-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OrZyfTTtRQe9eUBYoJwF+bkfwYXecr6jZyscp9ao7qjyTOoAP+L9FW99IUx1cRYQ YwKSsyeGVWO3Fnw5UWddwA== 0000891618-01-502644.txt : 20020413 0000891618-01-502644.hdr.sgml : 20020413 ACCESSION NUMBER: 0000891618-01-502644 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011214 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLECTRON CORP CENTRAL INDEX KEY: 0000835541 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 942447045 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11098 FILM NUMBER: 1816208 BUSINESS ADDRESS: STREET 1: 777 GIBRALTAR DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089578500 MAIL ADDRESS: STREET 1: 777 GIBRALTAR DR CITY: MILPITAS STATE: CA ZIP: 95035 8-K/A 1 f77903a1e8-ka.htm FORM 8-K/A Form 8-K/A
 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

AMENDED CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): December 14, 2001

SOLECTRON CORPORATION

(Exact name of registrant as specified in charter)
         
Delaware
   1-11098   94-2447045
(State or other jurisdiction   (Commission File Number)   (IRS Employer
of incorporation)       Identification No.)
     
777 GIBRALTAR DRIVE, MILPITAS, CALIFORNIA
   95035
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (408) 957-8500

NOT APPLICABLE

(Former name or former address, if changed since last report.)

 

SOLECTRON CORPORATION AND SUBSIDIARIES

Item 7.     Financial Statements, Pro Forma Financial Information and Exhibits

      On December 14, 2001, Solectron Corporation (the “Company” or “Solectron”) filed a current report on Form 8-K to report the completion of its acquisition of C-MAC Industries Inc. (“C-MAC”). As of December 3, 2001, the Registrant issued 1.755 shares of Solectron common stock in exchange for each C-MAC common share outstanding. Upon timely elections, C-MAC Canadian shareholders received common shares in a Solectron Canadian subsidiary, exchangeable into Solectron common shares. The transaction is intended to be a tax-deferred share exchange to shareholders in Canada who elected to receive exchangeable shares, and is taxable to U.S. holders of C-MAC’s shares.

      Pursuant to Item 7 of Form 8-K, Solectron indicated that it would file certain financial information under Item 7 of Form 8-K no later than February 14, 2002. This amendment is filed to provide the required financial information and to amend the language of Section (a) of Item 7.

      (a)     Financial statements of business acquired.

      The required financial information of C-MAC has been included hereto in exhibit 99.1.

      (b)     Pro forma financial information.

      The required pro forma financial information included in this Amended Current Report on Form 8-K/A, which gives effect to the acquisition of C-MAC is as follows:

     Pro Forma Financial Information

         
Page
• Unaudited Pro Forma Combined Condensed Financial Information
    2  
• Unaudited Pro Forma Combined Condensed Balance Sheet as of August 31, 2001
    3  
• Unaudited Pro Forma Combined Condensed Statement of Operations for the Year Ended August 31, 2001
    4  
• Notes to Unaudited Pro Forma Combined Condensed Financial Statements
    5  

      (c)     Exhibits.

      The following exhibits are filed with this Amended Current Report on Form 8-K/A:

                 
Exhibit
Number Exhibit Description
  23.1     Consent of Experts        
  99.1     C-MAC Industries Inc. audited consolidated financial statements as at December 31, 2000 and 1999 and for each of the years in the three year period ended December 31, 2000, and unaudited interim consolidated financial statements as at September 30, 2001 and for each of the thirty-nine week periods ended September 30, 2001 and 2000        

1

 

SOLECTRON CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED

FINANCIAL INFORMATION

      The following unaudited pro forma combined condensed financial statements are not necessarily indicative of the combined results of operations for future periods or the results of operations that would have been realized had Solectron Corporation (Solectron) and C-MAC Industries Inc. (C-MAC) been combined during the periods specified. The unaudited pro forma combined condensed financial statements and the related notes should be read in conjunction with the historical financial statements of Solectron and C-MAC.

      On December 3, 2001, Solectron completed its combination with C-MAC (the Combination) by issuing approximately 151.3 million common shares and 5.2 million options for its common stock. The Combination will be accounted for under the purchase method of accounting. The purchase price is approximately $2,565.3 million, consisting of Solectron common stock valued at approximately $2,487.2 million, Solectron stock options valued at approximately $63.1 million, and direct acquisition costs estimated at approximately $15.0 million.

      The unaudited pro forma combined condensed balance sheet gives effect to the Combination as if it had occurred on August 31, 2001, and combines Solectron’s historical consolidated balance sheet as of August 31, 2001, with C-MAC’s unaudited historical U.S. GAAP consolidated balance sheet as of November 30, 2001 in U.S. dollars.

      The unaudited pro forma combined condensed statement of operations for the year ended August 31, 2001, gives effect to the Combination as if it had occurred on September 1, 2000, and combines Solectron’s historical consolidated statement of operations for the year ended August 31, 2001, with C-MAC’s unaudited historical U.S. GAAP consolidated statement of earnings for the twelve months ended September 30, 2001 in U.S. dollars.

      The unaudited pro forma combined condensed financial statements have been prepared on the basis of assumptions described in the related notes and include assumptions relating to the allocation of consideration paid for the assets and liabilities of C-MAC based on preliminary estimates of their respective fair values. The final allocation of the consideration paid for C-MAC may differ from that reflected in the unaudited pro forma combined condensed financial statements when final valuations are completed.

2

 

SOLECTRON CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

(In millions)

                                       
Solectron C-MAC
Historical Historical
As of As of Pro Forma
August 31, 2001 Nov. 30, 2001 Adjustments Combined
ASSETS
                                
Current assets:
                                
 
Cash and cash equivalents and short-term investments
  $ 2,790.1     $ 160.5     $       $ 2,950.6  
 
Accounts receivable, net
    2,443.6       302.8       (4.5 )(a)     2,741.9  
 
Inventories
    3,209.9       378.0       11.8  (b)     3,599.7  
 
Prepaid expenses and other current assets
    260.5       73.5               334.0  
     
     
     
     
 
     
Total current assets
    8,704.1       914.8       7.3       9,626.2  
 
Net property, plant and equipment
    1,304.7       260.5       12.4  (c)     1,577.6  
 
Goodwill, net
    1,987.2       647.2       1,203.6  (d)     3,838.0  
 
Other assets
    934.4       139.9               1,074.3  
     
     
     
     
 
 
Total assets
  $ 12,930.4     $ 1,962.4     $ 1,223.3     $ 16,116.1  
     
     
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Current liabilities:
                                
 
Short-term debt
  $ 306.2     $ 2.7     $       $ 308.9  
 
Accounts payable and accrued liabilities
    2,316.3       242.8       (4.5 )(a)     2,577.6  
                      15.0  (e)        
                      8.0  (f)        
 
Other current liabilities
    66.8       1.0       1.4  (g)     69.2  
     
     
     
     
 
   
Total current liabilities
    2,689.3       246.5       19.9       2,955.7  
 
Long-term debt
    5,027.5       337.8               5,365.3  
 
Other long-term liabilities
    62.9       32.7       4.6  (g)     100.2  
     
     
     
     
 
     
Total liabilities
    7,779.7       617.0       24.5       8,421.2  
 
Commitments
                               
Stockholders’ equity:
                               
 
Common stock
    0.7       1,196.3       (1,196.3 )(h)     0.8  
                      0.1  (h)        
 
Additional paid-in capital
    3,877.6       —       2,550.2  (h)     6,427.8  
 
Retained earnings
    1,531.6       118.2       (118.2 )(h)     1,531.6  
 
Accumulated other comprehensive income (loss)
    (259.2 )     30.9       (30.9 )(h)     (259.2 )
 
Deferred compensation
    —       —       (6.1 )(i)     (6.1 )
     
     
     
     
 
     
Total stockholders’ equity
    5,150.7       1,345.4       1,198.8       7,694.9  
     
     
     
     
 
Total liabilities and stockholders’ equity
  $ 12,930.4     $ 1,962.4     $ 1,223.3     $ 16,116.1  
     
     
     
     
 

3

 

SOLECTRON CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED

STATEMENT OF OPERATIONS

(In millions)
                                     
Solectron C-MAC
Historical Historical
Year Twelve Months
Ended Ended Pro Forma
August 31, 2001 Sept. 30, 2001 Adjustment Combined
Net sales
  $ 18,692.3     $ 1,803.1     $ (19.5 )(a)   $ 20,475.9  
Cost of Sales
    17,206.2       1,543.4       (19.5 )(a)     18,731.5  
                      1.4  (j)        
     
     
     
     
 
Gross Profit
    1,486.1       259.7       (1.4 )     1,744.4  
Operating expenses:
                               
 
Selling, general and administrative
    827.9       95.9       2.0  (k)     925.8  
 
Research and development
    69.9       46.6               116.5  
 
Goodwill amortization expense
    139.9       29.1       (29.1 )(l)     139.9  
 
Acquisition costs
    29.7       —               29.7  
 
Restructuring and impairment costs
    517.3       15.8               533.1  
     
     
     
     
 
   
Operating income (loss)
    (98.6 )     72.3       25.7       (0.6 )
Interest income
    116.9       11.4               128.3  
Interest expense
    (176.0 )     (17.8 )             (193.8 )
     
     
     
     
 
Income (loss) before income taxes
    (157.7 )     65.9       25.7       (66.1 )
Income taxes (benefit)
    (34.2 )     24.5       3.6  (m)     (6.1 )
     
     
     
     
 
Net income (loss)
  $ (123.5 )   $ 41.4     $ 22.1     $ (60.0 )
     
     
     
     
 
Basic net income (loss) per share
  $ (0.19 )                   $ (0.08 )
     
                     
 
Diluted net income (loss) per share
  $ (0.19 )                   $ (0.08 )
     
                     
 
Shares used to compute net income (loss) per share:
                               
 
Basic
    641.8               151.3       793.1  
     
             
     
 
 
Diluted
    641.8               151.3       793.1  
     
             
     
 

4

 

SOLECTRON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA

COMBINED CONDENSED FINANCIAL STATEMENTS

Note 1 — Combination with C-MAC

      The pro forma information related to the combination with C-MAC has been prepared in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets,” which were adopted by Solectron effective September 1, 2001.

