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EXCEL - IDEA: XBRL DOCUMENT - VIASYSTEMS GROUP INC | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - VIASYSTEMS GROUP INC | c24024exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - VIASYSTEMS GROUP INC | c24024exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - VIASYSTEMS GROUP INC | c24024exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - VIASYSTEMS GROUP INC | c24024exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
001-15755
(Commission File Number)
Viasystems Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
(State or other jurisdiction of incorporation or organization)
75-2668620
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
101 South Hanley Road
St. Louis, MO 63105
(314) 727-2087
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
St. Louis, MO 63105
(314) 727-2087
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ YES o NO
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). þ
YES o NO
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.
(Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer þ | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o YES þ NO
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
As of November 4, 2011, there were 20,393,437 shares of Viasystems Group, Inc.s Common Stock
outstanding.
VIASYSTEMS GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011
INDEX
PAGE | ||||||||
Viasystems Group, Inc. and Subsidiaries |
||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
17 | ||||||||
29 | ||||||||
29 | ||||||||
30 | ||||||||
30 | ||||||||
33 | ||||||||
33 | ||||||||
34 | ||||||||
35 | ||||||||
CERTIFICATIONS |
||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
Table of Contents
VIASYSTEMS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 68,540 | $ | 103,599 | ||||
Accounts receivable, net |
197,969 | 169,247 | ||||||
Inventories |
110,814 | 94,877 | ||||||
Prepaid expenses and other |
31,946 | 22,940 | ||||||
Total current assets |
409,269 | 390,663 | ||||||
Property, plant and equipment, net |
298,288 | 273,113 | ||||||
Goodwill |
97,589 | 97,589 | ||||||
Intangible assets, net |
7,810 | 9,094 | ||||||
Deferred financing costs, net |
6,096 | 7,607 | ||||||
Other assets |
2,155 | 2,507 | ||||||
Total assets |
$ | 821,207 | $ | 780,573 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt |
$ | 10,051 | $ | 10,258 | ||||
Accounts payable |
194,818 | 162,322 | ||||||
Accrued and other liabilities |
73,448 | 83,798 | ||||||
Total current liabilities |
278,317 | 256,378 | ||||||
Long-term debt, less current maturities |
216,365 | 215,139 | ||||||
Other non-current liabilities |
48,462 | 51,951 | ||||||
Total liabilities |
543,144 | 523,468 | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share,
100,000,000 shares authorized,
20,393,437 and 20,238,085 shares issued
and outstanding |
204 | 202 | ||||||
Paid-in capital |
2,381,960 | 2,376,197 | ||||||
Accumulated deficit |
(2,117,748 | ) | (2,131,255 | ) | ||||
Accumulated other comprehensive income |
8,390 | 7,696 | ||||||
Total Viasystems stockholders equity |
272,806 | 252,840 | ||||||
Noncontrolling interest |
5,257 | 4,265 | ||||||
Total stockholders equity |
278,063 | 257,105 | ||||||
Total liabilities and stockholders equity |
$ | 821,207 | $ | 780,573 | ||||
See accompanying notes to condensed consolidated financial statements.
2
Table of Contents
VIASYSTEMS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 278,818 | $ | 259,325 | $ | 788,272 | $ | 685,376 | ||||||||
Operating expenses: |
||||||||||||||||
Cost of goods sold, exclusive of items shown separately |
219,233 | 198,117 | 631,995 | 527,210 | ||||||||||||
Selling, general and administrative |
21,216 | 20,536 | 58,654 | 59,822 | ||||||||||||
Depreciation |
16,508 | 14,426 | 48,700 | 41,493 | ||||||||||||
Amortization |
428 | 447 | 1,294 | 1,267 | ||||||||||||
Restructuring and impairment |
| 26 | (134 | ) | 8,750 | |||||||||||
Operating income |
21,433 | 25,773 | 47,763 | 46,834 | ||||||||||||
Other expense: |
||||||||||||||||
Interest expense, net |
7,235 | 7,323 | 21,668 | 23,649 | ||||||||||||
Amortization of deferred financing costs |
503 | 512 | 1,511 | 1,491 | ||||||||||||
Loss on early extinguishment of debt |
| | | 706 | ||||||||||||
Other, net |
439 | 1,033 | 1,260 | 1,438 | ||||||||||||
Income before income taxes |
13,256 | 16,905 | 23,324 | 19,550 | ||||||||||||
Income taxes |
5,871 | 5,985 | 8,593 | 13,496 | ||||||||||||
Net income |
$ | 7,385 | $ | 10,920 | $ | 14,731 | $ | 6,054 | ||||||||
Less: |
||||||||||||||||
Net income attributable to noncontrolling interest |
$ | 524 | $ | 709 | $ | 1,221 | $ | 1,383 | ||||||||
Accretion of Redeemable Class B Senior Convertible
preferred stock |
| | | 1,053 | ||||||||||||
Conversion of Mandatory Redeemable Class A Junior
preferred stock |
| | | 29,717 | ||||||||||||
Conversion of Redeemable Class B Senior Convertible
preferred stock |
| | | 105,021 | ||||||||||||
Net income (loss) attributable to common stockholders |
$ | 6,861 | $ | 10,211 | $ | 13,510 | $ | (131,120 | ) | |||||||
Basic earnings (loss) per share |
$ | 0.34 | $ | 0.51 | $ | 0.68 | $ | (7.59 | ) | |||||||
Diluted earnings (loss) per share |
$ | 0.34 | $ | 0.51 | $ | 0.67 | $ | (7.59 | ) | |||||||
Basic weighted average shares outstanding |
19,980,792 | 19,979,015 | 19,980,368 | 17,270,223 | ||||||||||||
Diluted weighted average shares outstanding |
20,131,738 | 19,979,260 | 20,123,562 | 17,270,223 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
VIASYSTEMS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net Income |
$ | 14,731 | $ | 6,054 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
49,994 | 42,760 | ||||||
Non-cash stock compensation expense |
5,754 | 1,654 | ||||||
Deferred income taxes |
1,931 | 1,895 | ||||||
Amortization of deferred financing costs |
1,511 | 1,491 | ||||||
Amortization of original issue discount on 2015 Notes |
1,197 | 1,197 | ||||||
Loss on disposition of assets, net |
742 | 323 | ||||||
Non-cash impact of exchange rate changes |
458 | 146 | ||||||
Loss on early extinguishment of debt |
| 706 | ||||||
Amortization of preferred stock discount |
| 871 | ||||||
Accretion of Class A Junior preferred stock dividends |
| 444 | ||||||
Change in assets and liabilities: |
||||||||
Accounts receivable |
(28,722 | ) | (34,980 | ) | ||||
Inventories |
(15,937 | ) | (21,611 | ) | ||||
Prepaid expenses and other |
(8,617 | ) | (2,253 | ) | ||||
Accounts payable |
32,496 | 31,067 | ||||||
Accrued and other liabilities |
(15,560 | ) | 3,572 | |||||
Net cash provided by operating activities |
39,978 | 33,336 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(75,134 | ) | (36,873 | ) | ||||
Proceeds from disposals of property, plant and equipment |
516 | 9,769 | ||||||
Acquisition of Merix |
| (35,326 | ) | |||||
Cash acquired in acquisition of Merix |
| 13,667 | ||||||
Net cash used in investing activities |
(74,618 | ) | (48,763 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from borrowings under credit facilities |
10,000 | 10,000 | ||||||
Repayments of borrowings under credit facilities |
(10,000 | ) | (14,200 | ) | ||||
Distribution to noncontrolling interest |
(229 | ) | (783 | ) | ||||
Repayment of capital lease obligations |
(208 | ) | (139 | ) | ||||
Proceeds from exercise of stock options |
18 | | ||||||
Repayment of 10.5% Senior Subordinated Notes |
| (105,904 | ) | |||||
Change in restricted cash |
| 105,734 | ||||||
Repayment of 2013 Notes |
| (515 | ) | |||||
Financing and other fees |
| (2,294 | ) | |||||
Net cash used in financing activities |
(419 | ) | (8,101 | ) | ||||
Net change in cash and cash equivalents |
(35,059 | ) | (23,528 | ) | ||||
Cash and cash equivalents, beginning of the period |
103,599 | 108,993 | ||||||
Cash and cash equivalents, end of the period |
$ | 68,540 | $ | 85,465 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 27,065 | $ | 23,211 | ||||
Income taxes paid, net |
$ | 9,798 | $ | 9,597 | ||||
Supplemental disclosure of noncash transactions: |
||||||||
Fair value of common shares issued for acquisition of Merix |
$ | | $ | 75,877 | ||||
Fair value of common shares issued in exchange for Mandatory redeemable Class A Junior
preferred stock |
$ | | $ | 149,868 | ||||
Fair value of common shares issued in exchange for Redeemable Class B Senior Convertible
preferred stock |
$ | | $ | 117,970 | ||||
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
VIASYSTEMS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
1. Basis of Presentation
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements of Viasystems Group, Inc. and its
subsidiaries (Viasystems or the Company) 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. The results for the three and nine
months ended September 30, 2011, 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 included in our
Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and
Exchange Commission.
Nature of Business
Viasystems is a leading worldwide provider of complex multi-layer printed circuit boards and
electro-mechanical solutions. The Companys products are used in a wide range of applications
including, for example, automotive engine controls and safety systems, data networking equipment,
telecommunications switching equipment, complex medical and technical instruments, and flight
control systems.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Viasystems
Group, Inc. and its wholly-owned and majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles 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; |
| fair value of assets acquired and liabilities assumed in acquisitions; |
| 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; |
| tax related items; |
||
| contingencies; and |
| fair value of options granted under the Companys stock-based compensation plans. |
5
Table of Contents
Actual results may differ from previously estimated amounts, and such differences may be material
to our 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. The Company
does not consider as material any revisions made to estimates or assumptions during the periods
presented in the accompanying condensed consolidated financial statements.
Commitments and Contingencies
The Company is a party to contracts with third party consultants, independent contractors and other
service providers in which the Company 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 the Company, in the opinion of the
Companys management, the ultimate liabilities resulting from such indemnification obligations will
not have a material adverse effect on its business, financial condition, results of operations and
cash flows.
The Company is a party to contracts and agreements with other third parties in which the Company
has agreed to indemnify such parties against certain liabilities in connection with claims by
unrelated parties. At September 30, 2011, and December 31, 2010, other non-current liabilities
include $12,785 and $12,919, respectively, of accruals for potential claims in connection with such
indemnities.
Viasystems certificate of incorporation provides that none of the directors and officers of the
Company 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, intentional misconduct, the unlawful payment of dividends or repurchasing of
capital stock, or transactions from which the director or officer derived improper personal
benefits.
The Company 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 the Companys management, the ultimate liabilities resulting from such lawsuits and
claims will not have a material adverse effect on its business, financial condition, results of
operations and cash flows.
