<PAGE>
As filed with the Securities and Exchange Commission on July 28, 2000
Registration No. 333-41406
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
ACT MANUFACTURING, INC.
(Exact name of registrant as specified in its charter)
--------------
Massachusetts 3670 04-2777507
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
2 Cabot Road
Hudson, MA 01749
(978) 567-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
JOHN A. PINO
Chairman of the Board, President and Chief Executive Officer
ACT Manufacturing, Inc.
2 Cabot Road
Hudson, MA 01749
(978) 567-4000
(Name, address including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
JOHN A. MELTAUS, ESQ.
BARBARA M. JOHNSON, ESQ.
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Telephone: (617) 248-7000
Telecopy: (617) 248-7100
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. The +
+selling securityholders may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities and it is not +
+soliciting offers to buy these securities in any jurisdiction where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 28, 2000
[ACT LOGO APPEARS HERE]
$100,000,000
7% Convertible Subordinated Notes due April 15, 2007
and the Common Stock Issuable upon Conversion of the Notes
------------
We issued the notes in a private placement in April 2000. This prospectus
will be used by selling securityholders to resell the notes and the common
stock issuable upon conversion of the notes.
We will pay interest on the notes on April 15 and October 15 of each year.
The first interest payment will be made on October 15, 2000. The notes will
mature on April 15, 2007, unless earlier converted or redeemed.
We may redeem some or all of the notes at any time on or after April 20,
2003. In addition, we may redeem some or all of the notes on or after October
20, 2001 and prior to April 20, 2003 if certain conditions are met. If we
experience a change in control, holders of the notes will have the right to
require us to purchase their notes at a price equal to 100% of the principal
amount plus accrued interest.
Holders of the notes may convert the notes into our common stock at any time
on or before April 15, 2007 at an initial conversion price of $42.90 per share,
which is equivalent to a conversion rate of 23.31 shares of our common stock
per $1,000 principal amount of notes. This conversion rate is subject to
adjustment under the terms of the notes.
Our common stock is quoted on The Nasdaq Stock Market's National Market under
the symbol "ACTM." On July 25, 2000, the reported last bid price for our common
stock on The Nasdaq National Market was $37.50 per share.
The notes and the common stock offered by this prospectus involve a high
degree of risk. See Risk Factors beginning on page 6.
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy of this prospectus. Any contrary representation is a criminal offense.
------------
The date of this prospectus is July , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Where You Can Find More
Information........................ ii
Cautionary Statements Regarding
Forward-Looking Statements......... iii
Presentation of Acquisition
Financials and Other Data.......... iii
Prospectus Summary.................. 1
Risk Factors........................ 6
Use of Proceeds..................... 17
Ratio of Earnings to Fixed Charges.. 17
Selected Consolidated Financial
Data............................... 18
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Condensed
Combined Financial Statements...... 20
Description of Notes................ 27
Description of Capital Stock........ 41
Selling Securityholders............. 43
Material United States Federal
Income Tax Considerations.......... 45
Plan of Distribution................ 48
Legal Matters....................... 49
Experts............................. 49
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
----------------
You should rely only on the information contained in or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can inspect and
copy the registration statement on Form S-3 of which this prospectus is a part,
as well as our reports, proxy statements and other information filed by us, at
the SEC's Public Reference Room at 450 Fifth Street, Judiciary Plaza, N.W.,
Washington, D.C. 20549. You can obtain copies of such materials from the Public
Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You can call the SEC at 1-800-SEC-0330 for information
regarding the operation of its Public Reference Room. Our reports, proxy
statements and other information filed with the SEC are available to the public
over the Internet at the SEC's site at http://www.sec.gov.
This prospectus provides you with a general description of the notes and
common stock being registered. This prospectus is part of a registration
statement that we have filed with the SEC. To see more detail, you should read
the exhibits and schedules filed with, or incorporated by reference into, our
registration statement.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is considered a part of this prospectus, and later
information we file with the SEC will automatically update and supersede this
information. We incorporate by reference our documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 and 15(d)
of the Securities Exchange Act of 1934 until this offering is completed:
. Annual Report on Form 10-K for the year ended December 31, 1999 and
related exhibits;
. Current Report on Form 8-K filed on April 6, 2000 and related exhibits;
. Current Report on Form 8-K filed on July 14, 2000 and related exhibits;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and
related exhibits; and
. The description of our capital stock contained in the Registration
Statement on Form 8-A which was filed with the SEC on February 15, 1995.
You may request these documents in writing or by telephone. We will provide
to you, at no cost, a copy of any or all information incorporated by reference
in the registration statement, of which this prospectus is a part. Requests
should be directed to us at the following address:
ACT Manufacturing, Inc.
2 Cabot Road
Hudson, Massachusetts 01749
Attn: Chief Financial Officer
(978) 567-4089
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement or amendment. We have
not authorized anyone else to provide you with different information. The
selling securityholders are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement or amendment is
accurate as of any date other than the date on the front of the document.
ii
<PAGE>
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and documents we incorporate by reference include forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements relate to, among other things, analyses
and other information that are based on forecasts of future results and
estimates of amounts not yet determinable. These statements also relate to our
future prospects, developments and business strategies.
All statements other than statements of historical fact we make in this
prospectus or in any document incorporated by reference are forward-looking
statements. In particular, these forward-looking statements are identified by
their use of terms and phrases such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "predict," "project," "should," "will"
or the negative of those or other variations, or comparable expressions,
including references to assumptions. These statements are contained in sections
entitled "Prospectus Summary," "Risk Factors," and other sections of this
prospectus and in documents we incorporate by reference. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operations or of our
financial position or state other "forward-looking" information.
The forward-looking statements in this prospectus and in documents we
incorporate by reference, including statements concerning projections of our
future results, operating profits and earnings, are based on current
expectations and are subject to risks and uncertainties. There may, however, be
events in the future that we are not able to accurately predict or control. The
factors listed in the section captioned "Risk Factors," as well as any
cautionary language in this prospectus and in documents we incorporate by
reference, provide examples of risks, uncertainties and events that could cause
our actual results to differ materially from those expressed or implied by our
forward-looking statements.
If one or more of these risks or uncertainties materializes, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. Given these uncertainties, you
should not place undue reliance on forward-looking statements.
We undertake no obligation to update forward-looking statements or risk
factors, whether as a result of new information, future events or otherwise.
All forward-looking statements attributable to us are expressly qualified by
these cautionary statements.
PRESENTATION OF ACQUISITION FINANCIALS AND OTHER DATA
On March 15, 2000, we entered into a Pre-Tender Agreement for the purchase
of all of the issued shares and outstanding options of GSS Array Technology
Public Company Limited, which we refer to as GSS Thailand throughout this
prospectus. GSS Thailand prepares its financial statements in accordance with
generally accepted accounting principles in the kingdom of Thailand, known as
Thai GAAP, which differs in certain respects from accounting principles
generally accepted in the United States of America, known as U.S. GAAP, and
such differences could be material. These differences have been included as
reconciling items to the financial statements as of February 24, 2000 and for
the quarters ended February 24, 2000 and 1999 and to the financial statements
as of November 24, 1999 and 1998 and for the years then ended. GSS Thailand
prepares its financial statements in Thai baht. For the convenience of the
reader, we have translated the financial statement amounts in baht as of
February 24, 2000 and for the quarter then ended and as of November 24, 1999
and for the year then ended, in this prospectus, into U.S. dollar amounts.
On July 12, 2000, we entered into a Share Purchase Agreement with Bull and
Bull S.A. for the purchase of all of the issued shares of Bull Electronics
Angers S.A., which we refer to as BEA throughout this prospectus. BEA prepares
its financial statements in accordance with U.S. GAAP and reports in French
francs which is the functional currency. For the convenience of the reader, we
have translated the financial statement amounts in francs as of March 31, 2000
and for the quarter then ended and as of December 31, 1999 and for the year
then ended, in this prospectus, into U.S. dollar amounts.
----------------
This prospectus references and depicts certain trademarks, service marks and
trade names of other companies. "ACT Manufacturing" and the ACT logo are
trademarks and service marks of ACT Manufacturing, Inc.
iii
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important to
you. You should read the entire prospectus, including the information
incorporated by reference and our consolidated financial statements and related
notes, before making an investment decision. When used in this prospectus, the
terms "we," "our" and "us" refer to ACT Manufacturing and not to the selling
securityholders.
ACT Manufacturing, Inc.
We are a leading provider of value-added electronics manufacturing services
to original equipment manufacturers in the networking and telecommunications,
computer and industrial and medical equipment markets. We target and have
developed a particular expertise in serving emerging and established OEMs who
require moderate volume production runs of complex, leading-edge commercial
market applications such as wireless and ADSL modems, Internet access switches,
routers and mass storage systems. The multiple configurations and high printed
circuit board densities that characterize these applications generally require
technologically-advanced and flexible manufacturing as well as a high degree of
other value-added services.
We develop close, long-term relationships with our customers by working with
them throughout the development, manufacturing and distribution processes to
enhance the manufacturability, testability and reliability of our customers'
products. We provide OEMs with:
. complex printed circuit board assembly, primarily utilizing advanced
surface mount technology;
. electro-mechanical sub-assembly;
. total system assembly and integration;
. mechanical and molded cable and harness assembly; and
. value-added services, such as new product introduction, flexible
materials management, comprehensive test services, order fulfillment,
and product diagnostics and repair.
We have developed strong customer relationships with a wide range of
companies in the networking and telecommunications and computer industries. Our
customer base of over 100 customers includes large, established OEMs such as
EMC Corporation, Motorola and Nortel Networks, and emerging providers of next-
generation technology products such as Convergent Networks, Efficient Networks
and Unisphere Solutions (formerly Redstone Communications). Networking and
telecommunications OEMs represented approximately 77% of our net sales for the
three months ended March 31, 2000, while computer OEMs accounted for
approximately 16% of our net sales for the same period.
ACT Manufacturing was incorporated in Massachusetts in 1982 under the name
Advanced Cable Technologies, Inc. In December 1994, Automated Component
Technologies, Inc., a related company with common ownership, was merged into
Advanced Cable Technologies, Inc. which then changed its name to ACT
Manufacturing, Inc. Our principal executive offices are located at 2 Cabot
Road, Hudson, Massachusetts 01749 and our telephone number is (978) 567-4000.
Information contained in our Web site is not part of this prospectus.
1
<PAGE>
Recent Developments
GSS Thailand
On March 15, 2000, we entered into a Pre-Tender Agreement with GSS Thailand
and certain of its stockholders for the acquisition of all issued shares and
outstanding options of GSS Thailand, a Thailand company publicly traded on the
Stock Exchange of Thailand. Under the terms of the Pre-Tender Agreement, GSS
Thailand would be delisted from the Stock Exchange of Thailand and we would
then make a cash tender offer of approximately 3,546,038 thousand baht
(approximately $93.7 million) for all issued shares and outstanding options of
GSS Thailand. Holders of approximately 23% of GSS Thailand's issued shares are
a party to the Pre-Tender Agreement and have agreed to tender their issued
shares and outstanding options to ACT. On April 28, 2000, approximately 84% of
GSS Thailand shareholders voted to delist their company from the Stock Exchange
of Thailand in a general shareholder meeting. On May 15, 2000, the Stock
Exchange of Thailand approved the delisting of GSS Thailand and the tender
offer for all of the issued shares and outstanding options of GSS Thailand
commenced on May 26, 2000.
GSS Thailand operates a 240,000 square foot manufacturing facility in
Thailand and has a procurement office in Singapore. The Thai operation provides
value-added electronic manufacturing services to OEMs, including the
manufacturing of complex printed circuit board assemblies, electro-mechanical
sub-assembly, and total system assembly and integration. The Singapore
operation serves as an international purchasing operation. The top three
customers of GSS Thailand for the year ended November 24, 1999 were Cidco,
Spectrian and Rosemount. If the acquisition of GSS Thailand is consummated,
Robert Zinn, the current Chief Executive Officer of GSS Thailand, is expected
to become our Executive Vice President--International Operations, and Jim
Menges, the current President of GSS Thailand, is expected to become our Vice
President of Operations--Asia.
Bull Electronics Angers
On July 12, 2000, we entered into a Share Purchase Agreement with Bull and
Bull S.A. for the acquisition of all issued shares of BEA for a purchase price
of approximately $56.6 million, subject to adjustment in certain circumstances.
Under the terms of the Share Purchase Agreement, prior to the closing, BEA will
spin out its printed circuit board fabrication business to a separate
subsidiary of Bull. On July 6, 2000, Bull received an opinion from its workers'
council concerning the acquisition of BEA and the spin out of the PCB business.
BEA provides electronics manufacturing services to OEMs, including printed
circuit board and box-build systems assembly as well as associated end-to-end
value-added services. BEA owns and operates a 230,000 square foot manufacturing
facility in Angers, France. The top three customers of BEA's electronics
manufacturing services business (other than Bull) for the year ended December
31, 1999 were: EMC, Packard Bell and NetGem.
We expect to close both of the acquisitions of GSS Thailand and BEA in the
third quarter of fiscal 2000. However, both acquisitions are subject to various
regulatory approvals and other conditions. We cannot assure you that any or all
of these conditions will be satisfied. We therefore may not consummate either
the acquisition of GSS Thailand or the acquisition of BEA on a timely basis or
at all. For more information on the risks related to the acquisitions, see
"Risk Factors--We may not close the acquisition of either GSS Thailand or BEA."
If consummated, the acquisitions of both GSS Thailand and BEA would
significantly increase our scale of operations, enhance our customer diversity,
expand our presence in Asia and Europe, increase our manufacturing capabilities
and capacity, and strengthen our managerial and engineering resources, thereby
enabling us to better compete for the business of larger OEMs in the
electronics industry.
2
<PAGE>
New Credit Facility
On June 29, 2000, we entered into a Credit Agreement with a syndicate of
financial institutions led by Chase Manhattan Bank as administrative agent. The
Credit Agreement provides that the lenders will make available to us up to
$150.0 million of revolving loans (up to $20.0 million of which we may use in a
variety of currencies, and the balance of which we may use in U.S. dollars) and
up to $100.0 million of term loans (up to $75.0 million of which we may use to
acquire BEA and $25.0 million of which we may use for GSS Thailand). This
Credit Agreement replaces our prior credit facility.
The revolving loans are subject to a borrowing base formula, under which we
may borrow up to specified percentages of the value of various categories of
our assets, including accounts receivable, inventory, machinery and equipment.
We may elect to have interest on revolving loans and term loans payable either
monthly or quarterly, at an interest rate based on either the prime rate of
Chase Manhattan Bank or the prevailing rates in the Eurocurrency market. We
must repay all revolving loans by June 29, 2005. We must borrow all term loans
by September 30, 2000, and repay them in quarterly installments from December
31, 2000 through June 29, 2005.
The Credit Agreement requires us to meet certain financial conditions,
including net worth and the ratio of each of total debt, senior secured debt
and interest and other fixed charges, to earnings. In addition, the Credit
Agreement limits our ability to incur debt, grant liens, dispose of our
properties, pay dividends, make capital expenditures or investments or enter
into mergers or acquisitions.
Financial Results
On July 27, 2000, we announced our financial results for the three months
ended June 30, 2000.
For the three months ended June 30, 2000, revenue increased 61 percent to a
record $252,970,000 compared with $157,519,000 for the same period in 1999. Net
income for the three months ended June 30, 2000 increased 584 percent to
$7,028,000, or $0.40 per share, compared with net income of $1,028,000, or
$0.08 per share, for the second quarter of 1999.
For the six months ended June 30, 2000, revenue increased 59 percent to a
record $482,058,000 compared with $303,466,000 for the same period in 1999. Net
income for the six months ended June 30, 2000 increased 358 percent to
$13,178,000, or $0.74 per share, compared with net income of $2,878,000, or
$0.22 per share, for the same period in 1999.
3
<PAGE>
The Offering
Securities Offered.......... $100,000,000 principal amount of 7%
Convertible Subordinated Notes due April 15,
2007.
Maturity Date............... April 15, 2007.
Interest Payment Dates...... April 15 and October 15 of each year,
commencing October 15, 2000.
Conversion Rights........... Holders of the notes may convert the notes
into shares of common stock at any time prior
to maturity at an initial conversion price of
$42.90 per share, subject to adjustment in
certain events; provided, that a holder's
right to convert a note called for redemption
will terminate on the business day
immediately preceding the redemption date.
See "Description of Notes--Conversion
Rights."
Provisional Redemption...... We may redeem some or all of the notes at any
time on or after October 20, 2001 and prior
to April 20, 2003 at a redemption price equal
to 100% of the principal amount of the notes
to be redeemed, plus accrued and unpaid
interest to the redemption date, if (1) the
closing price of our common stock has
exceeded 140% of the conversion price of the
notes for at least 20 of the 30 trading days
prior to the mailing of the redemption
notice, and (2) in accordance with the terms
of the registration rights agreement, the
shelf registration statement covering resales
of the notes and the common stock issuable
upon conversion of the notes is effective and
available for use, and is expected to remain
effective and available for use for the 30
days following the redemption date. If we
redeem the notes under these circumstances,
we will make an additional "make whole"
payment on the redeemed notes equal to $105
per $1,000 note, minus the amount of any
interest we actually paid on the note after
October 15, 2001 and prior to the date we
mailed the redemption notice. See
"Description of Notes--Provisional
Redemption."
Optional Redemption......... On and after April 20, 2003, we may redeem
the notes at any time at our option, in whole
or in part, from time to time, at the
redemption prices shown in this prospectus,
plus accrued interest, if any. See
"Description of Notes--Optional Redemption."
Sinking Fund................ None.
Change in Control........... If we experience a change in control, holders
of the notes will have the right to require
us to purchase their notes at a price of 100%
of the principal amount plus accrued
interest. The term change in control is
defined under the heading "Description of
Notes--Purchase of Notes at the Option of
Holders Upon a Change in Control."
Subordination............... The notes will be general unsecured
obligations of ACT and will be contractually
subordinate in right of payment to all of our
4
<PAGE>
existing and future senior indebtedness (as
defined under the heading "Description of
Notes--Definitions"). As of March 31, 2000,
we had approximately $96.3 million of senior
indebtedness outstanding that would have been
senior in right of payment to the notes and
had the ability to borrow an additional $13.0
million under our credit facility. If we had
completed the offering of the notes,
purchased both of GSS Thailand and BEA and
closed our new credit facility as of March
31, 2000 and financed the purchases with the
proceeds of the offering of the notes and the
remainder out of our available credit
facility, we would have had approximately
$309.0 million of indebtedness outstanding on
a pro forma basis that would have been
effectively senior in right of payment to the
notes (based on the debt of GSS Thailand as
of February 24, 2000 and the debt of BEA as
of March 31, 2000) and would have had the
ability to borrow an additional $56.5 million
under our credit facility. In addition, the
notes will be effectively subordinated to all
of the existing and future indebtedness and
other liabilities (including trade payables)
of our subsidiaries, which in the aggregate
was approximately $94.4 million as of March
31, 2000. The indenture governing the notes
does not restrict our ability or the ability
of our subsidiaries to incur indebtedness.
Use of Proceeds.............
We will not receive any of the proceeds from
the sale of the notes or the underlying
common stock by any selling securityholders.
Trading..................... Our common stock is traded on The Nasdaq
National Market under the symbol "ACTM."
Form and Denomination of
Notes...................... The notes will be represented by a global
note which was deposited with a custodian
for, and registered in the name of a nominee
of, The Depository Trust Company in New York
City. Beneficial interests in the global
notes will be shown on, and transfers of the
global notes will be effected only through,
records maintained by DTC and its
participants. The notes will be denominated
in the principal amount of $1,000 or an
integral multiple thereof. See "Description
of Notes--Book-Entry; Delivery and Form."
5
<PAGE>
RISK FACTORS
Investing in the notes or the shares of common stock underlying the notes
involves a high degree of risk. You should carefully consider the risks and
uncertainties described below and the other information and forward-looking
statements contained or incorporated by reference in this prospectus before
deciding to invest in the notes or the shares of common stock underlying the
notes. These risks and uncertainties are not the only risks or uncertainties
facing us or which may adversely affect our business. If any of the following
risks or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer materially.
Risks Related to Acquisitions
We may not close the acquisition of either GSS Thailand or BEA.
We have commenced our tender offer for all issued shares and outstanding
options of GSS Thailand at the price per share set forth in the Pre-Tender
Agreement. We may not terminate our offer or lower the purchase price for any
reason, including adverse developments in the business, condition or results
of operations of GSS Thailand or otherwise. As part of the Pre-Tender
Agreement, holders of approximately 23% of GSS Thailand's issued shares agreed
to tender their shares and options in ACT's tender offer. However, we cannot
force any non-tendering shareholder to exchange GSS Thailand shares or options
for the tender offer price, and accordingly a minority interest could exist
following the closing. This minority interest would result in our not
receiving the full benefit of ownership of the GSS Thailand operations.
Our obligation to close the acquisition of BEA is subject to various
conditions, including among others:
. the PCB business shall have been spun out to a separate subsidiary of
Bull;
. no material adverse effect on BEA shall have occurred; and
. all third party consents shall have been obtained.
We cannot assure you that the conditions set forth above will be satisfied
or that we will consummate either of the acquisitions of GSS Thailand or BEA
on a timely basis or at all. Even if we consummate the GSS Thailand and BEA
acquisitions, we may not realize any of the anticipated benefits of either or
both acquisitions.
We may fail to make additional acquisitions and may not successfully integrate
acquisitions we do make, which could impair our ability to compete and our
operating results.
In light of the consolidation trend in our industry, we intend to pursue
selective acquisitions of additional electronics manufacturing services
providers, facilities, assets or businesses. We may compete for acquisition
opportunities with entities having significantly greater resources than us. As
a result, we may not succeed in acquiring some or all companies, facilities,
assets or businesses that we seek to acquire. Failure to consummate additional
acquisitions may prevent us from accumulating sufficient critical mass
required by customers in this consolidating industry. This failure could
significantly impact our ability to effectively compete in our targeted
markets and could negatively affect our results of operations.
Moreover, acquisitions that we do complete may result in:
. the potentially dilutive issuance of common stock or other equity
instruments;
. the potentially dilutive impact on our earnings per share;
. the incurrence of debt and amortization expenses related to goodwill and
other intangible assets; or
. the incurrence of significant costs and expenses.
6
<PAGE>
Acquisition transactions, including our pending acquisitions of GSS Thailand
and BEA, also involve numerous business risks, including:
. difficulties in assimilating the acquired operations, technologies,
personnel and products;
. difficulties in managing geographically dispersed and international
operations;
. the diversion of management's attention from other business concerns;
. the potential disruption of our business; and
. the potential loss of key customers and employees.
Risks Related to Our Operations
Our business may suffer if the networking and telecommunications segments of
the electronics industry fail to grow and evolve.
Our customer base has historically been concentrated in a limited number of
segments within the electronics industry. Net sales to customers within the
networking and telecommunications segments accounted for approximately 77% of
our net sales for the three months ended March 31, 2000, 66% in fiscal 1999 and
58% in fiscal 1998. Developments adverse to these industry segments could
materially and negatively impact us. These industry segments, and the
electronics industry as a whole, experience:
. intense competition;
. rapid technological changes resulting in short product life-cycles and
consequent product obsolescence;
. significant fluctuations in product demand;
. economic cycles, including recessionary periods; and
. consolidation.
A recessionary period or other event leading to excess capacity affecting one
or more segments of the electronics industry we serve would likely result in
intensified price competition, reduced margins and a decrease in our net sales.
The loss of major customers could adversely affect us.
We depend on a small number of customers for a significant portion of our
business. Our four largest customers accounted for approximately 50% of our net
sales for the three months ended March 31, 2000. For this period, Nortel
Networks (formerly Bay Networks and Aptis Communications) and Efficient
Networks, Inc. each accounted for 10% or more of our net sales (20% and 16%,
respectively).
Customers representing 10% or more of our net sales in fiscal 1999 were
Nortel Networks and S-3 Incorporated (formerly Diamond Multimedia) with
approximately 15% and 13%, respectively, as compared to Nortel Networks and
Micron Electronics, each with approximately 12% of our net sales in fiscal
1998. The timing and level of orders from our customers varies substantially
from period to period. The historic level of net sales we have received from a
specific customer in one particular period is not necessarily indicative of net
sales we may receive from that customer in any future period.
Our results may depend on our ability to diversify our customer base and
reduce our reliance on particular customers. Our major customers may not
continue to purchase products and services from us at current levels or at all.
In particular, we terminated our business with Ascend, which was acquired by
Lucent Technologies, in the fourth quarter of fiscal 1999 and we experienced a
significant decrease in sales to Micron in the third quarter of fiscal 1998.
For various reasons, including consolidation in our customers' industries, we
have in the
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<PAGE>
past and will continue in the future to terminate or lose relationships with
customers. We may not be able to expand our customer base to make up any sales
shortfalls from our major customers so as to increase overall net sales.
Because certain customers represent such a large part of our business, any of
the following could negatively impact our business:
. the loss of one or more major customers;
. a significant reduction or delay in purchases from any major customer;
. discontinuance by any major customer of the sale of products we
manufacture;
. a reduction in demand for the products of major customers that we
manufacture; or
. the inability or unwillingness of a major customer to pay for products
and services on a timely basis or at all.
Our customers do not enter into long-term purchase orders or commitments, and
cancellations, reductions or delays in customer orders would adversely affect
our profitability.
The level and timing of orders placed by our customers vary due to:
. customer attempts to manage inventory;
. changes in the customers' manufacturing strategy, such as a decision by
a customer to either diversify or consolidate the number of electronics
manufacturing services providers used or to manufacture their products
internally; and
. variation in demand for customer products.
We generally do not obtain long-term purchase orders or commitments from our
customers. Instead, we work closely with our customers to anticipate delivery
dates and future volume of orders based on customer forecasts. We rely on our
estimates of anticipated future volumes when making commitments regarding:
. the levels of business that we will seek and accept;
. the timing of production schedules;
. the purchase of materials;
. the purchase or leasing of facilities and equipment; and
. the levels and utilization of personnel and other resources.
Customers may cancel, reduce or delay orders that were either previously
made or anticipated for a variety of reasons. Significant or numerous
terminations, reductions or delays in our customers' orders could negatively
impact our operating results. We often purchase components for product
assemblies based on customer forecasts, at times without a written customer
commitment to pay for them. Our policy is that customers are generally
responsible for materials and associated acquisition costs in the event of a
significant reduction, delay or cancellation of orders from the forecasted
amounts. A customer's unwillingness or inability to reimburse us for materials
costs in the case of a significant variance from forecast could adversely
affect our operating results.
Increased competition may result in decreased demand or prices for our
services.
The electronics manufacturing services industry is highly competitive. We
compete against numerous U.S. and foreign electronics manufacturing services
providers with global operations, as well as those who operate on a local or
regional basis. In addition, current and prospective customers continually
evaluate the merits of manufacturing products internally. Consolidation in the
electronics manufacturing services industry results in a continually changing
competitive landscape. The consolidation trend in the industry also results in
larger and more geographically diverse competitors who have significant
combined resources with which to compete
8
<PAGE>
against us. Some of our competitors have substantially greater managerial,
manufacturing, engineering, technical, financial, systems, sales and marketing
resources than we do. These competitors may:
. respond more quickly to new or emerging technologies;
. have greater name recognition, critical mass and geographic and market
presence;
. be better able to take advantage of acquisition opportunities;
. adapt more quickly to changes in customer requirements; and
. devote greater resources to the development, promotion and sale of their
services.
We may be operating at a cost disadvantage compared to manufacturers who
have greater direct buying power from component suppliers, distributors and raw
material suppliers or who have lower cost structures. Our manufacturing
processes are generally not subject to significant proprietary protection, and
companies with greater resources or a greater geographic and market presence
may enter our market or increase their competition with us. Increased
competition from existing or potential competitors could result in price
reductions, reduced margins or loss of market share.
We may not be able to obtain raw materials or components for our assemblies on
a timely basis or at all.
We rely on a single or limited number of third-party suppliers for many
proprietary and other components used in the assembly process. We do not have
any long-term supply agreements. Shortages of materials and components have
occurred from time to time and will likely occur in the future. In particular,
we are currently experiencing a shortage in components such as tantalum and
ceramic capacitors, flash memory, and dynamic and static ram. Raw materials or
component shortages could result in shipping delays or increased prices which
could adversely affect our ability to manufacture products for our customers on
a timely basis or at acceptable cost. Moreover, the consolidation trend in our
suppliers' industry results in changes in supply relationships and in the
price, availability and quality of components and raw materials. Due to our
utilization of just-in-time inventory techniques, the timely availability of
many components is dependent on our ability to both develop accurate forecasts
of customer requirements and manage the materials supply chain. If we fail to
do either, our operating results may suffer.
Operating in foreign countries exposes us to increased risks.
We acquired in fiscal 1997, and then subsequently expanded in fiscal 1998,
operations in Dublin, Ireland. As a result of our merger with CMC, we acquired
operations in Hermosillo, Mexico and a procurement office in Taiwan. We expect
to expand into other international regions. We have limited experience in
managing geographically dispersed operations and in operating in Europe, Mexico
or Asia. We also purchase a significant number of components manufactured in
foreign countries. Because of the scope of our international operations, we are
subject to the following risks which could materially impact our results of
operations:
. economic or political instability;
. transportation delays and interruptions;
. foreign exchange rate fluctuations;
. increased employee turnover and labor unrest;
. longer payment cycles;
. greater difficulty in collecting accounts receivable;
. utilization of different systems and equipment;
. difficulties in staffing and managing foreign personnel and diverse
cultures; and
. less developed infrastructures.
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In addition, changes in policies by the U.S. or foreign governments could
negatively affect our operating results due to:
. increased duties;
. increased regulatory requirements;
. higher taxation;
. currency conversion limitations;
. restrictions on the transfer of funds;
. the imposition of or increase in tariffs; or
. limitations on imports or exports.
Also, we could be adversely affected if our host countries revise their current
policies encouraging foreign investment or foreign trade.
Our business could suffer if we lose the services of, or fail to attract, key
personnel.
Our future success largely depends upon the skills and efforts of John A.
Pino, Chairman of the Board, President and Chief Executive Officer, our other
key executives and our managerial, manufacturing, sales and technical
employees. With the exception of Jack O'Rear, Executive Vice President of
Operations and Chief Operating Officer, and a small number of sales people, we
have not entered into employment contracts or noncompetition agreements with
any of our senior management or other key employees. We do not maintain or plan
to acquire any key-man life insurance on any of our key personnel. The loss of
services of any of our executives or other key personnel could negatively
affect our business. Our continued growth will also require us to attract,
motivate, train and retain additional skilled and experienced managerial,
manufacturing, sales and technical personnel. We face intense competition for
such personnel. We may not be able to attract, motivate and retain personnel
with the skills and experience needed to successfully manage our business and
operations.
We may not be able to maintain our technological and manufacturing process
expertise.
The markets for our manufacturing services are characterized by rapidly
changing technology and evolving process development. The continued success of
our business will depend upon our ability to:
. maintain and enhance our technological capabilities;
. develop and market manufacturing services which meet changing customer
needs; and
. successfully anticipate or respond to technological changes in
manufacturing processes on a cost-effective and timely basis.
Although we believe that our operations utilize the assembly and testing
technologies, equipment and processes currently required by our customers, we
cannot be certain that we will develop capabilities required by our customers
in the future. Also, the emergence of new technologies, industry standards or
customer requirements may render our equipment, inventory or processes obsolete
or noncompetitive. In addition, we may have to acquire new assembly and testing
technologies and equipment to remain competitive. The acquisition and
implementation of new technologies and equipment may require significant
expense or capital investment. Our failure to anticipate and adapt to our
customers' changing technological needs and requirements would have an adverse
effect on our business.
We may incur significant liabilities if we fail to comply with environmental
regulations.
We are subject to environmental regulations relating to the use, storage,
discharge, site cleanup, and disposal of hazardous chemicals used in our
manufacturing processes. If we fail to comply with present and
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<PAGE>
future regulations, or are required to perform site remediation, we could be
subject to future liabilities or the suspension of production. Present and
future regulations may also:
. restrict our ability to expand our facilities;
. require us to acquire costly equipment; or
. require us to incur other significant costs and expenses.
Products we manufacture may contain design or manufacturing defects which could
result in reduced demand for our services and liability claims against us.
We manufacture products to our customers' specifications which are highly
complex and may at times contain design or manufacturing errors or failures.
Defects have been discovered in products we manufacture in the past and,
despite our quality control and quality assurance efforts, defects may occur in
the future. Defects in the products we manufacture, whether caused by a design,
manufacturing or component failure or error, may result in delayed shipments to
customers or reduced or cancelled customer orders. If these defects occur in
large quantities or too frequently, our business reputation may also be
impaired. In addition, these defects may result in liability claims against us.
Risks Related to our Expansion
Our operating results will depend on our ability to manage our growth.
We have grown rapidly in recent years and we expect to continue to expand
our operations. This growth has placed, and will continue to place, significant
strain on our management, operations, technical, financial, systems, sales,
marketing and other resources. For example, we identified a significant
inventory shortfall occurring in the fourth quarter of fiscal 1997 that
substantially adversely affected our operating results for that period. As a
result of this shortfall, we reviewed and continue to review our security
procedures and operating and financial controls. Based upon such review, we
implemented enhanced security systems and inventory work-in-process tracking
systems. These systems may not be adequate or have the intended results. We
also implemented various cost management programs to enhance our profitability.
These programs may not result in the anticipated cost savings, however. We will
have to continue to invest in both our manufacturing infrastructure to expand
capacity and our operational, financial, and management information systems. If
we fail to manage our expected growth effectively, the quality of our services
and products and our operating results could suffer significantly.
Expansion of our operations may negatively impact our business.
We may expand our operations by establishing or acquiring new manufacturing
facilities or by expanding capacity in our current facilities. We may expand
both in geographical areas in which we currently operate and in new
geographical areas within the United States and internationally. We began
operations in a new facility in Massachusetts in January 2000 and have signed a
lease for a new facility in California which is currently under construction
and which will enable us to consolidate and expand our operations. We expect to
begin operations in this new California facility in the fourth quarter of
fiscal 2000. We may not be able to find additional suitable facilities on a
timely basis or on terms satisfactory to us. Expansion of operations involves
numerous business risks, including:
. the inability to successfully integrate additional facilities or
capacity and to realize anticipated synergies, economies of scale or
other value;
. difficulties in the timing of expansions, including delays in the
implementation of construction and manufacturing plans;
. the diversion of management's attention from other business areas during
the planning and implementation of expansions and new facilities;
11
<PAGE>
. the strain placed on our operational, financial, management, technical
and information systems and resources;
. disruption in manufacturing operations;
. the incurrence of significant costs and expenses; and
. the inability to locate enough customers or employees to support the
expansion or new facility.
Our results of operations could be adversely affected if the revenues
associated with new or expanded facilities are not sufficient to offset the
increased expenditures associated with the new facility or the expansions.
We may fail to secure necessary additional financing.
We have made and will continue to make substantial capital expenditures to
expand our operations and remain competitive in the rapidly changing
electronics manufacturing services industry. Our future success may depend on
our ability to obtain additional financing and capital to support our continued
growth and operations. We may seek to raise capital by:
. issuing additional common stock or other equity instruments;
. issuing debt securities;
. obtaining additional lease financings;
. increasing our lines of credit; or
. obtaining off-balance sheet financing.
We may not be able to obtain additional capital when we want or need it, and
capital may not be available on satisfactory terms. If we issue additional
equity securities or convertible debt to raise capital, it may be dilutive to
your ownership interest. Furthermore, any additional capital may have terms and
conditions that adversely affect our business, such as financial or operating
covenants.
Risks Related to our Securities
We anticipate that our net sales and operating results will fluctuate which
could affect the trading price of our securities.
Our net sales and operating results have fluctuated and may continue to
fluctuate significantly from quarter to quarter. A substantial portion of our
net sales in a given quarter may depend on obtaining and fulfilling orders for
assemblies to be manufactured and shipped in the same quarter in which those
orders are received. Further, a significant portion of our net sales in a given
quarter may depend on assemblies configured, completed, packaged and shipped in
the final weeks of such quarter. In addition to the variability resulting from
the short-term nature of our customers' commitments, the following factors may
contribute to such fluctuations:
. fluctuations in demand for our services or the products we manufacture;
. shipment delays;
. interruptions in manufacturing caused by earthquakes or other natural
disasters;
. effectiveness in controlling manufacturing costs;
. changes in cost and availability of labor and components;
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<PAGE>
. inefficiencies in managing inventory and accounts receivable, including
inventory obsolescence and write-offs; and
. the levels at which we utilize our manufacturing capacity.
Our operating expenses are based on anticipated revenue levels and a high
percentage of our operating expenses are relatively fixed in the short term. As
a result, any unanticipated shortfall in revenue in a quarter would likely
adversely affect our operating results for that quarter. Also, changes in our
product assembly mix may cause our margins to fluctuate which could negatively
impact our results of operations for that period. Results of operations in any
period should not be considered indicative of the results to be expected for
any future period. It is likely that in one or more future periods our results
of operations will fail to meet the expectations of securities analysts or
investors, and the price of our securities could decline significantly.
We may incur costs and liabilities related to potential or pending litigation.
On February 27, 1998, our company and several of our officers and directors
were named as defendants in a purported securities class action lawsuit filed
in the United States District Court for the District of Massachusetts. The
plaintiffs amended the complaint on October 16, 1998. The plaintiffs purport to
represent a class of all persons who purchased or otherwise acquired our common
stock in the period from April 17, 1997 through March 31, 1998. The amended
complaint alleges, among other things, that the defendants knowingly made
misstatements to the investing public about the value of our inventory and the
nature of our accounting practices. On December 15, 1998, we filed a motion to
dismiss the case in its entirety based on the pleadings. Our motion to dismiss
was granted without prejudice on May 27, 1999, and the case was closed by the
court on June 1, 1999. On June 28, 1999, the plaintiffs filed a motion with the
court seeking permission to file a second amended complaint. We opposed that
motion. On July 13, 1999, the court denied the plaintiffs' motion to amend,
noting "final judgment having entered in the case." On July 26, 1999, the
plaintiffs filed a motion with the court asking the court to extend the 30-day
period for filing an appeal of its ruling dismissing the case. We opposed that
motion as well, and the court denied the motion on August 10, 1999. The
plaintiffs filed an appeal with the United States Court of Appeals for the
First Circuit requesting that the Court of Appeals reverse each of the orders
described above. In an opinion dated May 5, 2000, the Court of Appeals affirmed
in all respects the orders of the District Court that the plaintiffs had
appealed.
In December 1993, CMC Industries retained the services of a consultant to
assist in quantifying the potential exposure to CMC in connection with clean-up
and related costs of a former manufacturing site. This site is commonly known
as the ITT Telecommunications site in Milan, Tennessee. The consultant
initially estimated that the cost to remove and dispose of the contaminated
soil would be approximately $200,000. CMC subsequently entered into a voluntary
agreement to investigate the site with the Tennessee Department of Environment
and Conservation. In addition, CMC agreed to reimburse a tenant of the site
$115,000 for expenditures previously incurred to investigate environmental
conditions at the site. CMC recorded a total provision of $320,000 based on
these estimates. In fiscal 1995, an environmental consultant estimated that the
cost of a full study combined with short- and long-term remediation of the site
may cost between $3.0 and $4.0 million. Subsequent environmental studies done
in fiscal 1999 have estimated such costs as between $750,000 and $3.5 million.
During CMC's fiscal 1996, the State of Tennessee's Department of Environment
and Conservation named certain potentially responsible parties in relation to
the former facility. CMC was not named as a potentially responsible party.
