SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
-------------------
FORM 20-F
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14542
ASIA PACIFIC WIRE & CABLE
CORPORATION LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA
(Jurisdiction of incorporation or organization)
19 BENOI ROAD, LEVEL 3A
SIGMA CABLE HIGH TECH COMPLEX
SINGAPORE 629909
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12 (b) of the Act.
Title for each class Name of each exchange on which registered
COMMON SHARE, PAR VALUE $0.01 PER SHARE NONE
(THE "COMMON STOCK")
Securities registered or to be registered pursuant to Section 12 (g) of
the Act.
None
------------------------------
(Title of Class)
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act.
Common Stock
------------------------------
(Title of Classes)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
13,830,769 shares of Common Stock
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 by check mark which financial statement item the registrant
has elected to follow. Item 17 Item 18 X
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CONTENTS
OTHER CONVENTIONS.................................................................................................1
Item 1: Identity of Directors; Senior Management and Advisers.................................................1
Item 2: Offer Statistics and Expected Timetable...............................................................1
Item 3: Key Information about Asia Pacific Wire & Cable.......................................................1
3.1 Selected Consolidated Financial Data..................................................................1
3.2 Exchange Rates........................................................................................3
3.3 Risk Factors..........................................................................................6
3.4 Forward-looking Statements...........................................................................12
Item 4: Information on the Company...........................................................................12
4.1 History and Development of the Company; Recent Developments..........................................12
4.2 Business Overview....................................................................................15
4.3 Organizational Structure.............................................................................29
4.4 Property, Plant and Equipment........................................................................33
Item 5: Operating and Financial Review and Prospects.........................................................34
5.1 Disclosures of Critical Accounting Policies..........................................................34
5.2 Summarized Income Statement..........................................................................37
5.3 Operating Results....................................................................................39
5.4 Liquidity and Capital Resources......................................................................48
5.5 Inflation............................................................................................50
Item 6: Directors, Senior Management and Employees...........................................................50
6.1 Directors and Senior Management......................................................................50
6.2 Audit Committee......................................................................................51
6.3 Remuneration Committee...............................................................................52
6.4 Compensation.........................................................................................52
6.5 Employees............................................................................................52
Item 7: Major Shareholders and Related Party Transactions....................................................53
7.1 Major Shareholders...................................................................................53
7.2 Related Party Transactions...........................................................................53
Item 8: Financial Information................................................................................54
8.1 Legal Proceedings....................................................................................54
8.2 Dividend Policy......................................................................................54
Item 9: The Offer and Listing................................................................................54
9.1 Historical Trading Information.......................................................................54
9.2 Nature of the Trading Market.........................................................................56
Item 10: Other Information.................................................................................57
10.1 Memorandum of Association and Bye-laws...............................................................57
10.2 Material Contracts...................................................................................66
10.3 Environmental Matters................................................................................68
10.4 Insurance............................................................................................68
10.5 Credit Support.......................................................................................68
10.6 Taxation.............................................................................................68
10.7 Documents on Display.................................................................................73
Item 11: Quantitative and Qualitative Disclosures About Market Risk........................................73
i
11.1 Foreign Currency Exposure............................................................................73
11.2 Interest Rate Risk...................................................................................74
11.3 Risks Relating to Copper.............................................................................75
Item 12: Description of Securities Other Than Equity Securities............................................75
Item 13: Defaults, Dividend Arrearages and Delinquencies...................................................75
Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds......................75
Item 15: Disclosure Controls and Procedures................................................................75
Item 16: [Reserved]........................................................................................76
Item 17: Financial Statements..............................................................................76
Item 18: Financial Statements..............................................................................76
Item 19: Exhibits..........................................................................................76
19.1 Index to Asia Pacific Wire & Cable Corporation Limited Audited Financial Statements .................76
19.2 Index to Exhibits....................................................................................76
SIGNATURE PAGE
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AUDITED FINANCIAL
STATEMENTS
EXHIBIT 10 - CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT
ii
OTHER CONVENTIONS
Unless otherwise specified, all references in this Annual Report to
"Thailand" are to the Kingdom of Thailand, all references to "Singapore" are to
The Republic of Singapore, all references to "Taiwan" are to Taiwan, The
Republic of China, all references to "China" and to the "PRC" are to The
People's Republic of China, all references to "Australia" are to the
Commonwealth of Australia and all references to the "US" are to the United
States of America.
Most measurements in this Annual Report are given according to the
metric system. Standard abbreviations of metric units (e.g., "mm" for
millimeter) have been employed without definitions. All references in this
Annual Report to "tons" are to metric tons, which are equivalent in weight to
2,204.6 pounds.
With respect to measurements relating to the manufacture of wire and
cable products, references to "pkm" are to kilometers of twisted pairs of copper
wire.
PART I
ITEM 1: IDENTITY OF DIRECTORS; SENIOR MANAGEMENT AND ADVISERS
(Not applicable)
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
(Not applicable)
ITEM 3: KEY INFORMATION ABOUT ASIA PACIFIC WIRE & CABLE
3.1 SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of Asia Pacific Wire & Cable Corporation
Limited (the "Company") for the years ended December 31, 1998, 1999, 2000, 2001
and 2002 prepared in accordance with U.S. GAAP.
The selected data set forth below should be read in conjunction with,
and is qualified in its entirety by, the Consolidated Financial Statements of
the Company included in Item 5: Operating and Financial Review and Prospects,
Item 18: Financial Statements, and the notes thereto.
(See chart on following page)
1
Year ended December 31,
-------------- ------------- ------------ ------------- -------------
1998 1999 2000 2001 2002
(Restated) (Restated) (Restated) (Restated)
-------------- ------------- ------------ ------------- -------------
(in thousands, except per share amounts)
Income Statement Data:
Net sales.......................... $116,373 $143,144 $192,194 $197,311 $241,179
Cost of sales...................... (103,268) (125,365) (174,983) (177,352) (206,435)
-------------- ------------ ------------- ------------- -------------
Gross profit....................... 13,105 17,779 17,211 19,959 34,744
Operating expenses................. (11,029) (17,617) (13,347) (15,616) (19,282)
Goodwill written off............... -- (2,142) -- (506) --
Impairment loss.................... -- -- (1,404) -- (1,559)
-------------- ------------ ------------- ------------- -------------
Operating profit/(loss)............ 2,076 (1,980) 2,460 3,837 13,903
Exchange gain/(loss)............... 6,015 (554) (6,226) (81) (16)
Net interest income/(expense)...... (424) (2,306) (3,686) (3,173) (1,499)
Share of net income/(loss) of
equity investees .................. 174 (387) (2,844) (2,535) (4,090)
Gain on share issuance by
subsidiaries and affiliates........ -- -- -- -- 1,011
Gain/(loss) on sale of investment.. -- -- 2,716 743 (557)
Gain on disposal of property....... -- -- 6,634 -- --
Other income....................... 1,052 297 1,299 1,619 2,502
-------------- ------------ ------------- ------------- -------------
Income/(loss) before income taxes
and minority interests............. 8,893 (4,930) 353 410 11,254
Income taxes....................... (4,193) (1,163) (7,584) 1,411 (4,683)
Minority interests................. (1,305) 1,268 3,791 (1,730) (1,780)
-------------- ------------ ------------- ------------- -------------
Net income/(loss).................. $ 3,395 $ (4,825) $(3,440) $ 91 $ 4,791
-------------- ------------ ------------- ------------- -------------
Earnings/(loss) per share1......... $ 0.25 $ (0.35) $ (0.25) $ 0.01 $ 0.35
1998 1999 2000 2001 2002
-------------- ------------- ------------ ------------- -------------
Balance Sheet Data:
Cash and cash equivalents.......... $22,595 $21,206 $24,634 $14,241 $14,431
Working capital.................... 34,095 36,999 30,988 36,900 46,446
Total assets....................... 228,006 214,118 209,951 193,426 208,193
Total debt......................... 52,323 53,541 84,475 54,559 49,681
Total shareholders' equity......... 102,335 96,658 84,674 80,718 92,047
On March 22, 2002, the Company purchased 100% of PEWC's interest in
Crown Century Holdings Ltd. ("CCH") and its wholly-owned subsidiary, Pacific
Electric Wire & Cable (Shenzhen) Co., Ltd. ("PEWS") resulting in CCH and PEWS
becoming wholly-owned subsidiaries of the Company upon completion of the
transaction. The acquisition was funded by the issuance of 3,097,436 common
shares. Since the entities were under common control, the merger has been
accounted for at historical cost in a manner similar to pooling-of-interests and
- -------------
(1) The calculation of the earnings/(loss) per share is based on 13,830,769
shares of Common Stock for the years ended December 31, 1998, 1999, 2000,
2001 and 2002, which gives effect to the issuance of 3,097,436 common
shares in connection with the acquisition of Crown Century Holdings Limited
and its wholly owned subsidiary.
2
accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of both
entities.
The results of operations previously reported by the separate entities
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
(In thousands of US$) Years ended December 31,
2000 2001
Net sales:
Asia Pacific Wire & Cable Corporation
Limited and subsidiaries $165,397 $170,689
CCH and PEWS 26,797 26,622
-------- --------
192,194 197,311
======== ========
Net income(loss):
Asia Pacific Wire & Cable Corporation
Limited and subsidiaries $(5,143) $(1,283)
CCH and PEWS 1,703 1,374
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(3,440) 91
======= =======
3.2 EXCHANGE RATES
Unless otherwise specified, references in this Annual Report to "$",
"U.S. dollars" or "US$" are to United States dollars; all references to "Bt",
"Thai Baht" or "Baht" are to Baht, the legal tender currency of Thailand; all
references to "S$" are to Singapore dollars, the legal tender currency of
Singapore; all references to "A$" are to Australian dollars, the legal tender
currency of Australia; and all references to "Rmb" are to Chinese Renminbi Yuan,
the legal tender currency of China.
Unless otherwise noted, translation of amounts from Baht, Singapore
dollars, Australian dollars and from Chinese Renminbi Yuan to U.S. dollars for
the convenience of the reader have been made at the respective noon buying rates
in New York City for cable transfers in those currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate") on December 31, 2002. The respective Noon Buying Rates on December 31,
2002 were US$1.00 = Bt 43.2; S$ 1.74; A$ 1.78; and Rmb 8.28. The respective Noon
Buying Rates on May 28, 2003, the latest practicable date before publication of
this annual report, were US$1.00 = Bt 41.69; S$ 1.72; A$ 1.64 and Rmb 8.28. No
representation is made that the foreign currency amounts could have been or
could be converted into U.S. dollars on these dates at these rates or at any
other rates.
3
Thailand
On July 2, 1997, the Bank of Thailand announced it had switched from a
system which had pegged the Baht to a basket of foreign currencies dominated by
the U.S. dollar (the composition of which is not made public) to "a managed
float which would allow the Baht's value to be determined by market forces to
reflect economic fundamentals". This change in monetary policy allowed the Baht
to decline in value relative to the U.S. dollar. The fall in the value of the
Baht was exacerbated by subsequent financial crises in the region, particularly
in Indonesia and South Korea. The Baht stabilized in 1999, buoyed by return of
investors' confidence and some capital inflows. However, from mid-2000, the Thai
economy began to decelerate as a result of weak domestic demand, coupled with a
major fiscal expansion program espoused by the newly elected government, which
contributed to a weakening of the Thai Baht. Since then, the Baht has remained
relatively stable. At the rate of US$1.00 = Bt 41.69 as of May 28, 2003, the
Baht has depreciated by approximately 42.13% since its flotation.
The following tables set forth, for the periods indicated, certain
information concerning the Noon Buying Rate. No representation is made that the
Baht or US dollar amounts referred to herein could have been or could be
converted into U.S. dollars or Baht, as the case may be, at any particular rate
or at all.
(See chart on following page.)
4
YEAR ENDED DECEMBER 31, AT PERIOD END AVERAGE(1) LOW HIGH
- ---------------------------------------- -------------- ------------------ --------------- -------------
(BT PER $1.00)
1997............................... 46.800 32.063 47.400 22.750
1998............................... 36.500 40.764 56.100 35.780
1999............................... 37.450 37.048 38.650 36.180
2000 .............................. 43.478 40.000 44.380 36.970
2001 .............................. 44.240 44.517 45.820 42.300
2002.............................. 43.200 43.020 44.20 41.07
(1) Average means the average of the Noon Buying Rates on the last day of each
month during a year.
The high and low exchange rates for the six months preceding the date of this
report were:
MONTH HIGH LOW
- ---------------------------------------- -------------- ------------------
December 2002 42.92 43.80
January 2003 42.60 43.17
February 2003 42.70 43.18
March 2003 42.45 43.03
April 2003 42.72 43.18
May 2003(1) 41.89 42.82
(1) May 1 - May 28, 2003
- -----------
Sources: Federal Reserve Bulletin, 1997-2003, Board of Governors of the Federal
Reserve System. Federal Reserve Statistical Release H.10(512) 1997-2003, from
the website of the Board of Governors of the Federal Reserve System at
http://www.federalreserve.gov.
Singapore
The Singapore dollar is convertible into foreign currencies and floats
against a trade-weighted basket of foreign currencies, the composition of which
is not made public by Singapore's central bank, the Monetary Authority of
Singapore, but of which the US dollar is a component. The following tables set
forth, for the periods indicated, certain information concerning the Noon Buying
Rate of the Singapore dollar. No representation is made that the Singapore
dollar or US dollar amounts referred to herein could have been or could be
converted into US dollars or Singapore dollars, as the case may be, at any
particular rate or at all.
(See chart on following page.)
5
YEAR ENDED DECEMBER 31, AT PERIOD END AVERAGE(1) LOW HIGH
- ---------------------------------------- -------------- ------------------ --------------- -------------
(S$ PER $1.00)
1997............................... 1.686 1.497 1.706 1.399
1998............................... 1.651 1.668 1.796 1.581
1999............................... 1.732 1.699 1.737 1.658
2000 .............................. 1.733 1.730 1.760 1.654
2001 .............................. 1.847 1.797 1.854 1.732
2002............................... 1.735 1.791 1,852 1.731
(1) Average means the average of the Noon Buying Rates on the last day of each
month during a year.
The high and low exchange rates for the six months preceding the date of this
report were:
MONTH HIGH LOW
- ---------------------------------------- -------------- ------------------
December 2002 1.735 1.772
January 2003 1.730 1.744
February 2003 1.732 1.758
March 2003 1.732 1.772
April 2003 1.767 1.783
May 2003(1) 1.717 1.772
(1) May 1 - May 28, 2003
- -----------
Sources: Federal Reserve Bulletin, 1997-2003, Board of Governors of the Federal
Reserve System. Federal Reserve Statistical Release H.10(512) 1997-2003, from
the website of the Board of Governors of the Federal Reserve System at
http://www.federalreserve.gov.
3.3 RISK FACTORS
3.3.1 CONTROL BY PEWC; BANKRUPTCY OF PUSA; CONTRACTUAL ARRANGEMENTS
WITH PEWC
As of December 31, 2002, Pacific Electric Wire and Cable Co.,
Ltd ("PEWC") indirectly held approximately 75.4% of the outstanding shares of
Common Stock. Of these shares, Pacific USA Holdings, Inc. ("PUSA"), a subsidiary
of PEWC, holds 53.0% of the outstanding shares of Common Stock. On December 2,
2002, PUSA filed a voluntary petition for bankruptcy protection under Chapter 11
of the United States Bankruptcy Code. The future ownership of these shares may
be affected by these bankruptcy proceedings and an Amended and Restated Pledge
Agreement dated as of February 20, 2002 among Swiss Re Financial Products
Corporation ("Swiss Re"), PUSA, certain affiliates of PUSA and PEWC (the "Pledge
6
Agreement") pursuant to which these shares (the "Pledged Shares") are pledged to
Swiss Re. See also Section 4.1.2 "Recent Developments".
We are unable to predict the outcome of these bankruptcy
proceedings, including whether Swiss Re might foreclose on the Pledged Shares if
Swiss Re's security interest in the Pledged Shares is not released. If Swiss Re
were to foreclose on these shares, it could hold the Pledged Shares or dispose
of them in a public or private sale as provided for in the Pledge Agreement. If
it chooses to hold the Pledged Shares, it would become the controlling
shareholder of the Company. Consequently, it would be able to elect the majority
of the members of our Board of Directors and have the power to determine the
outcome of other actions requiring the approval of our shareholders. In
addition, any sale of these shares (by Swiss Re following a foreclosure on the
Pledged Shares or otherwise) could affect, among other things, the trading price
of the Company's shares and the number of the Company's shares that are publicly
held (that is, held by non-affiliates of the Company).
While these matters are being resolved, subject to the
requirements imposed by the bankruptcy court and the terms of the Pledge
Agreement, PEWC is able to elect the majority of the members of our Board of
Directors and has the power to determine the outcome of other actions requiring
the approval of our shareholders.
We engage in transactions in the ordinary course of business
with PEWC, including the purchase of certain raw materials and the distribution
of PEWC products in various countries in the Asia Pacific region. We and PEWC
have entered into a composite services agreement dated November 7, 1996, as
amended and supplemented (the "Composite Services Agreement"), which contains
provisions that define our relationship and the conduct of our respective
businesses and confers certain preferential benefits on us. This agreement is
renewable at our option and currently in force. However, we are unable to
predict whether PEWC would, at some future date, seek to limit the business it
conducts with the Company pursuant to the terms of the Composite Services
Agreement either because Swiss Re had foreclosed on the Pledged Shares or for
some other reason.
3.3.2 COMPETITION
The wire and cable industry in the Asia Pacific region is
highly competitive. Our competitors include a large number of independent
domestic and foreign suppliers. Certain competitors in each of our markets have
substantially greater manufacturing, sales, research and financial resources
than we do. We and other wire and cable producers increasingly compete on the
basis of product quality and performance, reliability of supply, customer
service and price. To the extent that one or more of our competitors is more
successful with respect to the primary competitive factors, our business could
be adversely affected. See Section 4.2.6 "Competition" for additional
information with reference to the competitive environment we face in specific
countries.
3.3.3 RISKS RELATING TO COPPER
Copper is the principal raw material we use, accounting for a
majority of the cost of sales. We purchase copper at prices based on the average
prevailing international spot market
7
prices on the London Metal Exchange (the "LME") for copper for the one month
prior to purchase. The price of copper is influenced heavily by global supply
and demand as well as speculative trading. As with other costs of production, an
increase in the price of copper will increase our cost of sales. Whether this
has a material impact on our operating margins and financial results depends
primarily on our ability to pass on these increased costs to our customers. The
selling price of our products is based in part on the cost of copper used to
manufacture those products. In addition, in the ordinary course of business we
maintain inventories of raw materials and finished products reasonably necessary
for the conduct of our business. These inventories typically reflect the cost of
copper prevailing in the market at the time of purchase. Most of our sales of
manufactured products reflect copper prices prevailing at the time the products
are ordered. Copper prices have been subject to considerable volatility in
recent years and this volatility has had a significant impact on our revenues
and profits. Accordingly, significant volatility in copper prices could have an
adverse effect on our operations. No assurance can be given that such volatility
will not continue to recur. (See Section 11.3 "Risks Relating to Copper" for
additional information).
3.3.4 EXPOSURE TO FOREIGN EXCHANGE RISKS
Changes in exchange rates influence our results of operations.
Our principal operations are located in Thailand and Singapore and a substantial
portion of our revenues are denominated in Baht or Singapore dollars. Nearly all
of the raw materials for these operations are imported and paid for in U.S.
dollars and a substantial portion of our future capital expenditures are
expected to be in U.S. dollars. We require a significant amount of U.S. dollars
for our ongoing equipment upgrade and maintenance programs. Any devaluation of
the Baht or the Singapore dollar against the U.S. dollar would increase the
effective cost of foreign manufacturing equipment and the amount of foreign
currency denominated expenses and liabilities and would have an adverse impact
on our operations. Forward foreign exchange contracts are used on a selective
basis to hedge foreign exchange risk, but they do not provide any assurance that
we will not incur substantial losses in the event of a devaluation of the Baht
or Singapore dollar against the U.S. dollar.
Although our reporting currency is U.S. dollars, the
functional currency of our Singapore operations, which accounted for 30.6% of
Company sales (including sales of Distributed Products) in 2002, is the
Singapore dollar, and the functional currency of our Thai operations, which
accounted for 44.5% of our sales in 2002, is the Baht. Accordingly, the
functional currency accounts of these operations are translated into U.S.
dollars utilizing, for the year, the balance sheet exchange rate for balance
sheet accounts, and an average exchange rate for the year for the income
statement accounts. Such translation of the functional currency accounts is
recognized as a separate component of shareholders' equity. Any devaluation of
the Baht or Singapore dollar against the U.S. dollar would adversely affect our
financial performance measured in U.S. dollars.
3.3.5 RISKS RELATING TO THAILAND
A substantial portion of our Thai operations, which accounted
for approximately 44.5% of our net sales in 2002, consists of the manufacture of
telecommunications and power cable and sales of those products for use in
large-scale telecommunications projects and various
8
construction projects in Thailand. As a result, our future performance will
depend in part on the political situation in Thailand and the general state of
the Thai economy. In July 1997, the floatation of the Thai Baht caused the
currency to fall in value against the U.S. Dollar and triggered declines in
other regional currencies, such as the Singapore Dollar and Australian Dollar.
The Thai Baht generally appreciated against the U.S. Dollar during the course of
1998 and largely stabilized in 1999. However, from mid-2000, the Thai economy
began to decelerate as a result of weak domestic demand, coupled with a major
fiscal expansion program espoused by the newly elected government, causing the
Thai Baht to weaken further. Such fluctuations in the value of the Thai Baht may
negatively impact our performance. The Baht has since stabilized at
approximately Baht 41 to Baht 44 to US$ 1 in 2002.
3.3.6 RISKS RELATING TO CHINA
The economy of China differs from that of most free-market
economies in such respects as structure, government involvement, level of
development, growth rate, capital reinvestment, allocation of resources, rate of
inflation and balance of payments position. The economy of China has been a
planned economy subject to one-, five- and ten-year plans adopted by central PRC
government authorities and implemented, to a large extent, by provincial and
local authorities, which set out production and development targets for state
enterprises. Although the majority of productive assets in China are still owned
by the PRC government, more recently the PRC government has implemented economic
reform measures which emphasize decentralization, utilization of market forces
and the development of foreign investment projects such as Ningbo Pacific Cable
Co., Ltd. ("NPCDC").
Until March 1998, when a government restructuring plan to
abolish fifteen ministries, including the PRC Ministry of Post and
Telecommunications (the "MPT"), was approved by the National People's Congress,
the MPT set telecommunications policies at the national level in China and
supervised the provincial post and telecommunications bureaus in each province
of China, which are (and are expected to remain) semi-autonomous and responsible
for developing operating networks within each province. The PRC government,
through the Ministry of Information Industry (the "MII") (which incorporates the
MPT), remains the primary provider of telecommunications service in China and,
along with the provincial post and telecommunications bureaus, is one of the few
consumers of telecommunications cable in China. Consequently, the business of
our companies in China may be more dependent on the political stability and
general economic condition of China than if there were more consumers of
telecommunications cable and if the government-related entities were not so
closely involved in the telecommunications industry. In addition, the MII is
expected to set the price at which telecommunications cable may be sold. By
virtue of the adoption of the government restructuring plan, the former
ministries of the MPT will become the ministries of the MII, and all of the
regulatory functions of the MPT are to be transferred to the MII.
Political or social instability in China may adversely affect
our business operations or financial condition. In addition, the recent outbreak
of Severe Acute Respiratory Syndrome (SARS), a pneumonia-like infection, in
China may negatively impact the country's economic growth outlook.
9
3.3.7 ALTERNATIVE TRANSMISSION TECHNOLOGIES
Our copper-based telecommunications business is subject to
competition from other transmission technologies, principally fiber optic and
wireless-based technologies. Fiber optic cable is presently being used in
telecommunications trunks and feeder cable businesses and minimally in the
access cable business in which we compete. In the Asia Pacific markets where we
compete, wireless telecommunications businesses have sometimes made substantial
inroads in early emerging markets where sufficient funding may not then be
available to install the infrastructure necessary for market-wide fixed line
telecommunications. In addition, the ease of use of wireless telecommunications
may make that medium an attractive alternative in circumstances where access to
fixed line telecommunications is limited. While these technologies do not
currently present significant competition in the markets in which we conduct or
plan to conduct business, no assurance can be given that the future development
and use of such alternative technologies will not adversely affect our results
of operations.
3.3.8 POTENTIAL CONFLICT OF CERTAIN OFFICERS AND DIRECTORS
Certain of our officers and directors, including the Chairman,
are also officers and directors of affiliates of PEWC and may be subject to
various conflicts of interest in connection with, for example, pursuing
corporate opportunities in which we and such affiliates of PEWC have competing
interests, and the performance by us and PEWC of respective obligations under
existing agreements, including the Composite Services Agreement and the
Indemnification Agreement (discussed below in Section 10.2). In addition, some
of these persons will devote time to the business and affairs of PEWC and its
affiliates as is appropriate under the circumstances, which could reduce the
amount of time available for overseeing or managing our business and affairs.
Notwithstanding any such potential conflicts, however, such individuals, in
their capacities as our directors and officers, are subject to fiduciary duties
to our shareholders.
The Bermuda Companies Act 1981, as amended (the "Companies
Act") subjects our officers and directors to certain fiduciary standards in the
exercise of their fiduciary duties on our behalf. Under the Companies Act, an
officer of ours (which term includes our directors) is subject to a duty of care
requiring him to act honestly and in good faith in the discharge of his duties
and to, among other things, give notice to the Board at the first opportunity of
any interest he has in any material contract or proposed material contract with
us or any of our subsidiaries. The Companies Act also prohibits us from making
loans to any directors without first obtaining the consent of shareholders
holding in the aggregate not less than nine-tenths of the total voting rights of
all the shareholders having the right to vote at any shareholders meeting. As of
July 30, 2002, we do not make any loans to our directors or executive officers
in accordance with The Sarbanes-Oxley Act of 2002.
3.3.9 POTENTIAL ILLIQUIDITY OF COMMON SHARES
Our common shares are quoted on the Over-the-Counter Bulletin
Board ("OTC BB") operated by the NASD, Inc. However, approximately 75.4% of our
common shares are indirectly held by PEWC and management and are not publicly
registered securities, and are, therefore, not freely tradable. In the recent
past, the volume of trading in our common shares has not been substantial. There
can be no assurances that a shareholder wishing to dispose of his or
10
her shares will be able to immediately sell his or her position, nor can there
be any assurances as to the price which could be obtained in any such sale.
Prior to December 24, 2001, the common shares were traded on
the New York Stock Exchange (the "NYSE"), which has established certain
continued listing criteria for companies whose shares are traded on it. The
criteria impose certain minimum requirements with respect to the per share price
and the aggregate value of the publicly traded securities of an issuer. In
February 2001, the NYSE notified us that we had not been in compliance with
those NYSE requirements, and that the NYSE would be authorized to suspend
trading in our common shares and to commence delisting procedures subject to
review and approval of our business plan. During the course of 2001, our
business plan was submitted, amended and finally provisionally agreed with the
NYSE, subject to the right of the staff to require continuous compliance within
a designated time frame, which the Company was not able to achieve, due to,
among other factors, delays in approvals by Thai regulatory authorities of the
implementation of certain Thai-based elements of the plan. On December 24, 2001,
the staff of the NYSE announced that it has determined that the trading of the
common shares should be suspended on December 28, 2001. The decision was reached
in view of the fact that the Company had fallen below the NYSE's continued
listing standards. The Company appealed the NYSE's decision, but its appeal was
denied by a Committee of the Board of Directors of the Exchange. The Company
subsequently re-established a public trading market for its common shares on the
OTC BB. It is traded under the symbol "AWRCF.OB".
3.3.10 HOLDING COMPANY STRUCTURE, POTENTIAL RESTRICTIONS ON THE
PAYMENT OF DIVIDENDS
We have no direct business operations other than our ownership
of the capital stock of our subsidiaries and joint venture holdings. While we
have no present intention to pay dividends, should we decide in the future to do
so, as a holding company our ability to pay dividends, as well as to meet our
other obligations, will depend upon the amount of distributions, if any,
received from our operating subsidiaries and other holdings and investments. Our
operating subsidiaries and other holdings and investments, from time to time,
may be subject to restrictions on their ability to make distributions to us,
including as a result of restrictive covenants contained in loan agreements,
restrictions on the conversion of local currency earnings into U.S. dollars or
other hard currency and other regulatory restrictions. The foregoing
restrictions may also affect our ability to fund operations of one subsidiary
with dividends and other payments received from another subsidiary.
3.3.11 CORPORATE MATTERS; ORGANIZATIONAL DOCUMENTS
We are organized pursuant to the laws of Bermuda. In addition,
certain of our directors and officers reside outside the United States and a
substantial portion of our assets are located outside the United States. As a
result, it may be difficult for investors to effect service of process within
the United States upon such persons or to realize against them in courts of the
United States upon judgments predicated upon civil liabilities under the United
States federal securities laws. We have been advised by our legal counsel in
Bermuda, Appleby Spurling & Kempe, that there is doubt as to the enforcement in
Bermuda, in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated upon U.S. federal
11
securities laws, although Bermuda Courts will enforce foreign judgments for
liquidated amounts in civil matters subject to certain conditions and
exceptions.
3.4 FORWARD-LOOKING STATEMENTS
This annual report, including any documents incorporated by reference,
contains statements that we believe constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
statements appear throughout this annual report and include statements regarding
the intent, belief or current expectations of the Company and its management,
including with respect to trends affecting the Company's financial condition or
results of operations and the Company's plans with respect to capital
expenditures and investments. These forward looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those described in these forward looking
statements as a result of various factors. See Section 3.3 "Risk Factors" for a
further discussion of some of the factors that could cause such material
differences.
ITEM 4: INFORMATION ON THE COMPANY
4.1 HISTORY AND DEVELOPMENT OF THE COMPANY; RECENT DEVELOPMENTS
4.1.1 HISTORY AND DEVELOPMENT OF THE COMPANY
The Company (Asia Pacific Wire & Cable Corporation Limited),
formed on September 19, 1996, is a Bermuda corporation which, through its
operating subsidiaries, is principally engaged in the manufacture and
distribution of telecommunications (copper and fiber optic) and power cable and
enameled wire products in the Asia Pacific region, primarily in Singapore,
Thailand, Australia and China. The Company manufactures and distributes its own
wire and cable products and also distributes copper rod and wire and cable
products ("Distributed Products") manufactured by its principal shareholder,
PEWC. From 1997, the Company has also offered project engineering services in
the supply, delivery and installation ("SDI") of power cables. PEWC, a publicly
owned Taiwanese corporation whose shares are listed on the Taiwan Securities
Exchange, currently owns approximately 75.4% of the Company's outstanding Common
Stock.
