<PAGE>
Filed pursuant to Rule 424(b)(3) and Rule 424 (c)
Registration No. 333-33208
PROSPECTUS SUPPLEMENT NO. 2
4,375,000 Shares
SMTC CORPORATION
Common Stock
This prospectus supplement amends the prospectus dated July 28, 2000
related to common stock that may be issued in exchange for exchangeable shares
of SMTC Manufacturing Corporation of Canada to include information related to
the financial condition and the results of operations for SMTC Corporation as of
and for the quarter ended October 1, 2000.
This prospectus supplement should be read in conjunction with the
prospectus dated July 28, 2000 and Prospectus Supplement No. 1 dated September
5, 2000 which are to be delivered with this prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 15, 2000
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO_________
COMMISSION FILE NUMBER 333-33208
SMTC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 98-0197680
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
635 HOOD ROAD
MARKHAM, ONTARIO, CANADA L3R 4N6
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(905) 479-1810
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether SMTC Corporation: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
As of October 1, 2000, SMTC Corporation had 20,169,234 shares of common stock,
par value $0.01 per share, and one share of special voting stock, par value
$0.01 per share, outstanding. As of October 1, 2000, SMTC Corporation's
subsidiary, SMTC Manufacturing Corporation of Canada, had 5,844,445 exchangeable
shares outstanding, each of which is exchangeable into one share of common stock
of SMTC Corporation.
1
<PAGE>
SMTC CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets as of October 1, 2000
and December 31, 1999 3
Consolidated Statements of Earnings (Loss) for the three months ended
and the nine months ended October 1, 2000 and September 30, 1999 4
Consolidated Statements of Changes in Stockholders' Equity for the
nine months ended October 1, 2000 5
Consolidated Statements of Cash Flows for the three months ended and
the nine months ended October 1, 2000 and September 30, 1999 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 41
PART II Other Information 42
Item 1. Legal Proceedings 42
Item 2. Changes in Securities and Use of Proceeds 42
Item 3. Defaults upon Senior Securities 42
Item 4. Submission of Matters to a Vote of Security Holders 42
Item 5. Other Information 42
Item 6. Exhibits and Reports on Form 8-K 43
Signatures 44
</TABLE>
2
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)
(Unaudited)
===============================================================================
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
October 1, December 31,
2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 1,353 $ 2,083
Accounts receivable 220,031 71,597
Inventories 214,213 61,680
Prepaid expenses 6,260 3,647
Deferred income taxes 1,047 1,527
-------------------------------------------------------------------------------
442,904 140,534
Capital assets 45,708 35,003
Goodwill 63,895 40,800
Other assets 10,542 11,145
Deferred income taxes 3,151 623
-------------------------------------------------------------------------------
$566,200 $228,105
===============================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $126,219 $ 53,119
Accrued liabilities 119,557 29,307
Income taxes payable - 1,127
Current portion of long-term debt 6,250 2,000
Current portion of capital lease obligations 1,012 1,541
-------------------------------------------------------------------------------
253,038 87,094
Capital lease obligations 1,459 1,537
Long-term debt 96,227 128,942
Deferred income taxes 3,119 2,733
Stockholders' equity:
Capital stock 277 3
Warrants 367 367
Loans receivable (45) (60)
Additional paid-in-capital 216,770 11,804
Deficit (5,012) (4,315)
-------------------------------------------------------------------------------
212,357 7,799
-------------------------------------------------------------------------------
$566,200 $228,105
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Statements of Earnings (Loss)
(Expressed in thousands of U.S. dollars, except share quantities and per
share amounts)
(Unaudited)
<TABLE>
<CAPTION>
=============================================================================================
Three months ended Nine months ended
------------------------ -----------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $231,492 $88,018 $522,961 $134,579
Cost of sales 211,957 81,357 478,475 124,764
---------------------------------------------------------------------------------------------
Gross profit 19,535 6,661 44,486 9,815
Selling, general and
administrative expenses 9,335 4,207 24,279 5,779
Amortization 1,663 769 4,165 899
---------------------------------------------------------------------------------------------
Operating income 8,537 1,685 16,042 3,137
Interest 2,665 2,265 10,569 3,794
---------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 5,872 (580) 5,473 (657)
Income tax expense 2,567 161 3,492 133
---------------------------------------------------------------------------------------------
Earnings (loss) before
extraordinary loss 3,305 (741) 1,981 (790)
Extraordinary loss, net of tax recovery
of $1,640 (1999 - $811) 2,678 1,279 2,678 1,279
---------------------------------------------------------------------------------------------
Net earnings (loss) $ 627 $(2,020) $ (697) $ (2,069)
=============================================================================================
Earnings (loss) per share:
Basic earnings (loss) per share
before extraordinary item $0.14 $(0.73) $(0.14) $(0.97)
Extraordinary loss per share (0.13) (0.61) (0.32) (0.78)
-------------------------------------------------------------------------------------------
Basic net earnings (loss) per share $0.01 $(1.34) $(0.46) $(1.75)
===========================================================================================
Diluted earnings (loss) per share $0.01 $(1.34) $(0.46) $(1.75)
---------------------------------------------------------------------------------------------
Weighted average number of common
shares used in the calculations earnings
(loss) per share:
Basic 20,334,099 2,089,373 8,349,896 1,626,624
Diluted 21,098,232 2,089,373 8,349,896 1,626,624
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Statements of Changes in Stockholders' Equity
(Expressed in thousands of U.S. dollars)
Nine months ended October 1, 2000
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
Additional
Capital paid-in Loans Stockholders'
stock Warrants capital receivable Deficit equity
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 3 $ 367 $ 11,804 $(60) $ (4,315) $ 7,799
Warrants issued - 3,598 - - - 3,598
Warrants exercised 4 (3,598) 3,594 - - -
Impact of share conversion 131 - (131) - - -
Shares issued on completion of
initial public offering, net of
costs of $19,937 127 - 182,336 - - 182,463
Shares issued on acquisition
of Pensar Corporation 12 - 19,007 - - 19,019
Options exercised - - 160 - - 160
Repayment of loans receivable - - - 15 - 15
Loss for the nine months - - - - (697) (697)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, October 1, 2000 $ 277 $ 367 $216,770 $(45) $ (5,012) $212,357
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
Three months ended Nine months ended
----------------------------- --------------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Net earnings (loss) $ 627 $ (2,020) $ (697) $ (2,069)
Items not involving cash:
Amortization 1,663 769 4,165 899
Depreciation 2,819 2,080 7,659 3,873
Deferred income taxes (2,140) 305 (1,662) 277
Loss on disposition of capital assets - - (44) -
Write-off of deferred financing costs 2,461 1,279 2,461 1,279
Change in non-cash operating working
capital:
Accounts receivable (90,498) (4,687) (139,441) 1,537
Inventories (83,713) (12,366) (145,100) (10,999)
Prepaid expenses (960) (2,085) (2,430) (2,442)
Accounts payable, accrued liabilities and
income taxes payable 81,682 (6,575) 156,277 (9,256)
-----------------------------------------------------------------------------------------------------------------
(88,059) (23,300) (118,812) (16,901)
Financing:
Repayment of bank indebtedness - (1,540) - (6,559)
Increase in long-term debt - 76,519 - 76,357
Decrease in long-term debt (63,599) - (33,045) -
Principal payments on capital leases (427) (1,806) (1,148) (2,653)
Proceeds from warrants - - 2,500 -
Issuance of demand notes 9,925 - 9,925 -
Repayment of demand notes (9,925) - (9,925) -
Stockholders' loans payable (5,200) - - -
Proceeds from issue of capital stock 182,623 - 182,623 -
Repayment of loans receivable 15 - 15 -
Debt issuance costs (1,450) (3,975) (1,450) (3,975)
-----------------------------------------------------------------------------------------------------------------
111,962 69,198 149,495 63,170
Investments:
Purchase of capital assets (5,370) (2,494) (12,524) (2,625)
Purchase of other assets, net (933) (1,778) (933) (1,778)
Proceeds from sale of capital assets - - 44 -
Acquisition of Pensar Corporation (18,000) - (18,000) -
Acquisition of SMTC Corporation, net of $698
cash acquired - (3,595) - (3,595)
Acquisition of W.F. Wood and Chihuahua,
Mexico facility - (28,024) - (28,024)
Cash in escrow - (5,735) - (5,735)
-------------------------------------------------------------------------------------------------------------------
(24,303) (41,626) (31,413) (41,757)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (400) 4,272 (730) 4,512
Cash and cash equivalents, beginning period 1,753 726 2,083 486
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,353 $ 4,998 $ 1,353 $ 4,998
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Statements of Cash Flows (continued)
(Expressed in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================
Three months ended Nine months ended
------------------ -----------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Supplemental disclosures:
Cash paid during the period:
Income taxes $ 1,440 $ 1,460 $ 3,042 $ 1,460
Interest 2,272 4,027 10,167 5,155
Non-cash investing and financing activities:
Shares issued on acquisition of
Pensar Corporation 19,019 - 19,019 -
Shares issued on acquisition of
SMTC Corporation - 20,410 - 20,410
Acquisition of equipment under
capital lease - - 541 -
Value of warrants issued in excess of
proceeds received - - 1,098 -
====================================================================================================
</TABLE>
Cash and cash equivalents is defined as cash and short-term investments.
See accompanying notes to consolidated financial statements.
7
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
1. BASIS OF PRESENTATION:
The Company's accounting principles are in accordance with accounting
principles generally accepted in the United States.
The accompanying unaudited consolidated balance sheets as at October 1, 2000
and December 31, 1999; the related unaudited consolidated statements of
earnings (loss) for the three and nine month periods ended October 1, 2000
and September 30, 1999; the unaudited consolidated statement of changes in
stockholders' equity for the nine month period ended October 1, 2000; and the
unaudited consolidated statements of cash flows for the three and nine month
periods ended October 1, 2000 and September 30, 1999 have been prepared on
substantially the same basis as the annual consolidated financial statements.
Management believes the financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position, operating results and cash flows for the periods presented. The
results of operations for the three and nine month periods ended October 1,
2000 are not necessarily indicative of results to be expected for the entire
year. These unaudited interim consolidated financial statements should be
read in conjunction with the annual consolidated financial statements and
notes thereto for the year ended December 31, 1999.
2. INITIAL PUBLIC OFFERING:
On July 27, 2000, the Company completed an initial public offering of its
common stock in the United States and exchangeable shares of its subsidiary,
SMTC Manufacturing Corporation of Canada, in Canada. The offering consisted
of 6,625,000 shares of common stock at a price of U.S. $16.00 per share and
4,375,000 exchangeable shares at a price of Canadian $23.60 per share. The
total net proceeds to the Company from the offering of approximately U.S.
$157,900 were used to reduce its indebtedness under the senior credit
facility, repay the subordinated stockholders' notes issued in May 2000,
repay the demand notes issued in July 2000 and finance the cash portion of
the purchase price of the Pensar Corporation acquisition which closed
simultaneously with the initial public offering. The Company has recorded an
after-tax charge on early repayment of the indebtedness and subordinated
notes amounting to $2,678. The charge was recorded as an extraordinary
loss.
8
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
2. INITIAL PUBLIC OFFERING (CONTINUED):
On August 18, 2000, the underwriters exercised their over-allotment option
with respect to 1,650,000 shares of common stock at a price of U.S. $16.00
per share. The net proceeds to the Company from the sale of those shares of
$24,600 were used to reduce indebtedness under the senior credit facility.
3. ACQUISITION OF PENSAR CORPORATION:
On July 27, 2000, simultaneously with the closing of the initial public
offering, the Company acquired Pensar Corporation, an electronics
manufacturing services company specializing in design services and located in
Appleton, Wisconsin. The total purchase price including transaction costs
was $37,019 resulting in a premium over tangible net book value of
approximately $26,563. The purchase consideration consisted of $18,000 cash
and the balance in shares of common stock of the Company. The cash portion
of the acquisition was financed with a portion of the proceeds from the
initial public offering.
