UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Quarter Ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to ________
Commission File Number 0-29332
PEAK INTERNATIONAL LIMITED
(Exact Name of Registrant as Specified in its Charter)
Incorporated in Bermuda with limited liability None
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
44091 Nobel Drive, P.O. Box 1767, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
(510) 449-0100
(Registrant's telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 6, 2002.
Class Outstanding at February 6, 2002.
------------------------------------- ----------------------------------
Common Stock, $0.01 Par Value 12,661,724
------------------------------------- ----------------------------------
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
(in thousands of United States Dollars, except per share data)
Three Months Ended
December 31,
-------------------------------------
2001 2000
-------------- --------------
(Unaudited) (Unaudited)
Net Sales:
- Third parties ................. $ 12,189 $ 21,817
- Related companies ............. - 2,229
-------------- --------------
12,189 24,046
Cost of Goods Sold .................... 8,380 13,457
-------------- --------------
Gross Profit .......................... 3,809 10,589
General and Administrative ............ 2,000 2,704
Research and Development .............. 24 42
Selling and Marketing ................. 2,007 2,442
-------------- --------------
Operating (Loss) Income ............... (222) 5,401
Other (Expense) Income - net ......... (50) 3
Interest Income ....................... 127 448
-------------- --------------
(Loss) Income Before Tax .............. (145) 5,852
Taxation .............................. 85 480
-------------- --------------
NET (LOSS) INCOME ..................... $ (230) $ 5,372
============== ==============
(LOSS) EARNINGS PER SHARE
- Basic ......................... $ (0.02) $ 0.39
- Diluted ....................... $ (0.02) $ 0.39
Weighted Average Number of Shares
- Basic ......................... 12,740 13,691
- Diluted ....................... 12,740 13,929
Nine Months Ended
December 31,
-------------------------------------
2001 2000
-------------- --------------
(Unaudited) (Unaudited)
Net Sales:
- Third parties ................. $ 32,561 $ 64,524
- Related companies ............. 1,120 6,336
-------------- --------------
33,681 70,860
Cost of Goods Sold .................... 27,397 39,679
-------------- --------------
Gross Profit .......................... 6,284 31,181
General and Administrative ............ 6,885 8,225
Research and Development .............. 119 98
Selling and Marketing ................. 6,002 7,279
-------------- --------------
Operating (Loss) Income ............... (6,722) 15,579
Other (Expense) Income - net ......... (148) 79
Interest Income ....................... 631 1,117
-------------- --------------
(Loss) Income Before Tax .............. (6,239) 16,775
Taxation .............................. (5) 1,387
-------------- --------------
NET (LOSS) INCOME ..................... $ (6,234) $ 15,388
============== ==============
(LOSS) EARNINGS PER SHARE
- Basic ......................... $ (0.48) $ 1.12
- Diluted ....................... $ (0.48) $ 1.10
Weighted Average Number of Shares
- Basic ......................... 12,997 13,733
- Diluted ....................... 12,997 14,022
Consolidated Balance Sheets
(in thousands of United States Dollars)
December 31, 2001 March 31, 2001
----------------- --------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ............................. $ 28,145 $ 33,901
Accounts receivable - net of allowance for doubtful
accounts of $277 at December 31, 2001 and $344 at
March 31, 2001 ...................................... 7,978 9,348
Inventories - net (Note 2) ............................ 14,263 16,327
Other receivables, deposits and prepayments ........... 1,222 1,214
Income tax receivable ................................. 154 147
Amounts due from related companies .................... - 589
--------------- --------------
Total Current Assets 51,762 61,526
--------------- --------------
Deposits for Acquisition of Plant and Equipment ............ 29 115
Property, Plant and Equipment - net ........................ 53,258 56,700
--------------- --------------
TOTAL ...................................................... $ 105,049 $ 118,341
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
- Trade .............................................. $ 2,206 $ 2,744
- Property, plant and equipment ...................... 699 1,072
Accrued payroll and employee benefits ................. 1,241 829
Accrued other expenses ................................ 1,121 1,366
Income tax payable .................................. 4,795 5,088
--------------- --------------
Total Current Liabilities ......................... 10,062 11,099
Deferred Income Tax ...................................... 2,541 2,370
--------------- --------------