The Company is one of the five largest producers of
telecommunications and low voltage power cable and enameled wire in Thailand and
believes that it is the largest producer of low voltage power cable in
Singapore. In 2002, approximately 67.6% of the manufactured products sold by the
Company were sold by its subsidiaries in Singapore and Thailand, with the
remainder sold by its subsidiaries in China, Australia and Malaysia.
In Singapore, the Company also sells Distributed Products,
which largely consist of copper rod and medium and high voltage power cable.
Sales of Distributed Products accounted for 10.1% of the Company's revenues and
0.9% of its operating profits in 2002. As the Company continues to focus its
resources on manufacturing and distributing its own products, sales of
Distributed Products are expected to decline over time as a percentage of the
Company's business. The Company's SDI project engineering services accounted for
12.9% of the Company's revenue in 2002.
12
The Company sells its cable products primarily to government
agencies and large construction companies and subcontractors bidding for
government contracts. Telecommunications cable manufactured by the Company are
largely used as access lines to connect buildings and residences to feeder and
trunk cables. Power cable manufactured by the Company is used primarily in power
transmissions for public lighting, outdoor installations and in and to
commercial and residential buildings. Enameled wire is sold primarily to private
sector manufacturers of electric motors for use in various consumer appliances.
The Company maintains local sales personnel in each country where it has
manufacturing operations, and export sales are conducted through independent
suppliers as well as the Company's own sales personnel. The Company principally
competes on the basis of product quality and performance, reliability of supply,
timely delivery, customer service and price.
The Company continues to explore opportunities to establish
manufacturing and distribution operations in the Asia Pacific region,
principally in countries where demand exceeds local production capacity and
where there are high import tariffs for finished products and other substantial
barriers for market entry by foreign distributors. The Company seeks to form
similar joint ventures in new markets with well-established local partners to
provide credibility in each market and access to sales opportunities on an
accelerated basis.
The Company's business office is located at 19 Benoi Road,
Level 3A, Sigma Cable High Tech Complex, Singapore 629909, telephone number (65)
6663-2132, and its registered office is located at Cedar House, 41 Cedar Avenue,
Hamilton HM12, Bermuda, telephone number (441) 295-2244.
4.1.2 RECENT DEVELOPMENTS
Bankruptcy of PUSA
On December 2, 2002 (the "Filing Date"), our majority
shareholder and a subsidiary of PEWC, PUSA, filed a voluntary petition for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Northern District of Texas, Dallas
Division (the "Bankruptcy Court"), along with its affiliates PUSA Investment
Company, Montford Limited, Top Target Limited, Berger Systems Limited, Elan
Investments Limited, Austway Services Limited, and Pacific Realty Group, Inc.
(together with PUSA, the "Debtors"). At that time, PUSA had pledged the Pledged
Shares to Swiss Re under the Pledge Agreement. We have been informed that an
event of default occurred under the Pledge Agreement that entitled Swiss Re to
foreclose on the Pledged Shares.
On December 30, 2002, Swiss Re moved the Bankruptcy Court to
lift the automatic stay that entered in effect on the Filing Date and which had
prohibited Swiss Re from foreclosing on the Pledged Shares. After negotiations
among the Debtors, PEWC and Swiss Re, the Debtors agreed to consent to a lifting
of the automatic stay if Swiss Re entered an agreement to refrain from
foreclosing on the Pledged Shares (the "Stay Agreement"). On February 28, 2003,
the Bankruptcy Court entered an Order approving relief from the automatic stay
(the "Stay Order"), which lifted the automatic stay enjoining Swiss Re from
foreclosing on the Pledged Shares, leaving Swiss Re free to dispose of the
Pledged Shares, subject to the conditions of the Stay Agreement.
13
Under the terms of the Stay Agreement, Swiss Re agreed it
would not foreclose on the Pledged Shares before May 23, 2003, provided that,
among other things:
(i) by April 8, 2003, the Debtors obtained court approval of a
disclosure statement detailing a plan of reorganization that would include
paying Swiss Re $50 million to satisfy its claim;
(ii) by April 8, 2003, PEWC either placed cash in escrow or
obtained a letter of credit in the amount of $50 million to fund such a
reorganization plan, or presented a sale agreement to purchase Swiss Re's claim
against the Debtors for $50 million;
(iii) by May 23, 2003, the Debtors have either obtained
confirmation of the plan of reorganization by the court or PEWC has purchased
Swiss Re's claim; and
(iv) by June 6, 2003, Swiss Re has been paid $50 million in
satisfaction of its claim.
If any of the conditions or deadlines stated in the Stay
Agreement are not met, then Swiss Re would be free to foreclose on the Pledged
Shares.
Although the Bankruptcy Court has not yet approved a
disclosure statement in the PUSA bankruptcy case, the Debtors and Swiss Re
announced at a hearing on April 3, 2003 that they had reached an agreement by
which Swiss Re would receive $27.6 million in exchange for releasing its
security interest in 306,545,800 shares of capital stock of Tomson Group Ltd.,
which had also been pledged to Swiss Re under the Pledge Agreement. In exchange,
Swiss Re agreed that it would extend the deadlines set in the Stay Agreement for
approval of a disclosure statement until July 7, 2003 and for approval of a plan
of reorganization until August 31, 2003.
Based upon statements by the Debtors made to the Bankruptcy
Court at a hearing on April 10, 2003, we believe the sale of the Tomson Group
Ltd. stock has closed. Also at that hearing, Swiss Re, PEWC and the Debtors
reported they had agreed to a settlement of Swiss Re's remaining claim, which
would include a release of Swiss Re's security interest in the Pledged Shares.
The terms of that agreement have not been disclosed. As of May 28, 2003, to our
knowledge, Swiss Re has not foreclosed on the Pledged Shares.
We are unable to predict the outcome of these proceedings,
including whether Swiss Re might foreclose on the Pledged Shares if Swiss Re's
security interest in the Pledged Shares is not released. Any sale of the Pledged
Shares (by Swiss Re following a foreclosure on the Pledged Shares or otherwise)
could affect, among other things, the trading price of the Company's shares and
the number of the Company's shares that are publicly held (that is, held by
non-affiliates of the Company). See Section 3.1 "Risk Factors - Control by PEWC;
Bankruptcy of PUSA; Contractual Arrangements with PEWC".
Strategic Restructuring and Expansion Plan
On December 28, 2001, the Company announced its strategic
expansion and restructuring plan in relation to the acquisition of 100% of
PEWC's interest in CCH and its
14
wholly-owned subsidiary company, PEWS, resulting in CCH becoming a wholly-owned
subsidiary of the Company upon completion of the transaction.
Collectively, CCH and PEWS engage in manufacturing and sales
of electric wire and cable products; major customers include government
organizations, electric contracting firms, electric dealers, and wire and cable
factories. The acquisition was approved by the Board of Directors and
shareholders of the Company and PEWC on March 22, 2002 and has been funded by
the issuance of 3,097,436 common shares in May 2002. Since PEWC is the majority
shareholder of the Company and CCH prior to the transaction, the acquisition is
considered a combination of companies under common control and will be accounted
for at historical cost and given retroactive effect for financial reporting
purposes.
On February 22, 2002 the shareholders of Charoong Thai
approved the acquisition of 100% of the outstanding shares of Siam Pacific
Electric Wire & Cable Company ("Siam Pacific"), previously 66.2% owned by the
Company. The transaction was completed on July 2, 2002 when Charoong Thai issued
177,550,000 new shares at 5 Baht per share, representing 49.92% of its enlarged
base of 355,660,000 paid-up shares. The new shares were exchanged for Siam
Pacific's shares at a swap ratio of 1 Siam Pacific share for every 26.5 of
Charoong Thai's newly issued shares. Immediately after the completion of this
transaction, the shareholders of Charoong Thai comprised of the Company
(68.42%), Italian-Thai Development Company Public Limited ("Ital-Thai") (16.90%)
and Bangkok Insurance (5.31%). The rest of the shares are publicly traded on the
SET.
4.2 BUSINESS OVERVIEW
The Company's Thai operations are conducted through Charoong Thai, Siam
Pacific and Pacific-Thai Electric Wire & Cable Co. Ltd. ("Pacific Thai").
Charoong Thai is a publicly-traded Thai corporation, the shares of
which are listed on the Stock Exchange of Thailand. Immediately after the
acquisition of Siam Pacific by Charoong Thai, the shareholders of Charoong Thai
comprised of the Company (68.42%), Ital-Thai (16.90%) and Bangkok Insurance
(5.31%). The rest of the shares are publicly traded on the SET. See 4.1.3
"Recent Developments". After the sale of some of its Charoong Thai shares on the
open market, the Company held approximately 63.9% of Charoong Thai as at
December 31, 2002. Charoong Thai manufactures aluminum and copper electric wire,
medium and high voltage power cable and telecommunications cable. It has
subsidiaries and affiliates in the business of optic fiber cable manufacturing
and the provision of telecommunication and network services.
Siam Pacific is 100% owned by Charoong Thai. See 4.1.3 "Recent
Developments". Siam Pacific manufactures telecommunications cable, power cable
and enameled wire for the domestic Thai market.
Pacific Thai is a 100%-owned subsidiary of Siam Pacific. Pacific Thai
manufactures enameled wire for the export market.
15
The Company's Singapore operations are principally conducted through
its 98.2%-owned subsidiary, Sigma Cable Company (Private) Limited ("Sigma
Cable"). Sigma Cable manufactures low voltage power cable for sale and
distribution in Singapore and countries in the Asia Pacific region. Sigma Cable
also distributes in Singapore copper rod and a wide range of wire and cable
products produced by PEWC.
The Company has a 100% interest in Sigma-Epan International Pte. Ltd.
("Sigma-Epan"), a group of companies with operations in Singapore and Malaysia.
Sigma-Epan group has its headquarters in Singapore. Sigma-Epan manufactures
specialty cables and assembles cable harnesses for the electronics, computer,
building automation, audio and communication industries.
The Company holds a 98.48% effective interest in Australia Pacific
Electric Cables Pty Limited ("APEC"), a subsidiary of Sigma Cable, located near
Brisbane, Australia. The company produces low voltage power cable for the
Australian and export markets.
The Company's China operations are conducted through five business
entities, with a new entity being planned for. The operating entities include
NPCDC, a telecommunications cable manufacturing joint venture located in
Zhejiang Province in eastern China. The Company owns a 94.31% interest in NPCDC.
The other owner of NPCDC is China Ningbo City Yin County Yinjiang Town
Industrial Corporation ("CIC"). NPCDC manufactures a range of telecommunications
cable and local area network ("LAN") electronic cables for sale and distribution
in the Chinese domestic market.
NPCDC's performance since 1997 has been below expectations due
primarily to difficulties faced in marketing its products and market penetration
in China. In view of the poor performance of NPCDC, the Company has decided that
it would be prudent to provide for a write-down of the carrying value of NPCDC
in the Company's financial statements. The Company's 1999 results therefore
included a write-off of unamortized goodwill of $2.1 million from the purchase
of NPCDC in 1998, and of $1.0 million on receivables and inventory of NPCDC.
Total net effect of these write-offs on the Company's results amounts to a loss
of $3.1 million in 1999. The Company's 2002 results further included a write off
of approximately $1.5 million in the carrying value of the telecommunication
cable machinery.
Shanghai Yayang Electric Co., Ltd. ("Shanghai Yayang"), formerly known
as Shanghai Pacific Electric Co., Ltd., is a joint venture in Shanghai
incorporated in June 1998 to manufacture enameled wire. The Company's effective
holding in Shanghai Yayang is at 62.39% and is partly held by Pacific Thai. The
other party to the joint venture is South-West Power Cable in Chengdu Province.
Shanghai Yayang manufactures enameled wire with a diameter of between 0.05mm and
2.5mm.
Shangdong Pacific Fiber Optics Co., Ltd. ("SPFO") is a joint venture
company in Yanggu County, Shandong Province, China. SPFO was established to
manufacture fiber optic cables for the China market. The Company owns a 51.0%
interest in SPFO, with the remaining interest owned by the joint venture
partner, Shandong Yanggu Cable Company ("Shandong Yanggu"), an established cable
manufacturer in Shandong Province that produces a wide range of cable
16
products and is considered one of the leading cable producers in China. The
Company has invested a total of $2.5 million in SPFO.
On June 30, 2001, the Company invested approximately $1.2 million for a
25.0% interest in an existing profitable company Shandong Rubber Cable Company,
Ltd. ("SRC"), which manufactures rubber cable for the China market. The
remaining 75% is owned by Shandong Yanggu. The investment was in the form of
machinery transfer and cash.
On March 22, 2002, the Company acquired two companies, namely, CCH and
PEWS from PEWC, the majority shareholder of the Company. The acquisition was in
exchange for 3,097,436 new shares of the Company issued to PEWC. As a result of
this new issue, PEWC's holding in the Company increased from 68.3% to 75.4%.
PEWS manufactures enameled wire for electronic, video and audio products for the
South China Market and for export. CCH is the trading arm of PEWS. The
operations of PEWS and CCH have been profitable since 1999 and have contributed
to the profits of the Company in 2002.
On August 18, 2001, a joint-venture agreement was signed with Shandong
Yanggu to establish Shandong Huayu Pacific Fiber Optics Communication Co., Ltd.
("SHP") for the manufacture of optic fibers. The Company will invest $3.0
million for a 49% holding; the remaining 51% will be held by Shandong Yanggu.
Production is tentatively scheduled to commence in 2004 with initial production
of 900,000km of optic fibers annually. The actual operation commencement period
will depend on the assessment of market conditions. The company plans to operate
two optic fiber drawing towers and four production lines. Its products will be
sold to Shandong Pacific Fiber Optic Cable Co., Ltd. and other external buyers.
The Company believes that the market for optic fiber and fiber optic cable will
remain promising in China in the long term.
4.2.1 PRODUCTS AND SERVICES
The Company manufactures and sells a wide variety of wire and
cable products primarily in four general categories: telecommunications cable,
power transmission cable, enameled wire and electronic cables. The Company's
telecommunications and power cables are used in a range of infrastructure
projects and in commercial and residential developments. The Company's enameled
wire is used in the manufacturing of components and sub-components of household
appliances and small machinery. The electronic cables, which include cable
harnesses, are used in the electronics, computer, building automation, audio and
communication industries. In addition, the Company acts as the Singapore
distributor of copper rod and wire and cable products manufactured by PEWC. In
1997, the Company also began offering SDI project engineering services of medium
and high voltage cable for power transmission projects in Singapore.
Telecommunications Cable
The Company produces a wide range of bundled
telecommunications cable for telephone and data transmissions with different
capacities and insulations designed for use in various internal and external
environments principally as access cable to connect buildings and
17
residents to trunk cables. Telecommunications cables contain twisted pairs of
insulated copper wire, each pair color-coded and corresponding to one
telecommunications line.
The Company's telecommunications cables are produced with
different insulators such as polyethylene ("PE"), polyvinyl chloride ("PVC") and
foam skin, suitable for different installations and environmental conditions.
The Company manufactures telecommunications cable with capacities and sizes
ranging from 25 to 3,000 pairs of 0.4 mm-diameter wire to 10 to 600 pairs of 0.9
mm-diameter wire.
Power Cable
The Company produces a range of armored and unarmored
low-voltage power transmission cable. Low-voltage power cable, generally
considered to be cable with a capacity of 1 to 3.3 kilovolts, is typically used
to transmit electricity to and within commercial and residential buildings, as
well as to outdoor installations such as street lights, traffic signals and
other signs. Armored low-voltage power cable is usually used for public lighting
and power transmission running to buildings and installed either above or below
ground. Unarmored low-voltage cable is mainly used as lighting and power supply
cable inside and outside of buildings. The voltage capacity of the Company's
power cables range from 300 volts to one kilovolt.
Unarmored cable is composed of one or more cores of copper
wire, insulated by substances such as PVC. Armored cable is produced in the same
range of configurations as unarmored cable, but with the addition of an outer
layer of galvanized steel or iron wires to protect the cable from damage.
Enameled Wire
The Company also produces several varieties of enameled wire.
Enameled wire is copper wire varnished, in an enameling process, by insulating
materials. The enameling process makes the wire more resistant to oil, heat,
friction and fusion, and therefore suitable for use in machinery and components
and sub-components of manufactured goods. The Company manufactures enameled wire
in sizes that range from 0.03 mm to 3.00 mm in diameter, varnished by various
types of petroleum insulation materials including polyvinal formal,
polyurethanea wire and polyester, among others. Enameled wire products are used
in the assembly of a wide range of electrical products, including oil-filled
transformers, refrigerator motors, telephones, radios, televisions, fan motors,
air conditioner compressors and other electric appliances.
Electronic Cables
The Company produces a wide range of electronic cables and
related by-products, which includes high specification telecommunication cables,
data-communication cables, security cables, cable assemblies, fiber optic
cables, local area network ("LAN") patch-cords products and harness assembly.
The products are used in the electronics, building automation,
telecommunications and data-communications industries. The customers include
government bodies, large construction companies, subcontractors bidding for
government contracts and system integrators. These cables are produced by the
Sigma-Epan group, which has
18
manufacturing operations in Singapore and Malaysia. In 2003, LAN cable
production has also been introduced in NPCDC.
Sales of Distributed Products
The Company is also a distributor of copper rod and wire and
cable products manufactured by PEWC. Since 1986, Sigma Cable has sold as agent
on a commission basis or distributed PEWC's copper rod and wire and cable
products in Singapore and Australia. The leading PEWC products sold by the
Company are medium and high voltage power cable (with capacities ranging from
3.3 kilovolts to 69 kilovolts) and copper rod, with the vast majority of such
sales made in Singapore. The PEWC products sold by the Company do not compete
with the Company's manufactured products.
SDI Project Engineering Services
Based on recent trends of government and private sector
expansion and upgrading of residential and commercial buildings and
infrastructure projects in Singapore, the Company anticipates demand for medium
and high voltage power and for value added services in the power supply
industry. To take advantage of these opportunities, the Company has developed
its SDI project engineering capability. The SDI project engineering operations
supply, deliver and install primarily medium and high voltage cable to power
transmission projects in Singapore. After entering into a contract to supply
cable for a power transmission project, the Company delivers medium and high
voltage cables and enters into subcontracting agreements with local companies to
install the cable as required by the project.
In 2002, Sigma Cable recorded revenue of $31.1 million under
project engineering turnkey contracts awarded by Powergrid Pte Ltd.
("Powergrid"), a government-linked corporation that maintains and manages
electrical transmission and distribution networks in Singapore. The projects
call for the supply and installation of 66kV (kilo-volt) high-voltage power
cables along various distinct routes. The Company will continue to tender for
future projects.
4.2.2 MANUFACTURING
Copper rod is the base component for most of the Company's
products. The manufacturing processes for these products require that the rod be
"drawn" and insulated. In the "drawing" process, copper rod is drawn through a
series of dies to reduce the copper to a specific diameter. For certain
applications, the drawn copper conductor is then plated with tin. Copper used in
cable is covered with various insulating materials that are applied in an
extrusion process. The insulated wires are then combined, or "cabled" to produce
the desired electrical properties and transmission capabilities. Then, depending
upon the cable, some form of protective cover is placed over the cabled wires.
A summary of the manufacturing process used for the Company's
primary wire and cable products is set forth below.
19
Telecommunications Cable
Production of telecommunications cable begins by drawing a
copper rod until it has reached the desired diameter, after which the drawn
wires are subjected to a process called "annealing" in which the wires are
heated in order to make the wires softer and more pliable. Utilizing an
extrusion process, which involves the feeding, melting and pumping of a compound
through a die to shape it in final form as it is applied to insulate the wire,
the wires are then covered by a PE or PVC compound in one of ten standard
colors. In order to reduce the cross-talk between pairs of communication wires,
the insulated wires are then "twinned" or twisted so that two insulated single
wires are combined to create a color-coded twisted pair. The twisted pairs of
wire are then "cabled" or "stranded" into units of 25 twisted pairs for
combination with other 25 pair units to form cable of various widths and
capacities. The appropriate number of units are cabled together after stranding
to form a round cable core. Depending upon the planned environment, a petroleum
jelly compound may then be added to fill the cable core to seal out moisture and
water vapor. Aluminum or copper tape is used to "sheath" the cable and, finally,
the sheathed cable core is covered by plastic outer coating.
Power Cable
Unarmored cable. Production of unarmored cable begins by
drawing and annealing of copper rods. The drawn copper wires are then stranded
or "bunched" into round or sector-shaped conductors in sizes ranging from 1.5
square millimeter to 1000 square millimeters. The copper conductors are then
covered in an extrusion process with a plastic insulator such as a PVC, after
which 2-5 conductors are twisted into a circular cable core in a cabling process
and covered by a plastic outer cover.
Armored cable. Armored cable is produced in the same manner as
unarmored cable, except that armored cable requires the addition of a helical
wrap of galvanized steel or iron wires prior to the application of a final
plastic outer cover.
Enameled Wire
Production of enameled wire begins by drawing the copper rods
until they have reached the desired diameter, after which the drawn wires are
annealed. The annealed wires are then varnished by one or more types of
petroleum-based insulation material. Up to seven coats of varnish are applied,
depending upon the intended application of the enameled wire.
4.2.3 RAW MATERIALS
Copper is the principal raw material used by the Company,
accounting for approximately 50% to 60% of total cost of sales of products using
copper as a conductor. The Company purchases copper at prices based on the
average prevailing international spot market prices on The London Metal Exchange
(the "LME") for copper for the one month prior to purchase. The price of copper
is influenced heavily by global supply and demand as well as speculative
trading. As with other costs of production, an increase in the price of copper
will increase the Company's cost of sales. Whether this has a material impact on
the Company's operating margins and financial results depends primarily on the
Company's ability to pass on
20
these increased costs to its customers. Most sales of Company manufactured
products reflect copper prices prevailing at the time the products are ordered.
The Company purchases copper in the form of rods and cathodes.
Copper cathodes are thin sheets of copper purified from copper ore. Copper
purchased by the Company in the form of cathodes must be sent to subcontractors
to be melted and cast into the copper rods necessary for the manufacturing
processes, for a processing fee equal to approximately 7.0% of the copper
cathode purchase price. The Company presently relies on the services of two
processors in Thailand to process its copper cathodes into copper rods, Thai
Metal Processing Co., Ltd. and Thai Copper Rod Co. Ltd., although the Company
has a variety of processors from which to obtain these services. In the future,
the Company may construct a plant to process copper cathode into copper rods,
which may reduce the Company's dependence on subcontractors. Construction of
such a facility could also be an additional source of revenues and profit, to
the extent that sales are made to unaffiliated parties. Copper rods are drawn
into copper wire for the production of telecommunications cable, power cable and
enameled wire.
In 2002, the Company purchased a total of approximately 70,000
tons of copper rod and cathodes for its manufacturing operations. The aggregate
cost of copper materials purchased by the Company in 2002 was approximately $109
million.
The Company has historically purchased a substantial portion
of its copper rods from PEWC. Under the Composite Services Agreement between the
Company and PEWC, PEWC agreed to supply to the Company on a priority basis its
copper rod requirements at prices at least as favorable as prices charged to
other purchasers in the same markets purchasing similar quantities. PEWC
continues to be the principal supplier of copper rods to the Company's
operations. Under the Company's copper rod supply arrangements, orders will be
placed between eight to ten weeks before the desired delivery date, with prices
"pegged" to the average spot price of copper on the LME for the one month prior
to delivery plus a premium.
The Company purchases copper cathodes, which are subject to a
6.0% import tariff, for use at its Thailand operations in order to avoid the
higher import tariff of 10.0% on copper rods. The Company obtains copper
cathodes from three major suppliers which import cathodes into the Thai market.
These suppliers are Mitsubishi Corporation, Mitsui & Co (Thailand) and Tomen
Enterprise (Bangkok) Ltd. The Company has regularly signed one year contracts
with each of its copper cathode suppliers pursuant to which the Company agrees
to purchase a set quantity of copper cathodes each month. Under the terms of
such contracts, the price of copper cathodes is usually "pegged" to the average
of the spot price of copper on the LME for the delivery month plus a premium.
The Company believes its relationships with its three copper cathode suppliers
will allow access to alternative supplies in the event one or more of such
suppliers was unable or unwilling to renew a supply contract on terms
satisfactory to the Company, although the Company does not anticipate any change
in relations in the near term.
The Company attempts to maintain approximately a three to five
week supply of copper rods and cathodes for its Thai operations and
approximately a two to four week supply in Singapore. The Company has never
experienced a material supply interruption or difficulty obtaining sufficient
supply of copper rod or cathode.
21
Other raw materials used by the Company include aluminum used
as a conductor in power cable and petroleum-based insulation materials such as
PE, PVC and jelly compounds for insulating covers on cables and varnishes on
enameled wire; aluminum foils for sheathing of communication cable; and
galvanized steel wire for the production of armored wire. The Company has not
had any difficulty in maintaining adequate supplies of these raw materials and
expects to continue to be able to purchase such raw materials at prevailing
market prices.
The Company is a major user of electric power and has not
experienced any problem in obtaining a constant electricity supply in the past.
The Company does not maintain any in-house power generating capacity.
Other than import tariffs in Thailand, the Company does not
face any restriction or control on the purchase or import of its raw materials.
The Company may freely choose its suppliers and negotiate the price and quantity
of material with its suppliers. The Company formulates consumption plans for raw
materials regularly and continually monitors market conditions in respect of the
supply, price and quality of raw materials.
4.2.4 QUALITY CONTROL
The Company places a significant emphasis on product quality.
The Company has implemented a range of quality control procedures with stringent
quality standards under the supervision of a dedicated quality control staff.
Quality control procedures are implemented from the raw material to the finished
product stages at each of the Company's major production facilities. Raw
materials are inspected to ensure they meet the necessary level of quality
before production begins. During the manufacturing process, quality control
procedures are performed at several stages of production. Upon completion,
finished goods are brought to quality control centers set up in the factory for
inspection and testing of different electrical and physical properties.
Depending on the requirements of its customers, the Company
has the capability to manufacture its products to meet a variety of different
quality and production standards. These include local standards and
certifications, such as the Singapore Institute of Standards and Industrial
Research Quality Mark and the Thailand Industrial Standard, as well as other
standards including the National Electrical Manufacturers Association Standard,
the British Standard, the Japan Industrial Standard and Underwriters
Laboratories Inc. Standard, as applicable.
All the major companies in the group have attained
International Standards Organization ("ISO") 9002 international standards for
quality management and assurance standards in the manufacture of electric wire
and cable. In September 1994, Sigma Cable received an ISO 9002 certificate from
the Singapore Institute of Standards and Industrial Research. Charoong Thai
received its ISO 9002 certification in September 1996. Siam Pacific and Pacific
Thai, the Company's two major subsidiaries in Thailand, both achieved ISO 9002
certification in May 1997. The certifications mean that the companies have in
place quality assurance systems and the capability to consistently manufacture
products of quality.
22
4.2.5 SALES AND MARKETING
The Company's telecommunications cable and power cable
products are primarily sold in the domestic markets of the countries where they
are manufactured, whereas most of the enameled wire manufactured by the Company
is exported to take advantage of Pacific Thai's tax status exempting it from
paying import duties on raw materials used in the manufacture of export product.
The following table sets forth the Company's sales revenues by geographic area
for the periods indicated together with their respective percentage share of
total sales revenue for such periods:
Year ended December 31,
-------------------------------------------------------------
2000 2001 2002
-------------------------------------------------------------
$ % $ % $ %
-------------------------------------------------------------
($ in thousands)
-------------------------------------------------------------
Manufactured Products:
Thailand 61,278 31.9 47,225 23.9 79,246 32.8
Singapore 19,071 9.9 15,804 8.0 16,637 6.9
Australia 10,134 5.3 11,009 5.6 13,961 5.8
China 35,910 18.7 46,838 23.7 46,095 19.1
Myanmar 1,796 0.9 591 0.3 -- --
Export 31,827 16.6 27,551 14.0 29,803 12.4
------- ----- ------- ----- ------- -----
Total 160,016 83.3 149,018 75.5 185,742 77.0
Distributed Products(1) 26,721 13.9 33,325 16.9 24,303 10.1
SDI Project
Engineering(2) 5,457 2.8 14,968 7.6 31,134 12.9
------- ----- ------- ----- ------- -----
Total net sales 192,194 100.0 197,311 100.0 241,179 100.0
------- ----- ------- ----- ------- -----
(1) Distributed Products are largely sold in Singapore.
(2) All SDI Project Engineering is supplied in Singapore.
Sales within Thailand and Singapore are made directly by the
sales department of the Company's local subsidiaries in accordance with terms
and pricing set by the local subsidiaries. The local subsidiaries are also
responsible for sales planning, marketing strategy and customer liaison. The
Company's sales staff is knowledgeable about the Company's products and
frequently must render technical assistance, consulting services and repair and
maintenance services to the Company's customers. In order to ensure quality
service and maintain sensitivity to market conditions, the Company does not
conduct sales through independent sales agents on a commission basis but uses
its own sales employees located at the operating subsidiaries.
As copper constitutes the costliest component of the Company's
wire and cable products, the price of the Company's products depends primarily
upon the price of copper. In order to minimize the risk of copper price
fluctuations, the Company attempts to "peg" the prices of its products to the
prevailing market price of copper. In certain circumstances, however, the
Company remains affected, to a degree, by fluctuations in the price of copper.
The price of
23
telecommunications cable sold for use in public projects in Thailand, for
example, is determined semi-annually and is based upon the average spot market
price of copper on the LME during the six-month period commencing each January 1
and July 1 prior to the month of purchase. Thus, a recent rise or decline in
copper prices may not be fully reflected under this pricing scheme for several
months.
Payment methods for the Company's products vary with markets
and customers. The majority of sales by the Company of its manufactured products
require payment within 90 days, but may vary depending on the customer and
payment record. Sales pursuant to a successful project tender or sales to
governmental or public utilities are conducted in accordance with the tender or
other applicable regulations. In connection with the distribution of medium and
high voltage power cable manufactured by PEWC, the Company is required to pay
PEWC 90% of the cost of the products either within 30 days of receipt of the
product or, in the case of SDI products, upon installation, with the remaining
10% to be paid within one year. In connection with the purchase of copper rod,
the Company is required to pay PEWC the cost of the copper rod within 30 days
from obtaining the products from PEWC. For the export market, payment is usually
made by prior delivery of an irrevocable letter of credit. Neither the Company
nor its local subsidiaries offer financing for purchases of the Company's
products. The Company sells its products in the local currency of the country of
sale. Company employees engaged in sales and marketing are paid a salary and may
also receive a bonus based on performance.
Products are marketed under the respective names of each
company. For instance, products manufactured by Siam Pacific are marketed under
the "Siam Pacific" and "PTEWC" brands, both registered trademarks in Thailand;
products manufactured by Sigma Cable are sold under the "Sigma Cable" brand.
Thailand
The Company produces and sells telecommunications cable,
enameled wire and power cable in Thailand. Sales of telecommunications cables,
the Company's leading product in Thailand, are conducted either by tender for
participation in large scale TOT telecommunications projects, or directly to
subcontractors of TT&T and TelecomAsia, the two private telephone line
contractors which would be licensed by TOT with regard to particular projects.
