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VIASYSTEMS GROUP INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge)
The following discussion should be read in conjunction with "Selected Financial
Data" and our consolidated financial statements and related notes included
elsewhere in this Report. The following discussion contains forward-looking
statements based upon current expectations and related to future events, and our
future financial performance involves risks and uncertainties. We based these
statements on assumptions we consider reasonable. Actual results and the timing
of events could differ materially from those discussed in the forward-looking
statements; see "Cautionary Statements Concerning Forward-Looking Statements."
Factors that could cause or contribute to these differences include, but are not
limited to, those discussed below and elsewhere in this document, particularly
in "Risk Factors."
Recent Developments
The DDi Acquisition
On May 31, 2012, we acquired DDi Corp. ("DDi") in an all cash purchase
transaction pursuant to which DDi became our wholly owned subsidiary (the "DDi
Acquisition"). DDi was a leading manufacturer of technologically advanced,
multi-layer printed circuit boards with operations in the United States and
Canada. The DDi Acquisition increased our PCB manufacturing capacity by adding
seven additional PCB production facilities, added flexible circuit manufacturing
capabilities and enhanced our North American quick-turn services capability. The
total consideration we paid in the merger was $282.0 million. We have recorded
the assets acquired and liabilities assumed from DDi at their estimated fair
values.
Issuance of Senior Secured Notes due 2019 and Redemption of Senior Secured Notes
due 2015
On April 30, 2012, our subsidiary, Viasystems, Inc., completed a private
offering of $550.0 million of 7.875% Senior Secured Notes due 2019 (the "2019
Notes") and, on May 30, 2012, redeemed all of its outstanding $220.0 million
aggregate principal amount of 12.0% senior secured notes due 2015 (the "2015
Notes") at a redemption price of 107.4% plus accrued interest. The net proceeds
of the 2019 Notes were used to fund the redemption of our 2015 Notes and the DDi
Acquisition. In connection with the redemption of the 2015 Notes, we incurred a
loss on the early extinguishment of debt of $24.2 million, which included a call
premium of $16.3 million, the write-off of unamortized original issue discount
of $4.1 million and the write-off of unamortized deferred financing fees of $3.8
million.
Guangzhou Fire
On September 5, 2012, we experienced a fire contained to a part of one building
on the campus of our PCB manufacturing facility in Guangzhou, China, which
resulted in damage to inventory and fixed assets and temporarily reduced the
facility's manufacturing capacity. As of December 31, 2012, we had restored a
portion of the manufacturing capacity lost as a result of the fire damage, and
completed our recovery in January 2013.
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Company Overview
We are a leading worldwide provider of complex multi-layer printed circuit
boards ("PCBs") and electro-mechanical solutions ("E-M Solutions"). PCBs serve
as the "electronic backbone" of almost all electronic equipment, and our
E-M Solutions products and services integrate PCBs and other components into
finished or semi-finished electronic equipment, which include custom and
standard metal enclosures, metal cabinets, metal racks and sub-racks,
backplanes, cable assemblies and busbars. We operate our business in two
segments: Printed Circuit Boards, which includes our PCB products, and Assembly,
which includes our E-M Solutions products and services.
The components we manufacture include, or can be found in, a wide variety of
commercial products, including automotive engine controls, hybrid converters,
automotive electronics for navigation, safety and entertainment,
telecommunications switching equipment, data networking equipment, computer
storage equipment, semiconductor test equipment, wind and solar energy
applications, off-shore drilling equipment, communications applications, flight
control systems and complex industrial, medical and other technical instruments.
We are a supplier to more than 1,000 original equipment manufacturers ("OEMs")
and contract electronic manufacturers ("CEMs") in numerous end markets. Our OEM
customers include industry leaders such as Agilent Technologies, Inc.,
Alcatel-Lucent SA, Apple Inc., Autoliv, Inc., BAE Systems, Inc., Robert Bosch
GmbH, Broadcom Corporation, Ciena Corporation, Cisco Systems, Inc., Continental
AG, Dell Inc., Danahar Corporation, Ericsson AB, General Electric Company,
Goodrich Corporation, Harris Communications, Hitachi, Ltd., Huawei Technologies
Co. Ltd., Intel Corporation, L-3 Communications Holdings, Inc., Motorola Inc.,
NetApp, Inc., Q-Logic Corporation, Qualcomm Incorporated, Raytheon Company,
Rockwell Automation, Inc., Rockwell Collins, Tellabs, Inc., TRW Automotive
Holdings Corp., and Xyratex Ltd. In addition, we have good working relationships
with industry-leading CEMs such as Benchmark Electronics, Inc., Celestica, Inc.,
Flextronics International Ltd., Foxconn Technology Group, Jabil Circuit, Inc.
and Plexus Corp., and we supply PCBs and E-M Solutions products to these
customers as well.
We have fifteen manufacturing facilities, including eight in the United States
and seven located outside of the United States, which allows us to take
advantage of low cost, high quality manufacturing environments, while serving a
broad base of customers around the globe. Our PCB products are produced in our
eight domestic facilities, three of our five facilities in China and our one
facility in Canada. Our E-M Solutions products and services are provided from
our other two facilities in China and our one facility in Mexico. In addition to
our manufacturing facilities, in order to support our customers' local needs, we
maintain engineering and customer service centers in Hong Kong, China, the
Netherlands, England, Canada, Mexico and the United States. The locations of our
engineering and customer service centers correspond directly to the primary
areas where we ship our products. For the year ended December 31, 2012, on a pro
forma basis, assuming the DDi Acquisition occurred on January 1, 2012,
approximately 49.6%, 30.9% and 19.5% of our net sales were generated by
shipments to destinations in North America, Asia and Europe, respectively.
The Merix Acquisition
On February 16, 2010, we acquired Merix Corporation ("Merix") in a transaction
pursuant to which Merix became a wholly owned subsidiary of our company (the
"Merix Acquisition"). Merix was a leading manufacturer of technologically
advanced, multi-layer printed circuit boards with operations in the United
States and China. The Merix Acquisition increased our PCB manufacturing capacity
by adding four additional PCB production facilities, added North American PCB
quick-turn services capability and added military and aerospace to our already
diverse end-user markets.
2010 Recapitalization
In connection with the Merix Acquisition, on February 11, 2010, our company was
recapitalized pursuant to a recapitalization agreement (the "Recapitalization
Agreement") such that (i) each outstanding share of common stock was exchanged
for 0.083647 shares of common stock, (ii) each outstanding share of our
Mandatory Redeemable Class A Junior Preferred Stock (the "Class A Preferred")
was reclassified as, and converted into, 8.478683 shares of newly issued common
stock and (iii) each outstanding share of our Redeemable Class B Senior
Convertible Preferred Stock (the "Class B Preferred") was reclassified as, and
converted into, 1.416566 shares of newly issued common stock.
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In connection with the conversion of the Class A Preferred into common shares of
our company, for financial reporting purposes related to the presentation of net
loss attributable to common stockholders, for the year ended December 31, 2010,
we recorded a non-cash adjustment to net loss of $29.7 million. The $29.7
million non-cash item is equal to the difference between i) the fair value of
the common shares issued and ii) the carrying value of the Class A Preferred at
the time of conversion; and was reflected in the Consolidated Statement of
Stockholders' Equity as a reduction to accumulated deficit and a corresponding
increase to paid-in capital. In connection with the conversion of the Class B
Preferred into common stock of our company, for financial reporting purposes
related to the presentation of net loss attributable to common stockholders, for
the year ended December 31, 2010, we recorded a non-cash adjustment to net loss
of $105.0 million. The $105.0 million non-cash item is equal to the difference
between i) the fair value of the common shares issued and ii) the fair value of
the number of common shares that would have been issued according to the terms
of the Indenture governing the Class B Preferred without consideration of the
Recapitalization Agreement; and was reflected in the Consolidated Statement of
Stockholders' Equity as a reduction to accumulated deficit and a corresponding
increase to paid-in capital.
Business Overview
As a component manufacturer, our sales trends generally reflect the market
conditions in the industries we serve. In the automotive sector, we are adding
capacity at our principal automotive qualified PCB manufacturing facilities
i) as a result the closure of our manufacturing facility in Huizhou, China
during the third quarter of 2012 and ii) in anticipation of long-term demand
trends in the global automotive electronics systems market, which according to
Prismark Partners LLC, a leading PCB industry research firm, is expected to grow
at a compound annual growth rate of 7.7% from 2011 to 2016. Market growth of
automotive electronics is expected to be driven primarily by growth in worldwide
vehicle sales, particularly to customers in emerging markets such as China,
increased sales of hybrid and electric vehicles, and increased electronic
content per vehicle. In the industrial & instrumentation market, while we have
experienced stable demand from our broad base of customers during 2012, we
experienced reduced demand in certain customer programs and expect one of our
largest customers to begin manufacturing a portion of what we supply in-house.
