<PAGE>
EXHIBIT 99.3
REPORT OF THE AUDITORS
To the Board of Directors and Shareholders
GSS Array Technology Public Company Limited
We have examined the consolidated statements of income and retained earnings
and cash flows for year ended November 24, 1997 of GSS Array Technology Public
Company Limited and its subsidiaries. Our examination was made in accordance
with generally accepted auditing standards, and accordingly included such tests
of the accounting records and such other auditing procedures as we considered
necessary in the circumstances.
In our opinion, the aforementioned consolidated financial statements present
fairly the results of operations and the cash flows of GSS Array Technology
Public Company Limited and its subsidiaries for the year ended November 24,
1997, in conformity with generally accepted accounting principles applied on a
consistent basis.
/s/ Deloitte Touche Tohmatsu Jaiyos
Bangkok
December 25, 1997
1
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Year Ended November 24, 1997
<TABLE>
<CAPTION>
Consolidated
------------
BAHT: '000
<S> <C>
Revenues
Sales........................................................... 7,681,687
Other income
Gain on exchange.............................................. 107,794
Others........................................................ 29,581
---------
Total Revenues.............................................. 7,819,062
---------
Expenses
Cost of sales................................................... 7,006,905
Selling and administrative expenses............................. 504,969
Amortization of goodwill........................................ 31,515
Interest expenses............................................... 158,612
---------
Total Expenses.............................................. 7,702,001
---------
Profit Before Infrequent Items, Income Tax and Extraordinary
Item............................................................. 117,061
Infrequent Items (Note 20)
Severance pay................................................... 17,382
Relocation expenses............................................. 6,887
---------
Profit Before Income Tax and Extraordinary Item................... 92,792
Income Tax (Note 3.11)............................................ 7,510
---------
Profit Before Extraordinary Item.................................. 85,282
Extraordinary Item--Loss on the Application of the Managed Float
Exchange System (Notes 3.10 and 14) (less applicable income tax
benefit of Baht 36,334 thousand)................................. (222,896)
=========
Net (Loss)........................................................ (137,614)
=========
Unappropriated Retained Earnings Brought Forward.................. 567,372
Net Profit (Loss)................................................. (137,614)
Less Appropriations for prior year:
Directors' remuneration......................................... (1,980)
---------
Unappropriated Retained Earnings Carried Forward.................. 427,778
=========
Net Profit (Loss) Per Share (Note 3.12)...........................
Profit before extraordinary item........................... Baht 4.06
Extraordinary item......................................... Baht (10.61)
Net (loss)................................................. Baht (6.55)
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
2
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
For The Year Ended November 24, 1997
<TABLE>
<CAPTION>
Consolidated
------------
Baht: '000
<S> <C>
Cash Flows from Operating Activities
Net (loss)...................................................... (137,614)
Adjustments to reconcile net profit (loss) to net cash provided
(used) by operating activities:
Allowance for doubtful accounts............................... 1,289
Depreciation and amortization................................. 247,330
Amortization of goodwill...................................... 31,515
Net increase in deferred income tax........................... (49,815)
Net loss on exchange.......................................... 329,404
Loss on the application of the managed float exchange system.. 259,230
--------
Income from operations before changes in operating assets and
liabilities.................................................... 681,339
(Increase) Decrease in operating assets
Trade accounts and notes receivable........................... (195,949)
Short-term loans and advance to related parties............... --
Inventories................................................... (786,184)
Other current assets.......................................... 25,378
Other assets.................................................. (1,106)
Increase (Decrease) in operating liabilities
Trade accounts and notes payable.............................. 667,326
Short-term loans and advance to related parties............... --
Other current liabilities..................................... 116,744
Other liabilities............................................. 10,338
Directors' remuneration....................................... (1,980)
--------
Net cash provided by operating activities................... 515,906
--------
Cash Flows from Investing Activities
Decrease in deposit with maturity of more than 3 months......... 3,008
Net (increase) in property, plant and equipment................. (454,946)
--------
Net cash (used) by investing activities..................... (451,938)
--------
Cash Flows from Financing Activities
(Decrease) in bank overdrafts and loans from financial
institutions................................................... (365,507)
Increase in long-term loans..................................... 82,780
--------
Net cash (used) by financing activities..................... (282,727)
--------
Translation Adjustment............................................ 60,315
--------
Net increase in cash and cash equivalents......................... (158,444)
Cash and cash equivalents at the beginning of year................ 303,573
--------
Cash and cash equivalents at the end of year...................... 145,129
========
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
3
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended November 24, 1997
1. Effect of Economic Crisis
Many Asia Pacific countries, including Thailand are experiencing severe
economic difficulties relating to currency devaluations, volatile stock
markets, and slowdown in growth. The operations of the Company have been
affected to a certain level, and will continue to be affected for the
foreseeable future, by the financial and economic uncertainty in the Asia
Pacific region.
