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As filed with the Securities and Exchange Commission on August 14, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2000
Commission file number: 0-29332
PEAK INTERNATIONAL LIMITED
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant's Name Into English)
Bermuda
(Jurisdiction of Incorporation or Organization)
44091 Nobel Drive
P.O. Box 1767
Fremont, CA 94538
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value US $0.01 per share Nasdaq Stock Market National Market
</TABLE>
Securities registered or to be registered pursuant to Section 12(g) of the
Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
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..................... 13,686,305
</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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [_] Item 18 [X]
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[LOGO OF PEAK INTERNATIONAL LIMITED APPEARS HERE]
PEAK INTERNATIONAL LIMITED
44091 Nobel Drive
PO Box 1767
Fremont, CA 94538
Tel. (510) 449-0100 Fax: (510) 449-0102
August 14, 2000
Dear Shareholder:
I am very pleased to enclose a copy of Peak's annual report on Form 20-F for
the fiscal year ended March 31, 2000. The report documents and quantifies our
success in servicing our customers and developing our business. In a year of
change, we have grown in important ways, including sales, cash and
profitability. Unfortunately, the price of our stock, in my view, does not
reflect our achievements of this past year and our fine prospects for the
future.
This will be the last Form 20-F you will receive from Peak since, in the
future, we will file our annual report on Form 10-K and it will contain all
information required of a US filer. You will see a section in this year's
Form 20-F titled, "Information Not Required by 20-F but required by 10-K." In
effect, the disclosures required of a domestic company are included in our
Form 20-F this year.
Our first quarter of fiscal year 2001 heralded a major change for Peak as
sales of tape and reel products exceeded sales of tubes. We are working hard
not only to expand sales of tape and reel products in Asia, but in the US as
well. We have reorganized our US operations in California in the heart of
Silicon Valley where our sales force can call on customers without traveling.
We have also scheduled delivery of new tape manufacturing equipment to assure
that we will be able to meet expected demand.
In the coming months, we will also be changing our stock symbol from PEAKF
to PEAK, reflecting the relocation of our principal office from Hong Kong to
Fremont, California, and we will also rename our Website from peakf.com to
peakinternational.com. We think these changes will serve to emphasize that
Peak is a new company, growing robustly, and with a bright future.
I look forward to another successful year.
Very truly yours,
/s/ Cal Reed
Cal Reed
President & CEO
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TABLE OF CONTENTS
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PART I................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS..................................... 1
ITEM 2. DESCRIPTION OF PROPERTY..................................... 16
ITEM 3. LEGAL PROCEEDINGS........................................... 17
ITEM 4. CONTROL OF REGISTRANT....................................... 18
ITEM 5. NATURE OF TRADING MARKET.................................... 19
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS.................................................... 19
ITEM 7. TAXATION.................................................... 20
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA........................ 23
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 25
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.. 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.............. 29
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS............ 32
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES............................................... 32
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.............. 35
PART II.................................................................. 36
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.................. 36
PART III................................................................. 36
ITEM 15. DEFAULTS UPON SENIOR SECURITIES............................. 36
ITEM 16. CHANGE IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES................................................. 36
PART IV.................................................................. 36
ITEM 17. FINANCIAL STATEMENTS........................................ 36
ITEM 18. FINANCIAL STATEMENTS........................................ 36
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS........................... 36
Annex A--Information Not Required by 20-F But Required by 10-K
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PART I
All references to the "Company," "we," "us" or "our" herein are references
to Peak International Limited, a company incorporated under Bermuda law on
January 3, 1997, and, unless the context otherwise requires, its subsidiaries
and predecessors. All references to "Peak (HK)" herein are to Peak Plastic &
Metal Products (International) Limited, a company incorporated in Hong Kong
and a wholly-owned subsidiary of the Company and, unless the context otherwise
requires, its subsidiaries and predecessors. References in this Annual Report
on Form 20-F ("Annual Report") to our historical business and operations
assume that the corporate reorganization in 1997 (the "Restructuring") by
which, among other things, Peak (HK) became a wholly-owned subsidiary of the
Company and the Company acquired its other subsidiaries, had already occurred
as of the times to which the references relate. Any discrepancies in the
tables included in this Annual Report between the amounts indicated and the
totals thereof are due to rounding. All references to "US Dollars," "US$" or
"$" herein are to United States Dollars, references to "HK Dollars" or "HK$"
are to Hong Kong Dollars and references to "Fiscal 1996," "Fiscal 1997,"
"Fiscal 1998," "Fiscal 1999" and "Fiscal 2000" are to the years ended March
31, 1996, 1997, 1998, 1999 and 2000, respectively.
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. The forward-looking
statements reflect our view at the time of this Annual Report with respect to
future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties including among others dependence
on the semiconductor and electronics industries, competition, dependence on
significant customers, issues relating to our operations in China, the
resolution of recently filed shareholder litigation and other matters that
could cause actual results to differ materially from the statements made
herein. The words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" and similar expressions, identify forward-looking statements,
which speak only as of today. The principal risks and uncertainties that may
cause actual results to vary materially from the forward looking statements
contained herein include those described in the section entitled "Description
of Business--Risk and Uncertainties" as well as a wide variety of other
factors, many of which are outside of our control. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Investors are
cautioned not to place undue reliance on these forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
General
We are a leading supplier of precision engineered packaging products for the
storage, transportation and automated handling of semiconductor devices and
other electronic components. Our products are designed to interface with
automated handling equipment used in the production and testing of
semiconductor and electronic products. Our customers include semiconductor
companies such as Texas Instruments, ST Microelectronics, Philips and
Motorola, as well as subcontract assembly and test companies such as ASAT,
STATS and ASE. Our products are designed to ensure that semiconductor devices
and electronic components, which are often delicate and may have significant
value, are protected from mechanical and electrical damage during storage,
transportation and automated handling.
We produce principally matrix trays, carrier tape and reels, and shipping
tubes. We also produce leadframe boxes and interleaves used in the storage and
transportation of leadframes. In addition, we collect and sell recycled matrix
trays using the name "SemiCycle." We believe that our recycling programs,
whereby we collect and recycle products we manufacture and products
manufactured by others, enable us to expand our customer base by supplying
both newly-manufactured and recycled products to customers. In addition, we
believe our carrier tape, which may be recycled, will be preferred by ecology
minded customers over laminated products offered by many of our competitors.
Our principal production facilities, located in Shenzhen, China, are
equipped with injection molding machines, extruders, carrier tape machines,
mixing machines, ultrasonic welding machines and other machinery
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and equipment. We maintain in-house tooling facilities capable of producing
the molds used for production, dies and tooling for sale and spare parts for
machines used in its production processes. We also have in-house compounding
capabilities for the mixing, blending and pelletizing of PVC raw materials
used in our production processes. In addition, we maintain computer aided
design ("CAD") stations which are linked electronically to our sales offices
to enable the sharing of design information. Finalized designs are transmitted
electronically to our in-house tooling facilities for the production of molds,
dies and tooling.
We maintain recycling programs through which we, our agents and independent
contractors collect used trays, at approximately 330 locations in Asia and
Europe. We recycle trays manufactured by us or by others, collected from end
users, such as Surface Mount Technology ("SMT") companies and other types of
assemblers of circuit boards and manufacturers of electronic products and
systems. Most of the trays collected are then transported to our production
facilities in Shenzhen, China, where we process them through inspection,
cleaning and anti-static coating, if appropriate. We then place the trays into
inventory in our warehousing facilities pending sale to customers. Recycled
trays that do not meet our quality requirements, or for which there is
insufficient demand, are ground and reused in the manufacturing processes for
new products. Currently, we collect approximately 1.4 million trays, each
month for recycling. By using recycled trays in our operations, we decrease
our cost of goods sold, and increase our operating margin without increasing
prices.
We maintain five sales offices, located in Hong Kong; Singapore; Penang,
Malaysia; Fremont, California; and Austin, Texas whereby direct sales are made
to customers, and three representative offices in Shenzhen and Shanghai, China
and Rome, Italy that provide customers with technical information. We also
sell our products through five sales agents located in Japan (three); Seoul,
South Korea; and Taipei, Taiwan. We maintain, either directly or through our
local sales representatives, a network of 19 Just-in-Time ("JIT") warehouses
located in Asia, North America and Europe, near our customers' production
facilities.
Our principal executive offices are located at 44091 Nobel Drive, P.O. Box
1767, Fremont, CA 94538 and our main telephone number is (510) 449-0100.
Strategy
Our objective is to increase our market presence in serving the
semiconductor and electronics industries by providing top quality service,
precision engineered packaging solutions and recycling alternatives to
manufacturers of semiconductor devices and electronic components through our
integrated manufacturing capability and our recycling programs. The key
elements of our business strategy are as follows:
Maintain Close Customer Relationships. We plan to maintain close
relationships with our customers through an extensive network of strategically
located sales, customer service and product distribution sites and by working
closely with our customers in developing precision engineered packaging
solutions for the storage, transportation and automated handling of their
products. We believe that our ability to distribute our products to customers
located in Asia, North America and Europe allows us to compete effectively
with other suppliers of packaging products to the semiconductor and
electronics industries, a number of which distribute only within certain
geographic regions. Customer reliance on quick delivery drives our product
strategy with respect to both new and recycled products. We believe that our
recycling programs enable us to expand our customer base by providing us with
opportunities to supply both newly manufactured and recycled products to
customers. We believe our new homogeneous carrier tape, which may be recycled,
will be more attractive to ecology minded customers than laminated products
supplied by many of our competitors.
Shorten Delivery Time. We plan to attract and retain customers based on our
ability to deliver large quantities of products on short notice to meet
customer demand. We believe that short delivery time is of particular
importance to our customers because in the semiconductor and electronics
industries requirements for packaging products are sometimes difficult to
forecast accurately. We believe that stocking certain key products in our
network of JIT warehouses, maintained either by us or by our local sales
representatives reduces the amount of time required for the delivery of our
products to our customers, thereby improving our responsiveness
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to customer requirements for flexibility in delivery and generally
facilitating the improvement of inventory management by our customers. In
addition, our in-house tooling facilities and raw material mixing and
compounding capabilities obviate the necessity of working with sub-contractors
and enable us to achieve shorter production cycles.
Offer a Broad Range of Products. Our current product offerings, which
include matrix trays, carrier tape and reels, and tubes, allow us to service a
broad range of customers who often have needs across multiple product
categories. In recent years, we have expanded our product offerings from tubes
to include matrix trays, recycled matrix trays and tape-and-reel products. We
are also currently engaged in the study and development of new products, with
an emphasis on packaging products designed to carry high-value semiconductor
and electronics components. Our production facilities have been formally
approved or "qualified" by a number of our customers across our product
categories. We believe that our customers value the range of our product
offerings allowing us to compete effectively. Our in-house design and tooling
capabilities reduce the cycle time needed for the development of new products
and product features and facilitates our development of "custom" products
which typically require different prototype stages during product development.
Our in-house design and tooling capabilities have also facilitated our
development of new product features such as the "enhanced pocket strength,"
"anti-reflective wall" and "high strength ring pedestal" features for our
carrier tape products, for which we have patent applications pending. In
addition, our in-house raw material mixing and compounding capabilities enable
us to better control the quality of our products to meet customer
specifications with respect to characteristics such as color, transparency and
hardness. Our recycling programs also enable us to supply a broad range of
recycled trays to our customers.
Increase Volume Supply Capabilities. We plan to continue the expansion of
our production and tooling capacities and our recycling programs so as to
increase our high volume supply capabilities. Since 1992, we have expanded the
production capacity of our facilities in Shenzhen, China in order to meet
growing demand for our products. We have been constructing an additional plant
to be located approximately three miles from the existing production
facilities, which has the potential to greatly increase our production
capacity. We have put the completion of this facility on hold and are
reviewing whether our manufacturing requirements in the foreseeable future
warrant the additional capacity.
Emphasize Quality Assurance and Process Control. We plan to maintain our
high standards of quality products. We maintain a quality assurance and
process control department which, as of March 31, 2000, consisted of
approximately 43 engineers and 350 on-line process controllers. Quality
assurance and process control procedures are performed at each major stage of
production. These include the inspection of incoming raw materials,
statistical process control at the injection molding (for trays and reels) and
extrusion (for tubes) stages of production and the inspection and testing of
finished products. Our production facilities in Shenzhen, China obtained
International Standard Organization ("ISO") 9002 certification in October 1994
and are subject to follow-up surveillance audits conducted semi-annually
thereafter in accordance with normal ISO procedures. In addition, before
making high volume purchases from us, customers generally require us to
undergo a one- to two-month "qualification" process. Such qualification
processes often include on-site certification of our production facilities by
members of the customer's engineering and quality control staff. Our
production facilities in Shenzhen, China have been qualified by many of our
customers including Intel, Texas Instruments, Motorola, Philips, ST
Microelectronics, Agilent and others. We believe that in addition to our
quality assurance and process control department, our in-house design and
tooling facilities and raw material compounding capabilities have enabled us
to control better the quality of our products.
History
We commenced operations in 1975, principally as a manufacturer of integrated
circuit ("IC") shipping tubes, with production facilities located in Tsuen
Wan, Hong Kong. In 1987, we relocated our production facilities to Shenzhen,
China. In 1992, we were acquired by Mr. T.L. Li, a semiconductor industry
entrepreneur and investor. See "Directors and Executive Officers of
Registrant." In the same year, our in-house tooling capability was
substantially augmented and we commenced the production and sale of matrix
trays. At the same
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time, we commenced the establishment of a distribution network of JIT
warehousing facilities located near areas of semiconductor manufacturing
activity. Additionally, we commenced the operation of our recycling programs
through subsidiaries doing business under the trade name "SemiCycle." In 1994,
we commenced the sale of the reels used in tape-and-reel IC carriers and in
1996, we commenced the sale of the tape used in such carriers. Since 1992, we
have expanded the production capacity of our facilities in Shenzhen, China in
order to meet growing demand.
Markets That We Serve
Our products are used for the storage and transportation of semiconductor
devices and other electronic components such as connectors, resistors and
capacitors. We design our products to interface with automated handling
equipment used in the manufacture and testing of semiconductor and electronics
products.
Semiconductors
Semiconductors are the basic building blocks used to create a variety of
electronic products and systems. Continual improvements in semiconductor
process and design technologies have enabled the production of complex, highly
integrated circuits which provide faster execution, increased functionality
and greater reliability. As a result, semiconductor demand has experienced
growth in markets for such products as computers, communications, consumer
electronic devices, automotive products and industrial automation and control
systems.
Semiconductors are often classified as either discrete devices (such as
individual diodes or transistors) or IC's. In ICs, thousands of functions are
combined on a single "chip" of silicon to form a more complex circuit, which
is then encapsulated in plastic, ceramic or other materials (forming a
"module") for connection to a circuit board.
In pin-through-hole ("PTH") technology, modules are attached by pins, also
called I/O (for input/output) "leads," inserted through or soldered to plated
holes in the printed circuit board. PTH is one of the earliest technologies in
the assembly of printed circuit boards. PTH semiconductor devices, such as
PDIP (Plastic Dual In-Line Package) modules, are typically sorted and
transported in IC shipping tubes such as those we produce.
In the technologically more advanced surface mount technology ("SMT"), the
leads on ICs and other electronic components are soldered to the surface of
the printed circuit board rather than inserted into holes. SMT can accommodate
a substantially higher number of leads than PTH, thereby permitting the board
to interconnect a greater number of integrated circuits. This, in turn, allows
tighter component spacing which permits a reduction in the dimensions of the
printed circuit board. Because of their high lead counts, most very large
scale integrated circuits are configured for surface mounting. Additionally,
SMT allows components to be placed on both sides of the board thereby
permitting even greater density. The substantially higher number of leads and
finer lead-to-lead spacing or "pitch" in SMT products requires packaging
solutions which are more exacting than for PTH products. In addition, certain
SMT products are sensitive to moisture absorption and typically undergo a
baking process before surface mounting, and consequently require robust
packaging solutions which are resistant to high temperature. SMT semiconductor
devices are typically stored and transported in matrix trays or tape-and-reel
carriers such as those we produce.
In recent years, as a general trend, we experienced increased demand for our
products as a result of unit volume growth and other developments in the
global semiconductor industry. First, the increasing complexity of
semiconductor devices and use of automated production equipment continued to
shift the use of packaging products by semiconductor companies away from
traditional products, such as tubes, in favor of products such as trays and
carrier tapes which require higher precision engineering. Second, the
continued proliferation of SMT with its increasing lead-count and finer lead-
to-lead spacing resulted in an increase in the production of semiconductor
devices that are more susceptible to mechanical damage during shipment. As a
result, the use of higher precision engineered packaging products such as
matrix trays has again increased. Third, we believe that
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the continuing trend in the global semiconductor industry towards increased
out-sourcing of various steps of the IC production process, such as assembly
and testing, also benefitted us as semiconductor companies increasingly looked
for suppliers of packaging products with the ability to supply large
quantities of a wide range of products on short notice to different
subcontractor assembly and test companies at various locations.
The growth in the market for our products is related to the growth in unit
volume, namely the number of semiconductor devices produced, which may differ
from the growth in the demand for semiconductor devices, as a result of
variation over time in the average selling price per semiconductor device. For
more information see the discussion under the heading "Risks and
Uncertainties--Dependence on Semiconductor and Electronics Industries."
Electronic Components
Peak products are used to package other electronic components, including
connectors, resistors and capacitors. Connectors are electro-mechanical
devices that allow an electronic signal to pass from one device to another.
They are used to connect wires, cables, printed circuit boards, flat cable and
other electronic components to each other and to related equipment. Connectors
are found in virtually every electronic product including computers, printers,
disk drives, modems, VCRs, radios, medical instruments, airplanes, appliances,
cellular telephones, pagers and automobiles. Original equipment manufacturers
in the electronics industry generally use connectors to complete the design
and manufacture of their products.
Resistors are basic components used in all forms of electronic circuitry to
adjust and regulate levels of voltage and current. They vary widely in
precision and cost, and are manufactured in numerous materials and forms.
Resistive components may be either fixed or variable, depending on whether the
resistance is adjustable (variable) or not (fixed). Resistors can also be used
as measuring devices, such as resistive sensors. Resistive sensors or strain
gauges are used in experimental stress analysis systems as well as in
transducers for electronic measurement of loads (scales), acceleration and
fluid pressure.
Capacitors perform energy storage, frequency control, timing and filtering
functions in most types of electronic equipment. The more important
applications for capacitors are electronic filtering for linear and switching
power supplies, decoupling and bypassing of electronic signals for ICs and
circuit boards, and frequency control, timing and conditioning of electronic
signals for a broad range of applications.
Our products serve only portions of the markets for various electronic
components, principally those for SMT components such as SMT ceramic chip
capacitors and SMT chip resistors. For more information, see the discussion
under the heading "--Risks and Uncertainties--Dependence on Semiconductor and
Electronics Industries."
