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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Commission file number:
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PEAK INTERNATIONAL LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NOT APPLICABLE
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
BERMUDA
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
UNITS 3, 4, 5 AND 7, 37TH FLOOR
WHARF CABLE TOWER
9 HOI SHING ROAD
TSUEN WAN
N.T., HONG KONG
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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Securities registered or to be registered pursuant to Section 12(b) of the
Act.
Title of each class Name of each exchange on which
Common Stock, par value US$0.01 registered
per share Nasdaq Stock Market National Market
-----------
Securities registered or to be registered pursuant to Section 12(g) of the
Act.
NONE
(Title of Class)
-----------
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
-----------
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
<TABLE>
<S> <C>
Common Stock, par value US$0.01 per share....................... 13,461,538
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [_] Item 18 [X]
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[LOGO OF PEAK INTERNATIONAL APPEARS HERE]
ANNUAL REPORT ON FORM 20-F 1998
<PAGE>
TABLE OF CONTENTS
Page
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PART I
Item 1.Description of Business............................................ 1
Item 2.Description of Property............................................ 16
Item 3.Legal Proceedings.................................................. 16
Item 4.Control of Registrant.............................................. 17
Item 5.Nature of Trading Market........................................... 17
Item 6.Exchange Controls and Other Limitations Affecting Security Hold-
ers...................................................................... 17
Item 7.Taxation........................................................... 18
Item 8.Selected Consolidated Financial Data............................... 21
Item 9.Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 22
Item 10.Directors and Executive Officers of Registrant.................... 26
Item 11.Compensation of Directors and Executive Officers.................. 28
Item 12.Options to Purchase Securities from Registrant or Subsidiaries.... 28
Item 13.Interest of Management in Certain Transactions.................... 29
PART II
Item 14.Description of Securities to be Registered........................ 30
PART III
Item 15.Defaults Upon Senior Securities*.................................. 30
Item 16.Changes in Securities and Changes in Security for Registered Secu-
rities*.................................................................. 30
PART IV
Item 17.Financial Statements*............................................. 30
Item 18.Financial Statements.............................................. 30
Item 19.Financial Statements and Exhibits................................. 30
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*Omitted because item is not applicable
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PART I
All references to the "Company" 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
20-F ("Annual Report") to the historical business and operations of the
Company 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 1994," "Fiscal 1995,"
"Fiscal 1996," "Fiscal 1997," "Fiscal 1998," Fiscal 1999," and" "Fiscal 2000"
are to the years ended March 31, 1994, 1995, 1996, 1997, 1998, 1999 and 2000,
respectively.
Except for the historical information contained herein, this Annual Report
contains forward looking statements, which are subject to significant risks
and uncertainties. Forward looking statements are included in the "Description
of Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" sections and elsewhere in this Annual Report.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance, or achievements
of the Company, or industry results, to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. The principal risks and uncertainties that may
cause actual results to vary materially from the forward looking statements
contained herein include those described in the section entitled "Description
of Business--Risk and Uncertainties" as well as a wide variety of other
factors, many of which are outside the Company's control.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company is a leading supplier of precision engineered packaging products
for the storage, transportation and automated handling of semiconductor
devices and other electronic components. The Company's products are designed
to interface with automated handling equipment used in the production and
testing of semiconductor and electronic products. The Company's customers
include semiconductor companies such as Texas Instruments, SGS-Thomson,
Philips and Motorola, as well as subcontract assembly and test companies such
as ASAT and ASE. The Company's 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.
The Company produces principally matrix trays, shipping tubes, reels and
carrier tape. The Company also produces leadframe boxes and interleaves used
in the storage and transportation of leadframes. In addition, the Company
collects and sells recycled matrix trays and reels using the name "SemiCycle."
The Company believes that its recycling programs, whereby the Company collects
and recycles both products manufactured by itself and products manufactured by
others, enable it to expand its customer base by providing it with
opportunities to supply both newly-manufactured and recycled products to
customers.
The Company's principal production facilities, located in Shenzhen, China,
are equipped with injection molding machines, extruders, carrier tape
machines, mixing machines, ultra sonic welding machines and other machinery
and equipment. The Company maintains 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. The Company also has in-
house compounding capabilities for the mixing, blending and pelletizing of raw
materials used in its production processes. In addition, the Company maintains
computer aided design ("CAD") stations
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which are linked electronically to the Company's sales offices to enable the
sharing of design information. Finalized designs are transmitted
electronically to the Company's in-house tooling facilities for the production
of molds, dies and tooling.
The Company maintains recycling programs through which used trays and reels,
both those manufactured by the Company and those manufactured by others, are
collected from end users, such as Surface Mount Technology ("SMT") companies
and other types of assemblers of circuit boards and manufacturers of computers
and other end products, at approximately 550 locations in Asia, North America
and Europe by the Company, its agents and independent contractors. The trays
and reels collected are then transported principally to the Company's
production facilities in Shenzhen, China, where they undergo processing,
including inspection, cleaning and anti-static coating, if appropriate. They
are placed into inventory in the Company's warehousing facilities pending sale
to customers. Recycled trays and reels that do not meet the Company's quality
requirements are ground and reused in the manufacturing processes for new
products. Currently, approximately 2.5 million units, largely trays, are
collected each month for recycling by the Company.
The Company maintains five sales offices, located in Hong Kong; Singapore;
Penang, Malaysia; Milpitas, California; and Austin, Texas whereby direct sales
are made to customers. The Company also sells its products through eight sales
agents located in Japan (four); Seoul, South Korea; Taipei, Taiwan; Rieti,
Italy; and Shanghai, China. The Company maintains, either directly or through
its local sales representatives, a network of Just-in-Time ("JIT") warehouses
located near the production facilities of its customers.
The Company's principal executive offices are located in Units 3, 4, 5 and
7, 37th Floor, Wharf Cable Tower, 9 Hoi Shing Road, Tsuen Wan, N.T., Hong Kong
and its telephone number is (852) 2402-5100.
STRATEGY
The Company's objective is to increase its market presence in serving the
growing 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
its integrated manufacturing capability and its recycling programs, with
collection points in Asia, North America and Europe. The key elements of the
Company's business strategy are as follows:
Leverage Industry Expertise of Senior Management. Members of the Company's
senior management team have extensive experience in the semiconductor industry
which provides them with a first hand understanding of customer and market
requirements. The Company believes that the industry experience and close
customer relationships of its senior management enable the Company to identify
and evaluate potential markets for future product development. The Company
intends to maintain and further develop relationships with appropriate senior
executive officers of its customers.
Maintain Close Customer Relationships. The Company's strategy is to maintain
close relationships with its customers through an extensive network of
strategically located sales, customer service and product distribution sites
and by working closely with its customers in developing precision engineered
packaging solutions for the storage, transportation and automated handling of
their products. The Company believes that its ability to distribute its
products to customers located in Asia, North America and Europe allows the
Company 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 the Company's product strategy with respect to both new and recycled
products. The Company believes that its recycling programs, whereby the
Company collects and recycles both products manufactured by itself and
products manufactured by others, enable it to expand its customer base by
providing it with opportunities to supply both newly-manufactured and recycled
products to customers. In addition, the Company's recycling programs provide
it with opportunities to monitor changes in particular customer requirements.
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Shorten Delivery Time. The Company's strategy is to attract and retain
customers on the basis of its ability to deliver large quantities of products
on short notice to meet customer demand. The Company believes that short
delivery time is of particular importance to its customers in the
semiconductor and electronics industries where requirements for packaging
products are sometimes difficult to forecast accurately. The Company believes
that stocking certain key products in its network of JIT warehouses,
maintained either by the Company's local sales representatives or the Company,
reduces the amount of time required for the delivery of its products to its
customers, thereby improving its responsiveness to customer requirements for
flexibility in delivery and generally facilitating the improvement of
inventory management by its customers. In addition, the Company believes that
its inhouse tooling facilities and raw material compounding capabilities
obviate the necessity of working with sub-contractors and enable the Company
to achieve shorter production cycles.
Offer a Broad Range of Products. The Company's strategy is to increase the
range of its products, both new and recycled, in order to meet customer
requirements. The Company's current product offerings, which include matrix
trays, tubes, tape-and-reel and other carrier products, allow it to service a
broad range of customers which often have needs across multiple product
categories. In recent years, the Company has expanded its product offerings
from tubes to include matrix trays, recycled matrix trays and tape-and-reel
products. The Company also is currently engaged in the study and development
of new product lines, with an emphasis on packaging products designed to carry
high-value components related to the semiconductor and electronics industries.
The Company's production facilities have been formally approved or "qualified"
by a number of its customers across its product categories. The Company
believes that its customers value the range of its product offerings and that
its ability to offer a broad range of products allows the Company to compete
effectively with other suppliers of packaging products to the semiconductor
and electronics industries, a number of which are single-product suppliers.
The Company's in-house design and tooling capabilities reduce the cycle time
needed for the development of new products and product features by the Company
and facilitate the development of "custom" products by the Company, which
typically requires different prototype stages during product development. The
Company's in-house design and tooling capabilities have also facilitated the
Company's development of new product features such as the "enhanced pocket
strength," "anti-reflective wall" and "high strength ring pedestal" features
for the Company's carrier tape products, for which the Company has patent
applications pending. In addition, the Company's in-house raw material
compounding capabilities enable the Company to better control the quality of
its products to meet customer specifications with respect to characteristics
such as color, transparency and hardness. The Company believes that its
recycling programs, with a monthly collection of approximately 2.5 million
units, enable it to supply a broad range of recycled trays and reels to its
customers.
Increase Volume Supply Capabilities. The Company's strategy is to expand its
production and tooling capacities and its recycling programs so as to increase
its high volume supply capabilities. Since 1992, the Company has expanded the
production capacity of its facilities in Shenzhen, China in order to meet
growing demand for its products. The Company has commenced the construction of
an additional plant to be located approximately three miles from the existing
production facilities, which would double the Company's production capacity.
In addition to increasing production volume, the Company believes that such
expansion will enable the Company to maintain equipment utilization rates
which give it the flexibility to meet high volume requirements from customers
with short lead time. In addition, the Company believes that its inventory of
recycled products enables it to supply recycled tray and reel products in
large quantities on short notice.
Emphasize Quality Assurance and Process Control. The Company's strategy is
to attract and retain customers, and price its products, principally on the
basis of the quality of its products and services. The Company maintains a
quality assurance and process control department which, as of March 31, 1998,
consisted of approximately 40 engineers and 230 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. The Company's production facilities in Shenzhen, China
obtained ISO 9002 certification in October 1994 and are subject to follow-up
surveillance audits
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conducted semi-annually thereafter in accordance with normal ISO procedures.
In addition, customers generally require the Company to undergo a one- to two-
month "qualification" process before purchasing in volume from the Company.
Such qualification processes often include on-site certification of the
Company's production facilities by members of the customer's engineering and
quality control staff. The Company's production facilities in Shenzhen, China
have been qualified by such customers as Intel, Texas Instruments, Motorola,
NEC, Toshiba and others. The Company believes that in addition to its quality
assurance and process control department, its in-house design and tooling
facilities and raw material compounding capabilities have enabled it to better
control the quality of its products.
HISTORY
The Company commenced operations in 1975, principally as a manufacturer of
IC shipping tubes, with production facilities located in Tsuen Wan, Hong Kong.
In 1987, the Company relocated its production facilities to Shenzhen, China.
In 1992, the Company was acquired by Mr. T.L. Li, a semiconductor industry
entrepreneur and investor. See "Directors and Executive Officers of
Registrant." In the same year, the Company's in-house tooling capability was
substantially augmented. In 1992, the Company commenced the production and
sale of matrix trays. At the same time, the Company commenced the
establishment of a distribution network of JIT warehousing facilities located
near areas of semiconductor manufacturing activity. Additionally, the Company
commenced the operation of its recycling programs through subsidiaries doing
business under the trade name "SemiCycle." In 1994, the Company commenced the
sale of the reels used in tape-and-reel IC carriers and in 1996, the Company
commenced the sale of the tape used in such carriers. Since 1992, the Company
has expanded the production capacity of its facilities in Shenzhen, China in
order to meet growing demand.
MARKETS SERVED BY THE COMPANY
The Company's products are used for the storage and transportation of
semiconductor devices and other electronic components such as connectors,
resistors and capacitors. The Company's products are designed to interface
with automated handling equipment used in the production 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 produced by the Company.
In the technologically more advanced 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
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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, such as QFP (Quad Flat Package), TQFP (Thin Quad Flat Package), TSOP
(Thin Small Outline Package) and BGA (Ball Grid Array) modules, are typically
stored and transported in matrix trays or tape-and-reel carriers such as those
produced by the Company.
In recent years, the Company has experienced a significant increase in
demand for its 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
has shifted 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, with the
advent of SMT and increasing lead-count and finer lead-to-lead spacing,
semiconductor devices have become more susceptible to mechanical damage during
shipment. As a result, the use of higher precision engineered packaging
products such as matrix trays has increased. Third, the Company believes that
the recent trend in the global semiconductor industry towards increased out-
sourcing of various steps of the integrated circuit ("IC") production process,
such as assembly and testing, will also benefit the Company as semiconductor
companies increasingly look 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.
In recent years, the total available market ("TAM") for semiconductor
devices has grown significantly and industry sources estimate that such growth
is likely to continue. The growth in the market for the Company's products,
however, is related to the growth in unit volume, namely the number of
semiconductor devices produced, which may differ from the growth in the TAM
for semiconductor devices, as a result of variation over time in the average
selling price per semiconductor device. See "--Risks and Uncertainties--
Dependence on Semiconductor and Electronics Industries."
ELECTRONIC COMPONENTS
Electronic 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
gages 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.
In recent years, the TAMs for electronic components such as electronic
connectors, resistors and capacitors have grown significantly and industry
sources estimate that such growth is likely to continue. The growth in the
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market for the Company's products, however, is related to the growth in unit
volume, namely the number of electronic components produced, which may differ
from the growth in the TAMs for electronic components, as a result of
variation over time in the average selling price per electronic component. In
addition, the Company's products serve only portions of the TAMs for various
electronic components, principally those for SMT components such as SMT
ceramic chip capacitors and SMT chip resistors. See "--Risks and
Uncertainties--Dependence on Semiconductor and Electronics Industries."