As we work to add new customers and win new programs with our existing
customers, we expect sales trends in this diverse market will follow global
economic trends. In the computer and datacommunications end market, we continue
to pursue new customers and programs for both our Printed Circuit Boards and
Assembly segments, especially in the high-end server and storage sectors. The
telecommunications end market remains dynamic as the customers we supply produce
a mixture of products which include both new cutting edge applications as well
as more mature products with varying levels of demand. We continue to try to
position ourselves to take advantage of growth opportunities related to the
introduction of next generation wireless technology standards, but this portion
of the market has been slow to develop. In the military and aerospace market, we
continue to pursue market share gains as a result of continuing customer
qualification activity; however, overall demand trends in this market have been
negatively impacted by the ongoing budget debate in Washington. While we believe
the long-term growth prospects for our PCB and E-M Solutions products remain
solid in all our end markets, economic uncertainty continues to exist, and our
visibility to future demand trends and pricing pressures remains limited.
With the acquisition of DDi, we have begun to market our high-volume, low-price
China PCB manufacturing facilities to legacy DDi customers who had primarily
purchased quick-turn PCBs as part of prototype development programs. At the same
time, we have begun to market our newly acquired flexible circuit capabilities
and expanded North America quick-turn capabilities to legacy Viasystems
customers. In addition, we have begun to integrate the newly acquired North
America PCB facilities into our global PCB operations and have, for example,
been able to manage capacity constraints at one facility by shifting production
to another.
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Results of Operations
Year Ended December 31, 2012, Compared with Year Ended December 31, 2011
Net Sales. Net sales for the year ended December 31, 2012, were $1,159.9
million, representing a $102.6 million, or 9.7%, increase from net sales for the
year ended December 31, 2011. Assuming the DDi Acquisition had occurred on
January 1, 2011, on a pro forma basis, net sales decreased by approximately
$47.8 million, or 3.6%, for the year ended December 31, 2012, as compared with
the same period in 2011.
Net sales by end market on a historical basis for the years ended December 31,
2012 and 2011, and on a pro forma basis for the years ended December 31, 2012
and 2011, were as follows:
Pro
Historical Forma End Market (dollars in millions) 2012 2011 2012
2011
Automotive $ 376.7 $ 412.4 $ 378.6 $ 415.5
Industrial & Instrumentation 311.6 264.2 352.3 353.3
Computer and Datacommunications 199.1 155.3 224.3 208.5
Telecommunications 180.0 182.5 191.9 213.3
Military and Aerospace 92.5 42.9 125.8 130.1
Total Net Sales $ 1,159.9 $ 1,057.3 $ 1,272.9 $ 1,320.7
Our net sales of products for end use in the automotive market decreased by
approximately $35.6 million, or 8.6%, during the year ended December 31, 2012,
compared with 2011. Assuming the DDi Acquisition had occurred on
January 1, 2011, on a pro forma basis, net sales of products for end use in this
market decreased by approximately $36.9 million, or 8.9%, for the year ended
December 31, 2012, as compared to 2011. The decrease was a result of reduced
global demand from our automotive customers, reduced sales to a customer that is
transitioning a portion of their business to other suppliers and production
delays as a result of a fire at one of our principal automotive PCB
manufacturing facilities during the third quarter of 2012, partially offset by
price increases implemented during the second quarter of 2011 and new customer
and program wins.
Net sales of products ultimately used in the industrial & instrumentation market
increased by approximately $47.3 million, or 17.9%, during the year ended
December 31, 2012, compared with 2011. Assuming the DDi Acquisition had occurred
on January 1, 2011, on a pro forma basis, net sales of products for end use in
this market decreased by approximately $1.1 million, or 0.3%, for the year ended
December 31, 2012, as compared with 2011. The decrease in net sales was driven
primarily by a decline in sales in elevator controls related programs and
inventory corrections at one of our larger customers, partially offset by
increased demand from certain customers, including for wind power related
programs, price increases implemented during the second half of 2011 and new
customer and program wins.
Net sales of our products for use in the computer and datacommunications markets
increased by approximately $43.8 million, or 28.2%, during the year ended
December 31, 2012, as compared with 2011. Assuming the DDi Acquisition had
occurred on January 1, 2011, on a pro forma basis, net sales of products for use
in this end market increased by approximately $15.8 million, or 7.6%, for the
year ended December 31, 2012, as compared with 2011, driven by increased global
demand and new customer and programs wins.
Net sales of products ultimately used in the telecommunications market decreased
by approximately $2.5 million, or 1.4%, during the year ended December 31, 2012,
as compared with 2011. Assuming the DDi Acquisition had occurred on
January 1, 2011, on a pro forma basis, net sales of products for use in this end
market decreased by approximately $21.3 million, or 10.0%, for the year ended
December 31, 2012, as compared with 2011. The sales decline is primarily a
result of reduced demand for certain programs we supply, partially offset by
last-buy sales increases on end-of-life programs and new program wins. While we
continue to pursue new customers and programs in this end market, the global
telecommunications industry remains volatile.
Net sales to customers in the military and aerospace market increased by
approximately $49.6 million, or 115.4%, during the year ended December 31, 2012,
compared with 2011. Assuming the DDi Acquisition had occurred on
January 1, 2011, on a pro forma basis, net sales of products for use in this
market decreased by approximately $4.3 million, or 3.3%, for the year ended
December 31, 2012, as compared with 2011. The pro forma sales decline is a
result of ongoing budget pressures on U.S. government defense spending, which
has continued to hamper demand and apply downward pricing pressures.
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Net sales by segment on a historical basis for the years ended December 31, 2012
and 2011, and on a pro forma basis for the years ended December 31, 2012 and
2011, were as follows:
Pro
Historical Forma Segment (dollars in millions) 2012 2011 2012 2011
Printed Circuit Boards $ 967.2 $ 865.9 $ 1,080.2 $ 1,129.3
Assembly 200.1 201.0 200.1 201.0
Eliminations (7.4 ) (9.6 ) (7.4 ) (9.6 )
Total net sales $ 1,159.9 $ 1,057.3 $ 1,272.9 $ 1,320.7
Printed Circuit Boards segment net sales, including intersegment sales, for the
year ended December 31, 2012, increased by $101.3 million, or 11.7%, to $967.2
million. Assuming the DDi Acquisition had occurred on January 1, 2011, on a pro
forma basis, Printed Circuit Boards net sales, including intersegment sales, for
the year ended December 31, 2012, decreased by $49.1 million, or 4.4%. This
decrease is a result of decreases in net sales in all end markets except the
computer and datacommunications end market.
Assembly segment net sales decreased by $0.9 million, or 0.4%, to $200.1 million
for the year ended December 31, 2012, compared with 2011. The decrease was
primarily the result of reduced demand in our telecommunications end market and
reduced demand in elevator controls related programs in our industrial &
instrumentation end market, partially offset by improved demand in wind power
and industrial manufacturing equipment programs in our industrial &
instrumentation end market.
Cost of Goods Sold. Cost of goods sold, exclusive of items shown separately in
the consolidated statement of operations and comprehensive (loss) income for
year ended December 31, 2012, was $927.2 million, or 79.9%, of consolidated net
sales. This represents a 0.7 percentage point increase from the 79.2% of
consolidated net sales for the year ended December 31, 2011. In accordance with
purchase accounting rules, the inventory acquired from DDi of as part of the DDi
Acquisition was written up to its fair value, which for work in progress and
finished goods approximated its selling price less an estimated profit from the
selling effort. As a result, cost of goods sold during the year ended
December 31, 2012, reflected the inventory fair value adjustment of
approximately $3.9 million, which negatively impacted the ratio of cost of goods
sold to net sales. Excluding this adjustment, cost of goods sold relative to
consolidated net sales increased by 0.4 percentage points to 79.6%. Cost of
goods sold as a percentage of sales was also impacted during the period by i)
approximately $11 million to $13 million of net costs related to estimated
manufacturing inefficiencies at our Guangzhou, China PCB facility as a result of
a fire in September 2012 and ii) a $0.5 million charge to write off inventory
which was impaired as a result of the closure of our Huizhou manufacturing
facility.
The costs of materials, labor and overhead in our Printed Circuit Boards segment
can be impacted by trends in global commodities prices and currency exchange
rates, as well as other cost trends which can impact minimum wage rates,
electricity and diesel fuel costs in China. Economies of scale can help to
offset any adverse trends in these costs. Our results for the year ended
December 31, 2012, reflect a stabilization of material and labor costs which had
increased in 2011. While we expect short-term stability in labor costs, with
anticipated changes in minimum wage laws in China, we expect our labor costs
will increase during 2013. As part of our ongoing efforts to better align
overhead costs and operating expenses with market demand, during the third
quarter of 2012, we gave notice and began to reduce staffing at certain of our
PCB manufacturing facilities in China. We expect these headcount reductions will
be completed by the end of the first quarter of 2013.
Cost of goods sold in our Assembly segment relates primarily to component
materials costs. As a result, trends in sales volume for the segment drive
similar trends in cost of goods sold. Costs as a percentage of sales during the
year ended December 31, 2012, were negatively impacted by inefficiencies
associated with the closure of our Qingdao, China facility and increased
overhead costs at our Juarez, Mexico facility as it prepares for new product
introductions at its new larger location.