Earnings or Loss Per Share
The Company computes basic earnings (loss) per share by dividing its net income (loss) attributable
to common stockholders for the period by the weighted average number of common shares outstanding
during the period. The computation of diluted earnings (loss) per share is based on the weighted
average number of common shares outstanding during the period plus, to the extent they are
dilutive, common stock equivalents which would arise from i) the exercise of stock options ii) the
conversion of convertible debt and iii) the weighted average number of unvested restricted stock
awards outstanding. The potentially dilutive impact of the Companys share-based compensation
awards is determined using the treasury stock method.
6
Table of Contents
The components used in the computation of basic and diluted earnings (loss) per share attributable
to common stockholders were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) attributable to common stockholders |
$ | 6,861 | $ | 10,211 | $ | 13,510 | $ | (131,120 | ) | |||||||
Basic weighted average shares outstanding |
19,980,792 | 19,979,015 | 19,980,368 | 17,270,223 | ||||||||||||
Dilutive effect of stock options |
1,782 | | 3,226 | | ||||||||||||
Dilutive effect of restricted stock awards |
149,164 | 245 | 139,968 | | ||||||||||||
Diluted weighted average shares outstanding |
20,131,738 | 19,979,260 | 20,123,562 | 17,270,223 | ||||||||||||
Basic earnings (loss) per share |
$ | 0.34 | $ | 0.51 | $ | 0.68 | $ | (7.59 | ) | |||||||
Diluted earnings (loss) per share |
$ | 0.34 | $ | 0.51 | $ | 0.67 | $ | (7.59 | ) | |||||||
For the three and nine months ended September 30, 2011, the effect of options to purchase
1,655,665 shares of common stock and the effect of long-term debt convertible into 6,593 shares of
common stock were excluded from the calculation of diluted weighted average shares outstanding
because their inclusion would be antidilutive. For the three and nine months ended September 30,
2010, the effect of options to buy 1,201,989 shares of common stock and the effect of long-term
debt convertible into 6,593 shares of common stock were excluded from the calculation of diluted
weighted average shares outstanding because their inclusion would be antidilutive.
Fair Value of Financial Instruments
The Company 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, the Company may use various valuation techniques 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.
The Company 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 7). 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 that are corroborated with publicly available market
information. When applicable, all such contracts covered by master netting agreements are reported
net, with gross positive fair values netted with gross negative fair values by counterparty.
7
Table of Contents
The Companys financial instruments consist of cash equivalents, accounts receivable, long-term
debt and other long-term obligations. For cash equivalents, accounts receivable and other
long-term obligations, the carrying amounts approximate fair value. The estimated fair values of
the Companys debt instruments and cash flow hedges as of September 30, 2011, and December 31,
2010, are as follows:
September 30, 2011 | ||||||||||
Fair | Carrying | |||||||||
Value | Amount | Balance Sheet Classification | ||||||||
Senior Secured Notes due 2015 |
$ | 239,939 | $ | 214,748 | Long-term debt, less current maturities | |||||
Senior Secured 2010 Credit Facility |
| | ||||||||
Zhongshan 2010 Credit Facility |
10,000 | 10,000 | Current maturities of long-term debt | |||||||
Senior Subordinated Convertible Notes due
2013 |
895 | 895 | Long-term debt, less current maturities | |||||||
Cash flow hedges deferred gain contracts |
2,524 | 2,524 | Prepaid expenses and other | |||||||
Cash flow hedges deferred loss contracts |
(1,190 | ) | (1,190 | ) | Accrued and other liabilities | |||||
Huiyang 2009 Credit Facility |
| |
December 31, 2010 | ||||||||||
Fair | Carrying | |||||||||
Value | Amount | Balance Sheet Classification | ||||||||
Senior Secured Notes due 2015 |
$ | 244,889 | $ | 213,551 | Long-term debt, less current maturities | |||||
Senior Secured 2010 Credit Facility |
| | ||||||||
Zhongshan 2010 Credit Facility |
10,000 | 10,000 | Current maturities of long-term debt | |||||||
Senior Subordinated Convertible Notes due 2013 |
895 | 895 | Long-term debt, less current maturities | |||||||
Cash flow hedges deferred gain contracts |
20 | 20 | Prepaid expenses and other | |||||||
Cash flow hedges deferred loss contracts |
| | ||||||||
Huiyang 2009 Credit Facility |
| |
The Company determined the fair value of the Senior Secured Notes due 2015 using quoted market
prices for the notes. As the balance owed on the Zhongshan 2010 Credit Facility (see Note 5) bears
interest at a variable rate, the carrying value of this debt instrument approximates its fair
value. The Company estimated the fair value of the Senior Subordinated Convertible Notes due 2013
to be their par value based upon their most recent trading activity.
Recently Issued Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (the FASB) issued a final standard which
will require the Company to change the way it presents other comprehensive income in its financial
statements. The Company is required to adopt this new standard beginning in 2012, and while it
will impact the Companys disclosures, it will not affect its results of operations or financial
condition.
In September 2011, the FASB issued a final standard which will permit the Company to perform an
optional qualitative assessment to screen for potential impairment of goodwill in lieu of the
currently required annual quantitative impairment test. Currently the Company conducts a
quantitative assessment of the carrying value of goodwill annually, as of the first day of its
fourth fiscal quarter, or more frequently if circumstances arise which would indicate the fair
value of a reporting unit with goodwill is below its carrying amount. The new standard will be
effective for the Company in 2012; however, early adoption is permitted. The new standard will not
change the way the Company accounts for goodwill and will not affect the Companys results of
operations or financial condition, but will provide another option for evaluating potential
goodwill impairment.
Noncontrolling Interest
In connection with the Merix Acquisition (see Note 2), the Company acquired a majority interest in
manufacturing facilities in Huiyang and Huizhou, China, in which a noncontrolling interest holder
retained an ownership of 5% and 15%, respectively. The area where the Companys Huizhou, China
facility is located is being redeveloped away from industrial use, and the Company does not expect
it will
be able to operate the facility beyond the December 31, 2012, expiration date of the facilitys
lease. The Company is currently in negotiations with the noncontrolling interest holder concerning
the closure of the facility, including the disposition of the facilitys assets.
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Table of Contents
The noncontrolling interest is reported as a component of equity, and the net income attributable
to the noncontrolling interest is reported as a reduction from net income (loss) to calculate net
income (loss) attributable to the Companys common stockholders. The Company leases its
manufacturing facilities in Huiyang and Huizhou, China and purchases consulting and other services
from the noncontrolling interest holder. During the three months ended September 30, 2011 and
2010, the Company paid the noncontrolling interest holder $238 and $283, respectively, related to
rental and service fees, and during the nine months ended September 30, 2011 and 2010, the Company
paid the noncontrolling interest holder $681 and $793, respectively, related to rental and service
fees. As of September 30, 2011, $66 was payable by the Company to the noncontrolling interest
holder related to rental and service fees.
A reconciliation of noncontrolling interest for the nine months ended September 30, 2011 and 2010,
is as follows:
2011 | 2010 | |||||||
Balance, beginning of year |
$ | 4,265 | $ | | ||||
Noncontrolling interest acquired in connection with Merix Acquisition |
| 3,004 | ||||||
Net income attributable to noncontrolling interest |
1,221 | 1,383 | ||||||
Distributions to noncontrolling interest holder |
(229 | ) | (783 | ) | ||||
Balance, September 30, |
$ | 5,257 | $ | 3,604 | ||||
2. The Merix Acquisition
On February 16, 2010, the Company acquired Merix Corporation (Merix) in a transaction pursuant to
which Merix became a wholly-owned subsidiary of the Company (the Merix Acquisition). The
following unaudited pro forma information presents the combined results of operations of Viasystems
and Merix for the nine months ended September 30, 2010, as if the Merix Acquisition had been
completed on January 1, 2010, with adjustments to give effect to pro forma events that are directly
attributable to the Merix Acquisition. The unaudited pro forma results do not reflect any
operating efficiencies or potential cost savings which may have resulted from the consolidation of
the operations of the companies, nor do they include restructuring expenses incurred
related to the Merix Acquisition and related transactions. Accordingly, these unaudited pro forma
results are presented for illustrative purposes only and are not intended to represent or be
indicative of the actual results of operations of the combined company that would have been
achieved had the acquisition occurred at the beginning of the period presented, nor are they
intended to represent or be indicative of future results of operations.
The following table summarizes the unaudited pro forma results of operations:
Nine Months Ended | ||||
September 30, 2010 | ||||
Net sales |
$ | 727,331 | ||
Net income |
$ | 22,759 | ||
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Table of Contents
3. Inventories
The composition of inventories is as follows:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Raw materials |
$ | 41,412 | $ | 33,175 | ||||
Work in process |
26,188 | 24,610 | ||||||
Finished goods |
43,214 | 37,092 | ||||||
Total |
$ | 110,814 | $ | 94,877 | ||||
Inventories are stated at the lower of cost (valued using the first-in, first-out method) or
market.
4. Property, Plant and Equipment
The composition of property, plant and equipment is as follows:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Land and buildings |
$ | 85,281 | $ | 84,187 | ||||
Machinery, equipment and systems |
558,660 | 510,388 | ||||||
Leasehold improvements |
52,658 | 43,690 | ||||||
Construction in progress |
10,607 | 7,017 | ||||||
707,206 | 645,282 | |||||||
Less: Accumulated depreciation |
(408,918 | ) | (372,169 | ) | ||||
Total |
$ | 298,288 | $ | 273,113 | ||||
5. Credit Facilities and Long-term Debt
The composition of long-term debt is as follows:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Senior Secured Notes due 2015, net |
$ | 214,748 | $ | 213,551 | ||||
Senior Secured 2010 Credit Facility |
| | ||||||
Zhongshan 2010 Credit Facility |
10,000 | 10,000 | ||||||
Huiyang 2009 Credit Facility |
| | ||||||
Senior Subordinated Convertible Notes due 2013 |
895 | 895 | ||||||
Capital leases |
773 | 951 | ||||||
226,416 | 225,397 | |||||||
Less: Current maturities |
(10,051 | ) | (10,258 | ) | ||||
Total |
$ | 216,365 | $ | 215,139 | ||||
As of September 30, 2011, $10,000 was outstanding under all of the Companys various credit
facilities, the Company had issued letters of credit totaling $417 and approximately $89,581 of the
credit facilities were unused and available.
Senior Secured Notes due 2015
The Companys $220,000 12% Senior Secured Notes due 2015 (the 2015 Notes) were issued at an
original issue discount (OID) of 96.269%. The OID was recorded on the Companys balance sheet as
a reduction of the liability for the 2015 Notes and is being amortized to interest expense over the
life of the 2015 Notes. As of September 30, 2011, the unamortized OID was $5,252.
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Senior Secured 2010 Credit Facility
The Companys senior secured revolving credit agreement (the Senior Secured 2010 Credit Facility)
provides a secured revolving credit facility in an aggregate principal amount of up to $75,000. In
August 2011, the Senior Secured 2010 Credit Facility was amended effective as of June 30, 2011,
primarily for the purpose of removing a limit on permitted capital expenditures, and increasing the
amount of eligible collateral allowed for certain receivables. As of September 30, 2011, the
Senior Secured 2010 Credit Facility was undrawn, and approximately $54,576 was unused and available
based on eligible collateral.