The Company currently generates all its income from exports denominated in
US dollars.
2. Basis for Preparation of the Financial Statements
2.1 The consolidated financial statements for the year ended November
24, 1997 are presented in accordance with the form of balance sheet and
profit and loss statement for public companies as required by the
Ministerial Regulation No. 7 B.E. 2539 (1996), dated October 25, 1996,
issued under the Public Companies Act, B.E. 2535 (1992) and effective for
accounting periods starting on January 1, 1997.
2.2 The consolidated financial statements include the accounts of GSS
Array Technology Public Company Limited and its subsidiaries, prepared
after eliminating significant intercompany transactions and balances.
The percentages of shareholding in subsidiaries are as follows:
<TABLE>
<CAPTION>
1997
% of
shareholding
------------
<S> <C>
GSS Array Technology
(Singapore) Pte., Ltd.
(Incorporated in Singapore)................................ 100.00
GSS Array Technology Inc.
(Incorporated in U.S.A.)................................... 100.00
GSS Array Technology Limited
(Incorporated in United Kingdom)........................... 100.00
</TABLE>
2.3 Balance sheet and statement of income of foreign subsidiaries are
translated into Baht at the exchange rates prevailing at the balance sheet
date and the average exchange rates, respectively. The differences are
included in the accumulated foreign currency translation adjustments in the
shareholders' equity.
3. Significant Accounting Policies
3.1 Cash and cash equivalents consist of cash in hand and all types of
deposits at banks and at financial institutions with original maturities of
3 months or less.
3.2 Allowance for doubtful accounts is based on management's evaluation
of specific accounts which are considered uncollectible.
3.3 Inventories are stated at cost or market value, whichever is the
lower. Cost is determined by the first-in, first-out (FIFO) method.
3.4 Investments in related parties are presented by the equity method.
4
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3.5 Property, plant and equipment are stated at cost.
Interest incurred on funds borrowed during the construction period
relating to the expansion program is capitalized. After completion of
construction and start of production, interest incurred is recorded as an
expense.
The Company calculates depreciation by the straight-line method, based
on the estimated useful live of the assets over 5-20 years.
Subsidiaries calculate depreciation by the straight-line method, based
on the estimated useful lives of the assets, over 4-6 years. Leasehold
improvement is amortized over the lease period.
3.6 The excess of cost over book value of investments in subsidiaries at
the time of acquisition is accounted for as goodwill and is amortized over
20 years.
3.7 Property for disposal consist of land, buildings and building
improvement at Rangsit plant. Buildings and building improvement are stated
at book value as of December 24, 1996 which is the date of closing down
that plant. Land is stated at cost.
3.8 Deferred charges included in other assets are amortized over 10
years.
3.9 Deferred income tax is provided for timing differences between
financial and tax reporting purposes. The deferred income tax will be
allocated to future periods when the timing differences are allowed.
3.10 Assets and liabilities denominated in foreign currencies at the end
of the year are converted into Baht at the rates of exchange prevailing on
that date. Profit or loss on exchange is recognized in the statement of
income.
Loss on exchange in connection with assets and liabilities denominated
in foreign currencies outstanding at July 2, 1997 upon the introduction of
the managed float system of the Baht by the Ministry of Finance, inclusive
of the portion settled before the year-end and the remaining portion at
year-end is presented as a loss from the application of the managed float
exchange system and shown as an extraordinary item in the statement of
income.
3.11 Income tax expenses are based on profit computed by the cost method
in accordance with the procedures specified by the Revenue Code.
3.12 Net profit per share are based on the number of ordinary shares
outstanding at the balance sheet date. In case of a capital increase, the
number of shares are weighted according to time of subscription received
for the increased issued and paid-up capital.
4. Supplemental Disclosures of Cash Flow Information
4.1 Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
Consolidated
1997
-------------
Thousand Baht
<S> <C>
Cash in hand and at banks.................................... 125,704
Short-term investment........................................ 29,425
-------
155,129
Less Deposits with maturity of more than 3 months............ (10,000)
-------
145,129
=======
</TABLE>
5
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4.2 Cash paid for interest and income tax are as follows:
<TABLE>
<CAPTION>
Consolidated
1997
-------------
Thousand Baht
<S> <C>
Interest..................................................... 152,707
Income tax................................................... 11,861
</TABLE>
4.3 Non-cash item
Property, plant and equipment was transferred to property for disposal
amounting to Baht 123,381 thousand in 1997.