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Selling, General and Administrative Costs. As a percent of sales, selling,
general and administrative costs increased to 9.4% for the year ended
December 31, 2012, as compared with 7.6% for the year ended
December 31, 2011. In dollar terms, selling, general and administrative costs
increased $29.2 million, or 36.3%, to $109.5 million for the year ended
December 31, 2012, compared with 2011. The increase in selling, general and
administrative costs is a result of professional fees and other costs relating
to the DDi Acquisition, costs associated with new manufacturing, sales and
administrative sites acquired in the DDi Acquisition and increased non-cash
stock compensation expense.
Depreciation. Depreciation expense for the year ended December 31, 2012, was
$80.0 million, including $75.5 million related to our Printed Circuit Boards
segment and $4.5 million related to our Assembly segment. Depreciation expense
in our Printed Circuit Boards segment increased by approximately $13.5 million,
or 21.8%, compared to the same period last year primarily as a result of
increased investments in new equipment during the past twelve months and the
effect of additional depreciation during the period on fixed assets acquired
through the DDi Acquisition as compared to the same period in 2011. Depreciation
expense in our Assembly segment increased by $0.6 million as compared to the
same period in the prior year, primarily as a result of investments in the
fourth quarter of 2011 to relocate and expand our Juarez, Mexico facility.
Restructuring and Impairment. During 2012, we initiated certain restructuring
activities as a result of the expiration of the lease of our Huizhou, China PCB
manufacturing facility, the integration of the DDi business we acquired in
May 2012 and to achieve general cost savings as part of our ongoing efforts to
align capacity, overhead costs and operating expenses with market demand. For
the year ended December 31, 2012, we recognized $18.4 million of restructuring
and impairment charges in our Printed Circuit Boards segment, $0.8 million in
our Assembly segment and $0.3 million in our "Other" segment. Restructuring and
impairment charges incurred in the Printed Circuit Boards segment during the
year ended December 31, 2012, included i) $10.6 million related to the closure
of our Huizhou facility, ii) $0.8 million associated with integrating the newly
acquired DDi business, iii) $6.0 million related to general cost savings and iv)
a $1.0 million of impairment charges and other costs related to fire damage at
our Guangzhou PCB facility. Restructuring and impairment charges incurred in the
Assembly segment during the year ended December 31, 2012, related to general
cost savings activities which primarily included the closure of our Qingdao,
China facility.
Huizhou PCB Facility Closure
The district where our Huizhou facility was located is being redeveloped away
from industrial use, and we were unable to renew our lease of the facility
beyond its December 31, 2012 expiration date. During the third quarter of 2012,
we completed the process of transitioning this facility's customers to our other
China PCB manufacturing facilities and the Huizhou facility ceased operations.
During the fourth quarter of 2012, we decommissioned the facility and in January
2013 returned it to its landlord. During the year ended December 31, 2012, we
recorded charges of $10.6 million related to the closure of the Huizhou
facility, of which $8.7 million relate to personnel and severance, $0.7 million
relate to the impairment of fixed assets and $1.2 million related to lease
terminations and other costs. We do not expect that we will incur significant
additional costs related to the closure of the facility.
Integration of the DDi Business
In connection with the integration of the DDi business, we identified potential
annualized cost saving synergies of approximately $10.0 million, and during 2012
we initiated certain actions to realize these synergies. These actions primarily
include staff reductions, and we expect that the total related restructuring
charges will not exceed $2.0 million. In addition, at the time of the DDi
Acquisition, DDi was in the process of building a new PCB manufacturing facility
in Anaheim, California with plans to relocate its existing Anaheim operations
from a leased facility. We expect the new facility will be completed and the
Anaheim operations will be relocated during the first half of 2013. In
connection with the relocation of the Anaheim operations, we expect to incur
restructuring costs in our Printed Circuit Boards segment of approximately $1.0
million.
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General Cost Savings Activities
During the third quarter of 2012, the Company gave notice it would reduce
staffing at certain of its manufacturing facilities in China in order to better
align overhead costs and operating expenses with market demand for its products.
During 2012, we incurred related charges of $5.8 million in our Printed Circuit
Boards segment and $0.1 million in our Assembly segment. We do not expect to
incur additional significant costs related to the activities announced in 2012.
Our Qingdao, China facility had primarily operated as a satellite facility
supporting the operations of our E-M Solutions facility in Shanghai, China. In
order to achieve operational efficiencies and cost reductions, we consolidated
the operations of the Qingdao facility into our other E-M Solutions facilities
in China. The Qingdao facility ceased operations in July 2012, and the facility
was decommissioned and returned to its landlord during the third quarter of
2012. Total related restructuring and impairment charges were $0.6 million,
which primarily related to personnel and severance costs. We do not expect that
we will incur significant additional cost related to the closure of this
facility.
Guangzhou Fire
On September 5, 2012, we experienced a fire contained to a part of one building
on the campus of our PCB manufacturing facility in Guangzhou, China which
resulted in the loss of inventory with a carrying value of approximately $4.7
million and property, plant and equipment with a net book value of approximately
$2.0 million. As of December 31, 2012, we had restored a portion of the
manufacturing capacity lost as a result of the fire damage, and completed our
recovery in January 2013. We maintain insurance coverage for property losses
caused by fire which is subject to certain deductibles. We expect we will
recover the net book value of machinery and equipment destroyed through
insurance proceeds, and as of December 31, 2012, recorded an impairment charge
of $0.9 million for amount of the inventory loss we expect will not be covered
by insurance. In addition, we maintain business interruption insurance to
protect us from disruptions as a result of fires. As of the date of this Report,
we are working with our insurance carrier as they evaluate our losses due to
business interruption; however, we have not recorded a receivable for any
potential claim payments which may result.
The primary components of restructuring and impairment expense for the years
ended December 31, 2012 and 2011, are as follows:
Restructuring Activity (dollars in millions) 2012 2011
Personnel and severance $ 16.1 $ (0.1 )
Lease and other contractual commitment expenses 1.7 0.9
Asset impairment 1.7 -
Total expense, net $ 19.5 $ 0.8
Operating Income. Operating income of $19.3 million for the year ended
December 31, 2012, represents a decrease of $51.6 million compared with
operating income of $70.9 million during the year ended December 31, 2011. The
primary sources of operating income for the years ended December 31, 2012 and
2011, are as follows:
Source (dollars in millions) 2012 2011
Printed Circuit Boards segment $ 27.4 $ 65.5
Assembly segment 1.6 6.7
Other (9.7 ) (1.3 )
Operating income $ 19.3 $ 70.9
The decrease in operating income in our Printed Circuit Boards segment was
primarily the result of higher levels of cost of goods sold relative to sales,
increased restructuring costs, higher levels of selling, general and
administrative expense and increased depreciation expense, partially offset by
higher sales levels and lower levels of cost of goods sold relative to sales.
Operating income during the second quarter of 2012 reflected a one-time
inventory fair value adjustment of approximately $3.9 million related to the DDi
Acquisition, which negatively impacted cost of goods sold.
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Operating income from our Assembly segment was $1.6 million for the year ended
December 31, 2012, compared to $6.7 million in the year ended December 31, 2011.
The decrease is primarily the result of restructuring costs associated with the
closure of our Qingdao, China facility, increased depreciation expense and
overhead costs at our Juarez, Mexico facility as it prepares for new product
introductions at its new larger facility.
The $9.7 million operating loss in the "Other" segment for the year ended
December 31, 2012, relates primarily to professional fees and other expenses
associated with the DDi Acquisition. The $1.3 million operating loss in the
"Other" segment for the year ended December 31, 2011, relates primarily to
professional fees associated with acquisitions and equity registrations.
Adjusted EBITDA. We measure our performance primarily through our operating
income. In addition to our consolidated financial statements presented in
accordance with U.S. GAAP, management uses certain non-GAAP financial measures,
including "Adjusted EBITDA." Adjusted EBITDA is not a recognized financial
measure under U.S. GAAP, and does not purport to be an alternative to operating
income or an indicator of operating performance. Adjusted EBITDA is presented to
enhance an understanding of our operating results and is not intended to
represent cash flows or results of operations. Our board of directors, lenders
and management use Adjusted EBITDA primarily as an additional measure of
performance for matters including executive compensation and competitor
comparisons. In addition, the use of this non-U.S. GAAP measure provides an
indication of our ability to service debt, and we consider it an appropriate
measure to use because of our leveraged position.
Adjusted EBITDA has certain material limitations, primarily due to the exclusion
of certain amounts that are material to our consolidated results of operations,
such as interest expense, income tax expense and depreciation and amortization.
In addition, Adjusted EBITDA may differ from the Adjusted EBITDA calculations of
other companies in our industry, limiting its usefulness as a comparative
measure.
