Form: 8-K/A

Current report filing

July 31, 2015

Exhibit 99.1

Viasystems Group, Inc. and Subsidiaries

Consolidated Financial Statements

December 31, 2014


Viasystems Group, Inc. and Subsidiaries

December 31, 2014

 

Report of Independent Registered Public Accounting Firm

     1   

Consolidated Balance Sheets as of December 31, 2014 and 2013

     2   

Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2014, 2013 and 2012

     3   

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012

     4   

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012

     5   

Notes to Consolidated Financial Statements

     6   


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Viasystems Group, Inc.

We have audited the accompanying consolidated balance sheets of Viasystems Group, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Viasystems Group, Inc. and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Viasystems Group, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 12, 2015, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

St. Louis, Missouri

March 12, 2015

 

1


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)

 

     December 31,  
ASSETS    2014     2013  

Current assets:

    

Cash and cash equivalents

   $ 71,964      $ 54,738   

Accounts receivable, net

     215,784        196,126   

Inventories

     138,195        122,182   

Deferred taxes

     10,010        9,361   

Prepaid expenses and other

     28,684        28,770   
  

 

 

   

 

 

 

Total current assets

     464,637        411,177   

Property, plant and equipment, net

     415,607        446,488   

Goodwill

     151,283        151,283   

Intangible assets, net

     90,158        96,183   

Deferred financing costs, net

     13,115        12,593   

Other assets

     705        693   
  

 

 

   

 

 

 

Total assets

   $ 1,135,505      $ 1,118,417   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current maturities of long-term debt

   $ 1,093      $ 11,387   

Accounts payable

     175,346        203,122   

Accrued and other liabilities

     93,861        85,009   

Income taxes payable

     5,896        3,211   
  

 

 

   

 

 

 

Total current liabilities

     276,196        302,729   

Long-term debt, less current maturities

     612,915        561,508   

Other non-current liabilities

     43,730        41,592   
  

 

 

   

 

 

 

Total liabilities

     932,841        905,829   

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock, $0.01 par value, 100,000,000 shares authorized; 20,921,111 and 20,759,014 shares issued and outstanding

     209        208   

Paid-in capital

     2,401,505        2,394,268   

Accumulated deficit

     (2,209,279     (2,193,289

Accumulated other comprehensive income

     6,475        8,461   
  

 

 

   

 

 

 

Total Viasystems stockholders’ equity

     198,910        209,648   

Noncontrolling interest

     3,754        2,940   
  

 

 

   

 

 

 

Total stockholders’ equity

     202,664        212,588   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,135,505      $ 1,118,417   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

2


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

(dollars in thousands, except per share amounts)

 

     Year Ended December 31,  
     2014     2013     2012  

Net sales

   $ 1,204,102      $ 1,171,046      $ 1,159,906   

Operating expenses (income):

      

Cost of goods sold, exclusive of items shown separately below

     968,586        949,496        927,154   

Guangzhou Fire business interruption insurance proceeds

     (26,459     —          —     

Selling, general and administrative

     111,893        100,505        109,460   

Depreciation

     87,904        88,060        80,019   

Amortization

     6,167        6,715        4,547   

Restructuring and impairment

     7,351        1,073        19,457   
  

 

 

   

 

 

   

 

 

 

Operating income

     48,660        25,197        19,269   

Other expense (income):

      

Interest expense, net

     47,334        44,797        42,156   

Amortization of deferred financing costs

     2,901        2,898        2,723   

Loss on early extinguishment of debt

     —          —          24,234   

Other, net

     (3,435     (5,983     (419
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,860        (16,515     (49,425

Income taxes

     17,036        11,095        12,793   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (15,176   $ (27,610   $ (62,218
  

 

 

   

 

 

   

 

 

 

Less:

      

Net income attributable to noncontrolling interest

   $ 814      $ 610      $ 89   
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (15,990   $ (28,220   $ (62,307
  

 

 

   

 

 

   

 

 

 

Basic loss per share

   $ (0.79   $ (1.40   $ (3.12
  

 

 

   

 

 

   

 

 

 

Diluted loss per share

   $ (0.79   $ (1.40   $ (3.12
  

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     20,280,284        20,089,507        19,991,190   
  

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

     20,280,284        20,089,507        19,991,190   
  

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income:

      

Net loss

   $ (15,176   $ (27,610   $ (62,218

Change in fair value of derivatives, net of tax

     (1,986     (407     813   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (17,162     (28,017     (61,405

Less:

      

Comprehensive income attributable to noncontrolling interests

     814        610        89   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (17,976   $ (28,627   $ (61,494
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

 

     Common
Stock
Shares
    Common
Stock at
Par
     Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
    Non-
Controlling
Interest
    Total  

Balance at December 31, 2011

     20,390,009      $ 204       $ 2,383,910      $ (2,102,762   $ 8,055      $ 3,665      $ 293,072   

Net (loss) income

     —          —           —          (62,307     —          89        (62,218

Change in fair value of derivatives, net of taxes of $0

     —          —           —          —          813        —          813   

Issuance of restricted stock awards

     240,825        2         (2     —          —          —          —     

Forfeiture of restricted stock awards

     (6,579     —           —          —          —          —          —     

Distribution to noncontrolling interest holder

     —          —           —          —          —          (267     (267

Purchase of remaining interest in Huizhou subsidiary

     —          —           (8,949     —          —          (1,157     (10,106

Stock compensation expense

     —          —           10,563        —          —          —          10,563   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

     20,624,255        206         2,385,522        (2,165,069     8,868        2,330        231,857   

Net (loss) income

     —          —           —          (28,220     —          610        (27,610

Change in fair value of derivatives, net of taxes of $256

     —          —           —          —          (407     —          (407

Issuance of restricted stock awards

     203,089        2         (2     —          —          —          —     

Forfeiture of restricted stock awards

     (11,509     —           —          —          —          —          —     

Shares withheld for payment of taxes upon vesting of restricted stock awards

     (56,821     —           (666     —          —          —          (666

Stock compensation expense

     —          —           9,414        —          —          —          9,414   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     20,759,014        208         2,394,268        (2,193,289     8,461        2,940        212,588   

Net (loss) income

     —          —           —          (15,990     —          814        (15,176

Change in fair value of derivatives, net of taxes of $0

     —          —           —          —          (1,986     —          (1,986

Exercise of stock options

     4,999        —           76        —          —          —          76   

Issuance of restricted stock awards

     213,900        1         (1     —          —          —          —     

Forfeiture of restricted stock awards

     (11,366     —           —          —          —          —          —     

Shares withheld for payment of taxes upon vesting of restricted stock awards

     (45,436     —           (590     —          —          —          (590

Stock compensation expense

     —          —           7,752        —          —          —          7,752   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

     20,921,111      $ 209       $ 2,401,505      $ (2,209,279   $ 6,475      $ 3,754      $ 202,664   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

     Year Ended December 31,  
     2014     2013     2012  

Cash flows from operating activities:

      

Net loss

   $ (15,176   $ (27,610   $ (62,218

Adjustments to reconcile net loss to net cash provided by operating activities:

      

Depreciation and amortization

     94,071        94,775        84,566   

Non-cash stock compensation expense

     7,752        9,414        10,563   

Impairment of property, plant and equipment

     6,152        —          747   

Amortization of deferred financing costs

     2,901        2,898        2,723   

(Gain) loss on disposition of assets, net

     (2,269     (161     551   

Deferred income taxes

     (1,841     (652     306   

Amortization of original issue (premium) discount on long term debt

     (492     —          665   

Non-cash impact of exchange rates

     (380     (95     155   

Loss on early extinguishment of debt

     —          —          24,234   

Change in restricted cash

     —          —          6,830   

Change in assets and liabilities:

      

Accounts receivable

     (19,658     (12,978     51,090   

Inventories

     (16,013     (11,153     29,868   

Prepaid expenses and other

     (3,013     2,204        4,633   

Accounts payable

     (27,776     41,232        (58,444

Accrued and other liabilities

     11,435        (8,879     (15,207

Income taxes payable

     2,685        876        (2,973
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     38,378        89,871        78,089   

Cash flows from investing activities:

      

Capital expenditures

     (64,742     (108,521     (108,721

Proceeds from disposals of property, plant and equipment

     3,628        1,956        1,272   

Property insurance proceeds from the Guangzhou Fire

     1,988        —          —     

Acquisition of DDi, net of cash acquired

     —          —          (253,464

Acquisition of remaining interest in Huizhou, China facility

     —          —          (10,106
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (59,126     (106,565     (371,019

Cash flows from financing activities:

      

Proceeds from issuance of 2019 notes

     53,500        —          —     

Financing and other fees

     (3,404     (187     (16,186

Proceeds from borrowings under credit facilities

     20,000        10,000        10,000   

Repayments of borrowings under mortgages, capital leases and credit facilities

     (31,608     (11,636     (10,787

Proceeds from exercise of stock options

     76        —          —     

Withholding taxes related to stock awards net share settlements

     (590     (666     —     

Repayment of Senior Subordinated Convertible Notes due 2013

     —          (895     —     

Proceeds from issuance of 7.875% Senior Secured Notes due 2019

     —          —          550,000   

Repayment of 12.0% Senior Secured Notes

     —          —          (236,295

Distributions to noncontrolling interest holder

     —          —          (267
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     37,974        (3,384     296,465   

Net change in cash and cash equivalents

     17,226        (20,078     3,535   

Cash and cash equivalents, beginning of year

     54,738        74,816        71,281   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 71,964      $ 54,738      $ 74,816   
  

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

      

Interest paid

   $ 48,854      $ 44,598      $ 46,294   
  

 

 

   

 

 

   

 

 

 

Income taxes paid, net

   $ 12,278      $ 9,051      $ 14,827   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

1. Summary of Significant Accounting Policies

Viasystems Group, Inc., a Delaware corporation (“Group”), was formed on August 28, 1996. Group is a holding company and its only significant asset is stock of its wholly owned subsidiary, Viasystems, Inc. On April 10, 1997, Group contributed to Viasystems, Inc. all of the capital of its then existing subsidiaries. Prior to the contribution of capital by Group, Viasystems, Inc. had no operations of its own. Group relies on distributions from Viasystems, Inc. for cash. Moreover, the Senior Secured 2010 Credit Facility (see Note 10) and the indentures governing Viasystems, Inc.’s 2019 Notes each contain restrictions on Viasystems, Inc.’s ability to pay dividends to Group. Group, together with Viasystems, Inc. and its subsidiaries, is herein referred to as “the Company.”

Nature of Business

The Company is a leading worldwide provider of complex multi-layer printed circuit boards (“PCBs”) and electro-mechanical solutions (“E-M Solutions”). The Company’s products are used in a wide range of applications including, for example, automotive engine controls, data networking equipment, telecommunications switching equipment, complex medical, technical and industrial instruments, and flight control systems.

Principles of Consolidation

The accompanying 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 generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) requires management to make estimates and assumptions that affect i) the reported amounts of assets and liabilities, ii) the disclosure of contingent assets and liabilities at the date of the financial statements and iii) the reported amounts of revenues and expenses during the reporting period.

Estimates and assumptions are used in accounting for the following significant matters, among others:

 

  •  

allowances for doubtful accounts;

 

  •  

inventory valuation;

 

  •  

fair value of derivative instruments and related hedged items;

 

  •  

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 awards granted under the Company’s stock-based compensation plans.

 

6


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 consolidated financial statements.

Cash and Cash Equivalents and Restricted Cash

The Company considers short-term highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable balances represent customer trade receivables generated from the Company’s operations. To reduce the potential for credit risk, the Company evaluates the collectability of customer balances based on a combination of factors but does not generally require significant collateral. The Company regularly analyzes significant customer balances, and when it becomes evident a specific customer will be unable to meet its financial obligations to the Company for reasons including, but not limited to, bankruptcy filings or deterioration in the customer’s operating results or financial position, a specific allowance for doubtful accounts is recorded to reduce the related receivable to the amount that is believed reasonably collectible. The Company also records an allowance for doubtful accounts for all other customers based on a variety of factors, including the length of time the receivables are past due, historical experience and current economic conditions. If circumstances related to specific customers change, estimates of the recoverability of receivables could be further adjusted.

The provision for bad debts is included in selling, general and administrative expense. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) and average cost methods. Cost includes raw materials, labor and manufacturing overhead.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Repairs and maintenance that do not extend the useful life of an asset are charged to expense as incurred. The useful lives of leasehold improvements are the lesser of the remaining lease term or the useful life of the improvement. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the operations for the period. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:

 

Buildings

     20-50 years   

Leasehold improvements

     3-15 years   

Machinery, equipment, systems and other

     3-10 years   

 

7


Impairment of Long-Lived Assets

The Company reviews intangible assets with a finite life and other long-lived assets for impairment if facts and circumstances exist that indicate the asset’s useful life is shorter than previously estimated or the carrying amount may not be recoverable from future operations based on undiscounted expected future cash flows. Impairment losses are recognized in operating results for the amount by which the carrying value of the asset exceeds its fair value. In addition, the remaining useful life of an impaired asset group would be reassessed and revised, if necessary.

Goodwill

Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of identifiable net tangible and intangible assets acquired. Goodwill and other indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if a triggering event were to occur in an interim period.

Intangible Assets

Intangible assets consist primarily of identifiable intangibles acquired. Amortization of identifiable intangible assets acquired is computed using systematic methods over the estimated useful lives of the related assets as follows:

 

     Life      Method

Patents, trademarks and trade names

     2-5 years       Straight-line

Customer lists

     12-20 years       Straight-line

Manufacturer sales representative network

     12-20 years       Straight-line

Developed technologies

     15 years       Double-declining
balance

Impairment testing of these assets would occur if and when an indicator of impairment is identified.

Deferred Financing Costs

Deferred financing costs, consisting of fees and other expenses associated with debt financing, are amortized over the term of the related debt using the straight-line method, which approximates the effective interest method.