      Solectron’s combination with C-MAC, completed on December 3, 2001, will be accounted for as a purchase. Accordingly, the market value of Solectron common stock issued, the fair value of Solectron options issued and the amount of direct acquisition costs incurred are recorded as the cost of acquiring C-MAC, or the purchase price. That purchase price will be allocated to individual assets acquired and liabilities assumed based on their respective fair values. The excess of the purchase price over the fair value of the net assets are allocated to goodwill. Pursuant to SFAS No. 142, goodwill will not be amortized but will be tested periodically for impairment.

      The following table represents the purchase price and the preliminary purchase price allocation. The final purchase price allocation will depend upon the final valuation of the assets acquired and the liabilities assumed upon completion of Solectron’s final analysis based on independent appraisals and the audit of the C-MAC balance sheet as of the purchase date.

               
Calculation of purchase price:
        
 
Value of securities issued:
       
   
Common shares
  $ 2,487.2  
   
Stock options
    63.1  
 
Acquisition costs
    15.0  
     
 
     
Total purchase price
  $ 2,565.3  
     
 
Preliminary allocation of purchase price:
        
 
Assets:
       
   
Carrying value of C-MAC’s historical assets (including existing goodwill)
  $ 1,962.4  
   
Inventory fair value in excess of historical carrying value
    11.8  
   
Fair value of fixed assets in excess of historical carrying value
    12.4  
   
Goodwill write-up
    1,203.6  
 
Liabilities:
       
   
Carrying value of C-MAC’s historical liabilities
    (617.0 )
   
Additional employee compensation liability
    (8.0 )
   
Net increase of deferred tax liability
    (6.0 )
 
Stockholders’ Equity:
       
   
Deferred stock-based compensation
    6.1  
     
 
     
Total purchase price
  $ 2,565.3  
     
 

      The calculation of the purchase price includes issuance of approximately 151.3 million shares of common stock, valued at $16.44 per share (the average closing market price per share during the four trading days ended August 10, 2001) and approximately 5.2 million options to acquire shares of Solectron common stock issued in exchange for all outstanding C-MAC stock options.

5

 

SOLECTRON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA

COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The following adjustments have been reflected in the Pro Forma Adjustments column of the unaudited pro forma combined condensed balance sheet and statement of operations:

  (a) Represents the elimination of sales, cost of sales, accounts receivable and accounts payable related to sales between Solectron and C-MAC.
 
  (b) Represents the “fair value” (as defined in Accounting Principles Opinion No. 16, “Business Combinations”) of inventory in excess of the historical book value of such inventory.
 
  (c) Represents the “fair value” (as defined in Accounting Principles Board Opinion No. 16, “Business Combinations”) in excess of approximately $210 million of historical property, plant and equipment book value. The appraisals for approximately $50 million of historical book value are not complete and are not reflected in this adjustment. Upon completion of these appraisals, historical book value may be further adjusted.

  (d) Represents the allocation of the excess of total consideration over the net assets acquired to goodwill.
 
  (e) Represents the accrual of Solectron’s direct acquisition costs.
 
  (f) Represents the increase recorded to employee compensation liabilities for the fair value in excess of the historical book value of such liabilities due to change of control provisions.
 
  (g) Represents the net increase in deferred tax liabilities resulting from the adjustments to inventory, fixed assets, and employee compensation liabilities recorded in (b), (c) and (f).
 
  (h) Represents the elimination of C-MAC’s historical equity and the issuance of Solectron common stock.
 
  (i) Represents deferred stock-based compensation related to the intrinsic value attributed to unvested C-MAC stock options exchanged for Solectron options.
 
  (j) Represents depreciation expense related to the increase in fixed assets recorded in (c).
 
  (k) Represents the amortization of deferred stock based compensation recorded in (i).
 
  (l) Represents the elimination of C-MAC historical goodwill amortization expense.
 
  (m) Represents the income tax impact of the pro forma adjustment related to the elimination of C-MAC historical goodwill amortization expense.

      C-MAC historical assets and liabilities may be further adjusted upon completion of an audit of its November 30, 2001 balance sheet. In addition, Solectron is obtaining an independent appraisal of C-MAC’s intangible assets. Upon completion of this appraisal, intangible assets with estimable useful lives meeting the recognition criteria under SFAS No. 141, will be reported separate from goodwill and amortized over their estimated useful lives.

      Management expects to take actions related to the termination of certain activities, as well as conducting business integration activities, which are not finalized and therefore not reflected in the accompanying pro forma combined condensed balance sheet. When these plans are complete, the final allocation of purchase price will reflect such liabilities in accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.”

6

 

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to report to be signed on its behalf by the undersigned, thereunto duly authorized.

  SOLECTRON CORPORATION
  (Registrant)

Date: December 18, 2001
  By: /s/ KIRAN PATEL
 
  Kiran Patel
  Executive Vice President,
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

7

 

EXHIBITS

         
Exhibit
Number Exhibit Description
  23.1     Consent of Experts
  99.1     C-MAC Industries Inc. audited consolidated financial statements as at December 31, 2000 and 1999 and for each of the years in the three year period ended December 31, 2000, and unaudited interim consolidated financial statements as at September 30, 2001 and for each of the thirty-nine week periods ended September 30, 2001 and 2000
EX-23.1 3 f77903a1ex23-1.htm EXHIBIT 23.1 Exhibit 23.1
 

Exhibit 23.1

CONSENT OF EXPERTS

The Board of Directors

C-MAC Industries Inc.:

      We consent to the incorporation by reference in the registration statements (Nos. 333-69443, 333-46304, 333-46300, 333-40176, 333-34494, 333-92269, 333-75865, 333-85949, 333-89035, 333-75813, 333-24293, 333-02523, 333-17643, 33-58580, 33-46686, 33-57575, 33-75270, 33-33461, 333-56220, 333-56464, 333-60684, 333-64454, 333-69182 and 333-74946) on Forms S-3, S-4 and S-8 of Solectron Corporation of our report dated January 31, 2001 (except for note 18 which is as of December 3, 2001) on the C-MAC Industries Inc. (“C-MAC”) consolidated financial statements as at December 31, 2000 and 1999 and for each of the years in the three-year period ended December 31, 2000, included in this Form 8-K/A dated December 18, 2001.

