for their intended purposes, infringe the intellectual
property rights of such other third parties. To date, the
Company has not recorded any material charges related to these
types of indemnifications.
Commitments
As of May 30, 2009, the Company had capital commitments of
approximately $0.7 million, primarily relating to the
purchase of manufacturing equipment. The Company also had
consignment agreements with certain suppliers for raw material
inventory, some of which obligate the Company to purchase
inventory on hand upon termination of the agreement. As of
May 30, 2009, potential commitments under these agreements
were insignificant.
|
|
Note 20.
|
Related Party
Transactions
|
The Company recorded the following amounts for transactions with
Huizhou Desay Holdings Co. Ltd. and its wholly-owned subsidiary,
a minority shareholder of two Asia manufacturing facilities,
during fiscal 2009, 2008 and 2007 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Consulting fees
|
|
$
|
213
|
|
|
$
|
198
|
|
|
$
|
174
|
|
Operating lease rental fees
|
|
|
329
|
|
|
|
305
|
|
|
|
270
|
|
Management fees
|
|
|
146
|
|
|
|
78
|
|
|
|
50
|
|
Capitalized construction costs
|
|
|
325
|
|
|
|
1,597
|
|
|
|
|
|
Other fees
|
|
|
287
|
|
|
|
406
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,300
|
|
|
$
|
2,584
|
|
|
$
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 21.
|
Subsequent
Events
|
On June 26, 2009, the Company entered into a Maximum Amount
Mortgage Agreement that provides for borrowings up to
36 million renminbi (approximately US$5.3 million)
under a credit facility secured by the building and land lease
at the Companys Huiyang manufacturing facility. The
borrowing limit is expected to be increased to 50 million
renminbi (approximately US$7.3 million) within 90 days
upon perfection of the security interest in the building. The
Company also entered into a related Loan Contract on
June 26, 2009 for an initial loan advance under the credit
facility of
F-89
MERIX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
US$1.5 million which matures one year from the date of
drawdown, which is expected to occur in August 2009. In the
event of termination of this credit facility, the Company
intends to refinance any amounts outstanding on this line with
borrowings under the master revolving Credit Facility. As such,
borrowings under this Maximum Amount Mortgage Agreement will be
classified as long-term debt in the Companys consolidated
balance sheet.
|
|
Note 22.
|
Quarterly Data
(Unaudited)
|
Unaudited quarterly financial data for each of the eight fiscal
quarters in the two-year period ended May 30, 2009 was as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
90,627
|
|
|
$
|
76,900
|
|
|
$
|
60,721
|
|
|
$
|
58,879
|
|
Gross profit
|
|
|
10,274
|
|
|
|
6,035
|
|
|
|
876
|
|
|
|
5,001
|
|
Operating income (loss)(1)
|
|
|
16
|
|
|
|
(4,260
|
)
|
|
|
(30,833
|
)
|
|
|
(6,649
|
)
|
Net loss(1)
|
|
|
(2,147
|
)
|
|
|
(6,088
|
)
|
|
|
(32,666
|
)
|
|
|
(8,363
|
)
|
Basic net loss per share
|
|
|
(0.10
|
)
|
|
|
(0.29
|
)
|
|
|
(1.54
|
)
|
|
|
(0.39
|
)
|
Diluted net loss per share
|
|
|
(0.10
|
)
|
|
|
(0.29
|
)
|
|
|
(1.54
|
)
|
|
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
99,430
|
|
|
$
|
97,378
|
|
|
$
|
94,275
|
|
|
$
|
87,544
|
|
Gross profit
|
|
|
11,043
|
|
|
|
9,523
|
|
|
|
7,924
|
|
|
|
9,369
|
|
Operating loss(2)
|
|
|
(1,878
|
)
|
|
|
(3,216
|
)
|
|
|
(17,510
|
)
|
|
|
(301
|
)
|
Net loss(2)
|
|
|
(3,649
|
)
|
|
|
(5,009
|
)
|
|
|
(13,354
|
)
|
|
|
(3,539
|
)
|
Basic net loss per share
|
|
|
(0.17
|
)
|
|
|
(0.24
|
)
|
|
|
(0.63
|
)
|
|
|
(0.17
|
)
|
Diluted net loss per share
|
|
|
(0.17
|
)
|
|
|
(0.24
|
)
|
|
|
(0.63
|
)
|
|
|
(0.17
|
)
|
|
|
|
(1) |
|
Includes $24.9 million of severance, impairment and
restructuring charges in fiscal 2009. See Note 15 for
additional information. |
|
(2) |
|
Includes $15.7 million of severance, impairment and
restructuring charges in fiscal 2008. See Note 15 for
additional information. |
F-90
MERIX
CORPORATION
SCHEDULE II
VALUATION AND
QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
Charged to
|
|
Acquired
|
|
|
|
Balance at
|
|
|
Beginning
|
|
Costs and
|
|
Other
|
|
through
|
|
|
|
End of
|
|
|
of Period
|
|
Expenses
|
|
Accounts(1)
|
|
Acquisitions
|
|
Deductions(2)
|
|
Period
|
|
|
(In thousands)
|
|
For the fiscal year ended May 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales adjustments and doubtful accounts
|
|
$
|
2,252
|
|
|
$
|
1,162
|
|
|
$
|
1,975
|
|
|
$
|
|
|
|
$
|
(3,887
|
)
|
|
$
|
1,502
|
|
Inventory obsolescence reserve
|
|
|
3,719
|
|
|
|
5,311
|
|
|
|
|
|
|
|
|
|
|
|
(5,410
|
)
|
|
|
3,620
|
|
Tax valuation allowance
|
|
|
31,003
|
|
|
|
10,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,386
|
|
For the fiscal year ended May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales adjustments and doubtful accounts
|
|
$
|
3,168
|
|
|
$
|
304
|
|
|
$
|
1,236
|
|
|
$
|
|
|
|
$
|
(2,456
|
)
|
|
$
|
2,252
|
|
Inventory obsolescence reserve
|
|
|
3,379
|
|
|
|
5,658
|
|
|
|
|
|
|
|
|
|
|
|
(5,318
|
)
|
|
|
3,719
|
|
Tax valuation allowance
|
|
|
20,976
|
|
|
|
10,572
|
|
|
|
|
|
|
|
(545
|
)
|
|
|
|
|
|
|
31,003
|
|
For the fiscal year ended May 26, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales adjustments and doubtful accounts
|
|
$
|
2,683
|
|
|
$
|
1,655
|
|
|
$
|
1,442
|
|
|
$
|
|
|
|
$
|
(2,612
|
)
|
|
$
|
3,168
|
|
Inventory obsolescence reserve
|
|
|
2,592
|
|
|
|
3,020
|
|
|
|
|
|
|
|
|
|
|
|
(2,233
|
)
|
|
|
3,379
|
|
Tax valuation allowance
|
|
|
16,518
|
|
|
|
4,580
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
20,976
|
|
|
|
|
(1) |
|
Charged to net sales. |
|
(2) |
|
Charges to the accounts included in this column are for the
purposes for which the reserves were created and include
write-offs, net of recoveries. |
F-91
MERIX CORPORATION
AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,472
|
|
|
$
|
16,141
|
|
Accounts receivable, net of allowances for doubtful accounts of
$1,640 and $1,503
|
|
|
53,523
|
|
|
|
43,290
|
|
Inventories, net
|
|
|
17,203
|
|
|
|
14,593
|
|
Assets held for sale
|
|
|
112
|
|
|
|
3
|
|
Deferred income taxes
|
|
|
265
|
|
|
|
160
|
|
Prepaid and other current assets
|
|
|
9,703
|
|
|
|
5,437
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
91,278
|
|
|
|
79,624
|
|
Property, plant and equipment, net of accumulated depreciation
of $146,729 and $138,482
|
|
|
85,283
|
|
|
|
95,170
|
|
Goodwill
|
|
|
11,392
|
|
|
|
11,392
|
|
Definite-lived intangible assets, net of accumulated
amortization of $11,318 and $10,380
|
|
|
5,890
|
|
|
|
6,828
|
|
Deferred income taxes, net
|
|
|
1,656
|
|
|
|
521
|
|
Assets held for sale
|
|
|
1,146
|
|
|
|
1,146
|
|
Other assets
|
|
|
4,062
|
|
|
|
4,470
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
200,707
|
|
|
$
|
199,151
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
41,866
|
|
|
$
|
33,371
|
|
Accrued liabilities
|
|
|
12,521
|
|
|
|
13,088
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
54,387
|
|
|
|
46,459
|
|
Long-term debt
|
|
|
78,000
|
|
|
|
78,000
|
|
Other long-term liabilities
|
|
|
4,771
|
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
137,158
|
|
|
|
128,833
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 15)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value; 10,000 shares authorized;
none issued
|
|
|
|
|
|
|
|
|
Common stock, no par value; 50,000 shares authorized;
21,880 and 21,781 issued and outstanding
|
|
|
217,953
|
|
|
|
217,112
|
|
Accumulated deficit
|
|
|
(158,583
|
)
|
|
|
(150,813
|
)
|
Accumulated other comprehensive income
|
|
|
39
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Total Merix shareholders controlling interest
|
|
|
59,409
|
|
|
|
66,333
|
|
Noncontrolling interest
|
|
|
4,140
|
|
|
|
3,985
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
63,549
|
|
|
|
70,318
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
200,707
|
|
|
$
|
199,151
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-92
MERIX CORPORATION
AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
71,298
|
|
|
$
|
76,900
|
|
|
$
|
129,095
|
|
|
$
|
167,527
|
|
Cost of sales
|
|
|
62,216
|
|
|
|
70,865
|
|
|
|
116,499
|
|
|
|
151,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,082
|
|
|
|
6,035
|
|
|
|
12,596
|
|
|
|
16,309
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
343
|
|
|
|
697
|
|
|
|
604
|
|
|
|
1,260
|
|
Selling, general and administration
|
|
|
8,865
|
|
|
|
7,989
|
|
|
|
16,831
|
|
|
|
17,691
|
|
Amortization of intangible assets
|
|
|
469
|
|
|
|
520
|
|
|
|
938
|
|
|
|
1,040
|
|
Impairment of fixed assets (Note 17)
|
|
|
|
|
|
|
702
|
|
|
|
642
|
|
|
|
702
|
|
Severance charges and other restructuring costs (Note 17)
|
|
|
|
|
|
|
387
|
|
|
|
314
|
|
|
|
(140
|
)
|
Total operating expenses
|
|
|
9,677
|
|
|
|
10,295
|
|
|
|
19,329
|
|
|
|
20,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(595
|
)
|
|
|
(4,260
|
)
|
|
|
(6,733
|
)
|
|
|
(4,244
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5
|
|
|
|
45
|
|
|
|
11
|
|
|
|
96
|
|
Interest expense
|
|
|
(1,020
|
)
|
|
|
(984
|
)
|
|
|
(2,061
|
)
|
|
|
(1,860
|
)
|