Total Liabilities ..................................... 12,603 13,469
--------------- --------------
Commitments and Contingencies (Note 8)
Stockholders' Equity:
Share capital ......................................... 127 136
Additional paid-in capital ............................ 27,918 34,224
Retained earnings ..................................... 65,470 71,704
Accumulated other comprehensive loss .................. (1,069) (1,192)
--------------- --------------
Total stockholders' equity ........................ 92,446 104,872
--------------- --------------
TOTAL ...................................................... $ 105,049 $ 118,341
=============== ==============
Consolidated Statements of Cash Flows
(in thousands of United States Dollars)
Nine Months Ended
December 31,
-----------------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Operating activities:
Net (loss) income: ........................................... $ (6,234) $ 15,388
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization ........................... 4,599 4,229
Deferred income tax ..................................... 171 366
Loss (Gain) on disposal/write-off of property,
plant and equipment ................................... 73 (20)
Allowance for doubtful accounts ......................... (16) 34
Changes in operating assets and liabilities:
Accounts receivable...................................... 1,386 (1,226)
Inventories.............................................. 2,064 2,803
Other receivables, deposits and prepayments.............. (8) (373)
Income tax receivable.................................... (7) (138)
Accounts payable-trade................................... (538) 320
Accrued payroll and other expenses ...................... 167 706
Amounts due from/to related companies.................... 589 (599)
Income tax payable....................................... (293) 986
------------ ------------
Net cash provided by operating activities............ 1,953 22,476
------------ ------------
Investing activities:
Proceeds on sale of property, plant and equipment........ - 118
Acquisition of property, plant and equipment............. (1,614) (8,705)
Decrease (Increase) in deposits for acquisition of
property, plant and equipment.......................... 86 (276)
------------ ------------
Net cash used in investing activities................ (1,528) (8,863)
------------ ------------
Financing activities:
Payment for TrENDS....................................... (3,080) -
Payment for share buyback................................ (3,526) (1,186)
Proceeds from issue of common stock...................... 291 182
------------ ------------
Net cash used in financing activities................ (6,315) (1,004)
------------ ------------
Net (decrease) increase in cash and cash equivalents.......... (5,890) 12,609
Cash and cash equivalents at beginning of period.............. 33,901 18,667
Effects of exchange rate changes on cash...................... 134 69
------------ ------------
Cash and cash equivalents at end of period.................... $ 28,145 $ 31,345
============ ============
Supplemental cash flow information:
Cash paid during the period
Interest............................................. $ - $ -
Income tax........................................... 136 173
============ ============
Notes to Consolidated Financial Statements
(in thousands of United States Dollars, except share data)
(1) Organization and basis of presentation
Peak International Limited (the "Company") was incorporated as an exempted
company with limited liability in Bermuda under the Companies Act 1981 of
Bermuda (as amended) on January 3, 1997. The subsidiaries of the Company are
principally engaged in the manufacture and sale of precision engineered
packaging products, such as matrix trays, shipping tubes, reels and carrier
tape, leadframe boxes and interleaves used in the storage and transportation of
semiconductor devices and other electronic components. The Company's principal
production facilities are located in the People's Republic of China (the "PRC")
and the Company maintains sales offices in Hong Kong, the United States of
America, Singapore, Malaysia, the PRC, Taiwan and the Philippines.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its subsidiaries. All significant
intra-group balances and transactions have been eliminated on consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect reported amounts of certain assets, liabilities, revenues and
expenses as of and for the reporting periods. Actual results could differ from
those estimates. Differences from those estimates are reported in the period
they become known.
The unaudited consolidated financial statements reflect all adjustments
(including normal recurring adjustments) which in the opinion of management are
required for a fair presentation of the Company's interim results. The results
for interim periods are not necessarily indicative of the results that may be
achieved in the entire year.