Product Warranties

Provisions for estimated expenses related to product warranties are generally made at the time products are sold. These estimates are established using historical information on the nature, frequency and average cost of warranty claims.

Amounts accrued for warranty reserves are included in accrued and other liabilities (see Note 9). The following table summarizes changes in the reserve for the years ended December 31, 2014 and 2013:

 

     December 31,  
     2014      2013  

Balance, beginning of year

   $ 8,539       $ 9,211   

Provision

     7,548         8,501   

Claims and adjustments

     (7,511      (9,173
  

 

 

    

 

 

 

Balance, end of year

   $ 8,576       $ 8,539   
  

 

 

    

 

 

 

 

8


Environmental Costs

Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities do not include claims against third parties and are not discounted. Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unless they increase the value of the property and/or mitigate or prevent contamination from future operations, in which event they are capitalized.

Derivative Financial Instruments

From time to time, the Company enters into cash flow hedges in the form of foreign exchange forward contracts and cross-currency swaps to minimize the short-term impact of foreign currency fluctuations. However, there can be no assurance that these activities will eliminate or reduce foreign currency risk. To reduce the potential for credit risk associated with cash flow hedges, the Company monitors the credit ratings of the counter parties to its hedging transactions. The foreign exchange forward contracts and cross-currency swaps are designated as cash flow hedges and are accounted for at fair value. The effective portion of the change in each cash flow hedge’s gain or loss is reported as a component of other comprehensive (loss) income, net of taxes. The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in earnings at each measurement date. Gains and losses on derivative contracts are reclassified from accumulated other comprehensive (loss) income to current period earnings in the line item in which the hedged item is recorded in the same period the hedged foreign currency cash flow affects earnings (see Note 14).

Foreign Currency Translation and Remeasurement

All the Company’s foreign subsidiaries use the U.S. dollar as their functional currency. Net (loss) income includes gains and losses arising from transactions denominated in currencies other than the U.S. dollar, the impact of remeasuring local currency denominated assets and liabilities of foreign subsidiaries to the U.S. dollar and the realized gains and losses resulting from the Company’s foreign currency hedging activities.

Revenue Recognition

Revenue is recognized when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title transfer to the customer; the price is fixed and determinable; and collectability is reasonably assured. Sales and related costs of goods sold are included in income when goods are shipped to the customer in accordance with the delivery terms, except in the case of vendor managed inventory arrangements, whereby sales and the related costs of goods sold are included in income when possession of goods is taken by the customer. Generally, there are no formal customer acceptance requirements or further obligations related to manufacturing services. If such requirements or obligations exist, then revenue is recognized at the time when such requirements are completed and the obligations are fulfilled. Reserves for product returns are recorded based on historical trend rates at the time of sale.

Shipping Costs

Costs incurred by the Company to ship finished goods to its customers are included in cost of goods sold on the consolidated statements of operations and comprehensive (loss) income.

 

9


Income Taxes

The Company accounts for certain items of income and expense in different periods for financial reporting and income tax purposes. Provisions for deferred income taxes are made in recognition of such temporary differences, where applicable. A valuation allowance is established against deferred tax assets unless the Company believes it is more likely than not that the benefit will be realized.

The Company provides for uncertain tax positions and the related interest and penalties based upon its assessment of whether it is more likely than not that the tax position will be sustained on examination by the taxing authorities, given the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Earnings or Loss Per Share

The Company computes basic (loss) earnings per share by dividing its net (loss) income attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. The computation of diluted (loss) earnings per share is based on the weighted average number of common shares outstanding during the period plus dilutive common equivalent shares (consisting primarily of employee stock options and unvested stock awards). The potentially dilutive impact of the Company’s share-based compensation awards is determined using the treasury stock method.

The components used in the computation of our basic and diluted (loss) earnings per share attributable to common stockholders were as follows:

 

     Year Ended December 31,  
     2014      2013      2012  

Net loss attributable to common stockholders

   $ (15,990    $ (28,220    $ (62,307
  

 

 

    

 

 

    

 

 

 

Basic weighted average shares outstanding

     20,280,284         20,089,507         19,991,190   

Dilutive effect of stock options

     —           —           —     

Dilutive effect of restrictive stock awards

     —           —           —     

Dilutive effect of performance share units

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Dilutive weighted average shares outstanding

     20,280,284         20,089,507         19,991,190   
  

 

 

    

 

 

    

 

 

 

Basic loss per share

   $ (0.79    $ (1.40    $ (3.12
  

 

 

    

 

 

    

 

 

 

Diluted loss per share

   $ (0.79    $ (1.40    $ (3.12
  

 

 

    

 

 

    

 

 

 

For the year ended December 31, 2014, the calculation of diluted weighted average shares outstanding excludes i) the effect of options to purchase 1,770,720 shares of common stock, ii) unvested restricted stock awards of 623,302 because their inclusion would be antidilutive, and iii) the effect of performance share units representing a maximum of 1,384,555 shares of common stock because the related performance measures were not attainable during the period. For the year ended December 31, 2013, the calculation of diluted weighted average shares outstanding excludes i) the effect of options to purchase 1,869,124 shares of common stock, ii) unvested restricted stock awards of 576,042 because their inclusion would be antidilutive, and iii) the effect of performance share units representing a maximum of 971,518 shares of common stock because the related performance measures were not attainable during the period. For the year ended December 31, 2012, the calculation of diluted weighted average shares outstanding excludes i) the effect of options to purchase 2,029,010 shares of common stock, ii) unvested restricted stock awards of 629,435, iii) long-term debt convertible into 6,593 shares of common stock because their

 

10


inclusion would be antidilutive and iv) the effect of performance share units representing a maximum of 278,686 shares of common stock because the related performance measures were not attainable during the period.

Employee Stock-Based Compensation

The Company maintains two stock option plans, the “2010 Equity Incentive Plan” and the “2003 Stock Option Plan,” and recognizes compensation expense for share-based awards, including stock options and restricted stock awards, ratably over the awards’ vesting periods based on the grant date fair values of the awards (see Note 15).

Noncontrolling Interest

The Company owns a majority interest in its subsidiary that operates a manufacturing facility in Huiyang, China, and a noncontrolling interest holder (the “Noncontrolling Interest Holder”) owns 5% of this subsidiary. During the first five months of 2012, the Company also owned a majority interest in its subsidiary that operated a manufacturing facility in Huizhou, China (the “Huizhou Facility”), and the Noncontrolling Interest Holder owned 15% of that subsidiary. In connection with the closure of the Huizhou Facility in 2012, the Company purchased the 15% noncontrolling interest which increased the Company’s ownership to 100%. Noncontrolling interest is reported as a component of equity, and net income attributable to the noncontrolling interest is reported as a reduction from net income to arrive at net income attributable to the Company’s common stockholders.

Research and Development

Research, development and engineering expenditures for the creation and application of new products and processes were approximately $4,579, $4,304 and $3,615 for the years ended December 31, 2014, 2013 and 2012, respectively. Research and development is included in the selling, general and administrative line item on the consolidated statements of operations and comprehensive (loss) income.

Reclassifications

The accompanying consolidated financial statements for prior years contain certain reclassifications to conform to the presentation used in the current period.

Recently Adopted Accounting Pronouncements

As of January 1, 2014, the Company adopted a new accounting standard which provides guidance for the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward exists. The new standard provides that a liability related to an unrecognized tax benefit be presented as a reduction of a deferred tax asset for a net operating loss carryforward if the settlement of such liability is required or expected in the event the uncertain tax position is disallowed. This standard did not have a material impact on the Company’s consolidated financial statements upon adoption.

Recently Issued Accounting Pronouncements

Revenue Recognition. In June 2014, the Financial Accounting Standards Board issued a new accounting standard that changes the criteria companies must use for the recognition of revenue and will affect the Company’s measurement, recognition and disclosures concerning revenue once the new standard is adopted. The Company will adopt the new standard as of January 1, 2017. As of the date of this Report, the Company is still evaluating the potential impact this standard will have on its consolidated financial statements upon adoption.

 

11


Going Concern. In August 2014, the FASB issued disclosure guidance that requires management to evaluate, at each annual and interim reporting period, whether substantial doubt exists about an entity’s ability to continue as a going concern and, if applicable, to provide related disclosures. As outlined by that guidance, substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or are available to be issued). The new guidance will be effective for annual reporting periods ending after December 15, 2016 and interim periods thereafter, with early adoption permitted.

Discontinued Operations. In April 2014, the FASB issued accounting guidance that raised the threshold for disposals to qualify as discontinued operations to disposals which represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Such a strategic shift may include the disposal of (1) a major geographical area of operations, (2) a major line of business, (3) a major equity method investment or (4) other major parts of an entity. Provided that the major strategic shift criterion is met, the new guidance does allow entities to have significant continuing involvement and continuing cash flows with the discontinued operation, unlike current U.S. GAAP. The new standard also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The new guidance will apply prospectively to disposals that occur in interim and annual periods beginning on or after December 31, 2014.

2. Merger Agreement with TTM Technologies, Inc.

On September 21, 2014, the Company, TTM Technologies, Inc., a Delaware corporation (“TTM”), and Vector Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of TTM (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Merger Sub will, subject to the satisfaction or waiver of the conditions therein, merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of TTM (the “Merger”). The Merger Agreement was adopted by the Company’s stockholders on December 16, 2014. Selling, general and administrative costs for the year ended December 31, 2014, include $6,060 of professional fees and other expenses related to the Merger.

Pursuant to the terms of the Merger Agreement and subject to the conditions therein, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time (other than shares (1) held in treasury of the Company, (2) owned by TTM or Merger Sub or (3) owned by stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be converted into the right to receive a combination of (a) 0.706 of validly issued, fully paid and nonassessable shares of TTM’s common stock (the “Stock Consideration”) and (b) $11.33 per share in cash (together with the Stock Consideration, the “Merger Consideration”). No fractional shares of TTM’s common stock will be issued in the Merger and the Company’s stockholders will receive cash in lieu of any fractional shares.

Pursuant to the terms of the Merger Agreement and subject to the conditions therein, at the Effective Time, the Company’s outstanding stock options will be cancelled and converted into the right to receive a combination of cash and stock with a combined value equal to the excess value, if any, of the Merger Consideration that would be delivered in respect of the number of shares of the Company’s common stock underlying such option over the exercise price for such option. The Company’s outstanding restricted stock awards will be converted into the Merger Consideration. The Company’s outstanding performance share units will vest based on the greater of 100% of the target payout and the payout that would have resulted based on the Company’s performance criteria, with each such vested performance share unit being exchanged for the Merger Consideration.

 

12


The completion of the Merger is subject to various closing conditions, including, among other things, i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”), ii) the absence of any legal restraints or prohibitions on the consummation of the Merger and iii) receipt of approval of the Merger by the Committee on Foreign Investment in the United States (“CFIUS”). The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), the other party having performed in all material respects its obligations under the Merger Agreement and the other party not having suffered a material adverse effect.

The Merger Agreement contains customary representations, warranties and covenants made by each of the Company and TTM, including, among other things, covenants and agreements to conduct their respective businesses in the ordinary course in all material respects during the period between the execution of the Merger Agreement and completion of the Merger and not to engage in certain kinds of transactions during this period.

The Merger Agreement contains certain termination rights for each of the Company and TTM, including the right of each party to terminate the Merger Agreement if the Merger has not been consummated by June 21, 2015, subject to a three-month extension to September 21, 2015 at the election of either party if, on such date (such date as the same may be extended, the “Outside Date”), the Merger has not yet received antitrust approval, CFIUS approval or certain specified legal restraints are in place but all other closing conditions have been satisfied.

The Merger Agreement also provides that the Company will be entitled to receive from TTM a termination fee of $40.0 million in the event that the Merger Agreement is terminated due to a failure to obtain regulatory approval.

The Company cannot give any assurance that the Merger and the other related transactions will be completed or that, if completed, they will be exactly on the terms as set forth in the Merger Agreement and the other related transaction agreements.

3. The DDi Acquisition

On May 31, 2012, the Company acquired DDi Corp. (“DDi”) in an all cash purchase transaction pursuant to which DDi became a wholly owned subsidiary of the Company (the “DDi Acquisition”).

Pro Forma Information (unaudited)

The following unaudited pro forma information presents the combined results of operations of Viasystems and DDi for the year ended December 31, 2012, as if the DDi Acquisition had been completed on January 1, 2012, with adjustments to give effect to pro forma events that are directly attributable to the DDi Acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of the companies. Accordingly, these unaudited pro forma results are presented for illustrative purposes 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:

 

     Year Ended
December 31, 2012
 

Net sales

   $ 1,272,908   
  

 

 

 

Net (loss) income

   $ (22,909
  

 

 

 

 

13


The pro forma net income was adjusted to give effect to pro forma events which are directly attributable to the DDi Acquisition. Adjustments to the pro forma net income for the year ended December 31, 2012 included: i) the exclusion of $17,789 of acquisition-related costs, ii) the inclusion of $454 of net expense related to fair value adjustments to acquisition-date net assets acquired and iii) the exclusion of $21,288 of net expense related to merger financing transactions, including debt extinguishment costs, interest expense and amortization of deferred financing costs.

4. Accounts Receivable and Concentration of Credit Risk

The allowance for doubtful accounts is included in accounts receivable, net in the accompanying consolidated balance sheets.

The activity in the allowance for doubtful accounts is summarized as follows:

 

     2014      2013      2012  

Balance, beginning of year

   $ 3,647       $ 2,680       $ 2,770   

Provision

     902         1,660         2,066   

Write-offs, credits and adjustments

     (1,971      (693      (2,156
  

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 2,578       $ 3,647       $ 2,680   
  

 

 

    

 

 

    

 

 

 

For the years ended December 31, 2014, 2013 and 2012, sales to the Company’s ten largest customers accounted for approximately 40.6%, 40.6% and 49.0% of the Company’s net sales, respectively. During the years ended December 31, 2014, 2013 and 2012, one customer, Robert Bosch GmbH, individually accounted for more than 10% of our net sales, with sales representing 13.6%, 12.6% and 13.9% of our net sales in those years, respectively. Sales to Robert Bosch GmbH occurred in the Printed Circuit Boards segment.