Other income (expense), net
|
|
|
1,491
|
|
|
|
(90
|
)
|
|
|
1,438
|
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
476
|
|
|
|
(1,029
|
)
|
|
|
(612
|
)
|
|
|
(2,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority interests
|
|
|
(119
|
)
|
|
|
(5,289
|
)
|
|
|
(7,345
|
)
|
|
|
(6,462
|
)
|
Provision for (benefit from) income taxes
|
|
|
(1,014
|
)
|
|
|
693
|
|
|
|
(105
|
)
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
895
|
|
|
|
(5,982
|
)
|
|
|
(7,240
|
)
|
|
|
(7,883
|
)
|
Net income attributable to noncontrolling interest
|
|
|
431
|
|
|
|
106
|
|
|
|
530
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interest
|
|
$
|
464
|
|
|
$
|
(6,088
|
)
|
|
$
|
(7,770
|
)
|
|
$
|
(8,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share attributable to Merix
common shareholders
|
|
$
|
0.02
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares basic
|
|
|
21,628
|
|
|
|
20,945
|
|
|
|
21,621
|
|
|
|
20,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares diluted
|
|
|
22,296
|
|
|
|
20,945
|
|
|
|
21,621
|
|
|
|
20,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
controlling
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Income
|
|
|
Shareholders
|
|
|
|
Interest
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance at May 31, 2008
|
|
$
|
4,573
|
|
|
|
21,073
|
|
|
$
|
215,085
|
|
|
$
|
(101,358
|
)
|
|
$
|
47
|
|
|
$
|
118,347
|
|
Dividend declared for distribution to non-controlling interest
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297
|
)
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to employees
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock under employee stock purchase plan
|
|
|
|
|
|
|
147
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
566
|
|
Shares repurchased, surrendered or cancelled
|
|
|
|
|
|
|
(8
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
(2,147
|
)
|
|
|
|
|
|
|
(1,901
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 30, 2008
|
|
$
|
4,522
|
|
|
|
21,238
|
|
|
$
|
215,895
|
|
|
$
|
(103,505
|
)
|
|
$
|
45
|
|
|
$
|
116,957
|
|
Dividend declared for distribution to non-controlling interest
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(934
|
)
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
406
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
(6,088
|
)
|
|
|
|
|
|
|
(5,982
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 29, 2008
|
|
$
|
3,694
|
|
|
|
21,238
|
|
|
$
|
216,301
|
|
|
$
|
(109,593
|
)
|
|
$
|
31
|
|
|
$
|
110,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss six months ended
November 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,883
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 30, 2009
|
|
$
|
3,935
|
|
|
|
21,781
|
|
|
$
|
217,112
|
|
|
$
|
(150,622
|
)
|
|
$
|
33
|
|
|
$
|
70,458
|
|
Elimination of one-month reporting lag for Asia subsidiary
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
1
|
|
|
|
(140
|
)
|
Dividend declared for distribution to non-controlling interest
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(375
|
)
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to employees
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
475
|
|
Shares repurchased, surrendered or cancelled
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
F-94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
controlling
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Income
|
|
|
Shareholders
|
|
|
|
Interest
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
(8,234
|
)
|
|
|
|
|
|
|
(8,135
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 29, 2009
|
|
$
|
3,709
|
|
|
|
21,881
|
|
|
$
|
217,579
|
|
|
$
|
(159,047
|
)
|
|
$
|
33
|
|
|
$
|
62,274
|
|
Dividend declared for distribution to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
Shares repurchased, surrendered or cancelled
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
464
|
|
|
|
|
|
|
|
895
|
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 28, 2009
|
|
$
|
4,140
|
|
|
|
21,880
|
|
|
$
|
217,953
|
|
|
$
|
(158,583
|
)
|
|
$
|
39
|
|
|
$
|
63,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss six months ended
November 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,240
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-95
MERIX CORPORATION
AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,240
|
)
|
|
$
|
(7,883
|
)
|
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,353
|
|
|
|
11,125
|
|
Share-based compensation expense
|
|
|
850
|
|
|
|
973
|
|
Impairment of fixed assets
|
|
|
642
|
|
|
|
702
|
|
Gain on disposition of assets
|
|
|
(25
|
)
|
|
|
(628
|
)
|
VAT penalty accrual reversal
|
|
|
(1,522
|
)
|
|
|
|
|
Alternative minimum tax refund receivable
|
|
|
(580
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
(1,240
|
)
|
|
|
13
|
|
Changes in operating accounts:
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable, net
|
|
|
(10,345
|
)
|
|
|
7,471
|
|
(Increase) decrease in inventories, net
|
|
|
(2,610
|
)
|
|
|
1,222
|
|
(Increase) decrease in other assets
|
|
|
(3,630
|
)
|
|
|
1,724
|
|
Increase (decrease) in accounts payable
|
|
|
8,724
|
|
|
|
(1,498
|
)
|
Increase (decrease) in other accrued liabilities
|
|
|
1,380
|
|
|
|
(1,652
|
)
|
Increase (decrease) in due to affiliate, net
|
|
|
|
|
|
|
1,519
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(4,243
|
)
|
|
|
13,088
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(1,069
|
)
|
|
|
(14,844
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
28
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,041
|
)
|
|
|
(14,245
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Borrowing on revolving line of credit
|
|
|
5,000
|
|
|
|
28,983
|
|
Borrowing on long-term notes payable
|
|
|
5,200
|
|
|
|
|
|
Principal payments on revolving line of credit
|
|
|
(10,200
|
)
|
|
|
(22,000
|
)
|
Proceeds from exercise of stock options and stock plan
transactions
|
|
|
|
|
|
|
263
|
|
Reacquisition of common stock
|
|
|
(10
|
)
|
|
|
(18
|
)
|
Dividend distribution to non-controlling interest
|
|
|
(375
|
)
|
|
|
(296
|
)
|
Other financing activities
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(385
|
)
|
|
|
6,912
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(5,669
|
)
|
|
|
5,755
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
16,141
|
|
|
|
5,728
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
10,472
|
|
|
$
|
11,483
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net
|
|
$
|
1,580
|
|
|
$
|
1,664
|
|
Cash paid for interest
|
|
|
738
|
|
|
|
976
|
|
See accompanying Notes to Consolidated Financial Statements.
F-96
MERIX CORPORATION
AND SUBSIDIARIES
(Unaudited)
|
|
NOTE 1.
|
NATURE OF
BUSINESS
|
Merix Corporation, an Oregon corporation, was formed in March
1994. Merix is a leading global manufacturing service provider
for technologically advanced printed circuit boards (PCBs) for
original equipment manufacturer (OEM) customers and their
electronic manufacturing service (EMS) providers. The
Companys principal products are complex multi-layer rigid
PCBs, which are the platforms used to interconnect
microprocessors, integrated circuits and other components that
are essential to the operation of electronic products and
systems. The market segments the Company serves are primarily in
commercial equipment for the communications and networking,
computing and peripherals, industrial and medical, defense and
aerospace and automotive markets. The Companys markets are
generally characterized by rapid technological change, high
levels of complexity and short product life-cycles, as new and
technologically superior electronic equipment is continually
being developed.
|
|
NOTE 2.
|
BASIS OF
PRESENTATION AND CONSOLIDATION
|
The accompanying consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and note
disclosures normally included in the Annual Report on
Form 10-K
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those
rules or regulations. The interim consolidated financial
statements are unaudited; however, they reflect all normal
recurring adjustments and non-recurring adjustments that are, in
the opinion of management, necessary for a fair presentation.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and the
notes thereto included in the Companys 2009 Annual Report
on
Form 10-K.
Results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the
full year.
The Companys fiscal year consists of a 52 or 53 week
period that ends on the last Saturday in May. Fiscal 2010 is a
52-week fiscal year ending on May 29, 2010. The second
quarters of fiscal 2010 and fiscal 2009 included 13 weeks
each and ended November 28, 2009 and November 29,
2008, respectively. The six month periods ended
November 28, 2009 and November 29, 2008 each included
26 weeks.
The consolidated financial statements include the accounts of
Merix Corporation and its wholly-owned and majority-owned
subsidiaries. Beginning in the first quarter of fiscal 2010, all
intercompany accounts, transactions and profits have been
eliminated in consolidation. Prior to May 30, 2009 certain
intercompany amounts related to Merix Asia could not be
eliminated, as discussed in Note 5.