Details of the net assets acquired in this acquisition, at fair value, are as
follows:
Current assets $ 16,609
Capital assets 5,299
Other long-term assets 581
Goodwill 26,563
Liabilities assumed (12,033)
----------------------------------------
Net assets acquired $ 37,019
========================================
9
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
3. ACQUISITION OF PENSAR CORPORATION (CONTINUED):
The following unaudited pro forma consolidated financial information reflects
the impact of the Pensar acquisition assuming the acquisition had occurred at
the beginning of the periods presented. This unaudited pro forma consolidated
financial information has been provided for information purposes only and is
not necessarily indicative of the results of operations or financial
condition that actually would have been achieved if the acquisitions had been
on the date indicated, or that may be reported in the future:
<TABLE>
<CAPTION>
==============================================================================================================
Three months ended Nine months ended
------------------- ------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $236,291 $102,711 $561,316 $170,531
Earnings (loss) before extraordinary loss 3,269 (618) 1,835 (1,504)
Net earnings (loss) 591 (1,897) (843) (2,782)
Basic earnings (loss) per share $ 0.02 $ (1.11) $ (0.74) $ (1.83)
Diluted earnings (loss) per share $ 0.00 $ (1.11) $ (0.74) $ (1.83)
==============================================================================================================
</TABLE>
4. INVENTORIES:
==================================================
October 1, December 31,
2000 1999
--------------------------------------------------
Raw materials $135,580 $35,371
Work in process 61,010 17,124
Finished goods 16,201 8,578
Other 1,422 607
--------------------------------------------------
$214,213 $61,680
==================================================
5. DEMAND NOTES:
On July 3, 2000, the Company issued demand notes in the aggregate principal
amount of $9,925. Of these demand notes, $5,925 in aggregate principal
amount were secured by a portion of the Company's capital assets. The demand
notes bore interest of 3% of the principal amount accruing on the date of
issuance and 13.75% per year thereafter and were repaid with the proceeds of
the offering.
10
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
6. CREDIT FACILITY:
In connection with the initial public offering, the Company entered into an
amended and restated credit agreement with its lenders which provides for an
initial term loan of $50,000 (October 1, 2000 -- $48,750) and revolving
credit loans, swing line loans and letters of credit up to $100,000.
7. SHARE RECLASSIFICATION:
Concurrent with the effectiveness of the initial public offering, SMTC
Corporation completed a share capital reorganization effected as follows:
. each outstanding Class Y share of the Company's subsidiary, SMTC
Manufacturing Corporation of Canada, was purchased in exchange for
shares of Class L common stock;
. each outstanding share of Class L common stock was converted into one
share of Class A common stock plus an additional number of shares of
Class A common stock determined by dividing the preference amount by
the value of a share of Class A common stock based on the initial
public offering price;
. each outstanding share of Class A common stock was converted into
approximately 3.67 shares of common stock;
. all outstanding Class N common stock were redeemed and one share of
special voting stock was issued, which is held by a trustee for the
benefit of the holders of the exchangeable shares; and
. each Class L exchangeable share was converted into exchangeable shares
of the same class as those offered in the offering at the same ratio
that the shares of Class L common stock were converted to shares of
common stock.
11
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
8. EARNINGS (LOSS) PER SHARE:
The following table sets forth the calculation of basic and diluted loss per
common share:
<TABLE>
<CAPTION>
===================================================================================================================
Three months ended Nine months ended
------------------- ------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Earnings (loss) before
extraordinary loss $ 3,305 $ (741) $ 1,981 $ (790)
Less Class L preferred
entitlement (390) (790) (3,164) (790)
-------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item
available to common shareholders $ 2,915 $ (1,531) $ (1,183) $ (1,580)
===================================================================================================================
Denominator:
Weighted-average shares -
basic 20,334,099 2,089,373 8,349,896 1,626,624
Effect of dilutive securities:
Employee stock options 332,125 - - -
Warrants 432,008 - - -
-------------------------------------------------------------------------------------------------------------------
Weighted-average shares -
diluted 21,098,232 2,089,373 8,349,896 1,626,624
===================================================================================================================
Earnings (loss) per share before
extraordinary item:
Basic $ 0.14 $ (0.73) $ (0.14) $ (0.97)
Diluted $ 0.14 $ (0.73) $ (0.14) $ (0.97)
===================================================================================================================
</TABLE>
For the nine month period ended October 1, 2000 and the three and nine month
periods ended September 30, 1999, options and warrants to purchase common
stock were outstanding during those periods but were not included in the
computation of diluted loss per share because their effect would be anti-
dilutive on the loss per share for the period.
12
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
9. INCOME TAXES:
The Company's effective tax rate exceeds the statutory rate primarily due to
non-deductible goodwill amortization and operating losses in certain
jurisdictions.
10. SEGMENTED INFORMATION:
The Company derives its revenue from one dominant industry segment, the
electronics manufacturing services industry. The Company is operated and
managed geographically and has nine facilities in the United States, Canada,
Europe and Mexico. The Company monitors the performance of its geographic
operating segments based on EBITA (earnings before interest, taxes and
amortization). Intersegment adjustments reflect intersegment sales that are
generally recorded at prices that approximate arm's-length transactions.
Information about the operating segments is as follows:
<TABLE>
<CAPTION>
==================================================================================================================================
Three months ended October 1, 2000 Nine months ended October 1, 2000
------------------------------------------------------ ----------------------------------
Net Net
Total Intersegment external Total Intersegment external
revenue revenue revenue revenue revenue revenue
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $188,680 $(2,103) $186,577 $428,700 $ (5,672) $423,028
Canada 18,998 (1,541) 17,457 49,003 (3,963) 45,040
Europe 5,530 (449) 5,081 14,895 (2,610) 12,285
Mexico 27,144 (4,767) 22,377 48,614 (6,006) 42,608
----------------------------------------------------------------------------------------------------------------------------------
$240,352 $(8,860) $231,492 $541,212 $(18,251) $522,961
==================================================================================================================================
EBITA:
United States $ 7,104 $ 16,181
Canada 2,802 5,030
Europe (246) (1,468)
Mexico 540 464
---------------------------------------------------------------------------------------------------------------------------------
10,200 20,207
Interest 2,665 10,569
Amortization 1,663 4,165
----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 5,872 $ 5,473
==================================================================================================================================
Capital expenditures
United States $ 2,474 $ 6,439
Canada 964 1,821
Europe 513 732
Mexico 1,419 4,073
----------------------------------------------------------------------------------------------------------------------------------
$5,370 $ 13,065
==================================================================================================================================
</TABLE>
13
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
10. SEGMENTED INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
================================================================================================================
Three months ended September 30, 1999 Nine months ended September 30, 1999
--------------------------------------- ---------------------------------------
Net Net
Total Intersegment external Total Intersegment external
revenue revenue revenue revenue revenue revenue
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $71,779 $(190) $71,589 $118,340 $ (190) $118,150
Canada 8,065 8,065 8,065 8,065
Europe 3,008 (455) 2,553 3,008 (455) 2,553
Mexico 5,811 5,811 5,811 5,811
---------------------------------------------------------------------------------------------------------------
$88,663 $(645) $88,018 $135,224 $ (645) $134,579
===============================================================================================================
EBITA:
United States $ 2,357 $ 3,939
Canada 873 873
Europe (494) (494)
Mexico (282) (282)
---------------------------------------------------------------------------------------------------------------
2,454 4,036
Interest 2,265 3,794
Amortization 769 899
---------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ (580) $ (657)
===============================================================================================================
Capital expenditures:
United States $ 1,526 $ 1,657
Canada 442 442
Europe 23 23
Mexico 503 503
---------------------------------------------------------------------------------------------------------------
$2,494 $ 2,625
===============================================================================================================
</TABLE>
14
<PAGE>
SMTC CORPORATION
(FORMERLY HTM HOLDINGS, INC.)
Consolidated Notes to Financial Statements (continued)
(Expressed in thousands of U.S. dollars, except share quantities and per share
amounts)
Three and nine months ended October 1, 2000 and September 30, 1999
(Unaudited)
===============================================================================
10. SEGMENTED INFORMATION (CONTINUED):
The following enterprise-wide information is provided. Geographic revenue
information reflects the destination of the product shipped. Long-lived
assets information is based on the principal location of the asset.
<TABLE>
<CAPTION>
===============================================================================
Three months ended Nine months ended
--------------------------- -------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Geographic revenue:
United States $206,869 $ 78,665 $465,453 $123,209
Canada 4,725 3,939 13,219 3,939
Europe 14,635 4,814 33,085 6,460
Asia 5,206 600 11,147 971
Mexico 57 - 57 -
-------------------------------------------------------------------------------
$231,492 $ 88,018 $522,961 $134,579
===============================================================================
===============================================================================
October 1, December 31,
2000 1999
-------------------------------------------------------------------------------
Long-lived assets:
United States $ 75,579 $ 40,304
Canada 24,647 25,585
Europe 1,216 735
Mexico 18,703 9,179
-------------------------------------------------------------------------------
$120,145 $ 75,803
===============================================================================
</TABLE>
11. PENDING ACQUISITION OF QUALTRON TEORANTA:
On September 29, 2000, the Company announced that it had signed a letter of
intent to acquire privately held Qualtron Teoranta, a leading provider of
specialized custom made cable harnesses and fiber optic assemblies.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SELECTED CONSOLIDATED FINANCIAL DATA
The pro forma results of operations included in this report for the quarter
ended October 1, 2000 and September 30, 1999 and the nine month period ended
October 1, 2000 and September 30, 1999 contain the results of Surface Mount, HTM
Holdings, W.F. Wood, and Pensar as if the combination of Surface Mount and HTM
Holdings and the acquisitions of W.F. Wood and Pensar had occurred on January 1,
1999. As such, the pro forma results have been adjusted to reflect additional
goodwill amortization related to the combination of Surface Mount and HTM
Holdings, additional goodwill amortization related to the acquisition of W.F.
Wood, additional goodwill amortization related to the acquisition of Pensar,
additional interest expense and income tax effects related to the borrowings
required to complete the Pensar acquisition, and the effect of the initial
public offering including the exercise of the underwriters' over-allotment
option.
The consolidated financial statements of SMTC, including the consolidated
financial statements of HTM Holdings for periods prior to the combination, are
prepared in accordance with United States GAAP, which conforms in all material
respects to Canadian GAAP, except under United States GAAP the charges
incurred as a result of the early payment of the senior notes payable and
subordinated notes are recorded as an extraordinary loss. Under Canadian GAAP,
the charges would have been included in earnings (loss) before income taxes and
the related tax benefit recorded as an income tax expense.