PRODUCTS AND PRODUCTION PROCESSES
The Company produces matrix trays, tubes and tape-and-reel products such as
reels and carrier tape. The Company also sells recycled matrix trays and
reels. In addition, the Company produces leadframe boxes and leadframe
interleaves used in the storage and transportation of leadframes.
The Company's 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
(called "warpage") at various temperatures. The Company's 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.
TRAY PRODUCTS
The Company's tray products may be used for the storage and transportation
of SMT semiconductor devices such as QFP, TQFP, PQFP (Plastic Quad Flat
Package), TSOP, PGA (Pin Grid Array) and BGA modules. 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. The Company sells high temperature trays (which may be baked to a
temperature of 150(degrees)C and above), low temperature trays (which may be
baked to a temperature of up to 150(degrees)C), non-bakeable trays and lots
consisting solely of recycled trays.
At the beginning of the tray production process, samples of incoming raw
materials, largely polyarysulphon, polysulphon, polypropylene and others, are
inspected and tested for key material properties. Raw materials are mixed and
blended with other materials in accordance with the Company's 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 then dried. Trays made from heat resistant materials undergo a
baking process. Thereafter, samples of new trays from each manufactured lot
are inspected for visible defects and warpage and tested for electrostatic
discharge characteristics, and have their dimensions checked, prior to
shipment.
TUBE PRODUCTS
The Company's tube products may be used for the storage and transportation
of SMT semiconductor devices such as PLCC (Plastic Leaded Chip Carrier) and
SOIC (Small Outline Integrated Circuit) modules and PTH semiconductor devices
such as PDIP modules, as well as other products used in the electronics
industry, such as connectors and sockets.
At the beginning of the tube production process, samples of incoming raw
materials largely PVC resin and various additives, 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. The pellets are extruded into tubes, which undergo further processing
such as hole punching, silk screen marking and anti-static coating, before
samples of the new tubes are inspected for visible defects and tested for
electrostatic discharge prior to shipment.
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TAPE-AND-REEL PRODUCTS
The Company's tape-and-reel products may be used for the storage and
transportation of SMT semiconductor devices such as TQFP, BGA, PLCC, SOJ
(Small Outline Plastic "J" Bend), SOIC and other modules, as well as other
products used in the electronics industry, such as connectors and sockets.
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. The Company commenced sales of
carrier tape in October 1996 and expects carrier tape, and reels in general,
to represent an increasing proportion of the Company's product mix.
The production process for reels is similar to that for trays except that
the raw material used in the production of reels is principally polystrene 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, polystyrene, polyester or polycarbonate tape is
purchased from suppliers in large rolls and slit to desired widths in-house.
The carrier tape is formed by a combination of thermal, air pressure and hole
punching processes, and thereafter the new carrier tape is inspected for
visible defects prior to shipment. The Company purchases and then resells
cover tape to its customers.
OTHER PRODUCTS
In addition to standard products in its three principal product lines, the
Company also produces an array of "custom" products which include customer-
specific designs of trays, tubes, reels, carrier tape and an assortment of
other carriers. The Company also produces leadframe boxes and leadframe
interleaves which are sold to leadframe suppliers 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, with individual leadframes separated by plastic or
paper interleaves and the stack housed in plastic boxes.
NEW PRODUCT DEVELOPMENT
The Company is currently engaged in the study and development of new product
lines, with an emphasis on packaging products designed for the carriage of
high-value components related to the semiconductor and electronics industries.
The Company undertakes on-going research and development efforts which
emphasize the development of products and features that require precision
engineering in order to better serve its customer base. The Company expanded
its product lines from tubes to include matrix trays in 1992, reels in 1994
and carrier tape in 1996. The Company has developed new product features for
its carrier tape products, such as the "enhanced pocket strength," "anti-
reflective wall" and "high strength ring pedestal" features, for which the
Company has patent applications 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
an annular ring at the bottom of the pocket. The "anti-reflective wall"
feature enables the Company's customers to utilize more effectively their
automated optical inspection equipment to inspect the semiconductor or
electronic components placed in the carrier tape manufactured by the Company.
By placing a chamfered corner in the carrier tape pocket, the feature reduces
the amount of reflection which could interfere with the workings of the
automated optical inspection equipment.
RECYCLING PROGRAMS
The Company conducts its collection operations through subsidiaries and
independent contractors doing business using the trade name "SemiCycle." The
Company recycles trays and reels collected from end users at approximately 550
locations in Asia, North America and Europe by the Company, and its
independent contractors. In the United States, the Company purchases used
trays and reels collected by The SemiCycle Foundation, a Texas non-profit
corporation. See "Interest of Management in Certain Transactions." Tube
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products, made largely of PVC, and carrier tape products, made largely of
polystyrene, polyester and polycarbonate, are generally not recycled.
Currently, approximately 2.5 million units, largely trays, are collected each
month for recycling by the Company. The Company also purchases products for
recycling from independent dealers.
The Company maintains recycling programs through which used trays and reels,
both those manufactured by the Company and those manufactured by others, are
collected from end users. Typical end users include SMT and other types of
assemblers of circuit boards and manufacturers of computers and other end
products. The trays and reels collected are then transported principally to
the Company's production facilities in Shenzhen, China where they undergo
processing, including sorting, inspection, cleaning and anti-static coating,
if appropriate. They are placed into inventory in the Company's warehousing
facilities pending sale to customers. Recycled trays and reels that do not
meet industry quality requirements or the Company's requirements are ground
and reused in the manufacturing processes for new products using the Company's
proprietary processes and production techniques.
In some jurisdictions in which the Company's packaging products are sold or
used, laws and regulations have been adopted or proposed with a view to
promote, among other things, the recycling of packaging materials. In
addition, the International Standard Organization (the "ISO") has incorporated
environmental considerations in formulating its new ISO 14000 quality
standards. The Company's recycling programs provide its customers with
opportunities to select the packaging products that best meet their
requirements in terms of cost and environmental preferences. The Company's
recycling programs help its customers comply with environmental regulations
and meet ISO standards in the area of environmental protection, principally in
two ways. First, the Company provides a recycling alternative to the
traditional disposal methods of landfill and incineration. Second, the
Company's offerings of recycled products assist its customers in complying
with or meeting "recycle-content" and "green product" regulations, standards
or goals.
CUSTOMERS
The Company had an average of approximately 175 customers in each of the
twelve months in Fiscal 1998, including semiconductor companies as well as
subcontract assembly and test companies. The Company also sells its products
to manufacturers of connectors, sockets, passive components such as chip
resistors and capacitors and other types of electronic components. In Fiscal
1998, the Company's top customers were ASAT, Texas Instruments, Philips, QPL,
ASE, Symbios, Motorola, S3, LSI and Hewlett Packard. ASAT, Texas Instruments,
Philips and QPL were the only customers which individually accounted for more
than 5% of the Company's net sales in Fiscal 1998. In the aggregate, the top
ten customers accounted for 51.7%, 51.2% and 53.5% of the Company's net sales
in Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively. The Company has
received awards from customers such as Texas Instruments, Motorola, Hewlett-
Packard, GEC Plessey and Lucent Technologies in recognition of the quality of
its products and services.
A significant portion of the Company's net sales have historically been and
are expected to continue to be derived from ASAT, QPL and other companies in
the QPL Holdings Group. ASAT, QPL and other companies in the QPL Holdings
Group together accounted for approximately 20.9%, 16.1% and 16.3% of the
Company's net sales in Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively.
EEMS has acted as the Company's sales agent in Europe since 1995. See "--Risks
and Uncertainties--Relationship with Principal Shareholder and Potential
Conflicts of Interest."
PRICING
The Company provides price quotations which contemplate the delivery of
products within two weeks of the receipt of purchase orders. Higher prices are
charged for shorter delivery time and any additional services required, such
as local warehousing, special packaging provisions or special markings on the
product. As a general policy, the Company prices its recycled products at a
discount with respect to the price of corresponding new products.
8
<PAGE>
SALES AND MARKETING
The Company maintains five sales offices, located in Hong Kong; Singapore;
Penang, Malaysia; Milpitas, California; and Austin, Texas, whereby direct
sales are made to customers. In addition, the Company sells its products
through eight sales agents located in Japan (four); Seoul, South Korea;
Taipei, Taiwan; Rieti, Italy; and Shanghai, China.
The Company's sales are generally made pursuant to purchase orders received
from its customers. Therefore, the Company generally has no long-term
agreements with or commitments from its customers for the purchase of
products. While customers typically provide the Company with one- to two-month
forecasts of their requirements, such forecasts are not binding.
The following table sets forth the geographic distribution, by percentage,
of the Company's net sales for the periods indicated. See Note 14 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
North Asia........................................ 49.4% 47.5% 53.8%
North America..................................... 20.1 19.9 22.1
South Asia........................................ 23.4 29.4 21.3
Europe............................................ 7.1 3.2 2.8
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
</TABLE>
North Asia represents China and Hong Kong, Philippines, Taiwan, Japan and
Korea while South Asia represents Singapore, Malaysia and Thailand.
DISTRIBUTION
The Company maintains, either directly or through its sales representatives,
a network of JIT warehouses located near the production facilities of its
customers. The following table sets forth the locations of JIT warehouses
maintained by the Company's local sales representatives or by the Company.
<TABLE>
<CAPTION>
ASIA NORTH AMERICA EUROPE
<S> <C> <C>
Japan (seven) Milpitas, California Rieti, Italy
Malaysia (five) Austin, Texas Dublin, Ireland
Shenzhen, China
Shanghai, China
Hong Kong
Keelung, Taiwan
Kaohsiung, Taiwan
Bangkok, Thailand
Manila, Philippines
Singapore
Seoul, South Korea
</TABLE>
The Company also offers drop shipment services for its products, which
provide for the shipment of the Company's packaging products directly to end-
users designated by the Company's customers. Since drop shipment eliminates
the additional step of inspection by the customer prior to shipment to the end
user, quality of service is an important consideration for the customers.
Customers generally place purchase orders with the Company's sales office or
sales agent near their location. The orders are then forwarded together with
the requested shipping date to the Company's production facilities in
Shenzhen, China via the Company's internal electronic mail system, with a copy
to the Company's Hong Kong office for invoicing and accounting purposes.
Employees at the Company's production facilities in Shenzhen, China generally
respond to the local sales office upon receipt of the order with a committed
shipping date. Full container sea freight, which includes most shipments to
JIT warehouses maintained by the Company's local sales
9
<PAGE>
representatives or by the Company, is generally shipped from the Yantian port
located near Shenzhen, China, while loose cargoes and air freight are
generally transported to a warehouse in Hong Kong by trucks for onward
shipment.
The Company's office in Hong Kong is responsible for invoicing local sales
offices and sales agents who in turn are responsible for the invoicing of
customers and for the collection of payment.
RAW MATERIALS
The raw materials used in the Company's production of trays and reels are
polyarysulphone, polysulphone, polypropylene, high impact polystyrene and
others. The principal raw material used in its production of tubes is PVC
resin. The Company purchases rolls of polystyrene, polyester and polycarbonate
tape for formation into carrier tape and purchases rolls of cover tape for
resale to its customers.
The raw materials used in the Company's production of trays and reels are
generally available from various sources worldwide at similar prices. The
Company purchases such materials principally from two suppliers located in the
United States and Malaysia. The Company compounds raw materials with other
materials in accordance with its proprietary processes and production
techniques and formed by injection molding machines into trays. PVC resin is
generally available from various sources worldwide at similar prices. The
Company purchases PVC resin and certain additives used in the production of
tubes principally from three suppliers located in Singapore, Japan and
Germany. PVC resin is mixed and blended with various additives and made into
pellets, based on compounding formulae which vary depending on the
characteristics, such as color, transparency and hardness, required for the
product. The Company purchases the polystyrene tape and polycarbonate tape
used in its carrier tape production process, as well as cover tape, from two
suppliers located in Japan and the United States.
The Company generally purchases the various raw materials used in its
production processes pursuant to purchase orders issued to suppliers one and a
half months before the materials are delivered to the Company. The Company
tries to maintain in Shenzhen, China inventories of raw materials for
approximately two to three months of estimated production requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." From time to time, the Company makes strategic purchases of raw
materials when it believes the prices are favorable. Recycled trays collected
by the Company or by its agents and sold to the Company are initially
accounted for as part of the Company's inventories of raw materials. Following
sorting and processing, recycled trays are subsequently accounted for as part
of the Company's inventories of finished products.
QUALITY ASSURANCE AND PROCESS CONTROL
The Company maintains a quality assurance and process control department.
Quality assurance and statistical process control procedures are performed at
each major stage of production and include the inspection of 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. The Company also conducts "qualification" procedures for
its raw material suppliers. The Company believes that, in addition to its
quality assurance and process control department, its in-house design and
tooling facilities and compounding capabilities have enabled it to control the
quality of its products and that such integrated quality assurance system
enables the Company to ensure end-product integrity and maximize customer
value.
The Company's production facilities in Shenzhen, China were certified as
meeting the ISO 9002 quality standards by the ISO in October 1994, 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 the Company's production processes and the quality
management systems to review and surveillance for periods as long as nine
months. The ISO 9002 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 the
Company's customers as to the quality control in the Company's manufacturing
processes and many of the Company's customers require ISO certification as a
prerequisite for purchasing from the Company.
10
<PAGE>
The Company's production facilities are generally required to undergo a one-
to two-month "qualification" process conducted by prospective customers before
purchasing in volume from the Company. Such qualification processes often
include on-site certification of the Company's production facilities by
members of the customer's engineering and quality control staff. The Company's
production facilities in Shenzhen, China have been qualified by customers such
as Intel, Texas Instruments, Motorola and Toshiba.
COMPETITION
The markets for the Company's products and services are highly competitive.
The Company's products compete with similar products manufactured by other
companies, some of which have substantially greater financial resources than
the Company.