/s/ KPMG LLP

Charted Accountants

Montréal, Canada
December 17, 2001
EX-99.1 4 f77903a1ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 C-MAC AUDITED CONSOLIDATED FINANCIAL STATEMENTS AUDITORS' REPORT To the directors of C-MAC Industries Inc. We have audited the consolidated balance sheets of C-MAC Industries Inc. as at December 31, 2000 and 1999 and the consolidated statements of earnings and retained earnings and cash flows for each of the years in the three-year period ended December 31, 2000. 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 Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in accordance with Canadian generally accepted accounting principles. Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States. Application of generally accepted accounting principles in the United States would have affected results of operation for each of the years presented and the financial position as at December 31, 2000 and 1999 to the extent summarized in note 16 to the consolidated financial statements. /s/ KPMG LLP Chartered Accountants Montreal, Canada January 31, 2001 (except for note 18 which is as of December 3, 2001) 1 C-MAC INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF CANADIAN DOLLARS)
December 31, September 30, ------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 318,934 $ 203,242 $ 160,773 Short-term investments 4,314 10,287 -- Trade receivables, net of an allowance for doubtful accounts of $10,295, $7,908 and $2,045, respectively 507,934 635,296 249,728 Income taxes receivable 27,897 9,959 2,303 Inventories (note 4) 439,950 571,549 190,853 Future income taxes (note 12) 28,289 33,515 14,623 Prepaid expenses 31,501 14,838 6,582 - ------------------------------------------------------------------------------------------------------------------- 1,358,819 1,478,686 624,862 Capital assets (note 5) 421,390 395,477 188,030 Goodwill, net of accumulated amortization of $62,481, $25,954 and $6,927, respectively 1,112,248 1,098,365 230,540 Other assets 21,531 24,100 10,526 Future income taxes (note 12) 40,669 33,340 7,545 - ------------------------------------------------------------------------------------------------------------------- $2,954,657 $3,029,968 $1,061,503 =================================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 216,023 $ 287,130 $ 214,014 Accrued payroll 37,790 52,790 13,429 Other accrued liabilities 104,212 122,956 45,971 Income taxes payable 13,990 67,228 22,336 Current portion of long-term debt 4,992 7,347 4,205 - ------------------------------------------------------------------------------------------------------------------- 377,007 537,451 299,955 Long-term debt (note 6) 330,210 298,667 209,156 Other liabilities 11,628 17,657 13,194 Future income taxes (note 12) 20,917 21,049 9,652 Non-controlling interest 2,933 2,666 2,295 Shareholders' equity: Share capital (note 7) 1,881,341 1,880,702 391,696 Retained earnings 275,602 267,637 134,879 Cumulative translation adjustment 55,019 4,139 676 - ------------------------------------------------------------------------------------------------------------------- 2,211,962 2,152,478 527,251 =================================================================================================================== Commitments and contingencies (note 8) Canadian and United States accounting differences (note 16) Subsequent events (note 18) - ------------------------------------------------------------------------------------------------------------------- $2,954,657 $3,029,968 $1,061,503 ===================================================================================================================
On behalf of the Board: /s/ Dennis Wood , Director /s/ Andre J. Boutin , Director - ------------------------ ------------------------ Dennis Wood Andre J. Boutin See accompanying notes to consolidated financial statements. 2 C-MAC INDUSTRIES INC. CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
Thirty-nine week periods ended September 30, Years ended December 31, --------------------------- -------------------------------------------- 2001 2000 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (Unaudited) Revenue $ 1,910,674 $ 1,696,561 $ 2,552,839 $ 1,169,097 $ 642,983 Operating expenses: Cost of goods sold 1,607,773 1,415,743 2,115,505 970,701 525,504 Selling and administrative 100,778 77,137 113,969 67,482 44,620 Research and development 53,405 23,295 41,463 17,196 12,852 Amortization of capital and other assets 56,004 28,385 44,070 22,844 11,841 Restructuring charges (note 10) 24,835 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Earnings from operations 67,879 152,001 237,832 90,874 48,166 Financial expenses, net (note 11) 12,133 11,507 9,187 13,589 6,099 Earnings before income taxes, non-controlling interest and goodwill amortization 55,746 140,494 228,645 77,285 42,067 Income taxes (note 12): Current 21,019 48,442 80,362 28,523 6,733 Future (1,542) 3,927 (583) (1,124) 8,574 - ------------------------------------------------------------------------------------------------------------------------------------ 19,477 52,369 79,779 27,399 15,307 Non-controlling interest 49 421 386 854 -- Net earnings before goodwill amortization 36,220 87,704 148,480 49,032 26,760 Goodwill amortization, net of income taxes of $8,272, $1,625, $3,305, $1,015 and $350, respectively 28,255 9,320 15,722 3,860 1,342 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 7,965 78,384 132,758 45,172 25,418 Retained earnings, beginning of period 267,637 134,879 134,879 89,707 64,958 Premium on redemption of common shares -- -- -- -- (669) Retained earnings, end of period $ 275,602 $ 213,263 $ 267,637 $ 134,879 $ 89,707 ===================================================================================================================================- Earnings before goodwill amortization per share: Basic $ 0.42 $ 1.23 $ 1.99 $ 0.82 $ 0.51 Diluted $ 0.41 $ 1.20 $ 1.94 $ 0.80 $ 0.50 Earnings per share: Basic $ 0.09 $ 1.10 $ 1.78 $ 0.76 $ 0.49 Diluted $ 0.09 $ 1.07 $ 1.73 $ 0.74 $ 0.47 Weighted average number of outstanding common shares (in thousands) Basic 86,292 71,236 74,558 59,830 52,082 Diluted 87,715 73,291 76,524 61,424 53,519
See accompanying notes to consolidated financial statements. 3 C-MAC INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
Thirty-nine week periods ended September 30, Years ended December 31, --------------------------- -------------------------------------------- 2001 2000 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (Unaudited) Cash flows from operating activities: Net earnings $ 7,965 $ 78,384 $ 132,758 $ 45,172 $ 25,418 Adjustments to reconcile net earnings to cash flows from operating activities: Capital asset amortization 52,933 27,130 40,948 21,258 11,650 Goodwill amortization 36,527 10,945 19,027 4,875 1,692 Other assets amortization 3,071 1,255 3,122 1,586 191 Deferred financing costs amortization (note 11) 959 785 1,089 1,202 248 Asset impairment 5,341 -- Future income taxes (1,542) 3,927 (583) (1,124) 8,574 Non-controlling interest 49 421 386 854 -- Other 1,664 68 12 (44) (696) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from earnings 106,967 122,915 196,759 73,779 47,077 Net change in operating assets and liabilities, net of acquisitions (note 15) 62,174 (294,619) (380,997) (60,631) (10,004) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from (used in) operating activities 169,141 (171,704) (184,238) 13,148 37,073 Cash flows from financing activities: (Decrease) increase in bank indebtedness -- (130,358) (19,439) (50,027) 12,755 Repayment of long-term debt (11,424) (41,697) (99,529) (142,020) (13,820) Increase in long-term debt 26,850 168,583 167,639 196,667 124,359 Redemption of common shares -- -- -- -- (781) Issuance of common shares 694 1,270,678 1,270,934 183,849 77,395 Share issue expenses (55) (57,550) (58,802) (8,106) (3,114) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities16,065 1,209,656 1,260,803 180,363 196,794 Cash flows from investing activities: Additions to capital assets (66,231) (95,653) (148,863) (40,028) (18,453) Business acquisitions, net of cash and cash equivalents (note 3) (2,540) (289,341) (892,097) (131,386) (115,595) Increase in other assets 3,426 -- (14,721) (235) (4,991) Other (7,488) (13,829) (400) (901) 45 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows used in investing activities (72,833) (398,823) (1,056,081) (172,550) (138,994) Impact of changes in exchange rates on cash balances 3,319 8,336 21,985 (7,853) 5,940 - ------------------------------------------------------------------------------------------------------------------------------------ Net change in cash and cash equivalents 115,692 647,465 42,469 13,108 100,813 Cash and cash equivalents, beginning of period 203,242 269,262 160,773 147,665 46,852 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents, end of period $ 318,934 $ 916,727 $ 203,242 $ 160,773 $ 147,665 ==================================================================================================================================== Supplemental cash flow information: Cash paid during the period: Interest $ 7,621 $ 18,170 $ 21,647 $ 19,222 $ 8,180 Income taxes 47,757 60,589 66,764 6,901 4,637 Cash received during the period: Interest 2,509 13,119 21,688 7,472 2,239
See accompanying notes to consolidated financial statements. 4 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) C-MAC Industries Inc. ("C-MAC" or the "Company") is incorporated under the Canada Business Corporations Act. It provides a comprehensive portfolio of electronic manufacturing services (EMS) and solutions for original equipment manufacturers (OEMs) worldwide. C-MAC focuses on complex, high-margin products and services, ranging from components to full system assembly and test, as well as design supply chain management services. C-MAC primarily serves the rapidly growing global communications equipment market. In addition, C-MAC provides solutions for the automotive electronics, aerospace and instrumentation markets. The Company's accounting policies are in accordance with accounting principles generally accepted in Canada and, except as indicated in note 16, are in all material respects in accordance with accounting principles generally accepted in the United States. 1. SIGNIFICANT ACCOUNTING POLICIES: (a) Principles of consolidation: The consolidated financial statements include the accounts of C-MAC Industries Inc. and all its subsidiaries. All significant intercompany balances and transactions have been eliminated. (b) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the following: useful lives of assets for amortization, evaluation of possible impairment of certain assets, determination of assets acquired and liabilities assumed in a purchase combination, provision for income taxes and the determination of fair value of financial instruments. Financial results as determined by actual events could differ from those estimates. (c) Cash and cash equivalents and short-term investments: Cash equivalents are highly liquid investments purchased with an original maturity of less than three months. Short-term investments are investment grade short-term debt instruments with original maturities greater than three months. Short-term investments are valued at the lower of cost and market value. The carrying value of these investments approximates their fair value due to their short maturity. 5 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (d) Inventory valuation: Finished goods and goods in process are valued at the lower of cost, which includes materials, labor and applicable manufacturing overhead, or net realizable value, and raw material is valued at the lower of cost or replacement cost. Cost is determined using the first in, first out method. (e) Capital assets: Capital assets are stated at cost. Cost represents the cost of acquisition or construction, including preparation and testing charges and financing costs incurred with respect to the capital assets until the beginning of commercial production. Amortization is provided using the straight-line method over the estimated useful lives of the assets as follows:
Buildings 20 to 40 years Leasehold improvements Term of lease Machinery and equipment, furniture and fixtures 3 to 10 years
(f) Goodwill: Goodwill represents the excess of the purchase price over the fair value of net identifiable assets of the businesses acquired at the time of their acquisition and is amortized on a straight-line basis over the estimated useful life of fifteen to twenty-five years. The Company monitors its goodwill balances to determine whether any impairment of these assets has occurred. Where circumstances or events indicate a possible inability to recover the outstanding amount of goodwill related to a business acquisition, the Company evaluates and adjusts as necessary, on an undiscounted basis, the cash flows of underlying businesses, which gave rise to the goodwill. No such events or circumstances have occurred during the year. (g) Foreign currency translation: Financial statements of self-sustaining foreign operations are translated using the current rate method. Adjustments arising from this translation are deferred and recorded under a separate heading of shareholders' equity and are included in income only when a reduction in the investment in these foreign operations is realized. 6 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (g) Foreign currency translation (continued): Foreign currency transactions are translated using the temporal method. Translation gains and losses are included in income, except for unrealized gains and losses arising from the translation of long-term monetary liabilities which are deferred and amortized over the remaining life of the related item. (h) Revenue recognition: The Company recognizes revenue from manufacturing services at the time of product shipment. Where appropriate, provisions are made at that time for estimated warranty and return costs. (i) Research and development: Research and experimental development expenditures are charged to earnings, net of related research and development tax credits, in the year in which they are incurred. (j) Defined Contribution Pension Plan: The Company has defined contribution pension plans for certain of its employees. The Company's contributions, which are principally based on a percentage of employee's annual base compensation, are charged against earnings as incurred. (k) Income taxes: The Company uses the asset and liability method of accounting for income taxes. Future tax assets and liabilities are recognized for future consequences attributable to differences between the financial statement carrying values of certain assets and liabilities and their respective tax bases. When necessary, a valuation allowance is recorded to reduce tax assets to an amount for which realization is more likely than not. The effect of changes in tax rates is recognized in the period in which the rate change occurs. (l) Share option: The Company has a share option plan, which is described in note 7. No compensation expense is recognized for this plan when stock or stock options are issued to employees. Any consideration paid by employees on exercise of stock options or purchase of stock is credited to share capital. 7 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (m) Financial instruments: Financial instruments are accounted for at their historical cost. The following accounting policies are used for derivative financial instruments: (i) Fixed interest rate agreements: Interest differentials created by the utilization of fixed interest rate agreements are amortized over the duration of the agreements. (ii) Foreign exchange forward contracts and currency swap agreements: The Company uses foreign exchange forward contracts and currency swap agreements as a hedge against foreign cash flows, for raw materials and equipment purchases and for revenues from sales transactions in foreign currencies. These transactions are accounted for at the exchange rates of the related contracts. 2. NEW ACCOUNTING PRONOUNCEMENT: (a) Income taxes: Effective January 1, 2000, the CICA changed the accounting standards relating to accounting for income taxes. The CICA's new standard, under Section 3465, on accounting for income taxes adopts the liability method of accounting for future income taxes. Under the liability method future income tax assets and liabilities are determined based on "temporary differences" (differences between the accounting basis and the tax basis of the assets and liabilities), and are measured using the currently enacted, or substantively enacted, tax rates and laws expected to apply when these differences reverse. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized. Prior to adoption of this new accounting standard, income tax expense was determined using the deferral method. Under this method, deferred income tax expense was determined based on "timing differences" (differences between the accounting and tax treatment of items of expense or income), and were measured using the tax rates in effect in the year the differences originated. Certain deferred tax assets, such as the benefit of tax losses carried forward, were not recognized unless there was virtual certainty that they would be realized. 8 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 2. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED): (a) Income taxes (continued): The Company has adopted the new income tax accounting standard and has applied the provisions of the standard retroactively to January 1, 1993. The cumulative effects on consolidated balance sheets of this change of accounting for income taxes as of December 31, 1999 are as follows:
December 31, 1999 ------------------ Reduction of capital assets $ 2,812 Increase to goodwill 2,416 Increase to share capital 3,422 Increase to future income tax asset, formerly the deferred income tax assets 3,824
The consolidated financial statements for each of the years ended from December 31, 1993 to December 31, 1999 have been restated to comply with the provisions of Section 3465. The impact of applying Section 3465, on net earnings and earnings per share for each of the years ended mentioned above has been minimal. (b) Earnings per share: During the first quarter of 2001, the Company adopted the new accounting standard issued by the CICA on earnings per share. The new section harmonizes Canadian standards with United States standards for the calculation of diluted earnings per share. All earnings per share numbers have been retroactively restated and the changes are not significant. (c) Business combinations and goodwill and other intangibles assets: In August 2001, the CICA issued Section 1581, Business Combinations, and Section 3062, Goodwill and Other Intangible Assets. The Company has adopted the recommendations of these new CICA Handbook sections which apply to business combinations initiated after June 30, 2001 and to business combinations consummated after June 30, 2001 that are accounted for in accordance with the purchase method. In accordance with Section 3062, goodwill and intangible assets with indefinite useful live are not amortized and other identified intangible assets are amortized. 9 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 2. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED): (c) Business combinations and goodwill and other intangibles assets (continued): For purchase business combinations consummated on or before June 30, 2001, the accounting under Section 1580, Business Combinations, and under Section 3060, Capital Assets, has been applied. Under those Sections, goodwill and separately identifiable intangibles with an indefinite useful live are recorded and amortized until the Company adopts Section 3062, which must be applied by the Company for the year beginning on January 1, 2002. 3. BUSINESS ACQUISITIONS: 2000 acquisitions: (a) Les Placages Techno-Spec Inc. (Canada): In January 2000, the Company acquired all assets of Les Placages Techno-Spec Inc. for a total consideration of $24,000,000, including the issuance of 140,848 common shares for $8,000,000. Les Placages Techno-Spec Inc. located in Montreal, Quebec specializes in electro-plating operations and technologies. (b) A-Plus Manufacturing Corp. (USA): In March 2000, the Company acquired 100% of A-Plus Manufacturing Corp. for a cash consideration of $166,015,000. A-Plus Manufacturing Corp., a California-based company, provides the Company with mid-volume printed circuit board assembly ("PCBA") operations and a diversified portfolio of PCBA customers, primarily in the telecommunications and networking industries. (c) G.H.Z. Technologies Inc. and T.Q.F. Technologie Inc. (Canada): In July 2000, the Company acquired 100% of G.H.Z. Technologies Inc., a St-Laurent, Quebec based designer and manufacturer of microwave filters, for an aggregate consideration of $44,566,000, of which $30,566,000 was paid in cash and the balance through the issuance of 165,308 common shares of the Company. In July 2000, the Company also acquired 100% of T.Q.F. Technologie Inc., a St-Laurent, Quebec based plating company, for an aggregate consideration of $5,500,000 paid in cash. 10 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 3. BUSINESS ACQUISITIONS (CONTINUED): 2000 acquisitions (continued): (d) Invotronics Mfg. (Canada): In September 2000, the Company acquired Invotronics Mfg., a unit of Magna International Inc., which designs, engineers and manufactures electronic body controller, electro-mechanical systems and intelligent switches for the automative industry, for an aggregate cash consideration of $93,513,000. (e) DY 4 Systems Inc. (Canada): In November 2000, the Company acquired 100% of DY 4 Systems Inc., an Ottawa-based high technology company, which specializes in the design and manufacture of high-end VME open architecture computer systems, for a total consideration of $228,479,000 paid by the issuance of 3,023,320 common shares. (f) Kavlico Corporation (USA): In November 2000, the Company acquired 100% of Kavlico Corporation for a cash consideration of $535,291,000. Kavlico Corporation, a California-based company, is the world's largest independent supplier of precision sensors. Kavlico Corporation designs, manufactures and markets a comprehensive line of high performance sensors, including pressure, force, position and multifunctional sensors which are integral to the performance of advanced electronics systems in the automative, industrial and aerospace industries. (g) Honeywell Electronics Manufacturing Services, Inc. (USA) and Honeywell EMS de Mexico, SA (Mexico): In December 2000, the Company acquired 100% of Honeywell Electronics Manufacturing Services, Inc., which operates a plan in Melbourne, Florida, and Honeywell EMS de Mexico, SA de C.V., which operates a plant in Juarez, Mexico, for an aggregate cash consideration of $63,008,000. The range of product offered include RF, cellular, wireless and optical products. 1999 acquisitions: (a) R&M Metaltek Inc. (Canada): In January 1999, the Company acquired 100% of R&M Metaltek Inc. for a total consideration of $10,978,000, including the issuance of 160,000 common shares for $2,024,000 and excluding the assumption of debts. R&M Metaltek Inc. is a leading North American manufacturer of metal enclosures. 