5. Inventories

The composition of inventories at December 31, is as follows:

 

     2014      2013  

Raw materials

   $ 44,582       $ 42,538   

Work in process

     41,517         35,504   

Finished goods

     52,096         44,140   
  

 

 

    

 

 

 

Total

   $ 138,195       $ 122,182   
  

 

 

    

 

 

 

 

14


6. Property, Plant and Equipment

The composition of property, plant and equipment at December 31, is as follows:

 

     2014      2013  

Land and buildings

   $ 162,230       $ 157,245   

Machinery, equipment and systems

     632,527         638,348   

Leasehold improvements

     98,721         91,662   

Construction in progress

     9,496         26,874   
  

 

 

    

 

 

 
     902,974         914,129   

Less: Accumulated depreciation

     (487,367      (467,641
  

 

 

    

 

 

 

Total

   $ 415,607       $ 446,488   
  

 

 

    

 

 

 

7. Goodwill and Other Intangible Assets

As of December 31, 2014, the Company had recorded goodwill of $151,283 from prior acquisitions which related entirely to its Printed Circuit Boards segment. The Company conducts an 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. No adjustments were recorded to goodwill as a result of these assessments.

The components of intangible assets subject to amortization were as follows:

 

     December 31, 2014      December 31, 2013  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Book
Value
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Book
Value
 

Developed technologies

   $ 20,371       $ (20,371   $ —         $ 20,371       $ (19,830   $ 541   

Customer list

     88,015         (12,503     75,512         88,015         (7,967     80,048   

Manufacturer sales representative network

     17,115         (2,682     14,433         17,115         (1,769     15,346   

Patents, trademarks and trade name

     2,757         (2,544     213         2,615         (2,367     248   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 128,258       $ (38,100   $ 90,158       $ 128,116       $ (31,933   $ 96,183   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The expected future annual amortization expense of definite-lived intangible assets for the next five fiscal years is as follows:

 

Year Ended December 31,

      

2015

   $ 5,511   

2016

     5,504   

2017

     5,499   

2018

     5,488   

2019

     5,466   

Thereafter

     62,690   
  

 

 

 

Total

   $ 90,158   
  

 

 

 

 

15


8. Restructuring and Impairment

As of December 31, 2014, the reserve for restructuring charges included $220 and $1,610 related to i) the closure of its Huizhou Facility and ii) plant shutdowns and downsizings which occurred in 2001 through 2005 as a result of the economic downturn that began in 2000 (the “2001 Restructuring”), respectively.

The following tables summarize changes in the reserve for the years ended December 31, 2014, 2013 and 2012:

 

     Reserve
12/31/13
     Year Ended December 31, 2014     Reserve
12/31/14
 
      Charges      Reversals     Net
Charges
    Cash
Payments
    Adjustments    

Restructuring activities:

                

Personnel and severance

   $ 1,587       $ 642       $ (131   $ 511      $ (1,781   $ —        $ 317   

Lease and other contractual commitments

     1,240         688         —          688        (462     47  (a)      1,513   

Asset impairments

     —           6,152         —          6,152        —          (6,152     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,827       $ 7,482       $ (131   $ 7,351      $ (2,243   $ (6,105   $ 1,830   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            Year Ended December 31, 2013        
     Reserve
12/31/12
     Charges      Reversals     Net
Charges
    Cash
Payments
    Adjustments     Reserve
12/31/13
 

Restructuring activities:

                

Personnel and severance

   $ 3,758       $ 276       $ (436   $ (160   $ (2,011   $ —        $ 1,587   

Lease and other contractual commitments

     1,610         1,250         (17     1,233        (1,650     47  (a)      1,240   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 5,368       $ 1,526       $ (453   $ 1,073      $ (3,661   $ 47      $ 2,827   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            Year Ended December 31, 2012        
     Reserve
12/31/11
     Charges      Reversals     Net
Charges
    Cash
Payments
    Adjustments     Reserve
12/31/12
 

Restructuring activities:

                

Personnel and severance

   $ 190       $ 16,151       $ —        $ 16,151      $ (12,583   $ —        $ 3,758   

Lease and other contractual commitments

     952         1,622         —          1,622        (1,050     86  (a)      1,610   

Asset impairments

     —           1,684         —          1,684        —          (1,684     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,142       $ 19,457       $ —        $ 19,457      $ (13,633   $ (1,598   $ 5,368   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents accretion of interest on discounted restructuring liabilities.

The restructuring and impairment charges were determined based on formal plans approved by the Company’s management using the best information available at the time. The amounts the Company ultimately incurs may change as the balance of the plans are executed. Expected cash payout of the accrued expenses is as follows:

 

Year Ended December 31,

      

2015

   $ 324   

2016

     109   

2017

     114   

2018

     116   

2019

     121   

Thereafter

     1,920   
  

 

 

 

Total

   $ 2,704   

Less: Amounts representing interest

     (874
  

 

 

 

Restructuring liability

   $ 1,830   
  

 

 

 

 

16


2014 Restructuring and Impairment Charges

During the year ended December 31, 2014, the Company incurred net restructuring charges of $7,351, including $6,794 in its Assembly segment, $210 in its Printed Circuit Boards segment and $347 in its “Other” segment (see Note 16). The Company incurred $642 of severance expense and $6,152 of asset impairment charges in its Assembly segment as a result of a reduction in workforce at its Juarez, Mexico facility and a related impairment analysis of the property, plant and equipment at that facility. The Company incurred $341 of restructuring charges in its Printed Circuit Boards segment related to lease and moving costs for the relocation of its Anaheim, California facility, net of a reversal of $131 of accrued severance charges related to cost savings activities announced in 2012. Through December 31, 2014, the Company incurred $1,109 of restructuring charges related to the relocation of the Anaheim facility, and the Company does not expect it will incur significant additional related charges. Charges incurred in the “Other” segment related to an increase in estimated long-term obligations incurred in connection with the 2001 Restructuring.

Juarez Restructuring

During the third quarter of 2014, the Company rationalized the scope of operations and reduced the size of the workforce at its Juarez, Mexico metal fabrication and assembly facility by approximately 22%. In connection with the reduction of the workforce at the Juarez facility, the Company reviewed its property, plant and equipment at the facility for impairment and recorded a $6,152 impairment charge in its Assembly segment during the year ended December 31, 2014. The fair value of the property, plant and equipment was measured using a market approach utilizing Level 3 inputs (see Note 14). The Company does not expect it will incur significant additional related charges.

2013 Restructuring and Impairment Charges

During the year ended December 31, 2013, the Company recognized net restructuring charges of $1,073, including $818 in its Printed Circuit Boards segment, $183 in its Assembly segment and $72 in its “Other” segment (see Note 16). Charges incurred in the Printed Circuit Boards segment included i) $741 related to the relocation of the Company’s Anaheim, California facility, ii) $334 related to the closure of the Huizhou Facility, iii) $102 related to the 2012 fire at the Company’s Guangzhou, China PCB factory and iv) $77 related to staffing reductions at certain North America manufacturing facilities, partially offset by the reversal of $436 of accrued severance costs associated with the closure of the Huizhou Facility. Charges incurred in the Assembly segment related to staffing reductions during the fourth quarter of 2013, and charges incurred in the “Other” segment related to an increase in estimated long-term obligations incurred in connection with the 2001 Restructuring.

Anaheim Move

During the second half of 2013, the Company relocated a PCB manufacturing facility it was leasing in Anaheim, California to a facility it had purchased and renovated in the same city (the “Anaheim Move”). The charges related to the Anaheim Move during 2013 related to lease and moving costs.

Huizhou PCB Facility Closure

The Huizhou Facility ceased operations during the third quarter of 2012, and was decommissioned and returned to its landlord in January 2013. During the year ended December 31, 2013, the Company incurred $334 of moving costs related to relocating the operations of the Huizhou Facility to its other PCB facilities in China, and reversed $436 of accrued severance costs as a result of favorable resolutions of related contingencies.

 

17


2012 Restructuring and Impairment Charges

During the year ended December 31, 2012, the Company recognized $19,457 of restructuring and impairment charges, including $18,405 in its Printed Circuit Boards segment, $801 in its Assembly segment and $251 in “Other.” Restructuring and impairment charges incurred in the Printed Circuit Boards segment included i) $10,662 related to the closure of its Huizhou Facility, ii) $826 associated with integrating the newly acquired DDi business, iii) $5,923 related to general cost savings and iv) $994 of impairment charges and other costs related to fire damage at its Guangzhou, China PCB facility. Restructuring and impairment charges incurred in the Assembly segment related to general cost savings which primarily included the closure of the Company’s Qingdao facility. Restructuring charges incurred in “Other” related to a revaluation of certain employee benefit obligations related to the 2001 Restructuring.

Guangzhou Fire

On September 5, 2012, the Company experienced a fire on the campus of its PCB manufacturing facility in Guangzhou, China which resulted in the loss of inventory with a carrying value of $4,692 and property, plant and equipment with a net book value of $1,988. The Company maintains insurance coverage for property losses and business interruptions caused by fire which is subject to certain deductibles. During the year ended December 31, 2012, the Company recorded an impairment charge of $937 for the amount of the inventory loss subject to an insurance deductible. In 2013, the Company received partial reimbursements of $1,631 million from its insurance carrier related to its property damage claim. During 2014, the Company settled all outstanding claims related to Guangzhou Fire for an additional $31,346. The total claim settlement related to the Guangzhou Fire was $32,977 and included $6,518 related to the Company’s property damage claim and $26,459 related to the Company’s business interruption claim, which was recorded as a gain in operating income.

General Cost Savings Activities

During 2012, the Company initiated staffing reductions at certain of its manufacturing facilities in China in order to better align overhead costs and operating expenses with market demand for its products and recorded related restructuring charges of $5,923 and $142 in its Printed Circuit Boards and Assembly segments, respectively. The Company does not expect to incur significant additional costs related to the activities announced during 2012.

9. Accrued and Other Liabilities

The composition of accrued and other liabilities at December 31, is as follows:

 

     2014      2013  

Accrued payroll and related costs

   $ 49,371       $ 36,547   

Accrued warranty

     8,576         8,539   

Accrued interest

     7,914         7,302   

Accrued other

     28,000         32,621   
  

 

 

    

 

 

 

Total

   $ 93,861       $ 85,009   
  

 

 

    

 

 

 

 

18


10. Long-Term Debt

The composition of long-term debt at December 31, is as follows:

 

     2014      2013  

Senior Secured Notes due 2019

   $ 603,008       $ 550,000   

Senior Secured 2010 Credit Facility

     —           —     

North America Mortgage loans

     10,435         12,259   

Zhongshan 2010 Credit Facility

     —           10,000   

Capital leases

     565         636   
  

 

 

    

 

 

 
     614,008         572,895   

Less: Current maturities

     (1,093      (11,387
  

 

 

    

 

 

 
   $ 612,915       $ 561,508   
  

 

 

    

 

 

 

As of December 31, 2014, the Company had no borrowings under the Company’s various credit facilities, the Company had issued letters of credit totaling $1,875, and approximately $107,244 of the credit facilities was unused and available.

The schedule of principal payments for long-term debt at December 31, 2014, is as follows:

 

Year Ended December 31,

      

2015

   $ 1,093   

2016

     762   

2017

     794   

2018

     826   

2019

     604,060   

Thereafter

     3,465   
  

 

 

 

Total

   $ 611,000   
  

 

 

 

Senior Secured Notes due 2019

On April 15, 2014, the Company’s subsidiary, Viasystems, Inc., completed an offering of $50,000 aggregate principal amount of 7.875% Senior Secured Notes due 2019 (the “New Notes”). The New Notes were issued at a premium of 7.000%, or $3,500, which is being amortized as a reduction of interest expense over the term of the New Notes. As of December 31, 2014, the unamortized premium was $3,008. The Company incurred $3,404 of financing fees related to the New Notes that have been capitalized and are being amortized over the term of the New Notes. The net proceeds of the New Notes are being used for general corporate purposes and to pay fees and expenses related to the offering of the New Notes.

Previously, the Company had issued $550,000 aggregate principal amount of 7.875% Senior Secured Notes due 2019 (the “Existing Notes” and, together with the New Notes, the “2019 Notes”) pursuant to an indenture dated as of April 30, 2012. The New Notes constitute an additional issuance of, and are fungible with, the Existing Notes and form a single class of debt securities with the Existing Notes for all purposes and have the same terms as the Existing Notes, except for the issue price and issue date. The Company incurred $16,186 of deferred financing fees related to the Existing Notes that have been capitalized and are being amortized over the life of the 2019 Notes. The net proceeds of the 2019 Notes were used to fund the redemption of the 2015 Notes and the DDi Acquisition.

Interest on the 2019 Notes is due semiannually on May 1 and November 1 of each year, beginning on November 1, 2012. At any time prior to May 1, 2015, the Company may use the cash proceeds from one or more equity offerings to redeem up to $192,500 of the aggregate principal amount of the 2019 Notes at a redemption price of 107.875% plus accrued and unpaid interest. In addition, at any time from March 1, 2013 to May 1, 2015, but not more than once in any twelve-month period, the Company may redeem up to $55,000 of the aggregate principal amount of the notes at a redemption price of 103% plus accrued and unpaid interest. Furthermore, at any

 

19


time prior to May 1, 2015, the Company may redeem all or part of the notes, at a redemption price of 100% plus a “make-whole” premium equal to the greater of a) 1% of the principal amount or b) the excess of i) the present value at the redemption rate of 105.906% of the principal amount redeemed calculated using a discount rate equal to the treasury rate (as defined) plus 50 basis points, over ii) the principal amount of the notes. On or after May 1, 2015, the Company may redeem all or a portion of the notes during the twelve month periods ended April 30, 2016, 2017 and 2018 at redemption prices of 105.906%, 103.938% and 101.969%, respectively, plus accrued and unpaid interest. After May 1, 2018, the Company may redeem the 2019 Notes at the redemption price of 100% plus accrued and unpaid interest. In the event of a Change in Control (as defined), the Company is required to make an offer to purchase the 2019 Notes at a redemption price of 101%, plus accrued and unpaid interest.