The Company competes in the markets for tray products, tube products and
tape-and-reel products. The Company classifies its 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 the Company in
markets for more than one product. Large single-product manufacturers
typically have international operations similar to those of the Company. Small
local job-shop style manufacturers typically operate only within certain
geographic regions, such as Taiwan and Singapore. The Company is not aware
that any of its major competitors offers the range of products and services
offered by the Company. The Company believes that it competes with large
diversified manufacturers through its focus on serving the semiconductor and
electronics industries, with large single-product manufacturers through its
broad range of product offerings and with smaller local job-shop style
manufacturers through its international organization which enables the Company
to meet the requirements of multinational customers with several production
facilities at various locations.
The Company believes that the principal competitive factors in the markets
for the Company's 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
The Company is subject to various laws, rules and regulations in the PRC
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment. The Company believes that it is
in substantial compliance with applicable laws, rules and regulations relating
to the protection of the environment.
EMPLOYEES
As of March 31, 1998, the Company had 156 employees at its offices located
in Asia, North America and Europe. The Company's employees are not covered by
any collective bargaining agreements. The Company has not experienced any
strikes or work stoppages by its employees and believes that its relationship
with its employees is good.
Since June 1996, the Company has established defined contribution benefit
plans for its employees in Hong Kong, and has 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. In addition, the Company makes contributions to employee retirement
schemes as required by local authorities in certain jurisdictions, such as
Singapore, in which the Company has operations. See Note 11 of Notes to
Consolidated Financial Statements.
The Company's existing production facilities in Shenzhen, China are operated
by an unaffiliated People's Republic of China ("PRC") company pursuant to a
processing agreement initially entered into in May 1987 and subsequently
amended and renewed in May 1994 and December 1996. The processing agreement
was entered
11
<PAGE>
into by the Company and 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 provides all of the personnel for the
operation of the Company's existing facilities in Shenzhen, China and renders
assistance in dealing with all matters relating to the import and export of
raw materials and the Company's products. Such personnel are not employees of
the Company. The Company agrees to pay each worker no less than a fixed sum
each month, which is revised every two years, in addition to an annual fee to
the PRC company (which has been waived for the current term of the agreement)
based on the quantity of products manufactured each year. In October 1995, the
Company entered into a similar processing agreement with another unaffiliated
PRC company, which has a term of fifty years, for the operation of the
Company's additional production facilities being constructed in Shenzhen,
China. As of March 31, 1998, the personnel at the Company's production
facilities in Shenzhen, China numbered approximately 1,850, 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.
INSURANCE
The Company maintains insurance policies covering risks of losses due to
fire, flood and other natural disasters. The Company's insurance policies
cover certain of its buildings, machinery and equipment, raw materials and
inventory. The Company also maintains business interruption insurance.
Significant damage to any of the Company's production facilities, whether as a
result of fire or other causes, would have a material adverse effect on the
Company's results of operations and financial condition. The Company is not
insured against the loss of its key personnel.
RISKS AND UNCERTAINTIES
In evaluating the Company's business, shareholders of the Company should
consider carefully the following factors in addition to the other information
presented herein. The Company is a holding company and its major operating
asset is its ownership interest in Peak (HK). The Company's only source of
cash flow is its share of the dividends, if any, paid by Peak (HK) and other
subsidiaries of the Company.
Variability of Operating Results
The Company's 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 such as 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; and
currency fluctuations. Unfavorable changes in the above or other factors could
materially and adversely affect the Company's results of operations or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Semiconductor and Electronics Industries
The Company's revenues depend on increased demand for its products from
manufacturers of semiconductor and electronic components. The global
semiconductor industry in recent periods has experienced pricing pressure for
semiconductor products, as supply has been increasing. Any deterioration of
business conditions in the semiconductor industry, including lower demand for
semiconductor products, decreased unit
12
<PAGE>
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 the
Company's 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 include 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 the Company's results of operations or
financial condition will not be materially and adversely affected by such
downturns or other developments.
Management of Expansion
The Company has expanded its production capacity significantly in recent
years and expects to continue to expand capacity in future periods. See
"Description of Property." To manage its growth, the Company must continue to
implement and improve its operational, financial and quality assurance and
process control systems and to expand, train and manage its employee base.
Further, the Company will be required to continue to manage multiple
relationships with various customers and other third parties. While the
Company believes it has effectively managed its expansion in recent years,
there can be no assurance that the Company will be able in the future to
manage its expansion effectively. The implementation by the Company of its
expansion program is expected to place additional demands on the Company's
managerial, financial, logistical and other resources, which could adversely
affect its existing operations. In particular, the failure of the Company to
implement its expansion plan in a timely manner could adversely affect its
ability to maintain, expand and diversify its customer base. See "Description
of Property." In addition, there can be no assurance that the implementation
by the Company of its expansion plan will not adversely affect its existing
operations.
Dependence on Significant Customers
In the aggregate, the top ten customers accounted for 51.7%, 51.2% and 53.5%
of the Company's net sales in Fiscal 1996, Fiscal 1997 and Fiscal 1998,
respectively. A significant portion of the Company's net sales has
historically been and is expected to continue to be made to companies
controlled by Mr. T.L. Li, a principal beneficial shareholder of the Company
through his ownership of all of the outstanding shares of Luckygold. Such
companies include ASAT Limited ("ASAT"), a subcontract assembly and test
company, QPL Limited ("QPL"), a leadframe manufacturer and other companies
controlled by the QPL International Holdings Limited ("QPL Holdings") group
(the "QPL Holdings Group"), which together accounted for approximately 20.9%,
16.1% and 16.3% of the Company's net sales in Fiscal 1996, Fiscal 1997 and
Fiscal 1998, respectively. See "Control of Registrant," "Directors and
Officers of Registrant" and "Interest of Management in Certain Transactions."
The ability of the Company to maintain close, mutually beneficial
relationships with its leading customers is important to the ongoing growth
and profitability of its business. Although the Company's sales to specific
customers have varied from year to year, the Company's results of operations
have been dependent on a number of significant customers and the conditions of
their respective industries. As a result of the amount of time required to
develop working relationships with new customers, the Company's results of
operations have been dependent on its existing customers and the conditions of
their respective industries. All of the Company's customers operate in the
global semiconductor and electronics industries which historically have been
highly cyclical. As a result of the concentration of the Company's 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 the
Company's results of operations and financial condition. The Company's sales
are made pursuant to purchase orders, and therefore, the Company generally has
no agreements with or commitments from its customers for the purchase of
products. Although customers
13
<PAGE>
typically provide the Company with forecasts of their requirements, such
forecasts are not binding. No assurance can be given that the Company's
customers will maintain or increase their sales volumes or orders for the
Company's products or that the Company will be able to maintain or add to its
existing customer base.
Concentration of Operations in the PRC and Considerations Relating to Hong
Kong
As of March 31, 1998, substantially all of the Company's fixed assets and
inventories were located in Shenzhen, China. The Company's 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 the Company's facilities
and renders assistance in dealing with matters relating to the import of raw
materials and the export of the Company's products. The Company's additional
production facilities will be operated under similar arrangements. The
Company's existing production facilities in Shenzhen, China are, and the
Company's additional facilities in Shenzhen, China will be, located on land
leased from the PRC government by a wholly-owned subsidiary of the Company
under land use certificates and agreements with terms of fifty years. The
Company's 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 the Company's results of operations in the PRC are subject to the
economic and political situation in the PRC.
The operations of the Company's 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. The Company currently exports all the products manufactured at its
production facilities in Shenzhen, China. Accordingly, the Company is not
subject to certain PRC taxes and is exempt from customs duties on imported raw
materials and exported products. There is no assurance, however, that the
Company will not become subject to PRC taxes or will not be required to pay
customs duties in the future. In the event that the Company is required to pay
PRC taxes or customs duties, the Company's results of operations could be
materially and adversely affected. The Company believes that its operations in
Shenzhen, China are in compliance with applicable PRC legal and regulatory
requirements. However, there can be no assurance 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. There can be no assurance, however, that the PRC
government's policies for economic reforms will be consistent or effective.
The Company's results of operations and financial position may be adversely
affected by changes in the PRC's political, economic or social conditions.
The Company maintains its principal executive offices, a sales office and
JIT warehouse in Hong Kong and its general invoicing and accounting functions
are centralized at its 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,
there can be no assurance that the general economic position of Hong Kong, and
the Company's results of operations and financial condition, will not be
adversely affected as a consequence of the exercise of PRC sovereignty over
Hong Kong.
14
<PAGE>
Deterioration of Economic Conditions in the Asia Pacific Region
A significant amount of the Company's sales are made in Hong Kong,
Singapore, the Philippines and other countries in East and Southeast Asia (the
"Asia Pacific Region"). Accordingly, the Company's financial condition and
results of operations and market price of the Shares may be affected by
changes in governmental policies, inflation, increasing interest rates, social
instability and other political, economic, diplomatic or social developments
in or affecting the Asia Pacific Region, which are not within the control of
the Company. In recent months, many countries in the Asia Pacific Region have
experienced considerable currency volatility and depreciation, high interest
rates, stock market volatility and declining asset values which have
contributed to net foreign capital outflows, an increase in the number of
insolvencies and a decline in business and consumer spending.
Recent economic developments in the Asia Pacific Region could have a
material adverse effect on the Asia Pacific Region's business and consumer
demand for products that use semiconductor and electronics devices. Such
demand generally rises as the overall level of economic activity increases and
falls as such activity decreases. In addition, the recent 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 adverse effect on the Company's financial condition or results of
operations, especially if current business and economic conditions in the Asia
Pacific Region continue or deteriorate further.
Relationship with Principal Shareholder and Potential Conflicts of Interests
Mr. T.L. Li, through his ownership of all of the outstanding shares of
Luckygold 18A Limited ("Luckygold"), a company incorporated in the British
Virgin Islands, beneficially owns approximately 58.6% of the outstanding
Shares. Mr. T.L. Li is in a position to substantially influence actions that
require shareholders' approval, including the timing and payment of dividends
and certain other actions to be taken by the Company, and the election of the
Board of Directors of the Company. In addition, certain members of the
Company's Board of Directors serve as directors of companies in the QPL
Holdings Group. See "Directors and Officers of the Registrant" and "Interest
of Management in Certain Transactions."
A significant portion of the Company's net sales historically has been and
is expected to continue to be made to companies controlled by Mr. T.L. Li, a
principal beneficial shareholder of the Company through his ownership of all
of the outstanding shares of Luckygold, including ASAT, QPL and other
companies in the QPL Holdings Group, which together accounted for
approximately 20.9%, 16.1% and 16.3% of the Company's net sales in Fiscal
1996, Fiscal 1997 and Fiscal 1998, respectively. Accordingly, any adverse
development in the operations, competitive position or customer base of ASAT,
QPL or other companies in the QPL Holdings Group or the Company's relationship
with the companies in the QPL Holdings Group could have a material adverse
effect on the results of operations and financial condition of the Company.
See "--Customers" and "Interest of Management in Certain Transactions." EEMS
Italia S.p.A. ("EEMS"), a memory IC assembly and test company, has acted as
the Company's sales agent in Europe since 1995. Mr. T.L. Li may take actions
as the controlling shareholder of the companies in the QPL Holdings Group and
as the controlling shareholder of EEMS that are not in the best interests of
the Company or its shareholders.
Potential Difficulties in Protecting Shareholder Rights
The Company's corporate affairs are governed by its Memorandum of
Association and Bye-laws and by the laws governing corporations incorporated
in Bermuda. The rights of shareholders of the Company and the responsibilities
of members of the Company's Board of Directors under Bermuda law are different
from those applicable to a corporation incorporated in the United States and,
therefore, the shareholders of the Company may have more difficulty in
protecting their interests in connection with actions by the management,
members of the Company's Board of Directors or controlling shareholders of the
Company than they would as shareholders of a corporation incorporated in the
United States.
15
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located in Units 3, 4, 5 and
7, 37th Floor, Wharf Cable Tower, 9 Hoi Shing Road, Tsuen Wan, N.T., Hong Kong
and its telephone number is (852) 2402-5100.
The Company's main production facilities are located in Shenzhen, China in a
plant with a total floor space of approximately 305,000 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 its production facilities in Shenzhen, China, the Company
also maintains production facilities located in Penang, Malaysia, with a total
floor space of approximately 3,500 square feet, which process tubes extruded
at the Company's Shenzhen facilities.
The Company is planning further expansion of its production capacity in
Shenzhen, China and has commenced the construction of an additional plant to
be located approximately three miles from the existing production facilities.
The new plant is expected to be operational by Fiscal 2000 and has a planned
floor space of approximately 800,000 square feet. See "Description of
Business--Risks and Uncertainties--Management of Expansion."
The Company maintains a tooling shop on the premises of its production
facilities in Shenzhen, China which is capable of producing the molds used in
the Company's production, dies and tooling for sale, and spare parts for
equipment used in its production process. The in-house tooling machinery and
equipment (including computer numeric control ("CNC") electronic discharge
machines ("EDMs"), CNC wire cut machines, milling machines and miscellaneous
lathes, planers, surface grinders and drill presses) account for approximately
half of the Company's capital investment in its facilities in Shenzhen, China.
As of March 31, 1998, the tooling shop, with a total floor space of
approximately 80,000 square feet, employed 157 tool makers.
The Company's existing facilities in Shenzhen, China are, and the Company's
additional facilities in Shenzhen, China will 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 Warden
Development Ltd. ("Warden"), a wholly-owned subsidiary of the Company, under
land use certificates and agreements with terms of fifty years. The buildings
comprising the facilities are owned by Warden. The land and the buildings are
in turn leased by Peak (HK) from Warden under a two-year lease commencing
April 1995 which in April 1997 was automatically renewed for another two years
on the same terms. The machinery and equipment in the facilities are owned by
Peak (HK). Under current PRC law, all land belongs to the government, and
individuals and enterprises may only lease land from the government.
As of March 31, 1998, substantially all of the Company's fixed assets and
inventories were located in the PRC. The operations of the Company's
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. The Company's
results of operations and financial condition may be adversely affected by
changes in the PRC's political, economic and social conditions. See
"Description of Business--Risks and Uncertainties--Concentration of Operations
in the PRC."
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which the Company
believes would, individually or in the aggregate, have a material adverse
effect on its results of operations or financial condition.