Products and Production Processes
We produce matrix trays, carrier tape and reels, and tubes. We also sell
recycled matrix trays. In addition, we produce a limited number of leadframe
boxes and leadframe interleaves used in the storage and transportation of
leadframes for affiliates of QPL International Holdings Limited Group ("QPL
Holdings"). Leadframes are sheets of metal, etched or stamped with various
patterns of I/O leads which allow for interconnections between silicon chips
and printed circuit boards. Leadframes are generally stored and transported in
stacks housed in plastic boxes, with individual leadframes separated by
plastic or paper interleaves. Lead frame boxes and interleaves accounted for
less than 1% of gross revenues in Fiscal 2000.
Our products are typically categorized by their dimensions and
configurations, the type and size of semiconductor devices they carry, and
their physical characteristics, in particular their resistance to deformation
or "warpage" at various temperatures. Our products are also categorized by
their electrostatic properties as "conductive," "dissipative" or "anti-
static." Conductive and dissipative products are manufactured by adding carbon
fibre or carbon powder to the plastic compound. Anti-static characteristics
are achieved by applying a coating to the surface of the product to prevent
the accumulation of surface electrostatic charges.
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Tray Products
Our tray products may be used to store and transport SMT semiconductor
devices. The outer dimensions of matrix trays are generally fixed by industry
standards prescribed by electronics industry associations such as JEDEC in the
United States and EIAJ in Japan. We sell high temperature trays (which may be
baked to temperatures over 150(degrees)C), low temperature trays up to
150(degrees)C and non-bakeable trays.
At the beginning of the tray production process, samples of incoming raw
materials are inspected and tested for key material properties. Virgin raw
materials are mixed and blended with other materials in accordance with our
proprietary processes and production techniques and formed by injection
molding machines into trays. The formed trays are then cleaned of surface
contaminants. Trays that require anti-static coating are subsequently dipped
in anti-static solution and dried. Trays made to be heat resistant undergo a
baking process. Thereafter, we inspect samples of new trays from each
manufactured lot for visible defects and warpage, test for electrostatic
discharge characteristics and check their dimensions prior to shipment.
Tape-and-Reel Products
Our tape-and-reel products may be used to store and transport SMT
semiconductor devices and other modules, as well as other products used in the
electronics industry, such as connectors. Tape-and-reel carriers comprise
three parts: reel, carrier tape and cover tape. The semiconductor devices and
other products to be carried are placed in pockets formed in the carrier tape,
which is sealed with cover tape and wound around reels for storage and
transportation. We commenced sales of reels in 1994 and sales of carrier tape
in December 1996.
The production process for reels is similar to that for trays except that we
use different raw materials and that an additional process of ultrasonic
welding is required following the injection molding process to weld two parts
of the reel together. In the production of carrier tape, we either purchase
polystyrene pellet to extrude our own sheets or we purchase polystyrene or
polycarbonate tape from suppliers in large rolls, we then slit the tape to
desired widths. We form the carrier tape by a combination of thermal, air
pressure and hole punching processes, and thereafter inspect the new carrier
tape for visible defects prior to shipment. We resell cover tape purchased
from outside sources.
Tube Products
Our tube products may be used to store and transport certain SMT
semiconductor devices that are configured differently from those requiring our
tray products, PTH semiconductor devices and other products used in the
electronics industry, such as connectors.
At the beginning of the tube production process, samples of incoming raw
materials are inspected for conformity to specifications. Raw materials are
mixed and blended and made into pellets, based on compounding formulae which
vary depending on the characteristics, such as color, transparency and
hardness, required for the product. We extrude the pellets into tubes, which
we further process by hole punching, silk screen marking and applying an anti-
static coating. Following this process, we inspect samples of the new tubes
for visible defects and test them for electrostatic discharge prior to
shipment.
Other Products
In addition to the standard products in our three principal product lines,
we also produce an array of "custom" products which include customer-specific
designs of trays, tubes, reels, carrier tape and an assortment of other
carriers. We also produce leadframe boxes and leadframe interleaves which we
sell to leadframe suppliers for use in the storage and shipping of their
products.
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Product Development
We are currently engaged in the study and development of new products, with
an emphasis on packaging products designed for the carriage of high-value
components related to the semiconductor and electronics industries. We
undertake on-going research and development efforts which emphasize the
development of features that require precision engineering in order to better
serve our customer base. We have developed new product features for our
carrier tape products, such as a "component carrier having high strength
pocket" and a "component carrier having a pocket including a pedestal" for
which patents have issued as well as additional features for which patent
applications are pending in the United States. The enhanced pocket strength
feature improves the vertical crush resistance of the pockets in the carrier
tape by corrugating the vertical sidewalls of the pockets. The high strength
ring pedestal feature improves the lateral crush resistance of the pockets in
the carrier tape by means of a trapezoidal shaped pedestal and a ring at the
bottom of the pocket. An anti-reflective wall feature enables our customers to
more effectively utilize their automated optical inspection equipment to
inspect the semiconductor or electronic components placed in the carrier tape
that we manufacture. By placing a chamfered corner in the wall of the carrier
tape pocket, we reduce the amount of reflection which could interfere with the
workings of the automated optical inspection equipment. Research and
development expenditures were $546,000, $551,000 and $538,000 for Fiscal Year
2000, Fiscal Year 1999 and Fiscal Year 1998, respectively.
Recycling Programs
We conduct our collection operations through our subsidiaries and
independent contractors doing business using the trade name "SemiCycle." We
recycle trays and reels collected from end users at approximately 330
locations in Asia and Europe. During Fiscal 1999, we purchased $2.0 million of
used trays and reels collected in the United States by The SemiCycle
Foundation, a Texas non-profit corporation. We have discontinued our
relationship with The SemiCycle Foundation, as of August 6, 1999, because we
have substantial inventories, and believe that we can obtain recycled units
from sources in Europe and Asia at a lower cost. For more information, see
"Interest of Management in Certain Transactions." Tube products and carrier
tape products are generally not recycled. Currently, we collect approximately
1.4 million trays on average, each month for recycling. We also purchase
products to recycle from independent dealers.
The trays collected through our recycling programs are principally
transported to the Company's production facilities in Shenzhen, China where we
process them, including sorting, inspection, cleaning and anti-static coating,
if appropriate. We then put them into inventory in our warehousing facilities
pending sale to customers. Typical end users include SMT using companies, and
other types of assemblers of circuit boards and manufacturers of computers and
other end products. Recycled trays that do not meet industry quality
requirements, or for which there is insufficient demand, are ground and reused
in the manufacturing processes for new products.
Some jurisdictions in which our packaging products are sold or used have
adopted or proposed laws and regulations with a view to promote, among other
things, the recycling of packaging materials. In addition, the ISO has
incorporated environmental considerations in formulating its new ISO 14000
quality standards. We believe that our recycling programs provide our
customers with opportunities to select the packaging products that best meet
their requirements in terms of cost and environmental preferences. We believe
that our recycling programs help our customers comply with environmental
regulations and meet ISO standards with respect to environmental issues in
several ways. First, we provide a recycling alternative to the traditional
disposal methods of landfill and incineration. Second, our offerings of
recycled products assist our customers in complying with or meeting "recycle-
content" and "green product" regulations, standards or goals. In addition, our
homogeneous carrier tape may be more easily recycled than the laminated
carrier tape supplied by most of our competitors.
Customers
We averaged approximately 260 customers per month in Fiscal 2000, including
semiconductor and component companies as well as subcontract assembly and test
companies. We also sold products to
7
<PAGE>
manufacturers of connectors, sockets, resistors and capacitors and other types
of electronic components. In Fiscal 2000, our top customers were QPL Holdings,
Philips, Texas Instruments, Motorola, ASE, ST Assembly Test Services Ltd., ST
Microelectronics, LSI, Amkor-Anam and Conexant. QPL Holdings, Texas
Instruments, Philips, and Motorola were the only customers which individually
accounted for more than 5% of the our net sales in Fiscal 2000. In the
aggregate, the top ten customers accounted for 51.2% of our net sales in
Fiscal 2000. We have received awards from customers such as Texas Instruments,
Motorola, and Philips in recognition of the quality of our products and
services.
A significant portion of our net sales have historically been and are
expected to continue to be derived from companies in the QPL Holdings.
Companies in the QPL Holdings together accounted for approximately 8.2% of our
net sales in Fiscal 2000. The bulk of this business came from ASAT Limited,
which we believe has historically ordered a significant portion of its needs
for packaging products from us. In October 1999 a contract was signed by the
QPL Holdings with a group of financial institutions to dispose of a 50%
interest in ASAT Limited, removing it from the exclusive control of QPL
Holdings. Over time, this might result in ASAT Limited fulfilling less of its
needs with orders from us. EEMS Italia S.p.A. ("EEMS"), a memory IC assembly
and test company, acted as our sales agent in Europe since 1995. This
relationship was terminated in December 1998. For more information, see the
discussion under the headings "--Risk Factors--Relationship with Principal
Shareholder and Potential Conflicts of Interest."
Pricing
The price quotations we provide generally contemplate the delivery of
products within two weeks of the receipt of purchase orders. We charge higher
prices when the customer desires shorter delivery time or additional services,
such as local warehousing, special packaging provisions or special markings on
the product. As a general policy, we price our recycled products at a discount
to the price of corresponding new products.
Sales and Marketing
We maintain five sales offices: Hong Kong; Singapore; Penang, Malaysia;
Fremont, California, U.S.A.; and Austin, Texas, U.S.A. where we make direct
sales to customers. We also maintain three representative offices in Shenzhen
and Shanghai, China and Rome, Italy that provide customers with technical
information. In addition, we sell our products through five sales agents
located in Japan (three); Seoul, South Korea; and Taipei, Taiwan.
We generally make our sales pursuant to purchase orders from our customers.
Therefore, for the most part we do not have long-term agreements with or
commitments from our customers for the purchase of products. While customers
typically provide us with one- to two-month forecasts of their requirements,
forecasts do not constitute binding orders.
The following table sets forth the geographic distribution of our net sales
for the periods indicated. For more details, see Note 13 of Notes to our
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year Ended March
31
-------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
North Asia.............................................. 53.8% 54.9% 53.5%
South Asia.............................................. 21.3 24.3 21.2
North America........................................... 22.1 17.0 19.0
Europe.................................................. 2.8 3.8 6.3
----- ----- -----
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.
8
<PAGE>
Distribution
We maintain, either directly or through our sales representatives, a network
of warehouses located near the production facilities of our customers. The
following table sets forth the locations of the warehouses that we or our
local sales representatives maintain.
<TABLE>
<CAPTION>
Asia North America Europe
---- ------------- ------
<S> <C> <C>
Japan (three) Fremont, California Rome, Italy
Penang, Malaysia Dublin, Ireland
Shenzhen, China Malta
Shanghai, China
Tianjin, China
Hong Kong
Keelung, Taiwan
Kaohsiung, Taiwan
Taipei, Taiwan
Bangkok, Thailand
Manila, Philippines
Singapore
Seoul, South Korea
</TABLE>
We also offer drop shipment services for our products, which provide for the
shipment of our products directly to end-users designated by our customers.
Because drop shipment prohibits our customers from inspecting our products
before their receipt by the end user, the quality of our products is an
important consideration for our customers.
Customers generally place purchase orders with our sales office or a sales
agent near their location. The orders are then forwarded together with the
requested shipping date to our production facilities in Shenzhen, China via
our internal electronic mail system, with a copy to our Hong Kong office for
invoicing and accounting purposes. Employees at our production facilities in
Shenzhen, China generally respond to the local sales office upon receipt of
the order with a committed shipping date.
Our office in Hong Kong is responsible for invoicing local sales offices and
sales agents, who in turn record customer invoices and handle collections.
Raw Materials
We generally can purchase the raw materials we use in the production of
trays and reels from a variety of sources worldwide that charge similar
prices. We purchase tray raw materials principally from two suppliers located
in the United States and Malaysia. We purchase PVC resin, the principal raw
material for tubes, and certain additives used in the production of tubes
principally from three suppliers located in Singapore, Japan and Germany. We
purchase the polystyrene tape and polycarbonate tape used in our carrier tape
production process, as well as cover tape, from suppliers located in Japan,
Australia and the United States.
We generally purchase the various raw materials used in our production
processes one and a half months before the materials are delivered to us. We
try to maintain in Shenzhen, China inventories of raw materials for
approximately two to three months of estimated production requirements. For
more information, see the discussion in the section "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Recycled trays
that we or our agents collect are initially accounted for as part of our
inventory of raw materials. Following sorting and processing, recycled trays
are subsequently accounted for as part of our inventory of finished products.
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<PAGE>
Quality Assurance and Process Control
We maintain a quality assurance and process control department. We perform
quality assurance and statistical process control procedures at each major
stage of production, including the inspection of raw materials, statistical
process control at the injection molding (for trays and reels) and extrusion
(for tubes and carrier tapes) stages of production and the inspection and
testing of finished products. We also conduct "qualification" procedures for
our raw material suppliers. We believe that, in addition to our quality
assurance and process control department, our in-house design and tooling
facilities and compounding capabilities have enabled us to control the quality
of our products and that such integrated quality assurance system enables us
to ensure end-product integrity and maximize customer value.
Our production facilities in Shenzhen, China were certified as meeting the
ISO 9002 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 our production processes and our 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 our customers as to the
quality control in our manufacturing processes and many of our customers
require ISO certification as a prerequisite for purchasing from the Company.
Before making high volume purchases from us, prospective customers generally
require our production facilities to undergo a one- to two-month
"qualification" process. These qualification processes often include on-site
certification of our production facilities by members of a customer's
engineering and quality control staff. Our production facilities in Shenzhen,
China have been qualified by customers including Intel, Texas Instruments,
Motorola, Agilent, Philips and others.
Competition
The markets for our products and services are highly competitive. Our
products compete with similar products manufactured by other companies, some
of which have substantially greater financial resources than we do.
We classify our competitors as large diversified manufacturers, large
single-product manufacturers and small local job-shop style manufacturers.
Large diversified manufacturers are typically divisions of large multinational
companies which compete with us in markets for more than one product. Large
single-product manufacturers typically have international operations similar
to ours. Small local job-shop style manufacturers typically operate only
within certain geographic regions, such as Taiwan and Singapore. We are not
aware that any of our major competitors offer the range of products and
services that we offer. We believe that we compete with large diversified
manufacturers through our focus on serving the semiconductor and electronics
industries, with large single-product manufacturers through our broad range of
product offerings and with smaller local job-shop style manufacturers through
our international organization which enables us to meet the requirements of
multinational customers with several production facilities at various
locations. We also believe that our collection and use of recycled materials
allows us to compete favorably while maintaining better than average operating
margins.
We believe that the principal competitive factors in the markets for our
products and services are responsiveness and flexibility (including short
delivery cycles and the ability to supply large quantities on short notice),
price, product quality and range of products and services available.
Environmental Matters
We are subject to various laws, rules and regulations in the Peoples
Republic of China (the "PRC") regulating the discharge of materials into the
environment or otherwise relating to the protection of the
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<PAGE>
environment. We believe that we are in substantial compliance with applicable
laws, rules and regulations relating to the protection of the environment.
Employees
As of March 31, 2000, we had 166 employees at our offices located in Asia,
North America and Europe. Our employees are not covered by any collective
bargaining agreements.
Since June 1996, we have established defined contribution benefit plans for
our employees in Hong Kong, and have 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, we make contributions to employee retirement schemes as required by
local authorities in certain jurisdictions, such as Singapore, in which we
have operations. For more information, the discussion under see Note 10 of the
Notes to our Consolidated Financial Statements.
On April 23, 1999 we issued to our employees options to purchase an
aggregate of 382,836 shares of our common stock at a purchase price of $3
21/32 all of which has vested and is exercisable. Additionally, on April 22,
1999, we issued options to Mr. Calvin Reed, in connection with his appointment
as our President and Chief Executive Officer. Specifically, we issued Mr. Reed
options to purchase 150,000 shares of our common stock at a purchase price of
$3 21/32 per share, 150,000 shares of our common stock at a purchase price of
$7 per share and 100,000 shares at a purchase price of $10 per share. These
options, except for options to purchase 100,000 shares of our common stock at
a purchase price of $3 21/32, were not issued pursuant to either the 1997 or
the 1998 Share Option Plan. On May 5, 1999, in connection with their
appointment as directors, we issued to Jack Menache and Doug Broyles options
to purchase 10,000 shares of our common stock at a purchase price of $3 7/8
per share under our 1998 Share Option Plan. Since this grant we have
accelerated the vesting of these options so that as of the date of this Annual
Report they have vested. On July 28, 1999, in connection with his appointment
as our Vice President of Administration, Secretary and General Counsel, we
issued to Jack Menache options to purchase 100,000 shares of our common stock
at a purchase price of $5 7/8 per share under our 1997 Share Option Plan. Also
on July 28, 1999, in connection with his appointment as a director, we issued
to William Snyder options to purchase 10,000 shares of our common stock at a
purchase price of $5 7/8 per share under our 1998 Share Option Plan. On Oct
28, 1999, in connection with his appointment as our Vice President of
Engineering and Chief Technology Officer, we issued to John Pylant options to
purchase 100,000 shares of our common stock at a purchase price of $7 9/32 per
share under our 1997 Share Option Plan. The options so issued, have a term of
ten years, and vest in equal quarterly increments over three years; provided,
however, that no portion of such option shall be exercisable to any extent for
a period of 18 months from the date of award.
On Nov 3, 1999 we issued to each of Doug Broyles and William Snyder options
to purchase 12,000 shares of our common stock at a purchase price of $10 5/8
under our 1998 Share Option Plan as chair persons of respectively our
compensation and audit committees. Such options are vested and exercisable
immediately and have a term of ten years from the date of grant.
On Nov 26, 1999 we issued to our employees options to purchase an aggregate
of 439,624 and 17,000 shares of our common stock at a purchase price of $8
15/16 under our 1998 and 1997 Share Option Plans respectively. The options
shall vest in 12 equal quarterly installments commencing March 1, 2000 and
shall terminate on December 31, 2003.
Also on January 18, 2000, we issued options to three members of our staff to
purchase a aggregate of 128,400 shares of our common stock at a purchase price
of $10 5/16 per share under our 1998 Share Option Plan. All options shall vest
in 12 equal quarterly installments commencing April 15, 2000 and shall
terminate on April 30, 2004; however, 125,000 of those stock options are
subject to grantee's service for two years primarily at the company's factory
in Shenzhen.
For more information, see the discussion in the Section "Options to Purchase
Securities from Registrant or Subsidiaries."
