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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-29332
PEAK INTERNATIONAL LIMITED
(Exact Name of Registrant as Specified in its Charter)
Bermuda Not applicable
(Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
44091 Nobel Drive 94538
P.O. Box 1767
Fremont, CA 94538
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 449-0100
Securities registered or to be registered pursuant to Section 12(b) of the
Act: None
Securities registered or to be registered pursuant to Section 12(g) of the
Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value US $0.01 per share Nasdaq Stock Market National Market
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant was approximately $58,728,334 as of June 15, 2001, based upon the
closing price of $6.70 on the Nasdaq National Market reported on such date.
As of June 15, 2001, the number of shares of Common Stock outstanding was
approximately 13,165,152.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the 2001 Annual General
Meeting of Shareholders, which is expected to be filed with the Securities and
Exchange Commission no later than 120 days following the end of the fiscal
year covered by this report, are incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
PART I.................................................................. 1
ITEM 1. BUSINESS.................................................. 1
ITEM 2. PROPERTIES................................................ 17
ITEM 3. LEGAL PROCEEDINGS......................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 18
PART II................................................................. 19
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 19
ITEM 6. SELECTED FINANCIAL DATA................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 28
PART III................................................................ 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........ 29
ITEM 11. EXECUTIVE COMPENSATION.................................... 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 29
PART IV................................................................. 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................. 30
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PART I
All references to the "Company," "Peak," "we," "us" or "our" herein are
references to Peak International Limited, a company incorporated under Bermuda
law on January 3, 1997, and, unless the context otherwise requires, its
subsidiaries and predecessors. All references to "Peak (HK)" herein are to
Peak Plastic & Metal Products (International) Limited, a company incorporated
in Hong Kong and a wholly-owned subsidiary of the Company and, unless the
context otherwise requires, its subsidiaries and predecessors. References in
this Annual Report on Form 10-K ("Annual Report") to our historical business
and operations assume that the corporate reorganization in 1997 (the
"Restructuring") by which, among other things, Peak (HK) became a wholly-owned
subsidiary of the Company and the Company acquired its other subsidiaries, had
already occurred as of the times to which the references relate. Any
discrepancies in the tables included in this Annual Report between the amounts
indicated and the totals thereof are due to rounding. All references to "US
Dollars," "US$" or "$" herein are to United States Dollars, references to "HK
Dollars" or "HK$" are to Hong Kong Dollars and references to "Fiscal 1997,"
"Fiscal 1998," "Fiscal 1999," "Fiscal 2000" and "Fiscal 2001" are to the years
ended March 31, 1997, 1998, 1999, 2000, and 2001 respectively.
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. The forward-looking
statements reflect our view at the time of this Annual Report with respect to
future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties including among others dependence
on the semiconductor and electronics industries, competition, dependence on
significant customers, issues relating to our operations in China, the
resolution of recently filed shareholder litigation and other matters that
could cause actual results to differ materially from the statements made
herein. The words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" and similar expressions, identify forward-looking statements,
which speak only as of today. The principal risks and uncertainties that may
cause actual results to vary materially from the forward looking statements
contained herein include those described in Item 1 under the section entitled
"Business--Risks and Uncertainties" as well as a wide variety of other
factors, many of which are outside of our control. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Investors are
cautioned not to place undue reliance on these forward-looking statements.
ITEM 1. BUSINESS
General
We are a leading supplier of precision engineered packaging products for the
storage, transportation and automated handling of semiconductor devices and
other electronic components. Our products are designed to interface with
automated handling equipment used in the production and testing of
semiconductor and electronic products. Our customers include semiconductor
companies such as Texas Instruments, ST Microelectronics, Philips and
Motorola, as well as subcontract assembly and test companies such as ASAT,
STATS and ASE. Our products are designed to ensure that semiconductor devices
and electronic components, which are often delicate and may have significant
value, are protected from mechanical and electrical damage during storage,
transportation and automated handling.
We produce principally matrix trays, carrier tape and reels, and shipping
tubes. We also produce leadframe boxes and interleaves used in the storage and
transportation of leadframes. In addition, we collect and sell recycled matrix
trays using the name "SemiCycle." We believe that our recycling programs,
whereby we collect and recycle products we manufacture and products
manufactured by others, enable us to expand our customer base by supplying
both newly-manufactured and recycled products to customers. In addition, we
believe our carrier tape, which may be recycled, will be preferred by ecology
minded customers over laminated products offered by many of our competitors.
Our principal production facilities, located in Shenzhen, China, are
equipped with injection molding machines, extruders, carrier tape machines,
mixing machines, ultrasonic welding machines and other machinery
1
and equipment. We maintain in-house tooling facilities capable of producing
the molds used for production, dies and tooling for sale and spare parts for
machines used in its production processes. We also have in-house compounding
capabilities for the mixing, blending and pelletizing of PVC resin raw
materials used in our production processes. In addition, we maintain computer
aided design ("CAD") stations which are linked electronically to our sales
offices to enable the sharing of design information. Finalized designs are
transmitted electronically to our in-house tooling facilities for the
production of molds, dies and tooling.
We maintain recycling programs through which we, our agents and independent
contractors collect used trays, at approximately 155 locations in Asia and
Europe. We recycle trays manufactured by us or by others, collected from end
users, such as Surface Mount Technology ("SMT") companies and other types of
assemblers of circuit boards and manufacturers of electronic products and
systems. Most of the trays collected are then transported to our production
facilities in Shenzhen, China, where we process them through inspection,
cleaning and anti-static coating, if appropriate. We then place the trays into
inventory in our warehousing facilities pending sale to customers. Recycled
trays that do not meet our quality requirements, or for which there is
insufficient demand, are ground and reused in the manufacturing processes for
new products. Currently, we collect approximately 1.7 million trays each month
for recycling. By using recycled trays in our operations, we decrease our cost
of goods sold, and increase our operating margin without increasing prices.
We maintain five sales offices, located in Hong Kong; Singapore; Penang,
Malaysia; Fremont, California; and Austin, Texas whereby direct sales are made
to customers, and five representative offices in Shenzhen and Shanghai, China;
Kaohsiung, Taiwan; Manila, The Philippines; and Rome, Italy that provide
customers with technical information. We also sell our products through five
sales agents located in Japan (three); Seoul, South Korea; and Taipei, Taiwan.
We maintain, either directly or through our local sales representatives, a
network of 19 Just-in-Time ("JIT") warehouses located in Asia, North America
and Europe, near our customers' production facilities.
Our principal executive offices are located at 44091 Nobel Drive, P.O. Box
1767, Fremont, CA 94538 and our main telephone number is (510) 449-0100.
Strategy
Our objective is to increase our market presence in serving the
semiconductor and electronics industries by providing top quality service,
precision engineered packaging solutions and recycling alternatives to
manufacturers of semiconductor devices and electronic components through our
integrated manufacturing capability and our recycling programs. The key
elements of our business strategy are as follows:
Maintain Close Customer Relationships. We plan to maintain close
relationships with our customers through an extensive network of strategically
located sales, customer service and product distribution sites and by working
closely with our customers in developing precision engineered packaging
solutions for the storage, transportation and automated handling of their
products. We believe that our ability to distribute our products to customers
located in Asia, North America and Europe allows us to compete effectively
with other suppliers of packaging products to the semiconductor and
electronics industries, a number of which distribute only within certain
geographic regions. Customer reliance on quick delivery drives our product
strategy with respect to both new and recycled products. We believe that our
recycling programs enable us to expand our customer base by providing us with
opportunities to supply both newly manufactured and recycled products to
customers. We believe our new homogeneous carrier tape, which may be recycled,
will be more attractive to ecology minded customers than laminated products
supplied by many of our competitors.
Shorten Delivery Time. We plan to attract and retain customers based on our
ability to deliver large quantities of products on short notice to meet
customer demand. We believe that short delivery time is of particular
importance to our customers because in the semiconductor and electronics
industries, requirements for packaging products are sometimes difficult to
forecast accurately. We believe that stocking certain key products in our
network of JIT warehouses, maintained either by us or by our local sales
representatives reduces the
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amount of time required for the delivery of our products to our customers,
thereby improving our responsiveness to customer requirements for flexibility
in delivery and generally facilitating the improvement of inventory management
by our customers. In addition, our in-house tooling facilities and raw
material mixing and compounding capabilities obviate the need to work with
sub-contractors and enable us to achieve shorter production cycles.
Offer a Broad Range of Products. Our current product offerings, which
include matrix trays, carrier tape and reels, and tubes, allow us to service a
broad range of customers who often have needs across multiple product
categories. We are also currently engaged in the study and development of new
products, with an emphasis on packaging products designed to carry high-value
semiconductor and electronics components. Our production facilities have been
formally approved or "qualified" by a number of our customers across our
product categories. We believe that our customers value the range of our
product offerings allowing us to compete effectively. Our in-house design and
tooling capabilities reduce the cycle time needed for the development of new
products and product features and facilitates our development of "custom"
products which typically require different prototype stages during product
development. Our in-house design and tooling capabilities have also
facilitated our development of new product features such as the "enhanced
pocket strength," "anti-reflective wall" and "high strength ring pedestal"
features for our carrier tape products. In addition, our in-house raw material
mixing and compounding capabilities enable us to better control the quality of
our products to meet customer specifications with respect to characteristics
such as color, transparency and hardness. Our recycling programs also enable
us to supply a broad range of recycled trays to our customers.
Maintain Volume Supply Capabilities. We plan to maintain our production and
tooling capacities and our recycling programs so as to maintain our high
volume supply capabilities. Between 1992 and 2000, we were expanding the
production capacity of our facilities in Shenzhen, China in order to meet
growing demand for our products. We have been constructing an additional plant
to be located approximately three miles from the existing production
facilities, which has the potential to greatly increase our production
capacity. We have put the completion of this facility on hold until demand
warrants its completion and plan to solicit potential partners to put this
facility into productive use.
Emphasize Quality Assurance and Process Control. We plan to maintain our
high standards of quality products. We maintain a quality assurance and
process control department which, as of March 31, 2001, consisted of
approximately 301 engineers and on-line process controllers. Quality assurance
and process control procedures are performed at each major stage of
production. These include the inspection of incoming raw materials,
statistical process control at the injection molding (for trays and reels) and
extrusion (for tubes) stages of production and the inspection and testing of
finished products. Our production facilities in Shenzhen, China obtained
International Standard Organization ("ISO") 9002 and 14001 certification in
October 1994 and August 2000 respectively and are subject to follow-up
surveillance audits conducted semi-annually thereafter in accordance with
normal ISO procedures. In addition, before making high volume purchases from
us, customers generally require us to undergo a one to two month
"qualification" process. Such qualification processes often include on-site
certification of our production facilities by members of the customer's
engineering and quality control staff. Our production facilities in Shenzhen,
China have been qualified by many of our customers including Intel, Texas
Instruments, Motorola, Philips, ST Microelectronics, Agilent and others. We
believe that in addition to our quality assurance and process control
department, our in-house design and tooling facilities and raw material
compounding capabilities have enabled us to control better the quality of our
products.
History
We commenced operations in 1975, principally as a manufacturer of integrated
circuit ("IC") shipping tubes, with production facilities located in Tsuen
Wan, Hong Kong. In 1987, we relocated our production facilities to Shenzhen,
China. In 1992, we were acquired by Mr. T.L. Li, a semiconductor industry
entrepreneur and investor. For more information, see the section entitled
"Directors and Executive Officers" in the Company's Proxy Statement for the
2001 Annual General Meeting of Shareholders to be filed with the Securities
and
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Exchange Commission no later than 120 days following the end of the fiscal
year covered by this report. In the same year, our in-house tooling capability
was substantially augmented and we commenced the production and sale of matrix
trays. At the same time, we commenced the establishment of a distribution
network of JIT warehousing facilities located near areas of semiconductor
manufacturing activity. Additionally, we commenced the operation of our
recycling programs through subsidiaries doing business under the trade name
"SemiCycle." In 1994, we commenced the sale of the reels used in tape-and-reel
IC carriers and in 1996, we commenced the sale of the tape used in such
carriers. Since 1992, we have expanded the production capacity of our
facilities in Shenzhen, China in order to meet growing demand.
Markets That We Serve
Our products are used for the storage and transportation of semiconductor
devices and other electronic components such as connectors, resistors and
capacitors. We design our products to interface with automated handling
equipment used in the manufacture and testing of semiconductor and electronics
products.
Semiconductors
Semiconductors are the basic building blocks used to create a variety of
electronic products and systems. Continual improvements in semiconductor
process and design technologies have enabled the production of complex, highly
integrated circuits which provide faster execution, increased functionality
and greater reliability. As a result, semiconductor demand has experienced
growth in markets for such products as computers, communications, consumer
electronic devices, automotive products and industrial automation and control
systems.
Semiconductors are often classified as either discrete devices (such as
individual diodes or transistors) or IC's. In ICs, thousands of functions are
combined on a single "chip" of silicon to form a more complex circuit, which
is then encapsulated in plastic, ceramic or other materials (forming a
"module") for connection to a circuit board.
In pin-through-hole ("PTH") technology, modules are attached by pins, also
called I/O (for input/output) "leads," inserted through or soldered to plated
holes in the printed circuit board. PTH is one of the earliest technologies in
the assembly of printed circuit boards. PTH semiconductor devices, such as
PDIP (Plastic Dual In-Line Package) modules, are typically sorted and
transported in IC shipping tubes such as those we produce.
In the technologically more advanced surface mount technology ("SMT"), the
leads on ICs and other electronic components are soldered to the surface of
the printed circuit board rather than inserted into holes. SMT can accommodate
a substantially higher number of leads than PTH, thereby permitting the board
to interconnect a greater number of integrated circuits. This, in turn, allows
tighter component spacing which permits a reduction in the dimensions of the
printed circuit board. Because of their high lead counts, most very large
scale integrated circuits are configured for surface mounting. Additionally,
SMT allows components to be placed on both sides of the board thereby
permitting even greater density. The substantially higher number of leads and
finer lead-to-lead spacing or "pitch" in SMT products requires packaging
solutions which are more exacting than for PTH products. In addition, certain
SMT products are sensitive to moisture absorption and typically undergo a
baking process before surface mounting, and consequently require robust
packaging solutions which are resistant to high temperature. SMT semiconductor
devices are typically stored and transported in matrix trays or tape-and-reel
carriers such as those we produce.
In recent years, as a general trend, we experienced increased demand for our
products as a result of unit volume growth and other developments in the
global semiconductor industry. First, the increasing complexity of
semiconductor devices and use of automated production equipment continued to
shift the use of packaging products by semiconductor companies away from
traditional products, such as tubes, in favor of products such as trays and
carrier tapes which require higher precision engineering. Second, the
continued proliferation of SMT with its increasing lead-count and finer lead-
to-lead spacing resulted in an increase in the production of
4
semiconductor devices that are more susceptible to mechanical damage during
shipment. As a result, the use of higher precision engineered packaging
products such as matrix trays has again increased. Third, we believe that the
continuing trend in the global semiconductor industry towards increased out-
sourcing of various steps of the IC production process, such as assembly and
testing, also benefited us as semiconductor companies increasingly looked for
suppliers of packaging products with the ability to supply large quantities of
a wide range of products on short notice to different subcontractor assembly
and test companies at various locations.
The growth in the market for our products is related to the growth in unit
volume, namely the number of semiconductor devices produced, which may differ
from the growth in the demand for semiconductor devices, as a result of
variation over time in the average selling price per semiconductor device. For
more information see the discussion under the heading "Risks and
Uncertainties--Dependence on Semiconductor and Electronics Industries" in this
Item 1.
Electronic Components
Peak products are used to package other electronic components, including
connectors, resistors and capacitors. Connectors are electro-mechanical
devices that allow an electronic signal to pass from one device to another.
They are used to connect wires, cables, printed circuit boards, flat cable and
other electronic components to each other and to related equipment. Connectors
are found in virtually every electronic product including computers, printers,
disk drives, modems, VCRs, radios, medical instruments, airplanes, appliances,
cellular telephones, pagers and automobiles. Original equipment manufacturers
in the electronics industry generally use connectors to complete the design
and manufacture of their products.
Resistors are basic components used in all forms of electronic circuitry to
adjust and regulate levels of voltage and current. They vary widely in
precision and cost, and are manufactured in numerous materials and forms.
Resistive components may be either fixed or variable, depending on whether the
resistance is adjustable (variable) or not (fixed). Resistors can also be used
as measuring devices, such as resistive sensors. Resistive sensors or strain
gauges are used in experimental stress analysis systems as well as in
transducers for electronic measurement of loads (scales), acceleration and
fluid pressure.
Capacitors perform energy storage, frequency control, timing and filtering
functions in most types of electronic equipment. The more important
applications for capacitors are electronic filtering for linear and switching
power supplies, decoupling and bypassing of electronic signals for ICs and
circuit boards, and frequency control, timing and conditioning of electronic
signals for a broad range of applications.