16
<PAGE>
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information regarding the ownership
of Shares as of March 31, 1998 by (i) each person who is known by the Company
to own more than 10.0% of its Shares and (ii) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OWNED AS
OF MARCH 31, 1998
-----------------
IDENTITY OF PERSON OR GROUP NUMBER PERCENT
<S> <C> <C>
Luckygold(1)................................................ 7,888,038 58.6%
All directors and executive officers as a group (9
persons)(2)................................................ 7,888,038 58.6%
</TABLE>
- ----------
(1)Mr. T.L. Li is the sole shareholder of Luckygold.
(2)Includes shares held by Mr. T. L. Li through Luckygold.
ITEM 5. NATURE OF TRADING MARKET
Effective October 31, 1997, the Shares began to trade 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:
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON
STOCK
----------------
HIGH LOW
<S> <C> <C>
Year Ending March 31, 1998:
1st Quarter (from June 20, 1997).......................... $12 3/4 $11 7/8
2nd Quarter............................................... 26 1/8 10 7/8
3rd Quarter............................................... 31 1/2 15 1/8
4th Quarter............................................... 25 7/8 18 1/2
Year Ending March 31, 1999:
1st Quarter (through June 11, 1998)....................... $25 5/16 $12 1/4
</TABLE>
On June 11, 1998 the reported last sale price of the Shares on Nasdaq was
$12 1/4 per Share. As of June 11, 1998, there were 7 holders of record of the
Shares.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
The Company has been designated as non-resident of Bermuda for exchange
control purposes by the Bermuda Monetary Authority, whose permission for the
free transferability of the Shares has been obtained subject to the Shares
being listed on the Nasdaq National Market.
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 the current
authorized share capital of the Company after the completion of the Offering
to or by such persons may be effected without specific consent under the
Exchange Control Act 1972 and regulations thereunder subject to such Shares
being listed on the Nasdaq National Market. 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.
17
<PAGE>
There are no limitations on the rights of holders of the Shares who are non-
resident in Bermuda for exchange control purposes to hold or vote their
Shares. Because the Company has been designated as a non-resident for Bermuda
exchange control purposes, there are no restrictions on its 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. The Company does not anticipate that it 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, the Company is not bound to investigate or incur any responsibility
in respect to the proper administration of any such trust.
The Company will not take notice of any other trust applicable to any of its
Shares whether or not it has notice of such trust.
As an exempted company, the Company is exempted from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians,
but as an exempted company the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years), (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 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 the business of
the Company carried on outside Bermuda or under a license granted by the
Minister of Finance of Bermuda.
ITEM 7. TAXATION
The following is a summary of certain Bermuda and United States federal
income tax considerations for purchasers of Shares pursuant to the Offering.
This summary does not discuss all aspects of taxation which may be important
to particular shareholders of the Company in light of their individual
investment circumstances, such as Shares held by shareholders of the Company
subject to special tax rules (e.g., financial institutions, insurance
companies, broker-dealers and tax-exempt organizations) or to persons who will
hold the Shares as a position in a "straddle" or as part of a "hedging"
transaction or that have a functional currency other than the United States
dollar, all of whom may be subject to tax rules that differ significantly from
those summarized below. This discussion is not exhaustive of all possible tax
considerations and shareholders of the Company are urged to consult their tax
advisors regarding the overall tax consequences of the purchase, ownership and
disposition of the Shares.
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 payments 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 an 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.
18
<PAGE>
As an exempted company, the Company is liable to pay to the Bermuda
government an annual registration fee not exceeding Bermuda dollars 26,500 per
annum calculated on a sliding scale basis by reference to its authorized share
capital plus any share premium.
UNITED STATES FEDERAL INCOME TAXATION
The following is a summary of certain United States federal income tax
considerations for purchasers of Shares pursuant to the Offering and is for
general information purposes only. This summary is based upon existing United
States federal income tax law, which is subject to change, possibly
retroactively. This summary does not discuss any state or local tax
considerations. In addition, except to the extent described below, this
summary does not discuss the tax consequences to investors who are not "U.S.
Holders" (as defined below). This summary assumes that investors will hold
their Shares as "capital assets" (generally, property held for investment)
under the Internal Revenue Code of 1986, as amended (the "Code"). Prospective
investors are urged to consult their tax advisors regarding the United States
federal, state, local, and foreign income and other tax considerations of the
purchase, ownership and disposition of the Shares.
For purposes of this summary, a "U.S. Holder" is a beneficial owner of
Shares that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized under the laws of the United States or any state or
political subdivision thereof, (iii) an estate whose income is includible in
gross income for United States federal income tax purposes without regard to
the source of its income or (iv) a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust.
U.S. HOLDERS
Dividends
Any cash distributions paid by the Company out of earnings and profits, as
determined under United States federal income tax principles, will be subject
to United States federal income tax as ordinary dividend income and will be
includible in the gross income of a U.S. Holder when such distributions are
received in an amount equal to the gross amount (i.e., before any withholding
taxes) of the dividend. Cash distributions in excess of the earnings and
profits of the Company will be treated as a return of capital to the extent of
the U.S. Holder's adjusted tax basis in its Shares, which will not be subject
to tax, and thereafter as gain from the sale or exchange of a capital asset.
Dividends paid in Bermuda dollars will be includible in income in a United
States dollar amount based on the United States dollar-Bermuda dollar exchange
rate prevailing at the time of receipt of such dividends regardless of whether
payment is in fact converted into United States dollars at that time. Such
dividend income will constitute foreign source income for United States
federal income tax credit purposes and will not be eligible for the dividends
received deduction allowed to corporations.
Sale or Other Taxable Disposition
A U.S. Holder will recognize capital gain or loss upon the sale, exchange or
other taxable disposition (collectively, a "disposition") of Shares in an
amount equal to the difference between the amount realized upon such
disposition and the U.S. Holder's adjusted tax basis in such Shares. Net
capital gain (i.e., generally, capital gain in excess of capital loss)
recognized by an individual holder upon the disposition of Shares that have
been held for more than 18 months will generally be subject to tax at a rate
not to exceed 20%. Net capital gain recognized by a holder upon the
disposition of Shares that have been held for more than 12 months but for not
more than 18 months will be subject to tax at a rate not to exceed 28%, and
net capital gain recognized from the disposition of Shares that have been held
for 12 months or less will be subject to tax at ordinary income tax rates. In
addition, capital gain recognized by a corporate holder will be subject to tax
at the ordinary income tax rates applicable to corporations.
19
<PAGE>
Capital gain recognized upon the disposition of Shares will generally be
treated as United States source income for United States federal income tax
purposes. Under current law, it is unclear whether any capital loss recognized
upon the disposition of Shares would be treated as foreign or United States
source loss for United States federal income tax purposes.
FOREIGN PERSONAL HOLDING COMPANY RULES
The Company would be a foreign personal holding company ("FPHC") for any
taxable year in which, at any time during the year, more than 50% of the
voting power or value of the Company's stock is owned, directly or pursuant to
rules of attribution, by or for five or fewer individuals who are citizens or
residents of the United States ("U.S. Group").
Mr. T.L. Li is treated as owning 58.6% of the outstanding Shares for
purposes of the FPHC rules. If Mr. Li or his spouse were to become a U.S.
citizen or resident, Shares owned by Mr. Li would be taken into account in
determining the existence of a U.S. Group. Moreover, if a member of Mr. Li's
family, or any individual partner of any partnership of which if Mr. Li is a
partner, were to own one or more Shares and were or were to become a U.S.
citizen or resident, Shares considered owned by Mr. Li would be considered
owned by such family member or partner in determining the existence of a U.S.
Group. Although the Company believes that no U.S. Group presently exists,
there can be no assurance that a U.S. Group will not exist in the future. The
Company does not intend to assess whether a U.S. Group exists in any taxable
year.
If the Company were a FPHC, each U.S. Holder who, or that, owned Shares on
the last day of the Company's taxable year, or, if earlier, the last day of
its taxable year on which a U.S. Group existed with respect to the Company,
would be required to include in gross income, as a dividend, such U.S.
Holder's pro rata share of the Company's undistributed taxable income, subject
to certain adjustments. In addition, an individual U.S. Holder who acquires
Shares from a decedent would be denied the step-up of tax basis of such Shares
to fair market value on the decedent's date of death which would otherwise be
available and instead would have a tax basis equal to the lower of fair market
value or the decedent's tax basis.
NON-U.S. HOLDERS
Dividends received or any gains recognized on the disposition of Shares by
an investor which is not a U.S. Holder will not be subject to U.S. federal
income taxation unless such dividends or gains are treated as effectively
connected with the conduct by such holder of a trade or business in the United
States or, in the case of gains derived by an individual, such individual is
present in the United States for 183 days or more and certain other
requirements are satisfied.
20
<PAGE>
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated income statement data for the years ended March
31, 1996, 1997 and 1998 and the selected consolidated balance sheet data as of
March 31, 1997 and 1998 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 years ended March 31, 1994 and 1995 and the
selected consolidated balance sheet data as of March 31, 1994, 1995 and 1996
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 U.S. GAAP.
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 Fiscal 1994 and subsequent years. The consolidated financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $27,787 $35,115 $54,944 $57,594 $73,705
Cost of goods sold........ (16,460) (27,593) (33,931) (32,676) (41,048)
------- ------- ------- ------- -------
Gross profit.............. 11,327 7,522 21,013 24,918 32,657
Operating expenses:
General and
administrative and
research and
development............ (2,632) (2,616) (5,385) (4,730) (6,194)
Selling and marketing... (936) (1,802) (3,294) (4,198) (5,487)
------- ------- ------- ------- -------
Income from operations.... 7,759 3,104 12,334 15,990 20,976
Other income.............. 276 234 1,133 83 926
Net interest (expense)
income................... (80) (405) (750) (1,320) 517
------- ------- ------- ------- -------
Income before income
taxes.................... 7,955 2,933 12,717 14,753 22,419
Provision for income
taxes.................... (498) (192) (1,227) (1,236) (1,825)
------- ------- ------- ------- -------
Net income................ $ 7,457 $ 2,741 $11,490 $13,517 $20,594
======= ======= ======= ======= =======
Dividends paid............ $ 1,941 $ -- $ 9,719 $ 1,294 $ --
Earnings per Share:
Basic................... $ 0.71 $ 0.26 $ 1.10 $ 1.29 $ 1.61
======= ======= ======= ======= =======
Diluted................. $ 0.71 $ 0.26 $ 1.10 $ 1.29 $ 1.59
======= ======= ======= ======= =======
<CAPTION>
Shares outstanding
(basic)(1)............... 10,461,538 10,461,538 10,461,538 10,461,538 12,804,004
AS OF MARCH 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash
equivalents............ $ 1,180 $ 1,828 $ 924 $ 1,814 $19,214
Total assets............ 24,288 35,210 38,423 53,795 89,540
Short-term debt(2)...... 11,868 13,879 19,156 21,170 89
Long-term debt.......... 1 -- -- -- --
Shareholders' equity.... 9,255 11,701 13,960 26,272 77,582
</TABLE>
- ---------------------
(1) Shares outstanding for each period presented (except for Fiscal 1998) 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.
Shares outstanding in Fiscal 1998 is based on the weighted average number
of Shares and common stock equivalents outstanding during such period.
(2) Short-term debt consists of bank borrowings, amount due to shareholder and
current portion of long-term debt (except as of March 31, 1997 and 1998,
for which short-term debt consists only of bank borrowings).
21
<PAGE>
ITEM 9. 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, the consolidated financial statements of the Company and the related
notes thereto included elsewhere herein.
GENERAL
The Company produces matrix trays, shipping tubes, reels and carrier tape
for the storage, transportation and automatic handling of semiconductor
devices and other electronic components. The Company also produces leadframe
boxes and interleaves used in the storage and transportation of leadframes. In
addition, the Company sells recycled matrix trays and reels under the trade
name "SemiCycle." In Fiscal 1998, all of the Company's sales were made to
customers located in Asia, North America and Europe. See "Description of
Business--Sales and Marketing."
In recent years, the Company has experienced a significant increase in
demand for its products as a result of growth in the global semiconductor and
electronics industries. Unit volume of semiconductor and electronic components
shipped is an important determinant of demand for the Company's products.
There has been an industry trend to integrate more semiconductors and
electronic components onto a single chip, which could in the future have an
adverse effect on the Company's results of operations or financial condition.
The Company's consolidated net sales increased by 28.0% to $73.7 million in
Fiscal 1998 compared to $57.6 million in Fiscal 1997, and its consolidated net
income increased by 52.4% to $20.6 million in Fiscal 1998, compared to $13.5
million in Fiscal 1997. During the last three years, the Company's
consolidated net sales have increased from $54.9 million in Fiscal 1996 to
$57.6 million in Fiscal 1997 and to $73.7 million in Fiscal 1998, and its
consolidated net income has increased from $11.5 million in Fiscal 1996 and to
$13.5 million in Fiscal 1997 and to $20.6 million in Fiscal 1998. The Company
believes that its growth has largely been attributable to the implementation
of its business strategy. In Fiscal 1998, the Company's gross margin increased
to 44.3%, compared to 43.3% in Fiscal 1997, and the Company's operating margin
increased to 28.5%, compared to 27.8% in Fiscal 1997.
The Company has expanded its production capacity significantly in recent
years and expects to continue to expand capacity in future periods with the
construction of an additional facility in Shenzhen, China, which is expected
to be operational by Fiscal 2000. Depreciation expense increased 40.4% from
$3.6 million in Fiscal 1997 to $5.0 million in Fiscal 1998. The Company
expects that depreciation expense will increase correspondingly with the
increase in value of property, plant and equipment. As of the date of this
Annual Report, the Company has expended approximately $3.7 million of $33.0
million budgeted over the next two years for the construction of the new
facility in Shenzhen, China. See "--Liquidity and Capital Resources."