Zhongshan 2010 Credit Facility
In March 2011, the Companys Kalex Multi-Layer Circuit Board (Zhongshan) Limited subsidiary renewed
its unsecured revolving credit facility (the Zhongshan 2010 Credit Facility) with China
Construction Bank, Zhongshan Branch, which included an increase in the credit facility to 250
million Renminbi (RMB) (approximately $39,340 U.S. dollars based on the exchange rate as of
September 30, 2011) denominated in RMB and foreign currencies, including the U.S. dollar. As of
September 30, 2011, $10,000 in U.S. dollar loans was outstanding under the Zhongshan 2010 Credit
Facility at an interest rate of 5.38% and approximately $29,340 of the revolving credit facility
was unused and available.
Huiyang 2009 Credit Facility
In July 2011, the Companys Merix Printed Circuits Technology Limited (Huiyang) subsidiary renewed
its secured revolving credit facility (the Huiyang 2009 Credit Facility) with Industrial and
Commercial Bank of China, Limited (ICBC). The Huiyang 2009 Credit Facility provides for
borrowings of up to 36 million RMB (approximately $5,665 U.S. dollars based on the exchange rate as
of September 30, 2011) denominated in RMB and foreign currencies, including the U.S. dollar. As
of September 30, 2011, the Huiyang 2009 Credit Facility was undrawn, and $5,665 of the facility was
unused and available.
Senior Subordinated Convertible Notes due 2013
The Companys 4.0% senior subordinated convertible notes due 2013 (the 2013 Notes) are
convertible at the option of the holder into shares of the Companys common stock at a ratio of
7.367 shares per one thousand U.S. dollars of principal amount, subject to certain adjustments,
which is equivalent to a conversion price of $135.74 per share. The 2013 Notes are general
unsecured obligations of the Company and are subordinate in right of payment to all the Companys
existing and future senior debt. As of September 30, 2011, $895 aggregate principal amount of the
2013 Notes was outstanding.
6. Restructuring and Impairment
The reserve for restructuring activities at September 30, 2011, includes accruals for liabilities
incurred as part of i) restructuring activities initiated during the first quarter of 2010 to
realize certain cost synergies identified in the Merix Acquisition (the 2010 Acquisition
Restructuring) and ii) restructuring activities initiated during 2001 as a result of the economic
downturn that began in 2000 and continued into early 2003 and resulted in plant shutdowns and
downsizings which continued through 2005 (the 2001 Restructuring). As of September 30, 2011, the
reserve for restructuring and impairment charges includes $221 and $670, related to the 2010
Acquisition Restructuring and the 2001 Restructuring, respectively.
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The following tables summarize changes in the reserve for restructuring charges for the nine months
ended September 30, 2011 and 2010:
Nine Months Ended September 30, 2011 | ||||||||||||||||||||
Reserve | Reserve | |||||||||||||||||||
at | Cash | at | ||||||||||||||||||
12/31/10 | Net Charges | Payments | Adjustments | 9/30/11 | ||||||||||||||||
Restructuring Activities: |
||||||||||||||||||||
Personnel and severance |
$ | 445 | $ | (134 | ) | $ | (115 | ) | $ | | $ | 196 | ||||||||
Lease and other contractual commitments |
1,277 | | (605 | ) | 23 | (a) | 695 | |||||||||||||
Total restructuring charges |
$ | 1,722 | $ | (134 | ) | $ | (720 | ) | $ | 23 | $ | 891 | ||||||||
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
Reserve | Reserve | |||||||||||||||||||
at | Cash | at | ||||||||||||||||||
12/31/10 | Net Charges | Payments | Adjustments | 9/30/10 | ||||||||||||||||
Restructuring Activities: |
||||||||||||||||||||
Personnel and severance |
$ | 843 | $ | 3,318 | $ | (3,128 | ) | $ | | $ | 1,033 | |||||||||
Lease and other contractual commitments |
2,481 | 5,432 | (6,947 | ) | 643 | (b) | 1,609 | |||||||||||||
Total restructuring charges |
$ | 3,324 | $ | 8,750 | $ | (10,075 | ) | $ | 643 | $ | 2,642 | |||||||||
(a) | Represents accretion of interest on discounted restructuring liabilities. |
|
(b) | Represents $732 of restructuring liabilities assumed in the Merix Acquisition and $19
of accretion of interest on discounted restructuring liabilities, net of $108 of non-cash
expense items. |
During the nine months ended September 30, 2011, the Company reversed $134 of accrued
severance in the Printed Circuit Boards segment, which related to the 2010 Acquisition
Restructuring as a result of higher than expected employee attrition, which reduced the number of
planned involuntary terminations.
The Company recorded $8,750 of restructuring charges for the nine months ended September 30, 2010,
of which $4,716 was incurred in the Printed Circuit Boards segment related to the 2010 Acquisition
Restructuring, and $4,034 of which was incurred in Other (see Note 11), which primarily related
to the cancellation of a monitoring and oversight agreement in connection with a recapitalization
of the Company immediately prior to the Merix Acquisition.
7. Derivative Financial Instruments and Cash Flow Hedging Strategy
The Company uses foreign exchange forward contracts and cross-currency swaps that are designated
and qualify as cash flow hedges to manage certain of its foreign exchange rate risks. The
Companys objective is to limit potential losses in earnings or cash flows from adverse foreign
currency exchange rate movements. The Companys foreign currency exposure arises from the
transacting of business in a currency other than the U.S. dollar.
The Company enters into foreign exchange forward contracts and cross-currency swaps after
considering future use of foreign currencies, desired foreign exchange rate sensitivities and the
foreign exchange rate environment. Prior to entering into a hedge transaction, the Company
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 Company
generally does not hedge its exposure to the exchange rate variability of future cash flows beyond
the end of its next ensuing fiscal year.
The Company recognizes all such derivative contracts as either assets or liabilities in the balance
sheet and measures those contracts at fair value (see Note 1) through adjustments to other
comprehensive income, current earnings, or both, as appropriate. Accumulated other comprehensive
income as of September 30, 2011, and December 31, 2010, included net deferred gains on derivatives
of $704 (net of taxes of $630) and $20 (net of taxes of $0), respectively.
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The Company records deferred gains and losses related to cash flow hedges based on the fair value
of open derivative contracts on the reporting date, as determined using a market approach and Level
2 inputs (see Note 1). As of September 30, 2011, and December 31, 2010, all of the Companys
derivative contracts were in the form of Chinese RMB foreign exchange forward contracts and
cross-currency swaps which were designated and qualified as cash flow hedging instruments. The
following table summarizes the Companys outstanding derivative contracts:
September 30, 2011 | December 31, 2010 | |||||||
Notional amount in thousands of Chinese RMB |
2,852,993 | 589,923 | ||||||
Weighted average remaining maturity in months |
8.0 | 5.5 | ||||||
Weighted average exchange rate to one U.S. Dollar |
6.376 | 6.543 |
The realized gain or loss upon the settlement of foreign exchange forward contracts is
recorded in cost of goods sold at the time of settlement. For the three and nine months ended
September 30, 2011, gains of $1,128 and $1,940, respectively, were recorded in cost of goods sold
related to the settlement of foreign exchange forward contracts. For the three and nine months
ended September 30, 2010, a gain of $16 and a loss of $388, respectively, were recorded in cost of
goods sold related to the settlement of foreign exchange forward contracts.
8. Stock-based Compensation
Stock-based compensation expense recognized in the condensed consolidated statements of operations
was as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of goods sold |
$ | 119 | $ | 118 | $ | 377 | $ | (40 | ) | |||||||
Selling, general and administrative |
1,731 | 1,120 | 5,377 | 1,694 | ||||||||||||
$ | 1,850 | $ | 1,238 | $ | 5,754 | $ | 1,654 | |||||||||
Stock Options
The following table summarizes the stock option activity for the nine months ended September 30,
2011 and 2010:
2011 | 2010 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Shares | Price | Shares | Price | |||||||||||||
Outstanding at beginning of year |
1,194,640 | $ | 43.13 | 209,435 | $ | 150.99 | ||||||||||
Granted |
542,784 | 20.44 | 1,008,594 | 21.64 | ||||||||||||
Exercised |
(833 | ) | 21.88 | | | |||||||||||
Forfeited |
(48,926 | ) | 28.99 | (16,040 | ) | 70.22 | ||||||||||
Outstanding at September 30, |
1,687,665 | 36.25 | 1,201,989 | 43.52 | ||||||||||||
Options exercisable at September 30, |
678,106 | $ | 58.98 | 199,603 | $ | 150.99 | ||||||||||
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The weighted average fair value of options granted during the nine months ended September 30,
2011 and 2010, was $10.22 and $10.64, respectively, estimated on the date of each grant using the
Black-Scholes option-pricing model with the following assumptions:
2011 | 2010 | |||
Expected life of options |
4.3 years | 4.3 years | ||
Risk free interest rate |
0.91% to 2.39% | 1.44% to 2.26% | ||
Expected volatility of stock |
60.72% to 62.73% | 59.66% to 60.26% | ||
Expected dividend yield |
None | None |
The Companys common stock was listed and began trading on the NASDAQ on February 17, 2010.
As there was insufficient historical data about the Companys common stock, the Company estimated
the expected volatility of the underlying shares based on the blended historical stock volatility
of peer companies. As there was insufficient historical data about option activity under the 2010
Plan, the Company estimated the expected life of new option grants using the simplified method,
which estimates the expected life of an option to be the mid-point between the vesting date and
contractual term of the option.
The following table summarizes information regarding outstanding stock options as of September 30,
2011:
Outstanding | Exercisable | |||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||
Average | Average | Average | ||||||||||||||||||
Exercise | Number of | Remaining | Exercise | Number of | Exercise | |||||||||||||||
Price | Options | Contractual Life | Price | Options | Price | |||||||||||||||
$14.42 to $21.88 |
1,492,044 | 5.9 years | $ | 21.21 | 482,485 | $ | 21.67 | |||||||||||||
$150.99 |
195,621 | 2.4 years | 150.99 | 195,621 | 150.99 | |||||||||||||||
1,687,665 | 5.5 years | $ | 36.25 | 678,106 | $ | 58.98 | ||||||||||||||
Restricted Stock Awards
The following table summarizes restricted stock activity for the nine months ended September 30,
2011 and 2010:
2011 | 2010 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Grant Date | Grant Date | |||||||||||||||
Per Share | Per Share | |||||||||||||||
Shares | Fair Value | Shares | Fair Value | |||||||||||||
Outstanding at beginning of year |
257,932 | $ | 16.60 | | $ | | ||||||||||
Granted |
154,519 | 20.41 | 256,805 | 16.53 | ||||||||||||
Vested |
| | | | ||||||||||||
Forfeited |
| | | | ||||||||||||
Outstanding at September 30, |
412,451 | $ | 18.03 | 256,805 | $ | 16.63 | ||||||||||
9. Income Taxes
The Companys income tax provision relates to i) taxes provided on its pre-tax earnings based on
the effective tax rates in the jurisdictions where the income is earned and ii) other tax matters,
including changes in tax-related contingencies such as uncertain tax positions. Taxes provided on
pre-tax income relate primarily to the Companys profitable operations in China and Hong Kong.