(2) Inventories
December 31, 2001 March 31, 2001
----------------- --------------
(Unaudited)
Raw materials ................... $ 8,791 $ 8,589
Finished goods .................. 5,472 7,738
----------------- --------------
$ 14,263 $ 16,327
================= ==============
(3) Statement of Comprehensive Income
Three Months Ended
December 31,
----------------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Net (Loss) Income ............................... $ (230) $ 5,372
Foreign currency translation adjustment ......... 37 71
------------ ------------
Comprehensive (Loss) Income ..................... $ (193) $ 5,443
============ ============
Nine Months Ended
December 31,
----------------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Net (Loss) Income ................................. $ (6,234) $ 15,388
Foreign currency translation adjustment ........... 134 69
------------ ------------
Comprehensive (Loss) Income ....................... $ (6,100) $ 15,457
============ ============
(4) Stock Options
Option activity relating to the Company's stock option plan is summarized
as follows (unaudited):
Outstanding Options
-----------------------------
Weighted
Number of average exercise
Shares price per share
--------- ----------------
Outstanding at April 1, 2001 ..................... 2,498,593 $ 7.67
Exercised ........................................ (2,083) 5.38
Forfeited ........................................ (73,149) 8.09
---------
Outstanding at June 30, 2001 ..................... 2,423,361 7.66
Granted .......................................... 380,868 6.21
Exercised ........................................ (2,906) 4.15
Forfeited ........................................ (38,610) 7.95
---------
Outstanding at September 30, 2001 ................ 2,762,713 7.46
Granted .......................................... 49,000 5.79
Forfeited ........................................ (85,814) 10.16
---------
Outstanding at December 31, 2001 ................ 2,725,899 7.34
=========
(5) (Loss) Earnings Per Share
The following is a reconciliation of the numerator and the denominators of
the basic and diluted (loss) earnings per share:
Three Months Ended
December 31,
----------------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Net (Loss) Income (numerator) .................... $ (230) $ 5,372
------------ ------------
Shares - Weighted average (denominator)
Basic ............................................ 12,740 13,691
Options .......................................... - 238
------------ ------------
Diluted .......................................... 12,740 13,929
------------ ------------
Nine Months Ended
December 31,
----------------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Net (Loss) Income (numerator) ..................... $ (6,234) $ 15,733
------------ ------------
Shares - Weighted average (denominator)
Basic ............................................. 12,997 13,733
Options ........................................... - 289
------------ ------------
Diluted ........................................... 12,997 14,022
------------ ------------
(6) Employee Stock Purchase and Option Plans
During the quarter ended December 31, 2001, the Company issued 34,000
shares to outside directors under the 1997 Stock Option Plan at $5.91 and
15,000 shares to employees under the 1998 Stock Option Plan at $5.51. The
Company issued 10,226 shares to employees for purchases made in the third
calendar quarter, and authorized the issuance of 7,332 shares to employees
for purchases made in the fourth calendar quarter, under the 1998 Employee
Stock Purchase Plan.
(7) Share Repurchase
The Board of Directors of the Company has authorized the repurchase by the
Company of up to $10,000,000 of its common stock at prices not to exceed
150% of the Company's net asset value per share. In the quarters ended
December 31, 2001, September 30, 2001 and June 30, 2001, the Company
repurchased 131,600, 212,698 and 194,668 shares at an average price of
$6.56, $6.33 and $6.76 respectively. In addition, pursuant to authority
granted by the Board of Directors, the Company purchased 473,876 units of
Trust Enhanced Dividend Securities of Peak TrENDS Trust ("TrENDS") at an
average price of $6.50 per TrENDS through a tender offer. In May 2001, the
shares obtained as a result of the automatic conversion of TrENDS into
common shares were cancelled. The Company engaged SWS Securities and Tucker
Anthony Sutro Capital Markets for the repurchase activities in the December
31, 2001 Quarter and Tucker Anthony Sutro Capital Markets for the September
30, 2001 and June 30, 2001 quarters.