Our products serve only portions of the markets for various electronic
components, principally those for SMT components such as SMT ceramic chip
capacitors and SMT chip resistors. For more information, see the discussion
under the heading "Risks and Uncertainties--Dependence on Semiconductor and
Electronics Industries" in this Item 1.
Products and Production Processes
We produce matrix trays, carrier tape and reels, and tubes. We also sell
recycled matrix trays. In addition, we produce a limited number of leadframe
boxes and leadframe interleaves used in the storage and transportation of
leadframes.
Our products are typically categorized by their dimensions and
configurations, the type and size of semiconductor devices they carry, and
their physical characteristics, in particular their resistance to deformation
or "warpage" at various temperatures. Our products are also categorized by
their electrostatic properties as "conductive," "dissipative" or "anti-
static." Conductive and dissipative products are manufactured by adding carbon
fibre or carbon powder to the plastic compound. Anti-static characteristics
are achieved by applying a coating to the surface of the product to prevent
the accumulation of surface electrostatic charges.
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Tray Products
Our tray products may be used to store and transport SMT semiconductor
devices. The outer dimensions of matrix trays are generally fixed by industry
standards prescribed by electronics industry associations such as JEDEC in the
United States and EIAJ in Japan. We sell high temperature trays (which may be
baked to temperatures over 150(degrees)C), low temperature trays up to
150(degrees)C and non-bakeable trays.
At the beginning of the tray production process, samples of incoming raw
materials are inspected and tested for key material properties. Virgin raw
materials are mixed and blended with other materials in accordance with our
proprietary processes and production techniques and formed by injection
molding machines into trays. The formed trays are then cleaned of surface
contaminants. Trays that require anti-static coating are subsequently dipped
in anti-static solution and dried. Trays made to be heat resistant undergo a
baking process. Thereafter, we inspect samples of new trays from each
manufactured lot for visible defects and warpage, test for electrostatic
discharge characteristics and check their dimensions prior to shipment.
Tape-and-Reel Products
Our tape-and-reel products may be used to store and transport SMT
semiconductor devices and other modules, as well as other products used in the
electronics industry, such as connectors. Tape-and-reel carriers comprise
three parts: reel, carrier tape and cover tape. The semiconductor devices and
other products to be carried are placed in pockets formed in the carrier tape,
which is sealed with cover tape and wound around reels for storage and
transportation. We commenced sales of reels in 1994 and sales of carrier tape
in December 1996.
The production process for reels is similar to that for trays except that we
use different raw materials and that an additional process of ultrasonic
welding is required following the injection molding process to weld two parts
of the reel together. In the production of carrier tape, we either purchase
polystyrene pellet to extrude our own sheets or we purchase polystyrene or
polycarbonate tape from suppliers in large rolls, we then slit the tape to
desired widths. We form the carrier tape by a combination of thermal, air
pressure and hole punching processes, and thereafter inspect the new carrier
tape for visible defects prior to shipment. We resell cover tape purchased
from outside sources.
Tube Products
Our tube products may be used to store and transport certain SMT
semiconductor devices that are configured differently from those requiring our
tray products, PTH semiconductor devices and other products used in the
electronics industry, such as connectors.
At the beginning of the tube production process, samples of incoming raw
materials are inspected for conformity to specifications. Raw materials are
mixed and blended and made into pellets, based on compounding formulae which
vary depending on the characteristics, such as color, transparency and
hardness, required for the product. We extrude the pellets into tubes, which
we further process by hole punching, silk screen marking and applying an anti-
static coating. Following this process, we inspect samples of the new tubes
for visible defects and test them for electrostatic discharge prior to
shipment.
Other Products
In addition to the standard products in our three principal product lines,
we also produce an array of "custom" products which include customer-specific
designs of trays, tubes, reels, carrier tape and an assortment of other
carriers. We also produce leadframe boxes and leadframe interleaves which we
sell to affiliates of QPL International Holdings Limited Group ("QPL
Holdings") for use in the storage and shipping of their products. Leadframes
are sheets of metal, etched or stamped with various patterns of I/O leads
which allow for interconnections between silicon chips and printed circuit
boards. Leadframes are generally stored and transported in stacks housed in
plastic boxes, with individual leadframes separated by plastic or paper
interleaves.
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Product Development
We are currently engaged in the study and development of new products, with
an emphasis on packaging products designed for the carriage of high-value
components related to the semiconductor and electronics industries. We
undertake on-going research and development efforts which emphasize the
development of features that require precision engineering in order to better
serve our customer base. We have developed new product features for our
carrier tape products, such as a "component carrier having high strength
pocket" and a "component carrier having a pocket including a pedestal" for
which patents have issued as well as additional features for which patent
applications are pending in the United States. The enhanced pocket strength
feature improves the vertical crush resistance of the pockets in the carrier
tape by corrugating the vertical sidewalls of the pockets. The high strength
ring pedestal feature improves the lateral crush resistance of the pockets in
the carrier tape by means of a trapezoidal shaped pedestal and a ring at the
bottom of the pocket. An anti-reflective wall feature enables our customers to
more effectively utilize their automated optical inspection equipment to
inspect the semiconductor or electronic components placed in the carrier tape
that we manufacture. By placing a chamfered corner in the wall of the carrier
tape pocket, we reduce the amount of reflection which could interfere with the
workings of the automated optical inspection equipment. Research and
development expenditures were $161,000, $546,000 and $551,000 for Fiscal Year
2001, Fiscal Year 2000 and Fiscal Year 1999, respectively.
Recycling Programs
We conduct our collection operations through our subsidiaries and
independent contractors doing business using the trade name "SemiCycle." We
recycle trays and reels collected from end users at approximately 155
locations in Asia and Europe. During Fiscal 1999, we purchased $2.0 million of
used trays and reels collected in the United States by The SemiCycle
Foundation, a Texas non-profit corporation. We have discontinued our
relationship with The SemiCycle Foundation, as of August 6, 1999, because we
have substantial inventories, and believe that we can obtain recycled units
from sources in Europe and Asia at a lower cost. For more information, see the
section entitled "Certain Transactions" in the Company's proxy statement for
the 2001 Annual General Meeting of Shareholders to be filed with the
Securities and Exchange Commission no later than 120 days following the end of
the fiscal year covered by this report. Tube products and carrier tape
products are generally not recycled. Currently, we collect approximately 1.7
million trays on average, each month for recycling. We also purchase products
to recycle from independent dealers.
The trays collected through our recycling programs are principally
transported to the Company's production facilities in Shenzhen, China where we
process them, including sorting, inspection, cleaning and anti-static coating,
if appropriate. We then put them into inventory in our warehousing facilities
pending sale to customers. Typical end users include SMT companies, and other
types of assemblers of circuit boards and manufacturers of computers and other
end products. Recycled trays that do not meet industry quality requirements,
or for which there is insufficient demand, are ground and reused in the
manufacturing processes for new products.
Some jurisdictions in which our packaging products are sold or used have
adopted or proposed laws and regulations with a view to promote, among other
things, the recycling of packaging materials. In addition, the ISO has
incorporated environmental considerations in formulating its ISO 14000 quality
standards. We believe that our recycling programs provide our customers with
opportunities to select the packaging products that best meet their
requirements in terms of cost and environmental preferences. We believe that
our recycling programs help our customers comply with environmental
regulations and meet ISO standards with respect to environmental issues in
several ways. First, we provide a recycling alternative to the traditional
disposal methods of landfill and incineration. Second, our offerings of
recycled products assist our customers in complying with or meeting "recycle-
content" and "green product" regulations, standards or goals. In addition, our
homogeneous carrier tape may be more easily recycled than the laminated
carrier tape supplied by most of our competitors.
Customers
We averaged approximately 271 customers per month in Fiscal 2001, including
semiconductor and component companies as well as subcontract assembly and test
companies. We also sold products to
7
manufacturers of connectors, sockets, resistors and capacitors and other types
of electronic components. In Fiscal 2001, our top customers were ASE, Philips,
ST Microelectronics, ASAT Limited, Motorola, Texas Instruments, STATS, Amkor-
Anam, Analog Device and Siliconware. ASE, Philips, ST Microelectronics, ASAT
Limited, Motorola and Texas Instruments were the only customers which
individually accounted for more than 5% of the our net sales in Fiscal 2001.
In the aggregate, the top ten customers accounted for 53.8% of our net sales
in Fiscal 2001. We have received awards from customers such as Texas
Instruments, Motorola, and Philips in recognition of the quality of our
products and services.
A significant portion of our net sales have historically been and are
expected to continue to be derived from companies affiliated with QPL
Holdings. Companies affiliated with QPL Holdings together accounted for
approximately 8.7% of our net sales in Fiscal 2001. The bulk of this business
came from ASAT Limited ("ASAT"), which we believe has historically ordered a
significant portion of its needs for packaging products from us. In
October 1999 a contract was signed by QPL Holdings with a group of financial
institutions to dispose of a 50% interest in ASAT Limited, removing it from
the exclusive control of QPL Holdings. Over time, this might result in ASAT
Limited fulfilling less of its needs with orders from us. EEMS Italia S.p.A.
("EEMS"), a memory IC assembly and test company, acted as our sales agent in
Europe since 1995. This relationship was terminated in December 1998. For more
information, see the discussion under the heading "Risk and Uncertainties--
Relationship with Principal Shareholder and Potential Conflicts of Interest"
in this Item 1.
Pricing
The price quotations we provide generally contemplate the delivery of
products within two weeks of the receipt of purchase orders. We charge higher
prices when the customer desires shorter delivery time or additional services,
such as local warehousing, special packaging provisions or special markings on
the product. As a general policy, we price our recycled products at a discount
to the price of corresponding new products.
Sales and Marketing
We maintain five sales offices: Hong Kong; Singapore; Penang, Malaysia;
Fremont, California, U.S.A.; and Austin, Texas, U.S.A. where we make direct
sales to customers. We also maintain five representative offices in Shenzhen
and Shanghai, China; Kaohsiung, Taiwan; Manila, Philippines; and Rome, Italy
that provide customers with technical information. In addition, we sell our
products through five sales agents located in Japan (three); Seoul, South
Korea; and Taipei, Taiwan.
We generally make our sales pursuant to purchase orders from our customers.
Therefore, for the most part we do not have long-term agreements with or
commitments from our customers for the purchase of products. While customers
typically provide us with one- to two-month forecasts of their requirements,
forecasts do not constitute binding orders.
The following table sets forth the geographic distribution of our net sales
for the periods indicated. For more details, see Note 14 of Notes to our
Consolidated Financial Statements.
Year Ended March
31,
-------------------
2001 2000 1999
----- ----- -----
North Asia............................................ 60.1% 53.5% 54.9%
South Asia............................................ 18.1 21.2 24.3
North America......................................... 16.3 19.0 17.0
Europe................................................ 5.5 6.3 3.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
North Asia represents China and Hong Kong, Philippines, Taiwan, Japan and
Korea while South Asia represents Singapore, Malaysia and Thailand.
8
Distribution
We maintain, either directly or through our sales representatives, a network
of warehouses located near the production facilities of our customers. The
following table sets forth the locations of the warehouses that we or our
local sales representatives maintain.
Asia North America Europe
---- ------------- ------
Japan (three) Fremont, California Rome, Italy
Penang, Malaysia Dublin, Ireland
Shenzhen, China Malta
Shanghai, China
Tianjin, China
Hong Kong
Keelung, Taiwan
Kaohsiung, Taiwan
Taipei, Taiwan
Bangkok, Thailand
Manila, Philippines
Singapore
Seoul, South Korea
We also offer drop shipment services for our products, which provide for the
shipment of our products directly to end-users designated by our customers.
Because drop shipment prohibits our customers from inspecting our products
before their receipt by the end user, the quality of our products is an
important consideration for our customers.
Customers generally place purchase orders with our sales office or a sales
agent near their location. The orders are then forwarded together with the
requested shipping date to our production facilities in Shenzhen, China via
our internal electronic mail system, with a copy to our Hong Kong office for
invoicing and accounting purposes. Employees at our production facilities in
Shenzhen, China generally respond to the local sales office upon receipt of
the order with a committed shipping date.
Our office in Hong Kong is responsible for invoicing local sales offices and
sales agents, who in turn record customer invoices and handle collections.
Raw Materials
We generally can purchase the raw materials we use in the production of
trays and reels from a variety of sources worldwide that charge similar
prices. We purchase tray raw materials principally from two suppliers located
in the United States and Malaysia. We purchase PVC resin, the principal raw
material for tubes, and certain additives used in the production of tubes
principally from three suppliers located in Singapore, Japan and Germany. PVC
resin, the principal raw material used in the manufacture of tubes, together
with additives used in the manufacture of tubes accounted for 14.5%, 9.2% and
8.0% of our total raw material costs in Fiscal 1999, Fiscal 2000 and Fiscal
2001, respectively. We purchase the polystyrene tape and polycarbonate tape
used in our carrier tape production process, as well as cover tape, from
suppliers located in Japan, Australia and the United States.
We generally purchase the various raw materials used in our production
processes one and a half months before the materials are delivered to us. We
try to maintain in Shenzhen, China inventories of raw materials for
approximately two to three months of estimated production requirements. For
more information, see the discussion in Item 7 entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Recycled trays that we or our agents collect are initially accounted for as
part of our inventory of raw materials. Following sorting and processing,
recycled trays are subsequently accounted for as part of our inventory of
finished products.
9
Quality Assurance and Process Control
We maintain a quality assurance and process control department. We perform
quality assurance and statistical process control procedures at each major
stage of production, including the inspection of raw materials, statistical
process control at the injection molding (for trays and reels) and extrusion
(for tubes and carrier tapes) stages of production and the inspection and
testing of finished products. We also conduct "qualification" procedures for
our raw material suppliers. We believe that, in addition to our quality
assurance and process control department, our in-house design and tooling
facilities and compounding capabilities have enabled us to control the quality
of our products and that such integrated quality assurance system enables us
to ensure end-product integrity and maximize customer value.
Our production facilities in Shenzhen, China were certified as meeting the
ISO 9002 and 14001 quality standards by the ISO in October 1994 and in August
2000 respectively, and are subject to follow-up surveillance audits conducted
semi-annually thereafter in accordance with normal ISO procedures. The ISO is
an organization formed by delegates from member countries to establish
international quality assurance standards for products and manufacturing
processes. The certification process involves subjecting our production
processes and our quality management systems to review and surveillance for
periods as long as nine months. The ISO certification is required by certain
European countries in connection with sales of industrial products in such
countries. In addition, such certification provides independent verification
to our customers as to the quality control in our manufacturing processes and
many of our customers require ISO certification as a prerequisite for
purchasing from the Company.
Before making high volume purchases from us, prospective customers generally
require our production facilities to undergo a one to two month
"qualification" process. These qualification processes often include on-site
certification of our production facilities by members of a customer's
engineering and quality control staff. Our production facilities in Shenzhen,
China have been qualified by customers including Intel, Texas Instruments,
Motorola, Agilent, Philips and others.
Competition
The markets for our products and services are highly competitive. Our
products compete with similar products manufactured by other companies, some
of which have substantially greater financial resources than we do.
We classify our competitors as large diversified manufacturers, large
single-product manufacturers and small local job-shop style manufacturers.
Large diversified manufacturers are typically divisions of large multinational
companies which compete with us in markets for more than one product. Large
single-product manufacturers typically have international operations similar
to ours. Small local job-shop style manufacturers typically operate only
within certain geographic regions, such as Taiwan and Singapore. We are not
aware that any of our major competitors offer the range of products and
services that we offer. We believe that we compete with large diversified
manufacturers through our focus on serving the semiconductor and electronics
industries, with large single-product manufacturers through our broad range of
product offerings and with smaller local job-shop style manufacturers through
our international organization which enables us to meet the requirements of
multinational customers with several production facilities at various
locations. We also believe that our collection and use of recycled materials
allows us to compete favorably while maintaining better than average operating
margins.
We believe that the principal competitive factors in the markets for our
products and services are responsiveness and flexibility (including short
delivery cycles and the ability to supply large quantities on short notice),
price, product quality and range of products and services available.
Environmental Matters
We are subject to various laws, rules and regulations in the Peoples
Republic of China (the "PRC") regulating the discharge of materials into the
environment or otherwise relating to the protection of the
10
environment. We believe that we are in substantial compliance with applicable
laws, rules and regulations relating to the protection of the environment and
that our compliance will have no material effect on our capital expenditures,
earnings or competitive position.
Employees
As of March 31, 2001, we had 187 employees at our offices located in Asia,
North America and Europe. Our employees are not covered by any collective
bargaining agreements.