The 2019 Notes are guaranteed, jointly and severally, by all of Viasystems, Inc.’s current and future material domestic subsidiaries (the “Subsidiary Guarantors”) and by Viasystems Group, Inc. through a parent guarantee. The 2019 Notes are collateralized by all of the equity interests of each of the Subsidiary Guarantors, and by liens on substantially all of Viasystems, Inc.’s and the Subsidiary Guarantors’ assets.

The indenture governing the 2019 Notes contains restrictive covenants which, among other things, limit the ability of Viasystems, Inc. and the Subsidiary Guarantors to: a) incur additional indebtedness or issue disqualified stock or preferred stock; b) create liens; c) pay dividends, make investments or make other restricted payments; d) sell assets; e) consolidate, merge, sell or otherwise dispose of all or substantially all of the assets of Viasystems, Inc. and its subsidiaries; and f) enter into certain transactions with affiliates.

Senior Secured 2010 Credit Facility

Effective as of December 31, 2013, the Company amended its senior secured revolving credit agreement (the “Senior Secured 2010 Credit Facility”) with Wells Fargo Capital Finance, LLC primarily for the purpose of extending the maturity date, increasing the maximum potential credit limit, and reducing the applicable margins for loans. The Senior Secured 2010 Credit Facility, as amended, provides a secured revolving credit facility in an aggregate principal amount of up to $75,000 which, upon mutual agreement, may be increased to a maximum of $100,000. The Facility matures on December 29, 2018. The annual interest rates applicable to loans under the Senior Secured 2010 Credit Facility are, at the Company’s option, either the Prime Rate or Eurodollar Rate (each as defined in the Senior Secured 2010 Credit Facility) plus, in each case, an applicable margin. The applicable margin is tied to the Company’s Monthly Average Excess Availability (as defined in the Senior Secured 2010 Credit Facility) and ranges from 0.25% to 0.75% for Prime Rate loans and 1.75% to 2.25% for Eurodollar Rate loans. In addition, the Company is required to pay an unused line fee and other fees as defined in the Senior Secured 2010 Credit Facility.

The Senior Secured 2010 Credit Facility is guaranteed by and secured by substantially all of the assets of the Company’s current and future material domestic subsidiaries, subject to certain exceptions as set forth in the Senior Secured 2010 Credit Facility. The Senior Secured 2010 Credit Facility contains negative covenants restricting and limiting the Company’s ability to, among other things:

 

  •  

incur debt, incur contingent obligations and issue certain types of preferred stock;

 

  •  

create liens;

 

  •  

pay dividends, distributions or make other specified restricted payments;

 

  •  

make certain investments and acquisitions;

 

  •  

enter into certain transactions with affiliates; and

 

  •  

merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

 

20


Under the Senior Secured 2010 Credit Facility, if the Excess Availability (as defined in the Senior Secured 2010 Credit Facility) is less than $9,375, the Company must maintain, on a monthly basis, a minimum fixed charge coverage ratio of 1.0 to 1.0.

The Company incurred $2,529 of deferred financing fees related to the Senior Secured 2010 Credit Facility, including the 2013 amendment, which have been capitalized and are being amortized over the life of the facility. As of December 31, 2014, the Senior Secured 2010 Credit Facility supported letters of credit totaling $1,875, and approximately $66,386 was unused and available based on eligible collateral.

Zhongshan 2010 Credit Facility

The Company’s unsecured revolving credit facility between its Kalex Multi-layer Circuit Board (Zhongshan) Limited (“KMLCB”) subsidiary and China Construction Bank, Zhongshan Branch (the “Zhongshan 2010 Credit Facility”), provides for borrowing denominated in Renminbi (“RMB”) and foreign currency including the U.S. dollar. Borrowings are guaranteed by KMLCB’s sole Hong Kong parent company, Kalex Circuit Board (China) Limited. This revolving credit facility is renewable annually upon mutual agreement. Loans under the credit facility bear interest at the rate of i) LIBOR plus a margin negotiated prior to each U.S. dollar denominated loan or ii) the interest rate quoted by the Peoples Bank of China for Chinese RMB denominated loans. The Zhongshan 2010 Credit Facility has certain restrictions and other covenants that are customary for similar credit arrangements; however, there are no financial covenants contained in this facility. As of December 31, 2014, the Zhongshan 2010 Credit Facility was undrawn, and approximately $40,858 of the facility was unused and available.

North America Mortgage Loans

Toronto Mortgages

The Company’s mortgage loans with Business Development Bank of Canada (“BDC”) consists of two loan agreements, one denominated in U.S. dollars and the second denominated in Canadian dollars, which are secured by the land, building and certain equipment at the Company’s manufacturing facility in Toronto, Canada. The loan agreements contain a covenant requiring maintenance of an available funds coverage ratio of 1.5 to 1.0. As of December 31, 2014, the balance of the U.S. dollar loan was $358. The loan bears interest at a variable rate equal to the applicable BDC floating base rate less 0.4% (3.25% as of December 31, 2014), requires monthly principal and interest payments of approximately $37, and will mature in October 2015. As of December 31, 2014, the U.S. dollar equivalent balance of the Canadian dollar loan was $3,139. The loan bears interest at a variable rate equal to the applicable BDC floating base rate less 0.75% (4.25% as of December 31, 2014), requires monthly principal and interest payments of approximately $35, and will mature in September 2028.

Anaheim Mortgage

The Company’s mortgage loan with Wells Fargo Bank is secured by the land and building at the Company’s manufacturing facility in Anaheim, California. The loan agreement contains a covenant requiring maintenance of a minimum fixed charge coverage ratio of 1.25 to 1.0. As of December 31, 2014, the balance of the loan was $4,858. The loan bears interest at a fixed rate of 4.326%, requires monthly principal and interest payments of approximately $43, and will mature in March 2019, when a balloon principal payment of $3,446 will be due.

Cleveland Mortgage

The Company’s mortgage loan with Zions Bank is secured by the land and building of the Company’s PCB manufacturing facility in the Cuyahoga Falls suburb of Cleveland, Ohio. As of December 31, 2014, the balance of the loan was $1,347. The loan bears interest at a variable rate equal to the Federal Home Loan Bank of Seattle

 

21


prime rate plus 2% (3.25% as of December 31, 2014), requires monthly principal and interest payments of approximately $8, and will mature in November 2032.

Denver Mortgage

The Company’s mortgage loan with GE Real Estate is secured by the land and building at the Company’s manufacturing facility in Littleton, Colorado. As of December 31, 2014, the balance of the loan was $733. The loan bears interest at a fixed rate of 7.55%, requires monthly principal and interest payments of approximately $11, and will mature in July 2032.

North Jackson Mortgage

During 2014, the Company completed the repayment of the mortgage loan on its North Jackson, Ohio PCB facility.

11. Commitments

The Company leases certain buildings, transportation and other equipment under capital and operating leases. As of December 31, 2014 and 2013, there was equipment held under capital leases with a cost basis of $12,007 included in property, plant and equipment. The Company has recorded accumulated depreciation related to this equipment of $9,606 and $8,405 as of December 31, 2014 and 2013, respectively. Total rental expense under operating leases was $8,143, $10,320 and $7,571 for the years ended December 31, 2014, 2013 and 2012, respectively.

Future minimum lease payments under capital leases and operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2014, are as follows:

 

Year Ended December 31,

       Capital          Operating  

2015

   $ 131       $ 7,433   

2016

     131         5,720   

2017

     131         4,438   

2018

     131         2,260   

2019

     131         2,274   

Thereafter

     131         7,071   
  

 

 

    

 

 

 

Total

     786       $ 29,196   
     

 

 

 

Less: Amounts representing interest

     (221   
  

 

 

    

Capital lease obligations

   $ 565      
  

 

 

    

12. 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 our management, the ultimate liabilities resulting from such indemnification obligations will not have a material adverse effect on its financial condition and results of operations and cash flows.

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 December 31, 2014 and 2013, other non-current liabilities include $1,500 and $1,927, respectively, of accruals for potential claims in connection with such indemnities.

 

22


The Company’s 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 or intentional misconduct, the unlawful paying of dividends or repurchasing of capital stock, or transactions from which the Director or officer derived improper personal benefits.

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 our management, the ultimate liabilities resulting from such lawsuits and claims have been adequately provided for and will not have a material adverse effect on the Company’s financial condition and results of operations and cash flows.

13. Income Taxes

The Company’s income tax provision for the years ended December 31, 2014, 2013 and 2012, consists of the following:

 

     2014      2013      2012  

Current:

        

Federal

   $ —         $ —         $ —     

State

     (98      (196      (408

Foreign

     18,719         12,180         12,491   
  

 

 

    

 

 

    

 

 

 
     18,621         11,984         12,083   

Deferred:

        

Federal

     —           —           3,407   

State

     —           —           292   

Foreign

     (1,585      (889      (2,989
  

 

 

    

 

 

    

 

 

 
     (1,585      (889      710   
  

 

 

    

 

 

    

 

 

 

Total

   $ 17,036       $ 11,095       $ 12,793   
  

 

 

    

 

 

    

 

 

 

A reconciliation between the income tax provision at the federal statutory income tax rate and at the effective tax rate, for the years ended December 31, 2014, 2013 and 2012, is summarized below:

 

     2014      2013      2012  

U.S. Federal Statutory Rate

   $ 651       $ (5,780    $ (17,299

State taxes, net of federal benefit

     105         1         (106

Permanent items

     8,422         3,709         3,726   

Foreign tax (under) U.S. Statutory rate

     (6,190      (4,574      (1,993

Current year valuation allowance for deferred tax assets

     10,118         16,117         26,416   

Uncertain tax positions

     4,054         2,099         (87

Foreign tax rate changes and withholdings

     502         611         440   

Other

     (626      (1,088      1,696   
  

 

 

    

 

 

    

 

 

 
   $ 17,036       $ 11,095       $ 12,793   
  

 

 

    

 

 

    

 

 

 

 

23


The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 2014 and 2013, are as follows:

 

     2014      2013  

Deferred tax assets:

     

Net operating loss carryforwards

   $ 372,038       $ 378,143   

Capital loss carryforwards

     95,282         103,583   

Federal and State credit carryforwards

     23,295         25,633   

Accrued liabilities not yet deductible

     15,988         9,989   

Equity compensation

     13,247         11,824   

Property, plant and equipment

     7,775         —     

Other

     713         1,119   
  

 

 

    

 

 

 
     528,338         530,291   

Valuation allowance

     (479,743      (481,019
  

 

 

    

 

 

 
     48,595         49,272   
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Property, plant and equipment

     —           (1,530

Inventory

     (6,134      (4,348

Intangibles

     (33,417      (35,641

Other

     —           (515
  

 

 

    

 

 

 
     (39,551      (42,034
  

 

 

    

 

 

 

Net deferred tax assets

   $ 9,044       $ 7,238   
  

 

 

    

 

 

 

The domestic and foreign income (loss) before income tax provision are as follows:

 

     Year Ended December 31,  
     2014      2013      2012  

Domestic

   $ (66,893    $ (69,938    $ (50,723

Foreign

     68,753         53,423         1,298   
  

 

 

    

 

 

    

 

 

 
   $ 1,860       $ (16,515    $ (49,425
  

 

 

    

 

 

    

 

 

 

As of December 31, 2014, the Company had the following net operating loss (“NOL”) carryforwards: $755,065 in the U.S., $8,263 in China, $48,881 in Canada, $26,652 in Hong Kong and $419 in the Netherlands. The U.S. NOLs expire in 2019 through 2034, the Canada NOLs expire in 2029 through 2034, and the Netherlands NOLs expire in 2017. All other NOLs carry forward indefinitely. Canada has a capital loss of $354,209 that will carry forward indefinitely. For the year ended December 31, 2014, the Company recognized a benefit from the utilization of NOL carryforwards of $2,985, of which all was recognized in China, Hong Kong, Canada and the Netherlands.

As of December 31, 2014 and 2013, the Company has established a full valuation allowance in both the U.S. and Canada for the deferred tax assets for NOL carryforwards. During the years ended December 31, 2014 and 2013, the valuation allowance decreased by $1,276 and increased by $1,098, respectively.

In connection with the Company’s reorganization under Chapter 11 completed on January 31, 2003, Viasystems Group believes more than a 50% change in ownership occurred under Section 382 of the Internal Revenue Code of 1986, as amended, and regulations issued thereunder. As a consequence, the utilization of the U.S. NOLs is limited to approximately $21,687 per year (except to the extent the Company recognizes certain gains built in at the time of the ownership change), with any unused portion carried over to succeeding years. Any NOLs not utilized in a year can be carried over to succeeding years.

 

24


Certain of the Company’s subsidiaries have tax rate reductions in China that, as of December 31, 2014, allow for an annually-reviewed 10% rate reduction. If not for such tax rate reductions, the Company would have had $59 ($0.00 per basic and diluted shares outstanding), $217 ($0.01 per basic and diluted share outstanding) and $594 ($0.03 per basic and diluted share outstanding) of additional income tax expense for the years ended December 31, 2014, 2013 and 2012, respectively, based on the applicable reduced tax rate of 15%.

As of December 31, 2014, the Company has not recognized deferred income taxes on $189,712 of undistributed earnings of its foreign subsidiaries as such earnings are considered to be permanently reinvested in the Company’s foreign operations. If the earnings were distributed in the form of dividends, the Company estimates it would be subject to foreign distribution taxes of approximately $10,120 as of December 31, 2014. The Company estimates the impact of any U.S. federal income tax would be offset by NOL carryforwards.