Power cable (and a limited quantity of telecommunications cable) is generally
sold to construction firms or contractors for use in infrastructure, commercial
and residential construction projects. The Company generally sells enameled wire
directly to manufacturers of electric motors for use in various consumer
appliances. Enameled wire purchasers tend to be smaller businesses than those
that purchase telecommunications and power cable. A small quantity of power and
telecommunications cable and enameled wire is sold to general electrical
products supply companies which then resell to end users.
Singapore
The Company produces and sells low voltage power cable in
Singapore. In addition, the Company sells copper rod and a wide range of wire
and cable products produced by PEWC. Power cables manufactured by the Company
and PEWC are primarily sold to PowerGrid, a quasi-public entity responsible for
power delivery in Singapore, and to a large
24
number of private contractors and construction firms. The Company also offers
project engineering services for the SDI of medium and high voltage power cable
to power transmission projects in Singapore.
Sales of Company manufactured products in 2002 accounted for
24.9% of the Company's net sales in Singapore; sales of Distributed Products
accounted for 32.9% with the remaining 42.2% comprised of SDI project
engineering services. In 2002, sales to PowerGrid alone accounted for
approximately 55.5% of the Company's total sales in Singapore and 17.0% of the
Company's total aggregate sales. Additionally, sales of SDI project engineering
services to Powergrid in 2002 accounted for all of the Company's SDI sales.
Approximately 22.4% of the sales to PowerGrid in 2002 were sales of Distributed
Products, which sales have a low profit margin. Such sales are not made under a
continuing contract, but pursuant to purchase orders placed from time to time
with the Company by PowerGrid. Although PowerGrid is an important customer of
the Company, neither the loss of Distributed Product sales to PowerGrid, nor the
loss of manufactured product sales to PowerGrid, which the Company expects would
be replaced by sales to other customers, would likely have a material adverse
effect on the Company's results of operations. Although the Company does not
believe that it could easily replace its SDI sales to Powergrid by sales to
other customers, SDI sales presently account for only 13% of the Company's
sales.
Exports
The Company's main export markets are Hong Kong, Brunei,
Pakistan, China and Indonesia. Export sales are conducted by local agents or
distributors of the Company in accordance with terms and prices negotiated
between the local agent and the Company at the time of sale. In Thailand, the
Company's principal export is enameled wire. In Singapore, the Company's
principal export is power cable. The Company does not actively pursue an export
business in Singapore, but benefits from Singapore's position as a trading
center and makes export sales in response to buyer inquiries and solicitations.
In Thailand, the Company has concentrated on promoting export sales for its
enameled wire products and because of the decline in demand in the Thai market,
the Company is seeking to expand its exports from Thailand of other products. In
2002, total export sales accounted for 12.4% of net sales.
4.2.6 COMPETITION
The wire and cable industry in the Asia Pacific region is
highly competitive. The Company's competitors include a large number of
independent domestic and foreign suppliers. Certain competitors in each of the
Company's markets have substantially greater manufacturing, sales, research and
financial resources than the Company. The Company and other wire and cable
producers increasingly compete on the basis of product quality and performance,
reliability of supply, customer service and price. To the extent that one or
more of the Company's competitors is more successful with respect to the primary
competitive factors, the Company's business could be adversely affected.
25
Thailand
The wire and cable industry in Thailand is highly competitive.
In its various product lines, the Company competes with a total of approximately
30 local wire and cable manufacturers and, to a lesser extent, with foreign
producers for sales in Thailand of telecommunications cable, power cable and
enameled wire. Siam Pacific and Charoong Thai are two of the five largest wire
and cable producers in Thailand and their principal competitors are the three
other largest producers in Thailand. These five largest producers are the only
producers of telecommunications cable approved by the Thai Industrial Standards
Institute and, therefore, the only cable producers whose products may be used in
government-commissioned projects. Stringent governmental approval processes,
tariffs and other import restrictions have limited competition in the Thailand
market from foreign wire and cable producers. The Company also experiences
significant competition from a number of smaller producers with regard to sales
of enameled wire products.
Singapore
The Company principally competes with four other major wire
and cable manufacturers in Singapore. Although the Company believes it is the
largest manufacturer of 1ow voltage power cable in Singapore, it experiences
significant competition from other local producers.
There are no tariff or other barriers against foreign
competition in the local Singapore market and potential competitors are free to
enter the industry. However, because of high capital costs, the Company believes
it is unlikely that there will be new domestic entrants to the wire and cable
industry in Singapore in the near future.
Australia
Currently, there are two major wire and cable producers in
Australia: Olex Cables (owned by Pacific Dunlop) and Pirelli Cables, which
acquired the construction cable and power cable business of Metal Manufacturers
Cables, formerly a major wire and cable producer in Australia, in 1999. APEC's
principal competitors are Olex Cables and Pirelli Cables. With the April 1998
closing of the Olex Cables plant in Queensland in order to concentrate
operations in the states of New South Wales and Victoria in Australia, APEC
became the only cable producer in Queensland and therefore expects to have a
pricing advantage over other competitors importing into Queensland. APEC has
also opened sales offices with warehousing facilities in Sydney, Melbourne and
Perth in order to attract and service the customers in those regions.
China
Shanghai Yayang is the only major enameled wire producer in
Shanghai and it supplies mainly to manufacturers in Shanghai. It faces
competition principally from overseas imports and manufacturer's from other
provinces.
NPCDC anticipates significant competition in selling
telecommunications cable in eastern China. Several established producers of
telecommunications cable exist in Zhejiang
26
province, including one of similar size to NPCDC in Ningbo, the city the company
plant is located. Due to keen market competition in the regional China market,
NPCDC is looking towards export of its telecommunication cables to countries
such as Singapore. NPCDC has recently also installed production machines for the
manufacture LAN cables for the local China market with the objective of
diversifying its product range.
Other Markets
In 2001, the Company exported approximately 23.7% of its
products manufactured in Singapore and Thailand. These products are principally
sold through independent suppliers in competition with domestic and foreign
manufacturers.
4.2.7 REGIONAL CONSIDERATIONS
Since the Asian currency and financial crisis which began in
mid-1997, confidence has gradually returned to countries in the Asia Pacific
region. The financial and currency markets have significantly stabilized with
financial and economic reforms instituted by the local governments with
assistance from the International Monetary Fund (IMF). By the end of 1998 and in
1999, regional currencies had significantly stabilized in value relative to the
U.S. dollar. However, from mid-2000, the Thai economy began to decelerate as a
result of weak domestic demand, coupled with a major fiscal expansion program
espoused by the newly elected government, causing the Thai Baht to weaken
further. In 2002, the Thai Baht strengthened from an exchange rate of Baht 44.24
to the U.S. Dollar at the beginning of 2002 to Baht 43.20 to the U.S. Dollar at
the end of 2002.
Thailand
A substantial portion of the Company's Thai operations, which
accounted for approximately 44.5% of the Company's net sales in 2002, consists
of the manufacture of telecommunications and power cable and sales of those
products for use in large-scale telecommunications projects and various
construction projects in Thailand. The volume of sales of these products tends
to correlate with the general level of economic activity in Thailand. As a
result, the performance of the Company's Thai operations depends in part on the
general state of the Thai economy. For several years until late 1996, the wire
and cable industry and the Company benefited from continued increases in
Thailand's gross domestic product ("GDP") and the many infrastructure projects
implemented by the Thai government. Since the impact of the financial and
economic crisis in 1997, the construction industry and infrastructure projects
have slowed considerably, thereby affecting local sales, placing competitive
pressure on prices and prompting the Company to rationalize Thai operations and
actively seek overseas export markets.
Economic growth in 2002 has increased to 5.2% from 1.9% growth
recorded in 2001 as a result of government stimulus programs, increased domestic
consumption and robust exports in the second half of 2002. Thailand's exports, a
key driver of the economy, rose 5.0% in 2002, against a 6.9% decline in 2001.
The World Bank has projected Thai economic growth in 2003 to be approximately
4.5% followed by 5.0% in 2004.
27
Telecommunications
Sales of the Company's products in Thailand have depended to a
significant degree on the substantial investment in and development of the
telecommunications sector by the Thai government. In particular, the Company's
sales of manufactured products are affected by the dollar value of contracts
awarded by the government for telecommunications and other infrastructure
projects.
Historically, control of the telecommunications sector in
Thailand, including the right to grant concessions for the installation and
operation of telecommunications services, has rested with state owned
enterprises. There are currently three public agencies responsible for
communications in Thailand: the Telephone Organization of Thailand ("TOT"),
which controls domestic telephone service, the Communications Authority of
Thailand ("CAT"), which handles postal and international telephone service, and
the Post and Telegraph Department, which controls and regulates the use of
frequencies for radio communication stations and satellite communication
networks. Telecommunications services in Thailand have traditionally been
developed and expanded through grants by TOT and CAT of concessions to private
operators to install and operate telecom projects on a build-transfer-operate
basis, where the government enterprise involved would maintain control over the
award of the concession and receive a profit share from the operations of the
project.
Power
In past years, until the economic and financial crisis in Asia
which began in 1997, economic growth in Thailand stimulated rapid growth in the
demand for electric power, and annual rates of growth in electricity demand
outpaced annual economic growth rates. Despite the rapid growth in electricity
demand, electricity consumption in Thailand remains low by international
standards. The Electricity Generating Authority of Thailand ("EGAT") has
estimated that aggregate country-wide consumption will increase from
approximately 13,600 MW in 1996 to approximately 26,300 MW by 2006. The Company
believes that, in the medium to longer term, there will be an increased demand
for power supply which will lead to increased demand for the Company's power
cable products from both developers of power production facilities and
contractors installing power supply lines.
Singapore
The Singapore economy grew by approximately 2.3% in 2002
compared to a contraction of 2.0% in 2001. The weak global electronic sector,
weak US consumer demand and the slow world economy in 2002 all contributed to
the slow growth in Singapore's GDP. The World Bank has projected Singapore
economic growth in 2003 to be approximately 1.7% and followed by 4.9% in 2004.
The Singapore government has established targets to increase
the population from the current 3.2 million to approximately 4 million by the
end of 2010. This planned growth in population, plus the decline in average
household size from 4.2 persons per household in 1990 to 3.4 persons in 2000, is
expected to result in an increase in demand for residential property and
construction.
28
China
The economy of China differs from that of most developed
free-market economies in a number of respects, including structure, degree of
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, rate of inflation and balance of payments position. The
economy of China is a planned economy subject to one-, five- and ten-year plans
adopted by central PRC government authorities and implemented, to a large
extent, by provincial and local authorities under the supervision of the State
Development Planning Commission. These plans set out production and development
targets for state enterprises. Although the majority of productive assets in
China are still owned by the PRC government, more recently the PRC government
has implemented economic reform measures which emphasize decentralization,
utilization of market forces and the development of foreign investment projects,
of which NPCDC, SPFO and Shanghai Yayang are examples.
For information regarding a government restructuring plan to
abolish fifteen ministries, including the PRC Ministry of Post and
Telecommunications (the "MPT"), approved by the National People's Congress, see
Section 3.3.6 "Risks Relating to China."
The Chinese economy is estimated to have expanded by 8.0% in
2002 (2001: 7.3%) as a result of fiscal stimulus and robust external demand.
Exports and imports continue to surge. Fixed-asset investment, a crucial
component of China's economic growth, rose during the period partly as a result
of increased public expenditure on infrastructure projects and technology
upgrades of state-owned entities. The World Bank has projected China economic
growth in 2003 and 2004 to be approximately 7.2% each year.
4.3 ORGANIZATIONAL STRUCTURE
Thailand
The Company's Thai operations are conducted by Siam Pacific, which
produces telecommunications cable, power cable and enameled wire for the
domestic market, Pacific Thai, a specialized producer of enameled wire for the
export market and Charoong Thai, which manufactures power telecommunications
cables and, through its subsidiaries, provides telecommunication and network
services. As at December 31, 2002, the Company owns effective 63.87% interests
in Siam Pacific, Pacific Thai and Charoong Thai.
Siam Pacific was established in 1989 as a joint venture between PEWC
and Ital-Thai, which is the largest diversified construction company in Thailand
and is principally engaged in the design, engineering, construction and project
management of large-scale civil engineering and telecommunications projects in
Thailand. Capitalizing on PEWC's wire and cable manufacturing expertise and
Ital-Thai's significant presence in the local market, the Company was able to
establish its presence in this market and gain knowledge of business
opportunities in Thailand.
Pacific Thai was established in 1989 and is a wholly owned subsidiary
of Siam Pacific. Pacific Thai produces enameled wire for export only and has a
special tax status which exempts
29
it from import duties on raw materials used in export manufacturing. This
special tax status must be renewed each year.
Charoong Thai is a public company listed on the Stock Exchange of
Thailand ("SET"). It manufactures aluminum and copper electric wire, medium and
high voltage power cable and telecommunications cable. It has subsidiaries and
affiliates in the businesses of optic fiber cable manufacturing and
telecommunication and network services. Charoong Thai was established in
Thailand in 1967 as a limited public company. The board of directors of Charoong
Thai may authorize the issuance of additional shares of common stock of Charoong
Thai. The Company has preemptive rights to purchase an amount of additional
shares equal to its pro rata share of the additional authorized shares, less
amounts reserved for directors, officers and employees. In the event the board
of Charoong Thai decides to cause it to issue those additional shares, the
Company may decide not to exercise this right in which case the Company's
interest may be diluted.
Siam Pacific and Charoong Thai are two of the five largest
telecommunications and power cable and wire manufacturers in Thailand and are
two of the five government-approved suppliers of telecommunications cable for
major public telecommunications projects.
As part of its restructuring plan, the Company has merged its Thai
operations, which has generated cost savings while improving overall efficiency.
The Company believes the synergistic effect of merging these operations will
produce significantly reduced overhead and will centralize decision making and
resource allocation for the Thai operations. See Section 4.1.2 "Recent
Developments".
The transaction was completed on July 2, 2002 when Charoong Thai issued
177,500,000 new shares at Baht 5 per share, representing 49.92% of its enlarged
base of 355,660,000 paid-up shares. The new shares were exchanged for Siam
Pacific's shares at a swap ratio of 1 Siam Pacific share for every 26.5 of
Charoong Thai's newly issued shares. Immediately after the completion of this
transaction, the shareholders of the new enlarged Charoong Thai company
comprised of the Company (68.42%), Ital-Thai (16.90%) and Bangkok Insurance
(5.31%). The rest of the shares are publicly traded on the SET. See 4.1.3
"Recent Developments".
Singapore
The Company's Singapore operations are conducted primarily through its
98.2%-owned subsidiary Sigma Cable. The Company believes that Sigma Cable is the
largest producer of low voltage power cable products in Singapore. Sigma Cable
manufactures and sells a range of low voltage power cable products, used mainly
in infrastructure projects and commercial and residential developments. Sigma
Cable is also the exclusive distributor in Singapore of copper rod and medium
and high voltage wire and cable manufactured by PEWC.
Sigma Cable also has project engineering operations in Singapore to
supply, deliver and install ("SDI") primarily medium and high voltage cable to
power transmission projects. While the Company currently obtains its supply of
medium and high voltage power cable for its SDI operations from PEWC, other
suppliers are also available if necessary. The Company anticipates
30
that there will be increasing demand for medium and high voltage power cable and
related turnkey installation projects in Singapore.
In 1998 the Company acquired a 60.0% interest in Sigma-Epan, a
primarily Singapore-based group of companies, which manufacture specialty cables
and assemble cable harnesses for the electronics, computer, building automation,
audio and communication industries. The Company bought over the remaining 40%
interest in the Sigma-Epan in 2001. Sigma-Epan has manufacturing operations in
Singapore and Malaysia. It achieved ISO 9002 certification for its quality
management system in 1990. Its customers are largely multinational original
equipment manufacturers and its export markets include Malaysia, the
Philippines, Indonesia, Thailand, Australia, New Zealand, China and the USA.
Australia
The Company has an effective 98.5% ownership interest in APEC, an
Australian wire and cable distributor, which commenced operations at its power
cable manufacturing facility in Queensland near Brisbane, Australia in 1997. The
new facility produces low voltage power cable with a targeted production
capacity of 2,000 tons per year.
APEC has historically sold its production output to distributors and
major wholesalers that have been primarily dependent upon imports from other
countries. In 1998, it established a sales office with warehousing facilities in
Sydney, New South Wales to attract and service customers in this region of
Australia. In 2000, it established another sales office with warehousing
facilities in Melbourne, Victoria. In 2002, a sales office in Perth was
established. APEC bids for supply contracts in state and national power
development projects in Australia.
China
In October 1997, the Company exercised its option to purchase from a
subsidiary of Charoong Thai a 70.0% interest in NPCDC, for a consideration of
$5.5 million. NPCDC manufactures a range of telecommunications cable in Yinjiang
Town, Zhejiang Province, China. NPCDC began commercial production of high
quality telecommunications cable in December 1996. Total production capacity of
the NPCDC operations is approximately 800,000 pkm per year. NPCDC currently
obtains all of its copper rod requirements from PEWC through a licensed Chinese
importer.
NPCDC's primary customers are the government owned post and
telecommunication bureaus in eastern China and major subcontractors bidding for
government contracts. While NPCDC will enjoy normal management control over its
production process and output, the prices it will receive for its
telecommunications cable will be determined by the government.
The term of the NPCDC joint venture is 50 years commencing from
December 31, 1993, the date the joint venture received its business license. The
joint venture may be terminated early with the consent of all the joint venture
partners or following a serious breach by one of the joint venture partners of
the terms of the joint venture contract. The joint venture partners will share
future profits in proportion to their equity interests in the joint venture.
31
The Company also has a 62.39% effective interest in Shanghai Yayang, a
company in Shanghai, China. Shanghai Yayang is a joint venture company
manufacturing enameled wire which was formed in 1998. The other party to the
joint venture is South-West Power Cable in Chengdu Province. Shanghai Yayang
manufactures enameled wire with a diameter of between 0.05mm and 2.5mm.
SPFO is a joint venture company in Yanguu County, Shandong Province,
China. SPFO was established to manufacture fiber optic cables for the China
market. The Company owns a 51% interest in SPFO with the remaining interest
owned by the joint-venture partner, Shandong Yanggu Cable Company, an
established manufacturer in Shandong Province that produces a wide range of
cable products and is considered one of the leading cable producers in China.
The Company has invested a total of $2.5 million in SPFO.
On June 30, 2001, the Company invested approximately $1.2 million for a
25.0% interest in an existing profitable company Shandong Rubber Cable Company,
Ltd. ("SRC"), which manufactures rubber cable for the China market. The
remaining 75% is owned by Shandong Yanggu. The investment was in the form of
machinery transfer and cash.
On August 18, 2001, a joint-venture agreement was signed with Shandong
Yanggu to establish Shandong Huayu Pacific Fiber Optics Communication Co., Ltd.
("SHP") for the manufacture of optic fibers. The Company will invest $3.0
million for a 49% holding; the remaining 51% will be held by Shandong Yanggu.
Production is tentatively scheduled to commence in 2004 with initial production
of 900,000km of optic fibers annually. The actual commencement of operations
will depend on the assessment of market conditions. The company plans to operate
two optic fiber drawing towers and four production lines. Its products will be
sold to Shandong Pacific Fiber Optic Cable Co., Ltd. and other external buyers.
The Company believes that the market for optic fiber and fiber optic cable
remains promising in China in the long term.
On March 22, 2002, the Company acquired two companies, namely, Crown
Century Holdings Limited ("CCH") and its wholly-owned subsidiary, Pacific
Electric Wire & Cable (Shenzhen) Co., Ltd. ("PEWS") from PEWC, the majority
shareholder of the Company. The acquisition was in exchange for 3,097,436 new
shares of the Company issued to PEWC. As a result of this new issue, PEWC's
holding in the Company increased from 68.3% to 75.4%. PEWS manufactures enameled
wire for electronic, video and audio products for the South China Market and for
export. CCH is the trading arm of PEWS. The operations of PEWS and CCH have been
profitable since 1999 and have contributed to the profits of the Company in
2002.
Myanmar
In February 1999, the Company commenced operations in Myanmar Sigma
Cable Co., Ltd. ("Myanmar Sigma") a joint venture company in Yangoon, Myanmar
formed between Sigma Cable and a local partner, Stellar Myanmar Co., Ltd.
("Stellar Myanmar"). The Company invested approximately $1.6 million through its
subsidiary Sigma Cable, giving the company an effective 80% interest in Myanmar
Sigma. The investment was made in compliance with United States government
restrictions on investments in Myanmar by certain United States companies,
citizens and residents.
32
Due to the continued operating losses and political instability in
Myanmar in 2000, management decided to cease operations in that country. In this
regard, management evaluated the recoverable amount of the assets in Myanmar
Sigma and estimated an impairment loss of $1.4 million, which was recognized as
an expense in the statement of operations in 2000. On August 31, 2001, a
contract was signed to sell the factory, machinery and equipment at
consideration of $3.5 million. The plant has been incurring losses since the
start of operations. The closure of the subsidiary has reduced losses and
operating expenses for the Company.
4.4 PROPERTY, PLANT AND EQUIPMENT
The Company's manufactured products are produced at facilities on
premises owned or leased by Siam Pacific, Pacific Thai, Charoong Thai, Sigma
Cable, Sigma-Epan, APEC, NPCDC, Shanghai Yayang, SPFO and PEWS.
Siam Pacific owns a 5.2 acre production facility near Bangkok,
Thailand, located on a 26.9 acre site that it also owns. The production facility
is mortgaged to Bangkok Bank as security for a $9.0 million line of credit.
Pacific Thai operates a separate 92,800 square meter production facility located
at the same site which it leases from Siam Pacific.
Charoong Thai owns a 24.7 acre production facility in Chachoengsao
province, near Bangkok, Thailand. The production facility is located on a 57.9
acre site which Charoong Thai also owns. Neither the production facility nor the
land are mortgaged.
Sigma Cable operates at a new production facility on a 19,373 square
meter site in Singapore leased from the Jurong Town Corporation ("JTC") for 30
years from September 16, 2000 to September 16, 2030. JTC is a government-linked
corporation and is Singapore's largest industrial landlord.
Sigma-Epan leased an office space from Sigma Cable in Singapore and two
factory units in Johore Bahru and Penang, both in Malaysia.
APEC owns a manufacturing facility in Brisbane, Australia, which is
mortgaged to Westpac Banking Corporation of Australia as security for a $4.0
million bank loan.
NPCDC operates on 10.9 acres of state-owned land in Ningbo, Yinjiang,
Zhejian Province, China. The factory area is 3.3 acres. A leasehold right of
industrial land use for the land has been granted for 50 years.
Shanghai Yayang operates a factory, partially mortgaged to a finance
company, located in an area of approximately 5,000 square meters in a industrial
district in Fengxian, Shanghai.
SPFO operates in a purpose-built factory building on a leasehold
state-owned land in Yanggu, Shandong Province, China.
PEWS operates on 36,000 square meters of state-owned land with built-up
area 20,367 square meters in Long Gang, Shenzhen Province, China. A leasehold
right of industrial land use for the land has been granted for 50 years. The
facility is mortgaged to Agricultural Bank of China as security for a Rmb 14
million bank loan made in 2003.
33
The Company's primary facilities are briefly described below:
Location Company Products
- -------- ------- --------
Bangkok, Thailand Siam Pacific Telecommunications cable, power cable,
enameled wire
Bangkok, Thailand Pacific Thai Enameled wire
Bangkok, Thailand Charoong Thai Telecommunications cable, power cable
Ningbo, China NPCDC Telecommunications cable
Shanghai, China Shanghai Yayang Enameled wire
Yanggu, China SPFO Fiber optic cable
Shenzhen, China PEWS Enameled wire
Singapore Sigma Cable Power cable, SDI project engineering,
distributed products
Singapore and Malaysia Sigma-Epan Electronic cable
Brisbane, Australia APEC Power cable
All of the Company's facilities in Bangkok, Singapore, Brisbane and
China use production processes and equipment of international standard imported
from Europe, the United States, Taiwan, and Japan.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with the annual
consolidated financial statements, including the notes to those financial
statements, which are included with this annual report.
5.1 DISCLOSURES OF CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results
of operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgements. Management bases its estimates and judgements on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying values of assets and liabilities
34
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgements and estimates used in the
preparation of its consolidated financial statements.
Inventories
Inventories are valued at the lower of cost or market value. Cost is
determined using the first-in, first-out or weighted average method. In
assessing the ultimate realization of inventories, we are required to make
judgments as to future market requirements compared with current inventory
levels. Revisions to our allowance for inventories may be required if actual
market requirements differ from our estimates.
Carrying values
Valuations are required under accounting principles generally accepted
in the United States to determine the carrying value of various assets. Our most
significant assets that require management to prepare or obtain valuations are
goodwill and deferred income taxes. Management must identify whether events have
occurred that may impact the carrying value of these assets and make assumptions
regarding future events, such as profitability. Differences between the
assumptions used to prepare these valuations and actual results could materially
impact the carrying amount of these assets and net earnings.
Investments
A judgmental aspect of accounting for investments involves determining
whether an other-than-temporary decline in value of the investment has been
sustained. If it has been determined that an investment has sustained an
other-than-temporary decline in its value, the investment is written down to its
fair value, by a charge to earnings. Such evaluation is dependent on the
specific facts and circumstances. Factors that are considered by the Company in
determining whether an other-than-temporary decline in value has occurred
include: the market value of the security in relation to its cost basis; the
financial condition of the investee; and the intent and ability to retain the
investment for a sufficient period of time to allow for recovery in the market
value of the investment.
Revenue recognition
A portion of our revenue is generated from installation activities
which is recognized using the percentage-of-completion method. Recognized
revenues and profit are subject to revisions as the activity progresses to
completion.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the
35
Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
Impairment of Long-Lived Assets
We evaluate the carrying value of our long-lived assets, consisting
primarily of property plant and equipment, whenever certain events or changes in
circumstances indicate that the carrying amount of these assets may not be
recoverable. In 2002, the Company recorded impairment charges of $1.6 million
related to the impairment of certain property, plant and equipment of Ningbo.
These impairment charges were recorded to reduce the carrying value of
the identified assets to fair value. Fair values were derived using a variety of
methodologies, including cash flow analysis, estimates of sales proceeds and
independent appraisals. Where cash flow analyses were used to estimate fair
values, key assumptions employed included estimates of future growth, estimates
of gross margins and estimates of the impact of inflation. Changes in these
estimates could have a material adverse effect on the assessment of our
long-lived assets.
New Standards to be Implemented
In June 2001, the FASB issued FASB Statement No. 143, "Accounting for
Asset Retirement Obligations." The statement provides accounting and reporting
guidance for legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction or normal operations of
long-lived assets. The Company will adopt the standard effective January 1,
2003. The Company is reviewing the provisions of this standard. Its adoption is
not expected to have a material effect on the financial statements.
In June 2002, the FASB issued FASB Statement No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("Statement 146"). This
statement supercedes EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit and Activity (including
Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). Statement 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability was recognized at the date an entity committed to an exit plan.
Statement 146 also establishes that the liability should initially be measured
and recorded at fair value. The provisions of Statement 146 will be effective
for any exit and disposal activities initiated after December 31, 2002. Its
adoption is not expected to have a material effect on the financial statements.
In November 2002, the EITF reached consensus on EITF Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"),
which addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services, and/or rights to use assets. The
final consensus of EITF 00-21 will be applicable to agreements entered into in
fiscal periods beginning after June 15, 2003, with early adoption permitted.
Additionally, companies will be permitted to apply the consensus guidance to all
existing arrangements as the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, Accounting Changes. Management
is currently evaluating the effect that the adoption of EITF 00-21 will have on
its results of operations and financial position.
36
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on
required disclosures by a guarantor in its financial statements about
obligations under certain guarantees that it has issued and requires a guarantor
to recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The Company is
reviewing the provisions of FIN 45 relating to the initial recognition and
measurement of guarantor liabilities, which are effective for qualifying
guarantees entered into or modified after December 31, 2002, but does not expect
the adoption to have a material impact on the financial statements.
5.2 SUMMARIZED INCOME STATEMENT
This discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements and notes thereto (the
"Financial Statements") presented in Item 18 of this Annual Report.
The following table sets forth a summary statement of income for the
periods indicated:
(See chart on following page.)
37
Year ended December 31,
(US$ in thousands, except percentages)
2000 2001 2002
----------------------------------------
(Restated) (Restated)
Net Sales:
Manufactured products:
Telecommunications wire and cable $ 32,486 $ 36,606 $ 35,619
Power cable 49,104 41,782 58,710
Enameled wire 68,349 65,240 86,635
Electronic cable 10,077 5,390 4,778
------- ------- -------
Total manufactured products 160,016 149,018 185,742
SDI project engineering 5,457 14,968 31,134
Distributed Products 26,721 33,325 24,303
------- ------- -------
Total net sales 192,194 197,311 241,179
======= ======= =======
Gross profit:
Manufactured products:
Telecommunications wire and cable 3,279 6,593 9,588
Power cable 5,277 6,548 13,466
Enameled wire 7,509 6,578 11,887
Electronic cable 1,085 635 252
------- ------- -------
Total manufactured products 17,150 20,354 35,193
SDI project engineering (346) (1,119) (787)
Distributed Products 407 724 338
------- ------- -------
Total gross profit 17,211 19,959 34,744
======= ======= =======
Gross profit margin:
Manufactured products:
Telecommunications wire and cable 10.1% 18.0% 26.9%
Power cable 10.7% 15.7% 22.9%
Enameled wire 11.0% 10.1% 13.7%
Electronic cable 10.8% 11.8% 5.3%
------- ------- -------
Total manufactured products 10.7% 13.7% 18.9%
SDI Project engineering -6.3% -7.5% -2.5%
Distributed Products 1.5% 2.2% 1.4%
------- ------- -------
Total gross margin 9.0% 10.1% 14.4%
======= ======= =======
38
5.3 OPERATING RESULTS
5.3.1 YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED
DECEMBER 31, 2001
-----------------------------------------------------
General
Results of operations are determined primarily by our ability
to manufacture high quality products efficiently in quantities sufficient to
meet demand and to control production and operating costs. Our results are also
influenced by a number of factors, including currency stability in the countries
in which our operations are located, competition and the cost of raw materials,
especially copper, which accounted for approximately 50% to 60% of the cost of
sales.
In order to minimize the impact of copper price fluctuations,
we attempt to "peg" the prices of our products to the prevailing market price of
copper and pass changes in the cost of copper through to customers as much as
possible. In certain circumstances, however, we remain affected by fluctuations
in the price of copper. For example, the price of telecommunications cable sold
for use in public projects in Thailand is determined semi-annually and is based
upon the average spot market price of copper on the LME during the six-month
period commencing on January 1 and July 1 prior to the month of order. Thus, a
recent rise or decline in copper prices may not be fully reflected under this
pricing scheme for several months.