We use Adjusted EBITDA to provide meaningful supplemental information regarding
our operating performance and profitability by excluding from EBITDA certain
items that we believe are not indicative of our ongoing operating results or
will not impact our future operating cash flows as follows:
• Stock Compensation-non-cash charges associated with recognizing the fair
value of stock options and restricted stock awards granted to employees
and directors. We exclude these charges to more clearly reflect comparable
year-over-year cash operating performance.
• Restructuring and Impairment Charges-which consist primarily of facility closures and other headcount reductions. Historically, a significant
amount of these restructuring and impairment charges have been non-cash
charges related to the write-down of property, plant and equipment to
estimated net realizable value. We exclude these restructuring and
impairment charges to more clearly reflect our ongoing operating
performance.
• Costs Relating to Acquisitions and Equity Registrations - professional
fees and other non-recurring costs and expenses associated with mergers
and acquisition activity as well as costs associated with capital
transactions, such as equity registrations. We exclude these costs and
expenses because they are not representative of our customary operating
expenses.
Reconciliations of operating income to Adjusted EBITDA for the years ended
December 31, 2012 and 2011, were as follows:
December 31,
Source (dollars in millions) 2012 2011
Operating income $ 19.3 $ 70.9
Add-back:
Depreciation and amortization 84.6 67.6
Non-cash stock compensation expense 10.6 7.7
Restructuring and impairment 19.9 0.8
Costs relating to acquisitions and equity registrations 13.6
1.0
Adjusted EBITDA $ 148.0 $ 148.0
Adjusted EBITDA was $148.0 million for both of the years ended December 31, 2012
and 2011. Higher sales levels were offset by higher cost of goods sold relative
to sales in 2012, as compared to 2011, and increased selling, general and
administrative costs. Adjusted EBITDA for the year ended December 31, 2012, has
not been adjusted to exclude net costs of approximately $11 million to $13
million related to manufacturing inefficiencies stemming from the 2012 fire at
our Guangzhou facility.
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Interest Expense, net. Interest expense, net of interest income, was $42.2
million for the year ended December 31, 2012, compared to $28.9 million, for the
year ended December 31, 2011. On April 30, 2012, we issued $550.0 million in
aggregate principal amount of 7.875% senior secured notes due 2019 and on
May 30, 2012, we redeemed our $220.0 million in the aggregate principal amount
of 12.0% senior secured notes due 2015. The increase in interest expense is
primarily due to i) interest expense incurred during the one month period when
both the 2019 Notes and the 2015 Notes were outstanding, ii) the incremental
interest expense associated with the 2019 Notes over the 2015 Notes and iii)
interest expense associated with mortgage debt assumed in the DDi Acquisition.
Income Taxes. Our income tax provision relates to i) taxes provided on our
pre-tax earnings based on the effective tax rates in the jurisdictions where the
income is earned and ii) other tax matters, including changes in tax-related
contingencies and changes in the valuation allowance established for deferred
tax assets. For the year ended December 31, 2012, our tax provision includes net
expense of $9.3 million, or 19%, related to pre-tax earnings, and a expense of
$3.5 million related to other tax matters, including a reversal of $2.7 million
of uncertain tax positions due to lapsing of the applicable statute of
limitations. For the year ended December 31, 2011, our tax provision included
net expense of $13.3 million, or 34%, related to our pre-tax earnings and net
benefit of $4.8 million related to other tax matters.
As of December 31, 2012, we have established a full valuation allowance in both
the U.S. and Canada for the deferred tax asset for net operating loss
carryforwards. During the year ended December 31, 2012, we increased the
valuation allowance by $32.0 million and during the year ended December 31,
2011, we released $3.4 million of the valuation allowance. The amount released
in 2011 represented the amount of the deferred tax asset we believed would be
realized in 2012 and was recorded as reduction to our income tax expense in that
year. We continually evaluate our ability to realize our deferred tax assets and
may, in the future, reverse the valuation allowance if sufficient supporting
evidence exists.
Noncontrolling Interest. Net income attributable to noncontrolling interest of
$0.1 million for the year ended December 31, 2012, compares to net income
attributable to noncontrolling interest of $1.8 million in 2011, and reflects a
noncontrolling interest holder's 5.0% interest in the profits from our PCB
manufacturing facility in Huiyang, China and the same noncontrolling interest
holder's 15.0% interest in the profits from our PCB manufacturing facility in
Huizhou, China for the period prior to our buyout of that interest for $10.1
million in May 2012 in connection with the closure of that facility. For the
year ended December 31, 2012, $0.6 million of net income attributable to
noncontrolling interest at our Huiyang facility was partially offset by
$0.5 million of loss attributable to noncontrolling interest at our Huizhou
facility.
Year Ended December 31, 2011, Compared with Year Ended December 31, 2010
Net Sales. Net sales for the year ended December 31, 2011, were $1,057.3
million, representing a $128.0 million, or 13.8%, increase from net sales for
the year ended December 31, 2010. Assuming the Merix Acquisition had occurred on
January 1, 2010, on a pro forma basis, net sales increased by approximately
$86.1 million, or 8.9%, for the year ended December 31, 2011, as compared with
the same period in 2010. This increase is due to increased demand across all but
our telecommunications end markets, price increases implemented during the
second quarter in our Printed Circuit Boards segment and premium pricing to
certain customers and programs in the automotive end market during the fourth
quarter.
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Net sales by end market on a historical basis for the years ended December 31,
2011 and 2010, and on a pro forma basis for the year ended December 31, 2010,
were as follows:
Pro
Historical Forma
End Market (dollars in millions) 2011 2010 2010
Automotive $ 412.4 $ 332.8 $ 341.0
Industrial & Instrumentation 264.2 220.2 229.5
Telecommunications 182.5 218.4 230.1
Computer and Datacommunications 155.3 121.7 129.3
Military and Aerospace 42.9 36.2 41.3
Total Net Sales $ 1,057.3 $ 929.3 $ 971.2
Our net sales of products for end use in the automotive market increased by
approximately $79.6 million, or 23.9%, during the year ended December 31, 2011,
compared with 2010. Assuming the Merix Acquisition had occurred on
January 1, 2010, on a pro forma basis, net sales of products for end use in this
market increased by approximately $71.4 million, or 20.9%, for the year ended
December 31, 2011, as compared to 2010. The increase was driven by i) increased
demand, including demand in the fourth quarter from customers whose supply chain
had been impacted by the flooding in Thailand and who sought to diversify their
supplier base for certain programs, ii) price increases implemented during the
second quarter of 2011 and iii) premium pricing to one customer as we assisted
them with their transition to other suppliers.
Net sales of products ultimately used in the industrial & instrumentation
market, increased by approximately $44.0 million, or 20.0%, during the year
ended December 31, 2011, compared with 2010. Assuming the Merix Acquisition had
occurred on January 1, 2010, on a pro forma basis, net sales of products for end
use in this market increased by approximately $34.7 million, or 15.1%, for the
year ended December 31, 2011, as compared with 2010. The increase in net sales
was driven primarily by increased global demand, including programs related to
wind power and elevator controls, as well as new customer and program wins.
Net sales of products ultimately used in the telecommunications market decreased
by approximately $35.9 million, or 16.4%, during the year ended
December 31, 2011, as compared with 2010. Assuming the Merix Acquisition had
occurred on January 1, 2010, on a pro forma basis, net sales of products for use
in this end market decreased by approximately $47.6 million, or 20.7%, for the
year ended December 31, 2011, as compared with 2010. The sales decline was
primarily a result of reduced demand for certain programs we supply, inventory
corrections from one of our larger customers and the loss of one customer in our
Assembly segment which elected to bring manufacturing of the parts we supplied
in-house.
Net sales of our products for use in the computer and datacommunications markets
increased by approximately $33.6 million, or 27.6%, during the year ended
December 31, 2011, as compared with 2010. Assuming the Merix Acquisition had
occurred on January 1, 2010, on a pro forma basis, net sales of products for use
in this end market increased by approximately $26.0 million, or 20.1%, for the
year ended December 31, 2011, as compared with 2010, driven by increased global
demand from our computer and datacommunication customers as well as new customer
and program wins.
Net sales to customers in the military and aerospace market increased by
approximately $6.7 million, or 18.5%, during the year ended December 31, 2011,
compared with 2010. Assuming the Merix Acquisition had occurred on
January 1, 2010, on a pro forma basis, net sales of products for use in this
market increased by approximately $1.6 million, or 3.9%, for the year ended
December 31, 2011, as compared with 2010. This modest growth in sales was a
result of increased demand from existing customers and new customer wins;
however, budget pressures on U.S. government defense spending had hampered
demand.