(8) Commitments and Contingencies
(a) Litigation
On June 29, 1999, Dorchester Investors commenced a purported securities
class action suit in the United States District Court for the Southern
District of New York on behalf of all TrENDS purchasers against the
Company, the Peak TrENDS Trust ("the Trust"), Mr. T.L. Li, Mr. Jerry Mo,
Luckygold 18A Limited ("Luckygold") and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"). On June 5, 2000, the court dismissed the
Company and Mr. Mo from the class action.
However, the Company has indemnity obligations to DLJ and the Trust (the
"primary indemnity") against loss in connection with the TrENDS offering.
The exposure of this indemnity may ultimately have material impact to the
financial statements of the Company. Mr. T.L. Li and Luckygold have
provided a separate indemnity to the Company from liabilities (the "counter
indemnity") related to the TrENDS offering, including the exposure in
relation to the indemnity obligations provided to DLJ and the Trust. The
counter indemnity may partially, or even fully, cover the primary indemnity
provided by the Company to certain defendants.
As of this date, the outcome of the class action and hence the effect of
the primary and counter indemnity, is still contingent. The Company
considers that it is not possible to reasonably estimate with any certainty
the potential damages, if any, arising from this litigation. The Company
has therefore not made any provision in the financial statements in this
respect.
The Company is also involved in an arbitration with Mr. Richard Brook, a
former Chief Executive Officer. The result of the arbitration was a
judgment in the amount of approximately $520,000 in favor of the Company
against Mr. Brook. However, Mr. Brook challenged the arbitration award in
Federal Court in Texas, which vacated the arbitrator's award on the grounds
that the arbitrator was not selected in accordance with the terms of the
contract between the parties. The Company has appealed the decision to the
Fifth Circuit Court of Appeals which has scheduled oral argument of the
case for February 6, 2002. At present, the outcome of this matter cannot be
predicted with reasonable particularity and no impact to the financial
statements has been reflected in this respect.
(b) Commitments
At December 31, 2001, the Company had no outstanding foreign currency
exchange contracts. At December 31, 2001, the Company had commitments for
capital expenditures of $2.2 million.
(9) Segmental Information
Hong Kong United Other
& the PRC States Asian countries Eliminations Consolidated
--------- -------- --------------- ------------ ------------
Quarter ended Dec 31, 2001(unaudited)
Net sales to third parties $ 6,791 $ 990 $ 4,408 $ - $ 12,189
Net sales to related companies - - - - -
Transfer between geographic areas 4,926 196 581 $ (5,703) -
-------- -------- -------- -------- --------
Total net sales $ 11,717 $ 1,186 $ 4,989 $ (5,703) $ 12,189
-------- -------- -------- -------- --------
Income (Loss) before tax $ 439 $ (424) $ (38) $ (122) $ (145)
======== ======== ======== ======== ========
Quarter ended Dec 31, 2000 (unaudited)
Net sales to third parties $ 14,244 $ 2,995 $ 4,578 $ - $ 21,817
Net sales to related companies 2,229 - - - 2,229
Transfer between geographic areas 6,664 - 370 $ (7,034) -
-------- -------- -------- -------- --------
Total net sales $ 23,137 $ 2,995 $ 4,948 $ (7,034) $ 24,046
-------- -------- -------- -------- --------
Income (Loss) before tax $ 5,953 $ (32) $ (51) $ (18) $ 5,852
======== ======== ======== ======== ========
Nine months ended Dec 31, 2001 (unaudited)
Net sales to third parties $ 18,955 $ 2,965 $ 10,641 $ - $ 32,561
Net sales to related companies 1,120 - - - 1,120
Transfer between geographic areas 12,472 203 1,429 $(14,104) -
-------- -------- -------- -------- --------
Total net sales $ 32,547 $ 3,168 $ 12,070 $(14,104) $ 33,681
-------- -------- -------- -------- --------
(Loss) Income before tax $ (3,115) $ (2,470) $ (948) $ 294 $ (6,239)
======== ======== ======== ======== ========
Nine months ended Dec 31, 2000 (unaudited)
Net sales to third parties $ 41,680 $ 9,087 $ 13,757 $ - $ 64,524
Net sales to related companies 6,336 - - - 6,336
Transfer between geographic areas 20,442 - 980 $(21,422) -
-------- -------- -------- -------- --------
Total net sales $ 68,458 $ 9,087 $ 14,737 $(21,422) $ 70,860
-------- -------- -------- -------- --------
Income (Loss) before tax $ 16,950 $ (238) $ 34 $ 29 $ 16,775
======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion and analysis of financial condition and
results of operations is based upon and should be read in conjunction
with the consolidated financial statements of the Company and notes
thereto included in this Report and the Registrant's Annual Report on
Form 10-K for the year ended March 31, 2001.