Uncertain Tax Positions

At December 31, 2014 and 2013, other non-current liabilities include $32,165 and $28,164 of long-term accrued taxes, respectively, related to the liability for unrecognized tax benefits. The Company classifies income tax-related interest and penalties as a component of income tax expense. At December 31, 2014 and 2013, the total unrecognized tax benefit in the consolidated balance sheet included a liability of $15,675 and $13,394, respectively, related to accrued interest and penalties on unrecognized tax benefits. The income tax provision included in the Company’s consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012, included expense of $2,281, $2,607 and $1,638, respectively, related to interest and penalties on unrecognized tax benefits.

The liability for unrecognized tax benefits increased by $1,720 from December 31, 2013, to December 31, 2014, including the reversal of $391 of uncertain tax positions due to lapsing of the applicable statute of limitations, primarily due to provisions related to tax positions taken in the current period, and interest and penalties related to positions taken in prior periods. At December 31, 2014 and 2013, the liability for unrecognized tax benefits included $32,165 and $28,164, respectively, that, if recognized, would affect the effective tax rate. The Company is in discussions with various taxing authorities on several open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next year. The Company currently estimates approximately $4,000 of the liability for uncertain tax positions could be settled in the next twelve months.

As of December 31, 2014, the Company is subject to U.S. federal income tax examination for all tax years from 1998 forward, and to non-U.S. income tax examinations generally for the tax years 2002 through 2012. In addition, the Company is subject to state and local income tax examinations generally for the tax years 2002 through 2012.

A reconciliation of the Company’s total gross unrecognized tax benefits, exclusive of related interest and penalties, for the years ended December 31, 2014, 2013 and 2012, is summarized below:

 

     2014      2013      2012  

Balance, beginning of year

   $ 14,770       $ 14,865       $ 15,664   

Tax positions related to current year:

  

Additions

     2,111         321         181   

Reductions

     —           —           —     

Tax positions related to prior years:

  

Additions

     —           —           —     

Reductions

     —           —           —     

Tax positions acquired from DDi

     —           —           787   

Settlements

     —           (19      (16

Lapses in statutes of limitations

     (391      (397      (1,751
  

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 16,490       $ 14,770       $ 14,865   
  

 

 

    

 

 

    

 

 

 

 

25


14. Derivative Financial Instruments and Fair Value Measurements

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 Company’s objective is to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. The Company’s foreign currency exposure arises from the transacting of business in a currency other than the U.S. dollar, primarily the Chinese Renminbi (“RMB”).

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 instruments at fair value (see Note 1) through adjustments to other comprehensive income, current earnings, or both, as appropriate. Accumulated other comprehensive (loss) income as of December 31, 2014, included net deferred loss on derivatives of $1,053 (net of taxes $0) and as of December 31, 2013 and 2012, included net deferred gains on derivatives of $933 (net of taxes $256) and $1,340 (net of taxes of $0), respectively, related to cash flow hedges.

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. As of December 31, 2014, all of the Company’s derivative contracts were in the form of the RMB cross-currency swaps and as of December 31, 2013, all of the Company’s derivative contracts were in the form of the RMB foreign exchange forward contracts and cross currency swaps, which were designated and qualified as cash flow hedging instruments. Realized gains or losses from the settlement of foreign exchange forward contracts and cross-currency swaps are recognized in earnings in the same period the hedged foreign currency cash flow affects earnings. For the years ended December 31, 2014, 2013 and 2012, a loss of $1,856 and gains of $5,784 and $2,347, respectively, were recorded in cost of goods sold related to foreign currency cash flow hedges.

The following table summarizes the Company’s outstanding derivative contracts:

 

     December 31, 2014      December 31, 2013  

Notional amount in thousands of Chinese RMB

     1,800,000         479,096   

Weighted average remaining maturity in months

     6.1         6.4   

Weighted average exchange rate per one U.S. Dollar

     6.28         6.18   

Fair Value of Measurements

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.

 

26


Financial Instruments Measured on a Recurring Basis

The following table sets forth, as of December 31, 2014, 2013 and 2012, the hierarchy of the Company’s financial asset (liability) positions for which fair value is measured on a recurring basis:

 

     December 31, 2014
     Level 1      Level 2      Level 3      Balance Sheet Classification

Available-for-sale investments in Savings Restoration Plan

   $ 1,429       $ —         $ —         Prepaid expense and other

Cash flow hedges—deferred loss contracts

     —           (1,053      —         Accrued and other liabilities
  

 

 

    

 

 

    

 

 

    
   $ 1,429       $ (1,053    $     —        
  

 

 

    

 

 

    

 

 

    
     December 31, 2013
     Level 1      Level 2      Level 3      Balance Sheet Classification

Available-for-sale investments in Savings Restoration Plan

   $ 1,077       $ —         $ —         Prepaid expense and other

Cash flow hedges—deferred gains contracts

     —           1,189         —         Prepaid expense and other
  

 

 

    

 

 

    

 

 

    
   $ 1,077       $ 1,189       $     —        
  

 

 

    

 

 

    

 

 

    
     December 31, 2012
     Level 1      Level 2      Level 3      Balance Sheet Classification

Available-for-sale investments in Savings Restoration Plan

   $ 411       $ —         $ —         Prepaid expense and other

Cash flow hedges—deferred gains contracts

     —           1,340         —         Prepaid expense and other
  

 

 

    

 

 

    

 

 

    
   $ 411       $ 1,340       $     —        
  

 

 

    

 

 

    

 

 

    

Available-for-sale investments in the Savings Restoration Plan (see Note 18) consist of investments in money market accounts and mutual funds invested in a rabbi trust, and are valued based on quoted prices in active markets (Level 1). The liability to participants in the Savings Restoration Plan is equal to the fair value of the plan’s investments, with any difference attributable to the timing of deposits into the trust.

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. 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, market interest rates that are corroborated with publicly available market information and third party credit ratings for the counter parties to our derivative contracts. 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.

The Company did not have any transfers between levels during the years ended December 31, 2014, 2013 or 2012.

Other Financial Instruments

In addition to cash flow hedges, the Company’s 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 market value. The estimated fair values of the Company’s debt instruments as of December 31, 2014 and 2013, are as follows:

 

     December 31, 2014
     Fair Value      Carrying
Amount
    

Balance Sheet Classification

Senior Secured Notes due 2019

   $ 634,878       $ 603,800      

Long-term debt, less current maturities

Senior Secured 2010 Credit Facility

     —           —        

North America Mortgage Loans

     10,288         10,435      

Long-term debt, including current maturities

Zhongshan 2010 Credit Facility

     —           —        

Current maturities of long-term debt

     December 31, 2013
     Fair Value      Carrying
Amount
    

Balance Sheet Classification

Senior Secured Notes due 2019

   $ 595,034       $ 550,000      

Long-term debt, less current maturities

Senior Secured 2010 Credit Facility

     —           —        

North America Mortgage Loans

     11,710         12,259      

Long-term debt, including current maturities

Zhongshan 2010 Credit Facility

     10,000         10,000      

Current maturities of long-term debt

 

27


The Company determined the fair value of the Senior Secured Notes due 2019 using Level 1 inputs—quoted market prices for the notes. The Company determined the fair value of the North America Mortgage Loans, and Zhongshan 2010 Credit Facility using Level 2 inputs, and estimated the fair value based on discounted future cash flows using a discount rate that approximates the current effective borrowing rate for comparable loans.

15. Equity Incentive Plans

2010 Equity Incentive Plan

The Company’s 2010 Equity incentive Plan, (the “2010 Plan”) was adopted in April 2010, and provides for grants of stock options, restricted stock awards, performance share units and other stock-based awards to the Company’s employees and directors. Subject to additions and adjustments, 4,600,000 shares are authorized for granting under the 2010 Plan. At December 31, 2014, 440,276 shares were available for future grants.

The 2010 Plan provides the compensation committee of the Company’s board of directors the discretion to grant awards in any form and with any terms permitted by the 2010 Plan. All stock option grants awarded since the inception of the 2010 Plan expire 7 years after the grant date, with one-third of the options vesting on the first anniversary of the grant date, and one-twelfth of the options vesting on each of the next eight ensuing calendar quarter-ends. Subject to certain accelerated vesting provisions of the 2010 Plan, restricted stock awards granted since the inception of the 2010 Plan vest on the third anniversary of the grant date. Performance share units vest only if the performance objectives of the awards are met as measured over the performance period established for each grant. Based upon the extent to which performance objectives are achieved, shares issued upon the vesting of share units may range from zero to 200% of the original grant.

2003 Stock Option Plan

In January 2013, the Company’s 2003 Stock Option Plan (the “2003 Plan”) expired such that no new awards may be granted under that plan. The 2003 Plan allowed for the granting of options to purchase shares of the Company’s common stock. Options granted expire 10 years after the grant date. At December 31, 2014, 40,775 options were issued and outstanding under this plan.

Stock Compensation Expense

Stock compensation expense recognized in the consolidated statements of operations was as follows:

 

     December 31,  
     2014      2013      2012  

Cost of goods sold

   $ 658       $ 684       $ 640   

Selling, general and administrative

     7,094         8,730         9,923   
  

 

 

    

 

 

    

 

 

 
   $ 7,752       $ 9,414       $ 10,563   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2014, unrecognized compensation expense related to grants of stock options, restricted stock awards and performance share units totaled $8,423 and will be recognized over a period of approximately two years.

 

28


Stock Option Activity

The following table summarizes the stock option activity under both the 2003 Plan and the 2010 Plan for the year ended December 31:

 

     2014      2013      2012  
     Options     Exercise
Price(1)
     Options     Exercise
Price(1)
     Options     Exercise
Price(1)
 

Beginning balance

     1,869,124      $ 24.73         2,029,010      $ 31.84         1,676,812      $ 36.00   

Granted

     —          —           22,500        13.47         406,962        17.70   

Exercised

     (4,999     15.30         —          —           —          —     

Forfeited

     (93,405     50.86         (182,386     102.43         (54,764     54.16   
  

 

 

      

 

 

      

 

 

   

Ending balance

     1,770,720      $ 23.40         1,869,124      $ 24.73         2,029,010      $ 31.84   
  

 

 

      

 

 

      

 

 

   

Exercisable at year end

     1,752,079      $ 23.49         1,697,339      $ 25.50         1,377,982      $ 37.97   
  

 

 

      

 

 

      

 

 

   
(1)

weighted average

As of December 31, 2014, the intrinsic value of outstanding stock options was $193.

No stock options were granted during the year ended December 31, 2014. The fair value of each option grant during the years ended December 31, 2013 and 2012 was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

 

     2013    2012

Expected life of options

   4.3 years    4.3 years

Risk free interest rate

   0.75% to 0.88%    0.63% to 0.85%

Expected volatility of stock

   54.66% to 54.94%    62.12% to 67.05%

Expected dividend yield

   None    None

Weighted average fair value

   $5.95    $8.86

The Company’s common stock was listed and began trading on the NASDAQ on February 17, 2010. For stock options granted during the year ended December 31, 2013, the Company estimated the expected volatility of the underlying shares using its historical stock performance. For stock options granted in 2012, as there was insufficient historical data about the Company’s common stock performance, the Company estimated the expected volatility of the underlying shares based on the blended historical stock volatility of peer companies. The Company estimated the expected life of new option grants in both 2013 and 2012 using the simplified method.

As of December 31, 2014, outstanding stock options under the 2003 Plan had an exercise price of $150.99; and outstanding stock options under the 2010 Plan had exercise prices ranging from $12.66 to $24.00. The following table summarizes information regarding outstanding stock options under these plans as of December 31, 2014:

 

     Outstanding      Exercisable  

Exercise Price

   Number
of
Options
     Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise
Price
     Number
of
Options
     Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise
Price
 

$ 12.66 to $15.30

     126,581       3.69 years    $ 14.76         108,651       3.49 years    $ 14.82   

$ 18.42 to $21.04

     762,270       3.47 years      19.66         762,270       3.47 years      19.66   

$ 21.88 to $24.00

     841,094       2.34 years      21.89         840,383       2.34 years      21.89   

$ 150.99

     40,775       1.86 years      150.99         40,775       1.86 years      150.99   
  

 

 

          

 

 

       
     1,770,720       2.91 years    $ 23.40         1,752,079       2.89 years    $ 23.49   
  

 

 

          

 

 

       

 

29


Restricted Stock Award Activity

The following table summarizes restricted stock award activity for the years ended December 31:

 

     2014      2013      2012  
     Shares     Weighted
Average
Grant Date
Per Share
Fair Value
     Shares     Weighted
Average
Grant Date
Per Share
Fair Value
     Shares     Weighted
Average
Grant Date
Per Share
Fair Value
 

Nonvested, beginning of year

     576,042      $ 17.47         629,435      $ 18.40         405,595      $ 18.05   

Granted

     213,900        12.31         203,089        13.50         240,825        19.02   

Vested

     (155,274     20.13         (244,973     16.61         (10,406     18.13   

Forfeited

     (11,366     14.27         (11,509     16.96         (6,579     19.85   
  

 

 

      

 

 

      

 

 

   

Nonvested, end of year

     623,302      $ 15.09         576,042      $ 17.47         629,435      $ 18.40   
  

 

 

      

 

 

      

 

 

   

Restricted stock awards outstanding as of December 31, 2014, had an aggregate intrinsic value of $10,147. As of the vesting date, the total fair value of restricted stock awards which vested during 2014 was $2,017.

Performance Share Units

For performance share units with market conditions, such as those that include performance conditions related to attaining a specific stock price, the grant date fair value of awards are estimated using the Monte Carlo simulation method and expensed ratably over the requisite service period. For performance share units without market conditions, the grant date fair value of awards is based on the share price of the Company’s common stock on the date of grant and expensed ratably over the requisite service period based on the probability of achieving the performance objectives, with changes in expectations recognized as an adjustment to earnings in the period of the change. For performance share units granted in 2014 and 2013, the performance objectives were based on the achievement of targeted future stock prices of the Company’s common stock over a period of three years. For performance share units granted in 2012, the performance objectives were based on the achievement of targeted levels of Adjusted EBITDA and return on invested capital (both as defined in the grant agreements) over a period of three to five years.