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA:
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $236.3 $135.2 $561.3 $362.2
Cost of sales 216.0 122.4 511.0 327.9
-------------------------------------------------------------------
Gross profit 20.3 12.8 50.3 34.3
Selling, general and administrative expenses 9.8 10.1 27.7 23.6
Amortization of intangible assets 1.9 1.7 5.4 5.2
-------------------------------------------------------------------
Operating income 8.6 1.0 17.2 5.5
Interest 1.5 - 3.4 -
-------------------------------------------------------------------
Earnings before income taxes 7.1 1.0 13.8 5.5
Income taxes 3.0 1.1 6.8 3.6
-------------------------------------------------------------------
Earnings (loss) before extraordinary item 4.1 (0.1) 7.0 1.9
Extraordinary item 2.7 1.3 2.7 1.3
-------------------------------------------------------------------
Net earnings (loss) $ 1.4 $ (1.4) $ 4.3 $ 0.6
===================================================================
Earnings (loss) per common share:
Basic earnings (loss) per share before
extraordinary item $ 0.14 $(0.00) $ 0.25 $ 0.07
Extraordinary loss per share (0.09) (0.05) (0.09) (0.05)
===================================================================
Basic net earnings (loss) per share $ 0.05 $(0.05) $ 0.16 $ 0.02
===================================================================
Diluted net earnings (loss) per share $ 0.05 $(0.05) $ 0.15 $ 0.02
===================================================================
</TABLE>
16
<PAGE>
Consolidated Actual Statement of Operations Data:
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $231.5 $ 88.0 $523.0 $134.5
Cost of sales 211.9 81.3 478.5 124.7
-------------------------------------------------------------------
Gross profit 19.6 6.7 44.5 9.8
Selling, general and administrative expenses 9.3 4.2 24.2 5.8
Amortization of intangible assets 1.7 0.8 4.2 0.9
-------------------------------------------------------------------
Operating income 8.6 1.7 16.1 3.1
Interest 2.7 2.3 10.6 3.8
-------------------------------------------------------------------
Earnings (loss) before income taxes 5.9 (0.6) 5.5 (0.7)
Income taxes 2.6 0.1 3.5 0.1
-------------------------------------------------------------------
Earnings (loss) before extraordinary item 3.3 (0.7) 2.0 (0.8)
Extraordinary loss 2.7 1.3 2.7 1.3
-------------------------------------------------------------------
Net earnings (loss) $ 0.6 $ (2.0) $ (0.7) $ (2.1)
===================================================================
Earnings (loss) per common share:
Basic earnings (loss) per share before
extraordinary item $ 0.14 $(0.73) $(0.14) $(0.97)
Extraordinary loss per share (0.13) (0.61) (0.32) (0.78)
-------------------------------------------------------------------
Basic net earnings (loss) per share $ 0.01 $(1.34) $(0.46) $(1.75)
===================================================================
Diluted net earnings (loss) per share $ 0.01 $(1.34) $(0.46) $(1.75)
===================================================================
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
(in millions)
Actual
As at October 1, 2000
---------------------
Cash and short-term investments $ 1.4
Working Capital 189.9
Total Assets 566.2
Total debt, including current maturities 104.9
Shareholders' equity 212.4
17
<PAGE>
OTHER FINANCIAL DATA - PRO FORMA CONSOLIDATED ADJUSTED NET EARNINGS:
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $ 1.4 $(1.4) $ 4.3 $ 0.6
Adjustments:
Extraordinary loss 2.7 1.3 2.7 1.3
Amortization of goodwill 1.7 1.7 5.0 5.2
Management fees - 0.3 - 0.3
Former W.F. Wood shareholders'
compensation - 0.1 - 0.1
Acquisition related bonuses paid to
management and employees of
W.F. Wood - 2.6 - 2.6
Pensar Corporation shareholder bonuses - 0.1 - 0.1
Income tax effect (0.5) (1.7) (1.3) (2.6)
-------------------------------------------------------------------
Adjusted net earnings $ 5.3 $ 3.0 $10.7 $ 7.6
===================================================================
Adjusted net earnings per common share:
Basic $0.19 $0.11 $0.39 $0.28
Diluted $0.19 $0.11 $0.38 $0.27
===================================================================
</TABLE>
OTHER FINANCIAL DATA - ACTUAL CONSOLIDATED ADJUSTED NET EARNINGS:
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
Net earnings (loss) $ 0.6 $(2.0) $(0.7) $(2.1)
Adjustments:
Extraordinary loss 2.7 1.3 2.7 1.3
Amortization of goodwill 1.5 0.5 3.5 0.5
Management fees - 0.3 - 0.3
Former W.F. Wood shareholders'
compensation - 0.1 - 0.1
Acquisition related bonuses paid to
management and employees of
W.F. Wood - 2.6 - 2.6
Income tax effect (0.4) (1.3) (0.7) (1.2)
-------------------------------------------------------------------
Adjusted net earnings $ 4.4 $ 1.5 $ 4.8 $ 1.5
===================================================================
Adjusted net earnings per common share:
Basic $0.22 $0.72 $0.57 $0.90
Diluted $0.21 $0.72 $0.57 $0.90
===================================================================
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of advanced electronics manufacturing services, or
EMS, to electronics industry original equipment manufacturers, or OEM's,
worldwide. Our full range of value-added services include product design,
procurement, prototyping, assembly, test, final system build, comprehensive
supply chain management, packaging, global distribution and after sales support.
SMTC Corporation, or SMTC, is the result of the July 1999 combination of the
former SMTC Corporation, or Surface Mount, and HTM Holdings, Inc., or HTM. Upon
completion of the combination, the former stockholders of HTM held approximately
58.0% of the outstanding shares of SMTC. We have accounted for the combination
under the purchase method of accounting as a reverse acquisition of Surface
Mount by HTM. Because HTM acquired Surface Mount for accounting purposes, HTM's
assets and liabilities are included in our consolidated financial statements at
their historical cost and the comparative figures reflect the results of
operations of HTM. The results of operations of Surface Mount are included in
our consolidated financial statements from the date of the combination. Surface
Mount was established in Toronto, Ontario in 1985. HTM was established in
Denver, Colorado in 1990. SMTC was established in 1998.
Our revenue has grown from approximately $59.0 million in 1997 to pro forma
revenue of $502.7 million in 1999 through both internal growth and strategic
acquisitions. The July 1999 combination of Surface Mount and HTM provided us
with increased strategic and operating scale and greater geographic breadth. In
addition, as a result of the combination, we gained Carrier Access, Netopia and
IBM as customers. Collectively, since 1995 we have completed the following six
acquisitions:
. Radian Electronics' operations, which enabled our expansion into
Austin, Texas, and established our relationship with Dell, in 1996;
. Ogden Atlantic Design's operations in Charlotte, North Carolina,
which provided us with a facility in a major technology center in
the Southeastern United States, in 1997;
. Ogden International Europe's operations in Cork, Ireland, which
expanded our global presence into Europe, in 1998;
. Zenith Electronics' facility in Chihuahua, Mexico, which expanded
our cost- effective manufacturing capabilities and added Zenith (now
Motorola) as a customer, in July 1999;
. W.F. Wood, based outside Boston, Massachusetts, which provided us
with a manufacturing presence in the Northeastern United States,
expanded our value-added services to include high precision
enclosures capabilities, and added EMC and Sycamore Networks as
customers, in September 1999; and
19
<PAGE>
. On July 27, 2000 and concurrent with the closing of our initial
public offering (described below), Pensar Corporation, an
electronics manufacturing services company specializing in design
services and located in Appleton, Wisconsin.
In addition, we completed the following financing activities:
. On July 3, 2000, we issued demand notes in the aggregate principal
amount of $9.925 million, which were repaid with the proceeds of our
initial public offering;
. On July 27, 2000, we completed an initial public offering of our
common stock in the United States and the exchangeable shares of our
subsidiary, SMTC Manufacturing Corporation of Canada, in Canada,
raising net proceeds (not including proceeds from the sale of shares
upon the exercise of the underwriters' over-allotment option) of
$157.9 million;
. Concurrent with the effectiveness of the initial public offering, we
completed a share capital reorganization;
. In connection with the initial public offering, we entered into an
amended and restated credit agreement with our lenders, which
provided for an initial term loan of $50.0 million and revolving
credit loans, swing line loans and letters of credit up to $100.0
million;
. On July 27, 2000, we paid a fee of $1.8 million to terminate a
management agreement under which we paid quarterly fees of $156,250;
and
. On August 18, 2000, we sold additional shares of common stock upon
exercise of the underwriters' over-allotment option, raising net
proceeds of $24.6 million.
We seek acquisition opportunities that enable us to expand our geographic reach,
add manufacturing capacity and diversify into new markets. We are considering
potential acquisitions in North America and Europe, and we are targeting Asia
for future expansion. On September 29, 2000, we announced that we signed a
letter of intent to acquire privately-held Qualtron Teoranta, a leading provider
of specialized custom-made cable harnesses and fiber optic assemblies. We
expect this acquisition to close in the fourth quarter of 2000. We intend to
continue to capitalize on attractive acquisition opportunities in the EMS
marketplace, and our goal is generally to have each acquisition be accretive to
earnings after a transition period of approximately one year. We also plan to
continue our strategy of augmenting our existing EMS capabilities with the
addition of related value-added services. By expanding the services we offer,
we believe that we will be able to expand our business with our existing
customers and develop new opportunities with potential customers.
Consistent with our past practices and normal course of business, we engage from
time to time in discussions with respect to potential acquisitions. While we
have identified several opportunities that would expand our global presence, add
to our value-added services and establish strategic relationships with new
customers, such as the potential transaction with Qualtron Teoranta referred to
above, we are not currently party to any definitive acquisition agreements.
20
<PAGE>
We used approximately $143.7 million of the proceeds from our initial public
offering to reduce indebtedness under our credit facility. On July 27, 2000, we
entered into an amended and restated credit facility with our lenders, which
provides for an initial term loan of $50.0 million and revolving credit loans,
swing line loans and letters of credit up to $100.0 million. As at October 1,
2000, we had borrowed $102.5 million under this facility. We intend to continue
to borrow under our new credit facility to finance working capital growth and
any cash portion of future acquisitions; however we generally intend to keep our
debt to capital ratio within a 30% target.
We currently provide turnkey manufacturing services to the majority of our
customers. In 1999, 96.9% of our pro forma revenue was from turnkey
manufacturing services. By contrast, from July 1999 to March 2000, under the
terms of a production agreement with Zenith, we manufactured products for Zenith
on a consignment basis. In a consignment arrangement, we provide manufacturing
services only, while the customer purchases the materials and components
necessary for production. In April 2000, we began to purchase materials for
Zenith, and as a result, our relationship with Zenith evolved into a turnkey
manufacturing relationship. Turnkey manufacturing services typically result in
higher revenue and higher gross profits but lower gross profit margins when
compared to consignment services.
With our turnkey manufacturing customers, we generally operate under contracts
that provide a general framework for our business relationship. Our actual
production volumes are based on purchase orders under which our customers do not
commit to firm production schedules more than 30 to 90 days in advance. In
order to minimize customers' inventory risk, we generally order materials and
components only to the extent necessary to satisfy existing customer purchase
orders. We do not generally undertake inventory risk. Fluctuations in material
costs are typically passed through to customers. We may agree, upon request
from our customers, to temporarily delay shipments, which causes a corresponding
delay in our revenue recognition. Ultimately, however, our customers are
generally responsible for all materials purchased and all goods manufactured on
their behalf.
A recent trend in the EMS industry has emerged in which customers are seeking to
consolidate suppliers and are seeking manufacturers who can provide complete
manufacturing solutions. In connection with Dell's realignment of its
production, Dell selected us to be its sole global manufacturing provider for
its high value-added, high profit margin server business, which represented
approximately $69.0 million, or 13.7%, of our 1999 pro forma revenue of
approximately $503.0 million. We believe that Dell's decision will allow us to
capitalize on a high growth market opportunity, and we believe our revenue for
our Dell server business will grow accordingly. Dell has advised us, however,
that it plans to discontinue using us to build their relatively lower profit
margin riser card, a component used in personal computers. While our Dell riser
card business represented approximately $88.0 million, or 17.6%, of our 1999 pro
forma revenue, we believe this realignment will provide us with an opportunity
to focus our efforts on providing our services in a significantly more
attractive market sector. Dell riser card revenue for the first six months of
2000 was $18.3 million. The Dell riser card business is not contributing any
revenue beyond the second half of 2000. We believe that in 2000 approximately
50.0% of the lost revenue from the discontinuation of our Dell riser card
business will be replaced by additional Dell server business, and we anticipate
that by 2002 the volume of manufacturing services we will provide to Dell in
connection with Dell's servers will more than offset the loss of Dell's riser
card business.