11 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 3. BUSINESS ACQUISITIONS (CONTINUED): 1999 acquisitions (continued): (b) Scrantom Engineering Inc. (USA): In March 1999, the Company acquired 100% of Scrantom Engineering Inc. for a total consideration of $2,400,000 before a contingent consideration of a maximum of $4,690,000 based on future earnings until 2002. Any additional consideration will be recorded as an increase to goodwill. Scrantom Engineering Inc. is a provider of low temperature co-fired ceramic manufacturing, or LTCC processes. (c) C-MAC GmbH Villingen (Germany): In April 1999, the Company acquired a division of Deutsche Thomson-Brandt located in Villingen Germany for a total consideration of $7,507,000. C-MAC GmbH Villingen is a provider of low temperature co-fired ceramic manufacturing, or LTCC processes. (d) C-MAC Kanata Inc. (Canada): In July 1999, the Company acquired, for a consideration of $11,174,000, a manufacturing facility and related inventory of SR Telecom Inc., located in Kanata, Ontario. Concurrently, the Company entered into a five-year supply agreement under which SR Telecom Inc. subcontracted the manufacture of a number of its products to the Company. (e) LG Technologies Group Inc. (Canada): In September 1999, the Company acquired 100% of LG Technologies Group Inc., a Montreal-based electro-mechanical systems assembly and printed circuit board assembly company, for a total consideration of $43,325,000 paid by the issuance of 2,334,928 common shares. (f) C-MAC Networks (Canada & Ireland): In September 1999, the Company acquired certain assets of a division of Nortel Networks Corporation ("Nortel") in Monkstown associated with the electro-mechanical assembly design and manufacturing operations of Nortel's carrier business for a total consideration of $74,843,000. Concurrently, the Company entered into a three-year outsourcing arrangement with Nortel covering all of its electro-mechanical assembly of its optical network equipment. 12 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 3. BUSINESS ACQUISITIONS (CONTINUED): 1999 acquisitions (continued): (g) Blue Star Engineering Ltd. (United Kingdom): In October 1999, the Company acquired a 100% interest in Blue Star Engineering Ltd. for a total consideration of $36,774,000 including the issuance of 604,440 common shares for $11,590,000. Blue Star Engineering Ltd. is a leading European manufacturer of metal enclosures and accessories. 1998 acquisitions: (a) Compagnie d'Electronique et de Piezo-Electricite (CEPE) and SAS-Argenteuil S.A. (France): In January 1998, the Company acquired a 100% interest in Compagnie d'Electronique et de Piezo-Electricite (CEPE) and in SAS-Argenteuil S.A. for a total consideration of $3,127,000, excluding the assumption of debts. Compagnie d'Electronique et de Piezo-Electricite (CEPE) is a designer and a manufacturer of high technology frequency products. (b) IQD Limited (United Kingdom): In February 1998, the Company acquired a 100% interest in IQD Limited for a total consideration of $9,278,000. IQD Limited is a reseller and a manufacturer of frequency products. (c) C-MAC Networks Systems (USA): In July 1998, the Company acquired the Nortel Creedmoor Facility for a total consideration of $81,759,000. The Creedmoor Facility designs and manufactures various parts in addition to assembling and testing frames and cabinets. (d) Carolina Circuits (USA): In December 1998, the Company completed the acquisition of the facility of Carolina Circuits for a total consideration of $26,595,000. Carolina Circuits designs and manufactures high density, high layer-count circuit boards. 13 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 3. BUSINESS ACQUISITIONS (CONTINUED): These acquisitions were accounted for using the purchase method. Aggregate details of acquisitions are as follows:
======================================================================================= Years ended December 31, ---------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------- Assets acquired: Current assets (i) $ 336,140 $ 96,408 $ 45,215 Capital assets 103,330 42,910 44,181 Goodwill 899,211 174,928 59,101 Other assets 3,089 456 304 Future income taxes 3,135 8,254 9,003 - --------------------------------------------------------------------------------------- 1,344,905 322,956 157,804 Liabilities assumed: Bank indebtedness 16,980 19,473 893 Other current liabilities 132,646 77,942 34,439 Long-term debt 21,426 31,804 629 Other liabilities 10,102 6,736 1,084 Future income taxes 3,379 -- -- - --------------------------------------------------------------------------------------- 184,533 135,955 37,045 - --------------------------------------------------------------------------------------- Net assets acquired at fair value $1,160,372 $ 187,001 $ 120,759 ======================================================================================= Consideration: Cash $ 910,113 $ 130,062 $ 115,595 Common shares 250,259 56,939 -- Notes payable (ii) -- -- 5,164 - --------------------------------------------------------------------------------------- $1,160,372 $ 187,001 $ 120,759 =======================================================================================
(i) Current assets include cash and cash equivalents of $19,376,000 for the year ended December 31, 2000. (ii) Of this amount, $1,360,000 and $1,324,000 has been paid throughout 2000 and 1999, respectively. While the Company has not yet finalized some of the 2000 purchase price allocations, the excess of the cost over the market value of the net assets acquired is estimated to $899 million. 14 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 4. INVENTORIES:
================================================================ December 31, September 30, ------------------------ 2001 2000 1999 - ---------------------------------------------------------------- Raw materials $249,375 $398,003 $117,863 Goods in process 101,611 108,114 52,669 Finished goods 88,964 65,432 20,321 - ---------------------------------------------------------------- $439,950 $571,549 $190,853 ================================================================
5. CAPITAL ASSETS:
======================================================================= September 30, 2001 ---------------------------------------- Accumulated Net book Cost amortization value - ----------------------------------------------------------------------- Land $ 18,917 $ -- $ 18,917 Buildings 83,838 12,295 71,543 Leasehold improvements 22,898 7,576 15,322 Machinery and equipment 344,000 110,696 233,304 Furniture and fixtures 79,896 18,508 61,388 Projects in progress 20,916 -- 20,916 - ----------------------------------------------------------------------- $570,465 $149,075 $421,390 =======================================================================
======================================================================= December 31, 2000 ---------------------------------------- Accumulated Net book Cost amortization value - ----------------------------------------------------------------------- Land $ 17,331 $ -- $ 17,331 Buildings 67,663 10,365 57,298 Leasehold improvements 19,553 2,481 17,072 Machinery and equipment 295,562 76,570 218,992 Furniture and fixtures 53,340 16,771 36,569 Projects in progress 48,215 -- 48,215 - ----------------------------------------------------------------------- $501,664 $106,187 $395,477 =======================================================================
15 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 5. CAPITAL ASSETS (CONTINUED):
======================================================================= December 31, 1999 ---------------------------------------- Accumulated Net book Cost amortization value - ----------------------------------------------------------------------- Land $ 13,472 $ -- $ 13,472 Buildings 48,426 7,164 41,262 Leasehold improvements 10,417 1,708 8,709 Machinery and equipment 146,685 41,280 105,405 Furniture and fixtures 22,028 11,872 10,156 Projects in progress 9,026 -- 9,026 - ----------------------------------------------------------------------- $250,054 $ 62,024 $188,030 =======================================================================
6. LONG-TERM DEBT:
================================================================================================================================= Interest rate Interest rate as at as at December, 31 September 30, December 31, September 30, ---------------------- 2001 2000 Maturity 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Revolving bank credit (a) 4.67% 7.07% 2004 $ 147,941 $ 115,065 $ 45,246 Debentures (b) 6.58% and 7.95% 6.65% and 7.95% 2008 173,635 164,945 158,763 Other debts Various Various Various 13,626 26,004 9,352 - --------------------------------------------------------------------------------------------------------------------------------- 335,202 306,014 213,361 Current portion of long-term debt 4,992 7,347 4,205 - --------------------------------------------------------------------------------------------------------------------------------- $ 330,210 $ 298,667 $ 209,156 =================================================================================================================================
Installments on long-term debt for the next five years are as follows:
==================================================================== September 30, December 31, 2001 2000 - -------------------------------------------------------------------- 2001 $ 4,992 $ 7,347 2002 2,586 4,416 2003 1,929 3,522 2004 706 3,033 2005 423 1,428 2006 222 -- ====================================================================
16 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 6. LONG-TERM DEBT (CONTINUED): (a) The Company has at its disposal revolving bank credit facilities totalling US$355 million. The credit agreements contain restrictions, including the obligation to maintain certain financial ratios. The revolving bank credit facilities bear interest at variable rates based on Libor and/or Bankers Acceptance rates for periods varying generally from one to three months. (b) Debentures of US$110 million, maturing December 31, 2008, redeemable at the option of the issuer on a yearly basis, starting December 31, 2003. 7. SHARE CAPITAL: Authorized: Unlimited number of shares without par value: Common shares, voting and participating Preferred Class "A" shares, non-voting, non-participating, redeemable at the Company's option at paid-up capital amount or at market value of the consideration received at issuance. Preferred Class "B" shares, 12% non-cumulative dividend, non-voting, non-participating, redeemable at the Company's option at paid-up capital amount or at market value of the consideration received at issuance. Preferred Class "C" shares, issuable in series, non-voting, ranking prior to the common shares but subordinated to the preferred Class "B" shares with respect to dividends and to the preferred Class "A" and "B" shares with respect to return of capital on dissolution or liquidation of the Company. The Board of Directors is authorized to establish, before issuance, the designation, rights, privileges, conditions and restrictions of each series of shares.
====================================================================================================== December 31, September 30, ---------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Issued and fully paid: 86,317,676 common shares (2000 - 86,249,229; 1999 - 67,583,930) $1,881,341 $1,880,702 $ 391,696 ======================================================================================================