During 2002, the prices of copper had stabilized significantly
compared to the fluctuations seen in 2001. The monthly average copper prices in
2002 moved within the band of $1,470 to $1,650 per metric ton. Average copper
prices per metric ton have decreased by marginally by 1.1% from $1,578 in 2001
to $1,560 in 2002. The lower cost of copper resulted in higher gross profit
margins for our products in 2002 than in previous years. Gross profit margins
for manufactured products in 2002 were on average at 18.9% compared to 13.7% in
2001.
Copper prices indicated in this report are quoted from the
London Metal Exchange (LME) index. The 2002, 2001 and 2000 copper prices are as
follows:
2002 2001 2000
------ ------ ------
Average LME copper price ($/Ton) 1Q $1,557 $1,764 $1,795
2Q 1,611 1,652 1,739
3Q 1,516 1,472 1,872
4Q 1,554 1,426 1,848
------ ------ ------
Year 1,560 1,578 1,814
====== ====== ======
The estimated rates of year 2002 GDP growth for Thailand,
Singapore and China were 5.2%, 2.3% and 8.0% respectively. The 2001 GDP growth
rates for Thailand, Singapore and China were 1.9%, -2.0% and 7.3% respectively.
Our performance is largely influenced by the level of growth in the
telecommunication and power infrastructure, construction and electronic goods
manufacturing sectors. We are beginning to see the return of growth in these
industrial sectors following the recovery in the general economies of the
respective countries and increases
39
in governments' budget spending on infrastructure. The wire and cable industry
has improved in 2002 with higher selling prices and sales margins.
On March 22, 2002, the Company purchased 100% of PEWC's
interest in CCH and its wholly-owned subsidiary, PEWS, resulting in CCH and PEWS
becoming wholly-owned subsidiaries of the Company upon completion of the
transaction. The acquisition was funded by the issuance of 3,097,436 common
shares. Since the entities were under common control, the merger has been
accounted for at historical cost in a manner similar to pooling-of-interests and
accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of both
entities.
The results of operations previously reported by the separate
entities and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
(In thousands of US$) Years ended December 31,
2000 2001
Net sales:
Asia Pacific Wire & Cable Corporation
Limited and subsidiaries $165,397 $170,689
CCH and PEWS 26,797 26,622
-------- --------
192,194 197,311
======== ========
Net income(loss):
Asia Pacific Wire & Cable Corporation
Limited and subsidiaries $(5,143) $(1,283)
CCH and PEWS 1,703 1,374
-------- --------
(3,440) 91
======== ========
The Company showed improved results in 2002 compared to 2001.
Net sales and gross profit have increased by 22.2% and 74.1%, respectively.
Gross profit margins have also increased from 10.1% in 2001 to 14.4% in 2002 due
to improved selling prices for telecommunication cable and power cable, and the
lower cost of copper. Selling, general and administrative expenses have
increased due to expanded group operations and additional provision for accounts
receivables. Despite recording impairment loss on NPCDC telecommunication cable
machinery of $1.5 million in 2002, income from operations has increased from
$3.8 million in 2001 to $13.9 million 2002.
Our net results were affected by net interest expenses, share
of loss of equity investees, gain on sale of investment, and income taxes
charges. Net interest expenses have decreased by 52.8% due to decreased
borrowings. The share of loss of equity investees in 2002 consists primarily of
the share of loss in Newcall Group Limited ("NGL") and Loxley Pacific Co., Ltd.
("Lox Pac"). Gain on share issuance by subsidiaries and affiliates arose from
the
40
issuance of shares by Charoong Thai, Shanghai Yayang and Lox Pac. Gain on sale
of investment in 2001 arose from the sale of Charoong Thai warrants; while the
net gain on sale of investment in 2002 arose primarily from the disposal of our
investment in Charoong Thai. In 2001, $0.7 million of the valuation allowance on
the deferred tax asset of Charoong Thai was written back as the company had
demonstrated profitability in 2001. In 2002, our income tax charge increased
primarily due to increased profitability of our Thai operations. Net income
improved from $91,000 in 2001 to $4.8 million in 2002.
Net Sales
Net sales for 2002 amounted to $241.2 million, representing an
increase of $43.9 million, or 22.2%, against 2001 sales of $197.3 million. Sales
in telecommunications cable decreased marginally by 2.7% partly due to a fall in
copper prices. Sales in power cable increased by 40.5% reflecting increased
power cable infrastructure spending by the Thai government and improved prices
in Australia. Sales in enameled wire increased by 32.8% reflecting strong demand
from the electrical product manufacturing sector especially in China.
Sales of Distributed Products decreased 27.1% in 2002 compared
to 2001 due to decreased demand from the Singapore government. Revenue from the
SDI project engineering in Singapore increased by 108.0% due to Sigma Cable
securing larger tender projects from Powergrid.
The following shows the percentage share in net sales of the
respective operations with respect to our total sales in 2002.
Manufactured All products
products only and services
Thailand 57.7% 44.5%
Singapore 10.0% 30.6%
Australia 7.5% 5.8%
China 24.8% 19.1%
----- -----
Total 100.0% 100.0%
===== =====
In 2002, Sigma Cable recorded revenue of $31.1 million under
project engineering turnkey contracts awarded by Powergrid. The projects call
for the supply and installation of 66kV (kilo-volt) high-voltage power cables
along various distinct routes. The Company will continue to tender for future
projects.
Gross Profit
Gross profit for 2002 was $34.7 million, representing an
increase of 73.5% compared to $20.0 million for 2001. Gross profit contributed
by sales of manufactured products was $36.5 million in 2002 compared to $21.6
million in 2001, representing an increase of 69.2%.
Gross profit margins for manufactured products increased from
14.5% in 2001 to 19.6% in 2002. Gross profit margins increased in all categories
of products except for electronic
41
cable and Distributed Products. Gross profit increased as a result of better
selling prices for telecommunication cable, power cable and enameled wire, and
lower production costs due to weaker copper prices and higher production
volumes.
Operating Profit
Selling, general and administrative expenses have increased
due to expanded group operations and additional provision for accounts
receivables. In 2001, goodwill related to Sigma-Epan of $0.5 million was written
off as the Company decided that it would be prudent to provide for a write-down
of its carrying value in view of its poor performance. In 2002, impairment loss
on NPC telecommunication machinery of $1.5 million was taken up in view of the
weak copper telecommunication cable industry in the China region and dim
prospects of future sales in this product. With higher gross profit in 2002,
income from operations increased by 357.2% from $3.8 million in 2001 to $13.7
million 2002.
Loss from Investees
In 2001 and 2002, investee loss related to that of Lox Pac,
Thai Professional, SPHC and NGL. The share of loss of equity investees in 2001
consists primarily of the share of loss in NGL, which includes provision for
advances made to NGL. The share of loss of equity investees in 2002 consists
primarily of the share of loss in NGL, Thai Professional and Lox Pac. The loss
is in part due to the impairment of investment in Lox Pac of $2.5 million.
Gain on Share Issuance by Subsidiaries and Affiliates
In 2002, the issuance of new shares by Charoong Thai, Shanghai
Yayang and Lox Pac contributed to the $1.0 million net gain on share issuance by
subsidiaries and affiliates. No such gain was recorded in 2001.
Gain on Sale of Investment
In 2001, we disposed of certain Charoong Thai warrants and
achieved a gain on sale of investment of $0.7 million. In 2002, the deemed
disposal of our investment in Charoong Thai contributed to the $0.5 million gain
on sale of investment.
Exchange Loss
In July 1997, the floatation of the Thai Baht caused the
currency to fall in value against the U.S. Dollar and triggered declines in
other regional currencies, such as the Singapore Dollar and Australian Dollar.
The Thai Baht generally appreciated against the U.S. Dollar during the course of
1998 and largely stabilized in 1999. However, from mid-2000, the Thai economy
began to decelerate as a result of weak domestic demand, coupled with a major
fiscal expansion program espoused by the newly elected government, which
contributed to a weakening of the Thai Baht. Since then, the Thai Baht has
remained relatively stable. The exchange differences in the income statements
arose largely as a result of these movements in the Thai Baht exchange rate and,
to a lesser extent, the movements in the other operating currencies. The
exchange rates as of December 31, 2002, based on Noon Buying Rate, were as
follows:
42
December 31, December 31,
Foreign currency to US$1: 2002 2001
------------ -----------
Thai Baht 43.20 44.25
Singapore $ 1.74 1.85
Australian $ 1.78 1.95
Chinese Rmb 8.28 8.28
Based on the above rates, the revaluation of assets and
liabilities denominated in U.S. Dollars or other foreign currencies in the
companies resulted in small exchange differences in both 2001 and 2002.
We use Thai Baht forward foreign exchange contracts to reduce
our exposure to foreign currency risks for liabilities denominated in foreign
currencies. A forward foreign exchange contract obligates us and our
subsidiaries to exchange predetermined amounts of specified foreign exchange
currencies at specified exchange rates or to make an equivalent U.S. Dollar
payment equal to the value of such exchange. Realized and unrealized gains and
losses on forward foreign exchange contracts are included in operations as
foreign exchange gains or losses.
Income Taxes
In 2001, $0.7 million of the valuation allowance on the
deferred tax asset of Charoong Thai was written back as the company had
demonstrated profitability in 2001. In 2002, our income taxes charge increased
primarily due to increased profitability of our Thai operations.
5.3.2 YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED
DECEMBER 31, 2000
------------------------------------------------------
General
Results of operations are determined primarily by our ability
to manufacture high quality products efficiently in quantities sufficient to
meet demand and to control production and operating costs. Our results are also
influenced by a number of factors, including currency stability in the countries
in which our operations are located, competition and the cost of raw materials,
especially copper, which accounted for approximately 50% to 60% of the cost of
sales.
In order to minimize the impact of copper price fluctuations,
we attempt to "peg" the prices of our products to the prevailing market price of
copper and pass changes in the cost of copper through to customers as much as
possible. In certain circumstances, however, we remain affected by fluctuations
in the price of copper. For example, the price of telecommunications cable sold
for use in public projects in Thailand is determined semi-annually and is based
upon the average spot market price of copper on the LME during the six-month
period commencing on January 1 and July 1 prior to the month of order. Thus, a
recent rise or decline in copper prices may not be fully reflected under this
pricing scheme for several months.
43
During 2001, the price of copper had a significant impact on
our revenues and profits. Copper prices have generally decreased during 2001.
Average copper prices per metric ton have decreased by 13.0% from $1,814 in 2000
to $1,578 in 2001. The lower cost of copper, in spite of the weak demand in the
current economic climate, resulted in gross profit margins for our products in
2001 that were higher than in previous years. Gross profit margins for
manufactured products in 2001 were on average at 13.7% compared to 10.7% in
2000.
Copper prices indicated in this report are quoted from the
London Metal Exchange (LME) index. The 2001, 2000, and 1999 copper prices are as
follows:
2001 2000 1999
------ ------ ------
Average LME copper prices ($/ton) 1Q $1,764 $1,795 $1,407
2Q 1,652 1,739 1,466
3Q 1,472 1,872 1,679
4Q 1,426 1,848 1,739
------ ------ ------
Year $1,578 $1,814 $1,573
====== ====== ======
The estimated rates of year 2001 GDP growth for Thailand,
Singapore and China were 1.8%, -2.2% and 7.3% respectively. Our performance is
largely influenced by the telecommunication and power infrastructure and
construction sectors. The growth in these industrial sectors generally lags
behind recovery in the general economies of the respective countries and is also
dependent on the governments' budget spending on infrastructure. The wire and
cable industry remained generally weak in 2001 with slightly improved prices and
sales margins, and generally excess production capacities in the region.
Results for 2001 include the consolidated results of Charoong
Thai. Charoong Thai was an equity investee of ours until August 1998, when we
increased our ownership of Charoong Thai from 46.7% to 69.9% through a rights
issue. Sales in Charoong Thai accounted for 18.6% of our total sales in 2001,
compared to 18.8% in 2000.
The Company showed improved results in 2001 compared to 2000.
Net sales and gross profit increased by 2.7% and 16.0%, respectively. Gross
profit margins have also increased from 9.0% in 2000 to 10.1% in 2001 due to
improved selling prices for telecommunication cable, power cable and Distributed
Products, and the lower cost of copper. Selling, general and administrative
expenses have increased due to expanded group operations and additional
provision for loans and inventories. After recording impairment loss on Myanmar
Sigma of $1.4 million in 2000 and goodwill written off on Sigma-Epan of $0.5
million in 2001, income from operations increased from $0.2 million in 2000 to
$3.8 million 2001.
Our net results were affected by exchange differences,
interest expenses, share of loss of equity investees, gain on sale of investment
and property, and valuation allowance on a deferred tax asset. Exchange losses
in 2000 were incurred largely due to the weakening of the Thai Baht against the
U.S. Dollar by 13.9% during the year 2000, compared to a weakening of the Thai
Baht of only 1.7% during the year 2001. Net interest expenses have decreased by
13.9% due to decreased borrowings. The share of loss of equity investees
consists primarily of the share of loss in Newcall Group Limited ("NGL"). In
2000, the losses were mitigated by gains on the sale of an investment and the
disposal of property. Gain on the sale of an investment of $2.7
44
million resulted primarily from the sale of ten million shares in NGL. Gain on
disposal of property of $6.6 million resulted from the compensation provided by
Singapore land authorities to us for the relocation of Sigma Cable. In 2001,
gain on sale of investment relates to the sale of Charoong Thai warrants. In
2000, the valuation allowance on the deferred tax asset of $7.0 million of
Charoong Thai was recorded as there is no assurance that the deferred tax asset
will be realized in the future. In 2001, $0.7 million of this allowance on the
deferred tax asset was written back as Charoong Thai demonstrated profitability
in 2001. Results before tax and minority interests increased 16.1% in 2001 as
compared to 2000.
Net Sales
Net sales for 2001 amounted to $197.3 million, representing an
increase of $5.1 million, or 2.7%, against 2000 sales of $192.2 million. Sales
in telecommunications cable increased by 12.7% due to increased
telecommunication infrastructure spending by the Thai government. Sales in power
cable, enameled wire and electronic cable decreased by 14.9%, 4.5% and 46.5%
respectively, reflecting the relatively weak market in 2001.
Sales of Distributed Products increased 24.7% compared to 2000
due to increased demand by the Singapore government. Revenue from the SDI
project engineering in Singapore increased by 174.3% due to Sigma Cable securing
larger tender projects from Powergrid.
The following shows the percentage share in net sales of the
respective operations with respect to our total sales.
Manufactured All products
products only and services
(%) (%)
------------- ------------
Thailand 54.3 41.0
Singapore 6.5 29.4
Australia 7.4 5.6
China 31.4 23.7
Myanmar 0.4 0.3
----- -----
Total 100.0 100.0
In 2001, Sigma Cable recorded revenue of $15.0 million under
project engineering turnkey contracts awarded by Powergrid. The projects call
for the supply and installation of 66kV (kilo-volt) high-voltage power cables
along four distinct routes. In May 2001, another contract of approximately
US$33.4 million was secured. The project was to be completed by end of 2002 and
it calls for the laying of 66kV high voltage power cables along nine distinct
routes. The Company will continue to tender for future projects.
Gross Profit
Gross profit for 2001 was $20.0 million, representing an
increase of 16.0% compared to $17.2 million for 2000. Gross profit contributed
by sales of manufactured products was $20.4 million in 2001 compared to $17.2
million in 2000, representing an increase of 18.7%.
45
Gross profit margins for manufactured products increased from
10.7% in 2000 to 13.7% in 2001. Gross profit margins increased in all categories
of products except for enameled wire and SDI project engineering. Despite a
general decrease in sales volume, gross profit increased as a result of better
selling prices for telecommunication cable and power cable, and lower production
cost due to weaker copper prices.
Operating Profit
Selling, general and administrative expenses have increased
due to expanded group operations. In 2001, goodwill related to Sigma-Epan of
$0.5 million was written off as the Company decided that it would be prudent to
provide for a write-down of its carrying value in view of its poor performance.
Impairment loss of $1.4 million in 2000 resulted from the impending closing of
Myanmar Sigma in 2001. After recording impairment loss on Myanmar Sigma of $1.4
million in 2000 and goodwill written off on Sigma-Epan of $0.5 million in 2001,
income from operations increased from $2.5 million in 2000 to $3.8 million 2001.
Impairment Loss
Myanmar Sigma's performance since its inception in 1999 has
been below expectations due to difficulties faced in marketing its products, the
generally weak economic condition in Myanmar, and frequent changes in government
policies. Losses incurred in 2000 amounted to $0.3 million. Our management
concluded there was not any reasonable expectation of an improvement in the
subsidiary's performance in the foreseeable future. In view of the poor
performance of Myanmar Sigma in 2000, the management decided to cease
operations. Management evaluated the recoverable amounts of the assets in
Myanmar Sigma, resulting in an impairment loss of $1.4 million recorded in 2000.
Loss from Investees
Charoong Thai was an equity investee of the Company until
August 1998, when we increased our ownership in Charoong Thai from 46.7% to
69.9% through our purchase of additional shares in a rights issue. Thereafter,
Charoong Thai became our subsidiary and its financial results were consolidated
into our results. In 2000 and 2001, investee income related to that of Shanghai
Yayang, Lox Pac, Thai Professional and NGL. Shanghai Yayang, initially an equity
investee, became a subsidiary on September 11, 1999 and since then its income
has been consolidated into our financial statements. The share of loss of equity
investees consists primarily of the share of loss in NGL, which includes
provision for advances made to NGL.
Gain on Sale of Investment
In 2001, we disposed of certain Charoong Thai warrants and
achieved a gain on sale of investment of $0.7 million. On March 30, 2000, we
disposed of 10 million shares in NGL and further reduced the Company's effective
interest in NGL to 22.6%. This disposition of shares has resulted in a gain on
disposal of $2.5 million.
46
Gain on Disposal of Property
In 2000, the gain of $6.6 million was derived from the
compensation provided by Jurong Town Corporation ("JTC") to Sigma Cable for the
relocation of its factory and office premises. JTC is a government-linked
corporation and is Singapore's largest industrial landlord.
Exchange Loss
In July 1997, the floatation of the Thai Baht caused the
currency to fall in value against the U.S. Dollar and triggered declines in
other regional currencies, such as the Singapore Dollar and Australian Dollar.
The Thai Baht generally appreciated against the U.S. Dollar during the course of
1998 and largely stabilized in 1999. However, from mid-2000, the Thai economy
began to decelerate as a result of weak domestic demand, coupled with a major
fiscal expansion program espoused by the newly elected government, causing the
Thai Baht to weaken further. The exchange differences in the income statements
arose largely as a result of these movements in the Thai Baht exchange rate and,
to a lesser extent, the movements in the other operating currencies. The
exchange rates as of December 31, 2001 were as follows:
Foreign currency to US$1.00(1): Thai Baht 44.24
Singapore $ 1.85
Australia $ 1.95
China Rmb 8.28
(1) Based on Noon Buying Rate
Based on the above rates, the revaluation of assets and
liabilities denominated in U.S. Dollars or other foreign currencies in the
companies resulted in exchange losses of $0.1 million in 2001, compared to
exchange losses of $6.2 million in 2000.
We use Thai Baht forward foreign exchange contracts to reduce
our exposure to foreign currency risks for liabilities denominated in foreign
currencies. A forward foreign exchange contract obligates us and our
subsidiaries to exchange predetermined amounts of specified foreign exchange
currencies at specified exchange rates or to make an equivalent U.S. Dollar
payment equal to the value of such exchange. Realized and unrealized gains and
losses on forward foreign exchange contracts are included in operations as
foreign exchange gains or losses.
Income Taxes
Income taxes in 2000 included a valuation allowance of $7.0
million on deferred tax assets of Charoong Thai, the majority of which related
to losses incurred during 1997 primarily from the devaluation of the Baht in the
second half of 1997. The allowance was made then as there was no assurance that
the deferred tax asset would be realized in the future. However, in 2001, $0.7
million of this allowance on the deferred tax asset was written back as Charoong
Thai demonstrated profitability in 2001.
47
5.4 LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditure and Capital Resources
Net proceeds from the initial public offering of common shares on March
26, 1997 were $33.3 million. The proceeds have been used to finance a
significant portion of the cost of our development. The following are the major
investment and purchases in 2001 and 2002:
On June 30, 2001, the Company invested approximately $1.2 million for a
25.0% interest in an existing profitable company Shandong Rubber Cable Company,
Ltd. ("SRC"), which manufactures rubber cable for the China market. The
remaining 75% is owned by Shandong Yanggu Cable Co., Ltd. ("Shandong Yanggu"),
an established cable manufacturer in Shandong Province manufacturing a wide
range of cable products and one of the top twelve cable producers in China. The
investment was in the form of machinery transfer and cash.
On August 18, 2001, a joint-venture agreement was signed with Shandong
Yanggu to establish Shandong Huayu Pacific Fiber Optics Communication Co., Ltd.
("SHP") for the manufacture of optic fibers. The Company will invest $3.0
million for a 49% holding; the remaining 51% will be held by Shandong Yanggu.
Investment to date amounts to $2.3 million. Production is expected to commence
in 2004 instead of 2002 originally with an initial estimated production of
900,000km of optic fibers annually. The company will operate with an optic fiber
drawing tower and two production lines. Its products will be sold to Shandong
Pacific Fiber Optic Cable Co., Ltd. and other external buyers. The Company
believes that the market for optic fiber and fiber optic cable remains promising
in China.
Other investments in 2001 include: the acquisition of an additional
20.8% interest in NPC for $0.7 million, thereby increasing the Company's
interests in NPC from 70.0% to 90.8%; the acquisition of an additional 40%
interest in Sigma-Epan for $0.4 million, thereby increasing the Company's
interests in Sigma-Epan from 60% to 100%; an investment in Shanghai Yayang by
the Company's 66.15% held subsidiary, Pacific Thai, for $1.0 million; and, the
acquisition of an additional 16.7% interest in Lox Pac for $1.1 million, thereby
increasing the Company's interest in Lox Pac from 13.9% to 30.6%.
On March 22, 2002, the Company purchased 100% of PEWC's interest in CCH
and its wholly-owned subsidiary, PEWS, resulting in CCH and PEWS becoming
wholly-owned subsidiaries of the Company upon completion of the transaction. The
acquisition was funded by the issuance of 3,097,436 common shares. As a result
of this new issue, PEWC's holding in the Company increased from 68.3% to 75.4%.
PEWS manufactures enameled wire for electronic, video and audio products for the
South China Market and for export. The consolidated revenues of CCH and PEWS for
the year 2001 were $26.6 million with a profit of $1.4 million. For the year
2002, these companies contributed $35.0 million in sales and $4.8 million in net
profits to the Company's results.
Other investments in 2002 include: the acquisition of an additional
3.51% interest in NPC for $5.8 million, thereby increasing the Company's
interest in Ningbo from 90.8% to 94.31%; the acquisition of additional new
shares in Shanghai Yayang for $0.3 million, thereby increasing the Company's
interest in Shanghai Yayang from 62.09% to 62.39%; the acquisition
48
of an additional 1.84% interest in Newcall Communications Singapore Pte Ltd
("NCS") for $0.5 million, thereby increasing the Company's interest in NCS from
37.69% to 39.53%; the acquisition of additional new shares in Lox Pac for $1.2
million, however, the further issuance of new shares during the year by Lox Pac
has caused the Company's effective interest in Lox Pac to be diluted from 30.56%
to 24.58%; and, the acquisition of the remaining 33.85% interest in Siam Pacific
for $11.6 million, in the form of Charoong Thai shares issued to the minority
shareholders. NCS was liquidated during 2002 and the increased investment was
written off.
Total purchases of property, plant and equipment totaled $9.1 million
in 2001 and $11.1 million in 2002. Purchases relate mainly to the recently
incorporated companies in China, namely Shanghai Yayang and SPFO. The remaining
purchases were for replacement of old equipment. Proceeds from the disposal of
property, plant and equipment amounted to $4.0 million in 2001; there were
minimal disposals in 2002.
The Company has budgeted for new purchases of plant and equipment of
approximately $3.0 million in 2003.
Liquidity
We met our working capital requirements from cash provided by
operations and both short-term and long-term borrowings. Net cash generated from
operating activities for 2002 was $19.3 million, compared $11.0 million for
2001. Net cash used in investing activities in 2002 was $14.6 million, an
increase of $8.9 million over 2001, on account of higher capital expenditure and
investments described in above section and offset by lower proceeds from
disposal of property, plant and equipment. Net cash used in financing activities
amounted to $4.9 million in 2002 for the repayment of long-term debt and offset
by additional loans from related parties and increases in bank loans and
overdrafts.
The Company maintains several working capital and overdraft credit
facilities with various commercial bank groups and financial institutions. Under
line of credit arrangements for short-term debt with the Company's bankers, the
Company may borrow up to approximately $85 million on such terms as the Company
and the banks may mutually agree upon. These arrangements do not have
termination dates but are reviewed annually for renewal. As of December 31,
2002, the unused portion of the credit lines was approximately $37 million which
included unused letters of credit amounting to $28.0 million. Letters of credit
are issued by the Company during the ordinary course of business through major
financial institutions as required by certain vendor contracts. As of December
31, 2002, the Company had open letters of credit totaling $22.3 million.
Liabilities relating to the letters of credit are included in current
liabilities.
Our main source of liquidity in the near future continues to be the net
cash provided by our operating activities. We continue to have sufficient
liquidity to meet our anticipated working capital, capital expenditures, general
corporate requirements, and other short-term and long-term obligations as they
come due. We may further enhance our liquidity in the future, as needs arise, by
establishing additional lines of credit, with the support of PEWC if necessary
and available.
The following table set forth our obligations and commitments to make
future payments under contracts and other commitments.
49
Contractual obligations Payments due by period
As of December 31, 2002
(In thousands of US$) Total 2003 2004-2005 2006-2007 After 2007
- --------------------------------------------------------------------------------------------------------
Long term debt 1,800 1,125 675 -- --
Long term loan from PEWC Singapore 8,822 -- 8,822 -- --
Capital lease obligations (principal amount only) 283 106 176 1 --
Operating leases 6,243 427 684 432 4,700
Purchase obligations 986 986 -- -- --
------ ----- ------ ----- -----
Total contractual cash obligations 18,134 2,644 10,357 433 4,700
====== ===== ====== ===== =====
For more details on financial commitments and contingencies, please
refer to Exhibit 19.1 "Asia Pacific Wire & Cable Corporation Limited- Audited
Financial Statements", page F-28.
5.5 INFLATION
We do not consider inflation to have had a material impact on our
results of operations during the periods covered.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.1 DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth certain information concerning the
directors and executive officers of the Company. All directors are subject to
annual election at the shareholders' meeting.
Name Age Position
- ---- --- --------
Tom C.Y. Tung 42 Chairman of the Board of the Company.
Yu-Jeh Tung 70 Deputy Chairman of the Board of the Company.
David Tao-Heng Sun 49 Director and Chief Executive Officer. Mr. Sun is also the
Managing Director of Charoong Thai since 1994.
Jack T. Sun 53 Director.
Charles Chung-Yuan Han 64 Director, member of the Executive Committee and Chief
Operating Officer of the Company since its formation. Mr. Han
has also served as the general manager of Sigma Cable since
1982.
Raymond Chin-Yung Kung 56 Director and member of the Executive Committee of the Company
since its formation. Mr. Kung has been the president and
general manager of Siam Pacific since 1989.
50
Charles Xue 49 Director. Chief Executive Officer of United Medical. Member
of the Audit Committee and Remuneration Committee.
Frank Chen 42 Director. General Manager of Parsons Brinckerhoff Int'l.,
Inc., Taiwan Branch. Member of the Audit Committee and
Remuneration Committee.
Aaron Chik 52 Chief Financial Officer and Company Secretary.
James M. Keyes 40 Bermuda Resident Secretary.
AS&K Services Limited N/A Resident Representative in Bermuda.
Certain officers and directors of the Company are also officers and
directors of PEWC and/or PEWC affiliates, as described below:
Mr. Yu-Jeh Tung, Deputy Chairman of the Board of Directors of the
Company, is also a member of the board of directors of PEWC and serves as
Executive Chairman of Charoong Thai. He also serves on the boards of various
other subsidiaries and affiliates of PEWC.
Mr. Tom C.Y. Tung, Director and Chairman of the Company, is also the
President of PEWC. He also serves on the boards of various other subsidiaries
and affiliates of PEWC.
Mr. Jack T. Sun is a member of the Company's Board of Directors, as
well as Chairman of PEWC and Executive Vice Chairman of Charoong Thai. Mr. Sun
also serves on a number of other boards of PEWC affiliates.
Mr. David T.H. Sun is Director and Chief Executive Officer the Company.
He is also the Managing Director of Charoong Thai since 1994.
Mr. Charles C.Y. Han is a member of the Board of Directors of the
Company, a member of the Executive Committee and Chief Operating Officer of the
Company. Mr. Han also serves as General Manager of Sigma Cable, Managing
Director of APEC and Chairman of NPCDC.
Notwithstanding the relationships with PEWC or affiliates of PEWC, the
above named individuals, in their capacities as directors and officers of the
Company, are subject to fiduciary duties to the Company's shareholders.
Actions may be taken by a quorum of directors (which consists of at
least two directors) present at a board meeting. The Bye-Laws of the Company
provide that any one director may call a board meeting.
6.2 AUDIT COMMITTEE
The Audit Committee is a committee of the board of directors comprised
of the two independent directors, namely Mr. Charles Xue and Mr. Frank Chen. Its
primary function is to assist the board of directors in its oversight of: (i)
the reliability and integrity of accounting policies and financial reporting and
disclosure practices and (ii) the establishment and
51
maintenance of processes to ensure that there is compliance with all applicable
laws, regulations and company policy and an adequate system of internal control,
management of business risks and safeguard of assets.
This function is carried out by: (i) reviewing the appropriateness of
the accounting principles adopted by management in the composition and
presentation of financial reports; (ii) overseeing the financial reports and the
external audit of these reports; and (iii) overseeing the establishment and
management of risk limits and tolerances across our business and within our
subsidiaries.
The Audit Committee is solely and directly responsible for the
appointment, compensation and oversight of the work of our auditors. Our
auditors report directly to the Audit Committee. In addition, the Audit
Committee has authority to engage independent counsel and other advisers as it
determines is necessary to carry out its duties.
6.3 REMUNERATION COMMITTEE
In March 2003, the Board established a Remuneration Committee comprised
of the two independent directors, namely Mr. Charles Xue and Mr. Frank Chen.
This committee will help determine the remuneration to be paid to executive
directors of the Company.
6.4 COMPENSATION
The aggregate amount of compensation paid by the Company to all of the
Company's directors and executive officers, as a group, for services in all
capacities during 2002 was approximately $900,000. As of May 28, 2003, our
directors and executive officers beneficially owned 12,000 common shares
representing approximately 0.1% of the outstanding common shares.