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Net sales by segment on a historical basis for the year ended December 31, 2011
and 2010, and on a pro forma basis for the year ended December 31, 2010, were as
follows:
Pro
Historical Forma
Segment (dollars in millions) 2011 2010 2010
Printed Circuit Boards $ 865.9 $ 763.9 $ 805.8
Assembly 201.0 177.3 177.3
Eliminations (9.6 ) (11.9 ) (11.9 )
Total net sales $ 1,057.3 $ 929.3 $ 971.2
Printed Circuit Boards segment net sales, including intersegment sales, for the
year ended December 31, 2011, increased by $102.0 million, or 13.4%, to $865.9
million. Assuming the Merix Acquisition had occurred on January 1, 2010, on a
pro forma basis, Printed Circuit Boards net sales, including intersegment sales,
for the year ended December 31, 2011, increased by $60.1 million, or 7.5%. The
increase is a result of a greater than 1.4% increase in volume that affected all
but our telecommunication end markets, as well as price increases introduced
during the second quarter of 2011.
Assembly segment net sales increased by $23.7 million, or 13.4%, to $201.0
million for the year ended December 31, 2011, compared with 2010. The increase
was primarily the result of improved demand in wind power and elevator controls
related programs in our industrial and instrumentation end market, partially
offset by a sales decline in our telecommunications end market.
Cost of Goods Sold. Cost of goods sold, exclusive of items shown separately in
the consolidated statement of operations and comprehensive (loss) income for the
year ended December 31, 2011, was $837.7 million, or 79.2% of consolidated net
sales. This represents a 1.9 percentage point increase from the 77.3% of
consolidated net sales achieved during 2010. The increase was due primarily to
rising costs of materials and labor and manufacturing inefficiencies associated
with government mandated power rationing in China, partially offset by sales
price increases. To compensate for rising costs, we began to implement price
increases during the second quarter of 2011; however, our costs for materials
and labor grew faster than we could implement price increases. While material
costs stabilized during the fourth quarter of 2011, market forces may again
cause increases during 2012.
The costs of materials, labor and overhead in our Printed Circuit Boards segment
can be impacted by trends in global commodities prices and currency exchange
rates, as well as other cost trends that can impact minimum wage rates,
electricity and diesel fuel costs in China. Economies of scale can help to
offset any adverse trends in these costs. Our results for 2011 reflect increased
costs of labor and materials, significant unscheduled maintenance at one of our
PCB facilities during the first quarter of 2011, inefficiencies in connection
with restarting production after scheduled shutdowns around the time of the
Chinese New Year holiday in February 2011, as well as inefficiencies associated
with power rationing in China. The increase in labor costs was due to minimum
wage increases and newly implemented employment-based social taxes in China, as
well as a labor shortage in some parts of China that contributed to higher than
usual attrition, resulting in increased overtime costs and the payment of
retention bonuses. The increase in materials costs was due to increased costs
for commodities, including copper and gold, as well as a sustained high demand
for electronic components in our industry, which allowed our materials suppliers
to command higher prices for their products.
Cost of goods sold in our Printed Circuit Boards segment during the 2010
reflected an inventory fair value adjustment of approximately $0.9 million
related to the Merix Acquisition, which negatively impacted the ratio of cost of
goods sold to net sales.
Cost of goods sold in our Assembly segment relates primarily to component
materials costs. As a result, trends in sales volume for the segment drive
similar trends in cost of goods sold. Cost of goods sold as a percent of sales
during the year ended December 31, 2011, were negatively impacted by increased
labor and material costs.
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Selling, General and Administrative Costs. As a percent of sales, selling,
general and administrative costs decreased to 7.6% for the year ended
December 31, 2011, as compared with 8.3% for the year ended
December 31, 2010. In dollar terms, selling, general and administrative costs
increased $2.8 million, or 3.7%, to $80.3 million for the year ended
December 31, 2011, compared with 2010. The net increase in selling, general and
administrative costs was primarily a result of i) a $4.4 million increase in
non-cash stock compensation expense related to awards granted under our 2010
Equity Incentive Plan, ii) costs associated with annual management meetings
during 2011, which had been suspended in 2010, and iii) the impact of a full
year of selling, general and administrative costs associated with the legacy
Merix operations as compared with approximately ten and one-half months of costs
incurred subsequent to the mid-February acquisition date in 2010, partially
offset by a $4.6 million decline in costs relating to acquisitions and equity
registrations and reduced incentive compensation expense.
Depreciation. Depreciation expense for the year ended December 31, 2011, was
$65.9 million, including $62.0 million related to our Printed Circuit Boards
segment and $3.9 million related to our Assembly segment. Depreciation expense
in our Printed Circuit Boards segment increased by $10.0 million compared with
2010 primarily as a result of increased investments in new equipment during 2010
and 2011; and we expect depreciation expense will continue to increase in 2012
as a result of significant new investments in capital equipment during 2011 and
expected investments during 2012. Depreciation expense in our Assembly segment
decreased by $0.5 million compared with 2010, as a result of reduced capital
expenditures in 2010 and through the first half of 2011. With approximately $6.0
million of capital expenditures in our Assembly segment during the second half
of 2011, including $4.0 million related to the new Juarez, Mexico facility, we
expect depreciation expense in our Assembly segment for 2012 will return to
levels similar to 2010.
Restructuring and Impairment. During the year ended December 31, 2011, we
incurred net restructuring charges of $0.8 million, which included approximately
$0.5 million in our Assembly segment related to the relocation of our
manufacturing operations in Juarez, Mexico to a new facility, approximately $0.4
million in "Other" related to an increase in estimated long-term obligations
associated with previously closed manufacturing facilities, and a reversal of
accrued severance costs of approximately $0.1 million in our Printed Circuit
Boards segment as a result of lower than planned involuntary terminations in
connection with the integration of the Merix business after its acquisition in
2010. The costs incurred in the Assembly and "Other" segments all related to
contractual commitments.
During the year ended December 31, 2010, in connection with the integration of
the Merix business, we identified potential annualized cost synergies of
approximately $20.0 million, and took certain actions to realize those cost
synergies. These actions included staff reductions and the consolidation of
certain administrative offices. For the year ended December 31, 2010, we
recorded net restructuring charges of approximately $8.5 million, of which
approximately $4.6 million was incurred in the Printed Circuit Boards segment
related to achieving cost synergies with the integration of the Merix business,
and approximately $3.9 million was incurred in the "Other" segment primarily
related to the cancellation of a monitoring and oversight agreement in
connection with the Recapitalization Agreement. The charges incurred in the
Printed Circuit Boards segment include $3.5 million related to personnel and
severance and $1.1 million related to lease termination and other costs. The
charges incurred in the "Other" segment include $4.4 million related to
contractual commitments and a reversal of $0.5 million related to personnel and
severance costs.
The primary components of restructuring and impairment expense for the years
ended December 31, 2011 and 2010, are as follows:
Restructuring Activity (dollars in millions) 2011 2010
Personnel and severance $ (0.1 ) $ 3.0
Lease and other contractual commitment expenses 0.9 5.5
Total expense, net $ 0.8 $ 8.5
Operating Income. Operating income of $70.9 million for the year ended
December 31, 2011, represents an increase of $4.4 million compared with
operating income of $66.5 million during the year ended December 31, 2010. The
primary sources of operating income for the years ended December 31, 2011 and
2010, are as follows:
Source (dollars in millions) 2011 2010
Printed Circuit Boards segment $ 65.5 $ 68.9
Assembly segment 6.7 6.2
Other (1.3 ) (8.6 )
Operating income $ 70.9 $ 66.5
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Operating income from our Printed Circuit Boards segment decreased by
$3.4 million to $65.5 million for the year ended December 31, 2011, compared
with operating income of $68.9 million for the prior year. The decrease is
primarily the result of higher levels of material and labor costs in cost of
goods sold relative to sales and increased depreciation expense partially offset
by increased sales volume, price increases and a reduction in restructuring
charges.
Operating income from our Assembly segment was $6.7 million for the year ended
December 31, 2011, compared with operating income of $6.2 million in 2010. The
increase is primarily the result of increased sales volumes and reduced
depreciation expenses, partially offset by higher levels of cost of goods sold
relative to sales and restructuring cost.
The $1.3 million operating loss in the "Other" segment for the year ended
December 31, 2011, relates primarily to restructuring charges of $0.4 million
and professional fees and other costs associated with equity registrations and
the pursuit of acquisition opportunities. The operating loss in the "Other"
segment of $8.6 million for the year ended December 31, 2010, relates to $3.9
million of net restructuring charges and $4.7 million of transaction costs
related to the Merix Acquisition.
Adjusted EBITDA. Reconciliations of operating income to Adjusted EBITDA for the
years ended December 31, 2011 and 2010, were as follows:
December 31,
Source (dollars in millions) 2011 2010
Operating income $ 70.9 $ 66.5
Add-back:
Depreciation and amortization 67.6 58.1
Non-cash stock compensation expense 7.7 2.9
Restructuring and impairment 0.8 8.5
Costs relating to acquisitions and equity registrations 1.0
5.6
Adjusted EBITDA $ 148.0 $ 141.6
Adjusted EBITDA increased by $6.4 million, or 4.5%, primarily as a result of an
13.8% increase in net sales partially offset by a 1.9 percentage point increase
in cost of goods sold relative to net sales, and increased selling, general and
administrative expense.