However, Alcatel, Inc., a potentially responsible party named by the State of
Tennessee's Department of Environment and Conservation and a former owner of
CMC, sought indemnification from CMC under the purchase agreement by which CMC
acquired the stock of one of the operators of the facility. To date, Alcatel
has not filed any legal proceedings to enforce its indemnification claim.
However, Alcatel could initiate such proceedings and other third parties could
assert claims against us relating to remediation of the site. We have entered
into an agreement with Alcatel pursuant to which the statute of limitations on
its indemnification claim is tolled for a period of time. In the event any
proceedings are initiated or any claim is made, we would defend ourselves
vigorously but defense or resolution of this matter could negatively impact our
financial position and results of operations.
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John A. Pino has significant influence over our company.
John A. Pino, Chairman of the Board, President and Chief Executive Officer,
and a number of trusts for his and his family's benefit, collectively
beneficially own approximately 30% of our common stock. As a result, Mr. Pino
is able to exert significant influence over us through his ability to influence
the election of directors and all other matters that require action by our
stockholders. The voting power of Mr. Pino and these trusts could have the
effect of preventing or delaying a change in control of our company which Mr.
Pino opposes even if our other stockholders believe it is in their best
interests.
The significant amount of our indebtedness after the contemplated acquisitions
of GSS Thailand and BEA could adversely affect our financial health and prevent
us from fulfilling our obligations under the notes.
Our total senior indebtedness as of March 31, 2000 was approximately $96.3
million. Assuming we had completed the offering of the notes, the contemplated
acquisitions of both of GSS Thailand and BEA and our new credit facility as of
March 31, 2000 and had applied the proceeds of the offering of the notes to
finance the acquisitions of GSS Thailand and BEA and the remainder out of our
available credit facility, we would have had indebtedness on a pro forma basis
that would have been senior in right of payment to the notes of approximately
$309.0 million (based on the debt of GSS Thailand as of February 24, 2000 and
the debt of BEA as of March 31, 2000). In addition, the notes will be
effectively subordinated to all existing and future indebtedness and other
liabilities (including trade payables) of our subsidiaries, including any
subsidiaries which we may acquire or establish in the future. As of March 31,
2000, our subsidiaries had outstanding indebtedness and other liabilities
(including trade payables) of $94.4 million.
Our leverage could have important consequences to you. For example, it
could:
. make it more difficult for us to satisfy our obligations with respect to
the notes or our other indebtedness;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
acquisitions and other general corporate requirements;
. limit our flexibility in planning for, or reacting to, changes in our
business and industry; and
. limit our ability to borrow additional funds.
Any additional borrowings would further increase the amount of our leverage and
the associated risks.
The notes are subordinated to our other indebtedness.
The notes are unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness. As of March 31, 2000, we had
approximately $96.3 million of senior indebtedness outstanding. Assuming we had
completed the offering of the notes, the contemplated acquisitions of both of
GSS Thailand and BEA and our new credit facility as of March 31, 2000 and had
applied the proceeds of the offering of the notes to finance the acquisitions
of GSS Thailand and BEA and the remainder out of our available credit facility,
we would have had approximately $309.0 million of indebtedness outstanding on a
pro forma basis (based on the debt of GSS Thailand as of February 24, 2000 and
the debt of BEA as of March 31, 2000) that would have been senior in right of
payment to the notes. In June 2000, we entered into a new credit facility. Any
additional borrowings under the new credit facility would also constitute
additional senior indebtedness. As a result of this subordination, in the event
of bankruptcy, liquidation or reorganization or certain other events, our
assets will be available to pay obligations on the notes only after all senior
indebtedness has been paid in full, and we may not have sufficient assets
remaining to pay amounts on any or all of the notes then outstanding. In
addition, the notes will be effectively subordinated to all existing and future
indebtedness and other liabilities (including trade payables) of our
subsidiaries, including any subsidiaries which we may acquire or establish in
the future. As of March 31, 2000, our subsidiaries had outstanding indebtedness
and other liabilities (including trade payables) of $94.4 million. Our right to
receive assets of one of our subsidiaries upon
14
<PAGE>
its liquidation or reorganization (and the consequent right of the holders of
the notes to participate in those assets) would be effectively subordinated to
the claims of a subsidiary's creditors (including trade creditors), except to
the extent that we are recognized as a creditor of a subsidiary. In that case,
our claims would still be subordinate to any security interests in the assets
of that subsidiary.
The notes are not protected by restrictive covenants that limit our business
activities.
The indenture governing the notes does not contain any financial covenants
or restrictions on the payment of dividends, the incurrence of indebtedness,
including senior indebtedness, or the issuance or repurchase of securities by
us or any of our subsidiaries. The indenture contains no covenants or other
provisions to afford protection to holders of the notes in the event of a
highly leveraged transaction except to the extent described under "Description
of Notes--Purchase of Notes at the Option of Holders Upon a Change in Control."
We will require a significant amount of cash to service our indebtedness.
Our ability to service our indebtedness, including the notes, and to fund
planned capital expenditures, development and operating costs will depend on
our ability to generate cash in the future through sales of our services. We
cannot assure you that our available liquidity will be sufficient to service
our indebtedness, including the notes or to fund our other cash needs. We may
need to refinance all or a portion of our indebtedness, including the notes, on
or before maturity but we may not be able to do so on commercially reasonable
terms, or at all. Without sufficient funds to service our indebtedness, we
would have serious liquidity constraints and would need to seek additional
financing from other sources, but we may not be able to do so on commercially
reasonable terms, or at all.
We may be unable to raise the funds necessary to purchase the notes in the
event of a change in control.
In the event of a change of control, each holder of notes will have the
right, at the holder's option, to require us to purchase all or any part of
such holder's notes. We cannot assure you that we will have sufficient
financial resources or will be able to arrange financing to pay the purchase
price of such notes. Our ability to purchase the notes in such event may be
limited by law, the indenture and the terms of other agreements relating to
borrowings that constitute senior indebtedness, as such indebtedness or
agreements may be entered into, replaced, supplemented or amended at any time
or from time to time without the consent of the holders of the notes. We may be
required to refinance our senior indebtedness in order to make any such
payment. We may not have the financial ability to purchase the notes in the
event payment of our senior indebtedness is accelerated. The term "change in
control" is limited to certain specified transactions and may not include other
events that might adversely affect our financial condition or result in a
downgrade of the credit rating of the notes, nor would the requirement that we
offer to purchase the notes upon a change in control necessarily afford holders
of the notes protection in the event of a highly leveraged transaction,
reorganization, merger or similar transaction. See "Description of Notes--
Purchase of Notes at the Option of Holders Upon a Change in Control."
We cannot assure you that an active trading market will develop or be
maintained for the notes.
The notes were issued in April 2000 to a small number of purchasers. The
initial purchasers of the notes have informed us that they intend to make a
market in the notes. However, the initial purchasers may cease their market-
making at any time. In addition, the liquidity of the trading market in the
notes, and the market price quoted for the notes, may be adversely affected by
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally. As a result, you cannot be sure that an active trading
market will develop or be maintained for the notes.
The price of our securities has been and may continue to be volatile.
The trading price of our common stock has been and the trading price of our
common stock and the notes may continue to be volatile. From October 1, 1998
through July 11, 2000, our stock price fluctuated between a
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low of $5.06 per share and a high of $57.38 per share. On July 25, 2000, the
reported last bid price for our common stock was $37.50. The price of our
common stock and the notes may fluctuate significantly in response to a number
of events and factors relating to our company, our competitors and the market
for our services, many of which are beyond our control, such as:
. quarterly variations in our operating results;
. announcements of new technological innovations, equipment or service
offerings by us or our competitors;
. announcements of new products or enhancements by our customers;
. changes in financial estimates and recommendations by securities
analysts; and
. news relating to trends in our markets.
In addition, the stock market in general, and the market prices for
technology companies in particular, have experienced extreme volatility that
often has been unrelated to the operating performance of these companies. These
broad market and industry fluctuations may adversely affect the market price of
our common stock and the notes, regardless of our operating performance.
Recently, when the market price of a security has been volatile, holders of
that security have often instituted securities class action litigation against
the company that issued the security. We have been the subject of such a
lawsuit. If any of our stockholders brought another securities class action
lawsuit against us, we could incur substantial additional costs defending that
lawsuit. The lawsuit could also divert the time and attention of our management
and an adverse judgment could cause our financial condition or operating
results to suffer.
It may be difficult for a third party to acquire our company, and this could
depress the trading price of our securities.
Massachusetts corporate law and our articles of organization and by-laws
contain provisions that could have the effect of delaying, deferring or
preventing a change in control of our company or our management. These
provisions could discourage proxy contests and make it more difficult for you
and other stockholders to elect directors and take other corporate actions.
These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock and the notes. These
provisions:
. authorize the issuance of "blank check" preferred stock, which is
preferred stock that can be created and issued by our board of directors
without prior stockholder approval, with rights senior to those of
common stock;
. provide for a staggered board of directors, so that it would take three
successive annual meetings to replace all directors;
. require unanimity for stockholder action by written consent; and
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
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USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
securityholders of the notes or the underlying common stock.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth, for the periods shown, the ratio of
earnings to fixed charges for us and our consolidated subsidiaries.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
-------------------------------- Ended
1995 1996 1997 1998 1999 March 31, 2000
----- ----- ----- ----- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges...................... 3.76x 5.62x 0.33x(1) 1.85x 2.77x 5. 59x
</TABLE>
For these ratios, "earnings" represent income before taxes and fixed
charges. "Fixed charges" consist of:
. interest on all indebtedness and amortization of deferred financing
costs related to indebtedness; and
. that portion of rental expense we believe to be representative of
interest.
--------
(1) For the fiscal year ended December 31, 1997, earnings were insufficient to
cover fixed charges by $3.6 million.
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SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below has been restated to give retroactive effect to the
merger of ACT Manufacturing, Inc. and CMC Industries, Inc. on July 29, 1999
which has been accounted for as a pooling of interests as described in note 1
to our consolidated financial statements. The selected consolidated financial
data set forth below for the fiscal years ended December 31, 1997, 1998 and
1999 and the consolidated balance sheet data as of December 31, 1998 and 1999
are derived from our audited consolidated financial statements, which are
included elsewhere in this prospectus. The selected consolidated financial data
for the fiscal years ended December 31, 1995 and 1996 and the consolidated
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from the
combination of our respective audited consolidated financial statements that
are not included in this prospectus. The selected historical consolidated
financial data for the three month periods ended March 31, 1999 and 2000 and
the consolidated balance sheet data as of March 31, 2000 are derived from our
unaudited interim condensed consolidated financial statements and are included
elsewhere in this prospectus. In the opinion of our management, the unaudited
interim condensed consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of our financial condition and results of operations for such
periods. The selected consolidated financial data for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000 or any other future period. You
should read the data set forth below in conjunction with our consolidated
financial statements and the related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Fiscal Year Ended December 31,(1)(2) March 31,
------------------------------------------------ -------------------
1995(3) 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Net sales............... $259,961 $390,611 $479,139 $592,484 $696,282 $ 145,947 $ 229,088
Cost of goods sold...... 238,140 351,485 454,203 556,339 641,856 135,511 209,089
-------- -------- -------- -------- -------- --------- ---------
Gross profit............ 21,821 39,126 24,936 36,145 54,426 10,436 19,999
Selling, general and
administrative
expenses............... 13,744 18,268 24,516 27,383 29,536 6,314 9,323
Restructuring costs..... -- 792 -- -- -- -- --
Merger costs(4)......... -- -- -- -- 5,601 -- --
-------- -------- -------- -------- -------- --------- ---------
Operating income........ 8,077 20,066 420 8,762 19,289 4,122 10,676
Interest expense........ 1,985 3,068 4,009 3,718 5,256 1,030 1,446
Other (income) expense.. (362) (132) 47 (93) 6 -- (853)
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before
provision for income
taxes.................. 6,454 17,130 (3,636) 5,137 14,027 3,092 10,083
Provision (benefit) for
income taxes........... 1,948 6,868 (1,235) 2,044 7,793 1,242 3,933
-------- -------- -------- -------- -------- --------- ---------
Net income (loss)....... $ 4,506 $ 10,262 $ (2,401) $ 3,093 $ 6,234 $ 1,850 $ 6,150
======== ======== ======== ======== ======== ========= =========
Net income (loss) per
common share:
Basic................. $ 0.41 $ 0.86 $ (0.19) $ 0.24 $ 0.47 $ 0.14 $ 0.37
Diluted............... $ 0.39 $ 0.84 $ (0.19) $ 0.24 $ 0.45 $ 0.14 $ 0.35
Weighted-average shares
outstanding:
Basic................. 11,101 11,880 12,330 12,665 13,265 12,881 16,546
Diluted............... 11,461 12,237 12,330 12,976 13,916 13,384 17,645
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
As of
As of December 31,(1)(2) March
---------------------------------------- 31,
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Working capital............. $56,809 $92,005 $55,894 $86,059 $170,420 $227,212
Total assets................ 127,058 175,029 208,573 238,294 402,326 458,999
Long-term debt, less current
portion(5)................. 8,591 34,966 4,817 42,014 49,332 94,000
Total debt(5)............... 20,501 43,496 59,938 62,604 53,361 99,013
Total stockholders' equity.. 64,026 78,234 84,103 91,460 178,129 185,675
</TABLE>
--------
(1) ACT prepares its consolidated financial statements on the basis of a
fiscal year ending December 31 and CMC prepared its consolidated financial
statements on the basis of a fiscal year ending July 31. The consolidated
statements of operations data for each of the four years in the period
ended December 31, 1998 (referred to as "fiscal" 1995, 1996, 1997 and
1998) reflect such information for ACT for the years then ended combined
with such information for CMC for the years ended July 31, 1995, 1996,
1997 and 1998. The consolidated balance sheet data as of December 31,
1995, 1996, 1997 and 1998 reflects such information of ACT as of those
dates combined with such information of CMC as of July 31, 1995, 1996,
1997 and 1998. The consolidated statements of operations data and the
consolidated balance sheet data as of December 31, 1999 reflect such
information of ACT and CMC for the year then ended. The consolidated
financial statements have been adjusted to reflect the conforming of CMC's
accounting policy with that of ACT's by expensing previously capitalized
preoperating and start-up costs associated with CMC's Mexican
manufacturing facility. The adjustment also gives effect to the tax
deductibility of these expenses.
(2) As a result of ACT and CMC having different fiscal years, a summary of
CMC's condensed consolidated results of operations for the five-month
period from August 1, 1998 through December 31, 1998 are reported
separately, as follows:
<TABLE>
<S> <C>
Condensed Consolidated Statement of Operations Data (in
thousands):
Net sales....................................................... $122,423
Cost of sales................................................... 119,733
--------
Gross profit.................................................... 2,690
Selling, general and administrative expenses.................... 5,409
--------
Loss from operations............................................ (2,719)
Interest expense................................................ 691
--------
Loss before taxes............................................... (3,410)
Income tax benefit.............................................. (1,279)
--------
Net loss........................................................ $ (2,131)
========
</TABLE>
This condensed consolidated statement of operations data of CMC for the
period August 1, 1998 through December 31, 1998 does not reflect any
adjustment to conform CMC's accounting policy with that of ACT's with
respect to capitalized preoperating and start-up costs associated with CMC's
Mexican manufacturing facility. The effect of this adjustment would be to
reduce cost of sales by $100,000 and reduce net loss by $60,000.
(3) ACT operated as an S corporation for income tax purposes from November 1,
1987 to March 28, 1995. Accordingly, during that period, ACT had not been
subject to federal income taxes and had been subject to certain state
income taxes at a reduced rate. Therefore, net income for the year ended
December 31, 1995 is presented on a pro forma basis as if ACT had been a C
corporation for the period presented. ACT's pro forma net income per
common share for 1995 reflects the assumed issuance of 650,000 shares that
ACT would have needed to issue at the initial public offering price of
ACT's common stock to fund the distribution of all previously taxed but
undistributed S corporation earnings to ACT's stockholders through March
28, 1995, which was approximately $7.8 million.
(4) Merger costs relating to the acquisition of CMC are comprised primarily of
investment banking, legal, accounting, printing, integration and other
fees and expenses directly related to the merger.
(5) Includes capital lease obligations.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to our proposed acquisition of all the issued shares and
outstanding options of GSS Thailand, our proposed acquisition of all the issued
shares of BEA, the offering of the notes and the closing of our new credit
facility. See "Prospectus Summary--Recent Developments."
Under the terms of the Pre-Tender Agreement, GSS Thailand would be delisted
from the Stock Exchange of Thailand and we would then make a cash tender offer
of approximately 3,546,038 thousand baht (approximately $93.7 million at March
15, 2000) for all issued shares and outstanding options of GSS Thailand.
Holders of approximately 23% of GSS Thailand's outstanding shares are a party
to the Pre-Tender Agreement and have agreed to tender their issued shares and
outstanding options to ACT. On April 28, 2000, approximately 84% of GSS
Thailand shareholders voted to delist their company from the Stock Exchange of
Thailand in a general shareholder meeting. On May 15, 2000, the Stock Exchange
of Thailand approved the delisting of GSS Thailand and the tender offer for all
issued shares and outstanding options of GSS Thailand commenced on May 26,
2000.
Under the terms of the Share Purchase Agreement, we would acquire all of the
issued shares of BEA for a purchase price of approximately $56.6 million,
subject to adjustment under certain circumstances. Prior to the closing, BEA
will spin out its printed circuit board fabrication business to a separate
subsidiary of Bull. Since we are acquiring the stock of BEA, following the
acquisition we would be responsible for all contingent liabilities of BEA, if
any. However, pursuant to the terms of the Share Purchase Agreement, Bull has
agreed to indemnify us against all liabilities or losses incurred relating to
the spin out of the printed circuit fabrication business and generally for
other liabilities or losses arising from either a breach of any representation
or warranty or any decrease of assets or increase in liabilities compared to
the 1999 audited financial statements up to a maximum amount of $14.15 million.
We expect to close both the acquisitions in the third quarter of fiscal
2000. The acquisitions, however, are subject to various regulatory approvals
and other conditions. We cannot assure you that these conditions will be
satisfied and we therefore may not consummate either of the acquisitions of GSS
Thailand or BEA on a timely basis or at all.
The GSS Thailand and BEA acquisitions will both be accounted for under the
purchase method of accounting. The respective assets acquired and liabilities
assumed will be recorded at their fair values. The unaudited pro forma
condensed combined financial statements are based on the historical
consolidated financial statements of ACT, GSS Thailand and the electronics
manufacturing services or assembly business of BEA and the estimates and
assumptions set forth below and in the notes to the unaudited pro forma
condensed combined financial statements. The unaudited pro forma condensed
combined balance sheet as of March 31, 2000 is presented as if both the GSS
Thailand and BEA acquisitions had occurred on that date. The unaudited pro
forma condensed combined statements of operations for the year ended December
31, 1999 and the three months ended March 31, 2000 assume that both the GSS
Thailand and BEA acquisitions occurred at the beginning of those fiscal
periods. The unaudited pro forma condensed combined financial statements assume
that 100% of the GSS Thailand issued shares and outstanding options are
tendered.
ACT and BEA prepared its 1999 consolidated financial statements on the basis
of a fiscal year ending December 31, 1999 and GSS Thailand prepared its
consolidated financial statements on the basis of a fiscal year ended November
24, 1999. The unaudited pro forma condensed combined statement of operations
for the period ended December 31, 1999 (referred to as "fiscal" 1999) reflects
the results of operations for ACT for the year then ended combined with the
results of operations for GSS Thailand for the year ended November 24, 1999 and
the results of the electronics manufacturing services business of BEA for the
year ended December 31, 1999. The unaudited pro forma condensed combined
balance sheet as of March 31, 2000 reflects the financial position of ACT as of
that date combined with the financial position of GSS Thailand as of February
24, 2000 and the financial position of the electronics manufacturing services
business of BEA as of March 31, 2000.
20
<PAGE>
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements of
ACT, GSS Thailand and the electronics manufacturing services business of BEA,
included elsewhere in this prospectus. The unaudited pro forma condensed
combined financial statements do not purport to represent what ACT's financial
position or results of operations would actually have been if either or both of
the GSS Thailand and BEA acquisitions had been consummated on the indicated
dates, nor are they necessarily indicative of ACT's financial position or
results of operations for any future period.
The unaudited pro forma condensed combined financial information for GSS
Thailand has been prepared in accordance with Thai GAAP, which differs in
certain respects from U.S. GAAP. This information has been reconciled to U.S.
GAAP by conforming adjustments made to the historical financial information.
See notes to the GSS Thailand consolidated financial statements included
elsewhere in this prospectus. The pro forma financial information for BEA has
been prepared in accordance with U.S. GAAP.
The pro forma adjustments are based on preliminary assumptions and estimates
made by ACT management. Accordingly, the unaudited pro forma condensed combined
financial statements assume that the recorded amounts of each of GSS Thailand's
and BEA's assets and liabilities approximate their fair values. The actual
allocation of the consideration paid for GSS Thailand and BEA, respectively,
may differ from that reflected in the unaudited pro forma condensed combined
financial statements after a more extensive review of the fair values of the
respective assets acquired and the liabilities assumed has been completed.
Accordingly, the allocation of the respective purchase prices and the resultant
amortization of the excess respective purchase prices, which are based on
preliminary estimates, may differ from the respective final purchase price
allocations and amortization periods.
The GSS Thailand Pre-Tender Agreement provides that, subject to various
conditions, ACT will acquire the issued shares and outstanding options of GSS
Thailand for a total purchase price of approximately 3,546,038 thousand baht
(approximately $93.7 million at March 15, 2000) in cash assuming all issued
shares and outstanding options are tendered. The BEA Share Purchase Agreement
provides that, subject to various conditions, ACT will acquire all of the
issued shares of BEA for a total purchase price of approximately $56.6 million
in cash, subject to adjustment in certain circumstances. We expect to finance
the GSS Thailand and BEA acquisitions through the proceeds received from the
offering of the notes and the remainder from our available credit facility. We
have used a 7.0% interest rate on the notes in the unaudited pro forma
condensed combined statements of operations and an 8.75% and 9.19% interest
rate for the fiscal periods ended December 31, 1999 and March 31, 2000,
respectively, for the credit facility. See "Prospectus Summary--Recent
Developments."
The GSS Thailand historical statement of operations for the year ended
November 24, 1999 included in the unaudited pro forma condensed combined
financial statements includes the operations of GSS Thailand located in
Thailand, Singapore, San Jose, California and Wales, U.K. On October 12, 1999,
ACT acquired certain inventory and fixed assets of GSS Thailand's San Jose
operations. Subsequent to this asset sale, GSS Thailand ceased manufacturing in
San Jose. Also, in November 1999, GSS Thailand terminated its operations in
Wales. Operating results for each of GSS Thailand's operations for the year
ended November 24, 1999 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Thailand and Sold or Consolidated
Singapore Terminated GSS
Operations Operations Thailand
------------ ---------- ------------
<S> <C> <C> <C>
Net revenues............................ $197,436 $ 44,763 $242,199
======== ======== ========
Operating income (loss)................. $ 8,574 $(10,069) $ (1,495)
======== ======== ========
Net income (loss)....................... $ 5,375 $(13,560) $ (8,185)
======== ======== ========
</TABLE>
As described above in the table, GSS Thailand incurred a net loss of $8.2
million in fiscal year 1999. The $8.2 million loss included a $13.6 million
loss incurred in GSS Thailand's San Jose and Wales operations. Also included in
the 1999 net loss was an asset impairment charge of $1.7 million related to the
write-down of the remaining San Jose assets not sold to ACT on October 12, 1999
and a $2.4 million loss on the sale of the San Jose assets to ACT.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Bull GSS Thailand Pro
ACT GSS Electronics Conversion to Pro Forma Forma
Manufacturing Thailand Angers U.S. GAAP Adjustments Combined
------------- -------- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 6,290 $ 5,881 $ -- $ -- $ 95,600 (A) $ 14,071
(93,700)(B)
56,600 (C)
(56,600)(D)
Short-term
investments........... -- 720 -- -- -- 720
Accounts receivable
trade, net............ 189,398 17,606 29,989 -- -- 236,993
Accounts receivable
from related party.... -- -- 7,788 -- -- 7,788
Inventory.............. 200,154 24,859 54,105 (91)(1) -- 279,027
Prepaid expenses and
other assets.......... 5,599 2,134 3,355 -- 11,088
Prepaid expenses and
other assets with
related party......... -- -- 87 -- -- 87
Deferred tax asset..... 1,252 -- 1,638 -- -- 2,890
-------- ------- -------- ------- -------- --------
Total current assets... 402,693 51,200 96,962 (91) 1,900 552,664
Property and equipment--
net.................... 37,139 17,322 11,347 7,120 (1) -- 72,928
Notes receivable related
party.................. 400 616 -- -- -- 1,016
Goodwill--net........... 10,098 -- -- -- 78,780 (B) 127,481
38,603 (D)
Investment in related
party.................. 362 -- -- -- -- 362
Assets held for sale.... -- 8,201 -- 5,660 (1) -- 13,861
Deferred tax asset...... -- -- 2,466 -- -- 2,466
Other assets--net....... 8,307 137 49 -- 4,400 (A) 12,893
-------- ------- -------- ------- -------- --------
Total.................. $458,999 $77,476 $110,824 $12,689 $123,683 $783,671
======== ======= ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable bank...... $ -- $36,105 $ -- $ -- $ -- $ 36,105
Current portion of
long-term debt........ 2,366 720 -- -- -- 3,086
Current portion of
other long-term
liabilities........... 2,647 -- -- -- -- 2,647
Accounts payable....... 157,593 23,470 53,665 -- -- 234,728
Accounts payable to
related party......... -- -- 19,847 -- -- 19,847
Accrued compensation
and related taxes..... 5,256 -- -- -- -- 5,256
Income taxes payable... 2,202 -- 2,022 -- -- 4,224
Deferred taxes......... 253 -- -- -- -- 253
Accrued expenses and
other................. 5,164 4,273 5,971 -- 7,000 (B) 27,408
5,000 (D)
-------- ------- -------- ------- -------- --------
Total current
liabilities........... 175,481 64,568 81,505 -- 12,000 333,554
Long-term debt--less
current portion........ 92,292 3,600 -- -- 100,000 (A) 252,492
-- 56,600 (C)
Post-retirement benefit
and pension liability.. -- -- 6,322 -- -- 6,322
Deferred taxes.......... 2,735 25 -- -- -- 2,760
Other long-term
liabilities............ 2,816 52 -- -- -- 2,868
Stockholders' equity:
Common stock........... 167 5,543 -- -- (5,543)(B) 167
BEA net investment..... -- -- 22,997 -- (22,997)(D) --
Additional paid-in
capital............... 159,457 25,427 -- -- (25,427)(B) 159,457
Accumulated other
comprehensive (loss)
income................ (813) 2,712 -- 23,877 (1)(3) (26,589)(B) (813)
Retained earnings
(loss)................ 26,864 (24,451) -- (11,188)(1)(3) 35,639 (B) 26,864
-------- ------- -------- ------- -------- --------
Total stockholders'
equity................ 185,675 9,231 22,997 12,689 (44,917) 185,675
-------- ------- -------- ------- -------- --------
Total................. $458,999 $77,476 $110,824 $12,689 $123,683 $783,671
======== ======= ======== ======= ======== ========
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
GSS
Thailand
Bull Conversion Pro
ACT GSS Electronics to U.S. Pro Forma Forma
Manufacturing Thailand Angers GAAP Adjustments Combined
------------- -------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales to non-affili-
ates................... $229,088 $41,906 $54,956 $-- $ -- $325,950
Net sales to affili-
ates................... -- -- 6,181 -- -- 6,181
-------- ------- ------- ---- ------- --------
Total net sales....... 229,088 41,906 61,137 -- -- 332,131
Cost of goods sold to
non-affiliates......... 209,089 37,896 51,719 291 (2) 298,995
Cost of goods sold to
affiliates............. -- -- 5,781 -- -- 5,781
-------- ------- ------- ---- ------- --------
Total cost of goods
sold................. 209,089 37,896 57,500 291 -- 304,776
Gross profit............ 19,999 4,010 3,637 (291) -- 27,355
Selling, general and
administrative
expenses............... 9,087 2,249 3,218 (296)(2)(3) -- 14,258
Amortization of good-
will................... 236 -- -- -- 2,935 (E) 3,171
-------- ------- ------- ---- ------- --------
Operating income........ 10,676 1,761 419 5 (2,935) 9,926
Interest expense........ 1,446 856 -- -- 157 (F) 5,509
3,050 (G)
Other (income) expense,
net.................... (853) (423) (290) -- -- (1,566)
-------- ------- ------- ---- ------- --------
593 433 (290) -- 3,207 3,943
Income before provision
for income taxes....... 10,083 1,328 709 5 (6,142) 5,983
Provision (benefit) for
income taxes........... 3,933 28 262 -- (1,283)(H) 2,940
-------- ------- ------- ---- ------- --------
Net income.............. $ 6,150 $ 1,300 $ 447 $ 5 $(4,859) $ 3,043
======== ======= ======= ==== ======= ========
Basic net income per
common share........... $ 0.37 $ 0.18
======== ========
Diluted net income per
common share........... $ 0.35 $ 0.17
======== ========
Weighted-average shares
outstanding--basic..... 16,546 16,546
Weighted-average shares
outstanding--diluted... 17,645 17,645
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
GSS
Thailand
Bull Conversion
ACT GSS Electronics to Pro Forma Pro Forma
Manufacturing Thailand Angers U.S. GAAP Adjustments Combined
------------- -------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales to non-
affiliates............. $696,282 $242,199 $178,634 $ -- $ -- $1,117,115
Net sales to
affiliates............. -- -- 42,470 -- -- 42,470
-------- -------- -------- ------ -------- ----------
Total net sales....... 696,282 242,199 221,104 -- -- 1,159,585
Cost of goods sold to
non-affiliates......... 641,856 228,013 172,161 1,025(2) -- 1,043,055
Cost of goods sold to
affiliates............. -- -- 39,711 -- -- 39,711
-------- -------- -------- ------ -------- ----------
Total cost of goods
sold................. 641,856 228,013 211,872 1,025 -- 1,082,766
Gross profit............ 54,426 14,186 9,232 (1,025) -- 76,819
Selling, general and
administrative
expenses............... 28,945 15,681 11,945 (905)(2)(3) -- 55,666
Amortization of
goodwill............... 591 -- -- -- 11,738 (E) 12,329
Merger costs............ 5,601 -- -- -- -- 5,601
-------- -------- -------- ------ -------- ----------
Operating income
(loss)................. 19,289 (1,495) (2,713) (120) (11,738) 3,223
Interest expense........ 5,256 5,115 -- -- 629 (F) 22,953
11,953 (G)
Other (income) expense,
net.................... 6 (871) 180 -- -- (685)
Loss on disposal of
assets................. -- 2,393 -- -- -- 2,393
-------- -------- -------- ------ -------- ----------
5,262 6,637 180 -- 12,582 24,661
-------- -------- -------- ------ -------- ----------
Income (loss) before
provision for income
taxes.................. 14,027 (8,132) (2,893) (120) (24,320) (21,438)
Provision (benefit) for
income taxes........... 7,793 53 136 -- (5,033)(H) 2,949
-------- -------- -------- ------ -------- ----------
Net income (loss)....... $ 6,234 $ (8,185) $ (3,029) $ (120) $(19,287) $ (24,387)
======== ======== ======== ====== ======== ==========
Basic net income (loss)
per common share....... $ 0.47 $ (1.84)
======== ==========
Diluted net income
(loss) per common
share.................. $ 0.45 $ (1.84)
======== ==========
Weighted-average shares
outstanding--basic..... 13,265 13,265
Weighted-average shares
outstanding--diluted... 13,916 13,265
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The unaudited pro forma condensed combined statements of operations for the
three months ended March 31, 2000 and the year ended December 31, 1999 give
effect to the issuance of $100.0 million of notes, borrowings of $56.6 million
under our new revolving credit facility, the acquisition of all issued shares
and outstanding options of GSS Thailand and the acquisition of all issued
shares of BEA as if the transactions had occurred at the beginning of those
fiscal periods. The unaudited pro forma condensed combined balance sheet as of
March 31, 2000 gives effect to the above-mentioned transactions as if they had
occurred on March 31, 2000.
The unaudited pro forma condensed combined financial statements assume the
acquisitions of GSS Thailand and BEA are financed with the proceeds from the
issuance of the notes and the balance from additional borrowings under the new
revolving credit facility.
GSS Thailand prepares its financial statements in accordance with Thai GAAP,
which differs in certain respects from U.S. GAAP. The accompanying unaudited
pro forma condensed combined balance sheet and statements of operations include
certain conforming adjustments (Note 2) in order to present GSS Thailand in
accordance with U.S. GAAP.
Under the terms of the Pre-Tender Agreement to acquire GSS Thailand, we
would make a cash tender offer for all issued shares and outstanding options of
GSS Thailand for 3,546,038 thousand baht (approximately $93.7 million). The
unaudited pro forma condensed combined financial information assumes that 100%
of the GSS Thailand issued shares and outstanding options are tendered. The
acquisition is expected to close in the third quarter of fiscal 2000.
Under the terms of the Share Purchase Agreement, we would purchase all of
the issued shares of BEA for approximately $56.6 million. The acquisition is
expected to close in the third quarter of fiscal 2000.
We have used an interest rate of 7.0% on the $100.0 million of notes, and an
interest rate of 8.75% and 9.19% on the additional borrowings under the new
revolving credit facility for the year ended December 31, 1999 and the three
months ended March 31, 2000, respectively. The effect on net income of a 1/8%
variance in the interest rate on the $56.6 million additional borrowings would
increase or decrease net income by approximately $42,500, net of tax, on an
annual basis.
Below are tables of the estimated purchase price and purchase price
allocation for GSS Thailand and BEA as of March 31, 2000. The purchase price
and purchase price allocation are subject to change based on, among other
things, the number of shares and options of GSS Thailand tendered, fluctuations
in the baht/dollar exchange rate, actual transaction costs, and final
valuations and appraisals.
<TABLE>
<CAPTION>
GSS
Thailand BEA Total
Purchase price (in thousands): -------- ------- --------
<S> <C> <C> <C>
Cash............................................ $ 93,700 $56,600 $150,300
Estimated transaction costs..................... 7,000 5,000 12,000
-------- ------- --------
Total purchase price............................ $100,700 $61,600 $162,300
======== ======= ========
Purchase price allocation (in thousands):
Fair value of net assets acquired............... $ 21,920 $22,997 $ 44,917
Goodwill and other intangibles.................. 78,780 38,603 117,383
-------- ------- --------
Total purchase price allocation................. $100,700 $61,600 $162,300
======== ======= ========
</TABLE>
25
<PAGE>
Note 2--GSS Thailand Conversion to U.S. GAAP
Adjustments have been made to the unaudited pro forma condensed combined
financial statements to conform GSS Thailand's accounting practices to U.S.
GAAP. The principal differences result from the determination that, under U.S.
GAAP, the functional currency of GSS Thailand would be the U.S. dollar as it
represents the primary economic environment in which the company operates. The
adjustments reflect the following:
(1) To record the effects of the functional currency change on the
historical cost of inventory, property and equipment.
(2) To record the effects of the functional currency change on
depreciation expense.
(3) To record the effects of the functional currency change on
exchange gains and losses.
Note 3--Pro Forma Adjustments
Adjustments have been made to the unaudited pro forma condensed combined
financial statements to reflect the following:
(A) To record the proceeds from the issuance of the $100.0 million of
notes, net of the related issuance costs of $4.4 million.
(B) To record the acquisition of GSS Thailand.
(C) To record the proceeds from additional borrowings under our new
revolving credit facility.
(D) To record the acquisition of BEA.
(E) To record amortization of goodwill over an estimated useful life
of 10 years.
(F) To record amortization of debt issuance costs over an estimated
useful life of 7 years.
(G) To record interest on the notes of 7.0% and on additional
borrowings under the revolving credit facility, assuming an
interest rate of 8.75% and 9.19%, for the year ended December 31,
1999 and three months ended March 31, 2000, respectively.
(H) To record the income tax adjustments related to (F) and (G).
Amortization of goodwill as described in (E) is not tax deductible
and, therefore, there is no pro forma tax effect to record.
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<PAGE>
DESCRIPTION OF NOTES
The notes are issued under an indenture, dated as of April 18, 2000, between
ACT, as issuer, and State Street Bank and Trust Company, as trustee. The
following description is a summary of the material provisions of the indenture.
It does not restate the indenture in its entirety. We urge you to read the
indenture because it, and not this description, defines your rights as a holder
of the notes. Copies of the form of indenture and the form of certificate
evidencing the notes have been filed as exhibits to this registration
statement.
You can find the definitions of certain capitalized terms used in this
description under the subheading "Definitions." In this section of the
prospectus entitled "Description of Notes," when we refer to "ACT," "we,"
"our," or "us," we are referring to ACT Manufacturing, Inc. and not any of its
subsidiaries.
General
We issued $100,000,000 of notes in a private placement in April 2000. The
notes are unsecured obligations of ACT and will mature on April 15, 2007. The
notes were issued in denominations of $1,000 or an integral multiple of $1,000.
The notes are contractually subordinated in right of payment to all our
existing and future senior indebtedness. As of March 31, 2000, we had
approximately $96.3 million of senior indebtedness outstanding. If we had
completed the offering of the notes, purchased both GSS Thailand and BEA and
closed our new credit facility as of March 31, 2000 and financed the purchases
with the proceeds of the offering of the notes and the remainder out of our
available credit facility, we would have had approximately $309.0 million of
indebtedness outstanding on a pro forma basis (based on the debt of GSS
Thailand as of February 24, 2000 and the debt of BEA as of March 31, 2000) that
would have been senior in right of payment to the notes. In addition, the notes
are effectively subordinated to all obligations, indebtedness and other
liabilities (including trade payables) of all of our subsidiaries. As of March
31, 2000, our subsidiaries had approximately $94.4 million of indebtedness and
liabilities outstanding. Our rights to receive assets of any of our
subsidiaries upon their liquidation or reorganization (and the consequent right
of the holders of the notes to participate in those assets) is effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that we are a creditor of the subsidiary, in
which case our claims would still be subordinate to any security interests in
the assets of the subsidiary and any indebtedness of the subsidiary senior to
that held by us. In addition, our cash flow and the consequent ability to
service our debt, including the notes, may depend upon the results of
operations of our subsidiaries and upon the ability of our subsidiaries to
provide cash (whether in the form of dividends, loans or otherwise) to pay
amounts due in respect of our obligations, including the notes. The indenture
does not restrict the incurrence of indebtedness (including senior
indebtedness) by us or our subsidiaries. In addition, the notes are not
protected by financial covenants that limit our business activities. See "Risk
Factors--The notes are subordinated to our other indebtedness" and "--The notes
are not protected by restrictive covenants that limit our business activities."
The notes bear interest from April 18, 2000 at the rate of 7% per annum.
Interest will be payable semi-annually on April 15 and October 15 of each year,
commencing on October 15, 2000, to holders of record at the close of business
on or preceding each such interest payment date. Interest will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Principal of
and interest on the notes will be payable at the office of the paying agent.
The trustee will initially act as the paying agent.
Conversion Rights
A holder may at any time convert the principal amount of a note (or any
portion thereof equal to $1,000 or any integral multiple thereof) into shares
of our common stock at the conversion price set forth on the cover page of this
prospectus, subject to adjustment as described below, which we refer to as the
conversion price; except that if a note is called for redemption, the
conversion right will terminate at the close of business on the business day
immediately preceding the redemption date for the note or such earlier date as
the holder presents the note for redemption (unless we default in making the
redemption payment when due, in which case the conversion right shall terminate
at the close of business on the date the default is cured and the note is
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<PAGE>
redeemed). A note for which a holder has delivered a notice exercising the
option to require us to purchase the note following a change in control may be
converted only if the holder's notice is withdrawn by a written notice of
withdrawal delivered by the holder to a paying agent prior to the close of
business on the second business day prior to the change in control payment date
in accordance with the indenture.