The Company has authorized a stock option plan for directors and key
employees of the Company, pursuant to which any award of stock options will be
made only with the approval of the Board of Directors. The Company has granted
options to purchase 97,500 shares at the initial public offering price of $12.00
per share. These options vest in equal amounts over three years and are
exercisable for a period of ten years. The Company has reserved 650,000 common
shares for issuance under the plan.
6.5 EMPLOYEES
As of December 31, 2002, the Company employed a total of approximately
1,970 employees, of which 300 are administrative and management personnel. In
Thailand, the Company employs approximately 1,010 staff. In addition, the
Company has approximately 280 employees in Singapore, 60 employees in Australia,
530 employees in China and 90 employees in Malaysia. Production workers are
usually organized into two 12-hour shifts or three 8-hour shifts to allow
continuous factory operation.
The Company offers a range of employee benefits, which it believes are
comparable to industry practice in its local markets. Such benefits include
performance-based pay incentives, medical benefits, vacation, pension, housing
for a small number of workers in Singapore and in
52
Thailand, and a small housing supplement to other workers. The Company also
provides training programs for its personnel designed to improve worker
productivity and occupational safety.
Approximately 63% of the employees of Sigma Cable are members of the
United Workers of Electronics & Electrical Industries, an employees' union in
Singapore. Under the terms of a three-year collective agreement, signed in June
1999, the Company is required to negotiate salary and wage increases yearly. All
other worker benefits and employment terms are included in the collective
agreement. A new collective agreement is at present being negotiated and is
expected to be signed later this year. None of the employees of Siam Pacific,
Pacific Thai, Charoong Thai or APEC are members of a union.
The Company has never experienced a strike or other disruption due to
labor disputes. The Company considers its employee relations to be good and has
not experienced difficulties attracting and retaining qualified employees. In
Singapore, employee turnover is approximately 10% of total employees annually.
In Thailand, employee turnover is approximately 3% of total employees annually.
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.1 MAJOR SHAREHOLDERS
As of May 28, 2003, approximately 75.4% of the common shares of the
Company are indirectly owned by PEWC, a company incorporated in Taiwan and
listed on the Taiwan Securities Exchange. See Section 4.1.2 "Recent
Developments". The following table sets forth certain information regarding
ownership of the Company's capital stock as of May 28, 2003 by (i) all persons
who are known to the Company to own beneficially more than five percent of the
capital stock of the Company and (ii) the officers and directors of the Company
as a group. The voting rights attaching to the Common Shares below are the same
as those attaching to all other Common Shares.
Title of Class Identity of Person or Group Number of Percent of Class
Shares
- --------------- --------------------------------------- -------------- ------------------
Common Stock Pacific Electric Wire & Cable Co., 10,430,769 75.4%
Ltd.
Common Stock Heartland Advisors, Inc. (1) 1,645,000 11.9%
William J. Nasgovitz (1) 1,137,300 8.2%
President and Principal Shareholder
Heartland Advisors, Inc.
Common Stock Directors and Officers of the Company 12,000 0.1%
(1) Based on Schedule 13G filed February 12, 2003.
7.2 RELATED PARTY TRANSACTIONS
As at December 2002, the largest short-term loan of $1.5 million was
from Moon View Venture Limited, a subsidiary of PEWC. The loan is unsecured. As
at December 2002, the
53
largest long-term loan of $8.8 million was from PEWC Singapore Pte. Ltd., a
company controlled by PEWC. The loan is unsecured and consists of $3.0 million
being interest-free and the remaining portion bears interest at LIBOR plus 1%.
Interest has been paid quarterly. The loan is repayable after 2003.
Additional details regarding related party balances as of December 31,
2002 and related party transactions during the year 2002 are disclosed in Note
16 of Item 18: Financial Statements.
ITEM 8: FINANCIAL INFORMATION
8.1 LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
pending legal proceedings or the subject of proceedings of any governmental
authority nor, to the Company's knowledge, are any legal proceedings or
governmental proceedings likely or threatened which, if adversely determined,
would likely have a material adverse effect on the Company's condition
(financial or otherwise), results of operations or cash flows.
8.2 DIVIDEND POLICY
To date, the Company, a Bermuda company formed in 1996, has not paid
any dividends. While the Company has no present intention to pay dividends,
should it decide in the future to do so, as a holding company the Company's
ability to pay dividends, as well as to meet its other obligations, will depend
upon the amount of distributions, if any, received from the Company's operating
subsidiaries and other holdings and investments. The Company's operating
subsidiaries and other holdings and investments, from time to time, may be
subject to restrictions on their ability to make distributions to the Company,
including as a result of restrictive covenants contained in loan agreements,
restrictions on the conversion of local currency earnings into US dollars or
other hard currency and other regulatory restrictions. The foregoing
restrictions may also affect the Company's ability to fund operations of one
subsidiary with dividends and other payments received from another subsidiary.
ITEM 9: THE OFFER AND LISTING
9.1 HISTORICAL TRADING INFORMATION
From March 26, 1997 through December 31, 2001, the Company's common
shares were listed and traded on the New York Stock Exchange (the "NYSE") under
the symbol "AWC." Prior to such listing, there was no public market for the
Company's equity securities.
The NYSE has established certain continued listing criteria which
impose certain minimum requirements with respect to the per share price and the
aggregate value of the publicly traded securities of an issuer. In February
2001, the NYSE notified us that we had not been in compliance with those NYSE
requirements, and that the NYSE would be authorized to suspend trading in our
common shares and to commence delisting procedures subject to review and
approval of our business plan. During the course of 2001, our business plan was
submitted, amended and finally provisionally agreed with the NYSE, subject to
the right of the staff to
54
require continuous compliance within a designated time frame, which the Company
was not able to achieve, due to, among other factors, delays in approvals by
Thai regulatory authorities of the implementation of certain Thai-based elements
of the plan. On December 24, 2001, the staff of the NYSE announced that it has
determined that the trading of the common shares should be suspended prior to
December 31, 2001. The decision was reached in view of the fact that the Company
had fallen below the NYSE's continued listing standards. The Company appealed
the NYSE's decision, but its appeal was denied by a Committee of the Board of
Directors of the Exchange.
Following the suspension of trading of the common shares on the NYSE,
the common shares have been quoted on the "pink sheets" market by Pink Sheets
LLC, a privately owned company that provides pricing and financial information
for over-the-counter securities, under the symbol "AWRCF.PK".
Subsequent, to the quotation of the common shares on the "pink sheets"
market by Pink Sheets LLC, the Company established relationships with several
market markers and a public trading market for its common shares on the OTC BB.
It is traded on the OTC BB under the symbol "AWRCF.OB".
The common shares are not listed on any other exchanges or otherwise
publicly traded within or outside the United States.
The high and low sales price for common shares on the NYSE (up until
December 2001) and on the OTC BB (from February 2002 when the Company
re-established a public trading market for its common shares on the OTC BB) for
each quarterly period from the second quarter of 1997 to the first quarter of
2003, and the high and low prices for November through April 2003, are as
follows:
Price per Share ($)
-------------------------------
High Low
1997
First Quarter N/A N/A
Second Quarter 12 9.25
Third Quarter 14.0625 10.375
Fourth Quarter 11.5625 7.125
1998
First Quarter 8.75 7
Second Quarter 8 5
Third Quarter 6 1.875
Fourth Quarter 4.25 1.875
1999
First Quarter 4.75 2.25
Second Quarter 4.4375 2
55
Price per Share ($)
-------------------------------
High Low
Third Quarter 4.625 3.75
Fourth Quarter 4.125 3.3125
2000
First Quarter 4.625 3.625
Second Quarter 4.25 2.375
Third Quarter 3.375 2.50
Fourth Quarter 2.75 1.1875
2001
First Quarter 1.6875 0.67
Second Quarter 0.85 0.65
Third Quarter 0.90 0.74
Fourth Quarter 0.86 0.40
2002
First Quarter 0.73 0.32
Second Quarter 0.90 0.48
Third Quarter 0.65 0.29
Fourth Quarter 1.55 0.51
2003
First Quarter 1.06 0.83
PRIOR SIX MONTHS
November 2002 1.50 1.00
December 2002 0.93 1.39
January 2003 0.91 0.90
February 2003 1.02 0.85
March 2003 0.95 0.80
April 2003 0.92 0.80
9.2 NATURE OF THE TRADING MARKET
Our common shares are quoted and traded on the OCT BB operated by the
NASD, Inc., under the symbol "AWRCF.OB".
56
ITEM 10: OTHER INFORMATION
10.1 MEMORANDUM OF ASSOCIATION AND BYE-LAWS
10.1.1 GENERAL
For a detailed description of the Company's principal
activities see Section 4.1 History and Development of the Company. The Company's
Bye-laws, which have been incorporated by reference, are available for
inspection upon prior written notice during customary business hours at the
offices of the Company.
10.1.2 DESCRIPTION OF SHAREHOLDER RIGHTS ATTACHING TO OUR COMMON
SHARES
The Company was incorporated in Bermuda on September 19, 1996
under the Companies Act. The rights of our shareholders are governed by Bermuda
law and our memorandum of association and Bye-laws.
The following discussion of our common shares, and the laws
governing the rights of our shareholders, is based upon the advice of Appleby
Spurling & Kempe, our Bermuda counsel.
Our authorized share capital consists of 20,000,000 common
shares, par value $0.01 per share, of which, as of December 31, 2002, there are
13,830,769 common shares issued and outstanding.
o Holders of the common shares have no preemptive,
redemption, conversion or sinking fund rights.
o Holders of the common shares are entitled to one vote
per share on all matters submitted to a poll vote of
holders of common shares and do not have any cumulative
voting rights.
o In the event of our liquidation, dissolution or
winding-up and subject to any alternative resolution
that may be pursued by our shareholders, the holders of
common shares are entitled to share ratably in our
assets, if any, remaining after the payment of all our
debts and liabilities.
o Our outstanding common shares are fully paid and
nonassessable.
o Additional authorized but unissued common shares may be
issued by the board of directors without the approval
of the shareholders.
The holders of common shares will receive such dividends, if
any, as may be declared by the board of directors out of funds legally available
for such purposes. We may not declare or pay a dividend, or make a distribution
out of contributed surplus, if there are reasonable grounds for believing that:
57
o we are, or after the payment would be, unable to pay
our liabilities as they become due; or
o the realizable value of our assets after such payment
or distribution would be less than the aggregate amount
of our liabilities and our issued share capital and
share premium accounts.
The following is a summary of provisions of Bermuda law and
our organizational documents, including the Bye-laws. We refer you to our
memorandum of association and Bye-laws, copies of which have been filed with the
SEC. You are urged to read these documents for a complete understanding of the
terms of the memorandum of association and Bye-laws.
10.1.3 SHARE CAPITAL
Our authorized capital consists of one class of common shares.
Under our Bye-laws, our board of directors has the power to issue any authorized
and unissued shares on such terms and conditions as it may determine. Any shares
or class of shares may be issued with such preferred, deferred, qualified or
other special rights or any restrictions with regard to such matters, whether in
regard to dividend, voting, special rights, return of capital or otherwise, as
we may from time to time by resolution of the shareholders prescribe, or in the
absence of such shareholder direction, as the board of directors may determine.
10.1.4 VOTING RIGHTS
Generally, under Bermuda law and our Bye-laws, questions
brought before a general meeting are decided by a simple majority vote of
shareholders present or represented by proxy. Matters will be decided, by way of
votes cast by way of show of hands unless a poll is demanded.
If a poll is demanded, each shareholder who is entitled to
vote and who is present in person or by proxy has one vote for each common share
entitled to vote on such question. A poll may only be demanded under the
Bye-laws by:
o the chairman of the meeting;
o at least three shareholders present in person or by
proxy;
o any shareholder or shareholders present in person or by
proxy and holding between them not less than one-tenth
of the total voting rights of all shareholders having
voting rights;
o a shareholder or shareholders present in person or
represented by proxy holding common shares on which an
aggregate sum has been paid up equal to not less than
one-tenth of the total sum paid up on all common
shares.
58
Unless the board of directors otherwise determines, no
shareholder shall be entitled to vote at any general meeting unless all calls or
other sums presently payable by that shareholder in respect of all shares held
by such shareholder have been paid.
10.1.5 DIVIDEND RIGHTS
Under Bermuda law, a company may declare and pay dividends
unless there are reasonable grounds for believing that the company is, or would,
after the payment, be unable to pay its liabilities as they become due or that
the realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium
accounts.
Under our Bye-laws, each share is entitled to a dividend if,
as and when dividends are declared by the board of directors. The board of
directors may determine that any dividend may be paid in cash or, with the
sanction of a shareholders resolution, by distribution of specific assets
including shares or debentures. The board of directors may also pay any fixed
cash dividend which is payable on any of our common shares half-yearly or on
other dates, whenever our position, in the opinion of the board of directors,
justifies such payment.
Dividends, if any, on our common shares will be at the
discretion of our board of directors, and will depend on our future operations
and earnings, capital requirements, surplus and general financial conditions as
our board of directors may deem relevant.
10.1.6 PURCHASES BY A COMPANY OF ITS OWN COMMON SHARES
We may purchase our own common shares out of the capital paid
up on the common shares in question or out of funds that would otherwise be
available for dividend or distribution or out of the proceeds of a fresh issue
of common shares made for the purposes of the purchase. We may not purchase our
shares if, as a result, our issued share capital would be reduced below the
minimum capital specified in our memorandum of association.
However, to the extent that any premium is payable on the
purchase, the premium must be provided out of the funds of the company that
would otherwise be available for dividend or distribution or out of a company's
share premium account. Any common shares purchased by a company are treated as
cancelled and the amount of the company's issued capital is diminished by the
nominal value of the shares accordingly but shall not be taken as reducing the
amount of the company's authorized share capital.
10.1.7 PREEMPTIVE RIGHTS
Our Bye-laws do not provide the holders of our common shares
preemptive rights in relation to any issues of common shares by us or any
transfer of our shares.
10.1.8 VARIATION OF RIGHTS
We may issue more than one class of shares and more than one
series of shares in each class. If we have more than one class of shares, the
rights attached to any class of shares may be altered or abrogated either:
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o with the consent in writing of the holders of not less
than fifty percent of the issued common shares of that
class; or
o pursuant to a resolution passed at a general meeting of
the holders of such common shares, voting in proxy or
present, at which a quorum is present.
The Bye-laws provide that a quorum for a meeting shall be two
persons present in person or by proxy holding shares of the relevant class. The
Bye-laws specify that the creation or issue of shares ranking on parity with
existing shares will not, subject to any statement to the contrary in the terms
of issue of these shares or rights attached to those shares, vary the special
rights attached to existing shares.
10.1.9 TRANSFER OF COMMON SHARES
Subject to the "Transfer Restrictions" section below, a
shareholder may transfer title to all or any of his shares by completing an
instrument of transfer in the usual common form or in such other form as the
board of directors may approve. The form of transfer is required to be signed by
or on behalf of the transferor and also the transferee where any share is not
fully paid.
10.1.10 TRANSFER RESTRICTIONS
The board of directors may in its absolute discretion and
without assigning any reason refuse to register the transfer of any share that
is not fully paid.
The board of directors may refuse to register an instrument of
transfer of a share unless it:
o is duly stamped, if required by law, and lodged with
us;
o is accompanied by the relevant share certificate and
such other evidence of the transferor's right to make
the transfer as the board of directors shall reasonably
require;
o has obtained, where applicable, permission of the
Bermuda Monetary Authority; and
o is in respect of one class of shares.
Our common shares are no longer listed on an "appointed stock
exchange" and, therefore, do not qualify for a "blanket" authorization for free
transferability from the Bermuda Monetary Authority for all transfers of our
common shares between persons who are not resident in Bermuda for exchange
control purposes. The Bermuda Monetary Authority has informed us that it has no
objection to the continued free transferability of our common shares on the same
basis as when the Company was listed on the NYSE except that the Bermuda
Monetary Authority has requested it be informed of any new five percent or more
shareholders.
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10.1.11 TRANSMISSION OF SHARES
In the event of the death of a shareholder, the survivor or
survivors, where the deceased shareholder was a joint holder, or the legal
personal representative of such shareholder, including executors and
administrators, shall be the only persons recognized by us as having any title
to the shares of the deceased.
10.1.12 DISCLOSURE OF INTERESTS
Under the Companies Act, a director who has an interest in a
material contract or assignment, or a 10% or more interest (directly or
indirectly) in an entity that is interested in a contract or proposed contract
or arrangement with us, is obligated to declare the nature of such interest at
the first opportunity at a meeting of the board of directors, or by writing to
the board of directors. If the director has complied with the relevant sections
of the Companies Act and the Bye-laws with respect to the disclosure of his
interest, the director may vote at a meeting of the board of directors or a
committee thereof on a contract, transaction or arrangement in which that
director is interested and he will be taken into account in ascertaining whether
a quorum is present.
10.1.13 RIGHTS IN LIQUIDATION
Under Bermuda law, in the event of liquidation, dissolution or
winding-up of a company, after satisfaction in full of all claims of creditors
and subject to the preferential rights accorded to any series of preferred
stock, the proceeds of such liquidation, dissolution or winding-up are
distributed among the holders of shares in accordance with a company's Bye-laws.
Under our Bye-laws, if we are wound up, the liquidator may,
pursuant to a resolution of the shareholders and any approval required by the
Companies Act, divide among the shareholders in cash or other assets the whole
or part of our assets, whether they shall consist of property of the same kind
or not and may for such purposes set such values as he deems fair upon any
property to be divided and may determine how such division shall be carried out
as between the shareholders.
10.1.14 MEETINGS OF SHAREHOLDERS
Under Bermuda law, a company is required to convene at least
one general meeting per calendar year. The directors of a company,
notwithstanding anything in its Bye-laws, shall, on the requisition of the
shareholders holding at the date of the deposit of the requisition not less than
one-tenth of the paid-up capital of the company carrying out the right of vote,
duly convene a special general meeting.
The Bye-laws provide that the board of directors may convene a
special general meeting whenever in their judgment such a meeting is appropriate
or necessary. Bermuda law requires that shareholders be given at least five
days' notice of a meeting of the company. Our Bye-laws extend this period to
provide that not less than 20 days' written notice of a general meeting must be
given to those shareholders entitled to receive such notice. The accidental
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omission to give notice to or nonreceipt of a notice of a meeting by any person
does not invalidate the proceedings of a meeting.
Our Bye-laws state that no business can be transacted at a
general meeting unless a quorum of at least two shareholders representing a
majority of the issued shares of the company are present in person or by proxy
and entitled to vote. A shareholder present at a general meeting or a meeting of
a class of shareholders in person or by proxy shall be deemed to have received
appropriate notice of the meeting.
Under our Bye-laws, notice to any shareholders may be
delivered either personally or by sending it through the post, by airmail where
applicable, in a pre-paid letter addressed to the shareholder at his address as
appearing in the share register or by delivering it to, or leaving it at such
registered address. A notice of a general meeting is deemed to be duly given to
the shareholder if it is sent to him by cable, telex or telecopier.
10.1.15 ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION
Under Bermuda law, members of the general public have the
right to inspect the public documents of a company available at the office of
the Bermuda Registrar of Companies. These documents include the memorandum of
association and any amendment to the memorandum of association.
Our shareholders and directors have the additional right to
inspect our minute books and our audited financial statements, which must be
presented at an annual general meeting.
Our Bye-laws provide that the register of shareholders of a
company is required to be open for inspection between 10:00 a.m. and 12:00 noon
each working day without charge and to members of the general public on the
payment of a fee. A company is required to maintain its share register in
Bermuda but may, subject to the provisions of the Companies Act, establish a
branch register outside of Bermuda. We have established a branch register with
our transfer agent, EquiServe Trust Company, N.A.
Under Bermuda law, a company is required to keep at its
registered office a register of its directors and officers that is open for
inspection for not less than two hours in each day by members of the public
without charge. Under our Bye-laws, the register of directors and officers are
available for inspection by the public between 10:00 a.m. and 12:00 noon every
working day. Bermuda law does not, however, provide a general right for
shareholders to inspect or obtain copies of any other corporate records.
10.1.16 ELECTION OR REMOVAL OF DIRECTORS
The Bye-laws provide that the number of directors will be such
number not less than two, as our shareholders by resolution may from time to
time determine. A director will serve until his successor is appointed or his
prior removal in the manner provided by the Companies Act or the Bye-laws.
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The board shall have the power at any time and from time to
time to appoint any individual to be a director so as to fill a casual vacancy.
The board may approve the appointment of alternative directors.
We may, in a special general meeting called for this purpose,
remove a director, provided notice of such meeting is served upon the director
concerned not less than fourteen days before the meeting and he shall be
entitled to be heard at that meeting.
The office of a director will be vacated in the event of any
of the following:
o if he resigns his office by notice in writing to be
delivered to our registered office or tendered at a
meeting of the board of directors;
o if he becomes of unsound mind or a patient for any
purpose under any statute or applicable law relating to
mental health;
o if he becomes bankrupt under the law of any country or
enters into a general settlement with his creditors;
o if he is prohibited by law from being a director; or
o if he ceases to be a director by virtue of the
Companies Act or is removed from office pursuant to the
Bye-laws.
10.1.17 AMENDMENT OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS
Bermuda law provides that the memorandum of association of a
company may be amended by resolution passed at a general meeting of which due
notice has been given. An amendment to a memorandum of association does not
require the consent of the Minister of Finance save for specific circumstances,
for example, the adopting of any special corporate purpose.
Under Bermuda law, the holders of:
o an aggregate of not less than twenty percent in par
value of the Company's issued common shares; or
o not less in the aggregate than twenty percent of the
company's debentures entitled to object to amendments
to its memorandum of association,
have the right to apply to the Supreme Court of Bermuda for an annulment of any
amendment of the memorandum of association. Where such an application is made,
the amendment becomes effective only to the extent that it is confirmed by the
Bermuda Supreme Court. An application for an annulment of an amendment of the
memorandum of association must be made within twenty-one days after the date on
which the resolution amending the memorandum of association is passed and may be
made on behalf of the persons entitled to make the application by one or more of
their number as they may appoint in writing for the purpose.
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Our Bye-laws may be amended in the manner provided for in the Companies Act,
which provides that the directors may amend the Bye-laws, provided that any such
amendment shall be effective only to the extent approved by the shareholders.
10.1.18 MERGER OR CONSOLIDATION (AMALGAMATION)
The Companies Act provides that, subject to the terms of a
company's Bye-laws, the merger or consolidation of a Bermuda company with
another company requires the merger or consolidation agreement to be approved by
the board of directors and at a meeting of the shareholders by seventy-five
percent of the shareholders present and entitled to vote at such meeting in
respect of which the quorum shall be two persons holding or representing at
least one-third of the issued shares of the company.
Under Bermuda law, in the event of a merger or consolidation
of a Bermuda company, a shareholder who did not vote in favor of the transaction
and who is not satisfied that fair value has been offered for the shares, may
apply to a Bermuda court within one month of notice of the meeting of
shareholders to appraise the fair value of those shares.
10.1.19 CLASS ACTIONS AND DERIVATIVE ACTIONS
Class actions and derivative actions are generally not
available to shareholders under Bermuda law. A shareholder may commence an
action in the name of a company to remedy a wrong done to the company where the
act complained of is alleged to be beyond the corporate power of the company, or
is illegal or would result in the violation of the company's memorandum of
association or Bye-laws. Furthermore, consideration would be given by a Bermuda
court to acts that are alleged to constitute a fraud against the minority
shareholders or, for instance, where an act requiring the approval of a greater
percentage of the company's shareholders than those who actually approved it.
When one or more shareholders believes the affairs of a
company are being conducted in a manner which is prejudicial to the interest of
some of the shareholders, a Bermuda court, upon petition, may make such order as
it sees fit, including an order regulating the conduct of the company's affairs
in the future or ordering the purchase of the shares of any shareholders by
other shareholders or by the company.
10.1.20 REGISTRAR OR TRANSFER AGENT
Our transfer agent and registrar is EquiServe Trust Company,
N.A. In addition to a register held by our transfer agent, a register of holders
of the shares is maintained by Appleby Spurling & Kempe in Bermuda located at
Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda.
10.1.21 PERSONAL LIABILITY OF DIRECTORS AND INDEMNITY
The Companies Act requires every officer, including directors,
of a company in exercising powers and discharging duties, to act honestly in
good faith with a view to the best interests of the company, and to exercise the
care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. The Companies Act further provides that
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any provision whether in the Bye-laws of a company or in any contract between
the company and any officer or any person employed by the company as auditor
exempting such officer or person from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him, in
respect of any fraud or dishonesty of which he may be guilty in relation to the
company, shall be void.
Every director, officer, resident representative and committee
member shall be indemnified out of our funds against all civil liabilities,
loss, damage or expense including liabilities under contract, tort and statute
or any applicable foreign law or regulation and all reasonable legal and other
costs and expenses properly payable, incurred or suffered by him as director,
officer, resident representative or committee member; provided that the
indemnity contained in the Bye-laws will not extend to any matter which would
render it void under the Companies Act as discussed above.
10.1.22 EXCHANGE CONTROLS
We have been designated by the Bermuda Monetary Authority as a
nonresident under the Exchange Control Act of 1972 (the "Exchange Act"). This
designation will allow us to engage in transactions in currencies other than the
Bermuda dollar.
The transfer of common shares between persons regarded as
resident outside Bermuda for exchange control purposes and the issue of common
shares to such persons may be effected without specific consent under the
Control Act and regulations thereunder. Issues and transfers of common shares to
any person regarded as resident in Bermuda for exchange control purposes require
specific prior approval from the Bermuda Monetary Authority under the Control
Act.
Under Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity, for example an executor or a trustee, certificates
may, at the request of the applicant, record the capacity in which the applicant
is acting.
Notwithstanding the recording of any special capacity, we are
not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.
We will take no notice of any trust applicable to any of our
common shares whether or not we had notice of such trust.
As an "exempted company", we are exempt from Bermuda laws
which restrict the percentage of share capital that may be held by
non-Bermudians. However, as an exempted company we may not participate in
certain designated business transactions, which we do not consider relevant to
our present or planned business activities.
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10.2 MATERIAL CONTRACTS
Composite Services Agreement
The Company engages in transactions in the ordinary course of business
with PEWC, including the purchase of certain raw materials and the distribution
of PEWC products in various countries in the Asia Pacific region. The Company
and PEWC are parties to a composite services agreement dated November 7, 1996
(the "Composite Services Agreement"), which originally expired on November 7,
1999 (but has been renewed yearly at the option of the Company), which contains
provisions that define the relationship and the conduct of the respective
businesses of the Company and PEWC and confers certain preferential benefits on
the Company. Pursuant to the Composite Services Agreement:
o PEWC agrees to (a) sell copper rod to the Company, upon the
Company's request, (i) at a price consisting of the spot price of
copper on the LME plus an agreed upon premium and (ii) at prices
and on terms at least as favorable as PEWC provides copper rod to
other purchasers of similar amounts of copper rod in the same
markets, and (b) give priority in the supply of copper rod to the
Company over other purchasers of copper rod from PEWC.
o The Company has the right to distribute any wire or cable product
manufactured by PEWC in all markets in which the Company
presently distributes or develops the capability to distribute in
the future such products on such terms as have historically been
in effect or on terms at least as favorable as PEWC grants to
third parties that distribute such products in such markets.
However, PEWC is not required to grant to the Company the right
to distribute products manufactured by PEWC in the future in
markets where the Company does not currently have the capability
to distribute unless and until PEWC has no pre-existing
contractual rights which would conflict with the grant of such
right to the Company.
o Each of PEWC and the Company will notify the other party prior to
entering into any negotiations with a third party concerning the
establishment of any facility or similar venture to manufacture
or distribute any wire or cable product outside of the markets
where the Company currently manufactures or distributes, or
intends to develop the capability to manufacture or distribute,
any wire or cable product. Unless the Company and PEWC mutually
agree otherwise, the Company has the right of first refusal to
enter into any definitive agreement with such third party. If,
however, such third party would not agree to the substitution of
the Company for PEWC or such substitution would prevent the
successful completion of the facility or venture, PEWC has agreed
to arrange for the Company to participate to the extent possible.
o PEWC agrees to make available to the Company, upon the Company's
request and on terms to be mutually agreed between PEWC and the
Company from time to time, certain services with respect to the
design and manufacture of wire and cable products,
computerization, inventory control, purchasing, internal
auditing,
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quality control, emergency back-up services, and recruitment and
training of personnel; such services may include the training of
the Company's employees and managers at PEWC facilities and the
secondment of PEWC employees and managers to the Company.
o Without the consent of the Company, PEWC will not compete with
respect to the manufacture or distribution of wire and cable
products in any market in which the Company is manufacturing or
has taken significant steps to commence manufacturing.
o For purposes of the Composite Services Agreement, each province
in China is considered the equivalent of a country.
To the extent that transactions occur in the future between the Company
and PEWC or affiliates of PEWC other than under the Composite Services
Agreement, such transactions will be entered into on an arm's length basis on
terms no less favorable than those available from unaffiliated third parties.
Indemnification Agreement
The Company and PEWC are parties to an indemnification agreement dated
November 6, 1996 (the "Indemnification Agreement"), pursuant to which PEWC
agreed to indemnify the Company (including the Company's directors, officers,
employees and agents) against any cost, expense, loss, liability or damage
arising out of any claim asserted or threatened to be asserted by any third
party as a result of certain actions taken or failed to be taken by PEWC or its
subsidiaries (other than the Company) prior to March 1997 with respect to Sigma
Cable, Sino-Sin, APEC, Siam Pacific, Siam Pacific Holding Company, Pacific Thai,
Charoong Thai and NPCDC, following the exercise by the Company of its option to
purchase, directly or indirectly, each of them (collectively, the "Transferred
Businesses"). PEWC has a duty to indemnify the Company if such cost, expense,
loss, liability or damage arises out of claims resulting from the actions or
inactions of PEWC or its subsidiaries, with respect to the Transferred
Businesses, to the extent such action or failure to act was not in compliance
with applicable laws and regulations or obligations to third parties and, with
respect to Charoong Thai, is limited to situations of which PEWC had knowledge.
Agreement for the Sale and Purchase of (i) Shares in Crown Century
Holdings Limited and (ii) Shareholder's Loan
The Company's wholly-owned subsidiary, PRC (APWC) Holdings Ltd. (the
"Purchaser") and Kinbong Holdings Limited ("Kinbong"), a wholly-owned subsidiary
of PEWC entered into an Agreement for the Sale and Purchase of (i) Shares in
Crown Century Holdings Limited and (ii) Shareholder's Loan pursuant to which the
Company has issued common shares of the Company to Kinbong in exchange for the
transfer of all the issued and outstanding capital stock of CCH which controls
100% of PEWS, to the Purchaser, and the assignment to the Purchaser of the
shareholder's loan advanced by Kinbong to CCH. The transaction was consummated
following approval by the Board of Directors and shareholders of the Company on
March 22, 2002.