11
<PAGE>
Our existing production facilities in Shenzhen, China are operated by an
unaffiliated PRC company pursuant to a processing agreement initially entered
into in May 1987 and subsequently amended and renewed in May 1994 and December
1996. We entered into the processing agreement with the PRC company which was
formed by the Shenzhen Municipal Longgang District Foreign Economic Service
Company, a company controlled by the local government of the Longgang District
of Shenzhen. The current term of the processing agreement expires on May 28,
2016. Under the processing agreement, the PRC company has agreed to provide
the personnel for the operation of our facilities in Shenzhen, China and
renders assistance in dealing with all matters relating to the import and
export of raw materials and our products. Such personnel are not our
employees. We agree to pay 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, we entered
into a similar processing agreement with a different PRC company, also
unaffiliated with us, which has a term of fifty years, for the operation of
our additional production facilities being constructed in Shenzhen, China. As
of March 31, 2000, the personnel at our production facilities in Shenzhen,
China numbered approximately 1,997, 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
We maintain insurance policies covering risks of losses due to fire, flood
and other natural disasters. Our insurance policies cover certain of our
buildings, machinery and equipment, raw materials and inventory. We also
maintain business interruption insurance. Significant damage to any of our
production facilities, whether as a result of fire or other causes, would have
a material adverse effect on our results of operations and financial
condition. Additionally, we maintain directors and officers insurance covering
the payment and defense of certain claims asserted against our directors and
officers. We are not insured against the loss of our key personnel.
Risk Factors
In evaluating our business, shareholders should consider carefully the
following factors in addition to the other information presented herein. We
are a holding company and our major operating asset is our ownership interest
in Peak (HK). Our only source of cash flow is our share of the dividends, if
any, paid by Peak (HK) and other of our subsidiaries.
Variability of Operating Results
Our operating results are affected by a wide variety of factors that could
materially affect revenues and profitability or lead to significant
variability of quarterly or annual operating results. These factors include,
among others:
. the price of raw materials;
. factors relating to conditions in the semiconductor and electronics
industries including:
. lower demand for products;
. increased price competition;
. downturns and deterioration of business conditions;
. technological changes; and
. changes in production processes in the semiconductor and electronics
industries which could require changes in packaging products;
. capital requirements and the availability of funding;
12
<PAGE>
. the Company's expansion plan and possible disruptions caused by the
installation of new equipment or the construction of new facilities;
. the lack of long-term purchase or supply agreements with customers;
. the loss of key personnel or the shortage of available skilled
employees;
. international political or economic events or developments, including
those relating to Hong Kong and the PRC;
. currency fluctuations; and
. fines, penalties and bonds required by the PRC due to past violations of
its rules and regulations.
Unfavorable changes in the above or other factors could materially and
adversely affect our results of operations or financial condition. For more
information, see the Section "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Semiconductor and Electronics Industries
Our revenues depend on increased demand for our products from manufacturers
of semiconductor and electronic components. Any deterioration of business
conditions in the semiconductor industry, including lower demand for
semiconductor products, decreased unit volume of semiconductor products
shipped or other factors resulting in decreased demand for packaging products,
or increased price competition in the semiconductor industry could result in
increased price pressure on suppliers to the semiconductor industry, and could
have a material adverse effect on our results of operations and financial
condition. The semiconductor industry is characterized by rapid technological
change leading to more complex products, evolving industry standards, intense
competition and fluctuations in demand. From time to time, demand for
electronic systems, which generally includes both semiconductors and
electronic components, has suffered significant downturns which in some cases
have been prolonged. These downturns have been characterized by diminished
product demand, product overcapacity and accelerated erosion of average
selling prices. No assurance can be given that any future downturn in the
semiconductor or electronics industries will not be severe or that our results
of operations or financial condition will not be materially and adversely
affected by such downturns or other developments.
Dependence on Significant Customers
In the aggregate, our top ten customers accounted for 53.5%, 50.5% and 51.2%
of our net sales in Fiscal 1998, Fiscal 1999 and Fiscal 2000 respectively. Our
ability to maintain close, mutually beneficial relationships with our leading
customers is important to the ongoing growth and profitability of our
business. Although our sales to specific customers have varied from year to
year, our results of operations have been dependent on a number of significant
customers and the conditions of their respective industries. All of our
customers operate in the global semiconductor and electronics industries which
historically have been highly cyclical. As a result of the concentration of
our customer base, the loss or cancellation of business from, or significant
changes in scheduled deliveries or decreases in the prices of products or
services provided to, any of these customers could materially and adversely
affect our results of operations and financial condition. Our sales are made
pursuant to purchase orders, and therefore, we generally have no agreements
with or commitments from our customers for the purchase of products. Although
customers typically provide us with forecasts of their requirements, such
forecasts are not binding. We cannot assure that our customers will maintain
or increase their sales volumes or orders for our products or that we will be
able to maintain or add to our existing customer base.
One of our largest customers, ASAT Limited was a subsidiary of QPL Holdings
and was indirectly controlled by our majority shareholder. In October, 1999 a
contract was signed with a group of financial institutions to dispose of a 50%
interest in ASAT Limited, removing it from the exclusive control of QPL
Holdings, and therefore from the control of our majority shareholder. Over
time, this may result in ASAT Limited fulfilling less of its needs with orders
from us.
13
<PAGE>
Concentration of Operations in the PRC and Considerations Relating to Hong
Kong
As of March 31, 2000, substantially all of our fixed assets and inventories
were located in Shenzhen, China. Our main production facilities are located in
Shenzhen, China and are operated by an unaffiliated PRC company under a
processing agreement, pursuant to which such company provides all of the
personnel for the operation of our facilities and renders assistance in
dealing with matters relating to the import of raw materials and the export of
our products. Our additional production facilities will be operated under
similar arrangements. Our existing production facilities in Shenzhen, China
are, and our additional facilities in Shenzhen, China will, if we elect to
complete them, be located on land leased from the PRC government by one of our
wholly-owned subsidiaries under land use certificates and agreements with
terms of fifty years. Our assets and facilities located in the PRC and the PRC
company's operation of such facilities are subject to the laws and regulations
of the PRC and our results of operations in the PRC are subject to the
economic and political situation in the PRC.
The operations of our production facilities in Shenzhen, China may be
adversely affected by changes in the laws and regulations of the PRC (or the
interpretation thereof), such as those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other
matters. We currently export all the products manufactured at our production
facilities in Shenzhen, China. Accordingly, we are not subject to certain PRC
taxes and are exempt from customs duties on imported raw materials and
exported products.
Owing to recently introduced customs rules in the PRC, it is possible that
we may be subject to classification by the Chinese customs authorities in a
manner that would require us to supply a substantial bond against customs
duties that we would have to pay if we were importing material for ultimate
sale in the PRC, and may be subject to significantly higher administrative
importation costs generally. Being subjected to these measures could
materially and adversely affect our ability to manufacture products at a
competitive price and our results from operations.
We cannot assure that we will not become subject to PRC taxes or will not be
required to pay customs duties in the future. In the event that we are
required to pay PRC taxes or customs duties, our results of operations could
be materially and adversely affected. We believe that our operations in
Shenzhen, China are now in compliance with applicable PRC legal and regulatory
requirements. However, we cannot assure that the central or local governments
of the PRC will not impose new, stricter regulations or interpretations of
existing regulations which would require additional expenditures.
The economy of the PRC differs from the economies of many countries in such
respects as structure, government involvement, level of development, growth
rate, capital reinvestment, allocation of resources, self-sufficiency, rate of
inflation and balance of payments position, among others. In the past, the
economy of the PRC has been primarily a planned economy subject to State
plans. Since 1978, the PRC government has been reforming the PRC's economic
and political systems. Such reforms have resulted in significant economic
growth and social change. We cannot assure, however, that the PRC government's
policies for economic reforms will be consistent or effective. Our results of
operations and financial position may be adversely affected by changes in the
PRC's political, economic or social conditions.
We maintain a sales office and a warehouse in Hong Kong. Additionally, our
general invoicing and accounting functions are centralized at our offices in
Hong Kong. On July 1, 1997, sovereignty over Hong Kong reverted from the
United Kingdom to the PRC, and Hong Kong has become a Special Administrative
Region ("SAR") of the PRC. The Joint Declaration signed by the PRC government
and the government of the United Kingdom on December 19, 1984 (the "Joint
Declaration") provides that the basic policies of the PRC regarding Hong Kong
will be stipulated in the basic law of Hong Kong which was enacted by the
National People's Congress of the PRC on April 4, 1990 (the "Basic Law").
Although the Basic Law provides that Hong Kong will have a high degree of
legislative, judicial and economic autonomy, we cannot assure that the general
economic position of Hong Kong, and our results of operations and financial
condition, will not be materially and adversely affected as a consequence of
the exercise of PRC sovereignty over Hong Kong.
14
<PAGE>
We Were Named In a Class Action Lawsuit
We were sued by a purported class of persons who were initial purchasers of
the TrENDS. On June 5, 2000, the Company was dismissed from the action with
prejudice. However, the Company and other parties have entered into certain
indemnification agreements pertaining to the action. For information
concerning the lawsuit, see Item 3, "Legal Proceedings."
Economic Conditions in the Asia Pacific Region
A significant portion of our revenue is derived from sales to customers in
Hong Kong, Singapore, the Philippines and other countries in East and
Southeast Asia (the "Asia Pacific Region"). Accordingly, our financial
condition and results of operations and the market price of shares of our
common stock may be affected by:
. economic and political instability;
. changes in regulatory requirements, tariffs, customs, duties and other
trade barriers;
. transportation delays;
. fluctuations in currency exchange rates;
. currency convertibility and repatriation;
. taxation of our earnings and the earnings of our personnel; and
. other risks relating to the administration of or changes in, or new
interpretations of, the laws, regulations and policies of the
jurisdictions in which we conduct our business.
None of these factors are within our control. In Fiscal 1999, many countries
in the Asia Pacific Region experienced considerable currency volatility and
depreciation, high interest rates, stock market volatility and declining asset
values which contributed to net foreign capital outflows, an increase in the
number of insolvencies, a decline in business and consumer spending and a
decrease in economic growth as compared with prior years.
Economic developments in the Asia Pacific Region have had a material adverse
effect on the Asia Pacific Region's business and on consumer demand for
products that use semiconductor and electronics devices. That demand generally
rises as the overall level of economic activity increases and falls as such
activity decreases. In addition, currency devaluations in the Asia Pacific
Region could result in accelerated price erosion of semiconductor and
electronic products as products manufactured in countries whose currencies
have devalued significantly against the US dollar become less expensive in US
dollar terms. Any adverse effect on the global semiconductor and electronics
industries as a result of slower demand for products in the Asia Pacific
Region or accelerated product price erosion arising from currency devaluations
in the Asia Pacific Region could have a material and adverse effect on our
financial condition or results of operations, especially if negative business
and economic conditions in the Asia Pacific Region do not improve or if these
conditions worsen.
Relationship with Principal Shareholder and Potential Conflicts of Interests
Mr. T.L. Li, through his ownership of all of the outstanding shares of
Luckygold 18A Limited ("Luckygold"), a company incorporated in the British
Virgin Islands, beneficially owns, as of March 31, 2000, approximately 57.6%
of the outstanding shares of our common stock. Mr. T.L. Li is in a position to
substantially influence actions that require shareholder approval, including
the timing and payment of dividends and certain other actions we may take, and
the election of our Board of Directors. In addition, Mr. T.L. Li serves as
director of companies in QPL Holdings. For more information, see the Sections
"Directors and Officers of the Registrant" and "Interest of Management in
Certain Transactions."
15
<PAGE>
A significant portion of our net sales historically has been and is expected
to continue to be made to companies controlled by Mr. T.L. Li, and companies
in QPL Holdings, which together accounted for approximately 16.3%, 8.0% and
8.2% of our net sales in Fiscal 1998, Fiscal 1999 and Fiscal 2000
respectively. Accordingly, any adverse development in the operations,
competitive position or customer base of ASAT or companies in QPL Holdings or
our relationship with the companies in QPL Holdings could have a material
adverse effect on our results of operations and financial condition. For more
information see the discussion under the heading "--Customers" and the Section
"Interest of Management in Certain Transactions." Mr. T.L. Li may take actions
as the controlling shareholder of the companies in QPL Holdings that are not
in our best interests or the best interests of our shareholders.
Both Mr. T.L. Li and the Company were named, among others, as defendants in
a law suit, filed on behalf of the purchasers of Trust Enhanced Dividend
Securities from Peak TrENDS Trust. On June 5, 2000, the Company was dismissed
from the action with prejudice. However, the Company, Mr. T.L. Li, and other
parties have entered into certain indemnification agreements pertaining to the
action. Although we are not aware of any actual conflict of interest between
Mr. T.L. Li and the Company, we cannot assure that such a conflict will not
develop over the course of the lawsuit. For more information, see the Section
"Legal Proceedings."
Potential Difficulties in Protecting Shareholder Rights
Our corporate affairs are governed by our Memorandum of Association and Bye-
laws and by the laws governing corporations incorporated in Bermuda. The
rights of our shareholders and the responsibilities of members of our Board of
Directors under Bermuda law are different from those applicable to a
corporation incorporated in the United States and, therefore, our shareholders
may have more difficulty protecting their interests in connection with actions
by our management, members of our Board of Directors or our controlling
shareholders than they would as shareholders of a corporation incorporated in
the United States.
Some Of Our Former Officers and Employees May Act Against Our Interest
We believe that a number of our former officers and employees have
periodically disseminated negative information to our investors, customers and
suppliers in an effort to devalue our stock and to hurt our operations. While
to date the efforts of these individuals to injure our operations have not
succeeded to any material level, we suspect that they have resulted in the
loss of some new orders for our products that we believe we would otherwise
have received. We cannot assure that they will not be more successful in the
future. We also believe that some of these employees may be assisting the
plaintiff class in litigation filed against us. We cannot assure that the
efforts of these individuals will not materially and adversely affect our
business and operations.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive offices are located at 44091 Nobel Drive, P.O. Box
1767, Fremont, CA 94538 and our main telephone number is (510) 449-0100.
Our main production facilities are located in Shenzhen, China in a plant
with a total floor space of approximately 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 our production facilities in Shenzhen, China, we also
maintained, until April 1998, production facilities located in Penang,
Malaysia, with a total floor space of approximately 3,500 square feet, which
processed tubes extruded at our Shenzhen facilities.
We were in the process of expanding our production capacity in Shenzhen,
China and have commenced the construction of an additional plant to be located
approximately three miles from the existing production facilities. We have
delayed construction activities on the new plant until demand warrants its
completion. For more details, see the discussion in the Section "Description
of Business--Recent Developments--We Have Delayed Construction of Our New
Factory in China."
16
<PAGE>
We maintain a tooling shop on the premises of our production facilities in
Shenzhen, China that we use to make the molds we need for production, dies and
tooling for sale, and spare parts for equipment used in our production
process. Our in-house tooling machinery and equipment includes computer
numeric control ("CNC") electronic discharge machines ("EDMs"), CNC wire cut
machines, milling machines and miscellaneous lathes, planers, surface grinders
and drill presses. As of March 31, 2000, the tooling shop, with a total floor
space of approximately 24,000 square feet, employed 130 tool makers.
Our existing facilities in Shenzhen, China are, and our additional
facilities in Shenzhen, China, if completed, 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 our
wholly-owned subsidiary, Warden Development Ltd. ("Warden") under land use
certificates and agreements with terms of fifty years. The buildings
comprising the facilities are, or will be, owned by Warden. The land and the
buildings are, or will be, in turn leased by Peak (HK) from Warden under a
two-year lease which commenced April 1995 and was automatically renewed in
April 1999 for another two years on the same terms. Peak (HK) owns the
machinery and equipment in our Shenzhen facilities. Under current PRC law, all
land belongs to the government, and individuals and enterprises may only lease
land from the government.
ITEM 3. LEGAL PROCEEDINGS
On June 29, 1999, plaintiff Dorchester Investors commenced a purported
securities class action suit in the United States District Court for the
Southern District of New York on behalf of all initial TrENDS purchasers
against the Company, the Peak Trends Trust ("the Trust"), Mr. T.L. Li, Mr.
Jerry Mo, Luckygold 18A Limited ("Luckygold") and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"). The complaint seeks compensatory damages from
all defendants pursuant to the federal securities laws, based on alleged
misrepresentations and omissions of material fact in various documents filed
with the Securities Exchange Commission in connection with the offering for
sale to the public of shares in the Trust. On January 27, 2000, plaintiff
filed an amended complaint. On March 20, 2000, all defendants moved to dismiss
the amended complaint. While those motions were pending, plaintiff and
defendants stipulated to the dismissal with prejudice from the action of the
Company and Mr. Mo. Pursuant to the stipulation, the court dismissed the
Company and Mr. Mo from the action with prejudice on June 5, 2000. The motions
to dismiss of the remaining defendants have been fully submitted to the court
and are awaiting decision. Additionally, the Company, Mr. Li and Luckygold
entered into certain indemnification agreements with the Trust and DLJ in
connection with the TrENDS offering. Certain of these indemnification
agreements may require that under certain circumstances the Company, Luckygold
and/or Mr. Li indemnify the Trust and/or DLJ from certain liabilities that the
Trust and/or DLJ may incur to plaintiff or to the purported plaintiff class.
Mr. T.L. Li and Luckygold have, in turn, provided a deed of indemnity to the
Company pursuant to which Mr. Li and Luckygold have agreed to indemnify the
Company from liabilities related to the TrENDS offering. We cannot predict the
outcome of this action against the remaining defendants. However, a judgment
against one of the remaining defendants (to the extent that the Company is
required to indemnify the defendant and insurance proceeds are not applicable
to satisfy such a judgment) could have a material and adverse effect on the
Company's results of operations. Further, even if the remaining defendants
prevail in this litigation, the Company may be required to pay some or all of
their legal expenses pursuant to its various indemnification obligations, and
this may also have a material and adverse effect on the Company's results of
operations.
On or about July 2, 1999, the Company received an Amended and Restated
Demand for Arbitration filed on behalf of the Company's former Chief Executive
Officer, Richard Brook. Mr Brook sought payment of US$32,400 per month or a
lump sum payment of US$1,036,800 pursuant to his employment agreement with the
Company, which was terminated on or about December 1, 1998. Mr. Brook also
asserted various tort claims for damages against the Company. The Company
opposed Mr. Brook's claim and asserted counterclaims against Mr. Brook for
breach of contract, libel and breach of fiduciary duty. Mr. Brook's claims
against the Company were tried before an arbitrator in June 2000. On August 4,
2000 a decision was rendered in the arbitration. The arbitrator denied the
bulk of Mr. Brook's breach of contract claim, finding that the Company was
justified in
17
<PAGE>
terminating him for cause. However, the abritrator found that Mr. Brook's
termination for cause was not effective until May 1999 and that Mr. Brook was
entitled to certain additional compensation of approximately $70,000. The
arbitrator denied all of Mr. Brook's tort claims. On Peak's breach of contract
counterclaim, the arbitrator found Mr. Brook liable for over $400,000 in
actual damages and $100,000 in exemplary damages. The award of exemplary
damages was based on a finding that Brook acted with malice toward Peak. The
arbitrator denied Peak's defamation claim and did not specifically address
Peak's breach of fiduciary duty claim, which had previously been bifurcated.