Our existing production facilities in Shenzhen, China are operated by an
unaffiliated PRC company pursuant to a processing agreement initially entered
into in May 1987 and subsequently amended and renewed in May 1994 and December
1996. We entered into the processing agreement with the PRC company which was
formed by the Shenzhen Municipal Longgang District Foreign Economic Service
Company, a company controlled by the local government of the Longgang District
of Shenzhen. The current term of the processing agreement expires on May 28,
2016. Under the processing agreement, the PRC company has agreed to provide
the personnel for the operation of our facilities in Shenzhen, China and
renders assistance in dealing with all matters relating to the import and
export of raw materials and our products. Such personnel are not our
employees. We agree to pay to the PRC company, for each worker we hire, a
fixed sum each month, which is revised every two years, in addition to an
annual fee (which has been waived for the current term of the agreement) based
on the quantity of products manufactured each year. In October 1995, we
entered into a similar processing agreement with a different PRC company, also
unaffiliated with us, which has a term of fifty years, for the operation of
our additional production facilities being constructed in Shenzhen, China. As
we have delayed the completion of the new plant, the operation of this
processing agreement has also been suspended. As of March 31, 2001, the
personnel at our production facilities in Shenzhen, China numbered
approximately 1,887, including personnel in production and quality assurance
and process control, warehousing and inventory control, tooling and molding,
engineering and product development, and purchasing, financing and other
support functions.
From June 1996 to November 2000, we had established defined contribution
benefit plans for our employees in Hong Kong, and had made contributions to
such plans based on 5.0% of the monthly base salaries of participating
employees. The assets of such plans are held under provident funds managed by
independent trustees. From December 2000 we have been making contributions to
employee retirement schemes as required by the Hong Kong authorities. In
addition, we make contributions to employee retirement schemes as required by
local authorities in certain jurisdictions, such as Singapore, in which we
have operations. For more information, see Note 10 of the Notes to our
Consolidated Financial Statements.
On April 23, 1999 we issued to our employees options to purchase an
aggregate of 382,836 shares of our common stock at a purchase price of $3
21/32 all of which have vested and are exercisable. Additionally, on April 22,
1999, we issued options to Mr. Calvin Reed, in connection with his appointment
as our President and Chief Executive Officer. Specifically, we issued Mr. Reed
options to purchase 150,000 shares of our common stock at a purchase price of
$3 21/32 per share, 150,000 shares of our common stock at a purchase price of
$7 per share and 100,000 shares at a purchase price of $10 per share. These
options, except for options to purchase 100,000 shares of our common stock at
a purchase price of $3 21/32, were not issued pursuant to either the 1997 or
the 1998 Share Option Plan. On May 5, 1999, in connection with their
appointment as directors, we issued to Jack Menache and Doug Broyles options
to purchase 10,000 shares of our common stock at a purchase price of $3 7/8
per share under our 1998 Share Option Plan. Since this grant we have
accelerated the vesting of these options so that as of July 31, 1999, Jack
Menache's options have vested and that as of August 31, 1999, Doug Broyles'
options have vested. On July 28, 1999, in connection with his appointment as
our Vice President of Administration, Secretary and General Counsel, we issued
to Jack Menache options to purchase 100,000 shares of our common stock at a
purchase price of $5 7/8 per share under our 1997 Share Option Plan. Also on
July 28, 1999, in connection with his appointment as a director, we issued to
William Snyder options to purchase 10,000 shares of our common stock at a
purchase price of $5 7/8 per share under our 1998 Share Option Plan. On
October 28, 1999, in connection with his appointment as our Vice President of
Engineering and Chief Technology Officer, we issued to John Pylant options to
purchase 100,000 shares of our common stock at a
11
purchase price of $7 9/32 per share under our 1997 Share Option Plan. The
options so issued, have a term of ten years, and vest in equal quarterly
increments over three years; provided, however, that no portion of such option
shall be exercisable to any extent for a period of 18 months from the date of
award.
On November 3, 1999 we issued to each of Doug Broyles and William Snyder
options to purchase 12,000 shares of our common stock at a purchase price of
$10 5/8 under our 1998 Share Option Plan as chair persons of our compensation
and audit committees, respectively. Such options are vested and exercisable
immediately and have a term of ten years from the date of grant.
On November 26, 1999 we issued to our employees options to purchase an
aggregate of 439,624 and 17,000 shares of our common stock at a purchase price
of $8 15/16 under our 1998 and 1997 Share Option Plans respectively. The
options shall vest in 12 equal quarterly installments commencing March 1, 2000
and shall terminate on December 31, 2003.
Also, on January 18, 2000 we issued options to three members of our staff to
purchase an aggregate of 128,400 shares of our common stock at a purchase
price of $10 5/16 per share under our 1998 Share Option Plan. All options
shall vest in 12 equal quarterly installments commencing April 15, 2000 and
shall terminate on April 30, 2004; however, 125,000 of those stock options are
subject to grantee's service for two years primarily at the company's factory
in Shenzhen.
On March 1, 2000, we issued options to Christine Russell to purchase 10,000
shares of our common stock at a purchase price of $11.96875 per share under
our 1998 Share Option Plan in connection with her appointment as a director of
the company. All options are vested exercisable immediately and have a term of
ten years from the date of grant.
On April 15, 2000, we issued options to two employees to purchase 104,250
shares of our common stock at a purchase price of $8.8125 per share under our
1998 Share Option Plan. All options shall vest in 12 equal quarterly
installments and shall terminate on April 15, 2004.
On June 7, 2000, we issued options to the CEO and seven Vice Presidents to
purchase 514,000 shares of our common stock at a purchase price of $8.0625 per
share under our 1998 Share Option Plan. All options shall vest in 12 equal
quarterly installments and shall terminate on September 1, 2004.
On July 15, 2000, we issued options to two employees to purchase 20,000
shares of our common stock at a purchase price of $6.4375 per share under our
1998 Share Option Plan. All options shall vest in 12 equal quarterly
installments and shall terminate on October 15, 2004.
On August 22, 2000, we issued options to Jack Menache to purchase 70,000
shares of our common stock at a purchase price of $6.625 per share under our
1998 Share Option Plan. 20,000 of those options vested on August 22, 2000,
25,000 vested on each of November 22, 2000 and February 22, 2001 and all
options shall terminate on August 22, 2004.
On September 13, 2000, we issued options to Douglas Broyles, William Snyder
and Christine Russell to purchase 12,000, 12,000 and 10,000 shares of our
common stock respectively at a purchase price of $9 per share under our 1998
Share Option Plan in connection with their appointment as directors of the
company. All options are vested exercisable immediately and have a term of ten
years from the date of grant.
On September 15, 2000, we issued options to eleven employees to purchase
27,100 shares of our common stock at a purchase price of $9.1406 per share
under our 1998 Share Option Plan. All options shall vest in 12 equal quarterly
installments and shall terminate on September 15, 2004.
On January 13, 2001, we issued options to one Vice President to purchase
100,000 shares of our common stock at a purchase price of $5.375 per share
under our 1998 Share Option Plan. All options shall vest in 12 equal quarterly
installments and shall terminate on January 31, 2005.
12
On January 13, 2001, we issued options to 12 employees to purchase 74,500
shares of our common stock at a purchase price of $5.375 per share under our
1998 Share Option Plan. All options shall vest in 12 equal quarterly
installments and shall terminate on January 31, 2005.
For more information, see the section entitled "Stock Options" in the
Company's proxy statement for the 2001 Annual General Meeting of Shareholders
to be filed with the Securities and Exchange Commission no later than 120 days
following the end of the fiscal year covered by this report.
Insurance
We maintain insurance policies covering risks of losses due to fire, flood
and other natural disasters. Our insurance policies cover certain of our
buildings, machinery and equipment, raw materials and inventory. We also
maintain business interruption insurance. Significant damage to any of our
production facilities, whether as a result of fire or other causes, would have
a material adverse effect on our results of operations and financial
condition. Additionally, we maintain directors and officers insurance covering
the payment and defense of certain claims asserted against our directors and
officers. We are not insured against the loss of our key personnel.
Risks and Uncertainties
In evaluating our business, shareholders should consider carefully the
following factors in addition to the other information presented herein. We
are a holding company and our major operating asset is our ownership interest
in Peak (HK). Our only source of cash flow is our share of the dividends, if
any, paid by Peak (HK) and other of our subsidiaries.
Variability of Operating Results
Our operating results are affected by a wide variety of factors that could
materially affect revenues and profitability or lead to significant
variability of quarterly or annual operating results. These factors include,
among others:
. the price of raw materials;
. factors relating to conditions in the semiconductor and electronics
industries including:
-- lower demand for products;
-- increased price competition;
-- downturns and deterioration of business conditions;
-- technological changes; and
-- changes in production processes in the semiconductor and electronics
industries which could require changes in packaging products;
. capital requirements and the availability of funding;
. the Company's expansion plan and possible disruptions caused by the
installation of new equipment or the construction of new facilities;
. the lack of long-term purchase or supply agreements with customers;
. the loss of key personnel or the shortage of available skilled
employees;
. international political or economic events or developments, including
those relating to Hong Kong and the PRC;
. currency fluctuations; and
. fines, penalties and bonds required by the PRC due to past violations of
its rules and regulations.
13
Unfavorable changes in the above or other factors could materially and
adversely affect our results of operations or financial condition. For more
information, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Semiconductor and Electronics Industries
Our revenues depend on increased demand for our products from manufacturers
of semiconductor and electronic components. Any deterioration of business
conditions in the semiconductor industry, including lower demand for
semiconductor products, decreased unit volume of semiconductor products
shipped or other factors resulting in decreased demand for packaging products,
or increased price competition in the semiconductor industry could result in
increased price pressure on suppliers to the semiconductor industry, and could
have a material adverse effect on our results of operations and financial
condition. The semiconductor industry is characterized by rapid technological
change leading to more complex products, evolving industry standards, intense
competition and fluctuations in demand. From time to time, demand for
electronic systems, which generally includes both semiconductors and
electronic components, has suffered significant downturns which in some cases
have been prolonged. These downturns have been characterized by diminished
product demand, product overcapacity and accelerated erosion of average
selling prices. No assurance can be given that any future downturn in the
semiconductor or electronics industries will not be severe or that our results
of operations or financial condition will not be materially and adversely
affected by such downturns or other developments.
Dependence on Significant Customers
In the aggregate, our top ten customers accounted for 50.5%, 51.2% and 53.8%
of our net sales in Fiscal 1999, Fiscal 2000 and Fiscal 2001 respectively. Our
ability to maintain close, mutually beneficial relationships with our leading
customers is important to the ongoing growth and profitability of our
business. Although our sales to specific customers have varied from year to
year, our results of operations have been dependent on a number of significant
customers and the conditions of their respective industries. All of our
customers operate in the global semiconductor and electronics industries which
historically have been highly cyclical. As a result of the concentration of
our customer base, the loss or cancellation of business from, or significant
changes in scheduled deliveries or decreases in the prices of products or
services provided to, any of these customers could materially and adversely
affect our results of operations and financial condition. Our sales are made
pursuant to purchase orders, and therefore, we generally have no agreements
with or commitments from our customers for the purchase of products. Although
customers typically provide us with forecasts of their requirements, such
forecasts are not binding. We cannot assure that our customers will maintain
or increase their sales volumes or orders for our products or that we will be
able to maintain or add to our existing customer base.
One of our largest customers, ASAT Limited was a subsidiary of QPL Holdings
and was indirectly controlled by our principal shareholder. In October, 1999 a
contract was signed with a group of financial institutions to dispose of a 50%
interest in ASAT Limited, removing it from the exclusive control of
QPL Holdings, and therefore from the control of our principal shareholder.
Over time, this may result in ASAT Limited fulfilling less of its needs with
orders from us.
Concentration of Operations in the PRC and Considerations Relating to Hong
Kong
As of March 31, 2001, substantially all of our fixed assets and inventories
were located in Shenzhen, China. Our main production facilities are located in
Shenzhen, China and are operated by an unaffiliated PRC company under a
processing agreement, pursuant to which such company provides all of the
personnel for the operation of our facilities and renders assistance in
dealing with matters relating to the import of raw materials and the export of
our products. Our existing production facilities in Shenzhen, China are
located on land leased from the PRC government by one of our wholly-owned
subsidiaries under land use certificates and agreements with terms of fifty
years. Our assets and facilities located in the PRC and the PRC company's
operation of such facilities are subject to the laws and regulations of the
PRC and our results of operations in the PRC are subject to the economic and
political situation in the PRC.
14
The operations of our production facilities in Shenzhen, China may be
adversely affected by changes in the laws and regulations of the PRC (or the
interpretation thereof), such as those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other
matters. We currently export all the products manufactured at our production
facilities in Shenzhen, China. Accordingly, we are not subject to certain PRC
taxes and are exempt from customs duties on imported raw materials and
exported products.
As a result of recently introduced customs rules in the PRC, it is possible
that we may be subject to classification by the Chinese customs authorities in
a manner that would require us to supply a substantial bond against customs
duties that we would have to pay if we were importing material for ultimate
sale in the PRC, and may be subject to significantly higher administrative
importation costs generally. Being subjected to these measures could
materially and adversely affect our ability to manufacture products at a
competitive price and our results from operations.
We cannot assure that we will not become subject to PRC taxes or will not be
required to pay customs duties in the future. In the event that we are
required to pay PRC taxes or customs duties, our results of operations could
be materially and adversely affected. We believe that our operations in
Shenzhen, China are now in compliance with applicable PRC legal and regulatory
requirements. However, we cannot assure that the central or local governments
of the PRC will not impose new, stricter regulations or interpretations of
existing regulations which would require additional expenditures.
The economy of the PRC differs from the economies of many countries in such
respects as structure, government involvement, level of development, growth
rate, capital reinvestment, allocation of resources, self-sufficiency, rate of
inflation and balance of payments position, among others. In the past, the
economy of the PRC has been primarily a planned economy subject to State
plans. Since 1978, the PRC government has been reforming the PRC's economic
and political systems. Such reforms have resulted in significant economic
growth and social change. We cannot assure, however, that the PRC government's
policies for economic reforms will be consistent or effective. Our results of
operations and financial position may be adversely affected by changes in the
PRC's political, economic or social conditions.
We maintain a sales office and a warehouse in Hong Kong. Additionally, our
general invoicing and accounting functions are centralized at our offices in
Hong Kong. On July 1, 1997, sovereignty over Hong Kong reverted from the
United Kingdom to the PRC, and Hong Kong has become a Special Administrative
Region ("SAR") of the PRC. The Joint Declaration signed by the PRC government
and the government of the United Kingdom on December 19, 1984 (the "Joint
Declaration") provides that the basic policies of the PRC regarding Hong Kong
will be stipulated in the basic law of Hong Kong which was enacted by the
National People's Congress of the PRC on April 4, 1990 (the "Basic Law").
Although the Basic Law provides that Hong Kong will have a high degree of
legislative, judicial and economic autonomy, we cannot assure that the general
economic position of Hong Kong, and our results of operations and financial
condition, will not be materially and adversely affected as a consequence of
the exercise of PRC sovereignty over Hong Kong.
We Have Been Named In a Class Action Lawsuit
We were sued by a purported class of persons who were initial purchasers of
Trust Enhanced Dividend Securities of Peak TrENDS Trust, a Delaware trust
("TrENDS"). On June 5, 2000, the Company was dismissed from the action with
prejudice. However, the Company and other parties have entered into certain
indemnification agreements pertaining to the action. For information
concerning the lawsuit, see Item 3 entitled "Legal Proceedings."
15
Economic Conditions in the Asia Pacific Region
A significant portion of our revenue is derived from sales to customers in
Hong Kong, Singapore, the Philippines and other countries in East and
Southeast Asia (the "Asia Pacific Region"). Accordingly, our financial
condition and results of operations and the market price of shares of our
common stock may be affected by:
. economic and political instability;
. changes in regulatory requirements, tariffs, customs, duties and other
trade barriers;
. transportation delays;
. fluctuations in currency exchange rates;
. currency convertibility and repatriation;
. taxation of our earnings and the earnings of our personnel; and
. other risks relating to the administration of or changes in, or new
interpretations of, the laws, regulations and policies of the
jurisdictions in which we conduct our business.
None of these factors are within our control. In Fiscal 1999, many countries
in the Asia Pacific Region experienced considerable currency volatility and
depreciation, high interest rates, stock market volatility and declining asset
values which contributed to net foreign capital outflows, an increase in the
number of insolvencies, a decline in business and consumer spending and a
decrease in economic growth as compared with prior years.
Economic developments in the Asia Pacific Region have had a material adverse
effect on the Asia Pacific Region's business and on consumer demand for
products that use semiconductor and electronics devices. That demand generally
rises as the overall level of economic activity increases and falls as such
activity decreases. In addition, currency devaluations in the Asia Pacific
Region could result in accelerated price erosion of semiconductor and
electronic products as products manufactured in countries whose currencies
have devalued significantly against the US dollar become less expensive in US
dollar terms. Any adverse effect on the global semiconductor and electronics
industries as a result of slower demand for products in the Asia Pacific
Region or accelerated product price erosion arising from currency devaluations
in the Asia Pacific Region could have a material and adverse effect on our
financial condition or results of operations, especially if negative business
and economic conditions in the Asia Pacific Region do not improve or if these
conditions worsen.