Because of substantial net operating loss carryforwards related to the U.S. and other tax
jurisdictions, the Company has not
recognized income tax benefits in those jurisdictions for certain expenses, including the Companys
substantial interest expense.
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For the three and nine months ended September 30, 2011, the Companys tax provision includes net
expense of $3,966 and $11,380, respectively, related to pre-tax earnings and a net expense
(benefit) of $1,905 and $(2,787), respectively, related to other tax matters, which for the nine
months ended September 30, 2011, include reversals of $6,005 of uncertain tax positions due to
lapsing of the applicable statute of limitations. For the three and nine months ended September 30,
2010, the Companys tax provision included net expense of $3,194 and $8,132, respectively, related
to its pre-tax earnings and net expense of $2,791 and $5,364, respectively, related to other tax
matters.
10. Comprehensive Income
The components of comprehensive income, net of tax, are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income |
$ | 7,385 | $ | 10,920 | $ | 14,731 | $ | 6,054 | ||||||||
Change in fair value of derivatives, net of taxes |
(442 | ) | 311 | 684 | 739 | |||||||||||
Comprehensive income |
$ | 6,943 | $ | 11,231 | $ | 15,415 | $ | 6,793 | ||||||||
11. Business Segment Information
The Company operates in two segments: i) Printed Circuit Boards and ii) Assembly. The Printed
Circuit Boards segment consists of printed circuit board manufacturing facilities located in the
United States and 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 enclosure fabrication, and full
system assembly and testing. The assembly operations are conducted in manufacturing facilities in
China and Mexico. Assets and liabilities of the Companys corporate headquarters, along with those
of its closed printed circuit board and assembly operations, have not been allocated and remain in
Other for purpose of segment disclosures. Operating expenses of the Companys corporate
headquarters are allocated to each segment based on a number of factors, including relative sales
contribution. Expenses related to acquisitions and equity registrations are reported in Other
for purpose of segment disclosures.
Total assets by segment are as follows:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Total assets: |
||||||||
Printed Circuit Boards |
$ | 675,799 | $ | 625,884 | ||||
Assembly |
100,070 | 84,273 | ||||||
Other |
45,338 | 70,416 | ||||||
$ | 821,207 | $ | 780,573 | |||||
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Net sales and operating income (loss) by segment, together with a reconciliation to income
before income taxes, are as follows:
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales to external customers: |
||||||||||||||||
Printed Circuit Boards |
$ | 224,419 | $ | 208,898 | $ | 632,302 | $ | 555,214 | ||||||||
Assembly |
54,399 | 50,427 | 155,970 | 130,162 | ||||||||||||
Total |
$ | 278,818 | $ | 259,325 | $ | 788,272 | $ | 685,376 | ||||||||
Intersegment sales: |
||||||||||||||||
Printed Circuit Boards |
$ | 2,140 | $ | 3,167 | $ | 8,470 | $ | 9,171 | ||||||||
Assembly |
| | | | ||||||||||||
Total |
$ | 2,140 | $ | 3,167 | $ | 8,470 | $ | 9,171 | ||||||||
Operating income (loss): |
||||||||||||||||
Printed Circuit Boards |
$ | 20,845 | $ | 23,637 | $ | 43,260 | $ | 51,394 | ||||||||
Assembly |
683 | 2,173 | 5,019 | 4,121 | ||||||||||||
Other |
(95 | ) | (37 | ) | (516 | ) | (8,681 | ) | ||||||||
Total |
21,433 | 25,773 | 47,763 | 46,834 | ||||||||||||
Interest expense, net |
7,235 | 7,323 | 21,668 | 23,649 | ||||||||||||
Amortization of deferred financing costs |
503 | 512 | 1,511 | 1,491 | ||||||||||||
Loss on early extinguishment of debt |
| | | 706 | ||||||||||||
Other, net |
439 | 1,033 | 1,260 | 1,438 | ||||||||||||
Income before income taxes |
$ | 13,256 | $ | 16,905 | $ | 23,324 | $ | 19,550 | ||||||||
12. Shelf Registration Statement
The Company filed a shelf registration statement with the Securities and Exchange Commission that
became effective as of April 7, 2011, and will allow the Company to sell up to $150,000 of equity or
other securities described in the registration statement in one or more offerings. The shelf
registration statement gives the Company greater flexibility to raise funds from the sale of its
securities, subject to market conditions and its capital needs. In addition, the shelf
registration statement includes shares of the Companys common stock currently owned by VG
Holdings, LLC, such that VG Holdings, LLC may offer and sell, from time to time, up to 15,562,558
shares of the Companys common stock. The Company will not receive any proceeds from the sale of
common stock by VG Holdings, LLC, but may incur expenses in connection with the sale of those
shares.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the unaudited condensed consolidated
financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the
Report).
We have made certain forward-looking statements in this Report under the protection of the safe
harbor for forward-looking statements within the meaning of the Private Securities Litigation
Reform Act. Such forward-looking statements include those statements made in the section titled
Managements Discussion and Analysis of Financial Condition and Results of Operations that are
based on our managements beliefs and assumptions and on information currently available to our
management. Forward-looking statements include information concerning our possible or assumed
future results of operations, business strategies, financing plans, competitive position, potential
growth opportunities and effects of competition. Forward-looking statements include all statements
that are not historical facts and can be identified by the use of forward-looking terminology such
as the words believes, expects, may, anticipates, intends, plans, estimates or the
negative thereof or other similar expressions or comparable terminology.
Forward-looking statements involve risks, uncertainties and assumptions and are not guarantees of
future events and results. Actual results may differ materially from anticipated results expressed
or implied in these forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update forward-looking
statements after we file this Report, except to the extent required by law.
You should understand that many important factors could cause our results to differ materially from
those expressed in forward-looking statements. These factors include, but are not limited to,
global economic conditions, fluctuations in our operating results and customer orders, our
competitive environment, our reliance on our largest customers, risks associated with our
international operations, our ability to protect our patents and trade secrets, environmental laws
and regulations, our substantial indebtedness and our ability to comply with the terms thereof and
being controlled by VG Holdings, LLC (VG Holdings). Please refer to the Risk Factors section
of this Report and in our Annual Report on Form 10-K for the year ended December 31, 2010, for
additional factors that could materially affect our financial performance.
Company Overview
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. 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, flight control systems and complex industrial, medical and other technical
instruments.
We have ten manufacturing facilities, including two in the United States and eight located outside
of the United States that allow us to take advantage of low cost, high quality manufacturing
environments, while serving a broad base of customers around the globe. Our PCB products are
produced in our two domestic facilities and four of our seven facilities in China. Our E-M
Solutions products and services are provided from our other three facilities in China 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 Hong Kong, China, the Netherlands, England, Canada, Mexico and the United
States.
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Table of Contents
We 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.
We are a supplier to approximately 800 original equipment manufacturers,
or OEMs, and contract electronic manufacturers, or CEMs, in numerous end markets. Our OEM customers include industry leaders such as
Alcatel-Lucent, S.A., Autoliv, Inc., Robert Bosch GmbH, Ciena Corporation, Cisco Systems, Inc., Continental AG, Ericsson AB, General
Electric Company, Harris Corporation, Hitachi, Ltd., Huawei Technologies Co., Ltd., Motorola Solutions, Inc., NetApp, Inc., QLogic
Corporation, Rockwell Automation, Inc., Rockwell Collins, Inc., TRW Automotive Holdings Corp. and Xyratex Ltd. In addition, we have
good working relationships with industry-leading CEMs such as Benchmark Electronics, Inc., Celestica Inc., Jabil Circuit, Inc. and
Plexus Corp., and we supply PCBs and E-M Solutions products to these customers as well.
Business Overview
Our results through September 30, 2011 reflect solid demand for our products across the markets we
serve. During the first three quarters of the year, we have continued to expand our PCB production
capacity in China. We expect that this capacity expansion will allow us to i) replace the capacity
we will lose in connection with the required closure of our Huizhou, China factory at the end of
2012, ii) reduce the adverse impacts on our capacity caused by mandated energy conservation
shutdowns in China, and iii) meet increased demand from our customers. During the third quarter,
we began construction on leasehold improvements to a new manufacturing facility in Juarez, Mexico
and expect to complete the move of our existing Mexico operations to the new facility by the end of
the year. The new facility will provide expanded manufacturing capacity and capabilities.
Our results through September 30, 2011 also reflect increased costs of labor and materials,
especially at our facilities in China, inefficiencies associated with unscheduled production
interruptions at some of our facilities due to i) unplanned maintenance during the first quarter,
ii) power rationing by the Chinese government that began in May 2011, as well as inefficiencies
associated with our preparations to relocate our E-M Solutions facility in Juarez, Mexico. In
addition to minimum wage increases, the Chinese government implemented employment-based social
taxes on foreign-owned enterprises. A continued tightening of labor resources in China resulted in
higher than usual levels of overtime pay costs at several of our PCB facilities. In addition to
increased costs for commodities like copper and gold, a sustained high demand for electronic
components allowed our materials suppliers to command higher prices for their products. We expect material costs will remain stable through the end of
2011. As a result of these factors, during the second quarter of 2011, we began implementing
selling price increases to compensate for labor and materials cost increases, and substantially all
of the price increases were implemented by the beginning of our third quarter.
We expect our results of operations for the fourth quarter to be impacted, as is generally the
case, by holiday periods, including the Chinese National Day holiday period at the
beginning of October and the western world holidays leading up to New Years. We expect that a
combination of decreased third quarter bookings and these holiday effects, may result in a
decline in total sales, similar to the decline we experienced in the fourth quarter of 2010.
As a component manufacturer, our sales trends generally reflect the market conditions in the
industries we serve. In the automotive market, we are adding capacity at our principal automotive
qualified PCB manufacturing facilities i) as a result of increased demand and ii) in anticipation of the expiration
of the lease of our facility in Huizhou, China at the end of 2012. In addition to forecasted
increases in general demand, we expect that the recent flooding in Thailand, which has idled PCB
manufacturing facilities belonging to some of our competitors, may lead to additional market share
with existing customers in the automotive end-user market as they seek alternative suppliers.
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In the industrial & instrumentation market, we have experienced increased
demand from our broad base of customers, and in order to accommodate growing demand for North America based E-M Solutions products
and services in this end-user market, we will relocate our manufacturing operations in Juarez, Mexico to a larger facility by the end
of 2011. While we expect sales trends in this diverse market will follow global economic trends, demand during the last quarter of 2011
may be adversely affected by corrections of inventory levels by some of our customers.
The telecommunications end-user market remains dynamic as the customers we supply produce a mixture
of products which include both new, cutting edge applications as well as more mature products with
varying levels of demand. We continue to position ourselves to take advantage of growth
opportunities related to the introduction of next generation wireless technology standards.