The functional currency for all subsidiaries is the
U.S. dollar. Foreign exchange losses totaled
$0.1 million for both the fiscal quarter ended
November 28, 2009 and the fiscal quarter ended
November 29, 2008 and are included in net other expense in
the consolidated statements of operations. Foreign exchange
losses for the six months ended November 28, 2009 and
November 29, 2008 totaled $0.1 million and
$0.4 million, respectively.
Events subsequent to November 28, 2009 were evaluated
through January 4, 2010, the date on which the financial
statements were issued.
On October 6, 2009, the Company announced that it entered
into a merger agreement to be acquired by Viasystems Group, Inc.
(Viasystems), a leading worldwide provider of complex
multi-layer printed circuit boards and electro-mechanical
solutions. Under the terms of the merger agreement, Viasystems
will acquire all of the outstanding common stock of Merix
Corporation.
F-97
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Approximately 98 percent of the holders of Merix
$70 million 4% Convertible Senior Subordinated Notes
due 2013 have agreed to enter into an exchange agreement by
which their notes will be exchanged for approximately
1.4 million newly issued Viasystems shares plus a total
cash payment of approximately $35 million.
Following completion of the merger transaction and noteholder
exchange agreements, and an approximate
9-for-1
reverse stock split, Viasystems will have approximately
20 million shares outstanding which will be publicly traded
on the NASDAQ exchange. Existing Merix shareholders will own
approximately 2.5 million shares or approximately 12.5% of
the shares outstanding, Merix noteholders will own approximately
1.4 million shares or 7.0% of the shares outstanding, and
existing Viasystems shareholders will own approximately
16.1 million shares or 80.5% of the shares outstanding.
The Companys Board of Directors has unanimously approved
the merger and the related plan of merger, which must also be
approved by a majority of the Companys shareholders
entitled to vote thereon and is expected to be completed in
February 2010.
|
|
NOTE 4.
|
FAIR VALUE OF
FINANCIAL ASSETS AND LIABILITIES
|
We estimate the fair value of our monetary assets and
liabilities based upon comparison of such assets and liabilities
to the current market values for instruments of a similar nature
and degree of risk. Our monetary assets and liabilities include
cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities and long-term debt. Due to their
short-term nature, we estimated that the recorded value of our
monetary assets and liabilities, except long-term debt as
disclosed below, approximated fair value as of November 28,
2009 and May 30, 2009.
The fair market value of long-term fixed interest rate debt is
subject to interest rate risk. Generally, the fair market value
of fixed interest rate debt will increase as interest rates fall
and decrease as interest rates rise; however, the quoted market
price for the Companys debt is currently reflecting a
significant risk premium. The Companys debt trades
infrequently in the open market and as such, the quoted market
price is considered a Level II input in the assessment of
fair value. At November 28, 2009 and May 30, 2009,
respectively, the book value of our fixed rate debt and the fair
value, based on open market trades proximate to the fair value
measurement date, was as follows:
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Book value of fixed rate debt
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
Fair value of fixed rate debt
|
|
$
|
40,885
|
|
|
$
|
28,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5.
|
ELIMINATION OF
ONE MONTH REPORTING LAG FOR MERIX ASIA
|
The Company implemented an enterprise resource planning (ERP)
system during the first quarter of fiscal 2009 for Merix Asia.
Prior to that implementation, the Companys financial
reporting systems at Merix Asia were predominantly manual in
nature, and required significant time to process and review the
transactions in order to assure the financial information was
properly stated. Additionally, Merix Asia performs a complex
regional financial consolidation of its subsidiaries prior to
the Companys final consolidation. The time required to
complete Merix Asias consolidation, record intercompany
transactions and properly report any adjustments, intervening
and/or
subsequent events required the use of a one-month lag in
consolidating the financial statements for Merix Asia with Merix
Corporation through the end of fiscal 2009. Intercompany
balances resulting from transactions with Merix Asia during the
one-month lag period were netted and presented as a current
asset or liability on the consolidated balance sheet.
F-98
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As a result of the implementation of the new ERP system for
Merix Asia and the related streamlining of business processes
the Company has been able to eliminate the one-month reporting
lag for Merix Asia as of the commencement of the first quarter
of fiscal 2010.
The elimination of the one-month reporting lag resulted in an
increase to accumulated deficit as of May 30, 2009 of
$0.2 million, representing the operating results for Merix
Asia for the four weeks ended May 30, 2009 as presented
below:
|
|
|
|
|
Net Sales
|
|
$
|
8,182
|
|
Cost of Sales
|
|
|
7,389
|
|
|
|
|
|
|
Gross Profit
|
|
|
793
|
|
Gross margin
|
|
|
9.7
|
%
|
Engineering expense
|
|
|
56
|
|
Selling, general and administration
|
|
|
510
|
|
Amortization of intangible assets
|
|
|
56
|
|
Severance, asset impairment and restructuring charges
|
|
|
197
|
|
|
|
|
|
|
Loss from operations
|
|
|
(26
|
)
|
Other expense, net
|
|
|
16
|
|
Provision for income taxes
|
|
|
99
|
|
|
|
|
|
|
Net loss
|
|
|
(141
|
)
|
Net income attributable to noncontrolling interest
|
|
|
50
|
|
|
|
|
|
|
Net increase to accumulated deficit
|
|
$
|
(191
|
)
|
|
|
|
|
|
F-99
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The amounts presented on the consolidated balance sheet as of
May 30, 2009 have been revised from those previously
reported in the Annual Report on
Form 10-K
to reflect the consolidation of Merix Asia after the elimination
of the one-month reporting lag as shown below:
|
|
|
|
|
|
|
|
|
|
|
May 30,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(As Reported)
|
|
|
(As Revised)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
17,571
|
|
|
$
|
16,141
|
|
Accounts receivable, net
|
|
|
43,285
|
|
|
|
43,290
|
|
Inventories, net
|
|
|
14,367
|
|
|
|
14,593
|
|
Other current assets
|
|
|
5,059
|
|
|
|
5,600
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
80,282
|
|
|
|
79,624
|
|
Property, plant and equipment, net
|
|
|
95,883
|
|
|
|
95,170
|
|
Other assets
|
|
|
24,505
|
|
|
|
24,357
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
200,670
|
|
|
$
|
199,151
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
33,263
|
|
|
$
|
33,371
|
|
Accrued liabilities
|
|
|
14,715
|
|
|
|
13,088
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,978
|
|
|
|
46,459
|
|
Long-term debt
|
|
|
78,000
|
|
|
|
78,000
|
|
Other long-term liabilities
|
|
|
4,234
|
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
130,212
|
|
|
|
128,833
|
|
Noncontrolling interest
|
|
|
3,935
|
|
|
|
3,985
|
|
Common stock
|
|
|
217,112
|
|
|
|
217,112
|
|
Accumulated other comprehensive income
|
|
|
33
|
|
|
|
34
|
|
Accumulated deficit
|
|
|
(150,622
|
)
|
|
|
(150,813
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
70,458
|
|
|
|
70,318
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
200,670
|
|
|
$
|
199,151
|
|
|
|
|
|
|
|
|
|
|
Prior period consolidated results of operations and cash flows
have not been restated to conform with the new Merix Asia fiscal
reporting period since the results, as previously presented, are
considered comparable to the current year consolidated financial
statements in all material respects.
Inventories are valued at the lower of cost or market and
include materials, labor and manufacturing overhead. Inventory
cost is determined by standard cost, which approximates the
first-in,
first-out (FIFO) basis.
Provisions for inventories are made to reduce excess inventories
to their estimated net realizable values, as necessary. A change
in customer demand for inventory is the primary indicator for
reductions in inventory carrying values. The Company records
provisions for excess inventories based on historical
experiences with customers, the ability to utilize inventory in
other programs, the ability to redistribute inventory back to
the suppliers and current and forecasted demand for the
inventory. The
F-100
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
increase (decrease) to inventory valuation reserves was
($0.1 million) and $0.6 million, respectively for the
second quarters of fiscal 2010 and 2009, and ($0.4 million)
and ($0.2 million), respectively during the fiscal
year-to-date
periods ended November 28, 2009 and November 29, 2008.
As of November 28, 2009 and May 30, 2009, inventory
reserves totaled $3.2 million and $3.6 million,
respectively.
The Company maintains inventories on a consignment basis at
global customer locations. Consignment inventory is recorded as
inventory until the product is pulled from the consignment
inventories by the customer and all risks and rewards of
ownership of the consignment inventory have been transferred to
the customer.
Abnormal amounts of idle facility expense, freight, handling
costs and wasted material (spoilage) are recognized as
current-period charges and the allocation of fixed production
overheads to the costs of conversion is based on the normal
capacity of the production facilities. The Company is required
to estimate the amount of idle capacity and expense amounts in
the current period. During the first quarter of fiscal 2010, the
Company expensed $0.1 million related to abnormally low
production volumes as a component of cost of sales. There were
no amounts expensed related to abnormally low production volumes
and related excess capacity in the second quarter of fiscal
2010, or the first six months of fiscal 2009.