The arbitrator then awarded certain attorney's fees to each party. The net
result of the arbitration was a judgment in the amount of approximately
$520,000 in favor of Peak and against Mr. Brook.
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information with respect to the
beneficial ownership of the Shares as of August 4, 2000, for (i) each person
known by the Company to beneficially own more than 5% of the Shares, (ii) each
of the Company's directors, (iii) the Company's Chief Executive Officer, (iv)
each of the Company's four other most highly compensated executive officers
for the financial year ended March 31, 2000, and (v) all current directors and
executive officers as a group. Amounts appearing in the table below include
all Shares outstanding as of August 4, 2000 and all Shares issuable upon the
exercise of options or warrants within 60 days of August 4, 2000. Unless
otherwise noted, the address of each of the Shareholders named below is the
Company's principal executive office.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Shares as of August 4, 2000, for (i) each person
known by the Company to beneficially own more than 5% of the Shares, (ii) each
of the Company's directors, (iii) the Company's Chief Executive Officer, (iv)
each of the Company's four other most highly compensated executive officers
for the financial year ended March 31, 2000, and (v) all current directors and
executive officers as a group. Amounts appearing in the table below include
all Shares outstanding as of August 4, 2000 and all Shares issuable upon the
exercise of options or warrants within 60 days of August 4, 2000. Unless
otherwise noted, the address of each of the Shareholders named below is the
Company's principal executive office.
<TABLE>
<CAPTION>
Number of Percentage
Name of Beneficial Owner Shares of Class
------------------------ --------- ----------
<S> <C> <C>
Luckygold 18A Ltd.(/1/)................... 7,888,038(/2/)(/3/)(/4/) 55.28%
Fidelity Management & Research ........... 1,750,000 12.26%
Wellington Management Company LLP......... 1,211,000 8.48%
L-R Managers.............................. 1,205,000 8.44%
Rockefeller & Company..................... 1,043,000 7.31%
Mr. T.L. Li (/1/)......................... 0 0%
Mr. Douglas Broyles....................... 0 0%
Ms. Christine Russell..................... 0 0%
Mr. William Snyder........................ 0 0%
Mr. Calvin Reed........................... 186,464 1.31%
Mr. Jerry Mo.............................. 246,985 1.73%
Mr. Jack Menache.......................... 50,587 0.35%
Mr. Larry Worth........................... 5,276 0.04%
Mr. Bill Sweetman......................... 17,212 0.12%
All directors and executive officers as a
group (9 persons)........................ 8,394,562 58.83%
</TABLE>
--------
(1) Mr. T.L. Li is the sole Shareholder of Luckygold.
(2) Includes 5,300,000 Shares pledged to Peak TrENDS Trust, and held by a
collateral agent, pursuant to a Collateral Agreement, dated as of June 3,
1998, among Luckygold, the Bank of New York, as collateral
18
<PAGE>
agent, and Peak TrENDS Trust. Pursuant to the Collateral Agreement,
Luckygold retains voting control of the pledged Shares so long as no
default exists under that agreement. In the event of a default, voting
control of these Shares would shift to the Peak TrENDS Trust.
(3) Includes Shares held by Mr. T.L. Li through Luckygold. On December 18,
1998, Mr. Richard Brook, our former CEO, filed a complaint against Mr. Li
and Luckygold in the District Court of Travis County, Texas, No. 9814103,
asserting breach of contract against Mr. Li and seeking a constructive
trust over 692,536 Shares held by Luckygold. The Company is not named as a
party to this action and we do not believe that this complaint will have
any material effect on the Company or its operations.
(4) On May 15, 2001, the Peak TrENDS Trust will dissolve, and, subject to a
cash settlement provision, the 5,300,000 Shares pledged to the Peak TrENDS
Trust will be distributed to the holders of the Trust's securities. We
expect that as a result, Luckygold will no longer hold a sole majority
interest in our Shares.
ITEM 5. NATURE OF TRADING MARKET
Effective October 31, 1997, shares of our common stock 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, 1999:
1st Quarter................................................... $25 5/16 $9
2nd Quarter................................................... 14 7/16 6 1/4
3rd Quarter................................................... 12 3/8 7
4th Quarter................................................... 11 2 1/16
Year Ending March 31, 2000:
1st Quarter................................................... $ 8 $1 7/8
2nd Quarter................................................... 8 7/25 5 1/2
3rd Quarter................................................... 13 5/8 6 5/8
4th Quarter................................................... 14 5/8 9 8/16
</TABLE>
On July 31, 2000, the reported last sale price of the shares on Nasdaq was
$7.125 per share. As of July 31, 2000, there were 8 holders of record of the
shares.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
We have been designated as a non-resident of Bermuda for exchange control
purposes by the Bermuda Monetary Authority, whose permission for the free
transferability of shares of our common stock has been obtained.
IT MUST BE DISTINCTLY UNDERSTOOD THAT, IN GRANTING SUCH PERMISSION, THE
BERMUDA MONETARY AUTHORITY WILL ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL
SOUNDNESS OF ANY SCHEMES OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE
OR OPINIONS EXPRESSED HEREIN.
The transfer of shares between persons regarded as resident outside Bermuda
for exchange control purposes and the issue of shares within our current
authorized share capital to or by such persons may be effected without
specific consent under the Exchange Control Act 1972 and regulations
thereunder. Issues and transfers of shares involving any person regarded as
resident in Bermuda for exchange control purposes require specific prior
approval under the Exchange Control Act 1972.
19
<PAGE>
There are no limitations on the rights of holders of shares of our common
stock who are non-resident in Bermuda for exchange control purposes to hold or
vote their shares. Because we have been designated as a non-resident for
Bermuda exchange control purposes, there are no restrictions on 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. We do not anticipate that we will transact business or make
payments of dividends or other distributions in the local Bermuda currency.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an
applicant acting in a special capacity (for example, as trustee), certificates
may, at the request of the applicant, record the capacity in which the
applicant is acting. Notwithstanding the recording of any such special
capacity, we are not bound to investigate or incur any responsibility in
respect to the proper administration of any such trust.
We will not take notice of any other trust applicable to any of our shares
whether or not it has notice of such trust.
As an exempted company, we are exempted from Bermuda laws which restrict the
percentage of share capital that may be held by non-Bermudians, but as an
exempted company we may not participate in certain business transactions
including: (1) the acquisition or holding of land in Bermuda (except that
required for our business and held by way of lease or tenancy for terms of not
more than 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 our business 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.
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.
20
<PAGE>
U.S. Federal Income Taxation
U.S. Holders
The following summary describes the material U.S federal income tax
considerations as of the date hereof for beneficial owners of shares of our
Common Stock, that hold those shares as a capital asset, and that are
"U.S. persons" under the Internal Revenue Code of 1986, as amended (the
"Code"). Under the Internal Revenue Code, you are a "U.S. person" if you are:
. a citizen or resident of the United States;
. a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust (x) which is subject to the supervision of a court within the
United States and the control of one or more U.S. persons as described
in section 7701(a)(30) of the Code or (y) that has a valid election in
effect under applicable U.S. Treasury regulations to be treated as a
U.S. person.
. Except where noted, this summary does not deal with special situations,
such as those of:
. dealers in securities or currencies;
. traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
. persons liable for the alternative minimum tax;
. financial institutions;
. tax-exempt entities;
. insurance companies;
. persons holding shares as part of a hedging, integrated, conversion
or constructive sale transaction or a straddle;
. persons owning 10% or more of the voting stock of the Company; or
. persons whose "functional currency" is not the U.S. dollar.
Furthermore, the discussion below is based on the provisions of the Code and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
U.S. federal income tax consequences different from those discussed below. If
a partnership holds our shares, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership.
If you are a partner of a partnership holding our shares, you should consult
your tax advisor. You should consult your own tax advisors concerning the U.S.
federal income tax consequences of the purchase, ownership or disposition of
our shares in light of your particular situation as well as any consequences
arising under the laws of any other taxing jurisdiction.
Taxation of Dividends
The gross amount of dividends (other than certain dividends of shares or
rights to subscribe for shares) paid to you will be treated as dividend income
to you, to the extent paid out of current or accumulated earnings and profits,
as determined under U.S. federal income tax principles. This income will be
includable in your gross income as ordinary income on the day you receive it.
These dividends will not be eligible for the dividends received deduction
allowed to corporations under the Code.
For purposes of calculating the foreign tax credit, dividends paid on our
shares will be treated as income from sources outside the United States and
will generally constitute "passive income" or, in the case of certain
21
<PAGE>
U.S. Holders, "financial services income", which are treated separately from
other types of income in computing the foreign tax credit allowable to U.S.
persons under U.S. federal income tax laws. To the extent that the amount of
any distribution exceeds our current and accumulated earnings and profits for
a taxable year, the distribution will first be treated as a tax-free return of
capital, causing a reduction in your adjusted basis in the shares (thereby
increasing the amount of gain, or decreasing the amount of loss, you will
recognize on a subsequent disposition of the shares), and the balance in
excess of adjusted basis will be taxed as capital gain recognized on a sale or
exchange. It is possible that distributions of shares or rights to subscribe
for shares that are received as part of a pro rata distribution to all our
shareholders may be made in a manner that would not be subject to U.S. federal
income tax.
Taxation of Capital Gains
For U.S. federal income tax purposes, you will recognize taxable gain or
loss on any sale or exchange of your shares in an amount equal to the
difference between the amount realized for the shares and your basis in the
shares. Such gain or loss will be capital gain or loss. Capital gains of
individuals derived with respect to capital assets held for more than one year
are eligible for reduced rates of taxation. The deductibility of capital
losses is subject to limitations. Any gain or loss you recognize will
generally be treated as United States source gain or loss.
Foreign Personal Holding Company
A foreign corporation will be classified as a foreign personal holding
company if (i) at any time during the corporation's taxable year, five or
fewer individuals, who are United States citizens or residents, directly or
indirectly own more than 50% of the corporation's stock (by either voting
power or value) (the "shareholder test") and (ii) the corporation receives at
least 60% of its gross income (reduced to at least 50% after the initial year
of qualification), as adjusted, for the taxable year from certain passive
sources (the "income test"). Because we are a holding company and our only
source of income is expected to be our share of the dividends or deemed
dividends, if any, paid by Peak (HK) and other of our subsidiaries, we would
meet the income test in any taxable year in which such dividends and other
passive income exceeded 60% of our gross income (which would be the case in
any taxable year in which our only income was dividend income.) Although we do
not believe that our non-United States subsidiaries currently meet the income
test, there can be no assurance in this regard. We believe that the
shareholder test is not currently met by us or any of our non-United States
subsidiaries. However, due to a number of factors (including the foreign
personal holding company stock attribution rules, possible change in residence
by current shareholders, and possible acquisition of shares by purchase, gift
or bequest by individuals related to or partners of current shareholders)
there can be no assurance that we or one of our non-United States subsidiaries
do not currently meet (or will not meet in the future) the shareholder test.
In this regard, it should be noted that Mr. T.L. Li is treated as owning, as
of March 31, 2000, 57.6% of our 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 whether we
met the shareholder test. Moreover, if any other member of Mr. Li's family, or
any individual partner of any partnership of which Mr. Li is a partner, owned
or were to own one or more shares and such family member or partner 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
whether we met the shareholder test. We can give no assurance that we will
have timely knowledge of whether the shareholder test is met, and we do not
intend to assess whether the shareholder test is met in any taxable year. We
do not assume any obligation to make timely disclosure with respect to our or
our non-United States subsidiaries' foreign personal holding company status.
If we or one of our non-United States subsidiaries were classified as a
foreign personal holding company, U.S. persons (including certain indirect
holders) would be required to include in income, as a dividend, their pro rata
share of our or our relevant non-United States subsidiary's undistributed
foreign personal holding company income if they were holders on the last day
of our taxable year or the taxable year of the relevant non-United States
subsidiary (or if earlier, the last day on which the shareholder test is met).
In addition, if we or one
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<PAGE>
or our non-United States subsidiaries became a foreign personal holding
company, U.S. persons who acquire their shares from decedents would not
receive a "stepped-up" basis in such shares. Instead, such U.S. person would
have a tax basis equal to the lower of fair market value or the decedent's
basis. You should consult your own tax advisors concerning the U.S. federal
income tax consequences of holding our shares if we or one of our non-United
States subsidiaries are considered a foreign personal holding company in any
taxable year.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to dividends in
respect of the shares or the proceeds received on the sale, exchange, or
redemption of the shares paid to you within the United States (and in certain
cases, outside of the United States) unless you are one of certain exempt
recipients (such as corporations), and a 31 percent backup withholding may
apply to such amounts if you fail to provide an accurate taxpayer
identification number or to report interest and dividends required to be shown
on your federal income tax returns. The amount of any backup withholding from
a payment to you will be allowed as a credit against your U.S. federal income
tax liability.
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.
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated income statement data for the years ended March
31, 1998, 1999 and 2000 and the selected consolidated balance sheet data as of
March 31, 1999 and 2000 set forth below are derived from the Company's audited
financial statements included elsewhere herein and should be read in
conjunction with, and are qualified in their entirety by reference to, such
financial statements, including the notes thereto. The selected consolidated
income statement data for the years ended March 31, 1996 and 1997 and the
selected consolidated balance sheet data as of March 31, 1996, 1997 and 1998
set forth below are derived from the Company's audited financial statements
not included herein. The consolidated financial statements have been prepared
and presented in accordance with accounting principles generally accepted in
the United States of America.
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<PAGE>
The consolidated financial data set forth below have been presented as if
the Company, which was incorporated on January 3, 1997, had been in existence
for all periods presented and 100% of Peak (HK) and other subsidiaries of the
Company had been transferred to the Company and that they had been
consolidated for all periods presented. The consolidated financial data set
forth below should be read in conjunction with "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>
Year Ended March 31,
----------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(In thousands, except Share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales............... $ 54,944 $ 57,594 $ 73,705 $ 66,235 $ 83,529
Cost of goods sold...... (33,931) (32,676) (41,048) (39,487) (54,441)
---------- ---------- ---------- ---------- ----------
Gross profit............ 21,013 24,918 32,657 26,748 29,088
Operating expenses:
General and
administrative and
research and
development.......... (5,385) (4,730) (6,194) (7,264) (11,761)
Selling and
marketing............ (3,294) (4,198) (5,487) (5,801) (8,379)
Special Charge........ -- -- -- (2,000) 862
Asset impairment...... -- -- -- (9,000) --
---------- ---------- ---------- ---------- ----------
Income from operations.. 12,334 15,990 20,976 2,683 9,810
Other income............ 1,133 83 926 812 273
Net interest (expense)
income................. (750) (1,320) 517 680 534
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 12,717 14,753 22,419 4,175 10,617
Provision for income
taxes.................. (1,227) (1,236) (1,825) (1,338) (970)
---------- ---------- ---------- ---------- ----------
Net income.............. $ 11,490 $ 13,517 $ 20,594 $ 2,837 $ 9,647
========== ========== ========== ========== ==========
Dividends paid.......... $ 9,719 $ 1,294 $ -- $ -- $ --
Earnings per Share:
Basic................. $ 1.10 $ 1.29 $ 1.61 $ 0.21 $ 0.71
========== ========== ========== ========== ==========
Diluted............... $ 1.10 $ 1.29 $ 1.59 $ 0.21 $ 0.68
========== ========== ========== ========== ==========
Shares outstanding:
Basic(1).............. 10,461,538 10,461,538 12,804,004 13,503,584 13,590,472
Diluted............... 10,461,538 10,461,538 12,972,060 13,550,188 14,113,979
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(In thousands, except Share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $ 924 $ 1,814 $19,214 $10,598 $ 18,667
Total assets.......................... 38,423 53,795 89,540 93,653 104,808
Short-term debt(2).................... 19,156 21,170 89 -- --
Long-term debt........................ -- -- -- -- --
Shareholders' equity.................. 13,960 26,272 77,582 80,970 91,027
</TABLE>
--------
(1) Shares outstanding for each of Fiscal 1996 and Fiscal 1997 presented is
based on 10,461,538 Shares outstanding prior to the Company's initial
public offering in June 1997, after giving effect to the Restructuring
(see Note 1 to the financial statements). Shares outstanding in Fiscal
1998, Fiscal 1999 and Fiscal 2000 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 and amount due to shareholder
(except as of March 31, 1997 and 1998, for which short-term debt consists
only of bank borrowings).
24
<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, our consolidated financial statements and the related notes thereto
included elsewhere in this Annual Report.
General
We produce matrix trays, shipping tubes, reels and carrier tape for the
storage, transportation and automatic handling of semiconductor devices and
other electronic components. We also produce leadframe boxes and interleaves
used in the storage and transportation of leadframes. In addition, we sell
recycled matrix trays collected under the trade name "SemiCycle." In Fiscal
2000, we made all of our sales to customers located in Asia, North America and
Europe. For more information see the section "Description of Business" under
the heading "Sales and Marketing."
Our consolidated net sales increased by 26.1% to $83.5 million in Fiscal
2000 compared to $66.2 million in Fiscal 1999, and our consolidated net income
increased by 240.0% to $9.6 million in Fiscal 2000, compared to $2.8 million
in Fiscal 1999. During the last three years, our consolidated net sales
decreased from 73.7 million in Fiscal 1998 to $66.2 million in Fiscal 1999 and
then increased to $83.5 million in Fiscal 2000. Our consolidated net income
decreased from $20.6 million in Fiscal 1998 to $2.8 million in Fiscal 1999 and
then increased to $9.6 million in Fiscal 2000. In Fiscal 2000, our margin
dropped to 34.8% from 40.4% in Fiscal 1999. The drop in performance in Fiscal
1999 was attributed to the down turn of the semiconductor industry in the
first half of that fiscal year, the provisions of a $2 million special charge
in December 1998 in relation to the termination of the employment contract of
Mr. Brook, a $9.0 million asset impairment related to the construction of the
new plant and a $500,000 special duties charge in relation to the settlement
of the missing PVC issue with the PRC customs authorities.
We have expanded our production capacity significantly in recent years and
have substantially completed construction of an additional facility in
Shenzhen, China. We have delayed construction activities on the new plant
until demand warrants its completion.