In the computer and datacommunications market, we continue to pursue new customers and programs for
both our Printed Circuit Boards and Assembly segments, especially in the high-end server and
storage sectors; however, demand in this sector during the last quarter of 2011 may be adversely
affected by corrections of inventory levels by some of our customers.
In the military and aerospace market, we continue to pursue market share gains as a result of
continuing customer qualification activity and the NADCAP accreditation received by our Forest
Grove, Oregon facility and the AS9100 certification received by our Huiyang, China facility in
2010; however, overall demand trends in this market have been negatively impacted by budget
pressures on U.S. government defense spending.
Results of Operations
Three Months Ended September 30, 2011, Compared with the Three Months Ended September 30, 2010
Net Sales. Net sales for the three months ended September 30, 2011, were $278.8 million,
representing a $19.5 million, or 7.5%, increase from net sales during the same period in 2010. Net
sales by end-user market for the three months ended September 30, 2011 and 2010, were as follows:
End-User Market (dollars in millions) | 2011 | 2010 | ||||||
Automotive |
$ | 113.5 | $ | 90.7 | ||||
Industrial & Instrumentation |
67.4 | 62.5 | ||||||
Telecommunications |
47.5 | 62.9 | ||||||
Computer and Datacommunications |
40.3 | 33.1 | ||||||
Military and Aerospace |
10.1 | 10.1 | ||||||
Total Net Sales |
$ | 278.8 | $ | 259.3 | ||||
Our net sales of products for end use in the automotive market increased by approximately
$22.8 million, or 25.1%, during the three months ended September 30, 2011, compared to the same
period in 2010. The increase was a result of increased global demand from our automotive customers
and price increases implemented during the second quarter of 2011.
Net sales of products ultimately used in the industrial & instrumentation markets for the three
months ended September 30, 2011, increased by approximately $4.9 million, or 7.8%, compared to the
same period in 2010. The increase in net sales was driven primarily by increased global demand
across our broad base of existing industrial and instrumentation customers, including wind power
and elevator controls related programs, as well as new customer and program wins.
Net sales of products ultimately used in the telecommunications market decreased by approximately
$15.4 million, or 24.5%, for the quarter ended September 30, 2011, as compared to the quarter ended
September 30, 2010. The sales decline was primarily a result of reduced demand for certain
programs we supply and the loss of one customer in our Assembly segment which elected to bring
manufacturing of the parts we supplied in-house.
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During the third quarter of 2011, net sales of our products for use in the computer and
datacommunications market increased by approximately $7.2 million, or 21.8%, as compared to the
same period in the prior year. The increase was driven by increased demand and sales associated
with new customers and programs.
Net sales to the military and aerospace end-user market remained relatively flat for the quarter
ended September 30, 2011, as compared to the quarter ended September 30, 2010. Sales growth we
experienced in this end-market during the first half of 2011 stabilized during the third quarter as
new customer activity was offset by reduced demand stemming from reductions in government spending.
Net sales by segment for the three months ended September 30, 2011 and 2010, were as follows:
Segment (dollars in millions) | 2011 | 2010 | ||||||
Printed Circuit Boards |
$ | 226.6 | $ | 212.0 | ||||
Assembly |
54.4 | 50.5 | ||||||
Eliminations |
(2.2 | ) | (3.2 | ) | ||||
Total Net Sales |
$ | 278.8 | $ | 259.3 | ||||
Printed Circuit Boards segment net sales, including intersegment sales, for the three months ended
September 30, 2011, increased by $14.6 million, or 6.9%, to $226.6 million compared with the third
quarter of 2010. The increase was a result of increases in net sales in our automotive and
computer and datacommunications end-user markets, partially offset by a decline in net sales in our
telecommunications and industrial & instrumentation end-user markets.
Assembly segment net sales increased by $3.9 million, or 7.7%, to $54.4 million for the three
months ended September 30, 2011, compared with the third quarter of 2010. The increase was
primarily the result of improved demand in wind power and elevator controls related programs in our
industrial & instrumentation end-user market and a new program win in our computer and
datacommunications end-user market, partially offset by a sales decline in our telecommunications
end-user market related to reduced demand and the loss of one customer which elected to bring
manufacturing of the parts we supplied in-house.
Cost of Goods Sold. Cost of goods sold, exclusive of items shown separately in the unaudited
condensed consolidated statement of operations, for the three months ended September 30, 2011, was
$219.2 million, or 78.6%, of consolidated net sales. This represents a 2.2 percentage point
increase from the 76.4% of consolidated net sales for the third quarter of 2010. The increase was
due primarily to increased costs of labor and materials, and manufacturing inefficiencies
associated with government mandated power rationing in China, partially offset by sales price
increases.
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 which
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. Our results for the third quarter of 2011
reflect increased costs of labor and materials as well as inefficiencies associated with power
rationing in China. The increase in labor costs was due to minimum wage increases and newly
implemented employment-based social taxes in China, as well as a labor shortage in some parts of
China, which contributed to higher than usual attrition, resulting in increased overtime costs.
The increase in materials costs was due to increased costs for commodities, including copper and
gold, as well as a sustained high demand for electronic components in our industry, which allowed
our materials suppliers to command higher prices for their products. Beginning in May 2011, the
Chinese government began rationing electric power in certain areas of the country, which led to
unscheduled production interruptions at some of our manufacturing
facilities. We expect we will continue to experience significant pressures on materials costs and
wages during the remainder of 2011, and we expect that power rationing in China may continue
through the middle of the fourth quarter.
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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. Costs
as a percentage of sales during the third quarter were negatively impacted by increased labor,
overhead and material costs.
Selling, General and Administrative Costs. Selling, general and administrative costs increased
$0.7 million, or 3.4%, to $21.2 million for the three months ended September 30, 2011, compared to
the same period in the prior year. The increase in selling, general and administrative costs was
primarily a result of a $0.6 million increase in non-cash stock compensation expense related to
awards granted under our 2010 Equity Incentive Plan.
Depreciation. Depreciation expense for the three months ended September 30, 2011, was $16.5
million, including $15.6 million related to our Printed Circuit Boards segment and $0.9 million
related to our Assembly segment. Depreciation expense in our Printed Circuit Boards segment
increased by approximately $2.3 million, or 14.4%, compared to the same period last year primarily
as a result of increased investments in new equipment during the past twelve months. Depreciation
expense in our Assembly segment decreased by $0.2 million as compared to the same period last year.
Operating Income. Operating income of $21.4 million for the three months ended September 30, 2011,
represents a decrease of $4.4 million compared to operating income of $25.8 million for the three
months ended September 30, 2010. The primary sources of operating income (loss) for the three
months ended September 30, 2011 and 2010, were as follows:
Source (dollars in millions) | 2011 | 2010 | ||||||
Printed Circuit Boards segment |
$ | 20.8 | $ | 23.6 | ||||
Assembly segment |
0.7 | 2.2 | ||||||
Other |
(0.1 | ) | | |||||
Operating income |
$ | 21.4 | $ | 25.8 | ||||
Operating income from our Printed Circuit Boards segment decreased by $2.8 million to $20.8 million
for the three months ended September 30, 2011, compared to $23.6 million for the same period in the
prior year. The decrease is primarily the result of the higher cost of goods sold relative to
sales and increased depreciation, partially offset by increased sales volume and price increases.
Operating income from our Assembly segment was $0.7 million for the three months ended September
30, 2011, compared to $2.2 million in the third quarter of 2010. The decrease is primarily related
to sales declines in the telecommunications end user marker, changes in sale mix in the industrial
and instrumentation end-user market, and inefficiencies associated with preparations to relocate
our E-M Solutions facility in Juarez, Mexico.
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 board of directors, lenders 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.
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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:
| Stock Compensation non-cash charges associated with recognizing the fair value of stock
options and restricted stock awards granted to employees and directors. We exclude these
charges to more clearly reflect comparable year-over-year cash operating performance. |
| Costs Relating to Acquisitions and Equity Registrations professional fees and other
non-recurring costs and expenses associated with mergers and acquisition activity as well as
costs associated with capital transactions, such as equity registrations. We exclude these
costs and expenses because they are not representative of our customary operating expenses. |
| Restructuring and Impairment Charges which consist primarily of facility closures and
other headcount reductions. Historically, a significant amount of these restructuring and
impairment charges have been 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. |
Reconciliations of operating income to Adjusted EBITDA for the three months ended September 30,
2011 and 2010, were as follows:
Source (dollars in millions) | 2011 | 2010 | ||||||
Operating income |
$ | 21.4 | $ | 25.8 | ||||
Add-back: |
||||||||
Depreciation and Amortization |
16.9 | 14.9 | ||||||
Non-cash stock compensation expense |
1.9 | 1.2 | ||||||
Costs relating to acquisitions and equity registrations |
0.1 | | ||||||
Restructuring and impairment |
| | ||||||
Adjusted EBITDA |
$ | 40.3 | $ | 41.9 | ||||
For the three months ended September 30, 2011, Adjusted EBITDA decreased by $1.6 million, or 3.8%,
as compared to the same period of 2010, primarily as a result of an increase in costs of goods sold
relative to net sales.
Interest Expense, Net. Interest expense, net of interest income, was $7.2 million for the three
month period ended September 30, 2011, compared to $7.3 million for the quarter ended September 30,
2010. Interest expense related to our 12.0% Senior Secured Notes due 2015 (the 2015 Notes) is
approximately $7.0 million in each quarter as the $220 million principal, the 12.0% interest rate
and the amortization of the $8.2 million original issue discount remain unchanged since the 2015
Notes were issued in 2009.
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Income Taxes. Our income tax provision relates to i) taxes provided on our pre-tax earnings based
on the effective tax rates in the jurisdictions where the income is earned and ii) other tax
matters, including changes in tax-related contingencies such as uncertain tax positions. Taxes
provided on pre-tax income relate primarily to our profitable operations in China and Hong Kong.
Because of substantial net operating loss carryforwards related to the U.S. and other tax
jurisdictions, we have not recognized income tax benefits in those jurisdictions for certain
expenses, including our substantial interest expense. For the three months ended September 30,
2011, our tax provision includes net expense of $4.0 million related to pre-tax earnings, and $1.9
million related to other tax matters. For the three months ended September 30, 2010, our tax
provision included net expense of $3.2 million related to our pre-tax earnings and net expense of
$2.8 million related to other tax matters.
Nine Months Ended September 30, 2011, Compared with the Nine Months Ended September 30, 2010
Net Sales. Net sales for the nine months ended September 30, 2011, were $788.3 million,
representing an $102.9 million, or 15.0%, increase from net sales during the same period in 2010.
Assuming the Merix Acquisition had occurred on January 1, 2010, on a pro forma basis, net sales
increased by approximately $61.0 million, or 8.4%, for the nine months ended September 30, 2011, as
compared to the same period in 2010.