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.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of goods sold.................................. (61.8) (56.7) (55.7)
------- ------- -------
Gross profit........................................ 38.2 43.3 44.3
Operating expenses:
General and administrative and research and
development...................................... (9.8) (8.2) (8.4)
Selling and marketing............................. (6.0) (7.3) (7.4)
------- ------- -------
Income from operations.............................. 22.4 27.8 28.5
------- ------- -------
Income before income taxes.......................... 23.1 25.6 30.4
Provision for income taxes.......................... (2.2) (2.1) (2.5)
------- ------- -------
Net income.......................................... 20.9% 23.5% 27.9%
======= ======= =======
</TABLE>
22
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales. Net sales increased by 28.0% to $73.7 million in Fiscal 1998 from
$57.6 million in Fiscal 1997, primarily as a result of an increase in the
volume of the Company's tray products, tube products, reels, carrier tape and
other products sold. The increase in the Company's net sales was also
partially attributable to slightly higher average sales prices of the
Company's products.
Gross Profit. Gross profit increased by 31.1% to $32.7 million in Fiscal
1998 from $24.9 million in Fiscal 1997. Cost of goods sold increased by 25.6%
to $41.0 million in Fiscal 1998 from $32.7 million in Fiscal 1997. The
Company's gross margin improved to 44.3% in Fiscal 1998 from 43.3% in Fiscal
1997, primarily as a result of lower raw material costs and the increased
proportion of the Company's product mix represented by tape and reel products,
which tend to generate higher gross margins than trays or tubes.
Income from Operations. Operating income increased by 31.2% to $21.0 million
in Fiscal 1998 from $16.0 million in Fiscal 1997. The Company's operating
margin improved to 28.5% in Fiscal 1998 from 27.8% in Fiscal 1997, primarily
as a result of improvements in the Company's gross margin, partially offset by
an increase in operating expenses.
General and Administrative and Research and Development Expenses. General
and administrative and research and development expenses increased by 31.0% to
$6.2 million in Fiscal 1998 from $4.7 million in Fiscal 1997 primarily due to
an increase in research and development expenses incurred in connection with
the continuing development of the Company's tape and reel product line.
General and administrative and research and development expenses increased as
a percentage of total sales to 8.4% in Fiscal 1998 from 8.2% in Fiscal 1997,
primarily due to an increase in sales.
Selling and Marketing Expenses. Selling and marketing expenses increased by
30.7% to $5.5 million in Fiscal 1998 from $4.2 million in Fiscal 1997,
primarily as a result of additional staff hired in connection with the
expanded sales and marketing of the Company's existing products as well as new
products such as tape and reel products.
Net Income. Net income increased by 52.4% to $20.6 million in Fiscal 1998
from $13.5 million in Fiscal 1997. Net income as a percentage of sales
improved to 27.9% in Fiscal 1998 from 23.5% in Fiscal 1997. This increase
reflected the foregoing factors, as well as a decrease in interest expense for
short-term bank borrowings and an increase in other income (including interest
on deposits) due to increased funds available from the Company's initial
public offering in June 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales increased by 4.8% to $57.6 million in Fiscal 1997 from
$54.9 million in Fiscal 1996. Net sales of trays increased by $1.2 million
over the period reflecting the effects of a 16.3% increase in sales volume,
substantially offset by a 11.1% decrease in average realized sales price. The
increase in the aggregate sales volume of the Company's tray products
reflected principally an increase in sales volume of recycled, low temperature
and non-bakeable trays, partially offset by decreases in the sales volume of
high temperature trays. Average realized sales price for the Company's tray
products decreased in the period reflecting principally a decrease in the
average realized sales price for recycled trays and high temperature trays,
partially offset by increases in the average realized sales price for the
Company's other tray products. The average realized price for recycled trays
decreased primarily as a result of a change in the product mix of the
Company's recycled trays reflecting increased sales of lower-priced low
temperature trays, principally in Taiwan and Japan. Net sales of tubes
decreased 18.5% to $8.6 million in Fiscal 1997 from $10.5 million in Fiscal
1996, while net sales of reels increased by 52.7% to $2.1 million in Fiscal
1997 from $1.4 million in Fiscal 1996, reflecting an increase in the
proportion of the Company's product mix represented by newer products such as
reels.
Gross Profit. Gross profit increased 18.6% to $24.9 million in Fiscal 1997
from $21.0 million in Fiscal 1996. Cost of goods sold decreased 3.7% to $32.7
million in Fiscal 1997 from $33.9 million in Fiscal 1996.
23
<PAGE>
Such decrease resulted primarily from lower raw material costs due principally
to lower volumes of raw materials purchased by the Company as a result of an
increase in the use of recycled materials in manufacturing using the Company's
proprietary processes and production techniques. In addition, raw material
costs were lower in Fiscal 1997 compared to Fiscal 1996 as a result of the
lower average price of PVC resin. The Company's gross margin improved to 43.3%
in Fiscal 1997 from 38.2% in Fiscal 1996 primarily as a result of lower raw
material costs and the increased proportion of the Company's product mix
represented by reels, which tend to generate higher gross margin than tubes
(which represented a lower proportion of the Company's product mix in Fiscal
1997 compared to Fiscal 1996).
Income from Operations. Income from operations increased by 29.6% to $16.0
million in Fiscal 1997 from $12.3 million in Fiscal 1996. The Company's
operating margin improved to 27.8% in Fiscal 1997 from 22.4% in Fiscal 1996
primarily as a result of improvements in the Company's gross margin, partially
offset by an increase in selling and marketing expenses.
General and Administrative and Research and Development Expenses. General
and administrative and research and development expenses decreased 12.2% to
$4.7 million in Fiscal 1997 from $5.4 million in Fiscal 1996 primarily as a
result of reduced collection and administrative expenses relating to the
Company's recycling operations in the United States as the Company began
purchasing recycled trays collected by the SemiCycle Foundation instead of
collecting such trays itself. See "Interest of Management in Certain
Transactions."
Selling and Marketing Expenses. Selling and marketing expenses increased
27.4% to $4.2 million in Fiscal 1997 from $3.3 million in Fiscal 1996
primarily as a result of additional staff hired in connection with the sales
and marketing of new products such as tape and reel products.
Net Income. Net income increased 17.6% to $13.5 million in Fiscal 1997 from
$11.5 million in Fiscal 1996. This increase reflected the foregoing factors,
as well as a decrease in the Company's effective tax rate to 8.4% in Fiscal
1997 compared to 9.6% in Fiscal 1996, partially offset by an increase in
interest expense to $1.4 million in Fiscal 1997 from $0.8 million in Fiscal
1996. The decrease in the effective tax rate was due primarily to the effects
of a lower proportion of the Company's profits in Fiscal 1997 accounted for by
its operations located in the United States, which have higher applicable tax
rates. The increase in interest expense was due to the increase in bank
borrowings incurred for working capital purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically met a significant portion of its cash requirements
from cash flow from operations and, prior to its 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. The Company's primary
uses of cash have been to fund capital expenditures related to the expansion
of its facilities and operations, dividend payments and working capital
requirements. The Company intends to continue to retain its earnings to
finance the development and expansion of its business operations and does not
intend to pay dividends for the foreseeable future. The Company's net cash
provided by operating activities was $15.5 million in Fiscal 1998, compared to
$9.5 million in Fiscal 1997 and $6.8 million in Fiscal 1996.
The Company incurred capital expenditures of $14.5 million for the
acquisition of new equipment in the Company's current facility and $1.2
million for the construction of an additional facility in Shenzhen, China
during Fiscal 1998. The Company incurred capital expenditures of $7.2 million
in Fiscal 1997 and $4.6 million in Fiscal 1996, primarily for the acquisition
of new equipment in the Company's current facility. See Note 14 of Notes to
Consolidated Financial Statements. As of March 31, 1998, the Company had
commitments for capital expenditures of $0.3 million. In connection with the
Company's construction of an additional facility in Shenzhen, China and the
acquisition of equipment for such new facility, the Company has budgeted
aggregate capital expenditures of approximately $33.0 million for Fiscal 1999
and Fiscal 2000. The new facility is expected to be operational by Fiscal
2000. As of the date of this Annual Report, the Company has expended
approximately $3.7 million of such budgeted amount. The actual amounts of
capital expenditures may vary substantially from
24
<PAGE>
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, the
Company plans to continue to expand capacity in future periods from cash on
hand, including the proceeds of its June 1997 initial public offering, cash
flow from operations and new bank borrowings as required.
As of March 31, 1998, the Company had total outstanding indebtedness of
$0.09 million, representing unsecured bank borrowings. These bank borrowings
are at floating interest rates which, as of March 31, 1998, had a weighted
average rate of 9.2%. Mr. T.L. Li no longer guarantees any of the Company's
bank loans or overdrafts. Neither the Company's ability to obtain bank
financing nor its cost of funds has been materially affected. As of March 31,
1998, the Company had available certain unused short-term lines of credit. See
Note 6 of Notes to Consolidated Financial Statements.
From time to time, the Company may evaluate possible investments or
acquisitions and may, if a suitable opportunity arises, make such an
investment or acquisition. The Company currently has no commitments to make
any material investments or acquisitions.
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 22.2%,
24.2% and 17.4% of the Company's total raw material costs in Fiscal 1996,
Fiscal 1997 and Fiscal 1998, respectively. While the Company believes that,
principally as a result of increased production capacity by suppliers, 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 the Company's results of operations and financial
condition. The Company currently maintains approximately two to three months
stock of PVC resin and other raw materials used in its production processes,
and increases such stock when it believes prices are favorable. The Company
does not, and does not intend to, enter into futures contracts or use any
financial instruments to hedge its exposure to fluctuations in the price of
PVC resin or other raw materials used in its production processes.
CURRENCY EXCHANGE RATE FLUCTUATIONS
The Company's sales are denominated primarily in US Dollars while its costs
of goods sold are generally incurred in US Dollars, Hong Kong Dollars and
Renminbi, and its operating expenses are generally denominated in Renminbi,
Hong Kong Dollars, US Dollars and Malaysian Ringgit. In addition, a
substantial portion of the Company's capital expenditures, primarily for the
purchase of equipment, has been and is expected to continue to be denominated
in US Dollars, Japanese Yen and Malaysian Ringgit. Consequently, a portion of
the Company's costs and operating margins may be affected by fluctuations in
exchange rates, primarily between the US Dollar and other currencies. The
Company's 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 it operates.
Primarily in response to recent developments in the Southeast Asian currency
markets, the Company from time to time engages in derivatives trading
activities, such as entering into forward contracts, to hedge its currency
exchange exposure. See Note 12 to the Notes to the Consolidated Financial
Statements. In addition, many of the Company's competitors are located in
countries whose currencies have 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 the Company's customers purchasing products from
these competitors rather than from the Company, which could have a significant
adverse effect on the Company's net sales and results of operation.
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
25
<PAGE>
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 of the Company's manufacturing
operations are located in Shenzhen, China and conducted pursuant to a
processing agreement entered into with a PRC company. See "Description of
Business--Employees." Effective April 1, 1998, the profits tax rate in Hong
Kong is 16.0%, a change from the former profits tax rate, which was 16.5%.
Under profits apportionment, only 50% of the profits of the Company is subject
to Hong Kong profits tax and, as a result, the Company enjoys a lower
effective tax rate than would otherwise be the case. Such tax concession has
been granted based on an 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 China, 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. In the event that such tax concessions are unavailable to the
Company, the Company's results of operations could be materially and adversely
affected.
IMPACT OF THE YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The year
2000 problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to
"00." The issue is whether the computer system will properly recognize date-
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company has assessed its systems and believes them to be year 2000
compliant. In addition, the Company has received assurance from its major
software vendors that the products used by the Company are year 2000
compliant. The failure of the systems of other companies on whose services the
Company depends or with whom the Company's system interface, including the
Company's significant customers, to be year 2000 compliant could have a
material adverse effect on the Company, its results of operations and
financial condition.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Members of the Board of Directors of the Company are elected by the
shareholders of the Company. At each annual general meeting one-third of the
Directors for the time being shall retire from office by rotation provided
that the Chairman of the Board shall not, while holding such office, be
subject to retirement by rotation. A retiring Director shall be eligible for
re-election. The Board of Directors of the Company appoints the executive
officers of the Company.
The following table sets forth information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Mr. T.L. Li............... 45 Chairman of the Board and Chief Executive Officer
Mr. Robin Nicholson....... 42 Director
Mr. Francis Leung......... 43 Director
Mr. Hon Ying Ng........... 44 Director
Mr. Kong Chi Wong......... 40 Director
Mr. Richard M. Brook...... 38 President and Chief Operating Officer; Director
Mr. Jerry Mo.............. 39 Chief Financial Officer and Controller; Director
Mr. Mao Shi Khoo.......... 36 Vice President
Mr. Steve R. Dezso........ 33 Vice President
</TABLE>
Mr. T.L. Li has served as Chairman and Chief Executive Officer of the
Company since 1990 and, through his ownership of all of the outstanding shares
of Luckygold, holds the majority of the Company's outstanding
26
<PAGE>
Shares. Mr. Li holds a Bachelor of Science degree in chemical engineering from
the University of Wisconsin--Madison and has over 20 years of experience in
the semiconductor industry. Mr. Li is the controlling shareholder of, and
since 1981 has served as the Chairman of the Board of Directors of, QPL
Holdings, a company whose shares are listed on The Stock Exchange of Hong Kong
Limited ("The Hong Kong Stock Exchange"). Mr. Li also owns 100% of EEMS, a
memory IC assembly and test business based in Italy. See "Certain
Transactions." Mr. Li is the brother-in-law of Mr. Jerry Mo.
Mr. Robin Nicholson is a senior partner of Richards Butler, a law firm
practicing in Hong Kong and London. He is qualified as a solicitor in Hong
Kong and England and has over 15 years of securities law experience. He is
also director of a number of companies listed on The Hong Kong Stock Exchange
including QPL Holdings and Evergo China Holdings Limited. Mr. Nicholson has
been a director of the Company since January 1997.
Mr. Francis Leung is a Director of BNP Prime Peregrine Securities Limited.
He has over 17 years of experience in corporate finance. He is also a director
of a number of companies listed on The Hong Kong Stock Exchange, including
Beijing Enterprises Holdings Limited, Guangzhou Investment Company Limited,
Shanghai Industrial Holdings Limited and Shum Yip Investment Limited. He has
been a director of the Company since January 1997.