Results of Operations
The following table sets forth, for the years indicated, certain income
statement items for the Company as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended March
31
---------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales.......................................... 100.0 % 100.0 % 100.0 %
Cost of goods sold................................. (55.7) (59.6) (65.2)
Operating expenses:
General and administrative and research &
development..................................... (8.4) (11.0) (14.1)
Selling and marketing............................ (7.4) (8.8) (10.0)
Special charge................................... -- (3.0) 1.0
Asset impairment................................. -- (13.6) --
----- ----- -----
Income from operation.............................. 28.5 4.0 11.7
----- ----- -----
Income before income taxes......................... 30.4 6.3 12.7
Provision for income taxes......................... (2.5) (2.0) (1.2)
----- ----- -----
Net income......................................... 27.9 % 4.3 % 11.5 %
===== ===== =====
</TABLE>
25
<PAGE>
Fiscal 2000 Compared to Fiscal 1999
Net Sales. Net sales increased by 26.1% to $83.5 million in Fiscal 2000 from
$66.2 million in Fiscal 1999. Net sales of trays increased by 33.1% over the
period reflecting a 38.0% increase in sales volume, slightly offset by a 3.5%
drop in average realized sales price. Net sales of carrier tape increased by
30.0% over the period, driven by a 33.6% increase in sales volume, and a 2.7%
drop in average realized sales price. Net sales for tubes increased by 5.2%
over the year. While sales volume for tubes increased by 12.3%, the average
realized sales price of tubes dropped 6.3% over the same period.
Gross Profit. Gross profit increased by 8.7% to $29.1 million in Fiscal 2000
from $26.7 million in Fiscal 1999. Our gross margin declined to 34.8% in
Fiscal 2000 from 40.4% in Fiscal 1999, primarily as a result of a review of
slow moving inventory in March 2000 that resulted in a $7.3 million write
down. Had there not been this write down, gross profit for the year would have
been 43.5%.
Income from Operations. Operating income increased by 265.6% to $9.8 million
in Fiscal 2000 from $2.7 million in Fiscal 1999. Our operating margin improved
to 11.7% in Fiscal 2000 from 4.0% in Fiscal 1999, primarily because there were
a reversal of special charge and no asset impairment charge in Fiscal 2000.
General and Administrative Expenses. General and administrative expenses
increased by 67.1% to $11.2 million in Fiscal 2000 from $6.7 million in Fiscal
1999, primarily due to an increase in legal and professional charges, and
additional costs incurred in connection with the reorganization and relocation
of our US operations from Austin, Texas to Fremont, California.
Selling and Marketing Expenses. Selling and marketing expenses increased by
44.4% to $8.4 million in Fiscal 2000 from $5.8 million in Fiscal 1999,
primarily as a result of the expansion of our sales network.
Special Charge. On August 4, 2000 the matter of Richard Brook vs. Peak
International Limited was decided. The arbitrator found that Richard Brook was
terminated for good cause for disclosing confidential information in violation
of his fiduciary duties to the company and that he acted with malice. The net
award in favor of the Company includes $0.1 million in exemplary damages and
totals approximately $0.5 million. While the company will not record this
award as income until it is certain that the amount is recoverable, the $0.9
million remaining accrual for possible settlement cost of the case on the
Company's books as of March 31, 2000 was no longer required and was therefore
released back to income as a post balance sheet adjusting event for the year
ended March 31, 2000.
Net Income. Net income increased by 240.0% to $9.6 million in Fiscal 2000
from $2.8 million in Fiscal 1999. This increase primarily reflected the
effects of the foregoing factors.
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales decreased by 10.1% to $66.2 million in Fiscal 1999 from
$73.7 million in Fiscal 1998, primarily as a result of the reduction in volume
demand of our tube products and reels, partly offset by the increase in sales
volume of trays and carrier tape. Sales in the first half of Fiscal 1999 were
$31.1 million compared to $34.0 million in the same period in Fiscal 1998 and
were $35.2 million in the second half of Fiscal 1999 compared to $39.7 million
in Fiscal 1998. The average sales price of trays decreased primarily
reflecting the change in demand from high priced high temperature trays to
lower priced low temperature trays. The average sales price of carrier tape
also decreased, again reflecting a change in product mix. While the average
sales price of tubes was steady compared to Fiscal 1998, the average sales
price of reels improved in Fiscal 1999.
Gross Profit. Gross profit decreased by 18.1% to $26.7 million in Fiscal
1999 from $32.7 million in Fiscal 1998. Cost of goods sold decreased by $1.6
million to $39.5 million in Fiscal 1999 from $41.0 million in Fiscal 1998. Our
gross margin declined to 40.4% in Fiscal 1999 from 44.3% in Fiscal 1998,
primarily as a result of the drop in margin for trays due to a change in
product mix, partly offset by the improvement in margins for carrier tape,
reels, and tubes, and also because of a special duties charge in Fiscal 1999
of $500,000 in relation to the settlement of the missing PVC issue with the
PRC customs authorities and an increased provision for slow moving inventories
of $1.0 million.
26
<PAGE>
Income from Operations. Operating income decreased by 87.2% to $2.7 million
in Fiscal 1999 from $21.0 million in Fiscal 1998. Our operating margin
declined to 4.0% in Fiscal 1999 from 28.5% in Fiscal 1998, primarily as a
result of the reduction in gross margin, the increase in operating expenses a
special charge in Fiscal 1999 of $2 million for the termination of Mr. Brook's
contract of employment with us and an asset impairment charge of $9.0 million
relating to the new plant.
General and Administrative Expenses. General and administrative expenses
increased by 18.7% to $6.7 million in Fiscal 1999 from $5.7 million in Fiscal
1998 primarily due to an increase in legal and professional charges.
Selling and Marketing Expenses. Selling and marketing expenses increased by
5.7% to $5.8 million in Fiscal 1999 from $5.5 million in Fiscal 1998,
primarily as a result of additional staff hired in connection with the
expansion of our sales force in Asia.
Special charge. The special charge of $2 million in Fiscal 1999 related to
the termination of the employment contract of Mr. Brook, and included
estimated anticipated costs of settlement under the contract as well as
associated legal and professional fees. After we paid him $185,000 on his
contract, we stopped paying him in May of 1999, when we determined that his
termination was "for cause."
Asset Impairment. Asset impairment of $9.0 million in Fiscal 1999, based on
an independent appraisal, related to the delay in the construction of a new
plant as part of the expansion of the Company's production capacity for which
the Company had incurred expenditures of $20.3 million up to March 31, 1999.
Net Income. Net income decreased by 86.2% to $2.8 million in Fiscal 1999
from $20.6 million in Fiscal 1998. Net income as a percentage of sales
decreased to 4.3% in Fiscal 1999 from 27.9% in Fiscal 1998. This decline
primarily reflected the effects of the foregoing factors.
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. This increase was primarily as a result of an
increase in the volume of our tray products, tube products, reels, carrier
tape and other products sold, partially offset by lower average realized sales
prices of our 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. Our 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 our
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. Our operating margin
improved to 28.5% in Fiscal 1998 from 27.8% in Fiscal 1997, primarily as a
result of improvements in our 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 our 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 our existing products as well as new products
such as tape and reel products.
27
<PAGE>
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 our initial public offering
in June 1997.
Liquidity and Capital Resources
We historically met a significant portion of our cash requirements from cash
flow from operations and, prior to our initial public offering in June 1997,
shareholder loans, generally at no interest, from Mr. T.L. Li, as well as
short-term bank loans guaranteed by Mr. T.L. Li. Our primary uses of cash have
been to fund capital expenditures related to the expansion of our facilities
and operations, dividend payments and working capital requirements. We intend
to continue to retain our earnings to finance the development and expansion of
our business operations and do not intend to pay dividends for the foreseeable
future. Our net cash provided by operating activities was $21.5 million in
Fiscal 2000, compared to $20.5 million in Fiscal 1999 and $15.5 million in
Fiscal 1998.
We incurred capital expenditures of $7.8 million, $11.5 million, and $15.7
million for the acquisition of new equipment in our current facility and $7.2
million, 17.6 million, and nil for the construction of an additional facility
in Shenzhen, China during Fiscal 2000, Fiscal 1999, and Fiscal 1998
respectively. For more information, see Note 13 of the Notes to our
Consolidated Financial Statements. As of March 31, 2000, we had commitments
for capital expenditures of $7.0 million. The actual amounts of capital
expenditures may vary substantially from those budgeted or estimated for a
variety of reasons, including changes in market conditions, unavailability or
changes in scheduled delivery of specific equipment, changes in interest rates
and other factors. In addition, we plan to continue to expand capacity in
future periods from cash on hand, including cash flow from operations and new
bank borrowings as required.
As of March 31, 2000, we had no outstanding indebtedness. Mr. T.L. Li no
longer guarantees any of our bank loans or overdrafts, however, neither our
ability to obtain bank financing nor our cost of funds has been materially
affected. For more information, see Note 9 of Notes to our Consolidated
Financial Statements.
If the Chinese customs authorities require us to post a bond in connection
with our exemption status from PRC duties on imported raw materials and
exported products, we will experience a substantial drain of our liquid
resources. We cannot assure that we will be able to provide the required bond
at a commercially feasible cost, or at all.
From time to time, we may evaluate possible investments or acquisitions and
may, if a suitable opportunity arises, make such an investment or acquisition.
We currently have no commitments to make any material investments or
acquisitions.
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, 17.4%,
14.5% and 9.2% of our total raw material costs in, Fiscal 1998, Fiscal 1999
and Fiscal 2000, respectively. While we believe principally as a result of
increased production capacity by suppliers, that a severe shortage in the
supply of PVC resin is unlikely to occur in the foreseeable future, there can
be no assurance that such shortage will not occur. Any price increases would
result in higher costs, which could have a material adverse effect on our
results of operations and financial condition. We currently maintain
approximately two to three months stock of PVC resin and other raw materials
used in our production processes, and increase such stock when we believe
prices are favorable. We do not, and do not intend to, enter into future
contracts or use any financial instruments to hedge our exposure to
fluctuations in the price of PVC resin or other raw materials used in our
production processes.
28
<PAGE>
Currency Exchange Rate Fluctuations
Our sales are denominated primarily in US Dollars while our costs of goods
sold are generally incurred in US Dollars, Hong Kong Dollars and Renminbi, and
our operating expenses are generally denominated in Renminbi, Hong Kong
Dollars and US Dollars. In addition, a substantial portion of our capital
expenditures, primarily for the purchase of equipment, has been and is
expected to continue to be denominated in US Dollars and Japanese Yen.
Consequently, a portion of our costs and operating margins may be affected by
fluctuations in exchange rates, primarily between the US Dollar and other
currencies. Our results of operations and financial condition could be
adversely affected by fluctuations in currency exchange rates or the
imposition of new or additional currency controls in the jurisdictions in
which we operate. Primarily in response to recent developments in the
Southeast Asian currency markets, we from time to time engage in derivatives
trading activities, such as entering into forward contracts, to hedge our
currency exchange exposure. The Company does not utilize market-risk sensitive
instruments for speculative purposes. At March 31, 2000, we had no outstanding
foreign currency exchange contracts.
Many of our competitors are located in countries whose currencies devalued
significantly against the US Dollar beginning in the second half of 1997. As a
result of such devaluation, these competitors' products have become less
expensive in US dollar terms. This reduction could result in our customers
purchasing products from these competitors rather than from us, which could
have a material and adverse effect on our net sales and results of operation.
Hong Kong Profits Tax
Under the Hong Kong tax authority's Departmental Interpretation and Practice
Notes, a company based in Hong Kong but with substantially all of its
manufacturing operations located in the PRC conducted pursuant to a processing
agreement entered into with a PRC company can enjoy profit apportionment
through which much of its manufacturing profit is subject to Hong Kong profits
tax. Substantially all of our manufacturing operations are located in
Shenzhen, China and conducted pursuant to a processing agreement entered into
with a PRC company. See "Description of Business--Employees." Effective April
1, 1999, the profits tax rate in Hong Kong is 16.0%, a change from the former
profits tax rate, which was 16.5%. Under our current profits apportionment,
only 50% of our profits are subject to Hong Kong profits tax and, as a result,
we enjoy a lower effective tax rate than would otherwise be the case. We
cannot assure that the Hong Kong tax authority will continue to grant such tax
concession to Hong Kong companies with manufacturing operations in China, or
that we will not lose such concession in the future as a result of changes in
Hong Kong tax law or the interpretation of such law. In the event that such
tax concessions are unavailable to us, our results of operations could be
materially and adversely affected.
Although traditionally, Hong Kong has allowed a company like ours to
apportion only 50% of its profits to activities outside Hong Kong (not subject
to Hong Kong tax), starting in Fiscal 1996, for tax filing purposes, we have
apportioned 80% of our profits to activities outside of Hong Kong. The Hong
Kong tax authorities are examining our activities with respect to several
factors that they use to ascertain the true geographic nature of a company's
activities. Although we believe our apportionment to be justified, we cannot
assure that the Hong Kong tax authorities will not insist on a different
apportionment that would subject us to payment of back taxes. We have taken a
reserve in the financial statements should payment of back taxes be required.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Included in Item 9.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Members of our Board of Directors are elected by our shareholders. 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. Our Board of Directors
elects our executive officers.
29
<PAGE>
The following table sets forth information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Mr. T.L. Li............. 48 Director, Chairman of the Board
Mr. Calvin Reed......... 57 Director, President and Chief Executive Officer
and Deputy Chairman
Mr. Jack Menache........ 57 Vice President of Administration, Secretary and
General Counsel
Mr. Jerry Mo............ 41 Chief Financial Officer and Controller
Mr. C.Y. Ng............. 42 Vice President, General Manager of PRC Operations
of Peak Plastic & Metal Products (International)
Limited
Mr. Danny Tong.......... 32 Vice President of Sales & Marketing of Peak
Plastic & Metal Products (International) Limited
Mr. John Pylant......... 65 Vice President of Engineering of Peak
International, Inc.
Mr. Melvern Slates...... 60 Vice President of Manufacturing of Peak
International, Inc.
Mr. Larry Worth......... 62 Vice President of Marketing and Operations of
Peak International, Inc.
Mr. Douglas Broyles..... 58 Director
Ms. Christine Russell... 50 Director
Mr. William Snyder...... 56 Director
</TABLE>
Mr. T.L. Li has served as our Chairman since 1990 and, through his ownership
of all of the outstanding shares of Luckygold, controls the majority of our
outstanding Shares. From 1990 to August 1998, Mr. Li also served as our Chief
Executive Officer. 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 major 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"). Until May of 1999, Mr. Li also
owned 100% of EEMS, a memory IC assembly and test business based in Italy. See
"Certain Transactions." Since 1988 Mr. Li has been a director of ASAT Holdings
Limited, a Nasdaq company. Mr. Li is the brother-in-law of Mr. Jerry Mo.
Mr. Calvin Reed has served as our President and Chief Executive Officer and
as a member of our Board of Directors since April 1999. Mr. Reed has over
thirty years of experience in the electronics and technology sectors. From
1993 to 1998 Mr. Reed served as the Chairman, President, and Chief Executive
Officer of Valance Technology, Inc., a Nasdaq company. Mr. Reed was retired
prior to joining Peak.
Mr. Jack Menache has served as our Vice President of Administration,
Secretary and General Counsel since July 1999. He served as a member of our
Board of Directors from May 1999 until July 1999. Mr. Menache holds an LLB
degree from George Washington University Law School, and a Bachelor of Arts
degree from the University of the Americas. He is admitted to the Bars of
Washington, D.C., and the States of Texas and California. From September 1989
until July 1999, he served as Vice President, General Counsel and Secretary
for Integrated Device Technology, Inc., an international manufacturer of
semiconductors.
Mr. Jerry Mo has served as our Chief Financial Officer and Controller 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 and Wales and an associated
member of the Institute of Chartered Accountants in Australia and the Hong
Kong Society of Accountants. Prior to joining us, 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. C. Y. Ng has served as Vice President, General Manager of PRC Operations
of our subsidiary, Peak Plastic & Metal Products (International) Limited,
since May of 1999. Mr. Ng holds a Bachelor of Science Degree in Electronics
Engineering from the Chinese University of Hong Kong. Mr. Ng is also a senior
member of the Society of Manufacturing Engineers. Prior to joining us, Mr. Ng
was the PRC plant manager for Honey Technology Ltd. from May 1994 to May 1999.
30
<PAGE>
Mr. Danny Y.T. Tong has served as Vice President of Sales and Marketing of
our subsidiary, Peak Plastic & Metal Products (International) Limited, and has
been responsible for the Company's sales and operations in Asia and Europe
since May 1999 and in North America since May 2000. Before taking this
position, he was the Vice President responsible for the Northern Asia sales of
the Company from 1995. He holds a Bachelor of Applied Science degree in
mechanical engineering from the University of Toronto. Mr. Tong joined the
Company in 1991.
Mr. Melvern Slates has served as Vice President of Manufacturing of our
subsidiary, Peak International, Inc. since January 2000. From May 1999 to
January 2000 he served as a consultant to our company. Mr. Slates holds an
Associate of Science Electrical Engineering degree from the Oregon Institute
of Technology and has over thirty years experience in the manufacturing field.
He served as the General Manager of Valence Technology in Northern Ireland
from March 1994 to August 1998.
Mr. John Pylant has served as Vice President of Engineering of our
subsidiary, Peak International, Inc. since November 1999. Mr. Pylant has over
thirty years experience in manufacturing of plastic and machinery parts.
Before joining us, he served as the President and Chief Executive Officer of
CHS Group Inc., a manufacturer of disk drive hardware in Los Angeles and
Taiwan, from 1991 to November 1999.
Mr. Larry Worth has served as the Vice President of Marketing and Operations
of our subsidiary, Peak International, Inc. since April of 1999. Mr. Worth
holds a Bachelor of Arts degree in Business and Management from the University
of California, Foothill College and the College of San Mateo. Prior to joining
us, Mr. Worth was the North America Sales Manager for the Electronic Products
Division of Siemens from December of 1998 to April of 1999. Before Siemens,
Mr. Worth spent 15 years as the President of Worth Associates, a
manufacturers' representative for semiconductor assembly materials and
services.
Mr. Douglas Broyles has served as a member of our Board of Directors since
May 1999. He holds patents for image scanning, printing and microprocessor
control techniques. He currently serves as President and Chief Executive
Officer of Avalon Data, which positions he has held since 1996. Prior to that,
he was a partner for ten years with Glenwood Management, a venture capital
firm based in Menlo Park, California.
Ms. Christine Russell has served as a member of our Board of Directors since
March 2000. She is a graduate of the University of Santa Clara and has an MBA
in Finance. Ms. Russell is the Vice President and Chief Financial Officer of
San Mateo, California-based Persistence Software, a company addressing the
Internet infrastructure and enterprise application development markets, where
she has served since 1997. From 1995 to 1997, Mrs. Russell served as Vice
President of Cygnus Solutions of Sunnyvale, CA, an emerging software company.
Mr. William Snyder has served as a member of our Board of Directors since
July 1999. Mr. Snyder served as Chief Financial Officer of Etec Systems, Inc.,
a multinational capital equipment manufacturer, from August 1997 until March
2000 when Etec was acquired by Applied Materials, Inc. Prior to that, Mr.
Snyder served as Chief Financial Officer of Integrated Device Technology, Inc.
from 1990 to July of 1997. Mr. Snyder has an M.B.A. from the University of
Arizona.