Relationship with Principal Shareholder and Potential Conflicts of Interests
Mr. T.L. Li, the Chairman of our Board of Directors, through his ownership
of all of the outstanding shares of Luckygold 18A Limited ("Luckygold"), a
company incorporated in the British Virgin Islands, beneficially owns, as of
June 15, 2001 approximately 19.7% of the outstanding shares of our common
stock. In addition, Mr. T.L. Li serves as director of companies affiliated
with QPL Holdings. For more information, see the sections entitled "Directors
and Executive Officers" and "Certain Transactions" in the Company's proxy
statement for the 2001 Annual General Meeting of Shareholders to be filed with
the Securities and Exchange Commission no later than 120 days following the
end of the fiscal year covered by this report.
A significant portion of our net sales historically has been and is expected
to continue to be made to companies controlled by Mr. T.L. Li, and companies
affiliated with QPL Holdings, which together accounted for approximately 8.7%,
10.1% and 8.0% of our net sales in Fiscal 2001, Fiscal 2000 and Fiscal 1999
respectively. Accordingly, any adverse development in the operations,
competitive position or customer base of ASAT or companies affiliated with QPL
Holdings or our relationship with the companies affiliated with QPL Holdings
could have a material adverse effect on our results of operations and
financial condition. For more information see the discussion under the heading
"Customers" in this Item 1 and the section entitled "Certain Transactions" in
the Company's proxy statement for the 2001 Annual General Meeting of
Shareholders to be filed with the
16
Securities and Exchange Commission no later than 120 days following the end of
the fiscal year covered by this report. Mr. T.L. Li may take actions as the
controlling shareholder of the companies affiliated with QPL Holdings that are
not in our best interests or the best interests of our shareholders.
Both Mr. T.L. Li and the Company were named, among others, as defendants in
a lawsuit, filed on behalf of the purchasers of Trust Enhanced Dividend
Securities from Peak TrENDS Trust. On June 5, 2000, the Company was dismissed
from the action with prejudice. However, the Company, Mr. T.L. Li, and other
parties have entered into certain indemnification agreements pertaining to the
action. Although we are not aware of any actual conflict of interest between
Mr. T.L. Li and the Company, we cannot assure that such a conflict will not
develop over the course of the lawsuit. For more information, see Item 3
"Legal Proceedings."
Potential Difficulties in Protecting Shareholder Rights
Our corporate affairs are governed by our Memorandum of Association and Bye-
laws and by the laws governing corporations incorporated in Bermuda. The
rights of our shareholders and the responsibilities of members of our Board of
Directors under Bermuda law are different from those applicable to a
corporation incorporated in the United States and, therefore, our shareholders
may have more difficulty protecting their interests in connection with actions
by our management, members of our Board of Directors or our principal
shareholder than they would as shareholders of a corporation incorporated in
the United States.
ITEM 2. PROPERTIES
Our principal executive offices are located at 44091 Nobel Drive, P.O. Box
1767, Fremont, CA 94538 and our main telephone number is (510) 449-0100.
Our main production facilities are located in Shenzhen, China in a plant
with a total floor space of approximately 302,000 square feet. The plant is
equipped with injection molding machines, extruders, carrier tape machines,
mixing machines, ultra-sonic welding machines and other machinery and
equipment.
In addition to our production facilities in Shenzhen, China, we also
maintained, until April 1998, production facilities located in Penang,
Malaysia, with a total floor space of approximately 3,500 square feet, which
processed tubes extruded at our Shenzhen facilities.
We were in the process of expanding our production capacity in Shenzhen,
China and have commenced the construction of an additional plant to be located
approximately three miles from the existing production facilities. We have
delayed construction activities on the new plant until demand warrants its
completion and plan to solicit potential partners to put this facility to
productive use.
We maintain a tooling shop on the premises of our production facilities in
Shenzhen, China that we use to make the molds we need for production, dies and
tooling for sale, and spare parts for equipment used in our production
process. Our in-house tooling machinery and equipment includes computer
numeric control ("CNC") electronic discharge machines ("EDMs"), CNC wire cut
machines, milling machines and miscellaneous lathes, planers, surface grinders
and drill presses. As of March 31, 2001, the tooling shop, with a total floor
space of approximately 24,000 square feet, employed 158 tool makers.
Our existing facilities in Shenzhen, China are, and our additional
facilities in Shenzhen, China, if completed, would be operated pursuant to
processing agreements with unaffiliated PRC companies. Such facilities are, or
will be, located on land which is leased from the PRC government by our
wholly-owned subsidiary, Warden Development Ltd. ("Warden") under land use
certificates and agreements with terms of fifty years. The buildings
comprising the facilities are, or will be, owned by Warden. The land and the
buildings are, or will be, in turn leased by Peak (HK) from Warden under a
two-year lease which commenced in April 2001. Peak (HK) owns the machinery and
equipment in our Shenzhen facilities. Under current PRC law, all land belongs
to the government, and individuals and enterprises may only lease land from
the government.
17
ITEM 3. LEGAL PROCEEDINGS
On or about July 2, 1999, the Company received an Amended and Restated
Demand for Arbitration filed on behalf of the Company's former Chief Executive
Officer, Richard Brook. Mr. Brook sought payment of US$32,400 per month or a
lump sum payment of US$1,036,800 pursuant to his employment agreement with the
Company, which was terminated on or about December 1, 1998. Mr. Brook also
asserted various tort claims for damages against the Company. The Company
opposed Mr. Brook's claim and asserted counterclaims against Mr. Brook for
breach of contract, libel and breach of fiduciary duty. Mr. Brook's claims
against the Company were tried before an arbitrator in June 2000. On August 4,
2000, a decision was rendered in the arbitration. The arbitrator denied the
bulk of Mr. Brook's breach of contract claim, finding that the Company was
justified in terminating him for cause. However, the arbitrator found that Mr.
Brook's termination for cause was not effective until May 1999 and that Mr.
Brook was entitled to certain additional compensation of approximately
$70,000. The arbitrator denied all of Mr. Brook's tort claims. On the
Company's breach of contract counterclaim, the arbitrator found Mr. Brook
liable for over $400,000 in actual damages and $100,000 in exemplary damages.
The award of exemplary damages was based on a finding that Brook acted with
malice toward the Company. The arbitrator denied the Company's defamation
claim and did not specifically address the Company's breach of fiduciary duty
claim, which had previously been bifurcated. The arbitrator then awarded
certain attorney's fees to each party. The net result of the arbitration was a
judgment in the amount of approximately $520,000 in favor of the Company and
against Mr. Brook. Mr. Brook challenged the arbitration award in United States
District Court in Austin, Texas, which vacated the arbitrator's award on the
grounds that the arbitrator was not selected in accordance with the terms of
the contract between the parties. The Company has appealed the District
Court's action to the United States Court of Appeals for the Fifth Circuit. At
present, we cannot predict the outcome of this matter with reasonable
particularity.
On June 29, 1999, plaintiff Dorchester Investors commenced a purported
securities class action suit in the United States District Court for the
Southern District of New York on behalf of all TrENDS purchasers against the
Company, the Peak TrENDS Trust ("the Trust"), Mr. T.L. Li, Mr. Jerry Mo,
Luckygold 18A Limited ("Luckygold") and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"). On January 27, 2000, the plaintiff filed an
amended complaint. On March 20, 2000, all defendants moved to dismiss the
amended complaint. While those motions were pending, plaintiff and defendants
stipulated to the dismissal with prejudice from the action of the Company and
Mr. Mo. Pursuant to the stipulation, the court dismissed the Company and Mr.
Mo from the action with prejudice on June 5, 2000. On March 28, 2001, the
court ruled on the motion to dismiss. The court dismissed a significant number
of the claims. The principal remaining claims relate to the alleged failure of
the TrENDS prospectus to disclose that significant short selling of the
Company's common stock was certain to occur at the time of the TrENDS
offering.
Plaintiff filed an amended complaint on April 13, 2001. This case is still
in its preliminary stages. Accordingly, we cannot predict the outcome of this
matter with reasonable particularity.
Additionally, the Company, Mr. Li and Luckygold entered into certain
indemnification agreements with the Trust and DLJ in connection with the
TrENDS offering. Certain of these indemnification agreements may require that
under certain circumstances the Company, Luckygold and/or Mr. Li indemnify the
Trust and/or DLJ from certain liabilities that the Trust and/or DLJ may incur
to plaintiff or to the purported plaintiff class. Mr. T.L. Li and Luckygold
have, in turn, provided a deed of indemnity to the Company pursuant to which
Mr. Li and Luckygold have agreed to indemnify the Company from liabilities
related to the TrENDS offering.
R.H. Murphy Co., Inc. ("Murphy") is the owner of U.S. Reexamined Patent
5,400,904 C1 and certain related foreign patents, which patents are directed
to specific features in trays used to carry integrated circuits. Murphy has
notified Peak and certain of Peak's customers that it believes these patents
are infringed by certain integrated circuit trays that Peak provides to its
customers, and indicated that licenses to these patents are available. Peak
does not believe that any valid claim of these patents is infringed, and is
proceeding consistent with that belief.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 1, 2000, shares of our common stock have traded on Nasdaq
under the symbol "PEAK". Prior to this time, and on and after October 31,
1997, shares of our common stock traded on Nasdaq under the symbol "PEAKF".
Prior to October 31, 1997, the shares traded on Nasdaq under the symbol
"PITLF". Public trading of the shares commenced on June 20, 1997. Prior to
that time, there was no public market for the shares. The following table sets
forth the high and low sale prices for the shares as reported by Nasdaq for
the periods indicated:
Price Range of
Common Stock
-----------------
High Low
--------- -------
Year Ending March 31, 2000:
1st Quarter............................................ $ 8 $1 7/8
2nd Quarter............................................ 8 7/25 5 1/2
3rd Quarter............................................ 13 5/8 6 5/8
4th Quarter............................................ 14 5/8 9 8/16
Year Ending March 31, 2001:
1st Quarter............................................ $10 5/8 $6 5/8
2nd Quarter............................................ 9 5/8 6 3/8
3rd Quarter............................................ 8 4 7/8
4th Quarter............................................ 7 13/16 4 3/4
As of June 15, 2001, there were 6 holders of record of the shares.
Dividends
The Company has not paid any dividends on its Common Stock over the past two
years. The Company does not anticipate paying any dividends in the foreseeable
future, and intends to retain all earnings, if any, for general corporate
purposes. The declaration and payment of dividends, if any, will be dependent
on the Company's results of operation, financial condition, cash requirements
and other relevant factors, subject to the discretion of the Board of
Directors.
Recent Sales of Unregistered Securities
During the past three years, the Company has issued unregistered securities
to only one person, as described below. This transaction did not involve any
underwriters or any public offerings and the Company believes that this
transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or
Rule 701 pursuant to compensatory benefit plans and contracts related to
compensation as provided under Rule 701. The recipient of the shares of the
Company in this transaction represented his intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in this transaction. The
recipient had adequate access to information about the Company through his
relationship with the Company.
On April 22, 1999, the Company issued to Calvin Reed 400,000 options to
purchase shares of the Company. The first 150,000 options for the purchase of
150,000 shares were at a per share exercise price equal to $3 21/32. The
second 150,000 options for the purchase of 150,000 shares were at a per share
exercise price equal to $7.00 per share. The remaining options for the
purchase of 100,000 shares were at a per share exercise price equal to $10.00
per share. The options are exercisable until April 21, 2009. The options vest
in twelve equal, quarterly installments but in certain circumstances the
options will be accelerated. Except in certain limited circumstances, the
options are not exercisable for two years.
19
Bermuda Taxation
The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payment of dividends by the Company to
its shareholders. Furthermore, the Company has received from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act of 1966
an assurance that, in the event that Bermuda enacts any legislation imposing
any tax computed on profits or income or on any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, the
imposition of such tax shall not be applicable to the Company or any of its
operations, nor to the shares, debentures or other obligations of the Company
until March 28, 2016. This assurance does not, however, prevent the imposition
of any Bermuda tax payable in relation to any land in Bermuda leased to the
Company or to persons ordinarily resident in Bermuda.
As an exempted company, the Company is liable to pay to the Bermuda
government an annual registration fee not exceeding Bermuda dollars 27,825 per
annum calculated on a sliding scale basis by reference to its authorized share
capital plus any share premium.
Exchange Controls and Other Limitations Affecting Security Holders
The Company has been designated as a non-resident of Bermuda for exchange
control purposes by the Bermuda Monetary Authority, whose permission for the
free transferability of shares of the Company has been obtained.
IT MUST BE DISTINCTLY UNDERSTOOD THAT, IN GRANTING SUCH PERMISSION, THE
BERMUDA MONETARY AUTHORITY WILL ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL
SOUNDNESS OF ANY SCHEMES OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE
OR OPINIONS EXPRESSED HEREIN.
The transfer of shares between persons regarded as resident outside Bermuda
for exchange control purposes and the issue of shares within our current
authorized share capital to or by such persons may be effected without
specific consent under the Exchange Control Act 1972 and regulations
thereunder. Issues and transfers of shares involving any person regarded as
resident in Bermuda for exchange control purposes require specific prior
approval under the Exchange Control Act 1972.
There are no limitations on the rights of holders of shares of our common
stock who are non-resident in Bermuda for exchange control purposes to hold or
vote their shares. Because we have been designated as a non-resident for
Bermuda exchange control purposes, there are no restrictions on our ability to
transfer funds in and out of Bermuda or to pay dividends to United States
residents who are holders of the shares, other than in respect of local
Bermuda currency. We do not anticipate that we will transact business or make
payments of dividends or other distributions in the local Bermuda currency.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an
applicant acting in a special capacity (for example, as trustee), certificates
may, at the request of the applicant, record the capacity in which the
applicant is acting. Notwithstanding the recording of any such special
capacity, we are not bound to take notice of any person other than the person
entered in the Register of Members of the Company.
As an exempted company, we are exempted from Bermuda laws which restrict the
percentage of share capital that may be held by non-Bermudians, but as an
exempted company we may not participate in certain business transactions
including: (1) the acquisition or holding of land in Bermuda (except that
required for our business and held by way of lease or tenancy for terms of not
more than 50 years or, with the consent of the Minister of Finance of Bermuda
land held by lease or tenancy agreements for terms of not more than 21 years
to provide accommodation or recreational facilities for officers or
employees), (2) the taking of mortgages on land in Bermuda to secure an amount
in excess of 50,000 Bermuda dollars without the consent of the Minister of
Finance of Bermuda, (3) the acquisition of any bonds or debentures secured on
any land in Bermuda except
20
bonds or debentures issued by the Bermuda government or a public authority or
(4) the carrying on of business of any kind in Bermuda, except in furtherance
of our business carried on outside Bermuda or under a license granted by the
Minister of Finance of Bermuda.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated income statement data for the years ended March
31, 2001, 2000, 1999 and the selected consolidated balance sheet data as of
March 31, 2001 and 2000 set forth below are derived from the Company's audited
financial statements included elsewhere herein and should be read in
conjunction with, and are qualified in their entirety by reference to, such
financial statements, including the notes thereto. The selected consolidated
income statement data for the fiscal years ended March 31, 1998 and 1997 and
the selected consolidated balance sheet data as of March 31, 1998 and 1997 set
forth below are derived from the Company's audited financial statements not
included herein. The consolidated financial statements have been prepared and
presented in accordance with accounting principles generally accepted in the
United States of America.
The consolidated financial data set forth below have been presented as if
the Company, which was incorporated on January 3, 1997, had been in existence
for all periods presented and 100% of Peak (HK) and other subsidiaries of the
Company had been transferred to the Company and that they had been
consolidated for all periods presented. The consolidated financial data set
forth below should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the consolidated financial statements and related notes thereto, included
elsewhere herein.
Year Ended March 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(In thousands, except Share data)
Income Statement Data:
Net sales............... $ 86,126 $ 83,529 $ 66,235 $ 73,705 $ 57,594
Cost of goods sold...... (50,209) (54,441) (39,487) (41,048) (32,676)
----------- ----------- ----------- ----------- -----------
Gross profit............ 35,917 29,088 26,748 32,657 24,918
Operating expenses:
General and
administrative and
research and
development........... (10,732) (11,761) (7,264) (6,194) (4,730)
Selling and marketing.. (9,207) (8,379) (5,801) (5,487) (4,198)
Special charge......... -- 862 (2,000) -- --
Asset impairment....... (759) -- (9,000) -- --
----------- ----------- ----------- ----------- -----------
Income from operations.. 15,219 9,810 2,683 20,976 15,990
Other (expenses)
income................. (190) 273 812 926 83
Net interest (expense)
income................. 1,512 534 680 517 (1,320)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 16,541 10,617 4,175 22,419 14,753
Provision for income
taxes.................. (1,438) (970) (1,338) (1,825) (1,236)
----------- ----------- ----------- ----------- -----------
Net income.............. $ 15,103 $ 9,647 $ 2,837 $ 20,594 $ 13,517
=========== =========== =========== =========== ===========
Dividends paid.......... $ -- $ -- $ -- $ -- $ 1,294
Earnings per share:
Basic.................. $ 1.10 $ 0.71 $ 0.21 $ 1.61 $ 1.29
=========== =========== =========== =========== ===========
Diluted................ $ 1.08 $ 0.68 $ 0.21 $ 1.59 $ 1.29
=========== =========== =========== =========== ===========
Shares outstanding:
Basic/1............./.. 13,701,001 13,590,472 13,503,584 12,804,004 10,461,538
Diluted................ 14,005,496 14,113,979 13,550,188 12,972,060 10,461,538
Balance Sheet Data:
Cash and cash
equivalents............ $ 33,901 $ 18,667 $ 10,598 $ 19,214 $ 1,814
Total assets............ 118,341 104,808 93,653 89,540 53,795
Short-term debt/2..../.. -- -- -- 89 21,170
Long-term debt.......... -- -- -- -- --
Shareholders' equity.... 104,872 91,027 80,970 77,582 26,272
- --------
(1) Shares outstanding for Fiscal 1997 presented is based on 10,461,538 shares
outstanding prior to the Company's initial public offering in June 1997,
after giving effect to the Restructuring (see Note 1 to the financial
statements).