Interest Expense, net. Interest expense, net of interest income, was $28.9
million and $30.9 million for the years ended December 31, 2011 and 2010,
respectively. Interest expense related to the $220 million aggregate principal
amount of 12% Senior Secured Notes due 2015 ("the 2015 Notes") is approximately
$28.0 million in each year, including $26.4 million cash interest based on the
$220 million principal and 12.0% interest rate, and $1.6 million non-cash
amortization of the $8.2 million original issue discount which is being
amortized to interest expense over the life of the 2015 Notes. The $2.0 million
decrease in interest expense for the year ended December 31, 2011, as compared
with the prior year, is primarily a result of reduced interest expense
associated with the Class A Preferred, which was exchanged for common stock
during the first quarter of 2010.
Income Taxes. Our income tax provision relates to i) taxes provided on our
pre-tax earnings based on the effective tax rates in the jurisdictions where the
income is earned and ii) other tax matters, including changes in tax-related
contingencies and changes in the valuation allowance established for deferred
tax assets. For the year ended December 31, 2011, our tax provision includes net
expense of $13.3 million, or 34%, related to pre-tax earnings, and a net benefit
of $4.8 million related to other tax matters, including a reversal of $6.2
million of uncertain tax positions due to lapsing of the applicable statute of
limitations. For the year ended December 31, 2010, our tax provision included
net expense of $18.0 million, or 57%, related to our pre-tax earnings and net
benefit of $1.9 million related to other tax matters.
During the years ended December 31, 2011 and 2010, we released $3.4 million and
$1.6 million, respectively, of the valuation allowance which had been
established against our deferred tax asset for net operating loss carryforwards.
The amounts released represent the amount of the deferred tax asset we believe
would be realized over the next respective year and were recorded as reduction
to our income tax expense in each year.
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Noncontrolling Interest. Net income attributable to noncontrolling interest of
$1.8 million for the year ended December 31, 2011, reflects a noncontrolling
interest holder's 5% and 15% interest in the profits from our facilities in
Huiyang, China and Huizhou, China, respectively, and compares to $2.0 million in
2010. For the year ended December 31, 2011, $0.5 million and $1.3 million of net
income attributable to noncontrolling interest related to our Huiyang and
Huizhou facilities, respectively.
Liquidity and Capital Resources
Cash Flow
Net cash provided by operating activities was $78.1 million, $71.4 million and
$74.9 million for the years ended December 31, 2012, 2011 and 2010,
respectively. Net operating cash flows increased from 2011 to 2012 as the result
of changes in working capital partially offset by lower net income. The reduced
level of net cash from operating activities in 2011, as compared with 2010, was
primarily due to changes in working capital related to higher sales levels and
our building of inventory levels at the end of 2011 to supply customer orders
during planned shutdowns at the beginning of 2012, surrounding public holidays
in China, partially offset by increased income from operations.
Net cash used in investing activities was $371.0 million, $101.1 million and
$68.8 million for the years ended December 31, 2012, 2011 and 2010,
respectively. The increase in the level of net cash used in investing activities
in 2012, as compared to 2011, relates primarily to $253.5 million of cash
consideration paid, net of cash acquired, in the DDi Acquisition, $10.1 million
of cash consideration paid to acquire the remaining 15% interest in our Huizhou,
China facility and increased capital expenditures. The increase in the level of
net cash used in investing activities in 2011, as compared with 2010, was due to
higher capital expenditures, partially offset by the non-recurrence of
acquisition costs which were incurred in 2010 related to the Merix Acquisition.
Our Printed Circuit Boards segment is a capital-intensive business that requires
annual spending to keep pace with customer demands for new technologies, cost
reductions and product quality standards. The spending needed to meet our
customer's requirements is incremental to recurring repair and replacement
capital expenditures required to maintain our existing production capacities and
capabilities. While we are prepared to make appropriate investments in
facilities to meet growing demand, given the ongoing uncertainty about global
economic conditions, we have and will continue to focus on managing capital
expenditures to respond to changes in demand or other economic conditions.
Investing cash flows include capital expenditures by our Printed Circuit Boards
segment of $102.1 million, $93.4 million and $54.4 million for the years ended
December 31, 2012, 2011 and 2010, respectively. The increase in capital
expenditures in our Printed Circuit Boards segment in 2012, as compared with
2011, reflects spending to increase manufacturing capacity in anticipation of
the planned closure of our Huizhou, China facility and spending to replace
equipment destroyed in a fire in our PCB manufacturing facility in Guangzhou,
China. Increased capital spending during 2011 as compared to 2010 reflects
spending to increase manufacturing capacity in anticipation of increased
customer demand and the planned closure of our Huizhou, China facility.
Capital expenditures related to our Assembly segment for the years ended
December 31, 2012, 2011 and 2010 were $6.0 million, $7.7 million and
$1.6 million, respectively. Capital expenditures in our Assembly segment
declined by $1.7 million in 2012, as compared to 2011, due to reduced spending
following the completion of our new facility in Juarez, Mexico. The increase in
capital expenditures in our Assembly segment in 2011, as compared with 2010,
primarily relates to a $4.7 million investment to build a new Juarez, Mexico
facility and investments at our other E-M Solutions facilities to support sales
growth.
Net cash provided by financing activities was $296.5 million for year ended
December 31, 2012, which related to the issuance of $550.0 million aggregate
principal amount of our 2019 Notes, partially offset by i) $16.2 million of
related debt issuance costs, ii) the payment of $236.3 million to redeem our
2015 Notes, iii) net repayments of $0.7 million on credit facilities and
mortgage debt and iv) a $0.3 million distribution to the noncontrolling interest
holder.
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Net cash used in financing activities was $2.6 million for the year ended
December 31, 2011, which related primarily to a $2.4 million distribution to our
noncontrolling interest holder of previously declared but unpaid dividends and
repayments of capital lease obligations. In addition, during 2011, in connection
with the renewal of our Zhongshan 2010 Credit Facility, we repaid and reborrowed
$10.0 million. Net cash used in financing activities was $11.6 million for the
year ended December 31, 2010, which related to $5.2 million of net repayments of
credit facilities, $2.3 million of financing fees on our Senior Secured 2010
Credit Facility, a $0.8 million distribution to our noncontrolling interest
holder, the repurchase of $0.5 million principal amount of our Senior
Subordinated Convertible Notes due 2013 and $2.6 million of repayments of
capital lease obligations. The repayment of the 2011 Notes in January 2010 was
funded by restricted cash placed in escrow in connection with the issuance of
the 2015 Notes in late 2009.
Financing Arrangements
As of December 31, 2012, including indebtedness assumed in the DDi Acquisition,
our financing arrangements included the following:
Shelf Registration Statement
We filed a shelf registration statement with the Securities and Exchange
Commission that went effective on April 7, 2011, and will allow us to sell up to
$150 million of equity or other securities described in the registration
statement in one or more offerings. The shelf registration statement gives us
greater flexibility to raise funds from the sale of our securities, subject to
market conditions and our capital needs. In addition, the shelf registration
statement includes shares of our common stock currently owned by VG Holdings,
LLC, such that VG Holdings, LLC may offer and sell, from time to time, up to
15,562,558 shares of our common stock. We will not receive any proceeds from the
sale of common stock by VG Holdings, LLC, but we may incur expenses in
connection with the sale of those shares.
Senior Secured Notes due 2019
On April 30, 2012, our subsidiary, Viasystems, Inc., completed an offering of
$550.0 million of 7.875% Senior Secured Notes due 2019. We incurred $16.2
million of deferred financing fees related to the 2019 Notes that have been
capitalized and will be amortized over the life of the notes.
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, we may
use the cash proceeds from one or more equity offerings to redeem up to $192.5
million of the aggregate principal amount of the 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,
we may redeem up to $55.0 million of the aggregate principal amount of the notes
at a redemption price of 103% plus accrued and unpaid interest. In addition, at
any time prior to May 1, 2015, we 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, we may redeem
all or part 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. Subsequent to May 1, 2018, we
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), we are
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 our ability and certain of our subsidiaries, including
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; f) enter into
certain transactions with affiliates.
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Senior Secured 2010 Credit Facility
Our senior secured revolving credit agreement, as amended, (the "Senior Secured
2010 Credit Facility"), with Wells Fargo Capital Finance, LLC provides a secured
revolving credit facility in an aggregate principal amount of up to $75.0
million with an initial maturity in 2014. The annual interest rates applicable
to loans under the Senior Secured 2010 Credit Facility are, at our option,
either the Base 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 our Quarterly Average Excess Availability (as defined in the
Senior Secured 2010 Credit Facility) and ranges from 0.75% to 1.75% for Base
Rate loans and 2.25% to 2.75% for Eurodollar Rate loans. In addition, we are
required to pay an Unused Line Fee and other fees as defined in the Senior
Secured 2010 Credit Facility. Effective as of June 30, 2011, we amended the
Senior Secured 2010 Credit Facility primarily for the purpose of removing a
limit on permitted capital expenditures, and increasing the amount of eligible
collateral allowed for certain receivables.