Some of the Company's loan agreements contain restrictions on the payment of dividends in certain circumstances. 17 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 7. SHARE CAPITAL (CONTINUED): All the common share, earnings per share and option information has been restated to give effect to the two-for-one stock split that occurred January 14, 2000. During the thirty-nine week period ended September 30, 2001, the Company issued 68,447 common shares through the exercise of stock options for proceeds of $693,609. During the year ended December 31, 2000, the Company issued 3,329,476 common shares as consideration for the business acquisition detailed in note 3. In June and August 2000, the Company issued 3,000,000 and 11,500,000 common shares, respectively, through public offerings. Throughout the year, the Company also issued 835,823 common shares through the exercise of stock options. The proceeds amounted to $1,238,747,000, net of share issue costs of $32,187,000 (net of income taxes of $26,615,000). During the year ended December 31, 1999, the Company issued 3,099,368 common shares as consideration for the business acquisitions detailed in note 3. As well, the Company issued 6,000,000 common shares following a public offering and 259,186 common shares through the exercise of stock options, for proceeds of $178,099,000, net of share issue costs of $5,750,000 (net of income taxes of $2,356,000). The Company established a common share option plan for certain employees, officers and directors of the Company and its subsidiaries. Under the plan, options to purchase a maximum of 8,625,000 of the Company's shares (6,780,000 in 2000 and 5,000,000 in 1999) may be granted at the Board of Directors' discretion. These options must be exercised within a maximum period of ten years.
========================================================================================================= Number of options outstanding ------------------------------------------------------ December 31, Subscription price September 30, ------------------------------ Year of grant (in dollars) 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- 1995 $1.750 -- -- 414,620 1996 $2.625 to $3.025 436,886 446,086 683,090 1997 $5.575 323,700 347,200 429,338 1998 $9.000 to $12.500 329,202 376,640 416,468 1999 $12.300 to $29.850 623,873 703,638 792,500 2000 $37.750 to $57.000 337,300 360,100 -- 2000 $70.750 to $109.750 346,650 410,060 -- 2001 $29.950 to $78.100 551,600 -- -- - --------------------------------------------------------------------------------------------------------- 2,949,211 2,643,724 2,736,016 =========================================================================================================
18 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 7. SHARE CAPITAL (CONTINUED): The number of outstanding stock options varied as follows:
============================================================================================= December 31, Thirty-nine week period ---------------------------- ended September 30, 2001 2000 1999 - --------------------------------------------------------------------------------------------- Balance at beginning of year 2,643,724 2,736,016 2,251,708 Granted 575,200 786,960 811,500 Exercised (68,447) (835,823) (259,186) Cancelled (201,266) (43,429) (68,006) - --------------------------------------------------------------------------------------------- Balance at end of year 2,949,211 2,643,724 2,736,016 =============================================================================================
The following table summarizes information about stock options outstanding at September 30, 2001:
============================================================================================================= Options outstanding Options exercisable ------------------------------------------ -------------------------------- Weighted average Weighted Weighted remaining average average Range of Number contractual exercise Number exercise exercise prices outstanding life (in years) price exercisable price - ------------------------------------------------------------------------------------------------------------- $2.625 to $3.025 436,886 4.204 $ 2.755 436,886 $ 2.755 $5.575 323,700 5.300 5.575 323,700 5.575 $9.000 to $12.500 329,202 6.252 11.602 329,202 11.602 $12.300 to $29.850 623,873 7.412 15.337 363,122 14.808 $37.750 to $57.000 337,300 8.297 56.830 67,460 56.820 $70.750 to $109.750 346,650 8.750 83.100 69,330 83.090 $29.950 to $78.100 551,600 9.690 43.020 -- -- - ------------------------------------------------------------------------------------------------------------- 2,949,211 1,452,910 =============================================================================================================
19 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 7. SHARE CAPITAL (CONTINUED): The following table summarizes information about stock options outstanding at December 31, 2000:
=========================================================================================================== Options outstanding Options exercisable --------------------------------------------- -------------------------------- Weighted average Weighted Weighted remaining average average Range of Number contractual exercise Number exercise exercise prices outstanding life (in years) price exercisable price - ----------------------------------------------------------------------------------------------------------- $2.625 to $3.025 446,086 5.206 $ 2.760 446,086 $ 2.760 $5.575 347,200 6.300 5.575 347,200 5.575 $9.000 to $12.500 376,640 7.290 11.477 250,842 11.477 $12.300 to $29.850 703,638 8.405 15.282 204,172 14.733 $37.750 to $57.000 360,100 9.298 56.840 -- -- $70.750 to $109.750 410,060 9.753 83.097 -- -- - ----------------------------------------------------------------------------------------------------------- 2,643,724 1,248,300 ===========================================================================================================
8. COMMITMENTS AND CONTINGENCIES: (a) Leases: As at September 30, 2001 and December 31, 2000, the Company had commitments for a total amount of $99,288,000 and $69,732,000 respectively under operating leases for buildings, machinery and equipment. Minimum lease payments for the next five years and thereafter are as follows:
==================================================================== September 30, December 31, 2001 2000 - -------------------------------------------------------------------- 2001 $ 13,377 $ 12,961 2002 16,319 11,335 2003 17,621 8,849 2004 13,249 7,572 2005 12,976 7,502 Thereafter 28,746 21,153 ====================================================================
20 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 8. COMMITMENTS AND CONTINGENCIES (CONTINUED): (b) Environment: The Company is subject to various laws, regulations and government policies relating to health and safety, to the generation, storage, transportation, disposal and environment emissions of various substances, and to environment protection in general. The Company believes it is in continuing compliance with such laws, regulations and government policies, in all material respects. Furthermore, the Company does not anticipate that the continuing compliance with such environmental statutes will have a material adverse effect upon the Company's competitiveness or consolidated financial position. 9. FINANCIAL INSTRUMENTS: (a) Credit risk: The Company does not have a significant exposure to any individual customer or counterpart, except as mentioned in note 13. The Company, in the normal course of business, reviews each new customer's credit history and financial statements before extending credit and performs regular reviews of its existing credit performance. The Company may require letters of credit or obtain credit insurance coverage. (b) Foreign exchange and interest rate risks: The Company generates significant cash flows in foreign currency and is therefore exposed to risks relating to foreign exchange fluctuations. It is also subject to risks relating to interest rate fluctuations. In order to reduce these risks, the Company may use derivative financial instruments, which are not held or issued for speculative purposes. 21 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 9. FINANCIAL INSTRUMENTS (CONTINUED): (b) Foreign exchange and interest rate risks (continued): Foreign exchange fluctuations: This risk pertaining to excess foreign currency cash flows is partly covered with forward exchange contracts and a currency swap agreement. The amounts of outstanding contracts at September 30, 2001 and December 31, 2000, presented by currency, are the following. These amounts represent the global monetary value on which each contract is based and not the financial risk nor the claim related to certain assets of the Company and, therefore, are not included in the financial statements.
========================================================================================= Currency Notional amount in Average (sold/bought) foreign currency rate Maturity - ----------------------------------------------------------------------------------------- Forward exchange contracts: September 30, 2001 USD/CAD 147.5 million 1.5623 December 20, 2002 GBP/USD 3.1 million 1.3928 December 19, 2001 December 31, 2000 USD/CAD 93.5 million 1.5172 March 28, 2002 GBP/CAD 0.4 million 2.3670 September 28, 2001 =========================================================================================
Currency swap agreement: On December 12, 2000, the Company entered into a currency swap agreement with a financial institution whereby it sold US$ 26,181,437 at a rate of 1.5278 for CA$40,000,000 and agreed to repurchase US$ 26,203,734 at a rate of 1.5265 against CA$40,000,000 on January 16, 2001. 22 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 9. FINANCIAL INSTRUMENTS (CONTINUED): (c) Fair value of financial instruments: The carrying value of cash equivalents, short-term investments, trade receivables, accounts payable, accrued payroll and other accrued liabilities approximates their fair value because of the near maturity of these instruments. The carrying value of long-term debt bearing interest at variable rates approximates its fair value because effective rates represent the rates that should be used to calculate their fair value. Financial instruments having a fair value different from their carrying value are the following:
======================================================================================================================= September 30, December 31, 2001 2000 1999 -------------------------- ------------------------------------------------------------ Carrying Fair Carrying Fair Carrying Fair value value value value value value - ----------------------------------------------------------------------------------------------------------------------- Foreign exchange contracts and currency swap agreement $ -- $ (3,470) $ -- $ 1,186 $ -- $ 929 Debentures 173,635 154,131 164,945 158,819 53,660 45,289 =======================================================================================================================
Fair value is based essentially on discounted cash flows. Market quotes as at period-end of similar instruments having the same maturity were used. 23 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 10. RESTRUCTURING CHARGES: In response to prevailing market conditions, the Company has developed a restructuring plan to adapt its operations to the current business environment, which focuses on workforce reduction and facility consolidations. Consequently, pre-tax restructuring charges of $24,835,000 have been recorded in the third quarter 2001.
============================================================================================ Amounts included in accrued liabilities Restructuring at September 30, charges 2001 - -------------------------------------------------------------------------------------------- Employee termination cost $ 15,582 $ 10,661 Lease and other contractual obligations 2,488 2,488 Asset impairment 5,341 -- Other facility exist costs 1,424 427 - -------------------------------------------------------------------------------------------- Total $ 24,835 $ 13,576 ============================================================================================