5. Short-Term Investments
As at November 24, 1997, fixed deposits at banks of Baht 10,000 thousand
have been pledged as security against bank overdrafts (see note 9).
6. Inventories
Inventories consist of the following :
<TABLE>
<CAPTION>
Consolidated
1997
-------------
Thousand Baht
<S> <C>
Finished goods............................................... 77,202
Work in process.............................................. 493,424
Raw materials................................................ 1,421,495
Raw materials in transit..................................... 28,789
---------
2,020,910
Less Provision for obsolete stock............................ (111,710)
---------
1,909,200
=========
</TABLE>
7. Property, Plant and Equipment
Property, plant and equipment consist of the following :
<TABLE>
<CAPTION>
Consolidated
1997
-------------
Thousand Baht
<S> <C>
Land........................................................... 121,700
Buildings...................................................... 632,601
Buildings improvement.......................................... 189,162
Machinery and equipment........................................ 1,255,481
Vehicles....................................................... 15,226
Furniture, fixture and office equipment........................ 125,626
---------
2,339,796
Less Accumulated depreciation.................................. (842,036)
---------
1,497,760
Construction in progress....................................... 12,362
---------
1,510,122
=========
Depreciation for the year...................................... 247,330
=========
</TABLE>
6
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has mortgaged land, buildings and a part of machinery and
equipment with banks as security against loans from banks and long-term loans
(see notes 9 and 10).
The Company has commenced construction of its new plants. During the year
1997, the Company has capitalized interest as part of the cost of plant for
Baht 3.5 million.
8. Property for Disposal
Property for disposal consist of the following:
<TABLE>
<CAPTION>
Consolidated
1997
-------------
Thousand Baht
<S> <C>
Land........................................................... 53,996
Building....................................................... 56,958
Building improvement........................................... 74,243
-------
185,197
Less Accumulated depreciation.................................. 61,816
-------
123,381
=======
</TABLE>
9. Bank Overdrafts and Loans from Financial Institutions
Bank overdrafts are secured by the pledge of fixed deposits of the Company
(see note 5).
Loans from financial institutions are secured by land, buildings and a part
of machinery and equipment (see note 7).
10. Long-Term Loans
Long-term loans consist of the following:
<TABLE>
<CAPTION>
Consolidated
1997
-------------
Thousand Baht
<S> <C>
Loans repayable every 3 months from 1998 to 2000............... 956,952
Loans of foreign subsidiaries.................................. 143,659
---------
1,100,611
Less Current portion........................................... (353,481)
---------
747,130
=========
</TABLE>
Long-term loans of the Company and foreign subsidiaries denominated in
foreign currency of US$28 million as of November 24, 1997, carry interest at
the rate of LIBOR +3 and are secured by land, buildings and a part of machinery
and equipment (see note 7) and carry restrictive covenants pertaining to the
performance and the debt-equity ratio.
11. Share Capital
On November 21, 1996, the shareholders passed a resolution to increase the
registered capital from Baht 210,000,000 to Baht 220,500,000 by an issue of
1,050,000 ordinary shares of Baht 10.00 par value each as accommodation of the
exercise of warrants (see note 17).
7
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company duly registered the increased share capital with the Department
of Commercial Registration on December 17, 1996.
12. Statutory Reserve
Under the Public Companies Act, the Company is required to set aside as a
statutory reserve at least 5% of its net profit, after accumulated deficit
brought forward (if any), until the reserve is not less than 10% of the
authorized capital.
13. Foreign Currency
Change in cumulative translation adjustment of foreign currency financial
statement.
<TABLE>
<CAPTION>
1997
-------------
Thousand Baht
<S> <C>
Cumulative translation
adjustment brought
forward............... 5,857
Cumulative translation
adjustment occurred
during the period..... 60,315
------
Cumulative translation
adjustment carried
forward............... 66,172
======
</TABLE>
Exchange and translation gains (losses) on an after-tax basis included in
consolidated operating results in 1997 amount to Baht (115,102) thousand.
14. Loss on the Application of the Managed Float Exchange System
For the year ended November 24, 1997, loss on the application of the managed
float exchange system which was calculated by translating the assets and
liabilities denominated in foreign currencies into Baht as described in note
3.10 to the financial statements and presented as an extraordinary item in the
profit and loss statement amounted to Baht 259,230 thousand or Baht 222,896
thousand after deducting the applicable income tax benefit.