Forward-Looking Statements
Management's discussion and analysis of financial condition and results of
operations and other sections of this Report contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We intend for the
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. These statements include
statements regarding the Company's expected financial position, business and
financing plans, statements regarding possible shortages in PVC Resin and price
increases in PVC Resin, statements regarding our capital expenditures,
statements regarding the validity of lawsuits against the Company are
forward-looking statements. Such forward-looking statements are identified by
use of forward-looking words such as "anticipates," "believes," "plans,"
"estimates," "expects," and "intends" or words or phrases of similar expression.
These forward-looking statements are subject to various assumptions, risks and
uncertainties, including but not limited to, changes in political and economic
conditions in general, the economic conditions in the semiconductor packaging
industry, demand for the Company's products, acceptance of new products,
technology developments affecting the Company's products, the price and
availability of raw materials, fluctuations in currency markets, the outcome of
lawsuits against the Company and to those discussed in the Company's filings
with the Securities and Exchange Commission, including those risks discussed
under the heading "Business--Risks and Uncertainties" in Item 1 of the Company's
Annual Report on Form 10-K for the year ended March 31, 2001 filed with the
Securities and Exchange Commission on June 19, 2001. Accordingly, actual results
could differ materially from those contemplated by the forward-looking
statements. These forward-looking statements speak only as of the date hereof.
The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard hereto or
any change in events, conditions or circumstances on which any such statement is
based.
Results of Operations
Net Sales. Net sales decreased by 49.3% to $12.2 million in the third
quarter of fiscal 2002 from $24.0 million in the third quarter of
fiscal 2001. Net sales of trays decreased by 53.9% over the period
reflecting a 39.0% decrease in sales volume, and a 24.5% drop in
average realized sales price. Net sales of carrier tapes decreased by
53.1% over the period, driven by a 23.4% decrease in sales volume, and
a 38.7% drop in average realized sales price. Net sales for tubes
decreased by 66.9% over the period. Sales volume for tubes decreased by
58.9%, the average realized sales price of tubes decreased 19.5% over
the same period.
Net sales decreased by 52.5% to $33.7 million for the nine months ended
December 31, 2001 from $70.9 million for the nine months ended December
31, 2000. Net sales of trays decreased by 54.8% due to a decrease in
sales volume by 43.8% and a decrease in average realized sales price by
19.6%. Net sales of carrier tapes decreased by 61.7% reflecting a 47.5%
decrease in sales volume and a 27.0% drop in average realized sales
price. Net sales for tubes decreased by 61.1% with sales volume
decreased by 58.2% and the average realized sales price of tubes
decreased by 6.9%.
The decrease in revenue reflected the significant down-turn in the
business environment of the semiconductor industry.
Gross Profit. Gross profit decreased by 64.0% to $3.8 million in the
third quarter of fiscal 2002 from $10.6 million in the third quarter of
fiscal 2001. Our gross margin dropped to 31.2% in the third quarter of
fiscal 2002 from 44.0% in the third quarter of fiscal 2001.
Gross profit decreased by 79.9% to $6.3 million for the nine months
ended December 31, 2001 from $31.2 million for the nine months ended
December 31, 2000.
The drop in gross margin compared to last year was mainly the result of
the drop in business volume as well as the average realized sales price
of our products over the period.
Operating (Loss) Income. An operating loss of $222,000 was recorded in
the third quarter of fiscal 2002 compared to an operating profit of
$5.4 million in the third quarter of fiscal 2001. Our operating margin
dropped from 22.5% to -1.8%.