In May 2000, Alcatel selected us as a manufacturer for a selection of digital
subscriber line cards and optical switching cards. Under this arrangement, we
supply Alcatel with these products on a purchase order basis.
21
<PAGE>
We service our customers through a total of nine facilities located in the
United States, Canada, Europe and Mexico. In 1999, approximately 85.0% of our
pro forma revenue was generated from operations in the United States,
approximately 9.0% from Canada, approximately 4.0% from Europe and approximately
2.0% from Mexico. Our facility in Chihuahua was acquired in July 1999 from
Zenith Electronics Corporation. We expect to continue to increase revenue from
this facility in 2000 with the inclusion of a full year of operations, with the
transfer of certain production from other facilities and with the addition of
new business and increased volume from our current business.
We begin our Management's Discussion and Analysis of Financial Condition and
Results of Operations with a discussion of the pro forma quarter ended October
1, 2000 compared to the pro forma quarter ended September 30, 1999 and with a
discussion of the pro forma nine month period ended October 1, 2000 compared to
the pro forma nine month period ended September 30, 1999. Because our
historical financial statements do not fully reflect the July 1999 combination
of HTM and Surface Mount, our September 1999 acquisition of W.F. Wood and our
July 2000 acquisition of Pensar or the completion of our initial public
offering, a discussion of our historical operations does not provide a
sufficient understanding of the financial conditions and results of operations
of our business. Our pro forma results of operations include the results of
operations of each of the businesses that comprise our company. Following our
discussion of the pro forma results of operations, we discuss our historical
financial condition and results of operations for the quarter ended October 1,
2000 compared to the quarter ended September 30, 1999 and the nine month period
ended October 1, 2000 compared to the nine month period ended September 30,
1999.
22
<PAGE>
SMTC CORPORATION
PRO FORMA RESULTS OF OPERATIONS
The following table sets forth certain pro forma operating data expressed as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of sales 91.4 90.5 91.0 90.5
----------------------------------------------------------------------
Gross profit 8.6 9.5 9.0 9.5
Selling, general and administrative
expenses 4.1 7.5 4.9 6.5
Amortization of intangible assets 0.8 1.3 1.0 1.4
----------------------------------------------------------------------
Operating income 3.7 0.7 3.1 1.6
Interest 0.6 0.0 0.6 0.0
----------------------------------------------------------------------
Earnings before income taxes 3.1 0.7 2.5 1.6
Income taxes 1.3 0.8 1.2 1.0
----------------------------------------------------------------------
Earnings (loss) before extraordinary items 1.8 (0.1) 1.3 0.6
Extraordinary item 1.1 1.0 0.5 0.4
----------------------------------------------------------------------
Net earnings (loss) 0.7 (1.1) 0.8 0.2
======================================================================
</TABLE>
PRO FORMA QUARTER ENDED OCTOBER 1, 2000 COMPARED TO THE PRO FORMA QUARTER ENDED
SEPTEMBER 30, 1999
Pro Forma Revenue
Revenue increased $101.1 million, or 74.8%, from $135.2 million in the third
quarter of 1999 to $236.3 million in the third quarter of 2000. This increase
resulted from the growth in revenue generated by our United States operations
and our Chihuahua facility. In the third quarter of 2000, 81.0% of our revenue
was generated from operations in the United States, 7.4% from Canada, 2.2% from
Europe and 9.4% from Mexico. In the third quarter of 1999, 83.0% of our revenue
was generated from operations in the United States, 9.1% from Canada, 3.6% from
Europe and 4.3% from Mexico.
Revenue from Dell for the third quarter of 2000 was $31.0 million, or 13.1% of
total revenue. In the third quarter of 1999, revenue from Dell was $44.6
million or 33.0% of total revenue. Revenue from Alcatel for the third quarter of
2000 was $40.2 million, or 17.0% of total revenue. Alcatel was not a customer
of ours in 1999. No other customer represented more than 10% of revenue in the
third quarter of 1999 or 2000.
Pro Forma Gross Profit
Gross profit increased $7.5 million from $12.8 million in the third quarter of
1999 to $20.3 million in the third quarter of 2000. The improvement in gross
profit was due to the effect of the growth in revenue and the addition of our
Chihuahua facility. The gross margin, however, was lower in the third quarter of
2000 due to delays in the transition of certain customers to the lower cost
Chihuahua facility.
23
<PAGE>
Pro Forma Selling, General & Administrative Expenses
Selling, general and administrative expenses decreased $0.3 million from $10.1
million in the third quarter of 1999 to $9.8 million in the third quarter of
2000. As a percentage of revenue, selling, general and administrative expenses
decreased from 7.5% to 4.1% because of the higher revenue base. Selling,
general and administrative expenses in the third quarter of 1999 included one
time payments of $0.1 million as compensation to former W.F. Wood shareholders
and $2.6 million as acquisition related bonuses paid to management and employees
of W.F. Wood.
Pro Forma Amortization
Amortization of intangible assets of $1.9 million was expensed in the third
quarter of 2000 compared to $1.7 million expensed in the third quarter of 1999.
Amortization for the third quarter of each of 1999 and 2000 included the
amortization of $0.6 million of goodwill related to the combination of Surface
Mount and HTM, $0.4 million of goodwill related to the acquisition of W.F. Wood
and $0.7 million related to the acquisition of Pensar. Amortization of
intangible assets for the third quarter of 2000 also included the amortization
of $0.1 million of deferred finance costs related to the establishment of our
senior credit facility and $0.1 million of deferred equipment lease
costs.
Pro Forma Interest Expense
Interest expense increased $1.5 million from $0.0 million in the third quarter
of 1999 to $1.5 million in the same period in 2000 due to interest expense
related to increased working capital requirements to fund the growth of our
business.
Pro Forma Income Tax Expense
In the third quarter of 2000, we had an income tax expense of $3.0 million on
income before taxes of $7.1 million, producing an effective tax rate of 42.3%.
The effective rate of tax was higher than the statutory rate as we were not able
to claim a recovery of losses of $0.2 million incurred by our Irish subsidiary
or deduct $0.6 million of goodwill related to the combination of Surface Mount
and HTM.
In the third quarter of 1999, we had an income tax expense of $1.1 million on
pre-tax income of $1.0 as we were not able to claim a recovery of losses of $0.6
million incurred by our Irish subsidiary or deduct $0.6 million of goodwill
related to the combination of Surface Mount and HTM.
Pro Forma Extraordinary Item
As a result of the early payment of the senior notes payable and subordinated
notes that occurred concurrent with the business combination of Surface Mount
and HTM, an extraordinary charge of $1.3 million ($2.1 million before tax),
related to early payment penalties, write-off of unamortized deferred financing
fees, and write-off of the unamortized debt discount, was recorded for the third
quarter of 1999.
Approximately $143.7 million of the proceeds of the initial public offering were
used to reduce our indebtedness under our credit facility. In connection with
the initial public offering, we entered into an amended and restated credit
agreement with our lenders. As a result, an extraordinary loss of $2.7 million
24
<PAGE>
($4.3 million before tax), related to early payment penalties, write-off of a
portion of the unamortized deferred financing fees and the write-off of the
value of the warrants issued in excess of the proceeds received, was recorded
for the third quarter of 2000.
PRO FORMA NINE MONTH PERIOD ENDED OCTOBER 1, 2000 COMPARED TO THE PRO FORMA NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1999
Pro Forma Revenue
Pro forma revenue increased $199.1 million, or 55.0%, from $362.2 million for
the nine month period ended September 30, 1999, to $561.3 million for the nine
month period ended October 1, 2000. This increase resulted from the growth of
revenue generated by our United States operations and our Chihuahua facility.
For the nine month period ended October 1, 2000, 82.2% of our revenue was
generated from operations in the United States, 8.0% from Canada, 2.2% from
Europe and 7.6% from Mexico. For the nine month period ended September 30, 1999,
84.6% of our revenue was generated from operations in the United States, 10.0%
from Canada, 3.8% from Europe and 1.6% from Mexico.
Revenue from Dell for the nine month period ended October 1, 2000 was $96.3
million, or 17.2% of total revenue. In the nine month period ended September 30,
1999, revenue from Dell was $115.3 million or 31.8 % of total revenue. No other
customer represented more than 10% of revenue in the nine month period ended
September 30, 1999 or October 1, 2000.
Pro Forma Gross Profit
Gross profit increased $16.0 million from $34.3 million in the nine month period
ended September 30, 1999 to $50.3 million in the nine month period ended October
1, 2000. Our gross profit margin declined from 9.5% for the nine month period
ended September 30, 1999 to 9.0% in for the nine month period ended October 2,
2000. The gross margin was lower for the nine month period ended October 1,
2000 due to a change in the customer mix.
Pro Forma Selling, General & Administrative Expenses
Selling, general and administrative expenses increased $4.1 million from $23.6
million for the nine month period ended September 30, 1999 to $27.7 million for
the nine month period ended October 1, 2000. As a percentage of revenue,
selling, general and administrative expenses decreased from 6.5% to 4.9% because
of the higher revenue base. Selling, general and administrative expenses for
the nine month period ended September 30, 1999 included one time payments of
$0.1 million as compensation to former W.F. Wood shareholders and $2.6 million
as acquisition related bonuses paid to management and employees of W.F. Wood.
Pro Forma Amortization
Amortization of intangible assets of $5.2 million was expensed for the nine
month period ended September 30, 1999 compared to $5.4 for the nine month period
ended October 1, 2000. Amortization for both the nine month period ended
September 30, 1999 and the nine month period ended October 1, 2000 included the
amortization of $1.7 million of goodwill related to the combination of Surface
Mount and HTM, $1.3 million of goodwill related to the acquisition of W.F. Wood
and $2.0 million of goodwill related to the acquisition of Pensar. Amortization
of intangible assets for the nine month period ended October 1, 2000 also
included the amortization of $0.2 million of deferred finance costs related to
the establishment of our senior credit facility in July 1999 and $0.2 million of
deferred equipment lease costs. Amortization of intangible assets for the nine
month period ended September 30, 1999 also included the amortization of $0.1
million of deferred finance costs related to the establishment of our senior
credit facility in July 1999 and $0.1 million of deferred equipment lease costs.
Pro Forma Interest Expense
Interest expense increased $3.4 million from $0.0 million for the nine month
period ended September 30, 1999 to $3.4 million for the nine month period ended
October 1, 2000 due to the interest expense related
25
<PAGE>
to debt incurred to purchase our Chihuahua facility and to meet increased
working capital requirements to fund the growth of our business.
Pro Forma Income Tax Expense
For the nine month period ended October 1, 2000, we had an income tax expense of
$6.8 million on income before taxes of $13.8 million, producing an effective tax
rate of 49.3%. The effective rate of tax was higher than the statutory rate as
we were not able to claim a recovery of losses of $1.4 million incurred by our
Irish subsidiary or deduct $1.7 million of goodwill related to the combination
of Surface Mount and HTM.
For the nine month period ended September 30, 1999, we had an income tax expense
of $3.6 million on income before taxes of $5.5 million, producing an effective
tax rate of 65.5%. The effective rate of tax was higher than the statutory rate
as we were not able to claim a recovery of losses of $1.4 million incurred by
our Irish subsidiary or to deduct $1.7 million of goodwill related to the
combination of Surface Mount and HTM.
Pro Forma Extraordinary Item
As a result of the early payment of the senior notes payable and subordinated
notes that occurred concurrent with the business combination of Surface Mount
and HTM, an extraordinary charge of $1.3 million ($2.1 million before tax)
related to early payment penalties, write-off of unamortized deferred financing
fees, and write-off of the unamortized debt discount, was recorded for the nine
months ended September 30, 1999.