The following table summarizes performance share unit activity for the years ended December 31:

 

     2014      2013      2012  
     Shares      Weighted
Average
Grant Date
Per Share
Fair Value
     Shares     Weighted
Average
Grant Date
Per Share
Fair Value
     Shares      Weighted
Average
Grant Date
Per Share
Fair Value
 

Nonvested, beginning of year

     558,113       $ 16.26         139,343      $ 15.35         —         $ —     

Granted

     241,138         14.88         427,736        16.57         139,343         15.35   

Vested

     —           —           —          —           —           —     

Forfeited

     —           —           (8,966     17.04         —           —     
  

 

 

       

 

 

      

 

 

    

Nonvested, end of year

     799,251       $ 15.84         558,113      $ 16.26         139,343       $ 15.35   
  

 

 

       

 

 

      

 

 

    

 

30


In February 2015, with respect to performance share units granted in 2012, the Company issued 37,697 shares which had been earned.

16. Business Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance. During the year ended December 31, 2014, the Company operated its business in two segments: i) Printed Circuit Boards and ii) Assembly.

The Printed Circuit Boards segment consists of the Company’s printed circuit board manufacturing facilities located in the United States, Canada 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 enclosures, and full system assembly and testing. The assembly operations are conducted in manufacturing facilities in China and Mexico. Intersegment sales are eliminated in consolidation. The accounting policies of segments are the same as those described in Note 1.

Assets and liabilities of the Company’s corporate headquarters, along with those of its closed printed circuit boards and assembly operations, are reported in “Other.” Operating expenses of our corporate headquarters are allocated to the Printed Circuit Boards and Assembly segments based on a number of factors, including sales.

Total assets by segment are as follows:

 

     December 31,  
     2014      2013  

Total assets:

     

Printed Circuit Boards

   $ 984,949       $ 975,570   

Assembly

     95,478         99,857   

Other

     55,078         42,990   
  

 

 

    

 

 

 

Total assets

   $ 1,135,505       $ 1,118,417   
  

 

 

    

 

 

 

 

31


Net sales and operating income (loss) by segment, together with reconciliation to (loss) income before income taxes, are as follows:

 

     Year ended December 31,  
   2014      2013      2012  

Net sales to external customers:

        

Printed Circuit Boards

   $ 1,037,768       $ 996,528       $ 959,793   

Assembly

     166,334         174,518         200,113   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,204,102       $ 1,171,046       $ 1,159,906   
  

 

 

    

 

 

    

 

 

 

Intersegment sales:

        

Printed Circuit Boards

   $ 11,237       $ 11,581       $ 7,379   

Assembly

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 11,237       $ 11,581       $ 7,379   
  

 

 

    

 

 

    

 

 

 

Operating income (loss):

        

Printed Circuit Boards

   $ 66,533       $ 25,255       $ 27,357   

Assembly

     (11,466      565         1,639   

Other

     (6,407      (623      (9,727
  

 

 

    

 

 

    

 

 

 

Total

     48,660         25,197         19,269   

Interest expense, net

     47,334         44,797         42,156   

Amortization of deferred financing costs

     2,901         2,898         2,723   

Loss on early extinguishment of debt

     —           —           24,234   

Other, net

     (3,435      (5,983      (419
  

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

   $ 1,860       $ (16,515    $ (49,425
  

 

 

    

 

 

    

 

 

 

Capital expenditures and depreciation expense by segment are as follows:

 

     Year ended December 31,  
     2014      2013      2012  

Capital expenditures:

        

Printed Circuit Boards

   $ 60,510       $ 100,881       $ 102,058   

Assembly

     3,930         6,653         5,952   

Other

     302         987         711   
  

 

 

    

 

 

    

 

 

 

Total capital expenditures

   $ 64,742       $ 108,521       $ 108,721   
  

 

 

    

 

 

    

 

 

 

Depreciation expense:

        

Printed Circuit Boards

   $ 83,368       $ 83,554       $ 75,506   

Assembly

     4,536         4,506         4,513   
  

 

 

    

 

 

    

 

 

 

Total depreciation expense

   $      87,904       $      88,060       $      80,019   
  

 

 

    

 

 

    

 

 

 

 

32


Net sales by country of destination are as follows:

 

     Year Ended December 31,  
     2014      2013      2012  

United States

   $ 497,895       $ 526,744       $ 465,798   

People’s Republic of China, including Hong Kong

     253,745         234,072         244,290   

Canada

     51,138         43,874         40,070   

Malaysia

     51,070         43,651         44,474   

Germany

     46,933         46,237         55,305   

Hungary

     43,703         42,374         43,141   

France

     25,453         22,316         27,733   

Mexico

     24,555         14,026         8,248   

Singapore

     20,563         19,915         16,366   

India

     19,858         21,662         28,905   

Sweden

     17,104         13,969         7,877   

Brazil

     16,008         13,508         14,632   

Israel

     14,979         12,326         15,651   

United Kingdom

     11,395         12,052         19,542   

Netherlands

     10,516         27,169         27,084   

Thailand

     10,351         12,959         12,873   

Other

     88,836         64,192         87,917   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,204,102       $ 1,171,046       $ 1,159,906   
  

 

 

    

 

 

    

 

 

 

Net sales by country of manufacture are as follows:

 

     Year Ended December 31,  
     2014      2013      2012  

People’s Republic of China

   $ 803,433       $ 758,425       $ 829,593   

United States

     276,128         282,036         246,959   

Canada

     78,032         75,106         41,881   

Mexico

     46,509         55,479         41,473   
  

 

 

    

 

 

    

 

 

 
   $ 1,204,102       $ 1,171,046       $ 1,159,906   
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment, net by country are as follows:

 

     December 31,  
     2014      2013  

People’s Republic of China, including Hong Kong

   $ 290,258       $ 302,563   

United States

     95,302         104,647   

Canada

     28,858         30,448   

Mexico

     1,189         8,830   
  

 

 

    

 

 

 
   $ 415,607       $ 446,488   
  

 

 

    

 

 

 

 

33


17. Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive (loss) income, by component, for the years ended December 31, 2014, 2013, and 2012, were as follows:

 

     Cash Flow
Hedges

(see Note 14)
     Foreign
Currency
Translation
     Total  

Accumulated other comprehensive income at December 31, 2011

   $ 527       $ 7,528       $ 8,055   
  

 

 

    

 

 

    

 

 

 

Other comprehensive income, net of tax and before reclassifications

     3,160         —           3,160   

Amounts reclassified from accumulated other comprehensive income, net of tax

     (2,347      —           (2,347
  

 

 

    

 

 

    

 

 

 

Other comprehensive income, net of tax

     813         —           813   
  

 

 

    

 

 

    

 

 

 

Accumulated other comprehensive income at December 31, 2012

     1,340         7,528         8,868   

Other comprehensive income, net of tax and before reclassifications

     5,377         —           5,377   

Amounts reclassified from accumulated other comprehensive income, net of tax

     (5,784      —           (5,784
  

 

 

    

 

 

    

 

 

 

Other comprehensive loss, net of tax

     (407      —           (407
  

 

 

    

 

 

    

 

 

 

Accumulated other comprehensive income at December 31, 2013

     933         7,528         8,461   

Other comprehensive loss, net of tax and before reclassifications

     (3,842      —           (3,842

Amounts reclassified from accumulated other comprehensive income, net of tax

     1,856         —           1,856   
  

 

 

    

 

 

    

 

 

 

Other comprehensive loss, net of tax

     (1,986      —           (1,986
  

 

 

    

 

 

    

 

 

 

Accumulated other comprehensive (loss) income at December 31, 2014

   $ (1,053    $ 7,528       $ 6,475   
  

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income for the years ended December 31, 2014, 2013 and 2012, was net of tax of $0, $256 and $0, respectively.

18. Retirement Plans

The Company has a defined contribution retirement savings plan (the “Retirement Plan”) covering substantially all domestic employees who meet certain eligibility requirements as to age and length of service. The Retirement Plan incorporates the salary deferral provision of Section 401(k) of the Internal Revenue Code and employees may defer up to 30% of their compensation or the annual maximum limit prescribed by the Internal Revenue Code. The Company matches a percentage of the employees’ deferrals (the “Matching Contribution”) and may contribute an additional 1% of employees’ salaries to the Retirement Plan regardless of employee deferrals. The Company may also elect to contribute an additional profit-sharing contribution at the end of each year. At the beginning of 2013, the employees of the U.S. based manufacturing facilities acquired from DDi became eligible to receive Matching Contributions under the Retirement Plan. The Company’s contributions to the Retirement Plan were $2,371, $1,871 and $1,310 for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company has a savings restoration plan (the “Savings Restoration Plan”) to provide additional benefits to certain domestic employees who are not eligible to receive the full Matching Contribution due to limitations imposed by the Internal Revenue Code. The Savings Restoration Plan also allows for the voluntary deferral of certain compensation by eligible employees. The Company’s expense related to the Savings Restoration Plan were $153, $114 and $120 for the years ended December 31, 2014, 2013 and 2012 respectively.

 

34


19. Related Party Transactions

Noncontrolling Interest Holder

The Company purchases consulting and other services from the Noncontrolling Interest Holder related to its Huiyang, China PCB manufacturing facility. During the years ended December 31, 2014, 2013 and 2012, the Company paid the Noncontrolling Interest Holder $115, $107 and $108, respectively, related to these services and as of December 31, 2014, $36 was payable to the Noncontrolling Interest Holder.

Prior to the 2012 closure of the Huizhou Facility, the Company made rental payments and purchased consulting and other services from the Noncontrolling Interest Holder related to the Huizhou Facility. During the year ended December 31, 2012, the Company paid the Noncontrolling Interest Holder $721 related to these rental payments service fees.

Compensation of Directors

For each of the years ended December 31, 2014, 2013 and 2012, the Company paid director fees based on the following rates: the Chairman of the Board receives an annual fee of $120; directors (other than the Chairman) who are not executive officers receive an annual fee of $60; members of the Audit Committee, Compensation Committee and Nominating and Governance Committee receives an additional annual fee of $15, $13 and $10, respectively; and the chairman of the Audit Committee, Compensation Committee and Nominating and Governance Committee receive an additional fee of $15, $13 and $10, respectively. In addition, Directors are reimbursed for out-of-pocket expenses incurred in connection with attending meetings of the Board and its committees.

In 2014, the Company awarded each director who was not an executive officer 12,690 shares of restricted stock as of the date of the Company’s annual shareholders meeting. In 2013, the Company awarded each director who was not an executive officer 11,848 shares of restricted stock as of the date of the Company’s annual shareholders meeting. In 2012, the Company awarded each director who was not an executive officer 6,852 shares of restricted stock as of the Company’s annual shareholders meeting and granted two directors who joined the board subsequently 7,333 shares of restricted stock each.

 

35


20. Summary of Interim Financial Information (unaudited)

Quarterly financial data for the years ended December 31, 2014 and 2013 is presented below:

 

     Quarter        
     1st     2nd     3rd     4th     Year  

2014:

          

Net sales

   $ 295,912      $ 300,929      $ 299,252      $ 308,009        1,204,102   

Cost of goods sold

     239,803        242,245        239,883        246,655        968,586   

Guangzhou Fire business interruption insurance proceeds

     —          —          —          (26,459     (26,459

Selling, general and administrative

     26,849        25,442        30,051        29,551        111,893   

Depreciation and amortization

     23,492        23,524        23,590        23,465        94,071   

Restructuring and impairment

     273        68        6,794        216        7,351   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     5,495        9,650        (1,066     34,581        48,660   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (9,357   $ (3,620   $ (16,359   $ 14,160      $ (15,176

Noncontrolling interest

   $ 190      $ 239      $ 205      $ 180      $ 814   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to common stockholders

     (9,547     (3,859     (16,564     13,980        (15,990
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) earnings per share

   $ (0.47   $ (0.19   $ (0.82   $ 0.69      $ (0.79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted (loss) earnings per share

   $ (0.47   $ (0.19   $ (0.82   $ 0.67      $ (0.79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     20,268,717        20,289,645        20,290,384        20,297,657        20,280,284   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

     20,268,717        20,289,645        20,290,384        20,820,186        20,280,284   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2013:

          

Net sales

   $ 272,940      $ 285,553      $ 309,172      $ 303,381      $ 1,171,046   

Cost of goods sold

     219,058        232,448        253,737        244,253        949,496   

Selling, general and administrative

     27,693        25,001        25,192        22,619        100,505   

Depreciation and amortization

     23,636        23,556        23,537        24,046        94,775   

Restructuring and impairment

     —          —          347        726        1,073   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,553        4,548        6,359        11,737        25,197   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (13,282   $ (10,268   $ (9,032   $ 4,972      $ (27,610

Noncontrolling interest

   $ 173      $ 101      $ 121      $ 215      $ 610   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to common stockholders

   $ (13,455   $ (10,369   $ (9,153   $ 4,757      $ (28,220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ (0.67   $ (0.52   $ (0.45   $ 0.24      $ (1.40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ (0.67   $ (0.52   $ (0.45   $ 0.23      $ (1.40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     19,994,820        20,010,029        20,171,083        20,179,174        20,089,507   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

     19,994,820        20,010,029        20,171,083        20,464,264        20,089,507   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

36


Viasystems Group, Inc. and Subsidiaries

Consolidated Financial Statements (Unaudited)

March 31, 2015


Viasystems Group, Inc. and Subsidiaries

March 31, 2015

 

 

Condensed Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and December 31, 2014

     1   
 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months ended March 31, 2015 and 2014

     2   
 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014

     3   
 

Notes to Unaudited Condensed Consolidated Financial Statements

     4   


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)

 