An operating loss of $6.7 million was recorded for the nine months
ended December 31, 2001 compared to an operating profit of $15.6
million for the nine months ended December 31, 2000. The operating
margin decreased to -20.0% from 22.0%.
General and Administrative. General and administrative expenses
decreased by 26.0% to $2.0 million in the third quarter of fiscal 2002
from $2.7 million in the third quarter of fiscal 2001 as a result of
cost savings due to downsizing.
General and administrative expenses decreased by 16.3% to $6.9 million
for the nine months ended December 31, 2001 comparing to $8.2 million
for the nine months ended December 31, 2000 as a result of cost savings
due to downsizing.
Selling and Marketing. Selling and marketing expenses decreased by
17.8% to $2.0 million in the third quarter of fiscal 2002 from $2.4
million in the third quarter of fiscal 2001, primarily because of
savings in commissions and freight charges as business volume dropped.
Selling and marketing expenses decreased by 17.5% to $6.0 million for
the nine months ended December 31, 2001 from $7.3 million for the nine
months ended December 31, 2001. This is primarily the result of savings
in commissions, freight charges as well as traveling expenses as sales
volume dropped.
Interest Income. Interest income decreased by 43.5% to $631,000 for the
nine months ended December 31, 2001 from $1.1 million for the nine
months ended December 31, 2000 due primarily to the reduction in bank
deposit balances and the reduction of interest rates.
Net (Loss) Income. Peak had a net loss of $230,000 for the third fiscal
quarter of 2002, compared to a net income of $5.4 million for the same
fiscal quarter of 2001, reflecting the effects of the foregoing
factors.
Net loss of $6.2 was recorded for the nine months ended December 31,
2001 comparing to net profit of $15.4 million for the nine months ended
December 31, 2000 because of the above reasons.
EPS. Fully Diluted EPS for the third quarter of fiscal 2002 was -2
cents, compared to 39 cents for the same period last year.
Fully Diluted EPS for the nine months ended December 31, 2001 was -48
cents, compared to 110 cents for the nine months ended December 31,
2000.
Liquidity and Capital Resources
Our net cash provided by operating activities was $606,000 for the
three months ended December 31, 2001, compared to $6.0 million for the
three months ended December 31, 2000. A total of $863,000 was used for
the repurchase of shares. We incurred capital expenditure of $485,000
for the acquisition of new equipment in
our current facility during the three months ended December 31, 2001,
compared to $3.9 million for the same period last year. As of December
31, 2001, we had commitments for capital expenditures of $2.2 million.
As of December 31,2001, we had no outstanding bank borrowings. The net
cash balance of the Company at December 31, 2001 was $28.1 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PVC Resin Price
PVC resin, the principal raw material used in the manufacture of
tubes, together with additives used in the manufacture of tubes
accounted for 7.4% of our total raw material costs for the three
months ended December 31, 2001. While we believe that a severe
shortage in the supply of PVC resin is unlikely to occur in the
foreseeable future because of the increased production capacity by
suppliers, there can be no assurance that such shortage will not
occur. Any price increases would result in higher costs, which could
have a material adverse effect on our results of operations and
financial condition. We currently maintain approximately two to three
months' stock of PVC resin and other raw materials used in our
production processes, and increase such stock when we believe prices
are favorable. We do not, and do not intend to, enter into future
contracts or use any financial instruments to hedge our exposure to
fluctuations in the price of PVC resin or other raw materials used in
our production processes.
Currency Exchange Rate Fluctuations
Our sales are primarily denominated in United States Dollars while our
costs of goods sold are generally incurred in US Dollars, Hong Kong
Dollars and Renminbi, and our operating expenses are generally
denominated in Renminbi, Hong Kong Dollars and US Dollars. In
addition, a substantial portion of our capital expenditures, primarily
for the purchase of equipment, has been and is expected to continue to
be denominated in US Dollars and Japanese Yen. Consequently, a portion
of our costs and operating margins may be affected by fluctuations in
exchange rates, primarily between the US Dollar and other currencies.