Board Committees
The Board has two committees: the Compensation and Stock Option Committee
and the Audit Committee. The Board of Directors formed the Compensation
Committee and the Audit Committee in February 1997. The role of the
Compensation Committee is to make recommendations to the Board of Directors
relating to salaries and other compensation for the Company's directors,
officers and employees and to administer the employee share option and
purchase plans. The Committee was subsequently renamed as the Compensation and
Stock Option Committee and is composed of directors Douglas Broyles and
William Snyder.
The role of the Audit Committee is to review the results and scope of the
annual audit and other services provided by the Company's independent
auditors, to review and evaluate the Company's internal audit and control
functions, and to monitor transactions between the Company and its directors,
officers, employees and other related parties. The members of the Audit
Committee are independent directors Douglas Broyles, Christine Russell and
William Snyder.
31
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The aggregate amount of compensation, including bonuses, pension,
retirement, and similar benefits, paid by the Company during Fiscal 2000 to
all directors and executive officers, was approximately $1.3 million. The
aggregate amount set aside or accrued by the Company during Fiscal 2000 to
provide pension, retirement or similar benefits for directors and executive
officers, pursuant to any existing plan provided or contributed to by the
Company, was $23,306.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
1997 Share Option Plan
Our 1997 Share Option Plan (the "1997 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 1997 Plan. Under the 1997 Plan, directors, officers, employees of, and
advisors and consultants to us or our affiliates may, at the discretion of the
Board of Directors, or a committee thereof (this board or committee is
sometimes referred to as the "plan administrator"), be granted options to
purchase shares at an exercise price determined by plan administrator. We have
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 1997 Plan, however, may receive grants under
such plan in any calendar year which relate to more than 150,000 shares
without shareholder approval. Under 1997 Plan, we 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 both the 1997
Plan which are not Incentive Stock Options are non-qualified stock options. We
have 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
generally not be less than the fair market value of the underlying shares on
the date such option is granted.
As of July 31, 2000, we have outstanding, under the 1997 Plan, options
relating to an aggregate of:
<TABLE>
<CAPTION>
Shares related to
options held by Exercise
Shares directors and officers Price Expiry Date
------ ---------------------- -------- -------------
<S> <C> <C> <C>
164,533 32,792 $ 12.000 Mar 17, 2007
26,794 7,292 $ 19.375 Mar 8, 2008
100,000 100,000 $ 5.875 July 27, 2009
100,000 100,000 $7.28125 Oct 27, 2009
17,000 17,000 $ 8.9375 Dec 31, 2003
514,000 514,000 $ 8.0625 June 30, 2004
20,000 0 $ 6.4375 Oct 15, 2004
</TABLE>
In the event that the plan administrator determines that any dividend or
other distribution or any alternation in the capital structure of the Company
affects the shares such that an adjustment is determined by the plan
administrator to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
1997 Plan, the plan administrator shall, subject to certain restrictions and
in such manner as it may deem equitable, adjust any or all of the (the number
of shares with respect to which awards may be granted, (ii) the number of
shares which are subject to outstanding awards and (iii) the exercise price
with respect to any award, or, if deemed appropriate by the plan
administrator, make provision for a cash payment to the holder of outstanding
awards.
The Board of Directors may amend or modify the 1997 Plan at any time. The
1997 Plan will terminate on March 17, 2007, unless sooner terminated by the
Board of Directors.
32
<PAGE>
1998 Share Option Plan
Our 1998 Share Option Plan (the "1998 Plan") was adopted by the Board of
Directors on July 28, 1998 and approved by our shareholders on July 27, 1998.
An aggregate of 700,000 shares was initially reserved for issuance under the
1998 Plan. On September 16, 1999, the Board of Directors approved an
amendment, subject to shareholder approval, to (i) increase the number of
shares reserved for issuance under the 1998 Plan by 1,500,000 shares to
2,200,000 and (ii) increased the number of shares subject to grant under the
1998 Share Option Plan to any one person in any calendar year from 150,000
shares to 200,000 shares.
Under the 1998 Plan, directors, officers, employees of, and advisors and
consultants to us or our affiliates may, at the discretion of the Board of
Directors, or a committee thereof (this board or committee is sometimes
referred to as the "plan administrator"), be granted options to purchase
shares at an exercise price determined by plan administrator. We have 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. If approved by the shareholders, no participant in the 1998 Plan,
however, may receive grants under the share option plan in any calendar year
which relate to more than 200,000 shares without shareholder approval. Under
the 1998 Plan, we may grant Incentive Stock Options, non-qualified stock
options, or both types of options. Options granted under 1998 Plan which are
not Incentive Stock Options are non-qualified stock options. We have 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 generally
not be less than the fair market value of the underlying shares on the date
such option is granted.
As of July 31, 2000, we have outstanding, under the 1998 Plan, options
relating to an aggregate of:
<TABLE>
<CAPTION>
Shares related to
options held by Exercise
Shares directors and officers Price Expiry Date
------ ---------------------- -------- --------------
<S> <C> <C> <C>
72,131 13,828 $ 12.250 July 26, 2008
100,000 100,000 $3.65625 April 21, 2009
291,883 260,000 $3.65625 April 22, 2009
20,000 20,000 $ 3.875 May 04, 2009
10,000 10,000 $ 5.875 July 27, 2009
24,000 24,000 $ 10.625 Nov 02, 2009
402,456 108,800 $ 8.9375 Dec 31, 2003
125,000 100,000 $10.3125 Apr 30, 2004
4,250 0 $ 8.8125 Apr 15, 2004
</TABLE>
In the event that the plan administrator determines that any dividend or
other distribution or any alternation in the capital structure of the Company
affects the shares such that an adjustment is determined by the plan
administrator to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
1998 Plan, the plan administrator shall, subject to certain restrictions and
in such manner as it may deem equitable, adjust any or all of the (i) the
number of shares with respect to which awards may be granted, (ii) the number
of shares which are subject to outstanding awards and (iii) the exercise price
with respect to any award, or, if deemed appropriate by the plan
administrator, make provision for a cash payment to the holder of outstanding
awards.
The Board of Directors may amend or modify the 1998 Plan at any time. The
1998 Plan will terminate on July 26, 2008 each unless sooner terminated by the
Board of Directors.
Options Granted to Calvin Reed
Additionally, on April 22, 1999, we issued non-qualified stock options to
Mr. Calvin Reed, in connection with his appointment as our President and Chief
Executive Officer. Specifically, we issued Mr. Reed options to purchase
150,000 shares of our common stock at a purchase price of $3.65625 per share,
150,000 shares of our
33
<PAGE>
common stock at a purchase price of $7 per share and 100,000 shares at a
purchase of $10 per share (the "Reed Options"). Except for options to purchase
100,000 shares at a purchase price of $3 21/32 per share, issued under the
1998 Plan, the Reed Options were not issued pursuant to either the 1997 Plan
or the 1998 Plan. However, the terms and conditions of the 1998 Plan are
incorporated by reference into the Reed Options.
1998 Employee Stock Purchase Plan
On July 27, 1998, the board of directors adopted and our shareholders
approved our 1998 Employee Stock Purchase Plan (the "Purchase Plan") which
allows eligible employees to purchase our common stock at a discount from fair
market value. A total of 160,000 shares has been reserved for issuance under
the Purchase Plan.
The Purchase Plan will be administered by our board of directors, or a
specifically designated committee of the board of directors (this board or
committee is sometimes referred to as the "plan administrator"). The plan
administrator may interpret the Purchase Plan and, subject to its provisions,
may prescribe, amend and rescind rules and make all other determinations
necessary or desirable for the administration of the Purchase Plan.
The Purchase Plan contains overlapping, twenty-four month offering periods
that commence on April 1 and October 1 of each year. The Purchase Plan
consists of six-month accumulation periods that commence on April 1 and
October 1 of each year.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted the
right to purchase shares under the Purchase Plan if the employee immediately
after the grant would own shares possessing 5% or more of the total combined
voting power or value of all classes of our capital shares.
The number of shares that each participant may purchase under the Purchase
Plan (and all other employee shares purchase plans of the Company or any
parent or subsidiary of the Company) will be limited as follows: (i) in the
case of shares purchased during an offering period that commenced in the
current calendar year, the limit is equal to $25,000 minus the fair market
value of the shares that the participant previously purchased in current
calendar year; (ii) in the case of shares purchased during an offering period
that commenced in the immediately preceding calendar year, the limit shall be
equal to $50,000 minus the fair market value of the shares that the
participant previously purchased in the current calendar year and in the
immediately preceding calendar year; and (iii) in the case of shares purchased
during an offering that commenced in the second preceding calendar year, the
limit is equal to $75,000 minus the fair market value of the shares that the
participant previously purchased in the current calendar year and in the two
preceding calendar years. In addition, the Purchase Plan provides that the
maximum number of shares a participant may purchase during a single
accumulation period is 5,000 shares.
The Purchase Plan permits each employee to purchase common stock through
payroll deductions of up to 20% of the employee's "compensation." Compensation
is generally defined as the total compensation paid in cash to a participant,
including salaries, wages, bonuses, incentive compensation, commissions,
overtime pay and shift premiums, plus (ii) any pre-tax contributions made by
the participant under section 401(k) or 125 of the Code.
Amounts deducted and accumulated by the employee are used to purchase shares
of common stock at the end of each offering period. The price of the common
stock offered under the Purchase Plan is an amount equal to 85% of the lower
of the fair market value of the shares on the last trading day in an
accumulation period or the last trading day before the commencement of the
applicable offering period. Employees may end their participation in the
Purchase Plan at any time during an offering period, in which event, any
amounts withheld through payroll deductions and not otherwise used to purchase
shares will be returned to them. Participation ends automatically upon
termination of employment with us.
Rights granted under the Purchase Plan are not transferable by an employee
other than by will or the laws of descent and distribution. The Purchase Plan
provides that, in the event of a change in control, offering periods and
accumulation periods then in progress will terminate and shares will be
purchased. The Purchase Plan will terminate in 2008. Our board of directors
has the authority to amend or terminate the Purchase Plan.
34
<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Mr. T.L. Li, our Chairman of the Board of Directors, through his beneficial
ownership of all of the outstanding shares of Luckygold, is our majority
shareholder. Mr. Li owns approximately 40% 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, QPL (U.S.) Inc. (f.k.a Worltek International
Limited) and Talent Focus Industries Limited and formerly included ASAT and
Newport Wafer-Fab Limited. This group 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 July 1999, the QPL group sold ASAT (U.K.) Ltd. to its
management team and in October 1999, the QPL group sold 50% of ASAT. QPL
(U.S.) Inc., 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. The QPL group sold Newport
Wafer-Fab Limited to its management team in August 1999. Up until May 30,
1999, Mr. Li also owned 100% of the outstanding shares of EEMS, which acted as
our sales agent in Europe until December 1998. Mr. Li has since sold his
entire interest in EEMS.
A significant portion of our product sales has been made to companies
controlled by Mr. T.L. Li, which include QPL and other subsidiaries of QPL
Holdings and formerly included ASAT. Our product sales to the subsidiaries of
QPL Holdings totaled approximately $6.8 million in the year ended March 31,
2000, which represented approximately 8.2% of our net sales. QPL and ASAT are
our customers and may, from time to time, engage in transactions with us that
are material to our results of operations.
In the United States, during the year ended March 31, 1999, we purchased
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. At the same time, we leased
office space and provided certain administrative and accounting services to
The SemiCycle Foundation and, in the past advanced loans to such foundation to
help meet its cash requirements. In August 1999, we terminated our
relationship with the SemiCycle Foundation. For more information, see Note 12
to our Consolidated Financial Statements which are included in our Annual
Report on Form 20-F.
Mr. Steve R. Deszo, our former Vice President responsible for United States
operations, serves as a director of The SemiCycle Foundation.
We review related party transactions on an ongoing basis and utilize the
Audit Committee to review potential conflicts of interest where appropriate.
Our policy is to conduct transactions with our affiliates, including the
companies in QPL Holdings, on an arms-length basis.
35
<PAGE>
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-1 through F-21.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Consolidated Financial Statements
The attached pages F-1 through F-21 are filed as part of this annual report.
36
<PAGE>
Annex A
Information Not Required by 20-F
But Required by 10-K
As of June 30, 2000, the aggregate market value of Common Stock held by non-
affiliates of the registrant was $41,043,961.
As of June 30, 2000, the number of outstanding shares of the issuer's Common
Stock, par value $0.01 per share, was 13,763,059.
SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Dividends
The Company has not paid any dividends on its Common Stock over the past two
years. The Company does not anticipate paying any dividends in the foreseeable
future, and intends to retain all earnings, if any, for general corporate
purposes. The declaration and payment of dividends, if any, will be dependent
on the Company's results of operation, financial condition, cash requirements
and other relevant factors, subject to the discretion of the Board of
Directors.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Recent Sales of Unregistered Securities
On April 22, 1999, the Company issued to Calvin Reed 400,000 options to
purchase shares of the Company. The first 150,000 options for the purchase of
150,000 shares were at a per share exercise price equal to $3 21/32. The
second 150,000 options for the purchase of 150,000 shares were at a per share
exercise price equal to $7.00 per share. The remaining options for the
purchase of 100,000 shares were at a per share exercise price equal to $10.00
per share. The options are exercisable until April 21, 2009. The options vest
in twelve equal, quarterly installments but in certain circumstances the
options will be accelerated. Except in certain limited circumstances, the
options are not exercisable for two years.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, officers and persons who own more than 10 percent of a registered
class of a U.S. issuer's equity securities to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of such securities, and to furnish the company with copies of all
such reports they file. As a foreign private issuer, Peak International
Limited is not subject to these requirements. Nevertheless, the Company
intends to comply with Section 16(a) in the future.
37
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth for fiscal 1998, 1999
and 2000 certain information with respect to the compensation of the Company's
President and Chief Executive Officer and the three other most highly
compensated executive officers who served in such capacities for the financial
year ended March 31, 2000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation Awards
------------------------------------------
Annual Compensation Awards Payouts
------------------------------- --------------------- -------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Stock Options/ Payouts Compensation
Position Year ($) ($) ($) Awards ($) SARs (#) ($) ($)
------------------ ---- ------- ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Calvin Reed............. 2000 373,308 -- -- -- -- -- --
President, CEO 1999 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
Jerry Mo................ 2000 305,797 -- -- -- -- -- 13,098*
CFO, Controller 1999 305,694 -- -- -- -- -- 12,128*
1998 274,986 -- -- -- -- -- 11,657*
Jack Menache............ 2000 172,571 -- -- -- -- -- --
VP of Administration 1999 -- -- -- -- -- -- --
Secretary, General 1998 -- -- -- -- -- -- --
Counsel
Larry Worth............. 2000 200,000 -- -- -- -- -- --
VP of Sales for 1999 53,769 -- -- -- -- -- --
North America 1998 -- -- -- -- -- -- --
</TABLE>
--------
* This represents the Company's contribution to the employee benefit plan of
Jerry Mo who is based in Hong Kong. For more details, please refer to Note
10 to the Consolidated Financial Statements on Page F-14.
38
<PAGE>
Stock Options
Stock options were granted in the financial year ended March 31, 2000 to the
following executive officers named on the Summary Compensation Table:
Option/SAR Grants In Last Financial Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of Share
Securities Option/SARs Price Appreciation for Option
Underlying Granted to Term
Options/SARs Employees in Exercise --------------------------------
Granted Year Ended March Price Expiration 0% 5% 10%
Name (#) 31, 2000 ($/Share) Date ($) ($) ($)
---- ------------ ---------------- --------- ---------- --- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Calvin Reed............. 150,000 9.25% 3.65625 04/21/2009 0 344,909 874,068
President, CEO 150,000 9.25% 7 04/21/2009 0 0 0
100,000 6.17% 10 04/21/2009 0 0 0
42,500 2.62% 8.9375 12/31/2003 0 238,882 605,373
Jerry Mo................ 200,000 12.33% 3.65625 4/22/2009 0 459,879 1,165,424
CFO, Controller 17,000 1.05% 8.9375 12/31/2003 0 95,553 242,149
Jack Menache............ 10,000 0.62% 3.875 05/04/2009 0 24,370 61,758
VP of Administration 100,000 6.17% 5.875 07/27/2009 0 369,476 936,324
Secretary, General
Counsel 17,000 1.05% 8.9375 12/31/2003 0 95,553 242,149
Larry Worth............. 4,000 0.25% 3.65625 04/22/2009 0 9,198 23,308
VP of Sales for North 15,300 0.94% 8.9375 12/31/2003 0 85,997 217,934
America
</TABLE>
Aggregated Option/SAR Exercises in Last Financial Year
And Financial Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Options/SARs at Financial Options/SARs At
on Value Year-End (#) Financial Year-End ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Calvin Reed............. 0 0 103,542 338,958 344,336 1,059,570
President, CEO
Jerry Mo................ 0 0 221,350 20,619 1,245,078 14,609
CFO, Controller
Jack Menache............ 0 0 28,083 98,917 127,992 347,945
VP of Administration
Secretary, General
Counsel
Larry Worth............. 0 0 5,276 14,024 26,071 13,148
VP of Sales for North
America
</TABLE>
39
<PAGE>
EXECUTIVE COMPENSATION
Performance Graph
The following graph compares the cumulative total return of the Company, the
Russell 2000 Index and the Dow Jones Containers and Packaging Industry Group.
The total return assumes $100 invested in the Company's Shares, the Russell
2000 Index and the Dow Jones Containers and Packaging Industry Group on June
20, 1997 and includes reinvestment of dividends.
The comparative performance of the Company's Shares against the indexes as
depicted in this graph is dependent on the price of stock at a particular
measurement point in time. Since individual stocks are more volatile than
broader stock indexes, the perceived comparative performance of the Company's
Shares may vary based on the strength or weakness of the Share price at the
new measurement point used in each future proxy statement graph. For this
reason, the Company does not believe that this graph should be considered as
the sole indicator of the Company's performance.
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Dow Jones Containers
PEAK Russell 2000 Index & Packaging Group
------ ------------------ --------------------
<S> <C> <C> <C>
6/20/97........................ 100.00 100.00 100.00
12/31/97....................... 173.96 111.90 102.82
12/31/98....................... 68.06 109.05 93.35
12/31/99....................... 85.42 132.23 88.08
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, there unto duly authorized.