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10.3 ENVIRONMENTAL MATTERS
The Company believes that all of its operations are in compliance with,
and in certain circumstances exceed, all applicable environmental laws and
regulations in Thailand, Singapore, Australia and China. The Company has not
been subject to any legal, regulatory or other action alleging violations or
breaches of environmental standards. While the Company does not believe that the
nature of its operations create environmental hazards, no assurance can be given
that new environmental laws or regulations in Thailand, Singapore, Australia,
China or elsewhere, will not, in the future, require changes in the Company's
production processes or otherwise adversely affect the Company's operations and
financial condition.
10.4 INSURANCE
The Company maintains insurance policies covering certain buildings,
machinery and equipment against specified amounts of damage or loss caused by
fire, flooding, other natural disasters and burglary and theft. The Company does
not carry insurance for consequential loss arising from business interruptions
or political disturbances and does not carry product liability insurance. The
Company believes that it maintains insurance coverage commensurate with the
nature of and risks associated with its business.
10.5 CREDIT SUPPORT
PEWC has provided credit support to the Company and its subsidiaries
through the provision of direct loans, credit terms in inter-company trade
balances between PEWC and the operating subsidiaries and corporate guarantees
for trade and credit facilities from banks and financial institutions for the
purposes of financing working capital, capital expenditures, acquisitions and
expansion programs. There can be no assurance that PEWC would continue to
provide such support in the future if Swiss Re foreclosed on the Pledged Shares
or for some other reason.
10.6 TAXATION
The following is a summary of certain tax consequences of the
acquisition, ownership and disposition of common shares based on the tax laws of
the United States and Bermuda. Such summary is subject to changes in United
States and Bermuda law, including changes that could have retroactive effect.
The following summary does not take into account the individual circumstances of
an investor, nor does it purport to be a complete technical analysis or
examination of all potential tax effects relevant to a decision to purchase
common shares.
10.6.1 UNITED STATES TAXATION
The following is a summary of certain United States federal
income tax consequences of the acquisition, ownership and disposition of common
shares by a U.S. Holder (as defined below). The summary does not purport to be a
comprehensive description of all possible tax considerations that may be
relevant to a decision to purchase common shares. In particular, this summary
deals only with common shares held as capital assets and does not address the
United States tax treatment of U.S. Holders that are subject to special
treatment under
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the United States Internal Revenue Code of 1986, as amended (the "Code"), such
as dealers in securities, financial institutions, life insurance companies,
tax-exempt entities, persons holding shares as part of a hedging or conversion
transaction or a straddle, or persons whose functional currency is not the
United States dollar or who own (directly, indirectly or by attribution) 10% or
more of the stock of the Company. Consequently, prospective purchasers who are
U.S. Holders are advised to satisfy themselves as to the overall United States
federal, state and local tax consequences of their acquisition of, ownership and
disposition of common shares by consulting their own tax advisors.
The statements of United States tax laws set out below are
based on the laws in force as of the date of this Annual Report and may be
subject to any changes in United States law occurring after such date.
As used herein, the term "U.S. Holder" shall mean a beneficial
owner of common shares that is (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or any state (or the District of Columbia),
(iii) an estate, the income of which is subject to U.S. federal income tax
regardless of its source, or (iv) a trust, if 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" (as defined in Section 7701(a)(30) of the
Code) have the authority to control all substantial decisions of the trust.
Taxation of Dividends
A U.S. Holder receiving a distribution with respect to common
shares generally will be required to include such distribution in gross income
(as ordinary income subject to regular, and not reduced, tax rates) on the day
received as foreign source dividend income to the extent such distribution is
paid from the Company's current or accumulated earnings and profits (as
determined under United States federal income tax principles). Such dividends
will not be eligible for the dividends received deduction (generally allowed to
certain United States corporations in respect of dividends received from United
States corporations). U.S. Holders that are corporations and directly own 10% or
more of the voting stock of the Company may be entitled to claim a foreign tax
credit for United States federal income tax purposes in respect of foreign taxes
paid by the Company and certain subsidiaries.
To the extent any distribution exceeds the current and
accumulated earnings and profits of the Company for a taxable year, the
distribution will be treated as a non-taxable return of capital to the extent of
the U.S. Holder's adjusted tax basis in the common shares with respect to which
the distribution is made, causing a reduction in the adjusted basis of the
common shares (thereby increasing the amount of gain, or decreasing the amount
of loss, to be recognized by the U.S. Holder on a subsequent disposition of the
common shares). To the extent such distribution exceeds the U.S. Holder's
adjusted tax basis in the common shares, such excess will be treated as capital
gain.
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Taxation of Capital Gains
For United States federal income tax purposes, a U.S. Holder
will recognize taxable gain or loss on any sale or exchange of common shares in
an amount equal to the difference between the amount realized for the common
shares and the U.S. Holder's adjusted tax basis in the common shares. Such gain
or loss generally will be capital gain or loss and will be long-term capital
gain or loss if the common shares have been held for more than one year on the
date of the sale or exchange thereof, and will be short-term capital gain or
loss if the common shares have been held for one year or less on the date of the
sale or exchange thereof. Any gain recognized by a U.S. Holder generally will be
treated as United States source income. In general, an individual's long term
capital gains are subject to U.S. federal income tax at a current maximum
marginal rate of 15%, or 5% in the case of individuals in the 10% or 15% income
tax brackets. (If an individual is subject to the "alternative minimum tax", the
maximum effective tax rate on long-term capital gains will be 26% to 28%.)
Long term capital gains of corporations generally are subject
to the U.S. federal income tax at a current maximum marginal rate of 35%.
Short-term capital gain generally is taxable at ordinary income rates. Although
capital gains of corporations currently are taxed at the same rates as ordinary
income, the distinction between capital gain and ordinary income or loss is
relevant for purposes of, among other things, limitations on the deductibility
of capital losses. Corporations may deduct capital losses only to the extent of
capital gains and generally may carry back capital losses to each of the
preceding three years and carry forward capital losses to each of the succeeding
five years. Individuals may deduct capital losses to the extent of capital gains
plus up to $3,000 ($1,500 for married individuals filing separate returns) and
may carry over long-term capital losses indefinitely.
Backup Withholding
In general, information reporting requirements may be
applicable to dividend payments (or other taxable distributions) made in respect
of common shares to non-corporate U.S. Holders, and "backup withholding" at the
rate of 28% will apply to such payments (i) if the holder or beneficial owner
fails to provide a taxpayer identification number in the manner required by U.S.
law and applicable regulations, (ii) if the Internal Revenue Service notifies
the payor that the taxpayer identification number furnished by the holder or
beneficial owner is incorrect, (iii) if there has been notification from the
Internal Revenue Service of a failure by the holder or beneficial owner to
report all interest or dividends required to be shown on its U.S. federal income
tax returns or (iv) in certain circumstances, if the holder or beneficial owner
fails to comply with applicable certification requirements. In general, payment
of the proceeds from a sale of common shares to or through a U.S. office of a
broker is subject to both U.S. backup withholding and information reporting
unless the holder or beneficial owner certifies as to its non-U.S. status or
otherwise establishes an exemption. Amounts withheld under the backup
withholding rules may be credited against a holder's tax liability, and a holder
may obtain a refund of any excess amounts withheld under the backup withholding
rules by timely filing the appropriate claim for refund with the Internal
Revenue Service. Payment of the proceeds from the sale of common shares effected
outside the United States by a foreign office of certain U.S. connected brokers
will not be subject to backup withholding tax but will be subject to information
reporting requirements unless the broker has documentary evidence in its records
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that the beneficial owner is a non-United States holder and has no actual
knowledge to the contrary, or the beneficial owner otherwise establishes an
exemption.
Passive Foreign Investment Company
In general, the Company will be considered to be a passive
foreign investment company ("PFIC") for United States Federal income tax
purposes for any taxable year if either (i) at least 75% of the gross income of
the Company is passive income or (ii) at least 50% of the value (determined on
the basis of a quarterly average) of the Company's assets is attributable to
assets that produce or are held for the production of passive income. The
Company believes, based on its current operations and assets, that it is not a
PFIC and does not expect to become a PFIC in the future. This conclusion is a
factual determination based on, among other things, a valuation of the Company's
assets, which value will likely change from time to time.
If the Company were a PFIC for any taxable year during which a
U.S. Holder held common shares, the U.S. Holder would be subject to special tax
rules with respect to (i) any "excess distribution" by the Company to the U.S.
Holder (generally any distribution received by the U.S. Holder in a taxable year
that is greater than 125% of the average annual distributions received by the
U.S. Holder in the three preceding taxable years, or the U.S. Holder's holding
period for the common shares, if shorter) and (ii) any gain realized on the sale
or other disposition (including a pledge) of common shares.
Under these special tax rules, (i) the excess distribution or
gain would be allocated ratably over the U.S. Holder's holding period for the
common shares, (ii) the amount allocated to the U.S. Holder's current taxable
year and to any period prior to the first taxable year in which the Company was
a PFIC would be includible as ordinary income in the U.S. Holder's current
taxable year and (iii) the amount allocated to a prior year during which the
Company was a PFIC would be subject to tax at the highest tax rate in effect for
that year, and an interest charge would also be imposed with respect to the
resulting tax attributable to each such prior year. The interest charge is
computed using the applicable rate imposed on underpayments of U.S. federal
income for the relevant periods.
The special tax rules described above will not apply to a U.S.
Holder if the U.S. Holder elects to have the Company treated as a "qualified
electing fund" (a "QEF election") and the Company provides certain information
to U.S. Holders. If the Company is treated as a PFIC, it will notify the U.S.
Holders and provide such holders with the information necessary to make an
effective QEF election, including information as to the procedures for making
such an election. The QEF election is made on a shareholder-by-shareholder basis
and can ordinarily be revoked only with the consent of the IRS.
A U.S. Holder that makes a valid QEF election will be
currently taxable on its pro rata share of the Company's ordinary earnings and
net capital gain (at ordinary income and capital gains rates, respectively) for
each taxable year that the Company is classified as a PFIC, regardless of
whether distributions are received. Thus, the U.S. Holder may recognize taxable
income without receiving any cash to pay its tax liability with respect to such
income. The U.S. Holder's basis in the common shares will be increased to
reflect taxed but undistributed income.
71
Distributions of income that have been previously taxed will result in a
corresponding reduction of basis in the common shares and will not be taxed
again as a distribution to the U.S. Holder.
A U.S. Holder who owns common shares during any year that the
Company is a PFIC must file Internal Revenue Service Form 8621. U.S. Holders
should consult their tax advisors concerning the United States Federal income
tax consequences of holding common shares and of making the QEF election if the
Company were considered a PFIC.
Controlled Foreign Corporation
More than 50 percent of the Company's voting stock is owned by
a single U.S. corporate shareholder. Consequently, the Company is a "controlled
foreign corporation". U.S. persons owning (directly, indirectly or by
attribution) 10 percent or more of the Company's voting stock are subject to a
special U.S. tax regime with respect to their stock and their shares of certain
types of income of the Company. Any such 10 percent shareholders are advised to
consult with their own tax advisors.
10.6.2 BERMUDA TAXATION
In the opinion of Appleby Spurling & Kempe, the following
discussion correctly describes certain tax consequences of the ownership of
common shares under Bermuda law.
Under current Bermuda law, there are no taxes on profits,
income or dividends nor is there any capital gains tax. Furthermore, the Company
has received from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act of 1966, as amended, an undertaking that, in the
event that Bermuda enacts any legislation imposing tax computed on profits or
income, including any dividend or capital gains withholding tax, or computed on
any capital asset, gain or appreciation, or any tax in the nature of estate duty
or inheritance tax, then the imposition of any such tax shall not be applicable
to the Company or to any of its operations, or the shares, debentures or other
obligations of the Company, until March 28, 2016. This undertaking does not,
however, prevent the imposition of any such tax or duty on such persons as are
ordinarily resident in Bermuda and holding such shares, debentures or
obligations of the Company or of property taxes on Company-owned real property
or leasehold interests in Bermuda.
As an exempted company, the Company must pay to the Bermuda
government an annual registration fee calculated on a sliding-scale basis by
reference to its assessable capital, that is, its authorized share capital plus
any share premium.
There is no stamp duty or other transfer tax payable upon the
transfer of shares in a Bermuda company by shareholders not ordinarily resident
in Bermuda for exchange control purposes.
The United States does not have a comprehensive income tax
treaty with Bermuda.
72
10.7 DOCUMENTS ON DISPLAY
We are required to comply with the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable to
a foreign private issuer. We will file annually a Form 20-F no later than six
months after the close of our fiscal year, which is December 31st. As a foreign
private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of proxy statements, and our officers, directors and
principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act.
Our reports and other information, when so filed, may be inspected and
copied (at prescribed rates) at the public reference facilities maintained by
the Securities and Exchange Commission (the "SEC") at Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information. In addition, the SEC maintains a web site that contains
information filed electronically with the SEC, which can be accessed over the
Internet at http://www.sec.gov.
We have filed all our reports electronically since November 4, 2002.
Such reports can be accessed over the Internet at http://www.sec.gov.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to financial market risks derives primarily from the
changes in interest rates, foreign exchange rates and the commodity price of our
primary raw material, copper.
11.1 FOREIGN CURRENCY EXPOSURE
Changes in currency exchange rates influence the Company's results of
operations. The Company's principal operations are located in Thailand and
Singapore and a substantial portion of its revenues are denominated in Baht or
Singapore dollars. Nearly all of the raw materials for these operations are
imported and paid for in US dollars and a substantial portion of the Company's
future capital expenditures are expected to be in US dollars. The Company
requires a significant amount of US dollars for its ongoing equipment upgrade
and maintenance programs. Although the Company's reporting currency is US
dollars, the functional currency of its Singapore operations, which accounted
for approximately 30.6% of Company sales (including sales of Distributed
Products) in 2002, is the Singapore dollar, and the functional currency of its
Thai operations, which accounted for approximately 44.5% of Company sales in
2002, is the Baht. Accordingly, any devaluation of the Baht or the Singapore
dollar against the US dollar increases the effective cost of foreign
manufacturing equipment and the amount of foreign currency denominated expenses
and liabilities and has an adverse impact on the operations of the Company.
We have entered into derivative financial instruments on a selective
basis throughout the year to mitigate foreign currency fluctuation risks arising
from operating activities. The application of these instruments is primarily for
currency hedging purposes and not for trading purposes. The Company uses Thai
Baht forward foreign exchange contracts to reduce its exposure to foreign
currency risk for liabilities denominated in foreign currency. A forward
73
foreign exchange contract obligates the Company to exchange predetermined
amounts of specified foreign currencies at specified exchange rates on specified
dates or to make an equivalent US dollar payment equal to the value of such
exchange. Realized and unrealized gains and losses on foreign exchange contracts
are included in income as foreign exchange gains or losses.
As of December 31, 2002, we have entered into Thai Baht forward
exchange contracts with an aggregate notional contract amount of $1.0 million,
all of which are for terms of not more than a year and maturing in 2003.
The fair value of the forward exchange contracts, which refers to the
exchange gain or loss on the contracts, as at December 31, 2002 was $1,000.
FORWARD EXCHANGE CONTRACTS Expected Maturity Date
As of December 31, 2002 2003 2004 2005 2006 2007 Thereafter Total
(In thousands of US$)
-----------------------------------------------------------------------
(In thousands of US$, except exchange rates)
US$/Thai Baht
Notional Contract Amount 1,009 -- -- -- -- -- 1,009
Average contractual exchange
rate 43.291 -- -- -- -- --
11.2 INTEREST RATE RISK
As of December 31, 2002
(In thousands of US$)
Bank loan 1,800
Less: Current portion (1,125)
--------
675
--------
During 2002 interest paid totaled $1.4 million. The bank loan
outstanding on December 31, 2002 is secured by land and buildings of a
subsidiary (the "Subsidiary") of the Company with a net book value of $2.7
million on December 31, 2002 and the requirement to maintain a certain minimum
percentage holding of the Subsidiary.
The above loan bears interest at the bank's bill rate plus 1%, and the
average interest rate in 2002 was approximately 8.8%. The above loan as at
December 31, 2002 is due for repayment over the next two years.
We have cash flow and earnings exposure due to market interest rate
changes for our floating debt obligations. We manage the exposure to financial
market risk by performing ongoing evaluations of our debt portfolios and
restructuring our financial instruments accordingly to provide the optimum
interest structure. A half percentage point change in interest rates would
affect our interest payments by approximately 6.0% annually.
74
11.3 RISKS RELATING TO COPPER
Copper is the principal raw material we use, accounting for
approximately 55% of the cost of sales in 2002. We purchase copper at prices
based on the average prevailing international spot market prices on the London
Metal Exchange (the "LME") for copper for the one month prior to purchase. The
price of copper is influenced heavily by global supply and demand as well as
speculative trading. As with other costs of production, an increase in the price
of copper will increase our cost of sales. Whether this has a material impact on
our operating margins and financial results depends primarily on our ability to
pass on these increased costs to our customers. The purchase price of our
products is based in part on the cost of copper used to manufacture those
products. In addition, in the ordinary course of business we maintain
inventories of raw materials and finished products reasonably necessary for the
conduct of our business. These inventories typically reflect the cost of copper
prevailing in the market at the time we purchase. Most of our sales of
manufactured products reflect copper prices prevailing at the time the products
are ordered. Copper prices have been subject to considerable volatility in
recent years and this volatility has had a significant impact on our revenues
and profits. Accordingly, significant volatility in copper prices could have an
adverse effect on our operations. No assurance can be given that such volatility
will not continue to recur.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
(Not Applicable)
PART II
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
(Not Applicable)
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
(Not Applicable)
ITEM 15: DISCLOSURE CONTROLS AND PROCEDURES
Our chief executive officer and our chief financial officer, after
evaluating the effectiveness of our disclosure controls and procedures within 90
days of the date of this annual report, have concluded that, as of that date,
our disclosure controls and procedures were effective to ensure that material
information relating to us was made known to them by others within our Company
particularly during the period in which this annual report was being prepared.
There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the
circumvention or overriding of the disclosure controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives.
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls and procedures subsequent
to the date our chief executive
75
officer and our chief financial officer completed their evaluation, nor were
there any significant deficiencies or material weaknesses in our internal
controls requiring corrective actions.
ITEM 16: [RESERVED]
PART III
ITEM 17: FINANCIAL STATEMENTS
The Company has elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17.
ITEM 18: FINANCIAL STATEMENTS
See pages F-1 to F-63.
ITEM 19: EXHIBITS
19.1 INDEX TO ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AUDITED
FINANCIAL STATEMENTS
Report of independent auditors F-2
Consolidated balance sheets as of December 31, F-3
2001 and 2002
Consolidated statements of operations for the
years ended December 31, 2000, 2001 and 2002 F-5
Consolidated statements of shareholders' equity for the
years ended December 31, 2000, 2001 and 2002 F-6
Consolidated statements of cash flows for the
years ended December 31, 2000, 2001 and 2002 F-7
Notes to consolidated financial statements F-8
19.2 INDEX TO EXHIBITS
1.1 Memorandum of Association of Asia Pacific Wire & Cable Corporation
Limited (incorporated by reference to Exhibit 1.1 of the Company's
Form 20-F filed with the Securities and Exchange Commission on June
21, 2001)
1.2 Bye-Laws of Asia Pacific Wire & Cable Corporation Limited
(incorporated by reference to Exhibit 2.1 of the Company's Form 20-F
filed with the Securities and Exchange Commission on June 21, 2001)
76
4.1 Composite Services Agreement (incorporated by reference to Exhibit 3.1
of the Company's Form 20-F filed with the Securities and Exchange
Commission on June 21, 2001)
4.2 Indemnification Agreement dated November 6, 1996 (incorporated by
reference to Exhibit 10.2 of the Company's Form F-1 filed with the
Securities and Exchange Commission on November 13, 1996)
4.3 Agreement for the Sale and Purchase of (i) Shares in Crown Century
Holdings Limited and (ii) Shareholder's Loan (incorporated by
reference to Exhibit 5.1 of the Company's Form 20-F filed with the
Securities and Exchange Commission on July 1, 2002)
8 List of significant subsidiaries (see Note 1 to the consolidated
financial statements)
10 Certification under Section 906 of the Sarbanes Oxley Act.
77
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ASIA PACIFIC WIRE & CABLE
CORPORATION LIMITED
/s/ Tom Tung
-----------------------
Date: Tom Tung
Chairman
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
CERTIFICATION
I, David Sun, Chief Executive Officer of Asia Pacific Wire & Cable
Corporation Limited, certify that:
1. I have reviewed this annual report on Form 20-F of Asia Pacific
Wire & Cable Corporation Limited;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days before
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6. The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: May 28, 2003 /s/ David Sun
---------------------------
David Sun
Chief Executive Officer
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
CERTIFICATION
I, Aaron Chik, Chief Financial Officer of Asia Pacific Wire & Cable
Corporation Limited, certify that:
1. I have reviewed this annual report on Form 20-F of Asia Pacific
Wire & Cable Corporation Limited;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
d) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days before
the filing date of this annual report (the "Evaluation
Date"); and
f) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6. The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: May 28, 2003 /s/ Aaron Chik
---------------------------
Aaron Chik
Chief Financial Officer
Audited Financial Statements
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
31 December 2002
INDEX TO FINANCIAL STATEMENTS
CONTENTS
Page
Report of independent auditors F-2
Consolidated balance sheets as of December 31, 2001 and 2002 F-3
Consolidated statements of operations for the years ended
December 31, 2000, 2001 and 2002 F-5
Consolidated statements of shareholders' equity for the years ended
December 31, 2000, 2001 and 2002 F-6
Consolidated statements of cash flows for the years ended
December 31, 2000, 2001 and 2002 F-7
Notes to consolidated financial statements F-8
F-1
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Asia Pacific Wire & Cable Corporation Limited
We have audited the accompanying consolidated balance sheets of Asia
Pacific Wire & Cable Corporation Limited and subsidiaries as of December 31,
2001 and 2002, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Asia
Pacific Wire & Cable Corporation Limited and subsidiaries at December 31, 2001
and 2002, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 4 to the consolidated financial statements, in
2002, the Company changed its method of accounting for goodwill. As described in
Note 12 to the consolidated financial statements, the Company's acquisition of
Crown Century Holdings Limited and its wholly-owned subsidiary resulted in the
restatement of the consolidated financial statements for periods prior to the
combination.
/s/ Ernst & Young
Ernst & Young
Certified Public Accountants
Singapore
March 28, 2003
F-2
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of US Dollars, except share data)
DECEMBER 31,
2001 2002
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 14,241 $ 14,431
Short-term bank deposits 7,113 3,892
Accounts receivable (note 9) 45,871 53,740
Amounts due from related parties (note 16) 669 4,675
Inventories (note 9)
Distributed products 2,221 2,750
Finished products 14,618 15,188
Products in process 5,839 7,634
Raw materials and supplies 9,943 13,948
---------- ----------
32,621 39,520
Investments (note 5) 177 541
Deferred tax assets (note 10) 1,475 657
Other current assets 6,232 3,332
---------- ----------
Total current assets 108,399 120,788
---------- ----------
Property, plant and equipment:
Land 3,817 4,017
Land use rights 2,166 2,153
Buildings 24,310 33,191
Machinery and equipment 76,071 76,652
Motor vehicles 2,344 2,544
Office equipment 5,609 6,004
---------- ----------
114,317 124,561
Accumulated depreciation and amortization (47,391) (56,311)
---------- ----------
66,926 68,250
---------- ----------
Other assets:
Long term investments (note 5) 2,596 2,412
Investment in equity investees (note 20) 8,359 8,735
Goodwill (note 4) 5,609 7,607
Other assets 292 168
Deferred tax assets (note 10) 1,245 233
---------- ----------
18,101 19,155
---------- ----------
Total assets $193,426 $208,193
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of US Dollars, except share data)
DECEMBER 31,
2001 2002
(Restated)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans and overdrafts (note 6) $ 35,526 $ 36,808
Accounts payable 11,241 12,767
Accrued expenses 4,405 2,408
Amounts due to related parties (note 16) 10,642 16,052
Short-term loans from a related party (note 16) 1,792 2,251
Income taxes 453 1,450
Current portion of long-term debt (note 7) 6,495 1,125
Other current liabilities 945 1,481
---------- ----------
Total current liabilities 71,499 74,342
Long-term debt, less current portion (note 7) 1,924 675
Long-term debt from related parties, less
current portion (note 16) 8,822 8,822
Other liabilities 229 232
Deferred income taxes (note 10) 2,299 2,336
Minority interests 27,935 29,739
---------- ----------
Total liabilities 112,708 116,146
---------- ----------
Commitments and contingencies (notes 6 and 13)
Shareholders' equity (note 8):
Common stock, $0.01 par value:
Authorized shares - 20,000,000 shares
Issued and outstanding shares - 13,830,769
in 2001 and 2002 138 138
Additional paid-in capital 111,541 111,541
Retained earnings 6,241 11,032
Accumulated other comprehensive income (loss) (37,202) (30,664)
---------- ----------
Total shareholders' equity 80,718 92,047
---------- ----------
Total liabilities and shareholders' equity $193,426 $208,193
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of US Dollars, except share data)
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Net sales
Manufactured products $ 160,016 $ 149,018 $ 185,742
Distributed products 26,721 33,325 24,303
Sales, delivery and installation of wires and cables 5,457 14,968 31,134
---------- ---------- ----------
192,194 197,311 241,179
Costs of sales (purchases from related parties
amounted to $47,708 in 2000, $51,469 in 2001
and $81,910 in 2002) (174,983) (177,352) (206,435)
---------- ---------- ----------
Gross profit 17,211 19,959 34,744
Selling, general and administrative expenses (13,347) (15,616) (19,282)
Goodwill written off - (506) -
Impairment loss (1,404) - (1,559)
---------- ---------- ----------
Income from operations 2,460 3,837 13,903
Exchange gain (loss) (6,226) (81) (16)
Interest income 814 901 715
Interest expense (4,500) (4,074) (2,214)
Share of net loss of equity investees (2,844) (2,535) (4,090)
Gain on share issuance by subsidiaries and affiliates - - 1,011
Gain (loss) on sale of investment 2,716 743 (557)
Gain on disposal of property 6,634 - -
Other income 1,299 1,619 2,502
---------- ---------- ----------
Income before income taxes and
minority interests 353 410 11,254
Income taxes (note 10) (7,584) 1,411 (4,683)
Minority interests 3,791 (1,730) (1,780)
---------- ---------- ----------
Net (loss) income (3,440) 91 4,791
========== ========== ==========
Basic and diluted (loss) income per share (0.25) 0.01 0.35
========== ========== ==========
Basic and diluted weighted average
common shares outstanding 13,830,769 13,830,769 13,830,769
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of US Dollars, except share data)
Accumulated
Additional other
Common paid-in Retained comprehensive
stock capital earnings income (loss) Total
(Restated) (Restated) (Restated) (Restated) (Restated)
Balance at December 31, 1999 138 111,541 9,590 (24,797) 96,472
Net loss for 2000 - - (3,440) - (3,440)
Currency translation adjustment - - - (8,920) (8,920)
Losses realized on disposal of
available-for-sale securities - - - 460 460
Unrealized gains on available-for-sale
securities - net of income tax of $2 - - - 102 102
--------
Comprehensive loss (11,798)
------- -------- -------- -------- --------
Balance at December 31, 2000 $ 138 $111,541 $ 6,150 $(33,155) $ 84,674
Net income for 2001 - - 91 - 91
Currency translation adjustment - - - (4,024) (4,024)
Unrealized losses on available-for-sale
securities - net of income tax of $9 - - - (23) (23)
-------
Comprehensive loss (3,956)
------- -------- -------- -------- --------
Balance at December 31, 2001 $ 138 $111,541 $ 6,241 $(37,202) $ 80,718
Net income for 2002 - - 4,791 - 4,791
Currency translation adjustment - - - 6,919 6,919
Unrealized losses on available-for-sale
securities - net of income tax of $10 - - - (381) (381)
--------
Comprehensive income 11,329
------- -------- -------- -------- --------
Balance at December 31, 2002 $ 138 $111,541 $ 11,032 $(30,664) $ 92,047
======= ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US Dollars, except share data)
Year ended December 31,
2000 2001 2002
Operating activities: (Restated) (Restated)
Net (loss) income $ (3,440) $ 91 $ 4,791
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Gain on disposal of property, plant and equipment (35) - (7)
Depreciation and amortization 11,291 11,210 9,805
Goodwill written off - 506 -
Deferred income taxes 5,792 (2,247) 1,867
Provision for doubtful accounts 529 (255) 968
Provision for slow-moving inventories 951 1,205 847
Undistributed loss of equity investees 2,844 2,535 4,090
Impairment loss 1,404 - 1,559
Gain on share issuance by subsidiaries and affiliates - - (1,011)
(Gain) loss on sale of investment (2,716) (743) 557
Gain on disposal of property (6,634) - -
Minority interests (3,791) 1,730 1,780
Foreign currency translation adjustment (9,376) 447 5,192
Changes in operating assets and liabilities
net of acquisitions of businesses:
Accounts receivable (1,319) (4,075) (8,836)
Inventories (1,402) 4,542 (7,746)
Other current assets (1,061) (1,662) 3,024
Amounts due to related parties 2,317 715 1,404
Accounts payable, accrued expenses and other liabilities (2,928) (2,958) 1,065
------- ------- -------
Net cash provided by (used in) operating activities (7,574) 11,041 19,349
Investing activities:
Decrease (increase) in short-term bank deposits (6,784) 4,274 3,221
Investment in equity investees (1,153) (2,857) (4,018)
Advance to equity investees (1,330) (1,380) (353)
Purchases of property, plant and equipment (12,070) (9,116) (11,135)
Proceeds from disposal of property, plant and equipment 16,628 4,047 266
Acquisition of additional investment in subsidiary (320) (1,341) (1,998)
Proceeds from disposal of equity investees 2,773 - -
Proceeds from disposal of investment 10 743 -
Disposal of other assets 104 44 -
Purchases of other assets - - (364)
Investment in long-term investments (942) (97) (197)
------- ------- -------
Net cash used in investing activities (3,084) (5,683) (14,578)
Financing activities:
Additions of loans from related parties 3,000 - 459
Repayments of loans from related parties - (4,276) -
Additions of long-term debt 5,417 8,223 -
Repayments of long-term debt (2,168) (7,598) (6,619)
Repayments of bank loans (8,873) (20,956) (5,719)
Increase in bank loans 18,011 10,144 7,051
Net increase (decrease) in overdrafts 547 (917) (50)
------- ------- -------
Net cash provided by (used in) financing activities 15,934 (15,380) (4,878)
Effect of exchange rate changes on cash and cash equivalents (1,849) (371) 297
------- ------- -------
Net increase (decrease) in cash and cash equivalents 3,427 (10,393) 190
Cash and cash equivalents at beginning of year 21,207 24,634 14,241
------- ------- -------
Cash and cash equivalents at end of year $ 24,634 $ 14,241 $ 14,431
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
The Company, which is a subsidiary of Pacific Electric Wire & Cable
Co., Ltd. ("PEWC"), was incorporated as an exempted company in Bermuda
on September 19, 1996 under the Companies Act 1981 of Bermuda (as
amended) for the purpose of acting as a holding company. PEWC is a
company listed on the Taiwan Securities Exchange and is principally
engaged in the electric wire and cable industry.