(2) Short-term debt consists of bank borrowings as of March 31, 1997 and 1998.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information is based on, and should be read in conjunction
with, our consolidated financial statements and the related notes thereto
included elsewhere in this Annual Report.
General
We produce matrix trays, shipping tubes, reels and carrier tape for the
storage, transportation and automatic handling of semiconductor devices and
other electronic components. We also produce leadframe boxes and interleaves
used in the storage and transportation of leadframes. In addition, we sell
recycled matrix trays collected under the trade name "SemiCycle." For more
information see Item 1, "Business--Products and Production Processes" and "--
Sales and Marketing."
Our consolidated net sales increased by 3.1% to $86.1 million in Fiscal 2001
compared to $83.5 million in Fiscal 2000, and our consolidated net income
increased by 56.6% to $15.1 million in Fiscal 2001, compared to $9.6 million
in Fiscal 2000. During the last three years, our consolidated net sales
increased from $66.2 million in Fiscal 1999 then to $83.5 million in Fiscal
2000 and to $86.1 million in Fiscal 2001. Our consolidated net income
increased from $2.8 million in Fiscal 1999, then increased to $9.6 million in
Fiscal 2000 and to $15.1 million in Fiscal 2001. In Fiscal 2001, our margin
improved to 41.7% from 34.8% in Fiscal 2000, mainly due to a $7.3 million
inventory write down in Fiscal 2000.
We have expanded our production capacity significantly in recent years and
have substantially completed construction of an additional facility in
Shenzhen, China. We have delayed construction activities on the new plant
until demand warrants its completion.
Results of Operations
The following table sets forth, for the years indicated, certain income
statement items for the Company as a percentage of net sales.
Year Ended March
31
-------------------
2001 2000 1999
----- ----- -----
Net sales............................................. 100.0% 100.0% 100.0%
Cost of goods sold.................................... (58.3) (65.2) (59.6)
Operating expenses:
General and administrative and research and
development........................................ (12.5) (14.1) (11.0)
Selling and marketing............................... (10.7) (10.0) (8.8)
Special charge...................................... -- 1.0 (3.0)
Asset impairment.................................... (0.8) -- (13.6)
----- ----- -----
Income from operation................................. 17.7 11.7 4.0
----- ----- -----
Income before income taxes............................ 19.2 12.7 6.3
Provision for income taxes............................ (1.7) (1.2) (2.0)
----- ----- -----
Net income............................................ 17.5% 11.5% 4.3%
===== ===== =====
Fiscal 2001 Compared to Fiscal 2000
Net Sales. Net sales increased by 3.1% to $86.1 million in Fiscal 2001 from
$83.5 million in Fiscal 2000. Net sales of trays increased by 3.0% over the
period reflecting a 3.5% increase in sales volume, slightly offset by a 0.5%
drop in average realized sales price. Net sales of carrier tape increased by
26.8% over the period, driven by a 44.5% increase in sales volume, and a 12.2%
drop in average realized sales price. Net sales for tubes decreased by 16.9%
over the year, the result of an 18.8% reduction in volume and a 2.3% increase
in average realized sales price over the same period.
22
Gross Profit. Gross profit increased by 23.5% to $35.9 million in Fiscal
2001 from $29.1 million in Fiscal 2000. Our gross margin improved to 41.7% in
Fiscal 2001 from 34.8% in Fiscal 2000, primarily as a result of a review of
slow moving inventories in March 2000 that resulted in a $7.3 million write
down in Fiscal 2000.
Income from Operations. Operating income increased by 55.1% to $15.2 million
in Fiscal 2001 from $9.8 million in Fiscal 2000. Our operating margin improved
to 17.7% in Fiscal 2001 from 11.7% in Fiscal 2000, primarily because of the
$7.3 million inventory provision recorded in Fiscal 2000 and benefits from
improvements in the manufacturing process.
General and Administrative Expenses. General and administrative expenses
decreased by 5.7% to $10.6 million in Fiscal 2001 from $11.2 million in Fiscal
2000, primarily due to decrease in legal and professional charges.
Selling and Marketing Expenses. Selling and marketing expenses increased by
9.9% to $9.2 million in Fiscal 2001 from $8.4 million in Fiscal 2000,
primarily as a result of the expansion of our sales network in the early part
of the fiscal year.
Asset Impairment. Due to the slow business environment in the PRC, a drop in
property value has arisen as of March 31, 2001 and the decline in value was
recorded in Fiscal 2001.
Interest income. Interest income increased by 179.5% to $1.5 million in
Fiscal 2001 from $0.5 million in Fiscal 2000 because of the increase in cash
deposits at bank during Fiscal 2001.
Net Income. Net income increased by 56.6% to $15.1 million in Fiscal 2001
from $9.6 million in Fiscal 2000. This increase primarily reflected the
effects of the foregoing factors.
Fiscal 2000 Compared to Fiscal 1999
Net Sales. Net sales increased by 26.1% to $83.5 million in Fiscal 2000 from
$66.2 million in Fiscal 1999. Net sales of trays increased by 33.1% over the
period reflecting a 38.0% increase in sales volume, slightly offset by a 3.5%
drop in average realized sales price. Net sales of carrier tape increased by
30.0% over the period, driven by a 33.6% increase in sales volume, and a 2.7%
drop in average realized sales price. Net sales for tubes increased by 5.2%
over the year. While sales volume for tubes increased by 12.3%, the average
realized sales price of tubes dropped 6.3% over the same period.
Gross Profit. Gross profit increased by 8.7% to $29.1 million in Fiscal 2000
from $26.7 million in Fiscal 1999. Our gross margin declined to 34.8% in
Fiscal 2000 from 40.4% in Fiscal 1999, primarily as a result of a review of
slow moving inventory in March 2000 that resulted in a $7.3 million write
down. Had there not been this write down, gross profit margin for the year
would have been 43.5%.
Income from Operations. Operating income increased by 265.6% to $9.8 million
in Fiscal 2000 from $2.7 million in Fiscal 1999. Our operating margin improved
to 11.7% in Fiscal 2000 from 4.1% in Fiscal 1999, primarily because there were
a reversal of special charge and no asset impairment charge in Fiscal 2000.
General and Administrative Expenses. General and administrative expenses
increased by 67.1% to $11.2 million in Fiscal 2000 from $6.7 million in Fiscal
1999, primarily due to an increase in legal and professional charges, and
additional costs incurred in connection with the reorganization and relocation
of our US operations from Austin, Texas to Fremont, California.
Selling and Marketing Expenses. Selling and marketing expenses increased by
44.4% to $8.4 million in Fiscal 2000 from $5.8 million in Fiscal 1999,
primarily as a result of the expansion of our sales network.
Special Charge. On August 4, 2000 the matter of Richard Brook vs. Peak
International Limited was decided. The arbitrator found that Richard Brook was
terminated for good cause for disclosing confidential
23
information in violation of his fiduciary duties to the company and that he
acted with malice. The net award in favor of the Company includes $0.1 million
in exemplary damages and totals approximately $0.5 million. While the company
will not record this award as income until it is certain that the amount is
recoverable, the $0.9 million remaining accrual for possible settlement cost
of the case on the Company's books as of March 31, 2000 was no longer required
and was therefore released back to income as a post balance sheet adjusting
event for the year ended March 31, 2000.
Net Income. Net income increased by 240.0% to $9.6 million in Fiscal 2000
from $2.8 million in Fiscal 1999. This increase primarily reflected the
effects of the foregoing factors.
Liquidity and Capital Resources
We historically met a significant portion of our cash requirements from cash
flow from operations and, prior to our initial public offering in June 1997,
shareholder loans, generally at no interest, from Mr. T.L. Li, as well as
short-term bank loans guaranteed by Mr. T.L. Li. Our primary uses of cash have
been to fund capital expenditures related to the expansion of our facilities
and operations, dividend payments and working capital requirements. We intend
to continue to retain our earnings to finance the development and expansion of
our business operations and do not intend to pay dividends for the foreseeable
future. Our net cash provided by operating activities was $28.1 million in
Fiscal 2001, compared to $21.5 million in Fiscal 2000 and $20.5 million in
Fiscal 1999.
We incurred capital expenditures of $12.0 million, $7.8 million and $11.5
million for the acquisition of new equipment in our current facility and, $0.4
million, $7.2 million and $17.6 million, for the construction of an additional
facility in Shenzhen, China during Fiscal 2001, Fiscal 2000 and Fiscal 1999,
respectively. For more information, see Note 14 of the Notes to our
Consolidated Financial Statements. As of March 31, 2001, we had commitments
for capital expenditures of $4.3 million. The actual amounts of capital
expenditures may vary substantially from those budgeted or estimated for a
variety of reasons, including changes in market conditions, unavailability or
changes in scheduled delivery of specific equipment, changes in interest rates
and other factors. In addition, we plan to continue to expand capacity in
future periods from cash on hand, including cash flow from operations and new
bank borrowings as required.
As of March 31, 2001, we had no outstanding indebtedness. Although Mr. T.L.
Li no longer guarantees any of our bank loans or overdrafts, neither our
ability to obtain bank financing nor our cost of funds has been materially
affected. For more information, see Note 9 of Notes to our Consolidated
Financial Statements.
If the Chinese customs authorities require us to post a bond in connection
with our exemption status from PRC duties on imported raw materials and
exported products, we will experience a substantial drain of our liquid
resources. We cannot assure that we will be able to provide the required bond
at a commercially feasible cost, or at all.
In September 2000, the board of directors authorized the repurchase, at
management's discretion, of up to $10,000,000 of Company's common stock at
prices not to exceed 150% of the Company's net asset value per share. Common
stock repurchased will be cancelled immediately.
During the year ended March 31, 2001, the Company repurchased 166,500 shares
at an average cost of $7.12 per share.
Pursuant to an offer by the Company to purchase up to 1,800,000 TrENDS, on
May 10, 2001, 473,876 TrENDS were tendered by their holders to the Company and
were purchased by the Company at $6.50 each.
From time to time, we may evaluate possible investments or acquisitions and
may, if a suitable opportunity arises, make such an investment or acquisition.
We currently have no commitments to make any material investments or
acquisitions.
24
Hong Kong Profits Tax
Under the Hong Kong tax authority's Departmental Interpretation and Practice
Notes, a company based in Hong Kong but with substantially all of its
manufacturing operations located in the PRC conducted pursuant to a processing
agreement entered into with a PRC company can enjoy profit apportionment
through which much of its manufacturing profit is subject to Hong Kong profits
tax. Substantially all of our manufacturing operations are located in
Shenzhen, China and conducted pursuant to a processing agreement entered into
with a PRC company. See Item 1, "Business--Employees." Effective as of April
1, 1999, the profits tax rate in Hong Kong is 16.0%, a change from the former
profits tax rate, which was 16.5%. Under our current profits apportionment,
only 50% of our profits are subject to Hong Kong profits tax and, as a result,
we enjoy a lower effective tax rate than would otherwise be the case. We
cannot assure that the Hong Kong tax authority will continue to grant such tax
concession to Hong Kong companies with manufacturing operations in China, or
that we will not lose such concession in the future as a result of changes in
Hong Kong tax law or the interpretation of such law. In the event that such
tax concessions are unavailable to us, our results of operations could be
materially and adversely affected.
Although traditionally, Hong Kong has allowed a company like ours to
apportion only 50% of its profits to activities outside Hong Kong (not subject
to Hong Kong tax), starting in Fiscal 1996, for tax filing purposes, we have
apportioned 80% of our profits to activities outside of Hong Kong. The Hong
Kong tax authorities are examining our activities with respect to several
factors that they use to ascertain the true geographic nature of a company's
activities. Although we believe our apportionment to be justified, we cannot
assure that the Hong Kong tax authorities will not insist on a different
apportionment that would subject us to payment of back taxes.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". As
amended by SFAS No. 137 and 138, SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company considers that the adoption of SFAS No. 133
does not have any significant impact on its consolidated financial statements
or business practices.
In March 2000, FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"), FIN 44 is effective July 1, 2000 and provides
guidance on certain issues raised in applying APB Opinion No. 25. The adoption
of FIN 44 did not have any significant impact on its consolidated financial
statements or business practices.
Effective January 1, 2001, the Company adopted Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB No. 101"), which
summarizes the SEC's interpretation of applying generally accepted accounting
principles to revenue recognition in the financial statements. The adoption of
SAB No. 101 did not have a material impact on the Company's consolidated
financial position or the results of operations.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Exchange Rate Fluctuations
Our sales are denominated primarily in US Dollars while our costs of goods
sold are generally incurred in US Dollars, Hong Kong Dollars and Renminbi, and
our operating expenses are generally denominated in Renminbi, Hong Kong
Dollars and US Dollars. In addition, a substantial portion of our capital
expenditures, primarily for the purchase of equipment, has been and is
expected to continue to be denominated in US Dollars and Japanese Yen.
Consequently, a portion of our costs and operating margins may be affected by
fluctuations in exchange rates, primarily between the US Dollar and other
currencies. Our results of operations and financial condition could be
adversely affected by fluctuations in currency exchange rates or the
imposition of new or additional currency controls in the jurisdictions in
which we operate. Primarily in response to recent developments in the
Southeast Asian currency markets, we from time to time engage in derivatives
trading activities, such as entering into forward contracts, to hedge our
currency exchange exposure. The Company does not utilize market-risk sensitive
instruments for speculative purposes. At March 31, 2001, we had no outstanding
foreign currency exchange contracts.
Many of our competitors are located in countries whose currencies devalued
significantly against the US Dollar beginning in the second half of 1997. As a
result of such devaluation, these competitors' products have become less
expensive in US dollar terms. This reduction could result in our customers
purchasing products from these competitors rather than from us, which could
have a material and adverse effect on our net sales and results of operation.