No payment or adjustment will be made for dividends or distributions with
respect to shares of common stock issued upon conversion of a note. Except as
otherwise provided in the indenture, interest accrued shall not be paid on
notes converted. If any holder surrenders a note for conversion between the
record date for the payment of an installment of interest and the related
interest payment date, then notwithstanding the conversion, the interest
payable on the interest payment date will be paid to the person in whose name
the note was registered at the close of business on the record date. However,
in this event, unless the note has been called for redemption, the note, when
surrendered for conversion, must be accompanied by delivery by the holder of
payment in an amount equal to the interest payable on the interest payment date
on the principal amount of the converted note. No fractional shares will be
issued upon conversion, but a cash payment will be made for any fractional
interest based upon the closing price (as defined in the indenture) of the
common stock on the trading day immediately prior to the date of conversion.
The conversion price will be subject to adjustment upon the occurrence of
certain events, including:
(1) the issuance of shares of common stock as a dividend or distribution
on our common stock;
(2) the subdivision or combination of our outstanding common stock;
(3) the issuance to all or substantially all holders of common stock of
rights or warrants entitling them to subscribe for or purchase common stock
(or securities convertible into common stock), at a price per share (or
having a conversion price per share) less than the current market price per
share (as defined in the indenture);
(4) the distribution to all or substantially all holders of common stock
of shares of our capital stock (other than common stock), evidences of
indebtedness or other non-cash assets (including securities of any person
other than us but excluding (a) dividends or distributions paid exclusively
in cash, (b) dividends or distributions referred to in clause (1) and (3)
above and (c) distributions in connection with a reclassification,
consolidation or sale referred to below), or rights or warrants to
subscribe for our securities (other than those rights and warrants referred
to in clause (3) above and other than the distribution of rights to all
holders of common stock pursuant to the adoption of a shareholder rights
plan or the detachment of such rights under the terms of such plan);
(5) the distribution to all or substantially all holders of common stock
of cash in an aggregate amount that (together with (a) any cash and the
fair market value of any other consideration payable in respect of any
tender offer by us or any of our subsidiaries for common stock consummated
within the preceding 12 months not triggering a conversion price adjustment
and (b) all other cash distributions to all or substantially all holders of
common stock made within the preceding 12 months not triggering a
conversion price adjustment) exceeds an amount equal to 10.0% of our market
capitalization (determined as provided in the indenture) on the business
day immediately preceding the day on which we declare the distribution; and
(6) the purchase of common stock pursuant to a tender offer made by us
or any of our subsidiaries to the extent that the same involves aggregate
consideration that (together with (a) any cash and the fair market value of
any other consideration payable in respect of any other tender offer by us
or any of our subsidiaries for common stock consummated within the
preceding 12 months not triggering a conversion price adjustment, and (b)
all cash distributions to all or substantially all holders of common stock
made within the preceding 12 months not triggering a conversion price
adjustment) exceeds an amount equal to 10.0% of our market capitalization
(determined as provided in the indenture) on the expiration date of such
tender offer.
In addition, if we become subject to a change in control or series of
related transactions in which our stockholders receive consideration per share
of common stock that is greater than the conversion price, without
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<PAGE>
giving effect to the adjustment described below, at the effective time of the
change in control and at least 10%, but less than 75%, of the total
consideration paid to our stockholders consists of cash, cash equivalents,
securities that are not publicly-traded or other assets, which we refer to as
"non-public consideration", then the conversion price will be adjusted so that,
upon conversion of the notes after the change in control, in addition to the
common stock or other securities deliverable upon the conversion of the notes
as described under
"--Conversion Rights" and in paragraphs 1 through 6 above, the holder will
receive securities having a value equal to the number of publicly-traded
securities of the acquiror determined through the following calculation:
PV cashflows x (non-public consideration/total consideration)/acquiror stock
price
where
PV cashflows = the present value of the aggregate interest
payments that would have been payable on the notes
from the date of conversion through April 17, 2003.
The present value for this purpose will be
calculated using the rate equal to the yield to
maturity of U.S. Treasury securities having a
maturity closest to, but not exceeding, April 17,
2003.
Total consideration = the total value of the consideration payable to our
stockholders at the effective time of the change in
control, with the value of any assets or securities
other than cash or a publicly-traded security being
determined in good faith by our board of directors
based upon an opinion as to that value obtained
from an accounting, appraisal or investment banking
firm of international standing.
Acquiror stock price = the price of the acquiror's publicly-traded common
stock or other publicly-traded securities delivered
in connection with the change in control
transaction at the effective time of the change in
control.
provided that if the consideration received by our stockholders in respect of
the change in control consists of at least 75% non-public consideration or if
the acquiror's common stock is not publicly-traded, then upon conversion of the
notes after the change in control, in lieu of the foregoing conversion rate
adjustment set forth in this paragraph, the holder will be entitled to receive
an additional amount in cash calculated as follows:
PV cashflows x (non-public consideration/total consideration)
Notwithstanding the foregoing, no adjustment need be made in the conversion
price for a transaction of the nature described above in this section if all
holders of notes are entitled to participate in the transaction on a basis and
with notice that the board of directors determines to be fair and appropriate
in light of the basis and notice on which holders of common stock participate
in the transaction; no adjustment to the conversion price need be made for any
issuance of common stock pursuant to any plans for reinvestment of dividends or
interest or for a change in the par value of our common stock; and, to the
extent that the notes become convertible into the right to receive cash, no
adjustment to the conversion price need be made thereafter as to the cash, and
interest will not accrue on the cash.
No adjustment of the conversion price will be required to be made until the
cumulative adjustments require an increase or decrease of at least 1% in the
conversion price as last adjusted. We, from time to time, may reduce the
conversion price by an amount for any period of time if the period is at least
20 days or such longer period as may be required by law and if the reduction is
irrevocable during the period.
Subject to any applicable right of the holders upon a change in control, if
we reclassify or change our common stock issuable upon conversion of the notes
(other than a change in par value, or as a result of a subdivision or
combination, or any other change for which a conversion price adjustment is
provided in the indenture) or merge into or transfer or lease all or
substantially all of our assets to any person, or are a party to a merger that
reclassifies or changes our outstanding common stock, the notes will become
convertible into the
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<PAGE>
kind and amount of securities and property (including cash) which the holders
of the notes would have owned immediately after the transaction if the holders
had converted the notes immediately before the transaction.
Adjustments to the conversion price to reflect our issuance of other rights,
warrants, evidences of indebtedness, securities or other property (including
cash) to holders of the common stock may result in constructive distributions
taxable as dividends to holders of the notes.
Provisional Redemption
We may redeem any portion of the notes at any time on or after October 20,
2001 and prior to April 20, 2003, at a redemption price equal to 100% of the
principal amount of the notes to be redeemed, plus accrued and unpaid interest
to the redemption date, if the closing price of our common stock has exceeded
140% of the conversion price of the notes for at least 20 trading days in any
consecutive 30 trading day period ending on the trading day prior to the
mailing of the notice of redemption and in accordance with the terms of the
registration rights agreement, the shelf registration statement covering
resales of the notes and the common stock issuable upon conversion of the notes
is effective and available for use and expected to remain effective and
available for use for the 30 days following the provisional redemption date.
If we redeem the notes under these circumstances, we will make an additional
"make whole" payment on the redeemed notes equal to $105 per $1,000 note, minus
the amount of any interest we actually paid on the note after October 15, 2001
and prior to the date we mailed the redemption notice. We must make these "make
whole" payments on all notes called for redemption, including notes converted
after the date we mailed the notice.
Optional Redemption
At any time on or after April 20, 2003, we may redeem all or a portion of
the notes upon not less than 20 nor more than 60 days notice by mail. The
redemption prices (expressed as a percentage of principal amount) are as
follows for notes redeemed during the periods set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
April 20, 2003 through April 14, 2004............................. 103.50%
April 15, 2004 through April 14, 2005............................. 102.33%
April 15, 2005 through April 14, 2006............................. 101.17%
April 15, 2006 and thereafter..................................... 100%
</TABLE>
in each case together with accrued interest up to but not including the
redemption date; provided that if the redemption date falls on or after an
interest payment date, then the interest payment shall be payable to holders of
record on the relevant record date.
If less than all of the outstanding notes are to be redeemed, the trustee
shall select the notes to be redeemed in principal amounts of $1,000 or
multiples thereof by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of a holder's notes is selected for partial
redemption and that holder converts a portion of those notes, the converted
portion shall be deemed to be of the portion selected for redemption.
All notes which are redeemed or otherwise acquired by us or any of our
subsidiaries prior to maturity will be immediately canceled and may not be
held, reissued or resold.
Purchase of Notes at the Option of Holders Upon a Change in Control
In the event of a change in control, each holder will have the option,
subject to the terms and conditions of the indenture, to require us to purchase
all or any part (provided that the principal amount must be $1,000 or an
integral multiple thereof) of the holder's notes, which we refer to as the
change in control offer, for a purchase
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<PAGE>
price equal to 100% of the principal amount thereof, plus accrued interest up
to but not including the change in control payment date, as described below.
This payment is referred to as the change in control payment.
Within 10 business days following any change in control, we will mail a
notice to each holder, stating:
. the date of the change in control and, briefly, the events causing the
change in control;
. that the change in control offer is being made pursuant to the covenant
entitled "change in control" in the indenture and that all the notes
tendered will be accepted for payment;
. the purchase price and the purchase date, which shall be 30 business
days after the occurrence of the change in control. This date is
referred to as the change in control payment date;
. briefly, the conversion rights of the notes and the then current
conversion price;
. the name and address of each paying agent and conversion agent;
. that interest will continue to accrue on any notes not tendered, as
provided in the notes;
. that, unless we default in the payment of the change in control payment,
with respect to all the notes accepted for payment pursuant to the
change in control offer, interest will cease to accrue after the change
in control payment date;
. that holders electing to have any of the notes purchased pursuant to a
change in control offer will be required to surrender the notes, with
the election form entitled Option of Holder to Elect Purchase on the
reverse of the notes completed, to the paying agent at the address
specified in the notice prior to the close of business on the third
business day preceding the change in control payment date;
. that notes as to which an election has been given may be converted into
our common stock only to the extent that the election has been withdrawn
in accordance with the terms of the indenture;
. that holders will be entitled to withdraw their election if the paying
agent receives, not later than the close of business on the second
business day preceding the change in control payment date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the notes delivered for purchase, and a
statement that such holder is withdrawing his election to have the notes
purchased; and
. that holders whose notes are being purchased only in part will be issued
new notes equal in principal amount to the unpurchased portion of the
notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or a multiple thereof.
A change in control shall be deemed to have occurred if any of the
following occurs after the issue date of the notes:
. the consolidation or merger by us with or into any other person, or the
merger of any other person into us, unless our stockholders immediately
before such transaction own, directly or indirectly, immediately
following such transaction, at least a majority of the combined voting
power of our voting stock or the person resulting from such transaction;
. the sale, lease or transfer of all or substantially all of our assets,
directly or indirectly, to any "person" or "group," within the meaning
of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting for the
purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act and excluding any of
our wholly owned subsidiaries;
. the approval by our requisite stockholders of a plan of liquidation or
dissolution;
. any "person" or "group," within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the
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Exchange Act becomes the "beneficial owner," as defined in Rule 13d-3
under the Exchange Act, of more than 50% of the total voting power of
all classes of our voting stock and/or warrants or options to acquire
such voting stock, calculated on a fully diluted basis, unless, as a
result of such transaction, the ultimate direct or indirect ownership of
us is substantially the same immediately after such transaction as it
was immediately prior to such transaction; or
. during any period of two consecutive years, individuals who at the
beginning of such period constituted our board of directors, together
with any new directors whose election or appointment by such board or
whose nomination for election by our stockholders was approved by a vote
of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority of our board of directors then in office.
We will comply with the requirements of Rule 13e-4 and Rule 14e-1 under the
Exchange Act, and with any other securities laws and regulations thereunder to
the extent these laws and regulations are applicable in connection with any
offer by us to purchase notes at the option of the holders upon a change in
control.
In some changes in control, holders of the notes who elect to convert their
notes rather than exercise their change in control put right will be entitled
to receive additional compensation based upon the present value of the
remaining aggregate interest payments that would have been payable on the
notes through April 17, 2003, as described above under "--Conversion Rights."
The change in control purchase feature of the notes may in some
circumstances make more difficult or discourage a takeover of us and the
removal of incumbent management. We are not aware of any specific effort to
accumulate shares of common stock or to obtain control of us by means of a
merger, tender offer, solicitation or otherwise, nor is the change in control
purchase feature part of a plan by management to adopt a series of anti-
takeover provisions. Instead, the change in control purchase feature is a
result of negotiations between us and the initial purchasers.
Subject to the limitation on mergers and consolidations discussed below, we
could, in the future, enter into transactions, including recapitalizations,
that would not constitute a change in control under the indenture, but that
would increase the amount of indebtedness (including senior indebtedness)
outstanding or otherwise adversely affect the holders of the notes. There are
no restrictions in the indenture on the creation of additional indebtedness
(including senior indebtedness) by us or our subsidiaries and the incurrence
of significant amounts of additional indebtedness could have an adverse effect
on our ability to service our indebtedness, including the notes.
If a change in control were to occur, there can be no assurance that we
would have sufficient funds to pay the change in control payment for the notes
tendered by the holders thereof. In addition, other indebtedness which we may
incur in the future may have similar change in control provisions permitting
the holders thereof to accelerate or require us to repurchase such
indebtedness upon the occurrence of events similar to a change in control. Our
failure to repurchase the notes when required following a change in control
will result in an event of default under the indenture whether or not such
repurchase is permitted by the subordination provisions thereof. Other than
granting holders the option to require us to purchase all or part of their
notes upon the occurrence of the change in control as described above, the
indenture will not contain any covenants or other provisions designed to
afford holders protection in the event of takeovers, recapitalizations, highly
leveraged transactions or similar restructurings involving us.
In the event that notes are issued in definitive certificated form, which
we refer to as certificated notes, under the limited circumstances described
herein, holders electing to exercise the option to have their notes
repurchased following a change in control must surrender the certificated
notes, together with such additional documents as are required by the
indenture, at the office of the paying agent. Where not all of the notes
represented by a certificated note are submitted for purchase, a new
certificated note in respect of the principal amount of the notes that have
not been so submitted for purchase will be issued to the holder.
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<PAGE>
Subordination of Notes
To the extent set forth in the indenture, the notes will be subordinated in
right of payment to all of our existing and future senior indebtedness. Upon
any payment or distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization (whether in insolvency or bankruptcy
proceedings or otherwise), all senior indebtedness must be paid in full before
any payment is made in respect of the notes. In the event of a default in
payment (whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise) of principal of or premium, if any, or interest on
senior indebtedness, no payment may be made by us in respect of the notes until
payment in full of the senior indebtedness then due or the cure, waiver or
cessation of the default. As of March 31, 2000, we had approximately $96.3
million of senior indebtedness outstanding. If we had completed the offering of
the notes, purchased both the issued shares and outstanding options of GSS
Thailand and the issued shares of BEA and closed our new credit facility as of
March 31, 2000 and financed the purchases with the proceeds of the offering of
the notes and the remainder out of our available credit facility, we would have
had approximately $309.0 million of indebtedness outstanding on a pro forma
basis (based on the debt of GSS Thailand as of February 24, 2000 and the debt
of BEA as of March 31, 2000) that would have been senior in right of payment to
the notes. Upon an event of default with respect to any senior indebtedness
(other than a default in the payment of principal of, or premium, if any, or
interest on senior indebtedness) permitting a holder thereof to accelerate its
maturity, and upon written notice, referred to as a default notice, of such
default to the trustee and us by any holder of such senior indebtedness or its
representative, then, unless and until such default has been cured, waived or
has ceased to exist, no payment may be made by us in respect of the notes;
except that nothing in the foregoing provisions of this sentence will prevent
the making of any payment (which is not otherwise prohibited by the provisions
described in the immediately preceding sentence) in respect of the notes for a
period of more than 180 days after the date such default notice is given unless
the maturity of the senior indebtedness has been accelerated, in which case no
payment on the notes may be made until the acceleration has been waived,
rescinded or annulled or the senior indebtedness has been paid in full.
Notwithstanding the provisions described in the preceding sentence, not more
than one default notice shall be given with respect to the same issue of senior
indebtedness within a period of 360 consecutive days, and no event of default
which existed on the date of any default notice and was known to the holders of
any issue of senior indebtedness shall be made the basis for the giving of a
subsequent default notice by the holders of the issue of senior indebtedness.
In the event that, notwithstanding the provisions set forth in the
immediately preceding paragraph, the trustee, any paying agent or any holder of
the notes receives any payment or distribution of our assets of any kind in
contravention of any of the terms of the indenture, whether in cash, property
or securities, in respect of the notes before all senior indebtedness is paid
in full, then such payment or distribution will be held by the recipient in
trust for the benefit of holders of senior indebtedness or their
representatives to the extent necessary to make payment in full of all senior
indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution to or for the holders of senior indebtedness.
As a result of these subordination provisions, in the event of our
insolvency, holders of the notes may recover ratably less than our other
creditors. This subordination will not prevent the occurrence of any event of
default under the indenture.
The notes will also be effectively subordinated to all liabilities,
including trade payables and capital lease obligations, if any, of our
subsidiaries. Any right we have to receive the assets of any of our
subsidiaries upon their liquidation or reorganization (and the consequent right
of the holders of the notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that we ourselves are a creditor of the
subsidiary, in which case our claims would still be junior to claims secured by
security interests in the assets of the subsidiary and any other indebtedness
of the subsidiary senior to that held by us. As of March 31, 2000, our
subsidiaries had approximately $94.4 million of liabilities outstanding.
The indenture does not limit the amount of indebtedness, including senior
indebtedness, that we, or any of our subsidiaries, can create, incur, assume or
guarantee.
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Definitions
"Capital lease obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Indebtedness" means, with respect to any person, without duplication:
. all liabilities of such person for borrowed money or for the deferred
purchase price of property or services, excluding any trade accounts
payable and other current liabilities incurred in the ordinary course of
business;
. all obligations of such person evidenced by bonds, notes, debentures, or
other similar instruments;
. all capital lease obligations of such person;
. all guarantees of indebtedness referred to in this definition by such
person;
. all obligations of such person under or in respect of currency
agreements and interest rate agreements of such person; and
. any amendment, supplement, modification, deferral, renewal, extension or
refunding of any liability of the types referred to in the clauses
above.
"Issue date" means the date on which the notes are originally issued.
"Senior indebtedness" means the principal of and premium, if any, interest
(including, without limitation, interest accruing subsequent to the filing of,
or which would have accrued but for the filing of, a petition for bankruptcy,
whether or not the interest is an allowable claim in the bankruptcy proceeding)
and other amounts payable on or in respect of any of our indebtedness, whether
outstanding on the date of the indenture or thereafter created, incurred or
assumed, unless, in the case of any particular indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such indebtedness shall not be senior in right of
payment to, or shall be junior in right of payment to, or shall be pari passu
in right of payment with, the notes. Notwithstanding the foregoing, "senior
indebtedness" shall not include:
. indebtedness evidenced by the notes;
. indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code (or any successor
provision thereto), is without recourse to us;
. trade accounts payable or other current liabilities incurred in the
ordinary course of business;
. indebtedness of or amounts owed by us for compensation to employees or
for services rendered to us;
. any liability for federal, state, local or other taxes owed or owing by
us;
. indebtedness of us to a subsidiary or an affiliate; and (g) amounts
owing under leases (other than capital lease obligations).
Events of Default; Notice; Waiver
If an event of default (other than an event of default resulting from
bankruptcy, insolvency or reorganization with respect to us or any significant
subsidiary) occurs and is continuing, the trustee may, by notice to us, declare
all unpaid principal of and accrued interest to the date of acceleration on the
notes then outstanding to be due and payable immediately. Also, in such event,
the holders of at least 25% in principal
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<PAGE>
amount of the notes then outstanding may, by notice to us and the trustee,
declare all unpaid principal of and accrued interest to the date of
acceleration on the notes then outstanding to be due and payable immediately.
If an event of default resulting from events of bankruptcy, insolvency or
reorganization with respect to us or any significant subsidiary shall occur,
all unpaid principal of and accrued interest on the notes then outstanding
shall become and be immediately due and payable without any declaration or
other act on the part of the trustee or any holder.
The indenture will provide that the holders of a majority in principal
amount of the outstanding notes may on behalf of all holders waive any existing
default or event of default and its consequences, except a default or event of
default in the payment of principal or accrued interest on the notes or any
default in respect of any provision of the indenture that cannot be modified or
amended without the consent of the holder of each note affected.
The following will be events of default under the indenture:
. failure of us to pay any interest on the notes for 30 days after the
same is due or failure of us to pay any principal of or premium, if any,
on the notes when due;
. failure of us to comply with any of its other agreements contained in
the notes or the indenture for 60 days after receipt of notice of such
failure from the trustee or the holders of not less than 25% in
aggregate principal amount of the notes then outstanding;
. default under any bond, debenture, note or other evidence of
indebtedness for money borrowed of us or any significant subsidiary
having an aggregate outstanding principal amount in excess of
$5,000,000, which default shall have resulted in such indebtedness being
accelerated, without such indebtedness being discharged, or such
acceleration having been rescinded or annulled, within 20 days from the
date of such acceleration; and
. certain events of bankruptcy, insolvency or reorganization with respect
to us or any significant subsidiary.
The trustee shall, within 90 days after the occurrence of any default known
to it, give to the holders notice of such default; provided that, except in the
case of default in the payment of principal of or interest on any of the notes,
the trustee may withhold such notice if it in good faith determines that the
withholding of such notice is in the interests of the holders.
No holder may pursue any remedy under the indenture or the notes against us
(except actions for payment of overdue principal or interest or for the
conversion of the notes), unless:
. the holder gives to the trustee written notice of a continuing event of
default,
. the holders of at least 25% in principal amount of the outstanding notes
make a written request to the trustee to pursue the remedy,
. such holder or holders offer satisfactory indemnity to the trustee
against any loss, liability or expense,
. the trustee does not comply with the request within the 60 days after
receipt of the request and the offer of indemnity, and
. the trustee shall not have received during such 60-day period a contrary
direction from the holders of at least a majority in principal amount of
the outstanding notes.
We must deliver an officers' certificate to the trustee within 90 days after
the end of each fiscal year as to the signer's knowledge of our compliance with
all conditions and covenants on our part contained in the indenture, and
stating whether or not the signers know of any default or event of default. If
any such signer knows of such a default or event of default, the officers'
certificate shall describe the default or event of default and the efforts to
remedy the same.
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<PAGE>
Amendment
We and the trustee may amend or supplement the indenture or the notes with
the written consent of the holders of at least a majority in principal amount
of the outstanding notes. The holders of a majority in principal amount of the
notes outstanding may waive compliance in a particular instance by us with any
provision of the indenture or the notes without notice to any holder. However,
without the consent of the holder of each note affected thereby, an amendment,
supplement or waiver may not:
. reduce the percentage of the principal amount of outstanding notes whose
holders must consent to an amendment, supplement or waiver,
. reduce the rate of or change the time for payment of interest on any
note,
. reduce the principal of or premium on or change the fixed maturity of
any note,
. alter the conversion provisions with respect to any note in a manner
adverse to the holder thereof,
. waive a default in the payment (whether at maturity, upon redemption, on
an interest payment date, on a change in control payment date or
otherwise) of the principal of or premium or interest on any note,
. reduce the percentage of notes necessary to waive defaults or events of
default,
. modify any of the subordination provisions in the indenture in a manner
adverse to the holders of the notes, or
. make any note payable in money other than that stated in the note.
We and the trustee may amend or supplement the indenture or the notes
without notice to or consent of any holder in some events, such as to comply
with the conversion, adjustment, liquidation and merger provisions described in
the indenture, to cure any ambiguity, defect or inconsistency or to make any
other change that does not adversely affect the rights of the holders, to
comply with the provisions of the Trust Indenture Act of 1939, as amended, or
to appoint a successor trustee.
No amendment may be made that adversely affects the rights described under
"--Subordination of Notes" above of a holder of an issue of senior indebtedness
unless the holder of that issue, pursuant to its terms, consents to such
amendment.
Registration Rights
The following summary of the registration rights provided in the
registration rights agreement is not complete. You should refer to the
registration rights agreement for a full description of the registration rights
that apply to the notes.
We have agreed, pursuant to a registration rights agreement between us and
the initial purchasers, to use our reasonable best efforts to file a shelf
registration statement under the Securities Act within 120 days after the first
date of original issuance of the notes, to register resales of the notes and
the shares of common stock into which the notes are convertible. This
prospectus is part of the shelf registration statement required to be filed
pursuant to the registration rights agreement. We will use our reasonable best
efforts to have the shelf registration statement declared effective as soon as
practicable after it is filed and, in any event, within 180 days after the
first date of original issuance of the notes, and to keep it effective until
two years after the date on which the shelf registration statement becomes
effective or such shorter period that will terminate when all the securities
covered by the shelf registration statement have been:
. sold pursuant to the shelf registration statement,
. transferred pursuant to Rule 144 under the Securities Act,
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<PAGE>
. otherwise transferred in a manner that results in such securities not
being subject to transfer restrictions under the Securities Act and the
absence of a need for a restrictive legend regarding registration under
the Securities Act, or
. may be sold pursuant to Rule 144(k) under the Securities Act.
Notwithstanding the foregoing, we will be permitted to suspend the use of
the prospectus that is part of the shelf registration statement for a period
not to exceed 60 days at any one time and not to exceed 90 days in the
aggregate during any 12 month period, if our board of directors determines in
good faith that such action is in our best interests and that of our
stockholders and we provide registered holders of the notes written notice of
such suspension. A holder of securities that sells securities pursuant to the
shelf registration statement generally will be required to provide information
about itself and the specifics of the sale, be named as a securityholder in the
related prospectus and deliver a prospectus to purchasers, be subject to
relevant civil liability provisions under the Securities Act in connection with
such sales and be bound by the provisions of the registration rights agreement
which are applicable to such holder (including certain indemnification
obligations).
If:
. on or prior to the 120th day after the first date of original issuance
of the notes, the shelf registration statement has not been filed with
the Securities and Exchange Commission;
. on or prior to the 180th day after the first date of original issuance
of the notes, the shelf registration statement has not been declared
effective by the Securities and Exchange Commission; or
. after the shelf registration statement has been declared effective, such
shelf registration statement ceases to be effective or usable (subject
to certain exceptions) in connection with resales of notes and the
common stock issuable upon the conversion of the notes in accordance
with and during the periods specified in the registration rights
agreement. We refer to each event referred to in the above clauses as a
registration default,
additional interest will accrue on the notes over and above the rate set forth
in the title of the notes, from and including the date on which any such
registration default shall occur to but excluding the date on which such
registration default has been cured, at the rate of 0.5% per annum. We will
have no other liabilities for monetary damages with respect to our registration
obligations.
We will pay all expenses of the shelf registration statement, provide each
holder that is selling securities pursuant to the shelf registration statement
with copies of the related prospectus and take other actions as are required to
permit, subject to the foregoing, unrestricted resales of the securities.
Satisfaction and Discharge
If all of the notes have been delivered to the trustee for cancellation
(subject to certain limited exceptions) or if all of the notes not theretofore
delivered to the trustee for cancellation have become due and payable or will
become due and payable within one year at their stated maturity or upon
redemption, then we may terminate all of our obligations under the indenture,
other than certain obligations regarding the conversion, repurchase and
registration of, transfer or exchange of the notes described in the indenture
(including its obligation to deliver shares of common stock upon conversion of
the notes and its obligation to purchase notes following a change in control),
at any time, by depositing with the trustee or a paying agent other than us,
money sufficient to pay the principal of and interest on the notes then
outstanding to maturity or redemption, as the case may be.
Mergers and Consolidations
Subject to the right of the holders to require us to purchase the notes in
the event of a change in control, we may consolidate or merge with or into any
other corporation, and we may sell, lease, convey, assign, or otherwise
transfer all or substantially all our property and assets to any other
corporation; provided:
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<PAGE>
. either we are the resulting or surviving corporation, or the successor
corporation is organized and existing under the laws of the Unites
States of America, any state thereof or the District of Columbia and
expressly assumes, by supplemental indenture executed and delivered to
the trustee, payment of the principal of and interest on the notes and
performance and observance of every covenant of ours in the indenture
and the notes (including, without limitation, the agreement to deliver
shares of common stock upon conversion of the notes),
. immediately after giving effect to such transaction, no default or event
of default shall have occurred and be continuing, and
. other conditions are met.
Concerning the Trustee
State Street Bank and Trust Company has agreed to serve as the trustee under
the indenture. The trustee will be permitted to deal with us and any affiliate
of ours with the same rights as if it were not the trustee; provided, however,
that under the Trust Indenture Act, if and to the extent applicable, if the
trustee acquires any conflicting interest (as defined in the Trust Indenture
Act) and there exists a default with respect to the notes, it must eliminate
such conflicts or resign.
The holders of a majority in principal amount of all outstanding notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy or power available to the trustee;
provided that such direction does not conflict with any law or the indenture,
is not unduly prejudicial to the rights of another holder or the trustee and
does not involve the trustee in personal liability.
Book-Entry; Delivery and Form
We initially issued the notes in the form of one or more global notes, which
we refer to as the global note. The global note is deposited with the trustee
as custodian for DTC and registered in the name of a nominee of DTC. The global
note (and any shares of common stock issuable upon conversion) is subject to
certain restrictions on transfer set forth therein and bears a legend regarding
such restrictions. Except as set forth below, the global note may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
You may hold your beneficial interests in the global note directly through DTC
if you have an account with DTC or indirectly through organizations which have
accounts with DTC. Certificated notes will only be issued in certain limited
circumstances described below.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC, who we refer to as
participants, and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic book-
entry changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTC's participants include
securities brokers and dealers (which may include the initial purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
We expect that pursuant to procedures established by DTC, upon the deposit
of the global note with DTC, DTC will credit, on its book-entry registration
and transfer system, the principal amount of notes represented by such global
note to the accounts of participants. The accounts to be credited shall be
designated by the initial purchasers. Ownership of beneficial interests in the
global note will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in the global note will
be shown on, and the transfer of those ownership interests will be effected
only through, records maintained by DTC
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<PAGE>
(with respect to participants' interests), the participants and the indirect
participants (with respect to the owners of beneficial interests in the global
note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the global note.
Beneficial owners of interests in global notes who desire to convert such
interests into common stock should contact their brokers or other participants
or indirect participants through whom they hold such beneficial interests to
obtain information on procedures, including proper forms and cut-off times, for
submitting requests for conversion.
So long as DTC, or its nominee, is the registered owner or holder of a
global note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such global note for all
purposes under the indenture and the notes. In addition, no beneficial owner of
an interest in a global note will be able to transfer that interest except in
accordance with the applicable procedures of DTC. Except as set forth below, as
an owner of a beneficial interest in the global note, you will not be entitled
to have the notes represented by the global note registered in your name, will
not receive or be entitled to receive physical delivery of certificated notes
and will not be considered to be the owner or holder of any notes under the
global note. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the global note desires to take any action
that DTC, as the holder of the global note, is entitled to take, DTC would
authorize the participants to take such action, and the participants would
authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning
through them.
We will make payments of principal of and premium, if any, and interest on
the notes represented by the global note registered in the name of and held by
DTC or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the global note. Neither we, the trustee nor any paying
agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the global note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of or premium, if any, or interest on the global note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global note as
shown on the records of DTC or its nominee. We also expect that payments by
participants or indirect participants to owners of beneficial interests in the
global note held through such participants or indirect participants will be
governed by standing instructions and customary practices and will be the
responsibility of such participants or indirect participants. We will not have
any responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the global note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or indirect participants or the relationship
between such participants or indirect participants and the owners of beneficial
interests in the global note owning through such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of notes for conversion as
described above) only at the direction of one or more participants to whose
account a DTC interest in the global note is credited and only in respect of
such portion of the aggregate principal amount of notes as to which such
participant or participants has or have given such direction. However, if there
is an event of default under the notes, DTC will exchange the global note for
certificated notes which it will distribute to its participants.
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<PAGE>
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the global note among participants of DTC,
they are under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither we nor the trustee
will have any responsibility or liability for the performance by DTC or the
participants or indirect participants of their respective obligations under the
rules and procedures governing their respective operations.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock,
$0.01 par value per share, and 5,000,000 shares of preferred stock, $0.01 par
value per share.
Common Stock
As of July 11, 2000, there were approximately 16,878,136 shares of common
stock outstanding held of record by approximately 120 stockholders. Our common
stock is listed on the Nasdaq National Market under the symbol "ACTM." Holders
of common stock are entitled to one vote for each share held on all matters to
be voted upon by the stockholders and do not have cumulative rights.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the board of directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon our liquidation, dissolution or winding up,
the holders of common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the common
stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. Currently, there are no shares of preferred stock
outstanding.
Preferred Stock
The board of directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval to issue from time to
time up to an aggregate of 5,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change of control of ACT. We have no present plans to issue any shares of
preferred stock.
Certain Anti-Takeover Measures
We are subject to Chapter 110F of the Massachusetts General Laws, an anti-
takeover law. In general, this statute prohibits a publicly held Massachusetts
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless:
. the interested stockholder obtains the approval of the board of
directors prior to becoming an interested stockholder,
. the interested stockholder acquires 90% of the outstanding voting stock
of the corporation (excluding shares held by certain affiliates of the
corporation) at the time it becomes an interested stockholder, or
. the business combination is approved by both the board of directors and
the holders of two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder).
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder. We
may at any time elect not to be governed by Chapter 110F by
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<PAGE>
vote of a majority of our stockholders, but such an amendment would not be
effective for twelve months and would not apply to a business combination with
any person who became an interested stockholder prior to the adoption of the
amendment.
Massachusetts General Laws Chapter 156B, Section 50A generally requires that
publicly-held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless the
corporation elects to opt out of the statute's coverage. Our by-laws contain
provisions which give effect to Section 50A.
Our by-laws also include a provision excluding us from the applicability of
Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share
Acquisitions." In general, this statute provides that any stockholder of a
corporation subject to this statute who acquires 20% or more of the outstanding
voting stock of a corporation may not vote such stock unless the stockholders
of the corporation so authorize. Our board of directors may amend our by-laws
at any time to subject us to this statute prospectively.
Our charter provides that any amendment to the charter, the sale, lease or
exchange of all or substantially all of our property and assets, or our merger
or consolidation into or with any other corporation may be authorized by the
approval of the holders of a majority of the shares of each class of stock
entitled to vote thereon, rather than by two-thirds as otherwise provided by
statute, provided that the transactions have been authorized by a majority of
the members of our board of directors and the requirements of any other
applicable provisions of our charter have been met.
Our charter and by-laws include provisions that may have the effect of
discouraging, delaying or preventing a change in control or an unsolicited
acquisition proposal that a stockholder might consider favorable, including a
proposal that might result in the payment of a premium over the market price
for the shares held by stockholders as follows:
. allow our board to establish the rights, preferences and privileges of
authorized and unissued shares;
. require that special meetings of our stockholders be called only by the
president, a majority of our directors and stockholders holding at least
40% of our outstanding common stock;
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting;
. provide that we indemnify our officers and directors to the fullest
extent authorized by Massachusetts law; and
. provide that our directors will not be personally liable for monetary
damages for breaches of their fiduciary duties as directors unless they
violated their duty of loyalty or acted in certain ways.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company, 6201 15th Avenue, 3rd Floor, Brooklyn, NY 11219 and
its telephone number is (718) 921-8360.
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SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in April 2000. The
notes were resold by the initial purchasers to qualified institutional buyers
within the meaning of Rule 144A under the Securities Act in transactions exempt
from registration under the Securities Act. The notes and the underlying common
stock that may be offered pursuant to this prospectus will be offered by the
selling securityholders, which includes their transferees, pledgees or donees
or their successors. The following table sets forth certain information
concerning the principal amount of notes beneficially owned by each selling
securityholder and the number of shares of underlying common stock that may be
offered from time to time pursuant to this prospectus.
The number of shares of underlying common stock shown in the table below
assumes conversion of the full amount of notes held by such holder at the
initial conversion rate of 23.31 shares per $1,000 principal amount of notes.
This conversion rate is subject to certain adjustments. Accordingly, the number
of shares of common stock issuable upon conversion of the notes may increase or
decrease from time to time. Under the terms of the indenture, fractional shares
will not be issued upon conversion of the notes. Cash will be paid instead of
fractional shares, if any. As of July 11, 2000, we had 16,878,136 shares of
common stock outstanding.
<TABLE>
<CAPTION>
Principal Amount
at Maturity of Number of
Notes Shares of
Beneficially Percentage Common Stock
Owned That of Notes That May
Name May Be Sold Outstanding Be Sold
---- ---------------- ----------- ------------
<S> <C> <C> <C>
AAM/Zazove Institutional Income
Fund, L.P. ........................ $ 1,150,000 1.150% 26,806
AIG Soundshore Strategic Holding
Fund Ltd. ......................... 1,875,000 1.875 43,706
AIG Soundshore Opportunity Holding
Fund Ltd........................... 1,875,000 1.875 43,706
Alexandra Global Investment Fund
Ltd................................ 1,000,000 1.000 23,310
Arkansas PERS....................... 1,375,000 1.375 32,051
Bank America Pension Plan........... 2,000,000 2.000 46,620
Boilermakers Blacksmith Pension
Trust.............................. 1,200,000 1.200 27,972
Clinton Riverside Convertible
Portfolio Limited.................. 3,000,000 3.000 69,930
D.E. Shaw Investments, L.P.......... 1,000,000 1.000 23,310
D.E. Shaw Valence, L.P.............. 1,500,000 1.500 34,965
Delaware PERS....................... 1,120,000 1.120 26,107
Deutsche Bank Securities Inc........ 10,050,000 10.050 234,265
Duckbill & Co....................... 2,500,000 2.500 58,275
Fidelity Financial Trust: Fidelity
Convertible Securities Fund........ 4,325,000 4.325 100,815
General Motors Welfare Benefit Trust
(ST-VEBA).......................... 1,500,000 1.500 34,965
Grace Brothers, Ltd................. 1,500,000 1.500 34,965
HighBridge International LLC........ 5,000,000 5.000 116,550
HT Insight Convertible Securities
Fund............................... 250,000 0.250 5,827
ICI American Holdings Trust......... 700,000 0.700 16,317
JMG Triton Offshore Fund, Ltd....... 2,250,000 2.250 52,447
Julius Baer Securities, Inc. ....... 700,000 0.700 16,317
Kentfield Trading, Ltd.............. 6,650,000 6.650 155,011
LLT Limited......................... 80,000 0.080 1,864
Minnesota Power..................... 1,000,000 1.000 23,310
Pell Rudman Trust Company........... 1,720,000 1.720 40,093
Peoples Benefit Life Insurance
Company TEAMSTERS.................. 1,500,000 1.500 34,965
PRIM Board.......................... 2,000,000 2.000 46,620
Retail Clerks Pension Trust #2...... 2,000,000 2.000 46,620
Salomon Smith Barney................ 2,275,000 2.275 53,030
San Diego County Employees
Retirement Association............. 2,100,000 2.100 48,951
Southport Management Partners L.P... 300,000 0.300 6,993
Southport Partners International
Ltd................................ 570,000 0.570 13,286
St. Albans Partners Ltd. ........... 6,500,000 6.500 151,515
St. Thomas Trading, Ltd. ........... 50,000 0.050 1,165
State of Oregon Equity.............. 3,625,000 3.625 84,498
The Northwestern Mutual Life
Insurance Company(1)............... 5,000,000 5.000 116,550
Value Line Convertible Fund, Inc.... 500,000 0.500 11,655
Zeneca Holdings Trust............... 550,000 0.550 12,820
Zurich HFR Master Hedge Fund Index
Ltd................................ 200,000 0.200 4,662
Any other holder of notes or future
transferee, pledgee,
donee or successor from any such
holder(2).......................... 17,510,000 17.510 408,168
------------ ------ ---------
Total............................... $100,000,000 100.00% 2,331,002
============ ====== =========
</TABLE>
--------
(1) Includes $500,000 principal amount held in The Northwestern Mutual Life
Insurance Company Group Annuity Separate Account.