Net sales by end-user market for the nine months ended September 30, 2011 and 2010, on a historical
basis, and as of September 30, 2010, on a pro forma basis as if the Merix Acquisition had been
completed
on January 1, 2010, were as follows:
Pro | ||||||||||||
Historical | forma | |||||||||||
End-User Market (dollars in millions) | 2011 | 2010 | 2010 | |||||||||
Automotive |
$ | 304.9 | $ | 245.5 | $ | 253.7 | ||||||
Industrial & Instrumentation |
201.2 | 162.5 | 172.1 | |||||||||
Telecommunications |
142.6 | 162.5 | 174.7 | |||||||||
Computer and Datacommunications |
108.0 | 89.5 | 96.5 | |||||||||
Military and Aerospace |
31.6 | 25.4 | 30.3 | |||||||||
Total Net Sales |
$ | 788.3 | $ | 685.4 | $ | 727.3 | ||||||
Our net sales of products for end use in the automotive market increased by approximately
$59.4 million, or 24.2%, to $304.9 million for the nine months ended September 30, 2011, compared
to the same period in 2010. Assuming the Merix Acquisition had occurred on January 1, 2010, on a
pro forma basis, net sales of products for end use in this market increased by approximately $51.2
million, or 20.2%, as compared with the same period in 2010. The increase is a result of increased
global demand from our automotive customers and price increases implemented during the second and
third quarters of 2011, partially offset by a temporary reduction in production capacity at our
principal automotive qualified PCB facility during the first quarter of 2011 due to unscheduled
maintenance.
Net sales of products ultimately used in the industrial & instrumentation market for the nine
months ended September 30, 2011, increased by approximately $38.7 million, or 23.8%, to $201.2
million, as compared with the same period in 2010. Assuming the Merix Acquisition had occurred on
January 1, 2010, on a pro forma basis, net sales of products for end use in this market increased
by approximately $29.1 million, or 16.9%, as compared with the same period in 2010. The increase
in net sales was driven primarily by increased global demand across our broad base of existing
industrial and instrumentation customers, including wind power and elevator controls related
programs, as well as new customer and program wins.
Net sales of products ultimately used in the telecommunications market for the nine months ended
September 30, 2011, decreased by approximately $19.9 million, or 12.2%, to $142.6 million, as
compared with the nine months ended September 30, 2010. Assuming the Merix Acquisition had
occurred on
January 1, 2010, on a pro forma basis, net sales of products for use in this end market decreased
by approximately $32.1 million, or 18.4%, as compared to the same period in 2010. The sales
decline was primarily a result of reduced demand for certain programs we supply, inventory
corrections from one of our larger customers and the loss of one customer in our Assembly segment
which elected to bring manufacturing of the parts we supplied in-house.
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During the first nine months of 2011, net sales of our products for use in the computer and
datacommunications market increased by approximately $18.5 million, or 20.7%, to $108.0 million, as
compared to the same period in the prior year. Assuming the Merix Acquisition had occurred on
January 1, 2010, on a pro forma basis, net sales of products for use in this end market increased
by approximately $11.5 million, or 11.9%, as compared with the same period in 2010. The increase
was driven by sales associated with new customers and programs, partially offset by reduced demand
from a large datacommunications customer.
Net sales to the military and aerospace end-user market increased $6.2 million, or 24.4%, to $31.6
million for the nine months ended September 30, 2011, as compared to the nine months ended
September 30, 2010. Assuming the Merix Acquisition had occurred on January 1, 2010, on a pro forma
basis, net sales of products for use in the military and aerospace end-user market increased by
approximately $1.3 million, or 4.3%, as compared with the same period in 2010. The increase was
primarily a result of market share growth stemming from customer qualification activities initiated
during 2010, which have continued in 2011.
Net sales by segment for the nine months ended September 30, 2011 and 2010, were as follows:
Historical | Pro Forma | |||||||||||
Segment (dollars in millions) | 2011 | 2010 | 2010 | |||||||||
Printed Circuit Boards |
$ | 640.8 | $ | 564.4 | $ | 606.3 | ||||||
Assembly |
156.0 | 130.2 | 130.2 | |||||||||
Eliminations |
(8.5 | ) | (9.2 | ) | (9.2 | ) | ||||||
Total Net Sales |
$ | 788.3 | $ | 685.4 | $ | 727.3 | ||||||
Printed Circuit Boards segment net sales, including intersegment sales, for the nine months ended
September 30, 2011, increased by $76.4 million, or 13.5%, to $640.8 million. Assuming the Merix
Acquisition had occurred on January 1, 2010, on a pro forma basis, Printed Circuit Boards segment
net sales, including intersegment sales, for the nine months ended September 30, 2011, increased by
$34.5 million, or 5.7%, as compared to the same period in the prior year. This increase is a
result of increases in net sales in our automotive, industrial & instrumentation, computer and
datacommunications and military and aerospace end-user markets, partially offset by a decline in
net sales in our telecommunications end-user markets.
Assembly segment net sales increased by $25.8 million, or 19.8%, to $156.0 million for the nine
months ended September 30, 2011, compared with the first nine months of 2010. The increase was
primarily the result of improved demand in wind power and elevator controls related programs in our
industrial & instrumentation end-user market, partially offset by a sales decline in our
telecommunications end-user market.
Cost of Goods Sold. Cost of goods sold, exclusive of items shown separately in the unaudited
condensed consolidated statement of operations for the nine months ended September 30, 2011, was
$632.0 million, or 80.2%, of consolidated net sales. This represents a 3.3 percentage point
increase from the 76.9% of consolidated net sales for the nine months ended September 30, 2010.
The increase was due primarily to rising costs of materials and labor and manufacturing
inefficiencies associated with government mandated power rationing in China, partially offset by
sales price increases. To compensate for rising costs, we
began to implement price increases during the second quarter of 2011; however, our costs for
materials and labor grew faster than we could implement price increases.
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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 which
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. Our results for the first nine months of 2011
reflect increasing costs of labor and materials, significant unscheduled maintenance at one of our
PCB facilities during the first quarter of 2011, inefficiencies in connection with restarting
production after scheduled shutdowns around the time of the Chinese New Year holiday in February
2011, as well as inefficiencies associated with power rationing in China. The increase in labor
costs was due to minimum wage increases and newly implemented employment-based social taxes in
China, as well as a labor shortage in some parts of China which contributed to higher than usual
attrition, resulting in increased overtime costs and the payment of retention bonuses. The
increase in materials costs was due to increased costs for commodities, including copper and gold,
as well as a sustained high demand for electronic components in our industry, which allowed our
materials suppliers to command higher prices for their products. Beginning in May 2011, the
Chinese government began rationing electric power in certain areas of the country, which led to
unscheduled production interruptions at some of our manufacturing facilities. We expect we will
continue to experience significant pressures on materials costs and wages during the remainder of
2011, and we expect that power rationing in China may continue through the middle of the fourth
quarter.
Cost of goods sold during the first nine months of 2010 reflected an inventory fair value
adjustment of approximately $0.9 million related to the Merix Acquisition, which negatively
impacted the ratio of cost of goods sold to net sales in that period.
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. Costs
as a percentage of sales during the first nine months were negatively impacted by increased labor
and material costs.
Selling, General and Administrative Costs. Selling, general and administrative costs decreased
$1.2 million, or 2.0%, to $58.7 million for the nine months ended September 30, 2011, compared to
the same period in the prior year. The net decline in selling, general and administrative costs
was primarily a result of a $5.1 million decline in costs relating to acquisitions and equity
registrations and reduced incentive compensation expense, partially offset by i) a $3.7 million
increase in non-cash stock compensation expense related to awards granted under our 2010 Equity
Incentive Plan, ii) costs associated with annual management meetings, which had been suspended in
2010, and iii) the impact of nine full months of selling, general and administrative costs
associated with the legacy Merix operations as compared with approximately seven and one-half
months of costs incurred subsequent to the mid-February acquisition date during the same period in
2010.
Depreciation. Depreciation expense for the nine months ended September 30, 2011, was $48.7
million, including $45.7 million related to our Printed Circuit Boards segment and $3.0
million related to our Assembly segment. Depreciation expense in our Printed Circuit
Boards segment increased by approximately $7.5 million, or 19.6%, compared to the same period last
year primarily as a result of increased investments in new equipment during the past twelve months
and the effect of approximately 1.5 months of additional depreciation during the period on fixed
assets acquired through the Merix Acquisition, as compared to the same period in 2010. Depreciation
expense in our Assembly segment declined by approximately $0.2 million as compared to the same
period last year.
Restructuring and Impairment. During the nine months ended September 30, 2011, we reversed
approximately $0.1 million of restructuring and impairment charges related to the integration of
the Merix business as a result of higher than expected employee attrition, which reduced the number
of planned involuntary terminations. For the nine months ended September 30, 2010, we recorded
restructuring
charges associated with the Merix Acquisition and related transactions which totaled approximately
$8.7 million. These charges included approximately $3.3 million related to personnel and severance
and approximately $5.4 million related to leases and other contractual commitments. We expect to
incur restructuring charges of approximately $0.5 million during the fourth quarter of 2011 in
connection with the relocation of our Juarez, Mexico facility. In addition, we expect we will
incur restructuring charges in 2012 in connection with the closure of our Huizhou, China facility,
due to the expiration of the facilitys lease at the end of that year.
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Operating Income. Operating income of $47.8 million for the nine months ended September 30, 2011,
represents an increase of $1.0 million compared to operating income of $46.8 million of the nine
months ended September 30, 2010. The primary sources of operating income (loss) for the nine
months ended September 30, 2011 and 2010, were as follows:
Source (dollars in millions) | 2011 | 2010 | ||||||
Printed Circuit Boards segment |
$ | 43.3 | $ | 51.4 | ||||
Assembly segment |
5.0 | 4.1 | ||||||
Other |
(0.5 | ) | (8.7 | ) | ||||
Operating income |
$ | 47.8 | $ | 46.8 | ||||
Operating income from our Printed Circuit Boards segment decreased by $8.1 million to $43.3 million
for the nine months ended September 30, 2011, compared to $51.4 million for the same period in the
prior year. The decrease was primarily the result of higher levels of cost of goods sold relative
to sales and increased depreciation costs, partially offset by increased sales levels, reduced
selling, general and administrative costs and reduced restructuring charges.
Operating income from our Assembly segment was $5.0 million for the nine months ended September 30,
2011, compared to $4.1 million for the same period of 2010. The increase is primarily the result
of increased sales volume.
The $0.5 million operating loss in the Other segment for the nine months ended September 30,
2011, relates primarily to professional fees associated with acquisitions and equity registrations.
The $8.7 million operating loss in the Other segment for the nine months ended September 30,
2010, relates to $4.0 million of restructuring charges and $4.7 million of merger related
professional fees and other costs related to the Merix Acquisition.
Adjusted EBITDA. Reconciliations of operating income to Adjusted EBITDA for the nine months ended
September 30, 2011 and 2010, were as follows:
Source (dollars in millions) | 2011 | 2010 | ||||||
Operating income |
$ | 47.8 | $ | 46.8 | ||||
Add-back: |
||||||||
Depreciation and Amortization |
50.0 | 42.8 | ||||||
Non-cash stock compensation expense |
5.8 | 1.7 | ||||||
Costs relating to acquisitions and equity registrations |
0.5 | 5.6 | ||||||
Restructuring and impairment |
(0.1 | ) | 8.8 | |||||
Adjusted EBITDA |
$ | 104.0 | $ | 105.7 | ||||
Adjusted EBITDA for the first nine months of 2011 decreased by $1.7 million, or 1.6%, as compared
to the same period in 2010, primarily as a result of a 3.3 percentage point increase in costs of
goods sold
relative to net sales, partially offset by a 15.0% increase in net sales and lower selling, general
and administrative costs.