Our results of operations and financial condition could be adversely
affected by fluctuations in currency exchange rates or the imposition
of new or additional currency controls in the jurisdictions in which
we operate. Primarily in response to recent developments in the
Southeast Asian currency markets, from time to time, we engage in
derivatives trading activities, such as entering into forward
contracts, to hedge our currency exchange exposure. The Company does
not utilize market-risk sensitive instruments for speculative
purposes. At December 31, 2001, we had no outstanding foreign currency
exchange contracts.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On or about July 2, 1999, the Company received an Amended and Restated
Demand for Arbitration filed on behalf of the Company's former Chief
Executive Officer, Richard Brook. Mr. Brook sought payment of
US$32,400 per month or a lump sum payment of US$1,036,800 pursuant to
his employment agreement with the Company, which was terminated on or
about December 1, 1998. Mr. Brook also asserted various tort claims
for damages against the Company. The Company opposed Mr. Brook's claim
and asserted counterclaims against Mr. Brook for breach of contract,
libel and breach of fiduciary duty. Mr. Brook's claims against the
Company were tried before an arbitrator in June 2000. On August 4,
2000, a decision was rendered in the arbitration. The arbitrator
denied the bulk of Mr. Brook's breach of contract claim, finding that
the Company was justified in terminating him for cause. However, the
arbitrator found that Mr. Brook's termination for cause was not
effective until May 1999 and that Mr. Brook was entitled to certain
additional compensation of approximately $70,000. The arbitrator
denied all of Mr. Brook's tort claims. On the Company's breach of
contract counterclaim, the arbitrator found Mr. Brook liable for over
$400,000
in actual damages and $100,000 in exemplary damages. The award of
exemplary damages was based on a finding that Brook acted with malice
towards the Company. The arbitrator denied the Company's defamation
claim and did not specifically address the Company's breach of
fiduciary duty claim, which had previously been bifurcated. The
arbitrator then awarded certain attorney's fees to each party. The net
result of the arbitration was a judgment in the amount of
approximately $520,000 in favor of the Company and against Mr. Brook.
Mr. Brook challenged the arbitration award in United States District
Court in Austin, Texas, which vacated the arbitrator's award on the
grounds that the arbitrator was not selected in accordance with the
terms of the contract between the parties. The Company has appealed
the District Court's action to the United States Court of Appeals for
the Fifth Circuit, which has scheduled oral argument for February 6,
2002. At present, we cannot predict the outcome of this matter with
reasonable particularity.
On June 29, 1999, plaintiff Dorchester Investors commenced a purported
securities class action suit in the United States District Court for
the Southern District of New York on behalf of all TrENDS purchasers
against the Company, the Peak TrENDS Trust ("the Trust"), Mr. T.L. Li,
Mr. Jerry Mo, Luckygold 18A Limited ("Luckygold") and Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"). On January 27, 2000,
the plaintiff filed an amended complaint. On March 20, 2000, all
defendants moved to dismiss the amended complaint. While those motions
were pending, plaintiff and defendants stipulated to the dismissal
with prejudice from the action of the Company and Mr. Mo. Pursuant to
the stipulation, the court dismissed the Company and Mr. Mo from the
action with prejudice on June 5, 2000. On March 28, 2001, the court
ruled on the motion to dismiss. The court dismissed a significant
number of the claims. The principal remaining claims relate to the
alleged failure of the TrENDS prospectus to disclose that significant
short selling of the Company's common stock was certain to occur at
the time of the TrENDS offering.
Plaintiff filed an amended complaint on April 13, 2001. This case is
still in its preliminary stages. Accordingly, we cannot predict the
outcome of this matter with reasonable particularity.
Additionally, the Company, Mr. Li and Luckygold entered into certain
indemnification agreements with the Trust and DLJ in connection with
the TrENDS offering. Certain of these indemnification agreements may
require that under certain circumstances the Company, Luckygold and/or
Mr. Li indemnify the Trust and/or DLJ from certain liabilities that
the Trust and/or DLJ may incur to plaintiff or to the purported
plaintiff class. Mr. T.L. Li and Luckygold have, in turn, provided a
deed of indemnity to the Company pursuant to which Mr. Li and
Luckygold have agreed to indemnify the Company from liabilities
related to the TrENDS offering.