(2) Information concerning other selling securityholders will be set forth in
prospectus supplements from time to time, if required.
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The preceding table has been prepared based upon the information furnished
to us by the selling securityholders named above.
None of the selling securityholders has had any position, office or other
material relationship with us or our affiliates within the past three years.
The selling securityholders identified above may have sold, transferred or
otherwise disposed of some or all of their notes since the date on which the
information in the preceding table is presented in transactions exempt from the
registration requirements of the Securities Act. Information concerning the
selling securityholders may change from time to time and, if necessary, we will
supplement this prospectus accordingly. We cannot give an estimate as to the
amount of the notes or shares of underlying common stock that will be held by
the selling securityholders upon the termination of this offering because the
selling securityholders may offer some or all of their notes or shares of
underlying common stock pursuant to the offering contemplated by this
prospectus. See "Plan of Distribution."
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations that may be relevant to the purchase, ownership and
disposition of the notes by U.S. holders, as defined below, that purchased the
notes pursuant to the original offering at their issue price, and the ownership
and disposition of our common stock received upon conversion of the notes by
U.S. holders. This discussion does not purport to be a full description of all
United States federal income tax considerations that may be relevant to the
purchase, holding and disposition of the notes or our common stock and does not
address any other taxes that might be applicable to a holder of the notes or
our common stock, such as tax consequences arising under the tax laws of any
state, locality or foreign jurisdiction. We cannot assure you that the United
States Internal Revenue Service will take a similar view of these consequences.
Further, this discussion does not address all aspects of taxation that may be
relevant to particular holders of notes or common stock in light of their
personal circumstances and does not deal with persons that are subject to
special tax rules, such as dealers in securities, financial institutions,
insurance companies, tax-exempt entities, persons holding the notes as part of
a hedging or conversion transaction, a straddle or constructive sale, persons
whose functional currency is not the United States dollar and persons who are
not U.S. holders. The discussion below assumes that the notes and the common
stock into which such notes are convertible are held as capital assets within
the meaning of Section 1221 of the Internal Revenue Code.
The discussion of the United States federal income tax considerations below
is based on currently existing provisions of the Internal Revenue Code, the
applicable Treasury regulations promulgated and proposed under the Internal
Revenue Code, judicial decisions and administrative interpretations, all of
which are subject to change, possibly on a retroactive basis. Because
individual circumstances may differ, you are strongly urged to consult your tax
advisor with respect to your particular tax situation and the particular tax
effects of any state, local, non-United States or other tax laws and possible
changes in the tax laws.
As used herein, a U.S. holder means a beneficial owner of a note or common
stock who is, for United States federal income tax purposes:
. a citizen or resident of the United States;
. a corporation or other entity created or organized in or under the laws
of the United States or of any state thereof or in the District of
Columbia;
. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
. a trust, if either (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all
substantial decisions of the trust or (b) the trust has a valid election
in effect under applicable Treasury regulations to be treated as a
United States person.
Payment of Interest
Stated Interest. Interest on a note will be includable in the income of a
U.S. holder as ordinary income at the time interest is received or accrued, in
accordance with a holder's method of accounting for United States federal
income tax purposes.
Additional Interest. We intend to take the position that payments of
additional interest as described under the heading "Description of Notes--
Registration Rights" if paid as required therein, should be taxable to U.S.
holders as ordinary income when received or accrued in accordance with the U.S.
holder's method of accounting for United States federal income tax purposes.
The Internal Revenue Service may take a different position, however, which
could affect the timing of a U.S. holder's income with respect to additional
interest.
45
<PAGE>
Provisional Redemption and Optional Redemption
We may redeem some or all of the notes at any time on or after October 20,
2001 and prior to April 20, 2003, at a redemption price equal to 100% of the
principal amount of the notes to be redeemed, plus accrued interest, if certain
conditions with respect to the price of our common stock and the registration
of the notes and underlying common stock are met. If we redeem the notes under
these circumstances, we will make an additional "make whole" payment on the
redeemed notes as described under the heading "Description of Notes--
Provisional Redemption." In addition, at any time on and after April 20, 2003,
we may redeem all or a portion of the notes at the prices specified under the
heading "Description of Notes--Optional Redemption." The Treasury regulations
that relate to original issue discount contain rules for determining the yield
and maturity of any instrument that may be redeemed prior to its stated
maturity date at the option of the issuer. Under these regulations, solely for
purposes of the accrual of original issue discount, it is assumed that the
issuer will exercise any option to redeem a debt instrument if that exercise
would lower the yield to maturity of the debt instrument. We believe that we
will not be presumed to redeem the notes prior to their stated maturity under
the foregoing rules because the exercise of either of the redemption options
described above would not lower the yield-to-maturity of the notes.
Sale, Exchange or Redemption of Notes
A U.S. holder of a note will recognize gain or loss upon the sale, exchange
(other than a conversion), or redemption of a note in an amount equal to the
difference between the amount of cash plus the fair market value of any
property received, other than an amount received in respect of accrued
interest, which is taxable as ordinary income and the U.S. holder's adjusted
tax basis in the note. A U.S. holder's adjusted tax basis in a note generally
will equal the cost of the note to the holder. Generally, gain or loss
recognized on the disposition of a note will be capital gain or loss and will
be long-term capital gain or loss if the U.S. holder's holding period in the
note is more than one year at the time of the disposition.
Conversion
A U.S. holder of a note will not recognize gain or loss on the conversion of
a note solely into our common stock except with respect to cash in lieu of
fractional shares. For capital gains purposes, the holding period of the common
stock received upon conversion will include the period during which the note
was held. A U.S. holder's aggregate tax basis in the common stock received upon
conversion of a note will be equal to the holder's aggregate tax basis in the
note at the time of conversion, less any portion allocable to any fractional
share. A U.S. holder of a note will recognize gain or loss for federal income
tax purposes upon the receipt of cash in lieu of a fractional share of our
common stock in an amount equal to the difference between the amount of cash
received and the holder's tax basis in such fractional share. This gain or loss
should be capital gain or loss and should be taxable as described under "--
Sale, Exchange or Redemption of Notes."
Constructive Distributions
The conversion price of the notes is subject to adjustment under specified
circumstances. Under Section 305 of the Internal Revenue Code and applicable
Treasury regulations, adjustments or the failure to make adjustments to the
conversion price of the notes may result in a taxable constructive distribution
to U.S. holders of notes, resulting in ordinary income (subject to a possible
dividends received deduction in the case of corporate shareholders) to the
extent of our earnings and profits, as determined in accordance with United
States federal income tax principles, if, and to the extent that, these
adjustments in the conversion price increase the proportionate interest of a
U.S. holder of a note in our assets or earnings and profits, whether or not the
holder ever converts the notes into our common stock.
Distributions on Common Stock
A distribution by us with respect to our common stock will be treated for
United States federal income tax purposes as ordinary dividend income to the
extent that such distributions do not exceed our earnings and
46
<PAGE>
profits as determined under United States federal income tax principles. To the
extent a distribution exceeds our earnings and profits, it will be treated
first as a tax-free return of the U.S. holder's tax basis in the common stock
to the extent of the holder's tax basis, and then will generally be treated as
gain from the sale or exchange of such stock.
Disposition of Common Stock
A U.S. holder of our common stock will recognize capital gain or loss upon
the sale or other taxable disposition of our common stock in an amount equal to
the difference between the amount of cash plus the fair market value of any
property received and the U.S. holder's tax basis in the common stock. The
taxation of such capital gains will be as described above under "--Sale,
Exchange or Redemption of Notes."
United States Information Reporting and Backup Withholding
Under current United States federal income tax law, "reportable" payments,
including payments of interest and dividends, and under specified circumstances
principal payments on the notes, made to specified U.S. holders may be subject
to backup withholding tax at the rate of 31%, if these persons fail to supply
correct taxpayer identification numbers and other required information in the
specified manner.
Any amounts withheld under the backup withholding rules from payments to a
holder of notes or common stock will be refunded or credited against the
holder's United States federal income tax liability provided that the required
information is furnished to the Internal Revenue Service.
The Company will report to holders of notes and common stock and to the
Internal Revenue Service the amount of any reportable payments for each
calendar year and the amount of any tax withheld with respect to reportable
payments.
47
<PAGE>
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which includes their
transferees, pledgees or donees or their successors, may sell the notes and the
underlying common stock directly to purchasers or through underwriters, broker-
dealers or agents. Underwriters, broker-dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
selling securityholders or the purchasers. These discounts, concessions or
commissions may be in excess of those customary in the types of transactions
involved.
The notes and the underlying common stock may be sold in one or more
transactions at:
. fixed prices;
. prevailing market prices at the time of sale;
. varying prices determined at the time of sale; or
. negotiated prices.
These sales may be effected in transactions in the following manner:
. on any national securities exchange or quotation service on which the
notes or the common stock may be listed or quoted at the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on such exchanges or services or in the
over-the-counter market;
. through the writing of options; or
. through the settlement of short sales.
Selling securityholders may enter into hedging transactions with broker-
dealers or other financial institutions which may in turn engage in short sales
of the notes or the underlying common stock and deliver these securities to
close out such short positions, or loan or pledge the notes or the common stock
into which the notes are convertible to broker-dealers that in turn may sell
these securities.
The aggregate proceeds to the selling securityholders from the sale of the
notes or underlying common stock will be the purchase price of the notes or
common stock less any discounts and commissions. A selling securityholder
reserves the right to accept and, together with their agents, to reject, any
proposed purchase of notes or common stock to be made directly or through
agents. We will not receive any of the proceeds of the sale of the notes and
the underlying common stock offered by this prospectus.
Our outstanding common stock is listed for trading on The Nasdaq National
Market under the symbol "ACTM." We do not intend to list the notes for trading
on any national securities exchange or on The Nasdaq National Market. We cannot
guarantee that any trading market will develop or be maintained for the notes.
The notes and underlying common stock may be sold in some states only
through registered or licensed brokers or dealers. In addition, in some states
the notes and underlying common stock may not be sold unless they have been
registered or qualified for sale or an exemption from registration exists.
The selling securityholders and any underwriters, broker-dealers or agents
that participate in the sale or distribution of the notes and common stock into
which the notes are convertible may be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or
profit they earn on any sale of the notes and common stock may be underwriting
discounts and commissions under the Securities Act. Selling securityholders who
are "underwriters" within the meaning of Section 2(11) of the Securities Act
will be subject to certain statutory liabilities of the Securities Act and
Securities Exchange Act and the prospectus delivery requirements of the
Securities Act. The selling securityholders have acknowledged that they
understand their obligations to comply with the provisions of the Securities
Exchange Act and the
48
<PAGE>
rules thereunder relating to stock manipulation, particularly Regulation M, and
have agreed that they will not engage in any transaction in violation of such
provisions.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling
securityholder may not sell any notes or underlying common stock described
herein and may transfer, devise or gift the notes and underlying common stock
by other means not described in this prospectus.
If required, the specific notes or common stock to be sold, the names of the
selling securityholders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth
in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
Pursuant to the registration rights agreement filed as an exhibit to this
registration statement, we and the selling securityholders will be indemnified
by the other against certain liabilities, including certain liabilities under
the Securities Act or will be entitled to contribution in connection with these
liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and underlying common stock to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts will pass upon the
validity of the securities offered by this prospectus.
EXPERTS
The consolidated financial statements of ACT Manufacturing, Inc. and
subsidiaries as of December 31, 1999 and for the year then ended and the
consolidated financial statements of ACT Manufacturing, Inc. and subsidiaries,
except CMC Industries, Inc. as of July 31, 1998 and for each of the two years
in the period then ended and for the five months ended December 31, 1998,
included in and incorporated by reference in this prospectus have been audited
by Deloitte & Touche LLP as stated in their report appearing and incorporated
by reference herein. The financial statements of CMC Industries, Inc.,
consolidated with those of ACT Manufacturing, Inc., as of July 31, 1998 and for
each of the two years in the period then ended and for the five months ended
December 31, 1998, not presented separately herein, have been audited by
PricewaterhouseCoopers LLP as stated in their reports included and incorporated
by reference herein. Such consolidated financial statements of ACT
Manufacturing, Inc. and subsidiaries are included and incorporated by reference
herein in reliance upon the respective reports of such firms given upon their
authority as experts in accounting and auditing. All of the foregoing firms are
independent auditors.
The consolidated financial statements of GSS Array Technology Public Company
Limited as of November 24, 1999 and 1998 and for each of the three years in the
period ended November 24, 1999 included in this prospectus have been audited by
Deloitte Touche Tohmatsu Jaiyos, independent auditors, as stated in their
reports appearing herein (which express an unqualified opinion and includes an
explanatory paragraph referring to noncompliance with bank loan covenants in
1999), and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of the assembly business of Bull
Electronics Angers S.A. as of December 31, 1999 and for the year ended December
31, 1999 included in this prospectus have been audited
49
<PAGE>
by Deloitte Touche Tohmatsu, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements (not included herein) of CMC
Industries, Inc. as of July 31, 1998 and for each of the two years in the
period then ended, and for the five months ended December 31, 1998 have been
audited by PricewaterhouseCoopers LLP, independent accountants, whose reports
thereon appear herein. Such financial statements, to the extent they have been
included in the financial statements of ACT Manufacturing, Inc., have been so
included in reliance on the report of such independent accountants given on the
authority of said firm as experts in accounting and auditing.
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ACT Manufacturing, Inc. Audited Annual Financial Statements:
Independent Auditors' Report............................................. F-3
Report of Independent Accountants........................................ F-4
Report of Independent Accountants........................................ F-5
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-6
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997..................................................... F-7
Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 1999, 1998 and 1997.................................. F-7
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997........................................ F-8
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997..................................................... F-9
Notes to Consolidated Financial Statements............................... F-10
ACT Manufacturing, Inc. Unaudited Quarterly Financial Statements:
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999........................................... F-27
Condensed Consolidated Statements of Comprehensive Income for the three
months ended March 31, 2000 and 1999.................................... F-27
Condensed Consolidated Balance Sheets as of March 31, 2000 and December
31, 1999................................................................ F-28
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999........................................... F-29
Notes to Condensed Consolidated Financial Statements..................... F-30
GSS Array Technology Public Company Limited Audited Annual Financial
Statements:
Report of the Independent Auditors....................................... F-34
Consolidated Balance Sheets as of November 24, 1999 and 1998............. F-35
Consolidated Statements of Operations for the years ended November 24,
1999 and 1998........................................................... F-36
Consolidated Statements of Changes in Shareholders' Equity for the years
ended November 24, 1999 and 1998........................................ F-37
Consolidated Statements of Retained Earnings for the years ended November
24, 1999 and 1998....................................................... F-38
Consolidated Statements of Cash Flows for the years ended November 24,
1999 and 1998........................................................... F-39
Notes to the Consolidated Financial Statements........................... F-40
GSS Array Technology Public Company Limited Annual Financial Statements:
Report of Independent Auditors........................................... F-59
Consolidated Statement of Income and Retained Earnings for the year ended
November 24, 1997....................................................... F-60
Consolidated Statement of Cash Flows for the year ended November 24,
1997.................................................................... F-61
Notes to the Consolidated Financial Statements........................... F-62
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
GSS Array Technology Public Company Limited Unaudited Quarterly Financial
Statements:
Consolidated Balance Sheet as of February 24, 2000........................ F-69
Consolidated Statements of Operations for the quarters ended February 24,
2000 and 1999............................................................ F-70
Consolidated Statements of Changes in Shareholders' Equity for the
quarters ended February 24, 2000 and 1999................................ F-71
Consolidated Statements of Retained Earnings for the quarters ended
February 24, 2000 and 1999............................................... F-72
Consolidated Statements of Cash Flows for the quarters ended February 24,
2000 and 1999............................................................ F-73
Notes to Consolidated Interim Financial Statements........................ F-74
Assembly Business of Bull Electronics Angers S.A. Audited Financial
Statements:
Report of Independent Auditors............................................ F-85
Statement of Assets and Liabilities as of December 31, 1999............... F-86
Statement of Revenues, Direct and Certain Allocated Costs and Expenses for
the year ended December 31, 1999......................................... F-87
Notes to Financial Statements............................................. F-88
Assembly Business of Bull Electronics Angers S.A. Unaudited Quarterly
Financial Statements:
Statement of Assets and Liabilities as of March 31, 2000.................. F-94
Statements of Revenues, Direct and Certain Allocated Costs and Expenses
for the three months ended March 31, 2000 and March 31, 1999............. F-95
Notes to Financial Statements............................................. F-96
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ACT Manufacturing, Inc.:
We have audited the consolidated balance sheets of ACT Manufacturing, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of ACT
Manufacturing, Inc. and CMC Industries, Inc., which has been accounted for as a
pooling of interests as described in Note 1 to the consolidated financial
statements. We did not audit the balance sheet of CMC Industries, Inc. as of
July 31, 1998, or the related statements of income, stockholders' equity, and
cash flows of CMC Industries, Inc. for each of the two years in the period
ended July 31, 1998, which statements reflect total assets of $93,405,000 as of
July 31, 1998, and total revenues of $301,955,000 and $214,485,000 for the
years ended July 31, 1998 and 1997, respectively. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for CMC Industries, Inc. for 1998
and 1997, is based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of ACT Manufacturing, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche llp
Boston, Massachusetts
February 16, 2000, except as to
Note 14 which is dated
March 15, 2000
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of CMC Industries, Inc.
In our opinion, the consolidated balance sheets and the related consolidated
statements of income, of changes in stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of CMC
Industries, Inc. and its subsidiaries (not presented separately herein) at July
31, 1998, and the results of their operations and their cash flows for each of
the two years in the period ended July 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
_______________________________
PricewaterhouseCoopers LLP
Memphis, Tennessee
August 21, 1998, except as to
Note 14, which is as of
October 9, 1998
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of CMC Industries, Inc.
In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and cash flows of CMC Industries, Inc. and its
subsidiaries (not presented separately herein) present fairly, in all material
respects, their operations and their cash flows for the five months in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As discussed in Note 1, CMC Industries, Inc. merged with ACT Manufacturing,
Inc. on July 29, 1999. The merger was accounted for as a pooling of interests.
/s/ PricewaterhouseCoopers LLP
_______________________________
PricewaterhouseCoopers LLP
Memphis, Tennessee
June 21, 1999, except as to
Note 13, which is as of
July 29, 1999
F-5
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands,
except share
data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 4,558 $ 10,670
Accounts receivable-trade (less allowance for doubtful
accounts of $2,939 in 1999 and $1,233 in 1998).......... 153,422 101,828
Accounts and notes receivable from related party......... 7,408 5,678
Inventory................................................ 171,762 65,612
Prepaid expenses and other assets........................ 2,925 4,204
Deferred tax asset....................................... 1,252 880
-------- --------
Total current assets................................... 341,327 188,872
Property and equipment--net................................ 38,047 32,279
Notes receivable-related party............................. 550 1,400
Goodwill--net.............................................. 10,334 6,224
Investment in related party................................ 5,884 5,884
Other assets--net.......................................... 6,184 3,635
-------- --------
Total.................................................. $402,326 $238,294
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable bank........................................ $ -- $ 18,111
Current portion of long-term debt........................ 1,125 1,300
Current portion of other long-term liabilities........... 2,972 1,236
Accounts payable......................................... 153,764 71,956
Accrued compensation and related taxes................... 3,769 3,404
Income tax payable....................................... 3,074 505
Deferred taxes........................................... 253 --
Accrued expenses and other............................... 5,950 6,301
-------- --------
Total current liabilities.............................. 170,907 102,813
Long-term debt--less current portion....................... 46,933 41,756
Deferred taxes............................................. 2,735 1,173
Other long-term liabilities................................ 3,622 1,092
Commitments and contingencies (Notes 12 and 13)
Stockholders' Equity:
Preferred stock--$.01 par value; authorized, 5,000,000
shares; issued and outstanding, none.................... -- --
Common stock--$.01 par value; authorized, 50,000,000
shares; issued and outstanding, 16,465,771 shares in
1999 and 12,835,908 shares in 1998...................... 165 128
Additional paid-in capital............................... 157,887 74,960
Accumulated other comprehensive loss..................... (637) (180)
Retained earnings........................................ 20,714 16,552
-------- --------
Total stockholders' equity............................. 178,129 91,460
-------- --------
Total.................................................. $402,326 $238,294
======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Net sales:
Unrelated parties............................. $671,061 $566,048 $447,827
Related parties............................... 25,221 26,436 31,312
-------- -------- --------
Total net sales............................. 696,282 592,484 479,139
-------- -------- --------
Cost of goods sold:
Unrelated parties............................. 618,653 532,018 425,396
Related parties............................... 23,203 24,321 28,807
-------- -------- --------
Total cost of goods sold.................... 641,856 556,339 454,203
-------- -------- --------
Gross profit.................................... 54,426 36,145 24,936
Selling, general and administrative expenses.... 29,536 27,383 24,516
Merger costs.................................... 5,601 -- --
-------- -------- --------
Operating income................................ 19,289 8,762 420
Other income (expense):
Interest expense, net......................... (5,256) (3,718) (4,009)
Other, net.................................... (6) 93 (47)
-------- -------- --------
Total....................................... (5,262) (3,625) (4,056)
-------- -------- --------
Income (loss) before provision for income
taxes.......................................... 14,027 5,137 (3,636)
Provision (benefit) for income taxes............ 7,793 2,044 (1,235)
-------- -------- --------
Net income (loss)............................... $ 6,234 $ 3,093 $ (2,401)
======== ======== ========
Basic net income (loss) per common share........ $ 0.47 $ 0.24 $ (0.19)
======== ======== ========
Diluted net income (loss) per common share...... $ 0.45 $ 0.24 $ (0.19)
======== ======== ========
Weighted-average shares outstanding--basic...... 13,265 12,665 12,330
Weighted-average shares outstanding--diluted.... 13,916 12,976 12,330
</TABLE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Net income (loss)..................................... $6,234 $3,093 $(2,401)
Other comprehensive income (loss):
Foreign currency translation adjustment............. (457) (184) 4
Minimum pension liability........................... -- -- 996
------ ------ -------
Comprehensive income (loss)........................... $5,777 $2,909 $(1,401)
====== ====== =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
$.01
Par Accumulated
Value Additional Other Total
Common Paid-in Comprehensive Retained Stockholders
Stock Capital Income (Loss) Earnings Equity
------ ---------- ------------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... $121 $ 63,249 $ (996) $15,860 $ 78,234
Net loss................ -- -- -- (2,401) (2,401)
Minimum pension
liability.............. -- -- 996 -- 996
Exercise of warrants.... -- 1,267 -- -- 1,267
Net proceeds from sale
of stock............... 2 376 -- -- 378
Issuance of stock for
acquisition............ 2 5,248 -- -- 5,250
Cumulative foreign
currency translation
adjustments............ -- -- 4 -- 4
Income tax benefit from
employees' exercise of
stock options.......... -- 375 -- -- 375
---- -------- ------ ------- --------
Balance, December 31,
1997................... 125 70,515 4 13,459 84,103
Net income.............. -- -- -- 3,093 3,093
Net proceeds from sale
of stock............... 3 4,567 -- -- 4,570
Cumulative foreign
currency translation
adjustments............ -- -- (184) -- (184)
Cancellation of common
stock from acquisition
escrow................. -- (122) -- -- (122)
---- -------- ------ ------- --------
Balance, December 31,
1998................... 128 74,960 (180) 16,552 91,460
CMC Industries Inc. and
subsidiaries for the
five months ended
December 31, 1998:
Net loss.............. -- -- -- (2,072) (2,072)
Minimum pension
liability
adjustment........... -- -- (1,511) -- (1,511)
Net proceeds from the
sale of stock........ 1 328 -- -- 329
Net income.............. -- -- -- 6,234 6,234
Minimum pension
liability adjustment... -- -- 1,511 -- 1,511
Cumulative foreign
currency translation
adjustments............ -- -- (457) -- (457)
Net proceeds from sale
of stock............... 36 79,912 -- -- 79,948
Income tax benefit from
employees' exercise of
stock options.......... -- 2,687 -- -- 2,687
---- -------- ------ ------- --------
Balance, December 31,
1999................... $165 $157,887 $ (637) $20,714 $178,129
==== ======== ====== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 6,234 $ 3,093 $ (2,401)
Adjustments to reconcile net income (loss) to
net cash (used for) provided by operating
activities:
Depreciation and amortization................. 7,541 4,884 3,587
Deferred income taxes......................... 2,119 (764) 1,387
Provision for doubtful accounts............... 3,957 1,945 1,805
Loss on disposal of fixed assets.............. -- 132 --
Increase (decrease) in cash from:
Accounts receivable--trade................... (44,086) (26,771) (16,932)
Inventory.................................... (89,158) 4,239 7,684
Prepaid expenses and other assets............ 636 (2,632) (2,415)
Accounts payable............................. 56,213 17,463 10,743
Accrued compensation and related taxes....... 879 (194) 130
Income tax refundable (payable).............. 5,256 8,922 (9,977)
Accrued expenses and other................... 1,540 1,372 980
-------- -------- --------
Net cash (used for) provided by operating
activities................................. (48,869) 11,689 (5,409)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment.......... (6,729) (17,450) (4,820)
Increase in other noncurrent assets............ (3,835) (632) (153)
Proceeds from the sale of property and
equipment..................................... -- 111 --
Acquisitions, net of cash acquired............. (12,875) -- (2,388)
-------- -------- --------
Net cash used for investing activities...... (23,439) (17,971) (7,361)
-------- -------- --------
Cash flows from financing activities:
(Repayments) Borrowings under line-of-credit
agreements, net............................... (13,363) 4,612 15,712
Proceeds under term loan....................... 7,000 -- --
Payments under term loan....................... (250) -- --
Principal payments on long-term debt........... (3,017) (1,300) (1,300)
Repayments of other long-term liabilities...... (867) (692) (2,337)
Receipt of deferred revenue.................... 540 483 --
Net proceeds from sale of stock................ 79,948 4,570 2,085
-------- -------- --------
Net cash provided by financing activities... 69,991 7,673 14,160
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents.................................... 469 (184) 42
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (1,848) 1,207 1,432
Net decrease in cash, CMC Industries, Inc. and
subsidiaries for the five months ended December
31, 1998....................................... (4,264) -- --
-------- -------- --------
Cash and cash equivalents, beginning of year.... 10,670 9,463 8,031
-------- -------- --------
Cash and cash equivalents, end of year.......... $ 4,558 $ 10,670 $ 9,463
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business--ACT Manufacturing, Inc. and subsidiaries (the "Company"
or "ACT") provide value-added electronics manufacturing services for original
equipment manufacturers in the networking and telecommunications, computer and
industrial and medical equipment markets. The Company provides original
equipment manufacturers with complex printed circuit board assembly primarily
utilizing advanced surface mount technology, electro-mechanical subassembly,
total system assembly and integration, and mechanical and molded cable and
harness assembly.
Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of ACT Manufacturing, Inc. and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. On July 29, 1999 the Company completed a
merger with CMC Industries, Inc. ("CMC") in which CMC became a wholly owned
subsidiaries of ACT Manufacturing, Inc. The merger has been accounted for as a
pooling of interests, and accordingly, the Company's consolidated financial
statements for prior periods have been restated to include the operating
results, financial position and cash flows of CMC at the beginning of the
earliest period presented. In connection with the pooling, ACT issued 0.5 of a
share of ACT common stock for each outstanding share of CMC common stock. A
total of 3.9 million shares of ACT common stock were issued in connection with
the merger, and approximately 0.9 million shares of ACT common stock were
reserved for the conversion of CMC's outstanding stock options. Approximately
$5,601,000 in merger-related costs were charged to operations in the quarter
ended September 30, 1999.
ACT prepares its consolidated financial statements on the basis of a fiscal
year ending December 31, and CMC prepared its consolidated financial statements
on the basis of a fiscal year ending July 31. The consolidated statements of
operations, comprehensive income (loss) and cash flows for the years ended
December 31, 1998 and 1997 (herein referred to as "Fiscal" 1998 and 1997)
reflect the results of operations, comprehensive income (loss) and cash flows
for ACT for the years then ended combined with CMC for the years ended July 31,
1998 and 1997, respectively. The consolidated balance sheet as of December 31,
1998 reflects the financial position of ACT as of that date combined with the
financial position of CMC as of July 31, 1998.
As a result of ACT and CMC having different fiscal years, CMC's condensed
consolidated results of operations for the five-month period from August 1,
1998 through December 31, 1998 are reported separately. However, this condensed
consolidated statement of operations data of CMC, presented below, for the
period August 1, 1998 through December 31, 1998 does not reflect any adjustment
to conform CMC's accounting policy with that of ACT's of expensing previously
capitalized preoperating and start-up costs associated with CMC's Mexican
manufacturing facility. The effect of such adjustment would be to reduce cost
of goods sold by $100,000 and reduce net loss by $60,000. This adjustment also
gives effect to the tax deductibility of these expenses.
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Operations Data (in
thousands):
-------------------------------------------------------
<S> <C>
Net sales....................................................... $122,423
Cost of sales................................................... 119,733
--------
Gross profit.................................................... 2,690
Selling, general and administrative expenses.................... 5,409
--------
Loss from operations............................................ (2,719)
Interest expense................................................ 691
--------
Loss before taxes............................................... (3,410)
Income tax benefit.............................................. (1,279)
--------
Net loss........................................................ $ (2,131)
========
</TABLE>
F-10
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Translation of Foreign Currency--The Company translates financial statements
denominated in foreign currency by translating balance sheet accounts at the
end of period exchange rate and statement of operations accounts at the average
exchange rate for the period. Where the local currency is the functional
currency, translation gains and losses are recorded as a separate component of
stockholders' equity in accumulated other comprehensive income (loss) and
transaction gains and losses are reflected in other income (loss) in
determining net income. Where the U. S. dollar is the functional currency, all
foreign currency gains and losses are included in determining net income.
Use of Estimates--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates. Estimates include such items
as reserves for accounts receivable and inventory, useful lives of other
assets, goodwill, property and equipment, investment in related party and
accrued liabilities. Actual results could differ from those estimates.
Fair Value of Financial Instruments--Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of their short-term nature. The Company's bank debt, because it carries
a variable interest rate, is stated at its approximate fair market value.
Derivatives--The Company has entered into an interest rate swap that
qualifies as a matched swap that is linked by designation with a balance sheet
liability and has opposite interest rate characteristics of such balance sheet
item. Matched interest rate swaps qualify for settlement accounting. Under
settlement accounting, periodic net cash settlements under the swap agreement
are recognized in income on an accrual basis. These settlements are offset
against interest expense in the consolidated statements of operations.
Revenue Recognition--Revenue is recognized upon shipment of the product or
otherwise, under certain contracts, when title to and risks and reward of
ownership pass to the customer.
Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
Inventory--Inventory is stated at the lower of cost or market. Cost has been
determined using the first-in, first-out ("FIFO") method for approximately 72%
and 69% of the inventories at the end of Fiscal 1999 and 1998, respectively,
with the remaining balance determined using the last-in, first-out ("LIFO")
method.
Property and Equipment--Purchased property and equipment is recorded at
cost. Capital lease property and equipment is recorded at the lesser of cost or
the present value of the minimum lease payments required. Depreciation and
amortization is provided using the straight-line method over the estimated
useful lives of the related assets (three to thirty years) and over the terms
of the related leases (five years).
Goodwill--Goodwill is being amortized on a straight-line basis over a period
of ten to twenty years.
Investment in Related Party--The carrying amount of the investment in
preferred stock of a related party is based upon the present value of expected
cash flows. See Note 11.
Other Assets--Other assets include cash surrender value of officer's life
insurance, prepaid pension expense and noncompete agreements. The noncompete
agreements are being amortized over three to ten years.
F-11
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warranty--The Company generally warrants that its hardware assemblies will
be free from defects in workmanship for 12 months and passes on to the customer
any warranties provided by component manufacturers and material suppliers to
the extent permitted. Warranty costs have not been material to date.
Income Taxes--The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." This Statement requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the Company's consolidated financial statements or
tax returns. Deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
existing assets and liabilities, using enacted tax rates in effect in the years
in which the differences are expected to reverse.
Stock-Based Compensation--As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company accounts for stock option grants using
the intrinsic value method in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Net Income (Loss) Per Common Share--Basic net income (loss) per common share
is computed by dividing net income (loss) available to common stockholders by
the weighted average number of common shares outstanding for the period.
Diluted net income (loss) per common share reflects the potential dilution if
common equivalent shares outstanding (common stock options and warrants) were
exercised or converted into common stock unless the effects of such equivalent
shares were antidilutive.
A reconciliation of net income (loss) per common share and the weighted
average shares used in the earnings per share ("EPS") calculations for Fiscal
years 1999, 1998 and 1997 is as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Net
Income Per
(Loss) Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
1999
Basic..................................... $ 6,234 13,265 $ 0.47
=======
Effect of stock options................... 651 $(0.02)
------ ------
Diluted................................... $ 6,234 13,916 $ 0.45
======= ====== ======
1998
Basic..................................... $ 3,093 12,665 $ 0.24
=======
Effect of stock options and warrants...... 311 --
------ ------
Diluted................................... $ 3,093 12,976 $ 0.24
======= ====== ======
1997
Basic..................................... $(2,401) 12,330 $(0.19)
=======
Effect of stock options and warrants...... -- --
------ ------
Diluted................................... $(2,401) 12,330 $(0.19)
======= ====== ======
</TABLE>
Options and warrants to purchase 228,501, 757,296 and 1,328,774 shares of
common stock were outstanding during Fiscal 1999, 1998 and 1997, respectively,
but were not included in the computation of diluted EPS because of either the
net loss in Fiscal 1997 or because the options' exercise prices were greater
than the average market prices of the common stock, and therefore, their effect
would be antidilutive.
F-12
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Cash Flow Information--Selected cash payments and noncash
activities for Fiscal 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Cash paid for interest.............................. $5,176 $ 3,887 $3,795
Cash paid for (refunded from) income taxes.......... 1,537 (7,686) 7,729
Noncash investing and financing activities:
Assets acquired in exchange for common stock........ -- -- 5,250
Reduction of goodwill upon cancellation of common
stock from acquisition escrow...................... -- 122 --
Receipt of stock as payment on account.............. -- -- 441
</TABLE>
Impairment of Long-Lived Assets--At each balance sheet date, the Company
assesses whether there has been an impairment in the value of long-lived assets
by determining whether projected undiscounted cash flows generated by the
applicable asset exceeds its net book value as of the assessment date. At the
end of Fiscal 1999 and 1998, subject to changes in circumstances, there were no
impairments of the Company's assets.
Comprehensive Income (Loss)--The Company adopted SFAS No. 130, "Reporting
Comprehensive Income" in Fiscal 1998. SFAS No. 130 requires the reporting of
comprehensive income (loss), which in the case of the Company, is the
combination of reported net income, the change in the cumulative translation
adjustment and the change in the minimum pension liability, which is a
component of stockholders' equity.
Recently Issued Financial Accounting Standard--In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," amended in June 1999 and
effective for fiscal years beginning after June 15, 2000. The new standard
requires that all companies record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. Management is
currently assessing the impact of SFAS No. 133 on the consolidated financial
statements of the Company. The Company will adopt this accounting standard on
January 1, 2001, as required.
2. Acquisitions of Businesses and Assets
Business Acquisitions
Effective June 9, 1997, the Company acquired substantially all of the assets
and liabilities of Electronics Systems International ("ESI") located in
Georgia. ESI is an electronics manufacturing services provider to customers
throughout the southeastern United States. Under the terms of the purchase
agreement, the Company acquired assets and liabilities of ESI in exchange for
190,546 shares of the Company's common stock plus acquisition costs. In 1998
the Company cancelled 4,446 shares previously issued and held in escrow. The
per share market value of the Company's common stock on the date of the
purchase was $27.50.
Effective June 10, 1997, the Company acquired substantially all of the
outstanding stock of Advanced Component Technologies Limited (formerly SignMax
Limited), a cable and harness manufacturing company based in Dublin, Ireland.
Under the terms of the purchase agreement, approximately 82% of the outstanding
common shares of Advanced Component Technologies Limited (formerly SignMax
Limited) were acquired for cash of $1,000,000 plus acquisition costs.
Effective June 27, 1997, the Company acquired all of the outstanding stock
of SignMax America, LLC, which owned the remaining 18% of Advanced Component
Technologies Limited (formerly SignMax Limited).
F-13
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the terms of the purchase agreement, 100% of the outstanding common
shares were acquired for cash of $460,000 and the assumption of $575,000 in
notes payable.
The ESI and SignMax transactions were accounted for as purchases in
accordance with APB Opinion No. 16, "Business Combinations," as follows (in
thousands):
<TABLE>
<S> <C>
Details of Acquisitions:
Cash paid, net of cash acquired...................................... $1,455
Acquisition expenses................................................. 939
------
Total cash paid.................................................... 2,394
Common stock issued.................................................. 5,250
------
Total cash paid and common stock issued............................ 7,644
Liabilities assumed.................................................. 4,334
------
Total purchase price of acquisitions............................... 11,978
Fair value of assets acquired........................................ 5,609
------
Excess of purchase price over net assets........................... $6,369
======
</TABLE>
The operating results of the ESI and SignMax acquired businesses from the
dates of purchase are included in the Company's Consolidated Statement of
Operations for Fiscal 1997. The Consolidated Statement of Operations for Fiscal
1998 includes a full year of operations of these acquired businesses. Pro forma
information has not been provided, as the operations of the acquired businesses
were not material to the consolidated results of operations or financial
position of the Company in Fiscal 1997.
The Company attributes the goodwill to the expected ability to expand sales
in these new geographic markets, utilizing the acquired existing business
infrastructure and geographic market presence as a basis for expansion.
Accumulated amortization on these acquisitions amounted to approximately
$1,082,000 and $640,000 at the end of Fiscal 1999 and Fiscal 1998,
respectively.
Asset Acquisitions
Effective October 12, 1999, the Company acquired certain inventory and fixed
assets of GSS Array Technology, Inc. located in San Jose, California, a
subsidiaries of GSS Array Technology Public Company Limited, a Thailand
company. Under the terms of the purchase agreement, the Company assumed ongoing
relationships with select GSS/Array domestic customers.
The Company paid approximately $12,875,000 in cash and assumed $618,000 in
liabilities in connection with this asset purchase. The fair value of the
assets purchased was approximately $8,879,000. The Company recorded $4,614,000
as the excess of the asset purchase price over the fair value of assets
purchased. The operating results following the Company's purchase of the
selected GSS/Array assets from the date of purchase are included in the
Company's Consolidated Statement of Operations for Fiscal 1999.
The Company attributes the goodwill to the expected future economic benefits
the acquisition of these assets is expected to provide. Accumulated
amortization on the acquisition of these assets amounted to approximately
$96,000 in Fiscal 1999.
F-14
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Inventory
Inventory consisted of the following at Fiscal year end 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Raw materials............................................... $125,869 $50,354
Work in process............................................. 42,039 12,511
Finished goods.............................................. 3,854 2,747
-------- -------
Total..................................................... $171,762 $65,612
======== =======
</TABLE>
The carrying value of inventory approximates replacement cost.