15. Investment Promotion Certificates
The Company is granted certain rights and privileges as a promoted industry
under the Investment Promotion Act of B.E. 2520 (1977), including exemption
from customs duties for certain machinery imported for the manufacturing plant,
and exemption from income tax on profit from the operations as follows:
<TABLE>
<S> <C>
Investment promotion certificate No.
15354/1995 dated May 31, 1995......... Exemption from income tax on profit
from the project at Nakornrachsima
for a period of 8 years from the
date of receiving operating
revenues.
Investment promotion certificate No.
7012/Yor/1996 dated April 26, 1996.... Exemption from income tax on profit
from the project at Ayudhaya for a
period of 7 years from date of
receiving operating revenues.
</TABLE>
The Company thus has to comply with certain conditions contained in the
promotion certificates.
8
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Long-Term Lease Agreements
The Company and subsidiaries have long-term lease agreements with amount of
lease payments as follows:
<TABLE>
<CAPTION>
Consolidated
Year 1997
---- -------------
Thousand Baht
<S> <C>
1997........................................................... --
1998........................................................... 42,309
1999........................................................... 33,539
2000........................................................... 57,026
2001........................................................... 49,446
2002........................................................... 37,483
2003-2005...................................................... 88,045
</TABLE>
17. Stock Option Plan
On November 21, 1996, the shareholders passed a resolution to issue
1,050,000 ordinary share warrants to be allocated to certain directors and
employees of the Company. The issued warrants will not be listed in The Stock
Exchange of Thailand. The holders of warrants will have the right to buy
ordinary shares of the Company according to the ratio and the exercise price
stated in the warrants and these warrants can be exercised over the 5 year
period.
In addition, the shareholders also passed a resolution to increase the
registered capital by Baht 10,500,000 by an issue of 1,050,000 new ordinary
shares of Baht 10.00 par value each, as accommodation for the exercise of
warrants (see note 11).
18. Commitment and Contingent Liabilities
The Company has contingent liabilities to bank for letters of guarantee as
at November 24, 1997 amounting to Baht 24 million.
9
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. Financial Information by Segment
The Company and its subsidiaries' operations involve a single industry
segment in electronic component assembly and carried on business in Thailand
and foreign geographic areas. Geographical segment information of the Company
and its subsidiaries as of and for the year ended November 24, 1997 is as
follows:
1997
<TABLE>
<CAPTION>
Consolidated (Million Baht)
----------------------------------------------
Domestic Foreign Total Elimination Grand total
-------- ------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales
--Outside customers....... 4,767 2,915 7,682 -- 7,682
--Other segment........... 149 -- 149 (149) --
----- ----- ----- ------ -----
4,916 2,915 7,831 (149) 7,682
----- ----- ----- ------ -----
Other income
--Outside customers....... 137 -- 137 -- 137
--Other segment........... -- 188 188 (188) --
----- ----- ----- ------ -----
137 188 325 (188) 137
----- ----- ----- ------ -----
Operating profit............ 812
Expense..................... (560)
Interest expense............ (159)
Income tax.................. (8)
-----
Profit before extraordinary
item....................... 85
Extraordinary item.......... (223)
-----
Net profit (loss)........... (138)
=====
Property, plant and
equipment.................. 1,226 284 1,510 -- 1,510
Others...................... 3,250 1,641 4,891 (1,055) 3,836
----- ----- ----- ------ -----
Total assets................ 4,476 1,925 6,401 (1,055) 5,346
===== ===== ===== ====== =====
</TABLE>
20. Matter Arising After the Balance Sheet Date
There is a notification from the Company Chief Operating Officer to it's
employees dated December 8, 1997 to close down the factory at Nakornrachsima
and move all machinery and production to Hi-tech Industrial Estate at Ayudhaya.
Book value of assets at Nakornrachsima plant as of November 24, 1997 for
disposal are as follows:
<TABLE>
<CAPTION>
Accumulated Book
Cost depreciation value
------- ------------ -------
Thousand Baht
<S> <C> <C> <C>
Land............................................ 27,179 -- 27,179
Buildings....................................... 210,225 15,659 194,566
Buildings improvement........................... 1,331 241 1,090
------- ------ -------
238,735 15,900 222,835
======= ====== =======
</TABLE>
Losses that may arise from disposal cannot be determined at this time.
Employee severance pay for Baht 17 million and relocation expense for Baht 7
million have been provided for in the statement of income.
* * * * *
10