R.H. Murphy Co., Inc. ("Murphy") is the owner of U.S. Reexamined
Patent 5,400,904 C1 and certain related foreign patents, which patents
are directed to specific features in trays used to carry integrated
circuits. Murphy has notified Peak and certain of Peak's customers
that it believes these patents are infringed by certain integrated
circuit trays that Peak provides to its customers, and indicated that
licenses to these patents are available. Peak does not believe that
any valid claim of these patents is infringed, and is proceeding
consistent with that belief.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on October 10, 2001, the
following proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until their
successors are elected and qualified.
Name of Director Number of Shares
---------------- ----------------
For Withheld
Calvin Reed 6,755,101 18,704
Jack Menache 6,755,101 18,704
The following directors continued their term of office as directors
after the Annual Meeting: Douglas Broyles, Christine Russell, and
William Snyder.
2. To authorize the Board of Directors to fix the remuneration
for the directors with respect to their services to the Company as
directors.
For 6,580,799
Against 165,505
Abstain 27,500
Broker Non-Votes 0
3. To receive the financial statements and the reports of the
directors and the independent auditors of the Company for the financial
year ended March 31, 2001.
For 6,758,201
Against 13,703
Abstain 1,900
Broker Non-Votes 0
4. To approve the appointment of the firm of Arthur Andersen &
Co. as independent auditors for the Company for the financial year
ending March 31, 2002.
For 6,758,301
Against 14,703
Abstain 800
Broker Non-Votes 0
5. To authorize the Board of Directors to fix the remuneration
for the Company's independent auditors for Fiscal 2002.
For 5,824,951
Against 941,203
Abstain 7,650
Broker Non-Votes 0
6. To approve an increase in the number of Shares reserved for
issuance under the Company's 2000 Employee Stock Purchase Plan from
200,000 to 400,000.
For 6,676,039
Against 67,965
Abstain 29,800
Broker Non-Votes 0
Item 5. Other Information
The Board of Directors of the Company has authorized the repurchase by
the Company of up to $10,000,000 of its common stock at prices not to
exceed 150% of the Company's net asset value per share. In the quarters
ended December 31, 2001, September 30, 2001 and June 30, 2001, the
Company repurchased 131,600, 212,698 and 194,668 shares at an average
price of $6.56, $6.33 and $6.76 respectively. In addition, pursuant to
authority granted by the Board of Directors, the Company purchased
473,876 units of Trust Enhanced Dividend Securities of Peak TrENDS Trust
("TrENDS") at an average price of $6.50 per TrENDS through a tender
offer. In May 2001, the shares obtained as a result of the automatic
conversion of TrENDS into common shares were cancelled. The Company
engaged SWS Securities and Tucker Anthony Sutro Capital Markets for the
repurchase activities in the December 31, 2001 Quarter and Tucker
Anthony Sutro Capital Markets for the September 30, 2001 and June 30,
2001 quarters.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1(a) Memorandum of Association and By-Laws of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form F-1, Registration No. 333-6652,
filed on March 19, 1997 and declared effective by the Commission
on June 20, 1997 (the "Company's Initial Public Offering
Registration Statement on Form F-1"))
3.1(b) By-laws of the Registrant (incorporated by reference to Exhibit
3.1(b) of the Company's Annual Report on Form 10-K for the year
ended March 31, 2001)
4.1 Specimen of Share Certificate for the Shares of the Registrant
(incorporated by reference to Exhibit 4.1 to the Company's
Amendment No. 1 to the Company's Initial Public Offering
Registration Statement on Form F-1)
b. Reports on Form 8-K.
The Company filed a current report on Form 8-K on October 11, 2001,
under Item 4, regarding a change in the Company's independent auditors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEAK INTERNATIONAL LIMITED
Date: February 8, 2002 By /s/ Calvin Reed
--------------------------------
Calvin Reed
President and Chief Executive Officer
Date: February 8, 2002 By /s/ Jerry Mo
---------------------------------
Jerry Mo
Chief Financial Officer