4. Property and Equipment
Property and equipment consisted of the following at Fiscal year end 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land..................................................... $ 798 $ 798
Building................................................. 4,922 4,622
Leasehold improvements................................... 11,234 7,618
Manufacturing equipment.................................. 35,696 24,618
Office furniture and equipment........................... 9,311 7,856
Vehicles................................................. 418 144
Construction-in-progress................................. 1,026 2,838
-------- --------
Total property and equipment........................... 63,405 48,494
Less accumulated depreciation and amortization........... (25,358) (16,215)
-------- --------
Property and equipment--net............................ $ 38,047 $ 32,279
======== ========
</TABLE>
Included in property and equipment is a manufacturing facility and certain
equipment held under capital leases with a net carrying value of $5,745,000 and
$1,615,950 at the end of Fiscal 1999 and 1998, respectively.
The Company has capitalized interest in the amount of $40,000 and $171,000
at the end of Fiscal 1999 and 1998, respectively, related to the construction-
in-progress.
5. Indebtedness
On July 29, 1999, the Company executed an Amended and Restated Credit
Agreement for a new $107.0 million Senior Secured Credit Facility ("Credit
Facility") with a group of banks led by The Chase Manhattan Bank as agent
("Agent"), to replace the Company's existing credit facilities with the banks.
This new Credit Facility provides for a $7.0 million, five-year Term Loan
("Term Loan") and a $100.0 million, five-year Line of Credit ("Revolving Credit
Facility"), both of which are secured by substantially all of the assets of the
Company. The Term Loan shall amortize at a rate of $1.0 million per year for
the first year and $1.5 million per year for years two through five. The
Revolving Credit Facility provides for borrowings up to an aggregate amount of
$100.0 million, limited to a certain percentage of qualified accounts
receivable and qualified inventory. Interest is payable monthly. For the Term
Loan, the Company may choose an interest rate of either (i) 2.5% above the
prevailing London Interbank Offering Rate ("LIBOR"), or (ii) 0.5% above the
prime rate as announced by the Agent. For the Revolving Credit Facility, the
Company may choose an interest rate of either (i) 2.25% above the prevailing
LIBOR rate, or (ii) 0.25% above the prime rate as announced by the Agent. In
F-15
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
addition to certain other prohibited actions, the Credit Facility limits
capital expenditures by the Company and prohibits the payment of cash
dividends on the Company's common stock. The Credit Facility requires the
Company to maintain certain minimum fixed charge coverage ratios and maximum
leverage ratios. Outstanding borrowings under the Credit Facility are secured
primarily by the Company's accounts receivable, inventories, machinery and
equipment. The interest rates on the Term Loan and the Credit Facility were
7.89% and 8.75%, respectively, at December 31, 1999. The balances outstanding
under the Term Loan and the Credit Facility at December 31, 1999 were $6.8
million and $41.3 million, respectively, and $58.7 million was available for
borrowing under the Credit Facility.
Previously, the Company had a total credit facility at the end of Fiscal
1998 of $90.0 million including a $55.0 million Senior Secured Credit Facility
("Senior Credit Facility") with a financial institution and a $35.0 million
Loan and Security Agreement with another financial institution. The Company
executed the $55.0 million Senior Credit Facility in Fiscal 1998 to replace
the $50.0 million Loan and Security Agreement then outstanding.
The Company entered into a $17.0 million interest rate swap agreement in
Fiscal 1998 simultaneous with the execution of the Senior Credit Facility. The
swap agreement provides for payments by the Company at a fixed rate of
interest of 6.76% and matures on October 19, 2001. The fair value of the
interest rate swap at December 31, 1999 was approximately $(56,000) since the
fixed rate of interest of 6.76% was higher than the floating rate.
The aggregate annual maturities of long-term debt at the end of Fiscal 1999
are as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................. $ 1,125
2001................................................................. 1,500
2002................................................................. 1,500
2003................................................................. 1,500
2004................................................................. 42,433
</TABLE>
6. Other Long-Term Liabilities
Other long-term liabilities consisted of the following at Fiscal year end
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Noncompete covenant........................................... $ 245 $ 303
Deferred revenue.............................................. 1,023 483
Capital leases................................................ 5,303 1,437
Other noncurrent liabilities.................................. 23 105
------ ------
Total....................................................... 6,594 2,328
Less current portion.......................................... 2,972 1,236
------ ------
Other long-term liabilities................................. $3,622 $1,092
====== ======
</TABLE>
Noncompete Covenant--In 1993, the Company entered into an agreement with
its former sole stockholder, which provides for monthly payments over a ten-
year period, in return for a promise not to compete. The liability is recorded
at the present value of the required future payments at an interest rate of
8%.
Deferred Revenue--The Company received grants of $540,000 and $483,000 in
Fiscal 1999 and 1998, respectively, under an agreement with the Ireland
Industrial Development Agency. These payments have been recorded as deferred
revenue at the end of Fiscal 1999 and 1998 since the Company will be required
to return the grants if certain conditions, including employment levels, are
not met by December 31, 2002.
F-16
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Facility and Equipment Leases--The Company leases a manufacturing facility
and certain equipment and computer software used in its manufacturing
operations under capital lease agreements that expire through 2003.
Other long-term liabilities at the end of Fiscal 1999 are due as follows (in
thousands):
<TABLE>
<CAPTION>
Noncompete Capital Deferred
Covenant Leases Revenue Other Total
---------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
2000.............................. $ 86 $3,207 $ -- $-- $3,293
2001.............................. 92 1,975 -- 23 2,090
2002.............................. 100 356 1,023 -- 1,479
2003.............................. -- 222 -- -- 222
2004.............................. -- -- -- -- --
---- ------ ------ ---- ------
Total........................... 278 5,760 1,023 23 7,084
Less amount representing
interest......................... 33 457 -- -- 490
---- ------ ------ ---- ------
Present value of minimum
payments......................... 245 5,303 1,023 23 6,594
Less current portion.............. 68 2,904 -- -- 2,972
---- ------ ------ ---- ------
Other long-term liabilities..... $177 $2,399 $1,023 $ 23 $3,622
==== ====== ====== ==== ======
</TABLE>
7. Income Taxes
The provisions (benefits) for income taxes for Fiscal years 1999, 1998 and
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Current taxes:
Federal............................................ $5,538 $2,221 $(2,619)
State.............................................. 926 586 (3)
------ ------ -------
6,464 2,807 (2,622)
Deferred taxes....................................... 1,329 (763) 1,387
------ ------ -------
Total............................................ $7,793 $2,044 $(1,235)
====== ====== =======
</TABLE>
Deferred income tax assets (liabilities) are attributable to the following
for Fiscal years 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accounts receivable....................................... $ 918 $ 460
Inventory................................................. (980) (2,239)
Depreciation.............................................. (2,287) (2,231)
Accrued liabilities....................................... 868 1,568
Pension................................................... (576) --
State operating loss and credits.......................... -- 367
Minimum tax credit........................................ -- 594
Other..................................................... 321 1,188
------- -------
Net deferred tax liability.............................. $(1,736) $ (293)
======= =======
</TABLE>
F-17
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net deferred tax liability is classified as follows at the end of the
Fiscal years 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Current asset, net........................................ $ 999 $ 880
Noncurrent liability...................................... (2,735) (1,173)
------- -------
Net deferred tax liability.............................. $(1,736) $ (293)
======= =======
</TABLE>
No valuation allowance is required as the deferred tax assets are expected
to be fully realized.
A reconciliation of the expected tax rate at the U.S. statutory rate to the
effective tax rate for the Fiscal years indicated is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate..................................... 35% 34% (34)%
State income taxes, net of federal benefit................. 9 6 (6)
Nondeductible merger costs................................. 14 -- --
Adjustments to prior year tax liability.................... -- 1 --
Other...................................................... (2) (1) 6
--- --- ----
Effective rate........................................... 56% 40% (34)%
=== === ====
</TABLE>
For state income tax purposes, the Company has utilized all net operating
loss carryforwards as of Fiscal year end 1999.
F-18
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Capital Stock
Stock Option Plans
The Company has the 1995 Stock Plan, which provides for the grant of
incentive and nonqualified stock options to purchase up to an aggregate of
2,250,000 shares. The Company has the 1995 Non-Employee Director Stock Option
Plan that provides for the grant of options to purchase a maximum of 100,000
shares to nonemployee directors of the Company. The Company also has the 1993
Incentive Stock Option Plan under which options for up to 690,664 shares of
common stock may be granted at an exercise price not less than fair market
value at the date of grant. CMC's 1990 Equity Incentive Plan provides for the
granting of options to purchase a maximum of 950,052 shares. Options granted
under CMC's 1990 Equity Incentive Plan were converted to ACT options in
conjunction with the pooling. Such activity is incorporated in the activity
below. Stock option activity for the Fiscal years indicated was as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Number of Exercise Fair
Options Price Value
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at Beginning of Fiscal 1997..... 810,008 $ 8.18
Granted................................... 772,750 22.97 $13.42
Exercised................................. (85,435) 9.57
Forfeited................................. (168,551) 20.31
--------- ------
Outstanding at End of Fiscal 1997........... 1,328,772 15.06
Granted................................... 1,246,750 12.92 6.95
Exercised................................. (42,290) 8.08
Forfeited................................. (571,578) 23.67
--------- ------
Outstanding at End of Fiscal 1998........... 1,961,654 11.38
Net CMC activity August 1 to December 31,
1998..................................... 47,630 11.33
Granted................................... 498,000 16.91 12.95
Exercised................................. (491,455) 11.84
Forfeited................................. (255,839) 13.52
--------- ------
Outstanding at End of Fiscal 1999........... 1,759,990 $12.11
========= ======
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Weighted- Weighted-
Range of Average Average Number
Number of Exercise Remaining Life Exercise Currently
Options Price (In Years) Price Exercisable
--------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C>
50,267 $0.48-$0.84 2 $ 0.60 50,267
49,266 3.70-3.96 4 3.88 49,266
448,069 5.45-8.00 7 7.07 246,589
302,060 8.75-12.25 7 11.08 127,552
711,828 13.64-20.25 8 16.35 162,179
198,500 20.74-27.13 9 22.23 11,085
--------- -------
1,759,990 646,938
========= =======
</TABLE>
The options generally vest over three- to five-year periods.
The Company has reserved shares for future grants of common stock for
issuance pursuant to the 1993 Incentive Stock Option Plan, 1995 Non-Employee
Director Stock Option Plan, the 1995 Stock Plan and the 1990 Equity Incentive
Plan for 450,800, 66,000, 1,012,600 and 209,400 shares, respectively.
F-19
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In January 1998 the Board of Directors approved a vote to reprice 516,500
employee stock options. The options were originally issued between March 1997
and October 1997 and had original grant prices ranging between $14.44 and
$39.25. The grant price for these options was lowered to $13.94, which reflects
the market value of the stock as of the reprice date. The repriced options
continue to vest according to the original grant date. No compensation expense
was required to be recorded in the Consolidated Statements of Operations.
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation
for grants made after Fiscal 1995, (including the repricing described above)
pro forma net income (loss) and net income (loss) per share for fiscal years
indicated would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Net income (loss)................................... $4,167 $ (966) $(5,432)
====== ====== =======
Diluted earnings (loss) per common share............ $ 0.30 $(0.07) $ (0.43)
====== ====== =======
</TABLE>
The fair value of options on their grant date was measured using the
Black/Scholes option-pricing model. Key assumptions used to apply this pricing
model for the fiscal years indicated are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate.................... 5.9% 5.5% 6.0%
Expected life of option grants............. 3-5 years 3-5 years 3-5 years
Expected volatility of underlying stock.... 98% 102% 82%
</TABLE>
It should be noted that the option-pricing model used was designed to value
readily tradable stock options with relatively short lives. The options granted
to employees are not tradable and have contractual lives of up to ten years.
However, management believes that the assumptions used to value the options and
the model applied yield a reasonable estimate of the fair value of the grants
made under the circumstances.
Private Placement
In 1998, CMC issued 250,000 shares of stock to two members of the board of
directors in a private placement. Proceeds from the issuance totaled
$3,620,000. The purchase price equaled the fair market value of the stock
issued.
Capitalization
On May 16, 1996, CMC issued 218,018 shares of common stock with detachable
warrants that entitle the holders to purchase 84,481 shares of common stock at
a price of $15.00 per share. The total proceeds for the shares and warrants
issued were $2,464,000 and $44,000, respectively. Due to the Company meeting
specified levels of financial performance, the warrants were called during
Fiscal 1997. Total proceeds from the exercise of the warrants were $1,267,000.
Stock Purchase Plan
On November 15, 1996, CMC's stockholders approved the Employee Stock
Purchase Plan ("ESPP"). The ESPP allowed eligible employees the right to
purchase common stock on a semi-annual basis at the lower of 85% of the market
price at the beginning or end of each offering period. This plan was terminated
as a result of the merger of ACT and CMC on July 29, 1999.
F-20
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock and Stock Option Plan Amendments
On July 29, 1999, the Company's shareholders approved an amendment to the
Restated Articles of Organization of ACT Manufacturing, Inc. to increase the
number of authorized shares of the Company's common stock, $0.01 par value,
from 30,000,000 to 50,000,000.
Also on July 29, 1999, the Company's shareholders approved an amendment to
the 1995 Stock Plan increasing the aggregate number of shares which may be
issued from 1,250,000 to 2,250,000 shares.
9. Employee Benefit Plans
Retirement Benefits
In Fiscal 1999, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits." The provisions of SFAS No.
132 provide new disclosure requirements for pensions and other postretirement
benefit plans, but do not change the measurement or recognition of these plans.
SFAS 132 standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and requires additional
information on the changes in benefit obligations and fair values of plan
assets.
CMC maintains a defined benefit pension plan (the "Pension Plan") which
covers certain hourly employees at one plant. Retirement benefits under the
Pension Plan are based on an employee's length of service and a benefit formula
based on year of hire. The benefit formula does not include a provision for
increases in further compensation levels. Contributions to the Pension Plan are
primarily based on the projected unit actuarial cost method. The Pension Plan's
assets consist principally of short-term U.S. government instruments and pooled
fixed income, debt and equity investment funds with several financial
institutions. Effective June 1, 1994, the Company terminated the future service
payments for employees; accordingly, salary increase assumptions are not
applicable.
The components of net periodic pension cost and related assumptions for
Fiscal years 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost............................................... $-- $-- $--
Interest cost.............................................. 642 612 582
Return on plan assets...................................... (688) (671) (785)
Net amortization and deferral.............................. 157 157 270
---- ---- ----
Net periodic pension expense............................... $111 $ 98 $ 67
==== ==== ====
Discount rate.............................................. 8.00% 8.25% 8.25%
Long-term rate of return................................... 9.00% 8.00% 8.25%
</TABLE>
F-21
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth changes in the projected benefit obligation
and changes in the fair value of Plan assets at Fiscal year end (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Changes in projected benefit obligation:
Benefit obligation at beginning of year...................... $7,712 $7,238
CMC net activity August 1 to December 31, 1998............... 1,731 --
Service cost................................................. -- --
Interest cost................................................ 642 612
Benefits paid................................................ (754) (678)
Loss due to census changes................................... -- 540
Revaluation gain............................................. (972) --
------ ------
Benefit obligation at end of year........................ $8,359 $7,712
====== ======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Changes in plan assets:
Fair value of plan assets at beginning of year............... $7,881 $7,375
CMC net activity August 1 to December 31, 1998............... (36) --
Actual return on plan assets................................. 949 671
Employer contributions....................................... 394 513
Benefits paid................................................ (754) (678)
------ ------
Fair value of plan assets at end of year................. $8,434 $7,881
====== ======
Funded status................................................ $ 75 $ 169
Unrecognized loss............................................ 1,368 1,261
------ ------
Prepaid pension cost..................................... $1,443 $1,430
====== ======
</TABLE>
Under SFAS No. 87, the portion of deferred gains and losses in excess of 10%
of the projected benefit obligation is amortized as a component of net periodic
pension cost. If amortization is required, the period used is the average
remaining service period of active employees, which was approximately 12.39
years as of December 31, 1999.
Savings Plans
During Fiscal 1994, the Company adopted a savings plan for its employees
pursuant to Section 401(k) of the Internal Revenue Code. Substantially all
employees are eligible to participate, and the plan allows a deferral ranging
from a minimum of 1% to the maximum percentage of compensation permitted by
law. Company contributions to the plan are at the discretion of the Board of
Directors. Contributions to the Plan were $0, $0 and $50,000 in Fiscal 1999,
1998 and 1997, respectively.
CMC had a profit sharing savings plan (the "Savings Plan") for employees of
CMC. Under the terms of the Savings Plan, employees may contribute from 2% to
16% of compensation and an additional elective amount. Effective June 30, 1994,
the Company terminated matching employee contributions. The Company may also
elect to make an additional discretionary profit sharing contribution.
Effective January 1, 1996, the Savings Plan eligibility requirements were
amended to include all full-time employees with one hour of service. The
Company recorded no contributions for Fiscal 1999, 1998 and 1997.
Medical Care and Disability Benefit Plans
The Company is self-insured with respect to certain medical care and
disability benefit plans for a percentage of its employees. The costs for such
plans are charged against earnings in the period incurred. The
F-22
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
liability for health care claims was $605,000 and $661,000 at Fiscal year end
1999 and 1998, respectively, and the related expense incurred was $4,774,000,
$4,265,000 and $4,897,000 for Fiscal 1999, 1998 and 1997, respectively. The
Company does not provide benefits under these plans to retired employees.
10. Major Customers and Operating Data
Sales to Nortel Networks (formerly Bay Networks and Aptis Communication) and
S-3 Corporation (formerly Diamond Multimedia) were 15% and 13%, respectively,
of the Company's Fiscal 1999 net sales. In Fiscal 1998, sales to Nortel
Networks and Micron Electronics were each approximately 12% of the Company's
net sales. In Fiscal 1997 Nortel Networks accounted for approximately 17% of
the Company's net sales. All such sales relate to the printed circuit board
assembly service offering of the Company's business.
The Company operates as a single segment within the electronics
manufacturing services industry. A summary of the net sales for the Company's
principal service offerings for Fiscal 1999, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Printed Circuit Boards.......................... $658,749 $556,348 $450,467
Cable and Harness............................... 37,533 36,136 28,672
-------- -------- --------
$696,282 $592,484 $479,139
======== ======== ========
</TABLE>
11. Transactions With Related Parties
The Company leases certain facilities and equipment from a realty trust
controlled by its principal stockholder under leases that expire in Fiscal
2003. These commitments are included in Note 12. The Company pays all operating
costs of the building. Total payments to the realty trust were approximately
$388,000, $388,000 and $364,000 in Fiscal 1999, 1998 and 1997, respectively.
In Fiscal 1993, the Company entered into a ten-year agreement with one of
its directors for future consulting services. Payments under the agreement were
approximately $302,000, $280,000 and $259,000 in Fiscal 1999, 1998 and 1997,
respectively. Future commitments under this agreement are approximately
$326,000 in Fiscal 2000, $352,000 in Fiscal 2001, $380,000 in Fiscal 2002 and
$233,000 in Fiscal 2003. The agreement expires in Fiscal 2003. A noncompete
agreement was also entered into with the same individual (see notes 1 and 6).
Payments under this agreement were $79,000, $73,000 and $68,000 in Fiscal 1999,
1998 and 1997, respectively, with future payments totaling $279,000. All of
these payments were charged to the statement of operations in the year they
were incurred.
In August 1993, CMC transferred certain assets and related liabilities
associated with its telephone business to Cortelco Systems Holding Corporation
("Cortelco"). Under a manufacturing services agreement which expired in Fiscal
1998, CMC provided manufacturing services to Cortelco on a turnkey basis with
prices based on cost plus 8% for telephone products and cost plus 10% for
telecommunications systems products. Included in net sales for Fiscal 1999,
1998 and 1997 were sales to Cortelco totaling $25,221,000, $26,436,000 and
$31,312,000, respectively. Total cost of sales for the same periods relating to
these sales to Cortelco were $23,203,000, $24,321,000 and $28,807,000,
respectively. CMC continues to provide services to Cortelco with prices
negotiated on a per contract basis.
In July of 1998, CMC converted certain accounts receivable from Cortelco
totaling $2,000,000 into a note receivable. Under the terms of the note,
Cortelco agrees to pay the balance over a three-year term with monthly payments
of $50,000 plus interest. Interest accrues on the note at a rate of 9.0% per
annum. CMC continues to provide credit for manufacturing services sold to
Cortelco in the form of trade receivables.
F-23
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the August 1993 transfer of assets and related
liabilities to Cortelco, CMC received preferred stock in Cortelco. The Cortelco
preferred stock was non-voting, had a liquidation preference of $12.50 per
share and entitled the Company to dividends which were non-cumulative until
August 1995 and thereafter cumulative at $0.75 per share for each year in which
Cortelco earned net income of $2.0 million or more. The Company could, subject
to certain restrictions, require Cortelco to redeem the preferred stock, on a
pro rata basis, over a five-year period beginning August 1999. The Company
recorded the preferred stock at fair value, $5,884,000 in 1995, based on the
discounted cash flow of the redemption requirements. The excess cost basis of
the net assets over the fair value of the preferred shares received was
recorded as a distribution of capital to CMC's stockholders.
In March 1999, the Company consented to a restructuring of certain assets of
Cortelco. In connection with this restructuring, Cortelco distributed common
stock of Cortelco Systems, Inc. to its stockholders on a pro rata basis.
Pursuant to this distribution, CMC received its pro rata share which was equal
to 6,125,302 shares of common stock of Cortelco Systems.
During the fourth quarter of 1999, Cortelco Systems effected a 1-for-10
reverse stock split. The Company's investment in Cortelco was 612,530 shares as
a result of this stock split. Also in the fourth quarter of 1999, Cortelco
Systems changed its corporate name to eOn Communications Corporation ("eOn")
and filed a Form S-1 for the initial public offering of common stock.
On February 4, 2000, eOn completed an initial public offering of its common
stock and the Company sold 575,000 shares of common stock in eOn for
approximately $6.4 million. The accounting for the gain on the sale of the eOn
investment will be recorded in the Fiscal 2000 financial statements.
12. Operating Lease Commitments
The Company leases various plant and office equipment under noncancelable
operating leases expiring through 2007. Rent expense in Fiscal 1999, 1998 and
1997 was approximately $17,628,000, $14,276,000 and $9,361,000, respectively.
The future minimum rental payments under these leases over the next five years
are approximately as follows (in thousands):
<TABLE>
<CAPTION>
Related-
Party Other
Commitments Commitments Total
----------- ----------- -------
<S> <C> <C> <C>
2000......................................... $ 364 $19,109 $19,473
2001......................................... 364 14,605 14,969
2002......................................... 364 10,795 11,159
2003......................................... 196 8,045 8,241
2004......................................... -- 3,420 3,420
------ ------- -------
Total.................................... $1,288 $55,974 $57,262
====== ======= =======
</TABLE>
The Company has equipment lease lines of approximately $13.0 million
available for purchases of manufacturing equipment, computer hardware and
software and furniture.
13. Contingencies
On June 15, 1999, we received written notice from legal counsel for the
Lemelson Medical, Education & Research Foundation, Limited Partnership alleging
that we were infringing certain patents held by the Lemelson Foundation
Partnership and offering to license such patents to us. We entered into a
perpetual patent license agreement with the Lemelson Foundation Partnership in
February 2000.
F-24
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 27, 1998, the Company and several of the Company's officers and
directors were named as defendants in a purported securities class action
lawsuit filed in the United States District Court for the District of
Massachusetts. The plaintiffs amended the complaint on October 16, 1998. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise acquired the Company's common stock in the period from April 17, 1997
through March 31, 1998. The amended complaint alleges, among other things, that
the defendants knowingly made misstatements to the investing public about the
value of the Company's inventory and the nature of its accounting practices. On
December 15, 1998, the Company filed a motion to dismiss the case in its
entirety based on the pleadings. The Company's motion to dismiss the purported
securities class action lawsuit was granted without prejudice on May 27, 1999,
and the case was closed by the Court on June 1, 1999. On June 28, 1999, the
plaintiffs filed a motion with the Court seeking permission to file a second
amended complaint. The Company opposed that motion. On July 13, 1999, the Court
denied the plaintiffs' motion to amend, noting "final judgment having entered
in the case." On July 26, 1999, the plaintiffs filed a motion with the Court
asking the Court to extend the 30-day period for filing an appeal of its ruling
dismissing the case. The Company opposed that motion as well, and the Court
denied the motion on August 10, 1999. The plaintiffs have filed an appeal with
the United States Court of Appeals for the First Circuit requesting that the
Court of Appeals reverse each of the orders described above. The parties have
briefed the issues before the Court of Appeals. The Company believes the claims
asserted in this action, and the plaintiffs' pending appeal, are without merit
and intends to continue to defend itself vigorously in this action. The Company
further believes that this litigation will not have a material adverse effect
on the Company's business and results of operations, although the Company
cannot assure you as to the ultimate outcome of these matters.
In December 1993, CMC Industries retained the services of a consultant to
assist in quantifying the potential exposure to CMC in connection with clean-up
and related costs of a former manufacturing site. This site is commonly known
as the ITT Telecommunications site in Milan, Tennessee. The consultant
initially estimated that the cost to remove and dispose of the contaminated
soil would be approximately $200,000. CMC subsequently entered into a voluntary
agreement to investigate the site with the Tennessee Department of Environment
and Conservation. In addition, CMC agreed to reimburse a tenant of the site
$115,000 for expenditures previously incurred to investigate environmental
conditions at the site. CMC recorded a total provision of $320,000 based on
these estimates. In Fiscal 1995, an environmental consultant estimated that the
cost of a full study combined with short- and long-term remediation of the site
may cost between $3.0 and $4.0 million. Subsequent environmental studies done
in 1999 have estimated such costs as between $750,000 and $3.5 million. During
CMC's Fiscal 1996, the State of Tennessee's Department of Environment and
Conservation named certain potentially responsible parties in relation to the
former facility. CMC was not named as a potentially responsible party. However,
Alcatel, Inc., a potentially responsible party named by the State of
Tennessee's Department of Environment and Conservation and a former owner of
CMC, sought indemnification from CMC under the purchase agreement by which CMC
acquired the stock of one of the operators of the facility. To date, Alcatel
has not filed any legal proceedings to enforce its indemnification claim.
However, Alcatel could initiate such proceedings and other third parties could
assert claims against the Company relating to remediation of the site. We have
entered into an agreement with Alcatel pursuant to which the statute of
limitations on its indemnification claim is tolled for a period of time. In the
event any proceedings are initiated or any claims made, the Company would
defend itself vigorously but defense or resolution of this matter could
negatively impact the Company's financial position and results of operations.
In connection with a Fiscal 1996 staff reduction by CMC, a number of
terminated employees subsequently claimed that CMC had engaged in age
discrimination in their dismissal and sought damages of varying amounts. CMC
defended the actual and threatened claims vigorously during Fiscal 1998
incurring approximately $275,000 in legal costs over the course of the year. On
August 6, 1998, a judgment was rendered in the favor of one plaintiff, in the
amount of $127,000 which CMC subsequently settled for $112,000. A second
plaintiff's claim for $53,000 was filed and subsequently settled for $48,500.
The Equal
F-25
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employment Opportunity Commission ("EEOC") negotiated with CMC to reach a
monetary settlement for other potential claimants. Without admitting any
liability, CMC entered into a Conciliation Agreement with the EEOC and agreed
to pay approximately $500,000 to settle all such claims and limit future
litigation costs. As a result of these events and the significant ongoing costs
to defend these claims, in October 1998, CMC concluded that its interest would
be best served to settle all such matters. CMC reserved $975,000 to resolve all
such claims, which represented its best estimate of funds to ultimately be paid
to such claimants. This charge was recorded in CMC's Fiscal year ended July 31,
1998.
From time to time, the Company is also subject to claims or litigation
incidental to its business. The Company does not believe that any incidental
claims or litigation will have a material adverse effect on its results of
operations.
14. Subsequent Event
On March 15, 2000, the Company signed a pre-tender agreement (the
"Agreement") to acquire GSS Array Technology Public Company Limited ("GSS
Thailand"). As part of the Agreement, certain of GSS Thailand's principal
shareholders have agreed to tender all their issued shares and outstanding
options to the Company. GSS Thailand is a Thai-based contract electronics
manufacturing company and is listed on the Stock Exchange of Thailand. The
acquisition is subject to various closing conditions and is expected to close
in the third quarter of fiscal 2000.
Under the terms of the Agreement, GSS Thailand would be delisted from the
Stock Exchange of Thailand and ACT would then make a cash tender offer for all
issued shares and outstanding options of GSS Thailand for approximately $93.3
million in cash. Upon the closing of the acquisition, ACT would assume on-going
relationships with GSS Thailand customers and will retain certain GSS Thailand
management to support this additional operation.
15. Selected Quarterly Financial Data (unaudited):
Summarized quarterly financial data are as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Fiscal 1999 Quarters
------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $145,947 $157,519 $180,105 $212,711
Gross profit........................... 10,436 11,060 14,822 18,108
Net income (loss)...................... 1,850 1,028 (1,748) 5,104
Earnings (loss) per share:
Basic................................ $ 0.14 $ 0.08 $ (0.13) $ 0.35
Diluted.............................. $ 0.14 $ 0.08 $ (0.13) $ 0.33
<CAPTION>
Fiscal 1998 Quarters
------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $151,569 $162,604 $137,452 $140,859
Gross profit........................... 7,530 9,182 9,529 9,904
Net income............................. 164 1,130 1,219 580
Earnings per share:
Basic................................ $ 0.01 $ 0.09 $ 0.10 $ 0.05
Diluted.............................. $ 0.01 $ 0.09 $ 0.09 $ 0.04
</TABLE>
The Company's third quarter Fiscal 1999 net loss includes $5,601,000 of non-
tax deductible merger costs incurred in connection with the Company's merger
with CMC.
* * * * *
F-26
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited--in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
-------- --------
<S> <C> <C>
Net sales.................................................... $229,088 $145,947
Cost of goods sold........................................... 209,089 135,511
-------- --------
Gross profit................................................. 19,999 10,436
Selling, general and administrative expenses................. 9,323 6,314
-------- --------
Operating income............................................. 10,676 4,122
Interest and other expense, net.............................. 593 1,030
-------- --------
Income before provision for income taxes..................... 10,083 3,092
Provision for income taxes................................... 3,933 1,242
-------- --------
Net income................................................... $ 6,150 $ 1,850
======== ========
Basic net income per common share............................ $ 0.37 $ 0.14
======== ========
Diluted net income per common share.......................... $ 0.35 $ 0.14
======== ========
Weighted average shares outstanding--basic................... 16,546 12,881
Weighted average shares outstanding--diluted................. 17,645 13,384
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited--in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March
31,
--------------
2000 1999
------ ------
<S> <C> <C>
Net income....................................................... $6,150 $1,850
Other comprehensive (loss) income:
Foreign currency translation adjustment........................ (176) 127
------ ------
Comprehensive income............................................. $5,974 $1,977
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-27
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 6,290 $ 4,558
Accounts receivable, net............................ 189,398 160,830
Inventory........................................... 200,154 171,762
Deferred tax asset.................................. 1,252 1,252
Prepaid expenses and other assets................... 5,599 2,925
-------- --------
Total current assets.............................. 402,693 341,327
PROPERTY AND EQUIPMENT--Net........................... 37,139 38,047
INVESTMENT IN AND ADVANCE TO AFFILIATE................ 762 6,434
GOODWILL--Net......................................... 10,098 10,334
OTHER ASSETS--Net..................................... 8,307 6,184
-------- --------
TOTAL............................................. $458,999 $402,326
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and other
liabilities........................................ $ 5,013 $ 4,097
Accounts payable.................................... 157,593 153,764
Accrued compensation and related taxes.............. 5,256 3,769
Deferred tax liability.............................. 253 253
Accrued expenses and other.......................... 7,366 9,024
-------- --------
Total current liabilities......................... 175,481 170,907
LONG-TERM DEBT--Less current portion.................. 92,292 46,933
DEFERRED TAX LIABILITY................................ 2,735 2,735
OTHER LONG-TERM LIABILITIES........................... 2,816 3,622
CONTINGENCIES (Note 8)................................
STOCKHOLDERS' EQUITY:
Common stock........................................ 167 165
Additional paid-in capital.......................... 159,457 157,887
Accumulated other comprehensive loss................ (813) (637)
Retained earnings................................... 26,864 20,714
-------- --------
Total stockholders' equity........................ 185,675 178,129
-------- --------
TOTAL............................................. $458,999 $402,326
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-28
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited--in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March
31,
---------------
2000 1999
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 6,150 $1,850
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization............................... 2,193 1,877
Gain on the sale of investment in affiliate................. (894) --
Increase (decrease) in cash from:
Accounts receivable....................................... (28,662) (3,343)
Inventory................................................. (28,479) 6,401
Prepaid expenses and other assets......................... (2,674) 871
Accounts payable.......................................... 3,829 (9,731)
Accrued expenses and other................................ (171) (1,038)
------- ------
Net cash used for operating activities.................. (48,708) (3,113)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment........................ (1,184) (1,942)
Proceeds from the sale of investment in affiliate............ 6,417 --
Increase in other assets..................................... (2,124) (3)
------- ------
Net cash provided by (used for) investing activities.... 3,109 (1,945)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreements............... 45,734 1,174
Repayments on term loan...................................... (250) --
Decrease in other liabilities................................ (15) (517)
Net proceeds from sale of stock.............................. 1,572 739
------- ------
Net cash provided by financing activities............... 47,041 1,396
------- ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS....... 290 43
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 1,732 (3,619)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................. 4,558 6,406
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................... $ 6,290 $2,787
======= ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-29
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
The unaudited interim condensed consolidated financial statements furnished
herein reflect all adjustments, which in the opinion of management are of a
normal recurring nature, necessary to fairly state ACT Manufacturing, Inc. and
subsidiaries' (the "Company") financial position, cash flows and the results of
operations for the periods presented and have been prepared on a basis
substantially consistent with the audited consolidated financial statements.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the period ending
December 31, 1999 filed with the Securities and Exchange Commission.
2. Pending Acquisition
On March 15, 2000, the Company signed a pre-tender agreement (the
"Agreement") to acquire GSS Array Technology Public Company Limited ("GSS
Thailand"). As part of the Agreement, certain of GSS Thailand's principal
shareholders have agreed to tender all their issued shares and outstanding
options to the Company. GSS Thailand is a Thai-based contract electronics
manufacturing company and is listed on the Stock Exchange of Thailand. The
acquisition is subject to various closing conditions and is expected to close
in the third quarter of fiscal 2000.
Under the terms of the Agreement, GSS Thailand would be delisted from the
Stock Exchange of Thailand and ACT would then make a cash tender offer for all
issued shares and outstanding options of GSS Thailand for approximately $93.3
million in cash. Upon the closing of the acquisition, ACT would assume on-going
relationships with GSS Thailand customers and will retain certain GSS Thailand
management to support this additional operation.
On April 28, 2000, approximately 84% of GSS Thailand shareholders voted to
delist their company from the Stock Exchange of Thailand in a general
shareholder meeting.
3. Bank Financing
On July 29, 1999, the Company executed an Amended and Restated Credit
Agreement for a new $107.0 million Senior Secured Credit Facility ("Credit
Facility") with a group of banks led by The Chase Manhattan Bank as agent
("Agent") to replace the Company's previous credit facilities with the banks.
This new Credit Facility provides for a $7.0 million, five-year Term Loan
("Term Loan") and a $100.0 million five-year Line of Credit ("Revolving Credit
Facility"), both of which are secured by substantially all of the assets of the
Company. At March 31, 2000, $87.0 million of the Credit Facility was utilized
and an additional $13.0 million was available for use based upon the applicable
borrowing base and the full term loan was utilized. At March 31, 2000, the
interest rate on the $7.0 million term loan was 7.89% and the rate on the line
of credit was 8.75%. The Term Loan shall amortize at a rate of $1.0 million per
year for the first year and $1.5 million per year for years two through five.
The Revolving Credit Facility provides for borrowings up to an aggregate amount
of $100.0 million, limited to a certain percentage of qualified accounts
receivable and qualified inventory. Interest is payable monthly. For the Term
Loan, the Company may choose an interest rate of either (i) 2.5% above the
prevailing London Interbank Offering rate ("LIBOR"), or (ii) 0.5% above the
prime rate as announced by the Agent. For the Revolving Credit Facility, the
Company may choose an interest rate of either (i) 2.25% above the prevailing
LIBOR rate, or (ii) 0.25% above the prime rate as announced by the Agent. In
addition to certain other prohibited actions, the Credit Facility limits
capital expenditures by the Company and prohibits the payment of cash dividends
on the Company's common stock. The Credit Facility requires the Company to
maintain certain minimum fixed charge coverage ratios and maximum leverage
ratios. Outstanding borrowings under the Credit Facility are secured primarily
by the Company's accounts receivable, inventories, machinery and equipment.
F-30
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Inventory
Inventory consisted of the following at the dates indicated (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw material.......................................... $165,096 $125,869
Work in process....................................... 33,386 42,039
Finished goods........................................ 1,672 3,854
-------- --------
Total............................................... $200,154 $171,762
======== ========
</TABLE>
5. Net Income per Common Share
Basic net income per common share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net income per common share reflects the
potential dilution as if common equivalent shares outstanding (common stock
options) were exercised and converted into common stock unless the effect of
such equivalent shares was antidilutive.
A reconciliation of net income per common share and the weighted average
shares used in the earnings per share ("EPS") calculations for the periods
indicated is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Per
Net income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Three Months Ended March 31, 2000
Basic.................................... $6,150 16,546 $ 0.37
======
Effect of stock options.................. 1,099 (0.02)
------ ------
Diluted.................................. $6,150 17,645 $ 0.35
====== ====== ======
Three Months Ended March 31, 1999
Basic.................................... $1,850 12,881 $ 0.14
======
Effect of stock options.................. 503 --
------ ------
Diluted.................................. $1,850 13,384 $ 0.14
====== ====== ======
</TABLE>
All outstanding options to purchase common stock were included in the
computation of diluted EPS at March 31, 2000.
6. Operating Data
The Company operates within a single segment of the electronics
manufacturing services industry. The Company organizes itself as one segment
reporting to the Company's chief decision maker.
A summary of the principal service offerings' net sales for the three months
ended March 31, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
-------- --------
<S> <C> <C>
Printed circuit boards..................................... $220,431 $137,981
Cable and harness.......................................... 8,657 7,966
-------- --------
Total.................................................... $229,088 $145,947
======== ========
</TABLE>
F-31
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Recently Issued Financial Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended in June 1999 and effective for
the fiscal years beginning after June 15, 2000. The new standard requires that
all companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently
assessing the impact of SFAS No. 133 on the consolidated financial statements
of the Company. The Company will adopt this accounting standard on January 1,
2001, as required.
8. Contingencies
On February 27, 1998, our company and several of our officers and directors
were named as defendants in a purported securities class action lawsuit filed
in the United States District Court for the District of Massachusetts. The
plaintiffs amended the complaint on October 16, 1998. The plaintiffs purport to
represent a class of all persons who purchased or otherwise acquired our common
stock in the period from April 17, 1997 through March 31, 1998. The amended
complaint alleges, among other things, that the defendants knowingly made
misstatements to the investing public about the value of our inventory and the
nature of our accounting practices. On December 15, 1998, we filed a motion to
dismiss the case in its entirety based on the pleadings. Our motion to dismiss
was granted without prejudice on May 27, 1999 and the case was closed by the
court on June 1, 1999. On June 29, 1999, the plaintiffs filed a motion with the
court seeking permission to file a second amended complaint. We opposed that
motion. On July 13, 1999, the court denied the plaintiffs' motion to amend,
noting "final judgment having entered in the case." On July 26, 1999, the
plaintiffs filed a motion with the court asking the court to extend the 30-day
period for filing an appeal of its ruling dismissing the case. We opposed that
motion as well, and the court denied the motion on August 10, 1999. The
plaintiffs filed an appeal with the United States Court of Appeals for the
First Circuit requesting that the Court of Appeals reverse each of the orders
described above. In an opinion dated May 5, 2000, the Court of Appeals affirmed
in all respects the orders of the District Court that the plaintiffs had
appealed.