Inventories, net of related reserves, consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
3,394
|
|
|
$
|
2,910
|
|
Work-in-process
|
|
|
5,913
|
|
|
|
3,967
|
|
Finished goods
|
|
|
3,454
|
|
|
|
3,930
|
|
Consignment finished goods
|
|
|
4,442
|
|
|
|
3,786
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
17,203
|
|
|
$
|
14,593
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7.
|
PREPAID AND OTHER
CURRENT ASSETS
|
Prepaid expenses and other current assets consisted of the
following at November 28, 2009 and May 30, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Prepaid expenses
|
|
$
|
1,266
|
|
|
$
|
1,578
|
|
Income taxes receivable
|
|
|
658
|
|
|
|
328
|
|
Value-added tax receivable
|
|
|
5,317
|
|
|
|
2,009
|
|
Other assets
|
|
|
2,462
|
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,703
|
|
|
$
|
5,437
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8.
|
DEFINITE-LIVED
INTANGIBLE ASSETS
|
At November 28, 2009 and May 30, 2009, the
Companys definite-lived intangible assets included
customer relationships and a manufacturing sales representative
network. The gross amount
F-101
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of the Companys definite-lived intangible assets and the
related accumulated amortization were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
Period
|
|
|
2009
|
|
|
2009
|
|
|
Customer relationships
|
|
|
6.5-10 years
|
|
|
$
|
17,168
|
|
|
$
|
17,168
|
|
Manufacturing sales representatives network
|
|
|
5.5 years
|
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,208
|
|
|
|
17,208
|
|
Accumulated amortization
|
|
|
|
|
|
|
(11,318
|
)
|
|
|
(10,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,890
|
|
|
$
|
6,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
Customer relationships
|
|
$
|
934
|
|
|
$
|
1,036
|
|
Manufacturing sales representatives network
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
938
|
|
|
$
|
1,040
|
|
|
|
|
|
|
|
|
|
|
Amortization expense is scheduled as follows (in thousands):
|
|
|
|
|
Remainder of fiscal 2010
|
|
$
|
828
|
|
2011
|
|
|
1,552
|
|
2012
|
|
|
1,120
|
|
2013
|
|
|
727
|
|
2014
|
|
|
727
|
|
Thereafter
|
|
|
936
|
|
|
|
|
|
|
|
|
$
|
5,890
|
|
|
|
|
|
|
Other assets consisted of the following at November 28,
2009 and May 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Leasehold land use rights, net
|
|
$
|
1,183
|
|
|
$
|
1,197
|
|
Deferred financing costs, net
|
|
|
2,629
|
|
|
|
3,022
|
|
Other assets
|
|
|
250
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,062
|
|
|
$
|
4,470
|
|
|
|
|
|
|
|
|
|
|
F-102
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
NOTE 10.
|
ACCRUED
LIABILITIES
|
Accrued liabilities consisted of the following at
November 28, 2009 and May 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Accrued compensation
|
|
$
|
7,570
|
|
|
$
|
6,602
|
|
Accrued warranty (Note 11)
|
|
|
879
|
|
|
|
986
|
|
Income taxes payable
|
|
|
848
|
|
|
|
321
|
|
Contingent customs penalty accrual
|
|
|
|
|
|
|
1,522
|
|
Other liabilities
|
|
|
3,224
|
|
|
|
3,657
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,521
|
|
|
$
|
13,088
|
|
|
|
|
|
|
|
|
|
|
From September 2005 through October 2006, the Company recorded
$1.5 million of contingent liability for potential customs
penalties related to subcontract manufacturing. In the second
quarter of fiscal 2010, due primarily to the passage of time,
the Company determined that it was not probable that such a
penalty would be assessed and, accordingly, have reversed the
$1.5 million accrual. The credit is recorded as a component
of net other non-operating income on the consolidated statement
of operations.
|
|
NOTE 11.
|
ACCRUED
WARRANTY
|
The Company generally warrants its products for a period of up
to twelve months from the point of sale. The Company records a
liability for the estimated cost of the warranty upon transfer
of ownership of the products to the customer. Using historical
data, the Company estimates warranty costs and records the
provision for such charges as an element of cost of sales upon
the recognition of the related revenue. The Company also accrues
warranty liability for certain specifically-identified items
that are not covered by its assessment of historical experience.
Warranty activity was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of period
|
|
$
|
701
|
|
|
$
|
2,320
|
|
|
$
|
986
|
|
|
$
|
2,147
|
|
Provision for warranty charges
|
|
|
913
|
|
|
|
828
|
|
|
|
1,371
|
|
|
|
1,509
|
|
Warranty charges incurred
|
|
|
(735
|
)
|
|
|
(1,078
|
)
|
|
|
(1,478
|
)
|
|
|
(1,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
879
|
|
|
$
|
2,070
|
|
|
$
|
879
|
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-103
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
NOTE 12.
|
EARNINGS PER
SHARE AND ANTIDILUTIVE SHARES
|
For the fiscal quarters and six-month periods ended
November 28, 2009 and November 29, 2008, the following
potentially dilutive shares were excluded from the calculation
of diluted EPS because their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common
|
|
|
|
|
|
|
|
|
|
|
|
|
shares excluded from
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted EPS since
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
their effect would be
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
antidilutive:
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Stock options
|
|
|
1,821
|
|
|
|
3,371
|
|
|
|
1,953
|
|
|
|
3,310
|
|
Restricted stock awards
|
|
|
|
|
|
|
293
|
|
|
|
252
|
|
|
|
293
|
|
Convertible notes
|
|
|
4,608
|
|
|
|
4,608
|
|
|
|
4,608
|
|
|
|
4,608
|
|
|
|
NOTE 13.
|
SEGMENT
INFORMATION
|
The Company has two reportable business segments defined by
geographic location: North America and Asia. Operating segments
are defined as components of an enterprise for which separate
financial information is available and regularly reviewed by
senior management. The Companys operating segments are
evidence of the internal structure of its organization. Each
segment operates in the same industry with production facilities
that produce similar customized products for its customers. The
production facilities, sales management and chief
decision-makers for all processes are managed by the same
executive team. The Companys chief operating decision
maker is its Chief Executive Officer. Segment disclosures are
presented to the gross profit level as this is the primary
performance measure for which the segment managers are
responsible. No other operating results information is provided
to the chief operating decision maker for review at the segment
level. The following tables reconcile certain financial
information by segment.
Net sales by segment were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
$
|
32,735
|
|
|
$
|
36,151
|
|
|
$
|
59,032
|
|
|
$
|
81,068
|
|
Asia
|
|
|
38,563
|
|
|
|
40,749
|
|
|
|
70,063
|
|
|
|
86,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,298
|
|
|
$
|
76,900
|
|
|
$
|
129,095
|
|
|
$
|
167,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit by segment was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
$
|
3,324
|
|
|
$
|
1,484
|
|
|
$
|
2,553
|
|
|
$
|
6,648
|
|
Asia
|
|
|
5,758
|
|
|
|
4,551
|
|
|
|
10,043
|
|
|
|
9,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,082
|
|
|
$
|
6,035
|
|
|
$
|
12,596
|
|
|
$
|
16,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-104
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Total assets by segment were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 28,
|
|
|
May 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
North America
|
|
$
|
131,078
|
|
|
$
|
131,535
|
|
Asia
|
|
|
69,629
|
|
|
|
67,616
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,707
|
|
|
$
|
199,151
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 14.
|
SIGNIFICANT
CUSTOMERS
|
There were no customers individually accounting for 10% or more
of the Companys net sales in the second quarter of fiscal
2010 and the six months ended November 28, 2009. One
customer accounted for 10% and 13%, respectively, of the
Companys net sales in the second quarter of fiscal 2009
and the six months ended November 29, 2008.
At November 28, 2009, five entities represented
approximately 44% of the Companys net accounts receivable
balance, individually ranging from approximately 5% to
approximately 18%. The Company has not experienced significant
losses related to its accounts receivable in the past.
|
|
NOTE 15.
|
COMMITMENTS AND
CONTINGENCIES
|
Litigation
The Company is, from time to time, made subject to various legal
claims, actions and complaints in the ordinary course of its
business. Except as disclosed below, management believes that
the outcome of litigation should not have a material adverse
effect on its consolidated results of operations, financial
condition or liquidity.
Securities
Class Action Complaints
Four purported class action complaints were filed against the
Company and certain of its executive officers and directors on
June 17, 2004, June 24, 2004 and July 9, 2004.
The complaints were consolidated in a single action entitled
In re Merix Corporation Securities Litigation , Lead Case
No. CV
04-826-MO,
in the U.S. District Court for the District of Oregon.
After the court granted the Companys motion to dismiss
without prejudice, the plaintiffs filed a second amended
complaint. That complaint alleged that the defendants violated
the federal securities laws by making certain inaccurate and
misleading statements in the prospectus used in connection with
the January 2004 public offering of approximately
$103.4 million of the Companys common stock. In
September 2006, the Court dismissed that complaint with
prejudice. The plaintiffs appealed to the Ninth Circuit Court of
Appeals. In April 2008, the Ninth Circuit reversed the dismissal
of the second amended complaint seeking an unspecified amount of
damages. The Company sought rehearing which was denied and
rehearing en banc was also denied. The Company obtained a stay
of the mandate from the Ninth Circuit and filed a certiorari
petition with the United States Supreme Court on
September 22, 2008. On December 15, 2008, the Supreme
Court denied the certiorari petition and the case was remanded
back to the U.S. District Court for the District of Oregon.
On May 15, 2009, the plaintiffs moved to certify a class of
all investors who purchased in the public offering and who were
damaged thereby. On November 5, 2009, the court partially
granted the certification motion and certified a class
consisting of all persons and entities who purchased or
otherwise acquired the Companys common stock from an
underwriter directly pursuant to the Companys
January 29, 2004 offering, who held the stock through
May 13, 2004, and who were damaged thereby. The case is
currently in the discovery phase. The plaintiffs seek
unspecified damages. A potential loss or range of loss that
could arise from these cases is not estimable or probable at
this time.
F-105
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company, its board of directors and Viasystems are named as
defendants in two putative class action lawsuits brought by
alleged Merix shareholders challenging the Companys
proposed merger with Viasystems. The shareholder actions were
both filed in the Circuit Court of the State of Oregon, County
of Multnomah. The actions are called Asbestos Workers
Philadelphia Pension Fund v. Merix Corporation, et al.,
filed October 13, 2009, Case
No. 0910-14399
and W. Donald Wybert v. Merix Corporation, et al.,
filed on or about November 5, 2009, Case
No. 0911-15521.