As of December 31, 2002, PEWC indirectly held approximately 75.4% of
the outstanding shares of the Company's common stock. Of these shares,
Pacific USA Holdings, Inc. ("PUSA"), a subsidiary of PEWC, holds 53.0%
of the outstanding shares of the Company's common stock. On December 2,
2002, PUSA filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code. The future ownership of these shares
held by PUSA may be affected by these bankruptcy proceedings and an
Amended and Restated Pledge Agreement dated February 20, 2002 among
Swiss Re Financial Products Corporation ("Swiss Re"), PUSA, certain
affiliates of PUSA and PEWC (the "Pledge Agreement") pursuant to which
these shares (the "Pledged Shares") are pledged to Swiss Re.
The Company is unable to predict the outcome of these bankruptcy
proceedings, including whether Swiss Re might foreclose on the Pledged
Shares if Swiss Re's security interest in the Pledged Shares is not
released.
While these matters are being resolved, subject to the requirements
imposed by the bankruptcy court and the terms of the Pledge Agreement,
PEWC is able to elect the majority of the members of the Company's
Board of Directors and has the power to determine the outcome of other
actions requiring the approval of the shareholders.
The Company engages in transactions in the ordinary course of business
with PEWC. Both the Company and PEWC have entered into a composite
services agreement dated November 7, 1996 (the "Composite Services
Agreement") as described in Note 16. However, the Company is unable to
predict whether PEWC would, at some future date, seek to limit the
business it conducts with the Company pursuant to the terms of the
Composite Services Agreement either because Swiss Re had foreclosed on
the Pledged Shares or for some other reason.
The Company's operating subsidiaries (the "Operating Subsidiaries") are
engaged in the manufacturing and distribution of telecommunications and
power cable and enameled wire products in Singapore, Thailand,
Australia, the People's Republic of China ("PRC") and other markets in
the Asia Pacific region. Major customers of the Operating Subsidiaries
include government organizations, electric contracting firms,
electrical dealers, and wire and cable factories. Charoong Thai Wire
and Cable Public Company Limited ("Charoong Thai") is listed on the
Stock Exchange of Thailand and is engaged in the manufacturing of wire
and cable products for the power and telecommunications industries in
Thailand.
Acquisitions accounted for as purchases and disposals undertaken by the
Company during the years ended December 31, 2000, 2001 and 2002 include
the following:
(a) purchase in 2000 of a 74.62% equity interest in Shandong
Pacific Fiber Optics Co., Ltd. ("Shandong Pacific") for a
consideration of $1,416.
(b) purchase in 2000 of an additional 1.59% interest in Shanghai
Yayang Electric Co., Ltd. ("Shanghai Yayang") for $1,052,
thereby increasing the Company's interests in Shanghai Yayang
from 61.29% to 62.88% in 2000. The increase in the Company's
interests in Shanghai Yayang has been accounted for as a
purchase. Accordingly, the excess of fair value of assets
acquired over the amount paid for the incremental ownership of
1.59% resulted in a goodwill of $310.
F-8
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
(c) purchase in 2001 of an additional 20.8% interest in Ningbo
Pacific Cable Co., Ltd. ("Ningbo") (formerly known as Ningbo
Pacific CDC Cable Co., Ltd.) for $725, thereby increasing the
Company's interests in Ningbo from 70% to 90.8% in 2001. The
increase in the Company's interests in Ningbo has been
accounted for as a purchase. Accordingly, the excess of fair
value of assets acquired over the amount paid for the
incremental ownership of 20.8% resulted in a goodwill of $582.
(d) purchase in 2001 of an additional 40% interest in Sigma-Epan
International Pte Ltd. ("Sigma-Epan") for $425, thereby
increasing the Company's interests in Sigma-Epan from 60% to
100% in 2001. The increase in the Company's interests in
Sigma-Epan has been accounted for as a purchase. Accordingly,
the excess of fair value of assets acquired over the amount
paid for the incremental ownership of 40% resulted in a
goodwill of $246.
(e) purchase in 2001 of additional new shares in Shanghai Yayang
by the Company's 66.15% held subsidiary for $950, which
resulted in a goodwill of $513. However, the issuance of new
shares during the year by Shanghai Yayang has caused the
Company's effective interest in Shanghai Yayang to be diluted
from 62.88% to 62.09%.
(f) purchase in 2001 of an additional 16.66% interest in Loxley
Pacific Co., Ltd ("Lox Pac") for $1,054, thereby increasing
the Company's interest in Lox Pac from 13.9% to 30.56%.
(g) purchase on March 22, 2002 of 100% of PEWC's interest in Crown
Century Holdings Limited ("CCH") and its wholly-owned
subsidiary, Pacific Electric Wire & Cable (Shenzhen) Co., Ltd
("PEWS") (collectively referred to as "CCH"), resulting in CCH
becoming a wholly-owned subsidiary of the Company upon
completion of the transaction. The acquisition was funded by
the issuance of 3,097,436 shares of the Company's common
stock. Since the entities were under common control, the
merger has been accounted for at historical cost in a manner
similar to pooling-of-interests and accordingly, the
consolidated financial statements for periods prior to the
combination have been restated to include the accounts and
results of both entities.
(h) purchase in 2002 of an additional 3.51% interest in Ningbo for
$5,830, thereby increasing the Company's interest in Ningbo
from 90.8% to 94.31% in 2002. The increase in the Company's
interest in Ningbo has been accounted for as a purchase.
Accordingly, the excess of fair value of the assets acquired
over the amount paid for the incremental ownership of 3.51%
resulted in goodwill of $327.
(i) purchase in 2002 of additional new shares in Shanghai Yayang
for $250, thereby increasing the Company's interest in
Shanghai Yayang from 62.09% to 63.81%. The increase in the
Company's interest in Shanghai Yayang has been accounted for
as a purchase. Accordingly, the excess of fair value of the
assets acquired over the amount paid for the incremental
ownership of 1.72% resulted in goodwill of $85. The Company
further purchased additional new shares in Shanghai Yayang for
$50. However, further issuance of new shares during the year
by Shanghai Yayang has caused the Company's effective interest
in Shanghai Yayang to be diluted from 63.81% to 62.39%. The
Company recognized a loss of $79 on the issuance of new shares
by Shanghai Yayang.
(j) purchase in 2002 of a 48.72% equity interest in Shandong Huayu
Pacific Fibre Optics Communications Co., Ltd ("Shandong
Huayu") for a consideration of $2,330.
(k) purchase in 2002 of an additional 1.84% interest in Newcall
Communications Singapore Pte Ltd ("NCS"), thereby increasing
the Company's interest in NCS from 37.69% to 39.53% in 2002.
The purchase consideration of $535k was fully written off in
the current year as NCS was liquidated during the year.
F-9
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
(l) purchase in 2002 of additional new shares in Lox Pac for
$1,153. However, further issuance of new shares during the
year by Lox Pac has caused the Company's effective interest in
Lox Pac to be diluted from 30.56% to 24.58%. The Company
recognized a loss of $77 on the issuance of new shares by Lox
Pac.
(m) purchase in 2002 of the remaining 33.85% interest in Siam
Pacific for $11,563, in the form of Charoong Thai shares
issued to the minority shareholders. The excess of fair value
of the assets acquired over consideration paid resulted in
goodwill of $1,586. However, the further issuance of new
Charoong Thai shares and the disposal of Charoong Thai shares
have caused the Company's effective interest in Siam Pacific
to be diluted from 66.15% to 63.87%. The Company recognized a
gain of $1,167 and a loss of $557 on the issuance of new
shares by Charoong Thai and the disposal of Charoong Thai
shares, respectively.
The Company was formed to take up PEWC's wire and cable business in
Singapore, Thailand, Australia and the People's Republic of China and
was successfully listed on the New York Stock Exchange in March 1997.
The percentage of holding of the subsidiaries and equity investees of
the Company are set out below.
Place of
Percentage of incorporation
Company equity interest and operations
------- --------------- --------------
2001 2002
(Restated)
Asia Pacific Wire & Cable General Holdings Ltd. 100% 100% The British
Virgin Islands
Sigma Cable Company (Private) Limited 98.24% 98.24% Singapore
Sino-Sin Trading Pte Ltd. 100% 100% Singapore
Siam Pacific Electric Wire & Cable Company 66.15% 63.87% Thailand
Limited ("Siam Pacific") **
Pacific-Thai Electric Wire & Cable Company 66.15% 63.87% Thailand
Limited ("Pacific Thai") **
Australia Pacific Electric Cable Pty Limited ("APEC") 98.48% 98.48% Australia
Ningbo Pacific Cable Co., Ltd. 90.8% 94.31% The People's
Republic of China
Crown Century Holdings Limited 100% 100% Hong Kong
Pacific Electric Wire & Cable (Shenzhen) Co., Ltd 100% 100% The People's
Republic of China
Hard Lek Limited 73.98% 73.98% Thailand
PRC (APWC) Holding Ltd. 100% 100% The British
Virgin Islands
Australia Pacific Electric Cable (Holdings) Pty Ltd. 100% -- Australia
Samray Inc. 100% 100% The British
Virgin Islands
Siam (APWC) Holdings Ltd. 100% 100% The British
Virgin Islands
F-10
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
Place of
Percentage of incorporation
Company equity interest and operations
------- --------------- --------------
2001 2002
(Restated)
Moon View Ltd. 100% 100% The British
Virgin Islands
Trigent Investment Holdings Limited 100% 100% The British
Virgin Islands
Siam Pacific Holding Company Limited ("SPHC") 49% 49% Thailand
Charoong Thai Wire and Cable Public 69.18% 63.87% Thailand
Company Limited
Sigma-Epan International Pte Ltd. 100% 100% Singapore
China (APWC) Holdings Ltd. 100% -- The British
Virgin Islands
Crown Century Holdings Ltd. -- 100% The British
Virgin Islands
APWC (Thailand) Co., Ltd. 95.59% 95.59% Thailand
PEWC (Thailand) Co., Ltd. 95.59% 95.59% Thailand
Shanghai Yayang Electric Co., Ltd. 62.09% 62.39% The People's
Republic of China
Myanmar Sigma Cable Co., Ltd. 80% 80% Myanmar
Singvale Pte Ltd 100% 100% Singapore
Shandong Pacific Fiber Optics 51% 51% The People's
Co., Ltd. ("Shandong Pacific") ^ Republic of China
Shandong Huayu Pacific Fibre Optics - 48.72% The People's
Communications Co., Ltd Republic of China
("Shandong Huayu")
Region Aim Sdn. Bhd. ("Region Aim") 50% - Malaysia
Loxley Pacific Co., Ltd. 30.56% 24.58% Thailand
Thai Professional Telecom Network 21% 19.16% Thailand
Co., Ltd. ("Thai Professional")
Newcall Group Limited 22.53% 20.81% New Zealand
Newcall Communications Singapore 37.69% - Singapore
Pte Ltd #
F-11
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
^ Shangdong Pacific was incorporated under the laws of the People's
Republic of China on Joint Ventures using Chinese and Foreign
Investment. The tenure for this joint venture is 50 years and the
Company's interest in accordance to the joint venture agreement is
51%. Due to the timing difference in the contribution of
outstanding capital by the joint venture parties during 2001, the
Company's effective interest has been diluted from 74.62% to 51%.
# Newcall Communication Singapore Pte Ltd ("NCS"), was formally a
100% owned subsidiary of Newcall Group Limited ("NGL"). During
2001, the Company's 98.48% owned subsidiary, Sigma Cable Company
(Private) Limited ("Sigma Cable"), together with other external
parties, converted their convertible loans and amount due from NCS
to ordinary shares of NCS. As a result, the Company's effective
interest in NCS increased from 22.62% to 37.69%. Accordingly,
NGL's interest in NCS was diluted from 100% to 44%. NCS was
liquidated during 2002.
** On February 21, 2002, SPHC disposed of its shareholdings in Siam
Pacific to its shareholders in proportion relative to their
respective shareholdings in SPHC at a consideration of $3.87 per
share. This transaction did not result in a change in the
Company's effective interest in Siam Pacific. On July 2, 2002,
Charoong Thai acquired 100% of the outstanding shares in Siam
Pacific from the shareholders of SPHC by issuing 177,550,000 new
shares at 5 Baht each in exchange for Siam Pacific shares at a
swap ratio of 26.5 new Charoong Thai shares for every 1 Siam
Pacific share. This transaction together with disposal of Charoong
Thai shares during the year has caused the Company's effective
interest in Charoong Thai to be diluted from 69.18% to 63.87%.
2. BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America ("US GAAP"). The basis of accounting differs from that used in
the statutory financial statements of the Company's subsidiaries and
equity investee companies, which are prepared in accordance with the
accounting principles generally accepted in their respective countries
of incorporation. In the opinion of management, the consolidated
financial statements have reflected all costs incurred by the Company
and its subsidiaries in operating the business.
F-12
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated on consolidation. The Company's
investments for which its ownership exceeds 20%, but which are not
majority-owned or controlled, are accounted for using the equity method
if the Company has the ability to exercise significant influence over
the companies' operating and financial policies.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market value. Cost is
determined using the first-in, first-out or weighted average method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the
estimated useful lives of the assets. No depreciation is charged for
construction in progress and machinery and equipment under
installation. Depreciation is provided as follows:
Land Nil
Land use rights 49 - 50 years
Buildings 5 - 20 years
Machinery and equipment 5 - 10 years
Motor vehicles 3 - 8 years
Office equipment 3 - 10 years
Depreciation for 2000, 2001 and 2002 amounted to $11,160, $11,074 and
$9,805, respectively.
In December 2000, Sigma Cable received a compensation of $8,621 from
the government for surrendering its property. The consideration
received included an ex-gratia amount of $1,562 to defray relocation
costs. As monetary compensation was received, the gain of $6,634,
taking into consideration the net book value of the property, has been
recognized as a gain on disposal of property in 2000.
Capitalized interest on construction in progress is added to the cost
of the underlying asset and is amortized over the estimated useful life
of the asset in the same manner as the underlying asset. In 2002, the
Company capitalized interest of $207 on its construction of a factory
building in Singapore.
Goodwill
Goodwill arose from the excess of the cost of purchased businesses over
the value of the underlying net assets.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 141, "Business Combinations" ("Statement 141") and
FASB Statement No. 142, "Goodwill and Other Intangible Assets"
("Statement 142"). The Company adopted Statement 141 and Statement 142
on January 1, 2002.
F-13
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill (continued)
Goodwill, including goodwill associated with equity method investments
are not amortized, but tested for impairment annually or more
frequently if circumstances indicate that impairment may exist.
Statement 142 provides for a six month period from the date of
implementation to record impairment under the new method. The
impairment charge, if any, would be recorded as a cumulative effect of
a change in accounting principle. The fair value exceeded the book
value of each reporting unit as of January 1, 2002 and, accordingly,
there was no impairment charge as a result of the implementation of the
new standard. The impact on net income and earnings per share for the
twelve months ended December 31, 2001 as if Statement 142 had been
implemented as of the beginning of fiscal 2000 is disclosed in Note 4.
Under Statement 142, the Company is required to assess whether goodwill
is impaired at least annually using a two-step process. This assessment
was made as of December 31, 2002, and no impairment was indicated.
In 2001, in view of the poor sales and operating performance of a
subsidiary, the Company evaluated the goodwill attributable to that
subsidiary and concluded that the goodwill was impaired. The carrying
amount of goodwill of $500 was expensed during 2001.
In 2001 and 2000, goodwill was amortized using the straight-line method
over the lesser of its expected useful life or 40 years.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Income Taxes
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
Investments
Management determines the appropriate classification of debt securities
at the time of purchase and re-evaluates such designation as of each
balance sheet date. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at
amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment
income. Interest on securities classified as held-to-maturity is
included in investment income.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included
in investment income. Realized gains and losses and declines in values
judged to be other-than-temporary on available-for-sale securities are
included in investment income. The cost of securities sold is based on
the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in investment
income.
F-14
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments (continued)
Investments in which the Company does not have a controlling interest
or an ownership and voting interest so large as to exert significant
influence, and which are not publicly traded are accounted for at cost.
A judgmental aspect of accounting for investments involves determining
whether an other-than-temporary decline in value of the investment has
been sustained. If it has been determined that an investment has
sustained an other-than-temporary decline in its value, the investment
is written down to its fair value, by a charge to earnings. Such
evaluation is dependent on the specific facts and circumstances.
Factors that are considered by the Company in determining whether an
other-than-temporary decline in value has occurred include: the market
value of the security in relation to its cost basis; the financial
condition of the investee; and the intent and ability to retain the
investment for a sufficient period of time to allow for recovery in the
market value of the investment.
Impairment of Long-Lived Assets
In August 2001, the FASB issued FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," ("Statement 144").
Statement 144 addresses significant issues relating to the
implementation of FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," ("Statement 121") and develops a single accounting model,
based on the framework established in Statement 121 for long-lived
assets to be disposed of by sale, whether such assets are or are not
deemed to be a business. Statement 144 also modifies the accounting and
disclosure rules for discontinued operations. The Company adopted the
standard effective January 1, 2002.
Revenue Recognition
Sales represents the invoiced value of goods sold, net of value added
tax and returns, commission income earned on distribution activities,
and service fee income on installation activities. Revenue is
recognized to the extent that it is probable that the economic benefits
will flow to the Company and the revenue can be reliably measured. The
following specific recognition criteria must also be met before revenue
is recognized.
Sales of goods and distribution activities
The Company recognizes revenue from the sale of goods and distribution
activities upon passage of title to the customer which coincides with
their delivery and acceptance. This method of revenue recognition is in
accordance with Staff Accounting Bulletin, SAB 101 - "Revenue
Recognition in Financial Statements."
Installation activities
The Company recognizes revenue from installation activities using the
percentage-of-completion method, based on the customer certification of
the distance of cable laid with respect to the estimated total contract
revenue, and in accordance with Statement of Position (SOP) 81-1,
"Accounting for the Performance of Construction-Type and Certain
Production-Type Contracts" issued by the American Institute of
Certified Public Accountants.
Shipping and Handling Costs
The Company classifies such costs as cost of sales.
F-15
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
The consolidated financial statements have been presented in United
States dollars.
Foreign currency transactions are recorded at the applicable rates of
exchange in effect at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are translated at the applicable rates of exchange in effect at that
date. Exchange differences are dealt with in the consolidated
statements of operations.
The financial statements of the Company's subsidiaries where the local
currency is the functional currency have been translated into United
States dollars in accordance with FASB Statement No. 52, "Foreign
Currency Translation." All balance sheet accounts have been translated
using the exchange rates in effect at the balance sheet date. Statement
of operations amounts have been translated using the exchange rate in
effect during the year. The gains and losses resulting from the changes
in exchange rates from year to year have been reported separately as a
component of shareholders' equity.
Foreign Currency Forward Contracts
The Company uses Thai Baht forward foreign exchange contracts to reduce
its exposure to foreign currency risk for liabilities denominated in
foreign currency. A forward foreign exchange contract obligates the
Company to exchange predetermined amounts of specified foreign
currencies at specified exchange rates on specified dates or to make an
equivalent US dollar payment equal to the value of such exchange.
Realized and unrealized gains and losses on foreign exchange contracts
are included in income as foreign exchange gains or losses.
The Company recognizes all derivative financial instruments, such as
interest swap contracts and foreign exchange contracts, in the
consolidated financial statements at fair value regardless of the
purposes or intent for holding the instrument. Changes in the fair
value of derivative financial instruments are either recognized
periodically in income or in shareholders' equity as a component of
comprehensive income depending on whether the derivative financial
instruments qualify for hedge accounting, and if so, whether they
qualify as a fair value or cash flow hedge.
Generally, changes in fair values of derivatives accounted for as fair
value hedges are recorded in income along with the portions of the
changes in the fair value of the hedged items that relate to the hedged
risks. Changes in fair value of derivatives accounted for as cash flow
hedges, to the extent they are effective as hedges, are recorded in
other comprehensive income net of deferred taxes. Changes in fair value
of derivatives used as hedges of the net investment in foreign
operations are reported in other comprehensive income as part of the
cumulative translation adjustment. Changes in fair values of
derivatives not qualifying as hedges are reported in income.
As at December 31, 2002 and 2001, the Company has entered into forward
exchange contracts with notional value of $1,009 and $800,
respectively. The fair value of the forward exchange contracts as at
December 31, 2002 and 2001 were $1 and $1, respectively. These forward
exchange contracts do not qualify for hedge accounting in accordance
with FASB Statement No. 133 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities".
Gain on Issuance of Shares by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a
price in excess of its book value, the Company's net investment in that
subsidiary increases. If at that time, the subsidiary is not a
newly-formed, non-operating entity, nor a research and development,
start-up or development stage company, nor is there question as to the
subsidiary's ability to continue in existence, the Company records the
increase as a non-operating gain in the Consolidated Statements of
Operations. Otherwise, the increase is reflected in "effect of
subsidiaries' equity transactions" in the Company's Consolidated
Statements of Shareholders' Equity.
F-16
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share is calculated in accordance
with FASB Statement No. 128, "Earnings Per Share."
Asset Impairment Loss
In 2002, the Company recorded impairment charges of $1,559 related to
the impairment of certain property, plant and equipment of Ningbo,
included in the manufactured products segment.
These impairment charges were recorded to reduce the carrying value of
the identified assets to fair value. Fair values were derived using a
variety of methodologies, including cash flow analysis, estimates of
sales proceeds and independent appraisals. Where cash flow analyses
were used to estimate fair values, key assumptions employed, included
estimates of future growth, estimates of gross margins and estimates of
the impact of inflation. The charges were primarily the result of
management's revised outlook due to the prolonged unfavourable market
conditions. The remaining carrying value of these impaired long-lived
assets, immediately after recording the impairment charge, was
approximately $173.
In 2000, the Company recorded as asset impairment loss of $1,404
arising from the intended cessation of its Myanmar operation in 2001.
Details of the impairment loss is as follows :
Factory building $1,105
Machinery and equipment 71
Motor vehicle 19
Office equipment 209
------
$1,404
------
The Company determined the above impairment loss based on the best
information available to reflect the recoverable amount that the
Company could obtain, as of December 31, 2000, for the disposal of
these assets between willing and knowing parties, after deducting the
cost of disposal. In 2000, the Myanmar operations, included in the
manufactured product segment, resulted in a loss of $326, excluding the
impairment loss of $1,404.
During 2001, the Company disposed of the factory building and machinery
equipment to the Myanmar Economic Corporation for $3,500 and the
Myanmar operations ceased. For the year ended December 31, 2001, the
Myanmar operations, included in the manufactured product segment,
resulted in a gain of $52.
F-17
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Standards To Be Implemented
In June 2001, the FASB issued FASB Statement No. 143, "Accounting for
Asset Retirement Obligations." The statement provides accounting and
reporting guidance for legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction or
normal operations of long-lived assets. The Company will adopt the
standard effective January 1, 2003. The Company is reviewing the
provisions of this standard. Its adoption is not expected to have a
material effect on the financial statements.
In June 2002, the FASB issued FASB Statement No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("Statement 146").
This statement supercedes EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit and
Activity (including Certain Costs Incurred in a Restructuring)" ("EITF
94-3"). Statement 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is
incurred. Under EITF 94-3, a liability was recognized at the date an
entity committed to an exit plan. Statement 146 also establishes that
the liability should initially be measured and recorded at fair value.
The provisions of Statement 146 will be effective for any exit and
disposal activities initiated after December 31, 2002. Its adoption is
not expected to have a material effect on the financial statements.
In November 2002, the EITF reached consensus on EITF Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"), which addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services,
and/or rights to use assets. The final consensus of EITF 00-21 will be
applicable to agreements entered into in fiscal periods beginning after
June 15, 2003, with early adoption permitted. Additionally, companies
will be permitted to apply the consensus guidance to all existing
arrangements as the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, Accounting Changes.
Management is currently evaluating the effect that the adoption of EITF
00-21 will have on its results of operations and financial position.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 elaborates on required disclosures by a guarantor in its
financial statements about obligations under certain guarantees that it
has issued and requires a guarantor to recognize, at the inception of
certain guarantees, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company is reviewing the
provisions of FIN 45 relating to the initial recognition and
measurement of guarantor liabilities, which are effective for
qualifying guarantees entered into or modified after December 31, 2002,
but does not expect the adoption to have a material impact on the
financial statements.
F-18
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
4. GOODWILL
Goodwill relates to the manufactured products segment and the changes
in the carrying value of goodwill for the year ended December 31, 2002
are as follows :-
Balance, December 31, 2001 $ 5,609
Goodwill acquired 1,998
-------
Balance, December 31, 2002 $ 7,607
======
The following tables adjust net income (loss) and earnings (loss) per
share to adjusted amounts that reflect the elimination of goodwill
amortization for the comparable years ended December 31, 2001 and 2000
prior to adoption of Statement 142: -
Year ended December 31,
2000 2001
NET INCOME (LOSS)
Reported net income (loss) $(3,440) $ 91
Goodwill amortization 131 136
Equity method goodwill amortization 232 210
------- -------
Adjusted net income (loss) (3,077) 437
======= =======
BASIS AND DILUTED EARNINGS (LOSS) PER SHARE
Reported net income (loss) $ (0.25) $ 0.01
Goodwill amortization 0.01 0.01
Equity method goodwill amortization 0.02 0.01
------- -------
Adjusted net income (loss) $ (0.22) $ 0.03
======= =======
5. INVESTMENTS
The following is a summary of available-for-sale securities and
held-to-maturity securities:
Available-for-sale Securities
------------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------
December 31, 2001
Quoted equity securities $ 95 $ 82 $ -- $ 177
====== ====== ====== ======
December 31, 2002
Quoted equity securities $ 790 $ 53 $ (302) $ 541
====== ====== ====== ======
F-19
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
5. INVESTMENTS (continued)
Held-to-maturity Securities
-------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------------------------
December 31, 2001
Corporate debts $ 113 $ -- $ -- $ 113
====== ====== ====== ======
December 31, 2002
Corporate debts $ 120 $ -- $ -- $ 120
====== ====== ====== ======
A summary of the carrying values and balance sheet classification of
all investments in debt and equity securities including
held-to-maturity and available-for-sale securities disclosed above was
as follows:
December 31,
2001 2002
Available-for-sale equity securities $ 177 $ 541
---------- ----------
Short-term investments 177 541
---------- ----------
Held-to-maturity debt securities $ 113 $ 120
Equity securities in privately-held companies and other investments 2,483 2,292
---------- ----------
Long-term investments 2,596 2,412
---------- ----------
Total investments $ 2,773 $ 2,953
========== ==========
There were net realized losses of $460, $nil and $nil on sales of
available-for-sale securities in 2000, 2001 and 2002, respectively. The
disposal of available-for-sale securities was for a consideration of
$10, $4 and $nil in 2000, 2001 and 2002, respectively. The net
adjustment to unrealized holding gains (losses) on available-for-sale
securities included as a separate component of shareholders' equity
totaled, $102, $(23) and $(381) in 2000, 2001 and 2002, respectively.
On December 31, 2001 and 2002, the Company held available-for-sale and
held-to-maturity securities issued by a minority shareholder of two of
the Operating Subsidiaries with costs of $114 and $538, respectively.
The estimated fair values of such available-for-sale and
held-to-maturity securities were $1 and $113 and at December 31, 2001
and $394 and $120 at December 31, 2002, respectively.
The contractual maturity dates of the debt securities held-to-maturity
at December 31, 2002 were due in 2005.
F-20
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
6. CREDIT ARRANGEMENTS
Under line of credit arrangements for short-term debt with the
Company's bankers, the Company may borrow up to approximately $85,000
on such terms as the Company and the banks may mutually agree upon.
These arrangements do not have termination dates but are reviewed
annually for renewal. As of December 31, 2002, the unused portion of
the credit lines was approximately $37,000, which included unused
letters of credit amounting to $27,960. Letters of credit are issued by
the Company during the ordinary course of business through major
financial institutions as required by certain vendor contracts. As of
December 31, 2002, the Company had open letters of credit totaling
$22,315. Liabilities relating to the letters of credit are included in
current liabilities.
The credit lines of the Company were secured by:
(i) Mortgage of the Company's land, buildings, machinery and
equipment with a total carrying amount of $3,793 at December
31, 2002;
(ii) Pledge of short-term deposits of $3,873 at December 31, 2002;
(iii) Joint and several personal guarantees from certain directors
of a subsidiary of the Company; and
(iv) Corporate guarantees issued by the holding company.
The weighted average interest rates on bank loans and overdrafts as of
December 31, 2001 and 2002 were 5.5% and 5.6%, respectively.
7. LONG TERM DEBT
December 31,
2001 2002
(Restated)
Bank loans $ 8,419 $ 1,800
Less: Current portion (6,495) (1,125)
------- -------
$ 1,924 $ 675
======= =======
During 2000, 2001 and 2002 interest paid totaled $982, $2,800 and
$1,392, respectively. The bank loan on December 31, 2002 is secured by
land and buildings of a subsidiary (the "Subsidiary") of the Company
with a net book value of $2,657 on December 31, 2002 and the
requirement to maintain a certain minimum percentage holding of the
Subsidiary.
The above loan bears interest at the bank's bill rate plus 1%, and the
interest rates on December 31, 2001 and 2002 were approximately 8.41%
and 8.8%, respectively.
The above loan amount as at December 31, 2002 is due for repayment over
the next 2 years.
The current portion of bank loans in 2001 were fully repaid during
2002.
F-21
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
8. DISTRIBUTION OF EARNINGS
The Company's ability to pay dividends is primarily dependent on the
Company receiving distributions from the Operating Subsidiaries and the
investee companies.
As described in Note 2, the earnings reflected in the financial
statements prepared in accordance with US GAAP differ from those
reflected in the statutory financial statements of the Company's
subsidiaries and investee companies. In accordance with the relevant
laws and regulations applicable to the Company's subsidiaries and
investee companies, the earnings available for distribution are based
on their respective statutory financial statements. At December 31,
2002, the amount of the Company's retained earnings available for
distribution was approximately $6,263 and the consolidated retained
earnings included $(3,388), $(995), $(600), $(1,768) and $nil of Lox
Pac, Thai Professional, SPHC, NGL and Shandong Huayu, respectively.