In December 1993, CMC Industries retained the services of a consultant to
assist in quantifying the potential exposure to CMC in connection with clean-up
and related costs of a former manufacturing site. This site is commonly known
as the ITT Telecommunications site in Milan, Tennessee. The consultant
initially estimated that the cost to remove and dispose of the contaminated
soil would be approximately $200,000. CMC subsequently entered into a voluntary
agreement to investigate the site with the Tennessee Department of Environment
and Conservation. In addition, CMC agreed to reimburse a tenant of the site
$115,000 for expenditures previously incurred to investigate environmental
conditions at the site. CMC recorded a total provision of $320,000 based on
these estimates. In fiscal 1995, an environmental consultant estimated that the
cost of a full study combined with short and long term remediation of the site
may cost between $3.0 and $4.0 million. Subsequent environmental studies done
in 1999 have estimated such costs as between $750,000 and $3.5 million. During
CMC's fiscal 1996, the State of Tennessee's Department of Environment and
Conservation named certain potentially responsible parties in relation to the
former facility. CMC was not named as a potentially responsible party. However,
Alcatel, Inc., a potentially responsible party named by the State of
Tennessee's Department of Environment and Conservation and a former owner of
CMC, sought indemnification from CMC under the purchase agreement by which CMC
acquired the stock of one of the operators of the facility. To date, Alcatel
has not filed any legal proceedings to enforce its indemnification claim.
However, Alcatel could initiate such proceedings and other third parties could
assert claims against us relating to remediation of the site. We have entered
into an agreement with Alcatel pursuant to which the statute of limitations on
their indemnification claim is tolled for a period of time. In the event any
proceedings are initiated or any claim is made, we would defend ourselves
vigorously but defense or resolution of this matter could negatively impact our
financial position and results of operations.
F-32
<PAGE>
ACT MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 15, 1999, we received written notice from legal counsel for the
Lemelson Medical, Education & Research Foundation, Limited Partnership alleging
that we are infringing certain patents held by the Lemelson Foundation
Partnership and offering to license such patents to us. We entered into a
patent license agreement with the Lemelson Foundation Partnership in February
2000.
From time to time, we are also subject to claims or litigation incidental to
our business. We do not believe that any incidental claims or litigation will
have a material adverse effect on our results of operations.
9. Subsequent Events
In April and May 2000, the Company received net proceeds of approximately
$95.6 million from the sale of 7% Convertible Subordinated Notes due April 15,
2007 (the "Notes") in a private placement. The Notes are general unsecured
obligations of the Company and are subordinated in right of payment to all the
Company's existing and future senior indebtedness. Interest payments are due on
the Notes on April 15 and October 15 of each year. The proceeds of this
convertible debt offering are intended to fund the acquisition of GSS Thailand.
Until allocated for specific use, the net proceeds from this offering have been
invested in short-term, interest-bearing, investment grade securities.
Effective May 12, 2000, the Credit Facility was amended to increase the
amount available under the Revolving Credit Facility to $125.0 million. All of
the terms of the agreement as described in Note 3 remain unchanged.
On July 12, 2000, the Company entered a Share Purchase Agreement with Bull
and Bull S.A. for the purchase of all of the issued shares of Bull Electronics
Angers S.A. for approximately $56.6 million.
On June 29, 2000, we entered into a Credit Agreement with a syndicate of
financial institutions led by Chase Manhattan Bank as administrative agent. The
Credit Agreement provides that the lenders will make available to us up to
$150.0 million of revolving loans (up to $20.0 million of which we may use in a
variety of currencies, and the balance of which we may use in U.S. dollars) and
up to $100.0 million of term loans (up to $75.0 million of which we may use to
acquire BEA, and $25.0 million of which we may use to acquire GSS Thailand).
The revolving loans are subject to a borrowing base formula, under which we
may borrow up to specified percentages of the value of various categories of
our assets, including accounts receivable, inventory, machinery and equipment.
We may elect to have interest on revolving loans and term loans payable either
monthly or quarterly, at an interest rate based on either the prime rate of
Chase Manhattan Bank or the prevailing rates in the Eurocurrency market. We
must repay all revolving loans by June 29, 2005. We must borrow all term loans
by September 30, 2000, and repay them in quarterly installments from December
31, 2000 through June 29, 2005.
The Credit Agreement requires us to meet certain financial conditions,
including net worth and the ratio of each of total debt, senior secured debt
and interest and other fixed charges, to earnings. In addition, the Credit
Agreement limits our ability to incur debt, grant liens, dispose of our
properties, pay dividends, make capital expenditures or investments or enter
into mergers or acquisitions.
F-33
<PAGE>
REPORT OF THE INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
GSS Array Technology Public Company Limited
We have audited the accompanying consolidated balance sheets of GSS Array
Technology Public Company Limited and its subsidiaries as at November 24, 1999
and 1998, and the related consolidated statements of operations, changes in
shareholders' equity, retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management as to their correctness and completeness of the presentation. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance as to whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of GSS Array
Technology Public Company Limited and its subsidiaries as at November 24, 1999
and 1998, and the results of operations, the changes in shareholders' equity,
retained earnings and the cash flows for the years then ended in conformity
with generally accepted accounting principles in Thailand.
Generally accepted accounting principles in Thailand do not conform to those
in the United States of America. A description of the significant differences
between these two generally accepted accounting principles and the approximate
effects of these differences on net income (loss) and shareholders' equity are
set forth in Note 28 to the consolidated financial statements.
The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. As discussed in Note 1 to the
financial statements, the Company was unable to comply with certain loan
covenants in its loan agreements with banks as at November 24, 1999 and 1998
and has suffered operating loss in 1999 and 1998. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management plans in regards to these matters and also described in Note 1.
These financial statements do not include any adjustments that might result
from the outcome of this uncertainty. In addition, the financial and economic
uncertainty in the Asia and Pacific region has affected to a certain extent,
and may continue to affect, the operations of the Company.
Our audits also comprehended the convenience translation of the Thai Baht
amounts into U.S. dollar amounts and, in our opinion, such translation has been
made in conformity with the basis stated in Note 2.4. The translation of the
financial statement amounts into U.S. dollars and the translation of the
financial statements into English have been made solely for the convenience of
readers in the United States of America.
/s/ Deloitte Touche Tohmatsu Jaiyos
Bangkok, Thailand
December 24, 1999
(June 30, 2000 as to Notes 1, 2.4, 28, 29 and 30)
F-34
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As at November 24,
<TABLE>
<CAPTION>
1999 1998
------------------- ---------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Assets
Current Assets
Cash in hand and at banks (Note 4.1) ......... 359,354 9,262 101,965
Short-term investments (Note 6) .............. 27,168 700 18,608
Trade accounts and notes receivable (Note 7)
............................................. 969,684 24,992 1,032,750
Less Allowance for doubtful accounts (Notes
3.3 and 7) .................................. (323,771) (8,345) (259,541)
---------- ------- ---------
Net trade accounts and notes receivable....... 645,913 16,647 773,209
---------- ------- ---------
Inventories (Notes 3.4 and 8) ................ 966,015 24,897 1,509,182
Other current assets
Other receivable.............................. 17,249 445 10,225
Receivable from Revenue Department............ 16,531 426 8,808
Deposit in an Escrow Trust account (Note 9)... 19,623 505 --
Others........................................ 39,172 1,010 61,617
---------- ------- ---------
Total Current Assets......................... 2,091,025 53,892 2,483,614
---------- ------- ---------
Property, Plant and Equipment (Notes 3.5 and
10)........................................... 693,932 17,885 1,013,110
Other Assets
Property for disposal (Notes 3.6 and 11) ..... 315,706 8,137 343,733
Loan to director (Note 22.1) ................. 23,985 618 22,513
Others........................................ 5,547 143 6,192
---------- ------- ---------
Total Assets................................. 3,130,195 80,675 3,869,162
========== ======= =========
Liabilities and Shareholders' Equity
Current Liabilities
Bank overdrafts and loans from financial
institutions (Note 14) ...................... 939,770 24,221 1,406,933
Trade accounts and notes payable.............. 1,066,129 27,478 968,511
Current portion of long-term liabilities (Note
15) ......................................... 13,710 353 36,752
Long-term liabilities converted to current
liabilities according to contracts (Note
15).......................................... 434,921 11,209 582,444
Other current liabilities
Accrued salary and bonus...................... 54,487 1,404 92,896
Others........................................ 184,335 4,751 86,759
---------- ------- ---------
Total Current Liabilities.................... 2,693,352 69,416 3,174,295
---------- ------- ---------
Long-Term Liabilities (Note 15) ............... 150,810 3,887 62,195
Other Liabilities
Provision for income tax...................... 1,996 51 --
Deferred tax liability (Note 3.8)............. 950 24 --
---------- ------- ---------
Total Liabilities............................ 2,847,108 73,378 3,236,490
---------- ------- ---------
Shareholders' Equity
Share Capital (Note 16) .......................
Authorized share capital--22,050,000 ordinary
shares of Baht 10.00 each....................
Issued and paid-up capital 21,075,900 ordinary
shares of Baht 10.00 each, fully paid........ 210,759 5,432 210,759
Premium on Share Capital....................... 967,277 24,930 967,277
Retained Earnings (Deficit)....................
Appropriated Statutory reserve (Note 18) ..... 21,000 542 21,000
Unappropriated (deficit)...................... (1,001,613) (25,815) (684,026)
Accumulated Foreign Currency Translation
Adjustments (Note 2.3) ....................... 85,664 2,208 117,662
---------- ------- ---------
Total Shareholders' Equity................... 283,087 7,297 632,672
---------- ------- ---------
Total Liabilities and Shareholders' Equity..... 3,130,195 80,675 3,869,162
========== ======= =========
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
F-35
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended November 24,
<TABLE>
<CAPTION>
1999 1998
-------------------- ----------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Revenues
Sales........................................ 9,397,339 242,199 9,766,347
Gain on exchange............................. -- -- 60,548
Other income................................. 33,808 871 52,496
---------- -------- ----------
Total Revenues........................... 9,431,147 243,070 9,879,391
---------- -------- ----------
Expenses
Cost of sales................................ 8,780,789 226,309 9,165,049
Selling and administrative expenses.......... 608,432 15,681 642,360
Interest expenses............................ 198,452 5,115 227,693
---------- -------- ----------
Total Expenses........................... 9,587,673 247,105 10,035,102
---------- -------- ----------
Loss Before Unusual or Infrequent Items and
Income Tax.................................... (156,526) (4,035) (155,711)
Unusual or Infrequent Items
Discontinued operations of subsidiaries
Loss on disposal of a business (Note 25)... 92,856 2,393 --
Impairment of assets not sold (Note 25).... 66,129 1,704 --
Loss on early termination of assets (Notes 10
and 11)........................................ -- -- 47,527
Write off of goodwill (Notes 3.7 and 12)........ -- -- 404,940
Provision for bad debts (Note 7)................ -- -- 251,057
Provision for obsolete inventory (Note 8)....... -- -- 183,280
---------- -------- ----------
Loss Before Income Tax......................... (315,511) (8,132) (1,042,515)
Income Tax..................................... 2,076 53 69,289
---------- -------- ----------
Net Loss....................................... (317,587) (8,185) (1,111,804)
========== ======== ==========
(Loss) Per Share (Note 3.11)....................Baht(15.07).US$(0.39).Baht(52.75)
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
F-36
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 24,
<TABLE>
<CAPTION>
1999 1998
------------------- ----------
Baht' 000 US$'000 Baht'000
<S> <C> <C> <C>
Share Capital
Ordinary shares
Beginning balance.......................... 210,759 5,432 210,000
Additions.................................. -- 759
---------- ------- ----------
Ending balance............................. 210,759 5,432 210,759
---------- ------- ----------
Premiums on Share Capital
Premiums on ordinary shares
Beginning balance.......................... 967,277 24,930 965,000
Additions.................................. -- -- 2,277
---------- ------- ----------
Ending balance............................. 967,277 24,930 967,277
---------- ------- ----------
Retained Earnings (deficit)
Appropriated Statutory reserve
Beginning balance.......................... 21,000 542 21,000
---------- ------- ----------
Ending balance............................. 21,000 542 21,000
---------- ------- ----------
Unappropriated
Beginning balance.......................... (684,026) (17,630) 427,778
Additions (decrease)....................... (317,587) (8,185) (1,111,804)
---------- ------- ----------
Ending balance............................. (1,001,613) (25,815) (684,026)
---------- ------- ----------
Accumulated Foreign Currency Translation
Adjustment
Beginning balance.......................... 117,662 3,033 66,172
Additions (decrease)....................... (31,998) (825) 51,490
---------- ------- ----------
Ending balance............................. 85,664 2,208 117,662
---------- ------- ----------
Total Shareholders' Equity............... 283,087 7,297 632,672
========== ======= ==========
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
F-37
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Year Ended November 24,
<TABLE>
<CAPTION>
1999 1998
------------------- ----------
Baht'000 US$'000 Baht'000
<S> <C> <C> <C>
Unappropriated Retained Earnings (Deficit)
Beginning Balance........................... (684,026) (17,630) 427,778
Net loss.................................... (317,587) (8,185) (1,111,804)
---------- ------- ----------
Total Unappropriated Retained Earnings
(Deficit).................................. (1,001,613) (25,815) (684,026)
---------- ------- ----------
Appropriated Retained Earnings
Statutory reserve........................... 21,000 542 21,000
---------- ------- ----------
Total Appropriated Retained Earnings........ 21,000 542 21,000
---------- ------- ----------
Total Retained Earnings (Deficit)............. (980,613) (25,273) (663,026)
========== ======= ==========
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
F-38
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended November 24,
<TABLE>
<CAPTION>
1999 1998
----------------- ----------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss....................................... (317,587) (8,185) (1,111,804)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Discontinued operations of subsidiaries:
Loss on disposal of a business.............. 92,856 2,393 --
Impairment of assets not sold............... 66,129 1,704 --
Allowance for doubtful accounts.............. 70,037 1,805 252,773
Inventory reserve............................ 131,264 3,383 263,904
Depreciation and amortization................ 272,369 7,020 275,669
Amortization of goodwill..................... -- -- 404,940
Net decrease (increase) in deferred income
tax......................................... -- -- 73,767
Net unrealized loss (gain) on exchange....... 18,603 480 (73,671)
Loss on disposal of assets................... 55,341 1,426 49,311
-------- ------- ----------
Income from operations before changes in
operating assets and liabilities............ 389,012 10,026 134,889
(Increase) Decrease in operating assets........
Trade accounts and notes receivable.......... 20,621 531 9,009
Inventories.................................. (16,035) (413) 136,114
Other current assets......................... (26,031) (671) 25,520
Other assets................................. (827) (21) 1,509
Increase (Decrease) in operating liabilities...
Trade accounts and notes payable............. 81,695 2,106 (303,498)
Other current liabilities.................... 21,366 551 (122,198)
Other liabilities............................ 2,945 76 (10,338)
-------- ------- ----------
Net cash provided (used) by operating
activities.................................. 472,746 12,185 (128,993)
-------- ------- ----------
Cash Flows from Investing Activities
Cash received from disposal of a business of a
subsidiary.................................... 500,896 12,910 --
(Increase) Decrease in deposit with maturity of
more than 3 months............................ (8,560) (221) (8,608)
Purchase of property, plant and equipment...... (147,569) (3,803) (48,320)
-------- ------- ----------
Net cash provided (used) by investing
activities................................... 344,767 8,886 (56,928)
-------- ------- ----------
Cash Flows from Financing Activities
Increase (Decrease) in bank overdrafts and
loans from financial institutions............. (471,983) (12,165) 433,780
Increase (Decrease) in long-term loans......... (56,143) (1,447) (345,549)
Increase in share capital...................... -- -- 3,036
-------- ------- ----------
Net cash provided (used) by financing
activities................................... (528,126) (13,612) 91,267
-------- ------- ----------
Translation Adjustment.......................... (31,998) (825) 51,490
-------- ------- ----------
Net increase (decrease) in cash and cash
equivalents.................................... 257,389 6,634 (43,164)
Cash and cash equivalents at the beginning of
year........................................... 101,965 2,628 145,129
-------- ------- ----------
Cash and cash equivalents at the end of year.... 359,354 9,262 101,965
======== ======= ==========
</TABLE>
Notes to the consolidated financial statements form an integral part of these
statements.
F-39
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended November 24, 1999 and 1998
1. Economic Turmoil in Asia-Pacific Region and Going Concern Considerations
Many Asia-Pacific countries, including Thailand, experienced 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 extent, and will continue to be affected for the foreseeable future, by
the financial and economic uncertainty in the Asia Pacific region.
As further described in Note 15, as at November 24, 1999 and 1998, the
Company was unable to comply with certain covenants in its loan agreement with
the banks as a result of incurred operating losses. The Company had obtained
letters from the banks confirming that the banks will not currently enforce
their rights under the loan agreements but this does not constitute a waiver of
default, nor is it a waiver of the banks' rights, powers and remedies pursuant
to the loan agreements and any other contracts or instruments signed by the
Company.
Management plans with respect to these matters are to continue negotiations
with banks for a permanent restructuring of the debt and negotiate for the sale
of the Company.
The financial statements have been prepared on the going concern basis,
which contemplates the realization of assets and liquidation of liabilities in
the ordinary course of business. They do not include any adjustments that might
result from the outcome of this uncertainty.
2. Basis for Preparation of the Financial Statements
2.1 The accompanying consolidated financial statements for the year
ended November 24, 1999 are presented in accordance with the form of
balance sheet and income 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 as at November 24 are as
follows:
<TABLE>
<CAPTION>
% of
shareholding
-------------
1999 1998
------ ------
<S> <C> <C>
GSS Array Technology (Singapore) Pte., Ltd. (Incorporated in
Singapore)................................................. 100.00 100.00
GSS Array Technology Inc. (Incorporated in U.S.A.).......... 100.00 100.00
GSS Array Technology Limited (Incorporated in United
Kingdom)................................................... 100.00 100.00
</TABLE>
2.3 Balance sheet and statement of income of foreign subsidiaries are
translated into Baht at the exchange rates announced by The Bank of
Thailand, at the balance sheet date and the average exchange rates,
respectively. The translation differences have been shown as the
accumulated foreign currency translation adjustments in the shareholders'
equity.
2.4 The US$ equivalent has been provided for convenience only, at the
rate of approximately Baht 38.0 per US$1.00 being the average rate of
buying and selling rates as announced by the Bank of Thailand at February
24, 2000. Such translation should not be construed as a representation that
the Baht amounts could be converted to U.S. dollars at that or any other
rate.
F-40
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Significant Accounting Policies
3.1 Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of revenues, expenses, assets
and liabilities and disclosure of contingent assets and liabilities. Actual
result may differ from those estimated.
3.2 For the purposes of preparation of the statement of cash flow, 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.
3.3 Allowance for doubtful accounts is based on management's evaluation
of specific accounts which are considered uncollectible.
3.4 Inventories are stated at cost or net realizable value, whichever is
the lower. Cost is determined by the first-in, first-out (FIFO) method.
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 Property for disposal consists of land, buildings and building
improvement at Rangsit and Nakornrachasima plant. Land is stated at cost.
The Company continue the depreciation of buildings and buildings
improvement due to their nature of economic useful lives.
3.7 The excess of cost over book value of investments in subsidiaries at
the time of acquisition has been accounted for as goodwill in the
consolidated financial statements and is amortized by the straight-line
method over the period of 20 years. If there is a permanent impairment in
the value of an unamortized goodwill, its carrying amount will be reduced
to net realizable value by a charge to the statement of operations in the
year in which the impairment is incurred.
3.8 Deferred tax asset is recognized for all deductible temporary
differences and unused tax losses to the extent that it is probable that
profit will be available against which the deductible temporary differences
and unused tax losses can be utilised.
Deferred tax liability is recognized for all taxable temporary
differences.
3.9 The carrying amounts of all intangible assets are reviewed by the
Company periodically and to the extent that the future benefits are no
longer considered probable, they are written off to the statement of
operations.
3.10 Foreign currency transactions are recorded using the standard book-
keeping rates based on the average of the commercial bank rates which are
updated to approximate actual rates on a regular basis.
F-41
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The exchange rates used in translating foreign currency assets and
liabilities at the balance sheet date are those announced by The Bank of
Thailand at that date. Gains or losses on exchange are recognized in the
statement of operations.
3.11 Earnings (loss) 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.
The Company has issued warrants which the warrantholders can convert to
ordinary shares. As at November 24, 1999, the Company's operation result is
a loss, therefore, no fully diluted earnings per share are presented. As at
November 24, 1999, had all the warrantholders exercised their conversion
rights, the difference between fully diluted and primary earnings per share
would not be significant.
4. Supplemental Disclosures of Cash Flow Information
4.1 Cash and cash equivalents consist of the followings:
<TABLE>
<CAPTION>
1999 1998
----------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Cash in hand and at banks....................... 359,354 9,262 101,965
Short-term investment........................... 27,168 700 18,608
------- ----- -------
386,522 9,962 120,573
Less Deposits with maturity of more than 3
months......................................... (27,168) (700) (18,608)
------- ----- -------
359,354 9,262 101,965
======= ===== =======
</TABLE>
4.2 Cash paid for interest and income tax are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Interest........................................... 191,622 4,939 224,013
Income tax......................................... 4,849 125 1,968
</TABLE>
5. Risk Management Policies for Foreign Currency
The currency of the primary economic environment in which the Company
operates is in U.S. dollars, and management believes that there is no need to
hedge currency risk against the dollars.
6. Short-Term Investments
As at November 24, 1999 and 1998, fixed deposits at a bank of Baht 26
million (US$0.6 million) and Baht 19 million respectively have been pledged as
security against bank overdrafts and loans from financial institutions (see
Note 14).
F-42
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Trade Accounts and Notes Receivable
Trade accounts and notes receivable are classified by aging as at November
24, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Not yet due (Credit term 30 days).....................436,485..11,250 502,389
Overdue 1-3 months................................... 162,082 4,177 267,937
Overdue 3-6 months................................... 72,278 1,863 240,209
Overdue over 6 months................................ 298,839 7,702 22,215
------- ------ ---------
969,684 24,992 1,032,750
======= ====== =========
</TABLE>
Consolidated allowance for doubtful account for 1999 and 1998 were Baht 324
million (US$8,345 thousand) and Baht 260 million, respectively.
As at November 24, 1998, the Company had set up an allowance for doubtful
accounts amounting to Baht 251 million for a significant customer in financial
difficulty.
8. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------------ ---------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Finished goods................................ 89,171 2,298 102,574
Work in process............................... 183,419 4,727 355,436
Raw materials................................. 903,488 23,286 1,387,090
Raw materials in transit...................... 36,366 937 39,696
--------- ------ ---------
1,212,444 31,248 1,884,796
Less Provision for obsolete inventory......... (246,429) (6,351) (375,614)
--------- ------ ---------
966,015 24,897 1,509,182
========= ====== =========
</TABLE>
As at November 24, 1998, the Company had set up a provision for obsolete
inventory amounting to Baht 183 million for excess inventory which a
significant customer is unable to purchase from the Company due to its problem
in operations.
9. Deposit in Escrow Trust Account
As of November 24, 1999, deposit in Escrow Trust Account represents a
US$500,000 of money paid by ACT Manufacturing (buyer) relating to the disposal
of business of GSS Array Technology Inc., U.S.A. (seller).
As specified in sale agreement, the money is set aside to meet any future
claims by the buyer against the seller to the disposal of business. The funds
will be released to the seller one year from the date of the agreement which
is October 11, 1999.
This amount may or may not be received in full depending on claims filed by
the buyer.
F-43
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Property, Plant and Equipment
Property, plant and equipment consist of the following :
<TABLE>
<CAPTION>
COST
-----------------------------------------------------------------
Balance Balance
November 25, Exchange November 24,
1998 Gain (Loss)* Additions (Disposals) 1999
------------ ------------ --------- ----------- -----------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C>
Land.................... 71,609 -- -- -- 71,609 1,846
Buildings............... 423,167 -- -- -- 423,167 10,906
Buildings improvement... 106,362 1,937 8,515 (31,464) 85,350 2,199
Machinery and
equipment.............. 1,236,307 30,620 48,203 (575,739) 739,391 19,056
Office furniture,
fixtures and
equipment.............. 128,959 3,341 11,913 (45,695) 98,518 2,539
Vehicles................ 13,487 -- 432 (2,300) 11,619 299
Capital in progress..... 1,487 -- 78,509 (64,196) 15,800 407
--------- ------ ------- -------- --------- ------
1,981,378 35,898 147,572 (719,394) 1,445,454 37,252
========= ====== ======= ======== ========= ======
<CAPTION>
ACCUMULATED DEPRECIATION
-----------------------------------------------------------------
Balance Balance
November 25, Exchange November 24,
1998 Gain (Loss)* Additions (Disposals) 1999
------------ ------------ --------- ----------- -----------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C>
Buildings............... 40,504 -- 21,162 -- 61,666 1,589
Buildings improvement... 34,333 1,114 21,421 (21,159) 35,709 920
Machinery and
equipment.............. 792,342 20,069 182,965 (426,608) 568,768 14,659
Office furniture,
fixtures and
equipment.............. 92,634 2,299 16,701 (34,848) 76,786 1,979
Vehicles................ 8,455 -- 2,093 (1,955) 8,593 220
--------- ------ ------- -------- --------- ------
968,268 23,482 244,342 (484,570) 751,522 19,367
========= ====== ======= ======== ========= ======
Property plant, and
equipment--net......... 1,013,110 693,932 17,885
========= ========= ======
Depreciation for the
year................... 244,342 6,297
========= ======
</TABLE>
--------
* Exchange Gain (loss) from translation of foreign subsidiaries' balance
sheets.
The Company has mortgaged Baht 105 million (US$3 million) and Baht 200
million as at November 24, 1999 and 1998, respectively, of book value of
machinery and equipment with banks as security against short and long term
loans. (see Notes 14 and 15).
In the 1998 consolidated financial statements, a subsidiary has assets which
are held under finance leases for Baht 81 million with a commitments as set out
in Note 20.
As at November 24, 1998, the Company had recorded additional depreciation on
certain machinery and equipment of book value amounting to Baht 17 million due
to change in useful live of the assets.
F-44
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Property for Disposal
Property for disposal consists of land, buildings and building improvement
located at Rangsit and Nakornrachasima plants as follows:
<TABLE>
<CAPTION>
COST
----------------------------------------------------------------------------
Balance Balance
November 25, Transferred (Transferred November 24,
1998 Additions in (Disposals) out) 1999
------------ --------- ----------- ----------- ------------ ----------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Rangsit-Leased Out
Land.................... 22,911 -- 4,804 -- -- 27,715 714
Buildings............... 7,962 -- 12,385 -- -- 20,347 525
Buildings improvement... 3,620 -- 966 -- -- 4,586 118
------- ----- ------ ---- ------- ------ -----
34,493 -- 18,155 -- -- 52,648 1,357
======= ===== ====== ==== ======= ====== =====
<CAPTION>
ACCUMULATED DEPRECIATION
----------------------------------------------------------------------------
Balance Balance
November 25, Transferred (Transferred November 24,
1998 Additions in (Disposals) out) 1999
------------ --------- ----------- ----------- ------------ ----------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings............... 3,854 2,205 3,405 -- -- 9,464 244
Buildings improvement... -- 1,680 2,729 -- -- 4,409 114
------- ----- ------ ---- ------- ------ -----
3,854 3,885 6,134 -- -- 13,873 358
======= ===== ====== ==== ======= ====== =====
Rangsit leased out--
net.................... 30,639 38,775 999
======= ====== =====
Depreciation for
the year............... 3,885 358
====== =====
<CAPTION>
COST
----------------------------------------------------------------------------
Balance Balance
November 25, Transferred (Transferred November 24,
1998 Additions in (Disposals) out) 1999
------------ --------- ----------- ----------- ------------ ----------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Rangsit-Not Leased Out
Land.................... 53,996 -- -- -- (4,804) 49,192 1,268
Buildings............... 56,959 -- -- -- (12,385) 44,574 1,149
Buildings improvement... 5,064 -- -- -- (966) 4,098 106
------- ----- ------ ---- ------- ------ -----
116,019 -- -- -- (18,155) 97,864 2,523
======= ===== ====== ==== ======= ====== =====
</TABLE>
F-45
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Accumulated Depreciation
------------------------------------------------------------------------------------
Balance
November 25, Transferred Balance
1998 Additions in (Disposals) (Transferred out) November 24, 1999
------------ --------- ----------- ----------- ----------------- -------------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings............... 16,802 6,499 -- -- (3,405) 19,896 513
Buildings improvement... -- 6,645 -- -- (2,729) 3,916 101
------- ------ --- --- ------ --------- -------
16,802 13,144 -- -- (6,134) 23,812 614
======= ====== === === ====== ========= =======
Rangsit not leased out--
net.................... 99,217 74,052 1,909
======= ========= =======
Depreciation for the
year................... 13,144 339
========= =======
<CAPTION>
Cost
------------------------------------------------------------------------------------
Balance
November 25, Transferred Balance
1998 Additions in (Disposals) (Transferred out) November 24, 1999
------------ --------- ----------- ----------- ----------------- -------------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Nakornrachasrima--Leased
Out
Land.................... 27,179 -- -- -- -- 27,179 701
Buildings............... 211,835 -- -- -- -- 211,835 5,460
Buildings improvement... 2,031 -- -- -- -- 2,031 52
------- ------ --- --- ------ --------- -------
241,045 -- -- -- -- 241,045 6,213
======= ====== === === ====== ========= =======
<CAPTION>
Accumulated Depreciation
------------------------------------------------------------------------------------
Balance
November 25, Transferred Balance
1998 Additions in (Disposals) (Transferred out) November 24, 1999
------------ --------- ----------- ----------- ----------------- -------------------
BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings............... 26,252 10,592 -- -- -- 36,844 950
Buildings improvement... 916 406 -- -- -- 1,322 34
------- ------ --- --- ------ --------- -------
27,168 10,998 -- -- -- 38,166 984
======= ====== === === ====== ========= =======
Nakornrachasrima--net... 213,877 202,879 5,229
======= ========= =======
Depreciation for the
year................... 10,998 283
========= =======
</TABLE>
The Company continues to depreciate the property for disposal, as management
believes that such policy is prudent.
The Company has intention of selling these properties in the future.
On August 1, 1998, all properties located at Nakoranrachasima plant were
leased under 5 years agreement with a renewal option for a further 3 years.
As at November 24, 1998, the Company wrote off building improvements at the
Rangsit plant of book value amounting to Baht 31 million, which management
believes will not be recoverable.
F-46
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On September 30, 1998, the land and buildings located at Rangsit plant, with
book value totaling Baht 130 million were appraised by an independent
appraiser. The appraisal value was approximately Baht 140 million.
On April 21, 1998, the property located at Nakornrachasima plant was
appraised by an independent appraiser. The appraisal value was approximately
Baht 229 million.
The carrying cost of the above properties did not exceed the appraisal
value.
12. Goodwill
Goodwill as shown in the consolidated financial statements represents the
excess of cost over the book value of investment in a subsidiary at the time of
acquisition and was amortized over 20 years beginning in 1990. However, due to
substantial recurring losses from operations resulting in a capital deficiency,
the Company charged the remaining net book value of goodwill of Baht 405
million to the 1998 statement of operations.
13. Deferred Income Tax
For the year ended November 24, 1998, deferred tax asset brought forward
from prior year amounting to Baht 74 million was written off to the statement
of income as it was deemed not probable that future taxable profit would be
available against which the losses carried forward can be utilized. As required
by the Stock Exchange of Thailand, this was to comply with International
Accounting Standard No. 12.
Income tax expense in the statement of income consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Income tax payable.............................. 2,076 53 3,394
Tax benefits from operating loss carryforward... -- -- (53,642)
Tax expense arising from the write off of
previously recorded tax benefit................ -- -- 119,537
----- --- --------
Income tax expense.............................. 2,076 53 69,289
</TABLE>
14. Bank Overdrafts and Loans From Financial Institutions
Bank overdrafts of the Company are secured by a pledge of its fixed deposits
(see Note 6) and carry interest at the minimum overdraft rate. Loans from
financial institutions of the Company are secured by the pledge of its fixed
deposits and the mortgage of land, buildings, machinery and equipment having
book value of Baht 105 million (US$3 million) and Baht 200 million as at
November 24, 1999 and 1998, respectively (see Note 10).
Loans of a subsidiary carried restrictive financial covenants.
As at November 24, 1998, the subsidiary was not in compliance with certain
covenants as specified in the loan agreements with banks. A subsidiary obtained
a letter from the bank confirming that the bank would not enforce its rights
under the loan agreement at that time but such restraint did not constitute a
waiver of default, nor was it a waiver of the banks rights, powers and remedies
pursuant to the loan agreements and any other contracts or instruments signed
by a subsidiary.
In 1999, all loans, advances and overdraft facilities from banks and other
financial institutions to the subsidiary were paid in full.
F-47
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Long-Term Liabilities
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
The Company
Loans repayable monthly from 1999 to 2003... 164,520 4,240 --
Loans repayable quarterly from 1998 to 2000
........................................... 434,921 11,209 582,444
Subsidiaries
Loan repayable in 1999 ..................... -- -- 4,519
Liabilities under finance lease agreements.. -- -- 94,428
-------- ------- --------
599,441 15,449 681,391
Less Current portion........................ (13,710) (353) (36,752)
-------- ------- --------
585,731 15,096 644,639
Less Long-term liabilities converted to
current liabilities according to
contracts.................................. (434,921) (11,209) (582,444)
-------- ------- --------
150,810 3,887 62,195
======== ======= ========
</TABLE>
Long-term liabilities of the Company and subsidiaries, denominated in
foreign currency of US$11.2 million and US$19 million as of November 24, 1999
and 1998, respectively, carry interest at the rate of LIBOR+3 and are secured
by mortgage of land, buildings, machinery and equipment having book value of
Baht 105 million (US$2 million) and Baht 200 million (see Note 10). Such loan
carry restrictive covenants pertaining to the performance and the ratio of debt
to equity.
As at November 24, 1999 and 1998, the Company's debt to equity ratio,
exceeded that contained in the loan agreement. Accordingly, the Company
presented the long-term liabilities as current liabilities under the heading of
"long-term liabilities converted to current liabilities according to contracts"
in order to comply with generally accepted accounting principles. For the year
1999 and 1998, the Company had obtained letters from the banks confirming that
the banks will not enforce their rights under the loan agreements at this time
but this does not constitute a waiver of default, nor is it a waiver of the
banks' rights, powers and remedies pursuant to the loan agreements and any
other contracts or instruments signed by the Company.
16. Share Capital
On February 23, 1998, April 9, 1998 and September 22, 1998, the issued and
paid-up capital increased by Baht 150,000, Baht 559,000 and Baht 50,000,
respectively, and premiums on share capital increased by Baht 450,000 and Baht
1,677,000 and Baht 150,000, respectively, from the exercise of warrants (see
Note 17).
17. Stock Option Plan
The shareholders passed a resolution on November 21, 1996 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 years 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 an accommodation for the exercise of
warrants.
F-48
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On January 30, 1998, March 26, 1998 and September 22, 1998, 15,000 warrants,
55,900 warrants and 5,000 warrants, respectively, were exercised at the price
stated in the warrants of Baht 40.00 each. Paid-up capital increased by Baht
150,000, Baht 559,000 and Baht 50,000, respectively, and premiums on share
capital increased by Baht 450,000 and Baht 1,677,000 and Baht 150,000,
respectively (see Note 16). The Company registered such increased issued and
paid-up capital with the Department of Commercial Registration on February 23,
1998, April 9, 1998 and September 22, 1998, respectively.
974,100 warrants have not been exercised as at November 24, 1999.
Stock options to purchase 974,100 shares of ordinary share at Baht 40
(US$1.11) per share were outstanding as of November 24, 1999 but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the ordinary shares.
18. Statutory Reserve
Under the Public Companies Act, the Company is required to set aside as a
statutory reserve for 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.
19. Disclosure of Financial Instruments
In accordance with directives from The Stock Exchange of Thailand dated
October 21, 1998, the Company is required to adopt the International Accounting
Standard (IAS) No. 32-Presentations and Disclosure of Financial Instruments as
a guideline for disclosure of the Company's financial instruments both on-
balance sheet and off-balance sheet.
19.1 Credit risk
Credit risk refers to the risk that counter party will default on its
contractual obligations resulting in a financial loss to the Company and
its subsidiaries. Concentrations of the credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
customer base, and their dispersion across different geographic regions.
In the case of recognized financial assets, the carrying amount of the
assets recorded in the consolidated balance sheet, net of a portion of
allowance for doubtful debts, represents the Company and its subsidiaries
maximum exposure to credit risk.
19.2 Interest rate risk
Interest rate risk in the balance sheet arises from the potential for a
change in interest rates to have an adverse effect on the net interest
earnings of the Company in the current reporting period and in future
years. The Company does not expect to incur material incremental effect on
its interest expenses.
19.3 Fair value of financial instruments
The following methods and assumptions were used by the Company and its
subsidiaries in estimating fair value of financial instruments as disclosed
herein:
Cash in hand and at banks, short-term investments and trade accounts
and notes receivable; the carrying values approximate their fair
values.
F-49
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Bank overdraft and loans from financial institutions and trade
accounts and notes payable; the carrying amounts of these financial
liabilities approximate their fair values.
Long-term liabilities with floating rate of interest; the fair value
of the loans cannot be determined as they are loans from banks which
have no market fair value comparatives.
20. Long-Term Lease Agreements
The Company and subsidiaries have long-term lease agreements with amounts of
lease payments as follows:
Operating Lease
<TABLE>
<CAPTION>
Year 1999 1998
---- ---------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
1999............................................. -- -- 63,970
2000............................................. 51,650 1,331 56,597
2001............................................. 48,471 1,249 49,656
2002............................................. 43,138 1,112 38,286
2003............................................. 42,434 1,094 39,792
2004............................................. 42,434 1,094 42,438
2005............................................. 10,607 273 7,302
Finance Lease
<CAPTION>
Year 1999 1998
---- ---------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
1999............................................. -- -- 39,753
2000............................................. -- -- 38,059
2001............................................. -- -- 19,432
2002............................................. -- -- 11,412
------ ----- -------
-- -- 108,656
Less Interest cost............................... -- -- (14,228)
------ ----- -------
-- -- 94,428
Less Current portion............................. -- -- (32,233)
------ ----- -------
-- -- 62,195
====== ===== =======
</TABLE>
21. Commitment and Contingent Liabilities
The Company has contingent liabilities to bank for letters of guarantee as
at November 24, 1999 and 1998 amounting to Baht 26 million (US$0.7 million) and
Baht 5 million, respectively.
F-50
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
22. Transactions with Related Parties
Transactions and outstanding balances of such transactions at the year-end
are as follows:
22.1 Loans to Director-Related Party
<TABLE>
<CAPTION>
1999 1998
---------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Beginning Balance................................. 22,513 580 22,513
Addition.......................................... 1,472 38 --
------ --- ------
Ending balance.................................... 23,985 618 22,513
====== === ======
</TABLE>
22.2 Directors' remuneration
No declaration for directors' remuneration for the year 1999 and 1998.
22.3 Stock option plan
See Note 17.
23. 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.