Mr. Hon Ying Ng is a partner of Ng and Fang, a Hong Kong law firm. Mr. Ng
holds a Bachelor of Arts degree from the University of Hong Kong. He was
admitted to practice in Hong Kong in 1981. He commenced his own practice in
1983 and has been a partner of Ng and Fang since 1985. Mr. Ng has been a
director of the Company since January 1997.
Mr. Kong Chi Wong is a fellow member of the Association of Chartered
Certified Accountants and an associated member of the Hong Kong Society of
Accountants. He is a director of a number of companies listed on The Hong Kong
Stock Exchange, including China Resources Beijing Land Limited, Yip's Hang
Cheung (Holdings) Limited, Le Saunda Holdings Limited, World Houseware
(Holdings) Limited and Kee Shing (Holdings) Limited. Mr. Wong holds a Bachelor
of Science degree in economics from the London School of Economics and
Political Science. Mr. Wong has been a director of the Company since January
1997.
Mr. Richard M. Brook has served as President and Chief Operating Officer of
the Company since 1995. He holds a Bachelor of Science degree in mechanical
engineering from the University of Saskatchewan and a Master of Science degree
in Engineering Management from Southern Methodist University. Before joining
the Company in 1991, Mr. Brook had over nine years of experience in the
semiconductor industry as an engineering manager at Texas Instruments. He
holds two patents on semiconductor packaging and wafer processing, and helped
develop palladium plated lead frames which allow for the elimination of solder
from the semiconductor assembly and test process.
Mr. Jerry Mo has served as the Chief Financial Officer and Controller of the
Company since 1996. He holds a Bachelor of Science degree in accounting and
data processing from Leeds University in the United Kingdom. He is a fellow
member of the Institute of Chartered Accountants in England & Wales and an
associated member of the Institute of Chartered Accountants in Australia and
the Hong Kong Society of Accountants. Mr. Mo joined the Company in November
1996. Prior to joining the Company, Mr. Mo worked as the Financial Controller
for the Group Administration Division of Pacific Dunlop Ltd., a major
industrial conglomerate in Australia, from 1992 to 1996. Mr. Mo is the
brother-in-law of Mr. T.L. Li.
Mr. Mao Shi Khoo has served as Vice President responsible for the
manufacturing operations of the Company since 1995. He holds a Bachelor of
Science degree in mechanical engineering from the University of Wisconsin. Mr.
Khoo joined the Company in 1987. Prior to joining the Company, he worked for
Advanced Micro Devices and Thomson-CSF from 1982 to 1987 in various audit and
supervisory capacities.
Mr. Steve R. Dezso has served as Vice President responsible for the United
States operations of the Company since 1994. He holds a Bachelor of Science
degree in electrical engineering from the University of
27
<PAGE>
Texas. Mr. Dezso joined the Company in 1992. Prior to joining the Company, Mr.
Dezso worked as an electronics design engineer for E-Systems, as a design
consultant and as a marketing manager for NVE.
BOARD COMMITTEES
The Board of Directors formed a Compensation Committee and an Audit
Committee in February 1997. The Compensation Committee makes recommendations
to the Board of Directors relating to salaries and other compensation for the
Company's directors, officers and employees and administers the Share Option
Plan. The members of the Compensation Committee are Messrs. Nicholson, Leung,
Ng and Wong.
The Audit Committee reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors, reviews and
evaluates the Company's internal audit and control functions, and monitors
transactions between the Company and its directors, officers, employees and
other related parties. The members of the Audit Committee are Messrs. Ng and
Wong.
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The aggregate compensation paid or accrued in Fiscal 1998 and Fiscal 1997 to
individuals serving as directors and executive officers of the Company,
including bonuses and pension, retirement or similar benefits, was
approximately $0.9 million and $1.0 million, respectively. Such compensation
does not include dividends paid to Mr. T.L. Li in Fiscal 1997.
In Fiscal 1998, none of the Company's directors and none of its executive
officers received pension benefits as part of his compensation. The Company's
contributions to such pension plans in Fiscal 1998 and Fiscal 1997 amounted to
$13,913 and $5,407, respectively.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
SHARE OPTION PLAN
The Company's executive share option plan (the "Share Option Plan") was
adopted by the Board of Directors on March 18, 1997 and approved by the then
sole shareholder on March 18, 1997.
An aggregate of 700,000 Shares has been reserved for issuance under the
Share Option Plan. Under the Share Option Plan, directors, officers, employees
of, and advisors and consultants to, the Company or its affiliates may, at the
discretion of the Compensation Committee of the Board of Directors which is
responsible for administering the plan (the "Committee"), be granted options
to purchase Shares at an exercise price determined by the Committee. The
Committee has the discretion to determine which eligible individuals are to
receive option grants, the number of shares subject to each such grant and
vesting restrictions and other terms and conditions applicable to the exercise
of any option. No participant in the Share Option Plan, however, may receive
grants under the Share Option Plan in any calendar year which relate to more
than 150,000 Shares. Under the Share Option Plan, the Committee may grant
incentive stock options ("Incentive Stock Options"), non-qualified stock
options, or both types of options. In the case of Incentive Stock Options, the
terms and conditions of grants of such options comply with rules prescribed by
Section 422 of the United States Internal Revenue Code of 1986, as amended,
and the regulations implementing such statute. Options granted under the Share
Option Plan which are not Incentive Stock Options are non-qualified stock
options. The Committee has the discretion to establish the exercise price per
Share at the time each option is granted, which will not be less than the par
value of a Share, except that in the case of an Incentive Stock Option, the
exercise price will not be less than the fair market value of the underlying
Shares on the date such option is granted. As of March 31, 1998, options
relating to an aggregate of 537,375 Shares (150,314 of which Shares relate to
options held by directors and officers of the Company) and 67,560 Shares
(14,084 of which Shares relate to options held by directors and officers of
the Company) have been granted under the Share Option Plan at an exercise
price equal to $12.00 per Share and $19.375 per Share, respectively. Such
options, if not exercised, will expire on March 17, 2007.
28
<PAGE>
The Board of Directors may amend or modify the Share Option Plan at any
time. The Share Option Plan will terminate on March 17, 2007 unless sooner
terminated by the Board of Directors.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Mr. T.L. Li through his beneficial ownership of all of the outstanding
shares of Luckygold, is the majority shareholder of the Company. Mr. T.L. Li
owns approximately 40.0% of the outstanding shares of QPL Holdings, a company
incorporated under Bermuda law and listed on The Hong Kong Stock Exchange. QPL
Holdings is a holding company of a group of semiconductor companies which
includes QPL, ASAT, Newport Wafer-Fab Limited, Worltek International Limited
and Talent Focus Industries Limited and provides a wide range of outsourcing
services, including leadframe manufacturing, IC assembly and testing and
silicon wafer fabrication. In the leadframe manufacturing area, QPL Holdings
manufactures both etched leadframes through QPL as well as stamped leadframes
through Talent Focus Industries Limited, both based in Hong Kong. In the IC
assembly and test area, QPL Holdings acquired ASAT in Hong Kong in 1989 and
ASAT S.A. in France in 1993, and founded ASAT (U.K.) Ltd. in the United
Kingdom in 1993. In addition, Worltek International Limited, a United States
subsidiary of QPL Holdings, acts as sales agent for both QPL and ASAT, and
provides IC testing services. In the wafer foundry area, QPL Holdings acquired
Newport Wafer-Fab Limited in the United Kingdom through a two-step acquisition
in 1992 and 1995. Mr. T.L. Li also owns 100% of the outstanding shares of
EEMS, a memory IC assembly and test business based in Italy which acts as the
Company's sales agent in Europe. See "Directors and Executive Officers of the
Registrant."
A significant portion of the Company's product sales has historically been
and is expected to continue to be made to companies controlled by Mr. T.L. Li,
which include QPL, ASAT and other subsidiaries of QPL Holdings. Product sales
of the Company to the subsidiaries of QPL Holdings totaled approximately $11.5
million, $9.3 million and $12.0 million in Fiscal 1996, Fiscal 1997 and Fiscal
1998, respectively, which represented approximately 20.9%, 16.1% and 16.3% of
the Company's net sales in the respective years. QPL and ASAT are customers of
the Company and may engage in transactions from time to time with the Company
that are material to the Company.
In January 1995 and February 1995, the Company purchased certain fixed
assets from ASAT at a total net book value of $0.6 million, which it resold to
EEMS at the same net book value in February 1995. In November 1995, the
Company purchased certain fixed assets from ASAT at a net book value of $0.3
million, which it resold to EEMS at the same net book value in November 1995.
In the United States, the Company purchases used trays and reels collected
by The SemiCycle Foundation, a Texas non-profit corporation which is a
publicly supported organization exempt from federal income tax, as part of its
recycling program. The Company leases office space and provides certain
administrative and accounting services to The SemiCycle Foundation and has in
the past advanced loans to such foundation to help meet its cash requirements.
See Note 13 of Notes to Consolidated Financial Statements. Mr. Richard M.
Brook, President and Chief Operating Officer of the Company, and Mr. Steve R.
Dezso, Vice President of the Company responsible for United States operations,
served as directors of The SemiCycle Foundation when it was organized in
October 1995. Mr. Brook resigned as a director of The SemiCycle Foundation in
December 1996.
Before the Company's initial public offering in June 1997, Mr. T.L. Li
advanced short-term shareholder loans to the Company upon request to help meet
its cash requirements, both in his personal capacity and through companies
owned by him, such as Six Sigma Finance Limited, a Hong Kong company. As of
March 31, 1996, 1997 and 1998, the amount of such loans outstanding was $10.5
million, nil and nil, respectively. Mr. T.L. Li no longer makes shareholder
loans to the Company. In addition, before the Company's initial public
offering in June 1997, Mr. T.L. Li guaranteed bank loans and overdrafts for
the benefit of the Company. As of March 31, 1996, 1997 and 1998, the aggregate
amount of such bank loans and overdrafts was $8.7 million, $21.2 million and
$0.1 million, respectively. Mr. T.L. Li no longer guarantees such bank loans
or overdrafts. Neither the Company's ability to obtain bank financing nor its
cost of funds has been materially affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 6 of Notes
to Consolidated Financial Statements.
29
<PAGE>
The Company reviews related party transactions on an ongoing basis and
utilizes the Audit Committee of its Board of Directors for the review of
potential conflicts of interest where appropriate. The Company's policy is to
conduct transactions with its affiliates, including the companies in the QPL
Holdings Group and The SemiCycle Foundation, on an arms-length basis.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGE IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The Company is providing Financial Statements pursuant to Item 18 below.
ITEM 18. FINANCIAL STATEMENTS
See pages F-4 through F-20
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a)Consolidated Financial Statements
The following financial statements are filed as part of this annual report.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report on the Consolidated Financial Statements for
the years ended
March 31, 1997 and 1998 ................................................ F-2
Independent Auditors' Report on the Consolidated Financial Statements for
the year ended
March 31, 1996.......................................................... F-3
Consolidated Balance Sheets as of March 31, 1997 and 1998................ F-4
Consolidated Statements of Income for the years ended March 31, 1996,
1997 and 1998........................................................... F-5
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1996, 1997 and 1998................................................. F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1996,
1997 and 1998........................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
(b)Exhibits
No Exhibits not already on file.
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report on the Consolidated Financial Statements for
the years
ended March 31, 1997 and 1998 .......................................... F-2
Independent Auditors' Report on the Consolidated Financial Statements for
the year
ended March 31, 1996.................................................... F-3
Consolidated Balance Sheets as of March 31, 1997 and 1998................ F-4
Consolidated Statements of Income for the years ended March 31, 1996,
1997 and 1998........................................................... F-5
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1996,
1997 and 1998 .......................................................... F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1996,
1997 and 1998........................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the 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, 1997 and 1998 and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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, 1997 and 1998 and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Deloitte Touche Tohmatsu
Hong Kong
May 7, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Peak International Limited
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Peak International Limited and
subsidiaries for the year ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards applicable 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the consolidated results of operations and consolidated
cash flows of Peak International Limited and subsidiaries for the year ended
March 31, 1996 in conformity with accounting principles generally accepted in
the United States of America.