     March 31,
2015
    December 31,
2014
 
     (Unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 81,632      $ 71,964   

Accounts receivable, net

     219,865        215,784   

Inventories

     130,864        138,195   

Prepaid expenses and other

     31,671        38,694   
  

 

 

   

 

 

 

Total current assets

     464,032        464,637   

Property, plant and equipment, net

     409,559        415,607   

Goodwill

     151,283        151,283   

Intangible assets, net

     88,797        90,158   

Deferred financing costs, net

     12,356        13,115   

Other assets

     745        705   
  

 

 

   

 

 

 

Total assets

   $ 1,126,772      $ 1,135,505   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current maturities of long-term debt

   $ 1,134      $ 1,093   

Accounts payable

     174,304        175,346   

Accrued and other liabilities

     99,649        99,757   
  

 

 

   

 

 

 

Total current liabilities

     275,087        276,196   

Long-term debt, less current maturities

     612,348        612,915   

Other non-current liabilities

     43,835        43,730   
  

 

 

   

 

 

 

Total liabilities

     931,270        932,841   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, par value $0.01 per share, 100,000,000 shares authorized, 20,903,142 and 20,921,111 shares issued and outstanding

     209        209   

Paid-in capital

     2,402,145        2,401,505   

Accumulated deficit

     (2,217,765     (2,209,279

Accumulated other comprehensive income

     6,986        6,475   
  

 

 

   

 

 

 

Total Viasystems stockholders’ equity

     191,575        198,910   

Noncontrolling interest

     3,927        3,754   
  

 

 

   

 

 

 

Total stockholders’ equity

     195,502        202,664   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,126,772      $ 1,135,505   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

1


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

(dollars in thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2015     2014  

Net sales

   $ 304,628      $ 295,912   

Operating expenses:

    

Cost of goods sold, exclusive of items shown separately below

     244,584        239,803   

Selling, general and administrative

     31,529        26,849   

Depreciation

     21,520        21,812   

Amortization

     1,379        1,680   

Restructuring and impairment

     —         273   
  

 

 

   

 

 

 

Operating income

     5,616        5,495   

Other expense (income):

    

Interest expense, net

     11,740        11,253   

Amortization of deferred financing costs

     759        655   

Other, net

     (1,527     (1,233
  

 

 

   

 

 

 

Loss before income taxes

     (5,356     (5,180

Income taxes

     2,957        4,177   
  

 

 

   

 

 

 

Net loss

   $ (8,313   $ (9,357
  

 

 

   

 

 

 

Less:

    

Net income attributable to noncontrolling interest

   $ 173      $ 190   
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (8,486   $ (9,547
  

 

 

   

 

 

 

Basic loss per share

   $ (0.40   $ (0.47
  

 

 

   

 

 

 

Diluted loss per share

   $ (0.40   $ (0.47
  

 

 

   

 

 

 

Basic weighted average shares outstanding

     21,001,444        20,268,717   
  

 

 

   

 

 

 

Diluted weighted average shares outstanding

     21,001,444        20,268,717   
  

 

 

   

 

 

 

Comprehensive (loss) income:

    

Net loss

   $ (8,313   $ (9,357

Change in derivatives, net of tax

     511        (3,298
  

 

 

   

 

 

 

Comprehensive loss

     (7,802     (12,655
  

 

 

   

 

 

 

Less:

    

Comprehensive income attributable to noncontrolling interests

     173        190   
  

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (7,975   $ (12,845
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


VIASYSTEMS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

 

     Three Months
Ended
March 31,
 
     2015     2014  

Cash flows from operating activities:

    

Net loss

   $ (8,313   $ (9,357

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     22,899        23,492   

Non-cash stock compensation expense

     1,540        1,729   

Amortization of deferred financing costs

     759        655   

(Gain) loss on disposition of assets, net

     92        (1,070

Deferred income taxes

     (431     (2,527

Non-cash impact of exchange rate changes

     (309     (186

Amortization of original issue premium on long term debt

     (173     —    

Change in assets and liabilities:

    

Accounts receivable

     (4,081     (10,379

Inventories

     7,331        (3,187

Prepaid expenses and other

     7,352        521   

Accounts payable

     (1,042     (26,774

Accrued and other liabilities

     616        16,300   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     26,240        (10,783
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (15,713     (14,999

Proceeds from disposals of property, plant and equipment

     147        1,041   
  

 

 

   

 

 

 

Net cash used in investing activities

     (15,566     (13,958
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from borrowings under credit facilities and term loans

     163        20,000   

Repayments of borrowings under mortgages and credit facilities

     (269     (10,328

Proceeds from exercise of stock options

     215        —    

Withholding taxes related to stock awards net share settlements

     (1,115     (585

Financing and other fees

     —         (19
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (1,006     9,068   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     9,668        (15,673

Cash and cash equivalents, beginning of the period

     71,964        54,738   
  

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 81,632      $ 39,065   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Interest paid

   $ 176      $ 386   
  

 

 

   

 

 

 

Income taxes paid, net

   $ 6,802      $ 4,226   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


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, results of operations and cash flows. The results for the three months ended March 31, 2015 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 the Company’s annual report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission.

Nature of Business

Viasystems is a leading worldwide provider of complex multi-layer printed circuit boards (“PCBs”) and electro-mechanical solutions (“E-M Solutions”). The Company’s 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, technical and industrial 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;

 

4


  •  

tax related items;

 

  •  

contingencies; and

 

  •  

fair value of awards granted under the Company’s stock-based compensation plans.

Actual results may differ from previously estimated amounts, and such differences may be material to the Company’s condensed consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements 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.

Cash and Cash Equivalents

The Company considers short-term highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

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 assert a claim against the Company, in the opinion of the Company’s management, the ultimate liabilities resulting from such indemnification obligations will not have a material adverse effect on its business, financial condition, results of operations or cash flows.

The Company is a party to agreements with third parties in which the Company has agreed to indemnify such parties against certain liabilities in connection with claims by unrelated parties. At both March 31, 2015 and December 31, 2014, other non-current liabilities included $1,500 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 or omissions not in good faith or involving intentional misconduct or knowing violation of the law, 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 Company’s 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 or cash flows.

Earnings or Loss Per Share

The Company computes basic earnings 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 per share is based on the weighted average number of common shares outstanding during the period plus, to the extent they are dilutive, common equivalent shares (consisting primarily of employee stock options, unvested restricted stock awards and unvested performance share units). The potentially dilutive impact of the Company’s share-based compensation awards is determined using the treasury stock method.

 

5


The components used in the computation of basic and diluted loss per share attributable to common stockholders were as follows:

 

     Three Months Ended
March 31,
 
     2015      2014  

Net loss attributable to common stockholders

   $ (8,486    $ (9,547
  

 

 

    

 

 

 

Basic weighted average shares outstanding

     21,001,444         20,268,717   

Dilutive effect of stock options

     —          —    

Dilutive effect of restricted stock awards

     —          —    

Dilutive effect of performance share units

     —          —    
  

 

 

    

 

 

 

Diluted weighted average shares outstanding

     21,001,444         20,268,717   
  

 

 

    

 

 

 

Basic loss per share

   $ (0.40    $ (0.47
  

 

 

    

 

 

 

Diluted loss per share

   $ (0.40    $ (0.47
  

 

 

    

 

 

 

For the three months ended March 31, 2015, the calculation of diluted weighted average shares outstanding excludes i) the effect of performance share units representing a maximum of 1,245,212 shares of common stock, ii) options to purchase 1,754,054 shares of common stock and iii) unvested restricted stock awards of 461,721. For the three months ended March 31, 2014, the calculation of diluted weighted average shares outstanding excludes i) the effect of performance share units representing a maximum of 1,384,555 shares of common stock, ii) options to purchase 1,848,625 shares of common stock, iii) unvested restricted stock awards of 512,652.

Noncontrolling Interest

The Company owns a majority interest in its subsidiary that operates a manufacturing facility in Huiyang, China, and a noncontrolling interest holder owns 5% of this subsidiary. Noncontrolling interest is reported as a component of equity, and net income attributable to the noncontrolling interest is reported as a reduction from net income to arrive at net income attributable to the Company’s common stockholders.

Recently Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued a new accounting standard that requires deferred financing costs related to a recognized debt liability be presented in the balance sheet as a reduction of the related liability rather than as an asset. The Company will adopt the new standard in 2016 and begin to reclassify the Company’s deferred financing costs on its balance sheet from an asset to a reduction of long-term debt. As of March 31, 2015 and December 31, 2014, the balance of the Company’s asset for deferred financing costs was $12,356 and $13,115, respectively.

In June 2014, the FASB issued a new accounting standard that changes the criteria companies must use for the recognition of revenue and will affect the Company’s measurement, recognition and disclosures concerning revenue once the new standard is adopted. The Company will adopt the new standard as of January 1, 2017. As of the date of this Report, the Company is still evaluating the potential impact this standard will have on its consolidated financial statements upon adoption.

 

6


2. Merger Agreement with TTM Technologies, Inc.

On September 21, 2014, the Company, TTM Technologies, Inc., a Delaware corporation (“TTM”), and Vector Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of TTM (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Merger Sub will, subject to the satisfaction or waiver of the conditions therein, merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of TTM (the “Merger”). The Merger Agreement was adopted by the Company’s stockholders on December 16, 2014. Selling, general and administrative costs for the three months ended March 31, 2015, include $3,288 of professional fees and other expenses related to the Merger.

Pursuant to the terms of the Merger Agreement and subject to the conditions therein, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time (other than shares (1) held in treasury of the Company, (2) owned by TTM or Merger Sub or (3) owned by stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be converted into the right to receive a combination of (a) 0.706 of validly issued, fully paid and nonassessable shares of TTM’s common stock (the “Stock Consideration”) and (b) $11.33 per share in cash (together with the Stock Consideration, the “Merger Consideration”). No fractional shares of TTM’s common stock will be issued in the Merger and the Company’s stockholders will receive cash in lieu of any fractional shares.

Pursuant to the terms of the Merger Agreement and subject to the conditions therein, at the Effective Time, the Company’s outstanding stock options will be cancelled and converted into the right to receive a combination of cash and stock with a combined value equal to the excess value, if any, of the Merger Consideration that would be delivered in respect of the number of shares of the Company’s common stock underlying such option over the exercise price for such option. The Company’s outstanding restricted stock awards will be converted into the Merger Consideration. The Company’s outstanding performance share units will vest based on the greater of 100% of the target payout and the payout that would have resulted based on the Company’s performance criteria, with each such vested performance share unit being exchanged for the Merger Consideration.

The completion of the Merger is subject to various closing conditions, including, among other things, i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”), ii) the absence of any legal restraints or prohibitions on the consummation of the Merger and iii) receipt of approval of the Merger by the Committee on Foreign Investment in the United States (“CFIUS”). The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), the other party having performed in all material respects its obligations under the Merger Agreement and the other party not having suffered a material adverse effect.

The Merger Agreement contains customary representations, warranties and covenants made by each of the Company and TTM, including, among other things, covenants and agreements to conduct their respective businesses in the ordinary course in all material respects during the period between the execution of the Merger Agreement and completion of the Merger and not to engage in certain kinds of transactions during this period.

The Merger Agreement contains certain termination rights for each of the Company and TTM, including the right of each party to terminate the Merger Agreement if the Merger has not been consummated by June 21, 2015, subject to a three-month extension to September 21, 2015 at the election of either party if, on such date (such date as the same may be extended, the “Outside Date”), the Merger has not yet received antitrust approval, CFIUS approval or certain specified legal restraints are in place but all other closing conditions have been satisfied.

The Merger Agreement also provides that the Company will be entitled to receive from TTM a termination fee of $40,000 in the event that the Merger Agreement is terminated due to a failure to obtain regulatory approval.

 

7


The Company cannot give any assurance that the Merger and the other related transactions will be completed or that, if completed, they will be exactly on the terms as set forth in the Merger Agreement and the other related transaction agreements.

3. Inventories

The composition of inventories is as follows:

 

     March 31,
2015
     December 31,
2014
 

Raw materials

   $ 42,535       $ 44,582   

Work in process

     41,946         41,517   

Finished goods

     46,383         52,096   
  

 

 

    

 

 

 

Total

   $ 130,864       $ 138,195   
  

 

 

    

 

 

 

Inventories are stated at the lower of cost or market using the first-in, first-out (“FIFO”) and average cost methods.

4. Property, Plant and Equipment

The composition of property, plant and equipment is as follows:

 

     March 31,
2015
     December 31,
2014
 

Land and buildings

   $ 165,683       $ 162,230   

Machinery, equipment and systems

     634,448         632,527   

Leasehold improvements

     99,517         98,721   

Construction in progress

     10,068         9,496   
  

 

 

    

 

 

 
     909,716         902,974   

Less: Accumulated depreciation

     (500,157      (487,367
  

 

 

    

 

 

 

Total

   $ 409,559       $ 415,607   
  

 

 

    

 

 

 

5. Credit Facilities and Long-term Debt

The composition of long-term debt is as follows:

 

     March 31,
2015
     December 31,
2014
 

Senior Secured Notes due 2019

   $ 602,835       $ 603,008   

Senior Secured 2010 Credit Facility

     —          —    

North America Mortgage Loans

     9,921         10,435   

Capital leases and other

     726         565   
  

 

 

    

 

 

 
     613,482         614,008   

Less: Current maturities

     (1,134      (1,093
  

 

 

    

 

 

 
   $ 612,348       $ 612,915   
  

 

 

    

 

 

 

 

8


As of March 31, 2015, unamortized premium included in the carrying balance of the Senior Secured Notes due 2019 was $2,835.

As of March 31, 2015, there were no amounts outstanding under the Company’s various credit facilities, the Company had issued letters of credit totaling $2,409, and approximately $110,803 of the credit facilities were unused and available.

6. Restructuring and Impairment

As of March 31, 2015, the reserve for restructuring charges included $220 and $1,568 related to i) the 2011 closure of its Huizhou Facility and ii) plant shutdowns and downsizings which occurred in 2001 through 2005 as a result of the economic downturn that began in 2000 (the “2001 Restructuring”), respectively.