11. FINANCIAL EXPENSES, NET:
========================================================================================================= Thirty-nine week periods ended September 30, Years ended December 31, --------------------------- ---------------------------------------------- 2001 2000 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Interest on long-term debt $ 23,335 $ 20,552 $ 25,005 $ 11,242 $ 6,439 Deferred financing costs amortization 943 769 1,089 1,202 248 Interest on bank indebtedness and others (2,921) 13,374 5,762 6,650 1,932 - --------------------------------------------------------------------------------------------------------- 21,357 34,695 31,856 19,094 8,619 Interest income 9,224 23,188 22,669 5,505 2,520 - --------------------------------------------------------------------------------------------------------- $ 12,133 $ 11,507 $ 9,187 $ 13,589 $ 6,099 =========================================================================================================
24 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 12. INCOME TAXES: Income tax expense differs from the amounts computed by applying the combined federal and provincial tax rate of 38 percent to pretax income as a result of the following:
===================================================================================================================== Thirty-nine week periods ended September 30, Years ended December 31, -------------------------- -------------------------------------------- 2001 2000 2000 1999 1998 --------------------------------------------------------------------------------------------------------------------- Basic income tax rate 38.0% 38.0% 38.0% 38.0% 38.0% Increase (decrease) of the income tax rate arising from the following items: Manufacturing and processing profits deduction (2.7) (3.3) (2.9) (2.8) (2.8) Foreign income taxed at different rate 2.7 0.8 1.3 0.5 0.6 Others (3.0) 1.8 (1.5) (0.2) 0.6 --------------------------------------------------------------------------------------------------------------------- Effective income tax rate 34.9% 37.3% 34.9% 35.5% 36.4% =====================================================================================================================
25 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 12. INCOME TAXES (CONTINUED): The tax effects of temporary differences that give rise to significant portions of the future tax assets and future tax liabilities at September 30, 2001, December 31, 2000 and 1999 are presented below:
========================================================================================================= September 30, December 31, ---------------------------------- 2001 2000 1999 --------------------------------------------------------------------------------------------------------- Future tax assets: Trade receivables $ 5,222 $ 4,910 $ 4,312 Inventories 5,674 5,361 4,955 Capital assets 193 502 2,079 Accrued and other liabilities 14,959 25,757 10,888 Share capital 25,310 30,036 3,423 Non-capital losses and other tax deductions carryforwards 39,880 20,844 16,156 ----------------------------------------------------------------------------------------------------- Total gross future tax assets 91,238 87,410 41,813 Less valuation allowance (22,280) (20,555) (19,645) --------------------------------------------------------------------------------------------------------- Future tax assets, including a current portion of $28,289, $33,515 and $14,623, respectively 68,958 66,855 22,168 Future tax liabilities: Capital assets 17,975 17,960 8,628 Other assets 2,647 2,989 945 Other 295 100 79 ----------------------------------------------------------------------------------------------------- Total future tax liabilities 20,917 21,049 9,652 --------------------------------------------------------------------------------------------------------- Net future tax assets $ 48,041 $ 45,806 $ 12,516 =========================================================================================================
During the thirty-nine week period ended September 30, 2001, the valuation allowance was increased by $1,725,000 due to unrecognized tax benefits resulting from operating losses during the period. 26 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 12. INCOME TAXES (CONTINUED): During the year ended December 31, 2000, the valuation allowance was increased by $910,000 due to unrecognized tax benefits of $2,200,000 resulting from operating losses during the year, offset by a reduction of $1,290,000 due to subsequently recognized future tax assets in purchase price allocation of prior year's business acquisitions. During the year ended December 31, 1999, the valuation allowance was increased by $3,676,000 due to unrecognized future tax assets amounting to $2,081,000 in purchase price equations resulting from business acquisitions and to unrecognized tax benefits of $1,595,000 resulting from operating losses during the year. Subsequently recognized tax benefits relating to the valuation allowance for future tax assets as of September 30, 2001, December 31, 2000 and 1999 will be allocated as follows in future years:
========================================================================================================= September 30, December 31, ---------------------------------- 2001 2000 1999 --------------------------------------------------------------------------------------------------------- Income tax benefit that would be reported in the consolidated statement of earnings $ 5,699 $ 3,974 $ 1,774 Goodwill and other non-current intangible assets 16,581 16,581 17,871 --------------------------------------------------------------------------------------------------------- $ 22,280 $ 20,555 $ 19,645 =========================================================================================================
27 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 12. INCOME TAXES (CONTINUED): At December 31, 2000, the Company and its subsidiaries have non-capital losses and other tax deductions carryforwards of $57,187 which are available to offset future taxable income. Losses will expire as follows:
=========================================================================== Canada United States Other countries --------------------------------------------------------------------------- 2003 $ -- $ -- $ 1,354 2004 -- -- 3,734 2005 30 1,616 2,204 2006 369 397 931 2007 4,143 -- -- 2010 -- 471 -- 2018 -- 2,143 -- 2019 -- 892 -- 2020 -- 4,302 -- Without expiration 248 -- 34,353 --------------------------------------------------------------------------- $ 4,790 $ 9,821 $42,576 ===========================================================================
The Company has not recognized a future tax liability for the undistributed earnings of its subsidiaries that arose in 2001, 2000 and prior years because the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A future tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner. In assessing the ability to realize future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management believes that it is more likely than not that the Company will realize its future tax assets. 13. MAJOR CUSTOMER: For the thirteen-nine-week periods ended September 30, 2001 and September 30, 2000, and for the years ended December 31, 2000, 1999 and 1998, approximately 44%, 62%, 60%, 62%, and 55%, respectively, of the Company's sales were derived from Nortel Networks. The Company has concentrations of credit risk due to sales to this customer and to other significant customers in the same industry. 28 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 14. SEGMENTED INFORMATION: The Company's operations fall into one dominant industry segment, the Electronics Manufacturing Services (EMS) Industry, where it serves its major customers on a global basis. Accordingly, the Company is viewed by its management as a global provider of manufacturing services to its customers. Evaluations are not only made of individual plant performances but, most importantly, of worldwide services provided to strategic customers. Accounting policies relating to each geographic operating segment are identical to those used for the purposes of the consolidated financial statements. Intersegment sales are made at values which approximate those prevailing in the markets serviced. The point of origin (the location of the selling organization) of revenues and the location of the assets determine the geographic areas.
========================================================================================================= Thirty-nine week periods ended September 30, Years ended December 31, ---------------------------- ------------------------------------------ 2001 2000 2000 1999 1998 --------------------------------------------------------------------------------------------------------- GEOGRAPHICAL ACTIVITIES Revenue: Canada Domestic $ 325,375 $ 338,116 $ 874,859 $ 207,383 $ 84,464 Export 284,289 317,228 167,842 98,277 41,419 Intersegment transfers 192,508 249,893 350,680 44,995 12,336 ----------------------------------------------------------------------------------------------------- 802,712 905,237 1,393,381 350,655 138,219 United States of America 988,468 723,315 1,050,434 604,423 337,434 Europe 299,601 303,059 443,715 248,159 178,458 Asia 12,401 14,813 15,989 10,855 1,208 Intersegment transfers 165,000 213,203 291,211 142,963 33,493 ----------------------------------------------------------------------------------------------------- 1,465,470 1,254,419 1,801,349 1,006,400 550,593 ----------------------------------------------------------------------------------------------------- 2,268,182 2,159,656 3,194,730 1,357,055 688,812 Elimination of intersegment transfers (357,508) (463,095) (641,891) (187,958) (45,829) --------------------------------------------------------------------------------------------------------- Total revenue $ 1,910,674 $ 1,696,561 $ 2,552,839 $ 1,169,097 $ 642,983 =========================================================================================================
29 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 14. SEGMENTED INFORMATION (CONTINUED):
========================================================================================================= Thirty-nine week periods ended September 30, Years ended December 31, ---------------------------- ---------------------------------------------- 2001 2000 2000 1999 1998 --------------------------------------------------------------------------------------------------------- Earnings (loss) from operations: Canada $ 44,751 $ 87,143 $ 158,203 $ 44,563 $ 14,386 United States of America 7,360 58,885 84,143 42,989 31,514 Europe (8,727) 23,071 36,958 11,276 1,072 Asia 759 701 1,290 1,493 (73) ----------------------------------------------------------------------------------------------------- 44,143 169,800 280,594 100,321 46,899 Elimination of intersegment transfers 23,736 (17,799) (42,762) (9,447) 1,267 --------------------------------------------------------------------------------------------------------- Total earnings from operations $ 67,879 $ 152,001 $ 237,832 $ 90,874 $ 48,166 =========================================================================================================