1354/1995 dated May 31, 1995.......... Exemption from income tax on profit
from the project at Nakornrachasima
for a period of 7 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 6 years from the date of
receiving operating revenues.
</TABLE>
The Company thus has to comply with certain conditions contained in the
promotion certificates.
F-51
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
24. Company's Revenues
To comply with the Announcement of the Board of Investment No. Por. 14/2541
(1998) dated December 30, 1998, the Company's revenues for the year ended
November 24, 1999 classified under non-promoted and promoted-local and export
businesses are as follows:
<TABLE>
<CAPTION>
Promoted Non-promoted 1999 Total
--------- ------------ -----------------
BAHT'000 BAHT'000 BAHT'000 US$'000
<S> <C> <C> <C> <C>
Revenues from sales
Domestic........................... 3,396 -- 3,396 88
Export............................. 7,657,114 1,736,829 9,393,943 242,112
--------- --------- --------- -------
Total............................. 7,660,510 1,736,829 9,397,339 242,200
========= ========= ========= =======
</TABLE>
25. Discontinued Operations of Subsidiaries
On October 11, 1999, the Company's wholly owned subsidiary, GSS Array
Technology Inc, ceased its manufacturing activities in San Jose, California. A
substantial portion of inventory and fixed assets were sold for cash. The sale
was valued at Baht 501.8 million (US$12.9 million), and book value of assets
sold and expenses incurred was Baht 594.6 million (US$15.3 million). Remaining
orders from customers were assumed by the buyer, (a major US subcontract
manufacturer).
The activity of the US subsidiary is reduced to Sales, Marketing and
Purchasing to support the activities in Thailand.
In November 1999, the Company's wholly owned subsidiary in Wales, UK, ceased
all its repair activities, resulting in the termination of all associated
employees. Provision for the impairment of assets was adequately made, and all
contingent liabilities identified and accrued for Sales and Marketing
activities for the benefit of the Thailand operation will continue to be
supported.
The cessation of manufacturing activities and sale of assets in the
Company's subsidiary in United States, resulted in losses of Baht 158.9 million
(US$4.1 million) classified under infrequent items, of which Baht 92.8 million
(US$2.4 million) was attributed to the sale of assets, and Baht 66.1 million
(US$1.7 million) resulted from provisions against impairment of assets not
sold.
26. Preparation for the Readiness to Cushion the Problems of the Year
2000(Unaudited--Not Covered by Report of The Independent Auditors)
No problems have been encountered with the Company's and Subsidiaries'
computer systems and manufacturing equipment.
F-52
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
27. 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, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
Domestic Foreign Total Elimination Grand Total
-------- ------- ----- ----------- -----------
Million of Baht
<S> <C> <C> <C> <C> <C>
1999
Net sales
--Outside customers....... 7,603 1,794 9,397 -- 9,397
--Other segment........... 57 -- 57 (57) --
----- ----- ----- ------ -----
7,660 1,794 9,454 (57) 9,397
----- ----- ----- ------ -----
Other income
--Outside customers....... 30 -- 30 -- 30
--Other segment........... -- 173 173 (169) 4
----- ----- ----- ------ -----
30 173 203 (169) 34
----- ----- ----- ------ -----
Operating profit............ 650
Expense..................... (609)
Interest expense............ (199)
-----
Loss before unusual or
infrequent items........... (158)
Unusual or infrequent
items...................... (158)
-----
Loss before income tax...... (316)
Income tax.................. (2)
-----
Net loss.................... (318)
=====
Property, plant and
equipment.................. 711 4 715 (21) 694
Others...................... 3,218 295 3,513 (1,077) 2,436
----- ----- ----- ------ -----
Total assets................ 3,929 299 4,228 (1,098) 3,130
===== ===== ===== ====== =====
</TABLE>
F-53
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Domestic Foreign Total Elimination Grand Total
-------- ------- ----- ----------- -----------
Million of US$
<S> <C> <C> <C> <C> <C>
1999
Net sales
--Outside customers....... 196 46 242 -- 242
--Other segment........... 2 -- 2 (2) --
--- --- --- --- ---
198 46 244 (2) 242
--- --- --- --- ---
Other income
--Outside customers....... 1 -- 1 -- 1
--Other segment........... -- 5 5 5 --
--- --- --- --- ---
1 5 6 5 1
--- --- --- --- ---
Operating profit............ 17
Expense..................... (16)
Interest expense............ (5)
---
Loss before unusual or
infrequent items........... (4)
Unusual or infrequent
items...................... (4)
---
Loss before income tax...... (8)
Income tax.................. --
---
Net loss.................... (8)
===
Property, plant and
equipment.................. 18 1 18 (1) 17
Others...................... 83 7 91 (28) 63
--- --- --- --- ---
Total assets................ 101 8 109 (29) 80
=== === === === ===
</TABLE>
F-54
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Domestic Foreign Total Elimination Grand Total
-------- ------- ------ ----------- -----------
Million of Baht
<S> <C> <C> <C> <C> <C>
1998
Net sales
--Outside customers...... 6,570 3,196 9,766 -- 9,766
--Other segment.......... 263 -- 263 (263) --
----- ----- ------ ------ ------
6,833 3,196 10,029 (263) 9,766
----- ----- ------ ------ ------
Other income
--Outside customers...... 96 17 113 -- 113
--Other segment.......... -- 203 203 (203) --
----- ----- ------ ------ ------
96 220 316 (203) 113
----- ----- ------ ------ ------
Operating profit........... 531
Expense.................... (1,346)
Interest expense........... (228)
Income tax................. (69)
------
Net loss................... (1,112)
======
Property, plant and
equipment................. 1,084 188 1,272 -- 1,272
Others..................... 2,584 1,377 3,961 (1,364) 2,597
----- ----- ------ ------ ------
Total assets............... 3,668 1,565 5,233 (1,364) 3,869
===== ===== ====== ====== ======
</TABLE>
F-55
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
28. Summary of Significant Differences Between Accounting Principles Followed
by the Company and Generally Accepted Accounting Principles in the United
States
The Company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the Kingdom of
Thailand (Thai GAAP), which differs in certain respects from U.S. GAAP.
The differences, as they affect the financial statements, are reflected in
the approximations provided in Note 29 and arise due to the items discussed in
the following paragraphs:
Functional Currency
Under Thai GAAP, the functional currency is to be the Thai baht. Under U.S.
GAAP, FASB No. 52 requires that an entity's functional currency is to be the
currency of the primary economic environment in which that entity operates.
Company's management has determined that under U.S. GAAP, the company's
functional currency should be the U.S. dollar.
Long-lived Assets to be disposed of
While not addressed under Thai GAAP, the Company depreciated long-lived
assets to be disposed of.
Under U.S. GAAP, long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell. Depreciation on such
assets is not recognized.
Unusual or infrequent items
Under Thai GAAP, a material event or transaction that is unusual in nature
or occurs infrequently but not both, and therefore does not meet both criteria
for classification as an extraordinary item, should be reported as separate
component of income from continuing operations by presenting before income
before extraordinary items. Disposals of subsidiaries are categorized as
discontinued operations of subsidiaries. Under U.S. GAAP, unusual or infrequent
items should be reported as operating items, and discontinued operations
represent only those disposals or abandonments of business segments as defined
by APB Opinion No. 30.
Reporting Comprehensive Income
Under U.S. GAAP, SFAS No. 130, Reporting Comprehensive Income, requires an
enterprise to display an amount representing total comprehensive income for
each period of operations presented in the financial statements. Comprehensive
income comprises net income and other comprehensive income such as unrealized
gains and losses on securities, foreign currency translation adjustments and
minimum pension liability adjustments. In addition, an enterprise is required
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. Reclassification of financial
statements for earlier periods provided for comparative purposes is also
required.
Thai GAAP does not address the reporting or disclosure of comprehensive
income.
F-56
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
29. Reconciliation Between Net Income and Shareholders' Equity Under Thai GAAP
and U.S. GAAP
<TABLE>
<CAPTION>
Year ended November 24,
-----------------------------------------
1999 1998
-------------------------- -------------
In Thousands of Thai Baht and Thousands
of U.S.$
Except Per Share Data
<S> <C> <C> <C>
Net (loss) according to the
financial Statements prepared
under Thai GAAP................ Bht (317,587) US$ (8,185) Bht(1,111,804)
U.S. GAAP adjustments
Increase (decrease) due to:
Depreciation on assets to be
disposed of................... Bht 13,144 US$ 338 Bht 12,371
Functional currency change..... Bht (17,786) US$ (458) Bht (422,654)
------------ ------------ -------------
Approximate net loss in
accordance With U.S. GAAP...... Bht (322,229) US$ (8,305) Bht(1,522,087)
============ ============ =============
Basic Loss Per Share............ Bht (15.29) US$ (0.39) Bht (72.22)
Diluted Loss Per Share.......... -- -- --
Weighted average number of
shares (Thousands)
Basic.......................... Share 21,076 Share 21,076 Share 21,076
Diluted........................ -- -- --
</TABLE>
<TABLE>
<CAPTION>
Year ended November 24,
---------------------------------
1999 1998
-------------------- ------------
In Thousands of Thai Baht
and Thousands of U.S.$
<S> <C> <C> <C>
Stockholders' equity according to the
financial statements prepared under
Thai GAAP.............................. Bht283,087 US$ 7,296 Bht 632,672
U.S. GAAP adjustments
Increase (decrease) due to:
Depreciation on assets to be disposed
of.................................... Bht 25,515 US$ 657 Bht 12,371
Functional currency change............. Bht490,497 US$12,643 Bht 400,016
Approximate stockholders' equity
In accordance with U.S. GAAP........... Bht799,099 US$20,596 Bht1,045,059
</TABLE>
With regard to the balance sheets and statements of income, the following
other significant captions determined under U.S. GAAP would have been:
<TABLE>
<CAPTION>
Year ended November 24,
-----------------------------------
1999 1998
---------------------- ------------
In Thousands of Thai Baht
and Thousands of U.S.$
<S> <C> <C> <C>
Balance sheets
Property, plant and equipment........... Bht1,005,346 US$25,911 Bht1,324,903
Total other assets...................... Bht 568,457 US$14,651 Bht 533,871
Total assets............................ Bht3,646,206 US$93,974 Bht4,281,552
Total current liabilities............... Bht2,693,352 US$69,416 Bht3,174,298
Total liabilities....................... Bht2,847,106 US$73,379 Bht3,236,493
</TABLE>
The following table presents comprehensive income for the year ended
November 24, 1999
<TABLE>
<CAPTION>
Year ended November
24,
----------------------
1999
----------------------
In Thousands of Thai
Baht
and Thousands of
U.S.$
<S> <C> <C>
Net loss (U.S. GAAP)............................... Bht(322,229) US$(8,305)
Foreign currency translation adjustments .......... Bht 76,270 US$ 1,965
----------- ---------
Comprehensive income (loss) ....................... Bht(245,959) US$(6,340)
</TABLE>
F-57
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
30. Additional Financial Statement Disclosures Required Under U.S. GAAP
Income Taxes
Substantially all of the Company's income is earned in Thailand.
Accordingly, the Company is not subject to income tax in other countries to any
significant extent.
In providing for applicable deferred income taxes under U.S. GAAP, the tax
effect of significant temporary differences has been added by the tax effect of
available tax loss carry forwards, as follows:
<TABLE>
<CAPTION>
Year ended November 24,
------------------------------------
1999 1998
----------------------- -----------
In Thousands of Thai Baht
and Thousands of U.S.$
<S> <C> <C> <C>
Deferred income tax assets resulting
principally from:
Inventory reserve....................... Bht 90,334 US$ 2,328 Bht 65,251
Bad debts reserve....................... Bht 89,473 US$ 2,306 Bht 84,018
Loss on impairment of investments in
subsidiaries........................... Bht 326,241 US$ 8,408 Bht 168,395
Add: Tax effect of available tax loss
carry forwards......................... Bht 39,171 US$ 1,010 Bht 40,290
Less: Valuation Allowance............... Bht(545,219) US$(14,052) Bht(357,954)
----------- ---------- -----------
Net deferred income tax assets.......... Bht -- US$ -- Bht --
=========== ========== ===========
</TABLE>
The statement of cash flows in accordance with U.S. GAAP is as follows:
<TABLE>
<CAPTION>
Year Ended November 24
-------------------------------------
1999 1998
------------------------ ----------------
In Thousands of the Baht and
Thousands of US $
-------------------------------------
<S> <C> <C> <C> <C>
Cash flows from:
Operating Activities............... Bht 469,960 US$ 12,112 Bht(105,642)
Investing Activities............... Bht 355,767 US$ 9,169 Bht (54,928)
Financing Activities............... Bht (545,126) US$(14,050) Bht 87,267
Effect of exchange rate changes on
cash.............................. Bht (23,212) US$ (597) Bht 30,139
------------ ---------- -----------
Net increase (decrease) in cash and
cash equivalents.................. Bht 257,389 US$ 6,634 Bht (43,164)
============ ========== ===========
</TABLE>
* * * * *
F-58
<PAGE>
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
F-59
<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.
F-60
<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.
F-61
<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.
F-62
<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>
F-63
<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>
F-64
<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).
F-65
<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.
F-66
<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.
F-67
<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.
* * * * *
F-68
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As at February 24, 2000
(unaudited)
<TABLE>
<CAPTION>
BAHT' 000 US$'000
--------- -------
<S> <C> <C>
ASSETS
Current Assets
Cash in hand and at banks (Note 5) ........................ 223,953 5,881
Short-term investments (Note 7) ........................... 27,400 720
Trade accounts and notes receivable (Note 8) .............. 981,300 25,769
Less Allowance for doubtful accounts ...................... (310,837) (8,163)
--------- -------
Net trade accounts and notes receivable.................... 670,463 17,606
--------- -------
Inventories................................................ 946,618 24,859
Other current assets
Other receivable......................................... 11,833 311
Receivable from Revenue Department....................... 12,264 322
Deposit in an Escrow Trust account (Note 9) ............. 18,898 496
Others................................................... 38,274 1,005
--------- -------
Total Current Assets................................... 1,949,703 51,200
--------- -------
Property, Plant and Equipment (Note 10).................... 659,627 17,322
Other Assets
Property for disposal ................................... 312,288 8,201
Loan to director (Note 17.1) ............................ 23,453 616
Others................................................... 5,232 137
--------- -------
Total Assets............................................... 2,950,303 77,476
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdrafts and loans from financial institutions (Note
11) ...................................................... 976,273 25,637
Trade accounts and notes payable........................... 893,746 23,470
Current portion of long-term liabilities (Note 12) ........ 27,420 720
Long-term liabilities converted to current liabilities
according to contracts (Note 12) ......................... 398,614 10,468
Other current liabilities
Accrued salary and bonus................................. 29,199 767
Others................................................... 133,518 3,506
--------- -------
Total Current Liabilities.............................. 2,458,770 64,568
--------- -------
Long-Term Liabilities (Note 12) ........................... 137,100 3,600
Other Liabilities
Provision for income tax................................. 1,967 52
Deferred tax liability................................... 950 25
--------- -------
Total Liabilities...................................... 2,598,787 68,245
--------- -------
Shareholders' Equity Share Capital (Note 13) ..............
Authorized share capital--22,050,000 ordinary shares of
Baht 10.00 each.........................................
Issued and paid-up share capital--21,108,900 ordinary
shares of Baht 10.00 each, fully paid................... 211,089 5,543
Premium on Share Capital................................... 968,267 25,427
Retained Earnings
Appropriated--Statutory reserve.......................... 21,000 552
Unappropriated (deficit)................................. (952,094) (25,003)
Accumulated Foreign Currency Translation Adjustments
(Note 3.3) ............................................... 103,254 2,712
--------- -------
Total Shareholders' Equity............................. 351,516 9,231
--------- -------
Total Liabilities and Shareholders' Equity................. 2,950,303 77,476
========= =======
</TABLE>
See notes to the consolidated interim financial statements.
F-69
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarter Ended February 24,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- ---------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Revenues
Sales........................................... 1,595,776 41,906 1,975,777
Other income
Rental income................................. 8,278 217 --
Others........................................ 7,829 206 6,533
--------- ------ ---------
Total Revenues.............................. 1,611,883 42,329 1,982,310
--------- ------ ---------
Expenses
Cost of sales................................... 1,443,082 37,896 1,925,318
Selling and administrative expenses............. 85,637 2,249 223,041
Interest expenses............................... 32,586 856 51,336
--------- ------ ---------
Total Expenses.............................. 1,561,305 41,001 2,199,695
--------- ------ ---------
Income (Loss) Before Income Tax................... 50,578 1,328 (217,385)
Income Tax Expense--Current....................... 1,059 28 --
--------- ------ ---------
Net Income (Loss)................................. 49,519 1,300 (217,385)
========= ====== =========
Basic Earnings (Loss) Per Share (Note 15)......... 2.35 0.06 (10.31)
Diluted Earnings (Loss) Per Share (Note 15)....... 2.35 0.06
</TABLE>
See notes to the consolidated interim financial statements.
F-70
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Quarter Ended February 24,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Share Capital
Ordinary shares
Beginning balance.......................... 210,759 5,534 210,759
Additions.................................. 330 -- --
---------- ------- --------
Ending balance............................. 211,089 5,543 210,759
---------- ------- --------
Premiums on Share Capital
Premiums on ordinary shares
Beginning balance.......................... 967,277 25,401 967,277
Additions.................................. 990 26 --
---------- ------- --------
Ending balance............................. 968,267 25,427 967,277
---------- ------- --------
Retained Earnings (Deficit)
Appropriated
Statutory reserve
Beginning balance........................ 21,000 552 21,000
---------- ------- --------
Ending balance........................... 21,000 552 21,000
---------- ------- --------
Unappropriated
Beginning balance.......................... (1,001,613) (26,303) (684,026)
Additions (Deductions)..................... 49,519 1,300 (217,385)
---------- ------- --------
Ending balance............................. (952,094) (25,003) (901,411)
---------- ------- --------
Accumulated Foreign Currency Translation
Adjustment
Beginning balance............................ 85,664 2,250 117,662
Additions (Deductions)....................... 17,590 462 (7,826)
---------- ------- --------
Ending balance............................... 103,254 2,712 109,836
---------- ------- --------
Total Shareholders' Equity..................... 351,516 9,231 407,461
========== ======= ========
</TABLE>
See notes to the consolidated interim financial statements.
F-71
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
STATEMENTS OF RETAINED EARNINGS
For the Quarter Ended February 24,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Unappropriated Retained Earnings (Deficit)
Beginning Balance as at November 25,.......... (1,001,613) (26,303) (684,026)
Net income (loss)............................. 49,519 1,300 (217,385)
---------- ------- --------
Total Unappropriated Retained Earnings
(Deficit).................................... (952,094) (25,003) (901,411)
---------- ------- --------
Appropriated Retained Earnings
Statutory reserve............................. 21,000 552 21,000
---------- ------- --------
Total Appropriated Retained Earnings.......... 21,000 552 21,000
---------- ------- --------
Total Retained Earnings (Deficit)............... (931,094) (24,451) (880,411)
========== ======= ========
</TABLE>
See notes to the consolidated interim financial statements.
F-72
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
For the Quarter Ended February 24,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- --------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)................................. 49,519 1,300 (217,385)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Allowance for doubtful accounts................. (6,844) (179) (416)
Inventory reserve............................... (74,639) (1,960) --
Depreciation and amortization................... 43,539 1,143 67,117
Net loss on exchange............................ 11,870 312 52,475
Loss on disposal of assets...................... -- -- 68
-------- ------ --------
Income (loss) from operations before changes in
operating assets and liabilities............... 23,445 616 (98,141)
(Increase) Decrease in operating assets
Trade accounts and notes receivable............. (33,000) (867) (240,636)
Inventories..................................... 71,838 1,887 (35,424)
Other current assets............................ (12,744) (335) 23,495
Other assets.................................... 399 11 79
Increase (Decrease) in operating liabilities
Trade accounts and notes payable................ (154,252) (4,051) 543,351
Other current liabilities....................... (75,250) (1,976) (16,956)
Other liabilities............................... (29) (1) --
-------- ------ --------
Net cash (used) provided by operating
activities..................................... (179,593) (4,716) 175,768
-------- ------ --------
Cash Flows from Investing Activities
Increase in deposit with maturity of more than 3
months........................................... (232) (6) (1,870)
Net increase in property, plant and equipment..... (5,369) (141) (15,616)
-------- ------ --------
Net cash (used) provided by investing activities.. (5,601) (147) (17,486)
-------- ------ --------
Cash Flows From Financing Activities
Increase (Decrease) in bank overdrafts and loans
from financial institutions...................... 57,910 1,521 (33,604)
Decrease in long-term loans....................... (27,027) (710) (167,252)
Increase in share capital......................... 1,320 34 --
-------- ------ --------
Net cash provided (used) by financing activities.. 32,203 845 (200,856)
-------- ------ --------
Accumulated Currency Translation Adjustment........ 17,590 462 (7,826)
-------- ------ --------
Net decrease in cash and cash equivalents......... (135,401) (3,556) (50,400)
Cash and cash equivalents at the beginning of
year............................................. 359,354 9,437 101,965
-------- ------ --------
Cash and cash equivalents at the end of period.... 223,953 5,881 51,565
======== ====== ========
</TABLE>
See notes to the consolidated interim financial statements.
F-73
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Quarter Ended February 24, 2000 and 1999
(Unaudited)
1. Asia-Pacific Economic Turmoil and Going Concern
Thailand and many Asia-Pacific countries continue to experience economic
difficulties since 1997. The accompanying financial statements reflect
management's current assessment of the possible impact of the economic
conditions on the financial position of the Company. The ultimate effect of
such uncertainties on the financial position of the Company cannot be presently
determined.
As further described in Note 12, the Company and a subsidiary were unable to
comply with certain loan covenant requirements related to their loan agreements
with banks. The lenders may enforce their rights under the loan agreements to
call the debts at any time. To date, no notice has been issued by the lenders.
Management plans with respect to these matters are to continue negotiations
with banks for a permanent restructuring of the debts and negotiate for the
sale of the Company.
The interim financial statements have been prepared on a going concern
basis. If the Company is unable to continue as a going concern, it may be
required to realize its assets and extinguish its liabilities other than in the
normal course of business and at amounts different from those stated in the
financial statements. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
to the amounts and classification of liabilities that might be necessary should
the Company not be able to continue as a going concern.
2. Principle Business Operation of the Company
GSS Array Technology Public Company Limited was registered in Thailand on
August 20, 1985 named GMI Electronics (Thailand) Company Limited. The Company
has changed its name to GSS Electronics (Thailand) Company Limited and to GSS
Array Technology Company Limited on January 12, 1987 and May 17, 1991,
respectively. The Company was listed on the Stock Exchange of Thailand in 1989
and has been registered as a public company under the Public Limited Company
Act on April 25, 1994 with the registration no. Bor Mor Jor. 368.
Its head office located at 94 Moo 1, Hitech Industrial Estate, Banlane, Bang
Pa-in, Ayudhaya. The principle business operation is to assemble electronic
products for export.
The Company has total average employees as at February 24, 2000 of 2,700
persons and employees' benefit expenses for the quarter ended February 24, 2000
amounting to Baht 124 million.
3. Basis for Preparation of the Interim Financial Statements
3.1 The accompanying consolidated and the Company's interim financial
statements for the quarters ended February 24, 2000 and 1999 are prepared
by the management of the Company and are unaudited. However, in the opinion
of the Company, all adjustments necessary for a fair presentation, have
been reflected therein.
The interim financial statements have been prepared in accordance with
the Regulation of the Stock Exchange of Thailand (SET) dated May 18, 1999
regarding the preparation and submission of financial statements and
reports for the financial position and result of operations of the listed
companies (No.1) B.E. 2542. Thai Accounting Standard No. 41 "Interim
financial statements" has been adopted by the Company.
F-74
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has
been omitted. In addition, the consolidated and the Company's interim
financial statements should be read in conjunction with the consolidated
and the Company's financial statements and notes thereto included in the
audited financial statements for the year ended November 24, 1999.
The Company maintains its accounting records in Thai Baht and prepares
its statutory financial statements in conformity with accounting standards
in Thailand. The accompanying financial statements are prepared in
accordance with accounting principles and practices generally accepted in
Thailand and are designed for those who have reasonable knowledge thereof.
Such principles may not conform with generally accepted accounting
principles in other countries.
3.2 The consolidated interim financial statements include the accounts
of GSS Array Technology Public Company Limited and its subsidiaries,
prepared after eliminating significant intercompany transactions and
balances.
3.3 Balance sheet and statement of income of foreign subsidiaries are
translated into Baht at the exchange rates announced by The Bank of
Thailand at the balance sheet date and the average exchange rates,
respectively. The translation differences have been shown as the
accumulated foreign currency translation adjustments in the shareholders'
equity.
3.4 The US$equivalent has been provided for convenience only, at the
rate of approximately Baht 38.0 per US$1.00 being the average rate of
buying and selling rates as announced by the Bank of Thailand as of
February 24, 2000. Such translation should not be constructed as a
representation that the Baht amounts could be converted to U.S. dollars at
that or any other rate.
4. Significant Accounting Policies
The Company uses the same accounting policies and methods of computation in
these interim financial statements as in the audited financial statements for
the year ended November 24, 1999.
5. Supplemental Disclosures of Cash Flow Information
5.1 Cash and cash equivalents consist of the followings :
<TABLE>
<CAPTION>
February 24,
2000 February 24, 1999
----------------- -----------------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Cash in hand and at banks................. 223,953 5,881 51,565
Short-term investment..................... 27,400 720 20,478
------- ----- -------
251,353 6,601 72,043
Less Deposits with maturity of more than 3
month.................................... (27,400) (720) (20,478)
------- ----- -------
223,953 5,881 51,565
======= ===== =======
</TABLE>
5.2 Cash paid for interest and income tax are as follows:
<TABLE>
<CAPTION>
February 24,
2000 February 24, 1999
---------------- -----------------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Interest..................................... 35,250 926 51,961
Income tax................................... 543 14 --
</TABLE>
F-75
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
6. Risk Management Policies for Foreign Currency
The currency of the primary economic environment in which the Company
operates is in U.S. dollars, and management believes that there is no need to
hedge currency risk against the dollars.
7. Short-Term Investments
As at February 24, 2000, fixed deposits at a bank of Baht 26 million (US$0.6
million) have been pledged as security against bank overdrafts and loans from
financial institutions (see Note 11).
8. Trade Accounts and Notes Receivable
Trade accounts and notes receivable are classified by aging as follows:
<TABLE>
<CAPTION>
February 24,
2000 February 24, 1999
----------------- -----------------
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
Not yet due (Credit term 30 days)......... 429,853 11,288 616,193
Overdue 1-3 months........................ 221,318 5,812 391,927
Overdue 3-6 months........................ 18,669 490 47,644
Overdue over 6 months..................... 311,460 8,179 253,791
-------- ------ ---------
981,300 25,769 1,309,555
Less Allowance for doubtful account....... (310,837) (8,163) (259,125)
-------- ------ ---------
Net trade accounts and notes receivable... 670,463 17,606 1,050,430
======== ====== =========
</TABLE>
9. Deposit in Escrow Trust Account
As of February 24, 2000, deposit in Escrow Trust Account represents a
US$500,000 of money paid by ACT Manufacturing (buyer) relating to the disposal
of business of GSS Array Technology Inc., U.S.A. (seller).
As specified in sale agreement, the money is set aside to meet any future
claims by the buyer against the seller to the disposal of business. The funds
will be released to the seller one year from the date of the agreement which is
October 11, 1999.
This amount may or may not be received in full depending on claims that may
be filed by the buyer.
10. Property, Plant and Equipment
The Company has mortgaged Baht 85 million (US$2 million) and Baht 176
million as at February 24, 2000 and 1999 respectively, of book value of
machinery and equipment with banks as security against short and long term
loans (see Notes 11 and 12).
11. Bank Overdrafts and Loans from Financial Institutions
Bank overdrafts of the Company are secured by a pledge of its fixed deposits
(see Note 7) and carry interest at the minimum overdraft rate. Loans from
financial institutions of the Company are secured by the pledge of its fixed
deposits and the mortgage of land, buildings, machinery and equipment having
book value of Baht 85 million (US$2 million) and Baht 176 million as at
February 24, 2000 and 1999 respectively (see Note 10).
F-76
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
12. Long-Term Liabilities
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
February 24,
---------------------------
2000 2000 1999
BAHT'000 US$'000 BAHT'000
<S> <C> <C> <C>
The Company
Loans repayable monthly from 1999 to 2003....... 164,520 4,320 --
Loans repayable quarterly from 1998 to 2000 .... 398,614 10,468 524,305
Loan of subsidiary................................ -- -- 55,941
-------- ------- --------
563,134 14,788 580,246
Less Current portion............................ (27,420) (720) --
-------- ------- --------
535,714 14,068 580,246
Less Long-term liabilities converted to current
liabilities according to contracts............. (398,614) (10,468) (580,246)
-------- ------- --------
137,100 3,600 --
======== ======= ========
</TABLE>
Long-term liabilities of the Company carry interest at the rate of LIBOR+3
and are secured by mortgage of land, buildings, machinery and equipment having
book value of Baht 85 million (US$2 million) and Baht 176 million as at
February 24, 2000 and 1999 respectively (see Note 10). Such loan carry
restrictive covenants pertaining to the performance and the ratio of debt to
equity.
The Company and the subsidiary were not in compliance with certain loan
covenant requirements related to loan agreements with banks. The lenders may
enforce their rights under the loan agreements to call the debts at any time.
Accordingly, the Company presented the long-term liabilities as current
liabilities under the heading of "long-term liabilities converted to current
liabilities according to contracts" in order to comply with generally accepted
accounting principles.
To date, no notice has been issued by the lenders to the Company.
13. Share Capital
The increases in issued and paid-up capital are as follows:
<TABLE>
<CAPTION>
Increase in
---------------------------------
Issued and Premiums on Date of
Date paid-up capital share capital registration
---- ---------------- ---------------- ------------------
(Baht) (US$) (Baht) (US$) **
<S> <C> <C> <C> <C> <C>
February 23, 1998.......... 150,000 3,939 450,000 11,817 February 23, 1998
April 9, 1998.............. 559,000 14,680 1,677,000 44,039 April 9, 1998
September 22, 1998......... 50,000 1,313 150,000 3,939 September 22, 1998
February 16, 2000.......... 330,000 8,666 990,000 25,998 February 24, 2000
</TABLE>
The increases were due to the exercises of warrants (see Note 14).
** The Company registered the above increases in issued and paid-up capital
with the Department of Commercial Registration.
F-77
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
14. Stock Option Plan
The shareholders passed a resolution on November 21, 1996 to issue 1,050,000
ordinary share warrants to be allocated to certain directors and employees of
the Company. The issued warrants will not be listed in the Stock Exchange of
Thailand. The holders of warrants will have the right to buy ordinary share of
the Company according to the ratio and exercise price stated in the warrants
and these warrants can be exercised over the period of 5 years.
The exercises of warrants are as follows:
<TABLE>
<CAPTION>
Number of
warrants Exercise
Date of the exercise exercised price
-------------------- --------- --------
(Unit) (Baht)
<S> <C> <C>
January 30, 1998............................................. 15,000 40.00
March 26, 1998............................................... 55,900 40.00
September 22, 1998........................................... 5,000 40.00
February 16, 2000............................................ 33,000 40.00
</TABLE>
941,100 warrants and 974,100 warrants have not been exercised as at February
24, 2000 and 1999 respectively.
15. Earnings Per Share
Earnings per share is computed as follows:
For the quarter ended February 24, 2000:
<TABLE>
<CAPTION>
Average
Number of Earnings per
Income shares share
----------- ---------- ------------
(Baht:'000) (Share) (Baht) (US$)
<S> <C> <C> <C> <C>
Net income................................. 49,519
Basic earnings per share
Net income attributable to ordinary
shareholders.............................. 49,519 21,079,128 2.3492 0.06
The effect of the dilutive potential
ordinary shares
Stock option to purchase ordinary shares... 21,833
Diluted earnings per share
Net income attributable to ordinary
shareholders on conversion of potential
ordinary shares........................... 49,519 21,100,961 2.3468 0.06
</TABLE>
Stock options to purchase 974,100 ordinary share at Baht 40 per share were
outstanding as of February 24, 1999 but were not included in the computation of
diluted EPS for the quarter then ended because the options' exercise price was
greater than the average market price of the ordinary shares.
16. Contingent Liabilities
The Company has contingent liabilities to bank for letters of guarantee as
at February 24, 2000 and 1999 amounting to Baht 25 million (US$0.7 million) and
Baht 15 million respectively.
F-78
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
17. Transactions with Related Parties
17.1 Loans to Director
<TABLE>
<CAPTION>
2000 1999
---------------- --------
BAHT'000 USD'000 BAHT'000
<S> <C> <C> <C>
Beginning Balance..................................... 22,514 591 22,514
Loss on exchange rate................................. (532) (14) --
Addition.............................................. 1,471 39 --
Repayment............................................. -- -- --
Ending balance........................................ 23,453 616 22,514
</TABLE>
Loans to director carry no interest and are not secured. Such loans will be
due in full on December 31, 2000.
17.2 Directors' remuneration
No declaration for directors' remuneration for the quarter ended
February 24, 2000 and 1999.
17.3 Stock option plan
See Note 14.
18. Year 2000 Problem
No problems have been encountered with the Company's and subsidiaries'
computer systems and manufacturing equipment.
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 quarter ended February 24, 2000 and 1999
are as follows:
F-79
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
For the quarter ended February 24, 2000
<TABLE>
<CAPTION>
Domestic Foreign Total Elimination Grand Total
-------- ------- ----- ----------- -----------
Million of Baht
<S> <C> <C> <C> <C> <C>
Net sales
--Outside customers........... 1,586 10 1,596 1,596
--Other segment............... 3 -- 3 (3) --
----- --- ----- ------ -----
1,589 10 1,599 (3) 1,596
----- --- ----- ------ -----
Other income
--Outside customers........... 12 -- 12 -- 12
--Other segment............... -- 56 56 (53) 3
----- --- ----- ------ -----
12 56 68 (53) 15
----- --- ----- ------ -----
Operating income................ 193
Expense......................... (110)
Interest expense................ (33)
-----
Income before income tax........ 50
Income tax...................... (1)
-----
Net income...................... 49
=====
Property, plant and equipment... 676 5 681 (21) 660
Others.......................... 3,216 206 3,422 (1,132) 2,290
----- --- ----- ------ -----
Total assets................ 3,892 211 4,103 (1,153) 2,950
===== === ===== ====== =====
For the quarter ended February 24, 2000
<CAPTION>
Domestic Foreign Total Elimination Grand Total
-------- ------- ----- ----------- -----------
Million of US$
<S> <C> <C> <C> <C> <C>
Net sales
--Outside customers........... 42 -- 42 -- 42
--Other segment............... -- -- --
----- --- ----- ------ -----
42 -- 42 -- 42
----- --- ----- ------ -----
Other income
--Outside customers........... -- -- -- -- --
--Other segment............... -- 1 1 (1) --
----- --- ----- ------ -----
-- 1 1 (1) --
----- --- ----- ------ -----
Operating income................ 5
Expense......................... (3)
Interest expense................ (1)
-----
Income before income tax........ 1
Income tax...................... --
-----
Net income...................... 1
=====
Property, plant and equipment... 18 -- 18 (1) 17
Others.......................... 84 6 90 (29) 61
----- --- ----- ------ -----
Total assets................ 102 6 108 (30) 78
===== === ===== ====== =====
</TABLE>
F-80
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
For the quarter ended February 24, 1999
<TABLE>
<CAPTION>
Domestic Foreign Total Elimination Grand Total
-------- ------- ----- ----------- -----------
Million of Baht
<S> <C> <C> <C> <C> <C>
Net sales
--Outside customers........... 1,542 434 1,976 -- 1,976
--Other segment............... 15 -- 15 (15) --
----- ----- ----- ------ -----
1,557 434 1,991 (15) 1,976
----- ----- ----- ------ -----
Other income
--Outside customers........... 6 -- 6 -- 6
--Other segment............... -- 36 36 (36) --
----- ----- ----- ------ -----
6 36 42 (36) 6
----- ----- ----- ------ -----
Operating loss.................. (39)
Expenses........................ (127)
Interest expense................ (51)
-----
Net loss........................ (217)
=====
Property, plant and equipment... 1,025 178 1,203 -- 1,203
Others.......................... 3,120 1,304 4,424 (1,553) 2,871
----- ----- ----- ------ -----
Total assets................ 4,145 1,482 5,627 (1,553) 4,074
===== ===== ===== ====== =====
</TABLE>
F-81
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
20. Discontinued Operations
In October and November 1999, the Company's wholly owned subsidiaries at San
Jose and Wales ceased their main activities. The income statements for the
quarter ended February 24, 2000 of those subsidiaries relating to the
discontinued operations are as follows:
<TABLE>
<CAPTION>
Continuing Discontinued
operations operations Total
----------------- ---------------- -----------------
BAHT'000 US$'000 BAHT'000 US$'000 BAHT'000 US$'000
<S> <C> <C> <C> <C> <C> <C>
San Jose
Revenue.................... -- -- 9,555 251 9,555 251
Expenses................... 27,153 713 9,819 258 36,972 971
------- ---- ----- --- ------- ----
Net loss................. (27,153) (713) (264) (7) (27,417) (720)
======= ==== ===== === ======= ====
Wales
Revenue.................... -- -- 352 9 352 9
Expenses................... -- -- 22 1 22 1
------- ---- ----- --- ------- ----
Net income (loss)........ -- -- 330 8 330 8
======= ==== ===== === ======= ====
</TABLE>
21. Summary of Significant Differences Between Accounting Principles Followed
by the Company and Generally Accepted Accounting Principles in the United
States
The Company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the Kingdom of
Thailand (Thai GAAP), which differs in certain respects from U.S. GAAP.
The differences are reflected in the approximations provided in Note 22 and
arise due to the items discussed in the following paragraphs:
Functional Currency
Under Thai GAAP, the functional currency is to be the Thai baht. Under U.S.
GAAP, FASB No. 52 requires that an entity's functional currency is to be the
currency of the primary economic environment in which that entity operates.
Company's management has determined that under U.S. GAAP, the company's
functional currency should be the U.S. dollar.
Long-lived Assets to be disposed of
While not addressed under Thai GAAP, the Company depreciated long-lived
assets to be disposed of.
Under U.S. GAAP, long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell. Depreciation on such
assets is not recognized.
Unusual or infrequent items
Under Thai GAAP, a material event or transaction that is unusual in nature
or occurs infrequently but not both, and therefore does not meet both criteria
for classification as an extraordinary item, should be reported as separate
component of income from continuing operations by presenting before income
before extraordinary items. Disposals of subsidiaries are categorized as
discontinued operations of subsidiaries. Under U.S. GAAP, unusual or infrequent
items should be reported as operating items, and discontinued operations
represent only those disposals or abandonments of business segments as defined
by APB Opinion No. 30.
F-82
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
Reporting Comprehensive Income
Under U.S. GAAP, SFAS No. 130, Reporting Comprehensive Income, requires an
enterprise to display an amount representing total comprehensive income for
each period of operations presented in the financial statements. Comprehensive
income comprises net income and other comprehensive income such as unrealized
gains and losses on securities, foreign currency translation adjustments and
minimum pension liability adjustments. In addition, an enterprise is required
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. Reclassification of financial
statements for earlier periods provided for comparative purposes is also
required.
Thai GAAP does not address the reporting or disclosure of comprehensive
income.