The Senior Secured 2010 Credit Facility is guaranteed by and secured by
substantially all of the assets of our 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 certain
negative covenants restricting and limiting our 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.
Under the Senior Secured 2010 Credit Facility, if the Excess Availability (as
defined in the Senior Secured 2010 Credit Facility) is less than $15 million, we
must maintain, on a monthly basis, a minimum fixed charge coverage ratio of 1.1
to one.
We incurred $2.3 million deferred financing fees related to the Senior Secured
2010 Credit Facility which were capitalized and are being amortized over the
life of the facility. As of December 31, 2012, the Senior Secured 2010 Credit
Facility supported letters of credit totaling $0.7 million, and approximately
$74.3 million was unused and available based on eligible collateral.
Zhongshan 2010 Credit Facility
Our unsecured revolving credit facility between our 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, 2012, $10.0 million in U.S. dollar loans was
outstanding under the Zhongshan 2010 Credit Facility at an interest rate of
LIBOR plus 4.9%, and approximately $29.8 million of the revolving credit
facility was unused and available.
Huiyang 2009 Credit Facility
During the third quarter of 2012, the Company allowed its revolving credit
facility between its Merix Printed Circuits Technology Limited (Huiyang)
subsidiary and Industrial and Commercial Bank of China, Limited to expire.
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Senior Subordinated Convertible Notes due 2013
Our $0.9 million principal amount of 4.0% convertible senior subordinated notes
(the "2013 Notes") have a maturity date of May 15, 2013. Interest is payable
semiannually in arrears on May 15 and November 15 of each year. Pursuant to the
terms of the indenture governing the 2013 Notes and the merger agreement
governing the Merix Acquisition, the 2013 Notes are convertible at the option of
the holder into shares of our common stock at a ratio of 7.367 shares per one
thousand dollars of principal amount, subject to certain adjustments. This is
equivalent to a conversion price of $135.74 per share. The 2013 Notes are
general unsecured obligations and are subordinate in right of payment to all
existing and future senior debt.
North America Mortgage Loans
In connection with the DDi Acquisition, we assumed mortgage loans which had been
used historically to finance the acquisition, construction and improvement of
certain of DDi's manufacturing facilities. These loans include:
Toronto Mortgages
Our 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 our manufacturing facility in Toronto, Canada. The loan agreements
contain a covenant requiring us to maintain an available funds coverage ratio of
1.5 to 1.0. As of December 31, 2012, the balance of the U.S. dollar loan was
$1.2 million. The loan bears interest at a variable rate equal to the applicable
BDC floating base rate less 0.4% (3.35% as of December 31, 2012), and will
mature in September 2028. As of December 31, 2012, the U.S. dollar equivalent
balance of the Canadian dollar loan was $4.2 million. 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, 2012), and will mature in October 2015.
Anaheim Mortgage
Our mortgage loan with Wells Fargo Bank is secured by the land and building at
our manufacturing facility in Anaheim, California which is currently under
construction. The loan agreement contains a covenant requiring us to maintain a
minimum fixed charge coverage ratio of 1.25 to 1.0. As of December 31, 2012, the
balance of the loan was $5.4 million. The loan bears interest at a fixed rate of
4.326%, and will mature in March 2019, when a balloon principal payment of $3.4
million will be due.
Cleveland Mortgage
Our mortgage loan with Zions Bank is secured by the land and building of at our
manufacturing facility in Cuyahoga Falls, Ohio. As of December 31, 2012, the
balance of the loan was $1.5 million. The loan bears interest at a variable rate
equal to the Federal Home Loan Bank of Seattle prime rate plus 2% (3.25% as of
December 31, 2012), and will mature in November 2032.
Denver Mortgage
Our mortgage loan with GE Real Estate is secured by the land and building at our
manufacturing facility in Littleton, Colorado. As of December 31, 2012, the
balance of the loan was $1.3 million. The loan bears interest at a fixed rate of
7.55%, and will mature in July 2032.
North Jackson Mortgage
Our mortgage loan with Key Bank is secured by the land and building at our
manufacturing facility in North Jackson, Ohio. As of December 31, 2012, the
balance of the loan was $0.6 million. The loan bears interest at a variable rate
equal to 30 Day LIBOR plus 1.5% (1.73% as of December 31, 2012), and will mature
in April 2015.
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Liquidity
We had cash and cash equivalents at December 31, 2012 and 2011, of $74.8 million
and $71.3 million, respectively, of which $37.0 million and $42.3 million,
respectively, were held outside the United States. Liquidity is affected by many
factors, some of which are based on normal ongoing operations of our business
and some of which arise from fluctuations related to global economics and
markets. Cash balances are generated and held in many locations throughout the
world. We permanently reinvest the earnings of our foreign subsidiaries outside
the United States, and our current plans do not demonstrate a need to repatriate
them to fund our United States operations. If these funds were to be needed for
our operations in the United States, we would be required to record and pay
significant United States income taxes to repatriate these funds. At
December 31, 2012, we had outstanding borrowings and letters of credit of
$10.0 million and $0.7 million, respectively, under various credit facilities;
and approximately $104.1 million of the credit facilities were unused and
available.
We believe that cash flow from operations, availability on credit facilities and
available cash on hand will be sufficient to fund our recurring capital
expenditure requirements and other currently anticipated cash needs for the next
12 months. Our ability to meet our cash needs through cash generated by our
operating activities will depend on the demand for our products, as well as
general economic, financial, competitive and other factors, many of which are
beyond our control. We cannot be assured that our business will generate
sufficient cash flow from operations, that currently anticipated cost savings
and operating improvements will be realized on schedule, that future borrowings
will be available to us under our credit facilities or that we will be able to
raise third party financing in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness.
Our principal liquidity requirements over the next twelve months will be for
i) $21.7 million semi-annual interest payments required in connection with the
2019 Notes, payable in May and November each year, ii) capital expenditure needs
of our continuing operations, iii) working capital needs, iv) debt service
requirements in connection with our credit facilities and other debt, including
$0.9 million payable upon the maturity of our 2013 Notes, and v) costs to
integrate the acquired DDi business, including the relocation of our Anaheim,
California facility. In addition, the potential for acquisitions of other
businesses in the future may require additional debt or equity financing. We
continue to explore certain strategic alternatives that may impact our
liquidity, including but not limited to acquisitions, debt refinancing, debt
retirement and equity offerings. We can give no assurance about our ability to
execute any of these alternatives.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as defined under Securities
and Exchange Commission rules.
Backlog
We estimate that our backlog of unfilled orders as of December 31, 2012, was
approximately $200.0 million, which includes $170.5 million and $29.5 million
from our Printed Circuit Boards and Assembly segments, respectively. This
compares with our backlog of unfilled orders of $216.8 million at
December 31, 2011, which included $168.9 million and $47.9 million from our
Printed Circuit Boards and Assembly Segments, respectively. Because unfilled
orders may be cancelled prior to delivery, the backlog outstanding at any point
in time is not necessarily indicative of the level of business to be expected in
the ensuing period.
Related Party Transactions
Noncontrolling Interest Holder
We purchase consulting and other services from the noncontrolling interest
holder which owns 5% of the subsidiary that operates our PCB manufacturing
facility in Huiyang, China. Through December 31, 2012, we leased a manufacturing
facility in Huizhou, China from the noncontrolling interest holder, and, in May
2012, purchased the noncontrolling interest holder's 15% interest in that
facility for $10.1 million in connection with the closure of the Huizhou, China
facility. During the years ended December 31, 2012, 2011 and 2010 we paid the
noncontrolling interest holder $0.8 million, $0.9 million and $1.1 million,
respectively, related to rental and service fees, In addition, during the year
ended December 31, 2012 and 2011, we made distributions of $0.3 million and
$2.4 million, respectively, to the noncontrolling interest holder.
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Monitoring and Oversight Agreement
Effective as of January 31, 2003, we entered into a monitoring and oversight
agreement with Hicks, Muse & Co. Partners L.P. ("HM Co."), an affiliate of HMTF.
On February 11, 2010, under the terms and conditions of the Recapitalization
Agreement, the monitoring and oversight agreement was terminated in
consideration for the payment of a cash termination fee of approximately $4.4
million. The consolidated statements of operations and comprehensive (loss)
income include expense related to the monitoring and oversight agreement of
approximately $4.4 million for the years ended December 31, 2010, and we made
cash payments of approximately $5.6 million to HM Co. related to these and prior
year expenses during the year ended December 31, 2010.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires
that management make certain estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Actual results may
differ from those estimates and assumptions and the differences may be material.
Significant accounting policies, estimates and judgments that management
believes are the most critical to aid in fully understanding and evaluating the
reported financial results are discussed below.