========================================================================================================= September 30, December 31 ---------------------------------- 2001 2000 1999 --------------------------------------------------------------------------------------------------------- Capital assets: Canada $ 152,406 $ 157,854 $ 52,374 United States of America 189,693 169,300 83,209 Europe 67,846 55,962 45,017 Asia 11,445 12,361 7,430 --------------------------------------------------------------------------------------------------------- Total capital assets $ 421,390 $ 395,477 $ 188,030 ========================================================================================================= Goodwill: Canada $ 372,208 $ 377,900 $ 104,922 United States of America 667,437 648,300 52,331 Europe 66,466 70,336 71,378 Asia 6,137 1,829 1,909 --------------------------------------------------------------------------------------------------------- Total goodwill $ 1,112,248 $ 1,098,365 $ 230,540 =========================================================================================================
30 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 14. SEGMENTED INFORMATION (CONTINUED):
========================================================================================================= Thirty-nine week periods ended September 30, Years ended December 31, ----------------------------- ---------------------------------------------- 2001 2000 2000 1999 1998 --------------------------------------------------------------------------------------------------------- Customer revenues by destination: Canada $ 348,112 $ 610,968 $ 936,886 $ 317,700 $ 103,500 United States 1,205,938 771,262 1,130,144 585,800 354,900 Europe 322,198 273,407 405,533 221,300 151,500 Asia 34,426 40,924 80,276 44,297 33,083 --------------------------------------------------------------------------------------------------------- Total $ 1,910,674 $ 1,696,561 $ 2,552,839 $ 1,169,097 $ 642,983 =========================================================================================================
15. NET CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF ACQUISITIONS:
========================================================================================================= Thirty-nine week periods ended September 30, Years ended December 31, ---------------------------- ---------------------------------------------- 2001 2000 2000 1999 1998 --------------------------------------------------------------------------------------------------------- Short-term investments $ 5,973 $ -- $ 2,971 $ -- $ -- Trade receivables 127,362 (191,453) (248,214) (81,019) (50,725) Income taxes receivable (17,938) (2,767) (7,656) 2,351 (1,344) Inventories 131,599 (226,565) (225,753) (51,533) (9,294) Prepaid expenses (16,663) 765 (5,744) 357 4,765 Accounts payable (71,107) 41,008 (8,078) 43,213 57,938 Accrued payroll and other accrued liabilities (51,033) 63,587 69,871 10,271 (7,571) Income taxes payable (46,019) 20,806 41,606 15,729 (3,773) --------------------------------------------------------------------------------------------------------- $ 62,174 $ (294,619) $ (380,997) $ (60,631) $ (10,004) =========================================================================================================
16. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES: The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles ("GAAP") as applied in Canada. The significant differences between Canadian and United States GAAP and their effect on the consolidated financial statements of the Company are described below. 31 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 16. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES (CONTINUED): Consolidated statements of earnings: The following table reconciles net earnings as reported in the accompanying consolidated statements of earnings to net earnings that would have been reported had the consolidated financial statements been prepared in accordance with United States GAAP.
=================================================================================================================== Thirty-nine week periods ended September 30, Years ended December 31, ----------------------------- ---------------------------------------------- 2001 2000 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------- Net earnings for the period in accordance with Canadian GAAP $ 7,965 $ 78,384 $ 132,758 $ 45,172 $ 25,418 Financial instruments (a) (3,470) (447) 694 3,940 (3,715) Start-up costs capitalized (b) 808 480 913 617 (4,584) Deferred foreign exchange gain (loss) on long-term monetary items (c) 3,054 (2,452) (3,019) 2,457 (972) Future income taxes (d) (137) 902 493 (2,511) 3,375 ------------------------------------------------------------------------------------------------------------------- Net earnings for the period in accordance with United States GAAP 8,220 76,867 131,839 49,675 19,522 Other comprehensive income: Foreign currency cumulative translation adjustment 50,880 6,526 3,463 (14,342) 8,163 ------------------------------------------------------------------------------------------------------------------- Comprehensive income for the period in accordance with United States GAAP $ 59,100 $ 83,393 $ 135,302 $ 35,333 $ 27,685 =================================================================================================================== Earnings per share: Basic $ 0.09 $ 1.08 $ 1.77 $ 0.83 $ 0.37 Diluted 0.09 1.05 1.72 0.81 0.36 ===================================================================================================================
32 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 16. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES (CONTINUED): Consolidated balance sheets: The application of US GAAP would have the following effects on the consolidated balance sheet captions as reported:
================================================================================================================== September 30, December 31, ---------------------------------------------------- 2001 2000 1999 ------------------------ ------------------------ ------------------------ Canada US Canada US Canada US ------------------------------------------------------------------------------------------------------------------ Assets Future income taxes - current (d) $ 28,289 $ 27,885 $ 33,515 $ 33,111 $ 14,623 $ 14,555 Other assets (a) (b) (c) 21,531 18,263 24,100 20,440 10,526 8,010 Future income taxes - long-term (d) 40,669 42,299 33,340 35,107 7,545 8,577 Goodwill (a) 1,112,248 1,112,074 1,098,365 1,098,191 230,540 230,540 Shareholders' Equity Retained earnings 275,602 273,386 267,637 265,166 134,879 133,327 ==================================================================================================================
The areas of material differences between Canadian and United States GAAP and their impact on the consolidated financial statements are described as follows: (a) Under United States GAAP, until December 31, 2000, derivative financial instruments used to hedge the risks associated with future cash flows in foreign currency that were not subject to firm commitments were required to be marked to market and included in the determination of net earnings for the current period. After January 1, 2001, the Company has not designated or documented such derivative financial instruments as hedges and therefore they are required to be recognized at fair value. As a result, under United States GAAP, the Company will record a charge or gain, net of income taxes in earnings to reflect this mark to market. Under Canadian GAAP, these derivative financial instruments are considered as hedges for the future cash flows and are off balance sheet until their maturity. In November 2000, the Company would have recorded an other asset of $268,000 and a corresponding credit to goodwill (net of $94,000 of future income taxes) under United States GAAP to reflect the mark to market of derivatives existing at the acquisition of DY4 Systems Inc. 33 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 16. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES (CONTINUED): (b) Under United States GAAP, start-up costs of entering a new business activity should be charged to earnings as incurred. Under Canadian GAAP, certain costs related to entering a new business activity can be deferred until producing activities of this new business commence. As a result, the costs capitalized in the period under Canadian GAAP less the amortization for that period, net of income taxes, are charged against earnings. (c) Under Canadian GAAP, gains or losses arising from translations of foreign currency denominated long-term monetary items that have a fixed or ascertainable life are deferred and amortized over the remaining life of these monetary items. Under United States GAAP, these gains or losses would be included in the determination of net earnings of the current period. (d) Represents the related future income tax effect of the adjustments mentioned above. 17. NET EARNINGS PER SHARE:
============================================================================================================ Thirty-nine week periods ended --------------------------- September 30, September 30, Years ended December 31, ---------------------------------------------- 2001 2000 2000 1999 1998 ------------------------------------------------------------------------------------------------------------ Net earnings - basic and diluted $ 7,965 $ 78,384 $ 132,758 $ 45,172 $ 25,418 ============================================================================================================ Weighted average number of outstanding common shares (in thousands): Basic 86,292 71,236 74,558 59,830 52,082 Common shares issuable upon exercise of stock options 1,423 2,055 1,966 1,594 1,437 ------------------------------------------------------------------------------------------------------------ Weighted average share - diluted 87,715 73,291 76,524 61,424 53,519 ============================================================================================================ Earnings per share: Basic $ 0.09 $ 1.10 $ 1.78 $ 0.76 $ 0.49 Diluted 0.09 1.07 1.73 0.74 0.47 ============================================================================================================
Stock options with exercise prices greater than the average fair market price for a period are antidilutive and consequently, are not included in the determination of the number of shares to calculate the diluted earnings per share calculations. 34 C-MAC INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (THE INFORMATION AS AT SEPTEMBER 30, 2001 AND FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 IS UNAUDITED) 17. NET EARNINGS PER SHARE (CONTINUED): During the thirty-nine week periods ended September 30, 2001 and September 30, 2000 and the years ended December 31, 2000, 1999 and 1998, the exercise price for 864,350, 259,850, 70,100, 7,000 and 20,000 options, respectively, were greater than the average fair market value of the Company's common stock and, consequently, was excluded from the diluted calculation. 18. SUBSEQUENT EVENTS: On November 2, 2001, the Company announced the closing of a previously announced transaction with Nortel to supply systems integration, configuration and testing of DMS circuit-switching products, as well as related supply chain services. On August 8, 2001, the Company entered into a combination agreement with Solectron Corporation to combine the two companies which was amended on September 7, 2001. Under the plan of arrangement, the holders of Company's common shares will receive as consideration for each of the Company's common share held, subject to certain conditions, 1.755 shares of Solectron Corporation common stock or 1.755 exchangeable shares of a Canadian subsidiary of Solectron Corporation that are exchangeable into shares of Solectron Corporation's common stock. Only Canadian resident shareholders of the Company are entitled to receive exchangeable shares. The transaction was completed on December 3, 2001. 35 -----END PRIVACY-ENHANCED MESSAGE-----