22. Reconciliation Between Net Income and Shareholders' Equity Under Thai Gaap
and U.S. Gaap
<TABLE>
<CAPTION>
Quarter ended
Quarter ended February 24,
February 24, 2000 1999
-------------------------- -----------------
In Thousands of Thai Baht and Thousands of
U.S. $except Per Share Data
<S> <C> <C> <C> <C>
Net income (loss) according to
the financial statements
prepared under Thai GAAP........ Bht 49,519 US$ 1,300 Bht (217,385)
U.S. GAAP adjustments
Increase (decrease) due to:
Depreciation on assets to be
disposed of................... Bht 3,865 US$ 102 Bht 3,019
Functional Currency Change..... Bht (3,678) US$ (97) Bht 36,001
------------ ------------ ------------
Approximate net income (loss) in
accordance with U.S. GAAP....... Bht 49,706 US$ 1,305 Bht (178,365)
============ ============ ============
Basic Earnings Per Share......... Baht 2.3580 US$ 0.0619 Baht (8.4617)
Diluted Earnings Per Share....... Baht 2.3556 US$ 0.0618 Baht --
Weighted average number of shares
(Thousands)
Basic.......................... Share 21,079 Share 21,079 Share 21,079
Diluted........................ Share 21,101 Share 21,101 Share --
<CAPTION>
Quarter ended
February 24, 2000
--------------------------
In Thousands of Thai Baht
and Thousands of U.S.$
<S> <C> <C> <C> <C>
Stockholders' equity according to
the financial statements
prepared under Thai GAAP........ Bht 351,516 US$ 9,231
U.S. GAAP adjustments
Increase (decrease) due to:
Depreciation on assets to be
disposed of................... Bht 29,380 US$ 772
Functional currency change..... Bht 453,867 US$ 11,917
------------ ------------
Approximate stockholders' equity
in accordance with U.S. GAAP.... Bht 834,763 US$ 21,920
============ ============
</TABLE>
F-83
<PAGE>
GSS ARRAY TECHNOLOGY PUBLIC COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
With regard to the balance sheets and statements of income, the following
other significant captions determined under U.S. GAAP would have been:
<TABLE>
<CAPTION>
Quarter ended
February 24, 2000
----------------------
In Thousands of Thai
Baht and Thousands of
US$
<S> <C> <C>
Balance sheets
Property, plant and equipment......................... Bht 930,741 US$24,442
Total other assets.................................... Bht 556,489 US$14,614
Total assets.......................................... Bht3,433,550 US$90,167
Other current liabilities............................. Bht2,458,770 US$64,568
Total liabilities................................... Bht2,598,787 US$68,245
</TABLE>
The following table presents comprehensive income for the quarters ended
February 24, 2000 and 1999.
<TABLE>
<CAPTION>
Quarter ended February 24,
---------------------------------
2000 1999
-------------------- -----------
In Thousands of Thai Baht and
Thousands of US$
<S> <C> <C> <C>
Net income (loss) U.S. GAAP................ Bht 49,706 US$1,305 Bht(178,365)
Foreign currency translation adjustments... Bht(15,363) US$ (403) Bht 46,300
---------- -------- -----------
Comprehensive income....................... Bht 34,343 US$ 902 Bht(132,065)
========== ======== ===========
</TABLE>
23. Additional Financial Statement Disclosures Required Under U.S. GAAP
Income Taxes
Substantially all of the Company's income is earned in Thailand.
Accordingly, the Company is not subject to income tax in other countries to
any significant extent.
In providing for applicable deferred income taxes under U.S. GAAP, the tax
effect of significant temporary differences has been plus by the tax effect of
available tax loss carry forwards, as follows:
<TABLE>
<CAPTION>
Quarter ended Quarter ended
February 24, 2000 February 24, 1999
----------------------- -----------------
In Thousands of Thai Baht and Thousands
of U.S.$
<S> <C> <C> <C>
Deferred income tax assets
resulting principally from:
Inventory reserve................ Bht 94,778 US$ 2,489 Bht 72,957
Bad debts reserve................ Bht 87,041 US$ 2,286 Bht 84,252
Loss on impairment of investments
in subsidiaries................. Bht 376,356 US$ 9,883 Bht 218,510
Add: Tax effect of available tax
loss carryforwards................ Bht 37,847 US$ 994 Bht 38,064
Less: Valuation allowance.......... Bht(596,022) US$(15,652) Bht(413,783)
----------- ---------- -----------
Net deferred income tax assets..... Bht -- US$ -- Bht --
=========== ========== ===========
</TABLE>
The statement of cash flows in accordance with U.S. GAAP is as follows:
<TABLE>
<CAPTION>
Quarter ended February 24,
------------------------------------
2000 1998
---------------------- ------------
In Thousands of Thai Baht and
Thousands of US$
<S> <C> <C> <C>
Cash flows from:
Operating activities.................. Bht(185,271) US$(4,863) Bht 175,749
Investing activities.................. Bht (5,601) US$ (147) Bht (17,486)
Financing activities.................. Bht 32,203 US$ 845 Bht (203,856)
Effect of exchange rate changes on
cash................................... Bht 23,268 US$ 609 Bht (4,807)
----------- --------- ------------
Net decrease in cash and cash
equivalents............................ Bht(135,401) US$(3,556) Bht (50,400)
=========== ========= ============
</TABLE>
F-84
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Bull Electronics Angers S.A.:
We have audited the accompanying Statement of Assets and Liabilities of the
assembly business of Bull Electronics Angers S.A. (the "Assembly Business" as
described in Note 2 to the financial statements) as of December 31, 1999 and
the related Statement of Revenues, Direct and Certain Allocated Costs and
Expenses for the year then ended. These financial statements are the
responsibility of the Assembly Business' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As described in Note 1, the Assembly Business of Bull Electronics Angers
S.A. is not a separate legal entity, but rather a component of a larger
business. Accordingly, the accompanying Statement of Assets and Liabilities and
Statement of Revenues, Direct and Certain Allocated Costs and Expenses do not
purport to reflect the financial position or results of operations of the
Assembly Business if such business had operated as an unaffiliated legal
entity.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of the Assembly Business
as of December 31, 1999, and the revenues, direct and certain allocated costs
and expenses for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
Our audit also comprehended the translation of the French franc amounts into
US dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. Such US dollar amounts are
presented solely for the convenience of the readers in the United States of
America.
/s/ Deloitte Touche Tohmatsu
Neuilly sur Seine, France
June 6, 2000
F-85
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Convenience
Translation
-----------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable--less allowance for doubtful
accounts,
FRF 1,155 ($177)................................... FRF 155,171 $23,741
Accounts receivable--affiliates................... 82,088 12,559
Inventories......................................... 156,478 23,941
Deferred tax asset, current......................... 11,222 1,717
Prepaid expenses and other current assets........... 16,840 2,577
Prepaid expenses and other current assets--
affiliates......................................... 1,235 189
----------- -------
Total current assets.............................. 423,034 64,724
----------- -------
Property and equipment:
Land................................................ 782 119
Building............................................ 80,791 12,361
Equipment........................................... 262,451 40,155
Assets under construction........................... 1,227 188
----------- -------
Total............................................. 345,251 52,823
Less accumulated depreciation....................... (275,506) (42,152)
----------- -------
Property and equipment, net....................... 69,745 10,671
----------- -------
Other long-term assets:
Deferred tax asset, long term....................... 16,892 2,585
Other long-term asset............................... 334 51
----------- -------
Total other long-term assets...................... 17,226 2,636
----------- -------
Total................................................. FRF 510,005 $78,031
=========== =======
LIABILITIES
Current liabilities
Accounts payable.................................... FRF 200,672 $30,703
Accounts payable--affiliates........................ 91,600 14,015
Income taxes payable................................ 12,050 1,844
Deferred revenue and other current liabilities...... 26,146 4,000
----------- -------
Total current liabilities......................... 330,468 50,562
----------- -------
Accrued costs of pre-retirement plans................. 33,497 5,125
Pension liability..................................... 11,238 1,719
Excess of assets over liabilities..................... 134,802 20,625
----------- -------
Total................................................. FRF 510,005 $78,031
=========== =======
</TABLE>
See notes to financial statements.
F-86
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
STATEMENT OF REVENUES, DIRECT AND CERTAIN ALLOCATED COSTS AND EXPENSES FOR THE
YEAR ENDED DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Convenience
Translation
-----------
<S> <C> <C>
Revenue:
Sales--non affiliates............................. FRF 1,156,423 $ 176,933
Sales--affiliates................................. 260,372 39,837
Services and other--non affiliates................ 11,119 1,701
Services and other--affiliates.................... 17,209 2,633
------------- ---------
Total revenue................................... 1,445,123 221,104
------------- ---------
Costs and expenses:
Cost of sales--non affiliates..................... (1,109,937) (169,820)
Cost of sales--affiliates......................... (241,580) (36,962)
Cost of services and other--non affiliates........ (15,298) (2,341)
Cost of services and other--affiliates............ (17,969) (2,749)
Selling and marketing............................. (19,424) (2,972)
General and administrative........................ (58,650) (8,973)
------------- ---------
Total costs and expenses........................ (1,462,858) (223,817)
------------- ---------
Loss from operations................................ (17,735) (2,713)
Other expenses, net................................. (1,177) (180)
------------- ---------
Loss before income taxes............................ (18,912) (2,893)
------------- ---------
Provision for income taxes.......................... (889) (136)
------------- ---------
Net loss............................................ FRF (19,801) $ (3,029)
============= =========
</TABLE>
See notes to financial statements.
F-87
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1999
All amounts are stated in thousands of French francs unless otherwise
indicated.
1. Background and basis of presentation
Background
Incorporated in 1995, Bull Electronics Angers S.A. ("BEA") is a 100%
subsidiary of Bull S.A., a French wholly owned subsidiary of the Groupe Bull
which consists of an extensive network of affiliated companies located
worldwide (the "Groupe Bull").
The board of directors of BEA, approved, in principle, a plan to sell (the
"Sale") its assembly business (the "Assembly Business"), as described in Note
2, to a third party (the "Buyer").
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, on a
basis which reflects the historical result of operations of the Assembly
Business. Such financial statements do not reflect changes which may be
significant and which may occur in the operations and financial position of the
Assembly Business as a result of the Sale.
As described in Note 5, the Groupe Bull provides certain general and
administrative services to BEA, including finance, tax, legal, treasury,
information systems and human resources. The Groupe Bull charges corporate fees
to BEA in consideration for such services as well as to cover a general
contribution for the use of name and brand. For the purposes of the
accompanying financial statements, a portion of such corporate fees has been
allocated to the Assembly Business based on its relative contribution to BEA's
total revenue in 1999.
As part of its activities, the Assembly Business uses raw boards
manufactured by the printed circuit business, another business of BEA. Because
the printed circuit business is not organized as a separate legal entity, such
purchases made by the Assembly Business from the printed circuits business are
not legally materialized by an invoice. Management of the Assembly Business has
utilized an arm's-length transfer at the best price available for comparable
external suppliers in order to estimate the corresponding cost of revenue,
which was determined as FRF69,920 and is included in Statement of Revenues,
Direct and Certain Allocated Costs and Expenses. This estimate of cost of
revenue approximates historical cost. Corresponding accounts payable, included
in the Statement of Assets and Liabilities for FRF19,350, have been estimated
by the Assembly Business assuming an average payment term of 85 days which
management considers to reflect business practice in the industry in France.
Income taxes payable have been allocated to the Assembly Business based on
its relative contribution to BEA's tax result. Deferred income taxes have been
allocated to the Assembly Business based on its relative contribution to the
differences between accounting and tax basis of the assets and the liabilities
of BEA.
Assets and liabilities related to the Assembly Business operations have been
managed and controlled by BEA. Certain of these assets and liabilities are
directly attributable to the Assembly Business, whereas certain of these assets
and liabilities, primarily those related to personnel, have been allocated to
the Assembly Business based on its relative headcount or salary costs. Such
allocated assets and liabilities amounted to FRF16,280, FRF334, FRF191,150,
FRF53,218 and FRF11,263, respectively, and have been recorded in the line items
titled Prepaid expenses and other current assets, Other long-term assets,
Accounts payable, Accounts
F-88
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
payable--affiliates and Deferred revenue and other current liabilities of the
Statement of Assets and Liabilities, respectively.
BEA has incurred expenses in connection with the Sale as described above.
Management considers that the Assembly Business would not have incurred such
expenses had it been organized as a stand-alone unaffiliated legal entity.
Consequently, such expenses in connection with the Sale have not been allocated
to the Assembly Business.
As described in Note 2, bank accounts are legally held by BEA and not by
businesses. Furthermore, BEA uses a centralized approach to cash management and
the financing of its operations. Additionally, management reviews financial
income and expenses on a legal entity basis as opposed to a business entity
basis, and discrete information by business is not available on this matter. As
a result, cash, cash equivalents and debts, as well as relating income and
expenses have not been allocated to the Assembly Business.
While management of the Assembly Business believes that the allocation
methodology followed in preparing the accompanying financial statements as
described above is reasonable, such allocation methodology may not necessarily
reflect the revenues, costs and expenses or assets and liabilities of the
Assembly Business in the future, or what the revenues, costs and expenses or
assets and liabilities would have been had the Assembly Business been a
separate stand-alone entity.
The translations of the French franc amounts into US dollar amounts are
included solely for the convenience of readers in the United States of America
and have been made at the rate of exchange of US$0.153 to FRF1, the approximate
rate of exchange on December 31, 1999. Such translations should not be
construed as representations that the French franc amounts could be converted
at that or any other rate.
2. Nature of the Business and Summary of Significant Accounting Policies
Nature of the business--The Assembly Business provides services in printed
circuit assemblies (also known as board assemblies), box build systems assembly
and associated end-to-end value added services for original equipment
manufacturers worldwide. The Assembly Business operates in Angers, France.
Foreign currency translation--BEA uses the French franc ("FRF") as its
functional and reporting currency. Assets and liabilities denominated in
foreign currencies are translated into the functional currency at the exchange
rate on the balance sheet date. Income and expense items are translated at
average rates of exchange prevailing during each period.
Inventories--Inventories are valued at the lower of cost (first-in, first-
out basis) or market.
Property and Equipment--Land, purchased property and equipment are recorded
at cost. Depreciation is provided on the straight-line method over the
estimated useful life (2 to 20 years) of the related assets, except land that
is not depreciated. In 1999, depreciation expense was FRF29,866 included in the
Statement of Revenues, Direct and Certain Allocated Costs and Expenses.
Long-lived assets--Under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", the Assembly Business evaluates
the recoverability of long-lived assets not held for sale by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
undiscounted future cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets in 1999.
F-89
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Sales returns--Upon shipment of the equipment, the Assembly Business
provides for the estimated cost that may be incurred for sales returns.
Revenue recognition--Revenue from the sale of equipment is recognized upon
shipment, provided that no significant obligations remain and collection of the
receivables is considered probable. Included in revenue from the sale of
equipment are approximately FRF47,763 of revenue from certain "consignment
sales" for which the final customer provides the Assembly Business with the raw
materials. In such cases, customers are billed a fabrication charge and the raw
material value is not included in sales or cost of sales. Revenue from customer
maintenance support agreements is deferred and recognized ratably over the term
of the agreements. Revenue from other services is recognized as services are
rendered and accepted by the customer.
Income taxes--The Assembly Business accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred
income taxes are determined based on the differences between the financial
statement and tax basis of assets and liabilities, using enacted tax rates in
effect in the years in which the differences are expected to reverse. In
addition, SFAS No. 109 requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion of the
deferred tax asset will not be realized.
Use of estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires, of necessity, the use of estimates to determine the appropriate
carrying value of certain assets and liabilities. Actual results could differ
from these estimates. Each of these estimates requires the Assembly Business'
management to assess past history and to estimate probable outcomes in the
future. While uncertainties are always present in the estimation process and
changes could occur, the management believes that the assumptions used to
develop these estimates are reasonable.
Recently issued accounting standards--In June 1998, the Financial Accounting
Standards Board issued the SFAS No.133, "Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities", which is effective for
fiscal years beginning after June 15, 2000 as amended by the SFAS No.137
"Accounting for Derivative and Similar Financial Instruments and for Hedging
Activities--Deferral of the effective date of FASB Statement No.133--an
amendment of FASB Statement No.133". SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of derivative and
whether it has been designated and qualifies as part of a hedging relationship
for hedge accounting. The Assembly Business' management has not determined the
impact that SFAS No. 133 will have on its financial statements.
3. Inventories
As of December 31, 1999, the components of inventories were as follows:
<TABLE>
<S> <C>
Raw material and work in process.................................. FRF153,649
Finished goods.................................................... 2,829
----------
FRF156,478
==========
</TABLE>
4. Accrued Costs of Pre-Retirement Plans
The Assembly Business is engaged in various pre-retirement plans that offer
indemnities to certain eligible employees who cease working prior to legal
retirement age. Such indemnities are paid jointly by the employer and the
French social services to employees for the period from the pre-retirement date
to the retirement date.
F-90
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999, there remain 33 employees covered by pre-retirement
plans adopted prior to 1999. Additionally, in 1999 the Assembly Business has
adopted a new pre-retirement plan covering 57 employees. Remaining indemnities
to be paid by the Assembly Business as of December 31, 1999 amounted to
FRF33,497. Such liability accrued in the Statement of Assets and Liabilities
has been determined by discounting annual payments to be made over the next 9
years, using a discount rate of 6%.
In 1999, cost of accrued pre-retirement plans was FRF34,432 included in the
lines "Cost of sales", "Selling and marketing", and "General and
administrative" of the Statement of Revenues, Direct and Certain Allocated
Costs and Expenses for FRF31,359, FRF1,889, and FRF1,184, respectively.
5. Related Parties
Tax group structure--BEA belongs to a tax group led by Bull S.A.
Consequently, income taxes are paid to Bull S.A. directly.
Corporate fees--The Groupe Bull provides certain general and administrative
services to BEA, including finance, tax, legal, treasury, information systems
and human resources. The Groupe Bull charges corporate fees to BEA in
consideration for such services as well as to cover a general contribution for
the use of name and brand. As described in Note 1, a portion of such corporate
fees has been allocated to the Assembly Business based on its relative
contribution to BEA's total revenue in 1999. Such allocated cost of corporate
fees was FRF46,184 in 1999, included in line "General and administrative" of
the Statement of Revenues, Direct and Certain Allocated Costs and Expenses. At
December 31, 1999, the amount due to Bull on such corporate fees was FRF18,065
included in the Statement of Assets and Liabilities.
6. Pension Liability
In accordance with mandatory collective bargaining agreements, French
companies must pay lump sum indemnities to employees upon retirement. No assets
are contributed to the plan on an ongoing basis.
Pension benefits and retirement indemnities are based on formulas, which
generally take into account length of service, job grade and compensation. The
actuarial present value of these obligations and the corresponding accrued
liabilities recognized in the Statement of Assets and Liabilities sheet at
December 31, 1999 were as follows:
<TABLE>
<S> <C>
Projected benefit obligation................................... FRF 11,238
Fair value of plan assets...................................... --
----------
Funded status.................................................. FRF(11,238)
----------
Accrued benefit cost recognized in the Statement of Assets and
Liabilities................................................... FRF 11,238
==========
Assumptions used to determine the pension and retirement indemnity
obligation and cost were as follows in 1999:
Discount rate.................................................. 6%
Expected return on plan assets................................. --
Rate of compensation increase.................................. 1%
</TABLE>
The net reduction of the prior year liability due mostly to pre-retirement
plans and employee turnover was in excess of the pension cost incurred during
the year and therefore resulted in a net pension income of
F-91
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
approximately FRF2,200 in 1999, primarily included in lines "Cost of sales" and
"Cost of services and other" of the Statement of Revenues, Direct and Certain
Allocated Costs and Expenses.
7. Excess of assets over liabilities
The following is an analysis of the excess of assets over liabilities of the
Assembly Business:
<TABLE>
<S> <C>
Excess of assets over liabilities at January 1, 1999............. FRF154,603
Net loss......................................................... (19,801)
Accumulated other comprehensive loss............................. --
----------
Excess of assets over liabilities at December 31, 1999........... FRF134,802
==========
</TABLE>
Effective January 1, 1999, the Assembly Business adopted SFAS No. 130,
"Reporting Comprehensive Income", which requires a prominent display of the
components of items of other comprehensive loss. In 1999, the Assembly Business
has no item to record as other comprehensive loss.
8. Income Taxes
BEA is liable for corporate income taxes based on legislation existing in
France. As described in Note 1, current and deferred income taxes have been
allocated to the Assembly Business based on their relative contribution to
BEA's tax result and their relative contribution to the differences between
accounting and tax basis of the assets and the liabilities of BEA,
respectively.
Accordingly, the benefit from (provision for) income taxes of the Assembly
Business in 1999 consisted of the following:
<TABLE>
<S> <C>
Current income tax............................................... FRF(12,050)
Deferred income tax.............................................. 11,161
----------
FRF (889)
==========
</TABLE>
As of December 31, 1999, deferred tax assets (liabilities) were reflected on
the Assembly Business' Statement of Assets and Liabilities as follows:
<TABLE>
<S> <C>
Deferred tax assets:
--Pension liability and accrued costs of pre-retirement plans..... FRF16,892
--Inventory valuation allowances.................................. 8,251
--Other........................................................... 2,971
---------
Total deferred tax assets......................................... 28,114
Valuation allowance............................................... --
---------
Net deferred tax assets........................................... FRF28,114
=========
</TABLE>
SFAS No.109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management believes that it is more
likely than not that the Assembly Business will generate future taxable income
to realize the entire deferred tax assets.
F-92
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Concentration of credit risk
Financial instruments, which potentially subject the Assembly Business to
significant concentrations of credit risk, consist principally of trade
accounts receivable.
In 1999, two customers accounted for 67% and 13% respectively of total
revenue with non-affiliates and 45% and 26% respectively of accounts receivable
from non-affiliates at December 31, 1999. The Assembly Business' historical
experience in collection of accounts receivable falls within the recorded
allowances.
10. Geographic information
Geographic information is as follows:
<TABLE>
<CAPTION>
Other North
France Europe America Other Total
---------- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................. FRF551,080 FRF876,056 FRF17,218 FRF769 FRF1,445,123
---------- ---------- --------- ------ ------------
</TABLE>
Revenues by geographic areas are based on client location.
11. Litigation
In the ordinary course of business, the Assembly Business is subject to
various legal proceedings and claims. Management of the Assembly Business
believes that the ultimate outcome of these matters will not have a material
adverse effect on its financial statements.
* * *
F-93
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 2000 (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Convenience
Translation
-----------
<S> <C> <C>
Assets
Current assets:
Accounts receivable--less allowance for doubtful
accounts, FRF2,306($337)........................... FRF 205,404 $ 29,989
Accounts receivable--affiliates..................... 53,341 7,788
Inventories......................................... 370,580 54,105
Deferred tax asset, current......................... 11,222 1,638
Prepaid expenses and other current assets........... 22,978 3,355
Prepaid expenses and other current assets--
affiliates......................................... 596 87
----------- --------
Total current assets.............................. 664,121 96,962
----------- --------
Property and equipment
Land................................................ 782 114
Building............................................ 81,600 11,914
Equipment........................................... 275,680 40,249
Assets under construction........................... 676 99
----------- --------
Total............................................. 358,738 52,376
Less accumulated depreciation....................... (281,019) (41,029)
----------- --------
Property and equipment, net....................... 77,719 11,347
----------- --------
Other long-term assets:
Deferred tax asset, long term....................... 16,892 2,466
Other long-term assets.............................. 337 49
----------- --------
Total other long-term assets...................... 17,229 2,515
----------- --------
Total................................................. FRF 759,069 $110,824
=========== ========
Liabilities
Current liabilities:
Accounts payable.................................... FRF 367,570 $ 53,665
Accounts payable--affiliates........................ 135,939 19,847
Income taxes payable................................ 13,846 2,022
Deferred revenue and other current liabilities...... 40,900 5,971
----------- --------
Total current liabilities......................... 558,255 81,505
----------- --------
Accrued costs of pre-retirement plans................. 31,786 4,641
Pension liability..................................... 11,512 1,681
Excess of assets over liabilities..................... 157,516 22,997
----------- --------
Total................................................. FRF 759,069 $110,824
=========== ========
</TABLE>
See notes to financial statements.
F-94
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
STATEMENTS OF REVENUES, DIRECT AND CERTAIN ALLOCATED COSTS AND EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31,
March 31, 2000 1999
(Unaudited) (Unaudited)
----------------------- -----------
Convenience
Translation
-----------
<S> <C> <C> <C>
Revenue:
Sales--non affiliates.................... FRF371,951 $ 54,305 FRF299,107
Sales--affiliates........................ 38,727 5,654 60,317
Services--non affiliates................. 4,457 651 2,687
Services--affiliates..................... 3,613 527 3,697
---------- -------- ----------
Total revenue.......................... 418,748 61,137 365,808
---------- -------- ----------
Costs and expenses:
Cost of sales--non affiliates............ (346,242) (50,551) (297,961)
Cost of sales--affiliates................ (36,098) (5,270) (60,739)
Cost of Services--non affiliates......... (8,002) (1,168) (2,874)
Cost of Services--affiliates............. (3,502) (511) (3,848)
Selling and marketing.................... (4,281) (625) (5,663)
General and administrative............... (17,758) (2,593) (15,415)
---------- -------- ----------
Total costs and expenses............... (415,883) (60,718) (386,500)
---------- -------- ----------
Profit (Loss) from operations.............. 2,865 419 (20,692)
Other income, net.......................... 1,990 290 3,903
---------- -------- ----------
Profit (Loss) before income taxes.......... 4,855 709 (16,789)
---------- -------- ----------
Provision for income taxes................. (1,796) (262) (3,012)
---------- -------- ----------
Net Profit (Loss).......................... FRF 3,059 $ 447 FRF(19,801)
========== ======== ==========
</TABLE>
See notes to financial statements.
F-95
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
All amounts are stated in thousands of French francs unless otherwise
indicated.
1. Basis of presentation and significant accounting policies
Basis of Presentation
Bull Electronics Angers S.A. ("BEA") is a 100% subsidiary of Bull S.A. , a
French wholly owned subsidiary of the Groupe Bull which consists of an
extensive network of affiliated companies located worldwide (the "Groupe
Bull"). The board of directors of BEA, approved, in principle, a plan to sell
(the "Sale") its assembly business (the "Assembly Business") to a third party
(the "Buyer"). The Assembly Business provides services in printed circuit
assemblies (also known as board assemblies), box build systems assembly and
associated end-to-end value added services for original equipment manufacturers
worldwide. The Assembly Business operates in Angers, France.
The accompanying unaudited interim financial statements have been prepared
in conformity with accounting principles generally accepted in the United
States of America, on a basis which reflects the historical results of
operations of the Assembly Business. Such financial statements do not reflect
changes which may be significant and which may occur in the operations and
financial position of the Assembly Business as a result of the Sale of this
business.
The unaudited interim financial statements furnished herein reflect all
adjustments, which in the opinion of management, are of a normal recurring
nature, necessary to fairly state the financial position of the Assembly
Business. The results of operations for the periods presented have been
prepared on a basis consistent with audited financial statements for the year
ended December 31, 1999.
The results of operations for the interim periods are not necessarily
indicative of the results of the operations to be expected for the fiscal year.
These interim financial statements should be read in conjunction with the
financial statements of the Assembly Business for the year ended December 31,
1999.
The Groupe Bull provides certain general and administrative services to BEA,
including finance, tax, legal, treasury, information systems and human
resources. The Groupe Bull charges corporate fees to BEA in consideration for
such services as well as to cover a general contribution for the use of name
and brand. For the purpose of the accompanying financial statements, a portion
of such corporate fees has been allocated to the Assembly Business based on its
relative contribution to BEA's total revenue in each of the three-month periods
ended March 31, 1999 and March 31, 2000, respectively. Such allocated cost of
corporate fees was FRF12,243 and FRF14,358 for the three months ended March 31,
1999 and March 31, 2000, respectively, included in the line "General and
administrative" of the Statements of Revenues, Direct and Certain Allocated
Costs and Expenses. At March 31, 2000, the amount due to the Groupe Bull on
such corporate fees was FRF15,943 included in the line item "Accounts payable--
affiliates" of the Statement of Assets and Liabilities.
As part of its activities, the Assembly Business uses raw boards
manufactured by the printed circuit business, another business of BEA. Because
the printed circuit business is not organized as a separate legal entity, such
purchases made by the Assembly Business from the printed circuits business are
not legally materialized by an invoice. Management of the Assembly Business has
utilized an arm's-length transfer at the best price available for comparable
external suppliers in order to estimate the corresponding cost of revenue,
which was determined as FRF14,730 and FRF14,102 for the three months ended
March 31, 1999 and March 31, 2000, respectively, and is included in the
Statements of Revenues, Direct and Certain Allocated Costs and Expenses. This
estimate of cost of revenue approximates historical cost. Corresponding
accounts payable, included in the Statement of Assets and Liabilities for
FRF13,266 at March 31, 2000, have been estimated by the Assembly Business
assuming an average payment term of 85 days which management considers to
reflect business practice in the industry in France.
F-96
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
BEA is liable for corporate income taxes based on legislation existing in
France. Current income taxes have been allocated to the Assembly Business based
on its relative contribution to BEA's estimated tax result. BEA belongs to a
tax group led by Bull S.A. Consequently, income taxes are paid to Bull S.A.
directly.
BEA has incurred expenses in connection with the Sale as described above.
Management considers that the Assembly Business would not have incurred such
expenses had it been organized as a stand-alone unaffiliated legal entity.
Consequently, such expenses in connection with the Sale have not been allocated
to the Assembly Business.
Bank accounts are legally held by BEA and not by businesses. Furthermore,
BEA uses a centralized approach to cash management and the financing of its
operations. Additionally, management reviews financial income and expenses on a
legal entity basis as opposed to a business entity basis, and discrete
information by business is not available on this matter. As a result, cash,
cash equivalents and debts, as well as relating income and expenses have not
been allocated to the Assembly Business.
Assets and liabilities related to the Assembly Business operations have been
managed and controlled by BEA. Certain of these assets and liabilities are
directly attributable to the Assembly Business, whereas certain of these assets
and liabilities, primarily those related to personnel, have been allocated to
the Assembly Business based on its relative headcount or salary costs. At March
31, 2000, such allocated assets and liabilities amounted to FRF21,998, FRF337,
FRF355,811, FRF47,499 and FRF13,518, respectively, and have been recorded in
the line items titled Prepaid expenses and other current assets, Other long-
term assets, Accounts payable, Accounts payable--affiliates and Deferred
revenue and other current liabilities of the Statement of Assets and
Liabilities, respectively.
While management of the Assembly Business believes that the allocation
methodology followed in preparing the accompanying financial statements as
described above is reasonable, such allocation methodology may not necessarily
reflect the revenues, costs and expenses or assets and liabilities of the
Assembly Business in the future, or what the revenues, costs and expenses or
assets and liabilities would have been had the Assembly Business been a
separate stand-alone entity.
The translations of the French franc amounts into US dollar amounts are
included solely for the convenience of readers in the United States of America
and have been made at the rate of exchange of US$0.146 to FRF1, the approximate
rate of exchange on March 31, 2000. Such translations should not be construed
as representations that the French franc amounts could be converted at that or
any other rate.
Property and Equipment--Land, purchased property and equipment are recorded
at cost. Depreciation is provided on the straight-line method over the
estimated useful life (2 to 20 years) of the related assets, except land that
is not depreciated. In the three months ended March 31, 1999 and March 31,
2000, depreciation expense was FRF7,714 and FRF7,614, respectively, included in
Statements of Revenues, Direct and Certain Allocated Costs and Expenses.
Revenue recognition--Revenue from the sale of equipment is recognized upon
shipment, provided that no significant obligations remain and collection of the
receivables is considered probable. Included in revenue from the sale of
equipment are approximately FRF8,900 and FRF17,300 in the three months ended
March 31, 1999 and March 31, 2000, respectively, of revenue from certain
"consignment sales" for which the final customer provides the Assembly Business
with the raw materials. In such cases, customers are billed a fabrication
charge and the raw material value is not included in sales or cost of sales.
Revenue from customer maintenance support agreements is deferred and recognized
ratably over the term of the agreements. Revenue from other services is
recognized as services are rendered and accepted by the customer.
F-97
<PAGE>
ASSEMBLY BUSINESS OF BULL ELECTRONICS ANGERS S.A.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Recently issued accounting standards--In June 1998, the Financial Accounting
Standards Board issued the SFAS No. 133, "Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities", which is effective for
fiscal years beginning after June 15, 2000 as amended by the SFAS No. 137
"Accounting for Derivative and Similar Financial Instruments and for Hedging
Activities--Deferral of the effective date of FASB Statement No. 133--an
amendment of FASB Statement No. 133". SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of derivative and
whether it has been designated and qualifies as part of a hedging relationship
for hedge accounting. The Assembly Business' management has not determined the
impact that SFAS No. 133 will have on its financial statements.
2. Inventories
As of March 31, 2000, the components of inventories were as follows:
<TABLE>
<S> <C>
Raw material and work in process.................................... FRF 355,282
Finished goods...................................................... 15,298
-----------
FRF 370,580
===========
</TABLE>
3. Other income, net
Other income, net consisted of the following:
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Foreign exchange gains............................ FRF2,474 FRF4,397
Foreign exchange losses........................... (575) (264)
Other income (expense), net....................... 91 (230)
-------- --------
FRF1,990 FRF3,903
======== ========
</TABLE>
4. Comprehensive income
In accordance with SFAS No. 130, "Reporting Comprehensive Income", which
requires a prominent display of the components of items of other comprehensive
income, the Assembly Business has no item to record as other comprehensive
income in the three month periods ended March 31, 1999 and March 31, 2000,
respectively.
5. Financial instruments with off-balance sheet risk
On March 31, 2000, in the normal course of business, and in order to reduce
the exposure of its Assembly Business activities to fluctuation in currency
values, BEA entered into a US dollar forward sale contract with Bull, the
parent company of the Groupe Bull, for a total amount of US$36,086 thousand at
an exchange rate of US$0.146 to FRF1, or a notional amount of FRF247,733. Such
off-balance sheet commitment matures on June 30, 2000.
6. Litigation
In the ordinary course of business, the Assembly Business is subject to
various legal proceedings and claims. Management of the Assembly Business
believes that the ultimate outcome of these matters will not have a material
adverse effect on its financial statements.
F-98
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$100,000,000
7% Convertible Subordinated Notes
Due April 15, 2007
[ACT LOGO APPEARS HERE]
----------------
PROSPECTUS
----------------
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Estimated expenses payable in connection with the sale of the securities in
this offering are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 26,400
Nasdaq additional share listing fee................................ 17,500
Printing and engraving expenses.................................... 100,000
Legal fees and expenses............................................ 300,000
Accounting fees and expenses....................................... 300,000
Miscellaneous...................................................... 56,100
--------
Total............................................................ $800,000
========
</TABLE>
The registrant will bear all of the expenses shown above.
Item 15. Indemnification of Directors and Officers.
Section 67 of Chapter 156B of the Massachusetts General Laws provides that
a corporation may indemnify its directors and officers to the extent specified
in or authorized by (i) the articles of organization, (ii) a by-law adopted by
the stockholders, or (iii) a vote adopted by the holders of a majority of the
shares of stock entitled to vote on the election of directors. In all
instances, the extent to which a corporation provides indemnification to its
directors and officers under Section 67 is optional. In our Amended and
Restated By-laws, we have elected to commit to provide indemnification to our
directors and officers in specified circumstances. Generally, Article V,
Section 2 of our Amended and Restated By-laws indemnifies our directors and
officers against liabilities and expenses arising out of legal proceedings
brought against them by reason of their status as directors or officers or by
reason of their agreeing to serve, at our request, as a director or officer
with another organization. Under this provision, a director or officer shall
be indemnified by us for all costs and expenses (including attorneys' fees),
judgments, liabilities and amounts paid in settlement of such proceedings,
even if he is not successful on the merits, if he acted in good faith in the
reasonable belief that his action was in our best interests. Our board of
directors may authorize advancing litigation expenses to a director or officer
at his request upon receipt of an undertaking by any such director or officer
to repay such expenses if it is ultimately determined that he is not entitled
to indemnification for such expenses.
Article 6 of our Restated Articles of Organization eliminates the personal
liability of our directors to us or our stockholders for monetary damages for
breach of a director's fiduciary duty, except to the extent Chapter 156B of
the Massachusetts General Laws prohibits the elimination or limitation of such
liability.
We maintain directors' and officers' liability insurance for the benefit of
our directors and certain of our officers.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Second Restated Articles of Organization (incorporated herein by
reference to the exhibits to our Annual Report on Form 10-K for the
year ended December 31, 1995)
4.2 Articles of Amendment to the Second Restated Articles of
Organization (incorporated herein by reference to the exhibits to
our Quarterly Report on Form 10-Q for the period ended June 30, 1997)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.3 Articles of Amendment to the Second Restated Articles of
Organization (incorporated herein by reference to the exhibits to
our Registration Statement on Form S-8 (File No. 333-84231))
4.4 Articles of Amendment to the Second Restated Articles of
Organization
4.5 Amended and Restated By-Laws (incorporated herein by reference to
the exhibits to our Registration Statement on Form S-1 (File No. 33-
89532)), as amended
4.6 Indenture
4.7 Form of Note (included in Exhibit 4.6)
4.8 Registration Rights Agreement
5.1 Opinion of Testa, Hurwitz & Thibeault, LLP
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Deloitte Touche Tohmatsu Jaiyos
*23.5 Consent of Deloitte Touche Tohmatsu
24.1 Power of Attorney (see page II-4)
25 Form T-1 Statement of Eligibility of Trustee for Indenture under
Trust Indenture Act of 1939
</TABLE>
--------
* Filed herewith
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed with or furnished to the Commission
by the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hudson, Massachusetts on July 28, 2000.
ACT Manufacturing, Inc.
/s/ John A. Pino
By: _________________________________
John A. Pino
President, Chief Executive
Officer and Chairman of the Board
of Directors
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ John A. Pino Chairman of the Board of July 28, 2000
______________________________________ Directors, President and
John A. Pino Chief Executive Officer
(principal executive
officer)
* Vice President of Finance, July 28, 2000
______________________________________ Chief Financial Officer,
Jeffrey B. Lavin and Clerk (principal
financial and accounting
officer)
* Director July 28, 2000
______________________________________
Edward T. Cuddy
* Director July 28, 2000
______________________________________
Bruce R. Gardner
* Director July 28, 2000
______________________________________
Frederick W. Gibbs
* Director July 28, 2000
______________________________________
David S. Lee
* Director July 28, 2000
______________________________________
Donald G. Polich
</TABLE>
/s/ John A. Pino
*By: _______________________
John A. Pino
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Second Restated Articles of Organization (incorporated herein by
reference to the exhibits to our Annual Report on Form 10-K for the
year ended December 31, 1995)
4.2 Articles of Amendment to the Second Restated Articles of
Organization (incorporated herein by reference to the exhibits to
our Quarterly Report on Form 10-Q for the period ended June 30,
1997)
4.3 Articles of Amendment to the Second Restated Articles of
Organization (incorporated herein by reference to the exhibits to
our Registration Statement on Form S-8 (File No. 333-84231))
4.4 Articles of Amendment to the Second Restated Articles of
Organization
4.5 Amended and Restated By-Laws (incorporated herein by reference to
the exhibits to our Registration Statement on Form S-1 (File No. 33-
89532)), as amended
4.6 Indenture
4.7 Form of Note (included in Exhibit 4.6)
4.8 Registration Rights Agreement
5.1 Opinion of Testa, Hurwitz & Thibeault, LLP
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Deloitte Touche Tohmatsu Jaiyos
*23.5 Consent of Deloitte Touche Tohmatsu
24.1 Power of Attorney (see page II-4)
25 Form T-1 Statement of Eligibility of Trustee for Indenture under
Trust Indenture Act of 1939
</TABLE>
--------
* Filed herewith