Revenue Recognition
We recognize revenue when all of the following criteria are satisfied:
persuasive evidence of an arrangement exists; risk of loss and title transfer to
the customer; the price is fixed and determinable; and 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 and
the above criteria are satisfied. All services are performed prior to invoicing
customers for any products manufactured by us. We monitor and track product
returns, which have historically been within our expectations and the provisions
established. Reserves for product returns are recorded based on historical trend
rates at the time of sale. Despite our efforts to improve our quality and
service to customers, we cannot guarantee that we will continue to experience
the same or better return rates than we have in the past. Any significant
increase in returns could have a material negative impact on our operating
results.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable balances represent customer trade receivables generated from
our operations. We evaluate collectability of accounts receivable based on a
specific case-by-case analysis of larger accounts; and based on an overall
analysis of historical experience, past due status of the entire accounts
receivable balance and the current economic environment. Based on this
evaluation, we make adjustments to the allowance for doubtful accounts for
expected losses. We also perform credit evaluations and adjust credit limits
based upon each customer's payment history and creditworthiness. While credit
losses have historically been within our expectations and the provisions
established, actual bad debt write-offs may differ from our estimates, resulting
in higher or lower charges in the future for our allowance for doubtful
accounts.
Inventories
Inventories are stated at the lower of cost (valued using the first-in,
first-out (FIFO) and average cost methods) or market value. Cost includes raw
materials, labor and manufacturing overhead.
We apply judgment in valuing our inventories by assessing the net realizable
value of our inventories based on current expected selling prices, as well as
factors such as obsolescence and excess stock. We provide valuation allowances
as necessary. Should we not achieve our expectations of the net realizable value
of our inventory, future losses may occur.
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Long-Lived Assets, Excluding Goodwill
We review the carrying amounts of property, plant and equipment, definite-lived
intangible assets and other long-lived assets for potential impairment if an
event occurs or circumstances change that indicates the carrying amount may not
be recoverable. In evaluating the recoverability of a long-lived asset, we
compare the carrying values of the assets with corresponding estimated
undiscounted future operating cash flows. In the event the carrying values of
long-lived assets are not recoverable by future undiscounted operating cash
flows, impairments may exist. In the event of impairment, an impairment charge
would be measured as the amount by which the carrying value of the relevant
long-lived assets exceeds their fair value. During 2012 we recognized an
impairment loss to fixed assets of $0.7 million as a result of the closure of
our Huizhou, China PCB manufacturing facility. No impairments were recorded in
2011 and 2010.
Goodwill
At December 31, 2012, our goodwill balance relates entirely to our Printed
Circuit Boards segment. We conduct an assessment of the carrying value of
goodwill annually, as of the first day of our fourth fiscal quarter, or more
frequently if circumstance arise which would indicate the fair value of a
reporting unit is below its carrying amount. During 2012, we performed a
qualitative assessment to screen for potential impairment of goodwill. A
qualitative assessment requires us to consider a number of relevant factors and
conclude whether it is more likely than not that the fair value of a reporting
unit is more than its carrying amount. In performing our qualitative assessment
to screen for potential impairment of goodwill, we considered a number of
factors, including i) macroeconomic conditions, ii) factors impacting our
industry and the end markets we serve, iii) factors impacting our costs to
manufacture products and operate our business, iv) the financial performance of
reporting units compared with projections and prior periods, v) reporting unit
specific events which could impact future operating results, vi) the market
value of our debt and equity securities, and vii) other relevant events and
circumstances identified at the time of the assessment. No adjustments were
recorded to the balance of goodwill as a result of this assessment.
In any given year we may elect to perform a quantitative impairment test for
impairment, or if, as a result of the qualitative assessment, we are not able to
conclude it is more likely than not that the fair value of a reporting unit is
more than its carrying amount, then we would be required to perform a
quantitative test for impairment. The performance of a quantitative test would
require us to make certain assumptions and estimates in determining fair value
of our reporting units. When performing such a test, we use multiple methods to
estimate the fair value of our reporting units, including discounted cash flow
analyses and an EBITDA-multiple approach, which derives an implied fair value of
a business unit based on the market value of comparable companies expressed as a
multiple of those companies' earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Discounted cash flow analyses require us to make
significant assumptions about discount rates, sales growth, profitability and
other factors. The EBITDA-multiple approach requires us to judgmentally select
comparable companies based on factors such as their nature, scope and size.
Significant judgment is required in making assumptions and estimates to perform
a qualitative impairment screen and a quantitative impairment test, and should
our assumptions change in the future, our fair value models could result in
lower fair values, which could materially affect the value of goodwill and our
operating results.
Income Taxes
We record a valuation allowance to reduce our deferred tax assets to the amount
that we believe will more likely than not be realized. We have considered future
taxable income and ongoing prudent, feasible tax planning strategies in
assessing the need for the valuation allowance, but in the event we were to
determine that we would not be able to realize all or part of our net deferred
tax assets in the future, an adjustment to the net deferred tax assets would be
charged to income in the period such determination was made. Similarly, should
we determine that we would be able to realize our deferred tax assets in the
future in excess of the net deferred tax assets recorded, an adjustment to the
net deferred tax asset would increase net income in the period such
determination was made.
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Derivative Financial Instruments and Fair Value Measurements
We conduct our business in various regions of the world, and export and import
products to and from several countries. Our operations may, therefore, be
subject to volatility because of currency fluctuations. Sales are primarily
denominated in U.S. dollars, while expenses are frequently denominated in local
currencies, and results of operations may be adversely affected as currency
fluctuations affect our product prices and operating costs or those of our
competitors. From time to time, we enter into foreign exchange forward contracts
and cross-currency swaps to minimize the short-term impact of foreign currency
fluctuations. We do not engage in hedging transactions for speculative
investment reasons. Gains or losses from our hedging activities have not
historically been material to our cash flows, financial position or results from
operations. There can be no assurance that our hedging operations will eliminate
or substantially reduce risks associated with fluctuating currencies.
The foreign exchange forward contracts and cross-currency swaps designated as
cash flow hedges are accounted for at fair value. We record deferred gains and
losses related to cash flow hedges based on their fair value using a market
approach and Level 2 inputs. The effective portion of the change in each cash
flow hedge's gain or loss is reported as a component of other comprehensive
income, net of taxes. The ineffective portion of the change in the cash flow
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 income (loss) 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.
Accounting for Acquisitions
The acquisition method of accounting requires an acquirer to recognize the
assets acquired and the liabilities assumed at the acquisition date measured at
their estimated fair value as of that date. Extensive use of estimates and
judgments are required to allocate the consideration paid in a business
combination to the assets acquired and liabilities assumed. If necessary, these
estimates can be revised during an allocation period when information becomes
available to further define and quantify the value of assets acquired and
liabilities assumed. The allocation period does not exceed a period of one year
from the date of acquisition. To the extent additional information to refine the
original allocation becomes available during the allocation period, the purchase
price allocation would be adjusted accordingly. Should information become
available after the allocation period, the effects would be reflected in
operating results.
Recently Adopted Accounting Pronouncements
As of January 1, 2012, we adopted an accounting standard which changes the way
other comprehensive income is presented in our financial statements, and elected
to begin reporting other comprehensive income in a continuous statement of
operations and comprehensive income. In December 2011, the Financial Accounting
Standards Board deferred the date by which certain other aspects of the new
standard must be implemented. The adoption of this standard had no affect on our
financial condition or results of operations.
Recently Issued Accounting Pronouncements
In December 2011, the FASB issued a final standard which will require us to
disclose additional information about financial instruments that have been
offset for presentation on our balance sheet. Assets and liabilities for
financial instruments, such as cash flow hedge contracts, which are covered by
master netting agreements, are reported net, with gross positive fair values
netted with gross negative fair values by counterparty. While the new standard
will impact our disclosures, it will not change the way we account for such
financial instruments and will have no effect on our financial condition or
results of operations upon adoption. We are required to adopt this new standard
beginning in 2013.
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Contractual Obligations
The following table provides a summary of future payments due under contractual
obligations and commitments as of December 31, 2012:
Payments due by period
Less than 1-3 3-5 More than
Contractual Obligations (dollars in millions) 1 year years years 5 years Total
2019 Notes $ - $ - $ - $ 550.0 $ 550.0
Interest on 2019 Notes 43.3 86.6 86.6 57.6 274.1
2013 Notes 0.9 - - - 0.9
North America Mortgage Loans 1.6 3.0 1.9 10.0 16.5
Capital lease payments 0.1 0.3 0.3 0.4 1.1
Zhongshan 2010 Credit Facility 10.0 - - - 10.0
Operating leases 8.0 11.7 5.6 4.5 29.8
Restructuring payments 4.2 0.2 0.2 1.9 6.5
Management fees 0.3 0.7 0.7 11.4 13.1
Deferred compensation 1.1 0.2 0.2 2.1 3.6
Purchase orders 62.0 - - - 62.0
Total (a) $ 131.5 $ 102.7 $ 95.5 $ 637.9 $ 967.6
(a) The liability for unrecognized tax benefits of $25.6 million included in
other non-current liabilities at December 31, 2012, has been excluded from
the above table as we cannot make a reasonably reliable estimate of the
timing of future payments.
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