PVC Resin Price
PVC resin, the principal raw material used in the manufacture of tubes,
together with additives used in the manufacture of tubes accounted for 14.5%,
9.2% and 8.0% of our total raw material costs in Fiscal 1999, Fiscal 2000 and
Fiscal 2001, respectively. While we believe principally as a result of
increased production capacity by suppliers, that a severe shortage in the
supply of PVC resin is unlikely to occur in the foreseeable future, there can
be no assurance that such shortage will not occur. Any price increases would
result in higher costs, which could have a material adverse effect on our
results of operations and financial condition. We currently maintain
approximately two to three months stock of PVC resin and other raw materials
used in our production processes, and increase such stock when we believe
prices are favorable. We do not, and do not intend to, enter into future
contracts or use any financial instruments to hedge our exposure to
fluctuations in the price of PVC resin or other raw materials used in our
production processes.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index included on page F-1, Index to Consolidated Financial
Statements and Schedule. The unaudited quarterly results of operations for the
years ended March 31, 2001 and 2000 are as follows:
Quarter Ended
----------------------------------------------------------------------------------------------
3/31/2001 12/31/2000 9/30/2000 6/30/2000 3/31/2000 12/31/1999 9/30/1999 6/30/1999
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except Share data)
Income Statement Data:
Net sales............... $ 15,266 $ 24,046 $ 24,516 $ 22,298 $ 21,543 $ 22,611 $ 20,580 $ 18,795
Cost of goods sold...... (10,531) (13,458) (13,619) (12,601) (19,430) (12,377) (11,888) (10,746)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 4,735 10,588 10,897 9,697 2,113 10,234 8,692 8,049
Operating Expenses:
General and
administrative and
research and
development............ (2,409) (2,746) (2,585) (2,992) (3,687) (3,285) (2,240) (2,549)
Selling and marketing.. (1,928) (2,441) (2,435) (2,403) (2,413) (2,307) (1,951) (1,708)
Special charge......... 0 0 0 0 862 0 0 0
Asset impairment....... (759) 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations.............. (361) 5,401 5,877 4,302 (3,125) 4,642 4,501 3,792
Other income (expense).. (268) 3 (12) 87 (96) 92 (12) 289
Net interest (expense)
income.................. 395 448 393 276 183 156 136 59
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes............ (234) 5,852 6,258 4,665 (3,038) 4,890 4,625 4,140
Provision for income
taxes................... (51) (480) (506) (401) 267 (437) (402) (398)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (285) $ 5,372 $ 5,752 $ 4,264 $ (2,771) $ 4,453 $ 4,223 $ 3,742
Earnings per Share:
Basic.................. (0.02) 0.39 0.42 0.31 (0.20) 0.33 0.31 0.28
Diluted................ (0.02) 0.39 0.41 0.30 (0.19) 0.32 0.31 0.27
Shares outstanding:
Basic.................. 13,603,291 13,690,869 13,765,358 13,742,816 13,677,675 13,644,620 13,521,849 13,515,345
Diluted................ 13,843,999 13,929,077 14,050,781 14,075,317 14,316,540 14,118,276 13,816,987 13,739,846
Balance Sheet Data:
Cash and cash
equivalents............. $ 33,901 $ 31,345 $ 29,625 $ 25,334 $ 18,667 $ 15,841 $ 17,483 $ 14,245
Total assets............ 118,341 121,463 116,901 109,366 104,808 109,744 104,982 98,957
Short-term debt......... 0 0 0 182 0 34 121 261
Long-term debt.......... 0 0 0 0 0 647 647 647
Shareholders' equity.... 140,872 105,480 101,223 95,457 91,027 93,675 88,741 84,726
27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to
the Company's proxy statement for the 2001 Annual General Meeting of
Shareholders to be filed with the Securities and Exchange Commission no later
than 120 days following the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by the Item is incorporated herein by reference to
the Company's proxy statement for the 2001 Annual General Meeting of
Shareholders to be filed with the Securities and Exchange Commission no later
than 120 days following the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Company's proxy statement for the 2001 Annual General Meeting of
Shareholders to be filed with the Securities and Exchange Commission no later
than 120 days following the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Company's proxy statement for the 2001 Annual General Meeting of
Shareholders to be filed with the Securities and Exchange Commission no later
than 120 days following the end of the fiscal year covered by this report.
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of documents filed as a part of this report:
1. Financial Statements--Included in Part II of this Form 10-K:
Consolidated Balance Sheets as of March 31, 2001 and 2000.
Consolidated Statements of Income and Comprehensive Income for the
years ended March 31, 2001, 2000 and 1999.
Consolidated Statements of Shareholders' Equity as of March 31, 2001,
2000 and 1999, and April 1, 1998.
Consolidated Statements of Cash Flows for the years ended March 31,
2001, 2000 and 1999.
Notes to Consolidated Financial Statements
2. Index to Financial Statement Schedules--Included in this Part II of this
Form 10-K:
Schedule II--Valuation and qualifying accounts
3. List of Exhibits:
Exhibit
No. Description
------- -----------
3.1(a) Memorandum of Association of the Registrant (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form F-1,
Registration No. 333-6652, filed on March 19, 1997 and declared
effective by the Securities and Exchange Commission on June 20, 1997
(the "Company's Initial Public Offering Registration Statement on Form
F-1"))
3.1(b) Bye-laws of the Registrant (filed herewith)
4.1 Specimen of Share Certificate for the Shares of the Registrant
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
Company's Initial Public Offering Registration Statement on Form F-1)
10.1 Processing Agreement dated May 28, 1987 and renewed and amended on May
24, 1994 and December 12, 1996 (incorporated by reference to Exhibit
10.1 to the Company's Initial Public Offering Registration Statement
on Form F-1)
10.2 Processing Agreement dated October 8, 1995 (incorporated by reference
to Exhibit 10.2 to the Company's Initial Public Offering Registration
Statement on Form F-1)
10.3 Land Use Certificate relating to the Company's existing production
facilities (incorporated by reference to Exhibit 10.3 to the Company's
Initial Public Offering Registration Statement on Form F-1)
10.4 Land Use Certificate relating to the Company's planned additional
production facilities (incorporated by reference to Exhibit 10.4 to
the Company's Initial Public Offering Registration Statement on
Form F-1)
10.5 Land Use Right Granting Contract relating to the Company's existing
production facilities (incorporated by reference to Exhibit 10.5 to
the Company's Initial Public Offering Registration Statement on Form
F-1)
10.6 Land Use Right Granting Contract relating to the Company's planned
additional production facilities (incorporated by reference to Exhibit
10.6 to the Company's Initial Public Offering Registration Statement
on Form F-1)
10.7 Lease between Warden and Peak (HK) relating to the Company's existing
production facilities (incorporated by reference to Exhibit 10.7 to
the Company's Initial Public Offering Registration Statement on Form
F-1)
30
Exhibit
No. Description
------- -----------
10.8 Lease between Warden and Peak (HK) relating to the Company's existing
production facilities (filed herewith)
10.9 1998 Share Option Plan (incorporated by reference to Exhibit 4.3 to
the Company's Form S-8 filed on July 30, 1998)
10.10 Form of Stock Purchase Plan (incorporated by reference to Annex A to
the Company's Report on Form 6-K filed on August 14, 2000)
10.11 Deed of Undertaking by T.L. Li dated May 29, 1997 relating to non-
competition and referral (incorporated by reference to Exhibit 10.9 to
the Company's Initial Public Offering Registration Statement on Form
F-1)
10.12 Option Agreement dated February 17, 1997 relating to the non-voting
deferred shares of Peak (HK) (incorporated by reference to Exhibit
10.10 to the Company's Initial Public Offering Registration Statement
on Form F-1)
10.13 Restructuring Agreement dated February 28, 1997 for the acquisition of
the entire issued share capital of Peakgold and Success Gold
(incorporated by reference to Exhibit 10.11 to the Company's Initial
Public Offering Registration Statement on Form F-1)
21.1 Subsidiaries of the Registrant (filed herewith)
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned; thereunto duly authorized on June 19, 2001.
Peak International Limited
/s/ Calvin Reed
By: _________________________________
Calvin Reed
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Calvin Reed and Jack Menache, and each
of them, as his true and lawful attorneys-in-fact and agents, with power to
act with or without the others and with full power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents and each of them may deem
necessary or desirable to enable the registrant to comply with the U.S.
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the U.S. Securities and Exchange Commission thereunder in
connection with the registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 2001 (the "Annual Report"), including specifically, but
without limiting the generality of the foregoing, power and authority to sign
the name of the registrant and the name of the undersigned, individually and
in his capacity as a director or officer of the registrant, to the Annual
Report as filed with the U.S. Securities and Exchange Commission, to any and
all amendments thereto, and to any and all instruments or documents filed as
part thereof or in connection therewith; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents and each of them
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities indicated on June 19, 2001.
Signature Title
--------- -----
/s/ Calvin Reed Chief Executive Officer and Director
_____________________________________________ (Principal Executive Officer)
Calvin Reed
/s/ Jerry Mo Chief Financial Officer and Controller
_____________________________________________ (Principal Financial Officer and
Jerry Mo Principal Accounting Officer)
/s/ T.L. Li Chairman of the Board
_____________________________________________
T.L. Li
/s/ Christine Russell Director
_____________________________________________
Christine Russell
/s/ William Snyder Director
_____________________________________________
William Snyder
32
PEAK INTERNATIONAL LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
1. Index to Consolidated Financial Statements:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income and Comprehensive Income............... F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
2. Index to Financial Statement Schedules:
Schedule II--Valuation and qualifying accounts........................... F-23
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Peak International Limited
We have audited the accompanying consolidated balance sheets of Peak
International Limited and subsidiaries as of March 31, 2001 and 2000, and the
related consolidated statements of income and comprehensive income,
shareholders' equity, and cash flows for each of the three years in the period
ended March 31, 2001. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Peak International Limited
and subsidiaries as of March 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE TOUCHE TOHMATSU
/s/ Deloitte Touche Tohmatsu
Hong Kong
May 4, 2001
except for Note 17,
as to which the date is May 11, 2001
F-2
PEAK INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands, except share data)
March 31,
------------------
2001 2000
-------- --------
Current assets:
Cash and cash equivalents................................. $ 33,901 $ 18,667
Accounts receivable, net of allowance for doubtful
accounts of $344 in 2001 and $292 in 2000................ 9,348 13,283
Inventories (Note 3)...................................... 16,327 19,044
Other receivables, deposits and prepayments............... 1,214 860
Amounts due from related companies (Note 13).............. 589 633
Income tax receivable..................................... 147 --
-------- --------
Total current assets...................................... 61,526 52,487
Deposits for acquisition of plant and equipment........... 115 341
Property, plant and equipment, net (Note 4)............... 56,700 51,980
-------- --------
Total assets.............................................. $118,341 $104,808
======== ========
Current liabilities:
Accounts payable:
- --trade................................................... $ 2,744 $ 3,749
- --property, plant and equipment........................... 1,072 1,187
Accrued payroll and employee benefits..................... 829 785
Accrued other expenses.................................... 1,366 1,970
Income taxes payable...................................... 5,088 4,232
-------- --------
Total current liabilities................................. 11,099 11,923
-------- --------
Deferred income taxes (Note 8)............................ 2,370 1,858
Commitments and contingencies (Note 11)
Shareholders' equity:
Common stock, $0.01 par value; authorized
100,000,000 shares; issued and outstanding
13,605,959 shares at March 31, 2001, and
13,686,305 shares at March 31, 2000 (Note 12)............ 136 137
Additional paid-in capital................................ 34,224 35,209
Retained earnings......................................... 71,704 56,601
Accumulated other comprehensive loss...................... (1,192) (920)
-------- --------
Total shareholders' equity................................ 104,872 91,027
-------- --------
Total liabilities and shareholders' equity................ $118,341 $104,808
======== ========
See accompanying notes to consolidated financial statements.
F-3
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(United States dollars in thousands, except share data)
Year ended March 31,
----------------------------------
2001 2000 1999
---------- ---------- ----------
Net sales:
- --third parties........................... $ 78,639 $ 74,934 $ 59,794
- --related companies (Note 13)............. 7,487 8,595 6,441
---------- ---------- ----------
Total..................................... 86,126 83,529 66,235
Cost of goods sold (including an inventory
write down of $7,286 in FY2000, Note 3).. 50,209 54,441 39,487
---------- ---------- ----------
Gross profit.............................. 35,917 29,088 26,748
Operating expenses:
General and administrative................ 10,571 11,215 6,713
Research and development.................. 161 546 551
Selling and marketing..................... 9,207 8,379 5,801
Asset impairment (Note 4)................. 759 -- 9,000
Special charge (Note 5)................... -- (862) 2,000
---------- ---------- ----------
Income from operations.................... 15,219 9,810 2,683
Other (expenses) income, net (Note 6)..... (190) 273 812
Interest income (Note 7).................. 1,512 541 687
Interest expense.......................... -- (7) (7)
---------- ---------- ----------
Income before income taxes................ 16,541 10,617 4,175
Provision for income taxes (Note 8)....... 1,438 970 1,338
---------- ---------- ----------
Net income................................ 15,103 9,647 2,837
Other comprehensive income:
Foreign currency translation adjustment... (272) (181) (35)
---------- ---------- ----------
Comprehensive income...................... $ 14,831 $ 9,466 $ 2,802
---------- ---------- ----------
Earnings per share:
Basic..................................... $ 1.10 $ 0.71 $ 0.21
Diluted................................... $ 1.08 $ 0.68 $ 0.21
Weighted average number of shares
outstanding:
Basic..................................... 13,701,001 13,590,472 13,503,584
Diluted................................... 14,005,496 14,113,979 13,550,188
See accompanying notes to consolidated financial statements.
F-4
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(United States dollars in thousands, except share data)
Accumulated
Common stock Additional other
------------------ paid-in Retained comprehensive
Shares Amount capital earnings losses Total
---------- ------ ---------- -------- ------------- --------
Balance as of April 1,
1998................... 13,461,538 $135 $34,034 $44,117 $ (704) $ 77,582
Net income for the
year................... -- -- -- 2,837 -- 2,837
Issuance of shares on
exercise of stock
options................ 47,580 -- 586 -- -- 586
Foreign currency
translation............ -- -- -- -- (35) (35)
---------- ---- ------- ------- ------- --------
Balance as of March 31,
1999................... 13,509,118 $135 $34,620 $46,954 $ (739) $ 80,970
Net income for the
year................... -- -- -- 9,647 -- 9,647
Issuance of shares on
exercise of stock
options and under
employee stock purchase
plan................... 177,187 2 589 -- -- 591
Foreign currency
translation............ -- -- -- -- (181) (181)
---------- ---- ------- ------- ------- --------
Balance as of March 31,
2000................... 13,686,305 $137 $35,209 $56,601 $ (920) $ 91,027
Net income for the
year................... -- -- -- 15,103 -- 15,103
Issuance of shares on
exercise of stock
options and under
employee stock purchase
plan................... 86,154 1 199 -- -- 200
Common stock repurchased
for cancellation....... (166,500) (2) (1,184) -- -- (1,186)
Foreign currency
translation............ -- -- -- -- (272) (272)
---------- ---- ------- ------- ------- --------
Balance as of March 31,
2001................... 13,605,959 $136 $34,224 $71,704 $(1,192) $104,872
========== ==== ======= ======= ======= ========
See accompanying notes to consolidated financial statements
F-5
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(United States dollars in thousands, except share data)
Year ended March 31,
----------------------------
2001 2000 1999
-------- -------- --------
Operating activities:
Net income...................................... $ 15,103 $ 9,647 $ 2,837
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 5,787 4,736 3,988
Deferred income taxes.......................... 524 251 789
Loss on disposal/write-off of property, plant
and equipment................................. 480 401 104
Provision for bad debts........................ 113 192 100
Asset impairment............................... 759 -- 9,000
Changes in operating assets and liabilities:
Accounts receivable............................ 3,822 (2,559) (875)
Inventories.................................... 2,717 7,425 1,472
Other receivables, deposits and prepayments.... (354) 381 280
Amounts due from/to related companies.......... 44 279 3,010
Income taxes receivable........................ (147) -- --
Accounts payable--trade........................ (1,005) 1,215 (1,229)
Accrued payroll and employee benefits.......... 44 129 (12)
Special charge................................. -- (1,523) 1,523
Accrued other expenses......................... (604) 524 (464)
Income taxes payable........................... 856 427 5
-------- -------- --------
Net cash provided by operating activities....... 28,139 21,525 20,528
-------- -------- --------
Investing activities:
Acquisition of property, plant and equipment.... (12,473) (14,942) (28,549)
Proceeds on disposal of plant and equipment..... 250 96 --
Deposits for acquisition of property, plant and
equipment...................................... 226 834 (1,175)
Redemption of certificate of deposits........... -- -- 100
-------- -------- --------
Net cash used in investing activities........... (11,997) (14,012) (29,624)
-------- -------- --------
Financing activities:
Decrease in bank borrowings..................... -- -- (89)
Proceeds from issue of common stock............. 200 591 586
Payment for buyback of common stock............. (1,186) -- --
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (986) 591 497
-------- -------- --------
Effects of exchange rate changes on cash........ 78 (35) (17)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 15,234 8,069 (8,616)
Cash and cash equivalents at beginning of year.. 18,667 10,598 19,214
-------- -------- --------
Cash and cash equivalents at end of year........ $ 33,901 $ 18,667 $ 10,598
-------- -------- --------
Supplemental cash flow information:
Cash paid during the year for:
Interest....................................... $ -- $ 7 $ 7
Income taxes................................... 175 292 544
See accompanying notes to consolidated financial statements.
F-6
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars in thousands, except share data)
1. ORGANIZATION AND BASIS OF PRESENTATION
Peak International Limited (the "Company") was incorporated as an exempted
company with limited liability in Bermuda under the Companies Act 1981 of
Bermuda (as amended) on January 3, 1997.
Pursuant to a group restructuring in early 1997 (the "Restructuring"), the
interests in various companies in the packaging products business held by Mr.
T.L. Li, the shareholder of the Company, were restructured whereby the Company
became the holding company of these companies. The Restructuring has been
accounted for as a reorganization of entities under common control similar to
a pooling of interests. The financial statements present the results of the
Company and its subsidiaries as if the companies had been combined for all
periods presented.
In June 1997, the Company issued 3,000,000 shares of common stock in an
initial public offering and received net proceeds of approximately $31,500.
The subsidiaries of the Company are principally engaged in the manufacture
and sale of precision engineered packaging products, such as matrix trays,
shipping tubes, reels and carrier tape, lead frame boxes and interleaves used
in the storage and transportation of semiconductor devices and other
electronic components. The Company's principal production facilities are
located in the People's Republic of China (the "PRC") and the Company
maintains sales offices in Hong Kong, the United States of America, Singapore,
Taiwan, The Philippines and Malaysia.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America and are presented in US dollars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intra-group balances and transactions
have been eliminated on consolidation.