Approximately $143.7 million of the proceeds of the initial public offering were
used to reduce our indebtedness under our credit facility. In connection with
the initial public offering, we entered into an amended and restated credit
agreement with our lenders. As a result, an extraordinary loss of $2.7 million
($4.3 million before tax) related to early payment penalties, write-off of a
portion of the unamortized deferred financing fees and the write-off of the
value of the warrants issued in excess of the proceeds received was recorded for
the nine months ended October 1, 2000.
26
<PAGE>
SMTC CORPORATION (FORMERLY HTM HOLDINGS, INC.)
RESULTS OF OPERATIONS
The following table sets forth certain operating data expressed as a percentage
of revenue for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
----------------------------------------------------------------------
October 1, September 30, October 1, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of sales 91.5 92.4 91.5 92.7
----------------------------------------------------------------------
Gross profit 8.5 7.6 8.5 7.3
Selling, general and administrative
expenses 4.0 4.8 4.6 4.3
Amortization of intangible assets 0.7 0.9 0.8 0.7
----------------------------------------------------------------------
Operating income 3.8 1.9 3.1 2.3
Interest 1.2 2.6 2.0 2.8
----------------------------------------------------------------------
Earnings (loss) before income taxes 2.6 (0.7) 1.1 (0.5)
Income taxes (recovery) 1.1 0.1 0.7 0.1
----------------------------------------------------------------------
Earnings (loss) before extraordinary item 1.5 (0.8) 0.4 (0.6)
Extraordinary item 1.2 1.5 0.5 1.0
----------------------------------------------------------------------
Net earnings (loss) 0.3 (2.3) (0.1) (1.6)
======================================================================
</TABLE>
QUARTER ENDED OCTOBER 1, 2000 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1999
Revenue
Revenue increased $143.5 million, or 163.1%, from $88.0 million in the third
quarter of 1999 to $231.5 million in the third quarter of 2000. This increase
resulted from the combination of Surface Mount and HTM, the acquisition of our
Chihuahua facility in July 1999, the acquisition of W.F. Wood in September
1999 and the acquisition of Pensar in July 2000. Surface Mount revenue
increased $75.2 million from $53.0 million in the third quarter of 1999 to
$128.2 million in the third quarter of 2000. W.F. Wood revenue increased $9.5
million from $3.3 million in the third quarter of 1999 to $12.8 million in the
third quarter of 2000. Revenue increased at our Chihuahua facility $21.6
million from $5.8 million in the third quarter of 1999 to $27.4 million in the
third quarter of 2000, which is attributable to the transition from consignment
to turnkey manufacturing at that facility. The acquisition of Pensar contributed
$11.9 million to the increase in revenue in the third quarter of 2000. Revenue
generated from our Denver facility, formerly HTM, increased $25.3 million from
$25.9 million in the third quarter of 1999 to $51.2 million in the third quarter
of 2000.
Revenue from Dell of $31.0 million and Alcatel of $40.2 million for the third
quarter of 2000 was 13.4% and 17.4%, respectively, of total revenue. In the
third quarter of 1999, revenue from Dell of $27.2 million represented 30.9% of
total revenue. Alcatel was not a customer of ours in 1999. No other customers
represented more than 10% of revenue.
In the third quarter of 2000, 80.6% of our revenue was generated from operations
in the United States, 7.5% from Canada, 2.2% from Europe and 9.7% from Mexico.
In the third quarter of 1999, 80.9% of our revenue was generated from operations
in the United States, 8.8% from Canada, 3.7% from Europe and 6.6% from Mexico.
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Gross Profit
Gross profit increased $12.9 million from $6.7 million in the third quarter of
1999 to $19.6 million in the third quarter of 2000. Our gross profit margin
improved from 7.6% in the third quarter of 1999 to 8.5% in the third quarter of
2000. The improvements in gross profit and gross margin were due to the
combination of Surface Mount and HTM as well as the acquisitions we completed in
1999 and 2000. The gross profit of Surface Mount and HTM increased $7.5 million
from $4.4 million of gross profit at a gross margin of 8.3% in the third quarter
of 1999 to $11.9 million of gross profit at a gross margin of 9.3% in the third
quarter of 2000. The gross profit of W.F. Wood increased $1.3 million from $0.5
million of gross profit at a gross margin of 15.2% in the third quarter of 1999
to $1.8 million of gross profit at a gross margin of 14.1% in the third quarter
of 2000. Our Chihuahua facility reported an increase in gross profit of $1.6
million from a loss of $0.3 million of gross profit reported in the third
quarter of 1999 to $1.3 million of gross profit at a gross margin of 4.7%
reported in the third quarter of 2000. The acquisition of Pensar in July 2000
contributed $1.8 million to the increase of gross profit at a gross margin of
15.1% for the third quarter of 2000. At our Denver facility, formerly HTM, gross
profit increased $0.7 million from $2.1 million in the third quarter of 1999 to
$2.8 million in the third quarter of 2000, but the gross margin declined from
8.1% to 5.5% due to a change in customer mix. Our W.F. Wood operation
contributed higher gross margins than some of our other segments because the
high precision enclosure products manufactured by that facility have higher
profit margins than the products we have historically manufactured. Our
Chihuahua facility provided us with lower gross margins than our other segments
because it was not operating at full capacity during the third quarter of 2000.
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased $5.1 million from $4.2
million in the third quarter of 1999 to $9.3 million in the third quarter of
2000. As a percentage of revenue, selling, general and administrative expenses
decreased from 4.8% to 4.0%. The combination of Surface Mount and HTM and the
acquisitions of our Chihuahua facility, W.F. Wood and Pensar contributed $4.7
million to the increase in selling, general and administrative expenses in the
third quarter of 2000. At our Denver facility, selling, general, and
administrative expenses increased $0.4 million from $0.7 million in the third
quarter of 1999 to $1.1 million in the third quarter of 2000 but declined as a
percentage of revenue from 2.7% to 2.1%.
Amortization
Amortization of intangible assets of $1.7 million in the third quarter of 2000
included the amortization of $0.6 million of goodwill related to the combination
of Surface Mount and HTM, $0.4 million of goodwill related to the acquisition of
W.F. Wood and $0.4 million related to the acquisition of Pensar. Amortization
of intangible assets in the third quarter of 2000 also included the amortization
of $0.2 million of deferred finance costs related to the establishment of our
senior credit facility in July 2000 and $0.1 million of deferred equipment lease
costs.
Amortization of $0.8 million in the third quarter of 1999 included the
amortization of $0.4 million of goodwill related to the combination of Surface
Mount and HTM, $0.1 million of goodwill related to the acquisition of W.F. Wood
and $0.3 million of deferred finance costs related to the establishment of our
senior credit facility in July 1999.
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Interest Expense
Interest expense increased $0.4 million from $2.3 million in the third quarter
of 1999 to $2.7 million in the third quarter of 2000 due to interest expense
related to debt incurred in connection with the combination of Surface Mount and
HTM, debt incurred to purchase our Chihuahua facility and W.F. Wood and debt
incurred to meet increased working capital requirements to fund the growth of
our business. The weighted average interest rates with respect to the debt for
the third quarter of 1999 and the third quarter of 2000 were 9.0% and 9.3%,
respectively.
Income Tax Expense
In the third quarter of 2000, an income tax expense of $2.6 million on pre-tax
income of $5.9 million produced an effective tax rate of 44.1%, as we were not
able to claim a recovery of losses of $0.2 million by our Irish subsidiary or
deduct $0.6 million of goodwill related to the combination of Surface Mount and
HTM.
In the third quarter of 1999, an income tax expense of $0.1 million was recorded
on a pre-tax loss of $0.6 million, as we were not able to claim a recovery of
losses of $0.5 million by our Irish subsidiary or deduct $0.4 million of
goodwill related to the combination of Surface Mount and HTM.
Extraordinary Item
As a result of the early payment of the senior notes payable and subordinated
notes that occurred concurrent with the business combination of Surface Mount
and HTM, an extraordinary charge of $1.3 million ($2.1 million before tax),
related to early payment penalties, write-off of unamortized deferred financing
fees, and write-off of the unamortized debt discount, was recorded for the third
quarter of 1999.
Approximately $143.7 million of the proceeds of the initial public offering were
used to reduce our indebtedness under our credit facility. In connection with
the initial public offering, we entered into an amended and restated credit
agreement with our lenders. As a result, an extraordinary loss of $2.7 million
($4.3 million before tax), related to early payment penalties, write-off of a
portion of the unamortized deferred financing fees and the write-off of the
value of the warrants issued in excess of the proceeds received, was recorded
for the third quarter of 2000.
NINE MONTH PERIOD ENDED OCTOBER 1, 2000 COMPARED TO THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
Revenue
Revenue increased $388.5 million, or 288.8% from $134.5 million for the nine
month period ended September 30, 1999 to $523.0 million for the nine month
period ended October 1, 2000. This increase resulted from the combination of
Surface Mount and HTM, the acquisition of our Chihuahua facility in July 1999,
our acquisition of W.F. Wood in September 1999 and the acquisition of Pensar in
July 2000. Surface Mount revenue increased $243.0 million from $53.0 million for
the nine month period ended September 30, 1999 to $296.0 million for the nine
month period ended October 1, 2000. W.F. Wood revenue increased $34.8 million
from $3.3 million for the nine month period ended September 30, 1999 to $38.1
million for the nine month period ended October 1, 2000. Revenue increased at
our Chihuahua facility $43.1 million from $5.8 million for the period that began
with the acquisition of that facility in July 1999 and ended September 30, 1999
to $48.9 million for the nine month period ended October 1, 2000. The
acquisition of Pensar contributed $11.9 million to the increase in revenue for
the nine month period ended October 1, 2000. Revenue generated from our Denver
facility, formerly HTM, increased $55.7 million from $72.4 million for the nine
month period ended September 30, 1999 to $128.1 million for the nine month
period ended October 1, 2000.
Revenue from Dell for the nine month period ended October 1, 2000 was $96.3
million, or 18.4% of total revenue. Revenue from Dell for the nine month period
ended September 30, 1999 was $27.2 million or 20.2% of total revenue. No other
customers represented more than 10% of revenue.
For the nine month period ended October 1, 2000, 80.9% of our revenue was
generated from operations in the United States, 8.6% from Canada, 2.3% from
Europe and 8.2% from Mexico. During the nine month
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period ended September 30, 1999, 87.5% of our revenue was generated from
operations in the United States, 5.7% from Canada, 2.5% from Europe and 4.3%
from Mexico.
Gross Profit
Gross profit increased $34.7 million from $9.8 million for the nine month period
ended September 30, 1999 to $44.5 million for the nine month period ended
October 1, 2000. Our gross profit margin improved from 7.3% for the nine month
period ended September 30, 1999 to 8.5% for the nine month period ended October
1, 2000. The improvements in gross profit and gross margin were due to the
combination of Surface Mount and HTM and the acquisitions we completed in 1999
and 2000. The gross profit of Surface Mount and HTM increased $20.0 million from
$4.4 million of gross profit at a gross margin of 8.3% for the nine month period
ended September 30, 1999 to $24.4 million of gross profit at a gross margin of
8.3% for the nine month period ended October 1, 2000. The gross profit of W.F.
Wood increased $6.3 million from $0.5 million of gross profit at a gross margin
of 15.2% for the nine month period ended September 30, 1999 to $6.8 million of
gross profit at a gross margin of 17.9% for the nine month period ended October
1, 2000. Our Chihuahua facility reported an increase in gross profit of $4.3
million from a loss of $0.3 million of gross profit reported for the period that
began with the acquisition of that facility in July 1999 and ended September 30,
1999 to $4.0 million of gross profit at a gross margin of 8.2% reported for the
nine month period ended October 1, 2000. The acquisition of Pensar in July 2000
contributed $1.8 million to the increase of gross profit at a gross margin of
15.1% for the nine month period ended October 1, 2000.