The following tables summarize changes in the reserve for restructuring charges for the three months ended March 31, 2015 and 2014:

 

     Three Months Ended March 31, 2015  
     Reserve
at
12/31/14
     Net Charges      Cash
Payments
    Adjustments     Reserve
at
3/31/15
 

Restructuring Activities:

       

Personnel and severance

   $ 317       $ —        $ (11   $ —       $ 306   

Lease and other contractual commitments

     1,513         —          (46     15 (a)      1,482   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total restructuring charges

   $ 1,830       $ —        $ (57   $ 15      $ 1,788   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     Three Months Ended March 31, 2014  
     Reserve
at
12/31/13
     Net Charges      Cash
Payments
    Adjustments     Reserve
at
3/31/14
 

Restructuring Activities:

      

Personnel and severance

   $ 1,587       $ —        $ —       $ —       $ 1,587   

Lease and other contractual commitments

     1,240         273         (346     12 (a)      1,179   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total restructuring charges

   $ 2,827       $ 273       $ (346   $ 12      $ 2,766   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(a)

Represents accretion of interest on discounted restructuring liabilities.

During the three months ended March 31, 2015, the Company incurred no restructuring charges. During the three months ended March 31, 2014, the Company incurred restructuring charges of $273 in its Printed Circuit Boards segment related to lease and moving costs for the relocation of its Anaheim, California manufacturing facility from a leased facility to a new facility owned by the Company.

 

9


7. Derivative Financial Instruments and Fair Value Measurements

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 Company’s objective is to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. The Company’s foreign currency exposure arises from the transacting of business in currencies other than the U.S. dollar, primarily the Chinese Renminbi (“RMB”).

The Company enters into foreign exchange forward contracts and cross-currency swaps after considering estimated 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 instruments at fair value through adjustments to other comprehensive income, current earnings, or both, as appropriate. Accumulated other comprehensive income as of March 31, 2015 and December 31, 2014, included net deferred loss on derivatives of $542 (net of taxes of $0) and $1,053 (net of taxes of $0), respectively, related to cash flow hedges.

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. Realized gains or losses from the settlement of foreign exchange forward contracts and cross-currency swaps are recognized in earnings in the same period the hedged foreign currency cash flow affects earnings. For the three months ended March 31, 2015 and 2014, a gain of $407 and a loss of $203 were recorded in cost of goods sold related to foreign currency cash flow hedges, respectively.

The following table summarizes the Company’s outstanding derivative contracts:

 

     March 31, 2015      December 31, 2014  

Notional amount in thousands of Chinese RMB

     1,350,000         1,800,000   

Weighted average remaining maturity in months

     4.6         6.1   

Weighted average exchange rate per one U.S. Dollar

     6.28         6.28   

Fair Value of Measurements

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.

 

10


Financial Instruments Measured on a Recurring Basis

The following table sets forth, as of March 31, 2015 and December 31, 2014, the hierarchy of the Company’s financial asset (liability) positions for which fair value is measured on a recurring basis:

 

     March 31, 2015
     Level 1      Level 2      Level 3      Balance Sheet Classification

Available-for-sale investments in Savings Restoration Plan

   $ 1,726       $ —        $ —         Prepaid expense and other

Cash flow hedges—deferred loss contracts

     —          (542      —         Accrued and other liabilities
  

 

 

    

 

 

    

 

 

    
   $ 1,726       $ (542    $     —       
  

 

 

    

 

 

    

 

 

    
     December 31, 2014
     Level 1      Level 2      Level 3      Balance Sheet Classification

Available-for-sale investments in Savings Restoration Plan

   $ 1,429       $ —        $ —         Prepaid expense and other

Cash flow hedges—deferred loss contracts

     —          (1,053      —         Accrued and other liabilities
  

 

 

    

 

 

    

 

 

    
   $ 1,429       $ (1,053    $     —       
  

 

 

    

 

 

    

 

 

    

The Company has a savings restoration plan (the “Savings Restoration Plan”) to provide additional benefits to certain domestic employees who, due to limitations imposed by the Internal Revenue Code, are not eligible to receive the full employer matching contribution to the Company’s defined contribution retirement savings plan. The Savings Restoration Plan also allows for the voluntary deferral of certain compensation by eligible employees. Available-for-sale investments in the Savings Restoration Plan consist of investments in money market accounts and mutual funds invested in a rabbi trust, and are valued based on quoted prices in active markets (Level 1).

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. 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, market interest rates that are corroborated with publicly available market information and third party credit ratings for the counter parties to the derivative contracts. 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.

The Company did not have any transfers between levels during the three months ended March 31, 2015 and 2014.

 

11


Other Financial Instruments

In addition to cash flow hedges and available for sale investments in the Company’s Savings Restoration Plan, the Company’s financial instruments consist of cash equivalents, accounts receivable and long-term debt. For cash equivalents and accounts receivable, the carrying amounts approximate fair market value. The estimated fair values of the Company’s debt instruments as of March 31, 2015 and December 31, 2014, are as follows:

 

     March 31, 2015
     Fair
Value
     Carrying
Amount
     Balance Sheet Classification

Senior Secured Notes due 2019

   $ 631,500       $ 602,835       Long-term debt, less current maturities

Senior Secured 2010 Credit Facility

     —          —       

North America Mortgage Loans

     9,860         9,921       Long-term debt, including current maturities
     December 31, 2014
     Fair
Value
     Carrying
Amount
     Balance Sheet Classification

Senior Secured Notes due 2019

   $ 634,878       $ 603,008       Long-term debt, less current maturities

Senior Secured 2010 Credit Facility

     —          —       

North America Mortgage Loans

     10,288         10,435       Long-term debt, including current maturities

The Company determined the fair value of the Senior Secured Notes due 2019 using Level 1 inputs—quoted market prices for the notes. The Company determined the fair value of the North America Mortgage Loans using Level 2 inputs, and estimated the fair value based on discounted future cash flows using a discount rate that approximates the current effective borrowing rate for comparable loans.

8. Stock-based Compensation

Stock compensation expense recognized in the condensed consolidated statements of operations and comprehensive (loss) income was as follows:

 

     Three Months Ended
March 31,
 
     2015      2014  

Cost of goods sold

   $ 127       $ 161   

Selling, general and administrative

     1,413         1,568   
  

 

 

    

 

 

 
   $ 1,540       $ 1,729   
  

 

 

    

 

 

 

Stock Options

The following table summarizes the stock option activity for the three months ended March 31, 2015 and 2014:

 

12


     2015      2014  
     Shares      Weighted
Average
Exercise
Price
     Shares      Weighted
Average
Exercise
Price
 

Outstanding at beginning of year

     1,770,720       $ 23.40         1,869,124       $ 24.73   

Granted

     —          —          —          —    

Exercised

     (15,166      14.23         —          —    

Forfeited

     (1,500      20.88         (20,499      19.70   
  

 

 

       

 

 

    

Outstanding at March 31,

     1,754,054       $ 23.48         1,848,625       $ 24.78   
  

 

 

       

 

 

    

Options exercisable at March 31,

     1,742,668       $ 23.54         1,720,221       $ 25.37   
  

 

 

       

 

 

    

The following table summarizes information regarding outstanding stock options as of March 31, 2015:

 

     Outstanding      Exercisable  

Exercise Price

   Number of
Options
     Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise
Price
     Number
of
Options
     Weighted
Average
Remaining
Contractual
Life
     Weighted
Average
Exercise
Price
 

$ 12.66 to $15.30

     111,415       3.31 years    $ 14.83         100,029         3.15 years       $ 14.90   

$ 18.42 to $21.04

     761,270       3.23 years      19.66         761,270         3.23 years         19.66   

$ 21.88 to $24.00

     840,594       2.09 years      21.89         840,594         2.09 years         21.89   

$ 150.99

     40,775       1.61 years      150.99         40,775         1.61 years         150.99   
  

 

 

          

 

 

       
     1,754,054       2.65 years    $ 23.48         1,742,668         2.64 years       $ 23.54   
  

 

 

          

 

 

       

Restricted Stock Awards

The following table summarizes restricted stock activity for the three months ended March 31, 2015 and 2014:

 

     2015      2014  
     Shares      Weighted
Average
Grant Date
Per Share
Fair Value
     Shares      Weighted
Average
Grant Date
Per Share
Fair Value
 

Nonvested at beginning of year

     623,302       $ 15.09         576,042       $ 17.47   

Granted

     —          —          87,000         13.02   

Vested

     (158,081      18.42         (148,386      20.34   

Forfeited

     (3,500      13.02         (2,004      14.68   
  

 

 

       

 

 

    

Nonvested at March 31,

     461,721       $ 13.97         512,652       $ 15.89   
  

 

 

       

 

 

    

As of the vesting date, the total fair value of restricted stock awards that vested during the three months ended March 31, 2015, was $2,618. On May 8, 2015, an additional 54,816 restricted stock awards are expected to vest in accordance with the terms of the original underlying grant agreements.

 

13


Performance Share Units

For performance share units with market conditions, such as those that include performance conditions related to attaining a specific stock price, the grant date fair value of awards is expensed ratably over the requisite service period. For performance share units without market conditions, the grant date fair value of awards is expensed ratably over the requisite service period based on the probability of achieving the performance objectives, with changes in expectations recognized as an adjustment to earnings in the period of the change. Performance share units vest only if performance objectives are achieved, and vested shares may range from zero to 200% of the original grant, depending upon the terms of the respective awards and the actual results compared with the performance objectives.

No performance share units were granted during the three months ended March 31, 2015. During the three months ended March 31, 2014, the Company granted performance share units with market conditions and a weighted average per share fair value of $14.88 estimated using the Monte Carlo simulation model.

The following table summarizes performance share unit activity for the three months ended March 31, 2015 and 2014:

 

     2015      2014  
     Share
Units
     Weighted
Average
Grant Date
Per Share
Fair Value
     Share
Units
     Weighted
Average
Grant Date
Per Share
Fair Value
 

Outstanding, beginning of year

     799,251       $ 15.84         558,113       $ 16.26   

Granted at target

     —          —          241,138         14.88   

Vested

     (68,544      15.30         —          —    

Forfeited

     —          —          —          —    
  

 

 

       

 

 

    

Outstanding, at March 31,

     730,707       $ 15.89         799,251       $ 15.84   
  

 

 

       

 

 

    

On February 7, 2015, 68,544 performance share units vested which, based upon the level of achievement attained, resulted in the issuance of 37,697 shares of common stock before share withholding for taxes.

9. Income Taxes

The Company’s 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 and changes in the valuation allowance established for deferred tax assets. Taxes provided on pre-tax income relate primarily to the Company’s profitable operations in China. 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 these losses.

 

14


For the three months ended March 31, 2015, the Company’s tax provision includes net expense of $2,648 related to pre-tax earnings, and a net expense of $309 related to other tax matters, including reversals of $322 of uncertain tax positions due to the lapse of the applicable statute of limitations. For the three months ended March 31, 2014, the Company’s tax provision includes net expense of $3,533 related to pre-tax earnings, and a net expense of $644 related to other tax matters.

10. 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, Canada 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 Company’s 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 Company’s corporate headquarters are allocated to each segment based on a number of factors, including relative sales contributions. Expenses related to the Merger are reported in “Other” for purpose of segment disclosures.

Total assets by segment are as follows:

 

     March 31,
2015
     December 31,
2014
 

Printed Circuit Boards

   $ 997,027       $ 984,949   

Assembly

     86,574         95,478   

Other

     43,171         55,078   
  

 

 

    

 

 

 

Total assets

   $ 1,126,772       $ 1,135,505   
  

 

 

    

 

 

 

Net sales and operating income (loss) by segment, together with a reconciliation to loss before income taxes, are as follows:

 

     Three Months Ended
March 31,
 
     2015      2014  

Net sales to external customers:

     

Printed Circuit Boards

   $ 265,787       $ 253,265   

Assembly

     38,841         42,647   
  

 

 

    

 

 

 

Total

   $ 304,628       $ 295,912   
  

 

 

    

 

 

 

Intersegment sales:

     

Printed Circuit Boards

   $ 3,634       $ 2,570   

Assembly

     —          —    
  

 

 

    

 

 

 

Total

   $ 3,634       $ 2,570   
  

 

 

    

 

 

 

Operating income (loss):

     

Printed Circuit Boards

   $ 10,545       $ 9,386   

Assembly

     (1,641      (3,891

Other

     (3,288      —    
  

 

 

    

 

 

 

 

15


     Three Months Ended
March 31,
 
     2015      2014  

Total

     5,616         5,495   

Interest expense, net

     11,740         11,253   

Amortization of deferred financing costs

     759         655   

Other, net

     (1,527      (1,233
  

 

 

    

 

 

 

Loss before income taxes

   $ (5,356    $ (5,180
  

 

 

    

 

 

 

11. Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income, by component, for the three months ended March 31, 2015 and 2014, were as follows:

 

     2015     2014  
     Cash Flow
Hedges
(see Note 7)
    Foreign
Currency
Translation
     Total     Cash Flow
Hedges
(see Note 7)
    Foreign
Currency
Translation
     Total  

Accumulated other comprehensive (loss) income at beginning of year

   $ (1,053   $ 7,528       $ 6,475      $ 933      $ 7,528       $ 8,461   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive (loss) income, net of tax and before reclassifications

     918        —          918        (3,501     —          (3,501

Amounts reclassified from accumulated other comprehensive income, net of tax

     (407     —          (407     203        —          203   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss), net of tax,

     511        —          511        (3,298     —          (3,298
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Accumulated other comprehensive (loss) income at March 31,

   $ (542   $ 7,528       $ 6,986      $ (2,365   $ 7,528       $ 5,163   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive (loss) income for the three-month periods ended March 31, 2015 and 2014, was net of taxes of $0.

 

16