Peak International Limited
/s/ Calvin Reed
By __________________________________
Calvin Reed
Chief Executive Officer and
President
August 14, 2000
41
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Memorandum of Association and Bye-Laws of the Registrant (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on
Form F-1, Registration No. 333-6652, filed on March 19, 1997 and
declared effective by the Commission on June 20, 1997 (the "Company's
Initial Public Offering Registration Statement on Form F-1"))
4.1 Specimen of Share Certificate for the Shares of the Registrant
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
Company's Initial Public Offering Registration Statement on Form F-1)
10.1 Processing Agreement dated May 28, 1987 and renewed and amended on May
24, 1994 and December 12, 1996 (incorporated by reference to Exhibit
10.1 to the Company's Initial Public Offering Registration Statement
on Form F-1)
10.2 Processing Agreement dated October 8, 1995 (incorporated by reference
to Exhibit 10.2 to the Company's Initial Public Offering Registration
Statement on Form F-1)
10.3 Land Use Certificate relating to the Company's existing production
facilities (incorporated by reference to Exhibit 10.3 to the Company's
Initial Public Offering Registration Statement on Form F-1)
10.4 Land Use Certificate relating to the Company's planned additional
production facilities (incorporated by reference to Exhibit 10.4 to
the Company's Initial Public Offering Registration Statement on
Form F-1)
10.5 Land Use Right Granting Contract relating to the Company's existing
production facilities (incorporated by reference to Exhibit 10.5 to
the Company's Initial Public Offering Registration Statement on Form
F-1)
10.6 Land Use Right Granting Contract relating to the Company's planned
additional production facilities (incorporated by reference to Exhibit
10.6 to the Company's Initial Public Offering Registration Statement
on Form F-1)
10.7 Lease between Warden and Peak (HK) relating to the Company's existing
production facilities (incorporated by reference to Exhibit 10.7 to
the Company's Initial Public Offering Registration Statement on Form
F-1)
10.8 Form of Share Option Plan (incorporated by reference to Exhibit 10.8
to the Company's Initial Public Offering Registration Statement on
Form F-1)
10.9 Form of Stock Purchase Plan (incorporated by reference to Annex A to
the Company's Report on Form 6-K dated August 14, 2000)
10.10 Deed of Undertaking by T.L. Li dated May 29, 1997 relating to non-
competition and referral (incorporated by reference to Exhibit 10.9 to
the Company's Initial Public Offering Registration Statement on Form
F-1)
10.11 Option Agreement dated February 17, 1997 relating to the non-voting
deferred shares of Peak (HK) (incorporated by reference to Exhibit
10.10 to the Company's Initial Public Offering Registration Statement
on Form F-1)
10.12 Restructuring Agreement dated February 28, 1997 for the acquisition of
the entire issued share capital of Peakgold and Success Gold
(incorporated by reference to Exhibit 10.11 to the Company's Initial
Public Offering Registration Statement on Form F-1)
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Company's Initial Public Offering Registration Statement
on Form F-1)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
42
<PAGE>
PEAK INTERNATIONAL LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page(s)
-------- -------
<S> <C>
Independent Auditors' Report........................................ F-2
Consolidated Balance Sheets......................................... F-3
Consolidated Statements of Income and Comprehensive Income.......... F-4
Consolidated Statements of Shareholders' Equity..................... F-5
Consolidated Statements of Cash Flow................................ F-6
Notes to Consolidated Financial Statements.......................... F-7 to F-21
</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, 2000 and 1999 and the
related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 2000. 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, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE TOUCHE TOHMATSU
Hong Kong
April 28, 2000,
except for Notes 5 and 11(c),
as to which the date is August 4, 2000
F-2
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
-----------------
2000 1999
-------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 18,667 $10,598
Accounts receivable, net of allowance for doubtful
accounts of $292 in 2000 and $100 in 1999................ 13,283 10,916
Inventories (Note 3)...................................... 19,044 26,469
Other receivables, deposits and prepayments............... 860 1,241
Amounts due from related companies (Note 12).............. 633 912
-------- -------
Total current assets.................................. 52,487 50,136
Deposits for acquisition of plant and equipment........... 341 1,175
Property, plant and equipment, net (Note 4)............... 51,980 42,342
-------- -------
Total assets ......................................... $104,808 $93,653
======== =======
Current liabilities:
Accounts payable:
--trade................................................. $ 3,749 $ 2,534
--property, plant and equipment......................... 1,187 1,112
Accrued payroll and employee benefits................... 785 656
Accrued special charge (Note 5)......................... -- 876
Accrued other expenses.................................. 1,970 1,446
Income taxes payable.................................... 4,232 3,805
-------- -------
Total current liabilities............................. 11,923 10,429
Deferred income taxes (Note 8)............................ 1,858 1,607
Long-term liability (Note 5).............................. -- 647
Commitments and contingencies (Note 11)
Shareholders' equity:
Common stock, $0.01 par value; authorized 100,000,000
shares issued and outstanding 13,686,305 shares at
March 31, 2000 and 13,509,118 shares at March 31,
1999................................................... 137 135
Additional paid-in capital.............................. 35,209 34,620
Retained earnings....................................... 56,601 46,954
Accumulated other comprehensive loss.................... (920) (739)
-------- -------
Total shareholders' equity............................ 91,027 80,970
-------- -------
Total liabilities and shareholders' equity............ $104,808 $93,653
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(United States dollars in thousands, except share data)
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
--third parties......................... $ 74,934 $ 59,794 $ 60,934
--related companies (Note 12)........... 8,595 6,441 12,771
---------- ---------- ----------
Total................................. 83,529 66,235 73,705
Cost of goods sold (including a special
inventory write down of $7,286 in FY2000,
Note 3).................................. 54,441 39,487 41,048
---------- ---------- ----------
Gross profit.............................. 29,088 26,748 32,657
Operating expenses:
General and administrative.............. 11,215 6,713 5,656
Research and development................ 546 551 538
Selling and marketing................... 8,379 5,801 5,487
Asset impairment (Note 4)............... -- 9,000 --
Special charge (Note 5)................. (862) 2,000 --
---------- ---------- ----------
Income from operations.................... 9,810 2,683 20,976
Other income, net (Note 6)................ 273 812 926
Interest income (Note 7).................. 541 687 907
Interest expense.......................... (7) (7) (390)
---------- ---------- ----------
Income before income taxes................ 10,617 4,175 22,419
Provision for income taxes (Note 8)....... 970 1,338 1,825
---------- ---------- ----------
Net income ............................... 9,647 2,837 20,594
Other comprehensive income adjustment:
Translation adjustment.................. (181) (35) (725)
---------- ---------- ----------
Comprehensive income...................... $ 9,466 $ 2,802 $ 19,869
---------- ---------- ----------
Earnings per share:
Basic................................... $ 0.71 $ 0.21 $ 1.61
Diluted................................. $ 0.68 $ 0.21 $ 1.59
Weighted average number of shares
outstanding:
Basic................................... 13,590,472 13,503,584 12,804,004
Diluted................................. 14,113,979 13,550,188 12,972,060
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(United States dollars in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
----------------- paid-in Retained comprehensive
Shares Amount capital earnings losses Total
---------- ------ ---------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance as of March 31,
1997................... 10,461,538 $105 $ 2,564 $23,523 $ 80 $26,272
Net income for the
year................... -- -- -- 20,594 -- 20,594
Issuance 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
Net income for the
year................... -- -- -- 2,837 -- 2,837
Issuance of shares on
exercise of stock
options................ 47,580 -- 586 -- -- 586
Foreign currency
translation............ -- -- -- -- (35) (35)
---------- ---- ------- ------- ----- -------
Balance as of March 31,
1999................... 13,509,118 135 34,620 46,954 (739) 80,970
Net income for the
year................... -- -- -- 9,647 -- 9,647
Issuance of shares on
exercise of stock
options and under
employee stock purchase
plan................... 177,187 2 589 -- -- 591
Foreign currency
translation............ -- -- -- -- (181) (181)
---------- ---- ------- ------- ----- -------
Balance as of March 31,
2000................... 13,686,305 $137 $35,209 $56,601 $(920) $91,027
========== ==== ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PEAK INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(United States dollars in thousands, except share data)
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income..................................... $ 9,647 $ 2,837 $ 20,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 4,736 3,988 5,012
Deferred income taxes........................ 251 789 444
Provision for slow moving inventory charged
to income................................... 7,263 962 64
Loss on disposal/write-off of property, plant
and equipment............................... 401 104 7
Gain on sale of short-term marketable
securities.................................. -- -- (345)
Allowance for doubtful accounts.............. 192 100 --
Asset impairment............................. -- 9,000 --
Changes in operating assets and liabilities
Accounts receivable.......................... (2,559) (875) (356)
Inventories.................................. 162 510 (5,952)
Other receivables, deposits and prepayments.. 381 280 (173)
Bills payable................................ -- -- (5,489)
Accounts payable--trade...................... 1,215 (1,229) 1,996
Accrued payroll and employee benefits........ 129 (12) 633
Special charge............................... (876) 876 --
Accrued other expenses....................... 524 (464) 589
Amounts due from/to related companies........ 279 3,010 (2,875)
Income taxes payable......................... 427 5 1,323
Long-term liability.......................... (647) 647 --
-------- -------- --------
Net cash provided by operating activities
.......................................... 21,525 20,528 15,472
-------- -------- --------
Investing activities:
Acquisition of property, plant and equipment... (14,942) (28,549) (15,244)
Proceeds on disposal of plant and equipment.... 96 -- --
Deposits for acquisition of property, plant and
equipment..................................... 834 (1,175) --
Redemption of certificate of deposits.......... -- 100 --
Proceeds from sale of short-term marketable
securities.................................... -- -- 1,415
-------- -------- --------
Net cash used in investing activities ..... (14,012) (29,624) (13,829)
-------- -------- --------
Financing activities:
Decrease in bank borrowings.................... -- (89) (15,592)
Proceeds from issue of common stock............ 591 586 31,500
-------- -------- --------
Net cash provided by financing activities
.......................................... 591 497 15,908
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 8,104 (8,599) 17,551
Cash and cash equivalents at beginning of year... 10,598 19,214 1,814
Effects of exchange rate changes on cash......... (35) (17) (151)
-------- -------- --------
Cash and cash equivalents at end of year......... $ 18,667 $ 10,598 $ 19,214
-------- -------- --------
Supplemental cash flow information:
Cash paid during the year for:
Interest..................................... $ 7 $ 7 $ 390
Income taxes................................. 292 544 58
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States dollars in thousands, except share data)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Peak International Limited (the "Company") was incorporated as an exempted
company with limited liability in Bermuda under the Companies Act 1981 of
Bermuda (as amended) on January 3, 1997.
Pursuant to a group restructuring in early 1997 (the "Restructuring"), the
interests in various companies in the packaging products business held by Mr.
T.L. Li, the shareholder of the Company, were restructured whereby the Company
became the holding company of these companies. The Restructuring has been
accounted for as a reorganization of entities under common control similar to
a pooling of interests. The financial statements present the results of the
Company and its subsidiaries as if the companies had been combined for all
periods presented.
In June 1997, the Company issued 3,000,000 shares of common stock in an
initial public offering and received net proceeds of approximately $31,500.
The subsidiaries of the Company are principally engaged in the manufacture
and sale of precision engineered packaging products, such as matrix trays,
shipping tubes, reels and carrier tape, 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 accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America and are presented in US dollars.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intra-group balances and transactions
have been eliminated on consolidation.
Cash equivalents
The Company considers all highly liquid debt instruments with a maturity of
ninety days or less at the time of acquisition to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method. Cost of finished goods includes costs of
direct materials, direct labor and an appropriate proportion of production
overheads. The production overheads are absorbed in finished goods based on
units of production. Provision for slow-moving inventory is made based on
management's analysis of inventory levels, material composition, expected
usage and future expected sales.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation and amortization is provided using the straight-
line method so as to allocate the cost of depreciable assets in use to
operations based upon the estimated useful lives.
F-7
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
The useful lives of property, plant and equipment adopted for depreciation
purposes are as follows:
<TABLE>
<CAPTION>
Category of assets Estimated useful lives
------------------ ----------------------
<S> <C>
Land use rights.............................. Over the unexpired lease term
Buildings.................................... Over the unexpired lease term
Plant, machinery, manufacturing equipment,
manufacturing leasehold improvements,
furniture and fixtures...................... 10 years
Molds, motor vehicles, office leasehold
improvements, furniture and fixtures........ 5 years
</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. No interest was capitalized in 2000 and 1999
and interest capitalized was $23 in 1998.
Valuation of long-lived assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined with reference to its open
market value based on appraisal by an independent firm of property valuers.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair market values are reduced for the costs to dispose.
As described in note 4, the Company recorded an impairment charge in the year
ended March 31, 1999.
Income taxes
Income taxes are provided based on an asset and liability approach for
financial accounting and reporting of income taxes. Deferred income tax
liabilities or assets are recorded to reflect the tax consequences in future
years of differences between the taxable basis of assets and liabilities and
the financial reporting amounts at each period end using rates currently in
effect. A valuation allowance is recognized for any portion of the deferred
tax asset for which realization is not likely.
Foreign currency translation
The Company uses the United States dollar as its reporting currency.
Monetary assets and liabilities denominated in currencies other than the
United States dollar are translated into the United States dollar at the rates
of exchange ruling at the balance sheet date. Transactions in currencies other
than the United States dollar during the year are converted into the United
States dollar at the rates of exchange ruling at the transaction dates.
Exchange differences are recognized in the statement of income.
On consolidation, balance sheets of subsidiaries denominated in currencies
other than the United States dollar are translated into the United States
dollar at the rates of exchange ruling at the balance sheet date. Statements
of income of subsidiaries denominated in currencies other than the United
States dollar are translated into the United States dollar at average exchange
rates. Exchange differences are reported as other comprehensive income.
F-8
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
The Company enters into foreign exchange contracts to reduce its exposure to
change in exchange rates. Material market value gains and losses are
recognized in the statement of income.
Recognition of revenue
Revenue arising from sale of goods is recognized at the time when the goods
are shipped and title to the goods passes to customers. The Company permits
the return of damaged or defective products and accounts for these returns as
deduction from sales.
Stock options
The Company continues to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for its stock
options. As a result, no compensation expense has been recognized as stock is
issued through non-compensatory plans. The Company has accounted for the stock
options using the intrinsic value method. Proforma disclosures of the effect
on net income and earnings per share as if the Company had accounted for its
employee stock options under the fair value method prescribed by SFAS No. 123,
"Accounting for Stock Based Compensation", are shown in note 15.
Earnings per share
Earnings per share is computed using the weighted average number of shares
outstanding during the year. For the years ended March 31, 2000, 1999 and
1998, diluted earnings per share is computed using a weighted average number
of shares outstanding of 14,113,979, 13,550,188 and 12,972,060, respectively,
which includes 523,507, 46,604 and 168,056 additional shares, respectively,
being the dilutive effect of stock options computed using the treasury stock
method.
Financial instruments
The carrying value of financial instruments, which consist of cash and cash
equivalents, accounts receivable, amounts due from related companies and
accounts payable, approximates to fair value due to the short-term nature of
these instruments.
Comprehensive income
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income, its components and accumulated
balance. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect reported amounts of certain assets, liabilities, revenues and
expenses as of and for the reporting periods. Actual results could differ from
those estimates. Differences from those estimates are reported in the period
they became known.
New accounting standards not yet adopted
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB No. 101), which provides guidance on the
F-9
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
recognition, presentation and disclosure of revenue in financial statements,
SAB No. 101 did not impact the Company's revenue recognition policies.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. As
amended by SFAS No. 137, SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designed as part of a hedge transaction and, if it is, the type of hedge
transaction. The Company has not yet determined the impact, if any, of the
adoption of SFAS No. 133 on its consolidated financial statements or business
practices.
In March 2000, FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"), FIN 44 is effective July 1, 2000 and provides
guidance on certain issues raised in applying APB Opinion No. 25. The Company
has not yet determined the impact, if any, of the adoption of FIN 44 on its
consolidated financial statements or business practices.
Reclassifications
Certain amounts in the prior period financial statements have been
reclassified to conform to the presentation adopted in the current year.
(3) INVENTORIES
The components of inventories, net of the related reductions to the lower of
cost or market, were as follows:
<TABLE>
<CAPTION>
March 31,
---------------
2000 1999
------- -------
<S> <C> <C>
Raw materials................................................ $12,064 $17,682
Finished products............................................ 6,980 8,787
------- -------
$19,044 $26,469
======= =======
</TABLE>
At March 31, 2000, management reviewed its estimate of the provision for
slow-moving inventory which, based on inventory levels, material composition
and expected usage at that date, resulted in a write-down of $7,286 as of
March 31, 2000.
F-10
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
(4) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Land use rights and buildings.......................... $ 4,956 $ 4,972
Factory under construction............................. 18,459 11,273
Plant, machinery, molds and equipment.................. 31,052 26,874
Leasehold improvements, furniture, fixtures and motor
vehicles.............................................. 20,034 18,257
-------- --------
74,501 61,376
Less: Accumulated depreciation and amortization........ (22,521) (19,034)
-------- --------
$ 51,980 $ 42,342
======== ========
</TABLE>
A subsidiary of the Company operating in Shenzhen in the PRC owns factory
buildings on certain state-owned land in the PRC and has been assigned the
land use rights for a period of 50 years.
During the year ended March 31, 1999, management undertook a review of its
production needs and determined that the additional facilities may not be
required for some time ahead depending on market conditions, and decided to
delay the completion of the plant construction. Management continues to review
its options with respect to this facility which include disposal of the
facility in its existing state, completion of the facility and its disposal,
or completion of the facility for its ultimate use in the Company's business.
Management has reviewed the asset for impairment and given the change in
circumstances concerning its possible future use, an independent appraisal of
the fair value of the asset was obtained and a provision for impairment of
$9,000 made in respect of the year ended March 31, 1999. At March 31, 2000,
management has determined that there was no further impairment.
(5) SPECIAL CHARGE
During the year ended March 31, 1999, the Company terminated the employment
of the President and Chief Executive Officer at a cost, including legal and
professional expenses, of $2,000. The amount payable, in accordance with
management's estimate as of the balance sheet date, within 12 months is
included in current liabilities, while any amount payable outside of the next
12 months is reported as a long-term liability. As described in note 11(c),
the remaining accrual was reversed during the year ended March 31, 2000.
(6) OTHER INCOME, NET
Other income consists of the following:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
2000 1999 1998
--------------------
<S> <C> <C> <C>
Proceeds on sale of short-term marketable
securities......................................... $ -- $ -- $ 1,415
Cost of marketable securities....................... -- -- (1,070)
----- ----- --------
Realized gain on marketable securities.............. -- -- 345
Rental income....................................... 76 -- --
Foreign currency exchange gain, net................. 197 812 581
----- ----- --------
$ 273 $ 812 $ 926
===== ===== ========
</TABLE>
F-11
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
(7) INTEREST INCOME
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Interest income from:
--third parties...................................... $ 541 $ 687 $ 901
--an affiliated party (note 12)...................... -- -- 6
------ ------ ------
$ 541 $ 687 $ 907
====== ====== ======
</TABLE>
(8) PROVISION FOR INCOME TAXES
Income is subject to taxation in the various countries in which the Company
and its subsidiaries operate. The components of income before income taxes are
as follows:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------
2000 1999 1998
------- ------ -------
<S> <C> <C> <C>
Hong Kong.......................................... $12,131 $3,789 $21,787
Other countries.................................... (1,514) 386 632
------- ------ -------
$10,617 $4,175 $22,419
======= ====== =======
The provision for income taxes consists of the following:
<CAPTION>
Year ended March 31,
------------------------
2000 1999 1998
------- ------ -------
<S> <C> <C> <C>
Current:
Hong Kong........................................ $ 679 $ 429 $ 1,299
United States.................................... -- (38) 52
Malaysia......................................... 26 1 (4)
Singapore........................................ 14 157 34
Deferred income tax:
Hong Kong
Current year................................... 262 823 450
Attributable to change in tax rate............. -- (27) --
Malaysia......................................... (7) 7 --
Singapore........................................ (4) (14) (6)
------- ------ -------
$ 970 $1,338 $ 1,825
======= ====== =======
</TABLE>
The components of the net deferred income tax liabilities as of March 31,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
March 31,
--------------
2000 1999
------ ------
<S> <C> <C>
Deferred income tax liabilities:
Depreciation............................................... $1,842 $1,691
Unutilized tax losses...................................... (419) --
Other temporary differences................................ (96) (84)
Valuation allowances....................................... 531 --
------ ------
$1,858 $1,607
====== ======
</TABLE>
F-12
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
The Company has placed a full valuation allowance against the deferred tax
assets regarding depreciation and unutilized tax losses of a subsidiary due to
the uncertainty surrounding the realizability of these benefits in future tax
returns.