Our W.F. Wood operation contributed higher gross margins than other segments
because the high precision enclosure products manufactured by that facility have
higher profit margins than the products we have historically manufactured.
At our Denver facility, formerly HTM, gross profit increased $2.3 million from
$5.2 million for the nine month period ended September 30,1999 to $7.5 million
for the nine month period ended October 1, 2000, but the gross margin declined
from 7.2% to 5.9% due to a change in customer mix.
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased $18.4 million from $5.8
million for the nine month period ended September 30, 1999 to $24.2 million for
the nine month period ended October 1, 2000. As a percentage of revenue,
selling, general and administrative expenses increased from 4.3% to 4.6%. The
combination of Surface Mount and HTM and the acquisitions of our Chihuahua
facility, W.F. Wood and Pensar contributed $18.1 million to the increase in
selling, general and administrative expenses. At our Denver facility, selling,
general, and administrative expenses increased $0.3 million from $2.3 million in
the third quarter of 1999 to $2.6 million in the third quarter of 2000 but
declined as a percentage of revenue from 3.2% to 2.0%.
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Amortization
Amortization of intangible assets for the nine month period ended October 1,
2000 of $4.2 million included the amortization of $1.7 million of goodwill
related to the combination of Surface Mount and HTM, $1.3 million of goodwill
related to the acquisition of W.F. Wood and $0.4 million related to the
acquisition of Pensar. Amortization of intangible assets for the nine month
period ended October 1, 2000 also included the amortization of $0.5 million of
deferred finance costs related to the establishment of our senior credit
facility in July 2000 and $0.3 million of deferred equipment lease costs.
Amortization of $0.9 million for the nine month period ended September 30, 1999
included the amortization of $0.4 million of goodwill related to the combination
of Surface Mount and HTM, $0.1 million of goodwill related to the acquisition of
W.F. Wood, and $0.4 million of deferred finance costs related to the
establishment of our senior credit facility in July 1999.
Interest Expense
Interest expense increased $6.8 million from $3.8 million for the nine month
period ended September 30, 1999 to $10.6 million for the nine month period ended
October 1, 2000 due to interest expense related to debt incurred in connection
with the combination of Surface Mount and HTM, debt incurred to purchase our
Chihuahua facility and W.F. Wood and debt incurred to meet increased working
capital requirements to fund the growth of our business. The weighted average
interest rates with respect to the debt for the nine month period ended
September 30, 1999 and the nine month period ended October 1, 2000 were 9.7% and
9.5% respectively.
Income Tax Expense
For the nine month period ended October 1, 2000, we recorded an income tax
expense of $3.5 million on pre-tax income of $5.5 million, which produced an
effective tax rate of 63.6% as we were not able to claim a recovery on losses of
$1.4 million by our Irish subsidiary or deduct $1.7 million of goodwill related
to the combination of Surface Mount and HTM.
For the nine month period ended September 30, 1999, an income tax expense of
$0.1 million was recorded on a loss before taxes of $0.7 million as we were not
able to claim a recovery of losses of $0.5 million by our Irish subsidiary or
deduct $0.4 million of goodwill related to the combination of Surface Mount and
HTM.
Extraordinary Item
As a result of the early payment of the senior notes payable and subordinated
notes that occurred concurrent with the business combination of Surface Mount
and HTM, an extraordinary charge of $1.3 million ($2.1 million before tax),
related to early payment penalties, write-off of unamortized deferred financing
fees, and write-off of the unamortized debt discount, was recorded for the nine
months ended September 30, 1999.
Approximately $143.7 million of the proceeds of the initial public offering were
used to reduce our indebtedness under our credit facility. In connection with
the initial public offering, we entered into an amended and restated credit
agreement with our lenders. As a result, an extraordinary loss of $2.7 million
($4.3 million before tax), related to early payment penalties, write-off of a
portion of the unamortized deferred financing fees and the write-off of the
value of the warrants issued in excess of the proceeds received, was recorded
for the nine months ended October 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash provided from borrowings under our
senior credit facility and our access to the capital markets. Our principal
uses of cash have been to finance mergers and acquisitions, to meet debt service
requirements and to finance capital expenditures and working capital
requirements. We anticipate that these will continue to be our principal uses
of cash in the future.
Net cash used for operating activities for the nine month period ended September
30, 1999 was $16.9 million compared to net cash used for operating activities of
$118.8 million for the nine month period
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ended October 1, 2000. The growth of both existing and new customers in the
first nine months of 2000 led to increased working capital needs.
Net cash provided by financing activities for the nine month period ended
September 30, 1999 was $63.2 million due to the net increase of borrowings of
$69.8 million which is offset by capital lease payments of $2.6 million and debt
issuance costs of $4.0 million. Net cash provided by financing activities for
the nine month period ended October 1, 2000 was $149.5 million due to the
proceeds from issuance of capital stock of $182.6 million, and proceeds from the
issue of warrants of $2.5 million, which was offset by repayment of long-term
debt and capital leases and debt issuance costs of $33.0 million, $1.1 million
and $1.5 million respectively.
Net cash used in investing activities for the nine months ended September 30,
1999 was $41.8 million due to the net purchase of capital and other assets of
$4.5 million, the acquisitions of SMTC Corporation, W.F. Wood and Chihuahua of
$31.6 million and cash held in escrow related to the acquisition of the
Chihuahua facility of $5.7 million. Net cash used in investing activities for
the nine months ended October 1, 2000 was $31.4 million due to net purchases of
capital and other assets of $13.4 million and the acquisition of Pensar of $18.0
million.
On July 3, 2000, in order to provide us with additional working capital and to
finance the growth of our business, certain of our stockholders purchased demand
notes from us in the amount of $9.925 million. These notes were paid on July
27, 2000 with proceeds from our initial public offering.
On July 27, 2000, we entered into an amended and restated credit agreement with
our lenders, which provides for an initial term loan of $50.0 million and
revolving credit loans, swing line loans and letters of credit up to $100.0
million. As of October 1, 2000, we had borrowings of $102.5 million under our
senior credit facility.
On July 27, 2000, we completed an initial public offering of our shares of
common stock in the United States and exchangeable shares of our subsidiary,
SMTC Manufacturing Corporation of Canada, in Canada. The offering consisted of
6,625,000 shares of common stock at a price of U.S. $16.00 per share and
4,375,000 exchangeable shares at a price of Canadian $23.60 per share. The net
proceeds from the offering (not including proceeds from the sale of shares upon
the exercise of the underwriters' over-allotment option) of approximately $156.0
million were used to reduce our indebtedness under the senior credit facility,
to repay outstanding notes, to pay debt of Pensar Corporation and to finance the
cash portion of the purchase price of Pensar Corporation, which closed
simultaneously with the initial public offering. On August 18, 2000, an
additional 1,650,000 of shares of common stock were issued at a price of U.S.
$16.00 upon the exercise of the underwriters' over-allotment option. The net
proceeds of $24.6 million from the sale of shares upon the exercise of the
underwriters' over-allotment option were used to reduce our indebtedness under
the senior credit facility.
Based upon the current level of operations, our management believes that cash
generated from operations, available cash and amounts available under our senior
credit facility will be adequate to meet our debt service requirements, capital
expenditures and working capital needs for the foreseeable future, although no
assurance can be given in this regard. There can be no assurance that our
business will generate sufficient cash flow from operations or that future
borrowings will be available to enable us to service our indebtedness. Our
future operating performance and ability to service or refinance
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indebtedness will be subject to future economic conditions and to financial,
business and other factors, certain of which are beyond our control.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101 and in
March 2000 issued SAB 101A "Revenue Recognition," which provide guidelines in
applying U.S. generally accepted accounting principles to revenue recognition in
financial statements. As a consequence of the issuance of SAB 101B in June
2000, we are required to implement SAB 101 as of the fourth quarter of 2000. We
believe that our revenue recognition practices are consistent with the
guidelines.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. SFAS No. 133 requires all derivatives to be recognized either as
assets or liabilities and measured at fair value. SFAS No. 137 delays the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.
We will be required to implement SFAS No. 133 for our fiscal year ended December
31, 2001. We have not assessed the impact of the adoption of SFAS No. 133 on
our financial position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
entities capitalize certain costs related to internal-use software once certain
criteria have been met. As required, we implemented this standard in 1999. The
implementation did not have a material impact on our financial position, results
of operations or cash flows.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to the new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. As
required, we implemented this standard in 1999. The implementation did not have
a material impact on our financial position, results of operations or cash
flows.
FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Form 10-Q are
forward-looking in nature. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally; these expectations may differ materially from SMTC's
actual future experience involving any one or more of such matters and subject
areas. SMTC cautions readers that all statements other than statements of
historical facts included in this quarterly report on Form 10-Q regarding SMTC's
financial position and business strategy may constitute forward-looking
statements. All of these forward-looking statements are based upon estimates
and assumptions made by SMTC's management, which although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed on such estimates and statements. No assurance can be given that any of
such estimates or statements will be realized, and it is likely that actual
results will differ materially from
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those contemplated by such forward-looking statements. Factors that may cause
such differences include: (1) increased competition; (2) increased costs; (3)
the inability to consummate business acquisitions on attractive terms; (4) the
loss or retirement of key members of management; (5) increases in SMTC's cost of
borrowings or lack of availability of additional debt or equity capital on terms
considered reasonable by management; (6) adverse state, federal or foreign
legislation or regulation or adverse determinations by regulators; (7) changes
in general economic conditions in the markets in which SMTC may compete and
fluctuations in demand in the electronics industry; and (8) the ability to
sustain historical margins as the industry develops. SMTC has attempted to
identify certain of the factors that it currently believes may cause actual
future experiences to differ from SMTC's current expectations regarding the
relevant matter or subject area. In addition to the items specifically discussed
in the foregoing, SMTC's business and results of operations are subject to the
risks and uncertainties described under the heading "Factors That May Affect
Future Results" below. The operations and results of SMTC's business may also be
subject to the effect of other risks and uncertainties. Such risks and
uncertainties include, but are not limited to, items described from time to time
in SMTC's reports filed with the Securities and Exchange Commission.
FACTORS THAT MAY AFFECT FUTURE RESULTS
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
A MAJORITY OF OUR REVENUE COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY
OF OUR LARGEST CUSTOMERS, OUR REVENUE COULD DECLINE SIGNIFICANTLY.
Our largest customer in 1999 was Dell, which represented approximately 31.3% of
our total pro forma revenue in 1999. Our next five largest customers
collectively represented an additional 26.4% of our total pro forma revenue in
1999. We expect to continue to depend upon a relatively small number of
customers for a significant percentage of our revenue. In addition to having a
limited number of customers, we manufacture a limited number of products for
each of our customers. If we lose any of our largest customers or any product
line manufactured for one of our largest customers, we could experience a
significant reduction in our revenue. For example, in 1999 we manufactured two
products for Dell, servers, which represented 13.7%, or approximately $69
million, of our total pro forma revenue in 1999 of approximately $503 million,
and riser cards, which represented 17.6%, or approximately $88 million, of our
total pro forma revenue in 1999. In 1999 Dell informed us that, as part of its
efforts to rationalize its supplier network, it intends to consolidate its
server product manufacturing by shifting additional business to us while at the
same time it intends to discontinue using us to manufacture its riser cards, a
component used in personal computers. The Dell riser card business is not
contributing any revenue beyond the second half of 2000. Also, the insolvency
of one or more of our largest customers or the inability of one or more of our
largest customers to pay for its orders could decrease revenue. As many of our
costs and operating expenses are relatively fixed, a reduction in net revenue
can decrease our profit margins and adversely affect our business, financial
condition and results of operations.
OUR INDUSTRY IS VERY COMPETITIVE AND WE MAY NOT BE SUCCESSFUL IF WE FAIL TO
COMPETE EFFECTIVELY.