Both shareholder actions generally allege, among other things,
that each member of the Companys board of directors
breached fiduciary duties to the Company and its shareholders by
authorizing the sale of Merix to Viasystems for consideration
that does not maximize value to shareholders. The complaints
also allege that Viasystems and the Company aided and abetted
the breaches of fiduciary duty allegedly committed by the
members of the Companys board of directors. The
shareholder actions seek equitable relief, including to enjoin
the defendants from consummating the merger on the
agreed-upon
terms. On November 23, 2009, the court entered an order
consolidating the cases into one matter. On or about
December 2, 2009, the plaintiffs filed a Consolidated
Amended Class Action Complaint, which substantially repeats
the allegations of the original complaints, adds Maple
Acquisition Corp., the Viasystems subsidiary formed for the
merger, as a defendant and also alleges that Merix did not make
sufficient disclosures regarding the merger.
Commitments
As of November 28, 2009, the Company had capital
commitments of approximately $1.3 million, primarily
relating to the purchase of machinery and equipment.
|
|
NOTE 16.
|
RELATED PARTY
TRANSACTIONS
|
The Company paid the following amounts to Huizhou Desay Holdings
Co. Ltd. and its wholly-owned subsidiary, a minority shareholder
of two Merix Asia manufacturing facilities, during the periods
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Consulting fees
|
|
$
|
53
|
|
|
$
|
53
|
|
|
$
|
106
|
|
|
$
|
145
|
|
Operating lease rental fees
|
|
|
83
|
|
|
|
81
|
|
|
|
164
|
|
|
|
224
|
|
Management fees
|
|
|
36
|
|
|
|
39
|
|
|
|
72
|
|
|
|
55
|
|
Capitalized construction costs for factory expansion
|
|
|
|
|
|
|
247
|
|
|
|
|
|
|
|
1,406
|
|
Other fees
|
|
|
77
|
|
|
|
84
|
|
|
|
143
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
249
|
|
|
$
|
504
|
|
|
$
|
485
|
|
|
$
|
2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-106
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
NOTE 17.
|
SEVERANCE, ASSET
IMPAIRMENT AND RESTRUCTURING CHARGES
|
Total severance, asset impairment and restructuring charges were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
November 28,
|
|
|
November 29,
|
|
|
November 28,
|
|
|
November 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Severance charges Asia
|
|
$
|
|
|
|
$
|
81
|
|
|
$
|
95
|
|
|
$
|
121
|
|
Gain on sale of Merix Asia equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(567
|
)
|
Other restructuring Asia
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
Severance charges North America
|
|
|
|
|
|
|
306
|
|
|
|
150
|
|
|
|
306
|
|
Asset impairment North America
|
|
|
|
|
|
|
702
|
|
|
|
642
|
|
|
|
702
|
|
Legal and other restructuring charges
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1,089
|
|
|
$
|
956
|
|
|
$
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first six months of fiscal 2010, the Company recorded
$0.1 million in restructuring costs related to the
relocation of our Asia administrative offices from Hong Kong to
the PRC, comprised of severance and relocation freight costs.
The Company also recorded $0.2 million in other severance
charges during the first six months of fiscal 2010 due to minor
reductions-in-force
in North America in order to mitigate costs in response to
softness in demand for its products.
The Company determined in the first quarter of fiscal 2010 that
certain manufacturing equipment at its Forest Grove facility
with a net book value of $0.6 million would be
decommissioned. An impairment charge was recorded to write off
the net book value of this equipment.
To reduce expenditures in response to lower demand for our
products as a result of deteriorating macroeconomic conditions
in the second quarter of fiscal 2009, the Company completed a
modest reduction in headcount to reduce administrative overhead
costs, primarily in the North America segment, with a small
impact in the Asia segment. The headcount reductions were
completed in October 2008 and the Company incurred and paid
approximately $0.4 million in severance and related charges
during the second quarter of fiscal 2009.
In the second quarter of fiscal 2009, the Company implemented a
plan to dispose of certain surplus plant assets to streamline
the utilization of equipment in its Oregon factory and recorded
an impairment charge of $0.7 million on the assets, which
were sold in the third quarter of fiscal 2009.
In the first quarter of fiscal 2009, the Company recorded a gain
of approximately $0.6 million related to the sale of
equipment previously used at our Hong Kong manufacturing
facility, which was closed in the fourth quarter of fiscal 2008.
A roll-forward of the Companys severance accrual for the
first two quarters of fiscal 2010 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Charged to
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Expenditures
|
|
|
Balance
|
|
|
First quarter
|
|
$
|
435
|
|
|
$
|
245
|
|
|
$
|
(572
|
)
|
|
$
|
108
|
|
Second quarter
|
|
|
108
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
F-107
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
NOTE 18.
|
NEW ACCOUNTING
PRONOUNCEMENTS
|
Recently
Adopted Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141(R), Business Combinations, which
replaces SFAS No. 141, Business Combinations
. SFAS No. 141(R) establishes principles
and requirements for how an acquiring company
(1) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, (2) recognizes and
measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and (3) determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) is effective for
business combinations occurring on or after December 15,
2008, and applies to all transactions or other events in which
the Company obtains control in one or more businesses. The
adoption of SFAS No. 141(R) did not have a material
impact on the Companys consolidated financial position or
results of operations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51,
which requires the ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled,
and presented in the consolidated statement of financial
position within equity, but separate from the parents
equity. It also requires the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be
clearly identified and presented on the face of the consolidated
statement of income. SFAS No. 160 is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, and early adoption
is prohibited. SFAS No. 160 shall be applied
prospectively as of the beginning of the fiscal year in which it
is initially applied, except for the presentation and disclosure
requirements. The impact of adopting SFAS No. 160 did
not have a material impact on the Companys consolidated
financial position or results of operations. The adoption of
SFAS No. 160 did result in a reclassification of
minority interest into total consolidated equity thereby
increasing total equity by $4.0 million at May 30,
2009.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, which requires certain disclosures related to
derivative instruments. SFAS No. 161 is effective
prospectively for interim periods and fiscal years beginning
after November 15, 2008. The Company currently has no
derivative instruments and does not currently engage in hedging
activity and as such, the adoption of SFA No. 161 did not
have a significant impact on its consolidated financial position
and results of operations.
In April 2008, the FASB issued Staff Position
No. FAS 142-3
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of this Staff Position is to improve
the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset
under SFAS No. 141(R), Business
Combinations, and other U.S. generally accepted
accounting principles.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. The adoption of
FSP 142-3
did not have a significant impact on the Companys
consolidated financial position or results of operations.
In May 2008, the FASB issued Staff Position No. APB
14-1
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB
14-1). FSP
APB 14-1
clarifies that convertible debt instruments that may be settled
in cash upon
F-108
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
conversion (including partial cash settlement) are not addressed
by paragraph 12 of APB Opinion No. 14,
Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants. Additionally, FSP APB
14-1
specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that
will reflect the entitys nonconvertible debt borrowing
rate when interest cost is recognized in subsequent periods. FSP
APB 14-1 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. The Company currently has no
convertible debt instruments that may be settled in cash upon
conversion and, as such, the adoption did not have a significant
impact on its consolidated financial position and results of
operations.
In April 2009, the FASB issued Staff Position
No. FAS 107-1
and APB 28-1
Interim Disclosures About Fair Value of Financial
Instruments (FSP
FAS 107-1
& APB
28-1) which
requires disclosure about the method and significant assumptions
used to establish the fair value of financial instruments for
interim reporting periods as well as annual reporting periods.
FSP
FAS 107-1
& APB
28-1 is
effective for interim reporting periods ending after
June 15, 2009 and the adoption of this FSP did not have a
material impact on the Companys consolidated financial
position and results of operations.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events. SFAS No. 165
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
Specifically, the standard requires disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date, which will alert users of the financial
statements that the Company has not evaluated subsequent events
occurring after that date. SFAS No. 165 is effective
for interim or annual reporting periods ending after
June 15, 2009 and the adoption of SFAS No. 165
did not have a material impact on the Companys
consolidated financial position and results of operations.
Note 1 to the consolidated financial statements includes a
disclosure of the date through which subsequent events have been
evaluated.
Accounting Standards Update (ASU)
2009-05,
Measuring Liabilities at Fair Value was issued by the
FASB in August 2009 and is applicable to interim and annual
fiscal periods beginning after August 28, 2009. This ASU
provides guidance on measuring the fair value of liabilities
under FASB Accounting Standards Codification Topic (ASC) 820
(formerly FAS 157). ASC requires that the fair value of
liabilities be measured under the assumption that the liability
is transferred to a market participant. In practice, however,
many liabilities contain restrictions preventing their transfer.
Accordingly, this additional guidance has been provided, which
specifies that the company determine whether a quoted price
exists for an identical liability when traded as an asset (i.e.
a Level 1 fair value measurement) and if not, the company
must use a valuation technique based on the quoted price of a
similar liability traded as an asset, or another valuation
technique (i.e. market approach or income approach) and that the
company should not make a separate adjustment for
restrictions on the transfer of a liability in estimating fair
value. The adoption of ASU
2009-05 did
not have a material impact on the Companys consolidated
financial position and results of operations.
Recently
Issued Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets
An Amendment to Statement No. 140, to simplify
guidance for transfers of financial assets in
SFAS No. 140. The guidance removes the concept of a
qualified special purpose entity (QSPE), which will result in
securitization and other asset-backed financing vehicles, to be
evaluated for consolidation under SFAS No. 167,
Amendments to FASB Interpretation No. 46(R).