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Interest Expense, Net. Interest expense, net of interest income, was $21.7 million for the nine
month period ended September 30, 2011, compared to $23.6 million, for the nine months ended
September 30, 2010. Interest expense related to our 2015 Notes is approximately $21.0 million in
each nine month period as the $220 million principal, the 12.0% interest rate and the amortization
of the $8.2 million original issue discount remain unchanged since the 2015 Notes were issued in
2009. The $1.9 million decrease in interest expense for the nine months ended September 30, 2011,
as compared to the same period in the prior year, was primarily a result of the conversion of our
Mandatory Redeemable Class A Junior preferred stock (the Class A Preferred) to common shares in
2010. Interest expense related to the Class A Preferred was approximately $2.1 million for the
nine months ended September 30, 2010.
Income Taxes. Our income tax provision relates to i) taxes provided on our pre-tax earnings based
on the effective tax rates in the jurisdictions where the income is earned and ii) other tax
matters, including changes in tax-related contingencies such as uncertain tax positions. Taxes
provided on pre-tax income relate primarily to our profitable operations in China and Hong Kong.
Because of substantial net operating loss carryforwards related to the U.S. and other tax
jurisdictions, we have not recognized income tax benefits in those jurisdictions for certain
expenses, including our substantial interest expense. For the nine months ended September 30, 2011,
our tax provision includes net expense of $11.4 million related to pre-tax earnings and a net
benefit of $2.8 million related to other tax matters, including a reversal of $6.0 million of
uncertain tax positions due to lapsing of the applicable statute of limitations. For the nine
months ended September 30, 2010, our tax provision included net expense of $8.1 million related to
our pre-tax earnings and net expense of $5.4 million related to other tax matters.
Liquidity and Capital Resources
Liquidity
We believe that cash flow from operations and available cash on hand will be sufficient to fund our
recurring capital expenditure requirements and other currently anticipated cash needs for the next
twelve months. 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. We cannot be assured however, that our
business will generate sufficient cash flow from operations or at all, that currently anticipated cost
savings and operating improvements will be realized on schedule, that future borrowings will be
available to us under our credit facilities or that we will be able to raise third party financing
in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
We may need to refinance all or a portion of our indebtedness.
Our principal liquidity requirements over the next twelve months will be for i) $13.2 million
semi-annual interest payments required in connection with the 2015 Notes, payable in January and
July each year, ii) capital expenditure needs of our continuing operations, iii) working capital
needs, iv) scheduled capital lease payments for equipment leased by our Printed Circuit Boards
segment and v) debt service requirements in connection with our credit facilities. In addition,
the potential for acquisitions of other businesses in the future and/or the redemption of some
portion of our 2015 Notes may require additional debt or equity financing.
Cash Flow
Net cash provided by operating activities for the nine months ended September 30, 2011 and 2010,
was $40.0 million and $33.3 million, respectively. The increase in net cash from operating
activities is primarily due to improved net income, partially offset by investments in working
capital.
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Net cash used in investing activities was $74.6 million for the nine months ended September 30,
2011, and primarily related to capital expenditures. 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. Due to growing market demand and the need to
transfer the production capacity from our Huizhou, China facility to our other PCB facilities in
China, we expect to commit to and spend the remaining capital expenditures related to the capital
expansion projects over the next 15 months. Our Printed Circuit Boards segment is a
capital-intensive business that requires annual spending to keep pace with customer 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. Total capital
expenditures by our Printed Circuit Boards segment for the nine months ended September 30, 2011,
were $69.9 million.
Net cash used in investing activities was $48.8 million for the nine months ended September 30,
2010, and related to $21.6 million cash consideration paid, net of cash acquired, to acquire Merix
Corporation (Merix), and capital expenditures of $36.9 million, partially offset by cash proceeds
of $9.7 million from the sale of a vacant manufacturing facility in Hong Kong, China that was
acquired in the acquisition of Merix.
Net cash used in financing activities was $0.4 million for the nine months ended September 30,
2011, which related to repayments of capital lease obligations and distributions to the
noncontrolling interest holder. Net cash used in financing activities was $8.1 million for the
nine months ended September 30, 2010, which related primarily to financing fees on our Senior
Secured 2010 Credit Facility and repayments of capital lease obligations. The repayment of the
2011 Notes in January 2010, was funded by restricted cash held in escrow since the issuance of the
2015 Notes in 2009.
Financing Arrangements
Shelf Registration Statement
We filed a shelf registration statement with the Securities and Exchange Commission that became
effective on April 7, 2011, and will allow us to sell up to $150 million of equity or other
securities described in the registration statement in one or more offerings. The shelf
registration statement gives us greater flexibility to raise funds from the sale of our securities,
subject to market conditions and our capital needs. In addition, the shelf registration statement
includes shares of our common stock currently owned by VG Holdings, LLC, such that VG Holdings, LLC
may offer and sell, from time to time, up to 15,562,558 shares of our common stock. We will not
receive any proceeds from the sale of common stock by VG Holdings, LLC, but we may incur expenses
in connection with the sale of those shares.
Senior Secured Notes due 2015
Our 2015 Notes were issued at an original issue discount (OID) of 96.269%. The OID was recorded
on our balance sheet as a reduction of the liability for the 2015 Notes, and is being amortized to
interest expense over the life of the notes. As of September 30, 2011, the unamortized OID was
$5.3 million. The 2015 Notes bear interest at 12% per annum, payable semi-annually on January 15
and July 15 of each year. The Company may redeem the 2015 Notes after July 16, 2012, at a maximum
redemption price of 106%.
Senior Secured 2010 Credit Facility
In August 2011, our Senior Secured 2010 Credit Facility was amended effective as of June 30, 2011,
primarily for the purpose of removing a limit on permitted capital expenditures, and increasing the
amount of eligible collateral allowed for certain receivables. As of September 30, 2011, the
Senior
Secured 2010 Credit Facility was undrawn, and approximately $54.6 million was unused and available
based on eligible collateral.
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Zhongshan 2010 Credit Facility
In March 2011, our Kalex Multi-layer Circuit Board (Zhongshan) Limited subsidiary renewed its
revolving credit facility (the Zhongshan 2010 Credit Facility) with China Construction Bank,
Zhongshan Branch, which included an increase in the credit facility to 250 million Renminbi (RMB)
(approximately $39.3 million U.S. dollars based on the exchange rate as of September 30, 2011)
denominated in RMB and foreign currencies, including the U.S. dollar. As of September 30, 2011,
$10.0 million in U.S. dollar loans was outstanding under the Zhongshan 2010 Credit Facility at a
rate of 5.38%, and approximately $29.3 million of the revolving credit facility was unused and
available.
Huiyang 2009 Credit Facility
In July 2011, the Companys Merix Printed Circuits Technology Limited (Huiyang) subsidiary renewed
its secured revolving credit facility (the Huiyang 2009 Credit Facility) with Industrial and
Commercial Bank of China, Limited (ICBC). The Huiyang 2009 Credit Facility provides for
borrowings of up to 36 million RMB (approximately $5.7 million U.S. dollars based on the exchange
rate as of September 30, 2011) denominated in RMB and foreign currencies, including the U.S.
dollar. As of September 30, 2011, the Huiyang 2009 Credit Facility was undrawn, and $5.7 million
of the facility was unused and available.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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 adversely affected 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 and cross-currency swaps to minimize the
short-term impact of foreign currency fluctuations. We do not engage in hedging transactions for
speculative investment reasons. Gains or losses from our hedging activities have not historically
been material to our cash flows, financial position or results from operations. There can be no
assurance that our hedging operations will eliminate or substantially reduce risks associated with
fluctuating currencies. At September 30, 2011, we have foreign currency hedge instruments
outstanding that hedge a notional amount of approximately 2.9 billion RMB at an average exchange rate of 6.376 with a weighted average remaining maturity of 8.0 months.
Item 4. | Controls and Procedures |
As of September 30, 2011, under the supervision, and with the participation of our Chief Executive
Officer and the Chief Financial Officer, management has evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined by Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon
this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of September 30, 2011, to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act (a) is recorded, processed, summarized and reported within the time period specified in the
Securities and Exchange Commissions rules and forms and (b) is accumulated and communicated to our
management, including the principal executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure.
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As required by Rule 13a-15(d) of the Exchange Act, management, including our Chief Executive
Officer and Chief Financial Officer, also conducted an evaluation of our internal control over
financial reporting to determine whether any change occurred during the quarter covered by this
report that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. Based on that evaluation, there were no changes in our internal
control over financial reporting that occurred during the fiscal quarter covered by this report
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
We are presently involved in various 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 the Merix Acquisition
On October 13, 2009 and November 5, 2009, respectively, Asbestos Workers Pension Fund and W. Donald
Wybert, both former Merix shareholders, filed putative class action complaints in Oregon state
court (Multnomah County), on behalf of themselves and all others similarly situated, against Merix,
the members of its board of directors and Viasystems. The complaints, which were substantively
identical and sought to enjoin the Merix Acquisition, alleged, among other things, that Merix
directors breached their fiduciary duties to Merix shareholders by attempting to sell Merix to
Viasystems for an inadequate price and that Viasystems aided and abetted those breaches.
On November 23, 2009, the court entered an order consolidating the two cases. On or about December
2, 2009, the plaintiffs filed a Consolidated Amended Class Action Complaint (the Amended
Complaint), which largely mirrored the original complaints, but also added Maple Acquisition Corp.
(the merger vehicle) as a defendant and alleged that Merix proxy statement for the Merix
Acquisition was materially deficient.
On January 19, 2010, the plaintiffs filed a motion for a temporary restraining order and/or a
preliminary injunction to enjoin the shareholder vote on the Merix Acquisition, scheduled to take
place on February 8, 2010. On January 29, 2010, the defendants filed oppositions to plaintiffs
motion, and, on February 2, 2010, plaintiffs filed their reply. On February 5, 2010, following
oral arguments, the court denied the plaintiffs motion. The Merix Acquisition was consummated on
February 16, 2010.
After the court denied the plaintiffs motion to enjoin the transaction, the plaintiffs submitted
an amended complaint, dated April 19, 2010, naming only Merix former board members as defendants
(the Defendants). In June 2011, the Defendants and the plaintiffs agreed to settle the case for
$1.5 million. The settlement is currently pending court approval, and a hearing is scheduled for
November 10, 2011. The Defendants are insured by Merix directors and officers liability insurance
(the D&O Insurance) coverage. The Company has exhausted the self-insured retention of the D&O
Insurance and therefore all settlement funds and any expenses related to this matter will be paid
by the D&O Insurance. We anticipate the case will be settled in the fourth quarter of 2011.