The electronics manufacturing services (EMS) industry is highly competitive. We
compete against numerous domestic and foreign EMS providers including Celestica
Inc., Flextronics International Ltd., Jabil Circuit, Inc., SCI Systems, Inc. and
Solectron Corporation. In addition, we may in the future encounter
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competition from other large electronics manufacturers that are selling, or may
begin to sell, electronics manufacturing services. Many of our competitors have
international operations, and some may have substantially greater manufacturing,
financial research and development and marketing resources and lower cost
structures than we do. We also face competition from the manufacturing
operations of current and potential customers, which are continually evaluating
the merits of manufacturing products internally versus the advantages of using
external manufacturers.
WE MAY EXPERIENCE VARIABILITY IN OUR OPERATING RESULTS, WHICH COULD NEGATIVELY
IMPACT THE PRICE OF OUR SHARES.
Our annual and quarterly results have fluctuated in the past. The reasons for
these fluctuations may similarly affect us in the future. Historically, our
calendar fourth quarter revenue has been highest and our calendar first quarter
revenue has been lowest. Prospective investors should not rely on results of
operations in any past period to indicate what our results will be for any
future period. Our operating results may fluctuate in the future as a result of
many factors, including:
. variations in the timing and volume of customer orders relative to
our manufacturing capacity;
. variations in the timing of shipments of products to customers;
. introduction and market acceptance of our customers' new products;
. changes in demand for our customers' existing products;
. the accuracy of our customers' forecasts of future production
requirements;
. effectiveness in managing our manufacturing processes;
. changes in competitive and economic conditions generally or in our
customers' markets;
. changes in the cost or availability of components or skilled labor;
and
. the timing of, and the price we pay for, acquisitions and related
integration costs.
In addition, most of our customers typically do not commit to firm production
schedules more than 30 to 90 days in advance. Accordingly, we cannot forecast
the level of customer orders with certainty. This makes it difficult to
schedule production and maximize utilization of our manufacturing capacity. In
the past, we have been required to increase staffing, purchase materials and
incur other expenses to meet the anticipated demand of our customers. Sometimes
anticipated orders from certain customers have failed to materialize, and
sometimes delivery schedules have been deferred as a result of changes in a
customer's business needs. Any material delay, cancellation or reduction of
orders from our largest customers could cause our revenue to decline
significantly. In addition, as many of our costs and operating expenses are
relatively fixed, a reduction in customer demand can decrease our gross margins
and adversely affect our business, financial condition and results of
operations. On other occasions, customers have required rapid and unexpected
increases in production, which have placed burdens on our manufacturing
capacity.
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Any of these factors or a combination of these factors could have a material
adverse effect on our business, financial condition and results of operations.
SHORTAGE OR PRICE FLUCTUATION IN COMPONENT PARTS SPECIFIED BY OUR CUSTOMERS
COULD DELAY PRODUCT SHIPMENT AND AFFECT OUR PROFITABILITY.
A substantial portion of our revenue is derived from "turnkey" manufacturing.
In turnkey manufacturing, we provide both the materials and the manufacturing
services. If we fail to manage our inventory effectively, we may bear the risk
of fluctuations in materials costs, scrap and excess inventory, all of which can
have a material adverse effect on our business, financial condition and results
of operations. We are required to forecast our future inventory needs based
upon the anticipated demands of our customers. Inaccuracies in making these
forecasts or estimates could result in a shortage or an excess of materials. A
shortage of materials could lengthen production schedules and increase costs.
An excess of materials may increase the costs of maintaining inventory and may
increase the risk of inventory obsolescence, both of which may increase expenses
and decrease profit margins and operating income.
Many of the products we manufacture require one or more components that we order
from sole-source suppliers. Supply shortages for a particular component can
delay productions of all products using that component or cause cost increases
in the services we provide. In addition, in the past, some of the materials we
use, such as memory and logic devices, have been subject to industry-wide
shortages. As a result, suppliers have been forced to allocate available
quantities among their customers and we have not been able to obtain all of the
materials desired. Our inability to obtain these needed materials could slow
production or assembly, delay shipments to our customers, increase costs and
reduce operating income. Also, we may bear the risk of periodic component price
increases. Accordingly, some component price increases could increase costs and
reduce operating income. Also we rely on a variety of common carriers for
materials transportation, and we route materials through various world ports. A
work stoppage, strike or shutdown of a major port or airport could result in
manufacturing and shipping delays or expediting charges, which could have a
material adverse effect on our business, financial condition and results of
operations.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN A SHORT PERIOD OF TIME AND MAY HAVE
TROUBLE INTEGRATING ACQUIRED BUSINESS AND MANAGING OUR EXPANSION.
Since 1996, we have completed seven acquisitions. Acquisitions may involve
numerous risks, including difficulty in integrating operations, technologies,
systems, and products and services of acquired companies; diversion of
management's attention and disruption of operations; increased expenses and
working capital requirements; entering markets in which we have limited or no
prior experience and where competitors in such markets have stronger market
positions; and the potential loss of key employees and customers of acquired
companies. In addition, acquisitions may involve financial risks, such as the
potential liabilities of the acquired businesses, the dilutive effect of the
issuance of additional equity securities, the incurrence of additional debt, the
financial impact of transaction expenses and the amortization of goodwill and
other intangible assets involved in any transactions that are accounted for
using the purchase method of accounting, and possible adverse tax and accounting
effects.
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We have a limited history of owning and operating our acquired businesses on a
consolidated basis. There can be no assurance that we will be able to meet
performance expectations or successfully integrate our acquired businesses on a
timely basis without disrupting the quality and reliability of service to our
customers or diverting management resources. Our rapid growth has placed and
will continue to place a significant strain on management, on our financial
resources, and on our information, operating and financial systems. If we are
unable to manage this growth effectively, it may have an adverse effect on our
business, financial condition and results of operations.
OUR ACQUISITION STRATEGY MAY NOT SUCCEED.
As part of our business strategy, we expect to continue to grow by pursuing
acquisitions of other companies, assets or product lines that complement or
expand our existing business. Competition for attractive companies in our
industry is substantial. We cannot assure you that we will be able to identify
suitable acquisition candidates or finance and complete transactions that we
select. Our failure to execute our acquisition strategy may have a material
adverse effect on our business, financial condition and results of operation.
Also, if we are not able to successfully complete acquisitions, we may not be
able to compete with larger EMS providers who are able to provide a total
customer solution.
IF WE DO NOT EFFECTIVELY MANAGE THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS
MAY BE HARMED.
We have grown rapidly in recent periods, and this growth may be difficult to
sustain. Internal growth and further expansion of services may require us to
expand our existing operations and relationships. We plan to expand our design
and development services and our manufacturing capacity by expanding our
facilities and by adding new equipment. Expansion has caused, and is expected
to continue to cause, strain on our infrastructure, including our managerial,
technical, financial and other resources. Our ability to manage future growth
effectively will require us to attract, train, motivate and manage new employees
successfully, to integrate new employees into our operations and to continue to
improve our operational and information systems. We may experience
inefficiencies as we integrate new operations and manage geographically
dispersed operations. We may incur cost overruns. We may encounter
construction delays, equipment delays or shortages, labor shortages and
disputes, and production start-up problems that could adversely affect our
growth and our ability to meet customers' delivery schedules. We may not be
able to obtain funds for this expansion on acceptable terms or at all. In
addition, we expect to incur new fixed operating expenses associated with our
expansion efforts, including increases in depreciation expense and rental
expense. If our revenue does not increase sufficiently to offset these
expenses, our business, financial condition and results of operations would be
adversely affected.
WE ARE DEPENDENT UPON THE ELECTRONICS INDUSTRY, WHICH PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES.
Substantially all of our customers are in the electronics industry, which is
characterized by intense competition, short product life-cycles and significant
fluctuations in product demand. In addition, the electronics industry is
generally subject to rapid technological change and product obsolescence. If
our customers are unable to create products that keep pace with the changing
technological environment, their products could become obsolete and the demand
for our services could significantly decline. Our success is largely dependent
on the success achieved by our customers in developing and marketing their
products. Furthermore, this industry is subject to economic cycles and has in
the past experienced
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downturns. A recession or a downturn in the electronics industry would likely
have a material adverse effect on our business, financial condition and results
of operations.
IF WE ARE UNABLE TO RESPOND TO RAPIDLY CHANGING TECHNOLOGY AND PROCESS
DEVELOPMENT, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The market for our products and services is characterized by rapidly changing
technology and continuing process development. The future success of our
business will depend in large part upon our ability to maintain and enhance our
technological capabilities, to develop and market products and services that
meet changing customer needs, and to successfully anticipate or respond to
technological changes on a cost-effective and timely basis. In addition, the
EMS industry could in the future encounter competition from new or revised
technologies that render existing technology less competitive or obsolete or
that reduce the demand for our services. There can be no assurance that we will
effectively respond to the technological requirements of the changing market.
To the extent we determine that new technologies and equipment are required to
remain competitive, the development, acquisition and implementation of such
technologies and equipment may require us to make significant capital
investments. There can be no assurance that capital will be available for these
purposes in the future or that investments in new technologies will result in
commercially viable technological processes.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL
AND SKILLED EMPLOYEES.
We depend on the services of our key senior executives, including Paul Walker,
Philip Woodard, Gary Walker and Derek D'Andrade. Our business also depends on
our ability to continue to recruit, train and retain skilled employees,
particularly executive management, engineering and sales personnel. Recruiting
personnel in our industry is highly competitive. In addition, our ability to
successfully integrate acquired companies depends in part on our ability to
retain key management and existing employees at the time of the acquisition.
There can be no assurance that we will be able to retain our executive officers
and key personnel or attract qualified management in the future.
RISKS PARTICULAR TO OUR INTERNATIONAL OPERATIONS COULD ADVERSELY AFFECT OUR
OVERALL RESULTS.
Our success will depend, among other things, on successful expansion into new
foreign markets in order to offer our customers lower cost production options.
Entry into new foreign markets may require considerable management time as well
as start-up expenses for market development, hiring and establishing office
facilities before any significant revenue is generated. As a result, operations
in a new foreign market may operate at low profit margins or may be
unprofitable.
Pro forma revenue generated outside of the United States and Canada was
approximately 5.5% in 1999. International operations are subject to inherent
risks, including:
. fluctuations in the value of currencies and high levels of
inflation;
. longer payment cycles and greater difficulty in collecting amounts
receivable;
. unexpected changes in and the burdens and costs of compliance with a
variety of foreign laws;
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. political and economic instability;
. increases in duties and taxation;
. inability to utilize net operating losses incurred by our foreign
operations to reduce our U.S. and Canadian income taxes;
. imposition of restrictions on currency conversion or the transfer of
funds; and
. trade restrictions.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL LAWS, WHICH EXPOSE US TO POTENTIAL
FINANCIAL LIABILITY.
Our operations are regulated under a number of federal, state, provincial, local
and foreign environmental and safety laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with
these environmental laws is a major consideration for us because we use metals
and other hazardous materials in our manufacturing processes. We may be liable
under environmental laws for the cost of cleaning up properties we own or
operate if they are or become contaminated by the release of hazardous
materials, regardless of whether we caused such release. In addition we, along
with any other person who arranges for the disposal of our wastes, may be liable
for costs associated with an investigation and remediation of sites at which we
have arranged for the disposal of hazardous wastes, if such sites become
contaminated, even if we fully comply with applicable environmental laws. In
the event of a contamination or violation of environmental laws, we could be
held liable for damages including fines, penalties and the costs of remedial
actions and could also be subject to revocation of our discharge permits. Any
such revocations could require us to cease or limit production at one or more of
our facilities, thereby having a material adverse effect on our operations.
Environmental laws could also become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with any
violation, which could have a material adverse effect on our business, financial
condition and results of operations.