SFAS No. 166 also expands legal isolation analysis,
limits when a portion of a financial asset can be derecognized,
and clarifies that an entity must consider all arrangements or
agreements made contemporaneously with, or in
F-109
MERIX CORPORATION
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
contemplation of, a transfer when applying the derecognition
criteria. SFAS No. 166 is effective for first annual
reporting periods beginning after November 15, 2009, and is
to be applied prospectively. The Company does not maintain any
QSPEs and as such, the adoption of SFAS No. 166 is not
expected to have a material impact on the Companys
consolidated financial position and results of operations.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R),
which addresses the primary beneficiary (PB) assessment criteria
for determining whether an entity is to consolidate a variable
interest entity (VIE). An entity is considered the PB and shall
consolidate a VIE if it meets both the following
characteristics: (1) the power to direct the activities of
the VIE that most significantly affects economic performance and
(2) the obligation to absorb losses or right to receive
benefits that could potentially be significant to the VIE. The
statement also provides guidance in relation to the elimination
of the QSPE concept from SFAS No. 166. This statement
is effective for annual reporting periods beginning after
November 15, 2009. The Company does not maintain any VIEs
and as such, the adoption of SFAS No. 167 is not
expected to have a material impact on the Companys
consolidated financial position and results of operations.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, A Replacement of FASB
Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles, to establish the FASB
Accounting Standards Codification (Codification) as
the source of authoritative accounting principles recognized by
the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP in
the United States (the GAAP hierarchy). Rules and
interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The adoption SFAS No. 168
will not have a material impact on the Companys
consolidated financial condition or results of operations,
requiring only a change in references to accounting technical
guidance in the financial statements to use the new codification
reference system
|
|
NOTE 20.
|
SUBSEQUENT
EVENTS
|
On December 30, 2009, the Company entered into a
Provisional Agreement for the Assignment of Lease (the
Assignment Agreement) which provides for the transfer of the
land lease rights and real property comprising our vacated Hong
Kong manufacturing and administrative facilities. The purchase
price to be paid to the Company in accordance with the
Assignment Agreement totals HK$85.8 million, or
approximately US$11.1 million. The completion of the
transaction is subject to approval by the land lessor and
completion of required financing by the purchaser. The closing
is expected to occur in the fourth quarter of fiscal 2010.
F-110
Through and including
90 days after the date of this prospectus, all dealers
effecting transactions in these securities, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
1,390,087 Shares
Viasystems Group,
Inc.
Common Stock
PROSPECTUS
,
2010
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution
|
The expenses expected to be incurred by Viasystems Group, Inc.
(the Registrant) in connection with the issuance and
distribution of the securities being registered under this
Registration Statement are estimated to be as follows:
|
|
|
|
|
Securities and Exchange Commission Registration Fee
|
|
$
|
2,447
|
|
NASDAQ Listing Fee
|
|
|
100,000
|
|
Printing and Engraving
|
|
|
170,000
|
|
Legal Fees and Expenses
|
|
|
125,000
|
|
Accounting Fees and Expenses
|
|
|
50,000
|
|
Transfer Agent Fees
|
|
|
10,000
|
|
Miscellaneous
|
|
|
50,000
|
|
Total
|
|
$
|
507,447
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
This section describes the indemnification rights that will
apply to us upon completion of the merger and the amendment and
restatement of our certificate of incorporation and bylaws in
accordance with the merger agreement.
Under Section 145 of the General Corporation Law of the
State of Delaware (the DGCL), a corporation may
indemnify a director, officer, employee or agent of the
corporation (or a person who is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise) against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In the case of an action
brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the
corporation (or a person who is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise) against expenses (including attorneys fees)
actually and reasonably incurred by him if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent a court
finds that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. Section 145 of the
DGCL also provides that a corporation has the power to maintain
insurance on behalf of its directors and officers against any
liability asserted against those persons and incurred by them in
their capacity as directors or officers, as applicable, whether
or not the corporation would have the power to indemnify them
against liability under the provisions of Section 145 of
the DGCL.
Article Eleven of our third amended and restated
certificate of incorporation and Article VIII of our second
amended and restated bylaws provide that we will indemnify our
directors, officers, employees and agents to the fullest extent
permitted under the DGCL (as now or hereafter in effect). The
right to indemnification includes the right to be paid expenses
incurred in investigating or defending any threatened, pending
or completed action, suit or proceeding in advance of its final
disposition to the maximum extend permitted under the DGCL. The
right to indemnification under this provision will inure to the
benefit of the directors, officers, employees
or agents heirs, executors, administrators and personal
representatives and is not exclusive of any other right which
the director or officer has under any other law or agreement.
II-1
As permitted by Section 102(b)(7) of the DGCL,
Article Twelve of our third amended and restated
certificate of incorporation and Article VIII of our second
amended and restated bylaws provide that a director will not be
personally liable to us or our stockholders for monetary damages
for breach of the directors fiduciary duty. A director
will also not be personally liable to us or our stockholders to
the fullest extend permitted by law. This provision does not
eliminate the directors fiduciary duty. In addition, each
director will continue to be subject to liability for breach of
the directors duty of loyalty to us and our stockholders,
for acts or omissions not in good faith or that involve
intentional misconduct, for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under
Section 174 of the DGCL and for actions leading to improper
personal benefit to the director.
Section 8.4 of our second amended and restated bylaws
provides that we have the power to purchase and maintain
insurance on behalf of our directors, officers, employees and
agents against liability asserted against those individuals
arising out of their status as director, officer, employee or
agent, as applicable, regardless of whether we could otherwise
indemnify those persons.
We maintain an officers and directors liability
insurance policy insuring our officers and directors against
certain liabilities and expenses incurred by them in their
capacities as such, and insuring us under certain circumstances,
in the event that indemnification payments are made to such
officers and directors.
The foregoing summaries are necessarily subject to the complete
text of the DGCL, our third amended and restated certificate of
incorporation and our second amended and restated bylaws.
|
|
Item 15.
|
Recent Sales
of Unregistered Securities
|
From December 2006 to January 2010, we have granted to our
employees, including executive officers, options to purchase
487,000 shares of our common stock at an exercise price of
$12.63. Through February 5, 2010, as it relates to these
options, none were exercised, options to purchase
106,000 shares of our common stock were cancelled and
options to purchase 250,656 shares of our common stock were
vested and remained outstanding. On an adjusted basis to give
effect to the Merger and the Recapitalization, such options
represent options to purchase approximately 40,736 shares
of our common stock at an exercise price of $150.99. On an
adjusted basis to give effect to the Merger and the
Recapitalization, as it relates to these options, none would
have been exercised, options to purchase approximately
8,866 shares of our common stock would have been cancelled
and options to purchase approximately 20,967 shares of our
common stock would have been vested and remained outstanding
through February 5, 2010. All such issuances were made in
reliance on Rule 701 as promulgated under the Securities
Act relating to issuances of securities under compensatory plans.
II-2
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules
|
(a) The exhibits listed below in the
Exhibit Index are part of this Registration
Statement and are numbered in accordance with Item 601 of
Regulation S-K.
|
|
|
|
|
Exhibit No.
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of October 6, 2009,
among Viasystems Group, Inc., Maple Acquisition Corp., and Merix
Corporation (included as Annex A to the proxy
statement/prospectus).(6)
|
|
2
|
.2
|
|
Prepackaged Joint Plan of Reorganization of Viasystems Group,
Inc. and Viasystems, Inc. under Chapter 11 of the
Bankruptcy Code, dated August 30, 2002.(1)
|
|
2
|
.3
|
|
Modification, dated January 2, 2003, to Prepackaged Joint
Plan of Reorganization of Viasystems Group, Inc. and Viasystems,
Inc. under Chapter 11 of the Bankruptcy Code dated
August 30, 2002.(1)
|
|
2
|
.4
|
|
Stock Purchase Agreement, dated as of March 21, 2006, by
and among Electrical Components International Holdings Company,
Viasystems Group, Inc., Wire Harness Holding Company, Inc. and
Wire Harness Industries, Inc.(4)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation of
Viasystems Group, Inc.(2)
|
|
3
|
.2
|
|
Form of Third Amended and Restated Certificate of Incorporation
of Viasystems Group, Inc. to be in effect at the closing of the
merger.(6)
|
|
3
|
.3
|
|
Amended and Restated Bylaws of Viasystems Group, Inc.(2)
|
|
3
|
.4
|
|
Form of Amendment to the Amended and Restated Bylaws of
Viasystems Group, Inc. to be in effect prior to the closing of
the merger.(6)
|
|
3
|
.5
|
|
Form of Second Amended and Restated Bylaws of Viasystems Group,
Inc. to be in effect at the closing of the merger.(6)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate.(7)
|
|
4
|
.2
|
|
Warrant Agreement, dated as of January 31, 2003, by and
between Viasystems Group, Inc. and Computershare Investor
Services, LLC, as Warrant Agent.(1)
|
|
4
|
.3
|
|
Indenture dated as of November 24, 2009, among Viasystems,
Inc., the Guarantors party thereto and Wilmington Trust FSB, as
Trustee.(8)
|
|
4
|
.4
|
|
Form of 12% Senior Secured Note (included as Exhibit A1 to
the Indenture filed as Exhibit 4.5 hereto).(8)
|
|
5
|
.1
|
|
Opinion of Weil, Gotshal & Manges LLP as to the
validity of the securities being registered.(9)
|
|
10
|
.1
|
|
Viasystems Group, Inc. 2003 Stock Option Plan.(1)
|
|
10
|
.2
|
|
Amended and Restated Executive Employment Agreement, dated
October 13, 2003, among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp. LLC, the other subsidiaries
party thereto, and David M. Sindelar.(1)
|
|
10
|
.3
|
|
Amended and Restated Executive Employment Agreement, dated
January 31, 2003, among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp. LLC, and Timothy L.