Delphi
Litigation
On May 19, 2011, and in a later amended complaint, our subsidiary Viasystems Technologies Corp., LLC
(Viasystems Technologies) filed a declaratory judgment action against certain Delphi Automotive
companies (Delphi), asserting that Viasystems Technologies was not obligated under alleged requirements
contracts to provide Delphi with product, and asserting that Delphi was disparaging Viasystems Technologies
and tortiously interfering with Viasystems Technologies contracts. By agreement with Delphi, Viasystems
Technologies did not serve Delphi with that complaint while the parties attempted to negotiate their
differences, and we continued to provide Delphi with product. On November 7, 2011, Delphi filed a
counter lawsuit in Oakland County, Michigan, claiming that Viasystems Technologies was obligated to
continue to provide product to Delphi at the prices set forth in the alleged requirements contracts,
and alleging that Delphi had no choice but to accept price increases under economic duress in order
to avoid irreparable harm. We have not yet had sufficient opportunity to review this lawsuit or
formulate our response, but we believe Delphis claims are without merit and intend on defending this
matter vigorously. We cannot at this time predict an outcome or potential impact on our future financial
condition or results of operations.
Item 1A. | Risk Factors |
In addition to the updated risk factors set forth below, please see the risk factors set forth in
Part I, Item 1A. Risk Factors in our 2010 Annual Report on Form 10-K.
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Risks Related to Our Business and Industry
If we are not able to renew leases of our manufacturing facilities, our operations could be
interrupted and our assets could become impaired.
We lease several of our principal manufacturing facilities from third parties under operating
leases with remaining lease terms, as of September 30, 2011, ranging from one to seven years. If
we are not able to renew these leases under commercially acceptable terms, our operations at those
facilities could be interrupted, our assets could become impaired and we may incur significant
expense to relocate those operations. Any of these factors could have a material adverse effect on
our business, financial condition, results of operations or cash flows.
We lease our manufacturing facility in Huizhou, China from a noncontrolling interest holder that
owns a 15% interest in our subsidiary that operates the facility. The area where this facility is
located is being redeveloped away from industrial use, and we will not be able to renew this lease
beyond its December 31, 2012, expiration date. As a result, we will relocate this facilitys
operations to our other facilities and i) we may incur significant costs to expand the capacity of
our other facilities, relocate equipment, transfer or replace personnel and prepare the facility for return to our landlord, ii) our customers
may not agree to move all or a portion of their business to our other facilities, iii) we may be
unable to achieve the relocation within the timeframe expected, and iv) our ability to meet our
customers orders could be compromised. In addition, a final settlement with the noncontrolling
interest holder on the disposition of the subsidiary which operates the facility may be in excess
of the amount of applicable noncontrolling interest recorded in equity at the time. Any of these
factors could have a material adverse effect on our business, financial condition, results of
operations or cash flows.
Risks Related to Our Customers and Suppliers
We rely on the automotive industry for a significant portion of sales.
A significant portion of our sales are to customers within the automotive industry. For the nine
months ended September 30, 2011 and years ended December 31, 2010, 2009 and 2008, sales to
customers in the automotive industry represented approximately 38.7%, 35.8%, 38.4% and 37.4% of our
net sales, respectively. If there was a destabilization of the automotive industry or a market
shift away from our automotive customers, it may have a materially adverse effect on our business,
financial condition, results of operations or cash flows.
We rely on the telecommunications industry for a significant portion of sales. Accordingly, the
economic volatility in this 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 large percentage of our business is conducted with customers who are in the telecommunications
industry. For the nine months ended September 30, 2011 and for the years ended December 31, 2010,
2009 and 2008, sales to customers in the telecommunications industry represented approximately
18.1%, 23.5%, 26.0% and 25.9% of our net sales, respectively. This industry is characterized by
intense competition, relatively short product life cycles and significant fluctuations in product
demand. This industry is heavily dependent on the end markets it serves and therefore can be
affected by the demand patterns of those markets. If the weakness in this industry continues, it
would likely have a material adverse effect on our business, financial condition, results of
operations or cash flows.
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Risk Related to Doing Business in China and Other International Locations
Electrical power shortages in certain areas of China have, now and in the past, caused the
government to impose a power rationing program, and additional or extended power rationings could
adversely affect our operations in China.
In November and December of 2010, the Chinese government mandated certain limitations on
manufacturing activities in Southern China as a result of electrical power and other infrastructure
constraints in connection with the 2010 Asia Games, which were held in Guangzhou, China. In May
2011, the Chinese government began rationing electrical power in certain areas of the country,
which led to unscheduled production interruptions in some of our manufacturing facilities continuing into the
fourth quarter of the year. We may encounter difficulties in the future with obtaining power or
other key services due to infrastructure weaknesses and constraints in China that may impair our
ability to compete effectively as well as materially adversely affect our business, financial
condition, results of operations or cash flows.
Risks Related to Our Capital Structure
Our wholly owned subsidiary, Viasystems, Inc., is a holding company with no operations of its own
and depends on its subsidiaries for cash.
Our operations are conducted through our wholly owned subsidiary, Viasystems, Inc., which is a
holding company with no operations of its own, and none of its subsidiaries are obligated to make
funds available to Viasystems, Inc. Accordingly, Viasystems, Inc.s ability to service its
indebtedness is dependent on the distribution of funds from its subsidiaries. As
of September 30, 2011, approximately $36.7 million of our $68.5 million cash balance was held in
foreign subsidiaries. The payment of dividends, distributions, loans or advances to Viasystems,
Inc. by its subsidiaries could be limited by a variety of reasons, including:
| restrictions on dividends or repatriation of earnings under applicable laws
and monetary transfer restrictions in the jurisdictions in which its subsidiaries operate; |
||
| the level of its subsidiaries earnings; |
||
| foreign exchange rates; |
||
| taxes and withholdings on foreign earnings, potentially at confiscatory levels; |
| foreign exchange controls that may prevent foreign currencies from being
converted into U.S. dollars; |
| foreign laws which may affect Viasystems, Inc.s ability to repatriate cash
from foreign subsidiaries in a tax efficient manner or at all; or |
| legal and contractual
restrictions may prevent Viasystems, Inc.s subsidiaries from paying dividends or other cash distributions. |
If these or other risks limit Viasystems, Inc.s ability to transfer cash generated by its foreign
operations, Viasystems, Inc.s ability to make payments on its
indebtedness may be impaired.
Viasystems, Inc.s failure to service its debt may have a material adverse effect on our business,
financial condition, results of operations or cash flows.
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Investors may experience dilution of their 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. As of September 30, 2011, we have
outstanding approximately 20 million shares of common stock, and no shares of preferred stock. We
are 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. We filed a
shelf registration statement with the Securities and Exchange Commission that went effective as of
April 7, 2011, and will allow us to sell up to $150 million of equity or other securities described
in the registration statement in one or more offerings. 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.
In addition, pursuant to our stock incentive plans, we are authorized to grant options and other
stock awards for up to 3,232,352 shares to our officers, employees, directors and consultants. As
of September 30, 2011, there were 1,687,665 shares subject to outstanding stock option awards under
our stock incentive plans. You will incur dilution upon exercise or issuance of any stock awards
under our stock incentive plans. In addition, if we raise additional funds by issuing additional
common stock, or securities convertible into or exchangeable or exercisable for common stock, or if
we use our securities as consideration for future acquisitions or investments, further dilution to
our existing stockholders will result, and new investors could have rights superior to existing
stockholders.
Failure to maintain good relations with the noncontrolling interest holder of certain of our
majority-owned subsidiaries in China could materially adversely affect our ability to manage those
operations.
Currently, we have two PCB manufacturing plants in China that are each operated by a separate
majority-owned subsidiary. A noncontrolling investor owns a 5% interest in our subsidiary that
operates our Huiyang, China facility. The same noncontrolling investor owns a 15% interest in our
subsidiary that operates our Huizhou, China facility. The noncontrolling investor owns the
buildings of the Huizhou facility and leases the premises to our subsidiary. The noncontrolling
investor is affiliated with 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 noncontrolling investor
secured certain rights to be consulted and to consent to certain operating and investment matters
concerning the plants and our subsidiaries boards of directors that oversee these businesses. In
addition, the area where the Huizhou facility is located is being redeveloped away from industrial
use, and we expect to close the facility on or before December 31, 2012, which may adversely affect
our relationship with the noncontrolling investor. Failure to maintain good relations with the
noncontrolling investor in either Chinese subsidiary could materially adversely affect our ability
to manage the operations of one or more of the plants.
Item 5. | Other Information |
On November 8, 2011, Richard McGinn resigned from his position as a member of the board of
directors of the Company, and therefore will no longer serve on the Audit or the Compensation
Committees.
Item 6. | Exhibits |
(a) | Exhibits |
The information required by this item is included in the exhibit index that follows the signature
page of this Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Clayton, State of Missouri on the day of November 8, 2011.
VIASYSTEMS GROUP, INC. |
||||
By: | /s/ David M. Sindelar | |||
Name: | David M. Sindelar | |||
Title: | Chief Executive Officer
(Principal Executive Officer) |
|||
By: | /s/ Gerald G. Sax | |||
Name: | Gerald G. Sax | |||
Title: | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|||
By: | /s/ Christopher R. Isaak | |||
Name: | Christopher R. Isaak | |||
Title: | Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |
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EXHIBIT INDEX
These exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. |
Exhibit | ||
No. | Description | |
3.1(1) | Third Amended and Restated Certificate of Incorporation of Viasystems Group, Inc. |
|
3.2(1) | Second Amended and Restated Bylaws of Viasystems Group, Inc. |
|
31.1(2) | Chief Executive Officers Certification required by Rule 13(a)-14(a) of the
Securities Exchange Act of 1934. |
|
31.2(2) | Chief Financial Officers Certification required by Rule 13(a)-14(a) of the
Securities Exchange Act of 1934. |
|
32.1(2) | Chief Executive Officer Certification pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2(2) | Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002. |
|
101(3) | The following materials from Viasystems Group, Inc.s Quarterly Report on Form
10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible
Business Reporting Language): (i) Condensed Consolidated Statements of
Operations for the three and six months ended September 30, 2011 and 2010, (ii)
Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31,
2010, (iii) Condensed Consolidated Statements of Cash Flows for the six months
ended September 30, 2011 and 2010, and (iv) Notes to Condensed, Consolidated
Financial Statements. |
(1) | Incorporated by reference to the Form 8-K of Viasystems Group, Inc.
filed on February 17, 2010. |
|
(2) | Filed herewith. |
|
(3) | Furnished herewith. Users of this data are advised in accordance with
Rule 406T of Regulation S-T promulgated by the Securities and Exchange
Commission that this Interactive Data File is deemed not filed or part
of a registration statement or prospectus for purposes of sections 11
or 12 of the Securities Act of 1933, is deemed not filed for purposes
of section 18 of the Securities Exchange Act of 1934, and otherwise is
not subject to liability under these sections. The financial
information contained in the XBRL-related documents is unaudited and
unreviewed. |
35