BDO Binder
Hong Kong
March 19, 1997
F-3
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
---------------
NOTE 1997 1998
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,814 $19,214
Investment in certificate of deposit................... 100 100
Short-term marketable securities....................... 3 1,129 --
Accounts receivable--trade............................. 10,251 10,141
Inventories............................................ 4 22,053 27,941
Other receivables, deposits and prepayments............ 1,348 1,521
Amounts due from related companies..................... 13 1,356 4,275
------- -------
Total current assets............................... 38,051 63,192
Property, plant and equipment, net....................... 5 15,744 26,348
------- -------
Total assets....................................... $53,795 $89,540
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings: 6
--overdrafts and invoice financing................... $ 9,208 $ 89
--bills payable...................................... 5,489 --
--other short-term loans............................. 6,473 --
------- -------
21,170 89
Accounts payable:
--trade.............................................. 1,767 3,763
--property, plant and equipment...................... 70 557
Accrued liabilities and deposits....................... 1,356 2,578
Income taxes payable................................... 2,477 3,800
Amounts due to related companies....................... 13 309 353
------- -------
Total current liabilities.......................... 27,149 11,140
Deferred income taxes.................................... 10 374 818
Commitments and contingencies 12
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000 shares
authorized, 10,461,538 shares issued and outstanding
as of March 31, 1997, and 13,461,538 shares issued and
outstanding as of March 31, 1998...................... 105 135
Additional paid-in capital............................. 2,564 34,034
Retained earnings...................................... 23,523 44,117
Cumulative translation adjustment...................... 21 (704)
Unrealized holding gain on marketable securities....... 3 59 --
------- -------
Total shareholders' equity......................... 26,272 77,582
------- -------
Total liabilities and shareholders' equity......... $53,795 $89,540
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
NOTE 1996 1997 1998
<S> <C> <C> <C> <C>
Net sales:
--third parties....................... $43,467 $47,910 $60,934
--related companies................... 13 11,477 9,684 12,771
------- ------- -------
54,944 57,594 73,705
Cost of goods sold...................... (33,931) (32,676) (41,048)
------- ------- -------
Gross profit............................ 21,013 24,918 32,657
Operating expenses:
General and administrative and
research and development............. (5,385) (4,730) (6,194)
Selling and marketing................. (3,294) (4,198) (5,487)
------- ------- -------
Income from operations.................. 12,334 15,990 20,976
Other income, net....................... 7 1,133 83 926
Interest income......................... 8 15 105 907
Interest expense........................ 9 (765) (1,425) (390)
------- ------- -------
Income before income taxes.............. 10 12,717 14,753 22,419
Provision for income taxes.............. 10 (1,227) (1,236) (1,825)
------- ------- -------
Net income.............................. $11,490 $13,517 $20,594
======= ======= =======
Earnings per share
Basic................................. $ 1.10 $ 1.29 $ 1.61
======= ======= =======
Diluted............................... $ 1.10 $ 1.29 $ 1.59
======= ======= =======
<CAPTION>
Weighted average number of
shares outstanding (basic)............. 10,461,538 10,461,538 12,804,004
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
CUMULATIVE HOLDING
COMMON STOCK ADDITIONAL TRANSLATION GAINS/(LOSSES)
----------------- PAID-IN RETAINED ADJUSTMENT ON MARKETABLE
SHARES AMOUNT CAPITAL EARNINGS ACCOUNT SECURITIES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of March 31,
1995................... 10,461,538 $105 $ 2,564 $ 9,529 $ (9) $(488) $11,701
Net income for the
year................... -- -- -- 11,490 -- -- 11,490
Dividend of $0.93 per
share.................. -- -- -- (9,719) -- -- (9,719)
Holding losses realized
during the year upon
disposal............... -- -- -- -- -- 488 488
---------- ---- ------- ------- ----- ----- -------
Balance as of March 31,
1996................... 10,461,538 105 2,564 11,300 (9) -- 13,960
Net income for the
year................... -- -- -- 13,517 -- -- 13,517
Dividend of $0.12 per
share.................. -- -- -- (1,294) -- -- (1,294)
Foreign currency
translation............ -- -- -- -- 30 -- 30
Increase in unrealized
holding gain for
the year............... -- -- -- -- -- 59 59
---------- ---- ------- ------- ----- ----- -------
Balance as of March 31,
1997................... 10,461,538 105 2,564 23,523 21 59 26,272
Net income for the
year................... -- -- -- 20,594 -- -- 20,594
New issue of shares..... 3,000,000 30 31,470 -- -- -- 31,500
Foreign currency
translation............ -- -- -- -- (725) -- (725)
Holding gain realized
during the year upon
disposal .............. -- -- -- -- -- (59) (59)
---------- ---- ------- ------- ----- ----- -------
Balance as of March 31,
1998................... 13,461,538 $135 $34,034 $44,117 $(704) $ -- $77,582
========== ==== ======= ======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1996 1997 1998
<S> <C> <C> <C>
Operating activities:
Net income....................................... $ 11,490 $ 13,517 $20,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 2,963 3,570 5,012
Deferred income taxes.......................... 11 (67) 444
Gain on sale of long-term marketable
securities.................................... (949) -- --
Loss on disposal/write-off of plant and
equipment..................................... 891 3 7
Gain on sale of short-term marketable
securities.................................... -- (90) (345)
Changes in operating assets and liabilities:
Accounts receivable--trade...................... (1,708) (1,720) (356)
Inventories..................................... (3,364) (7,444) (5,888)
Other receivables, deposits and prepayments .... 880 (266) (173)
Bills payable................................... (1,560) 306 (5,489)
Accounts payable--trade......................... (491) 567 1,996
Accrued liabilities and deposits................ 27 (554) 1,222
Amounts due from/to related companies........... (2,461) (12) (2,875)
Income taxes payable............................ 1,063 1,666 1,323
-------- -------- -------
Net cash provided by operating activities...... 6,792 9,476 15,472
-------- -------- -------
Investing activities:
Purchase of marketable securities................ (328) (1,592) --
Proceeds on sale of plant and equipment.......... 72 -- --
Acquisition of property, plant and equipment..... (7,156) (8,050) (15,244)
Decrease in deposits for acquisition of property,
plant and equipment............................. 99 -- --
Proceeds from sale of short-term marketable
securities...................................... -- 612 1,415
Purchase of investment in certificate of
deposit......................................... (100) -- --
Purchase of investment held to maturity.......... -- -- (11,003)
Maturity of investment held to maturity.......... -- -- 11,003
-------- -------- -------
Net cash used in investing activities.......... (7,413) (9,030) (13,829)
-------- -------- -------
Financing activities:
Proceeds from/(repayment of) short-term bank
loans........................................... -- 6,473 (6,473)
Increase/(decrease) in bank overdrafts and
invoice financing, net.......................... 1,492 5,726 (9,119)
Dividends paid................................... (7,120) (1,294) --
Advances from shareholder........................ 13,564 1,570 --
Proceeds from issue of common stock.............. -- -- 31,500
Repayment of amount due to shareholder........... (8,219) (12,061) --
-------- -------- -------
Net cash (used in)/provided by financing
activities.................................... (283) 414 15,908
-------- -------- -------
Net (decrease)/increase in cash and cash
equivalents...................................... (904) 860 17,551
Cash and cash equivalents at beginning of year.... 1,828 924 1,814
Effects of exchange rate changes on cash.......... -- 30 (151)
-------- -------- -------
Cash and cash equivalents at end of year.......... $ 924 $ 1,814 $19,214
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 (the "Restructuring"), the interest in
Peak Plastic & Metal Products (International) Limited ("Peak (HK)") and other
companies in the packaging products business held by Mr. T.L. Li, the
shareholder of the Company (the "Shareholder"), were restructured whereby the
Company became the holding company of Peak (HK) and the Company's other
subsidiaries. Prior to the Restructuring, the Shareholder owned, in the
aggregate, all 200,000 of the outstanding ordinary shares of Peak (HK). Prior
to the Restructuring, the Shareholder also directly owned all of the
outstanding shares of Luckygold 18A Limited ("Luckygold") and, through
Luckygold, indirectly held all of the outstanding shares of each of Success
Gold 8 Limited ("Success Gold") and Peakgold 3 Limited ("Peakgold") and each
of their respective subsidiaries. Luckygold, Success Gold and Peakgold are
incorporated in the British Virgin Islands.
On January 14, 1997, 1,200,000 shares of the Company were allotted nil paid
to Luckygold. On February 28, 1997, Luckygold transferred to the Company all
the outstanding shares of Peakgold and Success Gold in consideration for (i)
crediting as fully paid the existing 1,200,000 shares allotted to Luckygold
and (ii) the issue of 8,800,000 additional shares to Luckygold. As part of the
Restructuring, on March 18, 1997, the Company issued 461,538 shares to
Luckygold, credited as fully paid, by way of capitalization of the sum of
$4,615 standing to the credit of the additional paid-in capital account of the
Company.
On February 13, 1997, Peakgold subscribed for at par and was allotted two
ordinary shares of Peak (HK). Following the acquisition of those two shares,
the 200,000 ordinary shares of Peak (HK) owned by the Shareholder prior to the
Restructuring were, on February 17, 1997, converted into non-voting deferred
shares. The deferred shares have effectively no rights to dividends and
limited rights to return of capital upon any dissolution or liquidation of
Peak (HK). In addition, Peakgold was granted an option to purchase all of the
deferred shares within the five-year period following the grant of the option
for a total consideration of one Hong Kong dollar. As a result, the voting and
economic rights relating to the common stock of Peak (HK) became effectively
wholly-owned by Peakgold and, accordingly, the value of the Shareholder's 100%
interest in Luckygold increased by the value of Peak (HK).
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, leadframe 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
and Malaysia.
The consolidated financial statements of the Company and its subsidiaries
have been prepared in accordance with generally accepted accounting principles
in the United States of America ("U.S. GAAP") which differ from those used in
the statutory accounts of most of its subsidiaries. There are no material
differences between the U.S. GAAP amounts and the amounts used in the
statutory accounts of the subsidiaries.
F-8
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(1) ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
(B) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method. Cost of work-in-progress and finished goods
includes costs of direct materials, direct labor and an appropriate proportion
of production overheads. The production overheads are absorbed in work-in-
progress and finished goods based on units of production.
(C) 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 following estimated useful lives:
<TABLE>
<CAPTION>
CATEGORY OF ASSETS ESTIMATED USEFUL LIVES
<S> <C>
Land use rights............................. Over the unexpired lease term
Buildings................................... Over the unexpired lease term
Other property, plant and equipment......... 5 years
</TABLE>
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. As of March 31, 1997 and 1998, capitalized
interest included in factory under construction amounted to $11 and $34,
respectively.
(D) INVESTMENT IN MARKETABLE SECURITIES
Management determines the appropriate classification of investment
securities at the time they are acquired and reevaluates the appropriateness
of such classifications at the balance sheet date. At each balance sheet date,
the investment in marketable equity securities has been classified as
"Available for Sale Securities". This type of security is stated at fair
market value and unrealized holding gains and losses, net of deferred tax, are
reported as a separate component of shareholders' equity.
Dividends on marketable equity securities, if any, are recognized as income
when declared. Realized gains and losses will be included in income and will
be based upon the actual cost of the security.
F-9
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) FOREIGN CURRENCY TRANSLATION
The Company uses the United States dollar as its reporting currency.
Monetary assets and liabilities denominated in currencies other than United
States dollars are translated into United States dollars at the rates of
exchange ruling at the balance sheet date. Transactions in currencies other
than United States dollars during the year are converted into United States
dollars at the rates of exchange ruling at the transaction dates. Exchange
differences are recognized in the statements of income.
On consolidation, balance sheets of subsidiaries denominated in currencies
other than United States dollars are translated into United States dollars at
the rates of exchange ruling at the balance sheet date. Statements of income
of subsidiaries denominated in currencies other than United States dollars are
translated into United States dollars at average exchange rates. Exchange
differences are recorded to a cumulative translation adjustment account within
shareholders' equity.
The Company enters into foreign exchange contracts to reduce its exposure to
changes in exchange rates. Material market value gains and losses are
recognized in the statement of income.
(F) INCOME TAXES
Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes include the effects of temporary differences between financial and
taxable amounts of assets and liabilities.
(G) 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.
(H) EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares
outstanding during the year. For the year ended March 31, 1998, diluted
earnings per share is computed using a weighted average number of shares
outstanding of 12,972,060, which includes 168,056 additional shares, being the
dilutive effect of stock options computed using the treasury stock method.
(I) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
ninety days or less at the time of acquisition to be cash equivalents.
(J) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations 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
evaluations 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 expectations. During the years, the Company has not experienced
any significant bad debts and did not maintain any allowances for doubtful
accounts.
F-10
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) FINANCIAL INSTRUMENTS
The carrying value of financial instruments, which consist of cash and cash
equivalents, investments in certificates of deposit and marketable securities,
accounts receivable, other receivables, amounts due from related companies,
short-term bank borrowings, accounts payable and bills payable, approximates
to fair value due to the short-term nature of these instruments.
(L) NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board (FASB) issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting for Segments of
a Business Enterprise, establishes standards for the way that public
enterprises report information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS
No. 131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which amends the disclosure
requirements for pensions and other postretirement benefits. Adoption of the
standard will not significantly change the Company's financial statement
disclosures.
(3) SHORT-TERM MARKETABLE SECURITIES
<TABLE>
<CAPTION>
MARCH 31,
------------
1997 1998
<S> <C> <C>
Equity securities listed in the United States:
Cost......................................................... $1,070 $ --
Unrealized holding gain...................................... 59 --
------ -----
Market value................................................. $1,129 $ --
====== =====
</TABLE>
F-11
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(4) INVENTORIES
The components of inventories, net of the related reductions to the lower of
cost or market, were as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1997 1998
<S> <C> <C>
Raw materials.............................................. $15,374 $20,489
Finished products.......................................... 6,808 7,645
------- -------
22,182 28,134
Less: Inventory reserve.................................... (129) (193)
------- -------
$22,053 $27,941
======= =======
</TABLE>
The inventory reserve represents provision for slow moving inventory
determined after periodic review by management.
Movements in inventory reserve are as follows:
<TABLE>
<S> <C>
Balance as of March 31, 1996.......................................... $ 582
Provision for slow moving inventory written back to income............ (453)
-----
Balance as of March 31, 1997.......................................... 129
Provision for slow moving inventory charged to income................. 64
-----
Balance as of March 31, 1998.......................................... $ 193
=====
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1998
<S> <C> <C>
Land use rights and building............................ $ 2,424 $ 4,909
Factory under construction.............................. 1,426 2,649
Plant, machinery, moulds and equipment.................. 12,923 20,068
Leasehold improvements, furniture, fixtures and motor
vehicles............................................... 9,476 14,177
-------- -------
26,249 41,803
Less: Accumulated depreciation and amortization......... (10,505) (15,455)
-------- -------
$ 15,744 $26,348
======== =======
</TABLE>
A subsidiary of the Company operating in Shenzhen in the PRC acquired
factory buildings on certain state-owned land in the PRC. Pursuant to land use
rights' agreements entered into between the subsidiary and the local land
bureau on March 27, 1995 and January 31, 1996, the subsidiary was legally
assigned the land use rights for a period of 50 years after payment of an
additional land premium.
F-12
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(6) BANK BORROWINGS
These represent borrowings in the form of bills payable, invoice financing,
bank overdrafts and other short-term loans with certain commercial banks.
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1998
<S> <C> <C>
Total unsecured credit facilities available............. $54,450 $ 50,518
======= ========
Total utilized unsecured facilities..................... $21,170 $ 89
======= ========
Weighted average interest rate on borrowings at end of
year................................................... 8.27% 9.17%
======= ========
</TABLE>
All the above credit facilities were guaranteed at no cost by Mr. T.L. Li
throughout the relevant years. Following the Company's initial public offering
in June 1997, these guarantees were released by the banks. Interest rates in
respect of such facilities are generally based on the banks' prime lending
rates and the credit lines are normally subject to annual review.