The effective tax rate of the Company varies from the Hong Kong profits tax
rate for the following reasons:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Hong Kong profits tax rate......................... 16.0% 16.0% 16.5%
Hong Kong profits tax relief for the PRC
operations........................................ (8.0) (8.0) (8.3)
Taxation elsewhere................................. 0.5 1.1 0.4
Asset impairment................................... -- 21.8 --
Other items........................................ 0.6 1.1 (0.5)
------ ------ ------
9.1% 32.0% 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 the Company's manufacturing operations are
located in Shenzhen, PRC, and conducted pursuant to a processing agreement
entered into with a PRC company. Under profits apportionment, only 50% of the
profits of the Company is subject to Hong Kong profits tax. Such tax concession
is granted based on annual application by the Company and there can be no
assurance that the Hong Kong tax authority will continue to grant such tax
concession to the Company and other Hong Kong companies with manufacturing
operations in the PRC, or that the Company will not lose such concession in the
future as a result of changes in Hong Kong tax law or the interpretation of
such law.
As of March 31, 2000, the Company had, for US income tax return purpose,
available Federal net operating loss carryforward of $1,150, which expires on
March 31, 2019, and State net operating loss carryforward of $484, which
expires on March 31, 2004.
(9) CREDIT FACILITIES
At March 31, 1999, the Company had unsecured credit facilities available of
$14,678. No amount was outstanding at March 31, 2000 and 1999. Interest rates
in respect of credit facilities are generally based on the banks' prime lending
rates and the credit lines are normally subject to annual review.
(10) EMPLOYEE BENEFIT PLANS
The Company has established defined contribution benefit plans for its Hong
Kong employees. The assets of the plans are managed by independent trustees.
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 basic salary.
The employer's contributions are based on 5% of basic salary. The employees are
entitled to the entire Company's contributions and accrued interest thereon
after 10 years of complete service or at a reduced scale of 90% to 30%, after
completion of 9 to 3 years of service, respectively.
In addition, certain subsidiaries of the Company are required to contribute
amounts based on employees' salaries to the retirement schemes as stipulated by
relevant local authorities. The employees are entitled to the Company's
contributions subject to the regulations of the relevant local authorities.
Total expense related to the above plans was $176 in 2000, $184 in 1999 and
$199 in 1998.
F-13
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
(11) COMMITMENTS AND CONTINGENCIES
(a) Capital expenditure
As of March 31, 2000, the Company and its subsidiaries had contracted for
capital expenditure on property, plant and equipment of $ 6,952.
(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. Rental expense under operating
leases for the years ended March 31, 2000, 1999, 1998 amounted to $2,083,
$1,599 and $1,295, respectively.
The aggregate annual minimum operating lease commitments under all non-
cancelable leases as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
2001.................................................................. $1,466
2002.................................................................. 1,064
2003.................................................................. 963
2004.................................................................. 789
2005.................................................................. 196
Thereafter............................................................ 471
------
$4,949
======
</TABLE>
(c) Litigation
In June 1999, a complaint was filed in the United States District Court of
New York by certain holders of Trust Enhanced Dividend Securities (the
"TrENDS") against the Company, the Chairman and a director of the Company and
others. The complaint seeks compensatory damages and legal expenses, pursuant
to federal securities laws, based on alleged misrepresentations and omissions
in the documents which contains financial information of the Company and by
which TrENDS were offered to the public for initial purchase. While management
is unable to estimate the ultimate outcome of this litigation, it does not
believe that any adverse outcome would be material to its financial position or
liquidity but could possibly be material to earnings in the year of settlement.
On July 2, 1999, the Company received an amended and restated demand for
arbitration filed by the former chief executive officer, who claims either
payment of $32.4 per month or a lump sum payment of approximately $1,037,
subject to an appropriate present value discount, pursuant to his employment
contract after being terminated during the year and approximately $10,000 for
emotional distress and other torts. On August 4, 2000, a decision was rendered
in the arbitration and the claims of the former chief executive officer were
denied. Accordingly, effective March 31, 2000, the Company reversed the
remaining recorded accrual for settlement of this matter of $862.
(d) Foreign exchange contracts
As of March 31, 1999 the Company had entered into foreign exchange contracts
totaling approximately $8,000 primarily to purchase Hong Kong dollars and
Renminbi. As of March 31, 2000, there was no outstanding foreign exchange
contracts.
F-14
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
(12) RELATED AND AFFILIATED PARTY TRANSACTIONS
The Company had the following significant transactions with certain related
and affiliated parties:
<TABLE>
<CAPTION>
Year ended March 31,
---------------------
2000 1999 1998
------ ------ -------
<S> <C> <C> <C>
Sales to related companies
Certain subsidiaries of QPL International Holdings
Limited ("QPL").................................... $3,897 $2,781 $ 4,565
ASAT Limited ("ASAT")............................... 4,549 2,488 7,481
EEMS Italia S.P.A. ("EEMS")......................... 149 1,172 725
------ ------ -------
$8,595 $6,441 $12,771
====== ====== =======
Legal and professional fees to Jack Menache........... $ 24 $ -- $ --
Legal and professional fees to Richards Butler........ -- 241 81
Settlement of legal and professional fees on behalf of
Mr. T. L. Li who reimbursed the Company fully prior
to balance sheet date................................ -- 891 598
Management fee from EEMS, Inc......................... -- 20 147
Commission expense to EEMS............................ 33 61 100
Management fee from SemiCycle Foundation.............. -- -- 101
Purchases from SemiCycle Foundation................... -- -- 3,000
Rental income from SemiCycle Foundation............... -- -- 98
Interest income from SemiCycle Foundation............. -- -- 6
Purchase of interest bearing notes issued by Peregrine
Investments Holdings Limited which either matured or
were sold prior to balance sheet date................ -- -- 16,661
</TABLE>
The amounts due from/to related companies as of March 31, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Amounts due from:
Certain subsidiaries of QPL..................................... $116 $411
ASAT............................................................ 517 302
EEMS............................................................ -- 199
---- ----
$633 $912
==== ====
</TABLE>
The amounts are unsecured, interest free and are repayable on demand.
Mr. T.L. Li, who is a director and shareholder and controls the majority of
the voting rights of the Company, is a director of and has substantial equity
interests in QPL, ASAT and EEMS. During the year ended March 31, 2000, ASAT, a
former wholly owned subsidiary of QPL, became an affiliate of QPL and EEMS
ceased to be a related company.
Mr. Jack Menache was a director and currently is an officer of the Company.
Messrs. Steve Deszo, a former corporate officer of a subsidiary of the
Company, and Richard M. Brook were until October 27, 1997 corporate officers of
EEMS, Inc. Mr. Steve Deszo was a director of SemiCycle
F-15
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
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 are no longer regarded as related and
affiliated party transactions.
Mr. Robin Nicholson, a former director of the Company, is a partner of
Richards Butler. Mr. Francis Leung, a former director of the Company, had an
indirect equity interest in Peregrine Investments Holdings Limited (in
liquidation).
(13) 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
Hong Southeast
Kong & United Asian Elimin-
PRC States countries ations Consolidated
------- ------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 2000
Net sales to third parties.. $43,261 $13,378 $18,295 $ -- $ 74,934
Net sales to related
companies.................. 8,595 -- -- -- 8,595
Transfer between geographic
areas...................... 27,388 -- 1,586 (28,974) --
------- ------- ------- -------- --------
Total net sales........... $79,244 $13,378 $19,881 $(28,974) $ 83,529
------- ------- ------- -------- --------
Depreciation and
amortization............... $ 4,474 $ 126 $ 136 $ -- $ 4,736
------- ------- ------- -------- --------
Operating profit (loss)..... $11,333 $(1,423) $ 33 $ (133) $ 9,810
------- ------- ------- -------- --------
Interest income............. $ 421 $ 5 $ 115 $ -- $ 541
------- ------- ------- -------- --------
Interest expense............ $ 7 $ -- $ -- $ -- $ 7
------- ------- ------- -------- --------
Income (loss) before tax.... $12,026 $(1,342) $ 66 $ (133) $ 10,617
------- ------- ------- -------- --------
Income tax.................. $ 941 $ -- $ 29 $ -- $ 970
------- ------- ------- -------- --------
Inventory reserve........... $ 8,228 $ -- $ 190 $ -- $ 8,418
------- ------- ------- -------- --------
Capital expenditure......... $14,322 $ 616 $ 79 $ -- $ 15,017
------- ------- ------- -------- --------
Property, plant and
equipment.................. $51,460 $ 699 $ 162 $ -- $ 52,321
Other identifiable assets... 27,430 2,738 4,697 (1,045) 33,820
Corporate assets............ 18,667
--------
Total assets.............. $104,808
========
</TABLE>
F-16
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
<TABLE>
<CAPTION>
Other
Hong Southeast
Kong & United Asian Elimin-
PRC States countries ations Consolidated
------- ------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1999
Net sales to third parties.. $32,395 $10,755 $16,644 $ -- $59,794
Net sales to related
companies.................. 6,441 -- -- -- 6,441
Transfer between geographic
areas...................... 23,067 -- 2,073 (25,140) --
------- ------- ------- -------- -------
Total net sales........... $61,903 $10,755 $18,717 $(25,140) $66,235
------- ------- ------- -------- -------
Depreciation and
amortization............... $ 3,761 $ 88 $ 139 $ -- $ 3,988
------- ------- ------- -------- -------
Operating profit (loss)..... $ 2,193 $ (146) $ 654 $ (18) $ 2,683
------- ------- ------- -------- -------
Interest income............. $ 643 $ 39 $ 5 $ -- $ 687
------- ------- ------- -------- -------
Interest expense............ $ 7 $ -- $ -- $ -- $ 7
------- ------- ------- -------- -------
Income (loss) before tax.... $ 3,844 $ (225) $ 574 $ (18) $ 4,175
------- ------- ------- -------- -------
Income tax.................. $ 1,225 $ (38) $ 151 $ -- $ 1,338
------- ------- ------- -------- -------
Inventory reserve........... $ 1,132 $ -- $ 23 $ -- $ 1,155
------- ------- ------- -------- -------
Capital expenditure ........ $28,834 $ 134 $ 136 $ -- $29,104
------- ------- ------- -------- -------
Property, plant and
equipment.................. $42,884 $ 372 $ 261 $ -- $43,517
Other identifiable assets... 34,311 1,539 4,600 (912) 39,538
Corporate assets............ 10,598
-------
Total assets ............. $93,653
-------
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............ $20,344 $ 271 $ 457 $ (96) $20,976
------- ------- ------- -------- -------
Interest income............. $ 852 $ 48 $ 7 $ -- $ 907
------- ------- ------- -------- -------
Interest expense............ $ 390 $ -- $ -- $ -- $ 390
------- ------- ------- -------- -------
Income before tax........... $21,213 $ 667 $ 635 $ (96) $22,419
------- ------- ------- -------- -------
Income tax.................. $ 1,749 $ 52 $ 24 $ -- $ 1,825
------- ------- ------- -------- -------
Inventory reserve........... $ 168 $ -- $ 25 $ -- $ 193
------- ------- ------- -------- -------
Capital expenditure......... $15,582 $ 83 $ 66 $ -- $15,731
------- ------- ------- -------- -------
Property, plant and
equipment.................. $25,753 $ 294 $ 301 $ -- $26,348
Other identifiable assets... 38,165 1,985 4,622 (894) 43,878
Corporate assets............ 19,314
-------
Total assets.............. $89,540
=======
</TABLE>
Intercompany sales between geographic areas are recorded at cost plus a mark-
up. Such transfers are eliminated on consolidation.
F-17
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
Property, plant and equipment and other identifiable assets are those assets
used in the Company's operations in each geographic area. Corporate assets
represent cash and cash equivalents and investment in certificate of deposit.
An analysis of sales by geographic destinations for the relevant years is as
follows:
<TABLE>
<CAPTION>
Year ended March
31,
-------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
North Asia.............................................. 53.5% 54.9% 53.8%
North America........................................... 19.0 17.0 22.1
South Asia.............................................. 21.2 24.3 21.3
Europe.................................................. 6.3 3.8 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.
(14) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
accounts receivable.
The Company places its temporary cash investments with various financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. The Company believes that no significant credit risk
exists as these investments are made with high-credit, quality financial
institutions.
The Company's business activities and accounts receivable are with customers
in the semiconductor industries, the majority of which are located throughout
Asia and the United States of America. The Company performs ongoing credit
evaluation of its customers. The Company believes that no significant credit
risk exists as credit losses, when realized, have been within the range of
management's expectation. The Company has not experienced any significant bad
debts. Bad debt expense was $192 in 2000, $100 in 1999 and nil in 1998.
One customer, representing QPL International Holdings Limited group of
companies, accounted for 8.2%, 8.0% and 16.3% of the Company's net sales during
the years ended March 31, 2000, 1999 and 1998, respectively. Another customer
accounted for 10.9% and 12.5% of the Company's net sales during the years ended
March 31, 1999 and 1998, respectively.
(15) STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
An executive share option plan was adopted by the Board of Directors and
approved by the sole shareholder on March 18, 1997. Another share option plan
was approved by the Board of Directors and shareholders in the annual general
meeting on July 27, 1998. With additional shares approved by shareholders in
the annual general meeting on November 3, 1999, an aggregate of 2,200,000
shares has been reserved for issuance under the plans. Under the plans,
directors, officers, employees of, and advisors and consultants to the Company
or its affiliates may, at the discretion of a committee of the Board of
Directors administering the plan, be granted the general options to purchase
shares at an exercise price per share of no less than the par value of a share.
Options granted on various dates have different vesting schedules depending on
the conditions of the grant.
F-18
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
Option activity for the plans is summarized as follows:
<TABLE>
<CAPTION>
Outstanding
Options
-------------------
Weighted
average
exercise
price
Number of per
shares share
--------- --------
<S> <C> <C>
Outstanding at April 1, 1997............................. 545,817 $ 12.00
Granted (fair value of $8.94)............................ 67,560 19.375
Forfeited................................................ (8,442) 12.00
---------
Outstanding at March 31, 1998............................ 604,935 12.82
Granted (fair value of $6.91)............................ 272,016 12.25
Exercised................................................ (47,580) 12.33
Forfeited................................................ (31,169) 12.27
---------
Outstanding at March 31, 1999............................ 798,202 12.68
Granted (fair value of $4.08)............................ 1,621,860 6.85
Exercised................................................ (97,714) 4.42
Forfeited................................................ (529,752) 12.57
---------
Outstanding at March 31, 2000............................ 1,792,596 7.89
=========
</TABLE>
The following is additional information relating to options outstanding as of
March 31, 2000:
<TABLE>
<CAPTION>
Number of shares
under options Remaining
----------------------- contractual
Exercise price per share Outstanding Exercisable life (years)
------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
$12.00................................ 164,533 98,587 7
19.375............................... 26,794 26,794 8
12.25................................ 72,331 72,131 8 1/3
3.65625............................. 441,883 329,377 9 1/12
7.00................................ 150,000 37,500 9 1/12
10.00................................ 100,000 25,000 9 1/12
3.875............................... 20,000 20,000 9 1/6
5.875............................... 110,000 26,666 9 1/3
7.28125............................. 100,000 0 9 7/12
10.625............................... 24,000 24,000 9 2/3
8.9375.............................. 454,655 37,435 3 3/4
10.3125.............................. 128,400 0 4 1/12
--------- -------
1,792,596 697,490 7.19
========= =======
</TABLE>
F-19
<PAGE>
PEAK INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(United States dollars in thousands, except share data)
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of SFAS No. 123. The
weighted average fair values of stock options at date of grant of $4.08, $6.91
and $8.94 per option for the years ended March 31, 2000, 1999 and 1998,
respectively, were estimated using the Black-Scholes option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Expected life of options.......................... 3 years 3 years 3 years
Risk-free interest rate........................... 6.25% 5.49% 5.55%
Expected volatility of underlying stock........... 107% 90% 45%
Dividends......................................... -- -- --
</TABLE>
The Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the expected volatility of stock price.
Because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of the stock
options.
An employee stock purchase plan (the "Plan") was adopted by the Board of
Directors and approved by shareholders in July 1998. An aggregate of 160,000
shares has been reserved for issuance under the Plan. Under the Plan, employees
of the Company, participating in the Plan, may purchase shares at a price equal
to 85% of the lower of the fair market value of the shares on the last trading
day in an accumulation period or the last trading day before the commencement
of the applicable offering period, but no less than the par value, of a share
of the Company in any accumulation period. Accumulation periods under the Plan
are for a period of 6 months and commence on April 1 and October 1 each year.
Employees may elect for a minimum of 1% and a maximum of 20% of eligible salary
to be withheld for investment in this Plan. On the last day of each
accumulation period each employee shall be deemed to have elected to purchase
the number of shares at a price determined above. Employees may withdraw from
the Plan at any time and receive a refund of all contributions, without
interest, made in the accumulated period. Employees' contributions to the Plan
were $300 and $25 for year ended March 31, 2000 and 1999 respectively. Pursuant
to the Plan, 69,187 and 10,286 shares of common stock were issued to employees
during the year ended March 31, 2000 at a subscription price of $1.97 and
$2.26, respectively, and no shares were issued during the year ended March 31,
1999.
If the Company had accounted for its stock option plans and the Stock
Purchase Plan by recording compensation expense based on the fair value at
grant date for such awards consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------
2000 1999 1998
------ ------- -------
<S> <C> <C> <C>
Pro forma net income (loss)......................... $6,967 $(1,278) $19,346
Pro forma earnings (loss) per share
--Basic........................................... $ 0.51 $ (0.09) $ 1.51
--Diluted......................................... $ 0.49 (0.09) 1.49
</TABLE>
F-20