Cash equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less at the time of acquisition to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method. Cost of finished goods includes costs of
direct materials, direct labor and an appropriate proportion of production
overheads. The production overheads are absorbed in finished goods based on
units of production. Provision for slow-moving inventory is made based on
management's analysis of inventory levels, material composition, expected
usage and future expected sales.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation and amortization is provided using the straight-
line method so as to allocate the cost of depreciable assets in use to
operations based upon the estimated useful lives.
F-7
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
The useful lives of property, plant and equipment adopted for depreciation
purposes are as follows:
Category of assets Estimated useful lives
------------------ -----------------------------
Land use rights.................................. Over the unexpired lease term
Buildings........................................ Over the unexpired lease term
Plant, machinery, manufacturing equipment,
manufacturing leasehold improvements, furniture
and fixtures.................................... 10 years
Molds, motor vehicles, office leasehold
improvements, furniture and fixtures............ 5 years
Costs incurred in constructing the new factory, including progress payments,
interest costs and other costs relating to the construction are capitalized.
These costs will be transferred to property, plant and equipment on completion
and depreciated from that time. No interest was capitalized in 2001, 2000 and
1999.
Valuation of long-lived assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined with reference to its open
market value based on appraisal by an independent firm of property valuers.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair market values are reduced for the costs to dispose.
As described in note 4, the Company recorded an impairment charge in the years
ended March 31, 2001 and 1999.
Income taxes
Income taxes are provided based on the asset and liability approach for
financial accounting and reporting of income taxes. Deferred income tax
liabilities or assets are recorded to reflect the tax consequences in future
years of differences between the tax bases of assets and liabilities and the
financial reporting amounts at each period end using rates currently in
effect. A valuation allowance is recognized for any portion of the deferred
tax asset for which realization is not likely.
Foreign currency translation
The Company uses the United States dollar as its reporting currency.
Monetary assets and liabilities denominated in currencies other than the
United States dollar are translated into the United States dollar at the rates
of exchange at the balance sheet date. Transactions in currencies other than
the United States dollar during the year are converted into the United States
dollar at the rates of exchange at the transaction dates. Exchange differences
are recognized in the statement of income.
On consolidation, balance sheets of subsidiaries denominated in currencies
other than the United States dollar are translated into the United States
dollar at the rates of exchange at the balance sheet date. Statements of
income of subsidiaries denominated in currencies other than the United States
dollar are translated into the United States dollar at average exchange rates
during the year. Exchange differences resulting from the translation of
financial statements denominated in currencies other than the United States
dollar and the effect of exchange rate changes on intercompany transactions of
a long-term investment nature are accumulated and credited or charged directly
to a separate component of shareholders' equity and are reported as other
comprehensive income.
F-8
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
Foreign currency translation--continued
The Company enters into foreign exchange contracts to reduce its exposure to
change in exchange rates. Material market value gains and losses are
recognized in the statement of income.
Recognition of revenue
Revenue arising from sale of goods is recognized at the time when the goods
are shipped and title to the goods passes to customers. The Company permits
the return of damaged or defective products and accounts for these returns as
deduction from sales.
Stock options
The Company continues to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock
options. As a result, no compensation expense has been recognized as stock is
issued through non-compensatory plans and options are granted at fair value of
the Company's common stock at the date of grant. The Company has accounted for
the stock options using the intrinsic value method. Proforma disclosures of
the effect on net income and earnings per share as if the Company had
accounted for its employee stock options under the fair value method
prescribed by SFAS No. 123, "Accounting for Stock Based Compensation," are
shown in note 16.
Earnings per share
Earnings per share is computed using the weighted average number of shares
outstanding during the year. For the years ended March 31, 2001, 2000 and
1999, diluted earnings per share is computed using a weighted average number
of shares outstanding of 14,005,496, 14,113,979 and 13,550,188, respectively,
which includes 304,495, 523,507 and 46,604 additional shares, respectively,
being the dilutive effect of stock options computed using the treasury stock
method. Options to purchase 1,431,610 shares, 363,658 shares and 682,482
shares were outstanding during the years ended March 31, 2001, 2000, and 1999
but were not included in the computation of diluted earnings per share because
the option exercise prices were greater than the average market price of the
common shares and therefore, the effect would be anti-dilutive.
Financial instruments
The carrying value of financial instruments, which consist of cash and cash
equivalents, accounts receivable, other receivables, amounts due from related
companies and accounts payable, approximates their fair values due to their
short-term nature of these instruments.
Comprehensive income
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income, its components and accumulated
balance. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Other comprehensive income consists only of foreign currency translation
adjustments.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect reported amounts of certain assets, liabilities, revenues and
F-9
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
expenses as of and for the reporting periods. Actual results could differ from
those estimates. Differences from those estimates are reported in the period
they become known and are disclosed to the extent they are material to the
financial statements taken as a whole.
New accounting standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. As
amended by SFAS No. 137 and 138, SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designed as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company considers that the adoption of SFAS No.
133 does not have any significant impact on its consolidated financial
statements or business practices.
In March 2000, FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"), FIN 44 is effective July 1, 2000 and provides
guidance on certain issues raised in applying APB Opinion No. 25. The adoption
of FIN 44 did not have any significant impact on its consolidated financial
statements or business practices.
Effective January 1, 2001, the Company adopted Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB No. 101"), which
summarizes the SEC's interpretation of applying generally accepted accounting
principles to revenue recognition in the financial statements. The adoption of
SAB No. 101 did not have a material impact on the Company's consolidated
financial position or the results of operations.
Reclassifications
Certain amounts in the prior period financial statements have been
reclassified to conform to the presentation adopted in the current year.
3. INVENTORIES
The components of inventories, net of the related reductions to the lower of
cost or market, were as follows:
March 31,
---------------
2001 2000
------- -------
Raw materials................................................ $ 8,589 $12,064
Finished products............................................ 7,738 6,980
------- -------
$16,327 $19,044
======= =======
Management continuously reviewed slow-moving inventory which, based on
inventory levels, material composition and expected usage at that date, and
resulted in a write down of $7,286 for the year ended March 31, 2000.
F-10
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
4. PROPERTY, PLANT AND EQUIPMENT
March 31,
------------------
2001 2000
-------- --------
Land use rights and buildings.......................... $ 4,924 $ 4,956
Factory under construction............................. 18,014 18,459
Plant, machinery, molds and equipment.................. 32,650 31,052
Leasehold improvements, furniture, fixtures and motor
vehicles.............................................. 25,757 20,034
-------- --------
81,345 74,501
Less: Accumulated depreciation and amortization........ (24,645) (22,521)
-------- --------
$ 56,700 $ 51,980
======== ========
A subsidiary of the Company operating in Shenzhen in the PRC owns factory
buildings on certain state-owned land in the PRC and has been assigned the
land use rights for a period of 50 years since May 1, 1993.
Management undertook a review of its production needs and determined that
the additional facilities may not be required for some time ahead depending on
market conditions, and decided to delay the completion of the plant
construction. Management plans to solicit potential partners to put this
facility to productive use. Management has continuously reviewed the asset for
impairment and, given the change in circumstances in 1999 concerning its
possible future use, an independent appraisal of the fair value of the asset
was obtained and a provision for impairment of $9,000 was made in respect of
the year ended March 31, 1999. In addition, during the fourth quarter of the
year ended March 31, 2001, management reassessed the fair value of the
building given the downturn in the industrial property market in which the
building is located. As a result, an additional impairment provision of $759
was recorded to adjust the carrying value to estimated fair value of the
building.
5. SPECIAL CHARGE
During the year ended March 31, 1999, the Company terminated the employment
of the President and Chief Executive Officer at a cost, including legal and
professional expenses, of $2,000. The amount payable, in accordance with
management's estimate as of the balance sheet date, within 12 months was
included in current liabilities, while any amount payable outside of the next
12 months was reported as a long-term liability. As described in note 11(c),
the remaining accrual was reversed during the year ended March 31, 2000.
6. OTHER (EXPENSES) INCOME, NET
Other (expenses) income consists of the following:
Year ended
March 31,
----------------
2001 2000 1999
----- ---- ----
Rental income.............................................. $ -- $ 76 $--
Foreign currency exchange (loss) gain, net................. (190) 197 812
----- ---- ----
$(190) $273 $812
===== ==== ====
7. INTEREST INCOME
Year ended
March 31,
----------------
2001 2000 1999
------ ---- ----
Interest income from third parties......................... $1,512 $541 $687
====== ==== ====
F-11
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
8. PROVISION FOR INCOME TAXES
Income is subject to taxation in the various countries in which the Company
and its subsidiaries operate. The components of income before income taxes
were as follows:
Year ended March 31,
------------------------
2001 2000 1999
------- ------- ------
Hong Kong........................................... $17,332 $12,131 $3,789
Other countries..................................... (791) (1,514) 386
------- ------- ------
$16,541 $10,617 $4,175
======= ======= ======
The provision for income taxes consists of the following:
Year ended March
31,
--------------------
2001 2000 1999
------ ---- ------
Current:
Hong Kong............................................ $ 911 $679 $ 429
United States........................................ -- -- (38)
Malaysia............................................. 1 26 1
Singapore............................................ 2 14 157
Deferred income tax:
Hong Kong
Current year....................................... 539 262 823
Attributable to change in tax rate................. -- -- (27)
Malaysia............................................. -- (7) 7
Singapore............................................ (15) (4) (14)
------ ---- ------
$1,438 $970 $1,338
====== ==== ======
The components of the net deferred income tax liabilities as of March 31,
2001 and 2000 are as follows:
March 31,
--------------
2001 2000
------ ------
Deferred income tax:
Depreciation............................................... $2,466 $1,842
Unutilized tax losses...................................... (180) (419)
Other temporary differences................................ (96) (96)
Valuation allowances....................................... 180 531
------ ------
$2,370 $1,858
====== ======
The Company has placed a full valuation allowance against the deferred tax
assets regarding depreciation and unutilized tax losses of a subsidiary due to
the uncertainty surrounding the realizability of these benefits in future tax
returns.
F-12
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
8. PROVISION FOR INCOME TAXES--(continued)
The effective tax rate of the Company varies from the Hong Kong profits tax
rate for the following reasons:
Year ended
March 31,
----------------
2001 2000 1999
---- ---- ----
Hong Kong profits tax rate................................. 16.0% 16.0% 16.0%
Hong Kong profits tax relief for the PRC operations........ (8.0) (8.0) (8.0)
Taxation elsewhere......................................... (0.1) 0.5 1.1
Asset impairment loss not allowable for tax deduction...... 0.4 -- 21.8
Other items................................................ 0.4 0.6 1.1
---- ---- ----
8.7% 9.1% 32.0%
==== ==== ====
Under the Hong Kong tax authority's Departmental Interpretation and Practice
Notes, a company based in Hong Kong, but with substantially all of its
manufacturing operations located in the PRC conducted pursuant to a processing
agreement entered into with a PRC company, can enjoy profit apportionment
through which only 50% of its manufacturing profit is subject to Hong Kong
profits tax. Substantially all the Company's manufacturing operations are
located in Shenzhen, PRC, and conducted pursuant to a processing agreement
entered into with a PRC company. Under profits apportionment, only 50% of the
profits of the Company is subject to Hong Kong profits tax. Such tax
concession is granted based on annual application by the Company and there can
be no assurance that the Hong Kong tax authority will continue to grant such
tax concession to the Company and other Hong Kong companies with manufacturing
operations in the PRC, or that the Company will not lose such concession in
the future as a result of changes in Hong Kong tax law or the interpretation
of such law.
Since Fiscal 1996, for tax filing purposes, the Company has apportioned a
substantial amount of its profits to activities outside Hong Kong. The Hong
Kong tax authority is examining the Company's activities with respect to
several factors that it uses to ascertain the true geographic nature of the
Company's activities. Although the Company cannot assure that the Hong Kong
tax authority will not insist on a different apportionment that would subject
the Company to payment of taxes, the Company has made provisions for taxation
on the basis that only 50% of the profits of the Company is subject to Hong
Kong profits tax.
As of March 31, 2001, the Company had, for US income tax return purpose,
available Federal net operating loss carry forward of $423, which expires on
March 31, 2020, and State net operating loss carry forward of $278, which
expires on March 31, 2005 and had for its operation in Taiwan operating loss
carry forward of $46, which expires on March 31, 2006.
9. CREDIT FACILITIES
At March 31, 2001, the Company had unsecured letter of credit facilities
available of $8,508. No amounts were outstanding at March 31, 2001 and 2000.
Interest rates in respect of credit facilities are generally based on the
weighted average lending rates of 6.15% (2000:8.11%) and the letter of credit
is normally subject to annual review.
10. EMPLOYEE BENEFIT PLANS
Before December 2000, the Company had an established defined contribution
benefit plans for its Hong Kong employees. The assets of the plans were
managed by independent trustees. Employees could elect not to make
contributions to the plans or they could elect to contribute a fixed
percentage from 1% to 5% (in 1% increments) of basic salary. The employer's
contributions were based on 5% of basic salary.
F-13
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
10. EMPLOYEE BENEFIT PLANS--(continued)
The employees were entitled to the entire Company's contributions and
accrued interest thereon after 10 years of complete service or at a reduced
scale of 90% to 30%, after completion of 9 to 3 years of service,
respectively.
Since December 2000, the Company has made contributions, for the benefit of
its Hong Kong employees, to provident funds as required under the Hong Kong
Mandatory Provident Fund ("MPF") regulations. The assets of the plans are held
under provident funds managed by independent trustees who are approved by the
MPF Authority of Hong Kong. The employees can elect not to make contributions
to the plan or they can elect to contribute a fixed percentage from 1% to 5%
(in 1% increments) of individual employee's monthly compensation as additional
voluntary contributions. The employer's contributions are based on 5% of
individual employees' monthly basic salary. While the employees can withdraw
and/or terminate the additional voluntary contributions at any time, their
entitlement to the employer's contributions are as follows:
1) Up to a limit of $2 per year of service for an individual employee,
the employees are entitled to the whole of the employer's contributions and
accrued interest thereon immediately, however they can only withdraw the
amount upon reaching retirement age as defined under the MPF rules.
2) For any contribution in excess of the above limit, the employees are
entitled to the whole of the employer's contributions and accrued interest
thereon after 10 years of complete service or at a reduced scale of 90% to
30%, after completion of 9 to 3 years of service, respectively.
In addition, certain subsidiaries of the Company are required to contribute
amounts based on employees' salaries to the retirement schemes as stipulated
by relevant local authorities. The employees are entitled to the Company's
contributions subject to the regulations of the relevant local authorities.
Total expense related to the above plans was $239 in 2001, $176 in 2000 and
$184 in 1999.
11. COMMITMENTS AND CONTINGENCIES
(a) Capital commitments
As of March 31, 2001, the Company and its subsidiaries had contracted for
capital expenditure on property, plant and equipment of $ 4,346.
(b) Operating leases
The Company and its subsidiaries lease certain land and buildings under
operating leases, most of which do not contain renewal options or escalation
clauses, which expire through December 2007. Rental expense under operating
leases for the years ended March 31, 2001, 2000 and 1999 amounted to $2,202,
$2,083 and $1,599, respectively.
F-14
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
11. COMMITMENTS AND CONTINGENCIES--(continued)
The aggregate annual minimum operating lease commitments under all non-
cancelable leases are as follows:
Year Ending March 31,
---------------------
2002................................................................ $1,803
2003................................................................ 1,403
2004................................................................ 818
2005................................................................ 200
2006................................................................ 184
Thereafter.......................................................... 124
------
$4,532
======
(c) Litigation
In June 1999, a complaint was filed in the United States District Court of
New York by certain holders of Trust Enhanced Dividend Securities (the
"TrENDS") against the Company, the Chairman and a director of the Company and
others. The complaint seeks compensatory damages and legal expenses, pursuant
to federal securities laws, based on alleged misrepresentations and omissions
in the documents which contains financial information of the Company and by
which TrENDS were offered to the public for initial purchase. During the year
ended March 31, 2001, pursuant to the stipulation, the court dismissed the
Company from the action with prejudice and decided the motions to dismiss and
narrowed the case against the Chairman and others regarding the adequacy of
disclosure regarding short selling of the Company's common stock upon the
issuance of the TrENDS and the knowledge of the defendants in connection
therewith. Additionally, the Company, the Chairman and a defendant entered
into certain indemnification agreements with certain other defendants in
connection with the TrENDS offering. Certain of these indemnification
agreements may require that under certain circumstances the Company, the
Chairman and/or a defendant indemnify those other defendants from certain
liabilities that those other defendants may incur to plaintiff or to the
purported plaintiff class. The Chairman and a defendant have, in turn,
provided a deed of indemnity to the Company pursuant to which they have agreed
to indemnify the Company from liabilities related to the TrENDS offering. The
Company cannot predict the outcome of this action against the remaining
defendants.