Conlon.(1)
|
|
10
|
.4
|
|
Amended and Restated Executive Employment Agreement, dated as of
August 15, 2005, as of August 15, 2005, by and among
Viasystems Group, Inc., Viasystems, Inc., the other subsidiaries
of Viasystems Group, Inc. set forth on the signature page
thereto and Gerald G. Sax.(3)
|
|
10
|
.5
|
|
Amended and Restated Executive Employment Agreement, dated as of
January 31, 2003, among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp., LLC and Joseph Catanzaro.(1)
|
|
10
|
.6
|
|
Monitoring and Oversight Agreement, dated as of January 31,
2003, by and among Viasystems Group, Inc., Viasystems, Inc., the
subsidiaries party thereto, and Hicks, Muse & Co.
Partners, L.P.(1)
|
II-3
|
|
|
|
|
Exhibit No.
|
|
|
|
|
10
|
.7
|
|
Recapitalization Agreement, dated as of October 6, 2009, by
and among Viasystems Group, Inc., Hicks, Muse, Tate &
Furst Equity Fund III, LP and certain of its affiliates,
GSC Recovery II, L.P. and certain of its affiliates, and TCW
Shared Opportunities Fund III, L.P.(6)
|
|
10
|
.8
|
|
Note Exchange Agreement, dated as of October 6, 2009, by
and among Viasystems Group, Inc., Maple Acquisition Corp., and
the entities listed on Schedule I attached thereto.(6)
|
|
10
|
.9
|
|
Stockholders Agreement, dated as of January 31, 2003, by
and among Viasystems Group, Inc. and the other parties
thereto.(2)
|
|
10
|
.10
|
|
First Amendment and Consent to Stockholders Agreement, dated as
of October 2003, by and among Viasystems Group, Inc. and the
other parties thereto.(2)
|
|
10
|
.11
|
|
Form of Stockholder Agreement to be entered into by Viasystems
Group, Inc. and VG Holdings, LLC at the closing of the merger.(6)
|
|
10
|
.12
|
|
Viasystems Group Annual Incentive Compensation Plan(2)
|
|
10
|
.13
|
|
English translation of the Guangzhou 2009 Credit Facility
Contract, dated as of August 17, 2009, by and between
Guangzhou Termbray Electronics Technology Co., Ltd, as Borrower,
and China Construction Bank Guangzhou Economic and Technological
Development District Branch, as Lender.(5)
|
|
10
|
.14
|
|
English translation of the Maximum-Amount Mortgage Contract by
and between Guangzhou Termbray Electronics Technology Co., Ltd,
as Borrower, and China Construction Bank Guangzhou Economic and
Technological Development District Branch, as Lender.(5)
|
|
10
|
.15
|
|
Industrial Lease, dated as of April 16, 2008, by and
between Verde 9580 Joe Rodriquez LP and Viasystems Technologies
Corp., LLC.(7)
|
|
10
|
.16
|
|
First Amendment to Industrial Lease, dated as of
December 8, 2008, by and between Verde 9580 Joe Rodriquez
LP and Viasystems Technologies Corp., LLC.(7)
|
|
10
|
.17
|
|
English translation of the Lease Agreement on Tong Fu Kang Plant
Building (Building A, Shenzhen), dated as of October 26,
2006, by and between Shenzhen Tong Fu Kang Industry Development
Co., Ltd and Viasystems Chang Yuan EMS (Shenzhen) Co., Ltd (now
known as Viasystems EMS (Shenzhen) Co., Ltd).(7)
|
|
10
|
.18
|
|
English translation of the Lease Agreement on Tong Fu Kang Plant
Building (Building D, Shenzhen), dated as of May 6, 2003,
by and between Shenzhen Tong Fu Kang Industry Development Co.,
Ltd and Viasystems Chang Yuan EMS (Shenzhen) Co., Ltd (now known
as Viasystems EMS (Shenzhen) Co., Ltd).(7)
|
|
10
|
.19
|
|
English translation of the Lease Agreement, dated as of
October 18, 2008, by and between Qingdao Jijia Electronics
Co., Ltd and Qingdao Viasystems Telecommunications Technologies
Co., Ltd.(7)
|
|
10
|
.20
|
|
English translation of the Lease Agreement, dated as of
September 1, 2002, by and among Parque Industrial
Internacional Mexicano, S.A. de C.V., Electrocomponentes de
Mexico, S.A. de C.V.(7)
|
|
10
|
.21
|
|
Amendment Agreement to the Lease Agreement, dated as of
June 25, 2004, by and among Parque Industrial Internacional
Mexicano, S.A. de C.V., Electrocomponentes de Mexico, S.A. de
C.V. and Viasystems, Inc.(7)
|
|
10
|
.22
|
|
Second Amendment to the Lease Agreement, dated as of
October 15, 2007, by and among Banco J.P. Morgan,
Sociedad Anónima, Institución de Banca Múltiple,
J.P. Morgan Grupo Financiero, División Fiduciaria,
International Manufacturing Solutions Operaciones, S. de R.L. de
C.V. and Viasystems, Inc.(7)
|
|
10
|
.23
|
|
Third Amendment to the Lease Agreement, dated as of
August 26, 2009, by and among The Bank of New York Mellon,
S.A., Institución de Banca Múltiple (Final Successor
of Banco J.P. Morgan, Sociedad Anónima,
Institución de Banca Múltiple, J.P. Morgan Grupo
Financiero, División Fiduciaria), International
Manufacturing Solutions Operaciones, S. de R.L. de C.V. and
Viasystems, Inc.(7)
|
II-4
|
|
|
|
|
Exhibit No.
|
|
|
|
|
10
|
.24
|
|
Collateral Trust Agreement, dated as of November 24, 2009,
among Viasystems, Inc., the guarantors named therein, Wilmington
Trust FSB, as trustee and collateral trustee, and the other
party lien representatives from time to time party thereto.(8)
|
|
11
|
.1
|
|
Statement Regarding Computation of Per Share Earnings
(incorporated by reference to Selected Historical
Consolidated Financial Data included in Part I of
this Registration Statement).
|
|
21
|
.1
|
|
List of Subsidiaries of Viasystems Group, Inc.(6)
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP.(9)
|
|
23
|
.2
|
|
Consent of Grant Thornton LLP.(9)
|
|
23
|
.3
|
|
Consent of Weil, Gotshal & Manges LLP (included as
part of Exhibit 5.1 to this Registration Statement on
Form S-1).(9)
|
|
24
|
.1
|
|
Power of Attorney (included on the signature pages to the
initial
Form S-1
filing).
|
|
|
|
(1) |
|
Incorporated by reference to Registration Statement
No. 333-113664
on
Form S-1/A
of Viasystems Group, Inc. filed on April 28, 2004. |
|
|
|
(2) |
|
Incorporated by reference to Registration Statement
No. 333-114467
on
Form S-4/A
of Viasystems, Inc. filed on June 22, 2004. |
|
|
|
(3) |
|
Incorporated by reference to the Quarterly Report on
Form 10-Q
of Viasystems, Inc. filed on November 14, 2005. |
|
|
|
(4) |
|
Incorporated by reference to the
Form 8-K
of Viasystems, Inc. filed on March 22, 2006. |
|
|
|
(5) |
|
Incorporated by reference to the
Form 8-K
of Viasystems, Inc. filed on September 10, 2009. |
|
|
|
(6) |
|
Incorporated by reference to the Registration Statement
No. 333-163040 on
Form S-4
of Viasystems Group, Inc. filed on November 12, 2009. |
|
|
|
(7) |
|
Incorporated by reference to Registration Statement
No. 333-163040
on Form
S-4/A of
Viasystems Group, Inc. filed on December 17, 2009. |
|
|
|
(8) |
|
Incorporated by reference to the
Form 8-K
of Viasystems, Inc. filed on December 2, 2009. |
II-5
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part
of and included in the registration statement as of the date it
is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of
St. Louis, State of Missouri, on February 5, 2010.
VIASYSTEMS GROUP, INC.
|
|
|
|
By:
|
/s/ David
M. Sindelar
|
David M. Sindelar
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
February 5, 2010.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ David
M. Sindelar
David
M. Sindelar
|
|
Chief Executive Officer and Director
|
|
|
|
*
Timothy
L. Conlon
|
|
President, Chief Operating Officer and Director
|
|
|
|
*
Gerald
G. Sax
|
|
Senior Vice President,
Chief Financial Officer and Principal Accounting Officer
|
|
|
|
*
Christopher
J. Steffen
|
|
Chairman
|
|
|
|
*
Jack
D. Furst
|
|
Director
|
|
|
|
*
Edward
Herring
|
|
Director
|
|
|
|
*
Robert
F. Cummings, Jr.
|
|
Director
|
|
|
|
*
Diane
H. Gulyas
|
|
Director
|
|
|
|
*
Richard
A. McGinn
|
|
Director
|
|
|
|
*
Philip
Raygorodetsky
|
|
Director
|
II-7
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
*By:
|
|
/s/ David
M. Sindelar
David
M. Sindelar
Attorney-in-Fact
|
|
|
II-8
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of October 6, 2009,
among Viasystems Group, Inc., Maple Acquisition Corp., and Merix
Corporation (included as Annex A to the proxy
statement/prospectus).(6)
|
|
2
|
.2
|
|
Prepackaged Joint Plan of Reorganization of Viasystems Group,
Inc. and Viasystems, Inc. under Chapter 11 of the
Bankruptcy Code, dated August 30, 2002.(1)
|
|
2
|
.3
|
|
Modification, dated January 2, 2003, to Prepackaged Joint
Plan of Reorganization of Viasystems Group, Inc. and Viasystems,
Inc. under Chapter 11 of the Bankruptcy Code dated
August 30, 2002.(1)
|
|
2
|
.4
|
|
Stock Purchase Agreement, dated as of March 21, 2006, by
and among Electrical Components International Holdings Company,
Viasystems Group, Inc., Wire Harness Holding Company, Inc. and
Wire Harness Industries, Inc.(4)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation of
Viasystems Group, Inc.(3)
|
|
3
|
.2
|
|
Form of Third Amended and Restated Certificate of Incorporation
of Viasystems Group, Inc. to be in effect at the closing of the
merger.(6)
|
|
3
|
.3
|
|
Amended and Restated Bylaws of Viasystems Group, Inc.(2)
|
|
3
|
.4
|
|
Form of Amendment to the Amended and Restated Bylaws of
Viasystems Group, Inc. to be in effect prior to the closing of
the merger.(6)
|
|
3
|
.5
|
|
Form of Second Amended and Restated Bylaws of Viasystems Group,
Inc. to be in effect at the closing of the merger.(6)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate.(7)
|
|
4
|
.2
|
|
Warrant Agreement, dated as of January 31, 2003, by and
between Viasystems Group, Inc. and Computershare Investor
Services, LLC, as Warrant Agent.(1)
|
|
4
|
.3
|
|
Indenture dated as of November 24, 2009, among Viasystems,
Inc., the Guarantors party thereto and Wilmington Trust FSB, as
Trustee.(8)
|
|
4
|
.4
|
|
Form of 12% Senior Secured Note (included as Exhibit A1 to
the Indenture filed as Exhibit 4.5 hereto).(8)
|
|
5
|
.1
|
|
Opinion of Weil, Gotshal & Manges LLP as to the
validity of the securities being registered.(9)
|
|
10
|
.1
|
|
Viasystems Group, Inc. 2003 Stock Option Plan.(1)
|
|
10
|
.2
|
|
Amended and Restated Executive Employment Agreement, dated
October 13, 2003, among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp. LLC, the other subsidiaries
party thereto, and David M. Sindelar.(1)
|
|
10
|
.3
|
|
Amended and Restated Executive Employment Agreement, dated
January 31, 2003, among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp. LLC, and Timothy L.
Conlon.(1)
|
|
10
|
.4
|
|
Amended and Restated Executive Employment Agreement, dated as of
August 15, 2005, as of August 15, 2005, by and among
Viasystems Group, Inc., Viasystems, Inc., the other subsidiaries
of Viasystems Group, Inc. set forth on the signature page
thereto and Gerald G. Sax.(3)
|
|
10
|
.5
|
|
Amended and Restated Executive Employment Agreement, dated as of
January 31, 2003, among Viasystems Group, Inc., Viasystems,
Inc., Viasystems Technologies Corp., LLC and Joseph Catanzaro.(1)
|
|
10
|
.6
|
|
Monitoring and Oversight Agreement, dated as of January 31,
2003, by and among Viasystems Group, Inc., Viasystems, Inc., the
subsidiaries party thereto, and Hicks, Muse & Co.
Partners, L.P.(1)
|
|
10
|
.7
|
|
Recapitalization Agreement, dated as of October 6, 2009, by
and among Viasystems Group, Inc., Hicks, Muse, Tate &
Furst Equity Fund III, LP and certain of its affiliates,
GSC Recovery II, L.P. and certain of its affiliates, and TCW
Shared Opportunities Fund III, L.P.(6)
|
|
|
|
|
|
Exhibit No.
|
|
|
|
|
10
|
.8
|
|
Note Exchange Agreement, dated as of October 6, 2009, by
and among Viasystems Group, Inc., Maple Acquisition Corp., and
the entities listed on Schedule I attached thereto.(6)
|
|
10
|
.9
|
|
Stockholders Agreement, dated as of January 31, 2003, by
and among Viasystems Group, Inc. and the other parties
thereto.(2)
|
|
10
|
.10
|
|
First Amendment and Consent to Stockholders Agreement, dated as
of October 2003, by and among Viasystems Group, Inc. and the
other parties thereto.(2)
|
|
10
|
.11
|
|
Form of Stockholder Agreement to be entered into by Viasystems
Group, Inc. and VG Holdings, LLC at the closing of the merger.(6)
|
|
10
|
.12
|
|
Viasystems Group Annual Incentive Compensation Plan(2)
|
|
10
|
.13
|
|
English translation of the Guangzhou 2009 Credit Facility
Contract, dated as of August 17, 2009, by and between
Guangzhou Termbray Electronics Technology Co., Ltd, as Borrower,
and China Construction Bank Guangzhou Economic and Technological
Development District Branch, as Lender.(5)
|
|
10
|
.14
|
|
English translation of the Maximum-Amount Mortgage Contract by
and between Guangzhou Termbray Electronics Technology Co., Ltd,
as Borrower, and China Construction Bank Guangzhou Economic and
Technological Development District Branch, as Lender.(5)
|
|
10
|
.15
|
|
Industrial Lease, dated as of April 16, 2008, by and
between Verde 9580 Joe Rodriquez LP and Viasystems Technologies
Corp., LLC.(7)
|
|
10
|
.16
|
|
First Amendment to Industrial Lease, dated as of
December 8, 2008, by and between Verde 9580 Joe Rodriquez
LP and Viasystems Technologies Corp., LLC.(7)
|
|
10
|
.17
|
|
English translation of the Lease Agreement on Tong Fu Kang Plant
Building (Building A, Shenzhen), dated as of October 26,
2006, by and between Shenzhen Tong Fu Kang Industry Development
Co., Ltd and Viasystems Chang Yuan EMS (Shenzhen) Co., Ltd (now
known as Viasystems EMS (Shenzhen) Co., Ltd).(7)
|
|
10
|
.18
|
|
English translation of the Lease Agreement on Tong Fu Kang Plant
Building (Building D, Shenzhen), dated as of May 6, 2003,
by and between Shenzhen Tong Fu Kang Industry Development Co.,
Ltd and Viasystems Chang Yuan EMS (Shenzhen) Co., Ltd (now known
as Viasystems EMS (Shenzhen) Co., Ltd).(7)
|
|
10
|
.19
|
|
English translation of the Lease Agreement, dated as of
October 18, 2008, by and between Qingdao Jijia Electronics
Co., Ltd and Qingdao Viasystems Telecommunications Technologies
Co., Ltd.(7)
|
|
10
|
.20
|
|
English translation of the Lease Agreement, dated as of
September 1, 2002, by and among Parque Industrial
Internacional Mexicano, S.A. de C.V., Electrocomponentes de
Mexico, S.A. de C.V.(7)
|
|
10
|
.21
|
|
Amendment Agreement to the Lease Agreement, dated as of
June 25, 2004, by and among Parque Industrial Internacional
Mexicano, S.A. de C.V., Electrocomponentes de Mexico, S.A. de
C.V. and Viasystems, Inc.(7)
|
|
10
|
.22
|
|
Second Amendment to the Lease Agreement, dated as of
October 15, 2007, by and among Banco J.P. Morgan,
Sociedad Anónima, Institución de Banca Múltiple,
J.P. Morgan Grupo Financiero, División Fiduciaria,
International Manufacturing Solutions Operaciones, S. de R.L. de
C.V. and Viasystems, Inc.(7)
|
|
10
|
.23
|
|
Third Amendment to the Lease Agreement, dated as of
August 26, 2009, by and among The Bank of New York Mellon,
S.A., Institución de Banca Múltiple (Final Successor
of Banco J.P. Morgan, Sociedad Anónima,
Institución de Banca Múltiple, J.P. Morgan Grupo
Financiero, División Fiduciaria), International
Manufacturing Solutions Operaciones, S. de R.L. de C.V. and
Viasystems, Inc.(7)
|
|
10
|
.24
|
|
Collateral Trust Agreement, dated as of November 24, 2009,
among Viasystems, Inc., the guarantors named therein, Wilmington
Trust FSB, as trustee and collateral trustee, and the other
party lien representatives from time to time party thereto.(8)
|
|
11
|
.1
|
|
Statement Regarding Computation of Per Share Earnings
(incorporated by reference to Selected Historical
Consolidated Financial Data included in Part I of
this Registration Statement).
|
|
|
|
|
|
Exhibit No.
|
|
|
|
|
21
|
.1
|
|
List of Subsidiaries of Viasystems Group, Inc.(6)
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP.(9)
|
|
23
|
.2
|
|
Consent of Grant Thornton LLP.(9)
|
|
23
|
.3
|
|
Consent of Weil, Gotshal & Manges LLP (included as
part of Exhibit 5.1 to this Registration Statement on
Form S-1).(9)
|
|
24
|
.1
|
|
Power of Attorney (included on the signature pages to the
initial
Form S-1
filing).
|
|
|
|
(1) |
|
Incorporated by reference to Registration Statement
No. 333-113664
on
Form S-1/A
of Viasystems Group, Inc. filed on April 28, 2004. |
|
|
|
(2) |
|
Incorporated by reference to Registration Statement
No. 333-114467
on
Form S-4/A
of Viasystems, Inc. filed on June 22, 2004. |
|
|
|
(3) |
|
Incorporated by reference to the Quarterly Report on
Form 10-Q
of Viasystems, Inc. filed on November 14, 2005. |
|
|
|
(4) |
|
Incorporated by reference to the
Form 8-K
of Viasystems, Inc. filed on March 22, 2006. |
|
|
|
(5) |
|
Incorporated by reference to the
Form 8-K
of Viasystems, Inc. filed on September 10, 2009. |
|
|
|
(6) |
|
Incorporated by reference to Registration Statement
No. 333-163040 on Form S-4 of Viasystems Group, Inc.
filed on November 12, 2009. |
|
|
|
(7) |
|
Incorporated by reference to Registration Statement
No. 333-163040 on Form S-4/A of Viasystems Group, Inc.
filed on December 17, 2009. |
|
|
|
(8) |
|
Incorporated by reference to the
Form 8-K
of Viasystems, Inc. filed on December 2, 2009. |