9. VALUATION AND QUALIFYING ACCOUNTS
Balance at Net charged Currency Balance
beginning to costs and translation at end
Description of year expenses Deduction adjustments of year
----------- ------------ --------- --------- ----------- ---------
(Restated) (Restated) (Restated) (Restated) (Restated)
Year ended December 31, 2000:
Deducted from asset accounts
Allowance for doubtful accounts $ 4,049 $ 529 $ (275) $ (688) $ 3,615
Allowance for inventories 1,414 951 - (1,028) 1,337
------- ------- ------- ------- -------
$ 5,463 $ 1,480 $ (275) $(1,716) $ 4,952
======= ======= ======= ======= =======
Year ended December 31, 2001:
Deducted from asset accounts
Allowance for doubtful accounts $ 3,615 $ (255) $ (272) $ (59) $ 3,029
Allowance for inventories 1,337 1,205 -- (24) 2,518
------- ------- ------- ------- -------
$ 4,952 $ 950 $ (272) $ (83) $ 5,547
======= ======= ======= ======= =======
Year ended December 31, 2002:
Deducted from asset accounts
Allowance for doubtful accounts $ 3,029 $ 968 $ (123) $ 84 $ 3,958
Allowance for inventories 2,518 847 (1,012) 52 2,405
------- ------- ------- ------- -------
$ 5,547 $ 1,815 $(1,135) $ 136 $ 6,363
======= ======= ======= ======= =======
F-22
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
10. INCOME TAXES
Under current Bermuda law, the Company is not subject to tax on income
or capital gains, and no Bermuda withholding tax is imposed upon
payments of dividends by the Company to its shareholders.
The Company's investments in the Operating Subsidiaries are held
through subsidiaries incorporated in the British Virgin Islands
("BVI"). Under current BVI law, dividends from the BVI subsidiaries'
investments are not subject to income taxes and no withholding tax is
imposed on payments of dividends by the BVI subsidiaries to the
Company.
The Operating Subsidiaries and Equity Investees are governed by the
income tax laws of Singapore, Thailand, Australia, New Zealand, the
People's Republic of China and Myanmar. The corporate income tax rate
in Singapore was 25.5%, 24.5% and 22% for 2000, 2001 and 2002,
respectively, and there is no withholding tax on dividends applicable
to the Company. For Thailand, the corporate income tax rate was 30% for
each of the three years ended December 31, 2002 and a withholding tax
of 3% is levied on dividends received by the Company. In Australia, the
corporate income tax rate was 34% for 2000/2001, 30% for 2001/2002 and
30% for 2002/2003 tax years. The corporate income tax rate for New
Zealand was 33% for 2000/2001, 2001/2002 and 2002/2003 tax years and a
withholding tax of 30% is levied on dividends received by the Company.
The applicable corporate income tax rate for the subsidiaries in the
People's Republic of China was 33% for each of the three years ended
December 31, 2002. The corporate income tax rate for Myanmar was 30%
for 1999/2000, 2000/2001 and 2001/2002 tax years.
Pursuant to the Income Tax Law of the PRC concerning foreign investment
enterprises and various local income tax laws (the Income Tax Law), the
enterprises generally are subject to income tax at an effective rate of
33% (30% State income taxes plus 3% local income taxes) on income as
reported in their statutory accounts unless the enterprise is located
in specially-designated regions or cities for which more favorable
effective rates apply.
PEWS is located in Shenzhen, which is a region where preferential tax
rates apply and currently qualifies for a reduced rate of taxation of
15% (50% of the full rate of 30% State income taxes and no local income
taxes). PEWS is exempt from income tax for the two years starting from
its first profitable year of operations (2001). PEWS is entitled to a
50% tax exemption from the State income taxes for a further three-year
period (2003 to 2005) under the Income Tax Law.
Pre-tax income (loss) from continuing operations was taxed in the
following jurisdictions:
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Thailand $ (1,557) $ 7,264 $17,131
Singapore 7,420 (3,450) (3,572)
Australia (771) (1,361) 1,257
The People's Republic of China (560) 1,516 1,117
Myanmar (1,665) 52 (24)
Others 330 (1,076) (561)
------- ------- -------
3,197 2,945 15,348
Equity investees
Thailand (565) (316) (3,357)
New Zealand (2,286) (1,319) (221)
Singapore - (901) (475)
Others 7 1 (41)
------- ------- -------
$ 353 $ 410 $11,254
======= ======= =======
F-23
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
10. INCOME TAXES (continued)
Significant components of the provision (benefit) for income taxes are
as follows:
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Allocated to net income
Current:
Thailand $ 590 $ 555 $ 2,787
Singapore 307 281 (30)
Myanmar - - 12
------- ------- -------
Total current 897 836 2,769
------- ------- -------
Deferred:
Thailand 6,578 (2,074) 2,022
Singapore 109 (173) (108)
------- ------- -------
Total deferred 6,687 (2,247) 1,914
------- ------- -------
$ 7,584 $(1,411) $4,683
======= ======= ======
Allocated to comprehensive income (loss) $ 2 $ (9) $ (10)
======= ======= =======
On December 31, 2002, the Operating Subsidiaries had net operating loss
carry forwards of approximately $26,895, for income tax purposes, which
can be carried forward indefinitely.
The provision for income taxes differs from the amount computed by
applying the respective statutory rates to income before income taxes
of the Company and the Operating Subsidiaries. The principal reasons
for the difference are listed in the following table:
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Tax at statutory rate in Bermuda $ -- $ -- $ --
Higher statutory rate in Thailand 306 2,401 3,540
Higher statutory rate in Singapore 1,893 (720) (891)
Higher statutory rate in Australia (278) (407) 377
Higher statutory rate in New Zealand (735) (733) (66)
Higher statutory rate in the People's
Republic of China (185) 500 369
Higher statutory rate in Myanmar (500) (365) (7)
------- ------- -------
501 676 3,322
Expenses not deductible for tax purposes 1,005 515 1,023
Changes in valuation allowance 2,414 (1,959) 740
Withholding tax on net income retained - 56 --
Others 3,664 (699) (402)
------- ------- -------
Total charge (benefit) for the year $ 7,584 $(1,411) $ 4,683
======= ======= =======
F-24
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
10. INCOME TAXES (continued)
Deferred tax liabilities and assets are comprised of the following:
December 31,
2001 2002
(Restated)
Deferred tax liabilities:
Tax over book depreciation $ (597) $ (791)
Book over tax basis in subsidiary (950) (950)
Translation adjustments (727) (584)
Others (25) (11)
------- -------
Total deferred tax liabilities (2,299) (2,336)
------- -------
Deferred tax assets:
Unused tax losses and unused tax credits $ 9,368 $ 7,229
Provision for doubtful accounts 416 172
Provision for inventories 205 528
Provision for impairment in investment 34 952
Others 6 58
------- -------
Total deferred tax assets 10,029 8,939
Valuation allowance for deferred tax assets (7,309) (8,049)
------- -------
Total deferred tax assets 2,720 890
------- -------
Net deferred tax assets (liabilities) $ 421 $(1,446)
======= =======
Undistributed earnings of the Company's foreign subsidiaries included
in the Company's retained earnings amounted to approximately $8,477 and
$15,948 on December 31, 2001 and 2002, respectively. Upon distribution
of those earnings in the form of dividends or otherwise, the Company
would be subject to withholding taxes payable to the respective foreign
countries. The Company has no intention of distributing the earnings
that are subject to withholding taxes. Withholding taxes of
approximately $144 would be payable upon remittance of all previously
unremitted earnings on December 31, 2002.
A subsidiary of the Company has been granted certain promotional
privileges by the Board of Investment of Thailand for a project
investment of manufacturing enameled copper wire for export purposes.
Such privileges include exemption from import duty and tax on raw and
essential materials used for export manufacturing up to January 2002.
However, since the subsidiary has net operating loss carry forwards, no
tax benefits have been obtained from the above privileges.
PEWS is located in Shenzhen, which is a region where preferential tax
rates apply and currently qualifies for a reduced rate of taxation of
15%. PEWS is exempt from income tax for the two years starting from its
first profitable year of operations (2001). PEWS is entitled to a 50%
tax exemption from the local income tax for a further three-year period
(2003 to 2005) under the local income tax law. With the tax holiday
exemption, current income tax liabilities of PEWS were reduced by
approximately $1,579 for the year ended December 31, 2002. The tax
holiday exemption also increased the net income per share by $0.11 for
the year ended December 31, 2002.
F-25
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
10. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The Company had net deferred tax assets totaling
approximately $8,939 and $10,029 at December 31, 2002 and 2001,
respectively. However, realization of all of these deferred assets is
not reasonably assured; therefore, they were reserved by a valuation
allowance of $8,049 and $7,309 at December 31, 2002 and 2001,
respectively.
The net change in valuation allowance for the years ended December 31,
2000, 2001 and 2002 was an increase (decrease) of approximately of
$2,414, $1,959 and $740, respectively, resulting primarily from net
operating losses generated during the respective years.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) are as follows:
Unrealized
Currency Gains (Losses) on
Translation Available-for-
Adjustments sale Securities Total
(Restated) (Restated)
Balance at December 31, 1999 $(24,390) $ (407) $(24,797)
Currency translation adjustment (8,920) - (8,920)
Losses realized on disposal of
available-for-sale securities - 460 460
Unrealized gains on available-for-sale
securities - 104 104
Deferred taxes relating to unrealized gains
on available-for-sale securities - (2) (2)
------- ------- -------
Balance at December 31, 2000 (33,310) 155 (33,155)
Currency translation adjustment (4,024) - (4,024)
Unrealized losses on available-for-sale
securities - (32) (32)
Deferred taxes relating to unrealized losses
on available-for-sale securities - 9 9
------- ------- -------
Balance at December 31, 2001 (37,334) 132 (37,202)
Currency translation adjustment 6,919 - 6,919
Unrealized losses on available-for-sale
securities - (391) (391)
Deferred taxes relating to unrealized losses
on available-for-sale securities - 10 10
------- ------- -------
Balance at December 31, 2002 (30,415) (249) (30,664)
======= ======= =======
F-26
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
12. ACQUISITION OF CROWN CENTURY HOLDINGS LIMITED
On March 22, 2002, the Company purchased 100% of PEWC's interest in
Crown Century Holdings Limited and its wholly-owned subsidiary, Pacific
Electric Wire & Cable (Shenzhen) Co., Ltd (collectively referred to as
"CCH"), resulting in CCH becoming a wholly-owned subsidiary of the
Company upon completion of the transaction. The acquisition was funded
by the issuance of 3,097,436 shares of the Company's common stock.
Since the entities were under common control, the merger has been
accounted for at historical cost in a manner similar to
pooling-of-interests and accordingly, the consolidated financial
statements for periods prior to the combination have been restated to
include the accounts and results of both entities.
The results of operations previously reported by the separate entities
and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
Years ended December 31,
2000 2001
Net sales:
Asia Pacific Wire & Cable Corporation
Limited and subsidiaries $165,397 $170,689
Crown Century Holdings Limited and subsidiary 26,797 26,622
-------- --------
192,194 197,311
======== ========
Net income (loss):
Asia Pacific Wire & Cable Corporation
Limited and subsidiaries $(5,143) $(1,283)
Crown Century Holdings Limited and subsidiary 1,703 1,374
-------- --------
(3,440) 91
======== ========
F-27
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
13. COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases certain machinery and equipment under
capital leases.
The Company leases a piece of land in Singapore and certain
buildings under non-cancelable operating lease arrangements.
Future minimum payments under capital leases and
non-cancelable operating leases with initial terms of one year
or more consisted of the following as of December 31, 2002:
Capital Operating
Leases Leases
------ ------
2003 $ 118 $ 427
2004 164 339
2005 34 345
2006 1 242
2007 -- 190
Thereafter -- 4,700
------ -------
Total minimum lease payments $ 317 $ 6,243
=======
Amounts representing interest (34)
------
Present value of net minimum lease payments $ 283
======
Rental expense consisted of the following:
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Rentals under operating lease $ 29 $ 84 $ 117
====== ====== ======
The current and non-current portion of the capital lease
liabilities of $118 and $164 as of December 31, 2002 are
included in accounts payable and accrued expenses and other
liabilities, respectively. The capital lease liabilities are
secured by a charge over the leased machinery and equipment at
cost of $575 and $510 as of December 31, 2002 and 2001,
respectively. The accumulated depreciation of these leased
assets for the years ended December 31, 2002 and 2001 amounted
to $206 and $122, respectively.
F-28
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
13. COMMITMENTS AND CONTINGENCIES (continued)
(b) Capital commitments
The Company had outstanding capital commitments for its
purchase of property, plant and equipment amounting to $986 as
of December 31, 2002.
(c) As of December 31, 2002, there were outstanding bank
guarantees of $20,872 issued by the banks on behalf of
Charoong Thai and its subsidiaries in respect of certain
performance bonds as required in the normal course of business
of the companies. These guarantees generally expire within 1
year.
(d) As of December 31, 2002, Charoong Thai had given a continuing
corporate guarantee of $1,273 to a bank in respect of banking
facilities extended to one of its subsidiary companies, of
which $1,250 has been utilized.
(e) Sigma Cable has agreed to provide continuing financial support
to APEC to enable APEC to meet its liabilities as and when
they fall due.
(f) As of December 31, 2002, the Company is a guarantor for term
loan facility of $13,831 granted to Sigma Cable to partially
finance the purchase of cables from PEWC. The arrangement does
not have a termination date but is reviewed annually for
renewal.
14. FINANCIAL INSTRUMENTS
(a) Concentrations of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally
of cash investments, investment securities and trade accounts
receivable.
The Company maintains cash and cash equivalents, and
short-term and long-term investments with various financial
institutions. These financial institutions are located in
Singapore, Thailand, Australia and the People's Republic of
China. The Company policy is designed to limit its exposure to
any one institution. The Company performs periodic evaluations
of the relative credit standing of those financial
institutions that are considered in the Company's investment
strategy.
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities
comprising the Company's customer base. The Company carefully
assesses the financial strength of its customers and generally
does not require any collateral. At December 31, 2002, there
was no trade receivable which exceeded 10% of the Company's
account receivable amounts.
The Company is exposed to credit loss in the event of
non-performance by counter parties on foreign exchange
contracts, but the Company does not anticipate non-performance
by any counter parties.
F-29
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
14. FINANCIAL INSTRUMENTS (continued)
(b) Fair value
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its
fair value because of the short-term maturity of these
instruments.
Accounts receivable and accounts payable: The carrying amounts
reported in the balance sheet for accounts receivable and
accounts payable approximate their fair values because of the
short-term maturity of these instruments.
Investment securities: The fair values for marketable debt and
equity securities are based on quoted market prices, details
of which are set out in Note 5. It is not practicable to
estimate the fair values of investments that do not have a
quoted market price, without incurring excessive costs.
Long-term and short-term debt: The carrying amounts of the
Company's borrowings under its short-term revolving credit
arrangements approximate their fair values. The fair values of
the Company's long-term debt are estimated using discounted
cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The fair value of the long-term debt from a related party is
not determinable because of the related party nature of the
loan.
The carrying amounts and fair values of the Company's financial
instruments as of December 31, 2001 and 2002 were as follows:
2001 2002
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(Restated) (Restated)
Cash and cash equivalents $ 14,241 $ 14,241 $ 14,431 $ 14,431
Short-term bank deposits 7,113 7,113 3,892 3,892
Equity securities available-for-sale 177 177 541 541
Debt securities held-to-maturity 113 113 120 120
Bank loans and overdraft 35,526 35,526 36,808 36,808
Long-term debt 8,419 8,419 1,800 1,800
Forward exchange contracts 1 1 1 1
F-30
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
15. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
Copper is the principal raw material used by the Company. The Company
purchases copper at prices closely related to the prevailing
international spot market prices on the London Metal Exchange for
copper. The price of copper is influenced heavily by global supply and
demand as well as speculative trading. Consequently, an increase in the
price of copper will have a direct effect on the Company's cost of
sales.
Changes in exchange rates influence the Company's results of
operations. The Company's principal operations are located in Thailand
and Singapore and a substantial portion of its revenues are denominated
in Thai Baht or Singapore dollars, whereas a substantial portion of the
Company's cost of sales are denominated in US dollars. In 1997, the
devaluation of the Thai Baht against the US dollar adversely affected
the operations of the Company in Thailand. Any further devaluation of
the Thai Baht or Singapore dollar against the US dollar would have an
adverse impact on the operations of the Company.
The Company has investments in subsidiaries in the PRC. The
distributions of earnings outside the PRC are subject to control
because the RMB is not freely convertible into foreign currencies.
On January 1, 1994, the PRC government introduced a single rate of
exchange as quoted daily by the People's Bank of China (the "Unified
Exchange Rate"). The quotation of the exchange rates does not imply
free convertibility of RMB into other foreign currencies. All foreign
exchange transactions continue to take place either through the Bank of
China or other banks authorized to buy and sell foreign currencies at
the exchange rates quoted by the People's Bank of China. Approval of
foreign currency payments by the Bank of China or other institutions
requires submitting a payment application form together with suppliers'
invoices, shipping documents and signed contracts.
F-31
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
16. RELATED PARTY BALANCES AND TRANSACTIONS
December 31,
2001 2002
(Restated)
Due from:
Pardee Assets Co. Ltd $ 2 $ 2
Shandong Yanggu Wire & Cable Corp Ltd 209 -
PEWC 105 603
Italian-Thai Development Public Company Limited
("Ital-Thai") and its affiliates 250 3,056
SPHC - 731
A director of Siam Pacific 46 21
Others 57 262
-------- --------
$ 669 $ 4,675
======== ========
Due to:
Stellar Myanmar $ 2 $ -
PEWC 10,201 12,297
Fujikura Limited - 266
Thai Metal Processing Company Limited 54 83
Shangdong Yanggu Wire & Cable Corp Ltd 180 92
SPHC - 2,630
Pacific Overseas Investment Management Ltd 195 221
Others 10 463
-------- --------
$10,642 $16,052
======== ========
Short-term loans from:
Moon View Venture Limited ("Moon View") $ 1,536 $ 1,537
PEWC 231 231
Fujikura Limited 25 69
Pacific Overseas Investment Management Ltd - 195
Ital-Thai - 219
-------- --------
$ 1,792 $ 2,251
======== ========
F-32
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
16. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
December 31,
2001 2002
Long term loans from PEWC Singapore $8,822 $8,822
====== ======
Moon View and PEWC Singapore are controlled by PEWC. Ital-Thai is the
minority shareholder of one of the Company's Operating Subsidiaries.
All balances with related parties are unsecured.
The long-term loans of $5,818 and $6,883 from PEWC Singapore as of
December 31, 2002 and 2001, respectively, bear interest at LIBOR plus
1% per annum. The long-term loans, previously repayable after 2001,
have been extended to be repayable in 2004. Except for the above loans,
all the other balances with related parties are interest-free and are
repayable on demand.
The transactions undertaken with related parties can be summarized as
follows:
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Purchases of copper from PEWC $ 37,815 $ 31,493 $ 42,959
Purchases of power cable from PEWC 9,098 18,058 34,271
Subcontracting services provided by PEWC -- -- 804
Commission income from PEWC 345 293 348
Sales to Ital-Thai and its affiliates 1,716 1,378 1,014
Sales to PEWC 186 8 12
Sales to Lox Pac 167 689 --
Sales to NCS -- 215 --
Purchases of machinery from PEWC 1,351 776 --
Purchase of raw materials from Thai Metal
Processing Company Limited 795 876 1,157
Purchase of goods from Fujikura Limited -- 1,042 3,523
Interest expense paid to PEWC 106 392 111
Management fee paid to PEWC 472 328 141
Management fee received from PEWC -- -- 11
Rental income received from Thai Professional
Telecom Network Company Limited 15 3 --
Rental income received from NCS -- 16 --
Gain on sale of investment to Pacific Den Den
Investment 2,497 -- --
Interest income from NCS and affiliates -- 316 209
Royalty fee paid to Fujikura Limited -- 69 69
====== ====== ======
F-33
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
16. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
Copper is the major raw material of the Company's wire and cable
products. The Company purchases copper in the form of copper rods and
copper cathode. Copper cathode is purchased by Siam Pacific to avoid
the high import tariff levied on copper rods. Copper cathode needs to
be processed into copper rods prior to the manufacturing of wire and
cable products.
Substantially all of the Company's copper rods are supplied by PEWC
while copper cathodes are supplied by unrelated third parties. The
price of copper rods purchased from PEWC is determined by reference to
the quoted copper prices on the London Metal Exchange (the "LME") plus
a certain premium.
In addition to copper rods, the Company purchases high voltage power
cable from PEWC for distribution purposes. The purchase price of power
cable from PEWC is determined by reference to the quoted copper prices
on the LME. A sales commission at an average rate of 2% to 3% is
received from PEWC in addition to sales proceeds received from
customers.
Pursuant to the Composite Services Agreement,
(a) PEWC will sell copper rod to the Company, upon the Company's
request, (i) at a price consisting of the average spot price
of copper on the LME for the one month prior to purchase plus
an agreed upon premium, (ii) at prices and on terms at least
as favorable as it provides copper rod to other purchasers of
similar amounts of copper rod in the same markets from PEWC
and (iii) will give priority in the supply of copper rod to
the Company over other purchasers of copper rod from PEWC.
(b) PEWC will grant the Company the right to distribute any wire
or cable product manufactured by PEWC in all markets in which
the Company presently distributes or develops the capability
to distribute in the future, such products on such terms as
have historically been in effect or on terms at least as
favorable as PEWC grants to third parties that distribute such
products in such markets. However, PEWC shall not be required
to grant to the Company the right to distribute products
manufactured by PEWC in the future in markets where the
Company does not currently have the capability to distribute
unless and until PEWC has no pre-existing contractual rights
which would conflict with the grant of a right to the Company.
(c) PEWC will make available to the Company, upon the Company's
request and on terms to be mutually agreed between PEWC and
the Company from time and time, access to certain of PEWC's
technology (and PEWC personnel necessary to use such
technology) with respect to the design and manufacture of wire
and cable products, including, without limitation, certain
fiber optic technology.
F-34
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
16. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
(d) PEWC will make available to the Company, upon the Company's
request and on terms to be mutually agreed between PEWC and
the Company from time to time, certain services with respect
to the design and manufacture of wire and cable products,
computerization, inventory control, purchasing, internal
auditing, quality control, emergency back-up services, and
recruitment and training of personnel; such services may
include the training of the Company's employees and managers
at PEWC facilities and the secondment of PEWC employees and
managers to the Company.
(e) Each of PEWC and the Company will notify the other party prior
to entering into any negotiations with a third party
concerning the establishment of any facility or similar
venture to manufacture or distribute any wire or cable product
outside of the markets where the Company currently
manufactures or distributes, or intends to develop the
capability to manufacture or distribute, any wire or cable
product. Unless the Company and PEWC mutually agree otherwise,
the Company shall have the right of first refusal to enter
into any definitive agreement with such third party. If,
however, such third party would not agree to the substitution
of the Company for PEWC or such substitution would prevent the
successful completion of the facility or venture, PEWC will
arrange for the Company to participate to the extent possible.
(f) Without the consent of the Company, PEWC will not compete with
respect to the manufacture of wire and cable products in any
market in which the Company is manufacturing or has taken
significant steps to commence manufacturing.
(g) For purposes of the Composite Services Agreement, each
province in China is considered the equivalent of a market.
(h) The Composite Services Agreement dated November 7, 1996 has a
three-year term. The Agreement originally expired on November
7, 1999 but has been renewed annually at the option of the
Company.
To the extent that transactions occur in the future between the Company
and PEWC or affiliates of PEWC other than under the Composite Service
Agreement, such transactions will be entered into on an arm's length
basis on terms no less favorable than those available from unaffiliated
third parties.
17. SUPPLEMENTAL CASH FLOW INFORMATION
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Interest paid, including amounts capitalized $4,499 $3,890 $1,446
====== ====== ======
Income taxes paid $ 553 $1,559 $1,139
====== ====== ======
Significant non-cash investing activities in 2002 included the purchase
of the remaining 33.85% interest in Siam Pacific, in the form of
Charoong Thai shares issued to the minority shareholders as described
in Note 1(m).
F-35
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
18. SEGMENT FINANCIAL INFORMATION
Description of Products by Segment
The Company has three reportable segments - manufacturing of wire and
cable products ("Manufactured products"), distribution of copper and
cable products manufactured by PEWC ("Distributed products") and sales,
delivery and installation of wires and cables.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources based on
profit or loss from operations before interest, gains and losses on the
Company's investment portfolio, and income taxes. The accounting
policies of the reportable segments, including transactions entered
between reportable segments, are the same as those described in the
summary of significant accounting polices.
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Revenues
Revenues from external customers:
Manufactured products $160,016 $149,018 $185,742
Distributed products 26,721 33,325 24,303
Sales, delivery and installation
of wires and cables 5,457 14,968 31,134
-------- -------- --------
Total revenues from external customers $192,194 $197,311 $241,179
======== ======== ========
Intersegment revenues:
Manufactured products $ 4,397 $ 6,544 $ 1,206
-------- -------- --------
Total intersegment revenues $ 4,397 $ 6,544 $ 1,206
-------- -------- --------
Total revenue $196,591 $203,855 $242,385
Reconciling items
Intersegment revenues (4,397) (6,544) (1,206)
-------- -------- --------
Total consolidated revenues $192,194 $197,311 $241,179
======== ======== ========
F-36
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
18. SEGMENT FINANCIAL INFORMATION (continued)
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Segment profit
Manufactured products $ 17,150 $ 20,354 $ 35,193
Distributed products 407 724 338
Sales, delivery and installation
of wires and cables (346) (1,119) (787)
-------- ------- --------
Total segment profit $ 17,211 $ 19,959 $ 34,744
Reconciling items
Corporate and other expenses (5,401) (15,379) (20,387)
Exchange gain (loss) (6,226) (81) (16)
Interest income 814 901 715
Interest expense (4,500) (4,074) (2,214)
Share of net loss of equity investees (2,844) (2,535) (4,090)
Other income 1,299 1,619 2,502
-------- ------- --------
Total consolidated income before
income taxes $ 353 $ 410 $ 11,254
======== ======= ========
Segment assets
Manufactured products $189,372 $171,025 $189,187
Distributed products 1,250 2,639 2,016
Sales, delivery and installation
of wires and cables - 5,071 927
-------- ------- --------
Total segment assets $190,622 $178,735 $192,130
Reconciling items
Corporate assets 16,033 6,334 7,512
Investment in equity investees 4,322 8,359 8,735
Intersegment accounts receivable (1,026) (2) (184)
-------- ------- --------
Total consolidated assets $209,951 $193,426 $208,193
======== ======= ========
Expenditures for additions to
long-lived assets
Manufactured products $ 12,070 $ 9,116 $ 11,135
-------- ------- --------
Total expenditure for additions
to long-lived assets $ 12,070 $ 9,116 $ 11,135
======== ======= ========
F-37
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
18. SEGMENT FINANCIAL INFORMATION (continued)
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Depreciation and amortization expenses
Manufactured products $ 11,291 $ 11,210 $ 9,805
--------- --------- ----------
Total consolidated depreciation and
amortization expenses $ 11,291 $ 11,210 $ 9,805
========== ========== ===========
Impairment loss
Manufactured products $ 1,404 $ -- $ 1,559
--------- --------- ----------
Total consolidated impairment expense $ 1,404 $ -- $ 1,559
========== ========== ===========
Interest income
Manufactured products $ 784 $ 572 $ 208
Distributed products (28) 141 219
Sales, delivery and installation
of wires and cables (6) 94 280
Corporate 64 94 8
--------- --------- ----------
Total consolidated interest income $ 814 $ 901 $ 715
========== ========== ===========
Interest expense
Manufactured products $ 3,657 $ 2,723 $ 2,033
Distributed products 335 234 160
Sales, delivery and installation
of wires and cables 81 156 205
Corporate 427 961 (184)
--------- --------- ----------
Total consolidated interest expense $ 4,500 $ 4,074 $ 2,214
========== ========== ===========
Share of net income (loss) of equity investees
Distributed products $ 7 $ -- $ --
Corporate (2,851) (2,535) (4,090)
--------- --------- ----------
Total consolidated share of net loss
of equity investees $ (2,844) $ (2,535) $ (4,090)
========== ========== ===========
F-38
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
18. SEGMENT FINANCIAL INFORMATION (continued)
The sales to a major customer, Power Grid, which include sales of
manufactured products, distributed products, and sales, delivery and
installation of wires and cables can be summarized as follows:
Year ended December 31,
2000 2001 2002
Manufactured products $ 688 $ 882 $ 663
Distributed products 8,249 9,381 9,175
Sales, delivery and installation of
wires and cables 5,457 14,968 31,134
------- ------- -------
$14,394 $25,231 $40,972
======= ======= =======
Geographic Area Data
Revenue from external customers is attributed to individual countries
based on the customer's country of domicile and is summarized as
follows:
Year ended December 31,
2000 2001 2002
(Restated) (Restated)
Revenues from external customers
Thailand $ 87,496 $ 80,852 $107,264
Singapore 56,991 58,021 73,859
Australia 10,128 11,009 13,961
The People's Republic of China 35,909 46,838 46,095
Others 1,670 591 -
-------- -------- --------
Total revenues from external customers $192,194 $197,311 $241,179
======== ======== ========
Long-lived assets by area:
Thailand $ 48,672 $ 44,600 $ 43,238
Singapore 5,497 3,460 10,013
Australia 2,588 4,765 4,731
The People's Republic of China 18,228 19,703 17,875
Others 2,855 7 --
-------- -------- --------
Total long-lived assets $ 77,840 $ 72,535 $ 75,857
======== ======== ========
19. MATURITY FOR LONG-TERM DEBTS
The aggregate maturities for long-term debts for the five years after
December 31, 2002 are $1,125, $9,497, $Nil, $Nil and $Nil,
respectively.
F-39
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US Dollars, except share data)
20. SUMMARIZED FINANCIAL INFORMATION OF EQUITY INVESTEES
The following table presents summarized financial information of the
Company's principal equity investees, Lox Pac, Thai Professional, SPHC
and NGL for 2000, 2001 and 2002 and Shandong Huayu for 2002. NGL is
listed on the New Zealand Stock Exchange. The aggregate market value of
the Company's investment in NGL amounted to approximately $441 and $586
as of December 31, 2001 and 2002, respectively.
December 31,
2001 2002
Current assets $ 4,027 $ 9,896
Non-current assets 13,806 21,671
Current liabilities 8,122 7,135
Non-current liabilities 47 --
Minority interests 131 356
Total shareholders' equity 9,795 24,076
Year ended December 31,
2000 2001 2002
Net sales $ 8,611 $ 13,996 $ 11,105
Sales less cost of sales 6,815 (3,567) 2,135
Net income (loss) (8,187) (5,487) 624
On December 31, 2001 and December 31, 2002, the unamortized difference
between the amount at which the investment in Lox Pac and Thai
Professional was carried and the amount of the Company's underlying
equity in its net assets amounted to $4,581 and $2,081, respectively.
In conjunction with the adoption of Statement 142, the Company
discontinued the amortization of goodwill associated with equity method
investments effective January 1, 2002. Amortization expense for the
years ended December 31, 2000 and 2001 of $232 and $210, respectively,
is included in the Company's share of net loss in equity investees.
F-40