On July 2, 1999, the Company received an amended and restated demand for
arbitration filed by the former chief executive officer, who claims either
payment of $32.4 per month or a lump sum payment of approximately $1,037,
subject to an appropriate present value discount, pursuant to his employment
contract after being terminated during the year, and approximately $10,000 for
emotional distress and other torts. On August 4, 2000, a decision was rendered
in the arbitration and the claims of the former chief executive officer were
denied. Accordingly, effective March 31, 2000, the Company reversed the
remaining recorded accrual for settlement of this matter of $862. Further, the
net result of the arbitration was a judgment of an award of $520 in favor of
the Company and against the former chief executive officer. During the year
ended March 31, 2001, the former chief executive officer successfully
challenged the arbitration award in court. The Company has made the appeal but
cannot predict the outcome of this action.
(d) Unasserted claims or assessments
R.H. Murphy Co., Inc. ("Murphy") is the owner of U.S. Reexamined Patent
5,400,904 C1 and certain related foreign patents, which patents are directed
to specific features in trays used to carry integrated circuits. Murphy has
notified Peak and certain of Peak's customers that it believes these patents
are infringed by certain integrated circuit trays that Peak provides to its
customers, and indicated that licenses to these patents are available. Peak
does not believe that any valid claim of these patents is infringed, and is
proceeding consistent with that belief.
F-15
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
11. COMMITMENTS AND CONTINGENCIES--(continued)
(e) Foreign exchange contracts
As of March 31, 2001 and 2000, there were no outstanding foreign exchange
contracts.
12. COMMON STOCK
In September 2000, the board of directors authorized the repurchase, at
management's discretion, of up to $10,000 of Company's common stock at prices
not to exceed 150% of the Company's net asset value per share. Common stock
repurchased will be cancelled immediately. The excess of purchase price over
par value is charged to additional paid in capital.
During the year ended March 31, 2001, the Company repurchased 166,500 shares
at an average cost of $7.12 per share.
13. RELATED AND AFFILIATED PARTY TRANSACTIONS
The Company had the following significant transactions with certain related
and affiliated parties:
Year ended March 31,
--------------------
2001 2000 1999
------ ------ ------
Sales to related companies:
Certain subsidiaries of QPL International Holdings
Limited ("QPL")....................................... $2,677 $3,897 $2,781
Certain subsidiaries of ASAT Holdings Limited
("ASAT").............................................. 4,810 4,549 2,488
EEMS Italia S.P.A. ("EEMS")............................ -- 149 1,172
------ ------ ------
$7,487 $8,595 $6,441
====== ====== ======
Engineering consultancy fees to Chamberlain, Inc....... $ 68 $ 14 $ --
Legal and professional fees to Jack Menache............ -- 24 --
Legal and professional fees to Richards Butler......... -- -- 241
Settlement of legal and professional fees on behalf of
Mr. T. L. Li who reimbursed the Company fully prior to
balance sheet date.................................... -- -- 891
Management fee from EEMS, Inc.......................... -- -- 20
Commission expense to EEMS............................. -- 33 61
The amounts due from/to related companies as of March 31, 2001 and 2000 were
as follows:
March 31,
---------
2001 2000
---- ----
Amounts due from certain subsidiaries of:
QPL............................................................. $289 $116
ASAT............................................................ 300 517
---- ----
$589 $633
==== ====
The amounts are unsecured, interest free and are repayable on demand.
Mr. T.L. Li, who is a director and principal shareholder, is a director of
and has substantial equity interests in QPL, ASAT and EEMS. During the year
ended March 31, 2000, ASAT, a former wholly owned subsidiary of QPL, became an
affiliate of QPL and EEMS ceased to be a related company.
F-16
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
13. RELATED AND AFFILIATED PARTY TRANSACTIONS--(continued)
Mr. Jack Menache was a director and currently is an officer of the Company.
Mr. Robin Nicholson, a former director of the Company, is a partner of
Richards Butler.
Chamberlain, Inc. is a corporation wholly-owned by Jim Pylant, son of John
Pylant, who is currently an officer of the Company.
14. SEGMENT INFORMATION
The Company and its subsidiaries operate in one business segment, which is
to manufacture and sell plastic tubes, trays and other related products which
are used for the storage and transportation of semiconductor and other
electronic components such as connectors, resistors and capacitors.
An analysis of net sales, operating profit and identifiable assets by
geographic location is as follows:
Hong Other
Kong & United Asian
PRC States countries Eliminations Consolidated
------- ------- --------- ------------ ------------
Year ended March 31,
2001
Net sales to third
parties................ $51,253 $11,433 $15,953 $ -- $ 78,639
Net sales to related
companies.............. 7,487 -- -- -- 7,487
Transfer between
geographic areas....... 26,639 -- 1,581 (28,220) --
------- ------- ------- -------- --------
Total net sales....... $85,379 $11,433 $17,534 $(28,220) $ 86,126
------- ------- ------- -------- --------
Depreciation and
amortization........... $ 5,565 $ 137 $ 85 $ -- $ 5,787
------- ------- ------- -------- --------
Operating profit
(loss)................. $16,420 $ (461) $ (412) $ (328) $ 15,219
------- ------- ------- -------- --------
Interest income......... $ 1,499 $ 1 $ 12 $ -- $ 1,512
------- ------- ------- -------- --------
Income (loss) before
tax.................... $17,982 $ (460) $ (653) $ (328) $ 16,541
------- ------- ------- -------- --------
Income tax.............. $ 1,450 $ -- $ (12) $ -- $ 1,438
------- ------- ------- -------- --------
Capital expenditure..... $11,922 $ 169 $ 267 $ -- $ 12,358
------- ------- ------- -------- --------
Property, plant and
equipment.............. $55,872 $ 606 $ 337 $ -- $ 56,815
Other identifiable
assets................. 22,025 3,550 3,423 (1,373) 27,625
Corporate assets........ 33,901
--------
Total assets.......... $118,341
========
F-17
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
14. SEGMENT INFORMATION--(continued)
Hong Other
Kong & States Asian
PRC United countries Eliminations Consolidated
------- ------- --------- ------------ ------------
Year ended March 31,
2000
Net sales to third
parties................ $43,261 $13,378 $18,295 $ -- $ 74,934
Net sales to related
companies.............. 8,595 -- -- -- 8,595
Transfer between
geographic areas....... 27,388 -- 1,586 (28,974) --
------- ------- ------- -------- --------
Total net sales....... $79,244 $13,378 $19,881 $(28,974) $ 83,529
------- ------- ------- -------- --------
Depreciation and
amortization........... $ 4,474 $ 126 $ 136 $ -- $ 4,736
------- ------- ------- -------- --------
Operating profit
(loss)................. $11,333 $(1,423) $ 33 $ (133) $ 9,810
------- ------- ------- -------- --------
Interest income......... $ 421 $ 5 $ 115 $ -- $ 541
------- ------- ------- -------- --------
Interest expense........ $ 7 $ -- $ -- $ -- $ 7
------- ------- ------- -------- --------
Income (loss) before
tax.................... $12,026 $(1,342) $ 66 $ (133) $ 10,617
------- ------- ------- -------- --------
Income tax.............. $ 941 $ -- $ 29 $ -- $ 970
------- ------- ------- -------- --------
Capital expenditure..... $14,322 $ 616 $ 79 $ -- $ 15,017
------- ------- ------- -------- --------
Property, plant and
equipment.............. $51,460 $ 699 $ 162 $ -- $ 52,321
Other identifiable
assets................. 27,430 2,738 4,697 (1,045) 33,820
Corporate assets........ 18,667
--------
Total assets.......... $104,808
========
Hong Other
Kong & United Asian
PRC States countries Eliminations Consolidated
------- ------- --------- ------------ ------------
Year ended March 31,
1999
Net sales to third
parties................ $32,395 $10,755 $16,644 $ -- $ 59,794
Net sales to related
companies.............. 6,441 -- -- -- 6,441
Transfer between
geographic areas....... 23,067 -- 2,073 (25,140) --
------- ------- ------- -------- --------
Total net sales....... $61,903 $10,755 $18,717 $(25,140) $ 66,235
------- ------- ------- -------- --------
Depreciation and
amortization........... $ 3,761 $ 88 $ 139 $ -- $ 3,988
------- ------- ------- -------- --------
Operating profit
(loss)................. $ 2,193 $ (146) $ 654 $ (18) $ 2,683
------- ------- ------- -------- --------
Interest income......... $ 643 $ 39 $ 5 $ -- $ 687
------- ------- ------- -------- --------
Interest expense........ $ 7 $ -- $ -- $ -- $ 7
------- ------- ------- -------- --------
Income (loss) before
tax.................... $ 3,844 $ (225) $ 574 $ (18) $ 4,175
------- ------- ------- -------- --------
Income tax.............. $ 1,225 $ (38) $ 151 $ -- $ 1,338
------- ------- ------- -------- --------
Capital expenditure..... $28,834 $ 134 $ 136 $ -- $ 29,104
------- ------- ------- -------- --------
Property, plant and
equipment.............. $42,884 $ 372 $ 261 $ -- $ 43,517
Other identifiable
assets................. 34,311 1,539 4,600 (912) 39,538
Corporate assets........ 10,598
--------
Total assets.......... $ 93,653
========
F-18
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
14. SEGMENT INFORMATION--(continued)
Intercompany sales between geographic areas are recorded at cost plus a
mark-up. Such transfers are eliminated on consolidation.
Property, plant and equipment and other identifiable assets are those assets
used in the Company's operations in each geographic area. Corporate assets
represent cash and cash equivalents.
An analysis of sales by geographic destinations for the relevant years is as
follows:
Year Ended March
31,
-------------------
2001 2000 1999
----- ----- -----
North Asia.............................................. 60.1% 53.5% 54.9%
South Asia.............................................. 18.1 21.2 24.3
North America........................................... 16.3 19.0 17.0
Europe.................................................. 5.5 6.3 3.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
North Asia represents China and Hong Kong, Philippines, Taiwan, Japan and
Korea while South Asia represents Singapore, Malaysia and Thailand.
15. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
accounts receivable.
The Company places its temporary cash investments with various financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. The Company believes that no significant credit risk
exists as these investments are made with high-credit, quality financial
institutions.
The Company's business activities and accounts receivable are with customers
in the semiconductor industries, the majority of which are located throughout
Asia and the United States of America. The Company performs ongoing credit
evaluation of its customers. The Company believes that no significant credit
risk exists as credit losses, when realized, have been within the range of
management's expectation. The Company has not experienced any significant bad
debts. Bad debt expense was $113 in 2001, $192 in 2000 and $100 in 1999.
No customer accounted for more than 10% of the Company's net sales for the
three years in the period ended March 31, 2001 other than one that accounted
for 10.9% during the year ended March 31, 1999.
F-19
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
16. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
An executive share option plan was adopted by the Board of Directors and
approved by the sole shareholder on March 18, 1997. Another share option plan
was approved by the Board of Directors and shareholders in the annual general
meeting on July 27, 1998. With additional shares approved by shareholders in
the annual general meeting on November 3, 1999, an aggregate of 3,400,000
shares has been reserved for issuance under the plans. Under the plans,
directors, officers, employees of, and advisors and consultants to the Company
or its affiliates may, at the discretion of a committee of the Board of
Directors administering the plan, be granted the general options to purchase
shares at an exercise price per share of no less than the par value of a
share. Options granted on various dates have different vesting schedules
depending on the conditions of the grant.
Outstanding options
---------------------------
Weighted average
Number of exercise price
shares per share
--------- ----------------
Outstanding at March 31, 1998.................... 604,935 12.82
Granted (fair value of $6.91).................... 272,016 12.25
Exercised........................................ (47,580) 12.33
Forfeited........................................ (31,169) 12.27
---------
Outstanding at March 31, 1999.................... 798,202 12.68
Granted (fair value of $4.08).................... 1,621,860 6.85
Exercised........................................ (97,714) 4.42
Forfeited........................................ (529,752) 12.57
---------
Outstanding at March 31, 2000.................... 1,792,596 7.89
Granted (fair value of $2.68).................... 953,850 7.62
Exercised........................................ (9,400) 3.66
Forfeited........................................ (238,453) 9.30
---------
Outstanding at March 31, 2001.................... 2,498,593 7.67
=========
The following is additional information relating to options outstanding as
of March 31, 2001:
Weighted average
Number of shares remaining
Range of ----------------------- Weighted average contractual life
exercise prices Outstanding Exercisable exercise prices (years)
--------------- ----------- ----------- ---------------- ----------------
$ 0--$ 4.99 452,483 302,483 $ 3.666 8.087
$ 5.00--$ 7.49 614,500 138,375 $ 6.331 6.397
$ 7.50--$ 9.99 940,510 320,227 $ 8.465 3.284
$10.00--$12.99 466,884 241,884 $11.085 5.935
$13.00--$19.99 24,216 24,216 $19.375 7.000
F-20
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
16. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS--(continued)
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS
No. 123. The weighted average fair values of stock options at date of grant of
$2.68, $4.08 and $6.91 per option for the years ended March 31, 2001, 2000 and
1999, respectively, were estimated using the Black-Scholes option pricing
model with the following assumptions:
Year ended March 31,
-------------------------
2001 2000 1999
------- ------- -------
Expected life of options.......................... 3 years 3 years 3 years
Risk-free interest rate........................... 4.25% 6.25% 5.49%
Expected volatility of underlying stock........... 46% 107% 90%
Dividend.......................................... -- -- --
The Black-Scholes option pricing model requires the input of subjective
assumptions, including the expected volatility of stock price. Because changes
in subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing model may not necessarily provide a
reliable single measure of the fair value of the stock options.
An employee stock purchase plan (the "Old Plan") was adopted by the Board of
Directors and approved by shareholders in July 1998. An aggregate of 160,000
shares has been reserved for issuance under the Old Plan and most of the
reserved shares were issued during the year ended March 31, 2001. Under the
Old Plan, employees of the Company, participating in the Old Plan, may
purchase shares at a price equal to 85% of the lower of the fair market value
of the shares on the last trading day in an accumulation period or the last
trading day before the commencement of the applicable offering period, but no
less than the par value, of a share of the Company in any accumulation period.
Accumulation periods under the Old Plan are for a period of 6 months and
commence on April 1 and October 1 each year. Employees may elect for a minimum
of 1% and a maximum of 20% of eligible salary to be withheld for investment in
this Old Plan. On the last day of each accumulation period each employee shall
be deemed to have elected to purchase the number of shares at a price
determined above. Employees may withdraw from the Old Plan at any time and
receive a refund of all contributions, without interest, made in the
accumulated period. Employees' contributions to the Old Plan were nil, $300
and $25 for years ended March 31, 2001, 2000 and 1999 respectively. Pursuant
to the Old Plan, 76,754 shares of common stock were issued to employees during
the year ended March 31, 2001 at an average subscription price of $2.10,
69,187 and 10,286 shares of common stock were issued to employees during the
year ended March 31, 2000 at an average subscription price of $1.97 and $2.26,
respectively, and no shares were issued during the year ended March 31, 1999.
On August 1, 2000, the board of directors adopted and on September 13, 2000
the shareholders approved a new employee stock purchase plan (the "New Plan")
which allows eligible employees to purchase the Company's common stock at a
price equal to 85% of the lesser of the fair market value of a share on the
first trading day and the last trading day in each offering period of three
months from January 1, 2001 to December 31, 2010. A total of 200,000 shares
have been reserved for issuance under the New Plan. Eligible employees may
elect for a minimum of 1% and a maximum of 20% of eligible salary to be
withheld for investment in the New Plan. Employees may withdraw from the Plan
at any time and receive a refund of all contributions, without interest, made
in any offering period. Employee's contributions to the New Plan were $139 for
the year ended March 31, 2001. No shares were issued during the year ended
March 31, 2001.
F-21
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
16. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS--(continued)
If the Company had accounted for its stock option plans and the Stock
Purchase Plan by recording compensation based on the fair value at grant date
for such awards consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
as follows:
Year ended March 31,
----------------------
2001 2000 1999
------- ------ -------
Pro forma net income (loss)......................... $12,568 $6,967 $(1,278)
Pro forma earnings (loss) per share
--Basic........................................... $ 0.92 $ 0.51 $ (0.09)
--Diluted......................................... $ 0.90 $ 0.49 $ (0.09)
17. SUBSEQUENT EVENTS
Pursuant to an offer by the Company to purchase up to 1,800,000 TrENDS, on
May 10, 2001, 473,876 TrENDS were tendered by their holders to the Company and
were purchased by the Company at $6.50 each. The total consideration of $3,080
will be deducted against the shareholders' equity of the Company.
F-22
Schedule II--Valuation and qualifying accounts
(In thousands)
Additions
---------------------
Balance at Charged to Charged to Balance at
beginning costs and other Bad debts end of
Description of period expenses accounts written off period
----------- ---------- ---------- ---------- ----------- ----------
Allowance for doubtful
accounts
Year ended March 31,
1999................... 0 100 0 0 100
Year ended March 31,
2000................... 100 192 0 0 292
Year ended March 31,
2001................... 292 113 0 (61) 344
F-23