RISKS RELATED TO OUR CAPITAL STRUCTURE
OUR FUTURE INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND SEVERELY
LIMIT OUR ABILITY TO PLAN FOR OR RESPOND TO CHANGES IN OUR BUSINESS.
We plan to incur indebtedness from time to time to finance acquisitions or
capital expenditures or for other purposes. This debt could have adverse
consequences for our business, including:
. We will be more vulnerable to adverse general economic conditions;
. We will be required to dedicate a substantial portion of our cash
flow from operations to repayment of debt, limiting the availability
of cash for other purposes;
. We may have difficulty obtaining additional financing in the future
for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes;
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. We may have limited flexibility in planning for, or reacting to,
changes in our business and industry;
. We could be limited by financial and other restrictive covenants in
our credit arrangements in our borrowing of additional funds; and
. We may fail to comply with the covenants under which we borrowed our
indebtedness which could result in an event of default. If an event
of default occurs and is not cured or waived, it could result in all
amounts outstanding, together with accrued interest, becoming
immediately due and payable. If we were unable to repay such
amounts, the lenders could proceed against any collateral granted to
them to secure that indebtedness.
There can be no assurance that our leverage and such restrictions will not
materially adversely affect our ability to finance our future operations or
capital needs or to engage in other business activities. In addition, our
ability to pay principal and interest on our indebtedness to meet our financial
and restrictive covenants and to satisfy our other debt obligations will depend
upon our future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of which
are beyond our control, as well as the availability of revolving credit
borrowings under our senior credit facility or successor facilities.
THE TERMS OF OUR CREDIT AGREEMENT IMPOSE SIGNIFICANT RESTRICTIONS ON OUR
ABILITY TO OPERATE.
The terms of our current credit agreement restrict, among other things, our
ability to incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge, consolidate or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of our assets. We
are also required to maintain specified financial ratios and satisfy certain
financial condition tests, which further restrict our ability to operate as we
choose. Substantially all of our assets and those of our subsidiaries are
pledged as security under our senior credit facility.
INVESTMENT FUNDS AFFILIATED WITH BAIN CAPITAL, INC., INVESTMENT FUNDS AFFILIATED
WITH CELERITY PARTNERS, INC., KILMER ELECTRONICS GROUP LIMITED AND CERTAIN
MEMBERS OF MANAGEMENT HAVE SIGNIFICANT INFLUENCE OVER OUR BUSINESS, AND COULD
DELAY, DETER OR PREVENT A CHANGE OF CONTROL OR OTHER BUSINESS COMBINATION.
Investment funds affiliated with Bain Capital, Inc., investment funds affiliated
with Celerity Partners, Inc., Kilmer Electronics Group Limited and certain
members of management hold approximately 14.8%, 13.5%, 7.9% and 13.8%,
respectively, of our outstanding shares. In addition, three of the nine
directors who serve on our board are representatives of the Bain funds, two are
representatives of the Celerity funds, two are representatives of Kilmer
Electronics Group Limited and two are members of management. By virtue of such
stock ownership and board representation, the Bain funds, the Celerity funds,
Kilmer Electronics Group Limited and certain members of management have a
significant influence over all matters submitted to our stockholders, including
the election of our directors, and exercise significant control over our
business policies and affairs. Such concentration of voting power could have
the effect of delaying, deterring or preventing a change of control or other
business combination that might otherwise be beneficial to our stockholders.
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PROVISIONS IN OUR CHARTER DOCUMENTS AND STATE LAW MAY MAKE IT HARDER FOR OTHERS
TO OBTAIN CONTROL OF US EVEN THOUGH SOME STOCKHOLDERS MIGHT CONSIDER SUCH A
DEVELOPMENT FAVORABLE.
Provisions in our charter, by-laws and certain provisions under Delaware law may
have the effect of delaying or preventing a change of control or changes in our
management that stockholders consider favorable or beneficial. If a change of
control or change in management is delayed or prevented, the market price of our
shares could suffer.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our senior credit facility bears interest at a floating rate. The weighted
average interest rate on our senior credit facility for 1999 was 9.5%. We
reduce our exposure to interest rate risks through swap agreements. We have
entered into swap agreements to hedge $65.0 million of our outstanding debt.
Under the terms of our current swap agreement expiring on September 22, 2001,
the maximum annual rate we would pay on the approximately $65.0 million of our
debt is 9.66%, as of October 1, 2000. The remainder of our debt of $37.5
million bore interest based on the Eurodollar base rate, which was 6.6% on
October 1, 2000. If the Eurodollar base rate increased by 10% to 7.3%, our
interest expense would increase by approximately $0.3 million in 2000. The
revolving credit facility portion of our senior credit facility of $53.7 million
bore interest at 9.5% per annum, as of October 1, 2000.
FOREIGN CURRENCY EXCHANGE RISK
Most of our sales and purchases are denominated in U.S. dollars, and as a result
we have relatively little exposure to foreign currency exchange risk with
respect to sales made. We do not use forward exchange contracts to hedge
exposures denominated in foreign currencies or any other derivative financial
instrument for trading or speculative purposes. Therefore, the effect of a
10.0% change in exchange rates as of December 31, 1999 would not have a material
impact on our operating results for the year ending December 31, 2000.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently not a party to any material legal actions or
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As of July 19, 2000, our stockholders approved by written consent the
conversion of Class L common stock and Class A-2 common stock into Class
A-1 common stock prior to our initial public offering; the amendment and
restatement of our Certificate of Incorporation; the conversion of our
Class A-1 common stock into common stock prior to the completion of our
initial public offering; the amendment and restatement of our By-laws; and
the SMTC Corporation/SMTC Manufacturing Corporation of Canada 2000 Equity
Incentive Plan. Of our 21 stockholders, 19 stockholders consented to the
adoption of the resolutions approving the matters listed above.
ITEM 5. OTHER INFORMATION.
On July 27, 2000, we completed an initial public offering of our common
stock in the United States and exchangeable shares of our subsidiary, SMTC
Manufacturing Corporation of Canada, in Canada. The offering consisted of
6,625,000 shares of common stock at a price of U.S. $16.00 per share and
4,375,000 exchangeable shares at a price of Canadian $23.60 per share. On
August 18, 2000, we sold an additional 1,650,000 shares of common stock at
a price of U.S. $16.00 per share upon the exercise of the underwriters'
over-allotment option.
On July 27, 2000, simultaneously with the closing of the initial public
offering, we acquired Pensar Corporation, an electronics manufacturing
services company specializing in design services and located in Appleton,
Wisconsin. The total purchase price, including transaction costs, was
approximately $36.6 million.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
Certain of the following exhibits have been previously filed with the
Commission pursuant to the requirements of the Securities Act. Such exhibits are
identified by the parenthetical references following the listing of each such
exhibit and are incorporated herein by reference.
EXHIBIT DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated By-laws.
3.3 Certificate of Designation.
4.1 Stockholders Agreement dated as of July 27, 2000 (Incorporated by
reference to Exhibit 4.1 of SMTC's Registration Statement on Form S-8,
File No. 333-44250).
4.2 Exchangeable Share Provisions attaching to the exchangeable shares of
SMTC Manufacturing Corporation of Canada.
4.3 Exchangeable Share Support Agreement dated as of July 27, 2000 among
SMTC, SMTC Nova Scotia Company and SMTC Manufacturing Corporation of
Canada.
4.4 Voting and Exchange Trust Agreement dated as of July 27, 2000 among
SMTC, SMTC Nova Scotia Company and SMTC Manufacturing Corporation of
Canada and CIBC Mellon Trust Company.
4.5 Secured Demand Note of SMTC Manufacturing Corporation of Canada dated
July 3, 2000 (Incorporated by reference to Exhibit 4.10 of SMTC's
Registration Statement on Form S-1, No. 333-33208, as amended).
4.6 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.11 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.7 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.12 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.8 Demand Note of SMTC Manufacturing Corporation of Canada dated July 3,
2000 (Incorporated by reference to Exhibit 4.13 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.9 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.14 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.10 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.15 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.11 Demand Note of HTM Holdings, Inc. dated July 3, 2000 (Incorporated by
reference to Exhibit 4.16 of SMTC's Registration Statement on Form S-1,
No. 333-33208, as amended).
10.1+ Amended and Restated Credit and Guarantee Agreement dated as of July
27, 2000.
10.2+ Amended and Restated Guarantee and Collateral Agreement dated as of
July 27, 2000.
10.3 SMTC Corporation/SMTC Manufacturing Corporation of Canada 2000 Equity
Incentive Plan.
10.4 Lease Agreement dated as of June 1, 2000 between SMTC Manufacturing
Corporation of North Carolina and Garrett and Garrett.
10.5 Lease Agreement dated as of August 11, 2000 between SMTC Manufacturing
Corporation of Massachusetts and Lincoln-Franklin LLC.
27.1 Financial Data Schedule for SMTC Corporation.
----------
+ The registrant agrees to furnish supplementally to the SEC a
copy of any omitted schedule or exhibit to such agreement upon
request by the SEC.
(b) Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, SMTC Corporation has duly caused this quarterly report to be signed
on its behalf by the undersigned, thereto duly authorized, in the city of
Markham, province of Ontario, on the 14th day of November, 2000.
SMTC CORPORATION
By: /s/ Paul Walker
-----------------
Name: Paul Walker
Title: President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/Richard Smith Vice President, Finance November 14, 2000
---------------- and Administration
Richard Smith (principal financial and
chief accounting officer)
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated By-laws.
3.3 Certificate of Designation.
4.1 Stockholders Agreement dated as of July 27, 2000 (Incorporated by
reference to Exhibit 4.1 of SMTC's Registration Statement on Form S-8,
File No. 333-44250).
4.2 Exchangeable Share Provisions attaching to the exchangeable shares of
SMTC Manufacturing Corporation of Canada.
4.3 Exchangeable Share Support Agreement dated as of July 27, 2000 among
SMTC, SMTC Nova Scotia Company and SMTC Manufacturing Corporation of
Canada.
4.4 Voting and Exchange Trust Agreement dated as of July 27, 2000 among
SMTC, SMTC Nova Scotia Company and SMTC Manufacturing Corporation of
Canada and CIBC Mellon Trust Company.
4.5 Secured Demand Note of SMTC Manufacturing Corporation of Canada dated
July 3, 2000 (Incorporated by reference to Exhibit 4.10 of SMTC's
Registration Statement on Form S-1, No. 333-33208, as amended).
4.6 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.11 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.7 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.12 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.8 Demand Note of SMTC Manufacturing Corporation of Canada dated July 3,
2000 (Incorporated by reference to Exhibit 4.13 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.9 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.14 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.10 Secured Demand Note of HTM Holdings, Inc. dated July 3, 2000
(Incorporated by reference to Exhibit 4.15 of SMTC's Registration
Statement on Form S-1, No. 333-33208, as amended).
4.11 Demand Note of HTM Holdings, Inc. dated July 3, 2000 (Incorporated by
reference to Exhibit 4.16 of SMTC's Registration Statement on Form S-1,
No. 333-33208, as amended).
10.1+ Amended and Restated Credit and Guarantee Agreement dated as of July
27, 2000.
10.2+ Amended and Restated Guarantee and Collateral Agreement dated as of
July 27, 2000.
10.3 SMTC Corporation/SMTC Manufacturing Corporation of Canada 2000 Equity
Incentive Plan.
10.4 Lease Agreement dated as of June 1, 2000 between SMTC Manufacturing
Corporation of North Carolina and Garrett and Garrett.
10.5 Lease Agreement dated as of August 11, 2000 between SMTC Manufacturing
Corporation of Massachusetts and Lincoln-Franklin LLC.
27.1 Financial Data Schedule for SMTC Corporation.
----------
+ The registrant agrees to furnish supplementally to the SEC a copy of
any omitted schedule or exhibit to such agreement upon request by the SEC.
45