(7) OTHER INCOME, NET
Other income/(expense) consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
Market value of long-term marketable securities
distributed as dividend....................... $ 2,599 $ -- $ --
Proceeds on sale of short-term marketable secu-
rities........................................ -- 612 1,415
Cost of marketable securities.................. (1,650) (522) (1,070)
-------- ------ -------
Realized gain on marketable securities......... 949 90 345
Dividend income................................ 164 -- --
Foreign currency exchange gain/(loss), net..... 20 (7) 581
-------- ------ -------
$ 1,133 $ 83 $ 926
======== ====== =======
(8) INTEREST INCOME
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
Interest income from:
--third parties.............................. $ 15 $ 74 $ 901
--an affiliated party (note 13).............. -- 31 6
-------- ------ -------
$ 15 $ 105 $ 907
======== ====== =======
</TABLE>
F-13
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(9) INTEREST EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1996 1997 1998
<S> <C> <C> <C>
Interest expense to:
--third parties................................... $ 738 $ 1,425 $ 390
--a related company (note 13)..................... 27 -- --
------- ------- -------
$ 765 $ 1,425 $ 390
======= ======= =======
(10) 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 are
as follows:
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1996 1997 1998
<S> <C> <C> <C>
Hong Kong.......................................... $12,184 $14,678 $21,787
Other countries.................................... 533 75 632
------- ------- -------
$12,717 $14,753 $22,419
======= ======= =======
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------
1996 1997 1998
<S> <C> <C> <C>
Income tax:
Current:
Hong Kong........................................ $ 1,114 $ 1,223 $ 1,299
United States.................................... 98 22 52
Malaysia......................................... 4 27 (4)
Singapore........................................ -- 31 34
Deferred income tax:
Hong Kong........................................ 11 (28) 450
Malaysia......................................... -- (26) --
Singapore........................................ -- (13) (6)
------- ------- -------
$1,227 $1,236 $ 1,825
======= ======= =======
</TABLE>
The components of the net deferred income tax liabilities as of March 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------
1997 1998
<S> <C> <C>
Deferred income tax liabilities:
Depreciation................................................... $447 $900
Other temporary difference..................................... (73) (82)
---- ----
$374 $818
==== ====
</TABLE>
F-14
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(10) PROVISION FOR INCOME TAXES (CONTINUED)
The effective tax rate of the Company varied from the Hong Kong profits tax
rate for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
Hong Kong profits tax rate...................... 16.5% 16.5% 16.5%
Hong Kong profits tax relief for the PRC opera-
tions.......................................... (8.3) (8.3) (8.3)
Taxation elsewhere.............................. 1.4 0.3 0.4
Other items..................................... -- (0.1) (0.5)
------- ------- -------
Effective tax rate.............................. 9.6% 8.4% 8.1%
======= ======= =======
</TABLE>
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 of the Company's manufacturing operations are
located in Shenzhen, the PRC and conducted pursuant to a processing agreement
entered into with a PRC company. Effective April 1, 1998 the profits tax rate
in Hong Kong is 16.0%, a change from the former profits tax rate, which was
16.5%. 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.
(11) EMPLOYEE BENEFIT PLAN
Since June 1, 1996, the Company has established defined contribution benefit
plans for its Hong Kong employees. The assets of the plans are held under
provident funds managed by independent trustees. The employees can elect not
to make contributions to the plans or they can elect to contribute a fixed
percentage from 1% to 5% (in 1% increments) of individual employee's monthly
basic salary. The employer's contributions are based on 5% of individual
employee's monthly basic salary. 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 respective employee's salary to the retirement schemes as
stipulated by relevant local authorities. The employees are entitled to the
employer's contributions subject to the regulations of the relevant local
authorities.
The aggregate employers' contributions which have been made are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
--------------
1996 1997 1998
<S> <C> <C> <C>
Employers' contributions..................................... $28 $143 $199
=== ==== ====
</TABLE>
F-15
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(12) COMMITMENTS AND CONTINGENCIES
(a) Capital expenditure
As of March 31, 1998, the Company and its subsidiaries had contracted
for capital expenditure on property, plant and equipment of $263.
(b) Operating leases
The Company and its subsidiaries lease certain land and buildings
under operating leases, most of which do not contain renewal options
and escalation clauses, which expire through December 2007. Total
rental expenses associated with operating leases for the years ended
March 31, 1996, 1997 and 1998, amounted to $595, $1,048 and $1,295,
respectively.
The aggregate annual minimum operating lease commitments under all
noncancelable leases as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
<S> <C>
1999................................................................ $1,415
2000................................................................ 863
2001................................................................ 429
2002................................................................ 258
2003................................................................ 258
Thereafter.......................................................... 749
------
$3,972
======
</TABLE>
As of March 31, 1998 the Company has entered into foreign exchange contracts
totaling approximately $17,614 (1997: nil) primarily to purchase Hong Kong
dollars and Renminbi. The Company is exposed to credit risk in the event of
non-performance by the counterparties to the contracts. However, the Company
does not anticipate non-performance because the counterparties are major
financial institutions.
F-16
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(13) RELATED AND AFFILIATED PARTY TRANSACTIONS
The Company had the following significant transactions with certain related
and affiliated parties during the relevant years:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1996 1997 1998
<S> <C> <C> <C>
Sales to related companies:
Certain subsidiaries of QPL
International Holdings Limited ("QPL").............. $11,477 $9,315 $12,046
EEMS Italia S.P.A. ("EEMS").......................... -- 369 725
------- ------ -------
$11,477 $9,684 $12,771
======= ====== =======
Acquisition of plant and equipment from a subsidiary of
QPL................................................... 290 -- --
Disposal of plant and equipment to EEMS................ 290 -- --
Commission expense to EEMS............................. -- 212 100
Interest expense to Six Sigma Finance Limited ("SS Fi-
nance")............................................... 27 -- --
Management fee from SemiCycle Foundation............... 74 252 101
Purchases from SemiCycle Foundation.................... 438 1,735 3,000
Rental income from SemiCycle Foundation................ -- 91 98
Interest income from SemiCycle Foundation.............. -- 31 6
Management fee from EEMS, Inc.......................... -- 144 147
</TABLE>
The amounts due from/to related companies as of March 31, 1997 and 1998 were
as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1997 1998
<S> <C> <C>
Amounts due from:
Certain subsidiaries of QPL.................................... $ 991 $4,068
EEMS, Inc...................................................... 13 --
EEMS........................................................... 91 207
SemiCycle Foundation........................................... 261 --
------ ------
$1,356 $4,275
====== ======
Amounts due to:
EEMS........................................................... $ -- $ 36
SemiCycle Foundation........................................... 309 317
------ ------
$ 309 $ 353
====== ======
</TABLE>
The above advances are unsecured, interest free and are repayable on demand
except, as of March 31, 1997, the amount due from SemiCycle Foundation
included unsecured notes totaling $220 all of which bear interest at 8% per
annum. As of March 31, 1998, the notes have been repaid.
Mr. T.L. Li, who is a director of and majority shareholder of the Company,
is a director of and has substantial equity interests in QPL, EEMS and SS
Finance. Messrs. Steve Dezso, a corporate officer of a subsidiary of the
Company, and Richard M. Brook, a director of the Company, were until October
27, 1997 corporate officers of EEMS, Inc. Mr. Steve Dezso is a director of
SemiCycle Foundation and Mr. Richard M. Brook was until December 21, 1996 a
director of SemiCycle Foundation. In December 1997, the board of directors of
SemiCycle Foundation was expanded from three to eight directors, and
consequently, the Company's transactions with SemiCycle Foundation will no
longer be regarded as related and affiliated party transactions beginning
April 1, 1998 under accounting standards generally accepted in the United
States of America.
F-17
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(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.
An analysis of net sales, operating profit and identifiable assets by
geographic location is as follows:
<TABLE>
<CAPTION>
OTHER SOUTHEAST
HONG KONG UNITED ASIAN
& PRC STATES COUNTRIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
1996
Net sales to third
parties................ $ 30,877 $ 10,911 $ 1,679 $ -- $ 43,467
Net sales to related
companies.............. 11,477 -- -- -- 11,477
Transfer between
geographic areas....... 10,196 1,937 -- (12,133) --
-------- -------- ------- --------- --------
Total net sales....... $ 52,550 $ 12,848 $ 1,679 $ (12,133) $ 54,944
-------- -------- ------- --------- --------
Depreciation and
amortization........... $ 2,865 $ 47 $ 51 $ -- $ 2,963
-------- -------- ------- --------- --------
Operating
profit/(loss).......... $ 11,801 $ 857 $ 29 $ (353) $ 12,334
-------- -------- ------- --------- --------
Capital expenditure..... $ 4,084 $ 149 $ 359 $ -- $ 4,592
-------- -------- ------- --------- --------
Identifiable assets..... $ 33,964 $ 2,076 $ 1,272 $ (353) $ 36,959
Corporate assets........ 1,464
--------
Total assets.......... $ 38,423
--------
YEAR ENDED MARCH 31,
1997
Net sales to third
parties................ $ 22,098 $ 10,488 $15,324 $ -- $ 47,910
Net sales to related
companies.............. 9,684 -- -- -- 9,684
Transfer between
geographic areas....... 21,095 496 2,806 (24,397) --
-------- -------- ------- --------- --------
Total net sales....... $ 52,877 $ 10,984 $18,130 $ (24,397) $ 57,594
-------- -------- ------- --------- --------
Depreciation and
amortization........... $ 3,383 $ 42 $ 145 $ -- $ 3,570
-------- -------- ------- --------- --------
Operating
profit/(loss).......... $ 16,100 $ 138 $ 197 $ (445) $ 15,990
-------- -------- ------- --------- --------
Capital expenditure..... $ 6,718 $ 144 $ 334 $ -- $ 7,196
-------- -------- ------- --------- --------
Identifiable assets..... $ 43,427 $ 3,056 $ 4,847 $ (798) $ 50,532
Corporate assets........ 3,263
--------
Total assets.......... $ 53,795
--------
YEAR ENDED MARCH 31,
1998
Net sales to third
parties................ $ 30,129 $ 14,457 $16,348 $ -- $ 60,934
Net sales to related
companies.............. 12,771 -- -- -- 12,771
Transfer between
geographic areas....... 26,683 -- 2,286 (28,969) --
-------- -------- ------- --------- --------
Total net sales....... $ 69,583 $ 14,457 $18,634 $ (28,969) $ 73,705
-------- -------- ------- --------- --------
Depreciation and
amortization........... $ 4,824 $ 53 $ 135 $ -- $ 5,012
-------- -------- ------- --------- --------
Operating
profit/(loss).......... $ 20,344 $ 271 $ 457 $ (96) $ 20,976
-------- -------- ------- --------- --------
Capital expenditure..... $ 15,582 $ 83 $ 66 $ -- $ 15,731
-------- -------- ------- --------- --------
Identifiable assets..... $ 63,918 $ 2,279 $ 4,923 $ (894) $ 70,226
Corporate assets........ 19,314
--------
Total assets.......... $ 89,540
--------
</TABLE>
F-18
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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.
Identifiable assets are those assets used in the Company's operations in
each geographic area. Corporate assets represent cash and cash equivalents,
investment in certificate of deposit, notes receivable from SemiCycle
Foundation (note 13) and marketable securities.
An analysis of sales by geographic destinations for the relevant years is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
North Asia........................................ 49.4% 47.5% 53.8%
North America..................................... 20.1 19.9 22.1
South Asia........................................ 23.4 29.4 21.3
Europe............................................ 7.1 3.2 2.8
------ -------- ------
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) MAJOR CUSTOMERS
One customer, representing QPL International Holdings Limited group of
companies, accounted for 20.9%, 16.1% and 16.3% of the Company's net sales
during the fiscal years ended March 31, 1996, 1997, and 1998, respectively.
Another customer accounted for 12.5% of the Company's net sales during the
fiscal year ended March 31, 1998.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
(a) Cash inflow/(outflow) for interest and income taxes:
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
<S> <C> <C> <C>
Cash paid for interest............................ $ (765) $ (1,425) $(390)
Cash paid for income taxes........................ (153) (138) (58)
Cash refunded on income taxes..................... -- 501 --
====== ======== ======
</TABLE>
(b) Major non-cash transaction
During the year ended March 31, 1996, the Company distributed marketable
securities with a market value of $2,599 as an interim dividend.
F-19
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(17) STOCK OPTION PLAN
An executive share option plan (the "Share Option Plan") was adopted by the
Board of Directors and approved by the sole shareholder on March 18, 1997. An
aggregate of 700,000 shares has been reserved for issuance under the plan.
Under the Share Option Plan, 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 options
to purchase shares at an exercise price per share of no less than the par
value of a share. As of March 31, 1998, options relating to an aggregate of
537,375 shares and 67,560 shares have been granted under the Share Option Plan
at $12.00 per share in March 1997 and at $19.375 per share in March 1998,
respectively. One-third of the options granted in March 1997 vest annually
commencing in April 1998. All the options granted in March 1998 vest in April
1998. The weighted average grant-date fair value of the options is estimated
to be $4.20 per share using the Black-Scholes option pricing model with the
following assumptions: (a) weighted average risk-free interest rate--6.0%; (b)
expected life--3 years; (c) weighted average expected volatility--0.34;
expected dividend yield--0. The weighted average remaining life of outstanding
options as of March 31, 1998 is 8 years. The Company has accounted for the
stock options using the intrinsic value method. Had the Company adopted the
fair value based method of accounting for stock options, net income, basic and
fully diluted earnings per share for the year ended March 31, 1998 would have
been $19,346, $1.51 and $1.49, respectively.
F-20
<PAGE>
[LOGO OF PEAK INTERNATIONAL APPEARS HERE]
Printed by R.R. Donnelley Financial Hong Kong, 97482
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES ACT OF 1934,
THE REGISTRANT CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM
20-F AND HAS DULY CAUSED THIS ANNUAL REPORT OR AMENDMENT THERETO TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN HONG KONG, ON
JUNE 12, 1998.
Peak International Limited
By: /s/ Jerry Mo
----------------------------------
Name: Jerry Mo
Title: Principal Financial Officer
and Principal Accounting
Officer
1
